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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K / 405
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended Commission File
December 31, 1997 Number 1-1550
CHIQUITA BRANDS INTERNATIONAL, INC.
Incorporated under the I.R.S. Employer I.D.
Laws of New Jersey No. 04-1923360
250 East Fifth Street, Cincinnati, Ohio 45202
(513) 784-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class On Which Registered
--------------------- ----------------------
Capital Stock ($.33 par value) New York, Pacific, Boston
$2.875 Non-Voting Cumulative
Preferred Stock, Series A New York
$3.75 Convertible Preferred
Stock, Series B New York
Securities registered pursuant to Section 12(g)
of the Act: None
Other securities for which reports are submitted pursuant to
Section 15(d) of the Act:
9-1/8% Senior Notes due March 1, 2004
9-5/8% Senior Notes due January 15, 2004
10-1/4% Senior Notes due November 1, 2006
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, and (2) has been subject to such filing requirements
for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of February 28, 1998, there were 64,159,706 shares of
Common Stock outstanding. The aggregate market value of
<PAGE>
Common Stock held by non-affiliates at February 28, 1998 was
approximately $536 million.
Documents Incorporated by Reference
Portions of the Chiquita Brands International, Inc. 1997
Annual Report to Shareholders are incorporated by reference in
Parts I and II. Portions of the Chiquita Brands
International, Inc. Proxy Statement for the 1998 Annual
Meeting of Shareholders are incorporated by reference in Part
III.
<PAGE>
CHIQUITA BRANDS INTERNATIONAL, INC.
TABLE OF CONTENTS
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Page
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<S> <C> <C>
Part I
Item 1. Business . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . 7
Item 3. Legal Proceedings . . . . . . . . . . 8
Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . 9
Executive Officers of the Registrant . . . . . . 10
Part II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters . . . . 11
Item 6. Selected Financial Data . . . . . . . . 11
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations . . . . . . . . . . . . . . 11
Item 7A. Quantitative and Qualitative
Disclosures About Market Risk . . . . . 12
Item 8. Financial Statements and Supplementary
Data . . . . . . . . . . . . . . . . . 12
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . 12
Part III
Item 10. Directors and Executive Officers of
the Registrant . . . . . . . . . . . . 12
Item 11. Executive Compensation . . . . . . . . 12
Item 12. Security Ownership of Certain
Beneficial Owners and Management. . . . 12
Item 13. Certain Relationships and Related
Transactions. . . . . . . . . . . . . . 12
Part IV
Item 14. Exhibits, Financial Statement
Schedules, and Reports on Form 8-K . . 13
Signatures. . . . . . . . . . . . . . . . . . . . 14
</TABLE>
[CAPTION]
PART I
ITEM 1 - BUSINESS
GENERAL
Chiquita Brands International, Inc. ("Chiquita" or the
"Company") is a leading international marketer, producer and
<PAGE>
distributor of bananas and other quality fresh and processed
food products sold under the Chiquita and other brand names.
In addition to bananas, Chiquita's fresh products include
other tropical fruit, such as mangoes, kiwi and citrus, and a
wide variety of other fresh produce. Chiquita's operations
also include private-label and branded canned vegetables and
related products; fruit and vegetable juices and beverages;
processed bananas; fresh cut and ready-to-eat salads; and
edible oil-based consumer products.
The Company has capitalized on its "Chiquita" and other
premium brand names by building on its worldwide leadership
position in the marketing, distribution and sourcing of
bananas and by expanding its quality fruit and vegetable
operations. In 1992, the European Union ("EU") announced a
banana quota which effectively restricts the volume of bananas
from Latin America, Chiquita's primary source of fruit, which
may be imported into the EU. The import quota regime,
together with additional restrictive and discriminatory quotas
and export licenses imposed under the related banana Framework
Agreement, have significantly affected the worldwide banana
industry and severely burdened Chiquita's banana operations.
(See RISKS OF INTERNATIONAL OPERATIONS.) In addition to
ongoing operating cost reduction programs and efforts to
adjust to the quota regime, the Company's primary objectives
since announcement of the quota have included:
* expanding the banana business in markets with increasing
consumer demand that are not subject to the quota regime,
including the established North American market and emerging
markets such as Eastern and Central Europe, Russia and
China;
* developing Chiquita's other core fresh and processed foods
businesses; and
* reducing debt and interest costs, strengthening the balance
sheet and increasing cashflow.
In connection with these objectives, in 1997 and early 1998,
Chiquita completed acquisitions of three vegetable canning
companies which expand the capacity, product lines and
geographic coverage of its existing vegetable canning business
(see "Processed Food Products"). These acquisitions also
strengthened the balance sheet with the issuance of Chiquita
stock. The Company has made significant reductions in debt
since its peak level in 1992, including prepayments of high
cost public debentures and subsidiary debt using proceeds from
public offerings of preferred shares and senior notes, as well
as from cash available from operations and sales of non-core
assets. In 1995, Chiquita completed the sales of various non-
core assets, including its meat business, older ships and the
Costa Rican operations of its Numar edible oils group.
<PAGE>
See "Management's Analysis of Operations and Financial
Condition" and Note 3 to the Consolidated Financial Statements
included in the Company's 1997 Annual Report to Shareholders
for a discussion of factors affecting results of operations
for 1997, 1996 and 1995. Factors which may cause fluctuations
in operating results are also discussed below. No individual
customer accounted for more than 10% of the Company's
consolidated net sales during any of the last three years.
-1-
Fresh Food Products
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The Company markets an extensive line of fresh fruits and
vegetables sold under the "Chiquita" and other brand names.
The core of Chiquita's fresh foods operations is the
marketing, distribution and sourcing of bananas. Sales of
bananas accounted for approximately 60% of consolidated net
sales in each of the last three years.
Chiquita believes it derives competitive benefits in the
marketing, distribution and sourcing of fresh foods through
its:
* recognized brand names and reputation for quality;
* strong market positions in Europe and North America, its
principal markets;
* modern, cost-efficient fresh fruit transportation
system;
* state of the art banana ripening techniques; and
* industry leading position in terms of number and
geographic diversity of major sources of bananas, which
enhances its ability to provide customers with premium
quality products on a consistent basis.
Marketing. Chiquita markets bananas under brand names
including "Chiquita," "Chiquita Jr.," "Consul" and "Amigo."
In 1997, Chiquita sold approximately 50% of its banana volume
in North America and approximately 45% of its banana volume in
Europe.
Chiquita sells bananas through its regional sales
organizations and commissioned agents throughout the world
directly to wholesalers and retail chains, which in turn ripen
and resell or distribute the fruit. The Company also sells
bananas ripened in its own facilities or under contractual
ripening arrangements. Chiquita has been able to obtain a
premium price for its bananas due to its reputation for
quality and its innovative ripening and marketing techniques,
which include providing retail marketing support services to
its customers.
<PAGE>
Bananas are highly perishable and must be brought to market
and sold generally within 60 days after harvest. Therefore,
the selling price which an importer receives for bananas
depends on several factors, including: the availability of
bananas and other fruit in each market; the relative quality
of competing fruit; and wholesaler and retailer acceptance of
bananas offered by competing importers. Excess supplies may
result in increased price competition. Profit margins on
sales may also be significantly affected by fluctuations in
currency exchange rates. (See RISKS OF INTERNATIONAL
OPERATIONS.)
Adverse weather such as major windstorms or floods in banana
growing areas may restrict worldwide supplies and result in
increased prices for bananas. However, competing importers
may be affected differently, depending upon their ability and
the cost to obtain alternate supplies from sources in other
geographic areas.
Banana marketing in international trade is highly
competitive. While smaller companies, including growers'
cooperatives, are a competitive factor, Chiquita's primary
competitors are a limited number of other international banana
importers and exporters. In order to compete successfully,
Chiquita must be able to source bananas of uniformly high
quality and, on a timely basis, transport and distribute them
to
-2-
worldwide markets. The Company's sales of bananas represent
approximately one-fourth of all bananas imported into Europe
and North America, its principal markets.
Although production of bananas tends to be relatively stable
throughout the year, competition in the sale of bananas comes
not only from bananas sold by others, but also from other
fresh fruit which may be seasonal in nature. The resulting
seasonal variations in demand cause banana pricing to be
seasonal, with the first six months of the calendar year being
the stronger period.
Through a network of fresh fruit and vegetable operations in
Europe, North America and the Pacific Rim, Chiquita sells and
distributes a variety of quality fruit and vegetable products.
These products include quality fresh fruit such as apples,
apricots, blueberries, cherries, grapes, peaches, pears,
plums, strawberries and tomatoes sold under the "Chiquita,"
"Frupac" and other brand names; and a wide variety of fresh
vegetables including asparagus, beans, broccoli, carrots,
celery, cucumbers, lettuce, onions, peppers and potatoes sold
under the "Premium" and various other brand names. Some of
these operations involve both the production and marketing of
fresh fruits and vegetables while others involve only
marketing. These businesses compete against numerous other
regional fresh fruit and vegetable producers and distributors.
<PAGE>
No single competitor has a dominant market share in this
industry due to the regionalized nature of these businesses.
Distribution and Logistics. Transportation expenses
comprise approximately one-fourth of the total costs incurred
by Chiquita in its sale of bananas. Chiquita ships its
bananas in vessels owned or chartered by the Company. All of
Chiquita's tropical fruit shipments into the North American
market are delivered using pallets or containers, which
minimize damage to the product by eliminating the need to
handle individual boxes. Chiquita owns or controls under
long-term lease approximately 65% of its aggregate shipping
capacity. The remaining capacity is operated under
contractual arrangements having terms of approximately one
year. (See also ITEM 2 - PROPERTIES and Notes 5 and 6 to the
Consolidated Financial Statements included in the Company's
1997 Annual Report to Shareholders.) Chiquita also operates
loading and unloading facilities which it owns or leases in
Central and South America and various ports of destination.
Sourcing. Chiquita has a greater number and geographic
diversity of major sources of bananas than any of its
competitors. During 1997, approximately one-fourth of all
bananas sold by Chiquita were sourced from each of Panama and
Costa Rica. Bananas are sourced from numerous other
countries, including Colombia, Ecuador, Guatemala and Honduras
which comprised 6% to 13% (depending on the country) of
bananas sold by Chiquita during 1997.
In 1997, approximately 60% of the bananas sourced by
Chiquita were produced by subsidiaries and the remainder were
purchased under fruit supply arrangements from other growers.
Generally, these arrangements require less initial capital
investment by the Company than owned production facilities.
Under some of these fruit supply arrangements, Chiquita
furnishes financial and technical assistance to its suppliers
to support the production and preparation of bananas for
shipment. A single supplier in Ecuador provided approximately
6% of the bananas sold by Chiquita in 1997.
Bananas are vulnerable to adverse local weather conditions,
which are quite common but difficult to predict, and to crop
disease. These factors may result in lower sales volume and
increased costs, but may also restrict worldwide supplies and
lead to increased prices for bananas. In addition, banana
production may be affected by political changes in countries
where bananas are grown. However, competitors may be affected
differently, depending upon their ability to obtain adequate
supplies from sources in other
-3-
geographic areas. Chiquita's overall risk from these factors
is reduced by the low concentration of its banana production
<PAGE>
in individual producing locations.
Labor cost, which is a significant portion of the cost of
producing bananas, varies depending on the country of origin.
Since bananas are shipped in cardboard boxes, paper cost is
also significant.
The geographically diverse sources of other fresh fruits and
vegetables primarily involve formal and informal purchase
arrangements with numerous unrelated producers and importers.
None of these arrangements is individually significant to the
Company's operations.
Processed Food Products
-----------------------
Chiquita's processed food products include private-label and
branded canned vegetables sold in North America and abroad;
fruit and vegetable juices and beverages sold in the United
States and Europe; processed bananas sold primarily in North
America, Europe and the Far East under the "Chiquita" brand;
fresh cut and ready-to-eat salads sold in the United States
under the "Club Chef" brand; and other consumer products
(primarily edible oils) sold in Honduras under the "Numar" and
other brand names.
Friday Canning Corporation ("Friday"), owned by Chiquita
since 1992, is one of the largest private-label vegetable
processors in the United States, operating eight processing
facilities in Wisconsin and participating in a joint venture
in China. In 1997, Chiquita acquired the Owatonna Canning
group of companies (the "Owatonna Companies") and American
Fine Foods, Inc. ("AFF") and, in early 1998, Chiquita acquired
Stokely USA, Inc. ("Stokely"). The acquisition of these
vegetable canning companies adds 13 processing facilities to
Chiquita s vegetable canning business, and expands both the
product lines and geographic coverage of Friday s existing
vegetable canning business. These vegetable canning companies
market a full line of over twenty-five types of processed
vegetables, including corn, green beans, peas and other
related products, to retail and food service customers
throughout the U.S. and in over 25 other countries.
Chiquita s vegetable canning companies enjoy the largest share
of the U.S. private-label canned vegetable business and also
sell branded products under the "Stokely's," "Friday" and
other labels. These companies compete directly with a few
major producers of both branded and private-label canned
vegetables, as well as indirectly with numerous marketers of
frozen and fresh vegetable products. The vegetable processing
industry is affected by product supply, which correlates to
plantings, growing conditions, crop yields and inventories,
all of which may vary from year to year.
Chiquita branded fruit juices and beverages sold in the
<PAGE>
United States include a full line of tropical blends which are
manufactured by others to Chiquita's specifications and sold
in shelf-stable, refrigerated and frozen varieties. Shelf-
stable servings are sold through club stores and mass
merchandisers throughout most of the United States. The
refrigerated and frozen juice product lines are produced and
sold by a national fruit juice producer, from which Chiquita
receives a license fee. Chiquita branded fruit juices are
sold in Europe in shelf-stable and refrigerated varieties
through a 50%-owned joint venture. In the western United
States, the Company also produces and markets natural fresh
fruit and vegetable juices sold under the "Ferraro's Earth
Juice" and "Naked Juice" brand names. The Company s juice
products compete with a wide variety of beverages in the
highly competitive commercial beverages industry, which
includes other regional and national producers of juice and
juice drink products.
Chiquita's processed banana products include banana puree,
sliced bananas and other specialty products which are sold to
producers of baby food, fruit beverages, baked goods and
fruit-based products, to wholesalers of bakery and dairy food
products, and to selected licensees including Beech-Nut and
General Mills. These products are primarily produced in
Chiquita s processing facilities in Honduras and
-4-
Costa Rica. Although Chiquita enjoys the largest share of the
worldwide processed banana market, this industry remains
highly competitive due to the existence of numerous other
producers with available processing capacity, including other
banana growers, fruit ingredients companies and large,
international food companies.
The Company's consumer products operations in Honduras are
conducted through a 50%-owned joint venture. The joint
venture produces and sells its edible oil and other products
under the "Numar," "Clover" and other brand names and competes
principally with a number of small local firms and
subsidiaries of multinational corporations.
RISKS OF INTERNATIONAL OPERATIONS
The Company conducts operations in many foreign countries.
Information about the Company's operations by geographic area
is in Note 13 to the Consolidated Financial Statements
included in the Company's 1997 Annual Report to Shareholders
and is incorporated herein by reference. These operations are
subject to a variety of risks inherent in doing business in
those countries.
On July 1, 1993, the European Union implemented a quota
system effectively restricting the volume of Latin American
<PAGE>
bananas imported into the EU, which had the effect of
decreasing the Company's overall volume and market share in
Europe. The quota regime is administered through an import
licensing system and grants preferred status to producers and
importers within the EU and its former colonies, while
imposing restrictive quotas and tariffs on bananas imported
from other sources, including Latin America, Chiquita's
primary source of fruit. Since imposition of the EU quota
regime, prices within the EU have increased to a higher level
than the levels prevailing prior to the quota. Banana prices
in other worldwide markets, however, have been lower than in
years prior to the EU quota, as the displaced EU volume has
entered those markets.
In two separate rulings, General Agreement on Tariffs and
Trade ("GATT") panels found the EU banana policies to be
illegal. In March 1994, four of the five countries which had
initiated GATT complaints, Costa Rica, Colombia, Nicaragua and
Venezuela, settled their GATT actions against the EU by
entering into a "Framework Agreement" which guaranteed them
preferential EU market access for bananas. The Framework
Agreement was implemented in 1995 and imposed additional
restrictive and discriminatory quotas and export certificate
requirements on U.S. banana marketing firms, while leaving EU
firms exempt. This significantly increased the Company's cost
to export bananas.
Since implementation of the quota system:
* In September 1994, Chiquita and the Hawaii Banana
Industry Association made a joint filing with the Office
of the U.S. Trade Representative ( USTR ) under Section
301 of the U.S. Trade Act of 1974 charging that the EU
quota and licensing regime and the Framework Agreement
are unreasonable, discriminatory, and a burden and
restriction on U.S. commerce.
* In January 1995, the U.S. Government announced a
preliminary finding against the EU banana import policy
and, a year later, the USTR found the banana Framework
Agreement export policies to be unfair.
* In September 1995, the United States, Guatemala,
Honduras and Mexico commenced a challenge against the EU
quota regime using the procedures of the World Trade
Organization
-5-
("WTO"). Ecuador, the world s largest exporter of
bananas, joined these countries in filing a new WTO
action in February 1996.
* In May 1997, a WTO arbitration panel issued a report
ruling that the licensing and quota systems under the EU
<PAGE>
quota regime and the Framework Agreement violate
numerous international trade obligations to the
detriment of Latin American supplying countries and U.S.
marketing firms such as Chiquita. The panel recommended
that the WTO request the EU to conform its import regime
for bananas to these trade obligations.
* In June 1997, the EU appealed the WTO panel report. In
September 1997, the WTO Appellate Body upheld the
panel's report and the full WTO body later adopted both
the panel and Appellate Body reports.
* In January 1998, a WTO arbitrator ruled that the EU must
fully implement banana policies consistent with the WTO
report findings not later than January 1, 1999.
* In January 1998, the EU governing commission proposed a
new quota and license regime for review and possible
implementation by the EU. The five governments which
filed the WTO complaint, joined by Panama which has
recently become a WTO member and initiated its own
challenge to the quota and Framework Agreement, have all
indicated that they do not believe the current EU
proposal complies with the WTO findings.
* In March 1998, in a separate proceeding brought by
Germany against the EU, the European Court of Justice
ruled that the Framework Agreement's exemption of EU
marketing firms from the requirement to obtain export
certificates for bananas from Costa Rica, Colombia,
Nicaragua and Venezuela was discriminatory and violated
applicable EU law. Beginning in the second quarter of
1998, the EU will no longer require these export
certificates from any marketing firms.
If the EU fails to comply with the WTO rulings by January 1,
1999, the WTO authorizes the injured governments to engage in
retaliatory trade measures, such as tariffs or withdrawal of
trade concessions, against the EU. However, there can be no
assurance as to the results of the WTO proceedings, the nature
and extent of actions that may be taken by the affected
countries or the impact on the EU quota regime or the
Framework Agreement.
The Company's operations are heavily dependent upon products
grown and purchased in Central and South American countries;
at the same time, Chiquita s operations are a significant
factor in the economies of many of these countries. These
activities are subject to risks that are inherent in operating
in these countries, including government regulation, currency
restrictions and other restraints, risks of expropriation and
burdensome taxes. There is also a risk that legal or
regulatory requirements will be changed or that administrative
policies will change. Certain of these activities are
<PAGE>
substantially dependent upon leases and other agreements with
the governments of these countries.
Chiquita leases all the land it uses in Panama from the
Republic of Panama. In February 1998, Chiquita signed two new
leases with the Republic of Panama for this land, one for land
on the Caribbean coast and the other for land on the Pacific
coast. The leases have an initial term of 20 years, with two
12-year extensions. Either lease can be canceled by Chiquita
at any time on three years prior notice; the Republic of
Panama has the right not to renew either lease at the end of
the initial term or first extension period provided that it
gives four years' prior notice.
-6-
Certain facilities in Honduras previously owned by Chiquita
were transferred in prior years to the government of Honduras
with provision for their subsequent use by the Company. Such
facilities include a railroad which the Company operates under
a lease with the government of Honduras which expires on
December 31, 1998. The Company believes that the lease, if
required in future years, can be extended or renewed.
The Company's worldwide operations and products are subject
to numerous governmental regulations and inspections by
environmental, food safety and health authorities. These
regulations directly affect day-to-day operations. Although
the Company believes it is substantially in compliance with
such regulations, actions by regulators have in the past
required, and in the future may require, operational
modifications or capital improvements at various locations or
the payment of fines and penalties, or both.
Because the Company's operations are conducted in many areas
of the world and involve transactions in a variety of
currencies, its operating results may be significantly
affected by fluctuations of currency exchange rates. Such
fluctuations affect Chiquita s banana operations because many
of its costs are incurred in currencies different from those
that are received from the sale of bananas, and there is
normally a time lag between the incurrence of such costs and
collection of the related sales proceeds. The Company's
policy is to exchange local currencies for dollars immediately
upon receipt, thus reducing exchange risk. The Company also
engages from time to time in various hedging activities to
further reduce potential losses on cash flows originating in
currencies other than the U.S. dollar. See Notes 1 and 8 to
the Consolidated Financial Statements and "Management's
Analysis of Operations and Financial Condition" included in
the Company's 1997 Annual Report to Shareholders for
information with respect to currency exchange.
LABOR RELATIONS
<PAGE>
The Company employs approximately 40,000 associates.
Approximately 31,000 of these associates are employed in
Central and South America, including 25,000 workers covered by
approximately 65 labor contracts. Approximately 40 contracts
covering approximately 15,000 employees are currently being
renegotiated or expire in 1998. Strikes or other labor-
related actions are sometimes encountered upon expiration of
labor contracts or during the term of the contracts.
On February 19, 1998, approximately 5,000 workers in the
Company's Armuelles division in western Panama commenced a
strike citing numerous grievances. The strike was called
despite the fact that these workers had recently entered into
a new collective bargaining agreement with the Company. The
strike is resulting in a curtailment of the bananas produced
in Company-owned farms in this division; in 1997 this fruit
represented approximately 8% of the bananas marketed by
Chiquita. As a result of the strike, the Company is
experiencing unrecovered fixed costs in the Armuelles
division. The lost volume is being partially replaced through
purchases of bananas from alternative sources. The Company is
continuing to perform limited agricultural practices on the
affected acreage using outside contractors. The Company
cannot predict how long the strike will last.
ITEM 2 - PROPERTIES
--------------------
The Company owns approximately 90,000 acres and leases
approximately 50,000 acres of improved land, principally in
Colombia, Costa Rica, Panama and Honduras. Nearly all of this
land is used for the cultivation of bananas and support
activities, including the maintenance of floodways. The
Company also owns power plants, packing stations, warehouses,
irrigation systems and loading and unloading facilities used
in connection with its operations.
-7-
The Company owns or controls under long-term bareboat
charters 16 ocean-going refrigerated vessels and has 10
additional such vessels under time charters, primarily for
transporting tropical fruit sold by Chiquita. From time to
time, excess capacity may be utilized by transporting cargo
for third parties or by chartering or subchartering vessels to
other shippers. In addition, the Company enters into spot
charters and contracts of affreightment as necessary to
supplement its transportation resources. Chiquita also owns
or leases other related equipment, including refrigerated
container units, used to transport fresh food. The owned
ships are pledged as collateral for related financings.
Properties used by the Company's processed foods operations
include a total of 21 vegetable canning facilities in
<PAGE>
Wisconsin, Illinois, Iowa, Michigan, Minnesota, Idaho,
Washington and Oregon and fruit processing facilities in Costa
Rica and Honduras. Other operating units of the Company own,
lease and operate properties, principally in the United
States, Europe, and Central and South America. The Company
leases the space for its headquarters in Cincinnati, Ohio.
For further information with respect to the Company's
physical properties, see the descriptions under ITEM 1 -
BUSINESS - GENERAL above, and Notes 5 and 6 to the
Consolidated Financial Statements included in the Company's
1997 Annual Report to Shareholders.
ITEM 3 - LEGAL PROCEEDINGS
---------------------------
A number of legal actions are pending against the Company,
including those described below. Although some of these cases
are in very preliminary stages, based on information currently
available to it and advice of counsel, management does not
believe such litigation will, individually or in the
aggregate, have a material adverse effect on the financial
statements of the Company.
Several suits are pending in different jurisdictions against
the manufacturers of an agricultural chemical called DBCP and
against the Company and other banana producing companies which
used DBCP primarily in the 1970's. The plaintiffs are foreign
citizens who claim to have been employees of banana companies
and allege sterility and other injuries as a result of
exposure to DBCP. Plaintiffs' alleged damage claims have yet
to be quantified.
Several of these lawsuits were filed in Texas state court in
1993. These cases originally represented claims on behalf of
approximately 25,000 individuals, of whom approximately 4,000
purported to have claims against the Company. In 1995, all
but one of the cases involving Chiquita were removed to the
U.S. District Court for the Southern District of Texas and
dismissed on the grounds that courts in the plaintiffs' home
countries (limited to Costa Rica, Panama and the Philippines
in the case of suits involving the Company) were more
appropriate forums for pursuing their claims. The plaintiffs,
which include approximately 3,650 alleging claims against
Chiquita, have appealed these dismissals to the U.S. Court of
Appeals for the Fifth Circuit. In February 1997, the other
case involving Chiquita was removed to the U.S. District Court
for the Southern District of Texas where the defendants have
moved to dismiss on the same grounds. This case involves
approximately 2,000 plaintiffs, including approximately 350
who claim that the Company has liability for their alleged
injuries.
A similar suit was filed in 1995 in Louisiana state court by
<PAGE>
approximately 4,000 plaintiffs. The Company does not have
information concerning how many of these plaintiffs allege
that Chiquita has liability for their injuries, but the same
manufacturer and banana producer defendants were named in this
suit. This case was removed to U.S. District Court for the
Eastern District of Louisiana and then remanded to Louisiana
state court.
-8-
Five additional lawsuits, each involving one plaintiff, were
filed in 1996 in Mississippi state court against the same
manufacturer and banana producer defendants. Each case was
removed to the United States District Court for the Southern
District of Mississippi, Southern Division, where the
defendants filed motions to dismiss on grounds of lack of
personal jurisdiction and plaintiffs filed motions to remand
the cases to state court. Four of these cases were dismissed
in late 1997. The plaintiffs have appealed these dismissals.
In October 1997, two additional class-action suits were
filed in Hawaii state court. These suits assert claims
similar to those asserted in the Texas and Louisiana cases and
name the same manufacturer and banana producer defendants.
The size and composition of the classes alleged in these suits
have not yet been determined. These cases have been removed
to the U.S. District Court for the District of Hawaii.
As a result of the dismissals of the Texas suits described
above, similar suits against the Company and its subsidiaries
have been filed in Costa Rica, Panama and the Philippines (in
addition to previously filed actions in Costa Rica and
Panama). The cases filed in Costa Rica and Panama have been
dismissed. Cases involving approximately 1,000 plaintiffs who
purport to have claims against the Company are currently
pending in the Philippines.
In 1997, the DBCP manufacturer defendants, Shell Oil
Company, Dow Chemical Company and Occidental Chemical
Corporation, entered into agreements providing for settlements
with substantially all of the plaintiffs in the cases pending
in Texas, Louisiana, Costa Rica, Panama and the Philippines.
The Company and the other banana producer defendants are not
parties to these agreements.
The Company continues to believe it has meritorious defenses
in all the DBCP cases. These defenses include the fact that
at all times when the Company used DBCP commercially, the
product was registered for use by the United States
Environmental Protection Agency and that the Company ceased
using the product on a commercial basis in 1977, promptly
after learning that health hazards might exist. In addition,
the Company believes that the responsibility for any injuries
to the plaintiffs alleging claims against the Company should
<PAGE>
be attributed to the manufacturer defendants that supplied
DBCP to the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
Not applicable.
-9-
EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------
Carl H. Lindner (age 78) - Mr. Lindner has been Chairman of
the Board of Directors and Chief Executive Officer of the
Company since 1984. He is also Chairman of the Board and
Chief Executive Officer of American Financial Group, Inc.
("AFG") which, through its subsidiaries, is engaged primarily
in specialty and multi-line property and casualty insurance
businesses and in the sale of tax-deferred annuities. For
nearly 40 years, Mr. Lindner has been Chairman of the Board
and Chief Executive Officer of American Financial Corporation
("AFC"), which became an AFG subsidiary in 1995.
Keith E. Lindner (age 38) - Mr. Lindner has been Vice
Chairman of the Board of Directors since March 1997 and was
President and Chief Operating Officer of the Company from 1989
to 1997. He has served the Company in various executive
capacities since 1984. Mr. Lindner is also a Co-President and
a Director of AFG and AFC.
Steven G. Warshaw (age 44) - Mr. Warshaw has been President
and Chief Operating Officer and a Director of the Company
since March 1997. He served as Executive Vice President and
Chief Administrative Officer from 1990 to March 1997 and Chief
Financial Officer from 1994 to March 1998. Mr. Warshaw has
served the Company in various capacities since 1986.
Anthony D. Battaglia (age 53) - Mr. Battaglia has been
President of the Company's Diversified Foods Group since March
1997. From 1994 to March 1997 he served as President of the
Company's Processed Foods Group and from 1991 to 1994 as its
Chief Operating Officer. Mr. Battaglia has served the Company
in various capacities since 1985.
Peter A. Horekens (age 49) - Mr. Horekens was named
President and Chief Operating Officer of the Company's
Chiquita Banana Group - Europe in July 1997. Mr. Horekens had
previously been employed by Kellogg Company, a multi-national
food company, for over five years, most recently as Vice
President and Director of Asian Operations.
Robert F. Kistinger (age 45) - Mr. Kistinger has been
President and Chief Operating Officer of the Company's
Chiquita Banana Group since March 1997. He was Senior
Executive Vice President of the Chiquita Banana Group from
<PAGE>
1994 to 1997 and President of Chiquita Banana Group - North
America from 1996 to 1997. He was Executive Vice President,
Operations for the Company's Chiquita Tropical Products
Division from 1989 to 1994 and has served the Company in
various capacities since 1980.
Warren J. Ligan (age 44) - Mr. Ligan was named Senior Vice
President and Chief Financial Officer in March 1998. Mr.
Ligan has been employed by the Company in various capacities
since November 1993, most recently as Vice President,
Taxation. He previously served G. D. Searle & Co., Inc., a
pharmaceutical company, in various capacities, most recently
as Director, International Taxes.
Robert W. Olson (age 52) - Mr. Olson has been Senior Vice
President, General Counsel and Secretary of the Company since
1996. From 1995 to 1996, he was the Company s Vice President,
General Counsel and Secretary. From 1987 to 1995, he served
as Senior Vice President, General Counsel and Secretary of
American Premier Underwriters, Inc. (formerly named The Penn
Central Corporation), an affiliate of AFG. He was Senior Vice
President and Secretary of AFG from April 1995 until he joined
the Company.
Benjamin Paz (age 48) - Mr. Paz was named President and
Chief Operating Officer of the Company's Chiquita Banana Group
- North America in June 1997. Mr. Paz had previously been
employed by Dole Food Company, Inc., a multi-national food
company, for over five years, most recently as President of
its Latin American division.
