AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 26, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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MINNESOTA CORN PROCESSORS, LLC
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
COLORADO 31199 41-1928467
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
901 NORTH HIGHWAY 59, MARSHALL, MN 56258-2744 (Address,
including zip code, and telephone number, including
area code, of registrant's principal executive offices)
L. DAN THOMPSON
MINNESOTA CORN PROCESSORS, INC.
901 NORTH HIGHWAY 59
MARSHALL, MN 56258-2744
(507) 537-2676
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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COPIES TO:
Ronald D. McFall, Esq. David P. Swanson
Doherty, Rumble & Butler, P.A. Dorsey & Whitney, LLP
2800 Minnesota World Trade Center Pillsbury Center South
30 East Seventh Street 220 South Sixth Street
Saint Paul, MN 55101 Minneapolis, MN 55402
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Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective and all other
conditions to the conversion pursuant to the Transaction Agreement described
herein have been satisfied or waived.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. -
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. -
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered (1) offering price per share aggregate offering price (2) registration fee (3)
<S> <C> <C> <C> <C>
Class A Units 137,073,691 NA $173,781,000 $ 48,311.12
</TABLE>
(1) Based upon an estimate of the maximum number of units of equity
participation of Minnesota Corn Processors, Inc. which will each be
exchanged for Class A Units of the Registrant pursuant to the conversion
described herein.
(2) Calculated in accordance with Rule 457(f)(2) under the Securities Act based
on the book value on December 31, 1998 of the units of equity participation
of Minnesota Corn Processors, Inc. to be cancelled in connection with the
conversion.
(3) The registration fee is calculated as follows: .000278 multiplied by the
proposed maximum aggregate offering price.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRATION
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1993 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
[COMPANY LOGO GRAPHIC OMITTED]
MINNESOTA CORN PROCESSORS, LLC
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INFORMATION STATEMENT -- PROSPECTUS
RELATING TO THE CONVERSION
OF MINNESOTA CORN PROCESSORS, INC.
TO A COLORADO LIMITED LIABILITY COMPANY
The Board of Directors of Minnesota Corn Processors, Inc. has determined
to convert Minnesota Corn Processors, Inc. from a Minnesota cooperative into a
Colorado limited liability company. To accomplish the conversion, we propose to
take the following steps:
o First, Minnesota Corn Processors, Inc. will merge with and into Minnesota
Corn Processors Colorado, a Colorado cooperative which has been newly
formed to effectuate the conversion.
o Second, immediately after the initial merger, MCP Colorado will merge with
and into Minnesota Corn Processors, LLC, a newly formed Colorado limited
liability company.
The effect of the two mergers is to convert Minnesota Corn Processors, Inc.
into a Colorado limited liability company. As a result of the two mergers, each
unit of equity participation of Minnesota Corn Processors, Inc. that you hold
will be converted into one Class A unit of the new limited liability company.
Each member holding 5,000 or more Class A units will be entitled to one vote.
Your shares of common stock of Minnesota Corn Processors, Inc. will be canceled
in the conversion. Nonvoting units of equity participation of MCP held by Archer
Daniels Midland Company will be converted into nonvoting Class B units of the
new limited liability company. Each Class A unit and Class B unit represent a
share of the profits and losses of the new limited liability company as well as
the right to receive distributions. In addition, the stated amount of any
patronage dividend that was issued as a nonqualified written notice of
allocation will be converted into a nonvoting financial interest in the new
limited liability company that will have rights comparable to such nonqualified
written notices. Each holder of nonvoting financial interests in the new limited
liability company will have limited rights to receive distributions and profit
allocations.
As the sole shareholder of MCP Colorado before the initial merger,
Minnesota Corn Processors, Inc. has approved the second merger between MCP
Colorado and the new limited liability company. Although you will not vote on
the second merger, neither the first merger nor the second merger will happen
unless members approve the first merger. So, if you vote in favor of the first
merger, it will have the same effect as if you voted in favor of the second
merger.
We have scheduled a special meeting of members of Minnesota Corn
Processors, Inc. on ______, 1999 at Jackpot Junction, Morton, Minnesota to vote
on the merger between Minnesota Corn Processors, Inc. and MCP Colorado. In
addition, we will hold regional information meetings in ___________ and
___________ to answer any questions you may have relating to the conversion. To
vote on the proposed merger, you must use the enclosed mail ballot. ADDITIONAL
BALLOTS WILL NOT BE DISTRIBUTED AT ANY REGIONAL INFORMATION MEETING OR THE
SPECIAL MEETING. Please take the time to vote by completing and returning the
enclosed ballot by _______, 1999. YOUR VOTE IS VERY IMPORTANT.
See "Risk Factors" beginning on page ___ to read about certain factors you
should consider before voting.
This document provides detailed information about the proposed conversion
and the new limited liability company. You should carefully review this entire
document. We strongly support the conversion and enthusiastically recommend that
you vote in favor of the merger.
Jerry Jacoby
Chairman
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE SECURITIES TO BE ISSUED IN THE
MERGER OR DETERMINED IF THIS JOINT INFORMATION STATEMENT/PROSPECTUS IS ACCURATE
OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Information Statement - Prospectus dated _______, 1999, and first mailed to
members on _______, 1999.
<PAGE>
[COMPANY LOGO GRAPHIC OMITTED]
MINNESOTA CORN PROCESSORS, INC.
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901 NORTH HIGHWAY 59, MARSHALL, MN 56258-2744
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NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON _______, 1999
To the Members:
Notice is hereby given that a Special Meeting of Members of Minnesota Corn
Processors, Inc. (the "Cooperative"), a Minnesota cooperative, will be held on
_______, 1999, at _______, local time, at Jackpot Junction, Morton, Minnesota,
for the following purposes:
To consider and vote upon a proposal to approve (i) the Plan of Merger
("MCP Merger Agreement"), dated as of _______, 1999 by and between the
Cooperative and Minnesota Corn Processors Colorado, a newly formed Colorado
cooperative ("MCP Colorado") and (ii) the Transaction Agreement, dated as
of _______, 1999, by and among the Cooperative, MCP Colorado and Minnesota
Corn Processors, LLC, a newly formed Colorado limited liability company
(the "LLC"). The MCP Merger Agreement provides for the merger of the
Cooperative with and into MCP Colorado ("MCP Merger"), upon the terms and
subject to the conditions set forth in the MCP Merger Agreement and the
Transaction Agreement. If the MCP Merger Agreement is approved, immediately
after the effective time of the MCP Merger and without further action by
members of the Cooperative, MCP Colorado will merge with and into the LLC.
As a result of both mergers (i) the LLC will be the surviving entity, (ii)
members of the Cooperative will become members of the LLC and receive a
number of Class A units of the LLC equal to the number of units of equity
participation they hold as of _______, 1999, (iii) nonmembers of the
Cooperative (i.e., ADM) holding nonvoting units of equity participation
will become non-voting members of the LLC and receive Class B units of the
LLC and (iv) holders of nonqualified written notices of allocation will
receive nonvoting financial interests in the LLC.
The close of business on __________, 1999 has been fixed as the record date for
determining those members entitled to vote at the Special Meeting and any
adjournments or postponements of the meeting.
Regional information meetings will be held on _______, 1999 in ___ and on
_______, 1999 in _______.
You are invited to attend a regional information meeting and the Special
Meeting. If you are unable to attend, please complete and return the enclosed
mail ballot to the Cooperative in the envelope provided. We must receive your
ballot by , 1999. YOU MAY VOTE ON THE PROPOSED MERGER ONLY BY USING THE ENCLOSED
BALLOT. NO ADDITIONAL BALLOTS WILL BE DISTRIBUTED AT ANY REGIONAL INFORMATION
MEETING OR THE SPECIAL MEETING. NO PROCEDURES EXIST FOR A MEMBER TO REVOKE A
BALLOT ONCE THE BALLOT HAS BEEN RECEIVED BY THE COOPERATIVE.
By Order of the Board of Directors
-----------------------------------
Jerry Jacoby
Chairman
_______, 1999
Marshall, Minnesota
THE BOARD OF DIRECTORS OF MINNESOTA CORN PROCESSORS, INC. UNANIMOUSLY
RECOMMENDS THAT MEMBERS VOTE FOR APPROVAL OF THE MCP MERGER AGREEMENT AND THE
TRANSACTION AGREEMENT.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE CONVERSION ..................................... 1
SUMMARY ........................................................................ 2
RISK FACTORS ................................................................... 8
Certain Risks Related to Federal Income Tax Consequences .................. 8
Lack of Public Market for Class A Units; Restrictions on Transfers ........ 9
Intense Competition ....................................................... 9
Sensitivity to Corn Prices ................................................ 10
Leverage, Ability to Service Debt and Restrictive Covenants ............... 10
Government Regulation ..................................................... 10
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION ................................................... 11
THE SPECIAL MEETING ............................................................ 12
General ................................................................... 12
Matters to be Considered .................................................. 12
Who Can Vote .............................................................. 12
How You Can Vote .......................................................... 12
Votes Required ............................................................ 12
Recommendation of the Cooperative Board ................................... 12
THE CONVERSION ................................................................. 13
Reasons for the Conversion ................................................ 13
Recommendation of the Cooperative Board ................................... 13
Appraisal Opinion ......................................................... 14
Material Federal Income Tax Consequences .................................. 14
Accounting Treatment ...................................................... 19
Regulatory Approval ....................................................... 19
Absence of Dissenters' Rights ............................................. 19
Federal Securities Law Consequences ....................................... 19
THE MERGER AGREEMENTS AND THE TRANSACTION AGREEMENT ............................ 20
Merger with MCP Colorado (MCP Merger Agreement) ........................... 20
Merger with the LLC (LLC Merger Agreement) ................................ 20
Exchange of Certificates .................................................. 21
Effective Time ............................................................ 21
Employee Benefit Plans .................................................... 21
Patronage Distributions ................................................... 21
1996 Loss Payables ........................................................ 22
Representation and Warranties ............................................. 22
Conditions to Consummation of the Mergers ................................. 22
Conduct of Business Prior to Conversion ................................... 23
Termination ............................................................... 23
Amendment ................................................................. 23
Indemnification and Insurance ............................................. 23
SELECTED FINANCIAL DATA ........................................................ 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .............................. 26
Overview And Outlook ...................................................... 26
Results of Operations ..................................................... 26
Liquidity and Capital Resources ........................................... 28
Year 2000 ................................................................. 29
</TABLE>
i
<PAGE>
<TABLE>
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PAGE
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<S> <C>
BUSINESS ....................................................................... 30
Overview .................................................................. 30
The Corn Sweetener and Ethanol Markets .................................... 30
Corn Procurement .......................................................... 32
Wet Milling Operations .................................................... 32
Products .................................................................. 34
Product Quality ........................................................... 35
Sales and Distribution .................................................... 35
Competition ............................................................... 36
Government Regulation and Environmental Matters ........................... 36
Production Facilities ..................................................... 36
Legal Proceedings ......................................................... 37
Employees ................................................................. 37
MANAGEMENT ..................................................................... 38
Directors ................................................................. 38
Committees of the Board ................................................... 42
Compensation of Directors ................................................. 43
Executive Officers ........................................................ 43
Executive Compensation .................................................... 44
Employee Benefit Plans .................................................... 44
Management Stock Purchase Program ......................................... 45
Employment Agreements ..................................................... 45
Security Ownership of Management .......................................... 46
DESCRIPTION OF MEMBERSHIP UNITS ................................................ 47
General ................................................................... 47
Qualifications for Membership ............................................. 47
Class A Units ............................................................. 47
Class B Units ............................................................. 48
Distributions ............................................................. 48
Capital Accounts and Contributions ........................................ 48
Allocation of Profits and Losses; Special Allocation Rules ................ 48
Restrictions on Transfer of Units ......................................... 48
Distribution of Assets Upon Liquidation ................................... 49
Amendments to Operating Agreement ......................................... 49
COMPARISON OF CERTAIN RIGHTS OF MEMBERS ........................................ 50
Taxation .................................................................. 50
Limited Liability ......................................................... 50
Distributions; Corn Delivery Obligation ................................... 50
Authorized Capital ........................................................ 51
Membership Interests ...................................................... 51
Liquidity and Transferability ............................................. 51
Voting Rights ............................................................. 52
Termination of Membership ................................................ 52
Redemption ................................................................ 52
Annual Meetings ........................................................... 53
Vote on Extraordinary Transactions ........................................ 53
Amendment of Governing Documents .......................................... 53
Preemptive Rights ......................................................... 53
Appraisal Rights of Dissenting Members .................................... 53
Liquidating Rights ........................................................ 54
Financial Reporting ....................................................... 54
</TABLE>
ii
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<TABLE>
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PAGE
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<S> <C>
Fiduciary Duties .......................................................... 54
Indemnification of Officers and Directors ................................. 55
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS ...................................... 56
Tax Status of the LLC ..................................................... 56
Publicly Traded Partnership Rules ......................................... 56
Treatment of the LLC's Operations ......................................... 58
Tax Consequences of LLC Unit Ownership .................................... 59
Tax Consequences of Disposition of Units .................................. 60
Other Tax Matters ......................................................... 62
LEGAL MATTERS .................................................................. 64
EXPERTS ........................................................................ 64
WHERE YOU CAN FIND MORE INFORMATION ............................................ 65
PRO FORMA CONDENSED FINANCIAL INFORMATION ...................................... 66
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ..................................... 81
APPENDIX A: MCP Merger Agreement ............................................... A-1
APPENDIX B: LLC Merger Agreement ............................................... B-1
APPENDIX C: Transaction Agreement .............................................. C-1
APPENDIX D: Operating Agreement of Minnesota Corn Processors, LLC .............. D-1
APPENDIX E: Appraisal Opinion, dated _______, 1998 ............................. E-1
</TABLE>
iii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE CONVERSION
Q: Why is Minnesota Corn Processors converting to a limited liability
company? How will I benefit?
A: The conversion is necessary to continue to ensure that any earnings
generated by the business is not subject to federal "double taxation"
(once at the company level when earned and once again at the member
level when distributed). We also believe that the limited liability
company structure will give us the flexibility to compete more
effectively by removing constraints to corn procurement.
Q: What will I receive in the conversion?
A. You will receive one Class A unit of the new limited liability company
for each unit of equity participation of Minnesota Corn Processors you
own on _______, 1999. Also, you will continue to be a member of the LLC,
with voting rights on a one vote per member basis, as long as you own
5,000 Class A units.
Q: Will I continue to get value-added payments?
A: No, but you will be entitled to receive cash distributions in proportion
to your equity interest in the new limited liability company, subject to
applicable loan covenants and the approval of the Board of Directors.
Q: Do I have to pay self-employment taxes on the income allocations or cash
distributions?
A: No. Based on proposed regulations, it appears probable that limited
liability company members generally will not be subject to
self-employment tax.
Q: What happens to the amount I owe the Cooperative for losses allocated to
me in 1996?
A: If you have not yet paid us for your share of the 1996 loss, the unpaid
amount will carry over as a lien against the Class A units you receive
in the conversion. Upon a transfer of your Class A units, you must pay
off this liability. In addition, the allocated losses will also be
deducted from future cash distributions, in a manner consistent with
Minnesota Corn Processor's previous plan.
Q: How will I be taxed on the conversion?
A: You will recognize gain or loss for federal income tax purposes in the
conversion in an amount equal to the difference between the fair market
value of the Class A units you receive and the tax basis of your units
of equity participation. To review how the value of the new units has
been determined, see pages ___ - ___.
Q: Will the new units trade any differently?
A: Generally, no. Although the liquidity for the Class A units may be
enhanced by not restricting ownership to agricultural producers, the
Class A units will not trade on any stock exchange or on a less formal
secondary market. To review the restrictions on transfers, see pages ___
- ___.
Q: Should I send in my stock certificates?
A: No, you do not need to exchange your current certificates for new ones.
After the conversion, each unit of equity participation you now own will
automatically represent one Class A unit of the new limited liability
company.
1
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
TRANSACTION FULLY AND FOR A COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
CONVERSION, YOU SHOULD READ THIS ENTIRE DOCUMENT AND THE APPENDICES.
MINNESOTA CORN Established as a farmer-owned
PROCESSORS, INC. cooperative under Minnesota law in
1980, Minnesota Corn Processors, Inc.
(the "Cooperative") is a large
processor of corn and the second
largest producer of ethanol in the
United States. MCP produces high
fructose corn sweeteners, corn syrup,
corn starch, ethanol and feed
co-products. These products are used
in a variety of industries. The
principal offices of the Cooperative
are located at 901 North Highway 59,
Marshall, MN 56258-2744. The
telephone number is 507-537-2676.
MINNESOTA CORN Minnesota Corn Processors, LLC (the
PROCESSORS, LLC "LLC") is a newly formed limited
liability company organized under the
laws of Colorado. A limited liability
company is a form of business entity
that possesses both corporate and
partnership characteristics. It is
generally characterized as a
partnership for federal income tax
purposes (the entity pays no federal
income tax), while providing
corporate-type limited liability
(members are not personally liable
for the Cooperative's debts and
obligations). The Cooperative is
currently the sole member of the LLC.
The address and telephone number will
be the same as those of the
Cooperative.
MINNESOTA CORN Minnesota Corn Processors Colorado
PROCESSORS COLORADO ("MCP Colorado") is a newly formed
Colorado cooperative that has been
organized to accomplish the
conversion of the Cooperative into a
limited liability company. MCP
Colorado is currently a wholly-owned
subsidiary of the Cooperative.
OUR REASONS FOR THE Because of the amount of corn
CONVERSION required to operate our wet milling
facilities and the location of the
facilities relative to our members,
we have become increasingly concerned
in recent years about our ability to
maintain and operate a corn delivery
program on a cooperative basis
without imposing a heavy corn
delivery burden on our members. To
avoid any potential challenge to our
status as a cooperative, your Board
of Directors has thoroughly
considered three alternatives: (1)
continuing to claim cooperative tax
status and risk a potential
substantial future tax liability if
an IRS challenge is successful, (2)
electing to be taxed as a corporation
and subject to two levels of
potential tax on income earned by the
business and (3) converting into a
limited liability company to
reasonably assure that our income is
subject to only one level of federal
income tax. An appraisal suggests
that the current value of the
Cooperative makes it feasible to
convert to a limited liability
company and the Board has concluded
that the conversion is the most
attractive of the three options
considered.
HOW THE CONVERSION WILL The conversion will involve two
BE COMPLETED steps:
(1) The Cooperative has created a new
Colorado cooperative (MCP
Colorado) and will merge into MCP
Colorado. Initially, all shares
of stock and units of equity
participation of the Cooperative
will be converted into
corresponding equal amounts of
stock and units of equity
participation of MCP Colorado.
MCP Colorado's Articles of
Incorporation and Bylaws will be
substantially identical to the
Cooperative's. This merger, which
we refer to as the MCP Merger, is
necessary because Minnesota law
does not permit a merger between
a cooperative and a limited
liability company. Also, this
merger allows us to avoid paying
deed taxes on the transfer of
real property in connection with
the conversion.
2
<PAGE>
(2) Immediately after the MCP Merger takes
effect, MCP Colorado will merge into
the new limited liability company,
which we refer to as the LLC Merger. As
a result, the LLC will own all of the
assets and assume all of the
liabilities of the Cooperative. All
shares of stock of MCP Colorado will be
canceled, and all units of equity
participation of MCP Colorado will be
converted into Class A or Class B
membership interests of the LLC. All
nonqualified written notices of
allocation will be converted into
nonvoting financial interests in the
LLC having comparable rights. The LLC
has been organized under Colorado law
because the provisions of the Colorado
Limited Liability Company Act provide a
greater deal of flexibility in
structuring a customized business
entity than those of the Minnesota
Limited Liability Company Act.
WE HAVE ATTACHED THE AGREEMENTS WHICH
DESCRIBE THE LEGAL TERMS OF THE
CONVERSION AS APPENDIX A, B AND C TO
THIS DOCUMENT. WE ENCOURAGE YOU TO
READ EACH AGREEMENT.
VOTE REQUIRED TO APPROVE You are being asked to vote on the
THE MERGER MCP Merger only, and you will not
vote on the LLC Merger. The
Cooperative, as the sole stockholder
of MCP Colorado, has approved the LLC
Merger. The LLC Merger (and thus the
conversion) will not take effect,
however, unless the MCP Merger is
approved by members.
You can vote if you owned shares of
Common Stock of the Cooperative as of
the close of business on _____, 1999.
Each voting member will have one vote
regardless of the number of units of
equity participation owned. The
favorable vote of two-thirds of the
votes cast, in person or by mail, at
the special meeting is required to
approve the MCP Merger.
WHAT YOU WILL RECEIVE IN As a result of the MCP Merger and LLC
THE CONVERSION Merger, you will receive one Class A
unit of the LLC for every unit of equity
participation of the Cooperative you own
on _____, 1999. Your shares of common
stock of the Cooperative will be
canceled. Each Class A unit represents a
share of the profits and losses of the
new limited liability company. As long
as you own 1,000 Class A units, you will
be a member of the LLC and you will be
entitled to one vote if you own 5,000 or
more Class A units. If you hold a
nonqualified written notice of
allocation, it will be converted into a
nonvoting financial interest ("Special
Financial Interest") in the LLC having
comparable rights. Each nonvoting equity
participation unit held by Archer
Daniels Midland Company will be
converted into one Class B unit of the
new limited liability company. Class B
units are nonvoting interests
participating in the profit and losses
of the new limited liability company.
You do not need to surrender the
certificates representing your units
of equity participation or exchange
them for new certificates
representing the Class A units. After
the conversion, certificates
representing units of equity
participation of the Cooperative will
automatically represent Class A units
of the new limited liability company.
TAX CONSEQUENCES OF The conversion into a limited
THE CONVERSION liability company will be a taxable
event for both the Cooperative and
its members, though the Cooperative
does not expect to incur a tax
liability based on the appraisal
received by the Cooperative. The
amount of taxable gain or loss that
you will recognize will depend on
whether the value of your Class A
units received in the conversion is
greater or less than the aggregate
tax basis in your stock and units of
equity participation of the
Cooperative. We believe that the
Special Financial Interests in the
LLC that will be issued to holders of
nonqualified written notices of
allocation do not have an
ascertainable value and therefore
will not result in taxable gain. To
review tax consequences in more
detail, see pages ___. THE ACTUAL TAX
CONSEQUENCES OF THE CONVERSION TO YOU
MAY BE COMPLICATED. YOU SHOULD
CONSULT YOUR OWN TAX ADVISOR FOR A
FULL UNDERSTANDING OF THE TAX
CONSEQUENCES OF THE CONVERSION.
3
<PAGE>
APPRAISAL In evaluating the potential tax
impact of the conversion on the
Cooperative and its members, the
Board of Directors considered the
opinion of American Appraisal
Associates(R) that, as of September
30, 1998, the appraised value of the
Cooperative was $290.6 million and,
after appropriate discounts for
minority interest and lack of
marketability, the liquidating value
per unit was $1.10. We have attached
this opinion as Appendix E to this
document. We encourage you to read
it.
CONDITIONS TO The completion of the conversion
THE CONVERSION depends on the satisfaction (or
waiver) of a number of conditions,
including:
o approval of the MCP Merger by
members;
o the absence of any court order or
legal restraint blocking the
conversion;
o the absence of any pending or
threatened governmental action
seeking to prohibit the
conversion;
o receipt of the consent of Archer
Daniels Midland Company; and
o receipt of the consent of lenders.
ACCOUNTING TREATMENT We expect the conversion will be
treated in a manner similar to that
of a "pooling of interests"
transaction under generally accepted
accounting principles. This means
that, for accounting and financial
reporting purposes, no gain or loss
will be recognized at the time of the
conversion and the book value of the
assets and liabilities of the
Cooperative at the time of the
conversion will carry over to the
LLC.
NO DISSENTERS' RIGHTS Under Minnesota law, you have no
right to demand an appraisal of your
shares in connection with the
conversion and to receive a cash
payment for the fair value of your
shares.
TAX IMPLICATIONS TO MEMBERS As a limited liability company, the
FOLLOWING THE CONVERSION LLC will pay no federal income tax on
its taxable income and will pass its
taxable income or loss to members in
proportion to their relative
ownership interests. If distributions
are made to the holders of Special
Financial Interests, a corresponding
amount of income or gain will be
specially allocated to them. When we
allocate income or loss to you, you
will be taxed on that income or,
subject to substantial restrictions,
may deduct that loss. This tax will
be imposed regardless of whether we
actually distribute cash or property
to you.
MANAGEMENT AFTER THE The present Board of Directors and
CONVERSION management team of the Cooperative
will continue to manage the LLC after
the conversion. Each director will
continue to represent one of eight
geographic districts and will be
elected by the voting members
residing in the director's district.
DIFFERENCES IN THE RIGHTS If the conversion is completed, you
OF MEMBERS will become a member of a limited
liability company, and your rights
will be governed by Colorado law and
by the Operating Agreement. In most
respects, the rights of members under
these provisions are similar to your
current rights as a member of the
Cooperative. There are some
differences, including:
o Members are not required to
produce or deliver corn and the
existing Marketing Agreement will
be terminated.
o Distributions by the LLC will be
based on investment (equity)
rather than patronage.
o No person may own less than 1,000
Class A units or more than 2% of
the issued and outstanding Class A
units.
o Members owning less than 5,000
Class A units have no voting
rights.
WE HAVE ATTACHED THE OPERATING
AGREEMENT AS APPENDIX D TO THIS
DOCUMENT. PLEASE READ THE AGREEMENT.
IT IS THE LEGAL DOCUMENT THAT GOVERNS
THE PURPOSE, POWERS AND INTERNAL
AFFAIRS OF THE NEW LIMITED LIABILITY
COMPANY.
4
<PAGE>
TRADING OF CLASS A UNITS The Board of Directors of the LLC
must approve all transfers and will
not recognize any transfer that would
result in us losing our partnership
tax status.
FORWARD-LOOKING We have made forward-looking
STATEMENTS MAY statements in this document that are
PROVE INACCURATE subject to risks and uncertainties.
When we use words such as "believes,"
"expects," "anticipates," "will" or
similar expressions, we are making
forward-looking statements. Many
possible events or factors, some of
which are discussed under "Risk
Factors" in this document, could
affect our future financial condition
and results and could cause those
results to differ materially from
those expressed in our
forward-looking statements. These
events or factors include:
o General economic, market and
competitive forces affecting our
corn processing and marketing
business.
o Legislative or regulatory changes
affecting our business.
o The risk that our analysis of
these forces and changes could be
incorrect or that the strategies
developed to address them could be
unsuccessful.
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth summary historical financial information of
Minnesota Corn Processors, Inc. We derived this information from the
consolidated financial statements of Minnesota Corn Processors, Inc. The audited
financial statements have been audited by Clifton Gunderson L.L.C., independent
auditors.
Fiscal year 1997 was a six-month period because Minnesota Corn Processors,
Inc. changed its fiscal year end from September 30 to March 31.
You should read the financial information presented below along with our
consolidated financial statements and related notes that we include at the end
of this document. For a narrative explanation of the following financial
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
PERIOD ENDED YEAR (UNAUDITED)
MARCH 31, ENDED SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, (6 MONTHS) MARCH 31, SEPTEMBER 30,
------------------------------ -------------- ------------- ---------------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- ---------- -------------- ------------- ------------- -------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues ....................... $ 233 $ 327 $ 420 $ 237 $ 563 $ 293 $ 322
Operating income (loss) ............ 26 57 (46) 10 (8) (5) 7
Net income (loss) .................. 24 47 (63) (10) (45) (23) (1)
Outstanding units of equity
participation at year end ......... 76.3 76.3 76.2 136.7 195.7 195.7 195.7
BALANCE SHEET DATA:
Working capital (deficit) .......... 19 (31) (363) (352) 43 45 77
Total assets ....................... 326 491 662 672 650 655 653
Long-term debt(1) .................. 137 164 6 1 295 291 318
Member equity ...................... 131 201 201 212 286 308 285
OTHER DATA:
EBITDA(2) .......................... 42 78 (16) 28 30 20 34
Capital expenditures ............... 102 172 208 12 13 6 5
</TABLE>
- -----------------
(1) Does not reflect the retirement of $28 million of indebtedness in November
1998.
(2) EBITDA represents earnings (loss) before interest, income taxes,
depreciation and amortization. It is presented to enhance an understanding
of our operating results and ability to service debt and is not intended to
represent cash flow or net earnings under U.S. generally accepted accounting
principles ("GAAP"). Our use of EBITDA may not be comparable to similarly
titled measures used by other companies.
6
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
In the table below, we present consolidated income statement data for the
LLC for the fiscal year ended March 31, 1998 and the six months ended September
30, 1998, as if the conversion had been completed on April 1, 1997. We present
consolidated balance sheet information as of March 31, 1998, as if the
conversion had been completed as of such date.
The following information is provided for illustrative purposes only and
does not necessarily reflect what the results of operations or financial
position of the LLC would have been if the conversion had actually occurred on
the dates specified. Please see "Unaudited Pro Forma Financial Information" on
page ___ for a more detailed explanation of this analysis.
7
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A VOTING
DECISION.
CERTAIN RISKS RELATED TO FEDERAL INCOME TAX CONSEQUENCES
IMPORTANCE OF THE APPRAISAL
The conversion from a cooperative into a limited liability company will be
a taxable transaction. The amount of taxable gain or loss that the Cooperative
and its members must recognize will depend on the aggregate fair market value of
the Cooperative as a going concern as well as the fair market value of each
Class A unit issued to members. Based on the Appraisal, the aggregate tax basis
exceeds the appraised value of our assets. This means that we will have a
nondeductible loss on liquidation and will not incur a tax liability.
Although some members (principally those who purchased all or most of their
units of equity participation in 1982) may incur substantial capital gains, we
expect that most members will incur capital losses. The deductibility of capital
losses incurred by individuals is limited to their capital gains in the taxable
year plus $3,000. Unused capital losses may be carried forward indefinitely.
Accordingly, many members may be unable to fully utilize their capital loss in
the year of the conversion.
In deciding to proceed with the conversion, your Board has relied on
accuracy of the Appraisal. The Appraisal is not binding on the IRS. Accordingly,
while we have no reason to believe that the IRS will challenge the Appraisal as
an accurate determination of the value of the Cooperative, there is a risk that
the IRS might determine that the Cooperative or its members must recognize gain
for federal income tax purposes. Furthermore, the Appraisal is subject to
adjustment for changes occurring between the appraisal date, September 30, 1998,
and the conversion date.
OTHER INCOME TAX RISKS OF THE CONVERSION
In addition to challenging the overall valuation of the Cooperative and the
LLC units received by the unit holders, the IRS might also might challenge: (1)
the apportionment of values to specific assets and the treatment of the
resulting gains or losses as capital gain or loss or ordinary income or loss,
(2) the patronage or nonpatronage character of the income, gains or loss, and
(3) our treatment of the liquidation as a constructive distribution of specific
assets rather than as a distribution of interests in the LLC. There are certain
anti-netting rules that may become operative if such challenges are mounted by
the IRS. Specifically, corporate capital losses cannot be offset against any
income other than capital gains and, likewise, patronage losses, including the
Cooperative's net operating loss carryover, cannot be offset against
nonpatronage income or gain. For example, if the IRS were to successfully
establish higher asset values, either in the aggregate or for specific assets,
anticipated losses could become taxable gains that might be characterized as
nonpatronage sourced which would prevent them from being offset by patronage
sourced losses.
Because we believe that the Special Financial Interests in the LLC that
will be issued to holders of nonqualified written notices of allocation do not
have an ascertainable value, we will not report any amount with respect to such
notices to the IRS. The Appraisal does not address this valuation issue and the
IRS may contend that the Interests have received value that is subject to tax as
ordinary income.
TAX STATUS OF THE LLC
We expect that the LLC will be treated as a partnership for federal income
tax purposes unless there is a change of law or trading in our units is
sufficient to classify the LLC as a publicly traded partnership. This means that
the LLC will pay no income tax and members will pay tax on their share of the
LLC's net income. We have not requested a ruling from the IRS with respect to
the tax treatment of the LLC because tax classification is essentially elective
under current IRS regulations.
If the LLC is treated as a corporation for federal income tax purposes, the
LLC would pay tax on its income at corporate rates (currently a maximum 35%
rate), distributions would generally be taxed again to holders of Class A units
as corporate dividends, and no income, gains, losses or
8
<PAGE>
deductions would flow through to holders of Class A units. Because a tax would
be imposed upon the LLC as an entity, the cash available for distribution to
unit holders would be reduced by the amount of the tax paid. Reduced
distributions could cause a reduction in the value of the LLC units.
TAX LIABILITIES MAY EXCEED CASH DISTRIBUTIONS
It is likely that unit holders may receive allocations of taxable income
that exceed cash distributions from the LLC. This will occur if the LLC
determines that the cash generated by the business is needed to fund the LLC's
activities or other obligations, rather than being available for distribution to
the LLC unit holders. The LLC will endeavor to make distributions at least
sufficient to cover unit holder taxes on income allocations. However, it is
possible that unit holders may be required to pay the tax liability with
personal funds.
PASSIVE LOSS LIMITATIONS; POSSIBLE DISALLOWANCE OF MEMBER INTEREST DEDUCTIONS
It is likely that a member's interest in the LLC will be treated as a
"passive activity" for most unit holders. In the case of unit holders who are
individuals or closely held corporations, this means that a unit holder's share
of any loss incurred by the LLC will be deductible only against such holders'
income or gains from other passive activities, e.g., S corporations and
partnerships that conduct a business in which the holder is not a material
participant. Passive activity losses that are disallowed in any taxable year are
suspended and may be carried forward and used as an offset against passive
activity income in future years. Upon disposition of a taxpayer's entire
interest in a passive activity to an unrelated person in a taxable transaction,
suspended losses with respect to that activity may then be deducted.
Many members have borrowed to purchase their equity interest in the
Cooperative and have been deducting the interest expense. After the conversion,
part or all of such interest expense may not be deductible in the same manner
because it must be aggregated with other items of income and loss that the
member has independently experienced from passive activities and subjected to
the passive activity loss limitation.
LACK OF PUBLIC MARKET FOR CLASS A UNITS; RESTRICTIONS ON TRANSFERS
There is currently no established public trading market for the Class A
units and an active trading market is unlikely to develop. We do not intend to
apply for listing of the Class A units on any stock exchange or on the Nasdaq
Stock Market. Consequently, you may be unable to readily resell your units.
To maintain our partnership tax status, our Class A units and Class B units
may not be traded on an established securities market or readily tradable on a
secondary market (or the substantial equivalent thereof). To help ensure that a
market does not develop, the Operating Agreement prohibits transfers without the
approval of the Board of Directors. The Board of Directors will approve
transfers that fall within "safe harbors" contained in the publicly-traded
partnership rules under the Tax Code, including transfers by gift, transfers
upon death of a member, transfers between family members and other transfers
during the tax year that in the aggregate do not exceed 2% of the total
outstanding Class A and Class B units. If any person transfers units in
violation of the publicly traded partnership rules or without the prior consent
of the Board, we will consider the transfer to be null and void.
INTENSE COMPETITION
Our business operates within highly competitive markets. In the United
States, we compete with other corn processors or refiners, including Archer
Daniels Midland Company, Cargill, Inc. and A.E. Staley Manufacturing Company (a
subsidiary of Tate & Lyle, PLC). Certain competitors are divisions of larger
enterprises which may have greater financial resources than the Cooperative.
Many of our products also compete with products made from raw materials other
than corn. For example, high fructose corn syrup competes principally with cane
and beet sugar and ethanol competes with MTBE and other oxygenate and compliance
alternatives. We believe the principal competitive factors in our markets are
price, product quality and service. We believe the conversion may enhance our
9
<PAGE>
competitiveness by removing impediments to corn procurement that result from the
member corn delivery requirement under the present cooperative structure. In
addition, we are responding to the competitive conditions by seeking to reduce
manufacturing and distribution costs, seeking to maintain and improve product
quality and pursuing activities which will enhance the service we provide to our
customers.
SENSITIVITY TO CORN PRICES
Changes in the price of corn can significantly affect our business. In
general, rising corn prices produce lower profit margins and therefore represent
unfavorable market conditions for the Cooperative. This is especially true when
market conditions do not allow us to pass along increased corn costs to our
customers. In fiscal year 1996 we incurred substantial losses. A primary cause
of the losses was an exceptional increase in corn costs which we were unable to
offset with higher product prices.
The price of corn is influenced by general economic, market and government
factors. These factors include weather conditions, farmer planting decisions,
domestic and foreign government farm programs and policies, global demand and
supply, all of which are beyond our control.
We attempt to mitigate the impact of fluctuations in corn prices by using
sophisticated financial instruments (corn futures contracts). However, such
hedging activities may not result in a reduction in our corn costs or protect us
from sharp increases in corn prices which we have experienced in the past.
LEVERAGE, ABILITY TO SERVICE DEBT AND RESTRICTIVE COVENANTS
As of December 31, 1998, the Cooperative's long-term debt was approximately
$290,000,000. While we believe that future operating cash flow, together with
financing arrangements, will be sufficient to finance current operating
requirements, it is possible our leverage and debt service requirements may make
us more vulnerable to economic or market downturns. If we are unable to service
our indebtedness, we may be forced to reduce or delay planned capital
expenditures, sell assets, restructure our indebtedness or seek additional
equity capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. In addition, the terms of the
Cooperative's existing debt instruments contain restrictive, financial and
maintenance covenants. These covenants, among other things, place limits on our
ability to make cash distributions to members. For example, cash distributions
may not exceed 80% of our net earnings in any given year, unless certain
financial ratios are satisfied.
GOVERNMENT REGULATION
As a producer of food items, we are subject to extensive regulation by the
FDA and other government agencies. We also are subject to various federal, state
and local laws and regulations with respect to environmental matters. The
failure to comply with applicable laws and regulations may adversely affect our
business, operating results or financial condition.
10
<PAGE>
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING INFORMATION
This Information Statement-Prospectus contains forward-looking statements.
These statements are based on management's beliefs and expectations, and on
information currently available to management. Forward-looking statements may be
found under "The Conversion," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business." Also, forward-looking
statements include statements in which we use words such as "believe," "expect,"
"anticipate," "intend," "will" or similar expressions.
Forward-looking statements involve numerous assumptions, risks and
uncertainties. Important factors that could significantly affect our current
plans, anticipated actions and future financial condition and results include,
among others, those set forth under the heading "Risk Factors." Actual results
may differ materially from those contemplated by any forward-looking statements.
We caution you not to put undue reliance on any forward-looking statements,
which speak only as of the date of this Information Statement-Prospectus.
11
<PAGE>
THE SPECIAL MEETING
GENERAL
The Board of Directors of the Cooperative is presenting the accompanying
ballot for use at the Special Meeting of Members to be held on, ____________,
1999 at ______, local time, at Jackpot Junction, Morton, Minnesota, and at any
adjournments or postponements thereof. This Information Statement-Prospectus and
the enclosed ballot form are first being mailed to the Cooperative members on or
about ____________, 1999.
MATTERS TO BE CONSIDERED
The purpose of the Special Meeting is to approve the merger of the
Cooperative with and into MCP Colorado. A copy of the MCP Merger Agreement is
attached as Appendix A and a copy of the Transaction Agreement is attached as
Appendix C.
WHO CAN VOTE
Members of record at the close of business on ___________, 1999 are
entitled to notice of and may vote at the Special Meeting. On ___________, 1999,
there were ______ voting members. Each member has one vote. If at least 10% of
the membership is present or represented by mail ballot at the Special Meeting,
a quorum will exist.
HOW YOU CAN VOTE
To vote on the proposed MCP Merger, you must use the mail ballot
accompanying this Information Statement-Prospectus. It is the only ballot you
will receive, and no additional ballots will be distributed at any regional
information meeting or the Special Meeting. As provided in the Cooperative's
Bylaws, voting by proxy is prohibited.
If you are unable to attend the Special Meeting, you can mail or personally
deliver the ballot to the Cooperative, or personally deliver the ballot at any
regional information meeting. Two envelopes, one to hold the ballot and one to
return the envelope containing the ballot, are enclosed for your convenience. We
must receive your ballot by the close of business on ____________, 1999 in order
for your vote to be counted. NO PROCEDURES EXIST FOR A MEMBER TO REVOKE A BALLOT
ONCE THE BALLOT HAS BEEN RECEIVED BY THE COOPERATIVE.
VOTES REQUIRED
The affirmative vote of two-thirds of the votes cast, in person or by mail,
at the Special Meeting is required to approve the MCP Merger.
RECOMMENDATION OF THE COOPERATIVE BOARD
The Cooperative Board has unanimously approved the MCP Merger Agreement and
the Transaction Agreement, including the transactions contemplated thereby. The
Cooperative Board believes that the proposed conversion is in the best interests
of the Cooperative and its members and recommends that members vote "FOR" the
adoption of the MCP Merger Agreement and the Transaction Agreement.
12
<PAGE>
THE CONVERSION
REASONS FOR THE CONVERSION
The structure and terms of the conversion from cooperative to limited
liability company form were determined by your Board of Directors and senior
management after extensive investigation of the anticipated financial and other
impacts of the conversion on the Cooperative and its members. In determining
whether to convert to a limited liability company, the Cooperative's Board and
senior management team considered numerous factors. The following is a brief
discussion of those factors.
* As the Cooperative's operations have expanded, it has become increasingly
difficult for members to cost-effectively deliver corn to the
Cooperative's facilities. This has forced members to use "GPA" as a
mechanism to facilitate corn delivery. As a result, the Cooperative is
operating less like a cooperative, and is at risk of losing its tax-exempt
status under the Internal Revenue Code. The conversion to a limited
liability company form will enable the Cooperative to maintain its tax
exempt status at the company level. It also gives the Cooperative
flexibility with respect to corn procurement in order to compete with
other corn wet milling companies, without placing unattractive corn
delivery requirements on members.
* The fact that the Cooperative has incurred substantial net losses in each
of the last two fiscal years and a much smaller loss for the six months
ended September 30, 1998.
* The fact that the cooperative form requires the Cooperative to limit its
membership to corn producers and to distribute its earnings to members
based on the amount of corn each member delivers to the company, rather
than the value of each member's investment.
* Members are currently required to pay self-employment taxes on the
Cooperative's earnings. As a member of the LLC, members will pay no
self-employment taxes on the new company's earnings because members will
not be required to deliver corn.
* The belief of the Board and senior management that, while no assurances
can be given, the liquidity of members' equity interests will be enhanced
by opening up membership in the new company to a broader range of
investors, that is, non-producers.
* The appraisal of American Appraisal Associates(R) that, as of September
30, 1998, the value of the Cooperative as a going concern was $290.6
million and the value per unit on that date was $1.10.
* The alternative courses of action available to the Cooperative, including
continuing to claim cooperative tax status and voluntarily electing
corporate tax status, which would involve double taxation, at both the
entity and member levels.
* The structure of the conversion, including that the conversion would
constitute a taxable transaction and that the Cooperative and most members
would realize a loss rather than a gain.
The foregoing discussion of the factors considered by the Board is not
intended to be exhaustive, but is believed to include all material factors
considered by the Board. In reaching its determination to approve and recommend
the conversion, the Board did not quantify or assign a relative weight to the
above factors.
RECOMMENDATION OF THE COOPERATIVE BOARD
The Cooperative's Board of Directors has approved the conversion and
believes that it is in the best interests of the Cooperative and its members to
convert from a cooperative to a limited liability company. Accordingly, the
Board has unanimously approved the MCP Merger Agreement and Transaction
Agreement and recommends that members of the Cooperative vote "FOR" adoption of
the MCP Merger Agreement and Transaction Agreement. If the conversion is not
consummated for any reason, the Board presently intends to continue to operate
the Cooperative in its current cooperative form.
13
<PAGE>
APPRAISAL OPINION
Because of the importance of fair market values in evaluating the tax
consequences of the proposed conversion, the Cooperative retained American
Appraisal Associates(R), a nationally recognized appraisal firm, to appraise the
value of the Cooperative and the value of the assets that will be deemed
constructively distributed to each of the Cooperative's unit holders (the
"Appraisal"). In the opinion of American Appraisal Associates(R), the fair
market value under the premise of continued use of the Cooperative's business
enterprise was $611 million as of September 30, 1998 and on that date, the fair
market value under the premise of continued use of the minority common equity
value of the Cooperative immediately following the consummation of the
conversion is $1.10 per unit.
The $611 million figure represents the aggregate value of the Cooperative's
assets, net of current liabilities, as a going concern and will be used by the
Cooperative in determining its taxable gains and losses on the constructive
liquidation for income tax purposes as discussed in detail in the tax discussion
that follows.
From the $611 million figure, the Appraisal subtracts long-term debt of
$320.3 million as of September 30, 1998 to arrive at the "as if freely traded
aggregate common equity value" of the Cooperative of $290.6 million. The $1.10
per unit value represents the per unit value of the constructive liquidating
distribution in the hands of the unit holders and is determined by applying
discounts for minority interest and for lack of marketability which, with
rounding, produce an aggregate "closely held minority interest common equity
value" of $215 million or $1.10 per unit. The significance of the Appraisal is
discussed further in the tax discussion that follows.
Members of the Cooperative may review a copy of the appraisal report at the
principal offices of the Cooperative.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material federal income tax consequences
of the conversion of the Cooperative into the LLC. The summary is based on
current provisions of the Internal Revenue Code of 1986, as amended ("Code"),
existing and proposed Treasury regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change. Subsequent
changes in such authorities may cause the tax consequences to vary substantially
from the consequences described below.
MEMBERS OF THE COOPERATIVE ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION TO THEM.
CHARACTERIZATION OF THE CONVERSION FOR FEDERAL INCOME TAX PURPOSES
For state law purposes, the conversion of the Cooperative into LLC will
consist of two steps: a merger of the Cooperative into a transitory Colorado
cooperative, followed by a merger of the transitory cooperative into the LLC.
For tax purposes, however, the Cooperative will treat the conversion as (1) a
reorganization of the Cooperative into a transitory Colorado cooperative, (2) a
complete liquidation of the Cooperative consisting of the constructive
distribution of its assets to its members and the assumption of its liabilities
by the members, and followed by (3) a constructive contribution of the
distributed assets subject to those liabilities to LLC.
TAX CONSEQUENCES OF THE CONVERSION TO THE COOPERATIVE
The merger of the Cooperative into the transitory Colorado cooperative is a
reorganization that will be treated as a mere change in form as defined in
Section 368(a)(1)(F) of the Code. Such a reorganization has no federal income
tax consequences to either the Cooperative or its equity owners.
The merger of the transitory Colorado cooperative into the LLC will be
treated as a taxable liquidation of the Cooperative. Section 311(b) of the Code
requires a corporation to recognize gain on liquidating distributions of
appreciated property as if it had sold the property to the distributees. The
United States Tax Court has held that a corporation's gain on distribution of
substantially all of
14
<PAGE>
the interests in a partnership must be measured as if the partnership's
business was sold in its entirety, which means that certain factors that may
bear on the value of the membership units of the LLC, such as minority
discounts and lack of marketability, cannot be taken into account by the
Cooperative. POPE & TALBOT, INC. V. COMMISSIONER, 104 T.C. 574 (1995) (decision
as to the assets to be valued), T. C. Memo 1997-116 (memorandum on valuation),
currently on appeal to 9th Circuit.
As discussed below, the Cooperative intends to treat the conversion as a
constructive distribution of its assets rather than as a constructive
distribution of interests in the LLC. Accordingly, the Cooperative will
apportion the aggregate appraised value ($611 million, net of current
liabilities, appraised as of September 30, 1998) among its assets and determine
gain or loss asset-by-asset. The Cooperatives' apportionment, which is based in
part on the appraised value of certain assets including the Member Loss
Receivable and the St.Paul Bank investment, and in part on management's judgment
as to other asset values, is as follows:
<TABLE>
<CAPTION>
COOPERATIVE GAIN/LOSS ON 9/30/98 9/30/98 LIQUIDATING
LIQUIDATION* (In millions) VALUES TAX BASIS GAIN (LOSS)
<S> <C> <C> <C>
Current assets (net of current liabilities) .......... $ 70,120 $ 70,120 --
Member Loss Receivable ............................... 15,100 21,532 (6,432)
Property, plant and equipment ........................ 491,120 502,893 (11,773)
LSI investment and intercompany receivable ........... 25,060 25,060 --
St. Paul Bank Investment ............................. 3,800 11,296 (7,469)
Unamortized costs .................................... 3,400 4,724 (1,324)
Other assets ......................................... 2,400 5,237 (2,837)
--------- -------- --------
Totals ............................................... $611,000 $640,862 $(29,862)
========= ========
Income from discounted satisfaction of qualified written notices of allocation . 5,709
--------
Net income (loss) before net operating loss deduction .......................... (24,153)
Net operating loss deduction** ................................................. (46,300)
--------
Overall loss after net operating loss deduction** .............................. $(70,453)
========
</TABLE>
- ------------------
* All amounts shown are based on September 30, 1998 figures and will be
adjusted to conversion date values and basis for purposes of determining the
Cooperative's gain or loss on each of its assets.
** The Cooperative's net operating loss carryover is patronage sourced and
therefore may be used only to offset patronage sourced income or gain. See
discussion below.
The above calculations suggest that the Cooperative has a reasonable
cushion to protect it against adverse tax consequences as a result of the LLC
conversion. Nevertheless, the conversion is not free of tax risk because there
can be no assurance that the IRS will not challenge the Cooperative on the
following points: (1) the aggregate values determined by the Appraisal, (2) the
apportionment of values to specific assets and the treatment of the resulting
gains or losses as capital gain or loss or ordinary income or loss, (3) the
patronage or nonpatronage character of the gains or loss, (4) the
characterization of the liquidation as a constructive distribution of specific
assets rather than as a distribution of interests in the Cooperative. The IRS is
not bound by the Appraisal and there are certain anti-netting rules that may
become operative if such challenges are mounted by the IRS. Specifically,
corporate capital losses cannot be offset against any income other than capital
gains and, likewise, patronage losses, including the Cooperative's net operating
loss carryover, cannot be offset against nonpatronage income or gain. For
example, if the IRS were to successfully establish asset values higher of those
shown above either in the aggregate or for specific assets, the anticipated
losses could become taxable gains that might be characterized as nonpatronage
sourced which would prevent them from being offset by losses and operating loss
carryovers that are patronage sourced.
The Cooperative's management and its Board of Directors have evaluated the
tax risks of the conversion with the valuation advice of its outside appraisers
and the tax advice of its legal counsel and have concluded that the benefits of
the conversion substantially outweigh the tax risks.
15
<PAGE>
TAX CONSEQUENCES OF THE CONVERSION TO UNIT HOLDERS
Section 331(a) of the Code provides that amounts received by a shareholder
in complete liquidation of a corporation shall be treated as full payment in
exchange for the shareholder's stock. Accordingly, the Cooperative's equity
holders will recognize any gain or loss inherent in their interest in the
Cooperative. The amount of the gain or loss will depend on the adjusted tax
basis of the members's old Cooperative units and the value of the liquidating
distribution. Such gain or loss will be a long-term capital gain or loss if the
holding period for such old Cooperative units is greater than one year at the
effective time of the conversion.
The amount of the liquidating distribution will be the fair market value of
the LLC units received each Cooperative equity holder. Based on general
principles of valuation, the equity holders should be entitled to give
consideration to the depressing effect on valuation of the lack of marketability
and lack of control that is inherent in a nonpublicly traded LLC interest. The
Appraisal indicates that such discounts will result in per unit values that are
26.0% less than each unit's proportionate interest in the overall appraised
value of the Cooperative's equity. Specifically, the Appraisal values the
Cooperative in the aggregate as a going concern at $611 million (net of current
liabilities but exclusive of long-term debt). This amount will be adjusted to
conversion date values used in determining the Cooperative's tax consequences
arising from the conversion as discussed above. After subtracting debt of $320.3
million, the Appraisal reflects an "as if freely traded aggregate common equity
value" of $290.6 million as of September 30, 1998. This value is then reduced to
$223.8 million by application of a minority discount of 23% and is further
reduced to a rounded $215 million by a discount for lack of marketability. The
$215 million figure produces a per unit value of $1.10 for each LLC unit that is
received by a unit holder in the conversion.
Based on legal counsel's conclusion that discounts for lack of
marketability and lack of control (minority interest) are supportable and on the
determination of those discounts in the Appraisal, the Cooperative intends to
report the liquidating distribution to the unit holders and to the IRS at $1.10
per unit (subject to adjustment to the conversion date value). Although there is
no legal authority that expressly allows minority interest and lack of
marketability discounts in this form of transaction, the IRS litigating position
in the POPE & TALBOT case discussed above vigorously argues that the asset to be
valued at the corporate level in a liquidation is different than the asset to be
valued at the shareholder level because of such discounts. Because the IRS is
not bound by either the Appraisal nor the position of the Cooperative's legal
counsel, the principal tax risk at the Cooperative unit holder level of the
conversion is that the IRS challenges the valuation of the LLC units by
attacking the valuation methodology at the Cooperative level, the propriety of
valuation discounts or the actual percentage discounts applied.
The Cooperative's unitholders will be able to deduct their adjusted basis
in their old Cooperative units from the value of the LLC units received in
determining whether they have realized gain or loss. Many members acquired units
at different times and have a different tax basis for some of their units than
for others. Other members may have purchased their units in private transfers or
inherited units with a basis different than their transferor's basis.
Accordingly, members are likely to have differing tax results depending on their
unit tax basis as discussed below.
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<PAGE>
The Cooperative's analysis suggests that some members (principally those
who purchased some or all of their units in 1982) may incur substantial capital
gains, while most other members will incur capital losses. The following
schedule illustrates some of the per unit gain/loss calculations depending on
when a particular unit was acquired:
<TABLE>
<CAPTION>
GAIN/LOSS PER UNIT* ORIGINAL LIQUIDATING TOTAL GAIN/LOSS
(in millions, except per unit amounts) UNITS TAX BASIS DISTRIBUTION GAIN/LOSS PER UNIT
<S> <C> <C> <C> <C> <C>
Units Issued in 1982 ......................... 57,488 18,798 $ 63,245 $ 44,447 $ 0.77
Units Issued in 1991 ......................... 29,307 41,868 32,243 (9,625) (0.33)
Units Issued in 1994 ......................... 19,722 49,306 21,698 (27,608) (1.40)
Units Issued in 1995 ......................... 28,824 129,709 31,711 (97,998) (3.40)
Units Issued as Qualified Patronage .......... 1,464 7,320 1,611 (5,709) (3.90)
Archer Daniels Midland equity ................ 58,622 119,790 64,493 (55,297) (0.94)
------ ------- -------- --------- ------
Totals ....................................... 195,428 366,791 $215,000 $(151,791) $(0.78)
======= ======= ======== ========= ======
Liquidation distribution per Unit: $ 1.10
========
</TABLE>
- ------------------
* All amounts shown are based on the September 30, 1998 figures drawn from the
Appraisal and will be adjusted to conversion date values and basis for
purposes of determining each unit holder's gain or loss.
TAX TREATMENT OF CERTAIN UNIT HOLDERS
The tax basis shown in the above schedule is the original issue price and
is applicable to those unit holders that acquired their units in the original
issue. The scheduled basis amounts will not be applicable to units that have
been subsequently transferred by sale, upon death, or as gifts.
Unit holders who acquired their units by purchase from another unit holder
will have a basis equal to their purchase price. Unit holders who acquired their
units from a decedent will have a basis equal to the value of the unit for
estate tax purposes.
For the purpose of determining gain, the Cooperative unit holders who
acquired their units by gift will have a basis equal to the donor's basis.
However, if use of the donor's basis will produce a loss and if the fair market
value at the time of the gift was less than the donor's basis, then the donee's
basis will be the fair market value at the time of the gift. To illustrate, if
the holder of units issued in 1995 for $5 makes a gift, the donee's basis for
purposes of the conversion will be the current fair market value of the gift
($1.10 per unit based on September 30, 1998 figures) and no loss will be
realized by the donee. On the other hand, if a donor who acquired units in 1982
at $0.33 per unit makes a gift of those units, the donee will take the donor's
basis and have the same $0.77 per unit gain as shown on the above schedule.
ACCORDINGLY, CAUTION SHOULD BE EXERCISED BY ANY UNIT HOLDER WHO MAKES GIFTS OF
UNITS IN ANTICIPATION OF THE CONVERSION.
As shown in the above schedule, certain units were issued as patronage
refunds. Holders of units that were issued to them as qualified written notices
of allocation will have a loss on the conversion. The character of the loss as
ordinary loss or as capital loss, however, is uncertain. Redemption of a
qualified written notice of allocation traditionally has been treated as an
ordinary loss under the authority of Revenue Ruling 70-64, 1970-1 C.B. 36, and
Revenue Ruling 70-407, 1970-2 C.B. 52. However, in Notice 87-68, 1987-2 C.B.
378, the IRS suspended Revenue Ruling 70-74 and implicitly suspended Revenue
Ruling 70-407 pending the decision of the U.S. Supreme Court in ARKANSAS BEST
CORP. V. COMMISSIONER, 485 U.S. 212 (1988), which was later decided against the
taxpayer. Original holders may reasonably contend that ordinary loss treatment
is appropriate under general cooperative tax principles because the conversion
represents the completion of a patronage transaction. However, the IRS may well
argue that the adverse decision in ARKANSAS BEST CORP. mandates capital loss
treatment. Purchasers of such units will have a basis equal to their purchase
price and will realize capital gain or loss depending on whether the their
purchase price is less than or greater than the $1.10 per unit value of the LLC
units received.
In the case of nonqualified written notices of allocation, Section
1385(c)(2) of the Code provides that: (A) the basis of the notice in the hands
of the patron to whom such notice was issued shall be
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<PAGE>
zero, (B) the basis of the notice which was acquired from a decedent shall be
its basis in the hands of the decedent, and (C) gain on the disposition of the
notice by any unit holder shall be ordinary income to the extent of the stated
dollar amount of the unit. Distributions with respect to Special Financial
Interests in the LLC into which the nonqualified written notices of allocation
will be converted are extremely uncertain both as to time and as to amount and,
because of the extent of the LLC Board's discretion, there is no assurance that
any amount will ever be paid. Accordingly, the Cooperative intends to take the
position that the nonvoting Special Financial Interests in the LLC that will be
issued to holders of the nonqualified written notices in the conversion do not
have an ascertainable value in the hands of the holders and no amount will be
reported to the IRS with respect to receipt of the Special Financial Interests.
If the IRS were to successfully challenge this position, the holders of
nonqualified written notices who originally received their notices as patrons
would have ordinary income in 1999 to the extent of the value of their Special
Financial Interests in the LLC and other holders would calculate income in
accordance with Code Section 1385(c)(2).
UTILIZATION OF CAPITAL LOSSES BY NON-CORPORATE TAXPAYERS
Noncorporate taxpayers such as individuals, trusts and estates may deduct
capital losses to the extent of capital gains recognized by the taxpayer during
the taxable year, plus $3,000. Unused capital losses may not be carried back but
may be carried forward indefinitely until they are fully utilized or the
taxpayer dies. Thus, an individual Cooperative member who has no other capital
gains or losses could deduct $3,000 per year until the conversion loss is fully
deducted or the member dies. In addition to capital gains the member may realize
on sale of capital assets, it also should be noted that net Section 1231 gains
are treated as capital gains that may be offset by capital loss deductions or
carry forwards.
UTILIZATION OF CAPITAL LOSSES BY C CORPORATIONS
In the case of a C corporation (such as Archer Daniels Midland), capital
losses are deductible only to the extent of capital gains. C corporations may
not use any part of their capital losses to reduce ordinary taxable income. Code
Sec. 1211(a). A C corporation deducts its capital losses against its capital
gains for the taxable year. A C corporation that sustains capital losses in
excess of capital gains in the taxable year has a net capital loss which, in
general and subject to limitations, can be carried back three years and forward
five years until it is used. The amount of net capital loss (whether long or
short-term) carried back or carried forward to another year is treated as a
short-term capital loss in the year to which it is carried. Code Sec.
1212(a)(1).
CONSTRUCTIVE PARTNERSHIP FORMATION
The merger of MCP Colorado cooperative into the LLC will be treated for tax
purposes as a constructive formation of the LLC as a partnership. Accordingly,
the members will be treated as having contributed the assets they constructively
received in the liquidation of the Cooperative subject to the Cooperative's
liabilities. In general, neither gain nor loss is recognized to a partnership or
its partners in the case of a contribution of property to the partnership in
exchange for an interest in the partnership. Code Section 731. The LLC's initial
asset basis will be the aggregate basis of those assets in the hands of the
contributing members which will reflect the discounts from the Appraisal for
minority interest and lack of marketability as shown above.
IMPORTANCE OF THE APPRAISAL TO THE COOPERATIVE AND ITS UNIT HOLDERS
As the above discussion indicates, the Cooperative's tax treatment, the tax
treatment of the Cooperative unit holders and the initial asset basis in the
hands of the LLC all depend in significant part on the accuracy of the Appraisal
which is not binding on the IRS or the courts. While we have no reason to
believe that the Appraisal will not be accepted by the IRS, there can be no
assurance that the IRS will not challenge the values used in determining gain or
loss at the Cooperative or unit holder level or that a court will not sustain
such challenge.
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<PAGE>
IRS INFORMATION REPORTING REQUIREMENTS
The Cooperative is required to file Form 966 notifying the IRS of the
taxable liquidation within 30 days of formal adoption of the plan of merger and
to supplement the filing if the plan is later amended. MCP will be required to
issue a Form 1099-DIV to each unit holder whose units have a value of more than
$600 not later than January 31, 2000, and transmit the information to the IRS
before February 28, 2000.
ACCOUNTING TREATMENT
For financial accounting purposes, the conversion will be treated in a
manner similar to that of a "pooling of interests" transaction under GAAP. Under
this method of accounting, no gain or loss will be recognized at the time of the
conversion and the book value of the assets and liabilities of the Cooperative
at the time of the conversion will carry over to the LLC. However, since the LLC
is not a tax paying entity, any deferred income taxes on the books of the
Cooperative at the time of the conversion will be eliminated. In addition, the
various equity accounts will be consolidated into only two captions -- Class A
Units and Class B Units.
REGULATORY APPROVAL
No federal or state regulatory requirements must be complied with or
approval must be obtained in connection with the proposed conversion.
ABSENCE OF DISSENTERS' RIGHTS
Members who object to the MCP Merger will have no appraisal or dissenters'
rights under Minnesota law (i.e., the right to receive, instead of Class A
units, an amount in cash that a court decides is the fair value of their units
of equity participation).
FEDERAL SECURITIES LAW CONSEQUENCES
Under the federal securities laws, Class A units received in the conversion
by persons who are not "affiliates" (as that term is defined under the
Securities Act of 1933, as amended) of the LLC may be resold immediately. Class
A units received in the conversion by "affiliates" of the LLC may be resold only
(1) pursuant to further registration under the Securities Act, (2) in compliance
with Rule 145 under the Securities Act or (3) in transactions that are exempt
from registration under the Securities Act. The foregoing restrictions are
expected to apply to the directors and executive officers of the LLC.
This Information Statement -- Prospectus cannot be used in connection with
resales of Class A units received in the conversion by any person who may be
deemed to be an "affiliate" of the Cooperative or the LLC under the Securities
Act.
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<PAGE>
THE MERGER AGREEMENTS AND THE TRANSACTION AGREEMENT
THE FOLLOWING SUMMARY OF THE MATERIAL TERMS OF THE MCP MERGER AGREEMENT,
THE LLC MERGER AGREEMENT AND THE TRANSACTION AGREEMENT, IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SAID AGREEMENTS. THE MCP MERGER AGREEMENT IS ATTACHED
AS APPENDIX A, THE LLC MERGER AGREEMENT AS APPENDIX B AND THE TRANSACTION
AGREEMENT IS ATTACHED AS APPENDIX C TO THIS DOCUMENT.
MERGER WITH MCP COLORADO (MCP MERGER AGREEMENT)
GENERAL
MCP Colorado is a wholly-owned subsidiary of the Cooperative. It has been
formed specifically to effectuate the conversion. Subject to the terms and
conditions of the MCP Merger Agreement and the Transaction Agreement,
immediately before the effective time of the LLC Merger, the Cooperative will
merge with MCP Colorado. MCP Colorado will be the surviving entity. At the
effective time, the separate corporate existence of the Cooperative will cease.
The Articles and Bylaws of MCP Colorado will be substantially identical to those
of the Cooperative as in effect immediately before the merger. The directors and
officers of the Cooperative will be the officers and directors of MCP Colorado.
This merger is a necessary step in the conversion process because Minnesota
law does not permit a Minnesota cooperative, such as the Cooperative, to merge
with a limited liability company. Under Colorado law, cooperatives are permitted
to merge with limited liability companies. In addition, Colorado has been chosen
as the state of organization for the new limited liability company because
Colorado law allows limited liability companies greater freedom and flexibility
to manage their business and affairs than laws in most other states.
CONVERSION OF EQUITY INTERESTS; TREATMENT OF MEMBERSHIP STOCK
Upon completion of the MCP Merger, each member of the Cooperative will be a
member of MCP Colorado. All outstanding shares of the Cooperative common stock
and units of equity participation will be converted automatically into shares of
common stock and units of equity participation of MCP Colorado on a one-to-one
basis. The rights and privileges of the MCP Colorado common stock and units of
equity participation will be the same as the rights and privileges of the
Cooperative common stock and units of equity participation. The outstanding
nonvoting units of equity participation of the Cooperative held by Archer
Daniels Midland Company will also be converted automatically into nonvoting
units of equity participation of MCP Colorado on a one-to-one basis.
The Cooperative currently has outstanding $3,849,000 of patronage refunds
that were originally issued as nonqualified written notices of allocation within
the meaning of Section 1388(d) of the Internal Revenue Code. The nonqualified
written notices were not evidenced by capital stock or by units of equity
participation. Thus, they represent allocated patronage equities that may be
redeemed at the discretion of the Board of Directors and, if such discretion is
not exercised, upon liquidation of the Cooperative after all units of equity
participation have been redeemed at the value determined by the Board of
Directors. Nonqualified written notices represent patronage earnings of the
Cooperative that were allocated to the members in a manner that did not produce
a patronage dividend deduction for the Cooperative and which were not required
to be taken into taxable income of the members when they were issued. The stated
amount of the notices would be deductible by the Cooperative and taxable to the
holders if and when they are redeemed. The entitlements of the holders of
nonqualified written notices in the Cooperative will be converted into
comparable entitlements in MCP Colorado.
MERGER WITH THE LLC (LLC MERGER AGREEMENT)
GENERAL
Prior to the execution of the Transaction Agreement, the LLC was formed as
a Colorado limited liability company. Subject to the terms and conditions of the
LLC Merger Agreement and the Transaction Agreement, immediately after the
effective time of the MCP Merger, MCP Colorado will
20
<PAGE>
merge with the LLC, a Colorado limited liability company, with the LLC being the
surviving company. At the effective time, the separate corporate existence of
MCP Colorado will cease, and the initial membership interest of the LLC held by
the Cooperative will be automatically canceled.
As a result of the MCP Merger and the LLC Merger (the "Mergers"), all
members of MCP Colorado will become members of the LLC, which means that all
members of the Cooperative will be members of the LLC. The business of the
Cooperative will be conducted by the LLC. The directors and officers of the
Cooperative will be the directors and officers of the LLC.
CONVERSION OF EQUITY INTERESTS; TREATMENT OF MEMBERSHIP STOCK
Each outstanding unit of equity participation of MCP Colorado will be
converted automatically into one Class A unit of the LLC. Each outstanding share
of common stock of MCP Colorado will be canceled. Each member owning at least
5,000 Class A units will have one vote, regardless of the number of additional
Class A units owned by the member. The rights and privileges of the Class A
units are set forth in the Operating Agreement. For a description of the
differences between the rights of the holders of Class A units and holders of
Cooperative units of equity participation, see "Comparison of Certain Rights of
Members."
In addition, each outstanding nonvoting unit of equity participation of MCP
Colorado held by Archer Daniels Midland Company will be converted automatically
into one Class B unit of the LLC. A Class B unit is a nonvoting membership
interest. With the exception of the right to vote, Class B units have the same
rights and privileges as the Class A units.
Nonqualified written notices of allocation will not be redeemed as part of
the LLC Merger nor will they be converted in to LLC units. Instead, they will be
designated as Special Financial Interests in the LLC that will possess
entitlements comparable to their present entitlements. Specifically, the LLC
Board of Directors will have the discretion to redeem the Special Financial
Interests for their stated amount and, if that discretion is not exercised, the
Special Financial Interests will have a liquidation entitlement comparable to
what now exists, namely a subordinated right to be paid after each LLC unit
holder has been paid the value of their unit as determined by the Board of
Directors of the LLC. If and when the face amount of the Special Financial
Interests are paid, a special allocation of income or gain will be made to the
holders thereof as taxable income.
EXCHANGE OF CERTIFICATES
There is no requirement to exchange any certificates representing shares of
common stock and units of equity participation of the Cooperative (or MCP
Colorado). After the Mergers, until surrendered to the LLC in a subsequent
transfer, the certificates representing the Cooperative units of equity
participation will be deemed to evidence ownership of the Class A units or Class
B units, as the case may be.
EFFECTIVE TIME
The MCP Merger will take effect upon the later of the filing of the
articles of merger with the Secretary of State of the State of Minnesota and the
filing of the Statement of Merger with the Secretary of State of the State of
Colorado, and the LLC Merger will take effect upon the filing of the statement
of merger with the Secretary of State of the State of Colorado (the "Effective
Time"). The Cooperative anticipates that the MCP Merger and the LLC Merger will
be consummated on ____________, 1999 (the "Closing Date").
EMPLOYEE BENEFIT PLANS
Under the Transaction Agreement, the LLC will honor all benefits accrued
under any Cooperative benefit plan, policy or arrangement in accordance with the
respective terms of such benefit plans and to the extent required by law.
PATRONAGE DISTRIBUTIONS
Within a reasonable period of time after the Effective Time, the LLC will
make patronage distributions to former members of the Cooperative based on
patronage transactions with the
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Cooperative during the fiscal year or portion thereof immediately preceding the
Effective Time. Patronage distributions shall made in cash and equity credits in
a manner consistent with the Cooperative's patronage distribution policy in
effect prior to the Effective Time (and in the case of equity credits, in the
form of Class A units or Class B units, as appropriate).
1996 LOSS PAYABLES
After the Effective Time, the unpaid portion of the Cooperative's operating
loss for the fiscal year ended September 30, 1996 that was assessed against
units of equity participation shall continue as a lien in favor of the LLC
against Class A units received in the LLC Merger.
REPRESENTATION AND WARRANTIES
In the Transaction Agreement, the Cooperative, MCP Colorado and the LLC
each have made representations and warranties as to, among other things, the
organization and good standing of each party, the capitalization of each party
and the corporate power and authority of each party. In addition, the
Transaction Agreement contains representation and warranties of the Cooperative
as to, among other things, (i) its financial statements; (ii) the absence of
undisclosed liabilities; (iii) compliance with applicable laws; (iv) the absence
of legal proceedings; and (v) the absence of material defaults under material
contracts.
CONDITIONS TO CONSUMMATION OF THE MERGERS
The obligations of each party to consummate the Mergers are subject to the
satisfaction or waiver, where permissible, of the following conditions at or
prior to the Effective Time.
(1) the requisite approval by the members of the Cooperative of the MCP
Merger Agreement and the Transaction Agreement;
(2) the requisite approval by the members of MCP Colorado of the LLC Merger
Agreement and the Transaction Agreement;
(3) the absence of any injunction, restraining order or order of any nature
issued by any court of competent jurisdiction, government or
governmental agency enjoining the MCP Merger and LLC Merger;
(4) the effectiveness of the Registration Statement (of which this
Information Statement -- Prospectus constitutes a part) and no
stop-order suspending the effectiveness thereof will have been issued
or no proceedings will have been initiated or threatened by the SEC for
such purpose;
(5) the receipt of all consents, approvals, authorizations and waivers
which are necessary in connection with the MCP Merger and the LLC
Merger, including receipt of consents from ADM and the Cooperative's
lenders;
(6) the accuracy in all material respects of the representations and
warranties of each party to the Transaction Agreement;
(7) the performance in all material respects of all obligations required to
be performed by each party under the Transaction Agreement, MCP Merger
Agreement and LLC Merger Agreement prior to the Effective Time; and
(8) all actions, proceedings and documents necessary to carry out the MCP
Merger and LLC Merger shall be reasonably satisfactory to each party.
As the sole shareholder of MCP Colorado and sole member of the LLC before
the MCP Merger, the Cooperative (through the actions of its Board of Directors)
has approved the LLC Merger Agreement and the Transaction Agreement. No
assurance can be provided that the other conditions precedent to the conversion
will be satisfied or waived by the party permitted to do so. The condition that
cannot be waived includes approval by members of the Cooperative of the MCP
Merger.
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CONDUCT OF BUSINESS PRIOR TO CONVERSION
The Transaction Agreement provides that, prior to the Effective Time, the
Cooperative will conduct its business in the ordinary course consistent with
past practice and use good faith efforts to preserve intact its business
organization, properties and the goodwill of its members suppliers and other
business relationships.
Each party has also agreed to use its good faith efforts to take or cause
to be taken all actions, and to do or cause to be done, all things necessary,
proper or advisable under applicable laws so as to permit consummation of the
Mergers as promptly as practicable and otherwise to enable consummation of the
transactions contemplated by the Transaction Agreement, the MCP Merger Agreement
and LLC Merger Agreement. Each party has agreed to cooperate in obtaining
necessary permits, consents, approvals and authorizations of all third parties
and any court, administrative agency or other federal, state or local government
authority.
In addition, each party has agreed that without the prior consent of the
other party it will not, among other things: (1) grant to any person any right
to acquire capital stock or other equity interests, except for allocation of
patronage equities in a manner consistent with past practice; (2) issue any
additional shares of capital stock or other equity interests, except in the
ordinary course of business consistent with past practice; (3) reclassify,
combine, split or amend its capital stock or equity interests; (4) purchase,
acquire or redeem any shares of its capital stock or equity interests, except in
the ordinary course of business; (5) enter into, amend or terminate any material
contract; (6) amend its Articles of Incorporation or Articles of Organization,
as the case may be, or its Bylaws or Operating Agreement, as the case may be, or
any Board policies; (7) other than in the ordinary course of business pursuant
to existing credit arrangements, incur any indebtedness for borrowed money; (8)
make any material capital expenditures other than in the ordinary course of
business; (9) mortgage any of its assets or properties, or except in the
ordinary course, sell any of its material assets or properties; (10) pay any
dividends or make any distributions with respect to its capital stock or equity
interests, except in the ordinary course consistent with past practice; or (11)
agree or commit to do any of the actions listed above.
TERMINATION
The Transaction Agreement may be terminated and the Mergers contemplated
thereby may be abandoned at any time prior to the Effective Time by:
(1) either party if members of the Cooperative fail to approve the MCP
Merger;
(2) mutual written consent of the Cooperative, MCP Colorado and the LLC
(although the Cooperative currently controls MCP Colorado and the LLC);
(3) any party to the Transaction Agreement upon written notice if (a) one
or more of the conditions to its obligations cannot be met, (b) the
other party has defaulted in any material respect under any of the
covenants or agreements under the Transaction Agreement or (c) any
representation or warranty of the other party is or has become
materially untrue or incorrect and in either case, has not been cured
within 30 days after notice thereof; or
(4) either party if the conversion has not been consummated on or before
August 1, 1999.
AMENDMENT
The terms of the Transaction Agreement may be amended or supplemented at
any time by mutual agreement except, following approval of the MCP Merger by
members of the Cooperative, the Transaction Agreement may not be amended if such
amendment would violate applicable law or change the amount or form of the
consideration to be received by members of the Cooperative.
INDEMNIFICATION AND INSURANCE
From and after the Effective Time of the Mergers, the LLC has agreed to
indemnify each present and former director, officer, employee or agent of the
Cooperative or MCP Colorado and
23
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each person who, while a director or officer of the Cooperative and at the
request of the Cooperative, serves or has served another corporation,
cooperative, partnership, joint venture, or other enterprise as a director,
officer or partner, against any losses, claims, damages, liabilities, or
expenses arising out of or pertaining to matters existing or occurring at or
before the Effective Time, whether asserted or claimed before or after the
Effective Time, to the fullest extent permitted by law. The LLC may purchase
insurance coverage against any such losses, claims or expenses, but is not
obligated to do so.
24
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of Minnesota Corn
Processors, Inc. We derived this information from the consolidated financial
statements of Minnesota Corn Processors, Inc. The audited financial statements
have been audited by Clifton Gunderson L.L.C., independent auditors.
Fiscal year 1997 was a six-month period because Minnesota Corn Processors,
Inc. changed its fiscal year end from September 30 to March 31.
You should read the financial data presented below along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," as
well as the consolidated financial statements and related notes that we include
at the end of this document.
<TABLE>
<CAPTION>
PERIOD ENDED YEAR (UNAUDITED)
MARCH 31, ENDED SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, (SIX MONTHS) MARCH 31, SEPTEMBER 30,
------------------------------ -------------- ------------- ---------------------------
1994 1995 1996 1997 1998 1997 1998
--------- --------- ---------- -------------- ------------- ------------- -------------
(in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Revenues ....................... $ 233 $ 327 $ 420 $ 237 $ 563 $ 293 $ 322
Cost of product sold ............... 195 256 441 207 525 276 290
Gross proceeds (loss) .............. 38 71 (21) 30 38 17 32
Selling, general and
administrative expenses ........... 12 14 26 20 46 22 25
Operating income (loss) ............ 26 57 (47) 10 (8) (5) 7
Interest expense ................... 6 11 19 20 32 20 12
Other income (expense) ............. 4 1 3 -- (5) 2 4
Net income (loss) .................. 24 47 (63) (10) (45) (23) (1)
Outstanding units of equity
participation at year end ......... 76.3 76.3 76.2 136.7 195.7 195.7 195.7
BALANCE SHEET DATA:
Working capital (deficit) .......... 19 (31) (363) (352) 43 45 77
Total assets ....................... 326 491 662 672 650 655 653
Long-term debt(1) .................. 137 164 6 1 295 291 318
Members' equity .................... 131 201 201 212 286 308 285
OTHER DATA:
EBITDA(2) .......................... 42 78 (16) 28 30 20 34
Capital expenditures ............... 102 172 208 12 13 6 5
</TABLE>
- ------------------
(1) Does not reflect the retirement of $28 million of indebtedness in November
1998.
(2) EBITDA represents earnings (loss) before interest, income taxes,
depreciation and amortization. It is presented to enhance an understanding
of our operating results and ability to service debt and is not intended to
represent cash flow or net earnings under U.S. generally accepted accounting
principles ("GAAP"). Our use of EBITDA may not be comparable to similarly
titled measures used by other companies.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED
UNDER "RISK FACTORS", THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE ANTICIPATED.
OVERVIEW AND OUTLOOK
Following several years of attractive growth, the Cooperative sustained
major losses in fiscal years ending in 1996, 1997 and 1998. The primary reason
for the losses was a significant expansion of high fructose corn syrup ("HFCS")
capacity in North America ahead of industry demand which has been, however,
growing at approximately 5% per year. The supply/demand caused sweetener prices
to fall sharply and made these producers unprofitable in 1996 and 1997. Since
HFCS capacity utilization dropped to 68% in 1996, some withdrawal of capacity
and the continuing demand growth has returned the HFCS capacity utilization to
the 86-90% rate. This recovery has been in line with the industry's history in
dealing with these imbalances that occur approximately every 8-10 years. The
recovery is generally fairly quick.
The other major factor contributing to the losses sustained during 1996 -
1997 was a sharply higher corn cost. Corn reached a historical high, with the
average cost of fiscal 1996 corn increasing by 76%. In late 1997, corn returned
to more normal levels and has actually fallen in late 1998 below normal lows.
This has helped the Cooperative to return to profitability at the present time.
In fiscal 1999, the Cooperative has addressed those items within its
control in order to be properly positioned when industry prices rebounded to
normal levels. The Cooperative increased volume to basically full capacity,
while reducing operating costs per bushel to target levels, and increasing
efficiency. Concentration on customer service and quality of products will
continue to establish an outstanding customer base. Capital expenditures were
directed to cost reduction projects at the processing facilities.
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1997
NET SALES. Net sales increased 9.9% from $293 million to $322, while grind
increased 8.3 million bushels or 14.9%. Increased sweetener volumes and prices
($32 million) were offset by decreases in starch (8%) and ethanol (18%) sales.
COST OF PRODUCTS SOLD. Cost of products sold increased $14 million or 5.1%.
Increases in grind accounted for a $21 million increase in corn costs which was
offset by a savings of $6 million due to a lower per bushel cost. The ethanol
producer credit recognized in 1998 was $3 million greater than in 1997.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $3 million. Leased railcar costs accounted
for $2 million (66.7%) of the overall increase. LSI's general and administrative
costs increased $2 million primarily due to higher labor costs and contractual
services.
NET OPERATING INCOME. Net operating income increased from a loss of $5
million to a profit of $7 million or an improvement of $12 million. This is
principally due to lower per bushel corn costs ($6 million) and increased
operational efficiencies on a per unit basis ($8 million), offset by slightly
higher selling, general and administrative expenses.
NET PROCEEDS. Net proceeds improved from a loss of $23 million to a loss of
$1 million, an improvement of $22 million. Improvement of $12 million in net
operating income, $8 million in financing costs, and $2 million in other income
account for the majority of the increase in net proceeds.
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YEAR ENDED MARCH 31, 1998 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1996
Note this comparison is necessary due to the change of fiscal years from
September 30 to March 31. These two periods compare the first full new year
(3/31/98) with last full old fiscal year (9/30/96).
NET SALES. Net sales increased from $420 million to $563 million or $143
million (34%). Total grind increased by 63.5%, principally due to increased
capacity from the completion of expansion in both Columbus and Marshall
facilities. Volume increases were primarily in 55 HFCS (144.1%) and ethanol
(54.0%). These volume increases were a direct result of having a full year's
production from capacity expansion. These volume increases were offset by
sweetener price decreases of 25-35% and starch and ethanol decreases of 10%. The
inclusion of LSI sales for a full year in 1998 as compared to a half year in
1996 added $47 million to net sales or 32.9% of the overall increase.
COST OF PRODUCT SOLD. Cost of product sold increased $84 million (19%). The
cost of corn only increased $8 million, with $109 million increase due to higher
grind but offset by $101 million decrease due to cost per bushel declining by
37%. Increases in labor, depreciation, repairs, and utility costs, as a result
of increased grind and production, account for $38 million (45.2%) of the
overall increase. The inclusion of LSI operations for a full year in 1998 as
compared to a half year in 1996 increase the cost of goods sold by $39 million
or 46.4% of the overall increase.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES. These expenses increased $20
million. Leased railcar costs increased $4 million due to more railcars needed
for the increase in sales volumes. Selling and general and administrative costs
are up $5 million primarily due to increases in administrative labor cost, bad
debts, and legal and audit fees. The inclusion of LSI operations for the entire
year of 1998 as compared to a half year in 1996 added $12 million to this cost
or 60% of the overall increase.
NET OPERATING INCOME. Net operating income improved from a loss of $47
million to a loss of $8 million or $39 million (83%). The return to more normal
corn costs added $101 million but this was offset by the decrease in sweetener
prices of 25-30% or approximately $75 million. Improvements in operational
efficiencies account for the additional improvements.
INTEREST EXPENSE AND OTHER INCOME/EXPENSE. Interest expense increased $13
million due to higher interest rates and an increased debt load for five months
of fiscal year 1998 prior to the recapitalization and refinancing of the debt in
late August 1997. Other expense increased by $8 million due to the recognizing
of a loss on sales contracts of $8 million.
NET PROCEEDS. Net proceeds improved from a loss of $63 million to a loss of
$45 million or $18 million (28.6%). This is principally due to the improvement
in the operating proceeds ($39 million) offset by the higher financing cost ($13
million) and the recognition of the loss on a sales contract ($8 million).
YEAR ENDED SEPTEMBER 30, 1996 COMPARED TO YEAR ENDED SEPTEMBER 30, 1995
NET SALES. Net sales increased by $93 million or 28.4%, on slightly
decreased grind of 6.3%. The decreased grind was primarily related to a
cessation of ethanol production for two months due to the economic infeasibility
as a result of very high corn cost. The increase in net sales was primarily due
to the first year of operations of the 55 HFCS plant in Columbus, NE, as well as
the inclusion of six months of operations and sales of Liquid Sugars, Inc., a
subsidiary of the Cooperative, acquired in March 1996.
COST OF PRODUCT SOLD. Cost of products sold increased by $185 million or
72.3%. The cost of corn increased significantly by $107 million. This was
primarily due to the average price of corn per bushel increasing 76.1% which
contributed $126 million of increased cost, offset by ($18 million) by the
decreased grind. Other costs increased $15 million including labor,
depreciation, utilities and supplies, as a result of starting up the 55 HFCS
plant in Columbus, NE. The consolidation of six months of operations of LSI with
the Cooperative added $56 million to the cost of products sold.
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SELLING, GENERAL AND ADMINISTRATION. These expenses increased $12 million.
Of this, approximately $2 million was additional railcar cost and $1 million was
in selling and administrative expense increase. The remaining $9 million
represents the first time overhead of LSI, acquired in March, 1996.
NET OPERATING INCOME. Net operating income decreased from $57 million to a
loss of $47 million or a decrease of $104 million. This is principally due to
the increased cost of corn ($107 million).
INTEREST EXPENSE AND OTHER COSTS/INCOME. Interest expense increased by $8
million (72.7%) due to an increased debt load as a result of finalizing the
expansion project and funding a negative cash flow. Other income increased by $2
million which is primarily the result of an increase in the patronage dividend
received form the St. Paul Bank for Cooperatives.
NET PROCEEDS. Net proceeds decreased from a profit of $47 million to a loss
of $63 million or a $110 million decrease. The increase in corn cost of $107
million due to the higher per bushel unit cost is principally responsible for
the decrease in net proceeds.
LIQUIDITY AND CAPITAL RESOURCES
The Cooperative expects that cash flow from operations and proceeds from
its existing credit lines will be sufficient to fund operations, to provide
adequate capital expenditures (excluding any major expansion), and to make
distributions to its members for the near future.
In late 1997, the Cooperative sold a 30% equity interest (in the form of
Nonvoting Units of Equity Participation) to Archer Daniels Midland Company for
approximately $120 million. These funds were utilized to pay down debt (from
$410 million to $290 million) and to refinance existing short-term debt with
long-term debt. In connection with the passive equity investment, Archer Daniels
Midland Company and the Cooperative entered into a Stockholder Agreement dated
August 27, 1997. This agreement sets forth the rights and obligations of Archer
Daniels Midland Company as a nonmember patron of the Cooperative. The agreement
restricts the Cooperative from, among other things, materially changing its
principal business, disposing or otherwise transferring substantially all of its
assets, making material changes to its corn delivery program and incurring
capital expenditures in excess of $250,000 without the consent of Archer Daniels
Midland Company.
In 1997, the Cooperative also sold $290 million of first mortgage notes in
a private offering, primarily to major insurance companies. The maturities range
from seven to fifteen years, with no significant principal payments due until
September 30, 2003. The average interest rate, including a variable rate
portion, is approximately 71/4% at present. The notes restrict the Cooperative
from incurring additional long-term debt and disposing of assets, and require
the Cooperative to maintain certain financial ratios, including a minimum total
equity amount which increases annually by 20% of net earnings until the ratios
are met. As of December 31, 1998, the Cooperative was in compliance with all
covenants and restrictions. The notes are collateralized by mortgages on the
Marshall and Columbus facilities.
In addition, the Cooperative has established a $50 million revolving line
of credit with Harris Trust and Savings Bank and US Bancorp Ag Credit. At the
current time, there is no amount outstanding under the revolver. This credit
line, which protects the Cooperative for seasonal cash fluctuations, terminates
August 27, 2000. The line of credit requires the Cooperative to maintain a
minimum net working capital of $25 million at all times, a minimum equity amount
equal to the sum of $270 million plus 20% of consolidated net earnings for each
fiscal year and a minimum cash flow of $0 on March 31, 1999. In addition, the
line of credit restricts the ability of the Corporation to (1) make capital
expenditures, (2) make certain distributions, (3) create liens, (4) incur
indebtedness and (5) sell assets and properties.
The plants were both expanded to double capacity with completion in 1997.
The plants are modern, cost efficient facilities. Capital expenditures will
remain moderate in the near future. Capital expenditures in the current year
will be about $15 million and the projection for next year is approximately $20
million. Capital expenditures totaled $165 million in 1995 and $185 million in
1996. These large expenditures were in large part due to the $320 million
expansion during those years. There are no significant expansions planned at
present.
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Net cash flow from operation (EBITDA) improved to a positive $30 million in
fiscal 1998 (3/31/98) from a negative $16 million in fiscal year ended 9/30/96.
This improvement is a result of increased depreciation, improved gross margins
and stronger volume. The benefit of increased cash flows from operation and
lower capital expenditures requirements in fiscal 1998 resulted in significant
improvement in net cash flows.
In 1996, the net losses, together with higher working capital requirements
and very elevated capital expenditures created a serious negative cash outflow
which was funded primarily by borrowings (increasing $195 million).
Total assets at September 30, 1998 were $653 million, essentially the same
as the prior year. Working capital was $77 million at September 30, 1998 and $45
million at September 30, 1997.
Capital expenditures were $5 million in the six month ended 9/30/98 and $6
million in the prior year's period.
Total assets at September 30, 1996 increased $171 million over the prior
year, due to the capital expansion project with total capital expenditures of
$208 million. Debt increased $195 million. Working capital equaled a negative
$363 million due to the reclassification of all debt to a current liability.
YEAR 2000
Many computer and other software and hardware systems currently are not, or
will or may not be, able to read, calculate or output correctly using dates
after 1999, and such systems will require significant modification in order to
be year 2000 compliant. This issue may have a material adverse affect on the
operations and financial performance of the Cooperative because computer and
other systems are integral parts of the Cooperative's manufacturing and
distribution activities as well as its accounting and other information systems
and because the Cooperative will have to divert financial resources and
personnel to address this issue.
The Cooperative is in the process of reviewing its computer and other
hardware and software systems and has recently begun upgrading systems that it
has identified as not being year 2000 compliant. The existing systems will be
upgraded either through modification or replacement. The Cooperative currently
anticipates that this upgrading will be completed during fiscal year 1999. The
Cooperative has alternate plans in the event that critical systems upgrading is
not completed on time which the Cooperative believes are sufficient to meet the
Cooperative's internal needs.
Although the Cooperative is not aware of any material operational
impediments associated with upgrading its computer and other hardware and
software systems to be year 2000 compliant, the Cooperative cannot make any
assurance that the upgrade of the Cooperative's computer systems will be free of
defects or that the Cooperative's alternate plans will meet the Cooperative's
needs. If any such risks materialize, the Cooperative could experience material
adverse consequences to its operations and financial performance, substantial
costs or both.
Year 2000 compliance may also adversely affect the operations and financial
performance of the Cooperative indirectly by causing complications of, or
otherwise affecting, the operations of any one or more of the Cooperative's
suppliers and customers. The Cooperative has begun contacting its significant
suppliers and customers as part of its Year 2000 compliance action plan to
identify any potential year 2000 compliance issues with them. The Cooperative is
currently unable to anticipate the magnitude of the operational or financial
impact on the Cooperative of year 2000 compliance issues with its suppliers and
customers.
The Cooperative expects to incur up to $500,000 during fiscal year 2000 to
resolve the Cooperative's year 2000 compliance issues. All expenses incurred in
connection with becoming year 2000 compliant will be expensed as incurred, other
than acquisitions of new software or hardware, which will be capitalized.
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BUSINESS
OVERVIEW
Minnesota Corn Processors, Inc. is an agricultural processing and marketing
cooperative that operates corn wet milling facilities in Minnesota and Nebraska.
Formed in 1980, the Cooperative commenced wet milling operations in Marshall,
Minnesota in 1983. During the mid-1990s, the Cooperative experienced significant
growth, spending approximately $337 million for expansion of existing processing
facilities and acquisition of storage and distribution facilities.
Based on total production capacity, the Cooperative is one of the largest
corn wet millers in the United States. In addition, the Cooperative is the
second largest producer of ethanol in the United States and a leading producer
of high quality corn sweetener products for the soft drink and food industries.
Our primary products include corn sweeteners, corn starch, ethanol and feed
co-products. We supply a broad range of customers in a variety of industries.
The Cooperative today has over 5,300 members. The Cooperative generally
distributes its net income each year to members as patronage or value-added
payments. Each member's payment is based on the earnings of the Cooperative
attributed to the corn delivered by the member. The Cooperative may withhold a
portion of its annual earnings for use as capital.
THE CORN SWEETENER AND ETHANOL MARKETS
HIGH FRUCTOSE CORN SYRUP AND CONVENTIONAL CORN SYRUP
Since the invention of starch-based sweeteners in the early 1800's,
researchers have tried to develop a starch-based sweetener that is as sweet as
cane or beet sugar. After years of research, the desired result was achieved
through the process of rearranging glucose molecules into the chemical isomer
fructose, known as "glucose isomerization." As a result of the development of
glucose isomerization, the corn refining industry now produces a sweetener --
high fructose corn syrup -- that has a sweetness level equivalent to that of
sucrose. Since the development of HFCS, the corn sweetener industry has grown
rapidly. According to the USDA, per capita consumption of corn sweeteners grew
at a compounded annual growth rate of 2.54% between 1985 and 1996 as compared to
a growth rate of 0.51% for sugar.
In recent years, there has been good market growth for both high fructose
corn syrup and the more traditional corn sweeteners conventional corn syrup and
dextrose. While much of this growth is attributable to the soft drink industry's
switch from sucrose to high fructose corn syrup, the baking industry has also
contributed to the industry's growth in its switch from primarily dry sucrose to
42 HFCS. While corn sweeteners are priced competitively with sugar, they have
earned their place in the baking industry through other advantages and are
likely to retain their place in the foreseeable future with continued growth of
3% to 4% per year. Corn sweeteners are more consistent in quality than sucrose
and are expected to continue to replace sucrose due to the savings in labor cost
generated by the ease of use and adaptability of corn sweeteners in today's
highly automated baking industry.
Based on continued strong domestic demand and the anticipation of increased
exports to Mexico, significant expansion of HFCS capacity was completed during
the last few years. Archer Daniels Midland Company, Cargill, Inc., A.E. Staley
Manufacturing Company and others joined the Cooperative in expanding their
production capacities. In total, 55 HFCS production capacity throughout the
industry increased from 12.5 billion pounds dry in 1995 to approximately 15.6
billion pounds dry in 1997, an increase of approximately 25%. The 42 HFCS
segment also expanded by approximately 25% over that time period from 7.9
billion pounds to 9.9 billion pounds.
As a result of the recent industry-wide expansions, the HFCS industry
entered a period of supply and demand imbalance in 1996 and 1997, resulting in a
decline in the industry capacity utilization rate to around 70%. Industry
analysts have estimated that the industry is currently operating at levels
ranging from approximately 80% to 85% of capacity. The rebound in the capacity
utilization rate is due to (1) continued growth in domestic consumption, and (2)
shuttered capacity when Golden Technologies shut down its Johnstown, Colorado
operations which were reportedly producing
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approximately 228 million pounds (dry) of HFCS and Cargill, Inc. shut down its
55 HFCS facility in Dayton, Ohio. The Cooperative is not aware of any additional
capacity expansions currently underway in the domestic HFCS industry, indicating
that over the next few years, supply and demand should rebalance as demand grows
and industry production should reach almost full capacity.
As industry capacity utilization rates dropped dramatically in 1996, major
HFCS users were able to negotiate advantageous contracts for the 1997 calendar
year, gaining significant price reductions. In 1998, prices began to stabilize
and many industry experts expect pricing to increase in 1999 and 2000, to
reflect a more balanced supply/demand situation.
The USDA has estimated that in 1998 the 55 HFCS segment will grow at
approximately 4% to 4.5% and the 42 HFCS segment will grow approximately 3% in
the U.S. The soft drink firms will drive much of this growth as they continue to
position themselves as "total beverage companies," as evidenced by the
introduction of over 200 new soft drinks, juices, teas and punches over the last
two years alone. In addition, the Mexican market offers the opportunity for
dramatic volume growth during the next 1 to 2 years; Canada has also experienced
conversion from sucrose usage to use of 55 HFCS.
According to the USDA, U.S. exports of HFCS to Mexico rose to 78,000 metric
tons (dry basis) in 1996 from only 9,000 tons in 1991. Under NAFTA, the Mexican
import tariff on U.S. HFCS fell to 9% in 1997, and is scheduled to decrease by
1.5% each year thereafter to zero in 2003. Mexican demand for HFCS is growing as
bottlers adopt new technology to handle liquid sweeteners. While none of the
major soft drink bottlers have announced a complete switch to using HFCS in
their Mexican soft drinks, some of the smaller brands apparently have switched.
World demand for HFCS sweetener is expected to increase from 20 billion pounds
in 1995 to 26.6 billion pounds by the year 2000.
ETHANOL
Ethanol has important applications and is used primarily as a high quality
octane enhancer and an oxygenate capable of reducing air pollution and improving
automobile performance. As a fuel additive, the demand for ethanol is derived
from the overall demand for gasoline, as well as the competition of ethanol
versus competing oxygenate products and technologies. Motor vehicles in the U.S.
consume more than 130 billion gallons of gas every year.
The Cooperative currently benefits from three economic incentives to
produce ethanol. First, in Minnesota, there is a state producer payment of 20
cents per gallon for the first 15 million gallons per plant for a total of $3
million annually to ethanol producers for ten years. For the Cooperative, this
producer payment is due to expire in 2001. Second, Nebraska also has a similar
program with an incentive of 20 cents for the first 25 million gallons. For the
Cooperative, these payments will continue until at least the year 2000. The
Cooperative currently is receiving the limit of $8 million per year from both
state programs. Third, ethanol users can claim a 5.4 cents per gallon exemption
from the federal gasoline excise tax. This federal ethanol tax subsidy, which
was set to expire in 2000, has been extended through December 31, 2007. The
exemption will gradually drop to 5.1 cents in 2005.
A large jump in corn prices in 1996 caused ethanol production variable
costs to exceed selling prices, resulting in a sharp reduction in production as
corn processors sought to curtail losses. The Cooperative shut down its Marshall
ethanol production plant from July 14, 1996 until September 12, 1996.
If the federal ethanol tax incentive or state incentive payments are
eliminated or sharply curtailed, management believes that decreased demand for
ethanol will result. The Cooperative's management is pursuing a strategy to
reduce the Cooperative's reliance on ethanol through growth in other product
lines. Evidence of the Cooperative's efforts can be seen in the portion of the
Cooperative's total sales represented by ethanol. In fiscal year 1993, ethanol
sales represented 41% of the Cooperative's total sales while in fiscal year
1999, ethanol sales generated only 20% of the Cooperative's total sales.
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CORN PROCUREMENT
Each unit of equity participation held by a member obligates the member to
deliver annually one bushel of corn to the Cooperative as part of the
Cooperative's Corn Delivery Program. The Corn Delivery Program has been modified
by the Cooperative so that corn delivery is now on a voluntary rather than
mandatory basis. Members of the new limited liability company will not be
obligated to produce or deliver corn to the company.
Following the conversion, the LLC will continue to require the same
quantities of corn for processing as are currently required. In order to fulfill
those requirements, the LLC will be required to acquire substantial quantities
of corn in the marketplace. To reduce the price risk of fluctuations in the corn
market, the Cooperative has established a policy of hedging corn to cover fixed
price and volume sales contracts for its finished products. The Cooperative may
also hedge a portion of its anticipated non-contracted production requirements.
The instruments used are principally readily marketable exchange traded futures
contracts. The changes in market value of the contracts have a high correlation
to the price changes of the base commodity. Also, the underlying commodity can
be delivered against the contracts. In order to match revenue and expense, any
gains or losses arising from open and closed hedging transactions are included,
through inventory, in cost of goods sold at the time the product is sold.
The hedging policy evolves around the fundamental as well as technical
outlook of the CBOT, the U.S. and world supply and demand outlook for grain, and
the amount of risk both will have in determining the net price of corn for the
Cooperative's projected grind demand. Management will continuously monitor the
amount of risk and make appropriate changes based on projected and actual costs
of corn, sales of product, production costs, and administrative expenses.
WET MILLING OPERATIONS
Corn wet milling increases the nutritional and economic value of the corn
by separating it into homogeneous fractions. Although the wet milling process
was originally designed to produce relatively pure starch for industrial food
uses, the process now results in the optimum use and maximum value for each
fraction of the corn kernel.
A typical bushel of corn weighs 56 pounds and contains approximately 72,800
kernels. Most of the weight is the starch, oil, protein and fiber, with some
natural moisture. Each bushel of corn can yield:
* 31.5 pounds of starch or
* 34.0 pounds of sweetener or
* 2.5 gallons of fuel ethanol and
* 12.1 pounds of gluten feed and
* 2.7 pounds of gluten meal and
* 1.8 pounds of corn oil
A kernel of corn sliced lengthwise from top to bottom will disclose the
following primary components:
HULL. The hull is the fine skin on the outside of the kernel that protects
it from deterioration. It is water resistant and is undesirable to insects and
micro-organisms. Hulls go mostly into corn gluten feed for livestock, poultry
feeds and pet foods.
STARCH. Starch is found at the top, middle and on the sides of the kernel.
This is the most abundant constituent and is used in making starches and
sweeteners.
GLUTEN. Gluten is the dark portion inside the kernel, although some gluten
is mixed with the starch granules. Gluten contains the majority of the protein
found in a kernel of corn. Separated and purified, gluten becomes corn gluten
meal which is used in animal feeds.
GERM. Germ is the seed-like pod at the bottom of the kernel in the center
and is the source of corn oil. The germ is important for food, drug and
industrial uses. About 50% of the germ is corn oil. After removal of the oil,
germ becomes a component of corn gluten meal or corn gluten feed and small
amounts of oil are included in the various feed products.
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WATER. Approximately 15% of the kernel is water. It becomes part of the
steepwater in which the refining is initiated. Steepwater is rich in vitamins,
especially the B complex vitamins and is used in animal feed. Corn steepwater
is also used in the manufacture of antibiotics.
Corn is run through a process which generates the germ, gluten feed, gluten
meal, and finally starch. The starch is then converted into ethanol or dry
starch, or further processed into sweeteners or other starch-based products. The
flow chart below shows the products generated in the wet milling process.
[GRAPHIC OMITTED]
RECEIVING. The Cooperative receives its corn by truck. Before accepting a
truck-load, the corn is tested for quality. The Cooperative has the right to
refuse any shipment of corn if it does not meet its quality standards. Receiving
staff inspect arriving corn shipments and clean them twice to remove dust,
chaff, and foreign materials before steeping. Each facility has on-site storage
capacity for approximately 1 million bushels of corn.
STEEPING. Each steep, a stainless steel vat, holds corn for 30 to 40 hours
soaking in 125 degree Fahrenheit water, increasing the corn's moisture levels
from 15% to 45% and causing the corn to more than double in size. The addition
of 0.2% sulfur dioxide to the water prevents excessive bacterial growth in the
warm environment. As the corn swells and softens, the mild acidity of the
steepwater begins to loosen the gluten bonds within the corn and release the
starch. After steeping, the corn is coarsely ground to break the germ loose from
other components. Steepwater is condensed to capture nutrients in the water for
use in animal feeds. The ground corn, in a water slurry, flows to the germ
separators.
GERM SEPARATION. Cyclone separators spin the low density corn germ out of
the slurry. The germs, containing about 85% of corn's oil, are pumped onto
screens and washed repeatedly to remove any starch left in the mixture. The
Cooperative sells its germ on a contract basis to other oil processors, who then
extracts the oil from the germ. The oil is then refined and filtered into
finished corn oil. The germ residue is saved as another useful component of
animal feeds.
GRINDING AND SCREENING. The corn and water slurry leaves the germ separator
for a second, more thorough grinding in an impact or attrition-impact mill to
release the starch and gluten from the fiber in the kernel. The suspension of
starch, gluten and fiber flows over fixed concave screens which catch fiber but
allow starch and gluten to pass through. The fiber is collected, slurried, and
screened again to reclaim any residual starch or protein, then piped to the feed
house as a major ingredient of animal feeds. The starch-gluten suspension,
called mill starch is piped to the starch separators.
STARCH SEPARATION. Gluten has a lower density than mill starch. By passing
mill starch through a centrifuge, the gluten is readily spun out for use in
animal feeds. The starch, with just four to five percent protein remaining, is
diluted, washed 8 to 14 times in hydro clones to remove the last trace of
protein and produce high quality starch, typically more than 99.5% pure. Some of
the starch is dried and marketed as unmodified corn starch and some is slightly
modified, but most is converted into corn sweeteners and ethanol.
STARCH CONVERSION. Starch, suspended in water, is liquified in the
presence of acid and/or enzymes which convert the starch to a low-dextrose
solution. Treatment with another enzyme
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continues the conversion process. Throughout the process, refiners can halt acid
or enzyme actions at key points to produce the right profile of sugars like
dextrose and maltose to meet different needs. In some sweeteners the conversion
of starch to sugars is halted at an early stage to produce low-to medium
sweetness. In others, the conversion is allowed to proceed until the sugar is
nearly all dextrose. The sweetener product is refined in filters, centrifuges
and ion-exchange columns, and excess water is evaporated. Corn sweeteners are
sold directly in the form of heavy corn syrup or HFCS.
FERMENTATION. In yet another application to corn refining, enzymes modify
corn starch to produce feedstock suitable for traditional fermentation methods.
The result of the fermentation is ethanol, which corn refiners distill to remove
excess water and sell for a variety of uses. Carbon dioxide, a by-product of
fermentation, also may be sold to beverage manufacturers as the "fizz" in soft
drinks.
PRODUCTS
The Cooperative's primary products groups include corn sweeteners, ethanol,
corn starches and feed products. Information about each of the product groups is
provided below. Through the first seven months of fiscal year 1999 (April 1,
1998 through October 31, 1998), the approximate percentages of MCP's total sales
associated with each of these product groups were: corn sweeteners - 50%;
ethanol - 20%; corn starches - 5% and feed products - 25%.
CORN SWEETENERS
HFCS. The Cooperative produces two types of high fructose sweeteners: 42
HFCS and 55 HFCS. Both syrups share advantages -- stability, high osmotic
pressure, and crystallization control -- but each offers special qualities to
food and beverage manufacturers and consumers. 42 HFCS is popular in canned
fruits, condiments and other processed foods which need mild sweetness that
won't mask natural flavors. 55 HFCS has earned a commanding role in soft drinks,
ice cream and frozen desserts.
SYRUPS. Corn syrup is used in a variety of ways in food products. The most
common use for corn syrup is as a sweetener for food products. However, corn
syrups are adaptable to many uses and therefore have other less known
advantages. Corn syrups can depress the freezing point of frozen products to
prevent crystal formation in ice cream and other frozen desserts. Because of its
effect on viscosity, corn syrup is added to salad dressings and condiments to
ensure the product pours at manageable rates. In lunch meat and hot-dogs, corn
syrups provide the suspension to keep other ingredients evenly mixed, and, like
other corn products, the basic syrups can improve textures and enhance colors
without masking natural flavors, as in canned fruits and vegetables. The
Cooperative manufactures a number of corn syrups which offer a broad range of
functionalities.
ETHANOL
Ethanol has several major applications: (1) as an octane enhancer in fuels;
(2) as an oxygenated fuel additive for the purpose of reducing ozone and carbon
monoxide vehicle emissions; and (3) as a non-petroleum-based gasoline
substitute. Approximately 95% of all ethanol is used in its primary form for
blending with unleaded gasoline and other fuel products. The implementation of
the Federal Clean Air act has made ethanol fuels the most important domestic
renewable fuel, allowing the country to meet its environmental goals and reduce
imports of petroleum based fuels. Ethanol used as a fuel oxygenate, provides one
of the easier, less expensive means to control carbon monoxide in problem areas.
STARCHES
Starch is one of nature's major renewable resources, and a mainstay of our
food and industrial economy. Starches have a wide variety of uses. On average,
each ton of paper produced in the U.S. uses 28 pounds of corn starch. Corn
starches, and their cousins dextrins (a roasted starch), are used in hundreds of
adhesive applications. Special types of starches are used in oil exploration as
part of the "drilling mud" which cools down super heated oil drilling bits.
Starches are used as flocculating agents, anti-caking agents, mold-release
agents, dusting powder and thickening agents. Literally thousands of supermarket
staples are produced using both regular and specially modified starches.
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Many of today's instant and ready-to-eat foods are produced using starches which
enable them to maintain the proper textural characteristics during freezing,
thawing and heating. Starches are converted to sugar by breweries and used as
the feedstock in beer production. Other starches are important ingredients for
instant pie and pudding fillings which require little or no cooking compared to
traditional formulations. The most promising new market for corn starches is as
a raw material for the production of industrial chemicals and plastics which are
today made from petroleum feedstocks. The Cooperative manufactures and sells
unmodified and slightly-modified corn starches, with the majority of sales going
into the corrugated, paper, brewing and food industries.
FEEDS PRODUCTS AND GERM
The Cooperative produces three major feed products: gluten meal, gluten
feed and condensed fermented corn extractives (steepwater). Corn gluten meal
supplies vitamins, minerals, and energy in poultry feeds while pet food
processors value it for its high digestibility and low residue. Steepwater is a
liquid protein supplement for cattle and is also used as a binder in feed
pellets. The Cooperative also produces germ which is sold to edible oils
manufacturers for further processing into corn oil and gluten feed.
PRODUCT QUALITY
The Cooperative believes that its ability to produce high quality products
is a key competitive advantage over other industry participants. The American
Institute of Baking ("AIB") annually inspects each production facility in the
industry and numerically rates the plants so that industry users of corn
products can measure and compare the quality of facilities. In 1998, each of the
Cooperative's plants earned a "Superior" rating for its overall food safety
levels, placing each among the top 5% within the food processing industry. In
addition, customers have acknowledged the Cooperative's superior quality through
presentation of several quality awards.
SALES AND DISTRIBUTION
The Cooperative's products are sold directly by a staff of sales personnel
located regionally across the United States. The Cooperative also employs third
party resellers, primarily in the eastern and midwestern portions of the United
States. The Cooperative owns and operates an extensive distribution network
which is located primarily west of the Mississippi River, providing the
Cooperative with cost and service advantages in this strategic geographic
region. The Cooperative's combined sales and distribution network allows it to
effectively distribute its products to most areas of the United States by either
rail or truck.
The Cooperative supplies a broad range of customers throughout the U.S.
Sales of germ to Cargill accounted for approximately 12.5% of MCP's sales
revenues through the first seven months of fiscal year 1999 (April 1, 1998
through October 31, 1998). No other customer accounted for 10% or more of MCP's
total net sales for that period.
The majority of the Cooperative's corn sweetener and starch sales are made
on an annual basis, under contracts fixed as to price and volume. The
Cooperative sells its germ and steepwater on a contract basis. Gluten meal is
sold on both a contract basis and on the spot market. Feed product prices
typically reflect the general price of other comparable feedstuffs, such as
soybean meal, soybean oil, other edible oils and similar products. Feed demand
is primarily driven by the domestic population of animals being raised for
slaughter and by export demand.
The realized sales price of ethanol is driven by gasoline demand, the price
of oxygenate alternatives such as MTBE (a petroleum-based fuel oxygenate
substitutable for ethanol) and overall oxygenate program requirements. The
majority of the Cooperative's ethanol sales are made on a spot basis. The
Cooperative's ability to produce ethanol provides an important mitigant against
the seasonality inherent in the HFCS industry. Since soft drinks are an
important user of HFCS, its production peaks in the spring and early summer
months in anticipation of the peak in soft drink demand. On the other hand,
ethanol demand peaks in the winter, when many cities institute their oxygenated
fuel programs mandated by the Federal Clean Air Act.
35
<PAGE>
The Cooperative has indoor rail car and truck loading capabilities at both
plants which minimize the negative effects of harsh weather and help to maintain
strict product quality standards. The Cooperative leases in excess of 2,000 rail
cars for terms of up to 15 years. In March 1996, the Cooperative acquired Liquid
Sugars, Inc. ("LSI"), a sweetener blending, storage and distribution operation
with headquarters in Emeryville, California, which serves various customers
located in the western United States and southwestern Canada. LSI has 16
regional storage and transfer stations which allow the Cooperative to
economically effect deliveries of products to many regions of the country.
In February 1997, the Cooperative obtained an option to acquire a 7.5%
minority interest in Natural Solutions Corp. (formerly known as Ice Ban America,
Inc.) in exchange for agreeing to supply steepwater to it. Natural Solutions has
developed the first noncorrosive, nontoxic, biodegradable roadway de-icing
agent. As part of the agreement, the Cooperative will assist in the on-going
research and development of the technology. The Cooperative also has the right
to name members to the board of directors of Natural Solutions. Stanley L.
Sitton, the Cooperative's Senior Vice President of Sales and Marketing, has been
designated to represent the Cooperative and serves as a director of Natural
Solutions. Natural Solutions is quoted on the OTC Bulletin Board under the
symbol "ICEB."
COMPETITION
The Cooperative faces intense competition from other corn processors,
including Archer Daniels Midland Company, Cargill, Inc., and A.E. Staley
Manufacturing Company. Most of the Cooperative's products compete with virtually
identical products and derivatives manufactured by other companies. Many of
these competitors are substantially larger and have greater financial resources
than the Cooperative. Competition is generally based on price, product quality
and customer service.
Several products of the Cooperative also compete with products made from
raw materials other than corn. High fructose corn syrup competes with cane and
beet sugar products. Ethanol competes with MTBE and other oxygenate
alternatives. Corn gluten meal competes with soybean meal. Fluctuations in
prices of these substitute products may affect the prices of and profits derived
from the Cooperative's products.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
As a producer of food items for human consumption and items for use in the
pharmaceutical industry, the Cooperative is subject to various federal, state
and local laws relating to the operation of its processing facilities, product
quality, purity and labeling. The failure to comply with one or more regulatory
requirements can result in a variety of sanctions, including monetary fines.
The operations of the Cooperative also are subject to various federal,
state and local laws and regulations with respect to environmental matters,
including air and water quality and underground fuel storage tanks. The
Cooperative believes it is currently in substantial compliance with
environmental laws and regulations. Protection of the environment requires the
Cooperative to incur expenditures for equipment or processes.
PRODUCTION FACILITIES
The Cooperative owns two processing facilities. The facility in Marshall,
Minnesota has the capacity to grind approximately 56 million bushels of corn per
year and is a major supplier of corn syrup. The facility in Columbus, Nebraska
has the capacity to grind approximately 70 million bushels of corn per year and
is a major supplier of 55 HFCS. Each facility also produces starch, 42 HFCS and
ethanol.
During the past few years, the Cooperative has modernized and expanded its
facilities. During 1995 and 1996, the Cooperative spent approximately $320
million to:
* increase the corn syrup production capacity of the Minnesota facility;
* build a refinery capable of producing 42 HFCS at the Minnesota facility;
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<PAGE>
* increase the 42 HFCS production capacity of the Nebraska facility; and
* build a refinery capable of producing 55 HFCS at the Nebraska facility.
The Cooperative believes that the capital expansion program completed in
1996 will allow the Cooperative to operate highly efficient facilities for the
foreseeable future without incurring significant additional capital
expenditures.
LEGAL PROCEEDINGS
From time to time the Cooperative is subject to litigation incidental to
its business. The Cooperative is not currently a party to any material legal
proceedings.
EMPLOYEES
At December 31, 1998, the total number of full-time employees was 870.
Approximately 5% of these employees are covered by three collective bargaining
agreements, one expiring in March 1999, one expiring in February 2001 and one
expiring in April 2001.
37
<PAGE>
MANAGEMENT
DIRECTORS
Immediately after the conversion, the Board of Directors of the LLC will be
composed of the current members of the Board of Directors of the Cooperative.
The current directors of the Cooperative will continue to serve as directors of
the LLC for the same terms for which they would otherwise have served as
directors of the Cooperative. The Board will consist of twenty-four directors,
each of whom will represent one of eight districts. Each director will be
elected by members of the new company residing in the district represented by
the directors. The Board also will be divided into three classes for election
purposes. One class is elected at each annual meeting of members to serve for a
three-year term. The Operating Agreement requires that the incumbent Board of
Directors appoint a Districting Committee to review the boundaries of the
districts at least every three years. The committee will recommend any changes
in the district boundaries necessary or appropriate to maintain equitable
representation of the number of members in each district.
The table below sets forth certain information concerning the initial
directors of the LLC
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE DISTRICT TERM EXPIRES
- ------------------------------- ----- ---------- -------------
<S> <C> <C> <C>
Doug G. Finstrom .............. 45 I 2000
1060 160th Avenue SE
Kerkhoven, MN 56252
Carl M. Just .................. 69 I 1999
20491 -- 121 Street NW
Sunburg, MN 56289
Duane R. Adams ................ 59 I 2000
54676 MN Highway 7
Cosmos, MN 56228
Howard A. Dahlager ............ 50 II 2001
85380 180th Street
Sacred Heart, MN 56285
Ken Robinson .................. 54 II 1999
RR 2 Box 82
Bird Island, MN 55310
David J. Scheibel ............. 38 II 2000
37554 County Road 4
Bird Island, MN 55310
Jerry N. Jacoby ............... 53 III 2001
17557 County Highway 1
Springfield, MN 56087
Steve F. Lipetzky ............. 48 III 1999
P.O. Box 152
Springfield, MN 56087
John M. Zwach, Jr. ............ 51 III 2000
13705 205th Street
Walnut Grove, MN 56180
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE DISTRICT TERM EXPIRES
- ----------------------------- ----- ---------- -------------
<S> <C> <C> <C>
Daniel P. Dybsetter ......... 53 V 1999
RR 1 Box 92
Porter, MN 56280
John R. Jerzak .............. 46 V 2000
RR 1 Box 178
Ivanhoe, MN 56142
Dean J. Buesing ............. 45 V 2001
RR 1 Box 157
Granite Falls, MN 56241
Sandy A. Ludeman ............ 51 VI 2000
RR 2 Box 19
Tracy, MN 56175
John P. Hennen .............. 62 VI 1999
1986 330th Street
Ghent, MN 56239
John H. Nelson .............. 61 VII 1999
2034 170th Avenue
Garvin, MN 56132
James H. Gervais ............ 47 VII 2000
2090 171st Street
Currie, MN 56123
Ron F. Kirchner ............. 51 VII 2001
2696 71st Street
Avoca, MN 56114
Kenneth L. Regier ........... 65 VIII 2001
503 South O Road
Aurora, NE 68818
Larry W. Dowd ............... 53 VIII 1999
P.O. Box 129
Columbus, NE 68602
Andrew V. Jensen ............ 48 VIII 1999
1407 W. 16th Road
Aurora, NE 68818
Patrick L. Meuret ........... 42 VIII 2000
P.O. Box 146
Brunswick, NE 68720
Robert J. Bender ............ 45 VIII 2000
5266 Cherokee Avenue
Columbus, NE 68601
</TABLE>
DOUG FINSTROM. Mr. Finstrom has been a director of the Cooperative since
1989. Mr. Finstrom has been in the business of farming near Kerkhoven, MN for
the past 28 years. Mr. Finstrom is currently the President of Property
Management Services of Minnesota, Inc., involved in buying,
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<PAGE>
selling, and managing investment properties for 3 years and has also been for
the past 15 years, and currently is, the President for 15 years of Finco
Equipment, Inc., a company involved in managing assets (i.e. leasing equipment
and investing). In addition, Mr. Finstrom has been a member of Minnesota Farm
Bureau for 28 years.
CARL JUST. Mr. Just has been a director of the Cooperative since 1990. Mr.
Just has been in the business of farming corn and soybeans near Sunburg, MN for
35 years. Mr. Just has been for the past 8 years and is currently the Chairman
of the Board for Sunburg Corporation, a nonprofit organization. Mr. Just has
been the Chairman for 3 years of Aid Association for Lutherans -- Branch 5330.
Mr. Just has also been the Vice Chairman since 1994 of Farm Service Agency --
Kandiyohi County Office Committee. In addition, Mr. Just is a member of the
Minnesota Farmers Union.
DUANE ADAMS. Mr. Adams has been a director of the Cooperative since 1997.
Mr. Adams has been the President of Duane Adams Farms, Inc., producing corn and
soybeans, near Cosmos, MN for the past 15 years. In addition, Mr. Adams has
been a member of the Meeker County Corn Growers for the past 10 years and was a
director of that association for 6 years. Mr. Adams has also been the past
President of Cosmos Development Corporation.
HOWARD DAHLAGER. Mr. Dahlager has been a director of the Cooperative since
1988. Mr. Dahlager is co-owner and secretary-treasurer of JSF Inc., Johnson
Seed Farm near Sacred Heart, MN, since 1979. Mr. Dahlager has also been the
secretary-treasurer for the past 4 years of Sacred Heart Community Development
Company LLC. In addition, Mr. Dahlager is currently the secretary of M.C.I.A.
- -- Minnesota Crop Improvement Association. Mr. Dahlager is also a member of
Southern Minnesota Beet Coop, Minn Aqua Fisheries and Midwest Investor (Golden
Oval) Eggs.
KEN ROBINSON. Mr. Robinson has been a director of the Cooperative since
1990. Mr. Robinson has been in the business of farming in the Bird Island, MN
area since 1983.
DAVID SCHEIBEL. Mr. Scheibel has been a director of the Cooperative since
1988. Mr. Scheibel's experiences include being a partner of a 946 acre farming
operation from 1978 to 1994 near Bird Island, MN. The partnership raised corn,
soybeans, seed corn and other specialty crops, as well as feeding Holstein dairy
replacement heifers and finishing Holstein beef cattle. As a partner, his duties
included financial and cost accounting, as well as daily production
responsibilities. Mr. Scheibel has also been employed in the agriculture
equipment business since 1994. He is currently serving as senior parts man at
Kibble Equipment Service Center in Bird Island, MN. In addition, Mr. Scheibel is
currently a member and serving as a Trustee and has served in the past as
Financial Secretary and Grand Knight of the Knights of Colombus, Council #2000,
Bird Island, MN.
JERRY JACOBY. Mr. Jacoby has been a director of the Cooperative since 1986
and Board Chairman since 1992. Mr. Jacoby has been in the business of farming,
producing corn and soybeans, near Springfield, MN since 1974. Mr. Jacoby has
also been the Treasurer for Sundown Township for 12 years. In addition, Mr.
Jacoby has been a member of Minnesota Corn Growers for 8 years and is also a
member of the American Legion.
STEVE LIPETZKY. Mr. Lipetzky has been a director of the Cooperative since
1981. Mr. Lipetzky is the President of Stephen Trucking, Inc. of Springfield,
MN, a trucking company hauling F.O.B. corn to Minnesota Corn Processors, since
its inception in May 1998. Although MCP has done a significant amount of
business with Mr. Lipetzky's trucking company, that business has been on the
same terms as MCP's relationships with other trucking firms. In addition, Mr.
Lipetzky is currently working on the farm in partnership with his brothers. Mr.
Lipetzky is currently the Parish Council Chairman at St. Raphael's Catholic
Church in Springfield, MN.
JOHN ZWACH, JR. Mr. Zwach has been a director of the Cooperative since
1991. Mr. Zwach is totally involved in operations and management in the
business of farming, a corn and soybean operation in Redwood County, MN for 29
years. Mr. Zwach is also currently a member of the Knights of Columbus and has
been since 1968. In addition, Mr. Zwach is a member of the American Legion Post
in Milroy, MN and has been a member of the Milroy Lions club since the early
1970's.
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DANIEL DYBSETTER. Mr. Dybsetter has been a director of the Cooperative
since 1994 and is currently serving as Secretary. Mr. Dybsetter is in the
business of farming, producing corn, soybeans and hogs since 1970 near Porter,
MN. Mr. Dybsetter is also a member and owns shares in the South Dakota Soybean
Processors and Phenix Manufacturing. Mr. Dybsetter is also a member of the Corn
Growers Association, Soybean Growers Association and a member of various area
coops. Mr. Dybsetter was the past secretary for the Yellow Medicine Pork
Producers.
JOHN JERZAK. Mr. Jerzak has been a director of the Cooperative since 1985.
Mr. Jerzak is primarily engaged in the business of farming near Ivanhoe, MN
since 1975. Mr. Jerzak also has a seed business, dealing primarily in DeKalb
Seeds. In addition, Mr. Jerzak is Board Chairman of Hope Mutual Insurance
Company and a director of Divine Providence Hospital at Ivanhoe, MN.
DEAN BUESING. Mr. Buesing has been a director of the Cooperative since
1998. Mr. Buesing is the President of Buesing Farms, Inc., Granite Falls, MN, a
farming operation producing corn, soybeans and hogs for 25 years. Mr. Buesing
has also been the President for the past 4 years of Buesing, Buesing, Inc.,
Granite Falls, MN which is involved in the building of cornheads. In addition,
Mr. Buesing is an officer and serves as treasurer for the past 8 years of the
Yellow Medicine Soybean Growers Association. Mr. Buesing and Mr. Hennen are
first cousins.
SANDY LUDEMAN. Mr. Ludeman has been a director of the Cooperative since
1997 and is currently serving as Vice-Chairman. Mr. Ludeman has been a partner
in Sanmarbo Farms, Inc., a diversified grain and livestock farm near Tracy, MN,
since 1973. Mr. Ludeman has been on the board of the Minnesota Farm Bureau
Foundation for 4 years. In addition, Mr. Ludeman has been a member of Minnesota
Soybean Growers Association for 20 years, Minnesota Corn Growers Association
for 15 years and Minnesota Farm Bureau for 30 years. Mr. Ludeman was the
founding chairman of the United Soybean Board, past president of the American
Soybean Development Foundation, vice-chairman of the Institute of Agriculture,
Forestry, Home Economics and Advisory Council of the University of Minnesota
and past chairman of the Minnesota Soybean Research and Promotion Council.
JOHN P. (JACK) HENNEN. Mr. Hennen has been a director of the Cooperative
since 1997. Mr. Hennen has been in the business of farming in Lyon County, MN
since 1960. Mr. Hennen's farming operation is diversified, producing cattle,
hogs, corn and soybeans. The farming operation has expanded to include his 3
sons and their families. In addition, Mr. Hennen is currently a director and
has been vice-chairman of the Minnesota Beef Council for 2 years. Mr. Hennen
also is a member of Minnesota Corn Growers, National Corn Growers, Soybean
Growers and a member of various coops in the area.
JOHN NELSON. Mr. Nelson has been a director of the Cooperative since 1981.
Mr. Nelson is the owner-operator of a 930 acre farming business located in
Murray County for 40 years. Mr. Nelson is also involved in a farm drainage
business. In addition, Mr. Nelson served as state president in 1992 and is a
past state director for the Minnesota Corn Growers Association. Mr. Nelson is
also a member of the Minnesota Soybean Growers Association and has been on the
Murray County Planning and Zoning Board for 18 years, 10 of which he was
chairman.
JAMES GERVAIS. Mr. Gervais has been a director of the Cooperative since
1990. Mr. Gervais has been in the business of farming near Currie, MN for 27
years.
RON KIRCHNER. Mr. Kirchner has been a director of the Cooperative since
1998. Mr. Kirchner has been in the business of farming, producing soybeans and
custom feeding hogs near Fulda, MN. Mr. Kirchner has been a director for the
past 6 years on the Fulda, MN School Board. In addition, Mr. Kirchner has been
a member of the VFW for 30 years, the American Legion Club for 30 years,
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<PAGE>
the Corn Growers Association for 5 years and the Soybean Growers Association
for 2 years. Mr. Kirchner also volunteers at St. Gabriel in Fulda, MN as a
release time teacher.
KENNETH REGIER. Mr. Regier has been a director of the Cooperative since
1992. Mr. Regier is in the business of farming bear Aurora, NE, producing
irrigated corn, since 1955. Mr. Regier has been a board member of the Upper Big
Blue Natural Resource District since 1980. In addition, Mr. Regier has been a
member of the Nebraska Coop Council, Education Committee, since 1997. Mr.
Regier was past board chairman of the Aurora Coop Elevator Company.
LARRY DOWD. Mr. Dowd has been a director of the Cooperative since 1992.
Mr. Dowd is President of Dowd Grain, O'Neill Farms, and Dowd Oil Co, all of
which are principally farming operations located in Holt County, Nebraska,
producing row crops, cow-calf operations, farrow to finish hog operations. Mr.
Dowd also serves as a director of First State Bank of Hickman, and has a
partnership interest in a swine breeding stock company. In addition, Mr. Dowd
has been a member of the Nebraska Corn Growers Association for 10 years.
ANDREW JENSEN. Mr. Jensen has been a director of the Cooperative since
1997. Mr. Jensen has been in the business of farming and livestock production
near Aurora, NE since 1970. Mr. Jensen is currently the President of Jensen
Farms, Inc. and a partner in Jensen Brothers. Mr. Jensen has been a state
director of the Nebraska Corn Growers Association since 1986 and was the past
State President from 1990 to 1992. In addition, Mr. Jensen has been the
Chairman of Government Affairs since 1992, a member of the Nebraska Cattlemen
since 1970, a member of the National Corn Growers Association since 1982, a
state director of the Nebraska Agriculture Awareness Foundation since 1996 and
a national director of the National Corn Growers Association since 1992.
PATRICK L. MEURET. Mr. Meuret has been a director of the Cooperative since
1997. Mr. Meuret has been the manager of J.E. Meuret Grain Co. Inc., Brunswick,
NE for 22 years. Mr. Meuret is currently Chairman of the Board, Village Board
of Trustees' -- Village of Brunswick, of which he has been a board member for 8
years. In addition, Mr. Meuret is currently President of Plainview Board of
Education and has been a board member for 8 years. Mr. Meuret is a past
director of Nebraska Grain and Feed and the Nebraska Turkey Growers
Association.
ROBERT BENDER. Mr. Bender has been a director of the Cooperative since
1992. Mr. Bender is the owner-operator of Bender Farms, a grain and livestock
operation, near Colombus, NE since 1977. Mr. Bender has also been a the
President of Bender Farms Trucking Inc., since 1992 and is a partner-manager of
CSS Farms. In addition, Mr. Bender is currently a partner and has been the
secretary for Klub 81 Inc. since 1980.
COMMITTEES OF THE BOARD
Following the conversion, the Board will have the following committees:
Executive, Finance, Corn Procurement, Grower Relations, Public Relations,
Compensation and Long Range Planning.
EXECUTIVE. The Executive Committee exercises the authority of the Board of
Directors when the Board is not in session, as permitted by law and the
Operating Agreement. Members: Howard Dahlager, Larry Dowd, Dan Dybsetter, Doug
Finstrom, Roger Fjerkenstad, Jim Gervais, Jerry Jacoby, Sandy Ludeman and John
Zwack, Jr.
