Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
under
The Securities Act of 1933
HARVEST STATES COOPERATIVES
(Exact name of registrant as specified in charter)
-------------
Minnesota 5150 41-0251095
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
1667 North Snelling
P.O. Box 64594
St. Paul, Minnesota 55164
(612) 646-9433
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
Thomas F. Baker
Group Vice President--Finance
Harvest States Cooperatives
1667 North Snelling
P.O. Box 64594
St. Paul, Minnesota 55164
(612) 641-3736
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
-------------
Copy To
William B. Payne
Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
(612) 340-2722
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE(1)
======================================================================
Proposed
Maximum Aggregate
Title of Each Aggregate Amount of
Class of Securities Offering Registration
to be Registered Price (1) Fee
- - - - ----------------------------------------------------------------------
<S> <C> <C>
Equity Participation )
Units (Milling) )
Equity Participation ) $100,000,000 $30,303.04
Units (Processing )
and Refining) )
======================================================================
</TABLE>
(1) In accordance with Rule 457(o) under the Securities Act of 1933.
-------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
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<TABLE>
<CAPTION>
HARVEST STATES COOPERATIVES
CROSS REFERENCE SHEET
Item Number and Heading Location in Prospectus
- - - - ----------------------- ----------------------
<S> <C>
1. Forepart of the Registration Statement Outside Front Cover Page
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Inside Front Cover Page;
Pages of Prospectus Additional Information
3. Summary Information, Risk Factors and Cover Page; Prospectus Summary;
Ratio of Earnings to Fixed Charges Risk Factors
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Equity Participation Units
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Cover Page
9. Description of Securities to be Equity Participation Units;
Registered Dividend Policy; Membership in the Company
and Authorized Capital
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Prospectus Summary; Risk Factors; Capitalization;
Business; Management; Certain Transactions;
Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
</TABLE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 13, 1996
HARVEST STATES COOPERATIVES
Equity Participation Units
____ Units (Milling)
____ Units (Processing and Refining)
Harvest States Cooperatives (the "Company") is offering Equity
Participation Units ("Units") in its Wheat Milling Defined Business Unit
("Milling Business Unit") and its Oilseed Processing and Refining Defined
Business Unit ("Processing and Refining Business Unit"), each of which has been
designated as a Defined Business Unit by the Company's Board of Directors. Each
subscriber for Units in a Business Unit is required to also enter into a Member
Marketing Agreement ("Agreement") by which such holder has the right and
obligation to deliver annually the number of bushels of wheat or soybeans equal
to the number of Units held. Pursuant to the Agreement and the Company's
Articles of Incorporation and Bylaws, subscribers for Units will participate in
the net patronage sourced income from operations of the applicable Business Unit
as patronage refunds. Net patronage sourced income from a Business Unit will be
allocated on the basis of wheat or soybeans delivered pursuant to the Agreement.
The Units in the Milling Business Unit are expected to represent 50% of
the milling capacity if all are sold (giving effect to construction of
additional capacity now in process and anticipated). The Units in the Processing
and Refining Business Unit are expected to represent 50% of the soybean crushing
capacity if all are sold.
Any person wishing to purchase Units must execute a Subscription
Agreement in the form of Exhibit A and an Agreement in the form of Exhibit B and
send them, accompanied by payment, to the Company at 1667 North Snelling, P.O.
Box 64594, St. Paul, Minnesota 55164. Such Subscription Agreement and Agreement
are subject to acceptance by the Company in its sole discretion. The
Subscription Agreement and the Agreement must both be accepted if either is
accepted. Pending acceptance, all payments will be deposited in a segregated
bank account. A subscriber will receive interest income at the rate borne by the
segregated account if the subscriber's subscription is not accepted.
The offering of Units pertaining to a particular Business Unit will
continue through May 31, 1997, unless earlier terminated by the Company, which
may occur when all such Units have been sold by the Company or for any other
reason without the sale of any Units. If by the close of business on May 31,
1997, all Units pertaining to a particular Business Unit have not been
subscribed for, the Company may (i) terminate the offering as to those Units,
(ii) accept subscriptions submitted for those Units and terminate the offering
for the remaining Units or (iii) accept subscriptions submitted for those Units
and continue the offering for the remaining Units. Upon acceptance, Agreements
will become effective as of June 1, 1997. The Company reserves the right to
offer Units where the subscriber has defaulted in payment.
No producer may subscribe for Units representing more than anticipated
1997 production. No subscription for less than $6,000 will be accepted (except
to the extent prorated, as described in the next paragraph). No one Defined
Member may own more than 1% of the outstanding capacity of any one Business
Unit.
If on ___________, 1997, the Units of either Business Unit have been
oversubscribed, subscriptions will be accepted, subject to approval of the Board
of Directors, on a prorata basis, based on subscriptions actually received by
the Company through the close of business on that date.
A member may elect to use outstanding Capital Equity Certificates for
the payment of up to one-sixth of the purchase price. In addition, patrons of
Affiliated Associations who wish to subscribe may, if authorized by an
Affiliated Association, elect to use outstanding patrons' equities of such
Affiliated Association for the payment of up to one-sixth the purchase price if
the Affiliated Association agrees that such patrons' equities will be redeemed
simultaneously with Capital Equity Certificates of the Company held by such
Affiliated Association.
SEE "RISK FACTORS" COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN MATERIAL
FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE UNITS
OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Discounts and Proceeds to the
Price Commissions(1) Company (2)
------------- --------------- ----------------
Milling
<S> <C> <C> <C>
Per Unit ..................... $ $ -- $
Total ........................$ $ -- $
Processing and
Refining
Per Unit ..................... $ $ -- $
Total ........................$ $ -- $
</TABLE>
- - - - ---------------
(1) Units are being offered by the Company, and no discounts or commissions
will be paid.
(2) Before deduction of expenses estimated to be $________.
The date of this Prospectus is ______________, 1997.
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy any securities other than the securities to
which it relates or an offer to sell or a solicitation of an offer to buy such
securities in any circumstances in which such offer or solicitation is unlawful.
Neither the delivery of this Prospectus nor any sale made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information contained
herein is correct as of any time subsequent to its date.
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Page
Prospectus Summary 3
Risk Factors 5
Equity Participation Units
Trading of Units
Use of Proceeds
Dividend Policy
Capitalization
Business
Management
Certain Transactions
Membership in the Company and Authorized Capital
Validity of Units
Experts
Additional Information
Index to Financial Statements ...................... F-1
Exhibits
Subscription Agreement........................... Exhibit A
Member Marketing Agreement....................... Exhibit B
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Until ________, 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Units offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
The Company intends to furnish holders of the Units with annual reports
containing financial statements audited by its independent public accountants,
but does not intend to furnish interim reports.
-2-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements and related notes included elsewhere in
this Prospectus.
The Company
Harvest States Cooperatives (the "Company") is an agricultural
cooperative. Its primary business is merchandising grain, which involves
purchase of various grains from its Individual Members, Affiliated Associations
and others, sale of the grain to users, exporters and other intermediaries and
arranging for transportation and storage of purchased grain for delivery to
buyers. The Company also sells feed and other farm supplies to its Individual
Members and others, offers services to its Individual Members and Affiliated
Associations, crushes and refines soybeans, through a joint venture participates
in the food processing and packaging business and mills wheat.
The Processing and Refining Division; the Milling Division
Through this Prospectus, the Company is offering an opportunity to
participate in the patronage sourced income from soybeans from its Oilseed
Processing and Refining Division (also known as Honeymead Products Company)
("Processing and Refining Division") and the patronage sourced income from its
Wheat Milling Division (also known as Amber Milling Company) ("Milling
Division"). While the Processing and Refining Division and the Milling Division
will remain part of the Company, patronage earnings from the businesses operated
by those Divisions will inure in part to the purchasers of the Units.
At its integrated crushing and refining facility in Mankato, Minnesota,
the Processing and Refining Division processes soybeans into soybean meal,
soyflour and crude soybean oil. The crude soybean oil, with additional purchased
crude oil, is refined.
The Milling Division mills durum wheat into flour and semolina and, to a
lesser extent, mills spring and winter (hard) wheats into bread flour. While the
Milling Division had historically concentrated on durum wheat milling and is the
largest miller of durum wheat in the United States, with the opening of a new
mill in 1995 and the scheduled opening of another mill in February 1997, the
Division has broadened its markets to include bakery flour and significantly
increased its capacity.
The Offering
The Company is offering Equity Participation Units in its Wheat Milling
Business Unit and its Oilseed Processing and Refining Business Unit, each of
which has been designated as a Defined Business Unit by the Company's Board of
Directors. Each subscriber for Units in a Business Unit is required to also
enter into an a Member Marketing Agreement ("Agreement") by which such holder
has the right and obligation to deliver annually the number of bushels of wheat
or soybeans equal to the number of Units held. Pursuant to the Agreement,
subscribers for Units will participate in the net patronage sourced income from
operations of the applicable Business Unit as patronage refunds. Net patronage
sourced income from a Business Unit will be allocated on the basis of wheat or
soybeans delivered pursuant to the Agreement.
Risk Factors
Certain material factors should be considered in connection with an
investment in the Units offered hereby. See "Risk Factors."
Summary Consolidated Financial Data
<TABLE>
<CAPTION>
Income Statement Data:
Three Months Ended
Years Ended May 31, August 31,
-------------------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Sales:
Grain .............. $2,858,358,055 $2,793,407,187 $3,086,531,429 $4,191,665,535 $7,127,223,407 $1,341,016,649 $1,875,912,189
Processed
grain ............. 460,088,193 501,297,427 593,116,553 708,219,307 819,863,541 187,687,561 234,548,425
Feed and farm
supplies .......... 118,788,291 138,103,158 165,925,459 156,699,068 207,252,696 43,124,346 61,003,251
-------------- -------------- -------------- -------------- -------------- -------------- --------------
3,437,234,539 3,432,807,772 3,845,573,441 5,056,583,910 8,154,339,644 1,571,828,556 2,171,463,865
Patronage
dividends .......... 4,476,323 7,781,622 6,609,602 6,512,481 13,278,997 1,801,005 4,504,239
Other revenues ...... 39,803,692 41,671,562 45,895,922 57,556,984 68,339,523 16,782,771 14,839,801
-------------- -------------- -------------- -------------- -------------- -------------- --------------
3,481,514,554 3,482,260,956 3,898,078,965 5,120,653,375 8,235,958,164 1,590,412,332 2,190,807,905
Costs and expenses:
Cost of goods
sold ............... 3,384,418,840 3,384,637,000 3,786,336,764 4,981,820,272 8,076,073,326 1,556,325,280 2,156,922,994
Marketing, general,
and admin-
istrative .......... 48,266,596 52,545,022 60,847,099 69,509,491 70,054,248 18,505,661 19,595,114
Interest ............ 12,842,991 8,964,230 10,250,765 19,268,575 31,921,936 6,511,366 4,621,786
-------------- -------------- -------------- -------------- -------------- -------------- --------------
3,445,488,427 3,446,146,252 3,857,434,628 5,070,598,338 8,178,049,510 1,581,642,307 2,181,139,894
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Earnings before
income taxes ........ 36,026,127 36,114,704 40,644,337 50,055,037 57,908,654 8,770,025 9,668,011
Income taxes .......... 5,000,000 3,725,000 5,500,000 5,100,000 6,900,000 1,150,000 1,150,000
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Net earnings .......... $ 31,026,127 $ 32,389,704 $ 35,144,337 $ 44,955,037 $ 51,008,654 $ 7,620,025 $ 8,518,011
============== ============== ============== ============== ============== ============== ==============
May 31, August 31,
-------------------------------------------------------------------- --------------------------
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
Balance Sheet Data
(at end of period):
Working capital ..... 66,880,378 69,550,702 69,409,621 66,904,085 95,874,938 64,971,312 98,393,079
Net property, plant
and equipment ...... 137,919,139 146,223,870 156,311,551 205,837,690 232,145,401 216,001,148 208,605,760
Total assets ....... 523,018,883 612,261,778 734,655,223 924,533,569 1,228,772,684 1,122,040,355 983,806,311
Long-term debt,
including current
maturities ......... 49,196,060 44,479,207 39,135,097 84,816,525 132,629,176 97,566,932 129,012,393
Total equity ........ 222,126,239 246,797,147 270,761,017 299,487,893 337,252,119 307,961,026 346,382,651
============== ============== ============== ============== ============== ============== ============
</TABLE>
<PAGE>
RISK FACTORS
Supply and Demand. The Company may be adversely affected by
supply and demand relationships, both domestic and international. Supply is
affected by weather conditions, disease, insect damage, acreage planted,
government regulation and policies and commodity price levels. The business is
also affected by transportation conditions, including rail, vessel, barge and
truck. Demand may be affected by foreign governments and their programs,
relationships of foreign countries with the United States, the affluence of
foreign countries, acts of war, currency exchange fluctuations and substitution
of commodities. Demand may also be affected by changes in eating habits, by
population growth and increased or decreased per capita consumption of some
products.
Recent Developments. Rising grain and oilseed prices in the 1995
growing and harvesting season, which continued into 1996, tended to reduce
inventories of stored grain, but prompted producers in Europe, Canada,
Argentina, Australia and other countries to plant additional grain. Prices for
most grains have fallen substantially in recent months. Worldwide wheat
production is reported to be up, and United States exports of wheat are expected
to be down, in the year ending May 31, 1997.
The Freedom to Farm Act of 1996, enacted in April 1996, removes a
requirement that some land be idled from production as a consequence of receipt
of federal farm subsidies. As a result, the amount of land planted in some types
of crops is expected to increase in the future. The budget for the federal
export subsidy program has decreased substantially from recent years, adversely
affecting the ability of the United States to sell grain in world markets.
Price Risk and Hedging. Upon purchase, the Company has risks of
carrying grain, including price changes and performance risks (including
delivery, quality, quantity and shipment period), depending upon the type of
purchase contract entered into. The Company is exposed to risk of loss in the
market value of positions held, consisting of grain inventory and purchase
contracts at a fixed or partially fixed price, in the event market prices
decrease. The Company is also exposed to risk of loss on its fixed price or
partially fixed price sales contracts in the event market prices increase.
To reduce the price change risks associated with holding fixed price
positions, the Company generally takes opposite and offsetting positions by
entering into grain commodity futures contracts (either a straight futures
contract or an options futures contract) on regulated commodity futures
exchanges. While hedging activities reduce the risk of loss from changing market
values of grain, such activities also limit the gain potential which otherwise
could result from changes in market prices of grain. Hedging arrangements do not
protect against nonperformance of a contract.
At any one time the Company's inventory and purchase contracts for
delivery to the Company may be substantial.
Processing and Refining Risks. Competition in the soybean processing
and refining business is driven by price, transportation costs, service and
product quality. The industry is highly competitive. Competitors are adding new
plants and expanding capacity of existing plants. Unless exports increase or
existing refineries are closed, this extra capacity is likely to put additional
pressure on prices and erode margins. Several competitors operate over various
market segments and may be suppliers to or customers of other competitors.
Milling Risks. The Company's Wheat Milling Division has under
construction a flour mill in Houston, Texas, which is not yet operational, and
plans to construct semolina and flour and bread flour mills in Pocono,
Pennsylvania, but final approvals by local and state authorities have not been
received. There can be no assurance that these new mills, if completed, will be
competitively or operationally successful. There can be no assurance that the
necessary approvals for the Pocono facility will be obtained.
Taxation. The Internal Revenue Service could take a position on
patronage refunds adverse to the holders of the Units. Further, current income
tax laws and regulations pertaining to the receipt of patronage refunds could be
changed.
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Units offered hereby are
estimated to be $_________, assuming that each subscriber uses Capital Equity
Certificates to the full extent allowed in payment of the purchase price, and
after deducting the estimated offering expenses.
The Company will use the net proceeds initially to repay outstanding
balances under the Company's unsecured revolving credit facility. As of January
31, 1997, $_________ of borrowings were outstanding under this facility. The
facility is used primarily to fund working capital needs. See "Capitalization."
Upon a change in its redemption policy for Patrons' Equities by the
Board of Directors (see "Membership in the Company and Authorized Capital--Debt
and Equity Instruments--Redemption or Retirement of Patrons' Equities and
Allocated Reserve"), a portion of the proceeds will be used for redemption of
Patrons' Equities. Proceeds may also be used for construction of the proposed
Pocono Mill (see "Business--Wheat Milling--Facilities") and for other capital
purposes.
DIVIDEND POLICY
The Company distributes net patronage earnings on an annual basis in
the form of patronage refunds which are distributed as a combination of cash and
Patrons' Equities. Patrons' Equities are retired in accordance with policies
established by the Board of Directors.
Holders of the Units will not be entitled to the payment of dividends by
virtue of holding such Units. However, holders of the Units will be entitled to
receive patronage refunds attributable to the patronage sourced income from
operations of the applicable Business Unit on the basis of wheat or soybeans
delivered pursuant to the Agreement. The Board of Directors has not yet
determined the proportion of such patronage refunds to be paid in cash and the
portion to be paid as Patrons' Equities, nor has it set a policy for retirement
of Patrons' Equities arising from Business Units. The Company expects that a
high percentage of patronage refunds will be payable in cash and that non-cash
patronage dividends from Business Units will be retired over a period not to
exceed 10 years.
The Company is not authorized to issue capital stock and accordingly
does not pay dividends on capital stock. The Board of Directors is authorized to
establish the rights, preferences and privileges of equity securities, which
could include the payment of dividends, but no such equity securities are
presently outstanding.
CAPITALIZATION
The following table sets forth the capitalization of the Company at
November 30, 1996, as adjusted to give effect to the issuance and sale by the
Company of the Units offered hereby and the application of the estimated net
proceeds therefrom.
<TABLE>
<CAPTION>
November 30, 1996
-----------------
Outstanding As Adjusted
------------------ -------------------
<S> <C>
Short-term debt (1): ............................... $ (2) $
================== ===================
Long-term debt:
St. Paul Bank for Cooperatives, with
fixed and variable interest rates
from 6.24% to 7.51%, due in
installments through 2007 ....................... $ 69,675,333 $
National Bank for Cooperatives, with fixed and
variable interest rates from
6.24% to 7.51%, due in installments
through 2007..................................... 51,083,333
Industrial development revenues bonds, payable
through July 2005, interest
rate 7.4%....................................... 2,100,000
Capitalized lease obligations, with
fixed and variable rates from 8.0%
to 8.90%......................................... 5,979,743
Mortgages payable and other ....................... 1,736,579
------------------ -------------------
130,574,988
Equity
Equity Participation Units....................... -- 100,000,000
Capital equity certificates......................
Non-patronage certificates.......................
Capital reserve..................................
Patronage dividend payable in cash ..............
Net earnings.....................................
-------------------
------------------ -------------------
Total capitalization.......................... $
================== ===================
</TABLE>
(1) The Company has a $550,000,000 Revolving Credit Facility provided by
CoBank, ACB, St. Paul Bank for Cooperatives and other lenders which
will remain in place until October 31, 1997, subject to extension. The
Company may select a method of calculating interest based on a base
rate, LIBOR or a bid rate.
(2) As of January 31, 1997.
BUSINESS
Harvest States Cooperatives (the "Company") is an agricultural
cooperative. Its primary business is merchandising grain, which involves
purchase of various grains from its Individual Members, Affiliated Associations
and others, sale of the grain to users, exporters and other intermediaries and
arranging for transportation and storage of purchased grain for delivery to
buyers. The Company also sells feed and other farm supplies to its Individual
Members and others, offers services to its Individual Members and Affiliated
Associations, crushes and refines soybeans, through a joint venture participates
in the food processing and packaging business and mills wheat.
Through this Prospectus, the Company is offering an opportunity to
participate in the patronage sourced income from its Oilseed Processing and
Refining Division (also known as Honeymead Products Company) ("Processing and
Refining Division") and its Wheat Milling Division (also known as Amber Milling
Company) ("Milling Division"). While the Processing and Refining Division and
the Milling Division will remain part of the Company, the patronage earnings
from the businesses operated by those Divisions will inure in part to the
purchasers of the Units.
Information is presented in this Prospectus on the historical
operations of the Company, including the Processing and Refining Division and
the Milling Division. In addition, certain historical and pro forma information
is presented for the Processing and Refining Business Unit and the Milling
Business Unit.
The Company has authorized three classes of membership: Individual
Members ("Individual Members"), Affiliated Associations ("Affiliated
Associations") and Defined Members ("Defined Members"). Individual Members are
producers of agricultural products who have done business with the Company
during its last fiscal year and have consented to take patronage into account
for tax purposes. Affiliated Associations are associations of producers of
agricultural products complying with certain federal requirements which have
done at least $100,000 of business with the Company during its last fiscal year
and have consented to take patronage into account for tax purposes. Defined
Members are persons otherwise eligible for membership who hold Equity
Participation Units. Currently, there are no Defined Members. As of June 1,
1996, the Company had 35,915 Individual Members and 503 Affiliated Associations.
The Company's principal executive offices are located at 1667 North
Snelling Avenue, St. Paul, Minnesota 55108 (612-646-9433). As of November 30,
1996, the Company employed 1,954 full and part-time regular employees.
Individual Members, Defined Members and Affiliated Associations who
sell grain to the Company, and Individual Members, Defined Members, Affiliated
Associations and consenting patrons who purchase goods and services from the
Company are entitled to receive patronage refunds from the Company, which are
declared on an annual basis. The Company may also allocate non-member-sourced
income to its Members and Non-Member Consenting Patrons in proportion to
patronage. See "Membership in the Company and Authorized Capital."
Selected Consolidated Financial and Operating Data
The selected financial information presented below has been derived from
the Company's consolidated financial statements. The consolidated financial
statements for the years ended May 31, 1992, 1993, 1994, 1995 and 1996, have
been audited by Deloitte & Touche LLP, independent auditors. The consolidated
financial statements for the three-month periods ended August 31, 1995 and 1996,
are unaudited. In management's opinion, the unaudited financial statements for
the three-month periods include all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the Company's financial
condition and results of operations for such periods. The results for the
three-month period ended August 31, 1996, are not necessarily indicative of the
results expected for the full year. The selected consolidated financial
information should be read in conjunction with the Company's consolidated
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Income Statement Data:
Three Months Ended
Years Ended May 31, August 31,
-------------------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Sales:
Grain ........ $2,858,358,055 $2,793,407,187 $3,086,531,429 $4,191,665,535 $7,127,223,407 $1,341,016,649 $1,875,912,189
Processed
grain ........... 460,088,193 501,297,427 593,116,553 708,219,307 819,863,541 187,687,561 234,548,425
Feed and farm
supplies ........ 118,788,291 138,103,158 165,925,459 156,699,068 207,252,696 43,124,346 61,003,251
-------------- -------------- -------------- -------------- -------------- -------------- --------------
............... 3,437,234,539 3,432,807,772 3,845,573,441 5,056,583,910 8,154,339,644 1,571,828,556 2,171,463,865
Patronage
dividends ........ 4,476,323 7,781,622 6,609,602 6,512,481 13,278,997 1,801,005 4,504,239
Other revenues .... 39,803,692 41,671,562 45,895,922 57,556,984 68,339,523 16,782,771 14,839,801
-------------- -------------- -------------- -------------- -------------- -------------- --------------
3,481,514,554 3,482,260,956 3,898,078,965 5,120,653,375 8,235,958,164 1,590,412,332 2,190,807,905
Costs and expenses:
Cost of goods
sold ............. 3,384,418,840 3,384,637,000 3,786,336,764 4,981,820,272 8,076,073,326 1,556,325,280 2,156,922,994
Marketing, general,
and admin-
istrative ........ 48,266,596 52,545,022 60,847,099 69,509,491 70,054,248 18,505,661 19,595,114
Interest .......... 12,842,991 8,964,230 10,250,765 19,268,575 31,921,936 6,511,366 4,621,786
-------------- -------------- -------------- -------------- -------------- -------------- --------------
3,445,488,427 3,446,146,252 3,857,434,628 5,070,598,338 8,178,049,510 1,581,642,307 2,181,139,894
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Earnings before
income taxes ...... 36,026,127 36,114,704 40,644,337 50,055,037 57,908,654 8,770,025 9,668,011
Income taxes ........ 5,000,000 3,725,000 5,500,000 5,100,000 6,900,000 1,150,000 1,150,000
-------------- -------------- -------------- -------------- -------------- -------------- --------------
Net earnings ........ $ 31,026,127 $ 32,389,704 $ 35,144,337 $ 44,955,037 $ 51,008,654 $ 7,620,025 $ 8,518,011
============== ============== ============== ============== ============== ============== ==============
Balance Sheet Data
(at end of period):
May 31, August 31,
-------------------------------------------------------------------- -------------------
1992 1993 1994 1995 1996 1995 1996
---- ---- ---- ---- ---- ---- ----
Working capital ... 66,880,378 69,550,702 69,409,621 66,904,085 95,874,938 64,971,312 98,393,079
Net property, plant
and equipment ..... 137,919,139 146,223,870 156,311,551 205,837,690 232,145,401 216,001,148 208,605,760
Total assets ...... 523,018,883 612,261,778 734,655,223 924,533,569 1,228,772,684 1,122,040,355 983,806,311
Long-term debt,
including current
maturities ........ 49,196,060 44,479,207 39,135,097 84,816,525 132,629,176 97,566,932 129,012,393
Total equity ...... 222,126,239 246,797,147 270,761,017 299,487,893 337,252,119 307,961,026 346,382,651
============== ============== ============== ============== ============== ============== ============
</TABLE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Comparison of Three Months Ended August 31, 1996, with 1995
The Company's consolidated net earnings for the three month period
ended August 31, 1996 of $8,500,000 improved $900,000 over 1995 due to increased
volumes and slightly higher gross margins per bushel within its Milling
Division and increased patronage refunds received on purchases of wholesale
crop inputs, partially offset by lower earnings in the Grain Marketing Division
due to decreased volumes and gross margins per bushel.
