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South Dakota | 2860 | 20-3430241 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
South Dakota | 2860 | 40-0462174 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
Delaware | 2860 | 42-1630527 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
Delaware | 2860 | 20-3735184 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
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Delaware | 2860 | 20-3693800 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
Delaware | 2860 | 20-4115888 | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (I.R.S. Employer Identification No.) |
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
• | The exchange offer is not subject to any conditions other than that the exchange offer does not violate law or any interpretation of the staff of the Securities and Exchange Commission. | |
• | All outstanding notes that are validly tendered and not validly withdrawn will be exchanged. | |
• | Tenders of outstanding notes may be withdrawn any time before the expiration of the exchange offer. | |
• | The exchange of notes will not be a taxable exchange for United States federal income tax purposes. | |
• | The terms of the exchange notes are identical to the outstanding notes, except for certain transfer restrictions and registration rights of the outstanding notes. |
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EXHIBIT 23.2 | ||||||||
EXHIBIT 99.1 |
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Aurora Facility | Fort Dodge Facility | Charles City Facility(1) | ||||
Location | Aurora, South Dakota | Fort Dodge, Iowa | Charles City, Iowa | |||
Year completed or scheduled to be completed | 2003 (expansion 2005)(2) | 2005 | 2007 | |||
Annual ethanol capacity (in millions of gallons) | 120 | 110 | 110(3) | |||
Ownership | 100% | 100% | 100% | |||
Production process | Dry-Milling(4) | Dry-Milling(4) | Dry-Milling(4) | |||
Primary energy source | Natural Gas | Natural Gas | Natural Gas |
(1) | Construction of our Charles City Facility commenced in 2006 and is being funded primarily with $125.0 million of the net proceeds from the sale of the notes. |
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(2) | In June 2005, our Aurora Facility was expanded from a production capacity of 100 MMGY to 120 MMGY. |
(3) | Estimated upon completion of construction of our Charles City Facility. |
(4) | Our facilities utilize dry-milling technology, a production process that results in increased ethanol yield and reduced capital costs compared to wet-milling technology. See “Business—Supply of Ethanol.” |
• | In February 2006, VeraSun and General Motors Corporation, or General Motors, announced a collaborative partnership to promote the awareness and use of E85, a fuel blend composed of up to 85% ethanol, in flexible fuel vehicles, or FFVs, and the installation of fuel pumps for VE85tm, VeraSun’s branded E85, at 20 service stations in the Chicago area. In March 2006, we announced that we are adding VE85tm fuel pumps at 14 service stations in the Minneapolis area. | |
• | In February 2006, Ford Motor Company, or Ford, announced the creation of a Midwest ethanol corridor through the planned conversion of fuel pumps to VE85tm in Illinois and Missouri. This plan is part of the initiative announced in November 2005 by Ford and VeraSun to raise awareness of the benefits of VE85tm and to expand the VE85tm distribution infrastructure. | |
• | In February and April 2006, we acquired options to purchase three separate sites, each consisting of over 300 acres, near Hartley and Everly, Iowa as potential sites for the construction of the Northwestern Iowa Facility. | |
• | In April 2006, we purchased approximately 300 acres of land near Welcome, Minnesota for construction of our Welcome Facility. | |
• | We have an agreement with American Milling, LP, or American Milling, a grain processing and transportation company, for the acquisition from time to time of rights to purchase or lease real property sites suitable for future construction and operation of 110 MMGY nameplate ethanol production facilities. See “Business— Facilities— Potential future facility sites, acquisitions and facility expansions.” |
• | Source of octane to replace MTBE. In recent years, as a result of health and environmental concerns, 25 states have banned or significantly limited the use of methyl tertiary-butyl ether, or |
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MTBE. The need for additional octane and clean blend components has created additional demand for ethanol as refiners use ethanol in place of MTBE. | ||
• | Improved refiner economics. As ethanol demand and capacity expands, refiners are increasing production of suboctane blend stocks. Refiners are typically able to produce suboctane fuel at a lower cost and in greater quantities than finished gasoline. Adding ethanol increases octane and benefits the refiner by expanding the volume of the gasoline it is able to sell. | |
• | Favorable production economics relative to gasoline. We believe that our cost of producing a gallon of ethanol currently is significantly lower than the cost incurred by refiners to produce a gallon of gasoline. We believe this will enable ethanol to grow not only as a strategic blend component, but also as an alternative to gasoline in the form of E85. | |
• | Strong legislative and government policy support. The Energy Policy Act of 2005, or the Energy Policy Act, mandates a baseline use of renewable fuels, such as ethanol, by petroleum producers commencing at 4.0 billion gallons per year, or BGY, in 2006 and increasing to 7.5 BGY by 2012. In addition, in January 2006, President Bush announced, in his State of the Union address, support for the use of ethanol in motor vehicles as a clean, renewable fuel to replace foreign crude oil and diversify the U.S. fuel supply. | |
• | Shortage of domestic petroleum refining capacity. According to the Energy Information Administration, or EIA, while domestic petroleum refining capacity has decreased approximately 5% from 1980 to 2005, domestic demand has increased 21% over the same period. The EIA expects growth in petroleum refining capacity to average 1.3% per year until 2025, with demand for refined petroleum products growing at 1.5% per year over the same period. Because ethanol is blended with gasoline after the refining process, it directly increases domestic fuel supplies. |
• | Industry leadership. We have established a leadership position within the renewable fuels industry by being the first company to: |
— | develop new, large-scale 100 MMGY or greater dry-mill ethanol facilities in an industry primarily composed of smaller-scale, dry-mill facilities with capacities below 50 MMGY; | |
— | design and site ethanol production facilities to strategically utilize trains with a large number of dedicated cars, such as unit trains, carrying our products, as a means of reducing transportation costs and delivery cycle times; and | |
— | create the only branded E85 fuel, VE85tm, and enter into strategic relationships with major automakers to increase awareness and availability of E85. |
• | Low-cost operator. We believe our facilities provide us with an efficient cost structure for ethanol production. Our low-cost operations are the result of our: |
— | Strategic locations. Each of our facilities is located near abundant, low-cost corn supplies with direct or indirect access to multiple rail carriers, enabling us to reduce our delivery costs and access favorably-priced corn from other regions of the country; | |
— | Modern technology. We use the latest production technology, resulting in lower operating costs and more efficient conversion of corn to ethanol than older plants that use older technology. We believe our efficient energy systems and heat recovery technology require relatively less energy than older dry-mill ethanol plants. | |
— | Scale of facilities. Our large facilities allow us to use unit trains to ship our finished ethanol product more efficiently and to store up to 30 days of corn in order to take advantage of attractive corn purchasing opportunities. Moreover, we have sufficient available land at our existing facilities to provide for possible future expansion; |
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— | Substantial production capacity. Our current production capacity is 230 MMGY, which we intend to increase to 340 MMGY by the end of August 2007 and to 560 MMGY by the end of the first quarter of 2008. We believe our scale allows us to market and distribute our ethanol more efficiently and to manage our business more effectively than many other producers; and | |
— | Construction and development experience. Our expertise and involvement in constructing and developing low cost, large facilities allow us to complete new construction and expansion projects more efficiently than many of our smaller competitors, whom we believe are not as involved in the design and construction process and typically contract for more costly “turn-key” facilities. |
• | VE85tmbranded ethanol fuel. We believe VeraSun’s branded VE85tm fuel gives us a significant advantage over our competitors in the market for E85. E85, a fuel blend composed of up to 85% ethanol, is used in FFVs. According to the NEVC, as of the end of the 2005 model year, 6.0 million FFVs capable of accepting VE85tm were in use in the U.S. We believe the number of FFVs will increase over the next several years. | |
• | Experienced and proven management team. Our management team, led by our chief executive officer and majority shareholder, Donald L. Endres, has extensive experience in the ethanol industry, and its core members have worked together successfully for over ten years. Our senior project management and operations executives, together with our two facility managers, have an average of over 20 years of experience in process operations in the ethanol, energy and chemical industries. |
• | Add low-cost production capacity. We intend to capitalize on the growing U.S. demand for ethanol by expanding our production capacity rapidly over the next several years. In pursuing our expansion strategy, we seek to build on the success of our operating facilities, continue to build large-scale facilities, leverage proven facility design, incorporate technology improvements and continue to locate facilities with direct or indirect access to multiple rail carriers. We intend to consider additional opportunities for growing our production capacity, including the development of other sites and the expansion of one or more of our existing facilities. | |
• | Continue to focus on cost efficiency. We plan to continue to take advantage of our large production capacity and greater economies of scale to become more energy efficient and increase yield. We will also continue to use ouron-site corn storage facilities to purchase corn during peak supply periods to reduce our corn costs. We intend to reduce our per-unit transportation costs by making greater use of unit trains to ship our finished ethanol and distillers grains products. | |
• | Explore alternative technologies. We are studying the costs and feasibility of implementing biomass combustion systems at our facilities. These systems should allow us to reduce our energy costs by using biomass, such as switchgrass, straw, corn stover and other fibrous materials, as a substitute energy source in place of natural gas. | |
• | Expand market demand for ethanol. We plan to create additional demand for ethanol by continuing to work with refiners and blenders to introduce ethanol into new markets. We will also continue to pursue the development of partnerships to market VE85tm and expand the availability of VE85tm fuel with a variety of industry participants, including Ford and General Motors. | |
• | Continue to use risk mitigation strategies. We seek to mitigate our exposure to commodity price fluctuations by purchasing forward a portion of our corn requirements on a fixed price basis and by purchasing corn and natural gas futures contracts. To mitigate ethanol price risk, we sell a portion |
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of our production forward under fixed price and indexed contracts. The indexed contracts are typically referenced to a futures contract, such as unleaded gasoline on the New York Mercantile Exchange, or NYMEX, and we may hedge a portion of the price risk associated with index contracts by selling exchange- traded unleaded gasoline contracts. | ||
• | Pursue potential acquisition opportunities. We believe that opportunities for expansion of our business through industry acquisitions will arise as the ethanol industry matures. We evaluate opportunities to acquire additional ethanol production, storage or distribution facilities and related infrastructure. In addition to operational production facilities, we may also seek to acquire potential facility sites under development. |
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• | are guaranteed on a senior secured basis by certain of our existing and future domestic subsidiaries, | |
• | and the note guarantees are secured on a first priority basis by liens on the escrow account into which $125.0 million was deposited pending application to the construction and start up costs of the Charles City Facility and on substantially all of our and our restricted subsidiaries’ assets other than our and our restricted subsidiaries’ accounts receivable, inventory, commodities accounts and the cash proceeds therefrom (including amounts received from insurance policies in respect thereof and deposit and securities accounts into which the proceeds are deposited), subject to various other exceptions set forth under “Description of Notes,” and which escrow account has a current balance of $115.7 million as of March 31, 2006, | |
• | rank equally in right of payment with all of our existing and future senior debt, and | |
• | rank senior in right of payment to all our existing and future subordinated debt. |
Registration Rights Agreement | You are entitled to exchange your notes for exchange notes with substantially identical terms. The exchange offer is intended to satisfy these rights. After the exchange offer is complete, you will no longer be entitled to any exchange or registration rights for your notes. | |
The Exchange Offer | We are offering to exchange $2,000 principal amount, or integral multiples of $1,000 in excess thereof, of 97/8% Senior Secured Notes due 2012 of VeraSun Energy Corporation that have been registered under the Securities Act for each $2,000 principal amount, or integral multiples of $1,000 in excess thereof, of its outstanding 97/8% Senior Secured Notes due 2012 that were issued in December 2005 in an offering exempt from registration under the Securities Act. To be exchanged, an outstanding note must be properly tendered and accepted. All outstanding notes that are validly tendered and not validly withdrawn will be exchanged for exchange notes. | |
$210.0 million principal amount of notes is outstanding. | ||
We will issue exchange notes promptly after the expiration of the exchange offer. | ||
Resales | We believe the exchange notes may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act provided that: | |
• you are not our affiliate within the meaning of Rule 405 under the Securities Act, |
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• the exchange notes are acquired in the ordinary course of your business, and | ||
• you are not participating and do not intend to participate in a distribution of the exchange notes. | ||
Each broker-dealer issued notes in the exchange offer for its own account in exchange for notes acquired by the broker-dealer as a result of market-making or other trading activities must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the exchange notes. A broker-dealer may use this prospectus for an offer to resell, resale or other retransfer of the exchange notes. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. | ||
Expiration Date | The exchange offer will expire at midnight, New York City time, , 2006, unless we decide to extend the expiration date. If we extend the exchange offer, the longest we could keep the offer open without incurring penalties under the registration rights agreement in the form of increased interest payable on the old notes would be until December 21, 2006, which is 365 days after the outstanding notes were issued. | |
Conditions to the Exchange Offer | The exchange offer is not subject to any condition other than that the exchange offer does not violate law or any interpretation of the staff of the Securities and Exchange Commission, or the SEC. | |
Procedures for Tendering Outstanding Notes Held in the Form of Book-Entry Interests | If you are a holder of a note held in the form of a book-entry interest through the Depository Trust Company, or DTC, and you wish to tender your book-entry interest for exchange in the exchange offer, you must transmit to Wells Fargo Bank, N.A., as exchange agent, before the expiration date of the exchange offer: |
either |
• a properly completed and executed letter of transmittal, which accompanies this prospectus, or a facsimile of the letter of transmittal, including all other documents required by the letter of transmittal, to the exchange agent at the address on the cover page of the letter of transmittal; |
or |
• a computer-generated message transmitted by means of DTC’s Automated Tender Offer Program system and received by the exchange agent and forming a part of a confirmation of book-entry transfer in which you acknowledge and agree to be bound by the terms of the letter of transmittal; |
and, either |
• a timely confirmation of book-entry transfer of your outstanding notes into the exchange agent’s account at DTC, according |
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to the procedure for book-entry transfers described in this prospectus under the heading “The Exchange Offer — Book-Entry Transfer,” which must be received by the exchange agent on or prior to the expiration date; |
or |
• the documents necessary for compliance with the guaranteed delivery procedures described below. | ||
Procedures for Tendering Certificated Notes | If you are a holder of a beneficial interest in the outstanding notes, you are entitled to receive, in exchange for your beneficial interest, certificated notes which are in equal principal amounts to your beneficial interest. As of this date, however, no certificated notes were issued and outstanding. If you acquire certificated notes before the expiration date of the exchange offer, you must tender your notes under the procedures described in this prospectus under the heading “The Exchange Offer — Procedure for Tendering Outstanding Notes.” | |
Special Procedures for Beneficial Owners | If you are the owner of a beneficial interest and your name does not appear on a security position listing of DTC as the holder of that interest or if you are a beneficial owner of certificated notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender that interest or certificated notes in the exchange offer, you should contact the person in whose name your interest or certificated notes are registered promptly and instruct such person to tender on your behalf. | |
Guaranteed Delivery Procedures | If you wish to tender your notes and time will not permit your required documents to reach the exchange agent by the expiration date of the exchange offer, or the procedure for book-entry transfer cannot be completed on time or certificates for your notes cannot be delivered on time, you may tender your notes according to the procedures described in this prospectus under the heading “The Exchange Offer — Guaranteed Delivery Procedures.” | |
Withdrawal Rights | You may withdraw the tender of your notes at any time prior to the time of expiration. We will return to you any outstanding notes not accepted for exchange for any reason without expense to you promptly after withdrawal, rejection of tender or termination of the exchange offer. | |
Regulatory Approvals | Other than pursuant to the federal securities laws, there are no federal or state regulatory requirements that we must comply with, or approvals that we must obtain, in connection with the exchange offer. | |
Appraisal Rights | You will not have dissenters’ rights or appraisal rights in connection with the exchange offer. See “The Exchange Offer — Appraisal Rights.” |
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Accounting Treatment | The exchange notes will be recorded at the same carrying value as the outstanding notes on the date of the exchange. Accordingly, no gain or loss will be recognized for accounting purposes. The expenses related to the exchange offer and the unamortized expense related to the issuance of the outstanding notes will be amortized over the term of the exchange notes. | |
U.S. Federal Income Tax Consequences | The exchange of notes will not be a taxable exchange for U.S. federal income tax purposes. You will not recognize any taxable gain or loss or any interest income as a result of the exchange. | |
Exchange Agent | Wells Fargo Bank, N.A. is serving as exchange agent for the exchange offer. |
Issuer | VeraSun Energy Corporation. | |
Notes Offered | $210.0 million aggregate principal amount of 97/8% Senior Secured Notes due 2012. | |
Maturity Date | December 15, 2012. | |
Interest | The notes will bear interest at 97/8% per year. Interest on the notes will be payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2006. | |
Optional Redemption | Prior to December 15, 2009, we may redeem the notes, in whole or in part, by paying a make-whole premium. At any time on or after December 15, 2009, we may redeem the notes, in whole or in part, at the redemption prices specified in “Description of Notes — Optional Redemption.” | |
Before December 15, 2008, we may redeem up to 35% of the aggregate principal amount of the notes at 109.875% of the principal amount, plus accrued and unpaid interest to, but not including, the redemption date, with the net proceeds of one or more equity offerings; provided that at least 65% of the aggregate principal amount of the notes issued under the indenture remain outstanding after the redemption. See “Description of Notes — Optional Redemption.” | ||
Change of Control | If we experience a change of control, each holder of notes will have the right to require us to purchase all or a portion of the notes at 101% of the principal amount of the notes on the date of purchase, plus any accrued and unpaid interest to, but not including, the date of repurchase. See “Description of Notes — Repurchase of Notes upon a Change of Control.” |
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Guarantees | Our obligations under the notes will be fully, unconditionally and irrevocably guaranteed, jointly and severally, on a senior secured basis by certain of our existing and future domestic subsidiaries. If we cannot make any payment on the notes when due, the subsidiary guarantors must make the payment instead. See “Description of Notes — Note Guarantees.” | |
Ranking | The notes and note guarantees will rank: | |
• equal in right of payment with all of our and our subsidiary guarantors’ existing and future senior indebtedness; | ||
• senior in right of payment to all of our and the subsidiary guarantors’ future subordinated indebtedness; | ||
• effectively senior, as to collateral, to all of our and our subsidiary guarantors’ existing and future unsecured indebtedness, to the extent of the value of the assets constituting the collateral; | ||
• effectively junior to (i) our and our subsidiary guarantors’ obligations under the credit agreement we entered into in December 2005 with First National Bank of Omaha, which provides for a $30.0 million borrowing base operating line of credit, with a $10.0 million sublimit for letters of credit, and which we refer to in this prospectus as the Credit Agreement, to the extent of the value of the accounts receivable, inventory and the cash proceeds therefrom (including amounts received from insurance policies in respect thereof and deposit and securities accounts into which such proceeds are deposited) that secure those obligations and (ii) our and our subsidiary guarantors’ obligations under any existing and future obligations that are secured by liens on other assets that are not part of the collateral securing the notes, to the extent of the value of those assets; and | ||
• effectively subordinated to all liabilities, including trade payables, of any subsidiaries that are not subsidiary guarantors, except to the extent of the value of any subsidiary’s assets that are part of the collateral securing the notes. | ||
As of March 31, 2006, we and our subsidiary guarantors had no debt outstanding other than the notes. In addition, we had total borrowing capacity of approximately $22.1 million under the Credit Agreement, based on accounts receivable and inventory. | ||
Collateral | Our obligations under the notes and the subsidiary guarantors’ obligations under the note guarantees will be secured by a first priority lien on the escrow account into which $125.0 million was deposited pending application to the construction and start up costs of the Charles City Facility, as well as substantially all of our and our restricted subsidiaries’ assets, subject to certain exceptions (including, among other things, our and certain of our restricted subsidiaries’ accounts receivable, inventory and the cash proceeds therefrom (including amounts received from insurance policies in respect thereof and deposit and securities accounts into which such proceeds are deposited) that secure the |
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Credit Agreement and other assets subject to permitted liens) and all of the capital stock or other securities of any existing or future domestic subsidiaries (and 65% of the capital stock of foreign subsidiaries) owned, directly or indirectly, by us, if the par value, book value as carried by us, or the market value (whichever is greatest) of any capital stock or other securities of any subsidiary is not equal to or greater than 20% of the aggregate principal amount of the notes outstanding. As of March 31, 2006, the escrow account had a balance of $115.7 million. We refer to the foregoing as the “collateral.” As a result, since the market value of the capital stock of VeraSun Aurora Corporation, or VAC, and VeraSun Fort Dodge, LLC, or VFD, each significantly exceeded $42 million as of March 31, 2006 and therefore the market value of the capital stock of each of VAC and VFD is equal to or greater than 20% of the aggregate principal amount of the notes outstanding, the capital stock of each such entity will not constitute collateral, although the assets of VAC and VFD do constitute collateral as described above. See “Description of Notes — Collateral” for a list of the property excluded from the collateral securing our and the subsidiary guarantors’ obligations under the notes. | ||
Our obligations under the Credit Agreement are secured by a first priority lien on all of our and certain of our subsidiaries’ accounts receivable, inventory and the cash proceeds therefrom (including amounts received from insurance policies in respect thereof and deposit and securities accounts into which such proceeds are deposited). As a result, the notes will be effectively subordinate to the Credit Agreement to the extent of the value of those assets securing the Credit Agreement. | ||
The holders of any indebtedness that we incur in the future and designate as first priority lien indebtedness will benefit from first priority liens on the collateral securing our and the subsidiary guarantors’ obligations under the notes. The indenture governing the notes permits up to $500.0 million aggregate principal amount of debt to be secured by the collateral on a first priority lien basis, subject to certain conditions. See “Description of Notes — Collateral Sharing With Parity Liens.” | ||
No appraisals of any collateral have been prepared in connection with this offer. The value of the collateral at any time will depend on market and other economic conditions, including availability of suitable buyers for the collateral. The book value of the assets that secure the notes was $320.6 million as of March 31, 2006. | ||
Escrow Account | We deposited $125.0 million into an escrow account for the benefit of the holders of the notes pending application of those funds to the construction and start up costs of the Charles City Facility. As of March 31, 2006, the escrow account had a balance of $115.7 million. If we decide not to proceed with or complete the construction of the Charles City Facility, we will be required to redeem $125.0 million (or a lesser amount that is equal to the amount held in the escrow account at the time of |
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redemption) in the aggregate principal amount of the notes outstanding, at a redemption price equal to 100% of the price of the notes plus accrued interest to, but not including, the redemption date. The funds held in the escrow account are subject to a security interest granted to the trustee for the benefit of the holders of the notes. The funds held in the escrow account will be disbursed by the trustee, acting as an agent and securities intermediary, in accordance with a separate escrow agreement. See “Description of Notes — Escrow; Special Offer to Purchase.” | ||
Certain Covenants | The terms of the notes limit our ability and the ability of our restricted subsidiaries to: | |
• incur additional debt; | ||
• pay dividends or make other distributions; | ||
• make investments or other specified restricted payments; | ||
• repurchase or redeem capital stock or prepay subordinated indebtedness; | ||
• enter into transactions with shareholders or affiliates; | ||
• guarantee debts; | ||
• create liens; | ||
• restrict dividends or other payments to us from our subsidiaries; and | ||
• consolidate, merge or sell assets. | ||
These covenants are subject to important qualifications and exceptions, which are described under “Description of Notes — Covenants.” | ||
Use of Proceeds | For a description of how the proceeds from the offering of the outstanding notes were used, see “Use of Proceeds.” |
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Three Months Ended | ||||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||||
(unaudited) | ||||||||||||||||||||||
(dollars in thousands, except per share data) | ||||||||||||||||||||||
Income statement data:(1) | ||||||||||||||||||||||
Net sales | $ | 10,884 | $ | 186,029 | $ | 235,440 | $ | 44,685 | $ | 109,881 | ||||||||||||
Other revenues, incentive income | 1,776 | 7,723 | 919 | 167 | 823 | |||||||||||||||||
Total revenues | 12,660 | 193,752 | 236,359 | 44,852 | 110,704 | |||||||||||||||||
Cost of goods sold | 8,450 | 154,022 | 200,823 | 38,681 | 81,358 | |||||||||||||||||
Gross profit | 4,210 | 39,730 | 35,536 | 6,171 | 29,346 | |||||||||||||||||
Selling, general and administrative expenses | 2,233 | 6,140 | 11,874 | 2,058 | 3,770 | |||||||||||||||||
Operating income | 1,977 | 33,590 | 23,662 | 4,113 | 25,576 | |||||||||||||||||
Other income (expense): | ||||||||||||||||||||||
Interest expense(2) | (839 | ) | (8,892 | ) | (7,609 | ) | (1,514 | ) | (16,296 | ) | ||||||||||||
Other interest expense, loss on extinguishment of debt | — | — | (15,744 | ) | — | — | ||||||||||||||||
Interest income | 11 | 182 | 448 | 44 | 1,668 | |||||||||||||||||
Other income | 14 | 33 | 17 | — | 2 | |||||||||||||||||
(814 | ) | (8,677 | ) | (22,888 | ) | (1,470 | ) | (14,626 | ) | |||||||||||||
Income before income taxes and minority interest | 1,163 | 24,913 | 774 | 2,643 | 10,950 | |||||||||||||||||
Income taxes(3) | 571 | 10,242 | 582 | 1,010 | 8,215 | |||||||||||||||||
Income before minority interest | 592 | 14,671 | 192 | 1,633 | 2,735 | |||||||||||||||||
Minority interest in net loss of subsidiary | — | 100 | 61 | 53 | — | |||||||||||||||||
Net income(3) | $ | 592 | $ | 14,771 | $ | 253 | $ | 1,686 | $ | 2,735 | ||||||||||||
Earnings per common share(3) | ||||||||||||||||||||||
Basic | $ | 0.02 | $ | 0.40 | $ | 0.01 | $ | 0.04 | $ | 0.04 | ||||||||||||
Diluted | 0.02 | 0.39 | 0.01 | 0.04 | 0.04 | |||||||||||||||||
Shares used in per common share calculations | ||||||||||||||||||||||
Basic | 30,380,082 | 36,738,191 | 44,810,490 | 43,110,203 | 62,413,302 | |||||||||||||||||
Diluted | 30,577,961 | 37,908,751 | 47,578,869 | 45,771,045 | 65,200,083 | |||||||||||||||||
Other financial data: | ||||||||||||||||||||||
EBITDA(4) | $ | 2,350 | $ | 37,831 | $ | 29,880 | $ | 5,375 | $ | 29,610 | ||||||||||||
Certain items included in EBITDA(5) | 1 | 951 | 7,416 | 328 | 185 | |||||||||||||||||
Working capital (deficit) | (35,182 | ) | 9,779 | 61,551 | 9,423 | 79,235 | ||||||||||||||||
Capital expenditures | 63,974 | 25,215 | 87,095 | 22,171 | 2,383 | |||||||||||||||||
Net cash provided by (used in) operating activities | (10,641 | ) | 20,858 | (2,515 | ) | 6,144 | 17,401 | |||||||||||||||
Net cash used in investing activities | (63,974 | ) | (25,214 | ) | (212,049 | ) | (22,163 | ) | (2,383 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 70,381 | 14,621 | 233,982 | 13,919 | (1,426 | ) |
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Three Months Ended | ||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(dollars in thousands, except per share data) | ||||||||||||||||||||
Operating data: | ||||||||||||||||||||
Ethanol sold (gallons) | 6,459,804 | 101,370,470 | 126,346,295 | 24,696,523 | 54,506,270 | |||||||||||||||
Average gross price of ethanol sold (dollars per gallon)(6) | $ | 1.39 | $ | 1.50 | $ | 1.59 | $ | 1.51 | $ | 1.77 | ||||||||||
Average corn cost per bushel | 2.17 | 2.50 | 2.12 | 2.35 | 1.87 | |||||||||||||||
Average natural gas cost per MMBTU | — | 6.16 | 9.12 | 6.89 | 9.69 | |||||||||||||||
Average dry distillers grains price per ton (net) | — | 111 | 87 | 98 | 87 |
As of December 31, | As of | |||||||||||||||
March 31, | ||||||||||||||||
2003 | 2004 | 2005 | 2006 | |||||||||||||
(unaudited) | ||||||||||||||||
(in thousands) | ||||||||||||||||
Balance Sheet Data: | ||||||||||||||||
Cash and cash equivalents | $ | 31 | $ | 10,296 | $ | 29,714 | $ | 43,306 | ||||||||
Restricted cash | — | — | 124,750 | 115,709 | ||||||||||||
Property and equipment, net | 76,882 | 106,753 | 179,683 | 187,126 | ||||||||||||
Total assets | 96,479 | 150,328 | 405,129 | 413,461 | ||||||||||||
Total debt(7) | 58,503 | 58,381 | 210,000 | 210,000 | ||||||||||||
Total equity | 17,594 | 44,476 | 144,918 | 147,665 |
(1) | Income statement data reflects the financial impact of operations of our Aurora Facility, which commenced operations in December 2003, and our Fort Dodge Facility, which commenced operations in October 2005. |