FINANCE. The Finance Committee reviews the financial structure, policies
and future of the Cooperative as developed by senior management. It also
approves audit reports, accounting policies, financial statements and internal
controls. Members: Dean Buesing, Howard Dahlager, Larry Dowd, Doug Finstrom,
Roger Fjerkenstad, Jerry Jacoby, Ron Kirchner and Sandy Ludeman.
CORN PROCUREMENT. The Corn Procurement Committee establishes the
Cooperative's strategic corn procurement activities. Members: Duane Adams,
Larry Dowd, Jim Gervais, Jack Hennen, John Jerzak, Donald Lindblad, Steve
Lipetzky and David Scheibel.
GROWER RELATIONS. The Grower Relations Committee has historically
coordinated the Cooperative's interaction with the growers who have provided
the Cooperative's corn. Members: Duane Adams, Daniel Dybsetter, Roger
Fjerkenstad, Andrew Jensen, Steve Lipetzky, John Nelson, Kenneth Regier and Ken
Robinson.
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PUBLIC RELATIONS. The Pubic Relations Committee assists management in
directing the Cooperative's public relations activities. Members: Robert
Bender, Daniel Dybsetter, Andrew Jensen, Carl Just, Jack Hennen, Ron Kirchner,
Ken Robinson and John Zwach, Jr.
COMPENSATION. The Compensation Committee reviews management compensation
practices and employee benefit plans. Members: Robert Bender, Howard Dahlager,
Jerry Jacoby, John Jerzak, Carl Just, Donald Lindblad, Patrick Meuret and John
Nelson.
LONG RANGE PLANNING. The Long Range Planning Committee considers and
analyzes the Cooperative's long-term strategic and market positions. Members:
Dean Buesing, Doug Finstrom, Jim Gervais, Sandy Ludeman, Patrick Neuret,
Kenneth Regier, David Scheibel and John Zwach, Jr.
COMPENSATION OF DIRECTORS
The LLC will reimburse each director for actual expenses of attending Board
and committee meetings and provide a per diem payment for services performed on
behalf of the LLC in the amount $250 for the Board Chairman, $150 for the Vice
Chairman and Secretary, and $100 for other directors. The Operating Agreement
provides that additional director compensation must be approved by Class A
members. The Cooperative currently reimburses each director for actual expenses
and also provides a per diem payment for services performed.
EXECUTIVE OFFICERS
Upon completion of the conversion, the following individuals will be
executive officers of the LLC:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- ----- -------------------------------------------------------------
<S> <C> <C>
L. Daniel Thompson ................ 57 President and Chief Executive Officer
Daniel H. Stacken ................. 35 Vice President and Chief Financial Officer
George A. Lamberth ................ 50 Chief Operating Officer of the Cooperative and
President and Chief Executive Officer of Liquid Sugars, Inc.
Lawrence J. Schiavo, Jr. .......... 40 Vice President of Operations and Business Development
Stanley L. Sitton ................. 41 Senior Vice President of Sales and Marketing
Roger L. Untiedt .................. 40 Vice President of Technology
Roger F. Evert .................... 37 Vice President of Human Resources and Administration
</TABLE>
L. DANIEL THOMPSON. Mr. Thompson has served as President and Chief
Executive Officer of the Cooperative since August 1997. Mr. Thompson served as
Chief Financial Officer from January 1997 to August 1997. From December 1994 to
January 1997, he served as President and Chief Executive Officer of Bake Rite
Foods, a shortening and vegetable oil manufacturer. Before that, Mr. Thompson
was President and Chief Executive Officer of Lou Ana Foods, Inc., a vegetable
oil refinery. Mr. Thompson is also a director of Liquid Sugars, Inc.
DANIEL H. STACKEN. Mr. Stacken has served as Vice President and Chief
Financial Officer of the Cooperative since November 1998. Mr. Stacken served as
Controller from December 1991 to November 1998. He is a director of Liquid
Sugars, Inc.
GEORGE A. LAMBERTH. Mr. Lamberth has served as Chief Operating Officer of
the Cooperative and President and Chief Executive Officer of Liquid Sugars,
Inc., a wholly-owned subsidiary of the Cooperative, since November 1997. Mr.
Lamberth is also a director of Liquid Sugars, Inc. Before joining the
Cooperative, Mr. Lamberth was Chief Executive Officer of GST Group, L.L.C. From
1995 to 1996, he was President of KRK Thermal Systems, a start-up food vending
machine manufacturer. Before that, he was Interim Chief Executive Officer of
Valley Care Health Systems, a 168-bed, two campus hospital complex. From 1987
to 1994, Mr. Lamberth was Chairman and Chief Executive Officer of Spreckels
Industries, Inc., a sweetener company.
LAWRENCE J. SCHIAVO, JR. Mr. Schiavo has served as Vice President of
Operations and Business Development of the Cooperative since November 1998. Mr.
Schiavo served as Director of Operations from October 1992 to November 1998 and
as Plant Manager of the Marshall facility from June 1990 to October 1992.
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<PAGE>
STANLEY L. SITTON. Mr. Sitton was named Senior Vice President of Sales and
Marketing in November 1998 and has been Vice President of Sales and Marketing
of the Cooperative since March 1997. Mr. Sitton also is a director of Liquid
Sugars, Inc. and of Natural Solutions, Inc. From December 1985 to February
1997, Mr. Sitton served in various positions with A.E. Staley Manufacturing
Company focusing on sales and marketing.
ROGER L. UNTIEDT. Mr. Untiedt was named Vice President and Director of
Technology in November 1998 and from February, 1996 and November, 1998 served
as Director of Quality and Engineering of the Cooperative. From November 1992
to February 1996, he served as Plant Manager of the Marshall facility.
ROGER F. EVERT. Mr. Evert was named Vice President of Human Resources and
Administration in November 1998. From October 1992 to November 1998, Mr. Evert
was Human Resources Manager.
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Cooperative for the
Chief Executive Officer and the five next highest paid executive officers at the
end of fiscal year 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------ --------------------
SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS
- -------------------------------- -------- ----------- -------- ----------------- --------------------
<S> <C> <C> <C> <C> <C>
L. Daniel Thompson 1998 $231,450 $ -- $11,880 --
President and Chief Executive
Officer
Daniel H. Stacken 1998 110,057 6,000 -- --
Vice President and Chief
Financial Officer
George A. Lamberth(2) 1998 68,213 -- 13,200 --
Chief Operating Officer of the
Cooperative; President and
Chief Executive Officer of
Liquid Sugars, Inc.
Lawrence J. Schiavo 1998 125,225 6,000 -- --
Vice President of Operations
and Business Development
Stanley L. Sitton 1998 150,000 4,000 13,345 --
Senior Vice President of Sales
and Marketing
Roger L. Untiedt 1998 125,075 6,000 --- --
Vice President and Director of
Technology
</TABLE>
- ------------------
(1) Includes reimbursements for moving and relocation expenses and premiums paid
in connection with life insurance and retirement policies.
(2) Mr. Lamberth joined the Cooperative in November 1997.
EMPLOYEE BENEFIT PLANS
In 1998, the Cooperative adopted a Retirement Savings and Investment Plan
("401(k) Plan") covering the Cooperative's full-time employees. The 401(k) Plan
is intended to qualify under Section 401(k) of the Code, so that contributions
to the 401(k) Plan by employees or by the Cooperative, and
44
<PAGE>
the investment earnings thereon, are not taxable to employees until withdrawn
from the 401(k) Plan. The Cooperative matches a maximum of 1.5% of each
employee's earnings, but on the basis of 25% of the employee's contribution, up
to a maximum of 6%. Cooperative contributions vest 20% per year of service.
The Cooperative also maintains for all of its full-time employees health
and medical insurance, dental insurance, short-term and long-term disability and
term life insurance.
MANAGEMENT STOCK PURCHASE PROGRAM
The management stock purchase program provides management with an
opportunity to purchase nonvoting units of equity participation. The Board
selects the participants who will be granted rights to purchase nonvoting units
of equity participation and determines the number of nonvoting units covered by
the right. The purchase price is equal to 75% of the average selling price of
units of equity participation during the preceding 12 months. The purchase price
is payable in full at the time of exercise of the right or, in the discretion of
the Board, through accumulated cash dividend payments over an unspecified period
of time. If the payment is funded by cash dividends, the Cooperative has no
recourse against the participant for the full amount of the purchase price. The
rights are not transferable without the written consent of the Cooperative and
may be exercised immediately after the date of grant for a period of one year.
The nonvoting units acquired upon the exercise of a right are subject to
redemption by the Cooperative upon termination of the participant's employment.
However, if the participant's employment is terminated for reasons other than
for cause, the participant may sell his or her nonvoting units to a qualified
third party, within 3 months following termination of the participant's
employment. In fiscal 1998, the right to purchase 10,000 units were granted to
each of Mr. Thompson and Mr. Sitton at an average per unit price of $2.08.
As of December 31, 1998, the total number of nonvoting units of equity
participation held by the executive officers named in the Summary Compensation
Table, and the balance owed on these units were as follows: Mr. Thompson --
10,000 units ($20,767.50), Mr. Stacken -- 21,288 units ($27,879.95), Mr. Schiavo
- -- 28,384 units ($10,258.21), Mr. Sitton -- 10,000 units ($20,767.50) and Mr.
Untiedt -- 21,288 units ($27,886.84). The units held by Messrs. Stacken and
Untiedt are subject to loss payables that were assessed against all members in
fiscal 1996. The Board does not intend to grant any rights under the management
stock purchase program in the future.
EMPLOYMENT AGREEMENTS
The Cooperative has an employment agreement with Mr. Thompson, its
President and Chief Executive Officer. Under the agreement, Mr. Thompson's
initial annual salary is $250,000. Mr. Thompson also is eligible for an annual
bonus based on a fixed percentage of net income for such fiscal year. The
agreement provides for discretionary annual bonuses to Mr. Thompson for any
fiscal year in which the Cooperative is unprofitable. In addition, Mr. Thompson
is entitled to participate in the Management Stock Purchase Program and
receives a $20,000 annuity annually.
The initial term of the agreement expires on March 31, 2001, subject to
automatic renewal terms of one year each, unless terminated earlier. If the
Board terminates the employment agreement with Mr. Thompson without cause (as
defined), Mr. Thompson will receive a cash severance payment equal to:
* if the employment ends during the initial term, the greater of $250,000
or the product of $4,807.69 times the number of weeks remaining from the
date of termination to the end of the initial term, or
* if the employment ends after the initial term, $250,000.
In addition, the Cooperative will compensate Mr. Thompson for any financial
loss suffered on the sale of his residence in the Marshall area.
In November 1997, the Cooperative entered into an employment agreement
with Mr. Lamberth. The agreement provides for an initial annual salary of
$175,000. Under the agreement, Mr. Lamberth
45
<PAGE>
is eligible for discretionary annual bonuses and entitled to participate in the
Management Stock Purchase Program. In addition, the agreement provides for
reimbursement of approximately $13,000 in annual premiums for an existing
universal benefit policy. The agreement will expire on later of (1) December 31,
1999, unless earlier terminated or (2) such later date that is agreed upon by
the Cooperative and Mr. Lamberth. If the Board terminates the employment
agreement with Mr. Lambeth without cause (as defined), Mr. Lamberth will receive
a cash severance payment equal to his weekly compensation rate multiplied by the
number of weeks remaining in his term of employment.
SECURITY OWNERSHIP OF MANAGEMENT
The Operating Agreement provides that each Class A member owning 5,000 or
more Class A units will have one vote and that no Class A member may own more
than 2% of the total issued and outstanding Class A units. If the conversion had
been completed on December 31, 1998, officers and directors would beneficially
own as a group approximately ___% of the outstanding Class A units.
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<PAGE>
DESCRIPTION OF MEMBERSHIP UNITS
THE FOLLOWING SUMMARY OF THE MATERIAL FEATURES OF THE LLC MEMBERSHIP UNITS
DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRELY BY REFERENCE
TO THE OPERATING AGREEMENT OF THE LLC.
GENERAL
The LLC has two classes of membership: Class A membership, which has voting
rights, and Class B membership, which has no voting rights. Membership is not
limited to agricultural producers. Class A memberships are represented by Class
A units. A Class A Unit is the holder's share of the profits and losses of the
LLC and the holder's right to receive distributions of cash or assets. Class B
memberships are represented by Class B units, which also represent the right to
share in the profits and losses and distributions of the LLC. The LLC is
authorized to issue 350,000,000 Class A units and 150,000,000 Class B units.
The Operating Agreement authorizes the LLC to issue additional units for
the purpose of (1) funding costs of expansion of, or maintenance and repairs to,
its corn wet milling facilities and related facilities, (2) funding costs of
construction or acquisition of facilities or any related or complementary
business, (3) funding losses which cannot be reasonably expected to be funded
with future earnings or (4) funding equity contributions to joint ventures
related or complementary to the LLC's existing business. If the LLC issues
additional units in the future, members will have the right to subscribe for
additional units in order to permit members to maintain their percentage of
units owned at a constant level.
QUALIFICATIONS FOR MEMBERSHIP
CLASS A MEMBERSHIP
A Class A membership is available to any individual, corporation or other
entity who acquires a minimum of 1,000 Class A units. The initial Class A
members of the LLC will be members of Minnesota Corn Processors, Inc. who
receive Class A units upon completion of the conversion. Competitors of the LLC
are not eligible to purchase or own Class A units. At the time of the
conversion, competitors would include Archer Daniels Midland Company, Cargill,
Inc., Corn Products Company and A.E. Staley Manufacturing Company, Cerestar USA,
Inc., National Starch and Chemical Company, Penford Products Company, Roquette
America, Inc., and any officers or directors of those companies.
CLASS B MEMBERSHIP
A Class B membership is available to any individual, corporation or other
entity who acquires a minimum of 1,000 Class B units. Upon completion of the
conversion, the initial Class B member will be Archer Daniels Midland Company.
CLASS A UNITS
VOTING RIGHTS
Although Class A members are required to own a minimum of 1,000 Class A
units, only members holding 5,000 or more Class A units are entitled to vote.
Holders of 5,000 or more Class A units are entitled to one vote on all matters
to be voted upon by the members. The LLC has the right to purchase the Class A
units of any member owning less than 1,000 Class A units at the Established
Value (as defined below), following written notice of the deficiency to the
member and expiration of a one-year cure period within which the member can buy
additional Class A units. Any member owning at least 1,000 Class A units, but
less than 5,000 units, is not entitled to vote. Class A units held by any member
not entitled to vote will be excluded in determining the total number of Class A
units required for action to be taken by the members.
MAXIMUM OWNERSHIP LIMITATION
No member can own more than 2% of the total issued and outstanding Class A
units. For purposes of calculating the 2% limitation, the number of Class A
units owned by a member includes any Class A units owned by that member's
spouse, children, parents, brothers and sisters, and any
47
<PAGE>
Class A units owned by any corporation, partnership or other entity in which the
member or the member's family members owns or controls a majority of the voting
power. Any Class A member owning more than 2% of the outstanding Class A units
is not entitled to vote until the member disposes of the excess Class A units.
In addition, the LLC has the right to purchase the number of Class A units in
excess of the 2% limitation at the Established Value, following written notice
of the excess ownership to the member and expiration of a one-year cure period
within which the member can dispose of the excess Class A units. Under the
Operating Agreement, the "Established Value" means the per unit purchase price
set by the Board of Directors based on 75% the fair market value of the Class A
units (as determined by the Board using reasonable valuation methods) or the
book value of the Class A units, whichever is less. At the option of the LLC,
the purchase price may be made in one lump sum or in equal installments over a
five-year period, with interest.
CLASS B UNITS
Class B units are nonvoting membership interests. The LLC has the right to
purchase the Class B units of any member owning less than 1,000 Class B units at
the Established Value, following written notice and expiration of the one-year
cure period. There is no maximum limit on the ownership of Class B units.
Holders of Class B units are also entitled to receive distributions of cash as
may be declared by the Board of Directors, on the same basis as holders of Class
A Units.
DISTRIBUTIONS
Unit holders are entitled to receive distributions of cash as may be
declared by the Board of Directors. Distributions of cash will be made to unit
holders in proportion to the number of Units owned by each member. The holders
of Class A units and Class B units are entitled to equivalent per Unit
distributions. The Board of Directors has the discretion to make distributions
to holders of Special Financial Interests in the aggregate amount of the stated
amount of such Interests.
CAPITAL ACCOUNTS AND CONTRIBUTIONS
The purchase price for Class A units and Class B units will constitute a
capital contribution to the LLC for purposes of becoming a member of the LLC.
The Operating Agreement does not require any member to make additional capital
contributions to the company, except that the Board of Directors may require any
member who owes a tax withholding obligation to the company to reimburse the
company for that liability. Except as otherwise provided in the Operating
Agreement, interest will not accrue on capital contributions, and members will
have no right to withdraw or be repaid any capital contribution.
ALLOCATION OF PROFITS AND LOSSES; SPECIAL ALLOCATION RULES
ALLOCATION OF PROFITS AND LOSSES
Except as otherwise provided in Special Allocations, profits and losses
realized by the LLC will be allocated to the members in proportion to the number
of units held by each member. Profits and losses will be determined by the Board
of Directors on either a daily, monthly, or other basis permitted under the Code
and corresponding Treasury Regulations.
SPECIAL ALLOCATION RULES
The general rule for profit and loss allocations is subject to a number of
exceptions referred to as special allocations. The most relevant of the special
allocations is the special allocation of profits that will be made if
distributions are made to the holders of Special Financial Interests. The other
special allocations are required by Treasury Regulations and are aimed at highly
leveraged partnerships that allocate taxable losses in excess of the partner's
actual capital contributions. These circumstances are highly unlikely to occur
in the LLC.
RESTRICTIONS ON TRANSFER OF UNITS
Transferability of units is restricted to ensure that the LLC is not deemed
a "publicly traded partnership" and thus taxed as a corporation. See "Federal
Income Tax Considerations -- Publicly Traded Partnership Rules." Under the
Operating Agreement, no transfers may occur without the
48
<PAGE>
approval of the Board of Directors. The Board of Directors will permit transfers
that fall within "safe harbors" contained in the publicly traded partnership
rules under the Code. These include transfers by gift, transfers upon the death
of a member, intra family transfers and other transfers during the tax year that
in the aggregate do not exceed 2% of the total outstanding Class A and Class B
units. In addition, the Board may give nontransferring members a right of first
refusal with respect to certain transfers of units. In the future, the LLC may
consider establishing a qualified matching service to facilitate trading in the
Class A units. If anyone transfers units in violation of the publicly traded
partnership requirements of the Code or without the prior consent of the Board,
the LLC will consider the purported transfer to be null and void and will not
recognize any voting and distribution rights for those units.
The Board of Directors may, in its discretion, establish other conditions
and procedures for transfers of units. These may include (1) delivery of a legal
opinion to the Cooperative; (2) delivery of transfer instruments to the
Cooperative; (3) delivery of certain financial information sufficient to enable
to Cooperative to file all necessary tax returns; and (4) repayment of any
indebtedness owed by the transferring member to the LLC.
In addition, the Board may require a transferee of Class B units to enter
into a written agreement with the Cooperative to the effect that the transferee
is not entitled to the benefits of the Stockholder Agreement between the
Cooperative, as successor in interest to the Cooperative, and Archer Daniels
Midland Company. All transfers of Class B units also must be approved by the
Board of Directors.
The pledge of, or granting of a security interest in, lien or other
encumbrance in or against a member's units does not constitute a transfer of the
units. A transfer of units as a result of foreclosure or transfer in lieu of
foreclosure does constitute a transfer of units, and is subject to the
restrictions on transfers of units. The transfer of all of a member's units to a
transferee terminates the transferring member's membership in the Cooperative.
DISTRIBUTION OF ASSETS UPON LIQUIDATION
The Cooperative's Operating Agreement establishes the following order and
priority for distribution of the Cooperative's assets upon dissolution, each
category to be satisfied in full before any distribution is made to the next:
first, all debts and liabilities of the Cooperative must be paid; second,
reserves for contingent liabilities must be set aside; third, the value of Class
A and Class B units, as determined by the Board of Directors must be paid pro
rata to the unit holders; fourth, the stated amount of Special Financial
Interests, reduced by previous distributions with respect to such Interests,
must be paid; and fifth, all remaining property and assets of the Cooperative
are then to be distributed among the unit holders pro rata in amount equal to
the unit holders' respective capital accounts.
AMENDMENTS TO OPERATING AGREEMENT
The Operating Agreement may be amended by the vote of 66.67% of the members
voting, either in person or, if authorized by the Board, by proxy or mail
ballot, at any regular or special meeting of the members at which a quorum is
present.
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<PAGE>
COMPARISON OF CERTAIN RIGHTS OF MEMBERS
The rights of members are currently governed by Minnesota Cooperative Law
("Minnesota Law") and the Articles of Incorporation and Bylaws of the
Cooperative. Upon completion of the conversion, the rights of members will be
governed by the Colorado Act and the Operating Agreement of the LLC. The
following is a summary of the material differences between ownership of the
Cooperative units and ownership of the LLC Class A units. This summary is not
intended to be a complete discussion of, and is qualified in its entirety by
reference to the Minnesota Act, the Colorado Act, the Cooperative Articles, the
Cooperative Bylaws and the Operating Agreement. The identification of specific
differences is not meant to indicate that other equally or more significant
differences do not exist. A copy of the Operating Agreement is attached as
Appendix D to this document. The Articles of Incorporation and Bylaws of the
Cooperative may be obtained from the Cooperative, without charge, by contacting
Dan Stacken, Minnesota Corn Processors, Inc., 901 North Highway 59, Marshall, MN
56258.
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
TAXATION The LLC will be treated as a The Cooperative is exempt from
partnership for federal income tax taxation at the company level under
purposes. The LLC will pay no tax Subchapter T of the Code so long as
on its net income. Rather, each it distributes at least 20% of
member is subject to income tax patronage distributions to its
based on the member's allocable members in cash. Each member is
share of income, gain, loss, deduction subject to income tax based on the
and credits, whether or not any cash amount of patronage and dividends
is actually distributed to the member. distributed to the member.
LIMITED LIABILITY Under the Colorado Act and the Members are not personally liable
Operating Agreement, members will for the debts, obligations and
not be personally liable for the debts, liabilities of the Cooperative, but are
obligations and liabilities of the LLC. obligated to deliver corn under their
marketing agreements.
DISTRIBUTIONS; Subject to any legal or contractual The Cooperative is required to
CORN DELIVERY restrictions, the Board of Directors distribute its annual net income to
OBLIGATION of the LLC has the discretion members based on patronage.
whether and when to make cash Patronage distributions may be paid
distributions to the members and to in the form of cash, stock, units of
fix the amount of any distribution. equity participation, certificates of
Holders of Class A units and Class B interest, revolving fund certificates,
units are entitled to equivalent per notes or credits. The Cooperative
unit distributions. The Board also has may (and may be required to loan
the discretion to make distributions agreements to) retain a portion of its
to the holders of Special Financial annual income for working capital
Interests up to the stated amount purposes. Members are obligated to
thereof. Members have no obligation deliver roughly one bushel of corn
to deliver corn to the LLC and for each unit of equity participation
distributions are based on the they own.
number of units held by a member.
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
AUTHORIZED The Operating Agreement provides The Cooperative Articles provide for
CAPITAL for authorized capital consisting of authorized stock consisting of
350 million Class A units and 150 100,000 shares of common stock,
million Class B units. $50.00 par value per share, 100,000
shares of nonvoting preferred
stock, $50.00 par value per share
and non-voting units of equity
participation equal to 30% of the
Cooperative's total participating
equity.
MEMBERSHIP Under the Operating Agreement, The Cooperative Articles provide
INTERESTS Class A units represent voting that common stock is the only class
membership interests and Class B of membership and voting stock.
units represent nonvoting Common stock may be held only by
membership interests. Class A units agricultural producers. Each unit of
may be held by any person that is equity participation represents the
not a competitor of the LLC (i.e., right and obligation to deliver corn.
ownership of Class A units is not The Cooperative is a closed-end
limited to agricultural producers). No cooperative, which means that new
person may own less than 1,000 members may be admitted by
Class A units or more than 2% of purchasing shares from existing
the issued and outstanding Class A members, or from the company if the
units. company expands its corn processing
capacity.
LIQUIDITY AND There is no public trading market for There is no public trading market for
TRANSFERABILITY the Class A units. The Operating the Cooperative common stock and
Agreement imposes certain transfer units of equity participation. No
restrictions to preserve the LLC's transfer may occur without the prior
partnership tax status. No transfer consent of the Board, and the
may occur without the prior consent common stock may be held only by
of the Board. Ownership of Class A qualified agricultural producers.
units is not limited to agricultural Members have a right-of-first-refusal
producers. The Board has the with respect to certain transfers of
discretion to give members a stock.
right-of-first-refusal with respect to
certain transfers of Units.
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
VOTING RIGHTS Under the Operating Agreement, Under the Cooperative Articles, each
each member owning a minimum of member owning a minimum of 5
5,000 Class A units is entitled to one common shares is entitled to one
vote, regardless of the number of vote, regardless of the number of
units owned. Members owning less shares or units of equity participation
than 5,000 Class A units have no owned.
voting rights; members owning more
than 2% of the outstanding Class A The Cooperative Bylaws prohibit
units will not be entitled to voting voting by proxy.
rights until they reduce their
ownership to no more than 2% of the
outstanding Class A units. Members
who are competitors don't have voting
rights.
The Operating Agreement permits
voting by mail ballot and proxy if
authorized by the Board.
TERMINATION OF Under the Operating Agreement, a The Cooperative Bylaws provide that
MEMBERSHIP member's membership interest will the Board of Directors, in its sole
terminate upon (1) a complete discretion, may terminate the
transfer of all of the member's member's membership if the member (1)
units, (2) dissolution of a becomes ineligible for membership,
nonindividual member, (3) death of an (2) has failed to patronize the
individual member, (4) withdrawal or Cooperative for a period of 1 year or
(5) failing to meet the minimum or more, (3) has moved outside the
maximum requirements for unit territory served by the Cooperative,
ownership. (4) dies or ceases to be an
agricultural producer or (5)
intentionally or repeatedly violated
any provisions of the Article or
Bylaws breached any contract with the
Cooperative, remained indebted to the
Cooperative for 90 days after said
indebtedness first became payable or
willfully obstructed any lawful
purpose or activity of the
Cooperative.
REDEMPTION Class A units are subject to Under the Cooperative Articles, the
redemption if a members owns less common stock is subject to optional
than 1,000 Class A Units or more redemption by the Cooperative at
than 2% of the total outstanding the lesser of par value or book value.
Class A Units. The redemption price
is the lesser of book value or 75% of
the fair market value of the units.
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
ANNUAL MEETINGS The Operating Agreement provides The Cooperative Bylaws provides
that regular meetings of the that the annual meeting of members
members shall be held at least once shall be held with six months
per year. The Operating Agreement following the close of the fiscal year.
gives any member the right to
demand a meeting of the members if
a regular meeting has not been held
within six months after the end of
the fiscal year.
VOTE ON The Operating Agreement states that Minnesota Law requires that a
EXTRAORDINARY a merger, consolidation, share or merger, consolidation, sale of all or
TRANSACTIONS interest exchange, sale of all or substantially all of the assets of the
substantially all of the assets of The Cooperative, or a dissolution of the
LLC, a dissolution of the LLC or Cooperative must be approved by
any transaction, agreement or action the affirmative vote of two-thirds of
on behalf of the LLC that is not the members voting in person or if
related or complimentary to the authorized, by mail ballot. The
Cooperative's existing business, must Cooperative Articles do not contain
be approved by the affirmative vote vote requirements for extraordinary
of two-thirds of the Class A transactions.
members voting in person, or if
authorized, by proxy or mail ballot.
AMENDMENT OF An amendment of the Operating An amendment of the Cooperative
GOVERNING Agreement requires approval of Articles and Bylaws requires
DOCUMENTS two-thirds of the Class A members approval by the members by the
voting in person, or if authorized, by affirmative vote of a majority of the
proxy or mail ballot. members present at the meeting.
PREEMPTIVE RIGHTS The Operating Agreement provides Neither Minnesota Law nor the
that holders of Class A units have Cooperative's Articles or Bylaws
preemptive rights. provide for preemptive rights.
APPRAISAL RIGHTS Neither the Colorado Act nor the Neither Minnesota Law nor the
OF DISSENTING Operating Agreement provides for Cooperative Articles or Bylaws
MEMBERS appraisal rights. provides for appraisal rights.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
LIQUIDATING RIGHTS In the event of a liquidation of the In the event of a liquidation of the
LLC, unit holders would be entitled Cooperative, the assets remaining
to share ratably in any assets offer the satisfaction of all debts and
remaining after satisfaction of liabilities of the Cooperative are
obligations to creditors and the distributed as follows: (1) to holders
establishment of reserves for of units of equity participation on a
contingent liabilities or obligations of pro rata basis; (2) to holder of other
the Cooperative as deemed necessary patronage equity interests on a pro
by the Board or the person rata basis; (3) to holders of common
conducting the liquidation, except stock and preferred stock an amount
that when unit holders have received equal to the par value of their
the value of their units as shares; and (4) remaining assets to
determined by the Board, the current and former patrons in
holders of Special Financial Interests accordance with their proportionate
will be entitled to payment of their patronage.
stated value as reduced by prior
distributions.
FINANCIAL The LLC will be subject to the The Cooperative is not subject to the
REPORTING reporting requirements of the reporting requirements of the
Exchange Act and will file annual, Exchange Act.
quarterly and special reports with the
SEC.
FIDUCIARY DUTIES The Colorado Act provides that a The Cooperative Articles limit the
director must perform his duties in personal liability of directors to the
good faith, in a manner he maximum extent permitted by
reasonably believes to be in the best Minnesota Law. Minnesota Law
interests of the limited liability provides that directors of a
company, and with such care as an cooperative will not be personally
ordinarily prudent person in a like liable for monetary damages for
position would use under similar breach of their fiduciary duties as
circumstances. A person who so directors, except liability for (1) any
performs his duties shall not have breach of their duty of loyalty to the
any liability for reason of being a cooperative or its members, (2) acts
director of the limited liability or omissions not in good faith or
company. which involve intentional misconduct
or a knowing violation of law or (3)
any transaction from which the
director derived an improper personal
benefit.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
UNITS OF EQUITY PARTICIPATION OF THE
CLASS A UNITS OF THE LLC COOPERATIVE
<S> <C> <C>
INDEMNIFICATION OF The Operating Agreement requires The Cooperative Bylaws provides
OFFICERS AND the LLC, to the fullest extent that the Cooperative shall indemnify
DIRECTORS permitted by law, to indemnify each its directors, officers, managers,
director from and make advances for employees or agents to the fullest
expenses incurred by the director in extent permitted by Minnesota law.
connection with any claim made
against the director arising from an
action or omission made in good
faith or which he or she reasonably
believed to be in the best interests of
the Company or any other such
claim to the maximum extent
permitted under the Colorado Act,
except to the extent the claim results
from an act or omission constituting
fraud or willful misconduct. In
addition, except as otherwise
provided in an agreement with an
officer, the LLC is required to
indemnify officers to the fullest
extent permitted by law.
</TABLE>
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of the material federal income tax considerations
relating to the tax treatment of the LLC and its members is based on current
law, is for general purposes only, and is not tax advice. The summary is not
intended to represent a detailed description of the federal income tax
consequences applicable to a particular member in view of such member's
particular circumstances nor is it intended to represent a detailed description
of the federal income tax consequences applicable to certain investors subject
to special treatment under the federal income tax laws. The summary is based on
current provisions of the Code, current and proposed Treasury Regulations, court
decisions, and other administrative rulings and interpretations. All of these
sources are subject to change, and these changes may be applied retroactively.
We cannot provide any assurance that any such change, future provisions of the
Code or other legal authorities will not alter significantly the tax
considerations we describe in this summary.
EACH MEMBER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE
FEDERAL, STATE, AND LOCAL TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE,
OWNERSHIP AND SALE OF THE UNITS AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAX STATUS OF THE LLC
Single-tax treatment and the ability to make cash distributions to unit
holders without incurring an entity level federal income tax depends on the
treatment of the LLC as a partnership for income tax purposes. We expect that
the LLC will be treated as a partnership for federal income tax purposes. This
means that the LLC will pay no federal income tax and members will pay tax on
their share of the LLC's net income. Under recently revised Treasury Regulations
known as the "check-the-box" regulations, an unincorporated entity such as a
limited liability company will be taxed as a partnership unless the entity is
considered a publicly traded limited partnership or the entity affirmatively
elects to be taxed as a corporation.
The LLC will not elect to be taxed as a corporation and will endeavor to
take such steps as are feasible and advisable to avoid classification as a
publicly traded limited partnership. In early 1997, a study of partnership law
by the staff of the Congressional Joint Committee on Taxation questioned the
legal authority of the Treasury to issue the check-the-box regulations. Although
certain of the staff's recommendations were enacted into law, Congress has shown
no inclination to adopt legislation that would jeopardize the tax classification
of the many entities that have acted in reliance on the check-the-box
regulations.
If the LLC fails to qualify for partnership taxation for whatever reason,
it would be treated as a "C corporation" for federal income tax purposes. As a
"C corporation," it would be taxed on its taxable income at corporate rates
(currently a maximum 35% federal rate), distributions would generally be taxed
again to holders of Class A units as corporate dividends, and the holders of
Class A units would not be required to report their share of the LLC's income,
gains, losses or deductions on their tax returns. Because a tax would be imposed
upon the LLC as an entity, the cash available for distribution to unit holders
would be reduced by the amount of tax paid which could cause a reduction in the
value of the units.
PUBLICLY TRADED PARTNERSHIP RULES
To qualify for taxation as a partnership, the LLC cannot be subject to the
publicly traded partnership rules under the Section 7704 of the Code. Generally,
the Code provides that a publicly traded partnership ("PTP") will be taxed as a
corporation. The Code defines a PTP as a partnership whose interests are traded
on an established securities market, or are readily tradable on a secondary
market (or the substantial equivalent thereof). Although there is no legal
authority on whether a limited liability company is subject to the PTP rules, it
is probable that the LLC is subject to the PTP rules because it has elected to
be classified and taxed as a partnership.
The LLC will seek to avoid being treated as a PTP. Under Section
1.7704-1(d) of the Regulations, interests in a partnership are not considered
traded on an established securities market or readily tradable on a secondary
market unless (1) the partnership participates in the establishment
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of the market or the inclusion of its interests thereon, or (2) the partnership
recognizes any transfers made on the market by redeeming the transferor partner
or admitting the transferee as a partner. The LLC does not intend to list the
Class A and Class B units on any stock exchange or the NASDAQ Stock Market. In
addition, the Operating Agreement prohibits any transfer of units without the
approval of the Board. The Board intends to approve only transfers that fall
within certain safe harbor provisions of the Regulations and therefore will not
cause the LLC to be classified as a PTP. These safe harbor provisions generally
provide that interests will not be treated as readily tradable on a secondary
market (or the substantial equivalent thereof) if the interests are transferred:
* in "private" transfers;
* in qualified redemptions and repurchases;
* pursuant to a qualified matching service; or
* in limited amounts that satisfy a 2% test.
Private transfers include, among others: (1) transfers such as gifts in
which the transferee's tax basis is determined by reference to the transferor's
tax basis in the interests transferred, (2) transfers at death, including
transfers from an estate or testamentary trust, (3) transfers between members of
a family (as defined in Section 267(c)(4) of the Code), (4) transfers from
retirement plans qualified under Section 401(a) of the Code or an IRA, and (5)
"block" transfers. A block transfer is a transfer by a member and any related
persons (as defined in the Code) in one or more transactions during any
thirty-calendar-day period of interests representing in the aggregate more than
two percent of the total interests in partnership capital or profits.
Transfers pursuant to a qualified redemption or repurchase are disregarded
in determining whether interests are readily tradable on a secondary market if
several conditions are met. First, the redemption or repurchase cannot occur
until at least 60 days after the partnership receives written notice of the
member's intent to exercise the redemption or repurchase right. Second, either
the purchase price is not established until at least 60 days after receipt of
such notification or the purchase price is established not more than four times
during the entity's tax year. Third, the sum of the interests in capital or
profits transferred during the year (other than in private transfers) cannot
exceed 10 percent of the total interests in partnership capital or profits.
Transfers through a qualified matching service also are disregarded in
determining whether interests are readily tradable. A matching service is
qualified only if: (1) it consists of a computerized or printed system that
lists customers' bid and/or ask prices in order to match members who want to
sell with persons who want to buy, (2) matching occurs either by matching the
list of interested buyers with the list of interested sellers or through a bid
and ask process that allows interested buyers to bid on the listed interest, (3)
the seller cannot enter into a binding agreement to sell the interest until the
fifteenth calendar day after his interest is listed (which date must be
confirmable by maintenance of contemporaneous records), (4) the closing of a
sale effected through the matching service does not occur prior to the
forty-fifth calendar day after the interest is listed, (5) the matching service
displays only quotes that do not commit any person to buy or sell an interest at
the quoted price (nonfirm price quotes) or quotes that express an interest in
acquiring an interest without an accompanying price (nonbinding indications of
interest) and does not display quotes at which any person is committed to buy or
sell a interest at the quoted price (firm quotes), (6) the seller's information
is removed within 120 days of its listing and is not reentered into the system
for at least 60 days after its deletion, and (7) the sum of the percentage
interests transferred during the entity's tax year (excluding private transfers)
cannot exceed 10 percent of the total interests in partnership capital or
profits.
In addition, interests are not treated as readily tradable if the sum of
the percentage interests transferred during the entity's tax year (excluding
private transfers, qualified redemptions and qualified matching service
transfers) do not exceed two percent of the total interests in partnership
capital or profits.
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TREATMENT OF THE LLC'S OPERATIONS
FLOW-THROUGH OF TAXABLE INCOME; USE OF CALENDAR YEAR
No federal income tax will be paid by the LLC. Instead, each unit holder
will be required to report on his income tax return his allocable share of the
income, gains, losses and deductions of the LLC without regard to whether
corresponding cash distributions are received.
Because the LLC will be taxed as a partnership, it will have its own
taxable year separate from the taxable years of its unit holders. Unless a
business purpose can be established to support a different taxable year, a
partnership must use the "majority interest taxable year" which is the taxable
year that conforms to the taxable year of the holders of more than 50% of its
interests. In the LLC's case, the majority interest taxable year is the calendar
year.
Establishing a valid business purpose for a nonconforming taxable year is
difficult. The Service has ruled that, in determining whether a partnership has
established a sufficient business purpose to justify consent to use a
nonconforming taxable year, both tax factors and nontax factors must be
considered. Moreover, the ruling states that, where the use by a partnership of
a nonconforming year results in deferral or distortion of income, the nontax
factors must be "compelling." The examples in the ruling indicate that the
Service is not likely to view many nontax factors as compelling. Although the
LLC will consider applying for a nonconforming taxable year, unit holders should
assume that the LLC will be required to use the calendar year.
LLC'S BASIS IN ASSETS
Code Section 723 provides that the basis of any property contributed to a
partnership by a partner is the adjusted basis of the property in the hands of
the contributor at the time of the contribution. In general, this will be the
fair market value of the LLC units ($1.10 per unit) increased by the amount of
liabilities initially assumed by the LLC. The aggregate basis must be
apportioned among the categories of assets in proportion to their relative fair
market values and future cost recovery deductions will be based on the amounts
so apportioned. It is possible that the IRS will challenge the allocation of
basis to specific categories of assets within the LLC so as to increase the
allocation to longer-lived assets or assets that cannot be depreciated or
amortized such as land and Section 197 intangibles that were used by the
Cooperative during the Section 197 transition period of 1991 to 1993.
TAXABLE INCOME OR LOSS FROM OPERATIONS
The LLC will compute its taxable income or loss in a manner that differs
materially from the way the Cooperative determines its taxable income or loss.
Material changes include the fact that an LLC does not issue patronage dividends
or value added payments and therefore does not receive a deduction for such
payments. The net effect at the unit holder level is similar with respect to
taxable income, however, in that the bulk of the taxable income of the LLC will
be reported by the members. LLC losses, however, flow-through to the unit
holders, subject to restrictions discussed below, while a cooperative's losses
generally produce net operating loss carryovers.
The LLC may have material differences in taxable income or loss relative to
pre-conversion taxable income or loss because of changes in asset basis that is
attributable to the conversion. The LLC will have a lower basis in its accounts
receivable and inventory as the result of the valuation and discounts applied in
the conversion process. This is likely to result in a nonrecurring increase in
1999 LLC income in the approximate amount of the discount for lack of
marketability and minority interest that is apportioned to accounts receivable
and inventory currently estimated at $9 million. This will result in
nonrecurring taxable income of approximately 4.6 cents per unit in the year of
conversion. In addition, new cost recovery schedules will be adopted that will
be based on the discounted value of depreciable and amortizable assets as if
they are placed in service on the conversion date. We estimate that our annual
cost recovery deductions in the first several years following the conversion
will be approximately $8.7 million or 4.5 cents per unit less than cost recovery
deductions of the Cooperative in recent years. These are the inevitable
consequences of the conversion and are subject to adjustment to conversion date
values and discounts as explained in the discussion of the tax consequences of
the conversion.
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TAX CONSEQUENCES OF LLC UNIT OWNERSHIP
FLOW-THROUGH OF TAXABLE INCOME OR LOSS
Each unit holder and holder of a Special Financial Interest will be
required to report on his income tax return for his taxable year with which or
within which ends the LLC's taxable year his distributive share of the income,
gains, losses and deductions of the LLC without regard to whether corresponding
cash distributions are received. To illustrate, each calendar year unit holder
will include his share of the LLC's 1999 taxable income or loss on his 1999
income tax return. A unit holder with a June 30 fiscal year will report his
share of the LLC's 1999 taxable income or loss on his income tax return for the
fiscal year ending June 30, 2000. Holders of Special Financial Interests will be
allocated taxable income only if they receive a corresponding cash distribution.
The LLC will provide each unit holder with an annual Schedule K-1 indicating the
member's share of the LLC's income, loss and separately stated components
thereof.
TAX TREATMENT OF DISTRIBUTIONS
Distributions by the LLC to a unit holder or the holder of a Special
Financial Interest generally will not be taxable to the unit holder for federal
income tax purposes as long as distributions do not exceed his basis in his
units immediately before the distribution. Cash distributions in excess of unit
basis -- which are considered unlikely -- are treated as gain from the sale or
exchange of the units under the rules described below for unit dispositions.
INITIAL TAX BASIS OF UNITS AND PERIODIC BASIS ADJUSTMENTS
Under Code Section 722, a member's initial basis in his or her membership
interest in the LLC will be equal to the sum of the amount of money and the
contributor's adjusted basis of any property contributed to the LLC. Such amount
is increased by a member's share of the LLC's debt.1 Since the property deemed
to be contributed by each member is the property received in the constructive
liquidation, each member's initial basis in the LLC units should be equal to the
fair market value of those units as reported by the member in determining gain
or loss on the conversion transaction as described above plus the member's share
of the LLC's debt. Pursuant to the Appraisal and subject to adjustment to
conversion date amounts, the initial basis will be $2.73 per unit consisting of
a net property contribution of $1.10 plus $1.63 per unit share of debt.
A member's initial basis in LLC units will be increased to reflect the
member's distributive share of the LLC's taxable income and tax-exempt income,
certain amounts attributable to depletion that are not likely to be relevant,
and any increase in a member's share of the LLC's debt. If a member makes
additional capital contributions at any time, the adjusted unit basis is
increased by the amount of any cash contributed or the adjusted basis in any
property contributed.
A member's unit basis will be decreased (but not below zero) by (1) the
amount of any cash distributed to the member; (2) the basis of any other
property distributed; (3) the amount of certain depletion deductions; (4) the
member's distributive share of losses and nondeductible expenditures of the LLC
that are "not properly chargeable to capital account" and (5) any reduction in
such member's share of LLC's debt.
The unit basis calculations are complex. A member is only required to
compute unit basis if the computation is necessary to determine his tax
liability but accurate records should be maintained. Typically, basis
computations are necessary at the following times:
1. The end of a taxable year during which the LLC suffered a loss, for the
purpose of determining the deductibility of the member's share of the
loss;
2. Upon the liquidation or disposition of a member's interest, and
- ------------------
(1) Inclusion of debt in the basis of a unit holder's LLC interest is
technically true but is unnecessarily confusing. During the tax shelter boom
of the 1980s, inclusion of debt in the basis of a partnership interest
allowed partnership investors to write off losses in excess of their
investment. This led to the at-risk and passive loss restrictions. Inclusion
of debt in basis is unlikely to have any material tax consequences to an LLC
unit holder.
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3. Upon the nonliquidating distribution of cash or property to a partner, in
order to ascertain the basis of distributed property or the taxability of
cash distributed.
Except in the case of a taxable sale of a unit or liquidation of the LLC,
exact computations usually are not necessary. For example, a unit holder who
regularly receives cash distributions that are less than or equal to his share
of the LLC's taxable income will have a positive unit basis at all times.
Consequently, no computations are necessary to demonstrate that cash
distributions are not taxable to him under Code Section 731(a) (1). The purpose
of the basis adjustments is to keep track of a member's "tax investment" in LLC,
with a view toward preventing double taxation or exclusion from taxation of
income items upon ultimate disposition of the units.
DEDUCTIBILITY OF LOSSES; PASSIVE LOSS LIMITATIONS
In general, a unit holder may deduct losses allocated to him, subject to a
number of restrictions. Those restrictions include a general rule that losses
cannot be deducted if they exceed a member's basis in his units nor to the
extent they exceed the member's at-risk amount. These specific restrictions are
not likely to impact the members of the LLC. However, if the LLC incurs a
taxable loss or if taxable income is insufficient to cover interest expense on
the Cooperative related borrowing, the passive activity loss deduction rules are
likely to have widespread effect.
Code Section 469 substantially restricts the ability of taxpayers to deduct
losses from passive activities. Passive activities generally include activities
conducted by pass-through entities, such as the LLC and other partnerships,
limited liability companies or S corporations, in which the taxpayer does not
materially participate. Generally, losses from passive activities are deductible
only to the extent of the taxpayer's income from other passive activities.
Passive activity losses that are not deductible because of these rules may be
carried forward and deducted against future passive activity income or may be
deducted in full upon disposition of a unit holder's entire interest in the LLC
to an unrelated party in a fully taxable transaction.
It is important to note that "passive activities" do not include dividends
and interest income that normally is considered to be "passive" in nature; nor
do they include farming operations in which the taxpayer is a material
participant.
Many members have borrowed to purchase their equity interest in the
Cooperative and have been deducting the interest expense. After the conversion,
such interest expense will be aggregated with other items of income and loss
from passive activities and subjected to the passive activity loss limitation.
To illustrate, if a member's only passive activity is the LLC, and if the LLC
incurs a net loss, no interest expense on related borrowing would be deductible.
If that member's share of the LLC's taxable income is less than the related
interest expense, the excess would be nondeductible. In both instances, the
disallowed interest would be suspended and would be deductible against future
passive activity income or upon disposition of the member's entire interest in
the LLC to an unrelated party in a fully taxable transaction.
ALTERNATIVE MINIMUM TAX
If the LLC adopts accelerated methods of depreciation, it is possible that
taxable income for Alternative Minimum Tax purposes might exceed regular taxable
income passed through to the unit holders. No decision has been made on this
point but we believe that most unit holders are unlikely to be adversely
affected by such excess alternative minimum taxable income.
TAX CONSEQUENCES OF DISPOSITION OF UNITS
RECOGNITION OF GAIN OR LOSS
Gain or loss will be recognized on a sale of LLC units equal to the
difference between the amount realized and the unit holder's basis in the units
sold. Amount realized includes cash and the fair market value of other property
received plus the member's share of the LLC's debt. Because of the inclusion of
debt in basis, it is possible that a member could have a tax liability on sale
that exceeds the proceeds of sale. While such a result is common in "tax
shelters," it is quite unlikely in the case of a typical business operation such
as will be conducted by the LLC.
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Gain or loss recognized by a unit holder on the sale or exchange of a unit
held for more than one year generally will be taxed as long-term capital gain or
loss. A portion of this gain or loss, however, will be separately computed and
taxed as ordinary income or loss under Code Section 751 to the extent
attributable to depreciation recapture or other "unrealized receivables" or
"substantially appreciated inventory" owned by the LLC. The LLC will adopt
conventions to assist those members that sell units in apportioning the gain
among the various categories.
ALLOCATIONS AND DISTRIBUTIONS FOLLOWING UNIT TRANSFERS
If any unit is transferred during any accounting period in compliance with
the provisions of Article X of the Operating Agreement, then solely for purposes
of making allocations and distributions, the LLC will use the interim closing of
the books method (rather than a daily proration of profit or loss for the entire
period) and the convention that recognizes the transfer as of the beginning of
the month following the month in which the notice, documentation and information
requirements of Article VIII have been substantially complied with. All
distributions on or before the end of the calendar month in which such
requirements have been substantially complied with shall be made to the
transferor and all distributions thereafter shall be made to the transferee. The
Board the authority to adopt other reasonable methods and/or conventions.
EFFECT OF CODE SECTION 754 ELECTION ON CERTAIN UNIT TRANSFERS
The adjusted basis of each unit holder in his LLC units ("outside basis")
initially will equal his proportionate share of the adjusted basis of the LLC in
its assets ("inside basis"). Over time, however, it is probable that changes in
unit values and cost recovery deductions will cause the value of a unit to
differ materially from the unit holder's proportionate share of the inside
basis.
Section 754 of the Code permits a partnership to make an election that
allows a transferee who acquires units either by purchase or upon the death of a
unit holder to adjust his share of the inside basis to fair market value as
reflected by the unit price in the case of a purchase or the estate tax value of
the unit in the case of an acquisition upon death of a unit holder. Once the
amount of the transferee's basis adjustment is determined, it is allocated among
the LLC's various assets pursuant to Code Section 755.
A Section 754 election is beneficial to the transferee when his outside
basis is greater than his proportionate share of the entity's inside basis. In
this case, a special calculation is made solely for the benefit of the
transferee that will determine his cost recovery deductions and his gain or loss
on disposition of LLC property by reference to his higher outside basis. The
Section 754 election will be detrimental to the transferee if his outside basis
is less than his proportionate share of inside basis.
Code Section 743(b) provides that the partnership or LLC is responsible for
making the basis adjustments. However, the unit transferees are required to
report the basis adjustments. Transferees accomplish this by attaching
statements to their returns that show how the Section 743(b) adjustment was
determined and how the adjustment was allocated among the various partnership
properties. No existing guidance indicates when (i.e., before or after the
Schedule K-1) the effect of the basis adjustment to specific partnership items
is to be determined or who is required to make and report the adjustments to the
partnership items.
Proposed Regulations issued in January, 1998, clarify that partnerships and
LLCs are required to make the basis adjustments. In addition, the Proposed
Regulations place the responsibility for reporting basis adjustments on the
entity. The entity reports basis adjustments by attaching statements to their
partnership returns when they acquire knowledge of transfers subject to section
743. In addition, partnerships and LLCs are required to adjust specific
partnership items in light of the basis adjustments. Consequently, amounts
reported on the transferee's Schedule K-1 are adjusted amounts.
Transferees are subject to an affirmative obligation to notify partnerships
and LLCs of their basis in acquired interests. To accommodate entity concerns
about the reliability of the information provided, partnerships and LLCs are
entitled to rely on the written representations of transferees concerning either
the amount paid for the partnership interest or the transferee's basis in the
partnership interest under Code Section 1014 (unless clearly erroneous).
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Section 9.3 of the Operating Agreement provides that the LLC will not make
a Section 754 election unless the Board determines that the tax benefits made
available to affected transferees by the election are likely to be sufficient to
justify the increased cost and administrative burden of accounting for the
resulting basis adjustments. Depending on the circumstances, the value of units
may be effected positively or negatively by whether or not the LLC makes a
Section 754 election. The Board intends to monitor prices at which units change
hands and is likely to authorize the election only when and if unit prices
become materially greater than the LLC's per unit inside basis and only if it
determines that such material difference is likely to continue or increase over
time. If the LLC decides to make a Section 754 election, the election is made by
the LLC on a timely filed partnership income tax return and it is effective for
transfers occurring in taxable year of the return in which the election is made.
Once made, the Section 754 election is irrevocable unless the Internal Revenue
Service consents to its revocation.
IRS REPORTING REQUIREMENT
Article X of the Operating Agreement contains the requirements for a valid
transfer of units, including proper documentation and Board approval. In
addition, the IRS requires a taxpayer who sells or exchanges a unit to notify
LLC in writing within thirty days or, for transfers occurring on or after
December 16 of any year, by January 15 of the following year. Although the IRS
reporting requirement is limited to "Section 751(a) exchanges," it is likely
that any transfer of an LLC unit will constitute a Section 751(a) exchange. The
written notice required by the IRS must include the names and addresses of both
parties to the exchange, the identifying numbers of the transferor and, if
known, of the transferee and the exchange date. The IRS imposes a penalty of $50
for failure to file the written notice unless reasonable cause can be shown.
OTHER TAX MATTERS
TAX INFORMATION TO UNIT HOLDERS; CONSISTENT REPORTING
The LLC will be required to provide each unit holder with a Schedule K-1
(or authorized substitute therefore) on an annual basis. Harsh penalties are
provided for failure to do so unless reasonable cause for the failure is
established.
Each unit holder's Schedule K-1 will set out the holder's distributive
share of each item of income, gain, loss, deduction or credit that is required
to be separately stated. Each unit holder must report all items consistently
with Schedule K-1 or, if an inconsistent position is reported, must notify the
IRS of any inconsistency by filing Form 8062 "Notice of Inconsistent Treatment
or Administrative Adjustment Request (AAR)" with the original or amended return
in which the inconsistent position is taken.
IRS AUDIT PROCEDURES
Prior to 1982, regardless of the size of a partnership, adjustments to a
partnership's items of income, gain, loss, deduction, or credit had to be made
in separate proceedings with respect to each partner individually. Because a
large partnership sometimes had many partners located in different audit
districts, adjustments to items of income, gains, losses, deductions, or credits
of the partnership had to be made in numerous actions in several jurisdictions,
sometimes with conflicting outcomes.
The Tax Equity and Fiscal Responsibility Act of 1982 ("TEFRA") established
unified audit rules applicable to all but certain small partnerships. These
rules require the tax treatment of all "partnership items" to be determined at
the partnership, rather than the partner, level. Partnership items are those
items that are more appropriately determined at the partnership level than at
the partner level, as provided by regulations. Since the LLC will be taxed as a
partnership, the TEFRA rules are applicable to it and its unit holders.
The IRS may challenge the reporting position of a partnership by conducting
a single administrative proceeding to resolve the issue with respect to all
partners. But the IRS must still assess any resulting deficiency against each of
the taxpayers who were partners in the year in which the understatement of tax
liability arose. Any partner of a partnership can request an administrative
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adjustment or a refund for his own separate tax liability. Any partner also has
the right to participate in partnership-level administrative proceedings. A
settlement agreement with respect to partnership items binds all parties to the
settlement.
The TEFRA rules establish the "Tax Matters Partner" as the primary
representative of a partnership in dealings with the IRS. The Tax Matters
Partner must be a "member-manager" which is defined as an LLC member who, alone
or together with others, is vested with the continuing exclusive authority to
make the management decisions necessary to conduct the business for which the
organization was formed. In the LLC's case, this would be a member of the Board
of Directors who is also a member of LLC. Section 9.4 of the Operating Agreement
provides for Board designation of the Tax Matters Partner and for default
designations if it fails to do so.
The IRS generally is required to give notice of the beginning of
partnership-level administrative proceedings and any resulting administrative
adjustment to all partners whose names and addresses are furnished to the IRS.
For partnerships with more than 100 partners, however, the IRS generally is not
required to give notice to any partner whose profits interest is less than one
percent.
After the IRS makes an administrative adjustment, the Tax Matters Partner
(and, in limited circumstances, certain other partners) may file a petition for
readjustment of partnership items in the Tax Court, the district court in which
the partnership's principal place of business is located, or the Claims Court.
NEW ELECTIVE PROCEDURES FOR LARGE PARTNERSHIPS
The Taxpayer Relief Act of 1997 contains an elective provision under which
the income tax reporting and IRS auditing of large partnerships (more than 100
partners) is streamlined. The Act reduces the number of items that must be
separately stated on the Schedules K-1 that are issued to the partners which
will ease the burden on their tax preparers.
If the election is made, IRS audit adjustments generally will flow through
to the partners for the year in which the adjustment takes effect. However, the
partnership may elect to pay an imputed underpayment that is calculated by
netting the adjustments to the income and loss items of the partnership and
multiplying that amount by the highest tax rate (whether individual or
corporate). A partner may not file a claim for credit or refund of his allocable
share of the payment.
Certain timing adjustments are made in the year of audit in order to avoid
adjustments to multiple years where possible. In addition, the partnership,
rather than the partners individually, generally is liable for any interest and
penalties that result from a partnership audit adjustment. Penalties (such as
the accuracy and fraud penalties) are determined on a year-by-year basis
(without offsets) based on an imputed underpayment. Any payment (for Federal
income taxes, interest, or penalties) that an electing large partnership is
required to make is non-deductible.
Under the electing large partnership audit rules, a partner is not
permitted to report any partnership items inconsistently with the partnership
return, even if the partner notifies the IRS of the inconsistency. The IRS may
treat a partnership item that was reported inconsistently by a partner as a
mathematical or clerical error and immediately assess any additional tax against
that partner.
The IRS is not required to give notice to individual partners of the
commencement of an administrative proceeding or of a final adjustment. Instead,
the IRS is authorized to send notice of a partnership adjustment to the
partnership itself by certified or registered mail. An administrative adjustment
may be challenged in the Tax Court, the district court in which the
partnership's principal place of business is located, or the Claims Court.
However, only the partnership, and not partners individually, can petition for a
readjustment of partnership items.
The Board of Directors of the LLC will review the new large partnership
procedures with its legal counsel and certified public accountants to determine
whether it appears advantageous to elect to be subject to the new procedures.
Because of the substantial cost and administrative burden involved in
implementing IRS audit adjustments at the unit holder level under the existing
procedures, it is likely that the Board will decide to make the election.
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SELF-EMPLOYMENT TAX
The IRS has held on audit that the Cooperative's members currently are
subject to self-employment tax on value added payments although at least one
retired member has successfully escaped self-employment tax on such payments.
The Code and Treasury Regulations provide that general partners are subject to
self-employment tax on their distributive share of partnership income and that
limited partners who do not render services to the partnership are not subject
to self-employment tax. Neither the Code nor the Treasury Regulations address
the treatment of LLC unit holders for self-employment tax purposes. Proposed
Regulations, however, were issued in 1997 that provide generally for imposition
of the self-employment tax on LLC unit holders only if they (1) have personal
liability for LLC obligations, have authority to contract on behalf of the LLC,
or participate in the LLC's business for more than 500 hours each year. Few, if
any, of the LLC's unit holders would be subject to self-employment tax under
this test.
The status of the Proposed Regulations is uncertain because they were
subject to a Congressional moratorium that ended July 1, 1998 and the Treasury
has not taken steps to finalize them. Nevertheless, because of the similarity of
LLC unit holders and limited partners, it is believed to be highly likely that
LLC unit holders will be treated similar to limited partners, i.e., generally
not subject to self-employment tax on their share of LLC earnings. This will
represent a substantial saving relative to cooperative taxation for those LLC
unit holders whose FICA wages and self-employment earnings are below the maximum
FICA income base which is $72,600 for 1999.
STATE INCOME TAXES
LLC unit holders generally are subject to tax in their state of residence
as well as in those states in which the entity does business if their share of
income exceeds the minimum filing requirements. Since the LLC will potentially
be doing business in several states, this could create a substantial reporting
burden for the members. Most states, however, allow "composite reporting" by
partnerships and limited liability companies which means that the entity pays
income taxes to the various states and the individual members are relieved of
the reporting responsibility in states other than their state of residence and
their state of residence generally will allow a tax credit for state income
taxes paid by the entity for the benefit of the unit holder. For example, a unit
holder who is a resident of Minnesota will report his entire share of the LLC's
income but will receive credit on his Minnesota return for taxes paid to
Minnesota and other states on his behalf. The Minnesota resident unit holder
generally will not have to file individually in other states.
LEGAL MATTERS
The validity of the Class A units to be issued in connection with the
conversion will be passed upon by Dorsey & Whitney, LLP.
EXPERTS
The consolidated financial statements of Minnesota Corn Processors, Inc. at
March 31, 1998 and 1997 and for the year ended March 31, 1998, the six month
fiscal period ended March 31, 1997, and the year ended September 30, 1996
provided in this Information Statement -- Prospectus have been audited by
Clifton Gunderson L.L.C., independent auditors, as set forth in their report
thereon. The consolidated financial statements have been included herein in
reliance upon said report given upon the authority of said firm as experts in
accounting and auditing.
64
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Following the conversion, the LLC will file annual, quarterly and special
reports with the SEC. You may read and copy any reports that the LLC files at
the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. The reports also will be available from
commercial document retrieval services and at the SEC's web site
(http://www.sec.gov).
The LLC has filed with the SEC a Registration Statement on Form S-4 that
registers the distribution to members of the Class A units to be issued in
connection with the conversion. This Information Statement - Prospectus is a
part of that Registration Statement. As allowed by SEC rules, this Information -
Prospectus does not contain all the information you can find in the Registration
Statement or the exhibits to the Registration Statement.
The LLC intends to furnish Class A unit holders with annual reports
containing financial statements audited by an independent certified public
accounting firm.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THE INFORMATION
STATEMENT -- PROSPECTUS TO VOTE ON THE CONVERSION. WE HAVE NOT AUTHORIZED ANYONE
TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THE
INFORMATION -- STATEMENT PROSPECTUS. THIS INFORMATION -- STATEMENT PROSPECTUS IS
DATED ____________, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED
IN THIS DOCUMENT IS ACCURATE AS OF ANY OTHER DATE, AND NEITHER THE MAILING OF
THE INFORMATION -- STATEMENT PROSPECTUS TO MEMBERS NOR THE ISSUANCE OF CLASS A
UNITS IN THE CONVERSION SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
65
<PAGE>
PRO FORMA CONDENSED FINANCIAL INFORMATION
(UNAUDITED OF MINNESOTA CORN PROCESSORS LLC)
INTRODUCTION:
The accompanying unaudited condensed financial information of Minnesota
Corn Processors LLC gives effect to the dissolution of Grower Procurement Agency
(GPA) and the merger of Liquid Sugars, Inc. (LSI) into Minnesota Corn
Processors.
The pro forma balance sheet was prepared as if such transactions had
occurred on March 31, 1998. The pro forma statement of operations was prepared
as if such transactions had occurred at April 1, 1997.
The pro forma condensed consolidated balance sheet and statement of
operations are not necessarily indicative of the consolidated financial position
or results of operations as they might have been had the transactions actually
occurred on the dates indicated. The pro forma condensed balance sheet and
statement of operations should be read in conjunction with the consolidated
financial statements of Minnesota Corn Processors elsewhere in this Proxy
Statement/Information Statement -- Prospectus beginning on page F-1.
66
<PAGE>
MINNESOTA CORN PROCESSORS LLC
PRO FORMA CONDENSED BALANCE SHEET
MARCH 31, 1998
(Unaudited)
($000's)
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
------------- --------------- ------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................... $ 744 $ -- $ 744
Receivables .................................... 53,229 -- 53,229
Inventories .................................... 43,819 -- 43,819
Prepaids ....................................... 5,531 -- 5,531
Margin deposits ................................ 4,083 -- 4,083
Recoverable income taxes ....................... 114 -- 114
Option contract premiums ....................... 1,457 -- 1,457
Deferred income taxes .......................... 243 (243)(A) --
--------- ------- ---------
Total current assets .......................... 109,220 (243) 108,977
--------- ------- ---------
INVESTMENTS AND OTHER ASSETS
Investments in cooperatives .................... 9,014 -- 9,014
Deferred start up costs ........................ 171 -- 171
Deferred debt refinancing costs ................ 3,470 -- 3,470
Cash surrender value of life insurance ......... 250 -- 250
Non-current receivables ........................ 649 -- 649
Non-current prepaids ........................... 634 -- 634
Goodwill ....................................... 3,839 -- 3,839
--------- ------- ---------
Total investments and other assets ............ 18,027 -- 18,027
--------- ------- ---------
PROPERTY AND EQUIPMENT .......................... 685,637 -- 685,637
Less accumulated depreciation .................. 163,148 -- 163,148
--------- ------- ---------
Net property and equipment .................... 522,489 -- 522,489
--------- ------- ---------
TOTAL ASSETS .................................... $ 649,736 $ (243) $ 649,493
========= ======= =========
LIABILITIES AND MEMBER EQUITIES
CURRENT LIABILITIES
Short-term notes payable ....................... $ 7,967 $ -- $ 7,967
Current portion of long-term debt .............. 1,660 -- 1,660
Accounts payable - grain ....................... 11,385 -- 11,385
Accounts payable - other ....................... 37,410 -- 37,410
Accrued expenses and taxes, other
than income taxes ............................. 8,216 -- 8,216
--------- ------- ---------
Total current liabilities ..................... 66,638 -- 66,638
LONG-TERM DEBT .................................. 295,000 -- 295,000
DEFERRED INCOME TAXES ........................... 655 (655)(A) --
DEFERRED COMPENSATION ........................... 1,076 -- 1,076
--------- ------- ---------
Total liabilities ............................. 363,369 (655) 362,714
--------- ------- ---------
MEMBER EQUITIES
Voting member units ............................ 201,664 412 202,076
Non-voting member units ........................ 106,237 -- 106,237
Loss allocation recoverable .................... (21,534) -- (21,534)
--------- ------- ---------
Total member equities ......................... 286,367 412 286,779
--------- ------- ---------
TOTAL LIABILITIES AND
MEMBER EQUITIES ................................ $ 649,736 $ (243) $ 649,493
========= ======= =========
</TABLE>
(A) Elimination of deferred income taxes. Since a limited liability company is
a pass-through entity, the differences between book and taxable income has
no impact on the entity itself.
These financial statements should be read only in connection with the
accompanying summary of significant accounting policies
and notes to financial statements.
67
<PAGE>
MINNESOTA CORN PROCESSORS LLC
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1998
(Unaudited)
($000's)
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
------------- ------------- ------------
<S> <C> <C> <C>
NET SALES, STORAGE, AND
HANDLING CHARGES ................................... $ 563,193 $ -- $ 563,193
COST OF GOODS ....................................... 525,003 -- 525,003
--------- ------ ---------
Gross profit ...................................... 38,190 -- 38,190
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES ............................ 45,917 -- 45,917
--------- ------ ---------
Net operating loss ................................ (7,727) -- (7,727)
--------- ------ ---------
OTHER INCOME (EXPENSE)
Interest expense ................................... (31,901) -- (31,901)
Interest and other income (net) .................... 2,409 -- 2,409
Gain on disposal of property and equipment ......... 30 -- 30
Loss on sales contract ............................. (7,986) -- (7,986)
--------- ------ ---------
(37,448) -- (37,448)
--------- ------ ---------
Net loss before income taxes ...................... (45,175) -- (45,175)
PROVISION FOR INCOME TAXES .......................... -- 412(A) 412
--------- ------ ---------
NET LOSS ............................................ $ (45,175) $ 412 $ (44,763)
========= ====== =========
</TABLE>
(A) Elimination of deferred income taxes. Since a limited liability company is
a pass-through entity, the differences between book and taxable income has
no impact on the entity itself.
These financial statements should be read only in connection with the
accompanying summary of significant accounting policies
and notes to financial statements.
68
<PAGE>
MINNESOTA CORN PROCESSORS LLC
PRO FORMA CONDENSED STATEMENT OF MEMBER EQUITIES
YEAR ENDED MARCH 31, 1998
(Unaudited)
($000's)
<TABLE>
<CAPTION>
VOTING UNITS OF EQUITY NON-VOTING
MEMBER PARTICIPATION MEMBER CONTRIBUTED
UNITS CERTIFICATES UNITS CAPITAL
---------- ----------------- ------------ -------------
<S> <C> <C> <C> <C>
BALANCE, APRIL 1, 1997 ............. $ -- $ 246,868 $ -- $ 1,008
Loss allocation:
Payments by members ............... -- -- -- --
Less discounts on payments ........ -- -- -- --
1998 net loss ...................... -- -- -- --
Equities issued .................... -- 6 119,790 --
Adjustments ........................ -- (14) -- --
Pro forma adjustments:
Allocate 30% of 1997/98 loss to
non-voting member units .......... -- -- (13,553) --
Transfer all other forms of
allocated equities to voting
member units ..................... 201,664 (246,860) -- (1,008)
69
Elimination of deferred
income taxes ..................... 412 -- -- --
-------- ----------- --------- ---------
PRO FORMA BALANCE,
MARCH 31, 1998 .................... $202,076 $ -- $ 106,237 $ --
======== =========== ========= =========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
UNALLOCATED NON-QUALIFIED LOSS RETAINED
CAPITAL PATRONAGE ALLOCATED EARNINGS
DEFICIT REFUNDS TO MEMBERS (DEFICIT) TOTAL
------------- --------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1997 ............. $ (18,018) $ 3,849 $ (21,585) $ (403) $ 211,719
Loss allocation:
Payments by members ............... -- -- 41 -- 41
Less discounts on payments ........ (10) -- 10 -- --
1998 net loss ...................... (45,151) -- -- (24) (45,175)
Equities issued .................... -- -- -- -- 119,796
Adjustments ........................ -- -- -- -- (14)
Pro forma adjustments:
Allocate 30% of 1997/98 loss to
non-voting member units .......... 13,553 -- -- -- --
Transfer all other forms of
allocated equities to voting
member units ..................... 49,626 (3,849) -- 427 --
Elimination of deferred
income taxes ..................... -- -- -- -- 412
--------- --------- --------- ------ ---------
PRO FORMA BALANCE,
MARCH 31, 1998 .................... $ -- $ -- $ (21,534) $ -- $ 286,779
========= ========= ========= ====== =========
</TABLE>
These financial statements should be read only in connection with the
accompanying summary of significant accounting policies
and notes to financial statements.
69
<PAGE>
MINNESOTA CORN PROCESSORS LLC
PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
(Unaudited)
($000's)
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
------------- --------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ................................................. $ (45,175) $ 412(A) $ (44,763)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization ........................... 43,185 -- 43,185
Non-cash patronage refunds received ..................... (1,261) -- (1,261)
Gain on disposal of equipment ........................... (30) -- (30)
Deferred compensation ................................... 62 -- 62
Deferred debt refinancing costs ......................... (3,610) -- (3,610)
Changes in operating assets and liabilities:
Receivables ............................................ (7,480) -- (7,480)
Inventories ............................................ 1,942 -- 1,942
Cash value of life insurance ........................... 87 -- 87
Prepaids ............................................... 177 -- 177
Margin deposit account ................................. (3,680) -- (3,680)
Accounts payable - grain ............................... 4,417 -- 4,417
Accounts payable - other ............................... 10,731 -- 10,731
Accrued expenses and taxes, other
than income taxes ..................................... (988) -- (988)
Income taxes recoverable/payable - current
and deferred .......................................... (194) (412)(A) (606)
Option contract premiums ............................... (829) -- (829)
--------- ------- ---------
Net cash used by operating activities ................. (2,646) -- (2,646)
--------- ------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment ...................... (12,672) -- (12,672)
Proceeds from disposal of property and equipment ......... 91 -- 91
Investments purchased .................................... (313) -- (313)
--------- ------- ---------
Net cash used by investing activities ................. (12,894) -- (12,894)
--------- ------- ---------
</TABLE>
70
<PAGE>
MINNESOTA CORN PROCESSORS LLC
PRO FORMA CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED MARCH 31, 1998
(Unaudited)
($000's)
<TABLE>
<CAPTION>
PRO FORMA
AS REPORTED ADJUSTMENTS PRO FORMA
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Prinicipal payments on short-term borrowings
from members and others (net) ..................... $ 3,086 $ -- $ 3,086
Long-term borrowings ............................... 296,000 -- 296,000
Principal payments on long-term debt ............... (409,683) -- (409,683)
Loss allocation payments from members .............. 41 -- 41
Equity adjustments ................................. (15) -- (15)
Equities issued .................................... 119,796 -- 119,796
---------- ---- ----------
Net cash provided by financing activities ......... 9,225 -- 9,225
---------- ---- ----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS ........................................ (6,315) -- (6,315)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR ............................................ 7,059 -- 7,059
---------- ---- ----------
CASH AND CASH EQUIVALENTS,
END OF YEAR ........................................ $ 744 $ -- $ 744
========== ==== ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid ...................................... $ 33,573 $ -- $ 33,573
Income taxes paid .................................. 194 -- 194
</TABLE>
(A) Elimination of deferred income taxes. Since a limited liability company is
a pass-through entity, the differences between book and taxable income has
no impact on the entity itself.
These financial statements should be read only in connection with the
accompanying summary of significant accounting policies
and notes to financial statements.
71
<PAGE>
MINNESOTA CORN PROCESSORS LLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998
(Unaudited)
Minnesota Corn Processors LLC ("the company") (MCP) is a limited liability
company incorporated in Colorado for the purpose of producing corn related
products. The company produces corn starch, syrup, gluten, fuel ethanol, and
high fructose corn syrup from its company processing facilities in Marshall,
Minnesota, and Columbus, Nebraska.
The company is also a sweetener blending and storage operation, which
provides its products to various types of customers (including food processors)
located in the Western United States and Southwestern Canada.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates included in these financial statements include the valuation of the
repair parts inventory, the accumulated depreciation, and the allowance for
doubtful accounts.
CREDIT POLICY
The company sells its product to the petroleum industry, farmers and
ranchers, breweries, bakeries, the paper industry, soft drink companies, food
processors, etc., on terms it establishes for each customer. Credit sales are
made throughout the United States and, to a much lesser degree, in Canada.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the company considers all
highly liquid investments in debt instruments of other entities, with a maturity
date of less than three months at the date of purchase, to be cash equivalents.
INVENTORIES
Unprocessed corn, finished goods, maintenance parts, and in-process
inventories are valued at the lower of cost or net realizable value. Ingredients
are valued at the lower of cost or market. All inventory valuations assume a
first-in, first-out flow of goods.
HEDGE TRANSACTIONS
The company generally follows a policy of managing its risk of future grain
price fluctuations by hedging in established commodities markets. As grain is
used in the production process, realized gains or losses and option contract
premiums on these positions are recognized. Marketing gains or losses realized
on grain prior to the delivery period for which they are identified as
protecting are deferred and recognized pro rata through the identified delivery
period.
In June 1998, the Financial Accounting Standards Board (FAS) has issued
Statement No. 133 -- ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES to be implemented for periods beginning after June 15, 1999. While
management does not believe this standard will materially impact the financial
results of the company, it is currently evaluating the reporting requirements
under this new standard.
INVESTMENTS
Investments are principally in the St. Paul Bank. They are recorded at
original cost, plus the face value of equities received as patronage refunds.
The face value of equities redeemed by other
72
<PAGE>
MINNESOTA CORN PROCESSORS LLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998
(Unaudited)
cooperatives is deducted from the investment balance. The investments are not
transferable. No cash is received until such time as redeemed at the discretion
of the cooperative. Patronage refunds and redemptions are recorded in the year
received.
PROPERTY AND EQUIPMENT
The cost of property and equipment includes all costs incurred to bring
such assets to the condition necessary for their intended use.
Costs of property and equipment are charged to operations, as depreciation,
on a straight-line method over the estimated useful lives of the individual
assets.
PENSION PLANS
The company makes payments under a defined contribution plan for the
benefit of substantially all employees at a contribution rate stipulated by the
plan. Starting April 1, 1998, the company will also match a portion of employee
contributions.
The company also contributes to the pension funds for the union employees
as required by the respective union contracts. In addition, a portion of the
employees is covered by a collective bargaining agreement.
DEFERRED COMPENSATION
The company maintains non-qualified deferred compensation agreements with
certain of its employees. The present value of the future payments amounted to
$1,075,727 and $1,013,232 at March 31, 1998 and 1997, respectively. These
amounts are based on estimated rates of returns. Actual future payments could
differ from these estimates. The increase in future benefits attributable to
interest is expensed yearly. Life insurance contracts have been acquired
covering the life of most of the employees covered by the deferred compensation
arrangements, with the company being both the owner and the beneficiary of the
policies. The purpose of these life insurance policies is to assist in payment
of the deferred compensation obligations in the event of death or retirement of
the employee. The cash surrender value, amounting to $249,800 relating to these
policies, is included as a non-current asset in the balance sheet as of March
31, 1998.
INCOME TAXES
The company is not subject to federal income tax or most state income taxes
as a limited liability company.
DEFERRED START UP COSTS
Various start-up costs incurred in connection with the construction of the
plant in Nebraska have been deferred ($3,747,373) and are being charged to
expense (amortized) on a straight-line basis over a 5-year period effective
September, 1992, and August, 1994. Amortization expense relating to the deferred
organizational costs was $383,786 for the year ended March 31, 1998. Accumulated
amortization was $3,576,642 at March 31, 1998.
AMORTIZATION OF OTHER INTANGIBLE COSTS
Goodwill resulting from the purchase price of LSI being greater than fair
market value is being amortized on a straight-line basis over a 15-year period
beginning in April, 1996. Amortization expense for the year was $295,282.
Accumulated amortization was $590,564 at March 31, 1998.
73
<PAGE>
MINNESOTA CORN PROCESSORS LLC
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998
(Unaudited)
Included in prepaid expenses is an amount of $3,788,324 representing costs
incurred by MCP in connection with the construction of a railroad bridge in
Columbus, Nebraska, to encourage another rail company to serve that location. It
is expected that the freight savings will result in the recovery of the costs
incurred over a three-year period. Accordingly, these costs are being amortized
on a straight-line basis over a three-year period effective October 1, 1996.
Amortization expense for the year amounted to $1,260,624. Accumulated
amortization was $1,890,936 at March 31, 1998.
DEFERRED DEBT REFINANCING COST
The debt refinancing costs relate to a restructuring of debt completed
during fiscal 1997/98. The asset is carried at cost and is being amortized over
a 15-year period on a straight-line basis. Amortization expense for the year was
$140,000.
This information is an integral part of the accompanying financial statements.
74
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 1 -- RECEIVABLES
Balance sheet totals comprise the following elements:
<TABLE>
<S> <C>
Notes receivable ................................................ $ 494
Trade accounts .................................................. 51,062
Other - primarily tax refunds on capital expenditures and ethanol
production credits ............................................. 3,940
Allowance for doubtful accounts ................................. (1,617)
--------
TOTAL RECEIVABLES ............................................... $ 53,879
========
Balance sheet classification:
Current assets ................................................. $ 53,229
Non-current assets ............................................. 650
--------
TOTAL ........................................................... $ 53,879
========
</TABLE>
NOTE 2 -- INVENTORIES
Principal elements of inventories were as follows:
<TABLE>
<S> <C>
Corn ...................................................... $ 3,638
Chemicals, supplies, and coal ............................. 5,584
Goods in process of manufacture ........................... 1,896
Finished goods ............................................ 14,231
Repair parts .............................................. 12,757
Sweetener inventory - bulk and specialty products ......... 4,491
Finished product in transit ............................... 1,222
-------
TOTAL INVENTORIES ......................................... $43,819
=======
</TABLE>
NOTE 3 -- PROPERTY AND EQUIPMENT
The entity's investment in property and equipment is recorded in the
balance sheet at cost. The principal elements of the totals shown in the balance
sheet are as follows:
<TABLE>
<S> <C>
Land and public improvements ................... $ 5,625
Land improvements .............................. 6,543
Buildings and leasehold improvements ........... 116,552
Equipment ...................................... 541,591
Railroad, switch engine, and rail cars ......... 1,961
Silos .......................................... 10,627
Construction in progress ....................... 2,738
--------
TOTAL PROPERTY AND EQUIPMENT ................... $685,637
========
</TABLE>
Depreciation expense was $42,366,307 for the year ended March 31, 1998.
75
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 4 -- SHORT-TERM NOTES PAYABLE
Balance sheet totals consist of notes payable to:
<TABLE>
<S> <C>
Debentures payable ..................... $1,367
Bank of the West ....................... 6,600
------
TOTAL SHORT-TERM NOTES PAYABLE ......... $7,967
======
</TABLE>
The debentures payable to members and others are unsecured. Interest is
paid on maturity of the debenture at a rate of to 7.00% per annum. Notes are
issued for one-year periods and may be renewed.
The loan payable to Bank of the West is secured by a first priority lien on
all of former LSI receivables, inventories, and equipment. The loan is due on
September 30, 1998. Interest is payable monthly at an interest rate of prime
plus .25% (8.75% at March 31, 1998).
The former LSI subsequently refinanced the line of credit and the bank
loan, which was with the Bank of the West, with a line of credit from MCP in an
aggregate amount of $15,000,000. This line of credit is due August 27, 2000.
Also, subsequently MCP, jointly with LSI, entered into a secured revolving
credit agreement with Harris Trust and Savings Bank and U.S. Bancorp Ag Credit,
Inc. in an aggregate amount of $50,000,000. The company is jointly and severally
liable for the entire amount of any future outstanding balances on this loan.
76
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 5 -- LONG-TERM DEBT AND PROPERTY PLEDGED
Long-term debt comprises the following elements:
<TABLE>
<S> <C>
Harris Trust and Savings Bank and FBS Ag Credit, Inc. -- outstanding
on $50,000,000 revolving credit loan due August 27, 1999. Outstanding amounts
are secured by security agreements on inventories, accounts receivable, and
assignment of hedging account. Interest at variable rates (6.81% at March 31, 1998).. $ 5,000
Private Placement Notes - Series A - repayment to be made at the
rate of $3,571,429 per year commencing September 1, 2001, with final payment
due September 1, 2007. Secured by real estate mortgage. Interest payable
semi-annually at 7.57% per annum. ................................................... 25,000
Private Placement Notes - Series B - repayment to be made at the
rate of $24,000,000 per year commencing September 1, 2005, with final payment
due September 1, 2009. Secured by real estate mortgage. Interest payable
semi-annually at 7.72% per annum. ................................................... 120,000
Private Placement Notes - Series C - repayment to be made at the
rate of $6,428,571 per year commencing September 1, 2006, with final payment
due September 1, 2012. Secured by real estate mortgage. Interest payable
semi-annually at 7.83% per annum. ................................................... 45,000
Private Placement Notes - Series D - repayment to be made at the
rate of $20,000,000 per year commencing September 1, 2003, with final payment
due September 1, 2007. Secured by real estate mortgage. Interest payable
at a variable rate (7.175% at March 31, 1998). ...................................... 100,000
The Bank of the West loans are secured by all receivables, inventories, and
equipment of LSI Interest is payable at prime plus 0.75% and 0.50%. Repayment
terms:
(A) $20,000 per month with final payment due September 30, 2000.
Interest rate 9.25% at March 31, 1998. ............................................. 600
(B) $10,000 per month with final payment due September 30, 1999.
Interest rate 9.25% at March 31, 1998. ............................................. 180
(C) $20,000 per month with final payment due December 31, 2001.
Interest rate 8.75% at March 31, 1998. ............................................. 880
--------
Total ............................................................................... 296,660
Less current portion ................................................................. 1,660
--------
LONG-TERM DEBT ....................................................................... $295,000
========
</TABLE>
Additionally there are loan covenants with respect to the Harris Trust and
Savings Bank, FBS Ag Credit, Inc., and private placement notes that require the
cooperative to maintain minimum equity of $270,000,000, maintain a current ratio
of 1.1 to 1, maintain minimum net working capital of $25,000,000, maintain
certain levels of cash flow, limit expenditures for capital expenditures, and
various other financial conditions. Additionally, Harris Trust & Savings Bank
and FSB Ag Credit, Inc. have a borrowing base limit on advances. The base
consists of portions of accounts receivable and inventories. At March 31, 1998,
the company was in compliance with, or had obtained a waiver for, all loan
provisions.
77
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 5 -- LONG-TERM DEBT AND PROPERTY PLEDGED (CONTINUED)
The loan covenants with respect to the Bank of the West loans require that
the former LSI maintain, among other things, a net worth of $12,000,000, current
assets of 1.1 times current liabilities, and total liabilities not to exceed
three times net worth. At March 31, 1998, the subsidiary was not in compliance
with all loan provisions and had not obtained a waiver from The Bank of the
West. As a result, the $1,660,000 in outstanding long-term debt at March 31,
1998, has been classified as a current liability in the balance sheet as current
portion of long-term debt. (See Note 4.)
Future maturities of long-term debt are as follows:
March 31, 1999 ......... $ 1,660
March 31, 2000 ......... 5,000
March 31, 2001 .........
March 31, 2002 ......... 3,572
March 31, 2003 ......... 3,571
Thereafter ............. 282,857
--------
TOTAL .................. $296,660
========
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Certain property and equipment used by the company are leased. In 1998,
payments on such operating leases, recorded as expense in the statement of
operations, totaled $10,914,552. Noncancellable future minimum payments are
required on these leases as follows for the next five years:
1998/99 ............ $10,937
1999/2000 .......... 10,191
2000/2001 .......... 9,536
2001/2002 .......... 9,202
2002/2003 .......... 8,816
Thereafter ......... 59,101
MCP is involved in various litigation at March 31, 1998. In the opinion of
management, the ultimate liability for such litigation would not have a material
adverse financial effect upon the company. Management further believes that all
or part of any potential liability for certain of these claims will be covered
by insurance, and management is vigorously defending all such claims against the
company.
MCP entered into a stock purchase agreement in which they will purchase a
7.5% ownership interest in a third party with an option to purchase an
additional 7.5% ownership interest.
It is expected that the total costs to complete the construction in
progress at March 31, 1998, for MCP will approximate $2,675,919.
In May, 1997, Archer Daniels Midland Company (ADM) purchased 58,622,340
nonvoting units of equity participation. In return for this investment ADM will
receive 30% of any future profits.
LSI has 25 employment contracts with employees, ranging from five to eight
years in length. Salary commitments under these contracts total $9,733,469 as of
March 31, 1998.
78
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 7 -- MEMBER EQUITIES
Included as non-current assets is an account entitled loss allocated to
members, which represents the balance of the loss for the fiscal year ended
September 30, 1996, which was allocated to the membership. This loss is to be
recovered from the members in one of two ways:
A. A portion of the loss will be deducted from future cash distributions,
until the loss is repaid in full.
B. The loss represents a lien against the members' equity, and should a
member sell their units of equity participation, the amount of the loss
allocated to the members will be deducted from such sale.
NOTE 8 -- INCOME TAXES
As a result of the conversion of the cooperative to a limited liability
company, which is a non-taxable (pass-through) entity, deferred income taxes as
of March 31, 1997, were eliminated from the balance sheet, resulting in an
income tax benefit during the fiscal year ended March 31, 1998, in the amount of
$412,000.
NOTE 9 -- MARKETING OBLIGATIONS
Cash Grain Positions
The company had open contracts to purchase 5,634,303 bushels of cash corn
as of March 31, 1998. MCP has open futures purchase contracts for 26,000,000
bushels as of March 31, 1998. Additionally, MCP has an outstanding obligation on
3,445,504 bushels on deferred price contracts at March 31, 1998.
NOTE 10 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The consolidated entities financial instruments consist principally of
cash, trade receivables and payables, grain contracts, sales contracts,
short-term and long-term notes payable. There are no significant differences
between the carrying value and the fair value of any of these financial
instruments. For investments in cooperatives, there are no quoted market prices
and a reasonable estimate of the fair value could not be made without incurring
excessive costs.
NOTE 11 -- PENSION EXPENSE
Pension costs charged to operations on the accrual basis during 1998
amounted to $93,720.
NOTE 12 -- CONCENTRATIONS OF CREDIT RISK
The company maintains cash and temporary investments at various financial
institutions. Balances on deposit are insured by the Federal Deposit Insurance
Corporation (FDIC) up to specified limits. Balances in excess of FDIC limits are
uninsured. Total cash and temporary investments held by the financial
institutions exceeded specified limits at various dates throughout the fiscal
year ended March 31, 1998.
NOTE 13 -- LOSS ON SALES CONTRACT
During the current year, an MCP customer exercised its contract option to
purchase additional corn sweeteners at a contract price that was less than the
current market price. This option was exercised after MCP had committed its corn
sweetener production to other customers. Because the customer has a binding
contract, MCP has agreed to subsidize this customer by purchasing product on the
open market and selling it to the customer at the reduced contract price. This
transaction will create an estimated loss of $7,986,000 and is included in the
statement of operations.
79
<PAGE>
MINNESOTA CORN PROCESSORS LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
($000's)
NOTE 14 -- YEAR 2000 COMPLIANCE
Like most entities, the company may be exposed to risks associated with
Year 2000 dating problems. This problem affects computer software and hardware;
transactions with customers, vendors and other entities; and equipment dependent
on microchips. It is not possible for any entity to guarantee the results of its
own remediation efforts or to accurately predict the impact of Year 2000 dating
problems on third parties with which the cooperative does business. If
remediation efforts of the company or third parties with which it does business
are not successful, it is possible the Year 2000 dating problem could negatively
impact the company's financial condition and results of operations.
This information is an integral part of the accompanying financial statements.
80
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
MINNESOTA CORN PROCESSORS, INC.
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants ................................................... F-1
Consolidated Balance Sheets as of March 31, 1998 and 1997 ........................... F-2
Consolidated Statements of Operations for the Years Ended March 31, 1998,
Six Month Fiscal Period Ended March 31, 1997 and the Year Ended September 30, 1996 .. F-3
Consolidated Statements of Cash Flows for the Years Ended March 31, 1998,
Six Month Fiscal Year Ended March 31, 1997 and the Year Ended September 30, 1996 .... F-4
Consolidated Statements of Members' Equity for the Years Ended March 31, 1998,
Six Month Fiscal Period Ended March 31, 1997 and the Year Ended September 30, 1996 .. F-6
Summary of Significant Accounting Policies March 31, 1998, March 31, 1997,
and September 30, 1996 .............................................................. F-7
Notes to Consolidated Financial Statements .......................................... F-11
Unaudited Consolidated Balance Sheet as of September 30, 1998 ....................... F-18
Unaudited Consolidated Statement of Operations for the Six Months Ended
September 30, 1998 and 1997 ......................................................... F-19
Unaudited Consolidated Statement of Cash Flows for the Six Months Ended
September 30, 1998 and 1997 ......................................................... F-20
Unaudited Consolidated Statement of Members' Equity for the Six Months Ended
September 30, 1998 .................................................................. F-21
Summary of Significant Accounting Policies September 30, 1998 ....................... F-22
Notes to Unaudited Consolidated Financial Statements ................................ F-26
</TABLE>
81
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Minnesota Corn Processors and Consolidated Entities
Marshall, Minnesota
We have audited the accompanying consolidated balance sheets of Minnesota Corn
Processors and Consolidated Entities as of March 31, 1998 and 1997, and the
related consolidated statements of operations, member equities, and cash flows
for the year ended March 31, 1998, the six month fiscal period ended March 31,
1997, and the year ended September 30, 1996. These consolidated financial
statements are the responsibility of the cooperative's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Minnesota Corn
Processors and Consolidated Entities as of March 31, 1998 and 1997, and the
results of their operations and their cash flows for the year ended March 31,
1998, the six month fiscal period ended March 31, 1997, and the year ended
September 30, 1996, in conformity with generally accepted accounting principles.
/s/ Clifton Gunderson L.L.C.
Marshfield, Wisconsin
May 1, 1998, except for Note 15, as to
which the date is September 28, 1998
F-1
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................... $ 743,882 $ 7,059,433
Receivables ................................................. 53,229,357 45,799,234
Inventories ................................................. 43,818,954 45,761,420
Prepaids .................................................... 5,531,029 4,451,495
Margin deposits ............................................. 4,082,861 402,515
Deferred income taxes ....................................... 242,500 230,900
Recoverable income taxes .................................... 113,696 243,680
Option contract premiums .................................... 1,457,280 627,920
------------- -------------
Total current assets ....................................... 109,219,559 104,576,597
------------- -------------
INVESTMENTS AND OTHER ASSETS
Investments ................................................. 9,013,698 7,438,676
Deferred start up costs ..................................... 170,732 554,517
Deferred debt refinancing costs ............................. 3,469,949 --
Cash surrender value of life insurance ...................... 249,800 337,000
Non-current receivables ..................................... 649,693 600,040
Non-current prepaids ........................................ 634,613 1,890,950
Goodwill .................................................... 3,838,663 4,133,945
------------- -------------
Total investments and other assets ......................... 18,027,148 14,955,128
------------- -------------
PROPERTY AND EQUIPMENT 685,637,379 673,016,449
Less accumulated depreciation ............................... 163,147,927 120,992,735
------------- -------------
Net property and equipment ................................. 522,489,452 552,023,714
------------- -------------
TOTAL ASSETS ................................................. $ 649,736,159 $ 671,555,439
============= =============
LIABILITIES ANDMEMBER EQUITIES
CURRENT LIABILITIES
Short-term notes payable .................................... $ 7,967,176 $ 4,881,527
Current portion of long-term debt ........................... 1,660,000 409,538,655
Accounts payable - grain .................................... 11,385,344 6,968,672
Accounts payable - other .................................... 37,410,401 26,457,925
Accrued expenses and taxes, other than income taxes ......... 8,216,163 9,204,273
------------- -------------
Total current liabilities .................................. 66,639,084 457,051,052
LONG-TERM DEBT ............................................... 295,000,000 804,614
DEFERRED COMPENSATION ........................................ 1,075,727 1,013,232
DEFERRED INCOME TAXES ........................................ 654,500 967,100
------------- -------------
Total liabilities .......................................... 363,369,311 459,835,998
------------- -------------
MEMBER EQUITIES
Units of equity participation certificates .................. 246,858,933 246,867,655
Non-voting units of equity participation .................... 119,790,000 --
Contributed capital ......................................... 1,007,789 1,007,789
Unallocated capital deficit ................................. (63,177,920) (18,017,847)
Non-qualified patronage refunds ............................. 3,849,171 3,849,171
Loss allocated to members ................................... (21,534,536) (21,584,206)
Retained earnings (deficit) ................................. (426,589) (403,121)
------------- -------------
Total member equities ...................................... 286,366,848 211,719,441
------------- -------------
TOTAL LIABILITIES AND MEMBER EQUITIES ........................ $ 649,736,159 $ 671,555,439
============= =============
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-2
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED MARCH 31, 1998, SIX MONTH FISCAL PERIOD ENDED MARCH 31, 1997,
AND YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
MARCH 31, MARCH 31, YEAR ENDED
1998 1997 1996
---------------- ------------------ ------------------
<S> <C> <C> <C>
NET SALES, STORAGE, AND HANDLING
CHARGES ..................................... $ 563,192,996 $ 237,461,920 $ 420,338,562
COST OF GOODS ................................ 525,002,748 207,464,457 441,371,956
------------- -------------- --------------
Gross proceeds (loss) ....................... 38,190,248 29,997,463 (21,033,394)
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES .................................... 45,917,515 19,972,556 25,922,710
------------- -------------- --------------
Net operating proceeds (loss) ............... (7,727,267) 10,024,907 (46,956,104)
------------- -------------- --------------
OTHER INCOME (EXPENSE) .......................
Interest expense ............................ (31,901,028) (20,347,464) (18,662,306)
Interest and other income (net) ............. 2,408,801 175,856 2,820,372
Gain (loss) on disposal of property
and equipment .............................. 30,344 17,902 (109,783)
Loss on sales contract ...................... (7,986,000) -- --
------------- -------------- --------------
(37,447,883) (20,153,706) (15,951,717)
------------- -------------- --------------
Net loss before income taxes ............... (45,175,150) (10,128,799) (62,907,821)
PROVISION FOR (INCOME TAXES) BENEFIT ......... 285 (59,124) --
------------- -------------- --------------
NET LOSS ..................................... $ (45,174,865) $ (10,187,923) $ (62,907,821)
============= ============== ==============
ALLOCATION OF NET PROCEEDS (LOSS)
Value added payments ........................ $ -- $ -- $ 1,291,779
Unallocated capital reserve ................. (45,151,397) (10,629,771) (12,081,615)
Loss to be allocated to members ............. -- -- (51,273,016)
Retained earnings (deficit) ................. (23,468) 441,848 (844,969)
------------- -------------- --------------
$ (45,174,865) $ (10,187,923) $ (62,907,821)
============= ============== ==============
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-3
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, 1998, SIX MONTH FISCAL PERIOD ENDED MARCH 31, 1997,
AND YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, SEPTEMBER 30
1998 1997 1996
------------------ ------------------ ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss .......................................... $ (45,174,865) $ (10,187,923) $ (62,907,821)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization ................... 43,185,375 18,228,484 28,367,875
Non-cash patronage refunds received ............. (1,261,572) -- (1,577,607)
(Gain) loss on disposal of equipment ............ (30,344) (13,402) 109,783
Deferred compensation ........................... 62,495 29,872 983,360
Deferred debt refinancing costs ................. (3,609,949) -- --
Changes in operating assets and liabilities:
Receivables .................................... (7,479,776) (1,251,347) (4,595,021)
Inventories .................................... 1,942,466 (3,171,273) (317,592)
Cash value of life insurance ................... 87,200 (23,000) (26,513)
Prepaids ....................................... 176,803 (3,052,395) 599,860
Margin deposit account ......................... (3,680,346) (402,515) 1,256,498
Accounts payable - grain ....................... 4,416,672 (4,198,533) (25,395,005)
Value added payments payable ................... -- -- (1,291,779)
Accounts payable - other ....................... 10,731,291 2,900,959 (28,139,320)
Accrued expenses and taxes, other than
income taxes .................................. (988,110) (1,587,220) 2,544,127
Income taxes recoverable/payable - current
and deferred .................................. (194,216) (261,552) (478,998)
Deferred market position ....................... -- -- (2,951,179)
Option contract premiums ....................... (829,360) (627,920) --
-------------- -------------- --------------
Net cash used by operating activities ......... (2,646,236) (3,617,765) (93,819,332)
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment ............... (12,671,480) (12,105,601) (187,162,400)
Other ............................................. -- -- 2,389
Proceeds from disposal of property and equipment 90,963 51,467 105,431
Investments purchased ............................. (313,450) -- (1,407,470)
Other investments purchased ....................... -- -- (145)
Purchase of subsidiary ............................ -- -- (4,717,627)
Bank overdraft .................................... -- (2,722,391) (12,495,661)
-------------- -------------- --------------
Net cash used by investing activities .......... (12,893,967) (14,776,525) (205,675,483)
-------------- -------------- --------------
</TABLE>
F-4
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED MARCH 31, 1998, SIX MONTH FISCAL PERIOD ENDED MARCH 31, 1997,
AND YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED YEAR ENDED
MARCH 31, MARCH 31, SEPTEMBER 30
1998 1997 1996
----------------- ----------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on short-term borrowings from
members and others (net) ............................ $ 3,085,649 $ (1,953,669) $ 281,990
Long-term borrowings ................................. 296,000,000 39,400,007 218,515,275
Principal payments on long-term debt ................. (409,683,269) (33,026,213) (75,120)
Loss allocation payments from members ................ 40,994 20,782,166 --
Equity adjustments ................................... (15,172) -- --
Equities issued ...................................... 119,796,450 -- --
Equities repurchased ................................. -- (59,498) (696,473)
Equities sold ........................................ -- -- 64,833,780
Patronage refunds paid in cash ....................... -- -- (2,198,415)
-------------- ------------- -------------
Net cash provided by financing activities ........... 9,224,652 25,142,793 280,661,037
-------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ..................................... (6,315,551) 6,748,503 (18,833,778)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR/PERIOD ....................................... 7,059,433 310,930 19,144,708
-------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF
YEAR/PERIOD .......................................... $ 743,882 $ 7,059,433 $ 310,930
============== ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid (including $7,176,751 capitalized
in 1996) ............................................ $ 33,573,344 $ 22,997,498 $ 25,839,057
Income taxes paid .................................... 193,931 -- --
Income taxes recovered ............................... -- 2,790 --
NON-CASH ACTIVITY
Purchase subsidiary with long-term borrowing ......... -- -- 11,782,373
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies and notes
to consolidated financial statements.
F-5
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF MEMBER EQUITIES
YEAR ENDED MARCH 31, 1998, SIX MONTH FISCAL PERIOD ENDED MARCH 31, 1997,
AND YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
UNALLOCATED
UNITS OF EQUITY NON-VOTING CAPITAL
PARTICIPATION UNITS OF EQUITY CONTRIBUTED RESERVE
CERTIFICATES PARTICIPATION CAPITAL (DEFICIT)
----------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995 ................ $ 110,136,393 $ -- $ 2,753,030 $ 12,300,385
Transfers .............................. 64,879,953 -- (1,745,241) 1,745,241
Allocation of 1995 net proceeds ........ 7,328,054 -- -- --
Equities sold .......................... 64,833,780 -- -- --
Equities repurchased ................... (92,977) -- -- (603,495)
Value added paid ....................... -- -- -- --
1996 net loss .......................... -- -- -- (12,081,615)
------------- ------------ ------------ -------------
BALANCE, SEPTEMBER 30, 1996 ............. 247,085,203 -- 1,007,789 1,360,516
Transfers .............................. (209,298) -- -- 209,298
Equities repurchased ................... (8,250) -- -- (51,248)
Loss allocation:
Payments by members ................... -- -- -- --
Less discounts on payments ............ -- -- -- (8,906,644)
1997 net loss .......................... -- -- -- (10,629,769)
------------- ------------ ------------ -------------
BALANCE, MARCH 31, 1997 ................. 246,867,655 -- 1,007,789 (18,017,847)
Loss allocation:
Payments by members ................... -- -- -- --
Less discounts on payments ............ -- -- -- (8,676)
1998 net loss .......................... -- -- -- (45,151,397)
Equities issued ........................ 6,450 119,790,000 -- --
Adjustments ............................ (15,172) -- -- --
------------- ------------ ------------ -------------
BALANCE, MARCH 31, 1998 ................. $ 246,858,933 $119,790,000 $ 1,007,789 $ (63,177,920)
============= ============ ============ =============
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
QUALIFIED
PATRONAGE REFUNDS
NON-QUALIFIED UNITS OF EQUITY PAYABLE IN UNITS LOSS RETAINED
PATRONAGE PARTICIPATION OF EQUITY ALLOCATED TO EARNINGS
REFUNDS SUBSCRIPTIONS PARTICIPATION MEMBERS (DEFICIT)
--------------- ----------------- ------------------ ---------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995 ................ $3,849,171 $ 64,879,953 $ 7,328,054 $ -- $ --
Transfers .............................. -- (64,879,953) -- -- --
Allocation of 1995 net proceeds ........ -- -- (7,328,054) -- --
Equities sold .......................... -- -- -- -- --
Equities repurchased ................... -- -- -- -- --
Value added paid ....................... -- -- -- (1,291,779) --
1996 net loss .......................... -- -- -- (49,981,237) (844,969)
---------- -------------- ------------- ------------- ----------
BALANCE, SEPTEMBER 30, 1996 ............. 3,849,171 -- -- (51,273,016) (844,969)
Transfers .............................. -- -- -- -- --
Equities repurchased ................... -- -- -- -- --
Loss allocation:
Payments by members ................... -- -- -- 20,782,166 --
Less discounts on payments ............ -- -- -- 8,906,644 --
1997 net loss .......................... -- -- -- -- 441,848
---------- -------------- ------------- ------------- ----------
BALANCE, MARCH 31, 1997 ................. 3,849,171 -- -- (21,584,206) (403,121)
Loss allocation:
Payments by members ................... -- -- -- 40,994 --
Less discounts on payments ............ -- -- -- 8,676 --
1998 net loss .......................... -- -- -- -- (23,468)
Equities issued ........................ -- -- -- -- --
Adjustments ............................ -- -- -- -- --
---------- -------------- ------------- ------------- ----------
BALANCE, MARCH 31, 1998 ................. $3,849,171 $ -- $ -- $ (21,534,536) $ (426,589)
========== ============== ============= ============= ==========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
TOTAL
---------------
<S> <C>
BALANCE, OCTOBER 1, 1995 ................ $ 201,246,986
Transfers .............................. --
Allocation of 1995 net proceeds ........ --
Equities sold .......................... 64,833,780
Equities repurchased ................... (696,472)
Value added paid ....................... (1,291,779)
1996 net loss .......................... (62,907,821)
-------------
BALANCE, SEPTEMBER 30, 1996 ............. 201,184,694
Transfers .............................. --
Equities repurchased ................... (59,498)
Loss allocation:
Payments by members ................... 20,782,166
Less discounts on payments ............ --
1997 net loss .......................... (10,187,921)
-------------
BALANCE, MARCH 31, 1997 ................. 211,719,441
Loss allocation:
Payments by members ................... 40,994
Less discounts on payments ............ --
1998 net loss .......................... (45,174,865)
Equities issued ........................ 119,796,450
Adjustments ............................ (15,172)
-------------
BALANCE, MARCH 31, 1998 ................. $ 286,366,848
=============
</TABLE>
These consolidated financial statements should be read only in connection
with the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
F-6
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998, MARCH 31, 1997, AND SEPTEMBER 30, 1996
Minnesota Corn Processors ("the cooperative") (MCP) is a member owned
cooperative incorporated in Minnesota for the purpose of producing value added
corn related products for its members. The cooperative produces corn starch,
syrup, gluten, fuel ethanol, and high fructose corn syrup.
Members are required to purchase units of equity participation based upon
the number of bushels for which they contract.
Liquid Sugars, Inc. (LSI), a wholly owned subsidiary, is a sweetener
blending and storage operation, which provides its products to various types of
customers (including food processors) located in the Western United States and
Southwestern Canada. As a result of MCP's 100% ownership of LSI, the accounts
and transactions of LSI are consolidated in these financial statements.
Grower Procurement Agency (GPA), an agency of the members of MCP, was
formed to assemble, procure, and supply corn to MCP on behalf of its membership.
The Board of Directors consists of employees of MCP, and it leases facilities
and employees from MCP. Because of the control which MCP has over the operations
of GPA, this entity is also being consolidated.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MCP, and its
wholly owned subsidiary, LSI, and its controlled entity, GPA. All significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates included in these financial statements include the valuation of the
repair parts inventory, the accumulated depreciation, and the allowance for
doubtful accounts.
CREDIT POLICY
The cooperative sells its product to the petroleum industry, farmers and
ranchers, breweries, bakeries, the paper industry, soft drink companies, etc.,
on terms it establishes for each customer. LSI sells its products to food
processors and others on terms it establishes for each customer. GPA only has
one customer, MCP. Credit sales are made throughout the United States and, to a
much lesser degree, in Canada, by MCP and its consolidated entities.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the cooperative and its
subsidiary considers all highly liquid investments in debt instruments of other
entities, with a maturity date of less than three months at the date of
purchase, to be cash equivalents.
INVENTORIES
Unprocessed corn, finished goods, maintenance parts, and in-process
inventories are valued at the lower of cost or net realizable value. Ingredients
are valued at the lower of cost or market. All inventory valuations, except
those of LSI, assume a first-in, first-out flow of goods. The inventory of LSI
is valued at the last-in, first-out flow of goods method.
HEDGE TRANSACTIONS
The cooperative generally follows a policy of managing its risk of future
grain price fluctuations by hedging in established commodities markets. As grain
is used in the production process, realized gains or
F-7
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998, MARCH 31, 1997, AND SEPTEMBER 30, 1996
losses and option contract premiums on these positions are recognized. Marketing
gains or losses realized on grain prior to the delivery period for which they
are identified as protecting are deferred and recognized pro rata through the
identified delivery period.
In June 1998, the Financial Accounting Standards Board (FAS) has issued
Statement No. 133 -- ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES to be implemented for periods beginning after June 15, 1999. While
management does not believe this standard will materially impact the financial
results of the Company, it is currently evaluating the reporting requirements
under this new standard.
INVESTMENTS
Investments are principally in the St. Paul Bank. They are recorded at
original cost, plus the face value of equities received as patronage refunds.
The face value of equities redeemed by other cooperatives is deducted from the
investment balance. The investments are not transferable. No cash is received
until such time as redeemed at the discretion of the other cooperative.
Patronage refunds and redemptions are recorded in the year received.
PROPERTY AND EQUIPMENT
The cost of property and equipment includes all costs incurred to bring
such assets to the condition necessary for their intended use.
Costs of property and equipment are charged to operations, as depreciation,
on a straight-line method over the estimated useful lives of the individual
assets.
PENSION PLANS
The cooperative makes payments under a defined contribution plan for the
benefit of substantially all employees at a contribution rate stipulated by the
plan. Starting April 1, 1998, the cooperative will also match a portion of
employee contributions.
LSI makes payments under a defined contribution plan covering substantially
all eligible employees and makes contributions at a rate that is stipulated by
the plan. LSI also contributes to the pension funds for the union employees as
required by the respective union contracts. In addition, a portion of LSI's
employees is covered by a collective bargaining agreement.
DEFERRED COMPENSATION
LSI maintains non-qualified deferred compensation agreements with certain
of its employees. The present value of the future payments amounted to
$1,075,727, $1,013,232, and $983,360 at March 31, 1998, March 31, 1997, and
September 30, 1996, respectively. These amounts are based on estimated rates of
returns. Actual future payments could differ from these estimates. The increase
in future benefits attributable to interest is expensed yearly. Life insurance
contracts have been acquired covering the life of most of the employees covered
by the deferred compensation arrangements, with LSI being both the owner and the
beneficiary of the policies. The purpose of these life insurance policies is to
assist in payment of the deferred compensation obligations in the event of death
or retirement of the employee. The cash surrender value, amounting to $249,800,
$337,000, and $314,000 relating to these policies, is included as a non-current
asset in the balance sheets as of March 31, 1998, March 31, 1997, and September
30, 1996, respectively.
INCOME TAXES
The cooperative is subject to federal income tax, Minnesota franchise tax,
and Nebraska income tax and is permitted a deduction from taxable income for the
portion of the net proceeds refunded to
F-8
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998, MARCH 31, 1997, AND SEPTEMBER 30, 1996
patrons in the form of qualified patronage refunds, if any, or value added
payments. In addition, any tax that may be due to the State of Nebraska will be
offset primarily by credits allowable under the Nebraska Employment and
Investment Growth Act.
LSI is subject to federal and numerous state income taxes as a tax paying
corporation. The entity is subject to state income taxes on a pro-rata basis in
most of these states.
GPA is a Minnesota corporation that is subject to taxation under the
provision of its organizing code section, but has a net operating loss
carryforward resulting in minimal federal or state income taxes for the year.
Consolidated tax returns are not being filed for federal income tax
purposes.
DEFERRED INCOME TAXES
Deferred income taxes arise from LSI from the difference in reported bases
of assets and liabilities for financial and tax accounting. Deferred taxes are
classified as current or non-current depending on the classification of the
asset and liabilities to which they relate.
The principal sources of differences are property and equipment
depreciation methods and non-deductible items, such as the allowance for
doubtful accounts, vacation pay accruals, and deferred compensation.
MCP distributes its proceeds and losses on a tax basis, which effectively
eliminates the requirement of recording deferred income taxes relating to timing
differences for this entity. Those timing differences are accounted for in the
unallocated capital reserve.
DEFERRED START UP COSTS
Various start-up costs incurred in connection with the construction of the
plant in Nebraska have been deferred ($3,747,373) and are being charged to
expense (amortized) on a straight-line basis over a 5-year period effective
September, 1992, and August, 1994. Amortization expense relating to the deferred
organizational costs was $383,786, $374,736, and $749,472 for the year ended
March 31, 1998, six months ended March 31, 1997, and year ended September 30,
1996, respectively. Accumulated amortization was $3,576,642, $3,192,856, and
$2,818,120 at March 31, 1998, March 31, 1997, and September 30, 1996,
respectively.
AMORTIZATION OF OTHER INTANGIBLE COSTS
Goodwill resulting from the purchase price of LSI being greater than fair
market value is being amortized on a straight-line basis over a 15-year period
beginning in April, 1996. Amortization expense was $295,282, $147,641, and
$147,641, respectively, for the year ended March 31, 1998, the six month fiscal
period ended March 31, 1997, and the year ended September 30, 1996. Accumulated
depreciation was $590,564 and $295,282 at March 31, 1998 and 1997, respectively.
Included in prepaid expenses are amounts of $3,788,324 and $3,200,000 at
March 31, 1998 and 1997, respectively, representing costs incurred by MCP in
connection with the construction of a railroad bridge in Columbus, Nebraska, to
encourage another rail company to serve that location. It is expected that the
freight savings will result in the recovery of the costs incurred over a
three-year period. Accordingly, these costs are being amortized on a
straight-line basis over a three-year period effective October 1, 1996.
Amortization expense amounted to $1,260,624 for the year ended March 31, 1998,
and $630,312 for the six month fiscal period ended March 31, 1997. Accumulated
amortization was $1,890,936 and $630,312 at March 31, 1998 and 1997,
respectively.
F-9
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 1998, MARCH 31, 1997, AND SEPTEMBER 30, 1996
DEFERRED DEBT REFINANCING COST
The debt refinancing costs relate to a restructuring of debt completed
during fiscal 1997/98. The asset is carried at cost and is being amortized over
a 15-year period on a straight-line basis. Amortization expense for the year was
$140,000.
CHANGE IN FISCAL YEAR
Minnesota Corn Processors, Liquid Sugars, Inc., and Grower Procurement
Agency all changed their fiscal years to a March 31 closing date, effective
October 1, 1996. Previously, these entities had a fiscal closing date of
September 30 for financial statement purposes.
This information is an integral part of the
accompanying consolidated financial statements.
F-10
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 1 -- RECEIVABLES
Balance sheet totals comprise the following elements:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Notes receivable ........................................ $ 494,003 $ 360,317
Trade accounts .......................................... 51,061,695 41,127,112
Other - primarily tax refunds on capital expenditures and
ethanol production credits ............................. 3,940,352 5,408,845
Allowance for doubtful accounts ......................... (1,617,000) (497,000)
------------ -----------
TOTAL RECEIVABLES ....................................... $ 53,879,050 $46,399,274
============ ===========
Balance sheet classification:
Current assets ......................................... $ 53,229,357 $45,799,234
Non-current assets ..................................... 649,693 600,040
------------ -----------
TOTAL ................................................... $ 53,879,050 $46,399,274
============ ===========
</TABLE>
NOTE 2 -- INVENTORIES
Principal elements of inventories were as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Corn ......................................................... $ 3,637,865 $ 3,157,109
Chemicals, supplies, and coal ................................ 5,583,811 6,414,285
Goods in process of manufacture .............................. 1,896,421 1,908,421
Finished goods ............................................... 14,231,261 16,121,819
Repair parts ................................................. 12,756,915 13,034,900
Liquid Sugars, Inc. - sweetener inventory - bulk and specialty
products .................................................... 4,490,963 4,049,302
Finished product in transit between Minnesota Corn Processors
locations and Liquid Sugars, Inc. locations ................. 1,221,718 1,075,584
----------- -----------
TOTAL INVENTORIES ............................................ $43,818,954 $45,761,420
=========== ===========
</TABLE>
The sweetener inventory maintained by LSI is valued on the basis of a
last-in, first-out flow of goods. Had the inventory been valued at current
average replacement cost, the inventory value would have been approximately
$315,512 and $956,234 higher than under the last-in, first-out method of
valuation for March 31, 1998 and 1997, respectively.
F-11
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 3 -- INVESTMENTS
Investments are nearly all in stock of the St. Paul Bank. The stock was
acquired under the terms of the cooperative's prior loan agreement with the
bank (Note 6) and through patronage refunds received from the bank.
NOTE 4 -- PROPERTY AND EQUIPMENT
The consolidated entity's investment in property and equipment is recorded
in the balance sheet at cost. The principal elements of the totals shown in the
balance sheet are as follows:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Land and public improvements .................... $ 5,624,778 $ 5,552,696
Land improvements ............................... 6,543,052 5,907,292
Buildings and leasehold improvements ............ 116,552,177 115,540,657
Equipment ....................................... 541,590,580 520,475,494
Railroad, switch engine, and rail cars .......... 1,960,902 2,029,235
Silos ........................................... 10,627,402 9,750,952
Construction in progress ........................ 2,738,488 13,760,123
------------ ------------
TOTAL PROPERTY AND EQUIPMENT .................... $685,637,379 $673,016,449
============ ============
</TABLE>
Depreciation expense was $42,366,307 for the year ended March 31, 1998,
$17,706,108 for the six month fiscal period ended March 31, 1997, and
$27,470,763 for the year ended September 30,1996.
NOTE 5 -- SHORT-TERM NOTES PAYABLE
Balance sheet totals consist of notes payable to:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Debentures payable ...................... $1,367,176 $1,681,527
Bank of the West ........................ 6,600,000 3,200,000
---------- ----------
TOTAL SHORT-TERM NOTES PAYABLE .......... $7,967,176 $4,881,527
========== ==========
</TABLE>
The debentures payable to members and others are unsecured. Interest is
paid on maturity of the debenture at a rate of to 7.00% per annum. Notes are
issued for one-year periods and may be renewed.
The loan payable to Bank of the West is secured by a first priority lien on
all of LSI receivables, inventories, and equipment. The loan is due on September
30, 1998. Interest is payable monthly at an interest rate of prime plus .25%
(8.75% at March 31, 1998).
F-12
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 6 -- LONG-TERM DEBT AND PROPERTY PLEDGED
Long-term debt comprises the following elements:
<TABLE>
<CAPTION>
1998 1997
---------------- ---------------
<S> <C> <C>
St. Paul Bank and RaboBank - bridge financing agreement
(construction) ....................................................... $ -- $183,233,513
St. Paul Bank - other term loan agreement (consolidated) .............. -- 94,300,000
St. Paul Bank - revolving note ........................................ -- 40,000,000
RaboBank - revolving credit agreement ................................. -- 30,000,000
Rabo Bank - term loan agreement ....................................... -- 50,000,000
Former stockholders of Liquid Sugars, Inc. ............................ -- 11,618,413
Loup River Public Power District ...................................... -- 21,729
B & B Procurement ..................................................... -- 29,614
Harris Trust and Savings Bank and FBS Ag Credit, Inc. -- outstanding on
$50,000,000 revolving credit loan due August 27, 1999. Outstanding amounts are
secured by security agreements on inventories, accounts receivable, and
assignment of hedging account.
Interest at variable rates (6.81% at March 31, 1998). ................ 5,000,000 --
Private Placement Notes - Series A - repayment to be made at the
rate of $3,571,429 per year commencing September 1, 2001, with
final payment due September 1, 2007. Secured by real estate
mortgage. Interest payable semi-annually at 7.57% per annum. ......... 25,000,000 --
Private Placement Notes - Series B - repayment to be made at the
rate of $24,000,000 per year commencing September 1, 2005, with
final payment due September 1, 2009. Secured by real estate
mortgage. Interest payable semi-annually at 7.72% per annum. ......... 120,000,000 --
Private Placement Notes - Series C - repayment to be made at the
rate of $6,428,571 per year commencing September 1, 2006, with
final payment due September 1, 2012. Secured by real estate
mortgage. Interest payable semi-annually at 7.83% per annum. ......... 45,000,000 --
Private Placement Notes - Series D - repayment to be made at the
rate of $20,000,000 per year commencing September 1, 2003, with
final payment due September 1, 2007. Secured by real estate
mortgage. Interest payable at a variable rate (7.175% at March 31,
1998). ............................................................... $ 100,000,000 $ --
The Bank of the West loans are secured by all receivables,
inventories, and equipment of LSI Interest is payable at prime plus
0.75% and 0.50%. Repayment terms:
(A) $20,000 per month with final payment due September 30,
2000. Interest rate 9.25% at March 31, 1998. ........................ 600,000 840,000
(B) $10,000 per month with final payment due September 30, 1999.
Interest rate 9.25% at March 31, 1998. .............................. 180,000 300,000
(C) $20,000 per month with final payment due December 31, 2001.
Interest rate 8.75% at March 31, 1998. .............................. 880,000 --
------------- ------------
Total ................................................................ 296,660,000 410,343,269
Less current portion .................................................. 1,660,000 409,538,655
------------- ------------
LONG-TERM DEBT ........................................................ $ 295,000,000 $ 804,614
============= ============
</TABLE>
F-13
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 6 -- LONG-TERM DEBT AND PROPERTY PLEDGED (CONTINUED)
Additionally there are loan covenants with respect to the Harris Trust and
Savings Bank, FBS Ag Credit, Inc., and private placement notes that require the
cooperative to maintain minimum equity of $270,000,000, maintain a current ratio
of 1.1 to 1, maintain minimum net working capital of $25,000,000, maintain
certain levels of cash flow, limit expenditures for capital expenditures, and
various other financial conditions. Additionally, Harris Trust & Savings Bank
and FSB Ag Credit, Inc. have a borrowing base limit on advances. The base
consists of portions of accounts receivable and inventories. At March 31, 1998,
the cooperative was in compliance with, or had obtained a waiver for, all loan
provisions.
The loan covenants with respect to the Bank of the West loans require that
LSI maintain, among other things, a net worth of $12,000,000, current assets of
1.1 times current liabilities, and total liabilities not to exceed three times
net worth. At March 31, 1998, the subsidiary was not in compliance with all loan
provisions and had not obtained a waiver from The Bank of the West. As a result,
the $1,660,000 in outstanding long-term debt at March 31, 1998, has been
classified as a current liability in the balance sheet as current portion of
long-term debt.
Subsequent to the original issuance of this report, Liquid Sugars, Inc.
refinanced the line of credit and all bank term loans that had previously been
with Bank of the West with a line of credit from Minnesota Corn Processors in
an aggregate amount of $15,000,000. The line of credit is due August 27, 2000.
Also, Liquid Sugars, Inc. subsequently and jointly with Minnesota Corn
Processors, entered into a secured revolving credit agreement with Harris Trust
and Savings Bank and U.S. Bancorp Ag Credit, Inc. in an aggregate amount of
$50,000,000. Liquid Sugars, Inc. and Minnesota Corn Processors are jointly and
severally liable for the entire amount of these loans.
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
March 31, 1999 ......... $ 1,660,000
March 31, 2000 ......... 5,000,000
March 31, 2001 ......... --
March 31, 2002 ......... 3,571,429
March 31, 2003 ......... 3,571,429
Thereafter ............. 282,857,142
------------
TOTAL .................. $296,660,000
============
</TABLE>
NOTE 7 -- COMMITMENTS AND CONTINGENCIES
Certain property and equipment used by the cooperative are leased. Payments
on such operating leases, recorded as an expense in the statements of
operations, totaled $10,914,552 for the year ended March 31, 1998, $5,333,862
for the six month fiscal period ended March 31, 1997, and $8,616,454 for the
year ended September 30, 1996. Noncancellable future minimum payments are
required on these leases as follows for the next five years:
<TABLE>
<S> <C>
1998/99 ............ $10,937,447
1999/2000 .......... 10,190,968
2000/2001 .......... 9,535,885
2001/2002 .......... 9,201,885
2002/2003 .......... 8,815,612
Thereafter ......... 59,101,067
</TABLE>
MCP is involved in various litigation at March 31, 1998. In the opinion of
management, the ultimate liability for such litigation would not have a material
adverse financial effect upon the company.
F-14
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 7 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Management further believes that all or part of any potential liability for
certain of these claims will be covered by insurance, and management is
vigorously defending all such claims against the cooperative.
MCP entered into a stock purchase agreement in which they will purchase a
7.5% ownership interest in a third party with an option to purchase an
additional 7.5% ownership interest.
It is expected that the total costs to complete the construction in
progress at March 31, 1998, for MCP will approximate $2,675,919.
In May, 1997, Archer Daniels Midland Company (ADM) purchased 58,622,340
nonvoting units of equity participation. In return for this investment ADM will
receive 30% of any future profits.
NOTE 8 -- MEMBER EQUITIES
The following is information pertinent to elements of patron equities:
<TABLE>
<CAPTION>
NON-VOTING
PREFERRED COMMON
STOCK STOCK
------------- -------------
<S> <C> <C>
Par value .............................. $ 50 $ 50
Shares authorized ...................... 100,000 100,000
Aggregate par value authorized ......... $5,000,000 $5,000,000
</TABLE>
Included in the member equities is an account entitled loss allocated to
members, which represents the balance of the loss for the fiscal year ended
September 30, 1996, which was allocated to the membership. This loss is to be
recovered from the members in one of two ways:
A. A portion of the loss will be deducted from future value added or other
positive allocations, until the loss is repaid in full.
B. The loss represents a lien against the members' units of equity
participation, and should a member sell their units of equity
participation, the amount of the loss allocated to the members will be
deducted from such sale.
None of the cooperative's stock is transferable except as permitted by the
cooperative's board of directors. Because the cooperative's stock is not
transferable, the number of shares issued, redeemed, and outstanding are not
recorded in the financial statements.
At March 31, 1998, the number of voting units of equity participation
represented 137,077,665 bushel of corn contracts with members and the number of
non-voting units of equity participation represented 58,622,340 bushel of corn
contracts for a total of 195,700,005 total bushel of corn contracts with members
and non-members. The number of voting units of equity participation represented
136,785,461 bushels at March 31, 1997.
NOTE 9 -- INCOME TAXES
Net operating losses totaling approximately $69,237,000 are available to
reduce future taxable income for federal income tax purposes. The net operating
losses carryforward will begin to expire March 31, 2011, for federal income tax
purposes.
Separate federal and state income tax returns will be filed by the entities
included in the consolidated financial statements.
The difference between the income tax expense (benefit) and the federal
statutory rate is due to the effects of state income taxes, and the adjustment
of the prior year accrual.
F-15
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 9 -- INCOME TAXES (CONTINUED)
As of March 31, 1998 and 1997, deferred tax assets and liabilities consists
of the follows:
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
<S> <C> <C>
Deferred tax assets (non-current) ......................... $ (24,684,600) $ (423,400)
Deferred tax assets (current) ............................. (242,500) (15,116,900)
Valuation allowance for deferred tax assets ............... 23,700,000 14,886,000
------------- -------------
(1,227,100) (654,300)
============= =============
Deferred tax liabilities (non-current) .................... 1,639,100 2,007,500
Valuation allowance for deferred tax liabilities .......... -- (617,000)
------------- -------------
1,639,100 1,390,500
------------- -------------
NET DEFERRED TAXES ........................................ $ 412,000 $ 736,200
============= =============
</TABLE>
The net deferred tax liability is presented in the accompanying balance sheet
as follows:
<TABLE>
<S> <C> <C>
Non-current deferred tax liability ........................ $ 654,500 $ 967,100
Current deferred tax asset ................................ (242,500) (230,900)
------------- -------------
NET DEFERRED TAXES ........................................ $ 412,000 $ 736,200
============= =============
</TABLE>
The components of the net deferred tax liabilities at March 31, 1998, are
principally due to the differences between the book and tax basis in property
and equipment resulting from the use of accelerated depreciation for tax
purposes, and due to the differences in basis for deductions such as the
allowance for doubtful accounts, accrued vacation pay, deferred compensation,
and net operating loss carryforwards.
The components of income tax expense (benefit) are as follows:
<TABLE>
<S> <C>
Federal:
Current .................... $ 307,812
Deferred ................... (357,200)
----------
(49,388)
----------
State and local:
Current .................... 16,103
Deferred ................... 33,000
----------
49,103
----------
INCOME TAX BENEFIT ......... $ (285)
==========
</TABLE>
F-16
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 AND 1997
NOTE 10 -- MARKETING OBLIGATIONS
Cash Grain Positions
The cooperative and GPA had open contracts to purchase 5,634,303 bushels of
cash corn as of March 31, 1998. MCP has open futures purchase contracts for
26,000,000 bushels as of March 31, 1998. Additionally, MCP has an outstanding
obligation on 3,445,504 bushels on deferred price contracts at March 31, 1998.
NOTE 11 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The consolidated entities financial instruments consist principally of
cash, trade receivables and payables, grain contracts, sales contracts,
short-term and long-term notes payable. There are no significant differences
between the carrying value and the fair value of any of these financial
instruments. For investments in other cooperatives, there are no quoted market
prices and a reasonable estimate of the fair value could not be made without
incurring excessive costs.
NOTE 12 -- PENSION EXPENSE
Pension costs charged to operations on the accrual basis amounted to
$93,720 for the year ended March 31, 1998, $51,675 for the six month fiscal
period ended March 31, 1997, and $129,262 for the year ended September 30, 1996.
NOTE 13 -- CONCENTRATIONS OF CREDIT RISK
The cooperative and its consolidated entities maintain cash and temporary
investments at various financial institutions. Balances on deposit are insured
by the Federal Deposit Insurance Corporation (FDIC) up to specified limits.
Balances in excess of FDIC limits are uninsured. Total cash and temporary
investments held by the financial institutions exceeded specified limits at
various dates throughout the fiscal year ended March 31, 1998.
NOTE 14 -- LOSS ON SALES CONTRACT
During the year ended March 31, 1998, an MCP customer exercised its
contract option to purchase additional corn sweeteners at a contract price that
was less than the current market price. This option was exercised after MCP had
committed its corn sweetener production to other customers. Because the customer
has a binding contract, MCP has agreed to subsidize this customer by purchasing
product on the open market and selling it to the customer at the reduced
contract price. This transaction will create an estimated loss of $7,986,000 and
is included in the statement of operations.
NOTE 15 -- EMPLOYMENT CONTRACTS
Liquid Sugars, Inc. has 25 employment contracts with employees, ranging
from five to eight years in length. Salary commitments under these contracts
total $9,733,469 as of March 31, 1998.
This information is an integral part of the
accompanying consolidated financial statements.
