LETTER OF INTENT
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EXHIBIT 10.10
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CONFIDENTIAL
March 1, 2007
Ace Ethanol, LLC
c/o Greene Xxxxxxx & Xxxxxx LLC
0000 Xxxxx Xxxxx Center
00 Xxxxx Xxxxxxx Xxxxxx
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
This Letter summarizes certain terms under which ALL Energy Company
("Buyer") would acquire up to 100%, and not less than 70%, of the outstanding
equity membership interests of Ace Ethanol, LLC (the "Company"). This proposed
transaction is sometimes referred to as the "Transaction."
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NON-BINDING TERMS
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This paragraph and Sections 1 through 4 are not legally binding on either
party. They would serve as the non-binding basis for an initial draft of a
definitive agreement for the Transaction (the "Definitive Agreement"). We
currently contemplate that the Definitive Agreement would include, among others,
the following terms:
1. The Transaction. At the closing of the Transaction ("Closing"), the
Buyer would purchase up to 100% of the outstanding equity of the Company. Seller
would make available to the Company's members the opportunity to retain or
"roll" up to 30% of the Company's equity on a tax-efficient basis. However,
this
opportunity would be at the option of the Company's members, and the Buyer
would
be prepared to purchase 100% of the Company's equity for cash.
2. Agreement Execution. We would attempt to negotiate and execute the
Definitive Agreement by March 31, 2007.
3. Purchase Price. The purchase price would be $106 million, subject to
adjustment as provided below (the "Purchase Price"), on a debt-free, cash-free
basis. For this purpose, the Company's potential tax obligations to the City
of
Xxxxxxx, Wisconsin would not be considered "debt." The Purchase Price would
be
paid as follows:
(a) Cash at Closing. At Closing, Xxxxx would pay the Purchase Price, less
the Escrow Amount, in cash to the Company's members.
(b) Escrow. At Closing, Xxxxx would deposit approximately $3.18 million
with a mutually acceptable escrow agent to secure the performance of the
Company's and its members' indemnification obligations under the Definitive
Agreement. Subject to pending claims, one-half of this escrowed amount would
be
released from escrow after 12 months (which we are assuming is the time required
to complete the first audit cycle after the Closing) and the remaining escrowed
amount would be released after 18 months.
(c) Purchase Price Adjustment--Reduction for Retained Membership
Interests.. At Closing, the amounts payable by Xxxxx as outlined above would
be
proportionately reduced for any membership interests that the Company's members
elect to retain.
(d) Purchase Price Adjustment--Working Capital. After Closing, the Purchase
Price would be adjusted, based on the excess or shortfall of the Company's
closing net working capital as compared to a target number reflecting a
reasonable amount of working capital for the Company's business. The target
working capital will be determined prior to signing the Definitive Agreement.
An
estimate of the working capital adjustment would be prepared and paid at
closing. As described above, this working capital adjustment would be determined
on a debt-free, cash-free basis.
(e) Purchase Price Adjustment--New Corn Bins. The parties acknowledge that
the Company intends to make purchase deposits for two new corn bins between
now
and Closing. If these deposits are made before Closing, the Purchase Price
will
be increased by the amount of that deposit, which is currently contemplated
to
be $300,000.
(f) Purchase Price Adjustment--Put Contracts. The parties also acknowledge
that the Company will likely be purchasing put contracts on or about March
15,
2007. The cost of these put contracts is currently contemplated to be
approximately $680,000. If these put contracts are purchased before Closing,
at
Buyer's option, the Purchase Price would simply be increased by the cost of
the
put contracts, or the put contracts would be liquidated and the Purchase Price
would be increased by the proceeds received by the Company.
(g) Future Tax Refund Attributable to Sales Tax Audit. The parties also
acknowledge that the Company is undergoing a sales tax audit for the years
2002-2005. The Company currently contemplates that it will pay the amount of
the
disputed sales tax and file for a refund pending resolution of the audit. The
Definitive Agreement would include provisions that would require Buyer to cause
the Company to continue to pursue, in good faith, the subject sale tax refund,
at the expense of the Company. The Definitive Agreement would also provide
for
70% of any such sales tax refund proceeds to be distributed by the Company
to
the members of record of the Company, pro rata, as of the date of closing under
the Definitive Agreement. The Company would retain the balance of any such
sales
tax refund proceeds. At or before Closing, the Company will either pay the
disputed sales tax amount to the appropriate tax authorities (subject to the
refund claim contemplated hereby), or pay the disputed amount into an escrow
until final resolution of the pending audit.
4. Certain Additional Terms. The Definitive Agreement would contain other
terms and conditions that would be customary for transactions of this type,
including customary representations, warranties, covenants and indemnities
(subject to the escrow limit described above).