Consolidated net sales of $2,171,000,000 increased by $600,000,000
(38%) during the three months ended August 31, 1996 compared to the same period
of 1995. This increase is primarily attributed to an increase in the weighted
average of all commodities sold of $5.83 compared to $3.58 for 1995.
Patronage dividends received increased $2,700,000 (150%) for the three
month period ended August 31, 1996 versus 1995 as a result of higher patronage
earnings distributed by cooperative customers and suppliers.
Other revenues decreased $2,000,000 (12%) through August 31, 1996
versus 1995 primarily due to a decrease in interest income of $1,800,000, a
decrease in joint venture income of $500,000, primarily from those joint
ventures involved in the exporting of grain, and a decrease in storage and
handling income of $400,000, partially offset by an increase in commission
income of $700,000.
Cost of goods sold of $2,157,000,000 for the three month period ended
August 31, 1996 increased $601,000,000 (39%) from the same period of 1995. This
increase is attributable primarily to an increase in the weighted average cost
of commodities of $5.79 in 1996 from $3.54 in 1995.
Marketing and administrative expenses increased $800,000 (4%) during
the 1996 period from the 1995 period due to an increase in the relative size of
the Company's operations.
Interest expense decreased $1,900,000 (29%) for the 1996 period from
1995 attributable to a decline in working capital requirements.
Tax expense for the three month period ended August 31, 1996 remained
relatively unchanged from 1995 with effective tax rates of 11.9% and 13.1%,
respectively.
Comparison of Year Ended May 31, 1996 with 1995
Consolidated net earnings of approximately $51,000,000 for the year
ended May 31, 1996 is a $6,100,000 increase from 1995. This increase is
attributed primarily to increased volumes of grain handled and increased returns
on investments.
Consolidated net sales of $8,154,000,000 in 1996 increased by
$3,097,000,000 (61%) in 1996. This increase was due principally to grain volume
of 1.7 billion bushels in 1996, an increase of 550 million bushels over 1995 and
an increase in grain price as a weighted average of all commodities sold
which was $4.21 for 1996, 56 cents per bushel greater than 1995.
Patronage dividends increased $6,800,000 (105%) in 1996 compared to
1995 resulting from higher patronage earnings distributed by cooperative
customers and suppliers.
Other revenues of $68,300,000 increased $10,700,000 (19%) in 1996. This
net increase was due primarily to an increase of $4,600,000 in service revenues,
from the Company's export facilities, and an increase in joint venture income of
$8,500,000, primarily from those joint ventures involved in the exporting of
grain, net of a $2,400,000 decrease in all other categories of other revenues,
including the write-down of investments totaling $1,100,000.
Cost of goods sold of $8,076,000,000 increased $3,094,000,000 (62%) in
1996. This increase is attributable primarily to an increase in the weighted
average cost of commodities of $4.16 in 1996 from $3.59 in 1995.
Marketing and administrative expenses were essentially flat compared to
1995. An expansion of the relative size of the Company's operations, which
increased costs in certain areas, was offset by a decrease in pension costs of
$4,000,000, principally caused by a settlement adjustment recognized in 1995.
Interest expense of $31,900,000 increased $12,600,000 (65%) in 1996.
This increase is substantially attributable to a $10,300,000 increase in
interest on short-term debt incurred to finance increased volumes at higher
prices and an increase of $3,200,000 in interest on long-term debt incurred
primarily for the expansion of property, plant, and equipment.
Income tax expense of $6,900,000 and $5,100,000 for 1996 and 1995,
respectively, results in effective tax rates of 11.9% and 10.2%. The increase in
the effective tax rate is primarily attributable to an increase in non-patronage
income during 1996.
Comparison of Year Ended May 31, 1995 with 1994
The Company's consolidated net earnings of approximately $45,000,000
for 1995 was a $9,900,000 increase from 1994 primarily attributed to increased
grain handled at margins per bushel equal to that of the prior year, along with
increased joint venture and export terminal service revenues.
Consolidated net sales of $5,057,000,000 increased by $1,211,000,000
(31%) in 1995. This increase was due principally to grain volume of 1.15 billion
bushels in 1995 compared to 816 million bushels in 1994, an increase of 334
million bushels (41%), offset by price as a weighted average of all commodities
sold of $3.65 for 1995 compared to $3.78 for 1994, a decrease of 13 cents per
bushel.
Other revenues of $57,600,000 increased $11,700,000 (25%) from 1994.
This net increase was due primarily to an increase of $2,200,000 in service
revenues, for the most part at the Company's export facilities, an increase in
joint venture income of $4,300,000, primarily from those joint ventures involved
in the exporting of grain, and an increase of $3,500,000 in interest income
primarily generated from short-term loans to local Affiliated Associations of
the Company.
Cost of goods sold of $4,982,000,000 increased $1,196,000,000 (32%).
This increase is primarily attributed to higher volumes of grain handled offset
to some extent by lower grain prices. The weighted average cost of commodities
was $3.59 in 1995, down from $3.72 in 1994.
Marketing and administrative expenses of $69,500,000 increased
$8,700,000 (14%) in 1995. This increase was due to an expansion of the relative
size of the Company's operations which increased costs in certain areas, and an
increase in pension costs of $4,000,000 principally caused by a benefit plan
settlement adjustment recognized in 1995.
Interest expense of $19,300,000 increased $9,000,000 (87%) in 1995.
This increase is substantially attributed to increased volumes of business and
an increase of $3,000,000 in interest on long-term debt incurred primarily for
the expansion of property, plant and equipment.
Income tax expenses of $5,100,000 and $5,500,000 for 1995 and 1994,
respectively, result in effective tax rates of 10.2% and 13.5%.
Liquidity and Capital Resources
Cash Flows from Operations
Operating activities of the Company provided cash of $302,100,000
during the three months ended August 31, 1996, while operating activities used
$18,700,000 of cash for the same period in 1995. Net cash provided and used for
operations during these periods is primarily attributable to the changes in
working capital requirements with such balance declining and therefore
contributing working capital of $292,500,000 in 1996. Working capital
requirements increased and therefore used cash in the net amount of $27,700,000
in 1995.
Net cash used for the Company's operating activities totaled
$105,700,000, $49,700,000 and $33,200,000, respectively, for the years ended
1996, 1995 and 1994. The increase in net cash used in operations in 1996,
compared to 1995 and 1994, resulted primarily from increases in grain
inventories and receivables due to higher volumes of grain processed.
Cash Flows from Investing
Net cash flows used in the Company's investing activities were $100,000
and $13,400,000 during the three months ended August 31, 1996 and 1995,
respectively. Acquisitions of property, plant and equipment comprised the
principal use of this cash in each of the periods.
On August 31, 1996 the Company formed a joint venture with a regional
food processing company, and contributed substantially all of the net assets of
its Holsum Foods Division as its capital investment in the joint venture. In
return for these net assets, the Company received a 40% interest in the joint
venture and the joint venture assumed debt of $33,000,000.
For the years ended 1996, 1995 and 1994, net cash flows used in the
Company's investing activities totaled $37,600,000, $71,400,000 and $24,300,000,
respectively. The acquisition of property, plant and equipment comprised the
primary use of cash in each of these three years, totaling $40,500,000,
$69,300,000 and $28,000,000 in 1996, 1995 and 1994, respectively.
Cash Flows from Financing
The Company finances its working capital needs through short-term lines
of credit with the banks for cooperatives and commercial banks. As of May 31,
1996 the Company had short-term lines of credit totaling $570,000,000, of which
$550,000,000 was committed and $324,000,000 was outstanding.
The Company decreased its outstanding net short-term borrowings by
$315,000,000 during the three months ended August 31, 1996 and increased such
borrowings by $10,500,000 during that period in 1995.
For the years ended May 31, 1996, 1995 and 1994, the Company increased
its outstanding net short-term borrowings by $124,000,000, $87,000,000 and
$79,500,000, respectively, in order to fund the working capital needs caused by
the increase in grain volumes.
The Company has financed its long-term capital needs, primarily the
acquisition of property, plant, and equipment, with long-term agreements through
the banks for cooperatives with maturities through the year 2007. Total
indebtedness of these agreements totaled $120,700,000 and $70,300,000 on May 31,
1996 and 1995, respectively. The Company also had long-term debt in the form of
capital leases, industrial development revenue bonds and miscellaneous notes
payable totaling $11,900,000 and $14,500,000 on May 31, 1996 and 1995,
respectively.
The Company borrowed on a long-term basis $15,000,000 during the three
months ended August 31, 1995 and repaid long-term debt in the amounts of
$3,600,000 and $2,500,000 for the same period of 1996 and 1995.
The Company borrowed on a long-term basis $58,000,000, $51,000,000 and
$1,200,000 and repaid long-term debt in the amounts of $11,300,000, $5,900,000
and $6,500,000 in 1996, 1995 and 1994, respectively.
The Company anticipates further short-term financing needs to fund
increases in the volume of grain handled and further long-term needs to fund
acquisitions of grain facilities and for expansion and development of existing
value-added businesses. Management believes such needs can be financed with a
combination of debt and the proceeds of this offering.
In accordance with the bylaws and by action of the Board of Directors,
annual net earnings from patronage sources are distributed to consenting patrons
following the close of each year and are based on amounts reportable for federal
income tax purposes as adjusted in accordance with the bylaws. The cash portion
of this distribution, deemed by the Board of Directors to be 30% of such
earnings for 1996, 1995 and 1994, respectively, totaled $11,000,000, $10,000,000
and $6,800,000.
The Board of Directors authorized the redemption of patronage
certificates held by patrons who were 72 years of age and those held by estates
of deceased patrons during the three months ended August 31, 1996 and 1995.
These amounts totaled $1,600,000 and $1,700,000, respectively.
The Board of Directors authorized the redemption of patronage
certificates held by patrons who were 72 years of age and those held by estates
of deceased patrons during the years ended May 31, 1996, 1995 and 1994. These
amounts totaled $6,600,000, $5,700,000 and $5,500,000, respectively.
GRAIN MERCHANDISING
Industry Overview
Grain and oilseed merchandising involves the sale and distribution of
grain and oilseeds from producer to processor, to be processed for human and
animal consumption and other uses. These commodities are produced and consumed
throughout the world. Increased worldwide demand is generated through population
growth and, for certain regions, increased per capita food consumption supported
by growing affluence. Demand for these commodities is satisfied by worldwide
production, which is in part determined by prevailing prices.
In recent years, a significant portion of high demand grains (wheat,
corn and soybeans) grown domestically has been exported. United States
production competes with production in numerous other countries to supply
worldwide demand for these grains. A portion of domestic demand for other grains
has been satisfied by imports, and United States producers compete against those
imports. The ability of producers in particular countries to compete on a
worldwide basis may be enhanced by governmental support and protection, which
may vary from time to time. Demand for grain and perceptions about prevailing
supplies and future production affect prices for grain, which can be erratic.
In the United States, grain merchandising involves the purchase of
grain, sale for export or further domestic use and storage and transportation to
export facilities or to users.
Grain merchandising may be adversely affected by supply and demand
relationships, both domestic and international. Supply is affected by weather
conditions, disease, insect damage, acreage planted, government regulation and
policies and commodity price levels. The business is also affected by
transportation conditions, including rail, vessel, barge and truck. Demand may
be affected by foreign governments and their programs, relationships of foreign
countries with the United States, the affluence of foreign countries, acts of
war, currency exchange fluctuations and substitution of commodities. Demand may
also be affected by changes in eating habits, by population growth and increased
or decreased per capita consumption of some products.
Recent Developments. Rising grain prices in the 1995 growing and
harvesting season, which continued into 1996, tended to reduce inventories of
stored grain, but prompted producers in Europe, Canada, Argentina, Australia and
other countries to plant additional grain. Prices for most grains have fallen
substantially in recent months.
Worldwide wheat production is reported to be up, and United States
exports of wheat are expected to be down, in the year ending May 31, 1997.
Demand for corn has been supported domestically by its use in feeding
cattle. United States exports of meat have continued to increase.
The Freedom to Farm Act of 1996, enacted in April 1996, removes a
requirement that some land be idled from production as a consequence of receipt
of federal farm subsidies. As a result, the amount of land planted in some types
of crops is expected to increase in the future. The budget for the federal
export subsidy program has decreased substantially from recent years, adversely
affecting the ability of the United States to sell grain in world markets.
Introduction
The Company buys grain through its Grain Marketing Division from
Affiliated Associations (typically a cooperative organization of local
producers), directly from Individual Members (to a limited extent) and from
third parties (such as grain dealers, non-Member producers, marketing
associations or marketing pools, elevators and other grain merchandising
companies) and through its Agri-Service Centers, which are country elevators
owned by the Company, directly from Individual Members. See "Farm Marketing and
Supply." Grain purchased by Agri-Service Centers is usually sold to the Grain
Marketing Division for resale. A small portion of grain is handled on a
consignment basis.
Grain is sold by the Company for future delivery at a specified
location. Grain sold by a producer is typically trucked to a local elevator for
sale. From local elevators, grain may be transported in a variety of ways to the
purchaser. The Company arranges transportation to delivery locations using
truck, rail and barge transportation. Grain intended for export may be shipped
by rail to an export terminal or to a barge loading facility to be shipped by
barge to an export terminal, where it is loaded on an ocean-going vessel. Grain
intended for domestic use may be shipped by truck or rail to various locations
throughout the United States. Because of its facilities (see "--Grain Handling
and Transportation"), the Company has significant capacity to sell grain for
export.
Purchases. The number of bushels of grain purchased from Individual
Members and Affiliated Associations, the total grain purchased and the
percentage relationship for each of the years ended May 31 are set forth below:
<TABLE>
<CAPTION>
Three Months Ended
Years Ended May 31, August 31,
------------------- -----------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Member purchases ... 525,715,235 720,024,458 959,166,596 228,722,782 162,520,929
Total purchases .... 816,421,362 1,148,952,019 1,692,438,700 364,896,189 312,493,669
Percentage ......... 64.4% 62.7% 56.7% 62.7% 52.0%
</TABLE>
Substantially all of the grain purchased by the Company is grown in the Midwest,
Great Plains and Pacific Northwest. The Company also purchases grain grown in
other parts of the United States and other countries.
Grains Handled. The primary grains merchandised by the Company are
corn, wheat and soybeans. The Company also merchandises barley, milo, sunflowers
and oats as well as smaller quantities of canola, flax, rye, millet and others.
The number of bushels of grain purchased by the Company for the periods
indicated is set forth below:
<TABLE>
<CAPTION>
Three Months Ended
Years Ended May 31, August 31,
------------------- ----------
1994 1995 1996 1995 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Wheat....... 445,201,610 457,684,648 505,606,729 110,670,137 101,099,229
Corn ....... 185,121,268 342,832,256 777,631,466 181,706,545 138,390,104
Soybeans ... 68,325,522 172,025,373 234,930,247 39,029,209 46,548,038
Barley ..... 82,842,737 93,699,078 75,225,773 14,116,222 11,225,436
Milo ....... 5,953,433 36,663,822 48,199,610 13,074,774 10,621,758
Sunflowers.. 12,322,105 28,929,026 25,952,855 1,742,018 459,686
Oats ....... 14,097,310 13,423,696 20,008,442 4,187,136 3,545,572
All other... 2,557,377 3,694,120 4,883,578 370,149 603,846
----------- ------------- ------------- ----------- -----------
816,421,362 1,148,952,019 1,692,438,700 364,896,190 312,493,669
============= ============= ============= ============= =============
</TABLE>
The amounts above include grain sold to the Milling Division and the Processing
and Refining Division and for use in feeds.
Sales of grain by the Company for each of the years ended May 31 are
set forth below:
1994 1995 1996
-------------- -------------- --------------
Wheat ............... $1,973,640,146 $1,890,923,540 $2,631,202,689
Corn ................ 488,542,201 954,570,208 2,518,939,007
Soybeans ............ 304,681,449 880,627,929 1,431,485,630
All other ........... 319,667,633 465,543,859 545,596,081
-------------- -------------- --------------
TOTAL ............... $3,086,531,429 $4,191,665,535 $7,127,223,407
============== ============== ==============
Recent Developments. In recent years, sales of grain have been
substantially dependent on exports. During the year ended May 31, 1996,
approximately 40% of the Company's grain sales were domestic and approximately
60% were exports. See Note 1 of Notes to Financial Statements.
Because of a decline of grain prices and anticipation of increased
worldwide supplies of grain, the Company expects that United States exports of
grains will decline in the current year. It believes that many producers will
store current production, allowing domestic supplies, which have been at
historically low levels, to be replenished. As a result, the Company expects
that its own grain sales in the current year will decline materially from the
record level for the year ended May 31, 1996.
Merchandising
The Company buys and sells grain through offices of its Grain Marketing
Division located in Portland, Oregon, Great Falls, Montana, Lincoln, Nebraska,
Kansas City, Kansas, St. Paul, Minnesota, Winona, Minnesota, Davenport, Iowa,
and Lewiston, Idaho, and at its Agri-Service Centers.
Grain purchased through Agri-Service Centers is purchased on a cash and
futures basis. Grain purchased through the Grain Marketing Division is usually
purchased for future delivery.
Grain is sold for future delivery at a specified location, with the
Company usually responsible for arranging necessary transportation to that
location. Purchasers include millers, malters, exporters and foreign buyers as
well as the soybean, wheat and feed operations of the Company. The Company is
not dependent on any one customer. The Company has supply relationships calling
for delivery of grain at prevailing market prices. Grain users store varying
amounts of grain for their own use.
The Company's ability to arrange transportation is a significant part
of the service it offers to its customers. The Company's loading capabilities
onto unit trains, ocean going vessels and barges is a component of the selling
price of grain handled by the Company
Virtually all grain sold domestically is sold by employees while
approximately half of grain exported is sold by brokers or agents and the
balance by employees. The Company has a small ownership position in Intrade, a
company which owns part of a German-based marketing organization involved in
trading grain and feedstuffs in German and international markets. The Company
also has relationships with agents, brokers and marketing companies in other
countries to assist it in export sales.
Competition
The Company competes for both the purchase and sale of grain.
Competition is intense and margins are low. Some of the Company's competitors
are integrated food producers, which may also be customers. Many competitors
have substantially greater financial resources than the Company.
In the purchase of grain from producers, location of a delivery
facility is a prime consideration but producers are willing to truck grain for
sale over increasingly longer distances. Grain prices are affected by reported
trading prices on national markets, shipping costs and storage capabilities.
Price is affected by the capabilities of the facility. For example, if it is
cheaper to deliver to a customer by unit train than by truck, a facility with
unit train capability provides a price advantage. The Company believes that its
relationship with Individual Members serviced by local Agri-Service Centers and
with Affiliated Associations gives it a broad origination capability.
The Company competes in the sale of grain based on price and its
ability to provide quantity and quality of grains required and its ability to
deliver. Location of facilities is a major factor in ability to compete. Major
grain merchandising companies in addition to the Company include
Archer-Daniels-Midland, Cargill, Continental, ConAgra, Bunge and Louis Dreyfus,
each of which handles grain volumes of more than one billion bushels annually.
The Company estimates it would be among the smaller merchandisers among these
seven. The Company also competes with numerous other grain merchandisers with
annual volumes of less than one billion bushels.
Since the Company's facilities are located primarily in the Midwest,
Great Plains and Pacific Northwest, with a terminal in the Gulf, the Company
primarily competes with the companies whose facilities are in these areas. The
Company's export facilities in three major areas allow it to ship to anyplace in
the world.
Grain Handling and Transportation
The Company owns export terminals, river terminals and other elevators
involved in the handling of grain. All such facilities can receive inbound truck
and rail. Export facilities on river systems can receive grain by barge. In
addition, the Company owns 144 Agri-Service Centers, which are country elevators
which receive grain from producers.
The Company operates river terminals at Kansas City, Missouri (two),
St. Paul, Savage and Winona, Minnesota, and Davenport, Iowa (two), which are
used to load grain onto barges for shipment to both domestic and export
customers via the Mississippi River system, on trucks for domestic markets and
on rail for both domestic and export markets. The Company owns and operates a
terminal at Kennewick, Washington, on the Columbia River. The Company has
interests in three river terminals located on the Snake River: Lewis and Clark
Terminal Association's facility located at Lewiston, Idaho, Central Ferry
Terminal Association's facility located at Central Ferry, Washington and
Co-Grain Elevator Company's facilities located at Upper Monumental and Burbank,
Washington. Much of the grain from these terminals is loaded onto barges for
shipment to Pacific Northwest export terminals.
The Company's export terminal at Superior, Wisconsin, provides access
to the Great Lakes and St. Lawrence Seaway, and the Company's export terminal at
Myrtle Grove, Louisiana, serves the Gulf market. An export terminal at Kalama,
Washington, leased by the Company and an export terminal at Vancouver,
Washington, owned by a joint venture partner, serve the Pacific market. A
partnership between the Company and Continental Grain Company operates an export
terminal at Tacoma, Washington, for feed grain and oil seed shipments to Pacific
Rim customers. A facility in Spokane, Washington is used for storage and
transloading. An elevator in Petersburg, North Dakota, is used to standardize
barley for a particular customer.
The Division leases a fleet of covered hopper cars and enters into
various contracts for covered grain barges. In addition, at various times the
Company may charter vessels.
Price Risk and Hedging
Upon purchase, the Company has risks of carrying grain, including price
changes and performance risks (including delivery, quality, quantity and
shipment period), depending upon the type of purchase contract entered into.
These contracts include flat price, basis fixed, delayed price, deferred
payment, hedge to arrive and futures fixed. The Company is exposed to risk of
loss in the market value of positions held, consisting of grain inventory and
purchase contracts at a fixed or partially fixed price, in the event market
prices decrease. The Company is also exposed to risk of loss on its fixed price
or partially fixed price sales contracts in the event market prices increase.
To reduce the price change risks associated with holding fixed price
positions, the Company generally takes opposite and offsetting positions by
entering into grain commodity futures contracts (either a straight futures
contract or an options futures contract) on regulated commodity futures
exchanges. Most of the grain volume handled by the Company can be hedged. Some
grains cannot be hedged because there are no futures for certain commodities.
For those commodities, risk is managed through the use of forward sales and
different pricing arrangements and to some extent cross-commodity futures
hedging. While hedging activities reduce the risk of loss from changing market
values of grain, such activities also limit the gain potential which otherwise
could result from changes in market prices of grain. The Company's policy is to
generally maintain hedged positions in grain which is hedgeable, but the Company
can be long or short at any time. The Grain Marketing Division's profitability
is primarily derived from margins on grain merchandised and revenues generated
from other merchandising activities with its customers, not from hedging
transactions. Hedging arrangements do not protect against nonperformance of a
contract.
When a futures contract is entered into, an initial margin deposit must
be sent to the applicable exchange. The amount of the deposit is set by the
exchange and varies by commodity. If the market price of a short futures
contract increases, then an additional margin deposit (maintenance margin) would
be required. Similarly, if the price of a long futures contract decreases, a
maintenance margin deposit would be required to be sent to the applicable
exchange. Subsequent price changes could require additional maintenance margins
or could result in the return of maintenance margins.
At any one time the Grain Marketing Division's inventory and purchase
contracts for delivery to the Company may be substantial. The Grain Marketing
Group has a risk management policy and procedures that includes net position
limits. It is defined by commodity and includes both trader and management
limits. This policy and computerized procedure triggers a review by management
of the Grain Marketing Division when any trader is outside of position limits
and also triggers review by management of the Company if the Grain Marketing
Division is outside of its position limits. The position limits are reviewed at
least annually with management of the Company. The Company monitors current
market conditions and may expand or reduce the purchasing program in response to
changes in those conditions. In addition, certain purchase and sale contracts
are subject to credit approvals and appropriate terms and conditions.
