<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended
AUGUST 31, 1998
or
/ / Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
------------------------
Commission File
Nos. 33-83868; 333-11693 and 333-32251
------------------------
AMERICAN CRYSTAL SUGAR COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Minnesota 84-0004720
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)
101 North Third Street
Moorhead, MN 56560 (218) 236-4400
(ADDRESS OF PRINCIPAL EXECUTIVE (REGISTRANT'S TELEPHONE NUMBER)
OFFICES)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
---------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to this
Form 10-K. [X]
------------------------
As of November 23, 1998, 2,834 shares of the Registrant's Common Stock and
498,570 shares of the Registrant's Preferred Stock were outstanding. There is no
established public market for the Registrant's Common Stock or Preferred Stock.
Although there is a limited, private market for shares of the Registrant's
stock, the Registrant does not obtain information regarding the transfer price
in transactions between its members and therefore is unable able to estimate the
aggregate market value of the Registrant's shares held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
None
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I
This report contains forward-looking statements and information based upon
assumptions by the Company's management, including assumptions about risks and
uncertainties faced by the Company. These forward-looking statements can be
identified by the use of forward-looking terminology such as "expects",
"believes", "will" or similar verbs or expressions. If any of management's
assumptions prove incorrect or should unanticipated circumstances arise, the
Company's actual results could materially differ from those anticipated by such
forward-looking statements. The differences could be caused by a number of
factors or combination of factors, including, but not limited to, those factors
influencing the Company and its business which are described in this report.
Readers are urged to consider these factors when evaluating any forward-looking
statement. The Company undertakes no obligation to update any forward-looking
statements in this Report to reflect future events or developments.
ITEM 1. BUSINESS
GENERAL
American Crystal is a Minnesota agricultural cooperative corporation owned
by approximately 2,835 sugarbeet growers in the Minnesota and North Dakota
portions of the Red River Valley. (The Red River Valley, the largest sugarbeet
growing area in the United States, forms a band approximately 35 miles wide on
either side of the North Dakota and Minnesota border and extends approximately
200 miles south from the border of the United States and Canada.) The Company
currently processes sugarbeets from a base level of approximately 499,000 acres,
subject to tolerances for overplanting and underplanting established by the
Board of Directors each year. By owning and operating five sugarbeet processing
facilities in the Red River Valley, the Company provides its shareholders with
the ability to process their sugarbeets into sugar and by-products, such as
molasses and beet pulp. The sugar is pooled and then marketed through the
services of a marketing agent under contract with the Company. The sugar
marketing agent, United Sugars Corporation, is a cooperative owned by its
members, American Crystal, Southern Minnesota Beet Sugar Cooperative, Minn-Dak
Farmers Cooperative and United States Sugar Corporation. The Company's molasses,
beet pulp and concentrated separated by-product (CSB) (a by-product of the
molasses desugarization process) are also marketed through a marketing agent,
Midwest Agri-Commodities Company. Midwest Agri-Commodities Company is a
cooperative whose members are the Company, Minn-Dak Farmers Cooperative and
Southern Minnesota Beet Sugar Cooperative. The Company is also one of three
members of ProGold Limited Liability Company, a joint venture which owns a corn
wet-milling plant in Wahpeton, North Dakota.
American Crystal was organized in 1973 by sugarbeet growers to acquire the
business and assets of American Crystal Sugar Company, then a publicly held New
Jersey corporation in operation since 1899.
American Crystal's corporate headquarters are located at 101 North Third
Street, Moorhead, Minnesota 56560 (telephone number (218) 236-4400). Its fiscal
year ends August 31.
PRODUCTS AND PRODUCTION
American Crystal is engaged primarily in the production and marketing of
sugar from sugarbeets. American Crystal also markets beet pulp, molasses and
CSB, which are by-products of the sugar it produces, and sugarbeet seed.
American Crystal processes sugarbeets grown by its members in five factories
located in the Red River Valley area of Minnesota and North Dakota. The growing
area is divided into five factory districts, each containing one sugarbeet
processing plant.
The period during which the Company's plants are in operation to process
sugarbeets into sugar and by-products is referred to as the "campaign." During
the campaign, each of the Company's factories is operated twenty-four hours per
day, seven days per week. The campaign is expected to begin in September,
2
<PAGE>
when a small portion of the sugarbeet crop is harvested, and continues until the
available supply of beets has been depleted, which generally occurs in April or
May of the following year. Based on current processing capacity, an average
campaign lasts approximately 250 days, assuming normal crop yields.
Once the sugarbeets are harvested, rapid processing is important to maximize
sugar extraction and minimize spoilage. Members transport their crop by truck to
receiving stations designated by the Company and receive a hauling allowance
under the Grower's Contract. Beets are then stored in factory yards and at
outlying piling stations until processed.
American Crystal's total sugar production is presently influenced by the
amount and quality of sugarbeets grown by its members, the processing capacity
of the Company's plants and by the ability to store harvested beets. Most of the
beet harvest is stored in piles. Although frozen sugarbeets may be stored for
extended periods, beets stored in unprotected piles at temperatures above
freezing must be processed within approximately 150 days. In most years,
therefore, the cold weather in North Dakota and Minnesota offers an advantage to
the Company as it permits the outdoor storage of sugarbeets in below-freezing
weather conditions. By contrast, unprotected piles of sugarbeets would
experience cycles of freezing and thawing and, therefore, be subject to some
deterioration.
Subject to such freeze and thaw cycles, beets on the exterior of piles
freeze naturally. Beets near the center of the piles, however, may not freeze
and thus may be subject to spoilage. The Company utilizes a process called
"split pile storage" in which beets from the center of the piles are removed for
processing first. Split pile storage permits more of the stored beets to freeze
naturally.
American Crystal also utilizes a ventilation technique to further reduce
spoilage. In this process, fans circulate air through ventilation channels
constructed within beet piles in order to precool and then deep freeze the
beets. Approximately 21% of an average crop may be stored in ventilated storage
sites. Enclosed cold storage facilities are also used to extend the beet storage
period at each of the Company's factory locations. Enclosed cold storage sites
presently have the capacity to cover approximately 7% of an average crop.
Once the sugarbeets arrive in the factory, the basic steps in producing
sugar from them include: washing; slicing into thin strips called "cossettes";
extracting the sugar from the cossettes in a diffuser; purifying the resulting
"raw juice" and boiling it, first in an evaporator to thicken it and then in
vacuum pans to crystalize the sugar; separating the sugar crystals in a
centrifuge; drying the sugar; storing sugar in bulk form and grading and
screening the crystals for packaging and bulk shipping.
The Company's sugarbeet by-products include molasses and beet pulp. After
the extraction of raw juice from the cossettes, the remaining pulp is dried and
processed into animal feeds. The Company processes approximately one-half of its
molasses through its molasses desugarization facility to extract additional
sugar. The remaining molasses and CSB from the molasses desugarization process
are marketed through Midwest Agri-Commodities Company and are sold primarily to
yeast and pharmaceutical manufacturers and for use in animal feeds.
The Company also has its own Seed Division, which has been in existence
since the 1920's. The goal of the Seed Division is to ensure that the Company's
shareholders have the highest quality sugarbeet hybrids available to maximize
their production. Since the mid-1970s, American Crystal had an effective working
relationship with Danisco Seed of Denmark. In 1998, American Crystal signed a
10-year agreement with Betaseed covering exchange of germplasm, together with
purchasing, product development, production and trademark license agreements.
Betaseed is the US subsidiary of KWS, a German seed company which is one of
the three largest seed companies in the world. The Seed Division markets its
seed to sugarbeet growers in Michigan, Ohio, Montana, Wyoming, Colorado,
Nebraska, Idaho, Oregon, California, Washington and to its own growers in North
Dakota and Minnesota.
3
<PAGE>
RECENT CROPS
The sugarbeet crop grown during 1998 produced a total of approximately 22.2
tons of sugarbeets per acre from approximately 481,000 acres. That production
exceeded the ten-year average of 16.8 tons per acre for the years 1988 through
1997. The sugar content of the 1998 crop was 17.66%, in comparison to a ten-year
average for the applicable period of 17.36%. The Company has begun processing
the sugarbeets produced in the 1998 crop and expects to produce a total of
approximately 27 million hundredweight of sugar from that crop.
The sugarbeet crop grown during 1997 produced a total of approximately 18.5
tons of sugarbeets per acre from approximately 462,000 acres. That production
exceeded 16.9 tons per acre, which is the ten-year average of tons per acre for
the years from 1987 through 1996. The sugar content of the 1997 crop was 17.59%,
in comparison to a ten-year average for the applicable period of 17.39%. The
company produced a total of approximately 21.5 million hundredweight of sugar
from the 1997 sugarbeet crop.
American Crystal's members harvested approximately 8.3 million tons of
sugarbeets from 459,000 acres for the 1996 crop. The approximately 18.1 ton per
acre yield was higher then the then-current 16.8 ton per acre 10 year average.
Sugar content for the 1996 crop was approximately 17.30%, which is 0.07% lower
than the then-current ten year average of 17.37%. Beet processing began on
September 5, 1996 and the Company produced 22.5 million hundredweights of sugar
during the 1996-1997 campaign.
For a discussion of the 1997, 1996 and 1995 crops and results of operations
for fiscal years 1998, 1997 and 1996, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
MARKET AND COMPETITION
The United States is the world's largest sugar and sweetener complex.
Current US government statistics estimate total US sugar consumption at 183.4
million hundredweight for the year beginning October 1, 1997 and ending
September 30, 1998. For the same period starting October 1996, total consumption
was 182.6 million hundredweight. Comparing the two years shows relatively
marginal demand growth for US sugar sellers. This slowdown in consumption growth
rates is primarily attributable to the decline in the low-fat and non-fat food
trend, which used more sugar in product formulations. Continued substitution of
corn sweeteners for sugar and import leakages have also contributed to the
overall demand slowdown.
Despite evidence of a sugar demand slowdown, the US government forecasts
growth between 1998 and 1999 to be slightly higher than 2%, which is slightly
above trendline and includes consumption increases due to population growth.
Although the Company believes that domestic consumption growth could once again
approach 2% annually over the longer term, recent trends have pressured growth
rates lower and slower growth may be more realistic to assume at the current
time. The US refined sugar market has grown over the past twenty years, despite
the enormous amount of demand lost to the substitution of high fructose corn
syrups for sugar in beverages and certain food products. Non-nutritive
sweeteners such as aspartame have also been developed to substitute for sugar.
While corn and non-nutritive sweeteners constitute a large portion of the
overall sweetener market, the Company believes that the market for sugar will
continue to grow between 1 and 2% per year due to population growth and
increased use of sugar in processed foods.
The substitution of corn sweeteners for sugar not only reduced demand for
sugar in the United States, but also resulted in a high degree of sugar industry
consolidation. In 1978 there were 28 sugar producers and sellers in the US
market. Today there are eight sugar sellers, with over 75% of US sugar market
share concentrated in the top three sellers, all of which are fully integrated
beet and cane suppliers. Given the size of the domestic market, the Company's
(ACSC) sugar production and sales represented 11.8% of the total domestic market
for refined sugar in 1997/98. United Sugars, which sells the Company's
production through a sugar marketing pool, represents approximately 25% share of
the US sugar market.
4
<PAGE>
The Company's main competitors in the domestic market are
Imperial-Holly-Savannah, Tate & Lyle North America, Amalgamated Sugar Company
and California & Hawaiian Sugar Company. Competition in the US industry, because
sugar is a fungible commodity, is primarily based upon price, customer service
and reliability as a supplier.
According to USDA statistics, the Red River Valley is generally one of the
most cost efficient sugarbeet producing areas in the nation. As a result, the
Company's management believes that it possesses the ability to compete
successfully with other producers of sugar in the United States. In the future,
while cost efficiency is a competitive advantage, substitute products for sugar
and sugar imports could have a material and adverse effect on the Company's
operations.
MARKETING, CUSTOMERS AND PRICES
Since January, 1994, American Crystal's sugar has been marketed by United
Sugars Corporation, a cooperative common marketing agency. United Sugars
Corporation was formed in late 1993. Upon completion of the incorporation and
capitalization of United Sugars Corporation, American Crystal entered into a
"Uniform Member Marketing Agreement" with United Sugars Corporation. Under that
agreement, the sugar produced by American Crystal is pooled with sugar produced
by Minn-Dak Farmers Cooperative, and Southern Minnesota Beet Sugar Cooperative
and is then sold through the efforts of United Sugars Corporation. The Company
receives payment for its sugar by receiving its pro rata share of the net
proceeds from the sale of the pooled sugar. The net proceeds of such sales
represent the gross proceeds of sale of the sugar, adjusted for the various
costs and expenses of marketing the pooled sugar, including the Company's pro
rata share of the marketing and sales expenses incurred by United Sugars
Corporation. Any net proceeds from the operation of United Sugars Corporation
are distributed to the various members proportionally.
On December 1, 1997, United States Sugar Corporation (USSC), a grower of
sugar cane and other agricultural products became a member of United Sugars
Corporation. United Sugars Corporation and USSC entered into a Uniform Cane
Sugar Marketing Agreement. Under that agreement, USSC will market all of its
refined sugar through United Sugars Corporation. Existing members of United
Sugars Corporation, including the Company, entered into amended marketing
agreements reflecting the admission of USSC. With the admission of USSC, United
Sugars Corporation is able to distribute both cane sugar and beet sugar, and
distribute sugar to customers over a large geographical area.
The Company's sugar is marketed by United Sugars Corporation primarily to
industrial users such as confectioners, breakfast cereal manufacturers and
bakeries. For the fiscal year ended August 31, 1998, 89.7% (by weight) of the
Company's sugar production was sold to industrial users. The remaining portion
is marketed by United Sugars Corporation through sugar brokers to wholesalers
and retailers under the "Crystal Sugar" brand name and various private labels
for household consumption.
Customers are located primarily in Illinois, Minnesota, Iowa, Wisconsin,
Pennsylvania, Michigan, Indiana, Ohio, Missouri and Tennessee. During fiscal
1998, the Company's 10 largest customers purchased approximately 57.6% (by
weight) of the Company's sugar sold.
The prices at which United Sugars Corporation sells the Company's sugar
fluctuates periodically based on changes in domestic sugar supply and demand.
The largest proportion of American Crystal's sales are contracted one or more
quarters in advance, with the effect of stabilizing fluctuations in revenue from
quarter to quarter. Retail (grocery) products are sold on a spot price basis.
Sugar prices were at a premium in 1996 due to sugarbeet shortages and
insufficient refinery capacity. Sugar prices decreased in 1997 and 1998 due to
increased domestic production, larger import quotas and declining consumption
growth rates.
American Crystal markets dried beet pulp, molasses and CSB through Midwest
Agri-Commodities Company, a cooperative whose members are American Crystal,
Minn-Dak Farmers Cooperative and Southern Minnesota Beet Sugar Cooperative. Beet
pulp is marketed to livestock feed mixers and livestock
5
<PAGE>
feeders in the United States and foreign markets. For the year ended August 31,
1998, the majority of American Crystal's pulp production was exported to Japan
and Europe. The market for beet pulp is affected by the availability and quality
of competitive feedstuffs. Beet molasses is marketed primarily to yeast
manufacturers, pharmaceutical houses, livestock feed mixers and livestock
feeders. By-product sales accounted for approximately 10% of the Company's total
revenues during fiscal 1998. This relationship is primarily a function of the
average market prices for sugar, pulp and molasses and is not necessarily
indicative of future relationships between by-product and sugar revenues,
because prices of these commodities fluctuate independently of each other.
GOVERNMENT PROGRAMS AND REGULATION
Domestic sugar prices are supported under a program administered by the
USDA. Under the current program, which was initiated in 1981 and extended under
the Food Security Act of 1985, the Food, Agriculture, Conservation and Trade Act
of 1990 and the Federal Agriculture Improvement and Reform Act of 1996 (the
"FAIR Act"), the price of sugar is maintained above the price at which producers
could forfeit sugar to repay nonrecourse loans obtained through the Commodity
Credit Corporation (the "CCC"). The USDA maintains sugar prices without cost to
the U.S. Treasury by regulating the quantity of sugar imports. Under the "Tariff
Rate Quota" implemented October 1, 1990, sugar producing countries are assigned
a fixed quantity of imports duty-free or subject to minimal duties. Unlimited
additional quantities may be imported upon payment of a tariff of 16 cents per
pound prior to shipment. (To date, only minute quantities of sugar have been
imported under this higher tariff level.)
The Uruguay Round agreement under the General Agreement on Tariffs and Trade
(GATT) mandates imports of at least 1,257,000 short tons of sugar per year into
the United States. The FAIR Act maintains an 18 cent per pound loan rate for raw
sugar and a 22.90 cent per pound loan rate for refined beet sugar. Both loan
rates are effective for crop years 1996 through 2002. Price support loans are to
be made on a nonrecourse basis provided that United States sugar imports for
domestic usage exceed 1.5 million short tons raw value in a given fiscal
(October through September) year. Loans made on a nonrecourse basis enable the
sugar processor to forfeit sugar to the CCC if sugar prices are below the loan
rate. If imports during a given year are less than 1.5 million short tons, loans
must be made on a recourse basis, meaning that processors will not be able to
forfeit sugar to the CCC at its full loan value. In order to recover the full
value of a recourse loan, the CCC could require that cash or other assets be
provided in addition to the sugar used as collateral when the loan is made.
Another provision of the FAIR Act is a one cent per pound penalty paid by
processors if the processor defaults on sugar price support loans.
The nature and scope of future legislation affecting the sugar market cannot
be predicted and there can be no assurance that price supports will continue in
their present form. If the price support program, including the Tariff Rate
Quota system described above, were eliminated in its entirety or if the
protection the United States' price support program provides from foreign
competitors were materially reduced, the Company could be materially and
adversely effected. In such a situation, if the Company were not able to adopt
strategies which would allow it to compete effectively in a greatly changed
domestic market for sugar, the adverse affects could impact the Company's
continued viability and the desirability of growing sugarbeets for delivery to
the Company. Such events could significantly impair the value of the shares of
Preferred Stock in which are embodied the right and obligation to deliver
sugarbeets.
GROWERS' CONTRACTS
American Crystal purchases virtually all of its sugarbeets from members
under contract with the Company. All members have five-year contracts with the
Company covering the growing seasons of 1998 through 2002 (the "Growers'
Contracts"). Each member will be obligated to enter into a new five-year
contract for subsequent years. In addition, each member has an annual contract
with the Company specifying the number of acres the member is obligated to grow
during that year. Each share of Preferred Stock held by a member entitles that
member to grow one acre of sugarbeets for sale to the Company. The
6
<PAGE>
Company's Board of Directors has the discretion to adjust the acreage which may
be planted for each share of Preferred Stock held by the members. However, it is
management's current intention and recommendation to the Board of Directors that
the relationship between shares of Preferred Stock and acres of sugarbeet
production be maintained at a ratio of 1 to 1 for the foreseeable future,
subject to tolerances for overplanting and underplanting established by the
Board each year.
The total price for sugarbeets paid to a member (the "Net Beet Payment") is
based on the "Gross Beet Payment," as adjusted by certain allowances, costs and
deductions. The Gross Beet Payment is the value of recovered sugar from the
beets a member delivers plus the member's share of by-product revenues, minus
the member's share of member business operating costs, including depreciation
and interest. The following allowances, costs and deductions, if applicable, are
used to adjust the Gross Beet Payment to arrive at the Net Beet Payment: hauling
allowance program costs, pre-pile quality premium costs, minimum payment
allowance program costs, tare incentive premium/penalty program and unit
retains. Growers are paid a hauling allowance based on the distance they must
transport beets for delivery to the Company and may also receive minimum beet
payments and an allowance for early delivery of beets prior to the commencement
of the stockpiling of harvested sugarbeets. The costs of these programs are
shared among members on the basis of the net tonnage of beets delivered by each
member.
Under the current Growers' Contracts, payments to members for sugarbeets
must be made in at least three installments: (i) on or about November 15, the
Company pays its members an amount equal to 65% of the Company's estimate of the
grower's Net Beet Payment; (ii) on or about March 31, the Company pays an amount
which combined with the November payment equals 90% of the estimated Net Beet
Payment; (iii) and not more than 15 days after completion and acceptance of the
audit of the Company's annual financial statements, the Company pays the
remainder of the member's Net Beet Payment. Except for unit retains, the Company
must pay to members for their sugarbeets all proceeds from the sale of sugar and
by-products in excess of related member business operating costs, as described
above.
7
<PAGE>
The following tables summarize the "Gross Beet Payment" and "Net Beet
Payment" and the "Sugar Content of Sugarbeets" for each of the last 10 completed
fiscal years, respectively:
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997
--------- --------- --------- --------- --------- --------- --------- --------- ---------
DISTRIBUTION OF NET PROCEEDS--TOTALS (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Proceeds.................. $ 216,878 $ 209,510 $ 259,229 $ 269,388 $ 303,842 $ 261,571 $ 320,549 $ 310,206 $ 366,756
Non-Member (Income)/Loss...... 844 698 1,058 1,075 77 544 15 396 18,074
Hauling Allowance............. 3,482 3,900 4,140 5,522 5,413 4,531 6,144 6,038 6,893
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross Beet Payment............ $ 221,204 $ 214,108 $ 264,427 $ 275,985 $ 309,332 $ 266,646 $ 326,708 $ 316,640 $ 391,723
Unit Retains.................. (7,316) (7,995) (8,010) (10,364) (20,223) (19,328) (16,648) (16,040) (16,611)
Member Tax ADJ, Net........... 1,908 1,922 589 676 447 12,585 5,621 0 0
Hauling Allowance............. (3,482) (3,900) (4,140) (5,522) (5,413) (4,531) (6,144) (6,038) (6,893)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Beet Payment.............. $ 212,314 $ 204,135 $ 252,866 $ 260,775 $ 284,143 $ 255,372 $ 309,537 $ 294,562 $ 368,219
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
DISTRIBUTION OF NET PROCEEDS--PER TON HARVESTED(1)
Net Proceeds.................. $ 44.44 $ 39.27 $ 48.50 $ 38.95 $ 45.03 $ 40.55 $ 38.47 $ 38.64 $ 44.12
Non-Member (Income)/Loss...... 0.17 0.13 0.20 0.16 0.01 0.09 0.00 0.05 2.17
Hauling Allowance............. 0.71 0.73 0.77 0.80 0.80 0.70 0.74 0.75 .83
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross Beet Payment............ $ 45.32 $ 40.13 $ 49.47 $ 39.91 $ 45.84 $ 41.34 $ 39.21 $ 39.44 $ 47.12
Unit Retains.................. (1.50) (1.50) (1.50) (1.50) (3.00) (3.00) (2.00) (2.00) (2.00)
Member Tax ADJ, Net........... 0.39 0.36 0.11 0.10 0.07 1.95 0.68 0.00 0
Hauling Allowance............. (0.71) (0.73) (0.77) (0.80) (0.80) (0.70) (0.74) (0.75) (.83)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Beet Payment.............. $ 43.50 $ 38.26 $ 47.31 $ 37.71 $ 42.11 $ 39.59 $ 37.15 $ 36.69 $ 44.29
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
SUGAR CONTENT OF SUGARBEETS(1)
Tons Harvested (In
Thousands):................. 4,881 5,336 5,345 6,915 6,748 6,450 8,332 8,029 8,313
Tons Purchased Per Acre
Harvested:.................. 13.4 14.5 13.4 17.4 16.9 16.3 20.2 18.7 18.1
Sugar Content of Beets:....... 18.2% 16.7% 18.6% 17.0% 18.0% 17.6% 16.8% 16.4% 17.3%
<CAPTION>
1998
---------
<S> <C>
Net Proceeds.................. $ 305,797
Non-Member (Income)/Loss...... 9,679
Hauling Allowance............. 7,210
---------
Gross Beet Payment............ $ 322,686
Unit Retains.................. (8,545)
Member Tax ADJ, Net........... 0
Hauling Allowance............. (7,210)
---------
Net Beet Payment.............. $ 306,931
---------
---------
Net Proceeds.................. $ 35.76
Non-Member (Income)/Loss...... 1.13
Hauling Allowance............. .84
---------
Gross Beet Payment............ $ 37.73
Unit Retains.................. (1.00)
Member Tax ADJ, Net........... 0
Hauling Allowance............. (.84)
---------
Net Beet Payment.............. $ 35.89
---------
---------
Tons Harvested (In
Thousands):................. 8,553
Tons Purchased Per Acre
Harvested:.................. 18.5
Sugar Content of Beets:....... 17.6%
</TABLE>
- ----------------------------------
(1) Information provided with respect to net proceeds, gross beet payment, net
beet payment, tons harvested per acre and sugar content of beets represents
an average of the financial and production results experienced by the
Company's members. As described elsewhere in this annual report, the return
to members for their sugarbeets is based upon the value of the recovered
sugar from the beets delivered to the Company by each member. As a result of
variations in the sugar content of the sugarbeets delivered by the various
members to the Company, the payments received by the various members also
vary.
ENVIRONMENTAL MATTERS
American Crystal is subject to extensive federal and state environmental
laws and regulations with respect to water and air quality, solid waste disposal
and odor and noise control. The Company conducts an on-going and expanding
control program designed to meet these environmental laws and regulations.
American Crystal believes that it is in substantial compliance with applicable
environmental laws and regulations.
The Company received a Notice of Violation from the State of Minnesota on
September 24, 1998 for an accidental discharge of wastewater that allegedly
contaminated a nearby river and caused a fish kill. The Company has responded to
the Minnesota Pollution Control Agency (MPCA) and is awaiting further action by
the MPCA. The accidental discharge occurred when a dike was breached at a
temporary wastewater holding pond the Company had constructed with the approval
of the MPCA. The MPCA has indicated a penalty will be assessed. The final
penalty and corrective actions will be determined when a final stipulation
agreement is drafted. This will occur sometime in December, 1998 or January,
1999. Management believes the outcome of the enforcement action should not have
a material adverse effect on the Company's financial condition.
8
<PAGE>
JOINT VENTURE--PROGOLD LIMITED LIABILITY COMPANY
American Crystal is one of three members of ProGold Limited Liability
Company ("ProGold"). ProGold was formed in July, 1994 as a limited liability
company to serve as a joint venture mechanism for the Company, Minn-Dak Farmers
Cooperative and Golden Growers Cooperative, a North Dakota cooperative
association comprised of corn producers. The joint venture was formed to
construct and operate a corn wet-milling plant capable of processing corn to
produce corn sweeteners (including high fructose corn syrups) and various
by-products. ProGold's plant, which became operational in late 1996, is
currently fully operational and has obtained certification from its significant
customers.
American Crystal contributed a total of approximately $48 million for its
membership interest in ProGold and received a 46% interest in ProGold. Golden
Growers Cooperative contributed approximately $51 million in exchange for a 49%
interest in ProGold, while Minn-Dak Farmers Cooperative made a capital
contribution of approximately $5.2 million in exchange for a 5% interest in
ProGold. Under the terms of the ProGold Member Control Agreement, in each year
after September 1, 1997, the ProGold Board of Governors can require that the
three members of ProGold provide additional capital contributions in an
aggregate amount not to exceed $5 million per year, with each member obligated
to provide a portion of that capital contribution proportionate to its ownership
interest in ProGold. As a result, the Company could be required to make annual
contributions in an amount of up to $2.3 million per year, based on the
Company's ownership of a 46% interest in ProGold. Any other capital
contributions can be required only with the prior written consent of all of
ProGold's members, including the Company.
ProGold and Cargill, Incorporated ("Cargill") have entered into a lease of
ProGold's corn wet-milling plant to Cargill. The lease commenced on November 1,
1997, and will terminate on December 31, 2007. Under the arrangement, the
Company and its ProGold partners will retain ownership of the plant, while
Cargill will operate the plant. ProGold will receive rental payments in a base
amount fixed for each year during the term of the lease. ProGold will also
receive supplemental rent equal to fifty percent (50%) of the amount by which
earnings before taxes from Cargill's operation of the facility exceeds a
contractually-specified base amount. Under the terms of the lease, Cargill has
also entered into a corn supply agreement with ProGold, pursuant to which
ProGold will be obligated to deliver approximately 15.6 million bushels of corn
per fiscal year. Cargill will pay ProGold a market price for any corn delivered
to Cargill under the corn supply agreement. The lease specifies a variety of
alternatives which may take effect upon expiration of the initial term of the
lease. ProGold and Cargill could negotiate a ten year extension of the lease
upon mutually agreeable terms and conditions, ProGold could offer to sell the
facility to Cargill at a fair market value or ProGold could offer to sell
Cargill a fifty percent (50%) ownership interest in ProGold. If the parties are
unable to agree upon the terms and conditions of any such transaction, ProGold
can enter into a similar transaction with a third party. However, in each case,
including a lease of the facility to a third party, Cargill would have the first
right to engage in the proposed transaction upon the same terms as agreed to by
the third party.
If ProGold is successful in generating profits for distribution to is
members, those distributions would become the property of the Company. Under the
Company's Articles of Incorporation and Bylaws, the return, if any, from the
Company's involvement with ProGold would be classified as amounts received from
"non-patronage" sources. The Company's Bylaws currently provide that any
non-patronage net income is to become the property of the Company and is not to
be distributed directly to the members of the Company. Distributions from
ProGold could, in the discretion of the Company's Board of Directors, yield
benefits to the Company's members through such means as future reductions of
annual unit retain amounts, repayment of unit retains in advance of the current
seven year repayment schedule and the use of such returns, if any, for capital
investment in the Company. To date, the Company's Board of Directors has not
adopted any resolutions or made any commitments regarding the distribution of
non-patronage revenues directly to the Company's members or the application of
any such amounts for the indirect benefit of the Company's members. As described
above, any decisions regarding the application of
9
<PAGE>
distributions received by the Company from ProGold will be made in the
discretion of the Company's Board of Directors.
JOINT VENTURE--CRYSTECH, LLC
Crystech, LLC (Crystech) is a limited liability company formed on May 28,
1998. The Company is a member in Crystech and initially contributed $1,545,000,
or 50% of equity interest to form Crystech. The other 50% member is Newcourt
Capital USA, Inc., a Delaware corporation. As specified by the Limited Liability
Company Agreement, ACS and Newcourt each appointed three members to serve on
Crystech's six member Board of Managers.
Crystech was formed to construct and operate a molasses de-sugarization
facility in Hillsboro, North Dakota. The total cost of the facility is estimated
at $103.0 million. It is anticipated that the plant will have the capacity of
processing 200,000 tons annually of softened molasses for conversion to sugar
extract and other by-products. Construction began in June 1998 and is
anticipated to reach mechanical completion in November 1999. The plant is
anticipated to be in full production approximately 30 days after mechanical
completion.
To fund the construction of the facility, Crystech will obtain significant
amounts of debt financing. Under a Purchase Agreement between Crystech and the
lender group, Crystech Senior Lender Trust agreed to provide term debt to
Crystech in the sum of $86,005,000 via the purchase of notes from Crystech.
Additionally, ACS has agreed to provide $13,905,000 of subordinated debt to
Crystech. To support the construction of the facility, periodic draws from the
trust account are made several times each month during the entire construction
period. These draws are subject to certain approvals by the independent engineer
and Newcourt, as agent for Crystech Senior Lender Trust.
As of August 31, 1998, Crystech was committed to construction costs related
to an Engineering, Procurement and Construction (EPC) Contract totaling $78.9
million. As of August 31,1998, Crystech had incurred $12.7 million related to
this contract. The EPC Contract with the general contractor of the project,
Process Systems Inc. of Memphis, Tennessee, also specifies certain cost
guarantees, and mechanical and performance warranties.
The Company has a 12-year tolling services agreement with Crystech whereby
upon completion of construction, the Company pays for tolling services for
processing beet molasses delivered to Crystech with title and risk of loss
throughout the process maintained by the Company. The tolling agreement may be
terminated by the Company if the specific operational processing performance
required of Crystech in the contract is not achieved.
EMPLOYEES
As of August 31, 1998, American Crystal had 1,221 full-time employees, of
which 996 were hourly and 225 were salaried. The Company also had 42 part-time
employees. In addition, the Company employs approximately 1,466 additional
hourly seasonal workers during the sugarbeet harvest and approximately 518
hourly seasonal workers during the remainder of the sugarbeet processing
campaign.
Substantially all of the hourly employees at the factories, including
full-time and seasonal employees, are represented by the American Federation of
Grain Millers, AFL-CIO, and are covered by a collective bargaining agreement
expiring July 31, 1999. Negotiations for a new contract will take place in May,
June, and July of 1999. Office, clerical and management employees are not
unionized, except for certain office employees at the Moorhead and Crookston,
Minnesota, and Hillsboro, North Dakota, factories who are covered by the
collective bargaining agreement with the Grain Millers. The Company considers
its employee relations to be excellent.
Substantially all employees who meet eligibility requirements of age and
length of service are covered by one of the Company's two retirement plans. Plan
A (nonunion employees) and Plan B (union
10
<PAGE>
employees) are defined benefit, noncontributory plans. The plans provide for
vesting in five years with benefits for early retirement, normal retirement and
disability or death. The Company's policy is to fund pension costs accrued, and
the plans were fully funded for vested benefits as of February 28, 1998, the end
of the most recent plan year. Union and nonunion employees are also eligible to
participate in 401(k) savings plans.
ITEM 2. PROPERTY AND PROCESSING FACILITIES
American Crystal operates five sugarbeet processing factories in the Red
River Valley. The factories are located in Crookston, East Grand Forks and
Moorhead, Minnesota and Drayton and Hillsboro, North Dakota. American Crystal
owns all of its factories and the land on which they are located. The factories
range in size from 150,000 to 400,000 square feet and have a combined beet
processing capacity, expressed in terms of quantity of sugarbeets which may be
sliced into strips or "cossettes," of approximately 33,300 tons per day. The
Crookston, Minnesota plant has a capacity of 5,300 tons of sugarbeets per day,
the East Grand Forks, Minnesota plant has a capacity of 9,000 tons of sugarbeets
per day and the Moorhead plant has a capacity of 5,400 tons of sugarbeets per
day. The Company's Hillsboro, North Dakota plant has a capacity of 7,700 tons of
sugarbeets per day, while the Drayton, North Dakota plant has a capacity of
5,900 tons of sugarbeets per day. Each of the processing factories includes the
physical facilities and equipment necessary to process sugarbeets into sugar.
Each factory has space for sugarbeet storage, including ventilated and cold
storage sites. Approximately 28% of the sugarbeet crop is stored in either
ventilated storage sites or cold storage facilities. Each processing factory
includes the washing and slicing equipment necessary to cut the sugarbeets into
cossettes, the diffusers necessary to extract sugar from the cossettes in the
form of "raw juice" and the purification systems necessary to remove impurities
from the raw juice. The factories also contain the evaporators and vacuum pans
necessary to thicken the raw juice and then to crystalize the sugar. Each
factory also contains the centrifuges and dryers necessary to complete the
process. The Company's sugar packaging facilities are located at the Moorhead,
Hillsboro, Crookston and East Grand Forks factories. Each of the Company's
facilities is currently operating at or near its capacity.
In 1998 the Company completed a number of capital improvements to its sugar
factories. A $57 million expansion of the Hillsboro processing facility was
completed in September 1998, raising daily capacity to slice sugarbeets from
5,900 to 7,700 tons per day. A $20 million replacement of beet slicing and
diffusion was completed at the East Grand Forks factory. Both projects increased
sugar recovery and processing efficiencies. Two new beet piling sites were
established, seven new beet pilers were added, and twenty-six upgrade kits to
beet pilers were added to allow harvesting of the expanded crop size (acreage).
In addition, 800,000 tons of additional deep freeze storage capacity was added,
which allows extended processing campaigns.
Current capital projects in execution include a $103 million joint venture
to build a molasses desugarization (MDS) plant at the Hillsboro facility to
process the balance of the Company's molasses to extract additional sugar. Also,
a new wastewater treatment plant is being built at Hillsboro to accommodate the
MDS plant and extended campaign processing, plus storage tanks and expansion of
the sugar crystallization station at East Grand Forks to enhance sugar recovery
and allow extended processing.
American Crystal's corporate office is located in a 30,000 square foot,
two-story office building in Moorhead, Minnesota. The Company also has a 100,000
square foot research center situated on approximately 200 acres in Moorhead,
Minnesota. The Company owns both facilities, and owns numerous sites as
sugarbeet receiving and storage stations. All the Company's property, plant and
equipment is mortgaged or pledged as collateral for its indebtedness to the St.
Paul Bank for Cooperatives.
ITEM 3. LEGAL PROCEEDINGS
From time to time and in the ordinary course of its business, the Company is
named as a defendant in legal proceedings related to various issues, including
worker's compensation claims, tort claims and
11
<PAGE>
contractual disputes. The Company is currently involved in certain legal
proceedings which have arisen in the ordinary course of American Crystal's
business; the Company is also aware of certain other potential claims which
could result in the commencement of legal proceedings. The Company carries
insurance which provides protection against certain types of claims. With
respect to current litigation and potential claims of which the Company is
aware, the Company's management believes that (i) the Company has insurance
protection to cover all or a portion of any judgments which may be rendered
against the Company with respect to certain claims or actions and (ii) any
judgments which may be entered against the Company and which may exceed such
insurance coverage or which may arise in actions involving potential liabilities
not covered by insurance policies are not likely to have a material adverse
effect upon the Company, or its assets or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
quarter ended August 31, 1998.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public market for the Company's Common Stock or
Preferred Stock, as such shares may be held only by farmer-producers who are
eligible for membership in the Company. The Company's shares are not listed for
trading on any exchange or quotation system. Although transfers of the Company's
shares may occur only with the consent of the Board of the Directors, the
Company does not obtain information regarding the transfer price in connection
with such transfers. As a result, the Company is not able to provide information
regarding the prices at which the Company's shares have been transferred.
Because the number of acres of sugarbeets a member may grow for sale to the
Company is directly related to the number of shares of Preferred Stock owned, a
limited, private market for Preferred Stock exists. However, it is not
anticipated that a general public market for the Company's shares of Common
Stock or Preferred Stock will develop due to the limitations on transfer and the
various membership requirements which must be satisfied in order to acquire such
shares.
A member desiring to sell his or her Common Stock or Preferred Stock must
first offer them to the Company for purchase at par value. If the Company
declines to purchase such shares, either class may be sold to a new member
(i.e., another farm operator not already a member) and Preferred Stock may be
sold to one or more existing members or farm operators approved for membership,
in each case subject to approval by the Board of Directors. To date, the
Company's Board of Directors has not exercised the Company's right of first
refusal to purchase shares offered for sale by its members. In the absence of
the exercise of such right of first refusal, the Company is aware of sales of
Preferred Stock at prices in excess of the par value of those shares. However,
as the Company does not require parties seeking approval for transfers to
provide information regarding the transfer price, the Company does not possess
verifiable information regarding the transfer price involved in recent transfers
of the Company's Preferred Stock.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data of the Company should be read in conjunction
with the financial statements and related notes included elsewhere in this
Annual Report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................. $ 676,625 $ 677,004 $ 688,012 $ 605,960 $ 563,420 $ 542,665 $ 545,220
Net Proceeds Before Accounting Change..... $ 305,797 $ 366,756 $ 310,206 $ 320,549 $ 273,785 $ 303,842 $ 269,388
Cumulative Effect of Accounting
Change(1)............................... -- -- -- $ (12,214) -- --
Net Proceeds(2)........................... $ 305,797 $ 366,756 $ 310,206 $ 320,549 $ 261,571 $ 303,842 $ 269,388
Total Assets.............................. $ 646,460 $ 581,504 $ 465,136 $ 420,890 $ 324,469 $ 303,318 $ 278,989
Long-Term Debt, including current
maturities.............................. $ 212,495 $ 204,600 $ 190,919 $ 119,029 $ 115,834 $ 98,039 $ 91,615
Members' Investments...................... $ 224,843 $ 175,928 $ 152,136 $ 142,047 $ 115,609 $ 120,113 $ 107,679
Property and Equipment Additions, net of
retirements............................. $ 98,992 $ 69,542 $ 43,168 $ 48,394 $ 50,824 $ 35,659 $ 42,046
Working Capital........................... $ 30,357 $ 45,652 $ 32,071 $ 28,046 $ 30,859 $ 32,819 $ 27,254
Ratio of Long-Term Debt to Equity(3)...... 87:1 1.06:1 1.17:1 .75:1 .88:1 .71:1 .71:1
Ratio of Net Proceeds to Fixed
Charges(4).............................. 11.1 13.3 14.3 11.6 15.0 14.2 15.0
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------------
PRODUCTION DATA(5) 1998 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------ --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Acres harvested........................... 462 459 429 413 396 400 397 400
Tons purchased............................ 8,553 8,313 8,029 8,332 6,450 6,748 6,915 5,345
Tons purchased per acre harvested......... 18.5 18.1 18.7 20.2 16.3 16.9 17.4 13.4
Net beet payment per ton of sugarbeets
purchased, plus unit retains............ $ 36.89 $ 46.29 $ 38.69 $ 39.15 $ 42.59 $ 45.11 $ 39.21 $ 48.81
Sugar hundredweight--
Produced................................ 21,528 22,465 19,947 21,369 18,093 18,979 16,474 15,057
Sold, including purchased sugar......... 21,735 20,579 22,179 19,702 19,450 17,957 17,262 14,936
Purchased sugar sold.................... 901 869 490 509 293 81 195 15
Pulp and molasses tons--
Produced................................ 679 690 651 643 488 667 724 570
Sold.................................... 651 618 638 659 472 688 706 569
</TABLE>
- ------------------------------
(1) During 1994, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Post-Retirement Benefits Other than
Pensions" and Financial Accounting Standards No. 112, "Employers Accounting
for Post-Employment Benefits." The cumulative effect of application of the
new standards resulted in the reduction of net proceeds shown above for the
year ended August, 1994. See note number 8 to the Financial Statements for
the fiscal year ended August 31, 1996, for a more detailed description of
the accounting change.
(2) Net Proceeds are the Company's gross revenues, less the costs and expenses
of producing and marketing sugar, by-products and beet seed, but before
payments to members for sugarbeets. Payments to be made to members for the
delivery of sugarbeets are liabilities of the Company. (For a more complete
description of the calculation of Net Proceeds, see "Description of Business
Growers' Contracts.")
(3) Calculated by dividing the Company's long term debt, exclusive of the
current maturities of such debt, by members' investments.
(4) Computed by dividing (i) the sum of Net Proceeds plus interest plus
depreciation by (ii) the sum of interest plus principal payments. Although
the Company does lease certain items, such as some office furniture, office
equipment and computers, due to the proportionately small amounts involved,
such lease payments have not been included in the total of the Company's
Fixed Charges or the calculation of this ratio.
(5) Information for a fiscal year relates to the crop planted and harvested in
the preceding calendar year (e.g., information for the fiscal year ended
August 31, 1998 relates to the crop of 1997).
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Report contains forward-looking statements regarding, among other
items, the Company's growth strategy and anticipated trends in the Company's
business. These forward-looking statements are based largely on the Company's
expectations and are identified by the use of words such as "believes",
"intends", and "will", subject to a number of risks and uncertainties, certain
of which are beyond the Company's control. Actual results could differ
materially from these forward-looking statements as a result of the factors
described elsewhere herein, including, among others, weather, regulatory or
economic influences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Report will in
fact transpire or prove to be accurate.
LIQUIDITY AND CAPITAL RESOURCES
Because American Crystal operates as a cooperative, payments for member
delivered sugarbeets, the principal raw material used in producing the sugar and
agri-products it sells, are subordinated to all member business expenses. In
addition, actual cash payments to members are spread over a period of
approximately one year following delivery of their sugarbeet crops to American
Crystal and are net of unit retains allocated to them, both of which remain
available to meet American Crystal's capital requirements. This member financing
arrangement may result in an additional source of liquidity and reduced outside
financing requirements in comparison to a similar business operated on a
non-cooperative basis. However, because sugar is sold throughout the year (while
sugarbeets are processed primarily in the fall and winter) and because
substantial amounts of equipment are required for its operations, American
Crystal has utilized substantial outside financing on both a seasonal and
long-term basis to fund such operations. The majority of such financing has been
provided by the St. Paul Bank for Cooperatives (the "Bank"). American Crystal
has a long-term debt commitment with the Bank in 1998 of $191.2 million. In
addition, American Crystal has long-term debt outstanding of $50 million in a
private placement. The Company also has a seasonal line of credit with the Bank
of $280 million, including any amounts obtained through issuance of instruments
in its commercial paper program. American Crystal also has a line of credit with
Norwest Bank for $10 million. The Company also utilizes a commercial paper
program, which provides short-term borrowings of up to $150 million.
RESULTS OF OPERATIONS
INDUSTRY ENVIRONMENT
The US sweetener industry experienced three significant trends during the
1970s and 1980s: increased consumption of non-nutritive sweeteners, principally
aspartame; the increased use of high fructose corn syrup (HFCS) as a substitute
for refined sugar (sucrose) in certain food products, primarily beverages; and a
significant degree of sugar industry consolidation.
US sugar consumption has continued to expand over the past decade, with
domestic demand increasing from 153 million hundredweights in 1988 to 183
million in 1998. Although consumption growth rates have slowed to less than 1.5%
over the past two years, growth rates averaged close to 2.5% annually from 1990
to 1996. Sugar consumption growth rates are a function of population growth,
which has increased slightly over the past five years, and food market trends.
The non-fat and low-fat food trend of the early and mid-1990s resulted in
increased sugar use due to replacement of sucrose for fat in processed foods.
Currently, slowdowns in the non-fat and low-fat food product area contributed in
part to an overall
15
<PAGE>
decline in sugar consumption growth rates. Despite this slowdown, the Company
believes that sugar consumption should continue to trend upward over time.
Consumption of corn sweeteners is projected to grow at an annual rate of 4
to 5% over the next five years. Food manufacturers continue to increase research
and development budgets to expand use of corn and alternative sweeteners in
products.