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BINDING TERMS
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This paragraph and Sections 5 through 11, which are referred to
collectively as the "Binding Terms," are the legally binding and enforceable
agreements of Buyer and the Company.
5. Exclusivity. Throughout the period that begins on the date of this
Letter and ends on the date that is 30 days from the date of mutual execution
of
this Letter (the "Exclusivity Period"), the Company will not, and will cause
each of its representatives and agents not to, directly or indirectly, solicit,
initiate, seek or encourage any inquiry, proposal or offer from, furnish any
information to, or participate in any discussions or negotiations with, any
person (other than Buyer or any person on Buyer's behalf) regarding any
acquisition of the Company or any of its membership interests, assets or
business, in whole or in part, whether directly or indirectly (by merger, tender
offer, purchase, statutory share exchange, joint venture or otherwise), except
sales of inventory in the ordinary course of the Company's business. Any
Definitive Agreement would include an exclusivity agreement, with an appropriate
"fiduciary out" that applies until the Company's members vote on the
Transaction.
Confidentiality. The terms and existence of this Letter, and the content
and existence of discussions regarding the Transaction, are confidential
information, and protected from disclosure by, the existing Confidentiality
Agreement between the parties, which will remain in full force and effect
pursuant to its terms. Notwithstanding the foregoing and the existing
Confidentiality Agreement, the parties agree that (i) disclosure regarding
the
content and existence of this Letter made by Buyer or its affiliates under
applicable securities laws shall not be a violation of this paragraph 6, and
(ii) the Company may disclose the existence and terms of this Letter to its
members at the members' meeting to be held on or about March 10, 2007.
7. Expenses. Except to the extent expressly stated otherwise in the
Definitive Agreement and the next paragraph, each of Buyer and the Company
will
be responsible for and bear all of its respective costs and expenses (including
any broker's or finder's fees, legal fees and expenses and the fees and expenses
of its other representatives) incurred at any time in connection with pursuing
or consummating the Transaction.
Notwithstanding the prior paragraph, if at any time prior to the
termination of the Exclusivity Period Buyer presents to the Company a binding
commitment letter from a reputable financing source with respect to the full
amount of the Purchase Price, then the following provision shall
apply:
(i) if the parties do not enter into a definitive agreement
relating to the Transaction (other than as a result of Buyer not being willing
to enter into the Transaction on the terms proposed herein or breaching its
obligations hereunder); and
(ii) on or prior to May 31, 2007, the Company and a third party
enter into a definitive agreement for the sale of the Company or any substantial
part thereof to such third party;
then the Company shall reimburse Buyer's reasonable documented
out-of-pocket costs and expenses (including reasonable attorney fees and costs,
but excluding any compensation paid to employees of Buyer) incurred in
connection with the Transaction, but not to exceed $200,000 in the
aggregate.
8. No Other Obligations or Claims. Nothing herein obligates either party
to
enter into or continue any discussions or negotiations with, solicit or accept
any proposal from or enter into any definitive agreement with, the other party.
Except for the Binding Terms, unless and until a final definitive agreement
between the parties regarding a transaction has been executed and delivered
(or
except as expressly provided in any binding written agreement that either of
the
parties may enter into in the future), (a) neither party will be under any
legal
obligation of any kind regarding such a transaction by virtue of this Letter
and
(b) no past or future action, course of conduct or failure to act regarding
a
transaction, or relating to the negotiation of the terms of a transaction or
the
Definitive Agreement, will give rise to or serve as a basis for any obligation
or other liability on the part of either party.
9. Waiver and Amendment. No failure or delay by either party in exercising
any right, power or privilege under this Letter will operate as a waiver
thereof, nor will any single or partial exercise thereof preclude any other
or
further exercise of any right, power or privilege hereunder. No term in this
Letter can be waived or amended except in a writing signed by each
party.
10. Entire Agreement. Other than existing confidentiality rights and
obligations in any written agreement between the parties, this Letter contains
the entire agreement between the parties regarding the subject matter hereof
and
supersedes all prior agreements or understandings between the parties with
respect thereto.
11. Counterparts. This Letter may be executed in counterparts, each of
which will be deemed an original, and all of which will constitute the same
agreement.
* * * * *
If the Company is in agreement, please sign below and return one or
more fully executed copies of this Letter to Buyer. The Binding Terms will
then
become a binding agreement between us. Our proposal will expire at 5:00 p.m.
CST
on March 3, 2007 unless you deliver a signed copy of this Letter to us before
that time.
Very truly yours,
ALL ENERGY COMPANY
By: /s/ XXXX X. XXXXXXXXX
Its: President
Acknowledged and agreed to as of the date first written above:
ACE ETHANOL, LLC
By: /s/
Its:
