Registration Statement No.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM S-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
FARMLAND INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KANSAS 44-0209330
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3315 NORTH OAK TRAFFICWAY, KANSAS CITY, MISSOURI 64116-0005
816-459-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TERRY M. CAMPBELL
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FARMLAND INDUSTRIES, INC.
3315 NORTH OAK TRAFFICWAY, KANSAS CITY, MISSOURI 64116-0005
816-459-6348
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933 CHECK THE FOLLOWING BOX. [ X ]
IF THE REGISTRANT ELECTS TO DELIVER ITS LATEST ANNUAL REPORT TO SECURITY
HOLDERS, OR A COMPLETE AND LEGIBLE FACSIMILE THEREOF, PURSUANT TO ITEM 11(A)(1)
OF THIS FORM, 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(C) 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. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
TITLE OF EACH PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED PER UNIT(1) AGGREGATE OFFERING(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
8% SERIES A
CUMMULATIVE REDEEMABLE
CUMULATIVE REDEEMABLE
PREFERRED SHARES 2,000,000 $50 $ 100,000,000 $ 29,500
TOTAL $ 100,000,000 $ 29,500
</TABLE>
(1) FOR THE PURPOSE OF COMPUTING THE REGISTRATION FEE, THE PRICE OF THE
PREFERRED SHARES IS BASED UPON PRICE OF THE PREFERRED SHARES WHICH WERE
INITIALLY ISSUED AND SOLD IN PRIVATE TRANSACTIONS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933. THERE IS NO ACTIVE TRADING MARKET FOR THE
PREFERRED SHARES.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT 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 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
SUBJECT TO COMPLETION, DATED APRIL__, 1998
PROSPECTUS
2,000,000 SHARES
FARMLAND INDUSTRIES, INC.
8% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES
(PAR VALUE $25 PER SHARE)
(LIQUIDATION PREFERENCE EQUIVALENT TO $50 PER SHARE)
This Prospectus relates to 2,000,000 shares of 8% Series A Cumulative
Redeemable Preferred Stock, $25 par value per share (liquidation preference
equivalent to $50 per share) (the "Preferred Shares"), of Farmland Industries,
Inc. (the "Company" or "Farmland"). On December 19, 1997 the Company issued and
sold the Preferred Shares to Merrill Lynch, Pierce, Fenner & Smith Incorporated
(the "Initial Purchaser") in a private transaction (the "Original Offering").
The Initial Purchaser then sold the Preferred Shares to persons reasonably
believed by the Initial Purchaser to be "qualified institutional buyers" (as
defined in Rule 144A) and in compliance with Rule 144A under the Securities Act
of 1933, as amended (the "Securities Act").
Dividends on the Preferred Shares are cumulative and are payable quarterly
in arrears on the 1st day of February, May, August and November of each year at
the rate of 8% of the liquidation preference of $50 per share per annum
(equivalent to $4.00 per share per annum).
The Preferred Shares are not redeemable prior to December 15, 2022. On and
after December 15, 2022, the Preferred Shares may be redeemed for cash at the
option of the Company, in whole or in part, at redemption prices declining to
$50 per share on and after December 15, 2027, plus accumulated and unpaid
dividends, if any, thereon. The Preferred Shares do not have any stated
maturity, are not subject to any sinking fund or mandatory redemption provisions
and are not convertible into any other securities of the Company. See
"Description of Preferred Shares-Redemption."
The holders named herein or in an accompanying supplement to this
Prospectus (each, a "Prospectus Supplement") or their transferees, pledgees,
donees or successors (collectively, "Selling Holders") may sell the Preferred
Shares pursuant to this Prospectus from time to time directly to purchasers or
through agents, underwriters or dealers. See "Plan of Distribution" and
"Selling Holders". The Selling Holders and any dealers, agents or underwriters
which participate in the distribution of the Preferred Shares may be deemed to
be "underwriters" within the meaning of the Securities Act, and any commission
received by them and any profit on the resale of the Preferred Shares purchased
by them may be deemed to be underwriting commissions or discounts under the
Securities Act. See "Plan of Distribution" for a description of indemnification
arrangements. If required, the names of any such agents or underwriters
involved in the sale of the Preferred Shares and the applicable commission,
purchase price or underwriter's discount, if any, will be set forth in a
Prospectus Supplement. The Selling Holders will receive all of the net proceeds
from the sale of the Preferred Shares and will pay all underwriting discounts
and selling commissions, if any, applicable to any such sales.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 HEREOF FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE PREFERRED SHARES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURIITES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL ___, 1998.
THE FOLLOWING PARAGRAPH WAS LANDSCAPE ON THIS PAGE.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THE SECURITIES IN
ANY STATE IN WHICH SUCH OFFER, SOLICATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information can be
inspected and copied at the following public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington
D.C. 20549 as well as at the regional offices of the Commission at Seven World
Trade Center, Suite 1300, New York, New York 10048, and the Citicorp Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material may also be obtained by mail from the Public Reference Section of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549, upon payment of prescribed rates. Such material may also be
accessed electronically at the Commission's site on the World Wide Web located
at http://www.sec.gov.
This Prospectus constitutes part of a registration statement on Form S-2
(the "Registration Statement") filed by the Company with the Commission under
the Securities Act. This Prospectus does not contain all the information set
forth in the Registration Statement. This Prospectus incorporates certain
information by reference to the Company's current Annual Report on Form 10-K for
the year ended August 31, 1997 (the "1997 Form 10-K") and the Company's most
recent Quarterly Report on Form 10-Q for the quarter ended November 30, 1997
(the "November Form 10-Q"), both of which will be delivered with this
Prospectus. Prospective investors should refer to such documents for a complete
description of the Company's business, results of operations and financial
condition, as well as other information highly relevant to an investment in the
securities offered hereby. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made to
the exhibit for a more complete description of the document or matter involved,
and each such statement shall be, deemed qualified in its entirety by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant
to the Exchange Act are incorporated by reference into this Prospectus: (i) the
1997 Form 10-K and (ii) the November Form 10-Q.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
The Company will provide, without charge, to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the oral or written
request of such person, a copy (without exhibits, unless such exhibits are
specifically incorporated by reference into the information that this Prospectus
incorporates) of any and all information that has been incorporated by reference
in this Prospectus. Written or telephone requests for such information should
be directed to Farmland Industries, Inc., 3315 N. Oak Trafficway, Kansas City,
Missouri, 64116-0005, Attention: Vice President and Treasurer, telephone (816)
459-6000.
The Company will provide to the holders of the Preferred Shares annual
reports on Form 10-K containing financial statements audited by the Company's
independent auditors and quarterly reports on Form 10-Q containing its unaudited
financial statements.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the caption "Risk Factors" and
elsewhere in this Prospects or in the information incorporated by reference
herein may constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 and as such may involve known
and unknown risks, uncertainties and other factors that may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Some of the factors that may cause such
material differences are set forth herein under the caption "Risk Factors."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information appearing elsewhere in this
Prospectus or incorporated herein by reference. Unless the context requires
otherwise, (i) "Farmland" or the "Company" refers to Farmland Industries, Inc.
and its consolidated subsidiaries, and (ii) all references herein to "year" or
"years" are to fiscal years ended August 31.
Farmland is an agricultural farm supply and processing and marketing
cooperative headquartered in Kansas City, Missouri, that is primarily owned by
its members (as herein defined) and operates on a cooperative basis. Founded in
1929, Farmland has grown from revenues of $310,000 during its first year of
operation to over $9.1 billion during 1997. As of August 31, 1997, Farmland's
membership, associate membership and patrons eligible for patronage refunds
consisted of approximately 1,400 cooperative associations of farmers and
ranchers and 13,000 pork or beef producers or associations of such producers.
Management estimates that over 500,000 farmers and ranchers conduct business
through Farmland and its member cooperatives. The Company believes it is one of
the largest cooperatives in the United States in terms of revenues. In 1997,
Farmland had export sales in excess of $1.3 billion to customers in over 80
countries. Substantially all of the Company's foreign sales are invoiced and
collected in U.S. Dollars.
Kansas City, Missouri is the location of our headquarters. Our mailing
address and telephone number are as follows:
FARMLAND INDUSTRIES, INC.
P.O. Box 7305
Kansas City, Missouri 64116-0005
Telephone (816) 459-6000
THE OFFERING
Securities Offered 2,000,000 8% Series A Cumulative Redeemable Preferred
Shares.
Ranking With respect to the payment of dividends and amounts
payable upon liquidation, the Preferred Shares rank (i)
senior to the common shares, associate member common
shares, and all other capital credits and shares of
capital stock of the Company which, by their terms, rank
junior to the Preferred Shares and (ii), except as
described in the next sentence, on a parity with all
other preferred shares of the Company which are not, by
their terms, junior to the Preferred Shares. As of
November 30, 1997, the Company had outstanding an
aggregate of $72,000 liquidation value of preferred stock
which ranks senior to the Preferred Shares. The Company
has agreed not to authorize or issue any other preferred
shares which are senior to the Preferred Shares. See
"Description of Preferred Shares-Rank."
Dividends Dividends on the Preferred Shares are cumulative from
December 19, 1997 and are payable quarterly in arrears on
the 1st day of February, May, August and November of each
year at the rate of 8% of the liquidation preference of
$50 per share per annum (equivalent to $4.00 per share
per annum). Dividends on the Preferred Shares will
accumulate whether or not the Company has earnings,
whether or not there are funds legally available for the
payment of such dividends and whether or not such
dividends are declared. See "Description of Preferred
Shares-Dividends."
Liquidation Preference The Preferred Shares have a liquidation preference of
$50 per share, plus an amount equal to accumulated and
unpaid dividends, if any, thereon. See "Description of
Preferred Shares-Liquidation Preference."
Redemption The Preferred Shares are not redeemable prior to
December 15, 2022. On and after December 15, 2022 the
Preferred Shares will be redeemable for cash at the
option of the Company, in whole or in part, at redemption
prices declining to $50 per share on and after December
15, 2027, plus accumulated and unpaid dividends, if any,
thereon. See "Description of Preferred Shares-
Redemption."
Voting Rights None, except that the Company will not, without the
affirmative vote or consent of the holders of at least a
majority of the Preferred Shares outstanding at the time,
given in person or by proxy, either in writing or at a
meeting, alter or change the powers, preferences or
special rights of the Preferred Shares so as to affect
them adversely. See "Description of Preferred Shares-
Voting Rights."
Conversion The Preferred Shares are not convertible or exchangeable
by their terms for any other property or securities of
the Company.
Form The Preferred Shares will be issued in book-entry form
and represented by the Global Certificate registered in
the name of the nominee of the Depository Trust Company
(the "DTC"), except under the limited circumstances
described herein. See "Description of Preferred Shares-
Form, Book-Entry System and Transfer."
Absence of Market for
the Preferred Shares .Prior to this offering there has been no established
trading market for the Preferred Shares. Although the
Initial Purchaser has informed the Company that it
currently intends to make a market in the Preferred
Shares, the Initial Purchaser is not obligated to do so,
and any such market making may be discontinued at any
time without notice. Accordingly, there can be no
assurance as to the development or liquidity of any
market for the Preferred Shares. See "Plan of
Distribution."
Use of Proceeds The Selling Holders will receive all of the proceeds
from the sale of the Preferred Shares offered hereby.
The Company will not receive any proceeds from the sale
of such Preferred Shares.
RISK FACTORS
Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus and in the documents incorporated
herein by reference, the following factors before purchasing the Preferred
Shares offered hereby.
INCOME TAX MATTERS
On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory
notice to Farmland asserting deficiencies in federal income taxes (exclusive of
statutory interest thereon) in the aggregate amount of $70.8 million. The
asserted deficiencies relate primarily to the Company's tax treatment of the
$237.2 million gain resulting from its sale of the stock of Terra Resources,
Inc. ("Terra"), a wholly-owned subsidiary engaged in oil and gas exploration and
production operations, and the IRS's contention that Farmland incorrectly
treated the Terra sale gain as income against which certain patronage-sourced
operating losses could be offset. The statutory notice further asserts that
Farmland incorrectly characterized for tax purposes gains aggregating
approximately $14.6 million, and a loss of approximately $2.3 million, from
dispositions of certain other assets.
On June 11, 1993, Farmland filed a petition in the United States Tax Court
contesting the asserted deficiencies in their entirety. The case was tried on
June 13-15, 1995. If the United States Tax Court decides in favor of the IRS on
all unresolved issues raised in the statutory notice, Farmland would have
additional federal and state income tax liabilities aggregating approximately
$85.8 million plus accumulating statutory interest thereon (approximately $252.3
million through November 30, 1997), or $338.1 million (before tax benefits of
the interest deduction) in the aggregate at November 30, 1997. In addition,
such a decision would affect the computation of Farmland's taxable income for
its 1989 tax year and, as a result, could increase Farmland's federal and state
income taxes for that year by approximately $5.0 million plus accumulating
statutory interest thereon (approximately $8.5 million), or $13.5 million in the
aggregate at November 30, 1997. The asserted federal and state income tax
liabilities and accumulated interest thereon would become immediately due and
payable unless the Company appealed the decision and posted the requisite bond
to stay assessment and collection.
The liability resulting from an adverse decision by the United States Tax
Court would be charged to current earnings and would have a material adverse
effect on the Company. In the event of such an adverse determination of the
Terra tax issue, certain financial covenants of the Company's Syndicated Credit
Facility (the "Facility"), dated May 15, 1996, become less restrictive. Had the
United States Tax Court decided in favor of the IRS on all unresolved issues,
and had all related additional federal and state income taxes and accumulated
interest thereon been due and payable on November 30, 1997, Farmland's borrowing
capacity under the Facility was adequate at that time to finance the liability.
However, Farmland's continued ability to finance such an adverse decision
depends substantially on the financial effects of future operating events on its
borrowing capacity under the Facility.
GENERAL FACTORS THAT MAY AFFECT BUSINESS
The Company's revenues, margins, net income and cash flow may be volatile
due to factors beyond the Company's control. External factors that affect
agricultural conditions and Farmland's results of operations include:
Regulatory. The Company's ability to grow through acquisitions and
investments in ventures may be adversely affected by regulatory delays or other
unforeseeable factors beyond the Company's control. Various federal and state
regulations to protect the environment have encouraged, and are likely to
continue to encourage, farmers to reduce the amount of fertilizer and other
chemical applications that they use.
Competition. Competitors may have better access to equity capital markets
than the Company and may offer more varied products or possess greater
resources than the Company.
Imports and Exports. Specific factors which may affect the level of
agricultural products imported or exported include foreign trade and monetary
policies, laws and regulations, political and governmental changes, inflation
and exchange rates, taxes, operating conditions and world demand. Fluctuations
in the level of agricultural product imports and exports will likely impact the
Company's operations.
Weather. Weather conditions, both domestic and global, affect the
Company's operations. Weather conditions may either increase or decrease demand
and, thereby, affect prices related to the Company's farm supply operation (crop
production, petroleum and feed). Weather conditions also may increase or
decrease the supply of products and, thereby, affect costs related to the
Company's pork and beef processing and marketing and grain storage and
marketing.
Raw Materials Cost. Historically, changes in the costs of raw materials
have not necessarily resulted in corresponding changes in the prices at which
finished products have been sold by the Company.
Other Factors. Domestic variables, such as crop failures, federal
agricultural programs and production efficiencies, and global variables, such as
embargoes, political instabilities and local conflicts, affect the supply,
demand and price of crude oil, refined fuels, natural gas and other commodities
and may unfavorably impact the Company's operations.
Management cannot determine the extent to which these factors may impact
future operations of the Company. The Company's revenues, margins, net income
and cash flow may continue to be volatile as conditions affecting agriculture
and markets for the Company's products change.
LIMITED ACCESS TO EQUITY CAPITAL
As a cooperative, the Company cannot sell its voting common equity to
traditional public or private markets. Instead, equity is raised largely from
cooperative voting members, associate members and patrons. Farmland's common
equity largely results from payment of the noncash portion of patronage refunds
with common stock, associate member common stock and capital credits and from
the retention of net income generated from transactions with nonmembers (earned
surplus). See "The Company-Cooperative Structure-Membership" and "-Taxation of
Cooperatives and Distribution of Patronage Earnings."
ENVIRONMENTAL MATTERS
The Company is subject to various stringent federal, state and local
environmental laws and regulations, including those governing the use, storage,
discharge and disposal of hazardous materials, or which may impose liability for
cleanup of environmental contamination. The Company uses hazardous materials
and generates hazardous wastes in the ordinary course of its manufacturing
processes.
The Company recognizes liabilities, without offset for potential
recoveries, related to remediation of contaminated properties when the related
costs are probable and can be reasonably estimated. Estimates of these
liabilities are based upon currently enacted laws and regulations, available
facts, existing technology and undiscounted site specific costs. Environmental
liabilities include estimates of the Company's share of costs attributable to
potentially responsible parties ("PRPs") which are insolvent or otherwise unable
to pay. All liabilities are monitored and adjusted regularly as new facts or
changes in law or technology occur.
Many of the Company's current and former facilities have been in operation
for many years and, over such time, the Company and other predecessor operators
of such facilities have generated, used, stored or disposed of substances or
wastes that are or might be considered hazardous under applicable environmental
laws. As a result of such operations, the soil and groundwater at or under
certain of the Company's current and former facilities have been contaminated.
Material expenditures may be required by the Company in the future to remediate
contamination from past or future releases of hazardous substances or wastes.
The Company wholly or jointly owns or operates 27 grain elevators and 61
manufacturing properties and has potential responsibility for environmental
conditions at a number of manufacturing facilities it previously operated and at
waste disposal facilities operated by third parties. The Company also has been
identified as a PRP under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") at various National Priority List
sites and has unresolved liability with respect to the past disposal of
hazardous substances at five such sites. CERCLA may impose joint and several
liability on certain statutory classes of persons for the costs of investigation
and remediation of contaminated properties, regardless of fault or the legality
of the original disposal. These persons include the present and former owners
or operators of a contaminated property, and companies that generated, disposed
of or arranged for the disposal of hazardous substances found at the property.
The Company is investigating or remediating contamination at 26 properties under
CERCLA and/or the state and federal hazardous waste management laws. During
1995, 1996, 1997, and the first quarter 1997, the Company paid approximately
$3.2 million, $1.8 million, $4.6 million and $.8 million, respectively, for
environmental investigation and remediation.
The Company currently is aware of probable obligations for environmental
matters at 35 properties. As of November 30, 1997, the Company has an
environmental accrual in its Consolidated Balance Sheet for the probable and
reasonably estimated cost for remediation of contaminated property of $16.6
million. The Company periodically reviews and, as appropriate, revises its
environmental accruals. Based on current information and regulatory
requirements, the Company believes that the accruals established for
environmental expenditures are adequate.
The Company's actual final costs of addressing certain environmental
matters are not quantifiable, and therefore have not been accrued, because such
matters are in preliminary stages and the timing, extent and costs of various
actions which governmental authorities may require are currently unknown.
Management is aware of other environmental matters for which there is a
reasonable possibility that the Company will incur costs to resolve. It is
possible that the costs of resolution of the matters described in this paragraph
may exceed the liabilities which, in the opinion of management, are probable and
which costs are reasonably estimable at November 30, 1997. In the opinion of
management, it is reasonably possible for such additional costs to be
approximately $18.1 million. See "Business-Matters Involving the Environment"
included in Items 1 and 2 of the Annual Report, which is incorporated by
reference herein.
IMPACT OF CERTAIN PREFERRED STOCK PROVISIONS
The terms of the Preferred Shares provide that the Company will be
prohibited from making certain cash patronage refunds and from making
redemptions of equity under the various equity redemption plans during any
period when the payment of dividends on the Preferred Shares is in arrears.
Management believes that a key element which encourages its members to do
business with the Company is the payment of such patronage refunds and
redemptions of equity. Accordingly, if the Company is not permitted to make
such payments, members may reduce the amount of business they transact with the
Company, thereby negatively impacting the ability to generate profits in future
periods.
CERTAIN RIGHTS OF PREFERRED SHAREHOLDERS
In accordance with certain provisions of Kansas law relating to
cooperatives and the terms of the Company's articles of incorporation and
bylaws, the holders of Preferred Shares do not have the right to elect directors
of the Company, even if dividend payments are in arrears, and do not have any
other voting rights.
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the Company's consolidated ratios of
earnings to combined fixed charges and preferred stock dividends for the periods
shown. The ratios of earnings to combined fixed charges and preferred stock
dividends have been computed by dividing fixed charges and preferred stock
dividends into the sum of (a) income (loss) before taxes for the enterprise as a
whole, less capitalized interest and with adjustments to appropriately reflect
the Company's majority-owned, 50%-owned, and less-than-50%-owned affiliates, and
(b) fixed charges. Fixed charges consist of interest on all indebtedness
(including amortization of debt issuance expenses) and the component of
operating rents determined to be interest, with adjustments as appropriate to
reflect the Company's 50%-owned and less-than-50%-owned affiliates.
The information below should be read in conjunction with information
appearing in the Company's consolidated financial statements, the notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included in the 1997 Form 10-K and the November Form 10-Q, which are
incorporated by reference herein.
<TABLE>
<CAPTION>
Year Ended August 31, November 30,
1993 . 1994 . 1995 . 996 . 1997 . 1996 . 1997 .
Amounts in thousands
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of Earnings to Combined
Fixed Charges and
Preferred Stock Dividends(1).... --- 2.1 4.0 3.0 3.0 2.3 1.8
</TABLE>
.
(1) Income was inadequate to cover combined fixed charges and preferred stock
dividends for the year ended August 31, 1993. The dollar amount of the
coverage deficiency was $36.6 million.
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the sale of the
Preferred Shares offered under this Prospectus. The Company will not receive
any proceeds from the sale of such Preferred Shares.
DESCRIPTION OF PREFERRED SHARES
The following description of the Preferred Shares is a summary of the
terms and provisions of the Preferred Shares. The summary does not purport to
be complete and is subject to, and qualified in its entirety by reference to,
the applicable provisions of the Company's articles of incorporation and by-
laws.
GENERAL
The Company is authorized to issue up to 8,000,000 preferred shares, $25
par value per share, in one or more series of which the Preferred Shares
constitute a new series. The Company's articles of incorporation authorizes the
Board of Directors to fix the number of shares constituting each class of
preferred shares and the designations, preferences and relative, participating,
optional or other special rights and qualifications, limitations or restrictions
thereof. The Preferred Shares are fully paid and nonassessable and do not have,
or are subject to, any preemptive or similar rights.
The registrar, transfer agent and dividends disbursing agent for the
Preferred Shares is ChaseMellon Shareholder Services, L.L.C.
RANK
The Preferred Shares, with respect to dividend rights and rights upon
liquidation of the Company, rank (i) senior to the common shares, associate
member common shares and all other capital credits and shares of capital stock
of the Company which, by their terms, rank junior to the Preferred Shares and
(ii), except as described in the next sentence, on a parity with all other
preferred shares of the Company which are not, by their terms, junior to the
Preferred Shares. As of November 30, 1997, the Company had outstanding an
aggregate of $72,000 liquidation value of preferred stock which ranks senior to
the Preferred Shares. The Company has agreed not to authorize or issue any
other preferred shares which are senior to the Preferred Shares.
DIVIDENDS
Holders of the Preferred Shares are entitled to receive, when and as
authorized by the Board of Directors of the Company, out of funds legally
available for the payment of dividends, cumulative cash dividends at the rate of
8% of the liquidation preference of $50 per share per annum (equivalent to $4.00
per share per annum). Such dividends accumulate from December 19, 1997 and are
payable quarterly in arrears on the 1st day of each February, May, August and
November or, if not a business day, the succeeding business day (each, a
"Dividend Payment Date"). The first dividend on the Preferred Shares was paid
on February 1, 1998 to holders of record as of January 15, 1998. Any dividends
payable on the Preferred Shares will be computed on the basis of a 360-day year
consisting of twelve 30-day months. Any dividends payable will be payable to
holders of record as they appear in the records of the Company at the close of
business on the applicable record date, which shall be the 15th day of the
calendar month immediately prior to the month in which the applicable Dividend
Payment Date falls or such other date designated by the Board of Directors of
the Company that is not more than 30 nor less than 10 days prior to such
Dividend Payment Date (each, a "Dividend Record Date").
No dividends on the Preferred Shares shall be authorized by the Board of
Directors of the Company or be paid or set apart for payment by the Company at
such time as the terms and provisions of any agreement of the Company, including
any agreement relating to its indebtedness, prohibits such authorization,
payment or setting apart for payment or provides that such authorization,
payment or setting apart for payment would constitute a breach thereof or a
default thereunder, or if such authorization or payment shall be restricted or
prohibited by law. The Company's Credit Facility requires the Company to comply
with certain financial covenants regarding working capital, the ratio of certain
debt to average cash flow and the ratio of equity to total capitalization, all
as defined therein, which may affect the Company's ability to make dividend
payments.
Notwithstanding the foregoing, dividends on the Preferred Shares shall
accumulate whether or not the Company has earnings, whether or not there are
funds legally available for the payment of such dividends and whether or not
such dividends are authorized or declared. Accumulated but unpaid dividends on
the Preferred Shares will not bear interest and holders of the Preferred Shares
will not be entitled to any dividends in excess of full cumulative dividends as
described above.
Except as provided in the immediately following paragraph, unless full
cumulative dividends on the Preferred Shares have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment therefor set
apart for such payment on the Preferred Shares for all past dividend periods and
the then current dividend period, no dividends (other than in common shares,
associate member common shares or other capital stock or capital credits ranking
junior to the Preferred Shares as to dividends and upon liquidation) shall be
declared or paid or set aside for payment upon any preferred shares, common
shares, associate member common shares or any other capital stock or capital
credits of the Company ranking junior to or on a parity with the Preferred
Shares as to dividends or upon liquidation, nor shall any preferred shares,
common shares, associate member common shares or any other capital stock or
capital credits of the Company ranking junior to or on a parity with the
Preferred Shares as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid or made
available for a sinking fund for the redemption of such shares) by the Company
(except by conversion into or exchange for other capital stock or capital
credits of the Company ranking junior to the Preferred Shares as to dividends
and upon liquidation and except to the extent any preferred shares existing at
the date of original issue of the Preferred Shares are redeemed at the option of
the holders thereof as permitted by the terms of such preferred shares).
Notwithstanding the foregoing paragraph, the Company shall be permitted to
declare and pay or set apart for payment patronage dividends or refunds, subject
to the limitation that, whenever the terms described in the foregoing paragraph
would operate to restrict dividends, not more than 20% of such aggregate
patronage dividends or refunds for any fiscal year shall be in cash, with the
remainder to be paid in the form of common stock, associate member common stock,
or capital credits. In addition, when dividends are not paid in full (or a sum
sufficient for such full payment is not so set apart) upon the Preferred Shares
and other preferred shares of the Company ranking on a parity as to dividends
with the Preferred Shares, dividends may be declared on the Preferred Shares and
such other preferred shares provided that such dividends shall be declared pro
rata so that the amount of dividends declared per Preferred Share and per each
other preferred share shall in all cases bear to each other the same ratio that
the accumulated dividends per Preferred Share and per such other preferred share
bear to each other.
Any dividend payment made on the Preferred Shares shall first be credited
against the earliest accumulated but unpaid dividend due with respect to such
Preferred Shares which remains payable.
LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the affairs
of the Company (collectively referred to herein as a "liquidation"), the holders
of the Preferred Shares will be entitled to be paid out of the assets of the
Company legally available for distribution to its shareholders liquidating
distributions in cash or property at its fair market value as determined by the
Company's Board of Directors in the amount of a liquidation preference equal to
$50 per share plus accumulated and unpaid dividends, if any, thereon to the date
of such liquidation, before any distribution of assets is made to holders of
common shares, associate member common shares or any other capital stock or
capital credits of the Company ranking junior to the Preferred Shares as to
liquidation rights. After payment of the full amount of the liquidating
distributions to which they are entitled, the holders of Preferred Shares will
have no right or claim to any of the remaining assets of the Company.