William A. Tsacalis (age 54) - Mr. Tsacalis has been Vice
President and Controller of the Company since 1987. He was
Controller from 1984 to 1987 and has served the Company in
various capacities since 1980.
-10-
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
-----------------------------------------------------------
The Company's capital stock is listed for trading on the
New York, Boston and Pacific Stock Exchanges under the symbol
"CQB." At February 28, 1998, there were 5,960 common
shareholders of record. Price ranges of the Company's capital
stock and dividends declared thereon are in Note 15 to the
Consolidated Financial Statements included in the Company's
1997 Annual Report to Shareholders. Restrictions on the
Company's ability to declare and pay dividends are described
in Note 7 to the Consolidated Financial Statements included in
the Company's 1997 Annual Report to Shareholders. All such
information is incorporated herein by reference.
<PAGE>
On December 8, 1997, the Company issued 1,564,623 shares of
its capital stock to the shareholders of American Fine Foods,
Inc. in payment of the purchase price for the common stock of
AFF. The transaction was exempt from registration pursuant to
Section 4(2) of the Securities Act of 1933. The shares were
valued at $17.11 per share based on an agreed market value of
Chiquita capital stock on such date.
On March 5, 1998, the Company issued 182,735 shares of its
capital stock and 4,712 shares of its $2.50 Convertible
Preference Stock, Series C ("Series C Stock"), to the former
shareholders of the Owatonna Companies. The transaction was
exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933 and Rule 506 of Regulation D
thereunder. These shares represent the remaining $3 million
of the $49 million adjusted purchase price for the common
stock of the Owatonna Companies, which were acquired in
September 1997. The Series C Stock was valued at $50.00 per
share; 97,497 shares of Chiquita capital stock were valued at
$13.91 per share, the agreed market value of Chiquita capital
stock on March 17, 1997, the date of the letter of intent
relating to the merger, and 85,238 shares were valued at
$13.42 per share, the agreed market value of Chiquita capital
stock on March 5, 1998.
ITEM 6 - SELECTED FINANCIAL DATA
---------------------------------
This information is included in the table entitled
"Selected Financial Data" on page 26 of the Company's 1997
Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------------------------------
This information is included under the caption
"Management's Analysis of Operations and Financial Condition"
included on pages 27 through 30 of the Company's 1997 Annual
Report to Shareholders and is incorporated herein by
reference. The information included under that caption is
hereby supplemented by incorporating the information included
in the second paragraph in Part I, Item 1 - BUSINESS - LABOR
RELATIONS describing a strike in the Company's Armuelles
division in Panama, which was also described in a Current
Report on Form 8-K dated February 19, 1998.
This Annual Report on Form 10-K contains, or incorporates
by reference, in this Item 7 and elsewhere, certain statements
that may be deemed "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of
1995. All statements, other than historical facts, included
<PAGE>
-11-
in this report and in future filings with the Securities and
Exchange Commission and written and verbal statements by the
Company and its representatives that address events,
developments or financial results that the Company expects,
believes or estimates will or may occur in the future are
forward-looking statements that are intended to be covered by
the safe harbor provisions of that Act. These statements are
based on certain assumptions and analyses made by the Company
in light of its experience and perception of historical
trends, current conditions, expected future developments and
other factors it believes are appropriate under the
circumstances and speak as of the date made. Such statements
are subject to a number of assumptions, risks and
uncertainties, such as (i) the prices at which Chiquita can
sell its products, (ii) the costs at which it can purchase (or
grow) fresh produce and other raw materials and inventory, and
(iii) the various market, competitive and agricultural factors
which may impact those prices and costs, many of which are
beyond the control of Chiquita. Investors are cautioned that
any such statements are not guarantees of future performance
and the actual results or developments may differ materially
from the expectations expressed in the forward-looking
statements.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
----------------------------------------------------------
Not applicable until after June 15, 1998.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------------------
The Consolidated Financial Statements of Chiquita Brands
International, Inc. included on pages 31 through 50 of the
Company's 1997 Annual Report to Shareholders, and "Quarterly
Financial Data" which is included in Note 15 to the
Consolidated Financial Statements, are incorporated herein by
reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
----------------------------------------------------------
None.
PART III
Except for information relating to the Company's
executive officers included in Part I of this report, the
information required by the following Items will be included
<PAGE>
in Chiquita's definitive Proxy Statement which will be filed
with the Securities and Exchange Commission in connection with
the 1998 Annual Meeting of Shareholders and is incorporated
herein by reference.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------------------
ITEM 11 - EXECUTIVE COMPENSATION
----------------------------------
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
------------------------------------------------------------
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------------------
-12-
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
--------------------------------------------------------
(a) 1. Financial Statements. The following consolidated
financial statements of the Company and the Report of
Independent Auditors are included in the Company's
1997 Annual Report to Shareholders and are
incorporated by reference in Part II, Item 8:
<TABLE>
<CAPTION>
Page of
Annual Report
---------
<S> <C>
Report of Independent Auditors 25
Consolidated Statement of Income for
1997, 1996 and 1995 31
Consolidated Balance Sheet at
December 31, 1997 and 1996 32
Consolidated Statement of Shareholders'
Equity for 1997, 1996 and 1995 33
Consolidated Statement of Cash Flow for
1997, 1996 and 1995 34
Notes to Consolidated Financial Statements 35
</TABLE>
<PAGE>
2. Financial Statement Schedule. Financial Statement
Schedule II - Allowance for Doubtful Accounts Receivable
is included on page 16 of this Annual Report on Form
10-K. All other schedules are not required under the
related instructions or are inapplicable.
3. Exhibits. See Index of Exhibits (page 17) for
a listing of all exhibits filed with this Annual
Report on Form 10-K.
(b) The following reports on Form 8-K have been filed since
September 30, 1997:
November 20, 1997 - to update unaudited pro forma
combined financial statements related to the
acquisitions of the Owatonna Companies, AFF and Stokely;
to incorporate by reference the consolidated financial
statements of Stokely; and to supplement Management s
Analysis of Operations and Financial Condition included
in the Company s Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997 by reporting the
continuation into the fourth quarter of the trends of a
stronger dollar and higher production costs.
December 1, 1997 - to report events related to the
European Union banana quota and licensing regime, the
Framework Agreement and the World Trade Organization
proceedings.
December 8, 1997 (as amended by Form 8-K/A filed
February 3, 1998) - to report the acquisition of AFF.
January 7, 1998 - to report the Company's expected 1997
results of operations.
January 16, 1998 - to report the acquisition of Stokely.
February 11, 1998 - to report the Company's 1997 results
of operations.
February 19, 1998 - to report a strike by banana workers
at the Company's Armuelles division
in western Panama.
-13-
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) 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 on March 27, 1998.
<PAGE>
CHIQUITA BRANDS INTERNATIONAL, INC.
By /s/ Carl H. Lindner
Carl H. Lindner
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the Registrant and in the capacities
indicated below on March 27, 1998:
/s/ Carl H. Lindner Chairman of the Board and
Carl H. Lindner Chief Executive Officer
/s/ Keith E. Lindner Vice Chairman of the Board
Keith E. Lindner
/s/ Steven G. Warshaw Director, President and
Steven G. Warshaw Chief Operating Officer
/s/ Fred J. Runk Director
Fred J. Runk
Jean Head Sisco* Director
Jean Head Sisco
William W. Verity* Director
William W. Verity
-14-
Oliver W. Waddell* Director
Oliver W. Waddell
/s/Warren J. Ligan Senior Vice President and
Warren J. Ligan Chief Financial Officer
/s/ William A. Tsacalis Vice President and Controller
William A. Tsacalis (Chief Accounting Officer)
* By /s/ William A. Tsacalis
Attorney-in-Fact**
---------------------
** By authority of powers of attorney filed with this Annual
Report on Form 10-K.
-15-
<PAGE>
CHIQUITA BRANDS INTERNATIONAL, INC.
SCHEDULE II - ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
------- ------- --------
<S> <C> <C> <C>
Balance at beginning of period $9,832 $11,310 $13,060
-------- -------- --------
Additions:
Charged to costs and expenses 3,049 3,685 4,303
-------- -------- --------
Deductions:
Write-offs 1,441 4,268 5,703
Other, net 757 895 350
-------- --------- --------
2,198 5,163 6,053
-------- --------- --------
Balance at end of period $10,683 $9,832 $11,310
========= ========= =========
</TABLE>
-16-
CHIQUITA BRANDS INTERNATIONAL, INC.
Index of Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------------
<S> <C>
*3-a Second Restated Certificate of Incorporation, filed as Exhibit 3(a) to Quarterly Report on
Form 10-Q for the quarter ended June 30, 1994, as amended by the Certificate of Amendment
establishing the terms of the Series B Preferred Stock, filed as Exhibit 3(a) to Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, and by the Certificate of Amendment
establishing the terms of the Series C Preference Stock, filed as Exhibit 3.1 to Current
Report on Form 8-K dated September 15, 1997
*3-b By-Laws, filed as Exhibit 3-b to Annual Report on Form 10-K for the year ended December 31,
1992
*4 Indenture dated as of February 15, 1994 between the Company and The Fifth Third Bank,
Trustee, with respect to Senior Debt Securities, under which the Company s 9 1/8% Senior
Notes due 2004 and the Company s 10 1/4% Senior Notes due 2006 have been issued
(incorporated by reference to Exhibit 4(c) of Registration Statement 333-00789), as
supplemented by the First Supplemental Indenture dated as of June 15, 1994 (incorporated by
reference to Exhibit 6(a)99(c) to Quarterly Report on Form 10-Q for the quarter ended June
30, 1994) and by the Second Supplemental Indenture dated as of July 15, 1996 (incorporated
by reference to Exhibit 4 to Quarterly Report on Form 10-Q for the quarter ended June 30,
1996); and as further supplemented by the Certificate of the Vice President and Controller
of the Company establishing the terms of the 9 1/8% Senior Notes (incorporated by reference
<PAGE>
to Exhibit 7(c)(3) to Current Report on Form 8-K dated February 8, 1994) and by the Terms of
10 1/4% Senior Notes approved by the Executive Committee of the Board of Directors of the
Company (incorporated by reference to Exhibit 7(c)99.6 to Current Report on Form 8-K dated
July 22, 1996)
*10-a Agreement dated January 11, 1996 effective January 1, 1996 between Tela Railroad Company and
the Honduran National Railroad, filed as Exhibit 10-b to Annual Report on Form 10-K for the
year ended December 31, 1995
10-b Operating contracts between the Republic of Panama and Chiriqui Land Company consisting of
Contract of Operations (Bocas del Toro), Contract of Operations (Armuelles), Amendment and
Extension of the Lease Land Contract, and related documents as published in the Republic of
Panama Official Gazette No. 23,485 (dated February 18, 1998)
10-c Credit Agreement dated December 31, 1996 among Chiquita Brands International, Inc., The
First National Bank of Boston, as administrative agent, and the financial institutions which
are lenders thereunder relating to the Company s $125 million revolving credit facility,
filed as Exhibit 10-d to Annual Report on Form 10-K for the year ended December 31, 1996, as
amended by Amendment No. 1 thereto dated as of December 8, 1997
Executive Compensation Plans
-------------------------------
*10-d 1986 Stock Option and Incentive Plan, as amended, filed as Exhibit 10-e to Annual Report on
Form 10-K for the year ended December 31, 1996
*10-e Amended and Restated Deferred Compensation Plan, filed as Exhibit 10-g to Quarterly Report
on Form 10-Q for the quarter ended June 30, 1997
-17-
*10-f Deferred Compensation Plan for Board of Directors of Chiquita Brands International, Inc.
dated January 1, 1997, filed as Exhibit 10-h to Annual Report on Form 10-K for the year
ended December 31, 1996
13 Chiquita Brands International, Inc. 1997 Annual Report to Shareholders (pages 25 through 50)
21 Subsidiaries of Registrant
23 Consent of Independent Auditors
24 Powers of Attorney
27-a Financial Data Schedule - 1997
27-b Financial Data Schedule - 1996
----------------------------
* Incorporated by reference.
</TABLE>
-18-
<PAGE>
EXHIBIT 13
Statement of Management Responsibility
The financial information presented in this Annual Report is the
responsibility of Chiquita Brands International, Inc. management,
which believes that it presents fairly the Company's consolidated
financial position and results of operations in accordance with
generally accepted accounting principles.
The Company's system of internal accounting controls, which
is supported by formal financial and administrative policies, is
designed to provide reasonable assurance that the financial
records are reliable for preparation of financial statements and
that assets are safeguarded against losses from unauthorized use
or disposition. Management reviews, modifies and improves these
systems and controls as changes occur in business conditions and
operations. The Company's worldwide internal audit function
reviews the adequacy and effectiveness of controls and compliance
with policies.
The Audit Committee of the Board of Directors reviews the
Company's financial statements, accounting policies and internal
controls. In performing its reviews, the Committee meets
periodically with the independent auditors, management and
internal auditors to discuss these matters.
The Company engages Ernst & Young LLP, an independent
auditing firm, to audit its financial statements and express an
opinion thereon. The scope of the audit is set by Ernst & Young
LLP, which has full and free access to all Company records and
personnel in conducting its audits. Representatives of Ernst &
Young LLP are free to meet with the Audit Committee, with or
without members of management present, to discuss their audit
work and any other matters they believe should be brought to the
attention of the Committee.
-24-
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Board of Directors and Shareholders of Chiquita Brands
International, Inc.
We have audited the accompanying consolidated balance sheets of
Chiquita Brands International, Inc. as of December 31, 1997 and
1996, and the related consolidated statements of income,
shareholders' equity and cash flow for each of the three years in
the period ended December 31, 1997. These financial statements,
appearing on pages 31 through 50, are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Chiquita Brands International, Inc. at
December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flow for each of the three years in the
period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
Cincinnati, Ohio
February 11, 1998
-25-
<PAGE>
<TABLE>
<CAPTION>
Chiquita Brands International, Inc.
SELECTED FINANCIAL DATA
(In thousands, except
per share amounts) 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION
Working capital $300,348 $379,977 $366,893 $230,434 $266,793
Capital expenditures 76,248 74,641 64,640 136,981 196,554
Total assets 2,401,613 2,466,934 2,623,533 2,774,239 2,722,824
Capitalization
Short-term debt 152,564 135,089 172,333 221,051 192,207
Long-term debt 961,972 1,079,251 1,242,046 1,364,836 1,438,378
Shareholders' equity 780,086 724,253 672,207 644,809 584,069
Operations
Net sales $2,433,726 $2,435,248 $2,565,992 $2,505,826 $2,532,925
Operating income 100,166 84,336 175,770 71,185 103,848
Income (loss) from
continuing operations 343 (27,728) 27,969 (84,311) (51,081)
Discontinued operations - - (11,197) 35,611 -
Extraordinary loss from
debt refinancing - (22,838) (7,560) (22,840) -
Net income (loss) 343 (50,566) 9,212 (71,540) (51,081)
Share Data
Shares used to calculate
diluted earnings (loss)
per common share 57,025 55,195 53,650 52,033 51,427
Diluted earnings (loss)
per common share:
- Continuing operations $(.29) $(.72) $.37 $(1.76) $(.99)
- Discontinued operations - - (.21) .69 -
- Extraordinary items - (.41) (.14) (.44) -
- Net income (loss) (.29) (1.13) .02 (1.51) (.99)
Dividends per common share .20 .20 .20 .20 .44
Market price per common share:
High 18.00 16.38 18.00 19.25 17.50
Low 12.75 11.50 12.25 11.25 10.13
End of year 16.31 12.75 13.75 13.63 11.50
</TABLE>
-26-
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATIONS
AND FINANCIAL CONDITION
Operations
- ----------
Sales of $2.4 billion in 1997 and 1996 were $130 million lower
than in 1995 primarily as a result of the December 1995 sale of
the Costa Rican operations of Chiquita's Numar edible oils group
("Numar Costa Rica"). The acquisition of two vegetable canning
companies in the latter part of 1997 did not have a significant
effect on net sales or operating income for the year. (See Note
3 to the Consolidated Financial Statements for additional
discussion of these acquisitions.)
Operating income of $100 million for 1997 was adversely
affected by a stronger dollar in relation to major European
currencies (mitigated in part by the Company's foreign currency
hedging program) and by increased banana production costs
resulting primarily from widespread flooding in 1996. These
factors more than offset the benefit of higher local currency
European banana pricing during the second half of the year. In
early 1998, the Company is experiencing higher local currency
European banana pricing, the effect of a stronger U.S. dollar and
lower North American banana pricing in comparison to early 1997.
For 1996, operating income was $84 million and included
write-downs and costs of $70 million resulting from industry-wide
flooding in Costa Rica, Guatemala and Honduras; modification of
distribution logistics and the wind-down of particular production
facilities to achieve further long-term reductions in the
delivered product cost of Chiquita bananas; and certain claims
relating to prior European Union ("EU") quota restructuring
actions.
Operating income for 1995 was $176 million and included a net
gain of $19 million primarily resulting from divestitures of
operations and other actions taken as part of the Company's
ongoing program to improve shareholder value. These divestitures
and other actions included sales of older ships, the sale of
Numar Costa Rica, the shut-down of a portion of the Company's
juice operations and the reconfiguration of banana production
assets.
Net interest expense decreased by $10 million in 1997 and $33
million in 1996 primarily as a result of refinancing and debt
reduction activities. Net income (loss) includes extraordinary
charges of $23 million in 1996 and $8 million in 1995 resulting
from these activities.
Income taxes consist principally of foreign income taxes
currently paid or payable. No tax benefit was recorded for
unrealized U.S. net operating loss carryforwards or other
available tax credits.
European Union Regulatory Developments
- ---------------------------------------
On July 1, 1993, the EU implemented a quota system effectively
<PAGE>
restricting the volume of Latin American bananas imported into
the EU, which had the effect of decreasing the Company's overall
volume and market share in Europe. The quota regime is
administered through a licensing system and grants preferred
status to producers and importers within the EU and its former
colonies, while imposing restrictive quotas and tariffs on
bananas imported from other sources, including Latin America,
Chiquita's primary source of fruit. Since imposition of the EU
quota regime, prices within the EU have increased to a higher
level than the levels prevailing prior to the quota. Banana
prices in other worldwide markets, however, have been lower than
in years prior to the EU quota, as the displaced EU volume has
entered those markets.
-27-
In two separate rulings, General Agreement on Tariffs and
Trade ("GATT") panels found the EU banana policies to be illegal.
In March 1994, four of the five countries which had initiated
GATT complaints, Costa Rica, Colombia, Nicaragua and Venezuela,
settled their GATT actions against the EU by entering into a
"Framework Agreement" which guaranteed them preferential EU
market access for bananas. The Framework Agreement was
implemented in 1995 and imposed additional restrictive and
discriminatory quotas and export licenses on U.S. banana
marketing firms, while leaving EU firms exempt. This
significantly increased the Company's cost to export bananas.
Since implementation of the quota system:
* In September 1994, Chiquita and the Hawaii Banana Industry
Association made a joint filing with the Office of the U.S.
Trade Representative ("USTR") under Section 301 of the U.S.
Trade Act of 1974 charging that the EU quota and licensing
regime and the Framework Agreement are unreasonable,
discriminatory, and a burden and restriction on U.S.
commerce.
* In January 1995, the U.S. Government announced a preliminary
finding against the EU banana import policy and, a year
later, the USTR found the banana Framework Agreement export
policies to be unfair.
* In September 1995, the United States, Guatemala, Honduras and
Mexico commenced a challenge against the EU quota regime
using the procedures of the World Trade Organization ("WTO").
Ecuador, the world's largest exporter of bananas, joined
these countries in filing a new WTO action in February 1996.
* In May 1997, a WTO arbitration panel issued a report ruling
that the licensing and quota systems under the EU quota
regime and the Framework Agreement violate numerous
international trade obligations to the detriment of Latin
American supplying countries and U.S. marketing firms such as
<PAGE>
Chiquita. The panel recommended that the WTO request the EU
to conform its import regime for bananas to these trade
obligations.
* In June 1997, the EU appealed the WTO panel report. In
September 1997, the WTO Appellate Body upheld the panel's
report and the full WTO body later adopted both the panel and
Appellate Body reports.
* In January 1998, a WTO arbitrator ruled that the EU must
fully implement banana policies consistent with the WTO
report findings not later than December 31, 1998.
* In January 1998, the EU governing commission proposed a new
quota and license regime for review and possible
implementation by the EU. The five governments which filed
the WTO complaint, joined by Panama which has recently become
a WTO member and initiated its own challenge to the quota and
Framework Agreement, have all indicated that they do not
believe the current EU proposal complies with the WTO
findings.
If the EU fails to comply with the WTO rulings by the end of
1998, the WTO authorizes the injured governments to engage in
retaliatory trade measures, such as tariffs or withdrawal of
trade concessions, against the EU. However, there can be no
assurance as to the results of the WTO proceedings, the nature
and extent of actions that may be taken by the affected countries
or the impact on the EU quota regime or the Framework Agreement.
-28-
Financial Condition
- --------------------
Cash flow from operations was $67 million in 1997, $123 million
in 1996 and $90 million in 1995. The decrease in 1997 operating
cash flow compared to 1996 resulted primarily from the use of
cash to fund a short-term increase in working capital and the
payment in 1997 of prior year claims relating to earlier EU quota
restructuring actions.
Capital expenditures were $76 million in 1997, $75 million in
1996 and $65 million in 1995. The 1997 and 1996 capital
expenditures include $19 million and $15 million, respectively,
to rehabilitate banana farms and other assets damaged by storms
in 1996. As a result of the Company's investment spending
program for transportation system improvements and fresh fruit
production capacity during the early 1990's, recurring capital
expenditures (which exclude rehabilitation spending) have been
less than depreciation and amortization for each of the past
three years and have resulted in free cash flow exceeding the
Company's results of operations by $34 million to $40 million per
year.
In late 1997 and early 1998, the Company issued $120 million
of capital and preference stock and paid approximately $37
<PAGE>
million of cash to acquire the common stock and retire a portion
of the outstanding debt of three vegetable canning companies.
These acquisitions expand the capacity, product lines and
geographic coverage of the Company's existing vegetable canning
business.
In December 1996, Chiquita entered into a $125 million senior
unsecured revolving credit facility. This facility, which is
available through January 2001, provides flexibility in funding
seasonal working capital and has allowed the Company to maintain
lower cash balances, enabling the Company to further reduce debt
and interest costs. Accordingly, debt repayments of $116 million
were made in 1997. No amounts were drawn under this credit
facility in 1997.
Chiquita has also strengthened its balance sheet, enhanced
short-term liquidity and reduced overall borrowing costs over the
past three years through the following achievements:
* In 1996, raised a total of $255 million from public offerings
of preferred shares and senior notes and used the proceeds to
prepay subordinated debt, which carried effective interest
rates of 11.5% to 12.1%, and to prepay high cost subsidiary
debt.
* In December 1995, sold its remaining meat operations to
Smithfield Foods, Inc. for approximately $60 million,
consisting of $25 million in cash and approximately 1.1
million shares of Smithfield common stock which were sold for
cash in 1996.
* Sold Numar Costa Rica in December 1995 for approximately $50
million in cash and $50 million in secured notes, which were
collected in 1996.
* Sold older ships in 1995 for $90 million in cash and used
approximately $50 million of the proceeds to prepay the
related debt. In addition, the Company sold and leased back
shipping containers in 1995, generating proceeds of $40
million and retiring approximately $27 million of related
9.8% debt.
-29-
* Replaced $153 million of ship loans in 1995 with loans having
longer maturities totaling $187 million and negotiated the
extension of the maturities on another $23 million ship loan.
* Used $36 million of restricted cash to prepay related
subsidiary debt in December 1995 and, in 1996, obtained the
right to use $40 million of previously restricted cash for
general corporate purposes.
<PAGE>
Hedging Activities
- ------------------
Chiquita's products are distributed in more than 60 countries.
Its international sales are made primarily in U.S. dollars and
major European currencies. The Company manages currency exchange
risks from sales originating in currencies other than the dollar
generally by exchanging local currencies for dollars immediately
upon receipt, and by engaging from time to time in various
hedging activities.
Debt denominated in currencies of countries other than the U.S.
serves as a hedge of the net investments in those countries. At
December 31, 1997, the Company had foreign currency option
contracts to ensure conversion of approximately $400 million of
foreign sales in 1998 at a rate not higher than 1.72 Deutsche
marks per U.S. dollar or lower than 1.56 Deutsche marks per U.S.
dollar. (See Note 8 to the Consolidated Financial Statements for
additional discussion of the Company's hedging activities.)
Year 2000 Compliance
- --------------------
As has been widely reported, many computer systems process dates
based on two digits for the year of a transaction and are unable
to process dates in the year 2000 and beyond. In connection with
its ongoing information system management efforts, Chiquita has
previously replaced or modified a significant portion of its key
financial information and operational systems that were not year
2000 compliant. Remaining financial and operational systems have
been assessed, and detailed plans have been developed and are
being implemented to make the necessary modifications to ensure
year 2000 compliance. The financial impact of making the
required system changes for year 2000 compliance are not expected
to have a material effect on Chiquita's financial statements.
-30-
<PAGE>
<TABLE>
<CAPTION>
Chiquita Brands International, Inc.
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except
per share amounts) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $2,433,726 $2,435,248 $2,565,992
----------- ----------- -----------
Operating expenses
Cost of sales 1,935,870 1,947,888 1,958,063
Selling, general and
administrative expenses 311,568 313,490 333,537
Depreciation 86,122 89,534 98,622
----------- ----------- -----------
2,333,560 2,350,912 2,390,222
----------- ----------- -----------
Operating income 100,166 84,336 175,770
Interest income 16,540 28,276 28,157
Interest expense (108,913) (130,232) (163,513)
Other income, net 750 892 1,455
----------- ----------- -----------
Income (loss) from continuing operations
before income taxes 8,543 (16,728) 41,869
Income taxes (8,200) (11,000) (13,900)
----------- ----------- -----------
Income (loss) from continuing operations 343 (27,728) 27,969
Discontinued operations - - (11,197)
----------- ----------- -----------
Income (loss) before extraordinary items 343 (27,728) 16,772
Extraordinary loss from debt refinancing - (22,838) (7,560)
----------- ----------- -----------
Net income (loss) $ 343 $(50,566) $9,212
Less dividends on preferred
and preference stock (16,949) (11,955) (8,266)
----------- ----------- -----------
Net income (loss) attributable
to common shares $(16,606) $(62,521) $946
=========== =========== ===========
Per common share - basic and diluted
- Continuing operations $(.29) $(.72) $ .37
- Discontinued operations - - (.21)
- Extraordinary items - (.41) (.14)
----------- ----------- -----------
- Net income (loss) $(.29) $(1.13) $.02
=========== =========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
Chiquita Brands International, Inc.
CONSOLIDATED BALANCE SHEET
December 31,
-----------------------
(In thousands) 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and equivalents $125,702 $285,558
Trade receivables, less allowances of $10,683
and $9,832, respectively 184,913 162,566
Other receivables, net 87,301 91,126
Inventories 349,948 275,177
Other current assets 35,602 29,884
----------- -----------
Total current assets 783,466 844,311
Property, plant and equipment, net 1,151,396 1,139,677
Investments and other assets 301,173 319,149
Intangibles, net 165,578 163,797
----------- -----------
Total assets $2,401,613 $2,466,934
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes and loans payable $59,659 $78,107
Long-term debt due within one year 92,905 56,982
Accounts payable 205,323 193,875
Accrued liabilities 125,231 135,370
----------- -----------
Total current liabilities 483,118 464,334
Long-term debt of parent company 689,080 704,763
Long-term debt of subsidiaries 272,892 374,488
Accrued pension and other employee benefits 86,676 83,797
Other liabilities 89,761 115,299
----------- -----------
Total liabilities 1,621,527 1,742,681
----------- -----------
Shareholders' equity
Preferred and preference stock 253,239 249,256
Capital stock, $.33 par value (61,168 and
55,841 shares outstanding, respectively) 20,389 18,614
Capital surplus 672,944 594,885
Accumulated deficit (166,486) (138,502)
----------- -----------
Total shareholders' equity 780,086 724,253
----------- -----------
Total liabilities and shareholders' equity $2,401,613 $2,466,934
=========== ===========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
-32-
<TABLE>
<CAPTION>
Chiquita Brands International, Inc.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Preferred Total
and share-
preference Capital Capital Accumulated holders'
(In thousands) stock stock surplus deficit equity
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $190,639 $16,434 $505,800 $(68,064) $644,809
Share issuances
Option exercises - 110 3,249 - 3,359
Exchange of capital shares
for preference stock (52,270) 1,081 51,189 - -
Other - 553 17,659 - 18,212
Minimum pension
liability adjustment - - - 15,124 15,124
Net income - - - 9,212 9,212
Dividends
Capital stock - - - (10,236) (10,236)
Preferred and preference stock - 78 3,122 (11,473) (8,273)
--------- --------- --------- --------- ---------
Balance at December 31, 1995 138,369 18,256 581,019 (65,437) 672,207
Share issuances
Option exercises - 182 5,097 - 5,279
Preferred stock 110,887 - - - 110,887
Other - 176 8,769 - 8,945
Net loss - - - (50,566) (50,566)
Dividends
Capital stock - - - (11,094) (11,094)
Preferred stock - - - (11,405) (11,405)
--------- --------- --------- --------- ---------
Balance at December 31, 1996 249,256 18,614 594,885 (138,502) 724,253
Share issuances
Option exercises - 170 6,045 - 6,215
Acquisition of vegetable
canning businesses 3,983 1,528 67,258 - 72,769
Other - 77 4,756 - 4,833
Net income - - - 343 343
Dividends
Capital stock - - - (11,395) (11,395)
Preferred and preference stock - - - (16,932) (16,932)
--------- --------- --------- --------- ---------
Balance at December 31, 1997 $253,239 $20,389 $672,944 $(166,486) $780,086
========= ========= ========= ========= =========
See Notes to Consolidated Financial Statements.
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
Chiquita Brands International, Inc.
CONSOLIDATED STATEMENT OF CASH FLOW
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided (used) by:
Operations
Income (loss) from continuing operations $343 $(27,728) $27,969
Depreciation and amortization 91,588 96,455 104,581
Gain on sales of non-core assets - - (32,100)
Write-downs of farms and cultivations - 28,300 -
Changes in current assets and liabilities
Receivables (12,816) 10,644 16,194
Inventories 4,062 12,402 10,054
Other current assets (3,776) 7,943 (4,722)
Accounts payable and accrued liabilities (22,613) (6,375) (28,759)
Other 10,155 1,694 (2,906)
--------- --------- ---------
Cash flow from operations 66,943 123,335 90,311
--------- --------- ---------
Investing
Capital expenditures (76,248) (74,641) (64,640)
Acquisition of vegetable canning businesses (14,819) - -
Long-term investments (8,475) (1,831) (814)
Restricted cash deposits - 39,520 35,510
Proceeds from sales of non-core assets - 81,504 166,835
Other (1,480) 10,321 (4,188)
--------- --------- ---------
Cash flow from investing (101,022) 54,873 132,703
--------- --------- ---------
Financing
Debt transactions
Issuances of long-term debt 12,234 191,174 214,171
Repayments of long-term debt (98,034) (377,349) (361,906)
Net repayments of notes and loans payable (17,865) (36,817) (10,236)
Stock transactions
Issuances of preferred stock - 110,887 -
Issuances of capital stock 6,215 5,279 3,413
Dividends (28,327) (22,499) (18,509)
--------- --------- ---------
Cash flow from financing (125,777) (129,325) (173,067)
--------- --------- ---------
Discontinued operations - - 21,205
--------- --------- ---------
Increase (decrease) in cash and equivalents (159,856) 48,883 71,152
Balance at beginning of year 285,558 236,675 165,523
--------- --------- ---------
Balance at end of year $125,702 $285,558 $236,675
========= ========= =========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
-34-
Chiquita Brands International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
- ---------------------------------------------------------------
American Financial Group, Inc. and its subsidiaries owned
approximately 39% of the outstanding capital stock of Chiquita
Brands International, Inc. ("Chiquita" or the "Company") as of
December 31, 1997.
