UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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x
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Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
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For the quarterly period ended June 30, 2013
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OR
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o
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Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
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For the transition period from to .
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COMMISSION FILE NUMBER 000-53036
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CARDINAL ETHANOL, LLC
(Exact name of registrant as specified in its charter)
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Indiana
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20-2327916
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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1554 N. County Road 600 E., Union City, IN 47390
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(Address of principal executive offices)
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(765) 964-3137
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(Registrant's telephone number, including area code)
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:
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Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated Filer
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o
Yes
x
No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:
As of
August 7, 2013
, there were 14,606 membership units outstanding.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
CARDINAL ETHANOL, LLC
Balance Sheets
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ASSETS
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June 30, 2013
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September 30, 2012
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(Unaudited)
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Current Assets
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Cash
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$
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13,627,211
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$
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682,943
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Restricted cash
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762,187
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3,603,580
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Trade accounts receivable
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19,170,531
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21,785,960
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Miscellaneous receivables
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130,150
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192,514
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Inventories
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16,066,970
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9,329,684
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Prepaid and other current assets
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904,030
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293,259
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Commodity derivative instruments
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480,881
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85,470
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Total current assets
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51,141,960
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35,973,410
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Property, Plant, and Equipment
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Land and land improvements
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21,124,597
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21,124,597
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Plant and equipment
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122,177,893
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122,149,377
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Building
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7,018,430
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6,996,908
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Office equipment
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540,968
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529,507
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Vehicles
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31,928
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31,928
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Construction in process
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507,075
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99,461
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151,400,891
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150,931,778
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Less accumulated depreciation
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(39,486,982
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(33,106,415
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Net property, plant, and equipment
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111,913,909
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117,825,363
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Other Assets
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Deposits
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80,000
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80,000
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Investment
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474,837
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474,837
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Financing costs, net of amortization
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97,347
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176,155
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Total other assets
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652,184
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730,992
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Total Assets
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$
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163,708,053
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$
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154,529,765
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Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.
CARDINAL ETHANOL, LLC
Balance Sheets
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LIABILITIES AND MEMBERS' EQUITY
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June 30, 2013
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September 30, 2012
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(Unaudited)
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Current Liabilities
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Accounts payable
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$
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3,776,365
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$
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2,390,221
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Accounts payable- corn
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5,310,135
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6,861,610
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Accrued expenses
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1,178,782
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1,207,414
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Commodity derivative instruments
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—
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1,111,238
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Derivative instruments - interest rate swap
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1,012,353
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1,458,399
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Current maturities of long-term debt
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3,805,673
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3,634,004
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Total current liabilities
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15,083,308
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16,662,886
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Long-Term Debt
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25,083,737
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27,943,975
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Derivative Instruments - interest rate swap
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—
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628,358
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Commitments and Contingencies
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Members’ Equity
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Members' contributions, net of cost of raising capital, 14,606 units authorized, issued and outstanding
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70,912,213
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70,912,213
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Accumulated other comprehensive loss
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(1,012,353
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(2,086,758
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Distributions to members
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(2,336,960
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(6,280,580
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Retained earnings
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55,978,108
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46,749,671
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Total members' equity
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123,541,008
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109,294,546
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Total Liabilities and Members’ Equity
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$
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163,708,053
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$
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154,529,765
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Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.
CARDINAL ETHANOL, LLC
Condensed Statements of Operations and Comprehensive Income (Loss) (Unaudited)
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Three Months Ended
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Three Months Ended
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Nine Months Ended
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Nine Months Ended
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June 30, 2013
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June 30, 2012
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June 30, 2013
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June 30, 2012
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Revenues
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$
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95,598,868
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$
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69,530,510
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$
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270,451,486
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$
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234,699,624
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Cost of Goods Sold
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84,403,081
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70,403,480
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249,495,124
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223,281,117
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Gross Profit (Loss)
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11,195,787
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(872,970
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20,956,362
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11,418,507
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Operating Expenses
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1,288,297
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1,460,779
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3,558,678
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3,668,152
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Operating Income (Loss)
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9,907,490
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(2,333,749
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17,397,684
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7,750,355
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Other Income (Expense)
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Interest income
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13,379
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698
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14,934
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2,103
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Interest expense
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(623,078
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(666,864
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(1,904,483
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(2,165,079
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Miscellaneous income (expense)
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3,961
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(11,668
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885
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128,089
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Total
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(605,738
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(677,834
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(1,888,664
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(2,034,887
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Net Income (Loss)
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$
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9,301,752
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$
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(3,011,583
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$
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15,509,020
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$
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5,715,468
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Weight Average Units Outstanding - basic and diluted
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14,606
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14,606
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14,606
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14,606
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Net Income (Loss) Per Unit - basic and diluted
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$
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636.84
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$
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(206.19
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$
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1,061.83
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$
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391.31
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Distributions Per Unit
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$
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160
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$
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—
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$
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160
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$
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430
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Comprehensive Income (Loss):
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Net income (loss)
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$
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9,301,752
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$
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(3,011,583
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$
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15,509,020
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$
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5,715,468
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Interest rate swap fair value change and reclassification, net
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347,679
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345,778
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1,074,404
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1,115,407
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Comprehensive Income (Loss)
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$
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9,649,431
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$
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(2,665,805
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)
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$
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16,583,424
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$
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6,830,875
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Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.
CARDINAL ETHANOL, LLC
Statements of Cash Flows (Unaudited)
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Nine Months Ended
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Nine Months Ended
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June 30, 2013
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June 30, 2012
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Cash Flows from Operating Activities
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Net income
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$
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15,509,020
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$
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5,715,468
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Adjustments to reconcile net income to net cash from operations:
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Depreciation and amortization
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6,472,981
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6,461,728
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Change in fair value of commodity derivative instruments
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(4,507,954
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)
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2,080,498
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Loss on sale of equipment
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12,279
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—
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Non-cash dividend income
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—
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(21,161
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)
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Provision for uncollectible accounts
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—
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(54,276
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)
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Change in operating assets and liabilities:
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Restricted cash
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2,841,393
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(3,370,622
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)
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Trade accounts receivables
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2,615,429
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7,837,419
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Miscellaneous receivable
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62,364
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311,818
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Inventories
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(6,737,286
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)
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(1,586,058
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)
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Prepaid and other current assets
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(610,771
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)
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106,963
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Deposits
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—
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192,250
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Derivative instruments
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3,001,305
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5,243,100
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Accounts payable
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1,386,144
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(3,959
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)
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Accounts payable-corn
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(1,551,475
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)
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2,831,773
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Construction retainage payable
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—
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(101,928
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)
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Accrued expenses
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(209,892
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)
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(441,919
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)
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Net cash provided by operating activities
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18,283,537
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25,201,094
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Cash Flows from Investing Activities
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Capital expenditures
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(165,884
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)
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(761,094
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)
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Payments for construction in process
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(407,614
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)
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(239,346
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)
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Proceeds from sale of equipment
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259,760
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—
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Net cash used for investing activities
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(313,738
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)
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(1,000,440
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)
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Cash Flows from Financing Activities
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Distributions paid
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(2,336,962
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)
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(6,280,580
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)
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Payments for capital lease obligations
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—
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(2,010
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)
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Payments on long-term debt
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(2,688,569
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)
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(19,734,734
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)
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Net cash used for financing activities
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(5,025,531
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)
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(26,017,324
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)
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Net Increase (Decrease) in Cash
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12,944,268
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(1,816,670
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)
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Cash – Beginning of Period
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682,943
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|
10,802,072
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Cash – End of Period
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$
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13,627,211
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$
|
8,985,402
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Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.
CARDINAL ETHANOL, LLC
Statements of Cash Flows (Unaudited)
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|
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Nine Months Ended
|
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Nine Months Ended
|
|
|
June 30, 2013
|
|
June 30, 2012
|
|
|
(Unaudited)
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|
(Unaudited)
|
|
Supplemental Cash Flow Information
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Interest paid
|
$
|
1,929,013
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$
|
2,190,328
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|
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Supplemental Disclosure of Noncash Investing and Financing Activities
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Construction costs in construction retainage and accounts payable
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$
|
—
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|
|
$
|
1,314
|
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Capital expenditures included in accrued expenses
|
$
|
181,260
|
|
|
$
|
—
|
|
|
Net gain on derivative instruments included in other comprehensive income
|
$
|
1,074,404
|
|
|
$
|
1,115,407
|
|
Notes to Condensed Unaudited Financial Statements are an integral part of this Statement.
CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
June 30, 2013
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the year ended
September 30, 2012
, contained in the Company's annual report on Form 10-K.
In the opinion of management, the interim condensed financial statements reflect all adjustments considered necessary for fair presentation.
Nature of Business
Cardinal Ethanol, LLC, (the “Company”) is an Indiana limited liability company currently producing fuel-grade ethanol, distillers grains, corn oil and carbon dioxide near Union City, Indiana and sells these products throughout the continental United States. The Company's plant has an approximate annual production capacity between
100
and
115 million
gallons.
Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for the following significant matters, among others; the useful lives of fixed assets, allowance for doubtful accounts, the valuation of basis and delay price contracts on corn purchases, derivatives, inventory, patronage dividends, long-lived assets and inventory purchase commitments. Actual results may differ from previously estimated amounts, and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made.
Restricted Cash
As a part of its commodities hedging activities, the Company is required to maintain cash balances with our commodities trading companies for initial and maintenance margins on a per futures contract basis. Changes in the market value of contracts may increase these requirements. As the futures contracts expire, the margin requirements also expire. Accordingly, we record the cash maintained with the traders in the margin accounts as restricted cash. Since the futures contracts are scheduled to expire within twelve months, we consider this restricted cash to be a current asset.
Inventories
Inventories are stated at the lower of cost or market, with cost determined using weighted average. Market is based on current replacement values except that it does not exceed net realizable values and it is not less than net realizable values reduced by allowances from normal profit margins. Inventories consist of raw materials, work in process, finished goods and parts. Corn is the primary raw material. Finished goods consist of ethanol, dried distiller grains and corn oil.
Property, Plant and Equipment
Property, plant, and equipment are stated at cost. Depreciation is provided over estimated useful lives by use of the straight line depreciation method. Maintenance and repairs are expensed as incurred; major improvements and betterments are capitalized. Construction in progress expenditures will be depreciated using the straight-line method over their estimated useful lives once the assets are placed into service. Depreciation expense totaled approximately
$2,132,000
and
$6,394,000
for the
three
and
nine month
periods ended
June 30, 2013
. Depreciation for the same periods in 2012 were approximately
$2,101,000
and
$6,323,000
, respectively.
CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
June 30, 2013
Long-Lived Assets
The Company reviews its long-lived assets, such as property, plant and equipment and financing costs, subject to depreciation and amortization, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
Investments
Investments consist of the capital stock and patron equities of the Company's distillers grains marketer. The investments are stated at the lower of cost or fair value and adjusted for non cash patronage equities received.
Revenue Recognition
The Company generally sells ethanol and related products pursuant to marketing agreements. Revenues from the production of ethanol and the related products are recorded when the customer has taken title and assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. The Company believes that there are no ethanol sales, during any given month, which should be considered contingent and recorded as deferred revenue. The Company's products are sold Free on Board (FOB) shipping point.
In accordance with the Company's agreements for the marketing and sale of ethanol and related products, marketing fees, commissions and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these commissions and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products.
Interest income is recognized as earned. Patronage dividends are recognized when received from the Company's distillers' grain marketer and recorded as a reduction of marketing commissions within revenue.
Net Income per Unit
Basic net income per unit is computed by dividing net income by the weighted average number of members' units outstanding during the period. Diluted net income per unit is computed by dividing net income by the weighted average number of members' units and members' unit equivalents outstanding during the period. There were no member unit equivalents outstanding during the periods presented; accordingly, the Company's basic and diluted net income per unit are the same.
2. CONCENTRATIONS
One major customer accounted for approximately
83%
and
86%
of the outstanding accounts receivable balance at
June 30, 2013
and
September 30, 2012
, respectively. This same customer accounted for approximately
76%
and
75%
of revenue for the
three
and
nine months
ended
June 30, 2013
, respectively. Revenue percentages for the same customer for the
three
and
nine months
ended
June 30, 2012
were
76%
and
78%
, respectively.
CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
June 30, 2013
3. INVENTORIES
Inventories consist of the following as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013 (Unaudited)
|
|
September 30, 2012
|
|
Raw materials
|
$
|
7,899,145
|
|
|
$
|
2,035,607
|
|
|
Work in progress
|
2,523,059
|
|
|
2,536,420
|
|
|
Finished goods
|
3,887,112
|
|
|
3,258,153
|
|
|
Spare parts
|
1,757,654
|
|
|
1,499,504
|
|
|
Total
|
$
|
16,066,970
|
|
|
$
|
9,329,684
|
|
In the ordinary course of business, the Company enters into forward purchase contracts for its commodity purchases and sales. At
June 30, 2013
, the Company had forward corn purchase contracts at various fixed prices for various delivery periods through
March 2015
for a total commitment of approximately
$16,168,000
. Approximately
$1,302,000
of the forward corn purchases were with a related party. Given the uncertainty of future ethanol and corn prices, the Company could incur a loss on the outstanding corn purchase contracts in future periods. Management has evaluated these forward contracts using a methodology similar to that used in the lower of cost or market evaluation with respect to inventory valuation, and has determined that no impairment existed at
June 30, 2013
. At
June 30, 2013
, the Company has
no
forward, fixed price ethanol sales contracts. In addition, the Company has forward dried distiller grains sales contracts of approximately
82,000
tons at various fixed prices for various delivery periods.
4. DERIVATIVE INSTRUMENTS
The Company enters into corn, ethanol and natural gas derivative instruments and interest rate swap agreements, which are required to be recorded as either assets or liabilities at fair value in the balance sheet. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. The Company must designate the hedging instruments based upon the exposure being hedged as a fair value hedge, a cash flow hedge or a hedge against foreign currency exposure. The Company formally documents, designates, and assesses the effectiveness of transactions that receive hedge accounting initially and on an on-going basis.
Commodity Contracts
The Company enters into commodity-based derivatives, for corn, ethanol and natural gas in order to protect cash flows from fluctuations caused by volatility in commodity prices and to protect gross profit margins from potentially adverse effects of market and price volatility on commodity based purchase commitments where the prices are set at a future date. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. The changes in the fair market value of ethanol derivative instruments are included as a component of revenue. The changes in the fair market value of corn and natural gas derivative instruments are included as a component of cost of goods sold.
The table below shows the underlying quantities of corn, ethanol and natural gas resulting from the short (selling) positions and long (buying) positions that the Company had to hedge its forward corn contracts, corn inventory, ethanol sales and natural gas purchases. Corn positions are traded on the Chicago Board of Trade and ethanol and natural gas positions are traded on the New York Mercantile Exchange. These derivatives have not been designated as an effective hedge for accounting purposes. Corn and ethanol derivatives are forecasted to settle for various delivery periods through March 2015 and December 2013, respectively, as of
June 30, 2013
.
CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
June 30, 2013
The following table indicates the bushels of corn under derivative contracts as of:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
September 30, 2012
|
|
Short
|
3,745,000
|
|
|
2,855,000
|
|
|
Long
|
1,805,000
|
|
|
85,000
|
|
The following table indicates the gallons of ethanol under derivative contracts as of:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
September 30, 2012
|
|
Short
|
7,098,000
|
|
|
19,572,000
|
|
|
Long
|
7,140,000
|
|
|
19,152,000
|
|
Interest Rate Contract
The Company manages its floating rate debt using an interest rate swap. The Company entered into a fixed rate swap to alter its exposure to the impact of changing interest rates on its results of operations and future cash outflows for interest. Fixed rate swaps are used to reduce the Company's risk of the possibility of increased interest costs. Interest rate swap contracts are therefore used by the Company to separate interest rate risk management from the debt funding decision.
At
June 30, 2013
, the Company had approximately
$28,889,000
of notional amount outstanding in the swap agreement that exchange variable interest rates (LIBOR) for fixed interest rates over the terms of the agreements and are designated as cash flow hedges of the interest rate risk attributable to forecasted variable interest payments. The effective portion of the fair value gains or losses on this swap is included as a component of accumulated other comprehensive loss.
The interest rate swaps held by the Company as of
June 30, 2013
qualified as a cash flow hedge. For this qualifying hedge, the effective portion of the change in fair value is recognized through earnings when the underlying transaction being hedged affects earnings, allowing a derivative's gains and losses to offset related results from the hedged item on the income statement.
The following table provides balance sheet details regarding the Company's derivative financial instruments at
June 30, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instrument
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Interest rate swap
|
Derivative Instruments - Current
|
|
$
|
—
|
|
|
$
|
1,012,353
|
|
|
|
|
|
|
|
|
|
Ethanol derivative contracts
|
Commodity Derivative Instruments - Current
|
|
94,819
|
|
|
—
|
|
|
Corn derivative contracts
|
Commodity Derivative Instruments - Current
|
|
386,062
|
|
|
—
|
|
As of
June 30, 2013
the Company had approximately
$762,000
of cash collateral (restricted cash) related to ethanol and corn derivatives held by two brokers.
The following table provides balance sheet details regarding the Company's derivative financial instruments at
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Instrument
|
Balance Sheet Location
|
|
Assets
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Interest rate swap
|
Derivative Instruments - Current
|
|
$
|
—
|
|
|
$
|
1,458,399
|
|
|
Interest rate swap
|
Derivative Instruments - Long Term
|
|
—
|
|
|
628,358
|
|
|
Ethanol derivative contracts
|
Commodity Derivative Instruments - Current
|
|
85,470
|
|
|
—
|
|
|
Corn derivative contracts
|
Commodity Derivative Instruments - Current
|
|
—
|
|
|
1,111,238
|
|
As of
September 30, 2012
the Company had approximately
$3,604,000
of cash collateral (restricted cash) related to ethanol and corn derivatives held by two brokers.
CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
June 30, 2013
The following tables provide details regarding the gains and losses from the Company's derivative instruments in other comprehensive income and statement of operations for the
three months
ended
June 30, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationship
|
Amount of Loss Recognized In OCI on Derivative
|
Location of Loss Reclassified From Accumulated OCI into Income
|
Amount of Gain Reclassified From Accumulated OCI into Income on Derivative
|
Location of Gain Recognized in Income
|
Amount of Gain or (Loss) Recognized in Income on Derivative (ineffective portion)
|
|
Interest rate swap
|
$
|
10,319
|
|
Interest expense
|
$
|
357,998
|
|
Interest expense
|
$
|
—
|
|
The following tables provide details regarding the gains and losses from the Company's derivative instruments in other comprehensive income and statement of operations for the
three months
ended
June 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationship
|
Amount of Loss Recognized In OCI on Derivative
|
Location of Loss Reclassified From Accumulated OCI into Income
|
Amount of Gain Reclassified From Accumulated OCI into Income on Derivative
|
Location of Gain Recognized in Income
|
Amount of Gain or (Loss) Recognized in Income on Derivative (ineffective portion)
|
|
Interest rate swap
|
$
|
35,186
|
|
Interest expense
|
$
|
380,964
|
|
Interest expense
|
$
|
—
|
|
The following table provides details regarding the gains (losses) from the Company's derivative instruments in the statements of operations, none of which are designated as hedging instruments for the
three months
ended
June 30, 2013
:
|
|
|
|
|
|
|
|
|
Instrument
|
Statement of Operations Location
|
Amount
|
|
Corn Derivative Contracts
|
Cost of Goods Sold
|
$
|
1,526,549
|
|
|
Ethanol Derivative Contracts
|
Revenues
|
(448,805
|
)
|
|
Natural Gas Derivative Contracts
|
Cost of Goods Sold
|
11,171
|
|
|
Totals
|
|
$
|
1,088,915
|
|
The following table provides details regarding the gains and (losses) from the Company's derivative instruments in the statements of operations, none of which are designated as hedging instruments for the
three months
ended
June 30, 2012
:
|
|
|
|
|
|
|
|
|
Instrument
|
Statement of Operations Location
|
Amount
|
|
Corn Derivative Contracts
|
Cost of Goods Sold
|
$
|
(1,682,579
|
)
|
|
Ethanol Derivative Contracts
|
Revenues
|
348,022
|
|
|
Natural Gas Derivative Contracts
|
Cost of Goods Sold
|
205,004
|
|
|
Totals
|
|
$
|
(1,129,553
|
)
|
The following tables provide details regarding the gains and losses from the Company's derivative instruments in other comprehensive income and statement of operations for the
nine months
ended
June 30, 2013
:
CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationship
|
Amount of Loss Recognized In OCI on Derivative
|
Location of Loss Reclassified From Accumulated OCI into Income
|
Amount of Gain Reclassified From Accumulated OCI into Income on Derivative
|
Location of Gain Recognized in Income
|
Amount of Gain or (Loss) Recognized in Income on Derivative (ineffective portion)
|
|
Interest rate swap
|
$
|
32,098
|
|
Interest expense
|
$
|
1,106,502
|
|
Interest expense
|
$
|
—
|
|
The following tables provide details regarding the gains and losses from the Company's derivative instruments in other comprehensive income and statement of operations for the
nine months
ended
June 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging Relationship
|
Amount of Loss Recognized In OCI on Derivative
|
Location of Loss Reclassified From Accumulated OCI into Income
|
Amount of Gain Reclassified From Accumulated OCI into Income on Derivative
|
Location of Gain Recognized in Income
|
Amount of Gain or (Loss) Recognized in Income on Derivative (ineffective portion)
|
|
Interest rate swap
|
$
|
111,278
|
|
Interest expense
|
$
|
1,226,685
|
|
Interest expense
|
$
|
—
|
|
The following table provides details regarding the gains (losses) from the Company's derivative instruments in the statements of operations, none of which are designated as hedging instruments for the
nine months
ended
June 30, 2013
:
|
|
|
|
|
|
|
|
|
Instrument
|
Statement of Operations Location
|
Amount
|
|
Corn Derivative Contracts
|
Cost of Goods Sold
|
$
|
4,722,856
|
|
|
Ethanol Derivative Contracts
|
Revenues
|
(226,073
|
)
|
|
Natural Gas Derivative Contracts
|
Cost of Goods Sold
|
11,171
|
|
|
Totals
|
|
$
|
4,507,954
|
|
The following table provides details regarding the losses from the Company's derivative instruments in the statements of operations, none of which are designated as hedging instruments for the
nine months
ended
June 30, 2012
:
|
|
|
|
|
|
|
|
|
Instrument
|
Statement of Operations Location
|
Amount
|
|
Corn Derivative Contracts
|
Cost of Goods Sold
|
$
|
(1,762,020
|
)
|
|
Ethanol Derivative Contracts
|
Revenues
|
(258,254
|
)
|
|
Natural Gas Derivative Contracts
|
Cost of Goods Sold
|
(60,224
|
)
|
|
Totals
|
|
$
|
(2,080,498
|
)
|
5. FAIR VALUE MEASUREMENTS
The following table provides information on those assets and liabilities measured at fair value on a recurring basis as of
June 30, 2013
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
Carrying Amount
|
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
|
Interest Rate Swap Liability
|
$
|
(1,012,353
|
)
|
$
|
(1,012,353
|
)
|
$
|
—
|
|
$
|
(1,012,353
|
)
|
$
|
—
|
|
|
Corn Derivative Contracts
|
386,062
|
|
386,062
|
|
386,062
|
|
—
|
|
—
|
|
|
Ethanol Derivative Contracts
|
94,819
|
|
94,819
|
|
94,819
|
|
—
|
|
—
|
|
CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
June 30, 2013
The following table provides information on those assets and liabilities measured at fair value on a recurring basis as of
September 30, 2012
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
Carrying Amount
|
Fair Value
|
Level 1
|
Level 2
|
Level 3
|
|
Interest Rate Swap Liability
|
$
|
(2,086,757
|
)
|
$
|
(2,086,757
|
)
|
$
|
—
|
|
$
|
(2,086,757
|
)
|
$
|
—
|
|
|
Corn Derivative Contracts
|
$
|
(1,111,238
|
)
|
(1,111,238
|
)
|
(1,111,238
|
)
|
—
|
|
—
|
|
|
Ethanol Derivative Contracts
|
$
|
85,470
|
|
85,470
|
|
85,470
|
|
—
|
|
—
|
|
We determine the fair value of the interest rate swap shown in the table above by using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each instrument. The analysis reflects the contractual terms of the swap agreement, including the period to maturity and uses observable market-based inputs and uses the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. We determine the fair value of commodity derivative instruments by obtaining fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the Chicago Board of Trade market and New York Mercantile Exchange.
6. BANK FINANCING
On December 19, 2006, the Company entered into a definitive loan agreement with a financial institution for a construction loan of up to
$83,000,000
, a short-term revolving line of credit of
$10,000,000
and letters of credit of
$3,000,000
. In connection with this agreement, the Company also entered into an interest rate swap agreement fixing the interest rate on
$41,500,000
of debt. In April 2009, the construction loan was converted into
three
separate term loans: a fixed rate note, a variable rate note, and a long term revolving note. The fixed rate note was applicable to the interest rate swap agreement. The term loans had a maturity of five years with a ten-year amortization and were set to mature on April 8, 2014.
On June 10, 2013, the Company closed on a new loan agreement which replaces the earlier agreement. The agreement establishes two new notes, the Declining Revolving Note (Declining Note) and the Revolving Credit Note in exchange for liens on all property (real and personal, tangible and intangible) which include, among other things, a mortgage on the property, a security interest on commodity trading accounts, and assignment of material contracts.
Declining Note
The Declining Note has an initial principal balance of
$28,889,410
, which was the balance outstanding at
June 30, 2013
, and incorporates an interest rate swap from the earlier loan agreement which is set to expire on April 8, 2014. The interest rate swap fixes the interest rate at
8.11%
per year until expiration. Upon expiration of the interest rate swap, the Declining Note's interest rate will be based on the 3-month LIBOR plus three hundred basis points.
On April 8, 2014, the principal balance on the Declining Note will be
$25,083,737
. The Declining Note matures on January 8, 2021. Principal payments will be fixed at
$929,027
per quarter beginning April 8, 2014. The agreement also requires excess cash flow prepayments annually if certain levels of earnings before interest, taxes, depreciation and amortization are achieved. The agreement allows the Company to prepay the note and borrow back amounts against it based on a schedule that declines over the term.
The fair value of the interest rate swap at
June 30, 2013
was
$1,012,353
and was
$2,086,757
at
September 30, 2012
and is included in current liabilities on the balance sheet (Note 4).
Revolving Credit Note
The Revolving Credit Note has a limit of
$15,000,000
supported by a borrowing base made up of the Company's corn, ethanol, dried distillers grain and corn oil inventories reduced by accounts payable associated with those inventories having a priority. It is also supported by the eligible accounts receivable and commodity trading account excess margin funds. The interest rate on the Revolving Credit Note is based on the 1-month LIBOR plus three hundred basis points. The interest rate at
June 30, 2013
was
3.70%
. There were
$0
borrowings outstanding on the Revolving Credit Note at
June 30, 2013
or
September 30, 2012
.
CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
June 30, 2013
These loans are subject to protective covenants, which restrict distributions and require the Company to maintain various financial ratios. The covenants include a fixed charge coverage ratio of no less than 1.15:1.0 (which is currently measured on a stand alone quarterly basis, reverting to a rolling twelve month for the fiscal year ending September 30, 2013), a working capital requirement of
$15,000,000
, and a capital expenditures covenant that allows the Company
$4,000,000
of expenditures per year without prior approval.
Long-term debt, as discussed above, consists of the following at
June 30, 2013
:
|
|
|
|
|
|
|
|
Declining revolving note
|
$
|
28,889,410
|
|
|
Less amounts due within one year
|
3,805,673
|
|
|
Net long-term debt
|
$
|
25,083,737
|
|
The estimated maturities of long-term debt at
June 30, 2013
are as follows:
|
|
|
|
|
|
|
|
July 1, 2013 to June 30, 2014
|
$
|
3,805,673
|
|
|
July 1, 2014 to June 30, 2015
|
5,216,109
|
|
|
July 1, 2015 to June 30, 2016
|
5,216,109
|
|
|
July 1, 2016 to June 30, 2017
|
5,216,109
|
|
|
July 1, 2017 to June 30, 2018
|
5,216,109
|
|
|
Thereafter
|
4,219,301
|
|
|
Total long-term debt
|
$
|
28,889,410
|
|
7. LEASES
At
June 30, 2013
, the Company had the following commitments for payments of rentals under leases which at inception had a non-cancellable term of more than one year:
|
|
|
|
|
|
|
|
|
Total
|
|
July 1, 2013 to June 30, 2014
|
$
|
362,968
|
|
|
July 1, 2014 to June 30, 2015
|
6,564
|
|
|
July 1, 2015 to June 30, 2016
|
6,564
|
|
|
July 1, 2016 to June 30, 2017
|
6,564
|
|
|
July 1, 2017 to June 30, 2018
|
6,564
|
|
|
Thereafter
|
547
|
|
|
Total minimum lease commitments
|
$
|
389,771
|
|
8. COMMITMENTS AND CONTINGENCIES
Contingencies
In February 2010, a lawsuit against the Company was filed by another unrelated party claiming the Company's operation of the oil separation system in a patent infringement. In connection with the lawsuit, in February 2010, the agreement for the construction and installation of the tricanter oil separation system was amended. In this amendment the manufacturer and installer of the tricanter oil separation system indemnifies the Company against all claims of infringement of patents, copyrights or other intellectual property rights from the Company's purchase and use of the tricanter oil system and agrees to defend the Company in the lawsuit filed at no expense to the Company. The Company is not currently able to predict the outcome of this litigation with any degree of certainty. The manufacturer has, and the Company expects it will continue, to vigorously defend itself and the Company in these lawsuits. The Company estimates that damages sought in this litigation, if awarded, would be based on a reasonable royalty to, or lost profits of, the plaintiff. If the court deems the case exceptional, attorney's fees may be awarded and are likely to be
$1,000,000
or more. The manufacturer has also agreed to indemnify the Company for these fees. However, in the event that
CARDINAL ETHANOL, LLC
Notes to Condensed Unaudited Financial Statements
June 30, 2013
damages are awarded, if the manufacturer is unable to fully indemnify the Company for any reason, the Company could be liable. In addition, the Company may need to cease use of its current oil separation process and seek out a replacement or cease oil production altogether.
9. UNCERTAINTIES IMPACTING THE ETHANOL INDUSTRY AND OUR FUTURE OPERATIONS
The Company has certain risks and uncertainties that it experiences during volatile market conditions, which can have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol, distillers grains and corn oil to customers primarily located in the U.S. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. Ethanol sales average approximately
80%
of total revenues and corn costs average
84%
of total cost of goods sold.
The Company's operating and financial performance is largely driven by prices at which the Company sells ethanol, distillers grains and corn oil, and the related cost of corn. The price of ethanol is influenced by factors such as supply and demand, weather, government policies and programs, and the unleaded gasoline and the petroleum markets, although, since 2005, the prices of ethanol and gasoline began a divergence with ethanol selling for less than gasoline at the wholesale level. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, government policies and programs. The Company's risk management program is used to protect against the price volatility of these commodities.
10. SUBSEQUENT EVENTS
On July 16, 2013, the Company approved a distribution of
$222
per unit for a total of approximately
$3,243,000
for members of record as of that date. The distribution will be paid in the second half of August 2013.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and nine month periods ended
June 30, 2013
, compared to the same periods of the prior fiscal year. This discussion should be read in conjunction with the condensed financial statements and notes and the information contained in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 2012
.
Forward Looking Statements
This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions. In some cases you can identify forward-looking statements by the use of words such as "may," "will," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions. These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties, including, but not limited to those listed below and those business risks and factors described elsewhere in this report and our other Securities and Exchange Commission filings.
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•
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Changes in the availability and price of corn and natural gas;
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•
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Our inability to secure credit or obtain additional equity financing we may require in the future to continue our operations;
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•
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Decreases in the price we receive for our ethanol, distiller grains and corn oil;
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•
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Our ability to satisfy the financial covenants contained in our credit agreements with our senior lender;
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•
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Our ability to profitably operate the ethanol plant and maintain a positive spread between the selling price of our products and our raw material costs;
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•
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Negative impacts that our hedging activities may have on our operations;
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•
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Ethanol and distiller grains supply exceeding demand and corresponding price reductions;
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•
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Our ability to generate free cash flow to invest in our business and service our debt;
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•
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Changes in the environmental regulations that apply to our plant operations;
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•
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Changes in our business strategy, capital improvements or development plans;
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•
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Changes in plant production capacity or technical difficulties in operating the plant;
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•
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Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;
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•
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Lack of transport, storage and blending infrastructure preventing our products from reaching high demand markets;
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•
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Changes in federal and/or state laws;
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•
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Changes and advances in ethanol production technology;
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•
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Competition from alternative fuel additives;
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•
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Changes in interest rates or the lack of credit availability;
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•
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Changes in legislation including the Renewable Fuel Standard;
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•
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Our ability to retain key employees and maintain labor relations;
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•
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Volatile commodity and financial markets;
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•
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Limitations and restrictions contained in the instruments and agreements governing our indebtedness.
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The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no duty to update these forward-looking statements even though our situation may change in the future. We cannot guarantee future results, levels of activity, performance or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements with these cautionary statements.
Overview
Cardinal Ethanol, LLC is an Indiana limited liability company. It was formed on February 7, 2005 with the name of Indiana Ethanol, LLC. On September 27, 2005, we changed our name to Cardinal Ethanol, LLC. We were formed for the purpose of raising capital to develop, construct, own and operate a 100 million gallon per year ethanol plant in east central Indiana near Union City, Indiana. We began producing ethanol and distillers grains at the plant in November 2008. We are currently operating at an annual rate of approximately 107 million gallons of ethanol. The plant has an approximate annual production capacity between 100 and 115 million gallons.
Our revenues are primarily derived from the sale of our ethanol, distillers grains and corn oil. We market and sell our products primarily in the continental United States using third party marketers. Murex, LLC markets all of our ethanol. Our distillers grains are marketed by CHS, Inc. We market and distribute all of the corn oil we produce directly to end users and third party brokers.
On June 10, 2013, we entered into a First Amended and Restated Construction Loan Agreement (the "Agreement") with First National Bank of Omaha ("FNBO") that amends and replaces the Construction Loan Agreement originally dated December 19, 2006. The Amendment establishes two new revolving loans, the Declining Revolving Note ("Declining Note") and the Revolving Credit Note. In exchange, we executed a mortgage on all real property and granted a security interest in all other assets, both tangible and intangible, which include, among other things, the granting of a security interest in commodity trading accounts and assignment of material contracts.
On December 31, 2011, the Volumetric Ethanol Excise Tax Credit ("VEETC") expired. VEETC provided a volumetric ethanol excise tax credit of 4.5 cents per gallon of gasoline that contains at least 10% ethanol (total credit of 45 cents per gallon of ethanol blended which is 4.5 divided by the 10% blend). In addition to the expiration of the tax incentives, a 54 cent per gallon tariff imposed on ethanol imported into the United States also expired on December 31, 2011. In 2012, the ethanol industry in the United States experienced increased competition from ethanol produced outside the United States. Increased ethanol imports was likely due in part to the elimination of the tariff on foreign ethanol. Management believes that ethanol imports will likely remain strong in 2013 and may increase. Increased competition from imported ethanol may affect our ability to sell our ethanol profitably. Management believes that the expiration of VEETC has not had a significant effect on ethanol demand and does not expect it to have a significant effect in the future so long as the renewable fuels use requirement of the Federal Renewable Fuels Standard ("RFS") is maintained.
The RFS requires that a certain amount of renewable fuels must be used in the United States each year. In February 2010, the EPA issued new regulations governing the RFS. These new regulations have been called RFS2. If the RFS is repealed, ethanol demand may be significantly impacted. Recently, there have been proposals for legislation in Congress to reduce or eliminate the RFS. In addition, in the past, formal requests have been filed with the United States Environmental Protection Agency (the "EPA") requesting a waiver of the requirements of the RFS. While the waiver requests have been denied by the EPA and management is optimistic that Congress will not take action to reduce or eliminate the RFS in the near future, if waivers were to be granted or the RFS were to be otherwise reduced or eliminated, the market price and demand for ethanol will likely decrease which could negatively impact our financial performance.
Many in the ethanol industry believe that it will be difficult to meet the RFS requirement in future years without an increase in the percentage of ethanol that can be blended with gasoline for use in standard (non-flex fuel) vehicles. Most ethanol that is used in the United States is sold in a blend called E10. E10 is a blend of 10% ethanol and 90% gasoline. E10 is approved for use in all standard vehicles. The EPA has approved the use of E15 gasoline which is blended at a rate of 15% ethanol and 85% gasoline, in vehicles manufactured in the model year 2001 and later. However, there are still significant federal and state regulatory hurdles that needed to be addressed. The EPA has made recent gains towards clearing those federal regulatory hurdles. In February 2012, the EPA approved health effects and emissions testing on E15 which was required by the Clean Air Act before E15 can be sold into the market. In March 2012, the EPA approved a model Misfueling Mitigation Plan and fuel survey which must be submitted by applicants before E15 registrations can be approved. In April 2012, the EPA approved the first E15 registrations approving twenty producers who have successfully registered their product to be used as E15. Finally, in June 2012, the EPA gave the final approval to allow the sale of E15. Although management believes that these developments are significant steps towards introduction of E15 in the marketplace, there are still obstacles to meaningful market penetration by E15. Many states still have regulatory issues that prevent the sale of E15. Sales of E15 may be limited because it is not approved for use in all vehicles, the EPA requires a label that management believes may discourage consumers from using E15, and retailers may choose not to sell E15 due to concerns regarding liability. In addition, different gasoline blendstocks may be required at certain times of the year in order to use E15 due to federal regulations related to fuel evaporative emissions. This may prevent E15 from being used during certain times of the year in various states. As a result, management believes that E15 may not have an immediate impact on ethanol demand in the United States.
In late 2009, California passed a Low Carbon Fuels Standard ("LCFS"). The California LCFS requires that renewable fuels used in California must accomplish certain reductions in greenhouse gases which is measured using a lifecycle analysis, similar to the RFS. On December 29, 2011, a federal court in California ruled that the California LCFS was unconstitutional which halted implementation of the California LCFS. However, the California Air Resources Board ("CARB") appealed this court ruling and on April 23, 2012, a federal appellate court in California granted a request to temporarily reinstate the LCFS while the case is on appeal which allowed CARB to continue implementation of the LCFS. A decision on the appeal is expected in the near future. In addition, a state court in California recently required that CARB take certain corrective actions regarding the approval of the LCFS regulations while allowing the LCFS regulations to remain in effect during this process. If federal and state
challenges to the LCFS are ultimately unsuccessful, the LCFS could have a negative impact on demand for corn-based ethanol and result in decreased ethanol prices.
The European Union recently concluded an anti-dumping investigation related to ethanol produced in the United States and exported to Europe. As a result of this investigation, the European Union has imposed a tariff on ethanol which is produced in the United States and exported to Europe. This tariff could result in a decrease of exports of ethanol to Europe which could negatively impact the market price of ethanol in the United States.
We expect to fund our operations during the next 12 months using cash flow from our continuing operations and our current credit facilities. However, based on volatility in the cost of corn and the potential for tight margins throughout the period, we may need to seek additional funding.
Results of Operations for the Three Months Ended
June 30, 2013
and
2012
The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations:
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2013
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2012
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Statement of Operations Data
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Amount
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%
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Amount
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%
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Revenue
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$
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95,598,868
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100.00
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$
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69,530,510
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100.00
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Cost of Goods Sold
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84,403,081
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88.29
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70,403,480
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101.26
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Gross Profit (Loss)
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11,195,787
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11.71
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(872,970
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)
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(1.26
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)
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Operating Expenses
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1,288,297
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1.35
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1,460,779
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2.10
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Operating Income (Loss)
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9,907,490
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10.36
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(2,333,749
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)
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(3.36
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)
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Other Expense, net
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(605,738
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)
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(0.63
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)
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(677,834
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)
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(0.97
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)
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Net Income (Loss)
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$
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9,301,752
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9.73
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$
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(3,011,583
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)
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(4.33
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)
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Our revenues from operations come from three primary sources: sales of fuel ethanol, distillers grains and corn oil. The following table shows the sources of our revenue:
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Three Months Ended
June 30, 2013
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Three Months Ended
June 30, 2012
|
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Revenue Source
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Amount
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% of Revenues
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|
Amount
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% of Revenues
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|
Ethanol Sales
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$
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72,261,444
|
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75.59
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%
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$
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52,709,331
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|
75.81
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%
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|
Dried Distillers Grains Sales
|
20,632,888
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|
21.58
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14,539,662
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|
20.91
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Wet Distillers Grains Sales
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5,850
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|
0.01
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30,642
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|
0.04
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Corn Oil Sales
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2,575,746
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2.69
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2,200,875
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|
3.17
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Other Revenue
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122,940
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|
0.13
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|
50,000
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|
0.07
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Total Revenues
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$
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95,598,868
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|
100.00
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%
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|
$
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69,530,510
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100.00
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%
|
The following table shows additional data regarding production and price levels for our primary inputs and products for the three months ended
June 30, 2013
and
2012
.