In the event that, upon any liquidation of the Company, the legally
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on the Preferred Shares and the corresponding amounts
payable on all other preferred shares of the Company ranking on a parity with
the Preferred Shares in the distribution of assets upon liquidation, then the
holders of the Preferred Shares and such other preferred shares shall share
ratably in any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
The consolidation or merger of the Company with or into any other entity
or the sale, lease, transfer or conveyance of all or substantially all of the
property or business of the Company shall not be deemed to constitute a
liquidation of the Company.
REDEMPTION
The Preferred Shares are not redeemable prior to December 15, 2022. On
and after December 15, 2022, the Company may redeem the Preferred Shares, in
whole or in part, at any time or from time to time, in cash at a per share
redemption price set forth in the table below plus, in each case, accumulated
and unpaid dividends, if any, thereon to the date fixed for redemption, without
interest, to the extent the Company will have funds legally available therefor.
If redeemed during the twelve month period,
Beginning December 15, Redemption Price
2022 ................................. $52.00
2023 ................................. 51.60
2024 ................................. 51.20
2025 ................................. 50.80
2026 ................................. 50.40
2027 and thereafter................... 50.00
Holders of Preferred Shares to be redeemed shall surrender such Preferred
Shares at the place designated in the notice of redemption and shall be entitled
to the redemption price upon such surrender. If notice of redemption of any
Preferred Shares has been given and if the funds necessary for such redemption
have been irrevocably set aside by the Company in trust for the benefit of the
holders of any Preferred Shares so called for redemption, then from and after
the redemption date dividends will cease to accumulate on such Preferred Shares,
such shares shall no longer be deemed outstanding and all rights of the holders
of such Preferred Shares will terminate, except the right to receive the
redemption price. If fewer than all of the outstanding Preferred Shares are to
be redeemed, the Preferred Shares to be redeemed shall be selected pro rata (as
nearly as may be practicable without creating fractional Preferred Shares) or by
any other equitable method determined by the Company.
Notwithstanding the foregoing, unless full cumulative dividends on the
Preferred Shares shall have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment therefor set apart for such
payment on the Preferred Shares for all past dividend periods and the then
current dividend period, no Preferred Shares shall be redeemed unless all
outstanding Preferred Shares are simultaneously redeemed; provided, however,
that the foregoing shall not prevent the purchase or acquisition of Preferred
Shares pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding Preferred Shares. In addition, unless full
cumulative dividends on the Preferred Shares shall have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment therefor set apart for such payment on the Preferred Shares for all past
dividend periods and the then current dividend period, the Company shall not
purchase or otherwise acquire, directly or indirectly, any Preferred Shares;
provided, however, that the foregoing shall not prevent the purchase or
acquisition of Preferred Shares pursuant to a purchase or exchange offer made on
the same terms to holders of all outstanding Preferred Shares.
Notice of redemption will be given by publication in a newspaper of general
circulation in The City of New York, such publication to be made once a week for
two successive weeks commencing not less than 30 nor more than 60 days prior to
the redemption date. A similar notice furnished by the Company will be mailed
by the registrar, postage prepaid, not less than 30 nor more than 60 days prior
to the redemption date, addressed to the respective holders of record of the
Preferred Shares to be redeemed at their respective addresses as they appear on
the records of the registrar. No failure to give such notice or any defect
thereto or in the mailing thereof shall affect the validity of the proceedings
for the redemption of any Preferred Shares except as to the holder to whom
notice was defective or not given. In addition to any information required by
law or by the applicable rules of any exchange on which the Preferred Shares may
be listed or admitted to trading, each notice shall state: (i) the redemption
date; (ii) the redemption price; (iii) the number of Preferred Shares to be
redeemed; (iv) the place or places where the Preferred Shares are to be
surrendered for payment of the redemption price; and (v) that dividends on the
Preferred Shares to be redeemed will cease to accumulate on such redemption
date. If fewer than all the Preferred Shares held by any holder are to be
redeemed, the notice mailed to such holder shall also specify the number of
Preferred Shares to be redeemed from such holder.
The holders of Preferred Shares at the close of business on a Dividend
Record Date will be entitled to receive the dividend payable with respect to the
Preferred Shares on the corresponding Dividend Payment Date notwithstanding the
redemption thereof between such Dividend Record Date and the corresponding
Dividend Payment Date or the Company's default in the payment of the dividend
due. Except as provided above, the Company will make no payment or allowance
for unpaid dividends, whether or not in arrears, on Preferred Shares to be
redeemed.
The Preferred Shares do not have stated maturity and are not subject to any
sinking fund or mandatory redemption provisions.
VOTING RIGHTS
Except as indicated below or except as otherwise from time to time required
by applicable law, the holders of Preferred Shares have no voting rights.
So long as any Preferred Shares remain outstanding, the Company will not,
without the affirmative vote or consent of the holders of at least a majority of
the Preferred Shares outstanding at the time, given in person or by proxy,
either in writing or at a meeting, alter or change the powers, preferences or
special rights of the Preferred Shares so as to affect them adversely; provided,
however, that (x) any increase in the amount of the authorized preferred shares
of the Company or the creation or the issuance of any other preferred shares of
the Company, or (y) any increase in the amount of authorized Preferred Shares,
in each case ranking on a parity with or junior to the Preferred Shares with
respect to the payment of dividends and the distribution of assets upon
liquidation, shall not be deemed to adversely affect such powers, preferences or
special rights.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to such vote or consent would otherwise be required
shall be effected, all outstanding Preferred Shares shall have been redeemed or
called for redemption and sufficient funds shall have been irrevocably deposited
in trust to effect such redemption.
CONVERSION
The Preferred Shares are not convertible into or exchangeable by their
terms for any other property or securities of the Company.
FORM, BOOK-ENTRY SYSTEM AND TRANSFER
The Preferred Shares will be represented by a singly fully registered
certificate in book-entry form (the "Global Certificate") which will be
deposited with, or on behalf of, DTC and registered in the name of DTC's
nominee. Except as set forth below, the Global Certificate may not be
transferred except as a whole by DTC to a nominee of DTC to DTC or another
nominee of DTC or by DTC or any such nominee to a successor of DTC or a nominee
of such successor..
Except as set forth below, the Preferred Shares represented by the Global
Certificate may be transferred, in whole and not in part, only to another
nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in
the Global Certificate may not be exchanged for Preferred Shares in certificated
form except in limited circumstances.
The Global Certificate or beneficial interests therein are exchangeable for
Preferred Shares in registered, certificated form if (i) DTC (x) notifies the
Company that it is unwilling or unable to continue as Depositary for the
Preferred Share or (y) has ceased to be a clearing agency registered under the
Exchange Act and, in either case, the Company thereupon fails to appoint a
successor Depositary within 60 days or (ii) the Company in its sole discretion
elects to cause the issuance of the Preferred Shares in certificated form. In
all cases, certificated Preferred Shares delivered in exchange for the Global
Certificate or beneficial interests therein will be registered in the names, and
issued in any approved denominations, requested by or on behalf of DTC (in
accordance with its customary procedures).
So long as DTC or its nominee is the registered owner of the Global
Certificate, DTC or its nominee, as the case may be, will be considered the sole
recordholder of the Preferred Shares represented by the Global Certificate.
Except as provided herein, owners of beneficial interests in the Global
Certificate will not be entitled to have Preferred Shares represented by the
Global Certificate registered in their names, will not receive or be entitled to
receive physical delivery of Preferred Shares in certificated form and will not
be considered the recordholders thereof. The laws of some states require that
certain purchasers of securities take physical delivery of securities in
certificated form; accordingly, such laws may limit the transferability of
beneficial interests in the Global Certificate.
The following is based on information furnished by DTC:
DTC will act as securities depository for the Preferred Shares. The
Preferred Shares will be issued as fully registered securities registered
in the name of Cede & Co. (DTC's partnership nominee).
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC
is owned by a number of its Direct Participants and by The New York Stock
Exchange, the American Stock Exchange and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to
others such as securities brokers and dealers, banks and trust companies
that clear through or maintain a custodial relationship with a Direct
Participant, either directly or indirectly ("Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the
Commission.
Purchases of Preferred Shares under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Shares on DTC's records. The ownership interest of each actual purchaser
of each Preferred Share ("Beneficial Owner") is in turn recorded on the
Direct and Indirect Participants' records. A Beneficial Owner does not
receive written confirmation from DTC of its purchase, but such Beneficial
Owner is expected to receive a written confirmation providing details of
the transaction, as well as periodic statements of its holdings, from the
Direct or Indirect Participant through which such Beneficial Owner entered
into the transaction. Transfers of ownership interests in Preferred Shares
are accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners do not receive certificates
representing their ownership interests in Preferred Shares, except in the
event that use of the book-entry system for the Preferred Shares is
discontinued.
To facilitate subsequent transfers, all Preferred Shares deposited by
Participants with DTC are registered in the name of DTC's partnership
nominee, Cede & Co. The deposit of Preferred Shares with DTC and their
registration in the name of Cede & Co. effect no change in beneficial
ownership. DTC has no knowledge of the actual Beneficial Owners of the
Preferred Shares; DTC records reflect only the identity of the Direct
Participants to whose accounts Preferred Shares were credited, which may or
may not be the Beneficial Owners. The Participants remain responsible for
keeping account of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct and Indirect Participants to Beneficial Owners are governed by
arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of
the Preferred Shares represented by the Global Certificate are to be
redeemed, DTC's practice is to determine by lot the amount of the interest
of each Direct Participant to be redeemed.
Neither DTC nor Cede & Co. will consent or vote with respect to the
Preferred Shares. Under its usual procedures, DTC mails a proxy (an
"Omnibus Proxy") to the issuer as soon as possible after the record date.
The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Preferred Shares are credited on
the record date (identified on a list attached to the Omnibus Proxy).
Dividend payments, redemption proceeds and other distributions in
respect of the Preferred Shares will be made in immediately available funds
by the Company or the Company's agent to DTC. DTC's practice is to credit
Direct Participant's accounts, upon receipt of funds and corresponding
detail information from the Company or the Company's agent, on the payable
date in accordance with their respective holdings as shown on DTC's
records. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with
securities held for the accounts of customers in bearer form or registered
in "street name," and will be the responsibility of such Participant and
not of DTC, the Company or the Company's agent, subject to any statutory or
regulatory requirements as may be in effect from time to time. Payments in
respect of the Preferred Shares to DTC are the responsibility of the
Company or the Company's agent, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners is the responsibility of Direct and
Indirect Participants.
DTC may discontinue providing its services as securities depository
with respect to the Preferred Shares at any time by giving reasonable
notice to the Company or the Company's agent. Under such circumstances, in
the event that a successor securities depository is not appointed,
Preferred Share certificates are required to be delivered as set forth
herein.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that
event, Preferred Share certificates will be delivered as set forth herein.
None of the Company, the Company's agent or the Initial Purchaser will
have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial interests in the Global
Certificate, or for maintaining, supervising or reviewing any records
relating to such beneficial interests.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes the material federal income tax
consequences of the purchase, ownership, redemption, and disposition of
Preferred Shares. This summary is based upon the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the final, temporary and proposed
regulations promulgated thereunder and administrative rulings and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect). This summary addresses only the tax consequences of the
purchase, ownership, redemption and disposition of the Preferred Shares by a
person who is (i) for United States federal income tax purposes a citizen or
resident of the United States (including certain former citizens and former
long-term residents), (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or of any political
subdivision thereof (except, to the extent, in the case of a partnership, the
partnership is treated as foreign under regulations), (iii) an estate the income
of which is subject to United States federal income taxation regardless of its
source or (iv) a trust with respect to the administration of which a court
within the United States is able to exercise primary decisions of the trust
(each, a "U.S. Holder"). Notwithstanding the preceding clause (iv), to the
extent provided in regulations, certain trusts in existence on August 20, 1996
and treated as United States persons prior to such date that elect to continue
to be so treated also shall be considered U.S. Holders. This summary does not
purport to deal with all aspects of federal income taxation that may be relevant
to an investor's decision to purchase the Preferred Shares, such as foreign,
state and local, or estate and gift tax consequences, and it is not intended to
be applicable to all categories of investors, some of which, such as dealers in
securities, financial institutions, insurance companies, tax-exempt
organizations and foreign persons, may be subject to special rules.
In addition, the summary assumes that the Preferred Shares will be held as
capital assets. Holders should note that there can be no assurance that the
Internal Revenue Service ("IRS") will take a similar view with respect to the
tax consequences described below and that no ruling has been or will be
requested by the Company from the IRS on any tax matters relating to the
Preferred Shares. ALL PROSPECTIVE HOLDERS OF PREFERRED SHARES ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN
TAX CONSEQUENCES OF THE PURCHASE OF OWNERSHIP, REDEMPTION, AND DISPOSITION OF
PREFERRED SHARES.
DIVIDENDS AND OTHER DISTRIBUTIONS
Distributions on the Preferred Shares will be treated as dividends and
taxable as ordinary income to the extent of the Company's current or accumulated
earnings and profits, as determined for federal income tax purposes. Any
distribution in excess of current or accumulated earnings and profits will be
treated first as a nontaxable return of capital reducing the holder's tax basis
in the Preferred Shares and any amount in excess of the holder's tax basis will
be treated as a capital gain.
Dividends received by corporate holders of Preferred Shares will qualify
for the 70% dividends received deduction under Section 243 of the Code if the
holding period and other requirements for such deduction are met, subject to the
limitations in Section 246 and 246A of the Code (although the benefits of such
deductions may be reduced or eliminated by the corporate alternative minimum
tax). Section 246(c) of the Code generally provides that the 70% dividends
received deduction is disallowed for any dividend with respect to stock (i) that
is held for 45 days or less during the 90-day period beginning 45 days before
the ex-dividend (or held 90 days or less in the 180-day period beginning 90 days
before the ex-dividend date in the case of a dividend on stock having preference
in dividends which are attributable to a period or periods aggregating more than
366 days), or (ii) if the taxpayer is under an obligation to make related
payments with respect to positions in substantially similar or related property.
Accordingly, under clause (i), a taxpayer will only be entitled to the
dividends-received deduction with respect to any dividend if the taxpayer
satisfies the requisite holding period requirement immediately before or
immediately after the taxpayer becomes entitled to the dividend. In addition, a
taxpayer's holding period for these purposes is suspended during any period in
which the taxpayer has an option to sell, is under a contractual obligation to
sell, has made (and not closed) a short sale of, or has granted an option to
buy, substantially identical stock or securities, or holds one or more positions
with respect to substantially similar or related property that diminish the risk
of loss from holding the stock. Finally, under Section 246A of the Code, the
dividends received deduction may be reduced or eliminated if a corporate
holder's shares of Preferred Shares are debt financed.
In its proposed fiscal 1997 budget submitted to Congress, the Clinton
Administration included a proposal which would have reduced the 70-percent
dividends-received deduction generally available to corporate shareholders to 50
percent. This provision was not contained in the Taxpayer Relief Act of 1997.
No assurance can be given on whether such proposal will be included in a future
Clinton Administration budget or whether Congress will enact such proposal or
legislation containing a similar provision in the future.
Section 1059 of the Code requires a corporate holder of stock to reduce
(but not below zero) its basis in the stock by the "nontaxed portion" of any
"extraordinary dividend" if the holder has not held the stock subject to a risk
of loss for more than 2 years before the date of the announcement, declaration,
or agreement (whichever is earliest) with respect to the extraordinary dividend
or if the distribution occurs in the context of a redemption, as discussed
below.
If Section 1059 applies, such corporate holder will recognize gain in the
year the extraordinary dividend is received to the extent the nontaxed portion
of such extraordinary dividend exceeds the holder's adjusted tax basis for the
stock. Generally, the "nontaxed portion" of an extraordinary dividend is the
amount excluded from income under Section 243 of the Code (relating to the
dividends received deduction described above). An "extraordinary dividend" is a
dividend that (i) equals or exceeds 5% of the holder's adjusted tax basis in the
stock (reduced for this purpose by the nontaxed portion of any prior
extraordinary dividend), treating all dividends having ex-dividend dates within
an 85-day period as one dividend, or (ii) exceeds 20% of the holder's adjusted
tax basis in the stock, treating all dividends having ex-dividend dates within a
365-day period as one dividend, provided, however, that in either case the fair
market value of the stock (as of the day before the ex-dividend date) may be
substituted for stock basis if the fair market value of the stock can be
established by the holder to the satisfaction of the IRS.
Under Section 1059, an extraordinary dividend would also include any
amount treated as a dividend in the case of a redemption that is either non-pro
rata as to all stockholders or in partial liquidation of the Company, regardless
of the relative size of the dividend and regardless of the corporate holder's
holding period for the Preferred Shares. In addition, "extraordinary dividend"
treatment will result without regard to the period any such stock is held if a
redemption is treated as a dividend by reason of options being taken into
account under Section 318(a)(4) of the Code.
Special rules overriding the general application of Code Section 1059
apply with respect to "qualified preferred dividends," which are defined as any
fixed dividends paid on stock that provide for a fixed preferred dividend to be
paid not less frequently than annually, provided that no such dividends were in
arrears at the time the holder acquired the stock. Where a qualified preferred
dividend exceeds the 5% or 20% limitations described above, it will be treated
as an extraordinary dividend only if (i) the actual rate of return on the stock
for the period the stock has been held by the holder receiving the dividend
exceeds 15%, or (ii) such rate of return does not exceed 15% and the holder
disposes of such stock before holding it, subject to risk of loss, for 5 years.
In the latter case, however, the amount treated as an extraordinary dividend is
generally limited to the excess of the actual rate of return over the stated
rate of return. For purposes of determining the actual or stated rate of
return, a holder should compare the actual or stated annual dividends to the
lesser of (a) the holder's adjusted tax basis for the stock, or (b) the
liquidation preference of the stock. The length of time that a taxpayer is
deemed to have held stock for purposes of Section 1059 of the Code is determined
under principles similar to those contained in Section 246(c) of the Code,
described above.
SALE, REDEMPTION, OR EXCHANGE OF PREFERRED SHARES
SALE
On the sale of shares of Preferred Shares, gain or loss will be recognized
by the holder in an amount equal to the difference between (i) the amount of
cash and fair market value of any property received on such sale (less any
portion thereof attributable to accumulated and declared by unpaid dividends,
which will be taxable as a dividend to the extent of the Company's current or
accumulated earnings and profits), and (ii) the holder's adjusted tax basis in
the Preferred Shares. Such gain or loss will be capital gain or loss if the
shares of Preferred Shares are held as capital assets. For certain noncorporate
holders (including individuals), the rate of taxation of capital gains will
depend upon (i) the holder's holding period for the Preferred Shares (with the
lowest rate available only for Preferred Shares held more than 18 months) and
(ii) the holder's marginal tax rate for ordinary income. Holders of Preferred
Shares should consult their tax advisors with respect to applicable rates and
holding periods, and netting rules for capital losses.
REDEMPTION
A redemption of shares of Preferred Shares will be treated under Section
302 of the Code as a distribution that is taxable at ordinary income tax rates
as a dividend, a non-taxable return of capital, or capital gain, pursuant to the
rules summarized above under the caption "Dividends and Other Distributions"
unless the redemption satisfies certain tests set forth in Section 302(b) of the
Code, in which case the redemption will be treated as a sale or exchange of the
Preferred Shares, the tax treatment of which is described in the preceding
paragraph. The redemption will have satisfied such tests under Section 302(b)
of the Code if it (i) is "substantially disproportionate" with respect to the
holder, (ii) results in a "complete termination" of the holder's stock interest
in the company, or (iii) is "not essentially equivalent to a dividend" with
respect to the holder. A distribution to a holder is "not essentially
equivalent to a dividend" if it results in a "meaning reduction" in such
holder's proportionate interest in the Company. If, as a result of the
redemption of the Preferred Shares, a holder, whose relative stock interest in
the Company is minimal and who exercises no control over corporate affairs,
experiences a reduction in his proportional interest in the Company (taking into
account shares deemed owned by the holder under Sections 302(c) and 318 of the
Code and, in certain events, dispositions of stock which occur contemporaneously
with the redemption), then, based upon published IRS rulings, such holder may be
regarded as having suffered a meaningful reduction in his interest in the
Company. In determining whether any of these tests has been met, shares
considered to be owned by the holder by reason of certain constructive ownership
rules set forth in Sections 302(c) and 318 of the Code, as well as shares
actually owned, must generally be taken into account. Because the determination
as to whether any of the alternatives tests of Section 302(b) of the Code will
be satisfied with respect to any particular holder of Preferred Shares depends
on the facts and circumstances at the time that the determination must be made,
prospective investors are advised to consult their own tax advisors to determine
such tax treatment.
If a redemption of the Preferred Shares is treated as a distribution that
is taxable as a dividend, the amount of the distribution will be measured by the
amount of cash and the fair market value of property received by the holder
without any offset for the holder's basis in the Preferred Shares. The holder's
adjusted tax basis in the redeemed Preferred Shares will be transferred to any
of the holder's remaining stock holdings in the Company. If, however, the
holder has no remaining stock holdings in the Company, such basis could be lost.
Any redemption of the Preferred Shares that is treated as a dividend and
that is non-pro rata as to all stockholders will be subject to the
"extraordinary dividend" provisions of Code Section 1059 discussed above under
the caption "Dividends and Other Distributions."
BACKUP WITHHOLDING AND REPORTING REQUIREMENTS
Information reporting to the IRS is required for dividends for certain
noncorporate holders (including individuals). These noncorporate holders may be
subject to backup withholding at a rate of 31 percent on payments of dividends
on, and the proceeds of a sale or redemption of the Preferred Shares. Backup
withholding will apply only if the holder (i) fails to furnish its Taxpayer
Identification Number ("TIN") which, for an individual, would be his Social
Security number, (ii) furnishes an incorrect TIN, (iii) is notified by the
Internal Revenue Service that it has failed to properly report payments of
interest and dividends, or (iv) under certain circumstances, fails to certify,
under penalty of perjury, that such holder has furnished a correct TIN and has
not been notified by the IRS that he is subject to backup withholding for
failure to report interest and dividend payments. Holders should consult their
tax advisors regarding their qualification for exemption from backup withholding
and the procedure for obtaining such an exemption if applicable.
The Company will report to the holders of Preferred Shares and the IRS the
amount of any "reportable payments" and any amount withheld with respect to the
Preferred Shares during each calendar year.
On October 6, 1997, the Treasury Department issued new regulations (the
"New Regulations") which make certain modifications to the backup withholding
and information reporting rules described above. The New Regulations attempt to
unify certification requirements and modify reliance standards. The New
Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Prospective investors are urged to
consult their own tax advisors regarding the New Regulations.
THE FOREGOING DISCUSSION IS FOR GENERAL INFORMATION AND IS NOT TAX ADVICE.
ACCORDINGLY, EACH PROSPECTIVE HOLDER OF PREFERRED SHARES SHOULD CONSULT HIS OWN
TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OF THE PURCHASE,
OWNERSHIP, REDEMPTION AND DISPOSITION OF THE PREFERRED SHARES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND ANY RECENT
OR PROSPECTIVE CHANGES IN APPLICABLE TAX LAWS.
SELLING HOLDERS
The Preferred Shares were issued and sold in December 1997 pursuant to the
Original Offering in transactions exempt from the registration requirements of
the Securities Act to persons reasonably believed by the Initial Purchaser to be
"qualified institutional buyers" (as defined by Rule 144A). These purchasers or
their transferees, pledgees, donees, or successors named herein may from time to
time offer and sell pursuant to this Prospectus any or all of the Preferred
Shares.
The table below sets forth certain information with respect to the number
of Preferred Shares beneficially owned as of February 24, 1998 and the number of
Preferred Shares that may be sold by each Selling Holder. To the knowledge of
the Company, other than a result of the ownership of the Preferred Shares, none
of the Selling Holders has had any material relationship with the Company or any
of its affiliates within the past three years.
Number of Number of
Preferred Shares Preferred Shares
Name of Selling Holder Beneficially Owned That May be Sold
Midland National Life Insurance
Company............................ 70,000 70,000
Publix Super Markets, Inc.......... 70,000 70,000
The preceding table has been prepared based on information furnished to
the Company by or on behalf of the Selling Holders. With respect to each
Selling Holder, the number of Preferred Shares set forth may have increased or
decreased since the information was furnished, and there may be additional
Selling Holders of which the Company is unaware.
In view of the fact that Selling Holders may offer all or a portion of the
Preferred Shares held by them pursuant to this offering, and because this
offering is not being underwritten on a firm commitment basis, no estimate can
be given as to the number of Preferred Shares that will be held by the Selling
Holders after completion of this offering. In addition, the Selling Holders
identified above may have sold, transferred or otherwise disposed of all or a
portion of their Preferred Shares since the date on which they provided
information regarding their Preferred Shares in transactions exempt from the
registration requirements of the Securities Act.
Prior to any use of this Prospectus in connection with any offer or sale
of the Preferred Shares, this Prospectus will be supplemented, to the extent
necessary and to the extent not indicated above, to set forth the name and
number of shares beneficially owned by the Selling Holders intending to sell
such Preferred Shares, and the number of Preferred Shares to be offered. The
Prospectus Supplement will also disclose, to the extent not indicated above,
whether any Selling Holder selling in connection with such Prospectus Supplement
has held any position or office with, been employed by or otherwise has a
material relationship with, the Company or any of its affiliates during the
three years prior to the date of the Prospectus Supplement.
Pursuant to a registration rights agreement entered into between the
Company and the Initial Purchaser (the "Registration Rights Agreement") the
Company agreed to use its best efforts to file with the Commission a
Registration Statement (the "Shelf Registration Statement"), of which this
Prospectus is a part, covering the Preferred Shares and to keep the Shelf
Registration Statement effective until December 19, 1999 or such time as all of
the Preferred Shares have been sold thereunder or otherwise cease to be
Registrable Securities (as defined in the Registration Rights Agreement) or when
all Preferred Shares are eligible for resale pursuant to Rule 144 of the
Securities Act without volume and manner of sale restrictions. Subject to
certain exceptions, the Company is required to pay all costs and expenses
related to the filing of the Shelf Registration Statement.
The Registration Rights Agreement provides that an additional amount
("Liquidated Damages") shall become payable in respect of the Preferred Shares
in certain circumstances, including if the Shelf Registration Statement has been
declared effective and the Shelf Registration Statement, subject to certain
exceptions as described below, ceases to be effective or usable for resale at
any time prior to December 19, 1999 (other than after such time as all Preferred
Shares have been disposed thereunder or otherwise cease to be Registrable
Securities). In such circumstances, Liquidated Damages shall be payable to each
Selling Holder, for so long as it holds Registrable Securities, at a rate of
.50% per annum of the liquidation preference of the Preferred Shares held,
commencing on the day the Registration Statement ceases to be effective or
usable and ending on the date the Shelf Registration Statement again becomes
effective or usable; provided, however, that the Liquidated Damages may not
exceed in the aggregate .50% per annum of the liquidation preference of the
Preferred Shares. Any amount of Liquidated Damages due shall be paid in cash on
the next succeeding Dividend Payment Date to the applicable Selling Holders of
record at the close of business on the Dividend Record Date immediately
preceding such Dividend Payment Date. The Company is permitted to suspend use
of this Prospectus for one or more periods not to exceed 90 days in any twelve-
month period under certain circumstances relating to corporate developments or
the negotiation or completion of any transaction being contemplated by the
Company. During any such permitted periods of suspension, the Registration
Rights Agreement provides that the Company is not required to pay Liquidated
Damages.
Information concerning the Selling Holders may change from time to time
and any such changed information that the Company becomes aware of will be set
forth in supplements to this Prospectus if and when necessary. Accordingly, the
number of Preferred Shares offered hereby may increase or decrease.
PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds from the sale of the
Preferred Shares, all of which may be sold by Selling Holders. The Preferred
Shares may be sold from time to time to purchasers directly by the Selling
Holders. Alternatively, the Selling Holders may from time to time offer the
Preferred Shares to or through underwriters, dealers or agents, who may receive
compensation in the form of underwriting discounts, concessions or commissions
from the Selling Holders or the purchasers of such securities for whom they may
act as agents. The Selling Holders and any underwriters, dealers or agents that
participate in the distribution of Preferred Shares may be deemed to be
"underwriters" within the meaning of the Securities Act and any profit on the
sale of such securities and any discounts, commissions, concessions or other
compensation received by any such underwriter, dealer or agent may be deemed to
be underwriting discounts and commissions under the Securities Act.
The Preferred Shares may be sold from time to time in one or more
transactions at a fixed offering price, which may be changed, at prices related
to the then current market price at the time of sale, at varying prices
determined at the time of sale or at negotiated prices. The sale of the
Preferred Shares may be effectuated in transactions (which may involve crosses
or block transactions) (i) on any national securities exchange or quotation
service on which the Preferred Shares may be listed or quoted at the time of
sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than
on such exchanges or in the over-the-counter market, or (iv) through the writing
and exercise of options. At the time a particular offering of the Preferred
Shares is made, a Prospectus Supplement, if required, will be distributed which
will set forth the aggregate amount of any Preferred Shares being offered and
the terms of the offering, including the name or names of any underwriters,
dealers or agents, any discounts, commissions and other terms constituting
compensation from the Selling Holders and any discounts, commissions or
concessions allowed or reallowed to be paid to dealers. The Prospectus
Supplement and, if necessary, a post-effective amendment to the Registration
Statement, will be filed with the Commission to reflect the disclosure of
additional information with respect to the distribution of the Preferred Shares.
In addition, the Preferred Shares covered by this Prospectus may be sold in
private transactions or under Rule 144 rather than pursuant to this Prospectus.
To comply with the securities laws of certain jurisdictions, if applicable, the
Preferred Shares will be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Preferred Shares may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and rules and regulations thereunder, which provisions may limit
the timing of purchases and sales of any of the Preferred Shares by the Selling
Holders. The foregoing may affect the marketability of such securities.
The Selling Holders will be indemnified by the Company against certain
civil liabilities, including certain liabilities under the Securities Act, or
will be entitled to contribution in connection therewith.
LEGAL MATTERS
The legality of the Preferred Shares will be passed upon for the Company
by Stinson, Mag & Fizzell, P.C., Kansas City, Missouri, and Robert B. Terry,
General Counsel of the Company.
EXPERTS
The consolidated financial statements of the Company at August 31, 1996
and 1997, and for each of the years in the three year period ended August 31,
1997, appearing in the 1997 Form 10-K for the year ended August 31, 1997, have
been audited by KPMG Peat Marwick LLP, independent certified public accountants,
as set forth in their report thereon included therein and incorporated herein by
reference. Such consolidated financial statements are incorporated herein by
reference in reliance upon the authority of such firm as experts in accounting
and auditing.
NO DEALER, SALESMAN OR ANY OTHER 2,000,000 SHARES
INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE
CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROSPECTUS IN CONNECTION WITH (There is copy of Farmland's Logo
THE OFFER MADE BY THIS PROSPECTUS AND, in this position)
IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE 8% SERIES A CUMULATIVE
COMPANY OR THE INITIAL PURCHASER. REDEEMABLE PREFERRED SHARES
NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT PROSPECTUS
AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION.
TABLE OF CONTENTS
Page
Available Information............4
Incorporation of Certain Documents
By Reference...................5
APRIL___, 1998
Prospectus Summary...............3
Risk Factors.....................7
Ratio of Earnings to Combined
Fixed Charges and Preferred
Stock Dividends...............13
Use of Proceeds.................16
Description of Preferred Shares.16
Certain Federal Income Tax
Considerations.......... 29
Selling Holders........... 37
Plan of Distribution...... 41
Legal Matters............. 42
Experts................... 43
Annual Report on Form 10-K A-1
Quarterly Report on Form 10-Q B-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses (excluding commissions) to be incurred by the Company in
connection with this registration of the Preferred Shares which Selling Holders
may sell from time to time are estimated as follows:
Estimated
Item Expense
Federal registration fees......... $ 29,500
Printing and engraving............ 500
Accounting and legal fees......... 30,000
Miscellaneous expenses............ 5,000
$ 65,000
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6002(b) of Chapter 17 of the Kansas Statutes (1987), permits the
following provision to be included in the articles of incorporation of the
Company: a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders, policyholders or members for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (A) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
policyholders or members, (B) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (C) under the
provision of K.S.A. 17-6424 and amendments thereto or (D) for any transaction
from which the director derived an improper personal benefit. No such provision
shall eliminate or limit the liability of a director for any act or omission
occurring prior to the date when such provision becomes effective. All
references in this subsection to a director shall be deemed also to refer to a
member of the governing body of a corporation which is not authorized to issue
capital stock. Section 6002(c) provides that "It shall not be necessary to set
forth in the articles of incorporation any of the powers conferred on
corporations by this act."
Article VII of the Articles of Incorporation of Farmland reads as follows:
ARTICLE VII - INDEMNIFICATION
Section 1. Indemnification. The Association may agree to the terms
and conditions upon which any director, officer, employee or agent
accepts his office or position and in its bylaws, by contract or in any
other manner may agree to indemnify and protect any director, officer,
employee or agent of the Association, or any person who serves at the
request of the Association as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, to the fullest extent permitted by the laws of the State of
Kansas.
Section 2. Limitation of Liability. Without limiting the generality
of the foregoing provisions of this ARTICLE VII, to the fullest extent
permitted or authorized by the laws of the State of Kansas, including,
without limitation, the provisions of subsection (b)(8) of Kan. Stat.
Ann. Sec. 17-6002 (1981) as now in effect and as it may from time to
time hereafter be amended, no person who is currently or shall
hereinafter become a director of the Association shall have personal
liability to the Association for monetary damages for breach of
fiduciary duty as a director for any act or omission occurring
subsequent to the date this provision becomes effective. If the Kansas
General Corporation Code is amended after approval of this provision by
the shareholders of the Association, to authorize corporate action
further limiting or eliminating the personal liability of directors,
then the liability of a director of the Association shall be limited or
eliminated to the fullest extent permitted by the Kansas General
Corporation Code, as so amended.
ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following exhibits are filed as a part of this Registration Statement
on Form S-2. Certain of these exhibits are incorporated by reference.
Exhibit No. Description of Exhibits
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
3(i) A Articles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 5, 1996. (Incorporated by Reference - Form 10-Q
for the quarter ended November 30, 1996, filed January 14, 1997)
** 3(i) B Certificate of Board of Directors' Resolutions for the Decrease and
Elimination of Preferred Stock, dated December 19, 1997.
* 4(i)A Certificate of Designation for a Series of Preferred Shares
Designated as 8% Series A Cumulative Redeemable Preferred Shares,
dated December 19, 1997.
* 4(i)B Registration Rights Agreement dated as of December 16, 1997 between
Farmland Industries, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated as Initial Purchaser.
OPINIONS RE LEGALITY:
** 5.(i)A Opinion of Robert B. Terry, Vice President and General Counsel of
Farmland Industries, Inc. re legality of Preferred Shares
** 5.(i)B Opinion of Stinson, Mag & Fizzell, P.C., re legality of Preferred
Shares
MATERIAL CONTRACTS:
LEASE CONTRACTS:
* 10.(i)A Lease dated December 11, 1997, between Wilmington Trust Company,
not in its individual capacity but solely as Owner Trustee and
Farmland Industries, Inc.
MANAGEMENT REMUNERATIVE PLANS:
10.(iii)A Farmland Industries, Inc. Employee Variable Compensation Plan
(September 1, 1997 - August 31, 1998). (Incorporated by Reference
- Form 10-K filed November 7, 1997)
10.(iii)B Farmland Industries, Inc. Management Long-Term Incentive Plan
(Effective September 1, 1993) (Incorporated by Reference - Form 10-
K, filed November 28, 1995)
10.(iii)B(1) Exhibit E (Fiscal years 1997 through 1999) (Incorporated
by Reference - Form 10-K filed November 7, 1997)
10.(iii)B(2) Exhibit F (Fiscal years 1998 through 2000) (Incorporated
by Reference - Form 10-K filed November 7, 1997)
10.(iii)C Farmland Industries, Inc. Supplemental Executive Retirement Plan
(Effective January 1, 1994) (Incorporated by Reference - Form 10-K,
filed November 28, 1995)
10.(iii)C(1) Resolution Approving the Revision of Appendix A and
Appendix A (Incorporated by Reference - Form 10-K, filed
November 27, 1996)
10.(iii)D Farmland Industries, Inc. Executive Deferred Compensation Plan (As
Amended and Restated Effective November 1, 1996) (Incorporated by
Reference - Form 10-K, filed November 27, 1996)
* 12 Computation of Ratios
CONSENTS OF EXPERTS AND COUNSEL:
* 23.A Independent Auditors' Consent
23.B Consent of Stinson, Mag & Fizzell, P.C. (included in Exhibit 5)
23.C Consent of Robert B. Terry, Vice President and General Counsel of
Farmland Industries, Inc. (included in Exhibit 5)
* 24 Power of Attorney
*Filed herewith
**To be provided by Amendment
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) (Section 230.424(b)) if, in the aggregate, the
changes in volume and price represent no more than a
20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
(c) 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.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FARMLAND
INDUSTRIES, INC. CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT
MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT ON FORM S-2 TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF KANSAS CITY, STATE OF
MISSOURI ON APRIL 3, 1998.
FARMLAND INDUSTRIES, INC.
BY /s/ TERRY M. CAMPBELL
Terry M. Campbell
Executive Vice President and
Chief Financial Officer
BY /s/ ROBERT B. TERRY
Robert B. Terry
Vice President and General Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM S-2 HAS BEEN SIGNED FOR THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title Date
*/s/ Albert J. Shivley Chairman of Board, April 3, 1998
Albert J. Shivley Director
/s/ H. D. Cleberg President, Chief Executive April 3, 1998
H. D. Cleberg Officer and Director
(Principal Executive Officer)
*/s/ Jody Bezner Vice Chairman April 3, 1998
Jody Bezner of Board
Vice President
and Director
*/s/ Lyman L. Adams, Jr. Director April 3, 1998
Lyman L. Adams, Jr.
*/s/ Ronald J. Amundson Director April 3, 1998
Ronald J. Amundson
*/s/ Baxter Ankerstjerne Director April 3, 1998
Baxter Ankerstjerne
*/s/ Richard L. Detten Director April 3, 1998
Richard L. Detten
*/s/ Steven Erdman Director April 3, 1998
Steven Erdman
*/s/ Harry Fehrenbacher Director April 3, 1998
Harry Fehrenbacher
Director
Martie Floyd
*/s/ Warren Gerdes Director April 3, 1998
Warren Gerdes
*/s/ Ben Griffith Director April 3, 1998
Ben Griffith
*/s/ Gail D. Hall Director April 3, 1998
Gail D. Hall
*/s/ Barry Jensen Director April 3, 1998
Barry Jensen
*/s/ Ron Jurgens Director April 3, 1998
Ron Jurgens
*/s/ William F. Kuhlman Director April 3, 1998
William F. Kuhlman
*/s/ Greg Pfenning Director April 3, 1998
Greg Pfenning
*/s/ Monte Romohr Director April 3, 1998
Monte Romohr
*/s/ Joe Royster Director April 3, 1998
Joe Royster
*/s/ E. Kent Stamper Director April 3, 1998
E. Kent Stamper
*/s/ Eli F. Vaughn Director April 3, 1998
Eli F. Vaughn
*/s/ Frank Wilson Director April 3, 1998
Frank Wilson
/s/ TERRY M. CAMPBELL Executive Vice President April 3, 1998
Terry M. Campbell and Chief Financial Officer
(Principal Financial Officer)
/s/ MERL DANIEL Vice President and April 3, 1998
Merl Daniel Controller
(Principal Accounting Officer)
*BY /s/ TERRY M. CAMPBELL
Terry M. Campbell
Attorney-In-Fact
EXHIBIT 99
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
________________
EXHIBITS
To
Form S-2
Under
The Securities Exchange Act of 1934
___________________
Farmland Industries, Inc.
EXHIBIT INDEX
The following exhibits are filed as a part of this Form S-2 Registration
Statement. Certain of these exhibits are incorporated by reference as
indicated.
Exhibit No. Description of Exhibits
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
3(i) A Articles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 5, 1996. (Incorporated by Reference - Form 10-Q
for the quarter ended November 30, 1996, filed January 14, 1997)
** 3(i) B Certificate of Board of Directors' Resolutions for the Decrease and
Elimination of Preferred Stock, dated December 19, 1997.
* 4(i)A Certificate of Designation for a Series of Preferred Shares
Designated as 8% Series A Cumulative Redeemable Preferred Shares,
dated December 19, 1997.
* 4(i)B Registration Rights Agreement dated as of December 16, 1997 between
Farmland Industries, Inc. and Merrill Lynch, Pierce, Fenner & Smith
Incorporated as Initial Purchaser.
OPINIONS RE LEGALITY:
** 5.(i)A Opinion of Robert B. Terry, Vice President and General Counsel of
Farmland Industries, Inc. re legality of Preferred Shares
** 5.(i)B Opinion of Stinson, Mag & Fizzell, P.C., re legality of Preferred
Shares
MATERIAL CONTRACTS:
LEASE CONTRACTS:
* 10.(i)A Lease dated December 11, 1997, between Wilmington Trust Company,
not in its individual capacity but solely as Owner Trustee and
Farmland Industries, Inc.
MANAGEMENT REMUNERATIVE PLANS:
10.(iii)A Farmland Industries, Inc. Employee Variable Compensation Plan
(September 1, 1997 - August 31, 1998). (Incorporated by Reference
- Form 10-K filed November 7, 1997)
10.(iii)B Farmland Industries, Inc. Management Long-Term Incentive Plan
(Effective September 1, 1993) (Incorporated by Reference - Form 10-
K, filed November 28, 1995)
10.(iii)B(1) Exhibit E (Fiscal years 1997 through 1999) (Incorporated
by Reference - Form 10-K filed November 7, 1997)
10.(iii)B(2) Exhibit F (Fiscal years 1998 through 2000) (Incorporated
by Reference - Form 10-K filed November 7, 1997)
10.(iii)C Farmland Industries, Inc. Supplemental Executive Retirement Plan
(Effective January 1, 1994) (Incorporated by Reference - Form 10-K,
filed November 28, 1995)
10.(iii)C(1) Resolution Approving the Revision of Appendix A and
Appendix A (Incorporated by Reference - Form 10-K, filed
November 27, 1996)
10.(iii)D Farmland Industries, Inc. Executive Deferred Compensation Plan (As
Amended and Restated Effective November 1, 1996) (Incorporated by
Reference - Form 10-K, filed November 27, 1996)
* 12 Computation of Ratios
CONSENTS OF EXPERTS AND COUNSEL:
* 23.A Independent Auditors' Consent
23.B Consent of Stinson, Mag & Fizzell, P.C. (included in Exhibit 5)
23.C Consent of Robert B. Terry, Vice President and General Counsel of
Farmland Industries, Inc. (included in Exhibit 5)
* 24 Power of Attorney
* Filed herewith
**To be provided by Amendment
EXHIBIT 4(i)A
FARMLAND INDUSTRIES, INC.
CERTIFICATE
OF DESIGNATION
FOR
A SERIES OF PREFERRED SHARES DESIGNATED
AS 8% SERIES A CUMULATIVE REDEEMABLE PREFERRED SHARES
(Pursuant to Section 17-6401(g) of the
General Corporation Code of the State of Kansas)
Farmland Industries, Inc., a corporation organized and existing
under the laws of the State of Kansas, and having its principal office in Kansas
City, Missouri (hereinafter called the "Corporation") DOES HEREBY CERTIFY that
the following resolutions were duly and regularly adopted by the Board of
Directors of the Corporation pursuant to authority conferred upon the Board of
Directors by Article VI, Section 4 of the Articles of Incorporation and Bylaws
of the Corporation, at a regular meeting duly called, convened and held on the
17th day of December, 1997, all in accordance with the Articles of Incorporation
and Bylaws of the Corporation and the laws of the State of Kansas:
RESOLVED, That pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of the Articles
of Incorporation, a series of Preferred Stock of the Corporation is hereby
created and that the designation and amount thereof and the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption of the shares
of such series, are as follows:
(i) DESIGNATION. The Series of Preferred Stock is hereby
designated as "8% Series A Cumulative Redeemable Preferred Shares" (hereinafter
referred to as the "Series A Preferred Shares").
(ii) NUMBER. The maximum number of authorized shares of the
Series A Preferred Shares shall be 2,000,000.
(iii) RELATIVE SENIORITY. (A) In respect of rights to receive
dividends and to participate in distribution of payments in the event of any
liquidation, dissolution or winding up of the Corporation, the Series A
Preferred Shares shall rank (x) senior to the common shares, associate member
common shares and all other capital credits and shares of capital stock of the
Corporation which, by their terms, rank junior to the Series A Preferred Shares
and (y) except as described in the next sentence, on a parity with all other
preferred shares of the Corporation which are not, by their terms, junior to the
Series A Preferred Shares. The Corporation currently has outstanding certain
preferred stock which ranks senior to the Series A Preferred Shares (the
"Outstanding Senior Preferred Shares").
(B) So long as the Series A Preferred Shares remain
outstanding, the Corporation will not authorize or issue any preferred shares
which rank senior to the Preferred Shares, other than the Outstanding Senior
Preferred Shares.
(iv) DIVIDENDS.
(A) The holders of the then outstanding Series A
Preferred Shares shall be entitled to receive, when and as declared by the Board
of Directors of the Corporation, out of funds legally available for the payment
of dividends, cumulative cash dividends at the rate of 8.0% of the liquidation
preference of $50 per share per annum (equivalent to $4.00 per share per annum).
Such dividends shall accumulate from December 19, 1997 and shall be payable
quarterly in arrears on the 1st day of each February, May, August and November
or, if not a Business Day (as defined below), the succeeding business day (each,
a "Dividend Payment Date"). The first dividend on the Series A Preferred Shares
will be payable on February 1, 1998. Any dividends payable on the Series A
Preferred Shares will be computed on the basis of a 360-day year consisting of
twelve 30-day months. Dividends will be payable to holders of record as they
appear in the share records of the Corporation at the close of business on the
applicable record date, which shall be the 15th day of the calendar month
immediately prior to the month in which the applicable Dividend Payment Date
falls or such other date designated by the Board of Directors of the Corporation
that is not more than 30 nor less than 10 days prior to such Dividend Payment
Date (each, a "Dividend Record Date").
"Business Day" means any day other than a Saturday, a Sunday,
or a day on which banking institutions in The City of New York are authorized or
required by law or executive order to remain closed.
(B) The amount of any dividends accumulated on any
Series A Preferred Shares at any Dividend Payment Date shall be the amount of
any unpaid dividends accumulated thereon to but excluding such Dividend Payment
Date and the amount of dividends accumulated on any shares of Series A
Preferred Shares at any date other than a Dividend Payment Date shall be equal
to the sum of the amount of any unpaid dividends accumulated thereon to but
excluding the last preceding Dividend Payment Date, plus an amount calculated
on the basis of the annual dividend rate of $4.00 per share for the period
after such last preceding Dividend Payment Date to and including the date as
of which the calculation is made based on a 360-day year of twelve 30-day
months. Dividends on the Series A Preferred Shares will accumulate whether or
not the Corporation has earnings, whether or not there are funds legally
available for the payment of such dividends and whether or not such dividends
are authorized or declared.
(C) Except as otherwise expressly provided herein,
the Series A Preferred Shares will not be entitled to any dividends in excess
of full cumulative dividends as described above and shall not be entitled to
participate in the earnings or assets of the Corporation, and no interest, or
sum of money in lieu of interest, shall be payable in respect of any dividend
payment or payments on the Series A Preferred Shares which may be in arrears.
(D) No dividends on the Series A Preferred Shares
shall be authorized by the Board of Directors of the Corporation or be paid or
set apart for payment by the Corporation at such time as the terms and
provisions of any agreement of the Corporation, including any agreement
relating to its indebtedness, prohibits such authorization, payment or setting
apart for payment or provides that such authorization, payment or setting apart
for payment would constitute a breach thereof or a default thereunder, or if
such authorization or payment shall be restricted or prohibited by law.
(E) Except as provided in the immediately following
paragraph, unless full cumulative dividends on the Series A Preferred Shares
have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment therefor set apart for such payment on the Series A
Preferred Shares for all past dividend periods and the then current dividend
period, no dividends (other than in common shares, associate member common
shares or other capital stock or capital credits ranking junior to the Series A
Preferred Shares as to dividends and upon liquidation) shall be declared or paid
or set aside for payment upon any preferred shares, common shares, associate
member common shares or any other capital stock or capital credits of the
Corporation ranking junior to or on a parity with the Series A Preferred Shares
as to dividends or upon liquidation, nor shall any preferred shares, common
shares, associate member common shares or any other capital stock or capital
credits of the Corporation ranking junior to or on a parity with the Series A
Preferred Shares as to dividends or upon liquidation be redeemed, purchased or
otherwise acquired for any consideration (or any moneys be paid or made
available for a sinking fund for the redemption of such shares) by the
Corporation (except by conversion into or exchange for other capital stock or
capital credits of the Corporation ranking junior to the Series A Preferred
Shares as to dividends and upon liquidation and except to the extent any
preferred shares existing at the date of original issue of the Series A
Preferred Shares are redeemed at the option of the holders thereof as permitted
by the terms of such preferred shares).
(F) Notwithstanding the foregoing paragraph, the
Corporation shall be permitted to declare and pay or set apart for payment
patronage dividends or refunds, subject to the limitation that, whenever the
terms described in the foregoing paragraph would operate to restrict dividends,
not more than 20% of such aggregate patronage dividends or refunds for any
fiscal year shall be in cash, with the remainder to be paid in the form of
common stock, associate member common stock, or capital credits. In addition,
when dividends are not paid in full (or a sum sufficient for such full payment
is not so set apart) upon the Series A Preferred Shares and other preferred
shares of the Corporation ranking on a parity as to dividends with the Series A
Preferred Shares, dividends may be declared on the Series A Preferred Shares
and such other preferred shares provided that such dividends shall be declared
pro rata so that the amount of dividends declared per Series A Preferred Share
and per each other preferred share shall in all cases bear to each other the
same ratio that the accumulated dividends per Series A Preferred Share and per
such other preferred share bear to each other.
(G) Any dividend payment made on the Series A
Preferred Shares shall first be credited against the earliest accumulated but
unpaid dividend due with respect to such shares which remains payable.
(v) LIQUIDATION RIGHTS.
(A) Upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (collectively, a "liquidation"),
the holders of the Series A Preferred Shares then outstanding shall be entitled
to be paid out of the assets of the Corporation legally available for
distribution to its shareholders liquidating distributions in cash or property
at its fair market value as determined by the Corporation's Board of Directors
in the amount of a liquidation preference equal to $50 per share plus
accumulated and unpaid dividends, if any, thereon to the date of such
liquidation, before any distribution of assets is made to holders of common
shares, associate member common shares or any other capital stock or capital
credits of the Corporation ranking junior to the Series A Preferred Shares as to
liquidation rights.
(B) After payment to the holders of the Series A
Preferred Shares of the full amount of the liquidating distributions to which
they are entitled as provided in paragraph (v)(A), the holders of Series A
Preferred Shares, as such, shall have no right or claim to any of the remaining
assets of the Corporation.
(C) If upon any voluntary or involuntary
liquidation, the legally available assets of the Corporation are insufficient
to pay the amount of the liquidating distributions on the Series A Preferred
Shares and the corresponding amounts payable on all other preferred shares of
the Corporation ranking on a parity with the Series A Preferred Shares in the
distribution of assets upon liquidation, then the holders of the Series A
Preferred Shares and such other preferred shares shall share ratably in any
such distribution of assets in proportion to the full liquidating distributions
to which they would otherwise be respectively entitled.
(D) Neither the sale, lease, transfer or conveyance
of all or substantially all of the property or business of the Corporation, nor
the merger or consolidation of the Corporation into or with any other entity or
the merger or consolidation of any other entity into or with the Corporation,
shall be deemed to be a dissolution, liquidation or winding up, voluntary or
involuntary, for the purposes of this paragraph (v).
(vi) REDEMPTION.
(A) Optional Redemption. The Preferred Shares are
not redeemable prior to December 15, 2022. On and after December 15, 2022, the
Corporation may, at its option (subject to the provisions of this paragraph
(vi)), redeem at any time all or, from time to time, part of the Series A
Preferred Shares, payable in cash at a per share redemption price (the
"Redemption Price") set forth in the table below plus, in each case, accumulated
and unpaid dividends, if any, thereon to and including the date fixed for
redemption (the "Redemption Date"), without interest, to the extent the
Corporation will have funds legally available therefor.
If redeemed during the twelve month period,
Beginning December 15, Redemption Price
2022 ........................... $52.00
2023 ........................... 51.60
2024 ........................... 51.20
2025 ........................... 50.80
2026 ........................... 50.40
2027 and thereafter............. 50.00
(B) Procedures for Redemption.
(1) Notice of redemption will be given by publication in a
newspaper of general circulation in The City of New York, such publication to be
made once a week for two successive weeks commencing not less than 30 nor more
than 60 days prior to the Redemption Date. A similar notice furnished by the
Corporation will be mailed by the registrar, postage prepaid, not less than 30
nor more than 60 days prior to the Redemption Date, addressed to each holder of
record of the Series A Preferred Shares to be redeemed at the address set forth
in the share transfer records of the registrar. No failure to give such notice
or any defect thereto or in the mailing thereof shall affect the validity of the
proceedings for the redemption of any Series A Preferred Shares except as to the
holder to whom notice was defective or not given. In addition to any
information required by law or by the applicable rules of any exchange upon
which Series A Preferred Shares may be listed or admitted to trading, such
notice shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii)
the number of Series A Preferred Shares to be redeemed; (iv) the place or places
where the Series A Preferred Shares are to be surrendered for payment of the
redemption price; and (v) that dividends on the Series A Preferred Shares to be
redeemed will cease to accumulate on such redemption date. If fewer than all
the Series A Preferred Shares held by any holder are to be redeemed, the notice
mailed to such holder shall also specify the number of Series A Preferred Shares
to be redeemed from such holder.
(2) If notice of redemption of any Series A Preferred Shares has
been given in accordance with paragraph (vi)(B)(1) above and provided that on or
before the Redemption Date specified in such notice all funds necessary for such
redemption shall have been irrevocably set aside by the Corporation in trust for
the benefit of the holders of any Series A Preferred Shares so called for
redemption, then from and after the Redemption Date dividends will cease to
accumulate on such Series A Preferred Shares, and such shares shall no longer be
deemed outstanding and all rights of the holders of such Series A Preferred
Shares will terminate, except the right to receive the Redemption Price. Upon
surrender, in accordance with such notice, of certificates for any Series A
Preferred Shares so redeemed (properly endorsed or assigned for transfer, if the
Corporation shall so require and the notice shall so state), such Series A
Preferred Shares shall be redeemed by the Corporation at the Redemption Price.
In case fewer than all the Series A Preferred Shares represented by any such
certificate are redeemed, a new certificate or certificates shall be issued
representing the unredeemed Series A Preferred Shares without cost to the holder
thereof.
(3) Any funds deposited with a bank or trust company for the
purpose of redeeming Series A Preferred Shares shall be irrevocable except that:
(a) the Corporation shall be entitled to receive from such
bank or trust company the interest or other earnings, if any, earned on any
money so deposited in trust, and the holders of any Series A Preferred Shares
redeemed shall have no claim to such interest or other earnings; and
(b) any balance of monies so deposited by the Corporation
and unclaimed by the holders of the Series A Preferred Shares entitled thereto
at the expiration of two years from the applicable Redemption Date shall be
repaid, together with any interest or other earnings earned thereon, to the
Corporation, and after any such repayment, the holders of the Series A Preferred
Shares entitled to the funds so repaid to the Corporation shall look only to the
Corporation for payment without interest or other earnings.
(4) Unless full cumulative dividends on the Series A Preferred
Shares shall have been or contemporaneously are declared and paid or declared
and a sum sufficient for the payment therefor set apart for such payment on the
Series A Preferred Shares for all past dividend periods and the then current
dividend period, no Series A Preferred Shares shall be redeemed unless all
outstanding Series A Preferred Shares are simultaneously redeemed; provided,
however, that the foregoing shall not prevent the purchase or acquisition of
Series A Preferred Shares pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding Series A Preferred Shares. In
addition, unless full cumulative dividends on the Series A Preferred Shares
shall have been or contemporaneously are declared and paid or declared and a sum
sufficient for the payment therefor set apart for such payment on the Series A
Preferred Shares for all past dividend periods and the then current dividend
period, the Corporation shall not purchase or otherwise acquire, directly or
indirectly, any Series A Preferred Shares; provided, however, that the foregoing
shall not prevent the purchase or acquisition of Series A Preferred Shares
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding Series A Preferred Shares.
(5) If the Redemption Date is after a Dividend Record Date and
before the related Dividend Payment Date, the dividend payable on such Dividend
Payment Date shall be paid to the holder in whose name the Series A Preferred
Shares to be redeemed are registered at the close of business on such Dividend
Record Date notwithstanding the redemption thereof between such Dividend Record
Date and the related Dividend Payment Date or the Corporation's default in the
payment of the dividend due. Except as provided in this paragraph (vi), the
Corporation will make no payment or allowance for unpaid dividend, whether or
not in arrears, on Series A Preferred Shares to be redeemed.
(6) In case of redemption of less than all Series A Preferred
Shares at the time outstanding, the Series A Preferred Shares to be redeemed
shall be selected pro rata from the holders of record of such Series A Preferred
Shares in proportion to the number of Series A Preferred Shares held by such
holders (with adjustments to avoid redemption of fractional shares) or by any
other equitable method determined by the Corporation.
(vii) VOTING RIGHTS. Except as required by law, and as set forth
below, the holders of the Series A Preferred Shares shall not be entitled to
vote at any meeting of the shareholders or otherwise or to participate in any
action taken by the Corporation or the shareholders thereof.
(A) So long as any Series A Preferred Shares remain
outstanding, the Corporation will not, without the affirmative vote or consent
of the holders of at least majority of the Series A Preferred Shares outstanding
at the time, given in person or by proxy, either in writing or at a meeting,
alter or change the powers, preferences or special rights of the Series A
Preferred Shares so as to affect them adversely; provided, however, that (1) any
increase in the amount of the authorized preferred shares of the Corporation or
the creation or the issuance of any other preferred shares of the Corporation,
or (ii) any increase in the amount of authorized Series A Preferred Shares, in
each case ranking on a parity with or junior to the Series A Preferred Shares
with respect to the payment of dividends and the distribution of assets upon
liquidation, shall not be deemed to adversely affect such powers, preferences or
special rights.
The foregoing voting provisions will not apply if, at or
prior to the time when the act with respect to such vote or consent would
otherwise be required shall be effected, all outstanding Series A Preferred
Shares shall have been redeemed or called for redemption and sufficient funds
shall have been irrevocably deposited in trust to effect such redemption.
(B) On each matter submitted to a vote of the holders of
Series A Preferred Shares in accordance with this paragraph (vii), or as
otherwise required by law, each Series A Preferred Share shall be entitled to
one vote. With respect to each Series A Preferred Share, the holder may
designate a proxy, with each such proxy having the right to vote on behalf of
the holder.
(viii) CONVERSION. The Series A Preferred Shares are not
convertible into or exchangeable for any other property or securities of the
Corporation.
(ix) RESTRICTIONS ON TRANSFER.
(A) The Series A Preferred Shares have not been registered
under the Securities Act of 1933, as amended (the "Securities Act") and, until
so registered, may not be offered or sold except to (i) "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) in reliance upon the
exemption from the registration requirements of the Securities Act provided by
Rule 144A, and (ii) institutional "accredited investors" (as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act) in transactions exempt from
the registration requirements of the Securities Act.
(B) Until registered under the Securities Act, the Series A
Preferred Shares may not be sold or otherwise transferred in an amount that is
less than $100,000 in aggregate liquidation preference. Any such transfer of
Series A Preferred Shares in an amount less than $100,000 in aggregate
liquidation preference shall be deemed to be void and of no legal effect
whatsoever. Any such transferee shall be deemed not to be the holder of such
Series A Preferred Shares for any purpose, including, but not limited to, the
receipt of dividends on such Series A Preferred Shares, and such transferee
shall be deemed to have no interest whatsoever in such Series A Preferred
Shares.
(C) Until the Series A Preferred Shares are registered
under the Securities Act, all certificates representing such Series A Preferred
Shares will bear a legend referring to the restrictions described above.
IN WITNESS WHEREOF, Farmland Industries, Inc. has made this
Certificate under its seal and the hand of Terry M. Campbell, Executive Vice
President and Chief Financial Officer, authorized to exercise the duties
ordinarily exercised by an Executive Vice President, and a Secretary, this 17th
day of December, 1997.
FARMLAND INDUSTRIES, INC.
By ___________________________
Terry M. Campbell
Executive Vice President and
Chief Financial Officer
ATTEST
______________________________
Bernard L. Sanders
Secretary
STATE OF KANSAS )
) ss:
COUNTY OF )
BE IT REMEMBERED that on this 17th day of December, 1997, before me,
the undersigned, a Notary Public in and for the County and State aforesaid,
personally came Terry M. Campbell, Executive Vice President and Chief Financial
Officer, of Farmland Industries, Inc., a corporation duly organized,
incorporated and existing under the laws of the State of Kansas, who is
personally known to me to be such officer, and who is personally known to me to
be the same person who executed as such officer the above instrument in writing,
and he duly acknowledges execution of the same as Executive Vice President and
Chief Financial Officer of said corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed my
official seal the day and year last above written.
_________________________
Notary Public
My Commission expires:
EXHIBIT 4(i)B
REGISTRATION RIGHTS AGREEMENT
Dated as of December 16, 1997
between
FARMLAND INDUSTRIES, INC.
and
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
as Initial Purchaser
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of December 16, 1997 between FARMLAND INDUSTRIES, INC., a Kansas
corporation (the "Company"), and MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED (the "Initial Purchaser").
This Agreement is made pursuant to the Purchase Agreement, dated
December 16, 1997 (the "Purchase Agreement"), between the Company, as issuer of
the 8% Series A Cumulative Redeemable Preferred Shares (par value $25 per share)
(liquidation preference equivalent to $50 per share) (the "Securities"), the
Company and the Initial Purchaser, which provides for, among other things, the
sale by the Company to the Initial Purchaser of 2,000,000 Securities. In order
to induce the Initial Purchaser to enter into the Purchase Agreement, the
Company has agreed to provide to the Initial Purchaser and their direct and
indirect transferees the registration rights set forth in this Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
Definitions. As used in this Agreement, the following capitalized defined
terms shall have the following meanings:
"Advice" shall have the meaning set forth in the last paragraph of Section
3 hereof.
"Affiliate" has the same meaning as given to that term in Rule 405 under
the Securities Act or any successor rule thereunder.
"Business Day" means any day other than a Saturday, a Sunday, or a day on
which banking institutions in The City of New York are authorized or required by
law or executive order to remain closed.
"Closing Time" shall mean the Closing Time as defined in the Purchase
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement and also includes the Company's successors and permitted assigns.
"Effectiveness Period" shall have the meaning set forth in Section 2(a)
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Holder" shall mean the Initial Purchaser, for so long as it owns any
Registrable Securities, and each of its respective successors, assigns and
direct and indirect transferees who become registered owners of Registrable
Securities.
"Initial Purchaser" shall have the meaning set forth in the preamble to
this Agreement.
"Inspectors" shall have the meaning set forth in Section 3(m) hereof.
"Issue Date" shall mean December 19, 1997, the date of original issuance of
the Securities.
"Liquidated Damages" shall have the meaning set forth in Section 2(d)
hereof.
"Majority Holders" shall mean the Holders of a majority of the aggregate
liquidation preference of outstanding Securities.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, limited liability company, or a government or
agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in the Shelf Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by the Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all documents incorporated by reference
therein.
"Purchase Agreement" shall have the meaning set forth in the preamble to
this Agreement.
"Records" shall have the meaning set forth in Section 3(m) hereof.
"Registrable Securities" shall mean the Securities; provided, however, that
Securities shall cease to be Registrable Securities when (i) a Shelf
Registration Statement with respect to such Securities for the resale thereof
shall have been declared effective under the Securities Act and such Securities
shall have been disposed of pursuant to such Shelf Registration Statement, (ii)
such Securities shall have been sold to the public pursuant to Rule 144 (or any
similar provision then in force, but not Rule 144A) under the Securities Act or
are eligible to be sold without restriction as contemplated by Rule 144(k) or
(iii) such Securities shall have ceased to be outstanding.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC or National Association of Securities Dealers,
Inc. (the "NASD") registration and filing fees, including, if applicable, the
fees and expenses of any "qualified independent underwriter" (and its counsel)
that is required to be retained by any Holder of Registrable Securities in
accordance with the rules and regulations of the NASD, (ii) all fees and
expenses incurred in connection with compliance with state securities or blue
sky laws (including reasonable fees and disbursements of one counsel for all
underwriters or Holders as a group in connection with blue sky qualification of
any of the Registrable Securities) and compliance with the rules of the NASD,
(iii) all expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing the Shelf Registration Statement, any
Prospectus and any amendments or supplements thereto, and in preparing or
assisting in preparing, printing and distributing any underwriting agreements,
securities sales agreements and other documents relating to the performance of
and compliance with this Agreement, (iv) all rating agency fees and (v) any fees
and disbursements of its counsel or accountants required by or incident to the
performance of and compliance with this Agreement.
"Rule 144(k) Period" shall mean the period of two years (or such shorter
period as may hereafter be referred to in Rule 144(k) under the Securities Act
(or similar successor rule)) commencing on the Issue Date.
"SEC" shall mean the Securities and Exchange Commission.
"Securities" shall have the meaning set forth in the preamble to this
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Shelf Registration" shall mean a registration effected pursuant to Section
2(a) hereof.
"Shelf Registration Statement" shall mean the "shelf" registration
statement of the Company pursuant to the provisions of Section 2(a) hereof which
covers all of the Registrable Securities on an appropriate form under Rule 415
under the Securities Act, or any similar rule that may be adopted by the SEC,
and all amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all documents incorporated by reference
therein.
1. Registration Under the Securities Act.
(a) Shelf Registration. The Company shall use its best efforts to
cause to be filed, as promptly as practicable after the Issue Date, but in any
event within 150 days after the Issue Date, a Shelf Registration Statement
providing for the sale by the Holders of all of the Registrable Securities;
provided, however, that, notwithstanding the foregoing, upon the request of the
Initial Purchaser with respect to any Registrable Securities held by it, the
Company shall use its best efforts to cause to be filed such Shelf Registration
Statement within 45 days of such request (which shall be no earlier than 75 days
after the Closing Time). In addition, the Company shall use its best efforts to
have such Shelf Registration Statement declared effective by the SEC as promptly
as practicable after filing thereof, but in any event within 180 days after the
Issue Date (or 60 days after the filing of a Shelf Registration Statement
pursuant to a request from the Initial Purchaser). No Holder of Registrable
Securities shall be entitled to include any of its Registrable Securities in the
Shelf Registration pursuant to this Agreement unless and until such Holder
agrees in writing to be bound by all of the provisions of this Agreement
applicable to such Holder and furnishes to the Company in writing, within 15
days after receipt of a request therefor, such information as the Company may,
after conferring with counsel with regard to information relating to Holders
that would be required by the SEC to be included in such Shelf Registration
Statement or Prospectus included therein, reasonably request for inclusion in
the Shelf Registration Statement or Prospectus included therein. Each Holder as
to which the Shelf Registration is being effected agrees to furnish to the
Company all information with respect to such Holder necessary to make the
information previously furnished to the Company by such Holder not materially
misleading. The Initial Purchaser agrees to furnish to the Company from time to
time, upon the Company's request, information in its possession regarding the
beneficial owners of the Securities required for inclusion in the Shelf
Registration Statement, including, but not limited to, the names and addresses,
in order to assist the Company in its preparation of the Shelf Registration
Statement.
Subject to the provisions of Section 3(i) hereof, the Company agrees
to use its best efforts to keep the Shelf Registration Statement continuously
effective and usable for resales for the Rule 144(k) Period (subject to
extension pursuant to the last paragraph of Section 3 hereof), or for such
shorter period which will terminate when all of the Securities covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement or cease to be Registrable Securities (the "Effectiveness Period").
The Company shall not permit any securities other than (i) with respect to
holders of the Company securities currently possessing incidental registration
rights and (ii) Registrable Securities to be included in the Shelf Registration.
The Company will, in the event the Shelf Registration Statement is declared
effective, provide to each Holder a reasonable number of copies of the
Prospectus which is a part of the Shelf Registration Statement, notify each such
Holder when the Shelf Registration Statement has become effective and take such
other actions as are required to permit certain unrestricted resales of the
Registrable Securities. The Company further agrees to supplement or amend the
Shelf Registration Statement if and as required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the Securities Act or by any other rules and
regulations thereunder for shelf registrations, and the Company agrees to
furnish to the Holders of Registrable Securities copies of any such supplement
or amendment promptly after its being used or filed with the SEC.
(a) Expenses. The Company shall pay all Registration Expenses in
connection with the Shelf Registration Statement filed pursuant to Section 2(a)
hereof and will reimburse the Initial Purchaser for the fees and disbursements
of any single counsel designated in writing by the Majority Holders to act as
counsel for the Holders of the Registrable Securities in connection with the
Shelf Registration Statement, which counsel shall be reasonably satisfactory to
the Company. Except as provided herein, each Holder shall pay all expenses of
its counsel, underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holder's Registrable Securities
pursuant to the Shelf Registration Statement.
(b) Effective Shelf Registration Statement. The Shelf Registration
Statement will not be deemed to have become effective unless it has been
declared effective by the SEC; provided, however, that if, after it has been
declared effective, the offering of Registrable Securities pursuant to such
Shelf Registration Statement is interfered with by any stop order, injunction or
other order or requirement of the SEC or any other governmental agency or court,
such Shelf Registration Statement will be deemed not to have been effective
during the period of such interference, until the offering of Registrable
Securities pursuant to such Shelf Registration Statement may legally resume.
The Company will be deemed not to have used its best efforts to cause the Shelf
Registration Statement to become, or to remain, effective during the requisite
period if it voluntarily takes any action that would result in any such Shelf
Registration Statement not being declared effective or that would result in the
Holders of Registrable Securities covered thereby not being able to offer and
sell such Registrable Securities during that period, unless such action is
required by applicable law or relates to a transaction of the type contemplated
by the proviso to Section 3(i) hereof.
(c) Liquidated Damages. In the event that:
(i) the Shelf Registration Statement is not filed with the SEC on
or prior to the date required under Section 2(a) then, commencing on the day
after such required filing date hereof, liquidated damages ("Liquidated
Damages") shall be payable at a rate of 0.50% per annum on the liquidation
preference of the Securities;
(ii) the Shelf Registration Statement is not declared effective
by the SEC on or prior to the 180th day after the Issue Date (or the 60th day
after the date such Shelf Registration Statement was required to be filed
pursuant to Section 2(a) hereof in the case of the filing of a Shelf
Registration Statement pursuant to a request from the Initial Purchaser), then,
commencing on the 181st day after the Issue Date (or the 61st day after the
filing in the case of the filing of a Shelf Registration Statement pursuant to a
request from the Initial Purchaser) Liquidated Damages shall be payable at a
rate of 0.50% per annum on the liquidation preference of the Securities; or
(iii) the Shelf Registration Statement has been declared
effective and such Shelf Registration Statement ceases to be effective or usable
for resales at any time prior to the expiration of the Rule 144(k) Period (other
than after such time as all Securities have been disposed of thereunder or
otherwise cease to be Registered Securities), except as permitted pursuant to
Section 3(i) hereof with respect to suspensions under circumstances relating to
the negotiation or completion of any transaction being contemplated by the
Company at such time, then, commencing on the day such Shelf Registration
Statement ceases to be effective or usable for resales, Liquidated Damages shall
be payable at a rate of 0.50% per annum on the liquidation preference of the
Securities;
provided, however, that the Liquidated Damages may not exceed in the aggregate
0.50% per annum of the liquidation preference of the Securities ; provided,
further, however, that (1) upon the filing of the Shelf Registration Statement
(in the case of clause (i) above), (2) upon the effectiveness of the Shelf
Registration Statement (in the case of clause (ii) above), or (3) upon such time
as the Shelf Registration Statement which had ceased to remain effective or
usable for resales again becomes effective and usable for resales (in the case
of clause (iii) above), Liquidated Damages on the liquidation preference of the
Securities as a result thereof shall cease to be payable.
Any amounts of Liquidated Damages due pursuant to Section 2(d)(i), (ii) or
(iii) above will be payable in cash on the next succeeding dividend payment date
to Holders on the relevant record date for the payment of dividends.
(d) Specific Enforcement. Without limiting the remedies available to
the Holders, the Company acknowledges that any failure by it to comply with its
obligations under Section 2(a) hereof may result in material irreparable injury
to the Holders for which there is no adequate remedy at law, that it would not
be possible to measure damages for such injuries precisely and that, in the
event of any such failure, any Holder may obtain such relief as may be required
to specifically enforce the Company's obligations under Section 2(a) hereof.
Registration Procedures. In connection with the obligations of the
Company with respect to the Shelf Registration Statement pursuant to Section
2(a) hereof, the Company shall use its best efforts to:
(a) prepare and file with the SEC a Shelf Registration Statement as
prescribed by Sections 2(a) hereof within the relevant time period
specified in Section 2(a) hereof on the appropriate form under the
Securities Act, which form shall (i) be selected by the Company, (ii) be
available for the sale of the Registrable Securities by the selling Holders
thereof, and (iii) comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith; and use its best efforts to
cause such Shelf Registration Statement to become effective and remain
effective and, usable for resales in accordance with Section 2 hereof;
provided, however, that, before filing the Shelf Registration Statement or
Prospectus or any amendments or supplements thereto, the Company shall
furnish to and afford the Holders of the Registrable Securities covered by
such Shelf Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by
reference therein and all exhibits thereto) proposed to be filed, except
that the foregoing provision shall not apply to regular periodic reports
filed with the SEC on Form 10-K or 10-Q or current reports on Form 8-K (or
any similar successor forms), except to the extent a filing on Form 8-K
contains material which describes a change in the terms, preferences or
rights of the Securities. The Company shall not file any Shelf
Registration Statement or Prospectus or any amendments or supplements
thereto in respect of which the Holders must be afforded an opportunity to
review prior to the filing of such document if the Majority Holders, their
counsel or the managing underwriters, if any, shall reasonably object in a
timely manner; prepare and file with the (SEC such amendments and post-
effective amendments to the Shelf Registration Statement as may be
necessary to keep such Shelf Registration Statement effective for the
Effectiveness Period; and cause each Prospectus to be supplemented, if so
determined by the Company or requested by the SEC, by any required
prospectus supplement and as so supplemented to be filed pursuant to Rule
424 (or any similar provision then in force) under the Securities Act, and
comply with the provisions of the Securities Act, the Exchange Act and the
rules and regulations promulgated thereunder applicable to it with respect
to the disposition of all securities covered by the Shelf Registration
Statement during the Effectiveness Period in accordance with the intended
method or methods of distribution by the selling Holders thereof;
(e) (i) notify each Holder of Registrable Securities included in the
Shelf Registration Statement, at least three Business Days prior to filing,
that the Shelf Registration Statement with respect to the Registrable
Securities is being filed and advising such Holder that the distribution of
Registrable Securities will be made in accordance with the method selected
by the Majority Holders; (ii) furnish to each Holder of Registrable
Securities included in the Shelf Registration Statement and to each
underwriter of an underwritten offering of Registrable Securities, if any,
without charge, as many copies of each Prospectus, including each
preliminary prospectus, and any amendment or supplement thereto, and such
other documents as such Holder or underwriter may reasonably request, in
order to facilitate the public sale or other disposition of the Registrable
Securities; and (iii) consent to the use of the Prospectus or any amendment
or supplement thereto by each of the selling Holders of Registrable
Securities included in the Shelf Registration Statement in connection with
the offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto;
(f) register or qualify the Registrable Securities under all
applicable state securities or "blue sky" laws of such jurisdictions by the
time the applicable Shelf Registration Statement is declared effective by
the SEC as any Holder of Registrable Securities covered by the Shelf
Registration Statement and each underwriter of an underwritten offering of
Registrable Securities shall reasonably request in writing in advance of
such date of effectiveness, and do any and all other acts and things which
may be reasonably necessary or advisable to enable such Holder and
underwriter to consummate the disposition in each such jurisdiction of such
Registrable Securities owned by such Holder; provided, however, that the
Company shall not be required to (i) qualify as a foreign corporation or as
a dealer in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) file any general
consent to service of process in any jurisdiction where it would not
otherwise be subject to such service of process or (iii) subject itself to
taxation in any such jurisdiction if it is not then so subject;
(g) promptly notify each Holder of Registrable Securities, their
counsel and the managing underwriters, if any, and promptly confirm such
notice in writing (i) when the Shelf Registration Statement has become
effective and when any post-effective amendments thereto become effective,
(ii) of any request by the SEC or any state securities authority for
amendments and supplements to the Shelf Registration Statement or
Prospectus or for additional information after the Shelf Registration
Statement has become effective, (iii) of the issuance by the SEC or any
state securities authority of any stop order suspending the effectiveness
of the Shelf Registration Statement or the qualification of the Registrable
Securities in any jurisdiction described in Section 3(d) hereof or the
initiation of any proceedings for that purpose, (iv) if, between the
effective date of the Shelf Registration Statement and the closing of any
sale of Registrable Securities covered thereby, the representations and
warranties of the Company contained in any purchase agreement, securities
sales agreement or other similar agreement cease to be true and correct in
all material respects, (v) of the happening of any event or the failure of
any event to occur or the discovery of any facts, during the Effectiveness
Period, which makes any statement made in the Shelf Registration Statement
or the related Prospectus untrue in any material respect or which causes
such Shelf Registration Statement or Prospectus to omit to state a material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, and (vi) of the
reasonable determination of the Company that a post-effective amendment to
the Shelf Registration Statement would be appropriate;
(h) obtain the withdrawal of any order suspending the effectiveness
of the Shelf Registration Statement at the earliest possible moment;
(i) furnish to each Holder of Registrable Securities included within
the coverage of the Shelf Registration Statement, without charge, at least
one conformed copy of the Shelf Registration Statement relating to such
Shelf Registration and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits thereto, unless
requested);
(j) cooperate with the selling Holders of Registrable Securities to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends
and registered in such names as the selling Holders or the underwriters may
reasonably request at least two Business Days prior to the closing of any
sale of Registrable Securities pursuant to the Shelf Registration
Statement;
(k) promptly after the occurrence of any event specified in Section
3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, prepare a supplement or
post-effective amendment to the Shelf Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any
other required document so that, as thereafter delivered to the purchasers
of the Registrable Securities, such Prospectus will not include any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading; and to notify each Holder to suspend use of
the Prospectus as promptly as practicable after the occurrence of such an
event, and each Holder hereby agrees to suspend use of the Prospectus until
the Company has amended or supplemented the Prospectus to correct such
misstatement or omission provided, however, the Company will be permitted
to suspend the use of the Prospectus for one or more periods not to exceed
90 days in the aggregate in any twelve-month period under circumstances
relating to corporate developments or the negotiation or completion of any
transaction being contemplated by the Company at such time;
(l) promptly after the filing of any document which is to be
incorporated by reference into a Shelf Registration Statement or a
Prospectus subsequent to the initial filing of the Shelf Registration
Statement, provide a reasonable number of copies of such document to the
Holders; and make such of the representatives of the Company as shall be
reasonably requested by the Holders of Registrable Securities or the
Initial Purchaser on behalf of such Holders available for discussion of
such document;
(m) enter into such agreements (including underwriting agreements) as
are customary in underwritten offerings and take all such other appropriate
actions in connection therewith as are reasonably requested by the Holders
of at least 25% in aggregate liquidation preference of the Registrable
Securities in order to expedite or facilitate the registration or the
disposition or the Registrable Securities;
(n) whether or not an underwriting agreement is entered into and
whether or not the registration is an underwritten registration, if
requested by (x) the Initial Purchaser, in the case where the Initial
Purchaser holds Securities acquired by it as part of its initial placement
and (y) Holders of at least 25% in aggregate liquidation preference of the
Registrable Securities covered thereby: (i) make such representations and
warranties to Holders of such Registrable Securities and the underwriters
(if any), with respect to the business of the Company and its subsidiaries
as then conducted and with respect to the Shelf Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated
by reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings, and confirm the same if and when
requested; (ii) furnish customary closing documentation in form and
substance reasonably requested and reasonably satisfactory to the managing
underwriters (if any) and the Holders of a majority in amount of the
Registrable Securities being sold; and (iii) if an underwriting agreement
is entered into, the same shall contain indemnification provisions and
procedures no less favorable than those set forth in Section 4 hereof (or
such other provisions and procedures acceptable to Holders of a majority in
aggregate liquidation preference of Registrable Securities covered by such
Shelf Registration Statement and the managing underwriters) customary for
such agreements with respect to all parties to be indemnified pursuant to
said Section (including, without limitation, such underwriters and selling
Holders); and in the case of an underwritten registration, the above
requirements shall be satisfied at each closing under the related
underwriting agreement or as and to the extent required thereunder
provided, however that, except as specified in Section 2(b), the Company is
not obligated to pay the costs and expenses of counsel for the selling
Holders or accountants' "cold comfort" letters in connection with any such
underwriting and the officers and directors of the Company are not
obligated to participate in marketing efforts on behalf of such Holders;
(o) make reasonably available for inspection by any selling Holder of
Registrable Securities who certifies to the Company that it has a current
intention to sell Registrable Securities pursuant to the Shelf
Registration, any underwriter participating in any such disposition of
Registrable Securities, if any, and any attorney, accountant or other agent
retained by any such selling Holder or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during the Company's
normal business hours, all financial and other records, pertinent corporate
and partnership documents and properties of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably necessary
to enable them to exercise any applicable due diligence responsibilities,
and cause the Company and its subsidiaries to supply all relevant
information in each case reasonably requested by any such Inspector in
connection with the Shelf Registration Statement; records and information
which the Company determines, in good faith, to be confidential and any
Records and information which it notifies the Inspectors are confidential
shall not be disclosed to any Inspector except where (i) the disclosure of
such Records or information is necessary to avoid or correct a material
misstatement or omission in such Shelf Registration Statement, (ii) the
release of such Records or information is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction or is necessary in
connection with any action, suit or proceeding or (iii) such Records or
information previously has been made generally available to the public;
each selling Holder of such Registrable Securities will be required to
agree in writing that Records and information obtained by it as a result of
such inspections shall be deemed confidential and shall not be used by it
as the basis for any market transactions in the securities of the Company
unless and until such is made generally available to the public through no
fault of an Inspector or a selling Holder; and each selling Holder of such
Registrable Securities will be required to further agree in writing that it
will, upon learning that disclosure of such Records or information is
sought in a court of competent jurisdiction, or in connection with any
action, suit or proceeding, give notice to the Company and allow the
Company at its expense to undertake appropriate action to prevent
disclosure of the Records and information deemed confidential;
(p) comply with all applicable rules and regulations of the SEC so
long as any provision of this Agreement shall be applicable and make
generally available to its securityholders earning statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no
later than 45 days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal year)
(i) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm commitment or best efforts
underwritten offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of the Shelf Registration Statement, which
statements shall cover said 12-month periods, provided that the obligations
under this Section 3(n) shall be satisfied by the timely filing of
quarterly and annual reports on Forms 10-Q and 10-K under the Exchange Act;
(q) cooperate with each seller of Registrable Securities covered by
the Shelf Registration Statement and each underwriter, if any,
participating in the disposition of such Registrable Securities and their
respective counsel in connection with any filings required to be made with
the NASD;
(r) take all other steps necessary to effect the registration of the
Registrable Securities covered by the Shelf Registration Statement
contemplated hereby; and
(s) the Company may require each seller of Registrable Securities as
to which any registration is being effected to furnish to it such
information regarding such seller as may be required by the staff of the
SEC to be included in the Shelf Registration Statement; the Company may
exclude from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time
after receiving such request; and the Company shall have no obligation to
register under the Securities Act the Registrable Securities of a seller
who so fails to furnish such information.