CONSOLIDATION - The consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries,
other than the Meat Division which was sold in December 1995 and
is accounted for as a discontinued operation (see Note 3).
Unless otherwise indicated, the accompanying notes present
amounts related only to continuing operations. Intercompany
balances and transactions have been eliminated.
Investments representing minority interests are accounted for
by the equity method when Chiquita has the ability to exercise
significant influence in the investees' operations; otherwise,
they are accounted for at cost. At December 31, 1997 and 1996,
investments in food-related companies of $86 million and $72
million, respectively, were accounted for using the equity
method. The excess of the carrying value over Chiquita's share
of the fair value of the investees' net assets at the date of
acquisition is being amortized over periods ranging from 10 to 40
years ($16 million, net of accumulated amortization, at December
31, 1997).
USE OF ESTIMATES - The financial statements have been prepared in
conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect
the amounts and disclosures reported in the financial statements
and accompanying notes.
CASH AND EQUIVALENTS - Cash and equivalents include cash and
highly liquid investments with a maturity when purchased of three
months or less.
INVENTORIES - Inventories are valued at the lower of cost or
market. Cost for growing crops and certain banana inventories is
determined principally on the "last-in, first-out" (LIFO) basis.
Cost for other inventory categories is determined principally on
the "first-in, first-out" (FIFO) or average cost basis.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost and, except for land, are depreciated on a
straight-line basis over their estimated useful lives.
INTANGIBLES - Intangibles consist primarily of goodwill and
trademarks which are amortized over not more than 40 years.
Accumulated amortization was $50 million and $45 million at
<PAGE>
December 31, 1997 and 1996, respectively. The carrying value of
intangibles is evaluated periodically in relation to the
operating performance and future undiscounted cash flows of the
underlying businesses.
REVENUE RECOGNITION - Revenue is recognized on sales of products
when the customer receives title to the goods, generally upon
delivery.
INCOME TAXES - Deferred income taxes are recognized at currently
enacted tax rates for temporary differences between the financial
reporting and income tax bases of assets and liabilities.
Deferred taxes are not provided on the undistributed earnings of
subsidiaries operating outside the U.S. that have been or are
intended to be permanently reinvested.
FOREIGN EXCHANGE - Chiquita generally utilizes the U.S. dollar as
its functional currency. Net foreign exchange gains (losses) of
$(7) million in 1997, $1 million in 1996 and $7 million in 1995
are included in income.
-35-
The Company enters into foreign currency option contracts and
foreign exchange forward contracts to hedge transactions
denominated in foreign currencies. These options and forward
contracts are specifically designated as hedges and offset the
losses or gains from currency risk associated with the hedged
transactions. The Company does not enter into options or forward
contracts for speculative purposes. Amounts paid for options and
any gains realized thereon, as well as any gains or losses on
forward contracts used to hedge firm commitments, are deferred
until the hedged transaction occurs. Gains and losses on forward
contracts used to hedge transactions where a firm commitment does
not exist are included in income on a current basis.
EARNINGS PER SHARE - In 1997, Chiquita adopted Statement of
Financial Accounting Standards ("SFAS") No. 128 "Earnings per
Share" and applied the new standard to all periods presented in
these financial statements. Under SFAS No. 128, basic earnings
per share is calculated on the basis of the weighted average
number of shares of common stock outstanding during the year
reduced by nonvested restricted stock. Diluted earnings per
share also includes the dilutive effect, if any, of assumed
conversion of preferred and preference stock and convertible
debentures and of assumed exercise of stock options. The
adoption of SFAS No. 128 had no effect on reported earnings per
share amounts.
OTHER NEW ACCOUNTING PRONOUNCEMENTS - In 1997, the Financial
Accounting Standards Board issued SFAS No. 130 "Comprehensive
Income" and SFAS No. 131 "Segment Information" and, in early
1998, issued SFAS No. 132 "Employers' Disclosures about Pensions
and Other Postretirement Benefits." These new standards, which
become effective in 1998, are presently under review by the
<PAGE>
Company. They are not expected to have a material effect on the
Company's financial position or results of operations, although
they may result in modification of future note disclosures.
<TABLE>
<CAPTION>
Note 2 - Earnings Per Share
- --------------------------------------------------------------------------------------------------------
Basic and diluted earnings per share calculations are as follows:
(In thousands, except per share amounts) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from continuing operations $343 $(27,728) $27,969
Dividends on preferred and preference stock (16,949) (11,955) (8,266)
---------- ---------- ----------
Income (loss) from continuing operations
attributable to common shares $(16,606) $(39,683) $19,703
========== ========== ==========
Weighted average common shares outstanding 57,185 55,450 53,647
Nonvested restricted shares (160) (255) (407)
---------- ---------- ----------
Shares used to calculate basic
earnings per share 57,025 55,195 53,240
Assumed exercise of stock options - - 410
---------- ---------- ----------
Shares used to calculate diluted
earnings per share 57,025 55,195 53,650
========== ========== ==========
Basic and diluted income (loss) from
continuing operations per share $(.29) $(.72) $.37
========== ========== ==========
</TABLE>
-36-
The assumed conversions to common stock of preferred stock,
preference stock, 7% convertible subordinated debentures and, for
1997 and 1996, the assumed exercise of outstanding stock options
would have an anti-dilutive effect on diluted earnings per share
and, therefore, have not been included in the computation. For
additional information regarding the 7% convertible subordinated
debentures, stock options and preferred and preference stock, see
Notes 7, 10 and 11.
Note 3 - Acquisitions and Divestitures
- -----------------------------------------------------------------
During 1997, the Company acquired separately the Owatonna Canning
group of companies and American Fine Foods, Inc., privately-owned
companies engaged primarily in the vegetable canning business.
Chiquita issued capital stock valued at $72 million (including $3
million issued in 1998) and preference stock valued at $4 million
to acquire these companies, and paid $19 million to retire debt
of the acquired businesses. These transactions were accounted
<PAGE>
for as purchases and their results of operations since the dates
of acquisition have been included in, but did not materially
affect, Chiquita's consolidated financial statements. The assets
of the acquired companies consist primarily of inventory and
property, plant and equipment.
In January 1998, Chiquita acquired Stokely USA, Inc., a
publicly-owned vegetable canning business. In connection with
the acquisition, Chiquita issued $11 million of capital stock in
exchange for all outstanding Stokely shares and issued $33
million of capital stock and paid $18 million of cash to retire
equal amounts of Stokely debt. After giving effect to these debt
retirements, $36 million of Stokely debt remained outstanding and
was assumed by Chiquita as part of the acquisition. This
transaction will be accounted for as a purchase.
The following unaudited pro forma information presents a
summary of the consolidated results of operations of the Company
as if the acquisitions of Owatonna, AFF and Stokely had occurred
on January 1, 1996:
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
(Unaudited) 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $2,707,000 $2,736,000
Loss before extraordinary item (1,300) (33,000)
Net loss (1,300) (56,000)
Net loss per common share (.29) (1.07)
</TABLE>
In December 1995, the Company sold its Meat Division to
Smithfield Foods, Inc. for $60 million, consisting of $25 million
in cash and 1.1 million shares of Smithfield common stock. These
shares were sold for cash in 1996. Smithfield assumed all Meat
Division liabilities, including pension obligations.
"Discontinued operations" for 1995 consist of the following items
relating to the Meat Division: write-off of a minimum pension
liability adjustment of $15 million previously charged directly
to shareholders' equity; income from operations of $3 million;
and a gain on sale of $1 million. Meat Division net sales for
1995 were $1.5 billion.
-37-
During 1995, the Company took other actions as part of its
ongoing program to improve shareholder value. These actions,
which included sales of older ships, the sale of the Costa Rican
operations of the Numar edible oils group, the shut-down of a
portion of the Company's juice operations and the reconfiguration
of banana production assets, resulted in a net gain of $19
million. Proceeds consisted of $167 million in cash and $50
million of secured notes, which were collected in 1996.
<PAGE>
<TABLE>
<CAPTION>
Note 4 - Inventories
- ----------------------
Inventories consist of the following:
December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Bananas and other fresh produce $36,035 $34,557
Canned vegetables 128,824 57,652
Other food products 8,661 9,277
Growing crops 115,007 114,425
Materials and supplies 53,909 49,699
Other 7,512 9,567
---------- ---------
$349,948 $275,177
========== =========
</TABLE>
The carrying value of inventories valued by the LIFO method
was $124 million at December 31, 1997 and $119 million at
December 31, 1996. If inventories were stated at current costs,
total inventory would have been approximately $45 million and $33
million higher than reported at December 31, 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
Note 5 - Property, Plant and Equipment
- -----------------------------------------------------------------------------------------------------
Property, plant and equipment consist of the following:
Weighted
average
December 31, depreciable
(In thousands) 1997 1996 lives
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $91,718 $89,780
Buildings and improvements 226,331 204,023 25 years
Machinery and equipment 436,761 398,972 12 years
Ships and containers 673,605 667,530 19 years
Cultivations 293,942 282,528 29 years
Other 78,946 72,700 20 years
---------- -----------
1,801,303 1,715,533
Accumulated depreciation (649,907) (575,856)
---------- -----------
$1,151,396 $1,139,677
========== ===========
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
Note 6 - Leases
- -----------------------------------------------------------------------------------------------------
Total rental expense consists of the following:
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross rentals
- ships and containers $79,746 $60,911 $94,829
- other 35,509 35,893 35,562
--------- --------- ---------
115,255 96,804 130,391
Less sublease rentals (14,359) (11,094) (17,310)
--------- --------- ---------
$100,896 $85,710 $113,081
========= ========= =========
</TABLE>
Future minimum rental payments required under operating leases
having initial or remaining non-cancelable lease terms in excess
of one year at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Ships and
(In thousands) containers Other Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $31,912 $19,175 $51,087
1999 35,185 17,077 52,262
2000 30,649 13,327 43,976
2001 16,255 8,164 24,419
2002 16,416 7,019 23,435
Later years 32,117 13,174 45,291
</TABLE>
Portions of the minimum rental payments for ships constitute
reimbursement for ship operating costs paid by the lessor.
Aggregate future minimum rental payments to be received from
non-cancelable subleases at December 31, 1997, principally for
office space and ships, total $14 million.
-39-
<PAGE>
<TABLE>
<CAPTION>
Note 7 - Debt
- -----------------------------------------------------------------------------------------------------
Long-term debt consists of the following:
December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Parent Company
9 1/8% senior notes, due 2004 $175,000 $175,000
9 5/8% senior notes, due 2004 248,004 247,770
10 1/4% senior notes, due 2006 148,861 148,788
7% subordinated debentures, due 2001, convertible
into capital stock at $43 per share 117,215 133,205
----------- -----------
Long-term debt of parent company $689,080 $704,763
=========== ===========
Subsidiaries
Loans secured by ships and containers, due in
installments from 1998 to 2009 - average
effective interest rate of 8.6% $242,463 $269,522
Caribbean Basin Projects Financing Authority (CBI
Industrial Revenue Bonds 1993 Series A) loan, due
1998 - variable interest rate of 4.6% (4.5% in 1996) 38,000 38,000
Overseas Private Investment Corporation loan,
prepaid in January 1998 - variable interest rate
of 8.0% (8.3% in 1996) 11,126 13,406
Foreign currency loans maturing through 2008
- average interest rate of 8% (14% in 1996) 10,478 19,969
Other loans maturing through 2012 - average
interest rate of 9% 63,730 90,573
Less current maturities (92,905) (56,982)
----------- ------------
Long-term debt of subsidiaries $272,892 $374,488
=========== ============
</TABLE>
The 7% subordinated debentures are callable at face value.
The 10 1/4% senior notes are callable beginning in 2001 at a
price of 105 1/8% of face value declining to face value in 2004.
Certain of the covenants under the Company s senior note
agreements contain restrictions on the payment of cash dividends.
At December 31, 1997, approximately $305 million was available
for dividend payments under the most restrictive covenants.
As part of its ongoing program to strengthen its balance
sheet and reduce interest costs, the Company:
* Called its $66 million outstanding 10 1/2% subordinated
debentures for redemption at par in June 1996, resulting in
an extraordinary loss of $6 million consisting primarily of a
non-cash write-off of unamortized discount.
<PAGE>
* Issued $150 million principal amount of 10 1/4% senior notes
due 2006 in July 1996. The proceeds from this offering,
together with a portion of the proceeds from the sale of
Series B preferred stock (see Note 11), were used to redeem
the $220 million outstanding 11 1/2% subordinated notes at a
redemption premium of 5.7% of the principal amount. This
prepayment resulted in an extraordinary loss of $17 million.
-40-
* Replaced $153 million of ship loans with loans having longer
maturities totaling $187 million during 1995, resulting in an
extraordinary loss of $5 million.
* Sold and leased back $40 million of container equipment in
December 1995 and used $27 million of the sale proceeds to
prepay related debt, resulting in an extraordinary loss of $3
million.
At December 31, 1997, $116 million of loans secured by ships
had interest rates fixed at an average of 7.9% by the terms of
the loans or by the operation of interest rate swap agreements
(see Note 8). The average effective interest rate on ship and
container loans includes the amortization of deferred hedging
losses from interest rate futures contracts.
<TABLE>
<CAPTION>
Maturities on long-term debt during the next five years are:
Parent
(In thousands) Company Subsidiaries Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $- $92,905 $92,905
1999 - 54,986 54,986
2000 - 40,162 40,162
2001 117,215 48,534 165,749
2002 - 32,526 32,526
</TABLE>
The Company has a $125 million senior unsecured revolving
credit facility available through January 2001. Interest on
borrowings under the facility is based on, at the Company's
option, the bank corporate base rate, the federal funds effective
rate or prevailing interbank Eurodollar offering rates. The
credit facility contains covenants which require the Company to
satisfy certain ratios related to net worth, debt-to-equity and
interest coverage. An annual fee of up to 1/2% is payable on the
unused portion of the facility. At December 31, 1997, no amounts
were outstanding under the facility.
The Company maintains various other lines of credit with
domestic and foreign banks for borrowing funds on a short-term
basis. The average interest rate for all short-term notes and
<PAGE>
loans payable outstanding at December 31, 1997 was 7.5% (9.2% at
December 31, 1996).
Cash payments relating to interest expense were $104 million
in 1997, $126 million in 1996 and $156 million in 1995.
Note 8 - Hedging Transactions
- ---------------------------------------------------------------
Chiquita has interest rate swap agreements maturing between 1998
and 2001 to fix the rate of interest on approximately $36 million
of its variable rate ship loans. The Company has currency and
interest rate swap agreements maturing between 2004 and 2005
which have the effect of converting $44 million of ship loans
denominated in British pounds into U.S. dollar loans with
variable interest rates that became fixed at 7.7% in 1997.
At December 31, 1997, the Company had option contracts which
ensure conversion of approximately $400 million of foreign sales
in 1998 at a rate not higher than 1.72 Deutsche marks per U.S.
dollar or lower than 1.56 Deutsche marks per U.S. dollar.
-41-
The carrying values and estimated fair values of the Company's
debt, associated interest rate agreements and foreign currency
swap and option contracts are summarized below:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------------- -----------------------
Carrying Estimated Carrying Estimated
(In thousands) value fair value value fair value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt $(1,114,536) $(1,160,200) $(1,214,628) $(1,237,300)
Interest rate swap and
cap agreements - (900) 288 (1,200)
Foreign currency swap
agreements - 6,200 - 7,900
Foreign currency option
contracts 7,014 20,600 4,544 9,500
</TABLE>
Fair values for the Company's publicly traded debt and
foreign currency option contracts are based on quoted market
prices. Fair value for other debt is estimated based on the
current rates offered to the Company for debt of similar
maturities. The fair values of interest rate and foreign
currency swap agreements and interest rate cap agreements are
estimated based on the cost to terminate the agreements.
The Company is exposed to credit loss in the event of
nonperformance by counterparties on interest rate and foreign
currency swap agreements. However, because the Company's hedging
activities are transacted only with highly rated institutions,
Chiquita does not anticipate nonperformance by any of these
<PAGE>
counterparties. The amount of any credit exposure is limited to
unrealized gains on all such contracts.
Note 9 - Pension and Severance Benefits
- -----------------------------------------------------------------
The Company and its subsidiaries have several defined benefit and
contribution pension plans covering approximately 5,000 domestic
and foreign employees. Approximately 30,000 employees are covered
by Central and South American severance plans. Pension plans
covering eligible salaried employees and Central and South
American severance plans for all employees call for benefits to
be based upon years of service and compensation rates.
Pension and severance expense consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Defined benefit and severance plans:
Service cost - benefits earned
during the period $5,388 $5,650 $5,664
Interest cost on projected benefit obligation 8,396 8,015 8,622
Actual return on plan assets (2,176) (2,320) (2,505)
Net amortization and deferral 1,747 1,802 1,441
---------- ---------- ----------
13,355 13,147 13,222
Defined contribution plans 3,888 3,424 3,458
---------- ---------- ----------
Total pension and severance expense $17,243 $16,571 $16,680
========== ========== ==========
</TABLE>
-42-
The Company's pension and severance benefit obligations
relate primarily to Central and South American benefits which, in
accordance with local government regulations, are generally not
funded until benefits are paid. Domestic pension plans are
funded in accordance with the requirements of the Employee
Retirement Income Security Act. Plan assets consist primarily of
corporate debt securities, U.S. Government and agency obligations
and collective trust funds.
The funded status of the Company's domestic and foreign defined
benefit pension and severance plans is as follows:
<PAGE>
<TABLE>
<CAPTION>
Plans for which Plans for which
assets exceed accumulated benefits
accumulated benefits exceed assets
at December 31, at December 31,
----------------------- ----------------------
(In thousands) 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan assets at fair market value $16,434 $7,488 $22,281 $19,970
-------- -------- -------- --------
Present value of benefit obligations:
Vested 11,023 5,228 75,872 74,421
Nonvested 169 30 949 1,003
-------- -------- -------- --------
Accumulated benefit obligation 11,192 5,258 76,821 75,424
Additional amounts related to
projected pay increases 2,752 2,485 16,327 17,327
-------- -------- -------- --------
Projected benefit obligation 13,944 7,743 93,148 92,751
-------- -------- -------- --------
Plan assets in excess of (less than)
projected benefit obligation 2,490 (255) (70,867) (72,781)
Projected benefit obligation not yet
recognized in the balance sheet:
Net actuarial loss 954 962 19,162 17,401
Prior service cost 405 94 1,942 3,062
Obligation (asset) at transition,
net of amortization (26) (33) 4,031 4,570
Adjustment required to recognize
minimum liability - - (8,808) (7,706)
-------- -------- -------- --------
Net balance sheet asset (liability) $3,823 $768 $(54,540)* $(55,454)*
======== ======== ======== ========
</TABLE>
* Includes $49 million in 1997 and $51 million in 1996 relating
to foreign pension and severance plans that are generally not
required to be funded until benefits are paid.
The projected benefit obligations of Central and South
American pension and severance plans in 1997 and 1996 were
determined using discount rates of approximately 9 1/4%. The
assumed long-term rate of compensation increase was 6% for both
years. The projected benefit obligations of the Company's
domestic pension plans were determined using assumed discount
rates of approximately 7 1/4% in 1997 and 7 3/4% in 1996. The
assumed long-term rate of compensation increase was 5 3/4% in
1997 and 1996 and the assumed long-term rates of return on plan
assets were approximately 8 1/2% in 1997 and 9% in 1996.
-43-
<PAGE>
Note 10 - Stock Options
- -------------------------------
Under its non-qualified 1986 Stock Option and Incentive Plan, the
Company may grant up to an aggregate of 15 million shares of
capital stock in the form of stock options, stock appreciation
rights and stock awards. Under this plan, options have been
granted to directors, officers and other key employees to
purchase shares of the Company's capital stock at the fair market
value at the date of grant. The options vest over ten years and
may be exercised over a period not in excess of 20 years.
A summary of the Company's stock option activity and related
information follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Under option at
beginning of year 6,893 $13.09 5,993 $12.71 5,214 $12.53
Options granted 2,539 14.08 1,953 13.40 1,765 13.45
Options exercised (509) 12.21 (546) 9.68 (332) 10.13
Options canceled
or expired (520) 13.15 (507) 13.41 (654) 14.55
-------- -------- -------- -------- -------- --------
Under option at
end of year 8,403 $13.44 6,893 $13.09 5,993 $12.71
======== ======== ======== ========= ======== ========
Options exercisable at
end of year 2,943 $13.45 2,381 $13.20 2,439 $12.51
======== ======== ======== ========= ======== ========
Shares available for
future grant 2,536 4,811 6,365
======== ======== ========
</TABLE>
Options outstanding as of December 31, 1997 have exercise
prices ranging from $10.18 to $34.44 and a weighted average
remaining contractual life of 17 years. More than 95% of these
options have exercise prices in the range of $10.18 to $16.13.
Under Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees," because the exercise price of the
Company's stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is
recognized. SFAS No. 123 "Accounting for Stock-Based
Compensation" requires disclosure of the estimated fair value of
stock options granted after 1994 and pro forma financial
information assuming compensation expense was recorded using
these fair values.
<PAGE>
The estimated weighted average fair value per option share
granted is $6.34 for 1997, $5.93 for 1996 and $6.33 for 1995
using a Black-Scholes option pricing model with the following
assumptions: weighted average risk-free interest rates of 6.5%
for 1997, 5.8% for 1996 and 7.3% for 1995; dividend yield of
1.5%; volatility factor for the Company's common stock price of
approximately 37%; and a weighted average expected life of eight
years for options not forfeited.
The estimated pro forma compensation expense based on these
option fair values would be approximately $3 million ($.05 per
share) in 1997, $2 million ($.04 per share) in 1996 and $1
million ($.03 per share) in 1995. Because SFAS No. 123 applies
only to options granted subsequent to 1994, the effect of
applying this standard to current year pro forma information is
not necessarily indicative of the effect in future years.
-44-
Note 11 - Shareholders' Equity
- ----------------------------------------------------------------
At December 31, 1997, 150 million shares of capital stock were
authorized, including unissued shares reserved for the following
purposes:
<TABLE>
<CAPTION>
<S> <C>
Issuance under stock option and employee
benefit plans 15 million
Conversion of 7% subordinated debentures 3 million
Conversion of preferred and preference stock 26 million
</TABLE>
During 1996 and 1995, Chiquita issued approximately 296,000
and 725,000 shares of capital stock in repayment of $4 million
and $11 million of subsidiary debt, respectively. During 1997,
in connection with vegetable canning acquisitions, the Company
issued 4,585,210 shares of capital stock and 79,659 shares of new
$2.50 Convertible Preference Stock, Series C to the former
owners. An additional 182,735 shares of capital stock and 4,712
shares of Series C preference stock were issued in 1998 as part
of the final payment for these acquisitions. In January 1998,
Chiquita issued 2,966,533 shares of capital stock in connection
with the acquisition of Stokely USA, Inc. (see Note 3).
At December 31, 1997, three series of preferred and
preference stock are outstanding, each share of which has a
liquidation preference of $50.00 and has an annual dividend rate
and is convertible at the holder's option into a number of shares
of Chiquita capital stock as follows:
<PAGE>
<TABLE>
<CAPTION>
Annual Holders'
Shares dividend conversion
outstanding rate rate
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
$2.875 Non-Voting Cumulative Preferred
Stock, Series A 2,875,000 $2.875 2.6316
$3.75 Convertible Preferred Stock, Series B 2,300,000 3.750 3.3333
$2.50 Convertible Preference Stock, Series C 79,659 2.500 2.9220
- -------------------------------------------------------------------------------------------------------
</TABLE>
Each Series A share is convertible at the Company's option
(provided the market value of Chiquita capital stock exceeds
$24.70 per share) into 2.6316 shares of capital stock through
February 2001 and thereafter into a number of shares of capital
stock (not exceeding 10 shares) having a total market value of
$50.00.
Series B shares were issued in 1996 for aggregate net
proceeds of $111 million. Each of these shares is convertible at
the Company's option beginning in September 1999 into a number of
shares of capital stock (not exceeding 10 shares) having a total
market value of $51.50 (decreasing thereafter to $50.00 if
converted in or after September 2001).
Each Series C share is convertible at the Company's option
beginning in July 2000 into a number of shares of capital stock
(not exceeding 10 shares) having a total market value of $51.50
(decreasing thereafter to $50.00 if converted after June 2002).
The Series A and Series B shares are non-voting. The Series
C shares have one vote per share, voting with the capital stock.
In certain circumstances if the Company fails to pay quarterly
dividends on Series A, B and C shares, the holders of such
shares, voting as a class, have the right to elect two directors
in addition to the regular directors. The Board of Directors has
the authority to fix the terms of 4,825,000 additional shares of
Non-Voting Cumulative Preferred Stock and 3,915,629 additional
shares of Cumulative Preference Stock.
-45-
<PAGE>
<TABLE>
<CAPTION>
Note 12 - Income Taxes
Income taxes consist of the following:
- -----------------------------------------------------------------------------------------------------
(In thousands) U.S. Federal U.S. State Foreign Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Current tax expense $375 $1,125 $6,076 $7,576
Deferred tax expense - - 624 624
-------- -------- -------- ---------
$375 $1,125 $6,700 $8,200
======== ======== ======== =========
1996
Current tax expense $181 $1,210 $9,026 $10,417
Deferred tax expense - - 583 583
-------- -------- -------- ---------
$181 $1,210 $9,609 $11,000
======== ======== ======== =========
1995
Current tax expense $1,218 $1,011 $12,657 $14,886
Deferred tax benefit - - (986) (986)
-------- -------- -------- ---------
$1,218 $1,011 $11,671 $13,900
======== ======== ======== =========
</TABLE>
<PAGE>
Income (loss) from continuing operations before income taxes
consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Subject to tax in:
United States $(39,211) $(54,575) $(17,735)
Foreign jurisdictions 47,754 37,847 59,604
----------- ----------- -----------
$8,543 $(16,728) $41,869
=========== =========== ===========
</TABLE>
Income tax expense differs from income taxes computed at the
U.S. federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax expense (benefit) computed at
U.S. federal statutory rate $2,990 $(5,855) $14,654
U.S. alternative minimum tax, net of credit - - 821
State income taxes, net of federal benefit 731 787 657
U.S. losses for which no tax benefit has
been recognized 13,723 18,819 -
Foreign tax differential (12,728) (4,954) 10,595
Use of U.S. net operating loss carryforwards - - (11,959)
Goodwill amortization 1,148 1,154 1,218
Other 2,336 1,049 (2,086)
---------- ---------- ----------
Income tax expense $8,200 $11,000 $13,900
========== ========== ==========
</TABLE>
-46-
The components of deferred income taxes included on the
balance sheet are as follows:
<PAGE>
<TABLE>
<CAPTION>
December 31,
---------------------
(In thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax benefits
Employee benefits $27,813 $28,223
Accrued expenses 13,074 21,999
Other 29,659 15,846
---------- ----------
70,546 66,068
Valuation allowance (4,329) (6,513)
---------- ----------
66,217 59,555
---------- ----------
Deferred tax liabilities
Depreciation and amortization (29,338) (21,084)
Growing crops (20,968) (20,968)
Long-term debt (8,284) (9,976)
Other (9,344) (9,390)
---------- ----------
(67,934) (61,418)
---------- ----------
Net deferred tax liability $(1,717) $(1,863)
========== ==========
</TABLE>
Net deferred taxes do not reflect the benefit that would be
available to the Company from the use of its U.S. operating loss
carryforwards of $265 million, capital loss carryforwards of $38
million, alternative minimum tax credits of $6 million and
foreign tax credit carryforwards of $4 million. The operating
loss carryforwards expire from 2007 through 2012, the capital
loss carryforwards expire in 2000 and the foreign tax credit
carryforwards expire from 1998 through 2002. Undistributed
earnings of foreign subsidiaries which have been, or are intended
to be, permanently reinvested in operating assets, if remitted,
are expected to result in little or no tax by operation of
relevant statutes and the carryforward attributes described
above. Cash payments for income taxes, net of refunds, were $5
million in 1997, $10 million in 1996 and $14 million in 1995.
-47-
Note 13 - Geographic Area Information
- ----------------------------------------------------------------
The Company is a leading international marketer, producer and
distributor of bananas and other quality fresh and processed food
products. The Company's products are sold throughout the world
and its principal production and processing operations are
conducted in Central, South and North America. With the sale of
its remaining Meat Division operations in December 1995, the
<PAGE>
Company's continuing operations constitute a single business
segment.
Chiquita's earnings are heavily dependent upon products grown
and purchased in Central and South America. These activities, a
significant factor in the economies of the countries where
Chiquita produces bananas and related products, are subject to
the risks that are inherent in operating in such foreign
countries, including government regulation, currency restrictions
and other restraints, risk of expropriation and burdensome taxes.
Certain of these operations are substantially dependent upon
leases and other agreements with these governments.
The Company is also subject to a variety of governmental
regulations in certain countries where it markets bananas and
other products, including import quotas and tariffs, currency
exchange controls and taxes.
Financial information by geographic area follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales to unaffiliated customers
North America $1,327,168 $1,286,096 $1,261,422
Central and South America 54,946 67,228 177,419
Europe and other international 1,051,612 1,081,924 1,127,151
----------- ----------- -----------
Consolidated net sales $2,433,726 $2,435,248 $2,565,992
=========== =========== ===========
Operating income
North America $(27,804) $10,864 $31,203
Central and South America 6,395 2,063 64,891
Europe and other international 134,566 84,519 93,102
Unallocated expenses (12,991) (13,110) (13,426)
----------- ----------- -----------
Consolidated operating income $100,166 $84,336 $175,770
=========== =========== ===========
Identifiable assets
North America $602,968 $445,105 $439,385
Central and South America 749,259 742,415 835,851
Europe and other international 362,973 395,793 409,677
Shipping operations 516,483 545,267 575,761
Corporate assets 169,930 338,354 362,859
----------- ----------- -----------
Consolidated assets $2,401,613 $2,466,934 $2,623,533
=========== =========== ===========
</TABLE>
-48-
Net sales in the preceding table excludes intercompany sales
of bananas from Central and South America to different geographic
areas. These sales, which are eliminated in consolidation and are
measured at cost under the method used for internal management
financial reporting purposes, were approximately $500 million in
each of the last three years. Banana sales to unaffiliated
<PAGE>
customers in Central and South America and other intergeographic
sales are not significant.
Operating income for 1996 includes write-offs and costs
totaling $70 million primarily resulting from flooding in Central
America; certain strategic undertakings designed to achieve
further long-term reductions in the delivered product cost of
bananas; and certain claims relating to prior EU quota
restructuring actions. These write-offs and costs reduced
operating income by geographic area as follows: North America,
$27 million; Central and South America, $1 million; and Europe
and other international, $42 million. In 1995, divestitures of
certain operations and other actions had the effect of increasing
(decreasing) operating income by geographic area as follows:
North America, $(9) million; Central and South America, $37
million; Europe and other international, $(9) million.
For purposes of reporting identifiable assets by geographic
area, cash and equivalents, marketable securities, restricted
cash and trademarks are included in corporate assets. Minority
equity investments are included in the geographic area where
their operations are located.
Note 14 - Litigation
- -----------------------------------------------------------------
A number of legal actions are pending against the Company. Based
on information currently available to the Company and advice of
counsel, management does not believe such litigation will,
individually or in the aggregate, have a material adverse effect
on the financial statements of the Company.
-49-
Note 15 - Quarterly Financial Data (Unaudited)
- -----------------------------------------------------------------
The following quarterly financial data are unaudited, but in the
opinion of management include all necessary adjustments for a
fair presentation of the interim results, which are subject to
significant seasonal variations.
<PAGE>
<TABLE>
<CAPTION>
1997
(In thousands, except per
share amounts) March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $631,410 $646,233 $556,261 $599,822
Cost of sales (464,071) (484,036) (463,993) (523,770)
Operating income (loss) 71,386 67,897 (5,376) (33,741)
Net income (loss) 43,294 41,083 (28,015) (56,019)
Basic earnings (loss) per share .70 .66 (.57) (1.01)
Diluted earnings (loss) per share .60 .57 (.57) (1.01)
Dividends per common share .05 .05 .05 .05
Capital stock market price
High 16.00 15.88 16.13 18.00
Low 12.75 13.75 13.94 15.50
</TABLE>
<TABLE>
<CAPTION>
1996
(In thousands, except per
share amounts) March 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $624,806 $713,698 $541,581 $555,163
Cost of sales (471,999) (534,591) (431,385) (509,913)
Operating income (loss) 57,861 75,120 15,861 (64,506)
Income (loss) before
extraordinary item 24,228 43,089 (7,585) (87,460)
Extraordinary loss from
debt refinancing - (5,556) (17,282) -
Net income (loss) 24,228 37,533 (24,867) (87,460)
Basic earnings (loss) per share
- Before extraordinary items .40 .74 (.20) (1.65)
- Extraordinary items - (.10) (.31) -
- Net income (loss) .40 .64 (.51) (1.65)
Diluted earnings (loss) per share
- Before extraordinary items .38 .68 (.20) (1.65)
- Extraordinary items - (.09) (.31) -
- Net income (loss) .38 .59 (.51) (1.65)
Dividends per common share .05 .05 .05 .05
Capital stock market price
High 16.38 15.50 13.50 13.88
Low 12.63 13.00 11.50 11.50
</TABLE>
Operating income for the quarter ended March 31, 1996 includes
write-downs and costs of $12 million resulting from industry-wide
<PAGE>
flooding in Costa Rica. Operating income for the quarter ended
December 31, 1996 includes write-downs and costs of $58 million
resulting from industry-wide flooding in Guatemala and Honduras;
certain strategic undertakings designed to achieve further
long-term reductions in the delivered product cost of bananas;
and certain claims relating to prior EU quota restructuring
actions.
Per share results include the dilutive effect of assumed
conversion of preferred stock and options into common stock
during the period presented. The effects of assumed conversions
are determined independently for each respective quarter and year
and may not be dilutive during every period due to variations in
operating results. Therefore, the sum of quarterly per share
results will not necessarily equal the per share results for the
full year.
-50-
<PAGE>
Stock Exchange Listings
- ---------------------------
New York, Boston and Pacific
Stock Symbol
- ----------------
CQB
Shareholders of Record
- -------------------------
At February 28, 1998 there were 5,960 common shareholders of
record.
Transfer Agent and Registrar -
Preferred, Preference and Capital Stock
Chiquita Brands International, Inc.
c/o Securities Transfer Company
One East Fourth Street
Cincinnati, Ohio 45202
(513) 579-2414
(800) 368-3417
Dividend Reinvestment
- --------------------------
Shareholders who hold at least 100 common shares may increase
their investment in Chiquita shares through the Dividend
Reinvestment Plan without payment of any brokerage commission or
service charge. Full details concerning the Plan may be obtained
from Corporate Affairs or the Transfer Agent.
Annual Meeting
- -------------------
May 13, 1998
10 a.m. Eastern Daylight Time
Omni Netherland Plaza Hotel
35 West Fifth Street
Cincinnati, Ohio 45202
Investor Inquiries
- ------------------------
For other questions concerning your investment in Chiquita,
contact Corporate Affairs at (513) 784-6366.
Trustees and Transfer Agents -
Debentures/Notes
- -------------------------------
7% Convertible Subordinated Debentures due
March 28, 2001
Trustee -
The Chase Manhattan Bank
450 West 33rd Street
New York, New York 10001
<PAGE>
Transfer, Paying and Conversion Agents -
- ----------------------------------------
The Chase Manhattan Bank
New York, New York
The Chase Manhattan Bank
London, England
Banque Paribas Luxembourg S.A.
Luxembourg
Banque Bruxelles Lambert S.A.
Brussels, Belgium
Bank Leu, Ltd.
Zurich, Switzerland
9 1/8% Senior Notes due March 1, 2004*
9 5/8% Senior Notes due January 15, 2004*
10 1/4% Senior Notes due November 1, 2006*
Trustee
------------
The Fifth Third Bank
38 Fountain Square Plaza
Cincinnati, Ohio 45263
* Chiquita Brands International, Inc., c/o Securities Transfer
Company, is transfer agent for these Notes.
-52-
<PAGE>
EXHIBIT 21
CHIQUITA BRANDS INTERNATIONAL, INC.
SUBSIDIARIES
As of March 27, 1998, the major subsidiaries of the
Company, the jurisdiction in which organized and the percent
of voting securities owned by the immediate parent corporation
were as follows:
<TABLE>
<CAPTION>
Percent of
Voting Securities
Organized Owned by
Under Laws of Immediate Parent
--------------------- ------------------------
<S> <C> <C>
American Fine Foods, Inc. Idaho 100%
Chiquita Brands, Inc. Delaware 100%
American Produce Company Delaware 100%
Banana Supply Co., Inc. Florida 100%
California Day-Fresh Foods, Inc. California 100%
Caribbean Enterprises, Inc. Delaware 100%
Great White Fleet Ltd. Bermuda 100%
BVS Ltd. Bermuda 100%
CDV Ltd. Bermuda 100%
CDY Ltd. Bermuda 100%
CRH Shipping Ltd. Bermuda 100%
Danfund Ltd. Bermuda 100%
Danop Ltd. Bermuda 100%
DSF Ltd. Bermuda 100%
GPH Ltd. Bermuda 100%
NCV Ltd. Bermuda 100%
Norvel Ltd. Bermuda 100%
Chiquita Brands Company, North America Delaware 100%
CB Containers, Inc. Delaware 100%
OV Containers, Inc. Delaware 100%
Chiquita Citrus Packers, Inc. Delaware 80%
Chiquita Banana Company B.V. Netherlands 100%
Chiquita Italia, S.p.A. Italy 100%
Chiquita Finland Oy Finland 100%
Chiquita Norge AS Norway 100%
Chiquita Tropical Fruit Company B.V. Netherlands 100%
Chiquita Frupac Inc. Delaware 100%
(Continued)
</TABLE>
<PAGE>
EXHIBIT 21 (cont.)
CHIQUITA BRANDS INTERNATIONAL, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Percent of
Voting Securities
Organized Owned by
Under Laws of Immediate Parent
------------- ----------------
<S> <C> <C>
Chiquita Gulf Citrus, Inc. Delaware 100%
Chiquita International Trading Company Delaware 100%
Chiquita Far East Holdings B.V. Netherlands 100%
Chiquita Brands South Pacific Limited Australia 79%
Chiquita International Limited Bermuda 100%
Exportadora Chiquita Limitada Chile 100%
M.M. Holding Ltd. Bermuda 100%
Chiquita Tropical Products Company Delaware 100%
Chiriqui Land Company Delaware 100%
Compania Agricola del Guayas Delaware 100%
Compania Agricola de Rio Tinto Delaware 100%
Compania Bananera Atlantica Limitada Costa Rica 100%
Corpofinanzas, S.A. Costa Rica 100%
Dunand et Compagnie des Bananes, S.A. France 100%
Friday Canning Corporation Wisconsin 100%
Maritrop Trading Corporation Delaware 100%
Polymer United, Inc. Delaware 100%
Progressive Produce Corporation Ohio 100%
Theodoredis and Sons Banana Company Delaware 100%
Tela Railroad Company Delaware 100%
Compania Mundimar, S.A. Costa Rica 100%
Owatonna Canning Company, LLC Delaware 100%
Stokely USA, Inc. Wisconsin 100%
</TABLE>
The names of approximately 300 wholly-owned subsidiaries
have been omitted. In the aggregate these subsidiaries, after
excluding approximately 100 foreign subsidiaries whose
immediate parents are listed above and which are involved in
fresh foods operations, do not constitute a significant
subsidiary. The consolidated financial statements include the
accounts of the Company and all majority-owned subsidiaries.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this
Annual Report on Form 10-K of Chiquita Brands International,
Inc. of our report dated February 11, 1998, included in the
1997 Annual Report to Shareholders of Chiquita Brands
International, Inc.
Our audits also included the financial statement schedule
of Chiquita Brands International, Inc. and subsidiary
companies listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the
following Registration Statements and related prospectuses of
Chiquita Brands International, Inc. of our report dated
February 11, 1998, with respect to the consolidated financial
statements and schedule of Chiquita Brands International, Inc.
and subsidiary companies incorporated by reference in the
Annual Report on Form 10-K for the year ended December 31,
1997.
<TABLE>
<CAPTION>
Registration
Form No. Description
---- --------- ----------------
<S> <C> <C>
S-3 33-58424 Dividend Reinvestment Plan
S-3 33-41057 Common Stock issuable upon conversion of Convertible
Subordinated Debentures
S-3 333-00789 Debt Securities, Preferred Stock, Preference Stock,
Depositary Shares, Common Stock and Securities Warrants
S-3 333-46373 Secondary Sale of Common Stock by certain shareholders
S-8 33-2241 Chiquita Savings and Investment Plan
33-16801
33-42733
33-56572
333-39671
S-8 33-14254 1986 Stock Option and Incentive Plan
33-38284
33-41069
33-53993
S-8 33-38147 Associate Stock Purchase Plan
Cincinnati, Ohio /s/ ERNST & YOUNG LLP
March 27, 1998
</TABLE>
<PAGE>
EXHIBIT 24
POWER OF ATTORNEY
We, the undersigned officers and directors of Chiquita
Brands International, Inc. (the Company) hereby severally
constitute and appoint William A. Tsacalis and Robert W.
Olson, and each of them singly, our true and lawful attorneys
and agents with full power to them and each of them to do any
and all acts and things in connection with the preparation and
filing of the Company's Annual Report on Form 10-K for the
year ended December 31, 1997 (the Report) pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934, as
amended, and any rules, regulations and requirements of the
Securities and Exchange Commission thereunder including
specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name of the
Company and the names of the undersigned directors and
officers in the capacities indicated below the Report, any and
all amendments and supplements thereto and any and all other
instruments and documents which said attorneys and agents or
any of them may deem necessary or advisable in connection
therewith.
<TABLE>
<CAPTION>
Signature Title Date
---------------- ----------------- --------------
<S> <C> <C>
-------------------------- Chairman of the Board and March 28, 1998
(Carl H. Lindner) Chief Executive Officer
-------------------------- Director, Vice Chairman of March 28, 1998
(Keith E. Lindner) the Board
------------------------- Director, President and March 28, 1998
(Steven G. Warshaw) Chief Operating Officer
------------------------- Director March 28, 1998
(Fred J. Runk)
/s/ Jean Head Sisco Director March 28, 1998
(Jean Head Sisco)
/s/ William W. Verity Director March 28, 1998
(William W. Verity)
/s/ Oliver W. Waddell Director March 28, 1998
(Oliver W. Waddell)
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Chiquita Brands International, Inc. Annual Report on Form 10-K for the year
ended December 31, 1996 and Quarterly Reports on Form 10-Q for the three,
six and nine month periods ended March 31, June 30, and September 30, 1996,
respectively, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 211,945 205,338 246,835 285,558
<SECURITIES> 31,734 66,865 39,780 0
<RECEIVABLES> 227,392 229,556 197,270 172,398
<ALLOWANCES> 11,075 11,105 11,164 9,832
<INVENTORY> 277,141 251,280 283,310 275,177
<CURRENT-ASSETS> 868,073 859,724 879,028 844,311
<PP&E> 1,692,627 1,704,465 1,716,788 1,715,533
<DEPRECIATION> 529,504 546,239 560,168 575,856
<TOTAL-ASSETS> 2,594,978 2,575,669 2,544,441 2,466,934
<CURRENT-LIABILITIES> 468,002 478,711 453,040 464,334
<BONDS> 1,235,739 1,175,178 1,077,643 1,079,251
0 0 0 0
138,369 138,369 249,256 249,256
<COMMON> 18,412 18,520 18,552 18,614
<OTHER-SE> 538,752 570,519 548,237 456,383
<TOTAL-LIABILITY-AND-EQUITY> 2,594,978 2,575,669 2,544,441 2,466,934
<SALES> 624,806 1,338,504 1,880,085 2,435,248
<TOTAL-REVENUES> 624,806 1,338,504 1,880,085 2,435,248
<CGS> 471,999 1,006,590 1,437,975 1,947,888
<TOTAL-COSTS> 471,999 1,006,590 1,437,975 1,947,888
<OTHER-EXPENSES> 21,711 44,379 66,448 89,534
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 35,167 70,116 100,742 130,232
<INCOME-PRETAX> 30,228 78,317 70,732 (16,728)
<INCOME-TAX> 6,000 11,000 11,000 11,000
<INCOME-CONTINUING> 24,228 67,317 59,732 (27,728)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 (5,556) (22,838) (22,838)
<CHANGES> 0 0 0 0
<NET-INCOME> 24,228 61,761 36,894 (50,566)
<EPS-PRIMARY> .40 1.05<F1><F2> .53<F2><F3> (1.13)<F3>
<EPS-DILUTED> .38 .97<F1> .52<F3> (1.13)<F3>
<FN>
<F1>Amounts include an extraordinary loss of $.10 per share ($.09 per share
diluted) resulting from refinancing of debt in the second quarter.
<F2>EPS has been restated for the adoption of Statement of Financial Accounting
Standards No. 128 "Earnings per Share."
<F3>Amounts include extraordinary losses of $.41 per share resulting from
refinancings of debt.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Chiquita Brands International, Inc. Annual Report on Form 10-K for the year
ended December 31, 1997 and Quarterly Reports on Form 10-Q for the three,
six and nine month periods ended March 31, June 30, and September 30, 1997,
respectively, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997
<CASH> 164,670 233,077 172,330 125,702
<SECURITIES> 0 0 0 0
<RECEIVABLES> 226,654 207,057 214,023 195,596
<ALLOWANCES> 9,373 9,599 10,235 10,683
<INVENTORY> 267,638 250,136 321,616 349,948
<CURRENT-ASSETS> 786,140 787,054 803,055 783,466
<PP&E> 1,725,060 1,744,368 1,777,345 1,801,303
<DEPRECIATION> 592,822 613,583 634,340 649,907
<TOTAL-ASSETS> 2,399,674 2,387,452 2,415,198 2,401,613
<CURRENT-LIABILITIES> 412,070 413,913 443,823 483,118
<BONDS> 1,024,517 997,365 981,346 961,972
0 0 0 0
249,256 249,256 253,239 253,239
<COMMON> 18,748 18,750 19,786 20,389
<OTHER-SE> 498,221 532,362 539,651 506,458
<TOTAL-LIABILITY-AND-EQUITY> 2,399,674 2,387,452 2,415,198 2,401,613
<SALES> 631,410 1,277,643 1,833,904 2,433,726
<TOTAL-REVENUES> 631,410 1,277,643 1,833,904 2,433,726
<CGS> 464,071 948,107 1,412,100 1,935,870
<TOTAL-COSTS> 464,071 948,107 1,412,100 1,935,870
<OTHER-EXPENSES> 21,575 43,041 64,418 86,122
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 28,458 55,778 82,482 108,913
<INCOME-PRETAX> 47,594 92,577 64,562 8,543
<INCOME-TAX> 4,300 8,200 8,200 8,200
<INCOME-CONTINUING> 43,294 84,377 56,362 343
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 43,294 84,377 56,362 343
<EPS-PRIMARY> .70<F1> 1.36<F1> .78<F1> (.29)
<EPS-DILUTED> .60 1.17<F1> .77 (.29)
<FN>
<F1> EPS has been restated for the adoption of Statement of Financial Accounting
Standards No. 128 "Earnings per Share."
</FN>
</TABLE>
OFFICIAL GAZETTE EXHIBIT 10-B
AGENCY OF THE STATE
<TABLE>
<CAPTION>
Founded by the Cabinet Decree No. 10 of November 11, 1903.
<S> <C> <C>
JORGE SANIDAS A.YENEXIA I. RUIZ
GENERAL DIRECTOR SUBDIRECTOR
Avenida Norte (Eloy y Alfaro) Income Direction General
and Calle 3a Casa No. 3-12
Edificio Casa Amarilla, San Felipe
Ciudad de Panama
Telephone 228-8631, 227-9833, Cost of Subscriptions
P.O. Box 2189 Panama, Minimum of 6 months in the Republic B/18.00
Republic of PanamaOne year in the Republic B/36.00
LAWS, NOTICES, EDICTS AND OTHER 6 Months Abroad B/18.00 plus air postage
PUBLICATIONS One year Abroad B36.00 plus air postage
NUMBER ____________ :B/9.50 Advance payment.
</TABLE>
LEGISLATIVE ASSEMBLY
LAW NO. 13
(Of February 12, 1998)
Pursuant to which the Contracts of Operations are approved
the Lease Agreement of Lands No. 2 of 1976 executed between
the State and the Company known as Chiriqui Land Company is
approved and modified.
THE LEGISLATIVE ASSEMBLY
DECREES:
ARTICLE FIRST: The following contracts are approved executed
between THE STATE and the company known as CHIRIQUI LAND
COMPANY:
Contract of Operations between THE STATE and CHIRIQUI LAND
COMPANY for the Division of Bocas del Toro.
Contract of Operations between THE STATE and CHIRIQUI LAND
COMPANY for the Division of Puerto Armuelles.
Amendment and Extension Contract to the Lease Contract
between THE STATE and CHIRIQUI LAND COMPANY and CHIQUITA
BRANDS INTERNATIONAL, INC., previously denominated UNITED
BRANDS COMPANY, which are inserted as follows:
CONTRACT NO. 134
CONTRACT OF OPERATIONS (BOCAS DEL TORO)
<PAGE>
Between Mr. RAUL ARANGO GASTEAZORO, Minister of Commerce and
Industries, male, Panamanian, of legal age, with personal
identification card No. 8-68-519, who acts in the name and
on behalf of THE
STATE, duly authorized by the Cabinet Council, pursuant to
Resolution No. 198 of August 27 of nineteen ninety seven
hereinafter named THE STATE, as party of the first part, and
as the other party, MANUEL VIRGILIO AIZPURUA VELASQUEZ,
male, Panamanian, of legal age, with personal identification
card
No. 8-94-712, practicing attorney, domiciled in this city,
acting in the name and representation of the company
denominated CHIRIQUI LAND COMPANY, a corporation organized
pursuant to the laws of the State of Delaware, United States
of America, duly registered in the Public Registry at volume
39, page 466, Registration 5345, and its registration up-to-
date under index card No. 018725, roll 000876, image 0075,
and duly authorized, pursuant to power of attorney granted
in Cincinnati, Ohio, on the thirteen (13) of March nineteen
ninety seven (1997) by the Executive Vice President of said
company, hereinafter known as THE COMPANY, entered the
present contract of operations, pursuant to the following:
CLAUSES:
FIRST: From the date this contract is in force, the
activities of THE COMPANY in the Republic of Panama and,
especially, in its Division of Bocas del Toro, Province of
Bocas del Toro, will be governed by the provisions contained
therein and by the provisions of the Panamanian legislation
of general application that are not contrary thereto.
SECOND: THE COMPANY will have the right to export, without
licenses or permits, bananas and other agricultural products
for exportation and its derivatives thereof.
THIRD: THE STATE grants THE COMPANY the priority right,
under its own direction, but subject to the fiscalization of
THE STATE, of all the wharves, annexes and other port
installations that THE COMPANY has built or will build in
connection with the activities contemplated in the present
contract. THE COMPANY may build on these wharves
improvements and annexes in order to facilitate and to make
more efficient the exports of its products. The wharves
that may be built in the future will be authorized by the
National Port Authority in accordance with the legal
provisions in force.
THE STATE grants THE COMPANY, subject to the fiscalization
of THE STATE, the priority use of the wharf, equipments and
annexes owned by THE STATE, at the installations port of
Almirante. This priority use does not exclude to permit the
use of said port, wharf, equipments and annexes, owned by
<PAGE>
THE STATE to third parties, always provided that it does not
interfere with the activities of the banana industry.
By virtue of its ownership rights, THE COMPANY will have the
private use of the equipments, systems, installations and
other properties that THE COMPANY has located or will locate
at the wharves or port installations of Almirante or any
other wharf and port installations that THE COMPANY may
build in the future, always provided that it does not
interfere with the maritime or land traffic in existence.
Notwithstanding the above, THE COMPANY may facilitate the
use of these properties, equipments and systems to third
parties by virtue of agreements that may be entered into in
the future with them.
The costs of repairs and maintenance of the wharf will be
prorated between THE COMPANY and THE STATE based in the
relative intensity of the use of said installations on the
part of THE COMPANY, the latter assuming the portion of the
costs of maintenance and repairs that correspond to its
utilization, and THE STATE the balance.
For purposes of the present clause, cost of maintenance and
repairs of wharves are the following: the costs of
materials, equipment, fuel, labor and any other cost that
under the general rules accepted in Accounting are used at
present, are considered as incurred in the maintenance of
the wharves for their usual operation.
For such same purposes, the proration for intensity of use
will be determined by means of the number of hours in which
the wharf is utilized by THE COMPANY, divided by the total
number of hours that said wharf has been utilized in that
same quarter.
THE STATE and THE COMPANY will agree in connection with the
requirements of new investments of capital for purposes of
reposition, remodeling or amplification of the said wharf
and in connection with the financing and execution of such
investments.
THE COMPANY may waive totally or partially this concession,
in which case, the obligations acquired by means of the
present clause will cease. This waiver shall be notified by
THE COMPANY to THE STATE in writing within twelve (12)
months ahead of the date in which the same becomes effective
or, otherwise, pay proportionally the canon of the
concession for the number of months the prior notice are
pending to comply within the twelve (12) month requirement.
Notwithstanding the above, during the time the present
contract is in force, and without the requirement of an
amendment thereto, THE COMPANY may, with prior notice to THE
STATE, transfer totally or partially, to a new entity in
<PAGE>
which THE COMPANY may have or may not have participation,
the concessions granted in the present clause, for the use,
operation and management of the wharf at Almirante as well
as the construction, operation and management of another
alternate wharf. In the case of an alternate wharf, the
location of the same shall be agreed upon with THE STATE
through the National Port Authority. At the same time, THE
STATE and THE COMPANY will be able to agree in the
privatization of the Almirante wharf or of an alternate
wharf for purposes of obtaining a better operative
efficiency and costs. In that sense, other companies
dedicated to this activity may be invited, which possess its
own capital, sufficient and ascertainable by THE STATE and
THE COMPANY, to participate in the privatization. For these
purposes, THE STATE acknowledges that THE COMPANY will have
the right to negotiate with a new port operator on the
disposition of asset owned by THE COMPANY and the
negotiation of tariffs prior to the waiver of the concession
of operation of the wharf granted in favor of THE COMPANY.
The parties agree that in any scheme of privatization, THE
COMPANY is guaranteed the priority use of the privatized
wharves.
For the rights comprised in this clause, THE COMPANY will
pay to THE STATE the sum of SEVENTY FIVE THOUSAND DOLLARS OF
THE UNITED STATES OF AMERICA (US$75,000.00) per year for
each wharf, payable in four (4) equal installments on the
first five (5) working days of each quarter.
FOURTH: THE STATE grants THE COMPANY the concession for the
operation of the railroads that it owns in the banana
division of Bocas del Toro.
THE STATE grants THE COMPANY, solely on the national lands,
an easement of ten (10) years of ten (10) meters on each
side from the center of the railroad line subject of this
concession. THE STATE acknowledges the existence of
continuous and apparent easements that affect national lands
and land that do not belong to the Nation on which the
railroad lines of THE COMPANY are located. THE STATE,
within the twelve (12) months following the execution of the
present contract, will register the easements on the lands
on the state lands herein acknowledged. The canon for this
concession is TWO HUNDRED AND FIFTY THOUSAND DOLLARS
(US$250,000.00) per year, and said amount will be paid in
four (4) equal quarterly installments, beginning the first
working day of each quarter. THE COMPANY will exercise the
control of the railroad transit.
THE COMPANY may waive, in part or total, this concession, in
which case, its obligation to pay the before mentioned canon
will cease. This waiver shall be notified by THE COMPANY to
THE STATE, in writting, within fifteen (15) months ahead to
the date in which the same will become effective or,
<PAGE>
otherwise, to pay proportionally the canon of the concession
for the number of months that remain prior to the notice for
the fifteen (15) month.
FIFTH: THE STATE grants THE COMPANY the concession to
produce the electric energy they may need in connection with
the activities contemplated in the present contract or in
the development thereof, including the free utilization of
water for these activities. Furthermore, THE COMPANY may
offer on sale and dispose of any excess of electric energy
not used by it, making it accessible for the price that the
parties may agree upon, to the Institute of Hydraulic and
Electrification Resources (I.R.H.E.) or, at a reasonable
price to the consumer public or other producers or
distributors of electric energy when THE STATE is not able
to offer or distribute it.
During the term of this contract and the amendments thereof,
THE COMPANY may, prior notice to THE STATE, transfer totally
or partially to another entity, the rights comprised in this
clause and, especially, those referred to the activities of
generation, distribution and collection of electric energy.
The new entity may be organized by juridical or natural
persons and THE COMPANY. For these purposes, THE STATE
acknowledges to THE COMPANY the right to negotiate with the
new entity, prior to the transfer of the concession, the
disposition of its assets related to the generation,
distribution and collection of electric energy as well as to
agree upon preferential tariffs. The new entity will be
governed by the laws in force in the Republic of Panama at
the date of transfer, but THE STATE will guarantee a period
of transition of not less than five (5) years, so that the
new entity may carry out the transformations corresponding
to the adaptation to the national legislation then in force.
The tariffs to be collected will be agreed upon between the
new entity and THE STATE through the government agency in
charge of public services. The new entity and THE COMPANY
may agree on special tariffs in the status of preferential
client.
Notwithstanding the above, THE COMPANY will have the right
to produce electric energy it may need in connection with
the activities contemplated in the present contract or in
the development thereof, including the gratuitous use of
water for these activities.
SIXTH: THE COMPANY may operate and establish the
installations and communication systems that it may require
in the development of the present contract, which will be
approved though the official corresponding entity.
SEVENTH: THE STATE grants THE COMPANY the right to oeprate
the plant, infrastructure and other installations that it
presently uses for the supply of water and for irrigation,
<PAGE>
and those that it may need in the future for its operations,
including the gratuitous extraction of water for its
activities. THE COMPANY may offer for sale and dispose, in
any manner, the excess of water, making it accessible, for
the price that the parties may agree upon, to THE STATE
through the Institute of Aqueducts and Sewers National
Systems (I.D.A.A.N.) or, at a reasonable price to the
consumer public or other producers or distributors, when THE
STATE is not in capacity of disposing or distributing it.
During the term of the present contract and without having
to amend it, THE COMPANY may, with prior notice to THE
STATE, transfer totally or partially, to a new entity in
which THE COMPANY may have or not participation, the
concession granted in the present clause. In this case, THE
STATE acknowledges to THE COMPANY the right to negotiate
with the new entity, prior to the transfer of the
concession, the disposal of the assets related to the
generation, distribution and collection for the supply of
water, as well as agreeing on preferential tariffs. The
tariffs to be collected will be agreed upon between the new
entity and THE STATE through the state agency in charge of
public services. The new entity and THE COMPANY may agree
on special tariffs on the status of preferential client.
EIGHTH: 1. THE STATE grants THE COMPANY continuous and
apparent easements on state lands and acknowledges said
continous and apparent easements on lands of third parties
where the assets of THE COMPANY go through, like for
instance, drainage channels and irrigation, roads,
railroads, fresh water lines, water served, electrical
wiring, and communication systems, etc., as appears in the
blueprints marked as Annexes C, which the parties sign in
two (2) counterparts of the same value forming an integral
part of this contract.
2. THE COMPANY acknowledges as easements of public use, the
roads that appear in the blueprints that are distinguished
as Annexes D, which the parties sign in two (2) counterparts
of the same value forming an integral part of this contract;
and acknowledges as easements for the use on the part of
other producers of bananas the drains that appeared in the
blueprints distinguished as Annexes E, which the parties
sign in two (2) counterparts of the same value forming an
integral part of this contract. THE COMPANY may regulate
the use of the above-mentioned easements with the purpose of
avoiding damages to the plantations and/or any other assets.
THE STATE authorizes THE COMPANY to negotiate with the users
or beneficiaries the cost of maintaining and/or repairing
the easements used referred to in the Annexes mentioned in
this section.
3. THE STATE will look over the integrity of the
<PAGE>
hydrographic drainage in order to guarantee the permanent
supply and continous of the waters that may be actually
required or may be required in the future for the
development of the banana activity in the areas of Bocas del
Toro.
NINTH: In its labor-employer relations with respect to the
operations that it undertakes in the country, THE COMPANY
will continue to be governed by the labor legislation in
force in the Republic of Panama and the collective
agreements and individual labor agreements that it may
execute with the workers, in accordance with such
legislation.
THE COMPANY and Bocas Fruit Company, Ltd. guarantee that
in the event the restructuring authorized in clause TWENTY
NINTH, would take place, the latter will assume, pursuant to
the national labor legislation, the labor obligations of
Bocas Division, thus converting itself at the respective
legal moment, as sole employer obligated before the total of
the workers of said division, without solution of
continuity, with respect to its individual work contracts or
the Collective Agreement or other agreements in force at the
moment of the restructuring taking place.
TENTH: To carry on its activites, THE COMPANY may bring to
the country foreing specialized personnel on training that
it may need, complying with the migration formalities. The
migration authorities shall grant in an expedite manner,
permits to the personnel that comes in for this purpose to
remain in the country, in the understanding that said
permits will be effective only while the person is in the
country working for THE COMPANY. The foreigner thus
contracted may start working at the filing of the respective
application for a work permit to the Ministry of Labor and
Social Wellfare. THE COMPANY will present annually, to the
Ministry of Labor and Social Wellfare, a report that would
permit to verify the percentage of foreign workers
contracted under this clause.