(2) | Interest expense includes changes in the fair value of a put warrant of $566 for the year ended December 31, 2003, $3,481 for the year ended December 31, 2004, $2,809 for the year ended December 31, 2005, $313 for the three months ended March 31, 2005 and $10,938 for the three months ended March 31, 2006. Under the terms of the amended warrant agreement with Teachers Insurance and Annuity Association of America, or TIAA, the put feature terminated upon the exercise of the warrant and sale of the shares underlying the warrant in connection with our initial public offering. The put warrant is described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Policies and Estimates — Put warrant.” |
(3) | For pro forma information presenting our income tax expense, net income and earnings per share as if all subsidiaries were taxable for the entire periods presented, see footnote 3 on page 97, our consolidated statements of income on page F-4 and our condensed consolidated statements of income on page F-35. |
(4) | EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization. Amortization of debt issuance costs and debt discount are included in interest expense. EBITDA is not a measure of financial performance under accounting principles generally accepted in the U.S., or GAAP, and should not be considered an alternative to net income, or any other measure of performance under GAAP, or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations of EBITDA are: |
• | EBITDA does not reflect our cash used for capital expenditures; | |
• | Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDA does not reflect the cash requirements for replacements; | |
• | EBITDA does not reflect changes in, or cash requirements for, our working capital requirements; | |
• | EBITDA does not reflect the cash necessary to make payments of interest or principal on our indebtedness; and | |
• | EBITDA includes non-recurring payments to us which are reflected in other income. |
Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to service our debt or to invest in the growth of our business. We compensate for these limitations by relying on our GAAP results as well as on our EBITDA. Our management believes that EBITDA is useful in evaluating our operating performance in relation to other companies in our industry because the calculation of EBITDA generally eliminates the effects of financings and income taxes which items may vary for different companies for reasons unrelated to overall operating performance. |
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The following table reconciles our EBITDA to net income for each period presented: |
Three Months | ||||||||||||||||||||
Year Ended December 31, | Ended March 31, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Net income | $ | 592 | $ | 14,771 | $ | 253 | $ | 1,686 | $ | 2,735 | ||||||||||
Depreciation | 348 | 3,926 | 5,692 | 1,165 | 2,364 | |||||||||||||||
Interest expense | 839 | 8,892 | 23,353 | 1,514 | 16,296 | |||||||||||||||
Income taxes | 571 | 10,242 | 582 | 1,010 | 8,215 | |||||||||||||||
EBITDA | $ | 2,350 | $ | 37,831 | $ | 29,880 | $ | 5,375 | $ | 29,610 | ||||||||||
(5) | The following table shows certain items that are included in EBITDA associated with our earnings. We believe that the table, when reviewed in connection with our presentation of EBITDA, provides another useful tool to our management and investors for measuring comparative operating performance between time periods and among companies. In addition to EBITDA, our management assesses the adjustments presented in this table when preparing our annual operating budget and financial projections. EBITDA, as defined above, was reduced by the following items: |
Three Months | |||||||||||||||||||||
Ended | |||||||||||||||||||||
Year Ended December 31, | March 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | |||||||||||||||||
(in thousands) | |||||||||||||||||||||
Loss attributable to VeraSun Fort Dodge, LLC, or VFD, excluding interest and depreciation* | $ | 1 | $ | 951 | $ | 4,776 | $ | 328 | $ | — | |||||||||||
Loss attributable to VeraSun Charles City, LLC, or VCC, excluding tax benefit | — | — | — | — | 185 | ||||||||||||||||
Loss on disposal of a thermal oxidizer system | — | — | 2,640 | — | — | ||||||||||||||||
Total | $ | 1 | $ | 951 | $ | 7,416 | $ | 328 | $ | 185 | |||||||||||
* | Net loss incurred prior to commencement of operations of VFD in October 2005. |
(6) | Average gross price of ethanol sold (dollars per gallon) does not include freight, commissions or other related costs, but does include related hedging gains or losses. |
(7) | Total debt at December 31, 2005 and March 31, 2006 is shown before unaccreted discount of $1.3 million and $1.2 million, respectively. |
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Years Ended December 31, | Three Months Ended | |||||||||||||||||||||
March 31, | ||||||||||||||||||||||
2001 | 2002 | 2003(1) | 2004 | 2005 | 2006 | |||||||||||||||||
* | ** | 0.78x | 3.81x | 0.90x | 1.37x |
* | There were no fixed charges incurred during 2001. |
** | Our earnings were inadequate to cover fixed charges for the year ended December 31, 2002. Earnings were $1.3 million less than fixed charges. |
(1) | The additional earnings needed to cover fixed charges in 2003 and 2005 were $558,000 and $2.6 million, respectively. |
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Our level of indebtedness could adversely affect our ability to react to changes in our business, and we may be limited in our ability to use debt to fund future capital needs. |
• | require us to dedicate a substantial portion of our cash flow from operations to payments with respect to our indebtedness, thereby reducing the availability of our cash flow for working capital, capital expenditures and other general corporate expenditures; | |
• | increase our vulnerability to adverse general economic or industry conditions; | |
• | limit our flexibility in planning for, or reacting to, competition or changes in our business or industry; | |
• | limit our ability to borrow additional funds; | |
• | restrict us from building new facilities, making strategic acquisitions, introducing new products or services or exploiting business opportunities; | |
• | make it more difficult for us to satisfy our obligations with respect to the notes; and | |
• | place us at a competitive disadvantage relative to competitors that have less debt or greater financial resources. |
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We are a holding company and there may be limitations on our ability to receive distributions from our subsidiaries. |
If there is a default, there may not be sufficient collateral to pay all or any of the notes. |
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The collateral is subject to casualty risks. |
The security documents allow us to remain in possession of the collateral. |
Some collateral is subject to automatic release. |
In the event of our bankruptcy or the bankruptcy of any subsidiary guarantor, the ability of the noteholders to realize upon the collateral will be subject to bankruptcy law limitations. |
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Rights of noteholders in the collateral may be adversely affected by the failure to perfect security interests in certain collateral existing or acquired in the future. |
The notes are structurally subordinated to liabilities of our subsidiaries that do not guarantee the notes. |
The note guarantees and the liens securing the notes and the note guarantees may not be enforceable. |
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• | was or was rendered insolvent, | |
• | was left with inadequate capital to conduct its business, or | |
• | believed or reasonably should have believed that it would incur debts beyond its ability to pay. |
• | was not insolvent nor rendered insolvent as a result of the issuance thereof, | |
• | was in possession of sufficient capital to run its business effectively, and | |
• | was incurring debts within its ability to pay as they matured or became due. |
We may incur additional indebtedness ranking equal to the notes or the note guarantees. |
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There is no public market for the notes. |
• | the number of noteholders, | |
• | our operating performance and financial condition, | |
• | our ability to complete the offer to exchange the notes, | |
• | the market for similar securities, | |
• | the interest of securities dealers in making a market in the notes, and | |
• | prevailing interest rates. |
Our results of operations, financial position and business outlook are highly dependent on commodity prices, which are subject to significant volatility and uncertainty, and the availability of supplies, so our results could fluctuate substantially. |
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We engage in hedging transactions and other risk mitigation strategies that could harm our results. |
We are substantially dependent on two facilities, and any operational disruption could result in a reduction of our sales volumes and could cause us to incur substantial losses. |
We may not be able to implement our expansion strategy as planned or at all. |
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Potential future acquisitions could be difficult to find and integrate, divert the attention of key personnel, disrupt our business, dilute shareholder value and adversely affect our financial results. |
• | difficulties in integrating the operations, technologies, products, existing contracts, accounting processes and personnel of the target and realizing the anticipated synergies of the combined businesses; | |
• | difficulties in supporting and transitioning customers, if any, of the target company or assets; | |
• | diversion of financial and management resources from existing operations; | |
• | the price we pay or other resources that we devote may exceed the value we realize, or the value we could have realized if we had allocated the purchase price or other resources to another opportunity; | |
• | risks of entering new markets or areas in which we have limited or no experience or are outside our core competencies; | |
• | potential loss of key employees, customers and strategic alliances from either our current business or the business of the target; |
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• | assumption of unanticipated problems or latent liabilities, such as problems with the quality of the products of the target; and | |
• | inability to generate sufficient revenue to offset acquisition costs. |
Growth in the sale and distribution of ethanol is dependent on the changes to and expansion of related infrastructure which may not occur on a timely basis, if at all, and our operations could be adversely affected by infrastructure disruptions. |
• | additional rail capacity; | |
• | additional storage facilities for ethanol; | |
• | increases in truck fleets capable of transporting ethanol within localized markets; | |
• | expansion of refining and blending facilities to handle ethanol; | |
• | growth in service stations equipped to handle ethanol fuels; and | |
• | growth in the fleet of FFVs capable of using E85 fuel. |
We have a limited operating history and our business may not be as successful as we envision. |
• | effectively manage our business and operations; | |
• | recruit and retain key personnel; | |
• | successfully maintain our low-cost structure as we expand the scale of our business; | |
• | manage rapid growth in personnel and operations; |
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• | develop new products that complement our existing business; and | |
• | successfully address the other risks described throughout this prospectus. |
New plants under construction or decreases in the demand for ethanol may result in excess production capacity in our industry. |
We may not be able to compete effectively in our industry. |
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Our operating results may suffer if Aventine does not perform its obligations under existing arrangements or if we cannot achieve results comparable to those achieved by marketing through Aventine once we begin marketing and selling our ethanol directly to customers. |
Operations at our Charles City Facility or our additional planned facilities may not achieve results comparable to our Aurora Facility or our Fort Dodge Facility. |
The U.S. ethanol industry is highly dependent upon a myriad of federal and state legislation and regulation and any changes in legislation or regulation could materially and adversely affect our results of operations and financial position. |
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We may be adversely affected by environmental, health and safety laws, regulations and liabilities. |
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We are dependent upon our officers for management and direction, and the loss of any of these persons could adversely affect our operations and results. |
Our competitive position, financial position and results of operations may be adversely affected by technological advances. |
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(1) we are not: |
(a) required to file the exchange offer registration statement; or | |
(b) permitted to complete the exchange offer because the exchange offer is not permitted by applicable law or SEC policy; or |
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(2) any holder of transfer restricted securities (as defined below) notifies us within 20 business days following completion of the exchange offer that: |
(a) it is prohibited by law or SEC policy from participating in the exchange offer; or | |
(b) it may not resell the exchange notes acquired by it in the exchange offer to the public without delivering a prospectus and the prospectus contained in the exchange offer registration statement is not appropriate or available for such resales; or | |
(c) it is a broker-dealer and owns notes acquired directly from us or one of our affiliates; |
(1) the date on which the note has been exchanged by a person other than a broker-dealer for an exchange note in the exchange offer and entitled to be resold to the public by that person without complying with the prospectus delivery requirements of the Securities Act; | |
(2) the date on which the note has been effectively registered under the Securities Act and disposed of in accordance with the shelf registration statement; | |
(3) the date on which the note is eligible to be distributed to the public pursuant to Rule 144(k) under the Securities Act; or | |
(4) the date on which the note ceases to be outstanding; |
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(1) by a registered holder of the notes who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal or | |
(2) for the account of an eligible institution. |
(1) reject any and all tenders of any particular outstanding note not properly tendered pursuant to the procedures set forth above; | |
(2) refuse to accept any outstanding note if, in our judgment or the judgment of our counsel, the acceptance would be unlawful; and | |
(3) waive any defects or irregularities as to any particular outstanding note before the expiration of the exchange offer. |
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(1) the holder is not our affiliate within the meaning of Rule 405 under the Securities Act; | |
(2) the exchange notes are acquired in the ordinary course of the holder’s business; and | |
(3) the holder does not intend to participate in a distribution of the exchange notes. |
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(1) certificates for the outstanding notes or a timely book-entry confirmation of the notes into Wells Fargo’s account at DTC, | |
(2) a properly completed and executed letter of transmittal and | |
(3) all other required documents. |
(1) the tender is made through an eligible institution, | |
(2) before the expiration date, Wells Fargo receives from the eligible institution a properly completed and executed letter of transmittal or a facsimile of it and notice of guaranteed delivery, substantially in the form provided by us, stating your name and address and the amount of notes tendered, stating that the tender is being made and guaranteeing that within five New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery, the certificates for all physically tendered notes, in proper form for transfer, or a book-entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible institution with Wells Fargo and | |
(3) the certificates for all physically tendered notes, in proper form for transfer, or a book-entry confirmation, and all other documents required by the letter of transmittal, are received by Wells |
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Fargo within five New York Stock Exchange trading days after the date of execution of the notice of guaranteed delivery. |
• | specify the name of the person having tendered the notes to be withdrawn, | |
• | identify the notes to be withdrawn, including the principal amounts of the notes, and | |
• | where certificates for notes have been transmitted, specify the name in which the notes are registered, if different from that of the withdrawing holder. |
Wells Fargo Bank, N.A. | |
Corporate Trust Operations | |
Sixth & Marquette Avenue,N9303-121 | |
Minneapolis, MN 55479 |
Wells Fargo Bank, N.A. | |
Corporate Trust Operations | |
Facsimile No.: (612) 667-6282 |
(800) 344-5128 |
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(1) the Escrow Account, | |
(2) all property (both tangible and intangible), plant and equipment of the Company and its Restricted Subsidiaries, whether existing on the Closing Date or thereafter acquired, including, without limitation, the property, plant and equipment constituting the Aurora Facility, the Fort Dodge Facility and the Charles City Facility, | |
(3) all of the Capital Stock of each Restricted Subsidiary of the Company that is a Domestic Subsidiary, whether existing on the Closing Date or thereafter created or acquired, and 65% of the Capital Stock of each Restricted Subsidiary of the Company that is a direct Foreign Subsidiary of the Company whether existing on the Closing Date or thereafter created or acquired, |
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(4) any additional notes Collateral, | |
(5) all Collateral Monies, | |
(6) the net cash proceeds received by the Company or any of its Subsidiaries from the issuance of Parity Lien Indebtedness and, upon Investment of such net cash proceeds, all collateral of the type and to the extent set forth in clauses (2), (3) and (5) of this paragraph that is acquired by the Company or its Subsidiaries as a result of the Investment of such net cash proceeds (including, without limitation, property (both tangible and intangible), plant and equipment constituting new facilities), and | |
(7) any Replacement Assets acquired in replacement of the collateral described in clause (1), (2), (3), (4), (5) or (6) in accordance with the terms of the “Limitation on Asset Sales” covenant or the “Events of Loss” covenant. |
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• | first, to amounts owing to the Joint Collateral Agent and the Escrow Agent in their respective capacities as Joint Collateral Agent and Escrow Agent; | |
• | second, to amounts owing to the Trustee in its capacity as such in accordance with the terms of the indenture; | |
• | third, to the extent escrowed funds remain in the Escrow Account, to the holders ratably in accordance with the principal of, and interest and premium, if any, outstanding on the notes; | |
• | fourth, Equally and Ratably to the holders of the notes and any holders of Parity Lien Indebtedness in accordance with the terms of the indenture (see “— Equal and Ratable Lien Sharing by holders of Notes and holders of Parity Lien Indebtedness”); and | |
• | fifth, to the Company and/or other persons entitled thereto. |
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(1) with respect to the Net Cash Proceeds of Collateral Asset Sales, be released as contemplated by the “Limitation on Sale of Assets” covenant, | |
(2) with respect to Net Loss Proceeds, be released to repair or replace the relevant Collateral, subject to conditions set forth in the indenture, | |
(3) at the Company’s direction be applied by the Joint Collateral Agent Equally and Ratably from time to time to: (i) the payment of the principal of, premium, if any, and interest on any notes and any Parity Lien Indebtedness at maturity or upon redemption or retirement, or (ii) to the purchase of notes and any Parity Lien Indebtedness upon tender or in the open market or otherwise, in each case, in compliance with the indenture, or | |
(4) continue to be held by the Joint Collateral Agent as part of the Collateral securing the Note Obligations and, to the extent applicable, the Parity Lien Obligations. |
(1) if (a) the Company or one of its Restricted Subsidiaries has not obtained all requisite consents, approvals, licenses and permits required to construct the Charles City Facility in the manner contemplated in this prospectus or (b) construction of the Charles City Facility has not commenced, in each case, on or prior to 180 days after the Closing Date; or |
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(2) if the Company shall have provided written notice to the Trustee and the Escrow Agent at any time of its decision not to proceed with or complete the construction of the Charles City Facility. |
(a) certifying that such funds are being used for the construction and start up costs of the Charles City Facility in a manner consistent with the terms of the Escrow Agreement and the indenture indicating in reasonable detail the purpose or purposes to which such funds will be applied; | |
(b) certifying that the use of such funds for such purpose or purposes will not violate the terms of the indenture or the Security Agreements; and | |
(c) certifying that such funds will be applied as set forth in clause (a) above within no more than ten business days after their release from the Escrow Account. |
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(1) to act upon directions purported to be delivered to it by any other Person; | |
(2) to foreclose upon or otherwise enforce any Note Lien; or | |
(3) to take any other action whatsoever with regard to any or all of the Note Liens, Security Agreements or Collateral. |
(a) the Company and the Subsidiary Guarantors intend to incur, on a date stated therein, Indebtedness that will constitute Parity Lien Indebtedness; | |
(b) no Default or Event of Default exists on the date of such officers’ certificate or will exist after giving effect to the incurrence of such Parity Lien Indebtedness; | |
(c) the Company and its Restricted Subsidiaries have appointed the Joint Collateral Agent to hold the security interest on behalf of such Parity Lien Indebtedness in accordance with the Collateral Agency Agreement and has taken all reasonable steps necessary to make such Collateral Agency Agreement applicable to the Parity Lien Indebtedness; | |
(d) the Company and its Restricted Subsidiaries will, on the date of such incurrence, execute and deliver such additional Security Agreements and take all such action as may be necessary to grant or confirm the grant of Collateral (other than the Escrow Account and the escrowed funds held therein) to the Joint Collateral Agent as security for all present and future Note Obligations and Parity Lien Obligations, and shall take such action to perfect such security interest such that after giving effect thereto the Joint Collateral Agent will hold as security for all present and future Note Obligations and Parity Lien Obligations, a valid and perfected security interest upon all or substantially all of the Collateral (other than the Escrow Account and the escrowed funds held therein) that, immediately prior to giving effect thereto, was subject to the Note Liens; | |
(e) the Liens securing such proposed Parity Lien Indebtedness will not be subject or subordinate to any Lien except to the extent that the Note Lien is also subject or subordinate to such Lien immediately prior to the incurrence of such Parity Lien Indebtedness in accordance with terms of the indenture and the Security Agreements; and | |
(f) the Company and its Restricted Subsidiaries will, on such date, enter into all amendments to the Security Agreements then in effect that are necessary to add Parity Lien Obligations to the obligations secured thereby, pursuant to amendments delivered to the Joint Collateral Agent therewith, to be executed on such date by the Joint Collateral Agent and the Company or the Restricted Subsidiary party to such Security Agreements; |
(a) the validity and enforceability of the proposed Collateral Agency Agreement and all additional and amended Security Agreements delivered to the Joint Collateral Agent; | |
(b) the validity, enforceability and perfection of the Liens granted by such Security Agreements; |
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(c) that the Note Obligations and Parity Lien Obligations (i) are secured by equal and ratable security interests in the Collateral (other than the Escrow Account and the escrowed funds held therein) and (ii) that the holders of any such Parity Lien Obligations or the trustee or other representative of such holders have duly executed and delivered a contractual undertaking in substantially the form attached to the indenture whereby such persons agree to be bound by the Lien sharing provisions of the indenture and the Collateral Agency Agreement and that such contractual undertaking is legally binding and enforceable on such holders of Parity Lien Indebtedness; and | |
(d) the continued perfection of the Note Liens, without loss of priority as against any Lien other than Parity Liens, upon giving effect to such Note Lien assignment and any such amendments of the Security Agreements. |
(1) except as otherwise provided herein, the Note Liens will rankpari passuwith all valid, enforceable and perfected Parity Liens, whenever granted upon any present or future Collateral (other than the Escrow Account and the escrowed funds held therein), but only to the extent such Parity Liens secure Parity Lien Obligations, and | |
(2) all proceeds of the Note Liens (other than Note Liens on the Escrow Account and the escrowed funds held therein and, to the extent applicable, other than as provided in paragraph (7) of the definition of Parity Lien Indebtedness) and Parity Liens shall be allocated and distributed Equally and Ratably on account of the Note Obligations and Parity Lien Obligations. |
(1) be effective unless set forth in a writing signed by the Trustee with the consent of the holders of at least a majority in principal amount of the notes (including, without limitation, additional notes) then outstanding voting as a single class, except that any such amendment which increases the obligations or adversely affects the rights of the holders will be effective only with the consent of the holders of at least 662/3% in principal amount of the notes (including, without limitation, additional notes) then outstanding, voting as a single class; and | |
(2) be effective without the written consent of the Company and, if any Parity Lien Indebtedness is then outstanding, the holders of at least a majority in principal amount of all Parity Lien Indebtedness then outstanding voting as a single class, except that any such amendment which increases the obligations or adversely affects the rights of the holders of Parity Lien Indebtedness will be effective only with the consent of the holders of at least 662/3% in principal amount of all Parity Lien Indebtedness then outstanding, voting as a single class; |
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Year | Percentage | |||
2009 | 104.938% | |||
2010 | 102.469% | |||
2011 and thereafter | 100.000% |
(1) the present value at such redemption date of (i) the redemption price of the note on December 15, 2009 (such redemption price being set forth in the table appearing above under “— Optional Redemption”), plus (ii) all required interest payments due on the note through December 15, 2009 (excluding accrued but unpaid interest to, but not including, the redemption date), computed using a discount rate equal to the Treasury Rate as of such redemption date plus 50 basis points; over | |
(2) the principal amount of the note. |
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• | in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed, or | |
• | if the notes are not listed on a national securities exchange, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate. |
• | are general senior secured obligations of the Company; | |
• | rank equal in right of payment with all existing and future unsubordinated indebtedness of the Company; | |
• | rank senior in right of payment to all existing and future subordinated indebtedness of the Company; |
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• | are secured by the Note Liens on the Collateral, subject to sharing agreements in favor of and for the benefit of holders of future Parity Lien Indebtedness to secure Parity Lien Obligations; | |
• | are effectively senior, as to collateral, to all of the Company’s existing and future unsecured indebtedness, to the extent of the value of the assets constituting the Collateral; | |
• | are effectively junior to all of the obligations, including trade payables, of the Subsidiaries (other than Subsidiary Guarantors); and | |
• | are effectively junior to any indebtedness which is either (i) secured by a Lien on the Collateral which is senior or prior to the Note Liens securing the notes, including potentially any Liens permitted under clauses (1), (3), (6) and (9) of the “Limitation on Liens” covenant, or (ii) secured by assets which are not part of the Collateral securing the notes, in each case, to the extent of the value of such assets. The notes are not secured by, among other things, the accounts receivable, inventory, commodities accounts and the cash proceeds of the foregoing (including amounts received from insurance policies in respect thereof and deposit and securities accounts into which such proceeds are deposited), of the Company and its Restricted Subsidiaries. |
• | are general senior secured obligations of the Subsidiary Guarantors; | |
• | rank equal in right of payment with all existing and future unsubordinated indebtedness of the Subsidiary Guarantors; | |
• | rank senior in right of payment with all existing and future subordinated indebtedness of the Subsidiary Guarantors; | |
• | are secured by the Note Liens on the Collateral, subject to Lien sharing in favor of and for the benefit of holders of future Parity Lien Indebtedness to secure Parity Lien Obligations; | |
• | are effectively senior, as to collateral, to all of the Subsidiary Guarantors’ existing and future unsecured indebtedness, to the extent of the value of the assets constituting the Collateral; and | |
• | are effectively junior to any indebtedness which is either (i) secured by a Lien on the Collateral which is senior or prior to the Note Liens securing the Note Guarantees, including potentially any Liens permitted under clauses (1), (3), (6) and (9) of the “Limitation on Liens” covenant, or (ii) secured by assets which are not part of the Collateral securing the Note Guarantees, in each case, to the extent of the value of such assets. The Note Guarantees are not secured by, among other things, the accounts receivable, inventory, commodities accounts and the cash proceeds of the foregoing (including amounts received from insurance policies in respect thereof and deposit and securities accounts into which such proceeds are deposited) of the Company and its Restricted Subsidiaries. |
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Overview |
• | incur additional debt; | |
• | pay dividends, acquire shares of capital stock, make payments on subordinated debt or make investments; | |
• | place limitations on distributions from Restricted Subsidiaries; | |
• | fail to provide guarantees; | |
• | sell or exchange assets; | |
• | enter into transactions with shareholders and affiliates; | |
• | create liens; | |
• | engage in unrelated businesses; and | |
• | effect mergers. |
Limitation on Indebtedness |
(1) the incurrence by the Company and any Restricted Subsidiary of additional Indebtedness and letters of credit under Credit Facilities in an aggregate principal amount at any one time outstanding under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and its Restricted Subsidiaries thereunder) not to exceed a maximum of the greater of (a) $50.0 million and (b) the Borrowing Base; | |
(2) Indebtedness owed to the Company or any other Restricted Subsidiary;providedthat (x) any event which results in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any subsequent transfer of such Indebtedness (other than to the Company or another Restricted Subsidiary) shall be deemed, in each case, to constitute an incurrence of such Indebtedness not permitted by this clause (2) and (y) if the Company or any Subsidiary Guarantor is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated in right of payment to the notes, in the case of the Company, or the Note Guarantee, in the case of a Subsidiary Guarantor; | |
(3) Indebtedness issued in exchange for, or the net proceeds of which are used to refinance or refund, then outstanding Indebtedness (other than Indebtedness outstanding under clause (1), (2) or |
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(10) and under this clause (3)) in an amount not to exceed the amount so refinanced or refunded (plus premiums, accrued interest, fees and expenses);providedthat (a) Indebtedness the proceeds of which are used to refinance or refund the notes or Indebtedness that ispari passuwith, or subordinated in right of payment to, the notes or a Note Guarantee shall only be permitted under this clause (3) if (x) in case the notes are refinanced in part or the Indebtedness to be refinanced ispari passuwith the notes or a Note Guarantee, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is outstanding, is expressly madepari passuwith, or subordinate in right of payment to, the remaining notes or the Note Guarantee, or (y) in case the Indebtedness to be refinanced is subordinated in right of payment to the notes or a Note Guarantee, such new Indebtedness, by its terms or by the terms of any agreement or instrument pursuant to which such new Indebtedness is issued or remains outstanding, is expressly made subordinate in right of payment to the notes or the Note Guarantee at least to the extent that the Indebtedness to be refinanced is subordinated to the notes or the Note Guarantee, (b) such new Indebtedness, determined as of the date of incurrence of such new Indebtedness, does not mature prior to the Stated Maturity of the Indebtedness to be refinanced or refunded, and the Average Life of such new Indebtedness is at least equal to the remaining Average Life of the Indebtedness to be refinanced or refunded and (c) such new Indebtedness is Incurred by the Company or Restricted Subsidiary who is the obligor on the Indebtedness to be refinanced or refunded; | |