Seasonality
Harvest for most crops occurs in the summer and fall, and the Company
purchases more grain during that period. Because of the Company's geographic
location and the fact that it is further from its export facilities, grain tends
to be sold later than in other parts of the country. Because many producers have
significant on-farm storage capacity and because of the Company's own storage
capacity, grain is bought and moved throughout the year.
Working Capital
Due to the amount of grain purchased and held in inventory, the Company
has significant working capital needs at various times of the year. The amount
of borrowings for this purpose and the interest rate charged on such borrowings
directly affect the profitability of the grain merchandising operations. See
"Capitalization."
Employees
As of November 30, 1996, the Grain Marketing Division had 520
employees, of which 82 were traders, 300 production staff, 14 management and 124
support staff. See "Farm Marketing and Supply" with respect to employment by
Agri-Service Centers.
OILSEED PROCESSING AND REFINING
Industry Overview
The soybean crushing industry converts soybeans into meal used for
feeding animals, soy flour used for specialty food and other purposes and crude
soybean oil. The soybean refining industry refines the crude oil for use in
processed foods, such as margarine, salad dressings and baked goods, and to a
more limited extent industrial uses. Soybean production is concentrated in the
central United States, Brazil, China and Argentina. Crushing plants are
generally located in proximity to sources of soybeans and usage of meal often
arises in proximity to crushing plants. Refineries are generally located next to
the crushing plants. Oil is shipped throughout the United States and for export.
Per capita domestic consumption of soybean oil has declined slightly in
recent years. Exports of soybean oil are variable but generally a minor portion
of total production. In recent years, exports have varied widely, which
dramatically influenced margins in both crushing and refining.
Usage of meal is dependent on the amount of livestock being raised,
which has increased in recent years. While per capita domestic consumption of
meat has been stable in recent years, demand for meal has increased due to
an increase in the domestic consumption of white meat and in increase in meat
exports. Soybean meal provides a ready source of protein with a 44% or higher
protein content, compared to corn at 9%, wheat at 9.5% and barley at 11.5%
Major competitors in the industry include the Company,
Archer-Daniels-Midland (ADM), Cargill, Ag Processing, Inc. ("AGP"), Central Soya
and Bunge. Competition is driven by price, transportation costs, service and
product quality. The industry is highly competitive. These and other competitors
are adding new plants and expanding capacity of existing plants. Unless exports
increase or existing refineries are closed, this extra capacity is likely to put
additional pressure on prices and erode margins. Several competitors operate
over various market segments and may be suppliers to or customers of other
competitors.
Historically, in the Company's trade area there has been an adequate
supply of soybeans, even in years when there has been a substantial amount of
soybeans exported. While the price of soybeans has fluctuated substantially, the
prices of meal and oil have followed, so that margins have been maintained. The
amount of carryover soybeans domestically at the end of the 1996 harvest season
was at the lowest level since the 1988/1989 crop year.
Business
At its integrated crushing and refining facility in Mankato, Minnesota,
the Processing and Refining Division processes soybeans into soybean meal,
soyflour and crude soybean oil. The crude soybean oil, with additional purchased
crude oil, is refined.
Selected Financial and Operating Data
The selected financial information presented below has been derived
from the Processing and Refining Division's financial statements. The financial
statements for the years ended May 31, 1994, 1995 and 1996, were audited by
Deloitte & Touche LLP. The financial statements for the three-month periods
ended August 31, 1995 and 1996, are unaudited. In management's opinion, the
unaudited financial statements for the three-month periods include all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation of the Division's financial condition and results of operations for
such periods. The results for the three-month period ended August 31, 1996, are
not necessarily indicative of the results expected for the full year. The
selected financial information should be read in conjunction with the Division's
financial statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Years Ended May 31, August 31,
------------------- -----------
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
Revenue:
<S> <C> <C> <C> <C> <C>
Processed Oilseed Sales............. $358,372,039 $398,095,108 $399,271,001 $ 93,227,683 $113,145,890
Other revenues ..................... 1,394,484 1,162,518 1,435,708 1,407,881 599,421
------------ ------------ ------------ ------------ ------------
359,721,523 399,257,626 400,706,709 94,635,564 113,745,311
Cost and expenses
Costs of goods sold ................ 334,968,474 366,407,451 371,424,566 88,122,829 107,833,751
Marketing and
administrative ................... 4,722,900 5,137,663 4,544,763 1,214,952 1,194,870
Interest ........................... 164,300 0 151,500 12,600 19,100
------------ ------------ ------------ ------------ ------------
............................ 339,855,674 371,545,114 376,120,829 89,350,381 109,047,721
------------ ------------ ------------ ------------ ------------
Earnings before income
taxes .............................. 19,865,849 27,712,512 24,585,880 5,285,183 4,697,590
Income taxes ......................... 1,650,000 1,500,000 1,600,000 375,000 350,000
------------ ------------ ------------ ------------ ------------
Net earnings ......................... $ 18,215,849 $ 26,212,512 $ 22,985,880 $ 4,910,183 $ 4,347,590
============ ============ ============ ============ ============
Earnings per bushel:
Pretax earnings .................... $ 19,865,849 $ 27,712,512 $ 24,585,880 $ 5,285,183 $ 4,697,590
Earnings from purchased oil ........ (4,511,979) (4,680,813) (3,557,406) (1,198,320) (1,239,925)
Non-patronage joint venture income.. (1,300,427) (990,191) (1,353,708) (1,355,222) (567,093)
Book to tax differences ............ 135,170 393,608 (71,485)
------------ ------------ ------------ ------------ ------------
Tax basis soybean earnings ......... $ 14,188,613 $ 22,435,116 $ 19,603,281 $ 2,731,641 $ 2,890,572
============ ============ ============ ============ ============
Bushels processed .................. 22,630,472 30,807,933 30,466,475 6,579,233 8,237,817
Earnings per bushel ................ $ 0.63 $ 0.73 $ 0.64 $ 0.42 $ 0.35
Operating Data:
Quantities processed
Soybeans (bu.) ................... 24,136,364 30,807,933 30,446,475 6,585,202 8,237,817
Crude oil (lb.) .................. 860,221,089 894,970,248 920,492,402 222,386,518 241,044,985
Production
Meal (tons) ...................... 588,873 741,190 728,435 147,723 189,913
Flour (tons) ..................... 31,614 40,614 39,914 10,198 7,794
Refined oil (lbs.) ............... 799,908,000 835,396,000 858,240,000 223,090,442 241,813,167
1994 1995 1996 1995 1996
------------ ------------ ------------ ------------ ------------
Balance Sheet Data (at end of period):
Working capital .................... $ 33,813,064 $ 32,980,590 $ 28,619,585 $ 31,690,281 $ 26,317,895
Net property, plant
and equipment .................... 19,577,934 20,410,408 24,771,413 21,700,717 27,073,103
Total assets ....................... 53,390,998 53,390,998 53,390,998 53,390,998 53,390,998
Long-term debt, including
current maturities ............... -- -- -- -- --
Total equity ................ 53,390,998 53,390,998 53,390,998 53,390,998 53,390,998
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Certain operating information pertaining to the Division is set forth
below, as a percentage of sales, except processing margins.
Three Months Ended
Years Ended May 31, August 31,
------------------- -----------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
Gross margin
percentage ..... 6.91% 8.25% 7.33% 6.99% 5.22%
Marketing and
administrative . 1.32% 1.29% 1.14% 1.30% 1.06%
Interest ......... 0.05% -- 0.04% 0.01% 0.02%
Processing margins
Crushing/bu .... $ .50 $ .59 $ .60 $ .38 $ .32
Refining/lb .... $.0132 $.0149 $.0154 $.0116 $.0110
Because of the volatility of commodity prices, the Company believes
that processing margins are a better measure of the Division's performance than
gross margin percentages.
Comparison of Three Months Ended August 31, 1996 with 1995
The Division's net earnings of $4,400,000 for the three months ended
August 31, 1996 represent a $500,000 decrease compared to the same period in
1995. This decrease in net earnings is primarily attributable to income from an
oilseed joint venture in 1995.
Net sales of $113,100,000 for the three months ended August 31, 1996
increased by $19,900,000 (21%) compared to the same period in 1995. Volume
increases of processed soybean products, primarily soymeal and soyflour,
contributed $6,100,000 to sales and increased volumes of refined oil contributed
$5,800,000. Increased sales prices for soymeal and soyflour contributed
$15,500,000 in sales, offset by a decline in the average sales price for refined
oils which reduced sales by $7,500,000.
Other revenues of $600,000 decreased $800,000 (57%) from the 1995
period due primarily to income from an oilseed joint venture in 1995.
Cost of goods sold for the 1996 period of $107,800,000 increased
$19,700,000 (22%) from 1995. Of this increase, $9,600,000 is attributable to
additional soybean processing volume (8,250,000 bushels in 1996 compared with
6,600,000 bushels in 1995). Additional requirements for crude soy oil in 1996
resulted in approximately $3,700,000 of increased costs over 1995. An increase
in the per bushel cost of soybeans in 1996 resulted in $15,600,000 in additional
costs compared to 1995. These costs were partially offset by a decline in the
cost per pound of crude soybean oil, which reduced cost of sales by $9,200,000.
Plant expenses were essentially unchanged in 1996.
Marketing and administrative expenses were unchanged for the 1996
period compared to the 1995 period.
Interest expense was unchanged for the three months ended August 31,
1996 compared with the same period in 1995.
Income tax expense of $350,000 and $375,000 for the three months ended
August 31, 1996 and 1995, respectively, results in effective tax rates of 7.5%
and 7.1%. The increase in the effective tax rate is the result of a higher
percentage of divisional nonpatronage income in 1996 to total divisional income,
versus 1995.
Comparison of Year Ended May 31, 1996 with 1995
The Division's net earnings of $23,000,000 for the year ended May
31, 1996 is a $3,200,000 decrease in net earnings from the prior year. This
decrease in net earnings is attributable to an increase in cost of goods sold
which could not entirely be passed on to the customer due to competitive
industry conditions.
Net sales of $399,300,000 increased by $1,200,000 in 1996 compared to
1995. Product volume increases, particularly refined oil, contributed $6,800,000
in additional sales, offset by a decline in overall average sale prices which
decreased net sales by $5,600,000.
Other revenues of $1,400,000 increased $200,000 (17%) compared to 1995.
This net increase was primarily attributed to an increase in income from an
oilseed joint venture.
Cost of goods sold of $371,400,000 in 1996 increased $5,000,000 (1.4%)
compared to 1995. Of this increase, $2,700,000 is due to increased volume of
production and $2,500,000 is due to increased prices of soybeans and crude
soybean oil. Plant expenses decreased by $200,000.
While the cost of raw materials (soybeans and soybean crude oil)
increased during the year on a per unit basis, the average sales price for
products declined because of an overall increase in production in the industry.
The increase in raw material costs could not be passed on in the form of higher
sales prices because of this competitive environment and is the primary cause
for the decline in gross margins and net earnings in 1996 when compared to 1995.
Marketing and administrative expenses declined by $600,000 in 1996.
This decrease largely results from additional pension expense of $600,000 in
1995 related to a benefit plan settlement adjustment which was allocated to all
Harvest States divisions.
The Division incurred interest expense of $152,000 in 1996 while in
1995 it incurred no such expense. This increase is attributable to increased
working capital requirements caused primarily by comparatively higher inventory
values caused by higher soybean and soybean oil prices and fixed asset additions
of $6,000,000 in 1996 which were partially financed by borrowings.
Income tax expense of $1,600,000 and $1,500,000 for 1996 and 1995,
respectively, results in effective tax rates of 6.5% and 5.4%. The increase in
the effective tax rate is the result of a higher percentage of divisional
nonpatronage income in 1996.
Comparison of Year Ended May 31, 1995 With 1994
The Division's net earnings of $26,200,000 for 1995 improved $8,000,000
over 1994 due primarily to increased unit sales of soybean meal and oil.
Net sales of $398,100,000 increased by $39,700,000 (11%) over 1994.
This increase was due primarily to expansion of the facility's soybean crushing
capacity and production time lost in the 1994 season due to an extended
construction project. Soybeans crushed totaled 30,808,000 bushels in 1995
compared to 24,136,000 bushels in 1994, an increase of 28%. This increase
contributed approximately $41,000,000 in additional sales. A slight decline in
the average sales price of products reduced sales by approximately $1,300,000.
Other revenues of $1,200,000 decreased $200,000 (14%) compared to 1994.
This net decrease was due primarily to a decrease in income from the supply
contract assigned to another processor of $300,000, offset by an increase in
interest income of $100,000.
Cost of goods sold of $366,400,000 increased $31,400,000 (9.4%) from
1994. Increased volume, particularly soybeans purchased and crushed, produced
approximately $49,400,000 in additional costs. This volume increase was
partially offset by a decline in the per unit cost of soybeans and soybean oil,
which produced a favorable variance compared to the prior year of approximately
$18,700,000. Plant expense increased approximately $700,000 in 1995 due to the
additional operating time related to the volume increases.
Marketing and administrative expenses increased $400,000 (8.5%) over
1994 primarily attributed to an increase in pension costs arising from a benefit
plan settlement adjustment recognized in 1995 partially offset with a decrease
of $200,000 in other marketing and administrative expenses.
The Division incurred no interest expense in 1995 compared with
interest expense of $164,000 in 1994, primarily because of lower working capital
requirements in 1995. Working capital requirements, primarily attributed to
inventories, declined $16,900,000 between May 31, 1994 and May 31, 1995.
Income tax expenses of $1,500,000 and $1,650,000 for 1995 and 1994,
respectively, result in effective tax rates of 5.4% and 8.3%. This decrease was
the result of a lower percentage of divisional nonpatronage income to total
divisional pretax income in 1995 versus 1994.
Liquidity and Capital Resources
The Division's cash requirements result from capital improvements and
from a need to finance additional inventories and receivables based on increased
raw material costs or levels. These cash needs are expected to be fulfilled by
the Company.
Cash Flows from Operations
Operating activities for the three months ended August 31, 1996 and
1995, respectively, provided cash of $15,300,000 and $7,300,000 due to net
earnings contributions of $4,400,000 and $4,900,000, and a decrease in working
capital requirements of $10,600,000 and $25,000,000.
For the years ended May 31, 1996, 1995 and 1994, the Division's
operating activities generated net cash of $14,400,000, $44,900,000 and
$9,100,000. Net earnings of $23,000,000, $26,200,000 and $18,200,000 in 1996,
1995 and 1994, respectively, were offset by an increase in working capital
requirements in 1996 of $10,200,000, in 1994 of $5,800,000, while a decrease in
working capital requirements in 1995 added $16,900,000.
Cash Flows Used for Investing
The Division used $2,700,000 and $1,700,000 during the three months
ended August 31, 1996 and 1995, respectively, for the purchase of property,
plant and equipment.
Net cash flows used in the Division's investing activities for the
years ended 1996, 1995 and 1994 were $6,000,000, $2,600,000 and $6,300,000,
respectively. Essentially all of these cash usages were for the acquisition of
property, plant and equipment.
Cash Flows from Financing Activities
The Division's financing activities are coordinated through the
Company's cash management department. Cash from all of the Company's operations
is deposited with the Company's cash management department and disbursements are
made centrally. As a result, the Division has a zero cash position. Financing is
available from the Company to the extent of the Company's working capital
position and corporate loan agreements with various banks, and cash requirements
of all other Company operations.
Working capital requirements for each Division of the Company are
reviewed on a periodic basis, and could potentially be restricted based upon
management's evaluation of the prevailing business conditions and availability
of funds.
The Division had debt of $1,200,000 on August 31, 1996, an increase of
$400,000 over 1995 which reflects working capital and fixed asset financing
requirements.
Debt outstanding and payable to the Company as of May 31, 1996 and 1994
was $2,300,000 and $2,400,000, respectively, whereas the Division had a
receivable from the Company of $1,900,000 on May 31, 1995. These interest
bearing balances reflect working capital and fixed asset financing requirements
of the respective years.
Supply
The Processing and Refining Division purchases virtually all of the
soybeans processed by it from Members. The balance is purchased in the
commercial marketplace. Because the Processing and Refining Division has not had
long-term contracts with customers, it does not obligate itself to purchase
soybeans based on orders received from customers but instead on its
contemplation of future production. The Processing and Refining Division does
not hold significant inventories of raw beans; capacity for raw bean storage is
approximately three to four weeks of production. At any one time, inventories of
beans and contracts for future delivery represent two to ten weeks of
requirements. Inventories of raw beans and contracted purchases for future
delivery are substantially hedged.
The Processing and Refining Division also purchases crude soybean oil
for processing at its refinery. Approximately 40% of the crude oil refined is
produced by the Processing and Refining Division, and the balance is purchased.
Major suppliers have been AGP and ADM. Because ADM is opening a refinery early
in 1997 in Minnesota, it will no longer be a major supplier of crude oil.
However, there are several producers of crude oil, and the Company believes it
will be able to replace this supply source. The refining facility has storage
capacity for approximately 10 days' supply of crude oil, so it depends on a
steady supply of crude oil to supplement its own output of crude oil to maintain
constant production. It typically commits for several months' supply, to be
priced prior to delivery.
As with other agricultural commodities, the availability and price of
soybeans fluctuate with forces of supply and demand. The Processing and Refining
Division has never experienced a supply shortage of soybeans.
Customers
Refined Oils. The Processing and Refining Division sells refined oil
throughout most of the United States although it concentrates on customers
located in Minnesota, Wisconsin, North and South Dakota, northern Iowa and
northern Illinois, which can be reached by truck rather than rail and are
therefore slightly more profitable. Customers in these states accounted for more
than 50% of refined oil sales in the year ended May 31, 1996. The Company
estimates that of oil sold, 25% is used for margarine, 15 to 20% for salad
dressing and smaller percentages for snack foods, bakeries, imitation cheese
manufacturers, processed potato manufacturers and others. Approximately 5% of
oil sales are for industrial use. During the year ended May 31, 1996, the
Processing and Refining Division had over 100 customers, the largest of which
was Ventura Foods and its predecessor operations described in the next
paragraph. One other customer was responsible for over 10% of refined oil sales
by the Division. Sales of refined oil are made by Division employees and to a
lesser extent by brokers.
The Company has a long-term supply agreement with Ventura Foods, LLC.
(see "--Ventura Foods") which commences January 1, 1997 and continues for 15
years or longer if the Company continues to hold at least a 25.5% interest in
Ventura Foods. The Company has agreed to supply and Ventura has agreed to
purchase a minimum quantity of soybean salad oil, hydrogenated soybean oil and
other edible oils which the Company may refine during the term of the agreement.
The Company has agreed to sell to Ventura Foods, and Ventura Foods has agreed to
purchase from the Company, during each calendar year at least 430,000,000 pounds
of products or 50% of its requirements if greater, but not more than 100% of its
requirements. The price for the products sold to Ventura Foods is a formula
adjusted annually to be competitive with alternative sources.
Soybean Meal. Soybean meal sold by the Processing and Refining Division
is used for feeding animals. During the year ended May 31, 1996, the Division
sold meal to over 500 customers, primarily feed lots and feed mills. During the
year ended May 31, 1996, ten customers accounted for approximately 55% of meal
sold, and two customers, which would be difficult to replace, accounted for
approximately 34% of meal sold. For the year ended May 31, 1996, 55% of meal was
sold in Minnesota, 25% in Wisconsin, 13% in Canada and the balance in Iowa, the
Dakotas and Montana. These sales could be adversely affected by a decline in the
livestock or turkey industries in these areas. Substantially all meal sales are
made directly by employees of the Division.
Soyflour. Soyflour is used in the baking industry, as milk replacers in
animal feed and in industrial applications. Sales of soyflour have not been
significant relative to sales of meal.
Competition
The Company believes that the Processing and Refining Division has 6 to
8% of the refined soybean oil market and less than 3% of the soybean crushing
capacity. See "Industry Overview."
Processing
Soybeans arriving by truck or rail are sampled, weighed, dumped and
unloaded into bean storage. When brought out of storage, beans are cleaned,
dehulled, cracked and conditioned and are compressed into flakes. Oil is removed
from the flakes through a solvent process. Flakes are then further processed
into soyflour or soymeal. Soymeal can be made into animal feed at various
protein levels.
Crude oil is filtered to remove remaining meal particles and
centrifuged to separate out trace constituents. The oil can be sold as an
industrial product used in plastics, inks and paints. Further processing
prepares the oil for food use, by bleaching with a special clay to remove trace
metals, chlorophyll and other impurities to make salad oil. By adding hydrogen
under pressure to bleached oil, the Company makes partially hydrogenated soybean
oil which may be used in products such as shortenings or margarines. To remove
unwanted odors, flavors and mild color constituents, bleached or hydrogenated
oil is heated under vacuum. The result is a product that is flavorless,
odorless, tasteless and virtually clear.
While the Processing and Refining Division runs at between 80 to 100%
of capacity throughout the year, volume is typically higher at harvest time
since soybean supplies are more abundant in the fall. Producer and cooperative
elevator storage capabilities allow suppliers to sell for delivery throughout
the year.
Facilities
The Division has one facility located in Mankato, Minnesota, comprised
of a crushing plant, a refinery, a flour plant and self contained utilities. A
quality control lab with technically sophisticated equipment assures high
quality standards.
The Division expects to expend approximately $26 to $36 million over
the three years ending May 31, 1999, to expand the capacity of its crushing
plant, to increase processing efficiency and to meet environmental requirements.
Employees
The Processing and Refining Division currently employs 202 employees,
34 in the office in administration, sales and support service and 168 in the
plant.
VENTURA FOODS
On August 30, 1996, the Company and Wilsey Foods, Inc. combined the
assets and certain liabilities of the Company's Holsum Foods consumer products
packaging division with the assets and liabilities of Wilsey Foods, Inc. as
Ventura Foods, LLC ("Ventura Foods"). A joint venture owned by Wilsey Foods,
Inc. and the Company which operated a manufacturing facility in Chambersburg,
Pennsylvania, was merged into Ventura Foods. The Company owns 40% and Wilsey
Foods owns 60% of the equity and rights to distribution of profits of Ventura
Foods. The Company's total net investment in Ventura Foods was $27,000,000 as of
August 30, 1996.
Sales by the Processing and Refining Division to Ventura Foods and its
predecessors in interest are shown below:
<TABLE>
<CAPTION>
Three Months Ended
Years Ended May 31, August 31,
------------------- ----------
1994 1995 1996 1995 1996
----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales ($) $80,425,000 $99,150,000 $111,650,000 $29,632,000 $30,322,000
Percentage of total
refinery sales ........... 31% 35% 40% 41% 42%
</TABLE>
Ventura Foods is in the business of manufacturing and/or packaging and
selling food products, including salad dressings, mayonnaise, margarine, salad
oils, jams, jellies, olives, syrups, soup bases and sauces. Its customers are
national. Ventura Foods is governed by a committee, and each of the Company and
Wilsey Foods appoints half the committee members. Neither the Company nor Wilsey
Foods may transfer any part of its interest in Ventura Foods until September 1,
1999. Thereafter a transferring party must retain at least a 25.5% interest in
Ventura Foods. Ventura Foods will be dissolved if it has cumulative losses in
excess of $25 million or is unable to discharge its liabilities as they become
due.
WHEAT MILLING
Industry Overview
The Company's Milling Division mills durum wheat into flour and semolina
and, to a lesser extent, mills spring and winter (hard) wheats into bread flour.
The Milling Division is the largest miller of durum wheat in the United States.
The Milling Division had historically concentrated on durum wheat milling at its
Rush City and Huron facilities. With the opening of its Kenosha mill in late
1995, which can produce durum and bakery flours, and its Houston facility,
scheduled to open in February 1997, which will produce primarily bakery flour,
the Division has broadened its markets and significantly increased its capacity.
Semolina and Durum Flour. Durum wheat millers process durum wheat into
semolina and durum flours. Semolina and high grade durum flours are the chief
ingredient in pasta; low grade durum flour is used for pet food. Durum is grown
in arid regions of the United States, such as North Dakota and certain areas of
the Southwest, as well as in other countries. Most of the quality durum is grown
in the Midwest, particularly North Dakota. Durum milling plants are generally
located in proximity to customers; wheat is shipped to the mill for milling.
Sale of semolina and durum flour is entirely dependent on pasta
production. Per capita consumption of pasta has continued to increase in recent
years, and the number of consumers continues to grow with population growth.
Pasta in its many forms is sold at retail, for restaurants and institutional use
and for use in other processed food products.