Each Holder agrees that, upon receipt of any notice from the Company
of the occurrence of any event specified in Section 3(e)(ii), 3(e)(iii), 3(e)(v)
or 3(e)(vi) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Shelf Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(i) hereof or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, if so directed by the Company, such Holder will deliver to the
Company (at the Company's expense) all copies in such Holder's possession, other
than permanent file copies then in such Holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. If the Company shall give any such notice to suspend the disposition of
Registrable Securities pursuant to the Shelf Registration Statement, the Company
shall use its best efforts to file and have declared effective (if an amendment)
as soon as practicable after the resolution of the related matters an amendment
or supplement to the Shelf Registration Statement and related Prospectus and
shall extend the period during which such Shelf Registration Statement is
required to be maintained effective and usable for resales pursuant to this
Agreement by the number of days in the period from and including the date of the
giving of such notice to and including the date when the Company shall have made
available to the Holders (x) copies of the supplemented or amended Prospectus
necessary to resume such dispositions or (y) the Advice.
4. Indemnification and Contribution. (a) The Company hereby agrees
to indemnify and hold harmless the Initial Purchaser, each Holder, each
underwriter who participates in an offering of the Registrable Securities, each
Person, if any, who controls any of such parties within the meaning of Section
15 of the Securities Act and each of their respective directors, officers,
employees and agents, as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Shelf Registration
Statement (or any amendment thereto) or preliminary prospectus or
Prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
4(d)) any such settlement is effected with the prior written consent of the
Company; and
(iii) against any and all expenses whatsoever, as incurred (including
the fees and disbursements of counsel chosen by the Initial Purchaser or
such Holder), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under subparagraph (i) or (ii) of this Section 4(a);
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of an untrue statement or
omission or alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished in writing to the Company by the
Initial Purchaser or such Holder for use in the Shelf Registration Statement (or
any amendment thereto) or any Prospectus (or the related amendment or supplement
thereto).
(b) The Initial Purchaser, each Holder and each underwriter agree,
severally and not jointly, to indemnify and hold harmless the Company, its
directors and officers (including each officer of the Company who signed the
Shelf Registration Statement) and each Person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act against any and all loss,
liability, claim, damage and expense whatsoever described in the indemnity
contained in Section 4(a) hereof, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Shelf Registration Statement (or any amendment thereto) or the related
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company by the Initial
Purchaser, such Holder or such underwriter, as the case may be, expressly for
use in such Shelf Registration Statement (or any amendment thereto) or such
Prospectus (or any amendment or supplement thereto); provided, however, that no
Holder shall be liable for any claims hereunder in excess of the amount of net
proceeds received by such Holder from the sale of Registrable Securities.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to
so notify an indemnifying party shall not relieve such indemnifying party from
any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 4(a) above,
counsel to the indemnified parties shall be selected by the Initial Purchaser
and, in the case of parties indemnified pursuant to Section 4(b), by the
Company. An indemnifying party may participate at its own expense in the
defense of such action; provided, however, that counsel to the indemnifying
party shall not (except with the consent of the indemnified party) also be
counsel to the indemnified party. In no event shall the indemnifying parties be
liable for the fees and expenses of more than one counsel (in addition to local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the
indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or threatened, or any claim
whatsoever in respect of which indemnification or contribution could be sought
under this Section 4 (whether or not the indemnified parties are actual or
potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have validly requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement set forth in this Section 4 is
for any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms the Company and the Holders shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by such indemnity agreement incurred by the Company and
the Holders, as incurred; provided, however, that no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any Person that was not guilty of such fraudulent
misrepresentation. As between the Company, on the one hand, and the Holders, on
the other hand, such parties shall contribute to such aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement in such proportion as shall be appropriate to reflect the
relative fault of the Company, on the one hand, and the Holders, on the other
hand, with respect to the statements or omissions which resulted in such loss,
liability, claim, damage or expense, or action in respect thereof, as well as
any other relevant equitable considerations. The relative fault of the Company,
on the one hand, and of the Holders, on the other hand, shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, on the one hand, or by or on
behalf of the Holders, on the other, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Holders of the Registrable Securities agree that
it would not be just and equitable if contribution pursuant to this Section 4
were to be determined by pro rata allocation or by any other method of
allocation that does not take into account the relevant equitable
considerations. The aggregate amount of losses, liabilities, claims, damages
and expenses incurred by an indemnified party and referred to above in this
Section 4(e) shall be deemed to include any legal or other expenses reasonably
incurred by such indemnified party in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any
such untrue or alleged untrue statement or omission or alleged omission.
For purposes of this Section 4, each Affiliate of a Holder, and each
director, officer and employee and Person, if any, who controls a Holder or such
Affiliate within the meaning of Section 15 of the Securities Act shall have the
same rights to contribution as such Holder, and each director, officer or
employee of the Company and each Person, if any, who controls the Company within
the meaning of Section 15 of the Securities Act shall have the same rights to
contribution as the Company.
5. Participation in an Underwritten Registration. No Holder may
participate in an underwritten registration hereunder unless such Holder
(a) agrees to sell such Holder's Registrable Securities on the basis provided in
the underwriting arrangement approved by the Persons entitled hereunder to
approve such arrangements and (b) completes and executes all reasonable
questionnaires, powers of attorney, indemnities, underwriting agreements, lock-
up letters and other documents reasonably required under the terms of such
underwriting arrangements.
6. Selection of Underwriters. The Holders of Registrable Securities
covered by the Shelf Registration Statement who desire to do so may sell the
Securities covered by such Shelf Registration in an underwritten offering,
subject to the provisions of Section 3(l) hereof. In any such underwritten
offering, the underwriter or underwriters and manager or managers that will
administer the offering will be selected by the Holders of a majority in
aggregate liquidation preference of the Registrable Securities included in such
offering; provided, however, that such underwriters and managers must be
reasonably satisfactory to the Company.
7. Miscellaneous.
(a) Rule 144 and Rule 144A. For so long as the Company is subject to
the reporting requirements of Section 13 or 15(d) of the Exchange Act and any
Registrable Securities remain outstanding, the Company will file the reports
required to be filed by it under the Securities Act and Section 13(a) or 15(d)
of the Exchange Act and the rules and regulations adopted by the SEC thereunder;
provided, however, that if the Company ceases to be so required to file such
reports, it will, upon the request of any Holder of Registrable Securities (a)
make publicly available such information as is necessary to permit sales of its
securities pursuant to Rule 144 under the Securities Act, (b) deliver such
information to a prospective purchaser as is necessary to permit sales of its
securities pursuant to Rule 144A under the Securities Act, and (c) take such
further action that is reasonable in the circumstances, in each case, to the
extent required from time to time to enable such Holder to sell its Registrable
Securities without registration under the Securities Act within the limitation
of the exemptions provided by (i) Rule 144 under the Securities Act, as such
rule may be amended from time to time, (ii) Rule 144A under the Securities Act,
as such rule may be amended from time to time, or (iii) any similar rules or
regulations hereafter adopted by the SEC. Upon the request of any Holder of
Registrable Securities, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
(b) No Inconsistent Agreements. The Company has not entered into,
nor will the Company enter into, any agreement which is inconsistent with the
rights granted to the Holders of Registrable Securities in this Agreement or
otherwise conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not inconsistent with
the rights granted to the holders of the Company's other issued and outstanding
securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of a majority in aggregate liquidation preference of the outstanding Registrable
Securities affected by such amendment, modification, supplement, waiver or
departure; provided that no amendment, modification or supplement or waiver or
consent to the departure with respect to the provisions of Section 4 hereof
shall be effective as against any Holder of Registrable Securities unless
consented to in writing by such Holder of Registrable Securities.
Notwithstanding the foregoing sentence, (i) this Agreement may be amended,
without the consent of any Holder of Registrable Securities, by written
agreement signed by the Company and the Initial Purchaser, to cure any
ambiguity, correct or supplement any provision of this Agreement that may be
inconsistent with any other provision of this Agreement or to make any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with other provisions of this Agreement, (ii)
this Agreement may be amended, modified or supplemented, and waivers and
consents to departures from the provisions hereof may be given, by written
agreement signed by the Company and the Initial Purchaser to the extent that any
such amendment, modification, supplement, waiver or consent is, in their
reasonable judgment, necessary or appropriate to comply with applicable law
(including any interpretation of the Staff of the SEC) or any change therein and
(iii) to the extent any provision of this Agreement relates to the Initial
Purchaser, such provision may be amended, modified or supplemented, and waivers
or consents to departures from such provisions may be given, by written
agreement signed by the Initial Purchaser and the Company.
Notwithstanding the foregoing, in the event that the SEC changes its
position to allow exchange offers of non-investment grade preferred stock, this
Agreement may be amended without the consent of any Holder of Registrable
Securities in a form mutually acceptable to the Company and the Initial
Purchaser.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (i) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 7(d), which address initially is, with respect to the Initial Purchaser,
the address set forth in the Purchase Agreement; and (ii) if to the Company,
initially at the Company's address set forth in the Purchase Agreement and
thereafter at such other address, notice of which is given in accordance with
the provisions of this Section 7(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of the
Initial Purchaser, including, without limitation and without the need for an
express assignment, subsequent Holders; provided, however, that nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms of the Purchase Agreement or
amended charter of the Company. If any transferee of any Holder shall acquire
Registrable Securities, in any manner, whether by operation of law or otherwise,
such Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities, such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
(f) Third Party Beneficiaries. Each Holder shall be a third party
beneficiary of the agreements made hereunder among the Company and the Initial
Purchaser, and the Initial Purchaser shall have the right to enforce such
agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE
IN THE STATE OF NEW YORK. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICT OF LAWS. EACH OF THE PARTIES
HERETO AGREES TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE
OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR ANY OF THE MATTERS CONTEMPLATED HEREBY, IRREVOCABLY WAIVES ANY
DEFENSE OF LACK OF PERSONAL JURISDICTION AND IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY
SUCH COURT. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION WHICH IT MAY
NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT AND ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Securities Held by the Company or its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
any Affiliates shall not be counted in determining whether such consent or
approval was given by the Holders of such required percentage.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
Very truly yours,
FARMLAND INDUSTRIES, INC.
By:
Name: Terry M. Campbell
Title: Executive Vice President
and Chief Financial Officer
CONFIRMED AND ACCEPTED,
as of the date first
above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
Authorized Signatory
EXHIBIT 10(i)A
LEASE, dated as of December 11, 1997, between WILMINGTON TRUST
COMPANY, a Delaware banking corporation, having its principal office at Rodney
Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, not in
its individual capacity but solely as Owner Trustee, as Lessor, and FARMLAND
INDUSTRIES, INC., a Kansas cooperative corporation, having its principal office
at 3315 N. Oak Trafficway, Kansas City, Missouri 64116-0005, as Lessee.
In consideration of the mutual agreements herein contained, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms Capitalized terms used herein but not
otherwise defined in this Lease shall have the respective meanings, and this
Lease shall be interpreted in accordance with the rules of usage, specified in
Annex A to the Participation Agreement dated as of the date hereof among Lessee,
Guarantor, Lessor, Agent, Issuing Bank, the Owner Participants named therein and
the Lenders named therein.
SECTION 2. PROJECT AND TERM
2.1 Project. Subject to the terms and conditions
hereinafter set forth, Lessor hereby subleases to Lessee, and Lessee hereby
subleases from Lessor, all of Lessor's right, title and interest in (i) the
Equipment set forth on Schedule 3 annexed hereto, and all other tangible
personal property described in or contemplated by the Plans and Specifications,
and now or hereafter constructed, placed on, or appurtenant to, or used in
connection with, the Land (described on Schedule 1 annexed hereto) by Lessee, as
agent for Lessor and Issuer pursuant to the Agency Agreement, together with any
and all accessions, additions, improvements, substitutions and replacements
thereto or therefor, including Modifications, in each case title to which vests
in the Issuer pursuant hereto, but excluding the Retained Assets (all of the
foregoing described in this clause (i), the "Project Improvements") and (ii) the
Easement described in Schedule 2 annexed hereto (the "Appurtenant Rights"). The
Project Improvements and the Appurtenant Rights are herein collectively referred
to as the "Project". Simultaneously with the sublease of Lessor's interest in
the Project, Lessor hereby assigns to Lessee during the Term, Lessor's interest
in the Technology License and the non-exclusive right (together with Lessor) to
enforce Lessor's rights against Issuer under the Head Lease with respect to
Issuer Liens, with respect to Issuer's obligations to transfer its interest in
the Project to Lessee and with respect to Issuer's obligations under Section
7.1(d) of the Head Lease and the last sentence of Section 13.1 of the Head
Lease.
2.2 Lease Term. The Project is subleased for the Basic Term,
unless extended or earlier terminated in accordance with the provisions of this
Lease.
2.3 Title. Lessee acknowledges and understands that as of the date
hereof, Lessor's interest in the Project consists only of a leasehold interest
therein granted to Lessor by Issuer pursuant to the Head Lease. The Project is
subleased to Lessee without any representation or warranty, express or implied,
by Lessor and subject to the rights of parties in possession, the existing state
of title (including, without limitation, the Permitted Exceptions) and all
applicable Legal Requirements. Lessee shall in no event have any recourse
against Lessor for any defect in title to the Project, except for the existence
of Lessor Liens. Lessor and Lessee, as lessee hereunder and as owner of the
Land, hereby declare that it is their mutual intent that the Project
Improvements are to be considered movable (personal) property, severable from
the Land, and not immovables or components of immovables, for all purposes of
this Lease; provided, however, that the Project Improvements may only be removed
from the Land in accordance with the terms hereof.
SECTION 3. RENT
3.1 Rent. (a) On each applicable Payment Date occurring after the
termination of the Construction Period, Lessee shall pay the Basic Rent.
(b) Basic Rent shall be due and payable in lawful money of the
United States and shall be paid by wire transfer of immediately available funds
on the due date therefor to such account or accounts at such bank or banks or to
such other Person or in such other manner as Lessor shall from time to time
direct.
(c) Neither Lessee's inability or failure to take possession of
all, or any portion, of the Project when delivered by Lessor, nor Lessor's
inability or failure to deliver all or any portion of the Project to Lessee,
whether or not attributable to any act or omission of Lessee or any act or
omission of Lessor, or for any other reason whatsoever, shall delay or otherwise
affect Lessee's obligation to pay Rent in accordance with the terms of this
Lease.
3.2 Supplemental Rent. (a) Lessee shall pay to Lessor or the
Person entitled thereto any and all Supplemental Rent promptly as the same shall
become due and payable, and if Lessee fails to pay any Supplemental Rent, Lessor
shall have all rights, powers and remedies provided for herein or by law or
equity or otherwise in the case of nonpayment of Basic Rent. Lessee shall pay
to Lessor as Supplemental Rent, among other things, on demand, to the extent
permitted by applicable Legal Requirements, interest at the applicable Overdue
Rate on any installment of Basic Rent not paid when due for the period for which
the same shall be overdue and on any payment of Supplemental Rent not paid when
due or demanded by Lessor for the period from the due date or the date of any
such demand, as the case may be, until the same shall be paid. The expiration
or other termination of Lessee's obligations to pay Basic Rent hereunder shall
not limit or modify the obligations of Lessee with respect to Supplemental Rent.
Unless expressly provided otherwise in this Lease or any other Operative
Agreement, in the event of any failure on the part of Lessee to pay and
discharge any Supplemental Rent as and when due, Lessee shall also promptly pay
and discharge any fine, penalty, interest or cost which may be assessed or added
for nonpayment or late payment of such Supplemental Rent, all of which shall
also constitute Supplemental Rent.
(b) Lessee shall make a payment of Supplemental Rent equal to the
Maximum Residual Guarantee Amount in accordance with Section 21.1(c).
(c) If any sales tax is imposed under the provisions of K.S.A. 79-
3603(h), Lessee agrees to pay on an After Tax Basis, as Supplemental Rent
hereunder, the full amount of such tax.
3.3 Performance on a Non-Business Day. If any payment is required
hereunder on a day that is not a Business Day, then such payment shall be due on
the next succeeding Business Day, unless, in the case of payments based on the
Eurodollar Rate, the result of such extension would be to extend such payment
into another calendar month, in which event such payment shall be made on the
immediately preceding Business Day.
SECTION 4. UTILITY CHARGES
4.1 Utility Charges. Lessee shall pay, or cause to be paid, all
charges for electricity, power, gas, oil, water, telephone, sanitary sewer
service and all other rents and utilities used in or on the Project during the
Term. Lessee shall be entitled to receive any credit or refund with respect to
any utility charge paid by Lessee and the amount of any credit or refund
received by Lessor on account of any utility charges paid by Lessee, net of the
costs and expenses reasonably incurred by Lessor in obtaining such credit or
refund, shall be promptly paid over to Lessee. All charges for utilities
imposed with respect to the Project for a billing period during which this Lease
expires or terminates shall be adjusted and prorated on a daily basis between
Lessor and Lessee, and each party shall pay or reimburse the other for each
party's pro rata share thereof.
SECTION 5. QUIET ENJOYMENT
5.1 Quiet Enjoyment So long as no Lease Event of Default shall
have occurred and be continuing, Lessee shall peaceably and quietly have, hold
and enjoy the Project for the Term, free of any claim or other action by Lessor,
Issuer or anyone rightfully claiming by, through or under Lessor or Issuer.
SECTION 6. NET SUBLEASEError! Bookmark not defined.
6.1 Net Sublease; No Setoff; Etc This Lease shall constitute a net
sublease and, notwithstanding any other provision of this Lease, it is intended
that Basic Rent and Supplemental Rent shall be paid without counterclaim,
setoff, deduction or defense of any kind and without abatement, suspension,
deferment, diminution or reduction of any kind, and Lessee's obligation to pay
all such amounts is absolute and unconditional. The obligations and liabilities
of Lessee hereunder shall in no way be released, discharged or otherwise
affected for any reason, including to the maximum extent permitted by law:
(a) any defect in the condition, merchantability, design, construction, quality
or fitness for use of any portion of the Project, or any failure of the Project
to comply with all Legal Requirements, including any inability to occupy or use
the Project by reason of such non-compliance; (b) any damage to, abandonment,
loss, contamination of or Release from or destruction of or any requisition or
taking of the Project or any part thereof, including eviction; (c) any
restriction, prevention or curtailment of or interference with any use of the
Project or any part thereof, including eviction; (d) any defect in title to or
rights to the Project or any Lien on such title or rights or on the Project;
(e) any change, waiver, extension, indulgence or other action or omission or
breach in respect of any obligation or liability of or by the Issuer, Lessor,
any Owner Participant, Agent or any Lender; (f) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other like
proceedings relating to the Issuer, Lessee, Lessor, any Owner Participant,
Agent, any Lender or any other Person, or any action taken with respect to this
Lease by any trustee or receiver of Issuer, Lessee, Lessor, any Owner
Participant, Agent, any Lender or any other Person, or by any court, in any such
proceeding; (g) any claim that Lessee has or might have against any Person,
including, without limitation, the Issuer, Lessor, any Owner Participant, Agent
or any Lender (but shall not constitute a waiver of such claim); (h) any failure
on the part of Lessor to perform or comply with any of the terms of this Lease,
any other Operative Agreement or of any other agreement; (i) any invalidity or
unenforceability or disaffirmance against or by Lessee of this Lease or any
provision hereof or any of the other Operative Agreements or any provision of
any thereof; (j) the impossibility of performance by Lessee, or Lessor, or both;
(k) any action by any court, administrative agency or other Governmental
Authority; (l) any restriction, prevention or curtailment of or any interference
with the construction or any use of the Project or any part thereof; or (m) any
other occurrence whatsoever, whether similar or dissimilar to the foregoing,
whether or not Lessee shall have notice or knowledge of any of the foregoing.
This Lease shall be noncancellable by Lessee for any reason whatsoever except as
expressly provided herein, and Lessee, to the extent permitted by Legal
Requirements, waives all rights now or hereafter conferred by statute or
otherwise to quit, terminate or surrender this Lease, or to any diminution,
abatement or reduction of Rent payable by Lessee hereunder. If for any reason
whatsoever this Lease shall be terminated in whole or in part by operation of
law or otherwise, except as otherwise expressly provided herein, Lessee shall,
unless prohibited by Legal Requirements, nonetheless pay to Lessor (or, in the
case of Supplemental Rent, to whomever shall be entitled thereto) an amount
equal to each Rent payment at the time and in the manner that such payment would
have become due and payable under the terms of this Lease if it had not been
terminated in whole or in part, and in such case, so long as such payments are
made and no Lease Event of Default shall have occurred and be continuing, Lessor
will deem this Lease to have remained in effect. Each payment of Rent made by
Lessee hereunder shall be final and, absent manifest error in the computation of
the amount thereof, Lessee shall not seek or have any right to recover all or
any part of such payment from the Issuer, Lessor, any Owner Participant, Agent
or any party to any agreements related thereto for any reason whatsoever.
Lessee assumes the sole responsibility for the condition, use, operation,
maintenance, and management of the Project and neither the Lessor nor the Issuer
shall have any responsibility in respect thereof or any liability for damage to
the property of Lessee or any subtenant of Lessee on any account or for any
reason whatsoever.
6.2 No Termination or Abatement. Lessee shall remain obligated
under this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting Lessor, or any action with respect to this Lease which may
be taken by any trustee, receiver or liquidator of Lessor or by any court with
respect to Lessor, except as otherwise expressly provided herein. Lessee hereby
waives, to the extent permitted by Legal Requirements, all right (i) to
terminate or surrender this Lease, except as otherwise expressly provided
herein, or (ii) to avail itself of any abatement, suspension, deferment,
reduction, setoff, counterclaim or defense with respect to any Rent. Lessee
shall remain obligated under this Lease in accordance with its terms and Lessee
hereby waives, to the extent permitted by Legal Requirements, any and all rights
now or hereafter conferred by statute or otherwise to modify or to avoid strict
compliance with its obligations under this Lease. Notwithstanding any such
statute or otherwise, Lessee shall be bound by all of the terms and conditions
contained in this Lease.
SECTION 7. OWNERSHIP OF THE PROJECT
7.1 Ownership of the Project. (a) Lessor and Lessee intend that
(i) for financial accounting purposes with respect to Lessee (A) this Lease will
be treated as an "operating lease" pursuant to Statement of Financial Accounting
Standards (SFAS) No. 13, as amended, (B) Issuer will be treated as the owner of
the Project Improvements and lessor of the Project Improvements, (C) Lessor will
be treated as the lessee and sublessor of the Project Improvements and
(D) Lessee will be treated as the sublessee of the Project Improvements, but
(ii) for federal, state and local income tax purposes (A) this Lease will be
treated as a financing arrangement, (B) the Lenders will be treated as senior
lenders making loans to Lessee in an amount equal to the Loans, which Loans will
be secured by, among other things, the Project, (C) Lessor will be treated as a
subordinated lender making a loan to Lessee in an amount equal to the OP
Contributions, which loan is also secured by the Project, and (D) Lessee will be
treated as the owner of the Project Improvements and will be entitled to all tax
benefits ordinarily available to an owner of property like the Project
Improvements for such tax purposes. Solely for purposes of making Lessee's
obligations hereunder senior to Lessee's Subordinated Debt to the extent
permitted thereby, all amounts at any time or from time to time due and payable
by Lessee hereunder for the Rent shall constitute "Senior Indebtedness" within
the meaning of each indenture relating to Subordinated Debt and shall be
superior in right of payment to all indebtedness of Lessee heretofore or
hereafter issued and outstanding under any of the applicable indentures relating
to such Subordinated Debt.
(b) Lessor and Lessee further intend and agree that, for the
purpose of securing Lessee's obligations hereunder, (i) this Lease shall also be
deemed to be a security agreement and financing statement within the meaning of
Article 9 of the Uniform Commercial Code; and (ii) except as specifically
excluded below, the conveyance provided for in Section 2 shall be deemed a grant
of a security interest in the Lessee's right, title and interest in the Project
Improvements (including the right to exercise all remedies upon the occurrence
of a Lease Event of Default) and all proceeds of the conversion, voluntary or
involuntary, of the foregoing into cash, investments, securities or other
property, whether in the form of cash, investments, securities or other
property, for the benefit of the Lessor to secure the Lessee's payment of all
amounts owed by the Lessee under this Lease and the other Operative Agreements
and Lessor holds a valid leasehold interest in the Project Improvements so as to
create and grant a first lien and prior security interest in Lessor's leasehold
estate in the Project Improvements (A) pursuant to this Lease for the benefit of
the Agent under the Assignment of Lease, to secure to the Agent the obligations
of the Lessee under the Lease and (B) pursuant to the Security Agreement to
secure to the Agent the obligations of the Lessor under the Security Agreement
and the Notes. Lessor and Lessee shall, to the extent consistent with this
Lease, take such actions as may be necessary to ensure that, if this Lease were
deemed to create a security interest in the Project in accordance with this
Section, such security interest would be deemed to be a perfected security
interest of first priority under applicable law and will be maintained as such
throughout the Term. Nevertheless, Lessee acknowledges and agrees that none of
the Issuer, the Lessor, any Owner Participant, the Trust Company, Agent, the
Issuing Bank or any Lender has provided or will provide tax, accounting or legal
advice to Lessee regarding this Lease, the Operative Agreements or the
transactions contemplated hereby and thereby, or made any representations or
warranties concerning the tax, accounting or legal characteristics of the
Operative Agreements, and that Lessee has obtained and relied upon such tax,
accounting and legal advice concerning the Operative Agreements as it deems
appropriate. Notwithstanding the foregoing provisions, the security interest
provided for in this Section 7.1(b) is not intended to, and shall not, create a
security interest in any leasehold interest that Lessee may have as the result
of this Lease being held to be a true lease for state law purposes.
(c) Lessor and Lessee further intend and agree that in the event of
any insolvency or receivership proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency laws or statute of the United
States of America or any State or Commonwealth thereof affecting Lessee or
Lessor, the transactions evidenced by this Lease shall be regarded as loans made
by an unrelated third party lender to Lessee.