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Three Months Ended
June 30, 2013
|
Three Months Ended
June 30, 2012
|
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Sales:
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Ethanol sold (gallons)
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28,388,865
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25,102,822
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Distillers grains sold (tons)
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83,324
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72,071
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Corn oil sold (pounds)
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6,866,540
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5,060,520
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Revenues:
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Ethanol average price per gallon
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$
|
2.55
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$
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2.10
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Distillers grains average price per ton
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|
$
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247.62
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$
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201.74
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Corn oil average price per pound
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$
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0.38
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$
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0.43
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Primary Inputs:
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Corn ground (bushels)
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10,277,672
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8,882,020
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Natural gas purchased (MMBTU)
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778,989
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686,039
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Costs of Primary Inputs:
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Corn average price per bushel ground
|
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$
|
7.17
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$
|
6.74
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Natural gas average price per MMBTU
|
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$
|
4.51
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$
|
2.64
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Other Costs:
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|
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Chemical and additive costs per gallon of ethanol sold
|
|
$
|
0.068
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$
|
0.066
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|
Denaturant cost per gallon of ethanol sold
|
|
$
|
0.056
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$
|
0.052
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Electricity cost per gallon of ethanol sold
|
|
$
|
0.033
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|
$
|
0.033
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Direct Labor cost per gallon of ethanol sold
|
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$
|
0.021
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|
$
|
0.022
|
|
Revenues
Our revenues are derived primarily from the sale of our ethanol, distillers grains and corn oil. For the three month period ended
June 30, 2013
, we received approximately
76%
of our revenue from the sale of fuel ethanol, approximately
21%
of our revenue from the sale of distillers grains and approximately
3%
of our revenue from sale of corn oil. Sales of carbon dioxide represented less than 1% of our total sales. Comparatively, for the three month period ended
June 30, 2012
, we received approximately
76%
of our revenue from the sale of fuel ethanol and approximately
21%
of our revenue from the sale of distillers grains and approximately
3%
of total sales from corn oil. Sales of carbon dioxide represented less than 1% of our total sales.
Ethanol
Our revenues from ethanol increased for our three month period ended
June 30, 2013
as compared to our three month period ended
June 30, 2012
. Our increase in revenues for our three month period ended
June 30, 2013
as compared to
2012
was the result of higher ethanol prices on average per gallon for the three month period ended
June 30, 2013
as compared to the same period in
2012
. We also experienced an increase in our volume of ethanol sales in the three month period ended
June 30, 2013
as compared to the same period in
2012
. We are currently operating at approximately 7% above our nameplate capacity.
During the three month period ended
June 30, 2013
, the market price of ethanol varied between
$2.36
per gallon and
$2.90
per gallon. Our average price per gallon of ethanol sold, including the effects of our risk management/hedging, was
$2.55
for the three month period ended
June 30, 2013
. During the three month period ended
June 30, 2012
, the market price of ethanol varied between
$1.96
per gallon and
$2.34
per gallon. Our average price per gallon of ethanol sold, including the effects of our risk management/hedging, was
$2.10
per gallon for the three month period ended
June 30, 2012
. We experienced an increase in the gallons of ethanol sold in the three month period ended
June 30, 2013
as compared to the same period in
2012
due to higher plant production rates. We sold approximately
28,389,000
gallons of ethanol during the three month period ended
June 30, 2013
compared to approximately
25,103,000
, for the same three month period ended in
2012
.
Ethanol prices overall were higher during our third fiscal quarter in response to high corn prices, a decrease in ethanol production due to shutdowns or cutbacks of some ethanol production facilities and a gradual reduction in ethanol stocks.
However,
ethanol prices began trending lower towards the end of our third fiscal quarter in response to a resumption in ethanol production and a decrease in corn prices. Management anticipates that ethanol prices will continue to change in relation to changes in corn and energy prices. However, the historic correlation between the price of ethanol and corn prices has become less reliable. Therefore, management believes that lower gasoline and export demand along with excess ethanol supply due to increased imports of foreign ethanol and the continued resumption of production by idled plants could negatively impact ethanol prices. Operating margins improved and were positive during our third fiscal quarter. Management expects that operating margins will remain volatile particularly during our fourth fiscal quarter when the results of the 2013 harvest will have a significant effect on corn pricing. Management anticipates that the gallons of ethanol sold by our plant will remain relatively consistent.
In the ordinary course of business, we enter into forward contracts for our commodity purchases and sales. At
June 30, 2013
we have no forward ethanol sales contracts. As of
June 30, 2013
we have open short (selling) positions for
7,098,000
gallons of ethanol and
7,140,000
open long (buying) position for gallons of ethanol on the Chicago Board of Trade and the New York Mercantile Exchange to hedge our forward corn contracts and ethanol inventory. Our ethanol derivatives are forecasted to settle through December 2013. For the three month periods ended
June 30, 2013
and
2012
, we recorded net losses on our ethanol derivative contracts of
$448,805
and gains of
$348,022
, respectively. These losses and gains were recorded with our revenues in the statement of operations.
Distillers Grains
Our revenues from distillers grains increased in the three month period ended
June 30, 2013
as compared to the same period in
2012
. This increase was primarily the result of an increase in the average price per ton of distillers grains for the three month period ended
June 30, 2013
as compared to the same period in
2012
. We also experienced an increase in distillers grains sold in the three month period ended
June 30, 2013
as compared to the same period in
2012
.
During the three month period ended
June 30, 2013
, the market price of distillers grains varied between
$216
per ton of distillers grains and
$240
per ton of distillers grains. Our average price per ton of distillers grains sold was
$248
per ton for the three month period ended
June 30, 2013
. During the three month period ended
June 30, 2012
, the market price of distillers grains varied between
$149
per ton of distillers grains and
$224
per ton of distillers grains. Our average price per ton of distillers grains sold was
$202
for the three month period ended
June 30, 2012
.
Management believes that the market prices for distillers grains will change in relation to the prices of other animal feeds, such as corn and soybean meal. We primarily sell dried distillers grains nationally through our marketer. Distillers grains prices have been strong and steady throughout our third fiscal quarter in relation to high corn prices and strong export demand. Typically, distillers grains prices as a percentage of corn value are approximately 80% or better. During our third fiscal quarter, distillers grain prices were significantly higher as a percentage of corn value than typically expected. Management believes that distillers grains prices will generally continue to follow corn and will likely decrease if there is a large 2013 corn crop. In addition, distillers grains prices could decrease due to lower demand if end-users switch to lower priced alternatives or if there is a weakening in demand from foreign markets. Distillers grains prices are also expected to revert closer to traditional levels as a percentage of corn value particularly if yields from the 2013 corn crop are strong.
The amount of distillers grains sold in the three month period ended
June 30, 2013
increased as compared to the same period in
2012
due to increased demand from our customers for the product and higher plant production rates. We sold
83,324
tons and
72,071
tons of distillers grains during the three month periods ended
June 30, 2013
and
2012
, respectively. Management anticipates that distillers grain sales will remain relatively close to historic levels.
At
June 30, 2013
, we have forward distillers grains contracts of approximately 82,000 tons at various prices for various delivery periods.
Corn Oil
Our corn oil sales increased in the three month period ended
June 30, 2013
as compared to the same period in
2012
which was primarily a result of an increase in production rates of corn oil in the three month period ended
June 30, 2013
as compared to the same period in
2012
. The average price per pound of corn oil was
$0.38
per pound for the quarter ended
June 30, 2013
as compared to
$0.43
for the same period in
2012
.
Management expects corn oil prices to remain steady or decrease slightly because additional ethanol plants have entered into the local corn oil market resulting in an oversupply which may put downward pressure on prices. Corn oil prices may also decrease if Congress does not renew the tax credit for biodiesel producers. Management expects corn oil production will remain relatively steady.
Cost of Goods Sold
Our cost of goods sold as a percentage of revenues was
88%
for the three months ended
June 30, 2013
as compared to
101%
for the same period in
2012
. This decrease in cost of goods sold as a percentage of revenues was the result of increased ethanol prices relative to corn prices and lower costs for chemicals for the three months ended
June 30, 2013
as compared to the same period in
2012
. Our two largest costs of production are corn and natural gas.
Corn
Our largest cost associated with the production of ethanol, distillers grains and corn oil is corn cost. During the three month period ended
June 30, 2013
, we used approximately
10,278,000
bushels of corn to produce our ethanol, distillers grain and corn oil as compared to approximately
8,882,000
bushels for the same period in
2012
.
During the three month period ended
June 30, 2013
, our average price paid per bushel of corn increased as compared to the same period in
2012
. During the three month period ended
June 30, 2013
, the market price of corn varied between
$6.57
per bushel and
$7.30
per bushel. Our average price per bushel of corn ground was
$7.17
, including the effects of our risk management/hedging. During the three month period ended
June 30, 2012
, the market price of corn varied between
$5.14
and
$7.16
per bushel. Our average price per bushel of corn ground was
$6.74
, including the effects of our risk management/hedging.
Corn prices were high and trended upwards during most of our third fiscal quarter due to concerns regarding corn stocks and the 2013 corn crop. However, prices decreased towards the end of our third fiscal quarter and then fell sharply subsequent to the end of our fiscal quarter in response to a USDA crop report indicating that the more acres of corn were planted for the 2013 fall corn crop than previously indicated. Based on this report, management is currently optimistic that we will be able to buy corn at a price that will allow us to profitably operate in the short term. However, there are still currently many unknowns related to the 2013 crop which may have a significant effect on corn pricing during our fourth fiscal quarter and our 2014 fiscal year. A recent USDA crop report indicates that crop conditions may be worsening in certain areas which could have a negative effect on corn yields. High corn prices will have a negative effect on our operating margins unless the price of ethanol out paces high corn prices. Management will continue to monitor the availability and price of corn in our local area and from other regions in order to determine the best market from which to source the corn we need for the plant. However, should we experience unfavorable operating conditions that prevent us from securing corn at a price which allows us to profitably operate the ethanol plant in the future, we may need to reduce or even halt production at our plant for a period of time.
In the ordinary course of business, we entered into forward purchase contracts for our commodity purchases. At
June 30, 2013
, we have forward corn purchase contracts for various delivery periods through
March 2015
for a total commitment of approximately
$16,168,000
. Approximately
$1,302,000
of the forward corn purchases were with a related party. As of
June 30, 2013
we also have open short (selling) positions for
3,745,000
bushels of corn on the Chicago Board of Trade and long (buying) positions for
1,805,000
bushels of corn on the Chicago Board of Trade to hedge our forward corn contracts and corn inventory. Our corn derivatives are forecasted to settle through
March 2015
. For the three month periods ended
June 30, 2013
and
2012
, we recorded net gains on our corn derivative contracts of
$1,526,549
and losses of
$1,682,579
, respectively. These gains and losses were recorded against cost of goods sold in the statement of operations. Volatility in the price of corn could significantly impact our cost of goods sold.
Natural Gas
Our natural gas cost was higher during our three month period ended
June 30, 2013
as compared to the three month period ended
June 30, 2012
. This increase in cost of natural gas for the three month period ended
June 30, 2013
as compared to the same period in
2012
was primarily the result of an increase in the average price per MMBTU of our natural gas. We also used more natural gas for the three month period ended
June 30, 2013
as compared to the same period in
2012
.
During the
three
month period ended
June 30, 2013
the market price of natural gas varied between
$3.87
per MMBTU and
$4.71
per MMBTU. Our average price per MMBTU of natural gas was
$4.51
after considering the effects of our risk management/hedging. During the
three
month period ended
June 30, 2012
the market price of natural gas varied between
$2.23
per MMBTU and
$4.05
per MMBTU. Our average price per MMBTU of natural gas was
$2.64
. For the
three
month periods ended
June 30, 2013
and
2012
, we recorded net gains on our natural gas derivative contracts of
$11,171
and
$205,004
, respectively. These net gains were recorded in our cost of goods sold in our statement of operations.
Natural gas prices remained relatively steady during our third fiscal quarter decreasing subsequent to the quarter end due to plentiful supply. Management anticipates that natural gas prices will continue to remain at current levels until next winter unless we experience a catastrophic weather event that would cause problems related to the supply of natural gas.
During our three month period ended
June 30, 2013
, we purchased approximately
779,000
MMBTU's of natural gas as compared to
686,000
MMBTU's for the three month period ended
June 30, 2012
. Management attributes this increase in natural gas to higher production rates during the quarter.
Operating Expense
Our operating expenses as a percentage of revenues were approximately
1%
for the three months ended
June 30, 2013
as compared to
2%
for the same period in
2012
primarily due to decreases in general and administrative fees. Operating expenses include salaries and benefits of administrative employees, insurance, taxes, professional fees and other general administrative costs. Our efforts to optimize efficiencies and maximize production may result in a decrease in our operating expenses on a per gallon basis. However, because these expenses generally do not vary with the level of production at the plant, we expect our operating expenses to remain steady throughout the remainder of the 2013 fiscal year.
Operating Income (Loss)
Our income from operations for the three months ended
June 30, 2013
was approximately
10%
of our revenues compared to an operating loss for the same period in
2012
. The operating income for the three month period ended
June 30, 2013
was primarily the result of the higher prices we received for our ethanol relative to the cost of corn, as well as increased sales volumes.
Other Expense
Our other expense for the three months ended
June 30, 2013
was approximately
0.6%
of our revenues as compared to approximately
1.0%
for the same period in
2012
. Our other expense for the three month period ended
June 30, 2013
and
2012
consisted primarily of interest expense.
Results of Operations for the Nine Months Ended
June 30, 2013
and
2012
The following table shows the results of our operations and the approximate percentage of revenues, costs of goods sold, operating expenses and other items to total revenues in our unaudited statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
June 30, 2013
|
|
Nine Months Ended
June 30, 2012
|
|
Statement of Operations Data
|
Amount
|
Percent
|
|
Amount
|
Percent
|
|
Revenues
|
$
|
270,451,486
|
|
100.00
|
%
|
|
$
|
234,699,624
|
|
100.00
|
%
|
|
Cost of Goods Sold
|
249,495,124
|
|
92.25
|
%
|
|
223,281,117
|
|
95.13
|
%
|
|
Gross Profit
|
20,956,362
|
|
7.75
|
%
|
|
11,418,507
|
|
4.87
|
%
|
|
Operating Expenses
|
3,558,678
|
|
1.32
|
%
|
|
3,668,152
|
|
1.56
|
%
|
|
Operating Income
|
17,397,684
|
|
6.43
|
%
|
|
7,750,355
|
|
3.30
|
%
|
|
Other Expense, net
|
(1,888,664
|
)
|
(0.70
|
)%
|
|
(2,034,887
|
)
|
(0.87
|
)%
|
|
Net Income
|
$
|
15,509,020
|
|
5.73
|
%
|
|
$
|
5,715,468
|
|
2.44
|
%
|
The following table shows the sources of our revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
June 30, 2013
|
|
Nine Months Ended
June 30, 2012
|
|
Revenue Source
|
Amount
|
% of Revenues
|
|
Amount
|
% of Revenues
|
|
Ethanol Sales
|
$
|
202,496,973
|
|
74.87
|
%
|
|
$ 183,299,059
|
|
78.11
|
%
|
|
Dried Distillers Grains Sales
|
60,244,447
|
|
22.28
|
%
|
|
44,649,519
|
|
19.02
|
%
|
|
Wet Distillers Grains Sales
|
125,728
|
|
0.05
|
%
|
|
103,872
|
|
0.04
|
%
|
|
Corn Oil Sales
|
7,258,268
|
|
2.68
|
%
|
|
6,461,693
|
|
2.75
|
%
|
|
Other Revenue
|
326,070
|
|
0.12
|
%
|
|
185,481
|
|
0.08
|
%
|
|
Total Revenues
|
$
|
270,451,486
|
|
100.00
|
%
|
|
$
|
234,699,624
|
|
100.00
|
%
|
The following table shows additional data regarding production and price levels for our primary inputs and products for the
nine months
ended
June 30, 2013
and
2012
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
June 30, 2013
|
Nine Months Ended
June 30, 2012
|
|
Sales:
|
|
|
|
|
Ethanol sold (gallons)
|
|
83,232,964
|
|
81,537,468
|
|
|
Distillers grains sold (tons)
|
|
237,410
|
|
229,056
|
|
|
Corn oil sold (pounds)
|
|
19,552,646
|
|
15,444,440
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
Ethanol average price per gallon
|
|
$
|
2.43
|
|
$
|
2.25
|
|
|
Distillers grains average price per ton
|
|
$
|
253.76
|
|
$
|
194.93
|
|
|
Corn oil average price per pound
|
|
$
|
0.37
|
|
$
|
0.42
|
|
|
|
|
|
|
|
Primary Inputs:
|
|
|
|
|
Corn ground (bushels)
|
|
29,577,999
|
|
29,101,692
|
|
|
Natural gas purchased (MMBTU)
|
|
2,334,989
|
|
2,284,182
|
|
|
|
|
|
|
|
Costs of Primary Inputs:
|
|
|
|
|
Corn average price per bushel ground
|
|
$
|
7.45
|
|
$
|
6.57
|
|
|
Natural gas average price per MMBTU
|
|
$
|
4.11
|
|
$
|
3.28
|
|
|
|
|
|
|
|
Other Costs:
|
|
|
|
|
Chemical and additive costs per gallon of ethanol sold
|
|
$
|
0.064
|
|
$
|
0.073
|
|
|
Denaturant cost per gallon of ethanol sold
|
|
$
|
0.055
|
|
$
|
0.053
|
|
|
Electricity cost per gallon of ethanol sold
|
|
$
|
0.030
|
|
$
|
0.030
|
|
|
Direct Labor cost per gallon of ethanol sold
|
|
$
|
0.022
|
|
$
|
0.019
|
|
Revenues
For the
nine month
period ended
June 30, 2013
, ethanol sales comprised approximately
75%
of our revenues, distillers grains sales comprised approximately
22%
of our revenues and corn oil sales comprised approximately
3%
of our revenues. Sales of carbon dioxide represented less than 1% of our total sales. For the
nine month
period ended
June 30, 2012
, ethanol sales comprised approximately
78%
of our revenue, distillers grains sales comprised approximately
19%
of our revenue and corn oil sales comprised approximately
3%
of our revenues. Sales of carbon dioxide represented less than 1% of our total sales.
Ethanol
Our revenues from ethanol increased for our
nine month
period ended
June 30, 2013
as compared to the
nine month
period ended
June 30, 2012
primarily as a result of increased ethanol prices and ethanol sales in the
nine month
period ended
June 30, 2013
as compared to the same period in
2012
.
During the
nine month
period ended
June 30, 2013
the market price of ethanol varied between
$2.16
per gallon and
$2.90
per gallon. Our average price per gallon of ethanol sold, including the effects of risk management/hedging, was
$2.43
for the
nine month
period ended
June 30, 2013
. During the
nine month
period ended
June 30, 2012
, the market price of ethanol varied between
$1.96
and
$3.13
per gallon. Our average price per gallon of ethanol sold was
$2.25
. During the
nine month
period ended
June 30, 2013
, we sold approximately
83,233,000
gallons of ethanol as compared to our sales of approximately
81,537,000
gallons of ethanol for the same period in
2012
. For the
nine month
period ended
June 30, 2013
, we recorded net losses on our ethanol derivative contracts of
$226,073
as compared to
$258,254
for the same period in
2012
. These losses were recorded against our revenues in the statement of operations.
Distillers Grains
Our revenues from distillers grains increased in the
nine month
period ended
June 30, 2013
as compared to the same period in
2012
. This increase was primarily the result of an increase in the average price per ton of distillers grains in the
nine month
period ended
June 30, 2013
as compared to the same period in
2012
. We also experienced an increase in distillers grain sales in the
nine month
period ended
June 30, 2013
as compared to the same period in
2012
.
During the
nine month
period ended
June 30, 2013
, the market price of distillers grains varied between approximately
$216
and
$273
per ton. Our average price per ton of distillers grains sold was
$254
. During the
nine month
period ended
June 30, 2012
, the market price of distillers grains varied between approximately
$149
per ton and
$224
per ton. Our average price per ton of distillers grains sold was
$195
. During our
nine month
period ended
June 30, 2013
, we sold approximately
237,000
tons of distillers grains compared to approximately
229,000
for the same period in
2012
.
Corn Oil
Our revenue from corn oil sales increased in the
nine month
period ended
June 30, 2013
as compared to the same period in
2012
which was primarily a result of an increase in quantity of corn oil sales in the
nine month
period ended
June 30, 2013
as compared to the same period in
2012
. The average price per pound of corn oil was
$0.37
per pound for the
nine months
ended
June 30, 2013
as compared to
$0.42
for the same period in
2012
. During the
nine month
period ended
June 30, 2013
, we sold approximately
19,553,000
pounds of corn oil compared to our sales of approximately
15,444,000
pounds of corn oil for the same period in
2012
.
Cost of Goods Sold
Our cost of goods sold as a percentage of revenues were approximately
92%
for the
nine month
period ended
June 30, 2013
compared to
95%
for the same period of
2012
. This decrease in cost of goods sold as a percentage of revenues was primarily the result of a decrease in the price of corn relative to the price of ethanol for the
nine months
ended
June 30, 2013
as compared to the same period in
2012
. Our two largest costs of production are corn and natural gas.
Corn
During the
nine month
period ended
June 30, 2013
we used approximately
29,578,000
bushels of corn to produce our ethanol, distillers grain and corn oil as compared to approximately
29,102,000
bushels for the same period in
2012
. During the
nine month
period ended
June 30, 2013
, the market price of corn varied between
$6.57
per bushel and
$8.13
per bushel. Our average price per bushel of corn ground was
$7.45
after considering the effects of our risk management/hedging. During the
nine month
period ended
June 30, 2012
, the market price of corn varied between
$5.14
and
$7.16
per bushel. Our average price per bushel of corn ground was
$6.57
after considering the effects of our risk management/hedging. For the
nine month
period ended
June 30, 2013
, we recorded net gains on our corn derivative contracts of
$4,722,856
. For the same period in
2012
, we recorded corn derivative net losses of
$1,762,020
. These net gains/losses were recorded in our costs of goods sold in our statement of operations.
Natural Gas
During our
nine month
period ended
June 30, 2013
, we purchased approximately
2,335,000
MMBTU's of natural gas as compared to approximately
2,284,000
MMBTU's for the same period in
2012
. Management attributes this increase in natural gas to higher production rates. During the
nine month
period ended
June 30, 2013
, the market price of natural gas varied between
$3.45
per MMBTU and
$4.71
MMBTU. Our average price per MMBTU of natural gas was
$4.11
after considering the effects of our risk management/hedging. During the
nine month
period ended
June 30, 2012
, the market price of natural gas varied between
$2.23
per MMBTU and
$4.41
per MMBTU. Our average price per MMBTU of natural gas was
$3.28
. For the
nine
month
period ended
June 30, 2013
, we recorded net gains of
$11,171
on our natural gas derivative contracts. For the same period in
2012
, we recorded net losses of
$60,224
on our natural gas derivative contracts. These net gains/losses were recorded in our cost of good sold in our statement of operations.
Operating Expense
Our operating expenses as a percentage of revenues were approximately
1%
for the three months ended
June 30, 2013
as compared to
2%
for the same period in
2012
primarily due to decreases in general and administrative fees. Operating expenses include salaries and benefits of administrative employees, insurance, taxes, professional fees and other general administrative costs. Our efforts to optimize efficiencies and maximize production may result in a decrease in our operating expenses on a per gallon basis. We expect that going forward our operating expenses will remain relatively steady.
Operating Income
Our income from operations for the
nine months
ended
June 30, 2013
was approximately
6%
of our revenues compared to operating income of approximately
3%
of our revenues for the
nine months
ended
June 30, 2012
. The increase in income as a percentage of revenue was primarily a result of higher ethanol prices relative to the cost of corn for the period ended
June 30, 2013
as compared to the same period in
2012
.
Other Expense
Other expense for the
nine months
ended
June 30, 2013
and 2012, was comparable and was less than
1%
of our revenue. Other expense consisted primarily of interest expense.
Changes in Financial Condition for the Nine Months Ended
June 30, 2013
The following table highlights the changes in our financial condition:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
(Unaudited)
|
|
September 31, 2012
|
|
Current Assets
|
$
|
51,141,960
|
|
|
$
|
35,973,410
|
|
|
Current Liabilities
|
$
|
15,083,308
|
|
|
$
|
16,662,886
|
|
|
Member's Equity
|
$
|
123,541,008
|
|
|
$
|
109,294,546
|
|
We experienced an increase in our total current assets at
June 30, 2013
compared to our fiscal year ended
September 30, 2012
. We had cash of approximately
$13,627,000
at
June 30, 2013
as compared to approximately
$683,000
at
September 30, 2012
. This increase in cash is primarily due to increased operating margins. We had restricted cash of approximately $762,000 at
June 30, 2013
as compared to approximately $3,604,000 at
September 30, 2012
. This decrease is due to having a smaller number of contracts in our hedge position accounts. We also experienced an increase of approximately $6,737,000 in the value of our inventory at
June 30, 2013
compared to
September 30, 2012
. This increase is the result of having more corn and ethanol on hand at
June 30, 2013
.
We experienced a decrease in our total current liabilities at
June 30, 2013
compared to
September 30, 2012
. The decrease is primarily due to a decrease in our commodity derivative instruments to $0 at
June 30, 2013
as compared to approximately $1,111,000 at
September 30, 2012
.
We experienced a decrease in our long-term liabilities as of
June 30, 2013
compared to
September 30, 2012
. At
June 30, 2013
we had approximately
$25,084,000
outstanding in the form of long-term loans, compared to approximately
$27,944,000
at
September 30, 2012
. The decrease is primarily due to scheduled principal repayments made on our term loans and the reclassification of our interest rate swap to a current liability.
Liquidity and Capital Resources
Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our current credit facilities and cash from our operations to continue to operate the ethanol plant for the next 12 months. We do not anticipate seeking additional equity financing during our 2013 fiscal year.
Operating margins improved and were positive during our third fiscal quarter and the nine month period ended June 30, 2013. Management expects that operating margins may be tight throughout our fiscal year 2013. While we have reduced our reliance on our revolving line of credit, should we experience unfavorable operating conditions in the ethanol industry that prevent us from profitably operating the ethanol plant, we could have difficulty maintaining our liquidity and may need to rely on our revolving line of credit for operations.
The following table shows cash flows for the
nine months
ended June 30:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013
|
|
2012
|
|
Net cash provided by operating activities
|
|
$
|
18,283,537
|
|
|
25,201,094
|
|
|
Net cash used in investing activities
|
|
$
|
(313,738
|
)
|
|
(1,000,440
|
)
|
|
Net cash used for financing activities
|
|
$
|
(5,025,531
|
)
|
|
(26,017,324
|
)
|
|
Net increase (decrease) in cash
|
|
$
|
12,944,268
|
|
|
(1,816,670
|
)
|
|
Cash, beginning of period
|
|
$
|
682,943
|
|
|
10,802,072
|
|
|
Cash, end of period
|
|
$
|
13,627,211
|
|
|
8,985,402
|
|
Cash Flow from Operations
We experienced a decrease in our cash flow from operations for the
nine month
period ended
June 30, 2013
as compared to the same period in
2012
. Approximately
$18,284,000
of cash was provided by operating activities for the
nine months
ended
June 30, 2013
as compared to approximately
$25,201,000
provided by operating activities for the
nine months
ended
June 30, 2012
. This was primarily due to the changes in net income along with changes in our commodity derivative instruments accounts for the
nine months
ended
June 30, 2013
compared with the same period in
2012
. Also, we paid more for corn inventory as prices were approximately an average of ninety cents higher per bushel than for the same period in
2012
.
Cash Flow used in Investing Activities
Cash used in investing activities was approximately
$314,000
for the
nine months
ended
June 30, 2013
as compared to approximately
$1,000,000
for the same period in
2012
. Cash used in investing activities decreased due to an increase in proceeds from sale of equipment and a decrease in capital expenditures for the
nine months
ended
June 30, 2013
as compared to the same period in
2012
.
Cash Flow used in Financing Activities
Cash used in financing activities was approximately
$5,026,000
for the
nine months
ended
June 30, 2013
as compared to approximately
$26,017,000
for the same period in
2012
. This decrease was primarily the result of a decrease in net payments on our long term debt to approximately
$2,689,000
for the
nine months
ended
June 30, 2013
as compared to approximately
$19,735,000
for the
nine months
ended
June 30, 2012
. We also made distributions of approximately $2,337,000 for the
nine months
ended
June 30, 2013
as compared to distributions of approximately $6,281,000 for the
nine months
ended
June 30, 2012
.
Our liquidity, results of operations and financial performance will be impacted by many variables, including the market price for commodities such as, but not limited to, corn, ethanol and other energy commodities, as well as the market price for any co-products generated by the facility and the cost of labor and other operating costs. Assuming future relative price levels for corn, ethanol and distillers grains remain consistent with the relative price levels as of
June 30, 2013
we expect operations to generate adequate cash flows to maintain operations.
Short and Long Term Debt Sources
On December 19, 2006, we entered into a loan agreement with First National Bank of Omaha ("FNBO") establishing a senior credit facility for the construction of our plant. The credit facility was in the amount of $96,000,000, consisting of an $83,000,000 construction note, a $10,000,000 revolving line of credit and a $3,000,000 letter of credit. We also entered into an interest rate swap agreement for $41,500,000 of the construction term loan in order to achieve a fixed rate on a portion of this loan. The term loans had a maturity of five years with a ten-year amortization and were set to mature on April 8, 2014.
On June 10, 2013, we closed on a new loan agreement with FNBO, the First Amended and Restated Construction Loan Agreement ("Agreement"), which replaces the earlier agreement. The Agreement establishes two new notes, the Declining Revolving Note ("Declining Note") and the Revolving Credit Note in exchange for liens on all property (real and personal, tangible
and intangible) which include, among other things, a mortgage on the property, a security interest on commodity trading accounts, and assignment of material contracts.
Declining Note
The Declining Note has an initial principal balance of $28,889,410 which replaces the fixed rate note that had been established by the earlier loan agreement. The Declining Note incorporates the interest rate swap which fixes the interest rate at 8.11% percent per year until expiration. Upon expiration of the Interest Rate Swap, the Declining Note's interest rate will be based on the 3-month LIBOR plus three hundred basis points.
On April 8, 2014, the principal balance on the Declining Note will be $25,083,737. The note matures on January 8, 2021. Principal payments will be fixed at $929,027 per quarter beginning April 8, 2014. The Agreement also requires excess cash flow prepayments annually if certain levels of earnings before interest, taxes, depreciation and amortization are achieved. The Agreement allows us to prepay the note and borrow back amounts against it based on a schedule that declines over the term of the Declining Note. The fair value of the interest rate swap at
June 30, 2013
was
$1,012,353
and was
$2,086,757
at
September 30, 2012
and is included in current liabilities on the balance sheet (Note 4).
Revolving Credit Note
The Revolving Credit Note has limit of $15,000,000 supported by a borrowing base made up of our corn, ethanol, dried distillers grain and corn oil inventories reduced by accounts payable associated with those inventories having a priority over FNBO. It is also supported by the eligible accounts receivable and commodity trading account excess margin funds. The interest rate on the Revolving Credit note is based on the 1-month LIBOR plus three hundred basis points. The interest rate at
June 30, 2013
was 3.70%. There were no borrowings outstanding on the Revolving Credit Note at
June 30, 2013
or
September 30, 2012
.
Covenants
Our loans are secured by our assets and material contracts. In addition, during the term of the loans, we will be subject to certain financial covenants. We were in compliance with all covenants at
June 30, 2013
.
Our fixed charge coverage ratio is no less than 1.15:1.00 and is calculated by comparing our “adjusted” EBITDA, meaning EBITDA less taxes, capital expenditures and allowable distributions, to our scheduled payments of the principal and interest on our obligations to our lender, other than principal repaid on our revolving loan and long term revolving note. It was previously measured on a rolling twelve month basis but has now been amended for three quarters beginning October 1, 2012 through June 30, 2013. It is currently measured on a stand alone quarterly basis, reverting to the rolling twelve month for the year ending September 30, 2013.
Our minimum working capital is $15,000,000, which is calculated as our current assets plus the amount available for drawing under our long term revolving note, less current liabilities.
Our Agreement also requires us to obtain prior approval from our lender before making, or committing to make, capital expenditures exceeding an aggregate amount of $4,000,000 in any single fiscal year. We may make distributions to our members to cover their respective tax liabilities. In addition, we may also make discretionary distributions of prior year net income provided that the discretionary distributions plus tax distributions for a fiscal year does not exceed 70% of that year's net income. The 70% limitation will be reduced if debt to equity ratios drop below predetermined levels. The Agreement only allows these distributions as long as we maintain certain leverage ratios and are in compliance with all financial ratio requirements and loan covenants before and after any such distributions are made to our members.
We are currently meeting our liquidity needs and complying with our financial covenants, as revised, and the other terms of our loan agreements. Based on current management projections, we anticipate that future operations will be sufficient to generate enough cash flow to maintain operations, service our debt and comply with our revised financial covenants in our loan agreements through June 30, 2014. Should market conditions deteriorate in the future, circumstances may develop which could result in us violating the financial covenants or other terms of our loan agreements. We will continue to evaluate our liquidity needs for the upcoming months and work with our lender to try to ensure that the terms of the loan agreements, including the financial covenants, are met going forward. However, we cannot provide any assurance that our actions will result in sustained profitable operations or that we will not be in violation of our revised loan covenants or other terms of our loan agreements. Should we violate the terms or revised covenants of our loan or fail to obtain a waiver of any such term or covenant, our primary lender could deem us in default of our loans and require us to immediately repay a significant portion or possibly the entire outstanding balance of our loans. Our lender could also elect to proceed with a foreclosure action on our plant.
Tax Abatement
In October 2006, the real estate that our plant was constructed on was determined to be an economic revitalization area, which qualified us for tax abatement. The abatement period is for a ten year term, with an effective date beginning calendar year end 2009 for the property taxes payable in calendar year 2010. The program allows for 100% abatement of property taxes beginning in year 1, and then decreases on a ratable scale so that in year 11 the full amount of property taxes are due and payable. We must apply annually and meet specified criteria to qualify for the abatement program.
Capital Improvements
We conducted a bottlenecking analysis of our facility and operations in order to find ways to improve production efficiency. After June 30, 2013, we installed larger hammermill motors and upgraded our flour conveyance system. These improvements will allow us to increase corn grinding capacity and are expected to increase plant run rates.
Subsequent Events
On July 16, 2013, the board of directors approved a distribution of $222 per unit for members of record as of that date. The distribution will be paid in the second half of August 2013.
Critical Accounting Estimates
Management uses various estimates and assumptions in preparing our financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Our most critical accounting estimates, which require the greatest use of judgment by management, are designated as critical accounting estimates and include policies related to the useful lives of fixed assets; the valuation of basis and delay price contracts on corn purchases; derivatives; inventory; patronage dividends, long-lived and inventory purchase commitments. An in-depth description of these can be found in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2012
. Management has not changed the method of calculating and using estimates and assumptions in preparing our condensed financial statements in accordance with generally accepted accounting principles. There have been no changes in the policies for our accounting estimates for the three or nine month periods ended
June 30, 2013
.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to the impact of market fluctuations associated with interest rates and commodity prices as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn and natural gas. We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes. We used derivative financial instruments to alter our exposure to interest rate risk. We entered into a interest rate swap agreement that we designated as a cash flow hedge.
Interest Rate Risk
We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding a Revolving Credit Note which bears a variable interest rate. The interest rate for the Revolving Credit Note is the 30-day LIBOR rate plus 300 basis points with no minimum. There was
$0
outstanding on the Revolving Credit Note at
June 30, 2013
.
We manage our floating rate debt using an interest rate swap. We entered into a fixed rate swap to alter our exposure to the impact of changing interest rates on our results of operations and future cash outflows for interest. We use interest rate swap contracts to separate interest rate risk management from the debt funding decision. The interest rate swaps held by us as of
June 30, 2013
qualified as a cash flow hedge. For this qualifying hedge, the effective portion of the change in fair value is recognized through earnings when the underlying transaction being hedged affects earnings, allowing a derivative's gains and losses to offset related results from the hedged item on the income statement. As of
June 30, 2013
, our interest rate swap had a liability fair value of
$1,012,353
.
Commodity Price Risk
We expect to be exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn in the ethanol production process and the sale of ethanol.
We seek to minimize the risks from fluctuations in the prices of raw material inputs, such as corn and natural gas, and finished products, such as ethanol and distiller's grains, through the use of hedging instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an economic hedge against our future purchases and sales, management has chosen not to use hedge accounting, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our cost of goods sold or as an offset to revenues. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.
We enter into fixed price contracts for corn purchases on a regular basis. It is our intent that, as we enter in to these contracts, we will use various hedging instruments to maintain a near even market position. For example, if we have 1 million bushels of corn under fixed price contracts we would generally expect to enter into a short hedge position to offset our price risk relative to those bushels we have under fixed price contracts. Because our ethanol marketing company is selling substantially all of the gallons it markets on a spot basis we also include the corn bushel equivalent of the ethanol we have produced that is inventory but not yet priced as bushels that need to be hedged.
As of
June 30, 2013
, we have open short (selling) positions for
3,745,000
bushels of corn on the Chicago Board of Trade and open short (selling) positions for
7,098,000
gallons of ethanol on the New York Mercantile Exchange and Chicago Board of Trade to hedge our forward corn contracts and corn inventory. As of
June 30, 2013
, we have open long (buying) positions for
1,805,000
bushels of corn on the Chicago Board of Trade. We have open long (buying) positions for
7,140,000
gallons of ethanol on the New York Mercantile Exchange and Chicago Board of Trade. We have no open positions for natural gas on the New York Mercantile Exchange. These derivatives have not been designated as an effective hedge for accounting purposes. Corn derivatives are forecasted to settle through March 2015 and ethanol derivatives are forecasted to settle through December 2013. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding as disclosed above.
For the
three months
ended
June 30, 2013
, we recorded a gain due to the change in fair value of our outstanding corn derivative positions of
$1,526,549
and a loss due to the change in fair value of our outstanding ethanol derivative positions of
$448,805
.
At
June 30, 2013
, we have committed to purchase approximately 2,462,000 bushels of corn through
March 2015
at an average bushel price of $6.57 and the spot price at
June 30, 2013
was $6.57 per bushel. As contracts are delivered, any gains or losses realized will be recognized in our gross margin. Due to the volatility and risk involved in the commodities market, we cannot be certain that these gains or losses will be realized.
As corn prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments. Depending on market movements, crop prospects and weather, these price protection positions may cause immediate adverse effects, but are expected to produce long-term positive growth for us. As of
June 30, 2013
we had price protection in place for approximately 6% of our anticipated corn needs for the next 12 months. In addition, we had price protection in place for approximately 3% of our natural gas needs for the next 12 months.
A sensitivity analysis has been prepared to estimate our exposure to ethanol, distillers grains, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas prices and average ethanol and distillers grains price as of
June 30, 2013
of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from
June 30, 2013
. The results of this analysis, which may differ from actual results, are approximately as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)
|
Unit of Measure
|
Hypothetical Adverse Change in Price as of
June 30, 2013
|
Approximate Adverse Change to Income
|
|
Natural Gas
|
3,162,500
|
|
MMBTU
|
10
|
%
|
|
$
|
1,221,000
|
|
|
Ethanol
|
114,000,000
|
|
Gallons
|
10
|
%
|
|
$
|
27,930,000
|
|
|
Corn
|
37,538,000
|
|
Bushels
|
10
|
%
|
|
$
|
24,662,000
|
|
|
DDGs
|
236,000
|
|
Tons
|
10
|
%
|
|
$
|
5,664,000
|
|
Liability Risk
We participate in a captive reinsurance company (the “Captive”). The Captive reinsures losses related to worker's compensation, commercial property and general liability. Premiums are accrued by a charge to income for the period to which the premium relates and is remitted by our insurer to the captive reinsurer. The Captive reinsures catastrophic losses in excess of a predetermined amount. Our premiums are structured such that we have made a prepaid collateral deposit estimated for losses related to the above coverage. The Captive insurer has estimated and collected an amount in excess of the estimated losses but less than the catastrophic loss limit insured by the Captive. We cannot be assessed in excess of the amount in the collateral fund.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management is responsible for maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. In addition, the disclosure controls and procedures must ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required financial and other required disclosures.
Our management, including our Chief Executive Officer (the principal executive officer), Jeff Painter, along with our Chief Financial Officer (the principal financial officer), William Dartt, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) as of
June 30, 2013
. Based on this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during our third quarter of fiscal 2013 that have materially affected, or are likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Patent Infringement
On June 27, 2008, we entered into a Tricanter Purchase and Installation Agreement with ICM, Inc. for the construction and installation of a Tricanter Oil Separation System. On February 12, 2010, GS CleanTech Corporation filed a lawsuit in the United States District Court for the Southern District of Indiana, claiming that the Company's operation of the oil recovery system manufactured and installed by ICM, Inc. infringes a patent claimed by GS CleanTech Corporation. GS CleanTech Corporation sought a preliminary injunction, which was denied, and seeks royalties and damages associated with the alleged infringement, as well as attorney's fees from the Company. On February 16, 2010, ICM, Inc. agreed to indemnify, at ICM's expense, the Company from and against all claims, demands, liabilities, actions, litigations, losses, damages, costs and expenses, including reasonable
attorney's fees arising out of any claim of infringement of patents, copyrights or other intellectual property rights by reason of the Company's purchase and use of the oil recovery system.
GS CleanTech Corporation subsequently filed actions against at least fourteen other ethanol producing companies for infringement of its patent rights. Several of the other defendants also use equipment and processes provided by ICM, Inc. GS CleanTech Corporation then petitioned for the cases to be joined in a multi-district litigation ("MDL"). This petition was granted and the MDL was assigned to the United States District Court for the Southern District of Indiana (Case No. 1:10-ml-02181). The Company has since answered and counterclaimed that the patent claims at issue are invalid and that the Company is not infringing. Motions for summary judgment are expected to be filed by both GS Cleantech Corporation and the Company. The Company anticipates that after rulings are entered on those motions and discovery issues common to all of the defendants have been determined in the MDL, the cases will proceed in the respective districts in which they were originally filed.
The Company is not currently able to predict the outcome of this litigation with any degree of certainty. ICM, Inc. has, and the Company expects it will continue, to vigorously defend itself and the Company in these lawsuits. The Company estimates that damages sought in this litigation if awarded would be based on a reasonable royalty to, or lost profits of, GS CleanTech Corporation. If the court deems the case exceptional, attorney's fees may be awarded and are likely to be $1,000,000 or more. ICM, Inc. has also agreed to indemnify the Company. However, in the event that damages are awarded, if ICM, Inc. is unable to fully indemnify the Company for any reason, the Company could be liable. In addition, the Company may need to cease use of its current oil separation process and seek out a replacement or cease oil production altogether.
Air Emissions Permit
In January of 2010 we applied for a Title V Operating Permit for air emissions from the Indiana Department of Environmental Management ("IDEM"). IDEM issued the permit on August 5, 2010. This permit increased our operating capacity and emission limits. The new permit increased the Company's potential to emit criteria pollutants, which includes particulate matter. Each criteria pollutant must be less than 250 tons per consecutive twelve month period. This provision was based on a rule change issued by the Environmental Protection Agency ("EPA") on May 1, 2007, which allowed ethanol plants to emit up to 250 tons per criteria pollutant, excluding fugitive dust, instead of only 100 tons per criteria pollutant, including fugitive dust.
On September 8, 2010, the National Resource Defense Council ("NRDC") filed an administrative appeal of the Company's Title V Operating Permit challenging IDEM's authority to grant the Title V Operating Permit. NRDC is arguing the IDEM failed to incorporate the May 1, 2007 EPA rule change into the EPA - approved State Implementation Plan ("SIP") and that as a result, the Permit was improperly issued as the existing SIP still limited ethanol plants to 100 tons of particulate matter. The NRDC appeal regarding our Title V Operating Permit has been stayed pending resolution of similar administrative appeals filed by NRDC against other ethanol plants in Indiana.
NRDC was successful in one of its administrative appeals, resulting in a January 11, 2011 ruling by an administrative law judge that IDEM cannot change its interpretation of Indiana's rules to match the EPA's rules without first revising the Indiana SIP. That decision was later reversed on appeal in a decision issued on May 15, 2012 by the Marion County Superior Court. The NRDC has appealed this ruling to the Indiana Court of Appeals. On April 30, 2013 the Indiana Court of Appeals reversed the earlier decision by the Marion County Superior Court. The time period for IDEM or the other parties to appeal the decision to the Indiana Supreme Court has not yet expired and we do not know if such an appeal will be filed. Although we intend to vigorously defend our Title V Operating Permit and believe we have legal arguments not available to the other ethanol plants whose permits have been appealed, should NRDC's challenge of our Permit ultimately be successful, we would be limited to our original operating permit parameters set forth in the federally enforceable state operating permit which would in turn decrease our production of ethanol and distillers grains.
Item 1A. Risk Factors
There have been no material changes in the risks that we face since the date when we filed our Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
None.
Item 5.
Other Information
None.
Item 6. Exhibits.
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(a)
|
The following exhibits are filed as part of this report.
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Exhibit No.
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Exhibit
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10.1
|
|
|
First Amended and Restated Construction Loan Agreement between First National Bank of Omaha and Cardinal Ethanol, LLC dated June 10, 2013.
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10.2
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|
Second Amended and Restated Security Agreement between First National Bank of Omaha and Cardinal Ethanol, LLC dated June 10, 2013.
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10.3
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First Amended and Restated Security Agreement and Assignment of Hedging Accounts between First National Bank of Omaha and Cardinal Ethanol, LLC dated June 10, 2013.
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10.4
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|
First Amended and Restated Security Agreement and Assignment of Hedging Accounts between First National Bank of Omaha and Cardinal Ethanol, LLC dated June 10, 2013.
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10.5
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Declining Revolving Credit Note between First National Bank of Omaha and Cardinal Ethanol, LLC dated June 10, 2013.
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10.6
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|
Revolving Credit Note between First National Bank of Omaha and Cardinal Ethanol, LLC dated June 10, 2013.
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10.7
|
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First Amended and Restated Construction Loan Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement between First National Bank of Omaha and Cardinal Ethanol, LLC dated June 10, 2013.
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31.1
|
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|
Certificate Pursuant to 17 CFR 240.13a-14(a)*
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31.2
|
|
|
Certificate Pursuant to 17 CFR 240.13a-14(a)*
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32.1
|
|
|
Certificate Pursuant to 18 U.S.C. Section 1350*
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|
32.2
|
|
|
Certificate Pursuant to 18 U.S.C. Section 1350*
|
|
101
|
|
|
The following financial information from Cardinal Ethanol, LLC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets as of June 30, 2013 and September 30, 2012, (ii) Condensed Statements of Operations and Comprehensive Income for the three and nine months ended June 30, 2013 and 2012, (iii) Statements of Cash Flows for the three and nine months ended June 30, 2013 and 2012, and (iv) the Notes to Condensed Financial Statements.**
|
* Filed herewith.
** Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CARDINAL ETHANOL, LLC
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Date:
|
August 7, 2013
|
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/s/ Jeff Painter
|
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Jeff Painter
|
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|
President and Chief Executive Officer
|
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|
|
|
(Principal Executive Officer)
|
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|
Date:
|
August 7, 2013
|
|
/s/ William Dartt
|
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|
|
William Dartt
|
|
|
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|
Chief Financial Officer
|
|
|
|
|
(Principal Financial and Accounting Officer)
|
FIRST AMENDED AND RESTATED CONSTRUCTION LOAN AGREEMENT
dated as of
June 10, 2013
among
CARDINAL ETHANOL, LLC,
FIRST NATIONAL BANK OF OMAHA
FIRST AMENDED AND RESTATED CONSTRUCTION LOAN AGREEMENT
This First Amended and Restated Construction Loan Agreement is made as of June 10, 2013 by and between CARDINAL ETHANOL, LLC, an Indiana limited liability company ("Borrower"), FIRST NATIONAL BANK OF OMAHA, a national banking association ("Lender").
WHEREAS, Borrower and First National are parties to a Construction Loan Agreement dated as of December 19, 2006, as amended (as so amended and as in effect prior to the date hereof, the "
Current Credit Agreement
"), pursuant to which First National has made the loans and financial accommodations provided for therein available to Borrower;
WHEREAS, Borrower has requested that the Current Credit Agreement be amended and restated on the terms and conditions set forth herein;
WHEREAS, it is intended that the indebtedness of Borrower under this Agreement be a continuation of the indebtedness of Borrower under the Current Credit Agreement; and
WHEREAS, under the terms and conditions of this Agreement, Lender has approved and is extending to Borrower a line of credit in the maximum principal amount of $15,000,000 (the “Revolving Credit Loan”), and a Declining Revolving Credit Loan in the principal amount of $28,889,410.44 (the "Declining Revolving Credit Loan").
NOW, THEREFORE, in consideration of the mutual agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01.
Definitions
. For all purposes of this Agreement unless the context otherwise requires, the terms defined below shall have the respective meanings hereinafter specified.
“
Adjusted EBITDA
” means EBITDA less Capital Expenditures and less Permitted Distributions and other distributions permitted under this Agreement, in each case for the applicable reporting period.
"
Adjusted Libor Rate
" means the Libor Rate determined in accordance with this Agreement plus the Applicable Margin at such time.
"
Advance
" means any loan or other credit extension under the Revolving Credit Loan.
"
Agreement
" means this First Amended and Restated Construction Loan Agreement, as amended, renewed, restated, replaced or otherwise modified from time to time.
"
Applicable Margin
" means, at any date, (a) in the case of Revolving Credit Loan Advances, 3.0%, (b) in the case of Declining Revolving Credit Loans, 3.0%, and (c) in the case of the Non-Use Fee, 0.35%.
"
Applicable Rate
" means the Adjusted Libor Rate.
"
Borrowing
" means a borrowing by the Borrower pursuant to this Agreement or the other Loan Documents, whether evidenced by or arising under Loans or other advances.
"
Borrowing Base
" means, at any time, an amount equal to the sum of (without duplication):
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|
(a)
|
75% of Borrower's corn inventory valued at the lower of cost or Market Price on the date reported, minus any accounts payable, deferred payments, grain drafts payable, delayed price contracts or other expenses due on such corn inventory that have priority payment or Lien over Lender; plus
|
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|
(b)
|
75% of Borrower's Eligible Finished Goods-Ethanol, Corn Oil and Distiller's Grains Inventory (both wet and dry), valued at the lower of cost or Market Price on the date reported; plus
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(c)
|
75% of the amount of Borrower's ethanol, corn oil and distillers grains (both wet and dry) Eligible Accounts aged thirty (30) days or less, excluding any of the foregoing accounts reasonably deemed ineligible by Lender; plus
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(d)
|
90% of Eligible Margin Account Equity; minus
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(e)
|
100% of the negative value of margin account equity; minus
|
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(f)
|
100% of Debt outstanding under the Revolving Credit Loan and 100% of the exposure under letters of credit issued for the account of the Borrower.
|
If an item of Collateral could be included in the Borrowing Base under more than one subparagraph above, such item shall only be included in the Borrowing Base under the subparagraph that produces the lowest value for such item for purposes of the Borrowing Base.
"
Borrowing Base Certificate
" means a certificate to be delivered pursuant to Section 4.12(c) of this Agreement and substantially in the form of Exhibit E to this Agreement.
"
Business Day
" means any day other than a Saturday, Sunday or other day on which commercial banks in Omaha, Nebraska and New York, New York are authorized or required to close, and, when used in conjunction with the Libor Rate, such day shall also be a London Banking Day.
"
Capital Expenditures
" means an investment made in or purchase of a depreciable fixed or capital asset of $5,000 or more.
"
Closing Date
" means the date of this Agreement, as reflected in the introductory paragraph hereof.
"
Collateral
" means all property (real and personal, tangible and intangible) of the Borrower with respect to which a security interest, assignment, mortgage or other Lien has been or is hereafter granted to or for the benefit of the Lender. The term includes, but is not limited to, all property encumbered at any time pursuant to the Mortgage (subject to any limitation in any Mortgage which expressly limits the principal amount of the obligations secured thereby), all property encumbered at any time pursuant to the Security Agreement and the Control Agreements, the assignment, and consents thereto, of the Material Contracts, and the property pledged under any other Loan Documents.
The term includes, but is not limited to, all "Collateral" referred to in the Current Credit Agreement, including, but not limited to, the assignments of the Material Contracts listed in Schedule 3.01(u).
"
Compliance Certificate
" means a certificate required to be delivered pursuant to Section 4.12(f) of this Agreement.
"
Control Agreements
" means, collectively, the Security Agreement and Assignment of Hedging Accounts relating to the Borrower's Hedge Accounts with RJ O'Brien & Associates, LLC and ADM Investor Services, Inc. and the respective control agreement relating thereto among Borrower, Lender and RJ O'Brien & Associates, LLC and ADM Investor Services, Inc. respectively relating thereto; together with all amendments, renewals, restatements, replacements and other modifications of each of the foregoing agreements.
"
Daily Credit Balance
" means, on any day, the aggregate principal amount of all Revolving Credit Loans and all Declining Revolving Credit Loans outstanding at the end of such day.
"
Debt
" with respect to any Person means (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Debt of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Debt secured thereby has been assumed, (g) all guarantees by such Person of Debt of others, (h) all capital lease obligations (as determined in accordance with generally accepted accounting principles) of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (j) all liabilities in respect of unfunded vested benefits under plans covered by Title IV of the Employee Retirement Income Security Act of 1974, as amended, (k) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances, (l) obligations under Financial Instrument Agreements and (m) obligations and exposure under letters of credit issued for the account of such Person. The Debt of any Person shall include the Debt of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Debt provide that such Person is not liable therefor.
"
Debt for Borrowed Money
" means Debt of the types set forth in clauses (a), (b), (c), (l), (i) and (m) of the definition of "Debt" in this Section.
"
Declining Revolving Credit Commitment
" means the amount set opposite Lender's name under the column entitled "Declining Revolving Credit Loan Commitment" on Exhibit A hereto.
"
Declining Revolving Credit Loans
" has the meaning provided in Section 2.01(a)(ii) of this Agreement.
"
Declining Revolving Credit Notes
" has the meaning provided in Section 2.03(b) of this Agreement.
"
Default
" means any condition or event which constitutes an Event of Default or which with the giving of notice or the lapse of time or both would, unless cured or waived, become an Event of Default.
"
EBITDA
" means, for any period and determined in accordance with GAAP, Net Income before interest, taxes, depreciation and amortization.
"
Eligible Account
" means an account owing to the Borrower arising in the ordinary course of Borrower's business from the sale of ethanol, distiller's grains (both wet and dry) or corn oil in which the Lender has a perfected first priority security interest and which meets all of the following specifications at the time it came into existence and continues to meet the same until it is collected in full:
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(a)
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The account is due and payable no later than thirty (30) days after the date of the applicable invoice or other writing evidencing such account, and the account has been due and payable not more than thirty (30) days after the due date stated in the applicable invoice or other writing evidencing such account;
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(b)
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The account is not owing by an account debtor who has failed to pay twenty-five percent (25%) or more of the aggregate outstanding amount of its accounts owing to the Borrower within thirty (30) days after the due date stated in the applicable invoices or other writings evidencing such accounts;
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(c)
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The account is due and payable from an account debtor located in the continental United States which is not a subsidiary or affiliate (under common ownership and/or control) of the Borrower;
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(d)
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The account arose from a bona fide, outright sale of goods by the Borrower or from the performance of services by the Borrower and the Borrower has possession of and will deliver to the Lender, if requested, shipping and delivery receipts evidencing shipment of the goods or inventory and, if representing services, receipts and/or invoices evidencing that the services have been fully performed for the respective account debtor;
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(e)
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The account is not subject to any Lien created by the Borrower, or claimed under or through the Borrower, except the security interest of the Lender, and the Borrower will not make any other assignment thereof or create any further security interest therein nor permit its rights therein to be reached by attachment, levy, garnishment or other judicial process;
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(f)
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The account is the valid and legally enforceable obligation of the account debtor thereunder and is not subject to any claim for credit, set-off, allowance or adjustment by the account debtor or any counterclaim, and the account debtor has not returned any of the goods from the sale of which the account arose, nor has any partial payment been made thereon;
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(g)
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The account arose in the ordinary course of the Borrower's business, and the account debtor has not filed bankruptcy, is not insolvent or no material adverse change in the financial condition of the account debtor has occurred;
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(h)
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The account is not owing by an account debtor who has died or dissolved or terminated its existence, the account debtor's business has not failed, the account debtor has not disappeared, a receiver has not been appointed for any part of the property of the account debtor, the account debtor has not made an assignment for the benefit of creditors or filed, or has had filed against it, a petition under or the commencement of any proceeding under any bankruptcy code or process;
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(i)
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The account is not evidenced by a judgment, an instrument or chattel paper;
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(j)
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The account debtor is not an employee of the Borrower;
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(k)
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The account is not owing by any account debtor whose aggregate outstanding accounts with the Borrower exceed thirty percent (30%) of the aggregate of all accounts by all account debtors owing to the Borrower, provided, however, that thirty percent (30%) of the aggregate amount outstanding on such accounts will be deemed Eligible Accounts, and provided further that such threshold shall not apply to accounts owed to Borrower by any marketer under a Sales and Marketing Contract; and
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(l)
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The account or any portion thereof is acceptable to the Lender or is not otherwise deemed ineligible by the Lender in its reasonable discretion.
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An account which is at any time an Eligible Account but which subsequently fails to meet any of the foregoing requirements shall forthwith cease to be an Eligible Account. The Lender shall determine whether accounts qualify as Eligible Accounts from time to time in its sole and absolute discretion and any such determination shall be conclusive and binding for all purposes, absent manifest error.
“
Eligible Finished Goods - Ethanol, Corn Oil and Distiller's Grains Inventory
” means all ethanol, corn oil and distiller's grains (wet and dry) inventory of Borrower (i) that is owned by (and in the possession or under the control of) Borrower as of such date and is not consigned or covered by or subject to a seller's right to repurchase or any consensual or nonconsensual Lien (including, without limitation, purchase money Liens) in favor of any party other than the Lender, (ii) that is located at a facility owned by Borrower and listed in Schedule A of the Security Agreement defined below and is in Borrower's exclusive possession, (iii) that is in good and marketable condition, (iv) that meets all standards imposed by any governmental agency or department or division thereof having regulatory authority over such inventory, its use or sale, (v) that is either currently usable or currently saleable in the normal course of Borrower's business without any notice to, or consent of, any governmental agency or department or division thereof (excluding however, any such inventory that has been shipped to a customer of Borrower, even if on a consignment or “sale or return” basis), (vi) is not work-in-process, in transit, obsolete or slow-moving and (vii) no prepayment has been received for such inventory; provided that the Lender may at any time exclude from Eligible Finished Goods - Ethanol, Corn Oil and Distiller's Grains Inventory any type of ethanol, corn oil or distiller's grains inventory that the Lender reasonably determines to be unmarketable or ineligible in its sole discretion. The Lender shall have the right, in the exercise of reasonable discretion, to determine whether finished goods ethanol, corn oil and distiller's grains inventory is eligible for inclusion in the Borrowing Base at any particular time.
"
Eligible Margin Account Equity
" means the positive equity value of open positions in the money in margin accounts maintained by the Borrower with a broker for hedging and not speculative
purposes and which have been collaterally assigned by the Borrower to the Lender, in which the Lender has a first priority security interest, as determined by the Lender in its good faith business judgment, and in which the broker has acknowledged in writing pursuant to an executed control agreement the security interest of the Lender therein and has agreed, to the Lender's satisfaction, that the Lender has "control" of such account for purposes of perfecting the Lender's security interest therein. Such equity value shall be determined by the Lender from the brokers' statements and shall be net of all losses or out of the money positions.
"
Excess Cash Flow
" means Adjusted EBITDA, less Fixed Charges for the applicable reporting period.
"
Event of Default
" has the meaning set forth in Section 6.01 of this Agreement.
"
Financial Instrument Agreements
" means any agreements with respect to any transaction now existing or hereafter entered into among the Borrower and the Lender or any of its subsidiaries or affiliates or their successors, or any other third party, which is a rate swap, basis swap, forward rate transaction, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures; provided that such transaction is entered into by the Borrower for hedging purposes and not speculation.
"
Fixed Charge Coverage Ratio
" means, for any period, the ratio derived when comparing (a) Adjusted EBITDA to (b) Borrower's scheduled payments on the principal and interest of the Loans due during the applicable reporting period.
"
Fixed Charges
" means, for any period, the sum of scheduled principal on the Loans that is payable during such period, and including, without limitation, scheduled interest and other finance charges paid or payable with respect to the Loans unless such interest and other finance charges are paid in full prior to the measurement date.
“
GAAP
” means generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.02.
“
Governmental Authority
” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
“
Interest Expense
” means, for any period determined on a consolidated basis in accordance with GAAP, the sum of (i) total interest expense, including without limitation the interest component of any payments in respect of capital lease obligations capitalized or expensed during such period (whether or not actually paid during such period), plus (ii) the net amount payable (or minus the net amount receivable) under Financial Instrument Agreements related to interest rates during such period (whether or not actually paid or received during such period).
"
Lender
" means First National Bank of Omaha and its successors and assigns.
“
LIBOR Rate
” means the London Interbank Offered Rate for U.S. Dollar deposits published in
The Wall Street Journal
as the Three (3) Month LIBOR Rate with respect to the Declining Revolving Credit Loan and as the One (1) Month LIBOR Rate with respect to the Revolving Credit Loan. The LIBOR Rate will be adjusted and determined without notice to the Borrower as set forth herein, as of the date of the Revolving Credit Notes and Declining Revolving Credit Notes, and on the first (1st) day of every third calendar month thereafter with respect to the Declining Revolving Credit Notes and on the first day of each calendar month thereafter with respect to the Revolving Credit Notes (each such date, an “Interest Rate Change Date”) to the Three (3) Month LIBOR Rate with respect to the Declining Revolving Credit Notes and to the One (1) Month LIBOR Rate with respect to the Revolving Credit Notes, which is published in
The Wall Street Journal
as the reported rate for the date that is two London Banking Days prior to each Interest Rate Change Date. The published LIBOR Rate will be rounded upwards to the next higher one one hundredth (1/100th) of one percent (1%). If the initial Advance under the Revolving Credit Notes or the initial funding of the Declining Revolving Credit Notes occurs on any day other than the first London Banking Day of a month, the initial LIBOR Rate to be in effect until the beginning of the next succeeding month shall be that Three (3) Month LIBOR Rate or One (1) Month LIBOR Rate, as applicable, in effect on the date that is two London Banking Days prior to the first day of the month in which the Revolving Credit Notes and Declining Revolving Credit Notes are dated. If for any reason the LIBOR Rate published by
The Wall Street Journal
is no longer available and/or the Lender is unable to determine the LIBOR Rate for any Interest Rate Change Date, the Lender may, in its sole discretion, select an alternate source to determine the LIBOR Rate and will provide notice to Borrower of the source selected. The LIBOR Rate determined as set forth above shall be referred to herein as (the “Index”). The Index is not necessarily the lowest rate charged by Lender on its loans. If the Index becomes unavailable during the term of the Loans, the Lender and Borrower will agree upon a substitute index. Lender will tell Borrower the current Index rate upon Borrower's request. The interest rate change will not occur more often than each month on the first (1st) day of each month with respect to the Revolving Credit Loan and once every three months on the first (1
st
) day of the applicable month with respect to the Declining Revolving Credit Loan. Borrower understands that Lender may make loans based on other rates as well. The Index for the one month LIBOR Rate currently is 0.19250% per annum and the Index for the three month LIBOR Rate currently is 0.27415% per annum.
"
Lien
" means, with respect to any asset, any mortgage, lien, pledge, charge, assignment, security interest or other encumbrance of any kind in respect of such asset.
"
Loan Documents
" means this Agreement, the Notes, the Security Agreement, the Control Agreements, the Mortgage, the assignments of the Material Contracts, and any documents relating to any Financial Instrument Agreements and all other documents, instruments and agreements executed and/or delivered in connection therewith at any time, all as the same may be amended, renewed, replaced, restated, consolidated or otherwise modified from time to time in accordance with the terms thereof and hereof.
"
Loans
" means, collectively, the Revolving Credit Loan and Advances thereunder, the Declining Revolving Credit Loans and any letters of credit issued for the account of Borrower.
“
London Banking Day
” means any day other than a Saturday or Sunday, on which commercial banking institutions in London, England are generally open for business.
"
Market Price
" of any inventory means, at any time, the then-current market price of such inventory as reasonably determined by the Lender.
"
Material Adverse Effect
" means, with respect to any event, act, condition or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), whether singularly or in conjunction with any other event or events, act or acts, condition or conditions, occurrence or occurrences whether or not related, a material adverse change in, or a material adverse effect on, (i) the business, operations, results of operations, financial condition, assets, Collateral or liabilities, of Borrower taken as a whole, (ii) the ability of Borrower to perform any of its obligations under the Loan Documents, (iii) the rights and remedies of Lender under any of the Loan Documents or (iv) the legality, validity or enforceability of any of the Loan Documents.
“
Material Contracts
” means (a) the Supply Contracts, Sales and Marketing Contracts, Transportation Contracts, Utility Contracts, (b) that certain License Agreement dated on or about December 14, 2006 between Assignor and ICM, Inc., (c) any other contract or any other agreement, written or oral, of the Borrower involving monetary liability of or to any such person in an amount in excess
of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) per year, and (d) any other contract or agree
ment, written or oral, of the Borrower, the failure to comply with would have a Material Adverse Effect on the Borrower.
“
Material Indebtedness
” means Debt (other than the Loans) or obligations in respect of one or more Financial Instrument Agreements of Borrower in an aggregate principal amount exceeding $250,000 at any one time outstanding during the term of the Loans.
“
Maximum Availability
” has the meaning provided in Section 2.01(a)(ii) of this Agreement.
"
Mortgage
" means the First Amended and Restated Construction Loan Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement, dated of even date herewith given by the Borrower in favor of the Lender, which creates a Lien against the Project and the other property described therein, and all amendments, restatements, renewals, replacements and other modifications of the foregoing.
"
Mortgaged Property
" has the meaning given to such term in the Mortgage.
“
Negative Termination Value
” means, with respect to any Financial Instrument Agreement of Borrower, the amount (if any) that Borrower would be required to pay if such Financial Instrument Agreement were terminated by reason of a default by or other termination event relating to Borrower, such amount to be determined on the basis of a good faith estimate made by the Lender, in consultation with Borrower. The Negative Termination Value of any such Financial Instrument Agreement at any date shall be determined (i) as of the end of the most recent fiscal quarter ended on or prior to such date if such Financial Instrument Agreement was then outstanding or (ii) as of the date such Financial Instrument Agreement is terminated. However, if an applicable agreement between Borrower and the relevant counterparty provides that, upon any such termination by such counterparty, one or more other Financial Instrument Agreements (if any exist) between Borrower and such counterparty would also terminate and the amount (if any) payable by Borrower would be a net amount reflecting the termination of all the Financial Instrument Agreements so terminated, then the Negative Termination Value of all the Financial Instrument Agreements subject to such netting shall be, at any date, a single amount equal to such net amount (if any) payable by Borrower, determined as of the later of (i) the
end of the most recently ended fiscal quarter or (ii) the date on which the most recent Financial Instrument Agreement subject to such netting was terminated.
“
Net Income
” means, for any period, the net income (or loss) of Borrower for such period determined in accordance with GAAP.
"
Net Worth
" means , as to Borrower as of any date, total assets less total liabilities and less the following types of assets: (i) leasehold improvements; (ii) receivables (other than those created by sale of goods) to a member and other investments in or amounts due from any member, employee or other person or entity related to or affiliated with Borrower); (iii) goodwill, patents, copyrights, mailing lists, trade names, trademarks, servicing rights, organizational and franchise costs, bond underwriting costs and other like assets properly classified as intangible, and (iv) treasury stock or equity interests, all as determined in accordance with GAAP; provided, however, Net Worth shall not include any Debt due to Borrower not acceptable to Lender in the exercise of its reasonable discretion.
"
Notes
" means, collectively, the Revolving Credit Note and the Declining Revolving Credit Note, and all amendments, restatements, renewals, replacements and other modifications of the foregoing.
"
Obligations
" means, collectively, all indebtedness, liabilities and obligations whatsoever of Borrower to the Lender whether now existing or hereafter arising, regardless of the form the liability takes or its purpose, including, without limitation, overdrafts and deposit account liabilities and liabilities under any credit or purchasing cards of Borrower to the Lender and all indebtedness, liabilities and obligations under or in connection with this Agreement, the Notes and/or any of the other Loan Documents, including without limitation, the principal of, and interest on, the Loans, all future advances thereunder, and all other amounts now or hereafter owing to the Lender under this Agreement, the Notes, letters of credit or any of the other Loan Documents.
“
Permits
” means all licenses, consents, approvals authorizations and permits of Governmental Authorities which Borrower is required to obtain in connection with the Project and operation of Borrower's business as contemplated following completion of the Project, including but not limited to any of the foregoing related to environmental laws (including an air emissions permit and a national pollution discharge elimination system construction permit, each of which will allow Borrower to operate its facilities at maximum capacity), zoning and land-use laws (including any requirement to obtain a special exception, if applicable), water use laws, waste disposal laws, laws requiring construction permits and occupancy certificates, and laws relating to construction and operation of above or underground ground storage tanks.
"
Permitted Debt
" means: (a) Debt under this Agreement and the other Loan Documents; and (b) Debt incurred on or after the Closing Date in an aggregate principal amount not to exceed $250,000 at any time outstanding, without the prior written consent of the Lender.
"
Permitted Distributions
" has the meaning given to such term in Section 4.14 of this Agreement.
"
Permitted Liens
" has the meaning given to such term in Section 4.16 of this Agreement.
"
Person
" means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental department or authority or other entity.
“
Project
” means the dry milling ethanol plant constructed on the Real Estate located on the Real Estate in Randolph County, Indiana described in the Mortgage, capable of producing approximately 100 million gallons of fuel grade ethanol per year, and related byproducts of dried, distillers grains with solubles, together with all necessary and appropriate fixtures, equipment, attachments, and accessories.
“
Real Estate
” means the real property on which the Project is constructed and all other real property owned or leased by Borrower.
"
Revolving Credit Commitment
" means the amount set opposite Lender's name under the column entitled "Revolving Credit Loan -Commitment" on Exhibit A hereto.
"
Revolving Credit Loans
" has the meaning provided in Section 2.01(a)(i) of this Agreement.
"
Revolving Credit Note
" has the meaning provided in Section 2.03(a) of this Agreement.
“
Sales and Marketing Contracts
” means all agreements and contracts in effect presently and entered into from time to time hereafter which are material to the sale or disposal of products and by-products produced by Borrower including the marketing and sale of ethanol, carbon dioxide and distillers grains (“DDGS”), including that certain Carbon Dioxide Purchase and Sale Agreement March 8, 2010 between Borrower and EPCO Carbon Dioxide Products, Inc. [EDITOR'S NOTE: Do we want an assignment of this?], that certain Ethanol Purchase and Sale Agreement dated December 20, 2006 between Borrower and Murex, LLC (f/k/a Murex, N.A., Ltd.) and the Distiller's Grain Marketing Agreement dated December 13, 2006 (the “Agreement”) between Borrower and CHS, Inc., as such agreements and contracts are extended, amended, restated, supplemented or otherwise modified from time to time.
"
Security Agreement
" means the Second Amended and Restated Security Agreement to be executed by the Borrower on or about the Closing Date in favor of the Lender and by which the Borrower shall grant to the Lender, as security for the Obligations, a security interest in all of the Borrower's presently owned or hereafter acquired personal property, including without limitation, all of the Borrower's inventory, equipment, other goods, accounts receivable, general intangibles, hedging accounts, deposit accounts and investment property, as the same may be amended, renewed, replaced, restated, consolidated or otherwise modified from time to time.
“
Supply Contracts
” means all other agreements and contracts related to the supply of inputs material to operation of Borrower's business in effect presently involving monetary liability of or to any such person in an amount in excess of Two Hundred Fifty Thousand and No/100 Dollars ($250,00.00) per year, and entered into from time to time hereafter, as the same such agreements and contracts are amended, restated, supplemental or otherwise modified from time to time.
“
Tax Distributions
” means cash distributions to each or any of Borrower's members in an amount equal to such member's estimated combined federal, state and local tax liability, after application of all available federal, state and local tax credits allocable to such members, in respect of Borrower's income, gain and/or earnings.
"
Termination Date
" with respect to the Revolving Credit Loan means June 11, 2014, with respect to the Declining Revolving Credit means January 8, 2021, or, in each case, the earlier date of
termination in whole of the commitments pursuant to Section 6.02 or any other applicable provision of this Agreement, on which date the outstanding principal balance of the Loans together with all accrued and unpaid interest is due and payable in full.
“
Transportation Contracts
” means all agreements and contracts in effect presently and entered into from time to time hereafter related to the provision of transportation or shipping services which are material to the operation of Borrower's business involving monetary liability of or to any such person in an amount in excess of Two Hundred Fifty Thousand and No/100 Dollars ($250,000) per year, as the same such agreements and contracts are extended, amended, restated, supplemented or otherwise modified from time to time.
“
Utility Contracts
” means the agreements referenced in Schedule 3.01(u)(v) (including all exhibits thereto) and all other contracts and agreements in effect presently and entered into from time to time hereafter which are material to the provision to Borrower of necessary electricity, natural gas, water, fuel oil, coal and other energy resources in connection with the operation of Borrower's plant, equipment and offices involving monetary liability of or to any such person in an amount in excess of Two Hundred Fifty Thousand and No/100 Dollars ($250,000) per year, as the same such agreements and contracts are extended, amended, restated, supplemented or otherwise modified from time to time.
“
Working Capital
” means current assets at the time of determination (including, without limitation, (i) the amount available to Borrower for drawing under the Declining Revolving Credit Loan, and (ii) prepayments for natural gas supplies), less the sum
of (x) investments in or other amounts due from any member, manager, employee or any person or entity related to or affiliated with the Borrower, other than amounts due to Borrower under a Sales and Marketing Agreement, and
(y) current liabilities (all at the time of determination and without duplication).
Section 1.02.
General; Fiscal Year
. All accounting terms not specifically defined herein shall be construed in accordance with generally accepted accounting principles, as in effect in the United States. Unless the context clearly requires otherwise, all references to "dollars" or "$" are to United States dollars. "Including” (and with correlative meaning “include”) means including without limiting the generality of any description preceding such term. This Agreement and the other Loan Documents shall be construed without regard to any presumption or rule requiring construction against the party causing any such document or any portion thereof to be drafted. The Section and other headings in this Agreement and any index in this Agreement are for convenience of reference only and shall not limit or otherwise affect any of the terms of this Agreement. Similarly, any page footers or headers or similar word processing, document or page identification numbers in this Agreement or any index or exhibit are for convenience of reference only and shall not limit or otherwise affect any of the terms of this Agreement, nor shall there be any requirement that any such footers or other numbers be consistent from page to page. Unless the context clearly requires otherwise, any reference to a Section of this Agreement refers to all Sections and Subsections thereunder. Any pronoun used herein shall be deemed to cover all genders. Defined terms used in this Agreement may be set forth in Section 1.01 or other Sections of this Agreement, and all such definitions defined in the singular shall have a corresponding meaning when used in the plural and vice versa. Unless the context requires otherwise, references herein to "fiscal year" or "fiscal quarter" shall mean the fiscal year or fiscal quarter, as the case may be, of the Borrower.
ARTUCKE II
AMOUNT AND TERMS OF LOANS
Section 2.01
Commitments to Lend
.
(a)
The Revolving Credit Loan and the Declining Revolving Credit Loan Facilities
.
(i)
Revolving Credit Loans
. Lender agrees, subject to the terms and conditions of this Agreement, to make revolving credit loans (collectively, the "
Revolving Credit Loan
") to the Borrower from time to time from the Closing Date to the Business Day immediately preceding the Termination Date applicable to the Revolving Credit Loan up to a maximum principal amount at any time outstanding equal to Lender's Revolving Credit Commitment at such time. However, Lender shall not be obligated to make an Advance on the Revolving Credit Loan if the aggregate amount of all Advances under the Revolving Credit Loan then outstanding exceeds, or would exceed if the requested Advance were to be made, (1) the Revolving Credit Commitment, (2) the Borrowing Base at such time, or (3) any Default or Event of Default exists or would result from the making of such Advance. Subject to the terms and conditions of this Agreement, the Borrower may borrow, repay and re-borrow under the Revolving Credit Loan.
(ii)
Declining Revolving Credit Loans
. On the Closing Date, Lender agrees to extend the Declining Revolving Credit Loan to Borrower in the amount of $28,889,410.44 to refinance the Term Loans under the Current Credit Agreement. Commencing on April 8, 2014 and continuing to the Business Day immediately preceding the Termination Date applicable to the Declining Revolving Credit Loan, the Declining Revolving Credit Loan will begin to revolve and Lender agrees, subject to the terms and conditions of this Agreement, to make revolving credit loans (the "
Declining Revolving Credit Loans
") to the Borrower from time to time during such period up to a maximum principal amount at any time outstanding equal to Lender's Declining Revolving Credit Commitment at such time. However, Lender shall not be obligated to make a Declining Revolving Credit Loan if the aggregate amount of all Declining Revolving Credit Loans then outstanding exceeds, or would exceed if the requested Declining Revolving Credit Loan were to be made, (1) the Maximum Availability at such time; (2) Lender's Declining Revolving Credit Commitment or (3) any Default or Event of Default exists or would result from the making of such Declining Revolving Credit Loan. Subject to the terms and conditions of this Agreement, from and after April 8, 2014 to the Termination Date applicable to the Declining Revolving Credit Loan the Borrower may borrow, repay and re-borrow under the Declining Revolving Credit Loans up to the Maximum Availability at such time. Prior to April 8, 2014, the Borrower may not re-borrow any principal repaid on the Declining Revolving Credit Loan.
Initially, when the Declining Revolving Credit Loan becomes eligible to revolve on April 8, 2014, the maximum amount available to be borrowed on the Declining Revolving Credit is $25,083,737.34. Commencing on April 8, 2014 and quarterly thereafter on the dates indicated in the table below until the Termination Date of the Declining Revolving Credit Loan (each a “
Reduction Date
”), the maximum amount available (the “
Maximum Availability
”) on the Declining Revolving Credit Loan shall decrease by $929,027.31. The Maximum Availability on each Reduction Date is shown in the following table:
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REDUCTION DATE
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MAXIMUM AVAILABILITY
|
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April 8, 2014
|
$25,083,737.34
|
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July 8, 2014
|
$24,154,710.03
|
|
October 8, 2014
|
$23,225,682.72
|
|
January 8, 2015
|
$22,296,655.41
|
|
April 8, 2015
|
$21,367,628.10
|
|
July 8, 2015
|
$20,438,600.79
|
|
October 8, 2015
|
$19,509,573.48
|
|
January 8, 2016
|
$18,580,546.17
|
|
April 8, 2016
|
$17,651,518.86
|
|
July 8, 2016
|
$16,722,491.55
|
|
October 8, 2016
|
$15,793,464.24
|
|
January 8, 2017
|
$14,864,436.93
|
|
April 8, 2017
|
$13,935,409.62
|
|
July 8, 2017
|
$13,006,382.31
|
|
October 8, 2017
|
$12,077,355.00
|
|
January 8, 2018
|
$11,148,327.69
|
|
April 8, 2018
|
$10,219,300.38
|
|
July 8, 2018
|
$9,290,273.07
|
|
October 8, 2018
|
$8,361,245.76
|
|
January 8, 2019
|
$7,432,218.45
|
|
April 8, 2019
|
$6,503,191.14
|
|
July 8, 2019
|
$5,574,163.83
|
|
October 8, 2019
|
$4,645,136.52
|
|
January 8, 2020
|
$3,716,109.21
|
|
April 8, 2020
|
$2,787,081.90
|
|
July 8, 2020
|
$1,858,054.59
|
|
October 8, 2020
|
$929,027.28
|
|
January 8, 2021
|
$0.00
|
On each Reduction Date, the Borrower will pay and apply to the then outstanding principal balance of the Declining Revolving Credit Note the amount necessary to reduce the outstanding principal balance of the Declining Revolving Credit Loan so that it is within the Maximum Availability applicable on each such Reduction Date, and thereafter Borrower may only borrow up to such Maximum Availability. Such payments will be applied by Lender to the Declining Revolving Credit Loan.
(iii)
Financial Instrument Agreements
. Lender or its subsidiaries or affiliates may, but shall not be obligated, to enter into from time to time with the Borrower, one or more Financial Instrument Agreements. Each such Financial Instrument Agreement will be subject to separate documentation, including without limitation an ISDA Master Swap Agreement, a schedule and confirmation with respect to such Financial Instrument Agreement. The obligations of the Borrower related to any Financial Instrument Agreement will be as set forth in such separate documentation, provided such obligations will be cross defaulted to the obligations of the Borrower hereunder, and shall be additional Obligations secured by the Collateral.
(iv)
Use of Proceeds
. The Loans shall be used solely for purposes of: (1) re-financing the loans and financial accommodations extended under the Current Credit Agreement; (2) the Borrower's general working capital needs and other general corporate purposes; and (3) capital expenditures by the Borrower, to the extent not inconsistent with the terms of this Agreement. Notwithstanding anything herein to the contrary, the Borrower shall not, directly or indirectly, use any part of the Loan proceeds for the purpose of purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or to extend credit to any person for the purpose of purchasing or carrying any such margin stock, or for any purpose which violates, or is inconsistent with, Regulation X of such Board of Governors. In addition, the Revolving Credit Loan may be used to support the issuance of letters of credit for the account of Borrower.
Section 2.02
Manner of Borrowing
. The Borrower shall give the Lender notice of the Borrower's intention to borrow under the Revolving Credit Loan or Declining Revolving Credit Loan no later than 2 p.m. Omaha, Nebraska time on the requested funding date, in each case specifying: (1) the proposed funding date of such Loan; (2) the amount of such Loan; (3) in the case of an Advance, whether the principal amount of any such Revolving Credit Loan, together with the principal amount of all Revolving Credit Loans then outstanding, is within the Borrowing Base at such time and is within the Revolving Credit Commitment at such time; and (4) in the case of a Declining Revolving Credit Loan, whether the principal amount of any such Declining Revolving Credit Loan, together with the principal amount of all Declining Revolving Credit Loans then outstanding, is within the Maximum Availability at such time and is within the Declining Revolving Credit Commitment at such time. Lender will make such Loan available to the Borrower on the funding date of such Loan. For purposes of this Section, the Borrower agrees that the Lender may rely and act upon any request for a Loan from any individual who the Lender, absent gross negligence or willful misconduct, believes to be a representative of the Borrower.
Section 2,03.
Notes
.
(a)
The Revolving Credit Loan shall be evidenced by a promissory note payable to Lender, substantially in the form of Exhibit B-1 hereto ( as amended, renewed, restated, replaced, consolidated or otherwise modified from time to time, the "
Revolving Credit Note
").
(b)
The Declining Revolving Credit Loans shall be evidenced by a promissory note payable to Lender, substantially in the form of Exhibit B-2 hereto (as amended, renewed, restated, replaced, consolidated or otherwise modified from time to time, the "
Declining Revolving Credit Note
").
Section. 2.04
Payment
.
(a)
Revolving Credit Loans
.
(i)
Accrued interest on the outstanding principal balance of each Advance under the Revolving Credit Loan is due and payable on the first (1
st
) calendar day of each month until the Termination Date applicable to the Revolving Credit Loan when all accrued but unpaid interest on each Revolving Credit Loan is due and payable in full.
(ii) The outstanding principal balance of the Revolving Credit Loan is payable in full on the Termination Date applicable to the Revolving Credit Loan.
(b)
Declining Revolving Credit Loan
.
(i)
Accrued interest on the outstanding principal balance of the Declining Revolving Credit Loan is payable quarterly on the days that principal payments are due, including each Reduction Date, until the Termination Date applicable to the Declining Revolving Credit Loan when all accrued but unpaid interest on the Declining Revolving Credit Loan is due and payable in full.
(ii)
The principal balance of the Declining Revolving Credit Loan shall be repaid as follows:
(1)
On July 8, 2013, Borrower shall make a principal payment of $945,435.76;
(2)
On October 8, 2013, Borrower shall make a principal payment of $958,642.66;
(3)
On January 8, 2014, Borrower shall make a principal payment of $972,567.37;
(4)
On April 8, 2014, Borrower will pay such sums as are necessary to reduce the outstanding principal balance of the Declining Revolving Credit Loan to the then applicable Maximum Availability ($25,083,737.34); and
(5)
Thereafter, sums sufficient to reduce the outstanding principal balance of the Declining Revolving Credit Loan to the then applicable Maximum Availability is due and payable on each Reduction Date, with the remaining outstanding principal balance of the Declining Revolving Credit Loan together with accrued and unpaid interest due and payable in full on the Termination Date applicable to the Declining Revolving Credit Loan.
(d)
General
. All payments due under this Agreement and the other Loan Documents shall be made in immediately available funds to the Lender at its office described in its signature page hereto unless the Lender gives notice to the contrary. Payments so received at or before 1:00 p.m. Omaha, Nebraska time on any Business Day shall be deemed to have been received by the Lender on that Business Day. Payments received after 1:00 p.m. Omaha, Nebraska time on any Business Day shall be deemed to have been received on the next Business Day, and interest, if payable in respect of such payment, shall accrue thereon until such next Business Day. With respect to any payment due on any Obligation which is 10 days or more late, in addition to any rights and remedies Lender may have Borrower will be charged a late fee equal to 3% of the scheduled payment or $25 whichever is greater.
Section 2.05.
Interest Rates
.
(a)
Interest shall accrue on the outstanding principal balance at the end of the day of each Loan at the Applicable Rate in effect for such Loan on such day.
(b) Upon or after the occurrence and during the continuation of any Event of Default and after the maturity date of any Loan, the principal amount of each Loan shall bear interest at a rate per annum equal to six percent (6.0%) above the interest rate that would otherwise apply under Section 2.05(a) above (the "
Default Rate
").
(b)
In all cases, interest on the outstanding principal balance of all Loans and any other Obligations with respect to which interest accrues pursuant to the terms of this Agreement is computed on a 360 day basis; that is, by applying the ratio of the interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding. All interest payable under the Loans and other Obligations is computed using this method.
(d) In no contingency or event whatsoever shall the aggregate of all amounts deemed interest hereunder or under the Notes and charged or collected pursuant to the terms of this Agreement or any other Loan Documents exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable thereto. If such a court determines that the Lender has charged or received interest hereunder or under the other Loan Documents in excess of the highest applicable rate, the Lender shall apply such excess to any other Obligations then due and payable, whether principal, interest, fees or otherwise, and shall refund the remainder of such excess interest, if any, to the Borrower, and such rate shall automatically be reduced to the maximum rate permitted by such law.
Section 2.06.
[Reserved
.]
Section 2.07.
Prepayments
.
(a)
If, at any time, the outstanding principal balance of all Advances under the Revolving Credit Loan exceeds the Revolving Credit Commitment at such time, the Borrower shall immediately pay to the Lender an amount sufficient to reduce the aggregate unpaid principal amount of Revolving Credit Loan by an amount equal to such excess.
(b)
If, at any time, the outstanding principal balance of all Declining Revolving Credit Loans exceeds the Declining Revolving Credit Commitment or Maximum Availability at such time, the Borrower shall immediately pay to the Lender an amount sufficient to reduce the aggregate unpaid principal amount of Declining Revolving Credit Loans by an amount equal to such excess.
(c)
If, at any time, the aggregate outstanding principal balance of all Advances under the Revolving Credit Loan exceeds the Borrowing Base at such time, the Borrower shall immediately pay to the Lender an amount sufficient to reduce the aggregate unpaid principal amount of Revolving Credit Loan by an amount equal to such excess.
2.09.
Excess Cash Flow
. Within 120 days after the end of each of Borrower's fiscal years commencing with the fiscal year ending September 30, 2014, Borrower shall calculate and report to the Lender the amount of Borrower's Excess Cash Flow for such ended fiscal year. Within 120 days following the end of each such fiscal year, Borrower will pay to the Lender the lesser of (i) twenty percent (20.0%) of such Excess Cash Flow calculated by Borrower for such fiscal year or (ii) $1,500,000. Borrower's payment of Excess Cash Flow shall be applied by the Lender to the principal due on the Declining Revolving Credit Loan. Such Excess Cash Flow payments shall not release Borrower from making the payments of principal
or interest otherwise required by this Agreement. Upon payment in full of the Declining Revolving Credit Loan, Borrower shall no longer be obligated to make the payments of Excess Cash Flow required in this Section. No payment of Excess Cash Flow shall trigger or obligate Borrower to pay to the Lender any prepayment fees or premiums.
2.10.
Annual Servicing Fee
. The Borrower shall pay to the Lender an annual servicing fee equal to $10,000 with the first such fee paid on the Closing Date and each subsequent fee paid on each anniversary of the Closing Date during the term of this Agreement.
2.11.
Non-Use Fee
. The Borrower agrees to pay to the Lender, on the first day of each calendar quarter for the immediately preceding calendar quarter, a fee (the "
Non-Use Fee
") equal to the sum of, for each day during such preceding calendar quarter, (i) the amount obtained by multiplying (a) the difference between the Revolving Credit Commitment and the Daily Credit Balance applicable to the Revolving Credit Loan for such day, times (b) the Applicable Margin for the Non-Use Fee, times (c) the fraction, 1/360, plus (ii) the amount obtained by multiplying (a) the difference between the Declining Revolving Credit Commitment and the Daily Credit Balance applicable to the Declining Revolving Credit Loan for such day, times (b) the Applicable Margin for the Non-Use Fee, times (c) the fraction, 1/360.
2.12.
Origination Fee
. The Borrower shall pay to the Lender at closing a fee equal to $28,890. Such fee shall be deemed fully earned and nonrefundable at the closing of the transactions contemplated hereby and shall be paid on the Closing Date. This fee shall compensate the Lender for the costs associated with the origination, structuring, processing, approving and closing of the transactions contemplated by this Agreement, including, but not limited to, administrative, general overhead and lost opportunity costs, but not including any out-of-pocket or other costs, fees or expenses for which the Borrower has agreed to reimburse the Lender or any other persons pursuant to any other provision of this Agreement or the other Loan Documents or any commitment letter, letter of intent or similar agreement.
2.13.
Application of Payments and Collections
. Upon the occurrence and during the continuance of any Event of Default, the Borrower irrevocably waives the right to direct the application of any and all payments and collections at any time or times received by the Lender from or on behalf of a Borrower, and the Borrower agrees that after the occurrence and during the continuance of any Event of Default the Lender has the continuing exclusive right to apply and reapply any and all such payments and collections received at any time or times by such persons against the Obligations, in such manner as the Lender may deem advisable, notwithstanding any entry by the Lender upon any of its books and records.
2.14.
Allocation of Collateral Proceeds
. Lender and the Borrower acknowledge and agree that the Collateral secures the Obligations on a cross-collateralization basis. However, the Borrower and Lender agree that the proceeds from any realization on the Mortgaged Property (other than inventory and accounts receivable and the proceeds thereof) as defined in the Mortgage, equipment and fixtures will be first applied to the Lender's costs and expenses payable by Borrower pursuant to Section 7.05 and any other costs and expenses of foreclosure or otherwise realizing on such Mortgaged Property, equipment and fixtures, next to the Borrower's obligations to Lender under the Declining Revolving Credit Loan, next to the Borrower's obligations to Lender under the Revolving Credit Loan and last to any other Obligations which remain outstanding. Proceeds from any realization on such Mortgaged Property, equipment and fixtures will only be applied to the Revolving Credit Loan if any proceeds remain after the full and indefeasible payment of the Declining Revolving Credit Loan. In addition, the Borrower and Lender acknowledge and agree that the proceeds from any realization on Collateral consisting of inventory, accounts receivable, Margin Account Equity and the products and proceeds thereof will be applied first to the Lender's costs and expenses payable by Borrower pursuant to Section 7.05 and any other costs and expenses of foreclosure or otherwise realizing
on such inventory, accounts receivable and Margin Account Equity Collateral, next to the Borrower's obligations to Lender under the Revolving Credit Loan, next to the Borrower's obligations to Lender under the Declining Revolving Credit Loan, and last to any other Obligations which remain outstanding. With respect to the proceeds of any other Collateral not specified in this Section above, the proceeds of such Collateral will be applied first to the Lender's costs and expenses payable by Borrower pursuant to Section 7.05 and any other costs and expenses of foreclosure or otherwise realizing on such Collateral and next to the Obligations in such order and priority as is determined by Lender or required by applicable law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01.
Representations and Warranties
. The Borrower represents and warrants to the Lender that:
(a)
The Borrower is a limited liability company duly organized, validly existing, and in good standing under the laws of the State of Indiana. The Borrower is duly qualified and authorized to do business, in all states and jurisdictions wherein the character of the properties owned or held by it or the business being transacted by it makes such qualification necessary.
(b)
The Borrower has full power to own or lease its property and carry on its business as now conducted, and the Borrower has full power to make the Borrowings herein provided for, to execute and deliver this Agreement, the Notes and the other Loan Documents and to perform its obligations hereunder and thereunder. The Borrower has full power to execute and deliver all other instruments referred to or mentioned herein to which it is a party and to perform its obligations thereunder. This Agreement, the Notes and other Loan Documents when executed and delivered by the Borrower will constitute the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms, except as enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting the enforceability of creditors' rights generally and by general principles of equity.
(c)
The Borrowings herein provided for and the execution and delivery of this agreement, the Notes, and all other Loan Documents and the performance of the obligations hereunder and thereunder, have been duly authorized by all appropriate and required proceedings and action and will not contravene any provisions of law or any regulation, order, writ, judgment, injunction, decree, permit, or license applicable to Borrower or any of Borrower's property or conflict with or breach or constitute a default under Borrower's Articles of Organization, Operating Agreement or other governing or organizational agreement of Borrower or under any indenture, agreement or security agreement to which the Borrower is a party or by which the Borrower is bound. No consent or approval of the officers, members, managers, or directors of Borrower or any other Person or creditor are required as a condition to the effectiveness and validity of the Loan Documents.
(d)
All of the issued and outstanding membership interests of the Borrower are validly issued, fully paid and non-assessable.
(e)
The Borrower maintains its books on a fiscal year basis ending on September 30 of each year. The audited financial statements and schedules of the Borrower for and as of the fiscal year ended September 30, 2012 and the unaudited financial statements (income statement, balance sheet and cash flow) of the Borrower for the period ending April 30, 2013, certified by a financial officer of the Borrower, copies of which have been delivered to the Lender, fairly present the financial
condition of the Borrower at such dates and the results of their operations for such periods, and since April 30, 2013, there has been no Material Adverse Effect. No information, exhibit or report furnished by or on behalf of the Borrower to the Lender contains any material misstatement of fact or omits to state a material fact or any fact or information necessary to make the statements and information contained therein incomplete or not materially misleading.
(f)
Except as described in the above financial statements or disclosed in Schedule 3.01(f), there are no actions, suits, arbitration proceedings or other proceedings of any nature pending or, to the knowledge of the Borrower, threatened, or to the knowledge of the Borrower any basis therefor, against the Borrower at law or in equity, in any court or before any governmental department or agency or arbitrator or arbitration panel, which would result in any Material Adverse Effect. To the knowledge of the Borrower, no proceedings of any nature for the revocation, suspension or liquidation of any Permit have been commenced or threatened against the Borrower.
(g)
To the knowledge of the Borrower, the Borrower has filed all required federal, state and local tax returns and has paid all taxes as shown on such returns and all other taxes, assessments, FICA and other withholding taxes as they have become due. Except as described in the financial statements and reports referenced above, there are no tax claims which have been asserted against the Borrower, which are unpaid, and which would have a Material Adverse Effect.
(h)
The Borrower has good and marketable title to all of its real, personal and mixed properties, and such properties are free and clear of all Liens except Permitted Liens. In respect of leased property, the Borrower has valid and enforceable leasehold interests therein.
(i) To the knowledge of the Borrower, the Borrower is not in violation of any term of its Articles of Organization or Operating Agreement or any term of any agreement, instrument, judgment, decree or order applicable to it, or in violation of any term of any statute, rule or governmental regulation applicable to it, including without limitation any Permit, the violation of which would have a Material Adverse Effect.
(j)
To the best of Borrower's knowledge, the business and operations of the Borrower comply in all respects with all applicable federal, state, regional, county and local laws, including without limitation statutes, rules, regulations and ordinances relating to public health, safety or the environment or disposals to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use, handling or disposal of polychlorinated biphenyls (PCBs), asbestos or urea formaldehyde, to the treatment, storage, disposal or management of hazardous substances (including, without limitation, petroleum, its derivatives, by-products or other hydrocarbons), to exposure to toxic, hazardous, or other controlled, prohibited or regulated substances, to the transportation, storage, disposal, management or release of gaseous or liquid substances, and any regulation, order, injunction, judgment, declaration, notice or demand issued thereunder, except where the failure to so comply (individually or in the aggregate) would not reasonably be expected to have a Material Adverse Effect.
(k)
The Borrower has not given, nor is it required to give, nor has it received, any notice, letter, citation, order, warning, complaint, inquiry, claim or demand to or from any Governmental Authority or in connection with any court proceeding that: (i) the Borrower has violated, or is about to violate, any federal, state, regional, county or local statute, law, rule, regulation, ordinance, Permit, judgment or order, including without limitation those relating to environmental, health or safety; (ii) there has been a release, or there is a threat of release, of hazardous substances (including, without limitation, petroleum, its by-products or derivatives, or other hydrocarbons) from the Borrower's
property, facilities, equipment or vehicles; (iii) the Borrower may, or is liable, in whole or in part, for the costs of cleaning up, remediating or responding to a release of hazardous substances (including, without limitation, petroleum, its by-products or derivatives, or other hydrocarbons); or (iv) any of the Borrower's property or assets are subject to a Lien in favor of any Governmental Authority for any liability, costs or damages, under any federal, state or local environmental law, rule or regulation arising from, or costs incurred by such Governmental Authority in response to, a release of a hazardous substance (including, without limitation, petroleum, its by-products or derivatives, or other hydrocarbons).
(l)
All statements by the Borrower contained in any certificate, statement, document or other instrument or writing delivered by or on behalf of the Borrower at any time pursuant to this Agreement or the other Loan Documents shall constitute representations and warranties made by the Borrower hereunder. No representation or warranty of the Borrower contained in this Agreement or any other Loan Document, and no statement contained in any certificate, schedule, list, financial statement or other instrument furnished to the Lender by or on behalf of the Borrower contains, or will contain, any untrue statement of a material fact, or omits, or will omit, to state a material fact necessary to make the statements contained herein or therein not misleading. To the best of Borrower's knowledge, all information material to the transactions contemplated in this Agreement has been disclosed to the Lender.
(m)
No part of the proceeds of the Borrowings will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or to reduce or retire any indebtedness incurred for any such purpose. If requested by the Lender, the Borrower will furnish to the Lender a statement in conformity with the requirements of Federal Reserve Form U 1 referred to in Regulation U to the foregoing effect.
(n)
The Borrower does not have any commodity accounts or similar commodity hedging accounts except for those described in the Control Agreements.
(o)
Each “employee benefit plan”, “employee pension benefit plan”, “defined benefit plan” or “multi-employer benefit plan” (as such terms are defined in the Employee Retirement Income Security Act of 1974, as amended) which the Borrower has established, maintained or to which it is required to contribute (collectively, the “Plans”) is in compliance with all applicable provisions of the Employee Retirement Income Security Act of 1974, as amended (as amended, replaced or supplemented from time to time, “ERISA”), and the Internal Revenue Code and the rules and regulations thereunder as well as the Plan's terms and conditions. There have been no “prohibited transactions” and no “reportable event” (as such terms are defined in ERISA) has occurred with respect to any Plan. The Borrower does not have a “multi-employer benefit plan”. The Borrower has not incurred any liability to the Pension Benefit Guaranty Corporation in connection with a Plan, other than for premiums due in the ordinary course.
(p)
The Borrower is and, after consummation of the transactions contemplated by this Agreement, will be Solvent. “Solvent” shall mean that, as of a particular date, (i) the Borrower is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the ordinary course of business; (ii) the Borrower is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which the Borrower's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which the Borrower is engaged, (iii) the fair value of the property of the Borrower is greater than the total amount of liabilities, including, without limitation,
contingent liabilities, of the Borrower and (iv) the present fair salable value of the assets of the Borrower is not less than the amount that will be required to pay the probable liability of the Borrower on its debts as they become absolute and matured. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. The Borrower shall execute and deliver to the Lender a Solvency Certificate in form attached as Schedule 3.01(p) and incorporated herein by reference.
(q)
As of the date hereof, the Borrower does not have any subsidiaries or affiliates other than those listed on Schedule 3.01(q) attached hereto and made a part hereof.
(r)
The Borrower is not in default under or with respect to, or a party to, any contractual obligation that would, either individually or in the aggregate, have a Material Adverse Effect. No Event of Default has occurred and is continuing or would result from the consummation of the transactions contemplated by the Loan Documents.
(s)
The Borrower is not an “investment company” within the meaning of the Investment Company Act of 1940.
(t)
Each Permit is listed on Schedule 3.01(t), including each Permit in effect presently and those Permits to be obtained after the Closing Date as necessary or appropriate for operation of Borrower's ethanol plant at maximum capacity.
(u)
As of the Closing Date, there are no Material Contracts other than the agreements and contracts disclosed to the Lender pursuant to this Section.
(i)
Management Contracts. As of the Closing Date, there are no management contracts or material license agreements other than those listed on Schedule 3.01(u)(i).
(ii)
Supply Contracts. As of the Closing Date, there are no Supply Contracts other than those listed on Schedule 3.01(u)(ii). Borrower has made adequate provision for all storage facilities, equipment and inputs, including corn, as specified by Borrower's engineers for the maximum output and operation of the Project.
(iii)
Sales and Marketing Contracts. As of the Closing Date, there are no Sales and Marketing Contracts other than those listed on Schedule 3.01(u)(iii).
(iv)
Transportation Contracts. As of the Closing Date, there are no Transportation Contracts other than those listed on Schedule 3.01(u)(iv).
(v)
Utility Contracts. As of the Closing Date, there are no Utility Contracts other than those listed on Schedule 3.01(u)(v). Borrower has made suitable arrangements so that the Project has all necessary electrical, natural gas, water, storm and sewer facilities in place for the proper construction and operation of the Project at maximum efficiency.
Each Material Contract is in full force and effect and there are no defaults now existing or to the knowledge of the Borrower which would or may occur with the giving of notice or the passage of time. The parties intend and agree that the assignments and consents listed in Schedule 3.01(u) issued under and in support of the Current Credit Agreement shall remain in full force effect and shall secure and support the Loans. Any reference in such assignments to a "Loan Agreement" shall hereby be deemed amended to reference this Agreement.
(v)
As of the Closing Date and to the best of the Borrower's knowledge and belief based upon the Borrower's knowledge of and experience in the ethanol production industry, the Projections fairly present Borrower's reasonable forecast of the results of operations and changes in cash flows for the periods covered thereby, based on the assumptions set forth therein, which assumptions are reasonable based on historical experience and presently known facts. Since the date of such Projections, there have been no changes with respect to Borrower or its Subsidiaries which could reasonably be expected to result in, singly or in the aggregate, a material discrepancy between such Projections and Borrower's actual results for the periods stated.
(w)
The Project was constructed in material compliance with its plans and specifications and the applicable Permits and is being operated in accordance with the Permits and applicable law. The exterior lines of the improvements related to the Project are, and at all times will be, within the boundary lines of the Real Estate, and Borrower has examined and is familiar with all applicable covenants, conditions, restrictions and reservations and with all applicable requirements of all Governmental Authorities, including without limitation, building codes and zoning, environmental, hazardous substance, energy and pollution control laws, ordinances and regulations affecting the Project.
ARTICLE IV
COVENANTS
The Borrower covenants and agrees with the Lender that so long as any Obligations remain outstanding or Lender has any obligation to extend credit hereunder, except to the extent compliance in any case is waived in writing by the Lender:
Section 4.01
Existence
. The Borrower will maintain in good standing its existence and its right to transact business in each state in which it operates, and will continue to engage in the same lines of business in which it is presently engaged.
Section 4.02
Inspection and Records
. The Borrower will permit the Lender and any agent of the Lender to visit and inspect any of its properties, corporate books, financial records, grain and inventory warehouses, and grain and ethanol and distiller's grains inventory records, and to discuss its affairs, finances and accounts with its principal officers and independent public accountants, all at such reasonable times and as often as the Lender may reasonably request. At the request of Lender, the Borrower shall permit, and will cooperate with the Lender in arranging for, inspections from time to time of the Borrower's facilities and audits of the Collateral. The Borrower acknowledges that any reports and inspections conducted or generated by the Lender or its agents or representatives, shall be made for the sole benefit of the Lender and not for the benefit of the Borrower or any third party, and the Lender does not assume any liability, responsibility or obligation to the Borrower or any third party by reason of such inspections or reports. The reasonable costs and expenses of such audits and inspections made by the Lender shall be paid or reimbursed by the Borrower.
Section 4.03
Insurance and Maintenance of Properties
. The Borrower will maintain insurance of the kinds, covering the risks, and in such amounts acceptable to the Lender, which policies (except policies of liability insurance) shall cover all operating, physical properties of the Borrower and will keep all its operating, physical properties in good repair, ordinary wear and tear and damage by fire or other casualty, however caused, excepted. All policies of casualty insurance providing coverage for Collateral shall name the Lender as additional insured and as additional loss payee, except for Workers Compensation and D&O coverages. All such endorsements, except D&O coverage, shall comply with the terms and conditions of the Mortgage and Security Agreement and shall provide, in any event, that no such policy shall be cancelled, materially reduced in amount or materially changed in coverage without at least thirty (30) days prior written notice to the Lender of such cancellation, reduction or change. The policies of insurance required below shall be in form and content satisfactory to the Lender and shall be placed with financially sound and reputable insurers. Acceptance of insurance policies referred to below shall not bar the Lender from requiring additional insurance, which it or they deem reasonably deems necessary. Specifically, the Borrower will maintain the following policies of insurance:
(a)
An All Risk property policy of insurance with coverage equal to the replacement cost of the Project, as well as casualty/umbrella (Commercial General Liability) insurance) insuring the Project against all risks, including flood, earthquake, and mechanical and electrical breakdown including testing to the full value of the Project (subject to reasonable loss deductible provisions). Lender's interest shall be protected by naming the Lender as additional insured on the liability policies and loss payee on the property policies;
(b)
Casualty (Commercial General Liability) & Umbrella insurance (including products and completed operations, operations of subcontractors, and contractual liability insurance) with coverage in the amount of $2,000,000 in the form of either a $2,000,000 primary policy or a $1,000,000 primary policy and a $1,000,000 Umbrella policy. Lender's interest shall be protected by naming the Lender as an additional named insured on all such policies;
(c)
State worker's compensation insurance, with statutory limits, and Employer's Liability coverage with coverage of no less than $500,000 (collectively, "Workers Compensation");
(d)
Business automobile liability insurance insuring all vehicles on the site, including hired and non-owned liability with coverage in the amount of $2,000,000 in the form of either a $2,000,000 primary policy or a $1,000,000 primary policy and a $1,000,000 Umbrella policy;
(e)
Environmental insurance shall be provided covering clean up and removal, in policy amounts and scope of coverage reasonably acceptable to the Lender;
(f)
Directors/Officers errors and omissions coverage of no less than $2,000,000 ("D&O");
(g)
Business Interruption and Extra Expense insurance equal to 100% of the projected revenue loss during a potential interruption of production of not less than six months; and
(h)
Such other coverages as the Lender reasonably requires from time to time.
Section 4.04.
Notices
. The Borrower will notify the Lender immediately if it becomes aware of (a) the occurrence of any Default, (b) any other event or circumstance that would result in a Material Adverse Effect, (c) a material adverse change in the business, operations, financial condition (including, without limitation, proceedings in bankruptcy, insolvency, reorganization, or the appointment of a receiver or trustee),
or (d) any failure of the Borrower to observe any of its undertakings under the Loan Documents. The Borrower shall also notify the Lender in writing of any default under any Material Contract or any other indenture, agreement, contract, lease, license, licensing agreement or other instrument to which the Borrower is a party or under which the Borrower is obligated, and of any acceleration of the maturity of any indebtedness of the Borrower which default or acceleration would have a Material Adverse Effect on the Borrower or on the Collateral. The Borrower shall also notify the Lender of any proceeding or investigation of any nature with respect to the Borrower's Permits. The Borrower shall take all steps necessary to remedy promptly any of the foregoing defaults, investigations or proceedings, to protect against any such adverse claim, to defend any such proceeding and to resolve all such controversies.
Section 4,05.
Compliance with Laws; Payment of Debts, Taxes and Claims
. The Borrower will comply in all material respects with all statutes, laws and governmental rules, regulations, Permits and orders applicable to its business, properties and assets. In addition, the Borrower shall maintain in full force and effect all Permits, licenses and licensing agreements and the Borrower shall comply in all material respects with the provisions and requirements of such Permits and licenses and/or licensing agreements. The Borrower will promptly pay and discharge prior to delinquency all debts, accounts, liabilities, taxes, assessments and other governmental charges or levies imposed upon, or due from, the Borrower, as well as all claims of any kind (including claims for labor, materials and supplies) which, if unpaid, might by law become a Lien upon any of its property, except that nothing herein contained shall be interpreted to require the payment of any such debt, account, liability, tax, assessment or charge so long as its validity is being contested in good faith by appropriate legal proceedings and against which, if requested by the Lender or required by GAAP, reserves satisfactory to and deposited with the Lender have been made therefor. Such reserves shall constitute additional Collateral and the Borrower hereby grants the Lender a first priority security interest in such reserves.
Section 4.06.
Fundamental Changes; Acquisitions
. The Borrower shall not dissolve, wind up, liquidate, merge into or consolidate with, or suffer or permit itself to be merged into or consolidated with, any other corporation, or sell, convey or transfer all or substantially all of its assets to any person, firm or corporation and the Borrower shall not change its name without the prior written consent of the Lender, which shall not be unreasonably withheld. The Borrower shall not purchase or otherwise acquire the assets or equity interests of any other Person or Persons;
provided, however,
that the term "acquisition," as used in the sentence, shall not include the purchase of grain, inputs or inventory in the ordinary course of the Borrower's business. The Borrower will not engage in lines of business or operations unrelated to the current lines of business and operations conducted by the Borrower.
Section 4.07.
[RESERVED]
Section 4.08.
Working Capital
. The Borrower must maintain at all times minimum Working Capital of not less than $15,000,000, measured monthly.
Section 4.09.
Fixed Charge Coverage Ratio
. The Borrower must maintain a Fixed Charge Coverage Ratio, measured on an annual basis, of no less than 1.15:1.0. The Fixed Charge Coverage Ratio shall be tested by the Lender annually on a fiscal year basis.
Section 4.10.
Capital Expenditures
. The Borrower shall not make any expenditures for fixed or capital assets if, after giving effect thereto, the aggregate of all such expenditures by the Borrower exceeds $4,000,000 during any fiscal year, unless agreed to in advance by the Lender in writing.
Section 4.11.
Material Contracts
. The Borrower will notify the Lender of the existence of any Material Contract promptly upon entering into the same. The Borrower agrees to promptly execute and deliver to the Lender such collateral assignments and take such other actions as the Lender requests to perfect Lender's security interest in the Borrower's rights under such Material Contracts. In addition, the Borrower will assign to the Lender, in form acceptable to the Lender, all operational, design and intellectual property licenses applicable to the Borrower, together with all Utility Contracts, grain procurement contracts, grain and ethanol Financial Instrument Agreements, as the same are obtained by Borrower from time to time, together with all consents from the vendors and other parties under such contracts.
Section 4.12.
Financial Reports
. The Borrower will maintain a system of accounting in accordance with GAAP, consistently applied, and will furnish to the Lender such information respecting the business and financial condition of the Borrower as the Lender may reasonably request; and without request Borrower will furnish each of the following to the Lender:
(a) The Borrower's year end audited financial statements (to include, but not be limited to, balance sheet, income statement, and cash flow statement, each setting forth in comparative form figures for the preceding fiscal year of the Borrower), audited and accompanied by an unqualified audit report by a certified public accounting firm acceptable to the Lender as soon as available and in any event within one hundred twenty (120) days after the end of the Borrower's fiscal years;
(b)
The Borrower's interim monthly financial statements (to include its unaudited balance sheet as of the end of each such period and the related unaudited income and cash flow statements for such period and the portion of the fiscal year through such date, setting forth in each case in comparative form the figures for the previous year) and an accounts receivable and accounts payable aging schedule as soon as available, but in any event within thirty (30) days after the end of each month (subject to normal year-end adjustments and the absence of footnotes);
(c)
A borrowing base certificate (in form satisfactory to the Lender and with all supporting documentation, and including, without limitation, finished goods-ethanol, corn oil and distiller's grain inventory, accounts receivable, corn inventory, and Margin Account Equity) at the initial Advance on the Revolving Credit Loan and monthly thereafter as soon as available but in any event no later than thirty (30) days after the last day of each month or at such other time as requested by the Lender;
(d)
The Borrower's daily commodity position reports which states the Borrower's ownership position in grains, ethanol and natural gas and, for each, the amount thereof hedged, and a monthly hedging report summary as soon as available but in any event no later than thirty (30) days after the last day of each month and at such other time as the Lender may request, and the Borrower's hedging account brokerage statements on a daily basis as soon as available;
(e)
as soon as available and in any event within 30 days after the end of each month, a production report certified by the Chief Financial Officer or equivalent of the Borrower as to accuracy, which sets forth pertinent information in respect of the amount of ethanol and DDGS produced, input, output and utility costs, transportation costs, utilization and other information as the Lender may reasonably specify from time to time;
(f)
Within thirty (30) days after the end of each quarter, a certificate of the Borrower signed by the Chief Financial Officer or equivalent of the Borrower substantially in the form of Exhibit D attached hereto and incorporated herein by reference, (i) demonstrating compliance with the financial covenants contained in this Agreement above by calculation thereof as of the end of each
such fiscal period, and compliance with the capital expenditure limitations provided for in this Agreement above, (ii) stating that no Event of Default exists, or if any Event of Default does exist, specifying the nature and extent thereof and what action the Borrower proposes to take with respect thereto, (iii) certifying that all of the representations and warranties made by the Borrower in this Agreement and/or in any other Loan Document are true and correct on and as of such date as if made on and as of such date and (iv) certifying that Borrower is in compliance with Borrower's Risk Management Policy approved by the Lender;
(g)
concurrently with the delivery of the financial statements referred to in clause (a) above, a copy of the Borrower's pro forma financial covenant calculation and annual budget for the subsequent fiscal year of the Borrower, containing a pro forma balance sheet of the Borrower as of the end of such subsequent fiscal year and the related pro forma income statement and cash flow of the Borrower for such subsequent fiscal year, and including the Borrower's projected capital projects and expenditures for such year;
(h)
The Borrower shall authorize all Governmental Authorities to furnish reports of examinations, records and other information relating to the condition and affairs of the Borrower and the Project, and any information from reports, returns, files and records of such Governmental Authorities regarding the Borrower upon request to the Lender; and
(i)
promptly following any request therefor, such other information regarding the results of operations, business affairs and financial condition of the Borrower and such information about the Project as the Lender may reasonably request.
All financial statements required hereunder shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP (consistent with the financial statements referred to above) and applied consistently throughout the periods reflected therein. Without the prior written consent of the Lender, the Borrower will not change in any material way the accounting principles upon which the financial statements referenced above were prepared and based except for changes made as a result of changes in or to GAAP.
Section 4.13.
Debt
. The Borrower shall not create, incur or assume any Debt except for Permitted Debt.
Section 4.14.
Redemptions; Distributions
. The Borrower shall not purchase or acquire units or shares of its outstanding membership interests without the prior written consent of the Lender. Further, the Borrower may not make or pay without the prior written consent of Lender, which written consent will not be unreasonably withheld, in and for any fiscal year in the aggregate, distributions to members or shareholders of Borrower in excess of the Tax Distributions permitted below and distributions permitted in Section 4.14(c) below based on Borrower's previous fiscal year's Net Income (collectively, the "
Permitted Distributions
"):
(a)
So long as no Event of Default has occurred and is continuing, Borrower may make Tax Distributions to its members within thirty (30) days prior to each June 15, September 15 and January 15, each in an amount equal to one fourth (¼) of the estimated income tax liability to be incurred for such year by Borrower's members by reason of their membership interest in Borrower, based upon the most recent financial information available.
(b)
Borrower may make a final Tax Distribution to its members within thirty (30) days prior to each April 15, so long as (i) no Event of Default has occurred and is continuing or would
occur after giving effect to the payment of such final Tax Distribution described in this Subsection 4.14(b) and the distributions permitted in Subsection 4.14(c) below, (ii) Borrower has delivered to Lender Borrower's annual audited financial statements and compliance statements as required in this Agreement and (iii) Borrower is in compliance with all of the financial and other covenants provided for in this Agreement and will remain so after giving effect to the payment of such final Tax Distribution described in this Subsection 4.14(b) and the distributions permitted in Subsection 4.14(c) below, in an amount not to exceed the positive difference between the total tax liability of Borrower's members incurred by reason of their membership interest in Borrower and the amounts previously distributed to such members pursuant to Subsection 4.14(a) above, provided, that if the difference between the total tax liability of Borrower's members incurred by reason of their membership interest in Borrower and the amounts previously distributed to such members pursuant to Subsection 4.14(a) above is zero or a negative number, then no final Tax Distribution may be made by Borrower under this Subsection 4.14(b).
(c)
So long as (i) no Event of Default has occurred and is continuing or would occur after giving effect to the payment of the distribution described in this Subsection 4.14(c) and the year ending quarter Tax Distribution described in Subsection 4.14(b) above, (ii) Borrower has delivered to Lender Borrower's annual audited financial statements and compliance certificates as required in this Agreement and (iii) Borrower is in compliance with all of the financial and other covenants provided for in this Agreement and will remain so after giving effect to the payment of such distribution described in this Subsection 4.14(c) and the year ending quarter Tax Distribution described Subsection 4.14(b) above, Borrower may make one distribution of Net Income each fiscal year based upon the Net Income of Borrower for the immediately preceding fiscal year in an amount when aggregated with the Tax Distributions made by Borrower for such preceding fiscal year not to exceed the percentage of Borrower's Net Income for such preceding fiscal year determined as follows:
|
|
|
|
|
|
If Borrower's ratio of Debt
to Net Worth in the previous fiscal year is:
|
Allowable Tax Distributions and Net Income distributions in the current fiscal year in the aggregate of up to:
|
|
Greater than or equal to 1.00 : 1.00
|
50% of the previous year's Net Income
|
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Less than 1.00 : 1.00 but greater than 0.75 : 1.00
|
60% of the previous year's Net Income
|
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Less than 0.75 : 1.00
|
70% of the previous year's Net Income
|
The distribution of Net Income provided for in this Subsection 4.14(c) may be made in one or more payments, provided however, that on each payment date (1) no Event of Default has occurred and is continuing or would occur after giving effect to such payment, (2) Borrower has delivered to Lender Borrower's annual audited financial statements and compliance certificates required in this Agreement and (3) Borrower is in compliance with all of the financial and other covenants provided for in this Agreement and will remain so after giving effect to such payment.
Notwithstanding anything contained in this Agreement to the contrary, in no event shall any distributions, including, but not limited to Tax Distributions, be made prior to Borrower's full payment and satisfaction of all of Borrower's Obligations which have accrued to the date of payment of such
distributions (including Tax Distributions), and the application of Excess Cash Flow as provided for in Section 2.09 of this Agreement above. In no event shall total distributions for any fiscal year, including but not limited to Tax Distributions and the net income distributions provided for above, in the aggregate exceed the amounts calculated in the table above. Any distribution permitted under this Section 4.14(c), which is calculated based upon Net Income for the previous fiscal year but paid in the then current fiscal year, will not impact the calculation of Permitted Distributions in the then current or any succeeding fiscal year.
Section 4.15.
Hedge Agreements
. The Borrower, at its discretion, may maintain hedging contracts with respect to its ethanol, natural gas and grain positions in compliance with Borrower's risk management policy; provided, however, in no event shall the Borrower's unhedged grain position violate the requirements of the State of Indiana Grain Code and/or the USDA Federal Grain Code, and any regulations and interpretations issued thereunder, as they may be amended from time to time.
Section 4.16.
Negative Pledge
. The Borrower shall not incur or permit to exist any Liens against any of its property except (collectively, "
Permitted Liens
"):
(a)
pledges or deposits in connection with or to secure worker's compensation employment insurance, pensions or other employee benefits, or in connection with leases or other contracts, or to secure public or statutory obligations, or to secure surety or appeal bonds;
(b)
Liens for taxes, assessments or governmental charges or levies to the extent not delinquent or that are being diligently contested in good faith by appropriate proceedings and for which Borrower has set aside adequate reserves in accordance with generally accepted accounting principles;
(c)
Liens arising under the Loan Documents;
(d)
purchase money Liens upon or in property acquired or held by Borrower in the ordinary course of business to secure the purchase price of such property or to secure indebtedness incurred solely for the purpose of financing the acquisition of any such property to be subject to such Liens, or Liens existing on any such property at the time of acquisition, or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount, provided that no such Lien shall extend to or cover any property other than the property being acquired and no such extension, renewal or replacement shall extend to or cover property not theretofore subject to the Lien being extended, renewed or replaced, and provided, further, that the aggregate principal amount of debt at any one time outstanding secured by Liens permitted by this clause (d) shall not exceed $100,000;
(e)
Liens imposed by law, such as carriers', workmen's and repairmen's liens and other similar Liens arising in the ordinary course of business securing obligations which are not overdue by more than 60 days or which have been fully bonded or are being diligently contested in good faith by appropriate proceedings and for which adequate reserves have been set aside in accordance with generally accepted accounting principles;
(f)
easements, rights-of-way, zoning and other similar restrictions and encumbrances, which do not (individually or in the aggregate) materially detract from the use of the property to which they attach by the Borrower;
(g)
Liens of Commodity Intermediaries as described in the Control Agreements;
(h)
the Permitted Encumbrances defined in the Mortgage; and
(i)
Liens disclosed in Exhibit C attached to this Agreement and incorporated herein by reference.
Section 4.17.
Environmental, Health and Safety Laws
. The Borrower will comply in all material respects with the requirements of all federal, state and local environmental and health and safety laws, rules, regulations and orders applicable to or pertaining to its properties or business operations. Without limiting the foregoing, each Borrower will not, except in accordance with applicable law, dispose of any hazardous substance into, onto or from any real property owned or operated by the Borrower. The Borrower shall promptly provide the Lender with copies of any notice or other instrument of the type described in Section 3.01(k) hereof, after an officer of the Borrower receives such notice or instrument.
Section 4.18.
[RESERVED]
Section 4.19.