Imported pasta accounted for approximately 11% of the domestic market
in the year ended May 31, 1996. The International Trade Commission in July 1996
determined that certain Italian and Turkish companies benefitted unfairly from
subsidies and had sold product in the United States at less than fair value and
imposed countervailing and anti-dumping duties. However, the Company does not
believe the amount of imports has decreased significantly.
Major competitors in the industry (and estimates by the Company of
their respective market shares) include the Company (30%), Italgrani (20%) and
Miller Milling (10%). Competition is driven by price, service and product
quality. Some competitors have developed long-term relationships with customers
by locating plants adjacent to pasta manufacturing plants.
Bakery Flour. Bakery flour milled from spring and hard winter wheat is
used in breads, cookies, pizza crusts, tortillas and other products. The baking
industry is highly fragmented, with the largest participant being no more than
four percent of the market.
Demand for bakery flour has been stable, although per capita
consumption fell slightly in the year ended May 31, 1996. New dietary guidelines
established by the United States Department of Agriculture emphasize cereal
grains in the food pyramid. The Company believes that demand for bakery flour
will increase based on population growth. Imports and exports of bakery flour do
not significantly affect the domestic business.
Selected Financial and Operating Data
The selected financial information presented below has been derived
from the Milling Division's financial statements. The financial statements for
the years ended May 31, 1994, 1995 and 1996, were audited by Deloitte & Touche
LLP. The financial statements for the three-month periods ended August 31, 1995
and 1996, are unaudited. In management's opinion, the unaudited financial
statements for the three-month periods include all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of the
Division's financial condition and results of operations for such periods. The
results for the three-month period ended August 31, 1996, are not necessarily
indicative of the results expected for the full year. The selected financial
information should be read in conjunction with the Division's financial
statements and notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Three Months Ended
Years Ended May 31, August 31,
------------------- ----------
1994 1995 1996 1995 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Sales ................................ $ 103,716,012 $ 119,725,183 $ 173,315,613 $ 32,416,461 $ 55,647,949
Costs and expenses
Cost of goods sold ................. 97,206,374 112,690,679 161,293,430 30,005,525 51,323,046
Marketing and
administrative ................... 2,415,155 3,834,289 4,471,563 985,644 1,104,186
Interest ........................... 1,832,037 2,278,544 4,457,797 766,517 1,411,133
------------- ------------- ------------- ------------- -------------
101,453,566 118,803,512 170,222,790 31,757,686 53,838,365
Earnings before income:
taxes .............................. 2,262,446 921,671 3,092,823 658,775 1,809,584
Income taxes ......................... 150,000 125,000 200,000 50,000 125,000
------------- ------------- ------------- ------------- -------------
Net earnings ......................... $ 2,112,446 $ 796,671 $ 2,892,823 $ 608,775 $ 1,684,584
============= ============= ============= ============= =============
Earnings per bushel:
Pretax earnings .................... $ 2,262,446 $ 921,671 $ 3,092,823 $ 658,775 $ 1,809,584
Book to tax differences ............ (135,715) 123,844 (84,481)
------------- ------------- ------------- ------------- -------------
Tax basis earnings ................. $ 2,126,731 $ 1,045,515 $ 3,008,342 $ 658,775 $ 1,809,584
============= ============= ============= ============= =============
Bushels milled ..................... 16,930,702 17,696,689 22,390,011 4,374,157 6,971,473
============= ============= ============= ============= =============
Earnings per bushel ................ $ 0.13 $ 0.06 $ 0.13 $ 0.15 $ 0.26
Operating Data:
Wheat used (bu.)
Durum ............................ 15,763,000 16,058,000 19,376,000 4,055,528 5,405,721
Spring ........................... 1,167,000 1,638,000 3,013,000 318,629 1,565,752
Shipments (cwt)
Semolina/flour ................... 8,088,000 8,718,000 10,085,000 2,149,063 2,849,659
Baking flour ..................... -- -- 634,000 -- 576,530
1994 1995 1996 1995 1996
------------- ------------- ------------- ------------- -------------
Balance Sheet Data (at end of period):
Working capital .................... $ (4,703,152) $ 1,604,146 $ 3,337,317 $ (11,244,789) $ 250,603
Net property and
equipment ........................ 19,739,029 43,395,670 59,233,046 50,584,430 62,587,320
Total assets ....................... 55,031,562 82,606,055 125,321,564 92,360,887 133,899,743
Long-term debt, including
current maturities ............... 19,000,000 33,750,000 54,000,000 45,500,000 54,000,000
Total equity ....................... 27,797,072 27,797,072 27,797,072 27,797,072 27,797,072
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Certain operating information pertaining to the Division is set forth
below, as a percentage of sales, except for margins/cwt.
<TABLE>
<CAPTION>
Three Months Ended
Years Ended May 31, August 31,
------------------- ----------
1994 1995 1996 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross margin
percentage ....... 6.28% 5.88% 6.94% 7.44% 7.77%
Marketing and
administrative ... 2.33% 3.20% 2.58% 3.04% 1.98%
Interest ........... 1.80% 1.90% 2.57% 2.36% 2.54%
Margins/cwt ........ $ .80 $ .81 $ 1.12 $ 1.33 $ 1.31
</TABLE>
Because of the volatility of commodity prices, the Company believes
that margins per hundred weight (manufacturing margins) are a better measure of
the Division's performance than gross margin percentages.
Comparison of Three Months Ended August 31, 1996 with 1995
The Division's net earnings of $1,700,000 for the three months ended
August 31, 1996 represents a $1,100,000 increase from the same period in 1995
due to a modest increase in gross margins and the control of marketing and
administrative expenses despite the substantial increase in sales.
Net sales of $55,700,000 for the three months ended August 31, 1996,
increased by $23,300,000 (72%) from the same period in 1995 due to an increase
in shipments from 2,700,000 cwt to 4,400,000 cwt as the Division's Kenosha mill
came on line in late 1995 and an increase in average price per cwt from
$11.82 in 1995 to $12.67 in 1996.
Cost of goods sold of $51,300,000 for the three months ended August 31,
1996 increased by $21,300,000 (71%) from the same period in 1995. Raw material
costs increased $19,800,000 due to an average increase of 48 cents per bushel
for durum and wheat and a 60% increase in bushels used (4.4 million bushels in
the 1995 period and 7.0 million bushels in the 1996 period). Plant expenses
increased by $1,500,000 in the 1996 period, of which $1,300,000 is attributable
to the Kenosha mill, which was not in operation in fiscal year 1995.
Marketing and administrative expenses were $1,100,000 for the three
months ended August 31, 1996 compared with $1,000,000 for the same period in
1995. This increase is attributable to an increase in staff and system expansion
to handle the additional volumes generated by the Kenosha mill.
Interest expense of $1,400,000 for the 1996 period increased by
$600,000 compared to the similar period of 1995. This increase is attributable
to additional short-term borrowings necessary to carry increased inventories and
receivables caused primarily by comparatively higher prices for durum and wheat
and volume increases, primarily the result of production from the Kenosha mill,
and additional interest expense on the debt used to finance the construction of
the Kenosha mill.
Comparison of Year Ended May 31, 1996 with 1995
The Division's net earnings of $2,900,000 for the year ended May 31,
1996 increased $2,100,000 over 1995. This increase in net earnings is
attributable to higher volumes, largely the result of increased processing
capacity generated by the opening of the Kenosha milling facility during the
fiscal year 1996, and higher sales prices.
Net sales of the Division of $173,300,000 increased by $53,600,000
(45%) from 1995, due to an increase in shipments of semolina and flour from
8,720,000 cwt to 10,720,000 cwt and an increase in the average price per cwt
from $11.03 in 1995 to $12.64 in 1996.
Cost of goods sold of $161,300,000 increased $48,600,000 (43%) from
1995. Raw material costs increased $46,000,000 due to an average increase of 83
cents per bushel for durum and wheat and a 38% increase in bushels sold of 6.7
million bushels, from 17.7 million bushels in 1995 to 24.4 million bushels in
1996. Plant expenses increased $2,600,000 in 1996, essentially all due to
operations of the Kenosha mill, which did not begin milling until late 1995.
Marketing and administrative expenses were $4,500,000 in 1996 and
increase of $700,000 from 1995. This increase is attributable primarily to an
increase of $900,000 due to staffing and system expansion to handle the
additional volumes generated by the Kenosha mill, offset by a decrease of
approximately $200,000 in pension expense related to a benefit plan settlement
adjustment in 1995.
The Division incurred interest expense of $4,500,000 in 1996 compared
with $2,300,000 in 1995. This increase was attributable to increased short-term
borrowings used to finance higher inventories and receivables primarily the
result of production from the Kenosha mill and increased long-term debt used to
finance construction of the Kenosha mill.
Comparison of Year Ended May 31, 1995 with 1994
The Division's net earnings of $800,000 for the year ended May 31, 1995
decreased $1,300,000 from 1994. The decrease is attributable to increases in
marketing and administrative expenses and interest expense which were only
partially offset by a small increase in gross margins.
Net sales of $119,700,000 increased $16,000,000 (15%) from 1994
despite a 6.4% increase in shipments, due primarily to an increase in average
sales price from $10.18 per cwt in 1994 to $11.03 per cwt in 1995.
Cost of goods sold of $112,700,000 in 1995 increased $15,500,000 (16%)
from 1994. The primary cause for this increase was a 750,000 bushel increase in
raw material input, from 16,950,000 bushels in 1994 to 17,700,000 bushels in
1995. Cost per bushel and plant expenses remained relatively unchanged between
1994 and 1995.
Marketing and administrative expenses of $3,800,000 increased
$1,400,000 (58%) from 1994. This increase was due partially to an increase in
pension cost relative to a benefit plan settlement adjustment reflected in 1995
and an increase of $1,200,000 for all other marketing and administrative
expenses, primarily for staffing and system expansion relative to the Kenosha
mill which was under construction in 1995.
The Division incurred interest expense of $2,300,000 in 1995 increased
from $1,800,000 in 1994. Increased short-term borrowings to support higher
inventory and receivable balances caused additional interest expense of $300,000
in 1995. Borrowings for additions to property, plant and equipment in 1995
contributed an increase in interest expense of $200,000 over 1994.
Liquidity and Capital Resources
The Division's cash needs are primarily the result of continued capital
additions. The Division's Kenosha plant, which began operations in late 1995,
represented an investment of $39,000,000. The Division's Houston plant, which is
expected to begin operations in February 1997, is expected to represent an
investment of $15,400,000. In addition, if the Pocono facility is constructed
(see "--Facilities"), the Division expects capital additions of $38,800,000. The
Division expects capital additions to all its facilities.
Commencement of operations at a particular facility involves increased
working capital to fund required inventories and receivables related to
increased sales. In addition, increased carrying value of inventories and
receivables because of higher prices, increased receivables because of slow
collections or increased inventories above historical levels requires additional
financing.
All of the Division's financing needs are expected to be met by the
Company.
Cash Flows from Operations
Operating activities for the three months ended August 31, 1996 and
1995, respectively, provided net cash of $4,600,000 and $3,400,000 due to net
earnings contributions of $1,700,000 and $600,000, a decrease in working capital
requirements of $1,900,000 and $2,200,000, and non-cash expenses such as
depreciation and amortization of $1,000,000 and $600,000, respectively.
Operating activities used net cash of $16,200,000 in the year ended May
31, 1996, provided $7,800,000 in 1995, and used $8,500,000 in 1994, generally
attributable to working capital needs, namely an increase in working capital
requirements in 1996 of $22,400,000, a decrease in working capital requirements
of $4,500,000 in 1995, and an increase in working capital requirements in 1994
of $12,800,000. Cash requirements were offset by net earnings of $2,900,000,
$800,000 and $2,100,000 in 1996, 1995 and 1994, respectively, and depreciation
and amortization of $3,300,000, $2,500,000 and $2,200,000 in 1996, 1995 and
1994, respectively.
Cash Flows Used from Investing
Cash expended for the acquisition of property, plant and equipment
during the three months ended August 31, 1996 and 1995 totaled $4,100,000 and
$7,600,000, respectively.
Net cash flows used in the Company's investing activities for the years
ended 1996, 1995 and 1994 were $18,100,000, $25,100,000 and $800,000,
respectively. All of these cash usages were for the acquisition of property,
plant and equipment. The Division also acquired intangibles of $476,000 and
$5,600,000 in 1996 and 1995, respectively, related to the elimination of a
minority interest effective June 1, 1994.
Cash Flows from Financing Activities
The Division's financing activities are coordinated through the
Company's cash management department. Cash from all of the Company's operations
is deposited with the Company's cash management department and disbursements are
made centrally. As a result, the Division has a zero cash position. Financing is
available from the Company to the extent of the Company's working capital
position and corporate loan agreements with various banks and cash requirements
of all other Company operations.
Working capital requirements for each division of the Company are
reviewed on a periodic basis, and could potentially be restricted based upon
management's evaluation of the prevailing business conditions and availability
of funds.
The Division had short-term debt of $32,200,000 on August 31, 1996, an
increase of $5,200,000 over May 31, 1996, which reflects working capital and
fixed asset financing requirements.
Short-term debt outstanding and payable to the Company as of May 31,
1996 and 1995 was $27,000,000 and $9,750,000, respectively. These interest
bearing balances reflect working capital and fixed asset financing requirements
of the respective years.
On May 31, 1996 and 1995 the Division's long-term debt was $54,000,000
and $33,750,000. This debt was incurred by the Division to retire debt assumed
with the acquisition of the Huron facility in 1990, to expand the Huron facility
in 1990 and 1991, and to construct Kenosha in the 1995 and 1996 fiscal years.
Supply
Most of the durum, spring and winter wheats processed by the Milling
Division is purchased from Members. Some grain is purchased from Canada and a
small percentage is purchased from the Southwest.
Semolina and durum flour sales are hedged to a significant extent by
buying durum at the time of pricing the semolina or flour. To minimize the price
volatility for winter and spring wheats, the Milling Division usually hedges by
purchasing wheat futures at the time of pricing the flour. There is no futures
market for durum, and except for limited cross hedging using other commodities
the Milling Division does not hedge durum.
The availability, price and quality of durum and spring and winter
wheat affect the operations and profitability of the Milling Division. The
Milling Division has never experienced a supply shortage of durum, but shortages
have affected prices.
Customers
Semolina & Durum Flour. The Milling Division sells semolina and durum
flour to eight major customers and approximately 50 smaller customers, which are
large and mid-size pasta manufacturers in the United States. In the year ended
May 31, 1996, over 38% of the Milling Division's total production was sold to
its two largest customers, Borden and Hershey, which are estimated by the
Company to represent approximately 60% of the country's pasta production. The
Milling Division would be adversely affected by the loss of either of these
customers or a decline in the market share of either customer.
The Milling Division would be adversely affected by a decline in pasta
production in the United States.
Most of the Milling Division's products are marketed by employees of
the Milling Division. The Milling Division uses outside agents and distributors
for the balance of its production.
Bread Flour. The baking industry is composed of many companies. No one
customer buys more than 10% of the Milling Division's bread flour production.
The Company believes because of the large number of potential customers and the
fact that the Milling Division is not dependent on any customer, it would not
have substantial difficulty in replacing an existing customer.
The Milling Division's first hard wheat milling unit (Kenosha) began
production in late 1995. In October 1996, the Milling Division expanded hard
wheat capacity with the addition of a swing mill at Kenosha capable of milling
either durum or hard wheat flour. A plant in Houston, expected to open in
February 1997, will add additional hard wheat capacity. The Company believes
that there is a substantial customer base available in the Houston area. The
area serves a sizeable population base and there are no other milling facilities
within the area.
Competition
Durum Milling. The Milling Division's largest competitors in durum
milling are Italgrani and Miller Milling Company.
Dakota Growers has expanded its Carrington, North Dakota, milling
facility and has begun expansion of its pasta production capacity. Philadelphia
Macaroni has announced plans to build a semolina mill in Minot, North Dakota.
General Mills has announced a plant expansion in Great Falls, Montana.
Bread Flour. Competitors include ConAgra, ADM, Cargill, Bay State
Milling, Cereal Foods and General Mills. All of these competitors have multiple
milling facilities with larger bakery flour production capacity than the Milling
Division. Capacity for hard wheat milling has been expanding faster than
consumption. This additional capacity may put pressure on margins.
Processing
The Division mills wheat into flour using standard industry processes.
More recently manufactured equipment has reduced the labor component of wheat
milling. The Company believes that its facilities are, on average, newer than
its competitors. Operations are somewhat seasonal in anticipation of reduced
demand for pasta in summer months.
Facilities
The Milling Division has four milling facilities in operation;
production in Houston is scheduled to begin in February 1997. Each facility
includes a milling plant as well as an elevator to store grain. Information on
the four mills is set forth below:
Location Grain Milled Capacity
-------- ------------ --------
Rush City, MN Primarily durum 10,000 cwts/day
Huron, OH Primarily durum 14,500 cwts/day
Kenosha, WI Durum 11,000 cwts/day
Spring and winter wheat 10,000 cwts/day
Houston, TX Spring and winter wheat 13,000 cwts/day
The Rush City and Kenosha facilities are owned entirely by the Company. At
Houston, the milling plant is constructed on property leased from the Port of
Houston on a long-term basis and the elevator is owned by the Port of Houston,
but is subject to a put through agreement with the Company. The Huron facility
is leased on a long-term basis, but the equipment is owned.
Because transportation costs for durum, spring and winter wheats are
cheaper than for the milled products, it is a strategic advantage for a mill to
be located close to a large customer base rather than close to the producer.
Each of the Huron, Kenosha and Houston mills are in proximity to a large
customer base. The Company's Rush City mill is in an area close to one customer
that currently takes, under contract, most or all of the production. However,
there is no large customer base in proximity to the Rush City Plant.
Approximately 85% of the Milling Division's current milling capacity
uses equipment that is less than 10 years old. This newer equipment generates
cost advantages in labor, energy, improved yields and better and more
consistent products. In the last few years, some competitors have closed less
efficient mills in less strategic locations.
The Milling Division plans to construct semolina and flour and bread
flour mills in Pocono, Pennsylvania, but has not received final approval of the
plans by the local and state authorities. If it is unable to secure necessary
approvals, it intends to seek an alternative location.
For the year ended May 31, 1996 the Milling Division facilities ran at
97% of capacity based upon a year of 307 operating days being 100%.
Employees
As of November 30, 1996 the Milling Division employed the following
full time equivalents: production (97), plant management (15) and headquarters
(20).
FARM MARKETING AND SUPPLY
The Farm Marketing and Supply Division owns and operates Agri-Service
Centers at 144 locations in Minnesota, North Dakota, South Dakota, Montana,
Idaho and Washington. Agri-Service Centers sell farm supplies, including
fertilizer, feed, seed and crop protection products, and other related services
and have grain elevator operations that buy grain. Some Centers have only grain
operations or grain and feed operations, while some have only supply operations.
Locations are grouped together into 47 units for operational purposes. A small
number of Centers are grouped into seven regionalizations, which have their own
producer board and participate in separate patronage pools.
Agri-Service Centers purchase grain from member and nonmember producers
and others, such as other elevators and grain dealers. Of these facilities, 55
have the capability of loading unit trains, while other facilities can load only
single cars or are truck stations. Most of the grain purchased is sold through
the Company's Grain Marketing division, with the balance going to local feed and
grain processors.
The supplies and services offered vary from location to location.
Agronomy supplies and services are sold at approximately 70 locations to member
and non-member producers. Feed is sold at approximately 75 locations. Agronomy
and feed sales are considered district operations involving different expertise
and sales forces.
Most feed sold is purchased from the Feed Division. Fertilizer is
obtained from co-op sources and other suppliers. Crop protection products are
bought through co-op programs and directly from industry sources. Other goods
are obtained through commercial channels.
The Company has increased the number of Agri-Service Centers in recent
years. The number, the number of bushels of grain purchased and sales of Centers
for the years ended May 31 are shown below:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
No. of centers ..... 107 105 115 121 144
No. of op. units ... 42 42 43 43 47
Grain purchased (bu) 175,773,000 175,492,000 141,238,000 159,891,000 214,085,000
Sales .............. $ 636,266,516 $ 651,697,000 $ 613,151,000 $ 679,200,000 $1,126,600,000
</TABLE>
Competitors for the purchase of grain include other elevators and large
grain marketing companies. Competitors for the sale of agronomy supplies and
feed include a variety of cooperative and privately owned facilities. The
Company competes on the basis of service and patronage.
On November 30, 1996, the Division had over 1,000 full time employees
and over 300 temporary employees.
Fin-Ag, Inc. Fin-Ag, Inc. is a wholly owned subsidiary of the Company
located in Sioux Falls, South Dakota. It provides seasonal cattle feeding and
swine financing loans, facility financing loans and crop production loans for
producers. It also provides consulting services to member cooperatives. Its
competitors are other financial institutions. Most whole loans are sold to the
St. Paul Bank for Cooperatives, on which the Company bears a 15% residual
exposure. The Company's exposure at November 30, 1996, was approximately
$7,500,000. Under the Company's borrowing arrangements (see "Capitalization")
the maximum amount of the loans outstanding at any one time may not exceed
$35,000,000.
FEED
The Company manufactures and sells feed products and sells feed
ingredients, supplements and animal health products under several brand names,
including GTA Feeds(R), Norco Feeds, CC Bar Feeds, Let'er Buck Feeds(R) and
Pantec(TM). In addition, it provides livestock production services, including
customized ration planning, feedstuffs analysis, profit projections, livestock
nutritional management, recordkeeping, animal health and environmental
engineering and facility management. Sales are made at retail through five
retail stores and through Agri-Service Centers and at wholesale to cooperatives
(both Affiliated Associations and otherwise) and to other retail farm supply
businesses located in Minnesota, North Dakota, South Dakota, Nebraska, Montana,
Wyoming, Idaho, Washington and Oregon.
Sales of feed for the years ended May 31 is set forth below:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Manufactured feed (tons) . . 262,000 301,000 306,000 333,000 351,000
</TABLE>
The Company has been able to increase sales and production capacity through
several joint venture arrangements entered into in recent years.
The Company owns nine manufacturing facilities located in Sioux Falls,
South Dakota; Great Falls, Montana; Hardin, Montana; Dickinson, North Dakota;
Minot, North Dakota; Edgeley, North Dakota; Willmar, Minnesota; Gettysburg,
South Dakota; and Norfolk, Nebraska. The Company also has an interest in three
joint ventures with facilities in Hermiston, Oregon; Tillamook, Oregon; and
Owatonna, Minnesota. The administrative office for the feed business is located
in Sioux Falls, South Dakota.
The Feed Division's operations reflect the condition of the livestock
business. Recent increases in poultry and swine production have been driven by
increased exports. The transition from individual producers to more integrated
producers has affected the demand for and composition of the Division's
products.
At November 30, 1996, the Division had 265 full time and 9 part time
employees.
Competitors in the feed business are other cooperatives and private
companies.
The Company is a part of the Cooperative Research Farms, a research
partnership of 12 regional cooperatives in the United States, Canada and France.
This partnership provides the Company with production research.
SERVICES
The Company's Country Services Division provides certain services to
Individual Members and Affiliated Associations.
Country Hedging, Inc.
Country Hedging, Inc. offers full service commodity futures and options
brokerage. For the year ended May 31, 1996, 60% of revenues were from Affiliated
Associations, 30% from Individual Members and 10% from others. This separate
subsidiary of the Company is a registered futures commission merchant and a
clearing member of both the Minneapolis Grain Exchange and the Kansas City Board
of Trade. On November 30, 1996, it had 38 employees operating primarily out of
St. Paul, Minnesota.
Competitors include international brokerage firms, national brokerage
firms, regional brokerage firms (both co-op and non-co-op) as well as local
introducing brokers. Competition is driven by price and service.
Ag States Agency, LLC
Ag States Agency, LLC, 50% owned by the Company, is an independent
insurance agency which sells insurance primarily to local cooperatives,
including group benefits, property and casualty, and bonding programs. For the
year ended May 31, 1996, substantially all of its revenues were from local
cooperatives. Ag States Agency, LLC competes with other insurance agencies.
Financial Services Department
The Financial Services Department provides business planning consulting
and financing to Affiliated Associations. It offers open account financing,
involving the discretionary extension of credit, and term and seasonal loans.
Most of the term and seasonal loans are participated up to 90% to National Bank
for Cooperatives (CoBank). Participation by CoBank is subject to credit approval
on a loan-by-loan basis by CoBank subject to an overall limit of participation
of $150,000,000. In addition to financing, the open account between the Company
and an Affiliated Association is used as a clearing account for settlement of
grain purchases and as a cash management tool. Open account financing has been
provided to more than 200 Affiliated Associations in the past year.