F-17
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED FINANCIAL STATEMENTS -- BALANCE SHEET
SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ........................ $ 3,235,744
Receivables ...................................... 59,930,096
Inventories ...................................... 43,169,582
Prepaid expenses ................................. 4,054,026
Margin deposits .................................. 12,650,502
Option contract premiums ......................... --
Deferred income taxes ............................ 242,500
-------------
Total current assets ............................ 123,282,450
-------------
INVESTMENTS AND OTHER ASSETS
Investments in cooperatives ...................... 11,661,521
Deferred costs ................................... 1,091,306
Deferred debt refinancing costs .................. 3,349,949
Cash surrender value of life insurance ........... 137,383
Non-current receivables .......................... 2,321,826
Non-current prepaids ............................. 2,145,690
Goodwill ......................................... 3,691,022
-------------
Total investments and other assets .............. 24,398,697
-------------
PROPERTY AND EQUIPMENT ............................ 690,131,549
Less accumulated depreciation .................... 185,140,881
-------------
Net property, and equipment ..................... 504,990,668
-------------
TOTAL ASSETS ...................................... $ 652,671,815
=============
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Short-term notes payable ......................... $ 1,228,858
Current portion of long-term debt ................ --
Accounts payable:
Producers ...................................... 3,815,322
Other .......................................... 22,740,937
Accrued expenses and taxes ..................... 18,936,138
-------------
Total current liabilities ...................... 46,721,255
-------------
LONG-TERM DEBT -- BANK AND DEBENTURE .............. 318,000,000
DEFERRED COMPENSATION ............................. 1,108,901
DEFERRED INCOME TAXES ............................. 1,639,100
-------------
Total long-term liabilities ..................... 320,748,001
-------------
Total liabilities ............................... 367,469,256
-------------
MEMBERS' EQUITY
Units of equity participation .................... 246,850,986
Contributed capital .............................. 1,007,789
Unallocated capital deficit ...................... (61,572,294)
Non-qualified distributions ...................... 3,849,171
Non-voting units of equity participation ......... 119,790,000
Loss to be allocated to members .................. (21,531,754)
Retained earnings ................................ (3,191,339)
-------------
Total members' equity ........................... 285,202,559
-------------
TOTAL LIABILITIES AND MEMBERS' EQUITY ............. $ 652,671,815
=============
</TABLE>
These are unaudited and for internal use only.
F-18
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED FINANCIAL STATEMENTS -- OPERATING STATEMENTS
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------------- -----------------
<S> <C> <C>
NET SALES, STORAGE AND HANDLING CHARGES ................ $ 322,355,918 $ 292,912,222
COST OF GOODS .......................................... 290,357,141 276,109,753
------------- -------------
Gross proceeds ........................................ 31,998,777 16,802,469
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES .......... 25,371,287 21,954,346
------------- -------------
Net operating proceeds (loss) ......................... 6,627,490 (5,151,877)
------------- -------------
INTEREST AND OTHER EXPENSE
Interest and expense .................................. (12,060,006) (20,116,594)
Interest and other income ............................. 599,091 494,499
Loss on the sale of property and equipment ............ (14,277) --
Patronage income received ............................. 3,713,699 1,802,012
------------- -------------
Total interest and other expense ..................... (7,761,493) (17,820,083)
------------- -------------
Net loss before income taxes ......................... (1,134,003) (22,971,960)
FEDERAL AND STATE INCOME TAXES ......................... 25,121 285,420
------------- -------------
NET LOSS ............................................... $ (1,159,124) $ (23,257,380)
============= =============
</TABLE>
These are unaudited and for internal use only.
F-19
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED FINANCIAL STATEMENTS -- CASH FLOWS
SIX MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ......................................................... $ (1,159,124) $ (23,257,381)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization .................................. 23,022,908 22,471,540
Non-cash portion of patronage refunds received ................. (2,599,589) (1,261,407)
Deferred income taxes/compensation ............................. 33,174 2,875
Deferred debt refinancing costs ................................ -- (3,587,576)
Unrealized loss on foreign exchange ............................ 76,042 --
Gain on disposal of property and equipment ..................... 14,277 --
Changes in operating assets and liabilities:
Receivables ................................................... (6,587,043) (5,508,431)
Inventories ................................................... 649,372 5,563,584
Current portion of long-term debt ............................. -- (409,178,655)
Prepaids ...................................................... 1,477,003 615,522
Margin deposit account ........................................ (8,567,641) (1,386,618)
Accounts payable - producers .................................. (7,570,022) (5,830,829)
Accounts payable - other ...................................... (14,669,464) (6,861,767)
Short-term notes payable ...................................... (138,318) 8,528,987
Accrued expenses .............................................. 10,719,975 10,512,964
Income taxes recoverable/payable - current .................... -- 269,980
Option contract premiums ...................................... 1,457,280 --
------------- --------------
Net cash used by operating activities ........................ (3,841,170) (408,907,212)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment .............................. (4,654,259) (6,352,932)
Net increase in long-term receivables ............................ (1,672,133) (266,138)
Proceeds from termination of officer's life insurance policy ..... 112,417 --
Investments in Ice Ban ........................................... (48,087) --
Proceeds from disposal of equipment .............................. 5,950 --
------------- --------------
Net cash used from investing activities ......................... (6,256,112) (6,619,070)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term borrowings ............................................. 23,000,000 290,000,000
Principal payments on debt (LSI) ................................. (8,260,000) (24,614)
Deposit on railcars .............................................. (2,145,690) (180,000)
Loss allocation payments from members ............................ 2,782 4,968
Equities sold .................................................... (7,948) 119,790,000
------------- --------------
Net cash provided from financing activities ..................... 12,589,144 409,590,354
------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS ...................................................... 2,491,862 (5,935,928)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .................... 743,882 7,059,433
------------- --------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .......................... $ 3,235,744 $ 1,123,505
============= ==============
</TABLE>
These are unaudited and for internal use only.
F-20
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED FINANCIAL STATEMENTS -- MEMBER EQUITIES
SIX MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
UNITS OF EQUITY NON-VOTING
PARTICIPATION UNITS OF EQUITY CONTRIBUTED
CERTIFICATES PARTICIPATION CAPITAL
----------------- ----------------- -------------
<S> <C> <C> <C>
BALANCE, APRIL 1, 1998 .......... $246,858,933 $119,790,000 $1,007,789
Net loss for the year ended
March 31, 1998 ................ -- -- --
Equities repurchased ........... (7,948) -- --
Loss allocation:
Payment by members ............ -- -- --
------------ ------------ ----------
BALANCE, SEPTEMBER 30, 1998 ..... $246,850,985 $119,790,000 $1,007,789
============ ============ ==========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
UNALLOCATED
CAPITAL NON-QUALIFIED LOSS RETAINED
RESERVE PATRONAGE ALLOCATED TO EARNINGS
(DEFICIT) REFUNDS MEMBERS (DEFICIT) TOTAL
----------------- --------------- ----------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE, APRIL 1, 1998 .......... $ (63,177,920) $3,849,171 $ (21,534,536) $ (426,589) $286,366,848
Net loss for the year ended
March 31, 1998 ................ (1,159,124) -- -- -- (1,159,124)
Equities repurchased ........... -- -- -- -- (7,948)
Loss allocation:
Payment by members ............ -- -- 2,782 -- 2,782
------------- ---------- ------------- ---------- ------------
BALANCE, SEPTEMBER 30, 1998 ..... $ (64,337,044) $3,849,171 $ (21,531,754) $ (426,589) $285,202,558
============= ========== ============= ========== ============
</TABLE>
F-21
These are unaudited and for internal use only.
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEPTEMBER 30, 1998
Minnesota Corn Processors ("the cooperative") (MCP) is a member owned
cooperative incorporated in Minnesota for the purpose of producing value added
corn related products for its members. The cooperative produces corn starch,
syrup, gluten, fuel ethanol, and high fructose corn syrup.
Members are required to purchase units of equity participation based upon
the number of bushels for which they contract.
Liquid Sugars, Inc. (LSI), a wholly owned subsidiary, is a sweetener
blending and storage operation, which provides its products to various types of
customers (including food processors) located in the Western United States and
Southwestern Canada. As a result of MCP's 100% ownership of LSI, the accounts
and transactions of LSI are consolidated in these financial statements.
Grower Procurement Agency (GPA), an agency of the members of MCP, was
formed to assemble, procure, and supply corn to MCP on behalf of its membership.
The Board of Directors consists of employees of MCP, and it leases facilities
and employees from MCP. Because of the control which MCP has over the operations
of GPA, this entity is also being consolidated.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MCP, and its
wholly owned subsidiary, LSI, and its controlled entity, GPA. All significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. Significant
estimates included in these financial statements include the valuation of the
repair parts inventory, the accumulated depreciation, and the allowance for
doubtful accounts.
CREDIT POLICY
The cooperative sells its product to the petroleum industry, farmers and
ranchers, breweries, bakeries, the paper industry, soft drink companies, etc.,
on terms it establishes for each customer. LSI sells its products to food
processors and others on terms it establishes for each customer. GPA only has
one customer, MCP. Credit sales are made throughout the United States and, to a
much lesser degree, in Canada, by MCP and its consolidated entities.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the cooperative and its
subsidiary considers all highly liquid investments in debt instruments of other
entities, with a maturity date of less than three months at the date of
purchase, to be cash equivalents.
INVENTORIES
Unprocessed corn, finished goods, maintenance parts, and in-process
inventories are valued at the lower of cost or net realizable value. Ingredients
are valued at the lower of cost or market. All inventory valuations, except
those of LSI, assume a first-in, first-out flow of goods. The inventory of LSI
is valued at the last-in, first-out flow of goods method.
HEDGE TRANSACTIONS
The company generally follows a policy of managing its risk of future grain
price fluctuations by hedging in established commodities markets. As grain is
used in the production process, realized gains or
F-22
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEPTEMBER 30, 1998
losses and option contract premiums on these positions are recognized. Marketing
gains or losses realized on grain prior to the delivery period for which they
are identified as protecting are deferred and recognized pro rata through the
identified delivery period.
INVESTMENTS
Investments are principally in the St. Paul Bank. They are recorded at
original cost, plus the face value of equities received as patronage refunds.
The face value of equities redeemed by other cooperatives is deducted from the
investment balance. The investments are not transferable. No cash is received
until such time as redeemed at the discretion of the other cooperative.
Patronage refunds and redemptions are recorded in the year received.
PROPERTY AND EQUIPMENT
The cost of property and equipment includes all costs incurred to bring
such assets to the condition necessary for their intended use.
Costs of property and equipment are charged to operations, as depreciation,
on a straight-line method over the estimated useful lives of the individual
assets.
PENSION PLANS
The cooperative makes payments under a defined contribution plan for the
benefit of substantially all employees at a contribution rate stipulated by the
plan. Starting April 1, 1998, the cooperative also matches a portion of employee
contributions.
LSI makes payments under a defined contribution plan covering substantially
all eligible employees and makes contributions at a rate that is stipulated by
the plan. LSI also contributes to the pension funds for the union employees as
required by the respective union contracts. In addition a portion of LSI's
employees are covered by a collective bargaining agreement.
DEFERRED COMPENSATION
LSI maintains non-qualified deferred compensation agreements with certain
of its employees. The present value of the future payments amounted to
$1,108,901 at September 30, 1998. This amount is based on estimated rates of
returns. Actual future payments could differ from these estimates. The increase
in future benefits attributable to interest is expensed yearly. Life insurance
contracts have been acquired covering the life of most of the employees covered
by the deferred compensation arrangements, with LSI being both the owner and the
beneficiary of the policies. The purpose of these life insurance policies is to
assist in payment of the deferred compensation obligations in the event of death
or retirement of the employee. The cash surrender value, amounting to $137,383
relating to these policies, is included as a non-current asset in the balance
sheet as of September 30, 1998.
INCOME TAXES
The cooperative is subject to federal income tax, Minnesota franchise tax,
and Nebraska income tax and is permitted a deduction from taxable income for the
portion of the net proceeds refunded to patrons in the form of qualified
patronage refunds, if any, or value added payments. In addition, any tax that
may be due to the State of Nebraska will be offset primarily by credits
allowable under the Nebraska Employment and Investment Growth Act.
F-23
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEPTEMBER 30, 1998
LSI is subject to federal and numerous state income taxes as a tax paying
corporation. The entity is subject to state income taxes on a pro-rata basis in
most of these states.
GPA is a Minnesota corporation that is subject to taxation under the
provision of its organizing code section, but has a net operating loss
carryforward resulting in minimal federal or state income taxes for the year.
Consolidated tax returns are not being filed for federal income tax
purposes.
DEFERRED INCOME TAXES
Deferred income taxes arise from LSI from the difference in reported bases
of assets and liabilities for financial and tax accounting. Deferred taxes are
classified as current or non-current depending on the classification of the
asset and liabilities to which they relate.
The principal sources of differences are property and equipment
depreciation methods and non-deductible items, such as the allowance for
doubtful accounts, vacation pay accruals, and deferred compensation.
MCP distributes its proceeds and losses on a tax basis, which effectively
eliminates the requirement of recording deferred income taxes relating to timing
differences for this entity. Those timing differences are accounted for in the
unallocated capital reserve.
DEFERRED START UP COSTS
Various start-up costs incurred in connection with the construction of the
plant in Nebraska have been deferred ($3,747,373) and are being charged to
expense (amortized) on a straight-line basis over a 5-year period effective
September, 1992, and August, 1994. Amortization expense relating to the deferred
organizational costs was $64,026 an $319,760 for the six month periods ended
September 30, 1998 and 1997, respectively. Accumulated amortization was
$3,640,668 at September 30, 1998.
AMORTIZATION OF OTHER INTANGIBLE COSTS
Goodwill resulting from the purchase price of LSI being greater than fair
market value is being amortized on a straight-line basis over a 15-year period
beginning in April, 1996. Amortization expense for the six month periods ended
September 30, 1998 and 1997 was $147,641, each. Accumulated amortization was
$738,205 at September 30, 1998.
Included in prepaid expenses is an amount of $3,788,324 representing costs
incurred by MCP in connection with the construction of a railroad bridge in
Columbus, Nebraska, to encourage another rail company to serve that location. It
is expected that the freight savings will result in the recovery of the costs
incurred over a three-year period. Accordingly, these costs are being amortized
on a straight-line basis over a three-year period effective October 1, 1996.
Amortization expense amounted to $630,312 and $624,624 for the six month periods
ended September 30, 1998 and 1997, respectively. Accumulated amortization was
$2,521,248 at September 30, 1998.
DEFERRED DEBT REFINANCING COST
The debt refinancing costs relate to a restructuring of debt completed
during fiscal 1997/98. The asset is carried at cost and is being amortized over
a 15-year period on a straight-line basis. Amortization expense was $120,000 and
$20,000 for the six month periods ended September 30, 1998 and 1997,
respectively.
F-24
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SEPTEMBER 30, 1998
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board (FAS) has issued
Statement No. 133 -- Accounting for Derivative Instruments and Hedging
Activities to be implemented for periods beginning after June 15, 1999. While
management does not believe this standard will materially impact the financial
results of the company, it is currently, evaluating the reporting requirements
under this new standard.
This information is an integral part of the
accompanying consolidated financial statements.
F-25
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 -- RECEIVABLES
Balance sheet totals comprise the following elements:
<TABLE>
<CAPTION>
09/30/98
---------------
<S> <C>
Notes receivable ........................................................... $ 2,091,217
Trade accounts ............................................................. 57,040,478
Other - primarily tax refunds on capital expenditures and ethanol production
credits ................................................................... 5,204,953
Allowance for doubtful accounts ............................................ (2,194,320)
------------
TOTAL RECEIVABLES .......................................................... $ 62,142,328
============
Balance sheet classification:
Current assets ............................................................ $ 59,820,502
Non-current assets ........................................................ 2,321,826
------------
TOTAL ...................................................................... $ 62,142,328
============
</TABLE>
NOTE 2 -- INVENTORIES
Principal elements of inventories were as follows:
<TABLE>
<CAPTION>
09/30/98
-------------
<S> <C>
Corn ................................................................... $ 2,424,860
Chemicals, supplies, and coal .......................................... 5,848,868
Goods in process of manufacture ........................................ 1,975,183
Finished goods ......................................................... 18,018,055
Repair parts ........................................................... 12,262,903
Liquid Sugars, Inc. - sweetener inventory - bulk and specialty products 2,639,713
-----------
TOTAL INVENTORIES ...................................................... $43,169,582
===========
</TABLE>
The sweetener inventory maintained by LSI is valued on the basis of a
last-in, first-out flow of goods. Had the inventory been valued at current
average replacement cost, the inventory value would have been approximately
$869,507 higher than under the last-in, first-out method of valuation for
September 30, 1998.
F-26
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 3 -- PROPERTY AND EQUIPMENT
The consolidated entity's investment in property and equipment is recorded
in the balance sheet at cost. The principal elements of the totals shown in the
balance sheet are as follows:
<TABLE>
<CAPTION>
09/30/98
---------------
<S> <C>
Land and public improvements .................... $ 5,625,430
Land improvements ............................... 6,814,373
Buildings and leasehold improvements ............ 117,233,100
Equipment ....................................... 541,759,604
Railroad, switch engine, and rail cars .......... 1,960,902
Silos ........................................... 10,627,402
Construction in progress ........................ 6,110,738
------------
TOTAL PROPERTY AND EQUIPMENT .................... $690,131,549
============
</TABLE>
Depreciation expense was $22,070,853 and $21,984,139 for the six month
periods ended September 30, 1998 and 1997, respectively.
NOTE 4 -- SHORT-TERM NOTES PAYABLE
Balance sheet totals consist of notes payable to:
<TABLE>
<CAPTION>
09/30/98
-------------
<S> <C>
Debentures payable .......... $1,228,858
==========
</TABLE>
The debentures payable to members and others are unsecured. Interest is
paid on maturity of the debenture at a rate of to 7.00% per annum. Notes are
issued for one-year periods and may be renewed.
F-27
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 5 -- LONG-TERM DEBT AND PROPERTY PLEDGED
<TABLE>
<CAPTION>
09/30/98
--------------
<S> <C>
Harris Trust and Savings Bank and FBS Ag Credit, Inc. - outstanding on
$50,000,000 revolving credit loan due August 27, 1999. Outstanding amounts are
secured by security agreements on inventories, accounts receivable, and
assignment of hedging account. Interest at variable rates (6.81% at September 30,
1998) ............................................................................. $ 28,000,000
Private Placement Notes - Series A - repayment to be made at the rate of
$3,571,429 per year commencing September 1, 2001, with final payment due
September 1, 2007. Secured by real estate mortgage. Interest payable
semi-annually at 7.57% per annum. ................................................. 25,000,000
Private Placement Notes - Series B - repayment to be made at the rate of
$24,000,000 per year commencing September 1, 2005, with final payment due
September 1, 2009. Secured by real estate mortgage. Interest payable
semi-annually at 7.72% per annum. ................................................. 120,000,000
Private Placement Notes - Series C - repayment to be made at the rate of
$6,428,571 per year commencing September 1, 2006, with final payment due
September 1, 2012. Secured by real estate mortgage. Interest payable
semi-annually at 7.83% per annum. ................................................. 45,000,000
Private Placement Notes - Series D - repayment to be made at the rate of
$20,000,000 per year commencing September 1, 2003, with final payment due
September 1, 2007. Secured by real estate mortgage. Interest payable at a
variable rate (6.925% at September 30, 1998) ...................................... 100,000,000
------------
Total ............................................................................. $318,000,000
Less current portion ............................................................... --
------------
LONG-TERM DEBT ..................................................................... $318,000,000
============
</TABLE>
There are loan covenants with respect to the Harris Trust and Savings Bank,
US Bancorp Ag Credit, Inc., and private placement notes that require the
cooperative to maintain minimum equity of $270,000,000; maintain a current ratio
of 1.1 to 1; maintain minimum net working capital of $25,000,000; maintain
certain levels of cash flow; limit capital expenditures; and various other
financial conditions. Additionally, Harris Trust & Savings Bank and US Bancorp
Ag Credit, Inc. have a borrowing base limit on advances. The base consists of
portions of accounts receivable and inventories.
Future maturities of long-term debt are as follows:
<TABLE>
<S> <C>
September 30, 1999 ......... $ --
September 30, 2000 ......... 28,000,000
September 30, 2001 ......... 3,571,429
September 30, 2002 ......... 3,571,429
September 30, 2003 ......... 23,571,429
Thereafter ................. 259,285,713
------------
TOTAL ...................... $318,000,000
============
</TABLE>
NOTE 6 -- COMMITMENTS AND CONTINGENCIES
Certain property and equipment used by the cooperative are leased. For the
six month periods ended September 30, 1998 and 1997, payments on such operating
leases, recorded as expense in the
F-28
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 6 -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
statement of operations, totaled $6,841,701 and $5,189,374. Noncancellable
future minimum payments are required on these leases as follows for the next
five years:
<TABLE>
<S> <C>
1999/2000 .......... $13,743,513
2000/2001 .......... 13,226,719
2001/2002 .......... 12,596,479
2002/2003 .......... 12,041,905
2003/2004 .......... 11,739,118
Thereafter ......... 57,972,025
</TABLE>
MCP is involved in various litigation at September 30, 1998. In the opinion
of management, the ultimate liability for such litigation would not have a
material adverse financial effect upon the company. Management further believes
that all or part of any potential liability for certain of these claims will be
covered by insurance, and management is vigorously defending all such claims
against the cooperative.
It is expected that the total cost to complete the construction in progress
at September 30, 1998, for MCP will approximate $4,000,000.
LSI has 25 employment contracts with employees, ranging from five to eight
years in length. Salary commitments under these contracts total approximately
$8,652,000 at September 30, 1998.
NOTE 7 -- MEMBER EQUITIES
The following is information pertinent to elements of patron equities:
<TABLE>
<CAPTION>
NON-VOTING
PREFERRED COMMON
STOCK STOCK
------------- -------------
<S> <C> <C>
Par value .............................. $ 50 $ 50
Shares authorized ...................... 100,000 100,000
Aggregate par value authorized ......... $5,000,000 $5,000,000
</TABLE>
Included in the member equities is an account entitled loss allocated to
members, which represents the balance of the loss for the fiscal year ended
September 30, 1996, which was allocated to the membership. This loss is to be
recovered from the members in one of two ways:
A. A portion of the loss will be deducted from future value added or other
positive allocations, until the loss is repaid in full.
B. The loss represents a lien against the members' units of equity
participation, and should a member sell their units of equity
participation, the amount of the loss allocated to the members will be
deducted from such sale.
None of the cooperative's stock is transferable except as permitted by the
cooperative's board of directors. Because the cooperative's stock is not
transferable, the number of shares issued, redeemed, and outstanding are not
recorded in the financial statements.
In May 1997 Archer Daniels Midland Company (ADM) purchased 58,622,340
nonvoting units of equity participation. In return for this investment, ADM will
receive 30% of any future profits.
At September 30, 1998, the number of voting units of equity participation
represented 137,073,691 bushel of corn contracts with members and the number of
non-voting units of equity participation represented 58,622,340 bushel of corn
contracts for a total of 195,696,031 total bushel of corn contracts with members
and non-members.
F-29
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 8 -- INCOME TAXES
Net operating losses totaling approximately $69,237,000 are available to
reduce future taxable income for federal income tax purposes. The net operating
losses carryforward will begin to expire March 31, 2011, for federal income tax
purposes.
Separate federal and state income tax returns will be filed by the entities
included in the consolidated financial statements.
The difference between the income tax expense (benefit) and the federal
statutory rate is due to the effects of state income taxes, and the adjustment
of the prior year accrual.
As of September 30, 1998, deferred tax assets and liabilities consists of
the follows:
<TABLE>
<CAPTION>
09/30/98
-----------------
<S> <C>
Deferred tax assets (non-current) ......................... $ (24,684,600)
Deferred tax assets (current) ............................. (242,500)
Valuation allowance for deferred tax assets ............... 23,700,000
-------------
(1,227,100)
-------------
Deferred tax liabilities (non-current) .................... 1,639,100
Valuation allowance for deferred tax liabilities .......... --
-------------
1,639,100
-------------
NET DEFERRED TAXES ........................................ $ 412,000
=============
</TABLE>
The net deferred tax liability is presented in the accompanying balance
sheet as follows:
<TABLE>
<S> <C>
Non-current deferred tax liability ......... $ 654,500
Current deferred tax asset ................. (242,500)
----------
NET DEFERRED TAXES ......................... $ 412,000
==========
</TABLE>
The components of the net deferred tax liabilities at September 30, 1998,
are principally due to the differences between the book and tax basis in
property and equipment resulting from the use of accelerated depreciation for
tax purposes, and due to the differences in basis for deductions such as the
allowance for doubtful accounts, accrued vacation pay, deferred compensation,
and net operating loss carryforwards.
The components of income tax expense are as follows:
<TABLE>
<S> <C>
Current:
Federal ................... $14,063
State ..................... 11,058
-------
INCOME TAX EXPENSE ......... $25,121
=======
</TABLE>
F-30
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 9 -- MARKETING OBLIGATIONS
Cash Grain Positions
The cooperative and GPA had open contracts to purchase 8,770,471 bushels of
cash corn as of September 30, 1998. MCP has open futures purchase contracts for
47,715,000 bushels as of September 30, 1998. Additionally, MCP has an
outstanding obligation on 1,002,833 bushels on deferred price contracts at
September 30, 1998.
NOTE 10 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The consolidated entities financial instruments consist principally of
cash, trade receivables and payables, grain contracts, sales contracts,
short-term and long-term notes payable. There are no significant differences
between the carrying value and the fair value of any of these financial
instruments. For investments in other cooperatives, there are no quoted market
prices and a reasonable estimate of the fair value could not be made without
incurring excessive costs.
NOTE 11 -- PENSION EXPENSE
Pension costs charged to operations on the accrual basis amounted to
$258,845 and $150,000 for the six month periods ended September 30, 1998 and
1997, respectively.
NOTE 12 -- CONCENTRATIONS OF CREDIT RISK
The cooperative maintains cash and temporary investments at various
financial institutions. Balances on deposit are insured by the Federal Deposit
Insurance Corporation (FDIC) up to specified limits. Balances in excess of FDIC
limits are uninsured. Total cash and temporary investments held by the financial
institutions exceeded specified limits at various dates throughout the fiscal
year ended September 30, 1998.
This information is an integral part of the
accompanying consolidated financial statements.
F-31
<PAGE>
APPENDIX A
PLAN OF MERGER
THIS PLAN OF MERGER (the "Plan") is dated as of January __, 1999, and is by
and between MINNESOTA CORN PROCESSORS, INC (the "Cooperative") and MINNESOTA
CORN PROCESSORS COLORADO ("MCP Colorado"), each of which may be referred to
herein as a "Constituent Cooperative" and both of which may be collectively
referred to herein as the "Constituent Cooperatives."
WHEREAS, the Cooperative is a cooperative association organized under
Chapter 308A of Minnesota Statutes, as amended (the "Minnesota Act"); and MCP
Colorado is a cooperative association organized under Title 7 Article 56 of the
Colorado Revised Statutes, as amended (the "Colorado Act"), and is a wholly
owned subsidiary of the Cooperative. The Minnesota Act and the Colorado Act may
be referred to herein collectively as the "Acts."
WHEREAS, the respective Boards of Directors of the Cooperative and MCP
Colorado and the respective members of the Cooperative and MCP Colorado each has
approved and adopted this Plan and the transactions contemplated hereby in the
manner required by their respective Articles of Incorporation and Bylaws, and
the appropriate sections of the Acts.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements of the parties contained herein, the parties hereto agree as
follows:
SECTION 1. THE MERGER. On the Effective Time (as defined in Section 8), the
Cooperative and MCP Colorado shall combine through merger (the "MCP Merger") in
accordance with the applicable provisions of the Acts; and MCP Colorado shall be
the surviving cooperative and shall continue to exist as a Colorado cooperative
association by virtue of, and shall be governed by, the Colorado Act.
SECTION 2. ARTICLES OF MERGER. As soon as practicable following
satisfaction or waiver of all conditions to the consummation of the MCP Merger,
the articles of merger (the "Articles of Merger") and a statement of merger
("Statement of Merger") shall be executed in compliance with Section 308A.801 of
the Minnesota Act and Section 7-56-605 of the Colorado Act, respectively. The
Articles of Merger shall be filed with the Secretary of State of the State of
Minnesota and the Statement of Merger shall be filed with the Secretary of State
of the State of Colorado, or as otherwise required by the Acts.
SECTION 3. EFFECT OF MERGER. From and after the Effective Time, without any
further action by the Constituent Cooperatives or any of their respective
members: (a) MCP Colorado, as the surviving cooperative in the MCP Merger, shall
have all of the rights, privileges, immunities and powers, and shall be subject
to all the duties and liabilities, of a cooperative organized under the Colorado
Act; (b) MCP Colorado, as the surviving cooperative in the MCP Merger, shall
possess all of the rights, privileges, immunities and franchises, of a public as
well as a private nature, of each Constituent Cooperative, and all property,
real, personal and mixed, and all debts due on whatever account, including all
choses in action, and each and every other interest of or belonging to or due to
each Constituent Cooperative, shall be deemed to be and hereby is vested in MCP
Colorado, without further act or deed, and the title to any property, or any
interest therein, vested in either Constituent Cooperative, shall not revert or
be in any way impaired by reason of the MCP Merger; (c) MCP Colorado shall be
responsible and liable for all of the liabilities and obligations of each
Constituent Cooperative, and any claim existing or action or proceeding pending
by or against one of the Constituent Cooperatives may be prosecuted as if the
MCP Merger had not taken place or MCP Colorado may be substituted in its place;
(d) neither the rights of creditors nor any liens upon the property of either of
the Constituent Cooperatives shall be impaired by the MCP Merger; and (e) the
MCP Merger shall have any other effect set forth in the Acts and the Transaction
Agreement dated January ___, 1999 between the Cooperative, MCP Colorado and
Minnesota Corn Processors, LLC (the "Transaction Agreement"); all with the
effect and to the extent provided in the applicable provisions of the Acts.
A-1
<PAGE>
SECTION 4. ARTICLES OF INCORPORATION AND BYLAWS. From and after the
Effective Time, pursuant to the Articles of Merger and without any further
action by the Constituent Cooperatives or any of their respective members, the
Articles of Incorporation of MCP Colorado in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of MCP Colorado, as the
surviving cooperative in the MCP Merger (the "Surviving Entity Articles"). From
and after the Effective Time, without any further action by the Constituent
Cooperatives or any of their respective members, the Bylaws of MCP Colorado in
effect immediately prior to the Effective Time shall be the Bylaws of MCP
Colorado, as the surviving cooperative in the MCP Merger (the "Surviving Entity
Bylaws"). A copy of the Surviving Entity Articles of Incorporation and Bylaws
was provided to the respective members of each Constituent Cooperative in
connection with their consideration of the MCP Merger.
SECTION 5. BOARD OF DIRECTORS AND OFFICERS. From and after the Effective
Time, without any further action by the Constituent Cooperatives or any of their
respective members, each person serving as a director or an officer of the
Cooperative immediately prior to the Effective Time shall become a director or
an officer of MCP Colorado, as the surviving cooperative in the MCP Merger, (in
the case of officers, holding the same office in MCP Colorado as they held in
the Cooperative immediately prior to the Effective Time) to serve in accordance
with the Surviving Entity Bylaws. The initial directors and officers of MCP
Colorado prior to the effective date shall resign their positions as directors
and officers of MCP Colorado as of the effective date.
SECTION 6. EXCHANGE, REDESIGNATION AND CONVERSION AND CONTINUATION OF
CAPITAL STOCK, NON-STOCK EQUITY INTERESTS, PATRONS' EQUITIES AND MEMBERSHIPS. On
the Effective Time, the manner and basis of exchanging and continuing the shares
of capital stock, non-stock equity interests, units of equity participation,
non-voting units of equity participation, patronage equity interests (including
all entitlements to patronage refunds), any other allocated equity interests,
and unallocated and capital reserves of the Cooperative and MCP Colorado (all
such interests referred to herein as "Cooperative Equity Interests" or "MCP
Colorado Equity Interests", respectively), and membership interests in the
Cooperative and MCP Colorado, for equal Equity Interests and membership
interests in MCP Colorado, shall be as follows:
(a) EXCHANGE AND CONTINUATION OF COOPERATIVE MEMBERSHIPS. As of the
Effective Time, without any further action by the Constituent Cooperatives
or any of their respective members, each holder of common stock of the
Cooperative shall become and be a member of MCP Colorado, to the extent they
are eligible for membership under the Surviving Entity Articles and the
Surviving Entity Bylaws, in such class and with such incidents of membership
as are set forth in the Surviving Entity Articles and the Surviving Entity
Bylaws.
(b) MCP COLORADO MEMBERSHIPS. As of the Effective Time, without any
further action by the Constituent Cooperatives or any of their respective
members, the Cooperative, as the sole member of MCP Colorado, shall cease to
exist by operation of the merger and shall cease to be a member of MCP
Colorado.
(c) EXCHANGE AND CONTINUATION OF COOPERATIVE EQUITY INTERESTS. As of the
Effective Time, without any further action by the Constituent Cooperatives
or any of their respective members, all Equity Interests standing on the
books of the Cooperative immediately prior to the Effective Time shall be
determined and exchanged for equal Equity Interests in MCP Colorado at its
stated dollar amount on a dollar-for-dollar basis, including as follows:
i. Common Stock. Each share of common stock of the Cooperative issued
and outstanding immediately prior to the Effective Time shall cease
to be outstanding and shall be exchanged for one (1) share of Common
Stock of MCP Colorado at a par value of $50.00 per share.
ii. Preferred Stock. Each share of Preferred stock of the Cooperative
issued and outstanding immediately prior to the Effective Time shall
cease to be outstanding and shall be exchanged for one (1) share of
Preferred Stock of MCP Colorado at a par value of $50.00 per share.
iii. Patronage Equity Interests and Units of Equity Participation. All
patronage refunds (qualified and nonqualified), units of equity
participation and non-voting units of equity
A-2
<PAGE>
participation and any other allocated or to be allocated patronage
equity interests (including all entitlements thereto) standing on the
books of the Cooperative immediately prior to the Effective Time
(which are not otherwise evidenced by capital stock) shall be
exchanged for equal patronage refunds, units of equity participation
and non-voting units of equity participation, and allocated or to be
allocated equity interests, entitlements to patronage refunds, or
other equal patronage equity interests on the books of MCP Colorado,
at their stated dollar amount on a dollar-for-dollar basis, and in
such denominations or other designations or series so as to preserve
the year of issue (as MCP Colorado deems necessary) and other terms
and conditions of the original issuance; and each unit of equity
participation so exchanged shall be subject on the books of MCP
Colorado to the same obligation for loss allocation as standing on
the books of the Cooperative immediately prior to the Effective Time.
iv. Deferred Patronage and Unallocated Reserve. All deferred patronage
(not exchanged above), unallocated reserves, and any other
unallocated equity interests standing on the books of the Cooperative
immediately prior to the Effective Time shall be exchanged and
credited for equal deferred patronage, unallocated reserves or other
equal unallocated equity interests on the books of MCP Colorado, at
their stated dollar amount on a dollar-for-dollar basis, and in such
denominations or other designations or series so as to preserve the
year of issue (if applicable and as MCP Colorado deems necessary) and
other terms and conditions of the original issuance (if applicable).
v. Net Effect. The net effect of the exchange of Cooperative Equity
Interests for equal Equity Interests in MCP Colorado shall be that
the holders of Cooperative Equity Interests standing on the books of
the Cooperative immediately prior to the Effective Time shall hold
and will have equal Equity Interests in MCP Colorado immediately
following the Effective Time, in terms of stated dollar amount on a
dollar-for-dollar basis, year of issue (as determined necessary),
loss allocation obligations and any other rights and preferences, and
that the deferred patronage, unallocated reserves and other
unallocated Equity Interests of the Cooperative, as standing on its
books immediately prior to the Effective Time, shall be exchanged and
credited for an equal Equity Interest in MCP Colorado immediately
following the Effective Time, in terms of stated dollar amount on a
dollar-for-dollar basis and other rights and preferences.
(d) MCP COLORADO EQUITY INTERESTS. Prior to the Effective Time, the
Cooperative is the sole member of MCP Colorado and all equity interest of
any and every nature in MCP Colorado is owned by and held in the name of the
Cooperative. Upon the Effective Time, the Cooperative, as the merging
entity, shall merge with and into MCP Colorado and shall cease to exist in
its own right. All Equity Interests of any and every nature standing on the
books of MCP Colorado and held by the Cooperative immediately prior to the
Effective Time shall be cancelled.
(e) SURVIVING ENTITY ARTICLES AND BYLAWS TO GOVERN. Membership in MCP
Colorado and all Equity Interests in MCP Colorado whether issued or credited
in exchange for Cooperative Equity Interests or continued with respect to
MCP Colorado Equity Interests as described above, shall in all instances be
governed by the provisions of the Surviving Entity Articles and the
Surviving Entity Bylaws.
(f) FURTHER ASSURANCES OF HOLDERS OF EQUITY. Each holder of Cooperative
Equity Interests and each holder of MCP Colorado Equity Interests shall take
such action or cause to be taken such action as MCP Colorado may reasonably
deem necessary or appropriate to effect the exchange and continuation of the
equity interests hereunder, including without limitation the execution and
delivery of any stock certificates or other evidences of equity being
exchanged or continued hereunder.
SECTION 7. FURTHER ASSURANCES. From time to time and after the Effective
Time, as and when requested by MCP Colorado, or its successors or assigns, the
Cooperative shall execute and deliver or cause to be executed and delivered all
such deeds and other instruments, and shall take or cause to be taken all such
further action or actions, as MCP Colorado, or its successors or assigns, may
deem
A-3
<PAGE>
necessary or desirable in order to vest in and confirm to MCP Colorado, or its
successors or assigns, title to and possession of all of the properties, rights,
privileges, powers and franchises referred to in Section 3 of this Plan, and
otherwise to carry out the intent and purposes of this Plan. If MCP Colorado
shall at any time deem that any further assignments or assurances or any other
acts are necessary or desirable to vest, perfect or confirm of record or
otherwise the title to any property or to enforce any claims of the Cooperative
or MCP Colorado vested in MCP Colorado pursuant to this Plan, the officers of
MCP Colorado or its successors or assigns, are hereby specifically authorized as
attorneys-in-fact of each the Cooperative and MCP Colorado (which appointment is
irrevocable and coupled with an interest), to execute and deliver any and all
such deeds, assignments and assurances and to do all such other acts in the name
and on behalf of each the Cooperative and MCP Colorado, or otherwise, as such
officer shall deem necessary or appropriate to accomplish such purpose.
SECTION 8. EFFECTIVE TIME. The MCP Merger shall become effective at the
later of the filing of the Articles of Merger with the Secretary of State of
Minnesota and the filing of the Statement of Merger with the Secretary of State
of Colorado (the "Effective Time").
SECTION 9. GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the State of Colorado.
IN WITNESS WHEREOF, this Plan has been agreed to and executed by the duly
authorized representatives of the Cooperative and MCP Colorado, as of the date
first set forth above.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
A-4
<PAGE>
APPENDIX B
PLAN OF MERGER
THIS PLAN OF MERGER (the "Plan") is dated as of January __, 1999, and is by
and between MINNESOTA CORN PROCESSORS COLORADO, ("MCP Colorado") and MINNESOTA
CORN PROCESSORS, LLC ("LLC"), each of which may be referred to herein as a
"Constituent Entity" and both of which may be collectively referred to herein as
the "Constituent Entities".
WHEREAS, MCP Colorado is a cooperative association organized under Title 7,
Article 56 of the Colorado Revised Statutes as amended (the "Colorado Act"), and
LLC is a limited liability company organized under Title 7 Article 80 of the
Colorado Revised Statutes as amended (the "LLC Act"), and a wholly owned
subsidiary of MCP Colorado as a result of a merger of Minnesota Corn Processors,
Inc., a Minnesota cooperative association (the "Cooperative"), with and into MCP
Colorado, effective on the date hereof. The LLC Act and the Colorado Act may be
referred to herein collectively as the "Acts"; and
WHEREAS, the Board of Directors and members of MCP Colorado have approved
and adopted this Plan and the transactions contemplated hereby in the manner
required by its Articles of Incorporation and Bylaws, the Colorado Act and other
applicable provisions of Colorado law including specifically the Colorado
Corporations and Associations Act found at Title 7, Article 90 of the Colorado
Revised Statues ("CCA Act"); and
WHEREAS, the Board of Directors and members of LLC have approved and
adopted this Plan and the transactions contemplated hereby in the manner
required by its Articles of Organization and Operating Agreement, the LLC Act
and the CCA Act; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements of the parties contained herein, the parties hereto agree as
follows:
SECTION 1. THE MERGER. On the Effective Time (as defined in Section 8), MCP
Colorado and LLC shall combine through merger (the "LLC Merger") in accordance
with the applicable provisions of the Acts and the CCA Act, and LLC shall be the
surviving entity and shall continue to exist as a Colorado limited liability
company with principal offices at 901 North Highway 59, Marshall, MN 56258-2744,
by virtue of, and shall be governed by, the LLC Act.
SECTION 2. STATEMENT OF MERGER. As soon as practicable following
satisfaction or waiver of all conditions to the consummation of the LLC Merger,
a statement of merger (the "Statement of Merger") shall be executed in
accordance with all legal requirements. The Statement of Merger shall be filed
with the Secretary of State of the State of Colorado or as otherwise required by
law.
SECTION 3. EFFECT OF MERGER. From and after the Effective Time, without any
further action by the Constituent Entities or any of their respective members:
(A) LLC, as the surviving entity in the LLC Merger, shall have all of the
rights, privileges, immunities and powers, and shall be subject to all the
duties and liabilities, of a limited liability company organized under the LLC
Act; (B) LLC, as the surviving entity in the LLC Merger, shall possess all of
the rights, privileges, immunities and franchises, of a public as well as a
private nature, of each Constituent Entity, and all property, real, personal and
mixed, and all debts due on whatever account, including all choses in action,
and each and every other interest of or belonging to or due to each Constituent
Entity, shall be deemed to be and hereby is vested in LLC, without further act
or deed, and the title to any property, or any interest therein, vested in
either Constituent Entity, shall not revert or be in any way impaired by reason
of the LLC Merger; (C) LLC shall be responsible and liable for all of the
liabilities and obligations of each Constituent Entity, and any claim existing
or action or proceeding pending by or against one of the Constituent Entities
may be prosecuted as if the LLC Merger had not taken place or LLC may be
substituted in its place; (D) neither the rights of creditors nor any liens upon
the property of either of the Constituent Entity shall be impaired by the LLC
Merger; and (E) the LLC Merger shall have any other effect set forth in the
Acts, the CCA Act, and the Transaction Agreement dated January __, 1999 between
the Cooperative, MCP
B-1
<PAGE>
Colorado and LLC (the "Transaction Agreement"); all with the effect and to the
extent provided in the applicable provisions of Colorado law.
SECTION 4. ARTICLES OF ORGANIZATION; OPERATING AGREEMENT. From and after
the Effective Time, pursuant to the Statement of Merger and without any further
action by the Constituent Entities or any of their respective members, the
Articles of Organization of LLC in effect immediately prior to the Effective
Time shall be the Articles of Organization of LLC, as the surviving entity in
the LLC Merger (the "Surviving Entity Articles"). From and after the Effective
Time, without any further action by the Constituent Entities or any of their
respective members, the Operating Agreement of LLC as in effect immediately
prior to the Effective Time shall be the Operating Agreement of LLC, as the
surviving entity in the LLC Merger (the "Surviving Entity Operating Agreement").
A copy of the Surviving Entity Articles of Organization and Operating Agreement
was provided to the respective members of each Constituent Cooperative in
connection with their consideration of the LLC Merger.
SECTION 5. BOARD OF DIRECTORS. From and after the Effective Time, without
any further action by the Constituent Cooperatives or any of their respective
members, each person serving as a director or an officer of MCP Colorado
immediately prior to the Effective Time shall be a director or an officer of
LLC, as the surviving entity in the LLC Merger, (in the case of officers,
holding the same office in LLC as they held in MCP Colorado immediately prior to
the Effective Time) to serve in accordance with the Surviving Entity Operating
Agreement. The initial directors and officers of LLC prior to the effective date
shall resign their positions as directors and officers of LLC as of the
effective date.
SECTION 6. EXCHANGE, REDESIGNATION AND CONVERSION OF CAPITAL STOCK,
NON-STOCK EQUITY INTERESTS, PATRONS' EQUITIES AND MEMBERSHIPS. On the Effective
Time, the manner and basis of exchanging or converting the shares of capital
stock, non-stock equity interests, units of equity participation, non-voting
units of equity participation, patronage equity interests (including all
entitlements to patronage refunds), any other allocated equity interests, and
unallocated and capital reserves of MCP Colorado and LLC (all such interests
referred to herein as "MCP Colorado Equity Interests" or "LLC Equity Interests",
respectively), and membership interests in MCP Colorado and LLC, for
proportionally equivalent Equity Interests and equal membership interests in
LLC, shall be as follows:
(A) EXCHANGE AND CONTINUATION OF MCP COLORADO MEMBERSHIPS. As of the
Effective Time, without any further action by the Constituent Entities or
any of their respective members, (i) each member and holder of Units of
Participation of MCP Colorado shall become and be a Class A member of LLC,
to the extent they are eligible for membership under the Surviving Entity
Articles and the Surviving Entity Operating Agreement, and (ii) each holder
of non-voting Units of Participation of MCP Colorado shall become and be a
Class B member of LLC. Class A and Class B members shall have such incidents
of membership as are set forth in the Surviving Entity Articles and the
Surviving Entity Operating Agreement.
(B) LLC MEMBERSHIP. As of the Effective Time, without any further action
by the Constituent Entities or any of their respective members, MCP
Colorado, as the sole member of LLC, shall cease to exist by operation of
the merger and shall also cease to be a member of LLC.
(C) EXCHANGE AND CONTINUATION OF MCP COLORADO EQUITY INTERESTS. As of the
Effective Time, without any further action by the Constituent Entities or
any of their respective members, all MCP Colorado Equity Interests standing
on the books of` MCP Colorado immediately after the consummation of the
merger of The Cooperative with and into MCP Colorado, and immediately prior
to the Effective Time shall be determined and exchanged for proportionally
equivalent Equity Interests in LLC as follows:
I. VOTING UNITS OF EQUITY PARTICIPATION. Each voting unit of equity
participation standing on the books of MCP Colorado and held by
members of MCP Colorado ("Member Equity") immediately prior to the
Effective Time shall cease to be outstanding and shall be exchanged
for one Class A Unit of LLC; and each Class A Unit of LLC so
exchanged shall be subject on the books of LLC to the same
obligation for loss allocation as standing on the books of MCP
Colorado immediately prior to the Effective Time.
II. NON-VOTING UNITS OF EQUITY PARTICIPATION. Each non-voting unit of
equity participation standing on the books of MCP Colorado and held
by non-members of MCP Colorado
B-2
<PAGE>
("Non-Member Equity") immediately prior to the Effective Time shall
cease to be outstanding and shall be exchanged for one Class B Unit
of LLC.
III. COMMON STOCK. All shares of common stock standing on the books of
MCP Colorado immediately prior to the Effective Time shall be
cancelled and shall cease to exist.
IV. NONQUALIFIED PATRONAGE REFUNDS. All nonqualified patronage refunds
standing on the books of MCP Colorado immediately prior to the
Effective Time shall be converted into nonvoting financial interests
of LLC having the same stated dollar amount, years of issue (as LLC
deems necessary) and other terms and conditions as applicable to
such nonqualified patronage refunds immediately prior to the
Effective Time.
(D) LLC EQUITY INTERESTS. Prior to the Effective Time, MCP Colorado is
the sole member of LLC and all equity interest of any and every nature in
LLC is owned by and held in the name of MCP Colorado. Upon the Effective
Time, MCP Colorado, as the merging entity, shall merge with and into LLC and
shall cease to exist in its own right. All Equity Interests of any and every
nature standing on the books of LLC immediately prior to the Effective Time
shall be cancelled.
(E) SURVIVING ENTITY ARTICLES AND OPERATING AGREEMENT TO GOVERN.
Membership in LLC and all Equity Interests in LLC issued or credited in
exchange for MCP Colorado Equity Interests and continued with respect to LLC
Equity as described above, shall in all instances be governed by the
provisions of the Surviving Entity Articles and the Surviving Entity
Operating Agreement.
(F) FURTHER ASSURANCES OF HOLDERS OF EQUITY. Each holder of MCP Colorado
Equity Interests and each holder of LLC Equity Interests shall take such
action or cause to be taken such action as LLC may reasonably deem necessary
or appropriate to effect the exchange and continuation of the equity
interests hereunder, including without limitation the execution and delivery
of any stock certificates or other evidences of equity being exchanged or
continued hereunder.
SECTION 7. FURTHER ASSURANCES. From time to time and after the Effective
Time, as and when requested by LLC, or its successors or assigns, MCP Colorado
shall execute and deliver or cause to be executed and delivered all such deeds
and other instruments, and shall take or cause to be taken all such further
action or actions, as LLC, or its successors or assigns, may deem necessary or
desirable in order to vest in and confirm to LLC, or its successors or assigns,
title to and possession of all of the properties, rights, privileges, powers and
franchises referred to in Section 3 of this Plan, and otherwise to carry out the
intent and purposes of this Plan. If LLC shall at any time deem that any further
assignments or assurances or any other acts are necessary or desirable to vest,
perfect or confirm of record or otherwise the title to any property or to
enforce any claims of MCP Colorado or LLC vested in LLC pursuant to this Plan,
the officers of LLC or its successors or assigns, are hereby specifically
authorized as attorneys-in-fact of each MCP Colorado and LLC (which appointment
is irrevocable and coupled with an interest), to execute and deliver any and all
such deeds, assignments and assurances and to do all such other acts in the name
and on behalf of each MCP Colorado and LLC, or otherwise, as such officer shall
deem necessary or appropriate to accomplish such purpose.
SECTION 8. EFFECTIVE DATE. The LLC Merger shall become effective at the
time of filing of the Statement of Merger with the Secretary of State of
Colorado (the "Effective Time").
SECTION 9. GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the State of Colorado.
B-3
<PAGE>
IN WITNESS WHEREOF, this Plan has been agreed to and executed by the duly
authorized representatives of MCP Colorado and LLC, as of the date first set
forth above.
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
B-4
<PAGE>
APPENDIX C
-------------------------------
-------------------------------
TRANSACTION AGREEMENT
by and among
MINNESOTA CORN PROCESSORS, INC.
a Minnesota cooperative association
and
MINNESOTA CORN PROCESSORS COLORADO,
a Colorado cooperative association
and
MINNESOTA CORN PROCESSORS, LLC
a Colorado limited liability company
Dated as of January __, 1999
-------------------------------
-------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I
OVERVIEW OF THE TRANSACTIONS .................................................... 1
Section 1.01 Purpose ............................................................ 1
Section 1.02 The MCP Merger ..................................................... 1
Section 1.03 The LLC Merger ..................................................... 2
Section 1.04 The Closing ........................................................ 2
Section 1.05 Actions at the Closing ............................................. 2
Section 1.06 Effective Time ..................................................... 2
Section 1.07 Effect of the Mergers .............................................. 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE ............................... 3
Section 2.01 Representations and Warranties of the Cooperative .................. 3
Section 2.02 Organization and Good Standing ..................................... 3
Section 2.03 Capital Stock and Equity Participation Units ....................... 3
Section 2.04 Financial Statements ............................................... 4
Section 2.05 Undisclosed Liabilities ............................................ 4
Section 2.06 Compliance with Applicable Laws .................................... 4
Section 2.07 Legal Proceedings .................................................. 4
Section 2.08 Absence of Defaults ................................................ 4
Section 2.09 Authorization ...................................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MCP COLORADO .................................. 5
Section 3.01 Representations and Warranties of MCP Colorado ..................... 5
Section 3.02 Organization and Good Standing ..................................... 5
Section 3.03 Capital Stock ......................................................
Section 3.04 Authorization ...................................................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LLC ........................................... 6
Section 4.01 Representations and Warranties of LLC .............................. 6
Section 4.02 Organization and Good Standing ..................................... 6
Section 4.03 Capital Stock ...................................................... 6
Section 4.04 Authorization ...................................................... 7
ARTICLE V
COVENANTS ....................................................................... 7
Section 5.01 Reasonable Best Efforts ............................................ 7
Section 5.02 Conduct of Business ................................................ 8
Section 5.03 Forbearances ....................................................... 8
Section 5.04 Meetings of Members ................................................ 9
Section 5.05 Access ............................................................. 9
Section 5.06 Notice of Developments ............................................. 9
Section 5.07 Exclusivity ........................................................ 9
Section 5.08 Registration Statement ............................................. 9
ARTICLE VI
CONDITIONS PRECEDENT ............................................................ 10
Section 6.01 Conditions to Obligations of Each Party to the MCP Merger .......... 10
Section 6.02 Conditions to Obligations of Each Party to the LLC Merger .......... 10
Section 6.03 Additional Conditions to Obligation of the Cooperative ............. 11
Section 6.04 Additional Conditions to Obligation of MCP Colorado ................ 12
Section 6.05 Additional Conditions to Obligation of LLC ......................... 12
</TABLE>
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<TABLE>
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ARTICLE VII
POST CLOSING AGREEMENTS ................................................... 13
Section 7.01 Employee Benefit Plans ....................................... 13
Section 7.02 Patronage Distributions ...................................... 13
Section 7.03 1996 Loss Payable ............................................ 13
Section 7.04 Indemnification; Directors' and Officers' Insurance .......... 13
ARTICLE VIII
TERMINATION ............................................................... 14
Section 8.01 Termination of Agreement ..................................... 14
Section 8.02 Effect of Termination ........................................ 14
ARTICLE IX
MISCELLANEOUS ............................................................. 14
Section 9.01 Waiver ....................................................... 14
Section 9.02 Amendment .................................................... 15
Section 9.03 Binding Nature ............................................... 15
Section 9.04 Counterparts ................................................. 15
Section 9.05 Entire Agreement ............................................. 15
Section 9.06 Notices ...................................................... 15
Section 9.07 Nonsurvival of Representations and Warranties ................ 16
Section 9.08 Captions ..................................................... 16
</TABLE>
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TRANSACTION AGREEMENT
THIS TRANSACTION AGREEMENT ( "Agreement") is made and entered into as of
January , 1999, by and among MINNESOTA CORN PROCESSORS, a Minnesota cooperative
association (the "Cooperative"), MINNESOTA CORN PROCESSORS COLORADO, a Colorado
cooperative association ("MCP Colorado") and MINNESOTA CORN PROCESSORS, LLC, a
Colorado limited liability company ("LLC").
WHEREAS, the Cooperative, MCP Colorado, and LLC are each organized to
benefit and serve their respective members and patrons; and
WHEREAS, the parties believe the interests of their respective members will
best be benefitted and served if the parties reorganize their business
operations and corporate structure whereby: (i) the Cooperative will merge into
MCP Colorado, with MCP Colorado being the surviving entity (the "MCP Merger");
and (ii) MCP Colorado will then merge into LLC, with LLC being the surviving
entity (the "LLC Merger"); the MCP Merger and the LLC Merger may be referred to
in this Agreement individually as a "Merger" or "Transaction" and collectively
as the "Mergers" or "Transactions"; and
WHEREAS, the parties have now agreed on the final terms and conditions of
the Mergers, and wish to: (i) memorialize these agreements as more particularly
described herein; and (ii) enter into this Agreement for the purpose of
effecting the Mergers;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants herein contained, the parties hereto
agree as follows:
ARTICLE I
OVERVIEW OF THE TRANSACTIONS
SECTION 1.01. PURPOSE. The purpose of the transactions contemplated by this
Agreement is to reorganize the corporate structure of the Cooperative from a
Minnesota cooperative association into a Colorado limited liability company.
This reorganization will be accomplished through a two-step merger process.
First, the Cooperative shall merge with and into Cooperative Colorado. Second,
Cooperative Colorado will merge with and into LLC. The MCP Merger and the LLC
Merger are separate and distinct transactions, and each Merger shall be
individually consummated. Although the Mergers are separate transactions,
consummation of the LLC Merger is contingent upon consummation of the MCP
Merger. Upon completion of both Mergers, the Cooperative and MCP Colorado will
cease to exist and LLC will continue as the sole surviving entity.
SECTION 1.02 THE MCP MERGER. Subject to the terms and conditions set forth
in this Agreement and the Plan of Merger attached hereto as Exhibit A (the "MCP
Merger Agreement), the Cooperative will merge with and into MCP Colorado. MCP
Colorado shall be the surviving entity (the "Surviving Colorado Entity").
Immediately after completion of the MCP Merger and without any further action by
its board of directors and members, MCP Colorado, as the Surviving Colorado
Entity, shall merge with and into LLC as described in Section 1.03 hereof.
SECTION 1.03 THE LLC MERGER. Subject to the terms and conditions set forth
in this Agreement and the Plan of Merger attached hereto as Exhibit B (the "LLC
Merger Agreement), MCP Colorado will merge with and into LLC. LLC shall be the
surviving entity (the "Surviving Entity"), and thereafter shall continue to
exist and operate as Minnesota Corn Processors, LLC under the laws of the State
of Colorado.
SECTION 1.04 THE CLOSING. The closing of the Mergers (the "Closing") will
take place on the date the Effective Time occurs at the offices of Dorsey &
Whitney, LLC, 220 South Sixth Street, Minneapolis, Minnesota 55402 or on such
other date and/or at such other place as the parties may agree.
SECTION 1.05 ACTIONS AT THE CLOSING. At the Closing, the parties shall
take the following actions:
(a) MCP Merger. The Cooperative and MCP Colorado shall (i) execute the
MCP Merger Agreement, (ii) execute and deliver to each other the various
certificates, instruments, and documents
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referred to in the MCP Merger Agreement, and (iii) execute and file with the
Secretary of State of the States of Minnesota and Colorado articles of merger as
required by the laws of the States of Minnesota and Colorado to effectuate the
merger in accordance with the terms of the MCP Merger Agreement.
(b) LLC Merger. MCP Colorado and LLC shall (i) execute the LLC Merger
Agreement, (ii) execute and deliver to each other the various certificates,
instruments, and documents referred to in the LLC Merger Agreement, and (iii)
execute and file with the Colorado Secretary of State a statement of merger as
required by the laws of the State of Colorado to effectuate the merger in
accordance with the terms of the LLC Merger Agreement.
SECTION 1.06 EFFECTIVE TIME. Each of the Mergers shall become effective on
the date on which the articles of merger and statement of merger have been duly
filed in the respective offices of the Minnesota and Colorado Secretary of State
as required by law (the "Effective Time"). At any time after the Effective Time,
LLC as the Surviving Entity may take any action (including executing and
delivering any document) in the name and on behalf of any party to this
Agreement in order to carry out and effectuate the transactions contemplated by
this Agreement.
SECTION 1.07 EFFECT OF THE MERGERS.
(a) Articles of Organization and Operating Agreement. The Articles of
Organization of LLC attached hereto as Exhibit C and the Operating Agreement of
LLC attached hereto as Exhibit D shall become the Articles of Organization and
the Operating Agreement of the Surviving Entity.
(b) Directors and Officers. The officers and directors of the Cooperative
at the Effective Time shall, from and after the Effective Time, be the directors
and officers of LLC (the "LLC Directors and Officers") to serve until their
respective terms have expired and their successors have been duly elected and
qualified in accordance with the terms of LLC's Operating Agreement. The terms
of the LLC Directors and Officers shall expire on the date each such director's
or officer's term would have expired under Article III Section 1 of the
Cooperative's Amended and Restated Bylaws had the Mergers not occurred. At the
Effective Time, the initial directors and officers of MCP Colorado and LLC
immediately prior to the Effective Time shall resign as directors and officers
of MCP Colorado and LLC, respectively.
(c) Stock and Units of Equity Participation. At the Effective Time,
without any further action by the parties or any of their respective members,
and as further described in the MCP Merger Agreement and the LLC Merger
Agreement:
(i) Each member of the Cooperative prior to the Effective Time shall
first become a member of MCP Colorado as a result of the MCP Merger and then
shall automatically become a member of LLC as the Surviving Entity upon
consummation of the LLC Merger; and
(ii) Upon consummation of the MCP Merger, (1) the stock and units of
equity participation held by each member and each nonmember of the
Cooperative shall be automatically converted into like forms and amounts
(on a one-for-one basis) of stock and units of equity participation of MCP
Colorado and (2) all stock of MCP Colorado owned by the Cooperative shall
be cancelled without payment of any consideration therefor. Upon
consummation of the LLC Merger, (1) each unit of equity participation of
MCP Colorado shall automatically be converted into one Class A Unit (for
voting members) or one Class B Unit (for nonvoting members) of LLC and (2)
each outstanding share of common stock of MCP Colorado shall be cancelled.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE
SECTION 2.01. REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE. The
Cooperative represents and warrants to MCP Colorado that the statements
contained in this Article II are correct and complete in all material respects
as of the date of this Agreement, except as set forth in the Cooperative
Disclosure Schedule delivered by the Cooperative to MCP Colorado attached hereto
(the "Cooperative Disclosure Schedule").
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SECTION 2.02 ORGANIZATION AND GOOD STANDING. The Cooperative is a
cooperative association duly organized and existing under Chapter 308A of the
Minnesota Statutes (as amended, the "Cooperative Act"), is in good standing
under the laws of the State of Minnesota, and has all requisite corporate power
and authority to own its properties and conduct its business as it is presently
being conducted. The Cooperative is duly qualified to do business and is in good
standing in each jurisdiction in which it conducts business or owns or leases
properties of a nature which would require such qualification.
SECTION 2.03 CAPITAL STOCK AND EQUITY PARTICIPATION UNITS. As of the date
hereof, the authorized capital stock of the Cooperative consists solely of
100,000 shares of common stock, of which 28,321 are issued and outstanding, and
100,000 shares of preferred stock, none of which are issued and outstanding. A
total of 195,696,031 units of equity participation (voting and nonvoting) are
issued and outstanding. The outstanding shares of common stock and units of
equity participation have been duly authorized and are validly issued and
outstanding.
SECTION 2.04 FINANCIAL STATEMENTS. The Cooperative has delivered to MCP
Colorado its audited financial statements as of March 31, 1998, accompanied by
the opinion of Clifton, Gunderson, LLC and its unaudited financial statements as
of September 30, 1998, certified by the Treasurer of the Cooperative. Such
financial statements fairly present the financial position of the Cooperative at
the dates indicated therein and the results of its operation for the periods
indicated therein, in conformity with generally accepted accounting principles
consistently applied. There has been no material adverse change in the financial
condition or results of operations of the Cooperative since the date of such
financial statements.
SECTION 2.05 UNDISCLOSED LIABILITIES. Except for those liabilities
reflected in the financial statements referred to in Section 2.04 and for
liabilities incurred in the ordinary course of business since September 30,
1998, the Cooperative has not incurred a liability that, either individually or
in the aggregate, has had or will have a material adverse effect on the
Cooperative.
SECTION 2.06 COMPLIANCE WITH APPLICABLE LAWS. The Cooperative is in
compliance with all applicable laws and regulations the violation of which would
have a material adverse effect on the Cooperative or on its business as
currently conducted. The Cooperative has all material licenses and permits
required by law or otherwise necessary for the proper operation of its business
as currently conducted, all of such licenses and permits are in full force and
effect, and no action to terminate, withdraw, not renew or materially limit or
otherwise change any such license or permit is pending or has been threatened by
any governmental agency or other party.
SECTION 2.07 LEGAL PROCEEDINGS. There is no material action, proceeding or
investigation by any administrative or regulatory body or other person which has
been commenced or is pending, or to the best of the Cooperative's knowledge
after reasonable inquiry, is threatened against the Cooperative or any of the
assets which are owned by the Cooperative.
SECTION 2.08 ABSENCE OF DEFAULTS. The Cooperative is not in any material
respect in default under any provision of its Articles of Incorporation or
Bylaws or any material indenture, mortgage, loan agreement or other material
agreement to which it is a party or by which it is bound, and the Cooperative is
not in violation of any statute, order, rule or regulation of any court or
governmental agency having jurisdiction over it or its properties which if
enforced could have a material adverse effect on its business, and except for
any consent or approval identified on Exhibit E attached hereto, neither the
execution and delivery of this Agreement nor the consummation of the
Transactions in accordance with this Agreement will in any material respect
conflict with or result in a breach of any of the foregoing, which if enforced
could have a material adverse effect on its business.
SECTION 2.09 AUTHORIZATION. The Cooperative has the corporate power and
authority to execute and to perform its obligations under this Agreement
(subject to the approval of its members as required by Section 6.01(a)). This
Agreement and the Transaction have been duly and validly authorized by the Board
of Directors of the Cooperative, and, except for the approval of its members as
required by Section 6.01(a), no other corporate action is required by the
Cooperative in connection with this Agreement or the Transaction. This Agreement
constitutes the valid and binding agreement of the Cooperative, enforceable
against the Cooperative in accordance with its terms, except to the extent such
enforcement may be limited by the application of equitable principles where
equitable relief is sought or bankruptcy and other laws relating to the
enforcement of creditors, rights generally.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MCP COLORADO
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF MCP COLORADO. MCP Colorado
represents and warrants to the Cooperative and LLC that the statements contained
in this Article III are correct and complete in all material respects as of the
date of this Agreement, except as set forth in the MCP Colorado Disclosure
Schedule attached hereto (the "MCP Colorado Disclosure Schedule").
SECTION 3.02 ORGANIZATION AND GOOD STANDING. MCP Colorado is a cooperative
association duly organized and existing under the Colorado Cooperative Act, is
in good standing under the laws of the State of Colorado, and has all requisite
corporate power and authority to own its properties and conduct its business as
it is presently being conducted. MCP Colorado is duly qualified to do business
and is in good standing in each jurisdiction in which it conducts business or
owns or leases properties of a nature which would require such qualification.
SECTION 3.03 CAPITAL STOCK. As of the date hereof, the authorized capital
stock of MCP Colorado consists of 100,000 shares of common stock, of which one
share is issued and outstanding, and 100,000 shares of preferred stock, of which
none are issued and outstanding.
SECTION 3.04 AUTHORIZATION. MCP Colorado has the corporate power and
authority to execute and to perform its obligations under this Agreement
(subject to the approval of its members as required by Sections 6.01(b) and
6.02(a)). This Agreement and the Transaction have been duly and validly
authorized by the Board of Directors of MCP Colorado, and except for the
approvals of its members and defined members as required by Sections 6.01(b) and
6.02(a) no other corporate action is required by MCP Colorado in connection with
this Agreement or the Transactions. This Agreement constitutes the valid and
binding agreement of MCP Colorado, enforceable against MCP Colorado in
accordance with its terms, except to the extent such enforcement may be limited
by the application of equitable principles where equitable relief is sought or
bankruptcy and other laws relating to the enforcement of creditors, rights
generally.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LLC
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF LLC. LLC represents and
warrants to MCP Colorado that the statements contained in this Article IV are
correct and complete in all material respects as of the date of this Agreement,
except as set forth in the LLC Disclosure Schedule delivered by LLC to MCP
Colorado attached hereto (the "LLC Disclosure Schedule").
SECTION 4.02 ORGANIZATION AND GOOD STANDING. LLC is a limited liability
company duly organized and existing under the Colorado Limited Liability Company
Act, is in good standing under the laws of the State of Colorado, and has all
requisite corporate power and authority to own its properties and conduct its
business as it is presently being conducted. LLC is duly qualified to do
business and is in good standing in each jurisdiction in which it conducts
business or owns or leases properties of a nature which would require such
qualification.
SECTION 4.03 CAPITAL STOCK. As of the date hereof, the authorized capital
stock of LLC consists of 350,000,000 Class A units and 150,000,000 Class B
units, of which none are issued and outstanding, respectively.
SECTION 4.04 AUTHORIZATION. LLC has the corporate power and authority to
execute and to perform its obligations under this Agreement. This Agreement and
the Transaction have been duly and validly authorized by the Board of Directors
of LLC, and, except for the approval of its members as required by Section
6.02(b), no other corporate action is required by LLC in connection with this
Agreement or the Transaction. This Agreement constitutes the valid and binding
agreement of LLC, enforceable against LLC in accordance with its terms, except
to the extent such enforcement may be limited by the application of equitable
principles where equitable relief is sought or bankruptcy and other laws
relating to the enforcement of creditors, rights generally.
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ARTICLE V
COVENANTS
SECTION 5.01 REASONABLE BEST EFFORTS. Each party agrees to cooperate with
the other parties hereto and to use its reasonable best efforts in good faith to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or desirable, or advisable under applicable laws, so as
to permit consummation of the Mergers as promptly as practicable. In addition,
each party shall cooperate and use its reasonable best efforts to prepare all
documentation, to effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties necessary to consummate the
Transactions contemplated by this Agreement.
SECTION 5.02 CONDUCT OF BUSINESS. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated by this
Agreement, each of the Cooperative and MCP Colorado shall conduct its business
in the ordinary course and in a manner consistent with its past practices
(except as expressly contemplated hereby), and shall use good faith efforts to
preserve intact its business organization, properties (except as they may be
sold, used or otherwise disposed of in the ordinary course) and the good will of
its members, suppliers, customers and others having business relationships with
it.
SECTION 5.03 FORBEARANCES. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated by this
Agreement, without the prior consent of the other party to this Agreement,
neither party shall:
(a) grant to any person any option or other right to acquire capital
stock or other equity interests, except for allocation of patronage equities in
a manner consistent with past practice;
(b) issue any additional shares or units of capital stock and other
equity interests, except in the ordinary course of business and consistent with
past practice;
(c) enter into, amend or terminate any material contract, lease or
understanding;
(d) amend its Articles of Incorporation or Articles of Organization, as
the case may be, its Bylaws or Operating Agreement, as the case may be, or any
board policies;
(e) incur any indebtedness for borrowed money or make any commitment to
borrow money, except indebtedness incurred in the ordinary course of business
pursuant to credit arrangements existing as of the date of this Agreement
(including any renewals thereof);
(f) make any material capital expenditures other than in the ordinary
course of business or which were disclosed to the other party;
(g) mortgage any of its assets or properties, or except in the ordinary
course of business, sell any of its material assets or properties;
(h) pay any dividends or make any distributions with respect to its
capital stock or equity interests, except in the ordinary course of business;
(i) reclassify, combine, subdivide, split, or amend its capital stock or
equity interests;
(j) purchase, acquire or redeem any shares of its capital stock or equity
interests, except in the ordinary course of business; or
(k) agree or commit to do any of the foregoing.
SECTION 5.04 MEETINGS OF MEMBERS. Each of the Cooperative and MCP Colorado
will take all steps necessary to call an appropriate meeting of its respective
members, for the purpose of considering and voting on this Agreement and its
respective Merger in accordance with its respective Articles of Incorporation,
Bylaws and applicable law.
SECTION 5.05 ACCESS. Each party will permit the authorized representatives
of the other parties to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of such party,
to all premises, properties, personnel, books, records (including tax records),
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contracts, and documents of or pertaining to such party, and will furnish them
such additional financial and operating data and other information concerning
its business and properties as such other parties may from time to time
reasonably request. Each of the parties will use their best efforts to cause all
confidential information obtained by it from the other parties to be treated as
such, will also use its best efforts not to use such information in a manner
detrimental to such party and, if for any reason the Transactions are not
consummated, will promptly return all documents, papers, books, records and
other materials (and all copies thereof) obtained in the course of its
investigation and evaluation.
SECTION 5.06 NOTICE OF DEVELOPMENTS. Each party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties contained herein. Except as specified
in such written notice, no disclosure by a party pursuant to this Section 5.06
shall be deemed to amend or supplement such party's Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
SECTION 5.07 EXCLUSIVITY. Except for the Transactions contemplated by this
Agreement, none of the parties will (i) solicit, initiate, or encourage the
submission of any proposal or offer from any person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of such party (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
person to do or seek any of the foregoing. Each party will notify the other
party immediately if any person makes any proposal, offer, inquiry, or contact
with respect to any of the foregoing.
SECTION 5.08 REGISTRATION STATEMENT. LLC shall promptly prepare and file
with the SEC a Registration Statement on Form S-4 (the "Registration Statement")
in connection with the issuance of Class A and Class B units in the LLC Merger.
The parties shall use their reasonable best efforts to have the Registration
Statement declared effective under the Securities Act of 1933 (the "Securities
Act") as promptly as practicable after such filing, and the parties shall
thereafter mail or deliver the Information Statement Prospectus, which
constitutes a part of the Registration Statement, to their respective members.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO THE MCP MERGER. The
respective obligations of the Cooperative and MCP Colorado to consummate the MCP
Merger and other matters described in this Agreement, are subject to the
satisfaction or waiver of each of the following conditions on or before the
Effective Time, except that condition (f) must be satisfied and cannot be waived
by either party:
(a) The members of the Cooperative shall have approved this Agreement and
the MCP Merger Agreement, all in accordance with the requirements of applicable
law and the Articles of Incorporation and Bylaws of the Cooperative;
(b) The members of MCP Colorado shall have approved the MCP Merger
Agreement and this Agreement all in accordance with the requirements of
applicable law and the Articles of Incorporation and Bylaws of MCP Colorado;
(c) No injunction, restraining order or order of any nature issued by any
court of competent jurisdiction, government or governmental agency enjoining the
Transaction shall have been issued and remain in effect;
(d) All consents, approvals and waivers which are necessary in connection
with the Transactions, or any part thereof, shall have been obtained, including
the consents and approvals referred to in Exhibits E and F attached hereto;
(e) No action shall have been threatened or instituted by any
governmental agency or any other person challenging the legality of the
Transactions, seeking to prevent or delay consummation of
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the Transactions or seeking to obtain divestiture or other relief in the event
of consummation of the Transactions. It is understood in the event that such an
action is threatened or instituted, the parties will first attempt for a period
of 90 days to obtain dismissal or other favorable resolution of such threatened
or actual action prior to exercise of their right to terminate hereunder;
(f) The members of MCP Colorado shall have approved the LLC Merger
Agreement and this Agreement as set forth in Section 6.02(a); and
(g) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
SECTION 6.02 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO THE LLC MERGER. The
respective obligations of MCP Colorado and LLC to consummate the LLC Merger and
other matters described in this Agreement, are subject to the satisfaction or
waiver of each of the following conditions on or before the Effective Time,
except that condition (f) must be satisfied and cannot be waived by either
party:
(a) The members of MCP Colorado shall have approved this Agreement and
the LLC Merger Agreement, all in accordance with the requirements of applicable
law and the Articles of Incorporation and Bylaws of MCP Colorado;
(b) No injunction, restraining order or order of any nature issued by any
court of competent jurisdiction, government or governmental agency enjoining the
Transaction shall have been issued and remain in effect;
(c) All consents, approvals and waivers which are necessary in connection
with the Transactions, or any part thereof, shall have been obtained, including
the consents and approvals referred to in Exhibits E and F attached hereto;
(d) No action shall have been threatened or instituted by any
governmental agency or any other person challenging the legality of the
Transactions, seeking to prevent or delay consummation of the Transactions or
seeking to obtain divestiture or other relief in the event of consummation of
the Transactions. It is understood in the event that such an action is
threatened or instituted, the parties will first attempt for a period of 90 days
to obtain dismissal or other favorable resolution of such threatened or actual
action prior to exercise of their right to terminate hereunder;
(e) The members of the Cooperative and MCP Colorado shall have approved
the MCP Merger Agreement and this Agreement as set forth in Section 6.01(a) and
6.01(b), and the MCP Merger should be consummated; and
(f) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
SECTION 6.03 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COOPERATIVE. THE
OBLIGATION OF THE COOPERATIVE TO CONSUMMATE THE MCP MERGER IS SUBJECT TO THE
SATISFACTION OR WAIVER OF EACH OF THE FOLLOWING ADDITIONAL CONDITIONS AT OR
BEFORE THE EFFECTIVE TIME:
(a) The representations and warranties of MCP Colorado contained in this
Agreement shall be true and correct in all material respects as of the Effective
Time as though such representations and warranties were made on and as of the
Effective Time, and MCP Colorado shall have performed in all material respects
all obligations required to be performed by it under this Agreement and the MCP
Merger Agreement prior to the Effective Time;
(b) The Cooperative shall have received a certificate, dated as of the
Effective Time, and executed by the President of MCP Colorado, certifying in
such detail as the Cooperative may reasonably request as to the accuracy of such
representations and warranties, the fulfillment of such obligations, compliance
with such covenants and satisfaction of the conditions to the Cooperative's
obligation as of the Effective Time; and
(c) All actions, proceedings and documents necessary to carry out the
Transactions (including, without limitation, the MCP Colorado Disclosure
Schedule) shall be reasonably satisfactory to the Cooperative.
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SECTION 6.04 ADDITIONAL CONDITIONS TO OBLIGATION OF MCP COLORADO. The
obligation of MCP Colorado to consummate the MCP Merger and the LLC Merger is
subject to the satisfaction or waiver of each of the following additional
conditions at or before the Effective Time:
(a) The representations and warranties of the Cooperative and LLC
contained in this Agreement shall be true and correct in all material respects
as of the Effective Time as though such representations and warranties were made
on and as of the Effective Time, and the Cooperative and LLC shall have
performed in all material respects all of their respective obligations required
to be performed by each of them under this Agreement, the MCP Merger Agreement,
and the LLC Merger Agreement prior to the Effective Time;
(b) No fact, event or circumstance shall have occurred or become known to
MCP Colorado after the date hereof that alone, or together with all other facts,
events or circumstances, has had or is reasonably likely to have a material
adverse effect on the Cooperative or the Surviving Entity;
(c) MCP Colorado shall have received a certificate, from each of the
Cooperative and LLC dated as of the Effective Time, executed by their
Presidents, certifying in such detail as MCP Colorado may reasonably request as
to the accuracy of their representations and warranties, the fulfillment of
their obligations, compliance with their covenants and satisfaction of the
conditions to MCP Colorado's obligations as of the Effective Time; and
(d) All actions, proceedings and documents necessary to carry out the
Transaction (including, without limitation, the Cooperative Disclosure Schedule
and LLC Disclosure Schedule) shall be reasonably satisfactory to MCP Colorado.
SECTION 6.05 ADDITIONAL CONDITIONS TO OBLIGATION OF LLC. The obligation of
LLC to consummate the LLC Merger is subject to the satisfaction or waiver of
each of the following additional conditions at or before the Effective Time:
(a) The representations and warranties of MCP Colorado contained in this
Agreement shall be true and correct in all material respects as of the Effective
Time as though such representations and warranties were made on and as of the
Effective Time, and MCP Colorado shall have performed in all material respects
all obligations required to be performed by it under this Agreement and the LLC
Merger Agreement prior to the Effective Time;
(b) No fact, event or circumstance shall have occurred or become known to
LLC after the date hereof that alone, or together with all other facts, events
or circumstances, has had or is reasonably likely to have a material adverse
effect on MCP Colorado;
(c) LLC shall have received a certificate, dated as of the Effective
Time, and executed by the President of MCP Colorado, certifying in such detail
as LLC may reasonably request as to the accuracy of such representations and
warranties, the fulfillment of such obligations, compliance with such covenants
and satisfaction of the conditions to LLC's obligation as of the Effective Time;
and
(d) All actions, proceedings and documents necessary to carry out the
Transactions (including, without limitation, the MCP Colorado Disclosure
Schedule) shall be reasonably satisfactory to LLC.
ARTICLE VII
POST CLOSING AGREEMENTS
SECTION 7.01 EMPLOYEE BENEFIT PLANS. From and after the Effective Time, the
employee benefit plans of the Cooperative in effect as of the date of this
Agreement shall remain in effect with respect to employees of the Cooperative
(or their subsidiaries) covered by such plans at the Closing Date until such
time as LLC shall, subject to applicable law and the terms of such plans, adopt
new benefit plans with respect to employees of LLC. LLC agrees to honor in
accordance with their terms all benefits vested as of the date hereof under the
employee benefit plans of the Cooperative. Nothing in this Section 7.01 shall be
interpreted as preventing LLC from amending, modifying or terminating any
employee benefit plan of the Cooperative or other contracts, arrangements,
commitments or understandings, in accordance with their terms and applicable
law.
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SECTION 7.02 PATRONAGE DISTRIBUTIONS. Following the Effective Time and
within the time period required by the various provisions of the Code, the
Surviving Entity will make patronage distributions to the former members of each
party based on patronage transactions with the respective parties during each
party's respective fiscal year or portion thereof immediately preceding the
Effective Time. The patronage distributions shall be in the form of cash and
equity credits in a manner consistent with the previous patronage distributions
of each party (and in the case of equity credits, in the form of Class A Units
or Class B units of LLC, as appropriate).
SECTION 7.03 1996 LOSS PAYABLE. After the Effective Time, the unpaid
portion of the Cooperative's operating loss for the fiscal year ended September
30, 1996 that was assessed against a unit of equity participation of the
Cooperative shall continue as a lien against a Class A unit received in the LLC
Merger.
SECTION 7.04 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. From and
after the Effective Time, the Surviving Entity shall indemnify each present and
former director, officer, employee or agent of the Cooperative or MCP Colorado
and each person who, while a director or officer of the Cooperative and at the
request of the Cooperative, serves or has served another corporation,
cooperative, partnership, joint venture or any other enterprise as a director,
officer or partner, against any losses, claims, damages, liabilities or expenses
(including legal fees) arising out of or pertaining to matters existing or
occurring at or before the Effective Time, whether asserted or claimed prior to,
at or after the Effective Time, to the fullest extent permitted by law. The
Surviving Entity may obtain insurance coverage against any such loss, claim or
expense, subject to standard exclusions and exceptions to coverage, but is not
obligated to do so.
ARTICLE VIII
TERMINATION
SECTION 8.01 TERMINATION OF AGREEMENT. This Agreement shall be terminated
and the Transactions abandoned if at any time prior to the Effective Time:
(a) The members of the Cooperative fail to approve the Merger as required
by Section 6.01(a) or the members of MCP Colorado fail to approve the Merger as
required by Sections 6.01(b) and 6.02(a).
(b) The parties mutually agree in writing to terminate this Agreement;
or
(c) Either party to a Merger delivers a written notice to the other, to
the effect that (i) one or more of the conditions to its obligations as set
forth herein cannot be met, (ii) the other party has defaulted in a material
respect under one or more of its covenants or agreements contained herein, or
(iii) any of the representations or warranties of the other party are or have
become materially untrue or incorrect as of the date of such notice, and in any
case such condition or conditions have not been satisfied, such default or
defaults have not been remedied or such representation or warranty has not been
rendered true and correct within thirty (30) days after such notice is mailed;
or
(d) The Closing has not occurred on or before August 1, 1999, or such
later date as the parties may mutually agree upon.
SECTION 8.02 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 8.01 above, all rights and obligations of the parties
hereunder shall terminate without any liability of either party to the other
(except for any liability of a party then in breach); provided, however, that
the confidentiality and return of documents provisions contained in or referred
to Section 5.05 above shall survive any such termination.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 WAIVER. At any time before the Effective Time, any provision
of this Agreement may, to the extent legally allowed, be waived by the party
benefitted by the provision by an agreement in
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writing between the parties hereto executed in the same manner as this
Agreement, except that after approval of the Mergers contemplated by this
Agreement by the respective members of the Cooperative and MCP Colorado, there
may not be any waiver of any provision of this Agreement which would reduce the
amount or form of consideration to be received by members in the Mergers.
SECTION 9.02 AMENDMENT. The parties by mutual consent may amend, modify or
supplement this Agreement in such manner as may be agreed upon in writing;
provided, however, that after approval of the Mergers by the respective members
of the Cooperative and MCP Colorado, this Agreement may not be amended if it
would violate applicable law or reduce the amount or form of the consideration
to be received by members in the Mergers.
SECTION 9.03 BINDING NATURE. This Agreement shall be binding upon and inure
only to the benefit of the parties hereto and their respective successors and
assigns, provided that neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned or delegated by any of the parties
hereto without the prior written consent of the other parties hereto.
SECTION 9.04 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 9.05 ENTIRE AGREEMENT. This Agreement, the MCP Merger Agreement,
the LLC Merger Agreement and the other documents referred to herein and therein
set forth the entire understanding of the parties hereto with respect to the
matters provided for herein and therein and supersede all prior agreements,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of either party.
SECTION 9.06 NOTICES. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given if delivered
personally, telecopied (with confirmation) or mailed by certified or registered
mail (return receipt requested), to the parties at the following addresses (or
such other address as such party may specify by like notice):
If to the Cooperative: Minnesota Corn Processors, Inc.
901 North Highway 59
Marshall, MN 56258
Attn: L. Dan Thompson
If to MCP Colorado: Minnesota Corn Processors Colorado
---------------------------
---------------------------
---------------------------
Attn:----------------------
If to LLC: Minnesota Corn Processors, LLC
---------------------------
---------------------------
---------------------------
Attn:----------------------
SECTION 9.07 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties contained in Articles II, III and
IV of this Agreement shall form the basis for closing conditions only, shall not
survive the Effective Time and shall not form the basis for any action by or on
behalf of either party or any third party for breach, misrepresentation or
indemnity at any time after the Effective Time.
SECTION 9.08 CAPTIONS. The article and section headings of this Agreement
are for convenience only and shall not affect the meaning or construction of
this Agreement.
* * * * * * * * * * * * * * * * * * * * * * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
EXHIBITS
Exhibit A - MCP Merger Agreement
Exhibit B - LLC Merger Agreement
Exhibit C - Surviving Entity Articles of Organization
Exhibit D - Surviving Entity Operating Agreement
Exhibit E - List of Consents and Approvals
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APPENDIX D
OPERATING AGREEMENT
OF
MINNESOTA CORN PROCESSORS, LLC
A Colorado Limited Liability Company
(CONTAINS RESTRICTIONS ON
TRANSFERABILITY OF MEMBERSHIP INTERESTS)
<PAGE>
MINNESOTA CORN PROCESSORS, LLC
OPERATING AGREEMENT
(CONTAINS RESTRICTIONS ON TRANSFERS
OF MEMBERSHIP INTERESTS)
TABLE OF CONTENTS
<TABLE>
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PAGE
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ARTICLE I DEFINITIONS ................................................................. 1
1.1 Terms Defined in the Act .................................................. 1
1.2 Terms Defined Herein ...................................................... 1
ARTICLE II THE LIMITED LIABILITY COMPANY ............................................... 8
2.1 Formation; Effective Date of Agreement .................................... 8
2.2 Name ...................................................................... 8
2.3 Business Purpose .......................................................... 9
2.4 Powers .................................................................... 9
2.5 Duration .................................................................. 9
2.6 Registered Office and Registered Agent .................................... 9
2.7 Principal Office .......................................................... 9
2.8 Title to Property; No Agency Power ........................................ 9
2.9 Limited Liability of Members and Directors ................................ 9
ARTICLE III MEMBERS .................................................................... 10
3.1 Membership ................................................................ 10
3.2 Ownership of Membership Interests ......................................... 10
3.3 Classes of Membership ..................................................... 11
3.4 Voting .................................................................... 11
3.5 Place of Meetings ......................................................... 12
3.6 Regular Meetings .......................................................... 12
3.7 Special Meetings .......................................................... 12
3.8 Notice of Meetings ........................................................ 12
3.9 Waiver of Notice .......................................................... 12
3.10 Quorum .................................................................... 12
3.11 Proxies; Mail Ballots ..................................................... 13
3.12 Action Without Meeting .................................................... 13
3.13 Telephonic Meetings ....................................................... 13
3.14 Termination of Membership ................................................. 13
3.15 Continuation of the Company ............................................... 14
3.16 No Obligation to Purchase Units ........................................... 14
3.17 Advance Consent to Certain Substitute Members ............................. 14
3.18 Compliance with Articles of Organization and Operating Agreement .......... 15
3.19 No Dissenters' Rights ..................................................... 15
ARTICLE IV CAPITAL ..................................................................... 15
4.1 Units ..................................................................... 15
4.2 Capital Accounts .......................................................... 15
4.3 Initial Issuance of Units; Offering of Additional Units ................... 16
4.4 No Capital Calls .......................................................... 17
4.5 Tax Withholding Obligations ............................................... 17
4.6 Transferee Succeeds to Transferor's Capital Account ....................... 17
4.7 No Right to Return of Contributions ....................................... 17
4.8 No Interest on Capital Contributions ...................................... 17
4.9 Loans to the Company ...................................................... 17
4.10 No Repayment Liability .................................................... 17
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ARTICLE V ALLOCATIONS AND DISTRIBUTIONS ............................................... 18
5.1 Allocation of Profits and Losses .......................................... 18
5.2 Special Allocations ....................................................... 18
5.3 Curative Allocations ...................................................... 20
5.4 Loss Limitation ........................................................... 20
5.5 Other Allocation Rules .................................................... 20
5.6 Tax Allocations ........................................................... 21
5.7 Distributions ............................................................. 21
5.8 Tax Withholding Obligations Constitute a Distribution ..................... 22
ARTICLE VI BOARD OF DIRECTORS .......................................................... 22
6.1 Board of Directors ........................................................ 22
6.2 Qualifications of Directors ............................................... 22
6.3 Election of Directors ..................................................... 22
6.4 Removal of Directors ...................................................... 22
6.5 Vacancies ................................................................. 22
6.6 Annual Meeting ............................................................ 23
6.7 Regular Meetings .......................................................... 23
6.8 Special Meetings .......................................................... 23
6.9 Quorum, Voting ............................................................ 23
6.10 Executive Committee ....................................................... 23
6.11 Compensation .............................................................. 23
6.12 Number of Districts ....................................................... 24
6.13 Districting Committee ..................................................... 24
6.14 Counties and Districts .................................................... 24
6.15 Directors and Districts ................................................... 25
6.16 Board Actions Requiring Approval of Members ............................... 25
6.17 Absent Directors .......................................................... 26
6.18 Action Without Meeting .................................................... 26
6.19 Telephonic Meetings ....................................................... 26
ARTICLE VII DUTIES OF DIRECTORS ........................................................ 26
7.1 General Powers ............................................................ 26
7.2 Employment of President and Chief Executive Officer ....................... 27
7.3 Bonds and Insurance ....................................................... 27
7.4 Accounting System and Audit ............................................... 27
7.5 Agreements with Members ................................................... 27
7.6 Depository ................................................................ 27
ARTICLE VIII BOARD OFFICERS; PRESIDENT AND CHIEF
EXECUTIVE OFFICER ......................................................... 27
8.1 Election of Board Officers ................................................ 27
8.2 Duties of Chairman ........................................................ 28
8.3 Duties of Vice Chairman ................................................... 28
8.4 Duties of Secretary ....................................................... 28
8.5 Duties of President and Chief Executive Officer ........................... 28
8.6 Compensation .............................................................. 29
8.7 Special Powers ............................................................ 29
ARTICLE IX REQUIRED RECORDS; ACCOUNTING AND TAX MATTERS ................................ 29
9.1 Required Records .......................................................... 29
9.2 Books of Account .......................................................... 30
9.3 Tax Characterization, Returns, Elections and Information .................. 30
9.4 Tax Matters Partner; Tax Audit Costs ...................................... 30
ARTICLE X TRANSFER OF MEMBER INTERESTS ................................................ 31
10.1 Restrictions on Transfer. ................................................. 31
10.2 Conditions Precedent to Transfers ......................................... 32
10.3 Substitution of Member .................................................... 32
10.4 Effective Date of Transfer ................................................ 33
10.5 Distributions and Allocations in Respect to Transferred Interest .......... 33
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ARTICLE XI DISSOLUTION AND WINDING UP ....................................... 34
11.1 Liquidating Events ............................................. 34
11.2 Winding Up ..................................................... 34
11.3 Distributions Upon Dissolution ................................. 34
11.4 Compliance With Regulations; Deficit Capital Accounts .......... 35
11.5 Deemed Distribution and Recontribution ......................... 35
11.6 Allocations During Period of Liquidation ....................... 35
11.7 Character of Liquidating Distributions ......................... 36
ARTICLE XII MEMBERS BOUND BY AGREEMENT ....................................... 36
ARTICLE XIII INDEMNIFICATION OF DIRECTORS AND EMPLOYEES ...................... 36
13.1 Indemnity of Directors, Employees and Other Agents ............. 36
ARTICLE XIV MISCELLANEOUS .................................................... 37
14.1 Entire Agreement ............................................... 37
14.2 Amendment ...................................................... 37
14.3 Conflict with Articles ......................................... 37
14.4 Certificates of Membership Interest ............................ 37
14.5 Severability ................................................... 37
14.6 Remedies ....................................................... 38
14.7 Consent and Waiver ............................................. 38
14.8 No Third Party Beneficiary ..................................... 38
14.9 Notices ........................................................ 38
14.10 Binding Effect ................................................. 38
14.11 Necessary Instruments and Acts ................................. 39
14.12 Number and Gender .............................................. 39
14.13 Interpretation ................................................. 39
14.14 Counterparts ................................................... 39
14.15 Governing Law .................................................. 39
SCHEDULE A
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MINNESOTA CORN PROCESSORS, LLC
OPERATING AGREEMENT
(CONTAINS RESTRICTIONS ON TRANSFERS
OF MEMBERSHIP INTERESTS)
THIS OPERATING AGREEMENT is entered into and made effective as of the _____
day of January, 1999 by and between Minnesota Corn Processors, LLC, a Colorado
limited liability company (the "Company"), and the members of the Company who
are identified as such on the Membership Register from time to time
(collectively, the "Members").
RECITALS
WHEREAS, the Members have caused the Company to be formed under the laws of
the State of Colorado for the following purposes: (a) to acquire all of the
businesses and assets of Minnesota Corn Processors, Inc., a Minnesota
cooperative corporation (the "Cooperative"); and (b) to operate the corn
processing and marketing business currently operated by the Cooperative; and (c)
for any other lawful purpose. The Members hereby adopt this Agreement as the
Operating Agreement of the Company as contemplated by Section 7-80-108 of the
Colorado Limited Liability Company Act.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
of the Members contained herein, and the mutual benefits to be gained by the
performance hereof, each of the Members agrees as follows:
ARTICLE I
DEFINITIONS
1.1 Terms Defined in the Act. Unless defined specifically herein, terms
relating to a limited liability company shall have the meanings given in or
interpreted under the Colorado Limited Liability Company Act.
1.2 Terms Defined Herein. The following capitalized words and phrases shall
have the following respective meanings as used herein, except as may be
otherwise expressly provided in this Agreement or unless the context otherwise
specifies.
"ACT" means the Colorado Limited Liability Company Act, as amended, and
any successor thereto.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Unit
Holder, the deficit balance, if any, in such Unit Holder's Capital Account as of
the end of the relevant allocation period, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such Unit Holder is
deemed to be obligated to restore pursuant to the penultimate sentences in
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(ii) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Regulations.
This definition is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
therewith.
"AFFILIATE" means, with respect to a specified Person, any Person,
directly or indirectly, through one or more intermediaries, controlling or
controlled by, or under common control with a specified Person. The term
"control", as used in the preceding sentence, means with respect to a
corporation the right to exercise, directly or indirectly, more than 50% of the
voting rights attributable to the controlled
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corporation, and, with respect to any partnership, trust or other entity or
association, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled entity.
"AGREEMENT" means this Operating Agreement of Minnesota Corn Processors,
LLC, as amended, modified or supplemented from time to time, including any
schedules to this Agreement. Words such as "herein", "hereinafter", "hereof",
and "hereunder" refer to this Agreement.
"ARTICLES OF ORGANIZATION" means the Articles of Organization filed on
behalf of the Company with the Secretary of State of Colorado, as from time to
time amended.
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company established by Article VI. For purposes of the Act, the "Board" or
"Board of Directors" shall mean the board of managers of the Company.
"CAPITAL ACCOUNT" means, with respect to any Unit Holder, the Capital
Account maintained for such Person in accordance with the provisions of Section
4.2 herein.
"CAPITAL CONTRIBUTIONS" means, with respect to any Unit Holder, the
amount of money and the Gross Asset Value of any property (other than money) and
the agreed value of services rendered or the obligation to perform services
which are contributed to the capital of the Company with respect to the Units
held by such Person pursuant to the terms of this Agreement.
"CERTIFICATE OF MEMBERSHIP INTEREST" means a certificate or other
evidence of ownership of the Units adopted by the Company pursuant to Section
14.4 of this Agreement.
"CLASS A MEMBER" means a Member that owns Class A Units.
"CLASS B MEMBER" means a Member that owns Class B Units.
"CLASS A UNITS" means the unit of measurement used to quantify the
Membership Interest of a Member eligible to purchase a voting Membership
Interest.
"CLASS B UNITS" means the unit of measurement used to quantify the
Membership Interest of a Member eligible to purchase a non-voting Membership
Interest.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time (or any corresponding provisions of succeeding law).
"COMPANY" shall have the meaning assigned to that term in the first
paragraph of this Agreement.
"COMPANY MINIMUM GAIN" shall have the same meaning as "partnership
minimum gain" in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
"COMPETITOR" means (i) each Person identified as a Competitor on Schedule
A attached hereto and the successors and assigns thereof; (ii) any other Person
identified by the Company as a Competitor; and (iii) any officer or director of
any Person identified in (i) and (ii) hereof.
"DEPRECIATION" means, for each allocation period, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such allocation period, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such allocation period, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such allocation period bears to such beginning adjusted tax basis; provided,
however, that if the adjusted basis for federal income tax purposes of an asset
at the beginning of such allocation period is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Board of Directors.
"DIRECTOR" or "DIRECTORS" means the natural persons elected, appointed,
or otherwise designated as directors by the Members to direct the business and
affairs of the Company as provided in Article VI. For purposes of the Act, the
directors shall be deemed to be the "managers" of the Company.
"ESTABLISHED VALUE" means a per-Unit value established by the Board of
Directors from time to time, which shall be based on (i) seventy-five percent
(75%) of the fair market value for the Units, as
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determined by the Board of Directors using reasonable valuation methods; or (ii)
the book value of the Units as shown on the Company's most recent audited
financial statements, whichever is less.
"EVENT OF DISASSOCIATION" shall have the meaning assigned to that term in
Section 3.15 of this Agreement.
"GROSS ASSET VALUE" means with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member to
the Company shall be the gross fair market value of such asset, as determined by
the Board of Directors, provided that the initial Gross Asset Values of the
assets contributed to the Company pursuant to Section 4.3 hereof shall be as set
forth in such section;
(b) The Gross Asset Values of all Company assets shall be adjusted to
equal their respective gross fair market values (taking Code Section 7701(g)
into account), as determined by the Board of Directors as of the following
times: (i) the acquisition of an additional interest in the Company by any new
or existing Member in exchange for more than a DE MINIMIS Capital Contribution;
(ii) the distribution by the Company to a Member of more than a DE MINIMIS
amount of Company property as consideration for an interest in the Company; and
(iii) the liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses (i) and
(ii) of this paragraph shall be made only if the Board of Directors reasonably
determines that such adjustment is necessary to reflect the relative economic
interests of the Members in the Company;
(c) The Gross Asset Value of any item of Company assets distributed to
any Member shall be adjusted to equal the gross fair market value (taking Code
Section 7701(g) into account) of such asset on the date of distribution as
determined by the Board of Directors; and
(d) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (f) of the
definition of "Profits and Losses" or Section 5.2(c) hereof; provided, however,
that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv)
to the extent that an adjustment pursuant to subparagraph (b) is required in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (b) or (d), such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset, for
purposes of computing Profits and Losses.
"INITIAL AGREED VALUE PER UNIT" shall mean the fair market value of each
Unit received by the Initial Members pursuant to the Transaction Agreement in
the merger of MCP Colorado into the Company as determined by a nationally
recognized appraisal firm selected by the Cooperative. The Board of Directors
shall be authorized to make reasonable modifications to such appraisal to
reflect intervening events between the date of the appraisal and the transfer of
Units to the Initial Members pursuant to the merger of MCP Colorado with and
into the Company pursuant to the Transaction Agreement.
"INITIAL MEMBERS" shall mean, (i) prior to the merger of MCP Colorado
into the Company pursuant to the Transaction Agreement, the Cooperative, and
(ii) from and after the effective time of the merger of MCP Colorado into the
Company pursuant to the Transaction Agreement, each Person who receives Class A
Units or Class B Units pursuant to such merger.
"LIQUIDATING EVENT" shall have the meaning assigned to that term in
Section 9.1 of this Agreement.
"LOSSES" shall have the meaning associated with that term in the
definition of Profits and Losses hereunder.
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"MCP COLORADO" means Minnesota Corn Processors Colorado, the transitory
Colorado cooperative into which the Cooperative will be merged in anticipation
of the merger of such Colorado cooperative into the Company.
"THE COOPERATIVE" means Minnesota Corn Processors, Inc., a Minnesota
cooperative corporation.
"MEMBER" means any Person (i) who has become a Member pursuant to the
terms of this Agreement, and who is designated as a Member on the Membership
Register, (ii) who is the owner of 1,000 or more Units, and (iii) who has not
ceased to be a Member pursuant to the terms of this Agreement. "Members" means
all such Persons.
"MEMBERSHIP INTEREST" means a Unit Holder's share of the Profits and
Losses of the Company and a Unit Holder's right to receive distributions of cash
or other assets of the Company in accordance with the terms of this Agreement.
"MEMBERSHIP REGISTER" shall have the meaning specified in Section 3.1 of
this Agreement.
"1996 LOSS PAYABLE" shall mean the unpaid portion of the Cooperative's
operating loss for fiscal year ended September 30, 1996 that was assessed
against a unit of equity participation by the Board of Directors of The
Cooperative and which pursuant to the Transaction Agreement continues as a lien
in favor of the Company against a Class A Unit into which such unit of equity
participation has been converted.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
"NONRECOURSE LIABILITY" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"PERSON" means any individual, partnership, limited liability company,
association, corporation, cooperative, estate, trust or other entity, and also
includes a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended.
"PROFITS" shall have the meaning associated with that term in the
definition of Profits and Losses hereunder.
"PROFITS AND LOSSES" shall mean, for each allocation period, an amount
equal to the Company's taxable income or loss for such allocation period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments (without duplication):
(a) Any income of the Company that is exempt from federal income tax and
not otherwise taken into account in computing Profits or Losses pursuant to this
definition of "Profits" and "Losses" shall be added to such taxable income or
loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this definition of "Profits" and
"Losses" shall be subtracted from such taxable income or loss;
(c) In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraphs (b) or (c) of the definition of Gross Asset Value, the
amount of such adjustment shall be treated as an item of gain (if the adjustment
increases the Gross Asset Value of the asset) or an item of loss (if the
adjustment decreases the Gross Asset Value of the asset) from the disposition of
such asset and shall be taken into account for purposes of computing Profits or
Losses;
(d) Gain or loss resulting from any disposition of Property with respect
to which gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Gross Asset Value of the Property disposed of,
notwithstanding that the adjusted tax basis of such Property differs from its
Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Allocation Year, computed in
accordance with the definition of Depreciation;
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(f) To the extent an adjustment to the adjusted tax basis of any Company
asset pursuant to Code Section 734(b) is required, pursuant to Regulations
Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a Member's
interest in the Company, the amount of such adjustment shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) from the disposition of such asset and
shall be taken into account for purposes of computing Profits or Losses; and
(g) Notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof
shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Section 5.2 or Section 5.3
hereof shall be determined by applying rules analogous to those set forth in
subparagraphs (a) through (f) above.
"PROPERTY" means all real and personal property, including cash, acquired
and operated by the Company and any improvements thereto, and shall include both
tangible and intangible property.
"REGULATIONS" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code as such Regulations may be amended from
time to time (including corresponding provisions of succeeding Regulations).
"SPECIAL FINANCIAL INTERESTS" means the nonvoting financial interest in
the Company issued to the former holders of nonqualified written notices of
allocation issued by the Cooperative, the stated amounts of which shall
correspond to the stated amounts of such nonqualified written notices of
allocation.
"REGULATORY ALLOCATIONS" has the meaning set forth in Section 5.3
hereof.
"TAX WITHHOLDING OBLIGATION" means an amount equal to the portion of any
amount allocated, credited, or otherwise distributable to a Unit Holder which
the Company is required to withhold for income tax purposes pursuant to any
applicable federal, state, local, or other governmental agency law or
regulation.
"TRANSACTION AGREEMENT" means the Transaction Agreement dated January ,
1999 between the Cooperative, MCP Colorado and the Company.
"TRANSFER" means, as a noun, any voluntary or involuntary transfer, sale
or other disposition and, as a verb, to voluntarily or involuntarily transfer,
sell, or otherwise dispose of, but shall not include a pledge, grant of a
security interest or other encumbrance.
"UNIT" means the unit of measurement used herein to quantify the
Membership Interest of a Unit Holder, consisting of Class A Units or Class B
Units, as reflected on the Membership Register. A Unit Holder's Membership
Interest as quantified by the number of Units owned by such Person may be
evidenced by a certificate of Units issued by the Company, which certificate
shall contain appropriate restrictive legends.
"UNIT HOLDER NONRECOURSE DEBT" has the same meaning as the term "partner
nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
"UNIT HOLDER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect
to each Unit Holder Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Unit Holder Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
"UNIT HOLDER NONRECOURSE DEDUCTIONS" has the same meaning as the term
"partner nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
"UNIT HOLDERS" means all Persons who hold Units. "Unit Holder" means any
one of the Unit Holders.
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ARTICLE II
THE LIMITED LIABILITY COMPANY
2.1 Formation; Effective Date of Agreement. The Company is formed as a
Colorado limited liability company pursuant to and in accordance with the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. This Agreement is made effective as of the formation of the Company.
2.2 Name. The name of the Company shall be Minnesota Corn Processors, LLC.
All business of the Company shall be conducted in such name or in trade names
approved by the Board of Directors. The name of the Company may be changed from
time to time in accordance with the Act.
2.3 Business Purpose. The purpose of the Company is to conduct any business
activity in which a limited liability company organized under the Act may be
lawfully engaged in and to conduct any and all activities related or incidental
thereto, including the acquisition, improvement, leasing, operation, mortgage
and disposition of personal property and real property.
2.4 Powers. The Company may carry on any lawful business, purpose or
activity permitted by the Act and shall possess and may exercise all the powers
and privileges granted by the Act or by any other law or by this Agreement,
together with any powers incidental, necessary or convenient to the conduct,
promotion or attainment of the business, purposes or activities of the Company.
2.5 Duration. The duration of the Company shall be perpetual, unless
dissolved earlier as provided herein.
2.6 Registered Office and Registered Agent. The location of the registered
office and the name of the registered agent of the Company in the State of
Colorado shall be as stated in the Articles of Organization. The registered
office and registered agent of the Company in the State of Colorado may be
changed from time to time by the Board of Directors.
2.7 Principal Office. The principal office of the Company shall be located
at 901 North Highway 59, Marshall, MN 56258, or at such other place(s) within or
without the State of Minnesota as the Board of Directors may determine from time
to time.
2.8 Title to Property; No Agency Power. All Property originally transferred
to or subsequently acquired by or on account of the Company shall be owned by
the Company as an entity. No Member, Director or Unit Holder shall have any
ownership interest in such Property in such Person's individual name or right.
The Company shall hold all of its Property in the name of the Company and not in
the name of any Member, Director or Unit Holder. Subject to the approval by the
Board or the Members when required by this Agreement, title to Property may be
transferred by an instrument of transfer executed by the appropriate officer of
the Company as designated by the Board. No Member, Director or Unit Holder has
the authority, in said Person's capacity as Member, Director or Unit Holder, to
transfer title to Property or bind the Company or the other Members or any one
of them. Only duly authorized officers, directors and agents of the Company
shall have the authority to bind the Company.
2.9 Limited Liability of Members and Directors. Except as otherwise
expressly provided by the Act, the debts, obligations and liabilities of the
Company, whether arising in contract, tort or otherwise, shall be solely the
debts, obligations and liabilities of the Company. No Member, Director or other
agent of the Company, solely by reason of such status, shall be personally
liable, under a judgment, decree or order of a court, or in any other manner,
for the acts, debts, obligations or liabilities of the Company, whether arising
in contract, tort or otherwise.
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ARTICLE III
MEMBERS
3.1 Membership. There shall be no Members admitted to the Company except as
provided in this Agreement. The name, address, Capital Contribution, and class
of membership of each Member shall be set forth in a membership register
maintained by the Company at its principal office or by a duly appointed agent
of the Company (the "Membership Register"), which shall be modified from time to
time as additional Units are issued and as Units are transferred pursuant to
Article X. Prior to the merger of MCP Colorado into the Company pursuant to the
Transaction Agreement, the Cooperative (or its successors) shall be the only
Member of the Company. From and after the effective time of the merger of MCP
Colorado into the Company pursuant to the Transaction Agreement, the membership
interest of the Cooperative (or its successor) in the Company shall be canceled,
and (A) The Class A Members of this Company shall include, (i) initially, the
members of the Cooperative who receive Class A Units from the Cooperative
pursuant to the Transaction Agreement; and (ii) individuals, corporations or
other entities who acquire a minimum of 1,000 Class A Units in a permitted
transfer or in an offering by the Company of additional Class A Units. The Class
B Members of this Company shall include, (i) initially, Archer Daniels Midland
Company, as the transferee of Class B Units from the Cooperative pursuant to the
Transaction Agreement, and (ii) individuals, corporations or other entities who
acquire a minimum of 1,000 Class B Units in a permitted transfer.
The holders of Special Financial Interests shall not be Members of the
Company and shall have no rights other than the rights to distributions
specified in Sections 5.7(a) and 11.3(d) and the corresponding right to income
allocations provided in Section 5.2(i).
3.2 Ownership of Membership Interests.
(a) Minimum Ownership of Units Required. Each Class A Member shall own
not less than 1,000 Class A Units. Each Class B Member shall own not less than
1,000 Class B Units.
(b) Limitation on Ownership of Membership Interests.
(i) Number of Units. No Class A Member shall own more than two
percent (2%) of the total issued and outstanding Class A Units of the Company.
For purposes of this Section 3.2(b), the number of Units owned by any Member
shall include Units owned by the member's spouse, children, parents, or brothers
and sisters, and by any Affiliate of the Member or the Member's spouse,
children, parents or brothers and sisters.
(ii) Competitors. Any Competitor of the Company shall not be eligible
to own Class A Units of the Company.
(c) Company Right to Purchase Units. If (A) any Member holds at any time
less than the minimum number of Units required by Section 3.2(a) or more than
the maximum number of Units permitted under Section 3.2(b), and fails to cure
such violation of this Agreement within one (1) year after notice thereof by the
Company, or (B) any Member is or becomes a Competitor, that Member's voting
rights, if any, shall be suspended as provided in Section 3.14 below and, in
addition, the Company shall have the right (but not the obligation) to purchase,
and the Member shall be required to sell (i) in the case of a violation of
Section 3.2(a), all of the Units owned by such Member, and (ii) in the case of a
violation of Section 3.2(b), that Member's Units in excess of the two percent
(2%) maximum provided for in Section 3.2(b). The purchase price for Units
purchased by the Company under this Section shall be an amount equal to the
Established Value of the Units determined at the time the Company notifies the
Member of the violation and shall be payable, at the Company's option, in one
lump sum or equal installments over a period of five (5) years, with interest at
a rate equal to the interest rate for 91 day U.S. Treasury bills, adjusted
quarterly.
3.3 Classes of Membership. This Company has two (2) classes of Membership.
(a) Class A Membership. Class A Membership (as quantified by the Class A
Units) shall be the voting Membership Interests of the Company.
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(b) Class B Membership. Class B Membership (as quantified by the Class B
Units) shall be non-voting Membership Interests.
3.4 Voting.
(a) Units Required. Each Class A Member owning a minimum of 5,000 Class A
Units shall be entitled to one (1) vote with respect to any matter to be
determined by the Members under this Agreement or the Act, regardless of the
number of Units owned by such Class A Member. Any Class A Member who is in
default of any of its obligations under this Agreement shall not be entitled to
vote on any matter during the period of such default. When determining the
aggregate number of Units held by a Member for purposes of this Agreement, the
Units held by any Member who is in default of any obligations under this
Agreement shall be excluded. Each Member other than individual Members shall
designate in writing to the Chairman of the Board of the Company the name of one
(1) individual authorized to act as such Member's representative with respect to
all matters covered by this Agreement, including the right to exercise such
Member's voting rights hereunder. The Company and the other Members shall be
entitled to rely on the authority of the individual so designated. Each Member
may change such Member's representative by written notice to the Chairman of the
Board at such Member's sole discretion.
A member absent from any meeting may submit an absentee vote on any
motion, resolution, or amendment to be acted upon at such meeting, provided an
absentee ballot has been specifically authorized by the Board of Directors. An
absentee vote must be cast on a ballot containing the exact text of the proposed
motion, resolution, or amendment by delivering such ballot to the Secretary at
the principal office of the Company by hand, by United States mail (with postage
prepaid thereon), by facsimile, by overnight courier or by any other reasonable
means, to arrive not later than five (5) days prior to the day of the meeting at
which the vote is taken.
(b) Non-Voting Members. Any Class A Member owning at least 1,000 Class A
Units but less than 5,000 Class A Units as of the date upon which notice of
action to be taken by the Members is mailed to the Members shall be considered a
non-voting member of the Company and shall not be entitled to vote on any
matters reserved to the Members. The Units held by such non-voting members shall
be excluded in determining the aggregate number of Units held by Members.
Notwithstanding that such member is not entitled to vote, the Units in the hands
of the non-voting member shall continue to be subject to all the applicable
provisions of this Agreement, including but not limited to the transfer
restrictions set forth in Article X hereof. In the event a non-voting member
purchases the minimum number of Class A Units required to receive voting rights
under Section 3.4(a) hereof, such member shall be entitled to the voting rights
set forth in Section 3.4(a) without any further action by the Members or the
Board.
3.5 Place of Meetings. Each meeting of the Members shall be held at such
place as the Board of Directors may from time to time designate in writing to
the Members.
3.6 Regular Meetings. Regular meetings of the Members shall be held not
less than once per year, at such time and place as determined by the Board of
Directors; provided however, that if a regular meeting has not been held within
six (6) months after the end of each fiscal year of the Company any Member may
demand a meeting of the members by written demand to the Board of Directors.
3.7 Special Meetings. Special meetings of the Members may be called by the
Board of Directors or twenty percent (20%) of the Class A Members. The business
transacted at a special meeting of the Members is limited to the purposes stated
in the notice of the meeting.
3.8 Notice of Meetings. Written notice of each meeting of the Members,
stating the date, time and place, and in the case of a special meeting, the
purpose of the meeting, shall be given in writing at least fourteen (14) days
and not more than sixty (60) days prior to the meeting to every Member entitled
to vote at such meeting.
3.9 Waiver of Notice. A Member may waive the notice of meeting required
under this Article. A written notice of waiver signed by the Member entitled to
notice is effective whether given before, during or after the meeting.
Attendance by a Member at a meeting is waiver of notice of that meeting,
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unless the Member objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened and thereafter
does not participate in the meeting.
3.10 Quorum. The presence (in person or by proxy or mail ballot) of at
least ten percent (10%) of the Class A Members is required for the transaction
of business at a meeting of the Members; provided, however, that a quorum shall
never be more than fifty (50) Class A Members.
3.11 Proxies; Mail Ballots. Voting by proxy or by mail ballot shall be
permitted on any matter if authorized by the Board of Directors.
3.12 Action Without Meeting. Any action required or permitted to be taken
at a meeting of the Members of the Company may be taken without a meeting by
written action signed by all of the Class A Members. The written action is
effective when signed by all the Class A Members, unless a different effective
time is provided in the written action.
3.13 Telephonic Meetings. Any regular or special meeting of the Members may
be taken by telephonic or electronic conference or any other means of
communication through which the Members can simultaneously hear each other
during the conference, if the same notice is given of the conference to each
Member, and if the Members participating in the conference would be sufficient
to constitute a quorum at a meeting. Participation in a telephonic, electronic,
or other conference of such means constitutes presence at the meeting in person
or by proxy if all the other requirements are met.
3.14 Termination of Membership. A Member's Membership Interest terminates
and such Person ceases to be a Member on and following the occurrence of any of
the following events (each an "Event of Disassociation"):
(a) Complete Transfer. The Member transfers all of the Member's Units,
regardless of whether the transferee(s) is admitted as a substitute Member
pursuant to Section 10.5 of this Agreement;
(b) Dissolution of Member. Any event terminating the existence of any
non-individual Member;
(c) Death of Individual Member. The death of any individual Member;
(d) Withdrawal. The Member resigns by written notice to the Chairman of
the Board; or
(e) Disqualification. The Member holds less than the minimum number of
Units required by Section 3.2(a) or more than the maximum number of Units
permitted by Section 3.2(b) and fails to cure the applicable violation within
one (1) year after notice thereof by the Company.
A Person who has ceased to be a Member shall be considered a non-member
Unit Holder only, and shall have no right to any information or accounting of
the affairs of the Company, shall not be entitled to inspect the books or
records of the Company, shall not be entitled to vote on any matters reserved to
the Members, and shall not have any of the other rights of a Member under the
Act or this Agreement. The Units held by such Unit Holder shall be excluded in
determining the aggregate number of Units held by Members. Notwithstanding that
such Unit Holder is no longer a Member, the Units in the hands of such Unit
Holder shall continue to be subject to all the applicable provisions of this
Agreement, including but not limited to the transfer restrictions set forth in
Article X hereof.
In the event such Unit Holder ceased to be a Member pursuant to Section
3.14(f), such Unit Holder shall be reinstated as a Member without any further
action by the Members or the Board upon a showing to the Board that such Unit
Holder meets the minimum and maximum requirements set forth in Section 3.2.
3.15 Continuation of the Company. The Company shall not be dissolved upon
the occurrence of an Event of Disassociation or any other event which is deemed
to terminate the continued membership of a Member. The Company's affairs shall
not be required to be wound up. The Company shall continue without dissolution.
3.16 No Obligation to Purchase Units. No Member whose membership in the
Company terminates shall have any right to demand or receive a return of such
terminated Member's Capital Contributions.
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Neither the remaining Members nor the Company shall have any obligation to
purchase or redeem the Units of any such terminated Member.
3.17 Advance Consent to Certain Substitute Members.
(a) Substitute Member -- Dissolution. In the event of dissolution of a
non-individual Member, any person who continues the business of a dissolved
Member, or who holds some or all of the Membership Interest of the dissolved
Member, shall be admitted as a substitute Member; provided, however, that such
Person shall not be admitted as a substitute Member unless and until each of the
conditions set forth in Section 10.3 of this Agreement have been satisfied.
(b) Substitute Member -- Death. In the event of the death of an
individual Member, each of the following Persons who holds some or all of the
Membership interest of the deceased Member shall be admitted as a substitute
Member; provided, however, that such Person shall not be admitted as a
substitute Member unless and until each of the conditions set forth in Section
10.3 of this Agreement are satisfied at the time such Person becomes the holder
of all or some of such Membership Interest:
(i) the estate of the deceased Member;
(ii) the surviving joint tenant of the Membership Interest; and
(iii) any distributee of the estate of the deceased Member, including
any trustee(s) of a trust which holds some or all of the
Membership Interest of the deceased Member.
The rights of the estate of a deceased Member shall be exercised by the personal
representative(s) appointed by the court as the personal representative of the
estate of a deceased Member.
(c) Substitute Member. The purpose of this Section 3.17 is that the
voting rights of any Member whose membership is terminated by the dissolution or
death of such Member shall follow the Membership Interest of such Member
notwithstanding such termination, through the automatic substitution of the
holder of all or some of such Membership Interest as a substitute Member. Any
Person who is admitted as a substitute Member under this Section 3.17 shall be
entitled to all of the rights and bound by the obligations of, the Member for
which it is substituted.
3.18 Compliance with Articles of Organization and Operating Agreement. Each
Member of the Company is subject to the terms of the Company's Articles of
Organization, this Agreement, and such other reasonable policies and procedures
as the Board from time to time adopts to implement the terms of this Agreement.
3.19 No Dissenters' Rights. No Member or Unit Holder shall have any
dissenters' rights or appraisal rights or other similar rights as a result of
any merger or consolidation or other action involving the Company approved by
the Class A Members as provided in Section 6.16 hereof.
ARTICLE IV
CAPITAL
4.1 Units. The Company shall be authorized to issue 500,000,000 Units. Of
the total number of Units authorized in this Section 4.1, 350,000,000 Units are
hereby designated as Class A Units, and 150,000,000 Units are hereby designated
as Class B Units.
4.2 Capital Accounts. A Capital Account maintained for such Unit Holder in
accordance with the following provisions:
(a) To each Unit Holder's Capital Account there shall be credited (i)
such Unit Holder's Capital Contributions (determined in the case of the initial
Unit Holders as provided in Section 4.3(a)), (ii) such Unit Holder's
distributive share of Profits and any items in the nature of income or gain
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof, and
(iii) the amount of any Company liabilities assumed by such Unit Holder or which
are secured by any Property distributed to such Unit Holder.
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(b) To each Unit Holder's Capital Account there shall be debited (i) the
amount of money and the Gross Asset Value of any Property distributed to such
Unit Holder pursuant to any provision of this Agreement, (ii) such Unit Holder's
distributive share of Losses and any items in the nature of expenses or losses
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof, and
(iii) the amount of any liabilities of such Unit Holder assumed by the Company
or which are secured by any Property contributed by such Unit Holder to the
Company;
(c) In determining the amount of any liability for purposes of
subparagraphs (a) and (b) above there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations.
The provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulations Section 1.704-1(b), and shall
be interpreted and applied in a manner consistent with such Regulations. In the
event the Board of Directors shall determine that it is prudent, it may modify
the manner in which the Capital Accounts are maintained, provided that it is not
likely to have a material effect on the amounts distributed to any Person
pursuant to Article XI hereof upon the dissolution of the Company. The Board of
Directors also shall (i) make any adjustments that are necessary or appropriate
to maintain equality between the Capital Accounts of the Unit Holders and the
amount of capital reflected on the Company's balance sheet, as computed for book
purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii)
make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
4.3 Initial Issuance of Units; Offering of Additional Units.
(a) MCP Colorado will fund the Company on the Closing Date specified in
the Transaction Agreement by contributing all of its assets to the Company in
consideration of the Company's assumption of all of MCP Colorado's liabilities
and other obligations. On the effective date of the merger of MCP Colorado into
the Company, each member of MCP Colorado shall be issued the number and class of
Units that corresponds to the number and class of units such member held in MCP
Colorado. As the result of the foregoing transactions, the Unit Holder shall be
deemed to have made a Capital Contribution in the amount the product of (i) the
number of Units distributed to such Unit Holder, times (ii) the Initial Agreed
Value Per Unit.
(b) From time to time, the Board of Directors may authorize the issuance
and sale by the Company of additional Units (within the limits set forth in
Section 4.1) but only for the purpose of funding costs of expansion of or
necessary maintenance and repairs to the Company's corn wet-milling and related
facilities, funding costs of construction or acquisition of new or existing
facilities or business related or complimentary to the Company's existing
business, funding losses which cannot reasonably be expected to be funded with
future earnings, and/or funding equity contributions to joint ventures involved
in businesses which are related or complimentary to the Company's existing
businesses. In the event the Company offers such additional Units, the Company
shall offer the existing Class A and Class B Members the opportunity to purchase
additional Units so as to permit them to maintain at a constant level their then
existing percentage of the total Class A or Class B Units.
4.4 No Capital Calls. The Company may not require Members to make
additional contributions of capital to the Company for any reason, except that
the Board of Directors may, in its discretion, by resolution require that any
Member to whom a Tax Withholding Obligation is attributable make an additional
contribution to the capital of the Company in an amount equal to such Tax
Withholding Obligation less the amount of any loans for such purpose made to the
Company pursuant to Section 4.9.
4.5 Tax Withholding Obligations. The Board of Directors may, in its
discretion, by resolution require that any Member to whom a Tax Withholding
Obligation is attributable make an additional contribution to the capital of the
Company in an amount equal to such Tax Withholding Obligation less the amount of
any loans for such purpose made to the Company pursuant to Section 4.9.
4.6 Transferee Succeeds to Transferor's Capital Account. Any transfers
permitted by Article X of this Agreement by a Member to a transferee of all or
a part of such Member's Membership Interest in
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the Company shall vest in such transferee (and such transferee shall become a
successor in interest) the interest of the transferor Member's Capital Account
to the extent of the Membership Interest transferred.
4.7 No Right to Return of Contributions. The Members (including terminated
members) shall have no right to the withdrawal or the return of their respective
Capital Contributions except to the extent set forth in Article XI upon
liquidation of the Company.
4.8 No Interest on Capital Contributions. Other than Distributions
authorized pursuant to Article V or Article XI, no Member shall be entitled to
receive any interest or other property on account of the Member's Capital
Contributions to the Company.
4.9 Loans to the Company. A Member may lend money to the Company if
authorized by the Board of Directors. Any such loan shall not be treated as a
Capital Contribution for any purpose and shall not entitle the Member to any
increase in such Member's Membership Interest. The Company shall be obligated to
such Member for the amount of any such loan, with interest thereon at such rate
as may have been agreed upon by the Board of Directors.
4.10 No Repayment Liability. No Member, Director or other Unit Holder shall
be personally liable for the repayment of any Capital Contributions of any other
Unit Holder.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocation of Profits and Losses. After giving effect to the special
allocations set forth in Section 5.2 or Section 5.3, Profits and Losses for any
accounting period shall be allocated to the Unit Holders and shall be divided
among them in proportion to the number of Units held by each as set forth on the
Membership Register.
5.2 Special Allocations. The following special allocations shall be made
in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article V, if there is a net decrease in Company Minimum Gain during any
allocation period, each Unit Holder shall be specially allocated items of
Company income and gain for such allocation period (and, if necessary,
subsequent allocation periods) in an amount equal to such Unit Holder's share of
the net decrease in Company Minimum Gain, determined in accordance with
Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Unit Holder pursuant thereto. The items to be so allocated shall be
determined in accordance with sections 1.704-2(f) (6) and 1.704-2(j) (2) of the
Regulations. This Section 3.3(a) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(f) of the Regulations and shall be
interpreted consistently therewith.
(b) Unit Holder Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(i) (4) of the Regulations, notwithstanding any other provision
of this Article V, if there is a net decrease in Unit Holder Nonrecourse Debt
Minimum Gain attributable to a Unit Holder Nonrecourse Debt during any
allocation period, each Unit Holder who has a share of the Unit Holder
Nonrecourse Debt Minimum Gain attributable to such Unit Holder Nonrecourse Debt,
determined in accordance with Section 1.704-2(i) (5) of the Regulations, shall
be specially allocated items of Company income and gain for such allocation
period (and, if necessary, subsequent allocation periods) in an amount equal to
such Unit Holder's share of the net decrease in Unit Holder Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i) (4). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Unit Holder pursuant thereto. The items
to be so allocated shall be determined in accordance with Sections 1.704-2(i)
(4) and 1.704-2(j) (2) of the Regulations. This Section 5.2(b) is intended to
comply with the minimum gain chargeback requirement in Section 1.704-2(i) (4) of
the Regulations and shall be interpreted consistently therewith.
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(c) Qualified Income Offset. In the event any Unit Holder unexpectedly
receives any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of
the Regulations, items of Company income and gain shall be specially allocated
to such Unit Holder in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, the Adjusted Capital Account Deficit of the
Unit Holder as quickly as possible, provided that an allocation pursuant to this
Section 5.2(c) shall be made only if and to the extent that the Unit Holder
would have an Adjusted Capital Account Deficit after all other allocations
provided for in this Article V have been tentatively made as if this Section
5.2(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Unit Holder has a deficit
Capital Account at the end of any allocation period which is in excess of the
sum of (i) the amount such Unit Holder is obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5),
each such Unit Holder shall be specially allocated items of Company income and
gain in the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section 5.2(d) shall be made only if and to the
extent that such Unit Holder would have a deficit Capital Account in excess of
such sum after all other allocations provided for in this Article V have been
made as if Section 5.2(c) and this Section 5.2(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any allocation
period shall be specially allocated to the Unit Holders in proportion to their
respective Units held.
(f) Unit Holder Nonrecourse Deductions. Any Unit Holder Nonrecourse
Deductions for any allocation period shall be specially allocated to the Unit
Holder who bears the economic risk of loss with respect to the Unit Holder
Nonrecourse Debt to which such Unit Holder Nonrecourse Deductions are
attributable in accordance with Regulations Section 1.704-2(i) (1).
(g) Section 754 Adjustments. To the extent an adjustment to the adjusted
tax basis of any Company asset, pursuant to Code Section 734(b) or Code Section
743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Unit Holder in complete
liquidation of such Unit Holder's interest in the Company, the amount of such
adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Unit Holders in accordance with their interests in the Company in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Unit Holder to
whom such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) Allocations Relating to Taxable Issuance of Units. Any income, gain,
loss or deduction realized as a direct or indirect result of the issuance of
Units by the Company shall be allocated among the Unit Holders so that, to the
extent possible, the net amount of such items, together with all other
allocations under this Agreement to each Unit Holder shall be equal to the net
amount that would have been allocated to each such Unit Holder if the items had
not been realized.
(i) Allocations Relating to Special Financial Interests. If a
distribution is made to a holder of a Special Financial Interests under Section
5.7(a) or 11(d), a corresponding amount of income, gain, gross receipts or gross
sales proceeds, as determined by the Board of Directors, shall be allocated to
such holder.
5.3 Curative Allocations. The allocations set forth in Sections 5.2(a)
through 5.2(g) and 5.4 (the "Regulatory Allocations") are intended to comply
with certain requirements of the Regulations. It is the intent of the Unit
Holders that, to the extent possible, all Regulatory Allocations shall be offset
either with other Regulatory Allocations or with special allocations of other
items of Company income, gain, loss or deduction pursuant to this Section 5.3.
Therefore, notwithstanding any other provision of this Section 3 (other than the
Regulatory Allocations), the Board of Directors shall make such offsetting
special allocations of Company income, gain, loss or deduction in whatever
manner it determines appropriate so that, after such offsetting allocations are
made, each Unit Holder's Capital Account balance is, to the extent possible,
equal to the Capital Account balance such Unit Holder would have had if the
Regulatory Allocations were not part of the Agreement and all Company items were
allocated pursuant to Sections 5.1 and 5.2(h).
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5.4 Loss Limitation. Losses allocated pursuant to Section 5.1 hereof shall
not exceed the maximum amount of Losses that can be allocated without causing
any Unit Holder to have an Adjusted Capital Account Deficit at the end of any
allocation period. In the event some but not all of the Unit Holders would have
Adjusted Capital Account Deficits as a consequence of an allocation of Losses
pursuant to Section 5.1 hereof, the limitation set forth in this Section 5.4
shall be applied on a Unit Holder by Unit Holder basis and Losses not allocable
to any Unit Holder as a result of such limitation shall be allocated to the
other Unit Holders in accordance with the positive balances in such Unit
Holder's Capital Accounts so as to allocate the maximum permissible Losses to
each Unit Holder under Section 1.704-1(b)(2)(ii)(d) of the Regulations.
5.5 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the Board of
Directors using any permissible method under Code Section 706 and the
Regulations thereunder.
(b) The Unit Holders are aware of the income tax consequences of the
allocations made by this Article 5 and hereby agree to be bound by the
provisions of this Article 5 in reporting their shares of Company income and
loss for income tax purposes.
(c) Solely for purposes of determining a Unit Holder's proportionate
share of the "excess nonrecourse liabilities" of the Company within the meaning
of Regulations Section 1.752-3(a) (3), the Unit Holders' interests in Company
profits are in proportion to their Units held.