(4) Indebtedness of the Company, to the extent the net proceeds thereof are promptly (A) used to purchase notes tendered in an Offer to Purchase made as a result of a Change in Control or (B) deposited to defease the notes as described under “Defeasance”; | |
(5) Guarantees by the Company or any Restricted Subsidiary of Indebtedness of the Company or any Restricted Subsidiary that is otherwise permitted to be incurred pursuant to this “Limitation on Indebtedness” covenant;providedthat the Guarantee of such Indebtedness is permitted by and made in accordance with the “Issuance of Guarantees by Restricted Subsidiaries” covenant; | |
(6) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or similar instrument inadvertently (except in the case of daylight overdrafts) drawn against insufficient funds in the ordinary course of business;provided, however, that such Indebtedness is extinguished within five business days of incurrence; | |
(7) Indebtedness in respect of performance bonds, bankers’ acceptances, workers’ compensation claims, surety or appeal bonds and payment obligations in connection with self-insurance or similar obligations; | |
(8) Indebtedness Incurred to finance the cost (including the cost of improvement or construction) to acquire real or personal property (including acquisitions by way of Capitalized Lease Obligations, purchase money obligations and acquisitions of the Capital Stock of a Person that becomes a Restricted Subsidiary, to the extent of the fair market value of the real or personal property so acquired, plus goodwill associated therewith) by the Company or a Restricted Subsidiary after the Closing Date;provided, however, that the aggregate principal amount of such Indebtedness at any one time outstanding may not exceed the greater of (a) $15.0 million and (b) 2.5% of Total Assets; | |
(9) Acquired Indebtedness;providedthat the Fixed Charge Coverage Ratio immediately after giving pro forma effect to such incurrence would be greater than the Fixed Charge Coverage Ratio immediately prior to such incurrence; and | |
(10) additional Indebtedness of the Company or Indebtedness of any Restricted Subsidiary (in addition to Indebtedness permitted under clauses (1) through (9) above) in an aggregate principal amount outstanding at any time not to exceed the greater of (a) $10.0 million and (b) 2.5% of Total Assets. |
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Limitation on Restricted Payments |
(A) a Default or Event of Default shall have occurred and be continuing or would occur as a consequence of such Restricted Payment, | |
(B) the Company could not Incur at least $1.00 of Indebtedness under the first paragraph of part (a) of the “Limitation on Indebtedness” covenant, or | |
(C) the aggregate amount of all Restricted Payments made after the Closing Date shall exceed the sum of: |
(1) 50% of the aggregate amount of the Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net Income is a loss, minus 100% of the amount of such loss) accrued on a cumulative basis during the period (taken as one accounting period) beginning on the first day |
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of the fiscal quarter during which the Closing Date occurs and ending on the last day of the last fiscal quarter preceding the Transaction Date for which internal financial statements are available;plus | |
(2) 100% of the aggregate Qualified Proceeds received by the Company after the Closing Date as a capital contribution or from the issuance and sale of its Capital Stock (other than Disqualified Stock) to a Person which is not a Subsidiary of the Company, including an issuance or sale permitted by the indenture of Indebtedness of the Company for cash subsequent to the Closing Date upon the conversion of such Indebtedness into Capital Stock (other than Disqualified Stock) of the Company, or from the issuance to a Person which is not a Subsidiary of the Company of any options, warrants or other rights to acquire Capital Stock of the Company (in each case, exclusive of any Disqualified Stock or any options, warrants or other rights that are redeemable at the option of the holder, or are required to be redeemed, prior to the Stated Maturity of the notes);plus | |
(3) an amount equal to the net reduction in Investments (other than reductions in Permitted Investments) in any Person resulting from payments of interest on Indebtedness, dividends, repayments of loans or advances, or other transfers of assets, in each case, to the Company or any Restricted Subsidiary or from the Qualified Proceeds from the sale of any such Investment (except, in each case, to the extent any such payment or proceeds are included in the calculation of Adjusted Consolidated Net Income), from the release of any Guarantee or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of “Investments”), not to exceed, in each case, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Person or Unrestricted Subsidiary. |
(1) (x) the payment of any dividend or redemption of any Capital Stock or (y) the redemption of any Indebtedness that is subordinate in right of payment to the notes, in each case, within 60 days after the related date of declaration or call for redemption if, at said date of declaration or call for redemption, such payment or redemption would comply with the preceding paragraph; | |
(2) the making of any principal payment or the repurchase, redemption, retirement, defeasance or other acquisition or retirement for value of Indebtedness that is subordinated in right of payment to the notes or any Note Guarantee including premium, if any, and accrued interest, with the proceeds of, or in exchange for, Indebtedness Incurred under clause (3) of the second paragraph of the “Limitation on Indebtedness” covenant; | |
(3) the repurchase, redemption or other acquisition or retirement of Capital Stock of the Company or a Subsidiary Guarantor (or options, warrants or other rights to acquire such Capital Stock) in exchange for, or out of the proceeds of a capital contribution or a substantially concurrent offering of, shares of Capital Stock (other than Disqualified Stock) of the Company (or options, warrants or other rights to acquire such Capital Stock);provided that such options, warrants or other rights are not redeemable at the option of the holder, or required to be redeemed, prior to the Stated Maturity of the notes; | |
(4) the making of any principal payment or the repurchase, redemption, retirement, defeasance or other acquisition or retirement for value of Indebtedness (including premium, if any, and accrued interest) which is subordinated in right of payment to the notes or any Note Guarantee in exchange for, or out of the proceeds of a capital contribution or a substantially concurrent offering of, shares of the Capital Stock (other than Disqualified Stock) of the Company (or options, warrants or other rights to acquire such Capital Stock);providedthat such options, warrants or other rights are not redeemable at the option of the holder, or required to be redeemed, prior to the Stated Maturity of the notes; |
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(5) payments or distributions to dissenting shareholders pursuant to applicable law, pursuant to or in connection with a consolidation, merger or transfer of assets of the Company that complies with the provisions of the indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of the Company; | |
(6) Investments acquired as a capital contribution to, or in exchange for, or out of the proceeds of a substantially concurrent offering of, Capital Stock (other than Disqualified Stock) of the Company; | |
(7) the repurchase of Capital Stock deemed to occur upon the exercise of options or warrants if such Capital Stock represents all or a portion of the exercise price thereof; | |
(8) the repurchase or other acquisition of Capital Stock of the Company or any of its Subsidiaries from employees, former employees, directors or former directors of the Company or any of its Subsidiaries (or permitted transferees of such employees, former employees, directors or former directors), pursuant to the terms of the agreements (including employment agreements) or plans (or amendments thereto) approved by the Board of Directors under which such individuals purchase or sell, or are granted the option to purchase or sell, such Capital Stock;provided, however, that the aggregate amount of such repurchases and other acquisitions shall not exceed $3.0 million in any calendar year; | |
(9) dividends paid in respect of Disqualified Stock or preferred stock of the Company or any Restricted Subsidiary of the Company which is permitted to be issued pursuant to the covenant described under the caption “Limitation on Indebtedness”;provided, however, that the aggregate amount of dividends paid in respect of preferred stock of the Company (other than Disqualified Stock of the Company) pursuant to this clause (9) shall not exceed the amount of Net Cash Proceeds from the issuance of such preferred stock; | |
(10) the pledge by the Company or any Restricted Subsidiary of the Capital Stock of an Unrestricted Subsidiary to secure Non-Recourse Debt of that Unrestricted Subsidiary; | |
(11) any payments made in connection with the completion of the initial offering of notes, the entering into of the Credit Agreement, the completion of the Equity Offering (as defined under “Certain Relationships and Related Party Transactions”) and the application of the net proceeds therefrom (in each case as otherwise described in this prospectus); | |
(12) repayment of intercompany debt that was permitted to be outstanding pursuant to the terms of the indenture; and | |
(13) Restricted Payments in an amount which, when taken together with all Restricted Payments made pursuant to this clause (13), does not exceed $5.0 million; |
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Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries |
(1) existing on the Closing Date in the Credit Agreement, the indenture, the notes, the Note Guarantees or otherwise, and any amendments, modifications, extensions, refinancings, renewals or replacements thereof;providedthat the encumbrances and restrictions in any such amendments, modifications, extensions, refinancings, renewals or replacements taken as a whole are, in the good faith judgment of the Board of Directors, no less favorable in any material respect to the holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; | |
(2) existing under or by reason of applicable law, rule, regulation, order, approval, license, permit or similar restriction; | |
(3) existing with respect to any Person or the property or assets of such Person acquired by the Company or any Restricted Subsidiary, which encumbrances or restrictions are not applicable to any Person or the property or assets of any Person other than such Person or the property or assets of such Person so acquired and any extensions, refinancings, renewals or replacements thereof;providedthat the encumbrances and restrictions in any such extensions, refinancings, renewals or replacements taken as a whole are, in the good faith judgment of the Company’s Board of Directors, no less favorable in any material respect to the holders than those encumbrances or restrictions that are then in effect and that are being extended, refinanced, renewed or replaced; | |
(4) in the case of clause (4) of the first paragraph of this “Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries” covenant: |
(A) that restrict in a customary manner the subletting, assignment or transfer of any property or asset that is a lease, license, conveyance or contract or similar property or asset, | |
(B) existing by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the indenture, | |
(C) arising or agreed to in the ordinary course of business, not relating to any Indebtedness, and that do not, individually or in the aggregate, detract from the value of property or assets of the Company or any Restricted Subsidiary in any manner material to the Company or any Restricted Subsidiary, or | |
(D) arising under purchase money obligations for property acquired in the ordinary course of business or Capitalized Lease Obligations; |
(5) with respect to a Restricted Subsidiary and imposed pursuant to an agreement that has been entered into for the sale or disposition of all or substantially all of the Capital Stock of, or property and assets of, such Restricted Subsidiary; |
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(6) arising from customary provisions in Joint Venture agreements and other similar agreements entered into in the ordinary course of business; | |
(7) on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; | |
(8) arising in connection with any Indebtedness or Disqualified Stock of the Company or any Restricted Subsidiary of the Company permitted to be incurred subsequent to the date of the indenture pursuant to the “Limitation on Indebtedness” covenant; and | |
(9) existing with respect to Commodity Agreements, Currency Agreements and Interest Rate Agreements incurred from time to time in the ordinary course of business and not for speculative purposes. |
Issuances of Guarantees by Restricted Subsidiaries |
Limitation on Transactions with Shareholders and Affiliates |
(1) transactions (A) approved by a majority of the disinterested members of the Board of Directors or (B) for which the Company or a Restricted Subsidiary delivers to the Trustee a written |
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opinion of a nationally recognized investment banking, accounting, valuation or appraisal firm stating that the transaction is fair to the Company or such Restricted Subsidiary from a financial point of view; | |
(2) any transaction solely between the Company and any of its Restricted Subsidiaries or solely among Restricted Subsidiaries;providedthat any transaction between Biodiesel and the Company or any other Restricted Subsidiary shall be on fair and reasonable terms no less favorable to the Company and its Restricted Subsidiaries than could be obtained in a comparable arm’s-length transaction; | |
(3) the payment of reasonable and customary regular fees to directors of the Company who are not employees of the Company and customary indemnification arrangements entered into by the Company; | |
(4) any sale of shares of Capital Stock (other than Disqualified Stock) of the Company; | |
(5) any Permitted Investments or any Restricted Payments not prohibited by the “Limitation on Restricted Payments” covenant; | |
(6) any written agreement as in effect or entered into as of the Closing Date or any amendment thereto or any transaction contemplated thereby (including pursuant to any amendment thereto) in any replacement agreement thereto so long as any such amendment or replacement agreement is not more disadvantageous to the holders in any material respect than the original agreement as in effect on the Closing Date; | |
(7) the issuance of securities or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans or similar employee benefit plans approved by the Board of Directors in good faith and loans to employees of the Company and its Subsidiaries which are approved by the Board of Directors in good faith; | |
(8) transactions with customers, clients, suppliers, or purchasers or sellers of goods or services, in each case on ordinary business terms and otherwise in compliance with the terms of the indenture, which are fair to the Company or its Restricted Subsidiaries, in the reasonable determination of the Board of Directors of the Company or the senior management thereof, or are on terms at least as favorable as could reasonably have been obtained at such time from an unaffiliated party; | |
(9) any transaction with a Joint Venture or similar entity which would be subject to this “Limitation on Transactions with Shareholders and Affiliates” covenant solely because the Company or a Restricted Subsidiary of the Company owns an equity interest in or otherwise controls such Joint Venture or similar entity; or | |
(10) loans or advances to officers, directors, employees or consultants in the ordinary course of business or consistent with past practice not to exceed $2.0 million in the aggregate at any one time outstanding. |
Limitation on Liens |
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(1) Liens existing on the Closing Date; | |
(2) Liens granted on or after the Closing Date on any assets or Capital Stock of the Company or its Restricted Subsidiaries created in favor of the holders; | |
(3) Liens securing Indebtedness which is Incurred to refinance secured Indebtedness which is permitted to be Incurred under clause (3) of the second paragraph of clause (a) of the “Limitation on Indebtedness” covenant;providedthat such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets securing the Indebtedness being refinanced; | |
(4) Liens on accounts receivable, inventory and the cash proceeds of any of the foregoing securing Indebtedness of the Company or any Restricted Subsidiary under any Credit Facility, which Indebtedness is permitted to be Incurred under clause (a)(1) of the “Limitation on Indebtedness” covenant, and Liens on commodities accounts and the cash proceeds therefrom; | |
(5) Parity Liens securing Parity Lien Obligations incurred in accordance with the terms of the indenture;providedthat either: |
(a) the Company causes such Lien (i) to be granted to the Joint Collateral Agent and (ii) to be extended to and secure the Note Obligations upon substantially the same terms but subject to the provisions of the indenture and causes such Lien to be duly perfected; or | |
(b) the indenture or agreement governing such Parity Lien Obligations (i) provides (for the enforceable benefit of the Trustee and holders) that (x) the holder of such Parity Lien Obligations is bound by the terms of the Security Agreements and (y) all obligations in respect of the notes are Equally and Ratably secured by all Liens, guarantees, supporting obligations and loss sharing rights at any time granted by the Company or any Restricted Subsidiary or any other Person as security for such debt, whether or not otherwise constituting Collateral, and (b) authorizes the Joint Collateral Agent to perform its obligations set forth in the indenture and the Security Agreements; |
andprovided further that the aggregate principal amount of Indebtedness secured by the Collateral pursuant to Note Liens and Parity Liens shall not exceed $500.0 million at any one time outstanding; |
(6) Liens (including extensions and renewals thereof) upon real or personal property acquired after the Closing Date;providedthat (a) such Lien is created solely for the purpose of securing Indebtedness Incurred, in accordance with clause (8) of the “Limitation on Indebtedness” covenant, to finance the cost (including the cost of improvement or construction) of the item of property or assets subject thereto and such Lien is created prior to, at the time of or within six months after the later of the acquisition, the completion of construction or the commencement of full operation of such property, (b) the principal amount of the Indebtedness secured by such Lien does not exceed 100% of such cost, and (c) any such Lien shall not extend to or cover any property or assets other than such item of property or assets and any improvements on such item; | |
(7) Liens on cash set aside at the time of the incurrence of any Indebtedness, or government securities purchased with such cash, in either case, to the extent that such cash or government securities pre-fund the payment of interest on such Indebtedness and are held in a collateral or escrow account or similar arrangement to be applied for such purpose; | |
(8) Liens on assets, property or Capital Stock of any Restricted Subsidiary that is not an Obligor securing Indebtedness permitted under the indenture; or | |
(9) Permitted Liens. |
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Limitation on Asset Sales |
(A) solely in the case of Net Cash Proceeds from any Asset Sale other than a Collateral Asset Sale, apply an amount equal to such Net Cash Proceeds to repay or reduce outstanding (a) notes, Parity Lien Indebtedness or other Indebtedness of the Company that ispari passuin right of payment with the notes, provided that any repayment of the notes or Parity Lien Indebtedness shall be applied as set forth in the last paragraph of this “Limitation on Asset Sales” covenant, (b) Indebtedness of any Subsidiary Guarantor that ispari passuin right of payment with the relevant Note Guarantee or (c) Indebtedness of any other Restricted Subsidiary, or | |
(B) invest an equal amount, or the amount not so applied pursuant to clause (1) above (or enter into a definitive agreement committing to so invest within 12 months after the date of such agreement), in Replacement Assets. |
Limitation on Business Activities |
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Limitation on Impairment of Security Interest |
Events of Loss |
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(a) default in the payment of principal of (or premium, if any, on) any note when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; | |
(b) default in the payment of interest on any note when the same becomes due and payable, and such default continues for a period of 30 days; | |
(c) default in the performance or breach of the provisions of the indenture described under the caption “Consolidation, Merger and Sale of Assets” by the Company or any Subsidiary Guarantor or the failure by the Company to make or complete an Offer to Purchase in accordance with the provisions under the “Limitation on Asset Sales” covenant, the “Events of Loss” covenant, “— Escrow; Special Offer to Purchase” or “— Repurchase of Notes upon a Change of Control” and such default or breach continues for a period of 30 consecutive days after written notice by the Trustee or the holders of 25% or more in aggregate principal amount of the notes; | |
(d) the Company or any Subsidiary Guarantor defaults in the performance of or breaches any other covenant or agreement in the indenture or under the notes (other than a default specified in clause (a), (b) or (c) above) and such default or breach continues for a period of 60 consecutive days after written notice by the Trustee or the holders of 25% or more in aggregate principal amount of the notes; | |
(e) there occurs with respect to: (i) any issue or issues of Parity Lien Indebtedness, or (ii) any other issue or issues of Indebtedness of the Company, any Subsidiary Guarantor or any Restricted Subsidiary having an outstanding principal amount of $20.0 million or more in the aggregate for all such issues of all such Persons, and in the case of each of clause (i) or (ii) such Indebtedness now exists or shall hereafter be created, (I) an event of default that has caused the holder thereof to declare such Indebtedness to be due and payable prior to its Stated Maturity and such Indebtedness has not been discharged in full or such acceleration has not been rescinded or annulled within 30 days of such acceleration and/or (ii) the failure to make a principal payment at the final (but not any |
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interim) fixed maturity (after giving effect to any applicable grace period provided in such Indebtedness) and such defaulted payment shall not have been made, waived or extended within 30 days of such payment default; | |
(f) any final judgment or order (not covered by insurance or a third party indemnity pursuant to an executed written agreement) for the payment of money in excess of $20.0 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company, any Subsidiary Guarantor, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary and shall not be paid or discharged, and there shall be any period of 30 consecutive days following entry of the final judgment or order that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $20.0 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; | |
(g) a court having jurisdiction in the premises enters a decree or order for (A) relief in respect of the Company, any Subsidiary Guarantor, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary in an involuntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (B) appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company, any Subsidiary Guarantor, any Significant Subsidiary or any group of Subsidiaries that, taken together would constitute a Significant Subsidiary or for all or substantially all of the property and assets of the Company, any Subsidiary Guarantor, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary or (C) the winding up or liquidation of the affairs of the Company, any Subsidiary Guarantor, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary and, in each case, such decree or order shall remain unstayed and in effect for a period of 30 consecutive days; | |
(h) the Company, any Subsidiary Guarantor, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary (A) commences a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or consents to the entry of an order for relief in an involuntary case under any such law, (B) consents to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee, sequestrator or similar official of the Company, any Subsidiary Guarantor, any Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary or for all or substantially all of the property and assets of the Company, any Subsidiary Guarantor, any Significant Subsidiary or any group of Subsidiaries that, taken together would constitute a Significant Subsidiary or (C) effects any general assignment for the benefit of creditors; | |
(i) the Company or any Subsidiary Guarantor repudiates its obligations under its notes or Note Guarantees or, except as permitted by the indenture, any Note Guarantee is determined to be unenforceable or invalid or shall for any reason cease to be in full force and effect; or | |
(j) (a) default by the Company or any Restricted Subsidiary in the performance of the Security Agreements which adversely affects the enforceability, validity, perfection or priority of any Note Liens or which adversely affects the condition or value of the Collateral, in each case, taken as a whole, in any material respect, (b) repudiation or disaffirmation by the Company or any such Restricted Subsidiary of its obligations under any of the Security Agreements or (c) the determination in a judicial proceeding that all or any material portion of the Security Agreements, taken as a whole, are unenforceable or invalid, for any reason, against the Company or any such Restricted Subsidiary (which default, repudiation, disaffirmation or determination is not rescinded, stayed, or waived by the Persons having such authority pursuant to the Security Agreements or otherwise cured within 60 days after the Company receives written notice thereof specifying such occurrence from the Trustee or the holders of 25% or more in aggregate principal amount of the notes). |
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(1) the holder gives the Trustee written notice of a continuing Event of Default; | |
(2) the holder or holders of at least 25% in aggregate principal amount of outstanding notes make a written request to the Trustee to pursue the remedy; | |
(3) such holder or holders offer the Trustee indemnity satisfactory to the Trustee against any costs, liability or expense; | |
(4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and | |
(5) during such60-day period, the holders of at least a majority in aggregate principal amount of the outstanding notes do not give the Trustee a direction that is inconsistent with the request. |
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(1) it shall be the continuing Person, or the Person (if other than it) formed by such consolidation or into which it is merged or that acquired or leased such property and assets (the “Surviving Person”) shall be organized and validly existing under the laws of the United States of America or any jurisdiction thereof and shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, all of the Company’s obligations under the indenture, the notes, the registration rights agreement and the Security Agreements; | |
(2) each of the conditions specified in paragraph (C) below is satisfied; and | |
(3) each Subsidiary Guarantor, unless such Subsidiary Guarantor is the Person with which the Company has entered into a transaction under this “Consolidation, Merger and Sale of Assets” section, shall have by amendment to its Note Guarantee confirmed that its Note Guarantee shall apply to the obligations of the Company or the Surviving Person in accordance with the notes and the indenture. |
(1) it shall be the continuing Person, or the Person (if other than it) formed by such consolidation or into which it is merged (the “Subsidiary Guarantor Surviving Person”) shall expressly assume, by a supplemental indenture, executed and delivered to the Trustee, all of such Subsidiary Guarantor obligations under its Note Guarantee, the registration rights agreement and the Security Agreements; and | |
(2) each of the conditions specified in paragraph (C) below is satisfied. |
(1) immediately after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; | |
(2) immediately after giving effect to such transaction on apro forma basis the Company (or the Surviving Person, if applicable) (x) could Incur at least $1.00 of Indebtedness under the first paragraph of part (a) of the “Limitation on Indebtedness” covenant or (y) would, together with its Restricted Subsidiaries, have a greater Fixed Charge Coverage Ratio immediately after that |
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transaction (after giving pro forma effect thereto as if that transaction had occurred at the beginning of the applicable four-quarter period) than the Fixed Charge Coverage Ratio of the Company and its Restricted Subsidiaries immediately prior to that transaction; | |
(3) the Company or such Subsidiary Guarantor or the relevant surviving entity, as applicable, shall cause such amendments, supplements or other instruments to be filed, executed and/or recorded in such jurisdictions as may be required by applicable law to preserve and protect the Note Liens and, if applicable, the Parity Liens on the Collateral owned by or sold, conveyed, transferred, leased or otherwise disposed of to such Person, together with such financing statements as may be required to perfect any security interests in such Collateral which may be perfected by the filing of a financing statement under the Uniform Commercial Code of the relevant states; | |
(4) the Collateral owned by or sold, conveyed, transferred, leased or otherwise disposed of to the Company or such Subsidiary Guarantor or the relevant surviving entity, as applicable, shall (a) continue to constitute Collateral under the indenture and the Security Agreements, and (b) be subject to the Note Liens, as applicable, in favor of the Joint Collateral Agent for the benefit of the Trustee and the holders, subject to Liens in favor of and for the benefit of the holders of any Parity Lien Indebtedness and the trustee or other representative with respect to such Parity Lien Indebtedness; | |
(5) the assets of the Person which is merged or consolidated with or into the relevant surviving entity, to the extent that they are assets of the types which would constitute Collateral under the indenture and the Security Agreements, shall be treated as after acquired property and such surviving entity shall take such action as may be reasonably necessary to cause such assets to be made subject to the Note Liens and, if applicable, the Parity Liens and to perfect such Liens in respect of such assets, in each case, in the manner and to the extent required under the Security Agreements; and | |
(6) the Company shall have delivered to the Trustee an officers’ certificate (attaching the arithmetic computations to demonstrate compliance with clause (2) of this paragraph (C) unless compliance therewith is not required) and an opinion of counsel, each stating that such transaction and, if a supplemental indenture or supplemental Security Agreements are required in connection with such transaction, such supplemental indenture and Security Agreements comply with the applicable provisions of the indenture, that all conditions precedent in the indenture relating to such transaction have been satisfied and that supplemental indenture and Security Agreements are enforceable; |
Legal Defeasance |
(A) the Company has deposited with the Trustee, in trust, money and/or U.S. Government Obligations that through the payment of interest and principal (in respect of such U.S. Government Obligations) in accordance with their terms will provide money in an amount sufficient to pay the |
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principal of, premium, if any, and accrued interest on the notes on the Stated Maturity of such payments in accordance with the terms of the indenture and the notes; | |
(B) the Company has delivered to the Trustee (1) either (x) an opinion of counsel to the effect that holders will not recognize income, gain or loss for federal income tax purposes as a result of the Company’s exercise of its option under this “Defeasance” provision and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which opinion of counsel must be based upon (and accompanied by a copy of) a ruling of the Internal Revenue Service to the same effect unless there has been a change in applicable federal income tax law after the Closing Date such that a ruling is no longer required or (y) a ruling directed to the Trustee received from the Internal Revenue Service to the same effect as the aforementioned opinion of counsel and (2) an opinion of counsel to the effect that, subject to customary assumptions and exclusions, the creation of the defeasance trust does not violate the Investment Company Act of 1940 and after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law; | |
(C) immediately after giving effect to such deposit on apro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; and | |
(D) if at such time the notes are listed on a national securities exchange, the Company has delivered to the Trustee an opinion of counsel to the effect that the notes will not be delisted as a result of such deposit, defeasance and discharge. |
Defeasance of Certain Covenants and Certain Events of Default |
Defeasance and Certain Other Events of Default |
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Satisfaction and Discharge |
(1) either: |
(a) all of the notes theretofore authenticated and delivered (except lost, stolen or destroyed notes which have been replaced or paid and notes for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust) have been delivered to the Trustee for cancellation, or | |