During the year ended May 31, 1996, average aggregate loan balances
outstanding were $106,581,000 (of which CoBank's participation was $59,836,000)
and the highest aggregate loan balance outstanding at any one time was
$177,939,000 (of which CoBank's participation was $78,287,000). The Company's
borrowing arrangements limit loan balances outstanding to not more than
$150,000,000 at any one time. See "Capitalization."
Pursuant to its agreement with CoBank, the Company has additional
credit risk on CoBank participations to 10% of total loan commitments.
A wholly owned subsidiary of the Company provides certain types of
financing to members. See "Farm Marketing and Supply."
Affiliated Accounting Department
The Affiliated Accounting Department offers computerized country
elevator accounting systems and a full complement of accounting support systems
for local cooperatives, including tax and patronage allocation services,
dividend ledger services and payroll services. For the year ended May 31, 1996,
substantially all of its revenues were from local cooperatives.
Field Services Department
The Field Service Department acts as a liaison between Affiliated
Associations and the Company, providing consulting services in marketing,
management, operations, accounting, tax, finance and government regulations.
Member Relations Department
The Member Relations Department conducts cooperative education programs
for Affiliated Associations and assists in planning meetings and organizing
visits to Company facilities.
MANAGEMENT
Board of Directors
The table below lists the current directors of the Company, consisting
of four members from District One (comprised of the states of Minnesota,
Illinois, Iowa and Wisconsin), four members from District Two (comprised of the
state of North Dakota), two members from District Three (comprised of the states
of South Dakota, Kansas and Nebraska), two members from District Four (comprised
of the states of Montana and Wyoming) and two members from District Five
(comprised of the states of Washington, Oregon, Utah and Idaho). Each director
must be an agricultural producer and an active patron of the Company (either
directly or through an Affiliated Association) for a period of five years at the
time of the director's election, must be less than 68 years of age at the time
of election and cannot be an employee of the Company or of an Affiliated
Association. The directors have been elected for three-year terms, expiring in
November of the years listed in the table below.
<TABLE>
<CAPTION>
Term
Director Expires
Name and Address Age District Since in Nov.
- - - - ---------------- --- -------- ----- -------
<S> <C> <C> <C> <C>
Steven Burnet 56 5 1983 1998
94699 Monkland Lane
Moro, OR 97039-9705
Steve Carney 45 4 1988 1997
P.O. Box 1122
Scobey, MT 59263-1122
Edward Ellison 61 1 1978 1999
RR 1, Box 46
Elbow Lake, MN 56531-9740
Sheldon Haaland 58 1 1984 1997
RR 2, Box 55
Hanley Falls, MN 56245-9731
Jerry Hasnedl 50 1 1995 1998
RR 1, Box 39
St. Hilaire, MN 56754
Edward Hereford 57 5 1983 1997
RR 1, Box 53
Thornton, WA 99176-9710
Gerald Kuster 61 2 1979 1997
RR 1, Box 46
Reynolds, ND 58275-9742
Leonard Larsen 60 2 1993 1999
RR 1, Box 88
Granville, ND 58741
Tyrone Moos 58 3 1991 1997
HCR 1, Box 1
Phillip, SD 57567-9601
Duane Risan 60 2 1989 1998
RR 1, Box 4
Parshall, ND 58770-9703
Duane Stenzel 50 1 1993 1999
RR 2, Box 173
Wells, MN 56097
Russell Twedt 47 4 1993 1999
P.O. Box 296
Rudyard, MT 59540-0296
Merlin Van Walleghen 60 3 1993 1999
RR 1, Box 188
Letcher, SD 57359
William Zarak 61 2 1983 1998
3711 124th Ave. S.W.
South Heart, ND 58655-9767
</TABLE>
STEVEN BURNET. Mr. Burnet has been a director since 1983 and currently
serves as Chairman of the Board. He grows dryland wheat and barley and supports
a cow/calf and yearling operation. Mr. Burnet is a member of the Oregon Wheat
Growers League and the Oregon Cattlemen's Association. He also serves as a
director on the Agricultural Co-op Council of Oregon.
STEVE CARNEY. Mr. Carney has been a director since 1988 and currently
serves as Secretary Treasurer. Mr. Carney operates a spring wheat and durum farm
with his wife and brother. He is a former president of Farmers Union Grain
Company (Peerless) and Farmers Union Grain Terminal of Daniels County. He is
also a member of several local cooperatives.
EDWARD ELLISON. Mr. Ellison has been a director since 1978. Together
with his sons, he raises wheat, soybeans and corn on his Grant County,
Minnesota, farm. Mr. Ellison is on the board of the Minnesota Association for
Cooperatives and an alternate to the Agricultural Cooperative Development
International (ACDI) board of directors. He also serves as a member of the
Farmland Insurance and the Ag Utilization Research Institute (AURI) boards of
directors.
SHELDON HAALAND. Mr. Haaland has been a director since 1984 and
currently serves as Assistant Secretary and Treasurer. He and his family farm
550 acres of corn, soybeans and wheat. Mr. Haaland is a member of several
cooperatives and has previously served on the boards of Cottonwood Co-op Oil
Company and Western Transport Co-op and as an advisory board member of the
Southwest State University Co-op Program.
JERRY HASNEDL. Mr. Hasnedl has been a director since 1995. He farms
wheat, barley, sunflowers, corn, alfalfa and registered seed for MCIA. Mr.
Hasnedl is a member of several cooperatives as well as the Minnesota Crop
Improvement Association and Minnesota Farmers Union. He also is a farmer/dealer
for Northrup King Seeds.
EDWARD HEREFORD. Mr. Hereford has been a director since 1983. He and
his two sons produce wheat, barley, peas and lentils on his dryland farm. Mr.
Hereford is a director of the Idaho Co-op Council, a board member of the ACDI
and a member of the Thornton Grange, the Washington Association of Wheat Growers
and the Washington Association of Peas and Lentils Growers.
GERALD KUSTER. Mr. Kuster has been a director since 1979. He and his
sons operate a 3,000-acre farm. Mr. Kuster is President of Agri City Cooperative
Services in Grand Forks, North Dakota, and Central Valley Bean Cooperative in
Buxton, North Dakota. He also serves as president of Reynolds United
Cooperative.
LEONARD LARSEN. Mr. Larsen has been a director since 1993. He farms a
1,440-acre grain and sunflower operation and is vice president of the Granville
area Development Corp. Mr. Larsen is also a member of Dakota Growers Pasta
Company.
TYRONE MOOS. Mr. Moos has been a director since 1991 and currently
serves as Second Vice Chairman. He and his wife, together with their son and
son-in-law, operate a combination farm and ranch raising winter wheat, barley
and millet as well as managing cow-calf and hog finishing operations. Mr. Moos
is a former member of the local co-op elevator board.
DUANE RISAN. Mr. Risan has been a director since 1989. He raises durum,
spring wheat and barley and, as a former educator, has a degree in mathematics
and education from Jamestown College. He is a member of Dakota Growers Pasta
Company and a patron of Dakota Quality Grain Co-op.
DUANE STENZEL. Mr. Stenzel has been a director since 1993. He raises
620 acres of sweet corn, corn and soybeans on his south central Minnesota farm.
Mr. Stenzel is a board member of Grainland Cooperative and past president of the
Wells Farmer Elevator.
RUSSELL TWEDT. Mr. Twedt has been a director since 1993. He is a
third-generation Hill County farmer and rancher, and he and his family raise
wheat and barley, with a cow/calf operation. He is a member of the Montana Grain
Growers Association and Montana Farmers Union.
MERLIN VAN WALLEGHEN. Mr. Van Walleghen has been a director since 1993.
He and his son raise corn and soybeans and operate a livestock finishing
operation. He is a past Board president of the Mitchell Farmers Cooperative
Elevator Association and past member of Mitchell Technical Institutes
Agricultural Advisory Board. He is also Chairman of the Sanborn County
Development Board.
WILLIAM ZARAK. Mr. Zarak has been a director since 1983 and currently
serves as First Vice Chairman. He owns and operates a 2,000-acre farm with his
wife and two sons where they raise small grains, corn, beef cows and hogs and
also backgrounds calves. Mr. Zarak is also a member of Dakota Growers Pasta
Company.
Directors' Compensation
The Board of Directors meets monthly. The Company provides its
directors with annual compensation of $24,000, paid in twelve monthly payments,
with the Chairman of the Board receiving an additional annual compensation of
$2,400, paid in twelve monthly payments, a per diem payment of $122.50 plus
travel allowance for actual days away from home while attending Board Meetings,
a per diem of $200 plus actual expenses and travel allowance for each day spent
on other Company business, life insurance, and an annuity plan providing for
benefits to become payable monthly when a director reaches age 62.
Committees of the Board of Directors
The Board of Directors does not have any standing committees. The Board
appoints ad hoc committees from time to time to review certain matters and make
reports and recommendations to the full Board of Directors for action. The
entire Board of Directors determines the salary and incentive compensation of
the Chief Executive Officer and reviews the results and scope of the audit and
other services provided by the Company's independent auditors, as well as the
Company's accounting principles and its system of internal controls.
Compensation Committee Interlocks and Insider Participation
As noted above, the Company's Board of Directors does not have a
Compensation Committee. The entire Board of Directors determines the
compensation of the Chief Executive Officer and the terms of the employment
agreement with the Chief Executive Officer. The Chief Executive Officer
determines the compensation for all other executive officers.
Limitation of Liability and Indemnification
The Company's Articles of Incorporation limit the liability of
directors in their capacity as directors to the full extent permitted by
Minnesota law. As permitted by Minnesota law, the Company's Articles of
Incorporation provide that a director shall not be personally liable to the
Company or its members for monetary damages for breach of fiduciary duty as a
director, except for liability for a breach of the director's duty of loyalty to
the Company or its members, for acts of omissions not in good faith or that
involve intentional misconduct or a knowing violation of law, for a transaction
from which the director derived an improper personal benefit or for an act or
omission occurring prior to the date when such provisions became effective.
The provision of the Articles of Incorporation limits only the
liability of directors, not officers. These provisions do not affect the
availability of equitable remedies, such as an action to enjoin or rescind a
transaction involving a breach of fiduciary duty, although, as a practical
matter, equitable relief may not be available. The above provisions also do not
limit liability of the directors for violations of, or relieve them from the
necessity of complying with, the federal securities laws.
The Bylaws of the Company require the Company to indemnify each
director, officer, manager, employee or agent of the Company, and any person
serving at the request of the Company as a director, officer, manager, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred to the fullest
extent permitted under the laws of Minnesota.
Executive Officers
The table below lists the executive officers of the Company, none of
whom holds any equity in the Company. Officers are elected annually by the Board
of Directors.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
John D. Johnson 48 President and Chief Executive Officer
T. F. Baker 54 Group Vice President - Finance
Michael H. Bergeland 52 Group Vice President - Grain & Agri Services
Garry A. Pistoria 55 Group Vice President - Wheat Milling
James Tibbetts 46 Group Vice President - Oilseed Processing and Packaging
</TABLE>
JOHN D. JOHNSON. Mr. Johnson was appointed President and Chief
Executive Officer on January 1, 1995. Prior to his appointment to that position
he held positions as Group Vice President of Farm Marketing & Supply, GTA Feeds
Division General Manager, Director of Sales and Marketing for the GTA Feeds
Division, Regional Sales Manager for GTA Feeds Division, and Feed Consultant GTA
Feeds Division. He has 20 years total experience with the Company. Mr. Johnson
graduated in 1970 from Black Hills State University at Spearfish, South Dakota,
with a degree in Business Administration and Economics. He also serves on the
Board of Directors of the National Council of Farmer Cooperatives (NCFC) and A.
C. Toepfer Intrade Grain Companies, and is Chairman of the NCFC Agriculture,
Trade & Credit Committee. Mr. Johnson also serves on the Management Committee
for Ventura Foods, LLC.
T. F. BAKER. Mr. Baker joined the Company in 1982 as Vice President of
Finance. In 1992 he was appointed Group Vice President of Finance and holds that
position at the present time. Mr. Baker obtained a Bachelor's Degree in
accounting from the College of St. Thomas, did graduate work at the University
of Minnesota, and obtained his CPA in the State of Minnesota. Mr. Baker serves
on the Board of Governors for Ag States Agency, LLC and on the Management
Committee for Ventura Foods, LLC. He is also a member of Minnesota Certified
Public Accountants and Financial Executives Institute.
MICHAEL H. BERGELAND. Mr. Bergeland, Group Vice President of Grain and
Agri-Services, joined the Company in 1967. He is a native of Minnesota and
attended Moorhead State College. Mr. Bergeland also serves as a board member of
the Minneapolis Grain Exchange, Chairman of the Grain Committee for the National
Council of Farmer Cooperatives, and a Committee Member and alternate director
for A.C. Toepfer Intrade Grain.
GARRY A. PISTORIA. Mr. Pistoria has been Group Vice President of Wheat
Milling since 1985 has been with the Company since 1961. Mr. Pistoria attended
Montana State University and the College of Great Falls. He is a member of the
National Pasta Association, the American Bakers Association and the Minneapolis
Grain Exchange.
JAMES TIBBETTS. On January 1, 1997, Mr. Tibbetts was appointed to the
position of Group Vice President of the Oilseed Processing and Packaging
Division. From November of 1995 (when he joined the Company) through 1996, Mr.
Tibbetts was Senior Vice President for the former Consumer Products Packaging
Division (Holsum Foods Division). From 1977 to 1995, Mr. Tibbetts was a Senior
Vice President for Farm Credit Leasing in Minneapolis, Minnesota. Mr. Tibbetts
received a Bachelor of Science Degree in Business Administration in 1972 from
Northern State University in Aberdeen, South Dakota. He serves on the Management
Committee for Ventura Foods, LLC.
Executive Compensation
Summary Compensation. The following table sets forth the cash and
noncash compensation earned by the Chief Executive Officer and each of the four
most highly compensated executive officers of the Company (other than the Chief
Executive Officer) whose total salary and bonus or similar incentive payment
earned during the year ended May 31, 1996, exceeded $100,000 (the "Named
Executive Officers"):
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
-------------------------------------------------------------
Year Ended Other Annual All Other
May 31, Salary(1) Bonus(1) Compensation(2) Compensation(3)
------- --------- -------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
John D. Johnson
President and Chief
Executive Officer........... 1996 $450,000 $162,500 $3,659 $7,508
Thomas F. Baker
Group Vice President--
Finance..................... 1996 225,300 127,500 7,400 7,908
Michael H. Bergeland
Group Vice President--
Grain and Agri-
Services.................... 1996 215,000 129,000 3,970 9,216
Garry A. Pistoria
Group Vice President--
Wheat Milling............... 1996 166,500 78,000 7,361 4,138
James Tibbetts(4)
Group Vice President--
Oilseed Processing
and Packaging
Division.................... 1996 87,500 70,000 510 29
</TABLE>
- - - - --------------------
(1) Amounts shown include amounts deferred at the employee's election under
the Company's Deferred Compensation Program.
(2) Amounts shown include personal use of a Company vehicle.
(3) Other compensation includes the Company's matching contributions under
the Company's 401(K) Plan and the portion of group term life insurance
premiums paid by the Company.
(4) Information for Mr. Tibbetts is from November 1, 1995, the
beginning of his employment with the Company.
Management Compensation Incentive Program
Each Named Executive Officer is eligible to participate in the
Management Compensation Incentive Program (the "Incentive Program") for the year
ending May 31, 1997. The Incentive Program is based on Company and group or
division performance. The criteria for measurement consists of Economic Value
Added (EVA), earnings and Member Value Index; a subjective evaluation of value
provided to members and customers. These amounts will be paid after May 31,
1997. The maximum incentive is 60% of base compensation.
Retirement Plan
Each of the Named Executive Officers is entitled to receive benefits
under the Harvest States Cooperatives Cash Balance Retirement Plan (the
"Retirement Plan"). An employee's benefit under the Retirement Plan depends on
credits to the employee's account, which are based on the employee's total
salary each year the employee works for the Company, the length of service with
the Company and the rate of interest credited to the employee's account balance
each year. Credits are made to the employee's account from Pay Credits, Special
Career Credits and Investment Credits.
The amount of Pay Credits added to an employee's account each year is a
percentage of the employee's gross salary, including overtime pay, commissions,
severance pay, bonuses, any compensation reduction pursuant to the 401(K) Plan
and any pretax contribution to any of the Company's welfare benefit plan, paid
vacations, paid leaves of absence and pay received if away from work due to a
sickness or injury. The Pay Credits percentage received is determined on a
yearly basis, based on the years of Benefit Service completed as of January 1 of
each year. An employee receives one year of Benefit Service for every calendar
year of employment in which the employee completed at least 1,000 hours of
service.
Effective January 1, 1997, Pay Credits are earned according to the following
schedule:
Years of Benefit Service: Pay Credit Equals:
------------------------- ------------------
1 to 7 years 4% of total salary
8 to 11 years 5% of total salary
12 years and more 6% of total salary
Special Career Credits were designed to supplement the benefits of
mid-career employees affected by the change from the former plan to the current
Retirement Plan. Employees qualify for Special Career Credits only if they were
employed by the Company and met certain age and service requirements (as defined
by the Retirement Plan) on January 1, 1988. The following table shows the
credits for those who qualify:
Total of Age and Benefit
Service on January 1, 1988: Special Career Credits:
--------------------------- -----------------------
50 to 54 1% of total salary
55 to 59 2% of total salary
60 to 64 3% of total salary
65 to 69 4% of total salary
70 or more 5% of total salary
Special Career Credits continue at the percentage rate determined from the
employee's status on January 1, 1988, for as long as the employee is with the
Company.
The Company credits an employee's account at the end of the year
with an Investment Credit based on the balance at the beginning of the year. The
Investment Credit is based on the average return for one-year U.S. Treasury
Bills for the preceding 12-month period. The maximum Investment Credit will not
exceed 12% for any year.
As of December 31, 1996, the dollar value of the account of each of the
Named Executive Officers was:
Balance
-------
John D. Johnson
..................................................
Thomas F. Baker
............................................................
Michael H. Bergeland
...........................................................
Garry A. Pistoria
.......................................................
James Tibbetts
..........................................................
Deferred Compensation Plan
Effective April 1, 1994, the Company established the Harvest Sates
Cooperatives Deferred Compensation Plan (the "Deferred Compensation Plan").
Participants in the Deferred Compensation Plan are select management or highly
compensated employees of the Company who have been designated as eligible by the
President of the Company to participate in such plan. Under the Deferred
Compensation Plan, a participant may elect to have an amount of deferred
compensation credited to the participant's account for the applicable Plan Year
(as defined in the Deferred Compensation Plan). The compensation actually earned
during the Plan Year by a participant who elects deferred compensation is
reduced by the percentage or amount so elected. A participant may elect to
contribute no more than 30% of each payment of base compensation, provided that
the percentage selected is expected to result in annual contributions totaling
at least $1,000. Also, the participant may elect to contribute either a
percentage or a specific dollar amount of any bonus or similar incentive payment
that may become payable during the Plan Year, provided the contribution will not
be less than the smaller of $1,000 or 100% of the bonus payable. The deferred
compensation credited under the Deferred Compensation Plan is allocated to the
account of the participant as of the date that the compensation would otherwise
have been paid to the Participant in cash. Income is credited to each account
each Plan Year at an annual rate equal to 1% over the five-year U.S. Treasury
Bond rate as of October 1 of the year preceding the Plan Year, as adjusted as
appropriate to reflect contributions to and distributions from the account
during the Plan Year.
A participant's credits to his or her account are unsecured obligations
of the Company to pay the participant the actual amount of the credits upon
distribution pursuant to the Deferred Compensation Plan. Each participant or
beneficiary is only a general creditor of the Company with respect to his or her
account. Accounts are maintained for recordkeeping purposes only. Obligations of
the Company to pay benefits under the Deferred Compensation Plan may be
satisfied by distributions from a grantor trust created by the Company in its
sole discretion for such purpose. The Company has not created any such trust.
Amounts credited to a participant's account are distributed on a
predetermined date, such as the date of retirement or the date the participant
attains a particular age, in either a lump sum or in installments pursuant to
the participant's prior irrevocable election. The Deferred Compensation Plan
also provides for distribution upon the participant's death or disability, for
unforeseeable emergencies and upon termination of the plan.
The President of the Company may at any time amend the Plan in whole
or in part for any reason. No amendment may decrease the benefits under the Plan
which have accrued prior to the date of such amendment, but any amendment may
modify the interest rate to be used for future deferrals and for the balance in
each account on the date the amendment was adopted. The Company, by action of
the President, may at any time terminate the Plan.
401(k) Plan
Each Named Executive Officer is eligible to participate in the Harvest
States Cooperatives Savings Plan (the "401(k) Plan"). All employees of the
Company who are eligible for the Retirement Plan and who are not production
employees and who are not covered by a collective bargaining agreement are
eligible to participate in the 401(k) Plan. Effective January 1, 1997
participants may contribute between 1% and 15% (not to exceed 8% in the case of
"highly compensated" employees) of their pay on a pre-tax basis. Each of the
Named Executive Officers is a "highly compensated" employee. The Company matches
50% of the first 6% of pay contributed each year. The Company's Board of
Directors may elect to reduce or eliminate matching contributions for any year
or any portion thereof. Participants are 100% vested in their own contributions
and in any Company matching contribution made on the participant's behalf.
Deferred Compensation Supplemental Retirement Plan
Each of the Named Executive Officers may participate in the Harvest
Sates Cooperatives Deferred Compensation Supplemental Retirement Plan (the
"Supplemental Plan"). Participants in the Supplemental Plan are select
management or highly compensated employees of the Company who have been
designated as eligible by the President of the Company to participate in such
plan. Compensation deferred under the Deferred Compensation Plan is not eligible
for Pay Credits or Special Career Credits under the Cash Balance Retirement Plan
or matching contributions under the 401(k) Plan. The Supplemental Plan is
intended to replace the benefits lost under those plans due to Section 415 of
the Internal Revenue Code of 1986, as amended (the "Code") which cannot be
considered for purposes of benefits due to Section 401(a)(17) of the Code under
the qualified plans that the Company offers. The Supplemental Plan is not funded
or qualified for special tax treatment under the Code. As of December 31, 1996,
the dollar value of the account of each of the Named Executive Officers will be
approximately:
Balance
-------
John D. Johnson
..................................................
Thomas F. Baker
............................................................
Michael H. Bergeland
...........................................................
Garry A. Pistoria
......................................................
James Tibbetts
..........................................................
CERTAIN TRANSACTIONS
Because directors must be active patrons of the Company or an
Affiliated Association, transactions between the Company and directors are
customary and expected. Transactions include the sale of commodities to the
Company and the purchase of products and services from the Company. During each
of the three years ended May 31, 1996, the value of those transactions between a
particular director (and members of such directors' immediate family) and the
Company may have exceeded $60,000.
MEMBERSHIP IN THE COMPANY AND AUTHORIZED CAPITAL
Introduction
The Company is a membership cooperative organized to manufacture,
process, market, purchase, handle, deal in and sell the agricultural products of
its members, non-member patrons and others, including the processing and
exporting of grain and other agricultural products; to procure supplies and
equipment and to perform any and all services for its members, non-member
patrons and others; and to engage in any other activity for which cooperative
associations may be lawfully organized under Minnesota law. All net savings from
member patronage of the Company shall be distributed to members on the basis of
patronage. All net savings from non-member patronage of the purchasing
operations and from "Non-Member Consenting Patron" patronage of marketing
operations shall be distributed to such patrons on the basis of patronage. The
determination of net savings may be made by divisions or units representing
separate or different operations of the Company, as determined by the Board of
Directors. Patronage refunds may be distributed in cash, written evidences of
equity or book credits, or any combination thereof. Any non-cash allocations are
redeemable only in the discretion of the Board of Directors.
The net earnings (after provision for income taxes) of this
Association, as reported in its financial statements for the year, less
patronage dividends paid with respect to the fiscal year may be distributed in
the discretion of the Board to member patrons and to non-member "consenting
patrons" (defined as cooperative associations meeting all requirements for
membership in this Association other than transacting the minimum amount of
business) on the basis of their patronage. Distributions may be in cash,
property, Non-Patronage Earnings Certificates, or any combination thereof
designated by the Board of Directors. To date, the Board of Directors has always
used Non-Patronage Earnings Certificates for distributions, and the current
redemption policy is to redeem to estates.
In making any such non-member/non-patronage distributions, the Board of
Directors may use any method of allocating the earnings on the basis of
patronage to member patrons and Non-Member Consenting Patrons as shall be
reasonable and equitable in the judgment of the Board of Directors.