Funding Losses
. If the Borrower makes any prepayment of principal with respect to the Declining Revolving Credit Loan prior to the date such Declining Revolving Credit Loan commences revolving, the Borrower shall reimburse the Lender, on demand, for any resulting Negative Termination Value along with any resulting loss, breakage fees or expense (including without limitation, administrative costs) incurred by Lender,
provided
that Lender shall have delivered to the Borrower a certificate as to the amount of such Negative Termination Value, loss or expense, which certificate shall be conclusive in the absence of manifest error.
Section 4.20.
Contingent Liabilities
. The Borrower shall not guarantee, endorse, agree to furnish funds for the payment of, or otherwise become or be contingently liable upon the indebtedness of any Person, except (a) endorsements of negotiable instruments in the ordinary course of business, and (b) commercially reasonable indemnity agreements by the Borrower in favor of their respective officers and directors.
Section 4.21.
Commodity Accounts
. The Borrower shall not establish or maintain any commodity account or similar commodity hedging account unless the commodity intermediary in respect of such account has entered into a control agreement with the Borrower and the Lender which provides that Lender, as secured party, has "control" of such commodity account and all commodity contracts carried in such commodity account for purposes of Section 9-106(b)(2) of the Uniform Commercial Code as in effect in the applicable jurisdiction and which control agreement is otherwise reasonably acceptable in form and content to the Lender.
Section 4.22.
Property Maintenance
. The Borrower will keep its properties in good repair, working order, and condition and from time to time make any needful and proper repairs, renewals, replacements, extensions, additions, and improvements thereto so that the business of the Borrower will be conducted at all times in accordance with prudent business management.
Section 4.23.
Litigation; Adverse Events
. The Borrower will promptly inform the Lender of the commencement of any material action, suit, proceeding, arbitration, mediation or investigation against the Borrower, or the making of any counterclaim against the Borrower and of all material Liens against any of the Borrower's property and promptly advise the Lender in writing of any other condition, event or act which comes to its attention that would or might materially prejudice Lender's rights under this Agreement or the Loan Documents or otherwise result in a Material Adverse Effect.
Section 4.24.
Location of Collateral
. The Borrower shall maintain all tangible Collateral, including, but not limited to grain and inventory, at the facilities described in Schedule A of the Security Agreement and the Borrower shall not move grain, inventory or other tangible Collateral from such facilities or otherwise locate grain or any other tangible Collateral at any other facility without the prior written consent of the Lender. In addition, the Borrower shall maintain its books and records relating to the Collateral at the facilities described in Schedule A of the Security Agreement. Notwithstanding the foregoing, the Borrower may move Collateral between facilities identified on Schedule A of the Security Agreement and may sell inventory in the ordinary course of business without the consent of the Lender.
Section 4.25.
Cash Management Services
. The Borrower shall maintain its primary deposit accounts and all of the Borrower's cash management relationships and services with Lender.
Section 4.26.
Loans to Members
. The Borrower will not directly or indirectly loan amounts to or guarantee the debts of any Person, including, but not limited to an affiliate, subsidiary, parent of the Borrower, or any member, officer or employee thereof or to any entity controlled by such entity, officer, shareholder or employee.
Section 4.27.
Permits
. The Borrower will not permit any federal, state or local license, Permit, registration, consent or approval of any nature which is required or desirable in connection with the Borrower's business and the operation thereof to expire, lapse, terminate, be suspended or revoked for any reason. In addition, the Borrower will timely apply for any renewals of any Permit required for the continued operation of the Project such that the operation of the Project will not be interrupted or suspended.
Section 4.28.
Transactions With Affiliates and/or Members
. The Borrower will not enter into, or cause, suffer or permit to exist, any arrangement or contract with any of its affiliates or subsidiaries or members, in each case unless such arrangement or contract (i) is otherwise permitted by this Agreement, (ii) is in the ordinary course of business of the Borrower or such affiliate or subsidiary or member, as the case may be, and (iii) is on terms no less favorable to the Borrower or such affiliate or subsidiary or member than if such arrangement or contract had been negotiated in good faith on an arm's-length basis with a Person that is not an affiliate or subsidiary or member of the Borrower.
Section 4.29.
Management
. Borrower will not consent to the replacement of Borrower's general manager without the prior written consent of the Lender, not to be unreasonably withheld. In the event the general manager notifies Borrower that the general manager is leaving Borrower, Borrower will promptly notify the Lender along with all information regarding the proposed replacement general manager when available. Any new or replacement general manager of the Project shall be subject to the prior written approval of the Lender, not to be unreasonably withheld.
Section 4.30.
Material Contracts
. Except to the extent it would not result in a Material Adverse Effect, the Borrower will not terminate, amend, modify, or waive any of its rights under (a) its Articles of organization, Operating Agreement, or other organizational documents, or (b) any Material Contract.
ARTICLE V
CONDITIONS PRECEDENT
The obligation of Lender to make any Loan hereunder, shall be subject to the following conditions precedent:
Section 5.01
Initial Advance on Loans
. Before or concurrently with the initial Borrowing by the Borrower on the Loans:
(a) The Lender has received duly executed copies of each Loan Document;
(b)
The Lender has received copies of the Borrower's Articles of Organization and Operating Agreement and any amendments thereto, certified in each instance by its Secretary or Assistant Secretary and a Certificate of Good Standing from the Indiana Secretary of State;
(c)
The Lender has received copies of resolutions of the Borrower's Board of Directors authorizing the execution and delivery of the Loan Documents to which it is a party and the consummation of the transactions contemplated thereby together with specimen signatures of the persons authorized to execute such documents on the Borrower's behalf, all certified in each instance by its Secretary or Assistant Secretary;
(d)
The Lender has received evidence satisfactory to the Lender that the Liens granted by the Mortgage, Security Agreement and the Control Agreements create perfected first priority security interests;
(e)
The Lender has received a duly executed Borrowing Base Certificate dated as of the Business Day preceding the Closing Date;
(f)
All legal matters incident to the execution and delivery of the Loan Documents shall be satisfactory to the Lender and its counsel;
(g)
The Lender has received the favorable written opinion of legal counsel to the Borrower with respect to the transactions described herein, in form and substance acceptable to the Lender;
(h)
The Lender has received all fees and other amounts due and payable on or prior to the Closing Date, including the Origination Fee, annual servicing fee and amounts for reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower pursuant to this Agreement, under any other Loan Document, or any other agreement with Lender;
(i)
The Lender has received copies of favorable UCC, tax, judgment, bankruptcy and fixture lien search reports (or other evidence of the same satisfactory to Lender) in all necessary or appropriate jurisdictions and under all legal and trade names of Borrower and all other parties requested by the Lender, indicating that there are no prior Liens on any of the Collateral other than Permitted Liens;
(j)
A copy of each executed Material Contract and, to the extent a Material Contract has not already been assigned pursuant to the Current Credit Agreement, assignments thereof and consents thereto required in this Agreement and the other Loan Documents, all of the foregoing in form and substance acceptable to the Lender;
(k)
Copies of certificates of insurance demonstrating the types, levels, deductibles, endorsements and other coverage parameter issues to the satisfaction of the Lender for casualty insurance, commercial general liability, an umbrella policy, business automobile liability insurance, environmental liability insurance, worker's compensation insurance, and permanent all risk property insurance, all as required under this Agreement and the other Loan Documents, with all such insurance
in full force and effect and approved by the Lender, in the exercise of its reasonable discretion, and naming the Lender as an additional insured and loss payee together with appropriate flood insurance, if the Real Estate is in a flood hazard area. In addition, Borrower shall provide to the Lender proof of insurance for business interruption/extra expense coverage for six months of operating expenses, and also directors/officers errors and omissions coverage in a minimum amount of $2,000,000.00. Such certificates of insurance must describe the types and amounts of insurance (property and liability) carried by Borrower, and in each case must name the Lender as loss payee or additional insured, as the case may be, and must include a stipulation that coverages will not be cancelled or diminished without at least 30 days' prior written notice to the Lender, together with a lender's loss payable endorsement;
(l)
The Lender has received and is satisfied with an endorsement to its current mortgagee title insurance policy assuring Lender that the Mortgage creates a valid and enforceable encumbrance on the Real Estate, free and clear of all defects and encumbrances except Permitted Liens;
(m)
The Lender has received Federal Emergency Management Agency Standard Flood Hazard Determination Certificates certifying, among other things, that none of the Real Estate is located within a flood hazard area;
(n)
An as built appraisal performed by Natwick Associates Appraisal Services which shows the as-completed value of the Real Estate and Project addressed to and otherwise acceptable to the Lender;
(o)
Copies of all Permits and other documents from the appropriate state, federal, city or county authority having jurisdiction over the Real Estate and the Project that provide to the reasonable satisfaction of the Lender that the Project complies in all material respects with all applicable Permits, ordinances, laws and regulations, and such other evidence as the Lender shall reasonably request to establish that the Project and the contemplated use and operation thereof are permitted by and comply in all material respects with all applicable Permits, laws and regulations;
(p)
Such other matters as the Lender may reasonably require.
In the event the Lender waives any of the foregoing conditions precedent to the initial advance, Borrower agrees to take all steps required to satisfy the same within sixty (60) days of the funding of the initial Advance and further agree that failure to do so within such sixty (60) day period shall constitute an Event of Default.
Section 5.02
All Advances
. As of the time of each Advance or Declining Revolving Credit Loan hereunder:
(a)
Each of the representations and warranties of the Borrower set forth in Section 3.01 hereof shall be and remain true and correct as of said time, except to the extent that any such representation or warranty relates solely to an earlier date;
(b)
The Borrower shall be in full compliance with all of the terms and conditions hereof, and no Default or Event of Default shall have occurred and be continuing or would occur as a result of such Borrowing;
(c)
Such Borrowing shall not violate any order, judgment or decree of any court or other authority or any provision of law or regulation applicable to any Lender (including, without limitation, Regulation U of the Board of Governors of the Federal Reserve System) as then in effect.
Each request for an Advance or Declining Revolving Credit Loan shall be deemed to be a representation and warranty by the Borrower on the date of such Advance or Declining Revolving Credit Loan as to the facts specified in paragraphs (a) through (c) of this Section 5.02.
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01.
Events of Default
. Any one or more of the following events shall constitute an event of default (each, an "Event of Default"):
(a)
The Borrower shall fail to pay when due, by scheduled due date, maturity, acceleration or otherwise, any installment of principal and/or interest on any Obligation or any fee, expense or other sum owing under this Agreement or any other Loan Document; or
(b) (i)
If any of the representations or warranty set forth in Section 3.01 hereof shall fail to be and remain true and correct in all respects as of said time, except to the extent that any such representation or warranty relates solely to an earlier date or (ii) if any certificate, statement, representation, warranty or audit furnished by or on behalf of the Borrower in connection with this Agreement, including those contained herein, or as an inducement by the Borrower to enter into, modify, extend, or renew this Agreement shall prove to be false in any material respect, or if the Borrower shall have omitted the listing of a substantial contingent or unliquidated liability or claim against the Borrower or, if on the date of execution of this Agreement there shall have been any materially adverse change in any of the facts disclosed by any such certificate, statement, representation, warranty or audit, which change shall not have been disclosed by the Borrower to the Lender at or prior to the time of execution; or
(c)
If the Borrower shall default in the due performance or observance of any of the covenants found in Sections 4.04, 4.06, 4.08, 4.09, 4.10, 4.11, 4.13, 4.14 or 4.16; or
(d)
If the Borrower shall default in the due performance or observance of any other covenant undertaken by them under the Loan Documents and such default shall not have been remedied within ten (10) days after written notice thereof by the Lender to the Borrower; or
(e)
The Borrower shall (i) fail to pay any Debt, or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, or (ii) fail to perform or observe any term, covenant, or condition on its part to be performed or observed under any agreement or instrument relating to any such Debt, when required to be performed or observed, if the effect of such failure is to accelerate, or permit the acceleration of, the maturity of such Debt, where the affected Debt exceeds $250,000 in the aggregate; or
(f)
The Borrower (i) shall generally not pay, or shall be unable to pay, or shall admit in writing its inability to pay its debts as such debts become due; or (ii) shall make an assignment for the benefit of creditors, or petition or apply to any tribunal for the appointment of a custodian, receiver, or trustee for it or for a substantial part of its assets; or (iii) shall commence any proceeding under
any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any such petition or application filed or any such proceeding commenced against it and which remains undismissed for a period of thirty (30) days or more; or (v) shall take any corporate action indicating its consent to, approval of, or acquiescence in any such petition, application, proceeding, or order for relief or the appointment of a custodian, receiver, or trustee for all or any substantial part of its properties; or (vi) shall suffer any such custodianship, receivership, or trusteeship to continue undischarged for a period of thirty (30) days or more; or
(g)
Any judgment against the Borrower in excess of $250,000 or any attachment or other levy against the property of the Borrower with respect to a claim remains unpaid, stayed on appeal, undischarged, unbonded or not dismissed for a period of thirty (30) days; or
(h)
This Agreement or any of the Loan Documents shall cease for any reason to be in full force and effect other than by reason of any action or inaction of the Lender, or the Borrower shall so assert in writing, or the security interests created by the Loan Documents shall cease to be enforceable or shall not have the priority purported to be created thereby other than by reason of any action or inaction by the Lender or the Borrower shall so assert in writing; or
(i)
There shall occur the loss, theft, substantial damage to or destruction of any portion of the Collateral which, in the reasonable judgment of the Lender, is not adequately covered by insurance actually collected or in the process of collection, or the Borrower has not deposited with the Lender, in the manner provided for in the Loan Documents, funds which in the reasonable judgment of the Lender are sufficient to restore the Collateral to an equal or better capacity and functionality or there shall occur the exercise of the right of condemnation or eminent domain for any portion of the Collateral which by itself or with other such exercises of the right of condemnation or eminent domain has a Material Adverse Effect; or
(j)
The occurrence of any event or transaction or series of events or transactions in connection with or as a consequence of which (i) the voting equity interests in the Borrower entitling the holders thereof to cast more than 50% of the total votes that may be cast by all holders of the Borrower's voting equity interests shall cease to be owned beneficially by the holder or holders of such voting stock as of the date of this Agreement, or (ii) the Borrower, or all or substantially all of the assets of Borrower, shall be acquired by, or shall be combined with, any “person” (as defined in Section 13(d) of the Securities Exchange Act of 1934 as in effect on the date of this Agreement); or
(k)
The Borrower transfers, sells, assigns, or conveys all or such part of its assets or property which could be reasonably expected to have a Material Adverse Effect other than in the ordinary course of the Borrower's business consistent with past practices without the prior written consent of the Lender; or
(l)
The Borrower consents to the replacement of the general manager the Project without the prior written consent of the Lender, or the Lender has not approved the replacement general manager; or
(m)
The termination, suspension or non-renewal of any Permit which causes the Project to cease operations or otherwise which could be have a Material Adverse Effect in the discretion or determination of the Lender; or
(n)
The Borrower fails to perform or observe any term, covenant, or condition on its part to be performed or observed under any agreement, lease or instrument to which the Borrower is a party which results in a Material Adverse Effect; or
(o)
A breach by the Borrower or the occurrence of a default under any Financial Instrument Agreement or any other loan agreement, promissory note, security agreement or other agreement, contract, lease or document between the Borrower and any Lender or any affiliate or subsidiary of any Lender, beyond any applicable grace or notice and cure period; or
(p)
The Borrower fails to bring the Declining Revolving Credit Loans to within the Maximum Availability on each Reduction Date; or
(q)
any default (after giving effect to any applicable grace period) by Borrower occurs under any Material Contract or any Material Contract terminates for any reason without the prior written consent of the Lender; or
(r)
any event occurs which results in, or could be reasonably expected to result in, a Material Adverse Effect; or
(s)
The filing of any Liens other than Permitted Liens in excess of $250,000 individually or in the aggregate, including mechanics', construction, materialmens' or similar liens, upon the Real Estate and/or against the Project which are not released or bonded against (in a manner satisfactory to the Lender) for a period in excess of thirty (30) days after the filing date of such Lien, unless such Lien is being contested by the Borrower in good faith by appropriate proceedings which prevent foreclosure and has established reserves which the Lender reasonably deems sufficient to satisfy such lien in the event of an adverse determination.
Section 6.02.
Remedies
. Upon the occurrence of a Default or an Event of Default, the Lender's commitments and obligations to make Loans shall automatically stop until cured or waived or until the Loans are accelerated pursuant to this Section 6.02. Upon the occurrence of an Event of Default other than an Event of Default described in Section 6.01(f) the Lender may by notice to the Borrower, declare all of the Obligations (as well as any other Debt of the Borrower to the Lender) then outstanding to be and become due and payable in full, together with interest thereon, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower. Upon the occurrence of an Event of Default described in Section 6.01(f) all Obligations (as well as any other Debt of the Borrower to the Lender) then outstanding shall immediately become due and payable in full, together with interest thereon, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower. The Lender may resort to any and all security and to any remedy available under the Loan Documents or otherwise existing at law or in equity for the collection of all outstanding Obligations and the enforcement of the covenants and provisions of the Loan Documents against the Borrower. The Lender's resort to any remedy, shall not prevent the concurrent and subsequent employment of any joint or several remedy or claim against the Borrower. The Lender may rescind any acceleration of the Obligations without in any way waiving or affecting its right to accelerate the Obligations in the future. Acceptance of partial payment or partial performance shall not in any way affect or rescind any acceleration of the Obligations made by the Lender. Subject to the allocation provisions of Section 2.14 above, any collections or payments made after the Lender commences collection efforts shall, after payment of all expenses relating thereto, be applied (i) first to interest and principal on the Loans, and (ii) next to any Debt owing to the Lender under any cash management or deposit account relationships with the Borrower.
Section 6.03.
Set Off
. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default, Lender and each subsequent holder of any Note is hereby authorized by the Borrower at any time or from time to time, without notice to the Borrower or to any other person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts, and in whatever currency denominated) and any other indebtedness at any time held or owing by the Lender or that subsequent holder to or for the credit or the account of the Borrower whether or not matured, against and on account of the obligations and liabilities of the Borrower to Lender or that subsequent holder under the Loan Documents, including, but not limited to, all claims of any nature of description arising out of or connected with the Loan Documents, irrespective of whether or not (a) that Lender or that subsequent holder shall have made any demand hereunder or (b) the principal of or the interest on the Loans or Notes and other amounts due hereunder shall have become due and payable pursuant to Section 6.02 and although said obligations and liabilities, or any of them, may be contingent or unmatured.
Section 6.04.
Waiver, Etc
. Any waiver of an Event of Default by the Lender shall not extend to or affect any subsequent Default, whether it be the same Event of Default or not, or impair any right consequent thereon. No failure or delay or discontinuance on the part of the Lender in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power preclude any other or further exercise thereof or the exercise of any other right or power thereunder or be deemed an election of remedies or a waiver of any other right, power, privilege, option or remedy. All remedies herein and by law afforded will be cumulative and will be available to the Lender until the debt of the Borrower hereunder is fully and indefeasibly paid.
ARTICLE VII
MISCELLANEOUS
Section 7.01.
Notices
. All notices, requests, consents, and other communications directed to a party hereunder shall be in writing and shall be deemed to have been given to that party when hand delivered, delivered by next day courier or three Business Days after being mailed, postage prepaid, to the address listed on that party's signature page to this Agreement.
Section 7.02.
Survival of Representations, Warranties and Agreements
. Notwithstanding any investigation made by the Lender, all representations, warranties, agreements and statements made by the Borrower in or under this Agreement shall survive the making of the loans provided for hereunder. All statements by the Borrower contained in any certificate or other instrument delivered by or on behalf of the Borrower under this Agreement shall constitute representations and warranties made by the Borrower hereunder.
Section 7.03.
Binding Effect; Severability
. This Agreement shall continue until the payment in full of all Obligations and the termination of all commitments on the part of Lender to extend or maintain the extension of credit to or for the benefit of the Borrower. This Agreement shall be binding upon and inure to the benefit of the Lender and its successors and assigns and all other holders of the Notes or any part thereof, or of any other indebtedness provided for herein, and all rights conferred upon the Lender may be exercised by its successors and assigns and by all such other holders. If any provision of this Agreement is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Agreement, such provisions shall be fully severable and this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions
of the Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement.
Section 7.04.
Transfer or Assignment; Participations
. The Borrower may not assign or otherwise transfer any of its rights or obligations under this Agreement or any Loan Document without the prior written consent of the Lender. The Lender may assign, participate or otherwise transfer any of its rights or obligations under this Agreement or any Loan Document without notice to or the consent of the Borrower. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, each participant and, to the extent contemplated hereby, the affiliates of the Lender) any legal or equitable right, remedy or claim under or by reason of this Agreement.
Section 7.05.
Legal Fees, Other Costs and Indemnification
. The Borrower agrees to pay the reasonable attorneys fees and disbursements of the Lender in connection with the preparation and execution of this Agreement and the other Loan Documents whether or not the transactions contemplated herein are consummated, and all reasonable appraisal, due diligence, environmental consultant fees, recording, filing, title insurance, lien search or other expenses, fees, costs and taxes incident to the entry into and negotiation of this Agreement and the Loan Documents and attaching and perfecting a lien upon the Collateral. The Borrower also agrees to pay the reasonable attorney's fees and disbursements of the Lender in connection with any amendment of this Agreement and the other Loan Documents and any waiver or consent related to this Agreement. The Borrower further agrees to pay the reasonable attorney's fees and disbursements of the Lender in connection with the enforcement of the Loan Documents and to indemnify the Lender and any security trustee and their respective directors, officers and employees, against all losses, claims, damages, penalties, judgments, liabilities and expenses (including, without limitation, all expenses of litigation or preparation therefor, whether or not the indemnified person is a party thereto) which it may pay or incur arising out of or relating to any Loan Document or any of the transactions contemplated thereby or the direct or indirect application or proposed application of the proceeds of any Advance or Declining Revolving Credit Loan except as may arise from the gross negligence or willful misconduct of the party claiming indemnification. The Borrower upon demand by the Lender, at any time, shall reimburse each such indemnified party for any reasonable legal or other expenses incurred in connection with investigating or defending against any of the foregoing except if the same is directly due to the gross negligence or willful misconduct of such indemnified party.
Section 7.06.
Amendments
. Any provision of the this Agreement or any other Loan Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (a) the Borrower and (b) the Lender.
Section 7.07.
Setoffs
. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired, may exercise rights of setoff or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation.
Section 7.08.
Entire Agreement
. The Loan Documents constitute the entire understanding of the parties thereto with respect to the subject matter thereof and any prior or contemporaneous agreements, whether written or oral, with respect thereto are superseded hereby. The following statement is given pursuant to Nebraska law:
A CREDIT AGREEMENT MUST BE IN WRITING TO BE ENFORCEABLE UNDER NEBRASKA LAW. TO PROTECT YOU (BORROWER) AND US (LENDER) FROM ANY MISUNDERSTANDINGS OR DISAPPOINTMENTS, ANY CONTRACT, PROMISE, UNDERTAKING, OR OFFER TO FOREBEAR REPAYMENT OF MONEY OR TO MAKE ANY
OTHER FINANCIAL ACCOMMODATION IN CONNECTION WITH THIS LOAN OF MONEY OR GRANT OR EXTENSION OF CREDIT, OR ANY AMENDMENT OF, CANCELLATION OF, WAIVER OF, OR SUBSTITUTION FOR ANY OR ALL OF THE TERMS OR PROVISIONS OF ANY INSTRUMENT OR DOCUMENT EXECUTED IN CONNECTION WITH THIS LOAN OF MONEY OR GRANT OR EXTENSION OF CREDIT, MUST BE IN WRITING TO BE EFFECTIVE.
All of the terms of the other Loan Documents are incorporated in and made part of this Agreement by reference;
provided, however,
that to the extent of any direct conflict between this Agreement and such other Loan Documents, this Agreement shall prevail and govern.
Section 7.09.
Collateral Protection Notice
. The following notice is given to Borrower: Unless the Borrower provides evidence of the insurance coverage required by the Borrower's agreement with the Lender, the Lender may purchase insurance at the Borrower's expense to protect the Lender's interests in the Collateral. This insurance may, but need not, protect the Borrower's interests. The coverage that the Lender purchases may not pay any claim that the Borrower makes or any claim that is made against the Borrower in connection with the Collateral. The Borrower may later cancel any insurance purchased by the Lender, but only after providing evidence that the Borrower has obtained insurance as required by in this Agreement and the other Loan Documents. If the Lender purchases insurance for the Collateral, the Borrower will be responsible for the costs of that insurance, including the insurance premium, interest and any other charges the Lender may impose in connection with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance. The costs of the insurance may be added to the Borrower's total outstanding balance or Obligations. The costs of the insurance may be more than the cost of insurance the Borrower may be able to obtain on its own.
Section 7.10.
Governing Law
. This Agreement and the other Loan Documents, and the rights and duties of the parties hereto, shall be construed and determined in accordance with the internal laws of the State of Nebraska.
Section 7.11.
Submission to Jurisdiction; Waiver of Jury Trial
. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the District of Nebraska and of any Nebraska state court sitting in the city of Omaha for purposes of all legal proceedings arising out of or relating to this Agreement, the other Loan Documents or the transactions contemplated hereby or thereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which they may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. The Borrower and Lender hereby irrevocably waive any and all right to trial by jury in any legal proceeding arising out of or relating to any Loan Document or the transactions contemplated thereby.
Section 7.12.
Execution in Counterparts; Faxes
. This Agreement may be executed in any number of counterparts, and by the different parties on different counterparts, each of which when executed shall be deemed an original but all such counterparts taken together shall constitute one and the same instrument. This Agreement and any of the other Loan Documents may be validly executed and delivered by fax or other electronic means and by use of multiple counterpart signature pages.
Section 7.13.
USA Patriot Act Notice
. Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56, signed into law October 26, 2001) (the “Act”), it is required to obtain, verify and record information that identifies the Borrower, which information includes the name and address of the Borrower and other information that will allow Lender to identify the Borrower in accordance with the Act.
Section 7.14.
Exclusion of Consequential and Special Damages
. Notwithstanding anything to the contrary in this Agreement, Lender will not be liable for, nor will any measure of damages against them include, under any theory of liability (whether legal, strict or equitable), any indirect, consequential, incidental, special or punitive damages or amounts for business interruption, loss of income, revenue, profits or savings arising out of or relating to their performance or non-performance under this Agreement or any Loan Document, and the Borrower hereby waives any right to pursue or recover any of the foregoing damages.
[signature pages to follow]
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date and year first hereinabove written.
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CARDINAL ETHANOL, LLC
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By: /s/ Jeffrey L. Painter
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Title: CEO/Presdident
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Borrower's address for notices:
1554 North 600 E
Union City, Indiana 47390
Attention:
Jeff Painter, CEO
Telephone:
(765) 964-3137
Telefax:
(765) 969-7914
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FIRST NATIONAL BANK OF OMAHA
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By: /s/ Mark Baratta
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Name: Mark Baratta
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Title: Vice President
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Address: 1620 Dodge Street
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Stop 1050
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Omaha, NE 68197
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Attention: Blake Suing
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Telephone: 402-602-3215
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Telefax: 402-602-3519
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SECOND AMENDED AND RESTATED SECURITY AGREEMENT
This Second Amended and Restated Security Agreement (“Agreement”), dated as of June 10, 2013, is between CARDINAL ETHANOL, LLC, an Indiana limited liability company (the “Debtor”), and FIRST NATIONAL BANK OF OMAHA, a national banking association (the “Secured Party”).
WHEREAS, the Debtor has entered into a First Amended and Restated Construction Loan Agreement dated of even date with this Agreement (as amended, restated and in effect from time to time, the “Loan Agreement”), with the Secured Party, pursuant to which the Secured Party, subject to the terms and conditions contained therein, is to make the Loans available to or otherwise to extend credit to the Debtor.
WHEREAS, it is a condition precedent to the Secured Party's extension of the Obligations (as defined below) to the Debtor that the Debtor execute and deliver to the Secured Party a security agreement in substantially the form hereof; and
WHEREAS, the Debtor wishes to grant a security interest in favor of the Secured Party as herein provided.
NOW, THEREFORE, in consideration of the promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.
Definitions
. All capitalized terms used herein without definitions shall have the respective meanings provided therefor in the Loan Agreement. The term “State,” as used herein, means the State of Nebraska. All terms defined in the Uniform Commercial Code of the State and used herein shall have the same definitions herein as specified therein. However, if a term is defined in Article 9 of the Uniform Commercial Code of the State differently than in another Article of the Uniform Commercial Code of the State, the term has the meaning specified in Article 9. The term “Obligations,” as used herein, means all of the indebtedness, obligations and liabilities of the Debtor to the Secured Party, including, but not limited to, those under the Loans, Loan Agreement, and the other Loan Documents and under any letter of credit documentation, and under any contractual obligations, of every kind, nature or description, individually or collectively, whether direct or indirect, joint or several, absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising, whether provided for under or in respect of the Loan Agreement or otherwise or under any promissory notes or other instruments or agreements executed and delivered pursuant thereto or in connection therewith or this Agreement or otherwise, all Debt and obligations of the Debtor to the Secured Party under any Financial Instrument Agreement, any overdrafts or other deposit account liabilities of the Debtor to the Secured Party and any liabilities or Indebtedness of Debtor to the Secured Party under any credit card or purchasing card, and the term “Event of Default,” as used herein, means the failure of the Debtor to pay or perform any of the Obligations as and when due to be paid or performed under the terms of the Loan Agreement and the other Loan Documents and shall also have the meaning given to such term in the Loan Agreement or any other Loan Document.
2.
Grant of Security Interest
. The Debtor hereby grants to the Secured Party, to secure the payment and performance in full of all of the Obligations, a first priority security interest in and so pledges and assigns to the Secured Party, all goods, property and assets of the Debtor, including, but not limited to the following goods, property, assets and rights of the Debtor, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof (whether cash or non-cash proceeds), including without limitation, all assets and personal property or interests of the Debtor constituting proceeds
or proceeds of proceeds of the collateral described below (all of the same being hereinafter called the “Collateral”):
2.1.
All personal and fixture property of every kind and nature including, without limitation, all goods, equipment, inventory, ethanol, DDGS, corn oil, syrup, seed, grain, fertilizer, enzymes, RINS including
D 5 RINS and D 6 RINS,
furniture and fixtures, all of every kind and nature (including any accessions, additions, improvements, attachments and accessories thereto and products and proceeds thereof, and all operating manuals, service records, maintenance logs and warranties applicable thereto), and including all inventory in which the Debtor has an interest in mass or a joint or other interest or right of any kind and prepaid inventory kept or stored at the facility of the seller or another third party.
2.2.
All instruments (including promissory notes, notes receivable and supporting obligations), documents, negotiable and non-negotiable documents of title, negotiable and non-negotiable warehouse receipts, bills of lading, transit receipts or other documents of title, however denominated (collectively, “Warehouse Receipts”), and the goods underlying or relating to Warehouse Receipts, including, but not limited to, the Debtor's present and future rights to take possession and delivery of goods underlying or relating to any Warehouse Receipt.
2.3.
All accounts, all of the Debtor's rights to goods represented by or securing any accounts, all proceeds from the disposition or collection of accounts, all of the Debtor's rights as an unpaid vendor, including the right to reclaim goods, the right to stop goods in transit and the right to replevy goods, and all guaranties, letters of credit and other supports to the payment of accounts, chattel paper (whether tangible or electronic), deposit accounts (whether maintained with the Secured Party or other financial institutions), certificates of deposit (whether negotiable or non-negotiable), letter-of-credit rights (whether or not the letter of credit is evidenced by a writing), supporting obligations, any other contract rights or rights to the payment of money, insurance claims and proceeds, trademarks, service marks, copyrights, patents and other intellectual property rights and all of the Debtor's rights therein or thereto, software, general intangibles (including all payment intangibles), all payments and rights to payments whether or not earned by performance including, but not limited to, price support payments, subsidy payments, guaranty payments, payments in kind, deficiency payments, letters of entitlements, storage payments, emergency assistance, diversion payments, production flexibility contracts, contract reserve payments, grain insurance fund and/or ethanol insurance fund claim rights and the right to bring such claims on the Debtor's behalf, grain insurance fund proceeds, ethanol insurance fund proceeds and all similar programs of any and every kind, whether federal, state or local, and any other rights to payment under or from any preexisting, current or future federal, state or local government program, and the products and proceeds of all the foregoing.
2.4.
All farm products, including, but not limited to, all cattle, poultry and livestock and their young, together with all products and replacements for such cattle, poultry and livestock; all crops, annual or perennial, and all products of such crops; and all grain, feed, seed, fertilizer, chemicals, medicines, and other supplies used or produced in the Debtor's operations or sold as inventory, and the products and proceeds and rights to payments associated with all or any of the foregoing.
2.5.
All books, records, ledger sheets or cards, reports, scale tickets, invoices, purchase orders, customer lists, mailing lists, files, correspondence, computer programs, tapes, disks and other documents, software or data processing software that at any time relates to any of the foregoing or are otherwise necessary or helpful in realizing on or collecting on any Collateral.
2.6.
All investment property, securities, securities accounts (including, but not limited to, all accounts maintained with the Secured Party) and the securities entitlements, securities and investment property contained therein, all commodity brokerage accounts, Hedge Accounts and all other hedging accounts, and all commodity and securities entitlements, investment property, commodities and other rights associated with such commodity brokerage accounts or the positions therein, Hedge Accounts and hedging accounts, and all commodity accounts and all the commodities, securities, investment property, assets, entitlements, equity, cash or value contained therein.
2.7.
All commercial tort claims now existing or hereafter arising. The Secured Party acknowledges that the attachment of its security interest in any additional commercial tort claim as original collateral is subject to the Debtor's compliance with Section 4.7 below.
3.
Authorization to File Financing Statements
. The Debtor hereby irrevocably authorizes the Secured Party at any time and from time to time to file in any filing office in any Uniform Commercial Code jurisdiction any initial financing statements and amendments thereto and amendments of existing financing statements that (a) indicate and describe the Collateral, including, but not limited to, descriptions of the Collateral as all assets of the Debtor, or words of similar effect and (b) provide any other information required by part 5 of Article 9 of the Uniform Commercial Code of the State, or such other jurisdiction, for the sufficiency or filing office acceptance of any financing statement or amendment, including (i) whether the Debtor is an organization, the type of organization and any organizational identification number issued to the Debtor and, (ii) in the case of a financing statement filed as a fixture filing or indicating Collateral as as-extracted collateral or timber to be cut, a sufficient description of real property to which the Collateral relates. The Debtor agrees to furnish any such information to the Secured Party promptly upon the Secured Party's request. In addition, the Debtor hereby authorizes the Secured Party to file all effective financing statements pursuant to 7 U.S.C. Section 1631, and amendments to effective statements, describing the Collateral in any offices as the Secured Party, in its sole discretion, may determine. If requested by the Secured Party, the Debtor will provide the Secured Party with a list of the buyers, commission merchants and selling agents to or through whom the Debtor may sell ethanol, DDGS, corn oil, farm products or grain and a list of all elevators, warehousemen or others where the Debtor stores inventory, ethanol, DDGS, corn oil, farm products or grain. The Debtor authorizes the Secured Party to notify all such buyers, commission merchants, selling agents, elevators, warehousemen or any other person, of the Secured Party's security interest in the Debtor's inventory, farm products, or grain unless prohibited by law. The Debtor also ratifies its authorization for the Secured Party to have filed in any Uniform Commercial Code jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof.
4.
Other Actions
. To further the attachment, perfection and first priority of, and the ability of the Secured Party to enforce, the Secured Party's security interest in the Collateral, and without limitation on the Debtor's other obligations in this Agreement, the Debtor agrees, in each case at the Debtor's expense, to take the following actions with respect to the following Collateral:
4.1.
Promissory Notes, Instruments and Tangible Chattel Paper
. If the Debtor shall at any time hold or acquire any instruments, promissory notes or tangible chattel paper, the Debtor shall, upon request of the Secured Party, forthwith endorse, assign and deliver the same to the Secured Party, accompanied by such instruments of transfer or assignment duly executed in blank as the Secured Party may from time to time specify. The Debtor will not deliver possession of, endorse or assign any instruments, promissory notes or tangible chattel paper to any person or entity other than the Secured Party.
4.2.
Deposit Accounts
. For each deposit account that the Debtor at any time opens or maintains, the Debtor shall, at the Secured Party's request and option, pursuant to an agreement in
form and substance satisfactory to the Secured Party, either (a) cause the depositary bank to comply at any time with instructions from the Secured Party to such depositary bank directing the disposition of funds from time to time credited to such deposit account, without further consent of the Debtor, or (b) arrange for the Secured Party to become the customer of the depositary bank with respect to the deposit account, with the Debtor being permitted, only with the consent of the Secured Party, to exercise rights to withdraw funds from such deposit account. Except for any debt service reserve accounts, the Secured Party agrees with the Debtor that the Secured Party shall not give any such instructions or withhold any withdrawal rights from the Debtor, unless an Event of Default has occurred and is continuing, or would occur, if effect were given to any withdrawal not otherwise permitted by the Loan Documents. The provisions of this paragraph shall not apply to (i) any deposit account for which the Debtor, the depositary bank and the Secured Party have entered into a cash collateral agreement specially negotiated among the Debtor, the depositary bank and the Secured Party for the specific purpose set forth therein, (ii) a deposit account for which the Secured Party is the depositary bank and is in automatic control, and (iii) deposit accounts specially and exclusively used for payroll, payroll taxes and other employee wage and benefit payments to or for the benefit of the Debtor's salaried employees.
4.3.
Investment Property
. If the Debtor shall at any time hold or acquire any certificated securities, the Debtor shall forthwith endorse, assign and deliver the same to the Secured Party, accompanied by such instruments of transfer or assignment duly executed in blank as the Secured Party may from time to time specify. If any securities now or hereafter acquired by the Debtor are uncertificated and are issued to the Debtor or its nominee directly by the issuer thereof, the Debtor shall immediately notify the Secured Party thereof and, at the Secured Party's request and option, pursuant to an agreement in form and substance satisfactory to the Secured Party, either (a) cause the issuer to agree to comply with instructions from the Secured Party as to such securities, without further consent of the Debtor or such nominee, or (b) arrange for the Secured Party to become the registered owner of the securities. If any commodity interests or securities, whether certificated or uncertificated, or other investment property now or hereafter acquired by the Debtor are held by the Debtor or its nominee through a securities intermediary or commodity intermediary, the Debtor shall immediately notify the Secured Party thereof and, at the Secured Party's request and option, pursuant to an agreement in form and substance satisfactory to the Secured Party, either (i) cause such securities intermediary or (as the case may be) commodity intermediary to agree to comply with entitlement orders or other instructions from the Secured Party to such securities intermediary as to such securities or other investment property, or (as the case may be) to apply any value distributed on account of any commodity contract as directed by the Secured Party to such commodity intermediary, in each case without further consent of the Debtor or such nominee, or (ii) in the case of financial assets or other investment property held through a securities intermediary, arrange for the Secured Party to become the entitlement holder with respect to such investment property, with the Debtor being permitted, only with the consent of the Secured Party, to exercise rights to withdraw or otherwise deal with such investment property. The Secured Party agrees with the Debtor that the Secured Party shall not give any such entitlement orders or instructions or directions to any such issuer, securities intermediary or commodity intermediary, and shall not withhold its consent to the exercise of any withdrawal or dealing rights by the Debtor, unless an Event of Default has occurred and is continuing, or, after giving effect to any such investment and withdrawal rights not otherwise permitted by the Loan Documents, would occur.
4.4.
Collateral in the Possession of a Bailee
. If any Collateral is at any time in the possession of a third party, bailee, warehouseman or elevator, the Debtor shall promptly notify the Secured Party thereof and, at the Secured Party's request and option, shall promptly obtain an acknowledgement
from the third party, bailee, warehouseman or elevator, in form and substance satisfactory to the Secured Party, that the third party, bailee, warehouseman or elevator holds such Collateral for the benefit of the Secured Party, and that such third party, bailee, warehouseman or elevator agrees to comply, without further consent of the Debtor, with instructions from the Secured Party as to such Collateral, including, but not limited to, the delivery of such Collateral to the Secured Party or as the Secured Party directs, or the payment of the sale proceeds of such Collateral to the Secured Party, or as the Secured Party directs. The Secured Party agrees with the Debtor that the Secured Party shall not give any such instructions unless an Event of Default has occurred and is continuing or would occur after taking into account any action by the Debtor with respect to the third party, bailee, warehouseman or elevator.
4.5.
Electronic Chattel Paper and Transferable Records
. If the Debtor at any time holds or acquires an interest in any electronic chattel paper or any “transferable record,” as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act (as hereafter amended), or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, the Debtor shall promptly notify the Secured Party thereof and, at the request and option of the Secured Party, shall take such action as the Secured Party may reasonably request to vest in the Secured Party control, under Section 9-105 of the Uniform Commercial Code, of such electronic chattel paper or control under Section 201 of the federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record. The Secured Party agrees with the Debtor that the Secured Party will arrange, pursuant to procedures satisfactory to the Secured Party and so long as such procedures will not result in the Secured Party's loss of control, for the Debtor to make alterations to the electronic chattel paper or transferable record permitted under UCC Section 9-105 or, as the case may be, Section 201 of the federal Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform Electronic Transactions Act for a party in control to make without loss of control, unless an Event of Default has occurred and is continuing or would occur after taking into account any action by the Debtor with respect to such electronic chattel paper or transferable record.