(d) Lessor hereby authorizes Lessee, at Lessee's expense, to
assert, prior to the Maturity Date, all of Lessor's claims and rights under any
and all warranties of, and other claims against, dealers, manufacturers,
vendors, suppliers, installers, contractors or subcontractors relating to the
Project. Any amount received by Lessee under any such warranty or claim shall
be applied to restore the Project to the condition required by Section 10 (or,
subject to the reasonable consent of the Owner Participants and the Agent, to
fund a reserve fund for extra maintenance resulting from such claim) and
thereafter the balance, if any, of such amount shall be paid to Lessee.
SECTION 8. CONDITION OF THE PROJECT
8.1 Condition of the Project; Disclaimer of Warranties.
WITHOUT LIMITING ANY CLAIM LESSEE MAY HAVE AGAINST ANY CONTRACTOR,
SUBCONTRACTOR, SUPPLIER OR MANUFACTURER, LESSEE EXPRESSLY ACKNOWLEDGES THAT IT
HAS SELECTED THE PROJECT IMPROVEMENTS WITHOUT ANY ASSISTANCE FROM THE ISSUER,
THE LESSOR OR ANY OWNER PARTICIPANT OR THEIR RESPECTIVE AGENTS OR EMPLOYEES, AND
LESSEE AGREES THAT (I) EACH ITEM OF THE PROJECT IMPROVEMENTS IS OF A SIZE,
DESIGN, AND CAPACITY SELECTED BY AND ACCEPTABLE TO LESSEE, (II) LESSEE IS
SATISFIED THAT EACH ITEM OF THE PROJECT IMPROVEMENTS AND THE PROJECT IS SUITABLE
FOR ITS PURPOSES, (III) THE PROJECT IS SUBLEASED HEREUNDER SUBJECT TO ALL
APPLICABLE LAWS AND GOVERNMENTAL REGULATIONS NOW IN EFFECT OR HEREAFTER ADOPTED,
(IV) IT IS SUBLEASING THE PROJECT FROM LESSOR IN AN "AS IS", "WHERE IS" AND
"WITH ALL FAULTS" CONDITION AND (V) NEITHER LESSOR NOR ANY OWNER PARTICIPANT
(OTHER THAN TEXACO) NOR THE ISSUER IS A MANUFACTURER OR DEALER IN PROPERTY OF
SUCH KIND. NEITHER LESSOR, THE TRUST COMPANY, THE ISSUER NOR ANY OWNER
PARTICIPANT SHALL BE DEEMED TO HAVE MADE, AND LESSEE HEREBY EXPRESSLY DISCLAIMS,
ANY REPRESENTATION OR WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE PROJECT,
ANY PART THEREOF, OR ANY RECORDS OR ANY OTHER MATTER WHATSOEVER WITH RESPECT
THERETO, EXCEPT AS SPECIFICALLY PROVIDED IN THE PARTICIPATION AGREEMENT,
INCLUDING, WITHOUT LIMITATION, THE DESIGN, CONDITION OR CAPACITY OF THE PROJECT
IMPROVEMENTS, THEIR MERCHANTABILITY OR THEIR FITNESS FOR ANY PARTICULAR PURPOSE,
THE QUALITY OF THE MATERIALS OR WORKMANSHIP OF THE PROJECT IMPROVEMENTS, THEIR
VALUE, TITLE OR SAFETY, THE ABSENCE OF ANY PATENT, TRADEMARK OR COPYRIGHT
INFRINGEMENT OR LATENT DEFECT (WHETHER OR NOT DISCOVERABLE BY LESSEE),
COMPLIANCE OF THE PROJECT WITH THE REQUIREMENTS OF ANY APPLICABLE LAWS
(INCLUDING ENVIRONMENTAL LAWS) PERTAINING THERETO, OR THE CONFORMITY OF THE
PROJECT TO THE PROVISIONS AND SPECIFICATIONS OF ANY CONSTRUCTION OR PURCHASE
DOCUMENT RELATING THERETO OR ANY COURSE OF PERFORMANCE, COURSE OF DEALING OR
USAGE OF TRADE, NOR SHALL LESSOR, THE ISSUER, NOR ANY OWNER PARTICIPANT BE
LIABLE TO LESSEE, REGARDLESS OF ANY ACTUAL OR ALLEGED NEGLIGENCE OF LESSOR OR
OWNER PARTICIPANT, FOR ANY DEFECTS, EITHER PATENT OR LATENT (WHETHER OR NOT
DISCOVERABLE BY LESSEE), IN THE PROJECT OR ANY PART THEREOF OR ANY DIRECT OR
INDIRECT DAMAGE TO PERSONS OR PROPERTY RESULTING THEREFROM OR FOR ANY DIRECT,
INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES OR FOR STRICT OR ABSOLUTE
LIABILITY IN TORT. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, LESSEE
HEREBY WAIVES, TO THE EXTENT PERMITTED BY LEGAL REQUIREMENTS, ANY CLAIM
(INCLUDING ANY CLAIM BASED ON STRICT OR ABSOLUTE LIABILITY IN TORT OR
INFRINGEMENT) IT MIGHT HAVE AGAINST LESSOR, THE ISSUER OR ANY OWNER PARTICIPANT
FOR ANY LOSS, DAMAGE (INCLUDING, WITHOUT LIMITATION, DIRECT, INDIRECT,
INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGE) OR EXPENSE CAUSED BY THE PROJECT OR
BY LESSEE'S LOSS OF USE THEREOF FOR ANY REASON WHATSOEVER EXCEPT FOR ANY
RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LESSOR, ISSUER OR
ANY OWNER PARTICIPANT OR THEIR RESPECTIVE EMPLOYEES, OFFICERS, DIRECTORS,
REPRESENTATIVES, AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT COMPANIES,
SUBSIDIARIES, SUCCESSORS AND ASSIGNS, AND ALL PERSONS ACTING ON THEIR BEHALF.
LESSEE AND ANYONE CLAIMING BY, THROUGH OR UNDER LESSEE HEREBY FULLY AND
IRREVOCABLY RELEASES LESSOR, THE ISSUER AND EACH OTHER PERSON PARTY TO THE
OPERATIVE AGREEMENTS, AND EACH OF THEIR EMPLOYEES, OFFICERS, DIRECTORS,
REPRESENTATIVES, AGENTS, SERVANTS, ATTORNEYS, AFFILIATES, PARENT COMPANIES,
SUBSIDIARIES, SUCCESSORS AND ASSIGNS, AND ALL PERSONS ACTING ON THEIR BEHALF,
FROM ANY AND ALL CLAIMS THAT IT MAY NOW HAVE OR HEREAFTER ACQUIRE AGAINST THE
ISSUER, LESSOR OR ANY OTHER SUCH PERSON, FOR ANY COSTS, LOSS, LIABILITY, DAMAGE,
EXPENSES, DEMAND, ACTION OR CAUSE OF ACTION ARISING FROM OR RELATED TO THE
RELEASE OR DISCHARGE FROM THE PROJECT AT ANY TIME OF ANY HAZARDOUS MATERIALS
OTHER THAN A RELEASE OR DISCHARGE OCCURRING AFTER LESSEE IS NO LONGER IN
POSSESSION OF THE PROJECT AND RESULTING SOLELY FROM ACTS OR OMISSIONS OF LESSOR,
THE ISSUER OR ANY OTHER SUCH PERSON. THIS RELEASE INCLUDES CLAIMS OF WHICH
LESSEE IS PRESENTLY UNAWARE OR WHICH LESSEE DOES NOT PRESENTLY SUSPECT TO EXIST
WHICH, IF KNOWN BY LESSEE, WOULD MATERIALLY AFFECT LESSEE'S RELEASE OF LESSOR
AND THE OTHER PERSONS RELEASED HEREBY.
Nothing contained in this Section 8.1 shall be construed as a waiver
of any warranty or other claim against any manufacturer, supplier, dealer,
vendor, contractor, subcontractor or installer.
8.2 Possession and Use of the Project. The Project shall be used
in a manner consistent with the Agency Agreement and, after the Completion Date,
as a petroleum coke gasifier, an ammonia synthesis loop and a urea ammonium
nitrate plant. Lessee shall pay, or cause to be paid, all charges and costs
required in connection with the use of the Project. Lessee shall not commit or
permit any waste of the Project or any part thereof.
SECTION 9. COMPLIANCE
9.1 Compliance with Legal Requirements and Insurance Requirements.
Subject to the terms of Section 13 relating to permitted contests, Lessee, at
its sole cost and expense, shall (a) comply, or cause to be complied, with all
Legal Requirements (including all Environmental Laws) and Insurance Requirements
relating to the Project, including the use, construction, operation,
maintenance, repair and restoration thereof, whether or not compliance therewith
shall require structural or extraordinary changes or interfere with the use and
enjoyment of the Project, and (b) procure, maintain and comply with, or cause to
be procured, maintained and complied with, all licenses, permits, orders,
approvals, consents and other authorizations required for the construction,
renovation, use, maintenance and operation of the Project and for the use,
operation, maintenance, repair and restoration thereof, except in the case of
clauses (a) and (b) where failure to do so would not have a material adverse
effect on the construction, use, operation, maintenance, repair and renovation
of the Project.
9.2 Environmental Matters. (a) Promptly upon Lessee's actual
knowledge of the presence of Hazardous Substances in any portion of the Project
in concentrations and conditions that constitute a Material Environmental
Violation, Lessee shall notify Lessor and Issuer in writing of such condition.
In the event of such Material Environmental Violation, Lessee shall, not later
than ninety (90) days after Lessee has actual knowledge of such Material
Environmental Violation, at Lessee's sole cost and expense, promptly and
diligently undertake any response, clean up, remedial or other action necessary
to remove, clean up or remediate the Material Environmental Violation in
accordance with the terms of Section 9.1. Lessee shall, upon completion of
remedial action by Lessee, cause to be prepared by an environmental consultant
reasonably acceptable to Lessor a report describing the Material Environmental
Violation and the actions taken by Lessee (or its agents) in response to such
Material Environmental Violation, and a statement by the consultant that, in
such consultant's opinion, such Material Environmental Violation has been
remedied in full compliance with requirements of the applicable Governmental
Authority.
(b) In addition, Lessee shall provide to Lessor, within five (5)
Business Days of receipt, copies of all written communications with any
Governmental Authority relating to any Environmental Law in connection with the
Project which could give rise to a potential liability of $1,000,000 or more
(including as the result of one or more such communications relating to the same
environmental condition giving rise to such potential liability, except to the
extent any such environmental condition shall be remediated), provided that
during the 12-month period prior to the Maturity Date (unless Lessee has
previously irrevocably exercised the Maturity Date Purchase Option), Lessee
shall provide to Lessor and Issuer, within five (5) Business Days of receipt,
copies of all such written communications, irrespective of the amount of any
potential liability. Lessee shall also promptly provide such detailed reports
of any such environmental claims as reasonably may be requested by Lessor and
the Agent.
SECTION 10. MAINTENANCE AND REPAIR
10.1 Maintenance and Repair; Return. (a) Throughout the Term,
Lessee shall, at its sole cost and expense, (i) take good care of the Project
Improvements and keep the same and all parts thereof in good and safe order and
condition, with all mechanical devices and electronic systems in working order,
normal wear and tear excepted, consistent with maintenance practices used by
Lessee with respect to equipment similar in type owned or subleased by Lessee
and consistent with customary industry standards and applicable manufacturer's
standard operating and maintenance procedures, and (ii) promptly make all needed
repairs, restorations and replacements in and to the Project Improvements or any
part thereof. All such repairs, restorations and replacements shall be of a
standard and quality consistent with customary industry standards and sufficient
for the proper maintenance and operation of the Project Improvements and shall
be constructed and installed in a good and workmanlike manner in compliance in
all material respects with Legal Requirements and Insurance Requirements. In
carrying out its obligations under this Section 10.1, Lessee shall not
discriminate in any way in the maintenance of the Project Improvements as
compared with other similar equipment owned or subleased by Lessee and shall use
the Project Improvements in a manner consistent with sound operating practices
thereof. Lessee shall not remove any of the Project Improvements from the Land
without the prior written consent of, and prior written notice to, Lessor except
without such prior written notice and consent, (i) Lessee may remove any of the
Project Improvements from the Land on a temporary basis in connection with any
maintenance, repair, Modification or restoration provided the Project Costs
attributable to such Project Improvements so removed do not exceed $5,000,000 or
(ii) Lessee may change the location of any of the Project Improvements on the
Land, provided that such Project Improvements shall remain on the Land and on
the Easement (and Lessee shall execute and deliver to Issuer and Lessor
amendments to the Easement Agreement in form and substance reasonably
satisfactory to Issuer and Lessor granting such additional easements as are
necessary so that Issuer and Lessor shall at all times have unimpeded access to
the Project Improvements in a manner which is substantially equivalent to that
which existed before), such Project Improvements shall remain subject to a valid
and perfected first security interest pursuant to the Security Agreement and
such change in location shall not adversely affect in any material respect the
day-to-day operations of the Project.
(b) Lessor shall under no circumstances be required to furnish any
services or facilities or to make any repairs, replacements, alterations or
renewals of any nature or description to the Project, make any expenditure
whatsoever in connection with this Lease or maintain the Project in any way.
Lessor shall not be required to maintain, repair or rebuild all or any part of
the Project, and Lessee waives the right to (i) require Lessor to maintain,
repair, or rebuild all or any part of the Project, or (ii) make repairs at the
expense of Lessor pursuant to any Legal Requirement, Insurance Requirement,
contract, agreement, covenants, condition or restriction at any time in effect.
(c) Lessee shall, upon the expiration or earlier termination of the
Term, surrender possession of the Project to the Lessor. At the time of such
surrender, the Project shall be (i) free and clear of all Liens other than
Permitted Liens, Issuer Liens and Lessor Liens, (ii) in as good condition as it
was on Completion, ordinary wear and tear excepted, (iii) capable of operating
within manufacturer's design criteria, (iv) capable of being immediately
operated by a third-party purchaser or third-party lessee without further
inspection, repair, replacement, alterations or improvements (subject to
Lessee's obligations in the second succeeding sentence and subject to then
existing third-party products, licenses, supplies, feedstock, equipment or
facilities), licenses, permits, or approvals, except for any of the foregoing
required solely by virtue of the change in ownership (other than the Lessor or
Issuer), use or occupancy of the Project, and (v) in compliance with all Legal
Requirements and the other requirements of this Lease (and in any event without
(x) any asbestos installed or maintained in any part of the Project, (y) any
polychlorinated byphenyls (PCBs) in, on or used, stored or located at the
Project, and (z) any other Hazardous Substances). Lessee shall provide, or
cause to be provided or accomplished, at the sole cost and expense of Lessee, to
or for the benefit of Issuer and Lessor or a purchaser, at least thirty Business
Days prior to the expiration or earlier termination of the Term (unless notice
of purchase by Lessee is given hereunder), each of the following: (i) a Lien
search showing (A) no Liens other than Permitted Liens, Issuer Liens and Lessor
Liens and (B) the Security Agreement as creating a valid and perfected first
security interest in the Project; (ii) an environmental assessment for the
Project satisfying the requirements set forth in Section 10.3 below; (iii) an
assignment, effective as of the termination or expiration, of all of the
Lessee's right, title and interest in and to the Technology Licenses and any
agreement executed by Lessee providing for the supply of oxygen to the Project
Improvements and each other agreement then in effect (to the extent assignable)
executed by Lessee in connection with the construction, renovation, development,
use, maintenance or operation of the Project (including all warranty,
performance, service and indemnity provisions, but excluding any relating to
supplies (other than oxygen) or marketing and sales; (iv) copies of all Plans
and Specifications relating to the design, construction, renovation or
development of the Project; (v) an assignment (to the extent assignable),
effective as of the termination or expiration, of all permits, licenses,
approvals and other authorizations from all Governmental Authorities in
connection with the construction, operation and use of the Project; (vi) copies
of all books and records, budgets, construction schedules, operating manuals,
maintenance records and similar documents with respect to the construction,
renovation, maintenance, repair, operation or use of the Project (except for any
limited by confidentiality restrictions) and (vii) if Completion has not
occurred, (x) evidence satisfactory to Lessor that all building materials and
equipment purchased or contracted for purchase which have not been incorporated
into the Project are (A) owned by Issuer free from any Liens other than
Permitted Liens, Issuer Liens and Lessor Liens and (B) secured, segregated and
identifiable (and if stored off-site, the location of such place of storage);
(y) evidence satisfactory to Lessor that adequate provision has been made for
the protection of materials stored on-site and for the protection of the
Project, to the extent then constructed, against deterioration and against other
loss or damage or theft, and (z) an agreement, in form and substance reasonably
satisfactory to Issuer and Lessor from all material construction contractors,
construction managers, architects, engineers and other designee professionals
that each will continue to perform under their respective contracts (if any) for
the benefit of Issuer and Lessor or its assignee. Lessee shall cooperate with
any independent purchaser of the Project or any portion thereof in order to
facilitate the ownership and operation by such purchaser of the Project or any
portion thereof after such expiration or earlier termination of the Term,
including providing all books, reports and records regarding the maintenance,
repair and ownership of the Project or any portion thereof and all data and
technical information relating thereto, granting or assigning all licenses
necessary for the operation and maintenance thereof and cooperating in seeking
and obtaining all necessary licenses, permits and approvals of Governmental
Authorities. Lessee shall have also paid the total cost for the completion of
all Modifications commenced prior to such expiration or earlier termination of
the Term. The obligation of Lessee under this Section 10.1(c) shall survive the
expiration or termination of this Lease.
10.2 Right of Inspection. Lessor may, at reasonable times and with
reasonable prior notice, enter upon, inspect and examine at its own cost and
expense (unless a Lease Event of Default has occurred and is continuing, in
which case the out-of-pocket costs and expenses of Lessor shall be paid by
Lessee), the Project. Upon written request from Lessor, Lessee shall furnish to
Issuer and Lessor statements, no more than once per year, accurate in all
material respects, regarding the condition and state of repair of the Project.
Lessor shall have no duty to make any such inspection or inquiry and shall not
incur any liability or obligation by reason of not making any such inspection or
inquiry.
10.3 Environmental Inspection. Not less than 12 months prior to the
Maturity Date (unless Lessee has previously irrevocably exercised the Maturity
Date Purchase Option), and not more than thirty Business Days prior to surrender
of possession of the Project, Lessor shall, at Lessee's sole cost and expense,
obtain a report by an environmental consultant selected by Lessor (and
reasonably acceptable to the Lessee and Issuer) certifying that, in its
professional judgment, the Project or any portion thereof (i) does not contain
Hazardous Substances under circumstances or in concentrations that could result
in a violation of or liability under any Environmental Law and (ii) is in
compliance with all Environmental Laws. If such is not the case on either such
date, then Lessee shall be deemed to have irrevocably exercised the Maturity
Date Purchase Option pursuant to Section 20.2.
SECTION 11. MODIFICATIONS
11.1 Modifications, Substitutions and Replacements. (a) So long as
no Lease Event of Default has occurred and is continuing, Lessee, at its sole
cost and expense, may at any time and from time to time make alterations,
replacements, renovations, improvements and additions to the Project or any part
thereof (collectively, "Modifications"); provided, that: (i) except for any
Modification required to be made pursuant to a Legal Requirement or an Insurance
Requirement, no Modification, individually, or when aggregated with any other
Modifications shall impair the value of the Project or the utility or useful
life of the Project from that which existed immediately prior to such
Modification; (ii) the Modification shall be performed expeditiously and in a
good and workmanlike manner; (iii) Lessee shall comply with all Legal
Requirements (including all Environmental Laws) and Insurance Requirements
applicable to the Modification, including the obtaining of all permits and
certificates of occupancy, and the structural integrity of the Project shall not
be adversely affected; (iv) Lessee shall maintain or cause to be maintained
builders' risk insurance at all times when a Modification is in progress;
(v) subject to the terms of Section 13 relating to permitted contests, Lessee
shall pay all costs and expenses and discharge any Liens arising with respect to
the Modification; and (vi) such Modifications shall comply with Sections 8.2 and
10.1 and shall not change the primary character or intended use of the Project.
All Modifications (other than alterations, renovations, improvements and
additions that may be readily removed without impairing the value, utility or
remaining useful life of the Project, title to which shall vest in the Lessee)
shall remain part of the Project and shall be subject to this Lease, and title
thereto shall immediately vest in the Issuer.
(b) Following the Completion Date, Lessee shall notify Lessor and
Issuer of the undertaking of any Modifications to the Project the cost of which
is anticipated to exceed $5,000,000. Prior to undertaking any such
Modifications, Lessee shall deliver to Lessor and Issuer (i) a brief narrative
of the work to be done and a copy of the plans and specifications relating to
such work; and (ii) an Officer's Certificate stating that such work when
completed will not impair the value, utility or remaining life of the Project.
Issuer and Lessor, by itself or its agents, shall have the right, but not the
obligation, from time to time to inspect such construction to ensure that the
same is completed consistent with the plans and specifications relating to such
Modifications.
(c) Following the Completion Date, Lessee shall not without the
consent of Lessor and Issuer undertake any material construction or material
alterations to the Project if such construction or alterations cannot, in the
reasonable judgement of Lessor, be completed on or prior to the date that is
fourteen months prior to the Expiration Date.
SECTION 12. TITLE
12.1 Liens. (a) Lessee agrees that, except as otherwise provided
herein and subject to the terms of Section 13 relating to permitted contests,
Lessee shall not directly or indirectly create or allow to remain, and shall
promptly discharge at its sole cost and expense, any Lien, defect, attachment,
levy, title retention agreement or claim upon the Project or any Modifications
or any Lien, attachment, levy or claim with respect to the Rent or with respect
to any amounts held by the Agent pursuant to the Credit Agreement, other than
Permitted Liens, Issuer Liens and Lessor Liens. Lessee shall promptly notify
Lessor in the event it receives knowledge that a Lien (other than a Permitted
Lien, Issuer Liens and Lessor Liens) exists with respect to the Project.
(b) Nothing contained in this Lease shall be construed as
constituting the consent or request of Lessor or Issuer, expressed or implied,
to or for the performance by any contractor, mechanic, laborer, materialman,
supplier or vendor of any labor or services or for the furnishing of any
materials for any construction, alteration, addition, repair or demolition of or
to the Project or any part thereof. NOTICE IS HEREBY GIVEN THAT NEITHER ISSUER
NOR LESSOR IS OR SHALL BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS FURNISHED
OR TO BE FURNISHED TO LESSEE, OR TO ANYONE HOLDING THE PROJECT OR ANY PART
THEREOF THROUGH OR UNDER LESSEE, AND THAT NO MECHANIC'S OR OTHER LIENS FOR ANY
SUCH LABOR, SERVICES OR MATERIALS SHALL ATTACH TO OR AFFECT THE INTEREST OF
LESSOR OR ISSUER IN AND TO THE PROJECT.
12.2 Identification. Lessee agrees, at Lessee's sole cost and
expense, to place markings on the Project Improvements in a manner sufficient to
inform third parties of the ownership thereof and security interests therein.
Such identification markings shall be placed so as not to interfere with the
usefulness of the Project and shall be generally consistent with Lessee's
customary labeling practices. If, at any time during the Term of this Lease,
any such identification marking shall be defaced or destroyed, Lessee shall
promptly cause such defaced or destroyed identification marking to be restored
or replaced. Lessee shall not allow the name of any Person to be placed upon
any portion of the Project Improvements as a designation that might be
interpreted as indicating a claim of ownership thereof or security interest
therein by any Person other than Issuer, Lessor, Agent and their successors and
assigns, except that Lessee may place its name and logo on the Project
Improvements.
SECTION 13. PERMITTED CONTESTS
13.1 Permitted Contests Other Than in Respect of Impositions.
Except to the extent otherwise provided for in Section 12.2 of the Participation
Agreement, Lessee, on its own or on Lessor's behalf but at Lessee's sole cost
and expense, may contest, by appropriate administrative or judicial proceedings
conducted in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any Legal Requirement, or utility charges
payable pursuant to Section 4.1 or any Lien, attachment, levy, encumbrance or
encroachment, and Lessor agrees not to pay, settle or otherwise compromise any
such item, provided that (a) the commencement and continuation of such
proceedings shall suspend the collection thereof from, and suspend the
enforcement thereof against the Project, Lessor, the Issuer, the Agent, any
Owner Participant and any Lenders; (b) there shall be no reasonable risk of the
imposition of a Lien (other than a Permitted Lien, Issuer Liens and Lessor
Liens) on the Project or any part thereof nor any Rent would be in any danger of
being sold, forfeited, lost or deferred; (c) at no time during the permitted
contest shall there be a risk of the imposition of criminal liability or civil
liability on Lessor, the Issuer, any Owner Participant, the Agent or any Lender
for failure to comply therewith; and (d) in the event that, at any time, there
shall be a material risk of extending the application of such item beyond the
earlier of the Maturity Date and the Expiration Date for the Project, then
Lessee shall deliver to Lessor an Officer's Certificate certifying as to the
matters set forth in clauses (a), (b) and (c) of this Section 13.1. Lessor, at
Lessee's sole cost and expense, shall execute and deliver to Lessee such
authorizations and other documents as may reasonably be required in connection
with any such contest and, if reasonably requested by Lessee, shall join as a
party therein at Lessee's sole cost and expense.
SECTION 14. INSURANCE
14.1 Public Liability and Workers' Compensation Insurance During
the Term, Lessee shall procure and carry, at Lessee's sole cost and expense,
commercial general liability insurance for claims for injuries or death
sustained by persons or damage to property while at the Project. Such insurance
shall be on terms and in amounts that are no less favorable than insurance
maintained by owners of similar properties, that are in accordance with normal
industry practice. The policy shall be endorsed to name Lessor, the Trust
Company, the Owner Participants, the Agent, the Issuer and the Lenders as
additional insureds. The policy shall also specifically provide that the policy
shall be considered primary insurance which shall apply to any loss or claim
before any contribution by any insurance which Lessor, the Trust Company, the
Agent, the Issuer or the Lenders may have in force. Lessee shall, in the
operation of the Project, comply with the applicable workers' compensation laws
and protect Lessor against any liability under such laws.
14.2 Hazard and Other Insurance. During the Term, Lessee shall keep
the Project insured against loss or damage by fire and other risks on terms and
in amounts that are no less favorable than insurance maintained by owners of
similar properties, that are in accordance with normal industry practice, and
are in amounts not less than Termination Value of the Project Improvements. So
long as no Lease Event of Default exists, any loss payable under the insurance
policy required by this Section will be paid to and adjusted solely by Lessee,
subject to Section 15.
14.3 Coverage. (a) Lessee shall furnish Lessor and the Issuer with
certificates showing the insurance required under Sections 14.1 and 14.2 to be
in effect and naming Agent, the Issuing Bank, the Lenders, the Lessor, the
Issuer, the Owner Participants, and the Trust Company as an additional insured
with respect to liability insurance and showing the loss payee endorsement
required by Section 14.3(c). All such insurance shall be at the cost and
expense of Lessee. Such certificates shall include a provision in which the
insurer agrees to provide thirty (30) days' advance written notice by the
insurer to Lessor, the Trust Company, the Issuer and the Agent in the event of
cancellation or modification of such insurance that could be adverse to the
interests of Lessor, the Trust Company, Issuer or the Agent. If a Lease Event
of Default has occurred and is continuing and Lessor so requests, Lessee shall
deliver to Lessor copies of all insurance policies required by this Lease.
(b) Lessee agrees that the insurance policy or policies required by
this Lease shall include an appropriate clause pursuant to which such policy
shall provide that it will not be invalidated should Lessee waive, in writing,
prior to a loss, any or all rights of recovery against any party for losses
covered by such policy. Lessee hereby waives any and all such rights against
Lessor, the Issuer, the Trust Company, the Owner Participants, the Agent, the
Issuing Bank and the Lenders to the extent of payments made under such policies.