The method of allocation for the non-member/non-patronage earnings of
this Association for the fiscal year ended May 31, 1996 was based on bushels of
the grain marketing/processing activity and dollars on the purchasing and other
activity. This method is subject to change, in the discretion of the Board of
Directors.
Governance
The business and affairs of the Company are managed by a Board of
Directors of not less than 13 persons (currently set at 14), elected by the
members at the Company's annual meeting. Various rights and obligations of
members are contained in its articles of incorporation and bylaws (together, the
"governing documents"), each of which was amended and restated in November
1996. The governing documents may only be amended upon approval of a majority of
the votes cast at an annual or special meeting of the members, except for the
higher vote described under "--Certain Antitakeover Effects."
Membership
Membership in the Company is limited to individuals or entities
actually engaged in the production of agricultural products and associations of
agricultural producers organized and operating under the provisions of the
Agricultural Marketing Act and the Capper-Volstead Act. In addition, only those
persons that are "currently active patrons" (defined as agricultural producers
and associations of agricultural producers that have patronized the Company
during the year for which such status is being determined in a minimum amount
established by the Board of Directors) may be members of the Company.
Under the Company's governing documents, the Company has several
classes of membership and has authority to issue a variety of debt and equity
instruments to members. The Company has no capital stock. Membership is
transferable only with the consent and approval of the Board of Directors. The
Company may issue equity or debt securities, on a patronage basis or otherwise,
but unless otherwise authorized, such securities shall not entitle the holders
thereof to any voting, membership or other rights to participate in the affairs
of the Company and are not transferrable without the prior consent of the Board
of Directors.
The Company's governing documents establish three classes of
membership:
Individual Members are individuals or entities actually engaged in the
production of agricultural products. Such Individual Members include
both natural persons as well as any legal entity owned or controlled by
individual farmers or their families, such as joint ventures,
corporations, partnerships, limited liability companies and other
entities.
Affiliated Associations are associations of agricultural producers that
have transacted at least $100,000 of business with the Company during
the preceding fiscal year. Affiliated Associations must be cooperatives
or other associations of agricultural producers organized and operating
under the provisions of the Agricultural Marketing Act and the
Capper-Volstead Act.
Defined Members are either persons actually engaged in the production
of agricultural products or associations of producers of agricultural
products that are holders of Equity Participation Units. See "--Defined
Members" below.
Membership in the Company will be terminated by the Board of Directors
if a member has become ineligible for membership (for example, by the cessation
of agricultural production activities). The Board of Directors has the
discretion to terminate membership for a variety of reasons, including repeated
violations of the Company's Bylaws, failure to patronize the Company for a
period of 12 consecutive months and breach of any contract with the Company. In
addition, any member's membership in the Company is terminated when that member
either dies or is legally dissolved. Upon termination of membership, a former
member loses any and all voting rights in the Company. A former member has no
right to require immediate repayment of patronage.
Voting Rights
Affiliated Associations are entitled to a number of delegates based on
the dollar volume of business done with the Company during the last full fiscal
year ending prior to the date of the meeting at which the voting power is to be
exercised. The number of delegates ranges from one delegate for any Affiliated
Association with business from $100,000 up to $1,500,000 during the prior year
to 15 delegates for any Affiliated Association with business in excess of
$45,000,000 during the prior year. Each delegate from an Affiliated Association
is entitled to cast 200 votes on any matter presented to the members for a vote.
The dollar volume of business delivered by a Defined Member to an Affiliated
Association for handling on behalf of the Company and Defined Member will be
included in calculating the dollar volume of an Affiliated Association for
purposes of voting.
Individual Members and Defined Members are entitled to one vote.
Individual Members and Defined Members may directly cast their votes on matters
presented to the members of the Company only if, for Defined Members, they have
provided notice of such intention to the Company, and, for Individual Members,
if they have obtained a certificate signed by a manager of the Company facility
patronized by such Individual Member. Any such certificate or notice must be
provided to the Company at least 10 days before the meeting at which the voting
rights are to be exercised.
Individual Members and Defined Members may exercise their voting power
through the designation of a "patrons' association." A patrons' association is
an association of the Individual Members associated with a grain elevator, feed
mill, seed plant or any other Company facility or an association of Defined
Members, as designated and recognized by the Board of Directors. The membership
of a Patrons' Association may include both Individual Members and Defined
Members. The Individual Members and Defined Members that are identified with a
particular patrons' association may, at an annual meeting of the patrons'
association, elect delegates and alternates for the patrons' association on the
basis of one vote per member. Each patrons' association is entitled to a number
of delegates based on the dollar volume of business activities of the
patrons' association's currently active patrons and Defined Members with 200
votes per delegate, reduced by the number of individual votes personally voted.
Members may cast their votes, if the Board of Directors so elects, by
mail voting in certain situations. At least 50 members of the Company
represented in person, by delegates or by mail votes constitutes a quorum for
business at any meeting, unless the Company has fewer than 500 members, in which
case a quorum is comprised of 10% of the total number of members.
Defined Members
Each Defined Member will be affiliated with a "Defined Business Unit"
and will hold Equity Participation Units in that Defined Business Unit. Holders
of Equity Participation Units will have delivery rights and obligations for farm
products pursuant to a member marketing agreement between such Defined Member
and the Company.
Each Defined Business Unit will be represented by a Defined Member
Board, comprised of between five and ten individuals. The members of a Defined
Member Board must be either Defined Members or representatives of Defined
Members and in good standing and in full compliance with all delivery
obligations with respect to the applicable Defined Business Unit, provided,
however, no employee of the Company may serve as a member of the Defined Member
Board. The initial Defined Member Board of each Defined Business Unit will be
elected by the Company's Board of Directors. Thereafter the Defined Member Board
of a Defined Business Unit will be elected by the Defined Members associated
with a particular Defined Business Unit on a one Defined Member/one vote basis.
The Chairperson shall be selected by and from the Company's Board of Directors.
Individuals serving on a Defined Member Board shall serve staggered three-year
terms. Each Defined Member Board shall meet at least quarterly and shall be
charged with reflecting Defined Member concerns and providing a direct
communication mechanism to the Company's Board of Directors.
The Company is authorized to retain a portion of the payments otherwise
due to Defined Members for purchases of products from them. Such retention is
referred to a "unit retain." The Company has the option to treat any such unit
retains as taxable to the Company or to treat the unit retains as nontaxable by
declaring the unit retains as "qualified." Qualified unit retains are taxable to
the Defined Member in the tax year when the Defined Member receives notification
that a unit retain has been established. When a qualified unit retain is
reimbursed or redeemed, the Defined Member reports no additional income. Unit
retains may be called for payout at the lesser of their stated or book value at
the discretion of the Board of Directors. The Company intends to establish a
redemption schedule if it authorizes unit retains.
Debt and Equity Instruments
The Company is authorized to issue a variety of debt and equity
instruments to its current members, patrons and to persons who are neither
members nor patrons. The Company's outstanding capital (see "Capitalization") is
represented by Capital Equity Certificates, non-patronage certificates and
certain capital reserves.
The following securities may be issued to current or former members or
patrons:
Equity Participation Units. Equity Participation Units may be
held only by Defined Members and have no voting rights.
Capital Equity Certificates. Capital Equity Certificates may
be issued by the Company in partial or complete distribution of
patronage refunds. Capital Equity Certificates do not bear any interest
or carry any dividends. They do not have a specified maturity date
unless established by the Company's Board of Directors.
Certificates of Indebtedness. The Board of Directors may issue
Certificates of Indebtedness from time to time. Such Certificates will
carry such terms and conditions as the Board of Directors establishes
in its discretion. The Board may also establish the conditions upon
which such Certificates of Indebtedness may be called for payment by
the Company.
Non-Patronage Earnings Certificates. The Board of Directors
may issue Non-Patronage Earnings Certificates. Such certificates will
not have a maturity date and will not bear interest or annual
dividends. They will be issued and distributed only to member patrons
and to Non-Member Consenting Patrons as part of a
non-member/non-patronage distribution. (Non-Member Consenting Patrons
include Affiliated Associations that meet all of the requirements of
membership as an Affiliated Association except that they do not
transact at least $100,000 of business with the Company during the
preceding fiscal year.)
Preferred Capital Certificates. The Board of Directors may
establish and designate the designation, preferences and relative
rights of one or more series of Preferred Capital Certificates.
Preferred Capital Certificates will not carry any voting rights.
Other. The Board of Directors may issue other debt or
equity instruments.
The Board of Directors may issue "Preferred Equities" and other debt or
equity instruments to individuals who are not members or patrons of the Company.
The Board of Directors has the discretion to establish and designate one or more
series of Preferred Equities and to fix the relative rights, preferences and
privileges of such preferred equities. Any Preferred Equities will not carry
voting rights.
Transfer of Patrons' Equities. Debt or equity instruments held by the
Company's members and patrons, including Equity Participation Units, Capital
Equity Certificates, Certificates of Indebtedness, Non-Patronage Earning
Certificates and Preferred Capital Certificates, may be transferred only with
the consent and approval of the Company's Board of Directors. The Company may
require the execution of appropriate transfer documentation, as well as
representations and warranties from the proposed transferee indicating that he
or she is eligible to be the holder of the instrument proposed to be
transferred.
Redemption or Retirement of Patrons' Equities and Allocated Reserve.
Redemption or retirement of Patrons' Equities is solely within the discretion of
and on the terms as determined by the Board of Directors. The Board of Directors
has authorized the redemption of Capital Equity Certificates held by patrons who
are 72 years of age, as well as Capital Equity Certificates held by estates of
deceased patrons. The Board of Directors intends to change its redemption policy
following the completion of this offering. There can be no assurance that the
Company's Board of Directors will not elect to modify its policy regarding the
redemption of Capital Equity Certificates. The Board of Directors will establish
a policy for Preferred Equity Certificates arising from Defined Business Units.
Distribution of Assets Upon Dissolution
Upon dissolution, liquidation or winding up of the Company, all debts
and liabilities of the Company will be paid in accordance with their respective
priorities. All equity capital will then be allocated among the various holders
of the equity instruments in accordance with the following priorities: first,
the assets held by any Defined Business Unit will be used to redeem the Equity
Participation Units and Preferred Capital Certificates of such Defined Business
Unit, on a pro rata basis; next, all Equity Participation Units and Preferred
Capital Certificates will be paid to the extent of their face amount or par
value; next all Capital Equity Certificates and other outstanding equities
(other than Non-Patronage Earning Certificates) will be paid in the amount of
the par value or face amount of such instruments; next, payment will be made in
the face amount of any issued and outstanding Non-Patronage Earning
Certificates. Any remaining assets of the Company will be distributed on an
allocation unit basis among the members of the Company in proportion to their
patronage.
Certain Antitakeover Effects
The governing documents may be amended upon the approval of a majority
of the votes cast at an annual or special meeting. However, in the event that
the Board of Directors by majority resolution has declared that the proposed
amendment involves a resolution related to a hostile takeover, the proposed
amendment must be adopted by the approval of 80% of the total voting power of
the members of the Company.
Tax Treatment
Subchapter T of the Internal Revenue Code sets forth rules for the tax
treatment of cooperatives and applies to both cooperatives exempt from taxation
under Section 521 of the Internal Revenue Code and to nonexempt corporations
operating on a cooperative basis. The Company is a nonexempt cooperative.
As a cooperative, the Company is not taxed on amounts withheld from its
members in the form of qualified unit retains or patronage dividends, or in the
amount distributed in the form of patronage payments. Consequently, such amounts
are taxed only at the patron level. However, the amounts of any non-qualified
unit retains or patronage dividends are taxable to the Company when allocated.
Upon revolvement of any such non-qualified unit retains or patronage dividends,
the amount is deductible to the Company and taxable at the member level.
Income derived by the Company from non-patronage sources is not
entitled to the "single tax" benefit of Subchapter T and is taxed to the Company
at corporate income tax rates.
EQUITY PARTICIPATION UNITS
Equity Participation Units may be held only by Defined Members. Defined
Members are either persons actually engaged in the production of agricultural
products or associations of producers of agricultural products. Each Defined
Member will be affiliated with a Defined Business Unit and will hold Equity
Participation Units in that Defined Business Unit. Holders of Equity
Participation Units will have delivery rights and obligations for farm products
pursuant to the Agreements between such Defined Member and the
Company. See "--Member Marketing Agreements" below.
Certain rights and limitations pertaining to all Equity Participation
Units, including those being offered by this Prospectus, are described in
"Membership in the Company and Authorized Capital." Additional rights and
limitations established by the Board of Directors in creating the Equity
Participation Units offered hereby are described below.
In determining the offering price of the Units, the Board of Directors
has considered the historic and expected operations of, the risks associated
with and an appropriate rate of return for each Business Unit.
Milling Business Unit
The Board of Directors has created the Milling Business Unit for the
purpose of purchasing wheat (including durum) and the processing and sale
thereof into flour and various byproducts, effective at the close of business on
May 31, 1997, to carry on the operations of the Milling Division. On that date
there will be allocated to the Milling Business Unit the assets and liabilities,
including commitments, contingencies and obligations, appropriately belonging to
the Division. In connection with the organization of the Milling Business Unit
the Company will contribute an amount sufficient to bring its net worth to
$__________, which is its net worth on May 31, 1996, plus additional capital so
that the construction of the Pocono facility can be financed from equity
capital.
Holders of Equity Participation Units in the Milling Business Unit have
a right to participate in the patronage sourced income from the operations of
the Milling Business Unit. Prior to the sale of any Unit to any person, such
person shall enter into an Agreement which gives the right and obligation to
such person to deliver the number of bushels of wheat as shall equal the number
of Units to be purchased by such Member. The delivery obligation and right under
the Agreement for the Milling Business Unit will become fully effective for the
fiscal year in which the Pocono facility begins operating. Defined Members will
be notified. Initially and until the Agreement becomes fully effective, it will
represent a right and obligation to deliver 78% of the wheat set forth therein.
For information on earnings per bushel of the Milling Division, see
"Business -- Wheat Milling -- Selected Financial and Operating Data."
Allocations of overhead and interest expense to the Milling Business Unit by the
Company will vary from the allocations to the Milling Division. See Note 15 to
the Milling Division financial statements.
Patronage sourced income from the operations of the Milling Business
Unit will be allocated by the Company as patronage refunds based on the total
amount of wheat processed. For example, if the Milling Business Unit were to
process 50,000,000 bushels of wheat and holders of Equity Participation Units
had delivered 20,000,000 bushels, 40% of the net income would be allocated to
holders of Equity Participation Units. As between the holders of Equity
Participation Units, patronage sourced income will be allocated to each Defined
Member proportionate to the wheat delivered pursuant to the Agreement.
While Defined Members will be entitled to the allocation of patronage
refunds originating from the Milling Business Unit, they may also receive, upon
allocation by the Board of Directors, nonpatronage income from operations of the
Company, including operations of the Milling Business Unit generating
nonpatronage income.
The initial Defined Member Board of the Milling Business Unit shall be
designated by the Board of Directors, to hold such office until their successors
are duly elected and qualified, after the completion of the offering. See
"Membership in the Company and Authorized Capital" with respect to the Defined
Members to elect successor directors.
Processing and Refining Business Unit
The Board of Directors has created the Processing and Refining Business
Unit for the purpose of purchasing soybeans and crude soybean oil and the
processing and sale thereof into meal, flour, oil and various byproducts,
effective at the close of business on May 31, 1997, to carry on the operations
of the Processing and Refining Division. On that date there will be allocated to
the Processing and Refining Business Unit the assets and liabilities, including
commitments, contingencies and obligations, appropriately belonging to the
Division. In connection with the organization of the Processing and Refining
Business Unit, the Company will withdraw an amount sufficient to bring its net
worth to $53,400,000, which was its net worth on May 31, 1996.
Holders of Equity Participation Units in the Processing and
Refining Business Unit have a right to participate in the patronage sourced
income from the operations of the Processing and Refining Business Unit. Prior
to the sale of any Unit to any person, such person shall enter into an
Agreement which gives the right and obligation to such person to
deliver the number of bushels of soybeans as shall equal the number of Units to
be purchased by such Member.
For information on earnings per bushel of the Processing and Refining
Division, see "Business -- Processing and Refining -- Selected Financial and
Operating Data." Allocations of overhead and interest income to the Processing
and Refining Business Unit by the Company will vary from the allocations to the
Processing and Refining Division. See Note 14 to the Processing and Refining
Division financial statements.
Patronage sourced income from the operations of the Processing and
Refining Business Unit, excluding patronage sourced income from the refining of
crude oil purchased from others and excluding patronage sourced income from
Ventura Foods, will be allocated by the Company as patronage refunds based on
the total amount of soybeans processed. For example, if the Processing and
Refining Business Unit were to process 25,000,000 bushels of soybeans and
holders of Equity Participation Units had delivered 10,000,000 bushels, 40% of
the patronage sourced income would be allocated to holders of Equity
Participation Units. As between the holders of Equity Participation Units,
patronage sourced income will be allocated to each Defined Member proportionate
to the soybeans delivered pursuant to the Agreement.
While Defined Members will be entitled to the allocation of patronage
refunds originating from the Processing and Refining Business Unit, they may
also receive, upon allocation by the Board of Directors, nonpatronage income
from operations of the Company, including operations of the Processing and
Refining Business Unit generating nonpatronage income.
The operations of Ventura Foods are not included in the Processing and
Refining Division. Should the Company create an additional Business Unit
pertaining to those operations, it may offer participation in that Business Unit
to holders of Equity Participation Units in the Processings and Refining
Business Unit.
The initial Defined Member Board of the Processing and Refining
Business Unit shall be designated by the Board of Directors, to hold such office
until their successors are duly elected and qualified, after the completion of
the offering. See "Membership in the Company and Authorized Capital" with
respect to the Defined Members to elect successor directors.
Allocations Relating to Business Units
Revenues from the sale of products of a Business Unit shall be credited
to the Business Unit, and all direct expenses incurred by a Business Unit shall
be charged against the Business Unit. Corporate, general and administrative
expenses of the Company shall be allocated to each Business Unit in a reasonable
manner based on the utilization by such Business Unit. Intracompany accounts
shall be established for the advancements to, and the loan of funds by, each
Business Unit, with interest thereon imputed at prevailing rates. Income taxes
shall be allocated to each Business Unit as if it were a separate taxpayer. Each
Business Unit shall perform and be responsible for commitments, contingencies
and obligations allocated to such Business Unit.
With respect to each year, the total net income from a Business Unit
will be withdrawn by the Company from the Business Unit, except to the extent
that patronage dividends are not paid in cash and are retained in the Business
Unit as equity. The Company will be responsible for the allocation of net income
arising from operations of a Business Unit between Defined Members of any one or
more Business Units and the remainder of the Company's operations.
Upon the acquisition by the Company from a third party of any assets
(whether by means of an acquisition of assets or stock, merger, consolidation or
otherwise) reasonably related to a Business Unit, such assets and related
liabilities, including commitments, contingencies and obligations, shall be
allocated to that Business Unit and the aggregate cost or fair market value of
such assets and liabilities shall be paid by the Business Unit. Such allocation
and determination of fair market value may be made by the Board of Directors
taking into account such matters as it and its advisers, if any, deem relevant,
and any such allocation and determination of fair market value shall be final
and binding for all purposes whatsoever.
Upon any sale, transfer, assignment or other disposition by the Company
of any or all assets of a Business Unit (whether by means of a disposition of
assets, merger, consolidation, liquidation or otherwise), all proceeds
(including non-cash consideration received) or the fair market value from such
disposition shall be allocated to the Business Unit. If an asset is allocated to
more than one Business Unit, the proceeds or the fair market value of the
disposition shall be allocated among all Business Units, based upon their
respective interests in such assets. Such allocation and determination of fair
market value shall be made by the Board of Directors taking into account such
matters as the Board of Directors and its advisers, if any, deem relevant, and
any such allocation and determination of fair market value shall be final and
binding for all purposes whatsoever.
The Board of Directors may from time to time reallocate any asset from
one Business Unit to the Company or any other Business Unit of the Company. All
such reallocations shall be done at fair market value as determined by the Board
of Directors.
Additional Equity Participation Units; Sale
The Board of Directors from time to time may authorize the sale by the
Company of Units deemed owned by the Company for the account of the Company
provided that sales shall be at a price determined by the Board of Directors
taking into account such matters as the Board of Directors and its financial
advisers, if any, deem relevant.
The Board of Directors may authorize the creation, issuance and sale of
additional Equity Participation Units from time to time on such terms and for
such consideration as it shall deem appropriate. Any proceeds from the sale of
such additional Equity Participation Units shall be allocated to the applicable
Division.
Holders of Units shall have no preemptive rights to subscribe for or
purchase additional Units or any other securities issued by a Business Unit or
the Company. The Company intends to provide an opportunity for existing holders
to subscribe for additional Equity Participation Units.
The Company may, if authorized by the Board of Directors, purchase
Units at such price as it shall determine from time to time for its own account,
or for the account of a Division.
Merger, Consolidation or Sale
In connection with the merger, consolidation, liquidation or sale of
all or substantially all of the assets of the Company substantially as an
entirety or upon the sale of all or any substantial portion of the assets of a
Business Unit, all, but not less than all, Units of such Business Unit may be
redeemed at their face amount, provided that the Preferred Capital Certificates
or unit retains of such Business Unit not previously paid are also redeemed in
connection therewith, and that such payments include any prorata profit (or
loss) associated with disposition of the assets of the Business Unit as though
the assets, subject to the liabilities, of the Business Unit had been sold in
connection with such event at their fair market value. Any determination of fair
market value shall be made by the Board of Directors taking into account such
matters as the Board of Directors and its advisers, if any, deem relevant.
Operations
The operations of a Business Unit shall be carried out by the Company
through the Board of Directors, officers and management of the Company. The
capital assets of a Business Unit may be disposed of in the ordinary course of
business and the disposition of any substantial portion of the assets of a
Business Unit as an entirety may be authorized by the Board of Directors. The
Board of Directors may determine to sell the assets and operations of a Business
Unit or to abandon or shut down the operations of a Business Unit.
Amendment of Board Resolutions
The resolutions adopted by the Board of Directors establishing the
Milling Division and Business Unit and the Processing and Refining Division and
Business Unit may be amended from time to time by the Board of Directors of the
Company, except for those matters described under "Allocations Relating to Each
Division," which may be amended only with the approval of a majority of Defined
Members owning Units not held or deemed held by the Company.
Individual Member Marketing Agreement
A Defined Member will be obligated to deliver during each delivery year
one bushel of wheat or soybeans to the Company for each applicable Unit held,
subject to adjustment as described below, at delivery points designated by the
Company and of a quality specified by the Company. Wheat or soybeans that do not
meet applicable standards may either be rejected or accepted with such discounts
as may be established by the Company or agents. Deliveries may be made at any
time from June 1 through May 31. The Company expects that certain Affiliated
Associations will contract with the Company to act as an agent for handling
required deliveries (and will receive funds for that service), and that the
Company will designate some or all of its owned and operated elevators as
delivery points. The Board of Directors may establish annual "tolerance ranges"
allowing a Defined Member the option to deliver more or less wheat or soybeans
in any given year. Upon transfer of Units, the remaining obligations under the
Agreement must also be assumed by the transferee of the Units. The Agreement may
be terminated by a Individual Member effective on May 31 of any year upon
written notice of termination. In addition, the Agreement may be terminated
following a breach of the Agreement by either party, upon thirty written notice
from the party not in breach. The Agreement may be terminated by the Company in
connection with termination of the business of the applicable Defined Business
Unit.
The Company is obligated to take and pay for deliveries in accordance
with the Agreement. The price to be paid is based on the prevailing price posted
at the point of delivery. The Company's obligation to take delivery may be
excused due to events beyond the control of the Company. The Defined Member's
obligation to deliver may be excused due to Acts of God as provided in the
Agreement.
The Company will pay to each Defined Member an annual patronage refund
equal to the portion arising from the net savings of the applicable Business
Unit attributable to such Defined Member's patronage of the Business Unit.
Each Agreement is subject to amendment upon the approval of the Company
and the majority vote of the voting power of the applicable Business Unit. As a
result, in the event that Members holding the majority of the voting power of
the applicable Business Unit approve an amendment to the Agreement which has
been approved by the Company, those Defined Members who voted against or oppose
the amendment will be bound to performance of the Agreement as amended.
The Company is authorized to retain a portion of the payments otherwise
due to Defined Members for purchases of products from them. Such retention is
referred to a "unit retain." The Company has the option to treat any such unit
retains as taxable to the Company or to treat the unit retains as nontaxable by
declaring the unit retains as "qualified." Qualified unit retains are taxable to
the Defined Member in the tax year when the Defined Member receives notification
that a unit retain has been established. When a qualified unit retain is
reimbursed or redeemed, the Defined Member reports no additional income. Unit
retain may be called for payout at the lesser of their stated or book value at
the discretion of the Board of Directors.