4.6.
Letter-of-Credit Rights
. If the Debtor is at any time a beneficiary under a letter of credit, the Debtor shall promptly notify the Secured Party thereof and, at the request and option of the Secured Party, the Debtor shall, pursuant to an agreement in form and substance satisfactory to the Secured Party, either (i) arrange for the issuer and any confirmer or other nominated person of such letter of credit to consent to an assignment to the Secured Party of the proceeds of the letter of credit, or (ii) arrange for the Secured Party to become the transferee beneficiary of the letter of credit, with the Secured Party agreeing, in each case, that the proceeds of the letter to credit are to be applied to the Obligations in such order and priority as the Secured Party.
4.7
Commercial Tort Claims
. If the Debtor shall at any time hold or acquire a commercial tort claim, the Debtor shall immediately notify the Secured Party in a writing signed by the Debtor of the particulars thereof and grant to the Secured Party in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance satisfactory to the Secured Party.
4.8
Other Actions as to Any and All Collateral
. The Debtor further agrees, at the request and option of the Secured Party, to take any and all other actions the Secured Party may determine to be necessary or useful for the creation, attachment, perfection and first priority of, and the ability of the Secured Party to enforce, the Secured Party's security interest in any and all of the Collateral, including, without limitation, (a) executing, delivering and, where appropriate, filing financing
statements and amendments relating thereto under the Uniform Commercial Code, to the extent, if any, that the Debtor's signature thereon is required therefor, (b) causing the Secured Party's name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of the Secured Party to enforce, the Secured Party's security interest in such Collateral, (c) complying with any provision of any statute, regulation or treaty of the United States as to any Collateral if compliance with such provision is a condition to attachment, perfection or priority of, or ability of the Secured Party to enforce, the Secured Party's security interest in such Collateral, (d) obtaining governmental and other third party waivers, consents and approvals in form and substance satisfactory to Secured Party, including, without limitation, any consent of any licensor, lessor or other person obligated on Collateral, (e) obtaining waivers from mortgagees and landlords in form and substance satisfactory to the Secured Party and (f) taking all actions under any earlier versions of the Uniform Commercial Code or under any other law, as reasonably determined by the Secured Party to be applicable in any relevant Uniform Commercial Code or other jurisdiction, including any foreign jurisdiction.
4.9.
Warehouse Receipts
.
(a)
The Debtor has delivered or will deliver to the Secured Party (or the agent or designee of the Secured Party), any and all documents, instruments and writings in any way relating to the Warehouse Receipts or in any way relating to the property evidenced thereby. As long as this Agreement remains in effect, the Debtor shall immediately deliver to the Secured Party any and all future documents, instruments, or other writings applicable or in any way relating to the foregoing in the Debtor's possession. In the event that the Debtor is unable to deliver original Warehouse Receipts, and such other documents, to the Secured Party at the time this Agreement is executed, as required above, the Debtor agrees to deliver immediately such Warehouse Receipts to the Secured Party upon issuance of the same.
(b)
The Debtor further agrees that the Secured Party shall have the right at any time, and from time to time, whether or not one or more Events of Default exist under the Loan Agreement, to demand that the Debtor immediately deliver to the Secured Party any and all Warehouse Receipts held in the Debtor's possession or control for or representing all or any part of the Collateral that is then or may thereafter be issued in the name of the Debtor. The Debtor unconditionally agrees to deliver such Warehouse Receipts to the Secured Party on demand.
(c)
In addition to Warehouse Receipts, the Secured Party may require the Debtor from time to time, one or more times, to deliver to the Secured Party such lists, descriptions and designations of any applicable Collateral not represented by Warehouse Receipts as the Secured Party may require to identify the nature, extent and location of the same.
(d)
The Debtor represents and warrants to the Secured Party that all of the Debtor's grain at any time, and from time to time, represented by Warehouse Receipts or included in any list, description or designation referred to above, will at all times be owned by the Debtor free and clear of all liens, encumbrances and security interests of any kind whatsoever, excepting only the security interest of the Secured Party pursuant hereto.
(e)
As long as no Event of Default exists, the Debtor may sell or use in its operations the property released by the Secured Party from or under Warehouse Receipts, as well as the Debtor's property not represented by Warehouse Receipts, in carrying on the Debtor's business in the ordinary course, substantially in the same manner as now conducted; but a sale in the
ordinary course of business shall not include any transfer or sale in satisfaction, partial or complete, of a debt owed by the Debtor.
4.10.
Farm Products
. The Debtor shall not store or consign any farm products in a facility not owned by the Debtor without first obtaining a written acknowledgment from any person to whom physical possession of any such farm products are delivered (a) of the Secured Party's security interest in such farm products, (b) that it holds possession of such farm products for the Secured Party's benefit, (c) that it will not issue negotiable documents with respect to such farm products to any person other than the Debtor who will deliver possession thereof to the Secured party or the Secured Party's agent and (d) that it agrees to follow the Secured Party's instructions as to disposition of farm products upon its receipt of such instructions. The Secured Party agrees with the Debtor that the Secured Party shall not give any such instructions or directions unless an Event of Default has occurred and is continuing. The Debtor will comply with the provisions of all federal, state or local government programs, agreements and contracts to which the Debtor is a party.
4.11.
Proceeds
. The Debtor shall transfer all proceeds of all Collateral into the Debtor's main operating account established and maintained by the Debtor with the Secured Party, or in such other deposit account as required by the Secured Party. The Debtor shall not grant any other person or entity a security interest, lien or other encumbrance in or on such deposit account.
5.
Relation to Other Security Documents
. The provisions of this Agreement supplement the provisions of the Loan Agreement, Mortgage and other Loan Documents. Nothing contained in the Loan Agreement or other Loan Documents shall derogate from any of the rights or remedies of the Secured Party hereunder.
6.
Representations and Warranties Concerning Debtor's Legal Status
. The Debtor represents and warrants to the Secured Party as follows: (a) the Debtor's exact legal name is that indicated on the first page and on the signature page hereof, (b) the Debtor is an organization of the type, and is organized in the jurisdiction set forth on the first page of this Agreement, (c) the Debtor's tax identification number has been provided to the Secured Party and the Debtor's organizational control number is 2005021100241 or if left blank, then the Debtor has none, and (d) each of the Debtor's places of business and, if more than one, its chief executive office, as well as the Debtor's mailing address, if different, are listed in Schedule A attached to this Agreement and incorporated herein by reference.
7.
Covenants Concerning Debtor's Legal Status
. The Debtor covenants with the Secured Party as follows: (a) the Debtor will not change its name, its place of business or, if more than one, chief executive office, or its mailing address or organizational identification number if it has one, and (b) the Debtor will not change its type of organization, jurisdiction of organization or other legal structure.
8.
Representations and Warranties Concerning Collateral, Etc.
The Debtor further represents and warrants to the Secured Party as follows: (a) the Debtor is the owner of the Collateral, free from any right or claim or any person or any Lien other than Permitted Liens, (b) except as disclosed to the Secured Party, none of the account debtors or other persons obligated on any of the Collateral is a governmental authority covered by the Federal Assignment of Claims Act or like federal, state or local statute or rule in respect of such Collateral, (c) the Debtor holds no commercial tort claim except as indicated on Schedule A attached to this Agreement, and (d) the Debtor has at all times operated its business in compliance with all applicable provisions of the federal Fair Labor Standards Act, as amended, and with all applicable provisions of federal, state and local statutes and ordinances dealing with the control, shipment, storage or disposal of hazardous materials or substances.
9.
Covenants Concerning Collateral, Etc.
The Debtor further covenants with the Secured Party as follows: (a) the Collateral, to the extent not delivered to the Secured Party pursuant to Section 4, will be kept at those locations listed on Schedule A and the Debtor will not move any Collateral except as permitted in the Loan Agreement, (b) except for the security interest herein granted and other Permitted Liens, the Debtor shall be the owner of the Collateral free from any right or claim of any other person, lien, security interest or other encumbrance, and the Debtor shall defend the same against all claims and demands of all persons at any time claiming the same or any interests therein adverse to the Secured Party, (c) the Debtor shall not pledge, mortgage or create, or suffer to exist any right of any person in or claim by any person to the Collateral, or any Lien with respect to the Collateral except for Permitted Liens, (d) the Debtor will keep the Collateral in good order and repair and will not use the same in violation of law or any policy of insurance thereon, (e) the Debtor will permit the Secured Party, or its designee, to inspect and audit the Collateral at any reasonable time, wherever located, according to the terms of the Loan Agreement, (f) the Debtor will pay promptly when due all taxes, assessments, governmental charges and levies upon the Collateral according to the terms of the Loan Agreement or incurred in connection with the use or operation of such Collateral or incurred in connection with this Agreement, (g) the Debtor will apply for all subsidies, price support payments, guaranty payments and other payments of any kind available to the Debtor under any federal, state or local governmental program relating to the Debtor's operations conducted in accordance with past practices, will file for all tax credits and deductions available for any of the foregoing, and will take no action, or omit to take any action, which would preclude or jeopardize in any manner the Debtor's ability to participate in any such payments, programs, tax credits or deductions and (h) the Debtor will not discount, factor, sell or otherwise dispose, or offer to sell or otherwise dispose, of any of the Collateral, including, but not limited to, instruments, general intangibles, tangible or electronic chattel paper, promissory notes and/or accounts, or any interest therein except for (i) sales and leases of inventory in the ordinary course of business and (ii) so long as no Event of Default has occurred and is continuing, sales or other dispositions of obsolescent items of equipment consistent with past practices; provided, however, that permitted sales under this Section are also permitted under the Loan Agreement. In the event that such sales are not permitted under the Loan Agreement, then such sales are also not permitted hereunder. In addition, the Debtor will only store grain owned by the Debtor not evidenced by a Warehouse Receipt in facilities owned by the Debtor at locations set forth on Schedule A.
10.
Insurance
.
10.1.
Maintenance of Insurance
. The Debtor will maintain the insurance required in the Loan Agreement and Mortgage. All such insurance covering the Collateral shall be payable to the Secured Party as loss payee under a “standard” or “New York” loss payee clause.
10.2.
Insurance Proceeds
. The proceeds of any casualty insurance in respect of any casualty loss of any of the Collateral shall, subject to the rights, if any, of other parties with an interest having priority in the property covered thereby, (i) so long as no Event of Default has occurred and is continuing, the damaged Collateral can be economically repaired or replaced in the sole discretion of the Secured Party and the casualty loss is $50,000.00 or less and any conditions precedent in the Mortgage with respect to the disbursement of insurance proceeds to the Debtor have been satisfied, be disbursed to the Debtor for direct application by the Debtor solely to the repair or replacement of the Debtor's property so damaged or destroyed, and (ii) in all other circumstances, be held by the Secured Party as cash collateral for the Obligations. Subject to the foregoing, the Secured Party may, at its sole option, disburse from time to time all or any part of such proceeds so held as cash collateral, upon such terms and conditions as the Secured Party may reasonably prescribe, for direct application by the Debtor solely to the repair or replacement of the Debtor's property so damaged or destroyed, or the Secured Party may apply all or any part of such proceeds to the Obligations with the amount
of the Line of Credit, as described in the Loan Agreement (if not then terminated) being reduced by the amount so applied to the Obligations.
10.3.
Continuation of Insurance
. All policies of insurance shall provide for at least 30 days prior written cancellation notice to the Secured Party. In the event of failure by the Debtor to provide and maintain insurance as herein provided, the Secured Party may, at its option, provide such insurance and charge the amount thereof to the Debtor, subject to the terms of the Loan Agreement. The Debtor shall furnish the Secured Party with certificates of insurance and policies evidencing compliance with the foregoing insurance provision.
11.
Collateral Protection Expenses; Preservation of Collateral
.
11.1.
Expenses Incurred by Secured Party
. In the Secured Party's discretion, if the Debtor fails to do so, the Secured Party may discharge taxes and other encumbrances at any time levied or placed on any of the Collateral, maintain any of the Collateral, make repairs thereto and pay any necessary filing fees or insurance premiums. The Debtor agrees to reimburse the Secured Party on demand for all expenditures so made. The Secured Party shall have no obligation to the Debtor to make any such expenditures, nor shall the making thereof be construed as the waiver or cure of any Event of Default.
11.2.
Secured Party's Obligations and Duties
. Anything herein to the contrary notwithstanding, the Debtor shall remain obligated and liable under each contract or agreement comprised in the Collateral to be observed or performed by the Debtor thereunder. The Secured Party shall not have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Secured Party of any payment relating to any of the Collateral, nor shall the Secured Party be obligated in any manner to perform any of the obligations of the Debtor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Secured Party in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Secured Party or to which the Secured Party may be entitled at any time or times. The Secured Party's sole duty with respect to the custody, safe keeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Uniform Commercial Code of the State or otherwise, shall be to deal with such Collateral in the same manner as the Secured Party deals with similar property for its own account.
12.
Securities and Deposits
. The Secured Party may at any time following and during the continuance of an Event of Default, at its option, transfer to itself or any nominee any securities constituting Collateral, receive any income thereon and hold such income as additional Collateral or apply it to the Obligations. Whether or not any Obligations are due, the Secured Party may following and during the continuance of an Event of Default demand, sue for, collect, or make any settlement or compromise which it deems desirable with respect to the Collateral. Regardless of the adequacy of Collateral or any other security for the Obligations, any deposits or other sums at any time credited by or due from the Secured Party to the Debtor may at any time be applied to or set off against any of the Obligations.
13.
Notification to Account Debtors and Other Persons Obligated on Collateral
. If an Event of Default shall have occurred and be continuing, the Debtor shall, at the request and option of the Secured Party, notify account debtors and other persons obligated on any of the Collateral of the security interest of
the Secured Party in any account, chattel paper, general intangible, instrument or other Collateral and that payment thereof is to be made directly to the Secured Party or to any financial institution designated by the Secured Party as the Secured Party's agent therefor, and the Secured Party may itself, if an Event of Default shall have occurred and be continuing, without notice to or demand upon the Debtor, so notify account debtors and other persons obligated on Collateral. After the making of such a request or the giving of any such notification, the Debtor shall hold any proceeds of collection of accounts, chattel paper, general intangibles, instruments and other Collateral received by the Debtor as trustee for the Secured Party without commingling the same with other funds of the Debtor and shall turn the same over to the Secured Party in the identical form received, together with any necessary endorsements or assignments. The Secured Party shall apply the proceeds of collection of accounts, chattel paper, general intangibles, instruments and other Collateral received by the Secured Party to the Obligations in the order provided for in the Loan Agreement, such proceeds to be immediately credited after final payment in cash or other immediately available funds of the items giving rise to them.
14.
Power of Attorney
.
14.1.
Appointment and Powers of Secured Party
. The Debtor hereby irrevocably constitutes and appoints the Secured Party and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of the Debtor or in the Secured Party's own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments that may be necessary or useful to accomplish the purposes of this Agreement and, without limiting the generality of the foregoing, hereby gives said attorneys the power and right, on behalf of the Debtor, without notice to or assent by the Debtor, to do the following:
(a)
upon the occurrence and during the continuance of an Event of Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise dispose of or deal with any of the Collateral in such manner as is consistent with the Uniform Commercial Code of the State and applicable federal, state and local grain code provisions and as fully and completely as though the Secured Party were the absolute owner thereof for all purposes, and to do, at the Debtor's expense, at any time, or from time to time, all acts and things which the Secured Party deems necessary or useful to protect, preserve or realize upon the Collateral and the Secured Party's security interest therein, in order to effect the intent of this Agreement, all at least as fully and effectively as the Debtor might do, including, without limitation, (i) the filing and prosecuting of registration and transfer applications with the appropriate federal, state, local or other agencies or authorities with respect to trademarks, copyrights and patentable inventions and processes, (ii) the filing and prosecuting of appropriate federal, state, or local claims against grain insurance funds, bonds, indemnities or similar funds with the appropriate federal, state or local agencies or authorities with jurisdiction over such claims, (iii) upon written notice to the Debtor, the exercise of voting rights with respect to voting securities, which rights may be exercised, if the Secured Party so elects, with a view to causing the liquidation of assets of the issuer of any such securities, and (iv) the execution, delivery and recording, in connection with any sale or other disposition of any Collateral, of the endorsements, assignments or other instruments of conveyance or transfer with respect to such Collateral; and
(b)
to the extent that the Debtor's authorization given in Section 3 is not sufficient, to file such financing statements with respect hereto, with or without the Debtor's signature, or a photocopy of this Agreement in substitution for a financing statement, as the Secured Party may deem appropriate and to execute in the Debtor's name such financing statements
and amendments thereto and continuation statements which may require the Debtor's signature.
14.2.
Ratification by Debtor
. To the extent permitted by law, the Debtor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and is irrevocable.
14.3.
No Duty on Secured Party
. The powers conferred on the Secured Party hereunder are solely to protect its interests in the Collateral and shall not impose any duty upon it to exercise any such powers. The Secured Party shall be accountable only for the amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to the Debtor for any act or failure to act, except for the Secured Party's own gross negligence or willful misconduct.
15.
Rights and Remedies
. If an Event of Default shall have occurred and be continuing beyond any applicable grace or notice and cure period provided for in the Loan Agreement, the Secured Party, without any other notice to or demand upon the Debtor in any jurisdiction in which enforcement hereof is sought, in addition to all other rights and remedies, whether conferred in the Loan Agreement or at law or in equity, has the rights and remedies of a secured party under the Uniform Commercial Code of the State and any additional rights and remedies which may be provided to a secured party in any jurisdiction in which Collateral is located, including, without limitation, the right to take possession of the Collateral, and for that purpose the Secured Party may, so far as the Debtor can give authority therefor, enter upon any premises on which the Collateral may be situated and remove the same therefrom. The Secured Party may in its discretion require the Debtor to assemble all or any part of the Collateral at such location or locations within the jurisdiction(s) of the Debtor's principal office(s) or at such other locations as the Secured Party may reasonably designate. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Secured Party shall give to the Debtor at least ten (10) days prior written notice of the time and place of any public sale of Collateral or of the time after which any private sale or any other intended disposition is to be made. The Debtor hereby acknowledges that ten (10) days prior written notice of such sale or sales shall be reasonable notice. In addition, the Debtor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Secured Party's rights and remedies hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights and remedies with respect thereto.
16.
Standards for Exercising Rights and Remedies
. To the extent that applicable law imposes duties on the Secured Party to exercise remedies in a commercially reasonable manner, the Debtor acknowledges and agrees that it is not commercially unreasonable for the Secured Party (a) to fail to incur expenses reasonably deemed significant by the Secured Party to prepare Collateral for disposition or otherwise to fail to complete raw material or work in process into finished goods or other finished products for disposition, (b) to fail to obtain third party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third party consents for the collection or disposition of Collateral to be collected or disposed of, (c) to fail to exercise collection remedies against account debtors or other persons obligated on Collateral or to fail to remove liens or encumbrances on or any adverse claims against Collateral, (d) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists, (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature, (f) to contact other persons, whether or not in the same business as the Debtor, for expressions of interest in acquiring all or any portion of the Collateral, (g) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature, (h) to dispose of Collateral by utilizing Internet sites that provide for the
auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets, (i) to dispose of assets in wholesale rather than retail markets, (j) to disclaim disposition warranties, (k) to purchase insurance or credit enhancements to insure the Secured Party against risks of loss, collection or disposition of Collateral or to provide to the Secured Party a guaranteed return from the collection or disposition of Collateral, or (l) to the extent deemed appropriate by the Secured Party, to obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Secured Party in the collection or disposition of any of the Collateral. The Debtor acknowledges that the purpose of this Section 16 is to provide non-exhaustive indications of what actions or omissions by the Secured Party would fulfill the Secured Party's duties under the Uniform Commercial Code or other law of the State or any other relevant jurisdiction in the Secured Party's exercise of remedies against the Collateral and that other actions or omissions by the Secured Party shall not be deemed to fail to fulfill such duties solely on account of not being indicated in this Section 16. Without limitation upon the foregoing, nothing contained in this Section 16 shall be construed to grant any rights to the Debtor or to impose any duties on the Secured Party that would not have been granted or imposed by this Agreement or by applicable law in the absence of this Section 16.
17.
No Waiver by Secured Party, Etc
. The Secured Party shall not be deemed to have waived any of its rights or remedies in respect of the Obligations or the Collateral unless such waiver shall be in writing and signed by the Secured Party. No delay or omission on the part of the Secured Party in exercising any right or remedy shall operate as a waiver of such right or remedy or any other right or remedy. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. All rights and remedies of the Secured Party with respect to the Obligations or the Collateral, whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be exercised singularly, alternatively, successively or concurrently at such time or at such times as the Secured Party deems expedient.
18.
Suretyship Waivers by Debtor
. The Debtor waives demand, notice, protest, notice of acceptance of this Agreement, notice of loans made, credit extended, Collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description. With respect to both the Obligations and the Collateral, the Debtor assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of or failure to perfect any security interest in any Collateral, to the addition or release of any party or person primarily or secondarily liable, to the acceptance of partial payment thereon and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Secured Party may deem advisable. The Secured Party shall have no duty as to the collection or protection of the Collateral or any income therefrom, the preservation of rights against prior parties, or the preservation of any rights pertaining thereto beyond the safe custody thereof as set forth in Section 11.2. The Debtor further waives any and all other suretyship defenses.
19.
Marshalling
. The Secured Party shall not be required to marshal any present or future collateral security (including but not limited to the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights and remedies hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights and remedies, however existing or arising. To the extent that it lawfully may, the Debtor hereby agrees that it will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of the Secured Party's rights and remedies under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the Debtor hereby irrevocably waives the benefits of all such laws.
20.
Proceeds of Dispositions; Expenses
. The Debtor shall pay to the Secured Party on demand any and all expenses, including reasonable attorneys' fees and disbursements, incurred or paid by the Secured Party in protecting, preserving or enforcing the Secured Party's rights and remedies under or in respect of any of the Obligations or any of the Collateral. After deducting all of said expenses, the residue of any proceeds of collection or sale or other disposition of the Collateral shall, to the extent actually received in cash, be applied to the payment of the Obligations in such order or preference as the Secured Party may determine, proper allowance and provision being made for any Obligations not then due. Upon the final payment and satisfaction in full of all of the Obligations and after making any payments required by Sections 9-608(a)(1)(C) or 9-615(a)(3) of the Uniform Commercial Code of the State, any excess shall be returned to the Debtor. In the absence of final payment and satisfaction in full of all of the Obligations, the Debtor shall remain liable for any deficiency.
21.
Overdue Amounts
. Until paid, all amounts due and payable by the Debtor hereunder shall be a debt secured by the Collateral and shall bear, whether before or after judgment, interest at the rate of interest for overdue principal set forth in the Loan Agreement.
22.
Governing Law; Consent to Jurisdiction
. THIS AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEBRASKA. The Debtor agrees that any action or claim arising out of, or any dispute in connection with, this Agreement, any rights, remedies, obligations, or duties hereunder, or the performance or enforcement hereof or thereof, may be brought in the courts of the State or any federal court sitting therein and consents to the non-exclusive jurisdiction of such court and to service of process in any such suit being made upon the Debtor by mail at the address specified in the notice provision of the Loan Agreement. The Debtor hereby waives any objection that it may now or hereafter have to the venue of any such suit or any such court or that such suit is brought in an inconvenient court.
23.
Waiver of Jury Trial
. THE DEBTOR WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, ANY RIGHTS, REMEDIES, OBLIGATIONS, OR DUTIES HEREUNDER, OR THE PERFORMANCE OR ENFORCEMENT HEREOF OR THEREOF. Except as prohibited by law, the Debtor waives any right which it may have to claim or recover in any litigation referred to in the preceding sentence any special, exemplary, punitive or consequential damages or any damages other than, or in addition to, actual damages. The Debtor (i) certifies that neither the Secured Party nor any representative, agent or attorney of the Secured Party has represented, expressly or otherwise, that the Secured Party would not, in the event of litigation, seek to enforce the foregoing waivers or other waivers contained in this Agreement, and (ii) acknowledges that, in entering into the Loan Agreement and the other Loan Documents to which the Secured Party is a party, the Secured Party is relying upon, among other things, the waivers and certifications contained in this Section 23.
24.
Miscellaneous
. The headings of each section of this Agreement are for convenience only and shall not define or limit the provisions thereof. This Agreement and all rights and obligations hereunder shall be binding upon the Debtor and its respective successors and assigns, and shall inure to the benefit of the Secured Party and its successors and assigns. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal or unenforceable term had not been included herein. The Debtor acknowledges receipt of a copy of this Agreement.
25.
Termination
. If the Debtor shall fully and finally pay to the Secured Party the Loans and the Secured Party's Revolving Credit Commitments and Declining Revolving Credit Commitments terminate at the time and in the manner provided for in the Loan Agreement and the Debtor is not in default under the
terms of the Loan Agreement or any other Loan Document, then the security interest granted in this Agreement shall terminate, and the security interests in the Collateral created by this Agreement shall be released at the cost of the Debtor.
26.
Amended and Restated Security Agreement; Liens Unimpaired
. This Agreement amends, restates and replaces in its entirety the Security Agreement, dated as of December 19, 2006 and the First Amended and Restated Security Agreement dated on or about February 14, 2012, each between the Secured Party and the Borrower, as so amended and as otherwise in effect immediately prior to the date hereof (collectively, the "Existing Security Agreement"). It is the intention and understanding of the parties that (a) all security interests and other Liens arising under or evidenced by the Existing Security Agreement shall remain in full force and effect and shall secure the Obligations, and (b) the priority of all such security interests and other Liens shall not be impaired by the execution, delivery or performance of this Agreement or the other Loan Documents. All Uniform Commercial Code financing statements and other lien perfection and similar documents relating to the Existing Security Agreement or the security interests or other Liens arising thereunder or evidenced thereby shall remain in full force and effect and shall act to perfect the Secured Party's security interest in the Collateral described therein.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, intending to be legally bound, the Debtor has caused this Agreement to be duly executed as of the date first above written.
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CARDINAL ETHNAOL, LLC, an Indiana limibted
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liability company
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By: /s/ Jeffrey L. Painter
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Title: CEO/President
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Accepted:
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FIRST NATIONAL BANK OF OMAHA
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By: /s/ Mark A. Baratta
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Title: Vice President
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CERTIFICATE OF ACKNOWLEDGMENT
STATE OF INDIANA
)
) ss.
COUNTY OF
Randolph
)
Before me, the undersigned, a Notary Public in and for the county aforesaid, on this 10th day of June, 2013, personally appeared
Jeffrey L. Painter
, to me known personally, and who, being by me duly sworn, deposes and says that he is the
President/CEO
of Cardinal Ethanol, LLC, and that said instrument was signed on behalf of said limited liability company by authority of its Board of Directors, and said officer acknowledged said instrument to be the free act and deed of said limited liability company.
/s/ Heather A. Craig
Notary Public
My commission expires:
February 1, 2016
My County of Residence is:
Wayne
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HEATHER A. CRAIG
NOTARY PUBLIC
SEAL
STATE OF INDIANA
MY COMMISSION EXPIRES FEBRUARY 1, 2016
RESIDENT OF WAYNE COUNTY
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SCHEDULE A
Locations/Commercial Tort Claims
I.
Debtor Locations:
1554 North 600 E
Union City, Indiana 47390
II.
Commercial Tort Claims:
None
Account Number(s):
234 34887
FIRST AMENDED AND RESTATED SECURITY AGREEMENT
AND ASSIGNMENT OF HEDGING ACCOUNTS
WHEREAS, the undersigned, Cardinal Ethanol, LLC ("Debtor"), whose address is 1554 N. 600 E, Union, Indiana 47390 carries the accounts listed above with ADM Investor Services, Inc. (“Broker”), as broker, whose address is 141 West Jackson Blvd., Suite 1600A, Chicago, Illinois 60604-3190, for trading in hedging and commodities futures contracts; and Debtor is now indebted to First National Bank of Omaha (the "Secured Party") under that certain First Amended and Restated Construction Loan Agreement dated June 10, 2013 between the Secured Party, whose address is 1620 Dodge Street, Stop 1050, Omaha, Nebraska 68197, and Debtor (as it may be from time to time amended, the “Loan Agreement”). Capitalized terms not otherwise defined in this Agreement will have the meaning given to such terms in the Loan Agreement. Pursuant to the Loan Agreement, Debtor is obligated to execute and deliver to the Secured Party this First Amended and Restated Security Agreement and Assignment of Hedging Account ("Agreement").
NOW, THEREFORE, it is hereby agreed by and between the parties hereto as follows:
1.
To secure payment and performance of Debtor's Obligations to the Secured Party under the Loan Agreement and the other Loan Documents, to secure overdrafts and other deposit account liabilities owed by Debtor to Secured Party, to secure credit and purchasing card liabilities owed by Debtor to Secured Party and for the payment of all monies and credit which Secured Party may hereafter loan or advance to Debtor, Debtor hereby grants to Secured Party a continuing security interest in and assigns and transfers to Secured Party the account(s) listed above and any other accounts, open positions, investment property or commodity contracts that Debtor now or hereafter maintains with Broker and all assets, cash, cash equivalents, open position equity, equity, investment property, security entitlements, commodity entitlements, securities, commodities, funds, Trading Account Property (as such term is defined in that certain Account Control Agreement among Debtor, Secured Party and Broker), or value which may hereafter accumulate or become withdrawable from, distributed on account of, or payable out of the accounts with Broker identified above or otherwise maintained by Debtor with Broker, and all proceeds thereof, including any balance which may remain to the credit of such accounts upon the closing thereof, and all commodities, commodity contracts, investment property, commodity and securities entitlements, and other rights associated with such accounts, and all contracts therein (including, but not limited to, futures contracts) which Broker transacts for Debtor and all products and proceeds of all the foregoing (whether cash or non-cash proceeds), including, without limitation, all assets and personal property or interests of Debtor constituting proceeds of proceeds of the foregoing collateral (the foregoing collateral, accounts and property collectively referred to as the “Account”); subject, however, to the prior payment of all account fees and commissions, which may have been incurred in connection with Debtor's transactions with Broker.
2.
Debtor shall execute and deliver to the Secured Party the Account Control Agreement referenced above and such other documents and control agreements, and hereby irrevocably authorizes the Secured Party to file all financing statements, amendments to financing statements and other documents or instruments, as the Secured Party may reasonably request or require, in a form satisfactory to the Secured Party to perfect, and maintain perfected, the security interest granted and assignments made by Debtor to the Secured Party in this Agreement.
3.
Broker is hereby irrevocably authorized and directed by Debtor to pay the Secured Party, without further authority from or consent of Debtor, upon the Secured Party's demand and whether or not any Event of Default exists, all cash and funds that may hereafter be withdrawable or payable out of the Account, and Debtor agrees that it will not withdraw or attempt to withdraw any cash, funds or other property from the Account except as permitted by
this Agreement or the Secured Party in writing. The Secured Party is hereby irrevocably authorized and fully empowered by Debtor without further authority from or consent of Debtor to request Broker to remit to the Secured Party any funds that may be due to Debtor, and Broker is hereby authorized and directed by Debtor to pay to the Secured Party such sums as the Secured Party shall so request or demand without the consent of or notice to Debtor. Debtor hereby grants the Secured Party's control over the Account as defined in Articles 8 and 9 of the Uniform Commercial Code.
4.
If at any time during the continuance of any commodity contract or contracts, Broker may require additional margin in order to protect such commodity contract or contracts, the Secured Party may, but shall not be obligated to, advance to Broker on behalf of Debtor such amounts as may be required to protect such commodity contracts; provided, however, that any such advance shall be deemed an advance under the Revolving Credit Loan, in the Secured Party's discretion, and Debtor shall in all respects remain liable to the Secured Party for any amounts so advanced.
5.
Debtor hereby irrevocably constitutes and appoints the Secured Party its true and lawful attorney-in-fact, coupled with an interest, to demand, receive and enforce payments and to give receipts, releases, satisfactions for, and to sue for all value and monies payable to Debtor on account of or under the Account or any commodity entitlements and investment property contained therein and this may be done in the name of the Secured Party with the same force and effect as Debtor could do had this Agreement not been made. Any and all monies or payments which may be received by Debtor, to which the Secured Party is entitled under and by reason of this Agreement, will be received by Debtor as trustee for the Secured Party, and will be immediately delivered in kind to the Secured Party without commingling.
6.
Nothing herein contained shall be construed to prevent Debtor from remaining the owner, subject to the interest of the Secured Party, in the Account with Broker. Until the Secured Party elects to the contrary and delivers notice of such election in writing to Broker, Debtor may make such additional hedging transactions in the Account with Broker as Broker shall be willing to accept for execution. In the event the Secured Party does make such election and does deliver such notice to Broker, Debtor shall not thereafter execute any transactions in the Account and Broker shall not accept for execution any such transactions without the prior written concurrence of the Secured Party, except transactions in liquidation of any then outstanding commodity or commodity futures positions.
7.
Whenever the Secured Party deems it necessary for its protection, it shall be entitled, without the consent or concurrence of or prior notice to Debtor, to direct Broker to liquidate any or all then outstanding open positions in the Account and to direct Broker to pay to it, the Secured Party, the credit balance as shall exist in the Account after such liquidation and after the payment to Broker of all the indebtedness of Debtor to Broker in connection with transactions in the Account. Debtor hereby authorizes Broker to follow instructions the Broker receives from the Secured Party with respect to the Account without the consent of Debtor.
8.
Any sums paid by Broker from the Account to the Secured Party under this Agreement shall be applied by the Secured Party to the payment of any indebtedness owing by Debtor to the Secured Party in such order and manner as is provided for in the Loan Agreement. The balance remaining after the payment of said indebtedness shall be paid by the Secured Party to such parties required by the Uniform Commercial Code or other applicable law. The receipt or receipts of the Secured Party for such funds so paid to it by Broker shall, as to Broker, operate as the receipt of Debtor as fully and as completely as if funds had been paid to Debtor in person and receipted for by Debtor.
9.
The Secured Party is hereby irrevocably authorized and empowered by Debtor to receive from Broker, and Broker is authorized and directed to deliver to the Secured Party, copies of confirmations on all contracts executed for the Account of Debtor, copies of the monthly position and ledger accounts of Debtor, and copies of any and all matters pertaining to the Account of Debtor with Broker.
10.
As between Debtor and the Secured Party, this Agreement shall remain in full force and effect until canceled in writing by the Secured Party or by the Debtor, when and if and only if Debtor is no longer indebted to the Secured Party. Any cancellation of this Agreement shall be without effect as to Broker until Broker is notified in writing by the Secured Party.
11.
Debtor hereby represents and warrants to the Secured Party that the Account, other accounts or security interests above assigned or granted have not heretofore been pledged, alienated or assigned except for the security interests previously granted by Debtor to Broker and that Debtor is the owner of such Account.
12.
This Agreement shall be binding upon Debtor, its successors and assigns and it shall be binding upon and inure to the benefit of any successors or assigns of the Secured Party and Broker.
13.
This Agreement shall be governed by, and construed in accordance with, the laws of the State of Nebraska, exclusive of its choice of laws principles.
14.
This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.
Electronic delivery of an executed counterpart of a signature page to this Agreement shall be effective as delivery of an original executed counterpart of this Agreement.
15.
This Agreement amends, restates and replaces in its entirety the Security Agreement and Assignment of Hedging Account, dated as of August 11, 2011, between the Secured Party, Debtor and the Broker, as so amended and as otherwise in effect immediately prior to the date hereof (the "Existing Security Agreement"). It is the intention and understanding of the parties that (a) all security interests and other Liens arising under or evidenced by the Existing Security Agreement shall remain in full force and effect and shall secure the Obligations, and (b) the priority of all such security interests and other Liens shall not be impaired by the execution, delivery or performance of this Agreement or the other Loan Documents. All Uniform Commercial Code financing statements, control agreements and other lien perfection and similar documents relating to the Existing Security Agreement or the security interests or other Liens arising thereunder or evidenced thereby shall remain in full force and effect and shall act to perfect the Secured Party's security interest in the Account and other collateral described therein.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Agreement has been executed as of the 10th day of June, 2013.
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CARDINAL ETHANOL, LLC, and Indiana
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limited liability company
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By: /s/ Jeffrey L. Painter
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Title: CEO/President
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FIRST NATIONAL BANK OF OMAHA
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By: /s/ Mark A. Baratta
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Title: Vice President
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CERTIFICATE OF ACKNOWLEDGMENT
STATE OF INDIANA
)
) ss.
COUNTY OF
Randolph
)
Before me, a Notary Public in and for said County and State, personally appeared
Jeffrey Painter,
known to me to be the
President/CEO
of Cardinal Ethanol, LLC, an Indiana limited liability company, and acknowledged the execution of the foregoing for and on behalf of such limited liability company.
/s/ Heather A. Craig
Notary Public-Signature
Heather A. Craig
Notary Public-Printed Name
County of Residence:
Wayne
Date: June 10, 2013
My commission expires:
February 1, 2016
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HEATHER A. CRAIG
NOTARY PUBLIC
SEAL
STATE OF INDIANA
MY COMMISSION EXPIRES FEBRUARY 1, 2016
RESIDENT OF WAYNE COUNTY
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Account Number(s):
286 394 10500
286 394 10501
286 394 10502
286 M0500
FIRST AMENDED AND RESTATED SECURITY AGREEMENT
AND ASSIGNMENT OF HEDGING ACCOUNTS
WHEREAS, the undersigned, Cardinal Ethanol, LLC ("Debtor"), whose address is 1554 N. 600 E, Union City, Indiana 47390 carries the accounts listed above with R.J. O'Brien & Associates, LLC (“Broker”), as broker, whose address is 222 S. Riverside Plaza, Chicago, Illinois 60606, for trading in hedging and commodities futures contracts; and Debtor is now indebted to First National Bank of Omaha (the "Secured Party") under that certain First Amended and Restated Construction Loan Agreement dated June 10, 2013 between the Secured Party, whose address is 1620 Dodge Street, Stop 1050, Omaha, Nebraska 68197, and Debtor (as it may be from time to time amended, the “Loan Agreement”). Capitalized terms not otherwise defined in this Agreement will have the meaning given to such terms in the Loan Agreement. Pursuant to the Loan Agreement, Debtor is obligated to execute and deliver to the Secured Party this First Amended and Restated Security Agreement and Assignment of Hedging Account ("Agreement").
NOW, THEREFORE, it is hereby agreed by and between the parties hereto as follows:
1.
To secure payment and performance of Debtor's Obligations to the Secured Party under the Loan Agreement and the other Loan Documents, to secure overdrafts and other deposit account liabilities owed by Debtor to Secured Party, to secure credit and purchasing card liabilities owed by Debtor to Secured Party and for the payment of all monies and credit which Secured Party may hereafter loan or advance to Debtor, Debtor hereby grants to Secured Party a continuing security interest in and assigns and transfers to Secured Party the account(s) listed above and any other accounts, open positions, investment property or commodity contracts that Debtor now or hereafter maintains with Broker and all assets, cash, cash equivalents, open position equity, equity, investment property, security entitlements, commodity entitlements, securities, commodities, funds, Trading Account Property (as such term is defined in that certain Account Control Agreement among Debtor, Secured Party and Broker), or value which may hereafter accumulate or become withdrawable from, distributed on account of, or payable out of the accounts with Broker identified above or otherwise maintained by Debtor with Broker, and all proceeds thereof, including any balance which may remain to the credit of such accounts upon the closing thereof, and all commodities, commodity contracts, investment property, commodity and securities entitlements, and other rights associated with such accounts, and all contracts therein (including, but not limited to, futures contracts) which Broker transacts for Debtor and all products and proceeds of all the foregoing (whether cash or non-cash proceeds), including, without limitation, all assets and personal property or interests of Debtor constituting proceeds of proceeds of the foregoing collateral (the foregoing collateral, accounts and property collectively referred to as the “Account”); subject, however, to the prior payment of all account fees and commissions, which may have been incurred in connection with Debtor's transactions with Broker.
2.
Debtor shall execute and deliver to the Secured Party the Account Control Agreement referenced above and such other documents and control agreements, and hereby irrevocably authorizes the Secured Party to file all financing statements, amendments to financing statements and other documents or instruments, as the Secured Party may reasonably request or require, in a form satisfactory to the Secured Party to perfect, and maintain perfected, the security interest granted and assignments made by Debtor to the Secured Party in this Agreement.
3.
Broker is hereby irrevocably authorized and directed by Debtor to pay the Secured Party, without further authority from or consent of Debtor, upon the Secured Party's demand and whether or not any Event of Default exists, all cash and funds that may hereafter be withdrawable or payable out of the Account, and Debtor agrees that it will not withdraw or attempt to withdraw any cash, funds or other property from the Account except as permitted by this Agreement or the Secured Party in writing. The Secured Party is hereby irrevocably authorized and fully empowered
by Debtor without further authority from or consent of Debtor to request Broker to remit to the Secured Party any funds that may be due to Debtor, and Broker is hereby authorized and directed by Debtor to pay to the Secured Party such sums as the Secured Party shall so request or demand without the consent of or notice to Debtor. Debtor hereby grants the Secured Party's control over the Account as defined in Articles 8 and 9 of the Uniform Commercial Code.