The Company's operational results are substantially dependent on market
factors, including domestic prices for refined sugar. These factors are
continuously influenced by a wide variety of market forces, including domestic
sugarbeet and cane production, weather conditions and United States farm and
trade policy, that the Company is unable to predict (see "Business Government
Programs and Regulations"). In addition, highly variable weather conditions
during the growing, harvesting and processing seasons, as well as diseases and
insects, may materially affect the quality and quantity of sugarbeets available
for purchase as well as the unit costs of raw materials and processing. Sugar
prices were at a premium during 1995 and 1996 due to shortages of domestic
sugarbeet production and less than adequate cane refinery capacity to cover this
shortfall. Refined pricing declined to more average levels during 1997 and 1998
due to increased sugar supplies and a softening demand outlook.
COMPARISON OF THE YEARS ENDED AUGUST 31, 1998 AND 1997
Revenue for the year ended August 31, 1998, was $677 million, virtually the
same as in 1997. Revenue from total sugar sales increased 1.8%, reflecting a
5.6% increase in hundredweight sold, offset by a 3.7% decrease in the average
selling price per hundredweight. Revenue from pulp sales decreased 18.3% due to
a 25.1% decrease in the average selling price per ton, partially offset by a
9.1% increase in the volume of pulp sold. Revenue from molasses sales decreased
14.3% due to a 1.4% decrease in the volume of molasses sold and a 13.1% decrease
in the average selling price per ton. Revenue from concentrated separated by-
product (CSB) decreased 8.5% due to a 1.3% decrease in the volume of CSB sold
and a 7.4% decrease in the average selling price per ton.
Cost of product sold, exclusive of payments to members for sugarbeets,
increased $64.8 million. This was primarily due to an increase in inventories
during 1997, which decreased the cost of product sold in 1997 by $62.1 million.
Direct costs increased by 3.2% due to higher freight and chemical costs. The
cost associated with purchased sugar decreased $.8 million in 1998 compared to
1997, when the short supply of inventory at the beginning of the fiscal year
created a greater need to purchase sugar to meet customer requirements. Fixed
and committed expenses increased by 6.4% due to higher depreciation and higher
storage costs.
Selling expenses increased $11.5 million. The increase is attributable
primarily to the increase in the marketing and packaging costs. General and
Administrative expenses were approximately the same as 1997.
Interest expense decreased from $18.3 million during the year ended August
31, 1997, to $14.4 million for the same period in 1998. This resulted from an
increase in pollution control bond interest income, bank patronage income along
with an increase in interest charged to United Sugars Corporation for the
marketing assets.
Non-member business activities resulted in a loss of $9.7 million for the
year ended August 31, 1998, as compared to a loss of $18.1 million for the same
period in 1997. The majority of this loss is related to American Crystal's
investment in ProGold Limited Liability Company.
Payments to members for sugarbeets decreased by $61.3 million from $368.2
million during the year ended August 31, 1997 to $306.9 million during the same
period in 1998. The decrease is attributable primarily to a lower per-ton beet
payment for the current fiscal year.
16
<PAGE>
As of August 31, 1998, American Crystal has made extensive efforts to become
Year 2000 compliant. Eighteen months ago, a new computer software package (SAP)
was installed which made most of the company-wide computer systems and its
hardware compliant for the Year 2000. This includes software for the financial
applications such as accounts payable, accounts receivable and general ledger as
well as costing, project accounting, sales and distribution, plant maintenance,
and production planning. The payroll and human resources software has also been
upgraded to be Year 2000 compliant and will be running on hardware that is
compliant by the end of 1998.
Work has also been done at the factories to ensure the systems and controls
used in the day-to-day production of sugar will not be adversely effected by
Year 2000 problems.
A Year 2000 Assessment Team has been formed with representation from various
locations and departments, information services functions as well as two of
American Crystal's associated companies, United Sugars Corporation and Midwest
Agri-Commodities Company. This committee is in the process of assessing what
additional systems the Company uses and if there are any Year 2000 compliance
problems. The systems that are determined to be non-compliant will then be
examined, risk assessed and action will be taken as deemed appropriate and
necessary.
Year 2000 compliance may also adversely affect the operations and financial
performance of the Company indirectly by causing complications of, or otherwise
affecting, the operations of any one or more of the Company's suppliers and
customers. The Company has begun contacting its significant suppliers and
customers as part of its Year 2000 compliance plan. The Company's goal is to
identify any potential year 2000 compliance issues with the enterprises with
whom the Company does business. Although the results of this effort indicate
that many of the Company's customers and suppliers will be year 2000 compliant,
the Company is currently unable to predict the magnitude of the operational and
financial impact on the Company of year 2000 compliance issues with the
Company's suppliers and customers.
The Company expects to incur (and expense) up to $60,000 during the fiscal
year which began on September 1, 1998 to resolve the remaining year 2000
compliance issues. The Company also expects to incur up to $20,000 during that
fiscal year for new software and hardware; those amounts will be capitalized.
COMPARISON OF THE YEAR ENDED AUGUST 31, 1997 AND 1996
Revenue for the year ended August 31, 1997, was $677 million, a decrease of
$11 million from the same period in 1996. Revenue from total sugar sales
decreased 1.8% reflecting a 7.2% decrease in hundredweight sold and a 5.9%
increase in the average selling price per hundredweight. Revenue from pulp sales
increased 5.1% due to a 2.9% increase in the volume of pulp sold and a 2.1%
increase in the average selling price per ton. Revenue from molasses sales
decreased 11.5% due to a 12.3% decrease in the volume of molasses sold partially
offset by a .9% increase in the average selling price per ton. Revenue from
concentrated separated by-product (CSB) increased 21.2% due to a 10.3% decrease
in the volume of CSB sold and a 35.5% increase in the average selling price per
ton.
Cost of product sold, exclusive of payments to members for sugarbeets,
decreased $79.9 million. The decrease was primarily due to the amount of
products sold compared to the prior year which was partially offset by increased
direct processing costs. Changes in product inventory levels decreased the cost
of product sold by $103 million. The cost associated with sugar purchased to
meet customer needs was up $1.1 million due to the short supply of inventory at
the beginning of the fiscal year. Fixed and committed expenses increased by 4.7%
due to higher depreciation costs.
Selling expenses decreased $10.5 million. The decrease is attributable
primarily to the decrease in the volume of sugar and by-products sold. General
and Administrative expenses decreased $2.7 million due primarily to lower
outside services and other general cost decreases.
17
<PAGE>
Interest expense increased $7.1 million from $11.2 million during the year
ended August 31, 1996, to $18.3 million for the same period in 1997. This
resulted from higher average borrowing levels for long and short-term debt.
Non-member business activities resulted in a loss of $18.1 million for the
year ended August 31, 1997 as compared to a loss of $396,000 for the same period
in 1996. The majority of this loss is related to American Crystal's investment
in ProGold Limited Liability Company.
Payments to members for sugarbeets increased by $73.6 million from $294.6
million during the year ending August 31, 1996 to $368.2 million during the same
period in 1997. The increase is attributable to an increase in the sales price
for the Company's products, a reduction in the Company's expenses and additional
tons harvested.
COMPARISON OF THE YEARS ENDED AUGUST 31, 1996, AND 1995
Revenue for the year ended August 31, 1996, was $688.0 million, an increase
of $82.0 million from 1995. Revenue from total sugar sales increased 15.4%,
reflecting a 12.6% increase in hundredweight sold and a 2.5% increase in the
average selling price per hundredweight. Revenue from pulp sales decreased 7.5%,
due to a 16.9% decrease in the volume of pulp sold partially offset by an 11.3%
increase in the average selling price per ton. Revenue from molasses sales
increased 32.4%, due to a 29.0% increase in the volume of molasses sold and a
2.6% increase in the average selling price per ton. Revenue from concentrated
separated by-products (CSB) increased 4.6%, due to a 2.4% increase in the volume
of CSB sold and a 2.2% increase in the average selling price per ton. Revenue
from beet seed sales was down 4.5%, primarily due to decreased sales volume
offset by an increase in sales prices.
Cost of product sold, exclusive of payments to members for sugarbeets,
increased $72.5 million. The increase was primarily due to changes in product
inventory levels between 1996 and 1995, which impacted the cost of product sold
unfavorably by $77.1 million. Direct processing costs for sugar and pulp
decreased 2.5% primarily due to the harvesting and processing of a 3.6% smaller
crop. Fixed and committed expenses decreased by 2.9% due to a shorter processing
campaign.
Selling expenses increased $17.9 million. The increase was attributable
primarily to increased sales volume. General and administrative expenses
increased $4.5 million due primarily to higher information services costs,
capital projects expense and general increases in personnel costs, partially
offset by a favorable settlement of an IRS tax case.
Interest expense decreased $3.2 million from $14.5 million in 1995, to $11.3
million in 1996. This resulted from lower 1996 average interest rates for both
long-term and short-term debt, partially offset by higher average borrowing
levels.
Non-member business activities resulted in a loss of $396,000 in 1996 and a
loss of $15,000 in 1995.
Unit retains of $16.0 million and $16.6 million were withheld from members
in 1996 and 1995, respectively. The unit retain per-ton-purchased was $2.00 in
1996 and 1995.
Payments to members for sugarbeets decreased by $14.9 million from $309.5
million in 1995 to $294.6 million in 1996. The decrease is attributable
primarily to a decrease in tons harvested and a lower average sugar content from
the 1995 crop of sugarbeets.
1998 CROP AND ESTIMATED FISCAL YEAR 1999 INFORMATION
As noted earlier, the agreements between the Company and its members
regarding the delivery of sugarbeets to the Company require payment for members'
sugarbeets in three installments throughout the year after harvest of the
applicable sugarbeet crop. As only the final payment is made after the close of
the fiscal year in question, the first two payments to members for their
sugarbeets are, of necessity, based upon the Company's then-current estimates of
the Net Beet Payment arising from the processing of the crop in
18
<PAGE>
question and the subsequent sale of the products obtained from processing those
sugarbeets. This discussion contains a summary of the Company's current
estimates of the financial results to be obtained from the Company's processing
of the 1998 sugarbeet crop. Given the nature of the estimates required in
connection with the payments to members for their sugarbeets, this discussion
includes forward-looking statements regarding the quantity of sugar to be
produced from the 1998 sugarbeet crop, the net selling price for the sugar and
agri-products produced by the Company and the Company's operating costs. These
forward-looking statements are based largely upon the Company's expectations and
estimates of future events; as a result, they are subject to a variety of risks
and uncertainties. Some of those estimates, such as the selling price for the
Company's products and the quantity of sugar produced from the sugarbeet crop,
are beyond the Company's control. The actual results experienced by the Company
could differ materially from the forward-looking statements contained herein. As
indicated above, the Company will prepare new, then-current estimates in
connection with the payment to the members of the second installment of the Net
Beet Payment. (That installment is expected to be made to the members with
respect to the 1998 sugarbeet crop on or about March 31, 1999.)
The completed harvest of the sugarbeet crop grown during 1998 produced a
total of 10.7 million tons of sugarbeets, or approximately 22.2 tons of
sugarbeets per acre from approximately 481,000 acres. That production exceeded
16.8 tons per acre, which is the ten-year average of tons per acre for the years
1988 through 1997. The sugar content of the 1998 crop is 17.66% in comparison to
a ten year average for the applicable period of approximately 17.36%. The
Company expects to produce a total of approximately 27.0 million hundredweight
of sugar from the 1998 crop, representing an estimated increase of 5.3 million
hundredweight of sugar in comparison to the 1997 crop. Such sugar production
provides a total sugar recovery of approximately 256 pounds of sugar for each
ton of sugarbeets harvested by the Company.
The Company's anticipated recovery of sugar from each ton of sugarbeets
results in expected sugar revenue per ton of sugarbeets in an amount equal to
$58.76 per ton.
The Company's sales of sugar must be added to the revenue produced by the
agri-products: molasses, beet pulp and concentrated separated by-product to
determine the net beet payment. The Company's estimates of additional revenue
from those sources would be $3.28 per ton of sugarbeets.
From the revenues generated from the sale of products produced from each ton
of sugarbeets must be deducted the Company's operating costs, which are
currently estimated to be $23.74 per ton. The deduction of those operating costs
results in an estimated gross beet payment of $38.50 per ton of sugarbeets. With
the deduction of an anticipated unit retain of $2.00 per ton for the fiscal year
ending on August 31, 1999, the Company's current estimated Net Beet Payment is
$36.50 per ton of sugarbeets. If successful in achieving the estimated results,
the Company's Net Beet Payment will be lower than the ten year average Net Beet
Payment by approximately $3.74 per ton.
THE COMPANY'S CURRENT STRATEGIC PLAN
In order to obtain the best selling price for its products, the Company
intends to focus on sales and marketing strategies which allow the Company to
provide its customers with an appropriate mixture of the Company's products. The
Company is optimizing its customer mix, improving logistics and continually
trying to evaluate and improve its customer performance.
To pursue the goal of maintaining and improving upon its current status as a
low cost producer, the Company intends to focus on working with its members to
increase the productivity of the members' sugarbeet farming operations. In
addition, the Company plans to focus on cost reduction at the factory level. At
the member level, the Company expects to focus on, among others, programs for
nitrogen management and new seed varieties. At the factory level, the Company
intends to pursue on-going maintenance and improvements. The Company is part of
the Crystech joint venture to construct and operate a molasses desugarization
plant at the Company's Hillsboro plant, which would allow the Company to desugar
the balance of its molasses to extract additional sugar. Currently,
approximately one-
19
<PAGE>
half of the Company's molasses is desugared. The Company's goal in participating
in the molasses desugarization plant is to reduce the Company's average cost of
sugar production, through the use of current separation technologies.
ITEM 8. FINANCIAL STATEMENTS
The financial statements of the Company for the fiscal years ended August
31, 1998, 1997 and 1996 have been audited by Eide Bailly LLP, Fargo, North
Dakota, independent certified public accountants. Such financial statements have
been included herein in reliance upon the report of Eide Bailly LLP. The
financial statements of the Company are included in Appendix A to this annual
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
BOARD OF DIRECTORS
The Board of Directors of the Company consists of three directors from each
of the five factory districts. Directors must be common shareholders or
representatives of common shareholders belonging to the district they represent
and are elected by the members of that district. In the case of a common
shareholder who is other than a natural person, a duly appointed or elected
representative of such common shareholder may serve as a director. The directors
have been elected to serve three-year terms expiring in December of the years
indicated in the table below. One director is elected each year from each
factory district.
The table below lists certain information concerning current directors of
the Company and a director-elect.
<TABLE>
<CAPTION>
TERM
YEAR OF DIRECTOR EXPIRES IN
NAME AND ADDRESS BIRTH FACTORY DISTRICT SINCE DEC.
- ------------------------------------------ ----------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
Michael A. Astrup ........................ 1953 Moorhead 1996 1999
Box 219
Dilworth, MN 56529
Jerry D. Bitker .......................... 1948 Hillsboro 1996 1999
1694 Co. Highway #19
Halstad, MN 56548
Richard Borgen ........................... 1949 Moorhead 1997 2000
R.R. 1, Box 36
Perley, MN 56574
Aime J. Dufault .......................... 1954 East Grand Forks 1990 2000
R.R. 1, Box 162
Argyle, MN 56713
Steven M. Goodwin ........................ 1958 East Grand Forks 1995 2001
R.R. 3, Box 116
Angus, MN 56712
Court G. Hanson .......................... 1948 Hillsboro 1993 2001
R.R. 2, Box 1
Blanchard, ND 58009
Lonn M. Kiel ............................. 1953 Crookston 1994 2000
R.R. 3, Box 71
Crookston, MN 56716
David J. Kragnes ......................... 1952 Moorhead 1995 2001
R.R. 1, Box 100
Felton, MN 56536
Francis L. Kritzberger ................... 1945 Hillsboro 1996 2000
R.R. #1, Box 22
Hillsboro, ND 58045
Wayne Langen (Chairman) .................. 1939 Drayton 1988 2000
P.O. Box 133
Kennedy, MN 56733
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
TERM
YEAR OF DIRECTOR EXPIRES IN
NAME AND ADDRESS BIRTH FACTORY DISTRICT SINCE DEC.
- ------------------------------------------ ----------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
Patrick D. Mahar ......................... 1942 Drayton 1993 1999
R.R. 1, Box 363
Cavalier, ND 58220-9789
Barry W. Malme ........................... 1947 Crookston 1986 1998
R.R. 1, Box 19K
Shelly, MN 56581
Ronald E. Reitmeier ...................... 1945 Crookston 1996 1999
Route 1, Box 49
Fisher, MN 56723
Jim A. Ross (Director Elect) ............. 1950 Crookston 1998 2001
Route 1, Box 5
Fisher, MN 56723
G. Terry Stadstad ........................ 1943 East Grand Forks 1993 1999
1774 22nd Avenue NE
Grand Forks, ND 58203
Robert Vivatson (Vice Chairman) .......... 1949 Drayton 1992 2001
P.O. Box 631
Cavalier, ND 58220
</TABLE>
MICHAEL A. ASTRUP. Mr. Astrup has been a director since 1996. He has been a
farmer near Dilworth, Minnesota, since 1977. He serves on the Board of Directors
for the American Sugarbeet Growers Association.
JERRY D. BITKER. Mr. Bitker has been a director since 1996 and has been a
farmer since 1974 near Halstad and Ada, Minnesota.
RICHARD BORGEN. Mr. Borgen has been a director since 1997. He has farmed
east of Perley, Minnesota since 1967 and has served as a director on the Perley
Co-op Elevator Board for nine years and the Norman County West school board for
10 years.
AIME J. DUFAULT. Mr. Dufault has been a director since 1990. He has farmed
near Argyle, Minnesota since 1974. Mr. Dufault serves on the Board of Directors
for Midwest Agri-Commodities Company.
STEVEN M. GOODWIN. Mr. Goodwin has been a director since 1995. Mr. Goodwin
has been a farmer since 1980 and owns and operates a farm near Angus, Minnesota.
COURT G. HANSON. Mr. Hanson has been a director since 1993 and has been a
farmer since 1971. Mr. Hanson is president of C. Hanson Farm, Inc., operating
near Blanchard, North Dakota. Prior to farming, Mr. Hanson was an assistant
national bank examiner from 1970 to 1973.
LONN M. KIEL. Mr. Kiel has been a director since 1994 and has been farming
near Crookston, Minnesota since 1982. He is the president of Kiel Corporation
and also serves on the Board of Directors of the Crookston Fuel Company.
DAVID J. KRAGNES. Mr. Kragnes has been a director since 1995. Mr. Kragnes
has been a farmer since 1972, with his farming operation located near Felton,
Minnesota. Mr. Kragnes is a director for the American Sugarbeet Growers
Association.
FRANCIS L. KRITZBERGER. Mr. Kritzberger has been a director since 1996. He
has previously served as a director with the Company, from July 30, 1989 until
July 30, 1993. Mr. Kritzberger has been a farmer since 1964. He serves on the
Board of Directors of the North Dakota Council of Cooperatives.
22
<PAGE>
WAYNE LANGEN. Mr. Langen has been a director since 1988 and a farmer since
1963. Mr. Langen is a partner of Langen Bros. Joint Venture and operates its
farming operations near Kennedy, Minnesota. Mr. Langen serves on the Board of
Directors of Kennedy Farmers Elevator Company, United Sugars Corporation and
Midwest Agri-Commodities Company and on the Board of Governors of ProGold
Limited Liability Company.
PATRICK D. MAHAR. Mr. Mahar has been a director since 1993 and has been a
farmer since 1962. He is currently a partner of Mahar Farms near Cavalier, North
Dakota. Mr. Mahar previously served as president of the Red River Valley
Sugarbeet Growers Association, Fargo, North Dakota, and as president of the
American Sugarbeet Growers Association, Washington, D.C. Mr. Mahar is currently
serving as a director for Midwest Agri-Commodities Company and also on the
Boards of Directors of First State Bank and Farmers Co-op Elevator, both of
Cavalier, North Dakota.
BARRY W. MALME. Mr. Malme has been a director since 1986. His current term
expires in December, 1998. Pursuant to the Company's By-laws, a director may not
serve for more than four consecutive terms; as a result, Mr. Malme was not
eligible to stand for re-election for an additional term. Mr. Malme has been a
farmer near Shelly, Minnesota since 1974. Mr. Malme serves on the Board of
Directors for Midwest Agri-Commodities Company and the Minnesota Association of
Cooperatives.
RONALD E. REITMEIER. Mr. Reitmeier has been a director since 1996, and has
been a farmer since 1968. He previously served on the Board of Directors of PKM
Electric Co-op for ten years.
JIM A. ROSS. Mr. Ross was elected a director at the Company's recent
district meetings. His term as a director will begin in December, 1998. He has
farmed near Fisher, Minnesota since 1971 and is a board member of Fisher Fuel
and Hardware Cooperative.
G. TERRY STADSTAD. Mr. Stadstad has been a director since 1993 and has been
farming near Grand Forks, North Dakota since 1965. Mr. Stadstad serves on the
Board of Directors of United Sugars Corporation.
ROBERT VIVATSON. Mr. Vivatson has been a director since 1992. Operating as
a farmer near Cavalier, North Dakota since 1975, Mr. Vivatson is a partner of
Vivatson Bros. and president of Vivatson Farms Inc. Mr. Vivatson is serving on
the Board of Directors of First State Bank, Cavalier, North Dakota and on the
Board of Governors of ProGold Limited Liability Company and United Sugars
Corporation.
The Board of Directors meets monthly. The Company provides its directors
with minimal compensation, consisting of (i) a payment of $200 per month, (ii) a
per diem payment of $200 for each day spent on Company activities, including
board meetings and other Company functions, and (iii) reimbursement of expenses
for attendance at Board of Directors' meetings. The Chairman of the Board of
Directors receives a payment of $500 per month, rather than $200 per month; the
Chairman also receives a per diem in the amount of $200 for each day spent on
Company activities.
EXECUTIVE OFFICERS
The table below lists the principal officers of the Company, none of whom
owns any shares of Common or Preferred Stock. Officers are elected annually by
the Board of Directors.
<TABLE>
<CAPTION>
YEAR OF
NAME BIRTH POSITION
- ----------------------------------------- ----------- -----------------------------------------
<S> <C> <C>
James J. Horvath......................... 1945 Chief Executive Officer
Marcus F. Richardson..................... 1941 Chief Operating Officer
Robert W. Levos.......................... 1943 Vice President-Agriculture
James W. Dudley.......................... 1950 Vice President-Agriculture
Joseph J. Talley......................... 1960 Vice President-Finance
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
YEAR OF
NAME BIRTH POSITION
- ----------------------------------------- ----------- -----------------------------------------
<S> <C> <C>
Lawrence L. Mathias...................... 1941 Vice President-Human Resources and Public
Relations
David A. Berg............................ 1954 Vice President-Administration
David A. Walden.......................... 1953 Vice President-Operations
Ralph K. Morris.......................... 1940 Secretary
Brian I. Ingulsrud....................... 1962 Treasurer
Samuel S.M. Wai.......................... 1953 Corporate Controller, Assistant Secretary
and Assistant Treasurer
Mark L. Lembke........................... 1955 Assistant Secretary & Assistant Treasurer
Daniel C. Mott........................... 1959 Assistant Secretary
Ronald K. Peterson....................... 1955 Assistant Secretary & Assistant Treasurer
David L. Malmskog........................ 1957 Assistant Secretary & Assistant Treasurer
</TABLE>
JAMES J. HORVATH. Mr. Horvath was named Chief Executive Officer in May,
1998. He served as Chief Financial Officer from 1996 to 1998. From June, 1994 to
March, 1996, Mr. Horvath served as the Company's Vice President-Joint Ventures
as well as Chief Manager and Chief Operating Officer of ProGold Limited
Liability Company. Mr. Horvath also served as the Company's Vice
President-Finance from 1985-1994. Mr. Horvath currently serves on the Boards of
Directors of United Sugars Corporation and Midwest Agri-Commodities Company.
MARCUS F. RICHARDSON. Mr. Richardson has been Chief Operating Officer since
1995 after serving as interim Chief Executive Officer for one year. He served in
various manufacturing positions with the Company since 1980 including Vice
President-Operations. Mr. Richardson currently serves as a director of the Beet
Sugar Development Foundation, a non-profit industry association, on the Board of
Governors of ProGold Limited Liability Company and as chairman of the Board of
Managers of Crystech, LLC. In addition, he served as Trustee for the United
States Beet Sugar Association and on the Board of Directors of the Moorhead
Economic Development Authority. Mr. Richardson plans to retire January 1, 1999.
ROBERT W. LEVOS. Mr. Levos has been Vice President-Agriculture since 1986.
From 1981 to 1986 he was General Agriculturalist. He has been employed by the
Company since 1965. Mr. Levos currently serves on the Boards of Directors of
West Coast Beet Seed Company and the Beet Sugar Development Foundation. Mr.
Levos retired August 31, 1998.
JAMES W. DUDLEY. Mr. Dudley was appointed Vice President-Agriculture in
January, 1998. He had served as Vice President-Operations, Factory Operations
Manager and Regional Manager from 1985 through 1997.
JOSEPH J. TALLEY. Mr. Talley was named Vice President-Finance in 1998. He
served as the Company's Treasurer and Finance Director, Assistant Treasurer and
Assistant Secretary from March 1996 until his appointment as Vice
President-Finance. Mr. Talley served as Finance Director of ProGold Limited
Liability Company and Assistant Treasurer and Assistant Secretary of Golden
Growers Cooperative. He currently serves on the Board of Governors for ProGold
Limited Liability Company, as well as ProGold/ Cargill Oversight Board. Prior to
July 1994, Mr. Talley was a partner with the accounting firm of Eide Helmeke
PLLP.
LAWRENCE L. MATHIAS. Mr. Mathias has been Vice President-Human Resources
and Public Relations since 1990. He was Industrial Relations Manager with the
Company from 1976 to 1990. He currently serves
24
<PAGE>
on the Board of Directors of Blue Cross Blue Shield of Minnesota. Mr. Mathias
plans to retire January 1, 1999.
DAVID A. BERG. Mr. Berg served as a Factory Shift Supervisor and Packaging
and Warehousing Superintendent during 1998 as part of a development assignment.
In October 1998, he was named Vice President-Administration. During the period
from 1994 to 1998, Mr. Berg served as the Company's Vice President-Business
Development, Vice President-Strategic Planning, Director-Market Information,
Manager of Marketing and Analysis and Manager-Economic Research. He currently
serves on the Domestic Sugar Committee of the New York Coffee, Sugar and Cocoa
Exchange which oversees the administration and regulatory compliance of sugar
futures contracts traded on the Exchange.
DAVID W. WALDEN. Mr. Walden was elected Vice President of Operations in
January 1998. He served as Production Manager from 1995 until 1998. He joined
American Crystal in 1979 as a Resident Engineer at the Crookston facility and
has held positions of Engineering and Maintenance Superintendent, Production
Superintendent, Assistant Operations Manager and Maintenance Manager.
RALPH K. MORRIS. Mr. Morris has been Secretary of the Company since 1995.
He is a shareholder in the law firm of Doherty, Rumble & Butler Professional
Association. The firm acts as corporate counsel to American Crystal. Mr. Morris
is not an employee of the Company.
BRIAN I. INGULSRUD. Mr. Ingulsrud became the Company's Treasurer in 1998.
Mr. Ingulsrud began his employment with the Company in 1990, initially serving
as a Financial Analyst. He has also served as an Operations Financial Planning
Supervisor, Factory Office Manager and Financial Planning Manager. In 1996 Mr.
Ingulsrud served as SAP Implementation Manager. Mr. Ingulsrud was appointed as
Assistant Secretary and Assistant Treasurer for Golden Growers Cooperative in
1998.
SAMUEL S.M. WAI. Mr. Wai served as the Company's Treasurer from 1985 to
1996. He currently serves as the Company's Corporate Controller. He held various
financial positions with the Company from 1979 to 1985. Mr. Wai also serves on
the Board of Managers of Crystech, LLC and as treasurer of the American Crystal
Sugar Political Action Committee.
MARK L. LEMBKE. Mr. Lembke was named Assistant Secretary and Assistant
Treasurer in March 1996. Mr. Lembke has also served as the Company's Corporate
Accounting Manager since August 1995. From July 1987 through July 1995, Mr.
Lembke served as Factory Accounting Supervisor.
DANIEL C. MOTT. Mr. Mott has been Assistant Secretary of the Company since
1995. He is a shareholder in the law firm of Doherty, Rumble & Butler
Professional Association. The firm acts as corporate counsel to American
Crystal. Mr. Mott is not an employee of the Company.
RONALD K. PETERSON. Mr. Peterson has served as the Financial Systems
Manager since 1996 and as Assistant Treasurer and Assistant Secretary since
1993. Mr. Peterson also served as the Company's Corporate Accounting Manager
from 1991 through 1996. Mr. Peterson has held various financial positions with
the Company since 1979. He is also the Assistant Treasurer for the American
Crystal Sugar Political Action Committee.
DAVID L. MALMSKOG. Mr. Malmskog currently serves as Director-Business
Development and was appointed Assistant Secretary and Assistant Treasurer in
1998. Mr. Malmskog has held various financial positions with the Company since
1980.
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the amount of compensation paid for services
rendered to the Company during the fiscal year ended August 31, 1998 and the two
prior fiscal years to those persons serving as the Company's Chief Executive
Officer and to the four other most highly compensated executive officers of the
Company whose cash compensation exceeded $100,000 per annum.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------------
AWARDS
ANNUAL COMPENSATION -------------------------- PAYOUTS
----------------------------------- RESTRICTED -----------
OTHER ANNUAL STOCK OPTIONS/ LTIP
SALARY COMPENSATION AWARD(S) SARS PAYOUTS
YEAR ($) BONUS ($) ($)(1) ($) (#) ($)
--------- --------- --------- ------------- ------------- ----------- -----------
James J. Horvath ............ 1998 $ 388,840 $ 64,556 $ 51,354 $ 19,546(3)
Chief Executive Officer 1997 $ 217,650 $ 97,943 $ 37,958 $ 45,925(3)
1996 $ 205,330 $ 71,866 $ 27,646
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel J. McCarty(2) ........ 1998 $ 475,600 $ -- $ 12,727 $ 146,648(3)
Chief Executive Officer 1997 $ 410,000 $ 184,500 $ 19,101 $ 146,938(3)
1996 $ 149,808 $ 70,000 $ 77,372
Marcus F. Richardson(4) ..... 1998 $ 264,485 $ 55,897 $ 90,265 $ 47,713(3)
Chief Operating Officer 1997 $ 254,555 $ 114,550 $ 71,718 $ 112,110(3)
1996 $ 245,500 $ 93,683 $ 60,550
Robert W. Levos ............. 1998 $ 198,660 $ 39,732 $ 63,194 $ 18,396(3)
Vice President--Agriculture 1997 $ 189,200 $ 85,140 $ 47,399 $ 43,223(3)
1996 $ 178,490 $ 62,472 $ 37,222
Lawrence L. Mathias ......... 1998 $ 177,790 $ 35,558 $ 52,797 $ 15,527(3)
Vice President--Human 1997 $ 172,610 $ 69,044 $ 42,840 $ 36,469(3)
Resources and Public 1996 $ 162,840 $ 56,994 $ 31,121
Relations
James W. Dudley ............. 1998 $ 177,900 $ 35,580 $ 28,713 $ 16,096(3)
Vice President--Acriculture 1997 $ 161,725 $ 72,776 $ 20,042 $ 36,469(3)
1996 $ 150,440 $ 45,132 $ 16,052
</TABLE>
- ------------------------------
(1) Includes the cost of additional life insurance coverage, use of a company
car, costs of tax return preparation, imputed interest, taxable moving
expenses reimbursed, the Company's matching contribution for 401(k) and SERP
and pension valuations.
(2) Mr. McCarty's employment with the Company began on March 28, 1996, and Mr.
McCarty's salary is shown on an annualized basis. Mr. McCarty ended his
employment on June 1, 1998.
(3) Represents the sum of (i) dollar value at $1,500 per share of contract
rights with respect to the vested portion of contract rights granted to the
executive under the Company's LTIP plan (described below) during the fiscal
year and (ii) "profit per acre payments" made to the executive under the
Company's LTIP plan. The profit per acre payments are determined by
subtracting from the Company's beet payment per acre the average cost of
production per acre incurred by the Company's members and multiplying the
result by the number of contract rights held by the executive.
(4) Mr. Richardson also served as interim Chief Executive Officer between June
1995 and March 1996.
Effective May 15, 1998, the Company and Mr. Horvath entered into an
"Employment Agreement" regarding Mr. Horvath's employment by the Company. The
agreement provides that Mr. Horvath shall serve as an "at will" employee at the
pleasure of the Board of Directors. Among other terms, the agreement establishes
Mr. Horvath's base compensation at $388,840 per year, and also provides that he
may participate in other benefit plans offered by the Company. If the Board of
Directors terminates Mr. Horvath's employment with the Company without cause
after age 60 or he incurs a termination due to disability, Mr. Horvath is
entitled to receive reimbursement for the cost of medical and dental coverage
for himself and his spouse from the date of termination through their respective
deaths; life insurance
26
<PAGE>
coverage to age 59 1/2 equal to his base salary on the date of termination, from
age 65 to 70 equal to 50% of his base salary on the date of termination, and
after age 70 equal to 25% of his base salary on the date of termination; and
supplemental pension benefits equal to the difference between the cumulative
monthly amount of the retirement benefit Mr. Horvath would have received under
Retirement Plan A and the Supplemental Executive Retirement Plan (SERP) computed
as though Mr. Horvath continued his employment to age 65 and had attained 30
years of service, and the cumulative monthly amount of the retirement benefits
actually paid to Mr. Horvath under Retirement Plan A and the Supplemental
Executive Retirement Plan (SERP). If the Board of Directors terminates Mr.
Horvath's employment with the Company without cause before age 55 or he incurs a
termination due to disability, Mr. Horvath is entitled to receive supplemental
early retirement benefits equal to the difference between the cumulative monthly
amount of the retirement benefit Mr. Horvath would have received under
Retirement Plan A and the Supplemental Executive Retirement Plan (SERP) computed
as though Mr. Horvath continued his employment to age 55 and assuming
compensation equal to that in effect as of the termination date with no
reduction in benefits for death benefits payable to Mr. Horvath's spouse, and
the cumulative monthly amount of the retirement benefits actually paid to Mr.
Horvath under Retirement Plan A and the Supplemental Executive Retirement Plan
(SERP) assuming commencement at age 55. If the Board of Directors terminates Mr.
Horvath's employment with the Company without cause after age 60 and Mr. Horvath
subsequently dies, or if Mr. Horvath dies prior to terminating his employment
with the Company, Mr. Horvath's spouse is entitled to receive monthly payments
for the remainder of her life equal to the difference between the cumulative
monthly amount of the retirement benefit Mr. Horvath would have received under
Retirement Plan A and the Supplemental Executive Retirement Plan (SERP) computed
as though Mr. Horvath continued his employment to age 65 and had attained 30
years of service, and the cumulative monthly amount of the retirement benefits
actually payable to his spouse under Retirement Plan A and the Supplemental
Executive Retirement Plan (SERP). The agreement also contains the provision of a
three-year non-compete/non-solicitation agreement with Mr. Horvath.
Certain management employees are entitled to participate in an incentive
program that provides for cash awards based partially on the performance of the
Company and partially on achievement of certain management performance
objectives. Those performance objectives are determined by the Board of
Directors. An executive is not eligible for any awards under the incentive
program unless that executive's performance for the applicable fiscal year is
rated as "fully satisfactory" or better. Depending on the executive's
responsibilities, the performance of the Company (measured in terms of revenues
returned to the members) and the results of the executive's evaluation for the
fiscal year, the program provides for an incentive bonus in amounts ranging from
4% to 40% of the eligible executive's base salary.
The Company has also adopted a Long Term Incentive Plan ("LTIP") which
provides deferred compensation to certain key executives of American Crystal
effective September 1, 1995. The LTIP creates financial incentives that reward
executives for long-term commitment to the Company and for successfully
implementing the Company's long-term growth strategies. Such incentives are
based upon contract rights which are available to the executive under the terms
of the LTIP, the value of which is related to the value of preferred shares of
the Company. The LTIP allows participants to purchase a limited number of
contract rights at the end of each three-year cycle. The LTIP establishes both
minimum and maximum ownership levels. When an executive reaches his minimum
ownership level, he or she may sell any vested shares over the minimum to any
qualified grower. The executive or his estate may also sell any vested shares at
the time of his termination, disability or death. At the point of sale, the
contract right becomes a share of Preferred Stock which the Company issues to
the purchasing grower. The executive receives the proceeds of the sale, less
appropriate taxes. The long-term cost of the stock will not be to the Company,
but to the grower who eventually purchases the stock from the executive. The
LTIP also provides for annual payments of "profit per acre payments" to
executives holding contract rights. The profit per acre payments are determined
by subtracting from the Company's beet payment per acre the average cost of
production per acre incurred by the Company's members and multiplying the result
by the number of contract rights held by the executive.
27
<PAGE>
A total of 389 contract rights have been granted under the plan. As of the
date hereof, those executives listed above have been granted and hold contract
rights with respect to number of shares set forth below. Each contract right
listed below carried a stated value upon grant of $1,485 per share; the current
stated value is $1,500 per share.
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
CONTRACT REPRESENTATIVE
EXECUTIVE OFFICERS RIGHTS PAYOUT(1)
- -------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Marcus F. Richardson................................................ 83 $ 10,435
James J. Horvath.................................................... 34 $ 4,275
Robert W. Levos..................................................... 32 $ 4,023
James J. Dudley..................................................... 28 $ 3,520
Lawrence L. Mathias................................................. 27 $ 3,395
David A. Berg....................................................... 15 $ 1,886
George Sinner....................................................... 15 $ 1,886
</TABLE>
- ------------------------
(1) The amount shown represents a representative amount, determined for the last
fiscal year, with respect to "profit per acre payments", which are non-stock
price based payments. The profit per acre payments are determined by
subtracting from the Company's beet payment per acre the average cost of
production per acre incurred by the Company's members and multiplying the
result by the number of contract rights held by the executive. Based on that
formula, the Company must provide a beet payment per acre to its members
equal to the average cost of production for an acre of sugarbeets in order
for executives holding contract rights to obtain any payment of profit per
acre payments. Given the method of determining the profit per acre payments,
there is no maximum payment amount.
To date, only Mr. McCarty has exercised his contract rights, having sold 155
contract rights in May, 1998.
LONG-TERM INCENTIVE PLAN--RIGHTS SOLD
<TABLE>
<CAPTION>
CONTRACT PRICE PER VALUE
EXECUTIVE OFFICERS RIGHTS SHARE REALIZED
- ------------------------------------------------------------ ----------- ----------- ----------
<S> <C> <C> <C>
Daniel J. McCarty........................................... 155 $ 1,500 $ 232,500
</TABLE>
Management employees are also eligible to participate in the Company's
Retirement Plan "A," a 401(k) savings plan and, beginning on September 1, 1994,
a "Supplemental Executive Plan." Those plans are described below.
RETIREMENT PLANS
The Company has established noncontributory, defined benefit retirement
plans which are available to all eligible employees of the Company. Those
employees who are covered by a collective bargaining agreement participate in
one plan, while employees who are not subject to a collective bargaining
agreement, including the executive officers listed on the Summary Compensation
Table, participate in another pension plan. That plan is known as Retirement
Plan "A." The benefits of the plan are funded by periodic Company contributions
to a retirement trust which invests the Company's contributions and the earnings
from such contributions in order to pay the benefits to the employees. The plan
provides for the payment of monthly retirement benefits determined under a
calculation based on years of service and a participant's compensation.
Retirement benefits are paid to participants upon normal retirement at the age
28
<PAGE>
of 65 or later or upon early retirement. The plan also provides for the payment
of certain disability and death benefits.
The following table reflects the estimated annual benefits payable to a
fully-vested executive officer of the Company under Retirement Plan "A," upon
retirement at age 65, after 15, 20, 25, 30 and 35 years of annual service at the
remuneration levels set forth in the table:
AMERICAN CRYSTAL SUGAR COMPANY
1998 CALCULATION
PLAN A--QUALIFIED BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
REMUNERATION 15 20 25 30 35
- --------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000............................... $ 24,382 $ 32,510 $ 40,637 $ 48,765 $ 48,765
$150,000............................... $ 29,632 $ 39,510 $ 49,387 $ 59,265 $ 59,265
$175,000............................... $ 31,732 $ 42,310 $ 52,887 $ 63,465 $ 63,465
$200,000............................... $ 31,732 $ 42,310 $ 52,887 $ 63,465 $ 63,465
$225,000............................... $ 31,732 $ 42,310 $ 52,887 $ 63,465 $ 63,465
$250,000............................... $ 31,732 $ 42,310 $ 52,887 $ 63,465 $ 63,465
$300,000............................... $ 31,732 $ 42,310 $ 52,887 $ 63,465 $ 63,465
$400,000............................... $ 31,732 $ 42,310 $ 52,887 $ 63,465 $ 63,465
$500,000............................... $ 31,732 $ 42,310 $ 52,887 $ 63,465 $ 63,465
</TABLE>
The five executive officers named in the Summary Compensation Table who are
currently employees of the Company, have years of service under the plan as
follows: Mr. Horvath has served for 13 years; Mr. Richardson has served for 18
years; Mr. Dudley has served for 14 years; Mr. Levos has served for 33 years;
and Mr. Mathias has served for 22 years.
The Company maintains a Section 401(k) plan that permits employees to elect
to set aside, on a pre-tax basis, a portion of their gross compensation in trust
to pay future retirement benefits. The Company matches 100% of the employee's
first 4% of compensation. The total annual pre-income tax addition to any
employees' account in any calendar year may not exceed the lesser of (i) $30,000
or (ii) 25% of annual compensation less the amount of the contribution and any
salary conversion. During 1998, the employee pre-income tax contribution was
limited to $10,000. An employee may also contribute up to 10% of his annual
compensation on an after-tax basis. Benefits under the 401(k) plan begin to be
paid to the employee upon the close of the plan year in which one of the
following events has occurred: the date the employee attains age 59 1/2 , the
date the employee terminates his service with the employer and the date
specified in a written election made by the employee to receive benefits no
later than April 1 of the year following the calendar year in which the employee
retires, dies, becomes disabled, reaches age 70 1/2 or is terminated.
Effective September 1, 1994, certain executive employees of the Company
became eligible to participate in a "Supplemental Executive Retirement Plan."
That plan was adopted by the Company's Board of Directors on June 30, 1994.
Subject to the discretion of the Board of Directors, the plan provides for the
Company to credit to the account of each executive eligible to participate in
the Supplemental Plan amounts equal to (i) the difference between amounts
actually contributed to the Company's 401(k) plan on behalf of the executive and
the amounts which could have been contributed if certain provisions of the
Internal Revenue Code did not prohibit the contribution of such amounts and (ii)
the difference between the benefits actually payable to the executive under the
provisions of Retirement Plan "A" and the amounts which would be payable under
Retirement Plan "A" if certain provisions of the Internal Revenue Code did not
prohibit the payment of such benefits. In addition, the executive may elect to
defer a portion of his or her compensation, ranging from 2% to 16%, by regular
payroll deductions under the Supplemental Plan,
29
<PAGE>
and may also defer 100% of all bonus and profits-per-acre payments. The
Supplemental Plan is an "unfunded" plan, with all amounts to be paid under the
Supplemental Plan to be paid from the general assets of the Company when due and
also to be subject to the claims of the Company's creditors.
The following table reflects the estimated annual benefits payable to a
fully-vested executive officer of the Company under the Supplemental Plan, upon
retirement at age 65, after 15, 20, 25, 30 and 35 years of annual service at the
remuneration levels set forth in the table:
PLAN A--NON QUALIFIED BENEFITS 1998 CALCULATION
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$125,000........................... $ 0 $ 0 $ 0 $ 0 $ 0
$150,000........................... $ 0 $ 0 $ 0 $ 0 $ 0
$175,000........................... $ 3,150 $ 4,200 $ 5,250 $ 6,300 $ 6,300
$200,000........................... $ 8,400 $ 11,200 $ 14,000 $ 16,800 $ 16,800
$225,000........................... $ 13,650 $ 18,200 $ 22,750 $ 27,300 $ 27,300
$250,000........................... $ 18,900 $ 25,200 $ 31,500 $ 37,800 $ 37,800
$300,000........................... $ 29,400 $ 39,200 $ 49,000 $ 58,800 $ 58,800
$400,000........................... $ 50,400 $ 67,200 $ 84,000 $ 100,800 $ 100,800
$450,000........................... $ 60,900 $ 81,200 $ 101,500 $ 121,800 $ 121,800
$500,000........................... $ 71,400 $ 95,200 $ 119,000 $ 142,800 $ 142,800
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date hereof, no director owns beneficially more than 1% of the
Company's issued and outstanding Preferred Stock and the directors, as a group,
beneficially own less than 3% of the Company's issued and outstanding Preferred
Stock. To the best of the Company's knowledge, no other party beneficially owns
more than 1% of the Company's Preferred Stock.
ITEM 13. CERTAIN RELATIONSHIPS RELATED TRANSACTIONS
Each of the Company's directors is also a sugarbeet farmer and a shareholder
member or representative of a shareholder member of American Crystal. By virtue
of their status as such members of the Company, each director or the member he
represents sells sugarbeets to the Company and receives payments for those
sugarbeets. Such payments for sugarbeets often exceed $60,000. However, such
payments are received by the directors or the entities they represent on exactly
the same basis as payments are received by other members of the Company for the
delivery of their sugarbeets. Except for the sugarbeet sales described in the
preceding sentences, none of the directors or executive officers of the Company
have engaged in any other transactions with the Company involving amounts in
excess of $60,000.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report
1. Financial Statements
Report of Independent Auditors
Balance Sheets as of August 31, 1998 and 1997
Statements of Operations for the Years Ended August 31, 1998, 1997
and 1996
Statements of Changes in Members' Investment for the Years Ended
August 31, 1998, 1997 and 1996
Statements of Cash Flows for the Years Ended August 31, 1998, 1997
and 1996
Notes to consolidated Financial Statements
2. Financial Statement Schedules
None
(b) Reports on Form 8-K
None
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ------------ ---------------------------------------------------------------------------------------------------
<C> <S>
*3(i) Restated Articles of Incorporation of American Crystal Sugar Company.