To the extent permitted by Section 1.704-2(h) (3) of the Regulations, the
Company shall endeavor to treat distributions as having been made from the
proceeds of a Nonrecourse Liability or a Unit Holder Nonrecourse Debt only to
the extent that such distributions would cause or increase an Adjusted Capital
Account Deficit for any Unit Holder.
5.6 Tax Allocations. In accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss, and deduction with respect to any
Property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Unit Holders so as to take account of any
variation between the adjusted basis of such Property to the Company for federal
income tax purposes and its initial Gross Asset Value using such allocation
method as may be provided by Regulations and selected by the Board of Directors.
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (b) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made
by the Board of Directors in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 5.6 are solely
for purposes of federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Unit Holder's Capital Account or
share of Profits, Losses, other items, or distributions pursuant to any
provision of this Agreement.
5.7 Distributions. Cash shall be distributed in the amounts and at such
times as the Board may determine in its discretion; provided, however, that the
declaration and making of any distribution shall in all instances be limited by
applicable provisions of the Act. Subject to such limitation, the Board shall
endeavor to cause the Company to make cash distributions at such times and in
such amounts as will permit the Unit Holders to make timely payment of income
taxes payable with respect to ownership of Units. Distributions shall be in such
amounts as the Board determines is not required to be retained by the Company to
meet the reasonably foreseeable cash requirements and needs of the business and
activities of the Company and to establish an adequate reserve for the payment
of Company liabilities and contingencies. Distributions of cash or other
property hereunder shall be made as follows:
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(a) In the sole discretion of the Board of Directors, distributions may
be made prorata to the holders of Special Financial Interests in any amount up
to the stated amount thereof provided that the aggregate amount of such
distributions shall not exceed the aggregate stated amount of all Special
Financial Interests.
(b) Except as otherwise provided in Section 5.7(a), to the Unit Holders
to be divided among them in proportion to the number of Units held by each Unit
Holder.
(c) Any distribution may be made subject to offset for any debt or other
amount owed by the Unit Holder or the holder of a Special Financial Interest to
the Company.
For purposes of determining those Unit Holders entitled to receive
distributions pursuant to this Section 5.7, the Board of Directors may fix in
advance a record date which shall be the first day of any calendar month
following the calendar month in which the Board of Directors declares the
distribution. If no such record date is fixed by the Board, the record date
shall be the first day of the calendar month in which the distribution is to
paid. Notwithstanding the foregoing, distributions made with respect to Units
that are the subject of a Transfer shall be made in accordance with Section 10.6
hereof and distributions made with respect to additional Units issued by the
Company shall be made in accordance with Section 10.6 as if such additional
Units had been the subject of a Transfer.
5.8 Tax Withholding Obligations Constitute a Distribution. Any Tax
Withholding Obligation which is withheld by the Company shall constitute a
distribution of such amount by the Company to the Unit Holder to whom such Tax
Withholding Obligation is attributable.
ARTICLE VI
BOARD OF DIRECTORS
6.1 Board of Directors. Except as otherwise provided in this Agreement, the
business and affairs of the Company shall be managed under the direction of the
Board of Directors as provided herein. Prior to the merger of MCP Colorado into
the Company pursuant to the Transaction Agreement, the Board of Directors shall
consist of the individuals identified as such in the Articles of Organization.
At the effective time of the merger of MCP Colorado into the Company pursuant to
the Transaction Agreement, the Board of Directors shall consist of the Directors
specified in the Transaction Agreement. Thereafter, the Board of Directors shall
consist of twenty-four (24) Directors, who shall be elected by the Class A
Members in accordance with this Article.
6.2 Qualifications of Directors. All Directors elected by the Class A
Members shall be natural persons and must be Class A Members or an elected or
appointed representative of a Class A Member which is other than a natural
person.
6.3 Election of Directors. At each Annual Meeting of the Members, elections
shall be held to fill all vacancies on the Board of Directors. Class A Members
may vote by mail ballot for directors, provided a mail ballot has been
specifically authorized by the Board of Directors. Directors shall be elected
for staggered terms of three (3) years and until a successor is elected and
qualified.
6.4 Removal of Directors. The Board of Directors or any individual director
may be removed from office, with cause, by a vote of a majority of the Class A
Members from the district that elected the director that are present in person
or by mail ballot, and that are entitled to vote at the meeting of the Class A
Members at which said removal of directors is considered. In case any one (1) or
more directors be so removed, successor directors shall be elected at the same
meeting. Such successor directors shall be from the same district or districts
as the director or directors so removed. Notice of a meeting at which any Class
A Members will be voting to remove a director must state removal of directors as
an item to be voted upon at the meeting.
6.5 Vacancies. Whenever a vacancy occurs on the Board of Directors, other
than from expiration of a term of office or removal from office, a majority of
the remaining Directors shall appoint a Member
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from the same district to fill the vacancy until the next Annual Meeting of the
Class A Members, at which time the Members may elect a new Director to fill the
vacancy for the remainder of the term of the vacant Directors.
6.6 Annual Meeting. An annual organizational meeting of the Board of
Directors shall be held within thirty (30) days following each Annual Meeting of
the Class A Members for the purpose of the election of the board officers for
the ensuing year, and to transact such other business as may properly come
before the meeting.
6.7 Regular Meetings. A regular meeting of the Board of Directors shall be
held at such frequency and at such time and place as the Board of Directors may
determine.
6.8 Special Meetings. A special meeting of the Board of Directors shall be
held whenever called by the Chairman or, during his or her absence, by the Vice
Chairman, on forty-eight (48) hours' notice to each Director personally, or by
mail. Special meetings shall be called by the Chairman or Secretary in like
manner and on like notice on the written request of any Director. The purpose of
a special meeting need not be specified in the notice of the meeting. Notice of
any special meeting may be waived by attendance at a meeting, except when a
Director attends a meeting and objects to the transaction of business, or by a
waiver of notice signed before, during, or after the meeting.
6.9 Quorum, Voting. A majority of the Directors in office shall constitute
a quorum necessary to the transaction of business at any annual organizational
meeting, regular meeting, or special meeting of the Board of Directors, but if
less than a quorum is present, those Directors present may adjourn the meeting
from time to time until a quorum shall be present. All questions shall be
decided by a vote of a majority of the Directors present at a meeting.
6.10 Executive Committee. The Board of Directors may designate three (3) or
more Directors, one of whom shall be the Chairman of the Board, to constitute an
Executive Committee. The Board of Directors may elect other Directors as
alternative members of the Executive Committee. To the extent determined by the
Board of Directors, the Executive Committee shall have and exercise the
authority of the Board of Directors in the direction of the Company; provided,
however, that the Executive Committee shall not have the powers of the Board of
Directors in regard to apportionment or distribution of cash, election of
officers, filling vacancies on the Board of Directors, and recommending
amendments to this Agreement. The Executive Committee shall act only in the
interval between meetings of the Board of Directors, and shall be subject at all
times to the control and direction of the Board of Directors. Copies of the
minutes of each Executive Committee meeting shall be mailed to all directors
within seven (7) days following such meeting.
6.11 Compensation. The compensation of the Board of Directors shall be
determined by resolution of the Board of Directors, which shall be presented for
approval to the Class A Members at any Annual Meeting or special meeting, and
when so determined shall be continuing until altered or amended. Board officers
shall be entitled to reimbursement for actual expenses incurred in attending
Board of Directors meetings or in conducting other business of the Company. Such
expense accounts shall be approved by officers of the Board of Directors.
6.12 Number of Districts. The territory in which the Class A Members are
located shall be divided into eight districts. The boundaries of such districts
shall be defined without dividing counties, and the number of Directors
representing each district shall be approximately proportionate to the number of
Class A Members located in that district. Each district shall be represented by
two or more Directors, who shall be elected at the Annual Meeting, as provided
in Section 6.3.
6.13 Districting Committee. Periodically, the Board of Directors may
appoint a Districting Committee. The Districting Committee shall review the
boundaries of the districts, the number of Class A Members located in each
district, and the number of Directors representing each district. The
Districting Committee shall then recommend any changes to said boundaries that
are necessary to maintain equality of representation among such districts.
The boundaries of the districts, the number of Class A Members located in
each district, and the number of Directors representing each district shall be
subject to review by the Districting Committee
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at least every three years. The recommendations of the Districting Committee may
be accepted, rejected, or modified by the Board of Directors. Rather than
appointing a Districting Committee, the Board of Directors may delegate the
duties, powers, rights, and responsibilities described in this Section 6.13 to
any existing committee of the Board of Directors.
6.14 Counties and Districts. Initially, the counties in each of the eight
districts shall be as follows:
(a) District One. District One shall include the following counties in
Minnesota: Anoka, Big Stone, Chisago, Clay, Crow Wing, Dakota, Douglas, Grant,
Hennepin, Kanabec, Kandiyohi, Mahnomen, Meeker, Mille Lacs, Morrison, Norman,
Otter Tail, Pennington, Polk, Pope, Ramsey, Red Lake, Sherburne, Stearns,
Stevens, Swift, Todd, Traverse, Wadena, Washington, Wilkin, and Wright.
(b) District Two. District Two shall include the following counties in
Minnesota: Blue Earth, Carver, Dodge, Faribault, Fillmore, Freeborn, Goodhue, Le
Sueur, McLeod, Mower, Nicollet, Olmsted, Renville, Rice, Scott, Sibley, Steele,
Wabasha, and Waseca.
(c) District Three. District Three shall include Brown County, Redwood
County, and Watonwan County in Minnesota.
(d) District Four. District Four shall include Chippewa County and Lac
Qui Parle County in Minnesota.
(e) District Five. District Five shall include Lincoln County and Yellow
Medicine County in Minnesota, and shall also include the following counties in
South Dakota: Beadle, Bon Homme, Brookings, Brown, Charles Mix, Clark, Clay,
Codington, Deuel, Grant, Hamlin, Kingsbury, Lake, Lincoln, McCook, Miner,
Minnehaha, Moody, Spink, Turner, and Yankton.
(f) District Six. District Six shall include Lyon County in Minnesota.
(g) District Seven. District Seven shall include the following counties
in Minnesota: Cottonwood, Jackson, Martin, Murray, Nobles, Pipestone, and Rock.
District Seven shall also include the following counties in Iowa: Cerro Gordo,
Clay, Chickasaw, Dickinson, Emmet, Lyon, Mitchell, Osceola, Sioux, and
Winnebago.
(h) District Eight. District Eight shall include all of the counties in
Nebraska, and shall also include the following counties in Iowa: Carroll,
Crawford, Davis, Delaware, Dubuque, Fremont, Harrison, Ida, Linn, Louisa, Page,
Pottawattamie, Shelby, Story, and Webster.
If a situation arises where a Class A Member is located in a county or
state which is not designated as part of the any of the eight districts, then
the Board of Directors may add that county or state to whichever of the
districts the Board of Directors determines is most logical, in its sole
discretion, and may notify the affected Member of its decision. The Board of
Directors may take this action without the need for any additional amendments to
this Agreement. The designation of new counties to existing districts by the
Board of Directors under these circumstances shall be reviewed by the
Districting Committee when it is next appointed.
6.15 Directors and Districts. Initially, the number of directors
representing each district shall be as follows:
(a) District One shall be represented by three directors.
(b) District Two shall be represented by three directors.
(c) District Three shall be represented by three directors.
(d) District Four shall be represented by two directors.
(e) District Five shall be represented by three directors.
(f) District Six shall be represented by two directors.
(g) District Seven shall be represented by three directors.
(h) District Eight shall be represented by five directors.
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6.16 Board Actions Requiring Approval of Class A Members. The Board may not
authorize or approve the following actions without the affirmative vote or prior
consent of sixty-six and two-thirds percent (66.67%) of the Class A Members
voting in person, by proxy or by mail ballot at a duly called Members meeting:
(a) Any amendment of this Agreement or the Articles of Organization of
the Company;
(b) Approve any merger, consolidation, share or interest exchange, or
sale of all or substantially all of the assets of the Company (other
than the merger contemplated in the Transaction Agreement and a
merger of a wholly-owned subsidiary with and into the Company in
which the Company is the surviving entity);
(c) Voluntarily cause the dissolution of the Company; and
(d) Authorize any transaction, agreement or action on behalf of the
Company that is not related or complimentary to the Company's
existing business or would make it impossible for the Company to
carry on the primary business of the Company.
6.17 Board Actions Requiring Approval of Class B Members. Neither the Board
nor the Class A Members may authorize or approve the following actions without
the prior consent of the holders of sixty-six and two-thirds percent (66.67%) of
the Class B Units:
(a) Make any material change in the principal business of the Company;
(b) Sell, lease, liquidate, exchange, dispose of or otherwise transfer
substantially all of the assets of the Company; or
(c) Embark upon any capital expenditure project that would involve the
expenditure by the Company of any amount in excess of Two Hundred
and Fifty Thousand Dollars ($250,000.00).
Holders of Class B Units shall not unreasonably withhold any consent
required of it pursuant to this Section 6.17. For purposes of assessing the
reasonableness of the withholding by any holder of Class B Units of consent
hereunder, reference shall be made to the viewpoint of a lender or passive
investor that occupies the position of sole holder of the Class B Units.
6.18 Absent Directors. A Director of the Company may give advance written
consent or opposition to a proposal to be acted upon at a Board meeting. If the
Director is not present at the meeting, consent or opposition to a proposal does
not constitute presence at the meeting for purposes of determining existence of
a quorum, but consent or opposition shall be counted as a vote in favor of or
against the proposal and shall be entered in the minutes or other record of
action at the meeting, if the proposal acted on at the meeting is substantially
the same or has substantially the same effect as the proposal to which the
Director has consented or objected.
6.19 Action Without Meeting. Any action required or permitted to be taken
at a meeting of the Directors may be taken without a meeting by written action
signed by all of the Directors. The written action is effective when signed by
all the Directors, unless a different effective time is provided in the written
action.
6.20 Telephonic Meetings. Any regular or special meeting of the Directors
may be taken by telephonic or electronic conference or any other means of
communication through which the Directors can simultaneously hear each other
during the conference, if the same notice is given of the conference to each
Director, and if the Directors participating in the conference would be
sufficient to constitute a quorum at a meeting. Participation in a telephonic,
electronic, or other conference of such means constitutes presence at the
meeting in person if all the other requirements are met.
ARTICLE VII
DUTIES OF DIRECTORS
7.1 General Powers. The Board of Directors shall direct the business and
affairs of the Company, and shall exercise all of the powers of the Company
except such as are by this Agreement conferred
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upon or reserved to the Members. The Board of Directors shall adopt such
policies, rules, regulations, and actions not inconsistent with law or this
Agreement as it may deem advisable.
7.2 Employment of President and Chief Executive Officer. The Board of
Directors shall select and employ a President and Chief Executive Officer and
fix the compensation of such President and Chief Executive Officer. The Board of
Directors may terminate the employment of the President and Chief Executive
Officer with or without cause at any time, unless an enforceable written
contract between the Company and the President and Chief Executive Officer
provides otherwise.
7.3 Bonds and Insurance. The Board of Directors shall require the President
and Chief Executive Officer and all officers, agents, and employees charged by
the Company with responsibility for the custody of any of its funds or property
to give adequate bonds. Such bonds, unless cash security is given, shall be
furnished by a responsible bonding company and approved by the Board of
Directors, and the cost thereof shall be paid by the Company. The Company shall
provide for the adequate insurance of the property of the Company, or property
which may be in the possession of the Company, or stored by it, and not
otherwise adequately insured, and in addition adequate insurance covering
liability for accidents to all employees and the public.
7.4 Accounting System and Audit. The Board of Directors shall cause to be
installed and maintained an adequate system of accounts and records. At least
once in each year the books and accounts of the Company shall be audited by an
independent auditing firm, and the report of such audit shall be made at the
next Annual Meeting of the Class A Members.
7.5 Agreements with Members. The Board of Directors and such duly
authorized officers shall have the power to carry out all agreements of the
Company with its Members in every way advantageous to the Company representing
the Members collectively.
7.6 Depository. The Board of Directors may direct management to approve one
or more banks or other financial institutions to act as depositories of the
funds of the Company, and to determine the manner of receiving, depositing, and
disbursing the funds of the Company, the form of checks, and the person or
persons by whom they shall be signed, with the power to change such banks and
the person or persons signing such checks and the form thereof at will.
ARTICLE VIII
BOARD OFFICERS; PRESIDENT AND CHIEF EXECUTIVE OFFICER
8.1 Election of Board Officers. At each Annual Meeting of the Board of
Directors, the Board of Directors shall elect the principal officers of the
Board, which principal officers shall be a Chairman, a Vice Chairman, a
Secretary and such other Board officers as may be established by the Board. The
Chairman, Vice Chairman and Secretary must be Directors of the Company. A board
officer may be removed by the Board of Directors whenever in its judgment the
best interests of the Company will be served thereby. If any vacancy shall occur
among the principal officers of the Board, it shall be filled by the Board of
Directors at its next regular meeting following the vacancy.
8.2 Duties of Chairman. The Chairman shall:
(a) preside over all meetings of the Members of the Company, the
Executive Committee, and the Board of Directors;
(b) call special meetings of the Board of Directors;
(c) perform all acts and duties usually performed by an executive and
presiding officer; and
(d) sign all membership certificates and such other papers of the Company
as the Chairman may be authorized or directed to sign by the Board of Directors;
provided, however, that the Board of Directors may authorize any person to sign
any or all checks, contracts, and other documents in writing on behalf of the
Company. The Chairman shall perform such other duties as may be prescribed by
this Agreement or by the Board of Directors.
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8.3 Duties of Vice Chairman. In the absence or disability of the Chairman,
the Vice Chairman shall perform the duties of the Chairman.
8.4 Duties of Secretary. The Secretary shall attend all meetings of the
Company and the Board of Directors, all meetings of the Executive Committee, and
all meetings of the Members, and shall record all votes and keep minutes of all
proceedings. The Secretary shall keep a complete record of all meetings of the
Company and of the Board of Directors. The Secretary shall sign such papers
pertaining to the Company as he or she may be authorized or directed to sign by
the Board of Directors. The Secretary shall serve all notices required by law
and by this Agreement, including notices of meetings, and shall make a full
report of all matters and business pertaining to his or her office to the
Members at the Annual Meeting. The Secretary shall cause to be kept and
maintained complete membership records, shall make all reports required by law,
and shall perform such other duties as may be required of him or her by the
Company or the Board of Directors. An Assistant Secretary, if any, shall perform
the duties of the Secretary during the absence or disability of the Secretary.
8.5 Duties of President and Chief Executive Officer. The President and
Chief Executive Officer shall be employed by the Board of Directors as an
officer of the Company and shall perform such duties as the Board of Directors
may prescribe, and shall exercise such authority as the Board of Directors may
from time to time vest in him or her. Under the direction of the Board of
Directors, the President and Chief Executive Officer shall have general charge
of the ordinary and usual business operations of the Company, including the
purchasing, marketing and handling of all products and supplies handled by the
Company.
The President and Chief Executive Officer shall cause all money belonging
to the Company that comes into his or her possession in the name of the Company
to be deposited in a bank or other financial institution selected by the Board
of Directors, and if authorized to do so by the Board of Directors, shall make
all disbursements by check or electronic transfer of funds therefrom for the
ordinary and necessary expenses of the business in the manner and form
prescribed by the Board of Directors. On the appointment of his or her
successor, the President and Chief Executive Officer shall deliver to said
successor all money and property belonging to the Company which he or she has in
his or her possession or over which he or she has control.
The President and Chief Executive Officer shall be required to maintain the
Company's records and accounts in such a manner that the true and correct
condition of the Company's business may be ascertained therefrom at any time.
The President and Chief Executive Officer shall render annual and periodic
statements in the form and in the manner prescribed by the Board of Directors,
and shall carefully preserve all books, documents, correspondence, and records
of whatever kind pertaining to the business of the Company that may come into
his or her possession.
The President and Chief Executive Officer shall employ, supervise, and
dismiss any or all officers or employees of the Company, except agents or
counsel specifically employed by the Board of Directors. The President and Chief
Executive Officer may designate employees of the Company as various vice
presidents or assistant secretaries of the Company and define their duties and
responsibilities as such officers of the Company.
8.6 Compensation. The salary, compensation, and other benefits of the
President and Chief Executive Officer and all Board officers shall be fixed by
the Board of Directors; provided, however, that no officer who is a director may
take part in the vote on his or her own compensation.
8.7 Special Powers. The President and Chief Executive Officer or any
officer may be vested by the Board of Directors with any power and charged with
any duty not contrary to law or inconsistent with this Agreement.
ARTICLE IX
REQUIRED RECORDS; ACCOUNTING AND TAX MATTERS
9.1 Required Records. The Board shall cause to be maintained the required
records of the Company in a complete and accurate manner. The Board shall cause
to be maintained the required
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records on a current basis, including, without limitation, the recording of any
transfer of all or part of a Member's Membership Interest pursuant to Article X
hereof in the required records as soon as the Board receives notice of such
transfer. The Board shall conspicuously note in the required records that the
Members' Membership Interests are governed by this Agreement and that this
Agreement contains a restriction on the assignment of Membership Interests. The
required records at all times shall be kept at the principal executive office of
the Company or such other place or places within the United States as the Board
may determine. Each Member shall have access to and may inspect and copy the
required records as provided to the extent allowable and in accordance with the
Act. The costs of such inspection and copying shall be borne by the inspecting
Member.
9.2 Books of Account. The Board shall cause to be kept complete and
accurate accounts of all transactions of the Company in proper books of account
and shall enter or cause to be entered therein a full and accurate account of
each and every Company transaction in accordance with accounting principles and
methods as determined by the Board with the advice of the Company's accountants.
The books of account of the Company shall be closed and balanced as of the end
of each fiscal year. The books of account and other records of the Company shall
at all times be kept at the principal executive office of the Company or such
other place or places within the United States as the Board may determine. Each
Member shall have access to and may inspect and copy any of such books and
records at all reasonable times and in accordance with the Act. The costs of
such inspection and copying shall be borne by the inspecting Member.
9.3 Tax Characterization, Returns, Elections and Information. The Members
acknowledge that the Company will be characterized as a partnership for federal
income tax purposes. Management shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any federal, state or
local tax returns required to be filed by the Company and, except as otherwise
provided in any Board resolution, shall have complete discretion and authority
concerning any tax election required or permitted to be made by the Company.
Notwithstanding the preceding sentence, the Company shall not make an election
under Section 754 of the Code unless the Board shall determine by resolution
that the tax benefits made available to affected transferee Members as a result
of such an election are likely to be of sufficient magnitude to justify the
increased cost and administrative burden of accounting for the resulting basis
adjustments under Sections 734(b) and 743(b) of the Code.
Management shall deliver or cause to be delivered to each Member within a
reasonable time after the end of each fiscal year or, if applicable, after the
extended due date of the Company's tax return, such information concerning the
Company as is necessary or appropriate to permit each Member to properly
complete any federal, state or local income tax return in which Members must
include items attributable to the Company. Management shall endeavor to provide
sufficient information from time to time during the year as may be appropriate
to permit the Members to pay federal, state and local estimated taxes.
9.4 Tax Matters Partner; Tax Audit Costs. The Tax Matters Partner shall be
the person so designated in accordance with Sections 6221-33 of the Code and
related Treasury Regulations and such person shall assume the responsibilities
assigned to tax matters partners therein. The Board may designate the Tax
Matters Partner in accordance with said sections and regulations or, if no such
designation is made, the Tax Matters Partner shall be the Chairman of the Board
or, if such Chairman is not a Member, the Director who is a Member and who,
among the other Directors who are members, individually owns the largest number
of Units.
If on advice of counsel the Tax Matters Partner determines that it is in
the best interest of the Members that the final results of any administrative
proceeding be appealed by the institution of legal proceedings, the Tax Matters
Partner is hereby authorized to commence such legal proceedings in such forum as
the Tax Matters Partner, on advice of counsel, determines to be appropriate. In
the event the Tax Matters Partner selects a forum for appeal in which the Unit
Holders are required to deposit a proportionate share of any disputed tax before
making such appeal, the Tax Matters Partner must obtain the approval of the
Board and the consent of Members owning a majority of the Voting Interests. If
such approval and consent is obtained, each of the Unit Holders will be required
to deposit and pay such Unit Holder's proportionate share of such disputed tax
before participating in such appeal. The Unit Holders
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acknowledge that such deposit under current law does not earn interest and that
the failure to so deposit may preclude a Unit Holder from pursuing any other
sort of appeal by court action.
The Tax Matters Partner shall not be liable to any other Unit Holder for
any action taken with respect to any such administrative proceedings or appeal
so long as the Tax Matters Partner is not grossly negligent or guilty of willful
misconduct. Any costs paid or incurred by the Tax Matters Partner in connection
with its activities in such capacity shall be reimbursed by the Company.
Each Unit Holder acknowledges that any cost a Unit Holder may incur in
connection with an audit of such Unit Holder's income tax return, including an
audit of such Unit Holder's investment in this Company, is such Unit Holder's
sole responsibility and obligation. The Company, the Board, the officers and the
Tax Matters Partner shall not be liable to any Unit Holder for reimbursement or
sharing of any such costs.
ARTICLE X
TRANSFER OF MEMBER INTERESTS
10.1 Restrictions on Transfer.
(a) No Person shall Transfer any Unit if, in the determination of the
Board, such Transfer would cause the Company to be treated as a "publicly traded
partnership" within the meaning of Section 7704(b) of the Code.
(b) No Person shall Transfer any Unit except with the prior consent of
the Board of Directors.
(c) Any Transfer of a Unit that would result in a violation of the
restrictions in Section 10.1(a) or (b) shall be null and void, and the intended
transferee shall acquire no rights in such Unit.
10.2 Conditions Precedent to Transfers. The Board of Directors may not
recognize any Transfer of Units unless and until the Company has received:
(a) an opinion of counsel (whose fees and expenses shall be borne by the
transferor) satisfactory in form and substance to the Board that such Transfer
may be lawfully made without registration or qualification under applicable
state and federal securities laws, or such Transfer is properly registered or
qualified under applicable state and federal securities laws;
(b) such documents and instruments of conveyance executed by the
transferor and transferee as may be necessary or appropriate in the opinion of
counsel to the Company to effect such Transfer, except that in the case of a
Transfer of Units involuntarily by operation of law, the Transfer shall be
confirmed by presentation of legal evidence of such Transfer, in form and
substance satisfactory to the Company;
(c) the transferor's Certificate of Membership Interest;
(d) the transferee's taxpayer identification number and sufficient
information to determine the transferee's initial tax basis in the interest
transferred, and any other information reasonably necessary to permit the
Company to file all required federal and state tax returns and other legally
required information statements or returns;
(e) evidence satisfactory in form and substance to the Board that the
transferee meets the minimum and maximum Unit ownership requirements set forth
in Section 3.2 of this Agreement;
(f) in the case of a Transfer of Class A Units subject to a 1996 Loss
Payable, full payment in cash to offset such Member's 1996 Loss Payable; and
(g) in the case of a Transfer of Class B Units, a written agreement
executed by the transferee to the effect that transferee is not entitled to the
benefits of the Stockholder Agreement between the Cooperative and Archer Daniels
Midland Corporation dated August 27, 1997;
provided, however, the Board may waive any or all of the conditions stated
above. In addition, the Board may adopt such other conditions on the Transfer of
Units as it deems appropriate.
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10.3 Substitution of Member. A transferee of Units shall be admitted as a
substitute Member only if (i) the provisions of this Article have been met, (ii)
the transferee executes an instrument satisfactory to the Company accepting and
adopting the terms and provisions of this Agreement and (iii) the transferor
pays all reasonable expenses incurred by the Company in connection with the
Transfer and, if applicable, the transferee's admission as a new Member. The
admission of a transferee as a substitute Member shall not result in the release
of the Member who transferred the Unit from any liability that such Member may
have to the Company.
10.4 Effective Date of Transfer. Any Transfer of a Unit shall be deemed
effective as of the day of the month and year (i) which the Transfer occurs (as
reflected by the form of Assignment) and (ii) the transferee's name and address
and the nature and extent of the Transfer are reflected in the records of the
Company. The name, address, Capital Contributions, class and number of Units
held by each Member shall be set forth on the Membership Register, which shall
be modified from time to time as Transfers occur or as additional Units are
issued pursuant to the provisions of this Agreement. The appropriate Company
records shall be conspicuously noted to prevent the Transfer of Units otherwise
than in accordance with this Article X. Notwithstanding the foregoing, the
effective date of a Transfer for purposes of allocation of Profits and Losses
and for distributions shall be determined pursuant to Section 10.5. Any
transferee of a Unit shall take subject to the restrictions on transfer imposed
by this Agreement.
10.5 Distributions and Allocations in Respect to Transferred Interest. If
any Unit is transferred during any accounting period in compliance with the
provisions of this Article X, then Profits and Losses, each item thereof, and
all other items attributable to such Units for such accounting period shall be
divided and allocated between the transferor and the transferee by taking into
account their varying interests during such accounting period in accordance with
Code Section 706(d). Solely for purposes of making such allocations and
distributions, the Company shall use the interim closing of the books method and
the convention that recognizes such Transfer as of the beginning of the calendar
month following the calendar month in which the notice, documentation and
information requirements of this Article X have been substantially complied
with. All distributions on or before the end of the calendar month in which such
requirements have been substantially complied with shall be made to the
transferor and all distributions thereafter shall be made to the transferee. The
Board shall have the power and authority to adopt another reasonable method
and/or convention with respect to such allocations and distributions; provided,
that reasonable notice of any change is given to the Members in advance of the
change. Neither the Company, the Board, any Director nor any Member shall incur
any liability for making allocations and distributions in accordance with the
provisions of this Section 10.5, whether or not the Board or any Director or the
Company or any Member has knowledge of any Transfer of ownership of any interest
in the Company.
ARTICLE XI
DISSOLUTION AND WINDING UP
11.1 Liquidating Events. The Company shall be dissolved and commence
winding up and liquidating upon the affirmative vote of at least sixty-six and
two-thirds percent (66.67%) of the Class A Members voting at a duly called
meeting.
As further provided in Article III herein, the dissociation and termination
of the continued membership of a Member shall not cause the dissolution of the
Company and shall not require the Company's business to be wound-up, so long as
the Company has the minimum number of Members required under applicable state
law within ninety (90) days following the Event of Dissociation.
11.2 Winding Up.
(a) Notice of Dissolution. As soon as possible following the occurrence
of a Liquidating Event, the appropriate representative of the Company shall
execute a notice of dissolution in such form as shall be prescribed by the
Colorado Secretary of State, setting forth the information required under the
Act, and shall file same with the Colorado Secretary of State's office.
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(b) Winding Up of Business. Upon filing a notice of dissolution with the
Colorado Secretary of State, the Company shall cease to carry on its business,
except insofar as may be necessary for the winding up of its business, but its
separate existence shall continue until a certificate of termination has been
issued by the Secretary of State or until a decree dissolving the Company has
been entered by a court of competent jurisdiction.
11.3 Distributions Upon Dissolution. Upon dissolution, the business of the
Company shall be wound up, the Directors shall take full account of the Company
assets and liabilities, and all assets shall be liquidated as promptly as is
consistent with obtaining the fair value thereof. If any assets are not sold,
gain or loss shall be allocated to the Unit Holders in accordance with Article V
as if such assets had been sold at their fair market value at the time of the
liquidation. If any assets are distributed to a Unit Holder, rather than sold,
the distribution shall be treated as a distribution equal to the fair market
value of the assets at the time of the liquidation. The assets of the Company
shall be applied and distributed in the following order of priority:
(a) First, to the payment of all debts and liabilities of the Company,
including all fees due the Directors, and including any loans or advances that
may have been made by the Members to the Company, in the order of priority as
provided by law;
(b) Second, to the establishment of any reserves deemed necessary by the
Directors or the Person winding up the affairs of the Company for any contingent
liabilities or obligations of the Company; and
(c) Third, to the Unit Holders, ratably in proportion to the credit
balances in their respective Capital Accounts after and including all
allocations to the Unit Holders and holders of Special Financial Interests under
Article V herein, including the allocation of any income, gain or loss from the
sale, exchange or other disposition (including a deemed sale pursuant to this
Section 11.3) of the Company's assets, in an amount equal to value of their
units as established by the Board of Directors;
(d) Fourth, to the holders of Special Financial Interests in proportion
to their stated amounts in amounts equal to the stated amount of such interests
less any previous distributions made with respect to such Interests; and
(e) Fifth, the balance, if any, to the Unit Holders, ratably in
proportion to the credit balances in their respective Capital Accounts, in an
amount equal to the aggregate credit balances in the Capital Accounts after and
including all allocations to the Unit Holders and holders of Special Financial
Interests under Article V herein, including the allocation of any income, gain
or loss from the sale, exchange or other disposition (including a deemed sale
pursuant to this Section 11.3) of the Company's assets.
11.4 Compliance With Regulations; Deficit Capital Accounts. In the event
the Company is "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article XI to
the Unit Holders who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Unit Holder has a deficit
balance in his Capital Account (after giving effect to all contributions,
distributions and allocations for all allocation periods, including the
allocation period during which such liquidation occurs), such Unit Holder shall
have no obligation to make any contribution to the capital of the Company with
respect to such deficit, and such deficit shall not be considered a debt owed to
the Company or to any other Person for any purpose whatsoever. In the discretion
of the Company, a pro rata portion of the distributions that would otherwise be
made to the Unit Holders pursuant to this Article XI may be:
(a) Distributed to a trust established for the benefit of the Unit
Holders for the purposes of liquidating Company assets, collecting amounts owed
to the Company, and paying any contingent or unforeseen liabilities or
obligations of the Company. The assets of any such trust shall be distributed to
the Unit Holders from time to time, in the reasonable discretion of the trustee,
in the same proportions as the amount distributed to such trust by the Company
would otherwise have been distributed to the Unit Holders pursuant to Section
11.3 hereof; or
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(b) Withheld to provide a reasonable reserve for Company liabilities
(contingent or otherwise) and to reflect the unrealized portion of any
installment obligations owed to the Company, provided that such withheld amounts
shall be distributed to the Unit Holders as soon as practicable.
11.5 Deemed Distribution and Recontribution. Notwithstanding any other
provision of this Article XI, in the event the Company is liquidated within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Dissolution Event has
occurred, the Property shall not be liquidated, the Company's debts and other
liabilities shall not be paid or discharged, and the Company's affairs shall not
be wound up. Instead, solely for federal income tax purposes, the Company shall
be deemed to have distributed the property in-kind to the Unit Holders, who
shall be deemed to have taken subject to all debts of the Company and other
liabilities all in accordance with their respective Capital Accounts.
Immediately thereafter, the Unit Holders shall be deemed to have recontributed
the property in-kind to the Company, which shall be deemed to have taken subject
to all such liabilities.
11.6 Allocations During Period of Liquidation. During the period commencing
on the first day of the Fiscal Year during which a Dissolution Event occurs and
ending on the date on which all of the assets of the Company have been
distributed to the Unit Holders pursuant to Section 11.3 hereof (the
"Liquidation Period"), the Unit Holders shall continue to share Profits, Losses,
gain, loss and other items of Company income, gain, loss or deduction in the
manner provided in Article V hereof.
11.7 Character of Liquidating Distributions. All payments made in
liquidation of the interest of a Unit Holder shall be made in exchange for the
interest of such Unit Holder in property pursuant to Section 736(b)(1) of the
Code, including the interest of such Unit Holder in Company goodwill.
ARTICLE XII
MEMBERS BOUND BY AGREEMENT
By their purchase or acceptance of Units, the Initial Members and any
Person who is admitted as an additional Member or a substitute Member shall be
subject to and bound by all the provisions of this Agreement, whether or not
such Member executes this Agreement or any other document referring to this
Agreement. However, such Person shall execute and acknowledge any documents and
instruments, in form and substance satisfactory to the Board, as the Board shall
deem necessary or advisable to effect such admission and to confirm the
agreement of the Person being admitted to be bound by all the terms and
provisions of this Agreement. Upon demand by the Board, such Person shall pay
all reasonable expenses in connection with such admission as a Member,
including, without limitation, legal fees and costs of preparation of any
amendment to or restatement of this Agreement, if necessary or desirable in
connection therewith.
ARTICLE XIII
INDEMNIFICATION OF DIRECTORS AND EMPLOYEES
13.1 Indemnity of Directors, Employees and Other Agents.
(a) To the fullest extent permitted by law, the Company shall indemnify
each Director from and make advances for expenses incurred by the Director in
connection with any claim made against the Director arising from an action or
omission made in good faith or which he or she reasonably believed to be in the
best interests of the Company, or any other such claim to the maximum extent
permitted under the Act, except to the extent the claim for which
indemnification is sought results from an act or omission of the Director
constituting fraud or willful misconduct.
(b) Except as may otherwise be provided in an agreement with an agent or
employee, the Company shall indemnify its employees and other agents who are not
Directors to the fullest extent permitted by law.
(c) Expenses (including legal fees and expenses) incurred by a Director
in defending any claim, demand, action, suit or proceeding subject to subsection
(a) above shall be paid by the Company
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in advance of the final disposition of such claim, demand, action, suit or
proceeding upon receipt of an undertaking (which need not be secured) by or on
behalf of the Director to repay such amount if it shall ultimately be finally
determined by a court of competent jurisdiction and not subject to appeal, that
the Director is not entitled to be indemnified by the Company as authorized
hereunder.
ARTICLE XIV
MISCELLANEOUS
14.1 Entire Agreement. This Agreement constitutes the entire agreement
among the parties and supersedes any prior agreement or understanding among them
with respect to the subject matter hereof.
14.2 Amendment. This Agreement may not be modified, amended, or
supplemented, without (a) the affirmative vote or prior consent of sixty-six and
two-thirds percent (66.67%) of the Class A Members voting in person, by proxy,
or by mail ballot at a duly called Members meeting (except that the Board may
amend Section 6.17(c) without the consent or approval of any Class A Members),
and (b) in the case of any modification, amendment or supplement which otherwise
modifies or amends Section 6.17 hereof or the last sentence of Section 4.3(b)
hereof, or which otherwise modifies the rights and benefits afforded to the
holders of Class B Units, the prior consent of the holders of sixty-six and
two-thirds percent (66.67%) of the Class B Units.
14.3 Conflict with Articles. In the event of any conflict between the
Articles of Organization and this Agreement, the provisions of this Agreement
shall govern to the extent not contrary to law.
14.4 Certificates of Membership Interest. Units shall be evidenced by
certificates of membership interest. At the effective time of the merger of MCP
Colorado into the Company pursuant to the Transaction Agreement, the Company
adopts the certificates of the Cooperative as the Certificates of Membership
Interest of the Company. Upon any Transfer of Units in accordance with Article
X, the Board of Directors will issue a new form of certificate under the
Company's own name (a "LLC Certificate") representing the Units so transferred;
provided, however, that the issuance of LLC Certificates shall not invalidate or
otherwise affect the validity of certificates of the Cooperative representing
outstanding Units owned by the Initial Members. Each LLC Certificate shall bear
a legend referring to the restrictions set forth in Article X.
14.5 Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under the present or future laws effective
during the term of this Agreement, such provision will be fully severable. This
Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this Agreement. The
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance from this Agreement. In lieu of such illegal, invalid, or
unenforceable provision, there will be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and enforceable.
14.6 Remedies. The parties agree that in the event of a breach of this
Agreement, the non-breaching party or parties shall be entitled to the remedies
of specific performance and injunctive relief, except to the extent prohibited
by the Act. Such remedies shall be in addition to any other remedies available
at law or in equity with the pursuit of any one or more remedies not being a bar
to the pursuit of other remedies which may be available. The parties further
agree that the breaching party or parties shall pay all reasonable costs,
expenses, and attorneys' fees incurred by the non-breaching party or parties in
pursuing their remedies for a breach of this Agreement.
14.7 Consent and Waiver. No consent under and no waiver of any provision of
this Agreement on any one occasion shall constitute a consent under or waiver of
any other provision on said occasion or on any other occasion, nor shall it
constitute a consent under or waiver of the consented to or waived provision on
any other occasion. No consent or waiver shall be enforceable unless it is in
writing and signed by the party against whom such consent or waiver is sought to
be enforced.
14.8 No Third Party Beneficiary. This Agreement is made solely and
specifically among and for the benefit of the Company, the Members and the Unit
Holders, and their respective successors and assigns.
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No other Person will have any rights, interest, or claims hereunder or be
entitled to any benefits under or on account of this Agreement as a third party
beneficiary or otherwise; provided, however, that the Company shall have
standing to bring an action to recover damages provided for by the Act or to
seek remedies otherwise provided by law in the event of a breach or threatened
breach of this Agreement.
14.9 Notices. All notices, offers, demands, or other communications
required or permitted under this Agreement shall be in writing, signed by the
Person giving the same. Notice shall be treated as given when personally
received or (except in the event of a mail strike) when sent by United States
Mail to a Member or Unit Holder at the address as shown from time to time on the
records of the Company. Any Member or Unit Holder may specify a different
address by written notice to the Company.
14.10 Binding Effect. Except as herein otherwise specifically provided,
this Agreement shall be binding upon and inure to the benefit of the Company,
the Members and Unit Holders, parties and their legal representatives, heirs,
administrators, executors, successors and assigns. Members and Unit Holders
shall be bound by and shall be entitled to the benefits of this Agreement by
their purchase or acceptance of Units whether or not they sign this Agreement or
any document referring to this Agreement.
14.11 Necessary Instruments and Acts. The parties covenant and agree that
they shall execute any further instruments and shall perform any acts which are
or may become necessary to effectuate and to carry out the terms and conditions
of this Agreement.
14.12 Number and Gender. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the singular
and the plural and pronouns stated in either the masculine, the feminine or the
neuter gender shall include the masculine, feminine and neuter.
14.13 Interpretation. All references herein to Articles, Sections and
subsections refer to Articles, Sections and subsections of this Agreement. All
Article, Section and subsection headings are for reference purposes only and
shall not affect the interpretation of this Agreement.
14.14 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement binding
on all parties. Each party shall become bound by this Agreement immediately upon
signing any counterpart, independently of the signature of any other party.
14.15 Governing Law. This Agreement and the rights of the parties hereunder
shall be governed by and interpreted in accordance with the internal laws of the
State of Colorado, without regard to its conflicts or choice-of-law rules.
* * * * * * *
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representatives of the Company and the Cooperative as of the date set forth in
the first paragraph.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
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SCHEDULE A
COMPETITORS
Archer Daniels Midland Company
Cargill, Incorporated
Corn Products Company (Corn Products International, Inc.)
A.E. Staley Manufacturing Company (Tate & Lyle, PLC)
Cerestar USA, Inc.
National Starch and Chemical Company
Penford Products Company (Penford Corporation)
Roquette America, Inc.
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APPENDIX E
SUMMARIZATION LETTER
OF
APPRAISAL OPINION
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits. See Exhibit Index.
(b) Financial Statement Schedules. Not applicable.
(c) Report, Opinion or Appraisal. Not applicable.
ITEM 22. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
5. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change in such information in the registration statement;
6. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be
deemed to be the initial bona fide offering thereof.
7. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and
exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that
a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act (and, where applicable, each filing of an employee
benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration
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statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(e) The undersigned registrant hereby undertakes that every prospectus: (i)
that is filed pursuant to paragraph (d) immediately preceding, or (ii)
that purports to meet the requirements of Sections 10(a)(3) of the
Securities Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-4 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Marshall,
State of Minnesota on January 25, 1999.
MINNESOTA CORN PROCESSORS, LLC
/S/ L. DAN THOMPSON
By ------------------------------------
L. Dan Thompson
President and Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
each of L. Dan Thompson and Daniel H. Stacken, such person's true and lawful
attorney-in-fact and agent with full power of substitution and resubstitution
for such person and in such name, place and stead, in any and all capacities, to
sign the Registration Statement on Form S-4 of Minnesota Corn Processors, LLC
and any or all amendments (including post-effective amendments) to this
Registration Statement (or to any other registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act), and to file the same, with all exhibits hereto and other
documents in connection therewith , with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be donee in and about the premises, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-4 has been signed by the following persons in
the capacities indicated on January 25, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------- -----------------------------------------------
<S> <C>
/S/ L. DAN THOMPSON President and Executive Officer
-------------------------------------
L. Dan Thompson
/S/ DANIEL H. STACKEN Principal Financial and Accounting Officer and
------------------------------------- Director
Daniel H. Stacken
/S/ JERRY JACOBY Director
-------------------------------------
Jerry Jacoby
</TABLE>
II-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------
<S> <C>
2.1 Plan of Merger by and between Minnesota Processors, Inc. and
Minnesota Corn Processors of Colorado, dated January , 1999.
2.2 Plan of Merger by and between Minnesota Corn Processors Colorado
and Minnesota Corn Processors, LLC, dated January , 1999.
2.3 Transaction Agreement by and among Minnesota Corn Processors, Inc.,
Minnesota Corn Processors Colorado and Minnesota Corn Processors, LLC,
dated January , 1999.
3.1 Articles of Organization of Minnesota Corn Processors, LLC, filed
December 10, 1998.
3.2 Operating Agreement of Minnesota Corn Processors, LLC.
3.3 Articles of Incorporation of Minnesota Corn Processors Colorado, filed December 10, 1998.
3.4 Amended and Restated Articles of Incorporation of Minnesota Corn Processors
Colorado, filed January 22, 1999
3.5 Bylaws of Minnesota Corn Processors Colorado.*
5.1 Legal Opinion of Dorsey & Whitney, LLP with respect to the securities
being registered.*
10.1 Transaction Agreement between Archer Daniels Midland Company and
Minnesota Corn Processors, Inc., dated July 9, 1997.
10.2 Stockholder Agreement between Archer Daniels Midland Company and
Minnesota Corn Processors, Inc., dated August 27, 1997.
10.3 Master Equipment Lease Agreement between Fleet Capital Corporation and
Minnesota Corn Processors, Inc., dated April 9, 1998.*
10.4 Firm Sales/Purchase Agreement between Minnesota Corn Processors, Inc. and
Wascana Energy Marketing (U.S.) Inc., dated December 30, 1996.*
10.5 Natural Gas Purchase and Sale Contract between Minnesota Corn Processors,
Inc. and Husky Gas Marketing Inc., dated November 1, 1996.*
10.6 Amended and Restated Secured Credit Agreement among Minnesota
Corner Processors, Inc., Liquid Sugars, Inc., Harris Trust and
Savings Bank and U.S.
Bancorp Ag Credit, dated as of November 4, 1998.
10.7 Note Purchase Agreement dated as of August 26, 1997.
10.8 Employment Agreement of L. Daniel Thompson, dated August 15, 1997.
10.9 Employment Agreement of George A. Lamberth, dated November 11, 1997.
10.10 Form of Management Stock Purchase Option Agreement.
10.11 Corn Steep Agreement between Minnesota Corn Processors and
Liquid Corn, Inc.
23.1 Consent of Dorsey & Whitney, LLP (included in the opinion filed as
Exhibit 5.1).*
23.2 Consent of American Appraisal Associates.
23.3 Consent of Clifton Gunderson, LLC.
23.4 Consent of Doug Finstrom
23.5 Consent Carl Just
23.6 Consent of Duane Adams
23.7 Consent of Howard Dahlager
23.8 Consent of Ken Robinson
23.9 Consent of David Scheibel
23.10 Consent of Steve Lipetzky
23.11 Consent of John Zwach, Jr.
23.12 Consent of Roger Fjerkenstad*
23.13 Consent of Donald Lindblad*
23.14 Consent of Daniel Dybsetter
23.15 Consent of John Jerzak
23.16 Consent of Dean Buesing
</TABLE>
<PAGE>
<TABLE>
<S> <C>
23.17 Consent of Sandy Ludeman
23.18 Consent of John P. Hennen
23.19 Consent of John Nelson
23.20 Consent of James Gervais
23.21 Consent of Ron Kirchner
23.22 Consent of Kenneth Regier
23.23 Consent of Larry Dowd
23.24 Consent of Andrew Jensen
23.25 Consent of Patrick L. Meuret
23.26 Consent of Robert Bender
24. Power of Attorney (set forth on page II-3).
27. Financial Data Schedule
</TABLE>
- ------------------
* To be filed by amendment.
PLAN OF MERGER
THIS PLAN OF MERGER (the "Plan") is dated as of January __, 1999, and is by
and between MINNESOTA CORN PROCESSORS, INC (the "Cooperative") and MINNESOTA
CORN PROCESSORS COLORADO ("MCP Colorado"), each of which may be referred to
herein as a "Constituent Cooperative" and both of which may be collectively
referred to herein as the "Constituent Cooperatives."
WHEREAS, the Cooperative is a cooperative association organized under
Chapter 308A of Minnesota Statutes, as amended (the "Minnesota Act"); and MCP
Colorado is a cooperative association organized under Title 7 Article 56 of the
Colorado Revised Statutes, as amended (the "Colorado Act"), and is a wholly
owned subsidiary of the Cooperative. The Minnesota Act and the Colorado Act may
be referred to herein collectively as the "Acts."
WHEREAS, the respective Boards of Directors of the Cooperative and MCP
Colorado and the respective members of the Cooperative and MCP Colorado each has
approved and adopted this Plan and the transactions contemplated hereby in the
manner required by their respective Articles of Incorporation and Bylaws, and
the appropriate sections of the Acts.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements of the parties contained herein, the parties hereto agree as
follows:
SECTION 1. THE MERGER. On the Effective Time (as defined in Section 8), the
Cooperative and MCP Colorado shall combine through merger (the "MCP Merger") in
accordance with the applicable provisions of the Acts; and MCP Colorado shall be
the surviving cooperative and shall continue to exist as a Colorado cooperative
association by virtue of, and shall be governed by, the Colorado Act.
SECTION 2. ARTICLES OF MERGER. As soon as practicable following
satisfaction or waiver of all conditions to the consummation of the MCP Merger,
the articles of merger (the "Articles of Merger") and a statement of merger
("Statement of Merger") shall be executed in compliance with Section 308A.801 of
the Minnesota Act and Section 7-56-605 of the Colorado Act, respectively. The
Articles of Merger shall be filed with the Secretary of State of the State of
Minnesota and the Statement of Merger shall be filed with the Secretary of State
of the State of Colorado, or as otherwise required by the Acts.
SECTION 3. EFFECT OF MERGER. From and after the Effective Time, without any
further action by the Constituent Cooperatives or any of their respective
members: (a) MCP Colorado, as the surviving cooperative in the MCP Merger, shall
have all of the rights, privileges, immunities and powers, and shall be subject
to all the duties and liabilities, of a cooperative organized under the Colorado
Act; (b) MCP Colorado, as the surviving cooperative in the MCP Merger, shall
possess all of the rights, privileges, immunities and franchises, of a public as
well as a private nature, of each Constituent Cooperative, and all property,
real, personal and mixed, and all debts due on whatever account, including all
choses in action, and each and every other interest of or belonging to or due to
each Constituent Cooperative, shall be deemed to be and hereby is vested in MCP
Colorado, without further act or deed, and the title to any property, or any
interest therein, vested in either Constituent Cooperative, shall not revert or
be in any way impaired by reason of the MCP Merger; (c) MCP Colorado shall be
responsible and liable for all of the liabilities and obligations of each
Constituent Cooperative, and any claim existing or action or proceeding pending
by or against one of the Constituent Cooperatives may be prosecuted as if the
MCP Merger had not taken place or MCP Colorado may be substituted in its place;
(d) neither the rights of creditors nor any liens upon the property of either of
the Constituent Cooperatives shall be impaired by the MCP Merger; and (e) the
MCP Merger shall have any other effect set forth in the Acts and the Transaction
Agreement dated January ___, 1999 between the Cooperative, MCP Colorado and
Minnesota Corn Processors, LLC (the "Transaction Agreement"); all with the
effect and to the extent provided in the applicable provisions of the Acts.
A-1
<PAGE>
SECTION 4. ARTICLES OF INCORPORATION AND BYLAWS. From and after the
Effective Time, pursuant to the Articles of Merger and without any further
action by the Constituent Cooperatives or any of their respective members, the
Articles of Incorporation of MCP Colorado in effect immediately prior to the
Effective Time shall be the Articles of Incorporation of MCP Colorado, as the
surviving cooperative in the MCP Merger (the "Surviving Entity Articles"). From
and after the Effective Time, without any further action by the Constituent
Cooperatives or any of their respective members, the Bylaws of MCP Colorado in
effect immediately prior to the Effective Time shall be the Bylaws of MCP
Colorado, as the surviving cooperative in the MCP Merger (the "Surviving Entity
Bylaws"). A copy of the Surviving Entity Articles of Incorporation and Bylaws
was provided to the respective members of each Constituent Cooperative in
connection with their consideration of the MCP Merger.
SECTION 5. BOARD OF DIRECTORS AND OFFICERS. From and after the Effective
Time, without any further action by the Constituent Cooperatives or any of their
respective members, each person serving as a director or an officer of the
Cooperative immediately prior to the Effective Time shall become a director or
an officer of MCP Colorado, as the surviving cooperative in the MCP Merger, (in
the case of officers, holding the same office in MCP Colorado as they held in
the Cooperative immediately prior to the Effective Time) to serve in accordance
with the Surviving Entity Bylaws. The initial directors and officers of MCP
Colorado prior to the effective date shall resign their positions as directors
and officers of MCP Colorado as of the effective date.
SECTION 6. EXCHANGE, REDESIGNATION AND CONVERSION AND CONTINUATION OF
CAPITAL STOCK, NON-STOCK EQUITY INTERESTS, PATRONS' EQUITIES AND MEMBERSHIPS. On
the Effective Time, the manner and basis of exchanging and continuing the shares
of capital stock, non-stock equity interests, units of equity participation,
non-voting units of equity participation, patronage equity interests (including
all entitlements to patronage refunds), any other allocated equity interests,
and unallocated and capital reserves of the Cooperative and MCP Colorado (all
such interests referred to herein as "Cooperative Equity Interests" or "MCP
Colorado Equity Interests", respectively), and membership interests in the
Cooperative and MCP Colorado, for equal Equity Interests and membership
interests in MCP Colorado, shall be as follows:
(a) EXCHANGE AND CONTINUATION OF COOPERATIVE MEMBERSHIPS. As of the
Effective Time, without any further action by the Constituent Cooperatives
or any of their respective members, each holder of common stock of the
Cooperative shall become and be a member of MCP Colorado, to the extent they
are eligible for membership under the Surviving Entity Articles and the
Surviving Entity Bylaws, in such class and with such incidents of membership
as are set forth in the Surviving Entity Articles and the Surviving Entity
Bylaws.
(b) MCP COLORADO MEMBERSHIPS. As of the Effective Time, without any
further action by the Constituent Cooperatives or any of their respective
members, the Cooperative, as the sole member of MCP Colorado, shall cease to
exist by operation of the merger and shall cease to be a member of MCP
Colorado.
(c) EXCHANGE AND CONTINUATION OF COOPERATIVE EQUITY INTERESTS. As of the
Effective Time, without any further action by the Constituent Cooperatives
or any of their respective members, all Equity Interests standing on the
books of the Cooperative immediately prior to the Effective Time shall be
determined and exchanged for equal Equity Interests in MCP Colorado at its
stated dollar amount on a dollar-for-dollar basis, including as follows:
i. Common Stock. Each share of common stock of the Cooperative issued
and outstanding immediately prior to the Effective Time shall cease
to be outstanding and shall be exchanged for one (1) share of Common
Stock of MCP Colorado at a par value of $50.00 per share.
ii. Preferred Stock. Each share of Preferred stock of the Cooperative
issued and outstanding immediately prior to the Effective Time shall
cease to be outstanding and shall be exchanged for one (1) share of
Preferred Stock of MCP Colorado at a par value of $50.00 per share.
iii. Patronage Equity Interests and Units of Equity Participation. All
patronage refunds (qualified and nonqualified), units of equity
participation and non-voting units of equity
A-2
<PAGE>
participation and any other allocated or to be allocated patronage
equity interests (including all entitlements thereto) standing on the
books of the Cooperative immediately prior to the Effective Time
(which are not otherwise evidenced by capital stock) shall be
exchanged for equal patronage refunds, units of equity participation
and non-voting units of equity participation, and allocated or to be
allocated equity interests, entitlements to patronage refunds, or
other equal patronage equity interests on the books of MCP Colorado,
at their stated dollar amount on a dollar-for-dollar basis, and in
such denominations or other designations or series so as to preserve
the year of issue (as MCP Colorado deems necessary) and other terms
and conditions of the original issuance; and each unit of equity
participation so exchanged shall be subject on the books of MCP
Colorado to the same obligation for loss allocation as standing on
the books of the Cooperative immediately prior to the Effective Time.
iv. Deferred Patronage and Unallocated Reserve. All deferred patronage
(not exchanged above), unallocated reserves, and any other
unallocated equity interests standing on the books of the Cooperative
immediately prior to the Effective Time shall be exchanged and
credited for equal deferred patronage, unallocated reserves or other
equal unallocated equity interests on the books of MCP Colorado, at
their stated dollar amount on a dollar-for-dollar basis, and in such
denominations or other designations or series so as to preserve the
year of issue (if applicable and as MCP Colorado deems necessary) and
other terms and conditions of the original issuance (if applicable).
v. Net Effect. The net effect of the exchange of Cooperative Equity
Interests for equal Equity Interests in MCP Colorado shall be that
the holders of Cooperative Equity Interests standing on the books of
the Cooperative immediately prior to the Effective Time shall hold
and will have equal Equity Interests in MCP Colorado immediately
following the Effective Time, in terms of stated dollar amount on a
dollar-for-dollar basis, year of issue (as determined necessary),
loss allocation obligations and any other rights and preferences, and
that the deferred patronage, unallocated reserves and other
unallocated Equity Interests of the Cooperative, as standing on its
books immediately prior to the Effective Time, shall be exchanged and
credited for an equal Equity Interest in MCP Colorado immediately
following the Effective Time, in terms of stated dollar amount on a
dollar-for-dollar basis and other rights and preferences.
(d) MCP COLORADO EQUITY INTERESTS. Prior to the Effective Time, the
Cooperative is the sole member of MCP Colorado and all equity interest of
any and every nature in MCP Colorado is owned by and held in the name of the
Cooperative. Upon the Effective Time, the Cooperative, as the merging
entity, shall merge with and into MCP Colorado and shall cease to exist in
its own right. All Equity Interests of any and every nature standing on the
books of MCP Colorado and held by the Cooperative immediately prior to the
Effective Time shall be cancelled.
(e) SURVIVING ENTITY ARTICLES AND BYLAWS TO GOVERN. Membership in MCP
Colorado and all Equity Interests in MCP Colorado whether issued or credited
in exchange for Cooperative Equity Interests or continued with respect to
MCP Colorado Equity Interests as described above, shall in all instances be
governed by the provisions of the Surviving Entity Articles and the
Surviving Entity Bylaws.
(f) FURTHER ASSURANCES OF HOLDERS OF EQUITY. Each holder of Cooperative
Equity Interests and each holder of MCP Colorado Equity Interests shall take
such action or cause to be taken such action as MCP Colorado may reasonably
deem necessary or appropriate to effect the exchange and continuation of the
equity interests hereunder, including without limitation the execution and
delivery of any stock certificates or other evidences of equity being
exchanged or continued hereunder.
SECTION 7. FURTHER ASSURANCES. From time to time and after the Effective
Time, as and when requested by MCP Colorado, or its successors or assigns, the
Cooperative shall execute and deliver or cause to be executed and delivered all
such deeds and other instruments, and shall take or cause to be taken all such
further action or actions, as MCP Colorado, or its successors or assigns, may
deem
A-3
<PAGE>
necessary or desirable in order to vest in and confirm to MCP Colorado, or its
successors or assigns, title to and possession of all of the properties, rights,
privileges, powers and franchises referred to in Section 3 of this Plan, and
otherwise to carry out the intent and purposes of this Plan. If MCP Colorado
shall at any time deem that any further assignments or assurances or any other
acts are necessary or desirable to vest, perfect or confirm of record or
otherwise the title to any property or to enforce any claims of the Cooperative
or MCP Colorado vested in MCP Colorado pursuant to this Plan, the officers of
MCP Colorado or its successors or assigns, are hereby specifically authorized as
attorneys-in-fact of each the Cooperative and MCP Colorado (which appointment is
irrevocable and coupled with an interest), to execute and deliver any and all
such deeds, assignments and assurances and to do all such other acts in the name
and on behalf of each the Cooperative and MCP Colorado, or otherwise, as such
officer shall deem necessary or appropriate to accomplish such purpose.
SECTION 8. EFFECTIVE TIME. The MCP Merger shall become effective at the
later of the filing of the Articles of Merger with the Secretary of State of
Minnesota and the filing of the Statement of Merger with the Secretary of State
of Colorado (the "Effective Time").
SECTION 9. GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the State of Colorado.
IN WITNESS WHEREOF, this Plan has been agreed to and executed by the duly
authorized representatives of the Cooperative and MCP Colorado, as of the date
first set forth above.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
A-4
PLAN OF MERGER
THIS PLAN OF MERGER (the "Plan") is dated as of January __, 1999, and is by
and between MINNESOTA CORN PROCESSORS COLORADO, ("MCP Colorado") and MINNESOTA
CORN PROCESSORS, LLC ("LLC"), each of which may be referred to herein as a
"Constituent Entity" and both of which may be collectively referred to herein as
the "Constituent Entities".
WHEREAS, MCP Colorado is a cooperative association organized under Title 7,
Article 56 of the Colorado Revised Statutes as amended (the "Colorado Act"), and
LLC is a limited liability company organized under Title 7 Article 80 of the
Colorado Revised Statutes as amended (the "LLC Act"), and a wholly owned
subsidiary of MCP Colorado as a result of a merger of Minnesota Corn Processors,
Inc., a Minnesota cooperative association (the "Cooperative"), with and into MCP
Colorado, effective on the date hereof. The LLC Act and the Colorado Act may be
referred to herein collectively as the "Acts"; and
WHEREAS, the Board of Directors and members of MCP Colorado have approved
and adopted this Plan and the transactions contemplated hereby in the manner
required by its Articles of Incorporation and Bylaws, the Colorado Act and other
applicable provisions of Colorado law including specifically the Colorado
Corporations and Associations Act found at Title 7, Article 90 of the Colorado
Revised Statues ("CCA Act"); and
WHEREAS, the Board of Directors and members of LLC have approved and
adopted this Plan and the transactions contemplated hereby in the manner
required by its Articles of Organization and Operating Agreement, the LLC Act
and the CCA Act; and
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements of the parties contained herein, the parties hereto agree as
follows:
SECTION 1. THE MERGER. On the Effective Time (as defined in Section 8), MCP
Colorado and LLC shall combine through merger (the "LLC Merger") in accordance
with the applicable provisions of the Acts and the CCA Act, and LLC shall be the
surviving entity and shall continue to exist as a Colorado limited liability
company with principal offices at 901 North Highway 59, Marshall, MN 56258-2744,
by virtue of, and shall be governed by, the LLC Act.
SECTION 2. STATEMENT OF MERGER. As soon as practicable following
satisfaction or waiver of all conditions to the consummation of the LLC Merger,
a statement of merger (the "Statement of Merger") shall be executed in
accordance with all legal requirements. The Statement of Merger shall be filed
with the Secretary of State of the State of Colorado or as otherwise required by
law.
SECTION 3. EFFECT OF MERGER. From and after the Effective Time, without any
further action by the Constituent Entities or any of their respective members:
(A) LLC, as the surviving entity in the LLC Merger, shall have all of the
rights, privileges, immunities and powers, and shall be subject to all the
duties and liabilities, of a limited liability company organized under the LLC
Act; (B) LLC, as the surviving entity in the LLC Merger, shall possess all of
the rights, privileges, immunities and franchises, of a public as well as a
private nature, of each Constituent Entity, and all property, real, personal and
mixed, and all debts due on whatever account, including all choses in action,
and each and every other interest of or belonging to or due to each Constituent
Entity, shall be deemed to be and hereby is vested in LLC, without further act
or deed, and the title to any property, or any interest therein, vested in
either Constituent Entity, shall not revert or be in any way impaired by reason
of the LLC Merger; (C) LLC shall be responsible and liable for all of the
liabilities and obligations of each Constituent Entity, and any claim existing
or action or proceeding pending by or against one of the Constituent Entities
may be prosecuted as if the LLC Merger had not taken place or LLC may be
substituted in its place; (D) neither the rights of creditors nor any liens upon
the property of either of the Constituent Entity shall be impaired by the LLC
Merger; and (E) the LLC Merger shall have any other effect set forth in the
Acts, the CCA Act, and the Transaction Agreement dated January __, 1999 between
the Cooperative, MCP
B-1
<PAGE>
Colorado and LLC (the "Transaction Agreement"); all with the effect and to the
extent provided in the applicable provisions of Colorado law.
SECTION 4. ARTICLES OF ORGANIZATION; OPERATING AGREEMENT. From and after
the Effective Time, pursuant to the Statement of Merger and without any further
action by the Constituent Entities or any of their respective members, the
Articles of Organization of LLC in effect immediately prior to the Effective
Time shall be the Articles of Organization of LLC, as the surviving entity in
the LLC Merger (the "Surviving Entity Articles"). From and after the Effective
Time, without any further action by the Constituent Entities or any of their
respective members, the Operating Agreement of LLC as in effect immediately
prior to the Effective Time shall be the Operating Agreement of LLC, as the
surviving entity in the LLC Merger (the "Surviving Entity Operating Agreement").
A copy of the Surviving Entity Articles of Organization and Operating Agreement
was provided to the respective members of each Constituent Cooperative in
connection with their consideration of the LLC Merger.
SECTION 5. BOARD OF DIRECTORS. From and after the Effective Time, without
any further action by the Constituent Cooperatives or any of their respective
members, each person serving as a director or an officer of MCP Colorado
immediately prior to the Effective Time shall be a director or an officer of
LLC, as the surviving entity in the LLC Merger, (in the case of officers,
holding the same office in LLC as they held in MCP Colorado immediately prior to
the Effective Time) to serve in accordance with the Surviving Entity Operating
Agreement. The initial directors and officers of LLC prior to the effective date
shall resign their positions as directors and officers of LLC as of the
effective date.
SECTION 6. EXCHANGE, REDESIGNATION AND CONVERSION OF CAPITAL STOCK,
NON-STOCK EQUITY INTERESTS, PATRONS' EQUITIES AND MEMBERSHIPS. On the Effective
Time, the manner and basis of exchanging or converting the shares of capital
stock, non-stock equity interests, units of equity participation, non-voting
units of equity participation, patronage equity interests (including all
entitlements to patronage refunds), any other allocated equity interests, and
unallocated and capital reserves of MCP Colorado and LLC (all such interests
referred to herein as "MCP Colorado Equity Interests" or "LLC Equity Interests",
respectively), and membership interests in MCP Colorado and LLC, for
proportionally equivalent Equity Interests and equal membership interests in
LLC, shall be as follows:
(A) EXCHANGE AND CONTINUATION OF MCP COLORADO MEMBERSHIPS. As of the
Effective Time, without any further action by the Constituent Entities or
any of their respective members, (i) each member and holder of Units of
Participation of MCP Colorado shall become and be a Class A member of LLC,
to the extent they are eligible for membership under the Surviving Entity
Articles and the Surviving Entity Operating Agreement, and (ii) each holder
of non-voting Units of Participation of MCP Colorado shall become and be a
Class B member of LLC. Class A and Class B members shall have such incidents
of membership as are set forth in the Surviving Entity Articles and the
Surviving Entity Operating Agreement.
(B) LLC MEMBERSHIP. As of the Effective Time, without any further action
by the Constituent Entities or any of their respective members, MCP
Colorado, as the sole member of LLC, shall cease to exist by operation of
the merger and shall also cease to be a member of LLC.
(C) EXCHANGE AND CONTINUATION OF MCP COLORADO EQUITY INTERESTS. As of the
Effective Time, without any further action by the Constituent Entities or
any of their respective members, all MCP Colorado Equity Interests standing
on the books of` MCP Colorado immediately after the consummation of the
merger of The Cooperative with and into MCP Colorado, and immediately prior
to the Effective Time shall be determined and exchanged for proportionally
equivalent Equity Interests in LLC as follows:
I. VOTING UNITS OF EQUITY PARTICIPATION. Each voting unit of equity
participation standing on the books of MCP Colorado and held by
members of MCP Colorado ("Member Equity") immediately prior to the
Effective Time shall cease to be outstanding and shall be exchanged
for one Class A Unit of LLC; and each Class A Unit of LLC so
exchanged shall be subject on the books of LLC to the same
obligation for loss allocation as standing on the books of MCP
Colorado immediately prior to the Effective Time.
II. NON-VOTING UNITS OF EQUITY PARTICIPATION. Each non-voting unit of
equity participation standing on the books of MCP Colorado and held
by non-members of MCP Colorado
B-2
<PAGE>
("Non-Member Equity") immediately prior to the Effective Time shall
cease to be outstanding and shall be exchanged for one Class B Unit
of LLC.
III. COMMON STOCK. All shares of common stock standing on the books of
MCP Colorado immediately prior to the Effective Time shall be
cancelled and shall cease to exist.
IV. NONQUALIFIED PATRONAGE REFUNDS. All nonqualified patronage refunds
standing on the books of MCP Colorado immediately prior to the
Effective Time shall be converted into nonvoting financial interests
of LLC having the same stated dollar amount, years of issue (as LLC
deems necessary) and other terms and conditions as applicable to
such nonqualified patronage refunds immediately prior to the
Effective Time.
(D) LLC EQUITY INTERESTS. Prior to the Effective Time, MCP Colorado is
the sole member of LLC and all equity interest of any and every nature in
LLC is owned by and held in the name of MCP Colorado. Upon the Effective
Time, MCP Colorado, as the merging entity, shall merge with and into LLC and
shall cease to exist in its own right. All Equity Interests of any and every
nature standing on the books of LLC immediately prior to the Effective Time
shall be cancelled.
(E) SURVIVING ENTITY ARTICLES AND OPERATING AGREEMENT TO GOVERN.
Membership in LLC and all Equity Interests in LLC issued or credited in
exchange for MCP Colorado Equity Interests and continued with respect to LLC
Equity as described above, shall in all instances be governed by the
provisions of the Surviving Entity Articles and the Surviving Entity
Operating Agreement.
(F) FURTHER ASSURANCES OF HOLDERS OF EQUITY. Each holder of MCP Colorado
Equity Interests and each holder of LLC Equity Interests shall take such
action or cause to be taken such action as LLC may reasonably deem necessary
or appropriate to effect the exchange and continuation of the equity
interests hereunder, including without limitation the execution and delivery
of any stock certificates or other evidences of equity being exchanged or
continued hereunder.
SECTION 7. FURTHER ASSURANCES. From time to time and after the Effective
Time, as and when requested by LLC, or its successors or assigns, MCP Colorado
shall execute and deliver or cause to be executed and delivered all such deeds
and other instruments, and shall take or cause to be taken all such further
action or actions, as LLC, or its successors or assigns, may deem necessary or
desirable in order to vest in and confirm to LLC, or its successors or assigns,
title to and possession of all of the properties, rights, privileges, powers and
franchises referred to in Section 3 of this Plan, and otherwise to carry out the
intent and purposes of this Plan. If LLC shall at any time deem that any further
assignments or assurances or any other acts are necessary or desirable to vest,
perfect or confirm of record or otherwise the title to any property or to
enforce any claims of MCP Colorado or LLC vested in LLC pursuant to this Plan,
the officers of LLC or its successors or assigns, are hereby specifically
authorized as attorneys-in-fact of each MCP Colorado and LLC (which appointment
is irrevocable and coupled with an interest), to execute and deliver any and all
such deeds, assignments and assurances and to do all such other acts in the name
and on behalf of each MCP Colorado and LLC, or otherwise, as such officer shall
deem necessary or appropriate to accomplish such purpose.
SECTION 8. EFFECTIVE DATE. The LLC Merger shall become effective at the
time of filing of the Statement of Merger with the Secretary of State of
Colorado (the "Effective Time").
SECTION 9. GOVERNING LAW. This Plan shall be governed by and construed in
accordance with the laws of the State of Colorado.
B-3
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IN WITNESS WHEREOF, this Plan has been agreed to and executed by the duly
authorized representatives of MCP Colorado and LLC, as of the date first set
forth above.
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
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TRANSACTION AGREEMENT
by and among
MINNESOTA CORN PROCESSORS, INC.
a Minnesota cooperative association
and
MINNESOTA CORN PROCESSORS COLORADO,
a Colorado cooperative association
and
MINNESOTA CORN PROCESSORS, LLC
a Colorado limited liability company
Dated as of January __, 1999
-------------------------------
-------------------------------
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TABLE OF CONTENTS
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ARTICLE I
OVERVIEW OF THE TRANSACTIONS .................................................... 1
Section 1.01 Purpose ............................................................ 1
Section 1.02 The MCP Merger ..................................................... 1
Section 1.03 The LLC Merger ..................................................... 2
Section 1.04 The Closing ........................................................ 2
Section 1.05 Actions at the Closing ............................................. 2
Section 1.06 Effective Time ..................................................... 2
Section 1.07 Effect of the Mergers .............................................. 2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE ............................... 3
Section 2.01 Representations and Warranties of the Cooperative .................. 3
Section 2.02 Organization and Good Standing ..................................... 3
Section 2.03 Capital Stock and Equity Participation Units ....................... 3
Section 2.04 Financial Statements ............................................... 4
Section 2.05 Undisclosed Liabilities ............................................ 4
Section 2.06 Compliance with Applicable Laws .................................... 4
Section 2.07 Legal Proceedings .................................................. 4
Section 2.08 Absence of Defaults ................................................ 4
Section 2.09 Authorization ...................................................... 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MCP COLORADO .................................. 5
Section 3.01 Representations and Warranties of MCP Colorado ..................... 5
Section 3.02 Organization and Good Standing ..................................... 5
Section 3.03 Capital Stock ......................................................
Section 3.04 Authorization ...................................................... 6
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LLC ........................................... 6
Section 4.01 Representations and Warranties of LLC .............................. 6
Section 4.02 Organization and Good Standing ..................................... 6
Section 4.03 Capital Stock ...................................................... 6
Section 4.04 Authorization ...................................................... 7
ARTICLE V
COVENANTS ....................................................................... 7
Section 5.01 Reasonable Best Efforts ............................................ 7
Section 5.02 Conduct of Business ................................................ 8
Section 5.03 Forbearances ....................................................... 8
Section 5.04 Meetings of Members ................................................ 9
Section 5.05 Access ............................................................. 9
Section 5.06 Notice of Developments ............................................. 9
Section 5.07 Exclusivity ........................................................ 9
Section 5.08 Registration Statement ............................................. 9
ARTICLE VI
CONDITIONS PRECEDENT ............................................................ 10
Section 6.01 Conditions to Obligations of Each Party to the MCP Merger .......... 10
Section 6.02 Conditions to Obligations of Each Party to the LLC Merger .......... 10
Section 6.03 Additional Conditions to Obligation of the Cooperative ............. 11
Section 6.04 Additional Conditions to Obligation of MCP Colorado ................ 12
Section 6.05 Additional Conditions to Obligation of LLC ......................... 12
</TABLE>
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ARTICLE VII
POST CLOSING AGREEMENTS ................................................... 13
Section 7.01 Employee Benefit Plans ....................................... 13
Section 7.02 Patronage Distributions ...................................... 13
Section 7.03 1996 Loss Payable ............................................ 13
Section 7.04 Indemnification; Directors' and Officers' Insurance .......... 13
ARTICLE VIII
TERMINATION ............................................................... 14
Section 8.01 Termination of Agreement ..................................... 14
Section 8.02 Effect of Termination ........................................ 14
ARTICLE IX
MISCELLANEOUS ............................................................. 14
Section 9.01 Waiver ....................................................... 14
Section 9.02 Amendment .................................................... 15
Section 9.03 Binding Nature ............................................... 15
Section 9.04 Counterparts ................................................. 15
Section 9.05 Entire Agreement ............................................. 15
Section 9.06 Notices ...................................................... 15
Section 9.07 Nonsurvival of Representations and Warranties ................ 16
Section 9.08 Captions ..................................................... 16
</TABLE>
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TRANSACTION AGREEMENT
THIS TRANSACTION AGREEMENT ( "Agreement") is made and entered into as of
January , 1999, by and among MINNESOTA CORN PROCESSORS, a Minnesota cooperative
association (the "Cooperative"), MINNESOTA CORN PROCESSORS COLORADO, a Colorado
cooperative association ("MCP Colorado") and MINNESOTA CORN PROCESSORS, LLC, a
Colorado limited liability company ("LLC").
WHEREAS, the Cooperative, MCP Colorado, and LLC are each organized to
benefit and serve their respective members and patrons; and
WHEREAS, the parties believe the interests of their respective members will
best be benefitted and served if the parties reorganize their business
operations and corporate structure whereby: (i) the Cooperative will merge into
MCP Colorado, with MCP Colorado being the surviving entity (the "MCP Merger");
and (ii) MCP Colorado will then merge into LLC, with LLC being the surviving
entity (the "LLC Merger"); the MCP Merger and the LLC Merger may be referred to
in this Agreement individually as a "Merger" or "Transaction" and collectively
as the "Mergers" or "Transactions"; and
WHEREAS, the parties have now agreed on the final terms and conditions of
the Mergers, and wish to: (i) memorialize these agreements as more particularly
described herein; and (ii) enter into this Agreement for the purpose of
effecting the Mergers;
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants herein contained, the parties hereto
agree as follows:
ARTICLE I
OVERVIEW OF THE TRANSACTIONS
SECTION 1.01. PURPOSE. The purpose of the transactions contemplated by this
Agreement is to reorganize the corporate structure of the Cooperative from a
Minnesota cooperative association into a Colorado limited liability company.
This reorganization will be accomplished through a two-step merger process.
First, the Cooperative shall merge with and into Cooperative Colorado. Second,
Cooperative Colorado will merge with and into LLC. The MCP Merger and the LLC
Merger are separate and distinct transactions, and each Merger shall be
individually consummated. Although the Mergers are separate transactions,
consummation of the LLC Merger is contingent upon consummation of the MCP
Merger. Upon completion of both Mergers, the Cooperative and MCP Colorado will
cease to exist and LLC will continue as the sole surviving entity.
SECTION 1.02 THE MCP MERGER. Subject to the terms and conditions set forth
in this Agreement and the Plan of Merger attached hereto as Exhibit A (the "MCP
Merger Agreement), the Cooperative will merge with and into MCP Colorado. MCP
Colorado shall be the surviving entity (the "Surviving Colorado Entity").
Immediately after completion of the MCP Merger and without any further action by
its board of directors and members, MCP Colorado, as the Surviving Colorado
Entity, shall merge with and into LLC as described in Section 1.03 hereof.
SECTION 1.03 THE LLC MERGER. Subject to the terms and conditions set forth
in this Agreement and the Plan of Merger attached hereto as Exhibit B (the "LLC
Merger Agreement), MCP Colorado will merge with and into LLC. LLC shall be the
surviving entity (the "Surviving Entity"), and thereafter shall continue to
exist and operate as Minnesota Corn Processors, LLC under the laws of the State
of Colorado.
SECTION 1.04 THE CLOSING. The closing of the Mergers (the "Closing") will
take place on the date the Effective Time occurs at the offices of Dorsey &
Whitney, LLC, 220 South Sixth Street, Minneapolis, Minnesota 55402 or on such
other date and/or at such other place as the parties may agree.
SECTION 1.05 ACTIONS AT THE CLOSING. At the Closing, the parties shall
take the following actions:
(a) MCP Merger. The Cooperative and MCP Colorado shall (i) execute the
MCP Merger Agreement, (ii) execute and deliver to each other the various
certificates, instruments, and documents
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referred to in the MCP Merger Agreement, and (iii) execute and file with the
Secretary of State of the States of Minnesota and Colorado articles of merger as
required by the laws of the States of Minnesota and Colorado to effectuate the
merger in accordance with the terms of the MCP Merger Agreement.
(b) LLC Merger. MCP Colorado and LLC shall (i) execute the LLC Merger
Agreement, (ii) execute and deliver to each other the various certificates,
instruments, and documents referred to in the LLC Merger Agreement, and (iii)
execute and file with the Colorado Secretary of State a statement of merger as
required by the laws of the State of Colorado to effectuate the merger in
accordance with the terms of the LLC Merger Agreement.
SECTION 1.06 EFFECTIVE TIME. Each of the Mergers shall become effective on
the date on which the articles of merger and statement of merger have been duly
filed in the respective offices of the Minnesota and Colorado Secretary of State
as required by law (the "Effective Time"). At any time after the Effective Time,
LLC as the Surviving Entity may take any action (including executing and
delivering any document) in the name and on behalf of any party to this
Agreement in order to carry out and effectuate the transactions contemplated by
this Agreement.
SECTION 1.07 EFFECT OF THE MERGERS.
(a) Articles of Organization and Operating Agreement. The Articles of
Organization of LLC attached hereto as Exhibit C and the Operating Agreement of
LLC attached hereto as Exhibit D shall become the Articles of Organization and
the Operating Agreement of the Surviving Entity.
(b) Directors and Officers. The officers and directors of the Cooperative
at the Effective Time shall, from and after the Effective Time, be the directors
and officers of LLC (the "LLC Directors and Officers") to serve until their
respective terms have expired and their successors have been duly elected and
qualified in accordance with the terms of LLC's Operating Agreement. The terms
of the LLC Directors and Officers shall expire on the date each such director's
or officer's term would have expired under Article III Section 1 of the
Cooperative's Amended and Restated Bylaws had the Mergers not occurred. At the
Effective Time, the initial directors and officers of MCP Colorado and LLC
immediately prior to the Effective Time shall resign as directors and officers
of MCP Colorado and LLC, respectively.
(c) Stock and Units of Equity Participation. At the Effective Time,
without any further action by the parties or any of their respective members,
and as further described in the MCP Merger Agreement and the LLC Merger
Agreement:
(i) Each member of the Cooperative prior to the Effective Time shall
first become a member of MCP Colorado as a result of the MCP Merger and then
shall automatically become a member of LLC as the Surviving Entity upon
consummation of the LLC Merger; and
(ii) Upon consummation of the MCP Merger, (1) the stock and units of
equity participation held by each member and each nonmember of the
Cooperative shall be automatically converted into like forms and amounts
(on a one-for-one basis) of stock and units of equity participation of MCP
Colorado and (2) all stock of MCP Colorado owned by the Cooperative shall
be cancelled without payment of any consideration therefor. Upon
consummation of the LLC Merger, (1) each unit of equity participation of
MCP Colorado shall automatically be converted into one Class A Unit (for
voting members) or one Class B Unit (for nonvoting members) of LLC and (2)
each outstanding share of common stock of MCP Colorado shall be cancelled.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE
SECTION 2.01. REPRESENTATIONS AND WARRANTIES OF THE COOPERATIVE. The
Cooperative represents and warrants to MCP Colorado that the statements
contained in this Article II are correct and complete in all material respects
as of the date of this Agreement, except as set forth in the Cooperative
Disclosure Schedule delivered by the Cooperative to MCP Colorado attached hereto
(the "Cooperative Disclosure Schedule").
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SECTION 2.02 ORGANIZATION AND GOOD STANDING. The Cooperative is a
cooperative association duly organized and existing under Chapter 308A of the
Minnesota Statutes (as amended, the "Cooperative Act"), is in good standing
under the laws of the State of Minnesota, and has all requisite corporate power
and authority to own its properties and conduct its business as it is presently
being conducted. The Cooperative is duly qualified to do business and is in good
standing in each jurisdiction in which it conducts business or owns or leases
properties of a nature which would require such qualification.
SECTION 2.03 CAPITAL STOCK AND EQUITY PARTICIPATION UNITS. As of the date
hereof, the authorized capital stock of the Cooperative consists solely of
100,000 shares of common stock, of which 28,321 are issued and outstanding, and
100,000 shares of preferred stock, none of which are issued and outstanding. A
total of 195,696,031 units of equity participation (voting and nonvoting) are
issued and outstanding. The outstanding shares of common stock and units of
equity participation have been duly authorized and are validly issued and
outstanding.
SECTION 2.04 FINANCIAL STATEMENTS. The Cooperative has delivered to MCP
Colorado its audited financial statements as of March 31, 1998, accompanied by
the opinion of Clifton, Gunderson, LLC and its unaudited financial statements as
of September 30, 1998, certified by the Treasurer of the Cooperative. Such
financial statements fairly present the financial position of the Cooperative at
the dates indicated therein and the results of its operation for the periods
indicated therein, in conformity with generally accepted accounting principles
consistently applied. There has been no material adverse change in the financial
condition or results of operations of the Cooperative since the date of such
financial statements.
SECTION 2.05 UNDISCLOSED LIABILITIES. Except for those liabilities
reflected in the financial statements referred to in Section 2.04 and for
liabilities incurred in the ordinary course of business since September 30,
1998, the Cooperative has not incurred a liability that, either individually or
in the aggregate, has had or will have a material adverse effect on the
Cooperative.
SECTION 2.06 COMPLIANCE WITH APPLICABLE LAWS. The Cooperative is in
compliance with all applicable laws and regulations the violation of which would
have a material adverse effect on the Cooperative or on its business as
currently conducted. The Cooperative has all material licenses and permits
required by law or otherwise necessary for the proper operation of its business
as currently conducted, all of such licenses and permits are in full force and
effect, and no action to terminate, withdraw, not renew or materially limit or
otherwise change any such license or permit is pending or has been threatened by
any governmental agency or other party.
SECTION 2.07 LEGAL PROCEEDINGS. There is no material action, proceeding or
investigation by any administrative or regulatory body or other person which has
been commenced or is pending, or to the best of the Cooperative's knowledge
after reasonable inquiry, is threatened against the Cooperative or any of the
assets which are owned by the Cooperative.
SECTION 2.08 ABSENCE OF DEFAULTS. The Cooperative is not in any material
respect in default under any provision of its Articles of Incorporation or
Bylaws or any material indenture, mortgage, loan agreement or other material
agreement to which it is a party or by which it is bound, and the Cooperative is
not in violation of any statute, order, rule or regulation of any court or
governmental agency having jurisdiction over it or its properties which if
enforced could have a material adverse effect on its business, and except for
any consent or approval identified on Exhibit E attached hereto, neither the
execution and delivery of this Agreement nor the consummation of the
Transactions in accordance with this Agreement will in any material respect
conflict with or result in a breach of any of the foregoing, which if enforced
could have a material adverse effect on its business.
SECTION 2.09 AUTHORIZATION. The Cooperative has the corporate power and
authority to execute and to perform its obligations under this Agreement
(subject to the approval of its members as required by Section 6.01(a)). This
Agreement and the Transaction have been duly and validly authorized by the Board
of Directors of the Cooperative, and, except for the approval of its members as
required by Section 6.01(a), no other corporate action is required by the
Cooperative in connection with this Agreement or the Transaction. This Agreement
constitutes the valid and binding agreement of the Cooperative, enforceable
against the Cooperative in accordance with its terms, except to the extent such
enforcement may be limited by the application of equitable principles where
equitable relief is sought or bankruptcy and other laws relating to the
enforcement of creditors, rights generally.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MCP COLORADO
SECTION 3.01 REPRESENTATIONS AND WARRANTIES OF MCP COLORADO. MCP Colorado
represents and warrants to the Cooperative and LLC that the statements contained
in this Article III are correct and complete in all material respects as of the
date of this Agreement, except as set forth in the MCP Colorado Disclosure
Schedule attached hereto (the "MCP Colorado Disclosure Schedule").
SECTION 3.02 ORGANIZATION AND GOOD STANDING. MCP Colorado is a cooperative
association duly organized and existing under the Colorado Cooperative Act, is
in good standing under the laws of the State of Colorado, and has all requisite
corporate power and authority to own its properties and conduct its business as
it is presently being conducted. MCP Colorado is duly qualified to do business
and is in good standing in each jurisdiction in which it conducts business or
owns or leases properties of a nature which would require such qualification.
SECTION 3.03 CAPITAL STOCK. As of the date hereof, the authorized capital
stock of MCP Colorado consists of 100,000 shares of common stock, of which one
share is issued and outstanding, and 100,000 shares of preferred stock, of which
none are issued and outstanding.
SECTION 3.04 AUTHORIZATION. MCP Colorado has the corporate power and
authority to execute and to perform its obligations under this Agreement
(subject to the approval of its members as required by Sections 6.01(b) and
6.02(a)). This Agreement and the Transaction have been duly and validly
authorized by the Board of Directors of MCP Colorado, and except for the
approvals of its members and defined members as required by Sections 6.01(b) and
6.02(a) no other corporate action is required by MCP Colorado in connection with
this Agreement or the Transactions. This Agreement constitutes the valid and
binding agreement of MCP Colorado, enforceable against MCP Colorado in
accordance with its terms, except to the extent such enforcement may be limited
by the application of equitable principles where equitable relief is sought or
bankruptcy and other laws relating to the enforcement of creditors, rights
generally.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF LLC
SECTION 4.01 REPRESENTATIONS AND WARRANTIES OF LLC. LLC represents and
warrants to MCP Colorado that the statements contained in this Article IV are
correct and complete in all material respects as of the date of this Agreement,
except as set forth in the LLC Disclosure Schedule delivered by LLC to MCP
Colorado attached hereto (the "LLC Disclosure Schedule").
SECTION 4.02 ORGANIZATION AND GOOD STANDING. LLC is a limited liability
company duly organized and existing under the Colorado Limited Liability Company
Act, is in good standing under the laws of the State of Colorado, and has all
requisite corporate power and authority to own its properties and conduct its
business as it is presently being conducted. LLC is duly qualified to do
business and is in good standing in each jurisdiction in which it conducts
business or owns or leases properties of a nature which would require such
qualification.
SECTION 4.03 CAPITAL STOCK. As of the date hereof, the authorized capital
stock of LLC consists of 350,000,000 Class A units and 150,000,000 Class B
units, of which none are issued and outstanding, respectively.
SECTION 4.04 AUTHORIZATION. LLC has the corporate power and authority to
execute and to perform its obligations under this Agreement. This Agreement and
the Transaction have been duly and validly authorized by the Board of Directors
of LLC, and, except for the approval of its members as required by Section
6.02(b), no other corporate action is required by LLC in connection with this
Agreement or the Transaction. This Agreement constitutes the valid and binding
agreement of LLC, enforceable against LLC in accordance with its terms, except
to the extent such enforcement may be limited by the application of equitable
principles where equitable relief is sought or bankruptcy and other laws
relating to the enforcement of creditors, rights generally.
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ARTICLE V
COVENANTS
SECTION 5.01 REASONABLE BEST EFFORTS. Each party agrees to cooperate with
the other parties hereto and to use its reasonable best efforts in good faith to
take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or desirable, or advisable under applicable laws, so as
to permit consummation of the Mergers as promptly as practicable. In addition,
each party shall cooperate and use its reasonable best efforts to prepare all
documentation, to effect all filings and to obtain all permits, consents,
approvals and authorizations of all third parties necessary to consummate the
Transactions contemplated by this Agreement.
SECTION 5.02 CONDUCT OF BUSINESS. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated by this
Agreement, each of the Cooperative and MCP Colorado shall conduct its business
in the ordinary course and in a manner consistent with its past practices
(except as expressly contemplated hereby), and shall use good faith efforts to
preserve intact its business organization, properties (except as they may be
sold, used or otherwise disposed of in the ordinary course) and the good will of
its members, suppliers, customers and others having business relationships with
it.
SECTION 5.03 FORBEARANCES. During the period from the date of this
Agreement to the Effective Time, except as expressly contemplated by this
Agreement, without the prior consent of the other party to this Agreement,
neither party shall:
(a) grant to any person any option or other right to acquire capital
stock or other equity interests, except for allocation of patronage equities in
a manner consistent with past practice;
(b) issue any additional shares or units of capital stock and other
equity interests, except in the ordinary course of business and consistent with
past practice;
(c) enter into, amend or terminate any material contract, lease or
understanding;
(d) amend its Articles of Incorporation or Articles of Organization, as
the case may be, its Bylaws or Operating Agreement, as the case may be, or any
board policies;
(e) incur any indebtedness for borrowed money or make any commitment to
borrow money, except indebtedness incurred in the ordinary course of business
pursuant to credit arrangements existing as of the date of this Agreement
(including any renewals thereof);
(f) make any material capital expenditures other than in the ordinary
course of business or which were disclosed to the other party;
(g) mortgage any of its assets or properties, or except in the ordinary
course of business, sell any of its material assets or properties;
(h) pay any dividends or make any distributions with respect to its
capital stock or equity interests, except in the ordinary course of business;
(i) reclassify, combine, subdivide, split, or amend its capital stock or
equity interests;
(j) purchase, acquire or redeem any shares of its capital stock or equity
interests, except in the ordinary course of business; or
(k) agree or commit to do any of the foregoing.
SECTION 5.04 MEETINGS OF MEMBERS. Each of the Cooperative and MCP Colorado
will take all steps necessary to call an appropriate meeting of its respective
members, for the purpose of considering and voting on this Agreement and its
respective Merger in accordance with its respective Articles of Incorporation,
Bylaws and applicable law.
SECTION 5.05 ACCESS. Each party will permit the authorized representatives
of the other parties to have full access at all reasonable times, and in a
manner so as not to interfere with the normal business operations of such party,
to all premises, properties, personnel, books, records (including tax records),
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contracts, and documents of or pertaining to such party, and will furnish them
such additional financial and operating data and other information concerning
its business and properties as such other parties may from time to time
reasonably request. Each of the parties will use their best efforts to cause all
confidential information obtained by it from the other parties to be treated as
such, will also use its best efforts not to use such information in a manner
detrimental to such party and, if for any reason the Transactions are not
consummated, will promptly return all documents, papers, books, records and
other materials (and all copies thereof) obtained in the course of its
investigation and evaluation.
SECTION 5.06 NOTICE OF DEVELOPMENTS. Each party will give prompt written
notice to the other of any material adverse development causing a breach of any
of its own representations and warranties contained herein. Except as specified
in such written notice, no disclosure by a party pursuant to this Section 5.06
shall be deemed to amend or supplement such party's Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
SECTION 5.07 EXCLUSIVITY. Except for the Transactions contemplated by this
Agreement, none of the parties will (i) solicit, initiate, or encourage the
submission of any proposal or offer from any person relating to the acquisition
of any capital stock or other voting securities, or any substantial portion of
the assets, of such party (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
person to do or seek any of the foregoing. Each party will notify the other
party immediately if any person makes any proposal, offer, inquiry, or contact
with respect to any of the foregoing.
SECTION 5.08 REGISTRATION STATEMENT. LLC shall promptly prepare and file
with the SEC a Registration Statement on Form S-4 (the "Registration Statement")
in connection with the issuance of Class A and Class B units in the LLC Merger.
The parties shall use their reasonable best efforts to have the Registration
Statement declared effective under the Securities Act of 1933 (the "Securities
Act") as promptly as practicable after such filing, and the parties shall
thereafter mail or deliver the Information Statement Prospectus, which
constitutes a part of the Registration Statement, to their respective members.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO THE MCP MERGER. The
respective obligations of the Cooperative and MCP Colorado to consummate the MCP
Merger and other matters described in this Agreement, are subject to the
satisfaction or waiver of each of the following conditions on or before the
Effective Time, except that condition (f) must be satisfied and cannot be waived
by either party:
(a) The members of the Cooperative shall have approved this Agreement and
the MCP Merger Agreement, all in accordance with the requirements of applicable
law and the Articles of Incorporation and Bylaws of the Cooperative;
(b) The members of MCP Colorado shall have approved the MCP Merger
Agreement and this Agreement all in accordance with the requirements of
applicable law and the Articles of Incorporation and Bylaws of MCP Colorado;
(c) No injunction, restraining order or order of any nature issued by any
court of competent jurisdiction, government or governmental agency enjoining the
Transaction shall have been issued and remain in effect;
(d) All consents, approvals and waivers which are necessary in connection
with the Transactions, or any part thereof, shall have been obtained, including
the consents and approvals referred to in Exhibits E and F attached hereto;
(e) No action shall have been threatened or instituted by any
governmental agency or any other person challenging the legality of the
Transactions, seeking to prevent or delay consummation of
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the Transactions or seeking to obtain divestiture or other relief in the event
of consummation of the Transactions. It is understood in the event that such an
action is threatened or instituted, the parties will first attempt for a period
of 90 days to obtain dismissal or other favorable resolution of such threatened
or actual action prior to exercise of their right to terminate hereunder;
(f) The members of MCP Colorado shall have approved the LLC Merger
Agreement and this Agreement as set forth in Section 6.02(a); and
(g) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
SECTION 6.02 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO THE LLC MERGER. The
respective obligations of MCP Colorado and LLC to consummate the LLC Merger and
other matters described in this Agreement, are subject to the satisfaction or
waiver of each of the following conditions on or before the Effective Time,
except that condition (f) must be satisfied and cannot be waived by either
party:
(a) The members of MCP Colorado shall have approved this Agreement and
the LLC Merger Agreement, all in accordance with the requirements of applicable
law and the Articles of Incorporation and Bylaws of MCP Colorado;
(b) No injunction, restraining order or order of any nature issued by any
court of competent jurisdiction, government or governmental agency enjoining the
Transaction shall have been issued and remain in effect;
(c) All consents, approvals and waivers which are necessary in connection
with the Transactions, or any part thereof, shall have been obtained, including
the consents and approvals referred to in Exhibits E and F attached hereto;
(d) No action shall have been threatened or instituted by any
governmental agency or any other person challenging the legality of the
Transactions, seeking to prevent or delay consummation of the Transactions or
seeking to obtain divestiture or other relief in the event of consummation of
the Transactions. It is understood in the event that such an action is
threatened or instituted, the parties will first attempt for a period of 90 days
to obtain dismissal or other favorable resolution of such threatened or actual
action prior to exercise of their right to terminate hereunder;
(e) The members of the Cooperative and MCP Colorado shall have approved
the MCP Merger Agreement and this Agreement as set forth in Section 6.01(a) and
6.01(b), and the MCP Merger should be consummated; and
(f) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC.
SECTION 6.03 ADDITIONAL CONDITIONS TO OBLIGATION OF THE COOPERATIVE. THE
OBLIGATION OF THE COOPERATIVE TO CONSUMMATE THE MCP MERGER IS SUBJECT TO THE
SATISFACTION OR WAIVER OF EACH OF THE FOLLOWING ADDITIONAL CONDITIONS AT OR
BEFORE THE EFFECTIVE TIME:
(a) The representations and warranties of MCP Colorado contained in this
Agreement shall be true and correct in all material respects as of the Effective
Time as though such representations and warranties were made on and as of the
Effective Time, and MCP Colorado shall have performed in all material respects
all obligations required to be performed by it under this Agreement and the MCP
Merger Agreement prior to the Effective Time;
(b) The Cooperative shall have received a certificate, dated as of the
Effective Time, and executed by the President of MCP Colorado, certifying in
such detail as the Cooperative may reasonably request as to the accuracy of such
representations and warranties, the fulfillment of such obligations, compliance
with such covenants and satisfaction of the conditions to the Cooperative's
obligation as of the Effective Time; and
(c) All actions, proceedings and documents necessary to carry out the
Transactions (including, without limitation, the MCP Colorado Disclosure
Schedule) shall be reasonably satisfactory to the Cooperative.
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<PAGE>
SECTION 6.04 ADDITIONAL CONDITIONS TO OBLIGATION OF MCP COLORADO. The
obligation of MCP Colorado to consummate the MCP Merger and the LLC Merger is
subject to the satisfaction or waiver of each of the following additional
conditions at or before the Effective Time:
(a) The representations and warranties of the Cooperative and LLC
contained in this Agreement shall be true and correct in all material respects
as of the Effective Time as though such representations and warranties were made
on and as of the Effective Time, and the Cooperative and LLC shall have
performed in all material respects all of their respective obligations required
to be performed by each of them under this Agreement, the MCP Merger Agreement,
and the LLC Merger Agreement prior to the Effective Time;
(b) No fact, event or circumstance shall have occurred or become known to
MCP Colorado after the date hereof that alone, or together with all other facts,
events or circumstances, has had or is reasonably likely to have a material
adverse effect on the Cooperative or the Surviving Entity;
(c) MCP Colorado shall have received a certificate, from each of the
Cooperative and LLC dated as of the Effective Time, executed by their
Presidents, certifying in such detail as MCP Colorado may reasonably request as
to the accuracy of their representations and warranties, the fulfillment of
their obligations, compliance with their covenants and satisfaction of the
conditions to MCP Colorado's obligations as of the Effective Time; and
(d) All actions, proceedings and documents necessary to carry out the
Transaction (including, without limitation, the Cooperative Disclosure Schedule
and LLC Disclosure Schedule) shall be reasonably satisfactory to MCP Colorado.
SECTION 6.05 ADDITIONAL CONDITIONS TO OBLIGATION OF LLC. The obligation of
LLC to consummate the LLC Merger is subject to the satisfaction or waiver of
each of the following additional conditions at or before the Effective Time:
(a) The representations and warranties of MCP Colorado contained in this
Agreement shall be true and correct in all material respects as of the Effective
Time as though such representations and warranties were made on and as of the
Effective Time, and MCP Colorado shall have performed in all material respects
all obligations required to be performed by it under this Agreement and the LLC
Merger Agreement prior to the Effective Time;
(b) No fact, event or circumstance shall have occurred or become known to
LLC after the date hereof that alone, or together with all other facts, events
or circumstances, has had or is reasonably likely to have a material adverse
effect on MCP Colorado;
(c) LLC shall have received a certificate, dated as of the Effective
Time, and executed by the President of MCP Colorado, certifying in such detail
as LLC may reasonably request as to the accuracy of such representations and
warranties, the fulfillment of such obligations, compliance with such covenants
and satisfaction of the conditions to LLC's obligation as of the Effective Time;
and
(d) All actions, proceedings and documents necessary to carry out the
Transactions (including, without limitation, the MCP Colorado Disclosure
Schedule) shall be reasonably satisfactory to LLC.
ARTICLE VII
POST CLOSING AGREEMENTS
SECTION 7.01 EMPLOYEE BENEFIT PLANS. From and after the Effective Time, the
employee benefit plans of the Cooperative in effect as of the date of this
Agreement shall remain in effect with respect to employees of the Cooperative
(or their subsidiaries) covered by such plans at the Closing Date until such
time as LLC shall, subject to applicable law and the terms of such plans, adopt
new benefit plans with respect to employees of LLC. LLC agrees to honor in
accordance with their terms all benefits vested as of the date hereof under the
employee benefit plans of the Cooperative. Nothing in this Section 7.01 shall be
interpreted as preventing LLC from amending, modifying or terminating any
employee benefit plan of the Cooperative or other contracts, arrangements,
commitments or understandings, in accordance with their terms and applicable
law.
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SECTION 7.02 PATRONAGE DISTRIBUTIONS. Following the Effective Time and
within the time period required by the various provisions of the Code, the
Surviving Entity will make patronage distributions to the former members of each
party based on patronage transactions with the respective parties during each
party's respective fiscal year or portion thereof immediately preceding the
Effective Time. The patronage distributions shall be in the form of cash and
equity credits in a manner consistent with the previous patronage distributions
of each party (and in the case of equity credits, in the form of Class A Units
or Class B units of LLC, as appropriate).
SECTION 7.03 1996 LOSS PAYABLE. After the Effective Time, the unpaid
portion of the Cooperative's operating loss for the fiscal year ended September
30, 1996 that was assessed against a unit of equity participation of the
Cooperative shall continue as a lien against a Class A unit received in the LLC
Merger.
SECTION 7.04 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. From and
after the Effective Time, the Surviving Entity shall indemnify each present and
former director, officer, employee or agent of the Cooperative or MCP Colorado
and each person who, while a director or officer of the Cooperative and at the
request of the Cooperative, serves or has served another corporation,
cooperative, partnership, joint venture or any other enterprise as a director,
officer or partner, against any losses, claims, damages, liabilities or expenses
(including legal fees) arising out of or pertaining to matters existing or
occurring at or before the Effective Time, whether asserted or claimed prior to,
at or after the Effective Time, to the fullest extent permitted by law. The
Surviving Entity may obtain insurance coverage against any such loss, claim or
expense, subject to standard exclusions and exceptions to coverage, but is not
obligated to do so.
ARTICLE VIII
TERMINATION
SECTION 8.01 TERMINATION OF AGREEMENT. This Agreement shall be terminated
and the Transactions abandoned if at any time prior to the Effective Time:
(a) The members of the Cooperative fail to approve the Merger as required
by Section 6.01(a) or the members of MCP Colorado fail to approve the Merger as
required by Sections 6.01(b) and 6.02(a).
(b) The parties mutually agree in writing to terminate this Agreement;
or
(c) Either party to a Merger delivers a written notice to the other, to
the effect that (i) one or more of the conditions to its obligations as set
forth herein cannot be met, (ii) the other party has defaulted in a material
respect under one or more of its covenants or agreements contained herein, or
(iii) any of the representations or warranties of the other party are or have
become materially untrue or incorrect as of the date of such notice, and in any
case such condition or conditions have not been satisfied, such default or
defaults have not been remedied or such representation or warranty has not been
rendered true and correct within thirty (30) days after such notice is mailed;
or
(d) The Closing has not occurred on or before August 1, 1999, or such
later date as the parties may mutually agree upon.
SECTION 8.02 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 8.01 above, all rights and obligations of the parties
hereunder shall terminate without any liability of either party to the other
(except for any liability of a party then in breach); provided, however, that
the confidentiality and return of documents provisions contained in or referred
to Section 5.05 above shall survive any such termination.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 WAIVER. At any time before the Effective Time, any provision
of this Agreement may, to the extent legally allowed, be waived by the party
benefitted by the provision by an agreement in
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<PAGE>
writing between the parties hereto executed in the same manner as this
Agreement, except that after approval of the Mergers contemplated by this
Agreement by the respective members of the Cooperative and MCP Colorado, there
may not be any waiver of any provision of this Agreement which would reduce the
amount or form of consideration to be received by members in the Mergers.
SECTION 9.02 AMENDMENT. The parties by mutual consent may amend, modify or
supplement this Agreement in such manner as may be agreed upon in writing;
provided, however, that after approval of the Mergers by the respective members
of the Cooperative and MCP Colorado, this Agreement may not be amended if it
would violate applicable law or reduce the amount or form of the consideration
to be received by members in the Mergers.
SECTION 9.03 BINDING NATURE. This Agreement shall be binding upon and inure
only to the benefit of the parties hereto and their respective successors and
assigns, provided that neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned or delegated by any of the parties
hereto without the prior written consent of the other parties hereto.
SECTION 9.04 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 9.05 ENTIRE AGREEMENT. This Agreement, the MCP Merger Agreement,
the LLC Merger Agreement and the other documents referred to herein and therein
set forth the entire understanding of the parties hereto with respect to the
matters provided for herein and therein and supersede all prior agreements,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of either party.
SECTION 9.06 NOTICES. All notices, requests, demands and other
communications hereunder shall be deemed to have been duly given if delivered
personally, telecopied (with confirmation) or mailed by certified or registered
mail (return receipt requested), to the parties at the following addresses (or
such other address as such party may specify by like notice):
If to the Cooperative: Minnesota Corn Processors, Inc.
901 North Highway 59
Marshall, MN 56258
Attn: L. Dan Thompson
If to MCP Colorado: Minnesota Corn Processors Colorado
---------------------------
---------------------------
---------------------------
Attn:----------------------
If to LLC: Minnesota Corn Processors, LLC
---------------------------
---------------------------
---------------------------
Attn:----------------------
SECTION 9.07 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties contained in Articles II, III and
IV of this Agreement shall form the basis for closing conditions only, shall not
survive the Effective Time and shall not form the basis for any action by or on
behalf of either party or any third party for breach, misrepresentation or
indemnity at any time after the Effective Time.
SECTION 9.08 CAPTIONS. The article and section headings of this Agreement
are for convenience only and shall not affect the meaning or construction of
this Agreement.
* * * * * * * * * * * * * * * * * * * * * * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS COLORADO
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
EXHIBITS
Exhibit A - MCP Merger Agreement
Exhibit B - LLC Merger Agreement
Exhibit C - Surviving Entity Articles of Organization
Exhibit D - Surviving Entity Operating Agreement
Exhibit E - List of Consents and Approvals
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EXHIBIT 3.1
ARTICLES OF ORGANIZATION
OF
MINNESOTA CORN PROCESSORS, LLC
Pursuant to the provisions of the Colorado Limited Liability Company
Act, Title 7, Article 80 of the Colorado Revised Statutes (the "Act"), the
undersigned hereby executes these Articles of Organization as the organizer of a
Colorado limited liability company:
ARTICLE I
NAME
The name of the limited liability company is Minnesota Corn Processors,
LLC (the "Company").
ARTICLE II
PRINCIPAL PLACE OF BUSINESS
The Company's principal place of business is located at 901 North
Highway 59, Marshall, MN 56258.
ARTICLE III
REGISTERED AGENT
The name and address of the Company's its registered office and agent
in the State of Colorado is:
The Corporation Company
1675 Broadway
Denver, CO 80202
ARTICLE IV
MANAGEMENT
The Company's business and affairs shall be managed by a Board of
Directors. For purposes of the Act, the Board of Directors shall be deemed to be
the board of managers of the Company, and each director shall be deemed to be a
manager. The name and addresses of the initial Directors are as follows:
Dan Stacken
901 North Highway 59
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Marshall, MN 56258
Dan Thompson
901 North Highway 59
Marshall, MN 56258
Jerry Jacoby
901 North Highway 59
Marshall, MN 56258
Each initial Director shall serve until the closing under the Transaction
Agreement by and between the Company and Minnesota Corn Processors, Inc. ("MCP
Cooperative"), at which time the directors of MCP Cooperative shall become the
directors of the Company.
ARTICLE V
INITIAL MEMBER
The initial member of the Company is Minnesota Corn Processors, Inc.,
located at 901 North Highway 59, Marshall, MN 56258.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Organization as of this 10th day of December, 1998.
/s/ David P. Swanson
- -----------------------------
David P. Swanson
OPERATING AGREEMENT
OF
MINNESOTA CORN PROCESSORS, LLC
A Colorado Limited Liability Company
(CONTAINS RESTRICTIONS ON
TRANSFERABILITY OF MEMBERSHIP INTERESTS)
<PAGE>
MINNESOTA CORN PROCESSORS, LLC
OPERATING AGREEMENT
(CONTAINS RESTRICTIONS ON TRANSFERS
OF MEMBERSHIP INTERESTS)
TABLE OF CONTENTS
<TABLE>
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PAGE
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ARTICLE I DEFINITIONS ................................................................. 1
1.1 Terms Defined in the Act .................................................. 1
1.2 Terms Defined Herein ...................................................... 1
ARTICLE II THE LIMITED LIABILITY COMPANY ............................................... 8
2.1 Formation; Effective Date of Agreement .................................... 8
2.2 Name ...................................................................... 8
2.3 Business Purpose .......................................................... 9
2.4 Powers .................................................................... 9
2.5 Duration .................................................................. 9
2.6 Registered Office and Registered Agent .................................... 9
2.7 Principal Office .......................................................... 9
2.8 Title to Property; No Agency Power ........................................ 9
2.9 Limited Liability of Members and Directors ................................ 9
ARTICLE III MEMBERS .................................................................... 10
3.1 Membership ................................................................ 10
3.2 Ownership of Membership Interests ......................................... 10
3.3 Classes of Membership ..................................................... 11
3.4 Voting .................................................................... 11
3.5 Place of Meetings ......................................................... 12
3.6 Regular Meetings .......................................................... 12
3.7 Special Meetings .......................................................... 12
3.8 Notice of Meetings ........................................................ 12
3.9 Waiver of Notice .......................................................... 12
3.10 Quorum .................................................................... 12
3.11 Proxies; Mail Ballots ..................................................... 13
3.12 Action Without Meeting .................................................... 13
3.13 Telephonic Meetings ....................................................... 13
3.14 Termination of Membership ................................................. 13
3.15 Continuation of the Company ............................................... 14
3.16 No Obligation to Purchase Units ........................................... 14
3.17 Advance Consent to Certain Substitute Members ............................. 14
3.18 Compliance with Articles of Organization and Operating Agreement .......... 15
3.19 No Dissenters' Rights ..................................................... 15
ARTICLE IV CAPITAL ..................................................................... 15
4.1 Units ..................................................................... 15
4.2 Capital Accounts .......................................................... 15
4.3 Initial Issuance of Units; Offering of Additional Units ................... 16
4.4 No Capital Calls .......................................................... 17
4.5 Tax Withholding Obligations ............................................... 17
4.6 Transferee Succeeds to Transferor's Capital Account ....................... 17
4.7 No Right to Return of Contributions ....................................... 17
4.8 No Interest on Capital Contributions ...................................... 17
4.9 Loans to the Company ...................................................... 17
4.10 No Repayment Liability .................................................... 17
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ARTICLE V ALLOCATIONS AND DISTRIBUTIONS ............................................... 18
5.1 Allocation of Profits and Losses .......................................... 18
5.2 Special Allocations ....................................................... 18
5.3 Curative Allocations ...................................................... 20
5.4 Loss Limitation ........................................................... 20
5.5 Other Allocation Rules .................................................... 20
5.6 Tax Allocations ........................................................... 21
5.7 Distributions ............................................................. 21
5.8 Tax Withholding Obligations Constitute a Distribution ..................... 22
ARTICLE VI BOARD OF DIRECTORS .......................................................... 22
6.1 Board of Directors ........................................................ 22
6.2 Qualifications of Directors ............................................... 22
6.3 Election of Directors ..................................................... 22
6.4 Removal of Directors ...................................................... 22
6.5 Vacancies ................................................................. 22
6.6 Annual Meeting ............................................................ 23
6.7 Regular Meetings .......................................................... 23
6.8 Special Meetings .......................................................... 23
6.9 Quorum, Voting ............................................................ 23
6.10 Executive Committee ....................................................... 23
6.11 Compensation .............................................................. 23
6.12 Number of Districts ....................................................... 24
6.13 Districting Committee ..................................................... 24
6.14 Counties and Districts .................................................... 24
6.15 Directors and Districts ................................................... 25
6.16 Board Actions Requiring Approval of Members ............................... 25
6.17 Absent Directors .......................................................... 26
6.18 Action Without Meeting .................................................... 26
6.19 Telephonic Meetings ....................................................... 26
ARTICLE VII DUTIES OF DIRECTORS ........................................................ 26
7.1 General Powers ............................................................ 26
7.2 Employment of President and Chief Executive Officer ....................... 27
7.3 Bonds and Insurance ....................................................... 27
7.4 Accounting System and Audit ............................................... 27
7.5 Agreements with Members ................................................... 27
7.6 Depository ................................................................ 27
ARTICLE VIII BOARD OFFICERS; PRESIDENT AND CHIEF
EXECUTIVE OFFICER ......................................................... 27
8.1 Election of Board Officers ................................................ 27
8.2 Duties of Chairman ........................................................ 28
8.3 Duties of Vice Chairman ................................................... 28
8.4 Duties of Secretary ....................................................... 28
8.5 Duties of President and Chief Executive Officer ........................... 28
8.6 Compensation .............................................................. 29
8.7 Special Powers ............................................................ 29
ARTICLE IX REQUIRED RECORDS; ACCOUNTING AND TAX MATTERS ................................ 29
9.1 Required Records .......................................................... 29
9.2 Books of Account .......................................................... 30
9.3 Tax Characterization, Returns, Elections and Information .................. 30
9.4 Tax Matters Partner; Tax Audit Costs ...................................... 30
ARTICLE X TRANSFER OF MEMBER INTERESTS ................................................ 31
10.1 Restrictions on Transfer. ................................................. 31
10.2 Conditions Precedent to Transfers ......................................... 32
10.3 Substitution of Member .................................................... 32
10.4 Effective Date of Transfer ................................................ 33
10.5 Distributions and Allocations in Respect to Transferred Interest .......... 33
</TABLE>
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ARTICLE XI DISSOLUTION AND WINDING UP ....................................... 34
11.1 Liquidating Events ............................................. 34
11.2 Winding Up ..................................................... 34
11.3 Distributions Upon Dissolution ................................. 34
11.4 Compliance With Regulations; Deficit Capital Accounts .......... 35
11.5 Deemed Distribution and Recontribution ......................... 35
11.6 Allocations During Period of Liquidation ....................... 35
11.7 Character of Liquidating Distributions ......................... 36
ARTICLE XII MEMBERS BOUND BY AGREEMENT ....................................... 36
ARTICLE XIII INDEMNIFICATION OF DIRECTORS AND EMPLOYEES ...................... 36
13.1 Indemnity of Directors, Employees and Other Agents ............. 36
ARTICLE XIV MISCELLANEOUS .................................................... 37
14.1 Entire Agreement ............................................... 37
14.2 Amendment ...................................................... 37
14.3 Conflict with Articles ......................................... 37
14.4 Certificates of Membership Interest ............................ 37
14.5 Severability ................................................... 37
14.6 Remedies ....................................................... 38
14.7 Consent and Waiver ............................................. 38
14.8 No Third Party Beneficiary ..................................... 38
14.9 Notices ........................................................ 38
14.10 Binding Effect ................................................. 38
14.11 Necessary Instruments and Acts ................................. 39
14.12 Number and Gender .............................................. 39
14.13 Interpretation ................................................. 39
14.14 Counterparts ................................................... 39
14.15 Governing Law .................................................. 39
SCHEDULE A
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<PAGE>
MINNESOTA CORN PROCESSORS, LLC
OPERATING AGREEMENT
(CONTAINS RESTRICTIONS ON TRANSFERS
OF MEMBERSHIP INTERESTS)
THIS OPERATING AGREEMENT is entered into and made effective as of the _____
day of January, 1999 by and between Minnesota Corn Processors, LLC, a Colorado
limited liability company (the "Company"), and the members of the Company who
are identified as such on the Membership Register from time to time
(collectively, the "Members").
RECITALS
WHEREAS, the Members have caused the Company to be formed under the laws of
the State of Colorado for the following purposes: (a) to acquire all of the
businesses and assets of Minnesota Corn Processors, Inc., a Minnesota
cooperative corporation (the "Cooperative"); and (b) to operate the corn
processing and marketing business currently operated by the Cooperative; and (c)
for any other lawful purpose. The Members hereby adopt this Agreement as the
Operating Agreement of the Company as contemplated by Section 7-80-108 of the
Colorado Limited Liability Company Act.
NOW THEREFORE, in consideration of the foregoing and the mutual agreements
of the Members contained herein, and the mutual benefits to be gained by the
performance hereof, each of the Members agrees as follows:
ARTICLE I
DEFINITIONS
1.1 Terms Defined in the Act. Unless defined specifically herein, terms
relating to a limited liability company shall have the meanings given in or
interpreted under the Colorado Limited Liability Company Act.
1.2 Terms Defined Herein. The following capitalized words and phrases shall
have the following respective meanings as used herein, except as may be
otherwise expressly provided in this Agreement or unless the context otherwise
specifies.
"ACT" means the Colorado Limited Liability Company Act, as amended, and
any successor thereto.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to any Unit
Holder, the deficit balance, if any, in such Unit Holder's Capital Account as of
the end of the relevant allocation period, after giving effect to the following
adjustments:
(i) Credit to such Capital Account any amounts which such Unit Holder is
deemed to be obligated to restore pursuant to the penultimate sentences in
Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Regulations; and
(ii) Debit to such Capital Account the items described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Regulations.
This definition is intended to comply with the provisions of Section
1.704-1(b)(2)(ii)(d) of the Regulations and shall be interpreted consistently
therewith.
"AFFILIATE" means, with respect to a specified Person, any Person,
directly or indirectly, through one or more intermediaries, controlling or
controlled by, or under common control with a specified Person. The term
"control", as used in the preceding sentence, means with respect to a
corporation the right to exercise, directly or indirectly, more than 50% of the
voting rights attributable to the controlled
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<PAGE>
corporation, and, with respect to any partnership, trust or other entity or
association, the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of the controlled entity.
"AGREEMENT" means this Operating Agreement of Minnesota Corn Processors,
LLC, as amended, modified or supplemented from time to time, including any
schedules to this Agreement. Words such as "herein", "hereinafter", "hereof",
and "hereunder" refer to this Agreement.
"ARTICLES OF ORGANIZATION" means the Articles of Organization filed on
behalf of the Company with the Secretary of State of Colorado, as from time to
time amended.
"BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Company established by Article VI. For purposes of the Act, the "Board" or
"Board of Directors" shall mean the board of managers of the Company.
"CAPITAL ACCOUNT" means, with respect to any Unit Holder, the Capital
Account maintained for such Person in accordance with the provisions of Section
4.2 herein.
"CAPITAL CONTRIBUTIONS" means, with respect to any Unit Holder, the
amount of money and the Gross Asset Value of any property (other than money) and
the agreed value of services rendered or the obligation to perform services
which are contributed to the capital of the Company with respect to the Units
held by such Person pursuant to the terms of this Agreement.
"CERTIFICATE OF MEMBERSHIP INTEREST" means a certificate or other
evidence of ownership of the Units adopted by the Company pursuant to Section
14.4 of this Agreement.
"CLASS A MEMBER" means a Member that owns Class A Units.
"CLASS B MEMBER" means a Member that owns Class B Units.
"CLASS A UNITS" means the unit of measurement used to quantify the
Membership Interest of a Member eligible to purchase a voting Membership
Interest.
"CLASS B UNITS" means the unit of measurement used to quantify the
Membership Interest of a Member eligible to purchase a non-voting Membership
Interest.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time (or any corresponding provisions of succeeding law).
"COMPANY" shall have the meaning assigned to that term in the first
paragraph of this Agreement.
"COMPANY MINIMUM GAIN" shall have the same meaning as "partnership
minimum gain" in Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
"COMPETITOR" means (i) each Person identified as a Competitor on Schedule
A attached hereto and the successors and assigns thereof; (ii) any other Person
identified by the Company as a Competitor; and (iii) any officer or director of
any Person identified in (i) and (ii) hereof.
"DEPRECIATION" means, for each allocation period, an amount equal to the
depreciation, amortization, or other cost recovery deduction allowable with
respect to an asset for such allocation period, except that if the Gross Asset
Value of an asset differs from its adjusted basis for federal income tax
purposes at the beginning of such allocation period, Depreciation shall be an
amount which bears the same ratio to such beginning Gross Asset Value as the
federal income tax depreciation, amortization, or other cost recovery deduction
for such allocation period bears to such beginning adjusted tax basis; provided,
however, that if the adjusted basis for federal income tax purposes of an asset
at the beginning of such allocation period is zero, Depreciation shall be
determined with reference to such beginning Gross Asset Value using any
reasonable method selected by the Board of Directors.
"DIRECTOR" or "DIRECTORS" means the natural persons elected, appointed,
or otherwise designated as directors by the Members to direct the business and
affairs of the Company as provided in Article VI. For purposes of the Act, the
directors shall be deemed to be the "managers" of the Company.
"ESTABLISHED VALUE" means a per-Unit value established by the Board of
Directors from time to time, which shall be based on (i) seventy-five percent
(75%) of the fair market value for the Units, as
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<PAGE>
determined by the Board of Directors using reasonable valuation methods; or (ii)
the book value of the Units as shown on the Company's most recent audited
financial statements, whichever is less.
"EVENT OF DISASSOCIATION" shall have the meaning assigned to that term in
Section 3.15 of this Agreement.
"GROSS ASSET VALUE" means with respect to any asset, the asset's adjusted
basis for federal income tax purposes, except as follows:
(a) The initial Gross Asset Value of any asset contributed by a Member to
the Company shall be the gross fair market value of such asset, as determined by
the Board of Directors, provided that the initial Gross Asset Values of the
assets contributed to the Company pursuant to Section 4.3 hereof shall be as set
forth in such section;
(b) The Gross Asset Values of all Company assets shall be adjusted to
equal their respective gross fair market values (taking Code Section 7701(g)
into account), as determined by the Board of Directors as of the following
times: (i) the acquisition of an additional interest in the Company by any new
or existing Member in exchange for more than a DE MINIMIS Capital Contribution;
(ii) the distribution by the Company to a Member of more than a DE MINIMIS
amount of Company property as consideration for an interest in the Company; and
(iii) the liquidation of the Company within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), provided that an adjustment described in clauses (i) and
(ii) of this paragraph shall be made only if the Board of Directors reasonably
determines that such adjustment is necessary to reflect the relative economic
interests of the Members in the Company;
(c) The Gross Asset Value of any item of Company assets distributed to
any Member shall be adjusted to equal the gross fair market value (taking Code
Section 7701(g) into account) of such asset on the date of distribution as
determined by the Board of Directors; and
(d) The Gross Asset Values of Company assets shall be increased (or
decreased) to reflect any adjustments to the adjusted basis of such assets
pursuant to Code Section 734(b) or Code Section 743(b), but only to the extent
that such adjustments are taken into account in determining Capital Accounts
pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and subparagraph (f) of the
definition of "Profits and Losses" or Section 5.2(c) hereof; provided, however,
that Gross Asset Values shall not be adjusted pursuant to this subparagraph (iv)
to the extent that an adjustment pursuant to subparagraph (b) is required in
connection with a transaction that would otherwise result in an adjustment
pursuant to this subparagraph (d).
If the Gross Asset Value of an asset has been determined or adjusted
pursuant to subparagraph (b) or (d), such Gross Asset Value shall thereafter be
adjusted by the Depreciation taken into account with respect to such asset, for
purposes of computing Profits and Losses.
"INITIAL AGREED VALUE PER UNIT" shall mean the fair market value of each
Unit received by the Initial Members pursuant to the Transaction Agreement in
the merger of MCP Colorado into the Company as determined by a nationally
recognized appraisal firm selected by the Cooperative. The Board of Directors
shall be authorized to make reasonable modifications to such appraisal to
reflect intervening events between the date of the appraisal and the transfer of
Units to the Initial Members pursuant to the merger of MCP Colorado with and
into the Company pursuant to the Transaction Agreement.
"INITIAL MEMBERS" shall mean, (i) prior to the merger of MCP Colorado
into the Company pursuant to the Transaction Agreement, the Cooperative, and
(ii) from and after the effective time of the merger of MCP Colorado into the
Company pursuant to the Transaction Agreement, each Person who receives Class A
Units or Class B Units pursuant to such merger.
"LIQUIDATING EVENT" shall have the meaning assigned to that term in
Section 9.1 of this Agreement.
"LOSSES" shall have the meaning associated with that term in the
definition of Profits and Losses hereunder.
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"MCP COLORADO" means Minnesota Corn Processors Colorado, the transitory
Colorado cooperative into which the Cooperative will be merged in anticipation
of the merger of such Colorado cooperative into the Company.
"THE COOPERATIVE" means Minnesota Corn Processors, Inc., a Minnesota
cooperative corporation.
"MEMBER" means any Person (i) who has become a Member pursuant to the
terms of this Agreement, and who is designated as a Member on the Membership
Register, (ii) who is the owner of 1,000 or more Units, and (iii) who has not
ceased to be a Member pursuant to the terms of this Agreement. "Members" means
all such Persons.
"MEMBERSHIP INTEREST" means a Unit Holder's share of the Profits and
Losses of the Company and a Unit Holder's right to receive distributions of cash
or other assets of the Company in accordance with the terms of this Agreement.
"MEMBERSHIP REGISTER" shall have the meaning specified in Section 3.1 of
this Agreement.
"1996 LOSS PAYABLE" shall mean the unpaid portion of the Cooperative's
operating loss for fiscal year ended September 30, 1996 that was assessed
against a unit of equity participation by the Board of Directors of The
Cooperative and which pursuant to the Transaction Agreement continues as a lien
in favor of the Company against a Class A Unit into which such unit of equity
participation has been converted.
"NONRECOURSE DEDUCTIONS" has the meaning set forth in Section
1.704-2(b)(1) of the Regulations.
"NONRECOURSE LIABILITY" has the meaning set forth in Section
1.704-2(b)(3) of the Regulations.
"PERSON" means any individual, partnership, limited liability company,
association, corporation, cooperative, estate, trust or other entity, and also
includes a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended.
"PROFITS" shall have the meaning associated with that term in the
definition of Profits and Losses hereunder.
"PROFITS AND LOSSES" shall mean, for each allocation period, an amount
equal to the Company's taxable income or loss for such allocation period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss, or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments (without duplication):
(a) Any income of the Company that is exempt from federal income tax and
not otherwise taken into account in computing Profits or Losses pursuant to this
definition of "Profits" and "Losses" shall be added to such taxable income or
loss;
(b) Any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account
in computing Profits or Losses pursuant to this definition of "Profits" and
"Losses" shall be subtracted from such taxable income or loss;
(c) In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraphs (b) or (c) of the definition of Gross Asset Value, the
amount of such adjustment shall be treated as an item of gain (if the adjustment
increases the Gross Asset Value of the asset) or an item of loss (if the
adjustment decreases the Gross Asset Value of the asset) from the disposition of
such asset and shall be taken into account for purposes of computing Profits or
Losses;
(d) Gain or loss resulting from any disposition of Property with respect
to which gain or loss is recognized for federal income tax purposes shall be
computed by reference to the Gross Asset Value of the Property disposed of,
notwithstanding that the adjusted tax basis of such Property differs from its
Gross Asset Value;
(e) In lieu of the depreciation, amortization, and other cost recovery
deductions taken into account in computing such taxable income or loss, there
shall be taken into account Depreciation for such Allocation Year, computed in
accordance with the definition of Depreciation;
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(f) To the extent an adjustment to the adjusted tax basis of any Company
asset pursuant to Code Section 734(b) is required, pursuant to Regulations
Section 1.704-(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as a result of a distribution other than in liquidation of a Member's
interest in the Company, the amount of such adjustment shall be treated as an
item of gain (if the adjustment increases the basis of the asset) or loss (if
the adjustment decreases such basis) from the disposition of such asset and
shall be taken into account for purposes of computing Profits or Losses; and
(g) Notwithstanding any other provision of this definition, any items
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof
shall not be taken into account in computing Profits or Losses.
The amounts of the items of Company income, gain, loss or deduction
available to be specially allocated pursuant to Section 5.2 or Section 5.3
hereof shall be determined by applying rules analogous to those set forth in
subparagraphs (a) through (f) above.
"PROPERTY" means all real and personal property, including cash, acquired
and operated by the Company and any improvements thereto, and shall include both
tangible and intangible property.
"REGULATIONS" means the Income Tax Regulations, including Temporary
Regulations, promulgated under the Code as such Regulations may be amended from
time to time (including corresponding provisions of succeeding Regulations).
"SPECIAL FINANCIAL INTERESTS" means the nonvoting financial interest in
the Company issued to the former holders of nonqualified written notices of
allocation issued by the Cooperative, the stated amounts of which shall
correspond to the stated amounts of such nonqualified written notices of
allocation.
"REGULATORY ALLOCATIONS" has the meaning set forth in Section 5.3
hereof.
"TAX WITHHOLDING OBLIGATION" means an amount equal to the portion of any
amount allocated, credited, or otherwise distributable to a Unit Holder which
the Company is required to withhold for income tax purposes pursuant to any
applicable federal, state, local, or other governmental agency law or
regulation.
"TRANSACTION AGREEMENT" means the Transaction Agreement dated January ,
1999 between the Cooperative, MCP Colorado and the Company.
"TRANSFER" means, as a noun, any voluntary or involuntary transfer, sale
or other disposition and, as a verb, to voluntarily or involuntarily transfer,
sell, or otherwise dispose of, but shall not include a pledge, grant of a
security interest or other encumbrance.
"UNIT" means the unit of measurement used herein to quantify the
Membership Interest of a Unit Holder, consisting of Class A Units or Class B
Units, as reflected on the Membership Register. A Unit Holder's Membership
Interest as quantified by the number of Units owned by such Person may be
evidenced by a certificate of Units issued by the Company, which certificate
shall contain appropriate restrictive legends.
"UNIT HOLDER NONRECOURSE DEBT" has the same meaning as the term "partner
nonrecourse debt" in Section 1.704-2(b)(4) of the Regulations.
"UNIT HOLDER NONRECOURSE DEBT MINIMUM GAIN" means an amount, with respect
to each Unit Holder Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Unit Holder Nonrecourse Debt were treated as a Nonrecourse
Liability, determined in accordance with Section 1.704-2(i)(3) of the
Regulations.
"UNIT HOLDER NONRECOURSE DEDUCTIONS" has the same meaning as the term
"partner nonrecourse deductions" in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of
the Regulations.
"UNIT HOLDERS" means all Persons who hold Units. "Unit Holder" means any
one of the Unit Holders.
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ARTICLE II
THE LIMITED LIABILITY COMPANY
2.1 Formation; Effective Date of Agreement. The Company is formed as a
Colorado limited liability company pursuant to and in accordance with the
provisions of the Act and upon the terms and conditions set forth in this
Agreement. This Agreement is made effective as of the formation of the Company.
2.2 Name. The name of the Company shall be Minnesota Corn Processors, LLC.
All business of the Company shall be conducted in such name or in trade names
approved by the Board of Directors. The name of the Company may be changed from
time to time in accordance with the Act.
2.3 Business Purpose. The purpose of the Company is to conduct any business
activity in which a limited liability company organized under the Act may be
lawfully engaged in and to conduct any and all activities related or incidental
thereto, including the acquisition, improvement, leasing, operation, mortgage
and disposition of personal property and real property.
2.4 Powers. The Company may carry on any lawful business, purpose or
activity permitted by the Act and shall possess and may exercise all the powers
and privileges granted by the Act or by any other law or by this Agreement,
together with any powers incidental, necessary or convenient to the conduct,
promotion or attainment of the business, purposes or activities of the Company.
2.5 Duration. The duration of the Company shall be perpetual, unless
dissolved earlier as provided herein.
2.6 Registered Office and Registered Agent. The location of the registered
office and the name of the registered agent of the Company in the State of
Colorado shall be as stated in the Articles of Organization. The registered
office and registered agent of the Company in the State of Colorado may be
changed from time to time by the Board of Directors.
2.7 Principal Office. The principal office of the Company shall be located
at 901 North Highway 59, Marshall, MN 56258, or at such other place(s) within or
without the State of Minnesota as the Board of Directors may determine from time
to time.
2.8 Title to Property; No Agency Power. All Property originally transferred
to or subsequently acquired by or on account of the Company shall be owned by
the Company as an entity. No Member, Director or Unit Holder shall have any
ownership interest in such Property in such Person's individual name or right.
The Company shall hold all of its Property in the name of the Company and not in
the name of any Member, Director or Unit Holder. Subject to the approval by the
Board or the Members when required by this Agreement, title to Property may be
transferred by an instrument of transfer executed by the appropriate officer of
the Company as designated by the Board. No Member, Director or Unit Holder has
the authority, in said Person's capacity as Member, Director or Unit Holder, to
transfer title to Property or bind the Company or the other Members or any one
of them. Only duly authorized officers, directors and agents of the Company
shall have the authority to bind the Company.
2.9 Limited Liability of Members and Directors. Except as otherwise
expressly provided by the Act, the debts, obligations and liabilities of the
Company, whether arising in contract, tort or otherwise, shall be solely the
debts, obligations and liabilities of the Company. No Member, Director or other
agent of the Company, solely by reason of such status, shall be personally
liable, under a judgment, decree or order of a court, or in any other manner,
for the acts, debts, obligations or liabilities of the Company, whether arising
in contract, tort or otherwise.
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ARTICLE III
MEMBERS
3.1 Membership. There shall be no Members admitted to the Company except as
provided in this Agreement. The name, address, Capital Contribution, and class
of membership of each Member shall be set forth in a membership register
maintained by the Company at its principal office or by a duly appointed agent
of the Company (the "Membership Register"), which shall be modified from time to
time as additional Units are issued and as Units are transferred pursuant to
Article X. Prior to the merger of MCP Colorado into the Company pursuant to the
Transaction Agreement, the Cooperative (or its successors) shall be the only
Member of the Company. From and after the effective time of the merger of MCP
Colorado into the Company pursuant to the Transaction Agreement, the membership
interest of the Cooperative (or its successor) in the Company shall be canceled,
and (A) The Class A Members of this Company shall include, (i) initially, the
members of the Cooperative who receive Class A Units from the Cooperative
pursuant to the Transaction Agreement; and (ii) individuals, corporations or
other entities who acquire a minimum of 1,000 Class A Units in a permitted
transfer or in an offering by the Company of additional Class A Units. The Class
B Members of this Company shall include, (i) initially, Archer Daniels Midland
Company, as the transferee of Class B Units from the Cooperative pursuant to the
Transaction Agreement, and (ii) individuals, corporations or other entities who
acquire a minimum of 1,000 Class B Units in a permitted transfer.
The holders of Special Financial Interests shall not be Members of the
Company and shall have no rights other than the rights to distributions
specified in Sections 5.7(a) and 11.3(d) and the corresponding right to income
allocations provided in Section 5.2(i).
3.2 Ownership of Membership Interests.
(a) Minimum Ownership of Units Required. Each Class A Member shall own
not less than 1,000 Class A Units. Each Class B Member shall own not less than
1,000 Class B Units.
(b) Limitation on Ownership of Membership Interests.
(i) Number of Units. No Class A Member shall own more than two
percent (2%) of the total issued and outstanding Class A Units of the Company.
For purposes of this Section 3.2(b), the number of Units owned by any Member
shall include Units owned by the member's spouse, children, parents, or brothers
and sisters, and by any Affiliate of the Member or the Member's spouse,
children, parents or brothers and sisters.
(ii) Competitors. Any Competitor of the Company shall not be eligible
to own Class A Units of the Company.
(c) Company Right to Purchase Units. If (A) any Member holds at any time
less than the minimum number of Units required by Section 3.2(a) or more than
the maximum number of Units permitted under Section 3.2(b), and fails to cure
such violation of this Agreement within one (1) year after notice thereof by the
Company, or (B) any Member is or becomes a Competitor, that Member's voting
rights, if any, shall be suspended as provided in Section 3.14 below and, in
addition, the Company shall have the right (but not the obligation) to purchase,
and the Member shall be required to sell (i) in the case of a violation of
Section 3.2(a), all of the Units owned by such Member, and (ii) in the case of a
violation of Section 3.2(b), that Member's Units in excess of the two percent
(2%) maximum provided for in Section 3.2(b). The purchase price for Units
purchased by the Company under this Section shall be an amount equal to the
Established Value of the Units determined at the time the Company notifies the
Member of the violation and shall be payable, at the Company's option, in one
lump sum or equal installments over a period of five (5) years, with interest at
a rate equal to the interest rate for 91 day U.S. Treasury bills, adjusted
quarterly.
3.3 Classes of Membership. This Company has two (2) classes of Membership.
(a) Class A Membership. Class A Membership (as quantified by the Class A
Units) shall be the voting Membership Interests of the Company.
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(b) Class B Membership. Class B Membership (as quantified by the Class B
Units) shall be non-voting Membership Interests.
3.4 Voting.
(a) Units Required. Each Class A Member owning a minimum of 5,000 Class A
Units shall be entitled to one (1) vote with respect to any matter to be
determined by the Members under this Agreement or the Act, regardless of the
number of Units owned by such Class A Member. Any Class A Member who is in
default of any of its obligations under this Agreement shall not be entitled to
vote on any matter during the period of such default. When determining the
aggregate number of Units held by a Member for purposes of this Agreement, the
Units held by any Member who is in default of any obligations under this
Agreement shall be excluded. Each Member other than individual Members shall
designate in writing to the Chairman of the Board of the Company the name of one
(1) individual authorized to act as such Member's representative with respect to
all matters covered by this Agreement, including the right to exercise such
Member's voting rights hereunder. The Company and the other Members shall be
entitled to rely on the authority of the individual so designated. Each Member
may change such Member's representative by written notice to the Chairman of the
Board at such Member's sole discretion.
A member absent from any meeting may submit an absentee vote on any
motion, resolution, or amendment to be acted upon at such meeting, provided an
absentee ballot has been specifically authorized by the Board of Directors. An
absentee vote must be cast on a ballot containing the exact text of the proposed
motion, resolution, or amendment by delivering such ballot to the Secretary at
the principal office of the Company by hand, by United States mail (with postage
prepaid thereon), by facsimile, by overnight courier or by any other reasonable
means, to arrive not later than five (5) days prior to the day of the meeting at
which the vote is taken.
(b) Non-Voting Members. Any Class A Member owning at least 1,000 Class A
Units but less than 5,000 Class A Units as of the date upon which notice of
action to be taken by the Members is mailed to the Members shall be considered a
non-voting member of the Company and shall not be entitled to vote on any
matters reserved to the Members. The Units held by such non-voting members shall
be excluded in determining the aggregate number of Units held by Members.
Notwithstanding that such member is not entitled to vote, the Units in the hands
of the non-voting member shall continue to be subject to all the applicable
provisions of this Agreement, including but not limited to the transfer
restrictions set forth in Article X hereof. In the event a non-voting member
purchases the minimum number of Class A Units required to receive voting rights
under Section 3.4(a) hereof, such member shall be entitled to the voting rights
set forth in Section 3.4(a) without any further action by the Members or the
Board.
3.5 Place of Meetings. Each meeting of the Members shall be held at such
place as the Board of Directors may from time to time designate in writing to
the Members.
3.6 Regular Meetings. Regular meetings of the Members shall be held not
less than once per year, at such time and place as determined by the Board of
Directors; provided however, that if a regular meeting has not been held within
six (6) months after the end of each fiscal year of the Company any Member may
demand a meeting of the members by written demand to the Board of Directors.
3.7 Special Meetings. Special meetings of the Members may be called by the
Board of Directors or twenty percent (20%) of the Class A Members. The business
transacted at a special meeting of the Members is limited to the purposes stated
in the notice of the meeting.
3.8 Notice of Meetings. Written notice of each meeting of the Members,
stating the date, time and place, and in the case of a special meeting, the
purpose of the meeting, shall be given in writing at least fourteen (14) days
and not more than sixty (60) days prior to the meeting to every Member entitled
to vote at such meeting.
3.9 Waiver of Notice. A Member may waive the notice of meeting required
under this Article. A written notice of waiver signed by the Member entitled to
notice is effective whether given before, during or after the meeting.
Attendance by a Member at a meeting is waiver of notice of that meeting,
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unless the Member objects at the beginning of the meeting to the transaction of
business because the meeting is not lawfully called or convened and thereafter
does not participate in the meeting.
3.10 Quorum. The presence (in person or by proxy or mail ballot) of at
least ten percent (10%) of the Class A Members is required for the transaction
of business at a meeting of the Members; provided, however, that a quorum shall
never be more than fifty (50) Class A Members.
3.11 Proxies; Mail Ballots. Voting by proxy or by mail ballot shall be
permitted on any matter if authorized by the Board of Directors.
3.12 Action Without Meeting. Any action required or permitted to be taken
at a meeting of the Members of the Company may be taken without a meeting by
written action signed by all of the Class A Members. The written action is
effective when signed by all the Class A Members, unless a different effective
time is provided in the written action.
3.13 Telephonic Meetings. Any regular or special meeting of the Members may
be taken by telephonic or electronic conference or any other means of
communication through which the Members can simultaneously hear each other
during the conference, if the same notice is given of the conference to each
Member, and if the Members participating in the conference would be sufficient
to constitute a quorum at a meeting. Participation in a telephonic, electronic,
or other conference of such means constitutes presence at the meeting in person
or by proxy if all the other requirements are met.
3.14 Termination of Membership. A Member's Membership Interest terminates
and such Person ceases to be a Member on and following the occurrence of any of
the following events (each an "Event of Disassociation"):
(a) Complete Transfer. The Member transfers all of the Member's Units,
regardless of whether the transferee(s) is admitted as a substitute Member
pursuant to Section 10.5 of this Agreement;
(b) Dissolution of Member. Any event terminating the existence of any
non-individual Member;
(c) Death of Individual Member. The death of any individual Member;
(d) Withdrawal. The Member resigns by written notice to the Chairman of
the Board; or
(e) Disqualification. The Member holds less than the minimum number of
Units required by Section 3.2(a) or more than the maximum number of Units
permitted by Section 3.2(b) and fails to cure the applicable violation within
one (1) year after notice thereof by the Company.
A Person who has ceased to be a Member shall be considered a non-member
Unit Holder only, and shall have no right to any information or accounting of
the affairs of the Company, shall not be entitled to inspect the books or
records of the Company, shall not be entitled to vote on any matters reserved to
the Members, and shall not have any of the other rights of a Member under the
Act or this Agreement. The Units held by such Unit Holder shall be excluded in
determining the aggregate number of Units held by Members. Notwithstanding that
such Unit Holder is no longer a Member, the Units in the hands of such Unit
Holder shall continue to be subject to all the applicable provisions of this
Agreement, including but not limited to the transfer restrictions set forth in
Article X hereof.
In the event such Unit Holder ceased to be a Member pursuant to Section
3.14(f), such Unit Holder shall be reinstated as a Member without any further
action by the Members or the Board upon a showing to the Board that such Unit
Holder meets the minimum and maximum requirements set forth in Section 3.2.
3.15 Continuation of the Company. The Company shall not be dissolved upon
the occurrence of an Event of Disassociation or any other event which is deemed
to terminate the continued membership of a Member. The Company's affairs shall
not be required to be wound up. The Company shall continue without dissolution.
3.16 No Obligation to Purchase Units. No Member whose membership in the
Company terminates shall have any right to demand or receive a return of such
terminated Member's Capital Contributions.
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Neither the remaining Members nor the Company shall have any obligation to
purchase or redeem the Units of any such terminated Member.
3.17 Advance Consent to Certain Substitute Members.
(a) Substitute Member -- Dissolution. In the event of dissolution of a
non-individual Member, any person who continues the business of a dissolved
Member, or who holds some or all of the Membership Interest of the dissolved
Member, shall be admitted as a substitute Member; provided, however, that such
Person shall not be admitted as a substitute Member unless and until each of the
conditions set forth in Section 10.3 of this Agreement have been satisfied.
(b) Substitute Member -- Death. In the event of the death of an
individual Member, each of the following Persons who holds some or all of the
Membership interest of the deceased Member shall be admitted as a substitute
Member; provided, however, that such Person shall not be admitted as a
substitute Member unless and until each of the conditions set forth in Section
10.3 of this Agreement are satisfied at the time such Person becomes the holder
of all or some of such Membership Interest:
(i) the estate of the deceased Member;
(ii) the surviving joint tenant of the Membership Interest; and
(iii) any distributee of the estate of the deceased Member, including
any trustee(s) of a trust which holds some or all of the
Membership Interest of the deceased Member.
The rights of the estate of a deceased Member shall be exercised by the personal
representative(s) appointed by the court as the personal representative of the
estate of a deceased Member.
(c) Substitute Member. The purpose of this Section 3.17 is that the
voting rights of any Member whose membership is terminated by the dissolution or
death of such Member shall follow the Membership Interest of such Member
notwithstanding such termination, through the automatic substitution of the
holder of all or some of such Membership Interest as a substitute Member. Any
Person who is admitted as a substitute Member under this Section 3.17 shall be
entitled to all of the rights and bound by the obligations of, the Member for
which it is substituted.
3.18 Compliance with Articles of Organization and Operating Agreement. Each
Member of the Company is subject to the terms of the Company's Articles of
Organization, this Agreement, and such other reasonable policies and procedures
as the Board from time to time adopts to implement the terms of this Agreement.
3.19 No Dissenters' Rights. No Member or Unit Holder shall have any
dissenters' rights or appraisal rights or other similar rights as a result of
any merger or consolidation or other action involving the Company approved by
the Class A Members as provided in Section 6.16 hereof.
ARTICLE IV
CAPITAL
4.1 Units. The Company shall be authorized to issue 500,000,000 Units. Of
the total number of Units authorized in this Section 4.1, 350,000,000 Units are
hereby designated as Class A Units, and 150,000,000 Units are hereby designated
as Class B Units.
4.2 Capital Accounts. A Capital Account maintained for such Unit Holder in
accordance with the following provisions:
(a) To each Unit Holder's Capital Account there shall be credited (i)
such Unit Holder's Capital Contributions (determined in the case of the initial
Unit Holders as provided in Section 4.3(a)), (ii) such Unit Holder's
distributive share of Profits and any items in the nature of income or gain
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof, and
(iii) the amount of any Company liabilities assumed by such Unit Holder or which
are secured by any Property distributed to such Unit Holder.
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(b) To each Unit Holder's Capital Account there shall be debited (i) the
amount of money and the Gross Asset Value of any Property distributed to such
Unit Holder pursuant to any provision of this Agreement, (ii) such Unit Holder's
distributive share of Losses and any items in the nature of expenses or losses
which are specially allocated pursuant to Section 5.2 or Section 5.3 hereof, and
(iii) the amount of any liabilities of such Unit Holder assumed by the Company
or which are secured by any Property contributed by such Unit Holder to the
Company;
(c) In determining the amount of any liability for purposes of
subparagraphs (a) and (b) above there shall be taken into account Code Section
752(c) and any other applicable provisions of the Code and Regulations.
The provisions of this Agreement relating to the maintenance of Capital
Accounts are intended to comply with Regulations Section 1.704-1(b), and shall
be interpreted and applied in a manner consistent with such Regulations. In the
event the Board of Directors shall determine that it is prudent, it may modify
the manner in which the Capital Accounts are maintained, provided that it is not
likely to have a material effect on the amounts distributed to any Person
pursuant to Article XI hereof upon the dissolution of the Company. The Board of
Directors also shall (i) make any adjustments that are necessary or appropriate
to maintain equality between the Capital Accounts of the Unit Holders and the
amount of capital reflected on the Company's balance sheet, as computed for book
purposes, in accordance with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii)
make any appropriate modifications in the event unanticipated events might
otherwise cause this Agreement not to comply with Regulations Section
1.704-1(b).
4.3 Initial Issuance of Units; Offering of Additional Units.
(a) MCP Colorado will fund the Company on the Closing Date specified in
the Transaction Agreement by contributing all of its assets to the Company in
consideration of the Company's assumption of all of MCP Colorado's liabilities
and other obligations. On the effective date of the merger of MCP Colorado into
the Company, each member of MCP Colorado shall be issued the number and class of
Units that corresponds to the number and class of units such member held in MCP
Colorado. As the result of the foregoing transactions, the Unit Holder shall be
deemed to have made a Capital Contribution in the amount the product of (i) the
number of Units distributed to such Unit Holder, times (ii) the Initial Agreed
Value Per Unit.
(b) From time to time, the Board of Directors may authorize the issuance
and sale by the Company of additional Units (within the limits set forth in
Section 4.1) but only for the purpose of funding costs of expansion of or
necessary maintenance and repairs to the Company's corn wet-milling and related
facilities, funding costs of construction or acquisition of new or existing
facilities or business related or complimentary to the Company's existing
business, funding losses which cannot reasonably be expected to be funded with
future earnings, and/or funding equity contributions to joint ventures involved
in businesses which are related or complimentary to the Company's existing
businesses. In the event the Company offers such additional Units, the Company
shall offer the existing Class A and Class B Members the opportunity to purchase
additional Units so as to permit them to maintain at a constant level their then
existing percentage of the total Class A or Class B Units.
4.4 No Capital Calls. The Company may not require Members to make
additional contributions of capital to the Company for any reason, except that
the Board of Directors may, in its discretion, by resolution require that any
Member to whom a Tax Withholding Obligation is attributable make an additional
contribution to the capital of the Company in an amount equal to such Tax
Withholding Obligation less the amount of any loans for such purpose made to the
Company pursuant to Section 4.9.
4.5 Tax Withholding Obligations. The Board of Directors may, in its
discretion, by resolution require that any Member to whom a Tax Withholding
Obligation is attributable make an additional contribution to the capital of the
Company in an amount equal to such Tax Withholding Obligation less the amount of
any loans for such purpose made to the Company pursuant to Section 4.9.
4.6 Transferee Succeeds to Transferor's Capital Account. Any transfers
permitted by Article X of this Agreement by a Member to a transferee of all or
a part of such Member's Membership Interest in
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the Company shall vest in such transferee (and such transferee shall become a
successor in interest) the interest of the transferor Member's Capital Account
to the extent of the Membership Interest transferred.
4.7 No Right to Return of Contributions. The Members (including terminated
members) shall have no right to the withdrawal or the return of their respective
Capital Contributions except to the extent set forth in Article XI upon
liquidation of the Company.
4.8 No Interest on Capital Contributions. Other than Distributions
authorized pursuant to Article V or Article XI, no Member shall be entitled to
receive any interest or other property on account of the Member's Capital
Contributions to the Company.
4.9 Loans to the Company. A Member may lend money to the Company if
authorized by the Board of Directors. Any such loan shall not be treated as a
Capital Contribution for any purpose and shall not entitle the Member to any
increase in such Member's Membership Interest. The Company shall be obligated to
such Member for the amount of any such loan, with interest thereon at such rate
as may have been agreed upon by the Board of Directors.
4.10 No Repayment Liability. No Member, Director or other Unit Holder shall
be personally liable for the repayment of any Capital Contributions of any other
Unit Holder.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocation of Profits and Losses. After giving effect to the special
allocations set forth in Section 5.2 or Section 5.3, Profits and Losses for any
accounting period shall be allocated to the Unit Holders and shall be divided
among them in proportion to the number of Units held by each as set forth on the
Membership Register.
5.2 Special Allocations. The following special allocations shall be made
in the following order:
(a) Minimum Gain Chargeback. Except as otherwise provided in Section
1.704-2(f) of the Regulations, notwithstanding any other provision of this
Article V, if there is a net decrease in Company Minimum Gain during any
allocation period, each Unit Holder shall be specially allocated items of
Company income and gain for such allocation period (and, if necessary,
subsequent allocation periods) in an amount equal to such Unit Holder's share of
the net decrease in Company Minimum Gain, determined in accordance with
Regulations Section 1.704-2(g). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be allocated
to each Unit Holder pursuant thereto. The items to be so allocated shall be
determined in accordance with sections 1.704-2(f) (6) and 1.704-2(j) (2) of the
Regulations. This Section 3.3(a) is intended to comply with the minimum gain
chargeback requirement in Section 1.704-2(f) of the Regulations and shall be
interpreted consistently therewith.
(b) Unit Holder Minimum Gain Chargeback. Except as otherwise provided in
Section 1.704-2(i) (4) of the Regulations, notwithstanding any other provision
of this Article V, if there is a net decrease in Unit Holder Nonrecourse Debt
Minimum Gain attributable to a Unit Holder Nonrecourse Debt during any
allocation period, each Unit Holder who has a share of the Unit Holder
Nonrecourse Debt Minimum Gain attributable to such Unit Holder Nonrecourse Debt,
determined in accordance with Section 1.704-2(i) (5) of the Regulations, shall
be specially allocated items of Company income and gain for such allocation
period (and, if necessary, subsequent allocation periods) in an amount equal to
such Unit Holder's share of the net decrease in Unit Holder Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i) (4). Allocations
pursuant to the previous sentence shall be made in proportion to the respective
amounts required to be allocated to each Unit Holder pursuant thereto. The items
to be so allocated shall be determined in accordance with Sections 1.704-2(i)
(4) and 1.704-2(j) (2) of the Regulations. This Section 5.2(b) is intended to
comply with the minimum gain chargeback requirement in Section 1.704-2(i) (4) of
the Regulations and shall be interpreted consistently therewith.
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(c) Qualified Income Offset. In the event any Unit Holder unexpectedly
receives any adjustments, allocations, or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6) of
the Regulations, items of Company income and gain shall be specially allocated
to such Unit Holder in an amount and manner sufficient to eliminate, to the
extent required by the Regulations, the Adjusted Capital Account Deficit of the
Unit Holder as quickly as possible, provided that an allocation pursuant to this
Section 5.2(c) shall be made only if and to the extent that the Unit Holder
would have an Adjusted Capital Account Deficit after all other allocations
provided for in this Article V have been tentatively made as if this Section
5.2(c) were not in the Agreement.
(d) Gross Income Allocation. In the event any Unit Holder has a deficit
Capital Account at the end of any allocation period which is in excess of the
sum of (i) the amount such Unit Holder is obligated to restore pursuant to the
penultimate sentences of Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5),
each such Unit Holder shall be specially allocated items of Company income and
gain in the amount of such excess as quickly as possible, provided that an
allocation pursuant to this Section 5.2(d) shall be made only if and to the
extent that such Unit Holder would have a deficit Capital Account in excess of
such sum after all other allocations provided for in this Article V have been
made as if Section 5.2(c) and this Section 5.2(d) were not in the Agreement.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any allocation
period shall be specially allocated to the Unit Holders in proportion to their
respective Units held.
(f) Unit Holder Nonrecourse Deductions. Any Unit Holder Nonrecourse
Deductions for any allocation period shall be specially allocated to the Unit
Holder who bears the economic risk of loss with respect to the Unit Holder
Nonrecourse Debt to which such Unit Holder Nonrecourse Deductions are
attributable in accordance with Regulations Section 1.704-2(i) (1).
(g) Section 754 Adjustments. To the extent an adjustment to the adjusted
tax basis of any Company asset, pursuant to Code Section 734(b) or Code Section
743(b) is required, pursuant to Regulations Section 1.704-1(b)(2)(iv)(m)(2) or
1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Unit Holder in complete
liquidation of such Unit Holder's interest in the Company, the amount of such
adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases such basis) and such gain or loss shall be specially allocated to the
Unit Holders in accordance with their interests in the Company in the event
Regulations Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Unit Holder to
whom such distribution was made in the event Regulations Section
1.704-1(b)(2)(iv)(m)(4) applies.
(h) Allocations Relating to Taxable Issuance of Units. Any income, gain,
loss or deduction realized as a direct or indirect result of the issuance of
Units by the Company shall be allocated among the Unit Holders so that, to the
extent possible, the net amount of such items, together with all other
allocations under this Agreement to each Unit Holder shall be equal to the net
amount that would have been allocated to each such Unit Holder if the items had
not been realized.
(i) Allocations Relating to Special Financial Interests. If a
distribution is made to a holder of a Special Financial Interests under Section
5.7(a) or 11(d), a corresponding amount of income, gain, gross receipts or gross
sales proceeds, as determined by the Board of Directors, shall be allocated to
such holder.
5.3 Curative Allocations. The allocations set forth in Sections 5.2(a)
through 5.2(g) and 5.4 (the "Regulatory Allocations") are intended to comply
with certain requirements of the Regulations. It is the intent of the Unit
Holders that, to the extent possible, all Regulatory Allocations shall be offset
either with other Regulatory Allocations or with special allocations of other
items of Company income, gain, loss or deduction pursuant to this Section 5.3.
Therefore, notwithstanding any other provision of this Section 3 (other than the
Regulatory Allocations), the Board of Directors shall make such offsetting
special allocations of Company income, gain, loss or deduction in whatever
manner it determines appropriate so that, after such offsetting allocations are
made, each Unit Holder's Capital Account balance is, to the extent possible,
equal to the Capital Account balance such Unit Holder would have had if the
Regulatory Allocations were not part of the Agreement and all Company items were
allocated pursuant to Sections 5.1 and 5.2(h).
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5.4 Loss Limitation. Losses allocated pursuant to Section 5.1 hereof shall
not exceed the maximum amount of Losses that can be allocated without causing
any Unit Holder to have an Adjusted Capital Account Deficit at the end of any
allocation period. In the event some but not all of the Unit Holders would have
Adjusted Capital Account Deficits as a consequence of an allocation of Losses
pursuant to Section 5.1 hereof, the limitation set forth in this Section 5.4
shall be applied on a Unit Holder by Unit Holder basis and Losses not allocable
to any Unit Holder as a result of such limitation shall be allocated to the
other Unit Holders in accordance with the positive balances in such Unit
Holder's Capital Accounts so as to allocate the maximum permissible Losses to
each Unit Holder under Section 1.704-1(b)(2)(ii)(d) of the Regulations.
5.5 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses, and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the Board of
Directors using any permissible method under Code Section 706 and the
Regulations thereunder.
(b) The Unit Holders are aware of the income tax consequences of the
allocations made by this Article 5 and hereby agree to be bound by the
provisions of this Article 5 in reporting their shares of Company income and
loss for income tax purposes.
(c) Solely for purposes of determining a Unit Holder's proportionate
share of the "excess nonrecourse liabilities" of the Company within the meaning
of Regulations Section 1.752-3(a) (3), the Unit Holders' interests in Company
profits are in proportion to their Units held.
To the extent permitted by Section 1.704-2(h) (3) of the Regulations, the
Company shall endeavor to treat distributions as having been made from the
proceeds of a Nonrecourse Liability or a Unit Holder Nonrecourse Debt only to
the extent that such distributions would cause or increase an Adjusted Capital
Account Deficit for any Unit Holder.
5.6 Tax Allocations. In accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss, and deduction with respect to any
Property contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Unit Holders so as to take account of any
variation between the adjusted basis of such Property to the Company for federal
income tax purposes and its initial Gross Asset Value using such allocation
method as may be provided by Regulations and selected by the Board of Directors.
In the event the Gross Asset Value of any Company asset is adjusted
pursuant to subparagraph (b) of the definition of Gross Asset Value, subsequent
allocations of income, gain, loss, and deduction with respect to such asset
shall take account of any variation between the adjusted basis of such asset for
federal income tax purposes and its Gross Asset Value in the same manner as
under Code Section 704(c) and the Regulations thereunder.
Any elections or other decisions relating to such allocations shall be made
by the Board of Directors in any manner that reasonably reflects the purpose and
intention of this Agreement. Allocations pursuant to this Section 5.6 are solely
for purposes of federal, state, and local taxes and shall not affect, or in any
way be taken into account in computing, any Unit Holder's Capital Account or
share of Profits, Losses, other items, or distributions pursuant to any
provision of this Agreement.
5.7 Distributions. Cash shall be distributed in the amounts and at such
times as the Board may determine in its discretion; provided, however, that the
declaration and making of any distribution shall in all instances be limited by
applicable provisions of the Act. Subject to such limitation, the Board shall
endeavor to cause the Company to make cash distributions at such times and in
such amounts as will permit the Unit Holders to make timely payment of income
taxes payable with respect to ownership of Units. Distributions shall be in such
amounts as the Board determines is not required to be retained by the Company to
meet the reasonably foreseeable cash requirements and needs of the business and
activities of the Company and to establish an adequate reserve for the payment
of Company liabilities and contingencies. Distributions of cash or other
property hereunder shall be made as follows:
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(a) In the sole discretion of the Board of Directors, distributions may
be made prorata to the holders of Special Financial Interests in any amount up
to the stated amount thereof provided that the aggregate amount of such
distributions shall not exceed the aggregate stated amount of all Special
Financial Interests.
(b) Except as otherwise provided in Section 5.7(a), to the Unit Holders
to be divided among them in proportion to the number of Units held by each Unit
Holder.
(c) Any distribution may be made subject to offset for any debt or other
amount owed by the Unit Holder or the holder of a Special Financial Interest to
the Company.
For purposes of determining those Unit Holders entitled to receive
distributions pursuant to this Section 5.7, the Board of Directors may fix in
advance a record date which shall be the first day of any calendar month
following the calendar month in which the Board of Directors declares the
distribution. If no such record date is fixed by the Board, the record date
shall be the first day of the calendar month in which the distribution is to
paid. Notwithstanding the foregoing, distributions made with respect to Units
that are the subject of a Transfer shall be made in accordance with Section 10.6
hereof and distributions made with respect to additional Units issued by the
Company shall be made in accordance with Section 10.6 as if such additional
Units had been the subject of a Transfer.
5.8 Tax Withholding Obligations Constitute a Distribution. Any Tax
Withholding Obligation which is withheld by the Company shall constitute a
distribution of such amount by the Company to the Unit Holder to whom such Tax
Withholding Obligation is attributable.
ARTICLE VI
BOARD OF DIRECTORS
6.1 Board of Directors. Except as otherwise provided in this Agreement, the
business and affairs of the Company shall be managed under the direction of the
Board of Directors as provided herein. Prior to the merger of MCP Colorado into
the Company pursuant to the Transaction Agreement, the Board of Directors shall
consist of the individuals identified as such in the Articles of Organization.
At the effective time of the merger of MCP Colorado into the Company pursuant to
the Transaction Agreement, the Board of Directors shall consist of the Directors
specified in the Transaction Agreement. Thereafter, the Board of Directors shall
consist of twenty-four (24) Directors, who shall be elected by the Class A
Members in accordance with this Article.
6.2 Qualifications of Directors. All Directors elected by the Class A
Members shall be natural persons and must be Class A Members or an elected or
appointed representative of a Class A Member which is other than a natural
person.
6.3 Election of Directors. At each Annual Meeting of the Members, elections
shall be held to fill all vacancies on the Board of Directors. Class A Members
may vote by mail ballot for directors, provided a mail ballot has been
specifically authorized by the Board of Directors. Directors shall be elected
for staggered terms of three (3) years and until a successor is elected and
qualified.
6.4 Removal of Directors. The Board of Directors or any individual director
may be removed from office, with cause, by a vote of a majority of the Class A
Members from the district that elected the director that are present in person
or by mail ballot, and that are entitled to vote at the meeting of the Class A
Members at which said removal of directors is considered. In case any one (1) or
more directors be so removed, successor directors shall be elected at the same
meeting. Such successor directors shall be from the same district or districts
as the director or directors so removed. Notice of a meeting at which any Class
A Members will be voting to remove a director must state removal of directors as
an item to be voted upon at the meeting.
6.5 Vacancies. Whenever a vacancy occurs on the Board of Directors, other
than from expiration of a term of office or removal from office, a majority of
the remaining Directors shall appoint a Member
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from the same district to fill the vacancy until the next Annual Meeting of the
Class A Members, at which time the Members may elect a new Director to fill the
vacancy for the remainder of the term of the vacant Directors.
6.6 Annual Meeting. An annual organizational meeting of the Board of
Directors shall be held within thirty (30) days following each Annual Meeting of
the Class A Members for the purpose of the election of the board officers for
the ensuing year, and to transact such other business as may properly come
before the meeting.
6.7 Regular Meetings. A regular meeting of the Board of Directors shall be
held at such frequency and at such time and place as the Board of Directors may
determine.
6.8 Special Meetings. A special meeting of the Board of Directors shall be
held whenever called by the Chairman or, during his or her absence, by the Vice
Chairman, on forty-eight (48) hours' notice to each Director personally, or by
mail. Special meetings shall be called by the Chairman or Secretary in like
manner and on like notice on the written request of any Director. The purpose of
a special meeting need not be specified in the notice of the meeting. Notice of
any special meeting may be waived by attendance at a meeting, except when a
Director attends a meeting and objects to the transaction of business, or by a
waiver of notice signed before, during, or after the meeting.
6.9 Quorum, Voting. A majority of the Directors in office shall constitute
a quorum necessary to the transaction of business at any annual organizational
meeting, regular meeting, or special meeting of the Board of Directors, but if
less than a quorum is present, those Directors present may adjourn the meeting
from time to time until a quorum shall be present. All questions shall be
decided by a vote of a majority of the Directors present at a meeting.
6.10 Executive Committee. The Board of Directors may designate three (3) or
more Directors, one of whom shall be the Chairman of the Board, to constitute an
Executive Committee. The Board of Directors may elect other Directors as
alternative members of the Executive Committee. To the extent determined by the
Board of Directors, the Executive Committee shall have and exercise the
authority of the Board of Directors in the direction of the Company; provided,
however, that the Executive Committee shall not have the powers of the Board of
Directors in regard to apportionment or distribution of cash, election of
officers, filling vacancies on the Board of Directors, and recommending
amendments to this Agreement. The Executive Committee shall act only in the
interval between meetings of the Board of Directors, and shall be subject at all
times to the control and direction of the Board of Directors. Copies of the
minutes of each Executive Committee meeting shall be mailed to all directors
within seven (7) days following such meeting.
6.11 Compensation. The compensation of the Board of Directors shall be
determined by resolution of the Board of Directors, which shall be presented for
approval to the Class A Members at any Annual Meeting or special meeting, and
when so determined shall be continuing until altered or amended. Board officers
shall be entitled to reimbursement for actual expenses incurred in attending
Board of Directors meetings or in conducting other business of the Company. Such
expense accounts shall be approved by officers of the Board of Directors.
6.12 Number of Districts. The territory in which the Class A Members are
located shall be divided into eight districts. The boundaries of such districts
shall be defined without dividing counties, and the number of Directors
representing each district shall be approximately proportionate to the number of
Class A Members located in that district. Each district shall be represented by
two or more Directors, who shall be elected at the Annual Meeting, as provided
in Section 6.3.
6.13 Districting Committee. Periodically, the Board of Directors may
appoint a Districting Committee. The Districting Committee shall review the
boundaries of the districts, the number of Class A Members located in each
district, and the number of Directors representing each district. The
Districting Committee shall then recommend any changes to said boundaries that
are necessary to maintain equality of representation among such districts.
The boundaries of the districts, the number of Class A Members located in
each district, and the number of Directors representing each district shall be
subject to review by the Districting Committee
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at least every three years. The recommendations of the Districting Committee may
be accepted, rejected, or modified by the Board of Directors. Rather than
appointing a Districting Committee, the Board of Directors may delegate the
duties, powers, rights, and responsibilities described in this Section 6.13 to
any existing committee of the Board of Directors.
6.14 Counties and Districts. Initially, the counties in each of the eight
districts shall be as follows:
(a) District One. District One shall include the following counties in
Minnesota: Anoka, Big Stone, Chisago, Clay, Crow Wing, Dakota, Douglas, Grant,
Hennepin, Kanabec, Kandiyohi, Mahnomen, Meeker, Mille Lacs, Morrison, Norman,
Otter Tail, Pennington, Polk, Pope, Ramsey, Red Lake, Sherburne, Stearns,
Stevens, Swift, Todd, Traverse, Wadena, Washington, Wilkin, and Wright.
(b) District Two. District Two shall include the following counties in
Minnesota: Blue Earth, Carver, Dodge, Faribault, Fillmore, Freeborn, Goodhue, Le
Sueur, McLeod, Mower, Nicollet, Olmsted, Renville, Rice, Scott, Sibley, Steele,
Wabasha, and Waseca.
(c) District Three. District Three shall include Brown County, Redwood
County, and Watonwan County in Minnesota.
(d) District Four. District Four shall include Chippewa County and Lac
Qui Parle County in Minnesota.
(e) District Five. District Five shall include Lincoln County and Yellow
Medicine County in Minnesota, and shall also include the following counties in
South Dakota: Beadle, Bon Homme, Brookings, Brown, Charles Mix, Clark, Clay,
Codington, Deuel, Grant, Hamlin, Kingsbury, Lake, Lincoln, McCook, Miner,
Minnehaha, Moody, Spink, Turner, and Yankton.
(f) District Six. District Six shall include Lyon County in Minnesota.
(g) District Seven. District Seven shall include the following counties
in Minnesota: Cottonwood, Jackson, Martin, Murray, Nobles, Pipestone, and Rock.
District Seven shall also include the following counties in Iowa: Cerro Gordo,
Clay, Chickasaw, Dickinson, Emmet, Lyon, Mitchell, Osceola, Sioux, and
Winnebago.
(h) District Eight. District Eight shall include all of the counties in
Nebraska, and shall also include the following counties in Iowa: Carroll,
Crawford, Davis, Delaware, Dubuque, Fremont, Harrison, Ida, Linn, Louisa, Page,
Pottawattamie, Shelby, Story, and Webster.
If a situation arises where a Class A Member is located in a county or
state which is not designated as part of the any of the eight districts, then
the Board of Directors may add that county or state to whichever of the
districts the Board of Directors determines is most logical, in its sole
discretion, and may notify the affected Member of its decision. The Board of
Directors may take this action without the need for any additional amendments to
this Agreement. The designation of new counties to existing districts by the
Board of Directors under these circumstances shall be reviewed by the
Districting Committee when it is next appointed.
6.15 Directors and Districts. Initially, the number of directors
representing each district shall be as follows:
(a) District One shall be represented by three directors.
(b) District Two shall be represented by three directors.
(c) District Three shall be represented by three directors.
(d) District Four shall be represented by two directors.
(e) District Five shall be represented by three directors.
(f) District Six shall be represented by two directors.
(g) District Seven shall be represented by three directors.
(h) District Eight shall be represented by five directors.
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6.16 Board Actions Requiring Approval of Class A Members. The Board may not
authorize or approve the following actions without the affirmative vote or prior
consent of sixty-six and two-thirds percent (66.67%) of the Class A Members
voting in person, by proxy or by mail ballot at a duly called Members meeting:
(a) Any amendment of this Agreement or the Articles of Organization of
the Company;
(b) Approve any merger, consolidation, share or interest exchange, or
sale of all or substantially all of the assets of the Company (other
than the merger contemplated in the Transaction Agreement and a
merger of a wholly-owned subsidiary with and into the Company in
which the Company is the surviving entity);
(c) Voluntarily cause the dissolution of the Company; and
(d) Authorize any transaction, agreement or action on behalf of the
Company that is not related or complimentary to the Company's
existing business or would make it impossible for the Company to
carry on the primary business of the Company.
6.17 Board Actions Requiring Approval of Class B Members. Neither the Board
nor the Class A Members may authorize or approve the following actions without
the prior consent of the holders of sixty-six and two-thirds percent (66.67%) of
the Class B Units:
(a) Make any material change in the principal business of the Company;
(b) Sell, lease, liquidate, exchange, dispose of or otherwise transfer
substantially all of the assets of the Company; or
(c) Embark upon any capital expenditure project that would involve the
expenditure by the Company of any amount in excess of Two Hundred
and Fifty Thousand Dollars ($250,000.00).
Holders of Class B Units shall not unreasonably withhold any consent
required of it pursuant to this Section 6.17. For purposes of assessing the
reasonableness of the withholding by any holder of Class B Units of consent
hereunder, reference shall be made to the viewpoint of a lender or passive
investor that occupies the position of sole holder of the Class B Units.
6.18 Absent Directors. A Director of the Company may give advance written
consent or opposition to a proposal to be acted upon at a Board meeting. If the
Director is not present at the meeting, consent or opposition to a proposal does
not constitute presence at the meeting for purposes of determining existence of
a quorum, but consent or opposition shall be counted as a vote in favor of or
against the proposal and shall be entered in the minutes or other record of
action at the meeting, if the proposal acted on at the meeting is substantially
the same or has substantially the same effect as the proposal to which the
Director has consented or objected.
6.19 Action Without Meeting. Any action required or permitted to be taken
at a meeting of the Directors may be taken without a meeting by written action
signed by all of the Directors. The written action is effective when signed by
all the Directors, unless a different effective time is provided in the written
action.
6.20 Telephonic Meetings. Any regular or special meeting of the Directors
may be taken by telephonic or electronic conference or any other means of
communication through which the Directors can simultaneously hear each other
during the conference, if the same notice is given of the conference to each
Director, and if the Directors participating in the conference would be
sufficient to constitute a quorum at a meeting. Participation in a telephonic,
electronic, or other conference of such means constitutes presence at the
meeting in person if all the other requirements are met.
ARTICLE VII
DUTIES OF DIRECTORS
7.1 General Powers. The Board of Directors shall direct the business and
affairs of the Company, and shall exercise all of the powers of the Company
except such as are by this Agreement conferred
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upon or reserved to the Members. The Board of Directors shall adopt such
policies, rules, regulations, and actions not inconsistent with law or this
Agreement as it may deem advisable.
7.2 Employment of President and Chief Executive Officer. The Board of
Directors shall select and employ a President and Chief Executive Officer and
fix the compensation of such President and Chief Executive Officer. The Board of
Directors may terminate the employment of the President and Chief Executive
Officer with or without cause at any time, unless an enforceable written
contract between the Company and the President and Chief Executive Officer
provides otherwise.
7.3 Bonds and Insurance. The Board of Directors shall require the President
and Chief Executive Officer and all officers, agents, and employees charged by
the Company with responsibility for the custody of any of its funds or property
to give adequate bonds. Such bonds, unless cash security is given, shall be
furnished by a responsible bonding company and approved by the Board of
Directors, and the cost thereof shall be paid by the Company. The Company shall
provide for the adequate insurance of the property of the Company, or property
which may be in the possession of the Company, or stored by it, and not
otherwise adequately insured, and in addition adequate insurance covering
liability for accidents to all employees and the public.
7.4 Accounting System and Audit. The Board of Directors shall cause to be
installed and maintained an adequate system of accounts and records. At least
once in each year the books and accounts of the Company shall be audited by an
independent auditing firm, and the report of such audit shall be made at the
next Annual Meeting of the Class A Members.
7.5 Agreements with Members. The Board of Directors and such duly
authorized officers shall have the power to carry out all agreements of the
Company with its Members in every way advantageous to the Company representing
the Members collectively.
7.6 Depository. The Board of Directors may direct management to approve one
or more banks or other financial institutions to act as depositories of the
funds of the Company, and to determine the manner of receiving, depositing, and
disbursing the funds of the Company, the form of checks, and the person or
persons by whom they shall be signed, with the power to change such banks and
the person or persons signing such checks and the form thereof at will.
ARTICLE VIII
BOARD OFFICERS; PRESIDENT AND CHIEF EXECUTIVE OFFICER
8.1 Election of Board Officers. At each Annual Meeting of the Board of
Directors, the Board of Directors shall elect the principal officers of the
Board, which principal officers shall be a Chairman, a Vice Chairman, a
Secretary and such other Board officers as may be established by the Board. The
Chairman, Vice Chairman and Secretary must be Directors of the Company. A board
officer may be removed by the Board of Directors whenever in its judgment the
best interests of the Company will be served thereby. If any vacancy shall occur
among the principal officers of the Board, it shall be filled by the Board of
Directors at its next regular meeting following the vacancy.
8.2 Duties of Chairman. The Chairman shall:
(a) preside over all meetings of the Members of the Company, the
Executive Committee, and the Board of Directors;
(b) call special meetings of the Board of Directors;
(c) perform all acts and duties usually performed by an executive and
presiding officer; and
(d) sign all membership certificates and such other papers of the Company
as the Chairman may be authorized or directed to sign by the Board of Directors;
provided, however, that the Board of Directors may authorize any person to sign
any or all checks, contracts, and other documents in writing on behalf of the
Company. The Chairman shall perform such other duties as may be prescribed by
this Agreement or by the Board of Directors.
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8.3 Duties of Vice Chairman. In the absence or disability of the Chairman,
the Vice Chairman shall perform the duties of the Chairman.
8.4 Duties of Secretary. The Secretary shall attend all meetings of the
Company and the Board of Directors, all meetings of the Executive Committee, and
all meetings of the Members, and shall record all votes and keep minutes of all
proceedings. The Secretary shall keep a complete record of all meetings of the
Company and of the Board of Directors. The Secretary shall sign such papers
pertaining to the Company as he or she may be authorized or directed to sign by
the Board of Directors. The Secretary shall serve all notices required by law
and by this Agreement, including notices of meetings, and shall make a full
report of all matters and business pertaining to his or her office to the
Members at the Annual Meeting. The Secretary shall cause to be kept and
maintained complete membership records, shall make all reports required by law,
and shall perform such other duties as may be required of him or her by the
Company or the Board of Directors. An Assistant Secretary, if any, shall perform
the duties of the Secretary during the absence or disability of the Secretary.
8.5 Duties of President and Chief Executive Officer. The President and
Chief Executive Officer shall be employed by the Board of Directors as an
officer of the Company and shall perform such duties as the Board of Directors
may prescribe, and shall exercise such authority as the Board of Directors may
from time to time vest in him or her. Under the direction of the Board of
Directors, the President and Chief Executive Officer shall have general charge
of the ordinary and usual business operations of the Company, including the
purchasing, marketing and handling of all products and supplies handled by the
Company.
The President and Chief Executive Officer shall cause all money belonging
to the Company that comes into his or her possession in the name of the Company
to be deposited in a bank or other financial institution selected by the Board
of Directors, and if authorized to do so by the Board of Directors, shall make
all disbursements by check or electronic transfer of funds therefrom for the
ordinary and necessary expenses of the business in the manner and form
prescribed by the Board of Directors. On the appointment of his or her
successor, the President and Chief Executive Officer shall deliver to said
successor all money and property belonging to the Company which he or she has in
his or her possession or over which he or she has control.
The President and Chief Executive Officer shall be required to maintain the
Company's records and accounts in such a manner that the true and correct
condition of the Company's business may be ascertained therefrom at any time.
The President and Chief Executive Officer shall render annual and periodic
statements in the form and in the manner prescribed by the Board of Directors,
and shall carefully preserve all books, documents, correspondence, and records
of whatever kind pertaining to the business of the Company that may come into
his or her possession.
The President and Chief Executive Officer shall employ, supervise, and
dismiss any or all officers or employees of the Company, except agents or
counsel specifically employed by the Board of Directors. The President and Chief
Executive Officer may designate employees of the Company as various vice
presidents or assistant secretaries of the Company and define their duties and
responsibilities as such officers of the Company.
8.6 Compensation. The salary, compensation, and other benefits of the
President and Chief Executive Officer and all Board officers shall be fixed by
the Board of Directors; provided, however, that no officer who is a director may
take part in the vote on his or her own compensation.
8.7 Special Powers. The President and Chief Executive Officer or any
officer may be vested by the Board of Directors with any power and charged with
any duty not contrary to law or inconsistent with this Agreement.
ARTICLE IX
REQUIRED RECORDS; ACCOUNTING AND TAX MATTERS
9.1 Required Records. The Board shall cause to be maintained the required
records of the Company in a complete and accurate manner. The Board shall cause
to be maintained the required
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records on a current basis, including, without limitation, the recording of any
transfer of all or part of a Member's Membership Interest pursuant to Article X
hereof in the required records as soon as the Board receives notice of such
transfer. The Board shall conspicuously note in the required records that the
Members' Membership Interests are governed by this Agreement and that this
Agreement contains a restriction on the assignment of Membership Interests. The
required records at all times shall be kept at the principal executive office of
the Company or such other place or places within the United States as the Board
may determine. Each Member shall have access to and may inspect and copy the
required records as provided to the extent allowable and in accordance with the
Act. The costs of such inspection and copying shall be borne by the inspecting
Member.
9.2 Books of Account. The Board shall cause to be kept complete and
accurate accounts of all transactions of the Company in proper books of account
and shall enter or cause to be entered therein a full and accurate account of
each and every Company transaction in accordance with accounting principles and
methods as determined by the Board with the advice of the Company's accountants.
The books of account of the Company shall be closed and balanced as of the end
of each fiscal year. The books of account and other records of the Company shall
at all times be kept at the principal executive office of the Company or such
other place or places within the United States as the Board may determine. Each
Member shall have access to and may inspect and copy any of such books and
records at all reasonable times and in accordance with the Act. The costs of
such inspection and copying shall be borne by the inspecting Member.
9.3 Tax Characterization, Returns, Elections and Information. The Members
acknowledge that the Company will be characterized as a partnership for federal
income tax purposes. Management shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any federal, state or
local tax returns required to be filed by the Company and, except as otherwise
provided in any Board resolution, shall have complete discretion and authority
concerning any tax election required or permitted to be made by the Company.
Notwithstanding the preceding sentence, the Company shall not make an election
under Section 754 of the Code unless the Board shall determine by resolution
that the tax benefits made available to affected transferee Members as a result
of such an election are likely to be of sufficient magnitude to justify the
increased cost and administrative burden of accounting for the resulting basis
adjustments under Sections 734(b) and 743(b) of the Code.
Management shall deliver or cause to be delivered to each Member within a
reasonable time after the end of each fiscal year or, if applicable, after the
extended due date of the Company's tax return, such information concerning the
Company as is necessary or appropriate to permit each Member to properly
complete any federal, state or local income tax return in which Members must
include items attributable to the Company. Management shall endeavor to provide
sufficient information from time to time during the year as may be appropriate
to permit the Members to pay federal, state and local estimated taxes.
9.4 Tax Matters Partner; Tax Audit Costs. The Tax Matters Partner shall be
the person so designated in accordance with Sections 6221-33 of the Code and
related Treasury Regulations and such person shall assume the responsibilities
assigned to tax matters partners therein. The Board may designate the Tax
Matters Partner in accordance with said sections and regulations or, if no such
designation is made, the Tax Matters Partner shall be the Chairman of the Board
or, if such Chairman is not a Member, the Director who is a Member and who,
among the other Directors who are members, individually owns the largest number
of Units.
If on advice of counsel the Tax Matters Partner determines that it is in
the best interest of the Members that the final results of any administrative
proceeding be appealed by the institution of legal proceedings, the Tax Matters
Partner is hereby authorized to commence such legal proceedings in such forum as
the Tax Matters Partner, on advice of counsel, determines to be appropriate. In
the event the Tax Matters Partner selects a forum for appeal in which the Unit
Holders are required to deposit a proportionate share of any disputed tax before
making such appeal, the Tax Matters Partner must obtain the approval of the
Board and the consent of Members owning a majority of the Voting Interests. If
such approval and consent is obtained, each of the Unit Holders will be required
to deposit and pay such Unit Holder's proportionate share of such disputed tax
before participating in such appeal. The Unit Holders
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acknowledge that such deposit under current law does not earn interest and that
the failure to so deposit may preclude a Unit Holder from pursuing any other
sort of appeal by court action.
The Tax Matters Partner shall not be liable to any other Unit Holder for
any action taken with respect to any such administrative proceedings or appeal
so long as the Tax Matters Partner is not grossly negligent or guilty of willful
misconduct. Any costs paid or incurred by the Tax Matters Partner in connection
with its activities in such capacity shall be reimbursed by the Company.
Each Unit Holder acknowledges that any cost a Unit Holder may incur in
connection with an audit of such Unit Holder's income tax return, including an
audit of such Unit Holder's investment in this Company, is such Unit Holder's
sole responsibility and obligation. The Company, the Board, the officers and the
Tax Matters Partner shall not be liable to any Unit Holder for reimbursement or
sharing of any such costs.
ARTICLE X
TRANSFER OF MEMBER INTERESTS
10.1 Restrictions on Transfer.
(a) No Person shall Transfer any Unit if, in the determination of the
Board, such Transfer would cause the Company to be treated as a "publicly traded
partnership" within the meaning of Section 7704(b) of the Code.
(b) No Person shall Transfer any Unit except with the prior consent of
the Board of Directors.
(c) Any Transfer of a Unit that would result in a violation of the
restrictions in Section 10.1(a) or (b) shall be null and void, and the intended
transferee shall acquire no rights in such Unit.
10.2 Conditions Precedent to Transfers. The Board of Directors may not
recognize any Transfer of Units unless and until the Company has received:
(a) an opinion of counsel (whose fees and expenses shall be borne by the
transferor) satisfactory in form and substance to the Board that such Transfer
may be lawfully made without registration or qualification under applicable
state and federal securities laws, or such Transfer is properly registered or
qualified under applicable state and federal securities laws;
(b) such documents and instruments of conveyance executed by the
transferor and transferee as may be necessary or appropriate in the opinion of
counsel to the Company to effect such Transfer, except that in the case of a
Transfer of Units involuntarily by operation of law, the Transfer shall be
confirmed by presentation of legal evidence of such Transfer, in form and
substance satisfactory to the Company;
(c) the transferor's Certificate of Membership Interest;
(d) the transferee's taxpayer identification number and sufficient
information to determine the transferee's initial tax basis in the interest
transferred, and any other information reasonably necessary to permit the
Company to file all required federal and state tax returns and other legally
required information statements or returns;
(e) evidence satisfactory in form and substance to the Board that the
transferee meets the minimum and maximum Unit ownership requirements set forth
in Section 3.2 of this Agreement;
(f) in the case of a Transfer of Class A Units subject to a 1996 Loss
Payable, full payment in cash to offset such Member's 1996 Loss Payable; and
(g) in the case of a Transfer of Class B Units, a written agreement
executed by the transferee to the effect that transferee is not entitled to the
benefits of the Stockholder Agreement between the Cooperative and Archer Daniels
Midland Corporation dated August 27, 1997;
provided, however, the Board may waive any or all of the conditions stated
above. In addition, the Board may adopt such other conditions on the Transfer of
Units as it deems appropriate.
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10.3 Substitution of Member. A transferee of Units shall be admitted as a
substitute Member only if (i) the provisions of this Article have been met, (ii)
the transferee executes an instrument satisfactory to the Company accepting and
adopting the terms and provisions of this Agreement and (iii) the transferor
pays all reasonable expenses incurred by the Company in connection with the
Transfer and, if applicable, the transferee's admission as a new Member. The
admission of a transferee as a substitute Member shall not result in the release
of the Member who transferred the Unit from any liability that such Member may
have to the Company.
10.4 Effective Date of Transfer. Any Transfer of a Unit shall be deemed
effective as of the day of the month and year (i) which the Transfer occurs (as
reflected by the form of Assignment) and (ii) the transferee's name and address
and the nature and extent of the Transfer are reflected in the records of the
Company. The name, address, Capital Contributions, class and number of Units
held by each Member shall be set forth on the Membership Register, which shall
be modified from time to time as Transfers occur or as additional Units are
issued pursuant to the provisions of this Agreement. The appropriate Company
records shall be conspicuously noted to prevent the Transfer of Units otherwise
than in accordance with this Article X. Notwithstanding the foregoing, the
effective date of a Transfer for purposes of allocation of Profits and Losses
and for distributions shall be determined pursuant to Section 10.5. Any
transferee of a Unit shall take subject to the restrictions on transfer imposed
by this Agreement.
10.5 Distributions and Allocations in Respect to Transferred Interest. If
any Unit is transferred during any accounting period in compliance with the
provisions of this Article X, then Profits and Losses, each item thereof, and
all other items attributable to such Units for such accounting period shall be
divided and allocated between the transferor and the transferee by taking into
account their varying interests during such accounting period in accordance with
Code Section 706(d). Solely for purposes of making such allocations and
distributions, the Company shall use the interim closing of the books method and
the convention that recognizes such Transfer as of the beginning of the calendar
month following the calendar month in which the notice, documentation and
information requirements of this Article X have been substantially complied
with. All distributions on or before the end of the calendar month in which such
requirements have been substantially complied with shall be made to the
transferor and all distributions thereafter shall be made to the transferee. The
Board shall have the power and authority to adopt another reasonable method
and/or convention with respect to such allocations and distributions; provided,
that reasonable notice of any change is given to the Members in advance of the
change. Neither the Company, the Board, any Director nor any Member shall incur
any liability for making allocations and distributions in accordance with the
provisions of this Section 10.5, whether or not the Board or any Director or the
Company or any Member has knowledge of any Transfer of ownership of any interest
in the Company.
ARTICLE XI
DISSOLUTION AND WINDING UP
11.1 Liquidating Events. The Company shall be dissolved and commence
winding up and liquidating upon the affirmative vote of at least sixty-six and
two-thirds percent (66.67%) of the Class A Members voting at a duly called
meeting.
As further provided in Article III herein, the dissociation and termination
of the continued membership of a Member shall not cause the dissolution of the
Company and shall not require the Company's business to be wound-up, so long as
the Company has the minimum number of Members required under applicable state
law within ninety (90) days following the Event of Dissociation.
11.2 Winding Up.
(a) Notice of Dissolution. As soon as possible following the occurrence
of a Liquidating Event, the appropriate representative of the Company shall
execute a notice of dissolution in such form as shall be prescribed by the
Colorado Secretary of State, setting forth the information required under the
Act, and shall file same with the Colorado Secretary of State's office.
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(b) Winding Up of Business. Upon filing a notice of dissolution with the
Colorado Secretary of State, the Company shall cease to carry on its business,
except insofar as may be necessary for the winding up of its business, but its
separate existence shall continue until a certificate of termination has been
issued by the Secretary of State or until a decree dissolving the Company has
been entered by a court of competent jurisdiction.
11.3 Distributions Upon Dissolution. Upon dissolution, the business of the
Company shall be wound up, the Directors shall take full account of the Company
assets and liabilities, and all assets shall be liquidated as promptly as is
consistent with obtaining the fair value thereof. If any assets are not sold,
gain or loss shall be allocated to the Unit Holders in accordance with Article V
as if such assets had been sold at their fair market value at the time of the
liquidation. If any assets are distributed to a Unit Holder, rather than sold,
the distribution shall be treated as a distribution equal to the fair market
value of the assets at the time of the liquidation. The assets of the Company
shall be applied and distributed in the following order of priority:
(a) First, to the payment of all debts and liabilities of the Company,
including all fees due the Directors, and including any loans or advances that
may have been made by the Members to the Company, in the order of priority as
provided by law;
(b) Second, to the establishment of any reserves deemed necessary by the
Directors or the Person winding up the affairs of the Company for any contingent
liabilities or obligations of the Company; and
(c) Third, to the Unit Holders, ratably in proportion to the credit
balances in their respective Capital Accounts after and including all
allocations to the Unit Holders and holders of Special Financial Interests under
Article V herein, including the allocation of any income, gain or loss from the
sale, exchange or other disposition (including a deemed sale pursuant to this
Section 11.3) of the Company's assets, in an amount equal to value of their
units as established by the Board of Directors;
(d) Fourth, to the holders of Special Financial Interests in proportion
to their stated amounts in amounts equal to the stated amount of such interests
less any previous distributions made with respect to such Interests; and
(e) Fifth, the balance, if any, to the Unit Holders, ratably in
proportion to the credit balances in their respective Capital Accounts, in an
amount equal to the aggregate credit balances in the Capital Accounts after and
including all allocations to the Unit Holders and holders of Special Financial
Interests under Article V herein, including the allocation of any income, gain
or loss from the sale, exchange or other disposition (including a deemed sale
pursuant to this Section 11.3) of the Company's assets.
11.4 Compliance With Regulations; Deficit Capital Accounts. In the event
the Company is "liquidated" within the meaning of Regulations Section
1.704-1(b)(2)(ii)(g), distributions shall be made pursuant to this Article XI to
the Unit Holders who have positive Capital Accounts in compliance with
Regulations Section 1.704-1(b)(2)(ii)(b)(2). If any Unit Holder has a deficit
balance in his Capital Account (after giving effect to all contributions,
distributions and allocations for all allocation periods, including the
allocation period during which such liquidation occurs), such Unit Holder shall
have no obligation to make any contribution to the capital of the Company with
respect to such deficit, and such deficit shall not be considered a debt owed to
the Company or to any other Person for any purpose whatsoever. In the discretion
of the Company, a pro rata portion of the distributions that would otherwise be
made to the Unit Holders pursuant to this Article XI may be:
(a) Distributed to a trust established for the benefit of the Unit
Holders for the purposes of liquidating Company assets, collecting amounts owed
to the Company, and paying any contingent or unforeseen liabilities or
obligations of the Company. The assets of any such trust shall be distributed to
the Unit Holders from time to time, in the reasonable discretion of the trustee,
in the same proportions as the amount distributed to such trust by the Company
would otherwise have been distributed to the Unit Holders pursuant to Section
11.3 hereof; or
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(b) Withheld to provide a reasonable reserve for Company liabilities
(contingent or otherwise) and to reflect the unrealized portion of any
installment obligations owed to the Company, provided that such withheld amounts
shall be distributed to the Unit Holders as soon as practicable.
11.5 Deemed Distribution and Recontribution. Notwithstanding any other
provision of this Article XI, in the event the Company is liquidated within the
meaning of Regulations Section 1.704-1(b)(2)(ii)(g) but no Dissolution Event has
occurred, the Property shall not be liquidated, the Company's debts and other
liabilities shall not be paid or discharged, and the Company's affairs shall not
be wound up. Instead, solely for federal income tax purposes, the Company shall
be deemed to have distributed the property in-kind to the Unit Holders, who
shall be deemed to have taken subject to all debts of the Company and other
liabilities all in accordance with their respective Capital Accounts.
Immediately thereafter, the Unit Holders shall be deemed to have recontributed
the property in-kind to the Company, which shall be deemed to have taken subject
to all such liabilities.
11.6 Allocations During Period of Liquidation. During the period commencing
on the first day of the Fiscal Year during which a Dissolution Event occurs and
ending on the date on which all of the assets of the Company have been
distributed to the Unit Holders pursuant to Section 11.3 hereof (the
"Liquidation Period"), the Unit Holders shall continue to share Profits, Losses,
gain, loss and other items of Company income, gain, loss or deduction in the
manner provided in Article V hereof.
11.7 Character of Liquidating Distributions. All payments made in
liquidation of the interest of a Unit Holder shall be made in exchange for the
interest of such Unit Holder in property pursuant to Section 736(b)(1) of the
Code, including the interest of such Unit Holder in Company goodwill.
ARTICLE XII
MEMBERS BOUND BY AGREEMENT
By their purchase or acceptance of Units, the Initial Members and any
Person who is admitted as an additional Member or a substitute Member shall be
subject to and bound by all the provisions of this Agreement, whether or not
such Member executes this Agreement or any other document referring to this
Agreement. However, such Person shall execute and acknowledge any documents and
instruments, in form and substance satisfactory to the Board, as the Board shall
deem necessary or advisable to effect such admission and to confirm the
agreement of the Person being admitted to be bound by all the terms and
provisions of this Agreement. Upon demand by the Board, such Person shall pay
all reasonable expenses in connection with such admission as a Member,
including, without limitation, legal fees and costs of preparation of any
amendment to or restatement of this Agreement, if necessary or desirable in
connection therewith.
ARTICLE XIII
INDEMNIFICATION OF DIRECTORS AND EMPLOYEES
13.1 Indemnity of Directors, Employees and Other Agents.
(a) To the fullest extent permitted by law, the Company shall indemnify
each Director from and make advances for expenses incurred by the Director in
connection with any claim made against the Director arising from an action or
omission made in good faith or which he or she reasonably believed to be in the
best interests of the Company, or any other such claim to the maximum extent
permitted under the Act, except to the extent the claim for which
indemnification is sought results from an act or omission of the Director
constituting fraud or willful misconduct.
(b) Except as may otherwise be provided in an agreement with an agent or
employee, the Company shall indemnify its employees and other agents who are not
Directors to the fullest extent permitted by law.
(c) Expenses (including legal fees and expenses) incurred by a Director
in defending any claim, demand, action, suit or proceeding subject to subsection
(a) above shall be paid by the Company
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in advance of the final disposition of such claim, demand, action, suit or
proceeding upon receipt of an undertaking (which need not be secured) by or on
behalf of the Director to repay such amount if it shall ultimately be finally
determined by a court of competent jurisdiction and not subject to appeal, that
the Director is not entitled to be indemnified by the Company as authorized
hereunder.
ARTICLE XIV
MISCELLANEOUS
14.1 Entire Agreement. This Agreement constitutes the entire agreement
among the parties and supersedes any prior agreement or understanding among them
with respect to the subject matter hereof.
14.2 Amendment. This Agreement may not be modified, amended, or
supplemented, without (a) the affirmative vote or prior consent of sixty-six and
two-thirds percent (66.67%) of the Class A Members voting in person, by proxy,
or by mail ballot at a duly called Members meeting (except that the Board may
amend Section 6.17(c) without the consent or approval of any Class A Members),
and (b) in the case of any modification, amendment or supplement which otherwise
modifies or amends Section 6.17 hereof or the last sentence of Section 4.3(b)
hereof, or which otherwise modifies the rights and benefits afforded to the
holders of Class B Units, the prior consent of the holders of sixty-six and
two-thirds percent (66.67%) of the Class B Units.
14.3 Conflict with Articles. In the event of any conflict between the
Articles of Organization and this Agreement, the provisions of this Agreement
shall govern to the extent not contrary to law.
14.4 Certificates of Membership Interest. Units shall be evidenced by
certificates of membership interest. At the effective time of the merger of MCP
Colorado into the Company pursuant to the Transaction Agreement, the Company
adopts the certificates of the Cooperative as the Certificates of Membership
Interest of the Company. Upon any Transfer of Units in accordance with Article
X, the Board of Directors will issue a new form of certificate under the
Company's own name (a "LLC Certificate") representing the Units so transferred;
provided, however, that the issuance of LLC Certificates shall not invalidate or
otherwise affect the validity of certificates of the Cooperative representing
outstanding Units owned by the Initial Members. Each LLC Certificate shall bear
a legend referring to the restrictions set forth in Article X.
14.5 Severability. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under the present or future laws effective
during the term of this Agreement, such provision will be fully severable. This
Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this Agreement. The
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance from this Agreement. In lieu of such illegal, invalid, or
unenforceable provision, there will be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and enforceable.
14.6 Remedies. The parties agree that in the event of a breach of this
Agreement, the non-breaching party or parties shall be entitled to the remedies
of specific performance and injunctive relief, except to the extent prohibited
by the Act. Such remedies shall be in addition to any other remedies available
at law or in equity with the pursuit of any one or more remedies not being a bar
to the pursuit of other remedies which may be available. The parties further
agree that the breaching party or parties shall pay all reasonable costs,
expenses, and attorneys' fees incurred by the non-breaching party or parties in
pursuing their remedies for a breach of this Agreement.
14.7 Consent and Waiver. No consent under and no waiver of any provision of
this Agreement on any one occasion shall constitute a consent under or waiver of
any other provision on said occasion or on any other occasion, nor shall it
constitute a consent under or waiver of the consented to or waived provision on
any other occasion. No consent or waiver shall be enforceable unless it is in
writing and signed by the party against whom such consent or waiver is sought to
be enforced.
14.8 No Third Party Beneficiary. This Agreement is made solely and
specifically among and for the benefit of the Company, the Members and the Unit
Holders, and their respective successors and assigns.
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No other Person will have any rights, interest, or claims hereunder or be
entitled to any benefits under or on account of this Agreement as a third party
beneficiary or otherwise; provided, however, that the Company shall have
standing to bring an action to recover damages provided for by the Act or to
seek remedies otherwise provided by law in the event of a breach or threatened
breach of this Agreement.
14.9 Notices. All notices, offers, demands, or other communications
required or permitted under this Agreement shall be in writing, signed by the
Person giving the same. Notice shall be treated as given when personally
received or (except in the event of a mail strike) when sent by United States
Mail to a Member or Unit Holder at the address as shown from time to time on the
records of the Company. Any Member or Unit Holder may specify a different
address by written notice to the Company.
14.10 Binding Effect. Except as herein otherwise specifically provided,
this Agreement shall be binding upon and inure to the benefit of the Company,
the Members and Unit Holders, parties and their legal representatives, heirs,
administrators, executors, successors and assigns. Members and Unit Holders
shall be bound by and shall be entitled to the benefits of this Agreement by
their purchase or acceptance of Units whether or not they sign this Agreement or
any document referring to this Agreement.
14.11 Necessary Instruments and Acts. The parties covenant and agree that
they shall execute any further instruments and shall perform any acts which are
or may become necessary to effectuate and to carry out the terms and conditions
of this Agreement.
14.12 Number and Gender. Wherever from the context it appears appropriate,
each term stated in either the singular or the plural shall include the singular
and the plural and pronouns stated in either the masculine, the feminine or the
neuter gender shall include the masculine, feminine and neuter.
14.13 Interpretation. All references herein to Articles, Sections and
subsections refer to Articles, Sections and subsections of this Agreement. All
Article, Section and subsection headings are for reference purposes only and
shall not affect the interpretation of this Agreement.
14.14 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement binding
on all parties. Each party shall become bound by this Agreement immediately upon
signing any counterpart, independently of the signature of any other party.
14.15 Governing Law. This Agreement and the rights of the parties hereunder
shall be governed by and interpreted in accordance with the internal laws of the
State of Colorado, without regard to its conflicts or choice-of-law rules.
* * * * * * *
IN WITNESS WHEREOF, this Agreement has been executed by the duly authorized
representatives of the Company and the Cooperative as of the date set forth in
the first paragraph.
MINNESOTA CORN PROCESSORS, INC.
By: --------------------------------------
Its: -------------------------------------
MINNESOTA CORN PROCESSORS, LLC
By: --------------------------------------
Its: -------------------------------------
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SCHEDULE A
COMPETITORS
Archer Daniels Midland Company
Cargill, Incorporated
Corn Products Company (Corn Products International, Inc.)
A.E. Staley Manufacturing Company (Tate & Lyle, PLC)
Cerestar USA, Inc.
National Starch and Chemical Company
Penford Products Company (Penford Corporation)
Roquette America, Inc.
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EXHIBIT 3.3
ARTICLES OF INCORPORATION
OF
MINNESOTA CORN PROCESSORS COLORADO
THE UNDERSIGNED, acting as incorporator of a cooperative association
under the Colorado Cooperative Act, Article 56 of Title 7 of the Colorado
Revised Statutes, hereby adopts the following Articles of Incorporation:
ARTICLE I
NAME
The name of this company shall be Minnesota Corn Processors Colorado
(the "Company").
ARTICLE II
PRINCIPAL OFFICE
The Company's principal office is located at 901 North Highway 59,
Marshall, MN 56258.
ARTICLE III
REGISTERED OFFICE AND AGENT
The name and address of the Company's registered agent and office are
as follows:
Kevin Cudney
Republic Plaza Building, Suite 4400
370 17th Street
Denver, CO 80202-5644
ARTICLE IV
DURATION
The Company shall have perpetual duration.
ARTICLE V
CAPITAL
The total number of shares of capital stock which this Company is
authorized to issue is 100 shares, of which 50 shall be Class A Voting stock and
50 shares shall be Class B Non-voting
<PAGE>
stock.
ARTICLE VI
MANAGEMENT
The business and affairs of the Company shall be managed under the
direction of a Board of Directors. The names and address of the initial
directors (the "Interim Directors") of this Company are as follows:
Dan Stacken
901 North Highway 59
Marshall, MN 56258
Dan Thompson
901 North Highway 59
Marshall, MN 56258
Jerry Jacoby
901 North Highway 59
Marshall, MN 56258
The Interim Directors shall serve until consummation of the Transaction
Agreement by and between the Company, Minnesota Corn Processors, Inc. and
Minnesota Corn Processors, LLC (the "Effective Date"). As of the Effective Date,
the board of directors of Minnesota Corn Processors, Inc. shall become the Board
of Directors of the Company.
ARTICLE VII
INCORPORATOR
The name and address of the Company's incorporator is as follows:
David P. Swanson
Pillsbury Center South
220 South Sixth Street
St. Paul, MN 55402
IN WITNESS WHEREOF, the undersigned hereby executes these Articles of
Incorporation as of this 10th day of December, 1998.
/s/ David P. Swanson
- -----------------------------
David P. Swanson
EXHIBIT 3.4
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MINNESOTA CORN PROCESSORS COLORADO
THE UNDERSIGNED, acting as Vice Chairman of this cooperative
association under the Colorado Cooperative Act, Article 56 of Title 7 of
Colorado Revised Statutes, and pursuant to the authorizations of the Board of
Directors and sole shareholder of this cooperative, hereby certifies that this
cooperative has adopted the following Amended and Restated Articles of
Incorporation:
ARTICLE I
NAME
The name of this company shall be Minnesota Corn Processors Colorado
(the "Company").
ARTICLE II
PRINCIPAL OFFICE
The Company's principal office is located at 901 North Highway 59,
Marshall, MN 56258.
ARTICLE III
REGISTERED OFFICE AND AGENT
The name and address of the Company's registered agent and office are
as follows:
Kevin Cudney
Republic Plaza Building, Suite 4400
370 17th Street
Denver, CO 80202-5644
ARTICLE IV
DURATION
The Company shall have perpetual duration.
<PAGE>
ARTICLE V
POWERS AND LIMITATIONS
Section 1 - Powers. This Company shall have all powers, privileges, and
rights conferred on Company associations by the laws of the State of Colorado.
The foregoing powers shall include, without limitation, the power to apply for,
acquire, own, use, and develop any interest in patents, trademarks, and
copyrights connected with or incidental to the business of the Company, and the
power to enter into partnerships, joint ventures, and other business
relationships.
Section 2 - Limitations. This Company shall not market the products of
nonmembers in an amount the value of which exceeds the value of the products
marketed for members. It shall not purchase supplies and equipment for
nonmembers in an amount the value of which exceeds the value of the supplies and
equipment purchased for members. It shall not purchase supplies and equipment
for persons who are neither members nor producers of agricultural products in an
amount the value of which exceeds fifteen percent (15%) of all its purchases.
Business done for the United States or any of its agencies shall be disregarded
in determining the limitations imposed by this section.
ARTICLE VI
CAPITAL STOCK
Section 1 - Authorized Amounts: Classes. This Company is organized with
capital stock. The authorized capital stock of this Company shall consist of:
(a) One Hundred Thousand (100,000) shares of nonvoting Common Stock
with a par value of Fifty Dollars ($50.00) per share.
(b) One Hundred Thousand (100,000) shares of nonvoting Preferred Stock
with a par value of Fifty Dollars ($50.00) per share.
Section 2 - Common Stock. The Common Stock of the Company is the only
class of membership stock, and the only class of voting stock. Shares of such
stock may be held only by producers of agricultural products (individual, firms,
partnerships, corporations, or associations) who reside in the territory served
by the Company. "Producers" shall mean and include persons actually engaged in
the products of one or more of the agricultural products handled by this
Company, including tenants of land used for the production of any such product,
and lessors of such land who receive as rent part of the produce of such land,
and associations of such producers. Each member shall be entitled to only one
vote upon each matter submitted to a vote of any meeting of the members,
regardless of the number of shares of Common Stock held by such member.
In the event that the Board of Directors of the Company shall find that
any shares of the Common Stock of this Company have come into the hands of any
person who is not
<PAGE>
eligible for membership, or that the holder thereof has ceased to be an eligible
member, such holder shall have no rights or privileges on account of such stock,
or vote or voice in the management or affairs of the Company other than the
right to participate in accordance with law and the Company's Article of
Incorporation and Bylaws in case of liquidation or dissolution. The Company
shall have the right, as its option, to:
(a) purchase such stock at the lesser of its par value or book value;
or
(b) require such holder of any such stock to convert it into nonvoting
Preferred Stock or nonvoting certificates of interest, if such holder fails to
deliver the certificate or certificates evidencing the Common Stock, the Company
may cancel such certificate or certificates on its books and issue a new
certificate or certificates of nonvoting Preferred Stock or nonvoting
certificate of interest, as the case may be, to the party entitled thereto.
The Common Stock of this Company may be transferred only with the
consent of the Board of Directors of the Company and on the books of the
Company, and then only to persons eligible to hold it. No purported assignment
or transfer of Common Stock to any person ineligible to hold such stock pass to
such ineligible assignee or transferee any rights or privileges on account of
such stock, or any vote or voice in the management of the affairs of the
Company.
Section 3 - Preferred Stock. The Preferred Stock of this Company may be
issued to any individual, association, partnership, corporation, or other
organization, in series. It shall carry no voting rights. Preferred Stock may be
transferred only with the consent of the Board of Directors and on the books of
the Company.
Section 4 - Dividends. No dividends shall be paid on the Common Stock
of this Company. Noncumulative dividends of not greater than eight percent (8%)
per annum may be paid on Preferred Stock, when, if, and as declared and fixed by
the Board of Directors.
Section 5 - Redemption. When it is determined by the Company Board of
Directors that the Company has sufficient working capital, capital stock may be
called for payment at the lesser of par value or book value upon notice in
writing by mail to the shareholder's last post office address, as shown by the
Company's records. Such stock may be called for payment in chronological order
with reference to date of issue, in which case all of such stock issued in a
given fiscal year shall, as nearly as practicable, be called at the same time;
or such stock may be called on the basis of a percentage of all of said stock
outstanding, in which case the same percentage of said stock held by each holder
shall be called at the same time, without regard to the date of issue. The Board
of Directors, in its sole discretion, shall also have the authority to pay or
redeem stock held in the name of deceased patrons.
The redemption of capital stock shall be solely at the discretion of
the Board of Directors. Nothing in the Company's Articles of Incorporation or
Bylaws, or in any other document, shall give any holder of shares of the capital
stock of this Company the right to demand the redemption of any of said shares.
<PAGE>
ARTICLE VII
NONVOTING UNITS OF EQUITY PARTICIPATION
Section 1 - Authorized Amounts. The Board of Directors is authorized at
its discretion and from time to time, to issue nonvoting certificates of
interest in the Company in the form of Nonvoting nits of Equity Participation.
The aggregate amount of Nonvoting Units of Equity Participation that the Board
of Directors shall have authority to issue shall not exceed an amount that
equals thirty percent (30%) of the Company's total participating equity
(including the Nonvoting Units of Equity Participation and Units of Equity
Participation) following such issuance.
Section 2 - Rights, Obligations and Other Terms. Each holder of
Nonvoting Units of Equity Participation shall enter into an agreement with the
Company, which agreement will confer upon such holder the right and the
obligation to deliver to the Company corn as a non-member patron on terms and
conditions comparable to those of members of the Company holding Units of Equity
Participation, and which agreement may require such holder to met such other
requirements as the Board of Directors of the Company may determine.. Holders of
Nonvoting Units f Equity participation shall not by virtue of such holding, have
any voting rights in the affairs of the Company nor any rights to participate in
the governance of the Company. Nonvoting units of Equity participation
authorized by the Board of Directors may carry such anti-dilution rights,
redemption rights, transfer restrictions and other terms and conditions as are
authorized by the Board of Directors and contained in an agreement with the
holder or in the certificates evidencing the Nonvoting Units of Equity
Participation.
ARTICLE VIII
PATRONAGE REFUNDS
All net proceeds (savings) of this Company in excess of dividends, if
any, shall be distributed to patrons annually or oftener on the basis of
patronage as more particularly provided for in the Bylaws, and the records of
the Company shall show the interest of patrons and members in the reserves.
Patronage refunds may be distributed in cash or in stock or in credits, as more
particularly provided for in the Bylaws. Any such stock or credits shall be
redeemable only at the option of the Board of Directors.
ARTICLE IX
FIRST LIEN
This Company shall have a first lien on all shares of its capital
stock, all certificates of interest, patronage capital, and other interests
standing on its books for all indebtedness of the respective holders or owners
thereof to the Company. This Company shall also have the right, exercisable at
the option of the Board of Directors, to set off such indebtedness against the
amount of such capital stock, certificates of interest, patronage capital, or
other interests standing
<PAGE>
on its books, provided, however, that nothing contained in the Company's
Articles of Incorporation or Bylaws, or in any other document, shall give the
holders of such stock, certificates, patronage capital, or other interests any
right to have such set off made.
ARTICLE X
LIQUIDATION
In the event of any liquidation, dissolution, or winding up of this
Company, whether voluntary or involuntary, all debts and liabilities of the
Company shall be paid first according to their respective priorities. All Units
of Equity Participation and Nonvoting Units of Equity Participation shall then
be retired on a pro rata basis to the holders thereof on the book of the
Company, based on their value. The value of all Units of Equity Participation
and Nonvoting Units of Equity Participation shall be equal, and shall be
established by the Board of Directors.
All non-stock capital furnished through patronage shall then be retired
without priority on a pro rata basis to the patrons to whom it is allocated on
the books of the Company.
Holders of all capital stock common and preferred, shall then be
entitled to receive the par value of their shares.
Any remaining assets of the Company shall be distributed among the
patrons of the Company, including both current patrons and former patrons, in
the proportion which the aggregate patronage of each patron bears to the total
patronage of all patrons, as shown by the records of the Company.
ARTICLE XI
MANAGEMENT
The business and affairs of the Company shall be managed under the
direction of a Board of Directors. The names and address of the initial
directors (the "Interim Directors") of this Company are as follows:
Dan Stacken
901 North Highway 59
Marshall, MN 56258
Dan Thompson
901 North Highway 59
Marshall, MN 56258
Jerry Jacoby
901 North Highway 59
Marshall, MN 56258
<PAGE>
The Interim Directors shall serve until consummation of the Transaction
Agreement by and between the Company, Minnesota Corn Processors, Inc. and
Minnesota Corn Processors, LLC (the "Effective Date"). As of the Effective Date,
the board of directors of Minnesota Corn Processors, Inc. shall become the Board
of Directors of the Company.
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby executes these Amended and
Restated Articles of Incorporation as of this 18th day of January, 1999.
By
---------------------------
L. Dan Thompson
Vice Chairman
EXHIBIT 10.1
TRANSACTION AGREEMENT
THIS TRANSACTION AGREEMENT (this "Agreement") is made and entered into
as of this ____ day of July, 1997, by and between ARCHER DANIELS MIDLAND
COMPANY, a Delaware business corporation ("ADM"), and MINNESOTA CORN PROCESSORS,
a Minnesota cooperative corporation ("MCP").
W I T N E S S E T H
WHEREAS, on May 21, 1997, ADM and MCP entered into a letter of intent
(the "Letter of Intent") pursuant to which both parties agreed to use their best
efforts to reach mutual agreement as to the final terms and conditions of a
proposed investment by ADM in MCP; and
WHEREAS, the parties have reached agreement as to the final terms and
conditions of such investment; and
WHEREAS, the parties wish to enter into this Agreement and certain
other arrangements referred to herein in order to memorialize in writing such
terms and conditions.
NOW, THEREFORE, in consideration of the foregoing, and of the covenants
and agreements of the parties set forth herein, the parties hereby covenant and
agree as follows:
ARTICLE I
THE TRANSACTIONS
SECTION 1.1 OVERVIEW OF TRANSACTIONS.
On the Closing Date (as herein defined), ADM will purchase from MCP and
MCP will issue to ADM nonvoting units of equity participation of MCP (the "ADM
Units"), subject to, and upon the terms and conditions contained in, this
Agreement. The foregoing transactions are referred to collectively herein as the
"Transactions."
SECTION 1.2 PAYMENT AND CALCULATION OF PURCHASE PRICE.
On the Closing Date, ADM will deliver to MCP, by wire transfer to a
bank account or accounts designated by MCP, an amount equal to the purchase
price for the ADM Units, determined as follows:
(a) an amount equal to One Hundred and Twenty Million Dollars
and 00/100 ($120,000,000.00); LESS
(b) the sum of (i) Ten Million Dollars and 00/100
($10,000,000.00) previously paid to MCP as an "Initial Advance"
pursuant to Section 2 of the Letter of Intent; and (ii) an amount equal
to any shortfall in aggregate members equity as of March 31, 1997,
<PAGE>
determined as described in Section 2.5 of this Agreement.
SECTION 1.3 ISSUANCE OF UNITS.
On the Closing Date, MCP will issue to ADM 58,622,340 ADM Units, which
the parties agree will constitute thirty percent (30%) of MCP's total
participating equity after such issuance. The ADM Units will have the
designations, voting powers, preferences, participation rights, qualifications,
rights, limitations and restrictions assigned and attributable to such units by
Article VI of the Second Amended and Restated Articles of Incorporation of MCP,
attached hereto as Exhibit A and by this reference made a part hereof (the
"Amended Articles"), and by the Stockholder Agreement.
ARTICLE II
COVENANTS AND AGREEMENTS OF THE PARTIES
SECTION 2.1 ADOPTION OF AMENDED ARTICLES AND AMENDMENTS TO BYLAWS.
MCP will use its best efforts (i) to authorize and take any and all
actions necessary to adopt the Amended Articles as its Articles of Incorporation
effective as of the Closing Date, and (ii) to adopt the amendments described on
Exhibit B, attached hereto and by this reference made a part hereof, to its
Bylaws, effective as of the Closing Date (the "Bylaw Amendments").
SECTION 2.2 STOCKHOLDER AGREEMENT.
ADM and MCP will enter into a Stockholder Agreement in substantially
the form of Exhibit C attached hereto and by this reference made a part hereof
(the "Stockholder Agreement"). The Stockholder Agreement will be effective as of
the Closing Date.
SECTION 2.3 MEMBER AND BOARD APPROVAL.
MCP will submit the Amended Articles, the Bylaw Amendments, the
Stockholder Agreement and the Transactions to its members for approval at a
meeting expected to be held on or about July 29, 1997, and will use its best
efforts to obtain the approval thereof by its members as required by applicable
law and its Articles of Incorporation and Bylaws (as in force prior to the
amendments described in Section 2.1 hereof). ADM will submit this Agreement, the
Stockholder Agreement and the Transactions to its Board of Directors for
approval at a meeting expected to be held on or about July 17, 1997, as required
by applicable law and its Articles of Incorporation and Bylaws.
SECTION 2.4 ACCESS; NONDISCLOSURE.
From the date hereof to and including the Closing Date, MCP will afford
ADM and its authorized representatives access (during normal business hours) to
its operating and office facilities, properties, books and records, financial
and operating data and other information
<PAGE>
concerning its business and properties (other than information relating to
customers, product pricing or sales or marketing efforts), as ADM may from time
to time reasonably request. The obligations of each party with respect to
confidentiality or nondisclosure of confidential, proprietary and trade secret
information shall be governed by the terms of the Nondisclosure Agreement dated
as of May 21, 1997 between the parties (the "Nondisclosure Agreement") and by
Section 10 of the Letter of Intent.
SECTION 2.5 MCP FINANCIAL STATEMENTS
MCP will have prepared, or will have made arrangements for the
preparation of, financial statements that are complete, true and accurate as of
March 31, 1997. Such financial statements will have been prepared in accordance
with generally accepted accounting principles, will have been audited in
accordance with generally accepted auditing standards and will have been
furnished to ADM no less than ten (10) business days prior to the Closing Date.
MCP guarantees that the aggregate member equity reflected in such financial
statements will be no less than Two Hundred and Twelve Million, Six Hundred and
Twenty-Eight Thousand and 00/100 Dollars ($212,628,000.00), which amount
reflects a reduction of Twenty One Million, Five Hundred and Eighty Four
Thousand and 00/100 Dollars ($21,584,000.00) in respect of receivables due from
members for loss allocations. To the extent that aggregate member equity is less
than the amount hereinbefore required, the purchase price required to be paid by
ADM for the ADM Units shall be reduced, dollar-for-dollar, as provided in
Section 1.2 hereof.
SECTION 2.6 DEBT RESTRUCTURING.
MCP will obtain a commitment to restructure or refinance its debt
obligations, including such obligations to the St. Paul Bank for Cooperatives,
RaboBank and Liquid Sugars, Inc. Such restructuring or refinancing shall be
acceptable to both parties. The parties contemplate that such restructuring will
take the form of: (i) a reduction of MCP's term debt to approximately Two
Hundred Eighty Million and 00/100 Dollars ($280,000,000.00), with the remainder
of such term debt being refinanced with an institutional lender on a first
mortgage basis; and (ii) a refinancing or continuation of MCP's operating line
of credit at an appropriate level.
SECTION 2.7 BEST EFFORTS
Each party will use its best efforts (i) to take all action necessary
to render accurate, as of the Closing Date, its representations and warranties
contained herein, and it will refrain from taking any action which would render
any such representation or warranty inaccurate as of the Closing Date, (ii) to
perform or cause to be satisfied each covenant or condition to be performed or
satisfied by it pursuant to this Agreement, and to cause the Transactions to be
consummated, and (iii) to obtain all licenses or other approvals required to be
obtained by it from any appropriate governmental or regulatory body or other
person in connection with the carrying out of the Transactions and the
performance of its obligations under this Agreement.
SECTION 2.8 COOPERATION. As soon as practicable after the Closing Date,
appropriate representatives of MCP and ADM will meet for the purpose of
determining operational areas
<PAGE>
where the parties might provide advice and assistance to each other, including,
without limitation, a review of opportunities to improve rail, truck, barge and
ship transportation efficiencies, opportunities for joint buying of enzymes and
yeasts and assistance in the areas of corn procurement, risk management and
hedging, borrowing costs and development of value-added products.
SECTION 2.9 CONDUCT OF BUSINESS PRIOR TO CLOSING.
Prior to the closing date, MCP shall conduct its business only in the
ordinary course and consistent with its prior practice and shall maintain and
preserve its assets and properties in good condition and repair and maintain
insurance thereon in accordance with present practices. Without limiting the
foregoing, prior to the Closing Date, MCP will not without ADM's prior written
approval (which ADM agrees will not be unreasonably withheld):
(a) Change its articles of incorporation or bylaws except as
contemplated hereby, or merge or consolidate with any other entity (or
enter into any agreement to do so);
(b) Incur any indebtedness for borrowed money except as
contemplated in Section 2.6 and except for trade debt incurred in the
ordinary course of business;
(c) Issue any capital stock or other equity participation
interests, except that MCP may issue common stock to transferees of
Units of Participation and to members of any employee stock option plan
in force on the date hereof; or
(d) Sell or otherwise dispose of a substantial portion of its
assets.
ARTICLE III
CONDITIONS TO OBLIGATION OF EACH PARTY
The respective obligations of ADM and MCP to consummate the
Transactions are, at their respective options, subject to the satisfaction or
waiver of each or the following conditions on or before the Closing Date:
(a) MCP will have adopted the Amended Articles and amended its
Bylaws, all as more particularly described in Section 2.1 hereof.
(b) The parties will have entered into a Stockholder
Agreement, as more particularly described in Section 2.2 hereof.
(c) The members of MCP and the Board of Directors of ADM will
have approved this Agreement, the Stockholder Agreement and the
Transactions, all as more particularly described in Section 2.3 hereof.
<PAGE>
(d) ADM shall have conducted a "due diligence" review to its
own satisfaction of the books and records of MCP, as contemplated by
Section 2.4 hereof.
(e) MCP shall have delivered to ADM, financial statements, as
more particularly described in Section 2.5 hereof.
(f) MCP shall have obtained a commitment for restructuring or
refinancing of its debt obligations acceptable to both parties, as more
particularly described in Section 2.6 hereof.
(g) The consummation of the Transactions shall not, in the
reasonable judgment of any party, cause any material adverse tax
consequences for any party hereto, and any rulings applied for by any
party with respect to the tax consequences of the Transactions shall
have been obtained in a form and content satisfactory to such party.
(h) No injunction, restraining order or order of any nature
issued by any court of competent jurisdiction, government or
governmental agency enjoining the Transactions or any part thereof
shall have been issued and remain in effect.
(i) All consents, approvals and waivers which are necessary in
connection with the Transactions or any part thereof shall have been
obtained.
(j) No action shall have been threatened or instituted by any
governmental agency or any other person challenging the legality of the
Transactions or any part thereof, seeking to prevent or delay
consummation of the Transactions or seeking to obtain divestiture or
other relief in the event of consummation of the Transactions. It is
understood in the event that such an action is threatened or
instituted, the parties will first attempt for a period of ninety (90)
days to obtain dismissal or other favorable resolution of such
threatened or actual action prior to exercise of their right to
terminate hereunder.
(k) All the representations and warranties of each party
contained in this Agreement shall be true and correct in all material
respects on the Closing Date as though such representations and
warranties were made on and as of the Closing Date, and each party
shall have each performed all of its obligations and complied with all
of its covenants contained in this Agreement to be performed or
complied with prior to the Closing Date.
(l) Each party shall have received a certificate dated as of
the Closing Date, executed by the President or Chief Executive Officer
of the other party certifying in such detail as such party may
reasonably request as to the accuracy of such representations and
warranties, the fulfillment of such obligations, compliance with such
covenants and satisfaction of the conditions to such party's
obligations as of the Closing Date.
(m) All actions, proceedings and documents necessary to carry
out the Transactions shall be reasonably satisfactory to each party.
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MCP
Except as otherwise set forth in Schedule I attached hereto and made a
part hereof (hereinafter, the "MCP Schedule"), MCP hereby represents and
warrants to ADM that:
SECTION 4.1 ORGANIZATION AND GOOD STANDING.
MCP is a cooperative corporation duly organized and existing under
Chapter 308A of the Minnesota Statutes, as amended, is in good standing under
the laws of the State of Minnesota, and has all requisite corporate power and
authority to own its properties and conduct its business as it is presently
being conducted. MCP is duly qualified to do business and is in good standing in
each jurisdiction in which it conducts business or owns or leases properties of
a nature which would require such qualification.
SECTION 4.2 SUBSIDIARIES.
MCP has no Subsidiaries (as defined in Section 7.1), other than those,
if any, identified in the MCP Schedule; and MCP is not a member of and owns no
capital stock, other equity securities or similar equity investments, directly
or indirectly, in any corporation, association, joint venture, trust or other
entity, except as otherwise identified in the MCP Schedule.
SECTION 4.3 FINANCIAL STATEMENTS.
MCP has heretofore delivered to ADM its audited financial statements as
of September 30, 1996 and March 31, 1997, accompanied by the opinion of Clifton,
Gunderson LLC. Except as stated in said opinion, such financial statements
fairly present the financial position of MCP at the dates indicated therein and
the results of its operation for the period indicated therein, in conformity
with generally accepted accounting principles consistently applied. Except as
otherwise disclosed in the MCP Schedule, there has been no material adverse
change in the financial condition or results of operations of MCP and its
Subsidiary since the date of such financial statements.
SECTION 4.4 ABSENCE OF LIABILITIES.
Neither MCP nor its Subsidiary has any liabilities or obligations,
absolute or contingent, except for liabilities and obligations which are (i)
reflected in the financial statements referred to in Section 4.3, (ii) fully
covered by insurance, except for reasonable deductibles, (iii) incurred in the
ordinary course of business since March 31, 1997, and not materially different
in type or amount from those reflected in the financial statements referred to
in Section 4.3, or (iv) individually and in the aggregate not material to the
business or financial condition of MCP and its Subsidiary, taken as a whole.
<PAGE>
SECTION 4.5 PROPERTIES.
MCP has good and marketable title to all real and personal properties
owned by it, as reflected in the financial statements referred to in Section
4.3, free and clear of all liens, restrictions or encumbrances of any nature,
except (i) Permitted Liens (as defined in Section 7.1) , and (ii) any other
liens disclosed in the MCP Schedule. Each lease under which MCP leases any real
or personal property, as reflected in the financial statements referred to in
Section 4.3, is a valid and enforceable lease under which there is no existing
default, or event which with notice or lapse of time or both could become a
default, of such materiality as to enable the lessor to terminate such lease.
SECTION 4.6 LITIGATION.
There are no actions, investigations or proceedings pending (or, to the
best knowledge of MCP, threatened) against or affecting MCP or its Subsidiary or
any of their properties in or before any court, governmental agency, or
governmental, arbitral or other body which, if determined adversely to MCP or
its Subsidiary, could materially and adversely affect the financial condition,
business, properties or operations of MCP and its Subsidiary taken as a whole,
or the ability of MCP to consummate the Transactions.
SECTION 4.7 ABSENCE OF DEFAULTS.
Neither MCP nor its Subsidiary is in any material respect in default
under any provision of its Articles of Incorporation or Bylaws or any indenture,
mortgage, loan agreement or other material agreement to which it is a party or
by which it is bound, and neither MCP nor its Subsidiary is in violation of any
statute, order, rule or regulation of any court or governmental agency having
jurisdiction over it or its properties which if enforced could have a material
adverse effect on its business, and neither the execution and delivery of this
Agreement nor the consummation of the Transactions in accordance with this
Agreement will conflict with or result in a breach of or constitute a material
default under any of the foregoing.
SECTION 4.8 AUTHORIZATION.
MCP has the corporate power and authority to enter into and to perform
its obligations under this Agreement (subject to the approval of its members as
required by Section 2.3). This Agreement and the Transactions have been duly and
validly authorized by the Board of Directors of MCP, and (except for the
approval of its members as required by Section 2.3) no other corporate action is
required by MCP in connection with this Agreement or the Transactions. This
Agreement constitutes the valid and binding agreement of MCP, enforceable
against MCP in accordance with its terms, except to the extent such enforcement
may be limited by the application of equitable principles where equitable relief
is sought or bankruptcy and other laws relating to the enforcement of creditors'
rights generally.
<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ADM
ADM hereby represents and warrants to MCP that:
SECTION 5.1 ORGANIZATION AND GOOD STANDING.
ADM is a business corporation duly organized and existing under the
General Corporation Law of Delaware of, as amended, is in good standing under
the laws of the State of Delaware, and has all requisite corporate power and
authority to own its properties and conduct its business as it is presently
being conducted. ADM is duly qualified to do business and is in good standing in
each jurisdiction in which it conducts business or owns or leases properties of
a nature which would require such qualification.
SECTION 5.2 AUTHORIZATION.
ADM has the corporate power and authority to enter into and perform its
obligations under this Agreement. This Agreement and the Transactions will have
been duly and validly authorized by the Board of Directors of ADM no later than
the Closing Date, and no other corporate action is required by ADM in connection
with this Agreement or the Transactions. This Agreement constitutes the valid
and binding agreement of ADM, enforceable against ADM in accordance with its
terms, except to the extent such enforcement may be limited by the application
of equitable principles where equitable relief is sought or bankruptcy and other
laws relating to the enforcement of creditors' rights generally.
ARTICLE VI
THE CLOSING
SECTION 6.1 CLOSING DATE.
Unless this Agreement is terminated as provided in Section 7.7, and
subject to the satisfaction or waiver of all conditions set forth herein, the
closing of the Transactions shall take place at a location mutually acceptable
to the parties on July 31, 1997, or such other date as may be mutually agreed
upon by the parties. The closing of the Transactions shall be deemed to occur at
11:59 p.m. on the Closing Date, and shall not be deemed to have occurred until
all of the steps required by this Agreement or to occur on or before the Closing
Date shall have occurred.
SECTION 6.2 ACTIONS TO BE TAKEN AT CLOSING.
On the Closing Date, subject to the satisfaction or waiver of the
conditions to the obligations of the parties, each party hereto shall deliver to
the other party any and all documents or showings as may be required of it by
the terms of this Agreement, or as may be reasonably requested by the other
party to evidence that all of the conditions to consummation of the
<PAGE>
Transactions have been satisfied or waived.
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.1 DEFINITIONS OF CERTAIN TERMS.
For purposes of this Agreement, the following terms shall have the
meanings set forth below:
"Permitted Liens" means: (a) liens for current real property or ad
valorem taxes on special assessments which are not yet due and payable, (ii)
easements, covenants, restrictions or other encumbrances which do not secure
indebtedness for borrowed money and which do not have a material adverse effect
on the value, usefulness or condition of the property affected thereby, (iii)
mineral rights which do not have a material adverse effect on value, usefulness
or condition of the property affected thereby, and (iv) mechanics',
materialmens' and similar liens in securing amounts which are not yet due and
payable or which are being properly contested by appropriate legal proceedings;
and (b) any liens in favor of the holders of MCP's debt refinancing or
restructuring obligations contemplated by Section 2.6 hereof.
"Subsidiaries" means with respect to any party, any corporation or
other organization of which more than 50% of the outstanding voting rights is
owned directly or indirectly by such party, by such party and one or more of its
Subsidiaries, or by one or more of such party's Subsidiaries.
SECTION 7.2 WAIVER OF CONDITIONS.
Any party may, at its option, waive in writing any and all of the
conditions herein contained to which its obligations hereunder are subject other
than the conditions set forth in Article III, Sections (h) and (j) hereof. A
party, by consummating the Transactions contemplated herein, shall be deemed to
have waived any breach of a warranty, representation, covenant or condition of
which such party received written notice prior to the Closing Date if the notice
specifically referred to this Section 7.2 and described the breach in reasonable
detail.
SECTION 7.3 AMENDMENT.
The parties by mutual consent may amend, modify or supplement this
Agreement in such manner as may be agreed upon in writing.
SECTION 7.4 BINDING NATURE.
This Agreement shall be binding upon and inure only to the benefit of
the parties hereto and their respective successors and assigns, provided that
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned or delegated by any of the parties
<PAGE>
hereto without the prior written consent of the other parties hereto.
SECTION 7.5 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION 7.6 ENTIRE AGREEMENT.
Except for Sections 2, 8, 9, 10 and 11 of the Letter of Intent and all
of the terms of the Confidentiality Agreement, and except in the event of
termination of this Agreement as described in Section 7.7(c) hereof, this
Agreement, the Stockholder Agreement and the documents referred to herein and
therein set forth the entire understanding of the parties hereto with respect to
the matters provided for herein and therein and supersede all prior agreements,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of either party.
SECTION 7.7 TERMINATION.
The Agreement shall be terminated and the Transactions abandoned if at
any time prior to the closing of the Transactions:
(a) The members of MCP fail to approve the Transactions as
required by Section 2.3, or the Board of Directors of ADM fails to
approve the Transactions as also required by Section 2.3; or
(b) The parties mutually agree in writing to terminate this
Agreement; or
(c) Either party delivers a written notice to the other party
hereto to the effect that (i) one or more of the conditions to its
obligations as set forth herein cannot be met, or (ii) such other party
has defaulted in a material respect under one or more of its covenants
or agreements contained herein, and in either case such conditions or
conditions have not been satisfied or such default or defaults have not
been remedied within thirty (30) days after such notice is mailed; or
(d) The closing of the Transactions has not occurred on or
before August 31, 1997, or such later date as the parties may mutually
agree upon.
Any termination of this Agreement shall relieve all of the parties
hereto from any further obligation hereunder, but any termination pursuant to
clause (c) above shall be without prejudice as to any claim for breach of the
Letter of Intent.
SECTION 7.8 NOTICES.
All notices, requests, demands and other communications hereunder shall
be deemed to
<PAGE>
have been duly given if delivered or mailed, certified or registered mail, with
postage prepaid, to the recipient at the following addresses, or to such other
address as may be designated in writing to the other party from time to time:
If to ADM :
Archer Daniels Midland Company
P.O. Box 1470
Decatur, IL 62525
Attention: M.L. Andreas
With a copy to:
Archer Daniels Midland Company
P.O. Box 1470
Decatur, IL 62525
Attention: R.P. Reising
If to MCP:
Minnesota Corn Processors
901 North Highway 59
Marshall, MN 56258
Attention: Richard Jurgenson
With a copy to:
Doherty, Rumble & Butler Professional Association
2800 Minnesota World Trade Center
30 East 7th Street
St. Paul, MN 55101
Attention: Ralph K. Morris
SECTION 7.9 CHOICE OF LAW. This Agreement shall be governed in all
respects by the laws of the State of Minnesota, excluding its conflicts of laws
rules.
SECTION 7.10 SURVIVAL.
The representations and warranties of the parties contained in Articles
IV and V shall form the basis for closing conditions and shall survive the
Closing Date.
SECTION 7.11 CAPTIONS.
The article and section headings in this Agreement are for convenience
only and shall not affect the meaning or construction of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.
ARCHER DANIELS MIDLAND COMPANY MINNESOTA CORN PROCESSORS
By: By:
----------------------------------- -----------------------------------
Its: Its:
---------------------------------- ----------------------------------
EXHIBIT 10.2
STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT (this "Agreement") is made and entered into
as of the 27th day of August, 1997, by and between ARCHER DANIELS MIDLAND
COMPANY, a Delaware business corporation ("ADM"), and MINNESOTA CORN PROCESSORS,
INC., a Minnesota cooperative corporation ("MCP").
WHEREAS, the parties to this Agreement have entered into a Transaction
Agreement dated as of July 9, 1997 (the "Transaction Agreement"), pursuant to
which ADM will acquire an equity stake (in the form of ADM Units, as such term
is defined in the Transaction Agreement) in MCP; and
WHEREAS, the conclusion of this Agreement is a condition precedent to
the obligations of the parties to consummate the issuance and acquisition of the
ADM Units under the Transaction Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of the covenants
of the parties set forth herein, the parties hereby covenant and agree as
follows:
1. Rights and Obligations of ADM. By virtue of its holding of the ADM
Units, ADM shall:
(a) From and after October 1, 1997, have rights and obligations to
deliver corn to MCP on the same basis as members of MCP,
including (i) the right to satisfy its delivery obligations by
participating in the Growers Procurement Agency, and (ii) the
right to have a pro rata portion of the annual savings of MCP
allocated to ADM according to the Articles of Incorporation
and Bylaws of MCP; and
(b) Take into income any distributions with respect to MCP's
patronage which are made in the form of written notices of
allocation (as defined in 26 U.S.C. ss. 1388 (1994)), as
required by 26 U.S.C. ss. 1385(a) (1994); and
(c) Be treated by MCP for all other purposes as a non-member
patron of MCP.
2. Restrictions on MCP. MCP shall not, without the prior consent of
ADM:
(a) Make any material change in the principal businesses of MCP; or
(b) Sell, lease, liquidate, exchange, dispose of or otherwise
transfer substantially all of the assets of MCP; or
(c) Amend Article VI of MCP's Second Amended and Restated Articles
of Incorporation (which relates to the ADM Units) or Article
VII of MCP's Amended and Restated Bylaws (which relates to
allocation of annual savings) in any manner inconsistent with
this Agreement or the rights of ADM as holder of ADM Units as
contemplated herein; or
<PAGE>
(d) Make any material changes to MCP's corn delivery program
applicable to MCP's members and ADM; or
(e) Embark upon any capital expenditure project that would involve
the expenditure by MCP of any amount in excess of Two Hundred
and Fifty Thousand Dollars ($250,000.00).
ADM shall not unreasonably withhold any consent required of it pursuant to this
paragraph 2. For purposes of assessing the reasonableness of the withholding by
ADM of consent hereunder, reference shall be made to the viewpoint of a lender
or passive investor that occupies the position of sole holder of the ADM
Preferred Equity Units.
3. Corn Delivery Program. MCP and ADM shall use all reasonable efforts
to reach mutual agreement from time to time concerning changes to MCP's corn
delivery program applicable to MCP's members and ADM, with a view to enhancing
the economic impact of the corn delivery program on MCP's equity holders, taking
into account MCP's corn procurement costs as well as the tax effects of the corn
delivery program.
4. Maintenance of Proportionate Equity of ADM Units. In the event MCP
proposes to issue any additional Units of Equity Participation, MCP shall invite
ADM to indicate its interest in purchasing such number of additional ADM Units
as would permit ADM to maintain at a constant level its percentage of the total
participating equity of ADM. Such indication of interest on the part of ADM
shall be given within seven (7) days of MCP's invitation, and shall not be
binding on either party. In the event that the proposed issuance of additional
Units of Equity Participation takes place, and if ADM has previously indicated
an interest in participating as hereinbefore described, then ADM shall be
permitted to purchase such number of additional ADM Units as would permit it to
maintain its percentage of the total participating equity of ADM at a level
equal to that prior to such additional issuance of Units of Equity
Participation. For purposes of this Section 4, Units of Equity Participation
that are redeemed by MCP from terminated or defaulting members of MCP shall be
treated as outstanding while held by MCP after such redemption and shall not be
treated as "additional Units of Equity Participation" hereunder upon re-issuance
(or proposed re-issuance) to MCP members thereafter.
5. Term and Termination. This Agreement shall enter into force as of
the date hereof and shall terminate upon mutual agreement of the parties.
6. Miscellaneous.
6.1 This Agreement shall be governed in all respects by the laws of the
State of Minnesota, excluding its conflicts of laws rules.
6.2 Neither party may assign, delegate or otherwise transfer any of its
rights or obligations under this Agreement without the prior written consent of
the other party (which consent may be withheld at such other party's sole
discretion).
2
<PAGE>
6.3 All notices hereunder shall be served as provided in Section 7.8 of
the Transaction Agreement.
6.4 This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
6.5 The paragraph headings in this Agreement are for convenience only
and shall not affect the meaning or construction of this Agreement.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the date first written above.
ARCHER DANIELS MIDLAND COMPANY MINNESOTA CORN PROCESSORS, INC.
By: /s/ (illegible) By: /s/ L. Daniel Thompson
------------------------------------- ---------------------------------
Its: President & Chief Executive Officer Its: President
------------------------------------ --------------------------------
3
EXHIBIT 10.6
================================================================================
AMENDED AND RESTATED SECURED CREDIT AGREEMENT
AMONG
MINNESOTA CORN PROCESSORS, INC.,
LIQUID SUGARS, INC.
AND
HARRIS TRUST AND SAVINGS BANK
Individually and as Agent
AND
U.S. BANCORP AG CREDIT, INC.
Dated as of November 4, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
MINNESOTA CORN PROCESSORS, INC.
LIQUID SUGARS, INC.
AMENDED AND RESTATED SECURED CREDIT AGREEMENT
PAGE
SECTION 1. THE CREDITS ................................................1
Section 1.1. The Revolving Credit .......................................1
Section 1.2. The Notes ..................................................3
Section 1.3. Interest Rates .............................................3
Section 1.4. Conversion and Continuation of Loans .......................4
Section 1.5. Manner of Borrowing and Rate Selection .....................4
Section 1.6. Capital Adequacy ...........................................6
Section 1.7. The Collateral .............................................6
Section 1.8. Absolute Obligations .......................................6
SECTION 2. FEES, PREPAYMENTS AND TERMINATIONS .........................7
Section 2.1. Fees .......................................................7
Section 2.2. Agent's Fee ................................................7
Section 2.3. Optional Prepayments .......................................8
Section 2.4. Mandatory Prepayments-Borrowing Base .......................8
Section 2.5. Terminations ...............................................8
SECTION 3. PLACE AND APPLICATION OF PAYMENTS ..........................9
SECTION 4. DEFINITIONS ................................................9
Section 4.1. Certain Terms Defined .......................................9
SECTION 5. REPRESENTATIONS AND WARRANTIES ............................19
Section 5.1. Organization and Qualification ............................19
Section 5.2. Financial Reports .........................................20
Section 5.3. Litigation; Tax Returns; Approvals ........................20
Section 5.4. Regulation U ..............................................20
Section 5.5. No Default ................................................20
Section 5.6. ERISA .....................................................20
Section 5.7. Security Interests ........................................21
Section 5.8. Subsidiaries ..............................................21
Section 5.9. Accurate Information ......................................21
Section 5.10. Enforceability ............................................21
Section 5.11. No Default Under Other Agreements .........................21
Section 5.12. Status Under Certain Laws .................................22
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<PAGE>
Section 5.13. Compliance with Laws ......................................22
Section 5.14. Cooperative Status ........................................22
SECTION 6. CONDITIONS PRECEDENT ......................................22
Section 6.1. General ...................................................22
Section 6.2. Each Extension of Credit ..................................22
Section 6.3. Legal Matters .............................................23
Section 6.4. Documents .................................................23
SECTION 7. COVENANTS .................................................24
Section 7.1. Maintenance of Property ...................................24
Section 7.2. Taxes .....................................................24
Section 7.3. Maintenance of Insurance ..................................24
Section 7.4. Financial Reports .........................................24
Section 7.5. Inspection ................................................25
Section 7.6. Consolidation and Merger ..................................26
Section 7.7. Transactions with Affiliates ..............................26
Section 7.8. Minimum Net Working Capital ...............................26
Section 7.9. Minimum Total Member Equities .............................26
Section 7.10. Minimum Cash Flow .........................................26
Section 7.11. Leases ....................................................26
Section 7.12. Capital Expenditures ......................................27
Section 7.13. Restricted Payments .......................................27
Section 7.14. Liens .....................................................27
Section 7.15. Borrowings and Guaranties .................................28
Section 7.16. Investments, Loans, Advances and Acquisitions .............29
Section 7.17. Sale of Property ..........................................30
Section 7.18. Notice of Suit or Adverse Change in Business or Default ...30
Section 7.19. ERISA .....................................................30
Section 7.20. Supplemental Performance ..................................30
Section 7.21. Use of Proceeds ...........................................31
Section 7.22. Compliance with Laws, etc. ................................31
Section 7.23. Environmental Covenant ....................................31
Section 7.24. Hedging ...................................................31
Section 7.25. Subsidiaries ..............................................31
Section 7.26. Preservation of Cooperative Status ........................32
Section 7.27. Post-Closing Matters ......................................32
SECTION 8. EVENTS OF DEFAULT AND REMEDIES ............................32
Section 8.1. Definitions ...............................................32
Section 8.2. Remedies for Non-Bankruptcy Defaults ......................33
Section 8.3. Remedies for Bankruptcy Defaults ..........................34
SECTION 9. CHANGE IN CIRCUMSTANCES REGARDING EURODOLLAR
LOANS .....................................................34
-ii-
<PAGE>
Section 9.1. Change of Law .............................................34
Section 9.2. Unavailability of Deposits or Inability to Ascertain the
Adjusted Eurodollar Rate ...............................34
Section 9.3. Taxes and Increased Costs .................................35
Section 9.4. Funding Indemnity .........................................36
Section 9.5. Lending Branch ............................................36
Section 9.6. Discretion of Bank as to Manner of Funding ................36
SECTION 10. THE AGENT .................................................37
Section 10.1. Appointment and Powers ....................................37
Section 10.2. Powers ....................................................37
Section 10.3. General Immunity ..........................................37
Section 10.4. No Responsibility for Loans, Recitals, etc. ...............37
Section 10.5. Right to Indemnity ........................................37
Section 10.6. Action Upon Instructions of Banks .........................37
Section 10.7. Employment of Agents and Counsel ..........................38
Section 10.8. Reliance on Documents; Counsel ............................38
Section 10.9. May Treat Payee as Owner ..................................38
Section 10.10. Agent's Reimbursement .....................................38
Section 10.11. Rights as a Lender ........................................38
Section 10.12. Bank Credit Decision ......................................38
Section 10.13. Resignation of Agent ......................................39
Section 10.14. Duration of Agency ........................................39
Section 10.15. Removal of Agent ..........................................39
Section 10.16. Successor Agent ...........................................39
SECTION 11. MISCELLANEOUS .............................................39
Section 11.1. Amendments and Waivers ....................................39
Section 11.2. Waiver of Rights ..........................................40
Section 11.3. Several Obligations........................................40
Section 11.4. Non-Business Day...........................................41
Section 11.5. Survival of Indemnities....................................41
Section 11.6. Documentary Taxes..........................................41
Section 11.7. Representations............................................41
Section 11.8. Notices ...................................................41
Section 11.9. Costs and Expenses ........................................41
Section 11.10. Counterparts ..............................................42
Section 11.11. Successors and Assigns; Governing Law; Entire Agreement ...43
Section 11.12. No Joint Venture .........................................43
Section 11.13. Severability .............................................43
Section 11.14. Table of Contents and Headings.............................43
Section 11.15. Sharing of Payments .......................................43
Section 11.16. Submission to Jurisdiction; Waiver of Jury Trial ..........44
Section 11.17. Participants and Note Assignees ...........................44
Section 11.18. Assignment of Commitments by Banks ........................44
-iii-
<PAGE>
Section 11.19. Confidentiality ...........................................45
Exhibit A Secured Revolving Credit Note
Exhibit B Borrowing Base Certificate
Exhibit C Compliance Certificate
Exhibit D Form of Legal Opinion
Exhibit E Existing Agreements
Exhibit F Material Litigation
Exhibit G Letter Agreement Regarding Collateral
-iv-
<PAGE>
MINNESOTA CORN PROCESSORS, INC.
LIQUID SUGARS, INC.
AMENDED AND RESTATED SECURED CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
U.S. Bancorp Ag Credit, Inc.
Denver, Colorado
Ladies and Gentlemen:
The undersigned, MINNESOTA CORN PROCESSORS, INC., a Minnesota
corporation (the "COMPANY"), refers to the Secured Credit Agreement dated as of
August 27, 1997, as amended and currently in effect among the Company and you
(such Secured Credit Agreement as so amended is referred to as the "CREDIT
AGREEMENT") pursuant to which you agreed to make a revolving credit (the
"REVOLVING CREDIT") available to the Company, all as more fully set forth
therein. Each of you is hereinafter referred to individually as "BANK" and
collectively as the "BANKS." Harris Trust and Savings Bank in its individual
capacity is sometimes referred to herein as "HARRIS", and in its capacity as
Agent for the Banks is hereinafter in such capacity called the "AGENT." The
Company requests you to (i) amend the Credit Agreement to add Liquid Sugars,
Inc., a California corporation ("LSI"; LSI and the Company being referred to
herein collectively as the "BORROWERS" and individually as a "BORROWER") as a
Borrower thereunder and (ii) make certain further amendments to the Credit
Agreement to, among other things, extend the Termination Date, to make certain
further amendments to the Credit Agreement and, for the sake of convenience and
clarity, to restate the Credit Agreement in its entirety as so amended.
Accordingly, upon your acceptance hereof in the space provided for that purpose
below and upon satisfaction of the conditions precedent to effectiveness
hereinafter set forth, Sections 1 through 11 of the Credit Agreement and all of
the Exhibits thereto shall be amended and as so amended shall be restated in
their entirety to read as follows:
SECTION 1. THE CREDITS.
SECTION 1.1. THE REVOLVING CREDIT. (a) Subject to all of the terms and
conditions hereof, the Banks agree, severally and not jointly, to extend a
Revolving Credit to the Borrowers which may be utilized by the Borrowers in the
form of loans (individually a "REVOLVING CREDIT LOAN" and collectively the
"REVOLVING CREDIT LOANS"). The aggregate principal amount of all Revolving
Credit Loans under the Revolving Credit at any time outstanding shall not exceed
the lesser of (i) the sum of the Banks' Revolving Credit Commitments (as
hereinafter defined) in effect from time to time during the term of this
Agreement or (ii) the Borrowing Base as determined on the basis of the most
recent Borrowing Base Certificate. The aggregate principal amount of Revolving
Credit Loans at any time outstanding to the Company shall not exceed the
<PAGE>
Company Borrowing Base as determined on the basis of the most recent Borrowing
Base Certificate and the aggregate principal amount of Revolving Credit Loans at
any time outstanding to LSI shall not exceed the LSI Borrowing Base as
determined on the basis of the most recent Borrowing Base Certificate. The
Revolving Credit shall be available to the Borrowers, and may be availed of by
the Borrowers from time to time, be repaid (subject to the restrictions on
prepayment set forth herein) and used again, during the period from the date
hereof to and including August 27, 2000 (the "TERMINATION DATE").
(b) At any time not earlier than 90 days prior to, nor later than 60
days prior to, the date that is one year before the Termination Date then in
effect (the "ANNIVERSARY DATE"), the Company may request that the Banks extend
the then scheduled Termination Date to the date one year from such Termination
Date. If such request is made by the Company each Bank shall inform the Agent of
its willingness to extend the Termination Date no later than 20 days prior to
such Anniversary Date. Any Bank's failure to respond by such date shall indicate
its unwillingness to agree to such requested extension, and all Banks must
approve any requested extension. At any time more than 15 days before such
Anniversary Date the Banks may propose, by written notice to the Company, an
extension of this Agreement to such later date on such terms and conditions as
the Banks may then require. If the extension of this Agreement to such later
date is acceptable to the Company on the terms and conditions proposed by the
Banks, the Company shall notify the Banks of the Borrowers' acceptance of such
terms and conditions no later than the Anniversary Date, and such later date
will become the Termination Date hereunder and this Agreement shall otherwise be
amended in the manner described in the Banks' notice proposing the extension of
this Agreement upon the Agent's receipt of (i) an amendment to this Agreement
signed by the Borrowers and all of the Banks, (ii) resolutions of the each
Borrower's Board of Directors authorizing such extension and (iii) an opinion of
counsel to the Borrowers equivalent in form and substance to the form of opinion
attached hereto as Exhibit D and otherwise acceptable to the Banks.
(c) The respective maximum aggregate principal amounts of the Revolving
Credit at any one time outstanding and the percentage (the "COMMITMENT
PERCENTAGE") of the Revolving Credit available at any time which each Bank by
its acceptance hereof severally agrees to make available to the Borrowers are as
follows (collectively, the "REVOLVING CREDIT COMMITMENTS" and individually, a
"REVOLVING CREDIT COMMITMENT"):
Harris Trust and Savings Bank $25,000,000 50%
U.S. Bancorp Ag Credit, Inc. 25,000,000 50%
----------- ----
Total $50,000,000 100%
(d) Loans under the Revolving Credit may be Eurodollar Loans or Domestic
Rate Loans. All Loans under the Revolving Credit shall be made ratably by the
Banks in accordance to their respective Commitment Percentages. Each Domestic
Rate Loan shall be in an amount not less than $500,000 or such greater amount
which is an integral multiple of $100,000 and each Eurodollar Loan shall be in
an amount not less than $1,000,000 or such greater amount which is an integral
multiple of $1,000,000.
-2-
<PAGE>
SECTION 1.2. THE NOTES. All Revolving Credit Loans made by each Bank
under its Revolving Credit Commitment shall be evidenced by a single Secured
Revolving Credit Note of the Borrowers, jointly and severally, substantially in
the form of Exhibit A hereto (individually, a "REVOLVING NOTE" and together, the
"REVOLVING NOTES") payable to the order of such Bank in the principal amount of
such Revolving Credit Commitment, but the aggregate principal amount of
indebtedness evidenced by such Revolving Note at any time shall be, and the same
is to be determined by, the aggregate principal amount of all Revolving Credit
Loans made by such Bank to the Borrowers pursuant hereto on or prior to the date
of determination less the aggregate amount of principal repayments on such
Revolving Credit Loans received by or on behalf of such Bank on or prior to such
date of determination. Each Revolving Note shall be dated as of the execution
date of this Agreement, shall be delivered concurrently herewith, and shall be
expressed to mature on the Termination Date and to bear interest as provided in
Section 1.3 hereof. Each Bank shall record on its books or records or on a
schedule to its Revolving Note the amount of each Revolving Credit Loan made by
it hereunder, whether each Revolving Credit Loan is a Domestic Rate Loan or
Eurodollar Loan, and, with respect to Eurodollar Loans, the interest rate and
Interest Period applicable thereto, and all payments of principal and interest
and the principal balance from time to time outstanding, provided that prior to
any transfer of such Revolving Note all such amounts may be recorded on a
schedule to such Revolving Note. The record thereof, whether shown on such books
or records or on the schedule to the Revolving Note, shall be PRIMA FACIE
evidence as to all such amounts; PROVIDED, HOWEVER, that the failure of any Bank
to record, or any mistake in recording, any of the foregoing shall not limit or
otherwise affect the joint and several obligation of the Borrowers to repay all
Revolving Credit Loans made hereunder together with accrued interest thereon.
Upon the request of any Bank, the Borrowers will furnish a new Revolving Note to
such Bank to replace its outstanding Revolving Note. Such Bank will cancel and
deliver to the Borrowers the outstanding Revolving Credit Note upon receipt of
the new Revolving Credit Note.
SECTION 1.3. INTEREST RATES. (a) DOMESTIC RATE. Each Domestic Rate Loan
shall bear interest (computed on the basis of a year of 360 days and actual days
elapsed) on the unpaid principal amount thereof from the date such Loan is made
until maturity (whether by acceleration, upon prepayment or otherwise) at a rate
per annum equal to the Domestic Rate from time to time in effect, payable
quarterly in arrears on the last day of each March, June, September and
December, commencing on September 30, 1998 and at maturity (whether by
acceleration, upon prepayment or otherwise).
(b) EURODOLLAR RATE. Each Eurodollar Loan shall bear interest (computed
on the basis of a year of 360 days and actual days elapsed) on the unpaid
principal amount thereof from the date such Loan is made until the last day of
the Interest Period applicable thereto or, if earlier, until maturity (whether
by acceleration or otherwise) at a rate per annum equal to the sum of one and
one-eighth percent (1.125%) plus the Adjusted Eurodollar Rate, payable on the
last day of each Interest Period applicable thereto and at maturity (whether by
acceleration or otherwise) and, with respect to any Interest Period in excess of
three months, on the date occurring every three months after the date such
Eurodollar Loan is made, provided that if on the last day of the Interest Period
applicable to any Eurodollar Loan the applicable Borrower does not prepay such
Loan, such Loan shall become a Domestic Rate Loan as of the day immediately
following the last day of the Interest Period applicable thereto.
-3-
<PAGE>
(c) DEFAULT RATE. If any payment of principal or interest on any
Revolving Credit Loan is not made when due (including any payment due upon
acceleration), such Loan shall bear interest (computed on the basis of a year of
360 days and actual days elapsed) from the date such payment was due until paid
in full, payable on demand, at a rate per annum equal to:
(i) with respect to any Domestic Rate Loan, the sum of 2% plus
the Domestic Rate from time to time in effect; and
(ii) with respect to any Eurodollar Loan, the sum of 2% plus the
rate of interest in effect thereon at the time of such default until the
end of the Interest Period then applicable thereto, and, thereafter, at
a rate per annum equal to the sum of 2% plus the Domestic Rate from time
to time in effect.
SECTION 1.4. CONVERSION AND CONTINUATION OF LOANS. (a) Provided that no
Event of Default or Potential Default has occurred and is continuing, the
Borrowers shall have the right, subject to the other terms and conditions of
this Agreement, to continue in whole or in part (but, if in part, in the minimum
amount specified for Fixed Rate Loans in Section 1.1 hereof) any Fixed Rate Loan
from any current Interest Period into a subsequent Interest Period, provided
that the Company, on behalf of itself or LSI, shall give the Bank notice of the
continuation of any such Loan as provided in Section 1.5 hereof.
(b) In the event that the Company, on behalf of itself or LSI, fails to
give notice pursuant to Section 1.5 hereof of the continuation of any Fixed Rate
Loan or fails to specify the Interest Period applicable thereto, or an Event of
Default or Potential Default has occurred and is continuing at the time any such
Loan is to be continued hereunder, then such Loan shall be automatically
converted as (and the Company shall be deemed to have given notice requesting) a
Domestic Rate Loan, subject to Sections 1.5(b), 8.2 and 8.3 hereof, unless paid
in full on the last day of the then applicable Interest Period.
(c) Provided that no Event of Default or Potential Default has occurred
and is continuing, the Borrowers shall have the right, subject to the terms and
conditions of this Agreement, to convert Loans of one type (in whole or in part)
into Loans of another type from time to time provided that: (i) the Company, on
behalf of itself or LSI, shall give the Bank notice of each such conversion as
provided in Section 1.5 hereof, (ii) the principal amount of any Loan converted
hereunder shall be in an amount not less than the minimum amount specified for
the type of Loan in Section 1.1 hereof, (iii) after giving effect to any such
conversion in part, the principal amount of any Fixed Rate Loan then outstanding
shall not be less than the minimum amount specified for the type of Loan in
Section 1.1 hereof, (iv) any conversion of a Loan hereunder shall only be made
on a Business Day, and (v) any Fixed Rate Loan may be converted only on the last
day of the Interest Period then applicable thereto.
SECTION 1.5. MANNER OF BORROWING AND RATE SELECTION. (a) The Company, on
behalf of itself or LSI, shall give telephonic, telex or telecopy notice to the
Agent (which notice, if telephonic, shall be promptly confirmed in writing) no
later than (i) 1:30 p.m. (Chicago time) on the date the Banks are requested to
make each Domestic Rate Loan under the Revolving Credit or to convert a Domestic
Rate Loan to a Eurodollar Loan, and (ii) 1:00 p.m. (Chicago time) on
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the date at least three (3) Business Days prior to the date of each Eurodollar
Loan under the Revolving Credit of which the Banks are requested to make or
continue. Each such notice shall specify the date of the Loan requested (which
shall be a Business Day), the amount of such Loan, whether the Loan is to be
made available by means of a Domestic Rate Loan or Eurodollar Loan and, with
respect to Eurodollar Loans, the Interest Period applicable thereto; provided,
that in no event shall the principal amount of any requested Revolving Credit
Loan plus the aggregate principal amount of all Loans outstanding hereunder
exceed the amounts specified in Section 1.1 hereof. The Borrowers agree that the
Agent may rely on any such telephonic, telex or telecopy notice given by any
person who the Agent believes is authorized to give such notice without the
necessity of independent investigation and in the event any notice by such means
conflicts with the written confirmation, such notice shall govern if any Bank
has acted in reliance thereon. The Agent shall, on the day any such notice is
received by it, give prompt telephonic, telex or telecopy (if telephonic, to be
confirmed in writing within one Business Day) notice of the receipt of notice
from the Company hereunder to each of the Banks, and, if such notice requests
the Banks to make any Eurodollar Loans, the Agent shall confirm to the Company
by telephonic, telex or telecopy means, which confirmation shall be conclusive
and binding on the Company in the absence of manifest error, the Interest Period
and the interest rate applicable thereto promptly after such rate is determined
by the Agent.
(b) Subject to the provisions of Section 6 hereof, the proceeds of each
Revolving Credit Loan shall be made available to the relevant Borrower at the
principal office of the Agent in Chicago, Illinois, in immediately available
funds, on the date such Loan is requested to be made. Not later than 3:00 p.m.
(Chicago time), on the date specified for any Loan to be made hereunder, each
Bank shall make its portion of such Loan available to the relevant Borrower in
immediately available funds at the principal office of the Agent.
(c) Unless the Agent shall have been notified by a Bank prior to the
date of a Loan to be made by such Bank (which notice shall be effective upon
receipt) that such Bank does not intend to make the proceeds of such Loan
available to the Agent, the Agent may assume that such Bank has made such
proceeds available to the Agent on such date and the Agent may in reliance upon
such assumption (but shall not be required to) make available to the relevant
Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Agent by such Bank, the Agent shall be entitled to receive
such amount on demand from such Bank (or, if such Bank fails to pay such amount
forthwith upon such demand, to recover such amount, together with interest
thereon at the rate otherwise applicable thereto under Section 1.3 hereof, from
the relevant Borrower) together with interest thereon in respect of each day
during the period commencing on the date such amount was made available to the
relevant Borrower and ending on the date the Agent recovers such amount, at a
rate per annum equal to the effective rate charged to the Agent for overnight
Federal funds transactions with member banks of the Federal Reserve System for
each day, as determined by the Agent (or, in the case of a day which is not a
Business Day, then for the preceding Business Day) (the "FED FUNDS RATE").
Nothing in this Section 1.5(c) shall be deemed to permit any Bank to breach its
obligations to make Loans under the Revolving Credit or to limit any Borrower's
claims against any Bank for such breach.
SECTION 1.6. CAPITAL ADEQUACY. If, after the date hereof, any Bank or
the Agent shall have determined in good faith that the adoption of any
applicable law, rule or regulation
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regarding capital adequacy, or any change therein (including, without
limitation, any revision in the Final Risk-Based Capital Guidelines of the Board
of Governors of the Federal Reserve System (12 CFR Part 208, Appendix A; 12 CFR
Part 225, Appendix A) or of the Office of the Comptroller of the Currency (12
CFR Part 3, Appendix A), or in any other applicable capital rules heretofore
adopted and issued by any governmental authority), or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Bank (or its Lending Office) with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on such Bank's capital, or on the capital
of any corporation controlling such Bank, in each case as a consequence of its
obligations hereunder, to a level below that which such Bank would have achieved
but for such adoption, change or compliance (taking into consideration such
Bank's policies with respect to capital adequacy) by an amount deemed by such
Bank to be material, then from time to time, within thirty (30) days after
demand by such Bank (with a copy to the Agent), the Borrowers shall pay to such
Bank such additional amount or amounts as will compensate such Bank for such
reduction.
SECTION 1.7. THE COLLATERAL. The Notes and the other obligations of the
Borrowers hereunder and under the other Loan Documents shall be secured by valid
and perfected first liens on the following property (the "COLLATERAL"): (a) the
inventory, accounts and certain other property of the Company, in each instance
whether now owned or existing or hereafter acquired or arising, granted to the
Agent for the benefit of the Banks pursuant to a Security Agreement Re: Accounts
Receivable and Inventory dated as of August 27, 1997 (as the same may be amended
from time to time, the "CURRENT ASSET SECURITY AGREEMENT"), (b) amounts and
contracts on deposit in accounts maintained by the Company with futures
commission merchants and certain other property of the Company, in each instance
whether now owned or existing or hereafter acquired, granted to the Agent for
the benefit of the Banks pursuant to various Security Agreements Re: Margin
Account (as the same may be amended from time to time, collectively the "MARGIN
ACCOUNT SECURITY AGREEMENTS"), (c) the inventory, accounts and certain other
property of LSI, in each instance whether now owned or existing or hereafter
acquired as arising, granted to the Agent for the benefit of the Banks pursuant
to a Security Agreement Re: Accounts Receivable and Inventory dated as of even
date herewith (as the same may be amended from time to time, the "LSI SECURITY
AGREEMENT"), and each Borrower agrees that it will from time to time at the
request of the Agent or the Required Banks execute and deliver such documents
and do such acts and things as the Agent or the Required Banks may reasonably
request in order to provide for or perfect such liens.
SECTION 1.8. ABSOLUTE OBLIGATIONS. Each Borrower acknowledges and agrees
that its joint and several liability on the Notes and on all obligations owed by
any Borrower or Borrowers under this Agreement is absolute and unconditional and
shall not in any manner be affected or impaired by any acts or omissions
whatsoever by the Banks, and without limiting the generality of the foregoing,
each Borrower's joint and several liability on the Notes and under this
Agreement shall not be impaired by any acceptance by the Banks of any other
security for or guarantors upon the Notes or any obligations under this
Agreement or by any failure, neglect or omission on the Banks' part to resort to
any one or all of the Borrowers for payment of the Notes
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or the obligations under this Agreement or to realize upon or protect any
collateral security therefor. Each Borrower's joint and several liability on the
Notes and under this Agreement shall not in any manner be impaired or affected
by who receives or uses the proceeds of the loans evidenced by the Notes or for
what purposes such proceeds are used, and each Borrower waives notice of
borrowing requests issued by, and loans made to, other Borrowers. Such joint and
several liability of each Borrower shall also not be impaired or affected by
(and each Bank, without notice to anyone, is hereby authorized to make from time
to time) any sale, pledge, surrender, compromise, settlement, release, renewal,
extension, indulgence, alteration, substitution, exchange, change in,
modification or disposition of any collateral security for the Notes or the
obligations under this Agreement or of any guaranty thereof. In order to enforce
payment of the Notes and the Borrowers' obligations under this Agreement,
foreclose or otherwise realize on any collateral security therefor, and to
exercise the rights granted to the Agent hereunder and thereunder and under
applicable law, the Agent shall be under no obligation at any time to first
resort to any collateral security, property, liens or any other rights or
remedies whatsoever, and the Banks shall have the right to enforce the Notes and
the Borrowers' obligations under this Agreement irrespective of whether or not
other proceedings or steps are pending seeking resort to or realization upon or
from any of the foregoing. By its acceptance below, each Borrower hereby
expressly waives and surrenders any defense to its joint and several liability
on the Notes or under this Agreement based upon any of the foregoing. In
furtherance thereof, each Borrower agrees that wherever in this Agreement it is
provided that a Borrower is liable for a payment such obligation is the joint
and several obligation of each Borrower.
SECTION 2. FEES, PREPAYMENTS AND TERMINATIONS.
SECTION 2.1. FEES. For the period from the date hereof to and including
the Termination Date, or such earlier date on which the Revolving Credit is
terminated in whole pursuant to Section 2.5 hereof, the Borrowers, jointly and
severally, shall pay to the Agent for the account of the Banks a commitment fee
with respect to the Revolving Credit at the rate of one-eighth of one percent
(.125%) per annum (computed on the basis of a year of 360 days for the actual
number of days elapsed) of the average daily unused amount of the Banks'
Revolving Credit Commitments hereunder in effect from time to time, such fee to
be payable quarterly in arrears on the last day of each March, June, September
and December commencing on September 30, 1998 unless the Revolving Credit is
terminated in whole on an earlier date, in which event the fees for the final
period shall be paid on the date of such earlier termination in whole.
SECTION 2.2. AGENT'S FEE. The Borrowers, jointly and severally, shall
pay to and for the sole account of the Agent fees in an amount and payable at
such times as the Borrowers and the Agent may agree upon in writing. Such fee
payments shall be in addition to any fees and charges the Agent may be entitled
to receive under Section 10 hereunder or under the other Loan Documents.
SECTION 2.3. OPTIONAL PREPAYMENTS. (a) The Borrowers shall have the
privilege of prepaying without premium or penalty and in whole or in part (but
if in part, then in a minimum principal amount of $1,000,000 or such greater
amount which is an integral multiple of $500,000) any Domestic Rate Loan under
the Revolving Credit at any time upon prior telex or
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telephonic notice to the Agent on or before 12:00 noon (Chicago time) on the
same Business Day.
(b) The Borrowers may prepay any Eurodollar Loan, upon telephonic notice
(which shall be promptly confirmed in writing by facsimile communication, telex
or telegraph) by no later than 11:00 a.m. (Chicago time) on the date of such
prepayment from the applicable Borrower to the Agent, such prepayment to be made
by the payment of the principal amount to be prepaid and accrued interest
thereon and any compensation required by Section 9.4 hereof, if applicable;
PROVIDED, HOWEVER, that any such prepayment shall be in a principal amount of no
less than $1,000,000 or such greater amount which is an integral multiple of
$1,000,000 and after giving effect to any such prepayment the outstanding
principal amount of any such Eurodollar Loan prepaid in part shall not be less
than $1,000,000 or such greater amount which is an integral multiple of
$1,000,000.
(c) Any amount prepaid under the Revolving Credit may, subject to the
terms and conditions of this Agreement, be borrowed, repaid and borrowed again.
SECTION 2.4. MANDATORY PREPAYMENTS-BORROWING BASE. The Borrowers shall
not permit the sum of the principal amount of all Loans at any time outstanding
to exceed the lesser of (i) the Banks' Revolving Credit Commitments or (ii) the
Borrowing Base as determined on the basis of the most recent Borrowing Base
Certificate. The Borrowers shall not permit the sum of the principal amount of
all Loans outstanding to the Company to exceed the Company Borrowing Base as
determined on the basis of the most recent Borrowing Base Certificate and the
Borrowers shall not permit the sum of the principal amount of all Loans
outstanding to LSI to exceed the LSI Borrowing Base as determined on the basis
of the most recent Borrowing Base Certificate. The Borrowers will make such
payments on any outstanding Loans which are necessary to cure any such excess
within one Business Day after the occurrence thereof without any notice or
demand from the Agent or any of the Banks, all of which are expressly waived by
the each Borrower and shall pay any amount due in connection with such
prepayment pursuant to Section 9.4 hereof. Any amount repaid under the Revolving
Credit may, subject to the terms and conditions of this Agreement, be borrowed,
repaid and borrowed again.
SECTION 2.5. TERMINATIONS. The Borrowers shall have the right at any
time upon 10 Business Days' prior notice to the Banks to terminate the Revolving
Credit in whole or in part, but if in part in a minimum amount of $5,000,000 or
any integral multiple thereof; PROVIDED, HOWEVER, that the Borrowers may not
terminate any portion of the Revolving Credit which remains available for
payment under any outstanding Revolving Credit Loans. Any termination will first
reduce ratably the Revolving Credit Commitments of each of the Banks.
SECTION 3. PLACE AND APPLICATION OF PAYMENTS.
All payments of principal and interest made by the Borrowers in respect
of the Revolving Notes and all fees payable by the Borrowers hereunder, shall be
made to the Agent at its office at 111 West Monroe Street, Chicago, Illinois,
60690 and in immediately available funds, prior to 1:00 p.m. (Chicago time) on
the date of such payment. All such payments shall be made without setoff or
counterclaim and without reduction for, and free from, any and all present and
future
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levies, imposts, duties, fees, charges, deductions withholdings, restrictions or
conditions of any nature imposed by any government or any political subdivision
or taxing authority thereof. Any payments received after 1:00 p.m. (Chicago
time) (or after the time the Banks may otherwise direct) shall be deemed
received upon the following Business Day. The Agent shall remit to each Bank its
proportionate share of each payment of principal, interest and commitment fee
received by the Agent by 1:00 p.m. (Chicago time) on the same day of its receipt
and its proportionate share of each such payment received by the Agent after
1:00 p.m. (Chicago time) on the Business Day following its receipt by the Agent.
In the event the Agent does not remit any amount to any Bank when required by
the preceding sentence, the Agent shall pay to such Bank interest on such amount
until paid at a rate per annum equal to the Fed Funds Rate. Each Borrower hereby
authorizes the Agent to automatically debit its account with Harris for any
principal, interest and fees when due under the Revolving Notes or this
Agreement and to transfer the amount so debited from such account to the Agent
for application as herein provided. All proceeds of Collateral shall be applied
in the manner specified in the Security Documents.
SECTION 4. DEFINITIONS.
The terms hereinafter set forth when used herein shall have the
following meanings:
SECTION 4.1. CERTAIN TERMS DEFINED.
"ACCOUNT DEBTOR" shall mean the person who is obligated on a Receivable.
"ADJUSTED EURODOLLAR RATE" means a rate per annum determined pursuant to
the following formula:
Eurodollar Rate
-------------------------
Adjusted Eurodollar Rate = 100% - Reserve Percentage
"ADJUSTED TOTAL MEMBER EQUITIES" means, at any time, the remainder of
(a) Total Member Equities, determined at such time, MINUS
(b) the sum of (i) Post-Closing Consolidated Intangible Assets
and (ii) Restricted Investments, each determined at such time.
"AFFILIATE" shall mean any person, company or business entity under
common control or having shareholders owning at least ten percent (10%) of each
thereof, whether such common control be direct or indirect. All of each
Borrower's officers, shareholders, directors, joint ventures, Subsidiaries and
partners shall be deemed to be each Borrower's Affiliates for purposes of this
Agreement.
"AGENT" is defined in the first paragraph of this Agreement.
"AGREEMENT" shall mean this Amended and Restated Secured Credit
Agreement as supplemented and amended from time to time.
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"BANK" and "BANKS" shall have the meanings specified in the first
paragraph of this Agreement.
"BORROWER" is defined in the introductory paragraph of this Agreement.
"BORROWERS" is defined in the introductory paragraph of this Agreement.
"BORROWING BASE" means, at any tune the same is to be determined, the
sum of the Company Borrowing Base and the LSI Borrowing Base.
"BORROWING BASE CERTIFICATE" shall mean the certificate in the form of
Exhibit B which is required to be delivered to the Banks in accordance with
Section 7.4(c) hereof.
"BUSINESS DAY" shall mean any day except Saturday or Sunday on which
banks are open for business in Chicago, Illinois, and Denver, Colorado and, with
respect to Eurodollar Loans, dealing in United States dollar deposits in London,
England and Nassau, Bahamas.
"CAPITALIZED LEASE" shall mean any lease or obligation for rentals which
is required to be capitalized on a balance sheet of either Borrower in
accordance with generally accepted accounting principles.
"CASH FLOW" shall mean, for any period, the sum of (a) the net income of
the Company and its Subsidiaries for such period, plus (b) all amounts properly
charged for depreciation of fixed assets and amortization of Intangible Assets
during such period, minus (c) all capital expenditures made during such period,
minus (d) the aggregate amount of payments required to be made by the Company
and its Subsidiaries, during such period in respect of principal of Debt
(whether at maturity, as a result of mandatory sinking fund redemption,
mandatory prepayment, acceleration or otherwise), minus (e) the aggregate amount
of all cash patronage distributions paid by the Company and its Subsidiaries
during such period, and minus (f) the aggregate amount paid by the Company and
its Subsidiaries to redeem shares of the Company's and any Subsidiary's stock
from its members during such period, all determined in a consolidated basis in
accordance with generally accepted accounting principles, consistently applied,
but without adjustment for any cash received by the Company and its Subsidiaries
from its members for the replenishment of net losses.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time.
"CHANGE IN LAW" shall have the meaning specified in Section 9.3 hereof.
"COLLATERAL" shall mean the collateral security provided to the Agent
for the benefit of the Banks pursuant to the Security Documents.
"COMPANY" shall have the meaning specified in the first paragraph of
this Agreement.
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"COMPANY BORROWING BASE", as determined on the basis of the information
contained in the most recent Borrowing Base Certificate or as determined by the
Agent upon an inspection of the Company's books and records, shall mean an
amount equal to:
(a) 85% of the amount of Eligible Receivables of the Company,
plus
(b) 85% of the Value of Eligible Grain Inventory of the Company,
plus
(c) 75% of the Value of Eligible By-Product Inventory of the
Company, PROVIDED that the amount included in the Borrowing Base at any
time with respect to Eligible By-Product Inventory of the Company
consisting of steep water may not exceed $1,000,000 at such time, plus
(d) 75% of the Value of Eligible Finished Goods Inventory of the
Company, plus
(e) 75% of the Value of Eligible Work-in-Process Inventory of
the Company, plus
(f) 90% of the Company's Eligible Broker Balances, minus
(g) the aggregate outstanding amount of the Company's Secured
Grower Payables.
"CONSOLIDATED NET EARNINGS" means, with respect to any period, the net
income (or loss) of the Company and the Subsidiaries for such period, as
determined on a consolidated basis in accordance with GAAP, provided that there
shall be excluded therefrom:
(a) the income or loss of any Person accrued prior to the date
it becomes a Subsidiary or is merged into or consolidated or
consolidated with the Company or a Subsidiary, and the income (or loss)
of any Person, substantially all of the assets of which have been
acquired in any manner, realized by such other Person prior to the date
of acquisition,
(b) the income or loss of any Person (other than the Company or
a Subsidiary) in which the Company or any Subsidiary has an ownership
interest, except to the extent that any such income has been actually
received by the Company or a Subsidiary in the form of cash dividends or
similar cash distributions,
(c) any net gain or loss during such period arising from the
sale, conversion, exchange or other disposition of capital assets,
(d) any gains or losses resulting from any write-up of any
assets,
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(e) any gain arising from the acquisition of any security, or
the extinguishment, under GAAP, of any indebtedness, of the Company or
any Subsidiary and
(f) any income, gain or loss during such period in respect of
any hedging activities not undertaken in the ordinary course of business
of such Person or any extraordinary items or discontinued operations or
the disposition thereof.
"CONSOLIDATED TOTAL ASSETS" means, at any time, the total assets of the
Company and its Subsidiaries determined on a consolidated basis at such time in
accordance with GAAP.
"DEBT" of any Person shall mean as of any time the same is to be
determined, the aggregate of (a) all indebtedness, obligations and liabilities
with respect to borrowed money, (b) all guaranties, endorsements (other than any
liability arising out of the endorsement of items for deposit or collection in
the ordinary course of business) and other contingent obligations in respect of,
or any obligations to purchase or otherwise acquire, indebtedness of others, (c)
all reimbursement and other obligations with respect to letters of credit and
banker's acceptances, (d) the aggregate amount of rentals or other consideration
payable under all Capitalized Leases, (e) all indebtedness and liabilities
secured by any lien or any security interest on any Property or assets of such
person, whether or not the same would be classified as a liability on a balance
sheet, and (f) all indebtedness, obligations and liabilities representing the
deferred purchase price of Property (excluding trade payables arising in the
ordinary course of business), but excluding all general contingency reserves and
reserves for deferred income taxes and investment credit, and with respect to
Debt of the Company and its Subsidiaries, all computed and determined on a
consolidated basis in accordance with Generally Accepted Accounting Principles
consistent with those used in the preparation of the audit report referred to in
Section 5.2 hereof.
"DOMESTIC RATE" means for any day the rate of interest announced by
Harris from time to time as its prime commercial rate in effect on such day,
with any change in the Domestic Rate resulting from a change in said prime
commercial rate to be effective as of the date of the relevant change in said
prime commercial rate (the "HARRIS PRIME RATE"), provided that if the rate per
annum determined by adding 0.5% to the rate at which Harris would offer to sell
federal funds in the interbank market on or about 10:00 a.m. (Chicago time) on
any day (the "ADJUSTED FED FUNDS RATE") shall be higher than the Harris Prime
Rate on such day, the Domestic Rate for such day and for any succeeding day
which is not a Business Day shall be such Adjusted Fed Funds Rate. The
determination of the Adjusted Fed Funds Rate by Harris shall be final and
conclusive provided Harris has acted in good faith in connection therewith.
"DOMESTIC RATE LOAN" means a Revolving Credit Loan which bears interest
as provided in Section 1.3(a) hereof.
"ELIGIBLE BROKER BALANCES" shall mean as of any day the initial futures
margin on deposit in the Borrowers' margin accounts with clearing brokers on the
Chicago Board of Trade as of the end of that day, net of any unpaid fees,
commissions and all other amounts owed to those brokers, minus the negative
value of the Borrowers' open contracts held through those brokers and, which is
subject to a valid, first priority perfected security interest in favor of the
Agent for
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the benefit of the Banks and which the Banks in their sole discretion deems
eligible for inclusion in the Borrowing Base.
"ELIGIBLE BY-PRODUCTS INVENTORY" shall mean Eligible Inventory
consisting of gluten meal, wet feed and germ and steep water.
"ELIGIBLE FINISHED GOODS INVENTORY" shall mean Eligible Inventory
consisting of starch, high fructose corn sweeteners, ethanol and corn syrup.
"ELIGIBLE GRAIN INVENTORY" shall mean Eligible Inventory of corn.
"ELIGIBLE INVENTORY" shall mean any Inventory of the Borrowers in which
the Agent has a perfected first priority security interest, which the Banks in
their reasonable judgment deem to be acceptable for inclusion in the Borrowing
Base, and which complies with each of the following requirements:
(a) It substantially conforms to such Borrower's advertised or
represented specifications, applicable government standards and
regulations and other quality standards and has not been determined by
the Banks to be unacceptable due to age, type, variety, quality,
quantity, or location;
(b) If it is covered by a negotiable warehouse receipt or other
negotiable document of title, such receipt or other document of title is
in the Agent's possession and has been endorsed in blank by such
Borrower;
(c) All warranties of such Borrower in the Loan Documents are
true and correct with respect thereto;
(d) It has been identified to the Agent in the manner prescribed
by the pursuant to the Security Agreement; and
(e) It is located at a location disclosed to and approved by the
Agent, and if requested by the Agent, any Person (other than such
Borrower) owning or controlling such location shall have waived all
right, title and interest in and to such Inventory in a manner
satisfactory to the Agent.
"ELIGIBLE RECEIVABLES" shall mean any Receivable of the Borrowers in
which the Agent has a first priority perfected security interest which the Banks
in their reasonable discretion deem to be acceptable for inclusion in the
Borrowing Base, and which complies with each of the following requirements:
(a) It arises out of (i) a bona fide sale of Inventory which has
been delivered to, or is in the process of being delivered to the
Account Debtor on said Receivable in the ordinary course of business on
ordinary trade terms or (ii) the storage, handling or conditioning of
Inventory by such Borrower;
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(b) All warranties of such Borrower in the Loan Documents are
true and correct with respect thereto;
(c) It has been identified to the Banks in the manner required
by the Banks;
(d) It is evidenced by an invoice dated not later than the day
after the date of shipment to the Account Debtor thereunder;
(e) It has not remained unpaid in whole or in part more than 90
days from and after its invoice date;
(f) It is net of any credit or allowance given by such Borrower
to such Account Debtor;
(g) It is not owing by an Account Debtor who (i) has become
insolvent, (ii) is the subject of any bankruptcy, arrangement,
reorganization proceedings or other proceedings for relief of debtors,
(iii) has admitted its inability to pay its debt generally or has
stopped paying its debts generally or (iv) is an Affiliate of such
Borrower.
(h) The Account Debtor is not principally located outside the
continental United States unless such Receivable is secured by an
irrevocable letter of credit issued by a commercial bank located in the
United States and which is acceptable to the Banks; and
(i) It is not owing by the United States of America or any
department, agency or instrumentality thereof unless the Banks shall
have received evidence satisfactory to the Banks of compliance with the
Assignment of Claims Act.
"ELIGIBLE WORK-IN-PROCESS INVENTORY" shall mean Eligible Inventory of
corn that is being processed.
"ENVIRONMENTAL LAWS" shall mean all federal, state and local
environmental, health and safety statutes and regulations, including without
limitation all statutes and regulations establishing quality criteria and
standards for air, water, land and toxic or hazardous wastes and substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"EURODOLLAR LOAN" means a Revolving Credit Loan which bears interest as
provided in Section 1.3(b) hereof
"EURODOLLAR RATE" shall mean for each Interest Period applicable to a
Eurodollar Loan, (a) the LIBOR Index Rate for such Interest Period, if such rate
is available, and (b) if the LIBOR Index Rate cannot be determined, the
arithmetic average of the rates of interest per annum (rounded upwards, if
necessary, to nearest 1/100 of 1%) at which deposits in U.S. dollars in
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immediately available funds are offered to the Agent at 11:00 a.m. (London,
England time) two (2) Business Days before the beginning of such Interest Period
by three (3) or more major banks in the interbank eurodollar market for a period
equal to such Interest Period and in an amount equal or comparable to the
principal amount of the Eurodollar Loan scheduled to be made by the Agent during
such Interest Period.
"EVENT OF DEFAULT" shall mean any event or condition identified as such
in Section 8.1 hereof.
"EXISTING AGREEMENTS" shall mean the agreements listed on Exhibit E
attached hereto.
"EXISTING LENDERS" shall mean the lenders under each of the Existing
Agreements.
"FED FUNDS RATE" shall have the meaning specified in Section 1.5(c)
hereof.
"FUNDED DEBT" of any Person shall mean all Debt of such Person having a
final maturity of more than one year from the date of origin thereof (or which
is renewable or extendible at the option of the obligor for a period or periods
more than one year from the date of origin), excluding, however, in any
computation of the amount of Funded Debt outstanding as of any date (a) all
amounts outstanding under the Revolving Credit, and (b) all payments in respect
of any Funded Debt that are required to be made within one year from such date
of determination of Funded Debt.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall mean generally accepted
accounting principles consistently applied and maintained throughout the period
indicated and consistent with the audited financial statements delivered to the
Banks pursuant to Section 7.4 except that inventory shall be computed as
described in the definition of Value. Whenever any accounting term is used
herein which is not otherwise defined, it shall be interpreted in accordance
with generally accepted accounting principles.
"HARRIS" shall have the meaning specified in the first paragraph of this
Agreement.
"HEDGED POSITION" means all grain inventory, fixed price sales
contracts, fixed price corn purchase contracts and futures positions of the
Company relating to its annual grind.
"INTANGIBLE ASSETS" shall mean amortizable loan costs, business
acquisition costs, license agreements, trademarks, trade names, patents,
capitalized research and development, proprietary products (the results of past
research and development treated as long term assets and excluded from
Inventory), goodwill and all other assets which would be classified as
intangible assets (all determined in accordance with generally accepted
accounting principles consistently applied).
"INTEREST PERIOD" shall mean with respect to any Eurodollar Loan, the
period used for the computation of interest commencing on the date the relevant
Eurodollar Loan is made, continued or effected by conversion and concluding on
the date one, two, three or six months thereafter as selected by the Company on
behalf of itself or LSI in its notice as provided herein, PROVIDED that all of
the foregoing provisions relating to Interest Periods are subject to the
following:
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(i) if any Interest Period would otherwise end on a day which is
not a Business Day, that Interest Period shall be extended to the next
succeeding Business Day, unless in the case of an Interest Period for a
Eurodollar Loan the result of such extension would be to carry such
Interest Period into another calendar month in which event such Interest
Period shall end on the immediately preceding Business Day;
(ii) no Interest Period may extend beyond the final maturity
date of the Notes;
(iii) the interest rate to be applicable to each Eurodollar Loan
for each Interest Period shall apply from and including the first day of
such Interest Period to but excluding the last day thereof; and
(iv) no Interest Period may be selected if after giving effect
thereto the relevant Borrower will be unable to make a principal payment
scheduled to be made during such Interest Period without paying part of
a Eurodollar Loan on a date other than the last day of the Interest
Period applicable thereto.
For purposes of determining an Interest Period, a month means a period starting
on one day in a calendar month and ending on a numerically corresponding day in
the next calendar month, provided, however, if an Interest Period begins on the
last day of a month or if there is no numerically corresponding day in the month
in which an Interest Period is to end, then such Interest Period shall end on
the last Business Day of such month.
"INVENTORY" shall mean all raw materials, work in process, finished
goods, and goods held for sale or lease or furnished or to be furnished under
contracts of service in which any Borrower now has or hereafter acquires any
right.
"LIBOR INDEX RATE" shall mean, for any Interest Period applicable to a
Eurodollar Loan, the rate per annum (rounded upwards, if necessary, to the next
higher one hundred-thousandth of a percentage point) for deposits in U.S.
Dollars for a period equal to such Interest Period, which appears on the
Telerate Page 3750 as of 11:00 a.m. (London, England time) on the day two
Business Days before the commencement of such Interest Period.
"LOAN" shall mean a Revolving Credit Loan and the term "LOANS" shall
mean any two or more Revolving Credit Loans collectively.
"LOAN DOCUMENTS" shall mean this Agreement and any and all exhibits
hereto, the Revolving Notes and the Security Documents.
"LSI" shall have the meaning assigned to such term in the introductory
paragraph hereof.
"LSI BORROWING BASE" as determined on the basis of the information
contained in the most recent Borrowing Base Certificate or as determined by the
Agent upon an inspection of LSI's books and records, shall mean an amount equal
to:
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(a) 85% of the amount of Eligible Receivables of LSI, plus
(b) 75% of Eligible Inventory.
"NET WORKING CAPITAL" shall mean the excess for the Company and its
Subsidiaries of current assets over current liabilities, all as determined and
computed on a consolidated basis in accordance with Generally Accepted
Accounting Principles, but in any event including as current liabilities all
amounts outstanding under this Agreement.
"NET WORTH" shall mean the Total Assets minus the Total Liabilities of
the Company and its Subsidiaries, determined on a consolidated basis in
accordance with generally accepted accounting principles, consistently applied.
"PERSON" shall mean and include any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party or government (whether national,
federal, state, county, city, municipal, or otherwise, including, without
limitation, any instrumentality, division, agency, body or department thereof).
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"PLAN" shall mean any employee benefit plan covering any officers or
employees of the Borrowers, any benefits of which are, or are required to be,
guaranteed by the PBGC.
"POSITION REPORT" shall mean a summary of the Borrowers' Hedged
Position.
"POTENTIAL DEFAULT" shall mean any event or condition which, with the
lapse of time, or giving of notice, or both, would constitute an Event of
Default.
"PROPERTY" shall mean all assets and properties of any nature
whatsoever, whether real or personal, tangible or intangible, including without
limitation biotechnology products and techniques and intellectual property.
"RECEIVABLES" shall mean all accounts, contract rights, instruments,
documents, chattel paper and general intangibles in which any Borrower now has
or hereafter acquires any right.
"REQUIRED BANKS" shall mean any Bank or Banks which in the aggregate
hold 51% of the aggregate unpaid principal balance of the Loans or, if no Loans
are outstanding hereunder, any Bank or Banks in the aggregate having 51% of the
Revolving Credit Commitments.
"RESERVE PERCENTAGE" means the daily arithmetic average maximum rate at
which reserves (including, without limitation, any supplemental, marginal and
emergency reserves) are imposed on member banks of the Federal Reserve System
during the applicable Interest Period by the Board of Governors of the Federal
Reserve System (or any successor) under Regulation D on "EUROCURRENCY
LIABILITIES" (as such term is defined in Regulation D), subject to any
amendments of such reserve requirement by such Board or its successor, taking
into account any transitional adjustments thereto. For purposes of this
definition, the Eurodollar Loans shall be
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deemed to be Eurocurrency liabilities as defined in Regulation D without benefit
or credit for any prorations, exemptions or offsets under Regulation D.
"REVOLVING CREDIT" shall have the meaning specified in the first
paragraph of this Agreement.
"REVOLVING CREDIT COMMITMENT" and "REVOLVING CREDIT COMMITMENTS" shall
have the meanings specified in Section 1.1(b) hereof.
"REVOLVING CREDIT LOAN" and "REVOLVING CREDIT LOANS" shall have the
meanings specified in Section 1.1(a) hereof.
"REVOLVING NOTE" or "REVOLVING NOTES" shall have the meanings specified
in Section 1.2 hereof.
"SECURED GROWER PAYABLES" shall mean (a) all amounts owed from time to
time by the Company to any Persons on account of the purchase price of
agricultural commodities if the Required Banks determine from time to time that
such Person is entitled to the benefit of any grower's lien, statutory trust or
similar security arrangements to secure the payment of any amounts owed to such
Person, and (b) all amounts owed from time to time by the Company to any Person
on account of deferred price or deferred pay obligations of the Company to such
Person with respect to grain purchased by the Company from such Person.
"SECURITY DOCUMENTS" means the Current Asset Security Agreement, the
Margin Account Security Agreements, the LSI Security Agreement and all other
mortgages, deeds of trust, security agreements, assignments, financing
statements and other documents as shall from time to time secure the Notes and
the other obligations of the Borrowers hereunder and under the other Loan
Documents.
"SENIOR SECURED NOTES" shall mean the Company's $25,000,000 7.57% Series
A Fixed Rate Senior Notes due September 1, 2007, $120,000,000 7.72% Series B
Fixed Rate Senior Notes due September 1, 2009, $45,000,000 7.83% Series C Fixed
Rate Senior Notes due September 1, 2012, and $100,000,000 Series D Variable Rate
Senior Notes due September 1, 2007.
"SET-OFF" shall have the meaning specified in Section 11.15 hereof.
"SUBSIDIARY" shall mean any corporation or other entity at least a
majority of the outstanding voting stock of which is at the time owned directly
or indirectly by the Company and/or its Subsidiaries.
"TELERATE PAGE 3750" shall mean the display designated as "PAGE 3750" on
the Telerate Service (or such other page as may replace Page 3750 on that
service or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Bankers' Association Interest Settlement Rates for U.S. Dollar deposits).
"TERMINATION DATE" shall have the meaning set forth in Section 1.1(a)
hereof.
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"TOTAL ASSETS" shall mean at any date, the aggregate amount of assets of
the Company and its Subsidiaries determined on a consolidated basis in
accordance with generally accepted accounting principles consistently applied.
"TOTAL LIABILITIES" shall mean at any date, the aggregate amount of all
liabilities of the Company and its Subsidiaries determined on a consolidated
basis in accordance with generally accepted accounting principles, consistently
applied.
"TOTAL MEMBER EQUITIES" means, at any time, the remainder (if positive)
of
(a) Consolidated Total Assets MINUS
(b) the amount at which the liabilities (other than capital
stock, surplus and minority interests) of the Company and its
Subsidiaries would be shown on a consolidated balance sheet prepared in
accordance with GAAP for such Persons at such time.
"VALUE" shall mean as of any given date an amount equal to (a) with
respect to Eligible By-Products Inventory and Eligible Finished Goods Inventory,
the lower of cost or wholesale fair market value, (b) with respect to Eligible
Work-in-Process Inventory, the cost of the corn being processed, and (c) with
respect to Eligible Grain Inventory, the spot bid price of the Company in
Columbus, Nebraska and Marshall, Minnesota.
SECTION 5. REPRESENTATIONS AND WARRANTIES.
Each Borrower represents and warrants to the Banks as follows:
SECTION 5.1. ORGANIZATION AND QUALIFICATION. Each Borrower is duly
organized and validly existing under the laws of the state of its incorporation,
has full and adequate corporate power to carry on its business as now conducted,
is duly licensed or qualified in all jurisdictions wherein the nature of its
activities requires such licensing or qualifying, has full right, power and
authority to enter into this Agreement and the other Loan Documents to which it
is a party, to make the borrowings herein provided for and encumber its assets
as collateral security therefor, to execute and issue the Revolving Notes in
evidence thereof, and to perform each and all of the matters and things herein
and therein provided for; and this Agreement does not, nor does the performance
or observance by any Borrower of any of the matters or things provided for in
this Agreement and the other Loan Documents, contravene any provision of law or
any charter or by-law provision or any covenant, indenture or agreement of or
judgment, order or decree applicable to or affecting such Borrower or any of its
Property.
SECTION 5.2. FINANCIAL REPORTS. The Company has heretofore delivered to
each Bank a copy of the annual audit report as of March 31, 1998 of the Company
and its Subsidiaries and a copy of the consolidated balance sheets and profit
and loss statements for the Company and its Subsidiaries for the quarter ending
June 30, 1998. Such financial statements have been prepared in accordance with
generally accepted accounting principles (except that such unaudited financial
statements may omit any footnotes), on a basis consistent, except as otherwise
noted therein, with that of the previous fiscal year or period and fairly
reflect the financial position of
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the Company and its Subsidiaries as of the dates thereof, and the results of its
operations for the periods covered thereby. The Company and its Subsidiaries
have no significant contingent liabilities (determined in accordance with
generally accepted accounting principles consistently applied) other than as
indicated on said financial statements and since said date of March 31, 1998,
there has been no material adverse change in the condition, financial or
otherwise, of the Company or any Subsidiary.
SECTION 5.3. LITIGATION; TAX RETURNS; APPROVALS. There is no litigation,
labor controversy or governmental proceeding pending or threatened against any
Borrower or any Subsidiary which if adversely determined would result in any
material adverse change in the financial condition, properties, business or
operations of such Borrower or any Subsidiary, except as disclosed on Exhibit F
attached hereto. All United States federal and state income tax returns for each
Borrower and its Subsidiaries required to be filed have been filed on a timely
basis, and all amounts required to be paid as shown by said returns have been
paid. There are no pending or threatened objections to or controversies in
respect of the United States federal and state income tax returns of any
Borrower or any Subsidiary for any fiscal year. No authorization, consent,
license, exemption or filing or registration with any court or governmental
department, agency or instrumentality, is or will be necessary to the valid
execution, delivery or performance by any Borrower of the Loan Documents.
SECTION 5.4. REGULATION U. Neither any Borrower nor any Subsidiary is
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System).
SECTION 5.5. NO DEFAULT. Each Borrower is in full compliance with all of
the terms and conditions of the Loan Documents, and no Potential Default or
Event of Default is existing under this Agreement.
SECTION 5.6. ERISA. The Borrowers and their Subsidiaries are in
compliance in all material respects with ERISA to the extent applicable to them
and neither any Borrower nor any Subsidiary has received any notice to the
contrary from the PBGC or any other governmental entity or agency. No steps have
been taken to terminate any Plan, and no contribution failure has occurred with
respect to any Plan sufficient to give rise to a lien under Section 302(f) of
ERISA. No condition exists or event or transaction has occurred with respect to
any Plan which might result in the incurrence by any Borrower or any Subsidiary
of any material liability, fine or penalty. Neither any Borrower nor any
Subsidiary has any liability with respect to any post-retirement benefit under a
Plan, other than liability for continuation coverage described in Part 6 of
Title I of ERISA.
SECTION 5.7. SECURITY INTERESTS. There are no security interests, liens
or encumbrances on any of the assets or Property of any Borrower except the
security interests, liens and charges which are now existing and are permitted
by Section 7.14 of this Agreement.
SECTION 5.8. SUBSIDIARIES. As of the date hereof, the Company's only
Subsidiary is Liquid Sugars, Inc., a California corporation. Such Subsidiary is
duly organized and validly existing under the laws of the state of its
incorporation, has full and adequate corporate power to
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carry on its business as now conducted and is duly licensed or qualified to do
business in all jurisdictions wherein the nature of its activities requires such
licensing or qualification. As of the date hereof, LSI has no Subsidiaries.
SECTION 5.9. ACCURATE INFORMATION. No information, exhibit or report
furnished by any Borrower to the Banks in connection with the negotiation or
performance of the Loan Documents contains any material misstatement of fact or
omitted to state a material fact or any fact necessary to make the statements
contained therein not misleading in light of the circumstances in which made.
SECTION 5.10. ENFORCEABILITY. This Agreement, when executed and
delivered by each Borrower, will be a legal, valid and binding agreement of such
Borrower, enforceable against it in accordance with its terms, except as may be
limited by (i) bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium or other similar laws or judicial decisions for the relief of debtors
or the limitation of creditors' rights generally; and (ii) any equitable
principles relating to or limiting the rights of creditors generally or any
equitable remedy which may be granted to cure any defaults; and the Revolving
Notes, the other Loan Documents and any other instrument or agreement required
hereunder has been so authorized and, when executed and delivered, will be
similarly valid, binding and enforceable, except as may be limited by (i)
bankruptcy, insolvency, reorganization, fraudulent transfer, moratorium or other
similar laws or judicial decisions for the relief of debtors or the limitation
of creditors' rights generally; and (ii) any equitable principles relating to or
limiting the rights of creditors generally or any equitable remedy which may be
granted to cure any defaults.
SECTION 5.11. NO DEFAULT UNDER OTHER AGREEMENTS. Neither any Borrower
nor any Subsidiary is in default with respect to any note, indenture, loan
agreement, mortgage, lease, deed, or other agreement to which it is a party or
by which it or its Property is bound, which default might materially and
adversely affect the Collateral, the repayment of the indebtedness, obligations
and liabilities under the Loan Documents, any Bank's or the Agent's rights under
the Loan Documents or the Property, business, operations or condition (financial
or otherwise) of such Borrower or any Subsidiary.
SECTION 5.12. STATUS UNDER CERTAIN LAWS. Neither any Borrower nor any of
their Subsidiaries is an "INVESTMENT COMPANY" or a person directly or indirectly
controlled by or acting on behalf of an "INVESTMENT COMPANY" within the meaning
of the Investment Company Act of 1940, as amended, or a "HOLDING COMPANY," or a
"SUBSIDIARY COMPANY" of a "HOLDING COMPANY," or an "AFFILIATE" OF a "HOLDING
COMPANY" or a "SUBSIDIARY COMPANY" of a "HOLDING COMPANY," within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
SECTION 5.13. COMPLIANCE WITH LAWS. The Company, LSI and their
Subsidiaries each are in compliance with the requirements of all federal, state
and local laws, rules and regulations applicable to or pertaining to their
Properties or business operations (including, without limitation, the
Occupational Safety and Health Act of 1970, the Americans with Disabilities Act
of 1990, and Environmental Laws, non-compliance with which could have a material
adverse effect on the financial condition, Properties, business or operations of
the Company, LSI or any Subsidiary. Neither any Borrower nor any Subsidiary has
received notice to the effect that its
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operations are not in compliance with any of the requirements of applicable
federal, state or local Environmental Laws, health and safety statutes and
regulations or are the subject of any governmental investigation evaluating
whether any remedial action is needed to respond to a release of any toxic or
hazardous waste or substance into the environment, which non-compliance or
remedial action could have a material adverse effect on the financial condition,
Properties, business or operations of the Company, LSI or any Subsidiary.
SECTION 5.14. COOPERATIVE STATUS. The Company is a corporation operating
on a cooperative basis under Subchapter T of the Internal Revenue Code of 1986,
as amended.
SECTION 6. CONDITIONS PRECEDENT.
The obligation of the Banks to make any Loan pursuant hereto shall be
subject to the following conditions precedent:
SECTION 6.1. GENERAL. The Agent shall have received the notice of
borrowings and the Revolving Notes hereinabove provided for.
SECTION 6.2. EACH EXTENSION OF CREDIT. As of the time of the making of
each Loan hereunder (including the initial Loan):
(a) each of the representations and warranties set forth in
Section 5 hereof shall be and remain true and correct as of said time,
except that the representations and warranties made under Section 5.2
shall be deemed to refer to the most recent financial statements
furnished to the Banks pursuant to Section 7.4 hereof;
(b) the Borrowers shall be in full compliance with all of the
terms and conditions hereof, and no Potential Default or Event of
Default shall have occurred and be continuing;
(c) after giving effect to the requested extension of credit and
to each Revolving Credit Loan that has been made hereunder, the
aggregate principal amount of all Revolving Credit Loans then
outstanding shall not exceed the lesser of (i) the Banks' Revolving
Credit Commitments then in effect or (ii) the Borrowing Base as
determined on the basis of the most recent Borrowing Base Certificate or
as determined by the Agent upon an inspection of the Borrowers' books
and records;
(d) after giving effect to the requested extension of credit and
to each Revolving Credit Loan that has been made hereunder, the
aggregate principal amount of all Revolving Credit Loans then
outstanding to the Company shall not exceed the Company Borrowing Base
as determined on the basis of the most recent Borrowing Base Certificate
or as determined by the Agent upon an inspection of the Borrowers' books
and records; and
(e) after giving effect to the requested extension of credit and
to each Revolving Credit Loan that has been made hereunder, the
aggregate principal amount of
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all Revolving Credit Loans then outstanding to LSI shall not exceed
LSI's Borrowing Base as determined on the basis of the most recent
Borrowing Base Certificate or as determined by the Agent upon an
inspection of the Borrowers' books and records; and
and the request by the Company, on behalf of itself or LSI, for any Loan
pursuant hereto shall be and constitute a warranty to the foregoing effects.
SECTION 6.3. LEGAL MATTERS. Legal matters incident to the execution and
delivery of the Loan Documents shall be satisfactory to each of the Banks and
their legal counsel; and prior to the initial Loan hereunder, the Agent shall
have received the favorable written opinion of Doherty, Rumble & Butler, counsel
for the Borrowers, substantially in the form of Exhibit D, in substance
satisfactory to each of the Banks and their respective legal counsel.
SECTION 6.4. DOCUMENTS. The Agent shall have received copies (executed
or certified, as may be appropriate) of all documents or proceedings taken in
connection with the execution and delivery of the Loan Documents to the extent
any Bank or its respective legal counsel requests.
SECTION 7. COVENANTS.
It is understood and agreed that so long as credit is in use or
available under this Agreement or any amount remains unpaid on any Note, except
to the extent compliance in any case or cases is waived in writing by the
Required Banks:
SECTION 7.1. MAINTENANCE OF PROPERTY. Each Borrower will, and will cause
each Subsidiary to, keep and maintain all of its Properties necessary or useful
in its business in good condition, and make all necessary renewals,
replacements, additions, betterments and improvements thereto; PROVIDED,
HOWEVER, that nothing in this Section shall prevent any Borrower or any
Subsidiary from discontinuing the operating and maintenance of any of its
Properties if such discontinuance is, in the judgment of such Borrower or such
Subsidiary, desirable in the conduct of its business and not disadvantageous in
any material respect to the Banks as holders of the Revolving Notes.
SECTION 7.2. TAXES. Each Borrower will, and will cause each Subsidiary
to, duly pay and discharge all taxes, rates, assessments, fees and governmental
charges upon or against such Borrower or any Subsidiary or against their
respective Properties in each case before the same becomes delinquent and before
penalties accrue thereon unless and to the extent that the same is being
contested in good faith and by appropriate proceedings and adequate reserves,
determined in accordance with generally accepted accounting principles
consistently applied, have been established with respect thereto.
SECTION 7.3. MAINTENANCE OF INSURANCE. Each Borrower will, and will
cause each Subsidiary to, maintain insurance with insurers recognized as
financially sound and reputable by prudent business persons in such forms and
amounts and against such risks as is usually carried by companies engaged in
similar business and owning similar properties in the same general areas in
which such Borrower and such Subsidiary operate, and in any event shall maintain
insurance with respect to the Collateral as required by the Security Documents.
The Agent shall
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be named as lender's loss payee under any insurance policies which relate to the
Collateral. Each Borrower shall, at the Agent's request, provide copies to the
Agent of all insurance policies and other materials related thereto maintained
by such Borrower and its Subsidiaries.
SECTION 7.4. FINANCIAL REPORTS. The Company will, and will cause each
Subsidiary to, maintain a system of accounting in accordance with sound
accounting practice and will furnish promptly to the Banks and their duly
authorized representatives such information respecting the business and
financial condition of the Company and its Subsidiaries as may from time to time
be requested and, without any request, will furnish each Bank:
(a) as soon as available, and in any event within 45 days after
the close of each of the first three quarterly fiscal periods occurring
during each fiscal year of the Company, (i) a copy of consolidated
balance sheets and profit and loss statements for the Company and its
Subsidiaries (for such quarterly period and the year to date) for such
period of the Company and for the corresponding periods of the preceding
fiscal year, all in reasonable detail, prepared by the Company and
certified by the chief financial officer of the Company, and (ii) a copy
of consolidated balance sheets and profit and loss statements for the
Company and its Subsidiaries (for such quarterly period and the year to
date) for such period of the Company and for the corresponding periods
of the preceding fiscal year, prepared in accordance with Generally
Accepted Accounting Principles, all in reasonable detail, prepared by
the Company and certified by the president and general manager or the
chief financial officer of the Company;
(b) as soon as available, and in any event within 90 days after
the close of each fiscal year of the Company, (i) a copy of the audit
report for such year and accompanying financial statements including
consolidated balance sheets, reconciliations of change in stockholders'
equity, profit and loss statements and statements of cash flows for the
Company and its Subsidiaries showing in comparative form the figures for
the previous fiscal year of the Company, all in reasonable detail,
accompanied by the unqualified opinion of Clifton Gunderson LLC or other
independent public accountants of nationally recognized standing
selected by the Company and satisfactory to each Bank, and (ii) a copy
of consolidated balance sheets, reconciliations of change in
stockholders' equity, profit and loss statements and statements with
cash flow for the Company and its Subsidiaries showing in comparative
form the figures for the fiscal year of the Company, prepared in
accordance with Generally Accepted Accounting Principles, all in
reasonable detail, prepared by the Company and certified by the
president and general manager or the chief financial officer of the
Company;
(c) within 15 Business Days after the last day of each month, a
Borrowing Base Certificate in the form of Exhibit B hereto, setting
forth a computation of the Borrowing Base as of the last day of the
period covered thereby, certified as correct by the Company's chief
financial officer, and certifying that the signer thereof has reexamined
the terms and provisions of the Loan Documents and that to the best of
his knowledge and belief, no Potential Default or Event of Default has
occurred or, if any such Potential Default or Event of Default has
occurred, setting forth the description of
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such Potential Default or Event of Default and specifying the action, if
any, taken by the Company to remedy the same;
(d) within 15 days after the last day of every month, a Position
Report with respect to the Company's Hedged Position, and
(e) together with the financial statements delivered pursuant to
subsections (a) and (b) above, a Compliance Certificate in the form of
Exhibit C attached hereto, prepared and signed by the president and
general manager or the chief financial officer of the Company.
SECTION 7.5. INSPECTION. Each Borrower shall, and shall cause each
Subsidiary to, permit the Banks, by their representatives and agents, to inspect
any of the Properties, corporate books and financial records of such Borrower
and each Subsidiary, to examine and make copies of the books of accounts and
other financial records of such Borrower and its Subsidiaries and to discuss the
affairs, finances and accounts of such Borrower and its Subsidiaries with, and
to be advised as to the same by, its officers at such times and intervals as the
Banks may request. The Borrowers shall pay to the Banks from time to time upon
demand an amount sufficient to compensate the Banks for their fees, charges and
expenses in connection with such field audits of the Collateral.
SECTION 7.6. CONSOLIDATION AND MERGER. Each Borrower will not, and will
not permit any Subsidiary to, consolidate with or merge into any Person, or
permit any other Person to merge into it, or acquire (in a transaction analogous
in purpose or effect to a consolidation or merger) all or substantially all of
the Property or capital stock of any other Person.
SECTION 7.7. TRANSACTIONS WITH AFFILIATES. Each Borrower will not, and
will not permit any Subsidiary to, enter into any transaction, including without
limitation the purchase, sale, lease or exchange of any Property, or the
rendering of any service, with any Affiliate of such Borrower except in the
ordinary course of and pursuant to the reasonable requirements of such
Borrower's or such Subsidiary's business and upon fair and reasonable terms no
less favorable to such Borrower or such Subsidiary than would be obtained in a
comparable arm's-length transaction with a Person not an Affiliate of such
Borrower.
SECTION 7.8. MINIMUM NET WORKING CAPITAL. The Company will maintain Net
Working Capital in an amount not less than $25,000,000 at all times.
SECTION 7.9. MINIMUM TOTAL MEMBER EQUITIES. The Company will not, as of
the end of any fiscal quarter of the Company, permit Adjusted Total Member
Equities to be less than the Minimum Equity Amount at such time.
As used herein, "MINIMUM EQUITY AMOUNT" means at any time, the
sum of
(a) $270,000,000, plus
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(b) an aggregate amount equal to 20% of Consolidated Net
Earnings (but only if a positive number) for each completed fiscal year
of the Company.
SECTION 7.10. MINIMUM CASH FLOW. The Company will maintain Cash Flow in
an amount not less than $0 on March 31, 1999.
SECTION 7.11. LEASES. Each Borrower will not, and will not permit any
Subsidiary to, be a party to any rental agreement or lease as lessee of real or
personal property which is not a Capitalized Lease if the aggregate of rentals
payable during any fiscal year of the Company under all such rental agreements
or leases would exceed $16,000,000.
SECTION 7.12. CAPITAL EXPENDITURES. Each Borrower will not, and will not
permit any Subsidiary to, expend or become obligated for capital expenditures
(as defined and classified in accordance with generally accepted accounting
principles consistently applied but in any event including the liability of the
Borrowers in respect of Capitalized Leases) in any fiscal year in an aggregate
amount in excess of $18,000,000.
SECTION 7.13. RESTRICTED PAYMENTS. Each Borrower will not (a) declare or
pay any dividends on any class of stock, (b) directly or indirectly purchase,
redeem or otherwise acquire or retire any of its capital stock, (c) make any
distribution of any kind or character with respect to its capital stock, or (d)
pay patronage or additional value payments to its members (collectively,
"RESTRICTED PAYMENTS"), except for (i) Restricted Payments made when no
Potential Default or Event of Default has occurred and is continuing, and (ii)
the payment of patronage distributions in an aggregate amount not to exceed 20%
of the Company's net income for any fiscal year at any time that an Event of
Default or Potential Default has occurred and is continuing.
SECTION 7.14. LIENS. Each Borrower will not, and will not permit any
Subsidiary to, pledge, mortgage or otherwise encumber or subject to or permit to
exist upon or be subjected to any lien, charge or security interest of any kind
(including any conditional sale or other title retention agreement and any lease
in the nature thereof), on any of its Properties of any kind or character at any
time owned by such Borrower or any Subsidiary other than:
(a) liens, pledges or deposits for worker's compensation,
unemployment insurance, old age benefits or social security obligations,
taxes, assessments, statutory obligations or other similar charges, good
faith deposits made in connection with tenders, contracts or leases to
which any Borrower or any Subsidiary is a party or other deposits
required to be made in the ordinary course of business, provided in each
case the obligation secured is not overdue or, if overdue, is being
contested in good faith by appropriate proceedings and adequate reserves
have been provided therefor in accordance with generally accepted
accounting principles and that the obligation is not for borrowed money,
customer advances, trade payables, or obligations to agricultural
producers;
(b) the pledge of assets for the purpose of securing an appeal
or stay or discharge in the course of any legal proceedings, provided
that any such appeal, stay or discharge is made in good faith and by
appropriate proceedings and the applicable Borrower has established
adequate reserves therefor in accordance with Generally
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Accepted Accounting Principles and that the aggregate amount of
liabilities of the applicable Borrower or any Subsidiary so secured by a
pledge of property permitted under this subsection (b) including
interest and penalties thereon, if any, shall not be in excess of
$100,000 at any one time outstanding;
(c) liens, pledges, mortgages, security interests, or other
charges granted to the Agent to secure the Revolving Notes and other
amounts payable under the Loan Documents;
(d) liens, pledges, mortgages, security interests or other
charges existing on the date hereof and disclosed in financial
statements referred to in Section 5.2 hereof, except any liens, pledges,
mortgages, security interests or other charges securing indebtedness
owed to the Existing Lenders;
(e) liens, pledges, mortgages, security interests and other
encumbrances on Property other than the Collateral which secure only
indebtedness incurred to finance the acquisition of such Property (but
only to the extent of the fair market value of such Property);
(f) liens for property taxes and assessments or governmental
charges or levies which are not yet due and payable;
(g) liens incidental to the conduct of business or the ownership
of Properties and assets (including warehousemen's liens, grower liens
and attorneys' liens and statutory landlords' liens) or other liens of
like general nature incurred in the ordinary course of business and not
in connection with the borrowing of money, provided in each case, the
obligation secured is not overdue or, if overdue, is being contested in
good faith by appropriate actions or proceedings and for which adequate
reserves, determined in accordance with Generally Accepted Accounting
Principles, have been established and provided further that the
aggregate amount of all obligations secured by all such liens does not
exceed $100,000;
(h) minor survey exceptions or minor encumbrances, easements or
reservations, or rights of others for rights-of-way, utilities and other
similar purposes, or zoning or other restrictions as to the use of real
properties, which are necessary for the conduct of the activities of
each Borrower and its Subsidiaries or which customarily exist on
properties of corporations engaged in similar activities and similarly
situated and which do not in any event materially impair their use in
the operation of the business of such Borrower and its Subsidiaries; and
(i) mortgages, liens and security interests on the Company's
real estate, plant and equipment in Marshall, Minnesota and Columbus,
Nebraska, securing the Company's Senior Secured Notes.
SECTION 7.15. BORROWINGS AND GUARANTIES. Each Borrower will not, and
will not permit any Subsidiary to, issue, incur, assume, create or have
outstanding any indebtedness for
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borrowed money (including as such all indebtedness representing the deferred
purchase price of Property and all indebtedness, obligations and liabilities
relating to bankers acceptances and letters of credit) or customer advances, nor
be or remain liable, whether as endorser, surety, guarantor or otherwise, for or
in respect of any liability or indebtedness of any other Person, other than:
(a) indebtedness of the Borrowers arising under or pursuant to
this Agreement or the other Loan Documents;
(b) the liability of the Borrowers and their Subsidiaries
arising out of the endorsement for deposit or collection of commercial
paper received in the ordinary course of business;
(c) indebtedness of the Borrowers and their Subsidiaries
existing on the date hereof and disclosed to the Banks in the financial
statements referred to in Section 5.2 hereof, other than indebtedness
under the Existing Agreements;
(d) trade payables of the Borrowers and their Subsidiaries
arising in the ordinary course of the Borrowers' and their Subsidiaries'
business;
(e) indebtedness not otherwise permitted by this Section 7.15
which is incurred to finance the acquisition of Property, but only to
the extent of the fair market value of such Property, provided that the
aggregate principal amount of all such indebtedness outstanding does not
exceed $1,000,000;
(f) indebtedness of LSI (including any indebtedness of LSI
hereunder) in an aggregate principal amount not to exceed $15,000,000
outstanding at any time;
(g) the Company's indebtedness evidenced by the Senior Secured
Notes; and
(h) additional indebtedness for borrowed money, provided such
indebtedness is unsecured.
SECTION 7.16. INVESTMENTS, LOANS, ADVANCES AND ACQUISITIONS. Each
Borrower will not, and will not permit any Subsidiary to, make or retain any
investment (whether through the purchase of stock, obligations, capital
contributions or otherwise) in or make any loan or advance to, any other Person,
or acquire substantially as an entirety the Property or business of any other
Person, other than:
(a) investments in certificates of deposit having a maturity of
two years or less issued by any Bank and which are held by the Bank
issuing the same;
(b) investments in commercial paper rated P1 by Moody's
Investors Services, Inc. or Al by Standard & Poor's maturing within 270
days of the date of issuance thereof,
(c) investments shown on the financial statements referred to in
Section 5.2;
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(d) investments in stock of the St. Paul Bank for Cooperatives;
(e) investments in an aggregate amount not to exceed $2,000,000
in the capital stock of Ice Ban Inc.; and
(f) repurchase, reverse repurchase agreements and security
lending arrangements collateralized by marketable obligations issued by
the United States of America for which the full faith and credit of the
United States of America has been pledged.
SECTION 7.17. SALE OF PROPERTY. Each Borrower will not, and will not
permit any Subsidiary to, sell, lease, assign, transfer or otherwise dispose of
(whether in one transaction or in a series of related transactions) all or a
material part of its Property to any other Person; PROVIDED, HOWEVER, that so
long as no Event of Default or Potential Default has occurred and is continuing
or would result after giving effect thereto, each Borrower may make:
(a) sales of its Inventory in the ordinary course of business;
and
(b) sales or leases of its surplus, obsolete or worn-out
machinery and equipment.
For purposes of this Section, "MATERIAL PART" shall mean 5% or more of
the book value all of the Property of the Company and its Subsidiaries.
SECTION 7.18. NOTICE OF SUIT OR ADVERSE CHANGE IN BUSINESS OR DEFAULT.
Each Borrower shall, as soon as possible, and in any event within 5 days after
such Borrower learns of the following, give written notice to the Agent of (a)
any material proceeding(s) being instituted or threatened to be instituted by or
against any Borrower or any Subsidiary in any federal, state, local or foreign
court or before any commission or other regulatory body (federal, state, local
or foreign), (b) any material adverse change in the business, Property or
condition, financial or otherwise (including, without limitation, any material
loss or depreciation in the value of the Collateral) of any Borrower or any
Subsidiary, and (c) the occurrence of any Potential Default or Event of Default.
SECTION 7.19. ERISA. Each Borrower will, and will cause each Subsidiary
to, promptly pay and discharge all obligations and liabilities arising under
ERISA of a character which if unpaid or unperformed is likely to result in the
imposition of a lien against any of its Property and will promptly notify the
Agent of (a) the occurrence of any reportable event (as defined in ERISA) which
might result in the termination by the PBGC of any Plan, (b) receipt of any
notice from PBGC of its intention to seek termination of any such Plan or
appointment of a trustee therefor, and (c) its intention to terminate or
withdraw from any Plan. Each Borrower will not, and will not permit any
Subsidiary to, terminate any such Plan or withdraw therefrom unless it shall be
in compliance with all of the terms and conditions of this Agreement after
giving effect to any liability to PBGC resulting from such termination or
withdrawal.
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SECTION 7.20. SUPPLEMENTAL PERFORMANCE. Each Borrower will, and will
cause each Subsidiary to, at any time and from time to time upon request of any
Bank take or cause to be taken any action and execute, acknowledge, deliver or
record any further documents, security agreements or other instruments which
such Bank in its discretion deems necessary to carry out the purposes of the
Loan Documents.
SECTION 7.21. USE OF PROCEEDS. Each Borrower shall use the proceeds of
each Loan and other extensions of credit hereunder only for seasonal working
capital purposes of the Borrowers, and no part of the proceeds of any Loan or
other extension of credit hereunder will be used to purchase or carry any margin
stock or to extend credit to others for such a purpose.
SECTION 7.22. COMPLIANCE WITH LAWS, ETC. Each Borrower will, and will
cause each Subsidiary to, comply in all material respects with all applicable
laws, rules, regulations and orders, such compliance to include (without
limitation) the maintenance and preservation of its corporate existence and
qualification as a foreign corporation except where the failure to be so
qualified would not have a material adverse effect on the condition, financial
or otherwise, of such Borrower or such Subsidiary.
SECTION 7.23. ENVIRONMENTAL COVENANT. Each Borrower will, and will cause
each Subsidiary to,
(a) use and operate all of its facilities and Properties in
compliance with all Environmental Laws where the failure to do so could
have a material adverse effect on the condition, financial or otherwise,
of any Borrower or any Subsidiary, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in material compliance
therewith, and handle all hazardous materials in material compliance
with all applicable Environmental Laws;
(b) immediately notify the Agent and provide copies upon receipt
of all written claims, complaints, notices or inquiries relating to the
condition of its facilities and Property or compliance with
Environmental Laws where any liability of any Borrower or any Subsidiary
resulting from the event or condition specified therein could reasonably
be expected to have a material adverse effect on the financial
condition, operations, assets, business or Properties of any Borrower or
any Subsidiary, and shall promptly cure and have dismissed, to the
satisfaction of the Banks, any actions and proceedings relating to
compliance with Environmental Laws; and
(c) provide such information and certifications which the Agent
may reasonably request from time to time to evidence compliance with
this Section 7.23.
SECTION 7.24. HEDGING. The Company will at all times, have a Hedged
Position in an amount not greater than 30,000,000 bushels of corn.
SECTION 7.25. SUBSIDIARIES. Each Borrower will not, and will not permit
any Subsidiary to, create or acquire, directly or indirectly, any Subsidiary.
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SECTION 7.26. PRESERVATION OF COOPERATIVE STATUS. The Company will
preserve, renew and keep in full force and effect its corporate existence and
maintain its status as a corporation operating on a cooperative basis under
Subchapter T of the Internal Revenue Code of 1986, as amended.
SECTION 7.27. POST-CLOSING MATTERS. Not later than sixty (60) days
following the effective date of this Agreement, each Borrower shall deliver to
the Agent (in sufficient original counterparts for each of the Banks) a fully
executed Landlord's Waiver or Warehouse Agreement, as applicable, for each
Permitted Collateral location (as defined in the Security Agreement) which is
not owned by a Borrower.
SECTION 8. EVENTS OF DEFAULT AND REMEDIES.
SECTION 8.1. DEFINITIONS. Any one or more of the following shall
constitute an Event of Default:
(a) Default in the payment when due of any principal of or
interest on any Revolving Note, whether at the stated maturity thereof
or as required by Section 2.4 hereof or at any other time provided in
this Agreement or of any fee or other amount payable by any Borrower
pursuant to this Agreement;
(b) Default in the observance or performance of any covenant set
forth in Sections 7.4, 7.5, 7.6, 7.8, 7.9, 7.10, 7.11, 7.12, 7.13, 7.14,
7.15, 7.16, 7.17, 7.18, 7.21, 7.24, 7.25 or 7.26, inclusive, hereof, or
of any provision of any Security Document requiring the maintenance of
insurance on the Collateral subject thereto or dealing with the use or
remittance of proceeds of such Collateral; or
(c) Default in the observance or performance of any other
covenant, condition, agreement or provision hereof or any of the other
Loan Documents and such default shall continue for 30 days after written
notice thereof to the Company by any Bank;
(d) Default shall occur under any evidence of indebtedness
issued or assumed or guaranteed by any Borrower, or under any mortgage,
agreement or other similar instrument under which the same may be issued
or secured and such default shall continue for a period of time
sufficient to permit the acceleration of maturity of any indebtedness
evidenced thereby or outstanding or secured thereunder;
(e) Any representation or warranty made by any Borrower herein
or in any Loan Document or in any statement or certificate furnished by
it pursuant hereto or thereto, proves untrue in any material respect as
of the date made or deemed made pursuant to the terms hereof;
(f) Any judgment or judgments, writ or writs, or warrant or
warrants of attachment, or any similar process or processes in an
aggregate amount in excess of $1,000,000 shall be entered or filed
against any Borrower or against any of its Property or
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assets and remain unstayed and undischarged for a period of 45 days from
the date of its entry;
(g) Any reportable event (as defined in ERISA) which constitutes
grounds for the termination of any Plan or for the appointment by the
appropriate United States District Court of a trustee to administer or
liquidate any such Plan, shall have occurred and be continuing thirty
(30) days after written notice to such effect shall have been given to
the Company by the Bank; or any such Plan shall be terminated; or a
trustee shall be appointed by the appropriate United States District
Court to administer any such Plan; or the Pension Benefit Guaranty
Corporation shall institute proceedings to administer or terminate any
such Plan;
(h) Any Borrower or any Subsidiary shall (i) have entered
involuntarily against it an order for relief under the Bankruptcy Code
of 1978, as amended, (ii) admit in writing its inability to pay, or not
pay, its debts generally as they become due or suspend payment of its
obligations, (iii) make an assignment for the benefit of creditors, (iv)
apply for, seek, consent to, or acquiesce in, the appointment of a
receiver, custodian, trustee, conservator, liquidator or similar
official for it or any substantial part of its property, (v) file a
petition seeking relief or institute any proceeding seeking to have
entered against it an order for relief under the Bankruptcy Code of
1978, as amended, to adjudicate it insolvent, or seeking dissolution,
winding up, liquidation, reorganization, arrangement, marshalling of
assets, adjustment or composition of it or its debts under any law
relating to bankruptcy, insolvency or reorganization or relief of
debtors or fail to file an answer or other pleading denying the material
allegations of any such proceeding filed against it, or (vi) fail to
contest in good faith any appointment or proceeding described in Section
8.1(i) hereof; or
(i) A custodian, receiver, trustee, conservator, liquidator or
similar official shall be appointed for any Borrower or any Subsidiary
or any substantial part of its respective Property, or a proceeding
described in Section 8.1(h)(v) shall be instituted against any Borrower
or any Subsidiary and such appointment continues undischarged or any
such proceeding continues undismissed or unstayed for a period of 60
days.
SECTION 8.2. REMEDIES FOR NON-BANKRUPTCY DEFAULTS. When any Event of
Default, other than an Event of Default described in subsections (h) and (i) of
Section 8.1 hereof, has occurred and is continuing, the Agent, if directed by
the Required Banks, shall give notice to the Company and take any or all of the
following actions: (a) terminate the remaining Revolving Credit Commitments
hereunder on the date (which may be the date thereof) stated in such notice, (b)
declare the principal of and the accrued interest on the Revolving Notes to be
forthwith due and payable and thereupon the Revolving Notes including both
principal and interest, shall be and become immediately due and payable without
further demand, presentment, protest or notice of any kind, and (c) proceed to
foreclose against any Collateral under the Security Documents, take any action
or exercise any remedy under any of the Loan Documents or exercise any other
action, right, power or remedy permitted by law. Any Bank may exercise the right
of set off with regard to any deposit accounts or other accounts maintained by
any Borrower with any of the Banks, subject to Section 11.15 hereof.
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SECTION 8.3. REMEDIES FOR BANKRUPTCY DEFAULTS. When any Event of Default
described in subsections (h) or (i) of Section 8.1 hereof has occurred and is
continuing, then the Revolving Notes shall immediately become due and payable
without presentment, demand, protest or notice of any kind, the obligation of
the Banks to extend further credit pursuant to any of the terms hereof shall
immediately terminate and the Agent may, if directed by the Required Banks,
proceed to foreclose against any Collateral under the Security Documents, take
any action or exercise any remedy under any of the Loan Documents or exercise
any other action, right, power or remedy permitted by law. Any Bank may exercise
the right of set off with regard to any deposit accounts or other accounts
maintained by any Borrower with any of the Banks, subject to Section 11. 15
hereof
SECTION 9. CHANGE IN CIRCUMSTANCES REGARDING EURODOLLAR LOANS.
SECTION 9.1. CHANGE OF LAW. Notwithstanding any other provisions of this
Agreement or any Revolving Note, if at any time after the date hereof with
respect to Eurodollar Loans, any Bank shall determine in good faith that any
change in applicable law or regulation or in the interpretation thereof makes it
unlawful for such Bank to make or continue to maintain any Eurodollar Loan or to
give effect to its obligations as contemplated hereby, such Bank shall promptly
give notice thereof to the Borrowers to such effect, and such Bank's obligation
to make or relend any such affected Eurodollar Loans under this Agreement shall
terminate until it is no longer unlawful for such Bank to make or maintain such
affected Loan. The Borrowers shall prepay the outstanding principal amount of
any such affected Eurodollar Loan made to it, together with all interest accrued
thereon and all other amounts due and payable to the Banks under Section 9.4 of
this Agreement, on the earlier of the last day of the Interest Period applicable
thereto and the first day on which it is illegal for such Bank to have such
Loans outstanding; PROVIDED, HOWEVER, the affected Borrower may then elect to
borrow the principal amount of such affected Loan by means of another type of
Revolving Credit Loan available hereunder, subject to all of the terms and
conditions of this Agreement.
SECTION 9.2. UNAVAILABILITY OF DEPOSITS OR INABILITY TO ASCERTAIN THE
ADJUSTED EURODOLLAR RATE. Notwithstanding any other provision of this Agreement
or any Revolving Note to the contrary, if prior to the commencement of any
Interest Period any Bank shall determine (i) that deposits in the amount of any
Eurodollar Loan scheduled to be outstanding are not available to it in the
relevant market or (ii) by reason of circumstances affecting the relevant
market, adequate and reasonable means do not exist for ascertaining the Adjusted
Eurodollar Rate, then the Agent shall promptly give telephonic or telex notice
thereof to the Borrowers and the Banks (such notice to be confirmed in writing),
and the obligation of the Banks to make any such Eurodollar Loan in such amount
and for such Interest Period shall terminate until deposits in such amount and
for the Interest Period selected by the affected Borrower shall again be readily
available in the relevant market and adequate and reasonable means exist for
ascertaining the Adjusted Eurodollar Rate. Upon the giving of such notice, the
affected Borrower may elect to either (i) pay or prepay, as the case may be,
such affected Loan or (ii) reborrow such affected Loan as another type of
Revolving Credit Loan available hereunder, subject to all terms and conditions
of this Agreement.
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SECTION 9.3. TAXES AND INCREASED COSTS. With respect to any outstanding
Eurodollar Loans, if any Bank shall determine in good faith that any change in
any applicable law, treaty, regulation or guideline (including, without
limitation, Regulation D of the Board of Governors of the Federal Reserve
System) or any new law, treaty, regulation or guideline, or any interpretation
of any of the foregoing by any governmental authority charged with the
administration thereof or any central bank or other fiscal, monetary or other
authority having jurisdiction over such Bank or its lending branch or the
Eurodollar Loans contemplated by this Agreement (whether or not having the force
of law) ("CHANGE IN LAW") shall:
(a) impose, modify or deem applicable any reserve, special
deposit or similar requirements against assets held by, or deposits in
or for the account of, or Loans by, or any other acquisition of funds or
disbursements by, such Bank (other than reserves included in the
determination of the Adjusted Eurodollar Rate);
(b) subject such Bank, any Eurodollar Loan, or any Revolving
Note to any tax (including, without limitation, any United States
interest equalization tax or similar tax however named applicable to the
acquisition or holding of debt obligations and any interest or penalties
with respect thereto), duty, charge, stamp tax, fee deduction or
withholding in respect of this Agreement, any Eurodollar Loan, or any
Revolving Note except such taxes as may be measured by the overall net
income of such Bank or its lending branch and imposed by the
jurisdiction, or any political subdivision or taxing authority thereof,
in which such Bank's principal executive office or its lending branch is
located or in which the Bank has nexus;
(c) change the basis of taxation of payments of principal and
interest due from any Borrower to such Bank hereunder or under any
Revolving Note (other than by a change in taxation of the overall net
income of such Bank); or
(d) impose on such Bank any penalty with respect to the
foregoing or any other condition regarding this Agreement, its
disbursement, any Eurodollar Loan, or any Revolving Note;
and such Bank shall determine in good faith that the result of any of the
foregoing is to increase the cost (whether by incurring a cost or adding to a
cost) to such Bank of making or maintaining any Eurodollar Loan hereunder or to
reduce the amount of principal or interest received by such Bank, then the
Borrowers shall pay to such Bank from time to time as specified by such Bank
such additional amounts as such Bank shall determine are sufficient to
compensate and indemnify it for such increased cost or reduced amount. If any
Bank makes such a claim for compensation, it shall provide to the Borrowers a
certificate setting forth such increased cost or reduced amount as a result of
any event mentioned herein specifying such Change in Law, and such certificate
shall be conclusive and binding on the Borrowers as to the amount thereof except
in the case of manifest error. Upon the imposition of any such cost, the
Borrowers may prepay any affected Loan, subject to the provisions of Sections
2.3 and 9.4 hereof.
SECTION 9.4. FUNDING INDEMNITY. (a) In the event any Bank shall incur
any loss, cost, expense or premium (including, without limitation, any loss of
profit and any loss, cost, expense
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or premium incurred by reason of the liquidation or re-employment of deposits or
other funds acquired by such Bank to fund or maintain any Eurodollar Loan or the
relending or reinvesting of such deposits or amounts paid such Bank) as a result
of:
(i) any payment or prepayment of a Eurodollar Loan on a date
other than the last day of the then applicable Interest Period;
(ii) any failure by any Borrower to borrow any Eurodollar Loan
on the date specified in the notice given pursuant to Section 1.5
hereof; or
(iii) the occurrence of any Event of Default;
then, upon the demand of such Bank, the relevant Borrower shall pay to such Bank
such amount as will reimburse such Bank for such loss, cost or expense.
(b) If any Bank makes a claim for compensation under this Section 9.4,
it shall provide to the relevant Borrower a certificate setting forth the amount
of such loss, cost or expense in reasonable detail and such certificate shall be
conclusive and binding on the Borrowers as to the amount thereof except in the
case of manifest error.
SECTION 9.5. LENDING BRANCH. Each Bank may, at its option, elect to
make, fund or maintain its Eurodollar Loans hereunder at the branch or office
specified opposite its signature on the signature page hereof or such other of
its branches or offices as such Bank may from time to time elect, subject to the
provisions of Section 1.5(b) hereof.
SECTION 9.6. DISCRETION OF BANK AS TO MANNER OF FUNDING. Notwithstanding
any provision of this Agreement to the contrary, each Bank shall be entitled to
fund and maintain its funding of all or any part of its Loans in any manner it
sees fit, it being understood however, that for the purposes of this Agreement
all determinations hereunder shall be made as if the Banks had actually funded
and maintained each Eurodollar Loan during each Interest Period for such Loan
through the purchase of deposits in the relevant interbank market having a
maturity corresponding to such Interest Period and bearing an interest rate
equal to the Adjusted Eurodollar Rate for such Interest Period.
SECTION 10. THE AGENT.
SECTION 10.1. APPOINTMENT AND POWERS. Harris Trust and Savings Bank is
hereby appointed by the Banks as Agent under the Loan Documents, including but
not limited to the Security Documents, wherein the Agent shall hold a security
interest for the benefit of the Banks, solely as the Agent of the Banks, and
each of the Banks irrevocably authorizes the Agent to act as the Agent of such
Bank. The Agent agrees to act as such upon the express conditions contained in
this Agreement.
SECTION 10.2. POWERS. The Agent shall have and may exercise such powers
hereunder as are specifically delegated to the Agent by the terms of the Loan
Documents, together with such powers as are incidental thereto. The Agent shall
have no implied duties to the Banks, nor any
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obligation to the Banks to take any action under the Loan Documents except any
action specifically provided by the Loan Documents to be taken by the Agent.
SECTION 10.3. GENERAL IMMUNITY. Neither the Agent nor any of its
directors, officers, agents or employees shall be liable to the Banks or any
Bank for any action taken or omitted to be taken by it or them under the Loan
Documents or in connection therewith except for its or their own gross
negligence or willful misconduct.
SECTION 10.4. NO RESPONSIBILITY FOR LOANS, RECITALS, ETC. The Agent
shall not (i) be responsible to the Banks for any recitals, reports, statements,
warranties or representations contained in the Loan Documents or furnished
pursuant thereto, (ii) be responsible for any Loans hereunder, (iii) be bound to
ascertain or inquire as to the performance or observance of any of the terms of
the Loan Documents, or (iv) determine or verify the existence, eligibility or
value of any Collateral, or the correctness of any Borrowing Base Certificate.
In addition, neither the Agent nor its counsel shall be responsible to the Banks
for the enforceability or validity of any of the Loan Documents.
SECTION 10.5. RIGHT TO INDEMNITY. The Banks hereby indemnify the Agent
for any actions taken in accordance with this Section 10, and the Agent shall be
fully justified in failing or refusing to take any action hereunder, unless it
shall first be indemnified to its satisfaction by the Banks pro rata against any
and all liability and expense which may be incurred by it by reason of taking or
continuing to take any such action, other than any liability which may arise out
of Agent's gross negligence or willful misconduct.
SECTION 10.6. ACTION UPON INSTRUCTIONS OF BANKS. The Agent agrees, upon
the written request of the Required Banks, to take any action of the type
specified in the Loan Documents as being within the Agent's rights, duties,
powers or discretion. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, hereunder in accordance with written instructions
signed by the Required Banks, and such instructions and any action taken or
failure to act pursuant thereto shall be binding on all of the Banks and on all
holders of the Revolving Notes. In the absence of a request by the Required
Banks, the Agent shall have authority, in its sole discretion, to take or not to
take any action contemplated by the Loan Documents, unless the Loan Documents
specifically require the consent of all of the Banks.
SECTION 10.7. EMPLOYMENT OF AGENTS AND COUNSEL. The Agent may execute
any of its duties as Agent hereunder by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Banks, except as to money
or securities received by it or its authorized agents, for the default or
misconduct of any such agents or attorneys-in-fact selected by it in good faith
and with reasonable care. The Agent shall be entitled to advice and opinion of
legal counsel concerning all matters pertaining to the duties of the agency
hereby created.
SECTION 10.8. RELIANCE ON DOCUMENTS; COUNSEL. The Agent shall be
entitled to rely upon any Revolving Note, notice, consent, certificate,
affidavit, letter, telegram, statement, paper or document believed by it to be
genuine and correct and to have been signed or sent by the proper person or
persons, and, in respect to legal matters, upon the opinion of legal counsel
selected by the Agent.
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SECTION 10.9. MAY TREAT PAYEE AS OWNER. The Agent may deem and treat the
payee of any Revolving Note as the owner thereof for all purposes hereof unless
and until a written notice of the assignment or transfer thereof shall have been
filed with the Agent. Any request, authority or consent of any person, firm or
corporation who at the time of making such request or giving such authority or
consent is the holder of any such Revolving Note shall be conclusive and binding
on any subsequent holder, transferee or assignee of such Revolving Note or of
any Revolving Note issued in exchange therefor.
SECTION 10.10. AGENT'S REIMBURSEMENT. Each Bank agrees to reimburse the
Agent pro rata in accordance with its pro rata share of the Revolving Credit
Commitments for any reasonable out-of-pocket expenses (including fees and
charges for field audits) not reimbursed by the Borrowers (a) for which the
Agent is entitled to reimbursement by the Borrowers under the Loan Documents and
(b) for any other reasonable expenses incurred by the Agent on behalf of the
Banks, in connection with the preparation, execution, delivery, administration
and enforcement of the Loan Documents.
SECTION 10.11. RIGHTS AS A LENDER. With respect to its commitment, Loans
made by it and the Revolving Notes issued to it, the Agent shall have the same
rights and powers hereunder as any Bank and may exercise the same as though it
were not the Agent, and the term "BANK" or "BANKS" shall, unless the context
otherwise indicates, include the Agent in its individual capacity. The Agent may
accept deposits from, lend money to, and generally engage in any kind of banking
or trust business with the Borrowers as if it were not the Agent.
SECTION 10.12. BANK CREDIT DECISION. Each Bank acknowledges that it has,
independently and without reliance upon the Agent or any other Bank and based on
the financial statements referred to in Section 5.2 and such other documents and
information as it has deemed appropriate, made its own credit analysis and
decision to enter into the Loan Documents. Each Bank also acknowledges that it
will, independently and without reliance upon the Agent or any other Bank and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Loan Documents.
SECTION 10.13. RESIGNATION OF AGENT. Subject to the appointment of a
successor Agent, the Agent may resign as Agent for the Banks under this
Agreement and the other Loan Documents at any time by sixty days' notice in
writing to the Banks and the Borrowers. Such resignation shall take effect upon
appointment of such successor. The Banks shall have the right to appoint a
successor Agent who shall be entitled to all of the rights of, and vested with
the same powers as, the original Agent under the Loan Documents. In the event a
successor Agent shall not have been appointed within the sixty day period
following the giving of notice by the Agent, the Agent may appoint its own
successor. Resignation by the Agent shall not affect or impair the rights of the
Agent under Sections 10.5 and 10.10 hereof with respect to all matters preceding
such resignation.
SECTION 10.14. DURATION OF AGENCY. The agency established by Section
10.1 hereof shall continue, and Sections 10.1 through and including this Section
10.14 shall remain in full force and effect, until the Revolving Notes and all
other amounts due hereunder and thereunder shall
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have been paid in full and the Banks' commitments, to extend credit to or for
the benefit of the Borrowers shall have terminated or expired.
SECTION 10.15. REMOVAL OF AGENT. Subject to the appointment of a
successor Agent, the Banks, with the consent of the Borrowers (which consent
will not be unreasonably withheld), may remove the Agent for the Banks under
this Agreement at any time by thirty days' notice in writing to the Agent. Such
removal shall take effect upon appointment of such successor. The Banks shall
have the right to appoint a successor Agent who shall be entitled to all of the
rights of, and vested with the same powers as, the original Agent under the Loan
Documents. In the event a successor Agent shall not have been appointed within
the thirty day period following the giving of notice to the Agent, the Agent may
appoint its own successor. The removal of the Agent shall not affect or impair
the rights of the Agent under Sections 10.5 and 10.10 hereof with respect to all
matters preceding such removal.
SECTION 10.16. SUCCESSOR AGENT. Any successor Agent must be a national
banking association, a bank chartered under federal law or in any State of the
United States or a branch of any foreign bank which is licensed to do business
under the laws of any state or the United States and approved by the Borrowers
(which approval will not be unreasonably withheld).
SECTION 11. MISCELLANEOUS.
SECTION 11.1. AMENDMENTS AND WAIVERS. Any term, covenant, agreement or
condition of this Agreement may be amended only by a written amendment executed
by the Borrowers, the Required Banks and, if the rights or duties of the Agent
are affected thereby, the Agent, or compliance therewith only may be waived
(either generally or in a particular instance and either retroactively or
prospectively), if the Borrowers shall have obtained the consent in writing of
the Required Banks and, if the rights or duties of the Agent are affected
thereby, the Agent, PROVIDED, HOWEVER, that without the consent in writing of
the holders of all outstanding Revolving Notes, or all Banks if no Revolving
Notes are outstanding, no such amendment or waiver shall (a) change the amount
or postpone the date of payment of any scheduled payment or required prepayment
of principal of the Revolving Notes or reduce the rate or extend the time of
payment of interest on the Revolving Notes, or reduce the amount of principal
thereof, or modify any of the provisions of the Revolving Notes with respect to
the payment or prepayment thereof, (b) give to any Revolving Note any preference
over any other Notes, (c) amend the definition of Required Banks, (d) alter,
modify or amend the provisions of this Section 11.1, (e) change the amount or
term of any of the Banks' Revolving Credit Commitments or the fee required under
Section 2.1 hereof, (f) alter, modify or amend the provisions of Section 6 of
this Agreement, (g) alter, modify or amend any Bank's right hereunder to consent
to any action, make any request or give any notice, (h) change the advance rates
under the Borrowing Base or (i) release any Collateral under the Security
Documents, unless such release is permitted or contemplated by the Loan
Documents. Any such amendment or waiver shall apply equally to all Banks and the
holders of the Revolving Notes and shall be binding upon them, upon each future
holder of any Revolving Note and upon the Borrowers, whether or not such
Revolving Note shall have been marked to indicate such amendment or waiver. No
such amendment or waiver shall extend to or affect any obligation not expressly
amended or waived.
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SECTION 11.2. WAIVER OF RIGHTS. No delay or failure on the part of the
Agent or any Bank or on the part of the holder or holders of any Revolving Note
in the exercise of any power or right shall operate as a waiver thereof, nor as
an acquiescence in any Potential Default or Event of Default, nor shall any
single or partial exercise of any power or right preclude any other or further
exercise thereof, or the exercise of any other power or right, and the rights
and remedies hereunder of the Agent, the Banks and of the holder or holders of
any Revolving Notes are cumulative to, and not exclusive of, any rights or
remedies which any of them would otherwise have.
SECTION 11.3. SEVERAL OBLIGATIONS. The commitments of each of the Banks
hereunder shaH be the several obligations of each Bank and the failure on the
part of any one or more of the Banks to perform hereunder shall not affect the
obligation of the other Banks hereunder, provided that nothing herein contained
shall relieve any Bank from any liability for its failure to so perform. In the
event that any one or more of the Banks shall fail to perform its commitment
hereunder, all payments thereafter received by the Agent on the principal of
Loans and hereunder, whether from any Collateral or otherwise, shall be
distributed by the Agent to the Banks making such additional Loans ratably as
among them in accordance with the principal amount of additional Loans made by
them until such additional Loans shall have been fully paid and satisfied, and
all payments on account of interest shall be applied as among all the Banks
ratably in accordance with the amount of interest owing to each of the Banks as
of the date of the receipt of such interest payment.
SECTION 11.4. NON-BUSINESS DAY. (a) If any payment of principal or
interest on any Domestic Rate Loan shall fall due on a day which is not a
Business Day, interest at the rate such Loan bears for the period prior to
maturity shall continue to accrue on such principal from the stated due date
thereof to and including the next succeeding Business Day on which the same is
payable.
(b) If any payment of principal or interest on any Eurodollar Loan shall
fall due on a day which is not a Business Day, the payment date thereof shall be
extended to the next date which is a Business Day and the Interest Period for
such Loan shall be accordingly extended, unless as a result thereof any payment
date would fall in the next calendax month, in which case such payment date
shall be the next preceding Business Day.
SECTION 11.5. SURVIVAL OF INDEMNITIES. All indemnities and all
provisions relative to reimbursement to the Banks of amounts sufficient to
protect the yield to the Banks with respect to Eurodollar Loans, including, but
not limited to, Sections 9.3 and 9.4 hereof, shall survive the termination of
this Agreement and the payment of the Revolving Notes.
SECTION 11.6. DOCUMENTARY TAXES. Although the Borrowers are of the
opinion that no documentary or similar taxes are payable in respect to this
Agreement or the Revolving Notes, each Borrower jointly and severally agrees
that it will pay such taxes, including interest and penalties, in the event any
such taxes are assessed irrespective of when such assessment is made and whether
or not any credit is then in use or available hereunder.
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SECTION 11.7. REPRESENTATIONS. All representations and warranties made
herein or in certificates given pursuant hereto shall survive the execution and
delivery of this Agreement and of the Revolving Notes, and shall continue in
full force and effect with respect to the date as of which they were made and as
reaffirmed on the date of each borrowing and as long as any credit is in use or
available hereunder.
SECTION 11.8. NOTICES. Unless otherwise expressly provided herein, all
communications provided for herein shall be in writing or by telex and shall be
deemed to have been given or made when served personally, when an answer back is
received in the case of notice by telex or 2 days after the date when deposited
in the United States mail (registered, if to any Borrower) addressed if to any
Borrower to 901 North Highway 59, Marshall, Minnesota 56258 Attention: Mr. L.
Dan Thompson; if to the Agent or Harris at 111 West Monroe Street, Chicago,
Illinois 60690, Attention: Agribusiness Division; and if to any of the Banks, at
the address for each Bank set forth under its signature hereon; or at such other
address as shall be designated by any party hereto in a written notice to each
other party pursuant to this Section 11.8.
SECTION 11.9. COSTS AND EXPENSES. (a) Each Borrower jointly and
severally agrees to pay on demand all costs and expenses of the Agent and each
Bank in connection with the negotiation, preparation, execution and delivery of
this Agreement, the Revolving Notes and the other instruments and documents to
be delivered hereunder or in connection with the transactions contemplated
hereby, including the fees and expenses of Chapman and Cutler, special counsel
to the Agent; all costs and expenses of the Agent and the reasonable costs and
expenses of each Bank (including in each case attorneys' fees and expenses)
incurred in connection with any consents or waivers hereunder or amendments
hereto, and all costs and expenses (including attorneys' fees and expenses), if
any, incurred by the Agent, the Banks or any other holders of a Revolving Note
in connection with the enforcement of this Agreement or the Revolving Notes and
the other instruments and documents to be delivered hereunder. Each Borrower
jointly and severally agrees to indemnify and save harmless the Banks and the
Agent from any and all liabilities, losses, costs and expenses incurred by the
Banks or the Agent in connection with any action, suit or proceeding brought
against the Agent or any Bank by any Person which arises out of the transactions
contemplated or financed hereby or by the other Loan Documents, or out of any
action or inaction by the Agent or any Bank hereunder or thereunder, except for
such thereof as is caused by the gross negligence or willful misconduct of the
party indemnified.
(b) Without limiting the generality of the foregoing, the Borrowers
jointly and severally unconditionally agree to forever indemnify, defend and
hold harmless, the Agent and each Bank, and covenants not to sue for any claim
for contribution against, the Agent or any Bank for any damages, costs, loss or
expense, including without limitation, response, remedial or removal costs,
arising out of any of the following: (i) any presence, release, threatened
release or disposal of any hazardous or toxic substance or petroleum by any
Borrower or any Affiliate or otherwise occurring on or with respect to their
respective Property, (ii) the operation or violation of any Environmental Law,
whether federal, state, or local, and any regulations promulgated thereunder, by
any Borrower or any Affiliate or otherwise occurring on or with respect to their
respective Property, (iii) any claim for personal injury or property damage in
connection with any Borrower or any Affiliate or otherwise occurring on or with
respect to their respective Property, and (iv) the inaccuracy or breach of any
environmental representation, warranty or covenant by any
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Borrower made herein or in any loan agreement, promissory note, mortgage, deed
of trust, security agreement or any other instrument or document evidencing or
securing any indebtedness, obligations or liabilities of any Borrower owing to
the Agent or any Bank or setting forth terms and conditions applicable thereto
or otherwise relating thereto, except for damages arising from the Agent's or
such Bank's willful misconduct or gross negligence. This indemnification shall
survive the payment and satisfaction of all indebtedness, obligations and
liabilities of the Borrowers owing to the Agent and the Banks and the
termination of this Agreement, and shall remain in force beyond the expiration
of any applicable statute of limitations and payment or satisfaction in full of
any single claim under this indemnification. This indemnification shall be
binding upon the successors and assigns of each Borrower and shall inure to the
benefit of Agent and the Banks and their respective directors, officers,
employees, agents, and collateral trustees, and their successors and assigns.
(c) The provisions of this Section shall survive payment of the Notes
and the termination of the Banks' Revolving Credit Commitments hereunder.
SECTION 11.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and all such counterparts taken together shall be deemed
to constitute one and the same instrument. One or more of the Banks may execute
a separate counterpart of this Agreement which has also been executed by the
Borrowers, and this Agreement shall become effective as and when all of the
Banks have executed this Agreement or a counterpart thereof and lodged the same
with the Agent.
SECTION 11.11. SUCCESSORS AND ASSIGNS; GOVERNING LAW; ENTIRE AGREEMENT.
This Agreement shall be binding upon each of the Borrowers and the Banks and
their respective successors and assigns, and shall inure to the benefit of each
of the Borrowers and the Banks and the benefit of their respective successors
and assigns, including any subsequent holder of any Revolving Note. This
Agreement and the rights and duties of the parties hereto shall be construed and
determined in accordance with the laws of the State of Illinois, except conflict
of laws principles. This Agreement constitutes the entire understanding of the
parties with respect to the subject matter hereof and any prior agreements,
whether written or oral, with respect thereto are superseded hereby. The
Borrowers may not assign any of their respective rights or obligations hereunder
without the written consent of all of the Banks.
SECTION 11.12. NO JOINT VENTURE. Nothing contained in this Agreement
shall be deemed to create a partnership or joint venture among the parties
hereto.
SECTION 11.13. SEVERABILITY. In the event that any term or provision
hereof is determined to be unenforceable or illegal, it shall deemed severed
here from to the extent of the illegality and/or unenforceability and all other
provisions hereof shall remain in full force and effect.
SECTION 11.14. TABLE OF CONTENTS AND HEADINGS. The table of contents and
section headings in this Agreement are for reference only and shall not affect
the construction of any provision hereof
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SECTION 11.15. SHARING OF PAYMENTS. Each Bank agrees with each other
Bank that if such Bank shall receive and retain any payment, whether by set-off
or application of deposit balances or otherwise ("SET-OFF'), on any Loan or
other amount outstanding under this Agreement in excess of its ratable share of
payments on all Loans and other amounts then outstanding to the Banks, then such
Bank shall purchase for cash at face value, but without recourse, ratably from
each of the other Banks such amount of the Loans held by each such other Bank
(or interest therein) as shall be necessary to cause such Bank to share such
excess payment ratably with all the other Banks; PROVIDED, HOWEVER, that if any
such purchase is made by any Bank, and if such excess payment or part thereof is
thereafter recovered from such purchasing Bank, the related purchases from the
other Banks shall be rescinded ratably and the purchase price restored as to the
portion of such excess payment so recovered, but without interest. Each Bank's
ratable share of any such Set-Off shall be determined by the proportion that the
aggregate principal amount of Loans then due and payable to such Bank bears to
the total aggregate principal amount of Loans then due and payable to all the
Banks.
SECTION 11.16. SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL. Each
Borrower hereby submits to the nonexclusive jurisdiction of the United States
District Court for the Northern District of Illinois and of any Illinois State
court sitting in the City of Chicago for purposes of all legal proceedings
arising out of or relating to this Agreement, the other Loan Documents or the
transactions contemplated hereby or thereby. Each Borrower irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a court has been
brought in an inconvenient forum. EACH BORROWER, THE AGENT, AND EACH BANK HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
THEREBY.
SECTION 11.17. PARTICIPANTS AND NOTE ASSIGNEES. Each Bank shall have the
right, with the written consent of the Borrowers (which consent will not be
unreasonably withheld and which consent will not be required if an Event of
Default shall have occurred and be continuing) and the Agent, at its own cost to
grant participations (to be evidenced by one or more agreements or certificates
of participation) in the Loans made, and Revolving Credit Commitment held, by
such Bank at any time and from time to time, and to assign its rights under such
Loans or the Revolving Notes evidencing such Loans to one or more other Persons;
PROVIDED THAT (a) no such participation or assignment shall relieve any Bank of
any of its obligations under this Agreement, (b) no such assignee or participant
shall have any rights under this Agreement except as provided in this Section
11.17, (c) the Agent shall have no obligation or responsibility to such
participant or assignee, and (d) no such participant or assignee shall be a
competitor of any Borrower; EXCEPT THAT nothing herein is intended to affect the
rights of an assignee of a Note to enforce the Note assigned. Any party to which
such a participation or assignment has been granted shall have the benefits of
Section 1.6 and Section 9.4, but shall not be entitled to receive any greater
payment under either such Section than the Bank granting such participation or
assignment would have been entitled to receive in connection with the rights
transferred. Any agreement pursuant to which any Bank may grant such a
participating interest shall provide that such Bank shall retain the sole right
and responsibility to enforce the obligations of the Company hereunder,
including, without limitation, the right to approve any amendment, modification
or waiver of any provision
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of this Agreement; PROVIDED that such participation agreement may provide that
such Bank will not agree to any modification, amendment or waiver of this
Agreement that would (A) increase any Revolving Credit Commitment of such Bank
if such increase would also increase the participant's obligations, (B) forgive
any amount of or postpone the date for payment of any principal of or interest
on any Loan or of any fee payable hereunder in which such participant has an
interest or (C) reduce the stated rate at which interest or fees in which such
participant has an interest accrue hereunder.
SECTION 11.18. ASSIGNMENT OF COMMITMENTS BY BANKS. Each Bank shall have
the right at any time, with the written consent of the Borrowers (which consent
will not be unreasonably withheld and which consent will not be required if an
Event of Default shall have occurred and be continuing) and the Agent to assign
all or any part of its Revolving Credit Commitment to one or more other Persons;
PROVIDED THAT (a) each such assignment shall be of a constant, and not a
varying, percentage of all such rights and obligations, (b) unless both parties
to the assignment are Banks immediately prior to giving effect to the
assignment, the amount of the Revolving Credit Commitment of the assigning Bank
being assigned pursuant to each such assignment (determined as of the date of
the assignment and acceptance with respect to such assignment) shall not be less
than $5,000,000 (or if less, the entire amount of such Bank's Revolving Credit
Commitment, or $1,000,000 if such assignment is from one Bank to another Bank or
to an Affiliate of the assigning Bank) and shall be an integral multiple of
$1,000,000, (c) the parties to each such assignment shall execute and deliver to
the Agent, for its acceptance and recording, an assignment and acceptance,
together with any Revolving Notes subject to such assignment, (d) neither the
consent of the Borrowers nor of the Agent shall be required for any Bank to
assign all or part of its Revolving Credit Commitment to any affiliate of the
assigning Bank or to any Bank, (e) the assigning Bank shall have a Revolving
Credit Commitment of at least $10,000,000 after giving effect to such assignment
unless such assignment is of all of such assigning Bank's Revolving Credit
Commitment, and (f) no such assignment shall be made to any Person known by the
assignor to be a competitor of any Borrower. Upon any such assignment, its
notification to the Agent and the payment of a $2,500 recordation fee to the
Agent, the assignee shall become a Bank hereunder, all Loans and the Revolving
Credit Commitment it thereby holds shall be governed by all the terms and
conditions hereof, and the Bank granting such assignment shall have its
Revolving Credit Commitment, and its obligations and rights in connection
therewith, reduced by the amount of such assignment.
SECTION 11.19. CONFIDENTIALITY. Each Bank will keep confidential any
non-public information concerning any Borrower and its Subsidiaries furnished by
a Borrower (which is designated by such Borrower as confidential at the time
such information is furnished to such Bank) or obtained by such Bank through its
inspections and audits pursuant to Section 7.5 hereof and known by such Bank to
be confidential, except that any Bank may disclose such information (a) to
regulatory authorities having jurisdiction, (b) pursuant to subpoena or other
legal process, (c) to such Bank's counsel and auditors in connection with
matters concerning this Agreement, (d) to such Bank's consultants in connection
with negotiations concerning this Agreement or the other Loan Documents and (e)
to prospective participants in the credit extended hereunder and participants in
the credit extended hereunder, provided that any Persons described in clauses
(d) and (e) shall be bound to comply with the terms of this Section 11.19. In
the situations described above (except where any Borrower is a party), the
relevant Bank shall notify the Company as
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promptly as practicable of the receipt of a request for such disclosure and
furnish it with a copy of such subpoena or other legal process (to the extent
such Bank is legally permitted to do so). The provisions of this Section shall
survive the payment of the Notes and the termination of this Agreement.
Exhibits A, B, C, D, E, F and G to the Credit Agreement shall each be
amended, and as so amended shall be restated in their entirety to read as set
forth in Exhibits A, B, C, D, E, F and G hereto, respectively.
Each Borrower agrees to execute and deliver to each Bank a Secured
Revolving Credit Note in the form attached to this Amended and Restated Secured
Credit Agreement as Exhibit A, each such note to be in the principal amount of
each Bank's respective maximum commitment set forth in Section 1.1 of the Credit
Agreement as amended and restated hereby. From and after the date on which the
conditions precedent to the effectiveness hereof set forth below are satisfied,
each such note shall evidence the Borrowers' joint and several indebtedness to
the holder thereof under the Credit Agreement, as amended and restated hereby,
and all references in the Loan Documents (including without limitation the
Security Documents) to the Revolving Notes or any Revolving Note shall refer to
the notes or note delivered pursuant hereto. Upon the satisfaction of said
conditions precedent, each Bank shall cancel and deliver to the Company any
Revolving Note then held by it.
The amendments reflected in the above and foregoing Amended and Restated
Secured Revolving Credit Agreement shall not become effective unless and until
the following conditions precedent have been satisfied:
(a) the Agent shall have received the following for the account of the
Banks (each to be properly executed and completed) and the same shall have been
approved as to form and substance by the Agent:
(i) the Revolving Notes;
(ii) a fully executed Security Agreement Re: Accounts Receivable
and Inventory satisfactory in form and substance to the Banks from LSI
granting to the Agent a security interest in its present and future
Inventory and Receivables and certain other property described therein
to secure its obligations hereunder;
(iii) appropriate forms of financing statements to perfect the
security interest of the Agent provided for by the Security Documents;
(iv) evidence of insurance required by Section 7.3 hereof and by
the Security Documents showing the Agent as lender's loss payee
thereunder;
(v) pay-off letters satisfactory in form and substance to the
Banks from the Existing Lenders;
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(vi) a bailee agreement from Liquid Sugars, Inc. satisfactory in
form and substance to the Banks;
(vii) evidence satisfactory to the Banks that the Agent's
security interests in the Collateral have been perfected and that the
Collateral is not subject to any other security interests;
(viii) a good standing certificate or certificate of existence
for each Borrower dated as of the date no earlier than August 15, 1998
from the office of the secretary of state of its state of incorporation
and each state in which it is qualified to do business as a foreign
corporation;
(ix) copies of the Articles of Incorporation, and all amendments
thereto, of each Borrower certified by the office of the secretary of
state of its state of incorporation as of the date no earlier than
August 15, 1998;
(x) copies of the By-Laws, and all amendments thereto, of each
Borrower, certified as true, correct and complete on the date hereof by
the secretary or assistant secretary of such Borrower;
(xi) copies, certified by the Secretary or Assistant Secretary
of each Borrower, of resolutions regarding the transactions contemplated
by this Agreement, duly adopted by the Board of Directors of such
Borrower, and satisfactory in form and substance to all of the Banks;
(xii) an incumbency signature certificate for each Borrower
satisfactory in form and substance to all of the Banks; and
(xiii) an amendment to the Current Asset Security Agreement in
form and substance to the Banks.
Each Borrower jointly and severally agrees to pay all costs and expenses
incurred by the Agent and the Banks in connection with the preparation,
execution and delivery of this Amended and Restated Secured Credit Agreement and
the documents and transactions contemplated hereby including the fees and
expenses of Messrs. Chapman and Cutler with respect to the foregoing. No
reference to this Amended and Restated Secured Credit Agreement need be made in
the Current Asset Security Agreement or the Margin Account Security Agreements
(collectively the "ORIGINAL SECURITY AGREEMENTS") from the Company to the Agent,
or any note, mortgage, instrument or other documents making reference to the
Credit Agreement, any reference to the Credit Agreement in any of such to be
deemed to be a reference to the Credit Agreement as amended and restated hereby.
This Amended and Restated Secured Credit Agreement may be executed in any number
of counterparts and by different parties hereto on separate counterparts, each
of which when so executed shall be deemed an original, but all of which to
constitute but one and the same instrument. This Amended and Restated Secured
Credit Agreement shall be construed in accordance with, and governed by, the
internal laws of Illinois.
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The Company has heretofore executed and delivered to the Agent the
Original Security Agreements. The Company hereby agrees that notwithstanding the
execution and delivery of this Agreement, the Original Security Agreements shall
be and remain in full force and effect and that any rights and remedies of the
Agent and the Banks thereunder, obligations of the Company thereunder and any
liens or security interests created or provided for thereunder shall be and
remain in full force and effect and shall not be affected, impaired or
discharged thereby and shall secure all of its indebtedness, obligations and
liabilities to the Agent and the Banks under the Credit Agreement as amended and
restated hereby. Nothing herein contained shall in any manner affect or impair
the priority of the liens and security interests created and provided for by the
Original Security Agreements as to the indebtedness which would be secured
thereby prior to giving effect to this Amendment. Without limiting the
foregoing, the Company acknowledges and agrees that all of the Borrowers'
indebtedness, obligations and liabilities to the Agent and the Banks pursuant to
the Credit Agreement as amended and restated hereby, including without
limitation, all principal of and interest on the Revolving Notes (as defined in
the Credit Agreement as amended and restated hereby), whether presently existing
or hereafter arising, shall constitute "Obligations" as defined in the Security
Agreement and shall be secured by, and entitled to all of the benefits of, the
liens and security interest created and provided for under the Security
Agreement. In furtherance of the foregoing, the Company hereby grants to the
Agent for the benefit of the Banks, and hereby agrees that the Agent for the
benefit of the Banks shall continue to have a continuing security interest in,
all and singular of the Company's receivables, general intangibles, hedging
accounts, inventory, books and records, documents, accessions and additions to
all of the foregoing and all products and proceeds of each of the foregoing, and
all proceeds or collection of any of the foregoing and all of the other
collateral described or referred to in the granting clauses of the Original
Security Agreements, each and all of which granting clauses are hereby
incorporated by reference herein in their entirety. The foregoing grant shall be
in addition to and supplemental of and not in substitution for the grant by the
Company under the Original Security Agreements, and shall not affect or impair
the lien or priority of the Original Security Agreements in the collateral
subject thereto or the indebtedness secured thereby.
-46-
<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall be a contract between us for the purposes hereinabove set forth.
Dated as of November 4, 1998.
MINNESOTA CORN PROCESSORS, INC.
By /s/ illegible
-------------------------------------
Its President
---------------------------------
LIQUID SUGARS, INC.
By /s/ illegible
-------------------------------------
Its President
---------------------------------
Accepted and Agreed to as of the day and year last above written.
HARRIS TRUST AND SAVINGS BANK
individually and as Agent
By /s/ illegible
-------------------------------------
Its Vice President
---------------------------------
Address: 111 West Monroe Street
Chicago, Illinois 60690
Attention: Agribusiness Division
U.S. BANCORP AG CREDIT, INC.
By /s/ illegible
-------------------------------------
Its Vice President
---------------------------------
Address: 950 17th Street
Suite 350
Denver, Colorado 80202
Attention: Alan V. Schuler
-47-
<PAGE>
EXHIBIT A
MINNESOTA CORN PROCESSORS, INC.
LIQUID SUGARS, INC.
SECURED REVOLVING CREDIT NOTE
________, ________
FOR VALUE RECEIVED, each of the undersigned, MINNESOTA CORN PROCESSORS,
INC., a Minnesota corporation (the "COMPANY") and Liquid Sugars, Inc., a
California corporation, ("LSI"; LSI and the Company being referred to herein
collectively as the "BORROWERS" and individually as a "BORROWER"), jointly and
severally promise to pay to the order of ________________ (the "LENDER") on the
Termination Date (as defined in the Credit Agreement hereinafter described), at
the principal office of Harris Trust and Savings Bank in Chicago, Illinois, the
principal sum of Twenty Five Million Dollars ($25,000,000) or, if less, the
aggregate unpaid principal amount of all Revolving Credit Loans made by the
Lender to the Borrowers under the Revolving Credit provided for under the Credit
Agreement hereinafter mentioned and remaining unpaid on the Termination Date,
together with interest on the principal amount of each Revolving Credit Loan
from time to time outstanding hereunder at the rates, and payable in the manner
and on the dates specified in said Credit Agreement.
The Lender shall record on its books or records or on the schedule to
this Note which is a part hereof the principal amount of each Revolving Credit
Loan made under the Revolving Credit, all payments of principal and interest and
the principal balances from time to time outstanding; PROVIDED that prior to the
transfer of this Note all such amounts shall be recorded on the schedule
attached to this Note. The record thereof, whether shown on such books or
records or on the schedule to this Note, shall be PRIMA FACIE evidence as to all
such amounts; PROVIDED, HOWEVER, that the failure of the Lender to record, or
any mistake in recording, any of the foregoing shall not limit or otherwise
affect the obligation of the undersigned to repay all Revolving Credit Loans
made under the Revolving Credit, together with accrued interest thereon.
This Note is one of the Revolving Notes referred to in and issued under
that certain Amended and Restated Secured Credit Agreement dated as of August
__, 1998, among the Borrowers, Harris Trust and Savings Bank, as Agent, and the
banks named therein, as amended from time to time (the "CREDIT AGREEMENT"), and
this Note and the holder hereof are entitled to all of the benefits and security
provided for thereby or referred to therein, including without limitation the
collateral security provided pursuant to the Security Documents (as defined in
the Credit Agreement), to which Credit Agreement and Security Documents
reference is hereby made for a statement thereof All defined terms used in this
Note, except terms otherwise defined herein, shall have the same meaning as such
terms have in said Credit Agreement.
Prepayments may be made on any Revolving Credit Loan evidenced hereby
and this Note (and the Revolving Credit Loans evidenced hereby) may be declared
due prior to the expressed maturity thereof, all in the events, on the terms and
in the manner as provided for in said Credit Agreement and the Security
Documents.
<PAGE>
Each of the undersigned acknowledges and agrees that its joint and
several liability on the Note and on all obligations owed by any of the
undersigned under this Note is absolute and unconditional and shall not in any
manner be affected or impaired by any of acts or omissions whatsoever by the
Lender, and without limiting the generality of the foregoing, each of the
undersigned's joint and several liability on this Note shall not be impaired by
any acceptance by the Lender of any other security for or guarantors upon this
Note or any obligations under the Credit Agreement or by any failure, neglect or
omission on the Lender's part to resort to any one or all of the undersigned for
payment of this Note or the obligations under the Credit Agreement or to realize
upon or protect any collateral security therefor. Each of the undersigned's
joint and several liability on this Note shall not in any manner be impaired or
affected by who receives or uses the proceeds of the loans evidenced by this
Note or for what purposes such proceeds are used, and each of the undersigned
waives notice of borrowing requests issued by, and loans made to, the Borrowers.
Such joint and several liability of each of the undersigned shall also not be
impaired or affected by (and each Lender, without notice to anyone, is hereby
authorized to make from time to time) any sale, pledge, surrender, compromise,
settlement, release, renewal, extension, indulgence, alteration, substitution,
exchange, change in, modification or disposition of any collateral security for
this Note or the obligations under the Credit Agreement or of any guaranty
thereof. In order to enforce payment of this Note and the undersigneds'
obligations under the Credit Agreement, foreclose or otherwise realize on any
collateral security therefor, and to exercise the rights granted to the Lender
thereunder and under applicable law, the Lender .shall be under no obligation at
any time to first resort for payment to the Borrower or to any guaranty or to
resort to any collateral security, property, liens or any other rights or
remedies whatsoever, and the Lender shall have the right to enforce this Note
and the each Borrower's obligations under the Credit Agreement irrespective of
whether or not other proceedings or steps are pending seeking resort to or
realization upon or from any of the foregoing. By its acceptance below, each of
the undersigned hereby expressly waives and surrenders any defense to its joint
and several liability on this Note or under the Credit Agreement based upon any
of the foregoing.
Each of the undersigned hereby waives any and all rights of subrogation,
reimbursement, contribution and indemnity whatsoever with respect to every other
one of the undersigned and shall have no right of recourse to or with respect to
any assets or property of any of the undersigned or to any collateral owned by
any of the undersigned for the indebtedness of any of the undersigned evidenced
hereby regardless of whether said indebtedness shall have been paid in full.
None of the undersigned shall have any right of subrogation, reimbursement,
contribution or indemnity whatsoever and no right of recourse to or with respect
to any assets or property of any guarantor or guarantors or to any collateral
not owned by the Borrowers for the indebtedness evidenced hereby unless and
until all of said indebtedness shall have been paid in full.
The undersigned hereby waive presentment for payment and demand.
-2-
<PAGE>
This Note is governed by and shall be construed in accordance with the
internal laws of the State of Illinois.
MINNESOTA CORN PROCESSORS, INC.
By
-------------------------------------
Its
---------------------------------
LIQUID SUGARS, INC.
By
-------------------------------------
Its
---------------------------------
-3-
<PAGE>
SCHEDULE 1
TO COMPLIANCE CERTIFICATE
MINNESOTA CORN PROCESSORS, INC.
LIQUID SUGARS, INC.
Compliance Calculations for Secured
Credit Agreement Dated as of August 27, 1997
Calculations as of ______________, 19__
Section 7.8 Net Working Capital
(a) Current Assets $_________
(b) Current Liabilities $_________
(c) Working Capital Revolver Outstandings $_________
(a)-(b)-(c) ________*
*Required to be no less than $25,000,000.
Compliance..............Yes _________ No ________
Section 7.9 Adjusted Total Member Equities
(a) Total Member Equities $_________
(b) Less: Post Closing Intangible Assets and Restricted
Investments $_________
(c) Adjusted Total Member Equities (a)-(b) $_________
(d) Consolidated Net Earnings (Only Positive) $_________
(e) Applicable % 20%
(f) 20% of Consolidated Net Earnings (d)x(e) $_________
(g) Plus: $270,000,000 $_________
(h) Compliance Requirement (f)+(g) $_________
Compliance..............Yes _________ No ________
Section 7.10 Cash Flow
(a) Net Income $_________
(b) Depreciation $_________
(c) Capital Expenditures $_________
(d) Current Maturities of Long-Term Debt $_________
(e) Cash Patronage $_________
(d) Redeemed Shares $_________
(g) Cash Flow ((a) + (b) - (c) - (d) - (e) - (f)) $________*
*Required to be no less than $_________ during this
compliance period.
Compliance..............Yes _________ No ________
EXHIBIT 10.7
================================================================================
CONFORMED COPY
MINNESOTA CORN PROCESSORS, INC.
--------------------
NOTE PURCHASE AGREEMENT
--------------------
DATED AS OF AUGUST 26, 1997
$25,000,000 7.57% SERIES A FIXED RATE SENIOR NOTES DUE SEPTEMBER 1, 2007
$120,000,000 7.72% SERIES B FIXED RATE SENIOR NOTES DUE SEPTEMBER 1, 2009
$45,000,000 7.83% SERIES C FIXED RATE SENIOR NOTES DUE SEPTEMBER 1, 2012
$100,000,000 SERIES D VARIABLE RATE SENIOR NOTES DUE SEPTEMBER 1, 2007
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. AUTHORIZATION OF NOTES.................................................1
2. SALE AND PURCHASE OF NOTES ............................................2
3. CLOSING ...............................................................2
4. CONDITIONS TO CLOSING..................................................3
4.1 Representations and Warranties .................................3
4.2 Performance; No Default.........................................3
4.3 Compliance Certificates ........................................3
4.4 Opinions of Counsel ............................................4
4.5 Purchase Permitted By Applicable Law, etc ......................4
4.6 Sale of Other Notes ............................................4
4.7 Payment of Special Counsel Fees and Other Fees .................5
4.8 Private Placement Numbers.......................................5
4.9 Changes in Structure ...........................................5
4.10 Collateral Trust Indenture .....................................5
4.11 Mortgages ......................................................5
4.12 Mortgagee's Title Insurance ....................................6
4.13 Financing Statements ...........................................6
4.14 UCC Searches ...................................................6
4.15 Appraisals .....................................................6
4.16 Surveys and Other Reports ......................................6
4.17 Insurance ......................................................7
4.18 Doing Business .................................................7
4.19 Release of Certain Existing Liens...............................7
4.20 Equity Investment by Archer Daniels Midland ....................7
4.21 Rating of Notes ................................................7
4.22 Bank Facility ..................................................7
4.23 Proceedings and Documents ......................................7
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY .........................8
5.1 Organization; Power and Authority ..............................8
5.2 Authorization, etc . ...........................................8
5.3 Disclosure .....................................................8
5.4 Affiliates .....................................................8
5.5 Financial Statements ...........................................9
5.6 Compliance with Laws, Other Instruments, etc...................10
5.7 Governmental Authorizations, etc . ............................10
5.8 Litigation; Observance of Agreements, Statutes and Orders .....10
5.9 Taxes .........................................................11
5.10 Title to Property; Leases .....................................11
5.11 Licenses, Permits, etc ........................................11
5.12 Compliance with ERISA..........................................12
i
<PAGE>
TABLE OF CONTENTS (CONT.)
PAGE
----
5.13 Private Offering by the Company ...............................13
5.14 Use of Proceeds; Margin Regulations ...........................13
5.15 Existing Debt; Future Liens ...................................13
5.16 Foreign Assets Control Regulations, etc . .....................14
5.17 Status under Certain Statutes .................................14
5.18 Environmental Matters .........................................14
5.19 Permitted Encumbrances ........................................15
5.20 Other Representations and Warranties ..........................15
6. REPRESENTATIONS AND COVENANTS OF THE PURCHASER .......................15
6.1 Purchase for Investment .......................................15
6.2 Source of Funds ...............................................15
7. INFORMATION AS TO COMPANY ............................................17
7.1 Financial and Business Information ............................17
7.2 Officer's Certificate .........................................20
7.3 Inspection ....................................................21
8. PREPAYMENT OF THE NOTES ..............................................21
8.1 Fixed Rate Note Required Prepayments ..........................21
8.2 Series D Required Prepayments .................................23
8.3 Optional Prepayments of Fixed Rate Notes with Make-Whole
Amount .......................................................24
8.4 Optional Prepayments of Series D Notes ........................25
8.5 Allocation of Fixed Rate Note Partial Prepayments .............25
8.6 Allocation of Series D Partial Prepayments ....................26
8.7 Fixed Rate Notes; Maturity; Surrender, etc ....................26
8.8 Series D Notes; Maturity; Surrender, etc ......................26
8.9 Purchase of Notes .............................................27
8.10 Fixed Rate Make-Whole Amount and Series D Make-Whole Amount ...27
9. INTEREST ON THE NOTES ................................................28
9.1 Fixed Rate Notes' Semi-Annual Fixed Interest Payments .........28
9.2 Series D Notes' Quarterly Floating Interest Payments ..........29
9.3 Inability to Determine LIBOR ..................................31
9.4 Reinstatement of Eurodollar Interest Rate .....................32
9.5 Illegality ....................................................32
9.6 Breakage Costs ................................................32
10. AFFIRMATIVE COVENANTS ................................................32
10.1 Compliance with Law ...........................................32
10.2 Insurance .....................................................33
10.3 Maintenance of Properties .....................................33
10.4 Payment of Taxes and Claims ...................................33
10.5 Existence, etc ................................................34
ii
<PAGE>
TABLE OF CONTENTS (CONT.)
PAGE
----
10.6 Hedging .......................................................35
10.7 Archer Daniels Midland Company ................................35
11. NEGATIVE COVENANTS ...................................................35
11.1 Transactions with Affiliates ..................................35
11.2 Merger, Consolidation, etc . ..................................36
11.3 Line of Business ..............................................37
11.4 Adjusted Total Member Equities ................................37
11.5 Limitation on Funded Debt .....................................37
11.6 Current Ratio .................................................37
11.7 Liens in respect of Collateral ................................37
11.8 Liens .........................................................38
11.9 Incurrence of Subsidiary Debt .................................41
11.10 Sale of Assets, etc . .........................................41
11.11 Certain Distributions .........................................43
11.12 Interest Coverage .............................................43
11.13 Amendments to Certain ADM Agreements ..........................43
12. EVENTS OF DEFAULT ....................................................44
13. REMEDIES ON DEFAULT, ETC . ...........................................47
13.1 Acceleration ..................................................47
13.2 Other Remedies ................................................47
13.3 Rescission ....................................................48
13.4 No Waivers or Election of Remedies, Expenses, etc . ...........48
14. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES ........................48
14.1 Registration of Notes .........................................48
14.2 Transfer and Exchange of Notes ................................49
14.3 Replacement of Notes ..........................................49
15. PAYMENTS ON NOTES 50
15.1 Place of Payment ..............................................50
15.2 Home Office Payment ...........................................50
16. EXPENSES, ETC. .......................................................50
16.1 Transaction Expenses ..........................................50
16.2 Survival ......................................................51
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT ............................................................51
18. AMENDMENT AND WAIVER .................................................51
18.1 Requirements ..................................................51
iii
<PAGE>
TABLE OF CONTENTS (CONT.)
PAGE
----
18.2 Solicitation of Holders of Notes ..............................52
18.3 Binding Effect, etc ...........................................52
18.4 Notes held by Company, etc. ...................................52
19. NOTICES ..............................................................53
20. REPRODUCTION OF DOCUMENTS ............................................53
21. CONFIDENTIAL INFORMATION .............................................54
22. SUBSTITUTION OF PURCHASER ............................................55
23. MISCELLANEOUS ........................................................56
23.1 Successors and Assigns ........................................56
23.2 Payments Due on Non-Business Days .............................56
23.3 Severability ..................................................56
23.4 Construction ..................................................56
23.5 Counterparts ..................................................56
23.6 Governing Law .................................................57
iv
<PAGE>
SCHEDULES:
SCHEDULE A -- Information Relating to Purchasers
SCHEDULE B -- Defined Terms
SCHEDULE C -- Payment Instructions at Closing
SCHEDULE 4.11 -- Real Property Descriptions of Designated Facilities
SCHEDULE 4.16 -- Surveys and Environmental Reports
SCHEDULE 5.4 -- Affiliates
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Litigation; Defaults
SCHEDULE 5.11 -- Patents, etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness and Liens
SCHEDULE B-C -- Competitors
SCHEDULE B-RI -- Investments on Date of Closing
v
<PAGE>
EXHIBITS:
EXHIBIT 1A -- Form of 7.57% Series A Fixed Rate Senior Note due
September 1, 2007
EXHIBIT 1B -- Form of 7.72% Series B Fixed Rate Senior Note due
September 1, 2009
EXHIBIT 1C -- Form of 7.83% Series C Fixed Rate Senior Note due
September 1, 2012
EXHIBIT 1D -- Form of Series D Variable Rate Senior Note due
September 1, 2007
EXHIBIT 4.4(a) -- Form of Opinion of Counsel for the Company
EXHIBIT 4.4(b) -- Form of Opinion of New York Special Counsel for the
Company
EXHIBIT 4.4(c) -- Form of Opinion of Nebraska Counsel for the Company
EXHIBIT 4.4(e) -- Form of Opinion of Counsel for the Collateral Trustee
EXHIBIT 4.10 -- Form of Collateral Trust Indenture
vi
<PAGE>
MINNESOTA CORN PROCESSORS, INC.
901 NORTH HIGHWAY 59
MARSHALL, MINNESOTA 56258
$25,000,000 7.57% SERIES A FIXED RATE SENIOR NOTES DUE SEPTEMBER 1, 2007
$120,000,000 7.72% SERIES B FIXED RATE SENIOR NOTES DUE SEPTEMBER 1, 2009
$45,000,000 7.83% SERIES C FIXED RATE SENIOR NOTES DUE SEPTEMBER 1, 2012
$100,000,000 SERIES D VARIABLE RATE SENIOR NOTES DUE SEPTEMBER 1, 2007
Dated as of August 26, 1997
[Separately addressed to each of the
Purchasers named on Schedule A hereto]
Ladies and Gentlemen:
MINNESOTA CORN PROCESSORS, INC., a Minnesota cooperative association
(together with its permitted successors, the "COMPANY"), hereby agrees with you
as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of
(a) $25,000,000 aggregate principal amount of its 7.57% Series
A Fixed Rate Senior Notes due September 1, 2007 (the "SERIES A NOTES"),
(b) $120,000,000 aggregate principal amount of its 7.72%
Series B Fixed Rate Senior Notes due September 1, 2009 (the "SERIES B
NOTES"),
(c) $45,000,000 aggregate principal amount of its 7.83% Series
C Fixed Rate Senior Notes due September 1, 2012 (the "SERIES C NOTES"),
and
(d) $100,000,000 aggregate principal amount of its Series D
Variable Rate Senior Notes due September 1, 2007 (the "SERIES D
NOTES").
The term "SERIES A NOTES" as used in this Agreement shall include each Series A
Note delivered pursuant to this Agreement and the Other Agreements (as
hereinafter defined) and any such notes issued in substitution therefor pursuant
to Section 14 of this Agreement or the Other Agreements; the term "SERIES B
NOTES" as used in this Agreement shall include each Series B Note delivered
pursuant to this Agreement and the Other Agreements and any such notes issued in
substitution therefor pursuant to Section 14 of this Agreement or the Other
Agreements; the term "SERIES C NOTES" as used in this Agreement shall include
each Series C Note delivered
<PAGE>
pursuant to this Agreement and the Other Agreements and any such notes issued in
substitution therefor pursuant to Section 14 of this Agreement or the Other
Agreements; and the term "SERIES D NOTES" as used in this Agreement shall
include each Series D Note delivered pursuant to this Agreement and the Other
Agreements and any such notes issued in substitution therefor pursuant to
Section 14 of this Agreement or the Other Agreements. The term "FIXED RATE
NOTES" as used in this Agreement shall include each Series A Note, each Series B
Note and each Series C Note; and the term "NOTES" as used in this Agreement
shall include each Series A Note, each Series B Note, each Series C Note and
each Series D Note. The Series A Notes, the Series B Notes, the Series C Notes
and the Series D Notes shall be substantially in the forms set out in Exhibits 1
A, 1 B, 1 C and 1 D, respectively, with such changes therefrom, if any, as may
be approved by you, the Other Purchasers (as hereinafter defined) and the
Company. Certain capitalized terms used in this Agreement are defined in
Schedule B; references to a "SCHEDULE" or an "EXHIBIT" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Notes in the principal amount and of the Series
specified below your name in Schedule A at the purchase price of 100% of the
principal amount thereof. Contemporaneously with entering into this Agreement,
the Company is entering into separate Note Purchase Agreements (the "OTHER
AGREEMENTS") identical with this Agreement with each of the other purchasers
named in Schedule A (the "OTHER PURCHASERS"), providing for the sale at such
Closing to each of the Other Purchasers of Notes in the principal amount and of
the Series specified below its name in Schedule A. Your obligation hereunder and
the obligations of the Other Purchasers under the Other Agreements are several
and not joint obligations and you shall have no obligation under any Other
Agreement and no liability to any Person for the performance or non-performance
by any Other Purchaser thereunder.
3. CLOSING.
The sale and purchase of the Notes to be purchased by you and the Other
Purchasers shall occur at the offices of Milbank, Tweed, Hadley & McCloy,
located at 1 Chase Manhattan Plaza, New York, New York at 10:00 a.m., local
time, at a closing (the "CLOSING") on August 27, 1997 or on such other Business
Day thereafter as may be agreed upon by the Company and you and the Other
Purchasers. At the Closing the Company will deliver to you the Notes of the
Series to be purchased by you in the form of a single Note (or such greater
number of Notes in denominations of at least $500,000 as you may request), dated
the date of Closing and registered in your name (or in the name of your
nominee), against delivery by you to the Company or its order of immediately
available funds in the amount of the purchase price therefor by wire transfer of
immediately available funds for the account of the Company as indicated on
Schedule C. If at the Closing the Company shall fail to tender such Notes to you
as provided above in this Section 3, or any of the conditions specified in
Section 4 shall not have been fulfilled to your satisfaction, you shall, at your
election, be relieved of all further obligations under this Agreement, without
thereby waiving any rights you may have by reason of such failure or such
nonfulfillment.
2
<PAGE>
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
4.1 REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company in the Financing
Documents shall be correct at the time of the Closing.
4.2 PERFORMANCE; NO DEFAULT.
The Company shall have performed and complied with all agreements and
conditions contained in this Agreement, the Collateral Trust Indenture and each
of the other Financing Documents required to be performed or complied with by it
prior to or at the Closing and, after giving effect to the issue and sale of the
Notes (and the application of the proceeds thereof as contemplated by Schedule
5.14) and the execution, delivery and recordation of the Mortgages (and any
financing statements in connection therewith), no Default or Event of Default
shall have occurred and be continuing. The Company shall not have entered into
any transaction since the date of the Memorandum that would have been prohibited
by Section 11.1, Section 11.2 or Section 11.11 had such Sections applied since
such date.
4.3 COMPLIANCE CERTIFICATES.
(a) OFFICER'S CERTIFICATE. The Company shall have delivered to
you an Officer's Certificate, dated the date of Closing, certifying
that the conditions specified in Section 4.1, Section 4.2, Section 4.9
and Section 4.20 have been fulfilled.
(b) SECRETARY'S CERTIFICATE. The Company shall have delivered
to you a certificate of its Secretary or one of its Assistant
Secretaries, dated the date of Closing, certifying as to the
resolutions and other constitutive documents attached thereto and other
proceedings relating to the authorization, execution and delivery of
the Notes, this Agreement, the Other Agreements and the other Financing
Documents.
(c) COLLATERAL TRUSTEE CERTIFICATE. First Union National Bank,
as the Collateral Trustee, shall have delivered to you a certificate of
its Secretary or one of its Assistant Secretaries, dated the date of
Closing, certifying as to the resolutions attached thereto and other
proceedings relating to the authorization, execution and delivery of
the Collateral Trust Indenture and the other Financing Documents to
which the Collateral Trustee is a party.
3
<PAGE>
4.4 OPINIONS OF COUNSEL.
You shall have received opinions in form and substance satisfactory to
you, dated the date of Closing,
(a) from Doherty, Rumble & Butler, Minnesota counsel for the
Company, substantially in the form set out in Exhibit 4.4(a) and
covering such other matters incident to the transactions contemplated
hereby as you or your counsel may reasonably request,
(b) from Hebb & Gitlin, special counsel for the Company,
substantially in the form set out in Exhibit 4.4(b) and covering such
other matters incident to the transactions contemplated hereby as you
or your counsel may reasonably request,
(c) from Dixon & Jessup Ltd., special Nebraska counsel for the
Company substantially in the form set out in Exhibit 4.4(c) and
covering such other matters incident to the transactions contemplated
hereby as you or your counsel may reasonably request,
(d) from Milbank, Tweed, Hadley & McCloy, your special counsel
in connection with the transactions contemplated hereby and
(e) from Shipman & Goodwin, special counsel for the Collateral
Trustee, substantially in the form set out in Exhibit 4.4(e).
The Company hereby instructs its counsel named in (a), (b) and (c) above to
deliver such opinions to you and the Collateral Trustee.
4.5 PURCHASE PERMITTED BY APPLICABLE LAW, ETC.
On the date of Closing your purchase of Notes shall (a) be permitted by
the laws and regulations of each jurisdiction to which you are subject, without
recourse to provisions (such as section 1405(a)(8) of the New York Insurance
Law) permitting limited investments by insurance companies without restriction
as to the character of the particular investment, (b) not violate any applicable
law or regulation (including, without limitation, Regulation G, T or X of the
Board of Governors of the Federal Reserve System) and (c) not subject you to any
tax, penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date of your execution and
delivery of this Agreement. If requested by you, you shall have received an
Officer's Certificate certifying as to such matters of fact as you may
reasonably specify to enable you to determine whether such purchase is so
permitted.
4.6 SALE OF OTHER NOTES.
Contemporaneously with the Closing the Company shall sell to the Other
Purchasers and the Other Purchasers shall purchase the Notes to be purchased by
them at the Closing as specified in Schedule A.
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4.7 PAYMENT OF SPECIAL COUNSEL FEES AND OTHER FEES.
Without limiting the provisions Of Section 16.1, the Company shall have
paid on or before the Closing (a) the fees, charges and disbursements of your
special counsel referred to in Section 4.4 and one local counsel for you and the
Other Purchasers in each of Minnesota and Nebraska to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the date of Closing, (b) the fees, charges and disbursements of the
Collateral Trustee to the extent reflected in a statement of the Collateral
Trustee rendered to the Company at least one Business Day prior to the date of
Closing, and (c) the fees, charges and disbursements of the special counsel of
the Collateral Trustee reflected in a statement. of such counsel rendered to the
Company at least one Business Day prior to the date of Closing.
4.8 PRIVATE PLACEMENT NUMBERS.
A private placement number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for each Series
of Notes.
4.9 CHANGES IN STRUCTURE.
The Company shall not have changed its jurisdiction of organization or
been a party to any merger or consolidation and shall not have succeeded to all
or any substantial part of the liabilities of any other entity, at any time
following the date of the most recent financial statements referred to in
Schedule 5.5.
4.10 COLLATERAL TRUST INDENTURE.
The Company and First Union National Bank, a national banking
association (in its trustee capacity under the Collateral Trust Indenture,
herein called the "COLLATERAL TRUSTEE"), shall have executed, and delivered to
you, a collateral trust indenture (as amended and supplemented from time to
time, the "COLLATERAL TRUST INDENTURE"), substantially in the form of Exhibit
4.10. You shall have received evidence of the appointment under the Collateral
Trust Indenture of any supplemental or co-trustee if required by applicable law.
4.11 MORTGAGES.
The Company shall have executed and delivered to the Collateral Trustee
a mortgage with respect to the Designated Facility located in Minnesota and a
deed of trust with respect to the Designated Facility located in Nebraska
(individually, a "MORTGAGE" and, collectively, the "MORTGAGES"), as the case may
be, (the real property in respect of each such Designated Facility being more
fully described on Schedule 4.11). Each Mortgage shall be substantially in the
appropriate form thereof attached to the Collateral Trust Indenture as exhibit A
or exhibit B, as the case may be (and shall be otherwise satisfactory to you),
and shall include as a part thereof an assignment of leases and rents and a
security agreement in respect of any fixtures or applicable personal property.
Each of the Mortgages shall have been recorded in the appropriate land records
and all taxes, recording fees and other fees and charges required by applicable
law to be paid in connection therewith shall have been duly paid in full. You
shall have received a copy of each executed Mortgage.
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4.12 MORTGAGEE'S TITLE INSURANCE.
The Collateral Trustee shall have received a loan title insurance
policy issued by a title insurance company reasonably acceptable to you (or, in
the alternative, a commitment to issue a loan title insurance policy issued by a
title insurance company reasonably acceptable to you and marked and initialed by
an authorized agent of such title insurance company to show all changes to be
made in connection with the actual issuance of such title insurance policy) in
respect of each of the Mortgages (individually, a "TITLE INSURANCE POLICY" and,
collectively, the "TITLE INSURANCE POLICIES") substantially in the appropriate
form thereof attached as, and insuring the amount of Notes set forth in, exhibit
C1 or exhibit C2 to the Collateral Trust Indenture. All premiums in respect of
the Title Insurance Polices shall have been paid in full.
4.13 FINANCING STATEMENTS.
Each financing statement required to be filed, registered or recorded
in connection with the transactions contemplated by this Agreement shall have
been properly filed, registered or recorded in each office in each jurisdiction
required in order to create in favor of the Collateral Trustee, for the ratable
benefit of you and the Other Purchasers, a valid and/or perfected first priority
Lien (subject only to the Permitted Encumbrances) on the respective collateral
described therein; the Collateral Trustee and you shall have received, to the
extent available, acknowledgement copies of all of such filings, registrations
and recordations stamped by the appropriate filing, registration or recording
officer (or, in lieu thereof, other evidence satisfactory to the Collateral
Trustee that all such filings, registrations and recordations have been made);
and all necessary filing, recording and other similar fees, and all taxes and
other charges related to such filings, registrations and recordations (including
such other taxes and charges requested by you), shall have been paid in full.
4.14 UCC SEARCHES.
Uniform Commercial Code financing statement, judgment lien and Federal
income tax lien searches (collectively, the "UCC SEARCHES") (a) in the office of
the Clerk for Platte County, Nebraska and in the office of the Secretary of
State of Nebraska, and (b) in the office of the Clerk for Lyon County, Minnesota
and in the office of the Secretary of State of Minnesota, each of a recent date,
shall have been delivered to you or your special counsel.
4.15 APPRAISALS.
Copies of appraisals for each of the Designated Facilities dated
October 8, 1996 from American Appraisal Associates (in form and substance
satisfactory to you and your counsel) shall have been delivered to you or your
special counsel.
4.16 SURVEYS AND OTHER REPORTS.
The Company shall have delivered to you or your special counsel each of
the surveys and environmental reports set forth on Schedule 4.16.
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4.17 INSURANCE.
Certificates of insurance evidencing the insurance policies and
endorsements required to be delivered pursuant to section 4.4 of the Collateral
Trust Indenture shall have been delivered to the Collateral Trustee.
4.18 DOING BUSINESS.
The Company shall have delivered to you evidence of its due
qualification as a foreign company under the laws of the State of Nebraska.
4.19 RELEASE OF CERTAIN EXISTING LIENS.
St. Paul Bank for Cooperatives and Cooperative Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland", New York Branch shall have
delivered, or shall have caused to be delivered, to the Collateral Trustee all
necessary termination statements, satisfaction pieces and other release
documentation in respect of any and all Liens it may have in and to the
Collateral, which shall be in form and substance satisfactory to effect such
release and for recordation in the appropriate recording offices.
4.20 EQUITY INVESTMENT BY ARCHER DANIELS MIDLAND.
Archer Daniels Midland Company shall have purchased not less than
58,000,000 non-voting units of equity participation in the Company for an
aggregate price of not less than $120,000,000 (subject to a downward adjustment
of not more than $250,000), you shall have received evidence of such purchase as
you may have reasonably requested from the Company and you shall have received a
copy of the ADM Transaction Agreement, which ADM Transaction Agreement shall be
in form and substance reasonably satisfactory to you.
4.21 RATING OF NOTES.
You shall have received evidence reasonably satisfactory to you that
the Notes shall have been rated at least "BBB-" by Duff and Phelps Inc. and that
such rating remains effective on the date of Closing.
4.22 BANK FACILITY.
You shall have received a copy of the Bank Credit Agreement and such
other documents related thereto as you may reasonably request, the Bank Credit
Agreement and such other documents shall be in form and substance reasonably
satisfactory to you.
4.23 PROCEEDINGS AND DOCUMENTS.
All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to you and your special counsel, and you
and your special counsel shall have received all such counterpart originals or
certified or other copies of such documents as you or they may reasonably
request.
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5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you, as of the date of Closing,
that:
5.1 Organization; POWER AND AUTHORITY.
(a) The Company is a cooperative association, duly organized
and validly existing under the laws of the State of Minnesota. The
Company is duly qualified and in good standing as a foreign cooperative
in the State of Nebraska and in each other jurisdiction where such
qualification is required by law (to the extent that such concepts are
recognized in such jurisdiction), other than those jurisdictions as to
which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(b) The Company has the requisite power and authority to own
or hold under lease the properties it purports to own or hold under
lease, to transact the business it transacts, to execute and deliver
this Agreement, the Other Agreements, the Notes and the other Financing
Documents and to perform the provisions hereof and thereof.
5.2 AUTHORIZATION, ETC.
This Agreement, the Other Agreements, the Notes and the other Financing
Documents to which the Company is a party have been duly authorized by all
necessary corporate action on the part of the Company, and this Agreement and
such other Financing Documents constitute, and upon execution and delivery
thereof each Note will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally.
5.3 DISCLOSURE.
The Company, through the Placement Agent, has delivered to you and each
Other Purchaser a copy of the Private Placement Memorandum, dated July 14, 1997
(as amended through the date of Closing, the "MEMORANDUM"), relating to the
transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Company and the Subsidiaries. This Agreement, the Memorandum, the
documents, certificates or other writings delivered to you by or on behalf of
the Company in connection with the transactions contemplated hereby and the
financial statements listed in Schedule 5.5, taken as a whole, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed herein, in the
other Financing Documents or in the Memorandum, since March 31, 1997, there has
been no change in the financial condition, operations, business, properties or
prospects of the Company or any Subsidiary except changes that individually or
in the aggregate could not reasonably be expected to have a Material Adverse
Effect. There is no fact known to the Company that could reasonably be expected
to have a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings
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delivered to you by or on behalf of the Company specifically for use in
connection with the transactions contemplated hereby.
5.4 AFFILIATES.
(a) Schedule 5.4 contains (except as noted therein) a complete
and correct list showing the identity of each of the Company's
Affiliates. Each of the Company's Affiliates that is a Subsidiary is
identified as such on Schedule 5.4.
(b) All of the outstanding shares of capital stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being
owned by the Company and its Subsidiaries have been validly issued, are
fully paid and nonassessable and are owned by the Company or another
Subsidiary free and clear of any Lien (except as otherwise disclosed in
Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and
in good standing under the laws of its jurisdiction of organization,
and is duly qualified as a foreign corporation or other legal entity
and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to
which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each such Subsidiary has the corporate or
other power and authority to own or hold under lease the properties it
purports to own or hold under lease and to transact the business it
transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement and the
Other Agreements, the agreements listed on Schedule 5.4 and customary
limitations imposed by corporate law or other similar statutes)
restricting the ability of such Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the
Company or any of its Subsidiaries that owns outstanding shares of
capital stock or similar equity interests of such Subsidiary.
5.5 FINANCIAL STATEMENTS.
The Company has delivered to you and each Other Purchaser copies of the
financial statements of the Company listed in Schedule 5.5. All of said
financial statements (including in each case the related schedules and notes)
present fairly, in all material respects, the consolidated financial position of
the Company and the Persons consolidated with the Company as of the respective
dates specified in such Schedule and the results of their operations and their
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
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5.6 COMPLIANCE WITH LAWS, OTHER INSTRUMENTS, ETC.
The issuance and sale of the Notes, the incurrence of the Debt
evidenced thereby, and the execution, delivery and performance of this Agreement
and the other Financing Documents by the Company will not
(a) contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any
property of the Company or any Subsidiary under (other than the Liens
created pursuant to the Financing Documents), any indenture, mortgage,
deed of trust, loan, purchase or credit agreement, lease, constitutive
document, or any other agreement or instrument to which the Company or
any Subsidiary is bound or by which the Company, any Subsidiary or any
of their respective properties may be bound or affected,
(b) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of
any court, arbitrator or Governmental Authority applicable to the
Company, any Subsidiary or any Designated Facility or
(c) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company, any
Subsidiary or any Designated Facility.
The making of the investment in the Company by Archer Daniels Midland Company
described in Section 4.20 will not conflict with or result in a breach of any of
the terms, conditions or provisions of any order, judgment, decree, or ruling of
any court, arbitrator or Governmental Authority applicable to the Company, any
Subsidiary or any Designated Facility or violate any provision of any statute or
other rule or regulation of any Governmental Authority applicable to the
Company, any Subsidiary or any Designated Facility.
5.7 GOVERNMENTAL AUTHORIZATIONS, ETC.
Except as contemplated in Section 4.11, Section 4.13 and Section 4.19,
no consent, approval or authorization of, or registration, filing or declaration
with, any Governmental Authority is required in connection with the execution,
delivery or performance of the Financing Documents by the Company.
5.8 LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) Except as set forth on Schedule 5.8, there are no actions,
suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any Subsidiary or any of
their respective property in any court or before any arbitrator of any
kind or before or by any Governmental Authority that, individually or
in the aggregate, could reasonably be expected to have a Material
Adverse Effect.
(b) Except as set forth on Schedule 5.8, neither the Company
nor any Subsidiary is in default under any term of any agreement or
instrument to which it is a
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party or by which it is bound, or any order, judgment, decree or ruling
of any court, arbitrator or Governmental Authority or is in violation
of any applicable law, ordinance, rule or regulation (including,
without limitation, Environmental Laws) of any Governmental Authority,
which default or violation, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
5.9 TAXES.
The Company and the Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (a) the amount of which is not
individually or in the aggregate Material or (b) the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or such Subsidiary, as the
case may be, has established adequate reserves in accordance with GAAP. The
Company knows of no basis for any other tax or assessment that could reasonably
be expected to have a Material Adverse Effect. The charges, accruals and
reserves on the books of the Company and the Subsidiaries in respect of Federal,
state or other taxes for all fiscal periods are adequate. The Federal income tax
liabilities of the Company and the Subsidiaries have been determined by the
Internal Revenue Service and paid for all fiscal years up to and including the
fiscal year ended September 30, 1994.
5.10 TITLE TO PROPERTY; LEASES.
The Company and the Subsidiaries have good and marketable title to
their respective properties that individually or in the aggregate are Material,
including all such properties reflected in the most recent audited balance sheet
referred to in Section 5.5 or purported to have been acquired by the Company or
any Subsidiary after said date (except as sold or otherwise disposed of in the
ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement. All leases that individually or in the aggregate are Material
are valid and subsisting and are in full force and effect in all material
respects.
5.11 LICENSES, PERMITS, etc.
Except as disclosed in Schedule 5.11,
(a) the Company and the Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without known conflict
with the rights of others;
(b) to the best knowledge of the Company, no product or
practice of the Company or any Subsidiary infringes in any material
respect any license, permit, franchise, authorization, patent,
copyright, service mark, trademark, trade name or other right owned by
any other Person; and
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(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any Subsidiary
with respect to any patent, copyright, service mark, trademark, trade
name or other right owned or used by the Company or any Subsidiary.
5.12 COMPLIANCE WITH ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except
for such instances of noncompliance as have not resulted in and could
not reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate has incurred any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans (as defined
in section 3 of ERISA), and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the
incurrence of any such liability by the Company or any ERISA Affiliate,
or in the imposition of any Lien on any of the rights, properties or
assets of the Company or any ERISA Affiliate, in either case pursuant
to Title I or IV of ERISA or to such penalty or excise tax provisions
or to section 401 (a)(29) or 412 of the Code, other than such
liabilities or Liens as would not be individually or in the aggregate
Material.
(b) The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined as
of the end of such Plan's most recently ended plan year on the basis of
the actuarial assumptions specified for funding purposes in such Plan's
most recent actuarial valuation report, did not exceed the aggregate
current value of the assets of such Plan allocable to such benefit
liabilities. The term "BENEFIT LIABILITIES" has the meaning specified
in section 4001 of ERISA and the terms "CURRENT VALUE" and "PRESENT
VALUE" have the meaning specified in section 3 of ERISA.
(c) The Company and the ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation (determined
as of the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage
mandated by section 4980B of the Code) of the Company is not Material.
(e) The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any
transaction that is subject to the prohibitions of section 406 of ERISA
or in connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code. The representation by the Company in the
first sentence of this Section 5.12(e) is made in reliance upon and
subject to the accuracy of your representation in Section 6.2 as to the
sources of the funds used to pay the purchase price of the Notes to be
purchased by you.
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5.13 PRIVATE OFFERING BY THE COMPANY.
Neither the Company nor anyone acting on its behalf has offered the
Notes or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
any Person other than you, the Other Purchasers and not more than 50 other
Institutional Investors, each of which has been offered the Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action that would subject the issuance or sale of the
Notes to the registration requirements of section 5 of the Securities Act.
5.14 USE OF PROCEEDS; MARGIN REGULATIONS.
The Company will apply the proceeds of the sale of the Notes as set
forth in Schedule 5.14. No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for the purpose of buying or
carrying any margin stock within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR 207), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of said Board (12 CFR 224) or
to involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Company, and neither the Company nor any Subsidiary
has any present intention that margin stock will constitute more than such
percentage of the value of such assets. As used in this Section, the terms
"MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the meanings
assigned to them in said Regulation G.
5.15 EXISTING DEBT; FUTURE LIENS.
(a) Except as described therein, Schedule 5.15 sets forth (i)
a complete and correct list of all outstanding Debt of the Company and
the Subsidiaries (other than outstanding items of Debt that, in the
aggregate for all such items of Debt, do not exceed $100,000) as of
June 30, 1997 (and specifies, as to each item of such Debt, the
collateral, if any, securing such Debt), since which date there has
been no Material change in the amounts, interest rates, sinking funds,
installment payments or maturities of the Debt of the Company and the
Subsidiaries and (ii) a complete list, prepared on a PRO FORMA basis
after giving effect to the issuance of the Notes, of the Debt of the
Company and the Subsidiaries that will be outstanding immediately after
giving effect to the issuance of the Notes and the application of the
proceeds thereof as provided in Section 5.14. Except as set forth on
Schedule 5.8, neither the Company nor any Subsidiary is in default and
no waiver of default is currently in effect, in the payment of any
principal or interest on any Debt of the Company or any Subsidiary and
no event or condition exists with respect to any Debt of the Company or
any Subsidiary that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such Debt to
become due and payable before its stated maturity or before its
regularly scheduled dates of payment.
(b) The Company has not consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of the
Collateral, whether now owned or hereafter acquired, to be subject to a
Lien not permitted by Section 11.7.
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5.16 FOREIGN ASSETS CONTROL REGULATIONS, ETC.
Neither the sale of the Notes by the Company hereunder nor its use of
the proceeds thereof will violate the Trading with the Enemy Act, as amended, or
any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17 STATUS UNDER CERTAIN STATUTES.
Neither the Company nor any Subsidiary is subject to regulation under
the Investment Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Transportation Acts (49 U.S.C.), as
amended, or the Federal Power Act, as amended.
5.18 ENVIRONMENTAL MATTERS.
Except as otherwise disclosed to you in writing, neither the Company
nor any Subsidiary has knowledge of any claim or has received any notice of any
claim, and no proceeding has been instituted raising any claim against the
Company or any Subsidiary or any of their respective real properties now or
formerly owned, leased or operated by any of them or other assets, alleging any
damage to the environment, human health or property or violation of any
Environmental Laws or permits issued under any Environmental Laws, except, in
each case, such as could not reasonably be expected to result in a Material
Adverse Effect. Except as otherwise disclosed to you in writing,
(a) neither the Company nor any Subsidiary has knowledge of
any facts which would give rise to any claim, public or private, of
violation of Environmental Laws or permits issued under any
Environmental Laws or damage to the environment, human health or
property emanating from, occurring on or in any way related to real
properties now or formerly owned, leased or operated by the Company or
any Subsidiary or to other assets or their use, except, in each case,
such as could not reasonably be expected to result in a Material
Adverse Effect;
(b) neither the Company nor any Subsidiary has stored,
disposed or otherwise released any Hazardous Materials on real
properties now or formerly owned, leased or operated by the Company or
any Subsidiary in a manner contrary to any Environmental Laws or in a
manner reasonably likely to lead to cleanup obligations or other
liability, in each case in any manner that could reasonably be expected
to result in a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Company or any Subsidiary are in compliance with
applicable Environmental Laws or permits issued under any Environmental
Laws, except where failure to comply could not reasonably be expected
to result in a Material Adverse Effect.
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5.19 PERMITTED ENCUMBRANCES.
With respect to each Designated Facility and the Permitted Encumbrances
set forth in the Mortgage in respect thereof, and in reliance upon the Title
Insurance Policy in respect of such Designated Facility and the UCC Searches
applicable to such Designated Facility, such Permitted Encumbrances do not,
individually or in the aggregate, have a material adverse effect on the
marketability or value of any such Designated Facility or the business and other
operations conducted by the Company in or on such Designated Facility.
5.20 OTHER REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company set forth in the
Collateral Trust Indenture and the Mortgages are true and correct as of the date
of Closing.
6. REPRESENTATIONS AND COVENANTS OF THE PURCHASER.
6.1 PURCHASE FOR INVESTMENT
You represent that you are purchasing the Notes for your own account or
for one or more separate accounts maintained by you or for the account of one or
more pension or trust funds and not with a view to the distribution thereof,
PROVIDED that the disposition of your or their property shall at all times be
within your or their control. You understand that the Notes have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.
6.2 SOURCE OF FUNDS.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "SOURCE") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(a) the Source is an "insurance company general account" as
defined in Department of Labor Prohibited Transaction Exemption ("PTE")
95-60 (60 FR 35925, July 12, 1995) and in respect thereof you represent
that there is no "employee benefit plan" (as defined in section 3(3) of
ERISA and section 4975(e)(1) of the Code, treating as a single plan all
plans maintained by the same employer or employee organization or
affiliate thereof) with respect to which the amount of the general
account reserves and liabilities of all contracts held by or on behalf
of such plan exceed 10% of the total reserves and liabilities of such
general account (exclusive of separate account liabilities) PLUS
surplus, as set forth in the NAIC Annual Statement filed with your
state of domicile; or
(b) if you are an insurance company, the Source does not
include assets allocated to any separate account maintained by you in
which any employee benefit plan (or its related trust) has any
interest, other than a separate account that is maintained solely in
connection with your fixed contractual obligations under which the
amounts
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payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in
any manner by the investment performance of the separate account; or
(c) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (ii) a bank collective investment fund, within the meaning of
the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed
to the Company in writing pursuant to this paragraph (c), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
(d) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling
or controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in the
Company and
(i) the identity of such QPAM and
(ii) the names of all employee benefit plans whose
assets are included in such investment fund have been
disclosed to the Company in writing pursuant to this paragraph
(d); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (f); or
(g) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
The Company shall deliver a certificate on the date of Closing with
respect to you and the Other Purchasers, and on or prior to the date of any
transfer of any Notes with respect to any subsequent holder of such Notes, which
certificate shall disclose whether (i) it is a "party in interest" (as defined
in Title I, Section 3(14) of ERISA) or a "disqualified person" (as defined in
Section 4975(e)(2) of the Code), with respect to any plan identified pursuant to
paragraphs (c) or (f) above, or (ii) with respect to any plan identified
pursuant to paragraph (d) above, it or any "affiliate" (as defined in Section
V(c) of the QPAM Exemption) has at such time, and during the immediately
preceding one year prior to such time, exercised the authority to appoint or
terminate said QPAM as manager of the assets of any plan identified in writing
pursuant to paragraph (d)
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above or to negotiate the terms of said QPAM's management agreement on behalf of
any such identified plans.
As used in this Section 6.2, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective
meanings assigned to such terms in section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1 FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each holder of Notes that is an
Institutional Investor (other than a holder of Notes that is a Competitor):
(a) QUARTERLY STATEMENTS -- within 45 days after the end of
each quarterly fiscal period in each fiscal year of the Company (other
than the last quarterly fiscal period of each such fiscal year),
duplicate copies of
(i) a consolidated balance sheet of the Company and
the Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of operations, member
equity and cash flows for the Company and the Subsidiaries for
such quarter ending,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year of the Company, all
in reasonable detail, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and certified by a Senior
Financial Officer as fairly presenting, in all material respects, the
consolidated financial position of the Company and the Subsidiaries
being reported on and their consolidated results of operations and cash
flows, subject to changes resulting from normal, recurring year-end
adjustments;
(b) ANNUAL STATEMENTS -- within 90 days after the end of each
fiscal year of the Company, duplicate copies of
(i) a consolidated balance sheet of the Company and
the Subsidiaries as at the end of such year, and
(ii) consolidated statements of operations, member
equity and cash flows for the Company and the Subsidiaries for
such year,
setting forth in each case with respect to the consolidated financial
statements in comparative form the figures for the previous fiscal year
of the Company (except, in the case of the consolidated financial
statements for 1997, such consolidated financial statements shall be in
respect of results for the 6 month period ended March 31, 1997), all in
reasonable detail, prepared in accordance with GAAP, and accompanied,
in the case of such consolidated financial statements, by
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(A) an opinion thereon of independent
certified public accountants of recognized national
standing, which opinion shall state that such
consolidated financial statements present fairly, in
all material respects, the financial position of the
companies or other entities being reported upon and
the results of their operations and cash flows and
have been prepared in conformity with GAAP, and that
the examination of such accountants in connection
with such financial statements has been made in
accordance with generally accepted auditing
standards, and that such audit provides a reasonable
basis for such opinion in the circumstances, and
(B) a certificate of such accountants
stating that they have reviewed this Agreement and
stating further whether, in making their audit, they
have become aware of any condition or event that then
constitutes a Default or an Event of Default, and, if
they are aware that any such condition or event then
exists, specifying the nature and period of the
existence thereof (it being understood that such
accountants shall not be liable, directly or
indirectly, for any failure to obtain knowledge of
any Default or Event of Default unless such
accountants should have obtained knowledge thereof in
making an audit in accordance with generally accepted
auditing standards or did not make such an audit);
(c) SEC AND OTHER REPORTS -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or
proxy statement sent by the Company to public securities holders or
cooperative members generally, and (ii) each regular or periodic
report, each registration statement (without exhibits except as
expressly requested by such holder), and each prospectus and all
amendments thereto filed by the Company with the Securities and
Exchange Commission and of all press releases and other statements made
available generally by the Company to the public concerning
developments that are Material;
(d) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- promptly, and in
any event within 5 days after a Responsible Officer becoming aware of
the existence of any Default or Event of Default or that any Person has
given any notice or taken any action with respect to a claimed default
hereunder or that any Person has given any notice or taken any action
with respect to a claimed default of the type referred to in Section
12(f), a written notice specifying the nature and period of existence
thereof and what action the Company is taking or proposes to take with
respect thereto;
(e) ERISA MATTERS -- promptly, and in any event within 5 days
after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if any,
that the Company or an ERISA Affiliate proposes to take with respect
thereto:
(i) with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date of
Closing; or
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(ii) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any ERISA Affiliate of a notice from
a Multiemployer Plan that such action has been taken by the
PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could
result in the incurrence of any liability by the Company or
any ERISA Affiliate pursuant to Title I or IV of ERISA or the
penalty or excise tax provisions of the Code relating to
employee benefit plans, or in the imposition of any Lien on
any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such
penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then
existing, could reasonably be expected to have a Material
Adverse Effect;
(f) VALUE-ADDED PAYMENTS -- (i) contemporaneously with the
delivery of the annual statements referred to in clause (b) above, a
certificate of a Senior Financial Officer setting forth (to the extent
not reflected in such annual statements) the allocation of the net
income, gains and/or losses of the Company for the fiscal year then
most recently ended to the various capital accounts of the Company
(including, without limitation, the capital reserve account, the
loss-allocated-to-members account and the retained earnings account)
and setting forth the proposed forms and amounts of any distributions
(including cash payments) in respect of such net income and/or gains to
be made during the then current fiscal year of the Company to its
members and patrons (including any holders of its capital stock,
patronage equities, units of equity participation or other equity
interests), (ii) not less than 7 days prior to the making of any
value-added payment, dividend or other distribution of cash or property
to any or all of its members or patrons (including any holders of its
capital stock, patronage equities, units of equity participation or
other equity interests) in respect of any such net income and/or gains,
the aggregate amount of such payment and the date on which the same is
to be made and (iii) not less than 7 days prior to the date on which
the Company intends to change the proposed form and/or amount of any
allocations or distributions referred to in clause (i) above, a
certificate of a Senior Financial Officer setting forth the changes the
Company intends to make in such form and/or amount and the reasons (in
reasonably sufficient detail) for such changes;
(g) NOTICES FROM GOVERNMENTAL AUTHORITY -- promptly, and in
any event within 30 days of receipt thereof, copies of any notice to
the Company from any Federal or state Governmental Authority relating
to any order, ruling, statute or other law or regulation that could
reasonably be expected to have a Material Adverse Effect; and
(h) REQUESTED INFORMATION -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company and
the Subsidiaries or relating to the ability of the Company to perform
its obligations under the Notes and the other Financing Documents as
from time to time may be reasonably requested by any such holder of
Notes.
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7.2 OFFICER'S CERTIFICATE.
Each set of financial statements delivered to a holder of Notes
entitled thereto pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be
accompanied by a certificate of a Senior Financial Officer setting forth:
(a) COVENANT COMPLIANCE -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 11.4 through Section 11.11,
inclusive, during the quarterly or annual period covered by the
statements then being furnished (including with respect to each such
Section, where applicable, the calculations of the maximum or minimum
amount, ratio or percentage, as the case may be, permissible under the
terms of such Sections, and the calculation of the amount, ratio or
percentage then in existence);
(b) EVENT OF DEFAULT -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and the Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review has not
disclosed the existence during such period of any condition or event
that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Company
to comply with any Environmental Law), specifying the nature and period
of existence thereof and what action the Company shall have taken or
proposes to take with respect thereto;
(c) COST OF CERTAIN SALES -- with respect to the quarterly or
annual period covered by the statement then being furnished, a
statement setting forth (i) the average price of a bushel of corn
purchased by the Company or any Subsidiary from its members and patrons
in respect of such period and (ii) a confirmation that such average
price of a bushel of corn is not in excess of the average bushel price
paid by the Company to obtain corn during such period in arm's-length
transactions in the relevant local elevator grain market with Persons
that are not Affiliates;
(d) OPEN POSITION -- with respect to the last day of the
quarterly or annual period covered by the statement then being
furnished, the Position Report with respect to the Company's grain and
finished goods Inventory showing in reasonable detail the Company's
Open Position as of such date; and
(e) ADM POLICIES AND STANDARDS -- with respect to an annual
period being covered by the statement then being furnished, that (i)
the ADM Policies and Standards are still in effect and have not been
amended (or, if such ADM Policies and Standards have been amended,
describing in detail the amendment thereof and attaching a copy thereof
to such certificate) and (ii) that the Company is in substantial
compliance with the ADM Policies and Standards (or, if the Company
shall not be in substantial compliance with the same, an explanation of
such noncompliance and what action the Company shall have taken or
proposes to take with respect thereto).
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7.3 INSPECTION.
The Company shall permit the representatives of each holder of Notes
that is an Institutional Investor (other than a holder of Notes that is a
Competitor):
(a) NO DEFAULT -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Company, to visit the principal executive office of the Company,
to discuss the affairs, finances and accounts of the Company and the
Subsidiaries with the officers of the Company, and (with the consent of
the Company, which consent will not be unreasonably withheld) its
independent public accountants, and (with the consent of the Company,
which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company and the Subsidiaries, all at such
reasonable times and as often as may be reasonably requested in
writing; and
(b) DEFAULT -- if a Default or Event of Default then exists,
at the expense of the Company, to visit and inspect any of the offices
or properties of the Company and the Subsidiaries, to examine all of
its and/or their respective books of account, records, reports and
other papers, to make copies and extracts therefrom, and to discuss its
and/or their respective affairs, finances and accounts with its and/or
their respective officers and independent public accountants (and by
this provision the Company and the Subsidiaries authorize said
accountants to discuss the affairs, finances and accounts of the
Company and the Subsidiaries), all at such times and as often as may be
requested.
8. PREPAYMENT OF THE NOTES.
8.1 FIXED RATE NOTE REQUIRED PREPAYMENTS.
(a) SERIES A NOTES. On September 1, 2001 and on each September
1 thereafter to and including September 1, 2006, the Company will
prepay $3,571,428.57 principal amount (or such lesser principal amount
as shall then be outstanding) of the Series A Notes at par and without
payment of a Make-Whole Amount or any premium, PROVIDED that
(i) upon any partial prepayment of, or acquisition
of, any Series A Note
(A) in connection with a Debt Offered
Prepayment Application accepted by any holder of
Series A Notes under Sections 8.7 and 11.10,
(B) in connection with any Secured
Obligation Offered Prepayment accepted by any holder
of Series A Notes under Section 8.7 and under section
4.4(e) and section 4.9(b) of the Collateral Trust
Indenture, as the case may be, or
(C) in connection with any acquisition of
Series A Notes permitted under Section 8.9,
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the principal amount of each required prepayment of
the Series A Notes becoming due under this Section
8.1(a) on and after the date of such prepayment shall
be reduced in the same proportion as the aggregate
unpaid principal amount of the Series A Notes is
reduced as a result of such prepayment or
acquisition, and
(ii) upon any partial payment of the principal of the
Series A Notes made pursuant to Section 8.3, the aggregate
principal amount of the Series A Notes so prepaid shall be
applied against and reduce the then remaining required
prepayments of the Series A Notes under this Section 8.1(a)
(including, without limitation, any required amount scheduled
to be paid on the Series A Maturity Date) in the inverse order
of the due dates of such payments.
The unpaid principal amount of each Series A Note, together with accrued unpaid
interest thereon, shall be due and payable on the Series A Maturity Date.
(b) SERIES B NOTES. On September 1, 2005 and on each September
1 thereafter to and including September 1, 2008, the Company will
prepay $24,000,000 principal amount (or such lesser principal amount as
shall then be outstanding) of the Series B Notes at par and without
payment of a Make-Whole Amount or any premium, PROVIDED that
(i) upon any partial prepayment of, or acquisition
of, any Series B Note
(A) in connection with a Debt Offered
Prepayment Application accepted by any holder of
Series B Notes under Sections 8.7 and 11.10,
(B) in connection with any Secured
Obligation Offered Prepayment accepted by any holder
of Series B Notes under Section 8.7 and under section
4.4(e) and section 4.9(b) of the Collateral Trust
Indenture, as the case may be, or
(C) in connection with any acquisition of
Series B Notes permitted under Section 8.9,
the principal amount of each required prepayment of the Series
B Notes becoming due under this Section 8.1(b) on and after
the date of such prepayment shall be reduced in the same
proportion as the aggregate unpaid principal amount of the
Series B Notes is reduced as a result of such prepayment or
acquisition, and
(ii) upon any partial payment of the principal of the
Series B Notes made pursuant to Section 8.3, the aggregate
principal amount of the Series B Notes so prepaid shall be
applied against and reduce the then remaining required
prepayments of the Series B Notes under this Section 8.1(b)
(including, without limitation, any required amount scheduled
to be paid on the Series B Maturity Date) in the inverse order
of the due dates of such payments.
The unpaid principal amount of each Series B Note, together with
accrued unpaid interest thereon, shall be due and payable on the Series
B Maturity Date.
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(c) SERIES C NOTES. On September 1, 2006 and on each September
1 thereafter to and including September 1, 2011, the Company will
prepay $6,428,571 principal amount (or such lesser principal amount as
shall then be outstanding) of the Series C Notes at par and without
payment of a Make-Whole Amount or any premium, PROVIDED that
(i) upon any partial prepayment of, or acquisition
of, any Series C Note
(A) in connection with a Debt Offered
Prepayment Application accepted by any holder of
Series C Notes under Sections 8.7 and 11.10,
(B) in connection with any Secured
Obligation Offered Prepayment accepted by any holder
of Series C Notes under Section 8.7 and under section
4.4(e) and section 4.9(b) of the Collateral Trust
Indenture, as the case may be, or
(C) in connection with any acquisition of
Series C Notes permitted under Section 8.9,
the principal amount of each required prepayment of the Series
C Notes becoming due under this Section 8.1(c) on and after
the date of such prepayment shall be reduced in the same
proportion as the aggregate unpaid principal amount of the
Series C Notes is reduced as a result of such prepayment or
acquisition, and
(ii) upon any partial payment of the principal of the
Series C Notes made pursuant to Section 8.3, the aggregate
principal amount of the Series C Notes so prepaid shall be
applied against and reduce the then remaining required
prepayments of the Series C Notes under this Section 8.1(c)
(including, without limitation, any required amount scheduled
to be paid on the Series C Maturity Date) in the inverse order
of the due dates of such payments.
The unpaid principal amount of each Series C Note, together with
accrued unpaid interest thereon, shall be due and payable on the Series
C Maturity Date.
8.2 SERIES D REQUIRED PREPAYMENTS.
On September 1, 2003 and on the last day of the third Interest Period
ending in each of the years thereafter to and including the year 2006, the
Company will prepay $20,000,000 principal amount (or such lesser principal
amount as shall then be outstanding) of the Series D Notes at par and without
payment of any premium in respect thereof, PROVIDED that
(a) upon any partial prepayment of, or acquisition of, any
Series D Note
(i) in connection with a Debt Offered Prepayment
Application accepted by any holder of Series D Notes under
Sections 8.8 and 11.10,
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(ii) in connection with any Secured Obligation
Offered Prepayment accepted by any holder of Series D Notes
under Section 8.8 and under section 4.4(e) and section 4.9(b)
of the Collateral Trust Indenture, as the case may be, or
(iii) in connection with any acquisition of Series D
Notes permitted under Section 8.9,
the principal amount of each required prepayment of the Series D Notes
becoming due under this Section 8.2 on and after the date of such
prepayment shall be reduced in the same proportion as the aggregate
unpaid principal amount of the Series D Notes is reduced as a result of
such prepayment or acquisition, and
(b) upon any partial payment of the principal of the Series D
Notes made pursuant to Section 8.4, the aggregate principal amount of
the Series D Notes so prepaid shall be applied against and reduce the
then remaining required prepayments of the Series D Notes under this
Section 8.2 (including, without limitation, any required amount
scheduled to be paid on the Series D Maturity Date) in the inverse
order of the due dates of such payments.
The principal amount of each Series D Note, together with accrued unpaid
interest thereon, shall be due and payable on the Series D Maturity Date.
8.3 OPTIONAL PREPAYMENTS OF FIXED RATE NOTES WITH MAKE-WHOLE
AMOUNT.
The Company may, at its option, upon notice as provided below, prepay
at any time all, or from time to time any part of, the Fixed Rate Notes, on a
pro rata basis in respect of all Fixed Rate Notes outstanding at such time, in
an amount not less than 5% of the aggregate principal amount of the Fixed Rate
Notes then outstanding in the case of a partial prepayment, at 100% of the
principal amount so prepaid and accrued interest thereon to the date of
prepayment, plus the Fixed Rate Make-Whole Amount determined for the prepayment
date with respect to the principal amount of each such Series of Notes being so
prepaid. The Company will give each holder of Fixed Rate Notes to be prepaid
under this Section 8.3 written notice of such optional prepayment not less than
30 days and not more than 60 days prior to the date fixed for such prepayment
(which shall be a Business Day). Each such notice shall specify such date, the
aggregate principal amount and the Series of the Fixed Rate Notes to be prepaid
on such date, the principal amount of each Fixed Rate Note held by such holder
to be prepaid (determined in accordance with Section 8.5), and the interest to
be paid on the prepayment date with respect to such principal amount being
prepaid, and shall be accompanied by a certificate of a Senior Financial Officer
as to the estimated Fixed Rate Make-Whole Amount due in connection with such
prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business Days
prior to such prepayment, the Company shall deliver to each holder of a Fixed
Rate Note to be optionally prepaid under this Section 8.3 a certificate of a
Senior Financial Officer specifying the calculation of the Fixed Rate Make-Whole
Amount in respect of such Fixed Rate Notes as of the specified prepayment date.
For the purposes of avoidance of doubt, the Company may effect multiple partial
prepayments of the Fixed Rate Notes pursuant to, and in accordance with the
terms of, this Section 8.3. Anything contained in this Section 8.3 to the
contrary notwithstanding, the Company will not
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prepay the Fixed Rate Notes under this Section 8.3 if a Default or Event of
Default shall then exist without prepaying the Notes of all Series then
outstanding, in whole or part, on a PRO RATA basis.
8.4 OPTIONAL PREPAYMENTS OF SERIES D NOTES.
The Company may, at its option, upon notice as provided below
(a) prepay on the last day of any Interest Period (which shall
be a Business Day) all or, in the case of a partial prepayment, any
part of the Series D Notes in an amount not less than 5% of the
aggregate principal amount of the Series D Notes then outstanding, at
100% of the principal amount so prepaid PLUS the Series D Make-Whole
Amount determined for the prepayment date with respect to such
principal amount, or
(b) prepay at any time on any day (other than the last day of
an Interest Period but which, in any case, shall be a Business Day) all
or any part of the Series D Notes in an amount not less than 5% of the
aggregate principal amount of the Series D Notes then outstanding in
the case of a partial prepayment, at 100% of the principal amount so
prepaid PLUS the Series D Make-Whole Amount determined for the
prepayment date with respect to such principal amount PLUS all Breakage
Costs in respect of such prepayment.
The Company will give each holder of Series D Notes written notice of each
optional prepayment under this Section 8.4 not less than 30 days and not more
than 60 days prior to the date fixed for such prepayment. Each such notice shall
specify such date, the aggregate principal amount of the Series D Notes to be
prepaid on such date, the principal amount of each Series D Note held by such
holder to be prepaid (determined in accordance with Section 8.6), the Series D
Make-Whole Amount (if any) due in connection with such prepayment, the interest
to be paid on the prepayment date with respect to such principal amount being
prepaid and whether such prepayment is being effected pursuant to clause (a) or
(b) or this Section 8.4 (and, if pursuant to clause (b), such notice shall refer
to the right of any holder of Series D Notes to Breakage Costs). The Company
shall pay all Breakage Costs in respect of any prepayment under this Section 8.4
on the later of the date fixed for such prepayment and the date which is 2
Business Days after the date on which the applicable holder of Series D Notes
being prepaid under this Section 8.4 shall have informed the Company, in
writing, of the same. For the purposes of avoidance of doubt, the Company may
effect multiple partial prepayments of the Series D Notes pursuant to, and in
accordance with, this Section 8.4. Anything contained in this Section 8.3 to the
contrary notwithstanding, the Company will not prepay the Series D Notes under
this Section 8.4 if a Default or Event of Default shall then exist without
prepaying the Notes of all Series then outstanding, in whole or part, on a PRO
RATA basis.
8.5 ALLOCATION OF FIXED RATE NOTE PARTIAL PREPAYMENTS.
In the case of each partial prepayment of Fixed Rate Notes of any
Series pursuant to Section 8.1, the principal amount of the Notes of such Series
to be prepaid shall be allocated among all of the Fixed Rate Notes of such
Series at the time outstanding in proportion, as nearly as practicable, to the
respective unpaid principal amounts thereof not theretofore called for
prepayment.
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8.6 ALLOCATION OF SERIES D PARTIAL PREPAYMENTS.
In the case of each partial prepayment of the Series D Notes pursuant
to Section 8.2, the principal amount of the Series D Notes to be prepaid shall
be allocated among all of the Series D Notes at the time outstanding in
proportion, as nearly as practicable, to the respective unpaid principal amounts
thereof not theretofore called for prepayment.
8.7 FIXED RATE NOTES; MATURITY; SURRENDER, ETC.
In the case of each prepayment of Fixed Rate Notes pursuant to this
Section 8, the principal amount of each such Fixed Rate Note to be prepaid shall
mature and become due and payable on the date fixed for such prepayment,
together with interest on such principal amount accrued to such date and the
applicable Fixed Rate Make-Whole Amount, if any. From and after such date,
unless the Company shall fail to pay such principal amount when so due and
payable, together with the interest and Fixed Rate Make-Whole Amount, if any, as
aforesaid, interest on such principal amount shall cease to accrue. Any Fixed
Rate Note paid or prepaid in full shall be surrendered to the Company and
cancelled and shall not be reissued, and no Fixed Rate Note shall be issued in
lieu of any prepaid principal amount of any Note.
Any Debt Offered Prepayment Application in respect of the Fixed Rate
Notes shall be on terms as set forth in Section 8.3 and this Section 8.7,
PROVIDED that only those holders who shall have accepted any offer in respect of
such Debt Offered Prepayment Application shall have their Fixed Rate Notes
prepaid, in whole or part, in connection therewith. Any Secured Obligation
Offered Prepayment accepted by any holder of Fixed Rate Notes shall be paid on
the terms set therefor in the Collateral Trust Indenture.
8.8 SERIES D NOTES; MATURITY; SURRENDER, ETC.
In the case of each prepayment of Series D Notes pursuant to this
Section 8, the principal amount of each Series D Note to be prepaid shall mature
and become due and payable on the date fixed for such prepayment together with
interest on such principal amount accrued to such date and the applicable Series
D Make-Whole Amount, if any. From and after such date, unless the Company shall
fail to pay such principal amount when so due and payable, together with the
interest and Series D Make-Whole Amount, if any, as aforesaid, interest on such
principal amount shall cease to accrue. Any Series D Note paid or prepaid in
full shall be surrendered to the Company and cancelled and shall not be
reissued, and no Series D Note shall be issued in lieu of any prepaid principal
amount of any Note. Any Breakage Costs due in respect of any prepayment of any
Series D Notes shall be due and payable upon the later of (i) the date fixed for
such prepayment and (ii) the date which is 2 Business Days after the date on
which the applicable holder of Series D Notes being so prepaid shall have
informed the Company, in writing, of the same.
Any Debt Offered Prepayment Application in respect of the Series D
Notes shall be on terms as set forth in Section 8.4 and this Section 8.8,
PROVIDED that only those holders who shall have accepted any offer in respect of
such Debt Offered Prepayment Application shall have their Series D Notes
prepaid, in whole or part, in connection therewith. Any Secured Obligation
Offered Prepayment accepted by any holder of Series D Notes shall be paid on the
terms set therefor in the Collateral Trust Indenture.
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8.9 PURCHASE OF NOTES.
The Company will not and will not permit any Affiliate to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes (including, without
limitation, any prepayment of the Notes contemplated in connection with a Debt
Offered Prepayment Application or in connection with a Secured Obligation
Offered Prepayment accepted by any holder of Notes). The Company will promptly
cancel all Notes acquired by it or any Affiliate pursuant to any payment,
prepayment or purchase of Notes pursuant to any provision of this Agreement and
no Notes may be issued in substitution or exchange for any such Notes.
8.10 FIXED RATE MAKE-WHOLE AMOUNT AND SERIES D MAKE-WHOLE AMOUNT.
(a) The term "FIXED RATE MAKE-WHOLE AMOUNT" means, with
respect to any Fixed Rate Note, an amount equal to the excess, if any,
of the Discounted Value of the Remaining Scheduled Payments with
respect to the Called Principal of such Fixed Rate Note over the amount
of such Called Principal, PROVIDED that the Fixed Rate Make-Whole
Amount may in no event be less than zero.
(b) The term "SERIES D MAKE-WHOLE AMOUNT" means, at any time,
with respect to any principal amount of any Series D Note that is to be
prepaid pursuant to Section 8.4 or Section 8.8 or has become or is
declared to be immediately due and payable pursuant to Section 13.1,
(i) if such time is prior to August 27, 1998, 2% of such principal
amount, (ii) if such time is prior to August 27, 1999 and is on or
after August 27, 1998, 1% of such principal amount and (iii) if such
time is on or after August 27, 1999, zero dollars.
For the purposes of determining the Fixed Rate Make-Whole Amount, the
following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Fixed Rate Note,
the principal of such Fixed Rate Note that is to be prepaid pursuant to
Section 8.3 or Section 8.7 or has become or is declared to be
immediately due and payable pursuant to Section 13.1, as the context
requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal
of any Fixed Rate Note, the amount obtained by discounting all
Remaining Scheduled Payments with respect to such Called Principal from
their respective scheduled due dates to the Settlement Date with
respect to such Called Principal, in accordance with accepted financial
practice and at a discount factor (applied on the same periodic basis
as that on which interest on such Fixed Rate Note is payable) equal to
the Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called
Principal of any Fixed Rate Note, the sum of (a) 0.50% PER ANNUM plus
(b) the yield to maturity implied by (i) the yields reported, as of
10:00 a.m. (New York City time) on the second Business Day preceding
the Settlement Date with respect to such Called Principal, on the
display designated as "Page 678" on the Dow Jones Market Service (or
such other display as
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may replace Page 678 on Dow Jones Market Service) for actively traded
U.S. Treasury securities having a maturity equal to the Remaining
Average Life of such Called Principal as of such Settlement Date, or
(ii) if such yields are not reported as of such time or the yields
reported as of such time are not ascertainable (including by
interpolation), the Treasury Constant Maturity Series Yields reported,
for the latest day for which such yields have been so reported as of
the second Business Day preceding the Settlement Date with respect to
such Called Principal, in Federal Reserve Statistical Release H. 15
(519) (or any comparable successor publication) for actively traded
U.S. Treasury securities having a constant maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement
Date. Such implied yield will be determined, if necessary, by (1)
converting U.S. Treasury bill quotations to bond-equivalent yields in
accordance with accepted financial practice and (2) interpolating
linearly between (A) the actively traded U.S. Treasury security with
the maturity closest to and greater than the Remaining Average Life and
(B) the actively traded U.S. Treasury security with the maturity
closest to and less than the Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to the Called
Principal of any Fixed Rate Note, the number of years (calculated to
the nearest one-twelfth year) obtained by dividing (i) such Called
Principal into (ii) the sum of the products obtained by multiplying (a)
the principal component of each Remaining Scheduled Payment with
respect to such Called Principal by (b) the number of years (calculated
to the nearest one-twelfth year) that will elapse between the
Settlement Date with respect to such Called Principal and the scheduled
due date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the
Called Principal of any Fixed Rate Note, all payments of such Called
Principal and interest thereon that would be due after the Settlement
Date with respect to such Called Principal if no payment of such Called
Principal were made prior to its scheduled due date, PROVIDED that if
such Settlement Date is not a date on which interest payments are due
to be made under the terms of such Fixed Rate Note, then the amount of
the next succeeding scheduled interest payment will be reduced by the
amount of interest accrued to such Settlement Date and required to be
paid on such Settlement Date pursuant to Section 8.3, Section 8.7 or
Section 13.1.
"SETTLEMENT DATE" means, with respect to the Called Principal
of any Fixed Rate Note, the date on which such Called Principal is to
be prepaid pursuant to Section 8.3 or Section 8.7 or has become or is
declared to be immediately due and payable pursuant to Section 13.1, as
the context requires.
9. INTEREST ON THE NOTES.
9.1 FIXED RATE NOTES' SEMI-ANNUAL FIXED INTEREST PAYMENTS.
(a) SERIES A NOTES. Interest (computed on the basis of a
360-day year of twelve 30-day months) shall accrue on the unpaid
principal balance of the Series A Notes at 7.57% PER ANNUM from the
date of each Series A Note, and shall be payable to the holders thereof
semi-annually, on September 1 and March 1 in each year, commencing with
the later of March 1, 1998 and the payment date next succeeding the
date of such
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Series A Note, until the principal thereof shall have become due and
payable, and, to the extent permitted by law, interest shall accrue at
a rate PER ANNUM equal to the Series A Default Rate on any overdue
payment of principal, any overdue payment of interest and any overdue
payment of Fixed Rate Make-Whole Amount with respect to any Series A
Note and shall be payable on demand.
(b) SERIES B NOTES. Interest (computed on the basis of a
360-day year of twelve 30-day months) shall accrue on the unpaid
principal balance of the Series B Notes at 7.72% PER ANNUM from the
date of each Series B Note, and shall be payable to the holders thereof
semi-annually, on September 1 and March 1 in each year, commencing with
the later of March 1, 1998 and the payment date next succeeding the
date of such Series B Note, until the principal thereof shall have
become due and payable, and, to the extent permitted by law, interest
shall accrue at a rate PER ANNUM equal to the Series B Default Rate on
any overdue payment of principal, any overdue payment of interest and
any overdue payment of Fixed Rate Make-Whole Amount with respect to any
Series B Note and shall be payable on demand.
(c) SERIES C NOTES. Interest (computed on the basis of a
360-day year of twelve 30-day months) shall accrue on the unpaid
principal balance of the series C Notes at 7.83% PER ANNUM from the
date of each Series C Note, and shall be payable to the holders thereof
semi-annually, on September 1 and March 1 in each year, commencing with
the later of March 1, 1998 and the payment date next succeeding the
date of such Series C Note, until the principal thereof shall have
become due and payable, and, to the extent permitted by law, interest
shall accrue at a rate PER ANNUM equal to the Series C Default Rate on
any overdue payment of principal, any overdue payment of interest and
any overdue payment of Fixed Rate Make-Whole Amount with respect to any
Series C Note and shall be payable on demand.
9.2 SERIES D NOTES' QUARTERLY FLOATING INTEREST PAYMENTS.
(a) FLOATING INTEREST RATE.
(i) Interest (computed on the basis of a 360-day year
for the actual days elapsed) shall accrue on the unpaid
principal balance of the Series D Notes outstanding from time
to time during each Interest Period at a rate PER ANNUM equal
to the Eurodollar Interest Rate determined in accordance with
this Section 9.2 for such Interest Period. Such interest shall
be payable in arrears in respect of such Interest Period on
the last day of such Interest Period. With respect to any
Interest Period, interest shall accrue from and including the
first day of such Interest Period to but excluding the last
day thereof. Interest accrued to but excluding the Series D
Maturity Date shall be due and payable on the Series D
Maturity Date. The rate of interest applicable to the unpaid
principal balance of the Series D Notes will in no event be
higher than the maximum rate of interest permitted by
applicable law. For the avoidance of doubt, the Eurodollar
Interest Rate applicable to the Series D Notes for the first
Interest Period shall be 7.019% PER ANNUM and thereafter for
each subsequent Interest Period the Eurodollar Interest Rate
applicable thereto shall be redetermined on the Interest Rate
Redetermination Date for such Interest Period and, as so
redetermined, shall
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become applicable to the then unpaid principal balances of the
Series D Notes on the first day of such Interest Period.
(ii) The Eurodollar Interest Rate shall be determined
by the Calculation Agent on the second Business Day preceding
the date of Closing and on each Interest Rate Redetermination
Date for each subsequent Interest Period, and the Company
shall cause the Calculation Agent to notify, on such Interest
Rate Redetermination Date in writing (via facsimile
transmission with subsequent written confirmation by U.S.
first class mail), the Company, at the address set forth in
Section 19, and each holder of Series D Notes, at its address
set forth on Schedule A (or at such other address as such
holder shall specify to the Company in writing) of such
Eurodollar Interest Rate. Each determination of a Eurodollar
Interest Rate by the Calculation Agent hereunder shall be
conclusive and binding on the Company and the holders of
Series D Notes in the absence of manifest error. In the case
of manifest error, either any holder of Series D Notes or the
Company may object to such quoted Eurodollar Interest Rate by
written notice delivered to the Company and the holders of
Series D Notes detailing the reasons for such objection. Upon
delivery of any such notice of objection the holders of Series
D Notes and the Company shall cooperate to promptly determine
the correct Eurodollar Interest Rate and such correct
Eurodollar Interest Rate shall be the applicable Eurodollar
Interest Rate for such Interest Period. Each of the holders of
Series D Notes and the Company shall make such adjustments to
the amount of interest payable on the first day of the next
succeeding Interest Period as are necessary to reflect the
application of such correct Eurodollar Interest Rate for such
Interest Period.
(iii) The "CALCULATION AGENT" shall be an Acceptable
Financial Institution appointed by the Company that is
reasonably satisfactory to the Series D Required Holders (or
in the absence of such appointment, the Calculation Agent may
be appointed by the Series D Required Holders (and may be one
or more of the holders of Series D Notes)). The Company shall
maintain at all times the appointment of a Calculation Agent,
and shall pay and be exclusively liable for all fees, if any,
charged by the Calculation Agent in connection herewith. The
initial Calculation Agent shall be ING (U.S.) Capital
Corporation and the Company shall advise in advance, in
writing, the holders of Series D Notes of any change in
respect thereof.
(b) INTEREST PERIODS. The first Interest Period shall commence
on the date of Closing. Each Interest Period subsequent to such first
Interest Period shall commence on the last day of the immediately
preceding Interest Period.
(c) OVERDUE SUMS. Any overdue payment of principal of,
interest on, Series D Make-Whole Amount in respect of, or Breakage
Costs in respect of, the Series D Notes shall bear interest, payable on
demand, for each day from and including the date payment thereof was
due to, but excluding, the date of actual payment, at a rate PER ANNUM
equal to the Series D Default Rate.
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9.3 INABILITY TO DETERMINE LIBOR.
(a) NO EURODOLLAR MARKET. If the Series D Required Holders
determine that the Eurodollar interest rate market has ceased to
function, it is impossible, impractical or illegal to readily,
currently and accurately determine the LIBOR Base Rate, or the LIE30R
Base Rate no longer currently and accurately reflects the interest
rates for obligations of a term and amount similar to the Series D
Notes, then the Series D Required Holders shall forthwith give notice
thereof to the Company and the Calculation Agent. The Series D Required
Holders shall select a substitute interest rate and margin intended to
match, as closely as reasonably possible, the general level of the
Eurodollar Interest Rate, subject to the Company's agreement, which
shall not be unreasonably withheld. With respect to any applicable
Interest Period for which such substitute interest rate shall have not
been agreed upon on or prior to the Interest Rate Redetermination Date
in respect of such Interest Period, the outstanding principal balance
of the Series D Notes shall bear interest at the Alternate Interest
Rate, determined by the Calculation Agent as of such Interest Rate
Redetermination Date upon the written request of the Company or the
Series D Required Holders.
(b) SUBSTITUTED INTEREST RATE. If, after the Interest Rate
Redetermination Date in respect of any Interest Period, a substituted
interest rate for such Interest Period shall have been agreed upon, and
the Calculation Agent shall have been notified (by the Series D
Required Holders or the Company) in writing of such substituted
interest rate, then such substituted interest rate shall be retroactive
to and effective from the first day of such Interest Period and shall
replace the Alternate Interest Rate. In such event, each reference
herein and in the Series D Notes to the "Eurodollar Interest Rate"
shall be deemed thereafter to be a reference to such substituted
interest rate and, subject to Section 9.3(d) and Section 9.4, such
substituted interest rate shall thereafter be determined by the
Calculation Agent in accordance with the terms hereof.
(c) DETERMINATIONS. Each determination of the Alternate
Interest Rate or any substituted interest rate by the Calculation Agent
pursuant to the provisions of this Agreement shall be conclusive and
binding on the holders of Series D Notes and the Company, in the
absence of manifest error. In the case of manifest error, either any
holder of Series D Notes or the Company may object to such quoted
Alternate Interest Rate or such other substituted interest rate by
written notice delivered to the Company and the holders of Series D
Notes detailing the reasons for such objection. Upon delivery of any
such notice of objection the holders of Series D Notes and the Company
shall cooperate to promptly determine the correct Alternate Interest
Rate or such other substituted interest rate and the resultant
agreed-upon interest rate shall be the Eurodollar Interest Rate for
such Interest Period.
(d) MODIFICATIONS. Without limiting the obligations of the
Company under Section 16, to the extent that the substitution of any
substituted interest rate for "Eurodollar Interest Rate" shall require
the execution and delivery of any amendments, modifications,
supplements, or additional instruments or other documents, the Company,
at its sole expense, shall execute and deliver all of the same.
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9.4 REINSTATEMENT OF EURODOLLAR INTEREST RATE.
If there has been at any time an interest rate substituted for the
Eurodollar Interest Rate in accordance with Section 9.3 and thereafter, in the
Series D Required Holders' determination, the circumstances causing such
substitution have ceased to exist, then the Series D Required Holders shall
promptly notify in writing the Company and the Calculation Agent of such
cessation, and on the then next succeeding Interest Rate Redetermination Date,
the Eurodollar Interest Rate shall be determined as provided in Section 9.2. The
provisions of Section 9.3 shall generally continue to be effective in respect of
such reinstated Eurodollar Interest Rate.
9.5 ILLEGALITY.
Any other provision in this Agreement notwithstanding, in the event
that any federal, state, local or foreign law or any governmental rule,
regulation, treaty, policy, guideline or directive in respect thereof shall make
it unlawful for any holder of Series D Notes to maintain its eurodollar funding
of such Series D Notes, then the rate of interest borne by such Series D Notes
shall automatically be converted from a rate based upon the Eurodollar Interest
Rate to a rate based upon the Alternate Interest Rate on the earlier of (a) the
last day of the then current Interest Period and (b) immediately upon
notification from such holder, and each reference to the "Eurodollar Interest
Rate" for such holder shall be deemed a reference to the "Alternate Interest
Rate."
9.6 BREAKAGE COSTS.
The Company shall compensate each holder of Series D Notes, upon its
written request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities (including
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such holder
to fund all or any portion of its Series D Notes; all of such losses, expenses
and liabilities are referred to herein with respect to any holder of a Series D
Notes as such holder's "BREAKAGE COSTS") which such holder may sustain: (a) if
any repayment in respect of such Series D Note or Notes is made on a date which
is not the last day of an Interest Period (whether or not such repayment is
required by the terms of any provision of this Agreement) or (b) as a
consequence of any other default by the Company to repay any amount due and
owing under such Series D Note or Notes when required by the terms hereof. The
obligations of the Company under this Section 9.6 shall survive payment of the
Series D Notes and the termination of this Agreement.
10. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
10.1 COMPLIANCE WITH LAW.
The Company will, and will cause each Subsidiary to, comply with all
laws, ordinances or governmental rules or regulations to which each of them is
subject, including, without limitation, Environmental Laws, and will obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses, in each case to the
extent
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necessary to ensure that non-compliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, PROVIDED that, for so long as the
Full Collateral Release Event shall not have occurred, nothing in this Section
10.1 shall affect or reduce the obligations of the Company under section 4 of
the Collateral Trust Indenture with respect to the Collateral.
10.2 INSURANCE.
The Company will, and will cause each Subsidiary to, maintain, with
financially sound and reputable insurers, insurance with respect to their
respective properties and businesses against such casualties and contingencies,
of such types, on such terms and in such amounts (including deductibles,
co-insurance and self-insurance, if adequate reserves are maintained with
respect thereto) as is customary in the case of entities of established
reputations engaged in the same or a similar business and similarly situated,
PROVIDED that, for so long as the Full Collateral Release Event shall not have
occurred, nothing in this Section 10.2 shall affect or reduce the obligations of
the Company under section 4 of the Collateral Trust Indenture with respect to
the Collateral.
10.3 MAINTENANCE OF PROPERTIES.
The Company will, and will cause each Subsidiary to, maintain and keep,
or cause to be maintained and kept, their respective properties in good repair,
working order and condition (other than ordinary wear and tear), so that the
business carried on in connection therewith may be properly conducted at all
times, PROVIDED that (a) this Section shall not prevent the Company or any
Subsidiary from discontinuing the operation and the maintenance of any of its
properties if such discontinuance is desirable in the conduct of its business
and the Company has concluded that such discontinuance could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect
or, in the case of any Designated Facility, have a material adverse effect on
the operations or value of such Designated Facility and (b) for so long as the
Full Collateral Release Event shall not have occurred, nothing in this Section
10.3 shall affect or reduce the obligations of the Company under section 4 of
the Collateral Trust Indenture with respect to the Collateral.
10.4 PAYMENT OF TAXES AND CLAIMS.
The Company will, and will cause each Subsidiary to, file all tax
returns required to be filed in any jurisdiction and to pay and discharge all
taxes shown to be due and payable on such returns and all other taxes,
assessments, governmental charges, or levies imposed on them or any of their
properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary
(including, without limitation, mechanic's liens), PROVIDED that (a) neither the
Company nor any Subsidiary need pay any such tax or assessment or claims if (i)
the amount, applicability or validity thereof is contested by the Company or
such Subsidiary on a timely basis in good faith and in appropriate proceedings,
and the Company or such Subsidiary, as the case may be, has established adequate
reserves therefor in accordance with
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GAAP on the books of the Company or such Subsidiary or (ii) the nonpayment of
all such taxes and assessments and claims in the aggregate could not reasonably
be expected to have a Material Adverse Effect and (b) for so long as the Full
Collateral Release Event shall not have occurred, nothing in this Section 10.4
shall affect or reduce the obligations of the Company under section 4 of the
Collateral Trust Indenture with respect to the Collateral.
10.5 EXISTENCE, ETC.
(a) Subject to Section 11.2, the Company will at all times
preserve and keep in full force and effect its status as a corporation
operating on a cooperative basis under applicable law, PROVIDED that
the Company, upon not less than 30 days (nor more than 60 days) prior
written notice to the holders of Notes, may change such status to a
corporate, limited liability company or other entity existence if, but
only if, after such change (and after giving effect thereto)
(i) no Default or Event of Default would exist,
(ii) neither the Company nor any Subsidiary shall
have incurred any materially adverse federal, state or local
income tax consequences as a result of such change,
(iii) the treatment of the Company and any Subsidiary
under applicable federal, state and local income tax law after
such change shall not be materially more adverse to the
Company and its Subsidiaries than such treatment prior to such
change, and
(iv) the Company will continue to operate in a
"cooperative nature," including, without limitation, (A)
having the ability to allocate losses to its equity holders in
substantially the same manner as it could allocate losses to
its members and patrons prior to such change and (B) having
the ability, either contractually or pursuant to its organic
documents, to cause its members to sell corn to the Company
pursuant to a stipulated price structure or arrangement and to
reduce the prices at which such purchases are made in order to
allocate or subsidize losses of the Company, PROVIDED that in
no case shall this clause (iv) require, or be construed to
require, that the Company maintain its current system of
allocating earnings on a patronage basis.
A Senior Financial Officer shall deliver a certificate to each holder
of Notes confirming the satisfaction of the requirements of clauses (i)
through (iv) above contemporaneously with the effecting of such change
and the Company shall execute and deliver to each holder of Notes and,
if required by applicable law, cause to be recorded in the appropriate
registry or recording office, contemporaneously with the effecting of
such change, its assumption of the due and punctual performance and
observance of each covenant and condition of this Agreement, the Other
Agreements, the Notes and the other Financing Documents to which it is
a party and shall cause to be delivered, contemporaneously with the
effecting of such change, to each holder of any Notes (x) an opinion of
nationally recognized independent counsel, or other independent counsel
reasonably satisfactory to the Required Holders, to the effect that all
agreements or instruments effecting such
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assumption are enforceable in accordance with their terms and comply
with the terms hereof and as to the tax law matters specified in
clauses (ii), (iii) and (iv) above and (y) an opinion of independent
certified public accountants of recognized national standing as to the
accounting and tax-calculation matters specified in clauses (ii), (iii)
and (iv) above.
(b) After effecting any change referred to in clause (a)
above, the Company will at all times preserve and keep in full force
and effect, subject to Section 11.2, the corporate, limited liability
company or other entity existence resulting from such change.
(c) Subject to Section 11.2 and clause (a) above, the Company
will maintain all of its rights and franchises.
(d) Subject to Section 11.2 and Section 11. 10, the Company
will at all times preserve and keep in full force and effect (i) the
corporate (or other entity) existence of each Subsidiary and (ii) the
rights and franchises of each Subsidiary unless, in the good faith
judgment of the Company, the termination of or failure to preserve and
keep in full force and effect such existence, right or franchise of any
Subsidiary could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
10.6 HEDGING
The Company will follow the hedging policies and strategies established
by its board of directors from time to time which hedging policies and
strategies shall be consistent with prudent business practices. Upon the written
request of any holder of Notes, the Company will deliver a copy of said policies
and strategies.
10.7 ARCHER DANIELS MIDLAND COMPANY
The Company will, on or prior to April 1, 1998, create written
operational policies and standards (the "ADM POLICIES AND STANDARDS") in respect
of its relationship with Archer Daniels Midland Company in light of the
investment in the Company made by Archer Daniels Midland Company, as described
in Section 4.20, for the purposes of assuring that the Company complies with and
follows all laws, ordinances or governmental rules or regulations that may be
applicable to such relationship. Reasonably promptly after the creation of the
ADM Policies and Standards, the Company shall deliver a copy of the same to each
holder of Notes.
11. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
11.1 TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any Subsidiary to, enter into
directly or indirectly any transaction or group of related transactions
(including without limitation the purchase, lease, sale or exchange of
properties of any kind or the rendering of any service) with any Affiliate
(other than a Subsidiary), except in the ordinary course and pursuant to the
reasonable requirements of the Company's or such Subsidiary's business and upon
fair and reasonable
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terms no less favorable to the Company or such Subsidiary than would be
obtainable in a comparable arm's-length transaction with a Person not an
Affiliate.
11.2 MERGER, CONSOLIDATION, ETC.
The Company will not, and will not permit any Subsidiary to,
consolidate or merge with or into any other Person or convey, transfer or lease
substantially all of its assets in a single transaction or series of
transactions to any Person (except that any Subsidiary may consolidate or merge
with or into, or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to, the Company or any other
Subsidiary), PROVIDED that the foregoing restrictions do not apply to
(a) the consolidation or merger of the Company with or into,
or the conveyance, transfer or lease of substantially all of the assets
of the Company in a single transaction or series of transactions to,
any Person so long as:
(i) the successor formed by such consolidation or the
survivor of such merger or the Person that acquires by
conveyance, transfer or lease substantially all of the assets
of the Company as an entirety, as the case may be (the
"SUCCESSOR COMPANY"), shall be a solvent cooperative,
corporation, limited liability company or general partnership
organized and existing under the laws of the United States of
America or any State thereof (including, without limitation,
the District of Columbia) and, if the Successor Company is not
a cooperative, the Company shall have complied with the
requirements of Section 10.5(a);
(ii) if the Company is not the Successor Company,
such Successor Company shall have executed and delivered to
each holder of Notes its assumption of the due and punctual
performance and observance of each covenant and condition of
this Agreement, the Other Agreements, the Notes and the other
Financing Documents to which it (or the Company) is (or was) a
party, the Successor Company shall have taken valid title to
each of the Designated Facilities (subject to the provisions
of each Financing Document) and the Successor Company shall
have caused to be delivered to each holder of any Notes an
opinion of nationally recognized independent counsel, or other
independent counsel reasonably satisfactory to the Required
Holders, to the effect that all agreements or instruments
effecting such assumption are enforceable in accordance with
their terms and comply with the terms hereof; and
(iii) immediately after giving effect to such
transaction (x) no Default or Event of Default would exist and
(y) the Company would be in compliance with the provisions of
Section 11.5 (assuming that the date of any determination
under this clause (iii) were the end of a fiscal quarter of
the Company).
(b) No such conveyance, transfer or lease of substantially all
of the assets of the Company under this Section 11.2 shall have the
effect of releasing the Company or any Successor Company from its
liability under this Agreement, the Notes or the other Financing
Documents.
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11.3 LINE OF BUSINESS.
The Company will not, and will not permit any Subsidiary to, engage in
any business if, as a result, the general nature of the business in which the
Company and the Subsidiaries, taken as a whole, would then be engaged would be
substantially changed from the general nature of the business in which the
Company and the Subsidiaries, taken as a whole, are engaged on the date of
Closing as described in the Memorandum.
11.4 ADJUSTED TOTAL MEMBER EQUITIES.
The Company will not, as of the end of any fiscal quarter of the
Company, permit Adjusted Total Member Equities to be less than the Minimum
Equity Amount at such time.
As used herein, "MINIMUM EQUITY AMOUNT" means, at any time,
the SUM of
(a) $270,000,000, PLUS
(b) an aggregate amount equal to 20% of Consolidated Net
Earnings (but only if a positive number) for each completed fiscal year
of the Company the last day of which falls within an ATME Gross-Up
Period.
11.5 LIMITATION ON FUNDED DEBT.
The Company will not, as of the end of any fiscal quarter of the
Company, permit the ratio of Consolidated Funded Debt at such time to
Consolidated Capitalization at such time to exceed
(a) if such fiscal quarter ends on or before June 30, 2000,
then 0.60:1.0 and
(b) if such fiscal quarter ends after June 30, 2000, then
0.55:1.0.
11.6 CURRENT RATIO.
The Company will not at any time permit the ratio of Consolidated
Current Assets to Consolidated Current Liabilities to be less than 1.1 to 1.0.
11.7 LIENS IN RESPECT OF COLLATERAL.
At all times prior to the occurrence of the Full Collateral Release
Event, the Company will not, and will not permit any Subsidiary to, directly or
indirectly create, incur, assume or permit to exist (upon the happening of a
contingency or otherwise) any Lien on or with respect to any property that at
such time constitutes Collateral, whether now owned or held or hereafter
acquired, or any income or profits therefrom or assign or otherwise convey any
right to receive such income or profits, provided that the foregoing restriction
and limitation shall not apply to:
(a) Liens created with respect to the Collateral pursuant to
the Financing Documents;
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(b) Liens existing on the Collateral on the date of Closing
and set forth as "Permitted Exceptions" in the Mortgages;
(c) Liens created with respect to the Collateral
(i) arising from judicial attachments and judgments,
(ii) securing appeal bonds or supersedes bonds, or
(iii) arising in connection with court proceedings
(including, without limitation, surety bonds and letters of
credit or any other instrument serving a similar purpose),
PROVIDED that (1) the execution or other enforcement of such Liens is
effectively stayed, (2) the claims secured thereby are being actively
contested in good faith and by appropriate proceedings, (3) adequate
book reserves shall have been established and maintained with respect
thereto in accordance with GAAP, (4) such Liens do not materially
impair the use OF the property subject thereto or materially impair the
value or marketability of such property and (5) the requirements of
section 4.8 of the Collateral Trust Indenture with respect to the claim
secured thereby have been satisfied; and
(d) Liens in respect of such property that are permitted
pursuant to section 3.2(c), section 4.5 and section 4.8 of the
Collateral Trust Indenture.
11.8 LIENS.
At all times upon and following the occurrence of the Full Collateral
Release Event, the Company will not, and will not permit any Subsidiary to,
directly or indirectly create, incur, assume or permit to exist (upon the
happening of a contingency or otherwise) any Lien on or with respect to any
property or asset (including, without limitation, any document or instrument in
respect of goods or accounts receivable) of the Company or any such Subsidiary,
whether now owned or held or hereafter acquired, or any income or profits
therefrom or assign or otherwise convey any right to receive such income or
profits, PROVIDED that the foregoing restrictions and limitations shall not
apply to:
(a) (i) Liens for taxes, assessments or other governmental
charges the payment of which is not at the time required by
Section 10.4, and
(ii) statutory Liens of landlords and Liens of
carriers, warehousemen, mechanics, materialmen, inventory
suppliers and other similar Liens, in each case, incurred in
the ordinary course of business for sums not yet due or the
payment of which is not at the time required by Section 10.4;
(b) Liens
(i) arising from judicial attachments and judgments,
(ii) securing appeal bonds or supersedes bonds, or
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(iii) arising in connection with court proceedings
(including, without limitation, surety bonds and letters of
credit or any other instrument serving a similar purpose),
PROVIDED that (1) the execution or other enforcement of such Liens is
effectively stayed, (2) the claims secured thereby are being actively
contested in good faith and by appropriate proceedings and (3) adequate
book reserves shall have been established and maintained with respect
thereto in accordance with GAAP;
(c) Liens incurred or deposits made in the ordinary course of
business (i) in connection with workers' compensation, unemployment
insurance and other types of social security or retirement benefits, or
(ii) to secure (or to obtain letters of credit that secure) the
performance of tenders, statutory obligations, surety bonds, appeal
bonds, bids, leases (other than Capital Leases), performance bonds,
purchase, construction or sales contracts and other similar
obligations, in each case not incurred or made in connection with the
borrowing of money, the obtaining of advances or credit or the payment
of the deferred purchase price of property, and which Liens do not, in
the aggregate, materially impair the use of the property subject
thereto in the operation of the business of the Company and the
Subsidiaries taken as a whole, or the value of such property for the
purposes of such business;
(d) leases or subleases granted to others, easements,
rights-of-way, restrictions and other similar charges or encumbrances,
in each case incidental to, and not interfering with, the ordinary
conduct of the business of the Company and the Subsidiaries, PROVIDED
that such Liens do not, in the aggregate, materially detract from the
value of such property;
(e) Liens existing at the time of the occurrence of the Full
Collateral Release Event but not incurred in anticipation thereof;
(f) Liens renewing, extending or replacing Liens permitted by
clause (e) above, PROVIDED that all of the following conditions are
satisfied:
(i) no such new Lien shall extend to any property of
the Company or any Subsidiary other than property already
encumbered by the existing Lien being so renewed or replaced,
(ii) the principal amount of the underlying
obligation secured by such existing Lien outstanding at the
time of such renewal or replacement shall not be increased in
connection with such renewal or replacement, and
(iii) such new Lien is being incurred in connection
with the refinancing of the property subject to such existing
Lien, which refinancing is also permitted under this
Agreement;
(g) Liens on property or assets of any Subsidiary securing
Debt owing to the Company or any other Subsidiary;
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(h) Liens created to secure all or any part of the purchase
price, or to secure Debt incurred or assumed to pay all or any part of
the purchase price or cost of construction, of property (or any
improvement thereon) acquired or constructed by the Company or any
Subsidiary, PROVIDED that all of the following conditions are
satisfied:
(i) any such Lien shall extend solely to the item or
items of such property (or improvement thereon) so acquired or
constructed and, if required by the terms of the instrument
originally creating such Lien, other property which is an
improvement to or is acquired for specific use in connection
with such acquired or constructed property (or improvement
thereon) or which is real property being improved by such
acquired or constructed property (or improvement thereon),
(ii) the principal amount of the Debt secured by any
such Lien shall at no time exceed an amount equal to the
lesser of (A) the cost to such Person of the property (or
improvement thereon) so acquired or constructed and (B) the
Fair Market Value (as determined in good faith by the Company)
of such property (or improvement thereon) at the time of such
acquisition or construction, and
(iii) any such Lien shall be created
contemporaneously with, or within 180 days after, the
acquisition or construction of such property;
(i) Liens existing on property of a Person immediately prior
to its being consolidated with or merged into the Company or any
Subsidiary or immediately prior to its becoming a Subsidiary, or any
Lien existing on any property acquired by any the Company or any
Subsidiary at the time such property is so acquired (whether or not the
Debt secured thereby shall have been assumed), PROVIDED that
(i) no such Lien shall have been created or assumed
in contemplation of such consolidation or merger or such
Person's becoming a Subsidiary or such acquisition of
property,
(ii) each such Lien shall extend solely to the item
or items of property so acquired and, if required by the terms
of the instrument originally creating such Lien, other
property which is an improvement to or is acquired for
specific use in connection with such acquired property, and
(iii) the principal amount of the Debt secured by any
such Lien shall at no time exceed an amount equal to the Fair
Market Value (as determined in good faith by the Company) of
such property (or improvement thereon) at the time of such
consolidation, merger, becoming a Subsidiary or acquisition;
and
(j) any Lien (other than a Lien permitted under clause (a)
through clause (i) above) securing any Debt of the Company or any
Subsidiary, which Debt, as of the date of the creation of such Lien,
does not exceed the remainder of
(i) 15% of Total Member Equities, determined as of
the end of the most recently ended fiscal quarter of the
Company, MINUS
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(ii) the sum (without duplication) of (A) the
aggregate principal amount of all Subsidiary Debt outstanding
as of the date of creation of such Lien PLUS (B) the total
amount of all other secured Debt outstanding as of the date of
creation of such Lien and previously incurred under this
clause (j).
At any time after the occurrence of the Full Collateral Release Event, no Lien
permitted under Section 11.8(e), Section 11.8(f), Section 11.8(g), Section
11.8(h) or Section 11.8(j) shall encumber any account receivable or inventory of
the Company (as such terms are defined in the Uniform Commercial Code of the
State of New York).
The holders of Notes acknowledge that the Collateral Trustee, as is
provided for in section 7.1 of the Collateral Trust Indenture, may not have
delivered releases, termination statements or satisfaction pieces to the Company
or the Subsidiaries in respect of all of the Liens in and to the Collateral upon
the occurrence of the Full Collateral Release Event. To the extent that any such
Lien shall not be so terminated, released or otherwise satisfied, such Lien
shall be deemed to be otherwise permitted under this Section 11.8. Nothing in
this paragraph shall excuse or grant any additional grace period to the
Collateral Trustee in connection with its responsibility to so release,
terminate or satisfy such Liens.
11.9 INCURRENCE OF SUBSIDIARY DEBT
At all times upon and following the occurrence of the Full Collateral
Release Event, the Company will not permit any Subsidiary to create, incur or
become liable in respect of any Debt, PROVIDED that the foregoing restriction
and limitation shall not apply to any Debt
(a) owing to the Company or any other Subsidiary or
(b) the principal amount of which, as of the date of the
creation or incurrence thereof, does not exceed the remainder of
(i) 15% of Total Member Equities, determined as of
the end of the most recently ended fiscal quarter of the
Company, MINUS
(ii) the sum (without duplication) of (A) the total
amount of all other Debt outstanding that is secured by Liens
permitted under clause (j) of Section 11.8 and (B) the
aggregate principal amount of all Subsidiary Debt then
outstanding.
11.10 SALE OF ASSETS, ETC.
The Company will not, and will not permit any Subsidiary to, make any
Transfer, PROVIDED that the foregoing restriction does not apply to a Transfer
if:
(a) the property that is the subject of such Transfer
constitutes either (i) inventory held for sale or (ii) equipment,
fixtures, supplies or materials no longer required in the operation of
the business of the Company and the Subsidiaries or that is obsolete,
and, in each case, such Transfer is in the ordinary course of business;
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(b) such Transfer is from a Subsidiary to the Company or a
Wholly-Owned Subsidiary;
(c) such Transfer is subject to Section 11.2 and satisfies the
requirements thereof;
(d) such Transfer is an issuance by the Company of (i)
directors' qualifying capital stock or other similar equity interests
or (ii) common stock, units of equity participation or other similar
equity interests to members or patrons; or
(e) such Transfer is not a Transfer described in clause (a)
through clause (d) above (each such Transfer under this clause (e) is
referred to as a "BASKET TRANSFER"), and all of the following
conditions shall have been satisfied with respect to such Transfer:
(i) in the good faith opinion of the Company, the
Transfer is in exchange for consideration with a Fair Market
Value at least equal to that of the property exchanged, and is
in the best interests of the Company,
(ii) immediately after giving effect to such Transfer
(x) no Default or Event of Default would exist and (y) the
Company would be in compliance with the provisions of Section
11.5 (assuming that the date of any determination under this
clause (ii) were the end of a fiscal quarter of the Company),
and
(iii) immediately after giving effect to such
Transfer,
(A) the book value of all property that was
the subject of each Basket Transfer occurring in the
then current fiscal year of the Company would not
exceed 10% of Consolidated Total Assets as of the end
of the then most recently ended fiscal quarter of the
Company, and
(B) the book value of all property that was
the subject of each Basket Transfer occurring on or
after the date of Closing would not exceed 25% of
Consolidated Total Assets as of the end of the then
most recently ended fiscal quarter of the Company.
If the Net Proceeds Amount for any Basket Transfer is
applied to a Debt Offered Prepayment Application and/or is
applied to, or committed in writing to, a Property
Reinvestment Application, in each case within 270 days after
the consummation of such Transfer (and, in the case of any
such commitment, such Property Reinvestment Application is
actually consummated within 90 days after the expiration of
such 270 day period), then, as of the date the Net Proceeds
Amount, if any, is so applied, such Basket Transfer shall be
deemed not to be a "Basket Transfer" for purposes of this
clause (e).
For purposes of determining the book value of any property that is the
subject of a Transfer, such book value shall be the net book value of such
property, as determined in accordance with GAAP, at the time of the consummation
of such Transfer, PROVIDED that, in the
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case of a Transfer of any capital stock or other equity interests of a
Subsidiary, the book value thereof shall be deemed to be an amount equal to
(x) the remainder (determined after eliminating all
intercompany transactions, assets and liabilities in accordance with
GAAP) of
(1) the book value of the total net assets of such
Subsidiary LESS
(2) the liabilities of such Subsidiary TIMES
(y) a percentage that is equal to the percentage of total
equity interests of such Subsidiary attributable to the capital stock
or other equity interest being so Transferred.
Notwithstanding the foregoing, (aa) the Company will not make any Transfer of
any property constituting Collateral unless expressly permitted by the
Collateral Trust Indenture or by the Mortgage applicable to such Collateral and
(bb) neither the Company nor any Subsidiary will make any Transfer of any of its
accounts receivable other than in connection with a Transfer permitted under
clauses (b) or (c) of this Section 11.10. Nothing in this Section 11.10 shall
apply to the granting of any security interest or Lien in any property of the
Company or any Subsidiary otherwise permitted to be granted under this
Agreement.
11.11 CERTAIN DISTRIBUTIONS.
The Company will not make any value-added payments or other
distribution of cash, cash equivalents or similar property in respect of its
capital stock, patronage equities, units of equity participation or other equity
interests to its members or patrons at any time during the existence of a
Default or an Event of Default or if, after giving effect thereto, a Default or
an Event of Default would exist.
11.12 INTEREST COVERAGE.
Following the occurrence of the Full Collateral Release Event, the
Company will not, as of the end of any fiscal quarter of the Company, permit the
ratio of Consolidated EBITDA to Consolidated Interest Expense to be less than
1.5:1.0 for the period of the then most recently ended 8 fiscal quarters of the
Company; PROVIDED that a failure to comply with this covenant will not
constitute a Default or an Event of Default unless such failure continues for 2
consecutive fiscal quarters of the Company.
11.13 AMENDMENTS TO CERTAIN ADM AGREEMENTS.
The Company shall not make or consent to any amendment to the ADM
Transaction Agreement or the ADM Stockholder Agreement if such amendment would
result in a Default or an Event of Default. Without the prior written consent of
the Required Holders (which consent will not be unreasonably withheld), the
Company will not permit the non-voting units of equity participation acquired by
Archer Daniels Midland Company pursuant to the ADM Transaction Agreement to be
converted to voting units of equity participation or to permit such non-voting
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units of equity participation to otherwise be granted common stock voting rights
in respect of the Company.
12. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and
payable, whether at maturity or at a date fixed for prepayment or by
declaration or otherwise; or
(b) the Company defaults in the payment of any interest on any
Note or any Breakage Costs for more than 5 Business Days after the same
becomes due and payable; or
(c) the Company defaults in the performance of or compliance
with any term contained in any of Section 10.2, Section 11.2, Section
11.4 through Section 11.13, inclusive, or Section 7.1 (d); or
(d) the Company defaults in the performance of or compliance
with any term contained herein or in any other Financing Document
(other than those referred to in paragraphs (a), (b), (c) and (k) of
this Section 12) and such default is not remedied within 30 days after
the earlier of (i) a Responsible Officer obtaining actual knowledge of
such default and (ii) the Company receiving written notice of such
default from any holder of a Note or the Collateral Trustee (any such
written notice to be identified as a "notice of default" and to refer
specifically to this paragraph (d) of Section 12), PROVIDED that the
occurrence of any "event of default" under, and as defined in, the
Collateral Trust Indenture or any Mortgage shall, after the expiration
of any grace period in respect thereof as provided for therein, be
deemed to be an Event of Default under this clause (d) (without giving
effect to any grace period provided in this Section 12(d)); or
(e) any representation or warranty made in writing by or on
behalf of the Company or by any officer of the Company in this
Agreement, any other Financing Document or in any writing furnished in
connection with the transactions contemplated hereby or thereby proves
to have been false or incorrect in any material respect on the date as
of which made; or
(f) (i) the Company or any Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of
any principal of or premium or make-whole amount or interest
on any indebtedness (other than Debt under this Agreement and
the Notes) beyond any period of grace provided with respect
thereto, that individually or together with such other
indebtedness as to which any such failure exists has an
aggregate outstanding principal amount of at least
$10,000,000, or
(ii) the Company or any Subsidiary is in default in
the performance of or compliance with any term of any evidence
of any indebtedness (other than
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indebtedness under this Agreement and the Notes), that
individually or together with such other indebtedness as to
which any such failure exists has an aggregate outstanding
principal amount of at least $10,000,000, or of any mortgage,
indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or
condition such indebtedness has become, or has been declared
(or one or more Persons are entitled to declare such
indebtedness to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment,
or
(iii) as a consequence of the occurrence or
continuation of any event or condition (other than the passage
of time or the right of the holder of indebtedness to convert
such indebtedness into equity interests),
(A) the Company or any Subsidiary has become
obligated to purchase or repay indebtedness before
its regular maturity or before its regularly
scheduled dates of payment in an aggregate
outstanding principal amount of at least $10,000,000,
or
(B) one or more Persons have the right to
require the Company or any Subsidiary to purchase or
repay such indebtedness; or
(g) the Company or any Subsidiary (i) is generally not paying,
or admits in writing its inability to pay, its debts as they become
due, (ii) files, or consents by answer or otherwise to the filing
against it of, a petition for relief or reorganization or arrangement
or any other petition in bankruptcy, for liquidation or to take
advantage of any bankruptcy, insolvency, reorganization, moratorium or
other similar law of any jurisdiction, (iii) makes an assignment for
the benefit of its creditors, (iv) consents to the appointment of a
custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property,
(v) is adjudicated as insolvent or to be liquidated, or (vi) takes
cooperative or corporate action for the purpose of any of the
foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by any the
Company or any Subsidiary, a custodian, receiver, trustee or other
officer with similar powers with respect to the Company or any
Subsidiary or with respect to any substantial part of the property of
the Company or any Subsidiary, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition
in bankruptcy or for liquidation or to take advantage of any bankruptcy
or insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any Subsidiary, or any such
petition shall be filed against the Company or any Subsidiary and such
petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $10,000,000 are rendered against the Company
or any one or more Subsidiaries and which judgments are not, within 60
days (or such lesser period of time as applicable law allows a judgment
creditor to levy on the assets of the Company and such Subsidiaries)
after entry thereof, bonded, discharged or stayed pending appeal, or
are not discharged within 60 days (or such lesser period of time as
applicable law allows
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a judgment creditor to levy on the assets of the Company and such
Subsidiaries) after the expiration of such stay; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part
thereof or a waiver of such standards or extension of any
amortization period is sought or granted under section 412 of
the Code,
(ii) a notice of intent to terminate any Plan shall
have been or is reasonably expected to be filed with the PBGC
or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer
any Plan or the PBGC shall have notified the Company or any
ERISA Affiliate that a Plan may become a subject of any such
proceedings,
(iii) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of
ERISA) under all Plans, determined in accordance with Title IV
of ERISA, shall exceed $5,000,000,
(iv) the Company or any ERISA Affiliate shall have
incurred or is reasonably expected to incur any liability
pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans,
(v) the Company or any ERISA Affiliate withdraws from
any Multiemployer Plan, or
(vi) the Company or any Subsidiary establishes or
amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would
increase the liability of the Company or such Subsidiary
thereunder;
and any such event or events described in clauses (i) through (vi)
above, either individually or together with any other such event or
events, could reasonably be expected to have a Material Adverse Effect;
or
(k) any Financing Document creating or granting a security
interest or Lien in and to the Collateral in favor of the Collateral
Trustee shall cease to be in full force and effect, except as otherwise
permitted or provided for under the terms of the Financing Documents,
or the Company shall deny or disaffirm the validity of any such
security interest or Lien.
As used in Section 12(j), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE
WELFARE BENEFIT PLAN" shall have the respective meanings assigned to such terms
in section 3 of ERISA.
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13. REMEDIES ON DEFAULT, ETC.
13.1 ACCELERATION.
(a) If an Event of Default with respect to the Company
described in paragraph (g) or paragraph (h) of Section 12 (other than
an Event of Default described in clause (i) of paragraph (g) or
described in clause (vi) of paragraph (g) by virtue of the fact that
such clause encompasses clause (i) of paragraph (g)) has occurred, all
the Notes then outstanding shall automatically become immediately due
and payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 35% in principal amount
of the Notes at the time outstanding may at any time at its or their
option, by notice or notices to the Company, declare all the Notes then
outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 12 has occurred and is continuing, any holder or holders of
Notes at the time outstanding affected by such Event of Default may at
any time, at its or their option, by notice or notices to the Company,
declare all the Notes held by it or them to be immediately due and
payable.
Upon any Notes becoming due and payable under this Section 13.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, PLUS (x) all accrued and
unpaid interest thereon and (y) with respect to Fixed Rate Notes of each Series,
the Fixed Rate Make-Whole Amount determined in respect of such Series and such
principal amount (to the full extent permitted by applicable law), PLUS (z) with
respect to the Series D Notes, the Series D Make-Whole Amount determined in
respect of such principal amount (to the full extent permitted by applicable
law) and all Breakage Costs in respect of such Notes (to the full extent
permitted by applicable law), shall all be immediately due and payable, in each
and every case without presentment, demand, protest or further notice, all of
which are hereby waived. The Company acknowledges, and the parties hereto agree,
that each holder of a Note has the right to maintain its investment in the Notes
free from repayment by the Company (except as herein specifically provided for)
and that the provision for payment of a Make-Whole Amount by the Company in the
event that the Notes are prepaid or are accelerated as a result of an Event of
Default, is intended to provide compensation for the deprivation of such right
under such circumstances.
13.2 OTHER REMEDIES.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 13.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
The holders of Notes shall have all of the rights and remedies in favor of, or
for the benefit of, such holders under the Collateral Trust Indenture and the
other Financing Documents in respect of the Collateral, it being expressly
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understood that no such right or remedy is intended to be exclusive of any other
right or remedy; but each and every right and remedy shall be cumulative and
shall be in addition to every other right and remedy given herein, in any other
Financing Document or now or hereafter existing at law or in equity or by
statute or otherwise, and may be exercised, or caused to be exercised, from time
to time as is provided in the Collateral Trust Indenture and such other
Financing Documents.
13.3 RESCISSION.
At any time after any Notes have been declared due and payable pursuant
to clause (b) or clause (c) of Section 13.1 the holders of more than 65% in
principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue interest on the Notes, all principal due and
payable on any Notes other than by reason of such declaration, and all interest
on such overdue principal, if any, all Breakage Costs, if any, and any
Make-Whole Amount that is due and payable in respect of the Notes other than by
reason of such declaration and any interest thereon and (to the extent permitted
by applicable law) any overdue interest in respect of the Notes, at the Series A
Default Rate, Series B Default Rate, Series C Default Rate or Series D Default
Rate, as the case may be, (b) all Events of Default and Defaults, other than
non-payment of amounts that have become due solely by reason of such
declaration, have been cured or have been waived pursuant to Section 18, and (c)
no judgment or decree has been entered for the payment of any monies due
pursuant hereto or to the Notes. No rescission and annulment under this Section
13.3 will extend to or affect any subsequent Event of Default or Default or
impair any right consequent thereon.
13.4 NO WAIVERS OR ELECTION OF REMEDIES, EXPENSES, ETC.
No course of dealing and no delay on the part of any holder of any Note
in exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Company under Section 16, the Company
will pay to the holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 13, including, without limitation,
reasonable attorneys' fees, expenses and disbursements.
14. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
14.1 REGISTRATION OF NOTES.
The Company shall keep at its principal executive office a register for
the registration and registration of transfers of Notes. The name and address of
each holder of one or more Notes, each transfer thereof and the name and address
of each transferee of one or more Notes shall be registered in such register.
Prior to due presentment for registration of transfer, the Person in whose name
any Note shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes hereof, and the Company shall not be affected by any
notice or knowledge to the contrary. The Company shall give to any holder of a
Note that is an
48
<PAGE>
Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.
14.2 TRANSFER AND EXCHANGE OF NOTES.
Upon surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note and of the same Series as such surrendered Note. Each such new
Note shall be payable to such Person as such holder may request and shall be
substantially in the form of Exhibit 1A, Exhibit 1B, Exhibit 1C or Exhibit 1D,
as the case may be. Each such new Note shall be dated and bear interest from the
date to which interest shall have been paid on the surrendered Note or dated the
date of the surrendered Note if no interest shall have been paid thereon. The
Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $500,000, PROVIDED that
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $500,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representation set forth in
Section 6.2, PROVIDED that such holder may (in reliance upon information
provided by the Company, which shall not be unreasonably withheld) make a
representation to the effect that the purchase by such holder of any Note will
not constitute a violation under Section 406(a) of ERISA (or any successor
provision thereto or any of the rules or regulations promulgated in connection
therewith).
14.3 REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (PROVIDED that if the holder of such Note
is, or is a nominee for, an original purchaser or a Qualified
Institutional Buyer, such Person's own unsecured agreement of indemnity
shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, of the same Series, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated Note
or dated the date of such lost, stolen, destroyed or mutilated Note if no
interest shall have been paid thereon.
49
<PAGE>
15. PAYMENTS ON NOTES.
15.1 PLACE OF PAYMENT.
Subject to Section 15.2, payments of principal, Make-Whole Amount, if
any, and interest becoming due and payable on the Notes shall be made in
Marshall, Minnesota at the principal office of the Company in such jurisdiction.
The Company may at any time, by notice to each holder of a Note, change the
place of payment of the Notes so long as such place of payment shall be either a
principal office of the Company in the United States or a principal office of a
bank or trust company in the United States.
15.2 HOME OFFICE PAYMENT.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 15.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
make-Whole Amount, if any, Breakage Costs, if any, and interest by the method
and at the address specified for such purpose below your name in Schedule A, or
by such other method or at such other address as you shall have from time to
time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, you shall
surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of
payment most recently designated by the Company pursuant to Section 15.1. Prior
to any sale or other disposition of any Note held by you or your nominee you
will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Company in exchange for a new Note or Notes of the same Series
as such surrendered Note pursuant to Section 14.2. The Company will afford the
benefits of this Section 15.2 to any Institutional Investor that is the direct
or indirect transferee of any Note purchased by you under this Agreement and
that has made the same agreement relating to such Note as you have made in this
Section 15.2.
16. EXPENSES, ETC.
16.1 TRANSACTION EXPENSES.
Whether or not the transactions contemplated hereby are consummated,
the Company will pay all costs and expenses (including reasonable attorneys'
fees of a special counsel (and, if reasonably required, local or other counsel)
for all of the holders of Notes) incurred by you and each Other Purchaser or
holder of a Note in connection with such transactions and in connection with any
amendments, waivers or consents under or in respect of this Agreement, the Notes
or the other Financing Documents (whether or not such amendment, waiver or
consent becomes effective), including, without limitation: (a) the costs and
expenses incurred in enforcing or defending (or determining whether or how to
enforce or defend) any rights under this Agreement, the Notes or the other
Financing Documents or in responding to any subpoena or other legal process or
informal investigative demand issued in connection with this Agreement, the
Notes or the other Financing Documents, or by reason of being a holder of any
Note, (b) the costs and expenses, including financial advisors' fees, incurred
in connection with the insolvency or
50
<PAGE>
bankruptcy of the Company or any Subsidiary or in connection with any work-out
or restructuring of the transactions contemplated hereby, by the Notes or by the
other Financing Documents, (c) all transfers, stamp, documentary or other
similar taxes, assessments or charges levied by any Governmental Authority in
respect of this Agreement, the Notes or the other Financing Documents or any
other document referred to herein or therein and all costs, expenses, taxes,
assessments and other charges incurred in connection with any filing,
registration, recording or perfection of any security interest contemplated by
any Financing Document or any other document referred to therein, and (d) all
costs, expenses and other charges in respect of title insurance and surveys
procured with respect to the Liens created pursuant to the Mortgage. The Company
will pay, and will save you and each other holder of a Note harmless from, all
claims in respect of any fees, costs or expenses if any, of brokers and finders
(other than those retained by you). The Company will pay all of the costs,
expenses and fees of the Collateral Trustee as provided for in the Collateral
Trust Indenture.
16.2 SURVIVAL.
The obligations of the Company under this Section 16 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement, the Notes or the other Financing Documents, and the
termination of this Agreement and the other Financing Documents.
17. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein and in the other
Financing Documents shall survive the execution and delivery of this Agreement,
the Notes and the other Financing Documents, the purchase or transfer by you of
any Note or portion thereof or interest therein and the payment of any Note, and
may be relied upon by any subsequent holder of a Note, regardless of any
investigation made at any time by or on behalf of you or any other holder of a
Note. All statements contained in any certificate or other instrument delivered
by or on behalf of the Company pursuant to this Agreement or the other Financing
Documents shall be deemed representations and warranties of the Company under
this Agreement. Subject to the preceding sentence, this Agreement, the Notes and
the other Financing Documents embody the entire agreement and understanding
between you and the Company and supersede all prior agreements and
understandings relating to the subject matter hereof.
18. AMENDMENT AND WAIVER.
18.1 REQUIREMENTS.
This Agreement and the Notes may be amended, and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of any of Sections 1, 2, 3, 4, 5, 6 and 22, or any defined term (as
it is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding affected thereby, (i) subject to
the provisions of Section 13 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or change the rate
or change the time of payment or method of computation of interest or of
51
<PAGE>
the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any such
amendment or waiver or which are required to make any determination or take or
consent to any other action under this Agreement or any other Financing
Document, or (iii) amend any of Sections 8, 12(a), 12(b), 13, 18 and 21.
18.2 SOLICITATION OF HOLDERS OF NOTES.
(a) SOLICITATION. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with
sufficient information sufficiently far in advance of the date a
decision is required, to enable such holder to make an informed and
considered decision with respect to any proposed amendment, waiver or
consent in respect of any of the provisions hereof or of the Notes. The
Company will deliver executed or true and correct copies of each
amendment, waiver or consent effected pursuant to the provisions of
this Section 18 to each holder of outstanding Notes promptly following
the date on which it is executed and delivered by, or receives the
consent or approval of, the requisite holders of Notes.
(b) PAYMENT. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any
holder of Notes as consideration for or as an inducement to the
entering into by any holder of Notes of any waiver or amendment of any
of the terms and provisions hereof or the other Financing Documents
unless such remuneration is concurrently paid, or security is
concurrently granted, on the same terms, ratably to each holder of
Notes then outstanding even if such holder did not consent to such
waiver or amendment.
18.3 BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this Section 18
applies equally to all holders of Notes and is binding upon them and upon each
future holder of any Note and upon the Company without regard to whether such
Note has been marked to indicate such amendment or waiver. No such amendment or
waiver will extend to or affect any obligation, covenant, agreement, Default or
Event of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and the holder of any Note nor
any delay in exercising any rights hereunder or under any Note shall operate as
a waiver of any rights of any holder of such Note. As used herein, the term
"THIS AGREEMENT" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
18.4 NOTES HELD BY COMPANY, ETC.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding,
52
<PAGE>
Notes directly or indirectly owned by the Company or any of its Affiliates shall
be deemed not to be outstanding.
19. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other
address as you or it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at
such address as such other holder shall have specified to the Company
in writing,
(iii) if to the Collateral Trustee, to its address as provided
in the Collateral Trust Indenture or
(iv) if to the Company, to the Company at its address set
forth at the beginning hereof to the attention of the President and
General Manager, telecopier: 507-537-2655 (confirmation phone number
507-537-2676), or at such other address as the Company shall have
specified to the holder of each Note in writing.
Notices under this Section 19 will be deemed given only when actually received.
20. REPRODUCTION OF DOCUMENTS.
This Agreement and the other Financing Documents, and all documents
relating thereto, including, without limitation, (a) consents, waivers and
modifications that may hereafter be executed, (b) documents received by you at
the Closing (except the Notes themselves), and (c) financial statements,
certificates and other information previously or hereafter furnished to you, may
be reproduced by you by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process and you may destroy any original
document so reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by you in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. This Section 20 shall not prohibit the
Company or any other holder of Notes from contesting any such reproduction to
the same extent that it could contest the original, or from introducing evidence
to demonstrate the inaccuracy of any such reproduction.
53
<PAGE>
21. CONFIDENTIAL INFORMATION.
For the purposes of this Section 21, "CONFIDENTIAL INFORMATION" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified when received by you as being confidential
information of the Company or a Subsidiary, PROVIDED that such term does not
include information that
(a) was publicly known or otherwise known to you prior to the
time of such disclosure,
(b) subsequently becomes publicly known through no act or
omission by you or any Person acting on your behalf,
(c) otherwise becomes known to you other than through
disclosure by the Company or any Subsidiary, or
(d) constitutes financial statements delivered to you under
Section 7.1 that are otherwise publicly available.
You will maintain the confidentiality of such Confidential Information in
accordance with procedures adopted by you in good faith to protect confidential
information of third parties delivered to you, PROVIDED that you may deliver or
disclose Confidential Information to:
(i) your directors, officers, trustees, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably
relates to the administration of the investment represented by your
Notes),
(ii) your financial advisors and other professional advisors
who agree to hold confidential the Confidential Information
substantially in accordance with the terms of this Section 21,
(iii) any other holder of any Note other than a Competitor,
(iv) any Institutional Investor other than a Competitor to
which you sell or offer to sell such Note or any part thereof or any
participation therein (if such Person has agreed in writing prior to
its receipt of such Confidential Information to be bound by the
provisions of this Section 21),
(v) any Person other than a Competitor from which you offer to
purchase any security of the Company (if such Person has agreed in
writing prior to its receipt of such Confidential Information to be
bound by the provisions of this Section 21),
(vi) any federal or state regulatory authority having
jurisdiction over you,
54
<PAGE>
(vii) the National Association of Insurance Commissioners or
any similar organization, or any nationally recognized rating agency
that requires access to information about your investment portfolio or
(viii) any other Person to which such delivery or disclosure
may be necessary or appropriate
(A) to effect compliance with any law, rule,
regulation or order applicable to you,
(B) in response to any subpoena or other legal
process,
(C) in connection with any litigation to which you
are a party, or
(D) if an Event of Default has occurred and is
continuing, to the extent you may reasonably determine such
delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights and remedies
under your Notes and this Agreement.
Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 21 as
though it were a party to this Agreement. On reasonable request by the Company
in connection with the delivery to any holder of a Note of information required
to be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Company embodying the provisions of
this Section 21.
22. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as
the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 22), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
22), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.
55
<PAGE>
23. MISCELLANEOUS.
23.1 SUCCESSORS AND ASSIGNS.
All covenants and other agreements contained in this Agreement by or on
behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent
holder of a Note) whether so expressed or not.
23.2 PAYMENTS DUE ON NON-BUSINESS DAYS.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any Fixed Rate Note that is due on a date other than a Business Day shall be
made on the next succeeding Business Day without including the additional days
elapsed in the computation of the interest payable on such next succeeding
Business Day, PROVIDED that, if such next succeeding Business Day shall fall in
the next succeeding calendar month, such payment shall be made on the first
Business Day preceding such date. Any payment of principal of, Make-Whole Amount
in respect of, Breakage Costs in respect of or interest on any Series D Note
that is due on a date other than a Business Day shall be made on the next
succeeding Business Day without including the additional days elapsed in the
computation of the interest payable on such next succeeding Business Day,
PROVIDED that, if such next succeeding Business Day shall fall in the next
succeeding calendar month, such payment shall be made on the first Business Day
immediately preceding the date on which such payment would otherwise have been
due.
23.3 SEVERABILITY.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
23.4 CONSTRUCTION.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein, so that compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
23.5 COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
56
<PAGE>
23.6 GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND
THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK
EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE
THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
[Remainder of page intentionally blank. Next page is signature page.]
57
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
MINNESOTA CORN PROCESSORS, INC.
By /s/ L. Daniel Thompson
-------------------------------------
Name: L. Daniel Thompson
Title: President
The foregoing is hereby agreed to as of the date thereof.
AMERITAS LIFE INSURANCE CORP.
by Ameritas Investment Advisors, Inc., as Agent
By /s/ Patrick J. Henry
---------------------------------------
Name: Patrick J. Henry
Title: Vice President - Fixed Income Securities
THE PAUL REVERE VARIABLE
ANNUITY INSURANCE COMPANY
By /s/ James T. Rogers
---------------------------------------
Name: James T. Rogers
Title: Authorized Signatory
THE GUARDIAN LIFE INSURANCE
COMPANY OF AMERICA
By /s/ Raymond J. Henry
---------------------------------------
Name: Raymond J. Henry
Title: Second Vice President
FORT DEARBORN LIFE INSURANCE
COMPANY
by Guardian Asset Management Corp.
By /s/ Jonathan C. Jankus
---------------------------------------
Name: Jonathan C. Jankus
Title: Managing Director
<PAGE>
THE OHIO NATIONAL LIFE
INSURANCE COMPANY
By /s/ Joseph P. Brom
---------------------------------------
Name: Joseph P. Brom
Title: Senior Vice President and Chief Investment Officer
PROVIDENTMUTUAL LIFE AND
ANNUITY COMPANY OF AMERICA
By /s/ S.C. Lange
---------------------------------------
Name: S.C. Lange
Title: Vice President
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY
By /s/ S.C. Lange
---------------------------------------
Name: S.C. Lange
Title: Vice President
PROVIDENT MUTUAL LIFE
INSURANCE COMPANY - COVENANT
By /s/ S.C. Lange
---------------------------------------
Name: S.C. Lange
Title: Vice President
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY
By CIGNA Investments, Inc.
By /s/ Donald F. Rieger, Jr.
------------------------------------
Name: Donald F. Rieger, Jr.
Title: Managing Director
CONNECTICUT GENERAL LIFE
INSURANCE COMPANY, ON BEHALF
OF ONE OR MORE SEPARATE ACCOUNTS
By CIGNA Investments, Inc.
By /s/ Donald F. Rieger, Jr.
------------------------------------
Name: Donald F. Rieger, Jr.
Title: Managing Director
<PAGE>
CIGNA PROPERTY AND CASUALTY
INSURANCE COMPANY
By CIGNA Investments, Inc.
By /s/ Donald F. Rieger, Jr.
------------------------------------
Name: Donald F. Rieger, Jr.
Title: Managing Director
LIFE INSURANCE COMPANY
OF NORTH AMERICA
By CIGNA Investments, Inc.
By /s/ Donald F. Rieger, Jr.
------------------------------------
Name: Donald F. Rieger, Jr.
Title: Managing Director
PACIFIC EMPLOYERS INSURANCE COMPANY
By CIGNA Investments, Inc.
By /s/ Donald F. Rieger, Jr.
------------------------------------
Name: Donald F. Rieger, Jr.
Title: Managing Director
JOHN HANCOCK MUTUAL
LIFE INSURANCE COMPANY
By /s/ Phillip Peters
---------------------------------------
Name: Phillip Peters
Title: Senior Investment Officer
JOHN HANCOCK VARIABLE
LIFE INSURANCE COMPANY
By /s/ Phillip Peters
---------------------------------------
Name: Phillip Peters
Title: Senior Investment Officer
MELLON BANK, N.A., SOLELY IN ITS CAPACITY
AS TRUSTEE FOR THE NYNEX MASTER TRUST, (AS
DIRECTED BY JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY), AND NOT IN ITS INDIVIDUAL CAPACITY
By /s/ Bernadette Rist
---------------------------------------
Name: Bernadette Rist
Title: Authorized Signatory
<PAGE>
MELLON BANX, N.A., SOLELY IN ITS CAPACITY
AS TRUSTEE FOR THE LONG-TERM INVESTMENT TRUST,
(AS DIRECTED BY JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY), AND NOT IN ITS INDIVIDUAL
CAPACITY
By /s/ Bernadette Rist
---------------------------------------
Name: Bernadette Rist
Title: Authorized Signatory
GENERAL AMERICAN LIFE
INSURANCE COMPANY
By: Conning Asset Management Company
By /s/ Douglas R. Koester
---------------------------------------
Name: Douglas R. Koester
Title: Senior Vice President
Conning Asset Management Co.
RGA REINSURANCE COMPANY
By: Conning Asset Management Company
By /s/ Douglas R. Koester
---------------------------------------
Name: Douglas R. Koester
Title: Senior Vice President
Conning Asset Management Co.
COVA FINANCIAL SERVICES
LIFE INSURANCE COMPANY
By: Conning Asset Management Company
By /s/ Douglas R. Koester
---------------------------------------
Name: Douglas R. Koester
Title: Senior Vice President
Conning Asset Management Co.
ING (U.S.) CAPITAL CORPORATION
By /s/ Sheila M. Greatrex
---------------------------------------
Name: Sheila M. Greatrex
Title: Senior Vice President
<PAGE>
SUNAMERICA LIFE INSURANCE COMPANY
By /s/ Yvonne Stevens
---------------------------------------
Name: Yvonne Stevens
Title: Authorized Agent
ANCHOR NATIONAL LIFE INSURANCE COMPANY
By /s/ Yvonne Stevens
---------------------------------------
Name: Yvonne Stevens
Title: Authorized Agent
CALFARM LIFE INSURANCE COMPANY
By /s/ Yvonne Stevens
---------------------------------------
Name: Yvonne Stevens
Title: Authorized Agent
PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY
By /s/ Laurence P. Fleming
---------------------------------------
Name: Laurence P. Fleming
Title: Vice President
NORTHERN LIFE INSURANCE COMPANY
By /s/ Gregory M. Anderson
---------------------------------------
Name: Gregory M. Anderson
Title: Assistant Treasurer
SECURITY CONNECTICUT LIFE INSURANCE COMPANY
By /s/ Gregory M. Anderson
---------------------------------------
Name: Gregory M. Anderson
Title: Assistant Treasurer
<PAGE>
WASHINGTON SQUARE ADVISERS
PRIVATE PLACEMENT TRUST FUND
By /s/ Frank P. Pintens
---------------------------------------
Name: Frank P. Pintens
Title: Senior Vice President
GREAT NORTHERN INSURED
ANNUITY CORPORATION
By /s/ William D. Koski
---------------------------------------
Name: William D. Koski
Title: Vice President
GENERAL ELECTRIC CAPITAL LIFE
ASSURANCE COMPANY OF NEW YORK
By /s/ William D. Koski
---------------------------------------
Name: William D. Koski
Title: Vice President
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY
AND
THE FRANKLIN LIFE INSURANCE COMPANY
AND
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
AND
AMERICAN GENERAL LIFE INSURANCE COMPANY
By /s/ Julia S. Tucker
---------------------------------------
Name: Julia S. Tucker
Title: Investment Officer
<PAGE>
SCHEDULE A
SCHEDULE A-1
<PAGE>
Schedule A
LIST OF PURCHASERS
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
AMERITAS LIFE INSURANCE CORP. Series B $2,000,000
(1) All payments by wire transfer of
immediately available funds to:
First Bank Nebraska, NA
ABA# 104-000-029
Ameritas Life Insurance Corp.
Acct # 1-494-0070-0188
Re: Description of Note;
Principal & Interest
Breakdown
with sufficient information to
identify the source and application of
such funds.
(2) All notices of payments and written
confirmations of such wire transfers:
Ameritas Life Insurance
Company
5900 "O" Street
Lincoln, NE 68510-2234
Fax Number: (402) 467-6970
Attn: James Mikus
(3) All other communications:
Ameritas Life Insurance
Corp.
5900 "O" Street
Lincoln, NE 68510-2234
Attn: James Mikus
Tax ID No.: 47-0098400
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
THE PAUL REVERE VARIABLE ANNUITY Series B $3,000,000
INSURANCE COMPANY
(Notes to be registered in the name of "CUDD & CO.")
(1) All payments by wire transfer of
immediately available funds to:
CUDD & CO.
c/o The Chase Manhattan Bank
New York, NY
ABA No. 021 000 021
SSG Private Income Processing
A/C #900-9-000200
Custodial Account No. G06994
Please reference: Issuer
PPN
Coupon
Maturity
P=$
I=$
(2) All notices of payments and written
confirmations of such wire transfers:
Provident Life and Accident
Insurance Company
Investment Department
One Fountain Square
Chattanooga, Tennessee 37402
Telephone: (423) 755-1365
Fax: (423) 755-3351
(3) All other communications:
Provident Life and Accident
Insurance Company
Investment Department
One Fountain Square
Chattanooga, Tennessee 37402
Telephone: (423) 755-1365
Fax: (423) 755-3351
Tax ID No.: 13-6022143 (CUDD & CO.)
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
THE GUARDIAN LIFE INSURANCE COMPANY Series B $5,000,000
OF AMERICA Series B $5,000,000
Series B $5,000,000
Series B $5,000,000
Series B $3,000,000
(Notes to be registered in the name of CUDD & CO.")
(1) Payments by wire transfer of
immediately available funds to:
The Chase Manhattan Bank
FED ABA No. 021 000 021
CHASE/NYC/CTR/BNF
A/C #900-9-000200
Reference: The Guardian A/C
#G05978 and the name and
CUSIP for which payment
is being made
(2) Payments by check to:
CUDD & CO.
The Chase Manhattan Bank
P.O. Box 1508
Church Street Station
New York, NY 10081
Reference: The Guardian A/C
#G05978 and the name and
CUSIP for which payment
is being made
(3) All notices of payments and written
confirmations of such wire transfers:
The Guardian Life Insurance
Company of America
Attn: Investment Accounting
M-IA
201 Park Avenue South
New York, NY 10003
Fax: (212) 677-9023
(4) All other communications:
The Guardian Life Insurance
Company of America
201 Park Avenue South
New York, NY 10003
Attn: Raymond J. Henry
<PAGE>
Investment Department 7B
Fax: (212) 777-6715
(5) Delivery of Securities:
The Chase Manhattan Bank
4 New York Plaza
Ground Floor/Receive Window
New York, NY 10081
Reference: The Guardian Account
Tax ID No.: 13-6022143 (CUDD & CO.)
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
FORT DEARBORN LIFE INSURANCE COMPANY Series B $1,000,000
(Notes to be registered in the name of "VAR & CO.")
(1) Payments by wire transfer of
immediately available funds to:
ABA #091000022
First Bank Minneapolis
For further credit to First
Trust Illinois
Account 1-801-21167365
Wire Clearing Account 47300098
Attn: A/C #78693302 Fort
Dearborn Life
(2) All notices of payments and written
confirmations of such wire transfers:
Guardian Asset Management Corp.
Fort Dearborn Life Insurance
Company
Fixed Income Securities
201 Park Avenue South - 8B
New York, NY 10003
Inquires: Helaine Linder
(212) 598-8239
(3) All other communications:
Guardian Asset Management Corp.
Fort Dearborn Life Insurance
Company
Fixed Income Securities
201 Park Avenue South - 8B
New York, NY 10003
Inquires: Helaine Linder
(212) 598-8239
(4) Delivery of Securities:
First Trust N.A.
Attn: Physical Unit Asset Settlement Services
4th Floor
180 East 5th Street
St. Paul, MN 55101
Tax No.: 41-6026203
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
THE OHIO NATIONAL LIFE Series B $7,000,000
INSURANCE COMPANY
(1) Payments by wire transfer of
immediately available funds to:
Star Bank, N.A. (ABA #042-000013)
5th & Walnut Streets
Cincinnati, OH 45202
For credit to The Ohio National
Life Insurance Company's
Account No. 910-275-7
(identifying each payment as to
issuer, security, principal and
interest)
(2) All notices of payments and written
confirmations of such wire transfers:
The Ohio National Life
Insurance Company
Post Office Box 237
Cincinnati, OH 45201
Attn: Investment Department
(3) All other communications:
The Ohio National Life
Insurance Company
Post Office Box 237
Cincinnati, OH 45201
Attn: Investment Department
(4) Overnight deliveries to:
The Ohio National Life
Insurance Company
1 Financial Way
Cincinnati, OH 45242
Attn: Investment Department
Tax ID No.: 31-0397080
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
PROVIDENTMUTUAL LIFE AND ANNUITY Series B $2,000,000
COMPANY OF AMERICA
(1) Payments by wire transfer of
immediately available funds to:
PNC Bank
Broad and Chestnut Streets
Philadelphia, PA 19101
ABA #031-000-053
For credit to ProvidentMutual
Life and Annuity Company
of America
Account #85-5075-4911
(with sufficient information to
identify the payer, the particular
issue of Notes, and whether the
payment is for principal, interest or
premium)
(2) All notices of payments and written
confirmations of such wire transfers:
ProvidentMutual Life and
Annuity Company of America
P.O. Box 1717
Valley Forge, PA 19482-1717
Attn: Securities Investment
Department
Fax: (610) 407-1322
All notices and communications
requiring overnight express delivery
service:
1205 Westlakes Drive
Berwyn, PA 19312-2405
Attention: Treasurer
(3) All other communications:
ProvidentMutual Life
and Annuity Company of America
P.O. Box 1717
Valley Forge, PA 19482-1717
Attn: Securities Investment
Department
Fax: (610) 407-1322
<PAGE>
All notices and communications
requiring overnight express delivery
service:
1205 Westlakes Drive
Berwyn, PA 19312-2405
Attention: Treasurer
Tax ID No.: 23-1619082
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
PROVIDENT MUTUAL LIFE INSURANCE COMPANY Series B $5,000,000
(1) Payments by wire transfer of
immediately available funds to:
PNC Bank
Broad and Chestnut Streets
Philadelphia, PA 19101
ADA #031-000-053
For credit to Provident
Mutual Life Insurance
Company
Account #85-4084-2176
(with sufficient information to
identify the payer, the particular
issue of Notes, and whether the
payment is for principal, interest or
premium)
(2) All notices of payments and written
confirmations of such wire transfers:
Provident Mutual Life
Insurance Company
P.O. Box 1717
Valley Forge, PA 19482-1717
Attn: Securities Investment
Department
Fax: (610) 407-1322
All notices and communications
requiring overnight express delivery
service:
1205 Westlakes Drive
Berwyn, PA 19312-2405
Attention: Treasurer
(3) All other communications:
Provident Mutual Life
Insurance Company
P.O. Box 1717
Valley Forge, PA 19482-1717
Attn: Securities Investment
Department
Fax: (610) 407-1322
<PAGE>
All notices and communications
requiring overnight express delivery
service:
1205 Westlakes Drive
Berwyn, PA 19312-2405
Attention: Treasurer
Tax ID No.: 23-0990450
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
PROVIDENT MUTUAL LIFE Series B $2,000,000
INSURANCE COMPANY - COVENANT
(1) Payments by wire transfer of
immediately available funds to:
PNC Bank
Broad and Chestnut Streets
Philadelphia, PA 19101
ABA #031-000-053
For credit to Provident
Mutual Life Insurance
Company - Covenant
Account #85-4084-2176
(with sufficient information to
identify the payer, the particular
issue of Notes, and whether the
payment is for principal, interest or
premium)
(2) All notices of payments and written
confirmations of such wire transfers:
Provident Mutual Life
Insurance Company - Covenant
P.O. Box 1717
Valley Forge, PA 19482-1717
Attn: Securities Investment
Department
Fax: (610) 407-1322
All notices and communications
requiring overnight express delivery
service:
1205 Westlakes Drive
Berwyn, PA 19312-2405
Attention: Treasurer
(3) All other communications:
Provident Mutual Life
Insurance Company - Covenant
P.O. Box 1717
Valley Forge, PA 19482-1717
Attn: Securities Investment
Department
Fax: (610) 407-1322
<PAGE>
All notices and communications
requiring overnight express delivery
service:
1205 Westlakes Drive
Berwyn, PA 19312-2405
Attention: Treasurer
Tax ID No.: 23-0990450
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
CONNECTICUT GENERAL LIFE Series A $4,900,000
INSURANCE COMPANY Series A $3,100,000
Series B $2,000,000
(Notes to be registered in the name of "CIG & CO.")
(1) Payments by wire transfer of
immediately available funds to:
The Chase Manhattan Bank
Chase NYC/CTR/
BNF = CIGNA Private
Placements
A/C #9009001802
ABA #021000021
OBI = [name of company; description of
security; interest rate, maturity
date; PPN; due date and application
(as among principal, premium and
interest of the payment being made);
contact name and phone]
(2) Address for all notices in respect of
payment and written confirmation of
such wire transfer:
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Securities Processing
S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Private Securities
S-307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-2307
Facsimile: 860-726-7203
with a copy to:
The Chase Manhattan Bank
Private Placement Servicing
P.O. Box 1508
Bowling Green Station
New York, New York 10081
<PAGE>
Attn: CIGNA Private
Placements
Facsimile: 212-552-3107/1005
(3) Address for all other communications
and notices:
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Private Securities
S-307
Mary S. Law
900 Cottage Grove Road
Hartford, CT 06152-2307
Facsimile: (860) 726-7203
(4) Tax ID No.13-3574027
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
CONNECTICUT GENERAL LIFE Series A $3,000,000
INSURANCE COMPANY, on behalf Series A $3,000,000
of one or more separate accounts Series A $3,000,000
Series B $3,000,000
(Notes to be registered in the name of "CIG & Co.")
(1) Payments by wire transfer of
immediately available funds to:
The Chase Manhattan Bank
Chase NYC/CTR/
BNF = CIGNA Private Placements
A/C #9009001802
ABA #021000021
OBI = [name of company; description of
security; interest rate, maturity
date; PPN; due date and application
(as among principal, premium and
interest of the payment being made);
contact name and phone]
(2) Address for all notices in respect of
payment and written confirmation of
such wire transfer:
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Securities Processing
S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Private Securities
S-307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-2307
Facsimile: 860-726-7203
with a copy to:
The Chase Manhattan Bank
Private Placement Servicing
P.O. Box 1508
Bowling Green Station
New York, New York 10081
Attn: CIGNA Private Placements
<PAGE>
Facsimile: 212-552-3107/1005
(3) Address for all other communications
and notices:
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Private Securities
S-307
Mary S. Law
900 Cottage Grove Road
Hartford, CT 06152-2307
Facsimile: (860) 726-7203
(4) Tax ID No. 13-3574027
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
CIGNA PROPERTY AND CASUALTY Series A $3,000,000
INSURANCE COMPANY
(Notes to be registered in the name of "CIG & Co.")
(1) Payments by wire transfer of
immediately available funds to:
The Chase Manhattan Bank
Chase NYC/CTR/
BNF = CIGNA Private Placements
A/C #9009001802
ABA #021000021
OBI = [name of company; description of
security; interest rate, maturity
date; PPN; due date and application
(as among principal, premium and
interest of the payment being made);
contact name and phone]
(2) Address for all notices in respect of
payment and written confirmation of
such wire transfer:
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Securities Processing
S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Private Securities
S-307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-2307
Facsimile: 860-726-7203
with a copy to:
The Chase Manhattan Bank
Private Placement Servicing
P.O. Box 1508
Bowling Green Station
New York, New York 10081
Attn: CIGNA Private Placements
Facsimile: 212-552-3107/1005
<PAGE>
(3) Address for all other communications
and notices:
CIG & Co.
c/o CIGNA Investments, Inc
Attn: Private Securities
S-307
Mary S. Law
900 Cottage Grove Road
Hartford, CT 06152-2307
Facsimile: (860) 726-7203
(4) Tax ID No. 13-3574027
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
LIFE INSURANCE COMPANY OF Series A $3,000,000
NORTH AMERICA
(Notes to be registered in the name of "CIG & Co.")
(1) Payments by wire transfer of
immediately available funds to:
The Chase Manhattan Bank
Chase NYC/CTR/
BNF = CIGNA Private Placements
A/C #9009001802
ABA #021000021
OBI = [name of company; description of
security; interest rate, maturity
date; PPN; due date and application
(as among principal, premium and
interest of the payment being made);
contact name and phone]
(2) Address for all notices in respect of
payment and written confirmation of
such wire transfer:
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Securities Processing
S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Private Securities
S-307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-2307
Facsimile: 860-726-7203
with a copy to:
The Chase Manhattan Bank
Private Placement Servicing
P.O. Box 1508
Bowling Green Station
New York, New York 10081
Attn: CIGNA Private Placements
Facsimile: 212-552-3107/1005
<PAGE>
(3) Address for all other communications
and notices:
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Private Securities
S-307
Mary S. Law
900 Cottage Grove Road
Hartford, CT 06152-2307
Facsimile: (860) 726-7203
(4) Tax ID No. 13-3574027
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
PACIFIC EMPLOYERS INSURANCE Series A $2,000,000
COMPANY
(Notes to be registered in the name of "CIG & Co.")