(c) All insurance policies required by Section 14.2 shall include a
standard form loss payee endorsement in favor of the Agent.
(d) Neither Lessor nor Lessee shall carry separate insurance
concurrent in kind or form or contributing in the event of loss with any
insurance required under this Lease except that Lessor may at its own expense
carry separate liability insurance so long as (i) Lessee's insurance is
designated as primary and in no event excess or contributory to any insurance
Lessor may have in force which would apply to a loss covered under Lessee's
policy and (ii) each such insurance policy will not cause Lessee's insurance
required under this Lease to be subject to a coinsurance exception of any kind.
(e) Lessee shall pay as they become due all premiums for the
insurance required by this Lease, shall renew or replace each policy prior to
the expiration date thereof and shall promptly deliver to Lessor and the Agent
certificates for renewal and replacement policies.
(f) Notwithstanding anything in this Section 14 to the contrary,
any insurance which the Lessee is required to obtain and maintain pursuant to
Sections 14.1 and 14.2 may be carried under "blanket" and umbrella policies
covering other properties and liabilities of Lessee.
SECTION 15. CONDEMNATION AND CASUALTY
15.1 Casualty and Condemnation. (a) Subject to the provisions of
this Section 15 and Section 16 (in the event Lessee delivers, or is obligated to
deliver, a Termination Notice), and prior to the occurrence and continuation of
a Lease Event of Default, Lessee shall be entitled to receive (and Lessor hereby
irrevocably assigns to Lessee all of Lessor's right, title and interest in) any
award, compensation or insurance proceeds to which Lessee or Lessor may become
entitled by reason of their respective interests in the Project (i) if all or a
portion of the Project is damaged or destroyed in whole or in part by a Casualty
or (ii) if the use, access, occupancy, easement rights or title to the Project
or any part thereof is the subject of a Condemnation; provided, however, if a
Lease Event of Default shall have occurred and be continuing such award,
compensation or insurance proceeds shall be paid directly to Lessor or, if
received by Lessee, shall be held in trust for Lessor, and shall be paid over by
Lessee to Lessor, and provided further that in the event of any Casualty or
Condemnation, the estimated cost of restoration of which is in excess of
$10,000,000, any such award, compensation or insurance proceeds shall be paid
directly to Lessor, or if received by Lessee, shall be held in trust for Lessor
and shall be paid over by Lessee to Lessor to be held and applied by Lessor
toward payment of the cost of restoration in accordance with Section 15.1 (e).
(b) So long as no Lease Event of Default has occurred and is
continuing, Lessee may appear in any proceeding or action to negotiate,
prosecute, adjust or appeal any claim for any award, compensation or insurance
payment on account of any such Casualty or Condemnation and shall pay all
expenses thereof; provided that if the estimated cost of restoration of the
Project is in excess of $10,000,000, then Lessor and Issuer shall be entitled,
at Lessee's sole cost and expense, to participate in any such proceeding or
action. At Lessee's reasonable request, and at Lessee's sole cost and expense,
Lessor, Issuer and the Agent shall participate in any such proceeding, action,
negotiation, prosecution or adjustment. Lessor and Lessee agree that this Lease
shall control the rights of Lessor and Lessee in and to any such award,
compensation or insurance payment.
(c) If Lessor or Lessee shall receive notice of a Casualty or a
possible Condemnation of the Project or any interest therein, Lessor or Lessee,
as the case may be, shall give notice thereof to the other and to the Agent
promptly after the receipt of such notice.
(d) In the event of a Casualty or receipt of notice by Lessee or
Lessor of a Condemnation, Lessee shall, not later than thirty (30) days after
such occurrence, deliver to Lessor and the Agent an Officer's Certificate
stating, at Lessee's election, that either (i) (x) such Casualty is not a
Significant Casualty or (y) such Condemnation is neither a Total Condemnation
nor a Significant Condemnation and that this Lease shall remain in full force
and effect with respect to the Project and, at Lessee's sole cost and expense,
Lessee shall promptly and diligently restore the Project in accordance with the
terms of Section 15.1(e) or (ii) this Lease shall terminate with respect to the
Project in accordance with Section 16.1.
(e) If pursuant to this Section 15.1, this Lease shall continue in
full force and effect following a Casualty or Condemnation with respect to the
Project, Lessee shall, at its sole cost and expense, promptly and diligently
repair any damage to the Project caused by such Casualty or Condemnation in
conformity with the requirements of Sections 10.1 and 11.1 using the as-built
plans and specifications for the Project (as modified to give effect to any
subsequent Modifications, any Condemnation affecting the Project and all
applicable Legal Requirements) so as to restore the Project to substantially the
same condition, operation, function and value as existed immediately prior to
such Casualty or Condemnation. In such event, title to the Project shall remain
with Issuer. Lessor shall make disbursements from time to time of any award,
compensation or insurance proceeds held by it to Lessee for application to the
cost of restoration subject to the following conditions: (i) Lessor shall have
received a fully executed counterpart of a Requisition requesting funds in an
amount not exceeding the cost of work completed or incurred since the last
disbursement, together with reasonably satisfactory evidence of the stage of
completion and of performance of the work in a good and workman-like manner and
in accordance with the as-built plans and specifications, (ii) at the time of
any such disbursement, no Lease Event of Default shall have occurred and be
continuing, and no mechanic's or materialmen's liens shall have been filed and
remain undischarged, except those discharged by the disbursement of the
requested funds or bonded, (iii) Lessor shall be reasonably satisfied that
sufficient funds are available to complete such restoration and (iv) title to
the Project shall conform to the representation set forth in Section 7.4 (b) of
the Participation Agreement. Provided no Lease Event of Default shall have
occurred and be continuing, any award, compensation or insurance proceeds
remaining after restoration of the Project as herein provided shall be paid to
Lessee.
(f) In no event shall a Casualty or Condemnation with respect to
which this Lease remains in full force and effect under this Section 15.1 affect
Lessee's obligations to pay Rent pursuant to Section 3.1.
(g) Notwithstanding anything to the contrary set forth in Section
15.1(a) or Section 15.1(e), if during the Term a Casualty occurs with respect to
the Project or Lessee receives notice of a Condemnation with respect to the
Project, and following such Casualty or Condemnation, the Project cannot
reasonably be restored on or before the date which is twelve months prior to the
Expiration Date (as the same may have been extended) to substantially the same
condition as existed immediately prior to such Casualty or Condemnation or
before such day the Project is not in fact so restored, then Lessee shall
exercise its Purchase Option with respect to the Project on the next Payment
Date or irrevocably agree in writing to exercise the Maturity Date Purchase
Option with respect to the Project, and in either such event such remaining
Casualty or Condemnation proceeds shall be paid to the Agent, which shall pay
such funds to Lessee upon the closing of the purchase of the Project.
SECTION 16. LEASE TERMINATION
16.1 Termination upon Certain Events. (a) If Lessor or Lessee shall
have received notice of a Total Condemnation, then Lessee shall be obligated,
within thirty (30) days after Lessee receives notice thereof, to deliver a
written notice in the form described in Section 16.2(a) (a "Termination Notice")
of the termination of this Lease with respect to the Project.
(b) If either: (i) Lessee or Lessor shall have received notice of
a Condemnation, and Lessee shall have delivered to Lessor an Officer's
Certificate that such Condemnation is a Significant Condemnation; or (ii) a
Casualty occurs, and Lessee shall have delivered to Lessor an Officer's
Certificate that such Casualty is a Significant Casualty; then, Lessee shall,
simultaneously with the delivery of the Officer's Certificate pursuant to the
preceding clause (i) or (ii), deliver a Termination Notice with respect to the
Project.
16.2 Procedures. (a) A Termination Notice shall contain:
(i) notice of termination of this Lease with respect to the Project on a date
not more than thirty (30) days after Lessor's receipt of such Termination Notice
(the "Termination Date"); (ii) a binding and irrevocable agreement of Lessee to
pay the Termination Value and purchase the Project on such Termination Date and
(iii) the Officer's Certificate described in Section 16.1(b).
(b) On the Termination Date, Lessee shall pay to Lessor the
Termination Value for the Project, plus all amounts owing in respect of Rent for
the Project (including Supplemental Rent) theretofore accruing and Lessor shall
convey, and shall cause the Issuer to convey, the Project to Lessee (or Lessee's
designee) all in accordance with Section 19.1.
SECTION 17. DEFAULT
17.1 Lease Events of Default. If any one or more of the following
events (each a "Lease Event of Default") shall occur:
(a) Lessee shall fail to make payment of (i) any Basic Rent or any
Supplemental Rent representing amounts owed on account of principal,
premium, if any, or interest on, or Purchase Price of, the Tax Exempt Bonds
after the same has become due and payable, or (ii) any Basic Rent or any
Supplemental Rent representing amounts owed (other than on account of
principal, premium, if any, or interest on, or Purchase Price of, the Tax
Exempt Bonds) under this Lease or the other Operative Agreements within
five (5) Business Days after the same has become due and payable or (iii)
any Maximum Residual Guarantee Amount, Purchase Option Price or Termination
Value after the same has become due and payable; or
(b) Lessee shall fail to make payment of any other Supplemental Rent due
and payable within five (5) Business Days after receipt of notice thereof;
or
(c) Lessee shall fail to maintain insurance as required by Section 14,
provided that no Lease Event of Default shall occur until the effective
date of termination of coverage as to the Lessor and the Issuer; or
(d) Lessee shall fail to observe or perform any term, covenant or
condition of Lessee under this Lease, the Participation Agreement or any
other Operative Agreement to which it is a party (other than those set
forth in Section 17.1(a), (b) or (c) hereof) or any representation or
warranty by Lessee set forth in this Lease, the Participation Agreement or
in any other Operative Agreement or in any document entered into in
connection herewith or therewith or in any document, certificate or
financial or other statement delivered in connection herewith or therewith
shall be false or inaccurate in any material way and such failure or
misrepresentation or breach of warranty shall remain uncured for a period
of thirty (30) days after written notice thereof; provided, however, no
Lease Event of Default shall be deemed to occur if such failure,
misrepresentation or breach cannot reasonably be cured within such period,
so long as Lessee shall have promptly commenced the cure thereof, continues
to act with diligence to correct such failure, misrepresentation or breach
and, in fact corrects such failure, misrepresentation or breach within
ninety (90) days after notice thereof; or
(e) an Agency Agreement Event of Default shall have occurred and be
continuing; or
(f) Lessee shall (i) be unable to pay its debts generally as they become
due, (ii) file a petition under the United States bankruptcy laws or any
other applicable insolvency law or statute of the United States of America
or any State or Commonwealth thereof, (iii) make a general assignment for
the benefit of its creditors, (iv) consent to the appointment of a receiver
of itself or the whole or any substantial part of its property, (v) fail to
cause the discharge of any custodian, trustee or receiver appointed for
Lessee or the whole or a substantial part of its property within ninety
(90) days after such appointment, or (vi) file a petition or answer seeking
or consenting to reorganization under the United States bankruptcy laws or
any other applicable insolvency law or statute of the United States of
America or any State or Commonwealth thereof; or
(g) insolvency proceedings or a petition under the United States
bankruptcy laws or any other applicable insolvency law or statute of the
United States of America or any State or Commonwealth thereof shall be
filed against Lessee and not dismissed within ninety (90) days from the
date of its filing, or a court of competent jurisdiction shall enter an
order or decree appointing, without the consent of Lessee, a receiver of
Lessee or the whole or a substantial part of its property, and such order
or decree shall not be vacated or set aside within ninety (90) days from
the date of the entry thereof; or
(h) a Credit Agreement Event of Default of the type specified in Section
7.1(e), (f), (g), (h), (i), (j), (l), (n), (p) or (q) of the Credit
Agreement shall have occurred and be continuing; or
(i) an event of default under the Corporate Credit Agreement shall have
occurred and be continuing; or
(j) the Easement Agreement shall cease for any reason to be in full
force and effect, or shall cease to give the Issuer and the Lessor the
rights, powers and privileges purported to be granted thereby;
then, in any such event, Lessor may, in addition to the other rights and
remedies provided for in this Section 17 and in Section 18.1, terminate this
Lease by giving Lessee five (5) days notice of such termination, and this Lease
shall terminate. Lessee shall, to the fullest extent permitted by law, pay as
Supplemental Rent all costs and expenses incurred by or on behalf of Lessor,
including fees and expenses of counsel, as a result of any Lease Event of
Default hereunder.
17.2 Final Liquidated Damages. If a Lease Event of Default shall
have occurred and be continuing, Lessor shall have the right to recover, by
demand to Lessee and at Lessor's election, and Lessee shall pay to Lessor, as
and for final liquidated damages, but exclusive of the indemnities payable under
Section 12 of the Participation Agreement, and in lieu of all damages beyond the
date of such demand the sum of (a) the Termination Value, plus (b) all other
amounts owing in respect of Rent and Supplemental Rent theretofore accruing
under this Lease. Upon payment of the amount specified pursuant to the first
sentence of this Section 17.2, Lessee shall be entitled to receive from Lessor
and the Issuer, at Lessee's request and cost, an assignment of Lessor's and the
Issuer's right, title and interest in the Project, in each case in recordable
form and otherwise in conformity with local custom and free and clear of the
Lien of the Operative Agreements, Issuer Liens and Lessor Liens. The Project
shall be quitclaimed to Lessee (or Lessee's designee) "AS IS" and in its then
present physical condition. If any statute or rule of law shall limit the
amount of such final liquidated damages to less than the amount agreed upon,
Lessor shall be entitled to the maximum amount allowable under such statute or
rule of law.
17.3 Lease RemediesError! Bookmark not defined.. Lessor and Lessee
intend and agree that for purposes of Section 7.1(b) and (c), this Lease will be
treated as a financing arrangement, as set forth in Section 7. If, as a result
of applicable state law, which cannot be waived, this Lease is deemed to be a
lease of the Project, rather than a financing arrangement, and Lessor is unable
to enforce the remedies set forth in Section 17.2, the following remedies shall
be available to Lessor:
(a) Surrender of Possession. If a Lease Event of Default shall
have occurred and be continuing, and whether or not this Lease shall have been
terminated pursuant to Section 17.1, at Lessor's option, and at any time, Lessor
may (i) cause Lessee, upon the written demand of Lessor and at Lessee's expense,
to return promptly, and Lessee upon such demand shall return promptly,
possession of all or such part of the Project as Lessor may so demand, to Lessor
in the manner and condition required by, and otherwise in accordance with all
the provisions of, Section 10.1(c) hereof as if the Project were being returned
at the end of the Term, or (ii) at Lessee's expense, enter upon the premises
where all or any part of the Project is located and take immediate possession of
any or all of the Project (to the exclusion of Lessee) and remove the same,
without the necessity to first institute proceedings, or by summary proceeding
or otherwise without liability accruing to Lessor for or by reason of such entry
or taking of possession or removing whether for restoration of damage to
property caused by such action or otherwise. Lessor may enter upon and
repossess the Project by such means as are available at law or in equity, and
may remove Lessee and all other Persons and any and all personal property and
Lessee's equipment and personalty and severable Modifications from the Project.
(b) Reletting. If a Lease Event of Default shall have occurred and
be continuing, and whether or not this Lease shall have been terminated pursuant
to Section 17.1, Lessor may, but shall be under no obligation to, relet all, or
any portion, of the Project, for the account of Lessee or otherwise, for such
term or terms (which may be greater or less than the period which would
otherwise have constituted the balance of the Term) and on such conditions
(which may include concessions or free rent) and for such purposes as Lessor may
determine, and Lessor may collect, receive and retain the rents resulting from
such reletting. Lessor shall not be liable to Lessee for any failure to relet
the Project or for any failure to collect any rent due upon such reletting.
(c) Damages. None of (i) the termination of this Lease pursuant to
Section 17.1; (ii) the repossession of the Project; or (iii) except to the
extent required by applicable law, the failure of Lessor to relet all, or any
portion, of the Project, the reletting of all or any portion thereof, nor the
failure of Lessor to collect or receive any rentals due upon any such reletting
shall relieve Lessee of its liability and obligations hereunder, all of which
shall survive any such termination, repossession or reletting. If any Lease
Event of Default shall have occurred and be continuing and notwithstanding any
termination of this Lease pursuant to Section 17.1, Lessee shall forthwith pay
to Lessor all Basic Rent and other sums due and payable hereunder to and
including the date of such termination. Thereafter, on the days on which the
Basic Rent or Supplemental Rent, as applicable, are payable under this Lease or
would have been payable under this Lease if the same had not been terminated
pursuant to Section 17.1 and until the end of the Term or what would have been
the Term in the absence of such termination, Lessee shall pay Lessor, as current
liquidated damages (it being agreed that it would be impossible accurately to
determine actual damages) an amount equal to the Basic Rent and Supplemental
Rent that are payable under this Lease or would have been payable by Lessee
hereunder if this Lease had not been terminated pursuant to Section 17.1, less
the net proceeds, if any, which are actually received by Lessor with respect to
the period in question of any reletting of the Project or any portion thereof;
provided that Lessee's obligation to make payments of Basic Rent and
Supplemental Rent under this Section 17.3 shall continue only so long as Lessor
shall not have received the amounts specified in Section 17.2. In calculating
the amount of such net proceeds from reletting, there shall be deducted all of
Lessor's, the Agent's and any Lenders' expenses in connection therewith,
including repossession costs, brokerage commissions, fees and expenses for
counsel and any necessary repair or alteration costs and expenses incurred in
preparation for such reletting. To the extent Lessor receives any damages
pursuant to this Section 17.3, such amounts shall be regarded as amounts paid on
account of Rent.
(d) Acceleration of Rent. If a Lease Event of Default shall have
occurred and be continuing, and this Lease shall not have been terminated
pursuant to Section 17.1, and whether or not Lessor shall have collected any
current liquidated damages pursuant to Section 17.3(c), Lessor may upon written
notice to Lessee accelerate all payments of Basic Rent due hereunder and, upon
such acceleration, Lessee shall immediately pay Lessor, as and for final
liquidated damages and in lieu of all current liquidated damages on account of
such Lease Event of Default beyond the date of such acceleration (it being
agreed that it would be impossible accurately to determine actual damages) an
amount equal to the sum of (a) all Basic Rent (assuming interest at a rate per
annum equal to the Overdue Rate), as applicable, due from the date of such
acceleration until the end of the Term, plus (b) the Maximum Residual Guarantee
Amount that would be payable under Section 21.1(c) assuming the proceeds of the
sale pursuant to such Section 21.1(c) are equal to zero, which sum is then
discounted to present value at a rate equal to the rate then being paid on
United States treasury securities with maturities corresponding to the then
remaining Term. Following payment of such amount by Lessee, Lessee will be
permitted to stay in possession of the Project for the remainder of the Term,
subject to the terms and conditions of this Lease, including the obligation to
pay Supplemental Rent, provided that no further Lease Event of Default shall
occur and be continuing, following which Lessor shall have all the rights and
remedies set forth in this Section 17 (but not including those set forth in this
Section 17.3). If any statute or rule of law shall limit the amount of such
final liquidated damages to less than the amount agreed upon, Lessor shall be
entitled to the maximum amount allowable under such statute or rule of law.
17.4 Sale of Project. If a Lease Event of Default shall have
occurred and be continuing and Lessor shall exercise its remedies hereunder,
Lessor and the Issuer may sell the Project or any portion thereof at public or
private sale, in a commercially reasonable manner, as Lessor may determine, free
and clear of any rights of Lessee and without any duty to account to Lessee with
respect to such sale or for the proceeds thereof (except as provided in the
Credit Agreement) in which event Lessee's obligation to pay Basic Rent or
Supplemental Rent hereunder with respect to the Project or any portion thereof
so sold after the date of such sale shall terminate (except to the extent that
Basic Rent or Supplemental Rent is to be included in computations of damages
under other subsections of this Section 17) and Lessor shall forthwith be
entitled to recover from Lessee as liquidated damages, in addition to any other
property claims, the amount by which the Termination Value for the date on which
such sale occurs exceeds the proceeds of such sale (net of any costs or expenses
incurred by Lessor and the Issuer in connection therewith).
17.5 Waiver of Certain Rights. If this Lease shall be terminated
pursuant to Section 17.1, Lessee waives, to the fullest extent permitted by law,
(a) any notice of re-entry or the institution of legal proceedings to obtain
re-entry or possession; (b) any right of redemption, re-entry or repossession
(except to the extent provided in the Easement Agreement); (c) the benefit of
any laws now or hereafter in force exempting property from liability for rent or
for debt; and (d) any other rights which might otherwise limit or modify any of
Lessor's rights or remedies under this Section 17.
17.6 Assignment of Rights Under Contracts. If a Lease Event of
Default shall have occurred and be continuing and Lessor shall exercise its
remedies hereunder, and whether or not this Lease shall have been terminated
pursuant to Section 17.1, Lessee shall upon Lessor's demand immediately assign,
transfer and set over to Lessor all of Lessee's right, title and interest in and
to any agreement providing for the supply of oxygen to the Project Improvements
and each other agreement executed by Lessee (to the extent assignable) in
connection with the construction, renovation, development, use or operation of
the Project (including all right, title and interest of Lessee with respect to
all warranty, performance, service and indemnity provisions), as and to the
extent that the same relate to the construction renovation, and operation of the
Project (but not any relating to supplies (other than oxygen) and marketing and
sales).
17.7 Remedies Cumulative. The remedies herein provided shall be
cumulative and in addition to (and not in limitation of) any other remedies
available at law, equity or otherwise including, without limitation, any
foreclosure remedies contained in the Security Agreement.
SECTION 18. LESSOR'S RIGHT TO CURE
18.1 Lessor's Right to Cure Lessee's Lease Defaults. Lessor,
without waiving or releasing any obligation or Lease Event of Default, may (but
shall be under no obligation to) remedy any Lease Event of Default for the
account and at the sole cost and expense of Lessee, including the failure by
Lessee to maintain any insurance required by Section 14, and may, to the fullest
extent permitted by law, and notwithstanding any right of quiet enjoyment in
favor of Lessee, enter upon the Project for such purpose and take all such
action thereon as may be necessary or appropriate therefor. No such entry shall
be deemed an eviction of Lessee. All out-of-pocket costs and expenses so
incurred (including the fees and expenses of counsel), together with interest
thereon at the Overdue Rate from the date on which such sums or expenses are
paid by Lessor, shall be paid by Lessee to Lessor on demand as Supplemental
Rent.
SECTION 19. LEASE TERMINATION
19.1 Provisions Relating to Lessee's Termination of this Lease or
Exercise of Purchase Option. In connection with any termination of this Lease
with respect to the Project pursuant to the terms of Section 16.2, or in
connection with Lessee's exercise of its Purchase Option or Maturity Date
Purchase Option, upon the date on which this Lease is to terminate with respect
to the Project or upon the Expiration Date with respect to the Project, and upon
tender by Lessee of the amounts set forth in Section 16.2(b), 20.1 or 20.2, as
applicable:
(a) Lessor and Issuer shall execute and deliver to Lessee (or to
Lessee's designee) at Lessee's cost and expense an assignment of Lessor's
and Issuer's entire interest in the Project, in each case in recordable
form and otherwise in conformity with local custom and free and clear of
the Lien of the Security Agreement and the other Operative Agreements and
any Lessor Liens and Issuer Liens; and
(b) The Project shall be conveyed to Lessee "AS IS" and in its then
present physical condition.
SECTION 20. PURCHASE OPTION
20.1 Purchase Option. Provided that no Lease Default or Lease Event
of Default under Section 17.1(a), (b), (f) or (g) shall have occurred and be
continuing, Lessee shall have the option (exercisable by giving Lessor
irrevocable written notice (the "Purchase Notice") of Lessee's election, which
election shall be irrevocable, to exercise such option not less than ten (10)
days prior to the date of purchase pursuant to such option) to purchase the
Project on the date specified in such Purchase Notice, at a price equal to the
Termination Value (the "Purchase Option Price") (which the parties do not intend
to be a "bargain" purchase price) of the Project. If Lessee exercises its
option to purchase the Project pursuant to this Section 20.1 (the "Purchase
Option"), Lessor and Issuer shall quitclaim to Lessee or Lessee's designee all
of Lessor's and Issuer's right, title and interest in and to the Project as of
the date specified in the Purchase Notice upon receipt of the Purchase Option
Price and all Rent and other amounts then due and payable under this Lease and
any other Operative Agreement, in accordance with Section 19.1.
20.2 Maturity Date Purchase Option. Not less than twelve months
prior to the Maturity Date, Lessee may give Lessor and Agent irrevocable written
notice (the "Maturity Date Election Notice") that Lessee is electing to exercise
the Maturity Date Purchase Option. If Lessee does not give a Maturity Date
Election Notice on or before the date twelve months prior to the Maturity Date
and does not elect to renew the Lease, then Lessee shall be obligated to
remarket, subject to Lessee's rights under Section 20.1, the Project pursuant to
Section 21. If Lessee has elected to exercise the Maturity Date Purchase
Option, then on the Maturity Date Lessee shall pay to Lessor an amount equal to
the Termination Value for the Project (which the parties do not intend to be a
"bargain" purchase price) and, upon receipt of such amount plus all Rent and
other amounts then due and payable under this Lease and any other Operative
Agreement, Lessor and Issuer shall transfer to Lessee or Lessee's designee all
of Lessor's and Issuer's right, title and interest in and to the Project in
accordance with Section 19.1.
SECTION 21. SALE OF PROJECT
21.1 Sale Procedure. (a) At the expiration of the Term, unless
Lessee shall have elected to purchase the Project and has paid the Purchase
Option Price with respect thereto, or otherwise terminated this Lease with
respect thereto and paid the Termination Value with respect thereto, Lessee
shall (i) pay to Lessor the Maximum Residual Guarantee Amount for the Project,
and (ii) sell the Project to one or more third parties for cash in accordance
with Section 21.1(b).
(b) During the Marketing Period, Lessee, as nonexclusive agent for
Lessor and Issuer, shall use its best efforts to obtain bids for the cash
purchase of the Project for the highest price available in the relevant market,
shall notify Lessor promptly of the name and address of each prospective
purchaser and the cash price which each prospective purchaser shall have offered
to pay for the Project and shall provide Lessor with such additional information
about the bids and the bid solicitation procedure as Lessor may reasonably
request from time to time. Lessor may reject any and all bids and may assume
sole responsibility for obtaining bids by giving Lessee written notice to that
effect; provided, however, that notwithstanding the foregoing, Lessor may not
reject a bid if such bid, together with any amounts to be paid pursuant to
Section 21.3, is greater than or equal to the sum of the Limited Deficiency
Amount and all costs and expenses referred to in Section 21.2(i) and is a bona
fide offer by a third party purchaser who is not an Affiliate of Lessee. If the
price which a prospective purchaser shall have offered to pay for Project is
less than the sum of the Limited Deficiency Amount and all costs and expenses
referred to in Section 21.2(i), Lessor may elect to retain the Project by giving
Lessee at least two Business Days' prior written notice of Lessor's election to
retain the Project, and upon receipt of such notice, Lessee shall surrender the
Project to Lessor pursuant to Section 10.1(c). Unless Lessor shall have elected
to retain the Project pursuant to the preceding sentence, Lessor shall sell the
Project free of any Lessor Liens and Issuer Liens attributable to it, without
recourse or warranty, for cash to the purchaser or purchasers identified by
Lessee or Lessor, as the case may be. Lessee shall surrender the Project so
sold to the purchaser in the condition specified in Section 10.1.
(c) On the date during the Marketing Period on which the Project is
sold pursuant to Section 21.1(b), Lessee shall pay to Lessor the Maximum
Residual Guarantee Amount for the Project.