ELEVENTH: THE COMPANY will continue presenting to THE STATE,
the following reports:
a) Weekly reports of fruit shipped which includes the date
of departure, ship, destination, quality of the fruit
and volume of boxes by producer, equivalence in
bunches, F.O.B. value, gross weight in pounds, which
will be delivered through the National Banana
Direction.
b) Semi-annual report of areas cultivated, which includes
hectares in maintenance, preparation, varieties per
hectare, number of employees, which will be on the
basis of field meetings among the division managers and
<PAGE>
the technicians of the National Banana Directoin.
c) Annual report on the perspectives of the activity and
number of employees that will be presented through the
Minister of Commerce and Industries with copy to the
Minister of Agro-Development.
THE STATE is obligated to maintain strict confidentiality
with respect to the information that it may receive from THE
COMPANY, according to this clause, except for statistic
information on the industry in general.
TWELFTH: THE COMPANY shall be exempted from tributes, taxes
and other encumbrances including the payment of tariffs for
the protection or any other denomination, present or future,
that are stated below:
1. Tributes, taxes and other encumbrances, present or
future, of any type or denomination that fall on the
importation, use, consumption or utilization of fuels,
as well as those of any denomination that fall on the
importation of machineries, equipment, replacements,
paper and other items that may be necessary for the
devleopment of the banana and agroindustrial activities
in any of its phases or places of operation including
those pertinent to the activities related to
transactions with independent banana producers. The
goods exempted of import duties may be re-exported free
of taxes and without complying with licenses or
permits. Such goods may be sold in Panama, provided
the import duties are paid. The goods referred to in
this norm may not be leased nor destined to use
different from those for which they were acquired,
without the prior payment of import taxes in the cases
that it would apply. These exemptions will be
processed in the usual form through the Ministry of
Treasury and the National Banana Direction. THE
COMPANY may sell to other persons containers or
packages manufactured with items exempted from the
national tribute in this clause, if it is given
evidence that they be effectively exported or, in lack
thereof, that the payment on part of the taxes on
import corresponding to the imported value are paid.
2. Any other type of tributes, taxes or encumbrances on
banana agroindustrial activities of THE COMPANY, in any
of its phases, with the exception of those provided in
this contract.
3. Tributes, taxes or encumbrances that fall on the
loading or unloading made by any ship whose principal
cargo are products of THE COMPANY or equipment,
machinery, replacements, paper, fuel and other items
for its activities. The duties, tariffs and prices
<PAGE>
such as immigration services, sanitary, customs and
port services are exempted, when it deals with wharves
not operated by THE COMPANY.
4. Tributes, taxes or any other encumbrances for wharfage,
bring the ship to wharf, tonnage or that fall on the
movilization of ships or the use of the present wharves
and those that may be used in the future by THE
COMPANY, except what is determined by clause THIRD of
this contract.
5. Tributes, taxes or any other encumbrances on the
production, packaging and transportation of bananas.
6. Any other type of tributes or encumbrances on capital,
except the tax on licenses of general application.
7. Consular fees.
8. Tributes, taxes and any other encumbrances on real
estate and the improvements thereof.
9. Tributes, taxes and any other encumbrances that may
fall on the transfer of personal property such as
equipment, materials, items and services for the
transformation of goods necessary for the development
of the activites of the company.
10. Tributes, taxes or any other encumbrance on the sale of
transfer of real estate.
11. Stamp tax.
THIRTEENTH: THE COMPANY may acquire, in the local market,
the goods that it may need for its activities, free of taxes
referred to in sections 1 and 9 of clause TWELFTH of this
contract. For the effects of tax control of these
transactions, the procedure of Annex A of the present
contract will apply which, once is signed by the parties,
forms an integral part thereof. The Tax Authorities may
agree with THE COMPANY the updating and changes of Annex A
that may be necessary for a better fiscal supervision.
FOURTEENTH: THE COMPANY will be subject to income taxes
pursuant to the tariffs and provisions of general
application of the fiscal legislation of the Republic of
Panama.
FIFTEENTH: THE COMPANY will enjoy benefits not less in the
same or similar conditions of those granted to any other
company that is dedicated to the production or export of
bananas in the Republic of Panama.
SIXTEENTH: THE COMPANY will pay as municipal taxes for the
<PAGE>
activities that it undertakes, including the right of
extraction of stone, sand and gravel in national lands, the
amount of THREE HUNDRED AND TWELVE THOUSAND DOLLARS OF THE
UNITED STATES OF AMERICA (US$312,000.00) per year, to the
Municipality of Changuinola, in twelve (12) equal monthly
payments, at the latest the last working day of each month.
If THE COMPANY would be assessed a larger amount for
municipal taxes or if it would be assessed with new taxes,
the additional obligations and those that exceed THREE
HUNDRED AND TWELVE THOUSAND DOLLARS OF THE UNITED STATES OF
AMERICA (US$312,000.00) per year, will be assumed by THE
STATE. With respect to the acquisition of municipal lands
whether by lease, sale, exchange , or any other form of
transmission of dominion, will be the matter for negotiation
between the respective municipality and THE COMPANY. Said
negotiation on real state will be undertaken based on
reasonable parameters, similar to those contained in the
present contrat. For these effects, the municipality shall
request the corresponding evaluations to the General
Comptroller Office of the Republic and to the Ministry of
Treasury. THE COMPANY, on its part, will do the same with
its own Enginnering Department or an entity that it may
contract.
SEVENTEENTH: THE COMPANY will be subject to the other taxes,
duties, encumbrances, rates, national contributions, charges
or impositions established or to be legally established in
the future different to those from which THE COMPANY enjoys
exemption pursuant to this contract, if there are of general
application. It would not be considered of general
application those taxes, duties, encumbrances, rates,
contributions, charges or impositions that are applied only
to one industry or determined activity or that are
specifically appplied on banana activities, except the tax
on export of bananas, always provided said tax is applied in
general form to those in the banana activity.
EIGHTEENTH: THE COMPANY will be free of any responsibility
with respect to non-compliance of this contract due to force
majeure or fortuitous circumstance, within or outside the
country while its effects are maintained. THE COMPANY will
inform THE STATE in writting, as soon as possible, the
occurrence of any contingency of force majeure or fortuitous
circumstance. For the purposes of this contract, it would
be considered as force majeure or fortuitous circumstance,
any case or event on which THE COMPANY was not able to
exercise a reasonable control and that would be of such
nature that would delay, restrict or impede the timely
compliance on the part of THE COMPANY of the obligations
acquired by virtue of the present contract, including, but
not limited to the following events: strikes and other labor
conflicts, wars, revolutions, insurrections, civil
disturbances, blockades, riots, embargoes, fires, lightning,
failure of the installations or machinery, epidemics,
<PAGE>
viruses, fungus, plagues and any other diseases,
earthquakes, avalanches, storms, floods and other causes of
nature and orders, instructions or regulations of any
government.
NINETEENTH: It will also be considered among the supposed
facts of force majeure or fortuitous circumstance comprised
in the preceding clause, the situations of the market that
would impede, difficult or make economic onerous the
marketing of the fruit for export and other economic causes
that would make excessively onerous the compliance of its
obligations. At the occurrence of any of these situations,
THE COMPANY will inform THE STATE in writing, the
circumtances ocurring and the effects that it may have had
or may have in relation to this contract. THE STATE will
analyze the document presented by THE COMPANY and will
inform it its criteria and, especially, if it agrees or not
with the position of THE COMPANY. If THE STATE does not
agree totally or partially with the position of THE COMPANY,
the parties will examine with the most objective and
amicable-will possible, the differences for the purpose of
giving them solutions. If after this exercise some
differences subsist, these will be treated in accordance
with the provision of clause TWENTY SEVENTH of the present
contract.
TWENTIETH: Even when THE STATE would establish in Panama
exchange controls of foreign currency, THE STATE will
facilitate THE COMPANY, the foreign exchange freely
convertible in an amount not less than the requirement for
the following, independently of the source of the funds of
THE COMPANY:
1. The payment of goods and services acquired abroad for
its operations in Panama.
2. The payment of capital and interest on debts in foreign
currency contracted for its investments or operations
in Panama.
3. Remittance of profits and repatriation of capital.
TWENTY FIRST: With respect to the termination of the lease
contract between THE STATE and THE COMPANY on the lands on
the Division of Bocas del Toro, the parties agree as
follows:
A) If THE COMPANY is the one to decide that the lease
contract should be terminated or not to agree in any of
its extension, the following will apply.
1) Once THE COMPANY has advised THE STATE of its
intention of terminating the lease contract
or not to extend it, both parties agree to
<PAGE>
undertake its best efforts during a period of
three (3) years counted from the date of the
notice of termination or the extension
thereof, to find a new operator that may
continue the agroindustrial activities
developed by THE COMPANY in this division up
to that moment.
THE COMPANY and the potential new operator
may freely negotiate the prices for the sale,
the type of transaction and other conditions
related with the transfer of the business or
the assets owned by THE COMPANY, including
those concessions and other rights and
contractual and/or out of contract
obligations of THE COMPANY. In case the
transfer is carried out on said operations,
THE STATE will guarantee the new operator,
conditions of operation and lease not less
beneficial than those THE COMPANY has the
right to under the present contract and under
the lease contract agreed among the parties
and approved on this date.
2) In the even that the parties will not find a
new operator or that the new operator and THE
COMPANY do not agree with respect to the
transfer of the business or the assets, the
liquidation of the assets will be carried out
in the following manner.
i) THE COMPANY may remove, transfer or dipose of
its assets at its will and without the
application of tributes of any kind.
ii) THE STATE will pay THE COMPANY for the
growing crops fifty percent (50%) of the
value of the same determined in accordance
with Annex B of this contract, that, once
executed by the parties, forms an integral
part thereof.
iii) If within a period of three (3) years counted
from the date of the termination of this
contract or the lease contract, THE STATE
decides to continue totally or partially, on
its own, or through another natural or
juridical person, the agricultural or
agroindustrial operations on the lands where
the assets of THE COMPANY are located, or it
should decide, in any form, to transfer or
give in use said lands or parts thereof, it
should pay THE COMPANY the price for those
assets that THE COMPANY has not removed, at
<PAGE>
its commercial value as defined in paragraph
G of this clause.
B) IF THE STATE who, pursuant to the rights enumerated in
section three (3) of Clause TWENTY EIGHT, decides in
not agreeing on any of the possible extensions of the
present contract, the parties agree to proceed as
follows:
1) THE STATE is obligated to purchase and THE
COMPANY to sell the assets owned by it, that
it has decided not to remove, located in the
division of Bocas del Toro.
i) With respect to the growing crops, the
price will be one hundred percent (100%)
of the value established pursuant to
Annex B of this contract that, once
executed by the parties, forms an
integral part thereof. The total amount
of the payment must be made immediately
upon the date of termination of this
contract.
ii) The price of the rest of the assets will
be their commercial value. This value
will be determined on the basis of an
evaluation carried out by two experts
appointed by THE STATE and the other two
experts appointed by THE COMPANY. The
experts will be apointed by the parties
with at least three (3) years prior to
the date in which THE COMPANY must
abandon the leased lands.
iii) In the event that these experts would
not come to an agreement with respect to
the price of the assets in the term of
six (6) months counted from the date of
the appointment thereof or the time in
which they should be appointed, or in
the case if one of the parties or both
do not apppoint experts during the term
previously established, the price will
be determined pursuant to the procedures
established in clause TWENTY SEVENTH of
the present contract. The value
determined by the experts or by
arbitration will be paid by THE STATE to
THE COMPANY in four (4) equal and
consecutive installments beginning the
first of those within two (2) years
prior to the date in which THE COMPANY
must evacuate the leased lands. Under
<PAGE>
no circumstances, THE COMPANY will be
required to abandon the properties
leased unless the total amount of the
price of the assets has been paid on the
agreed upon date.
2) THE STATE, by these means, assumes the obligation
to reimbuse THE COMPANY the real amount of the
indemnification paid to its workers after the
notice of termination has expired. Said
obligation shall be limited to the amount in which
the indemnification exceeds the discounted value
of the reserves in the books of THE COMPANY for
indemnifications, including the trust established
pursuant to Law 44 of August 12, 1995.
C) There is excluded from the sale or transfer referred to
in this clause, in addition to any other goods that THE
COMPANY may decide to retire, cash, bank deposits,
receivables, intangible assets such as patents,
trademarks, commercial trademarks and commercial
licenses, comercial names, advertisements and
commercial posters, goodwill and any other deferred
charge that has not been expressly assumed by THE
STATE.
D) From the date of the notice of termination or the
notice of extention by any of the parties, and up to
the date of the termination of the Lease Contract, THE
COMPANY will only be obligated to give to the assets,
the basic maintenance for their preservation pursuant
to the agricultural practices of maintenance of the
last three (3) years and, in no case, it would be
obligated to incurr expenses or new investments of
capital, in new goods or on existing goods, whether by
force majeure or fortuitous circumstance or any other
cause. As an example, it would be understood that
investments or capital expenses on existing property
would constitute those related to drainage or
reconstruction of drainage, excluding the so-called
boquetes or boquetones ; total or partial
reconstruction or major repairs related to machinery
and equipment; remodelations, alternations or major
repairs related to constructions, cable-ways and other
infracstructure work. THE STATE will have the power to
request from THE COMPANY work related to machinery,
equipment, drainage and other capital goods, prior to
an agreement of payment with THE COMPANY of the amount
that the parties agreed for such purposes.
E) If to the contrary the contract terminates by default
by any of the parties, once the procedures established
in clauses TWENTY SIXTH AND TWENTY SEVENTH of this
contract had been followed, the procedure of paragraph
<PAGE>
A) of this clause will be followed if the default is
imputable to THE COMPANY or pursuant to that
established in paragraph B) if the default is imputable
to THE STATE.
F) The transfer to THE STATE of the assets referred to in
this clause will not be subject to any tax.
G) For the purposes of this clause, it will be understood
as commercial value: the amount of money required to
replace said assets in the same conditions of operation
and in the same place where they are located.
TWENTY SECOND: THE STATE and THE COMPANY agree that what is
related to the use of the farms described as follows, it
would be ruled by the concept of lease of lands:
Farm number four thousand six hundred and ninety seven
(4697) registered at roll thirteen thousand three hundred
(13300), document nine (9), registration one (1), with an
area of two hectares plus two thousand three hundred and
twenty one square meters nineteen square decimeters (2 Has
+2,321.19 M2);
Farm number four thousand six hundred and eighty nine
(4689) registered at roll thirteen thousand two hundred and
seventy (13279), document three (3), registration one (1),
with an area of eighty one hectares plus nine thousand nine
hundred and forty one square meters fifty four square
decimeters (81 Has + 9,940.42 M2);
Farm number four thousand seven hundred and one (4701)
registered at roll thirteen thousand three hundred four
(13304), document four (4), registration one (1), with an
area of thrity seven hectares plus one thousand three
hundred and eight square meters seventy nine square
decimeters (37 Has + 1,308.79 M2);
Farm number four thousand six hundred and ninety three
(4693) registered at roll thirteen thousand three hundred
(13300), document five (5), registration one (1), with an
area of five hundred and five hectares plus eight thousand
three hundred and eighty four square meters sixteen square
decimeters (505 Has + 8,384.16 M2);
Farm number four thousand six hundred and eighty seven
(4687) registered at roll thirteen thousand two hundred and
seventy nine (13279), document one (1), registration one
(1), with an area of seventy four hectares plus six
thousand six square meters sixty nine square decimeters (74
Has + 6,006.69 M2);
Farm number four thousand six hundred and ninety nine
(4699) registered at roll thirteen thousand three hundred
<PAGE>
four (13304), document two (2), registration one (1), with
an area of four hundred seventeen hectares plus six thousand
five hundred and thirty seven square meters thirty five
square decimeters (417 Has + 6,537.35 M2);
Farm number four thousand six hundred and ninety five
(4695) registered at roll thirteen thousand three hundred
(13300), document seven (7), registration one (1), with an
area of one thousand seven hundred and two hectares plus six
thousand two hundred and sixty eight square meters nineteen
square decimeters fifty square centimeters (1,702 Has
+6,268.1950 M2);
Farm number four thousand seven hundred and six (4706)
registered at roll thirteen thousand three hundred and
twenty three (13323), document two (2), registration one
(1), with an area of nine hundred and seventy eight hectares
plus four thousand three hundred and seventy five square
meters sixty six square decimeters forty square centimeters
(978 Has + 4,375.6640 M2);
Farm number four thousand six hundred and ninety two
(4692) registered at roll thirteen thousand three hundred
(13300), document four (4), registration one (1), with an
area of six hundred and forty two hectares plus seven
thousand five hundred thirty seven square meters forty three
square decimeters ninety square centimeters (642 Has +
7,537.4390 M2);
Farm number four thousand seven hundred and two (4702)
registered at roll thirteen thousand three hundred and four
(13304), document eight (8), registration one (1), with an
area of two thousand five hundred twenty one square meters
seventy four square decimeters (2,521.74 M2);
Farm number two hundred and sixty five (265) registered
at volume seven hundred and eight eight P (788P), folio
three hundred and ninety (390), with an area of one hectare
plus nine thousand fifty square meters (1 Ha +9,050.00 M2);
Farm number one hundred and twelve (112) registered at
volume seven hundred and eighty eight P (788P), folio three
hundred and thirty six (336), with an area of five hundred
sixty square meters (560.00 M2);
Farm number one hundred and three (103) registered at
volume seven hundred and eighty eight P (788P), folio three
hundred and seventy two (372), with an area of seventy three
hectares plus two thousand five hundred and five square
meter forty three square decimeters (73 Has +2,505.43 M2);
Farm number six hundred and twenty six (626)
registered at volume eighty seven (87) folio twenty four
(24), with an area of one hectare plus six thousand six
<PAGE>
hundred and twenty five square meters (1 Ha + 6,625.00
M2);
Farm number five hundred and ninety two (592)
registered at volume sixty nine (69), folio three hundred
and four (304), with an area of eight thousand nine hundred
and sixty seven square meters (8,967.00 M2);
Farm number five hundred and ninety three (593)
registered at volume sixty nine (69), folio three hundred
and six (306), with an area of seven hundred and seventy
five square meters (775.00 M2);
Farm number two hundred sixty two (262) registered at
volume twenty four (24), folio two hundred and thirty six
(236), with an area of two thousand one hundred and fifty
square meters (2,150.00 M2);
Farm number two hundred seventy one (271) registered at
volume twenty four (24), folio three hundred and four (304),
with an area of four thousand four hundred square meters
(4,400.00 M2);
Farm number two hundred seventy two (272) registered at
volume twenty four (24), folio three hundred and twelve
(312), with an area of one thousand six hundred square
meters (1,600.00 M2);
Farm number four thousand six hundred and ninety six
(4696) registered at roll thirteen thousand three hundred
(13300), document eight (8), registration one (1), with an
area of one hundred and forty five hectares plus seven
thousand two hundred and twenty nine square meters three
square decimeters fifty square centimeters (145 Has +
7,229.0350 M2);
Farm number four thousand six hundred and ninety eight
(4698) registered at roll thirteen thousand three hundred
and four (13304), document one (1), registration one (1),
with an area of twenty nine hectares plus one thousand
thirty four square meters forty three square decimeters (29
Has + 1,034.43 M2);
Farm number four thousand seven hundred (4700)
registered in roll thirteen hundred three hundred and four
(13304), document three (3), registration one (1), with an
area of three hundred and eighty two hectares plus four
thousand seven hundred and twelve square meters nine square
decimeters thirty square centimeters (382 Has + 4,712.0930
M2);
Farm number four thousand six hundred and eighty eight
(4688) registered at roll thirteen thousand two hundred
seventy nine (13279), document two (2), registration one
<PAGE>
(1), with an area of one hundred and ninety three hectares
plus one thousand four hundred and eighty one square meters
ninety five square decimeters (193 Has + 1,481.95 M2);
Farm number four thousand six hundred and ninety (4690)
registered at roll thirteen thousand two hundred and ninety
three (13293), document seven (7), registration one (1),
with an area of one thousand three hundred and thirty three
hectares plus eight thousand two hundred and twenty seven
square meters and fifty six square decimeters (1,333 Has
+8,227.56 M2);
Farm number four thousand six hundred and ninety four
(4694) registered at roll thirteen thousand three hundred
(13300), document six (6), registration one (1), with an
area of three hundred and ninety eight hectares plus six
thousand six hundred and fifty square meters forty one
square decimeters (398 Has + 6,650.41 M2);
Farm number four thousand seven hundred and three
(4703) registered at roll thirteen thousand three hundred
and four (13304), document nine (9), registration one (1),
with an area of three hundred and forty six hectares plus
seven thousand five hundred and ninety seven square meters
forty four square decimeters (346 Has + 7,597.44 M2);
Farm number four thousand seven hundred (4704)
registered at roll thirteen thousand three hundred and four
(13304), document nine (9), registration one (1), with an
area of five hectares plus eight thousand thirty seven
square meters ninety square decimeters (5 Has + 8,037.90
M2), all of the Public Registry, Property Section, Province
of Bocas del Toro.
These lands are not subject to sale to anyone neither now
nor in the future. This limitation will be registered at
the margin of said farms in the Public Registry by any of
the parties, serving as a basis for their registration the
Official Gazette with the Law that approves this contract is
published.
TWENTY THIRD: The notices and other communications that may
be required pursuant to the provisions of the present
contract will, unless the parties agree otherwise, be made
in writing and will be personally delivered or sent to the
address that each party communicates to the other, through
notices in writing with return receipt.
TWENTY FOURTH: With the execution of the present contract,
both parties declare as terminated and definitively
concluded any claim or differences that exist or may exist
with respect to the execution and compliance with the
contracts until this time existing between THE NATION and
THE COMPANY, or in connection with any type of tributes or
<PAGE>
any other sum that may be deducted from the operations of
THE COMPANY up to the 31st December of 1996, except those
which each party have accepted to cover. In the event that
processes or procedures are pending before any judicial or
administrative body of the Republic of Panama, each party
will take the necessary measures to terminate them.
This settlement excludes the tax processes that have been
duly notified to THE COMPANY on Augsut 27, 1997. These
cases will follow the normal proedures, being understood
that none of the parties waive the rights the respective
cases may contemplate.
TWENTY FIFTH: The present contract shall be the legal norm
between the parties and it will be governed by the laws
applicable, presently in force or that may be in force in
the future in the Republic of Panama, except in the measure
in which such laws or legal provisions are contrary or less
beneficial, or inconsistant or incompatible with this
contract, or are not of general application.
TWENTY SIXTH: In the event that any of the parties considers
the other has defaulted in the compliance of the obligations
acquired pursuant to the present contract or those acquired
pursuant to Contract No. 2 of 1976, aproved by Law No. 5 of
January 7, 1976 and its additions and amendments, it will
notify of this fact to the other party, suggesting the
measures that it considers convenient to correct the
default. Within ninety (90) days following the receipt of
the corresponding notice, the party thus notified may
counterpropose what are most adequate measures considered by
it. Said measures must be implemented within the term of
thirty (30) working days counted from the date in which
acceptance of the counter proposal is made, except that both
parties may agree in a longer term by reason of inherent
circumstances to the activities to be undertaken.
Notwithstanding the above, if any of the parties is not in
agreement that a default has occurred, or in the manner to
cure it, any of the parties may use the procedure
established in clause TWENTY SEVENTH of this contract, in
order to resolve the respective differences.
TWENTY SEVENTH: The parties declare their firm purpose to
examine with the most objective and amicable intention all
differences that may arise between them in connection to the
present contract, for the purpose of giving them a solution.
All conflicts that may arise in connection with the present
contract and with the Lease Contract No. 2 of 1976, approved
by Law No. 5 of January 7, 1976 and its subsequent additions
and amendments, that could not be solved in the form before
indicated, should be resolved by arbitration, before and
pursuant to the rules of procedure of the Interamerican
<PAGE>
Commercial Arbitration Commission, referred to in the
agreement between the Republic of Panama and the United
States of America on the treatment of and protection to
investments, in force on the date of the execution of the
present contract, unless the parties agree expressly at the
time of submitting to arbitration, in accepting the rules
then in force.
They will be subject to arbitration pursuant to the
provision of this clause, the controversies that arise among
the parties related to the purpose, application,
implementation or interpretation of this contract and of
Contract No.2 of 1976, approved by Law No. 5 of January 7,
1976 and its subsequent additions and amendments, as well as
those related to the compliance or termination thereof.
The arbitration shall be circumscribed to the topic object
of the controversy and the same, pending its resolution,
will not have the effect of suspending or delaying the
compliance with the obligations arising from the said
contracts, except in the cases of force majeure or
fortuitous circumstance.
TWENTY EIGHTH: 1. INITIAL TERM. The initial term of the
present contract will be of twenty (20) years counted from
the first of January nineteen ninety eight (1998).
2. ADVANCED TERMINATION. During the term of this contract
or the extensions thereof, if THE COMPANY will waive the
rest of the term of the same, it shall give notice of
termination to THE STATE in writing, but the contract will
not be considered as terminated up to three (3) years
counted from the first of January immediately following the
date the notification has been made, which notification will
give the economic reasons that motivate the decision of THE
COMPANY.
3. ADDITIONAL EXTENSIONS TO THE INITIAL TERM. During the
first nine (9) months of the sixteenth year from the initial
term, any of the parties may notify the other of its
intention of not extending the contract. In the event that
notice is not given, the term of the present contract will
be extended for a period of twelve (12) additional years,
following the initial term of twenty (20) years. In the
event that the eighth (8) year of the term of the first
extension goes by without notification of termination, the
contract will be extended again for an additional and
successive period of twelve (12) years. The provision of
this clause with respect to opportunities of termination and
new extension during the term of the first extension, will
apply equally to the second extension and subsequent
extensions which, in consequence, may occur. The extensions
will be considered as agreed among the parties if ninety
(90) calendar days prior to the ending of each anniversary
<PAGE>
in which an opportunity of extension exists, neither party
has notified in writing the other party, the termination of
which this clause refers to.
TWENTY NINTH: For the purpose of modernizing the legal and
operative structure under which THE COMPANY has operated in
the country, the parties agree that Chiriqui Land Company
may suffer a restructuration in a way that the total amount
of assets and liabilities corresponding to the Division of
Bocas del Toro be transferred to its subsidiary Bocas Fruit
Co., Ltd. , a commercial company organized and existing
pursuant to the laws of the Bermuda Islands, British
Occidental Indies, with principal domicile in the city of
Hamilton, Bermuda Islands and offices in the city of Panama,
Avenida Balboa, Banco Exterior Building, twenty first floor.
Said restructuring and consequent transfer of assets and
assumption of liabilities will not cause taxes of any kind
in the Republic of Panama. THE STATE consents in that, as
part of the restructuring described, THE COMPANY may assign
the present contract in favor of the mentioned subsidiary so
that the latter remains as sole holder of the rights and
obligations before THE STATE.
THIRTIETH: All sums of money that any of the parties should
owe or may owe to the other pursuant to the present
contract, shall be paid solely in dollars, legal currency of
the United States of America. All obligations not subject
to the term or condition in the present contract will be
understood to be of immediate compliance. In this latter
case, the obligations shall be complied with at the end of
the term or fulfillment of compliance with the condition.
THIRTY FIRST: The parties obligate themselves to extend,
execute and register all the documents in order to give
validity and efficacy to this contract and those that in the
future be required for its compliance, and furthermore, they
commit to undertake all efforts necessary in order to comply
with the obligations agreed upon herein.
THIRTY SECOND: The stamp tax caused by the present contract
will be SIX THOUSAND FIVE HUNDRED BALBOAS (B/6,500.00).
Furthermore, THE COMPANY shall cancel the amount of ONE
HUNDRED EIGHT BALBOAS (B/.108.00) in registration rights for
the registration agreed upon in the previous Clause TWENTY
SECOND.
THIRTY THIRD: This contract totally substitutes, in a
perfect form and without solution of continuity, Contract
No. 3 of January 7, 1976, approved by Law No. 5 of the same
date, promulgated in the Official Gazette No. 18.002 of
January 8 of the same year.
THIRTY FOURTH: The present contract will be in force
beginning on the date of promulgation of the law that
<PAGE>
approves it.
In witness whereof the present contract is signed in two (2)
counterparts of the same value and effect in the city of
Panama, Republic of Panama, on the 12 days of the month of
September 1997
FOR THE STATE FOR THE COMPANY
/s/RAUL ARANGO GASTEAZORO /s/MANUEL VIRGILIO AIZPURUA
Ministry of Commerce Vice President of Legal
and Industries and Governmental Matters
AUTHENTICATION
/s/GENERAL COMPTROLLER OF THE REPUBLIC
CONTRACT NO. 135
CONTRACT OF OPERATIONS (PUERTO ARMUELLES)
Between RAUL ARANGO GASTEAZORO, Minister of Commerce and
Industries, male, Panamanian, of legal age, with personal
identity card
No. 8-68-519, who acts in the name and in representation of
THE STATE, duly authorized by the Council of the Cabinet, by
Resolution No. 198 of August 27 nineteen ninety seven
hereinafter known as THE STATE, as party of the first part,
and for the other part, MANUEL VIRGILIO AIZPURUA VELASQUEZ,
male, Panamanian, of legal age, with personal identity card
No. 8-94-712, practicing attorney, domiciled in this city,
acting in the name and in representation of the company
named CHIRIQUI LAND COMPANY, a corporation organized
pursuant to the laws of the State of Delaware, United States
of America, duly registered in the Public Registry, volume
39, folio 466, registration 5345, and registration up-to-
date under filing card No. 018725, roll 000876, image 0075,
and duly authorized, pursuant to a power of attorney granted
in Cincinnati, Ohio on the thirteen (13) of March nineteen
hundred and ninety seven (1997) by the Executive Vice
President of said company, hereinafter known as THE COMPANY,
execute the present contract of operations, pursuant to the
following clauses.
CLAUSES:
FIRST: From the date the present contract is in force, the
activities of THE COMPANY in the Republic of Panama and,
especially, in its Division of Puerto Armuelles, Province of
Chiriqui, will be governed by the provisions contained
herein and by the provisions of the Panamanian legislation
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of general application that would not be contrary thereto.
SECOND: THE COMPANY will have the right to export, without
licences or permits, bananas and other agricultural products
for exportation and its derivatives.
THIRD: THE STATE grants THE COMPANY the priority right of
use, under its own management, but subject to the
fiscalization of THE STATE, of all the wharves, annexes and
other port installations that THE COMPANY may have built or
build in connection with the activities contemplated in the
present contract. THE COMPANY may build on these wharves
improvements and annexes to facilitate and make more
efficient the export of its products. The wharves that may
be built in the future will be authorized by the National
Port Authority in accordance with the legal provisions in
force.
THE STATE grants THE COMPANY, subject to the fiscalization
of THE STATE, the priority use of the wharf, equipment and
annexes that are owned by THE STATE, on the port
installations of Puerto Armuelles. This priority use does
not exclude permitting the use of said wharf, equipment and
annexes, owned by THE STATE, to third parties, always
provided it does not interfere with the activities of the
banana industry.