**3(ii) Restated By-laws of American Crystal Sugar Company.
**10(f) Growers' Contract (5-year Agreement).
*10(g) Growers' Contract (Annual Contract).
*10(h) Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 1, 1986.
*10(i) Coal Transportation Agreement between Registrant and Northern Coal Transportation Company, dated
August 1, 1986.
*10(j) Beet Loading and Hauling Agreement between Registrant and Transystems, Inc., dated May 18, 1993.
*10(k) Form of Uniform Member Marketing Agreement between Registrant and United Sugars Corporation, dated
January 1, 1994.
*10(l) Trademark License Agreement between Registrant and United Sugars Corporation, dated November 1,
1993.
*10(m) Uniform Member Marketing Agreement, Pool Basis between Registrant and Midwest Agri-Commodities
Company, dated April 14, 1992.
*10(n) Stipulation Agreement between Registrant and State of Minnesota Pollution Control Agency.
*10(o) Master Agreement between Registrant, United Sugars Corporation, American Federation of Grain
Millers, AFL-CIO, CLC, et al.
*10(p) Loan Agreement between Registrant and St. Paul Bank for Cooperatives, dated December 20, 1993.
*10(q) Amended and Restated Loan Agreement between Registrant and First Bank National Association, dated
November 22, 1993.
*10(r) Pension Contract and Amendments.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ------------ ---------------------------------------------------------------------------------------------------
<C> <S>
*10(s) Compensation, Severance and Loan Agreement with Mr. J. Famalette, dated March 2, 1992.
*10(t) Compensation and Loan Agreement with Mr. J. Famalette, dated October 1, 1993.
*10(u) Form of Operating Agreement between Registrant and ProGold Limited Liability Company.
*10(v) Form of Member Control Agreement between Registrant and ProGold Limited Liability Company.
*10(w) Administrative Services Agreement between Registrant and ProGold Limited Liability Company
*10(x) Uniform Member Marketing Agreement.
**+10(y) Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 25, 1995.
**+10(z) Coal Transportation Agreement between Registrant and Northern Coal Transportation Company, dated
August 25, 1995.
**+10(aa) Gas Sales Contract between Registrant and Coastal Gas Marketing Company, dated as of March 20,
1996.
**10(bb) Employment Agreement with Mr. Daniel McCarty, dated as of April 8, 1996.
***10(cc) Amendment to Employment Agreement with Mr. Daniel McCarty, dated as of July, 1997.
***+10(dd) Trademark License Agreement between Registrant and The Pillsbury Company, dated as of April 9,
1997.
10(ee) Pledge Agreement between Registrant and First Union Trust Company, NA
10(ff) Indemnity Agreement between Registrant, Newcourt Capital USA Inc., Crystech, LLC and Crystech
Senior Lender Trust
10(gg) Tolling Services Agreement between Crystech, LLC and Registrant
10(hh) Operations and Maintenance Agreement between Crystech, LLC and Registrant
++10(ii) Limited Liability Agreement of Crystech, LLC
27 Financial Data Schedule
</TABLE>
- ------------------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-83868), declared effective November 23, 1994.
** Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-11693), declared effective November 13, 1996.
*** Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-32251), declared effective October 24, 1997.
+ Certain portions of the Exhibit have been granted confidential treatment by
the Commission. The omitted portions have been filed separately with the
Commission.
++ Portions of the Exhibit have been deleted from the publicly filed document
and have been filed separately with the Commission pursuant to a request for
confidential treatment.
32
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON NOVEMBER 28, 1997.
<TABLE>
<S> <C> <C>
AMERICAN CRYSTAL SUGAR COMPANY
By: /s/ JAMES J. HORVATH
-----------------------------------------
James J. Horvath
CHIEF EXECUTIVE OFFICER
</TABLE>
Dated: November 28, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ --------------------------------------- ----------------------
<C> <S> <C>
/s/ JAMES J. HORVATH
-------------------------------------- Chief Executive Officer (Principal November 27, 1998
James J. Horvath Executive Officer)
/s/ JOSEPH J. TALLEY--
-------------------------------------- Vice President-Finance (Chief Financial November 27, 1998
Joseph J. Talley-- Officer)
/s/ MICHAEL A. ASTRUP
-------------------------------------- Director November 27, 1998
Michael A. Astrup
/s/ JERRY D. BITKER
-------------------------------------- Director November 27, 1998
Jerry D. Bitker
/s/ RICHARD BORGEN
-------------------------------------- Director November 27, 1998
Richard Borgen
/s/ AIME J. DUFAULT
-------------------------------------- Director November 27, 1998
Aime J. Dufault
/s/ STEVEN M. GOODWIN
-------------------------------------- Director November 27, 1998
Steven M. Goodwin
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ --------------------------------------- ----------------------
<C> <S> <C>
/s/ COURT G. HANSON
-------------------------------------- Director November 27, 1998
Court G. Hanson
/s/ LONN M. KIEL
-------------------------------------- Director November 27, 1998
Lonn M. Kiel
/s/ DAVID J. KRAGNES
-------------------------------------- Director November 27, 1998
David J. Kragnes
/s/ FRANCIS L. KRITZBERGER
-------------------------------------- Director November 27, 1998
Francis L. Kritzberger
/s/ WAYNE LANGEN
-------------------------------------- Director November 27, 1998
Wayne Langen
/s/ PATRICK D. MAHAR
-------------------------------------- Director November 27, 1998
Patrick D. Mahar
/s/ BARRY W. MALME
-------------------------------------- Director November 27, 1998
Barry W. Malme
/s/ RONALD E. REITMEIER
-------------------------------------- Director November 27, 1998
Ronald E. Reitmeier
/s/ JIM A. ROSS
-------------------------------------- Director Elect November 27, 1998
Jim A. Ross
/s/ G. TERRY STADSTAD
-------------------------------------- Director November 27, 1998
G. Terry Stadstad
/s/ ROBERT VIVATSON
-------------------------------------- Director November 27, 1998
Robert Vivatson
</TABLE>
34
<PAGE>
APPENDIX A
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AMERICAN CRYSTAL SUGAR COMPANY
FINANCIAL STATEMENTS:
Report of Independent Auditors..................................................... 36
Balance Sheets as of August 31, 1998 and 1997...................................... 33
Statements of Operations for the Years Ended August 31, 1998, 1997 and 1996........ 39
Statements of Changes in Members' Investment for the Years Ended August 31, 1998,
1997 and 1996..................................................................... 40
Statements of Cash Flows for the Years Ended August 31, 1998, 1997 and 1996........ 41
Notes to the Financial Statements.................................................. 42
</TABLE>
35
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Members of American Crystal Sugar Company
Moorhead, Minnesota
We have audited the accompanying balance sheets of the American Crystal
Sugar Company (a Minnesota cooperative corporation) as of August 31, 1998 and
1997, and the related statements of operations, changes in members' investments
and cash flows for the years ended August 31, 1998, 1997 and 1996. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the American Crystal Sugar
Company as of August 31, 1998 and 1997, and the results of its operations and
its cash flows for the years ended August 31, 1998, 1997 and 1996, in conformity
with generally accepted accounting principles.
Eide Bailly LLP
October 2, 1998
Fargo, North Dakota
36
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
BALANCE SHEETS
AUGUST 31
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents............................................................. $ 41 $ 11,551
Receivables:
Trade............................................................................... 53,874 60,940
Members............................................................................. 2,558 2,857
Other............................................................................... 2,801 5,618
Advances to Related Parties........................................................... 26,402 15,064
Inventories........................................................................... 142,382 140,057
Prepaid Expenses...................................................................... 3,079 2,892
----------- -----------
TOTAL CURRENT ASSETS.................................................................... 231,137 238,979
----------- -----------
PROPERTY AND EQUIPMENT:
Land.................................................................................. 13,818 13,101
Buildings and Equipment............................................................... 664,453 635,671
Construction in Progress.............................................................. 112,470 43,938
Less Accumulated Depreciation......................................................... (438,801) (413,211)
----------- -----------
NET PROPERTY AND EQUIPMENT.............................................................. 351,940 279,499
----------- -----------
OTHER ASSETS:
Investments in Banks for Cooperatives................................................. 15,890 14,568
Investments in Marketing Cooperatives................................................. 2,197 1,650
Investments in ProGold Limited Liability Company...................................... 35,172 43,007
Investments in Crystech, LLC.......................................................... 1,574 --
Other Assets.......................................................................... 8,550 3,801
----------- -----------
TOTAL OTHER ASSETS...................................................................... 63,383 63,026
----------- -----------
TOTAL ASSETS............................................................................ $ 646,460 $ 581,504
----------- -----------
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
37
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
BALANCE SHEETS
AUGUST 31
(IN THOUSANDS)
LIABILITIES AND MEMBERS' INVESTMENTS
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Short-Term Debt....................................................................... $ 116,322 $ 67,960
Current Maturities of Long-Term Debt.................................................. 17,800 17,800
Accounts Payable...................................................................... 36,131 25,897
Other Current Liabilities............................................................. 16,112 15,515
Amounts Due Members................................................................... 14,415 66,155
----------- -----------
TOTAL CURRENT LIABILITIES............................................................... 200,780 193,327
LONG-TERM DEBT, NET OF CURRENT MATURITIES............................................... 194,695 186,800
OTHER LIABILITIES....................................................................... 26,142 25,449
----------- -----------
TOTAL LIABILITIES....................................................................... 421,617 405,576
----------- -----------
MEMBERS' INVESTMENTS:
Preferred Stock....................................................................... 38,275 33,542
Common Stock.......................................................................... 28 26
Additional Paid-In Capital............................................................ 116,183 64,596
Unit Retains.......................................................................... 105,850 105,450
Pension Liability Adjustment.......................................................... (2,259) (4,131)
Retained Earnings..................................................................... (33,234) (23,555)
----------- -----------
TOTAL MEMBERS' INVESTMENTS.............................................................. 224,843 175,928
----------- -----------
TOTAL LIABILITIES AND MEMBERS' INVESTMENTS.............................................. $ 646,460 $ 581,504
----------- -----------
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
38
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
REVENUE...................................................................... $ 676,625 $ 677,004 $ 688,012
COST OF PRODUCT SOLD, EXCLUDING PAYMENTS TO MEMBERS FOR SUGARBEETS........... 201,159 136,330 216,229
---------- ---------- ----------
GROSS PROCEEDS............................................................... 475,466 540,674 471,783
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................. 153,561 141,949 155,188
---------- ---------- ----------
OPERATING PROCEEDS........................................................... 321,905 398,725 316,595
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest Income............................................................ 2,045 2,063 3,564
Other Income............................................................... 1,058 1,066 1,121
Interest Expense, Net...................................................... (14,390) (18,321) (11,252)
Other Expenses............................................................. (4,866) (15,050) (371)
---------- ---------- ----------
TOTAL OTHER (EXPENSE)........................................................ (16,153) (30,242) (6,938)
---------- ---------- ----------
PROCEEDS BEFORE INCOME TAXES................................................. 305,752 368,483 309,657
INCOME TAX BENEFIT/(EXPENSE)................................................. 45 (1,727) 549
---------- ---------- ----------
NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS................... $ 305,797 $ 366,756 $ 310,206
---------- ---------- ----------
---------- ---------- ----------
DISTRIBUTIONS OF NET PROCEEDS:
Credited (Charged) to Members' Investments:
Non-Member Business (Loss)............................................... $ (9,679) $ (18,074) $ (396)
Unit Retains Declared to Members......................................... 8,545 16,611 16,040
---------- ---------- ----------
Net Credit (Charge) to Members' Investments................................ (1,134) (1,463) 15,644
Payments to Members for Sugarbeets, Net of Unit Retains Declared........... 306,931 368,219 294,562
---------- ---------- ----------
TOTAL........................................................................ $ 305,797 $ 366,756 $ 310,206
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
39
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF CHANGES IN MEMBERS' INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL PENSION
PREFERRED COMMON PAID-IN UNIT LIABILITY RETAINED
STOCK STOCK CAPITAL RETAINS ADJUSTMENT EARNINGS TOTAL
--------- ------ ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1995................ $31,879 $23 $ 32,417 $ 88,487 $(5,674) $(5,085 ) $142,047
--------- ------ ---------- -------- ---------- -------- --------
Non-Member Business (Loss)............ -- -- -- -- -- (396 ) (396)
Unit Retains Withheld from Members
($2.00/Ton)......................... -- -- -- 16,040 -- -- 16,040
Payments to Estates and Disabled
Individuals......................... -- -- -- (296) -- -- (296)
Payments of 1988 Crop Unit Retains to
Members............................. -- -- -- (7,040) -- -- (7,040)
Contributed Capital of Investee....... -- -- 624 -- -- -- 624
Pension Liability Adjustment.......... -- -- -- -- 1,156 -- 1,156
Stock Issued, Net..................... -- 1 -- -- -- -- 1
--------- ------ ---------- -------- ---------- -------- --------
BALANCE, AUGUST 31, 1996................ $31,879 $24 $ 33,041 $ 97,191 $(4,518) $(5,481 ) $152,136
--------- ------ ---------- -------- ---------- -------- --------
Non-Member Business (Loss)............ -- -- -- -- -- (18,074 ) (18,074)
Unit Retains Withheld from Members
($2.00/Ton)......................... -- -- -- 16,611 -- -- 16,611
Payments to Estates and Disabled
Individuals......................... -- -- -- (673) -- -- (673)
Payments of 1989 Crop Unit Retains to
Members............................. -- -- -- (7,679) -- -- (7,679)
Contributed Capital of Investee....... -- -- 892 -- -- -- 892
Pension Liability Adjustment.......... -- -- -- -- 387 -- 387
Stock Issued, Net..................... 1,663 2 30,663 -- -- -- 32,328
--------- ------ ---------- -------- ---------- -------- --------
BALANCE, AUGUST 31, 1997................ $33,542 $26 $ 64,596 $105,450 $(4,131) $(23,555) $175,928
--------- ------ ---------- -------- ---------- -------- --------
Non-Member Business (Loss)............ -- -- -- -- -- (9,679 ) (9,679)
Unit Retains Withheld from Members
($1.00/Ton)......................... -- -- -- 8,545 -- -- 8,545
Payments to Estates and Disabled
Individuals......................... -- -- -- (478) -- -- (478)
Payments of 1990 Crop Unit Retains to
Members............................. -- -- -- (7,667) -- -- (7,667)
Contributed Capital of Investee....... -- -- 21 -- -- -- 21
Pension Liability Adjustment.......... -- -- -- -- 1,872 -- 1,872
Stock Issued, Net..................... 4,733 2 51,566 -- -- -- 56,301
--------- ------ ---------- -------- ---------- -------- --------
BALANCE, AUGUST 31, 1998................ $38,275 $28 $116,183 $105,850 $(2,259) $(33,234) $224,843
--------- ------ ---------- -------- ---------- -------- --------
--------- ------ ---------- -------- ---------- -------- --------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
40
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATIONS:
Net Proceeds Resulting from Member and Non-Member Business............... $ 305,797 $ 366,756 $ 310,206
Payments to Members for Sugarbeets, Net of Unit Retains.................. (306,931) (368,219) (294,562)
Add (Deduct) Non-Cash Items:
Depreciation and Amortization.......................................... 26,630 24,048 20,314
Loss on Investment Activities.......................................... 4,007 13,919 343
Loss on the Disposition of Property and Equipment...................... 2,412 37 230
Non-Cash Portion of Patronage Dividend from the Banks for
Cooperatives......................................................... (1,322) 609 (1,245)
Deferred Gain Recognition.............................................. (209) (213) (223)
Changes in Assets and Liabilities:
Receivables.............................................................. 10,182 (13,256) 1,355
Inventories.............................................................. (2,325) (67,380) 30,614
Prepaid Expenses......................................................... (187) 196 737
Advances to Related Parties.............................................. (11,338) (4,756) (4,217)
Accounts Payable......................................................... 10,234 1,346 (1,343)
Other Liabilities........................................................ 3,242 4,717 (997)
Amounts Due Members...................................................... (51,740) 19,037 6,881
----------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATIONS.................................. (11,548) (23,159) 68,093
----------- ----------- -----------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of Property and Equipment...................................... (101,769) (70,246) (43,549)
Proceeds from the Sale of Property and Equipment......................... 365 667 151
Investments in Marketing Cooperatives.................................... (338) 14,031 (9,700)
Investment in ProGold Limited Liability Company and Crystech, LLC........ 2,254 (5,595) (39,221)
Changes in Other Assets.................................................. (4,908) (814) (271)
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES...................................... (104,396) (61,957) (92,590)
----------- ----------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net Proceeds (Payments) on Short-Term Debt............................... 48,362 54,317 (40,289)
Proceeds from Long-Term Debt............................................. 26,695 28,200 85,000
Long-Term Debt Repayment................................................. (18,800) (14,525) (13,115)
Issuance of Stock........................................................ 56,322 33,220 624
Payment of Unit Retains.................................................. (8,145) (8,352) (7,336)
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES.................................. 104,434 92,860 24,884
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... (11,510) 7,744 387
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................. 11,551 3,807 3,420
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 41 $ 11,551 $ 3,807
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
41
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
American Crystal Sugar Company (American Crystal or Company) is a Minnesota
agricultural cooperative corporation which processes and markets sugar,
sugarbeet pulp, molasses and seed. Business done with its shareholders (members)
constitutes "patronage business" as defined by the Internal Revenue Code, and
the net proceeds therefrom are credited to members' investments in the form of
unit retains or distributed to members in the form of payments for sugarbeets.
Members are paid the net amounts realized from the current year's production
less member operating costs determined in conformity with generally accepted
accounting principles.
CASH AND CASH EQUIVALENTS
American Crystal considers financial instruments purchased with a maturity
of three months or less to be cash equivalents. American Crystal places its
temporary cash investments with high credit quality financial institutions. At
times, such investments may be in excess of the applicable insurance limit.
RECEIVABLES
American Crystal grants credit, individually and through its marketing
cooperatives, to its customers, which are primarily companies in the food
processing industry located throughout the United States. Ongoing credit
evaluations of customers' financial condition are performed and the Company
maintains a reserve for potential credit losses. The Company has a major
customer that accounted for approximately 10 percent of gross sugar sales for
the year ended August 31, 1998. Accounts receivable from this customer totaled
approximately 12 percent of total receivables as of August 31, 1998.
INVENTORIES
Sugar, pulp, molasses and other agri-products inventories are valued at
estimated net realizable value. Maintenance parts and supplies and beet seed
inventories are valued at the lower of average cost or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost. Indirect costs and construction
period interest are capitalized as a component of the cost of qualified assets.
Property and equipment are depreciated for financial reporting purposes
principally using straight-line and declining-balance methods with estimated
useful lives ranging from 3 to 45 years. Statutory lives and methods are used
for income tax reporting purposes.
Indirect costs capitalized were $1.3 million, $1.1 million and $1.0 million
in 1998, 1997 and 1996, respectively. Construction period interest capitalized
was $3.9 million, $2.6 million and $3.8 million in 1998, 1997 and 1996,
respectively.
INVESTMENTS
Investments in the Banks for Cooperatives are stated at cost plus unredeemed
patronage refunds received in the form of capital stock. Investments in
marketing cooperatives, ProGold Limited Liability Company (ProGold) and
Crystech, LLC (Crystech) are accounted for using the equity method. The net
42
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
capitalized interest related to the investment in ProGold totaled $1.1 million
and $3.1 million for the years ended August 31, 1997 and 1996, respectively. The
net capitalized interest in Crystech totaled $29,000 for the year ended August
31, 1998.
MEMBERS' INVESTMENTS
PREFERRED AND COMMON STOCK--The ownership of common and preferred stock is
restricted to a "farm operator" as defined by the bylaws of American Crystal.
Each "farm operator" may own only one share of common stock and is entitled to
one vote in the affairs of American Crystal. Each "farm operator" is entitled to
grow a specified number of acres of sugarbeets in proportion to the shares of
preferred stock owned. The preferred shares are non-voting. All transfers of
stock must be approved by American Crystal's board of directors and any
shareholder desiring to sell stock must first offer it to American Crystal for
repurchase at its par value. American Crystal has never exercised this
repurchase option. The bylaws do not allow dividends to be paid on either the
common or preferred stock.
<TABLE>
<CAPTION>
SHARES SHARES ISSUED
PAR VALUE AUTHORIZED & OUTSTANDING
--------- ----------- --------------
<S> <C> <C> <C>
Preferred Stock:
August 31, 1998....................................... $ 76.77 600,000 498,570
August 31, 1997....................................... $ 76.77 600,000 436,915
August 31, 1996....................................... $ 76.77 600,000 415,255
Common Stock:
August 31, 1998....................................... $ 10.00 4,000 2,835
August 31, 1997....................................... $ 10.00 4,000 2,585
August 31, 1996....................................... $ 10.00 4,000 2,444
</TABLE>
UNIT RETAINS--The bylaws authorize American Crystal's board of directors to
require additional direct capital investments by members in the form of a
variable unit retain per ton of up to a maximum of 10% of the weighted average
gross per ton beet payment. American Crystal has a policy whereby the Company
refunds, to the entity legally entitled thereto, the unit retains attributable
to a deceased or totally and permanently disabled former shareholder.
RETAINED EARNINGS--Retained earnings represent the cumulative net
income/(loss) resulting from non-member business and the difference between
member income as determined for financial reporting purposes and federal income
tax reporting purposes from the years prior to 1996. The non-member net loss was
$9.7 million, $18.1 million and $.4 million in 1998, 1997 and 1996,
respectively.
STOCK OFFERING
On July 23, 1997, the Board of Directors authorized an offer of up to 61,500
shares of Preferred Stock, $76.77 par value and up to 500 shares of Common
Stock, $10.00 par value for sale at $1,500.00 per share and $10.00 per share,
respectively, to sugarbeet farm operators in the territory in which the Company
is engaged in business. The filings with the Securities and Exchange Commission
and the North Dakota Securities Commission became effective in November, 1997.
The Company sold all of the 61,500 shares of preferred stock offered. The shares
of Preferred Stock offered equal approximately 13.7% of preferred shares
outstanding on July 25, 1997. The Company received approximately $56.0 million
from the sale of
43
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
stock during the year ended August 31, 1998, with the remaining installment
amounts to be received over the next six years.
INTEREST EXPENSE, NET
American Crystal earns patronage dividends from the Banks for Cooperatives
based on American Crystal's share of the net income earned by the banks. These
patronage dividends are applied against interest expense.
INCOME TAXES
American Crystal is a non-exempt cooperative for federal income tax
purposes. As such, American Crystal is subject to corporate income taxes on its
net income from non-member sources. The provision for income taxes relates to
the results of operations from non-member business, state income taxes and
certain other permanent differences between financial and income tax reporting.
Total income tax payments (refunds) were $106,000, $(4,000) and $(139,000), in
the years ended August 31, 1998, 1997 and 1996, respectively.
As of August 31, 1998, American Crystal had accumulated approximately $29.0
million of net operating loss carryforwards. The majority of the net operating
loss carryforwards expire in 2012. American Crystal has provided a valuation
allowance for the entire balance of the deferred tax asset related to the loss
carryforwards.
ACCOUNTING ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform with the 1998 financial statement presentation.
(2) INVENTORIES:
The major components of inventories are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Refined Sugar, Pulp, Molasses, other Agri-Products and Beet Seed...... $ 123,628 $ 115,026
Corn.................................................................. -- 3,758
Maintenance Parts and Supplies........................................ 18,754 21,273
---------- ----------
Total Inventories..................................................... $ 142,382 $ 140,057
---------- ----------
---------- ----------
</TABLE>
44
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENTS IN MARKETING COOPERATIVES:
American Crystal has a 65% ownership interest in United Sugars Corporation
(United). The investment is accounted for using the equity method. All sugar
products produced are sold by United as an agent for American Crystal. The
amount of sales and related costs to be recognized by each owner of United is
allocated based on its pro rata share of sugar production for the year. The
owners provide United with cash advances on an ongoing basis for operating and
marketing expenses incurred by United. American Crystal had outstanding advances
to United of $19.2 million and $11.9 million as of August 31, 1998 and 1997,
respectively. American Crystal provides administrative services for United and
is reimbursed for costs incurred. American Crystal was reimbursed $1.1 million,
$.7 million and $.7 million for services provided during 1998, 1997 and 1996,
respectively.
American Crystal has a 33 1/3% ownership interest in Midwest
Agri-Commodities Company (Midwest). The investment is accounted for using the
equity method. All beet pulp, molasses and agri-products produced are sold by
Midwest as an agent for American Crystal. The amount of sales and related costs
to be recognized by each owner is allocated based on its pro rata share of
production for each product for the year. The owners provide Midwest with cash
advances on an ongoing basis for operating and marketing expenses incurred by
Midwest. American Crystal had outstanding advances to Midwest of $5.0 million
and $2.3 million as of August 31, 1998 and 1997, respectively. The owners are
guarantors of the short-term line of credit Midwest has with the St. Paul Bank
for Cooperatives. As of August 31, 1998, Midwest had outstanding short-term debt
with the St. Paul Bank for Cooperatives of $2.4 million, of which $1.7 million
was guaranteed by American Crystal.
(4) PROGOLD LIMITED LIABILITY COMPANY:
American Crystal has a 46% ownership interest in ProGold Limited Liability
Company (ProGold). On November 1, 1997, ProGold signed an agreement to lease
substantially all of its assets to Cargill, Incorporated. Under the terms of
this operating lease, Cargill, Incorporated manages all aspects of the
operations of the ProGold corn wet-milling plant. Following is summary financial
information for ProGold.
45
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(4) PROGOLD LIMITED LIABILITY COMPANY: (CONTINUED)
SUMMARY INFORMATION (IN THOUSANDS)
<TABLE>
<CAPTION>
1998
----------
<S> <C>
Current Assets.................................................................... $ 2,661
Long-Term Assets.................................................................. 230,655
----------
Total Assets.................................................................... $ 233,316
----------
----------
Current Liabilities............................................................... $ 12,759
Long-Term Liabilities............................................................. 152,608
----------
Total Liabilities............................................................... 165,367
Equity............................................................................ 67,949
----------
Total Liabilities and Equity...................................................... $ 233,316
----------
----------
Rental Revenue on Operating Lease................................................. $ 23,055
Expenses from Continuing Operations............................................... 19,824
----------
Income from Continuing Operations................................................. 3,231
Loss from Discontinued Operations................................................. (11,942)
----------
Net (Loss)........................................................................ $ (8,711)
----------
----------
</TABLE>
(5) CRYSTECH, LLC:
On May 28, 1998, the Company entered into an agreement with Newcourt Capital
U.S.A., Inc. to form a joint venture (special purpose) entity, Crystech, LLC
(Crystech). Crystech was formed to acquire, construct, finance, operate and
maintain a molasses desugarization facility at the Company's Hillsboro, North
Dakota sugar factory together with certain sugar processing equipment located at
the Hillsboro, North Dakota and Moorhead, Minnesota sugar factories. The Company
acquired an initial 50% ownership interest in Crystech through a $1.5 million
cash contribution. The Company accounts for its investment in the joint venture
using the equity method.
As of August 31, 1998, the Company had an outstanding note receivable from
Crystech totaling $3.7 million. The note is subordinate to long-term debt of
Crystech totaling $23.0 million as of August 31, 1998. The note bears interest
at the rate of 7.62%. Interest income related to this note totaled $70,000
during 1998. Equal quarterly payments of principal on the note begin at the
earlier of April 30, 2000, or provisional acceptance (when 90% of expected plant
performance is reached), but no later than October 31, 2000. American Crystal
has agreed to provide $13.9 million of subordinated debt to Crystech. Payments
are to be made each quarter in 28 installments of $496,607 for the subordinated
debt. Subsequent quarterly principal payments are due on the following dates
annually: March 1, June 1, September 1 and December 1. As of August 31, 1998,
the Company also had an outstanding receivable of $1.4 million relating to
expenses paid on behalf of Crystech.
The Company has a 12-year tolling services agreement with Crystech whereby
upon completion of construction, the Company pays for tolling services for
processing beet molasses delivered to Crystech with title and risk of loss
throughout the process maintained by the Company. The tolling agreement may be
terminated by the Company if the specified plant performance is not achieved.
46
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(6) LONG-TERM AND SHORT-TERM DEBT:
The long-term debt outstanding as of August 31, 1998 and 1997, is summarized
below:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Term Loans from the St. Paul Bank for Cooperatives, Due in Varying
Amounts through 2008, Interest at 6.20% to 8.50%, with Senior Lien
on Substantially all Non-Current Assets............................. $ 155,300 $ 172,300
Term Loans from Insurance Companies, Due in Varying Amounts From 2018
through 2028, Interest at 7.32% to 7.42%, with Senior Lien on
Substantially all Non-Current Assets................................ 10,000 --
Term Loans from US Bank, Minneapolis, Due in Equal Amounts through
2002, Interest at 8.25%, unsecured.................................. 4,000 5,000
Term Loan from the Bank of North Dakota, Due in Equal Amounts through
2009, Interest at 6.34%, unsecured.................................. 8,800 9,600
Pollution Control and Industrial Development Revenue Bonds, Due in
Varying Amounts through 2018, Interest at 3.67% to 8.00%,
substantially secured by letters of credit.......................... 34,395 17,700
---------- ----------
212,495 204,600
Less Current Maturities............................................... (17,800) (17,800)
---------- ----------
Total Long-Term Debt.................................................. $ 194,695 $ 186,800
---------- ----------
---------- ----------
</TABLE>
Aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................................. $ 17,800
2000.............................................................. 18,915
2001.............................................................. 18,925
2002.............................................................. 18,930
2003.............................................................. 18,940
Thereafter........................................................ 118,985
---------
Total........................................................... $ 212,495
---------
---------
</TABLE>
Subsequent to August 31, 1998, $50.0 million of long-term debt was borrowed
from a group of insurance companies. The long-term debt has maturities from 2018
through 2028 at interest rates from 7.32% to 7.42%. The proceeds were used to
repay short-term debt in September 1998. As of August 31, 1998, $10.0 million of
short-term debt was reclassified as long-term debt.
As of August 31, 1998, the unused portion of the term loan line of credit
with the St. Paul Bank for Cooperatives was $36.0 million. The undrawn amount of
cash relating to the Pollution Control and Industrial Development Revenue bonds
was $.4 million.
During the year ended August 31, 1998, American Crystal borrowed from the
St. Paul Bank for Cooperatives and issued commercial paper to meet its
short-term borrowing requirements. American Crystal had outstanding short-term
commercial paper debt of $69.3 million and St. Paul Bank for
47
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(6) LONG-TERM AND SHORT-TERM DEBT: (CONTINUED)
Cooperatives seasonal loans of $47.0 million as of August 31, 1998. During the
year ended August 31, 1998, American Crystal had available short-term lines of
credit totaling $280.0 million.
Maximum borrowings, average borrowing levels and average interest rates for
short-term debt for the years ended August 31, 1998 and 1997, follow:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(IN THOUSANDS EXCEPT
INTEREST RATES)
<S> <C> <C>
Maximum Borrowings................................................. $ 218,265 $ 230,000
---------- ----------
---------- ----------
Average Borrowing Levels........................................... $ 147,703 $ 113,227
---------- ----------
---------- ----------
Average Interest Rates............................................. 6.07% 6.06%
---------- ----------
---------- ----------
</TABLE>
The terms of the loan agreements with the St. Paul Bank for Cooperatives
contain certain covenants related to, among other matters, the: level of working
capital; ratio of term liabilities to members' investment; current ratio; level
of term debt to net funds generated; and investment in bank stock in amounts
prescribed by the bank. Substantially all non-current assets are pledged to the
senior lenders to provide security to support the Company's seasonal and
long-term financing. As of August 31, 1998, American Crystal was in compliance
with the terms of the loan agreements.
Interest paid was $19.7 million, $21.6 million and $16.1 million for the
years ended August 31, 1998, 1997 and 1996, respectively.
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of financial instruments is generally defined as the amount
at which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced liquidation sale. Quoted market prices
are generally not available for the Company's financial instruments.
Accordingly, fair values are based on judgments regarding anticipated cash
flows, future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates involve uncertainties and matters of judgment, and therefore, cannot
be determined with precision. Changes in assumptions could significantly affect
the estimates.
LONG-TERM DEBT--Based upon current borrowing rates with similar maturities,
the fair value of the long-term debt approximates the carrying value.
INVESTMENTS IN BANKS FOR COOPERATIVES, INVESTMENTS IN MARKETING
COOPERATIVES, INVESTMENT IN PROGOLD LIMITED LIABILITY COMPANY AND INVESTMENT IN
CRYSTECH, LLC--American Crystal believes it is not practical to estimate the
fair value of these investments without incurring excessive costs because there
is no established market for these securities and equity interest, and it is
inappropriate to estimate future cash flows which are largely dependent on
future earnings of these organizations.
48
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(8) EMPLOYEE BENEFIT PLANS:
COMPANY-SPONSORED DEFINED BENEFIT PENSION PLANS
Substantially all employees who meet eligibility requirements of age and
length of service are covered by a Company-sponsored retirement plan. Plan A
(non-union employees) and Plan B (union employees) are defined benefit,
non-contributory plans. The plans provide for vesting after 5 years of service
with benefits for early retirement, normal retirement and disability or death.
The assets of the plans are held by a bank and trust company. American
Crystal's funding policy for Plan A is to contribute the normal cost of the plan
determined under the entry age normal actuarial cost method, plus amounts
necessary to amortize changes over 30 years. The funding policy for Plan B is to
contribute the minimum required amount determined under the frozen initial
liability actuarial cost method. The actuarial assumptions are shown below:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Discount Rate................................ 7.0% 7.5% 7.5%
Compensation Rate Increase (Plan A Only)..... 5.0% 5.0% 5.0%
Rate of Return............................... 9.0% 9.0% 9.0%
</TABLE>
The Company also has a non-qualified Supplemental Executive Retirement Plan
for certain employees. The plan is unfunded and provides for vesting after 5
years of service with benefits for early retirement, normal retirement and
disability or death.
The plans' status as of August 31, 1998, 1997 and 1996, is shown below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Normal Service Cost.......................................... $ 1,627 $ 1,545 $ 1,366
Interest Cost on Projected Benefit Obligation................ 4,305 4,066 3,718
Return on Plan Assets........................................ (9,292) (5,561) (7,414)
Multiple Employer Adjustment................................. (38) (34) (17)
Net Amortization (Deferral).................................. 5,208 2,078 4,739
--------- --------- ---------
Net Pension Expense.......................................... $ 1,810 $ 2,094 $ 2,392
--------- --------- ---------
--------- --------- ---------
Actuarial Present Value of Benefit Obligations:
Estimated Present Value of Vested Benefits................. $ 50,743 $ 46,359 $ 44,933
Estimated Present Value of Non-Vested Benefits............. 4,398 5,758 3,368
--------- --------- ---------
Accumulated Benefit Obligation............................... 55,141 52,117 48,301
Value of Future Pay Increases................................ 7,852 6,667 7,239
--------- --------- ---------
Projected Benefit Obligation................................. 62,993 58,784 55,540
Estimated Market Value of Plan Assets........................ 55,951 49,058 43,853
--------- --------- ---------
Projected Benefit Obligation in Excess of Plan Assets........ 7,042 9,726 11,687
Unrecognized Net Costs....................................... (9,371) (12,331) (14,407)
Unrecognized Net Assets...................................... 1,457 1,753 2,049
Minimum Pension Liability Adjustment......................... 4,398 6,350 6,872
--------- --------- ---------
Net Pension Liability........................................ $ 3,526 $ 5,498 $ 6,201
--------- --------- ---------
--------- --------- ---------
</TABLE>
49
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(8) EMPLOYEE BENEFIT PLANS: (CONTINUED)
As required by Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," American Crystal has recognized, as of
August 31, 1998, a minimum pension liability of $4.4 million, an intangible
pension asset of $2.1 million and a direct equity reduction of $2.3 million.
LONG-TERM INCENTIVE PLAN
The Long-Term Incentive Plan provides deferred compensation to certain key
executives of American Crystal Sugar Company. The Plan creates financial
incentives that are based upon contract rights which are available to the
executive under the terms of the Plan, the value of which is related to the
value of preferred shares of the Company. As of August 31, 1998, there were 234
rights issued which were 100% vested.
POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS OTHER THAN PENSIONS
American Crystal Sugar Company has a medical plan and a Medicare supplement
plan which are available to substantially all American Crystal retirees.
American Crystal also has a medical plan that covers disabled employees who have
not attained retirement age. The costs of these plans are paid by the Company.
The rates used in determining the actuarial present value of the accumulated
other post-retirement and postemployment benefit (OPEB) obligations are in the
following table:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Discount Rate................................................... 7.00% 7.50% 7.50%
Increase in Future Health Cost.................................. 8.25% 10.50% 9.75%
Health Care Trend Rate.......................................... 5.50% 5.50% 5.50%
</TABLE>
The components of accumulated OPEB obligations and the periodic OPEB costs
are set forth in the following table. If the health care cost trend rate was
increased by one percentage point for each year,
50
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(8) EMPLOYEE BENEFIT PLANS: (CONTINUED)
OPEB expense would have increased approximately $323,950 in 1998, and the
actuarial present value of accumulated OPEB obligations at August 31, 1998,
would have increased approximately $2.2 million.
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial Present Value of Accumulated OPEB Obligations:
Retiree Benefits........................................... $ 3,483 $ 4,314 $ 3,552
Other Fully Eligible Active Plan Participants.............. 2,346 2,690 2,295
Other Active Plan Participants............................. 8,573 9,383 7,186
--------- --------- ---------
Present Value of Accumulated OPEB Obligations................ 14,402 16,387 13,033
Unrecognized Net Gain from Experience Different from
Actuarial Assumptions.................................... 2,922 462 1,255
--------- --------- ---------
Total Accrued OPEB Obligation.............................. 17,324 16,849 14,288
Less Current Portion....................................... 544 643 831
--------- --------- ---------
Non-Current Accrued OPEB Obligation...................... $ 16,780 $ 16,206 $ 13,457
--------- --------- ---------
--------- --------- ---------
Net Periodic OPEB Costs:
Service Cost............................................... $ 618 $ 1,199 $ 903
Interest Cost.............................................. 1,086 917 742
Amortization............................................... -- (4) (100)
--------- --------- ---------
Net Periodic OPEB Costs...................................... $ 1,704 $ 2,112 $ 1,545
--------- --------- ---------
--------- --------- ---------
</TABLE>
DEFINED CONTRIBUTION PLANS
American Crystal also has qualified 401(k) plans for all eligible employees.
The plans provide for immediate vesting of benefits. Participants contribute a
percentage of their gross earnings each pay period as provided in the
participation agreement. The Company matches the nonunion and union
participants' contribution up to 4% and 1% respectively, of their gross
earnings. The Company's contributions to these plans totaled $1.4 million, $1.1
million and $.9 million for the years ended August 31, 1998, 1997 and 1996,
respectively.
(9) ENVIRONMENTAL MATTERS:
American Crystal is subject to extensive federal and state environmental
laws and regulations with respect to water pollution, discharge permits, air
pollution, noise pollution and solid waste disposal. American Crystal conducts
an ongoing pollution control program designed to meet these environmental laws
and regulations. In June 1998, a dike failure occurred near the East Grand
Forks, Minnesota factory. The Minnesota Pollution Control Agency has informed
the Company that enforcement action will be taken. Management believes the
outcome of the enforcement action should not have a material adverse effect on
the Company's financial condition.
(10) COMMITMENTS AND CONTINGENCIES:
American Crystal had outstanding letters of credit totaling $34.9 million as
of August 31, 1998.
51
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(10) COMMITMENTS AND CONTINGENCIES: (CONTINUED)
American Crystal is subject to various lawsuits and claims that arise in the
ordinary course of its business. Management believes the disposition of all such
proceedings, individually or in the aggregate, should not have a material
adverse effect on the Company's financial condition.
American Crystal has outstanding commitments totaling $27.1 million as of
August 31, 1998, for consulting services, equipment and construction contracts
related to various capital projects.
52
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ------------ -----
<C> <S> <C>
*3(i) Restated Articles of Incorporation of American Crystal Sugar Company.........................
**3(ii) Restated By-laws of American Crystal Sugar Company...........................................
**10(f) Growers' Contract (5-year Agreement).........................................................
*10(g) Growers' Contract (Annual Contract)..........................................................
*10(h) Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 1,
1986.......................................................................................
*10(i) Coal Transportation Agreement between Registrant and Northern Coal Transportation Company,
dated August 1, 1986.......................................................................
*10(j) Beet Loading and Hauling Agreement between Registrant and Transystems, Inc., dated May 18,
1993.......................................................................................
*10(k) Form of Uniform Member Marketing Agreement between Registrant and United Sugars Corporation,
dated January 1, 1994......................................................................
*10(l) Trademark License Agreement between Registrant and United Sugars Corporation, dated November
1, 1993....................................................................................
*10(m) Uniform Member Marketing Agreement, Pool Basis between Registrant and Midwest
Agri-Commodities Company, dated April 14, 1992.............................................
*10(n) Stipulation Agreement between Registrant and State of Minnesota Pollution Control Agency.....
*10(o) Master Agreement between Registrant, United Sugars Corporation, American Federation of Grain
Millers, AFL-CIO, CLC, et al...............................................................
*10(p) Loan Agreement between Registrant and St. Paul Bank for Cooperatives, dated December 20,
1993.......................................................................................
*10(q) Amended and Restated Loan Agreement between Registrant and First Bank National Association,
dated November 22, 1993....................................................................
*10(r) Pension Contract and Amendments..............................................................
*10(s) Compensation, Severance and Loan Agreement with Mr. J. Famalette, dated March 2, 1992........
*10(t) Compensation and Loan Agreement with Mr. J. Famalette, dated October 1, 1993.................
*10(u) Form of Operating Agreement between Registrant and ProGold Limited Liability Company.........
*10(v) Form of Member Control Agreement between Registrant and ProGold Limited Liability Company....
*10(w) Administrative Services Agreement between Registrant and ProGold Limited Liability Company...
*10(x) Uniform Member Marketing Agreement...........................................................
**+10(y) Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 25,
1995.......................................................................................
**+10(z) Coal Transportation Agreement between Registrant and Northern Coal Transportation Company,
dated August 25, 1995......................................................................
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ------------ -----
<C> <S> <C>
**+10(aa) Gas Sales Contract between Registrant and Coastal Gas Marketing Company, dated as of March
20, 1996...................................................................................
**10(bb) Employment Agreement with Mr. Daniel McCarty, dated as of April 8, 1996......................
***10(cc) Amendment to Employment Agreement with Mr. Daniel McCarty, dated as of July, 1997............
***+10(dd) Trademark License Agreement between Registrant and The Pillsbury Company, dated as of April
9, 1997....................................................................................
10(ee) Pledge Agreement between Registrant and First Union Trust Company, NA........................
10(ff) Indemnity Agreement between Registrant, Newcourt Capital USA Inc., Crystech, LLC and Crystech
Senior Lender Trust........................................................................
10(gg) Tolling Services Agreement between Crystech, LLC and Registrant..............................
10(hh) Operations and Maintenance Agreement between Crystech, LLC and Registrant....................
++10(ii) Limited Liability Company Agreement of Crystech, LLC.........................................
27 Financial Data Schedule......................................................................
</TABLE>
- ------------------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-83868), declared effective November 23, 1994.
** Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-11693), declared effective November 13, 1996.
*** Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-32251), declared effective October 24, 1997.
+ Portions of the Exhibit have been granted confidential treatment by the
Commission. The omitted portions have been filed separately with the
Commission.
++ Portions of the Exhibit have been deleted from the publicly filed document
and have been filed separately with the Commission pursuant to a request for
confidential treatment.
54
<PAGE>
EXECUTION COPY
Exhibit 10(ee)
PLEDGE AGREEMENT
Dated as of June 3, 1998
between
AMERICAN CRYSTAL SUGAR COMPANY
and
FIRST UNION TRUST COMPANY, NATIONAL ASSOCIATION,
as Collateral Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 1. Definitions; Interpretations. 1
Section 2. Representations; Warranties and Covenants. 2
Section 3. The Pledge. 4
Section 4. Covenants. 5
Section 5. Further Assurances; Remedies. 7
5.01 Delivery and Other Perfection. 7
5.02 Other Financing Statements and Liens. 8
5.03 Preservation of Rights. 8
5.04 Collateral. 8
5.05 Events of Default, Etc. 9
5.06 Deficiency. 10
5.07 Removals, Etc. 10
5.08 Private Sale. 11
5.09 Application of Proceeds. 11
5.10 Attorney-in-Fact. 11
5.11 Perfection. 11
5.12 Termination. 11
5.13 Expenses. 12
5.14 Further Assurances. 12
Section 6. Miscellaneous. 12
6.01 No Waiver. 12
6.02 Notices. 12
6.03 Waivers, Etc. 13
6.04 Successors and Assigns. 13
6.05 Counterparts. 13
6.06 Agents. 13
6.07 Severability. 13
6.08 Headings. 13
6.09 Limitation of Liability. 13
6.10 Security Interest Absolute. 13
6.11 Subrogation. 14
6.12 Reinstatement. 14
6.13 Jurisdiction and Process. 15
6.14 No Third Party Beneficiaries. 15
6.15 Governing Law. 16
6.16 Waiver of Jury Trial. 16
</TABLE>
<PAGE>
PLEDGE AGREEMENT (this "AGREEMENT") dated as of June 3, 1998
between American Crystal Sugar Company, a Minnesota Cooperative corporation
(the "PLEDGOR") and First Union Trust Company, National Association, as
Collateral Agent for the Noteholders under the Note Purchase Agreement
referred to below (in such capacity, together with its successors in such
capacity, the "COLLATERAL AGENT").
CRYSTECH, LLC, a Delaware limited liability company (the
"COMPANY"), and Crystech Senior Lender Trust (the "PURCHASER") are parties to
a Note Purchase Agreement dated as of June 3, 1998 (as amended, modified and
supplemented and in effect from time to time, the "NOTE PURCHASE AGREEMENT"),
providing, subject to the terms and conditions thereof, INTER ALIA, for the
issuance by the Company to the Purchaser of U.S. $86,005,000 aggregate
principal amount of its Senior Secured Notes due 2007 (together with all
notes delivered in substitution or exchange for any of said Notes pursuant to
the Note Purchase Agreement and additional Notes issued in lieu of interest
or fees payable under the Note Purchase Agreement, the "NOTES").
To induce the Purchaser to purchase the Notes and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Pledgor has agreed to pledge and grant a security interest
in the Collateral (as hereinafter defined) as security for the Secured
Obligations (as hereinafter defined). Accordingly, the parties hereto agree
as follows:
Section 1. DEFINITIONS; INTERPRETATIONS.
(a) DEFINITIONS. Terms defined in the Note Purchase Agreement are
used herein as defined therein, unless otherwise defined herein. In
addition, as used herein the following terms shall have the following
respective meanings (all terms defined in this Section 1 and in the
other provisions of this Agreement in the singular to have the same
meanings when used in the plural and VICE VERSA):
"COLLATERAL" shall have the meaning assigned to such term in
Section 3 hereof.
"COMPANY LLC AGREEMENT" shall mean the Limited Liability Company
Agreement of Crystech, LLC, entered into and made effective as of May 1,
1998 by and among the Pledgor and each other holder of a Membership
Interest of the Company.
"MEMBERSHIP INTERESTS" shall have the meaning assigned to such term
in the Company LLC Agreement.
"RECORDS" shall have the meaning assigned to such term in Section
2(a) hereof.
"SECURED OBLIGATIONS" shall mean (a) the principal of, interest on
and Make-Whole Amount, if any, payable with respect to the Notes and (b)
all other amounts from
<PAGE>
- 4 -
time to time payable to the Collateral Agent or any Noteholder under the
Note Purchase Agreement or any other Financing Document.
"TERMINATION DATE" shall mean the date on which the Secured Parties
shall have received final payment in full of all Secured Obligations and
all other amounts owing to the Secured Parties under the Financing
Documents.
"UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as
adopted by the State of New York.
(b) INTERPRETATION. Except as otherwise specified in this
Agreement or as the context otherwise requires, any reference in this
Agreement to any agreement, contract or document shall mean such
agreement, contract or document and all schedules, exhibits,
attachments, appendices and annexes thereto, as amended, supplemented or
modified and in effect from time to time. Unless otherwise stated, any
reference in this Agreement to any Person shall include its permitted
successors and assigns and, in the case of any Government Agency, any
Person succeeding to its functions and capacities. In addition, any
term defined or used herein in the singular will be deemed to have the
same meanings when used in the plural and VICE VERSA. Any reference in
this Agreement to any Section or Annex means and refers to the Section
contained in or Annex attached to this Agreement.
Section 2. REPRESENTATIONS; WARRANTIES AND COVENANTS.
The Pledgor represents, warrants and covenants to the Secured Parties that:
(a) The chief place of business and chief executive office of the
Pledgor and the office where the Pledgor keeps its records concerning
the Collateral (hereinafter, collectively called the "RECORDS") is
located at __________________________.
(b) The Pledgor is a cooperative corporation duly organized,
validly existing and in good standing under the laws of the State of
Minnesota and is duly qualified to do business and is in good standing
in all places where necessary in light of the business it conducts and
the Property it owns and intends to conduct and own and in light of the
transactions contemplated by this Agreement. No filing, recording,
publishing or other act that has not been made or done is necessary or
desirable in connection with the existence or good standing of the
Pledgor or the conduct of its business.
(c) The Pledgor has the full power, authority and legal right to
execute, deliver and perform its obligations under this Agreement. The
execution, delivery and performance by the Pledgor of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate and
PLEDGE AGREEMENT
<PAGE>
- 5 -
shareholder action. This Agreement has been duly executed and delivered
by the Pledgor, has not been amended or otherwise modified, is in full
force and effect and is the legal, valid and binding obligation of the
Pledgor, enforceable against the Pledgor in accordance with its terms,
except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (ii) general principles
of equity (regardless of whether enforcement thereof is sought in a
proceeding at law or in equity). The Pledgor is not in default in the
performance of any covenant or obligation set forth in any indenture or
loan or credit agreement, agreement, lease or instrument to which it is
a party or by which its Properties may be bound or affected, which
default has, or could reasonably be expected to have, a material adverse
effect on the Pledgor or the ability of the Pledgor to fulfill its
obligations under this agreement.
(d) The execution, delivery and performance by the Pledgor of this
Agreement and the consummation of the transactions contemplated hereby
do not and will not (i) require any consent or approval of the board of
directors or any shareholder of the Pledgor or any other Person that has
not been duly obtained and each such consent or approval that has been
obtained is in full force and effect, (ii) violate any provision of the
certificate of incorporation or the by-laws of the Pledgor or any
Governmental Rule or Governmental Approval applicable to the Pledgor,
(iii) conflict with, result in a breach of or constitute a default under
the certificate of incorporation, by-laws or any resolution of the board
of directors of the Pledgor or any indenture or loan or credit agreement
or other agreement, lease or instrument to which the Pledgor is a party
or by which it or its Properties may be bound or affected or (iv) result
in, or require the creation or imposition of, any Lien upon or with
respect to any of the properties now owned or hereafter acquired by the
Pledgor (other than any shares acquired by the Pledgor as a result of a
consolidation or merger of the Company). The Pledgor is not in
violation of any such Governmental Rule or Governmental Approval or such
certificate of incorporation or by-laws or in breach of or default under
any indenture, loan agreement or credit agreement or other material
agreement, lease or instrument referred to in clause (iii) above which
violation, breach or default has or could reasonably be expected to have
a material adverse effect on the Pledgor or the ability of the Pledgor
to fulfill its obligations under this Agreement.
(e) This Agreement creates in favor of the Collateral Agent for
the equal and ratable benefit of the Secured Parties, a legal, valid and
enforceable Lien on and security interest in all of the Collateral,
subject to no equal or prior Lien securing the payment and performance
of the Secured Obligations, and all filings and other actions necessary
or desirable to create, preserve, validate, perfect and protect such
Lien and the priority thereof have been duly made or taken.
PLEDGE AGREEMENT
<PAGE>
- 6 -
(f) No Governmental Approval by, and no filing with, any
Governmental Body is required to be obtained by the Pledgor in
connection with this Agreement and the transactions contemplated hereby
(except for the filing of the financing statements in the jurisdictions
identified in Annex 2 hereto).
(g) The Pledgor is the sole legal and beneficial owner of the
Collateral in which it purports to grant a security interest pursuant to
Section 3 hereof, and no Lien exists or will exist upon the Collateral
at any time (and, with respect to the Collateral, no right or option to
acquire the same exists in favor of any other Person), except for the
pledge and security interest in favor of the Collateral Agent for the
benefit of the Secured Parties created or provided for herein, which
pledge and security interest constitute a valid and enforceable first
priority perfected pledge and security interest in and to all of the
Collateral.
(h) There is no action, suit or proceeding at law or in equity or
by or before any Governmental Body, arbitral tribunal or other body now
pending, or to the best knowledge of the Pledgor, threatened against or
affecting the Pledgor or any of its Property or the Collateral which has
or could reasonably be expected to have a material adverse effect on the
Pledgor or the ability of the Pledgor to fulfill its obligations under
this Agreement.
(i) The Pledgor has filed or caused to be filed all tax returns
that are required to be filed, and has paid all taxes shown to be due
and payable on said returns or on any assessments made against the
Pledgor or any of its Property and all other Taxes imposed on the
Pledgor by any Governmental Body (other than Taxes the payment of which
are not yet due or which are being contested in good faith and Taxes for
which the failure to so file or pay does not have and could not
reasonably be expected to have a material adverse effect on the Pledgor
or the ability of the Pledgor to fulfill its obligations under this
Agreement), and no tax Liens have been filed and no claims are being
asserted with respect to any such Taxes.
(j) The Pledgor has all right, title, interest in, to and under,
and is the record owner of, the Collateral in which it purports to grant
a security interest pursuant to Section 3 and no Lien exists or will
exist upon the Collateral at any time (and no right to acquire the same
exists in favor of any other Person), except for the pledge and security
interest in favor of the Collateral Agent for the benefit of the Secured
Parties created or provided for herein, which pledge and security
interest constitute a first priority perfected pledge and security
interest in and to all of the Collateral.
(k) The Membership Interests identified in Annex 1 hereto are, and
all other Membership Interests of the Company in which the Pledgor shall
hereafter grant a
PLEDGE AGREEMENT
<PAGE>
- 7 -
security interest pursuant to Section 3 hereof will be, duly authorized,
validly existing, fully paid and non-assessable, and none of such
interests is or will be subject to any contractual restriction, or any
restriction under the Company LLC Agreement, upon the transfer of such
membership interests, including without limitation the admission of any
such transferee as a Member of the Company (except for such restriction
contained herein).
Section 3. THE PLEDGE
As collateral security for the prompt payment in full when due (whether at
stated maturity, by acceleration or otherwise) of the Secured Obligations,
the Pledgor hereby pledges, assigns, hypothecates and transfers to the
Collateral Agent for the equal and ratable benefit of the Secured Parties,
and hereby grants to the Collateral Agent for the equal and ratable benefit
of the Secured Parties a Lien on and security interest in, all of the
Pledgor's right, title and interest in, to and under the following, whether
now owned by the Pledgor or hereafter acquired and whether now existing or
hereafter coming into existence and wherever located (all being collectively
referred to herein as "COLLATERAL"):
(a) its Membership Interests, together with the certificates (if
any) evidencing the same, including, without limitation, all of its
right, title and interest in, to and under the Company LLC Agreement,
including, without limitation, (i) all rights of the Pledgor to receive
moneys due but unpaid and to become due under or pursuant to the Company
LLC Agreement, (ii) all rights of the Pledgor to participate in the
operation or management of the Company and to take actions or consent to
actions in accordance with the provisions of the Company LLC Agreement,
(iii) all rights of the Pledgor to property of the Company, (iv) all
rights of the Pledgor to receive proceeds of any insurance, bond,
indemnity, warranty or guaranty with respect to the Company LLC
Agreement, (v) all claims of the Pledgor for damages arising out of or
for breach of or default under the Company LLC Agreement and (vi) all
rights of the Pledgor to terminate, amend, supplement, modify or waive
performance under the Company LLC Agreement, to perform thereunder and
to compel performance and otherwise to exercise all remedies thereunder;
(b) all shares, interests, securities, moneys or property
representing a dividend on such Membership Interests or representing a
distribution or return of capital upon or with respect to such
Membership Interests or resulting from a split-up, revision,
reclassification or other like change of the Collateral or otherwise
received in exchange therefor, and any subscription warrants, rights or
options issued to the holders of, or otherwise in respect of the
Collateral; and
(c) all proceeds, products, offspring, rents, profits, royalties,
revenues, issues, income, benefits, accessions, additions, substitutions
and replacements of and to any and
PLEDGE AGREEMENT
<PAGE>
- 8 -
all of the property of the Pledgor described in the preceding clauses
of this Section 3 and, to the extent related to any such property all
books, correspondence, credit files, records, invoices and other papers.
Section 4. COVENANTS.
The Pledgor covenants and agrees that, until the Termination Date:
(a) The Pledgor will not (i) cancel or terminate the Company LLC
Agreement or consent to or accept any cancellation or termination
thereof, (ii) amend, supplement or otherwise modify the Company LLC
Agreement in a manner that would be adverse to the interests of the
Noteholders under the Financing Documents or adversely affect the rights
or remedies of the Collateral Agent hereunder or the value of the
Collateral or (iii) petition, request or take any other legal or
administrative action that seeks, or may reasonably be expected, to
rescind, terminate, amend, modify or suspend the Company LLC Agreement;
PROVIDED that after ACS has purchased the Membership Interests of the
other Member(s) under Section 4.2 of the Company Limited Liability
Company Agreement, ACS may terminate the Company Limited Liability
Company Agreement if prior to such termination the Company has merged
with or consolidated into ACS in a transaction permitted under Section
9.6 of the Note Purchase Agreement and ACS has assumed in writing all of
the Secured Obligations pursuant to an assignment and assumption
agreement satisfactory to the Noteholders and has delivered to the
Noteholders (a) an opinion of counsel satisfactory to the Noteholders
covering the enforceability of such assignment and assumption agreement
and such other matters as the Noteholders may reasonably request and (b)
such other documents and financial information with respect to ACS as
the Noteholders may reasonable request, which documents shall be
satisfactory to the Noteholders.
(b) The Pledgor shall preserve and maintain its corporate
existence and all of its licenses, rights, privileges and franchises
that are necessary or desirable for the maintenance of its existence and
the fulfillment of its obligations under this Agreement.
(c) The Pledgor shall pay and discharge all Taxes now or hereafter
imposed on the Pledgor, on its income or profits, on any of its Property
or upon the Liens provided for herein prior to the date on which
penalties attach thereto for which the failure to so pay and discharge
has or could reasonably be expected to have a material adverse effect on
the Pledgor or the ability of the Pledgor to fulfill its obligations
under this Agreement; PROVIDED that the Pledgor shall have the right to
contest in good faith the validity or amount of any such Tax.
(d) The Pledgor shall not create, incur, assume or suffer to exist
any Lien upon any of the Collateral, except for Permitted Liens.
PLEDGE AGREEMENT
<PAGE>
- 9 -
(e) The Pledgor shall promptly upon obtaining knowledge of any
action, suit or proceeding at law or in equity by or before any
Governmental Body, arbitral tribunal or other body pending or threatened
against the Pledgor which could result in a material adverse effect on
the Pledgor or the ability of the Pledgor to fulfill its obligations
under this Agreement or upon becoming aware of any other circumstance,
act or condition (including, without limitation, the adoption, amendment
or repeal of any Governmental Rule or the Impairment of any Governmental
Approval or notice (whether formal or informal, written or oral) of the
failure to comply with the terms and conditions of any Governmental
Approval) which could result in a material adverse effect on the Pledgor
or the ability of the Pledgor to fulfill its obligations under this
Agreement, furnish to the Collateral Agent a written notice of such
event describing the same in reasonable detail and, together with such
notice or as soon thereafter as possible, a description of the action
that the Pledgor has taken and proposes to take with respect thereto.
(f) Except as permitted by Section 9.2 of the Company LLC
Agreement, ("RIGHT TO PURCHASE AND SELL MEMBERSHIP INTERESTS"), the
Pledgor shall not sell, assign, transfer or otherwise dispose of all or
any part of the Collateral, or consent to the issuance of any Membership
Interests or other equity interest of any class by the Company, without
the prior written consent of the Collateral Agent (which the Collateral
Agent will provide only if instructed to do so by the Majority Holders).
(g) Promptly after the Pledgor knows or has reason to believe that
any Default or Event of Default relating to the Pledgor has occurred,
the Pledgor shall deliver to the Collateral Agent written notice of such
event describing the same in reasonable detail together with, or as soon
thereafter as possible, a written description of the action that the
Pledgor has taken or proposes to take with respect thereto.
Section 5. FURTHER ASSURANCES; REMEDIES.
In furtherance of the grant of the pledge and security interest pursuant to
Section 3 hereof, the Pledgor hereby agrees with the Secured Parties as
follows:
5.01 DELIVERY AND OTHER PERFECTION.
The Pledgor shall:
(a) with respect to the Membership Interests held by the Pledgor,
execute and deliver written instructions to the Company to register the
Lien created hereunder in such ownership interests in the registration
books maintained by the Company for such a purpose and cause the Company
to execute and deliver to the Collateral Agent a written confirmation to
the effect that the Lien created hereunder in such ownership interests
has been duly registered in such registration books;
PLEDGE AGREEMENT
<PAGE>
- 10 -
(b) if any of the certificates, warrants, rights, options or other
Property required to be pledged by the Pledgor under Section 3 hereof
are received by the Pledgor, forthwith (i) transfer and deliver to the
Collateral Agent such certificates, warrants, rights, options or other
Property so received by the Pledgor (together with the certificates for
any such Membership Interests and securities duly endorsed in blank),
all of which thereafter shall be held by the Collateral Agent, pursuant
to the terms of this Agreement, as part of the Collateral and/or (ii)
take such other action as the Collateral Agent shall deem necessary or
appropriate to duly record the Lien created hereunder in such
certificates, warrants, rights, options or other Property;
(c) give, execute, deliver, file and/or record any financing
statement, continuation statement, notice, instrument, document,
agreement or other papers that may be necessary or desirable or
reasonably requested by the Collateral Agent in a notice to the Pledgor
(given by the Collateral Agent upon the written directions of the
Majority Holders) to create, preserve, perfect or validate the security
interest granted pursuant hereto or to enable the Collateral Agent to
exercise and enforce its rights hereunder with respect to such pledge
and security interest including, without limitation, causing any or all
of the Collateral to be transferred of record into the name of the
Collateral Agent or its nominee (and the Collateral Agent agrees that if
any Collateral is transferred into its name or the name of its nominee,
the Collateral Agent will thereafter promptly give to the Pledgor copies
of any written notices and communications received by it with respect to
the Collateral). Without limiting the generality of the foregoing, the
Pledgor shall, if any Collateral shall be evidenced by a promissory note
or other instrument, deliver and pledge to the Collateral Agent for the
equal and ratable benefit of the Secured Parties such note or instrument
duly endorsed or accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to the Collateral
Agent;
(d) maintain, hold and preserve full and accurate Records, and
stamp or otherwise mark such Records in such manner as the Collateral
Agent may reasonably require in order to reflect the security interests
granted by this Agreement;
(e) permit representatives of the Collateral Agent, upon
reasonable notice, at any time during normal business hours to inspect
and make abstracts from its Records, and permit representatives of the
Collateral Agent to be present at the Pledgor's place of business to
receive copies of all communications and remittances relating to the
Collateral, all in such manner as the Collateral Agent may require, and
forward promptly to the Collateral Agent written copies of any notices
or communications received by the Pledgor with respect to the
Collateral; and
(f) if any of the Collateral shall be evidenced by a promissory note
or other
PLEDGE AGREEMENT
<PAGE>
- 11 -
instrument, deliver and pledge to the Collateral Agent for the equal and
ratable benefit of the Secured Parties any all such notes or
instruments, endorsed and/or accompanied by such executed instruments of
assignment and transfer in such form and substance as the Collateral
Agent may reasonably request.
5.02 OTHER FINANCING STATEMENTS AND LIENS.
Without the prior consent of the Collateral Agent (which the Collateral Agent
will provide to the extent directed to do so by the Majority Holders), the
Pledgor shall not file or suffer to be on file, or authorize or permit to be
filed or to be on file, in any jurisdiction, any financing statement,
recordation of Liens or like instrument with respect to the Collateral in
which the Collateral Agent is not named as the sole secured party for the
benefit of the Secured Parties.
5.03 PRESERVATION OF RIGHTS.
The Collateral Agent shall not be required to take steps necessary to
preserve any rights against prior parties to any of the Collateral.
5.04 COLLATERAL.
(a) So long as no Default or Event of Default shall have occurred
and be continuing, the Pledgor shall have the right to exercise all voting,
consensual and other powers of ownership pertaining to the Collateral for all
purposes not inconsistent with the terms of this Agreement, the Note Purchase
Agreement or any other Financing Document; and, the Collateral Agent shall
execute and deliver to the Pledgor or cause to be executed and delivered to
the Pledgor all such proxies, powers of attorney, dividend and other orders,
and all such instruments, without recourse, as the Pledgor may reasonably
request in a writing delivered to the Collateral Agent for the purpose of
enabling the Pledgor to exercise the rights and powers which it is entitled
to exercise pursuant to this Section 5.04(a).
(b) Unless and until a Default or Event of Default has occurred
and is continuing, the Pledgor shall be entitled to receive, retain and
distribute as dividends or otherwise any dividends on the Collateral paid or
payable in accordance with the terms of the Agency and Disbursement Agreement.
(c) If any Default or Event of Default shall have occurred and be
continuing, and whether or not the Collateral Agent or any other Secured
Party exercises any available right to declare any Secured Obligation due and
payable or seeks or pursues any other relief or remedy available to it under
applicable law or under this Agreement, the Note Purchase Agreement or any
other Financing Document, all dividends and other distributions on the
Collateral received by the Pledgor in trust for the benefit of the Collateral
Agent, shall be segregated from other funds of the Pledgor and shall be
forthwith paid over to the Collateral Agent in the same form as
PLEDGE AGREEMENT
<PAGE>
- 12 -
received. Subject to the terms of this Agreement, and, if the Collateral
Agent shall so request, the Pledgor agrees to execute and deliver to the
Collateral Agent appropriate additional dividend, distribution and other
orders and documents to that end, PROVIDED that if such Default or Event of
Default is waived or cured, any such dividend or distribution theretofore
paid to the Collateral Agent shall, upon written request of the Pledgor
(except to the extent theretofore applied to the Secured Obligations), be
returned by the Collateral Agent to the Pledgor.
5.05 EVENTS OF DEFAULT, ETC.
During the period during which an Event of Default shall have occurred and be
continuing:
(a) the Collateral Agent shall have all of the rights and remedies
with respect to the Collateral of a secured party under the Uniform
Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such
additional rights and remedies to which a secured party is entitled
under the laws in effect in the States of New York and Delaware and any
jurisdiction where any rights and remedies hereunder may be asserted,
including, without limitation, the right, to the maximum extent
permitted by law, to exercise all voting, consensual and other powers of
ownership pertaining to the Collateral as if the Collateral Agent were
the sole and absolute owner thereof (and the Pledgor agrees to take all
such reasonable action as may be appropriate to give effect to such
right);
(b) the Collateral Agent may, in its name or in the name of the
Pledgor or otherwise, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of or in exchange
for any of the Collateral, but shall be under no obligation to do so; and
(c) the Collateral Agent may (but shall have no obligation to,
except to the extent required under the Agency and Disbursement
Agreement), upon not less than five Business Days' prior notice to the
Pledgor of the time and place, with respect to the Collateral or any
part thereof which shall then be or shall thereafter come into the
possession, custody or control of the Collateral Agent, the other
Secured Parties or any of their respective agents, sell, lease, assign
or otherwise dispose of all or any part of such Collateral, at such
place or places as the Collateral Agent deems advisable, and for cash or
for credit or for future delivery (without thereby assuming any credit
risk), at public or private sale, without demand of performance or
notice of intention to effect any such disposition or of the time or
place thereof (except such notice as is required above or by applicable
statute and cannot be waived), and the Collateral Agent or any other
Secured Party or anyone else may be the purchaser, lessee, assignee or
recipient of any or all of the Collateral so disposed of at any public
sale (or, to the extent permitted by law, at any private sale conducted
in a commercially reasonable manner) and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind, including
any right or
PLEDGE AGREEMENT
<PAGE>
- 13 -
equity of redemption (statutory or otherwise), of the Pledgor, any such
demand, notice and right or equity being hereby expressly waived and
released. The Collateral Agent may (but shall have no obligation to,
except to the extent required under the Agency and Disbursement
Agreement), without notice or publication, adjourn any public or private
sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for the sale, and such sale may be made at
any time or place to which the sale may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
5.05 shall be applied in accordance with Section 5.09 hereof.
The Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, and applicable state
securities laws, the Collateral Agent may be compelled, with respect to any
sale of all or any part of the Collateral, to limit purchasers to those who
will agree, INTER ALIA, to acquire the Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges that any such private sale may be at prices and on terms
less favorable to the Collateral Agent than those obtainable through a public
sale without such restrictions, and, notwithstanding such circumstances,
agrees that to the extent such private sale shall have been made in a
commercially reasonable manner, the Collateral Agent shall have no obligation
to engage in public sales and no obligation to delay the sale of any
Collateral for the period of time necessary to permit the respective issuer
thereof to register it for public sale.
5.06 DEFICIENCY.
If the proceeds of sale, collection or other realization of or upon the
Collateral pursuant to Section 5.05 hereof are insufficient to cover the
costs and expenses of such realization and the payment in full of the Secured
Obligations, the Pledgor shall remain liable for any deficiency only to the
extent provided in Section 16.6 of the Note Purchase Agreement.
5.07 REMOVALS, ETC.
Without at least 30 days' prior written notice to the Collateral Agent, the
Pledgor shall not (a) maintain any of its Records at any office or maintain
its principal place of business at any place other than at the address
indicated beneath its signature hereto or (b) change its corporate name, or
the name under which it does business, from the name shown on the signature
pages hereto.
5.08 PRIVATE SALE.
The Collateral Agent and the other Secured Parties, respectively, shall incur
no liability as a result of the sale of the Collateral, or any part thereof,
at any private sale, pursuant to Section 5.05 hereof, conducted in a
commercially reasonable manner. The Pledgor hereby waives any claims against
the Collateral Agent or any other Secured Party arising by reason of
PLEDGE AGREEMENT
<PAGE>
- 14 -
the fact that the price at which the Collateral may have been sold at such a
private sale was less than the price which might have been obtained at a
public sale or was less than the aggregate amount of the Secured Obligations,
even if the Collateral Agent accepts the first offer received and does not
offer the Collateral to more than one offeree.
5.09 APPLICATION OF PROCEEDS.
Except as otherwise herein expressly provided, the proceeds of any
collection, sale or other realization of all or any part of the Collateral
pursuant hereto, and any other cash at the time held by the Collateral Agent
under this Section 5, shall be applied by the Collateral Agent in accordance
with Section 7 of the Agency and Disbursement Agreement.
5.10 ATTORNEY-IN-FACT.
Without limiting any rights or powers granted by this Agreement to the
Collateral Agent, while no Default or Event of Default has occurred and is
continuing, upon the occurrence and during the continuance of any Default or
Event of Default the Collateral Agent is hereby appointed the
attorney-in-fact of the Pledgor for the purpose of carrying out the
provisions of this Section 5 and taking any action and executing any
instruments which the Collateral Agent may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, so long as the Collateral Agent shall be entitled under this
Section 5 to make collections in respect of the Collateral, the Collateral
Agent shall have the right and power to receive, endorse and collect all
checks made payable to the order of the Pledgor representing any dividend,
payment or other distribution in respect of the Collateral or any part
thereof and to give full discharge for the same.
5.11 PERFECTION.
Prior to or concurrently with the execution and delivery of this Agreement,
the Pledgor shall deliver to the Collateral Agent all certificates identified
in Annex 1 hereto, accompanied by undated stock powers duly executed in blank
(or otherwise properly indorsed (within the meaning of Section 8-304 of the
UCC).
5.12 TERMINATION.
Upon the Termination Date, the security interest created by this Agreement
shall terminate and all rights to the Collateral shall revert to the Pledgor,
and upon the written request of the Pledgor containing a certification that
the Termination Date has occurred, the Collateral Agent shall forthwith cause
to be assigned, transferred and delivered, against receipt but without any
recourse, warranty or representation whatsoever, any remaining Collateral and
money received in respect thereof, to or on the order of the Pledgor. The
Collateral Agent shall also execute and deliver to the Pledgor upon such
written request and certification such Uniform Commercial Code termination
statements and such other documentation as shall be reasonably requested by
the Pledgor to effect the termination and release of the Liens on the
Collateral.
PLEDGE AGREEMENT
<PAGE>
- 15 -
5.13 EXPENSES.
The Pledgor agrees to reimburse each of the Noteholders and the Collateral
Agent for all costs and expenses of the Noteholders and the Collateral Agent
(including, without limitation, the fees and expenses of legal counsel) in
connection with (a) any Default or Event of Default and any enforcement or
collection proceeding resulting therefrom, including, without limitation, all
manner of participation in or other involvement with (i) performance by the
Collateral Agent of any obligation that the Pledgor has failed or refused to
perform, (ii) bankruptcy, insolvency, receivership, foreclosure, winding up
or liquidation proceedings, or any actual or attempted sale, or any exchange,
enforcement, collection, compromise or settlement in respect of any of the
Collateral, and for the care of the Collateral and defending or asserting
rights and claims of the Collateral Agent in respect thereof, by litigation
or otherwise, including expenses of insurance, (iii) judicial or regulatory
proceedings and (iv) workout, restructuring or other negotiations or
proceedings (whether or not the workout, restructuring or transaction
contemplated thereby is consummated) and (b) the enforcement of this Section
5.13, and all such costs and expenses shall be Secured Obligations entitled
to the benefits of the collateral security provided pursuant to Section 3
hereof.
5.14 FURTHER ASSURANCES.
The Pledgor agrees that, from time to time upon the request of the Collateral
Agent, the Pledgor will execute and deliver such further documents and do
such other acts and things as the Collateral Agent may reasonably request in
order fully to effectuate the purposes of this Agreement.
Section 6. MISCELLANEOUS.
6.01 NO WAIVER.
No failure on the part of the Collateral Agent or any of its agents to
exercise and no delay in exercising, and no course of dealing with respect
to, any right, power or remedy hereunder shall operate as a waiver thereof,
and no single or partial exercise by the Collateral Agent or any of its
agents of any right, power or remedy hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
The remedies provided herein are cumulative and are not exclusive of any
remedies provided by law.
6.02 NOTICES.
All notices, requests and other communications provided for herein
(including, without limitation, any modifications of, or waivers or consents
under, this Agreement) shall be given or made in writing (including, without
limitation, by telex or telecopy) delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature page hereof
or, as to any party, at such other address as shall be designated by such
party, in a notice to each
PLEDGE AGREEMENT
<PAGE>
- 16 -
other party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted by
telex or telecopier or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid.
6.03 WAIVERS, ETC.
This Agreement may be amended or modified only by an instrument in writing
signed by the Pledgor and the Collateral Agent acting with the written
consent of the Majority Holders and any provision of this Agreement may be
waived by the Collateral Agent acting with written consent of the Majority
Holders; PROVIDED that no amendment, modification or waiver shall, unless by
an instrument in writing signed by each Noteholder or by the Collateral Agent
acting with the written consent of each Noteholder, alter the terms of this
Section 6.03. Any waiver shall be effective only in the specific instance
and for the specified purpose for which it was given.
6.04 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit of the
respective successors and assigns of the Pledgor, the Collateral Agent, the
other Secured Parties and each holder of any of the Secured Obligations
(PROVIDED, HOWEVER, that the Pledgor shall not assign or transfer its rights
hereunder without the prior consent of the Collateral Agent) (which the
Collateral Agent will provide only if instructed to do so by the Majority
Holders).
6.05 COUNTERPARTS.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which together shall constitute one
and the same instrument.
6.06 AGENTS.
The Collateral Agent may employ agents and attorneys-in-fact in connection
herewith and shall not be responsible for the negligence or misconduct of any
such agents or attorneys-in-fact selected by it in good faith.
6.07 SEVERABILITY.
If any provision hereof is invalid and unenforceable in any jurisdiction,
then, to the fullest extent permitted by law, (a) the other provisions hereof
shall remain in full force and effect in such jurisdiction and shall be
liberally construed in order to carry out the intentions of the parties
hereto as nearly as may be possible and (b) the invalidity or
unenforceability of any provision hereof in any jurisdiction shall not affect
the validity or enforceability of such provision in any other jurisdiction.
6.08 HEADINGS.
The headings in this Agreement are for convenience of reference only and
shall not limit or otherwise affect any of the terms hereof.
PLEDGE AGREEMENT
<PAGE>
- 17 -
6.09 LIMITATION OF LIABILITY.
The liability of the Pledgor for the payment and performance of the Secured
Obligations shall be limited as and to the extent provided under Section 16.6
of the Note Purchase Agreement.
6.10 SECURITY INTEREST ABSOLUTE.
The rights and remedies of the Collateral Agent hereunder, the Liens created
hereby and the obligations of the Pledgor hereunder are absolute, irrevocable
and unconditional, irrespective of:
(a) the validity or enforceability of any of the Secured
Obligations, any other Financing Document or any other agreement or
instrument relating thereto;
(b) any amendment to, waiver of, consent to or departure from, or
failure to exercise any right, remedy, power or privileges under or in
respect of, any of the Secured Obligations, any other Financing Document
or any other agreement or instrument relating thereto;
(c) the acceleration of the maturity of any of the Secured
Obligations or any other modification of the time of payment thereof;
(d) any substitution, release or exchange of any other security
for or guarantee of any of the Secured Obligations or the failure to
create, preserve, validate, perfect or protect any other Lien granted
to, or purported to be granted to, or in favor of, the Collateral Agent
or any other Secured Party; or
(e) any other event or circumstance whatsoever which might
otherwise constitute a legal or equitable discharge of a surety or a
guarantor, it being the intent of this Section 6.10 that the obligations
of the Pledgor hereunder shall be absolute, irrevocable and
unconditional under any and all circumstances.
6.11 SUBROGATION.
The Pledgor shall not exercise, and hereby irrevocably waives, any claim,
right or remedy that it may now have or may hereafter acquire against the
Company arising under or in connection with this Agreement, including,
without limitation, any claim, right or remedy of subrogation, contribution,
reimbursement, exoneration, indemnification or participation arising under
contract, by Governmental Rule or otherwise in any claim, right or remedy of
the Collateral Agent or the Secured Parties against the Company or any other
Person or any Collateral which the Collateral Agent or any Secured Party may
now have or may hereafter acquire. If, notwithstanding the preceding
sentence, any amount shall be paid to the Pledgor on account of such
subrogation rights at any time when any of the Secured Obligations shall not
have been paid in full, such amount shall be held by the Pledgor in trust for
the Collateral Agent and the Secured Parties, segregated from other funds of
the Pledgor and be turned over to the Collateral Agent in the
PLEDGE AGREEMENT
<PAGE>
- 18 -
exact form received by the Pledgor (duly endorsed by the Pledgor to the
Collateral Agent, if required), to be applied against the Secured
Obligations, whether matured or unmatured, in accordance with the Note
Purchase Agreement and the Security Documents.
6.12 REINSTATEMENT.
This Agreement and the Lien created hereunder shall automatically be
reinstated if and to the extent that for any reason any payment by or on
behalf of the Company in respect of the Secured Obligations is rescinded or
must otherwise be restored by any holder of the Secured Obligations, whether
as a result of any proceedings in bankruptcy or reorganization or otherwise,
and the Pledgor shall indemnify the Collateral Agent and each other Secured
Party on demand for all reasonable costs and expenses (including, without
limitation, fees and expenses of counsel) incurred by the Collateral Agent or
such other Secured Party in connection with such rescission or restoration.
6.13 JURISDICTION AND PROCESS.
THE PLEDGOR AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT OR ANY OTHER
DOCUMENT EXECUTED IN CONNECTION HEREWITH OR THEREWITH, OR ANY LEGAL ACTION OR
PROCEEDING TO EXECUTE OR OTHERWISE ENFORCE ANY JUDGMENT OBTAINED AGAINST THE
PLEDGOR, FOR BREACH HEREOF OR THEREOF, OR AGAINST ANY OF ITS PROPERTIES, MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK BY ANY SECURED PARTY OR
ON BEHALF OF SUCH SECURED PARTY, AS SUCH SECURED PARTY MAY ELECT, AND THE
PLEDGOR HEREBY IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF SUCH COURTS FOR PURPOSES OF ANY SUCH LEGAL ACTION OR
PROCEEDING. THE PLEDGOR HEREBY IRREVOCABLY APPOINTS AND DESIGNATES CT
CORPORATION SYSTEM, WHOSE ADDRESS IS 1633 BROADWAY, NEW YORK, NY 10019, OR
ANY OTHER PERSON HAVING AND MAINTAINING A PLACE OF BUSINESS IN THE STATE OF
NEW YORK WHOM THE PLEDGOR MAY FROM TIME TO TIME HEREAFTER DESIGNATE (HAVING
GIVEN 30 DAYS' NOTICE THEREOF TO THE COLLATERAL AGENT), AS THE TRUE AND
LAWFUL ATTORNEY AND DULY AUTHORIZED AGENT FOR ACCEPTANCE OF SERVICE OF LEGAL
PROCESS. THE PLEDGOR HEREBY AGREES THAT SERVICE OF PROCESS IN ANY SUCH
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID,
TO IT AT ITS ADDRESS SPECIFIED IN SECTION 6.02 OF THIS AGREEMENT OR AT SUCH
OTHER ADDRESS OF WHICH THE COLLATERAL AGENT SHALL HAVE BEEN NOTIFIED PURSUANT
THERETO. IN
PLEDGE AGREEMENT
<PAGE>
- 19 -
ADDITION, THE PLEDGOR HEREBY IRREVOCABLY WAIVES TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY OTHER FINANCING DOCUMENT EXECUTED IN CONNECTION
HEREWITH OR THEREWITH BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR THE
UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND ANY
CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
6.14 NO THIRD PARTY BENEFICIARIES.
THE AGREEMENTS OF THE PARTIES HERETO ARE SOLELY FOR THE BENEFIT OF THE
PLEDGOR, THE COLLATERAL AGENT AND THE OTHER SECURED PARTIES, AND NO PERSON
(OTHER THAN THE PARTIES HERETO, THE OTHER SECURED PARTIES AND THEIR
SUCCESSORS AND ASSIGNS PERMITTED HEREUNDER) SHALL HAVE ANY RIGHTS HEREUNDER.
6.15 GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
LAW OF THE STATE OF NEW YORK.
6.16 WAIVER OF JURY TRIAL.
EACH OF THE PLEDGOR AND THE COLLATERAL AGENT HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN
ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
COMPANY LLC AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
6.17 BENEFITS OF AGENCY AND DISBURSEMENT AGREEMENT.
For all purposes of this Agreement, in the performance of any duty or
obligation or the exercise of any right, power, or authority of the
Collateral Agent hereunder, including, without limitation, the giving of any
consent hereunder, the Collateral Agent shall be entitled to the benefits of
the Agency and Disbursement Agreement.
PLEDGE AGREEMENT
<PAGE>
- 20 -
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered as of the day and year first above written.
AMERICAN CRYSTAL SUGAR COMPANY
By
-----------------------------------
Title:
FIRST UNION TRUST COMPANY,
NATIONAL ASSOCIATION,
as Collateral Agent
By
-----------------------------------
Title:
Address for Notices:
First Union Trust Company, National
Association, as Collateral Agent
for Holders of [Notes]
One Rodney Square, First Floor
920 King Street
Wilmington, Delaware 19801
Attention: Corporate Trust Administration
Telecopier No.: (302)-888-7544
Telephone No.: (302)-888-7539
PLEDGE AGREEMENT
<PAGE>
ANNEX 1
MEMBER COLLATERAL
AMERICAN CRYSTAL SUGAR COMPANY
<TABLE>
<CAPTION>
Type of Certificate
Membership Number of No(s).
Interests Units (if any)
- ---------- --------- -----------
<S> <C> <C>
</TABLE>
PLEDGE AGREEMENT
<PAGE>
EXECUTION COPY
6/1/98
Exhibit 10(ff)
INDEMNITY AGREEMENT
This Indemnity Agreement dated as of June 3, 1998, between American
Crystal Sugar Company, a Minnesota cooperative (the "INDEMNITOR"), Newcourt
Capital USA Inc., a Delaware corporation ("NEWCOURT"), Crystech, LLC, a Delaware
limited liability company (the "PROJECT COMPANY") and Crystech Senior Lender
Trust, a Delaware statutory business trust ("CRYSTECH TRUST" and, together with
Newcourt and the Project Company, the "INDEMNITEES").
R E C I T A L S
WHEREAS, the Indemnitor desires that its affiliate, the Project
Company, engage Process Systems Incorporated Construction Company ("PSI") to
design, engineer and construct a molasses desugarization facility (the "MDS
FACILITY") at Indemnitor's sugar processing facility in Hillsboro, North Dakota
and other related equipment to be used by Indemnitor at its sugar processing
facilities in Hillsboro, North Dakota and Moorhead, Minnesota (the MDS Facility
and such other related equipment being collectively referred to as the
"PROJECT"). The MDS Facility will utilize certain technology (the "IDRECO
TECHNOLOGY") provided by Idreco Inc. ("IDRECO");
WHEREAS, in connection with submitting a bid to construct the MDS
Facility, PSI entered into a Confidentiality Agreement dated as of July 7, 1997
(the "CONFIDENTIALITY AGREEMENT") with Indemnitor and Finnsugar Bioproducts Inc.
("FINNSUGAR") and Applexion Inc. ("APPLEXION") defining certain rights and
obligations of the parties thereto with respect to certain "confidential
information" (as defined therein) belonging to Finnsugar and/or Applexion;
WHEREAS, as a result of the Confidentiality Agreement the Project
Company, the Indemnitees who have provided financing for the Project in the form
of debt (in the case of Crystech Trust) and equity contributions (in the case of
Newcourt) may be exposed to certain actions, claims, losses and expenses arising
out of the engagement of PSI to construct the Project pursuant to the
Engineering, Procurement and Construction Contract between PSI and Crystech
dated as of May 28, 1998 ("the EPC CONTRACT") and the use of the Idreco
Technology; and
WHEREAS, in order to provide the Indemnitees with adequate protection
and incentive to consent to the construction of the Project by PSI, the use of
the Idreco Technology and certain other risks associated with the development,
operation, ownership and financing of the Project, the Indemnitor has agreed to
enter into this Indemnity Agreement to provide indemnity to the Indemnitees as
more fully set forth herein.
NOW, THEREFORE, in consideration of the premises and covenants
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are
<PAGE>
hereby acknowledged, the parties hereto covenant and agree as follows:
SECTION 1. DEFINED TERMS.
(a) Each capitalized term used and not separately defined herein
shall have the meaning ascribed to such term in the Note Purchase
Agreement dated as of the date hereof between the Project Company and
the Crystech Trust (the "NOTE PURCHASE AGREEMENT").
(b) Except as otherwise specified or as the context may otherwise
require, any reference herein to any agreement, contract or document
shall mean such agreement, contract or document and all schedules,
exhibits, attachments and annexes thereto as amended, supplemented or
modified and in effect from to time, as permitted by the Note Purchase
Agreement.
SECTION 2. INDEMNIFICATION.
(a) The Indemnitor agrees to indemnify, release, exonerate and
hold each Indemnitee and each of their respective trustees, officers,
directors, employees and agents free and harmless on demand from and
against any and all claims, actions, causes of action, suits, losses,
liabilities, damages and expenses, including without limitation
reasonable counsel fees and disbursements (the "INDEMNIFIED
LIABILITIES") incurred by such Indemnitee as a result of, arising out
of, or relating to (i) any claims brought against the Project Company,
the Project, PSI or the Indemnitees (or any of them) by Finnsugar and/or
Applexion or any of their respective shareholders, successors or assigns
or anyone acting on their behalf for patent, copyright or trademark
infringement or the unauthorized use of trade secrets with respect to
the use or license of the Idreco Technology in connection with the
development, construction, operation or ownership of the Project, (ii)
the Confidentiality Agreement, (iii) any third-party claims of the type
described in Section 14.2 of the EPC Contract, (iv) any Idreco Delay (as
defined in the EPC Contract) and (v) any present or future Environmental
Claim or environmental matter or condition (in each case whether known
or unknown) associated with the Indemnitor, its assets or operations or
the ownership by Indemnitor or any other Person of any real property or
facility leased to the Project Company or used in connection with the
Project or any Release (actual or threatened) of any Hazardous Materials
from, at or to any site or facility owned or used by Indemnitor.
(b) In furtherance of the foregoing, Indemnitor agrees to pay all
principal, interest and Make-Whole Amounts (if any) and any other
amounts due and owing (including, without limitation, following the
acceleration of the Notes pursuant to Section 10 of the Note Purchase
Agreement) under the Note Purchase Agreement and Section 4.2 of the
Company LLC Agreement if and for so long as any such claim, action,
cause of action, suit, loss, liability or expense referred to in Section
2(a) above, delays or impairs or slows the construction or completion of
the Project (or any part thereof) in accordance with the Contract Master
Schedule (as defined in the EPC Contract) such that Provisional
Performance Acceptance does not occur by the Date Certain or delays or
impairs the start-up, operation or performance of the MDS Facility or
Impairs the Tolling Agreement.
(c) Without limiting the generality of the foregoing, the scope of
the indemnification provided to the
2
<PAGE>
Indemnitees hereunder will extend to and include (i) if the Tolling
Agreement has terminated, any diminution in the value of the Project (or
any part thereof) caused by any of the events described in Section 2(a)
above and (ii) any additional Project Costs incurred by the Project
Company beyond those set forth in the Construction Budget as a result of
any of the events described in Section 2(a) above.
(d) All obligations of Indemnitor hereunder shall continue during
the period Indemnitees are involved in the construction and operation of
the Project and thereafter shall continue so long as Indemnitees may be
subject to any possible claim or threatened, pending or completed
action, suit or proceeding or liability, loss, liability, damage or
expense of any kind described in this Section 2.
SECTION 3. NOTIFICATION AND DEFENSE OF CLAIM.
(a) Each Indemnitee shall give prompt notice to Indemnitor and
each other Indemnitee of any occurrence with respect to which it is
entitled to indemnification, provided, however, that Indemnitor shall
not be relieved of its obligations hereunder on account of any failure
to give notice.
(b) Each Indemnitee shall give Indemnitor a reasonable
opportunity, at Indemnitor's expense, to resist, defend and/or settle
such action, suit or proceeding or cause the same to be resisted,
defended and/or settled by counsel for the insurer of the liability or
by counsel designated by Indemnitor and reasonably approved by such
Indemnitee, which approval shall not be unreasonably delayed or
withheld, provided that each Indemnitee may in any case retain separate
counsel and participate in such defense, at its own expense. In the
event that Indemnitor fails, within a reasonable period of time, to
resist, defend and/or settle any such action, suit or proceeding as
aforesaid with counsel approved by such Indemnitee, such Indemnitee may
resist, defend and/or settle such action, suit or proceeding to the
final determination of such action, suit or proceeding, at Indemnitor's
expense, by counsel designated by such Indemnitee.
(c) Indemnitor hereby agrees that its obligations hereunder will
be paid strictly in accordance with the terms of this Indemnity
Agreement, regardless of any law, regulation or order now or hereafter
in effect in any jurisdiction affecting any of such terms or the
Financing Documents or affecting any of the rights of any Indemnitee
with respect thereto, to the extent the same may be waived.
SECTION 4. WAIVER.
Except as expressly provided in this Indemnity Agreement, Indemnitor
hereby waives (i) promptness and diligence; (ii) notice of acceptance and notice
of the incurrence of any obligation by Indemnitor; (iii) notice of any actions
taken by Indemnitee, Indemnitor or any interested party under any Financing
Document or any other agreement or instrument relating thereto; (iv) all other
notices, demands and protests, and all other formalities of every kind in
connection with the enforcement of the obligations of Indemnitor hereunder, the
omission of or delay in which, but for the provision of this Section 4, might
constitute grounds for relieving
3
<PAGE>
Indemnitor of its obligations hereunder; and (v) any requirement that any
Indemnitee protect, secure, perfect or insure any security interest or lien
in or on any property or exhaust any right or take any action against
Indemnitor or any other person or the Project as a pre-condition to such
Indemnitee's right to enforce this Indemnity Agreement in accordance with its
terms. Without limiting the generality of the foregoing, Indemnitor hereby
waives any defense which may arise by reason of (A) the incapacity, lack of
authority, death or disability of, or revocation hereof by, any Person or
Persons, (B) the failure of any Indemnitee to file or enforce any claim
against the estate of any Person or Persons, or (C) any defense based upon an
election of remedies by such Indemnitee.
SECTION 5. ENFORCEMENT; PAYMENT.
Each Indemnitee shall be reimbursed by Indemnitor for all reasonable
expenses (including reasonable attorneys' fees) incurred in enforcing rights or
in collecting monies due under this Agreement. All payments by Indemnitor under
this Indemnity Agreement shall be made without set-off, counterclaim or other
defense. If Indemnitor does not pay any amount payable hereunder when due,
Indemnitor shall pay interest on such amount at an annual rate equal to the
Default Interest Rate payable with respect to Advances outstanding until such
time as such amount, together with any accrued interest thereon shall have been
paid in full to the applicable Indemnitee. For so long as any of the Notes are
outstanding, all amounts payable by Indemnitor hereunder to the Project Company
shall be made in the manner set forth in Section 6 of the Agency and
Disbursement Agreement.
SECTION 6. SEPARABILITY.
Each of the provisions of this Agreement is a separate and distinct
agreement and independent of the others, so that if any provision hereof shall
be held invalid or unenforceable for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof.
SECTION 7. COUNTERPARTS.
This Agreement may be executed in one or more counterparts each of
which for all purposes shall be deemed to be an original and all of which taken
together shall constitute one instrument.
SECTION 8. SUBMISSION TO JURISDICTION.
Indemnitor hereby submits to the nonexclusive jurisdiction of the
courts of the United States of America for the Southern District of New York and
of any New York State court sitting in New York City for the purposes of all
legal proceedings arising out of or relating to this Indemnity Agreement or the
indemnification contemplated hereby. Indemnitor hereby irrevocably appoints CT
Corporation System having offices on the date hereof at 1633 Broadway, New York,
New York 10019 as the agent for service of process in connection
4
<PAGE>
with any such proceedings in New York and further agrees that such service of
process may be made by certified mail, return receipt requested, to
Indemnitor's address specified herein or any other manner permitted by law.
Indemnitor consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court, including, without
limitation, any objection that such action or proceeding was brought in an
inconvenient court.
SECTION 9. GOVERNING LAW.
This Agreement shall be interpreted and enforced in accordance with
the law of the State of New York.
SECTION 10. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the
Indemnitees and their successors and assigns and Indemnitor and its successors
and assigns.
SECTION 11. MODIFICATION.
No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by all parties hereto.
SECTION 12. MISCELLANEOUS.
(a) No failure on the part of any Indemnitee to exercise, and no
delay in exercising, and no course of dealing with respect to, any
right, power or privilege hereunder or under any other document shall
operate as a waiver thereof, nor shall any single or partial exercise of
any right, power or privilege hereunder or under any other Financing
Document preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies of each
Indemnitee provided herein and in the Financing Documents are cumulative
and are in addition to, and not exclusive of, any right or remedies
provided by law.
(b) Crystech Trust may take or release other security for the
payment of the Notes, may release any party primarily or secondarily
liable therefor and may apply any other security held by it to the
reduction or satisfaction of any outstanding amounts in respect of the
Notes without prejudice to any of its rights under this Indemnity
Agreement.
(c) All notices and other communications hereunder shall be in
writing (including without limitation by telex or telecopy) delivered to
any party at its address set forth on the signature pages hereof or at
such other address as such party shall have notified the other parties
hereto.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
AMERICAN CRYSTAL SUGAR COMPANY
By
---------------------------
Title:
CRYSTECH SENIOR LENDER TRUST
By
---------------------------
Title:
NEWCOURT CAPITAL USA INC.
By
---------------------------
Title:
By
---------------------------
Title:
CRYSTECH, LLC
By
---------------------------
Title:
6
<PAGE>
Exhibit 10(gg)
EXECUTION COPY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
TOLLING SERVICES AGREEMENT
Dated as of June 3, 1998
between
CRYSTECH, LLC
and
AMERICAN CRYSTAL SUGAR COMPANY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Termination by the Company . . . . . . . . . . . . . . . . . . 5
Section 2.3 Termination by Customer. . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Continuing Obligation to Pay Tolling Fee . . . . . . . . . . . 6
Section 2.5 Effects of Termination . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 3 PROVISION OF TOLLING SERVICES; FEEDSTOCK DELIVERY;
UTILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.1 Tolling Services . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.2 Delivery of Feedstock and Redelivery of
Tolling Product. . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.3 Feedstock Delivery . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.4 Testing; Obligations of the Company at MDS Facility;
Operational Coordination . . . . . . . . . . . . . . . . . . . 8
Section 3.5 Utilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.6 Scheduling of Maintenance. . . . . . . . . . . . . . . . . . . 8
Section 3.7 Exclusive Arrangements . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 4 OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 5 FEEDSTOCK SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.1 Feedstock Quality. . . . . . . . . . . . . . . . . . . . . . . 9
Section 5.2 Failure of Feedstock to Conform to Specifications. . . . . . . 9
ARTICLE 6 RATES AND BILLING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 6.1 Tolling Fee. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 6.2 Billing. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 6.3 Operating Costs Prior to Start Date. . . . . . . . . . . . . . 10
Section 6.4 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 7 MEASUREMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 7.1 Metering Facilities. . . . . . . . . . . . . . . . . . . . . . 10
Section 7.2 Preservation of Records. . . . . . . . . . . . . . . . . . . . 11
ARTICLE 8 FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 8.1 Definition of Force Majeure. . . . . . . . . . . . . . . . . . 11
Section 8.2 Examples of Force Majeure. . . . . . . . . . . . . . . . . . . 11
Section 8.3 Consequences of Force Majeure. . . . . . . . . . . . . . . . . 11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE 9 CURTAILMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 9.1 Curtailment Rights . . . . . . . . . . . . . . . . . . . . . . 12
Section 9.2 Notice of Curtailment. . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 10 LIABILITIES AND INSURANCE . . . . . . . . . . . . . . . . . . . . . . . 12
Section 10.1 Loss Responsibilities. . . . . . . . . . . . . . . . . . . . . 12
Section 10.2 Customer Liability for Damages . . . . . . . . . . . . . . . . 13
Section 10.3 Limitation of Liabilities. . . . . . . . . . . . . . . . . . . 13
ARTICLE 11 ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 11.1 Assignment by Customer . . . . . . . . . . . . . . . . . . . . 13
Section 11.2 Assignment by the Company to Noteholders . . . . . . . . . . . 13
Section 11.3 Transfer, Assignment, or Sale of Interest in MDS
Facilities . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 12 DISPUTE RESOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 12.1 Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 12.2 Continuation of Performance. . . . . . . . . . . . . . . . . . 15
Section 12.3 No Limit on Remedies . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 13 REPRESENTATIONS AND WARRANTIES; ADDITIONAL
COVENANTS OF CUSTOMER . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 13.1 Representations and Warranties of Customer . . . . . . . . . . 15
Section 13.2 Covenants of Customer. . . . . . . . . . . . . . . . . . . . . 16
ARTICLE 14 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 14.1 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 14.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 14.3 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 14.4 Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 14.5 Relationship of Parties. . . . . . . . . . . . . . . . . . . . 17
Section 14.6 Survival of Incurred Obligations . . . . . . . . . . . . . . . 17
Section 14.7 Reasonableness in Performance. . . . . . . . . . . . . . . . . 17
Section 14.8 Waiver of Breach . . . . . . . . . . . . . . . . . . . . . . . 17
Section 14.9 Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 14.10 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 14.11 Choice of Law. . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 14.12 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 14.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 14.14 Submission to Jurisdiction . . . . . . . . . . . . . . . . . . 18
Section 14.15 Further Assurances.. . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
Schedule 2.3 - Calculation of Recovery Rate
Schedule 5.1 - Feedstock Specifications
ii
<PAGE>
THIS TOLLING SERVICES AGREEMENT (the "AGREEMENT") dated as of June 3,
1998 by and between CRYSTECH, LLC (the "COMPANY"), a limited liability company
organized under the laws of the State of Delaware, and AMERICAN CRYSTAL SUGAR
COMPANY, a cooperative owned by sugarbeet growers in Minnesota and North Dakota
("CUSTOMER"). The Company and Customer are herein each individually referred to
as a "PARTY" and collectively referred to as the "PARTIES".
RECITALS
WHEREAS, Customer owns and operates several sugar processing plants in
the area of the Red River Valley in North Dakota and Minnesota, including a
sugar processing plant in Hillsboro, North Dakota consisting of unloading,
extraction and storage facilities and appurtenant facilities and equipment
related thereto (the "ACS HILLSBORO COMPLEX");
WHEREAS, Customer wishes to maximize the amount of sugar extracted
from the beet molasses processed at the ACS Hillsboro Complex and such other
sugar processing plants and has accordingly formed, together with Newcourt
Capital USA Inc., the Company to provide additional processing as more fully
described herein;
WHEREAS, the Company will construct and own and will cause the
Operator named herein to operate and maintain a molasses desugarization facility
located within the ACS Hillsboro Complex (the "MOLASSES DESUGARIZATION FACILITY"
or the "MDS FACILITY") which will receive the Feedstock (as defined below) from
Customer from time to time for the purpose of extracting additional sugar
therefrom;
WHEREAS, Customer desires that the Company make the MDS Facility
available to Customer for the purpose of receiving Feedstock from Customer at
the Point of Receipt (as defined below) to be Processed (as defined herein) and
redelivering Tolling Product (as defined below) at the applicable Point of
Redelivery (as defined below) for Customer's use, and the Company desires to
provide such services (the "TOLLING SERVICES"); and
WHEREAS, the Company and Customer further desire to cooperate in the
providing of Utilities (as defined below) to the Molasses Desugarization
Facility for the purpose of allowing the efficient operation of the Molasses
Desugarization Facility.
NOW THEREFORE, in consideration of these premises and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Customer, intending to be legally bound, hereby agree to the
following:
ARTICLE 1
DEFINITIONS
Unless otherwise indicated, capitalized terms used herein and not
defined herein shall have the respective meanings assigned thereto in Annex I to
the within-mentioned Note Purchase Agreement, whether specifically set forth
therein or by reference to another document. In addition, the following
capitalized terms contained herein, whether used in the singular or
<PAGE>
2
plural, shall be defined as provided in this Article 1. Any definition of or
reference to any agreement, instrument or other document herein shall be
construed to mean such agreement, instrument or document as amended,
supplemented or otherwise modified and in effect from time to time, and shall
include a reference to all schedules, exhibits and attachments thereto.
"AAA" has the meaning set forth in Section 12.1.
"ACS HILLSBORO COMPLEX" has the meaning set forth in the first
"Whereas" clause hereof.
"AFFILIATE" of any designated Person means (i) any director, officer
or employee of such Person or (ii) any other Person which, directly or
indirectly, controls or is controlled by or is under common control with such
designated Person. For the purposes of this definition, "CONTROL" (including,
with correlative meanings, the terms "CONTROLLED BY" and "UNDER COMMON CONTROL
WITH"), as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, whether through the ownership of voting securities or
by contract or otherwise, PROVIDED that, in any event, any Person that owns
directly or indirectly securities having 5% or more of the voting power for the
election of directors or other governing body of a corporation or 5% or more of
the partnership or other ownership interests of any other Person (other than as
a limited partner of such other Person) will be deemed to control such
corporation or other Person.
"BUSINESS DAY" means any day that is not a Saturday, Sunday, or a
banking holiday under the laws of the United States or the States of North
Dakota or Minnesota.
"CEO" has the meaning set forth in Section 12.1.
"DAY" means a 24-hour period beginning and ending at 24:00 midnight
Central time.
"DISPUTE NOTICE" has the meaning set forth in Section 12.1.
"DOLLARS" means the currency of the United States of America.
"EPC CONTRACT" means the Engineering, Procurement and Construction
Contract dated as of May [__], 1998 between the Company and Process Systems
Incorporated Construction Company.
"FEEDSTOCK" means beet molasses.
"FEEDSTOCK SPECIFICATIONS" has the meaning set forth in Section 5.1.
"FORCE MAJEURE" has the meaning set forth in Section 8.1.
"GOVERNMENTAL APPROVALS" means all approvals, permits, waivers,
exemptions, consents, variances, franchises, registrations, authorizations,
licenses or similar orders of, or from, any Governmental Body.
<PAGE>
3
"GOVERNMENTAL BODY" means any government or department, district or
other political subdivision thereof or governmental body, agency, authority,
department, commission (including without limitation any taxing authority or
political subdivision), autonomous regional corporation or other entity or
instrumentality exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"INCREMENTAL METERING EQUIPMENT" has the meaning set fourth in Section
7.1 of the Tolling Agreement.
"LATE PAYMENT RATE" means a rate per annum equal to [2% above the
Applicable Interest Rate].
"LAW" means any statute, law, regulation, ordinance, rule, judgment,
order, decree, permit, license, concession, directive, guideline, policy or rule
of common law, requirement of, or other governmental restriction or any similar
form of decision of or determination by, or any interpretation or administration
of any of the foregoing by, any Governmental Body, whether now or hereafter in
effect.
"MAXIMUM DAILY CAPACITY" means 600 tons of Feedstock.
"MOLASSES DESUGARIZATION FACILITY" or "MDS FACILITY" has the meaning
set forth in the third "Whereas" clause hereof.
"NOTE PURCHASE AGREEMENT" means the Note Purchase Agreement dated as
of June 3, 1998 between the Company and Crystech Senior Lender Trust.
"NOTEHOLDERS" means as of the date hereof, Crystech Senior Lender
Trust and thereafter any holder of the Notes issued under the Note Purchase
Agreement.
"NOTICE OF BREACH" means a notice given by one Party to the other,
pursuant to Section 2.3 or 2.4 (as applicable) in the event such Party believes
such other Party to be in breach of any of its obligations under this Agreement.
"O&M AGREEMENT" means the Operation and Maintenance Agreement dated as
of the date hereof between the Company and the Operator.
"OFF-SPEC FEEDSTOCK" has the meaning set forth in Section 5.1.
"OPERATION" means the ownership, occupation, repair, operation,
maintenance, use and financing of the Molasses Desugarization Facility.
"OPERATOR" means Customer, in its capacity as Operator under the
O&M Agreement.
"PARTY" or "PARTIES" has the meaning set forth in the introduction
hereto.
"PAYMENT DATE" means the Day that is the first Business Day of each
calendar month in each year commencing with the first such date occurring after
the Start Date.
<PAGE>
4
"PERSON" means an individual, a corporation, a partnership, a limited
liability company, an association, a joint stock company, a trust, any
unincorporated organization, and any Governmental Body.
"POINT OF RECEIPT" means the point at which the flange coupling of
Customer's Feedstock delivery pipeline joins the flange coupling of the
Company's Feedstock storage tank at the MDS Facility.
"POINT OF REDELIVERY" means, with respect to any Tolling Product, the
point at which the coupling flange of the Company's pipeline dedicated to
transporting such Tolling Product out of the Molasses Desugarization Facility
joins the coupling flange of the corresponding pipeline of Customer in the ACS
Hillsboro Complex.
"PROCESS" means to process Feedstock using chromatographic separation
(whether through a single loop or double loop separation) as described more
fully in the EPC Contract and the Idreco License referred to therein. The terms
"Processed" and "Processing" shall have the correlative meanings.
"PROVISIONAL PERFORMANCE ACCEPTANCE" has the meaning specified in the
EPC Contract.
"RECOVERY RATE" means, for any Tolling Period, the rate at which
Feedstock is Processed by the Company as calculated in accordance with Schedule
2.3.
"START DATE" means the date by which the Company has achieved a
Recovery Rate of at least 72% and has notified Customer pursuant to Section 3.3
that the Molasses Desugarization Facility is ready to commence receiving
Feedstock.
"SUGAR EXTRACT" means ________________.
"TERMINATION DATE" means the date on which this Agreement is
terminated pursuant to Article 2.
"TOLLING FEE" has the meaning set forth in Section 6.1.
"TOLLING PERIOD" means initially the period beginning with and
including the Start Date and ending immediately prior to the first Payment Date
and thereafter each period beginning with a Payment Date and ending immediately
prior to the next succeeding Payment Date.
"TOLLING PRODUCT" means Sugar Extract, betaine (if any) and raffinate.
"TOLLING SERVICES" has the meaning set forth in the fourth "Whereas"
clause of this Agreement.
"UTILITIES" means electric energy, water, steam and compressed air.
<PAGE>
5
"WINDING UP" means, with respect to any Person, the occurrence of any
of the following: (a) such Person shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee,
liquidator or administrator of itself or of all or a substantial part of its
property, (ii) be generally unable to pay its debts as such debts become due,
(iii) make a general assignment for the benefit of its creditors, (iv) commence
a voluntary case under the United States Bankruptcy Code (as now or hereafter in
effect), (v) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (vi) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the United States Bankruptcy Code, (vii) take any
action under the laws of its jurisdiction of incorporation (or any other
jurisdiction) analogous to any of the foregoing, or (viii) take any corporate
action for the purpose of effecting any of the foregoing; (b) a proceeding or
case shall be commenced, without the application or consent of such Person in
any court of competent jurisdiction, seeking (i) the liquidation,
reorganization, dissolution, winding up, or composition or readjustment of its
debts, (ii) the appointment of a trustee, receiver, custodian, liquidator,
administrator or the like of it or of all or any substantial part of its
properties, or (iii) similar relief in respect of it, under any law providing
for the relief of debtors and such proceeding or case shall continue
undismissed, or unstayed and in effect, for a period of 90 days; or an order for
relief shall be entered in an involuntary case under the United States
Bankruptcy Code against such person; or action under the laws of the
jurisdiction of incorporation or organization of such Person analogous to any of
the foregoing shall be taken with respect to such Person and shall continue
unstayed and in effect for any period of 90 consecutive days; or (c) any event
with respect to such Person occurs which, under the laws of any jurisdiction or
any political subdivision of any jurisdiction, has an effect similar to any of
the events referred to in subsection (a) or (b) above.
"WORKING CAPITAL FACILITY" means the Loan Agreement dated May 11, 1998
between St. Paul Bank for Cooperatives and Customer, as amended, and any
refinancing or replacement thereof.
"YEAR" means a period of 12 months beginning at 24:00 midnight on
August 31 and ending at 24:00 midnight on the subsequent August 31; PROVIDED
that in the respect of the first or last year of the term, the term "Year" means
only the portion of such fiscal year included in the term.
ARTICLE 2
TERM
Section 2.1 TERM. This Agreement shall be effective as of the date
hereof and shall continue in effect for a period of twelve years unless (a) such
term is extended by mutual written consent of the Parties, (b) terminated by
mutual written consent of the Parties or (c) terminated by the Company pursuant
to Section 2.2 or by Customer pursuant to Section 2.3.
Section 2.2 TERMINATION BY THE COMPANY. The Company may terminate
this Agreement (and written notice of such termination shall be given to
Customer) only upon the occurrence and continuance of any of the following
events:
<PAGE>
6
(a) the Noteholders exercise their rights to foreclose on the MDS
Facility following an Event of Default (as defined in the Note Purchase
Agreement) caused directly by a breach of this Agreement by Customer;
(b) Customer fails to pay any amount due and payable to the Company
in accordance with this Agreement and such amount continues unpaid for 10
Days after a Notice of Breach thereof has been delivered to Customer;
(c) any representation or warranty of the Customer herein shall be
materially incorrect when made; or
(d) any Winding Up of the Customer.
Section 2.3 TERMINATION BY CUSTOMER. Customer may terminate this
Agreement (and written notice of such termination shall be given to the Company
and the Noteholders) only upon the occurrence and continuance of each of the
following events:
(a) The average Recovery Rate for three consecutive Tolling Periods
shall be less than 72% and Customer shall have given prompt notice of such
Recovery Rate to the Company and the Independent Engineer;
(b) The Independent Engineer shall have verified within 30 days of
the end of such third Tolling Period that the MDS Facility shall continue
to fail to Process Feedstock at a 72% Recovery Rate other than by reason of
operational failure by the Operator (it being understood that there shall
be a presumption that such Recovery Rate failure is attributable to
operational failure by the Operator); and
(c) The Company shall not have cured such failure of the MDS Facility
to Process Feedstock at a Recovery Rate of not less than 72% within 180
days of the date from which Customer shall have given notice to the Company
and the Independent Engineer pursuant to Section 2.3(a).
Section 2.4 CONTINUING OBLIGATION TO PAY TOLLING FEE.
Notwithstanding the foregoing, Customer shall continue to pay all Tolling Fees
until it shall have terminated this Agreement in accordance with Section 2.3,
regardless of whether Customer delivers Feedstock to the Point of Receipt.
Section 2.5 EFFECTS OF TERMINATION. Termination of this agreement,
for any reason, shall not discharge either Party from any obligation it owes to
the other Party under this Agreement by reason of any transaction, loss, cost,
damage, expense, indebtedness or liability that shall occur or arise (or the
circumstances, events, or basis of which shall occur or arise) prior to any such
termination. It is the intent of the Parties that any such obligation owed
(whether the same shall be known or unknown at the time this Agreement was
terminated or whether the circumstances, events or basis of the same shall be
known or unknown at such termination) shall survive such termination.
<PAGE>
7
ARTICLE 3
PROVISION OF TOLLING
SERVICES; FEEDSTOCK DELIVERY; UTILITIES
Section 3.1 TOLLING SERVICES. Subject to the provisions of this
Agreement, beginning on the Start Date and continuing throughout the term of
this Agreement, the Company shall provide to Customer and Customer shall pay for
Tolling Services as provided herein. The Company shall notify when the Molasses
Desugarization Facility is ready to commence receiving (or has received)
Feedstock, which notice the Company shall not give without the concurrence of
the Independent Engineer and Customer. The MDS Facility shall be deemed to be
ready to receive Feedstock once the MDS Facility has achieved a Recovery Rate of
at least 72%, regardless of any remedial action taken thereafter in accordance
with the EPC Contract.
Section 3.2 DELIVERY OF FEEDSTOCK AND REDELIVERY OF TOLLING
PRODUCT.
(a) Subject to the Company's curtailment rights under Article 9,
Customer may deliver to the Point of Receipt quantities of Feedstock to be
Processed by the Company at the Molasses Desugarization Facility; PROVIDED
Customer may not deliver more than the Maximum Daily Capacity unless the MDS
Facility is capable of Processing such additional Feedstock without adversely
affecting the reliability or useful life of the MDS Facility.
(b) After receiving Customer's Feedstock at the Point of Receipt, the
Company shall be deemed to be in control and possession of said Feedstock and
Tolling Product Processed therefrom until it is redelivered to Customer at the
applicable Point of Redelivery. Notwithstanding the above, unless otherwise
specified herein, title to and risk of loss with respect to Feedstock delivered
by Customer to the Company under this Agreement shall remain with Customer, even
during periods when it is in the possession and control of the Company.
(c) With respect to Customer's Feedstock to be delivered to the Point
of Receipt and Tolling Product to be redelivered by the Company to Customer at
the applicable Point of Redelivery, Customer shall be responsible for making all
necessary arrangements, and provide at its sole cost and expense all equipment
and labor, to deliver Feedstock to the Point of Receipt and transport all
Tolling Extract from the Points of Redelivery. Subject to Section 7.4, Customer
shall be responsible for, and shall hold the Company harmless from, all costs
associated with delivering Feedstock to the Company at the Point of Receipt.
(d) Customer covenants that it will have good, valid, and marketable
title to all Feedstock delivered to the Point of Receipt, free and clear of all
liens, encumbrances, and claims whatsoever, and other than inchoate liens,
charges or encumbrances arising by operation of Law and other than Liens arising
under the Working Capital Facility and shall maintain such title. Customer
shall indemnify, defend and hold the Company harmless from and against all
suits, actions, damages, costs, losses, and expenses arising from or out of
adverse claims of any Person relating to Feedstock delivered to the Point of
Receipt for Customer's account or any Tolling Product extracted therefrom,
including claims for any taxes, fees, tariffs or other charges applicable to
such Feedstock or Tolling Product or to the receipt thereof by the Company.
(e) To the extent the Company Processes Feedstock (including any
Off-Spec Feedstock and all Feedstock Processed in connection with the testing
of the Molasses
<PAGE>
8
Desugarization Facility contemplated by the EPC Contract), Customer shall
have no right to reject redeliveries of Tolling Product Processed therefrom.
Section 3.3 FEEDSTOCK DELIVERY. Customer will comply with all
applicable safety laws, rules and regulations in delivering Feedstock to the
Company. Customer may request that the Company, at Customer's sole cost and
expense, make alterations to the Molasses Desugarization Facility that are
necessary to ensure that the equipment Customer uses to deliver Feedstock to the
Company is compatible with the Molasses Desugarization Facility; PROVIDED,
HOWEVER, in no event shall the Company be obligated or required to make any
material alternation to the Molasses Desugarization Facility in order to
accommodate Customer's Feedstock delivery equipment if in the opinion of the
Company or the Independent Engineer such alteration could reasonably be expected
to reduce the reliability or useful life of the MDS Facility.
Section 3.4 TESTING; OBLIGATIONS OF THE COMPANY AT MDS FACILITY;
OPERATIONAL COORDINATION. Customer shall deliver to the Company (at Customer's
sole cost and expense) at the Point of Receipt a sufficient quantity of
Feedstock to permit the Company to perform all testing required under the EPC
Contract to achieve Provisional Performance Acceptance.
Section 3.5 UTILITIES. Customer shall make available to the
Company all Utilities necessary or required for the Operation of the MDS
Facility.
Section 3.6 SCHEDULING OF MAINTENANCE. The Company shall have the
right to interrupt or to discontinue Tolling Services in whole or in part, from
time to time, in order to repair, maintain or improve the Molasses
Desugarization Facility. The Company shall provide prior notice to Customer, to
the extent reasonably practicable, of any such curtailment, interruption, or
discontinuance. The Company shall schedule repairs, construction, and
maintenance activities so as to reasonably minimize disruptions of Tolling
Services to Customer, and shall provide to Customer no later than August 31 of
each Year a non-binding schedule of planned repair, construction, and
maintenance activities for the following Year.
Section 3.7 EXCLUSIVE ARRANGEMENTS. Until the termination of this
Agreement in accordance with Article 2, the Company shall not Process any
Feedstock other than Feedstock delivered by Customer for Processing pursuant to
the terms set forth herein.
ARTICLE 4
OPERATIONS
Subject to the provisions of this Agreement, the Company will, or will
cause the Operator to, operate the Molasses Desugarization Facility consistent
with prudent industry practices and otherwise in a manner sufficient to receive
and Process Feedstock of Customer and redeliver Tolling Product in accordance
herewith.
<PAGE>
9
ARTICLE 5
FEEDSTOCK SPECIFICATIONS
Section 5.1 FEEDSTOCK QUALITY. The Feedstock delivered by Customer
and received by the Company at the Point of Receipt shall be of a quality that
meets the requirements set forth in Schedule 5.1 hereto (the "FEEDSTOCK
SPECIFICATIONS"). Any Feedstock that does not conform to the Feedstock
Specifications shall be referred to as "OFF-SPEC FEEDSTOCK".
Section 5.2 FAILURE OF FEEDSTOCK TO CONFORM TO SPECIFICATIONS.
(a) Each Party shall notify the other as soon as reasonably
practicable of any existing or anticipated failure of the Feedstock to conform
to the Feedstock Specifications, giving the details of the variance and the
cause thereof.
(b) At Customer's request, the Company shall use commercially
reasonable efforts (which efforts shall not require the Company to apply for, or
seek to amend or to modify, any Governmental Approval or reduce the useful life
of the MDS Facility) to take delivery of and Process any Off-Spec Feedstock, and
Customer shall reimburse the Company for all costs incurred (over and above
those normally incurred) in receiving and Processing Off-Spec Feedstock.
ARTICLE 6
RATES AND BILLING
Section 6.1 TOLLING FEE. Unless Customer has terminated this
Agreement in accordance with Section 2.3 as permitted thereby, Customer shall
pay to the Company pursuant to Section 6.3 a monthly fee (the "TOLLING FEE") on
each Payment Date, for the Tolling Period ending immediately prior to such
Payment Date, and on the Termination Date, for the period commencing with and
including the Payment Date immediately prior to the Termination Date through and
including such Termination Date, in accordance with the following formula:
TF(n) = DFC(n) + EFC(n) + OMC(n)
where:
TF = Tolling Fee for such period.
n = the Payment Date.
DFC(n) = Debt Financing Charge (in Dollars) for such period
which amount includes all amounts due and owing as of
such Payment Date under the Note Purchase Agreement
(excluding amounts becoming due solely as a result of
the Noteholders' accelerating the Notes issued under
the Note Purchase Agreement directly as a result of
Customer's terminating this Agreement in accordance
with Section 2.3 as permitted thereby), the amount the
Company is obligated to deposit in the Debt Service
Reserve Account on such
<PAGE>
10
Payment Date and all amounts due and owing with respect to
the Subordinated Debt.
EFC(n) = Amounts (in Dollars) owed by the Company under Section 4.2
of the Limited Liability Company Agreement due and owing
as of such Payment Date.
OMC(n) = All administrative, operating and maintenance costs of
whatever nature of the Company due and owing as of such
Payment Date.
All Tolling Fees shall be payable without withholding, setoff or
deduction regardless of any events or occurrences whatsoever (whether or not
within the control of the Parties) and whether or not Customer has delivered any
Feedstock to the MDS Facility and shall not be reduced for any reason other than
as permitted by Section 2.3.
Section 6.2 BILLING.
(a) On or before each Payment Date and on the Termination Date, the
Company shall provide Customer with an invoice for amounts owed by Customer to
the Company for all Tolling Fees payable by Customer on such Payment Date or
Termination Date (as the case may be).
(b) Any dispute between the parties regarding the amount included in
any invoice will be resolved in accordance with Article 12.
Section 6.3 OPERATING COSTS PRIOR TO START DATE. Customer shall
pay to the Company all amounts payable by the Company under the O&M Agreement
for operation and maintenance charges incurred prior to the Start Date in
connection with achieving Provisional Performance Acceptance not later than the
date such payments are required to be made to the Operator under the O&M
Agreement as notified to ACS by the Company.
Section 6.4 PAYMENTS.
(a) Customer shall pay all invoices submitted to it pursuant to this
Agreement and all Tolling Fees in full when due without setoff, deduction or
withholding by wire transfer to an account specified by the Company and in
immediately available funds.
(b) Unless any amount to be paid is disputed in good faith and is to
be resolved in accordance with Article 12, to the extent Customer fails to pay
any amount required under this Article 6 by the due date, such unpaid amount
shall accrue interest each Day at the Late Payment Rate from the due date until
such amount (plus accrued interest) is paid in full.
ARTICLE 7
MEASUREMENT
Section 7.1 METERING FACILITIES. Prior to the Start Date, the
Company will install, at Customer's expense, at or near the Point of Redelivery
for the applicable Tolling Product, reasonably accurate meters available with a
redundancy and accuracy of not less than
<PAGE>
11
1% and other equipment as is necessary to measure the volume of Tolling
Product redelivered hereunder (the "INCREMENTAL METERING EQUIPMENT"). In the
event the Incremental Metering Equipment is out of service, or registering
inaccurately, the volumes of Tolling Product delivered hereunder shall be
estimated as follows, in descending order of priority:
(a) By using the registration of any check meter or meters if
installed and accurately registering; or
(b) By correcting the error if the percentage of error is
ascertainable by calibration, test, or mathematical calculation; or
(c) By estimating the quantity of Tolling product delivered during
prior periods under similar conditions when any meter was registering
accurately.
Section 7.2 PRESERVATION OF RECORDS. The Company shall preserve
for a period of at last two years all test data, charts, and other similar
records regarding the measurement of Sugar Extract redelivered hereunder.
ARTICLE 8
FORCE MAJEURE
Section 8.1 DEFINITION OF FORCE MAJEURE. For purposes of this
Agreement, "FORCE MAJEURE" means any cause beyond the reasonable control of and
not the fault or negligence of the Party claiming the Force Majeure. An event
of Force Majeure shall excuse the performance under this Agreement of the Party
claiming Force Majeure (including, in the case of the Company, Processing
Feedstock at a Recovery Rate of at least 72%) if such event causes the
nonperformance or inability to perform. Except as provided in Section 8.3, the
Parties shall be excused from performing hereunder (other than indemnification
and payment obligations, including, without limitation, Tolling Fees), and shall
not be liable in damages or otherwise for nonperformance, in each case, to the
extent the nonperformance or inability to perform is due to a Force Majeure
event.
Section 8.2 EXAMPLES OF FORCE MAJEURE. Provided that the
provisions of Section 8.1 are met, Force Majeure events include, but are not
limited to, the following: acts of God; strikes; acts of public enemy; war;
blockades; boycotts; riots; insurrections; epidemics; earthquakes; storms;
floods; civil disturbances; fires; explosions; binding orders; and directives or
regulations of any court, or duly constituted government authorities having
jurisdiction, that have been resisted in good faith by all reasonable legal
means. The specific Force Majeure events listed in the prior sentence shall not
be construed as excluding any other event as long as such event meets the
provisions of Section 8.1.
Section 8.3 CONSEQUENCES OF FORCE MAJEURE. If a Party is
rendered wholly or partly unable to perform its obligations under this
Agreement due to a Force Majeure, that Party shall be excused from whatever
performance is affected by the Force Majeure to the extent so affected,
provided that: (i) the non-performing Party, within 10 Days after the
occurrence of, or such Party's discovery of, the Force Majeure, gives the
other Party written notice describing the particulars of the occurrence and
its estimated duration; (ii) the suspension of performance is of no greater
scope and of no longer duration than is required by the Force Majeure,
consistent with
<PAGE>
12
prudent industry, engineering and maintenance practices, to remedy its
inability to perform and resume in full its performance under this Agreement,
provided that this obligation shall not require the settlement of any strike,
walkout, or other labor dispute on terms that, in the sole judgment of the
Party involved in the dispute, are contrary to its best interest. Nothing in
this Article 8 shall relieve either Party of its obligation to perform its
indemnification and payment obligations pursuant to this Agreement, including
the payment of Tolling Fees.
ARTICLE 9
CURTAILMENT
Section 9.1 CURTAILMENT RIGHTS. The Company shall have the right
to curtail, interrupt, or discontinue Tolling Services in whole or in part from
time to time and at any time (but not more than necessary) (a) for reasons of
Force Majeure, (b) to the extent necessary in the Company's reasonable judgment
to comply with applicable Laws, (c) to the extent necessary in the Company's
reasonable judgment to perform emergency maintenance of the MDS Facility and for
ordinary course maintenance and (d) to the extent necessary in the Company's
reasonable judgment to protect Persons and property, including the MDS Facility,
from harm or damage due to operational or safety conditions.
Section 9.2 NOTICE OF CURTAILMENT. The Company shall promptly
provide Customer with a notice of curtailment or interruption at the time and in
a manner that is reasonable under the existing conditions, but the failure to
provide such prompt notice shall not affect the Company's right to effect or
continue such curtailment or interruption. Customer shall have the
responsibility to inform its suppliers, downstream customers and all others
involved in the transaction as to any curtailment or interruptions.
ARTICLE 10
LIABILITIES AND INSURANCE
Section 10.1 LOSS RESPONSIBILITIES. As between Customer and the
Company, Customer shall be in possession and control of Feedstock and Sugar
Extract covered by this Agreement (a) prior to receipt of Feedstock by the
Company at the Point of Receipt and (b) after redelivery of Sugar Extract by the
Company to Customer at the Point of Redelivery with respect to Sugar Extract,
and Customer shall indemnify, defend, and hold the Company harmless from any
damage or injury, liability, or claim caused by or relating to Feedstock or
Sugar Extract while in Customer's possession and control, except for damages and
injuries caused by or relating to Feedstock or Sugar Extract while in Customer's
possession and control and arising from the gross negligence or willful
misconduct of the Company or as otherwise provided herein. The Company shall be
in possession and control of the Feedstock and Sugar Extract covered by this
Agreement after the receipt of Feedstock at the Point of Receipt and until
redelivery of the Sugar Extract at the Point of Redelivery with respect to the
Sugar Extract, and the Company shall indemnify, defend, and hold Customer
harmless from any damage or injury, liability, or claim caused by or relating to
Feedstock or Sugar Extract while in the Company's possession and control, except
for damages and injuries caused by or relating to Feedstock or Sugar Extract
while in the Company's possession and control and arising from the gross
negligence or willful misconduct of Customer or as otherwise provided herein;
provided that
<PAGE>
13
Customer may recover under this indemnity solely out of funds available from
the proceeds of the Tolling Fees payable hereunder and liability insurance
proceeds.
Section 10.2 CUSTOMER LIABILITY FOR DAMAGES. Customer recognizes
and agrees that its failure to take redelivery of Sugar Extract Processed for
Customer's account under this Agreement shall damage the Company. Therefore,
Customer will pay the Company for any and all costs arising from such failure.
Section 10.3 LIMITATION OF LIABILITIES. Except as expressly
provided for in this Agreement, no party hereto or any of its Affiliates or any
of their respective directors, officers, shareholders, partners, employees,
agents, and representatives or any of their respective heirs, successors, and
assigns shall in any event be liable to the other party or any of its Affiliates
or any of their respective directors, officers, shareholders, partners,
employees, agents, and representatives or any of their respective heirs,
successors, and assigns for claims for incidental, consequential, indirect,
special, punitive, or exemplary damages to persons or property, whether arising
in tort, contract or otherwise, connected with or resulting from performance or
nonperformance, under this agreement, including, without limitation, claims made
by either Party's customers or suppliers, or claims made by unaffiliated
persons.
ARTICLE 11
ASSIGNMENT
Section 11.1 ASSIGNMENT BY CUSTOMER. Customer shall not assign or
transfer any of its rights, benefits, obligations, or duties under this
Agreement without the prior written consent of the Company and the Noteholders,
provided that Customer may assign its rights hereunder to St. Paul Bank for
Cooperatives (or a successor lender to ACS that executes a consent and agreement
substantially similar to the St. Paul Bank Consent) as collateral security for
its obligations under the Working Capital Facility (or a successor working
capital facility for Customer).
Section 11.2 ASSIGNMENT BY THE COMPANY TO NOTEHOLDERS. The Company
may, without the consent of Customer, assign its rights and benefits but not its
obligations and duties under this Agreement to the Noteholders as collateral
security in order to obtain financing, provided that the Company shall not be
relieved of its responsibility to carry out its duties and obligations under
this Agreement. Customer agrees to execute a consent to the collateral
assignment of this Agreement to the Noteholders (or their agent), as may be
reasonably requested by the Noteholders. Customer shall send to the Noteholders
at the addresses listed in Section 14.12 copies of all notices of default sent
to the Company pursuant to this Agreement.
Section 11.3 TRANSFER, ASSIGNMENT, OR SALE OF INTEREST IN MDS
FACILITIES. The Company shall ensure that any purchaser, assignee, or
transferee of the Company's interest in the Molasses Desugarization Facility
shall expressly assume the Company's rights, duties, and obligations under this
Agreement.
<PAGE>
14
ARTICLE 12
DISPUTE RESOLUTION
Section 12.1 DISPUTES.
(a) Subject to Section 12.1(c), the Parties agree to make a diligent,
good faith attempt to resolve all disputes before either Party commences
arbitration with respect to the subject matter of any dispute. If the
representatives of the Parties are unable to resolve a dispute within 10 Days
after notice of the existence of the dispute from one Party to the other (the
"DISPUTE NOTICE"), either Party may, by a second notice to the other Party,
submit the dispute to the chief executive officers of the Company and Customer
(collectively, "CEO'S"). A meeting date and place shall be established by
mutual agreement of the CEO's. However, if the Parties are unable to agree, the
meeting shall take place at the ACS Hillsboro Complex, 5 Days after the date of
such second notice. The CEO's shall meet in person and shall in good faith
attempt to resolve the dispute.
(b) If such dispute involves in whole or in part (i) a technical
engineering issue, then the CEO's will in good faith attempt to appoint a
suitably experienced and qualified independent engineering firm reasonably
satisfactory to each of them, (ii) a legal issue, then the CEO's will in good
faith attempt to appoint an independent lawyer or law firm reasonably
satisfactory to each of them, or (iii) a financial issue, then the CEO's will in
good faith attempt to appoint a financial advisor or investment bank
satisfactory to each of them, in each case to act in relation to such dispute
and to render a recommendation in respect thereof.
(c) If the dispute remains unresolved 5 Days following such meeting
or the receipt of such recommendation, as the case may be, either Party may
commence arbitration. Nothing herein shall prevent a Party from commencing
arbitration at any time (i) when the delay required for performance hereunder
might materially and adversely affect such Party's interest; (ii) when the other
Party fails to fulfill its obligations under this Article 12; or (iii) after the
expiration of 90 Days after issuance of the Dispute Notice.
(d) The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA").
The arbitral tribunal shall consist of 3 arbitrators. Each Party shall appoint
one arbitrator with, in the case of a dispute of a technical nature, knowledge
and experience in such technical matters. The two arbitrators so appointed
shall appoint the third arbitrator who shall serve as the chairman of the
arbitral tribunal. If a Party fails to appoint its arbitrator within a period
of 10 Days after receiving notice of the arbitration, or if the two arbitrators
appointed cannot agree on the third arbitrator within a period of 10 days after
appointment of the second arbitrator, then such arbitrator shall be appointed by
the Arbitration Committee of the AAA.
(e) In the event that the Arbitration Committee of the AAA is
required or requested hereunder to appoint an arbitrator, it shall appoint only
a person who has knowledge and experience in technical matters and with
experience in commercial agreements and, in particular, the implementation and
interpretation of contracts relating to the operation of food processing
facilities. No arbitrator shall be a present or former employee or agent of, or
consultant or counsel to, either Party or any Affiliate thereof or any
Governmental Body.
<PAGE>
15
(f) The arbitration shall be conducted in either New York, New York
or Minneapolis, Minnesota and the arbitrators shall decide the dispute by
majority of the arbitral tribunal and shall state in writing the reasons for its
decision. Any monetary award of the arbitral tribunal shall be denominated and
payable in Dollars and in immediately available funds.
(g) The Parties hereto hereby waive any rights to appeal or to review
of such award by any court or tribunal. The Parties further undertake to carry
out without delay the provisions of any arbitral award or decision, and each
agrees that any such award or decision may be enforced by any competent
tribunal. Either Party may publicize or otherwise disclose to others the
contents of any decision of the arbitral tribunal.
(h) The costs of such arbitration shall be determined by and
allocated between the Parties by the arbitral tribunal in its award.
Section 12.2 CONTINUATION OF PERFORMANCE. Unless otherwise
agreed in writing, the Company and Customer shall continue to perform their
respective obligations hereunder during any proceeding by the Parties in
accordance with this Article 12.
Section 12.3 NO LIMIT ON REMEDIES. No provision of Article 12 shall
be construed to prevent or preclude either Party from exercising, any of its
respective rights or remedies set forth in Article 2 or any other provision
hereof.
ARTICLE 13
REPRESENTATIONS AND WARRANTIES;
ADDITIONAL COVENANTS OF CUSTOMER
Section 13.1 REPRESENTATIONS AND WARRANTIES OF CUSTOMER. Customer
represents and warrants to the Company for its benefit and the benefit of the
Noteholders that:
(a) Customer is a cooperative duly organized and in good standing
under the laws of the State of Minnesota. Customer is fully experienced and
properly licensed, equipped, and in all ways competent and qualified to own and
operate the ACS Hillsboro Complex and perform all aspects of the services
required in connection therewith.
(b) This Agreement constitutes the legal, valid and binding
obligation of Customer, enforceable against Customer in accordance with its
terms, except as enforceability may be limited by (i) applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally and (ii) general principles of equity.
(c) The execution, delivery and performance of this Agreement by
Customer has been duly authorized by all requisite action and will not conflict
with any provisions of any Law, or any agreement or instrument to which it is a
party or by which it, its property or assets may be bound or affected.
(d) Customer is the holder of all necessary Governmental Approvals
required to operate or conduct its business as contemplated herein and to own,
operate and maintain the ACS Hillsboro Complex.