(1) Payments by wire transfer of
immediately available funds to:
The Chase Manhattan Bank
Chase NYC/CTR/
BNF = CIGNA Private Placements
A/C #9009001802
ABA #021000021
OBI = [name of company; description of
security; interest rate, maturity
date; PPN; due date and application
(as among principal, premium and
interest of the payment being made);
contact name and phone]
(2) Address for all notices in respect of
payment and written confirmation of
such wire transfer:
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Securities Processing
S-309
900 Cottage Grove Road
Hartford, CT 06152-2309
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Private Securities
S-307
Operations Group
900 Cottage Grove Road
Hartford, CT 06152-2307
Facsimile: 860-726-7203
with a copy to:
The Chase Manhattan Bank
Private Placement Servicing
P.O. Box 1508
Bowling Green Station
New York, New York 10081
Attn: CIGNA Private Placements
Facsimile: 212-552-3107/1005
<PAGE>
(3) Address for all other communications
and notices:
CIG & Co.
c/o CIGNA Investments, Inc.
Attn: Private Securities
S-307
Mary S. Law
900 Cottage Grove Road
Hartford, CT 06152-2307
Facsimile: (860) 726-7203
(4) Tax ID No. 13-3574027
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
JOHN HANCOCK MUTUAL Series C $19,000,000
LIFE INSURANCE COMPANY Series C $16,000,000
Series C $ 2,000,000
Series D $14,000,000
Series D $ 8,000,000
(1) Payments by wire transfer of
immediately available funds to:
BankBoston
Boston, Massachusetts 02110
ABA #011000390
Account of:
John Hancock Mutual Life
Insurance Company Private
Placement Collection Account
Account No.: 541-55417
On order of: [Name of
Issuer], [PPN] [full name,
interest rate and maturity
date of the Notes or other
obligations]
Contemporaneous with the wire
transfer, advice setting forth (1) the
full name, interest rate and maturity
date of the Notes or other
obligations; (2) allocation of payment
between principal and interest and any
special payment; and (3) name and
address of bank (or Trustee) from
which wire transfer was sent, shall be
delivered or mailed to:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
Boston, MA 02117
Attn: Securities Accounting
Division T-10
(2) Address for all notices in respect of
payment and written confirmation of
such wire transfer:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
<PAGE>
Boston, MA 02117
Attn: Securities Accounting
Division T-10
(3) Address for all other communications:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
Boston, MA 02117
Attn: Bond and Corporate
Finance Dept. T-57
(4) A copy of the foregoing notices
relating to changes in issuer's name,
address or principal place of business
or location of collateral and a copy
of any legal opinions shall be
delivered or mailed to:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
Boston, MA 02117
Attn: Investment Law Division,
T-50
Tax ID No. 04-1414660
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
JOHN HANCOCK VARIABLE Series D $3,000,000
LIFE INSURANCE COMPANY
(1) Payments by wire transfer of
immediately available funds to:
BankBoston
Boston, Massachusetts 02110
ABA #011000390
Account of:
John Hancock Mutual Life
Insurance Company Private
Placement Collection Account
Account #541-55417
On order of: [Name of Issuer],
[PPN] [full name, interest rate
and maturity date of the Notes
or other obligations]
Contemporaneous with the wire
transfer, advice setting forth (1) the
full name, interest rate and maturity
date of the Notes or other
obligations; (2) allocation of payment
between principal and interest and any
special payment; and (3) name and
address of bank (or Trustee) from
which wire transfer was sent, shall be
delivered or mailed to:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
Boston, MA 02117
Attn: Securities Accounting
Division T-10
(2) Address for all notices in respect of
payment and written confirmation of
such wire transfer:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
Boston, MA 02117
Attn: Securities Accounting
Division T-10
<PAGE>
(3) Address for all other communications:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
Boston, MA, 02117
Attn: Bond and Corporate
Finance Dept.T-57
(4) A copy of the foregoing notices
relating to changes in issuer's name,
address or principal place of business
or location of collateral and a copy
of any legal opinions shall be
delivered or mailed to:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
Boston, MA 02117
Attn: Investment Law Division,
T-50
Tax ID No. 04-2664016
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
MELLON BANK, N.A., AS TRUSTEE FOR Series C $4,000,000
NYNEX MASTER PENSION TRUST
(Note to be registered in the name of "Mellon Bank, N.A., Trustee Under Master
Trust Agreement of NYNEX Corporation dated January 1, 1984 for Employee Pension
Plans-NYNEX-John Hancock-Private Placement")
(1) Payments by wire transfer of
immediately available funds to:
The Federal Reserve Bank
of Boston
A/C Boston Safe Deposit and
Trust Company
ABA #011001234
DDA: 16-229-9
Reference: NYNEX: NYXF 1783332
[full name, interest rate and maturity
date of the Notes or other
obligations]
Contemporaneous with the wire
transfer, advice setting forth (1) the
full name, interest rate and maturity
date of the Notes or other
obligations; (2) allocation of payment
between principal and interest and any
special payment; and (3) name and
address of bank (or Trustee) from
which wire transfer was sent, shall be
delivered or mailed to:
Mellon Bank, N.A.
One Mellon Center, Room 3346
Pittsburgh, PA l5258-0001
Attn: Fran Sistek
(2) Address for all other communications:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
Boston, MA 02117
Attn: Stephen A. MacLean
Bond and Corporate Finance
Dept. T-57
with a copy to:
<PAGE>
Mellon Bank, N.A.
One Mellon Center,
Room 151-1935
Pittsburgh, PA 15258-0001
Attn: Bernadette T. Rist
(3) A copy of the foregoing notices
relating to changes in issuer's name,
address or principal place of business
or location of collateral and a copy
of any legal opinions shall be
delivered or mailed to:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
Boston, MA 02117
Attn: Investment Law Division,
T-50
Tax ID No. 25-1448208
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
MELLON BANK, N.A., AS TRUSTEE FOR Series C $4,000,000
LONG-TERM INVESTMENT TRUST
(Note to be registered in the name of "Mellon Bank, N.A., Trustee Under the
Long-Term Investment Trust dated October 1, 1996)
(1) Payments by wire transfer of
immediately available funds to:
The Federal Reserve Bank
of Boston
A/C Boston Safe Deposit
and Trust Company
ABA #011001234
DDA: 125261
Reference: ATTF 1791682
[full name, interest rate and maturity
date of the Notes or other
obligations]
Contemporaneous with the wire
transfer, advice setting forth (1) the
full name, interest rate and maturity
date of the Notes or other
obligations; (2) allocation of payment
between principal and interest and any
special payment; and (3) name and
address of bank (or Trustee) from
which wire transfer was sent, shall be
delivered or mailed to:
Mellon Bank, N.A.
Three Mellon Bank Center,
Room 153-3610
Pittsburgh, PA 15258-0001
Attn: Principal & Interest Unit
(2) Address for all other communications:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
Boston, MA 02117
Attn: Stephen A. MacLean
Bond and Corporate Finance
Dept., T-57
<PAGE>
with a copy to:
Mellon Bank, N.A.
One Mellon Center,
Room 151-1935
Pittsburgh, PA 15258-0001
Attn: Bernadette T. Rist
(3) A copy of the foregoing notices
relating to changes in issuer's name,
address or principal place of business
or location of collateral and a copy
of any legal opinions shall be
delivered or mailed to:
John Hancock Mutual Life
Insurance Company
John Hancock Place
200 Clarendon Street
Boston, MA 02117
Attn: Investment Law
Division, T-50
Tax ID No. 13-3187026
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
GENERAL AMERICAN LIFE Series B $10,000,000
INSURANCE COMPANY Series D $ 3,000,000
(Notes to be registered in the name of "GALICO")
(1) All payments by wire transfer of
immediately available funds to:
General American Life
Insurance Company
c/o The Bank of New York
ABA No.: 021000018
BNF: IOC566
Attention: P & I Department
(2) All notices of payments and written
confirmations of such wire transfers:
Conning Asset Management
Attn: Investment Accounting
P.O. Box 418
St. Louis, MO, 63166
with a duplicate notice to:
GALICO
c/o The Bank of New York
P.O. Box 19266
Newark, NJ 07195
(3) All other communications:
Conning Asset Management
Attn: Securities Division
P.O. Box 396
St. Louis, MO, 63166
with a duplicate notice to:
GALICO
c/o The Bank of New York
P.O. Box 19266
Newark, NJ 07195
(4) Delivery of the Notes:
The Bank of New York
Attn: Free Receive
One Wall Street, 5th Floor
New York, NY 10004
<PAGE>
For the account of General
American Life Insurance
Company, General Account
# 128800.
Tax ID No.: 43-6168630
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
RGA REINSURANCE COMPANY Series D $2,000,000
(1) All payments by wire transfer of
immediately available funds to:
General American Life
Insurance Company
c/o The Bank of New York
ABA No.: 021000018
BNF: IOC566
Attention: P & I Department
(2) All notices of payments and written
confirmations of such wire transfers:
Conning Asset Management
Attn: Investment Accounting
P.O. Box 418
St. Louis, MO 63166
with a duplicate notice to:
General American Life
Insurance Company
c/o The Bank of New York
P.O. Box 19266
Newark, NJ 07195
(3) All other communications:
Conning Asset Management
Attn: Securities Division
P.O. Box 396
St. Louis, MO 63166
with a duplicate notice to:
General American Life
Insurance Company
c/o The Bank of New York
P.O. Box 19266
Newark, NJ 07195
(4) Delivery of the Notes:
The Bank of New York
Attn: Free Receive
One Wall Street, 5th Floor
New York, NY 10004
<PAGE>
For the account of RGA Reinsurance
Company, Account # 127709.
Tax ID No.: 43-1235868
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
COVA FINANCIAL SERVICES LIFE Series B $5,000,000
INSURANCE COMPANY
(1) All payments by wire transfer of
immediately available funds to:
NORTHERN CHGO/Trust
ABA No.: 071000152
Credit wire account #5186041000
Account 26-02881/COVA Financial
Services Life Insurance Company
(2) All notices of payments and written
confirmations of such wire transfers:
Conning Asset Management
Attn: Investment Accounting
P.O. Box 418
St. Louis, MO 63166
with a duplicate notice to:
COVA Financial Services Life
Insurance Co.
c/o The Northern Trust
Company
P.O. Box 92996
Chicago, IL 60675
(3) All other communications:
Conning Asset Management
Attn: Securities Division
P.O. Box 396
St. Louis, MO 63166
with a duplicate notice to:
COVA Financial Services Life
Insurance Co.
c/o The Northern Trust
Company
P.O. Box 92996
Chicago, IL 60675
(4) Delivery of the Notes:
The Northern Trust Company
80 Broad Street, 19th Floor
New York, NY 100044
<PAGE>
For the account of COVA Financial
Services Life Insurance Company,
Account 26-02881.
Tax ID No.: 43-1236042
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
ING (U.S.) CAPITAL CORPORATION Series D $15,000,000
(1) All payments by wire transfer of
immediately available funds to:
The Chase Manhattan Bank
ABA 021000021
Credit: ING CAPITAL
A/C #9301035763
Ref: Minnesota Corn Processors
(2) All notices of payments and written
confirmations of such wire transfers:
ING (U.S.) Capital Corporation
135 East 57th Street
New York, NY 10022-2101
Attn: Lisa Hannahoe
Tel: (212) 409-1676
Fax: (212) 486-6341
Louise Chan
Tel: (212) 409-1520
Fax: (212) 486-6341
(3) All other communications:
ING (U.S.) Capital Corporation
135 East 57th Street
New York, NY 10022-2101
Attn: Lisa Hannahoe
Tel: (212) 409-1676
Fax: (212) 486-6341
Louise Chan
Tel: (212) 409-1520
Fax: (212) 486-6341
Tax ID No.: 13-3631304
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
SUNAMERICA LIFE INSURANCE COMPANY Series D $12,000,000
(Notes to be registered in the name of "OKGBD & CO.")
(1) All payments by wire transfer of
immediately available funds to:
Bankers Trust Company
ABA No.: 021-001-033
Account No.: 99-911-145
For further credit to:
Acct. No.: 099530
Ref: Minnesota Corn Processors
CUSIP#, P$ , I$
(2) All notices of payments and written
confirmations of such wire transfers:
SunAmerica Investments
One SunAmerica Center
Los Angeles, CA 90067-6022
Attn: Investment Accounting, 36th Floor
(310) 772-6342 (voice)
(310) 772-6596 (fax)
(3) All other communications:
SunAmerica Corporate Finance
One SunAmerica Center
Los Angeles, CA 90067-6022
Attn: Richard Barger
(310) 772-6153 (voice)
(310) 772-6078 (fax)
(4) Delivery of Securities:
Bankers Trust Company
14 Wall.St.
New York, NY 10005
4th Floor, Window 44
Account #099530
Tax ID No.: 13-3020293 (OKGBD & Co.)
Tax ID No.: 52-0502540 (SunAmerica Life Insurance Company)
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
ANCHOR NATIONAL LIFE Series D $10,000,000
INSURANCE COMPANY
(Notes to be registered in the name of "OKGBD & CO.")
(1) All payments by wire transfer of
immediately available funds to:
Bankers Trust Company
ABA No.: 021-001-033
Account No.: 99-911-145
For further credit to:
Acct. No.: 099527
Ref: Minnesota Corn Processors
CUSIP#, P$ , I$
(2) All notices of payments and written
confirmations of such wire transfers:
SunAmerica Investments
One SunAmerica Center
Los Angeles, CA 90067-6022
Attn: Investment Accounting, 36th Floor
(310) 772-6342 (voice)
(310) 772-6596 (fax)
(3) All other communications:
SunAmerica Corporate Finance
One SunAmerica Center
Los Angeles, CA 90067-6022
Attn: Richard Barger
(310) 772-6153 (voice)
(310) 772-6078 (fax)
(4) Delivery of Securities:
Bankers Trust Company
14 Wall St.
New York, NY 10005
4th Floor, Window 44
Account #099527
Tax ID No.: 13-3020293 (OKGBD & Co.)
Tax ID No.: 86-0198983 (Anchor National Life Insurance Co.)
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
CALFARM LIFE INSURANCE COMPANY Series D $3,000,000
(Notes to be registered in the name of "OKGBD & CO.")
(1) All payments by wire transfer of
immediately available funds to:
Bankers Trust Company
ABA No.: 021-001-033
Account No.: 99-911-145
For further credit to:
Acct. No.: 099545
Ref: Minnesota Corn Processors
CUSIP#, P$ , I$
(2) All notices of payments and written
confirmations of such wire transfers:
SunAmerica Investments
One SunAmerica Center
Los Angeles, CA 90067-6022
Attn: Investment Accounting, 36th Floor
(310) 772-6342 (voice)
(310) 772-6596 (fax)
(3) All other communications:
SunAmerica Corporate Finance
One SunAmerica Center
Los Angeles, CA 90067-6022
Attn: Richard Barger
(310) 772-6153 (voice)
(310) 772-6078 (fax)
(4) Delivery of Securities:
Bankers Trust Company
14 Wall St.
New York, NY 10005
4th Floor, Window 44
Account #099527
Tax ID No.: 13-3020293 (OKGBD & Co.)
Tax ID No.: 94-1190655 (CalFarm Life Insurance Co.)
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
PHOENIX HOME LIFE Series B $15,000,000
MUTUAL INSURANCE COMPANY
(1) All payments by wire transfer of
immediately available funds to:
The Chase Manhattan Bank
ABA No.: 021-000-021
New York, NY
Account No.: 900 9000 200
Account Name: Income Processing
Reference: Phoenix Home Life
Acct. #G05143
OBI = (issuer name), PPN = (______),
Rate = (coupon) Due = (mat. date),
include company name, Principal
and interest breakdown, and
premium, if any.
(2) All notices of payments and written
confirmations of such wire transfers:
Phoenix Home Life Mutual
Insurance Company
c/o Phoenix Duff & Phelps, Inc.
56 Prospect St.
Hartford, CT 06115
Attention: Private Placements
(3) All other communications:
Phoenix Home Life Mutual
Insurance Company
c/o Phoenix Duff & Phelps, Inc.
56 Prospect St.
Hartford CT 06115
Attention: Private Placements
Tax ID No.: 06-0493340
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
NORTHERN LIFE INSURANCE COMPANY Series B $5,000,000
(1) Payments by wire transfer of
immediately available funds to:
First National Bank N.A./Mpls.
602 2nd Ave. S.
ABA #091000022
Account #1602-3237-6105
ATTN: Securities Accounting
Ref: Issuer, CUSIP, Coupon & Maturity
(2) Address for all notices in respect of
payment and written confirmation of
such wire transfer and all other
communications and notices:
ReliaStar Investment Research, Inc.
100 Washington Square, Suite 800
Minneapolis, MN 55401-2147
Ref: [Analyst Name]
Telephone: (612) 372-5257
Telecopier: (612) 372-5368
(3) Deliver securities to:
ReliaStar Investment Research, Inc.
100 Washington Avenue South, Suite 800
Minneapolis, MN 55401-2121
Attn: Peggy Herost
Tax ID No. 41-1295933
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
SECURITY CONNECTICUT LIFE Series B $1,500,000
INSURANCE COMPANY
(Notes to be registered in the name of "Sigler & Co.")
(1) Payments by wire transfer of
immediately available funds to:
The Chase Manhattan Bank
New York, NY
ABA #021-000-021
Beneficiary Account #: 544755102
Reference: Sigler & Co. (Nominee Name)
Tax ID #: 13-3641527
Cusip #:
Security Description:
Principal Amount:
Interest Amount:
(2) Address for all notices in respect of
payment and written confirmation of
such wire transfer and all other
communications and notices:
Sigler & Co.
c/o The Chase Manhattan Bank
Dept. #3492
P.O. Box 50000
Newark, NJ 07101-8006
with a copy to:
Security Connecticut Life Insurance Company
c/o ReliaStar Investment Research, Inc.
Attn: Data Operations
100 Washington Avenue South, Suite 800
Minneapolis, MN 55401-2121
Tax ID No. 13-3641527 (Security Connecticut Life)
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
WASHINGTON SQUARE ADVISERS Series B $3,500,000
PRIVATE PLACEMENT TRUST FUND
(1) Payments by wire transfer of
immediately available funds to:
Account #: 10604960
ABA #091000022
First Bank NA
F/F/C First Trust Company
A/C 180121167365
ITG A/C 47300020
Attn: Washington Square Advisers
Private Placement Trust Fund
(2) Address for all notices in respect of
payment and written confirmation of
such wire transfer and all other
communications and notices:
Washington Square Advisers, Inc.
100 Washington Avenue South, Suite 700
Minneapolis, MN 55401-2121
Ref: Frank Pintens
Telephone: (612) 342-7128
Telecopier: (612) 342-3656
(3) Deliver securities to:
Washington Square Advisers, Inc.
100 Washington Avenue South, Suite 700
Minneapolis, MN 55401-2121
Attn: Frank Pintens
Tax ID No. 41-6424976
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
GREAT NORTHERN INSURED Series D $20,000,000
ANNUITY CORPORATION
(Notes to be registered in the name of "SALKELD & CO.")
(1) Payments by wire transfer of
immediately available funds to:
Bankers Trust Company
16 Wall Street
New York, New York 10015
ABA No. 021001033
Attn: 99-911-145
Account No. 97835
Ref: security description, coupon, maturity,
PPN, identify principal or interest.
(2) Address for all notices in respect of
payment:
Great Northern Insured Annuity
Corporation
c/o GNA Corporation
Two Union Square, 601 Street
Seattle, WA 98101
Attn: Investment Accounting,
14th Floor
Telephone No.: (206) 516-2871
Telecopy No.: (206) 516-4740
(3) Address for all other communications:
Great Northern Insured
Annuity Corporation
c/o GNA Corporation
Two Union Square, 601 Street
Seattle, WA 98101
Attn: Investment Department,
Telecopy No.: (206) 516-4863
(4) Physical delivery of the Notes:
Bankers Trust Company
16 Wall Street, 4th Floor, Window 44
New York, New York 10005
Attn: George Flores (212) 618-2207
Account No. 97835
Tax ID No. 91-1127115
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
GENERAL ELECTRIC CAPITAL LIFE Series D $10,000,000
ASSURANCE COMPANY OF NEW YORK
(Notes to be registered in the name of "SALKELD & CO.")
(1) Payments by wire transfer of
immediately available funds to:
Bankers Trust Company
16 Wall Street
New York, New York 10015
ABA No. 021001033
Attn: 99-911-145
Account No. 97836
Ref: security description, coupon, maturity,
PPN, identify principal or interest.
(2) Address for all notices in respect of
payment:
General Electric Capital Life
Assurance Company of New York
c/o GNA Corporation
Two Union Square, 601 Street
Seattle, WA 98101
Attn: Investment Accounting,
14th Floor
Telephone No.: (206) 516-2871
Telecopy No.: (206) 516-4740
(3) Address for all other communications:
General Electric Capital Life
Assurance Company of New York
c/o GNA Corporation.
Two Union Square, 601 Street
Seattle, WA 98101
Attn: Investment Department,
Telecopy No.: (206) 516-4863
(4) Physical delivery of the Notes:
Bankers Trust Company
16 Wall Street, 4th Floor, Window 44
New York, New York 10005
Attn: George Flores (212) 618-2207
Account No. 97836
Tax ID No. 22-2882416
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
AMERICAN GENERAL LIFE Series B $10,000,000
INSURANCE COMPANY
(1) Payments by wire transfer of
immediately available funds, with
sufficient information (including
PPN#, interest rate, maturity date,
interest amount, principal amount and
premium amount, if applicable) to
identify the source and application of
such funds, to:
ABA # 011000028
State Street Bank and Trust Company
Boston, MA 02101
Re: American General Life Insurance Company
AC-0125-880-5
OBI = PPN # and description of payment
Fund Number PA 40
(2) Payment notices to:
American General Life Insurance Company and PA40
c/o State Street Bank and Trust Company
Insurance Services Custody (AH2)
1776 Heritage Drive
North Quincy, MA 02171
Fax: (617) 985-4923
(3) Duplicate payment notices and all
other correspondence to:
American General Life Insurance Company
c/o American General Corporation
Attention: Investment Research Department, A37-01
P.O. Box 3247
Houston, Texas 77253-3247
Overnight Mail Address:
2929 Allen Parkway
Houston, Texas 77019-2155
Fax: (713) 831-1366
Tax I.D. Number: 25-0598210
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
THE UNITED STATES LIFE INSURANCE Series B $5,000,000
COMPANY IN THE CITY OF NEW YORK
(1) Payments by wire transfer of
immediately available funds, with
sufficient information (including
PPN#, interest rate, maturity date,
interest amount, principal amount and
premium amount, if applicable) to
identify the source and application of
such funds, to:
ABA # 011000028
State Street Bank and Trust Company
Boston, MA 02101
Re: The United States Life Insurance Company
in the City of New York
AC-6956-534-9
OBI = PPN # and description of payment
Fund Number PA 77
(2) Payment notices to:
The United States Life Insurance Company
in the City of New York and PA77
c/o State Street Bank and Trust Company
Insurance Services Custody (AH2)
1776 Heritage Drive North Quincy, MA 02171
Fax: (617) 985-4923
(3) Duplicate payment notices and all
other correspondence to:
The United States Life Insurance Company
in the City of New York
c/o American General Corporation
Attention: Investment Research Department, A37-01
P.O. Box 3247
Houston, Texas 77253-3247
Overnight Mail Address:
2929 Allen Parkway
Houston, Texas 77019-2155
Fax: (713) 831-1366
Tax I.D. Number: 13-5459480
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
THE FRANKLIN LIFE INSURANCE Series B $5,000,000
COMPANY
(1) Payments by wire transfer of
immediately available funds, with
sufficient information (including
PPN#, interest rate, maturity date,
interest amount, principal amount and
premium amount, if applicable) to
identify the source and application of
such funds, to:
ABA # 011000028
State Street Bank and Trust Company
Boston, MA 02101
Re: The Franklin Life Insurance Company
AC-2492-440-9
OBI = PPN # and description of payment
Fund Number PA 37
(2) Payment notices to:
The Franklin Life Insurance Company and PA37
c/o State Street Bank and Trust Company
Insurance Services Custody (AH2)
1776 Heritage Drive
North Quincy, MA 02171
Fax: (617) 985-4923
(3) Duplicate payment notices and all
other correspondence to:
The Franklin Life Insurance Company
c/o American General Corporation
Attention: Investment Research Department, A37-01
P.O. Box 3247
Houston, Texas 77253-3247
Overnight Mail Address:
2929 Allen Parkway.
Houston, Texas 77019-2155
Fax: (713) 831-1366
Tax I.D. Number: 37-0281650
<PAGE>
Principal Amount
Name and Address of Purchaser and Series of Notes
- ----------------------------- -------------------
THE VARIABLE ANNUITY LIFE Series B $10,000,000
INSURANCE COMPANY
(1) Payments by wire transfer of
immediately available funds, with
sufficient information (including
PPN#, interest rate, maturity date,
interest amount, principal amount and
premium amount, if applicable) to
identify the source and application of
such funds, to:
ABA # 011000028
State Street Bank and Trust Company
Boston, MA 02101
Re: The Variable Annuity Life Insurance Company
AC-0125-821-9
OBI = PPN # and description of payment
Fund Number PA 54
(2) Payment notices to:
The Variable Annuity Life Insurance Company and PA54
c/o State Street Bank and Trust Company
Insurance Services Custody (AH2)
1776 Heritage Drive
North Quincy, MA 02171
Fax: (617) 985-4923
(3) Duplicate payment notices and all
other correspondence to:
The Variable Annuity Life Insurance Company
c/o American General Corporation
Attention: Investment Research Department, A37-01
P.O. Box 3247
Houston, Texas 77253-3247
Overnight Mail Address:
2929 Allen Parkway
Houston, Texas 77019-2155
Fax: (713) 831-1366
Tax I.D. Number: 74-1625348
<PAGE>
SCHEDULE B
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
ACCEPTABLE FINANCIAL INSTITUTION -- means, at any time,
(a) any commercial bank organized under the laws of the United
States of America or any jurisdiction thereof, with a net worth of at
least $100,000,000 or
(b) ING Baring (U.S.) Securities, Inc.
ADJUSTED TOTAL MEMBER EQUITIES -- means, at any time, the remainder of
(a) Total Member Equities, determined at such time, MINUS
(b) the sum of (i) Post-Closing Consolidated Intangible Assets
and (ii) Restricted Investments, each determined at such time.
ADM POLICIES AND STANDARDS -- as defined in Section 10.7, as amended
from time to time.
ADM STOCKHOLDER AGREEMENT -- means the Stockholder Agreement dated as
of August 27, 1997 between Archer Daniels Midland Company and the Company.
ADM TRANSACTION AGREEMENT -- means the Transaction Agreement dated as
of July 9, 1997 between Archer Daniels Midland Company and the Company.
AFFILIATE -- means at any time, and with respect to any Person,
(a) any other Person that at such time directly or indirectly
through one or more intermediaries Controls, or is Controlled by, or is
under common Control with, such first Person, and
(b) any Person beneficially owning or holding, directly or
indirectly, 10% or more of any class of voting or equity interests of
the Company or any Subsidiary or any corporation, company, partnership
or other entity of which the Company and the Subsidiaries beneficially
own or hold, in the aggregate, directly or indirectly, 10% or more of
any class of voting or equity interests.
As used in this definition, "CONTROL" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Unless the context otherwise clearly requires, any
reference to an "Affiliate" is a reference to an Affiliate of the Company.
AGREEMENT, THIS -- is defined in Section 18.3.
Schedule B-1
<PAGE>
ALTERNATE INTEREST RATE -- means 1 % PER ANNUM over the rate of
interest publicly announced from time to time by Morgan Guaranty Trust Company
of New York (or its successors) in New York, New York as its "base" or "prime"
rate.
ATME GROSS-UP PERIOD -- means any of the following periods:
(a) the period (i) commencing on the date of Closing and (ii)
ending on the Fiscal Quarter Date on which the Company first satisfies
the Under-Leverage Condition, and
(b) each period (i) commencing on the Fiscal Quarter Date on
which the Company first exceeds the Over-Leverage Benchmark after the
Fiscal Quarter Date on which it had then most recently satisfied the
Under-Leverage Condition and (ii) ending on the succeeding Fiscal
Quarter Date, if any, on which the Under-Leverage Condition is again
satisfied.
For the avoidance of doubt, (x) the first ATME Gross-Up Period will
commence on the date of Closing and end on the first Fiscal Quarter Date on
which the Company satisfies the Under-Leverage Condition, (y) if on any Fiscal
Quarter Date thereafter, the Company exceeds the Over-Leverage Benchmark, a new
ATME Gross-Up Period shall run from such Fiscal Quarter Date until the
succeeding Fiscal Quarter Date, if any, on which the Company again satisfies the
Under-Leverage Condition and (z) successive "ATME Gross-Up Periods" will
commence on each Fiscal Quarter Date on which the Company exceeds the
Over-Leverage Benchmark and will end on the first Fiscal Quarter Date thereafter
on which the Company again satisfies the Under-Leverage Condition.
For purposes of this definition, the following terms shall have the
following meanings:
FISCAL QUARTER DATE -- means, with respect to any fiscal
quarter of the Company, the last day of such fiscal quarter.
OVER-LEVERAGE BENCHMARK -- means, as of any Fiscal Quarter
Date, the ratio of Consolidated Funded Debt to Consolidated
Capitalization being 0.50:1.0. The "Over-Leverage Benchmark" shall be
exceeded if, as of the applicable Fiscal Quarter Date, the ratio of
Consolidated Funded Debt to Consolidated Capitalization shall be in
excess of 0.50:1.0.
UNDER-LEVERAGE CONDITION -- means, as of any Fiscal Quarter
Date, the ratio of Consolidated Funded Debt to Consolidated
Capitalization being less than 0.25:1.0 for such Fiscal Quarter Date
and for each of the immediately preceding two Fiscal Quarter Dates. The
"Under-Leverage Condition" shall be deemed satisfied if, as of the
applicable Fiscal Quarter Date, the ratio of Consolidated Funded Debt
to Consolidated Capitalization shall be less than 0.25:1.0 for such
Fiscal Quarter Date and for each of the immediately preceding two
Fiscal Quarter Dates.
BANK CREDIT AGREEMENT -- means the Secured Credit Agreement, dated as
of August __, 1997, among the Company, Harris Trust and Savings Bank,
individually and as agent, and FBS AG Credit, Inc.
Schedule B-2
<PAGE>
BASKET TRANSFER -- is defined in Section 11.10.
BREAKAGE COSTS -- is defined in Section 9.6.
BUSINESS DAY -- means any day other than a Saturday, Sunday or other
day on which commercial banks in New York, New York, Marshall, Minnesota or (to
the extent that the determination of such date is made in a context other than
in respect of the receipt of scheduled payments in respect of the Notes) the
city in which the principal corporate trust office of the Collateral Trustee is
located are authorized or required to close under the laws of the State of New
York, the State of Minnesota or the state in which the principal corporate trust
office of the Collateral Trustee is located, respectively (other than a general
banking moratorium or holiday for a period exceeding 4 consecutive days).
CALCULATION AGENT -- is defined in Section 9.2(a).
CAPITAL LEASE -- means, with respect to the Company or any Subsidiary,
a lease with respect to which such Person is required concurrently to recognize
the acquisition of an asset and the incurrence of a liability in accordance with
GAAP (whether pursuant to an entry or entries on the balance sheet of such
Person or in a footnote to its financial statements).
CAPITAL LEASE OBLIGATION -- means, with respect to the Company or any
Subsidiary and a Capital Lease, the amount of the obligation of such Person as
the lessee under such Capital Lease which would, in accordance with GAAP, appear
as a liability on a balance sheet of such Person.
CLOSING -- is defined in Section 3.
CODE -- means the Internal Revenue Code of 1986, as amended from time
to time, the rules and regulations promulgated thereunder from time to time.
COLLATERAL -- has the meaning provided in the Collateral Trust
Indenture.
COLLATERAL TRUST INDENTURE -- Section 4.10.
COLLATERAL TRUSTEE -- Section 4.10.
COMPANY -- is defined in the introductory sentence of this Agreement.
COMPETITOR -- means
(a) each Person identified as a "Competitor" on Schedule B-C
and the successors and assigns thereof;
(b) each Person identified by the Company as a "Competitor" in
a certification delivered to the holders of the Notes from time to
time, which Person so identified is consented to by the Required
Holders (which consent shall not be unreasonably withheld);
Schedule B-3
<PAGE>
(c) any Person legally or beneficially owning, directly or
indirectly, more than 25% of the issued and outstanding Voting Stock of
any Person which would quality as a "Competitor" under clause (a) or
clause (b) of this definition;
(d) any Person more than 25% of the issued and outstanding
Voting Stock of which is legally or beneficially owned by any Person
which would qualify as a "Competitor" under clause (a) or clause (b) of
this definition; and
(e) any officer or director of any Person referred to in
either clause (a) through clause (d) of this definition,
PROVIDED THAT
(i) none of the Purchasers or their affiliates,
(ii) no Person who is a holder of debt or equity
securities of the Company (other than the Notes), which Person
is otherwise entitled to receive financial information
concerning the Company by virtue of being a holder of such
securities (other than the Notes), and
(iii) no Person that is primarily a bank, trust
company, savings and loan association or other financial
institution, a pension plan, an investment company, an
insurance company, a broker or dealer, or any other similar
financial institution or entity (regardless of legal form),
shall be considered or deemed to be a "Competitor" for the purposes of
this definition.
CONFIDENTIAL INFORMATION -- is defined in Section 21.
CONSOLIDATED CAPITALIZATION -- means, at any time, the sum of Adjusted
Total Member Equities PLUS Consolidated Funded Debt at such time.
CONSOLIDATED CURRENT ASSETS -- means, at any time, the total assets of
the Company and the Subsidiaries as would be shown as current assets on a
balance sheet of such Persons prepared on a consolidated basis at such time in
accordance with GAAP.
CONSOLIDATED CURRENT LIABILITIES -- means, at any time, the total
liabilities of the Company and the Subsidiaries as would be shown as current
liabilities on a balance sheet of such Persons prepared on a consolidated basis
at such time in accordance with GAAP, but excluding all Current Maturities of
Funded Debt.
CONSOLIDATED DEBT -- means, as of any date of determination, the total
of all Debt of the Company and the Subsidiaries outstanding on such date, after
eliminating all offsetting debits and credits between such Persons and all other
items required to be eliminated in the course of the preparation of consolidated
financial statements of such Persons in accordance with GAAP.
CONSOLIDATED EBITDA -- means, for any period,
Schedule B-4
<PAGE>
(a) Consolidated Net Earnings for such period, PLUS
(b) the aggregate amount of depreciation, amortization, income
taxes and Consolidated Interest Expense accrued for such period by the
Company and the Subsidiaries (to the extent but only to the extent that
such aggregate amount was reflected in the computation of Consolidated
Net Earnings for such period).
CONSOLIDATED FUNDED DEBT -- means, as of any date of determination, the
total of all Funded Debt of the Company and the Subsidiaries outstanding on such
date, after eliminating all offsetting debits and credits between such Persons
and all other items required to be eliminated in the course of the preparation
of consolidated financial statements of such Persons in accordance with GAAP,
and after eliminating all other Funded Debt outstanding on such date under any
revolving debt or similar credit facilities, and shall include the Consolidated
Funded Debt Revolver Amount determined as of such time.
CONSOLIDATED FUNDED DEBT REVOLVER AMOUNT -- means, as of any date of
determination and without duplication, the arithmetic average of the outstanding
balance (determined on each of the immediately preceding 60 days) of all Funded
Debt of the Company and the Subsidiaries under all revolving debt or similar
credit facilities.
CONSOLIDATED INTANGIBLE ASSETS -- means, at any time with respect to
the Company and the Subsidiaries, the aggregate of the following:
(a) deferred assets, other than prepaid expenses which are
refundable;
(b) patents, copyrights, trademarks, trade names, service
marks, brand names, franchises, goodwill, experimental expenses and
other similar intangibles;
(c) unamortized debt discount and expense; and
(d) all other property which would be considered to be
intangible under GAAP,
in each case determined on a consolidated basis in accordance with GAAP.
CONSOLIDATED INTEREST EXPENSE -- means, for any period, the amount of
interest accrued on, or with respect to, Consolidated Debt, including, without
limitation, amortization of debt discount, imputed interest on Capital Leases
and interest on the Notes.
CONSOLIDATED NET EARNINGS -- means, with respect to any period, the net
income (or loss) of the Company and the Subsidiaries for such period, as
determined on a consolidated basis in accordance with GAAP, PROVIDED that there
shall be excluded therefrom:
(a) the income or loss of any Person accrued prior to the date
it becomes a Subsidiary or is merged into or consolidated or
consolidated with the Company or a Subsidiary, and the income (or loss)
of any Person, substantially all of the assets of which have been
acquired in any manner, realized by such other Person prior to the date
of acquisition,
Schedule B-5
<PAGE>
(b) the income or loss of any Person (other than the Company
or a Subsidiary) in which the Company or any Subsidiary has an
ownership interest, except to the extent that any such income has been
actually received by the Company or a Subsidiary in the form of cash
dividends or similar cash distributions,
(c) any net gain or loss during such period arising from the
sale, conversion, exchange or other disposition of capital assets,
(d) any gains or losses resulting from any write-up of any
assets,
(e) any gain arising from the acquisition of any security, or
the extinguishment, under GAAP, of any indebtedness, of the Company or
any Subsidiary and
(f) any income, gain or loss during such period in respect of
any hedging activities not undertaken in the ordinary course of
business of such Person or any extraordinary items or discontinued
operations or the disposition thereof.
CONSOLIDATED SECURED DEBT -- means, as of any date of determination,
the total of all Debt of the Company and the Subsidiaries outstanding on such
date (determined, with respect to any Debt that constitutes a "revolving credit
facility," as if the maximum principal amount borrowable thereunder had been
borrowed) that is secured by any property of the Company or the Subsidiaries,
after eliminating all offsetting debits and credits between or among the Company
and the Subsidiaries and all other items required to be eliminated in the course
of the preparation of consolidated financial statements of the Company in
accordance with GAAP.
CONSOLIDATED TOTAL ASSETS -- means, at any time, the total assets of
the Company and the Subsidiaries determined on a consolidated basis at such time
in accordance with GAAP.
CURRENT MATURITIES OF FUNDED DEBT -- means, at any time and with
respect to any item of Funded Debt, the portion of such Funded Debt outstanding
at such time which by the terms of such Funded Debt or the terms of any
instrument or agreement relating thereto is due on demand or within one year
from such time (whether by sinking fund, other required prepayment or final
payment at maturity) and is not directly or indirectly renewable, extendible or
refundable at the option of the obligor under an agreement or firm commitment in
effect at such time to a date one year or more from such time.
DEBT -- means, with respect to the Company or any Subsidiary, without
duplication,
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price of
property acquired by such Person (excluding accounts payable arising in
the ordinary course of business but including, without limitation, all
liabilities created or arising under any conditional sale or other
title retention agreement with respect to any such property);
(c) its Capital Lease Obligations;
Schedule B-6
<PAGE>
(d) all liabilities for borrowed money secured by any Lien
with respect to any property owned by such Person (whether or not it
has assumed or otherwise become liable for such liabilities);
(e) any Guaranty of such Person with respect to liabilities of
a type described in any of clauses (a) through (d) hereof;
(f) any reimbursement obligation in respect of any letter of
credit issued for the account of such Person other than (i) commercial
letters of credit issued in the ordinary course of such Person's
business (and not as a substitute for direct borrowing) and (ii)
letters of credit issued in the ordinary course of such Person's
business that act as the functional equivalent of a surety bond or
performance bond for such Person; and
(g) Financial Swaps of such Person.
For the avoidance of doubt, "Debt" shall not include any benefit
liability or funding obligation of such member in respect of any Plan and shall
not include commodity swaps, contracts or hedges or other similar obligations
which are entered into and are being used by such Person to hedge an existing or
anticipated risk or exposure of such Person in the ordinary course of its
business.
DEBT OFFERED PREPAYMENT APPLICATION -- means, with respect to any
Transfer of property, the offering, in writing, by the Company of cash in an
amount equal to the Net Proceeds Amount with respect to such Transfer to pay any
Senior Debt (other than Senior Debt owing to any Affiliate and other than Senior
Debt in respect of any revolving credit or similar credit facility providing the
Company with the right to obtain loans or other extensions of credit from time
to time, except to the extent that in connection with such payment of Senior
Debt the availability of credit under such credit facility is permanently
reduced by an amount not less than the amount of such proceeds applied to the
payment of such Senior Debt) and any interest and premium in respect thereof,
PROVIDED that in connection with any such Transfer and the offering of payment
of such Senior Debt, the Company shall have offered to prepay the Ratable
Portion in respect of each outstanding Note in accordance with Section 8.7 and
Section 8.8 and shall have prepaid (a) each holder of each such Note that shall
have accepted such offer of prepayment in accordance with said Sections in a
principal amount which, when added to the Make-Whole Amount applicable thereto,
if any, and any accrued and unpaid interest thereon and Breakage Costs in
respect thereof, if any, equals the Ratable Portion for such Note and (b) each
other holder of such Senior Debt that shall have accepted such offer.
As used in this definition, "RATABLE PORTION" for any Note
means an amount equal to the product of (x) the Net Proceeds Amount
being so applied to the payment of Senior Debt MULTIPLIED BY (y) a
fraction the numerator of which is the outstanding principal amount of
such Note and the denominator of which is the aggregate principal
amount of all Senior Debt of the Company described above.
DEFAULT -- means an event or condition the occurrence or existence of
which would, with the lapse of time or the giving of notice or both, become an
Event of Default.
Schedule B-7
<PAGE>
DESIGNATED FACILITY -- has the meaning specified therefor in the
Collateral Trust Indenture. As of the date of Closing, the real property
constituting the "Designated Facilities" is described on Schedule 4.11.
ENVIRONMENTAL LAWS -- means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements,
principles of common law or governmental restrictions relating to pollution,
human health, safety and the protection of the environment or the release of any
materials into the environment, including but not limited to those related to
Hazardous Materials or other hazardous substances or wastes, air emissions and
discharges to waste or public systems.
ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
ERISA AFFILIATE -- means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
EURODOLLAR INTEREST RATE -- means, on any date, the sum of the LIBOR
Base Rate determined on such date PLUS 1.30%.
EVENT OF DEFAULT -- is defined in Section 12.
EXCHANGE ACT -- means the Securities Exchange Act of 1934, as amended
from time to time.
FAIR MARKET VALUE -- means, at any time and with respect to any
property, the sale value of such property that would be realized in an
arm's-length sale at such time between an informed and willing buyer and an
informed and willing seller (neither being under a compulsion to buy or sell).
FINANCIAL SWAPS -- means, with respect to any Person, payment
obligations with respect to interest rate swaps, currency swaps and similar
obligations obligating such Person to make payments, whether periodically or
upon the happening of a contingency. For the purposes of this Agreement, the
amount of the obligation under any Financial Swap shall be the amount determined
in respect thereof as of the end of the then most recently ended fiscal quarter
of such Person, based on the assumption that such Financial Swap had terminated
at the end of such fiscal quarter, and in making such determination, if any
agreement relating to such Financial Swap provides for the netting of amounts
payable by and to such Person thereunder or if any such agreement provides for
the simultaneous payment of amounts by and to such Person, then in each such
case, the amount of such obligation shall be the net amount so determined. Any
such interest rate swap, currency swap or other similar obligation which was
entered into and is being used by such Person to hedge an existing risk or
exposure of such Person in respect of its liabilities or assets shall not be
deemed a "Financial Swap" for purposes of this definition.
FINANCING DOCUMENTS -- means this Agreement, the Other Agreements, the
Notes, the Collateral Trust Indenture, the Mortgages and the other agreements
and instruments to be executed pursuant to the terms of each of such Financing
Documents, as each may be amended
Schedule B-8
<PAGE>
from time to time. Upon the termination of the Collateral Trust Indenture and
the Mortgages, as provided for in section 8 of the Collateral Trust Indenture,
"Financing Documents" shall not include the Collateral Trust Indenture, such
Mortgages or any other agreements or instruments executed in connection
therewith that are also then being terminated or released (except for
obligations and undertakings thereunder which by their express terms survive
such termination).
FIXED RATE MAKE-WHOLE AMOUNT -- is defined in Section 8.10.
FIXED RATE NOTES -- is defined in Section 1.
FULL COLLATERAL RELEASE EVENT -- means a date occurring more than 3
years after the date of the Closing on which all of the following conditions
shall have been satisfied:
(a) after giving effect to the full release of all Liens in
and to the Collateral in favor of the Collateral Trustee, the aggregate
principal amount of Consolidated Secured Debt outstanding at such time
does not exceed 25% of the aggregate principal amount of Consolidated
Debt outstanding at such time;
(b) the ratio of Consolidated Funded Debt to Consolidated
Capitalization not be greater than 0.50:1.0 at such time;
(c) no Lien shall encumber any account receivable or inventory
of the Company other than any such Lien which is being
contemporaneously released by the holder thereof in connection with the
satisfaction of the conditions set forth in this definition;
(d) the Company shall have delivered reasonably satisfactory
evidence to the holders of the Notes that the Notes will be given a
rating of "BBB-" (or equivalent) or higher by a nationally-recognized
rating agency after giving effect to the full release of all Liens in
and to the Collateral in favor of the Collateral Trustee;
(e) after giving effect to the full release of the Collateral,
(i) no Default or Event of Default shall then exist (including, without
limitation, no Default or Event of Default under Section 11.8) and (ii)
the Company would be in compliance with the provisions of Section 11.5
(assuming that the date of any determination under this clause (e) were
the end of a fiscal quarter of the Company); and
(f) a Responsible Officer shall have certified, in writing,
the satisfaction of the conditions set forth in clauses (a) through (c)
and clause (e) above and delivered the same to each holder of Notes and
the Collateral Trustee and shall have requested the Collateral Trustee
to release all of the Liens in and to the Collateral.
FUNDED DEBT -- means, with respect to the Company or any Subsidiary,
all Debt of such Person which by its terms or by the terms of any instrument or
agreement relating thereto matures, or which is otherwise payable or unpaid, one
year or more from, or is directly or indirectly renewable or extendible at the
option of such Person to a date one year or more (including, without limitation,
an option of such Person under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of one year or
more)
Schedule B-9
<PAGE>
from, the date of the creation thereof, and includes, without duplication,
Current Maturities of Funded Debt.
GAAP -- means accounting principles as promulgated from time to time in
statements, opinions and pronouncements by the American Institute of Certified
Public Accountants and the Financial Accounting Standards Board and in such
statements, opinions and pronouncements of such other entities with respect to
financial accounting of for-profit entities as shall be accepted by a
substantial segment of the accounting profession in the United States of
America.
GOVEMMENTAL AUTHORITY -- means
(a) the government of
(i) the United States of America or any state or
other political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or that
asserts jurisdiction over any properties of the Company or any
Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
GUARANTY -- means, with respect to any Person (for the purposes of this
definition, the "GUARANTOR"), any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of such Person guaranteeing or in effect guaranteeing any indebtedness, dividend
or other obligation of any other Person (the "PRIMARY OBLIGOR") in any manner,
whether directly or indirectly, including, without limitation, obligations
incurred through an agreement, contingent or otherwise, by the guarantor:
(a) to purchase such indebtedness or obligation or any
property constituting security therefor;
(b) to advance or supply funds
(i) for the purchase or payment of such indebtedness,
dividend or obligation, or
(ii) to maintain working capital or other balance
sheet condition or any income statement condition of the
primary obligor or otherwise to advance or make available
funds for the purchase or payment of such indebtedness,
dividend or obligation;
(c) to lease property or to purchase securities or other
property or services primarily for the purpose of assuring the owner of
such indebtedness or obligation of the ability of the primary obligor
to make payment of the indebtedness or obligation; or
Schedule B-10
<PAGE>
(d) otherwise to assure the owner of the indebtedness or
obligation of the primary obligor against loss in respect thereof.
For purposes of computing the amount of any guaranty in connection with any
computation of indebtedness or other liability, it shall be assumed that the
indebtedness or other liabilities that are the subject of such Guaranty are
direct obligations of the issuer of such Guaranty.
HAZARDOUS MATERIAL -- means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal or treatment of which may be required or the generation, manufacture,
refining, production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or filtration of
which is or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
HOLDER -- means, with respect to any Note, the Person in whose name
such Note is registered in the register maintained by the Company pursuant to
Section 14.1.
INSTITUTIONAL INVESTOR -- means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than 5% of the aggregate principal amount
of the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
INTEREST PERIOD -- means a period of three months which shall commence
on a Business Day and shall end on the numerically corresponding day in the
third succeeding calendar month, PROVIDED, HOWEVER, that (a) if there is no such
numerically corresponding day in such third succeeding month, such Interest
Period shall end on the last Business Day of such third succeeding month, (b) if
an Interest Period would otherwise end on a day which is not a Business Day,
such Interest Period shall end on the next succeeding Business Day (unless such
next succeeding Business Day shall fall in a new calendar month, in which case
such Interest Period shall end on the immediately preceding Business Day) and
(c) no Interest Period may extend beyond the Series D Maturity Date.
INTEREST RATE REDETERMINATION DATE -- means, with respect to any
Interest Period, the second Business Day preceding the first day of such
Interest Period (or, if such second Business Day shall be a day on which banks
in London, England are authorized or required to close under applicable law,
then the first day immediately preceding such day on which such banks are open).
INVESTMENT -- means any investment, made in cash or by delivery of
property, by the Company or any Subsidiary:
(a) in any Person, whether by acquisition of stock,
partnership interest, indebtedness or other obligation or security, or
by loan, Guaranty, advance, capital contribution or otherwise; or
(b) in any property.
Schedule B-11
<PAGE>
INVENTORY -- means all raw materials, work in process, finished goods
and goods held for sale or lease or furnished or to be furnished under contracts
of service in which the Company now has or hereafter acquires any right.
LIBOR BASE RATE -- means, on any Interest Rate Redetermination Date in
respect of any Interest Period and, with respect to the first Interest Period,
on the second Business Day preceding the date of Closing, the PER ANNUM London
interbank offered rate (rounded, if necessary, to the next highest one
thousandth of one percent (0.001%)) for deposits of United States dollars for a
three month period in amounts of $1,000,000 or more appearing on the display
designated as "Page 3750" on the Dow Jones Market Service (as successor to the
Telerate Access Service) (or such other display as may replace Page 3750 on the
Dow Jones Market Service (as successor to the Telerate Access Service) as of
11:00 a.m. (London time) on such date, or if such rates are no longer included
in the Dow Jones Market Service (as successor to the Telerate Access Service),
such other electronic service as in the reasonable opinion of the Series D
Required Holders shall provide equivalent information, PROVIDED that, if the Dow
Jones Market Service (as successor to the Telerate Access Service) and each such
other electronic service shall cease to report London interbank offered rates on
a regular basis, then "LIBOR BASE RATE" means the arithmetic mean (rounded, if
necessary, to the next highest one thousandth of one percent (0.001%)) of the
rates at approximately 11:00 a.m., London time, on such date quoted by the
Reference Banks at which deposits in U.S. dollars in the London interbank market
in amounts of $1,000,000 or more are offered to prime banks in such market by
such Reference Banks. "REFERENCE BANKS" shall mean three commercial banks
organized under the laws of the United States of America or any state thereof
selected by the Calculation Agent from the twenty largest commercial banks (as
measured by total assets) in the United States of America. The Calculation Agent
will request the principal London office of each of such Reference Banks to
provide a quotation of the aforesaid rate. To the extent that the Series D
Required Holders shall designate an electronic service other than the Dow Jones
Market Service for purposes of determining the LIBOR Base Rate, such holders
shall inform the Company and the Calculation Agent thereof.
LIEN -- means, with respect to the Company or any Subsidiary, any
mortgage, lien, pledge, charge, security interest or other encumbrance, or any
interest or title of any vendor, lessor, lender or other secured party to or of
such Person under any conditional sale or other title retention agreement or
Capital Lease, upon or with respect to any property or asset of such Person. The
term "Lien" shall not include any so-called "negative pledge" provisions in
agreements covering the incurrence of Debt.
MAKE-WHOLE AMOUNT -- means the Fixed Rate Make-Whole Amount and the
Series D Make-Whole Amount.
MATERIAL -- means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Company
and the Subsidiaries taken as a whole.
MATERIAL ADVERSE EFFECT -- means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and the Subsidiaries taken as a whole, or (b) the ability of the Company
to perform its obligations under each of the
Schedule B-12
<PAGE>
Financing Documents or (c) the validity or enforceability of this Agreement, the
Notes or the other Financing Documents.
MEMORANDUM -- is defined in Section 5.3.
MINIMUM EQUITY AMOUNT -- is defined in Section 11.4.
MOODY'S -- means Moody's Investors Service, Inc.
MORTGAGE -- is defined in Section 4.11
MULTIEMPLOYER PLAN -- means any Plan that is a "multiemployer plan" (as
such term is defined in section 4001(a)(3) of ERISA).
NET PROCEEDS AMOUNT -- means, with respect to any Transfer of any
property by the Company or any Subsidiary, an amount equal to the DIFFERENCE of
(a) the aggregate amount of the consideration (valued at the
Fair Market Value of such consideration at the time of the consummation
of such Transfer) paid by the transferee in respect of such Transfer,
MINUS
(b) all ordinary and reasonable out-of-pocket costs and
expenses actually incurred by the transferor in connection with such
Transfer and all Debt secured by such property and required by its
terms to be paid in connection with the consummation of such Transfer.
NOTES -- is defined in Section 1.
OFFICER'S CERTIFICATE -- means a certificate of a Senior Financial
Officer or of any other officer of the Company whose responsibilities extend to
the subject matter of such certificate.
OPEN POSITION -- means the difference between the long and the short
positions; all cash contracts and futures positions will be considered in
calculating the "Open Position." All positions related to finished products will
be converted to its equivalent in corn.
OTHER AGREEMENTS -- is defined in Section 2.
OTHER PURCHASERS -- is defined in Section 2.
PBGC -- means the Pension Benefit Guaranty Corporation referred to and
defined ERISA or any successor thereto.
PERMITTED ENCUMBRANCES -- means each of the Liens and other
encumbrances permitted by each of the Mortgages.
PERSON -- means an individual, partnership, cooperative, corporation,
limited liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
Schedule B-13
<PAGE>
PLACEMENT AGENT -- means ING Baring (U.S.) Securities, Inc. and any of
its affiliates.
PLAN -- means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
POSITION REPORT -- means a summary of the Company's corn position
indicating all long and short positions in corn, cash contracts, futures
contracts or corn derived products converted to the equivalent in corn.
POST-CLOSING CONSOLIDATED INTANGIBLE ASSETS -- means, at any time, the
aggregate net book value of all Consolidated Intangible Assets acquired or first
arising after the date of Closing, determined at such time.
PROPERTY or PROPERTIES -- means, unless otherwise specifically limited,
real or personal property of any kind, tangible or intangible, choate or
inchoate. For avoidance of doubt, this defined term shall include all Designated
Facilities and the equipment that is a part thereof or is used therein.
PROPERTY REINVESTMENT APPLICATION -- means, with respect to any
Transfer of property, the application of an amount equal to the Net Proceeds
Amount with respect to such Transfer to the acquisition by the Company or a
Subsidiary of property of a similar utility and of at least an equivalent value
in respect of the property that was so Transferred.
QPAM EXEMPTION -- means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
QUALIFIED INSTITUTIONAL BUYER -- means any Person who is a "qualified
institutional buyer" within the meaning of such term as set forth in Rule
144A(a)(1) under the Securities Act.
REQUIRED HOLDERS -- means, at any time, the holders of more than 50% in
principal amount of the Notes at the time outstanding (exclusive of Notes then
owned by the Company or any Affiliate).
RESPONSIBLE OFFICER -- means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.
RESTRICTED INVESTMENTS -- means, at any time, all Investments except
the following:
(a) investments of the Company or any Subsidiary in existence
on the date of Closing and disclosed on Schedule B-RI or in the
financial statements delivered to you and referred to in Section 5.5,
and including, without limitation, up to 7.5% of the equity interests
in Ice Ban America, Inc.;
(b) property to be used in the ordinary course of business of
the Company or any Subsidiary;
Schedule B-14
<PAGE>
(c) current assets arising from the sale of goods and services
in the ordinary course of business of the Company and the Subsidiaries;
(d) Investments in certificates of deposit (and equivalent
Investments) issued by Acceptable Banks (as defined below in this
definition) and having a maturity of 365 days or less;
(e) Investments in commercial paper rated on the date of
acquisition thereof "A-1"(or higher) by Standard & Poor's or "P-1" (or
higher) by Moody's (or any future comparable ratings issued by Standard
& Poor's or Moody's), PROVIDED that such obligations mature within 270
days from the date of creation thereof;
(f) Investments in Acceptable Governmental Securities (as
defined below in this definition), PROVIDED that such obligations
mature within 365 days from the date of acquisition thereof;
(g) Investments in money market preferred stocks of any
corporation that are to be re-auctioned within one year of the date of
acquisition thereof and rated on such date of acquisition either "A"
(or higher) by Standard & Poor's or "A2" (or higher) by Moody's (or any
future comparable ratings issued by Standard & Poor's or Moody's);
(h) Investments in tax-exempt floating-rate "tender"
obligations of any state of the United States of America, or any
municipality of any such state, (i) the payment of principal and
interest in respect of which is secured by letters of credit issued by
a commercial bank whose long-term senior unsecured indebtedness (or, if
it shall have no long-term senior unsecured indebtedness, the long-term
senior unsecured indebtedness of its holding company) is rated "AA" (or
higher) by Standard & Poor's or "Aa" (or higher) by Moody's (or any
future comparable ratings issued by Standard & Poor's or Moody's) and
(ii) that mature or are subject to being repurchased by the issuer
thereof at the option of the holder thereof within, in either case, 365
days of the date of acquisition thereof; and
(i) Investments by the Company or any Subsidiary in any
Subsidiary or in any Person that concurrently with such Investment
becomes a Subsidiary.
Investments, for purposes of this Agreement, shall be valued at the original
cost thereof PROVIDED, HOWEVER, that loans and advances shall be valued at the
principal amount thereof then outstanding and a Guaranty will be valued at the
outstanding principal amount of the obligation guarantied by such Guaranty.
As used in this definition:
ACCEPTABLE BANK -- means any commercial bank:
(a) that is organized under the laws of the United
States of America or any state thereof;
(b) that has capital, surplus and undivided profits
aggregating in excess of $100,000,000; and
Schedule B-15
<PAGE>
(c) whose long-term senior unsecured indebtedness
(or, if it shall have no long-term senior unsecured
indebtedness, the long-term senior unsecured indebtedness of
its holding company) is rated "AA" (or higher) by Standard &
Poor's or "Aa" (or higher) by Moody's (or any future
comparable ratings issued by Standard & Poor's or Moody's).
ACCEPTABLE GOVERNMENTAL SECURITY -- means any direct
obligation of, or obligation guaranteed by, the United States of
America or any agency controlled or supervised by or acting as an
instrumentality of the United States of America in respect of the
payment of which obligation or guarantee the full faith and credit of
the United States of America shall have been pledged.
SECURED OBLIGATIONS OFFERED PREPAYMENT -- means, with respect to any
holder of Notes, each Secured Obligation Offered Prepayment (together with any
Remnant Secured Obligation Offered Prepayment in respect thereof), as such terms
are used and defined in the Collateral Trust Indenture, made by the Company to
such holder.
SECURITIES Act -- means the Securities Act of 1933, as amended from
time to time.
SENIOR DEBT -- means, prior to the occurrence of the Full Collateral
Release Event, any Debt of the Company that is not in any manner subordinated in
right of payment or security to the Notes, the Collateral or to any other Debt
of the Company, and, on or after the occurrence of the Full Collateral Release
Event, any unsecured Debt of the Company that is not in any manner subordinated
in right of payment or security to the Notes or to any other Debt of the
Company.
SENIOR FINANCIAL OFFICER -- means the President and General Manager,
chief financial officer, principal accounting officer, treasurer or comptroller
of the Company.
SERIES -- means any of the Series A Notes, the Series B Notes, the
Series C Notes or the Series D Notes issued hereunder.
SERIES A DEFAULT RATE -- means, with respect to the Series A Notes, the
lesser of
(a) the maximum rate of interest allowed by applicable law,
and
(b) the greater of (i) 9.57% PER ANNUM and (ii) 2% PER ANNUM
over the rate of interest publicly announced from time to time by
Morgan Guaranty Trust Company of New York (or its successors) in New
York, New York as its "base" or "prime" rate.
SERIES A MATURITY DATE -- means September 1, 2007.
SERIES A NOTES -- is defined in Section 1(a).
SERIES B DEFAULT RATE -- means, with respect to the Series B Notes, the
lesser of
(a) the maximum rate of interest allowed by applicable law,
and
Schedule B-16
<PAGE>
(b) the greater of (i) 9.72% PER ANNUM and (ii) 2% PER ANNUM
over the rate of interest publicly announced from time to time by
Morgan Guaranty Trust Company of New York (or its successors) in New
York, New York as its "base" or "prime" rate.
SERIES B MATURITY DATE -- means September 1, 2009.
SERIES B NOTES -- is defined in Section 1(b).
SERIES C DEFAULT RATE -- means, with respect to the Series C Notes, the
lesser of
(a) the maximum rate of interest allowed by applicable law,
and
(b) the greater of (i) 9.83% PER ANNUM and (ii) 2% PER ANNUM
over the rate of interest publicly announced from time to time by
Morgan Guaranty Trust Company of New York (or its successors) in New
York, New York as its "base" or "prime" rate.
SERIES C MATURITY DATE -- means September 1, 2012.
SERIES C NOTES -- is defined in Section 1(c).
SERIES D DEFAULT RATE -- means, with respect to the Series D Notes, the
lesser of
(a) the maximum rate of interest allowed by applicable law,
and
(b) the then applicable Eurodollar Interest Rate PLUS 2% PER
ANNUM.
SERIES D MAKE-WHOLE AMOUNT -- is defined in Section 8.10.
SERIES D MATURITY DATE -- means September 1, 2007.
SERIES D NOTES -- is defined in Section 1(d).
SERIES D REQUIRED HOLDERS -- means, at any time, holders of more than
50% in principal amount of the Series D Notes at the time outstanding (exclusive
of Series D Notes then owned by the Company or any Affiliate).
SOURCE -- is defined in Section 6.2.
STANDARD & POOR'S -- means Standard & Poor's Ratings Group, a division
of McGraw-Hill, Inc.
SUBSIDIARY -- means
(a) any corporation, association, limited liability company or
other similar business entity in which the Company and/or one or more
Subsidiaries owns more than 50% (by number of votes) of each class of
the Voting Stock or sufficient equity or voting interests to enable it
or them (as a group) ordinarily, in the absence of contingencies, to
elect a majority of the directors (or Persons performing similar
functions) of such entity,
Schedule B-17
<PAGE>
and any partnership or joint venture if more than a 50% interest in the
profits or capital thereof is owned by the Company and/or one or more
Subsidiaries, and
(b) all other Persons the financial results of which are, at
such time, properly consolidated with those of the Company in
accordance with GAAP.
SUBSIDIARY DEBT -- means, as of any date of determination, the total of
all Debt of all Subsidiaries outstanding on such date, after eliminating all
offsetting debits and credits between the Subsidiaries and/or the Company and
all other items required to be eliminated in the course of the preparation of
consolidated financial statements Company in accordance with GAAP.
SUCCESSOR COMPANY -- Section 11.2.
TITLE INSURANCE POLICY -- Section 4.12.
TOTAL MEMBERS EQUITIES -- means, at any time, the remainder (if
positive) of
(a) Consolidated Total Assets MINUS
(b) the amount at which the liabilities (other than capital
stock, surplus and minority interests) of the Company and the
Subsidiaries would be shown on a consolidated balance sheet prepared in
accordance with GAAP for such Persons at such time.
TRANSFER -- means, with respect to the Company or any Subsidiary, any
transaction in which such Person elects to sell, convey, transfer or lease (as
lessor) any of its property. The verb "TRANSFER" has the meaning correlative to
the meaning of the noun.
UCC SEARCHES -- Section 4.14.
VOTING STOCK -- means capital stock or other equity interests or
capital of any class or classes of a cooperative, corporation,
partnership, association or other business entity, the holders of which
are ordinarily, in the absence of contingencies, entitled to elect the
directors (or Persons performing similar functions) of such entity.
WHOLLY-OWNED SUBSIDIARY -- means, at any time, any Subsidiary 100% of
all of the equity interests (except directors' qualifying shares) and
voting interests of which are owned by any one or more of the Company
and the other Wholly-Owned Subsidiaries at such time, and,
notwithstanding the foregoing, shall include Growers' Procurement
Agency, Inc. for so long as the financial results of such Person are
properly consolidated with those of the Company in accordance with
GAAP.
Schedule B-18
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") dated as of the 15th day of August, 1997
(the "Commencement Date"), between MINNESOTA CORN PROCESSORS, INC. ("Company")
and L. DANIEL THOMPSON ("Employee").
The Company and the Employee agree as follows:
1. EMPLOYMENT CAPACITY; TERM OF AGREEMENT. The Employee will serve as
President and General Manager of the Company for an initial term (the "Initial
Term") beginning on the Commencement Date and ending on March 31, 2001. On April
1, 2001, and on each April 1 thereafter, the term of this Agreement and the
employment of the Employee pursuant to this Agreement shall be automatically
extended for successive one-year renewal periods (each a "Renewal Term") unless
and until the Company gives the Employee a written termination notice at least 6
months before the end of the Initial Term or the Renewal Term (and in that case
this Agreement shall terminate on the last day of the Initial Term or the
Renewal Term as applicable). For purposes of this Agreement, the "Employment
Term" means the Initial Term and each Renewal Term, subject to early termination
pursuant to Section 5 below.
2. DEVOTION TO RESPONSIBILITIES. Employee hereby confirms that he is
under no contractual commitments inconsistent with his obligations set forth in
this Agreement. During the Employment Term, the Employee shall devote all of his
time and attention during normal business hours to the business of the Company,
and he will not engage in or be employed by any other business activity or
business, whether or not such business activity or business is for gain, profit
or other pecuniary advantage; provided, however, that nothing herein shall
prohibit the Employee from (i) serving as a member of the Board of Directors,
Board of Trustees or the like of any for profit or non-profit entity, or
performing services of any type for any civic or community entity, whether or
not the Employee receives compensation therefore, (ii) investing his assets in
such form or manner as will require no more than nominal services on the part of
the Employee in the operation of the business of the entity in which such
investment is made, or (iii) serving in various capacities with, and attending
meetings of, industry or trade groups and associations, including without
limitation the industry or trade groups and associations with which the Employee
is currently involved, as long as the Employee's engaging in any one or more of
the activities permitted by virtue of clauses (i), (ii) and (iii) above does not
or do not materially and unreasonably interfere with the ability of the Employee
to perform the services and discharge the responsibilities required of him under
this Agreement.
3. BASE SALARY; INCENTIVE COMPENSATION; BENEFITS. The Company will
provide the Employee with the compensation and benefits described below:
a. BASE SALARY. An annual base salary during the Employment
Term of $250,000 ("Annual Base Compensation"), payable to the Employee in
accordance with the Company's normal
<PAGE>
payroll cycle. Salary and performance reviews will be conducted by the Company's
Board of Directors on or about April 1st of each year for possible salary
increases.
b. VACATION. Employee shall be entitled to two (2) weeks
vacation per year and an additional two (2) weeks of paid leave.
c. INCENTIVE COMPENSATION. Employee shall be eligible for an
annual bonus for each fiscal year in which the Company is profitable, in an
amount equal to (i) 1/4% of the first $50 million of the Company's Net Proceeds
for the fiscal year plus (ii) 1/8% of the Company's Net Proceeds for the fiscal
year in excess of $50 million. For this purpose, "Net Proceeds"shall mean the
Company's net income for the fiscal year as shown on the Company's audited
financial statements for the fiscal year, determined without regard to
extraordinary income items. The annual bonus, if any, payable to the Employee
for any fiscal year in which the Company is unprofitable, shall be determined at
the sole discretion of the Company's Board of Directors The annual bonus, if
any, shall be determined by the Board of Directors and paid to the Employee as
soon as practicable and in any event within 90 days after the end of each fiscal
year.
d. KEY EMPLOYEE MANAGEMENT STOCK PURCHASE PROGRAM. Employee
will be eligible to participate at the 10,000 bushel level in the Company's Key
Employee Management Stock Purchase Program (the "Management Stock Program"). If
the Company's Board of Directors amends the Management Stock Program to increase
the 10,000 bushel limit currently contained in this program, the Employee will
have the right to participate in additional shares as determined by the Board of
Directors.
e. ANNUITY. The Company shall annually invest $20,000 in a
fully vested annuity with Employee as full owner. The terms of the annuity to be
purchased shall be as mutually agreed upon from time to time by the Company's
Board of Directors and the Employee, and, to the extent practicable, the parties
will select an annuity providing that no taxable income will be realized by the
Employee until payments are actually made to the Employee.
f. OTHER BENEFITS. Employee shall be entitled to participate
in the Company's 401(k) plan and all other employee benefit plans or programs of
the Company to the extent that his position, title, tenure, salary, age, health
and other qualifications make him eligible to participate. The Company does not
guarantee the adoption or continuance of any particular employee benefit plan or
program during the term of this Agreement, and Employee's participation in any
such plan or program shall be subject to the provisions, rules and regulations
applicable thereto; provided, however, that the Company shall not establish
rules for participation in any such plans or programs that unfairly discriminate
against Employee.
4. EXPENSES. The Employee will be reimbursed for reasonable
out-of-pocket expenses incurred from time to time on behalf of the Company or
any subsidiary in the performance of his duties under this Agreement, upon the
presentation of such supporting invoices, documents and forms as the Company
reasonably requests.
2
<PAGE>
5. TERMINATION.
a. GROUNDS FOR TERMINATION DURING THE EMPLOYMENT TERM. This
Agreement and the Employee's employment by the Company shall terminate prior to
the expiration of the Employment Term in the event that at any time during such
Employment Term:
(1) Employee dies, or
(2) Employee becomes "disabled", or
(3) The Board of Directors of the Company notifies
Employee in writing that this Agreement is being terminated for
"cause," or
(4) The Board of Directors of the Company elects to
terminate this Agreement without "cause" and notifies Employee in
writing of such election, or
(5) Employee elects to terminate this Agreement and
notifies the Company in writing of such election.
If this Agreement is terminated pursuant to subsection (1), (2), (3) or (4) of
this Section, such termination shall be effective immediately. If this Agreement
is terminated pursuant to subsection (5) of this Section, such termination shall
be effective thirty (30) days after the Employee delivers a written notice of
termination to the Company.
b. DEFINITIONS. For purposes of this Agreement, the following
definitions shall apply:
(1) "Cause" shall mean Employee (i) has engaged in
any willful and material misconduct, including willful and material
failure to perform his duties as an officer or employee of the Company,
and has failed to cure such default within thirty (30) days after
receipt of written notice of such conduct from the Company, or (ii) has
committed fraud, misappropriation or embezzlement with the Company's
business or assets, or (iii) has been convicted or pleaded nolo
contendere to criminal misconduct (excluding misdemeanors or traffic
violations), or (iv) has used narcotics, liquor or illicit drugs in a
manner having a detrimental effect on the performance of his employment
responsibilities.
(2) "Disabled" shall mean that Employee suffers an
injury or illness or other incapacity which is serious enough that he
is not able to perform the essential functions of his job, with or
without reasonable accommodations, as defined by various state and
federal disability laws. Employee shall be presumed to be disabled for
the purpose of this Agreement if Employee qualifies, because of injury,
illness or incapacity,
3
<PAGE>
to begin receiving disability income insurance payments under any long
term disability income insurance policy that Company maintains for the
benefit of its officers generally. If there is no such policy in effect
at the date of Employee's injury, illness or incapacity, Employee shall
be presumed to have such a disability for the purpose of this Agreement
if Employee is substantially incapable of performing his duties for a
period of more than twelve (12) weeks.
d. EFFECT OF TERMINATION. If this Agreement terminates at the
end of the Employment Term or earlier as provided in this Section, all of the
rights and obligations of Employee and Company hereunder shall terminate as of
the effective date of such termination. However, notwithstanding the termination
of this Agreement and Employee's employment hereunder (i), if applicable,
Employee shall be entitled to the benefits provided in Sections 5(e) and (f)
below, and (ii) Employee, in consideration of his employment hereunder to the
date of such termination, shall remain bound by Sections 6 and 7 hereof and any
other provisions of this Agreement which specifically relate to periods,
activities or obligations upon or subsequent to the termination of Employee's
employment.
e. MARSHALL RESIDENCE. MCP will compensate the Employee for
any financial loss suffered on the sale of his residence in the Marshall area in
the event that his employment is terminated by the Company for any reason other
than for cause.
f. SEVERANCE PAYMENT. If Employee's employment is terminated
by the Company during the Employment Term pursuant to Section 5(a)(4) above
(i.e., without cause), the Company shall pay to Employee (within 30 days after
such termination), a cash severance payment equal to,
(A) if the employment is terminated during the Initial Term,
an amount equal to $250,000 or, if greater, the product of
$4,807.69 multiplied by the number of weeks remaining from the
date of termination of employment to the end of the Initial
Term, or
(B) if the employment is terminated at any time after the end
of the Initial Term, an amount equal to $250,000.
It is understood and agreed that no severance payment shall be due in the event
employment is terminated during the Employment Term as provided in Section
5(a)(1), (2), (3), or (5).
6. TRADE SECRETS, ETC. The Employee shall hold in a fiduciary capacity
for the benefit of the Company all secret or confidential information, knowledge
or data (including without limitation all financial information) relating to the
Company or any of its subsidiaries or affiliates and their respective businesses
and operations, which shall have been obtained by the Employee during the
Employee's employment (whether prior to or after the Commencement Date) and
which shall not have
4
<PAGE>
become public knowledge (other than by acts of the Employee or any of his
representatives in violation of this Agreement). Employee acknowledges that the
above-described knowledge or information constitutes a unique and valuable asset
of the Company and represents a substantial investment of time and expense by
Company, and that any disclosure or other use of such knowledge or information
other than for the sole benefit of the Company would be wrongful and would cause
irreparable harm to the Company. At the end of the Employment Term, the Employee
agrees (i) not, without the prior written consent of the Company or as may be
otherwise required by law or legal process, to communicate or divulge any such
information, knowledge or data to any party other than the Company, and (ii) to
deliver promptly to the Company any confidential information, knowledge or data
in his possession, whether produced by the Company or any of its subsidiaries
and corporate affiliates or by the Employee, that relate to the business of the
Company or any of its subsidiaries or affiliates or any past, current or
prospective activity of the Company or any of its subsidiaries or affiliates. In
either event, the Employee shall be permitted to retain copies of such data as
are necessary in order to enable the Employee to assert any rights under this
Agreement, provided that such data shall be used solely for such purpose.
7. CUSTOMER LISTS. The Employee recognizes and acknowledges that any
written list or lists of the customers of the Company or any of its subsidiaries
or affiliates ("customer lists"), as such customer lists may exist from time to
time, are valuable, special and unique assets of the Company. The Employee
agrees that he will not use such customer lists for his own personal benefit or
disclose such customer lists to any person, firm, corporation, association or
other entity for his own personal benefit.
8. INJUNCTIVE RELIEF. In the event of a breach or threatened breach by
the Employee of the provisions of Sections 6 or 7 of this Agreement during or
after the Employment Term, the Company shall be entitled to injunctive relief
restraining the Employee from violation of such provision. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedy at law or
in equity it may have in the event of breach or threatened breach of this
Agreement by the Employee.
9. BINDING EFFECT.
a. This Agreement shall be binding upon and inure to the
benefit of the Company and any of its successors or assigns.
b. This Agreement is personal to the Employee and shall not be
assignable by the Employee without the consent of the Company (there being no
obligation to give such consent) other than such rights or benefits as are
transferred by will or the laws of descent and distribution.
c. The Company will require any successor or assign (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the assets or businesses of the Company (i) to assume
unconditionally and expressly this Agreement and (ii) to agree to perform all of
the Company's obligations under this Agreement in the same manner and to the
same extent as would have been required of the Company had no assignment or
succession occurred, such assumption
5
<PAGE>
to be set forth in a writing reasonably satisfactory to the Employee. In the
event of any such assignment or succession, the term "Company" as used in this
Agreement shall refer also to such successor or assign.
10. EXPENSES RELATING TO ENFORCEMENT OF RIGHTS. If either party shall
successfully seek to enforce any provision of this Agreement or to collect any
amount claimed to be due hereunder, the successful party shall be entitled to be
reimbursed by the other party for any and all of its out-of-pocket expenses,
including reasonable attorneys' fees, incurred in connection with such
enforcement and/or collection.
11. NOTICES. Any notice or other communication required under this
Agreement shall be in writing, shall be deemed to have been given and received
when delivered in person, or, if mailed, shall be deemed to have been given when
deposited in the United States mail, first class, registered or certified,
return receipt requested, with proper postage prepaid, and shall be deemed to
have been received on the third business day thereafter, and shall be addressed
as follows:
If to the Company addressed to:
Minnesota Corn Processors, Inc.
901 North Highway 59
Marshall, Minnesota 56258-2744
Attn: Chairman
If to the Employee, addressed to:
L. Daniel Thompson
416 North 4th Street
Marshall, MN 56258
or such other address as to which any party thereto may have notified the other
in writing.
12. GOVERNING LAW. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Minnesota.
13. ENTIRE AGREEMENT AND GOVERNING LAW. This Agreement and the
documents referred to herein constitute the entire arrangement or understanding
between the Employee and the Company relating to the employment of the Employee
by the Company and supersedes and replaces all previous agreements and
discussions relating to similar subjects between the Employee and the Company.
No provision of this Agreement may be modified or amended except by an
instrument in writing signed by the Employee and the Chairman or Vice Chairman
of the Board on behalf of the Company.
14. SEVERABILITY. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall at any time or to any
extent be invalid or unenforceable, the
6
<PAGE>
remainder of this Agreement, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term of the provision of
this Agreement shall be valid and enforced to the fullest extent permitted by
law.
15. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
16. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, the breach thereof, Employee's employment with the Company, or
the termination thereof, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association (AAA), and
judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. To select an arbitrator, each party shall strike a
name from the list submitted by AAA with the grieving party striking first. The
arbitrators will not have the power to add to or ignore any of the terms and
conditions of this Agreement. Their decision shall not go beyond what is
necessary for the interpretation and application of this Agreement and
obligations of the parties under this Agreement. The cost of such arbitration,
but not attorneys' fees, will be paid by the losing party.
17. BENEFICIARIES. Whenever this Agreement provides for any payment to
be made to the Employee or his estate, such payment may be made instead to such
beneficiary or beneficiaries as the Employee may have designated in writing and
filed with the Company. The Employee shall have the right to revoke any such
designation from time to time and to redesignate any beneficiary to
beneficiaries by written notice to the Company.
18. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original all of which
together shall constitute one and the same instrument.
MINNESOTA CORN PROCESSORS, INC.
By: /s/ Jerry Jacoby
--------------------------------------
Name: Jerry Jacoby
Title: Chairman of the Board of Directors
EMPLOYEE:
/s/ L. Daniel Thompson
-----------------------------------------
L. Daniel Thompson
7
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
GEORGE A. LAMBERTH
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") dated as of the 11th day of November
1997 (the "Commencement Date"), between Minnesota Corn Processors ("Company")
and George A. Lamberth ("Employee").
The Company and the Employee agree as follows:
1. EMPLOYMENT CAPACITY. The Employee will serve as Chief Operating
Officer of Minnesota Corn Processors ("MCP") and Chief Executive Officer of
Liquid Sugars, Inc. ("LSI") from the Commencement Date until the later of (i)
December 31, 1999, unless it is terminated earlier under Section 6 of this
Agreement, or (ii) such later date that is agreed upon in writing by the Company
and Employee (the "Employment Term").
2. TERM OF AGREEMENT. The term of this Agreement shall commence on
the Commencement Date and shall continue through the later to occur of (i)
December 31, 1999, unless it is terminated earlier under Article 6 of this
Agreement, or such later date that the Company and Employee agree on in writing
provided, however, that neither the Company nor Employee shall have any
obligation or commitment to agree to an extension of the term of this Agreement.
If the contract is still in effect in December 1998, then during the month of
December 1998 Company will extend the term of this agreement for one additional
year and if, in its sole discretion, it decides to extend the term of the
Agreement, and further assuming that Employee is agreeable to such extension,
the Company and Employee will enter into a written amendment to this Agreement
that will provide such extension. Assuming this Agreement is extended, the
company will follow the same procedure in each succeeding December during which
this agreement is extant. Following the termination of this Agreement, each
party shall have the right to enforce all rights, and shall be bound by all
obligations undertaken by such party pursuant to this Agreement.
3. DEVOTION TO RESPONSIBILITIES. During the Employment Term, the
Employee shall devote all of his time and attention during normal business hours
to the business of the Company, and he will engage in or be employed by any
other business activity or business, whether or not such business activity or
business is for gain, profit or other pecuniary advantage; provided, however,
that nothing herein contained shall prohibit the Employee from (i) serving as a
member of the Board of Directors, Board of Trustees of the like of any for
profit or non-profit entity, or performing services of any type for any civic or
community entity, whether or not the Employee receives compensation therefore,
(ii) investing his assets in such form or manner as will require no more than
nominal services on
2
<PAGE>
the part of the Employee in the operation of the business of the entity in
which such investment is made, and (iii) serving in various capacities with, and
attending meetings of, industry or trade groups and associations, including
without limitation the industry or trade groups and associations, including
without limitation the industry or trade groups and associations with which the
Employee is currently involved, as long as the Employee's engaging in any one or
more of the activities permitted by virtue of clauses (i), (ii) and (iii) above
does not or do not materially and unreasonably interfere with the ability of the
Employee to perform the services and discharge the responsibilities required of
him under this Agreement.
4. ANNUAL SALARY - BENEFITS. The Company will provide the Employee
with the compensation and benefits described below:
a. SALARY. An annual salary during the Employment Term
of $175,000 ("Annual Base Compensation") as may be adjusted from time to time in
accordance with paragraph 4(a), payable to the Employee in accordance with the
normal payroll cycle. Salary and performance reviews will be conducted on April
1st of each year of possible salary increases.
b. VACATION. Employee shall be entitled to two (2) weeks
vacation per year and an additional two (2) weeks of paid leave.
c. INCENTIVE COMPENSATION. Employee shall be eligible
for the annual discretionary bonus program.
d. 401(k) PLAN. Employee will be eligible to participate
in the 401(k) Plan as per 401(k) plan policy.
e. KEY EMPLOYEE MANAGEMENT STOCK PURCHASE PROGRAM.
Employee will be eligible to participate at the 10,000 bushel level in this
program.
f. INSURANCE BENEFITS. Employee shall be eligible for
insurance benefits on the 31st day of employment.
g. INTERIM EXPENSES. MCP will reimburse interim living
expenses (hotel, motel, phone, travel, etc.) for any initial period spent
working in Marshall, Minnesota.
h. ANNUITY. The Company shall reimburse the employee
approximately $13,000 each year in payment of the premium for an existing
universal benefit policy.
3
<PAGE>
i. OTHER BENEFITS. The Company shall include Employee
among those persons for whom the Company provides other benefits during the
Employment Term.
5. EXPENSES. The Employee will be reimbursed for reasonable
out-of-pocket expenses incurred from time to time on behalf of the Company or
any subsidiary in the performance of his duties under this Agreement, upon the
presentation of such supporting invoices, documents and forms as the Company
reasonably requests.
6. TERMINATION.
a. GROUNDS FOR TERMINATION DURING THE EMPLOYMENT TERM.
This Agreement shall terminate prior to the expiration of the Employment Term in
the event that at any time during such Employment Term:
(1) Employee dies, or
(2) Employee becomes "disabled," or
(3) The Board of Directors of the Company
notifies Employee in writing that the Agreement is being
terminated for "cause," or
(4) The Board of Directors of the Company
elects to terminate this Agreement without "cause" and
notifies Employee in writing of such election,
(5) Employee elects to terminate this
Agreement and notifies the Company in writing of such
election.
If this Agreement is terminated pursuant to subsection (1), (2), (3) or (4) of
this Section, such termination shall be effective immediately. If this Agreement
is terminated pursuant to subsection a(5) of this Section, such termination
shall be effective thirty (30) days after delivery of the notice of termination.
b. DEFINITIONS. For purposes of this Agreement, the
following definitions shall apply:
(1) "Cause" shall mean Employee (i) has
engaged in any willful and material misconduct,
including willful and material failure to perform his
duties as an officer or employee of the Company, and has
failed to cure such default within thirty
4
<PAGE>
(30) days after receipt of written notice of such
conduct from the Company, or (ii) has committed fraud,
misappropriation or embezzlement with the Company's
business or assets, or (iii) has been convicted or
pleaded nolo contendere to criminal misconduct
(excluding misdeamors or traffic violations), or (iv)
has used narcotics, liquor or illicit drugs resulting a
detrimental effect on the performance of his employment
responsibilities.
(2) "Disability" shall mean that this
Agreement and Employee's employment shall terminate if
Employee sustains a disability which is serious enough
that he is not able to perform the essential functions
of his job, with our without reasonable accommodations,
as defined by various state and federal disability laws.
Employee shall be presumed to have such a disability for
the purpose of this Agreement if Employee qualifies,
because of injury, illness or incapacity, to begin
receiving disability income insurance payments under the
long term disability income insurance policy that
Company maintains for the benefit of its officers
generally. If there is no such policy in effect at the
date of the Employee's injury, illness or incapacity,
Employee shall be presumed to have such a disability for
the purpose of this Agreement if Employee is
substantially incapable of performing his duties for a
period of more than twelve (12) weeks.
c. TERMINATION OF EMPLOYMENT AFTER THE EMPLOYMENT TERM.
Upon expiration of the Employment Term, Employee's employment by the Company may
be terminated with or without cause by the Board of Directors of the Company by
providing notice to Employee.
d. EFFECT OF TERMINATION. Notwithstanding the
termination of employment hereunder, Employee, in consideration of his
employment hereunder to the date of such termination, shall remain bound by the
provisions of this Agreement which specifically relate to periods, activities or
obligations upon or subsequent to the termination of Employee's employment.
e. SEVERANCE PAYMENT. If Employee's employment is
terminated by the Company during the Employment Term pursuant to Section
6.a(11), the Company shall pay to Employee a cash severance payment equal to his
weekly compensation rate, times the number of weeks between the date of
termination of employment and (last day of Employment Term). It is understood
and agreed that no severance payment shall be due in the event employment is
terminated (i) during the Employment Term as provided in Section 6.a(1), (2),
(3), or (5), or (ii) for any reason on or after (last day of Employment Term) in
which case Employee's right to salary and benefits shall immediately terminate,
except as may be otherwise provided by applicable law.
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7. TRADE SECRETS, ETC. The Employee shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data (including without limitation all financial information)
relating to the Company or any of its subsidiaries or corporate affiliates and
their respective business and operations, which shall have been obtained by the
Employee during the Employee's employment (whether prior to or after the
Commencement Date) and which shall not have become public knowledge (other than
by acts of the Employee or any of his representatives in violation of this
Agreement). At the end of the Employment Term, the Employee agrees (i) not,
without the prior written consent of the Company or as may be otherwise required
by law or legal process, to communicate or divulge any such information,
knowledge or data to any party other than the Company and (ii) to deliver
promptly to the Company any confidential information, knowledge or data in his
possession, whether produced by the Company or any of is subsidiaries and
corporate affiliates or by the Employee, that related to the corporate
affiliates or by the Employee, that related to the business of the Company or
any of its subsidiaries and joint ventures or any past, current or prospective
activity of the Company or any of its subsidiaries and joint ventures during the
term of this Employment Agreement, then Employee shall likewise hold such in a
fiduciary capacity and shall return such confidential data. In either event, the
Employee shall be permitted to retain copies of such data as are necessary in
order to enable the Employee to assert any rights under this Agreement, provided
that such data shall be used solely for such purpose.
8. CUSTOMER LISTS. The Employee recognizes and acknowledges that any
written list or lists of the customers of the Company or any of its subsidiaries
and joint ventures ("customer lists"), such as customer lists may exist from
time to time, are valuable, special and unique assets of the Company. The
Employee agrees that he will not use for his own personal benefits or disclose
such customer lists to any person, firm, corporation, association or other
entity for any such reason or purpose whatsoever.
9. INJUNCTIVE RELIEF. In the event of a breach or threatened breach
by the Employee of the provisions of section 8 and 10 of this Agreement during
or after the term of this Agreement, the Company shall be entitled to injunctive
relief restraining the Employee from violation of such paragraph. Nothing herein
shall be construed as prohibiting the Company from pursuing any other remedy at
law or in equity it may have in the event of breach or threatened breach of the
Agreement by the Employee.
10. BINDING EFFECT.
a. This Agreement shall be binding upon and inure to the
benefit of the Company and any of its successors or assigns.
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b. This Agreement is personal to the Employee and shall
not be assignable by the Employee without the consent of the Company (there
being no obligation to give such consent) other than such rights or benefits as
are transferred by will or the laws of descent and distribution.
c. The Company will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the assets or businesses of the Company (i) to
assume unconditionally and expressively this Agreement and (ii) to agree to
perform all of the obligations under this Agreement in the same manner and to
the same extent as would have been required of the Company had no assignment or
succession occurred, such assumption to be set forth in a writing reasonably
satisfactory to the Employee. In the event of any such assignment or succession,
the term "Company" as used in this Agreement shall refer also to such successor
or assign.
11. EXPENSES RELATING TO ENFORCEMENT OF RIGHTS. If either party
shall successfully seek to enforce any provision of this Agreement or to collect
any amount claimed to be due hereunder, each successful party shall be entitled
to be reimbursed by the other party for any and all of its out-of-pocket
expenses, including reasonable attorneys' fees, incurred in connection with such
enforcement and/or collection.
11. NOTICES. Any notice or other communication required under this
Agreement shall be in writing, shall be deemed to have been given and received
when delivered in person, or, if mailed, shall be deemed to have been given when
deposited in the United States mail, first class, registered or certified,
return receipt requested, with proper postage prepaid, and shall be deemed to
have been received on the third business day thereafter, and shall be addressed
as follows:
If to the Company, addressed to:
Minnesota Corn Processors
901 North Highway 59
Marshall, Minnesota 56258-2744
If to the Employee, addressed to:
George A. Lamberth
9979 Mangos Drive
San Ramon, California 94583
or such other address as to which any party thereto may have notified the other
in writing.
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13. GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Minnesota.
14. ENTIRE AGREEMENT AND GOVERNING LAW. This Agreement and Governing
Law and the documents referred to herein, contain or refer to the entire
arrangement or understanding between the Employee and the Company relating to
the employment of the Employee by the Company and supersedes and replaces all
previous agreements and discussions relating to similar subjects between the
Employee and the Company. No provision of their Agreement may be modified or
amended except by an instrument in writing signed by or for both parties hereto
and on behalf of the Company, such modification must be signed by the President
of the Company.
15. SEVERABILITY. If any term or provision of this Agreement, or the
application thereof to any person or circumstance, shall at any time or to any
extent be invalid or unenforceable, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby and each term of the provision of this Agreement shall be valid and
enforced to the fullest extent permitted by law.
16. WAIVER OF BREACH. The waiver by either party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof.
17. ARBITRATION. Any controversy or claim arising out of or relating
to this Agreement, the breach thereof, Employee's employment with the Company,
or the termination thereof, shall be settled by arbitration in accordance with
the Commercial Arbitration Rules of the American Arbitration Association (AAA),
and judgement upon the award rendered by the arbitrator may be entered in any
court having jurisdiction thereof. To select an arbitrator, each party shall
strike a name from the list submitted by AAA with the grieving party striking
first. The arbitrators will not have the power to add to or ignore any of the
terms and conditions of this Agreement. His decision shall not go beyond what is
necessary for the interpretation and application of this Agreement and
obligations of the parties under this Agreement. The cost of such arbitration,
but not attorneys' fees, will be paid by the losing party.
18. BENEFICIARIES. Whenever this Agreement provides for any payment
to be made to the Employee or his estate, such payment may be made instead to
such beneficiary or beneficiaries as the Employee may have designated in writing
and filed with the Company. The Employee shall have the right to revoke any such
designation from time to time and to redesignate any beneficiary to
beneficiaries by written notice to the Company.
8
<PAGE>
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original all of which
together shall constitute one and the same instrument.
MINNESOTA CORN PROCESSORS
By: /s/ L. Daniel Thompson 11-18-97
Name: L. Daniel Thompson Date
Title: President
EMPLOYEE:
By: /s/ George A. Lamberth 11-18-97
Name: George A. Lamberth Date
EXHIBIT 10.10
MINNESOTA CORN PROCESSORS
OPTION AGREEMENT
THIS OPTION AGREEMENT (the "Agreement") is entered into this 28th day
of May, 1993, by and between Minnesota Corn Processors, a Minnesota cooperative,
with offices at 400 West Main, Suite 201, Marshall, Minnesota (the
"Cooperative"), and Daniel Stacken (the "Optionee").
WHEREAS, the Optionee has served as a member of the Cooperative's
management since December 6, 1991; and
WHEREAS, the Cooperative wishes to assure the continued participation
of the Optionee in developing the business and increasing the productivity of
the Cooperative; and
WHEREAS, the Cooperative believes it is in the best interests of the
Cooperative to grant to the Optionee the right to acquire Units of Equity
Participation ("Units") in the Cooperative pursuant to the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual
promises contained herein, and of other good and valuable consideration, the
parties hereto agree as follows:
1. THE GRANTING OF THE OPTION. The Cooperative hereby grants to the
Optionee the right, privilege, and option to purchase all or any part of 10,000
Units at the purchase price of $3.78/unit (the "Option Price") upon the terms
and conditions set forth herein. (the "Option").
<PAGE>
2. THE TIME FOR EXERCISING THE OPTION TO PURCHASE.
(a) Cases Where Employment Has Not Been Terminated. Subject to
the terms and conditions of this Agreement, and provided that the Optionee's
employment with the Cooperative has not been terminated, the Optionee may
exercise the Option, in whole or in part, at any time after May 28, 1993, and
before May 28, 1994. This Option shall expire as of May 28, 1994 if the
Optionee's employment with the Cooperative has not been terminated earlier. As
of said expiration date, all rights and privileges under this Agreement, to the
extent not previously exercised, shall terminate.
(b) Cases Where Employment Has Been Terminated. In the event
that the Optionee's employment with the Cooperative is terminated before May 28,
1994 for any reason whatsoever, then this option shall expire as of the date of
the termination of the Optionee's employment with the Cooperative. As of said
expiration date, all rights and privileges under this Agreement, to the extent
not previously exercised, shall terminate.
3. THE TRANSFER OF UNITS FOLLOWING THE EXERCISE OF THE OPTION TO
PURCHASE.
(a) The Transfer of Units During the Optionee's Employment
With the Cooperative. If the Optionee exercises the Option to purchase Units in
whole or in part, the Optionee shall have the right to hold said Units for as
long as the Optionee's employment with the Cooperative continues, and the
Optionee shall have no obligation to transfer said Units for as long as the
Optionee remains employed by the Cooperative.
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<PAGE>
In addition to the Optionee's right to hold said Units, as
discussed above, the Optionee shall also have the right to transfer said Units
during the time that the Optionee is employed by the Cooperative.
However, the Optionee's right to hold and transfer said Units
while employed by the Cooperative pursuant to this Paragraph 3(a) shall be
subject to the terms and conditions of this Agreement, the standard procedures
for holding and transferring Units established by the Cooperative's Board of
Directors, and any other conditions and restrictions applicable to the holding
and transferring of the Cooperative's Units.
(b) The Transfer of Units Following the Termination of
Employment For Cause. If the Optionee exercises the Option to purchase Units in
whole or in part and the Optionee's employment with the Cooperative is later
terminated for cause, then the Optionee shall transfer all of said Units to the
Cooperative effective as of the last day of the Optionee's employment. Upon such
a transfer, the Cooperative shall redeem the Optionee's Units as the average
selling price for Units over the immediately preceding 12-month period.
(c) The Transfer of Units Following the Termination of
Employment For Reasons Other Than Cause. If the Optionee exercises the Option to
purchase Units in whole or in part and the Optionee's employment with the
Cooperative is later terminated for reasons other than for cause, then the
Optionee may transfer all of said Units to the Cooperative effective as of the
last day of the Optionee's employment. Upon such a transfer, the Cooperative
shall
3
<PAGE>
redeem the Optionee's Units at the average selling price for Units over the
immediately preceding 12-month period.
In the alternative, the Optionee may elect to retain the Units
for a period not to exceed 3 months following the termination of the Optionee's
employment with the Cooperative. During that period, the Cooperative agrees to
permit the sale of the Units to a qualified third party under the standard
selling procedures authorized by the Board of Directors of the Cooperative.
(d) The Transfer of Units Following the Termination of
Employment Due to Death. If the Optionee exercises the Option to purchase Units
in whole or in part and the Optionee's employment with the Cooperative is later
terminated due to the Optionee's death, then the person or persons (including
the Optionee's personal representative) to whom the Optionee's rights shall have
passed by Will or the laws of descent may transfer all of said Units to the
Cooperative effective as of the date of the Optionee's death. Upon such a
transfer, the Cooperative shall redeem the Optionee's Units at the average
selling price for Units over the immediately preceding 12-month period.
In the alternative, the person or persons to whom the
Optionee's rights shall have passed by Will or the laws of descent may elect to
retain the Units for a period not to exceed 3 months following the Optionee's
death. During that period, the Cooperative agrees to permit the sale of the
Units to a qualified third party under the standard selling procedures
authorized by the Board of Directors of the Cooperative.
4
<PAGE>
4. ADJUSTMENTS. In the event of any change in the capitalization of the
Cooperative prior to the exercise of the Option or any part thereof by reason of
any Unit dividend, Unit split, recapitalization, reorganization, merger,
consolidation, or other change in the structure of the Cooperative affecting the
outstanding Units, the Cooperative shall make such adjustments in the number and
price of the Units subject to the Option as shall be appropriate to prevent
dilution or enlargement of option rights granted hereunder.
5. THE METHOD FOR EXERCISING THE OPTION TO PURCHASE.
(a) Written Notice and Payment For Units. The Option shall be
exercised by written notice of intent to exercise the Option in the form
attached hereto, specifying the number of Units as to which the Option is being
exercised. Such notice shall be delivered to the Cooperative at its principal
office, and shall be accompanied by payment of the total price for the number of
Units with respect to which the Option is then being exercised.
(b) Payment of Taxes. The Optionee shall be solely responsible
for the payment of all federal, state, and local taxes applicable to the
issuance of Units and to the taxable income of the Optionee resulting from such
exercise.
(c) Delivery of Certificates For the Units. The Cooperative
shall not deliver certificates for such Units until all conditions and
requirements of this Agreement have been satisfied
5
<PAGE>
and payment in full has been made. The Optionee shall not have any of the rights
of the Unitholder with respect to the Units subject to the Option until such
Units shall be issued to the Optionee pursuant to this Paragraph 5.
(d) Applicability of Conditions and Restrictions. Any Units
issued under this Agreement shall be subject to any and all conditions and
restrictions applicable to issued and outstanding Units at the time of the
exercising of the Option, including but not limited to restrictions on transfer
and rights of first refusal.
6. NONTRANSFERABILITY. This Option shall not be transferred, nor shall
this Agreement be assigned, without the express written consent of the
Cooperative.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the date and year first above written.
By /s/ Daniel Stacken
EMPLOYEE
/s/ illegible signature
PRESIDENT AND GENERAL MANAGER
MINNESOTA CORN PROCESSORS
6
EXHIBIT 10.11
[logo] MCP
CORN STEEP AGREEMENT
This Agreement is entered into by and between Minnesota Corn Processors,
hereinafter referred to as MCP, and Liquid Corn, Inc., hereinafter referred to
as LC. This Agreement is governed and construed in accordance with the laws of
the State of Minnesota.
Whereas, the parties hereto previously entered into an agreement for the period
from September 28, 1995 through July 31, 2002, and;
Whereas the parties hereto wish to rescind that agreement and enter into a
superseding Agreement which will provide terms, conditions, and clarifications
covering the previous agreement, and;
Whereas the parties hereto wish to formalize their Agreement in writing. It is
therefore, in consideration of the money to be paid and the promises made herein
agreed as follows:
1. PURPOSE: The purpose of this Agreement is for the marketing, at maximum
value, and distribution of all MCP's corn steepwater and corn distillers
solubles, hereinafter referred to as steepwater, which is not applied to
MCP's corn gluten feed products, as produced at its Marshall, Minnesota and
Columbus, Nebraska plants.
2. TERM: The term of this Agreement shall commence on January 1, 1998 and end
on July 31, 2005. Upon commencement of this Agreement, this Agreement shall
supersede all prior agreements between the parties regarding steepwater
marketing. This Agreement will be automatically extended indefinitely
beyond July 31, 2005, provided no notice has been received by LC from MCP
exercising its option to buy out LC as provided in 13 below, and neither
party gives written twelve (12) month termination notice to the other party
as of any date after July 31, 2004.
3. LC REQUIREMENTS: LC agrees to provide the following items as set forth
below:
A. LC agrees to continue providing and maintaining the storage and
loading facilities located on MCP's property at Marshall, Minnesota
and Columbus, Nebraska, and to comply with all federal, state, and
local laws, rules, and regulations including but not limited to
safety, environmental, health and sanitation issues pertaining to
operation of these facilities, and to assume liability with these
issues.
B. LC shall provide for all necessary roads from MCP's improved roads to
the storage site as are required for transportation and access to
fulfill the terms of this Agreement.
C. LC shall provide all employees, equipment, and utilities required to
operate and maintain the storage and loading facilities including lawn
care, weed control, pest control and snow removal to meet plant
sanitation and appearance standards.
D. LC agrees to take possession of all of MCP's steepwater which is not
distributed on gluten feed products or loaded by LC for MCP to sell
for industrial uses including Ice Ban. If LC is unable to take
possession of steepwater, then LC shall reimburse MCP for all costs
associated with moving steepwater from the plant site as well as
required alternative storage costs.
E. LC agrees to account for and collect all accounts receivable for
steepwater it sells and bills, and to pay necessary operating expenses
in the operation of the storage and loading facilities.
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F. LC grants the right to MCP to inspect all of its records concerning
selling prices, freight bills, scale tickets, and inventory pertaining
to the sale of steepwater under this contract.
G. LC agrees to make monthly payments to MCP on or before the 15th of the
month following shipment of steepwater by LC from MCP's plants by
truck or rail.
H. LC shall operate and maintain a state certified truck scale at both
facilities to be used for weighing truckload shipments of steepwater.
I. LC shall provide adequate agitation for each storage tank to properly
mix the steepwater batches and to minimize precipitates and
stratification within the storage tanks.
J. LC will be the exclusive blender for blends of magnesium chloride
solutions and MCP's steepwater shipped as a blend by railcar directly
from MCP's Minnesota and Nebraska plants.
K. LC may use any contractor for on-site repair and construction provided
such contractor shall comply with all MCP Plant Safety, Insurance,
Environmental and Personnel rules and regulations. MCP approval is
required before work is commenced on projects with costs exceeding
$10,000. Such information and approvals are available from the local
MCP Plant Engineer and/or the plant Safety Manager.
4. MCP REQUIREMENTS: MCP shall provide the following:
A. MCP shall continue to provide the current sites at both Marshall,
Minnesota and Columbus, Nebraska to LC for the operation of its
steepwater storage and shipping facilities.
B. MCP shall continue to provide to LC the land leases which extend
through July 31, 2002 or as long as this Agreement may remain in
force, at a rental rate of ten dollars ($ 10) per year, per plant.
These leases were paid through July 31, 2002 on October 19, 1995.
C. MCP shall continue to provide the rail siding at Columbus for an
average of 15 (fifteen) railcars space next to the LC plant. At
Marshall, LC shall provide the switch and approximately 1350 feet of
rail siding and MCP shall provide the land needed for this railroad
track. MCP may occasionally use such tracks to unload railcars of corn
while cooperating with normal LC plant operations.
D. MCP shall provide daily rail car switching at Marshall and Columbus
for both inbound and outbound freight at no charge to LC as agreed
upon in advance while in cooperation with other MCP activities.
E. MCP shall continue to provide current water, sewage, and drainage
services at levels comparable to current usage as a proportion of
steepwater received from MCP.
F. MCP shall provide to LC a rail weighing service at no charge to LC.
G. MCP's local plant Safety Manager shall provide the local LC plant site
managers with a written list of all plant site rules, regulations, and
personnel policies, and also quarterly updates showing changes on the
first working day of each quarter. The local MCP plant Safety Manager
will assist the LC plant site manager with explanations to assure
compliance with such rules and regulations.
H. MCP agrees to pump and provide necessary means for pumping steepwater
to LC's storage tanks located at the respective plant sites.
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I. MCP shall provide a minimum of seven hundred (700) tons of steepwater
on a daily basis averaged each month, which shall be pumped to LC
storage tanks at the respective sites. This minimum daily shipment
shall be the total of the MCP's Marshall, Minnesota and Columbus,
Nebraska plants production which is not applied to MCP's corn gluten
feed products.
J. MCP will control access to the Columbus plant site as in the past.
Trucks will not be allowed to obstruct traffic on the plant site.
However, MCP shall not delay movement of steepwater trucks without
notifying Jack Denton at phone number 316-225-3500 in LC's Dodge City
office or John Synar at phone number 918-463-2631.
K. MCP shall pay LC within 15 days from invoice date for expenses
incurred under this Agreement pertaining to railcar usage, blending
and shipping for industrial uses including Ice Ban.
L. MCP will give LC an estimate of the tons of steepwater to be shipped
annually for industrial uses including Ice Ban on the first of October
each year for the coming market year. This annual estimate is to be
used by LC only for planning. The market year is determined to be from
the first of October through the end of September the following year.
MCP will provide LC an estimated monthly tonnage requirement of
steepwater, for industrial uses including, Ice Ban, at least ninety
(90) days before the month the steepwater is to be shipped. MCP will
compensate LC if actual steepwater shipments, for steepwater for
industrial uses including Ice Ban, for a given month differ from this
estimated monthly tonnage requirement by: at least one thousand (1000)
tons; and, by at least twenty percent (20%). For any steepwater
shipments, for industrial uses including Ice Ban, outside the
above-mentioned range, MCP will pay LC an amount equal to what LC is
required to spend to replace said steepwater or for additional market
expenses incurred in marketing of unshipped steepwater. However, in no
case shall such compensation be more than ten dollars ($10.00) per ton
and shall only be for the tonnage not within the above-mentioned
range.
M. If LC desires, MCP will assist LC with plant security at the LC plant
sites on MCP property to prevent theft of materials and products, and
to maintain product integrity and safety as well as safety and
security of others. If LC requests MCP's involvement, then MCP shall
bill LC, on a monthly basis, for the costs pro-rated on: the
proportional amount of cost necessary for MCP to provide such security
service, or the appropriate pro-rated services of a commercial
security service, and/or the pro-rated costs of security cameras and
other security devices deemed necessary to provide such service. Or,
LC may choose to provide and pay for the above mentioned security
services on its own.
5. RAILCARS:
A. LC agrees to lease or otherwise provide all necessary rail cars as
needed for the transportation, marketing, and distribution of the
steepwater produced that is not distributed by trucks.
B. In the event MCP sells steepwater needing rail delivery for industrial
uses including Ice Ban, then LC shall provide dedicated railcars for
said use only, at a cost of $350.00 per railcar per month or $15.00
per railcar per day whichever is less, from the time the railcar is
loaded until the railcar returns to the LC plant site and is released
by MCP in writing for use other than Ice Ban. Such railcar lease cost
will be invoiced by LC monthly to MCP.
C. In the event MCP sells steepwater needing railcar delivery for
industrial uses including Ice Ban, then MCP shall use railcars
available for steepwater usage from LC before leasing additional
railcars for said steepwater service.
D. In the event MCP exercises the option to buy out one or both of the LC
storage and loading facilities at either
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Marshall, Minnesota or Columbus, Nebraska then MCP will assume the
leases currently held by LC for the railcars used to transport
steepwater from the specific facility purchased. MCP will work with LC
to ensure LC breaks even financially on railcar leases used to
transport steepwater.
E. LC shall assume all liability for railcars during the term of the
railcar leases. In the event MCP shall assume any of the railcar
leases then MCP shall assume liability of the specific railcars from
the date of lease assignment. Railcars shall be inspected for damage
and liability within thirty (30) days of lease assignment.
6. STEEPWATER SPECIFICATIONS: MCP shall provide steepwater that meets the
following specifications:
A. Steepwater shall have a dry matter of not less than forty-eight
percent (48%).
B. Steepwater shall have an as-is crude protein level of not less than
twelve percent (12%).
C. MCP shall provide fermentation control treatment of steepwater. Such
fermentation control shall be defined as shipping a steepwater product
to LC having a pH of 3.9 or below and two (2) lbs of dry BSS (sodium
metabisulfite) or equivalent liquid BSS on a dry solids basis added to
each ton of steepwater (on a 48% solids basis) unless higher levels
are dictated by foaming problems. MCP will provide antifoam for
addition to railcars and trucks of steepwater when MCP and LC deem
necessary to help control foaming problems.
D. It is MCP's intent to minimize insoluble solids in steepwater.
Specifications and testing methodology are not currently defined
however MCP will continue to work on its processes to minimize the
insoluble solids in steepwater to levels deemed acceptable by both MCP
and LC.
E. Steepwater shall be cooled to a temperature of one hundred sixty five
degrees (165(Degree)) Fahrenheit or less prior to pumping to LC's
storage tanks.
7. THROUGHPUT AND MARKETING EXPENSES:
A. LC shall be responsible for marketing all steepwater sold for animal
feed uses and MCP shall market steepwater for industrial uses
including Ice Ban. In the event MCP has opportunity to market
steepwater to some animal feed users, MCP and LC will cooperate to
accomplish such sales when product is available and conditions permit.
B. LC shall receive eight dollars ($8.00) per ton for throughput and
marketing expense for each ton of steepwater sold for animal feed
shipped by truck and ten dollars ($10.00) per ton for throughput and
marketing expense for each ton of steepwater sold for animal feed
shipped by railcar.
C. LC shall receive throughput compensation of six dollars ($6.00) for
each ton of steepwater, either straight or blended with other
products, that LC loads for MCP for industrial uses including Ice Ban.
D. LC shall receive an additional seven dollars ($7.00) for each ton of
blended steepwater and magnesium chloride solution shipped for MCP,
for industrial uses including Ice Ban, from LC's Marshall, Minnesota
and Columbus, Nebraska plant sites.
8. DIVISION OF STEEPWATER MONEY: Steepwater money shall be divided according
to either Item I or Item 2 below.
Note: Many accounts are sold on a delivered basis where costs of
freight and railcar expenses are included in the invoicing. Such
expenses will be deducted from the revenue before the value of the
steepwater is determined for money division.
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ITEM 1: STEEPWATER SOLD FOR ANIMAL FEED
A. For steepwater sold for animal feed, the first eight dollars ($8.00)
per ton of steepwater shipped by truck or ten dollars ($10.00) per ton
of steepwater shipped by railcar shall become the property of and be
retained by LC as per section 7 B above.
B. The next twenty-five dollars ($25.00) per ton of steepwater sold by LC
for animal feed uses shall become the property of and be paid to MCP.
C. Any remaining value for steepwater sold by LC for animal feed uses
shall be divided equally, with fifty percent (50%) retained by LC and
fifty percent (50%) paid to MCP.
By way of example only: if steepwater were sold at the below listed
prices, with example A being for truck shipment and example B for
railcar shipment, then monies would be distributed as follows:
Example A Example B
Steepwater selling price fob MCP plant $41.00/ton $32.00/ton
Less LC throughput expense 8.00/ton 10.00/ton
---------- ----------
Net dollars remaining $33.00/ton $22.00/ton
Less MCP portion of next $25.00/ton 25.00/ton 22.00/ton
---------- ----------
Net dollars for 50/50 split $ 8.00/ton $00.00/ton
LC portion of split 4.00/ton 0.00/ton
MCP portion of split 4.00/ton 0.00/ton
Total LC portion of revenue $12.00/ton $10.00/ton
Total MCP portion of revenue $29.00/ton $22.00/ton
ITEM 2: STEEPWATER SOLD FOR INDUSTRIAL USES INCLUDING ICE BAN
A. For steepwater that MCP sells for industrial uses including Ice Ban,
MCP will collect directly for the total value. LC shall not be
entitled to any remaining value for steepwater sold by MCP for
industrial uses including Ice Ban. LC will invoice MCP monthly for the
throughput expense of six dollars ($6.00) per ton.
B. For steepwater blended with magnesium chloride by LC for MCP, for
industrial uses including Ice Ban, LC shall invoice MCP monthly, an
additional seven dollars ($7.00) per ton for each ton of blended
steepwater and magnesium chloride solution shipped per section 7 D
above. This is in addition to the throughput expense of six dollars
($6.00) per ton for steepwater as mentioned above in section 8 ITEM 2
A. LC shall not be entitled to any additional value for steepwater and
magnesium chloride blends sold by MCP.
By way of example only: if steepwater were sold at the below listed
prices, with example A being for truck shipment and example B for
railcar shipment, then monies would be distributed as follows:
Example A Example B
Steepwater selling price fob MCP plant $41.00/ton $32.00/ton
Less LC throughput expense 6.00/ton 6.00/ton
---------- ----------
Net dollars remaining for MCP $35.00/ton $26.00/ton
Total LC portion of revenue $ 6.00/ton $ 6.00/ton
Total MCP portion of revenue $35.00/ton $26.00/ton
9. PRICE: The objective for both MCP and LC is to maximize long term total
steepwater income. LC and MCP will mutually determine the best pricing
mechanism each year before the end of the prior marketing year. The
marketing year shall be determined to be from October first of the year
through September thirtieth of the following year. Each year the quality of
the product and the current market conditions will determine the pricing.
5
<PAGE>
All prices shall be FOB the respective MCP plant site. Attached in Appendix
A is the formula for marketing year 1997/1998.
10. PRICE ADJUSTMENTS: Due to the by-product nature of steepwater, quality
discounts will be discouraged by LC and mitigated whenever possible. LC
will represent MCP's product on its recent characteristics and sell it on
an as-is basis knowing there may be some variation from load to load,
especially when inventories are low.
11. PRODUCT LIABILITY:
A. MCP shall be responsible for pumping a steepwater to LC that meets the
quality specifications, as specified in section 6. If MCP steepwater
does not meet specifications, then MCP assumes liability and will be
responsible for costs associated with steepwater not meeting quality
specifications.
B. LC shall operate its facilities to maintain the integrity of the
steepwater received from MCP. If LC does not maintain steepwater
quality, then LC assumes liability and will be responsible for costs
associated with steepwater where integrity has not been maintained.
C. Adulteration or mixing of any other product, such as whey, with the
steepwater absolves MCP from any product liability. MCP shall not be
liable for steepwater loaded into railcars or trucks where the
previous load was a product other than MCP steepwater, unless the
railcars or trucks have been cleaned and inspected at an approved wash
facility. The only exception to adulteration would be the small
amounts of residual magnesium chloride solution that may be left in
railcars, tanks or pipelines as a normal part of LC's operation when
blending magnesium chloride and steepwater for MCP.
D. Warranty: MCP warrants that it has the right to convey good title to
the steepwater delivered hereunder and that said steepwater shall be
delivered free of any lien or encumbrance. MCP further warrants that
the steepwater shall not be adulterated or misbranded within the
meaning of the Federal Food, Drug and Cosmetic Act, nor be a commodity
which may not, under the provisions of Sections 404 and 505 of the
Act, be introduced into interstate commerce. MCP warrants the
steepwater to be of merchantable quality, suitable for use in cattle
feeding operations when used according to normal cattle feeding
industry practices. MCP steepwater should not be fed free-choice, and
should be fed at a rate of less than fifteen percent (15%), as fed, in
a total mixed ration. MCP makes no other warranties, express or
implied, of steepwater fitness or suitability, for any other purpose.
12. PERSONAL PROPERTY SEVERANCE AGREEMENT:
Whereas, LC has installed on MCP's site at Marshall, Minnesota the
improvements and equipment described as follows:
a. Four steel tanks, each 48 feet in diameter and 40 feet in height;
b. Steel building approximately 25 feet by 70 feet with attached
wing 12 feet by 231 feet;
c. Railroad track of approximate length of 1250 feet, and switch;
d. Truck loadout scale;
e. Allied piping and equipment including boiler, pumps, air
compressor, electric motors and electrical equipment.
And whereas, LC has installed on MCP's site at Columbus, Nebraska the
improvements and equipment described as follows:
a. Two 400,000-gallon steel tanks;
b. One 2-million-gallon steel tank;
c. One 200,000-gallon steel tank;
d. Steel building of the approximate size of 40 feet by 60 feet;
e. Truck loadout scale;
f. Allied piping and equipment including pumps, motors, air
compressor, and other electrical
6
<PAGE>
equipment.
Whereas, it is the desire and intent of the parties that said
improvements and equipment be severed from said realty and remain the
personal property of LC; now, therefore, in consideration of the
mutual benefits of the parties hereto, the parties agree as follows:
A. The improvements and the equipment herein described, and any future
additions, shall be and remain severed from said realty and although
attached to the realty, shall retain its personal character, shall be
treated as personal property with respect to the rights of the
parties, shall not become a fixture or a part of the realty, and shall
remain the property of LC.
B. Upon termination of this Agreement by either party at any time for any
reason, MCP may, at its option, buy out LC pursuant to the terms of
paragraph 13. If MCP does not elect to do so, LC will at its expense,
remove its improvements and equipment from said premises. This section
(12 B) shall not be construed to create any additional right of
termination beyond others listed in this Agreement.
C. This severance agreement shall be binding upon, and enure to the
benefit of the parties hereto and their respective successors and
assigns.
13. BUY-OUT PROVISION:
A. MCP shall have the option to buy out LC's interest in either or both
of LC's facilities and business on MCP's property at any time during
this Agreement. MCP shall provide LC with twelve (12) months written
notice of its intent to purchase. Sale will be subject to MCP paying
LC the total of item 1, plus item 2 as follows:
ITEM 1: The greater of
a. The total remaining value of all LC's assets, for the facility
purchased, on MCP leased property using a ten (10) year
straight-line depreciation schedule from the time of the assets
installation, plus one hundred percent (100%) of any improvement
during the previous six (6) months which cost over twenty
thousand dollars ($20,000).
Or
b. Forty percent (40%) of the original cost of the plant, buildings
and improvements.
ITEM 2: If MCP exercises its option to buy out either or both of LC's
plants at any time before the end of this Agreement, then MCP
shall pay to LC the value of the last eighteen (18) months net
income before income taxes for the facility purchased. The
eighteen months to be used in determining the buy out amount
shall be the six (6) months immediately preceding the date MCP
notifies LC in writing of its intention to buy out LC, and also
the subsequent twelve (12) months starting from the official date
the buy out notice is given in writing by MCP to LC up to the
date of the actual buy out.
B. After July 31, 2005 and if this agreement is not automatically
extended, MCP may purchase LC's personal property and businesses on
MCP's property for only the cost associated with Item 1 above.
14. SETTLEMENT PROVISION: When or if the buy-out provision is exercised,
settlement shall commence the first month after notice has been received as
follows:
A. MCP will provide to LC at time of notice an estimate of the next 12
months steepwater production and also an estimate of the projected
tonnage of steepwater to be sold by MCP for industrial uses including
Ice Ban.
B. LC will provide MCP with a current detailed list of depreciated
property and equipment.
C. LC will provide MCP with a list of projected capital improvements
planned, if any for MCP's approval.
D. LC will give to MCP the estimated buy-out cost and be allowed to
deduct 1/1 5th of that estimated amount
7
<PAGE>
from each monthly settlement due MCP for the following 11 months.
E. The actual buy-out cost will be determined following the close of the
last month of business before the buy-out date. If after subtracting
the amount deducted in the previous 11 months from the buy-out amount
there is a balance due either party, then that amount will be paid to
the party owed within 15 days of the buy-out date.
15. DISPUTE RESOLUTION: Any controversy or claim arising out of or relating to
this Agreement or breach thereof shall be resolved via the following
dispute resolution procedure.
A. Should either party materially breach a portion of this Agreement,
such other party shall notify the breaching party of such breach. Both
parties shall meet within thirty (30) days to resolve such breach
and/or determine if mutually agreeable progress is being made to
resolve such breach. Such breaching party shall then have sixty (60)
more days after the first thirty (30) days as mentioned above to cure
such breach or show mutually agreeable progress as conditions may
permit.
B. Should either party not be satisfied with the above breach resolution
then such resolution shall be settled by arbitration in accordance
with the rules of the American Arbitration Association. Each party
will bear its own cost and expense of arbitration. Arbitration fees,
if any, shall be shared equally.
16. RIGHT OF FIRST REFUSAL: In the event LC may desire to sell or transfer
ownership of its facilities on MCP's property to any other individual(s) or
corporation(s), MCP shall be offered the first right to purchase said
facilities. If such occurs, LC will notify MCP of the consideration and
terms of proposed sale, and MCP will have thirty (30) days to purchase the
facilities/business for the same consideration and terms. LC may not sell
or transfer ownership of its facilities or businesses on MCP's property to
individual(s), or corporation(s) that are in any way involved in the wet
corn milling industry, or whose parent company may be involved in the wet
corn milling industry. If sold, all LC rights and responsibilities of this
Agreement will pass to the new owner.
17. FORCE MAJEURE: Neither party hereto shall be liable to the other for
failure of nor delay in performance hereof when such failure or delay is
caused by conditions beyond such party's control including, but not limited
to, war, strike, labor dispute, fire, flood, tornado, hurricane, government
intervention, embargo, shortage of raw materials, breakdown,
non-performance of transportation equipment, or any Act of God or other
condition not occasioned by such party's negligence.
18. SEVERABILITY: Any part, term or provision of this Agreement that is held to
be unenforceable, illegal, against public policy or in conflict with any
federal, state or local laws, shall be severable from the rest of the
Agreement. The remaining portions of the Agreement shall not be affected.
The rights and obligations of the parties shall be construed and inferred
as if the Agreement did not contain the particular term, part or provision
held to be invalid, unless the invalid provisions contain the material
financial terms of this Agreement or when considered in the aggregate,
render the administration of this Agreement unreasonably burdensome, in
which case (unless new terms or provisions can be negotiated within three
(3) months of written request for renegotiation by either party) this
Agreement shall be terminated. In the event of termination, the Minimum
Volume requirement of this Agreement will be waived for the then-current
period.
/s/ John Synar /s/ Reed Ellington
- ------------------------------------ -----------------------------------
LC Signature MCP Signature
V.P. Commodities Manager
- ------------------------------------ -----------------------------------
Title Title
Date Jan. 7, 1998 Date Jan. 13, 1998
------------------------------- ------------------------------
8
<PAGE>
APPENDIX A
Steepwater pricing shall be determined by using the Chicago Board Of Trade
(CBOT) daily closings for corn starting the calendar month two (2) months before
the calender quarter is to begin. The CBOT reporting month shall be the month or
months represented during the quarter to be priced. All reported prices for the
month will be averaged to determine the base corn price used for further
calculations. Wholesale or blender prices for steepwater shall be determined to
be five dollars ($5) under the retail or feedlot price. Wholesale prices are
available only to those who blend and/or resell the product. No wholesale price
will be given for railcar volume customers. MCP and LC will discuss the
quarterly price and agree on rounded selling prices close to the calculated
formula price.
Prices shall be as follows:
A. Columbus retail or feedlot price is to be the CBOT base corn price, as
calculated above, multiplied by seventeen (17) to get the ton price in
dollars. Wholesale price will be retail or feedlot price less five
dollars ($5.00) per ton.
B. Marshall retail or feedlot price is to be the CBOT base corn price, as
calculated above, multiplied by fifteen (15) to get the ton price in
dollars. Wholesale price will be retail or feedlot price less five
dollars ($5.00) per ton.
C. For large volume rail users or blenders of steepwater selling product
beyond 150 miles of MCP's plants, the price is to be the CBOT base
corn price, as calculated above, multiplied by twelve (12) to get the
ton price in dollars. Price is the same for both plants.
As example, below is a formula for the quarter of January, February,
and March for 1998.
<TABLE>
<CAPTION>
1997 NOV MARCH BASE CBOT AVERAGE COLUMBUS RETAIL COLUMBUS
DATES CBOT CLOSING PRICE CORN CLOSING PRICE CONVERSION NUMBER RETAIL PRICE ROUNDED PRICE
<S> <C> <C> <C> <C> <C>
$2.855 17 $48.54 $48.50
NOV 3 $2.950 COLUMBUS
NOV 4 $2.902 WHOLESALE PRICE
NOV 5 $2.882 $43.54 $43.50
NOV 6 $2.924
NOV 7 $2.936 MARSHALL RETAIL MARSHALL
NOV 10 $2.856 CONVERSION NUMBER RETAIL PRICE ROUNDED PRICE
NOV 11 $2.864 $2.855 15 $42.83 $42.75
NOV 12 $2.842
NOV 13 $2.830 MARSHALL
NOV 14 $2.814 WHOLESALE PRICE
NOV 17 $2.864 $37.83 $37.75
NOV 18 $2.860
NOV 19 $2.832 RAILCAR RETAIL RAILCAR
NOV 20 $2.812 CONVERSION NUMBER RETAIL PRICE ROUNDED PRICE
NOV 21 $2.840 $2.855 12 $34.26 $34.20
NOV 24 $2.822
NOV 25 $2.792
NOV 26 $2.824
NOV 28 $2.806
AVERAGES $2.855
</TABLE>
9
EXHIBIT 23.2
[AMERICAN APPRAISAL ASSOCIATES(R) LETTERHEAD]
CONSENT OF APPRAISER
We hereby consent to the references made to us and/or our appraisal by Minnesota
Corn Processors, LLC under the captions(s) "SUMMARY"; "RISK FACTORS - Certain
Risks Related to Federal Income Tax Consequences"; "THE CONVERSION - Reasons for
the Conversion, Appraisal Opinion, Material Federal Income Tax Consequences"; in
the Prospectus constituting a part of this Registration Statement on Form S-4.
In addition we consent to the filing of our summarization letter of the
appraisal report referred therein as an exhibit to the Registration Statement.
In giving such consent, we do not thereby admit that we come within the category
of persons whose consent is required under Section 7 of the Securities Act of
1933, as amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.
AMERICAN APPRAISAL ASSOCIATES, INC.
By /s/ Ronald M. Goergen
-------------------------------------
Ronald M. Goergen
President
Milwaukee, Wisconsin
January 21, 1999
Board of Directors
Minnesota Corn Processors and Consolidated Entities
We consent to the use of our report included herein and to the references to our
firm under the headings "Summary Financial Information", "Selected Financial
Data", and "Experts" in the Information Statement-Prospectus.
/s/ Clifton Gunderson L.L.C.
Clifton Gunderson L.L.C.
Marshfield, Wisconsin
January 26, 1999
EXHIBIT 23.4
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ DOUG FINSTROM
----------------------------------------
Doug Finstrom
January 18, 1999
EXHIBIT 23.5
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ CARL JUST
----------------------------------------
Carl Just
January 20, 1999
EXHIBIT 23.6
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ DUANE ADAMS
----------------------------------------
Duane Adams
January 18, 1999
EXHIBIT 23.7
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ HOWARD DAHLAGER
----------------------------------------
Howard Dahlager
January 20, 1999
EXHIBIT 23.8
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ KEN ROBINSON
----------------------------------------
Ken Robinson
January 18, 1999
EXHIBIT 23.9
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ DAVID SCHEIBEL
----------------------------------------
David Scheibel
January 24, 1999
EXHIBIT 23.10
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ STEVE LIPETZKY
----------------------------------------
Steve Lipetzky
January 18, 1999
EXHIBIT 23.11
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ JOHN ZWACH, JR.
----------------------------------------
John Zwach, Jr.
January 18, 1999
EXHIBIT 23.14
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ DANIEL DYBSETTER
----------------------------------------
Daniel Dybsetter
January 18, 1999
EXHIBIT 23.15
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ JOHN JERZAK
----------------------------------------
John Jerzak
January 18, 1999
EXHIBIT 23.16
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ DEAN BUESING
----------------------------------------
Dean Buesing
January 18, 1999
EXHIBIT 23.17
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ SANDY LUDEMAN
----------------------------------------
Sandy Ludeman
January 18, 1999
EXHIBIT 23.18
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ JOHN P. HENNEN
----------------------------------------
John P. Hennen
January 18, 1999
EXHIBIT 23.19
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ JOHN NELSON
----------------------------------------
John Nelson
January 18, 1999
EXHIBIT 23.20
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ JIM GERVAIS
----------------------------------------
Jim Gervais
January 18, 1999
EXHIBIT 23.21
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ RON KIRCHNER
----------------------------------------
Ron Kirchner
January 18, 1999
EXHIBIT 23.22
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ KENNETH REGIER
----------------------------------------
Kenneth Regier
January 18, 1999
EXHIBIT 23.23
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ LARRY DOWD
----------------------------------------
Larry Dowd
January 18, 1999
EXHIBIT 23.24
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ ANDREW JENSEN
----------------------------------------
Andrew Jensen
January 18, 1999
EXHIBIT 23.25
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ PATRICK L. MEURET
----------------------------------------
Patrick L. Meuret
January 18, 1999
EXHIBIT 23.26
CONSENT
Reference is made to the Registration Statement on Form S-4, and to
the Information Statement/Prospectus which forms a part thereof (together, the
"Registration Statement"), to be filed with the Securities and Exchange
Commission by Minnesota Corn Processors, LLC ("MCP LLC") in connection with the
conversion of Minnesota Corn Processors, Inc. into a Colorado limited liability
company. In accordance with Rule 438 under the Securities Act of 1933, the
undersigned hereby consents to being named in the Registration Statement, and
any subsequent amendments thereto, as a person who is about to become a director
of MCP LLC.
/s/ ROBERT BENDER
----------------------------------------
Robert Bender
January 18, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 3,236
<SECURITIES> 0
<RECEIVABLES> 59,930
<ALLOWANCES> 0
<INVENTORY> 43,170
<CURRENT-ASSETS> 123,282
<PP&E> 690,132
<DEPRECIATION> 185,141
<TOTAL-ASSETS> 652,672
<CURRENT-LIABILITIES> 46,721
<BONDS> 318,000
0
0
<COMMON> 246,851
<OTHER-SE> 119,790
<TOTAL-LIABILITY-AND-EQUITY> 652,672
<SALES> 322,356
<TOTAL-REVENUES> 322,356
<CGS> 290,357
<TOTAL-COSTS> 290,357
<OTHER-EXPENSES> 25,371
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,060
<INCOME-PRETAX> (1,134)
<INCOME-TAX> 25
<INCOME-CONTINUING> (1,159)
<DISCONTINUED> 0
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<NET-INCOME> (1,159)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