(b) all notes not theretofore delivered to the Trustee for cancellation have become due and payable, or will become due and payable within one year, pursuant to an optional redemption notice or otherwise, and the Company has irrevocably deposited or caused to be deposited with the Trustee funds in an amount sufficient to pay and discharge the entire indebtedness on the notes not theretofore delivered to the trustee for cancellation, for principal of, premium, if any, and interest on the notes to the date of deposit together with irrevocable instructions from the Company directing the Trustee to apply such funds to the payment thereof at maturity or redemption, as the case may be; and |
(2) the Company has paid all other sums payable under the indenture by the Company. |
(1) cure any ambiguity, defect or inconsistency in the indenture; | |
(2) comply with the provisions described under “— Consolidation, Merger and Sale of Assets” or “— Issuances of Guarantees by Restricted Subsidiaries”; | |
(3) comply with any requirements of the SEC in connection with the qualification of the indenture under the Trust Indenture Act of 1939, as amended; | |
(4) evidence and provide for the acceptance of appointment by a successor Trustee; | |
(5) add a Subsidiary Guarantor; | |
(6) add any additional asset as Collateral; | |
(7) release any Collateral from the Note Liens when permitted or required under the indenture or the Security Agreements; | |
(8) permit the creation and perfection of Liens on the Collateral (other than the Escrow Account and the escrowed funds held therein) for the benefit of holders of Parity Lien Indebtedness, to the extent such indebtedness and the Parity Lien securing such indebtedness is permitted by the terms of the indenture and the Security Agreements; | |
(9) provide for the issuance of additional notes in accordance with the terms of the indenture; or |
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(10) conform the indenture or the Security Agreements to this Description of Notes to the extent that such provision in this Description of Notes was intended to be a verbatim recitation of a provision of the indenture or the Security Agreements. |
(1) change the Stated Maturity of the principal of, or any installment of interest on, any note; | |
(2) reduce the principal amount of, or premium, if any, or interest on, any note; | |
(3) change the optional redemption dates or optional redemption prices of the notes from that stated under the caption “— Optional Redemption” or waive or modify any of the provisions set forth under the caption “— Escrow; Special Offer to Purchase” or the “Events of Loss” covenant or, to the extent that it relates to the disposition of any Collateral, the “Limitation on Asset Sales” covenant; | |
(4) change the place or currency of payment of principal of, or premium, if any, or interest on, any note; | |
(5) impair the right to institute suit for the enforcement of any payment on or after the Stated Maturity (or, in the case of a redemption, on or after the redemption date) of any note; | |
(6) waive a default in the payment of principal of, premium, if any, or interest on the notes; | |
(7) release any Subsidiary Guarantor from its Note Guarantee, except as provided in the indenture; | |
(8) amend or modify any of the provisions of the indenture in any manner which subordinates the notes issued thereunder in right of payment to any other Indebtedness of the Company or which subordinates any Note Guarantee in right of payment to any other Indebtedness of the Subsidiary Guarantor issuing any such Note Guarantee; | |
(9) reduce the percentage of aggregate principal amount of outstanding notes the consent of whose holders is necessary for waiver of compliance with certain provisions of the indenture or the Security Agreements or for waiver of certain defaults; | |
(10) reduce the percentage of aggregate principal amount of notes outstanding necessary to amend the indenture; or | |
(11) modify the provisions with respect to modification and waiver. |
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(1) the net income (or loss) of any Person that is not a Restricted Subsidiary (except to the extent of the amount of dividends or distributions paid in cash to the Company or any of its Restricted Subsidiaries); | |
(2) the net income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or any of its Restricted Subsidiaries or all or substantially all of the property and assets of such Person are acquired by the Company or any of its Restricted Subsidiaries; | |
(3) the net income of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary of such net income is not at the time permitted by the operation of the terms of its charter or any instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary (other than any restriction permitted by clause (7) of the “Limitation on Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries” covenant) except to the extent that cash was distributed by such Restricted Subsidiary to the Company or another Restricted Subsidiary during such period; | |
(4) any gains or losses (on an after-tax basis) attributable to sales of assets outside the ordinary course of business of the Company and its Restricted Subsidiaries; | |
(5) all extraordinary gains or losses; | |
(6) any non-cash compensation expense realized from grants of stock appreciation or similar rights, stock options or other rights to officers, directors or employees of the Company or any of its Restricted Subsidiaries; | |
(7) any net after-tax income or loss from discontinued operations; | |
(8) the cumulative effect of a change in accounting principles; | |
(9) any expense with respect to which, and to the extent that, the Company is indemnified by a third party (but only if and to the extent that the related indemnification payment from such third party is not included in the calculation of the net income of the Company); | |
(10) any non-cash asset impairment charges resulting from application of Statement of Financial Accounting Standards No. 142; | |
(11) any non-cash gain or loss attributable to any Commodity Agreement until such time as it is settled, at which time the net gain or loss shall be included; | |
(12) any unrealized non-cash gains or losses or charges attributable to any Currency Agreement or Interest Rate Agreement entered into in accordance with the terms of the indenture (including those resulting from the application of Statement of Financial Accounting Standards No. 133); and |
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(13) any non-recurring charges associated with any premium or penalty paid, write-off of deferred financing costs or other financial recapitalization charges in connection with redeeming or retiring any Indebtedness prior to its Stated Maturity. |
(1) all or any of the Capital Stock of any Restricted Subsidiary, | |
(2) all or substantially all of the property and assets of an operating unit or business of the Company or any of its Restricted Subsidiaries, or | |
(3) any other property and assets (other than the Capital Stock or other Investment in an Unrestricted Subsidiary) of the Company or any of its Restricted Subsidiaries outside the ordinary course of business of the Company or such Restricted Subsidiary, in each case, that is not governed by the provisions of the indenture applicable to mergers, consolidations and sales of assets of the Company;providedthat “Asset Sale” shall not include: |
(a) sales or other dispositions of inventory, receivables and other current assets in the ordinary course of business, | |
(b) sales, transfers or other dispositions of assets constituting a Permitted Investment or Restricted Payment permitted to be made under the “Limitation on Restricted Payments” covenant, | |
(c) sales, transfers or other dispositions of assets with a fair market value not in excess of $7.0 million in any transaction or series of related transactions (other than sales, transfers or other dispositions of any property or assets constituting part of the Collateral), | |
(d) any sale, transfer, assignment or other disposition of any property equipment that has become damaged, worn out, obsolete or otherwise unsuitable for use in connection with the business of the Company or its Restricted Subsidiaries, or | |
(e) sales or grants of licenses to use the Company’s or any Restricted Subsidiary’s patents, trade secrets, know-how and technology to the extent that such license does not prohibit the licensor from using the patent, trade secret, know-how or technology. |
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(1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board; | |
(2) with respect to a partnership, the Board of Directors or other governing body of the general partner of the partnership; | |
(3) with respect to a limited liability company, the Board of Directors or other governing body, and in the absence of same, the manager or board of managers or the managing member or members or any controlling committee thereof; and | |
(4) with respect to any other Person, the board or committee of such Person serving a similar function. |
(1) the direct or indirect sale, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries, taken as a whole, to any “person” (within the meaning of Section 13(d) of the Exchange Act); | |
(2) the adoption of a plan relating to the liquidation or dissolution of the Company; |
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(3) a “person” or “group” (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) other than Permitted Holders becomes the ultimate “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of more than 50% of the total voting power of the Voting Stock of the Company on a fully diluted basis; or | |
(4) individuals who on the Closing Date constituted the Board of Directors (together with any new directors whose election by the Board of Directors or whose nomination by the Board of Directors for election by the Company’s shareholders was approved by a vote of at least a majority of the members of the Board of Directors then in office who either were members of the Board of Directors on the Closing Date or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of the Board of Directors then in office. |
(1) Treasury Securities; | |
(2) investment in time deposit accounts, certificates of deposit and money market deposits maturing not later than one year from the date of issuance or creation, in each case, entitled to U.S. Federal deposit insurance for the full amount thereof or issued by a bank or trust company (including the Joint Collateral Agent or the Escrow Agent or an Affiliate of the Joint Collateral Agent or the Escrow Agent, as the case may be) that is organized under the laws of the United States of America or any State thereof having capital, surplus and undivided profits aggregating in excess of $500.0 million; and | |
(3) investments in commercial paper maturing not later than 270 days from the date of issuance and having, at the date of acquisition, a rating no lower than A-1 from S&P, P-1 from Moody’s orF-1 from Fitch Ratings Ltd. |
(1) upon the release of Collateral from the Note Liens or the Security Agreements or from the Parity Liens, including all proceeds of Collateral Asset Sales and all monies received in respect of the principal of all purchase money, governmental and other obligations; | |
(2) as Net Loss Proceeds; | |
(3) pursuant to the Security Agreements; | |
(4) as proceeds of any sale or other disposition of all or any part of the Collateral by or on behalf of the Joint Collateral Agent or any collection, recovery, receipt, appropriation or other realization of or from all or any part of the Collateral pursuant to the indenture or any of the Security Agreements or otherwise; or |
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(5) for application as provided in the relevant provisions of the indenture or any Security Agreement for which disposition is not otherwise specifically provided for in the indenture or in any Security Agreement. |
(1) Fixed Charges; | |
(2) income taxes; | |
(3) depreciation expense; | |
(4) amortization expense; | |
(5) all other non-cash items (including non-cash asset impairment charges and amortization of pre-paid cash expenses that were paid in a prior period) reducing Adjusted Consolidated Net Income (other than items that will require cash payment within twelve months of the Transaction Date and for which an accrual or reserve is, or is required by GAAP to be, made (except for restructuring charges, in which case, Consolidated EBITDA shall be increased by an amount equal to the portion of such charges which do not reflect a cash expense during the period),providedthat any such cash payment (except for any cash payment related to restructuring charges) made after such twelve-month period shall be deducted from net income in the calculation of Consolidated EBITDA for the Four Quarter Period (as defined in the definition of “Fixed Charge Coverage Ratio”) in which such payment occurs), less all non-cash items increasing Adjusted Consolidated Net Income (other than items which represent the reversal of an accrual or reserve for anticipated cash charges in any prior period), all as determined on a consolidated basis for the Company and its Restricted Subsidiaries in conformity with GAAP; and | |
(6) any non-capitalized transaction costs incurred in connection with actual, proposed or abandoned financings, acquisitions or divestitures, including, but not limited to, any earn-out or similar expense in connection with acquisitions or dispositions and financing and refinancing fees and costs incurred in connection with the offering of the outstanding notes and related transactions; |
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(1) extending or shortening the maturity of any Indebtedness incurred thereunder or contemplated thereby; | |
(2) adding or deleting borrowers or guarantors thereunder; | |
(3) increasing the amount of indebtedness incurred thereunder or available to be borrowed thereunder; or | |
(4) otherwise altering the terms and conditions thereof. |
(1) shall be allocated and distributed first to the Trustee for account of the holders of notes on the one hand, and to an agent or representative appointed by and acting as paying agent for the holders of Parity Lien Indebtedness, on the other hand, ratably in proportion to the principal of and interest and premium (if any) outstanding on the notes when the allocation or distribution is made, on the one hand, and the principal of and interest and premium (if any) outstanding on the Parity Lien Indebtedness when the allocation or distribution is made, on the other hand; and thereafter |
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(2) shall be allocated and distributed (if any remain after payment in full of all of the principal of and interest and premium (if any) on the notes and the Parity Lien Indebtedness) to the Trustee for account of the holders of any remaining Note Obligations, on the one hand, and to such paying agent or other agent for account of the holders of any remaining Parity Lien Obligations, on the other hand, ratably in proportion to the aggregate unpaid amount of such remaining Note Obligations due and demanded (with written notice to the Trustee and the Joint Collateral Agent) prior to the date such distribution is made, on the one hand, and the aggregate unpaid amount of such remaining Parity Lien Obligations due and demanded (with written notice to the Trustee and the Joint Collateral Agent) prior to the date such distribution is made, on the other hand. |
(A) pro forma effect shall be given to any Indebtedness Incurred or repaid during the period (the “Reference Period”) commencing on the first day of the Four Quarter Period and ending on the Transaction Date (other than Indebtedness Incurred or repaid under a revolving credit agreement or similar arrangement) in each case as if such Indebtedness had been Incurred or repaid on the first day of such Reference Period; | |
(B) Consolidated Interest Expense attributable to interest on any Indebtedness (whether existing or being Incurred) computed on a pro forma basis and bearing a floating interest rate shall be computed as if the rate in effect on the Transaction Date (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months or, if shorter, at least equal to the remaining term of such Indebtedness) had been the applicable rate for the entire period; | |
(C) pro forma effect shall be given to Asset Dispositions and Asset Acquisitions (including giving pro forma effect to the application of proceeds of any Asset Disposition) that occur during such Reference Period as if they had occurred and such proceeds had been applied on the first day of such Reference Period, including giving effect to expense and cost reductions, and other operating improvements reasonably expected to be realized in connection with that acquisition, as determined in the good faith and reasonable judgment of the chief financial officer or similar principal financial officer of the Company (regardless of whether those cost savings could then be reflected in pro forma financial statements under GAAP, Regulation S-X promulgated by the SEC or any other regulation or policy of the SEC); | |
(D) pro forma effect shall be given to asset dispositions, asset acquisitions (including giving pro forma effect to the application of proceeds of any asset disposition) that have been made by any Person that has become a Restricted Subsidiary or has been merged with or into the Company or any Restricted Subsidiary during such Reference Period and that would have constituted Asset Dispositions or Asset Acquisitions had such transactions occurred when such Person was a Restricted Subsidiary as if such asset dispositions or asset acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the first day of such Reference Period, including giving effect to expense and cost reductions, and other operating improvements reasonably expected to be realized in |
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connection with that acquisition, as determined in the good faith and reasonable judgment of the chief financial officer or similar principal financial officer of the Company (regardless of whether those cost savings could then be reflected in pro forma financial statements under GAAP, Regulation S-X promulgated by the SEC or any other regulation or policy of the SEC);providedthat to the extent that clause (C) or (D) of this sentence requires that pro forma effect be given to an Asset Acquisition or Asset Disposition, such pro forma calculation shall be based upon the four full fiscal quarters immediately preceding the Transaction Date of the Person, or division, plant, unit or line of business of the Person, that is acquired or disposed for which financial information is available;provided furtherthat if an entity, division, plant, unit or line of business acquired commenced and completed commercial operations for one full fiscal quarter during such four fiscal quarters then such pro forma calculation shall be based on the annualized results of commercial operations of such entity, plant, unit, division or line of business since the date it began commercial operations; and | |
(E) pro forma effect shall be given to any entity, division, plant, unit or line of business that commenced and completed commercial operations for at least one full fiscal quarter during such Reference Period as if such entity, division, plant, unit or line of operations commenced commercial operations on the first day of such Reference Period and such pro forma calculation shall be based on the annualized results of commercial operations of such entity, plant, unit, division or line of business since the date it began commercial operations. |
(1) Consolidated Interest Expense,plus | |
(2) the amount of all dividend payments on any series preferred stock of such Person or any of its Restricted Subsidiaries (other than dividends payable solely in Capital Stock of such Person or such Restricted Subsidiary (other than Disqualified Stock) or to such Person or a Restricted Subsidiary of such Person) paid, accrued or scheduled to be paid or accrued during such period. |
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(1) all indebtedness of such Person for borrowed money; | |
(2) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; | |
(3) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto, but excluding obligations with respect to letters of credit (including trade letters of credit) securing obligations (other than obligations described in clause (1) or (2) above or clause (5), (6) or (7) below) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if drawn upon, to the extent such drawing is reimbursed no later than the third business day following receipt by such Person of a demand for reimbursement); | |
(4) all obligations of such Person to pay the deferred and unpaid purchase price of any property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services, except Trade Payables; | |
(5) all Capitalized Lease Obligations and Attributable Debt; | |
(6) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person;providedthat the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness; | |
(7) all Indebtedness of other Persons Guaranteed by such Person to the extent such Indebtedness is Guaranteed by such Person; | |
(8) to the extent not otherwise included in this definition, obligations under Commodity Agreements, Currency Agreements and Interest Rate Agreements (other than Commodity Agreements, Currency Agreements and Interest Rate Agreements entered into in the ordinary course of business and not for speculative purposes and entered into to protect the Company or its Restricted Subsidiaries against fluctuations in commodity prices, foreign currency exchange rates or interest rates and that do not increase the Indebtedness of the obligor outstanding at any time other than as a result of fluctuations in commodity prices, foreign currency exchange rates or interest rates or by reason of fees, indemnities and compensation payable thereunder); and | |
(9) all Disqualified Stock issued by such Person with the amount of Indebtedness represented by such Disqualified Stock being equal to the greater of its voluntary or involuntary liquidation preference and its maximum fixed repurchase price, but excluding accrued dividends, if any. |
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(1) is authorized to exercise corporate trust powers; | |
(2) is reasonably satisfactory to the Trustee; and | |
(3) has been appointed by the Company and has agreed, pursuant to a Collateral Agency Agreement, to act as collateral agent for the equal and ratable benefit of all present and future holders and holders of Parity Lien Indebtedness, whenever incurred, and also for the benefit of the present and future holders of all other Note Obligations and Parity Lien Obligations, in its capacity as such collateral agent, and any successor in such capacity. |
(a) with respect to any Asset Sale, the proceeds of such Asset Sale in the form of cash or Temporary Cash Investments, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or Temporary Cash Investments and proceeds from the conversion of other property received when converted to cash or Temporary Cash Investments, net of: |
(1) brokerage commissions and other fees and expenses (including fees and expenses of counsel and investment bankers) related to such Asset Sale; |
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(2) provisions for all taxes paid or payable as a result of such Asset Sale without regard to the consolidated results of operations of the Company and its Restricted Subsidiaries, taken as a whole; | |
(3) payments made to repay Indebtedness or any other obligation outstanding at the time of such Asset Sale that either (x) is secured by a Lien on the property or assets sold or (y) is required to be paid as a result of such sale; and | |
(4) appropriate amounts to be provided by the Company or any Restricted Subsidiary as a reserve against any liabilities associated with such Asset Sale, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Asset Sale, all as determined in conformity with GAAP; and |
(b) with respect to any issuance or sale of Capital Stock, the proceeds of such issuance or sale in the form of cash or Temporary Cash Investments, including payments in respect of deferred payment obligations (to the extent corresponding to the principal, but not interest, component thereof) when received in the form of cash or Temporary Cash Investments and proceeds from the conversion of other property received when converted to cash or Temporary Cash Investments, net of attorneys’ fees, accountants’ fees, underwriters’ or placement agents’ fees, discounts or commissions and brokerage, consultant and other fees incurred in connection with such issuance or sale and net of taxes paid or payable as a result thereof. |
(1) reasonableout-of-pocket expenses and fees relating to such Event of Loss (including without limitation, legal, accounting and appraisal or insurance adjuster fees); | |
(2) taxes paid or payable after taking into account any reduction in consolidated tax liability due to available tax credits or deductions and any tax sharing arrangements; | |
(3) any repayment of Indebtedness that is secured by, or directly related to, the property or assets that are the subject of such Event of Loss; and | |
(4) appropriate amounts to be provided by the Company or any Restricted Subsidiary, against any liabilities associated with such Event of Loss, including, without limitation, pension and other post-employment benefit liabilities, liabilities related to environmental matters and liabilities under any indemnification obligations associated with such Event of Loss, all as determined in conformity with GAAP. |
(1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; | |
(2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against the relevant Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and | |
(3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of the Company or any of its Restricted Subsidiaries. |
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(1) the provision of the indenture pursuant to which the offer is being made and that all notes validly tendered will be accepted for payment on a pro rata basis; | |
(2) the purchase price and the date of purchase, which shall be a business day no earlier than 30 days nor later than 60 days from the date such notice is mailed (except in the case of a Special Offer to Purchase or an Event of Loss Offer to Purchase, in either which case the date of purchase shall be a business day no later than five business days from such mailing date) (the “Payment Date”); | |
(3) that any note not tendered will continue to accrue interest pursuant to its terms; | |
(4) that, unless the Company defaults in the payment of the purchase price, any note accepted for payment pursuant to the Offer to Purchase shall cease to accrue interest on and after the Payment Date; | |
(5) that holders electing to have a note purchased pursuant to the Offer to Purchase will be required to surrender the note, together with the form entitled “Option of the holder to Elect Purchase” on the reverse side of the note completed, to the paying agent at the address specified in the notice prior to the close of business on the business day immediately preceding the Payment Date; | |
(6) that holders will be entitled to withdraw their election if the paying agent receives, not later than the close of business on the third business day immediately preceding the Payment Date, a telegram, facsimile transmission or letter setting forth the name of such holder, the principal amount of notes delivered for purchase and a statement that such holder is withdrawing his election to have such notes purchased; and | |
(7) that holders whose notes are being purchased only in part will be issued new notes equal in principal amount to the unpurchased portion of the notes surrendered;providedthat each note purchased and each new note issued shall be in a principal amount of $2,000 or integral multiples of $1,000 in excess thereof. |
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(1) such Parity Lien Indebtedness is Guaranteed by each Restricted Subsidiary which, on the date of incurrence of such Indebtedness, is obligated as a Subsidiary Guarantor under a Note Guarantee; | |
(2) such Parity Lien Indebtedness is secured when incurred, Equally and Ratably with the Notes and all other Parity Lien Indebtedness, by perfected Liens (to the extent the Note Liens are perfected) duly granted to the Joint Collateral Agent by the Company and each Restricted Subsidiary upon all of the Collateral (other than the Escrow Account and the escrowed funds held therein), which Liens have the same priority as the Note Liens immediately prior to the incurrence of such Parity Lien Indebtedness; | |
(3) such Parity Lien Indebtedness is not subordinated in right of payment to any other Indebtedness of the Company or any Subsidiary Guarantor; | |
(4) such Parity Lien Indebtedness matures no earlier than the maturity of the notes and requires no prepayments, sinking fund payments or offer to purchase (except when, as and to the extent an Offer to Purchase the notes is required by the provisions described under the “Limitation on Asset Sales” covenant, the “Events of Loss” covenant and “— Repurchase of Notes upon a Change of Control” and except as otherwise set forth in paragraph (7) below); | |
(5) such Parity Lien Indebtedness is governed by an indenture or agreement which provides (for the enforceable benefit of the Trustee and holders) that all Note Obligations and Parity Lien Obligations shall be and are secured Equally and Ratably by all Liens, guarantees, supporting obligations and loss sharing rights at any time granted by the Company or any Subsidiary or any other Person as security for such Indebtedness or any obligations in respect of such Indebtedness, whether or not otherwise constituting Collateral (except that the Parity Liens will not extend to the Escrow Account and the escrowed funds held therein), that all such Liens, guarantees, supporting obligations and loss sharing rights are transferred to the Joint Collateral Agent and shall be enforceable by the Joint Collateral Agent, and that the holders of such Indebtedness and obligations in respect of such |
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Indebtedness consent to and direct the Joint Collateral Agent to perform its obligations as set forth under the Security Agreements; | |
(6) such Parity Lien Indebtedness is incurred for the purpose of and the proceeds are utilized to Invest in (i) cash or Temporary Cash Investments or (ii) collateral of the nature and type referred to in clause (2), (3) or (5) of the second paragraph under “— Collateral” and that is used in a Permitted Business, and each of the Investments referred to in clause (i) and (ii) of this clause (6) become subject to Parity Liens; | |
(7) to the extent the net proceeds from any such issuance of Parity Lien Indebtedness is deposited into an escrow account (other than the Escrow Account) pending their investment as described in clause (6) above, such net proceeds may be utilized to the extent required by the terms of such Parity Lien Indebtedness and to the extent not Invested as described in clause (6) above on or prior to 180 days after the date of issuance of such Parity Lien Indebtedness to, not later than the next business day following such 180th day, commence an Offer to Purchase such Parity Lien Indebtedness in an amount equal to the amount of such net proceeds remaining in the escrow account at such time, at a purchase price equal to 100% of their principal amount, plus, in each case, accrued interest (if any) to the payment date; | |
(8) the security agreements in respect of such Parity Lien Indebtedness contain provisions with respect to the release of Collateral substantially similar and no less restrictive on the Company and its Restricted Subsidiaries than the provisions of the indenture and the Security Agreements; and | |
(9) such Parity Lien Indebtedness is designated by the Company, in an Officers’ Certificate delivered to the Trustee on or before the date of incurrence of such Indebtedness, as Parity Lien Indebtedness for the purposes of the indenture. |
(1) an Investment in the Company or a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary or be merged or consolidated with or into, or transfer or convey all or substantially all its assets to, the Company or a Restricted Subsidiary;provided, however, that any such Investment that is or involves a direct or indirect advance, loan, capital contribution, transfer, assignment, conveyance or other disposition of any property or assets constituting all or part of the Collateral (a) to any entity that is not an Obligor shall not be a Permitted Investment and (b) to any entity that is an Obligor shall not be a Permitted Investment unless such property or assets shall, immediately following the consummation of such Investment, be subject to the Note Lien to the same extent as such property or assets were so subject immediately prior to such consummation; | |
(2) Temporary Cash Investments; | |
(3) payroll, travel and similar advances to cover matters that are expected at the time of such advances ultimately to be treated as expenses in accordance with GAAP; | |
(4) stock, obligations or securities received in satisfaction of judgments; |
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(5) Commodity Agreements, Interest Rate Agreements and Currency Agreements entered into to protect the Company or its Restricted Subsidiaries against fluctuations in commodity prices, interest rates or foreign currency exchange rates; | |
(6) loans and advances to employees and officers of the Company and its Restricted Subsidiaries made in the ordinary course of business for bona fide business purposes not to exceed $2.0 million in the aggregate at any one time outstanding; | |
(7) Investments in securities of trade creditors or customers received: |
(a) pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; or | |
(b) in settlement of delinquent obligations of, and other disputes with, customers, suppliers and others, in each case arising in the ordinary course of business or otherwise in satisfaction of a judgment; |
(8) Investments: |
(a) made by the Company or its Restricted Subsidiaries consisting of consideration received in connection with an Asset Sale made in compliance with the “Limitation on Asset Sales” covenant; or | |
(b) consisting of consideration received by the Company or any of its Restricted Subsidiaries in connection with a transaction that would be an Asset Sale if it consisted of aggregate consideration received by the Company or any of its Restricted Subsidiaries of $5.0 million or more; |