<PAGE>
16
(e) Neither the execution and delivery by Customer of this Agreement,
nor the consummation by Customer of any of the transactions contemplated hereby,
requires the consent or approval of, the giving of notice to, the registration
with, the recording or filing of any document with, or the taking of any other
action in respect of any Governmental Body, except those which have been duly
obtained and are in full force and effect or not yet required, but which
Customer believes will be readily obtainable in the ordinary course of business
upon due application therefor.
(f) Customer is aware of all the legal requirements and business
practices that must be followed in performing its obligations hereunder and, in
connection with the ownership, maintenance and operation of the ACS Hillsboro
Complex, will conform with such requirements and practices and is and will
remain in compliance with all Laws, Governmental Approvals and prudent operating
practices.
(g) Customer is financially solvent, able to pay its debts as they
mature and possesses sufficient working capital to complete its obligations
under this Agreement.
(h) Customer is not a party to any legal, administrative, arbitral,
investigatorial or other proceeding or controversy pending, or to the best of
its knowledge, threatened, that would adversely affect its ability to perform
its obligations hereunder.
(i) Customer holds, or is expressly authorized under all patent,
copyright or trademark rights, licenses, franchises and other intellectual
property necessary to perform its obligations hereunder and to own, maintain and
operate the ACS Hillsboro Complex. Customer shall pay any royalties and license
fees associated with all such proprietary rights for the full term hereof.
Section 13.2 COVENANTS OF CUSTOMER. Customer will be, prior to the
performance of the Tolling Services hereunder, the holder of all Federal, state
and local and other governmental consents, licenses, permits or other
authorizations required to permit it to operate or conduct its business at the
time as contemplated by this Agreement.
ARTICLE 14
MISCELLANEOUS
Section 14.1 AMENDMENT. This Agreement, including the Appendices
hereto, may be amended only by agreement between the Parties in writing.
Section 14.2 WAIVER. The failure of either Party to insist in any
one or more instances upon strict performance of any provisions of this
Agreement, or to take advantage of any of its rights hereunder, shall not be
construed as a waiver of any such provisions or the relinquishment of any such
right or any other right hereunder, which shall remain in full force and effect.
Section 14.3 HEADINGS. The headings contained in this Agreement are
used solely for convenience and do not constitute a part of the Agreement
between the Parties, nor should they be used to aid in any manner in the
construction of this Agreement.
<PAGE>
17
Section 14.4 BENEFICIARIES. This Agreement shall be binding upon
and is intended solely for the benefit of the Parties hereto and their
successors and permitted assigns. Nothing in this Agreement shall otherwise be
construed to create any duty to, or standard of care with reference to, or any
liability to, any Person not a Party to this Agreement.
Section 14.5 RELATIONSHIP OF PARTIES. This Agreement shall not be
interpreted or construed to create an association, joint venture, or partnership
between the Parties or to impose any partnership obligation or liability upon
either Party. Neither Party shall have any right, power or authority to enter
into any agreement or undertaking for, or act on behalf of, or to act as or be
an agent or representative of, or to otherwise bind, the other Party.
Section 14.6 SURVIVAL OF INCURRED OBLIGATIONS. Cancellation,
expiration, or earlier termination of this Agreement shall not relieve the
Parties of obligations incurred prior to, or as a result of, such cancellation,
expiration or earlier termination of this Agreement, which by their nature
should survive such events, including without limitation warranties, remedies
and promises of indemnity.
Section 14.7 REASONABLENESS IN PERFORMANCE. Each Party to this
Agreement covenants that, except to the extent that a particular provision of
this Agreement expressly creates a different standard, it will be reasonable
with respect to the timing and substance of any exercise of its respective
rights, obligations, duties, and directions in implementing this Agreement,
including, without limitation, the making of and satisfying of requests, the
issuance and withholding of consents and findings of acceptability or
satisfaction, the incurrence of costs that are the responsibility of the other
Party, and the provisions of notice to the other Party (and the Noteholders, if
applicable).
Section 14.8 WAIVER OF BREACH. Either Party may waive breach of
this Agreement by the other Party, provided that no waiver by or on behalf of a
Party of any breach of this Agreement shall take effect or be binding on that
Party unless the waiver is in writing. A waiver of breach shall be effective
only for the Party providing such waiver and shall extend only to the particular
breach waived, and shall not limit or otherwise affect the rights of the Party
providing such waiver with respect to any other or future breach.
Section 14.9 MERGER. This Agreement is intended by the Parties as
the final expression of their agreement regarding the provision of Tolling
Services hereunder. All prior written or oral understandings, offers, or other
communications of any kind pertaining to such matters and all other matters set
out herein are hereby abrogated and withdrawn.
Section 14.10 SEVERABILITY. If any provision hereof shall be held
invalid, illegal or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof,
and the Parties shall undertake, with all due diligence, to reform said
provision in a manner that most closely comports to the original intent thereof
as expressed in this Agreement.
Section 14.11 CHOICE OF LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Minnesota.
<PAGE>
18
Section 14.12 NOTICES. All notices and other communications between
the Parties under this Agreement and to the Noteholders, unless specifically
provided otherwise, shall be in writing and shall be deemed duly given upon
receipt after being delivered by hand or sent by registered or certified mail,
return receipt requested, postage prepaid or by recognized overnight courier or
by telecopy, addressed to the Noteholders as provided in the Note Purchase
Agreement and otherwise as follows:
CUSTOMER:
American Crystal Sugar Company
101 North 3rd Street
Moorhead, MN 56560-1990
Attention: President
Telephone: 218-236-4400
Telecopy: 218-236-4422
COMPANY:
Crystech, LLC
c/o American Crystal Sugar Company
101 North 3rd Street
Moorhead, MN 56560-1990
Attention: President
Telephone: 218-236-4400
Telecopy: 218-236-4422
Section 14.13 COUNTERPARTS. This Agreement may be executed in more
than one counterpart, each of which shall be deemed to be an original.
Section 14.14 SUBMISSION TO JURISDICTION. Each Party irrevocably and
unconditionally submits to the non-exclusive jurisdiction of the courts of New
York and all courts of appeal from them and waives any objection that such Party
may now or in the future have to the bringing of proceedings in those courts and
any claim that such proceedings have been brought in an inconvenient forum.
Section 14.15 FURTHER ASSURANCES.. If either Party reasonably
determines that any further instrument or any other acts or things are necessary
or desirable to carry out the terms of this Agreement, the other Party shall
execute and deliver all such instruments and assurances and do all such things
as the first Party reasonably deems necessary or desirable to carry out the
terms of this Agreement (at the cost of the first Party).
<PAGE>
19
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first written above.
CRYSTECH, LLC
By /s/ Marcus F. Richardson
----------------------------------
Title: CHAIRMAN
AMERICAN CRYSTAL SUGAR COMPANY
By /s/ Sam S. M. Wai
----------------------------------
Title: Assist. Treasurer
<PAGE>
SCHEDULE 2.3
------------
The Recovery Rate will be calculated as follows:
(Bm)(1-Qm)(Mm)(Za)
-------------------- (100%) = System Performance %P
(.80)(1-.60)(600)(.81)
Where: Bm = Actual Brix of the feed molasses
Qm = Actual true purity of feed molasses
Mm = Actual tons of molasses worked
Za = Z=(R)(1-(Qg-Qe)(Qs)/1-Qs)(Qc))
where: Za = Overall recovery of sucrose or the percentage of the sugar
in the feed molasses that will be recovered as granulated
sugar.
R = Measured recovery of the separators or the percentage of the
sugar in the feed molasses that ends up in the extract.
Qg = Purity of the granulated sugar or 100%
Qc = Purity of the extract
Qs = Purity of the secondary molasses or the purity of the
molasses that the sugar end will make when processing extract.
(This is set at 62.5% to eliminate the effect of poor sugar
end operation.)
<PAGE>
SCHEDULE 5.1
FEEDSTOCK SPECIFICATIONS
Feedstock delivered by Customer shall be molasses that has:
- a maximum of one percent (1%) invert sugars
- less than 5 meq hardness per 100 Refractometric Dry Substance
- maximum color of 70,000 ICUMSA units at 420nm
- free of foam oils based on polypropylene glycol polymers or
oligomers or foam oils that have a strong affinity for organic
polymer chains
<PAGE>
Exhibit 10(hh)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OPERATION AND MAINTENANCE AGREEMENT
Dated as of June 3, 1998
By and between
CRYSTECH, LLC
and
AMERICAN CRYSTAL SUGAR COMPANY
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 1
DEFINITIONS AND INTERPRETATION
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . -1-
Section 1.2 Interpretation . . . . . . . . . . . . . . . . . . . . . . -7-
Section 1.3 Technical Meanings . . . . . . . . . . . . . . . . . . . . -8-
Section 1.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . -8-
Section 1.5 Interpretation . . . . . . . . . . . . . . . . . . . . . . -8-
SECTION 2
OWNER FURNISHED ITEMS
Section 2.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . -8-
Section 2.2 Information. . . . . . . . . . . . . . . . . . . . . . . . -8-
Section 2.3 Care, Custody and Operational Control. . . . . . . . . . . -9-
Section 2.4 Contractor-Supplied Items. . . . . . . . . . . . . . . . . -9-
Section 2.5 Overhaul of Major Equipment and Capital Improvements . . . -9-
SECTION 3
RESPONSIBILITIES OF OPERATOR
Section 3.1 Scope of Services. . . . . . . . . . . . . . . . . . . . . -9-
Section 3.2 Standards for Performance of the Services. . . . . . . . . -10-
Section 3.3 Personnel Standards. . . . . . . . . . . . . . . . . . . . -11-
Section 3.4 Billing and Payment of Invoices. . . . . . . . . . . . . . -11-
Section 3.5 Facility Agreements. . . . . . . . . . . . . . . . . . . . -11-
Section 3.6 Approvals and Permits. . . . . . . . . . . . . . . . . . . -12-
Section 3.7 Operating Data and Records. . . . . . . . . . . . . . . . -12-
Section 3.8 No Liens or Encumbrances . . . . . . . . . . . . . . . . . -12-
Section 3.9 No Action. . . . . . . . . . . . . . . . . . . . . . . . . -12-
Section 3.10 Emergency Action . . . . . . . . . . . . . . . . . . . . . -12-
Section 3.11 Access . . . . . . . . . . . . . . . . . . . . . . . . . . -13-
Section 3.12 Relationship between Owner and Operator. . . . . . . . . . -13-
</TABLE>
- i -
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 4
LIMITATIONS ON AUTHORITY OF OPERATOR
Section 4.1 General Limitations. . . . . . . . . . . . . . . . . . . . -13-
Section 4.2 Execution of Documents . . . . . . . . . . . . . . . . . . -14-
SECTION 5
PROCEDURES, PLANS AND REPORTING
Section 5.1 Plant Manager. . . . . . . . . . . . . . . . . . . . . . . -14-
Section 5.2 Annual Operating Plan and Budget . . . . . . . . . . . . . -15-
SECTION 6
COMPENSATION AND PAYMENT
Section 6.1 Compensation . . . . . . . . . . . . . . . . . . . . . . . -16-
Section 6.2 Reimbursable Costs . . . . . . . . . . . . . . . . . . . . -17-
SECTION 7
TERM
Section 7.1 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
Section 7.2 Termination by Owner . . . . . . . . . . . . . . . . . . . -18-
Section 7.3 Termination by Operator. . . . . . . . . . . . . . . . . . -18-
Section 7.4 Facility Condition at End of Term. . . . . . . . . . . . . -18-
SECTION 8
INSURANCE
Section 8.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . -19-
Section 8.2 Operator Insurance . . . . . . . . . . . . . . . . . . . . -19-
Section 8.3 Certificates; Proof of Loss. . . . . . . . . . . . . . . . -19-
Section 8.4 Deductibles. . . . . . . . . . . . . . . . . . . . . . . . -19-
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 9
INDEMNIFICATION
Section 9.1 By Operator. . . . . . . . . . . . . . . . . . . . . . . . -20-
Section 9.2 By Owner . . . . . . . . . . . . . . . . . . . . . . . . . -20-
Section 9.3 Cooperation Regarding Claims . . . . . . . . . . . . . . . -21-
SECTION 10
LIABILITIES OF THE PARTIES
Section 10.1 Limitations of Liability . . . . . . . . . . . . . . . . . -21-
Section 10.2 Environmental Liability. . . . . . . . . . . . . . . . . . -22-
Section 10.3 Limitation of Owner's Liability. . . . . . . . . . . . . . -22-
Section 10.4 Limitation of Operator's Liability . . . . . . . . . . . . -22-
SECTION 11
TITLE, DOCUMENTS AND DATA
Section 11.1 Materials and Equipment. . . . . . . . . . . . . . . . . . -22-
Section 11.2 Proprietary Information. . . . . . . . . . . . . . . . . . -23-
Section 11.3 Review by Owner. . . . . . . . . . . . . . . . . . . . . . -23-
SECTION 12
REPRESENTATIONS AND WARRANTIES
Section 12.1 Operator Representations and Warranties. . . . . . . . . . -23-
Section 12.2 Owner Representations and Warranties . . . . . . . . . . . -24-
SECTION 13
FORCE MAJEURE
Section 13.1 Excused Performance. . . . . . . . . . . . . . . . . . . . -25-
Section 13.2 Notice of Force Majeure. . . . . . . . . . . . . . . . . . -25-
Section 13.3 Scope. . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
Section 13.4 Strikes. . . . . . . . . . . . . . . . . . . . . . . . . . -26-
</TABLE>
- iii -
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
SECTION 14
CONFIDENTIAL INFORMATION
Section 14.1 Non-disclosure . . . . . . . . . . . . . . . . . . . . . . -26-
Section 14.2 Disclosure to Government Agency. . . . . . . . . . . . . . -26-
SECTION 15
MISCELLANEOUS PROVISIONS
Section 15.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . -26-
Section 15.2 Entire Agreement and Amendments. . . . . . . . . . . . . . -27-
Section 15.3 Survival . . . . . . . . . . . . . . . . . . . . . . . . . -27-
Section 15.4 Severability . . . . . . . . . . . . . . . . . . . . . . . -27-
Section 15.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
Section 15.6 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . -27-
Section 15.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . -28-
Section 15.8 Further Assurances . . . . . . . . . . . . . . . . . . . . -28-
Section 15.9 Set-Off. . . . . . . . . . . . . . . . . . . . . . . . . . -28-
Section 15.10 Cooperation in Financing.. . . . . . . . . . . . . . . . . -28-
Section 15.11 No Third Person Rights . . . . . . . . . . . . . . . . . . -28-
Section 15.12 Dollars. . . . . . . . . . . . . . . . . . . . . . . . . . -28-
Section 15.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . -29-
</TABLE>
- iv -
<PAGE>
OPERATION AND MAINTENANCE AGREEMENT
This OPERATION AND MAINTENANCE AGREEMENT (this "AGREEMENT") is made as of
June __, 1998 between CRYSTECH, LLC, a Delaware limited liability company
("OWNER") and American Crystal Sugar Company, a Minnesota cooperative
corporation (in its capacity as operator of the Facility referred to herein,
"OPERATOR").
RECITALS
WHEREAS, Owner has been formed to develop, finance, construct, own,
operate and maintain a molasses desugarization facility and certain related
assets (the "Facility", as further defined herein) to be constructed pursuant
to the Construction Contract (as defined herein);
WHEREAS, Operator is experienced in the construction management,
operation and maintenance and management of food processing facilities such
as the Facility, and desires to provide construction management, operation
and maintenance services for the Facility on the terms and conditions set
forth herein; and
WHEREAS, Owner desires to retain the services of Operator to
supervise and manage the construction of the Facility and for the operation
and maintenance of all aspects of the Facility, and Operator is willing to
perform the services upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants,
undertakings and conditions set forth below, the Parties agree as follows:
SECTION 1
DEFINITIONS AND INTERPRETATION
SECTION 1.1 DEFINITIONS. Except as otherwise expressly provided
or unless the context otherwise requires, the terms set forth below where
used in this Agreement (including the Recitals) have the following meanings:
"ACS" shall mean American Crystal Sugar Company, a cooperative
corporation organized and existing under the laws of the State of Minnesota.
"AFFILIATE" means, with respect to any Person (i) any director,
officer or employee of such Person or (ii) any other Person which, directly
or indirectly, controls or is controlled by or is under common control with
such designated Person. For the purposes of this definition, "CONTROL"
(including, with correlative meanings, the terms "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH"), as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise, PROVIDED that, in
any event, any Person that owns directly or indirectly securities having 5%
or more of the voting power for the election of directors
<PAGE>
or other governing body of a corporation or 5% or more of the partnership or
other ownership interests of any other Person (other than as a limited
partner of such other Person) will be deemed to control such corporation or
other Person.
"AGREEMENT" means this Operation and Maintenance Agreement between
Owner and Operator, as the same may be modified or amended from time to time
in accordance with the provisions hereof.
"ANNUAL BUDGET" has the meaning given to such term in Section 5.2.2.
"ANNUAL OPERATING PLAN" has the meaning given to such term in
Section 5.2.2.
"BUSINESS DAY" means any day other than a day on which commercial
banks are authorized or required to close in Minneapolis, Minnesota.
"CCC TIME" has the meaning given to such term in Section 2.3.
"CONSTRUCTION CONTRACT" means the Engineering, Procurement and
Construction Contract between Owner and the Contractor, dated as of May 28,
1998.
"CONTRACTOR" means Process Systems Incorporated Construction
Company.
"DOLLAR" or "$" means the lawful currency of the United States of
America.
"EFFECTIVE DATE" means the date of execution of this Agreement.
"ENVIRONMENTAL CLAIM" means any oral or written notice, claim or
demand (collectively, a "CLAIM") by any Person alleging or asserting
liability for investigatory costs, cleanup costs, legal costs, governmental
response costs, damages to natural resources or other property, personal
injuries, fines or penalties related to (i) the presence, or release into the
environment, of any Hazardous Material at any location, whether or not owned
by the Person against whom such claim is made, or (ii) any violation of, or
alleged violation of, or liability arising under any Environmental Law. The
term "Environmental Claim" shall include, without limitation, any claim by
any Person or Governmental Body for enforcement, cleanup, removal, response,
remedial or other actions or damages pursuant to any Environmental Law, and
any claim by any third party seeking damages, contribution, indemnification,
cost recovery, compensation or injunctive relief under any Environmental Law.
"EVENT OF DEFAULT" shall have the meaning assigned to such term in
the Note Purchase Agreement.
"ENVIRONMENTAL LAW" means any Law relating to the environment,
health or safety.
- 2 -
<PAGE>
"EQUIPMENT LEASE (HILLSBORO)" means that certain Equipment Lease
dated as of June ___, 1998, by and between Operator and Owner pursuant to
which Owner will lease to Operator certain of its rights and interest with
respect to that portion of the Desugarization Assets located in Hillsboro,
North Dakota.
"EQUIPMENT LEASE (MOORHEAD)" means that certain Equipment Lease
dated as of June___, 1998, by and between Operator and Owner pursuant to
which Owner will lease to Operator certain of its rights and interest with
respect to that portion of the Desugarization Assets located in Moorhead,
Minnesota.
"EQUIPMENT LEASES" means the Equipment Lease (Hillsboro) and the
Equipment Lease (Moorhead).
"FACILITY" means collectively, the MDS Facility, the Sugar-End
Upgrade, the Thin Juice Softening Facility and the Receiving Storage and
Shipping Facility, as those terms are defined in the Construction Contract.
"FACILITY AGREEMENTS" means this Agreement, the Construction
Contract, the Tolling Agreement, the Leases, the License and Easement
Agreements, the Note Purchase Agreement (and each Financing Agreement defined
therein), the LLC Agreement, the Equipment Leases, and any other agreement
reasonably designated by Owner as a Facility Agreement, and includes all
exhibits, schedules and attachments to each such agreement.
"FACILITY SITE" means the real property devised to Owner under the
Ground Lease.
"FEEDSTOCK" shall have the meaning assigned to such term in the
Tolling Agreement.
"FINAL PERFORMANCE ACCEPTANCE" has the meaning given to such term
in the Construction Contract.
"FORCE MAJEURE" means any act, event or condition that causes delay
in or failure of performance of obligations under this Agreement, if such
act, event or condition (i) is beyond the reasonable control of the Party
relying thereon, (ii) is not the result of any acts, omissions or delays of
such Party (or any third Person over whom such Party has control including,
without limitation, any subcontractor), (iii) is not an act, event or
condition, the risks or consequences of which such Party has expressly agreed
to assume hereunder and (iv) then only to the extent the same cannot be
cured, remedied, avoided, offset, negotiated or otherwise overcome by the
prompt exercise of due diligence of the Party relying thereon (or any third
Person over whom such Party has control including, without limitation, any
subcontractor). Force Majeure shall include the following (if the
requirements described in clauses (i) through (iv) of the above sentence are
satisfied): hurricane, fire, tornado, landslide, earthquakes, acts of the
public enemy, war, insurrection, riot or civil disturbance, unlawful strikes
or labor stoppages excluding those involving the Operator or its employees,
an unreasonable delay or unreasonable failure to obtain any authorization or
approval from any Government Agency provided that the taking of the requested
action by the Government Agency is
- 3 -
<PAGE>
legal, customary and within the Government Agency's jurisdiction, proper and
timely application was made therefor, taking into account all facts and
circumstances after due investigation into the time required for such
requested action, payment of all necessary fees and charges was made and
diligent and continuous pursuant of the application has been made, all in
light of the schedule for completion and the effect of delays thereon and
recognizing that Owner has represented that it will suffer damages in the
event of late completion. Notwithstanding the foregoing, Force Majeure shall
not include (i) the climate for the geographic area of the Facility, (ii) the
occurrence of any manpower or equipment shortages or (iii) any delay, default
or failure (direct or indirect) in obtaining any equipment, performing any of
the Services or any other delay, default or failure (financial or otherwise)
of a subcontractor, vendor or supplier except if, such delay, default or
failure results from any act, event or condition which would, with respect to
such subcontractor, supplier or vendor, as the case may be, constitute an
event of Force Majeure if such supplier, subcontractor or vendor were a Party
to this Agreement.
"GOVERNMENT AGENCY" means any federal, state, local or municipal
government, governmental department, commission, board, bureau, agency,
instrumentality, judicial or administrative body.
"HAZARDOUS MATERIALS" means (a) any petroleum or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, and transformers or other
equipment that contain dielectric fluid containing polychlorinated biphenyls
("PCBS"); (b) any chemicals, materials or substances which are now or
hereafter become defined as or included in the definition of "hazardous
substances", "hazardous wastes", "hazardous materials", "extremely hazardous
wastes", "restricted hazardous wastes", "toxic substances", "toxic
pollutants", or words of similar import, under any Environmental Law or in
any regulations thereto; and (c) any other chemical, material, substance or
waste, exposure to which is now or hereafter prohibited, limited or regulated
by any Government Agency.
"INDEMNIFIED PARTY" has the meaning given to such term in Section
9.3.
"LAW" means any act, statute, law, regulation or order, decree,
judgment, license, approval or authorization of any federal, state or local
government, any governmental body, agency or authority (including without
limitation, any taxing authority or any other entity exercising executive,
legislative, judicial, regulatory or administrative functions pertaining to
government), as in effect from time to time applicable to the Facility and
the operation thereof.
"LEASE AGREEMENT (HILLSBORO)" means that certain Lease and Fixtures
Agreement dated as of June ___, 1998, by and between Operator and Owner and
covering certain real property of Operator, and certain designated space
within existing buildings situated thereon, at Operator's sugarbeet
processing facility in Hillsboro, North Dakota.
"LEASE AGREEMENT (MOORHEAD)" means that certain Lease and Fixtures
Agreement dated as of June___, 1998, by and between Operator and Owner and
covering certain designated
- 4 -
<PAGE>
space within existing buildings situated upon real property of Operator at
its sugarbeet processing facility in Moorhead, Minnesota (the "Lease
Agreement (Moorhead").
"LEASES" means Lease Agreement (Hillsboro) and the Lease Agreement
(Moorhead).
"LENDER" means each Person providing financing to Owner through the
purchase or holding of a Note issued by Owner under the Note Purchase
Agreement and any trustee or agent acting on any such Person's behalf.
"LICENSE AND EASEMENT AGREEMENT (HILLSBORO, NORTH DAKOTA)" means
that certain License and Easement Agreement dated as of June ___, 1998, by
and between Operator and Owner and granting Owner certain easements and
rights over and across certain designated space within existing buildings
situated on certain real property of Operator at Operator's sugarbeet
processing facility in Hillsboro, North Dakota.
"LICENSE AND EASEMENT AGREEMENT (MOORHEAD, MINNESOTA)" means that
certain License and Easement Agreement dated as of May ___, 1998, by and
between Operator and Owner and granting Owner certain easements and rights
over and across certain portions of real property of Operator at Operator's
sugarbeet processing facility in Moorhead, Minnesota.
"LICENSE AND EASEMENT AGREEMENTS" means the License and Easement
Agreement (Hillsboro, North Dakota) and the License and Easement Agreement
(Moorhead, Minnesota).
"LLC AGREEMENT" means the limited liability agreement of Owner,
dated as of May 28, 1998.
"MAJOR EQUIPMENT" means the chromatographic separation column used
in the MDS Facility described in the Construction Contract.
"MAJOR MAINTENANCE" has the meaning given to such term in Section
2.6.
"MDS FACILITY" has the meaning given to such term in the
Construction Contract.
"MECHANICAL COMPLETION" has the meaning given to such term in the
Construction Contract.
"NOTE PURCHASE AGREEMENT" means the Note Purchase Agreement, dated
as of the date hereof, between Owner and Crystech Senior Lender Trust.
"OPERATING YEAR" means the 12 month period beginning on September 1
following the CCC Time and each successive 12 month period beginning on the
consecutive anniversary dates thereof.
- 5 -
<PAGE>
"OPERATOR INDEMNIFIED PARTY" means Operator and its shareholders,
officers, directors, employees, agents, representatives and Affiliates.
"OWNER INDEMNIFIED PARTY" means Owner, Lender and their respective
shareholders, partners, officers, directors, employees, agents,
representatives and Affiliates (other than, in the case of Owner, ACS).
"OWNER ACCEPTANCE" has the meaning given to such term in the
Construction Contract.
"PARTY" means either Operator or Owner and "PARTIES" means both
Operator and Owner.
"PERSON" means any individual, partnership, corporation,
association, business, trust, Government Agency or other entity.
"PLANT MANAGER" has the meaning given to such term in Section 5.1.
"PREOPERATIONAL PHASE-IN SERVICES" has the meaning given to such
term in Section 3.1.1.
"PRUDENT OPERATING AND MAINTENANCE PRACTICES" means generally
accepted and sound industry practices, methods and acts applicable to similar
food processing facilities situated in the United States and which at a
particular time, in the exercise of reasonable judgment and in light of facts
known or that should have been known, would have been expected to accomplish
the desired results and goals established in the Annual Operating Plan,
including such goals as efficiency, reliability, economy and profitability,
in a manner consistent with law, regulation, safety, and environmental
protection. With respect to the Facility, Prudent Operating and Maintenance
Practices include such things as taking reasonable actions to provide:
(i) Adequate materials, resources and supplies, including fuel,
are available to meet the Facility's needs under normal
conditions and reasonably anticipated abnormal conditions;
(ii) A sufficient number of operating, maintenance and supervisory
personnel are available and adequately experienced and trained
to operate, maintain and supervise each part of the Facility
properly, efficiently and within manufacturer's guidelines and
specifications and are capable of responding to emergency
conditions;
(iii) The timely performance of preventive, routine, and non-routine
maintenance and repairs on a basis that ensures long-term and
safe operation and by knowledgeable and experienced personnel
utilizing specified equipment, tools and procedures;
- 6 -
<PAGE>
(iv) Appropriate monitoring and testing are done periodically to
check if equipment is functioning as designed and to provide
assurance that equipment will function properly under both
normal and emergency conditions; and
(v) Equipment is operated in a safe manner and in a manner safe
to workers, the general public and the environment.
"RECOVERY RATE" has the meaning given to such term in the Tolling
Agreement.
"REIMBURSABLE COSTS" has the meaning given to such term in Section
6.2.
"SERVICES" has the meaning given to such term in Section 3.1.
"TOLLING AGREEMENT" means the Tolling Services Agreement, dated as
of the date hereof, between Owner and ACS.
"WINDING-UP" means, with respect to any Person, the occurrence of
any of the following: (a) such Person shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian,
trustee, liquidator or administrator of itself or of all or a substantial
part of its property, (ii) be generally unable to pay its debts as such debts
become due, (iii) make a general assignment for the benefit of its creditors,
(iv) commence a voluntary case under the United States Bankruptcy Code (as
now or hereafter in effect), (v) file a petition seeking to take advantage of
any other law providing for the relief of debtors, (vi) fail to controvert in
a timely or appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the United States Bankruptcy
Code, (vii) take any action under the laws of its jurisdiction of
incorporation (or any other jurisdiction) analogous to any of the foregoing,
or (viii) take any corporate action for the purpose of effecting any of the
foregoing; (b) a proceeding or case shall be commenced, without the
application or consent of such Person in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator, administrator or the like of it or of all or
any substantial part of its properties, or (iii) similar relief in respect of
it, under any law providing for the relief of debtors and such proceeding or
case shall continue undismissed, or unstayed and in effect, for a period of
90 days; or an order for relief shall be entered in an involuntary case under
the United States Bankruptcy Code against such person; or action under the
laws of the jurisdiction of incorporation or organization of such Person
analogous to any of the foregoing shall be taken with respect to such Person
and shall continue unstayed and in effect for any period of 90 consecutive
days; or (c) any event with respect to such Person occurs which, under the
laws of any jurisdiction or any political subdivision of any jurisdiction,
has an effect similar to any of the events referred to in subsection (a) or
(b) above.
- 7 -
<PAGE>
SECTION 1.2 INTERPRETATION.
1.2.1 Except as otherwise specified in this Agreement or as the
context otherwise requires, any reference in this Agreement to any agreement,
contract or document shall mean such agreement, contract or document and all
schedules, exhibits, attachments, appendices and annexes thereto, as amended,
supplemented or modified and in effect from time to time. Unless otherwise
stated, any reference in this Agreement to any Person shall include its
permitted successors and assigns and, in the case of any Government Agency,
any Person succeeding to its functions and capacities. In addition, any term
defined or used herein in the singular will be deemed to have the same
meanings when used in the plural and VICE VERSA. Any reference in this
Agreement to any Section or Appendix means and refers to the Section
contained in or Appendix attached to this Agreement.
1.2.2 A reference to a specific time for the performance of an
obligation is a reference to that time in the place where that obligation is
to be performed.
1.2.3 If any payment, act, matter or thing hereunder would
occur on a day that is not a Business Day, then such payment, act, matter or
thing will, unless otherwise expressly provided for herein, occur on the last
prior Business Day.
SECTION 1.3 TECHNICAL MEANINGS. Words not otherwise defined
herein that have well-known and generally accepted technical or trade
meanings are used herein in accordance with such recognized meanings.
SECTION 1.4 HEADINGS. Headings are for reference only and do
not form part of this Agreement.
SECTION 1.5 INTERPRETATION. The provisions of this Agreement
shall be wherever possible construed as complementary rather than conflicting.
SECTION 2
OWNER FURNISHED ITEMS
SECTION 2.1 GENERAL. Owner shall furnish to Operator, at
Owner's expense, the information, services, materials and other items
described in this Section 2. All such items shall be made available at such
times and in such manner as may be reasonably required for the expeditious
and orderly performance of the Services.
SECTION 2.2 INFORMATION. Owner shall provide copies of the
Facility Agreements promptly after execution thereof, as well as technical,
operational and other Facility information reasonably available to Owner
which are necessary for the Operator's performance of the Services. Subject
to the standards of performance set forth in Section 3.2, Operator shall be
entitled to rely upon such information in the performance of its obligations
hereunder. In the
- 8 -
<PAGE>
event a Facility Agreement is amended, modified or supplemented or entered
into after the Effective Date, the term "Facility Agreement" (and the
reference to any individual such agreement) shall refer to the applicable
agreement as so amended, modified or supplemented, or to the new Facility
Agreement, as the case may be.
SECTION 2.3 CARE, CUSTODY AND OPERATIONAL CONTROL. From time to
time, Operator, as manager of the construction of the Facility, shall keep
Owner and Lender and Lender's technical advisor apprised of the progress
related thereto. At such time as Owner assumes care, custody and operational
control of the Facility pursuant to the Construction Contract, Owner shall
transfer, or cause to be transferred, care, custody and operational control
of the Facility to Operator, with the time of such transfer to Operator being
referred to herein as the "CCC Time."
SECTION 2.4 CONTRACTOR-SUPPLIED ITEMS. Under the Construction
Contract, Contractor has agreed to furnish to Owner certain information and
to provide certain services in connection with the operation of the Facility.
Owner agrees to make available to Operator such information (which shall be
maintained in confidence by Operator) and services, including two copies of
all facility manuals that Contractor provides to Owner under the Construction
Contract. At all times prior to the CCC Time, such facility manuals shall be
under the care and custody of Contractor, provided that Operator shall have
access to such manuals as necessary to perform the Services. At all times
after the CCC Time, the facility manuals shall be under the care and custody
of Operator, provided that Contractor shall have access to such manuals as
necessary to perform its obligations under the Construction Contract. Owner
shall have access at all times to facility manuals in the possession of
Operator.
SECTION 2.5 OVERHAUL OF MAJOR EQUIPMENT AND CAPITAL
IMPROVEMENTS. The performance and cost of all Major Equipment overhauls,
capital improvements and replacements (collectively, "MAJOR MAINTENANCE")
shall be the responsibility of Owner; PROVIDED, HOWEVER, that (i) Operator
will immediately notify Owner in writing of any such Major Maintenance known
by Operator to be necessary or desirable and make written recommendations and
assist Owner in contracting and monitoring any contracts for the completion
of such Major Maintenance, and (ii) Operator may specify the scheduling of
any Major Maintenance so long as it is prudent to do so AND funding for such
Major Maintenance is provided for in the Tolling Agreement or the LLC
Agreement.
- 9 -
<PAGE>
SECTION 3
RESPONSIBILITIES OF OPERATOR
SECTION 3.1 SCOPE OF SERVICES. From and after the Effective
Date, Operator will operate and maintain all aspects of the Facility and
perform certain other duties, including managing of the construction,
start-up and testing (as applicable) of each part of the Facility,
bookkeeping, accounting and bill paying, as hereinafter set forth (the
"SERVICES"). Operator shall operate and maintain the Facility in a clean,
safe, efficient and environmentally acceptable manner. Without limiting the
generality of the foregoing, Operator's responsibilities shall include the
following:
3.1.1 PREOPERATIONAL PHASE-IN SERVICES. During the period
prior to the CCC Time, Operator shall perform such Services (the
"Preoperational Phase-In Services") as Operator deems necessary or
appropriate to operate and maintain the Facility (and each part thereof) in
accordance with Prudent and Operating and Maintenance Practices during such
period.
3.1.2 OPERATIONAL PHASE SERVICES. From and after the CCC Time,
Operator shall be in complete charge of, and have care, custody and
operational control over, the Facility and shall perform, in accordance with
the provisions of this Agreement (except as expressly reserved to Owner under
Section 2 and subject to the limitations on Operator's authority set forth in
Section 4), all tasks necessary to operate and maintain the Facility in
accordance with this Agreement, including (without limitation) the following:
(i) perform, or cause to be performed on behalf of Owner, all operation and
maintenance of the Facility whatsoever; (ii) except as otherwise provided
herein, supply, or cause to be supplied, all goods and materials, including
spare parts, required to operate and maintain the Facility following
Mechanical Completion thereof; (iii) maintain, control and store the
Facility's inventory; (iv) perform inspections, preventive maintenance,
predictive maintenance, and corrective maintenance; and (v) complete
teardowns and major overhauls of Major Equipment. In addition, Operator will
promptly notify Customer (as that term is defined in the Tolling Agreement)
once the MDS Facility is ready to receive Feedstock and has achieved a
Recovery Rate of at least seventy-two percent (72%).
3.1.3 USED OR REFURBISHED EQUIPMENT. Operator may procure used
and/or refurbished equipment and/or parts when appropriate, provided that
there is no Event of Default then continuing under the Note Purchase
Agreement and provided that Operator has funding readily available for such
purpose.
3.1.4 SUBCONTRACTS. Operator may enter into subcontracts for
certain of the Services, provided that there is no Event of Default then
continuing under the Note Purchase Agreement and provided that Operator has
funding readily available for such purpose. Any subcontracting of the
Services pursuant to this Section 3.1.4 shall not relieve Operator of any of
its duties, liabilities or obligations hereunder, in respect of the Services
or otherwise.
- 10 -
<PAGE>
3.1.5 GENERAL. Operator shall obtain all licenses and permits
required to allow Operator to do business or perform the Services in the
jurisdictions where such Services are to be performed. Operator shall not
permit or suffer any liens or encumbrances on the Facility arising from the
performance of the Services. Operator shall use all reasonable and practical
efforts to optimize the useful life of the Facility, Facility downtime and
Reimbursable Costs.
SECTION 3.2 STANDARDS FOR PERFORMANCE OF THE SERVICES. Operator
shall perform the Services in all material respects in accordance with (i)
all applicable Laws, licenses, permits, approvals and standards, (ii) the
Facility Agreements, (iii) Prudent Operating and Maintenance Practices, and
(iv) the terms of this Agreement, and notwithstanding the foregoing, shall
operate the MDS Facility in order to achieve and maintain a Recovery Rate of
at least seventy-two percent (72%).
SECTION 3.3 PERSONNEL STANDARDS.
3.3.1 PERSONNEL. Operator shall provide and make available as
necessary all such labor and professional, supervisory and managerial
personnel as are required to perform the Services. Such personnel shall be
qualified (including obtaining appropriate licenses) and experienced in the
duties to which they are assigned and shall meet the requirements for
Facility personnel in accordance with Prudent Operating and Maintenance
Practices. With respect to retention of personnel and related policies,
Operator shall comply with all applicable federal and state labor and
employment laws and shall exercise control over labor relations in a
reasonable manner consistent with the intent and purpose of this Agreement.
From and after the CCC Time, Operator shall retain sole authority, control
and responsibility with respect to labor matters in connection with the
performance of the Services. Notwithstanding the foregoing, Operator
acknowledges and agrees that it does not have the authority to enter into any
contracts or collective bargaining agreements with respect to labor matters
that purport to bind or otherwise obligate Owner.
3.3.2 TRAINING PROGRAM. Operator shall offer such training and
education programs for personnel engaged in providing the Services as would
be required by Prudent Operating and Maintenance Practices.
3.3.3 CONSULTANTS. The estimated hourly rates of compensation
for individual consultants who are not employees of Operator or its
Affiliates shall also be included in the Annual Budget. All such
subcontracts shall require substantially similar employment standards as
those set forth in this Agreement as are applicable to the employees of
Operator or its Affiliates.
SECTION 3.4 BILLING AND PAYMENT OF INVOICES. Operator shall
prepare and send bills to ACS in the name and on behalf of Owner in
accordance with the terms therefor in the Tolling Agreement and shall verify
payments of amounts due. Operator shall pay all charges payable under any
applicable Facility Agreement (other than the Note Purchase Agreement).
- 11 -
<PAGE>
SECTION 3.5 FACILITY AGREEMENTS. Operator will administer the
Facility Agreements and shall have day-to-day operational responsibility with
respect to such Agreements, and provided that there is no Event of Default
then continuing under the Note Purchase Agreement, Operator shall have the
right to exercise all rights of Owner under the Facility Agreements. In
connection with the foregoing, but subject to the conditions and covenants of
the Note Purchase Agreement (and the other Financing Documents referred to
therein), the parties understand that Operator shall have the right to make
decisions as to the use and disposition of any contingency fund built into
the budget for construction of the Facility, and the parties further
understand that Operator shall exercise such right through a committee of
senior management personnel of Operator. Operator hereby agrees that while
performing any Services, it shall abide by the requirements of the Facility
Agreements and shall otherwise cause Owner to be in compliance with all other
terms contained in the Facility Agreements, including, without limitation,
the furnishing of required information under the Note Purchase Agreement and
the monitoring of or compliance by Owner with all covenants, restrictions and
conditions of the Facility Agreements. This Section 3.5 shall not be deemed
to make Operator a party to the Facility Agreements or, except to the extent
expressly hereinbefore provided, to impose any obligations on Operator in its
capacity as operator hereunder.
SECTION 3.6 APPROVALS AND PERMITS. Operator shall review all
Laws containing or establishing compliance requirements in connection with
the operation and maintenance of the Facility and shall secure on behalf of
Owner, and shall cause Owner to be in compliance with, all necessary permits,
licenses and approvals (and renewals of the same), including those relating
to operation of the Facility, water and sewer use, chemical and other waste
(including Hazardous Materials), storage and disposal, and emissions testing
and safety. Operator shall also initiate and maintain precautions and
procedures necessary to comply with applicable provisions of all such Laws or
other requirements, including those related to prevention of injury to
persons or damage to property at the Facility.
SECTION 3.7 OPERATING DATA AND RECORDS. Operator shall prepare
and maintain operating logs, records and reports documenting the operation
and maintenance of the Facility. Such operating data shall include meter and
gauge readings with respect to both the Feedstock supplied to the Facility
and the sugar extract, betaine and raffinate processed at the Facility,
maintenance records and records of the water, steam and electricity used by
the Facility. Operator shall also prepare reports and data which are related
to the maintenance of Hazardous Materials on-site at the Facility in a manner
complying with applicable Law, and shall maintain current revisions of the
drawings, specifications, lists, clarifications and other materials provided
to Operator by Owner or Contractor. Copies of all such reports that may be
submitted to any Government Agency by Operator shall be furnished to Owner.
Without limiting the foregoing, Operator shall monitor the Recovery Rate of
the MDS Facility and promptly notify owner, Lender and Lender's technical
advisor if the Recovery Rate for any period of four (4) consecutive weeks
falls below eighty-five percent (85%), and if requested by Owner or Lender,
shall supply such Person with information relating to the operations of the
MDS Facility.
- 12 -
<PAGE>
SECTION 3.8 NO LIENS OR ENCUMBRANCES. Operator shall keep and
maintain the Facility free and clear of all liens and encumbrances, other
than liens permitted under the Note Purchase Agreement, resulting from any
act of Operator under Section 4.1.3.
SECTION 3.9 NO ACTION. Operator shall not take any action that
would give rise to any claim by Contractor against Owner or Operator.
SECTION 3.10 EMERGENCY ACTION. In the event of an emergency
affecting the safety or protection of Persons or endangering the Facility or
property located at the Facility, Operator shall promptly notify Owner of
such emergency.
SECTION 3.11 ACCESS.
3.11.1 OWNER. Owner, Lender and their respective agents and
representatives shall have access at all reasonable times to the Facility,
all Facility operations and any documents, materials and records and accounts
relating thereto for purposes of inspection and review, PROVIDED, HOWEVER,
that any access or inspection shall be subject to confidentiality limitations
contained in the Note Purchase Agreement to which the Person being granted
access is a party. Upon the reasonable request of Owner or Owner's agents
and representatives, Operator shall make available to such Persons and
provide them with access to any operating data and all operating logs.
3.11.2 COOPERATION. During any such inspection or review of the
Facility, Owner, Lender and their respective agents and representatives shall
comply with all of Operator's safety and security procedures, and Owner,
Lender and their respective agents and representatives shall conduct such
inspection and reviews in such a manner as to cause minimum interference with
Operator's activities. Operator also shall cooperate with Owner in allowing
other visitors access to the Facility under conditions that are mutually
agreeable to the Parties.
SECTION 3.12 RELATIONSHIP BETWEEN OWNER AND OPERATOR. Operator
shall at all times be deemed an independent contractor and neither it nor any
of its employees or the employees of any of its subcontractors shall be
considered an agent, servant or employee of Owner. As between Owner and
Operator, nothing in this Agreement shall be deemed to constitute any such
party a partner, joint venturer, agent or legal representative of any other
such party or to create a fiduciary relationship between or among such
parties. Operator shall be solely responsible for all matters relating to
the payment of employees, including compliance with social security,
withholding and all regulations governing such matters. Operator shall be
responsible for its own actions and those of its subordinates, employees,
agents, subcontractors and consultants during the term of this Agreement.
- 13 -
<PAGE>
SECTION 4
LIMITATIONS ON AUTHORITY OF OPERATOR
SECTION 4.1 GENERAL LIMITATIONS. Notwithstanding any provision
in this Agreement to the contrary, unless previously expressly approved in
the applicable Annual Operating Plan or Annual Budget or otherwise expressly
approved in writing by Owner, which approval shall not be unreasonably
withheld, Operator shall not (and shall not permit any of its agents or
representatives to):
4.1.1 DISPOSITION OF ASSETS. Sell, lease, pledge, mortgage,
convey, or make any license, exchange or other transfer or disposition of any
property or assets of Owner, including any property or assets acquired by
Operator hereunder the cost of which is a Reimbursable Cost, provided that
Operator may grant purchase money security interests in connection with the
property or assets acquired by Operator pursuant to Section 4.1.3, subject
only to those limits included in the Note Purchase Agreement and the other
Facility Agreements;
4.1.2 CONTRACT. Subject to Section 4.2, make, enter into,
execute, amend, modify or supplement any contract or agreement (including any
Facility Agreement) on behalf of or in the name of Owner, unless in the
opinion of the Owner such contract or agreement will not significantly impair
the value or utility of the Facility or the Facility Agreements;
4.1.3 EXPENDITURES. Make or commit to make (or consent or
agree to make or commit to make) any recoverable expenditure or acquire (or
consent or agree to acquire) on a recoverable cost basis any equipment,
materials, assets or other items, except in substantial conformity with the
Annual Budget, Prudent Operating and Maintenance Practices, or to the extent
that (i) ACS agrees to an adjustment in the tolling fee paid under the
Tolling Agreement in an amount necessary to cover the costs of such
expenditure as they became due (including any financing costs related
thereto), or ACS obtains funding for such expenditure from some other source,
(ii) such expenditure does not in any way impair the value of the Facility,
its useful life or performance, or Owner's ability to perform its obligations
under any Facility Agreement in accordance with its respective terms and
(iii) such expenditure does not cause an Event of Default under the Note
Purchase Agreement;
4.1.4 OTHER ACTIONS. Take or agree to take any other action
that materially varies with the applicable Annual Operating Plan or Annual
Budget;
4.1.5 LAWSUITS AND SETTLEMENTS. Settle, compromise, assign,
pledge, transfer, release or consent to the compromise, assignment, pledge,
transfer or release of, any claim, suit, debt, demand or judgment against or
due by, Owner or Operator, the cost of which, in the case of Operator, would
be a Reimbursable Cost hereunder, or submit any such claim, dispute or
controversy to arbitration or judicial process, or stipulate in respect
thereof to a judgment, or consent to do the same; or
- 14 -
<PAGE>
4.1.6 TRANSACTIONS ON BEHALF OF OTHERS, ETC. Engage in any
other transaction on behalf of Owner or any other Person not permitted under
this Agreement.
SECTION 4.2 EXECUTION OF DOCUMENTS. Any agreement, contract,
notice or other document that is expressly permitted hereunder (or with
written approval of Owner) to be executed by Operator shall, at Operator's
option, be executed in Operator's name or in Owner's name, and shall be
executed by any individual representative of Operator who is authorized and
empowered by Operator to execute such documents.
SECTION 5
PROCEDURES, PLANS AND REPORTING
SECTION 5.1 PLANT MANAGER. No later than the commencement of
construction under the Construction Contract (or such other date as the
parties may mutually agree), Operator shall appoint an individual ("PLANT
MANAGER"), subject to approval of Owner, who will direct and manage
Operator's resources and who will have full responsibility for all Facility
operations and administration, as set forth in Section 3.
SECTION 5.2 ANNUAL OPERATING PLAN AND BUDGET.
5.2.1 BUDGET FOR PREOPERATIONAL PHASE-IN SERVICES. Not later
than _______________, 199_ (or such other date as the parties may mutually
agree), Operator shall prepare and submit to Owner a proposed budget for the
Preoperational Phase-In Services. Such budget shall include an itemized
estimate of all Reimbursable Costs. Owner shall promptly review Operator's
proposed budget for Preoperational Phase-In Services and may, by written
request, seek changes, additions, deletions and modifications to such budget.
Owner and Operator will use their best efforts to agree upon such budget,
which shall be approved in writing by both Parties. Operator will use its
best efforts to keep down Reimbursable Costs for the Preoperational Phase-In
Services to the levels established in the agreed-upon budget therefor.
5.2.2 ADOPTION OF ANNUAL BUDGET AND ANNUAL OPERATING PLAN. At
least 3 months prior to the anticipated CCC Time, and 60 days prior to the
beginning of each Operating Year thereafter, Operator shall prepare and
submit to Owner a proposed annual budget for such year, established on a
monthly basis, which shall include a separate operating budget and capital
budget and shall set forth anticipated operations, repairs and capital
improvements (including Major Maintenance), routine maintenance and overhaul
schedules, procurement (including equipment acquisitions and spare parts and
consumable inventories indicating a breakdown of capital items and expense
items), staffing, personnel and labor activities (including unit rates for
labor and holidays to be observed), administrative activities, data regarding
other work proposed to be undertaken by Operator and regarding expected
environmental performance, together with an itemized estimate, in detail
reasonably acceptable to Owner, of all Reimbursable Costs to be incurred in
connection therewith (the "ANNUAL BUDGET"). Such Annual Budget shall be
accompanied by an annual operating plan setting forth the underlying
assumptions
- 15 -
<PAGE>
and implementation plans in connection with the Annual Budget ("ANNUAL
OPERATING PLAN"); provided that the Annual Operating Plan with respect to the
MDS Facility will provide that the MDS Facility operate at all times at a
Recovery Rate of not less than seventy-two percent (72%). Owner shall
promptly review Operator's proposed Annual Budget and Annual Operating Plan
and shall either approve them or may, by written request, require changes,
additions, deletions and modifications. Owner and Operator will use their
best efforts to agree upon a final Annual Budget and Annual Operating Plan by
30 days prior to such Operating Year. Owner's approval of the Annual Budget
and Annual Operating Plan shall not be unreasonably withheld. Such final
Annual Budget and Annual Operating Plan shall remain in effect throughout the
applicable Operating Year, subject to such other updating, revision and
amendment as may be proposed by either Party and consented to in writing by
the other Party.
Any actions proposed under the Annual Operating Plan shall be
consistent with Operator's obligations set forth herein. Operator shall
notify Owner as soon as reasonably possible of any material deviations or
discrepancies from the projections contained in the Annual Operating Plan.
If an event of Force Majeure occurs which results in increased
costs to Operator, Operator shall be entitled to an adjustment in the Annual
Budget reflecting the reasonable value of any such increased costs from such
event. In the case of an event of Force Majeure which results in decreased
costs to Operator, Owner shall be entitled to an adjustment in the Annual
Budget reflecting the reasonable value of any such decreased costs from such
event.
5.2.3 ANNUAL REPORTS. As soon as available, and in any event
within 90 days after the end of each Operating Year, Operator shall submit to
Owner an annual report certified by the Chief Financial Officer of Operator
describing all of the Facility operations for such Operating Year and
presenting a comparison of such Facility operations with the budget set forth
in the Annual Operating Plan and Annual Budget for such Operating Year and
with those obtained for the preceding Operating Year, if any. Within 30 days
after the submission of each annual report, the Plant Manager shall meet with
Owner to review and discuss the report and to report upon any other aspects
of the Facility operations that Owner may request.
5.2.4 LITIGATION; PERMIT LAPSES. Upon obtaining knowledge
thereof, Operator shall submit prompt written notice to Owner of: (i) any
litigation, claims, disputes or actions, threatened or filed, concerning the
Facility or the Services to be performed hereunder; (ii) any refusal or
threatened refusal to grant, renew or extend or any action pending or
threatened that might affect the granting, renewal or extension of any
license, permit, approval, authorization or consent; (iii) any dispute with
any Government Agency; (iv), all penalties or notices of violation issued by
any Government Agency; and (v) any breach or contravention of any applicable
Law, permit, license or approval; which in each case might have a material
adverse effect on the operation or maintenance of the Facility.
5.2.5 OTHER INFORMATION. Operator shall promptly submit to
Owner any material information concerning new or significant aspects of the
Facility operations and, upon
- 16 -
<PAGE>
Owner's reasonable request, shall promptly submit any other information
concerning the Facility or its Services. Such information may include any
information and certifications reasonably required by any Lender.
5.2.6 RECORDS RETENTION. Operator shall retain and preserve
all records, reports, documents and data, including all data retrievable from
an electronic data storage source, created in connection with the operation
and maintenance of the Facility in accordance with its normal document
retention policy.
SECTION 6
COMPENSATION AND PAYMENT
SECTION 6.1 COMPENSATION. As compensation to Operator for the
performance of the Services, Owner shall pay Operator, in the manner and at
the times specified in this Section 6, all Reimbursable Costs all as further
described herein to the extent Owner has recovered all amounts due under the
Tolling Agreement.
SECTION 6.2 REIMBURSABLE COSTS. Owner shall reimburse Operator
for certain reasonable costs ("REIMBURSABLE COSTS") incurred in the
performance of the Services and in accordance with Operator's established
policies, practices and rates then in effect for allocating such costs to
other unrelated parties. Such Reimbursable Costs shall include:
6.2.1 PAYROLL AND RELATED PERSONNEL COSTS.
(a) Payroll costs and related expenses incurred by Operator for
home office employees in accordance with its established personnel
policies (including all salaries and wages of personnel engaged in
and directly related to the performance of the Services hereunder)
and Operator's then current established rate for payroll additives; and
(b) Payroll costs and related expenses incurred by Operator for
employees assigned to the Facility site in accordance with its
established personnel policies (including all salaries and wages of
personnel involved directly in the performance of the Services
hereunder) and Operator's then current established rate for payroll
additives.
6.2.2 OUT-OF-POCKET COSTS AND RATES. All out-of-pocket costs
and rates incurred in the performance of the Services, regardless of whether
the Services are rendered at the Facility Site or at Operator's home office,
but which costs and rates are not included as part of the payroll costs and
expenses described above.
6.2.3 MANNER AND TIMES OF PAYMENT OF REIMBURSABLE COSTS. Not
later than the beginning of each Operating Year, Operator will prepare and
deliver to Owner a budget indicating the projected Reimbursable Costs for
such Operating Year. Operator will also, on a quarterly basis, review and
(if requested by Owner) prepare and deliver to Owner a revised budget
- 17 -
<PAGE>
for the remainder of the Operating Year, indicating the projected
Reimbursable Costs for the remainder of the Operating Year. On a monthly
basis, Operator will submit to Owner an invoice for the Reimbursable Costs
paid or incurred by Operator during the preceding month. Owner shall pay to
Operator the amount set forth on each monthly invoice on the Payment Date (as
that term is defined in the Tolling Agreement) occurring not less than 30
days after receipt of the invoice.
6.2.4 ADJUSTMENTS AND CONDITIONS. Notwithstanding the payment
of any amount pursuant to the foregoing provisions, no payment made pursuant
to the foregoing provisions shall be considered as approval or acceptance of
the Services performed hereunder and Owner shall remain entitled to conduct a
subsequent audit and review of all Reimbursable Costs incurred by Operator
and paid by Owner hereunder for a period of [3] years from and after the
close of the Operating Year in which such Reimbursable Costs were incurred.
If, pursuant to such audit and review, it is determined that any amount
previously paid by Owner did not constitute a due and payable item of
Reimbursable Costs, Owner may recover such amount from Operator or deduct or
cause to be deducted such amount from any payment that thereafter may become
due to Operator.
SECTION 7
TERM
SECTION 7.1 TERM. The term of this Agreement shall commence on
the Effective Date and continue for a period equal to the longer of (i) 12
years, and (ii) the term of the Tolling Agreement (including any extensions
thereto). Notwithstanding the foregoing, this Agreement is subject to earlier
termination pursuant to Sections 7.2 and 7.3.
SECTION 7.2 TERMINATION BY OWNER. Owner shall be permitted to
terminate this Agreement if any of the following events occur: (i) a
voluntary Winding-Up of Operator; (ii) an Event of Default has occurred under
the Note Purchase Agreement; or (iii) the Tolling Agreement terminates.
Promptly after the date of termination, Operator shall be paid for the
Services rendered by Operator through such termination date, including all
fees earned through the date of termination but not paid through such date.
Except as expressly provided in this Section 7.2, Owner shall not be liable
for any costs incident to termination in the case of any termination under
the foregoing clauses.
SECTION 7.3 TERMINATION BY OPERATOR. Operator shall be
permitted to terminate this Agreement if any of the following events occur:
(i) a payment default by Owner that is not cured within 180 days after the
date on which such payment is due provided Owner has received written notice
of such default and has received payment in full from ACS of all tolling fees
due and owing under the Tolling Agreement; (ii) a Winding-Up of Owner; (iii)
a material default by Owner of any other obligation under this Agreement
after written notice by Operator, provided Owner shall have up to 180 days to
cure such other default or make substantial progress (in the reasonable
opinion of Operator) towards cure if the default is capable of being cured;
or (iv) the
- 18 -
<PAGE>
Tolling Agreement terminates. Operator shall provide Owner with written
notice of its intent to terminate the Agreement pursuant to Sections 7.3(ii),
(iii) or (iv) no later than 120 days prior to the date of termination.
SECTION 7.4 FACILITY CONDITION AT END OF TERM. Upon expiration
or termination of this Agreement, Operator shall remove its personnel from
the Facility. Operator shall leave the Facility in as good condition as at
Owner Acceptance, normal wear and tear excepted, and with the equivalent
supply of spare parts and any other operating items (other than items for
which Owner is responsible) as were provided by Owner to Operator at the CCC
Time, or such modified supply thereof as has been approved by Owner (and
shall be reimbursed for all Reimbursable Costs incurred in connection
therewith). All special tools, improvements, inventory of supplies, spare
parts, safety equipment (in each case as provided to or obtained by or
provided by Operator during the term of this Agreement) and any other items
furnished on a Reimbursable Cost basis under this Agreement will be left at
the Facility and will become or remain the property of Owner without
additional charge. Owner shall also have the right, in its sole discretion,
to directly assume and become liable for any contracts or obligations that
Operator may have undertaken with third parties in connection with the
Services. Operator shall execute all documents and take all other reasonable
steps requested by Owner that may be required to assign to and vest in Owner
all rights, benefits, interests and title in connection with such contracts
or obligations; PROVIDED, HOWEVER, that Owner shall indemnify and hold
harmless Operator for all liabilities arising out of events and obligations
thereunder arising after the date of any such assumption.
SECTION 8
INSURANCE
SECTION 8.1 GENERAL. The provisions of this Section 8 do not
modify or change or abrogate any responsibility of Operator stated elsewhere
in this Agreement or any other Facility Agreement. Owner assumes no
responsibility for the solvency of any insurer or the failure of any insurer
to settle any claim. A summary of certain provisions of Operator's and
Owner's policies are set forth below.
SECTION 8.2 OPERATOR INSURANCE. Operator shall obtain and
maintain as a Reimbursable Cost hereunder (including any applicable
deductibles (subject to Section 8.6), any net premiums after dividends and/or
retrospective premiums and any losses in excess of insurance coverage) the
insurance set forth with respect to the Operator set forth in Schedule VI to
the Note Purchase Agreement.
SECTION 8.3 CERTIFICATES; PROOF OF LOSS. On or before the
required date for the insurance to be provided hereunder, Operator shall
furnish certificates of insurance to the Owner evidencing the insurance
required hereunder. The Party maintaining each insurance policy hereunder
shall make proofs of loss under each such policy and shall take all other
action reasonably required to ensure collection from insurers for any loss
under any such policy.
- 19 -
<PAGE>
Operator shall provide Owner with copies of the insurance policies obtained
by it promptly upon receipt thereof.
SECTION 8.4 DEDUCTIBLES. Except as provided herein, Owner shall
be liable for the payment of all deductibles on insurance policies obtained
pursuant to Section 8.2. In the event of a claim under a policy described in
Section 8.2 that is attributable to Operator's (including its employees' or
agents') negligence or willful misconduct, Operator shall be liable for the
payment of such deductible. In the event that a claim under a policy of
comprehensive general liability insurance covering personal injury or
property damage to third parties is attributable to the negligence or willful
misconduct of Owner and Operator, to the extent Operator would otherwise be
liable for the payment of deductible hereunder, Owner and Operator shall be
responsible for that portion of the deductible that would be assigned to it
under a comparative negligence standard.
SECTION 9
INDEMNIFICATION
SECTION 9.1 BY OPERATOR.
9.1.1 GENERAL INDEMNITY. Subject to the provisions of Section
10, Operator shall indemnify, defend and hold harmless the Owner Indemnified
Parties from and against any and all suits, actions, liabilities, legal
proceedings, claims, demands, losses, costs and expenses of whatsoever kind
or character, including reasonable attorneys' fees and expenses, for injury
or death of persons or physical loss of or damage to property of Persons
arising from Operator's (including its employees' or agents') negligence or
willful misconduct in connection with performance of the Services or any
other matter related to its obligations hereunder.
9.1.2 INDEMNITY FOR VIOLATION OF LAW. Operator shall also
indemnify, defend and hold harmless the Owner Indemnified Parties from and
against any and all regulatory penalties or fines (other than Environmental
Claims which shall be governed by Section 10), and reasonable expenses
(including attorneys' fees and expenses) arising from Operator's violation of
any Law, license, permit, or government approval.
9.1.3 INDEMNITY FOR PATENT INFRINGEMENT. If any of the
Services would infringe upon any patent, trademark or copyright or would
involve the unauthorized use of a third Person's trade secrets, Operator
agrees to render consultation, assistance and modifications to the Services
as necessary to avoid such infringement or unauthorized use. If any Owner
Indemnified Party is charged with infringement or unauthorized use by reason
of the Services or of the operation or sale of the Facility, Operator agrees
to fully defend and indemnify that Owner Indemnified Party from any and all
suits, actions, legal proceedings, claims, demands, losses, costs and
expenses and shall settle such claim, action, proceeding or suit (at
Operator's expense) without impairing the operation of the Facility.
- 20 -
<PAGE>
9.1.4 COSTS. It is understood and agreed by the Parties that
any costs or expenses incurred by Operator pursuant to its indemnity
obligations under this Section 9.1 shall not constitute Reimbursable Costs.
SECTION 9.2 BY OWNER.
9.2.1 GENERAL INDEMNITY. Subject to the provisions of Section
10, Owner shall indemnify, defend and hold harmless the Operator Indemnified
Parties from and against any and all suits, actions, liabilities, legal
proceedings, claims, demands, losses, costs and expenses of whatsoever kind
or character, including reasonable attorneys' fees and expenses, for injury
or death of persons or physical loss of or damage to property of Persons and
entities other than Operator arising from Owner's (including its employees or
agents) negligence or willful misconduct in connection with the performance
of its obligations hereunder.
9.2.2 INDEMNITY FOR VIOLATION OF LAW. Owner shall also
indemnify, defend and hold harmless the Operator Indemnified Parties from and
against any and all regulatory penalties or fines (other than any
Environmental Claims which shall be governed by Section 10), and reasonable
expenses (including attorneys' fees and expenses) arising from Owner's
violation (other than through any breach of Section 9.1.2) of any Law,
license, permit, or government approval.
SECTION 9.3 COOPERATION REGARDING CLAIMS. If any Party hereto
(each an "INDEMNIFIED PARTY") shall receive notice or have knowledge of any
claim that may result in a claim for indemnification by such Indemnified
Party against a Party pursuant to Section 9 or 10, such Indemnified Party
shall, as promptly as possible, give the indemnifying Party notice of such
claim, including a reasonably detailed description of the facts and
circumstances relating to such claim, and a complete copy of all notices,
pleadings and other papers related thereto, and in reasonable detail the
basis for its potential claim for indemnification with respect thereto;
PROVIDED that failure promptly to give such notice or to provide such
information and documents shall not relieve the indemnifying Party from the
obligation hereunder to respond to or to defend the Indemnified Party failing
to give such notice against such claim. The Party against whom
indemnification is claimed shall, upon its acknowledgment in writing of its
obligation to indemnify the Indemnified Party seeking indemnification and for
Owner, subject to the rights of Lender, be entitled to assume the defense or
to represent the interests of the Indemnified Party seeking indemnification
in respect of such claim, which shall include the right to select and direct
legal counsel and other consultants, appear in proceedings on behalf of such
Indemnified Party and to propose, accept or reject offers of settlement, all
at its sole cost.
- 21 -
<PAGE>
SECTION 10
LIABILITIES OF THE PARTIES
SECTION 10.1 LIMITATIONS OF LIABILITY. Notwithstanding any
provision herein to the contrary, neither Party nor any of their respective
partners, officers, directors, agents, subcontractors, vendors or employees
shall be liable hereunder for consequential or indirect loss or damage, loss
of profit and anticipated revenues, cost of capital, loss of goodwill,
increased operating costs or any other special or incidental damages. The
Parties further agree that the waivers and disclaimers of liability,
indemnities, releases from liability, and limitations on liability expressed
herein shall survive termination or expiration of this Agreement, and shall
apply at all times, whether in contract, equity, tort or otherwise,
regardless of the fault, negligence (in whole or in part), strict liability,
breach of contract or breach of warranty of the Party indemnified, released
or whose liabilities are limited, and shall extend to the partners,
shareholders, principals, directors, officers and employees, agents and
related or affiliated entities of such Party, and their partners,
shareholders, principals, directors, officers and employees.
SECTION 10.2 ENVIRONMENTAL LIABILITY.
10.2.1 DURING TERM OF AGREEMENT. Operator shall be solely
responsible for all Environmental Claims directly or indirectly related to
or arising out of the actual or alleged existence, generation, use,
collection, treatment, storage, transportation, recovery, removal, discharge
or disposal of Hazardous Materials at the Facility (or any part thereof)
and/or adjacent areas during the term of this Agreement. Operator shall
defend, indemnify and hold Owner harmless against all such Environmental
Claims.
10.2.2 AFTER TERMINATION OF AGREEMENT. Owner shall be solely
responsible for all Environmental Claims directly or indirectly related to or
arising out of the actual or alleged existence, generation, use, collection,
treatment, storage, transportation, recovery, removal, discharge or disposal
of Hazardous Materials at the MDS Facility and/or adjacent areas arising
after termination of this Agreement. Owner shall defend, indemnify and hold
Operator harmless against all such Environmental Claims.
SECTION 10.3 LIMITATION OF OWNER'S LIABILITY. Notwithstanding
anything to the contrary herein, it is specifically understood and agreed
that there shall be absolutely no personal liability or recourse for the
payment of any amounts due hereunder, or the performance of any obligations
hereunder against any employee, partner, shareholder, officer or director,
whether past, present or future, of Owner, any direct or indirect parent
corporation or any Affiliate thereof, and Operator shall look solely to Owner
and its assets for the satisfaction of each and every remedy of Operator in
the event of any breach by Owner; PROVIDED, HOWEVER that nothing herein shall
relieve any of the foregoing Persons from liability for such Person's willful
misconduct or gross negligence.
- 22 -
<PAGE>
SECTION 10.4 LIMITATION OF OPERATOR'S LIABILITY. Subject to
Section 10.2.2, Operator's liability hereunder shall be limited as follows:
Unless an independent technical engineer, selected in Owner's sole discretion
with the consent of the Lenders has determined that any loss or damage to the
Facility or failure of the Facility to process Feedstock has resulted
directly from mechanical or technical failure, Operator shall be deemed, for
purposes of this Agreement and each other Facility Agreement, to have caused
any such loss or damage to, or failure of, the Facility, or any property in
its care or custody. Notwithstanding the immediately preceding sentence, the
amount in Dollars of Operator's liability for any loss of or damage to the
Facility, or any other property in the care, custody or control of Operator
(including loss or damage to spare parts and materials) shall be limited to
the proceeds of the insurance described in Section 8 unless such loss or
damage arises through the gross negligence or willful misconduct of the
Operator, its employees or its agents.
SECTION 11
TITLE, DOCUMENTS AND DATA
SECTION 11.1 MATERIALS AND EQUIPMENT. Title to all materials,
equipment, supplies, consumables, spare parts and other items purchased or
obtained by Operator on a Reimbursable Cost basis hereunder shall pass
immediately to and vest in Owner upon the passage of title from the vendor or
supplier thereof; PROVIDED, HOWEVER, that such transfer of title shall in no
way affect any of Operator's other obligations set forth herein.
SECTION 11.2 PROPRIETARY INFORMATION. Where materials or
documents prepared or developed by Operator or its employees, representatives
or contractors contain proprietary or technical information, systems,
techniques, or know-how previously known to Operator or its contractors or
previously acquired by Operator or its contractors from third parties,
Operator or its contractors shall have the unrestricted right to use or
dispose of such information, systems, techniques, or know-how as they see
fit; PROVIDED, HOWEVER, that Owner shall have the right to utilize the same
to the extent that it relates to the Facility without cost to Owner. All
such materials and documents, together with any materials and documents
furnished to Operator or to its contractors by Owner, shall be delivered to
Owner upon expiration or termination of this Agreement and before final
payment is made to Operator; PROVIDED that Operator may retain and use copies
of all such materials and documents prepared by Operator.
SECTION 11.3 REVIEW BY OWNER. In addition, all such materials
and documents shall be available for review by Owner at all reasonable times
during development and promptly upon completion.
- 23 -
<PAGE>
SECTION 12
REPRESENTATIONS AND WARRANTIES
SECTION 12.1 OPERATOR REPRESENTATIONS AND WARRANTIES. Operator
represents and warrants to Owner that:
12.1.1 OPERATOR QUALIFIED AND EXPERIENCED. Operator is fully
experienced and properly licensed, equipped, and in all ways competent and
qualified to perform all aspects of the Services in accordance with the terms
set forth herein.
12.1.2 COMPLIANCE WITH FACILITY AGREEMENT. Operator will not
take any action that would cause a default under any Facility Agreement.
12.1.3 INCORPORATION AND GOOD STANDING. Operator is a
cooperative corporation duly incorporated, validly existing and in good
standing under the laws of Minnesota.
12.1.4 ENFORCEABILITY. This Agreement constitutes the legal,
valid and binding obligation of Operator, enforceable against Operator in
accordance with its terms, except as enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally and (ii) general principles of
equity.
12.1.5 DUE AUTHORIZATION. The execution, delivery and
performance of this Agreement by Operator has been duly authorized by all
requisite corporate action and will not conflict with any provisions of any
Law, or any agreement or instrument to which it is a party or by which it,
its property or assets may be bound or affected.
12.1.6 LICENSES. Operator is the holder of all necessary
governmental consents, approvals, licenses, permits or other authorizations
required to operate or conduct its business as contemplated herein.
12.1.7 GOVERNMENT APPROVALS. Neither the execution and delivery
by Operator of this Agreement, nor the consummation by Operator of any of the
transactions contemplated hereby, requires the consent or approval of, the
giving of notice of to, the registration with, the recording or filing of any
document with, or the taking of any other action in respect of any Government
Agency, except those which have been duly obtained and are in full force and
effect or not yet required, but which Operator believes will be readily
obtainable in the ordinary course of business upon due application therefor.
12.1.8 LEGAL REQUIREMENTS. Operator is aware of all the legal
requirements and business practices that must be followed in performing the
Services and the Services will conform with such requirements and practices
and be in compliance with all Laws, necessary government
- 24 -
<PAGE>
approvals, permits and licenses, Prudent Operating and Maintenance Practices
and manufacturer's specifications and guidelines.
12.1.9 FINANCIAL CONDITION. Operator is financially solvent,
able to pay its debts as they mature and possessed of sufficient working
capital to complete its obligations under this Agreement.
12.1.10 LITIGATION. Operator is not a party to any legal,
administrative, arbitral, investigatorial or other proceeding or controversy
pending, or to the best of its knowledge, threatened, that would adversely
affect its ability to perform its obligations hereunder.
12.1.11 INTELLECTUAL PROPERTY RIGHTS. Operator holds, or is
expressly authorized under all patent, copyright or trademark rights,
licenses, franchises and other intellectual property necessary to perform the
Services for the term hereof. Operator shall pay any royalties and license
fees associated with all such proprietary rights for the full term hereof.
SECTION 12.2 OWNER REPRESENTATIONS AND WARRANTIES. Owner
represents and warrants to Operator that:
12.2.1 INCORPORATION AND GOOD STANDING. Owner is a limited
liability company validly existing and in good standing under the laws of the
State of Delaware.
12.2.2 ENFORCEABILITY. This Agreement constitutes the legal,
valid and binding obligation of Owner, enforceable against Owner in
accordance with its terms, except as enforceability may be limited by (i)
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally and (ii) general principles of
equity.
12.2.3 DUE AUTHORIZATION. The execution, delivery and
performance of this Agreement by Owner has been duly authorized by all
requisite corporate action and will not conflict with any provisions of any
Law, or any agreement or instrument to which it is a party or by which it,
its property or assets may be bound or affected.
12.2.4 LICENSES. From Owner Acceptance, Owner will hold all
necessary governmental consents, licenses, permits or other authorizations
required to own and operate the Facility.
12.2.5 GOVERNMENT APPROVALS. Neither the execution and delivery
by Owner of this Agreement, nor the consummation by Owner of any of the
transactions contemplated hereby, requires the consent or approval of, the
giving of notice of to, the registration with, the recording or filing of any
document with, or the taking of any other action in respect of any Government
Agency, except those which have been duly obtained and are in full force and
effect or not yet required, but which Owner believes will be readily
obtainable in the ordinary course of business upon due application therefor.
- 25 -
<PAGE>
12.2.6 FINANCIAL CONDITION. Owner is financially solvent, able
to pay its debts as they mature and possessed of sufficient working capital
to complete its obligations hereunder.
12.2.7 LITIGATION. Owner is not a party to any legal,
administrative, arbitral, investigatorial or other proceeding or controversy
pending, or to the best of its knowledge, threatened, that would adversely
affect its ability to perform its obligations hereunder.
SECTION 13
FORCE MAJEURE
SECTION 13.1 EXCUSED PERFORMANCE. Except for the obligation to
make payments for the Services actually rendered hereunder, either Party
shall be excused from performance and shall not be considered to be in
default in respect to any obligation hereunder, if failure of performance
shall be due to an event of Force Majeure. Any increased costs or other
adverse economic consequences that may be incurred through the performance of
such obligations of the Parties hereto shall not constitute an event of Force
Majeure nor shall it relieve such Party of any of its obligations hereunder.
SECTION 13.2 NOTICE OF FORCE MAJEURE. If either Party's ability
to perform its obligations hereunder is affected by an event of Force
Majeure, such Party shall promptly, upon learning of such event of Force
Majeure and ascertaining that it will affect its performance hereunder, give
notice to the other Party within 15 Business Days of its discovery stating
the nature of the event, its anticipated duration and any action being taken
to avoid or minimize its effect. The burden of proof shall be on the Party
asserting excuse from performance due to such event of Force Majeure.
SECTION 13.3 SCOPE. The suspension of performance shall be of no
greater scope and no longer duration than that which is absolutely necessary.
The excused Party shall use its reasonable best efforts to remedy its
inability to perform.
SECTION 13.4 STRIKES. Strikes and lockouts are events of Force
Majeure and settlement thereof shall be wholly within the discretion of the
Party whose employees are on strike or locked out.
SECTION 14
CONFIDENTIAL INFORMATION
SECTION 14.1 NON-DISCLOSURE. Each Party agrees to hold in
confidence any information imparted to it by the other Party which pertains
to Owner's or Operator's business activity in any manner, and which is not
the subject of general public knowledge, including, without limitation,
proprietary processes, technical information and know-how, information
concerning Owner's other projects, management policies, economic policies,
financial and other
- 26 -
<PAGE>
data and the like. This obligation shall continue to remain in full force
and effect for the term hereof plus an additional 5 years thereafter. The
preceding non-disclosure requirements shall not apply to:
(i) information furnished without restriction by one Party prior
to the Effective Date;
(ii) information in the public domain; or
(iii) information obtained by one Party from a third Person not
under an obligation of non-disclosure to Owner or Operator,
as the case may be.
SECTION 14.2 DISCLOSURE TO GOVERNMENT AGENCY. Either Party may
disclose any such information to the extent that such Party is required by
any Government Agency to make such disclosure. In addition, Owner may
disclose such information to the extent that such disclosure is required by
Lender, any prospective Lender, independent engineer, any supplier to the
Facility and any Person providing any type of interconnection services to the
Facility.
SECTION 15
MISCELLANEOUS PROVISIONS
SECTION 15.1 ASSIGNMENT. This Agreement shall not be assignable
by either Party without the prior written consent of the other Party, which
consent shall not be unreasonably withheld. Notwithstanding the foregoing,
this Agreement may be assigned to Lender as security for Lender's financing
of the Facility and, upon prior written notice to Operator: (i) to the
successor of Owner, (ii) to a Person acquiring all or a controlling interest
in the business assets of Owner, (iii) to a wholly-owned subsidiary of Owner,
or (iv) in connection with a sale or transfer of the Facility by Lender;
PROVIDED that any such assignment (except pursuant to paragraph (iv)) shall
not relieve the assigning Party of any of its obligations under this
Agreement; PROVIDED FURTHER that any such assignment shall be void and of no
effect if purported to be made to any Person who is a direct or indirect
competitor of Operator.
SECTION 15.2 ENTIRE AGREEMENT AND AMENDMENTS. This Agreement
embodies the entire agreement between the Parties relating to the subject
matter hereof. The Parties shall not be bound by or liable for any documents
proposed or submitted prior to the date of this Agreement and not
incorporated in this Agreement (by reference or otherwise), or for any
statement, representation, promise, inducement or understanding of any kind
or nature relating to the Services or any other matter covered by this
Agreement which is not set forth or provided for herein. This Agreement
shall be binding upon and shall inure to the benefit of the successors and
permitted assigns of the Parties. No changes, amendments or modifications of
any of the terms or conditions of this Agreement shall be valid unless set
forth in writing and signed by each of the Parties.
- 27 -
<PAGE>
SECTION 15.3 SURVIVAL. Notwithstanding any provisions herein to
the contrary, the obligations set forth in Sections 6, 7, 9, 10 and 14 and
the limitations on liabilities set forth in Section 10 shall survive in full
force the expiration or termination of this Agreement.
SECTION 15.4 SEVERABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or such
unenforceability and shall not invalidate the enforceable portions of such
provision or the remaining provisions of this Agreement or affect the
validity or enforceability of any such provision in any other jurisdiction.
Except as otherwise provided for herein, the remedies expressly afforded
hereunder to Owner and Operator, respectively, are in addition to any other
remedies provided at Law or in equity.
SECTION 15.5 WAIVER. None of the provisions of this Agreement
shall be considered waived by a Party unless such waiver is in writing and
signed by such Party. No Waiver shall be construed as a modification of any
of the provisions of this Agreement or as a waiver of any default (present or
future) hereunder or breach hereof, except as expressly stated in such waiver.
SECTION 15.6 NOTICES. All notices required or permitted under
this Agreement shall be in writing and shall be hand-delivered or sent by
certified or registered mail, return receipt requested, facsimile or
commercial delivery subject to written record of receipt, to Owner or
Operator, as the case may be, at their respective addresses set forth below,
or to such other addresses as may be designated by notice given as herein
required. All notices shall be effective upon first receipt as evidenced by
written record of delivery or confirmation of transmission.
OWNER: c/o American Crystal Sugar Company
101 North 3rd Street
Moorhead, MN 56560-1990
Attention:
Telephone:
Telecopy:
OPERATOR: American Crystal Sugar Company
101 North 3rd Street
Moorhead, MN 56560-1990
Attention:
Telephone:
Telecopy:
SECTION 15.7 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of Minnesota, other than its
conflict of laws principles.
SECTION 15.8 FURTHER ASSURANCES. If either Party reasonably
determines that any further instruments or any other acts or things are
necessary or desirable to carry out the terms of
- 28 -
<PAGE>
this Agreement, the other Party will execute and deliver all such instruments
and assurances and do all such things as the first Party reasonably deems
necessary or desirable to carry out the terms of this Agreement (at the cost
of the first Party).
SECTION 15.9 SET-OFF. Owner may, but shall be under no
obligation, at any time to set off any and all sums due from Owner to
Operator against sums due to Owner from Operator hereunder or under any of
the Facility Agreements. Operator may not at any time set off any sums
payable by it to Owner under this Agreement.
SECTION 15.10 COOPERATION IN FINANCING. Notwithstanding any
provision to the contrary, Operator agrees to cooperate with Owner in the
negotiation and upon Operator's approval, execution, of any reasonable
amendment, modification or addition to this Agreement required by Lender,
which does not result in a material adverse change in Operator's rights or
obligations hereunder. Operation will cooperate with Lender and will execute
and deliver all documents requested by Lender to protect its interests under
any Loan Agreement.
SECTION 15.11 NO THIRD PERSON RIGHTS. This Agreement is not for
the benefit of any Person other than the Parties and Lender, and no other
Person shall be deemed to be a third party beneficiary hereof or entitled to
any benefits hereunder.
SECTION 15.12 DOLLARS. All payments made to be made by either
Party to the other hereunder shall be in Dollars.
SECTION 15.13 COUNTERPARTS. This Agreement may be executed in
more than one counterpart, each of which shall be deemed to be an original.
[REMAINING PORTION OF THIS PAGE INTENTIONALLY LEFT BLANK]
- 29 -
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Operation and
Maintenance Agreement as of the date first written above.
OWNER:
CRYSTECH, LLC
By: /s/ Marcus F. Richardson
------------------------------------
Name: MARCUS F. RICHARDSON
-----------------------------------
Title: Chairman
----------------------------------
OPERATOR:
AMERICAN CRYSTAL SUGAR COMPANY
By: /s/ Sam S. M. Wai
------------------------------------
Name: SAM S. M. WAI
-----------------------------------
Title: Assist. Treasurer
----------------------------------
- 30 -
<PAGE>
CONFIDENTIAL TREATMENT REQUESTED.
CERTAIN PORTIONS HAVE BEEN
OMITTED AND HAVE BEEN SEPARATELY
FILED WITH THE COMMISSION.
LIMITED LIABILITY COMPANY AGREEMENT
OF
CRYSTECH, LLC
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. ORGANIZATIONAL AND MEMBERSHIP MATTERS . . . . . . . . . . . . . . . . . 4
2.1 Office and Agent . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Purposes and Powers. . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.4 Membership Interests . . . . . . . . . . . . . . . . . . . . . . 5
2.5 Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
III. CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.1 Initial Capital Contributions of Members . . . . . . . . . . . . 5
3.2 Additional Capital Contributions of Members. . . . . . . . . . . 6
(a) Voluntary Additional Capital Contributions of Members . . . 6
(b) No Required Additional Capital Contributions of Members . . 6
3.3 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Transferee Succeeds to Transferor's Capital Account. . . . . . . 7
3.5 No Right to Return of Contributions. . . . . . . . . . . . . . . 7
3.6 No Interest on Capital Contributions . . . . . . . . . . . . . . 7
3.7 Loans to the Company . . . . . . . . . . . . . . . . . . . . . . 7
IV. ALLOCATIONS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . 7
4.1 Allocation of Net Income and Net Losses. . . . . . . . . . . . . 7
4.2 Operating Distributions. . . . . . . . . . . . . . . . . . . . . 7
4.3 Tax Withholding Obligations Constitute a Distribution. . . . . . 8
V. MEETINGS OF MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . 8
5.4 Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . 8
5.5 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . 8
5.6 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.7 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.8 Action Without Meeting . . . . . . . . . . . . . . . . . . . . . 8
5.9 Telephonic Meetings. . . . . . . . . . . . . . . . . . . . . . . 9
VI. BOARD OF MANAGERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
<PAGE>
6.1 Board of Managers. . . . . . . . . . . . . . . . . . . . . . . . 9
6.2 Chairman of the Board; Other Officers. . . . . . . . . . . . . . 9
6.3 Delegation of Rights and Powers to Manage. . . . . . . . . . . .10
6.4 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
6.5 Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
6.6 Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . .10
6.7 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . .10
6.8 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . .10
6.9 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
6.10 Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . .10
6.11 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
6.12 Board Actions Requiring Unanimous Approval of Members. . . . . .11
6.13 Absent Managers. . . . . . . . . . . . . . . . . . . . . . . . .11
6.14 Action Without Meeting . . . . . . . . . . . . . . . . . . . . .12
6.15 Telephonic Meetings. . . . . . . . . . . . . . . . . . . . . . .12
6.16 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . .12
VII. REQUIRED RECORDS; ACCOUNTING AND TAX MATTERS. . . . . . . . . . . . . .12
7.1 Required Records . . . . . . . . . . . . . . . . . . . . . . . .12
7.2 Books of Account . . . . . . . . . . . . . . . . . . . . . . . .12
7.3 ACSC as Operator . . . . . . . . . . . . . . . . . . . . . . . .13
7.4 Tax Characterization and Returns . . . . . . . . . . . . . . . .13
7.5 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . .13
VIII. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
8.1 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . .13
8.2 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
IX. TRANSFER OF MEMBERSHIP INTEREST . . . . . . . . . . . . . . . . . . . .14
9.1 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . .14
(a) General Restriction on Assignment . . . . . . . . . . . .14
(b) Assignment of Governance Rights . . . . . . . . . . . . .14
(c) Assignment of Financial Rights. . . . . . . . . . . . . .14
(d) Conditions Precedent to Assignment of Governance
Rights or Financial Rights to Members . . . . . . . . . .14
(e) Effective Date of Assignment. . . . . . . . . . . . . . .15
(f) Pledge and Assignment . . . . . . . . . . . . . . . . . .15
9.2 Rights to Purchase and Sell Membership Interests . . . . . . . .15
(a) ACSC Right to Buy-Out Other Members . . . . . . . . . . .15
(b) Newcourt Right to Sell Membership Interest to ACSC . . .16
<PAGE>
(c) Notice; Timing; Payment . . . . . . . . . . . . . . . . .16
9.3 Acquit Company . . . . . . . . . . . . . . . . . . . . . . . . .16
9.4 Restriction on Transfer. . . . . . . . . . . . . . . . . . . . .16
X. DISSOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
10.1 Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . .16
10.2 Winding Up of Business . . . . . . . . . . . . . . . . . . . . .17
10.3 Distributions Upon Liquidation . . . . . . . . . . . . . . . . .17
10.4 Statement of Cancellation. . . . . . . . . . . . . . . . . . . .17
10.5 Termination of Membership. . . . . . . . . . . . . . . . . . . .18
(a) Continuation of the Company . . . . . . . . . . . . . . .18
(b) Status of Member Whose Membership is Terminated . . . . .18
(c) No Obligation to Purchase Financial Rights of
Terminated Member . . . . . . . . . . . . . . . . . . . .18
XI. NEW MEMBERS BOUND BY AGREEMENT. . . . . . . . . . . . . . . . . . . . .18
XII. REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
12.1 Representations of ACSC. . . . . . . . . . . . . . . . . . . . .18
12.2 Representations of Newcourt. . . . . . . . . . . . . . . . . . .19
XIII. MOLASSES DESUGARIZATION PROJECT . . . . . . . . . . . . . . . . . . . .20
XIV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
14.1 Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
14.2 Corporate Bank Account . . . . . . . . . . . . . . . . . . . . .20
14.3 Actions or Organizer . . . . . . . . . . . . . . . . . . . . . .21
14.4 Acceptance of Capital Contributions. . . . . . . . . . . . . . .21
14.5 Certificates of Membership Interest. . . . . . . . . . . . . . .21
14.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . .21
14.7 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . .21
14.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . .21
14.9 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
14.10 Consent and Waiver . . . . . . . . . . . . . . . . . . . . . . .22
14.11 No Third Party Beneficiary . . . . . . . . . . . . . . . . . . .22
14.12 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
14.13 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . .22
14.14 Necessary Instruments and Acts . . . . . . . . . . . . . . . . .22
14.15 Number and Gender. . . . . . . . . . . . . . . . . . . . . . . .22
14.16 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . .22
14.17 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . .22
<PAGE>
14.18 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . .23
14.19 Securities . . . . . . . . . . . . . . . . . . . . . . . . . . .23
14.20 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . .23
Schedule A
Schedule B
Schedule C
</TABLE>
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT OF
CRYSTECH, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT is entered into and made
effective as of this 28th day of May, 1998, by and among AMERICAN CRYSTAL
SUGAR COMPANY ("ACSC") and NEWCOURT CAPITAL USA INC. ("Newcourt").
RECITALS
WHEREAS, CRYSTECH, LLC, a Delaware limited liability company was formed
on November 4, 1997 for the purpose of building and operating a molasses
desugarization plant and any other lawful act, business or activity permitted
under the Delaware Limited Liability Company Act; and
WHEREAS, Section 18.101 of the Act authorizes a "limited liability
company agreement" as defined therein; and
WHEREAS, ACSC and Newcourt desire to enter into this Limited Liability
Company Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual agreements
of the parties contained herein, and the mutual benefits to be gained by the
performance hereof, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
"Act" means the Delaware Limited Liability Company Act codified at Title
6, Subtitle II, Chapter 18 of the Delaware Statues, as amended, and any
successor thereto.
"Affiliated Entity" means any entity that controls, is controlled by, or
under common control of a Member, or any successor thereto.
"Agreement" means this Limited Liability Company Agreement as amended,
modified or supplemented from time to time, including any schedules to the
Agreement.
"Board" or "Board of Managers" means the board of managers of the
Company.
"Called Principal" has the meaning given to that term in the definition
of "Make Whole Amount" contained in the Note Purchase Agreement.
<PAGE>
"Capital Account" means the account of each Member which is maintained
in accordance with the provisions of Section 3.3 of this Agreement.
"Capital Contribution" means the value of the initial contributions by
each Member as set forth on Schedule A, plus the value of any additional
capital contributions made by the Member pursuant to Section 3.2 of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor thereto. Any reference herein to specific sections of the Code and
the Treasury Regulations thereunder shall be deemed to include a reference to
any corresponding provisions of future law.
"Company" means Crystech, LLC, a Delaware limited liability company.
"Contribution Agreement" means a written agreement between the Company
and a Person desiring to make a capital contribution which sets forth the
terms of such Person's agreement to make a contribution for the purpose of
becoming a Member of the Company, including without limitation the agreed
value of the contribution that shall be made by such Person to the capital of
the Company and the Financial Interest and Voting Interest to which such
Person shall be entitled.
"Distribution Date" means the last day of August, November, January and
May, commencing with the first such date to occur on or after which
scheduled principal payments on the Notes are made.
"Distributions" means annual distributions of cash to the Members as may
from time to time be authorized by the Board of Managers pursuant to the
terms of this Agreement.
"Financial Interest" as to any Member means the "Financial Interest"
reflected on Schedule A of this Agreement for such Member, and as may be
amended.
"Financial Rights" means a Member's right to share in the Net Income and
Net Losses and Distributions with respect to a Membership Interest in
accordance with the terms of this Agreement.
"Financing Documents" has the meaning given to that term in the Note
Purchase Agreement.
"Governance Rights" means a Member's right to participate in the
management of the Company.
"Make-Whole Amount" has the meaning given to that term in the Note
Purchase Agreement.
<PAGE>
"Manager" or "Managers" means a natural person or persons appointed to
the Board of Managers by the Members in accordance with Article VI of this
Agreement.
"MDS Facility" means a molasses desugarization facility with an expected
capacity of at least 600 tons per day to be constructed, owned and operated
by the Company at ACS' sugarbeet processing facility in Hillsboro, North
Dakota.
"Member" or "Members" means a Person reflected in the Required Records
of the Company as the owner of a Membership Interest in the Company, or any
of their permitted successors or assigns.
"Membership Interest" means a Member's interest in the Company
consisting of the Member's Financial Rights, right to assign Financial
Rights, Governance Rights, and the right to assign Governance Rights.
"Molasses Desugarization Project" means that desugarization project for
which the Company was formed, as described in the Tolling Agreement.
"Net Income" and "Net Losses" means the profits and losses of the
Company, as the case may be, as determined for book purposes in accordance
with Generally Accepted Accounting Principles (GAAP) as of the close of each
fiscal year of the Company.
"Note Purchase Agreement" means a Note Purchase Agreement in
substantially the form of that certain draft Note Purchase Agreement dated as
of May 14,1998, to be executed by and between Crystech, LLC and the Crystech
Senior Lender Trust, as amended, modified or supplemented from time to time.
"Notes" shall have the meaning given to that term in the Note Purchase
Agreement.
"Operating Agreement" means that an Operation and Maintenance Agreement
in substantially the form of that certain draft Operation and Maintenance
Agreement dated as of May 18, 1998, to be executed by and between ACSC and
the Company, as amended, modified or supplemented from time to time.
"Person" means any individual, partnership, limited liability company,
corporation, trust or other entity.
"Project Documents" has the meaning given to that term in the Note
Purchase Agreement.
"Remaining Average Life" has the meaning given to that term in the
definition of "Make Whole Amount" contained in the Note Purchase Agreement.
<PAGE>
"Required Records" means those records of the Company required to be
maintained under the Act, including (i) a current list of the name and
last-known business, residence or mailing address of each Member, Manager and
officer; (ii) copies of this Limited Liability Company Agreement and
certificate of formation, and any amendments thereto; (iii) copies of the
Company's federal, state and local tax returns and reports for each year;
(iv) true and full information regarding the status of the business and
financial condition of the Company; (v) true and full information regarding
the amount of cash and a description and statement of the agreed value of any
other property or services contributed by each Member and which each Member
has agreed to contribute in the future, and the date on which each became a
Member; (vi) records of all proceedings of the Members and the Board of
Managers; (vii) any written consents obtained from Members under the
provisions of this Agreement or the Act; (viii) a copy of all agreements,
contracts or other arrangements entered into by the Company; and (ix) any
other information regarding the affairs of the Company as is just and
reasonable.
"Tax Withholding Obligation" means an amount equal to the portion of any
amount allocated, credited, or otherwise distributable to a Member which the
Company is required to withhold for income tax purposes pursuant to any
applicable federal, state, local or other governmental agency law or
regulation.
"Tolling Agreement" means that a Tolling Services Agreement in
substantially the form of that certain draft Tolling Services Agreement dated
as of April 20, 1998, to be executed by and between ACSC and the Company, as
amended, modified or supplemented from time to time.
"Voting Interest" as to any Member means the "Voting Interest" reflected
on SCHEDULE A for such Member.
ARTICLE II
ORGANIZATIONAL AND MEMBERSHIP MATTERS
2.1 OFFICE AND AGENT. The principal office of the Company shall be
located at 101 North 3rd Street, Moorhead, Minnesota 56560-1990, or at such
other location as may be determined by the Board of Managers. CT Corporation
shall be the registered agent of the Company for purposes of service of
process at 1209 Orange Street, Wilmington, Delaware 19801. The Board of
Managers may change the identity or location of the registered office from
time to time, and, if required by the Act, shall cause an appropriate
amendment to the Company's Certificate of Formation to be filed in the
appropriate offices in the State of Delaware to reflect such change.
2.2 PURPOSES AND POWERS.
(a) GENERALLY. The Company is organized as a special purpose
entity, for the sole purpose of acquisition, construction,
financing, operation and maintenance of the MDS Facility and
for the acquisition, construction, and lease of certain juice
<PAGE>
softening equipment, sugar extraction equipment, storage and
receiving and related equipment to be located at both ACSC's
Hillsboro, North Dakota and Moorhead, Minnesota sugar
factories. In furtherance of the foregoing purposes, but
subject to the provisions of this Agreement, the Company
shall have the power to (1) enter into and perform its
obligations under each of the Financing Documents and the
Project Documents to which it is a party, (2) take any and
all actions necessary or desirable in connection with the
consummation of the activities and transactions contemplated
by the Financing Documents and the Project Documents, and (3)
take any action and carry on any activity necessary or
incidental to the accomplishment of the foregoing purposes,
so long as such actions or activities may be lawfully carried
on or performed under the provisions of the Act and any
applicable laws.
(b) LIMITATION ON POWERS OF COMPANY. The Company shall not do
business in any jurisdiction that would jeopardize the
limitation on liability provided herein.
2.3 MEMBERS. ACSC and Newcourt constitute all the Members of the
Company. There shall be no other Members admitted to the Company except as
provided in Article IX of this Agreement.
2.4 MEMBERSHIP INTERESTS. Membership Interests in the Company are
reflected on SCHEDULE A attached hereto. The Membership Interests are
ordinary membership interests of one class, without series, and shall have
the rights provided by law, subject to any statement in this Agreement of the
specific rights or terms of such Membership Interests.
2.5 VOTING. Each Member shall be entitled to one vote on matters
submitted to the Members regardless of the Member's proportionate share of
capital contribution to the Company.
ARTICLE III
CAPITAL CONTRIBUTIONS
3.1 INITIAL CAPITAL CONTRIBUTIONS OF MEMBERS. Each Member shall
make an initial capital contribution to the Company in the amount and in the
manner set forth on Schedule A. Such initial Capital Contributions shall be
made by payment to the Company on the date hereof of cash in the amount
specified on Schedule A, subject, however, to satisfaction of each of the
following conditions:
(a) Each of the Project Agreements and Financing Agreements shall
have been executed and delivered by the respective parties
thereto; and
(b) Each Member shall have received an opinion of counsel for the
other Member in form and substance satisfactory to it; and
<PAGE>
(c) All consents and approvals required by the terms of the
Financing Agreements and the Project Agreements to be
obtained prior to the effective dates thereof shall have been
obtained; and
(d) Each Member shall have received such certificates, documents
and other showings as it shall reasonably deem necessary to
evidence the due organization and valid existence of the
other Member and the Company and the authorization by the
other Member and the Company of its execution, delivery and
performance of this Agreement and the other Project
Agreements and Financing Agreements to which it is a party.
The Members themselves hereby authorize the Company to
execute and, deliver this Agreement, the Project Agreements
and such other documents and to perform such actions as are
necessary to give effect thereto.
3.2 ADDITIONAL CAPITAL CONTRIBUTIONS OF MEMBERS.
(a) VOLUNTARY ADDITIONAL CAPITAL CONTRIBUTIONS OF MEMBERS. Subject
to Section 3.2 (b) below, additional contributions of capital
to the Company, other than capital obtained by a loan of money
to the Company or funds provided under the Tolling Agreement,
may be made only upon the unanimous consent of the Members.
(b) NO REQUIRED ADDITIONAL CAPITAL CONTRIBUTIONS OF MEMBERS. No
Member shall be obligated to make any additional contributions
of capital to the Company, other than the Member's initial
capital contribution, or to pay any assessment to the Company,
except that (a) the Board of Managers may, in its discretion,
by resolution require that any Member to whom a Tax Withholding
Obligation is attributable make an additional contribution to
the capital of the Company in an amount equal to such Tax
Withholding Obligation less the amount of any loans for such
purpose made to the Company pursuant to Section 3.7; and (b)
ACSC may make additional contributions to the Company in the
form and to the extent set forth in that draft Subscription
Agreement dated as of May 21, 1998, as may be amended, to be
executed by and among ACSC, the Company and First Union Trust
Company National Association as agent.
3.3 CAPITAL ACCOUNTS. A separate Capital Account shall be
maintained for each Member. The initial balances in the Capital Accounts
shall be, for each Member, the Member's initial Capital Contribution. The
Capital Account of each Member shall be increased by the amount of (i) any
additional contribution such Member makes to the capital of the Company
pursuant to Section 3.2 hereof, (ii) Net Income allocated to such Member
pursuant to Section 4.1, and (iii) any Distributions made by the Company
pursuant to the provisions of Article IV hereof. The Capital Account of each
Member shall be decreased by the amount of any Net Losses allocated to such
Member pursuant to Section 4.1.
<PAGE>
3.4 TRANSFEREE SUCCEEDS TO TRANSFEROR'S CAPITAL ACCOUNT. Any
transfers permitted by Article IX of this Agreement by a Member to a
transferee of all or a part of such Member's Financial Rights in the Company
shall vest in such permitted transferee (and such permitted transferee shall
become a successor in interest) the interest of the transferor Member's
Capital Account to the extent of the Membership Interest transferred.
3.5 NO RIGHT TO RETURN OF CONTRIBUTIONS. The Members shall have no
right to the withdrawal or the return of their respective Capital
Contributions except to the extent set forth in Article X upon liquidation of
the Company.
3.6 NO INTEREST ON CAPITAL CONTRIBUTIONS. Other than Distributions
authorized pursuant to Article IV or Article X, no Member shall be entitled
to receive any interest or other property on account of the Member's Capital
Contributions to the Company.
3.7 LOANS TO THE COMPANY. A Member may lend money to the Company
if authorized by the Board of Managers and approved unanimously by the
Members as required by Section 6.12. Any such loan shall not be treated as a
contribution to the capital of the Company for any purpose or entitle the
Member to any increase in such Member's share of the Net Income or Net Losses
of the Company or any increase in such Member's Financial Interest or share
of Distributions made by the Company. The Company shall be obligated to such
Member for the amount of any such loan, with interest thereon at such market
rate as may have been agreed upon by such Member and the Board of Managers.
ACS is hereby authorized to make subordinated loans to the Company pursuant
to the Subscription Agreement referred to in Section 3.2(b).
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
4.1 ALLOCATION OF NET INCOME AND NET LOSSES. Net Income and Net
Losses shall be allocated annually among the Members in proportion to their
Financial Interest.
4.2 OPERATING DISTRIBUTIONS. Unless otherwise prohibited by law,
and other than Distributions upon liquidation pursuant to Article X and Tax
Withholding Obligations which constitute Distributions pursuant to Section
4.3 of this Article, Distributions shall be made to the Members to the extent
revenue is available through the operation of the MDS Facility and revenues
earned from the Leased Assets in an amount equal to ****** per annum on the
average daily amount of each Member's Financial Interest, quarterly on each
Distribution Date; provided, however, that the Board may, in its discretion,
reduce the amount otherwise distributable to any Member by the amount of a
Tax Withholding Obligation attributable to such Member which has not
previously reduced a Distribution to such Member.
[* - Confidential treatment requested.]
<PAGE>
4.3 TAX WITHHOLDING OBLIGATIONS CONSTITUTE A DISTRIBUTION. Any Tax
Withholding Obligation which is withheld by the Company shall constitute a
Distribution of such amount by the Company to the Member to whom such Tax
Withholding Obligation is attributable.
ARTICLE V
MEETINGS OF MEMBERS
5.1 PLACE OF MEETINGS. Each meeting of the Members shall be held
at the Company's principal office, as specified in Section 2.1, or at such
other place as may be designated by the Board of Managers in writing to the
Members.
5.2 REGULAR MEETINGS. Regular meetings of the Members shall be
held on an annual basis, at such time and place as the Members shall
mutually agree upon; provided however, that if a regular meeting has not been
held within thirteen (13) months after the organization of the Company or the
previous annual meeting, whichever is later, any Member may demand a meeting
of the members by written demand to the Board of Managers.
5.3 SPECIAL MEETINGS. Special meetings of the members may be
called by the Board of Managers or any Member. The business transacted at a
special meeting of the members is limited to the purposes stated in the
notice of the meeting.
5.4 NOTICE OF MEETINGS. Written notice of each meeting of the
Members, stating the date, time and place, and in the case of a special
meeting, the purpose of the meeting, shall be given in writing at least
twenty (20) days and not more than sixty (60) days prior to the meeting to
every Member entitled to vote at such meeting.
5.5 WAIVER OF NOTICE. A Member may waive the notice of meeting
required under this Article. A written notice of waiver signed by the Member
entitled to notice is effective whether given before, during or after the
meeting. Attendance by a Member at a meeting is waiver of notice of that
meeting, unless the Member objects at the beginning of the meeting to the
transaction of business because the meeting is not lawfully called or
convened and thereafter does not participate in the meeting.
5.6 QUORUM. The presence of all Members is required for the
transaction of business at a meeting of the Members.
5.7 PROXIES. Voting by proxy shall not be permitted.
5.8 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of the Members of the Company may be taken without a
meeting by written action signed by all of the Members. The written action is
effective when signed by all the Members, unless a different effective time
is provided in the written action.
<PAGE>
5.9 TELEPHONIC MEETINGS. Any regular or special meeting of the
Members may be taken by telephonic conference or any other means of
communication through which the Members can simultaneously hear each other
during the conference, if the same notice is given of the conference to each
Member, and if the Members participating in the conference would be
sufficient to constitute a quorum at a meeting. Participation in a telephonic
or other conference of such means constitutes presence at the meeting in
person or by proxy if all the other requirements are met.
ARTICLE VI
BOARD OF MANAGERS
6.1 BOARD OF MANAGERS. The business and affairs of the Company
shall be managed by or under the direction of a Board of Managers. The Board
of Managers shall consist of six (6) managers, of which three (3) shall be
appointed by Newcourt, and three (3) shall be appointed by ACSC. Each Manager
shall be a director, officer or full-time employee of its appointing Member.
The first Board of Managers of this Company is as follows:
ACSC NEWCOURT
---- --------
David A. Walden Robert W. Sexton
Samuel S.M. Wai Peter A. Kinkartz
Marcus F. Richardson Richard Strollo
6.2 CHAIRMAN OF THE BOARD; OTHER OFFICERS. The Board of Managers
shall have one or more managers exercising the functions of the positions of
Chairman of the Board and Treasurer, each of who shall be authorized as
signatories on the Company's bank account(s) and all documents and
instruments requiring a signature on behalf of the Company. In addition, the
Board of Managers shall appoint one or more persons to exercise the functions
of the position of Assistant Treasurer, each of whom shall be authorized as a
signatory on the Company's bank account(s) and disbursement requests. The
Board shall also have authority to elect, appoint or designate an existing
Manager or other natural person to the offices of President, one or more Vice
Presidents, a Secretary, and such other agents as it deems necessary for the
operation and management of the Company. The following persons are hereby
appointed to serve as the Company's Chairman of the Board, Treasurer and
Assistant Treasurer in accordance with the terms of this Agreement:
Marcus F. Richardson - Chairman of the Board
Samuel S.M. Wai - Treasurer
David P. Swanson - Secretary
David A. Walden - Assistant Treasurer
Michael Benedict - Assistant Treasurer
<PAGE>
Mark L. Lembke - Assistant Treasurer
Ronald K. Peterson - Assistant Treasurer
6.3 DELEGATION OF RIGHTS AND POWERS TO MANAGE. The general
management and operation of the Molasses Desugarization Project shall be
delegated to ACSC pursuant to the terms of the Operating Agreement.
6.4 TERM. Each Manager shall hold office for a term of five (5)
years, or until the earlier death, resignation, removal or disqualification
of the Manager.
6.5 VACANCIES. Vacancies of the Board of Managers shall be filled
by either ACSC or Newcourt, as determined by which of those two Members, as a
result of the vacancy, has appointed fewer than two (2) Managers to the Board
of Managers.
6.6 PLACE OF MEETINGS. Each meeting of the Board of Managers
shall be held at the Company's principal office or at such other place as the
Board may from time to time designate in writing to the Members.
6.7 REGULAR MEETINGS. Regular meetings of the Board of Managers
shall be held periodically and after each regular meeting of the Members.
6.8 SPECIAL MEETINGS. Special meetings of the Board of Managers
may be called at any time by any Manager by fixing the date, time and place
of the meeting and causing notice of the meeting to be given. The notice must
state the purpose of the meeting.
6.9 NOTICE. If the date, time and place of a Board of Managers'
meeting has been announced at the previous meeting of the Board, no notice is
required. In all other cases, written notice of each meeting of the Managers,
stating the date, time and place, and in the case of a special meeting, the
purpose of the meeting, shall be given in writing at least twenty (20) days
and not more than sixty (60) days prior to the meeting to each Manager.
6.10 WAIVER OF NOTICE. A Manager may waive the notice of meeting
required under this Article. A written notice of waiver signed by the Manager
entitled to notice is effective whether given before, during or after the
meeting. Attendance by a Manager at a meeting is waiver of notice of that
meeting, unless the Manager objects at the beginning of the meeting to the
transaction of business because the meeting is not lawfully called or
convened and thereafter does not participate in the meeting.
6.11 QUORUM. A majority of managers currently holding office shall
be necessary to constitute a quorum for the transaction of business. In the
absence of a quorum, a majority of the Managers present may adjourn a meeting
from time to time without further notice until a quorum is present. If a
quorum is present when a duly called or held meeting is convened, the
managers present may continue to transact business until adjournment, even
though the withdrawal of a
<PAGE>
number of the managers originally present leaves less than the proportion
number or number otherwise required for a quorum.
6.12 BOARD ACTIONS REQUIRING UNANIMOUS APPROVAL OF MEMBERS. The
following actions shall require the unanimous approval of the Members:
(a) The acceptance of additional capital contributions from Members
to the capital of the Company or the acceptance by the Company
of any loans from a Member pursuant to Section 3.7;
(b) The admission of any additional Members;
(c) With respect to each fiscal year, Distributions in excess of
15% of a Member's Capital Contribution;
(d) The execution and delivery by the Company of any agreement
with a Member, other than any Project Document or Financing
Document;
(e) Any amendment of this Agreement or the Certificate of
Formation of the Company;
(f) The incurrence by the Company of any indebtedness for
borrowed money except for purchase money indebtedness the
Company is permitted to incur under the provisions of the
Note Purchase Agreement; or
(g) Any transactions:
(i) to dispose of any of the Company's assets, provided,
that, with the approval of the Board of Managers, the
Company may dispose of obsolete or worn out assets as
long as the value of the assets disposed of pursuant to
this proviso does not exceed $500,000 in any fiscal year
of the Company;
(ii) by which the Company merges or consolidates with any
other entity; or
(iii) to dissolve the Company.
6.13 ABSENT MANAGERS. A Manager of the Company may give advance
written consent or opposition to a proposal to be acted upon at a Board
meeting. If the Manager is not present at the meeting, consent or opposition
to a proposal does not constitute presence at the meeting for purposes of
determining existence of a quorum, but consent or opposition shall be counted
as a vote in favor of or against the proposal and shall be entered in the
minutes or other record of action at the meeting, if the proposal acted on at
the meeting is substantially the same or has substantially the same effect as
the proposal to which the Manager has consented or objected.
<PAGE>
6.14 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at a meeting of the Managers may be taken without a meeting by written
action signed by all of the Managers. The written action is effective when
signed by all the Managers, unless a different effective time is provided in
the written action.
6.15 TELEPHONIC MEETINGS. Any regular or special meeting of the
Managers may be taken by telephonic conference or any other means of
communication through which the Managers can simultaneously hear each other
during the conference, if the same notice is given of the conference to each
Manager, and if the Managers participating in the conference would be
sufficient to constitute a quorum at a meeting. Participation in a telephonic
or other conference of such means constitutes presence at the meeting in
person if all the other requirements are met.
6.16 COMPENSATION. The Board of Managers shall have authority to
establish reasonable compensation of all Managers, officers and agents of the
Company for services to the Company. The Managers shall be paid their
reasonable expenses, if any, of attending each meeting of the Board of
Managers.
ARTICLE VII
REQUIRED RECORDS; ACCOUNTING AND TAX MATTERS
7.1 REQUIRED RECORDS. The Board of Managers shall maintain the
Required Records of the Company in a complete and accurate manner at the
principal office of the Company specified in Section 2.1, or such other place
within the United States as may be designated by the Board of Managers. The
Board of Managers shall maintain the Required Records on a current basis,
including without limitation the recording of any transfer of all or part of
a Member's Membership Interest pursuant to Article IX in the Required Records
as soon as the Board receives notice of such transfer. The Board of Managers
shall conspicuously note in the Required Records that the Members' interests
are governed by this Agreement and that this Agreement contains a restriction
on the assignment of Governance Rights. The Required Records shall at all
times be kept at the principal office of the Company or such other place or
places within the United States as the Board of Managers may determine. Each
of the Members shall have access to and may inspect and copy the Required
Records as provided in the Act.
7.2 BOOKS OF ACCOUNT. The Board of Managers shall keep complete
and accurate accounts of all transactions of the Company in proper books of
account and shall enter or cause to be entered therein a full and accurate
account of each and every Company transaction in accordance with GAAP. The
books of account of the Company shall be closed and balanced as of the end of
each fiscal year. The books of account and other records of the Company
shall at all times be kept at the principal executive office of the Company
or such other place or places within the United States as the Board of
Managers may determine. Each of the Members shall have access to and may
inspect and copy any of such books and records at all reasonable times
<PAGE>
and in accordance with the Act.
7.3 ACSC AS OPERATOR. The parties acknowledge that the duties of
the Board of Managers specified in Sections 7.1 and 7.2 above shall be
performed by ACSC pursuant to the Operating Agreement.
7.4 TAX CHARACTERIZATION AND RETURNS. The Members acknowledge that
this Agreement and the Tolling Agreement together will be characterized for
federal income tax purposes as a loan from Newcourt to ACSC and that ACSC
will be treated as the owner of the Molasses Desugarization Project.
Accordingly, the Company will be disregarded as a business entity for federal
income tax purposes.
7.5 FISCAL YEAR. The fiscal year of the Company shall commence on
the first day of September of each year and shall end on the last day of
August of the following year.
ARTICLE VIII
INDEMNIFICATION
8.1 INDEMNIFICATION.
(a) INDEMNIFICATION BY COMPANY. The Company shall indemnify,
hold harmless and defend the Members, the Managers and their
respective affiliates, agents, officers, directors, partners,
shareholders and employee (each an "Indemnified Person") to
the full extent lawful, from and against any loss, expense,
damage or injury suffered or sustained by an Indemnified
Person by reason of any acts or omissions arising out of
their activities on behalf of the Company or in furtherance
of the interests of the Company, including but not limited to
any judgment, award, settlement, attorney's fees and other
costs and expenses incurred in connection with the defense of
any actual or threatened action, proceeding or claim, if the
acts or omissions were not a direct result of the gross
negligence or willful misconduct by the Indemnified Person.
(b) GENERAL INDEMNIFICATION BY MEMBERS. Notwithstanding any
other provisions contained herein, each Member (the
"Indemnifying Party") agrees to indemnify and hold harmless
the other Members, the Company and their respective
affiliates, agents, officers, directors, partners,
shareholders and employees, from and against all losses,
costs, expenses, damages, claims and liabilities (including
reasonable attorney's fees) as a result of or arising out of
any material breach of any obligation under this Agreement.
Recourse for the indemnity obligation of the Members under
this Section 8.1(b) shall be limited to the amount of the
Capital Contribution made by such Indemnifying Party.
8.2 INSURANCE. The Company shall purchase and maintain liability
insurance policies
<PAGE>
in such amounts, with such coverages and otherwise as required by the
Financing Documents, and shall cause each of the Members and Managers to be
named as an additional insured under such insurance policies. The Company
may purchase and maintain insurance on behalf of any person in such person's
official capacity against any liability asserted and incurred by such person
in or arising from that capacity, whether or not the Company would otherwise
be required to indemnify the person against the liability.
ARTICLE IX
TRANSFER OF MEMBERSHIP INTEREST
9.1 ASSIGNMENT.
(a) GENERAL RESTRICTION ON ASSIGNMENT. Except as provided in
Section 9.1(c) and 9.1(f), no Member may transfer all or a part
of such Member's Membership Interest to a non-Member. Transfers
of a Member's Membership Interest to another Member shall be
effective only if made in accordance with this Section 9.1.
(b) ASSIGNMENT OF GOVERNANCE RIGHTS. Subject to Section 9.2
herein, a Member's Governance Rights may be assigned to any
other Member or Affiliated Entity of another Member only if
(1) the non-transferring Members unanimously approve the
assignment by written consent, which consent may be granted
or withheld as the non-transferring Members may determine in
their sole discretion, (2) the Member seeking to make the
assignment and the assignee comply with the provisions of
Section 9.1(d), and (3) the assignment is permitted under the
terms of the Tolling Agreement. Consent by the
non-transferring Members to an assignment of Governance
Rights constitutes the consent necessary to avoid dissolution
of the Company which would otherwise occur under the Act on
account of the assignor ceasing to be a Member in the
Company.
(c) ASSIGNMENT OF FINANCIAL RIGHTS. Subject to compliance with the
provisions of Section 9.1(d) hereof, a Member's Financial
Rights may be assigned, in whole or in part, to another Person
without the consent of the Board of Managers or any other
Member.
(d) CONDITIONS PRECEDENT TO ASSIGNMENT OF GOVERNANCE RIGHTS OR
FINANCIAL RIGHTS TO MEMBERS. Subject to Section 9.2 herein,
any Member desiring to assign such Member's Governance Rights
or Financial Rights shall notify the Board of Managers of such
desire. Such notice to the Board of Managers shall include (i)
an opinion of counsel (whose fees and expenses shall be borne
by such assigning Member), reasonably satisfactory in form and
substance to the Board, to the effect that either (1) the
assignment constitutes an exempt transaction, and does not
<PAGE>
require registration under applicable state and federal
securities laws, or (2) the Governance Rights or Financial
Rights to be assigned are duly and properly registered under
all applicable state and federal securities laws; (ii) evidence
satisfactory to the Board that such assignment of Governance
Rights is permitted under Section 9.1(b) hereof, and of such
assignee's agreement to comply with the terms of this Agreement
and to execute any and all documents that the Board may deem
reasonably necessary in connection with such assignee becoming
a Member; (iii) representations in form and substance
reasonably satisfactory to the Board that assignee is acquiring
the Governance Rights or Financial Rights for such assignee's
own account for investment and not with a view towards the
distribution thereof; provided, however, that the disposition
of the Governance Rights or Financial Rights shall at times be
and remain within the control of such assignee; and (iv) a
written agreement signed by the assignee that the Governance
Rights or Financial Rights being acquired will in no event be
resold unless properly registered under all applicable state
and securities laws or exempt therefrom.
(e) EFFECTIVE DATE OF ASSIGNMENT. Any assignment of all or a
part of a Member's Membership Interest in the Company shall
be deemed effective on the first day of the month next
following the month in which the assignment occurs and the
assignee's name and address and the nature and extent of the
assignment are reflected in the Required Records of the
Company. The appropriate Company records shall be
conspicuously noted to prevent the sale or assignment of
Membership Interests otherwise than in accordance with this
Article IX.
(f) PLEDGE AND ASSIGNMENT. Notwithstanding anything to the
contrary in this Section 9.1, any Member may pledge, assign
or hypothecate its Membership Interest hereunder to secure
the payment of any debt incurred by the Company and/or the
performance of any obligations of the Company.
9.2 RIGHTS TO PURCHASE AND SELL MEMBERSHIP INTERESTS.
(a) ACSC RIGHT TO BUY-OUT OTHER MEMBERS. ACSC shall have the
right to buy-out the Membership Interest of any other Member
at any time by giving written notice of its intention to do
so to the other Member. The buy-out price for each Membership
Interest purchased pursuant to this Section shall be a sum
equal to the aggregate Capital Contributions made to the
Company by the selling Member, plus any unpaid Distributions
required pursuant to Section 4.2 accrued through the date of
purchase, plus, if the purchase occurs prior to final
maturity of the Notes, an amount equal the Make-Whole Amount
determined as if the Called Principal were the amount of such
capital contributions and the Remaining Average Life were the
number of years remaining to the final maturity date of the
Notes.
<PAGE>
(b) NEWCOURT RIGHT TO SELL MEMBERSHIP INTEREST TO ACSC. Upon
prior written notice to ACSC, Newcourt shall have the right
to compel ACSC to purchase Newcourt's Membership Interest
(i) at any time after the Notes are paid, (ii) at any time
upon maturity of the Notes, (iii) upon the purchase of all or
substantially all of the assets of the Company by ACSC, prior
to the effective date of such purchase, or (iv) upon the
merger or consolidation of the Company with or into ACSC,
prior to the effective date of such merger or consolidation.
The price for such Membership Interest shall be equal to the
aggregate Capital Contributions made to the Company by
Newcourt plus any unpaid Distributions required pursuant to
Section 4.2 accrued through the date of purchase.
(c) NOTICE; TIMING; PAYMENT. Any purchase by ACSC of a
Membership Interest pursuant to this Section shall be made by
payment of immediately available funds by wire transfer in US
Dollars to the selling Member (to an account specified in
writing by such selling Member to ACSC) on a date which is
thirty (30) days after the date of the notice from ACSC to
the selling Member or from Newcourt to ACSC, as applicable,
or on such earlier date as may be agreeable to both ACSC and
the selling Member. At the time of such payment, the parties
shall deliver to each other such transfer instruments and
other documents as may be reasonably requested by either
party.
9.3 ACQUIT COMPANY. In the absence of written notice to the
Company of any assignment of a Membership Interest, any payment by the
Company to the assigning Member (or the assigning Member's successor in
interest) shall acquit the Company of liability to the extent of such payment
to any other Person who may have any interest in such payment by reason of an
assignment by the Member, whether by actual assignment or operation of law.
9.4 RESTRICTION ON TRANSFER. Notwithstanding the foregoing
provisions of this Article IX, no assignment or other transfer of a
Membership Interest may be made if the Membership Interest sought to be
assigned or transferred, when added to the total of all other Membership
Interests assigned or transferred within the period of twelve (12)
consecutive months prior thereto, would result in the termination of the
Company under Section 708 of the Code; provided, however, that the Board of
Managers may waive such restriction on transfer and such restriction shall
not apply in the case of a transfer pursuant to Section 9.1(f) herein.
ARTICLE X
DISSOLUTION
10.1 DISSOLUTION. The Company shall be dissolved only upon the
written agreement of all the Members. As further provided in Section 10.5 of
this Article, the termination of a
<PAGE>
Member's membership in the Company shall not cause the dissolution of the
Company, so long as the Company has the minimum number of members required
under the Act within ninety (90) days of the termination of a former member.
10.2 WINDING UP OF BUSINESS. Upon the occurrence of an event of
dissolution specified in Section 10.1, the Company shall cease to carry on
its business, except insofar as may be necessary for the winding up of its
business, but its separate existence shall continue until a certificate of
cancellation has been filed with the Delaware Secretary of State's Office or
until a decree dissolving the Company has been entered by a court of
competent jurisdiction.
10.3 DISTRIBUTIONS UPON LIQUIDATION. Upon liquidation, the
business of the Company shall be wound up, the Board of Managers shall take
full account of the Company's assets and liabilities, and all assets shall be
liquidated as promptly as is consistent with obtaining the fair market value
thereof. If any assets are not sold, any gain or loss shall be allocated to
Members in accordance with Article IV as if such assets had been sold at
their fair market value at the time of the liquidation. If any assets are
distributed to a Member rather than sold, the Distribution shall be treated
as a Distribution equal to the fair market value of the assets at the time of
the liquidation. The assets of the Company shall be applied and distributed
in the following order and priority:
(a) FIRST, to the payment of all debts and liabilities of the
Company, including all sums due the Managers, and including
any loans or advances that may have been made by the Members
to the Company;
(b) SECOND, to the establishment of any reserves deemed necessary
by the Board of Managers or the Person winding up the affairs
of the Company for any contingent liabilities or obligations
of the Company in the order of priority set forth in the Act;
(c) THIRD, to Newcourt a sum equal to the aggregate Capital
Contributions made to the Company by Newcourt, plus any
unpaid Distributions required pursuant to Section 4.2 accrued
through the date of distribution, plus, if the purchase
occurs prior to final maturity of the Notes, an amount equal
the Make-Whole Amount determined as if the Called Principal
were the amount of such capital contributions and the
Remaining Average Life were the number of years remaining to
the final maturity date of the Notes;
(d) FOURTH, the balance, to ACSC.
10.4 STATEMENT OF CANCELLATION. Upon the dissolution and
completion of the winding up of the Company's affairs, the appropriate
representative of the Company shall execute a certificate of cancellation
setting forth the information required under the Act, and shall file same
with the Delaware Secretary of State's office.
<PAGE>
10.5 TERMINATION OF MEMBERSHIP.
(a) CONTINUATION OF THE COMPANY. The Company shall not be
dissolved and is not required to be wound up by reason of the
occurrence of an event that terminates the continued
membership of a Member in the Company if there is at least
the minimum number of Members required under the Act.
(b) STATUS OF MEMBER WHOSE MEMBERSHIP IS TERMINATED. The Member
whose membership has terminated shall lose all Governance
Rights and will be considered merely an assignee of the
Financial Rights owned before the termination of such
Member's membership, subject to subsection (c) of this
Section 10.5. In such event, Schedule A shall be deemed to be
appropriately amended to allocate the Voting Interest of the
Member whose membership is terminated to the remaining
Members. If dissolution occurs pursuant to Section 10.1, then
the Member whose continued membership has terminated retains
all the Governance Rights and Financial Rights owned before
the termination of the membership and may exercise those
rights through the winding up and termination of the Company.
(c) NO OBLIGATION TO PURCHASE FINANCIAL RIGHTS OF TERMINATED
MEMBER. Neither the remaining Members nor the Company shall
have any obligation to purchase such terminated Member's
Financial Rights in the Company.
ARTICLE XI
NEW MEMBERS BOUND BY AGREEMENT
Any Person who is admitted to the Company as a Member shall be subject
to and bound by all the provisions of this Agreement as if originally a party
to this Agreement. Such Person shall execute and acknowledge all documents
and instruments, in form and substance reasonably satisfactory to the Board
of Managers, as the Board of Managers shall deem necessary or advisable to
effect such admission and to confirm the agreement of the Person being
admitted to be bound by all the terms and provisions of this Agreement. Such
Person shall pay all reasonable expenses in connection with such admission
of a Member, including without limitation legal fees and costs of preparation
of any amendment to or restatement of this Agreement, if necessary or
desirable in connection therewith.
ARTICLE XII
REPRESENTATIONS
12.1 REPRESENTATIONS OF ACSC. ACSC hereby represents and warrants
to Newcourt
<PAGE>
that each of the following statements is true and correct as of the date
hereof:
(a) ORGANIZATION. ACSC is a cooperative association duly
organized, validly existing and in good standing under the
laws of the State of Minnesota with all requisite power and
authority to enter into and perform this Agreement and the
Financing Documents and Project Documents to which it is a
party. ACSC is qualified or licensed to do business in the
State of North Dakota and in all other jurisdictions where
the failure to be so qualified or licensed would have a
material adverse effect on ACSC or the Company.
(b) POWER AND AUTHORITY. ACSC has full power and authority and
has taken all required action necessary to permit it to
execute and deliver this Agreement and the other Financing
Documents and Project Documents to which it is a party and to
perform all of its obligations contained herein or therein.
None of such actions has or will conflict with or violate any
provision of law or of the Articles of Incorporation or
Bylaws of ACSC or violate or constitute a default under or
result in any breach of any agreement, indenture, security
agreement, order or judgment to which ACSC is a party or by
which it or any of its properties is bound.
(c) VALID AND BINDING OBLIGATION. This Agreement and the other
Financing Documents and Project Documents to which it is a
party each constitutes the valid and legally binding
agreement of ACSC, enforceable against ACSC in accordance
with its terms, except to the extent that such enforcement is
subject to applicable bankruptcy, insolvency and other laws
affecting the rights of creditors generally and except that
the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable
defenses and to the discretion of courts before which any
enforcement proceeding is brought.
12.2 REPRESENTATIONS OF NEWCOURT. Newcourt hereby represents and
warrants to Newcourt that each of the following statements is true and
correct as of the date hereof:
(a) ORGANIZATION. Newcourt is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Delaware with all requisite power and authority to
enter into and perform this Agreement and any Financing
Documents or Project Documents to which it is a party.
Newcourt is qualified or licensed to do business in all
jurisdictions where the failure to be so qualified or
licensed would have a material adverse effect on Newcourt or
the Company.
(b) POWER AND AUTHORITY. Newcourt has full power and authority
and has taken all required action necessary to permit it to
execute and deliver this Agreement and the other Financing
Documents and Project Documents (if any) to which it is a
party and to perform all of its obligations contained herein
or therein. None of such actions has or will conflict with
or violate any provision of law or of the
<PAGE>
Articles of Incorporation or Bylaws of Newcourt or violate or
constitute a default under or result in any breach of any
agreement, indenture, security agreement, order or judgment to
which Newcourt is a party or by which it or any of its properties
is bound.
(c) VALID AND BINDING OBLIGATION. This Agreement and the other
Financing Documents and Project Documents to which it is a
party each constitutes the valid and legally binding
agreement of Newcourt, enforceable against Newcourt in
accordance with its terms, except to the extent that such
enforcement is subject to applicable bankruptcy, insolvency
and other laws affecting the rights of creditors generally
and except that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of courts before
which any enforcement proceeding is brought.
ARTICLE XIII
MOLASSES DESUGARIZATION PROJECT
The Members hereby approve the Financing Documents and the Project
Documents as submitted to the Members as drafts dated May, 1998, and the
transactions contemplated thereby. The Chairman of the Board and the
Treasurer are hereby authorized and directed to execute the Financing
Documents and the Project Documents in substantially the form of such drafts,
together with all other changes thereto as either such officer shall deem
appropriate, desirable, or necessary and such other documents necessary to
effectuate the transactions contemplated therein, on behalf of the Company.
The Company is hereby authorized to issue the sale of Senior Secured Notes to
the Crystech Senior Lender Trust in the aggregate principal amount of
Eighty-Six Million Five Thousand Dollars and No/100 ($86,005,000) and to
borrow the aggregate principal amount of Thirteen Million Nine Hundred Five
Thousand Dollars and No/100 ($13,905,000) from ACSC, as contemplated by the
Financing Documents.
ARTICLE XIV
MISCELLANEOUS
14.1 DURATION. The Company shall have perpetual existence.
14.2 CORPORATE BANK ACCOUNT. First Union Bank of Delaware or First
Union Trust Company, National Association (either one, the "Bank") are hereby
designated as the depository of funds of the Company, and checks, drafts or
other withdrawal orders issued against the funds on deposit with the Bank may
be signed by the Company's Chairman of the Board or Treasurer, or such other
persons as the Board of Managers shall from time to time designate.
14.3 ACTIONS OF ORGANIZER. All actions taken on behalf of the
Company by its
<PAGE>
organizer, as an individual, prior to organization of the Company and prior
to the date hereof, are hereby ratified, approved and adopted in all respects.
14.4 ACCEPTANCE OF CAPITAL CONTRIBUTIONS. The Company hereby
accepts Newcourt's Initial Capital Contribution in the amount set forth on
SCHEDULE A attached hereto in exchange for a Membership Interest in the
Company consisting of a fifty percent (50%) Financial Interest and a fifty
percent (50%) Voting Interest in the Company. The Company hereby accepts
ACSC's Initial Capital Contribution in the amount set forth on SCHEDULE A
attached hereto in exchange for a Membership Interest in the Company
consisting of a fifty percent (50%) Financial Interest and a fifty percent
(50%) Voting Interest in the Company.
14.5 CERTIFICATES OF MEMBERSHIP INTEREST. The Certificate of
Membership set forth on SCHEDULE B attached hereto as is hereby approved and
adopted by the Members as the Certificate of Membership Interest for ACSC,
and that the Certificate of Membership set forth on SCHEDULE C attached
hereto is hereby approved and adopted by the Members as the Certificate of
Membership Interest for Newcourt.
14.6 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties and supersedes any prior agreement or
understanding among them with respect to the subject matter hereof.
14.7 AMENDMENT. This Agreement may not be modified, amended, or
supplemented, except by a writing signed by all of the parties to this
Agreement who are then Members of the Company.
14.8 SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under the present or future laws effective
during the term of this Agreement, such provision will be fully severable;
this Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement will remain in full force and effect
and will not be affected by the illegal, invalid, or unenforceable provision
or by its severance from this Agreement. Furthermore, in lieu of such
illegal, invalid, or unenforceable provision, there will be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
14.9 REMEDIES. The parties agree that in the event of a breach of
this Agreement, the non-breaching party or parties shall be entitled to the
remedies of specific performance and injunctive relief, except to the extent
prohibited by the Act, and that such remedies shall be in addition to any
other remedies available at law or in equity with the pursuit of any one or
more remedies not being a bar to the pursuit of other remedies which may be
available. The parties further agree that the breaching party or parties
shall pay all reasonable costs, expenses, and attorneys' fees incurred by the
non-breaching party or parties in pursuing their remedies for a breach of
this Agreement.
<PAGE>
14.10 CONSENT AND WAIVER. No consent under and no waiver of any
provision of this Agreement on any one occasion shall constitute a consent
under or waiver of any other provision on said occasion or on any other
occasion, nor shall it constitute a consent under or waiver of the consented
to or waived provision on any other occasion. No consent or waiver shall be
enforceable unless it is in writing and signed by the party against whom such
consent or waiver is sought to be enforced.
14.11 NO THIRD PARTY BENEFICIARY. This Agreement is made solely and
specifically among and for the benefit of the parties hereto, and their
respective successors and assigns, and no other Person will have any rights,
interest, or claims hereunder or be entitled to any benefits under or on
account of this Agreement as a third party beneficiary or otherwise, except
that the Company shall have standing to bring an action to recover damages
provided for by the Act or to seek remedies otherwise provided by law in the
event of a breach or threatened breach of this Agreement.
14.12 NOTICES. All notices, offers, demands, or other communications
required or permitted under this Agreement shall be in writing, signed by the
Person giving the same. Notice shall be treated as given when personally
received or (except in the event of a mail strike) when sent by certified or
registered mail, postage prepaid, return receipt requested, to a Member at
the address as shown from time to time on the records of the Company. Any
Member may specify a different address by written notice to the Board of
Managers.
14.13 BINDING EFFECT. Except as herein otherwise specifically
provided, this Agreement shall be binding upon and inure to the benefit of
the parties and their legal representatives, heirs, administrators,
executors, successors and assigns.
14.14 NECESSARY INSTRUMENTS AND ACTS. The parties covenant and agree
that they shall execute any further instruments and shall perform any acts
which are or may become necessary to effectuate and to carry out the terms
and conditions of this Agreement.
14.15 NUMBER AND GENDER. Wherever from the context it appears
appropriate, each term stated in either the singular or the plural shall
include the singular and the plural and pronouns stated in either the
masculine, the feminine or the neuter gender shall include the masculine,
feminine and neuter.
14.16 INTERPRETATION. All references herein to Articles, Sections
and subsections refer to Articles, Sections and subsections of this
Agreement. All Article, Section and subsection headings are for reference
purposes only and shall not affect the interpretation of this Agreement.
14.17 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one agreement
binding on all parties. Each party shall become bound by this Agreement
immediately upon signing any counterpart, independently of
<PAGE>
the signature of any other party.
14.18 GOVERNING LAW. This Agreement and the rights of the parties
hereunder shall be governed by and interpreted in accordance with the
internal laws of the State of Delaware, without regard to its conflicts or
choice-of-law rules.
14.19 SECURITIES. The Membership Interests shall be evidenced by
certificates of membership interest and shall be deemed to be "securities"
within the meaning of Article 8 of the Uniform Commercial Code in effect in
the State of Delaware.
14.20 JURISDICTION. The parties hereby submit to the non-exclusive
jurisdiction of the courts of the State of New York or the United States
District Court for the Southern District of New York to take any action
pertaining to, arising out of, or relating to, enforcement of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Limited Liability
Company Agreement as of the day and year first above written.
AMERICAN CRYSTAL SUGAR COMPANY NEWCOURT CAPITAL USA INC.
By: By:
---------------------------- -------------------------------
Its: Its:
--------------------------- ------------------------------
<PAGE>
SCHEDULE A
The undersigned Members of Crystech, LLC hereby agree and acknowledge
that the following information applies for all purposes to the Limited
Liability Company Agreement of Crystech, LLC dated and effective May 28,
1998; this Schedule A to be effective as of the date thereof.
<TABLE>
<CAPTION>
Member Agreed
and Form of Value of Financial Voting
Address Contribution Contribution Interest Interest
- ------- ------------ ------------- --------- --------
<S> <C> <C> <C> <C>
American Crystal cash $1,545,000.00 50.00% 50.00%
Sugar Company
Newcourt Capital
U.S.A., Inc. cash $1,545,000.00 50.00% 50.00%
------------- --------- -------
TOTAL $3,090,000.00 100.00% 100.00%
</TABLE>
AMERICAN CRYSTAL SUGAR COMPANY NEWCOURT CAPITAL U.S.A., INC.
By: By:
---------------------------- -------------------------------
Its: Its:
--------------------------- ------------------------------
<PAGE>
SCHEDULE B
SEE ATTACHED CERTIFICATE
<PAGE>
SCHEDULE C
SEE ATTACHED CERTIFICATE
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> AUG-31-1998
<CASH> 41
<SECURITIES> 0
<RECEIVABLES> 62,233
<ALLOWANCES> 0
<INVENTORY> 142,382
<CURRENT-ASSETS> 231,137
<PP&E> 790,741
<DEPRECIATION> 438,801
<TOTAL-ASSETS> 646,460
<CURRENT-LIABILITIES> 200,780
<BONDS> 194,695
0
38,275
<COMMON> 28
<OTHER-SE> 186,540
<TOTAL-LIABILITY-AND-EQUITY> 646,460
<SALES> 676,625
<TOTAL-REVENUES> 676,625
<CGS> 201,159
<TOTAL-COSTS> 354,720
<OTHER-EXPENSES> 16,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,390
<INCOME-PRETAX> 305,752
<INCOME-TAX> 45
<INCOME-CONTINUING> 305,797
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 305,797
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