TRADING OF UNITS
The Company intends to create an electronic bulletin board to
facilitate the purchase and sale of Units among Members, although Members are
free to make other arrangements in the purchase and sale of Units. A seller may
post the seller's name, telephone number, address, number of Units offered and
the asking price per Unit. A buyer may post the buyer's name, telephone number,
address, number of Units sought and the bid price per Unit. Any sale and
purchase of Units will be subject to negotiation of price and other terms of
purchase. The Company will not act as a broker or dealer in connection with any
such sale and will not receive any commission or other fee.
The Company also intends to publish information on transfers of Units,
including date, the number of Units transferred and, in the case of a sale, the
sale price per Unit.
VALIDITY OF UNITS
The validity of the securities offered hereby will be passed upon for
the Company by Dorsey & Whitney LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of Harvest States Cooperatives
and the financial statements of the Milling Division and the Processing and
Refining Division as of May 31, 1995 and 1996, and for each of the three years
in the period ended May 31, 1996, included in this Prospectus have been audited
by Deloitte & Touche LLP, independent auditors, as stated in their reports
thereon appearing herein and have been so included in reliance upon such reports
given upon the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Units offered hereby has been filed with the Securities and
Exchange Commission (the "Commission"). This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete, and
in each instance reference is made to the copy of such contract or documents
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Units offered hereby, reference is made to the
Registration Statement and the exhibits and schedules thereto. A copy of the
Registration Statement, including exhibits and schedules thereto, may be
inspected by anyone without charge at the Commission's principal office in
Washington, D.C. and copies of all or any part thereof may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of certain fees prescribed by the Commission.
<TABLE>
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INDEX TO FINANCIAL STATEMENTS
PAGE
Harvest States Cooperatives
<S> <C>
Independent Auditors' Report F-2
Financial Statements:
Consolidated Balance Sheets as of May 31, 1995 and 1996 and
August 31, 1996 (unaudited) F-3
Consolidated Statements of Earnings for the Years Ended May 31, 1994, 1995,
and 1996 and the Three Months Ended August 31, 1995 and 1996 (unaudited) F-4
Consolidated Statements of Capital for the Years Ended May 31, 1994, 1995,
and 1996 and the Three Months Ended August 31, 1996 (unaudited) F-5
Consolidated Statements of Cash Flows for the Years Ended May 31, 1994, 1995,
and 1996 and the Three Months Ended August 31, 1995 and 1996 (unaudited) F-6
Notes to Consolidated Financial Statements for the Years Ended May 31, 1994, 1995,
and 1996 and the Three Months Ended August 31, 1995 and 1996 (unaudited) F-7
Wheat Milling Division
(A Division of Harvest States Cooperatives)
Independent Auditors' Report F-16
Financial Statements:
Balance Sheets as of May 31, 1995 and 1996 and August 31, 1996 (unaudited) F-17
Statements of Earnings for the Years Ended May 31, 1994, 1995, and 1996
and the Three Months Ended August 31, 1995 and 1996 (unaudited) F-18
Statements of Divisional Equity for the Years Ended May 31, 1994, 1995,
and 1996 and the Three Months Ended August 31, 1996 (unaudited) F-19
Statements of Cash Flows for the Years Ended May 31, 1994, 1995, and 1996
and the Three Months Ended August 31, 1995 and 1996 (unaudited) F-20
Notes to Financial Statements for the Years Ended May 31, 1994, 1995, and 1996
and the Three Months Ended August 31, 1995 and 1996 (unaudited) F-21
Oilseed Processing And Refining Division
(A Division of Harvest States Cooperatives)
Independent Auditors' Report F-28
Financial Statements:
Balance Sheets as of May 31, 1995 and 1996 and August 31, 1996 (unaudited) F-29
Statements of Earnings for the Years Ended May 31, 1994, 1995, and 1996
and the Three Months Ended August 31, 1995 and 1996 (unaudited) F-30
Statements of Divisional Equity for the Years Ended May 31, 1994, 1995,
and 1996 and the Three Months Ended August 31, 1996 (unaudited) F-31
Statements of Cash Flows for the Years Ended May 31, 1994, 1995, and 1996
and the Three Months Ended August 31, 1995 and 1996 (unaudited) F-32
Notes to Financial Statements for the Years Ended May 31, 1994, 1995, and 1996
and the Three Months Ended August 31, 1995 and 1996 (unaudited) F-33
</TABLE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Harvest States Cooperatives
Saint Paul, Minnesota
We have audited the consolidated balance sheets of Harvest States Cooperatives
and subsidiaries (the Company) as of May 31, 1995 and 1996 and the related
consolidated statements of earnings, capital, and cash flows for each of the
three years in the period ended May 31, 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 consolidated 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 consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at May 31, 1995 and
1996 and the results of its operations and its cash flows for each of the three
years in the period ended May 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
August 19, 1996
<TABLE>
<CAPTION>
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31,
-------------------------------- AUGUST 31,
1995 1996 1996
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 11,656,677 $ 21,426,227 $ 3,213,034
Receivables (Note 2) 334,241,233 367,244,539 417,376,700
Inventories (Note 3) 247,538,620 434,507,118 173,296,763
Prepaid expenses and deposits 19,252,023 41,825,850 26,955,089
-------------- -------------- --------------
Total current assets 612,688,553 865,003,734 620,841,586
OTHER ASSETS:
Investments (Note 4) 57,523,420 83,269,566 119,582,159
Other (Note 5) 48,483,906 48,353,983 34,776,806
-------------- -------------- --------------
Total other assets 106,007,326 131,623,549 154,358,965
PROPERTY, PLANT, AND EQUIPMENT
(Notes 6 and 7) 205,837,690 232,145,401 208,605,760
-------------- -------------- --------------
$ 924,533,569 $1,228,772,684 $ 983,806,311
============== ============== ==============
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Notes payable (Note 7) $ 200,000,000 $ 324,000,000 $ 9,000,000
Patron credit balances 59,490,643 29,007,419 80,004,593
Advances received on grain sales 123,421,988 201,825,190 226,044,833
Drafts outstanding 17,581,091 23,837,715 23,857,186
Accounts payable and accrued expenses 127,569,277 163,435,268 150,022,182
Patronage dividends payable 11,000,000 13,100,000 15,100,000
Current portion of long-term debt (Note 7) 6,721,469 13,923,204 18,419,713
-------------- -------------- --------------
Total current liabilities 545,784,468 769,128,796 522,448,507
LONG-TERM DEBT (Note 7) 78,095,056 118,705,972 110,592,680
OTHER LIABILITIES 1,166,152 3,685,797 4,382,473
COMMITMENTS AND CONTINGENCIES
(Notes 8 and 13)
CAPITAL (Note 8) 299,487,893 337,252,119 346,382,651
-------------- -------------- --------------
$ 924,533,569 $1,228,772,684 $ 983,806,311
============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS ENDED
FOR THE YEARS ENDED AUGUST 31,
------------------------------------------------ -------------------------------
1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Sales:
Grain and oilseed $3,086,531,429 $4,191,665,535 $7,127,223,407 $1,341,016,649 $1,875,912,189
Processed grain and oilseed 593,116,553 708,219,307 819,863,541 187,687,561 234,548,425
Feed and farm supplies 165,925,459 156,699,068 207,252,696 43,124,346 61,003,251
-------------- -------------- -------------- -------------- --------------
3,845,573,441 5,056,583,910 8,154,339,644 1,571,828,556 2,171,463,865
Patronage dividends 6,609,602 6,512,481 13,278,997 1,801,005 4,504,239
Other revenues (Note 12) 45,895,922 57,556,984 68,339,523 16,782,771 14,839,801
-------------- -------------- -------------- -------------- --------------
3,898,078,965 5,120,653,375 8,235,958,164 1,590,412,332 2,190,807,905
COSTS AND EXPENSES:
Cost of goods sold 3,786,336,764 4,981,820,272 8,076,073,326 1,556,325,280 2,156,922,994
Marketing, general, and administrative 60,847,099 69,509,491 70,054,248 18,805,661 19,595,114
Interest 10,250,765 19,268,575 31,921,936 6,511,366 4,621,786
-------------- -------------- -------------- -------------- --------------
3,857,434,628 5,070,598,338 8,178,049,510 1,581,642,307 2,181,139,894
-------------- -------------- -------------- -------------- --------------
EARNINGS BEFORE INCOME TAXES 40,644,337 50,055,037 57,908,654 8,770,025 9,668,011
INCOME TAXES (Note 11) 5,500,000 5,100,000 6,900,000 1,150,000 1,150,000
-------------- -------------- -------------- -------------- --------------
NET EARNINGS $ 35,144,337 $ 44,955,037 $ 51,008,654 $ 7,620,025 $ 8,518,011
============== ============== ============== ============== ==============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL
PATRONAGE NONPATRONAGE PATRONAGE CAPITAL
TOTAL CERTIFICATES CERTIFICATES PAYABLE RESERVE
<S> <C> <C> <C> <C> <C>
BALANCE AT MAY 31, 1993:
Stated as capital $ 246,797,147 $ 184,835,249 $ 16,100,000 $ 45,861,898
Stated as current liability 6,900,000 6,900,000
------------- ------------- ------------- -------------
253,697,147 184,835,249 23,000,000 45,861,898
Distribution of patronage dividends payable
for preceding year, including cash payment
of $6,833,455 (6,833,455) 15,819,222 (23,000,000) 347,323
Redemption of capital equity certificates (5,484,613) (5,484,613)
Equities issued 3,249,624 3,249,624
Other 387,977 (262,036) 650,013
Net earnings 35,144,337 31,300,000 3,844,337
Patronage dividends payable in cash,
stated as a current liability (9,400,000) (9,400,000)
------------- ------------- ------------- -------------
BALANCE AT MAY 31, 1994:
Stated as capital 270,761,017 198,157,446 21,900,000 50,703,571
Stated as current liability 9,400,000 9,400,000
------------- ------------- ------------- -------------
280,161,017 198,157,446 31,300,000 50,703,571
Distribution of patronage dividends payable
for preceding year, including cash payment
of $9,945,967 (9,945,967) 23,187,069 $ 1,832,136 (31,300,000) (3,665,172)
Redemption of capital equity certificates (5,728,997) (5,728,997)
Other 1,046,803 150,004 896,799
Net earnings 44,955,037 36,700,000 8,255,037
Patronage dividends payable in cash,
stated as a current liability (11,000,000) (11,000,000)
------------- ------------- ------------- ------------- -------------
BALANCE AT MAY 31, 1995:
Stated as capital 299,487,893 215,765,522 1,832,136 25,700,000 56,190,235
Stated as current liability 11,000,000 11,000,000
------------- ------------- ------------- ------------- -------------
310,487,893 215,765,522 1,832,136 36,700,000 56,190,235
Distribution of patronage dividends payable
for preceding year, including cash payment
of $10,992,918 (10,992,918) 25,617,898 7,912,297 (36,700,000) (7,823,113)
Redemption of capital equity certificates (6,554,160) (6,547,372) (6,788)
Equities issued 8,721,542 8,721,542
Other (2,318,892) (2,041,438) 2,350 (279,804)
Net earnings 51,008,654 43,700,000 7,308,654
Patronage dividends payable in cash,
stated as a current liability (13,100,000) (13,100,000)
------------- ------------- ------------- ------------- -------------
BALANCE AT MAY 31, 1996 337,252,119 241,516,152 9,739,995 30,600,000 55,395,972
Stated as current liability (unaudited) 13,100,000 13,100,000
Redemption of capital equity certificates
(unaudited) (1,612,773) (1,564,868) (47,905)
Equities issued (unaudited) 4,193,985 4,193,985
Other (unaudited) 31,309 (7,500) (181) 38,990
Net earnings (unaudited) 8,518,011 6,700,000 1,818,011
Patronage dividends payable in cash, stated
as a current liability (unaudited) (15,100,000) (15,100,000)
------------- ------------- ------------- ------------- -------------
BALANCE AT AUGUST 31, 1996 (UNAUDITED) $ 346,382,651 $ 244,137,769 $ 9,691,909 $ 35,300,000 $ 57,252,973
============= ============= ============= ============= =============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
FOR THE YEARS ENDED AUGUST 31,
----------------------------------------- ---------------------------
1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 35,144,337 $ 44,955,037 $ 51,008,654 $ 7,620,025 $ 8,518,011
Adjustments to reconcile net earnings to
net cash flows:
Depreciation and amortization 17,705,185 18,907,903 20,421,425 4,991,428 5,713,837
Noncash loss (gain) on investment 277,340 (4,025,854) (12,517,993) (2,323,009) (1,753,575)
Noncash portion of patronage dividends
received (4,598,180) (4,622,221) (9,607,657) (1,376,946) (2,912,654)
Loss (gain) on sale of property, plant,
and equipment 273,843 (1,196,717) (853,024) 30,920 32,070
Change in assets and liabilities:
Receivables (57,084,091) (103,580,123) (33,013,948) (137,406,104) (50,108,075)
Inventories (36,647,598) (19,046,875) (186,968,498) (32,107,470) 261,210,354
Patron credit balances 8,493,415 23,282,391 (30,483,224) 6,043,774 50,997,174
Advances received on grain and oilseed sales (2,184,948) (1,264,842) 78,403,202 155,490,766 24,219,643
Accounts payable, accrued expenses,
and drafts outstanding 16,534,719 4,852,493 43,477,378 2,748,704 (8,736,938)
Prepaid expenses, deposits, and other (11,119,894) (7,973,268) (25,590,317) (22,461,103) 14,940,372
------------- ------------- ------------- ------------ -------------
Total adjustments (68,350,209) (94,667,113) (156,732,656) (26,369,040) 293,602,208
------------- ------------- ------------- ------------ -------------
Net cash (used in) provided by
operating activities (33,205,872) (49,712,076) (105,724,002) (18,749,015) 302,120,219
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of property, plant,
and equipment 1,174,196 3,351,119 3,729,810 48,791 89,216
Investments redeemed 7,028,580 3,662,026 2,518,863 712,160 1,522,295
Acquisition of property, plant, and equipment (28,035,021) (69,314,689) (40,501,980) (13,021,407) (11,407,775)
Payments on notes receivable 682,313 391,412 398,851 214,688 200,095
Investments (2,008,822) (1,843,097) (1,274,069)
Investments in joint ventures (6,650,000) (727,266) 8,515,059
Other (3,157,854) (1,004,755) (1,778,678) (1,343,039) 1,003,723
------------- ------------- ------------- ------------ -------------
Net cash used in investing activities (24,316,608) (71,407,984) (37,634,469) (13,388,807) (77,387)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of
credit agreements 79,500,000 87,000,000 124,000,000 10,500,000 (315,000,000)
Long-term debt borrowings 1,160,000 51,000,000 57,961,058 15,000,000
Principal payments on long-term debt (5,869,940) (5,215,106) (10,546,075) (2,157,380) (3,081,864)
Principal payments under capital lease
obligations (634,170) (680,901) (739,884) (365,277) (534,917)
Redemption of capital equity certificates (5,484,613) (5,728,997) (6,554,160) (1,732,344) (1,639,244)
Cash patronage dividends paid (6,833,455) (9,945,967) (10,992,918)
------------- ------------- ------------- ------------ -------------
Net cash provided by (used in) financing
activities 61,837,822 116,429,029 153,128,021 21,244,999 (320,256,025)
------------- ------------- ------------- ------------ -------------
INCREASE (DECREASE) IN CASH 4,315,342 (4,691,031) 9,769,550 (10,892,823) (18,213,193)
CASH AT BEGINNING OF PERIOD 12,032,366 16,347,708 11,656,677 11,656,677 21,426,227
------------- ------------- ------------- ------------ -------------
CASH AT END OF PERIOD $ 16,347,708 $ 11,656,677 $ 21,426,227 $ 763,854 $ 3,213,034
============= ============= ============= ============ =============
See notes to consolidated financial statements.
</TABLE>
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1994, 1995, AND 1996 AND THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 (UNAUDITED)
- - - - -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Harvest States Cooperatives is a producer-owned
agricultural cooperative organized for the mutual benefit of its
members. Membership extends from the Midwest to the Pacific Northwest.
The Cooperative's primary lines of business are grain marketing,
milling, and oilseed processing. Members' grain is marketed through a
network of inland and export elevators. Sales are both domestic and
international.
UNAUDITED INTERIM FINANCIAL STATEMENTS - Harvest States Cooperatives and
its majority-owned subsidiaries' (the Company) consolidated balance
sheet as of August 31, 1996, consolidated statements of earnings and
cash flows for the three months ended August 31, 1995 and 1996,
consolidated statement of capital for the three months ended August 31,
1996, and the interim information in the notes to consolidated financial
statements as of August 31, 1996 and for the three months ended August
31, 1995 and 1996 are unaudited. In the opinion of management, such
unaudited consolidated financial statements include all adjustments
(consisting of only normal, recurring accruals) necessary for a fair
presentation thereof. The results of operations for any interim period
are not necessarily indicative of the results for the year.
CONSOLIDATION - The consolidated financial statements include the
accounts of Harvest States Cooperatives and its majority-owned
subsidiaries. All significant intercompany balances and transactions
have been eliminated.
INVENTORIES - Grain and oilseed and certain processed grain and oilseed
products are stated at market, including appropriate adjustment of open
purchase, sales, and futures contracts. Substantially all other
inventories are priced at the lower of cost (first-in, first-out method)
or market.
The Company follows the general policy of hedging its grain and oilseed
inventories and unfilled orders for grain and oilseed products to the
extent considered practicable for minimizing risk from market price
fluctuations. Futures contracts used for hedging are purchased and sold
through regulated commodity exchanges. Inventories, however, are not
completely hedged, due in part to the absence of satisfactory hedging
facilities for certain commodities and geographical areas and in part to
the Company's appraisal of its exposure from expected price
fluctuations. Noncommodity exchange purchase and sale contracts may
expose the Company to risk in the event that a counterparty to a
transaction is unable to fulfill its contractual obligation. The Company
manages its risk by entering into purchase contracts with preapproved
producers and establishing appropriate limits for individual suppliers.
Sales contracts are entered into with organizations of acceptable
creditworthiness, as internally evaluated.
INVESTMENTS - Investments in cooperatives are stated at cost including
allocated equity and retainings. Patronage dividends are recorded at the
time written notices of allocation are received. Joint ventures and
other significant equity investments are accounted for under the equity
method. Under the equity method, the Company recognizes its
proportionate share of earnings or loss of the investee. Investments in
other debt and equity securities are considered available for sale and
are stated at market value, with unrealized amounts included in other
equity.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are
stated at cost, less accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets.
INTANGIBLE ASSETS - Leasehold rights and other intangible assets are
amortized using the straight-line method over 3 to 40 years.
GRAIN AND OILSEED SALES - Grain and oilseed sales are recorded at time
of shipment. Export sales, including those through joint ventures, were
approximately $.9, $1.6, and $3.1 billion of total grain sales for the
years ended May 31, 1994, 1995, and 1996, respectively.
INCOME TAXES - Deferred income taxes are provided on temporary
differences between the tax basis of an asset or liability and its
reported amount in the financial statements. Due to the high proportion
of patronage earnings, deferred taxes resulting from temporary
differences are not significant.
ASSET IMPAIRMENT - In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards (SFAS) No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. This statement is effective for fiscal years
beginning after December 15, 1995; however, earlier adoption is allowed.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expense during the reporting period. Actual results could differ
from those estimates.
RECLASSIFICATIONS - Certain reclassifications have been made to the 1994
and 1995 consolidated financial statements to conform to the 1996
presentation. These reclassifications have no effect on the operating
results of those years, as previously reported.
2. RECEIVABLES
<TABLE>
<CAPTION>
May 31,
---------------------------------- August 31,
1995 1996 1996
<S> <C> <C> <C>
Trade $ 222,522,967 $ 297,112,614 $ 330,061,790
Elevator accounts 100,849,459 59,163,181 65,044,922
Other 15,293,807 18,003,744 29,347,584
--------------- --------------- ----------------
338,666,233 374,279,539 424,454,296
Less allowance for losses (4,425,000) (7,035,000) (7,077,596)
--------------- --------------- ----------------
$ 334,241,233 $ 367,244,539 $ 417,376,700
=============== =============== ================
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
May 31,
---------------------------------- August 31,
1995 1996 1996
<S> <C> <C> <C>
Grain and oilseed $ 166,797,308 $ 351,504,342 $ 135,519,919
Processed grain and oilseed products 42,294,295 52,555,945 27,531,605
Feed and farm supplies 38,447,017 30,446,831 10,245,239
--------------- --------------- ----------------
$ 247,538,620 $ 434,507,118 $ 173,296,763
=============== =============== ================
4. INVESTMENTS
May 31,
---------------------------------- August 31,
1995 1996 1996
Cooperatives:
St. Paul Bank for Cooperatives $ 7,358,124 $ 8,180,068 $ 8,180,068
National Bank for Cooperatives 1,385,580 2,855,489 2,851,920
Cenex 8,534,259 12,361,642 12,958,616
Central Ferry Terminal Association 1,279,674 1,222,283 1,222,415
Pro Fac Cooperative 2,816,625 1,769,656 1,769,656
Land O' Lakes, Inc. 2,056,032 3,460,903 6,483,807
Ag Processing, Inc. 9,969,001 14,044,556 14,034,306
Intrade Corporation 886,543 1,869,073 1,869,073
Farmland Industries 628,500 891,625 891,268
Lewis-Clark Terminal, Inc. 484,027 1,003,433 1,003,433
Joint Ventures:
HSPV, L.L.C. 2,341,263 6,408,265 6,463,766
Tacoma Export Marketing Company 2,583,904 9,330,337 10,540,717
Ventura Foods, L.L.C. 4,152,815 4,651,933 37,212,482
Harvest States - Farmland Specialty Feed 1,007,139 954,678 976,974
Ag States Agency, L.L.C. 3,925,310 4,963,174 3,860,205
Archer Daniels Midland Common Stock 5,213,400 5,770,031 5,770,031
International Malting Company 700,000 700,000 700,000
Other 2,201,224 2,832,420 2,793,422
--------------- --------------- ----------------
$ 57,523,420 $ 83,269,566 $ 119,582,159
=============== =============== ================
</TABLE>
5. OTHER ASSETS
<TABLE>
<CAPTION>
May 31,
---------------------------------- August 31,
1995 1996 1996
<S> <C> <C> <C>
Leasehold rights and other intangibles, less
accumulated amortization of $6,307,759,
$7,145,101, and $6,207,027, respectively $ 26,770,619 $ 24,908,896 $16,032,709
Notes receivable 1,245,992 1,780,474 1,721,296
Prepaid expenses and other assets 20,467,295 21,664,613 17,022,801
--------------- -------------- -----------
$ 48,483,906 $ 48,353,983 $34,776,806
=============== ============== ===========
</TABLE>
6. PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated May 31,
Useful Life ---------------------------------- August 31,
in Years 1995 1996 1996
<S> <C> <C> <C> <C>
Grain terminals and country
elevators 3 to 50 $ 196,193,481 $ 210,151,675 $ 215,027,562
Grain and oilseed processing
plants 3 to 40 171,909,217 199,403,336 153,580,008
Feed plants 3 to 40 24,930,654 23,137,566 23,806,898
Corporate office facilities 3 to 40 11,221,624 11,512,620 11,780,215
--------------- --------------- ----------------
404,254,976 444,205,197 404,194,683
Less accumulated depreciation (198,417,286) (212,059,796) (195,588,923)
--------------- --------------- ----------------
$ 205,837,690 $ 232,145,401 $ 208,605,760
=============== =============== ================
</TABLE>
7. BORROWINGS
NOTES PAYABLE:
The Company had a seasonal loan agreement of $200,000,000 committed with
St. Paul Bank for Cooperatives, $65,000,000 and $128,250,000 of which
were outstanding on May 31, 1995 and 1996, respectively. The Company has
a seasonal loan agreement of $200,000,000 committed with National Bank
for Cooperatives, $55,000,000 and $95,750,000 of which were outstanding
on May 31, 1995 and 1996, respectively. The Company also has seasonal
loan agreements of $170,000,000 of which $150,000,000 is committed with
commercial banks, $80,000,000 and $100,000,000 of which were outstanding
on May 31, 1995 and 1996, respectively. The average weighted interest
rates as of May 31, 1995 and 1996 were 6.07% and 6.05%, respectively.
Major conditions of the loan agreements provide that (1) the aggregate
principal outstanding under the agreements shall not exceed
$650,000,000; (2) the Company will not change its patronage dividend
payment policy or equity redemption policy without the consent of the
banks; and (3) the Company will maintain working capital of $85,000,000.