4.
If at any time during the continuance of any commodity contract or contracts, Broker may require additional margin in order to protect such commodity contract or contracts, the Secured Party may, but shall not be obligated to, advance to Broker on behalf of Debtor such amounts as may be required to protect such commodity contracts; provided, however, that any such advance shall be deemed an advance under the Revolving Credit Loan, in the Secured Party's discretion, and Debtor shall in all respects remain liable to the Secured Party for any amounts so advanced.
5.
Debtor hereby irrevocably constitutes and appoints the Secured Party its true and lawful attorney-in-fact, coupled with an interest, to demand, receive and enforce payments and to give receipts, releases, satisfactions for, and to sue for all value and monies payable to Debtor on account of or under the Account or any commodity entitlements and investment property contained therein and this may be done in the name of the Secured Party with the same force and effect as Debtor could do had this Agreement not been made. Any and all monies or payments which may be received by Debtor, to which the Secured Party is entitled under and by reason of this Agreement, will be received by Debtor as trustee for the Secured Party, and will be immediately delivered in kind to the Secured Party without commingling.
6.
Nothing herein contained shall be construed to prevent Debtor from remaining the owner, subject to the interest of the Secured Party, in the Account with Broker. Until the Secured Party elects to the contrary and delivers notice of such election in writing to Broker, Debtor may make such additional hedging transactions in the Account with Broker as Broker shall be willing to accept for execution. In the event the Secured Party does make such election and does deliver such notice to Broker, Debtor shall not thereafter execute any transactions in the Account and Broker shall not accept for execution any such transactions without the prior written concurrence of the Secured Party, except transactions in liquidation of any then outstanding commodity or commodity futures positions.
7.
Whenever the Secured Party deems it necessary for its protection, it shall be entitled, without the consent or concurrence of or prior notice to Debtor, to direct Broker to liquidate any or all then outstanding open positions in the Account and to direct Broker to pay to it, the Secured Party, the credit balance as shall exist in the Account after such liquidation and after the payment to Broker of all the indebtedness of Debtor to Broker in connection with transactions in the Account. Debtor hereby authorizes Broker to follow instructions the Broker receives from the Secured Party with respect to the Account without the consent of Debtor.
8.
Any sums paid by Broker from the Account to the Secured Party under this Agreement shall be applied by the Secured Party to the payment of any indebtedness owing by Debtor to the Secured Party in such order and manner as is provided for in the Loan Agreement. The balance remaining after the payment of said indebtedness shall be paid by the Secured Party to such parties required by the Uniform Commercial Code or other applicable law. The receipt or receipts of the Secured Party for such funds so paid to it by Broker shall, as to Broker, operate as the receipt of Debtor as fully and as completely as if funds had been paid to Debtor in person and receipted for by Debtor.
9.
The Secured Party is hereby irrevocably authorized and empowered by Debtor to receive from Broker, and Broker is authorized and directed to deliver to the Secured Party, copies of confirmations on all contracts executed for the Account of Debtor, copies of the monthly position and ledger accounts of Debtor, and copies of any and all matters pertaining to the Account of Debtor with Broker.
10.
As between Debtor and the Secured Party, this Agreement shall remain in full force and effect until canceled in writing by the Secured Party or by the Debtor, when and if and only if Debtor is no longer indebted to the Secured Party. Any cancellation of this Agreement shall be without effect as to Broker until Broker is notified in writing by the Secured Party.
11.
Debtor hereby represents and warrants to the Secured Party that the Account, other accounts or security interests above assigned or granted have not heretofore been pledged, alienated or assigned except for the security interests previously granted by Debtor to Broker and that Debtor is the owner of such Account.
12.
This Agreement shall be binding upon Debtor, its successors and assigns and it shall be binding upon and inure to the benefit of any successors or assigns of the Secured Party and Broker.
13.
This Agreement shall be governed by, and construed in accordance with, the laws of the State of Nebraska, exclusive of its choice of laws principles.
14.
This Agreement may be executed simultaneously in counterparts, each of which shall be deemed an original but which together shall constitute one and the same instrument.
Electronic delivery of an executed counterpart of a signature page to this Agreement shall be effective as delivery of an original executed counterpart of this Agreement.
15.
This Agreement amends, restates and replaces in its entirety the Security Agreement and Assignment of Hedging Account, dated as of August 11, 2011, between the Secured Party, Debtor and the Broker, as so amended and as otherwise in effect immediately prior to the date hereof (the "Existing Security Agreement"). It is the intention and understanding of the parties that (a) all security interests and other Liens arising under or evidenced by the Existing Security Agreement shall remain in full force and effect and shall secure the Obligations, and (b) the priority of all such security interests and other Liens shall not be impaired by the execution, delivery or performance of this Agreement or the other Loan Documents. All Uniform Commercial Code financing statements, control agreements and other lien perfection and similar documents relating to the Existing Security Agreement or the security interests or other Liens arising thereunder or evidenced thereby shall remain in full force and effect and shall act to perfect the Secured Party's security interest in the Account and other collateral described therein.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, this Agreement has been executed as of the 10th day of June, 2013.
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CARDINAL ETHANOL, LLC, and Indiana
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limited liability company
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By: /s/ Jeffrey L. Painter
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Title: CEO/President
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FIRST NATIONAL BANK OF OMAHA
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By: /s/ Mark A. Baratta
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Title: Vice President
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CERTIFICATE OF ACKNOWLEDGMENT
STATE OF INDIANA
)
) ss.
COUNTY OF
Randolph
)
Before me, a Notary Public in and for said County and State, personally appeared
Jeffrey Painter,
known to me to be the
President/CEO
of Cardinal Ethanol, LLC, an Indiana limited liability company, and acknowledged the execution of the foregoing for and on behalf of such limited liability company.
/s/ Heather A. Craig
Notary Public-Signature
Heather A. Craig
Notary Public-Printed Name
County of Residence:
Wayne
Date: June 10, 2013
My commission expires:
February 1, 2016
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HEATHER A. CRAIG
NOTARY PUBLIC
SEAL
STATE OF INDIANA
MY COMMISSION EXPIRES FEBRUARY 1, 2016
RESIDENT OF WAYNE COUNTY
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DECLINING REVOLVING CREDIT NOTE
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$28,889,410.44
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June 10, 2013
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For value received, the undersigned, CARDINAL ETHANOL, LLC, an Indiana limited liability company (the "
Borrower
"), promises to pay to the order of FIRST NATIONAL BANK OF OMAHA (the "
Lender
"; which term shall include any subsequent holder hereof), in lawful money of the United States of America, at such address as is required by the Lender, the principal sum of Twenty-Eight Million Eight Hundred Eighty-Nine Thousand Four Hundred Ten and 44/100 Dollars ($28,889,410.44), or, if different, the principal amount outstanding under Section 2.01(a)(ii) of the Credit Agreement referred to below.
This Declining Revolving Credit Note (the "
Note
") is the Declining Revolving Credit Note referred to in, is issued pursuant to, and is subject to the terms and conditions of, the First Amended and Restated Construction Loan Agreement, dated on or about the date hereof, between the Borrower and the Lender (as the same may be amended, renewed, restated, replaced, consolidated or otherwise modified from time to time (the "
Credit Agreement
").
To the extent of any conflict between the terms and conditions of this Note and the terms and conditions of the Credit Agreement, the terms and conditions of the Credit Agreement shall prevail and govern. Capitalized terms used but not defined in this Note have the meanings given to them in the Credit Agreement.
Interest shall accrue on the outstanding principal balance of this Note as provided in the Credit Agreement.
Principal, interest and all other amounts, if any, payable in respect of this Note shall be payable as provided in the Credit Agreement, including, but not limited to, payments required on each Reduction Date to bring the Declining Revolving Credit Loans within the Maximum Availability on each such Reduction Date.
The termination of the Credit Agreement or the occurrence of an Event of Default shall entitle the Lender, consistent with the terms of the Credit Agreement, to declare the then outstanding principal balance hereof, all accrued interest thereon, and all other amounts, if any, payable in respect of this Note to be, and the same shall thereupon become, immediately due and payable without notice to or demand on the Borrower, all of which the Borrower waives.
Time is of the essence with respect to this Note. To the fullest extent permitted by applicable law, the Borrower, for itself and its successors and assigns, waives presentment, demand, protest, notice of dishonor, and any and all other notices, demands and consents in connection with the delivery, acceptance, performance, default or enforcement of this Note, and consents to any extensions of time, renewals, releases of any parties to or guarantors of this Note, waivers and any other modifications that may be granted or consented to by the Lender from time to time in respect of the time of payment or any other provision of this Note.
This Note shall be governed by the laws of the State of Nebraska, without regard to any choice of law rule thereof giving effect to the laws of any other jurisdiction.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note as of the date first above written.
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CARDINAL ETHANOL, LLC
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By: /s/ Jeffrey L. Painter
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Title: CEO/President
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REVOLVING CREDIT NOTE
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$15,000,000
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June 10, 2013
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For value received, the undersigned, CARDINAL ETHANOL, LLC, an Indiana limited liability company (the "
Borrower
"), promises to pay to the order of FIRST NATIONAL BANK OF OMAHA, a national banking association (the "
Lender
", which term shall include any subsequent holder hereof), in lawful money of the United States of America, at such address as is required by the Lender, the principal sum of Fifteen Million and No/100 Dollars ($15,000,000.00) or, if different, the principal amount outstanding under Section 2.01(a)(i) of the Credit Agreement referred to below.
This Revolving Credit Note (the "
Note
") is the Revolving Credit Note referred to in, is issued pursuant to, and is subject to the terms and conditions of, the First Amended and Restated Construction Loan Agreement, dated on or about the date hereof, between the Borrower and the Lender (as the same may be amended, renewed, restated, replaced, consolidated or otherwise modified from time to time (the "
Credit Agreement
").
To the extent of any conflict between the terms and conditions of this Note and the terms and conditions of the Credit Agreement, the terms and conditions of the Credit Agreement shall prevail and govern. Capitalized terms used but not defined in this Note have the meanings given to them in the Credit Agreement.
Interest shall accrue on the outstanding principal balance of this Note as provided in the Credit Agreement. Principal, interest and all other amounts, if any, payable in respect of this Note shall be payable as provided in the Credit Agreement.
The termination of the Credit Agreement or the occurrence of an Event of Default shall entitle the Lender,
consistent with the terms of the Credit Agreement, to declare the then outstanding principal balance hereof, all accrued interest thereon, and all other amounts, if any, payable in respect of this Note to be, and the same shall thereupon become, immediately due and payable without notice to or demand on the Borrower, all of which the Borrower waives.
Time is of the essence with respect to this Note. To the fullest extent permitted by applicable law, the Borrower, for itself and its successors and assigns, waives presentment, demand, protest, notice of dishonor, and any and all other notices, demands and consents in connection with the delivery, acceptance, performance, default or enforcement of this Note, and consents to any extensions of time, renewals, releases of any parties to or guarantors of this Note, waivers and any other modifications that may be granted or consented to by the Lender from time to time in respect of the time of payment or any other provision of this Note.
This Note shall be governed by the laws of the State of Nebraska, without regard to any choice of law rule thereof giving effect to the laws of any other jurisdiction.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note as of the date first above written.
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CARDINAL ETHANOL, LLC
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By: /s/ Jeffrey L. Painter
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Title: CEO/President
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____________________________ [Space Above This Line For Recording Data] _____________________________
[CROSS REFERENCE Instrument Numbers 20066145, 20084410,
20090150 and 20112157]
FIRST AMENDED AND RESTATED CONSTRUCTION LOAN MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS
AND FIXTURE FINANCING STATEMENT
THIS FIRST AMENDED AND RESTATED CONSTRUCTION LOAN MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FINANCING STATEMENT (as amended, supplemented, restated or otherwise modified from time to time, the “Mortgage”) is made as of June 10, 2013, by CARDINAL ETHANOL, LLC, an Indiana limited liability company (“Mortgagor”), whose address is 1554 North 600 E, Union, Indiana 47390 in favor of FIRST NATIONAL BANK OF OMAHA, a National Banking Association (“Mortgagee”), whose address is 1620 Dodge Street, Stop 1050, Omaha, Nebraska 68197-1050. This Mortgage amends and restates that certain Construction Loan Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement dated December 19, 2006 (as amended, the "Existing Mortgage"), and recorded December 21, 2006 as Instrument No. 20066145 in the mortgage/real estate records of Randolph County, Indiana, granted by Mortgagor in favor of Mortgagee, as amended by that certain First Amendment of Construction Loan Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement dated July 31, 2008, and recorded January 16, 2009 as Instrument No. 20090150 in the mortgage/real estate records of Randolph County, Indiana, and by that certain Second Amendment of Construction Loan Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Financing Statement dated May 25, 2011, and recorded June 13, 2011 as Instrument No. 20112157 in the real estate records of Randolph County, Indiana, and as amended by a partial release dated September 29, 2008 and recorded October 6, 2008 as Instrument No. 20084410 in the mortgage/real estate records of Randolph County, Indiana,, but is not a novation thereof.
RECITALS
A.
Mortgagor and Mortgagee have entered into that certain First Amended and Restated Construction Loan Agreement dated of even date herewith (as amended, supplemented, restated or otherwise modified from time to time, the “Loan Agreement”), pursuant to which Mortgagee has extended to Mortgagor the Loans defined therein consisting of (i) a Revolving Credit Loan in the maximum principal amount of $15,000,000.00 evidenced by that certain Revolving Credit Note of even date herewith executed and delivered by Mortgagor to Mortgagee, and (ii) a Declining Revolving Credit Loan in the maximum principal amount of $28,889,410.44 evidenced by that certain Declining Revolving Credit Note of even date herewith executed and delivered by Mortgagor to Mortgagee; (iii) letters of credit from time to time issued by Mortgagee for the account of Mortgagor and (iv) Financial Instrument Agreements from time to time entered into between Mortgagor and Mortgagee, all as more fully described in the Loan Agreement. The foregoing financial accommodations and credit facilities shall be collectively referred to in this Mortgage as the “Loans”. The Loans will extend, amend and restate the Loans extended under the Current Credit Agreement.
B.
The Loans are payable and to be performed in accordance with the terms of the Notes evidencing the same and the Loan Agreement, with the entire unpaid balance of the Loans to mature and be due and payable in full not later than January 8, 2021 (the “Maturity Date”), unless extended by Mortgagor and Mortgagee.
C.
Mortgagor has agreed to mortgage and grant a Lien on the Mortgaged Property (as herein defined) to Mortgagee to secure the Loans and the Obligations (as defined below).
D.
The obligations secured by this Mortgage (the “Obligations”) include, collectively, all indebtedness, liabilities and obligations whatsoever of Mortgagor to Mortgagee whether now existing or hereafter arising, regardless of the form the liability takes or its purpose, including, without limitation, overdrafts and deposit account liabilities and liabilities under any credit or purchasing cards of Mortgagor to Mortgagee and all indebtedness, liabilities and obligations under or in connection with the Loan Agreement and/or any of the other Loan Documents, including without limitation, the principal of, and interest on, the Loans, all future advances thereunder, and all other amounts now or hereafter owing to Mortgagee under this Agreement, the Notes, letters of credit, Financial Instrument Agreements or any of the other Loan Documents, all obligations of Mortgagor under this Mortgage, including, but not limited to, any protective advances advanced by Mortgagee under this Mortgage and all Debt under the Current Credit Agreement which remains due and owing after the execution and delivery of the Loan Agreement.
Pursuant to I.C. 32-29-1-10, the Obligations include, and this Mortgage secures, future obligations and advances under the Loans and protective advances made under this Mortgage or the Loan Documents and future modifications, extensions and renewals of the Loans and Obligations secured by this Mortgage. The maximum principal amount of the Loans and Obligations secured by this Mortgage is $43,889,410.44.
NOW, THEREFORE, Mortgagor, in consideration of the Mortgagee advancing the Loans and making such funds available to Mortgagor, and to secure the payment and performance of the Obligations, hereby irrevocably and unconditionally MORTGAGES AND WARRANTS to Mortgagee, its successors and assigns, forever, with right of entry and possession, and grants to Mortgagee, its successors and assigns, a mortgage and security interest in the land and any buildings, plants, fixtures, facilities or improvements of any kind (collectively, “Improvements”), now existing or hereafter constructed or placed thereon, described in
Exhibit A
attached hereto and all mineral rights, hereditaments, easements and appurtenances thereto (collectively the “Land”), along with all the following, all of which together with the Land is called the “Mortgaged Property”:
(a)
All and singular the tenements, hereditaments, easements, appurtenances, passages, rights of ingress and egress, licenses, permits, rights of use or occupancy, waters, water rights, water courses, riparian rights, mineral rights, sewer rights, rights in trade names, licenses, permits and contracts, and all other rights, liberties and privileges of any kind or character in any way now or hereafter appertaining to the Land or any Improvements thereon, including but not limited to, homestead and any other claim at law or in equity as well as any after-acquired title, franchise or license and the reversion and reversions and remainder and remainders thereof;
(b)
The land lying within any street, alley, avenue, roadway or right-of-way open or proposed or hereafter vacated in front of or adjoining the Land; and all right, title and interest, if any, of Mortgagor in and to any strips and gores adjoining or used in connection with the Land;
(c)
All agreements, ground leases, grants of easements or rights-of-way, permits, declarations of easements, conditions or restrictions, disposition and development of agreements, planned unit development agreements, plats, subdivision plans, permits and approvals, and all other documents affecting the Land and/or Improvements;
(d)
All right, title and interest of Mortgagor in any and all buildings and improvements of every kind and description now or hereafter erected or placed on the said Land and all materials intended for construction, reconstruction, alteration and repairs of such buildings and improvements now or hereafter erected thereon, all of which materials shall be deemed to be included within the Mortgaged Property immediately upon the delivery thereof to the Mortgaged Property or upon any earlier acquisition thereof by Mortgagor, and all fixtures now or hereafter owned by Mortgagor and attached to or contained in and used or acquired for use in connection with the Mortgaged Property including, but not limited to, all heating, lighting, refrigerating, ventilating, air‑conditioning, air-cooling, fire extinguishing, plumbing, cleaning, telephone, communications and power equipment, systems and apparatus; and all elevators, switchboards, motors, pumps, screens, awnings, floor coverings
,
cabinets, partitions, conduits, ducts and compressors; and all cranes and craneways, oil storage, grain storage, sprinkler/fire protection and water service equipment; and also including any of such property stored on the Land or Improvements or in warehouses and intended to be used in connection with or incorporated into the Land or Improvements or for the pursuit of any other activity in which Mortgagor may be engaged on the Land or Improvements, and including without limitation all tools, cabinets, awnings, window shades, venetian blinds, drapes and drapery rods and brackets, screens, carpeting and other window and floor coverings, decorative fixtures, plants, cleaning apparatus, and cleaning equipment, refrigeration equipment, generators, cables, telecommunication cables, antennas and systems, computers, software, books, supplies, kitchen equipment, appliances, tractors, lawn mowers, ground sweepers and tools, together with all substitutions, accessions, repairs, additions and replacements to any of the foregoing and all other items of furniture, furnishings, equipment and personal property owned by Mortgagor used or useful in the operation of the Mortgaged Property; and all renewals or replacements of all of the aforesaid property owned by or articles in substitution therefor, whether or not the same are or shall be attached to said buildings or improvements in any manner; it being mutually agreed, intended and declared that all the aforesaid property owned by Mortgagor and placed by it on the Land or Improvements or used or acquired for use in connection with the operation or maintenance of the Mortgaged Property shall, so far as permitted by law, be deemed to form a part and parcel of the Land and for the purpose of this Mortgage to be Land and covered by this Mortgage, and as to any of the property aforesaid which does not form a part and parcel of the Land or does not constitute a “fixture” (as such term is defined in the UCC) this Mortgage is hereby deemed to be, as well, a security agreement under the UCC for the purpose of creating hereby a security interest in such property which Mortgagor hereby grants to Mortgagee as secured
party, and all inventory, office supplies, machinery, apparatus, systems and equipment used or useful in the production of ethanol, corn oil and distiller's grains at the Mortgaged Property, all as now owned or hereafter acquired by Mortgagor;
(e)
All leases of the Land or Improvements or any part thereof, whether now existing or hereafter entered into (the “Leases”), and all right, title and interest of Mortgagor thereunder, including cash and security deposits under any such Leases;
(f)
Any and all awards, payments or insurance proceeds, including interest and unearned premiums thereon, and the right to receive the same, which may be paid or payable with respect to the Land or Improvements or other properties described above as a result of: (1) the exercise of the right of eminent domain or action in lieu thereof; or (2) the alteration of the grade of any street; or (3) any fire, casualty, accident, damage or other injury to or decrease in the value of the Land or Improvements or other properties described above, to the extent of all amounts which may be secured by this Mortgage at the date of receipt of any such award or payment by Mortgagor or Mortgagee, and of the reasonable counsel fees, costs and disbursements incurred by Mortgagor or Mortgagee in connection with the collection of such award or payment. Mortgagor agrees to execute and deliver, from time to time, such further instruments as may be requested by Mortgagee to confirm such assignment to Mortgagee of any such award or payment;
(g)
All licenses, permits (including, but not limited to, building permits), authorizations, certificates, variances, consents, approvals and other permits now or hereafter acquired pertaining to the Land or any Improvements thereon or which relate to the construction of the Improvements and/or the use, occupancy, development, leasing, operation or servicing of the Land, including, but not limited to air and water discharge permits, environmental permits and licenses required for the production of ethanol, corn oil and distiller's grains, above ground storage tank licenses and permits, and all estate, right, title and interest of Mortgagor in, to, under or derived from all present or future development, construction, operation or use of the Land or any improvements thereon;
(h)
All intangible personal property relating to the Land and/or Improvements, business records, claims for refunds or rebates of taxes, tax abatements, money, deposit accounts, accounts and general and payment intangibles;
(i)
Any and all water and water rights, minerals, oil, gas, or any rights thereto;
(j)
Together with all plans, drawings and specifications relating to the Mortgaged Property and the construction of the Improvements, all permits, consents, approvals, licenses, authorizations and other rights granted by, given by or obtained from any governmental entity with respect to the Mortgaged Property; and all other interests of every kind and character that Mortgagor now has or at any time hereafter acquires in and to the Mortgaged Property;
(k)
All studies, tests, investigations, and reports of any kind relating to the soils or conditions of the soils of the Land and the suitability of the soils for the construction of the Improvements, all mechanical or structural studies, grading plans, drainage studies, and plans and other similar studies, plans, drawings, or reports of any nature relating to the construction of the Improvements;
(l)
All management contracts, service contracts, operating agreements, utility agreements and rights, variances and permits relating to the Land and/or Improvements;
(m)
All after-acquired title to or remainder or reversion of any of the foregoing, all and any proceeds of any of the foregoing, all and any additions, accessions and extensions to, improvements of and substitutions and replacements of any of the foregoing and all additional lands, estates, interests, rights, or other property acquired by Mortgagor after the date of this Mortgage, all without need for any additional mortgage, assignment, pledge, or conveyance to Mortgagee but Mortgagor will execute and deliver to Mortgagee upon Mortgagee's request any documents or instruments to further effect or evidence the foregoing; and
(n)
Together with the right in the case of foreclosure hereunder of the encumbered property for Mortgagee to take and use the name by which the buildings and all other improvements situated on the Land are commonly known and the right to manage and operate the said buildings under any such name and variants thereof;
Subject only to the Permitted Encumbrances (as herein defined) and to secure payment of the Obligations.
The parties intend the definition of Mortgaged Property to be broadly construed and in the case of doubt as to whether a particular item is to be included in the definition of Mortgaged Property, the doubt should be resolved in favor of inclusion.
TO HAVE AND TO HOLD the same, and all estate therein, together with all the rights, privileges and appurtenances thereunto belonging, to the use and benefit of Mortgagee, its successors and assigns, forever.
PROVIDED NEVERTHELESS, should the Obligations be paid and performed, then these presents will be of no further force and effect, and this Mortgage shall be satisfied by Mortgagee, at the expense of Mortgagor.
This Mortgage also constitutes a security agreement within the meaning of the Uniform Commercial Code as in effect in the State of Indiana (the “UCC”), with respect to all property described herein as to which a security interest may be granted and/or perfected pursuant to the UCC, and is intended to afford Mortgagee, to the fullest extent allowed by law, the rights and remedies of a secured party under the UCC.
MORTGAGOR FURTHER agree as follows:
ARTICLE I.
AGREEMENTS
Section 1.1
Performance of Obligations; Incorporation by Reference
. Mortgagor shall pay and perform the Obligations. Time is of the essence hereof. All of the covenants, obligations, agreements, warranties and representations of Mortgagor contained in this Agreement, the Loan Agreement and the other Loan Documents and all of the terms and provisions thereof, are hereby incorporated herein and made a part hereof by reference as if fully set forth herein.
Section 1.2
Further Assurances
. If Mortgagee requests, Mortgagor shall sign and deliver and cause to be recorded as Mortgagee shall direct any further mortgages, amendments of or supplements to this Mortgage, instruments of further assurance, certificates and other documents as Mortgagee reasonably may consider necessary or desirable in order to attach, perfect, continue and preserve the Obligations and Mortgagee's rights, title, estate, liens and interests under the Loan Documents. Mortgagor further agrees to pay to Mortgagee, upon demand, all reasonable costs and expenses incurred by Mortgagee in connection
with the preparation, execution, recording, filing and refiling of this Mortgage and any such documents, including reasonable attorneys' fees.
Section 1.3
Sale, Transfer, Encumbrance
. If Mortgagor sells, conveys, transfers or otherwise disposes of, or encumbers, any part of its interest in the Mortgaged Property, whether voluntarily, involuntarily or by operation of law (except for Permitted Encumbrances), without the prior written consent of Mortgagee, Mortgagee shall have the option to declare the Obligations immediately due and payable immediately upon notice. Included within the foregoing actions requiring prior written consent of Mortgagee are: (a) sale by deed or contract for deed; (b) mortgaging or granting a lien on the Mortgaged Property; and (c) a change of control in 50% or more of the equity interest or voting power or control of Mortgagor. Mortgagor shall give notice of any proposed action effecting any of the foregoing to Mortgagee for Mortgagee's consent at least thirty (30) days prior to taking such action. Mortgagor shall pay all reasonable costs and expenses incurred by Mortgagee in evaluating any such action. Mortgagee may condition its consent upon reasonable modification of the Loan Documents or payment of reasonable fees. No such action shall relieve Mortgagor from liability for the Obligations as set forth herein. The consent by Mortgagee to any action shall not constitute a waiver of the necessity of such consent to any subsequent action.
Section 1.4
Insurance
. Mortgagor shall obtain, maintain and keep in full force and effect and shall furnish to Mortgagee copies of policies of insurance as described in, and meeting the requirements set forth in, the Loan Agreement. At least ten (10) days prior to the termination of any such coverage, Mortgagor shall provide Mortgagee with evidence satisfactory to Mortgagee that such coverage will be renewed or replaced upon termination with insurance that complies with the provisions of this Section and the Loan Agreement. Mortgagor, at its sole cost and expense, from time to time when Mortgagee shall so request, will provide Mortgagee with evidence, in a form acceptable to Mortgagee, of the full insurable replacement cost of the Mortgaged Property. All property and liability insurance policies maintained by Mortgagor pursuant to this Section and the Loan Agreement shall (i) include effective waivers by the insurer of all claims for insurance premiums against Mortgagee, and (ii) provide that any losses shall be payable notwithstanding (a) any act of negligence by Mortgagor or Mortgagee, (b) any foreclosure or other proceedings or notice of foreclosure sale relating to the Mortgaged Property, or (c) any release from liability or waiver of subrogation rights granted by the insured. In addition, all policies of casualty insurance shall contain standard noncontributory mortgagee loss payable clauses to Mortgagee, and the comprehensive general liability and other liability policies required in the Loan Agreement, including environmental or pollution policies, shall name Mortgagee as an additional insured.
Section 1.5
Taxes, Liens and Claims, Utilities
. Mortgagor shall pay and discharge when due, or cause to be paid and discharged when due, all taxes, assessments and governmental charges and levies (collectively “Impositions”) imposed upon or against the Mortgaged Property or the Rents, or upon or against the Obligations, or upon or against the interest of Mortgagee in the Mortgaged Property or the Obligations, except Impositions measured by the income of Mortgagee. Mortgagor shall provide evidence of such payment at Mortgagee's request. Mortgagor shall keep the Mortgaged Property free and clear of all liens (including, but not limited to, mechanics' liens), encumbrances, easements, covenants, conditions, restrictions and reservations (collectively “Liens”) except those set forth in
Exhibit B
attached hereto and made a part hereof (the “Permitted Encumbrances”). Mortgagor shall pay or cause to be paid when due all charges or fees for utilities and services supplied to the Mortgaged Property. Notwithstanding anything to the contrary contained in this Section, Mortgagor shall not be required to pay or discharge any Imposition or Lien other than a mechanics' lien so long as Mortgagor shall in good faith, and after giving notice to Mortgagee, contest the same by appropriate legal proceedings. If Mortgagor contests any Imposition or Lien against the Mortgaged Property, Mortgagor shall provide such security to Mortgagee as Mortgagee shall reasonably require against
loss or impairment of Mortgagor's ownership of or Mortgagee's lien on the Mortgaged Property and shall in any event pay such Imposition or Lien before loss or impairment occurs.
Section 1.6
Escrow Payments
. If requested by Mortgagee after the occurrence of an Event of Default, Mortgagor shall deposit with Mortgagee monthly on the first day of each month the amount reasonably estimated by Mortgagee to be necessary to enable Mortgagee to pay, at least five (5) days before they become due, all Impositions against the Mortgaged Property and the premiums upon all insurance required hereby to be maintained with respect to the Mortgaged Property. All funds so deposited shall secure the Obligations. Any such deposits shall be held by Mortgagee, or its nominee, in a non-interest bearing account and may be commingled with other funds. Such deposits shall be used to pay such Impositions and insurance premiums when due. Any excess sums so deposited shall be retained by Mortgagee and shall be applied to pay said items in the future, unless the Obligations have been paid and performed in full, in which case all excess sums so paid shall be refunded to Mortgagor. Upon the occurrence of an Event of Default, Mortgagee may apply any funds in said account against the Obligations in such order as Mortgagee may determine.
Section 1.7
Maintenance and Repair; Compliance with Laws
. Mortgagor shall cause the Mortgaged Property to be operated, maintained and repaired in safe and good repair, working order and condition, reasonable wear and tear excepted; shall not commit or permit waste thereof; except as provided in any Loan Document, shall not remove, demolish or substantially alter the design or structural character of any Improvements without the prior written consent of Mortgagee; shall complete or cause to be completed forthwith any Improvements which are now or may hereafter be under construction upon the Land; shall materially comply or cause material compliance with all laws, statutes, ordinances and codes, and governmental rules, regulations and requirements, applicable to the Mortgaged Property or the manner of using or operating the same, and with any covenants, conditions, restrictions and reservations affecting the title to the Mortgaged Property, and with the terms of all insurance policies relating to the Mortgaged Property; and shall obtain and maintain in full force and effect all consents, permits and licenses necessary for the use and operation of the Mortgaged Property in Mortgagor's business. Mortgagor shall obtain and maintain in full force and effect all certificates, licenses, permits and approvals that are required by law or necessary for the construction of the Improvements or the use, occupancy or operation of the Project. Subject to the provisions of this Mortgage with respect to insurance proceeds and condemnation awards, Mortgagor shall promptly repair, restore and rebuild any Improvements now or hereafter on the Mortgaged Property which may become damaged or destroyed, such Improvements to be of at least equal value and quality and of substantially the same character as prior to such damage or destruction.
Section 1.8
Leases
.
(a)
Notwithstanding anything to the contrary herein, except for those Leases listed in
Exhibit B
attached hereto and made a part hereof (the “Permitted Leases”), Mortgagor shall not enter into any Lease without Mortgagee's prior written consent, and shall furnish to Mortgagee, upon execution, a complete and fully executed copy of each Lease. Mortgagor shall provide Mortgagee with a copy of each proposed Lease requiring the consent of Mortgagee and with any information requested by Mortgagee regarding the proposed Tenant thereunder. Mortgagee may declare each Lease to be prior or subordinate to this Mortgage, at Mortgagee's option.
(b)
Mortgagor shall, at its cost and expense, perform each obligation to be performed by the landlord under each Lease; not borrow against, pledge or further assign any rents or other payments due thereunder; not permit the prepayment of any rents or other payments due for more than thirty (30) days in advance; and not permit any Tenant to assign its Lease or sublet the premises covered
by its Lease, unless required to do so by the terms thereof and then only if such assignment does not work to relieve the Tenant of any liability for performance of its obligations thereunder.
(c)
If any Tenant shall default under its Lease, Mortgagor shall, in the ordinary course of business, exercise sound business judgment with respect to such default, but may not discount, compromise, forgive or waive claims or discharge the Tenant from its obligations under the Lease or terminate or accept a surrender of the Lease.
(d)
If Mortgagor fails to perform any obligations of Mortgagor under any Lease or if Mortgagee becomes aware of or is notified by any Tenant of a failure on the part of Mortgagor to so perform, Mortgagee may, but shall not be obligated to, without waiving or releasing Mortgagor from any Obligation, remedy such failure, and Mortgagor agrees to repay upon demand all sums incurred by Mortgagee in remedying any such failure, together with interest thereon from the date incurred at an annual rate equal to the highest Default Rate (as set forth and defined in the Loan Agreement).
(e)
For purposes of this Mortgage, the following terms shall have the following meanings:
(i)
“
Lease
”: Any lease, occupancy agreement or other document or agreement, written or oral, permitting any Person to use or occupy any part of the Mortgaged Property.
(ii)
“
Person
”: Any natural person, corporation, partnership, limited partnership, limited liability company, joint venture, firm, association, trust, unincorporated organization, government or governmental agency or political subdivision or any other entity, whether acting in an individual, fiduciary or other capacity.
(iii)
“
Tenant
”: Any person or party using or occupying any part of the Mortgaged Property pursuant to a Lease.
Section 1.9
Indemnity
. Mortgagor shall indemnify Mortgagee and its participants, directors, officers, attorneys, agents and employees (collectively the “Indemnified Parties”) against, and hold the Indemnified Parties harmless from, all losses, damages, suits, claims, judgments, penalties, fines, liabilities, costs and expenses by reason of, or on account of, or in connection with the construction, reconstruction or alteration of the Mortgaged Property during Mortgagor's ownership thereof, or any accident, injury, death or damage to any person or property occurring in, on or about the Mortgaged Property during Mortgagor's ownership thereof, or any street, drive, sidewalk, curb or passageway adjacent thereto, except to the extent that the same results from the willful misconduct or gross negligence of the person or party seeking indemnification. The indemnity contained in this Section shall include costs of defense of any such claim asserted against an Indemnified Party, including reasonable attorneys' fees. The indemnity contained in this Section shall survive payment and performance of the Obligations and satisfaction and release of this Mortgage and any foreclosure thereof or acquisition of title by deed in lieu of foreclosure.
Section 1.10
Assignment of Leases and Rents
.
(a) As additional security for the indebtedness secured by this Mortgage, Mortgagor does hereby bargain, sell, assign, transfer and set over unto Mortgagee all Leases and all the rents, fees, issues, profits, revenues, royalties and other income of any kind (“Rents”) which, whether before or after foreclosure, or during the full statutory period of redemption, if any, shall accrue and be owing for the use or occupation of the Mortgaged Property or any part thereof. So long as no Event of Default exists under this Mortgage, Mortgagor shall have a revocable license to
collect, but not more than one (1) month in advance under any Lease, all Rents earned prior to default. This Mortgage constitutes an absolute, irrevocable, currently effective assignment of Rents and profits. Mortgagor hereby appoints Mortgagee Mortgagor's true and lawful attorney-in-fact with full power of substitution to demand, collect and receive any and all Rents which may be or become due and payable by Tenants after the occurrence of any Event of Default, which appointment is coupled with an interest and is irrevocable. Mortgagee may, at its discretion, file any claim or take any action to collect and enforce the payment of Rents, either in Mortgagee's name or Mortgagor's name or otherwise. Tenants are hereby expressly authorized and directed by Mortgagor to pay to Mortgagee all Rents upon Mortgagee's demand, and such Tenants are hereby expressly relieved of any and all duty, obligation or liability in respect of any Rents so paid to Mortgagee.
(b)
If, at any time after an Event of Default hereunder, in the sole discretion of Mortgagee, a receivership may be necessary to protect the Mortgaged Property or its Rents, whether before or after maturity of any Loan and whether before or at the time of or after the institution of suit to collect such indebtedness, or to enforce this Mortgage, Mortgagee, as a matter of strict right and regardless of the value of the Mortgaged Property or the amounts due hereunder or secured hereby, or of the solvency of any party bound for the payment of such indebtedness, shall have the right to the appointment of a receiver to take charge of, manage, preserve, protect, rent and operate the Mortgaged Property, to collect the Rents thereof, to make all necessary and needful repairs, and to pay all Impositions against the Mortgaged Property and all premiums for insurance thereon, and to do such other acts as may by such court be authorized and directed, and after payment of the expenses of the receivership and the management of the Mortgaged Property, to apply the net proceeds of such receivership in reduction of the Obligations secured hereby or in such other manner as the said court shall direct notwithstanding the fact that the amount owing thereon may not then be due and payable or the said indebtedness is otherwise adequately secured. Such receivership shall, at the option of Mortgagee, continue until full payment of all sums hereby secured or until title to the Mortgaged Property shall have passed by sale under this Mortgage.
(c) The reasonable costs and expenses (including any receiver's fees and reasonable attorneys' fees) incurred by Mortgagee pursuant to the powers herein contained shall be reimbursed by Mortgagor to Mortgagee on demand as promptly as practicable, shall be secured hereby and shall bear interest from the date incurred at an annual rate equal to the highest Default Rate (as set forth in the Loan Agreement). Mortgagee shall not be liable to account to Mortgagor for any action taken pursuant hereto, other than to account for any Rents, fees, issues, revenues, profits or proceeds actually received by Mortgagee.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES
Mortgagor represents and warrants to Mortgagee and covenants with Mortgagee as follows:
Section 2.1
Ownership, Liens, Compliance with Laws
. Mortgagor owns the Mortgaged Property free from all Liens, except the Permitted Encumbrances. To the best of Mortgagor's knowledge, all material applicable zoning, environmental, land use, subdivision, building, fire, safety and health laws, statutes, ordinances, codes, rules, regulations and requirements affecting the Mortgaged Property permit the current use and occupancy thereof, and Mortgagor has obtained all consents, permits and licenses required for such use. Mortgagor has examined and is familiar with all applicable covenants, conditions, restrictions and reservations, and with all applicable laws, statutes, ordinances, codes and governmental rules, regulations and requirements affecting the Mortgaged Property, and to the best of Mortgagor's knowledge, the Mortgaged Property complies in all material respects with all of the foregoing.
Section 2.2
Use
. The Mortgaged Property is not homestead property, a single or two family dwelling, nor is it agricultural property or in agricultural use. The construction, use and occupancy of the Project complies and will comply with all requirements of law and any Permitted Encumbrance. No portion of any Improvements will be/are constructed over areas subject to easements. Neither the zoning nor any of the right to construct or to use any Improvements will be/is to any extent dependent upon or related to any real estate other than the Land; and all approvals, licenses, permits, certifications, filings and other actions required by law with respect to the construction, use, occupancy and operation of the Mortgaged Property, have been or will be received.
Section 2.3
Utilities; Services
. The Mortgaged Property is serviced by all necessary public utilities, and all such utilities are operational and have sufficient capacity. There is no contract or agreement providing for services to or maintenance of the Mortgaged Property which cannot be cancelled upon 30 days' or less notice. The Mortgaged Property has access to all public streets and railroad spurs and tracks, and is benefited by all necessary easements, to allow the operation of the Mortgaged Property by Mortgagor in the ordinary course of business and in a prudent manner.
Section 2.4
Construction of the Improvements
. Mortgagor has, or prior to commencement of construction of any Improvements will have, received all requisite building permits and approvals, all approvals and consents to the Plans and without limiting the generality of the foregoing, complied with all requirements of law applicable to the construction of the Project. Mortgagor shall promptly complete all Improvements in a good and workmanlike manner in accordance with the Plans approved by Mortgagee and free from any liens or encumbrances of any nature except for this Mortgage and the Permitted Exceptions.
ARTICLE 3.
CASUALTY; CONDEMNATION
Section 3.1
Casualty, Repair, Proof of Loss
. If any portion of the Mortgaged Property shall be damaged or destroyed by any cause (a “Casualty”), Mortgagor shall, subject to Section 3.2 below:
(a) give notice to the Mortgagee as promptly as practicable; and
(b) unless the Mortgagee has withheld Casualty proceeds during the twelve (12) months prior to the Maturity Date and insurance proceeds and other funds are not available to Mortgagor, promptly commence and diligently pursue to completion (in accordance with plans and specifications approved by Mortgagee) the restoration, repair and rebuilding of the Mortgaged Property as nearly as possible to its value, condition and character immediately prior to the Casualty; and
(c) if the Casualty is covered by insurance, immediately make proof of loss and to the extent permitted by this Mortgage, collect all insurance proceeds, all such proceeds to be payable to Mortgagee or as Mortgagee shall direct. If an Event of Default shall be in existence, or if Mortgagor shall fail to provide notice to Mortgagee of filing proof of loss, or if Mortgagor shall not be diligently proceeding, in Mortgagee's reasonable opinion, to collect such insurance proceeds, then Mortgagee may, but is not obligated to, make proof of loss, and is authorized, but is not obligated, to settle any claim with respect thereto, and to collect the proceeds thereof.