Pursuant to its right of ownership, THE COMPANY will have
the private use of the equipment, systems, installations and
other property that THE COMPANY has located or may locate on
the wharves or port installations of Puerto Armuelles or any
other wharf and port installations that THE COMPANY may
build in the future, always provided that it would not
interfere with the presently existing maritime or land
traffic. Notwithstanding the above, THE COMPANY may
facilitate to others these properties, equipment and systems
to third parties pursuant to the agreements that may be
agreed upon in the future.
The costs of repairs and maintenance of the wharf will be
prorated between THE COMPANY and THE STATE based on the
relative intensity of use of said installations on the part
of THE COMPANY, the latter assuming the portion of the costs
of maintenance and repairs that will correspond to its use,
and THE STATE for the balance.
For purposes of the present clause, it will be understood as
cost of maintenance and repair of the wharves the following:
cost of materials, equipment, fuel, labor and any other
costs that under the general rules accepted by Accounting
used at the present time, will be considered incurred in the
maintenance of the wharves for their usual operation.
For the same effects, the prorating by intensity of use will
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be determined by means of the number of hours the wharf is
used by THE COMPANY, divided by the total number of hours
that said wharf has been utilized in the same quarter.
THE STATE and THE COMPANY will come to an agreement in
connection with the requirements of the new capital
investments for purposes of replacement, remodeling or
extension of the mentioned wharf and in connection with the
financing and execution of such investments.
THE COMPANY may waive totally or partially this concession,
in which case, the obligations acquired pursuant to this
clause will cease. This waiver must be notified by THE
COMPANY to THE STATE , in writing, within twelve (12) months
prior to the date in which it will become effective, or
otherwise, pay proportionally the canon of the concession
for the number of months that remain to the prior notice for
the completion of the twelve (12) months.
Notwithstanding the above, during the term of the present
contract and without having to amend it, THE COMPANY may,
prior notice to THE STATE, transfer totally or partially, to
a new entity, in which THE COMPANY may or may not have a
participation, the concessions granted in the present
clause, as well as the use, operation and management of the
wharf of Puerto Armuellles, as well as the construction,
operation and management of another alternate wharf. In the
event of an alternate wharf, the location thereof will be
agreed upon with THE STATE through the National Port
Authority. At the same time, THE STATE and THE COMPANY may
agree in the privatization of the wharf of Puerto Armuelles
or of an alternate wharf, for the purpose of obtaining a
more efficient operation and costs. In that sense, other
companies dedicated to this activity may be invited, that
may have their own sufficient capital, duly corroborated by
THE STATE and THE COMPANY, to participate in the
privatization. For these purposes, THE STATE acknowledges
that THE COMPANY will have the right to negotiate with the
new port operator the disposition of the assets owned by THE
COMPANY and the negotiation of tariffs prior to the waiver
of the concession for the operation of the wharf granted in
favor of THE COMPANY. The parties agree that in any scheme
of privatization, THE COMPANY will be guaranteed the
priority use of the privatized wharves.
For the rights included in this clause, THE COMPANY will pay
THE STATE the amount of SEVENTY FIVE THOUSAND DOLLARS OF THE
UNITED STATES OF AMERICA (US$75,000.00) per year, per wharf,
payable in four (4) equal installments during the first five
(5) working days of each quarter.
FOURTH: THE STATE grants THE COMPANY the concession of
operations of the railroads that the latter owns in the
banana division of Chiriqui and of the rights of use of the
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railroad line of Progreso-Armuelles.
THE STATE grants THE COMPANY, solely on the national lands,
an easement of ten (10) meters on each side of the center of
the railroad line subject of this concession. THE STATE
acknowledges the existence of continuous and apparent
easements that affect the national lands not owned by the
Nation on which the railroad lines of THE COMPANY are
located. THE STATE, within the twelve (12) months following
the execution of the present contract, will register the
easements of state lands herein acknowledged. The canon for
this concession is TWO HUNDRED AND FIFTY THOUSAND DOLLARS OF
THE UNITED STATES OF AMERICA (US$250,000.00) per year, and
said amount shall be paid in four (4) equal quarterly
installments, at the latest the first working day of each
quarter. THE COMPANY will exercise control of the railroad
transit.
THE COMPANY may waive, in total or in part, this concession
in which case, its obligation of paying the canon before
mentioned will cease. This waiver will have to be notified
by THE COMPANY to THE STATE, in writing, with fifteen (15)
months in advance to the date in which the same becomes
effective or, in its absence, pay proportionally the canon
of the concession for the number of months that remain the
prior notice to complete the fifteen (15) months.
FIFTH: THE STATE grants THE COMPANY a concession to produce
the electric energy it may require in connection with the
activities contemplated in the present contract or the
development of the same, including the gratuitous use of
water for these activities. Furthermore, THE COMPANY may
offer on sale and dispose of any excess of electric energy
not utilized by it, making it accessible for the price that
the parties may agree upon, to the Institute of Hydraulic
and Electrification Resources (I.R.H.E.) or, at a reasonable
price, to the public consumer or other producers or
distributors of electric energy when THE STATE is not
capable or able to offer or distribute it.
It is understood that THE COMPANY may waive, totally or
partially, the concession herein granted, but in any event,
will maintain the right to produce electric energy that it
may need in connection with the activities contemplated in
the present contract or in the development thereof,
including the gratuitous use of water for these activities.
SIXTH: THE COMPANY may operate and establish the
installations and systems of communication that may be
required in the implementation of this contract, which will
be approved through the official corresponding entity.
SEVENTH: THE STATE grants THE COMPANY the right to operate
the plants, infrastructure and other installations that it
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presently uses for the supply of water and for irrigation,
and that which may be needed in the future for its
operations, including the gratuitous extraction of water for
its activities. THE COMPANY may offer on sale and dispose
of any excess of water, making it accessible, for the price
the parties may agree upon, to THE STATE, through the
National Institute of Aqueducts and Sewers (I.D.A.A.N.) or,
at a reasonable price, to the consumer public or any other
producer or distributor when THE STATE is not capable of
disposing or offer or distribute it.
During the term of the present contract and without having
to amend it, THE COMPANY may, prior notice to THE STATE,
transfer totally or partially, to a new entity in which THE
COMPANY may or may not have participation, the concession
granted in the present clause. In this case, THE STATE
acknowledges THE COMPANY the right to negotiate with the new
entity, prior to the transfer of the concession, dispose of
its assets in connection with the generation, distribution
and collection for the water supply, as well as to agree on
preferential tariffs. The tariffs to be collected will be
agreed upon between the new entity and THE STATE through a
state agency in charge of public services. The new entity
and THE COMPANY may agree on special tariffs as preferential
client.
EIGHTH: 1. THE STATE grants THE COMPANY continuous and
apparent easements on state lands and acknowledges that
continuous and apparent easements on lands of third parties
where the assets of THE COMPANY are located, as for example,
drainage and irrigation channels, roads, railroads, fresh
water lines, water served, electrical wiring, communication
systems, etc., and that appear in the blueprints marked as
Annexes C, which the parties sign in two (2) counterparts of
the same value and effect forming an integral part of this
contract.
2. THE COMPANY acknowledges as easements of public use, the
roads that appear in the blueprints marked as Annexes D,
which the parties sign in two (2) counterparts of the same
value and effect, forming an integral part of this contract;
and acknowledges as easements for the use on the part of
other banana producers, the drainage that appears in the
blueprints marked as Annexes E, which are signed by the
parties in two (2) counterparts of the same value and
effect, forming an integral part of this contract. THE
COMPANY may regulate the use of the easements above-
mentioned so as to avoid damages to the plantations and/or
any of its assets.
THE STATE authorizes THE COMPANY to negotiate with the users
or beneficiaries the cost of maintenance and/or repairs of
the easements used and referred to in the Annexes referred
to in this section.
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3. THE STATE will see to the integrity of the hydrographic
drainage areas to guarantee the permanent and continuous
supply of water that may be required presently or in the
future, for the development of the banana activity in the
areas of Baru and Alanje.
NINTH: In its employer worker labor relations with respect
to the operations undertaken in the country, THE COMPANY
will continue to be governed by the labor legislation in
force in the Republic of Panama and by the collective
contracts or individual labor contracts that it may agree to
with its workers, pursuant to said legislation.
THE COMPANY, and Puerto Armuelles Fruit Co., ltd.
guarantee that, in the event of the restructuring authorized
in clause TWENTY NINTH would occur, the latter will assume,
pursuant to the labor legislation then in force, the labor
liabilities of the Division of Puerto Armuelles, thus
becoming, at the respective legal moment, in the sole
employer, obligating itself before the total number of
workers of said division, without solution of continuity, to
all the respective individual labor contracts or collective
contracts other agreements in force at the moment the
restructuring occurs.
TENTH: In order to carry out its activities, THE COMPANY may
bring to the country foreign specialized personnel or
specialized training that it may need, complying with the
formalities of migration. The migration authorities will
grant, in an expeditious form, permits for the personnel to
remain in the country with the understanding that said
permit will only be effective while the person is in the
country working for THE COMPANY. The foreigner thus
contracted may start working at the presentation of the
respective application for permit to the Ministry of Labor
and Social Welfare. THE COMPANY will file annually before
the Ministry of Labor and Social Welfare, a report that may
verify the percentage of foreign workers contracted under
this clause.
ELEVENTH: THE COMPANY will continue to present to THE STATE,
the following reports:
a) Weekly reports of fruit shipped which include date of
departure, name of ship, destination, quality of the fruit
and volume of boxes by producer, equivalent in hands, FOB
value, gross weight in pounds, which will be delivered
through the National Banana Direction.
b) Six months reports on cultivated areas, which will
include hectares in maintenance, preparation, hectares
according to varieties, number of employees, which will be
based on field meetings between the division managers and
the technicians of the National Banana Direction.
c) Annual report on the perspective of the activity and
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number of employees that will be filed through the Ministry
of Commerce and Industries with copy to the Ministry of
AgroDevelopment.
THE STATE commits to maintain strict confidentiality with
respect to the information that it may receive from THE
COMPANY, according to this clause, except statistical
information on the industry in general.
TWELFTH: THE COMPANY will be exempted form tributes, taxes
and other encumbrances including the payment of protection
tariffs or another denomination, present or future, that are
listed below:
1. Tributes, taxes and other encumbrances present or
future, of any kind or denomination, that fall on the
import, use, consumption or usage of fuel, as well as those
of any denomination that fall on the importation of
machinery, equipment, replacements, paper, and other items
that may be necessary for the development of the banana and
agroindustrial activities in any of its phases or places of
operation, including those pertaining to the activities
related to transactions with independent banana producers.
The goods exempted from import taxes may be re-exported free
of taxes and without licenses or permits . Said goods may
be sold in Panama always provided the import taxes are paid.
The goods referred to in this norm will not be leased nor
destined to uses different from those for which they were
acquired, without the prior payment of the import taxes,
when applicable. These exemptions shall be processed in the
usual form through the Ministry of the Treasury and the
National Banana Direction. THE COMPANY may sell to third
parties containers or packages manufactured with exempted
items as mentioned in this clause, provided that there is
evidence that these are effectively exported or, in its
absence, the payment is made of the import taxes
corresponding to the value of the imported items.
2. Any type of tribute, tax or encumbrance on banana, agro
or agroindustrial activities of THE COMPANY, in any of its
phases with the exception of those included in this
contract.
3. Tributes, taxes or encumbrances that fall on the
loading and unloading made by any ship that has as principal
cargo products of THE COMPANY or equipment, machinery,
replacements, paper, fuel and other items for its
activities. Excepted are the rates, tariffs, and prices
such as immigration services, sanitary, customs services,
and those of the ports when dealing with wharves not
operated by THE COMPANY.
4. Tributes, taxes, or any other encumbrance for wharfage,
bringing the ship in, tonnage or that fall under the
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mobilization of ships or the utilization of the present
wharves and those to be used in the future by THE COMPANY,
except those provisions of clause THIRD in this contract.
5. Tributes, taxes or any other encumbrances on
production, packaging and transportation of bananas.
6. Any type of tributes or encumbrances on capital, except
licence taxes of general application.
7. Consular fees.
8. Tributes, taxes or any other encumbrance on real estate
and the improvements thereof.
9. Tributes, taxes or any other encumbrance that falls on
the transfer of personal property like equipment, materials,
items on services for the transformation of goods necessary
for the development of the activities of the company.
10. Tributes, taxes or any encumbrance on the sale or
transfer of real property.
11. Tax stamps.
THIRTEENTH: THE COMPANY, may acquire, in the local market,
the goods that it may need for its activites, free of taxes
referred to in sections 1 and 9 of clause TWELFTH of this
contract. For purposes of fiscal control of these
transactions, the procedure contained in Annex A of the
present contract will apply, once signed by both parties,
forming an integral part thereof. The Tax Authorities may
agree with THE COMPANY the actualization and amendments to
Annex A, that may be necessary for a better fiscal
supervision.
FOURTEENTH: THE COMPANY shall be subject to income taxes
pursuant to the rates and provisions of general application
of the fiscal legislation of the Republic of Panama.
FIFTEENTH: THE COMPANY shall enjoy benefits not less and in
the same or similar conditions, to those granted to any
company that is in the production or export of banana
activities in the Republic of Panama.
SIXTEENTH: THE COMPANY will pay as municipal taxes, because
of the activities that undertakes, including the right of
extraction of stone, sand and gravel on national lands, the
sum of THREE HUNDRED TWELVE THOUSAND DOLLARS OF THE UNITED
STATES OF AMERICA (US$312,000.00) per year, to the
Municipality of Baru, in twelve (12) equal installments, at
the latest the last working day of each month. If THE
COMPANY would be assessed with a larger amount by municipal
taxes or if it was assessed with new taxes, the additional
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obligations and those exceeding THREE HUNDRED AND TWELVE
THOUSAND DOLLARS OF THE UNITED STATES OF AMERICA
(US$312,000.00), per year, will be assumed by THE STATE.
With reference to the acquisition of municipal lands whether
by lease, sale, exchange or other form of transmission of
property, this would be subject of negotiations between the
respective municipality and THE COMPANY. Said negotiations
on real property, will be based on reasonable parameters,
similar to those contained in the present contract. For
these purposes, the municipality will request the
corresponding evaluations to the General Comptroller office
of the Republic and the Ministry of the Treasury. THE
COMPANY, on its part, will do the same through its
Department of Engineer or by a contracted entity.
SEVENTEENTH: THE COMPANY will be subject to other taxes,
rights, encumbrances, rates, national contributions, charges
or impositions established, or that would be legally
established, in the future, different to those to which THE
COMPANY enjoys the exemption by virtue of the present
contract, provided they are of general application. It will
not be considered of general application those taxes,
rights, encumbrances, rates, contributions, charges or
impositions that are only applied to an industry or a
determined activity or fall specifically on banana
activities, except the tax on export of bananas, provided
said taxes are applied in a general manner to all those that
are in the banana activity.
EIGHTEENTH: THE COMPANY will be free of any liability with
respect to the default on this contract due to causes of
force majeure or fortuitous circumstance, within or outside
the country, while they are in effect. THE COMPANY will
inform in writing, THE STATE, as soon as possible, the
occurrence of any contingency of force majeure or fortuitous
circumstance. For the purposes of this contract, it will be
considered as force majeure or fortuitous circumstance, any
fact or event on which THE COMPANY cannot exercise a
reasonable control and that would be of the nature that
would delay, restrict or impede the opportune compliance, on
the part of THE COMPANY, of the obligations contracted
pursuant to the present contract, including, but not
limited, to the following events: strikes and other labor
conflicts, wars, revolutions, insurrections, civil
disturbances, blockades, riots, embargoes, fires,
lightnings, failure in the installations or machinery,
epidemics, viruses, fungus, plagues and other diseases,
earthquakes, avalanches, storms, flooding and other factors
of nature and orders, instructions or regulations of any
government.
NINETEENTH: It would be included within the cases of force
majeure or fortuitous circumstances comprised in the
preceding clause, the situations of the market that impede,
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difficult or making it economically onerous the marketing of
the fruit for export or other economic causes that make the
compliance with obligations excessively onerous. Upon the
occurrence of these situations, THE COMPANY will inform in
writing THE STATE, the circumstances thereof and the effect
that it may have had or may have in connection with this
contract. THE STATE will analyze the document presented by
THE COMAPNY and will inform it of its criteria and,
specially, if it is in agreement or not with the position of
THE COMPANY. If THE STATE does not coincide totally or
partially with the position of THE COMPANY, the parties will
examine with the most objective and amicable desire, the
difference arising with the purpose of giving them solution.
If after this exercise some differences still exist, these
will be resolved in accordance with the provisions of clause
TWENTY SEVENTH of the present contact.
TWENTIETH: Even when THE STATE would establish in Panama
exchange controls of foreign currency, THE STATE will
facilitate THE COMPANY, the foreign currency, freely
convertible, in an amount not inferior to what it may need
for the following, independently of the source of the funds
of THE COMPANY:
1. The payment of goods and services acquired abroad for
its operations in Panama.
2. The payment of capital and interest on debt in foreign
currency contracted for its investments or operations in
Panama.
3. Remittance of profits and repatriation of capital.
TWENTY FIRST: With respect to the termination of the lease
contract between THE STATE and THE COMPANY on lands on the
Division of Puerto Armuelles, the parties agree as follows:
A) If it is THE COMPANY the one that decides to
terminate the lease contract or not to agree in any of its
extensions, the following will apply:
1) Once THE COMPANY has notified THE STATE its
intention to terminate the lease contract or not
to extend it, both parties agree in giving its
best efforts during the period of three (3) years
counted from the date of the notice of termination
or not to extend, to find a new operator that may
continue the agroindustrial activities developed
by THE COMPANY, in this division, up to that
moment.
THE COMPANY and the potential new operator may
freely negotiate the prices for the sale, type of
transaction and other conditions related to the
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transfer of the business or the assets owned by
THE COMPANY, including those concessions and other
rights and contractual and/or extra contractual
obligations of THE COMPANY. In the event the
transfer of said operations takes place, THE STATE
will guarantee the new operator, conditions of
operation and lease not less beneficial that those
to which THE COMPANY has the right to under the
present contract and under the lease contract,
agreed upon among the parties and approved on this
date.
2) In the event that the parties do not find a new
operator or that the new operator and THE COMPANY
do not reach an agreement with respect to the
transfer of the business or the assets, the
liquidation of the assets will be carried out in
the following manner.
i) THE COMPANY may remove, transfer or
dispose of its properties as it pleases
and without taking into account tributes
of any kind.
ii) THE STATE will pay THE COMPANY for the
growing crops fifty percent (50%) of the
value of the same determined in
accordance with Annex B of this contract
that once executed by the parties forms
an integral part hereof.
iii) If in a period of three (3) years
counted upon the date of the termination
of this contract or the lease agreement,
THE STATE decides to continue totally or
partially on its own or through another
natural or juridical person, the
agricultural or agroindustrial
operations on the lands where assets of
THE COMPANY are located, or if it
decides, in any form, to transfer or
give in use said lands or parts thereof,
the latter will pay THE COMPANY the
price of the assets that THE COMPANY has
not removed, or its commercial value
pursuant to the definition given in
paragraph G of this clause.
B) If THE STATE who, pursuant to the powers
enumerated in section three (3) of Clause TWENTY EIGHTH,
decides not to agree in any of the possible extensions of
the present contract, the parties agree to proceed in the
following manner:
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1) THE STATE is obligated to buy and THE COMPANY is
obligated to sell the assets owned by it, that it
has decided not to remove, which are located in
the division of Puerto Armuelles.
i) With respect to the growing crops, the
price will be one hundred percent (100%)
of the value established pursuant to
Annex B of this contract that once
executed by the parties forms an
integral part thereof. The total amount
of the payment must be made immediately
at the date of the termination of this
contract.
ii) The price of the remaining assets will
be its commercial value. This value
will be determined on the basis of an
expertise carried out by two experts
appointed by THE STATE and another two
by THE COMPANY. The experts will be
appointed by the parties with at least
three (3) years prior to the date in
which THE COMPANY must abandon the
leased lands.
iii) In the event that these experts would
not agree with respect to the price of
the assets within the term of six (6)
months counted from the date of their
appointment or the time in which they
should be appointed, or in the case that
one of the parties, or both, do not
appoint their experts during the term
previously established, the price will
be determined pursuant to the procedures
established in clause TWENTY SEVENTH of
the present contract. The value
determined by the experts, or by
arbitration, will be paid by THE STATE
to THE COMPANY in four (4) equal
consecutive installments the first of
which of two (2) years prior to the date
in which THE COMPANY must evacuate the
leased lands. Under no circumstance,
THE COMPANY will be required to abandon
the leased properties unless the total
price of all the assets has been paid at
the agreed upon date.
2) THE STATE, by these means, assumes the
obligation to reimburse THE COMPANY the real
amount of the indemnifications incurred by it
with its workers after the notice of
termination has expired. Said obligation
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will be limited to the amount in which the
indemnification exceeds the discounted value
of the reserves in books of THE COMPANY for
indemnifications, including the trust
established pursuant to Law 22 of August 12,
1995.
C) The sale or transfer referred to in this clause
will exclude, in addition to any property THE
COMPANY wishes to retire, cash, bank deposits,
accounts receivables, intangible assets such as
patents, trademarks, commercial trademarks and
commercial licenses, commercial names, commercial
advertising and commercial posters, good will and
any other deferred charge that has not been
expressly assumed by THE STATE.
D) After the notice of termination or the notice of
not to extend, by any of the parties, and up to
the time of termination of the Lease Contract, THE
COMPANY will be only obligated to give the assets,
the basic maintenance for its preservation
pursuant to the agricultural practices of
maintenance of the last three (3) years, and in no
case, will be obligated to make expenses or new
investments of capital, in new properties or those
in existence, whether by force majeure or
fortuitous circumstance or for any other cause.
As an example, it will be understood as
investments or capital expenses on the property in
existence, those related to digging or
reconstruction of drainage, excluding those called
boquetes or boquetones ; reconstruction whether
total or partial or major repairs related to
machinery and equipment; remodeling, alternations
or major repairs related to constructions, cable-
roads and other infrastructure work. THE STATE
will have the right to request of THE COMPANY
works related to machinery, equipment, drainage
and other capital goods, prior agreement with THE
COMPANY on payment of the amounts that the parties
agree for such purposes.
E) If the contract is terminated by default of any of
the parties, once the procedures established in
clauses TWENTY SIXTH AND TWENTY SEVENTH of this
contract have been exhausted, the parties will
proceed pursuant to paragraph A) of this clause if
the default is imputable to THE COMPANY or
pursuant to the provision of paragraph B) if the
default is imputable to THE STATE.
F) The transfer to THE STATE of the assets referred
to in this clause will not be subject to any tax.
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G) For purposes of this clause, it will be understood
by commercial value: the amount of money required
to replace said assets in the same conditions of
operation and in the same place where they are now
located.
TWENTY SECOND: THE STATE and THE COMPANY, agree that
whatever is related to the use of the farms described as
follows, will be ruled under the concept of lease of lands:
Farm number thirty two thousand forty four (34044)
registered at roll thirteen thousand two hundred and eighty
(13280), document five (5), registration one (1), with an
area of three thousand six hundred and ninety nine square
meters twenty six square decimeters ten square centimeters
(3,699.2610 M2);
Farm number thirty two thousand forty three (32043)
registered at roll thirteen thousand two hundred and eighty
(13280), document five (5), registration one (1), with an
area of seven thousand eight hundred and sixty seven square
meters eighty square centimeters (7,867.80 M2);
Farm number thirty two thousand fifty five (32055)
registered at roll thirteen thousand two hundred and ninety
three (13293), document four (4), registration one (1), with
an area of one thousand one hundred and thirty two hectares
plus two thousand eight hundred thirty eight square meters
eight square decimeters (1,132, Has +2,838.08M2);
Farm number thirty two thousand thirty six (32036)
registered at roll thirteen thousand two hundred and seventy
nine (13279), document five (5), registration one (1), with
an area of one hectare plus three thousand five hundred and
ninety four square meters sixteen square decimeters (1 Ha +
3,594.16 M2);
Farm number thirty two thousand sixty three (32063)
registered at roll thirteen thousand three hundred and four
(13304), document seven (7), registration one (1), with an
area of one thousand forty three square meters ninety square
decimeters (1,043.90 M2);
Farm number thirty two thousand thirty seven (32037)
registered at roll thirteen thousand two hundred and seventy
nine (13279), document six (6), registration one (1), with
an area of six hundred sixty square meters thirty square
decimeters (660.30 M2);
Farm number thirty two thousand fifty two (32052)
registered at roll thirteen thousand two hundred and ninety
three (13293), document one (1), registration one (1), with
an area of nine hundred and sixty four square meters eighty
nine square decimeters (964.89 M2);
<PAGE>
Farm number thirty two thousand thirty eight (32038)
registered at roll thirteen thousand two hundred and seventy
nine (13279), document seven (7), registration one (1), with
an area of one thousand three hundred twenty nine square
meters sixty square decimeters (1,329.60 M2);
Farm number thirty two thousand fifty four (32054)
registered at roll thirteen thousand two hundred and ninety
three (13293), document three (3), registration one (1),
with an area of eight hundred seventy six square meters
seventy two square decimeters (876.72 M2);
Farm number thirty two thousand thirty five (32035)
registered at roll thirteen thousand two hundred and seventy
nine (13279), document four (4), registration one (1), with
an area of six thousand six hundred fifty square meters
fifty eight square decimeters (6, 650.58 M2);
Farm number ten thousand seven hundred sixty six
(10766) registered at roll nine hundred sixty four (964),
folio four hundred (400), with an area of seven thousand
four hundred square meters (7,400.00 M2);
Farm number thirty two thousand sixty one (32061)
registered at roll thirteen thousand three hundred and four
(13304), document five (5), registration one (1), with an
area of one hectare plus six hundred eighty three square
meters ninety nine square decimeters eighty square
centimeters (1 Ha +683.9980 M2);
Farm number thirty two thousand eighty five (32085)
registered at roll thirteen thousand three hundred twenty
three (13323), document three (3), registration one (1),
with an area of one hectare plus five hundred fifty eight
square meters thirty six square decimeters twenty square
centimeters (1 Ha +558.3620 M2);
Farm number thirty two thousand eighty six (32086)
registered at roll thirteen thousand three hundred twenty
three (13323), document three (3), registration one (1),
with an area of five hundred forty two square meters nine
square decimeters sixty centimeters (542.0960 M2);
Farm number thirty two thousand fifty eight (32058)
registered at roll thirteen thousand two hundred ninety
three (13293), document six (6), registration one (1), with
an area of twenty two hectares plus two hundred fourteen
square meters eighty nine square decimeters (22 Has +
1,214.89 M2);
Farm number thirty two thousand eighty four (32084)
registered at roll thirteen thousand three hundred twenty
three (13323), document one (1), registration one (1), with
an area of thirty six hectares plus one hundred thirty five
<PAGE>
square meters thirteen square decimeters (36 Has + 135.13
M2);
Farm number thirty two thousand sixty two (32062)
registered at roll thirteen thousand three hundred four
(13304), document six (6), registration one (1), with an
area of two thousand five hundred sixty six square meters
ninety one square decimeters (2,566.91 M2);
Farm number thirty two thousand fifty six (32056)
registered at roll thirteen thousand two hundred ninety
three (13293), document five (5), registration one (1), with
an area of three hundred forty nine hectares plus six
thousand two hundred eighteen square meters forty three
square decimeters (349 Has + 6,218.43 M2);
Farm number thirty two thousand fifty seven (32057)
registered at roll thirteen thousand two hundred ninety
three (13293), document five (5), registration one (1), with
an area of two thousand seven hundred sixty six hectares
plus four thousand six hundred thirty six square meters
ninety six square decimeters (2,766 Has + 4,636.96 M2);
Farm number thirty two thousand fifty three (32053)
registered at roll thirteen thousand two hundred ninety
three (13293), document two (2), registration one (1), with
an area of sixty hectares plus seven thousand seven hundred
fifteen square meters thirty one square decimeters (60 Has +
7,715.31 M2);
Farm number thirty two thousand thirty nine (32039)
registered at roll thirteen thousand two hundred seventy
nine (13279), document eight (8), registration one (1),
with an area of one thousand six hundred sixty five hectares
plus seven thousand three hundred twenty five square meters
forty three square decimeters eighty square centimeters
(1665 Has + 7,325.4380 M2);
Farm number thirty two thousand forty (32040)
registered at roll thirteen thousand two hundred eighty
(13280), document one (1), registration one (1), with an
area of nine hectares plus seven thousand one hundred square
meters (9 Has + 7,100.00 M2);
Farm number thirty two thousand forty one (32041)
registered at roll thirteen thousand two hundred eighty
(13280), document two (2), registration one (1), with an
area of four hectares plus one thousand four hundred ten
square meters twenty square decimeters (4 Has + 1,410.22
M2);
Farm number thirty two thousand forty two (32042)
registered at roll thirteen thousand two hundred eighty
(13280), document three (3), registration one (1), with an
<PAGE>
area of seventeen hectares plus seven thousand five hundred
twelve square meters fifteen square decimeters (17 Has +
7,512.15 M2); all of the Public Registry, Property Section,
Province of Chiriqui.
These lands are not subject to sale to anyone neither now
nor in the future. This limitation will appear at the
margin of said farms in the Public Registry by any of the
parties, serving as a basis for their registration at the
Official Gazette in which the Law that approves this
contract is published.
TWENTY THIRD: The notices and other communications that may
be required pursuant to the provisions of the present
contract shall be, unless the parties agree otherwise, be
made in writing and delivered in person or sent to the
addresses that each party communicates to the other, through
notices in writing with return receipt.
TWENTY FOURTH: With the execution of the present contract,
both parties consider as terminated and definitively
concluded any claim or difference that exist or may exist
with respect to the implementation and compliance of the
contracts that up to now did exist between THE NATION and
THE COMPANY, or in connection with any type of tribute or
any other sum that is deducted from the operations of THE
COMPANY up to the 31st of December of 1996, except those
which each party has accepted to cover. In the event that
processes or procedures exist pending before any judicial or
administrative body of the Republic of Panama, each party
will take the necessary measures to terminate them. This
settlement excepts the tax processes that have been duly
notified to THE COMPANY on August 27, 1997. These cases
will follow their procedural course, being understood that
none of the parties waive their rights to said cases may
have.
TWENTY FIFTH: The present contract will constitute the legal
norm between the parties, and the same will be governed by
the laws that are applicable thereto, presently in force or
that may be in force in the future in the Republic of
Panama, except in the measure that such laws or legal
provisions may be contrary or less beneficial, or
inconsistent or incompatible with this contract, or would
not be of general application.
TWENTY SIXTH: In the event that one of the parties considers
that the other has failed in the compliance of the
obligations arising from the present contract or those
arising from Contract No. 2 of 1976, approved by Law No. 5
of January 7, 1976 and additions and amendments thereof,
will notify this fact to the other party, suggesting the
measures that it considers convenient to cure the default.