(9) Investments of a Person or any of its Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of the Company or at the time such Person merges or consolidates with the Company or any of its Restricted Subsidiaries, in either case, in compliance with the indenture;providedthat such Investments were not made by such Person in connection with, or in anticipation or contemplation of, such Person becoming a Restricted Subsidiary of the Company or such merger or consolidation; | |
(10) repurchases of Notes and, to the extent required as a result of the repurchase of notes, pro rata repurchases of Parity Lien Indebtedness; | |
(11) any Investment in a Person engaged in a Permitted Business (other than an Investment in a Subsidiary of the Company) having an aggregate fair market value, taken together with all other Investments made pursuant to this clause (11) that are at that time outstanding, not to exceed 15% of Total Assets at the time of that Investment (with the fair market value of each Investment being measured at the time made and without giving effect to subsequent changes in value);providedthat such Person shall not use the proceeds of such Investment to purchase, redeem, retire or otherwise acquire for value any shares of the Capital Stock of the Company; and | |
(12) additional Investments (including Investments in Joint Ventures and Unrestricted Subsidiaries) at any one time outstanding not to exceed the greater of (a) $7.5 million and (b) 2.5% of Total Assets;providedthat, in the event of an Investment in any Person that is not a Restricted Subsidiary, such Person shall not use the proceeds of such Investment to purchase, redeem, retire or otherwise acquire for value any shares of the Capital Stock of the Company; |
(1) Liens for taxes, assessments, governmental charges or claims that are not yet delinquent or are being contested in good faith by appropriate legal proceedings promptly instituted and diligently |
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conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; | |
(2) statutory and common law Liens of landlords and carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other similar Liens arising in the ordinary course of business and with respect to amounts not yet delinquent or being contested in good faith by appropriate legal proceedings promptly instituted and diligently conducted and for which a reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made; | |
(3) Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other types of social security; | |
(4) Liens incurred or deposits made to secure the performance of tenders, bids, leases, statutory or regulatory obligations, bankers’ acceptances, surety and appeal bonds, government contracts, performance andreturn-of-money bonds and other obligations of a similar nature incurred in the ordinary course of business (exclusive of obligations for the payment of borrowed money); | |
(5) easements,rights-of-way, municipal and zoning ordinances and similar charges, encumbrances, title defects or other irregularities in respect of real property that do not materially adversely affect the value of said real property or materially interfere with the ordinary course of business of the Company or any of its Restricted Subsidiaries; | |
(6) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries, taken as a whole; | |
(7) Liens encumbering property or assets under construction arising from progress or partial payments by a customer of the Company or its Restricted Subsidiaries relating to such property or assets; | |
(8) any interest or title of a lessor, including Liens arising from precautionary Uniform Commercial Code financing statement filings, in the property subject to any Capitalized Lease or operating lease entered into in the ordinary course of business; | |
(9) Liens on property of, or on shares of Capital Stock or Indebtedness of, any Person existing at the time such Person becomes, or becomes a part of, any Restricted Subsidiary;providedthat such Liens do not extend to or cover any property or assets of the Company or any Restricted Subsidiary other than the property or assets acquired; | |
(10) Liens in favor of the Company or any Restricted Subsidiary; | |
(11) judgment Liens arising from the rendering of a final judgment or order against the Company or any Restricted Subsidiary that does not give rise to an Event of Default, so long as any appropriate legal proceeding that may have been duly initiated for the review of such judgment shall not have been finally terminated or the period within which such legal proceedings may be initiated shall not have expired; | |
(12) Liens securing reimbursement obligations with respect to letters of credit that encumber documents and other property relating to such letters of credit and the products and proceeds thereof; | |
(13) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; | |
(14) Liens encumbering customary initial deposits and margin deposits, and other Liens that are within the general parameters customary in the industry and incurred in the ordinary course of business, in each case, securing Indebtedness under Interest Rate Agreements, Currency Agreements or Commodity Agreements entered into to protect the Company or any of its Restricted Subsidiaries from fluctuations in interest rates, currencies or the price of commodities; | |
(15) Liens arising out of conditional sale, title retention, consignment or similar arrangements for the sale of goods entered into by the Company or any of its Restricted Subsidiaries in the ordinary |
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course of business in accordance with the past practices of the Company and its Restricted Subsidiaries prior to the Closing Date; | |
(16) Liens on or sales of receivables (other than Liens on receivables of the Company or any Subsidiary Guarantor); | |
(17) Liens in the ordinary course of business securing Indebtedness not exceeding $2.0 million at any one time outstanding that (a) are not incurred in connection with borrowing of money and (b) do not materially detract from the value of the property or materially impair its use; | |
(18) Liens securing additional Indebtedness of the Company and its Restricted Subsidiaries in an aggregate principal amount not to exceed $5.0 million at any one time outstanding; and | |
(19) Liens securing Indebtedness permitted under clause (a)(4) of the “Limitation of Indebtedness” covenant,providedthat, in the event such Indebtedness is Incurred for the purpose of defeasing the notes, such Lien does not cover any of the cash or cash equivalents that are deposited with the Trustee or otherwise to defease the notes. |
(1) Net Cash Proceeds; | |
(2) the fair market value of any assets (other than Investments) that are used or useful in a Permitted Business; and | |
(3) the fair market value of any Capital Stock of any Person engaged in a Permitted Business if (a) that Person is or, in connection with the receipt by the Company or any Restricted Subsidiary of that Capital Stock, becomes a Restricted Subsidiary of the Company; or (b) that Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or any Restricted Subsidiary of the Company. |
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(1) direct obligations of the United States of America or any agency thereof or obligations fully and unconditionally guaranteed by the United States of America or any agency thereof, in each case, maturing within one year unless such obligations are deposited by the Company (x) to defease any Indebtedness or (y) in a collateral or escrow account or similar arrangement to prefund the payment of interest on any indebtedness; | |
(2) time deposit accounts, certificates of deposit and money market deposits maturing within one year of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America, and which bank or trust company has capital, surplus and undivided profits aggregating in excess of $100.0 million (or the foreign currency equivalent thereof) and has outstanding debt which is rated “A” (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act) or any money market fund sponsored by a registered broker dealer or mutual fund distributor; | |
(3) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (1) above entered into with a bank or trust company meeting the qualifications described in clause (2) above; | |
(4) commercial paper, maturing not more than one year after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of “P-1” (or higher) according to Moody’s or “A-1” (or higher) according to S&P; |
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(5) securities with maturities of six months or less from the date of acquisition issued or fully and unconditionally guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least “A” by S&P or Moody’s; | |
(6) any mutual fund that has at least 95% of its assets continuously invested in investments of the types described in clauses (1) through (5) above; and | |
(7) overnight deposits and demand deposit accounts (in the respective local currencies) maintained in the ordinary course of business. |
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• | repay approximately $26.8 million of senior bank indebtedness of VAC relating to our Aurora Facility, which senior bank indebtedness was to mature on May 15, 2009 and accrued interest at a rate equal to LIBOR plus 280 basis points (7.14% as of November 15, 2005), | |
• | repay approximately $22.2 million of subordinated indebtedness of VAC relating to our Aurora Facility, which subordinated indebtedness was to mature on November 30, 2011 and accrued interest at a rate equal to 13.5%, | |
• | repay approximately $59.4 million of senior indebtedness of VFD relating to our Fort Dodge Facility, which senior indebtedness was to mature on February 10, 2006 or the earlier completion date of the construction project and accrued interest at a rate equal to LIBOR plus 325 basis points (7.35% as of November 15, 2005), | |
• | repay approximately $31.2 million of subordinated indebtedness of VFD relating to our Fort Dodge Facility, which subordinated indebtedness was to mature on December 15, 2014 and accrued interest at a rate of 11.5%, | |
• | repay approximately $3.0 million under three promissory notes issued to our Chief Executive Officer, Donald L. Endres, which promissory notes were to mature on December 31, 2005 and accrued interest at a rate of 10.0%, | |
• | deposit $125.0 million into an escrow account to finance the costs of the construction and start up costs of the 110 MMGY Charles City Facility, | |
• | pay fees and expenses of $6.5 million relating to the offering of outstanding notes and the Credit Agreement, and | |
• | finance general corporate activities, including further development of our VE85tm business. |
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Sources of Funds | Amount | Use of Funds | Amount | |||||||
(In millions) | (In millions) | |||||||||
Net proceeds of Equity Offering(1) | $ | 90.1 | Repay VAC senior and subordinated debt(2) | $ | 49.0 | |||||
Credit Agreement(3) | — | Repay VFD senior and subordinated debt(2) | 90.6 | |||||||
Proceeds of notes | 208.7 | Repay related party debt(4) | 3.0 | |||||||
Deposit in escrow to finance the construction and start up costs of the Charles City Facility | 125.0 | |||||||||
General corporate purposes, including development of our VE85tmbusiness | 24.7 | |||||||||
Estimated fees and expenses | 6.5 | |||||||||
Total sources | $ | 298.8 | Total uses | $ | 298.8 | |||||
(1) | We completed the Equity Offering on November 30, 2005. The proceeds noted above are net of fees and expenses of $162,000. |
(2) | Debt repayment amounts include prepayment costs and accrued interest to the date of prepayment. |
(3) | Total available capacity under the Credit Agreement is determined as a percentage of certain of our accounts receivable and inventory. As of December 31, 2005, we had total borrowing capacity of approximately $24.1 million. Letters of credit in an aggregate amount of $2.7 million have been issued under the Credit Agreement, leaving $21.4 million of remaining borrowing capacity at December 31, 2005. |
(4) | Repayment of approximately $3.0 million for three promissory notes to our Chief Executive Officer, Donald L. Endres. See “Relationships and Related Party Transactions — Loans from Chief Executive Officer.” |
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As of | ||||||
March 31, | ||||||
2006 | ||||||
(In thousands) | ||||||
Cash and cash equivalents | $ | 43,306 | ||||
Restricted cash | $ | 115,709 | ||||
Long-term debt: | ||||||
Credit Agreement(1) | $ | — | ||||
Senior Secured Notes | 208,790 | |||||
Total long-term debt | 208,790 | |||||
Shareholders’ equity | 147,665 | |||||
Total capitalization | $ | 356,455 | ||||
(1) | Our available capacity under the Credit Agreement is determined as a percentage of certain of our accounts receivable and inventory. As of March 31, 2006, we had total borrowing capacity of approximately $24.8 million. Letters of credit in an aggregate amount of $2.7 million have been issued under the Credit Agreement, leaving $22.1 million of remaining borrowing capacity at March 31, 2006. |
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Three Months Ended | ||||||||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2005 | 2006 | |||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||
(dollars in thousands, except per share data) | ||||||||||||||||||||||||||
Income statement data:(1) | ||||||||||||||||||||||||||
Net sales | $ | — | $ | 10,884 | $ | 186,029 | $ | 235,440 | $ | 44,685 | $ | 109,881 | ||||||||||||||
Other revenues, incentive income | — | 1,776 | 7,723 | 919 | 167 | 823 | ||||||||||||||||||||
Total revenues | — | 12,660 | 193,752 | 236,359 | 44,852 | 110,704 | ||||||||||||||||||||
Cost of goods sold | — | 8,450 | 154,022 | 200,823 | 38,681 | 81,358 | ||||||||||||||||||||
Gross profit | — | 4,210 | 39,730 | 35,536 | 6,171 | 29,346 | ||||||||||||||||||||
Selling, general and administrative expenses | 1,226 | 2,233 | 6,140 | 11,874 | 2,058 | 3,770 | ||||||||||||||||||||
Operating income (loss) | (1,226 | ) | 1,977 | 33,590 | 23,662 | 4,113 | 25,576 | |||||||||||||||||||
Other income (expense): | ||||||||||||||||||||||||||
Interest expense(2) | — | (839 | ) | (8,892 | ) | (7,609 | ) | (1,514 | ) | (16,296 | ) | |||||||||||||||
Other interest expense, loss on extinguishment of debt | — | — | — | (15,744 | ) | — | — | |||||||||||||||||||
Interest income | 5 | 11 | 182 | 448 | 44 | 1,668 | ||||||||||||||||||||
Other income | 6 | 14 | 33 | 17 | — | 2 | ||||||||||||||||||||
11 | (814 | ) | (8,677 | ) | (22,888 | ) | (1,470 | ) | (14,626 | ) | ||||||||||||||||
Income (loss) before income taxes and minority interest | (1,215 | ) | 1,163 | 24,913 | 774 | 2,643 | 10,950 | |||||||||||||||||||
Income taxes(3) | — | 571 | 10,242 | 582 | 1,010 | 8,215 | ||||||||||||||||||||
Income (loss) before minority interest | (1,215 | ) | 592 | 14,671 | 192 | 1,633 | 2,735 | |||||||||||||||||||
Minority interest in net loss of subsidiary | — | — | 100 | 61 | 53 | — | ||||||||||||||||||||
Net income (loss)(3) | $ | (1,215 | ) | $ | 592 | $ | 14,771 | $ | 253 | $ | 1,686 | $ | 2,735 | |||||||||||||
Earnings (loss) per common share(3) | ||||||||||||||||||||||||||
Basic | $ | (1.21 | ) | $ | 0.02 | $ | 0.40 | $ | 0.01 | $ | 0.04 | $ | 0.04 | |||||||||||||
Diluted | (1.21 | ) | 0.02 | 0.39 | 0.01 | 0.04 | 0.04 | |||||||||||||||||||
Shares used in per common share calculations | ||||||||||||||||||||||||||
Basic | 1,000,076 | 30,380,082 | 36,738,191 | 44,810,490 | 43,110,203 | 62,413,302 | ||||||||||||||||||||
Diluted | 1,031,975 | 30,577,961 | 37,908,751 | 47,578,869 | 45,771,045 | 65,200,083 |
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Three Months Ended | ||||||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2005 | 2006 | |||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||
(dollars in thousands, except per share data) | ||||||||||||||||||||||||
Other financial data: | ||||||||||||||||||||||||
EBITDA(4) | $ | (1,203 | ) | $ | 2,350 | $ | 37,831 | $ | 29,880 | $ | 5,375 | $ | 29,610 | |||||||||||
Certain items included in EBITDA(5) | — | 1 | 951 | 7,416 | 328 | 185 | ||||||||||||||||||
Working capital (deficit) | 1,526 | (35,182 | ) | 9,779 | 61,551 | 9,423 | 79,235 | |||||||||||||||||
Capital expenditures | 5,295 | 63,974 | 25,215 | 87,095 | 22,171 | 2,383 | ||||||||||||||||||
Net cash provided by (used in) operating activities | (653 | ) | (10,641 | ) | 20,858 | (2,515 | ) | 6,144 | 17,401 | |||||||||||||||
Net cash used in investing activities | (5,294 | ) | (63,974 | ) | (25,214 | ) | (212,049 | ) | (22,163 | ) | (2,383 | ) | ||||||||||||
Net cash provided by (used in) financing activities | 10,021 | 70,381 | 14,621 | 233,982 | 13,919 | (1,426 | ) | |||||||||||||||||
Operating data: | ||||||||||||||||||||||||
Ethanol sold (gallons) | — | 6,459,804 | 101,370,470 | 126,346,295 | 24,696,523 | 54,506,270 | ||||||||||||||||||
Average gross price of ethanol sold (dollars per gallon)(6) | $ | — | $ | 1.39 | $ | 1.50 | $ | 1.59 | $ | 1.51 | $ | 1.77 | ||||||||||||
Average corn cost per bushel | — | 2.17 | 2.50 | 2.12 | 2.35 | 1.87 | ||||||||||||||||||
Average natural gas cost per MMBTU | — | — | 6.16 | 9.12 | 6.89 | 9.69 | ||||||||||||||||||
Average dry distillers grains price per ton (net) | — | — | 111 | 87 | 98 | 87 |
As of | ||||||||||||||||||||
As of December 31, | March 31, | |||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | ||||||||||||||||
(unaudited) | ||||||||||||||||||||
(in thousands) | ||||||||||||||||||||
Balance sheet data: | ||||||||||||||||||||
Cash and cash equivalents | $ | 4,264 | $ | 31 | $ | 10,296 | $ | 29,714 | $ | 43,306 | ||||||||||
Restricted cash | — | — | — | 124,750 | 115,709 | |||||||||||||||
Property and equipment, net | 6,223 | 76,882 | 106,753 | 179,683 | 187,126 | |||||||||||||||
Total assets | 11,907 | 96,479 | 150,328 | 405,129 | 413,461 | |||||||||||||||
Total debt(7) | — | 58,503 | 58,381 | 210,000 | 210,000 | |||||||||||||||
Total equity | 8,567 | 17,594 | 44,476 | 144,918 | 147,665 |
(1) | Income statement data reflects the financial impact of operations of our Aurora Facility, which commenced operations in December 2003, and our Fort Dodge Facility, which commenced operations in October 2005. |
(2) | Interest expense includes changes in the fair value of a put warrant of $566 for the year ended December 31, 2003, $3,481 for the year ended December 31, 2004, $2,809 for the year ended December 31, 2005, $313 for the three months ended March 31, 2005, and $10,938 for the three months ended March 31, 2006. Under the terms of the amended warrant agreement with TIAA, the put feature terminated upon the exercise of the warrant and the sale of the shares underlying the warrant in connection with our initial public offering. The put warrant is described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Summary of Critical Accounting Policies and Estimates — Put warrant.” |
(3) | The following pro forma information presents our income tax expense, net income and earnings per share as if all subsidiaries were taxable for the entire period presented. |
Three Months | ||||||||||||||||||||||
Ended | ||||||||||||||||||||||
Year Ended December 31, | March 31, | |||||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||||
(in thousands, except per share data) | ||||||||||||||||||||||
Pro forma amounts as if all subsidiaries were taxable for entire period (unaudited): | ||||||||||||||||||||||
Pro forma income taxes | $ | 571 | $ | 9,862 | $ | 1,839 | $ | 854 | $ | 8,215 | ||||||||||||
Pro forma net income (loss) | 592 | 15,151 | (1,004 | ) | 1,842 | 2,735 | ||||||||||||||||
Pro forma earnings (loss) per common share: | ||||||||||||||||||||||
Basic | $ | 0.02 | $ | 0.41 | $ | (0.02 | ) | $ | 0.04 | $ | 0.04 | |||||||||||
Diluted | 0.02 | 0.40 | (0.02 | ) | 0.04 | 0.04 |
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See our consolidated statements of income on page F-4 and our condensed consolidated statements of income on page F-35. | |
(4) | EBITDA is defined as earnings before interest expense, income tax expense, depreciation and amortization. Amortization of debt issuance costs and debt discount are included in interest expense. EBITDA is not a measure of financial performance under GAAP, and should not be considered an alternative to net income, or any other measure of performance under GAAP, or to cash flows from operating, investing or financing activities as an indicator of cash flows or as a measure of liquidity. EBITDA has its limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP. Some of the limitations of EBITDA are: |
• | EBITDA does not reflect our cash used for capital expenditures; | |
• | Although depreciation and amortization are non-cash charges, the assets being depreciated or amortized often will have to be replaced and EBITDA does not reflect the cash requirements for replacements; | |
• | EBITDA does not reflect changes in, or cash requirements for, our working capital requirements; | |
• | EBITDA does not reflect the cash necessary to make payments of interest or principal on our indebtedness; and | |
• | EBITDA includes non-recurring payments to us which are reflected in other income. |
Because of these limitations, EBITDA should not be considered as a measure of discretionary cash available to us to service our debt or to invest in the growth of our business. We compensate for these limitations by relying on our GAAP results as well as on our EBITDA. Our management believes that EBITDA is useful in evaluating our operating performance in relation to other companies in our industry because the calculation of EBITDA generally eliminates the effects of financings and income taxes which items may vary for different companies for reasons unrelated to overall operating performance. | |
The following table reconciles our EBITDA to net income for each period presented: |
Three Months | ||||||||||||||||||||
Year Ended December 31, | Ended March 31, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||
(in thousands) | ||||||||||||||||||||
Net income | $ | 592 | $ | 14,771 | $ | 253 | $ | 1,686 | $ | 2,735 | ||||||||||
Depreciation | 348 | 3,926 | 5,692 | 1,165 | 2,364 | |||||||||||||||
Interest expense | 839 | 8,892 | 23,353 | 1,514 | 16,296 | |||||||||||||||
Income taxes | 571 | 10,242 | 582 | 1,010 | 8,215 | |||||||||||||||
EBITDA | $ | 2,350 | $ | 37,831 | $ | 29,880 | $ | 5,375 | $ | 29,610 | ||||||||||
(5) | The following table shows certain items that are included in EBITDA associated with our earnings. We believe that the table, when reviewed in connection with our presentation of EBITDA, provides another useful tool to our management and investors for measuring comparative operating performance between time periods and among companies. In addition to EBITDA, our management assesses the adjustments presented in this table when preparing our annual operating budget and financial projections. EBITDA, as defined above, was reduced by the following items: |
Three Months | |||||||||||||||||||||
Ended | |||||||||||||||||||||
Year Ended December 31, | March 31, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | |||||||||||||||||
(in thousands) | |||||||||||||||||||||
Loss attributable to VFD, excluding interest and depreciation* | $ | 1 | $ | 951 | $ | 4,776 | $ | 328 | $ | — | |||||||||||
Loss attributable to VCC, excluding tax benefit | — | — | — | — | 185 | ||||||||||||||||
Loss on disposal of a thermal oxidizer system | — | — | 2,640 | — | — | ||||||||||||||||
Total | $ | 1 | $ | 951 | $ | 7,416 | $ | 328 | $ | 185 | |||||||||||
* | Net loss incurred prior to commencement of operations of VFD in October 2005. |
(6) | Average gross price of ethanol sold (dollars per gallon) does not include freight, commissions or other related costs, but does include related hedging gains or losses. |
(7) | Total debt at December 31, 2005 and March 31, 2006 is shown before unaccreted discount of $1.3 million and $1.2 million, respectively. |
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Charles City | ||||||
Aurora Facility | Fort Dodge Facility | Facility(1) | ||||
Location | Aurora, South Dakota | Fort Dodge, Iowa | Charles City, Iowa | |||
Year completed or scheduled to be completed | 2003 (expansion 2005)(2) | 2005 | 2007 | |||
Annual ethanol capacity (in millions of gallons) | 120 | 110 | 110(3) | |||
Ownership | 100% | 100% | 100% | |||
Production process | Dry-Milling(4) | Dry-Milling(4) | Dry-Milling(4) | |||
Primary energy source | Natural Gas | Natural Gas | Natural Gas | |||
Estimated distillers grains production (dry) per year | 390,000 tons | 350,000 tons | 350,000 tons | |||
Estimated corn processed per year | 43 million bushels | 39 million bushels | 39 million bushels | |||
Corn grown during 2004-2005 crop year within a 60-mile radius | 325 million bushels | 598 million bushels | 563 million bushels |
(1) | Construction of our Charles City Facility commenced in 2006 and is being funded primarily with $125.0 million of the net proceeds from the sale of the notes. |
(2) | In June 2005, our Aurora Facility was expanded from a production capacity of 100 MMGY to 120 MMGY. |
(3) | Estimated upon completion of construction of our Charles City Facility. |
(4) | Our facilities utilize dry-milling technology, a production process that results in increased ethanol yield and reduced capital costs compared to wet-milling technology. See “Business—Supply of Ethanol.” |
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• | favorable economics for refiners and blenders requiring octane and clean blend components; | |
• | phase-out of MTBE, an alternative oxygenate to ethanol, due to environmental, health and liability concerns; | |
• | increased demand by consumers for, and favorable economics associated with, E85 as an alternative fuel to gasoline; | |
• | shortage of domestic petroleum refining capacity; |
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• | increased pressure to substitute renewable fuels for gasoline to extend U.S. gasoline supplies and reduce dependence on foreign oil; and | |
• | mandated renewable fuel usage in the Energy Policy Act of 2005. |
(1) | Based on the monthly average of daily close prices of the Nearby Corn Futures quoted by the Chicago Board of Trade. |
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(1) | Based on the monthly average of the daily closing price of U.S. average ethanol rack prices quoted by Bloomberg. |
(1) | Ethanol prices are based on the monthly average of the daily closing price of U.S. average ethanol rack prices quoted by Bloomberg. The corn prices are based on the monthly average of the daily closing prices of the Nearby Corn Futures quoted by |
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the Chicago Board of Trade and assume a conversion rate of 2.8 gallons of ethanol produced per bushel of corn. The comparison between the ethanol and corn prices presented does not reflect the costs of producing ethanol other than the cost of corn, and should not be used as a measure of future results. This comparison also does not reflect the revenues that are received from the sale of distillers grains co-products. |
(1) | Based on the monthly average of daily close prices of Natural Gas Futures quoted by NYMEX. |
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• | the sale of ethanol; | |
• | the sale of distillers grains, which are co-products of the ethanol production process; | |
• | the sale of ethanol blended VE85tm fuel; and | |
• | incentive income. |
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Year Ended December 31, | Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||||||||||||||
(in thousands, except percentage data) | ||||||||||||||||||||||||||||||||||||||||
Total revenues | $ | 12,660 | 100.0 | % | $ | 193,752 | 100.0 | % | $ | 236,359 | 100.0 | % | $ | 44,852 | 100.0 | % | $ | 110,704 | 100.0 | % | ||||||||||||||||||||
Cost of goods sold | 8,450 | 66.7 | 154,022 | 79.5 | 200,823 | 85.0 | 38,681 | 86.2 | 81,358 | 73.5 | ||||||||||||||||||||||||||||||
Gross profit | 4,210 | 33.3 | 39,730 | 20.5 | 35,536 | 15.0 | 6,171 | 13.8 | 29,346 | 26.5 | ||||||||||||||||||||||||||||||
Selling, general and administrative expenses | 2,233 | 17.7 | 6,140 | 3.2 | 11,874 | 5.0 | 2,058 | 4.6 | 3,770 | 3.4 | ||||||||||||||||||||||||||||||
Operating income | 1,977 | 15.6 | 33,590 | 17.3 | 23,662 | 10.0 | 4,113 | 9.2 | 25,576 | 23.1 | ||||||||||||||||||||||||||||||
Other expense, net | (814 | ) | (6.4 | ) | (8,677 | ) | (4.4 | ) | (22,888 | ) | (9.7 | ) | (1,470 | ) | (3.3 | ) | (14,626 | ) | (13.2 | ) | ||||||||||||||||||||
Income before income taxes and minority interest | 1,163 | 9.2 | 24,913 | 12.9 | 774 | 0.3 | 2,643 | 5.9 | 10,950 | 9.9 | ||||||||||||||||||||||||||||||
Income taxes | 571 | 4.5 | 10,242 | 5.3 | 582 | 0.2 | 1,010 | 2.2 | 8,215 | 7.4 | ||||||||||||||||||||||||||||||
Income before minority interest | 592 | 4.7 | 14,671 | 7.6 | 192 | 0.1 | 1,633 | 3.7 | 2,735 | 2.5 | ||||||||||||||||||||||||||||||
Minority interest in net loss of subsidiary | — | — | 100 | — | 61 | — | 53 | 0.1 | — | — | ||||||||||||||||||||||||||||||
Net income | $ | 592 | 4.7 | % | $ | 14,771 | 7.6 | % | $ | 253 | 0.1 | % | $ | 1,686 | 3.8 | % | $ | 2,735 | 2.5 | % | ||||||||||||||||||||
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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004 |
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Three Months Ended | |||||||||||||||||||||
March 31, | June 30, | September 30, | December 31, | March 31, | |||||||||||||||||
2005 | 2005 | 2005 | 2005 | 2006 | |||||||||||||||||
(unaudited) | |||||||||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||||
Total revenues | $ | 44,852 | $ | 34,410 | $ | 56,990 | $ | 100,107 | $ | 110,704 | |||||||||||
Gross profit (loss) | 6,171 | (1,516 | ) | 6,666 | 24,215 | 29,346 | |||||||||||||||
Net income (loss) | 1,686 | (3,910 | ) | (205 | ) | 2,682 | 2,735 | ||||||||||||||
Earnings (loss) per common share | |||||||||||||||||||||
Basic | $ | 0.04 | $ | (0.09 | ) | $ | — | $ | 0.05 | $ | 0.04 | ||||||||||
Diluted | 0.04 | (0.09 | ) | — | 0.05 | 0.04 |
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Year Ending December 31, 2006 | ||||||||
Quantity | Percentage of Estimated Requirements | |||||||
Corn (thousands of bushels)* | 28,060 | 46% | ||||||
Natural gas (MMBTU) | 3,080,000 | 53% |
* | Represents our net corn position, which includes exchange-traded futures and forward purchase contracts. Changes in the value of these contracts are recognized in current period income. See “— Summary of Critical Accounting Policies and Estimates — Derivative instruments and hedging activities.” |
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• | our ability to generate cash flows from operations; | |
• | the level of our outstanding indebtedness and the interest we are obligated to pay on this indebtedness; and | |
• | our capital expenditure requirements, which consist primarily of plant construction and the purchase of equipment. |
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Type of Obligation | 2006 | 2007 | 2008 | 2009 | 2010 | Thereafter | Total | ||||||||||||||||||||||
Long-term debt obligations(1) | $ | 20,813 | $ | 20,813 | $ | 20,813 | $ | 20,738 | $ | 20,738 | $ | 251,476 | $ | 355,391 | |||||||||||||||
Operating lease obligations | 3,060 | 2,922 | 2,824 | 2,824 | 2,824 | 11,176 | 25,630 | ||||||||||||||||||||||
Purchase obligations(2) | 3,376 | 3,383 | 3,390 | 2,756 | 2,458 | 11,508 | 26,871 | ||||||||||||||||||||||
Other purchase obligations(3) | 66,463 | 9,329 | — | — | — | — | 75,792 | ||||||||||||||||||||||
Total contractual obligations | $ | 93,712 | $ | 36,447 | $ | 27,027 | $ | 26,318 | $ | 26,020 | $ | 274,160 | $ | 483,684 | |||||||||||||||
(1) | Amounts represent principal and interest payments due on the notes and unused commitment fees under the Credit Agreement. |
(2) | Purchase obligations include estimated payments for electricity and water supply agreements and natural gas purchase contracts. |
(3) | Other purchase obligations include corn contracts and a multi-year corn purchase agreement under which we expect to take delivery. To quantify the purchase obligation under certain of our corn contracts and our multi-year corn purchase agreement, we have used our December 31, 2005 published bid prices for corn. |
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Hypothetical | ||||||||||||||
Adverse | ||||||||||||||
Volume | Change in | Change in Annual | ||||||||||||
Requirements | Units | Price | Pre-Tax Income | |||||||||||
(in millions) | (in millions) | |||||||||||||
Corn | 46.8 | bushels | 10.0% | $ | (9.9 | ) | ||||||||
Ethanol | 126.3 | gallons | 10.0% | (20.0 | ) | |||||||||
Natural Gas | 4.1 | MMBTU | 10.0% | (3.7 | ) |
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Aurora Facility | Fort Dodge Facility | Charles City Facility(1) | ||||
Location | Aurora, South Dakota | Fort Dodge, Iowa | Charles City, Iowa | |||
Year completed or scheduled to be completed | 2003 (expansion 2005)(2) | 2005 | 2007 | |||
Annual ethanol capacity (in millions of gallons) | 120 | 110 | 110(3) | |||
Ownership | 100% | 100% | 100% | |||
Production process | Dry-Milling(4) | Dry-Milling(4) | Dry-Milling(4) | |||
Primary energy source | Natural Gas | Natural Gas | Natural Gas | |||
Estimated distillers grains production (dry) per year | 390,000 tons | 350,000 tons | 350,000 tons | |||
Estimated corn processed per year | 43 million bushels | 39 million bushels | 39 million bushels | |||
Corn grown during 2004-2005 crop year within a 60-mile radius | 325 million bushels | 598 million bushels | 563 million bushels |
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(1) | Construction of our Charles City Facility commenced in 2006 and is being funded primarily with $125.0 million of the net proceeds from the sale of the notes. |
(2) | In June 2005, our Aurora Facility was expanded from a production capacity of 100 MMGY to 120 MMGY. |
(3) | Estimated upon completion of construction of our Charles City Facility. |
(4) | Our facilities utilize dry-milling technology, a production process that results in increased ethanol yield and reduced capital costs compared to wet-milling technology. See “Business — Supply of Ethanol.” |
• | Northwestern Iowa Facility: We have options to purchase three separate sites, each consisting of over 300 acres, near Hartley and Everly, Iowa. We intend to begin construction of a 110 MMGY ethanol production facility at one of these sites, based on a final siting decision, in the latter half of 2006. We expect that our Northwestern Iowa Facility will be completed by the end of the first quarter of 2008. | |
• | Welcome Facility: We recently purchased approximately 300 acres of land near Welcome, Minnesota. We plan to begin construction of a new 110 MMGY ethanol production facility at this site in the latter half of 2006. We expect that our Welcome Facility will be completed by the end of the first quarter of 2008. |
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• | In February 2006, VeraSun and General Motors announced a collaborative partnership to promote the awareness and use of E85 in FFVs and the installation of VE85tm fuel pumps at 20 service stations in the Chicago area. In March 2006, we announced that we are adding VE85tm fuel pumps at 14 service stations in the Minneapolis area. | |
• | In February 2006, Ford announced the creation of a Midwest ethanol corridor through the planned conversion of fuel pumps to VE85tm in Illinois and Missouri. This plan is part of the initiative announced in November 2005 by Ford and VeraSun to raise awareness of the benefits of VE85tm and to expand the VE85tm distribution infrastructure. | |
• | In February and April 2006, we acquired options to purchase three separate sites, each consisting of over 300 acres, near Hartley and Everly, Iowa as potential sites for the construction of the Northwestern Iowa Facility. | |
• | In March 2006, we commenced construction of our Charles City Facility, which is being funded primarily with a portion of the net proceeds from our issuance of the notes. | |
• | In April 2006, we purchased approximately 300 acres of land near Welcome, Minnesota for construction of our Welcome Facility. | |
• | We have an agreement with American Milling for the acquisition from time to time of rights to purchase or lease real property sites suitable for future construction and operation of 110 MMGY nameplate ethanol production facilities. See “Business — Facilities — Potential future facility sites, acquisitions and facility expansions.” |
Industry leadership. We have established a leadership position within the renewable fuels industry by being the first company to: |
• | develop new, large-scale 100 MMGY or greater dry-mill ethanol facilities in an industry primarily composed of smaller-scale dry-mill facilities with capacities below 50 MMGY; | |
• | design and site ethanol production facilities to strategically utilize unit trains as a means of reducing transportation costs and delivery cycle times; and | |
• | create the only branded E85 fuel, VE85tm, and enter into strategic relationships with major automakers to increase awareness and availability of E85. |
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• | Strategic locations. Each of our facilities is located near abundant, low-cost corn supplies with direct or indirect access to multiple rail carriers. Access to competing rail transportation reduces our delivery costs and enables us to access favorably-priced corn from other regions of the country. These locational attributes also permit us to respond rapidly to changes in market supply and demand. | |
• | Modern technology. We use the latest production technology, resulting in lower operating costs and more efficient conversion of corn to ethanol than older plants that use older technology. We believe our efficient energy systems and heat recovery technology require relatively less energy than older dry-mill ethanol plants. In addition, we believe that our advanced computer control systems and process automation increase our facilities’ operating rate, energy efficiency and product quality. | |
• | Scale of facilities. According to the RFA, the average U.S. ethanol production facility capacity in 2005 was approximately 45 MMGY. By comparison, our existing and planned facilities are each designed to have capacity of at least 110 MMGY of ethanol. As a result of the volume of our production and our access to multiple rail carriers, we are able to utilize unit trains to ship our finished ethanol product more efficiently. Our relatively large facilities are designed to store up to 30 days of corn, which allows us to take advantage of attractive corn purchasing opportunities. The available land at our existing facilities also provides for possible future expansion. | |
• | Substantial production capacity. Our current production capacity is 230 MMGY, and is expected to increase to 340 MMGY by the end of 2007 and to 560 MMGY by the end of the first quarter of 2008. We believe our scale allows us to market and distribute our ethanol more efficiently and to manage our business more effectively than many other producers who operate individual or smaller facilities. In addition, we can deliver large quantities of ethanol to satisfy all or a large portion of our customers’ ethanol requirements. | |
• | Construction and development experience. We believe our expertise and involvement in constructing and developing low cost, large facilities allow us to complete new construction and expansion projects more efficiently than many of our smaller competitors, whom we believe are not as involved in the design and construction process and typically contract for more costly “turn-key” facilities. We constructed our Aurora Facility five months ahead of schedule and 12% under budget and our Fort Dodge Facility three months ahead of schedule and within budget. In June 2005, we also successfully increased the production capacity of our Aurora Facility from 100 MMGY to 120 MMGY in under three weeks and at approximately one-third of the per gallon cost of building a new facility. We have operated our Aurora Facility and our Fort Dodge Facility at efficient levels with an excellent safety record. We believe we can replicate our success at our Charles City Facility and at our additional planned facilities. |
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• | Add low-cost production capacity. We intend to capitalize on the growing U.S. demand for ethanol by expanding our production capacity rapidly over the next several years. We are focused on the development and construction of our Charles City Facility, our Northwestern Iowa Facility and our Welcome Facility. In pursuing our expansion strategy, we seek to build on the success of our operating facilities, continue to build large-scale facilities, leverage proven facility design, incorporate technology improvements and continue to locate facilities with access to multiple rail services. Using similar facility designs enables us to lower our costs relating to spare parts and to take advantage of our operations experience at our other facilities. We expect to operate three facilities with an aggregate production capacity of 340 MMGY by the end of August 2007 and to have five facilities with an aggregate production capacity of 560 MMGY by the end of the first quarter of 2008. In addition to the facilities described above, we intend to consider additional opportunities for growing our production capacity, including the development of other sites and the expansion of one or more of our existing facilities. | |
• | Continue to focus on cost efficiency. We plan to continue to take advantage of our large production capacity and greater economies of scale to become more energy efficient and increase yield. We will also continue to use ouron-site corn storage facilities to purchase corn during peak supply periods to reduce our corn costs. We intend to reduce our per-unit transportation costs by making greater use of unit trains to ship our finished ethanol and distillers grains products. We are also evaluating the benefits of expanding one or more of our existing facilities to take further advantage of economies of scale. | |
• | Explore alternative technologies. We are studying the costs and feasibility of implementing biomass combustion systems at our facilities. These systems should allow us to reduce our energy costs by using biomass, such as switchgrass, straw, corn stover and other fibrous materials, as a substitute energy source in place of natural gas. Our research indicates that biomass combustion could potentially produce a majority of the energy needed to operate our facilities, thereby significantly reducing our reliance on natural gas. We are evaluating the capital costs and engineering challenges associated with implementation of biomass combustion. |
We have also conducted research and testing on extracting corn oil during the ethanol production process and selling corn oil or using it to produce biodiesel, a clean burning alternative fuel that can be used in diesel engines with petroleum diesel to lower emissions and improve lubricity. If we are able to improve corn oil extraction recovery rates, we may be able to produce biodiesel economically, which would increase the value of our co-products. We are still conducting research and development in this area. |
• | Expand market demand for ethanol. We plan to create additional demand for ethanol by continuing to work with refiners and blenders to introduce ethanol into new markets. We will also continue to pursue the development of partnerships to market VE85tm and expand the availability of VE85tm fuel with a variety of industry participants, including major automakers, such as those developed with Ford and General Motors; independent gasoline marketers, such as those developed with Erickson Oil Products, Inc., Olson Oil Co. and Gas City Ltd.; and other entities, such as the NEVC, the RFA, various corn grower groups, and state and federal agencies. |
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• | Continue to use risk mitigation strategies. We seek to mitigate our exposure to commodity price fluctuations by purchasing forward a portion of our corn requirements on a fixed price basis and purchasing corn and natural gas futures contracts. To mitigate ethanol price risk, we sell a portion of our production forward under fixed price and indexed contracts. The indexed contracts are typically referenced to a futures contract such as unleaded gasoline on the NYMEX, and we may hedge a portion of the price risk associated with index contracts by selling exchange-traded unleaded gasoline contracts. We believe our strategy of managing exposure to commodity price fluctuations reduce somewhat the volatility of our results. | |
• | Pursue potential acquisition opportunities. We believe that opportunities for expansion of our business through industry acquisitions will arise as the ethanol industry matures. We evaluate opportunities to acquire additional ethanol production, storage or distribution facilities and related infrastructure. In addition to operational production facilities, we may also seek to acquire potential facility sites under development. |
Octane enhancer. On average, regular unleaded gasoline has an octane rating of 87 and premium unleaded has an octane rating of 91. In contrast, pure ethanol has an average octane rating of 113. Adding ethanol to gasoline enables refiners to produce greater quantities of suboctane fuel with an octane rating of less than 87. Ethanol is typically added to the suboctane fuel at the wholesale terminal as the final step before the gasoline is delivered to the retail station. By adding ethanol, the refiner or blender is able to increase the octane rating of the suboctane fuel so that it conforms to gasoline standards, while also expanding the volume of fuel to be sold. Therefore, the refiner benefits from the ability to produce more fuel from a given barrel of oil and expands its ability to meet consumer demand, especially during times when refinery capacity and octane sources are limited. In addition, ethanol is commonly added to finished regular grade gasoline at the wholesale terminal as a means of producing higher octane midgrade and premium gasoline. | |
Clean air additive. A clean air additive is a substance that, when added to gasoline, reduces tailpipe emissions, resulting in improved air quality characteristics. Ethanol contains 35% oxygen, approximately twice that of MTBE, an alternative oxygenate to ethanol, the use of which is being phased out because of environmental and health concerns. The additional oxygen in the ethanol results in more complete combustion of the fuel in the engine cylinder. This in turn results in reduced tailpipe emissions by as much as 30%, including a 12% reduction in volatile organic compound emissions when blended at a 10% level. Ethanol also displaces the use of some gasoline components like benzene, a known carcinogen. Ethanol is non-toxic, water soluble and quickly biodegradable. |
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Valuable blend component. In addition to its performance and environmental benefits, ethanol is used to extend fuel supplies. As the U.S. need for automotive fuel increases and the U.S. dependence on foreign crude oil and refined products grows, the U.S. is increasingly seeking domestic sources of fuel. Much of the ethanol blending throughout the U.S. today is done for the purpose of extending the volume of fuel sold at the gas pump. | |
E85, a gasoline alternative. Ethanol is the primary blend component in E85. The number of service stations that sell E85 has grown rapidly. As of February 2006, the U.S. Department of Energy stated that over 500 service stations in the U.S. sell E85. Vehicles must be specially equipped to use E85 fuel. According to the NEVC, approximately 6.0 million U.S. vehicles are FFVs. Although E85 represents a small percentage of the motor vehicle fuel used in the U.S., the experience in Brazil suggests that E85 could capture a much greater portion of the U.S. market in the future. According to BBC News, sales of FFVs in Brazil represented more than half of the new vehicles sold in Brazil in 2005. U.S. automakers receive incentives under federal fuel economy standards for producing FFVs. E85 is generally priced lower per gallon than gasoline because most FFVs experience some reduction in mileage when running on E85. |
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Year | Renewable Fuel Usage | |||
(in billions of gallons) | ||||
2006 | 4.0 | |||
2007 | 4.7 | |||
2008 | 5.4 | |||
2009 | 6.1 | |||
2010 | 6.8 | |||
2011 | 7.4 | |||
2012 | 7.5 |
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• | we purchase corn through spot cash, fixed-price forward and delayed pricing contracts; and | |
• | we utilize hedging positions in the corn futures market to manage the risk of excessive corn price fluctuations for a portion of our corn requirements. |
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Aurora Facility | Fort Dodge Facility | Charles City Facility(1) | ||||
Location | Aurora, South Dakota | Fort Dodge, Iowa | Charles City, Iowa | |||
Year completed or scheduled to be completed | 2003 (expansion 2005)(2) | 2005 | 2007 | |||
Annual ethanol capacity (in millions of gallons) | 120 | 110 | 110(3) | |||
Ownership | 100% | 100% | 100% | |||
Production process | Dry-Milling(4) | Dry-Milling(4) | Dry-Milling(4) | |||
Primary energy source | Natural Gas | Natural Gas | Natural Gas | |||
Estimated distillers grains production (dry) per year | 390,000 tons | 350,000 tons | 350,000 tons | |||
Estimated corn processed per year | 43 million bushels | 39 million bushels | 39 million bushels | |||
Corn grown during 2004-2005 crop year within a 60-mile radius | 325 million bushels | 598 million bushels | 563 million bushels |
(1) | Construction of our Charles City Facility commenced in 2006 and is being funded primarily with $125.0 million of the net proceeds from the sale of the notes. |
(2) | In June 2005, our Aurora Facility was expanded from a production capacity of 100 MMGY to 120 MMGY. |
(3) | Estimated upon completion of construction of our Charles City Facility. |
(4) | Our facilities utilize dry-milling technology, a production process that results in increased ethanol yield and reduced capital costs compared to wet-milling technology. See “Business—Supply of Ethanol.” |
Site selection criteria and use of experienced engineering and construction firms |
Aurora Facility |
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Fort Dodge Facility |
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• | become the subject of a bankruptcy or insolvency proceeding; | |
• | make a general assignment for the benefit of creditors; | |
• | are unable to pay our debts; or | |
• | commit a material breach of any of the terms or provisions of the contract, and then subsequently fail to cure the default within 10 business days. |
Charles City Facility |
Northwestern Iowa and Welcome Facilities |
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Potential future facility sites, acquisitions and facility expansions |
• | the projected cost savings from integrated processes and from the use of a solid-fuel combustion system; | |
• | the cost of construction and of integration, including the amount of time the facility would cease production to allow system integration; and | |
• | the flexibility we would have under our existing debt covenants. |
• | grain availability and origination; | |
• | water quality and available quantity; | |
• | availability of natural gas or other energy sources; | |
• | transportation and logistics; and | |
• | environmental assessments and permitting requirements. |
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• | price; | |
• | reliability of our production processes and delivery schedule; and | |
• | volume of ethanol produced and sold. |
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Name | Age | Position | ||||
Donald L. Endres* | 45 | Chief Executive Officer and Director | ||||
Bruce A. Jamerson* | 54 | President and Director | ||||
Danny C. Herron* | 51 | Senior Vice President and Chief Financial Officer | ||||
Paul J. Caudill* | 52 | Senior Vice President, Operations | ||||
William L. Honnef* | 40 | Senior Vice President, Sales and Marketing | ||||
Paul A. Schock* | 47 | Senior Vice President, Corporate Development and Director | ||||
John M. Schweitzer* | 62 | Senior Vice President and General Counsel | ||||
Kevin T. Biehle | 42 | Vice President, Plant Operations | ||||
Ginja R. Collins | 31 | Vice President, Finance, Treasurer and Secretary | ||||
Matthew K.R. Janes | 49 | Vice President, Technology | ||||
Mark L. First | 41 | Director | ||||
D. Duane Gilliam | 61 | Director | ||||
T. Jack Huggins III | 63 | Director | ||||
Steven T. Kirby | 54 | Director |
* | Executive officer. |
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• | selecting and hiring our independent auditors, and approving the audit and non-audit services to be performed by our independent auditors; | |
• | evaluating the qualifications, performance and independence of our independent auditors; | |
• | monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements as they relate to financial statements or accounting matters; | |
• | reviewing the adequacy and effectiveness of our internal control policies and procedures; and | |
• | preparing the audit committee report that the SEC requires in our annual proxy statement. |
• | reviewing and approving our chief executive officer and other executive officers’ annual base salaries and annual incentive bonuses, including the specific goals and amount, equity compensation, employment agreements, severance arrangements and change in control agreements/provisions, and any other benefits, compensation or arrangements; | |
• | evaluating and recommending to the board incentive compensation plans; | |
• | administering our stock incentive plan; and | |
• | preparing or reviewing disclosures regarding compensation that the SEC requires in our annual proxy statement. |
• | assisting the board in identifying prospective director nominees and recommending to the board director nominees for each annual meeting of shareholders; | |
• | developing and recommending to the board governance principles applicable to us; | |
• | overseeing the evaluation of the Board of Directors and management; and | |
• | recommending members for each board committee. |
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Annual Compensation | Long-Term Compensation | ||||||||||||||||||||||||||||
Other | Restricted | Securities | |||||||||||||||||||||||||||
Annual | Stock | Underlying | All Other | ||||||||||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Compensation | Awards | Options/SARS(1) | Compensation | ||||||||||||||||||||||
Donald L. Endres | 2005 | $ | 249,038 | $ | 263,463 | — | — | — | — | ||||||||||||||||||||
Chief Executive Officer | 2004 | 232,308 | 145,659 | — | 90,272 | 795,136 | — | ||||||||||||||||||||||
2003 | 181,474 | — | — | — | 1,387,745 | — | |||||||||||||||||||||||
Bruce A. Jamerson(2) | 2005 | 236,250 | 60,312 | — | — | — | — | ||||||||||||||||||||||
President and | 2004 | 261,346 | 16,955 | — | 90,272 | 795,136 | — | ||||||||||||||||||||||
Chief Financial Officer | 2003 | — | — | — | — | 96,376 | — | ||||||||||||||||||||||
William L. Honnef | 2005 | 168,750 | 11,423 | — | — | — | — | ||||||||||||||||||||||
Vice President of | 2004 | 174,519 | 34,111 | — | — | 442,704 | — | ||||||||||||||||||||||
Sales and Marketing | 2003 | 143,269 | — | — | — | 158,305 | — | ||||||||||||||||||||||
Matthew K. R. Janes | 2005 | 181,500 | 30,890 | — | — | — | — | ||||||||||||||||||||||
Vice President, | 2004 | 170,769 | 33,939 | — | — | 442,704 | — | ||||||||||||||||||||||
Technology | 2003 | 143,269 | — | — | — | 172,045 | — |
(1) | The securities granted in 2003 were in the form of warrants issued to the founders of VeraSun. |
(2) | Although Mr. Jamerson joined VeraSun in November 2003, his 2003 compensation was deferred until 2004. |
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• | outstanding options will remain in effect in accordance with their terms; | |
• | outstanding options will be converted into options to purchase stock in one or more of the corporations, including VeraSun, that are the surviving or acquiring corporations in the Transaction, with the amount, type of securities subject thereto and exercise price of the converted options to be determined by the Board of Directors; or |
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• | the Board of Directors will provide a period of 30 days or less before the completion of the Transaction during which outstanding options may be exercised to the extent then exercisable, and upon the expiration of that period, all unexercised options shall immediately terminate. The Board of Directors may, in its sole discretion, accelerate the exercisability of options so that they are exercisable in full during that period. |
• | 10% at the end of year 1, | |
• | 15% at the end of year 2, | |
• | 20% at the end of year 3, | |
• | 25% at the end of year 4, and | |
• | 30% at the end of year 5. |
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Value of Unexercised | ||||||||||||||||
Number of Unexercised | In-the-Money | |||||||||||||||
Options at Year-End | Options at Year-End(1) | |||||||||||||||
Name | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||
Donald L. Endres | 316,283 | 477,082 | $ | 1,371,645 | $ | 2,069,161 | ||||||||||
Bruce A. Jamerson | 316,283 | 477,082 | 1,391,645 | 2,099,161 | ||||||||||||
William L. Honnef | 176,197 | 265,622 | 775,267 | 1,168,737 | ||||||||||||
Matthew K.R. Janes | 173,246 | 265,622 | 762,282 | 1,168,737 |
(1) | Options are“in-the-money” at the fiscal year-end if the fair market value of the underlying securities on such date exceeds the exercise price of the option. The amounts set forth represent the difference between the fair market value of the securities underlying the options on December 31, 2005, based on the fair market valuation of $5.40 per share of common stock and the exercise price of the options, multiplied by the applicable number of options. |
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Shares Beneficially Owned | |||||||||
as of April 30, 2006(1)(2) | |||||||||
Name of Beneficial Owner | Number | Percent | |||||||
Donald L. Endres | 33,549,928 | (3) | 51.7 | % | |||||
Bruce A. Jamerson | 1,448,972 | (4) | 2.3 | % | |||||
Danny C. Herron | 89,150 | (5) | * | ||||||
Paul J. Caudill | 34,709 | (6) | * | ||||||
William L. Honnef | 705,296 | (7) | 1.1 | % | |||||
Paul A. Schock | 131,606 | (8) | * | ||||||
John M. Schweitzer | 311,388 | (9) | * | ||||||
Mark L. First(10) | — | — | |||||||
D. Duane Gilliam | 25,000 | (11) | * | ||||||
T. Jack Huggins III | 35,000 | (12) | * | ||||||
Steven T. Kirby(13) | — | — | |||||||
All executive officers and directors as a group (11 Persons) | 36,331,049 | (14) | 54.4 | % | |||||
Bluestem Funds(15) | 20,571,672 | 32.9 | % | ||||||
122 S. Phillips Ave. Sioux Falls, SD 57104 | |||||||||
Eos Funds(16) | 5,745,868 | 9.2 | % | ||||||
320 Park Ave. New York, NY 10022 |
* | Less than 1%. |
(1) | Includes shares that the named person has the right to acquire through options or warrants that become exercisable within 60 days after April 30, 2006, including options that vested in connection with the completion of our planned initial public offering, and restricted shares granted in connection with the completion of our initial public offering. | |
(2) | In connection with the completion of our initial public offering, options and warrants to purchase 4,338,408 shares of our common stock became exercisable as a result of accelerated vesting provisions. | |
(3) | Consists of 31,368,818 shares of common stock, including 120,218 shares of restricted stock, and options to purchase 2,181,110 shares of common stock. | |
(4) | Consists of 559,231 shares of common stock, including 38,742 shares of restricted stock, and options to purchase 889,741 shares of common stock. | |
(5) | Consists of 89,150 shares of common stock, including 14,150 shares of restricted stock. | |
(6) | Consists of 34,709 shares of common stock, including 9,709 shares of restricted stock. | |
(7) | Consists of 151,433 shares of common stock, including 11,469 shares of restricted stock, and options to purchase 553,863 shares of common stock. | |
(8) | Consists of 6,606 shares of restricted stock and options to purchase 125,000 shares of common stock. | |
(9) | Consists of 61,388 shares of common stock, including 11,388 shares of restricted stock, and options to purchase 250,000 shares of common stock. |
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(10) | As managing director of Eos Management, Inc., Mr. First has voting and investment control over and may be considered the beneficial owner of stock owned by the Eos Funds. Mr. First disclaims any beneficial ownership of the stock owned by the Eos Funds. |
(11) | Consists of options to purchase 25,000 shares of common stock. |
(12) | Consists of 25,000 shares of common stock and options to purchase 10,000 shares of common stock. |
(13) | As a founding partner and manager of Bluestem Capital Company, Mr. Kirby has voting and investment control over and may be considered the beneficial owner of stock owned by the Bluestem Funds. Mr. Kirby disclaims any beneficial ownership of the stock owned by the Bluestem Funds. |
(14) | Consists of 32,296,335 shares of common stock, including 212,282 shares of restricted stock, and options to purchase 4,034,714 shares of common stock. |
(15) | Various investment funds managed by Bluestem Capital Company own our capital stock. These funds include Bluestem Ethanol, LLC, Bluestem Capital Partners, III, LP, Bluestem Ethanol II, LLC, Bluestem Growth & Income Fund, LLC, I, and Bluestem Growth & Income Fund, LLC, II. We refer to these funds in this prospectus as the Bluestem Funds. The Bluestem Funds sold 8,347,723 shares of our common stock in our initial public offering. |
(16) | Two funds affiliated with Eos Partners, L.P. own our capital stock. These funds include Eos Capital Partners III, L.P. and Eos Partners SBIC III, L.P. |
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• | Donald L. Endres has the right to nominate four directors. The directors nominated by Mr. Endres are Donald L. Endres, D. Duane Gilliam, Bruce A. Jamerson and Paul A. Schock. The Bluestem Funds and Eos Capital Partners, L.P. each have the right to nominate one director. The director nominated by Bluestem is Steven T. Kirby and the director nominated by Eos is Mark L. First. The seventh director is to be nominated by an 80% vote of other directors. The seventh director is T. Jack Huggins, III. Each of the shareholders and TIAA have agreed to vote their shares for election of these nominees. | |
• | Specified matters require the approval of at least 80% of the directors in office, including the approval or material amendment of our annual operating budget, approval of contractual obligations and transactions outside of the annual operating budget, selection of independent auditors and approval of any employment agreements requiring payment in excess of $125,000 per year. | |
• | No shareholder may transfer any shares of VeraSun capital stock other than with the consent of holders of at least two-thirds of the aggregate voting power of all issued and outstanding shares of voting capital stock, except for specified permitted transfers and except that TIAA is not subject to this restriction. | |
• | The holders of at least two-thirds of the fully diluted common stock may require each other shareholder to transfer their shares in connection with specified sales of shares, and our shareholders have tag-along rights in the event a 10% holder proposes to sell or otherwise dispose of shares. | |
• | Each shareholder (so long as such shareholder holds at least 25% of the shares originally acquired by such shareholder) and TIAA have a right of first offer with respect to future issues of our capital stock, subject to specified exceptions. | |
• | All holders of common stock may request the inclusion of their shares in any registration statement at our expense whenever we propose to register any of our equity securities under the Securities Act. The right to request inclusion of shares does not apply to a registration statement on Form S-4 or S-8, or, with respect to any shareholder other than TIAA, after the shareholder has had the opportunity to include its shares in one registration. TIAA also has one opportunity to require us to use our best efforts to register any or all of its shares of our common stock after our initial public offering. In connection with all of these registrations, we have agreed to indemnify the holders of registered securities against liabilities relating to the registration, including liabilities under the Securities Act. | |
• | Each shareholder and TIAA have agreed not to sell any of our equity securities for a period of up to 180 days after our first underwritten registered public offering of equity securities. |
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• | the affirmative vote of the majority of all outstanding shares entitled to vote, including all shares held by the acquiring person; and | |
• | the affirmative vote of the majority of all outstanding shares entitled to vote, excluding all interested shares. |
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• | holders subject to the alternative minimum tax; | |
• | tax-exempt organizations; | |
• | insurance companies; | |
• | dealers in securities or currencies; | |
• | traders in securities or commodities or dealers in commodities that elect to use amark-to-market method of accounting; | |
• | banks and financial institutions; | |
• | holders whose “functional currency” is not the United States dollar; | |
• | persons that will hold the notes as a position in a hedging transaction, “straddle,” “conversion transaction,” or other risk-reduction transaction, or | |
• | persons deemed to sell the notes under the constructive sale provisions of the Code. |
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Page | |||||
Audited Financial Statements | |||||
F-2 | |||||
F-3 | |||||
F-4 | |||||
F-5 | |||||
F-6 | |||||
F-7 | |||||
Unaudited Condensed Financial Statements | |||||
F-34 | |||||
F-35 | |||||
F-36 | |||||
F-37 |
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2004 | 2005 | |||||||||
(Dollars in thousands, | ||||||||||
except per share data) | ||||||||||
ASSETS (NOTE 7) | ||||||||||
Current Assets | ||||||||||
Cash and cash equivalents | $ | 10,296 | $ | 29,714 | ||||||
Receivables (Notes 3, 6, 11, 15 and 16) | 14,748 | 28,663 | ||||||||
Inventories (Notes 4 and 6) | 12,448 | 19,291 | ||||||||
Prepaid expenses | 956 | 4,611 | ||||||||
Deferred income taxes (Note 9) | 2,877 | 5,839 | ||||||||
Total current assets | 41,325 | 88,118 | ||||||||
Other Assets | ||||||||||
Restricted cash held in escrow (Note 7) | — | 124,750 | ||||||||
Interest rate swap (Note 11) | 94 | — | ||||||||
Debt issuance costs, net of amortization of $105 in 2004 and $39 in 2005 (Note 7) | 2,156 | 6,449 | ||||||||
Goodwill (Note 2) | — | 6,129 | ||||||||
2,250 | 137,328 | |||||||||
Property and Equipment, net (Note 5) | 106,753 | 179,683 | ||||||||
$ | 150,328 | $ | 405,129 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
Current Liabilities | ||||||||||
Current maturities of long-term debt (Note 7) | $ | 5,846 | $ | — | ||||||
Current portion of deferred revenue (Note 10) | 95 | 95 | ||||||||
Accounts payable | 20,561 | 20,055 | ||||||||
Accrued expenses | 1,229 | 1,991 | ||||||||
Derivative financial instruments (Note 11) | 3,815 | 4,426 | ||||||||
Total current liabilities | 31,546 | 26,567 | ||||||||
Long-Term Liabilities | ||||||||||
Long-term debt, less current maturities (Note 7) | 52,535 | 208,719 | ||||||||
Deferred revenue, less current portion (Note 10) | 1,806 | 1,710 | ||||||||
Convertible put warrant (Note 8) | 4,649 | 7,458 | ||||||||
Deferred income taxes (Note 9) | 12,416 | 15,757 | ||||||||
71,406 | 233,644 | |||||||||
Minority Interest in Subsidiary (Note 2) | 2,900 | — | ||||||||
Commitments and Contingencies (Notes 11 and 15) | ||||||||||
Shareholders’ Equity (Notes 2, 9, 12 and 13) | ||||||||||
Preferred stock, $0.01 par value; authorized 100,000,000 shares; none issued or outstanding | — | — | ||||||||
Common stock, $0.01 par value; authorized 250,000,000 shares; 43,254,539 and 62,492,722 shares issued and outstanding as of December 31, 2004 and 2005, respectively | 433 | 625 | ||||||||
Additional paid-in capital | 32,828 | 132,848 | ||||||||
Retained earnings | 13,609 | 13,862 | ||||||||
Deferred compensation (Note 12) | (143 | ) | (107 | ) | ||||||
Accumulated other comprehensive loss (Note 11) | (2,251 | ) | (2,310 | ) | ||||||
44,476 | 144,918 | |||||||||
$ | 150,328 | $ | 405,129 | |||||||
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2003 | 2004 | 2005 | ||||||||||||
(Dollars in thousands, | ||||||||||||||
except per share data) | ||||||||||||||
Revenues: | ||||||||||||||
Net sales (Note 15) | $ | 10,884 | $ | 186,029 | $ | 235,440 | ||||||||
Other revenues, incentive income (Note 15) | 1,776 | 7,723 | 919 | |||||||||||
Total revenues | 12,660 | 193,752 | 236,359 | |||||||||||
Cost of goods sold: | ||||||||||||||
Costs and expenses of production | 8,450 | 154,021 | 198,183 | |||||||||||
Loss on disposal of equipment | — | 1 | 2,640 | |||||||||||
Total cost of goods sold | 8,450 | 154,022 | 200,823 | |||||||||||
Gross profit | 4,210 | 39,730 | 35,536 | |||||||||||
Selling, general and administrative expenses | 2,233 | 6,140 | 11,874 | |||||||||||
Operating income | 1,977 | 33,590 | 23,662 | |||||||||||
Other income (expense): | ||||||||||||||
Interest expense, including change in fair value of convertible put warrant of $566 in 2003, $3,481 in 2004 and $2,809 in 2005 (Notes 6, 7 and 8) | (839 | ) | (8,892 | ) | (7,609 | ) | ||||||||
Other interest expense, loss on extinguishment of debt (Note 7) | — | — | (15,744 | ) | ||||||||||
Interest income | 11 | 182 | 448 | |||||||||||
Other income | 14 | 33 | 17 | |||||||||||
(814 | ) | (8,677 | ) | (22,888 | ) | |||||||||
Income before income taxes and minority interest | 1,163 | 24,913 | 774 | |||||||||||
Income taxes (Note 9) | 571 | 10,242 | 582 | |||||||||||
Income before minority interest | 592 | 14,671 | 192 | |||||||||||
Minority interest in net loss of subsidiary (Note 2) | — | 100 | 61 | |||||||||||
Net income | $ | 592 | $ | 14,771 | $ | 253 | ||||||||
Earnings per common share: | ||||||||||||||
Basic | $ | 0.02 | $ | 0.40 | $ | 0.01 | ||||||||
Diluted | 0.02 | 0.39 | 0.01 | |||||||||||
Pro forma amounts as if all subsidiaries were taxable for entire period (unaudited): | ||||||||||||||
Pro forma income taxes | $ | 571 | $ | 9,862 | $ | 1,839 | ||||||||
Pro forma net income (loss) | 592 | 15,151 | (1,004 | ) | ||||||||||
Pro forma earnings (loss) per common share: | ||||||||||||||
Basic | $ | 0.02 | $ | 0.41 | $ | (0.02 | ) | |||||||
Diluted | 0.02 | 0.40 | (0.02 | ) |
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Accumulated | ||||||||||||||||||||||||||
Additional | Retained | Other | ||||||||||||||||||||||||
Common | Paid-In | Earnings | Deferred | Comprehensive | ||||||||||||||||||||||
Stock | Capital | (Deficit) | Compensation | Loss | Total | |||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||
Balance, December 31, 2002 | $ | 181 | $ | 10,140 | $ | (1,754 | ) | $ | — | $ | — | $ | 8,567 | |||||||||||||
Issuance of 12,899,675 shares of common stock | 129 | 8,529 | — | — | — | 8,658 | ||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||
Net income | — | — | 592 | — | — | |||||||||||||||||||||
Unrealized loss on hedging activities | — | — | — | — | (223 | ) | ||||||||||||||||||||
Comprehensive income | 369 | |||||||||||||||||||||||||
Balance, December 31, 2003 | 310 | 18,669 | (1,162 | ) | — | (223 | ) | 17,594 | ||||||||||||||||||
Issuance of 12,093,106 shares of common stock | 121 | 13,303 | — | — | — | 13,424 | ||||||||||||||||||||
Issuance of restricted stock (Note 12) | 2 | 178 | — | (180 | ) | — | — | |||||||||||||||||||
Amortization of deferred compensation | — | — | — | 37 | — | 37 | ||||||||||||||||||||
Stock-based compensation (Note 12) | — | 678 | — | — | — | 678 | ||||||||||||||||||||
Purchase of treasury stock | (3 | ) | (210 | ) | — | — | — | (213 | ) | |||||||||||||||||
Reissuance of treasury stock | 3 | 210 | — | — | — | 213 | ||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||
Net income | — | — | 14,771 | — | — | |||||||||||||||||||||
Unrealized loss on hedging activities | — | — | — | — | (2,028 | ) | ||||||||||||||||||||
Comprehensive income | 12,743 | |||||||||||||||||||||||||
Balance, December 31, 2004 | 433 | 32,828 | 13,609 | (143 | ) | (2,251 | ) | 44,476 | ||||||||||||||||||
Issuance of 19,238,183 shares of common stock | 192 | 98,914 | — | — | — | 99,106 | ||||||||||||||||||||
Stock-based compensation (Note 12) | — | 1,106 | — | — | — | 1,106 | ||||||||||||||||||||
Amortization of deferred compensation | — | — | — | 36 | — | 36 | ||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||
Net income | — | — | 253 | — | — | |||||||||||||||||||||
Unrealized loss on hedging activities | — | — | — | — | (59 | ) | ||||||||||||||||||||
Comprehensive income | 194 | |||||||||||||||||||||||||
Balance, December 31, 2005 | $ | 625 | $ | 132,848 | $ | 13,862 | $ | (107 | ) | $ | (2,310 | ) | $ | 144,918 | ||||||||||||
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2003 | 2004 | 2005 | ||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Cash Flows from Operating Activities | ||||||||||||||||
Net income | $ | 592 | $ | 14,771 | $ | 253 | ||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||||
Depreciation | 348 | 3,926 | 5,692 | |||||||||||||
Amortization of debt issuance costs and debt discount | 27 | 171 | 325 | |||||||||||||
Accretion of deferred revenue | (8 | ) | (95 | ) | (96 | ) | ||||||||||
Minority interest in net loss of subsidiary | — | (100 | ) | (61 | ) | |||||||||||
Debt issuance costs and debt discount expensed on extinguishment of debt | — | — | 2,387 | |||||||||||||
Change in fair value of convertible put warrant | 566 | 3,481 | 2,809 | |||||||||||||
Deferred income taxes | 571 | 10,127 | 410 | |||||||||||||
Loss on disposal of equipment | — | 1 | 2,640 | |||||||||||||
Stock-based compensation | — | 715 | 1,142 | |||||||||||||
Changes in current assets and liabilities: | ||||||||||||||||
(Increase) decrease in: | ||||||||||||||||
Receivables | (10,216 | ) | (4,532 | ) | (13,915 | ) | ||||||||||
Inventories | (5,378 | ) | (7,070 | ) | (6,843 | ) | ||||||||||
Derivative financial instruments | (700 | ) | 1,011 | 615 | ||||||||||||
Prepaid expenses | (618 | ) | (338 | ) | (3,655 | ) | ||||||||||
Increase (decrease) in: | ||||||||||||||||
Accounts payable | 4,099 | (1,761 | ) | 5,020 | ||||||||||||
Accrued expenses | 76 | 551 | 762 | |||||||||||||
Net cash provided by (used in) operating activities | (10,641 | ) | 20,858 | (2,515 | ) | |||||||||||
Cash Flows from Investing Activities | ||||||||||||||||
Investment in restricted cash | — | — | (125,000 | ) | ||||||||||||
Proceeds from sale of equipment | — | 1 | 46 | |||||||||||||
Purchases of property and equipment | (63,974 | ) | (25,215 | ) | (87,095 | ) | ||||||||||
Net cash used in investing activities | (63,974 | ) | (25,214 | ) | (212,049 | ) | ||||||||||
Cash Flows from Financing Activities | ||||||||||||||||
Outstanding checks in excess of bank balance | 738 | (738 | ) | — | ||||||||||||
Proceeds from long-term debt | 59,085 | 27,626 | 208,711 | |||||||||||||
Principal payments on long-term debt | — | (27,822 | ) | (58,890 | ) | |||||||||||
Net borrowings on notes payable | — | 1,000 | — | |||||||||||||
Net proceeds from issuance of common stock | 8,589 | 12,493 | 90,138 | |||||||||||||
Proceeds from issuance of minority interest in subsidiary | — | 3,000 | — | |||||||||||||
Proceeds from tax increment financing grant | 2,004 | — | — | |||||||||||||
Debt issuance costs paid | (35 | ) | (938 | ) | (5,977 | ) | ||||||||||
Net cash provided by financing activities | 70,381 | 14,621 | 233,982 | |||||||||||||
Net increase (decrease) in cash and cash equivalents | (4,234 | ) | 10,265 | 19,418 | ||||||||||||
Cash and Cash Equivalents | ||||||||||||||||
Beginning | 4,265 | 31 | 10,296 | |||||||||||||
Ending | $ | 31 | $ | 10,296 | $ | 29,714 | ||||||||||
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Note 1. | Nature of Business and Significant Accounting Policies |
Principles of consolidation: The accompanying consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany accounts and transactions have been eliminated in consolidation. | |
Use of estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the determination of the value of stock-based compensation and the value of the convertible put warrant. | |
Revenue recognition: Revenue from the production of ethanol and related products is recorded when title transfers to customers. Ethanol and related products are generally shipped FOB shipping point. |
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F-8
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Years | |||||
Land improvements | 15 - 39 | ||||
Buildings and improvements | 7 - 40 | ||||
Machinery and equipment: | |||||
• Railroad equipment (side track, locomotive and other) | 20 - 39 | ||||
• Facility equipment (large tanks, fermenters and other equipment) | 20 | ||||
• Other | 5 - 7 | ||||
Office furniture and equipment | 3 - 10 |
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Weighted | ||||||||||||||
Average | ||||||||||||||
Net | Shares | Per Share | ||||||||||||
Income | Outstanding | Amount | ||||||||||||
2003: | ||||||||||||||
Basic EPS | $ | 592 | 30,380,082 | $ | 0.02 | |||||||||
Effects of dilutive securities: | ||||||||||||||
Exercise of stock options and warrants | — | 197,879 | — | |||||||||||
Diluted EPS | $ | 592 | 30,577,961 | $ | 0.02 | |||||||||
2004: | ||||||||||||||
Basic EPS | $ | 14,771 | 36,738,191 | $ | 0.40 | |||||||||
Effects of dilutive securities: | ||||||||||||||
Exercise of stock options and warrants | — | 1,170,560 | (0.01 | ) | ||||||||||
Diluted EPS | $ | 14,771 | 37,908,751 | $ | 0.39 | |||||||||
2005: | ||||||||||||||
Basic EPS | $ | 253 | 44,810,490 | $ | 0.01 | |||||||||
Effects of dilutive securities: | ||||||||||||||
Exercise of stock options and warrants | — | 2,768,379 | — | |||||||||||
Diluted EPS | $ | 253 | 47,578,869 | $ | 0.01 | |||||||||
F-10
Table of Contents
Years Ended December 31, | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
Net income, as reported | $ | 592 | $ | 14,771 | $ | 253 | |||||||
Add actual employee stock-based compensation expense related to stock options and restricted stock included in reported net income, net of related tax effects | — | 472 | 754 | ||||||||||
Deduct pro forma employee stock-based compensation expense determined under fair value based method for all awards, net of related tax effects | (40 | ) | (670 | ) | (1,713 | ) | |||||||
Pro forma net income (loss) | $ | 552 | $ | 14,573 | $ | (706 | ) | ||||||
Basic EPS: | |||||||||||||
As reported | $ | 0.02 | $ | 0.40 | $ | 0.01 | |||||||
Pro forma | 0.02 | 0.40 | (0.02 | ) | |||||||||
Diluted EPS: | |||||||||||||
As reported | 0.02 | 0.39 | 0.01 | ||||||||||
Pro forma | 0.02 | 0.38 | (0.02 | ) |
F-11
Table of Contents
Cash and cash equivalents: The carrying value of cash and cash equivalents was $10,296 and $29,714 at December 31, 2004 and 2005, respectively. The carrying amounts approximate their fair values due to the relatively short maturity of these instruments. | |
Restricted cash held in escrow: The carrying value of restricted cash was $124,750 at December 31, 2005. The carrying amount approximates the fair value due to the relatively short maturity of the instruments. | |
Long-term debt: The carrying value of fixed rate long-term debt was $26,202 at December 31, 2004. It is not practicable to estimate the fair value of fixed rate long-term debt at December 31, 2004 since these agreements contain unique terms, conditions and restrictions, which were negotiated at arm’s length and there is no readily determinable similar instrument on which to base an estimate of fair value. The carrying value of variable rate long-term debt of $32,179 at December 31, 2004, approximated fair value because the interest rates fluctuate with market rates. The carrying value and fair value of long-term debt was $208,719 and $213,150, respectively, at December 31, 2005. The fair value of the Company’s long-term debt at December 31, 2005 was estimated based on quoted market prices. | |
Derivatives and warrants: The carrying values of commodity-based derivative financial instruments, the interest rate swap and convertible put warrant are $3,815, $94 and $4,649, respectively, at December 31, 2004 and $4,426, $0 and $7,458, respectively, at December 31, 2005. These instruments are recorded at fair value on the accompanying balance sheet, with such fair value determined based on quoted market prices or formula value. |
F-12
Table of Contents
Note 2. | Reorganization |
Note 3. | Receivables |
2004 | 2005 | |||||||
Trade and other, less allowance for doubtful accounts of $5 and $10 for 2004 and 2005, respectively | $ | 8,090 | $ | 20,074 | ||||
Incentive | 1,415 | 561 | ||||||
Broker | 5,043 | 7,385 | ||||||
Insurance claim | — | 500 | ||||||
Restricted interest | — | 143 | ||||||
Federal income taxes | 200 | — | ||||||
$ | 14,748 | $ | 28,663 | |||||
F-13
Table of Contents
Note 4. | Inventories |
2004 | 2005 | |||||||
Corn | $ | 7,472 | $ | 9,023 | ||||
Supplies | 2,076 | 3,890 | ||||||
Chemicals | 491 | 1,231 | ||||||
Work in process | 561 | 1,150 | ||||||
Distillers grains | 296 | 396 | ||||||
Ethanol | 1,552 | 3,601 | ||||||
$ | 12,448 | $ | 19,291 | |||||
Note 5. | Property and Equipment |
2004 | 2005 | |||||||
Land and land improvements | $ | 6,202 | $ | 10,351 | ||||
Construction in progress | 26,875 | 991 | ||||||
Buildings and improvements | 975 | 3,721 | ||||||
Machinery and equipment | 76,209 | 172,688 | ||||||
Office furniture and equipment | 766 | 1,681 | ||||||
111,027 | 189,432 | |||||||
Less accumulated depreciation | 4,274 | 9,749 | ||||||
$ | 106,753 | $ | 179,683 | |||||
Note 6. | Notes Payable |
F-14
Table of Contents
Note 7. | Long-Term Debt and Restricted Cash |
2004 | 2005 | |||||||
9.875% Senior secured notes, due in semi-annual interest only payments for seven years commencing June 15, 2006, collateralized by a first priority lien on an initial $125,000 escrow and substantially all the assets of the Company except for assets pledged as security for the revolving credit agreement(a) | $ | — | $ | 208,719 | ||||
Variable rate term note due to a bank (5.36% at December 31, 2004), paid in full in 2005 | 28,810 | — | ||||||
Variable rate term note due to a bank (5.86% at December 31, 2004), paid in full in 2005 | 3,369 | — | ||||||
13.5% Subordinated notes payable, paid in full in 2005 | 19,491 | — | ||||||
11.5% Subordinated notes payable, paid in full in 2005 | 6,711 | — | ||||||
58,381 | 208,719 | |||||||
Less current maturities | 5,846 | — | ||||||
$ | 52,535 | $ | 208,719 | |||||
(a) | On December 21, 2005, the Company issued $210,000 of senior secured notes. The notes bear interest at a fixed rate of 9.875% and were issued with a debt discount in the amount of $1,289. During 2005, $8 of debt discount amortization was recognized. The notes mature in full on December 15, 2012 and may be prepaid prior thereto with a penalty. Interest is paid on a semi-annual basis in the amount of $10,369 on June 15 and December 15 of each year. The proceeds of the debt offering were used to refinance a portion of the Company’s existing debt and $125,000 was placed in escrow for the purpose of constructing a 110 million gallon per year ethanol plant near Charles City, Iowa. The indenture relating to the notes contains a number of restrictive covenants that limit the ability of the Parent and its subsidiaries to, among other things, incur additional indebtedness, pay dividends, make investments, enter into transactions with affiliates and other restrictions. The notes are collateralized by substantially all the assets of the Parent and certain of its subsidiaries, except for accounts receivable, inventory, commodities accounts and the cash proceeds therefrom and subject to various other exceptions. Certain registration rights have been granted related to the notes. The maximum penalty for failing to register the notes is $2,100. No amounts have been recognized in the accompanying financial statements related to this commitment. |
F-15
Table of Contents
Note 8. | Convertible Put Warrant |
F-16
Table of Contents
Note 9. | Income Tax Matters |
2004 | 2005 | |||||||||
Deferred tax assets: | ||||||||||
Loss carryforward | $ | 4,661 | $ | 6,096 | ||||||
Derivative financial instruments | 1,191 | 1,261 | ||||||||
Organizational expenses | 656 | 2,509 | ||||||||
Other | 463 | 796 | ||||||||
6,971 | 10,662 | |||||||||
Deferred tax liabilities: | ||||||||||
Property and equipment | (16,126 | ) | (19,640 | ) | ||||||
Prepaid expenses | (201 | ) | (898 | ) | ||||||
Other | (183 | ) | (42 | ) | ||||||
(16,510 | ) | (20,580 | ) | |||||||
Net deferred tax liabilities | $ | (9,539 | ) | $ | (9,918 | ) | ||||
2004 | 2005 | |||||||
Current assets | $ | 2,877 | $ | 5,839 | ||||
Noncurrent liabilities | (12,416 | ) | (15,757 | ) | ||||
$ | (9,539 | ) | $ | (9,918 | ) | |||
2003 | 2004 | 2005 | ||||||||||
Current tax expense | $ | — | $ | 115 | $ | 172 | ||||||
Deferred tax expense | 571 | 10,127 | 410 | |||||||||
$ | 571 | $ | 10,242 | $ | 582 | |||||||
F-17
Table of Contents
2003 | 2004 | 2005 | |||||||||||
Computed “expected” tax expense | $ | 407 | $ | 8,720 | $ | 271 | |||||||
Increase (decrease) in income taxes resulting from: | |||||||||||||
Convertible put warrant | 198 | 1,218 | 983 | ||||||||||
Stock-based compensation | — | 74 | 167 | ||||||||||
Effect of lower tax rates | — | (260 | ) | 260 | |||||||||
Valuation allowance | (259 | ) | — | — | |||||||||
Loss (income) from nontaxable subsidiaries, including the initial recognition of deferred taxes as of the dates of reorganization in 2005 | — | 380 | (1,257 | ) | |||||||||
Other, net | 225 | 110 | 158 | ||||||||||
$ | 571 | $ | 10,242 | $ | 582 | ||||||||
Note 10. | Tax Increment Financing |
Note 11. | Risk Management |
F-18
Table of Contents
2003 | 2004 | 2005 | |||||||||||
Undesignated | $ | 1,000 | $ | — | $ | 387 | |||||||
Designated cash flow hedges | — | 6,053 | (5,063 | ) | |||||||||
Ineffectiveness on cash flow hedges | — | (918 | ) | (3,231 | ) | ||||||||
Total amounts included in cost of goods sold | $ | 1,000 | $ | 5,135 | $ | (7,907 | ) | ||||||
Designated cash flow hedges included in net sales | $ | — | $ | (4,324 | ) | $ | (3,862 | ) | |||||
F-19
Table of Contents
2003 | 2004 | 2005 | |||||||||||
Unrealized holding (loss) arising during the year, net | $ | (336 | ) | $ | (2,731 | ) | $ | (12,341 | ) | ||||
Less reclassification adjustment for net gains (losses) realized in net income | — | 343 | (12,251 | ) | |||||||||
Net change in unrealized loss before income taxes | (336 | ) | (3,074 | ) | (90 | ) | |||||||
Income taxes benefit | 113 | 1,046 | 31 | ||||||||||
Other comprehensive loss | $ | (223 | ) | $ | (2,028 | ) | $ | (59 | ) | ||||
Note 12. | Stock Options and Warrants |
F-20
Table of Contents
2003 | 2004 | 2005 | |||||||||||||||||||||||
Weighted | Weighted | Weighted | |||||||||||||||||||||||
Average | Average | Average | |||||||||||||||||||||||
Exercise | Exercise | Exercise | |||||||||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | ||||||||||||||||||||
Outstanding options and warrants, beginning of year | 3,330,315 | $ | 0.34 | 3,330,315 | $ | 0.34 | 5,815,674 | $ | 0.64 | ||||||||||||||||
Granted | — | — | 2,492,129 | 1.04 | 925,705 | 3.96 | |||||||||||||||||||
Exercised | — | — | — | — | (106 | ) | 1.01 | ||||||||||||||||||
Forfeited | — | — | (6,770 | ) | 1.01 | (88,056 | ) | 1.00 | |||||||||||||||||
Outstanding options and warrants, end of year | 3,330,315 | $ | 0.34 | 5,815,674 | $ | 0.64 | 6,653,217 | $ | 1.10 | ||||||||||||||||
Options and warrants exercisable at end of year | 1,484,549 | 2,237,947 | 3,011,845 | ||||||||||||||||||||||
Weighted-average fair value of options and warrants granted during year | $ | — | $ | 0.40 | $ | 3.39 | |||||||||||||||||||
F-21
Table of Contents
Outstanding | Exercisable | |||||||||||||||||||||
Weighted | ||||||||||||||||||||||
Average | Weighted | Weighted | ||||||||||||||||||||
Remaining | Average | Average | ||||||||||||||||||||
Number | Contractual | Exercise | Number | Exercise | ||||||||||||||||||
Exercise Price | Outstanding | Life in Years | Price | Exercisable | Price | |||||||||||||||||
$ | 5.16 | 653,338 | 9.8 | $ | 5.16 | 19,378 | $ | 5.16 | ||||||||||||||
1.50 | 66,332 | 9.0 | 1.50 | 11,333 | 1.50 | |||||||||||||||||
1.25 | 139,005 | 8.4 | 1.25 | 63,159 | 1.25 | |||||||||||||||||
1.10 | 500,000 | 3.0 | 1.10 | 200,000 | 1.10 | |||||||||||||||||
1.00 | 1,964,227 | 8.0 | 1.00 | 1,048,383 | 1.00 | |||||||||||||||||
0.52 | 674,634 | 1.7 | 0.52 | 489,592 | 0.52 | |||||||||||||||||
0.52 | 1,475,681 | — | 0.52 | — | 0.52 | |||||||||||||||||
0.01 | 1,180,000 | 7.0 | 0.01 | 1,180,000 | 0.01 | |||||||||||||||||
6,653,217 | 3,011,845 | |||||||||||||||||||||
2004 | 2005 | |||||||
Dividend yield | None | None | ||||||
Expected volatility | 30% | 58% | ||||||
Risk-free interest rate | 3.7 - 3.8% | 4.4% | ||||||
Expected life of instrument | 5 - 10 years | 8 - 10 years |
Note 13. | Shareholder Agreement |
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Table of Contents
Note 14. | Employee Benefit Plan |
Note 15. | Commitments and Contingencies |
Years Ending December 31, | Amount | ||||
2006 | $ | 3,060 | |||
2007 | 2,922 | ||||
2008 | 2,824 | ||||
2009 | 2,824 | ||||
2010 | 2,824 | ||||
Thereafter | 11,176 | ||||
Total | $ | 25,630 | |||
Natural Gas — The agreements provide the Company with fixed rates for natural gas through various dates to September 2018 from one vendor at each plant. The rates are based upon transportation rates or demand charges for the various agreements plus minimum monthly administrative charges. The agreements require annual minimum purchases of up to 3,228,000 MMBtu of natural gas. | |
Electricity — The agreements provide the Company with a fixed rate for electric service through various dates to September 2010 from one vendor at each plant. The agreements require a minimum purchase of up to 12,000 kW of electricity each month plus a monthly facilities charge. | |
Water — The agreement provides the Company with fixed rates for water through various dates to 2009 from one vendor at each plant. The agreement requires a minimum purchase of 300 million gallons of water per year through 2021. |
F-23
Table of Contents
Railroad transportation — The agreements provide the Company with a transportation route for outbound ethanol and distillers grain shipments and inbound corn shipments. These agreements are with one or two vendors per plant. The rates per the agreements are fixed, subject to semi-annual adjustment based on a national index of rail costs. These contracts do not have stated minimums and terminate on various dates to December 31, 2011, or upon notice. |
Years Ending December 31, | Amount | ||||
2006 | $ | 3,376 | |||
2007 | 3,383 | ||||
2008 | 3,390 | ||||
2009 | 2,756 | ||||
2010 | 2,458 | ||||
Thereafter | 11,508 | ||||
Total | $ | 26,871 | |||
F-24
Table of Contents
Note 16. | Insurance Claim Receivable |
F-25
Table of Contents
Note 17. | Segment Information |
2003 | ||||||||||||
Ethanol | All | |||||||||||
Production | Other | Totals | ||||||||||
Revenue from external customers | $ | 10,884 | $ | — | $ | 10,884 | ||||||
Interest revenue | 11 | — | 11 | |||||||||
Interest expense | 839 | — | 839 | |||||||||
Depreciation and amortization | 375 | — | 375 | |||||||||
Segment profit — operating income | 1,977 | — | 1,977 | |||||||||
Segment assets | 96,406 | 73 | 96,479 | |||||||||
Intersegment assets | — | 100 | 100 | |||||||||
Capital expenditures for segment assets | 63,974 | — | 63,974 |
2004 | ||||||||||||
Ethanol | All | |||||||||||
Production | Other | Totals | ||||||||||
Revenue from external customers | $ | 186,029 | — | $ | 186,029 | |||||||
Interest revenue | 181 | 1 | 182 | |||||||||
Interest expense | 8,892 | — | 8,892 | |||||||||
Depreciation and amortization | 4,097 | — | 4,097 | |||||||||
Segment profit (loss) — operating income (loss) | 33,812 | (222 | ) | 33,590 | ||||||||
Segment assets | 150,010 | 318 | 150,328 | |||||||||
Intersegment assets | 4,925 | 572 | 5,497 | |||||||||
Capital expenditures for segment assets | 25,215 | — | 25,215 |
F-26
Table of Contents
2005 | ||||||||||||
Ethanol | ||||||||||||
Production | All Other | Totals | ||||||||||
Revenue from external customers | $ | 235,435 | $ | 5 | $ | 235,440 | ||||||
Interest revenue | 238 | 210 | 448 | |||||||||
Intersegment interest revenue | 10 | 796 | 806 | |||||||||
Interest expense | 21,266 | 2,087 | 23,353 | |||||||||
Intersegment interest expense | 796 | 10 | 806 | |||||||||
Depreciation and amortization | 5,970 | 47 | 6,017 | |||||||||
Segment profit (loss) — operating income (loss) | 24,388 | (726 | ) | 23,662 | ||||||||
Segment assets | 233,071 | 172,058 | 405,129 | |||||||||
Intersegment assets | 15,214 | 208,087 | 223,301 | |||||||||
Capital expenditures for segment assets | 86,052 | 1,043 | 87,095 |
Note 18. | Quarterly Financial Data (Unaudited) |
1st Quarter | 2nd Quarter | 3rd Quarter | 4th Quarter | |||||||||||||
Total revenues | $ | 44,852 | $ | 34,410 | $ | 56,990 | $ | 100,107 | ||||||||
Gross profit (loss) | 6,171 | (1,516 | )(a) | 6,666 | 24,215 | |||||||||||
Net income (loss) | 1,686 | (3,910 | ) | (205 | ) | 2,682 | (b) | |||||||||
Basic earnings (loss) per common share | 0.04 | (0.09 | ) | — | 0.05 | |||||||||||
Diluted earnings (loss) per common share | 0.04 | (0.09 | ) | — | 0.05 |
(a) | Includes loss on disposal of equipment of $2,640 (Note 5). |
(b) | Includes loss on extinguishment of debt of $15,744 (Note 7). |
F-27
Table of Contents
Note 19. | Supplemental Cash Flow Information |
2003 | 2004 | 2005 | |||||||||||
Supplemental Disclosures of Cash Flow Information | |||||||||||||
Cash payments for interest, of which $1,721, $11 and $3,534 was capitalized in 2003, 2004 and 2005, respectively | $ | 1,786 | $ | 4,772 | $ | 8,721 | |||||||
Cash payments (receipts) for income taxes | — | 200 | (50 | ) | |||||||||
Supplemental Schedule of Noncash Investing and Financing Activities | |||||||||||||
Property and equipment acquired through accounts payable | $ | 7,032 | $ | 8,584 | $ | 2,547 | |||||||
Construction loan paid in full through issuance of term loans | — | 60,000 | — | ||||||||||
Debt issuance costs incurred through issuance of warrant and reflected as discount on long-term debt | 602 | — | — | ||||||||||
Change in unrealized gain/loss on interest rate swap | 336 | (430 | ) | 94 | |||||||||
Tax effect on unrealized gain/loss on interest rate swap | (113 | ) | 145 | (32 | ) | ||||||||
Change in unrealized gain/loss on derivative financial instruments | — | 3,504 | (4 | ) | |||||||||
Tax effect on unrealized gain/loss on derivative financial instruments | — | (1,191 | ) | 1 | |||||||||
Debt issuance costs included in accounts payable | — | 470 | 981 | ||||||||||
Minority interest in subsidiary acquired through issuance of common stock | — | — | 2,839 | ||||||||||
Goodwill acquired through issuance of common stock for minority interest in subsidiary | — | — | 6,129 | ||||||||||
Conversion of note payable to common stock | — | 1,000 | — | ||||||||||
Deferred financing costs reclassified against proceeds from issuance of common stock | — | 69 | — | ||||||||||
Property and equipment acquired with restricted cash | — | — | 250 |
F-28
Table of Contents
Note 20. | Guarantors/ Non-guarantors Consolidating Financial Statements |
Condensed Consolidating Balance Sheet | ||||||||||||||||||||||
December 31, 2005 | ||||||||||||||||||||||
ASSETS | ||||||||||||||||||||||
Issuer (VEC) | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||||
Current Assets | ||||||||||||||||||||||
Cash and cash equivalents | $ | 32,905 | $ | — | $ | — | $ | (3,191 | ) | $ | 29,714 | |||||||||||
Receivables | 995 | 29,001 | — | (1,333 | ) | 28,663 | ||||||||||||||||
Inventories | — | 19,291 | — | — | 19,291 | |||||||||||||||||
Prepaid expenses | 2 | 4,609 | — | — | 4,611 | |||||||||||||||||
Deferred income taxes | 405 | 5,434 | — | — | 5,839 | |||||||||||||||||
Total current assets | 34,307 | 58,335 | — | (4,524 | ) | 88,118 | ||||||||||||||||
Other Assets | ||||||||||||||||||||||
Restricted cash held in escrow | 124,750 | — | — | — | 124,750 | |||||||||||||||||
Investment in subsidiaries | 58,968 | — | — | (58,968 | ) | — | ||||||||||||||||
Debt issuance costs, net of amortization | 6,449 | — | — | — | 6,449 | |||||||||||||||||
Intercompany notes receivable | 147,786 | 15,214 | — | (163,000 | ) | — | ||||||||||||||||
Goodwill | 6,129 | — | — | — | 6,129 | |||||||||||||||||
344,082 | 15,214 | — | (221,968 | ) | 137,328 | |||||||||||||||||
Property and Equipment, net | 10 | 178,055 | 1,618 | — | 179,683 | |||||||||||||||||
Total assets | $ | 378,399 | $ | 251,604 | $ | 1,618 | $ | (226,492 | ) | $ | 405,129 | |||||||||||
F-29
Table of Contents
Condensed Consolidating Balance Sheet — (Continued) | ||||||||||||||||||||||
December 31, 2005 | ||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ AND MEMBER’S EQUITY (DEFICIT) | ||||||||||||||||||||||
Issuer (VEC) | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||||
Current Liabilities | ||||||||||||||||||||||
Outstanding checks in excess of bank balance | $ | — | $ | 3,191 | $ | — | $ | (3,191 | ) | $ | — | |||||||||||
Current maturities of long-term debt | — | 250 | — | (250 | ) | — | ||||||||||||||||
Current portion of deferred revenue | — | 95 | — | — | 95 | |||||||||||||||||
Accounts payable | 1,393 | 18,477 | 711 | (526 | ) | 20,055 | ||||||||||||||||
Accrued expenses | 685 | 2,105 | 8 | (807 | ) | 1,991 | ||||||||||||||||
Derivative financial instruments | — | 4,426 | — | — | 4,426 | |||||||||||||||||
Total current liabilities | 2,078 | 28,544 | 719 | (4,774 | ) | 26,567 | ||||||||||||||||
Long-Term Liabilities | ||||||||||||||||||||||
Long-term debt, less current maturities | 223,933 | 146,388 | 1,148 | (162,750 | ) | 208,719 | ||||||||||||||||
Deferred revenue, less current portion | — | 1,710 | — | — | 1,710 | |||||||||||||||||
Convertible put warrant | 7,458 | — | — | — | 7,458 | |||||||||||||||||
Deferred income taxes | 12 | 15,832 | (87 | ) | — | 15,757 | ||||||||||||||||
231,403 | 163,930 | 1,061 | (162,750 | ) | 233,644 | |||||||||||||||||
Shareholders’ and Member’s Equity (Deficit) | ||||||||||||||||||||||
Preferred stock | — | — | — | — | — | |||||||||||||||||
Common stock | 625 | — | — | — | 625 | |||||||||||||||||
Additional paid-in capital | 132,848 | 25,263 | — | (25,263 | ) | 132,848 | ||||||||||||||||
Retained earnings | 13,862 | 21,592 | — | (21,592 | ) | 13,862 | ||||||||||||||||
Member’s equity (deficit) | — | 14,585 | (162 | ) | (14,423 | ) | — | |||||||||||||||
Deferred compensation | (107 | ) | — | — | — | (107 | ) | |||||||||||||||
Accumulated other comprehensive loss | (2,310 | ) | (2,310 | ) | — | 2,310 | (2,310 | ) | ||||||||||||||
144,918 | 59,130 | (162 | ) | (58,968 | ) | 144,918 | ||||||||||||||||
$ | 378,399 | $ | 251,604 | $ | 1,618 | $ | (226,492 | ) | $ | 405,129 | ||||||||||||
F-30
Table of Contents
Issuer (VEC) | Guarantors | Non-Guarantors | Eliminations | Consolidated | |||||||||||||||||
Total revenues | $ | — | $ | 236,359 | $ | — | $ | — | $ | 236,359 | |||||||||||
Cost of goods sold | — | 200,823 | — | — | 200,823 | ||||||||||||||||
Gross profit | — | 35,536 | — | — | 35,536 | ||||||||||||||||
Selling, general and administrative expenses | 372 | 11,153 | 349 | — | 11,874 | ||||||||||||||||
Operating income (loss) | (372 | ) | 24,383 | (349 | ) | — | 23,662 | ||||||||||||||
Other income (expense): | |||||||||||||||||||||
Interest expense, including change in fair value of convertible put warrant | (2,069 | ) | (6,319 | ) | (27 | ) | 806 | (7,609 | ) | ||||||||||||
Other interest expense, loss on extinguishment of debt | — | (15,744 | ) | — | — | (15,744 | ) | ||||||||||||||
Interest income | 1,004 | 248 | 2 | (806 | ) | 448 | |||||||||||||||
Equity in earnings of subsidiaries | 1,345 | — | — | (1,345 | ) | — | |||||||||||||||
Other income | — | 17 | — | — | 17 | ||||||||||||||||
280 | (21,798 | ) | (25 | ) | (1,345 | ) | (22,888 | ) | |||||||||||||
Income (loss) before income taxes and minority interest | (92 | ) | 2,585 | (374 | ) | (1,345 | ) | 774 | |||||||||||||
Income tax expense (benefit) | (345 | ) | 1,062 | (135 | ) | — | 582 | ||||||||||||||
Income (loss) before minority interest | 253 | 1,523 | (239 | ) | (1,345 | ) | 192 | ||||||||||||||
Minority interest in net loss of subsidiary | — | — | — | 61 | 61 | ||||||||||||||||
Net income (loss) | $ | 253 | $ | 1,523 | $ | (239 | ) | $ | (1,284 | ) | $ | 253 | |||||||||
F-31
Table of Contents
Condensed Consolidating Statement of Cash Flows | ||||||||||||||||||||||
For the Year Ended December 31, 2005 | ||||||||||||||||||||||
Issuer (VEC) | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities | $ | 3,220 | $ | (4,936 | ) | $ | (799 | ) | $ | — | $ | (2,515 | ) | |||||||||
Cash Flows from Investing Activities: | ||||||||||||||||||||||
Investment in restricted cash | (125,000 | ) | — | — | — | (125,000 | ) | |||||||||||||||
Advances on notes receivable | (147,536 | ) | (15,214 | ) | — | 162,750 | — | |||||||||||||||
Capital contribution to subsidiary | (5,920 | ) | — | — | 5,920 | — | ||||||||||||||||
Proceeds from sale of equipment | — | 46 | — | — | 46 | |||||||||||||||||
Purchases of property and equipment | (10 | ) | (86,035 | ) | (1,050 | ) | — | (87,095 | ) | |||||||||||||
Net cash (used in) investing activities | (278,466 | ) | (101,203 | ) | (1,050 | ) | 168,670 | (212,049 | ) | |||||||||||||
Cash Flows from Financing Activities: | ||||||||||||||||||||||
Outstanding checks in excess of bank balance | — | 3,191 | — | (3,191 | ) | — | ||||||||||||||||
Proceeds from long-term debt | 223,520 | 146,388 | 1,553 | (162,750 | ) | 208,711 | ||||||||||||||||
Principal payments on long-term debt | — | (58,890 | ) | — | — | (58,890 | ) | |||||||||||||||
Net proceeds from issuance of common stock | 90,138 | — | — | — | 90,138 | |||||||||||||||||
Capital contribution from parent | — | 5,920 | — | (5,920 | ) | — | ||||||||||||||||
Debt issuance costs paid | (5,507 | ) | (470 | ) | — | — | (5,977 | ) | ||||||||||||||
Net cash provided by financing activities | 308,151 | 96,139 | 1,553 | (171,861 | ) | 233,982 | ||||||||||||||||
Net increase (decrease) in cash and cash equivalents | 32,905 | (10,000 | ) | (296 | ) | (3,191 | ) | 19,418 | ||||||||||||||
Cash and cash equivalents, beginning of period | — | 10,000 | 296 | — | 10,296 | |||||||||||||||||
Cash and cash equivalents, end of period | $ | 32,905 | $ | — | $ | — | $ | (3,191 | ) | $ | 29,714 | |||||||||||
F-32
Table of Contents
Note 21. | Subsequent and Other Events |
F-33
Table of Contents
March 31, | ||||||||||
December 31, | 2006 | |||||||||
2005 | (Unaudited) | |||||||||
(Dollars in thousands, | ||||||||||
except per share data) | ||||||||||
ASSETS | ||||||||||
Current Assets | ||||||||||
Cash and cash equivalents | $ | 29,714 | $ | 43,306 | ||||||
Receivables | 28,663 | 30,260 | ||||||||
Inventories | 19,291 | 20,644 | ||||||||
Prepaid expenses | 4,611 | 2,968 | ||||||||
Deferred income taxes | 5,839 | 588 | ||||||||
Total current assets | 88,118 | 97,766 | ||||||||
Other Assets | ||||||||||
Restricted cash held in escrow | 124,750 | 115,709 | ||||||||
Debt issuance costs, net | 6,449 | 6,320 | ||||||||
Goodwill | 6,129 | 6,129 | ||||||||
Deferred offering costs | — | 411 | ||||||||
137,328 | 128,569 | |||||||||
Property and Equipment, net | 179,683 | 187,126 | ||||||||
$ | 405,129 | $ | 413,461 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||
Current Liabilities | ||||||||||
Current portion of deferred revenue | $ | 95 | $ | 95 | ||||||
Accounts payable | 20,055 | 10,562 | ||||||||
Accrued expenses | 1,991 | 7,002 | ||||||||
Derivative financial instruments | 4,426 | 872 | ||||||||
Total current liabilities | 26,567 | 18,531 | ||||||||
Long-Term Liabilities | ||||||||||
Long-term debt | 208,719 | 208,790 | ||||||||
Deferred revenue, less current portion | 1,710 | 1,686 | ||||||||
Convertible put warrant | 7,458 | 18,396 | ||||||||
Deferred income taxes | 15,757 | 18,393 | ||||||||
233,644 | 247,265 | |||||||||
Shareholders’ Equity | ||||||||||
Preferred stock, $0.01 par value; authorized 100,000,000 shares; none issued or outstanding | — | — | ||||||||
Common stock, $0.01 par value; authorized 250,000,000 shares; 62,492,722 and 62,557,428 shares issued and outstanding as of December 31, 2005 and March 31, 2006, respectively | 625 | 626 | ||||||||
Additional paid-in capital | 132,848 | 133,361 | ||||||||
Retained earnings | 13,862 | 16,597 | ||||||||
Deferred compensation | (107 | ) | — | |||||||
Accumulated other comprehensive loss | (2,310 | ) | (2,919 | ) | ||||||
144,918 | 147,665 | |||||||||
$ | 405,129 | $ | 413,461 | |||||||
F-34
Table of Contents
2005 | 2006 | |||||||||
(Dollars in thousands, | ||||||||||
except per share data) | ||||||||||
Revenues: | ||||||||||
Net sales | $ | 44,685 | $ | 109,881 | ||||||
Other revenues, incentive income | 167 | 823 | ||||||||
Total revenues | 44,852 | 110,704 | ||||||||
Cost of goods sold | 38,681 | 81,358 | ||||||||
Gross profit | 6,171 | 29,346 | ||||||||
Selling, general and administrative expenses | 2,058 | 3,770 | ||||||||
Operating income | 4,113 | 25,576 | ||||||||
Other income (expense): | ||||||||||
Interest expense, including change in fair value of convertible put warrant | (1,514 | ) | (16,296 | ) | ||||||
Interest income | 44 | 1,668 | ||||||||
Other income | — | 2 | ||||||||
(1,470 | ) | (14,626 | ) | |||||||
Income before income taxes and minority interest | 2,643 | 10,950 | ||||||||
Income taxes | 1,010 | 8,215 | ||||||||
Income before minority interest | 1,633 | 2,735 | ||||||||
Minority interest in net loss of subsidiary | 53 | — | ||||||||
Net income | $ | 1,686 | $ | 2,735 | ||||||
Earnings per common share: | ||||||||||
Basic | $ | 0.04 | $ | 0.04 | ||||||
Diluted | 0.04 | 0.04 | ||||||||
Pro forma amounts as if all subsidiaries were taxable for entire period: | ||||||||||
Pro forma income taxes | $ | 854 | $ | 8,215 | ||||||
Pro forma net income | 1,842 | 2,735 | ||||||||
Pro forma earnings per common share: | ||||||||||
Basic | $ | 0.04 | $ | 0.04 | ||||||
Diluted | 0.04 | 0.04 |
F-35
Table of Contents
2005 | 2006 | |||||||||||
(Dollars in thousands) | ||||||||||||
Cash Flows From Operating Activities | ||||||||||||
Net income | $ | 1,686 | $ | 2,735 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation | 1,165 | 2,364 | ||||||||||
Amortization of debt issuance costs and debt discount | 50 | 307 | ||||||||||
Accretion of deferred revenue | (24 | ) | (24 | ) | ||||||||
Minority interest in net loss of subsidiary | (53 | ) | — | |||||||||
Change in fair value of convertible put warrant | 313 | 10,938 | ||||||||||
Deferred income taxes | 1,010 | 8,215 | ||||||||||
Stock-based compensation expense | 236 | 548 | ||||||||||
Changes in working capital components: | ||||||||||||
(Increase) decrease in: | ||||||||||||
Receivables | (1,000 | ) | (1,597 | ) | ||||||||
Inventories | 978 | (1,353 | ) | |||||||||
Prepaid expenses | 218 | 1,643 | ||||||||||
Increase (decrease) in: | ||||||||||||
Accounts payable | (808 | ) | (6,895 | ) | ||||||||
Accrued expenses | (273 | ) | 5,011 | |||||||||
Derivative financial instruments | 2,646 | (4,491 | ) | |||||||||
Net cash provided by operating activities | 6,144 | 17,401 | ||||||||||
Cash Flows From Investing Activities | ||||||||||||
Purchases of property and equipment | (22,171 | ) | (2,383 | ) | ||||||||
Proceeds from sale of equipment | 8 | — | ||||||||||
Net cash used in investing activities | (22,163 | ) | (2,383 | ) | ||||||||
Cash Flows From Financing Activities | ||||||||||||
Proceeds from long-term debt | 14,389 | — | ||||||||||
Proceeds from issuance of common stock | — | 73 | ||||||||||
Deferred offering costs paid | — | (411 | ) | |||||||||
Debt issuance costs paid | (470 | ) | (1,088 | ) | ||||||||
Net cash provided by (used in) financing activities | 13,919 | (1,426 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents | (2,100 | ) | 13,592 | |||||||||
Cash and Cash Equivalents | ||||||||||||
Beginning | 10,296 | 29,714 | ||||||||||
Ending | $ | 8,196 | $ | 43,306 | ||||||||
F-36
Table of Contents
Note 1. | Basis of Presentation |
Note 2. | Inventories |
December 31, | March 31, | |||||||
2005 | 2006 | |||||||
Corn | $ | 9,023 | $ | 10,557 | ||||
Supplies | 3,890 | 4,800 | ||||||
Chemicals | 1,231 | 1,054 | ||||||
Work in process | 1,150 | 1,475 | ||||||
Distillers Grains | 396 | 197 | ||||||
Ethanol | 3,601 | 2,561 | ||||||
$ | 19,291 | $ | 20,644 | |||||
F-37
Table of Contents
Weighted | ||||||||||||||
Average | ||||||||||||||
Net | Shares | Per Share | ||||||||||||
Income | Outstanding | Amount | ||||||||||||
2005: | ||||||||||||||
Basic EPS | $ | 1,686 | 43,110,203 | $ | 0.04 | |||||||||
Effects of dilutive securities: | ||||||||||||||
Exercise of stock options and warrants | — | 2,660,842 | — | |||||||||||
Diluted EPS | $ | 1,686 | 45,771,045 | $ | 0.04 | |||||||||
2006: | ||||||||||||||
Basic EPS | $ | 2,735 | 62,413,302 | $ | 0.04 | |||||||||
Effects of Dilutive securities: | ||||||||||||||
Exercise of stock options and warrants | — | 2,786,781 | — | |||||||||||
Diluted EPS | $ | 2,735 | 65,200,083 | $ | 0.04 | |||||||||
Note 4. | Stock-Based Compensation |
F-38
Table of Contents
Net income, as reported | $ | 1,686 | |||
Add actual employee stock-based compensation expense related to performance-based stock options and restricted stock awards included in reported net income, net of related tax effects | 156 | ||||
Deduct total pro forma employee stock-based compensation expense determined under fair value based method for all awards, net of related tax effects | (386 | ) | |||
Pro forma net income | $ | 1,456 | |||
Basic EPS: | |||||
As reported | $ | 0.04 | |||
Pro forma | 0.03 | ||||
Diluted EPS: | |||||
As reported | 0.04 | ||||
Pro forma | 0.03 |
Service-Based Awards |
F-39
Table of Contents
Three Months Ended | ||||||||
March 31, | ||||||||
2005 | 2006 | |||||||
Expected volatility | 58% | 58% | ||||||
Expected dividend yield | None | None | ||||||
Expected term | 8-10 years | 8-10 years | ||||||
Risk-free interest rate | 4.4% | 4.8-4.9% |
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Options | Shares | Price | Term | Value | ||||||||||||
Outstanding at January 1, 2006 | 2,869,651 | $ | 1.99 | |||||||||||||
Granted | 130,000 | 5.16 | ||||||||||||||
Forfeited | (46,673 | ) | 1.59 | |||||||||||||
Exercised | (51,570 | ) | 1.15 | |||||||||||||
Outstanding at March 31, 2006 | 2,901,408 | 2.15 | 7.5 | $ | 32,293 | |||||||||||
Vested or expected to vest as of March 31, 2006 | 2,843,899 | 2.14 | 7.5 | $ | 31,681 | |||||||||||
Exercisable at March 31, 2006 | 984,453 | 1.18 | 6.8 | $ | 11,912 | |||||||||||
F-40
Table of Contents
Weighted | ||||||||
Average | ||||||||
Grant | ||||||||
Date Fair | ||||||||
Restricted Stock | Shares | Value | ||||||
Nonvested at January 1, 2006 | 108,328 | $ | 0.99 | |||||
Vested | 9,027 | 0.99 | ||||||
Nonvested at March 31, 2006 | 99,211 | $ | 0.99 | |||||
F-41
Table of Contents
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Exercise | Contractual | Intrinsic | ||||||||||||||
Performance Awards | Shares | Price | Term | Value | ||||||||||||
Outstanding at January 1, 2006 | 453,251 | $ | 1.02 | |||||||||||||
Granted | 269,369 | 1.64 | ||||||||||||||
Forfeited | (667 | ) | 5.16 | |||||||||||||
Exercised | (13,136 | ) | 1.00 | |||||||||||||
Outstanding at March 31, 2006 | 708,817 | $ | 1.25 | 8.0 | $ | 8,527 | ||||||||||
Vested or expected to vest as of March 31, 2006 | 708,817 | $ | 1.25 | 8.0 | $ | 8,527 | ||||||||||
Exercisable at March 31, 2006 | 440,115 | $ | 1.02 | 7.9 | $ | 5,396 | ||||||||||
F-42
Table of Contents
Note 5. | Convertible Put Warrant |
Note 6. | Comprehensive Income |
Note 7. | Condensed Segment Information |
2005 | ||||||||||||
Ethanol | ||||||||||||
Production | All Other | Totals | ||||||||||
Revenue from external customers | $ | 44,685 | $ | — | $ | 44,685 | ||||||
Segment operating income (loss) | 4,185 | (72 | ) | 4,113 | ||||||||
Segment assets | 233,071 | 172,058 | 405,129 |
F-43
Table of Contents
2006 | ||||||||||||
Ethanol | ||||||||||||
Production | All Other | Totals | ||||||||||
Revenue from external customers | $ | 109,227 | $ | 654 | $ | 109,881 | ||||||
Segment operating income (loss) | 26,622 | (1,046 | ) | 25,576 | ||||||||
Segment assets | 236,620 | 176,841 | 413,461 |
Note 8. | Guarantors/ Non-guarantors Condensed Consolidating Financial Statements |
Issuer (VEC) | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||||
Current Assets | ||||||||||||||||||||||
Cash and cash equivalents | $ | 46,083 | $ | — | $ | — | $ | (2,777 | ) | $ | 43,306 | |||||||||||
Receivables | 8,036 | 30,269 | 1 | (8,046 | ) | 30,260 | ||||||||||||||||
Inventories | — | 20,644 | — | — | 20,644 | |||||||||||||||||
Prepaid expenses | 6 | 2,962 | — | — | 2,968 | |||||||||||||||||
Deferred income taxes | 741 | (153 | ) | — | — | 588 | ||||||||||||||||
Total current assets | 54,866 | 53,722 | 1 | (10,823 | ) | 97,766 | ||||||||||||||||
Other Assets | ||||||||||||||||||||||
Restricted cash held in escrow | 115,709 | — | — | — | 115,709 | |||||||||||||||||
Investment in subsidiaries | 72,884 | — | — | (72,884 | ) | — | ||||||||||||||||
Debt issuance costs, net of amortization | 6,320 | — | — | — | 6,320 | |||||||||||||||||
Intercompany notes receivable | 150,687 | 25,048 | — | (175,735 | ) | — | ||||||||||||||||
Goodwill | 6,129 | — | — | — | 6,129 | |||||||||||||||||
Deferred offering costs | 411 | — | — | — | 411 | |||||||||||||||||
352,140 | 25,048 | — | (248,619 | ) | 128,569 | |||||||||||||||||
Property and Equipment, net | 85 | 184,430 | 2,611 | — | 187,126 | |||||||||||||||||
Total assets | $ | 407,091 | $ | 263,200 | $ | 2,612 | $ | (259,442 | ) | $ | 413,461 | |||||||||||
F-44
Table of Contents
Issuer | Non- | |||||||||||||||||||||
(VEC) | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||
Current Liabilities | ||||||||||||||||||||||
Outstanding checks in excess of bank balance | $ | — | $ | 2,777 | $ | — | $ | (2,777 | ) | $ | — | |||||||||||
Current maturities of long-term debt | — | 10,213 | — | (10,213 | ) | — | ||||||||||||||||
Current portion of deferred revenue | — | 95 | — | — | 95 | |||||||||||||||||
Accounts payable | 872 | 11,970 | 844 | (3,124 | ) | 10,562 | ||||||||||||||||
Accrued expenses | 6,334 | 5,536 | 54 | (4,922 | ) | 7,002 | ||||||||||||||||
Derivative financial instruments | — | 872 | — | — | 872 | |||||||||||||||||
�� | ||||||||||||||||||||||
Total current liabilities | 7,206 | 31,463 | 898 | (21,036 | ) | 18,531 | ||||||||||||||||
Long-Term Liabilities | ||||||||||||||||||||||
Long-term debt, less current maturities | 233,813 | 138,426 | 2,073 | (165,522 | ) | 208,790 | ||||||||||||||||
Deferred revenue, less current portion | — | 1,686 | — | — | 1,686 | |||||||||||||||||
Convertible put warrant | 18,396 | — | — | — | 18,396 | |||||||||||||||||
Deferred income taxes | 11 | 18,508 | (126 | ) | — | 18,393 | ||||||||||||||||
252,220 | 158,620 | 1,947 | (165,522 | ) | 247,265 | |||||||||||||||||
Shareholders’ and Member’s Equity (Deficit) | ||||||||||||||||||||||
Preferred stock | — | — | — | — | — | |||||||||||||||||
Common stock | 626 | — | — | — | 626 | |||||||||||||||||
Additional paid-in capital | 133,361 | 25,263 | — | (25,263 | ) | 133,361 | ||||||||||||||||
Retained earnings | 16,597 | 29,923 | — | (29,923 | ) | 16,597 | ||||||||||||||||
Member’s equity (deficit) | — | 20,850 | (233 | ) | (20,617 | ) | — | |||||||||||||||
Accumulated other comprehensive loss | (2,919 | ) | (2,919 | ) | — | 2,919 | (2,919 | ) | ||||||||||||||
147,665 | 73,117 | (233 | ) | (72,884 | ) | 147,665 | ||||||||||||||||
$ | 407,091 | $ | 263,200 | $ | 2,612 | $ | (259,442 | ) | $ | 413,461 | ||||||||||||
F-45
Table of Contents
Issuer | Non- | |||||||||||||||||||||
(VEC) | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||
Revenues | $ | — | $ | 110,704 | $ | — | $ | — | $ | 110,704 | ||||||||||||
Cost of goods sold | — | 81,358 | — | — | 81,358 | |||||||||||||||||
Gross profit | — | 29,346 | — | — | 29,346 | |||||||||||||||||
Selling, general and administrative expenses | 850 | 2,847 | 73 | — | 3,770 | |||||||||||||||||
Operating income (loss) | (850 | ) | 26,499 | (73 | ) | — | 25,576 | |||||||||||||||
Other income (expense): | ||||||||||||||||||||||
Interest expense, including change in fair value of convertible put warrant | (16,748 | ) | (3,653 | ) | (40 | ) | 4,145 | (16,296 | ) | |||||||||||||
Interest income | 5,470 | 343 | — | (4,145 | ) | 1,668 | ||||||||||||||||
Equity in earnings of subsidiaries | 14,525 | — | — | (14,525 | ) | — | ||||||||||||||||
Other income | — | 2 | — | — | 2 | |||||||||||||||||
3,247 | (3,308 | ) | (40 | ) | (14,525 | ) | (14,626 | ) | ||||||||||||||
Income (loss) before income taxes | 2,397 | 23,191 | (113 | ) | (14,525 | ) | 10,950 | |||||||||||||||
Income taxes (benefit) | (338 | ) | 8,595 | (42 | ) | — | 8,215 | |||||||||||||||
Net income (loss) | $ | 2,735 | $ | 14,596 | $ | (71 | ) | $ | (14,525 | ) | $ | 2,735 | ||||||||||
F-46
Table of Contents
Issuer (VEC) | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (1,270 | ) | $ | 19,429 | $ | (758 | ) | $ | — | $ | 17,401 | ||||||||||
Cash Flows from Investing Activities | ||||||||||||||||||||||
Intercompany loan | 6,140 | (9,834 | ) | — | 3,694 | — | ||||||||||||||||
Purchases of property and equipment | (75 | ) | (11,182 | ) | (167 | ) | 9,041 | (2,383 | ) | |||||||||||||
Net cash provided by (used in) investing activities | 6,065 | (21,016 | ) | (167 | ) | 12,735 | (2,383 | ) | ||||||||||||||
Cash Flows from Financing Activities | ||||||||||||||||||||||
Outstanding checks in excess of bank balance | — | (414 | ) | — | 414 | — | ||||||||||||||||
Proceeds from long-term debt | 9,809 | 2,001 | 925 | (12,735 | ) | — | ||||||||||||||||
Proceeds from issuance of common stock | 73 | — | — | — | 73 | |||||||||||||||||
Deferred offering costs paid | (411 | ) | — | — | — | (411 | ) | |||||||||||||||
Debt issuance costs paid | (1,088 | ) | — | — | — | (1,088 | ) | |||||||||||||||
Net cash provided (used in) by financing activities | 8,383 | 1,587 | 925 | (12,321 | ) | (1,426 | ) | |||||||||||||||
Net increase in cash and cash equivalents | 13,178 | — | — | 414 | 13,592 | |||||||||||||||||
Cash and cash equivalents, beginning of period | 32,905 | — | — | (3,191 | ) | 29,714 | ||||||||||||||||
Cash and cash equivalents, end of period | $ | 46,083 | $ | — | $ | — | $ | (2,777 | ) | $ | 43,306 | |||||||||||
F-47
Table of Contents
Issuer | Non- | |||||||||||||||||||||
(VEC) | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||
Current Assets | ||||||||||||||||||||||
Cash and cash equivalents | $ | 32,905 | $ | — | $ | — | $ | (3,191 | ) | $ | 29,714 | |||||||||||
Receivables | 995 | 29,001 | — | (1,333 | ) | 28,663 | ||||||||||||||||
Inventories | — | 19,291 | — | — | 19,291 | |||||||||||||||||
Prepaid expenses | 2 | 4,609 | — | — | 4,611 | |||||||||||||||||
Deferred income taxes | 405 | 5,434 | — | — | 5,839 | |||||||||||||||||
Total current assets | 34,307 | 58,335 | — | (4,524 | ) | 88,118 | ||||||||||||||||
Other Assets | ||||||||||||||||||||||
Restricted cash held in escrow | 124,750 | — | — | — | 124,750 | |||||||||||||||||
Investment in subsidiaries | 58,968 | — | — | (58,968 | ) | — | ||||||||||||||||
Debt issuance costs, net of amortization | 6,449 | — | — | — | 6,449 | |||||||||||||||||
Intercompany notes receivable | 147,786 | 15,214 | — | (163,000 | ) | — | ||||||||||||||||
Goodwill | 6,129 | — | — | — | 6,129 | |||||||||||||||||
344,082 | 15,214 | — | (221,968 | ) | 137,328 | |||||||||||||||||
Property and Equipment, net | 10 | 178,055 | 1,618 | — | 179,683 | |||||||||||||||||
Total assets | $ | 378,399 | $ | 251,604 | $ | 1,618 | $ | (226,492 | ) | $ | 405,129 | |||||||||||
F-48
Table of Contents
Issuer | Non- | |||||||||||||||||||||
(VEC) | Guarantors | Guarantors | Eliminations | Consolidated | ||||||||||||||||||
Current Liabilities | ||||||||||||||||||||||
Outstanding checks in excess of bank balance | $ | — | $ | 3,191 | $ | — | $ | (3,191 | ) | $ | — | |||||||||||
Current maturities of long-term debt | — | 250 | — | (250 | ) | — | ||||||||||||||||
Current portion of deferred revenue | — | 95 | — | — | 95 | |||||||||||||||||
Accounts payable | 1,393 | 18,477 | 711 | (526 | ) | 20,055 | ||||||||||||||||
Accrued expenses | 685 | 2,105 | 8 | (807 | ) | 1,991 | ||||||||||||||||
Derivative financial instruments | — | 4,426 | — | — | 4,426 | |||||||||||||||||
Total current liabilities | 2,078 | 28,544 | 719 | (4,774 | ) | 26,567 | ||||||||||||||||
Long-Term Liabilities | ||||||||||||||||||||||
Long-term debt, less current maturities | 223,933 | 146,388 | 1,148 | (162,750 | ) | 208,719 | ||||||||||||||||
Deferred revenue, less current portion | — | 1,710 | — | — | 1,710 | |||||||||||||||||
Convertible put warrant | 7,458 | — | — | — | 7,458 | |||||||||||||||||
Deferred income taxes | 12 | 15,832 | (87 | ) | — | 15,757 | ||||||||||||||||
231,403 | 163,930 | 1,061 | (162,750 | ) | 233,644 | |||||||||||||||||
Shareholders’ and Member’s Equity (Deficit) | ||||||||||||||||||||||
Preferred stock | — | — | — | — | — | |||||||||||||||||
Common stock | 625 | — | — | — | 625 | |||||||||||||||||
Additional paid-in capital | 132,848 | 25,263 | — | (25,263 | ) | 132,848 | ||||||||||||||||
Retained earnings | 13,862 | 21,592 | — | (21,592 | ) | 13,862 | ||||||||||||||||
Member’s equity (deficit) | — | 14,585 | (162 | ) | (14,423 | ) | — | |||||||||||||||
Deferred compensation | (107 | ) | — | — | — | (107 | ) | |||||||||||||||
Accumulated other comprehensive loss | (2,310 | ) | (2,310 | ) | — | 2,310 | (2,310 | ) | ||||||||||||||
144,918 | 59,130 | (162 | ) | (58,968 | ) | 144,918 | ||||||||||||||||
$ | 378,399 | $ | 251,604 | $ | 1,618 | $ | (226,492 | ) | $ | 405,129 | ||||||||||||
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Issuer (VEC) | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||||
Revenues | $ | — | $ | 44,852 | $ | — | $ | — | $ | 44,852 | ||||||||||||
Cost of goods sold | — | 38,681 | — | — | 38,681 | |||||||||||||||||
Gross profit | — | 6,171 | — | — | 6,171 | |||||||||||||||||
Selling, general and administrative expenses | — | 1,987 | 71 | — | 2,058 | |||||||||||||||||
Operating income (loss) | — | 4,184 | (71 | ) | — | 4,113 | ||||||||||||||||
Other income (expense): | ||||||||||||||||||||||
Interest expense, including change in fair value of convertible put warrant | — | (1,514 | ) | — | — | (1,514 | ) | |||||||||||||||
Interest income | — | 43 | 1 | — | 44 | |||||||||||||||||
Equity in loss of subsidiaries | — | (88 | ) | — | 88 | — | ||||||||||||||||
Other expense | — | — | (10 | ) | 10 | — | ||||||||||||||||
— | (1,559 | ) | (9 | ) | 98 | (1,470 | ) | |||||||||||||||
Income (loss) before income taxes and minority interest | — | 2,625 | (80 | ) | 98 | 2,643 | ||||||||||||||||
Income taxes | — | 1,010 | — | — | 1,010 | |||||||||||||||||
Income (loss) before minority interest | — | 1,615 | (80 | ) | 98 | 1,633 | ||||||||||||||||
Minority interest in net loss of subsidiary | — | — | — | 53 | 53 | |||||||||||||||||
Net income (loss) | $ | — | $ | 1,615 | $ | (80 | ) | $ | 151 | $ | 1,686 | |||||||||||
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Issuer (VEC) | Guarantors | Non-Guarantors | Eliminations | Consolidated | ||||||||||||||||||
Net cash provided by (used in) operating activities | $ | — | $ | 10,790 | $ | (84 | ) | $ | (4,562 | ) | $ | 6,144 | ||||||||||
Cash Flows from Investing Activities | ||||||||||||||||||||||
Purchases of property and equipment | — | (26,722 | ) | (11 | ) | 4,562 | (22,171 | ) | ||||||||||||||
Proceeds from sale of equipment | — | 8 | — | — | 8 | |||||||||||||||||
Net cash used in investing activities | — | (26,714 | ) | (11 | ) | 4,562 | (22,163 | ) | ||||||||||||||
Cash Flows from Financing Activities | ||||||||||||||||||||||
Proceeds from long-term debt | — | 14,389 | — | — | 14,389 | |||||||||||||||||
Debt issuance costs paid | — | (470 | ) | — | — | (470 | ) | |||||||||||||||
Net cash provided by financing activities | — | 13,919 | — | — | 13,919 | |||||||||||||||||
Net decrease in cash and cash equivalents | — | (2,005 | ) | (95 | ) | — | (2,100 | ) | ||||||||||||||
Cash and cash equivalents, beginning of period | — | 10,000 | 296 | — | 10,296 | |||||||||||||||||
Cash and cash equivalents, end of period | $ | — | $ | 7,995 | $ | 201 | $ | — | $ | 8,196 | ||||||||||||
Note 9. | Material Contingencies |
Note 10. | Subsequent Event |
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Item 20. | Indemnification of Officers and Directors |
(a) The SDBCA permits us to indemnify an officer or director who is a party to a proceeding by reason of being an officer or director against liability incurred in the proceeding if the officer or director: |
(1) acted in good faith; and | |
(2) reasonably believed: |
(i) in the case of conduct in an official capacity, that the conduct was in our best interests; | |
(ii) in all other cases, that the conduct was at least not opposed to our best interests; and |
(3) in the case of any criminal proceeding, had no reasonable cause to believe the conduct was unlawful. |
The termination of a proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, is not, of itself, determinative that the person did not meet the relevant standard of conduct. |
(b) The SDBCA further permits us to indemnify an officer or director against liability to any person for any action taken, or any failure to take any action, as a director or officer, except liability for: |
(1) the amount of a financial benefit received by a director to which the director is not entitled; | |
(2) an intentional infliction of harm on us or our shareholders; | |
(3) an unlawful distribution; or | |
(4) an intentional violation of criminal law. |
(c) The SDBCA does not permit us to indemnify an officer or director: |
(1) in connection with a proceeding by or in the right of the Company, except for reasonable expenses incurred in connection with the proceeding if it is determined that the officer or director has met the relevant standard of conduct, discussed in (a) above; or | |
(2) in connection with any proceeding with respect to conduct for which the officer or director was adjudged liable on the basis that the officer or director received a financial benefit to which the officer or director was not entitled, whether or not involving action in his or her official capacity. |
(d) Under the SDBCA, we may pay for or reimburse the reasonable expenses incurred in defending a proceeding in advance of the final disposition thereof if the officer or director receiving the advance furnishes: (1) a written affirmation of the officer’s or director’s good faith belief that he or she has met the relevant standard of conduct, and (2) a written undertaking to repay the advance if it is ultimately determined that that person was not entitled to indemnification or did not meet the standard of conduct. |
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(e) Under the SDBCA, we may not indemnify an officer or director in respect of a proceeding described in (a) or (b) above unless it is determined that indemnification is permissible because the person has met the relevant standard of conduct by any one of the following: |
(1) the board of directors, by a majority vote of all the disinterested directors, a majority of whom shall constitute a quorum for such purpose; | |
(2) by a majority of the members of a committee of two or more disinterested directors that is appointed by a majority of the disinterested directors; | |
(3) by special legal counsel: |
(i) selected in the manner prescribed by (1) or (2) above; or | |
(ii) if there are fewer than two disinterested directors, selected by the board of directors, in which selection directors who do not qualify as disinterested directors may participate; or |
(4) by the shareholders, but shares owned by or voted under the control of a director who at the time does not qualify as a disinterested director may not be voted. |
• | the amount of a financial benefit received by a director to which the director is not entitled; | |
• | an intentional infliction of harm on the corporation or the shareholders; | |
• | an unlawful distribution; or | |
• | an intentional violation of criminal law. |
Item 21. | Exhibits and Financial Statement Schedules |
(a) | Exhibits |
2 | .1 | Site Acquisition Agreement, dated May 22, 2006, between VeraSun Energy Corporation and American Milling, LP.(CTR)* | ||
3 | .1 | Articles of Incorporation, as amended, of VeraSun Energy Corporation.* | ||
3 | .2 | Bylaws, as amended, of VeraSun Energy Corporation.* | ||
3 | .3 | Articles of Incorporation, as amended, of VeraSun Aurora Corporation.** | ||
3 | .4 | Bylaws, as amended, of VeraSun Aurora Corporation.** | ||
3 | .5 | Certificate of Formation of VeraSun Fort Dodge, LLC.** | ||
3 | .6 | Limited Liability Company Agreement, as amended, of VeraSun Fort Dodge, LLC.** | ||
3 | .7 | Certificate of Formation of VeraSun Charles City, LLC.** | ||
3 | .8 | Limited Liability Company Agreement, as amended, of VeraSun Charles City, LLC.** | ||
3 | .9 | Certificate of Formation of VeraSun Marketing, LLC, as amended.** | ||
3 | .10 | Limited Liability Company Agreement, as amended, of VeraSun Marketing, LLC.** |
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3 | .11 | Certificate of Formation of VeraSun Welcome, LLC.** | ||
3 | .12 | Limited Liability Company Agreement, as amended, of VeraSun Welcome, LLC.** | ||
4 | .1 | Indenture, dated as of December 21, 2005, between VeraSun Energy Corporation, as Issuer, VeraSun Aurora Corporation, VeraSun Fort Dodge, LLC, VeraSun Charles City, LLC and VeraSun Marketing, LLC, as Subsidiary Guarantors, and Wells Fargo, N.A., as Trustee.* | ||
4 | .2 | Registration Rights Agreement, dated as of December 21, 2005, by and among VeraSun Energy Corporation, VeraSun Aurora Corporation, VeraSun Fort Dodge, LLC, VeraSun Charles City, LLC, VeraSun Marketing LLC, Lehman Brothers Inc. and Morgan Stanley & Co. Incorporated.* | ||
4 | .3 | Revolving Credit Agreement, dated as of December 21, 2005, among VeraSun Energy Corporation, First National Bank of Omaha, VeraSun Aurora Corporation, VeraSun Fort Dodge, LLC and VeraSun Charles City, LLC.* | ||
4 | .4 | First Supplemental Indenture, dated May 4, 2006, between VeraSun Energy Corporation, as Issuer, VeraSun Aurora Corporation, VeraSun Fort Dodge, LLC, VeraSun Charles City, LLC, VeraSun Marketing, LLC and VeraSun Welcome, LLC, as Subsidiary Guarantors, and Wells Fargo, N.A., as Trustee.* | ||
5 | .1 | Opinion of Stoel Rives LLP. | ||
5 | .2 | Opinion of Cadwell Sanford Deibert & Garry LLP. | ||
10 | .1 | Ethanol Marketing Agreement, dated October 14, 2002, between Aventine Renewable Energy, Inc. (f/k/a Williams Ethanol Services, Inc.) and VeraSun Aurora Corporation (f/k/a VeraSun Energy Corporation), as amended on December 8, 2003 and February 22, 2005.(CTR)* | ||
10 | .2 | Ethanol Marketing Agreement, dated February 22, 2005, between Aventine Renewable Energy, Inc. and VeraSun Fort Dodge, LLC.(CTR)* | ||
12 | .1 | Computation of ratio of earnings to fixed charges.** | ||
21 | .1 | Subsidiaries of VeraSun Energy Corporation.** | ||
23 | .1 | Consent of McGladrey & Pullen, LLP, independent registered public accounting firm. | ||
23 | .2 | Opinion of McGladrey & Pullen, LLP with respect to Financial Statement Schedule. | ||
23 | .3 | Consent of Stoel Rives LLP (included in Exhibit 5.1). | ||
23 | .4 | Consent of Cadwell Sanford Deibert & Garry LLP (included in Exhibit 5.2). | ||
24 | .1 | Powers of Attorney.** | ||
25 | .1 | Statement of Eligibility of Trustee.** | ||
99 | .1 | Form of Letter of Transmittal. | ||
99 | .2 | Form of Notice of Guaranteed Delivery.** |
* | Incorporated by reference to VeraSun Energy Corporation’s Registration Statement on Form S-1, as amended (file number 333-132861). |
** | Previously filed. |
CTR | Portions of this exhibit have been omitted pursuant to a request for confidential treatment. |
Balance at | Additions — | Balance at | |||||||||||||||
Beginning | Charged to | End of | |||||||||||||||
of Year | Expense | Deductions(1) | Year | ||||||||||||||
(In thousands) | |||||||||||||||||
Allowance for doubtful accounts | |||||||||||||||||
2003 | $ | — | $ | — | $ | — | $ | — | |||||||||
2004 | — | 5 | — | 5 | |||||||||||||
2005 | 5 | 5 | — | 10 |
(1) | Accounts charged off. |
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Item 22. | Undertakings |
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the “Securities Act”); | |
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement. | |
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
(2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
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VERASUN ENERGY CORPORATION |
By: | /s/ Donald L. Endres |
Donald L. Endres | |
Chief Executive Officer |
Signature | Title | |||
/s/ Donald L. Endres | Chief Executive Officer and Director (Principal Executive Officer) | |||
/s/ Bruce A. Jamerson* | President and Director | |||
/s/ Danny C. Herron* | Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
/s/ Paul A. Schock* | Senior Vice President, Corporate Development and Director | |||
/s/ Mark L. First* | Director | |||
/s/ D. Duane Gilliam* | Director | |||
/s/ T. Jack Huggins III* | Director | |||
/s/ Steven T. Kirby* | Director | |||
*By: /s/ Donald L. Endres Attorney-in-fact |
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VERASUN AURORA CORPORATION |
By: | /s/ Donald L. Endres |
Donald L. Endres | |
Chief Executive Officer |
Signature | Title | |||
/s/ Donald L. Endres | Chief Executive Officer and Director (Principal Executive Officer) | |||
/s/ Bruce A. Jamerson* | President and Director | |||
/s/ Danny C. Herron* | Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
/s/ John M. Schweitzer* | Director | |||
*By: /s/ Donald L. Endres Attorney-in-fact |
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VERASUN FORT DODGE, LLC |
By: | VeraSun Energy Corporation | |
Its: | Manager |
/s/ Donald L. Endres | |
Donald L. Endres | |
Chief Executive Officer |
Signature | Title | |||
/s/ Donald L. Endres | Chief Executive Officer (Principal Executive Officer) | |||
/s/ Danny C. Herron* | Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
*By | /s/ Donald L. Endres Attorney-in-fact |
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VERASUN CHARLES CITY, LLC |
By: | VeraSun Energy Corporation | |
Its: | Manager |
/s/ Donald L. Endres | |
Donald L. Endres | |
Chief Executive Officer |
Signature | Title | |||
/s/ Donald L. Endres | Chief Executive Officer (Principal Executive Officer) | |||
/s/ Danny C. Herron* | Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
*By | /s/ Donald L. Endres Attorney-in-fact |
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VERASUN MARKETING, LLC |
By: | VeraSun Energy Corporation | |
Its: | Manager |
/s/ Donald L. Endres | |
Donald L. Endres | |
Chief Executive Officer |
Signature | Title | |||
/s/ Donald L. Endres | Chief Executive Officer (Principal Executive Officer) | |||
/s/ Danny C. Herron* | Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
*By | /s/ Donald L. Endres Attorney-in-fact |
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VERASUN WELCOME, LLC | |
By: VeraSun Energy Corporation | |
Its: Manager |
By: | /s/ Donald L. Endres |
Donald L. Endres | |
Chief Executive Officer |
Signature | Title | |||
/s/ Donald L. Endres | Chief Executive Officer (Principal Executive Officer) | |||
/s/ Danny C. Herron* | Senior Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | |||
*By | /s/ Donald L. Endres Attorney-in-fact |
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2 | .1 | Site Acquisition Agreement, dated May 22, 2006, between VeraSun Energy Corporation and American Milling, LP.(CTR)* | ||
3 | .1 | Articles of Incorporation, as amended, of VeraSun Energy Corporation.* | ||
3 | .2 | Bylaws, as amended, of VeraSun Energy Corporation.* | ||
3 | .3 | Articles of Incorporation, as amended, of VeraSun Aurora Corporation.** | ||
3 | .4 | Bylaws, as amended, of VeraSun Aurora Corporation.** | ||
3 | .5 | Certificate of Formation of VeraSun Fort Dodge, LLC.** | ||
3 | .6 | Limited Liability Company Agreement, as amended, of VeraSun Fort Dodge, LLC.** | ||
3 | .7 | Certificate of Formation of VeraSun Charles City, LLC.** | ||
3 | .8 | Limited Liability Company Agreement, as amended, of VeraSun Charles City, LLC.** | ||
3 | .9 | Certificate of Formation of VeraSun Marketing, LLC, as amended.** | ||
3 | .10 | Limited Liability Company Agreement, as amended, of VeraSun Marketing, LLC.** | ||
3 | .11 | Certificate of Formation of VeraSun Welcome, LLC.** | ||
3 | .12 | Limited Liability Company Agreement, as amended, of VeraSun Welcome, LLC.** | ||
4 | .1 | Indenture, dated as of December 21, 2005, between VeraSun Energy Corporation, as Issuer, VeraSun Aurora Corporation, VeraSun Fort Dodge, LLC, VeraSun Charles City, LLC and VeraSun Marketing, LLC, as Subsidiary Guarantors, and Wells Fargo, N.A., as Trustee.* | ||
4 | .2 | Registration Rights Agreement, dated as of December 21, 2005, by and among VeraSun Energy Corporation, VeraSun Aurora Corporation, VeraSun Fort Dodge, LLC, VeraSun Charles City, LLC, VeraSun Marketing LLC, Lehman Brothers Inc. and Morgan Stanley & Co. Incorporated.* | ||
4 | .3 | Revolving Credit Agreement, dated as of December 21, 2005, among VeraSun Energy Corporation, First National Bank of Omaha, VeraSun Aurora Corporation, VeraSun Fort Dodge, LLC and VeraSun Charles City, LLC.* | ||
4 | .4 | First Supplemental Indenture, dated May 4, 2006, between VeraSun Energy Corporation, as Issuer, VeraSun Aurora Corporation, VeraSun Fort Dodge, LLC, VeraSun Charles City, LLC, VeraSun Marketing, LLC and VeraSun Welcome, LLC, as Subsidiary Guarantors, and Wells Fargo, N.A., as Trustee.* | ||
5 | .1 | Opinion of Stoel Rives LLP. | ||
5 | .2 | Opinion of Cadwell Sanford Deibert & Garry LLP. | ||
10 | .1 | Ethanol Marketing Agreement, dated October 14, 2002, between Aventine Renewable Energy, Inc. (f/k/a Williams Ethanol Services, Inc.) and VeraSun Aurora Corporation (f/k/a VeraSun Energy Corporation), as amended on December 8, 2003 and February 22, 2005.(CTR)* | ||
10 | .2 | Ethanol Marketing Agreement, dated February 22, 2005, between Aventine Renewable Energy, Inc. and VeraSun Fort Dodge, LLC.(CTR)* | ||
12 | .1 | Computation of ratio of earnings to fixed charges.** | ||
21 | .1 | Subsidiaries of VeraSun Energy Corporation.** | ||
23 | .1 | Consent of McGladrey & Pullen, LLP, independent registered public accounting firm. | ||
23 | .2 | Opinion of McGladrey & Pullen, LLP with respect to Financial Statement Schedule. | ||
23 | .3 | Consent of Stoel Rives LLP (included in Exhibit 5.1). | ||
23 | .4 | Consent of Cadwell Sanford Deibert & Garry LLP (included in Exhibit 5.2). | ||
24 | .1 | Powers of Attorney.** | ||
25 | .1 | Statement of Eligibility of Trustee.** | ||
99 | .1 | Form of Letter of Transmittal. | ||
99 | .2 | Form of Notice of Guaranteed Delivery.** |
* | Incorporated by reference to VeraSun Energy Corporation’s Registration Statement on Form S-1, as amended (file number 333-132861). |
** | Previously filed. |
CTR | Portions of this exhibit have been omitted pursuant to a request for confidential treatment. |