(d) If Lessee shall fail to arrange for the sale of the Project on
or before the Expiration Date in accordance with and subject to the provisions
of Section 21.1(b), then Lessee and Lessor hereby agree as follows:
(i) On the Maturity Date, Lessee shall (A) pay to Lessor the
Maximum Residual Guarantee Amount for the Project and (B) Lessee will continue
to lease the Project during a holdover period (the "Holdover Period") and in the
case of such holdover, Lessee shall continue to market, on a non-exclusive
basis, the Project for sale on behalf of Lessor and Issuer in accordance with
the provisions of Section 21.1(b) hereof. Such Holdover Period shall expire on
the earlier of (y) the sale of the Project and (z) forty-five (45) days prior
written notice by the Agent of a date specified for the termination of such
Holdover Period. The Basic Rent payable by Lessee for the Project during any
Holdover Period shall be reduced to reflect the application of the Maximum
Residual Guaranty Amount pursuant to Section 9.1(b)(iv) of the Credit Agreement.
Any proceeds from the sale of the Project during the Holdover Period will be
applied pursuant to Section 21.2.
(ii) On or after the Maturity Date, the Agent, on behalf of Lessor
and the Issuer, shall have the right, but not the obligation, to market the
Project using commercially reasonable efforts, including, without limitation, by
auction, provided that at no time shall the Agent be obligated to accept any
bid for the sale of the Project or to consummate any proposed sale.
(iii) Contemporaneously with the consummation of the sale of the
Project by Lessee or Agent pursuant to this Section 21.1(d), (A) Lessee will
transfer by a quitclaim bill of sale, without recourse or warranty, all of its
right, title and interest in the Project to the purchaser and (B) subject to
prior or concurrent payment by Lessee of an amount equal to all unpaid Basic
Rent and all Supplemental Rent due on or prior thereto and receipt by Lessor of
proceeds from such sale, Lessor and Issuer shall exercise such rights as it has
to cause the Project to be released from the Lien of the Security Agreement and
shall, without recourse or warranty (except as to the absence of Issuer Liens
and Lessor Liens), quitclaim transfer Lessor's and Issuer's right, title and
interest in and to the Project for cash to such purchaser.
(iv) Until a sale of the Project by Lessee or the Agent pursuant to
this Section 21.1(d) (or if earlier, the date of termination specified in a
written notice pursuant to clause (z) of paragraph (i) thereof), Lessee shall be
bound by all of the obligations and duties of Lessee under this Lease,
notwithstanding the occurrence of the Expiration Date. If the Project shall not
be sold by Lessee or the Agent pursuant to this Section 21.1(d), Lessor may
elect to retain the Project by giving Lessee written notice at least forty-five
(45) days prior to the date of termination of the Holdover Period, and upon
receipt of such notice, Lessee shall surrender the Project to Lessor pursuant to
Section 10.1(c).
(v) Lessor reserves all rights under this Lease and the other
Operative Agreement arising out of Lessee's breach of any provisions of this
Lease (including Section 17), whether occurring prior to, on or after the
Expiration Date, including the right to sue Lessee for damages.
21.2 Application of Proceeds of Sale. Lessor shall apply the
proceeds of sale of the Project in the following order of priority:
(i)FIRST, to pay or to reimburse Lessor and the Issuer for the
payment of all reasonable costs and expenses incurred by Lessor and the
Issuer in connection with the sale; and
(ii)SECOND, the balance shall be paid to the Agent to be applied
pursuant to the provisions of the Credit Agreement.
21.3 Indemnity for Excessive Wear. If the proceeds of the sale
described in Section 21.1(b) with respect to the Project, less all reasonable
expenses incurred by Lessor in connection with such sale, shall be less than the
Limited Deficiency Amount for the Project at the time of such sale and if it
shall have been determined (pursuant to the Appraisal Procedure) that the Fair
Market Sales Value of the Project shall have been impaired by greater than
expected wear and tear during the Term, Lessee shall pay to Lessor within ten
(10) days after receipt of Lessor's written statement (i) the amount of such
excess wear and tear determined by the Appraisal Procedure or (ii) the amount of
the Net Sale Proceeds Shortfall, whichever amount is less.
21.4 Appraisal Procedure. For determining the Fair Market Sales
Value of the Project or any other amount which may, pursuant to any provision of
any Operative Agreement, be determined by an appraisal procedure, Lessor and
Lessee shall use the following procedure (the "Appraisal Procedure"). Lessor
and Lessee shall endeavor to reach a mutual agreement as to such amount for a
period of ten (10) days from commencement of the Appraisal Procedure, and if
they cannot agree within ten (10) days, then two qualified appraisers, one
chosen by Lessee and one chosen by Lessor, shall mutually agree thereupon, but
if either party shall fail to choose an appraiser within twenty (20) days after
notice from the other party of the selection of its appraiser, then the
appraisal by such appointed appraiser shall be binding on Lessee and Lessor. If
the two appraisers cannot agree within twenty (20) days after both shall have
been appointed, then a third appraiser shall be selected by the two appraisers
or, failing agreement as to such third appraiser within thirty (30) days after
both shall have been appointed, by the American Arbitration Association. The
decisions of the three appraisers shall be given within twenty (20) days of the
appointment of the third appraiser and the decision of the appraiser most
different from the average of the other two appraisers shall be discarded and
such average of the other two appraisers shall be binding on Lessor and Lessee;
provided that if the highest appraisal and the lowest appraisal are equidistant
from the third appraisal, the third appraisal shall be binding on Lessor and
Lessee. The reasonable fees and expenses of all of the appraisers shall be paid
by the Lessee.
21.5 Certain Obligations Continue. During the Marketing Period, the
obligation of Lessee to pay Rent with respect to the Project (including the
installment of Basic Rent due on the Maturity Date) shall continue undiminished
until payment in full to Lessor of the sale proceeds, the Maximum Residual
Guarantee Amount, if any, the amount due under Section 21.3, if any, and all
other amounts due to Lessor with respect to the Project. Lessor shall have the
right, but shall be under no duty, to solicit bids, to inquire into the efforts
of Lessee to obtain bids or otherwise to take action in connection with any such
sale, other than as expressly provided in this Section 21.
SECTION 22. HOLDING OVER
22.1 Holding Over. If Lessee shall for any reason (other than for
the Holdover Period as provided in Section 21.1(d) and during the period
surrender of the Project is not accepted as provided in Section 27.1(b)) remain
in possession of the Project after the expiration or earlier termination of this
Lease (unless the Project is conveyed to Lessee), such possession shall be as a
month to month tenancy during which time Lessee shall continue to pay
Supplemental Rent that would be payable by Lessee hereunder were the Lease then
in full force and effect with respect to the Project and Lessee shall continue
to pay Basic Rent at an annual rate equal to the rate payable hereunder
immediately preceding such expiration or earlier termination; provided, however,
that from and after the sixtieth (60th) day Lessee shall remain in possession of
the Project when not otherwise permitted or required, Lessee shall pay Basic
Rent at an annual rate equal to two hundred percent (200%) of the Basic Rent
payable hereunder immediately preceding such date on which Lessee shall remain
in possession of the Project when not otherwise permitted or required. Such
Basic Rent shall be payable from time to time upon demand by Lessor. During any
period of month to month tenancy, Lessee shall be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall have
no rights hereunder other than the right, to the extent given by law to tenants
at sufferance, to continue its occupancy and use of the Project. Nothing
contained in this Section 22 shall constitute the consent, express or implied,
of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease as to the Project and nothing contained herein shall
be read or construed as preventing Lessor from maintaining a suit for possession
of the Project or exercising any other remedy available to Lessor at law or in
equity.
SECTION 23. RISK OF LOSS
23.1 Risk of Loss. The risk of loss of or decrease in the
enjoyment and beneficial use of the Project as a result of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise is assumed by Lessee, and Lessor shall in no event be answerable or
accountable therefor.
SECTION 24. SUBLETTING AND ASSIGNMENT
24.1 Subletting and Assignment. Except in the case of a merger or
consolidation permitted by Section 11.8 of the Guaranty, Lessee may not assign
this Lease or any of its rights or obligations hereunder in whole or in part.
Lessee may, without the consent of Lessor, sublease the Project to any Person.
No sublease or other relinquishment of possession of the Project shall in any
way discharge or diminish any of Lessee's obligations to Lessor hereunder and
Lessee shall remain directly and primarily liable under this Lease as to the
Project, or any portion thereof, so sublet. Any sublease of the Project shall
be made subject to and subordinate to this Lease and to the rights of Lessor
hereunder and the Issuer under the Lease, shall expire prior to the expiration
of the Term and shall expressly provide for the surrender of the Project after a
Lease Event of Default hereunder.
24.2 Subleases. Promptly following the execution and delivery of
any sublease permitted by this Section 24, Lessee shall deliver a copy of such
executed sublease to Lessor and the Agent.
SECTION 25. RENEWAL
25.1 Renewal. Provided that no Lease Default or Lease Event of
Default under Section 17.1(a), (b), (f) or (g) shall have occurred and be
continuing, Lessee shall, subject to the consent of Lessor, have the option to
renew this Lease (the "Renewal Option") for an Extended Term (unless Lessee
shall have elected to purchase the Property pursuant to Section 20.1 or 20.2) by
giving Lessor irrevocable written notice of renewal (designating the length of
the Extended Term) at any time and from time to time during the Term but not
earlier than the third anniversary of the Closing Date nor later than fourteen
(14) months prior to the end of the Term. Each renewal of this Lease shall be
on the same terms and conditions as are set forth in this Lease for the original
Term, with such modifications, including a modification to the amount of Basic
Rent payable hereunder, satisfactory to Lessor and Lessee.
SECTION 26. NO WAIVER
26.1 No Waiver. No failure by Lessor or Lessee to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
upon a default hereunder, and no acceptance of full or partial payment of Rent
during the continuance of any such default (if such default is other than for
nonpayment of Rent), shall constitute a waiver of any such default or of any
such term. To the fullest extent permitted by law, no waiver of any default
shall affect or alter this Lease, and this Lease shall continue in full force
and effect with respect to any other then existing or subsequent default.
SECTION 27. ACCEPTANCE OF SURRENDER
27.1 Acceptance of Surrender (_)(a) As of the Expiration Date, no
Lease Default shall have occurred and be continuing under the Lease and the
representations and warranties set forth in Section 7 of the Participation
Agreement relating to the Project shall be true and correct in all material
respects.
(b) Except as otherwise expressly provided in this Lease or in the
case of exercise of remedies, no surrender to Lessor of this Lease or of all or
any portion of the Project or of any interest therein shall be valid or
effective unless agreed to and accepted in writing by Lessor and, prior to the
payment or performance of all obligations under the Credit Documents, the Agent,
and no act by Lessor or the Agent or any representative or agent of Lessor or
the Agent, other than a written acceptance, shall constitute an acceptance of
any such surrender.
SECTION 28. NO MERGER OF TITLE
28.1 No Merger of Title. There shall be no merger of this Lease or
of the leasehold estate created hereby by reason of the fact that the same
Person may acquire, own or hold, directly or indirectly, in whole or in part,
(a) this Lease or the leasehold estate created hereby or any interest in this
Lease or such leasehold estate, (b) the fee estate in the Land, except as may
expressly be stated in a written instrument duly executed and delivered by the
appropriate Person, or (c) a beneficial interest in Lessor.
SECTION 29. NOTICES
29.1 Notices. Unless otherwise specifically provided herein, all
notices, consents, directions, approvals, instructions, requests and other
communications required or permitted by the terms hereof to be given to any
Person shall be given pursuant to and in accordance with the provisions of
Section 13.3 of the Participation Agreement.
SECTION 30. MISCELLANEOUS
30.1Miscellaneous. Anything contained in this Lease to the contrary
notwithstanding, all claims against and liabilities of Lessee or Lessor arising
from events commencing prior to the expiration or earlier termination of this
Lease shall survive such expiration or earlier termination. If any term or
provision of this Lease or any application thereof shall be declared invalid or
unenforceable, the remainder of this Lease and any other application of such
term or provision shall not be affected thereby.
30.2Amendments and Modifications. Neither this Lease nor any
provision hereof may be amended, waived, discharged or terminated except by an
instrument in writing signed by Lessor and Lessee.
30.3Successors and Assigns. All the terms and provisions of this
Lease shall inure to the benefit of the parties hereto and to the extent
specifically mentioned herein, the Issuer, each Indenture Trustee and the Owner
Participants and their respective successors and permitted assigns.
30.4Headings and Table of Contents. The headings and table of
contents in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.
30.5Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.
30.6GOVERNING LAW. THIS LEASE HAS BEEN DELIVERED IN, AND SHALL IN
ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF KANSAS APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE, EXCEPT AS TO MATTERS RELATING TO THE CREATION, PERFECTION AND
ENFORCEMENT OF LIENS AND SECURITY INTERESTS AND THE EXERCISE OF REMEDIES WITH
RESPECT THERETO, WHICH SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE IN WHICH THE PROJECT IS LOCATED.
30.7Limitations on Recourse. Except as expressly set forth in any of
the Operative Agreements, Lessee agrees to look solely to Issuer's or Lessor's
estate and interest in the Project, the proceeds of sale thereof, any insurance
proceeds or any other award or any third party proceeds received by Issuer or
Lessor in connection with the Project for the collection of any judgment
requiring the payment of money by Issuer or Lessor in the event of liability by
Issuer or Lessor, and no other property or assets of Issuer or Lessor, the Trust
Company, any member, partner or other owner of an interest, direct or indirect,
in Issuer or Lessor, or any director, officer, shareholder, employee,
beneficiary or Affiliate of any of the foregoing shall be subject to levy,
execution or other enforcement procedure for the satisfaction of Lessee's
remedies under or with respect to this Lease, the relationship of Issuer, Lessor
and Lessee hereunder or Lessee's use of the Project or any other liability of
Issuer or Lessor to Lessee; provided that nothing in this Section shall be
construed to impair or limit the rights of Lessee against any Owner Participant
or the Trust Company under the Operative Agreements. Nothing in this Section
shall be interpreted so as to limit the terms of Section 6.1 or 6.2.
30.8Easement and Head Lease. During the Term, Lessee shall observe
and perform all of the obligations of Lessor under the Easement Agreement and
the Head Lease (including the payment of all amounts thereunder) and, in
connection therewith, shall, prior to the occurrence and continuation of a Lease
Event of Default, have the benefit of all of Lessor's rights under the Head
Lease. In accordance with Section 7.1(b) of the Head Lease, Lessee will cause
all appropriate financing and continuation statements and other security
instruments to be filed in such manner and in such places as may be required by
law in order to fully preserve and protect the security of the holders of the
bonds and the Indenture Trustees under each Trust Indenture.
30.9Estoppel Certificates. At any time and from time to time as
Lessor may reasonably request, but in each case upon not less than twenty (20)
days' prior request by Lessor, Lessee shall furnish to Lessor a certificate
signed by an individual having the office of vice president or higher in the
Certifying Party certifying that this Lease is in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications); the dates to which the Basic Rent or Renewal Rent and
Supplemental Rent have been paid; to the best knowledge of the signer of such
certificate, whether or not Lessor or Lessee is in default under any of its
obligations hereunder (and, if so, the nature of such alleged default); and such
other matters under this Lease as Lessor may reasonably request. Any such
certificate furnished pursuant to this Section 30.10 may be relied upon by
Lessor, and any existing or prospective secured party, purchaser or lender, and
any accountant or auditor, of, from or to Lessor (or any Affiliate thereof).
THIS LEASE, TOGETHER WITH OTHER OPERATIVE AGREEMENTS, IS THE FINAL
EXPRESSION OF THE CREDIT AGREEMENT (AS DEFINED IN K.S.A. 16-117) BETWEEN LESSEE
AND LESSOR. NEITHER THIS LEASE NOR ANY OTHER OPERATIVE AGREEMENT MAY BE
CONTRADICTED BY EVIDENCE OF PRIOR OR CONTEMPORANEOUS ORAL CREDIT AGREEMENTS OR
PRIOR WRITTEN CREDIT AGREEMENTS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF. ANY ADDITIONAL TERMS OF THE CREDIT AGREEMENT BETWEEN SUCH
PARTIES ARE SET FORTH BELOW.
THERE ARE NO SUCH ORAL AGREEMENTS BETWEEN SUCH PARTIES.
LESSEE:
FARMLAND INDUSTRIES, INC.
By: ____________________________________
Name:
Title:
LESSOR:
WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee
By: ____________________________________
Name:
Title:
IN WITNESS WHEREOF, the parties have caused this Lease be duly
executed and delivered as of the date first above written.
FARMLAND INDUSTRIES, INC.
By: ____________________________________
Name:
Title:
WILMINGTON TRUST COMPANY, not in its individual
capacity but solely as Owner Trustee
By: ____________________________________
Name:
Title:
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged on this 11th day of December, 1997.
THE CHASE MANHATTAN BANK, as the
Agent for the Lenders
By: ____________________________________
Name:
Title:
LEASE
between
WILMINGTON TRUST COMPANY,
not in its individual capacity
but solely as Owner Trustee,
as Lessor,
and
FARMLAND INDUSTRIES, INC.,
as Lessee
___________________________
Dated as of December 11, 1997
___________________________
THIS LEASE IS SUBJECT TO A SECURITY INTEREST IN FAVOR OF THE CHASE MANHATTAN
BANK, AS AGENT, UNDER A CREDIT AGREEMENT, DATED AS OF DECEMBER 11, 1997 AMONG
WILMINGTON TRUST COMPANY, NOT IN ITS INDIVIDUAL CAPACITY EXCEPT AS EXPRESSLY
STATED THEREIN, BUT AS OWNER TRUSTEE, THE LENDERS PARTY THERETO, AND THE AGENT,
AS AMENDED OR SUPPLEMENTED. THIS LEASE HAS BEEN EXECUTED IN SEVERAL
COUNTERPARTS. TO THE EXTENT, IF ANY, THAT THIS LEASE CONSTITUTES CHATTEL PAPER
(AS SUCH TERM IS DEFINED IN THE UNIFORM COMMERCIAL CODE OF THE STATES OF NEW
YORK AND KANSAS), NO SECURITY INTEREST IN THIS LEASE MAY BE CREATED THROUGH THE
TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN THE ORIGINAL COUNTERPART
CONTAINING THE RECEIPT THEREFOR EXECUTED BY THE AGENT ON THE SIGNATURE PAGE
HEREOF.
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS 1
1.1 Defined Terms ................................... 1
SECTION 2. PROJECT AND TERM............................. 1
2.1 Project ......................................... 1
2.2 Lease Term ...................................... 1
2.3 Title ........................................... 1
SECTION 3. RENT 2
3.1 Rent ............................................ 2
3.2 Supplemental Rent ............................... 2
3.3 Performance on a Non-Business Day ............... 3
SECTION 4. UTILITY CHARGES 3
4.1 Utility Charges ................................. 3
SECTION 5. QUIET ENJOYMENT 3
5.1 Quiet Enjoyment ................................. 3
SECTION 6. NET SUBLEASE 3
6.1 Net Sublease; No Setoff; Etc. ................... 3
6.2 No Termination or Abatement ..................... 4
SECTION 7. OWNERSHIP OF THE PROJECT..................... 5
7.1 Ownership of the Project ........................ 5
SECTION 8. CONDITION OF THE PROJECT..................... 6
8.1 Condition of the Project; Disclaimer of Warranties 6
8.2 Possession and Use of the Project ............... 8
SECTION 9. COMPLIANCE 8
9.1 Compliance with Legal Requirements and Insurance Requirements
8
9.2 Environmental Matters ........................... 8
SECTION 10. MAINTENANCE AND REPAIR...................... 9
10.1 Maintenance and Repair; Return .................. 9
10.2 Right of Inspection. ............................ 11
10.3 Environmental Inspection ........................ 11
SECTION 11. MODIFICATIONS 12
11.1 Modifications, Substitutions and Replacements ... 12
SECTION 12. TITLE 13
12.1 Liens ........................................... 13
12.2 Identification .................................. 13
SECTION 13. PERMITTED CONTESTS.......................... 13
13.1 Permitted Contests Other Than in Respect of
Impositions 13
SECTION 14. INSURANCE 14
14.1 Public Liability and Workers'
Compensation Insurance 14
14.2 Hazard and Other Insurance ...................... 14
14.3 Coverage ........................................ 14
SECTION 15. CONDEMNATION AND CASUALTY................... 15
15.1 Casualty and Condemnation ....................... 15
SECTION 16. LEASE TERMINATION........................... 17
16.1 Termination upon Certain Events ................. 17
16.2 Procedures ...................................... 18
SECTION 17. DEFAULT 18
17.1 Lease Events of Default ......................... 18
17.2 Final Liquidated Damages ........................ 20
17.3 Lease Remedies .................................. 20
17.4 Sale of Project. ................................ 22
17.5 Waiver of Certain Rights ........................ 22
17.6 Assignment of Rights Under Contracts ............ 22
17.7 Remedies Cumulative ............................. 22
SECTION 18. LESSOR'S RIGHT TO CURE...................... 23
18.1 Lessor's Right to Cure Lessee's Lease Defaults .. 23
SECTION 19. LEASE TERMINATION........................... 23
19.1 Provisions Relating to Lessee's
Termination of this Lease or
Exercise of Purchase Option ..................... 23
SECTION 20. PURCHASE OPTION............................. 23
20.1 Purchase Option ................................. 23
20.2 Maturity Date Purchase Option ................... 24
SECTION 21. SALE OF PROJECT............................. 24
21.1 Sale Procedure .................................. 24
21.2 Application of Proceeds of Sale ................. 26
21.3 Indemnity for Excessive Wear .................... 26
21.4 Appraisal Procedure ............................. 26
21.5 Certain Obligations Continue .................... 27
SECTION 22. HOLDING OVER 27
22.1 Holding Over .................................... 27
SECTION 23. RISK OF LOSS 27
23.1 Risk of Loss .................................... 27
SECTION 24. SUBLETTING AND ASSIGNMENT................... 28
24.1 Subletting and Assignment ....................... 28
24.2 Subleases ....................................... 28
SECTION 25. RENEWAL 28
25.1 Renewal ......................................... 28
SECTION 26. NO WAIVER 28
26.1 No Waiver ....................................... 28
SECTION 27. ACCEPTANCE OF SURRENDER..................... 29
27.1 Acceptance of Surrender ......................... 29
SECTION 28. NO MERGER OF TITLE.......................... 29
28.1 No Merger of Title .............................. 29
SECTION 29. NOTICES 29
29.1 Notices ......................................... 29
SECTION 30. MISCELLANEOUS 29
30.1 Miscellaneous ................................... 29
30.2 Amendments and Modifications .................... 29
30.3 Successors and Assigns .......................... 30
30.4 Headings and Table of Contents .................. 30
30.5 Counterparts .................................... 30
30.6 GOVERNING LAW ................................... 30
30.7 Limitations on Recourse ......................... 30
30.8 Easement and Lease .............................. 30
30.9 Estoppel Certificates ........................... 31
Schedules
Schedule 1 Land
Schedule 2 Easement
Schedule 3 Equipment
EXHIBIT 12
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended August 31 November 30
1993 1994 1995 1996 1997 1996 1997
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax Income (Loss)............ $ (36,833) $ 78,766 $197,641 $155,754 $163,772 $ 29,415 $ 21,334
Minority Interest in Income
of Consolidated
Subsidiary that has
Fixed Charges............... 865 333 9,793 7,604 10,586 38 263
Minority Interest in Loss of
Consolidated Subsidiary .... (37) (4,855) -0- (221) (1,902) (1,102) (353)
Equity Interest in Loss
(Income) (Earnings less
distributions) of Less-
than-Fifty Percent
Owned Investees............. 1,007 603 (623) 574 (868) (162) (321)
Distributions from Less-
than-Fifty Percent
Owned Investees............. -0- -0- -0- -0- 5 -0- 20
Total Fixed Charges
(excluding interest
capitalized)................ 55,361 64,838 68,271 76,658 79,247 $ 20,462 $ 22,754
Total Earnings.................... $ 20,363 $139,685 $275,082 $240,369 $250,840 $ 48,651 $ 43,697
Fixed Charges:
Interest (including amounts
capitalized and amortization
of debt issuance costs) and
preferred dividends......... $ 43,970 $ 52,301 $55,501 $ 65,365 $ 68,103 $ 17,258 $ 18,545
Estimated Interest Component
of Rentals.................. 13,006 12,898 13,494 12,926 15,127 3,968 5,242
Total Fixed Charges............... $ 56,976 $ 65,199 $68,995 $ 78,291 $ 83,230 $ 21,226 $ 23,787
Ratio of Earnings to
Fixed Charges................... 0.4 2.1 4.0 3.0 3.0 2.3 1.8
Earnings Inadequate to Cover
Fixed Charges................... $ 36,613
</TABLE>
EXHIBIT 23.A
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Farmland Industries, Inc.:
We consent to the use of our reports, incorporated herein by reference, on
the consolidated financial statements and financial statement schedule of
Farmland Industries, Inc. as of August 31, 1997 and 1996 and for each of the
years in the three-year period ended August 31, 1997 and to the reference to
our firm under the heading "Experts" in the prospectus .
KPMG PEAT MARWICK LLP
Kansas City, Missouri
April 3, 1998
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears below
constitutes and appoints Robert B. Terry and Terry M. Campbell, and each of
them, his or her true and lawful attorney-in-fact and agent with full power of
substitution and revocation in his or her name, place and stead, to do any and
all acts and things and to execute any and all instruments which they may deem
necessary or advisable to enable Farmland Industries, Inc. (the "Company") to
comply with the Securities Act of 1933 (the "Act") and any rules, regulations
and requirements of the Securities and Exchange Commission in respect thereof,
in connection with the registration under the Act of Cumulative Redeemable
Preferred Shares of the Company, including power and authority to sign his or
her name in any and all capacities (including his or her capacity as a director
and/or officer of the Company) to Registration Statements, and in any and all
capacities, to sign any and all amendments (including post-effective
amendments) to such Registration Statement, as well as any related registration
statement (or amendments thereto) filed pursuant to Rule 462(b) promulgated
under the Securities Act of 1933, and to file the same, with all exhibits
thereto 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 done in and about the premises, as fully
to all intents and purposes as he or she might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or
any of them or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute
one instrument.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICTED.
In witness whereof, the undersigned have subscribed
this ______ day of _____, 19____.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Albert J. Shivley Chairman of Board
Albert J. Shivley and Director
/s/ H. D. Cleberg President,
H. D. Cleberg Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ Otis H. Molz Vice Chairman of Board
Otis H. Molz and Director
/s/ Lyman L. Adams, Jr. Director
Lyman L. Adams, Jr.
/s/ Ronald J. Amundson Director
Ronald J. Amundson
/s/ Baxter Ankerstjerne Director
Baxter Ankerstjerne
/s/ Jody Bezner Director
Jody Bezner
/s/ Richard L. Detten Director
Richard L. Detten
/s/ Steven Erdman Director
Steven Erdman
/s/ Harry Fehrenbacher Director
Harry Fehrenbacher
/s/ Warren Gerdes Director
Warren Gerdes
/s/ Ben Griffith Director
Ben Griffith
/s/ Gail D. Hall Director
Gail D. Hall
/s/ Barry Jensen Director
Barry Jensen
/s/ Ron Jurgens Director
Ron Jurgens
/s/ William F. Kuhlman Director
William F. Kuhlman
/s/ Greg Pfenning Director
Greg Pfenning
/s/ Monte Romohr Director
Monte Romohr
/s/ Joe Royster Director
Joe Royster
/s/ E. Kent Stamper Director
E. Kent Stamper
/s/ Eli F. Vaughn Director
Eli F. Vaughn
/s/ Frank Wilson Director
Frank Wilson
</TABLE>