Within ninety (90) days following the receipt of the
<PAGE>
corresponding notice, the party thus notified may counter
propose the measures that it considers more adequate. Said
measures will be implemented within the term of thirty (30)
working days counted from the date in which the acceptance
of the counterproposal is communicated, except that both
parties agree on a larger term for reasons of the
circumstances inherent to the activities to be undertaken.
Notwithstanding the above, if any of the parties is not in
agreement that a default has occurred, or in the manner of
curing it, any of the parties may use of the procedure
established in clause TWENTY SEVENTH of this contract, for
the purpose of resolving the respective differences.
TWENTY SEVENTH: The parties declare their firm intention of
examining with the most objective and amicable approach all
the differences that may come up with relation to the
present contract, for the purpose of solving them.
All conflicts that arise in connection with the present
contract and with the Lease Contract No. 2 of 1976, approved
by Law No. 5 of January 7, 1976 and subsequent additions and
amendments, and that may not be solved in the form before
mentioned, must be resolved through arbitration, in
compliance with the rules and procedures of the
Interamerican Arbitration Commission, referred to in the
agreement between the Republic of Panama and the United
States of America on the treatment and protection of
investments, in force on the date of the execution of the
present contract, unless the parties expressly agree at the
moment of submission to arbitration, in accepting the rules
then in force.
There will be subject to arbitration pursuant to the
provisions of this clause the controversies that may arise
between the parties related to the subject, implementation,
execution or the interpretation of this contract and of
Contract No. 2 of 1976, approved by Law No.5 of January 7,
1976 and subsequent additions and admenments , as well as
those related with the compliance or termination thereof.
The arbitration shall be circumscribed to the topic subject
of the controversy and the same, pending its resolution,
will not have the effect of suspending or delaying the
compliance with the obligations arising from the mentioned
contracts, except if force majeure or fortuitous
circumstance would be involved.
TWENTY EIGHTH: 1. INITIAL TERM. The initial term of the
present contract shall be twenty (20) years counted from
the first of January nineteen hundred and ninety eight
(1998).
2. ADVANCED TERMINATION. During the term of this contract
<PAGE>
or its extensions, if THE COMPANY would waive the rest of
the term thereof, it will give THE STATE notice of
termination in writing, but the contract will not be
terminated unless three (3) years have elapsed, counted from
the first of January immediately following the date in which
the notification was made, which will give the economic
reasons that motivate the decision of THE COMPANY.
3. ADDITIONAL EXTENSIONS TO THE INITIAL TERM. Withing the
first nine (9) months of the sixteenth years of the initial
term, any of the parties may notify the other its intention
of not extending the contract. In the event said notice is
not given, the term of the present contract will be extended
for a period of twelve (12) additional and successive years
to the initial term of twenty (20) years. In the event that
the eighth (8) year of the term of the first extension
elapses without notification of termination, the contract
will be newly extended for an additional and successive
period of twelve (12) years. The provision of this clause
with respect to the opportunities of termination and the new
extension during the term of the first extension, will
apply the same way to the second extension and the
subsequent extensions that, consequently, may take place.
The extensions will be considered as agreed by the parties
if ninety (90) calendar days before the finalization of each
anniversary in which an opportunity of extension exists,
neither party has sent the other written notice of
termination of which this clause speaks of.
TWENTY NINTH: For purposes of modernizing the legal and
operative structure under which THE COMPANY has operated in
the country, the parties agree that Chiriqui Land COMPANY
may go through a restructuring so that the total assets and
liabilities corresponding to the Division of Puerto
Armuelles be transferred to its subsidiary Puerto Armuelles
Fruit Co., Ltd. , a commercial COMPANY organized and
existing pursuant to the laws of the Islands of Bermuda,
British Occidental Indies, with principle domicile in the
city of Hamilton, Bermuda Islands and offices in the city of
Panama, Balboa Avenue, Banco Exterior building, twenty first
floor. Said restructuring and consequent transfer of assets
and assumption of liabilities will cost no tax whatsoever in
the Republic of Panama. THE STATE agrees that, as part of
the restructuring described, THE COMPANY may cede the
present contract in favor of the mentioned subsidiary so
that the latter remains its only holder of rights and
obligations before THE STATE.
THIRTIETH: All the sums of money that any of the parties
should or could owe to the other pursuant to the present
contract, will be payable only in dollars, legal currency of
the United States of America. It would be understood that
all the obligations not subject to term or condition in the
present contract will be considered of immediate compliance.
<PAGE>
In this latter case, the obligations shall be fulfilled at
the end of the term of complying with the condition.
THIRTY FIRST: The parties commit to the extension,
subscription and registration required of all the documents
to give validity and efficacy to this contract and to those
that in the future may require for their compliance and,
further, they commit to undertake all efforts necessary in
order to implement the obligations agreed upon therein.
THIRTY SECOND: The tax stamp caused by the present contract
will be SIX THOUSAND FIVE HUNDRED BALBOAS (B/6,500.00).
Furthermore, THE COMPANY shall cancel the sum of NINETY SIX
BALBOAS (B/96.00) in registration rights for the
registration agreed upon in clause TWENTY SECOND above.
THIRTY THIRD: This contract substitutes, in perfect form and
without solution of continuity, Contract No. 3 of January 7,
1976, approved by law No. 5 of the same date, promulgated in
the Official Gazette No. 18.002 of January 8th of the same
year.
THIRTY FOURTH: The present contract will be in force
beginning on the date of the promulgation of the law that
approves it.
In witness whereof, the present contract is signed in two
(2) counterparts of the same value and effect, in the city
of Panama, Republic of Panama, on the 12 day of the month of
September 1997.
FOR THE STATE FOR THE COMPANY
/s/RAUL ARANGO GASTEAZORO /s/MANUEL VIRGILIO AIZPURUA
Minister of Commerce Vice President of Legal
and Industries and Governmental Matters
AUTHENTICATION
/s/ COMPTROLLER GENERAL OF THE REPUBLIC
CONTRACT NO. 133
AMENDMENT AND EXTENSION OF THE LEASE LAND CONTRACT
Between RAUL ARANGO GASTEAZORO, Ministry of Commerce and
Industries, male, Panamanian, of legal age, with personal
identity card
No. 8-68-519, who acts in the name and on behalf of THE
STATE, duly authorized by the Council of the Cabinet, by
Resolution No. 198 of August 27 nineteen ninety seven
hereinafter known as THE STATE, as party of the first part,
and for the other part, MANUEL VIRGILIO AIZPURUA VELASQUEZ,
male, Panamanian, of legal age, with personal identity card
No. 8-94-712, practicing attorney, domiciled in this city,
<PAGE>
acting in the name and representation of CHIRIQUI LAND
COMPANY, a corporation organized pursuant to the laws of the
State of Delaware, United States of America, duly registered
in the Public Registry, Section of Mercantile Persons,
volume 39, folio 466, registration 5345 Bis, the
registration up-to-date under index card No. 018725, roll
000876, image 0075, and CHIQUITA BRANDS INTERNATIONAL, INC.,
previously known as, UNITED BRANDS COMPANY, a corporation
organized pursuant to the laws of the State of New Jersey,
United States of America, and duly authorized to act in the
Republic of Panama, as it appears in volume (751), folio one
hundred fifty four (154), registration one hundred thirty
eight thousand three hundred thirty three (138,333) of the
Public Registry, Section of Mercantile Persons, duly
authorized, according to power of attorney, granted in
Cincinnati, Ohio, on the thirteen (13) of March nineteen
hundred and ninety seven (1997) by the Executive Vice
President of said company, hereinafter known as THE COMPANY,
agree on the present Amendment and Extension of Contract No.
2 of January 7, 1976, approved by Law No. 5 of the same
date, promulgated int he Official Gazette No. 18.002 of
January of the same year, hereinafter the Lease Contract,
pursuant to the following:
FIRST: DECLARATION OF PRINCIPLES. The parties declare that
pursuant to the said contract, THE COMPANY has leased
approximately fifteen thousand seven hundred hectares
(15,700 Has), but at the term of the amendments to this
contract, maintains under lease, lands belonging to THE
STATE with an area of THIRTEEN THOUSAND SIX HUNDRED AND
THIRTY ONE hectares plus NINE THOUSAND TWO HUNDRED AND
TWENTY FIVE square meter THIRTY ONE square decimeters, FIFTY
square centimeters (13,631 Has + 9225.3150 M2). Said lands
are located in the Provinces of Chiriqui and Bocas del Toro,
corresponding to the banana division of Puerto Armuelles
(Province of Chiriqui) six thousand two hundred eighty three
hectares six thousand five hundred square meters with two
hundred and ninety five square decimeters (6,283 Has +
6,500.295 M2), and to the Banana Division of Bocas del Toro
(Province of Bocas del Toro) seven thousand three hundred
forty eight hectares plus two thousand seven hundred twenty
five square meters two square decimeters (7,348 Has +
2,725.02 M2), operated by THE COMPANY.
As a consequence of the negotiation of two operating
contracts, executed on the same date as the present
document, between THE STATE and THE COMPANY, for the purpose
of adapting to the new realities of the market, the parties
agree to carry out the following amendments to the Lease
Contract, extending its terms and amending the amount of the
lease canon as indicated in the following clauses:
SECOND: The present clause sixth of the lease contract is
subrogated and substituted for the following:
<PAGE>
Clause sixth : Two separate canons for the lease of the
lands referred to in this contract are hereby established:
For the lease of the six thousand two hundred eighty three
hectares plus six thousand five hundred square meters with
two hundred and ninety five square decimeters (6,283 Has +
6,500.295 M2) of lands actually in possession of THE COMPANY
at its division of Puerto Armuelles, which are located in
the Province of Chiriqui, THE COMPANY will pay a canon as
follows:
a) For the year nineteen hundred ninety eight (1998), the
yearly canon will be the sum of five hundred ninety three
thousand eight hundred four dollars with ninety three cents
(US$593,804.93);
b) for the year nineteen hundred ninety nine (1999), the
yearly canon will be the sum of five hundred ninety three
thousand eighty hundred four dollars with ninety three cents
(US$593,804.93);
c) for the year two thousand (2000), the yearly canon will
be the sum of six hundred seventy eight thousand six hundred
thirty four with twenty cents (US$678,634.20);
d) for the year two thousand one (2001), the yearly cannon
will the sum of seven hundred and sixty three thousand four
hundred and sixty three dollars with forty eight cents
(US$763,463.48); and
e) for the year of two thousand two (2002) and following
years, the yearly cannon will be the sum of eight hundred
and forty eight thousand two hundred and ninety two dollars
with seventy cents (US$848,292.75).
For the lease of the seven thousand three hundred forty
eight hectares plus two thousand seven hundred square meters
with two square decimeters (7,438 has + 2,725.02 M2) of the
lands actually in possession of THE COMPANY at its division
of Bocas del Toro, which are located in the province of
Bocas del Toro, THE COMPANY will pay a canon as follows:
a) For the year nineteen hundred ninety eight (1998), the
yearly canon will be the sum of six hundred ninety four
thousand four hundred eleven dollars with seventy five cents
(US$694,411.75);
b) for the year nineteen hundred and ninety nine (1999),
the yearly canon will be the sum of six hundred ninety
four thousand four hundred eleven dollars with seventy five
cents (US$694,411.75);
c) for the year two thousand (2000), the yearly canon will
be the sum of seven hundred ninety three thousand six
<PAGE>
hundred thirteen dollars with forty three cents
(US$793,613.43);
d) for the year two thousand one (2001), the yearly canon
will be the sum of eight hundred ninety two thousand eight
hundred fifteen dollars with eleven cents (US$892,815.11);
and
e) for the year two thousand two (2002) and following
years, the yearly canon will be the sum of nine hundred
ninety two thousand eight hundred sixteen dollars with
seventy nine cents (US$992,016.79). Both canons, or those
referring to the lands in possession of THE COMPANY in its
divisions of Puerto Armuelles and Bocas del Toro, will be
payable in four (4) equal installments, by the end of the
quarters at the 31st of March, 30th of June, 30th of
September and 31st of December of each year.
Beginning on the first (1st) of January of the year two
thousand four (2004) both canons will be readjusted each two
(2) years, the basis of which will be the absolute variation
accumulated in the indexes of wholesale prices for
importations compiled by the Comptroller General of the
Republic for the two (2) years that end, for the purposes of
this calculation, on the thirty (30) of September of the
year immediately prior to the moment of readjustment.
Notwithstanding the above, in no case said final adjustments
will increase or diminish the lease canons in force at the
time of the readjustment, in more than four point zero four
percent (4.04%) every two (2) years. For example, for the
effective readjustment beginning the first (1) of January of
the year two thousand four (2004), the absolute variation
accumulated in the indexes of said prices during the period
of two (2) years that run from the first (1) of October of
the year two thousand one (2001) to the thirty (30) of
September to the year two thousand three (2003) will be
considered. This readjustment, if any, would not increase
or diminish the lease canons in more than four point zero
four percent (4.04%).
TRANSITORY PARAGRAPH: It is understood for the purpose of
this Lease Contract that the canon per hectare has been
established on the basis of ONE HUNDRED AND THIRTY FIVE
DOLLARS (US$135.00) per hectare, which results in the amount
of EIGHT HUNDRED AND FORTY EIGHT THOUSAND TWO HUNDRED NINETY
TWO DOLLARS WITH SEVENTY FIVE CENTS (US$848,292.75) AND NINE
HUNDRED AND NINETY TWO AND SIXTEEN THOUSAND DOLLARS WITH
SEVENTY NINE CENTS (US$992,016.79), referred to in sections
e) of this article.
Equally it is understood that the sums established in
sections a) and b) represent seventy percent (70%) of this
total amount; that the sum of section c) represents eighty
percent (80%) of this total amount; and the sum of section
<PAGE>
d) represents ninety percent (90%) of this total amount;
percentages which have been established in order so THE
COMPANY adapts to the new realities of the market referred
to in the DECLARATION OF PRINCIPLES of this Contract and the
necessity of reconversion of THE COMPANY for such effects.
THIRD: The present clause eight of the Lease Contract is
subrogated and substituted for the following:
CLAUSE EIGHTH:
A. Puerto Armuelles.
1. Initial term. For the lands leased in the Division of
Puerto Armuelles, the initial term of the lease will be
twenty (20) years counted from January one nineteen hundred
and ninety eight (1998)
2. Advanced termination. During the term of this contract
or the extensions thereof, if THE COMPANY waives the rest of
the term thereof, it must give written notice of termination
to THE STATE, but the contract will not be considered as
terminated but after three (3) years has elapsed counted
from the first of January immediately following the date in
which the notice has been given, which will contain the
economic reasons that motivate the decision of THE COMPANY.
3. Additional extensions to the initial term. During the
first nine months of the sixteenth year of the initial term,
any of the parties may give notice to the other of its
intention of not extending the contract. In the event said
notice is not given, the term of the present contract will
be extended for a period of twelve (12) additional and
successive years to the initial term of twenty (20) years.
In the event the eight (8) year of the term from the first
extension has elapsed without notification of termination,
the contract will be newly extended for an additional and
successive term of twelve (12) years. The provision of this
clause relating to the opportunities of termination and new
extensions during the term of the first extension will be
applied in the same manner as the second extension and the
subsequent extensions which, in consequence, may be
produced. The extensions will be understood as agreed upon
between the parties if ninety (90) calendar days before the
end of each anniversary in which the opportunity of
extension exists, neither party has sent written notice of
termination to the other as mentioned in this section.
B. Bocas del Toro Division
1. Initial Term. For the lands leased in the Division of
Bocas del Toro, the initial term of the lease will be twenty
(20) years counted from the first of January nineteen ninety
eight (1998).
<PAGE>
2. Advanced Termination. During the term of this contract
or the extensions thereof, if THE COMPANY waives the rest of
the term thereof, it must give written notice of termination
to THE STATE, but the contract will not be considered as
terminated but after three (3) years has elapsed counted
from the first of January immediately following the date in
which the notice has been given, which will contain the
economic reasons that motivate the decision of THE COMPANY.
3. Additional extensions to the initial term. During the
first nine months of the sixteenth year of the initial term,
any of the parties may give notice to the other of its
intention of not extending the contract. In the event said
notice is not given, the term of the present contract will
be extended for a period of twelve (12) additional and
successive years to the initial term of twenty (20) years.
In the event the eight (8) year of the term from the first
extension has elapsed without notification of termination,
the contract will be newly extended for an additional and
successive term of twelve (12) years. The provision of this
clause with respect to the opportunities of termination and
new extensions during the term of the first extension will
be applied in the same manner as the second extension and
the subsequent extensions which, in consequence, may be
produced. The extensions will be understood as agreed upon
between the parties if ninety (90) calendar days before the
ending of each anniversary in which the opportunity of
extension exists, neither party has sent written notice of
termination to the other as mentioned in this section.
FOURTH : All the provisions of clauses first, second, third,
fourth, fifth, seventh, ninth and tenth of the Lease
Contract, are ratified which will have full force and
effect.
FIFTH: The amendments to the Lease Contract herein agreed
upon will be in force on the date of the promulgation of the
present contract.
SIXTH: THE STATE agrees to abstain from transferring or in
any other form dispose of its rights of ownership on the
lands affected by the present contract, while THE COMPANY:
a) does not return them pursuant to clause seventh of the
Lease Contract; b) ends the lease with respect to the
division pursuant to clause eighth of said contract, or c)
previously expressly consents to the transfer or disposal.
SEVENTH: Two clauses are added to the lease contract as
follows:
ELEVENTH: The relation of lease corresponding to the
division of Bocas del Toro may be ceded so that it
constitutes an independent contract in favor of Bocas Fruit
Company Ltd. , a corporation organized and existing pursuant
<PAGE>
to the laws of the Bermuda Islands, with principal domicile
in the city of Hamilton, Bermuda Islands, and offices in the
city of Panama, Balboa Avenue, Banco Exterior Building,
twenty first floor. The lease relationship corresponding to
the division of Puerto Armuelles may be ceded so that it
will constitute an independent contract in favor of Puerto
Armuelles Fruit Co., Ltd. , a corporation organized and
existing pursuant to the laws of Bermuda Islands and offices
in the city of Panama, Balboa Avenue, Banco Exterior
Building, twenty first floor. THE STATE and THE COMPANY
agree that these cessions herein indicated will cause no tax
whatsoever in the Republic of Panama. Once the cessions
herein consented have been perfected and as a direct effect
from it, the mentioned subsidiaries will substitute THE
COMPANY as sole and independent holders among themselves,
from the two contractual lease relations that are created
between THE STATE and THE COMPANY pursuant to the present
contract.
TWELFTH: All the amounts that any of the parties owed or
may owe the other party pursuant to the present contract
will be solely paid in dollars, currency of the United
States of America. All the obligations not subject to
term or conditions in the present contract will be
considered as of immediate compliance. In this latter case,
the obligations will be complied with at the end of the term
or the condition is met.
EIGHTH: This contract will cause stamp taxes for the amount
of SIXTEEN THOUSAND FIFTY NINE BALBOAS (B/16,059.00).
NINTH: The notarial and registration fees that may arise
from this contract will be for the account of THE COMPANY.
TENTH: The present contract will be in force from the day of
its promulgation.
In witness whereof the present contract is signed in two (2)
counterparts of the same value and effect, in the city of
Panama, Republic of Panama, on the 12th day of the month of
September 1997.
FOR THE STATE FOR THE COMPANY
/s/RAUL ARANGO GASTEAZORO /s/MANUEL VIRGILIO AIZPURUA
Minister of Commerce Vice President of Legal
and Industries and Governmental Matters
AUTHENTICATION
/s/COMPTROLLER GENERAL OF THE REPUBLIC
ARTICLE SECOND: The terms of implementation and
<PAGE>
interpretation of certain clauses, conditions and
regulations of the contract executed by THE STATE and
CHIRIQUI LAND COMPANY, such as they were agreed upon by the
parties, are approved as follows:
The parties, RAUL ARANGO GASTEAZORO, Ministry of Commerce
and Industries, male, Panamanian, of legal age, with
personal identity card No. 8-68-519, who acts in the name
and on behalf of THE STATE, duly authorized by the Council
of the Cabinet, through Resolution No. 4 of January 16, 1998
hereinafter known as THE STATE, as party of the first part,
and for the other part, MANUEL VIRGILIO AIZPURUA VELASQUEZ,
male, Panamanian, of legal age, with personal identity card
No. 8-94-712, practicing attorney, domiciled in this city,
acting in the name and in representation of the company
named CHIRIQUI LAND COMPANY, a corporation organized
pursuant to the laws of the State of Delaware, United States
of America, duly registered in the Public Registry, at
volume 39, folio 466, registration 5345, the registration
up-to-date under index card No. 018725, roll 000876, image
0075, and duly authorized, pursuant to a power of attorney
granted in Cincinnati, Ohio on the thirteen (13) day of
March nineteen ninety seven (1997) by the Executive Vice
President of said company, hereinafter called THE COMPANY,
agreed on the following terms of implementation and
interpretation of some of the clauses, conditions and
regulations of the Contracts entered into among them:
FIRST. ON THE IMPLEMENTATION OF THE CONTRACTS IN SOME
ASPECTS IN MATTERS OF LANDS.
For all legal purposes the parties agree that the clauses
related to certain aspects of lands contained in the
Contracts of Operations, must be understood and applied as
follows:
1. THE LANDS OF THE AREA KNOWN AS COCHICA IN THE DISTRICT
OF BARU, FARM 32056, ROLL 13293, DOCUMENT 5, REGISTRATION 1:
On this topic it was agreed that THE COMPANY will release,
at the beginning of the term of the new contracts, the most
part of said lands, excluding the parts where THE COMPANY
has cultivations that have been defined between the latter
and MIDA (areas of experimentation and dumping).
Furthermore, a piece of land of 50 meters will be
established and recognized along the area described as
security; acknowledging within this land only rights of use
of the parcels of lands which, at December of 1997, were
occupied by squatters listed that will be submitted to MIDA.
In addition, THE COMPANY will remove the cables and
installations of an area known as Los Cables , which has
been determined in blueprints prepared by MIDA and THE
COMPANY. MIDA and THE COMPANY will enter into an agreement
to that respect, in which the easements that it may need for
its operations will be respected and the occupants at
<PAGE>
December of 1997 will be listed.
2. THE BUILDINGS ON THE EASEMENT LESS THAN 10 METERS OF THE
RAILROAD LINE:
It has been agreed that THE COMPANY will not object to the
respective buildings that may exist already built within
this easement at December 1997. It is understood that, in
the case of railroad disasters, THE COMPANY will not assume
any responsibility. Within the months following the date in
which the new contracts are totally and definitively
approved and are in force, MIDA, the respective
municipalities and THE COMPANY will establish the list of
building and their owners that are within the definition in
this point (easement of 10 meters). The occupants will be
responsible for damages caused by them or their dependents
to installations that are within this easement, such as
electrical wiring, water pipes, fresh water, fuel and
others, since THE COMPANY will not assume responsibility at
all for any damages caused.
3. THE HOUSES SOLD BY THE COMPANY WITHIN THE EASEMENT OF 10
METERS, WITHIN THE MUNICIPALITY COMMON LANDS AND IN OTHER
AREAS LEASED BY THE STATE TO THE COMPANY:
It has been agreed that at the time these contracts become
effective, THE COMPANY will release the areas where the
respective buildings are located, referred to in this point,
in favor of the corresponding entity who owns the same,
whether it is the municipality of Baru, the municipality of
Changuinola, MIDA or the Nation. In the adjudication of
those lands, the state agencies will respect the easements
necessary for the operation of THE COMPANY. These agencies
will determine, independently of THE COMPANY and through the
corresponding legal mechanisms, the respective value of the
pieces of land to be adjudicated to these persons.
4. LANDS UNDER LEASE ON WHICH INSTALLATIONS, CULTIVATIONS
AND ASSETS OF THE COMPANY ARE LOCATED AT A LATER DATE THE
CONTRACTS OF 1976 WERE TRANSFERRED BY PUBLIC DEED TO THE
RESPECTIVE MUNICIPALITIES OF BARU AND CHANGUINOLA, AS
MUNICIPAL COMMON LANDS:
With respect to this topic, the same municipalities and THE
COMPANY will enter into the corresponding agreement under
the parameters established in Clause Sixteenth of the
Contract of Operations presently submitted to the
consideration of the Honorable Legislative Assembly.
5. CULTIVATIONS IN THE ZONE OF MALAGUETO AND CEIBA, FARM
32055, ROLL 13293, DOCUMENT 4, REGISTRATION 1:
With respect to the lands occupied by the banana producers
in the area of Malagueto and Ceiba, which are located within
<PAGE>
the areas leased by THE STATE to THE COMPANY, the Ministry
of Agricultural Development and THE COMPANY agree as
follows:
I. THE COMPANY will release in favor of MIDA, a portion of
said lands planted with bananas the general boundaries of
which are the following:
NORTH: a line that will run parallel, twenty meters to the
south of the second irrigation pipe (the one most to the
south), that goes across the area: SOUTH: the channel of
black waters that runs from West to East and goes to the
Colorado canal; EAST: The Colorado Canal and WEST: Ceiba
farm.
The MIDA and THE COMPANY will measure this area and will
demark it with exactitude by permanent points of reference
on the field. THE COMPANY will have the right, within the
area, to release ports, to establish drain channels towards
the channel of black waters in order to prevent the deposit
of black waters, irrigation, rain, etc., along the distinct
works of infrastructure there existing, such as Malagueto
dump, the stationing of containers and other quadrants.
These tracts or drainage channels shall be defined by
agreement between THE COMPANY and the technicians of MIDA
with the participation of
SITRACHILCO- Puerto Armuelles, trying to minimize the damage
to the banana fields. Furthermore, THE COMPANY will keep
access to the channel of black waters to the Colorado Canal
and to the other works of infrastructure owned by it, in
order to give adequate maintenance, including digging in the
case of channels, for which the corresponding wall zone will
be designated in agreement with MIDA and
SITRACHILCO-Puerto Armuelles. It will also include areas
around the diesel tanks for reasons of security (contention
pool) and other areas such as the present location of
containers and the area of shops.
II. Within the area that THE COMPANY will keep, the latter
will continue to permit the persons that presently occupy
them with banana cultivations, only in the following areas
and conditions:
A. AREAS:
1. Within an extension of five meters wide that will run
from East to West parallel and adjacent to the North
boundary of the area to be released.
2. A piece of land of approximately of 2.5 hectares located
between the house or warehouse of maintenance of tracts up
to Ceiba Farm.
3. 2. A piece of land of approximately one hectare located
<PAGE>
across the dump of Malagueto next to the irrigation pumps 4-
05 and 4-20.
B. CONDITIONS
1. The areas described will be measured and marked with road
marks or another similar method by MIDA, in such a manner
that the limits of the lands of THE COMPANY will be clearly
marked, where cultivation will be permitted and the name of
the farmers that are located therein, with the understanding
that their rights of use will not be transferable to third
parties.
2. THE COMPANY will have free and expedite access to such
areas in order to give maintenance to the infrastructure
works located therein, which access will be along said
areas. In the event that, in the functions of maintenance,
THE COMPANY causes damages to the banana plantations, they
will not be subject to indemnification. In order to
minimize said potential damages, THE COMPANY will give
notice to the farmers affected, except in the case of
urgency. In case the farmer cannot be located, the notice
can be delivered at the respective City Hall.
3. In the event THE COMPANY should decide to occupy totally
or partially the areas described in which the cultivation of
bananas will be permitted, the latter will be obligated to
indemnify the farmers authorized in the sum that will be
determined through evaluation carried out by THE COMPANY,
MIDA and SITRACHILCO-Puerto Armuelles in the understanding
that it will not pay the farmers, as indemnification, a sum
superior to the cost of production of bananas at that
moment.
III. With the exception of the indicated areas in Point II
above, the rest of the area that THE COMPANY will keep as
leased, will be left free from the part that is cultivated.
For such purposes, said agricultural workers will have a
term in order to collect their crops which will conclude
January 31, 1999. THE COMPANY will have the same term in
order to release the lands indicated in Point I above.
Notwithstanding the above, in the event that the areas that
THE COMPANY will keep, the cultivations cease and the
release thereof occurs before January 31, 1999, THE COMPANY
will release, in favor of MIDA, a proportion equivalent to
the lands not occupied.
6. LEASE OF LANDS.
THE STATE and THE COMPANY agree that the matter connected
with the use of the farms described in clause twenty second
of the contract of operations, will be ruled under the
concept of leased lands.
<PAGE>
SECOND. On the application of the contract in matter of
easement.
In this aspect, clause eighth of the Contract of Operations
contained in this Law, the parties agree will be applied as
follows:
1. PUBLIC EASEMENTS
In addition to the public easements described in the
Contract of Operations of Bocas del Toro, THE COMPANY will
continue permitting the free and continuous transit of
persons on the secondary roads and roads of cable ways
within the plantations of Bocas del Toro, on the date the
contracts becoming in force, are utilized by persons that
live or have cultivations in the limits of the plantations.
THE COMPANY will adopt the necessary controls to avoid
damages to the plantations, properties, equipment and any
other asset of the company, that would not interfere in the
normal development of the banana activity.
2. ROADS:
1. At the entrance of Malagueto and Palmito the control
will be carried out through gates with security guards, so
as to verify the transit of vehicles. This refers to the
road that starts in Malagueto passing through Ceiba,
Corredor, Blanco, Zapatero-Higueron, Caoba09, to finish in
Palmito
Signs will be placed that will indicate the dimensions,
weight and speed of the vehicles the passage of which is
permitted in the places where they are necessary.
II. The roads that will be used by private and collective
transportation of passengers within the farms are described,
with the type of units that are presently used thereon, in
the same conditions on this date circulate:
a) Coming in by Palo Blanco Farm, Section 35, up to the
central road (going through the railroad line) Section 26 of
Nispero Farm. The control will be through clamps.
b) Central corridor, La Kuzuca de Corredor (Section 25) from
here to Section 5 all of Higuito Farm, passing in front of
the Majagua Packing Plant up to section 8 of Majagua Farm.
c) From Section 22 of the Mango Farm to the Jocote Packing
Plant.
III. On the following roads:
a) From Section 25 to 6 and 4 of Palo Blanco Farm will be
maintained the same.
<PAGE>
b) From Section 23 (Guayacan Farm) to the end of the Nispero
Project the clamp will be moved to install it at this point.
In this stretch a transit for collective transportation of
passengers could be accessible up to the measure (height) of
the limitations found on the road.
c) From Section 32 of Farm Malagueto up to Section 14 of
Jocote Farm, in this span the transit of collective
transportation of passengers will be accessible up to the
measure (height) of the limitation found on the road.
IV. Zapatero-Burica road , the present clamp will be
maintained and a movable arm will be added to the present
clamp.
V. The clamps that remain will be adjusted in height to
that of Malagueto.
VI. Use of Paths and Roads.
The use of paths and roads of THE COMPANY will be made
without causing damages to the properties, fruit trees and
assets thereof.
THIRD. On the application of the contracts in matters of
water takes.
With respect to clause seventh of the Contract of Operations
contained in this Law, the parties agree that, with
reference to the Almendro Aqueduct, the following will
apply:
ALMENDRO AQUEDUCT:
With respect to this area stated as Farm No. 32042, roll
13280, document 3, registration 1, with an area of seventeen
(17) hectares plus 7,512.15 M2, property section of the
province of Chiriqui, will remain as a hydraulic reserve,
the area of which will not be transferred, with the
exception of the sector of thirteen families that bought
homes from THE COMPANY.
In this farm, THE COMPANY will have a water easement, that
is regulated by INRENARE.
FOURTH. On the application of the contract in matters of
environmental and phitosanitary protection.
For all legal effects, the parties agree that in matters of
environmental and phitosanitary protection THE COMPANY, the
same as all of farmers of the country, will be ruled, in
this aspect, by the laws and regulations that govern this
mater.
FIFTH. Interpretation of some clauses, conditions, terms
and regulations in the text of the Contracts of Operations
entered into between THE STATE and THE COMPANY, for the
divisions of Puerto Armuelles and Bocas del Toro.
<PAGE>
On these aspects the parties agree the following:
With the purpose of attending to the exposition presented on
labor matters by the Labor Unions of THE COMPANY, Divisions
of Puerto Armuelles and Bocas del Toro, on the 25 of
November of 1997 and January 7, 1998, respectively, in
connection with Contracts of Operations entered into between
THE STATE and THE COMPANY for the Divisions of Puerto
Armuelles and Bocas del Toro, representatives of the
Negotiating Commission met with representatives of each one
of said social organizations and, as a consequence thereof,
the parties have agreed in connection with these contract to
be understood as follows:
None of the clauses of these contracts affect the labor
relations existing between THE COMPANY and its workers,
since all reference to this aspect will continue to be ruled
by the labor legislation in force in the Republic of Panama
and the collective contracts individual labor contracts or
other labor arrangements that it may agree with its workers
in accordance with said legislation, as it has been agreed
upon in clause ninth of the contracts. Pursuant to the
above enunciated principle, the following is stated:
1. The phrase without solution of continuity that appears
in the second paragraph of clause ninth of the contracts of
operations, signifies for the parties: without interruption
of the individual labor contracts or the collective
contracts or other labor agreements in force at the time
the authorized restructuring takes place.
2. The situation of the workers, in case of waiver or
transfer of the concession for the use of the wharf referred
to in clause third of the contracts or the railroad
concession referred to in clause fourth therein, will be
ruled by the labor legislation in force in the Republic of
Panama.
The same criteria will apply to the case of transfer of
other concessions agreed in those contracts, like electric
energy and water in the sense that the labor aspects will be
ruled by the provision of the labor legislation in force in
the Republic of Panama.
3. The events of force majeure and fortuitous circumstance
as referred to in clauses eighteenth and nineteenth of the
contract of operations are applicable only and specifically
between the parties of the contracts, that is, THE STATE and
THE COMPANY.
4. With respect to the future labor relations between THE
COMPANY and its Union and the workers, if the restructuring
occurs referred to in clause nineteenth of the contracts,
the parties clarify that, in such case, the labor situations
<PAGE>
will be ruled by the provision of the labor legislation in
force in the Republic of Panama, the individual labor
contracts and the collective agreements or other labor
agreements, as the case may be.
5. In connection with the contracting of foreign
specialized personnel, the Ministry of Labor will adopt the
internal necessary measures in order to obtain the
corresponding work permit in an expedite manner without
affecting the percentages established by articles 17 and 18
of the Labor Code.
SIXTH. On the validity and efficacy of the agreements that
are incorporated to the original text by the contracting
parties.
It is understood that the agreements established in the
previous articles will be subject, with respect to its
validity and efficacy, to the contracts between THE COMPANY
and THE STATE becoming in force contained in Bill No. 53.
In witness whereof, the present Agreement is entered into in
two (2) counterparts of the same value and effect, in the
city of Panama, Republic of Panama, on the 16th day of the
month of January 1998.
FOR THE STATE FOR THE COMPANY
/s/RAUL ARANGO GASTEAZORO /s/ MANUEL VIRGILIO AIZPURUA
Minister of Commerce and Vice President
Industries of Legal and Governmental Matters
AUTHENTICATION
/s/GENERAL COMPTROLLER OF THE REPUBLIC
ARTICLE THIRD: In order to strengthen the production,
marketing and industrialization of bananas, the benefits to
which THE COMPANY has the right pursuant to the contracts of
operations approved by this Law, with the exception of the
public concessions such as ports, railroads, fresh water,
electric energy, may be extensive and acknowledged to other
natural or juridical persons without the execution of
contracts, provided always, that the interested party
maintains or undertakes investments in the country, and the
same are destined or dedicated to the objectives that this
provision contains.
For such effects, the Ministry of Commerce and Industries,
<PAGE>
prior consultation with the National Banana Commission, will
take into consideration the magnitude of such investments as
well as any other technical or economic parameter
contemplated in legal provisions in force, that regulate
these activities, or that are intrinsic to the nature of
production, marketing of fresh Panamanian bananas for export
or industrialization, such as aptitude and feasibility of
lands, economic feasibility of the project, number of direct
jobs created by the plantation, for the reasonability and
proportionality of the obligations and commitments that the
interested parties must assume and the maintenance in time,
as well as the correlative benefits, to which it may have
the right to.
The Executive Branch will regulate this provision.
ARTICLE FOURTH: This Law will be in force beginning on the
promulgation thereof.
BE IT PUBLISHED AND COMPLIED WITH.
Approved in third debate, at the Justo Arosemena Palace,
city of Panama, on the 22nd day of the month of January
nineteen ninety eight.
Approved in third debate, at the Justo Arosemena Palace,
city of Panama, on the 22nd day of the month of January
nineteen ninety eight.
/s/GERARDO GONZALEZ VERNAZA /s/JOSE DIDIMO ESCOBAR
President General Secretary (a.i.)
NATIONAL EXECUTIVE BRANCH- PRESIDENCY OF THE REPUBLIC
PANAMA, REPUBLIC OF PANAMA, JANUARY 12, 1998
/s/ERNESTO PEREZ BALLADARES /s/RAUL ARANGO GASTEAZORO
President of the Republic Ministry of Commerce and
Industries
ANNEX A TO THE CONTRACT OF OPERATIONS BETWEEN THE STATE
AND CHIRIQUI LAND COMPANY FOR THE DIVISION OF PUERTO
ARMUELLES.
PROCEDURE FOR THE APPLICATION OF CLAUSE THIRTEENTH OF THE
CONTRACT OF OPERATIONS ENTERED INTO BETWEEN THE STATE AND
CHIRIQUI LAND COMPANY FOR THE DIVISION OF BOCAS DEL TORO.
FIRST: For the purposes of acknowledgment of the exemption
of taxes for the transfer of personal property (I.T.B.M.)
and the tributes, taxes and other encumbrances related to
the import as a consequence thereof, THE COMPANY will
<PAGE>
present to the Income Tax Direction General a list of not
more than fifty (50) suppliers which will contain the
following information:
a) name or corporate name of the supplier,
b) R.U.C. number of the supplier, and any other data for
the pertinent identification,
c) document subscribed by the supplier or the legal
representative thereof indicating acknowledgment of the
present Annex and the contract entered into between THE
STATE and THE COMPANY and that it obligates itself to comply
with all the obligations that result therefrom, plus the
fiscal corresponding duties and obligations.
This list may be amended, (added to or reduced) by THE
COMPANY from time to time, in accordance with the
necessities of supply, provided it does not exceed fifty
(50) suppliers.
SECOND: THE COMPANY will establish special number or code
for each one of the suppliers that will be of the exclusive
use and confidential of THE COMPANY and of the Income
Direction General for the control of the orders or local
acquisitions, the purpose of which is the corresponding
verification in the cross of information.
THIRD: On each operation, THE COMPANY will issue to the
supplier the respective requisition or request of the goods
or services that it wishes to acquire.
FOURTH: THE COMPANY will prepare and present monthly to the
Income Direction General in the city of Panama, a report of
purchases and local acquisition of goods or services
including, at least, the following data: 1) corporate name
of the supplier, 2) R.U.C. of the supplier, 3) amount of the
requisition issued to each supplier, 4) amount of the
requisitions handled and accepted by the supplier, 5) amount
of each one of the acquisitions perfected, 6) amount of each
exempted tribute regarding the transactions undertaken.
FIFTH: THE COMPANY and the suppliers will keep in their
files copy of this report and of the transactions carried
out under the procedure established in this Annex.
SIXTH: THE COMPANY and the suppliers will keep separate
registries of the acquisitions and sale of goods and
services carried out pursuant to this procedure for purposes
of permitting the corresponding fiscalization.
SEVENTH: The suppliers duly accredited shall, at the moment
of issuing the corresponding bill of sale, leave evidence of
said document, in addition to the requirements established
in the pertinent provisions of the Fiscal Code, the amount
of each tribute, tax or other encumbrances related to the
<PAGE>
importation or as a consequence thereof, and if that was the
case, the respective customs document.
EIGHTH: The suppliers will apply the corresponding credit
arising from the transfer of goods and services to THE
COMPANY pursuant to the legal norms in force on the
application of credits under this taxing concept.
NINTH: With respect to the credits arising from the
exemption of the tributes, taxes and other encumbrances
related to the importation, or as consequence thereof, the
suppliers must request from the Income Direction General
their acknowledgment so that, once is approved, will be use
in future imports. This request must be resolved by the
Income Direction General within a period of one (1) month
counted from the date of its presentation.
TENTH: The suppliers will keep in their files, at the
disposal of the Income Direction General, all the
registration and documentation related to these exempted
operations, in separate forms and duly supported by the
requisitions or requests for the purchase of goods and
services exempted and copy of the corresponding bill of
sale.
ELEVENTH: The Income General Direction may, at any moment,
cross the information that THE COMPANY may supply with the
information maintained by the suppliers and with any other
pertinent information, in order to facilitate the functions
of the corresponding fiscalization.
TWELFTH: In the event of default in the duties and
corresponding fiscal obligations, the legal provisions in
force on the matter at the time may be applied.
THIRTEENTH: The contracts of THE COMPANY may make use of
this procedure when they are undertaking works or providing
services in benefit of the latter. For these effects, THE
COMPANY will present information to the Income Direction
General on who are the contractors, the date of
identification and R.U.C. corresponding thereto, the type of
works to undertake or services to be rendered and the
estimated duration of the same. These contractors will
acknowledge, in document duly executed by them, or their
legal representative, the Contract of Operations between THE
STATE and THE COMPANY and of the present Annex, obligating
itself to assume the same responsibilities and obligations
assumed by THE COMPANY. These contractors will only be able
to provide goods and services exempted, from the suppliers
included in the list referred to in article first of the
present Annex.
FOURTEENTH: This Annex could be modified from time to time
by a mutual agreement between the Income Direction General
<PAGE>
and THE COMPANY in order to facilitate the transactions
exempted and, principally, to adequate it to any mechanism
of control that may require to be updated.
Signed:/s/Mr. RAUL ARANGO GASTEAZORO
------------------------------
FOR THE STATE
Signed:/s/MANUEL VIRGILIO AIZPURUA VELASQUEZ
-------------------------------------
FOR THE COMPANY
ANNEX B TO THE CONTRACT OF OPERATIONS BETWEEN THE STATE
AND CHIRIQUI LAND COMPANY FOR THE DIVISION OF PUERTO
ARMUELLES.
The price of the growing crops referred to in Clause
Twenty First of this contract will be determined according
to accounting norms applied by CHIQUITA BRANDS
INTERNATIONAL, INC. , home office, at the execution of this
contract, for the determination of the value of the
inventory of the growing crop. In synthesis, that value is
equal to 60% of all the costs imputable to the growing crops
during twelve (12) months, without including the investments
in plantings nor the costs of the operation of harvest and
of subsequent phases thereof.
The costs of twelve (12) months are used to eliminate
the effect of the seasonable variations and they are
multiplied by 0.6 (60%) to consider the average duration
(7.2 months) of the stem to grow and be harvested (7.2
divided between 12 equal 0.6 percent).
The costs imputable to the growing harvest, according
to the accounting norms before mentioned, include, according
to the terminology employed by THE COMPANY:
a) Variable acre, b) Administration of farms, c)
Depreciation of farms, d) a portion of the fixed costs, and
e) the portion of the loss of property.
The portions of the fixed costs and the loss of
property are determined on the basis of the proportion of
salaries of variable acre with respect to the total of
salaries of variable acre and variable volume paid by THE
COMPANY. In summary, to determine the value of the growing
crop, the following percentages will be taken into account
of the respective costs:
CONCEPT PERCENTAGE OF COST
<PAGE>
Variable Acre 100
CONCEPT PERCENTAGE OF COST
Cost of administration of the farms 100
Cost of depreciation of farms 100
Cost of packing operations 0
Cost of deprecation of packing plants 0
Cost of quality control 0
All the other fixed costs m
Property Losses m
where m = Salaries per variable acre x100
Salaries per variable acre + Salaries and
variable volume
The sum of the costs thus obtained in the period of
twelve (12) months is the total cost imputable to the
growing crop that is multiplied by 0.60 gives a result of
the value of the growing crop at a given date.
Signed:/s/Mr. RAUL ARANGO GASTEAZORO
------------------------------
FOR THE STATE
Signed:/s/MANUEL VIRGILIO AIZPURUA VELASQUEZ
-------------------------------------
FOR THE COMPANY
[Attached to the signed documents are 13 maps illustrating
the easements of the farms discussed in this Annex B for the
Division of Puerto Armuelles.]
ANNEX A TO THE CONTRACT OF OPERATIONS BETWEEN THE STATE
AND CHIRIQUI LAND COMPANY FOR THE DIVISION OF BOCAS DEL
TORO.
PROCEDURE FOR THE APPLICATION OF CLAUSE THIRTEENTH OF THE
CONTRACT OF OPERATIONS ENTERED INTO BETWEEN THE STATE AND
CHIRIQUI LAND COMPANY FOR THE DIVISION OF BOCAS DEL TORO.
FIRST: For the purposes of acknowledgment of the exemption
of taxes for the transfer of personal property (I.T.B.M.)
and the tributes, taxes and other encumbrances related to
the import as a consequence thereof, THE COMPANY will
present to the Income Tax Direction General a list of not
more than fifty (50) suppliers which will contain the
following information:
a) name or corporate name of the supplier,
b) R.U.C. number of the supplier, and any other data for
the pertinent identification,
c) document subscribed by the supplier or the legal
representative thereof indicating acknowledgment of the
present Annex and the contract entered into between THE
<PAGE>
STATE and THE COMPANY and that it obligates itself to comply
with all the obligations that result therefrom, plus the
fiscal corresponding duties and obligations.
This list may be amended, (added to or reduced) by THE
COMPANY from time to time, in accordance with the
necessities of supply, provided it does not exceed fifty
(50) suppliers.
SECOND: THE COMPANY will establish special number or code
for each one of the suppliers that will be of the exclusive
use and confidential of THE COMPANY and of the Income
Direction General for the control of the orders or local
acquisitions, the purpose of which is the corresponding
verification in the cross of information.
THIRD: On each operation, THE COMPANY will issue to the
supplier the respective requisition or request of the goods
or services that it wishes to acquire.
FOURTH: THE COMPANY will prepare and present monthly to the
Income Direction General in the city of Panama, a report of
purchases and local acquisition of goods or services
including, at least, the following data: 1) corporate name
of the supplier, 2) R.U.C. of the supplier, 3) amount of the
requisition issued to each supplier, 4) amount of the
requisitions handled and accepted by the supplier, 5) amount
of each one of the acquisitions perfected, 6) amount of each
exempted tribute regarding the transactions undertaken.
FIFTH: THE COMPANY and the suppliers will keep in their
files copy of this report and of the transactions carried
out under the procedure established in this Annex.
SIXTH: THE COMPANY and the suppliers will keep separate
registries of the acquisitions and sale of goods and
services carried out pursuant to this procedure for purposes
of permitting the corresponding fiscalization.
SEVENTH: The suppliers duly accredited shall, at the moment
of issuing the corresponding bill of sale, leave evidence of
said document, in addition to the requirements established
in the pertinent provisions of the Fiscal Code, the amount
of each tribute, tax or other encumbrances related to the
importation or as a consequence thereof, and if that was the
case, the respective customs document.
EIGHTH: The suppliers will apply the corresponding credit
arising from the transfer of goods and services to THE
COMPANY pursuant to the legal norms in force on the
application of credits under this taxing concept.
NINTH: With respect to the credits arising from the
exemption of the tributes, taxes and other encumbrances
<PAGE>
related to the importation, or as consequence thereof, the
suppliers must request from the Income Direction General
their acknowledgment so that, once is approved, will be use
in future imports. This request must be resolved by the
Income Direction General within a period of one (1) month
counted from the date of its presentation.
TENTH: The suppliers will keep in their files, at the
disposal of the Income Direction General, all the
registration and documentation related to these exempted
operations, in separate forms and duly supported by the
requisitions or requests for the purchase of goods and
services exempted and copy of the corresponding bill of
sale.
ELEVENTH: The Income General Direction may, at any moment,
cross the information that THE COMPANY may supply with the
information maintained by the suppliers and with any other
pertinent information, in order to facilitate the functions
of the corresponding fiscalization.
TWELFTH: In the event of default in the duties and
corresponding fiscal obligations, the legal provisions in
force on the matter at the time may be applied.
THIRTEENTH: The contracts of THE COMPANY may make use of
this procedure when they are undertaking works or providing
services in benefit of the latter. For these effects, THE
COMPANY will present information to the Income Direction
General on who are the contractors, the date of
identification and R.U.C. corresponding thereto, the type of
works to undertake or services to be rendered and the
estimated duration of the same. These contractors will
acknowledge, in document duly executed by them, or their
legal representative, the Contract of Operations between THE
STATE and THE COMPANY and of the present Annex, obligating
itself to assume the same responsibilities and obligations
assumed by THE COMPANY. These contractors will only be able
to provide goods and services exempted, from the suppliers
included in the list referred to in article first of the
present Annex.
FOURTEENTH: This Annex could be modified from time to time
by a mutual agreement between the Income Direction General
and THE COMPANY in order to facilitate the transactions
exempted and, principally, to adequate it to any mechanism
of control that may require to be updated.
Signed:/s/Mr. RAUL ARANGO GASTEAZORO
------------------------------
FOR THE STATE
<PAGE>
Signed:/s/MANUEL VIRGILIO AIZPURUA VELASQUEZ
-------------------------------------
FOR THE COMPANY
ANNEX B TO THE CONTRACT OF OPERATIONS BETWEEN THE STATE
AND CHIRIQUI LAND COMPANY FOR THE DIVISION OF BOCAS DEL
TORO.
The price of the growing crops referred to in Clause
Twenty First of this contract will be determined according
to accounting norms applied by CHIQUITA BRANDS
INTERNATIONAL, INC. , home office, at the execution of this
contract, for the determination of the value of the
inventory of the growing crop. In synthesis, that value is
equal to 60% of all the costs imputable to the growing crops
during twelve (12) months, without including the investments
in plantings nor the costs of the operation of harvest and
of subsequent phases thereof.
The costs of twelve (12) months are used to eliminate
the effect of the seasonable variations and they are
multiplied by 0.6 (60%) to consider the average duration
(7.2 months) of the stem to grow and be harvested (7.2
divided between 12 equal 0.6 percent).
The costs imputable to the growing harvest, according
to the accounting norms before mentioned, include, according
to the terminology employed by THE COMPANY:
a) Variable acre, b) Administration of farms, c)
Depreciation of farms, d) a portion of the fixed costs, and
e) the portion of the loss of property.
The portions of the fixed costs and the loss of
property are determined on the basis of the proportion of
salaries of variable acre with respect to the total of
salaries of variable acre and variable volume paid by THE
COMPANY. In summary, to determine the value of the growing
crop, the following percentages will be taken into account
of the respective costs:
CONCEPT PERCENTAGE OF COST
Variable Acre 100
CONCEPT PERCENTAGE OF COST
Cost of administration of the farms 100
Cost of depreciation of farms 100
Cost of packing operations 0
Cost of deprecation of packing plants 0
Cost of quality control 0
All the other fixed costs m
Property Losses m
where m = Salaries per variable acre x 100
Salaries per variable acre + Salaries and
<PAGE>
variable volume
The sum of the costs thus obtained in the period of
twelve (12) months is the total cost imputable to the
growing crop that is multiplied by 0.60 gives a result of
the value of the growing crop at a given date.
Signed:/s/Mr. RAUL ARANGO GASTEAZORO
------------------------------
FOR THE STATE
Signed:/s/MANUEL VIRGILIO AIZPURUA VELASQUEZ
-------------------------------------
FOR THE COMPANY
[Attached to the signed documents are 10 maps illustrating
the easements of the farms discussed in this Annex B for the
Division of Bocas Del Toro.]
<PAGE>
EXHIBIT 10-C
EXECUTION COPY
AMENDMENT NO. 1 TO CREDIT AGREEMENT
AMENDMENT NO. 1, dated as of December 8, 1997, to the Credit
Agreement, dated as of December 31, 1996 (the "Credit Agreement"), among
(i) CHIQUITA BRANDS INTERNATIONAL, INC., a New Jersey corporation
("Borrower"), (ii) the financial institutions which are now, or in
accordance with Section 12.2 of the Credit Agreement hereafter become,
parties to the Credit Agreement (collectively, "Lenders"), (iii)
BANKBOSTON, N.A. (formerly named "The First National Bank of Boston"), as
Administrative Agent for the Lenders, and (iv) BANKBOSTON, N.A., ING BANK
N.V., GRONINGEN BRANCH, and PNC BANK, OHIO, NATIONAL ASSOCIATION, as
Co-agents for the Lenders.
RECITALS
The Borrower, the Lenders and the Agents party to this
Amendment No. 1 ("this Agreement") have agreed to amend certain of the
provisions contained in the Credit Agreement as set forth herein.
Accordingly, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions. Unless otherwise defined herein, terms
defined in the Credit Agreement are used herein as therein defined.
ARTICLE II
AMENDMENTS
Effective on and as of September 30, 1997 ("Effective Date"), the
Credit Agreement is hereby amended in each of the following respects:
SECTION 2.1. Amendments to Defined Terms.
(a) The defined term "Consolidated EBITDA" appearing in
Section 1.1 of the Credit Agreement is hereby amended by inserting
the following new paragraph immediately after the first paragraph of
the defined term "Consolidated EBITDA":
"For purposes of determining the Consolidated EBITDA of
the Borrower and its Subsidiaries for any Reference Period,
(i) there shall be excluded from such Consolidated EBITDA the
sum of (A) all operating income for such period, (B) all
depreciation and amortization expense for such period, and (C)
"Other Income (Expense), net" as shown on the consolidated
statement of income of the Borrower and its Subsidiaries for
such period, but only to the extent, in the case of each of
subclause (A), (B) and (C), attributable to all Property that
is the subject of each Sale completed during such period by
the Borrower or its Subsidiaries other than in the ordinary
course of business as if no Property subject to any of such
Sales was owned at any time during such period by the Borrower
or its Subsidiaries, and (ii) there shall be included in such
Consolidated EBITDA the sum of (A) all operating income for
such period, (B) all depreciation and amortization expense for
such period, and (C) "Other Income (Expense), net" as shown on
the consolidated statement of income of the Borrower and its
Subsidiaries for such period, but only to the extent, in the
case of each of subclause (A), (B) and (C), attributable to
all Property that is the subject of each Acquisition completed
during such period by the Borrower or its Subsidiaries other
than in the ordinary course of business as if all Property
subject to any of such Acquisitions was owned by the Borrower
or its Subsidiaries at all times during such period."
(b) The defined term "Consolidated Net Interest Expense"
appearing in Section 1.1 of the Credit Agreement is hereby amended
by inserting the following new paragraph immediately after the first
paragraph of the defined term "Consolidated Net Interest Expense":
"For purposes of determining the Consolidated Net Interest
Expense of the Borrower and its Subsidiaries for any Reference
Period, (i) there shall be excluded from such Consolidated Net
Interest Expense the aggregate of the interest expense for such
period on all of the Indebtedness for Borrowed Money of the Borrower
or its Subsidiaries repaid in connection with the completion of each
Sale of Property by the Borrower or its Subsidiaries during such
period other than in the ordinary course of business, (ii) there
shall be included in such Consolidated Net Interest Expense the
aggregate of the interest expense on all of the Indebtedness for
Borrowed Money of the Borrower or its Subsidiaries incurred in
connection with the completion of each Acquisition by the Borrower
or its Subsidiaries during such period (A) as if all of the
Indebtedness for Borrowed Money so incurred in connection with each
such Acquisition had (in each case) been incurred on the first day
of such period, and (B) as if interest had accrued on such
Indebtedness for Borrowed Money during such period prior to the date
of the actual incurrence thereof at an annual interest rate equal to
the annual interest rate payable on such Indebtedness for Borrowed
Money on the date first incurred, and (C) the Consolidated Net
Interest Expense of the Borrower and its Subsidiaries for such
period shall also be adjusted to give pro forma effect to all
changes in interest income of the Borrower and its Subsidiaries for
such period directly attributable to each of the Sales or
Acquisitions completed during such period."
(c) The defined term "Special Covenant Conditions" appearing
in Section 1.1 of the Credit Agreement is hereby amended by amending
and restating in its entirety clause (d) of such defined term as
follows:
"(d) no breach of the financial covenant set forth in Section
9.2.3(b) would have occurred as at the end of the Reference Period
ending immediately prior to the date of completion of such
Restricted Transaction had such financial covenant been calculated
for such Reference Period (i) as if such Restricted Transaction and
all (if any) of the other Restricted Transactions completed after
the end of such Reference Period but prior to completion of such
Restricted Transaction had been completed immediately prior to the
beginning of such Reference Period, (ii) as if all (if any)
Indebtedness for Borrowed Money incurred in connection with each of
such Restricted Transactions had (in each case) been incurred on the
first day of such Reference Period, (iii) as if interest had accrued
on such Indebtedness for Borrowed Money during such Reference Period
at an annual interest rate equal to the annual interest rate payable
on such Indebtedness for Borrowed Money on the date it is first
incurred, and (iv) as if all (if any) Indebtedness for Borrowed
Money repaid in connection with each of such Restricted Transactions
had (in each case) been repaid immediately prior to the beginning of
such Reference Period; and"
SECTION 2.2. Amendment to Section 9.2.4. Paragraph (a) of Section
9.2.4 of the Credit Agreement is hereby amended and restated in its
entirety to read as follows:
"(a) the making by any Subsidiary of the Borrower (i) to the
Borrower or to any other Subsidiary of the Borrower of any
Restricted Payments of the kind described in clause (c) of the
definition "Restricted Payments", and (ii) of any Restricted
Payments of the kind described in clause (b) of the definition
"Restricted Payments"; provided, however, that no such Restricted
Payments of the kind described in clause (b) of the definition
"Restricted Payments" shall in any event be permitted unless any
such Restricted Payments on any shares of a particular class of
Capital Stock of a corporation shall be made on or with respect to
all of the issued and outstanding shares of such class of Capital
Stock of such corporation on a pro rata basis, at the same time and
on the same terms."
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to each Agent and Lender as
follows:
SECTION 3.1. Representations in Loan Documents. Each of the
representations and warranties made by or on behalf of the Borrower to the
Agents and the Lenders in the Loan Documents was true and correct in all
material respects when made and is true and correct in all material
respects on and as of the date hereof, except, in each case, (a) as
affected by the consummation of the transactions contemplated by the Loan
Documents (including this Agreement), and (b) to the extent that any such
representation or warranty relates by its express terms solely to a prior
date.
SECTION 3.2. Corporate Authority, etc. The execution and delivery
by the Borrower of this Agreement and the performance by the Borrower of
its agreements and obligations under this Agreement have been duly and
properly authorized by all necessary corporate or other action on the part
of the Borrower, and do not and will not conflict with, result in any
violation of, or constitute any default under (a) any provision of any
Governing Document of the Borrower, (b) any Contractual Obligation of the
Borrower, or (c) any Applicable Law.
SECTION 3.3. Validity, etc. This Agreement has been duly executed
and delivered by the Borrower and constitutes the legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance
with its terms, except as such enforceability may be limited by
bankruptcy, reorganization, insolvency, moratorium or other similar laws
at the time in effect affecting the enforceability of the rights of
creditors generally and to general equitable principles. The Borrower
hereby ratifies and confirms all of the Obligations in all respects.
SECTION 3.4. No Defaults. Before and after giving effect to this
Agreement, no Defaults or Events of Default are or will be continuing
under the Credit Agreement.
ARTICLE IV
PROVISIONS OF GENERAL APPLICATION
This Agreement shall become effective on and as of the Effective
Date once the Administrative Agent has received duly executed counterparts
hereof signed by the Borrower and the Required Lenders. Except as
otherwise expressly provided by this Agreement, all of the terms,
conditions and provisions of the Credit Agreement and each of the other
Loan Documents shall remain unaltered. This Agreement is a Loan Document
for all purposes of the Credit Agreement. This Agreement and the rights
and obligations hereunder of each of the parties hereto shall in all
respects be construed in accordance with and governed by the internal laws
of the State of New York. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, but
all of such counterparts shall together constitute but one and the same
agreement. In making proof of this Agreement, it shall not be necessary
to produce or account for more than one counterpart hereof signed by each
of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
No. 1 to be executed by their respective authorized officers as of the
date first above written.
THE BORROWER:
CHIQUITA BRANDS INTERNATIONAL, INC.
By:/s/Gerald R. Kondritzer
--------------------------
Name: Gerald R. Kondritzer
Title: Vice President and Treasurer
THE AGENTS AND LENDERS:
BANKBOSTON, N.A., as Administrative Agent, as one of the
Co-agents, and as one of the Lenders
By: /s/Robert F. Milordi
------------------------
Name: Robert F. Milordi
Title: Managing Director
ING BANK N.V., GRONINGEN BRANCH, as one of the Co-agents and as
one of the Lenders
By: /s/U.P. Wiersum
----------------------------
Name:U.P. Wiersum
Title:
PNC BANK, OHIO, NATIONAL ASSOCIATION, as one of the Co-agents
and as one of the Lenders
By: /s/Bruce A. Kintner
-----------------------
Name: Bruce A. Kintner
Title: Vice President
THE SUMITOMO BANK, LIMITED, CHICAGO BRANCH, as one of the Lenders
By:/s/John H. Kemper
-----------------------
Name: John H. Kemper
Title: Senior Vice President
BANK OF AMERICA ILLINOIS, as one of the Lenders
By: /s/W. Thomas Barnett
-----------------------
Name: W. Thomas Barnett
Title: Managing Director
CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, as one of the
Lenders
By: /s/Martin Lunder /s/Hans Chr. Kjelsrud
------------------------------------------
Name: Martin Lunder Hans Chr. Kjelsrud
Title: First Vice President First Vice President
THE MITSUBISHI TRUST AND BANKING CORPORATION, as one of the
Lenders
By: /s/Nobuo Tominaga
--------------------------------
Name:Mr. Nobuo Tominaga
Title:Chief Manager
STAR BANK, N.A., as one of the Lenders
By: /s/Derek S. Roudebush
-------------------------------
Name: Derek S. Roudebush
Title: Vice President
SUNTRUST BANK, N.A., as one of the Lenders
By: /s/Elsa Pelaez Lopez
--------------------------------
Name: Elsa Pelaez Lopez
Title: Vice President