Section 3.2
Use of Insurance Proceeds
. Mortgagee shall make the net insurance proceeds received by it (after reimbursement of Mortgagee's reasonable out-of pocket costs of collecting and disbursing the same) available to Mortgagor to pay the cost of restoration, repair and rebuilding of the Mortgaged Property, subject to all of the following conditions precedent:
(a) There shall be no Event of Default in existence at the time of any disbursement of the insurance proceeds;
(b) Mortgagee shall have determined, in its reasonable discretion, that the cost of restoration, repair and rebuilding is and will be equal to or less than the amount of insurance proceeds and other funds deposited by Mortgagor with Mortgagee;
(c) Mortgagee shall have determined, in its reasonable discretion, that the restoration, repair and rebuilding can be completed in accordance with plans and specifications approved by Mortgagee (such approval not to be unreasonably withheld), in accordance with codes and ordinances;
(d) All funds shall be disbursed, at Mortgagee's option, in accordance with Mortgagee's customary disbursement procedures for construction loans; and
(e)
The Casualty results in damage of $250,000.00 or less.
If any of these conditions shall not be satisfied, then Mortgagee shall have the right to use the insurance proceeds to prepay the Obligations. If any insurance proceeds shall remain after completion of the restoration, repair and rebuilding of the Mortgaged Property, they shall be disbursed to Mortgagor, or at the Mortgagee's discretion, used to prepay the Obligations.
In the event such insurance proceeds are made available for restoration and repair by the Mortgagee, Mortgagor shall pay all costs incurred by Mortgagee in connection with the application of such insurance proceeds (including but not limited to reasonable costs incurred by Mortgagee, and a title company or agent approved by Mortgagee in overseeing the disbursement of such insurance proceeds), and the Improvements shall be restored or rebuilt so as to be of at least equal value and substantially the same character as prior to such damage or destruction.
Section 3.3
Condemnation
. If any portion of the Mortgaged Property shall be taken, condemned or acquired pursuant to exercise of the power of eminent domain or threat thereof (a “Condemnation”), shall:
(a) give notice thereof to Mortgagee as promptly as practicable, and send a copy of each document received by Mortgagor in connection with the Condemnation to Mortgagee promptly after receipt; and
(b) diligently pursue any negotiation and prosecute any proceeding in connection with the Condemnation at Mortgagor's expense. If an Event of Default shall be in existence, or if Mortgagor, in Mortgagee's reasonable opinion, shall not be diligently negotiating or prosecuting the claim, Mortgagee is authorized, but not required, to negotiate and prosecute the claim and appear at any hearing for itself and on behalf of Mortgagor and to compromise or settle all compensation for the Condemnation. Mortgagee shall not be liable to Mortgagor for any failure by Mortgagee to collect or to exercise diligence in collecting any such compensation. Mortgagor shall not compromise or settle any claim resulting from the Condemnation if such settlement shall result in payment of more than $10,000 less than Mortgagee's reasonable estimate of the damages therefrom. All awards shall be paid to Mortgagee.
Section 3.4
Use of Condemnation Proceeds
. Mortgagee shall make the net proceeds of any Condemnation received by it (after reimbursement of Mortgagee's out-of-pocket costs of collecting and disbursing the same) available to Mortgagor for restoration, repair and rebuilding of the Mortgaged Property, subject to all of the following conditions precedent:
(a) There shall be no Event of Default in existence at the time of any disbursement of the condemnation proceeds;
(b) Mortgagee shall have determined, in its reasonable discretion, that the cost of restoration, repair and rebuilding is and will be equal to or less than the amount of condemnation proceeds and other funds deposited by Mortgagor with Mortgagee;
(c) Mortgagee shall have determined, in its reasonable discretion, that the restoration, repair and rebuilding can be completed in accordance with plans and specifications approved by Mortgagee (such approval not to be unreasonably withheld), in accordance with codes and ordinances and in accordance with the terms, and within the time requirements in order to prevent termination, of any Lease;
(d) All funds shall be disbursed, at Mortgagee's option, in accordance with Mortgagee's customary disbursement procedures for construction loans; and
(e) The condemnation or taking causes damage of $250,000.00 or less or requires restoration which costs less than $250,000.00.
If any of these conditions shall not be satisfied, then Mortgagee shall have the right to use the condemnation proceeds to prepay the Obligations. If any condemnation proceeds shall remain after completion of the restoration, repair and rebuilding of the Mortgaged Property, they shall be disbursed to Mortgagor, or at Mortgagee's discretion, used to prepay the Obligations.
ARTICLE 4.
DEFAULTS AND REMEDIES
Section 4.1
Events of Default
. An Event of Default, as defined in the Loan Agreement or any other Loan Document, shall constitute an Event of Default hereunder. In addition, Mortgagor's failure to perform, observe or comply with its obligations in this Mortgage shall be an Event of Default.
Section 4.2
Remedies
. Subject to any applicable notice and cure and/or grace periods in the Loan Agreement after an Event of Default, Mortgagee shall be entitled to invoke any and all of the rights and remedies described below, in addition to all other rights and remedies available to Mortgagee under any Loan Document or at law or in equity. All of such rights and remedies shall be cumulative, and the exercise of any one or more of them shall not constitute an election of remedies.
(a)
Acceleration
. Mortgagee may declare any or all of the Obligations to be due and payable immediately. In addition, Mortgagee shall have no further obligation to make any Advances under any Loan. If, while any insurance proceeds or condemnation awards are being held by Mortgagee to reimburse Mortgagor for the cost of rebuilding or restoration of buildings or improvements on the Mortgaged Property, Mortgagee shall accelerate the Obligations, then and in such event, Mortgagee shall be entitled to apply all such insurance proceeds and condemnation awards then held by it in reduction of the Obligations and any excess held by it over the amount of Obligations then due hereunder shall be returned to Mortgagor or the persons legally entitled thereto without interest.
(b)
Receiver
. Mortgagee shall have the right to obtain a receiver in accordance with applicable law at any time after an Event of Default which is continuing, whether or not an action for foreclosure has been commenced. Any court having jurisdiction shall at the request of Mortgagee following an Event of Default which is continuing, appoint a receiver to take immediate possession of the Mortgaged Property and to rent or operate the same as he may deem best for the interest of all parties concerned, and
such receiver shall be liable to account to the Mortgagor only for the net profits, after application of rents, issues and profits upon the costs and expenses of the receivership and upon the Obligations.
Mortgagee shall have the right, at any time to advance money to the receiver to pay any part or all of the items which the receiver should otherwise pay if cash were available from the Mortgaged Property and sums so advanced, with interest at an annual rate equal to the highest Default Rate as set forth in the Loan Agreement, shall be secured hereby, or if advanced during the period of redemption shall be a part of the sum required to be paid to redeem from the sale.
(c)
Entry
. Mortgagee, in person, by agent or by court-appointed receiver, may enter, take possession of, manage and operate all or any part of the Mortgaged Property, and may also do any and all other things in connection with those actions that Mortgagee may in its sole discretion consider necessary and appropriate to protect the security of this Mortgage. Such other things may include: taking and possessing all of Mortgagor's or the then owner's books and records; entering into, enforcing, modifying or canceling leases on such terms and conditions as Mortgagee may consider proper; obtaining and evicting tenants; fixing or modifying Rents; collection and receiving any payment of money owing to Mortgagee; terminating management agreements, contracts or agents/managers responsible for the operation and/or property management of the Mortgaged Property; completing any unfinished construction; and/or contracting for and making repairs and alterations. If Mortgagee so requests, Mortgagor shall assemble all of the Mortgaged Property that has been removed from the Land and make all of it available to Mortgagee at the site of the Land. Mortgagor hereby irrevocably constitutes and appoints Mortgagee as Mortgagor's attorney-in-fact to perform such acts and execute such documents as Mortgagee in its sole discretion may consider to be appropriate in connection with taking these measures, including endorsement of Mortgagor's name on any instruments, such appointment being coupled with an interest and irrevocable.
(d)
Cure; Protection of Security
. Mortgagee may cure any breach or default of Mortgagor, and if it chooses to do so in connection with any such cure, Mortgagee may also enter the Mortgaged Property and/or do any and all other things which it may in its sole reasonable discretion consider necessary and appropriate to protect the security of this Mortgage. Any reasonable amounts expended by Mortgagee under this Section 4.2(d) shall be secured by this Mortgage and shall be payable upon demand and shall accrue interest at a variable per annum rate equal to the highest Default Rate set forth in the Loan Agreement until paid in full.
(e)
Uniform Commercial Code Remedies
. Mortgagee may exercise any or all of the remedies granted to a secured party under the UCC.
(f)
Foreclosure; Lawsuits
. Mortgagee or its nominee may institute such mortgage foreclosure actions provided for by Indiana law in accordance with applicable law and may bid and become the purchaser of all or any part of the Mortgaged Property at any foreclosure or other sale hereunder, and the amount of Mortgagee's successful bid shall be credited on the Obligations. Without limiting the foregoing, Mortgagee may proceed by a suit or suits in law or equity, whether for specific performance of any covenant or agreement herein contained or contained in any of the other Loan Documents, or in aid of the execution of any power herein or therein granted, or for any foreclosure under the judgment or decree of any court of competent jurisdiction, or for damages, or to collect the indebtedness secured hereby, or for the enforcement of any other appropriate legal, equitable, statutory or contractual remedy.
(g)
Other Remedies
. Mortgagee may exercise all rights and remedies contained in any other instrument, document, agreement or other writing heretofore or otherwise available at law or in equity, concurrently or in the future executed by Mortgagor or any other person or entity in favor of Mortgagee in connection with the Obligations or any part thereof, without prejudice to the right of Mortgagee thereafter
to enforce any appropriate remedy against Mortgagor. Mortgagee shall have the right to pursue all remedies afforded to a Mortgagee under applicable law, and shall have the benefit of all of the provisions of such applicable law, including all amendments thereto which may become effective from time to time after the date hereof. In the event any provision of such statutes which is specifically referred to herein may be repealed, Mortgagee shall have the benefit of such provision as most recently existing prior to such repeal, as though the same were incorporated herein by express reference.
(h)
Power of Sale for Personal Mortgaged Property
. Under this power of sale, Mortgagee shall have the discretionary right to cause some or all of the Mortgaged Property, which constitutes personal property, to be sold or otherwise disposed of in any combination and in any manner permitted by applicable law.
(i) For purposes of this power of sale, Mortgagee may elect to treat as personal property any Mortgaged Property which is intangible or which can be severed from the Land or Improvements without causing structural damage. If it chooses to do so, Mortgagee may dispose of any personal property, in any manner permitted by Article 9 of the UCC, including any public or private sale, or in any manner permitted by any other applicable law.
(j)
Single or Multiple Foreclosure Sales
. If the Mortgaged Property consists of more than one lot, parcel or item of Mortgaged Property, Mortgagee may, in accordance with applicable law:
(ii) designate the order in which the lots, parcels and/or items shall be sold or disposed of or offered for sale or disposition; and
(iii) elect to dispose of the lots, parcels and/or items through a single consolidated sale or disposition to be held or made under or in connection with judicial proceedings, or by virtue of a judgment and decree of foreclosure and sale, or pursuant to the power of sale contained herein; or through two or more such sales or dispositions; or in any other manner Mortgagee may deem to be in its best interests (any foreclosure sale or disposition as permitted by the terms hereof is sometimes referred to herein as a “
Foreclosure Sale
;” and any two or more such sales, “
Foreclosure Sales
”).
If it chooses to have more than one Foreclosure Sale, Mortgagee at its option may cause the Foreclosure Sales to be held simultaneously or successively, on the same day, or on such different days and at such different times and in such order as it may deem to be in its best interests. No Foreclosure Sale shall terminate or affect the liens of this Mortgage on any part of the Mortgaged Property which has not been sold, until the Obligations have been paid in full.
Section 4.3
Expenses of Exercising Rights Powers and Remedies
. The reasonable expenses (including any receiver's fees, reasonable attorneys' fees, appraisers' fees, environmental engineers' and/or consultants' fees, auctioneer's fees and costs, costs incurred for documentary and expert evidence, stenographers' charges, publication costs, costs (which may be estimated as to items to be expended after entry of the decree of foreclosure) of procuring all abstracts of title, continuations of abstracts of title, title searches and examinations, UCC and chattel lien searches, and similar data and assurances with respect to title as Mortgagee may deem reasonably necessary either to prosecute any foreclosure action or to evidence to bidders at any sale which may be had pursuant to any foreclosure decree the true condition of the title to or the value of the Mortgaged Property) incurred by Mortgagee after the occurrence of any Event of Default and/or in pursuing the rights, powers and remedies contained in this Mortgage shall be immediately due and payable by Mortgagor, with interest thereon from the date incurred at an annual rate equal to the highest Default Rate set forth in the Loan Agreement and shall be added to the indebtedness secured by this Mortgage.
Section 4.4
Restoration of Position
. In case Mortgagee shall have proceeded to enforce any right under this Mortgage by foreclosure, sale, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely, then, and in every such case, Mortgagor and Mortgagee shall be restored to their former positions and rights hereunder with respect to the Mortgaged Property subject to the lien hereof, except as might otherwise be determined by a final order of a court of competent jurisdiction.
Section 4.5
Marshalling
. Mortgagor for itself and on behalf of all Persons which may claim under Mortgagor, hereby waives all requirements of law relating to the marshalling of assets, if any, which would be applicable in connection with the enforcement by Mortgagee of its remedies for an Event of Default hereunder, absent this waiver. Mortgagee shall not be required to sell or realize upon any portion of the Mortgaged Property before selling or realizing upon any other portion thereof.
Section 4.6
Waivers
. No waiver of any provision hereof shall be implied from the conduct of the parties. Any such waiver must be in writing and must be signed by the party against which such waiver is sought to be enforced. The waiver or release of any breach of the provisions set forth herein to be kept and performed shall not be a waiver or release of any preceding or subsequent breach of the same or any other provision. No receipt of partial payment after acceleration of the Obligations shall waive the acceleration. No payment by Mortgagor or receipt by Mortgagee of a lesser amount than the full amount secured hereby shall be deemed to be other than on account of the sums due and payable hereunder, nor shall any endorsement or statement on any check or any letter accompanying any check or payment be deemed an accord and satisfaction, and Mortgagee may accept any check or payment without prejudice to Mortgagee's right to recover the balance of such sums or to pursue any other remedy provided in this Mortgage. The consent by Mortgagee to any matter or event requiring such consent shall not constitute a waiver of the necessity for such consent to any subsequent matter or event.
Section 4.7
Mortgagee's Right to Cure Defaults
. If Mortgagor shall fail to comply with any of the terms of this Mortgage with respect to the procuring of insurance, the payment of taxes, assessments and other charges, the keeping of the Mortgaged Property in repair, or any other term contained herein and such failure shall continue for a period of three (3) days after notice of such failure from Mortgagee, Mortgagee may make advances to perform the same without releasing any of the Obligations. Mortgagor agrees to repay upon demand all sums so advanced and all sums expended by Mortgagee in connection with such performance, including without limitation reasonable attorneys' fees, with interest at an annual rate equal to the highest Default Rate set forth in the Loan Agreement from the dates such advances are made until paid in full, and all sums so advanced and/or expenses incurred, with interest, shall be secured hereby, but no such advance and/or incurring of expense by Mortgagee, shall be deemed to relieve Mortgagor from any default hereunder, or to release any of the Obligations.
Section 4.8
Suits and Proceedings
. Mortgagee shall have the power and authority, upon prior notice to Mortgagor, to institute and maintain any suits and proceedings as Mortgagee may deem advisable to (i) prevent any impairment of the Mortgaged Property by any act which may be unlawful or by any violation of this Mortgage, (ii) preserve or protect its interest in the Mortgaged Property, or (iii) restrain the enforcement of or compliance with any legislation or other governmental enactment, rule or order that may be unconstitutional or otherwise invalid, if, in the sole opinion of Mortgagee, the enforcement of or compliance with such enactment, rule or order might impair the security hereunder or be prejudicial to Mortgagee's interest.
ARTICLE 5.
MISCELLANEOUS
Section 5.1
Binding Effect; Survival; Number; Gender
. This Mortgage shall be binding on and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. All agreements, representations and warranties contained herein or otherwise heretofore made by Mortgagor to Mortgagee shall survive the execution and delivery hereof. The singular of all terms used herein shall include the plural, the plural shall include the singular, and the use of any gender herein shall include all other genders, where the context so requires or permits.
Section 5.2
Severability
. The unenforceability or invalidity of any provision of this Mortgage as to any person or circumstance shall not render that provision unenforceable or invalid as to any other person or circumstance.
Section 5.3
Notices
. Any notice or other communication to any party in connection with this Mortgage shall be in writing and shall be sent by manual delivery, facsimile transmission, overnight courier or United States mail (postage prepaid) addressed to such party at the address specified below, or at such other address as such party shall have specified to the other party hereto in writing. All periods of notice shall be measured from the date of delivery thereof if manually delivered, from the date of sending thereof if sent by facsimile transmission, from the first business day after the date of sending if sent by overnight courier, or from four (4) days after the date of mailing if mailed. Notices shall be given to or made upon the respective parties hereto at their respective addresses set forth below:
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If to Mortgagee:
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First National Bank of Omaha
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1620 Dodge Street, Stop 1050
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Omaha, Nebraska 68197-1050
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Attn: Blake Suin
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Fax No.: (402) 602-3519
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If to Mortgagor:
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Cardinal Ethanol, LLC
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1554 North 600 E
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Union City, Indiana 47390
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Attn: Jeff Painter, CEO
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Fax No,: (765) 969-7914
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Either party may change its address for notices by a notice given pursuant to this Section.
Section 5.4
Applicable Law
. This Mortgage shall be construed and enforceable in accordance with, and be governed by, the laws of the State of Indiana, without giving effect to conflict of laws or principles thereof.
Section 5.5
Waiver of Jury Trial
. Mortgagor and Mortgagee each irrevocably waives any and all right to trial by jury in any legal proceeding arising out of or relating to this Mortgage or the transactions contemplated hereby.
Section 5.6
Effect
. This Mortgage is in addition and not in substitution for any other guarantees, covenants, obligations or other rights now or hereafter held by Mortgagee from any other person or entity in connection with the Obligations.
Section 5.7
Assignability
. Mortgagee shall have the right to assign this Mortgage, in whole or in part, or sell participation interests herein, to any person obtaining an interest in the Obligations.
Section 5.8
Headings
. Headings of the Sections of this Mortgage are inserted for convenience only and shall not be deemed to constitute a part hereof.
Section 5.9
Fixture Filing
. This instrument shall be deemed to be a Fixture Filing within the meaning of the UCC, and for such purpose, the following information is given:
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(a)
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Name and address of Debtor:
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Cardinal Ethanol, LLC
1554 North 600 E
Union City, Indiana 47390
USA
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(b)
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Type of Organization:
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Limited liability company
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(c)
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Jurisdiction of Organization:
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Indiana
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(d)
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Organizational I.D. No.:
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IN2005021100241
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(e)
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Name and address of Secured Party:
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First National Bank of Omaha
1620 Dodge Street, Stop 1050
Omaha, Nebraska 68197-1050
USA
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(f)
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Description of the collateral:
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See granting clause above
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(g)
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Description of real estate to which the collateral is attached or upon which it is or will be located:
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See Exhibit A hereto.
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Some of the above-described collateral is or is to become fixtures upon the above-described real estate, and this Fixture Filing is to be filed for record in the public real estate records.
Section 5.10
Estoppel Certificate
. At any time and from time to time, within three (3) Business Days after receipt from Mortgagee of a written request therefor, Mortgagor shall prepare, execute and deliver to Mortgagee, and/or any other party which Mortgagee may designate, an estoppel certificate stating: (a) the amount of the unpaid principal balance and accrued interest secured by this Mortgage on the date thereof; (b) the date upon which the last payment secured by this Mortgage was made and the date the next payment secured by this Mortgage is due; and (c) that the provisions of the Loan Agreement, this Mortgage and the other Loan Documents described in said request have not been materially amended or changed in any manner, that there are no material defaults or events of default then existing under the terms of the Loan Agreement, this Mortgage or the other Loan Documents described in said request, and that Mortgagor has no defenses, claims or offsets against full enforcement hereof and thereof according to the terms hereof and thereof, or listing and describing any such amendments, changes, defaults, events of default, defenses, claims or offsets which do exist.
Section 5.11
Definitions
. Capitalized terms not otherwise defined in this Mortgage shall have the meaning given to such terms in the Loan Agreement.
Section 5.12
Amended and Restated Mortgage; Liens Unimpaired
. This Mortgage amends and restates the Existing Mortgage. It is the intention and understanding of the parties that (a) all security interests and other Liens arising under or evidenced by the Existing Mortgage shall remain in full force and effect
and shall secure the Obligations, (b) the priority of all such security interests and other Liens shall not be impaired by the execution, delivery or performance of this Mortgage or the other Loan Documents and (c) this Mortgage secures all of the Obligations (as defined in the Existing Mortgage) secured by the Existing Mortgage. All UCC Financing Statements and other lien perfection and similar documents relating to the Existing Mortgage or the security interests or other Liens arising thereunder or evidenced thereby shall remain in full force and effect and shall act to perfect the Mortgagee's Lien on the Mortgaged Property described therein.
ARTICLE 6.
ENVIRONMENTAL
Section 6.1
Environmental Matters; Notice; Indemnity
.
Mortgagor covenants and agrees as follows:
(a) For purposes of this Mortgage, the following definitions shall apply:
(i) The term “Environmental Law” means and includes any federal, state or local law, statute, regulation or ordinance pertaining to health, industrial hygiene or the environmental or ecological conditions on, under or about the Mortgaged Property, including without limitation each of the following (and their respective successor provisions): the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. sections 9601
et seq
. (“CERCLA”); the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. sections 6901
et seq.
(“RCRA”); the Federal Hazardous Materials Transportation Act, as amended, 49 U.S.C. sections 1801
et seq.
; the Toxic Substance Control Act, as amended, 15 U.S.C. sections 2601
et seq.
; the Clean Air Act, as amended, 42 U.S.C. sections 1857
et seq.
; the Federal Water Pollution Control Act, as amended, 33 U.S.C. sections 1251
et seq.
; and the rules, regulations and ordinances of the U.S. Environmental Protection Agency and of all other federal, state, county and municipal agencies, boards, commissions and other governmental bodies and officers having jurisdiction over the Mortgaged Property or the use or operation of the Mortgaged Property.
(ii) The term “Hazardous Substance” means and includes: (1) those substances included within the definitions of “hazardous substances”, “hazardous materials, hazardous waste”, “pollutants”, “toxic substances” or “solid waste” in any Environmental Law; (2) those substances listed in the U.S. Department of Transportation Table or amendments thereto (49 CFR 172.101) or by the U.S. Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR Part 302 and any amendments thereto); (3) those other substances, materials and wastes which are or become, regulated under any applicable federal, state or local law, regulation or ordinance or by any federal, state or local governmental agency, board, commission or other governmental body, or which are or become classified as hazardous or toxic by any such law, regulation or ordinance; and (4) any material, waste or substance which is any of the following: (A) asbestos; (B) polychlorinated biphenyl; (C) designated or listed as a “hazardous substance” pursuant to section 311 or section 307 of the Clean Water Act (33 U.S.C. sections 1251
et
); (D) explosive; (E) radioactive; (F) a petroleum product; or (G) infectious waste. Notwithstanding anything to the contrary herein, the term “Hazardous Substance” shall not include commercially sold products otherwise within the definition of the term “Hazardous Substance”, but (X) which are used or disposed of by Mortgagor or used or sold by tenants of the Mortgaged Property in the ordinary course of their respective businesses, (Y) the presence of which product is not prohibited by applicable Environmental Law, and (Z) the use and disposal of which are in all respects in accordance with applicable Environmental Law.
(iii) The term “Enforcement or Remedial Action” means and includes any action taken by any person or entity in an attempt or asserted attempt to enforce, to achieve compliance with, or to collect or impose assessments, penalties, fines, or other sanctions provided by, any Environmental Law.
(iv) The term “Environmental Liability” means and includes any claim, demand, obligation, cause of action, accusation, allegation, order, violation, damage (including consequential damage), injury, judgment, assessment, penalty, fine, cost of Enforcement or Remedial Action, or any other cost or expense whatsoever, including actual, reasonable attorneys' fees and disbursements, resulting from or arising out of the violation or alleged violation of any Environmental Law, any Enforcement or Remedial Action, or any alleged exposure of any person or property to any Hazardous Substance.
(b) Mortgagor, its successors and assigns, after reasonable inquiry, covenants, warrants and represents that, except as disclosed in the environmental studies identified in
Exhibit C
attached hereto and incorporated herein by reference:
(i) No Hazardous Substances have been or shall be discharged, disbursed, released, stored, treated, generated, disposed of, or allowed to escape or migrate, or shall threaten to be injected, emptied, poured, leached, or spilled on or from the Mortgaged Property.
(ii) No asbestos or asbestos‑containing materials have been or will be installed, used, incorporated into, placed on, or disposed of on the Mortgaged Property.
(iii) No polychlorinated biphenyls (“PCBs”) are or will be located on or in the Mortgaged Property, in the form of electrical transformers, fluorescent light fixtures with ballasts, cooling oils, or any other device.
(iv) No investigation, administrative order, consent order and agreement, litigation, settlement, lien or encumbrance with respect to Hazardous Substances is proposed, threatened, anticipated or in existence with respect to the Mortgaged Property.
(v) The Mortgaged Property and Mortgagor's operations at the Mortgaged Property are in compliance with all applicable Environmental Laws including without limitation any, state and local statutes, laws and regulations. No notice has been served on Mortgagor, or any subsidiary of Mortgagor, from any entity, government body, or individual claiming any violation of any law, regulation, ordinance or code, or requiring compliance with any law, regulation, ordinance or code, or demanding payment or contribution for environmental damage or injury to natural resources. Copies of any such notices received subsequent to the date hereof shall be forwarded to Mortgagee within three (3) days of their receipt.
(vi) Mortgagor has no knowledge of the release or threat of release of any Hazardous Substances from any property adjoining or in the immediate vicinity of the Mortgaged Property.
(vii) No portion of the Mortgaged Property is a wetland or other water of the United States subject to jurisdiction under Section 404 of the Clean Water Act (33 U.S.C. § 1344) or any comparable state statute or local ordinance or regulation defining or protecting wetlands or other special aquatic areas.
(viii) There are no concentrations of radon or other radioactive gases or materials in any buildings or structures on the Mortgaged Property that exceed background ambient air levels.
(ix) To the best of Mortgagor's knowledge, there have been no complaints of illness or sickness alleged to result from conditions inside any buildings or structures on the Mortgaged Property.
(c) Mortgagor will give prompt written notice to Mortgagee of:
(i) any proceeding, known investigation or inquiry commenced by any governmental authority with respect to the presence of any Hazardous Substance on, under or about the Mortgaged Property or the migration thereof to or from adjoining property;
(ii) all claims made or threatened by any individual or entity against Mortgagor or the Mortgaged Property relating to any loss or injury allegedly resulting from any Hazardous Substance; and
(iii) the discovery by Mortgagor of any occurrence or condition on any real property adjoining or in the vicinity of the Mortgaged Property which might cause the Mortgaged Property or any part thereof to be subject to any restriction on the ownership, occupancy, transferability or use of the Mortgaged Property under any Environmental Law.
(d) Mortgagee shall have the right and privilege to: (i) join in and participate in, as a party if it so elects, any one or more legal proceedings or actions initiated with respect to the Mortgaged Property; and to (ii) have all costs and expenses thereof (including without limitation Mortgagee's reasonable attorneys' fees and costs) paid by Mortgagor.
(e) Mortgagor agrees to protect, defend, indemnify and hold harmless Mortgagee, its directors, officers, employees, agents, contractors, sub-contractors, licensees, invitees, participants, successors and assigns, from and against any Environmental Liability and any and all claims, demands, judgments, settlements, damages, actions, causes of action, injuries, administrative orders, consent agreements and orders, liabilities, losses, penalties, costs, including but not limited to any cleanup costs, remediation costs and response costs, and all expenses of any kind whatsoever including reasonable attorneys' fees and expenses, including but not limited to those arising out of loss of life, injury to persons, property or business or damage to natural resources in connection with the activities of Mortgagor, or parties in a contractual relationship with Mortgagor, and any of them, the foregoing being collectively referred to as “Claims”, which:
(i) arise out of the actual, alleged or threatened migration, spill, leaching, pouring, emptying, injection, discharge, dispersal, release, storage, treatment, generation, disposal or escape of any Hazardous Substances onto or from the Mortgaged Property; or
(ii) actually or allegedly arise out of, in connection with the Mortgaged Property, the use, specification or inclusion of any product, material or process containing Hazardous Substances, the failure to detect the existence or proportion of Hazardous Substances in the soil, air, surface water or ground water, or the performance of or failure to perform the abatement of any Hazardous Substances source or the replacement or removal of any soil, water, surface water or ground water containing any Hazardous Substances; or
(iii) arise out of the breach of any covenant, warranty or representation contained in any statement or other information given by Mortgagor to Mortgagee relating to environmental matters; or
(iv) arise out of any Enforcement or Remedial Action or any judicial or administrative action brought pursuant to any Environmental Law.
Mortgagor, its successors and assigns, shall bear, pay and discharge when and as the same become due and payable, any and all such judgments or claims for damages, penalties or otherwise against
Mortgagee described in this subparagraph (e), shall hold Mortgagee harmless for those judgments or claims, and shall assume the burden and expense of defending all suits, administrative proceedings, and negotiations of any description with any and all persons, political subdivisions or government agencies arising out of any of the occurrences set forth in this subparagraph (e).
Mortgagor's indemnifications and representations made herein shall survive any termination or expiration of the documents evidencing or securing the Obligations and/or the repayment of the indebtedness evidenced by the Obligations, including, but not limited
to, any foreclosure on this Mortgage or acceptance of a deed in lieu of foreclosure. Without limiting the generality of the foregoing, Mortgagor's indemnifications and representations shall extend to Hazardous Substances which first originate on the Mortgaged Property subsequent to Mortgagee's succession to title by virtue of a foreclosure or acceptance of a deed in lieu of foreclosure, excepting only such Claims which arise out of actions taken by Mortgagee, or by those contracting with Mortgagee, its successors or assigns, subsequent to Mortgagee, its successors or assigns, becoming owner of the Mortgaged Property.
(f) If any investigation, site monitoring, containment, cleanup, removal, restoration or other remedial work of any kind or nature (the “Remedial Work”) is reasonably desirable (in the case of an operation and maintenance program or similar monitoring or preventative programs) or necessary, both as determined by an independent environmental consultant selected by Mortgagee under any applicable federal, state or local law, regulation or ordinance, or under any judicial or administrative order or judgment, or by any governmental person, board, commission or agency, because of or in connection with the current or future presence, suspected presence, release or suspected release of a Hazardous Substance into the air, soil, groundwater, or surface water at, on, about, under or within the Mortgaged Property or any portion thereof, Mortgagor shall within thirty (30) days after written demand by Mortgagee for the performance (or within such shorter time as may be required under applicable law, regulation, ordinance, order or agreement), commence and thereafter diligently prosecute to completion all such Remedial Work to the extent required by law. All Remedial Work shall be performed by contractors approved in advance by Mortgagee (which approval in each case shall not be unreasonably withheld or delayed) and under the supervision of a consulting engineer approved in advance by Mortgagee. All costs and expenses of such Remedial Work (including without limitation the reasonable fees and expenses of Mortgagee's counsel) incurred in connection with monitoring or review of the Remedial Work shall be paid by Mortgagor. If Mortgagor shall fail or neglect to timely commence or cause to be commenced, or shall fail to diligently prosecute to completion, such Remedial Work, Mortgagee may (but shall not be required to) cause such Remedial Work to be performed; and all costs and expenses thereof, or incurred in connection therewith (including, without limitation, the reasonable fees and expenses of Mortgagee's counsel), shall be paid by Mortgagor to Mortgagee forthwith after demand and shall be a part of the Indebtedness.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, Mortgagor has executed and delivered this Mortgage as of the date first written above.
IMPORTANT: READ BEFORE SIGNING. THE TERMS OF THIS AGREEMENT SHOULD BE READ CAREFULLY BECAUSE ONLY THOSE TERMS IN WRITING ARE ENFORCEABLE. NO OTHER TERMS OR ORAL PROMISES NOT CONTAINED IN THIS WRITTEN CONTRACT MAY BE LEGALLY ENFORCED. YOU MAY CHANGE THE TERMS OF THIS AGREEMENT ONLY BY ANOTHER WRITTEN AGREEMENT.
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MORTGAGOR:
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CARDINAL ETHANOL, LLC, an Indiana limited liability company
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By:
/s/ Jeffrey L. Painter
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Printed Name:
Jeffrey L. Painter
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Title:
CEO/President
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Prepared by and Return to:
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James M. Pfeffer
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Stinson Morrison Hecker LLP
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1299 Farnam St., Suite 1500
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Omaha, Nebraska 68102
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I affirm, under penalties for perjury that I have taken reasonable care to redact each Social Security number in this document, unless required by law.
/s/ James M. Pfeffer
James M. Pfeffer
CERTIFICATE OF ACKNOWLEDGMENT
STATE OF INDIANA
)
) ss.
COUNTY OF RANDOLPH
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Before me, a Notary Public in and for said County and State, personally appeared
Jeffrey L. Painter
, known to me to be the
President/CEO
of Cardinal Ethanol, LLC, an Indiana limited liability company, and acknowledged the execution of the foregoing for and on behalf of such limited liability company.
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HEATHER A. CRAIG
NOTARY PUBLIC
SEAL
STATE OF INDIANA
MY COMMISSION EXPIRES FEBRUARY 1, 2016
RESIDENT OF WAYNE COUNTY
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/s/ Heather A. Craig
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Notary Public-Signature
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Heather A. Craig
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Notary Public-Printed Name
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Date: June 10, 2013
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My commission expires:
February 1, 2016
My County of Residence:
Wayne
County, Indiana
EXHIBIT A
Legal Description
Tract I, containing 207.623 acres
Situated in the Northeast and Southeast Quarters, both being in Section 17, Township 20 North, Range 15 East, Wayne Township, Randolph County, Indiana, being more particularly described as follows:
Beginning at a mag nail found at the southeast corner of the Southeast Quarter in Indiana State Highway No. 32;
Thence North 89°50'43” West 1993.12 feet (bearing base established from State Plan Coordinates) along the south line of said Southeast Quarter, Indiana State Highway No. 32, to a mag nail set, witness an iron rod set North 00°09'17” East 30.00 feet (all iron rods set are 5/8” rebar with plastic cap stamped “RLS 20400025”);
Thence North 00°09'17” East 332.46 feet, to an iron rod set;
Thence North 89°50'43” West 298.90 feet, to an iron rod set;
Thence South 00°09'17” West 332.46 feet, to a mag nail set on the south line of said Southeast Quarter, witness an iron rod set North 00°09'17” East 30.00 feet;
Thence North 89°50'43” West 502.27 feet, along said south line, in said highway, to a mag nail found at said southwest corner of said Southeast Quarter, witness a concrete post found North 01°31'35” East 30.52 feet;
Thence North 01°31'35” East 2649.53 feet along the west line of said Southeast Quarter, to an iron rod set at the northwest corner of said Quarter (all iron rods set are 5/8” rebar with plastic cap stamped “RLS 20400025”);
Thence North 01°31'35” East 378.81 feet along the west line of said Northeast Quarter, to an iron rod set on the south right-of-way of the New York Central Lines Railroad;
Thence North 77°15'15” East 2775.43 feet along said south right-of-way, to a mag nail set on the east line of said Northeast Quarter, in Randolph County Road 600 East, witness a concrete end post found South 77°15'15” West 21.33 feet;
Thence South 00°40'05” West 1012.22 feet along the east line of said Northeast Quarter, in said County Road to an iron rod found at the southeast corner of said Northeast Quarter;
Thence South 00°23'58” West 2635.04 feet along the east line of said Southeast Quarter, in said road, to the point of beginning, containing 207.623 acres, more or less, there being 43.128 acres, more or less, in the Northeast Quarter and 164.495 acres, more or less, in the Southeast Quarter.
Tract II, containing 87.598 acres
Situated in the Northwest and Southwest Quarters, both in Section 17, Township 20 North, Range 15 East, Wayne Township, Randolph County, Indiana, being more particularly described as follows:
Beginning at a mag nail found at the southeast corner of the Southwest Quarter, in Indiana State Highway No.32, witness a concrete end post found North 01°31'35” East 30.52 feet;
Thence North 89°42'11” West 1320.67 feet (bearing base established from State Plan Coordinates) along the south line of said Southwest Quarter, in said State Highway, to a mag nail set at the Southeast corner of a 63.39 acre tract as recorded in Instrument 0002247, witness a concrete end post found North 01°12'42” East 30.49 feet;
Thence North 01°12'42” East 2652.77 feet along the east line of said 63.39 acre tract, to an iron rod set on the North line of said Southwest Quarter;
Thence North 01°12'42” East 64.26 feet, entering into the Northwest Quarter, to an iron rod set on the south right-of-way of the New York Central Lines Railroad (all iron rods set with plastic cap stamped 7955);
Thence North 77°15'15” East 1377.82 feet along said right-of-way, to an iron rod set on the east line of said Northwest Quarter;
Thence South 01°31'35” West 378.81 feet along the east line of said Northwest Quarter, to an iron rod set at the southeast corner of said Quarter;
Thence South 01°31'35” West 2649.53 feet along the east line of said Southwest Quarter, to the point of beginning, containing 87.598 acres, more or less, there being 80.807 acres, more or less, in the Southwest Quarter and 6.791 acres, more or less, in the Northwest Quarter.
EXHIBIT B
PERMITTED ENCUMBRANCES AND PERMITTED LEASES
Permitted Encumbrances
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1.
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Real Estate Taxes which have been assessed but are not delinquent.
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2.
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Easement for overhead and underground electric and communications lines granted to Indiana Michigan Power Company by instrument dated February 11, 2008 and recorded February 28, 2008 as Instrument No. 20080930.
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3.
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Easement for overhead and underground electric and communications lines granted to Indiana Michigan Power Company by instrument dated July 18, 2008 and recoded august 8, 2008 as Instrument No. 20083406.
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4.
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Easement for overhead and underground electric and communications lines granted to Indiana Michigan Power Company by instrument dated April 23, 2010 and recoded May 7, 2010 as Instrument No. 20101780.
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5.
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Easement for overhead and underground electric and communications lines granted to Indiana Michigan Power Company by instrument dated April 23, 2010 and recoded May 7, 2010 as Instrument No. 20101781.
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6.
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Easement for overhead and underground electric and communications lines granted to Indiana Michigan Power Company by instrument dated March 26, 2012 and recoded April 16, 2012 as Instrument No. 20121428.
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Permitted Leases
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1.
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Non-Exclusive CO2 Facility Site Lease Agreement dated August 11, 2010 between Cardinal ethanol, LLC, as Lessor, and EPCO Carbon Dioxide Products, Inc., as Lessee
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EXHIBIT C
ENVIRONMENTAL STUDIES
Phase I Environmental Site Assessment Dated August 29, 2006 prepared by August Mack Environmental, Inc.
CERTIFICATION PURSUANT TO 17 CFR 240.13(a)-14(a)
(SECTION 302 CERTIFICATION)
I, Jeff Painter, certify that:
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1.
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I have reviewed this quarterly report on Form 10-Q of Cardinal Ethanol, LLC;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date:
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August 7, 2013
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/s/ Jeff Painter
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Jeff Painter, Chief Executive Officer
(President and Principal Executive Officer)
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CERTIFICATION PURSUANT TO 17 CFR 240.13(a)-14(a)
(SECTION 302 CERTIFICATION)
I, William Dartt, certify that:
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1.
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I have reviewed this quarterly report on Form 10-Q of Cardinal Ethanol, LLC;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date:
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August 7, 2013
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/s/ William Dartt
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William Dartt, Chief Financial Officer
(Principal Financial Officer)
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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q in accordance with Rule 15(d)-2 of the Securities Exchange Act of 1934 of Cardinal Ethanol, LLC (the “Company”) for the fiscal quarter ended
June 30, 2013
, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jeff Painter, President and Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ Jeff Painter
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Jeff Painter, President and
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Principal Executive Officer
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Dated:
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August 7, 2013
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CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q in accordance with Rule 15(d)-2 of the Securities Exchange Act of 1934 of Cardinal Ethanol, LLC (the “Company”) for the fiscal quarter ended
June 30, 2013
, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, William Dartt, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ William Dartt
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William Dartt,
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Chief Financial Officer
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(Principal Financial Officer)
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Dated:
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August 7, 2013
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