The total unused seasonal loan commitment at May 31, 1996 was
$226,000,000.
The Company has entered into a seasonal loan agreement of $550,000,000
that is effective as of November 11, 1996 which replaces the above
agreements. The agreement is provided by the National Bank for
Cooperatives, St. Paul Bank for Cooperatives, and a group of commercial
banks, and is committed through October 31, 1997. This agreement can be
extended in one year increments through October 29, 1999, if mutually
agreed to. No amounts are outstanding as of November 30, 1996.
Major financial covenants of the new seasonal loan agreement provide
that (1) the Company will maintain a working capital amount of not less
than $100,000,000; (2) the Company shall have consolidated members and
patrons' equity of not less than $275,000,000; and (3) the Company shall
not have consolidated funded debt to consolidated members and patrons'
equity in excess of .80 to 1.00.
LONG-TERM DEBT:
<TABLE>
<CAPTION>
May 31,
---------------------------------- August 31,
1995 1996 1996
<S> <C> <C> <C>
St. Paul Bank for Cooperatives, with fixed
and variable interest rates from 6.24% to
8.50%, due in installments through 2007 $ 44,792,000 $ 68,192,000 $ 66,937,833
National Bank for Cooperatives, with fixed
and variable interest rates from 6.24% to
7.51%, due in installments through 2007 25,500,000 52,500,000 52,145,833
Industrial Development Revenue Bonds,
payable through July 2005, interest rate
of 7.4% 4,750,000 3,300,000 2,100,000
Capitalized lease obligations with fixed and
variable rates, 8.0% to 8.90% 7,262,508 6,522,624 5,987,707
Mortgages payable and other 2,512,017 2,114,552 1,841,020
----------------- --------------- ----------------
84,816,525 132,629,176 129,012,393
Less current portion (6,721,469) (13,923,204) (18,419,713)
----------------- --------------- ----------------
$ 78,095,056 $ 118,705,972 $ 110,592,680
================= =============== ================
</TABLE>
The principal maturities of outstanding long-term indebtedness
outstanding at May 31, 1996 are as follows:
Year ending May 31:
1997 $ 13,923,204
1998 19,385,645
1999 15,061,743
2000 15,981,172
2001 11,638,564
2002 and thereafter 56,638,848
8. PATRONS' EQUITY
In accordance with the bylaws and by action of the Board of Directors,
annual net earnings from patronage sources are distributed to consenting
patrons following the close of each year and are based on amounts
reportable for federal income tax purposes as adjusted in accordance
with the bylaws. The cash portion of this distribution is determined
annually by the Board of Directors, with the balance issued in the form
of Patronage Certificates.
Annual net earnings from sources other than patronage may be added to
the Capital Reserve or, upon action by the Board of Directors, allocated
to members in the form of Nonpatronage Certificates.
The Board of Directors has authorized the redemption of Patronage
Certificates held by patrons who are 72 years of age and those held by
estates of deceased patrons. The Board of Directors has also authorized
the redemption of Nonpatronage Certificates held by estates of deceased
patrons.
9. RETIREMENT PLANS
The Company has noncontributory defined benefit retirement plans
covering substantially all salaried and full-time hourly employees. The
retirement plan benefits for salaried employees are based on years of
service and the participants' total compensation. Benefits for hourly
employees are based on various monthly amounts for each year of credited
service. The plans are funded by annual contributions to tax-exempt
trusts in accordance with federal law and regulations. Plan assets
consist principally of corporate obligations, U.S. Government bonds,
money market funds, and immediate participation guarantee contracts.
Net pension expense for the years ended May 31 consists of the
following:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 2,334,299 $ 2,564,115 $ 2,496,711
Interest cost on projected benefit obligation 6,161,068 6,376,612 5,587,377
Actual return on plan assets (7,256,145) (7,329,046) (6,860,278)
Net amortization and deferral 1,029,260 1,165,499 555,130
Benefit plan settlement adjustment 3,020,077
-------------- ------------- --------------
$ 2,268,482 $ 5,797,257 $ 1,778,940
============== ============= ==============
</TABLE>
The funded status of the plans and the amount recognized on the
consolidated balance sheets as of May 31 are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits
of $67,539,069 and $74,406,137, respectively $ 69,898,635 $ 77,127,866
============== ===============
Projected benefit obligation for service rendered to date $ 73,686,670 $ 81,036,131
Plan assets at fair value 70,122,276 75,743,570
-------------- ---------------
Plan assets less than projected benefit obligation (3,564,394) (5,292,561)
Unrecognized net loss 19,551,900 25,449,810
Unrecognized transition gain at June 1, 1985 being
recognized over 13 years (3,614,924) (2,517,627)
Unrecognized prior service cost 1,606,315 1,520,901
Additional minimum liability (1,098,275)
-------------- ---------------
Prepaid pension cost $ 13,978,897 $ 18,062,248
============== ===============
</TABLE>
The determination of the actuarial present value of the projected
benefit obligation was based on a weighted average discount rate of
8.25% in 1994 and 1995 and 7.75% in 1996 and a rate of increase in
future compensation of 5% in 1994, 1995, and 1996. The expected
long-term rate of return on plan assets was 8.5% in 1994 and 1995 and 8%
in 1996.
10. POSTRETIREMENT MEDICAL AND OTHER BENEFITS
The Company provides certain health care benefits for retired employees.
Employees become eligible for these benefits if they meet minimum age
and service requirements and are eligible for retirement benefits.
The accrued postretirement medical and other benefits costs that are not
funded were as follows at May 31:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ 5,991,309 $ 2,993,307
Fully eligible active plan participants 1,041,742 1,019,071
Other active plan participants 2,730,508 3,624,620
------------- --------------
Total APBO 9,763,559 7,636,998
Unrecognized transition obligation (9,984,815) (9,430,105)
Unrecognized net gains 2,000,094 4,059,863
------------- --------------
Accrued postretirement medical and other benefits cost $ 1,778,838 $ 2,266,756
============= ==============
</TABLE>
The components of the net periodic cost are as follows for the years
ended May 31:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 299,000 $ 312,814 $ 337,182
Interest cost on projected benefit obligation 866,000 739,055 548,997
Amortization of unrecognized gains (41,435) (228,025)
Amortization of transition obligation 566,000 554,710 554,710
-------------- ------------- --------------
Net periodic postretirement cost $ 1,731,000 $ 1,565,144 $ 1,212,864
============== ============= ==============
</TABLE>
The calculations assumed a discount rate of 8% in 1995 and 7.75% in 1996
and a health care cost trend rate of 10% in 1996, declining to 6% in
2004. If the health care cost trend rate increased by 1%, the APBO would
increase by 8.7% and the service cost and interest cost components would
increase by 10%.
11. PROVISION FOR INCOME TAXES
The provision for income taxes for each of the three years ended May 31
was as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Current provision $ 5,900,000 $ 5,400,000 $ 7,100,000
Deferred - principally federal (400,000) (300,000) (200,000)
-------------- ------------- --------------
Total provision $ 5,500,000 $ 5,100,000 $ 6,900,000
============== ============= ==============
</TABLE>
Deferred income taxes, which are not significant, relate principally to
allowances and accruals.
A reconciliation of the statutory federal tax rate to the effective rate
for each of the three years ended May 31 follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal income tax benefit 2.6 2.6 4.3
Patronage earnings (27.0) (27.6) (29.6)
Other 2.9 .2 2.2
------ ------ ------
Effective rate 13.5% 10.2% 11.9%
====== ====== ======
</TABLE>
12. OTHER REVENUES
<TABLE>
<CAPTION>
Three Months Ended
For the Years Ended May 31, August 31,
-------------------------------------------- -----------------------------
1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Storage and handling $ 8,665,157 $ 9,168,022 $ 8,722,537 $ 1,603,537 $ 1,229,497
Service revenues 13,695,050 15,942,394 20,572,679 5,599,794 5,383,704
Commission 8,023,254 6,722,261 6,837,272 1,568,684 2,273,715
Joint venture (loss) income (277,340) 4,025,854 12,517,993 2,323,009 1,753,579
(Loss) gain on sale of
property, plant, and
equipment (211,081) 1,196,717 853,024 (30,920) (32,070)
Interest income 7,935,682 11,471,627 11,581,221 3,431,556 1,641,447
Other 8,065,200 9,030,109 7,254,797 2,287,111 2,589,929
-------------- ------------- ------------- -------------- -------------
$ 45,895,922 $ 57,556,984 $ 68,339,523 $ 16,782,771 $ 14,839,801
============== ============= ============= ============== =============
</TABLE>
13. COMMITMENTS AND CONTINGENCIES
At May 31, 1995 and 1996, the Company stored grain and oilseed and
processed grain and oilseed products for others totaling $30,700,000 and
$37,900,000, respectively.
The Company is a guarantor for lines of credit for related companies
totaling $100,000,000, of which $30,300,000 was outstanding as of May
31, 1996. All outstanding loans are current with respective creditors as
of May 31, 1996.
The Company leases approximately 3,400 rail cars with remaining lease
terms of one to ten years. In addition, the Company leases vehicles and
various manufacturing equipment.
Minimum rental payments due under these operating leases at May 31,
1996, are as follows:
<TABLE>
<CAPTION>
Rail Cars Vehicles Other Total
Years ending May 31:
<S> <C> <C> <C> <C>
1997 $ 17,940,667 $ 4,823,359 $ 2,128,587 $ 24,892,613
1998 17,450,431 3,795,690 1,753,844 22,999,965
1999 15,807,151 2,771,987 1,398,045 19,977,183
2000 11,938,430 1,675,650 1,056,157 14,670,237
2001 6,906,800 789,227 861,043 8,557,070
2002 and thereafter 13,599,870 648,190 4,186,672 18,434,732
------------- ------------- -------------- -------------
$ 83,643,349 $ 14,504,103 $ 11,384,348 $ 109,531,800
============= ============= ============== =============
</TABLE>
Total rent expense, net of rail car mileage credits received from the
railroad and subleases, was approximately $10,196,000, $11,378,000, and
$12,454,000 for the years ended May 31, 1994, 1995, and 1996,
respectively. Mileage credits and sublease income were $3,437,000,
$5,126,000, and $7,257,000 for the years ended May 31, 1994, 1995, and
1996, respectively.
The Company is a party to various lawsuits and administrative
proceedings incidental to its business. It is impossible, at this time,
to estimate what the ultimate legal and financial liability of the
Company will be; nevertheless, management believes, based on the
information available to date and the resolution of prior proceedings,
that the ultimate liability of all litigation and proceedings will not
have a material impact on the financial condition of the Company.
14. SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
Additional information concerning supplemental disclosures of cash flow
activities is as follows:
<TABLE>
<CAPTION>
Three Months Ended
For the Years Ended May 31, August 31,
------------------------------------------------- ------------------------------
1994 1995 1996 1995 1996
<S> <C> <C> <C> <C> <C>
Net cash paid for:
Interest $ 10,149,452 $ 17,741,969 $ 31,836,722 $ 6,327,153 $ 6,533,042
Income taxes 5,610,503 7,054,563 3,934,688 597,299 115,805
</TABLE>
Also, the Company issued capital equity certificates in transactions to
acquire interest in elevator properties valued at $3,249,624 during the
year ended May 31, 1994, $8,721,542 during the year ended May 31, 1996,
and $4,467,230 during the three months ended August 31, 1995 and
$4,193,983 during the three months ended August 31, 1996. No capital
equity certificates to acquire interests in elevator properties were
issued in 1995.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS,
requires disclosure of the fair value of all financial instruments to
which the Company is a party. All financial instruments are carried at
amounts that approximate estimated fair value, except for investments in
cooperatives, for which it is not practicable to provide fair-value
information.
HARVEST STATES COOPERATIVES
WHEAT MILLING DIVISION
FINANCIAL STATEMENTS FOR THE YEARS ENDED
MAY 31, 1994, 1995, AND 1996 AND THE THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 (UNAUDITED)
INDEPENDENT AUDITORS' REPORT
Board of Directors
Harvest States Cooperatives
Saint Paul, Minnesota
We have audited the balance sheets of the Wheat Milling Division, formerly known
as Amber Milling Company, a division of Harvest States Cooperatives (HSC), as of
May 31, 1995 and 1996 and the related statements of earnings, divisional equity
and cash flows for each of the three years in the period ended May 31, 1996.
These financial statements are the responsibility of the Division'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, such financial statements present fairly, in all material
respects, the financial position of the Wheat Milling Division at May 31, 1995
and 1996 and the results of its operations and its cash flows for each of the
three years in the period ended May 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
December 11, 1996
<TABLE>
<CAPTION>
WHEAT MILLING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
BALANCE SHEETS
MAY 31,
----------------------------- AUGUST 31,
1995 1996 1996
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Receivables (Note 2) $ 18,633,076 $ 43,749,134 $ 43,319,822
Inventories (Note 3) 7,006,187 9,308,275 15,117,452
Prepaid expenses and deposits 98,866 149,873 260,584
------------ ------------ ------------
Total current assets 25,738,129 53,207,282 58,697,858
OTHER ASSETS (Note 4) 13,472,256 12,881,236 12,614,565
PROPERTY, PLANT, AND
EQUIPMENT (Note 5) 43,395,670 59,233,046 62,587,320
------------ ------------ ------------
$ 82,606,055 $125,321,564 $133,899,743
============ ============ ============
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Due to HSC (Note 6) $ 13,642,180 $ 31,044,150 $ 32,200,000
Accounts payable and accrued expenses 7,416,803 12,480,342 19,902,671
Current portion of long-term debt (Note 6) 3,075,000 6,344,584 6,344,584
------------ ------------ ------------
Total current liabilities 24,133,983 49,869,076 58,447,255
LONG-TERM DEBT (Note 6) 30,675,000 47,655,416 47,655,416
COMMITMENTS AND CONTINGENCIES (Note 11)
DIVISIONAL EQUITY (Note 7) 27,797,072 27,797,072 27,797,072
------------ ------------ ------------
$ 82,606,055 $125,321,564 $133,899,743
============ ============ ============
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
WHEAT MILLING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENTS OF EARNINGS
THREE MONTHS ENDED
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------- ----------------------------
1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES -
Processed grain sales $ 103,716,012 $ 119,725,183 $ 173,315,613 $ 32,416,461 $ 55,647,949
COSTS AND EXPENSES:
Cost of goods sold 97,206,374 112,690,679 161,293,430 30,005,525 51,323,046
Marketing, general, and administrative 2,415,155 3,834,289 4,471,563 985,644 1,104,186
Interest 1,832,037 2,278,544 4,457,797 766,517 1,411,133
------------- -------------- ------------- ------------- --------------
101,453,566 118,803,512 170,222,790 31,757,686 53,838,365
------------- -------------- ------------- ------------- --------------
EARNINGS BEFORE INCOME TAXES 2,262,446 921,671 3,092,823 658,775 1,809,584
INCOME TAXES (Note 10) 150,000 125,000 200,000 50,000 125,000
------------- -------------- ------------- ------------- --------------
NET EARNINGS $ 2,112,446 $ 796,671 $ 2,892,823 $ 608,775 $ 1,684,584
============= ============== ============= ============= ==============
See notes to financial statements.
</TABLE>
WHEAT MILLING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENTS OF DIVISIONAL EQUITY
BALANCE AT MAY 31, 1993 $ 27,797,072
Net earnings 2,112,446
Divisional equity distributed (2,112,446)
------------
BALANCE AT MAY 31, 1994 27,797,072
Net earnings 796,671
Divisional equity distributed (796,671)
------------
BALANCE AT MAY 31, 1995 27,797,072
Net earnings 2,892,823
Divisional equity distributed (2,892,823)
------------
BALANCE AT MAY 31, 1996 27,797,072
Net earnings (unaudited) 1,684,584
Divisional equity distributed
(unaudited) (1,684,584)
------------
BALANCE AT AUGUST 31, 1996 (UNAUDITED) $ 27,797,072
============
See notes to financial statements.
<TABLE>
<CAPTION>
WHEAT MILLING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------- -----------------------------
1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 2,112,446 $ 796,671 $ 2,892,823 $ 608,775 $ 1,684,584
Adjustments to reconcile net earnings
to net cash flows:
Depreciation and amortization 2,185,697 2,512,430 3,309,307 633,127 997,533
Change in assets and liabilities:
Receivables (4,884,658) (3,781,655) (25,116,058) 660,342 429,312
Inventories (8,459,257) 4,387,100 (2,302,088) 366,806 (5,809,177)
Prepaid expenses, deposits,
and other 82,151 55,168 (51,007) (3,851,961) (110,711)
Accounts payable and accrued
expenses 443,220 3,854,638 5,063,539 4,990,928 7,422,329
------------ ------------ ------------ ------------ ------------
Total adjustments (10,632,847) 7,027,681 (19,096,307) 2,799,242 2,929,286
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
operating activities (8,520,401) 7,824,352 (16,203,484) 3,408,017 4,613,870
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of additional intangibles (5,624,405) (475,654)
Acquisition of property, plant,
and equipment (803,647) (25,123,131) (18,080,009) (7,563,146) (4,085,136)
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities (803,647) (30,747,536) (18,555,663) (7,563,146) (4,085,136)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings from
(repayments to) HSC 12,136,494 8,969,855 17,401,970 (6,986,096) 1,155,850
Long-term debt borrowings 14,750,000 20,250,000 11,750,000
Principal payments on long-term debt (700,000)
Divisional equity distributed (2,112,446) (796,671) (2,892,823) (608,775) (1,684,584)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used
in) financing activities 9,324,048 22,923,184 34,759,147 4,155,129 (528,734)
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH -- -- -- -- --
CASH AT BEGINNING OF PERIOD -- -- -- -- --
------------ ------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ -- $ -- $ -- $ -- $ --
============ ============ ============ ============ ============
See notes to financial statements.
</TABLE>
WHEAT MILLING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1994, 1995, AND 1996 AND THREE
MONTHS ENDED AUGUST 31, 1995 AND 1996 (UNAUDITED)
- - - - -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS - Harvest States Cooperatives -
Wheat Milling Division (the Division), formerly known as Amber Milling
Company, is a division of Harvest States Cooperatives (HSC) and is not
organized as a separate legal entity. In the year ended May 31, 1994,
the Division was operated as a joint venture in which HSC owned a 70%
interest. Effective June 1, 1994, HSC purchased the minority interest.
The Division operates commercial bakery and semolina flour milling
facilities in Rush City, Minnesota; Huron, Ohio; and Kenosha,
Wisconsin. These mills produce semolina and durum flour, which are the
primary ingredients in pasta products and wheat flour in the bakery
industry. The Division serves customers throughout the United States.
UNAUDITED INTERIM FINANCIAL STATEMENTS - The Division's balance sheet as
of August 31, 1996, statements of earnings and cash flows for the three
months ended August 31, 1995 and 1996, statement of divisional equity
for the three months ended August 31, 1996, and the interim information
in the notes to financial statements as of August 31, 1996 and for the
three months ended August 31, 1995 and 1996 are unaudited. In the
opinion of management, such unaudited financial statements include all
adjustments (consisting of only normal, recurring accruals) necessary
for a fair presentation thereof. The results of operations for any
interim period are not necessarily indicative of the results for the
year.
SALES - Sales of Processed Grains are recongnized upon shipment to
customers, net of freight charges.
CASH MANAGEMENT - The Division draws all of its cash requirements from
and deposits all cash generated with a centralized HSC cash management
system.
INVENTORIES - Grain and certain processed grain products are stated at
market, including appropriate adjustment of open purchase, sales, and
futures contracts and deferral of normal profit on processed grain
products.
The Division follows the general policy of hedging its grain inventories
and unfilled orders for grain products to the extent considered
practicable for minimizing risk from market price fluctuations. Futures
contracts used for hedging are purchased and sold through regulated
commodity exchanges. Inventories, purchase commitments, and sales
commitments, however, are not completely hedged, due in part to the
absence of satisfactory hedging facilities for certain commodities and
geographical areas and in part to the Division's appraisal of its
exposure from expected price fluctuations. Noncommodity exchange
purchase and sale contracts may expose the Division to risk in the event
that a counterparty to a transaction is unable to fulfill its
contractual obligation. The Division manages its risk by entering into
purchase contracts with preapproved producers and companies and by
establishing appropriate limits for individual suppliers. Sales
contracts are entered into with organizations of acceptable
creditworthiness, as internally evaluated.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are
stated at cost, less accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets.
OTHER ASSETS - Leasehold rights and other intangible assets are
amortized using the straight-line method over 15 to 18 years.
IMPAIRMENT OF LONG-LIVED ASSETS - Management periodically reviews the
carrying value of property and equipment for potential impairment by
comparing its carrying value to the estimated undiscounted future cash
flows expected to result from the use of these assets. Should the sum of
the related, expected future net cash flows be less than the carrying
value, an impairment loss would be recognized. An impairment loss would
be measured by the amount by which the carrying value of the asset
exceeds the fair value of the asset.
INCOME TAXES - Earnings generated on grain purchased by the Division
from nonmembers is characterized as nonpatronage and taxable. Earnings
generated on grain purchased from HSC are considered to be patronage to
the extent of HSC's patronage purchase percentage of that particular
commodity; the other portion of those earnings is considered taxable.
Due to the high proportion of patronage earnings, deferred taxes
resulting from temporary differences are not significant.
REVENUE FROM SIGNIFICANT CUSTOMERS - Sales to individual customers in
excess of 5% of total sales were approximately $68,800,000 to six
customers, $90,500,000 to nine customers, and $116,200,000 to seven
customers for the years ended May 31, 1994, 1995, and 1996.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expense during the reporting period. Actual results could differ
from those estimates.
2. RECEIVABLES
<TABLE>
<CAPTION>
May 31,
------------------------------- August 31,
1995 1996 1996
<S> <C> <C> <C>
Trade $ 18,504,796 $ 43,530,542 $ 43,199,805
Other 257,468 459,530 393,954
Less allowance for losses (129,188) (240,938) (273,937)
--------------- -------------- ---------------
$ 18,633,076 $ 43,749,134 $ 43,319,822
=============== ============== ===============
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
May 31,
------------------------------- August 31,
1995 1996 1996
<S> <C> <C> <C>
Grain $ 6,799,010 $ 8,327,021 $ 11,450,458
Processed grain products (75,951) 629,647 3,259,686
Other 283,128 351,607 407,218
--------------- -------------- ---------------
$ 7,006,187 $ 9,308,275 $ 15,117,452
=============== ============== ===============
</TABLE>
4. OTHER ASSETS
<TABLE>
<CAPTION>
May 31,
------------------------------- August 31,
1995 1996 1996
<S> <C> <C> <C>
Goodwill, less accumulated amortization of
$374,960, $781,635, and $883,305 respectively $ 5,249,445 $ 5,318,424 $ 5,216,754
Leasehold rights and other intangibles, less
accumulated amortization of $3,788,723,
$4,484,723, and $4,649,724 respectively 8,222,811 7,562,812 7,397,811
--------------- -------------- ---------------
$ 13,472,256 $ 12,881,236 $ 12,614,565
=============== ============== ===============
</TABLE>
5. PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
Property, plant, and equipment is as follows:
Estimated May 31,
Useful Life ---------------------------------- August 31,
in Years 1995 1996 1996
<S> <C> <C> <C>
Land $ 142,060 $ 181,420 $ 181,420
Grain processing plants 15 to 45 7,435,649 30,835,636 30,835,640
Machinery and equipment 5 to 20 23,431,415 35,520,073 35,520,071
--------------- --------------- ----------------
31,009,124 66,537,129 66,537,131
Less accumulated depreciation (12,387,180) (14,677,871) (15,408,733)
--------------- --------------- -----------------
18,621,944 51,859,258 51,128,398
Construction-in-progress 24,773,726 7,373,788 11,458,922
--------------- --------------- ----------------
$ 43,395,670 $ 59,233,046 $ 62,587,320
=============== =============== ================
</TABLE>
6. BORROWINGS
DUE TO HSC:
The Division satisfies its working capital needs through borrowings,
both long and short term, from HSC to the extent HSC's borrowing
capacity permits. Short-term borrowings of $9,750,000 and $27,000,000
were outstanding on May 31, 1995 and 1996, respectively. Interest on
short-term borrowings from HSC is charged to the Division and all other
HSC divisions based upon a ratable allocation of consolidated HSC
interest expense related to short term borrowings based upon working
capital employed by each division. This results in an effective
borrowing rate that may be less than what the Division could obtain on
an independent basis.
<TABLE>
<CAPTION>
May 31,
------------------------------- August 31,
1995 1996 1996
<S> <C> <C> <C>
Harvest States Cooperatives, with fixed and
variable interest rates from 6.24% to 8.50%,
due in installments through 2005 $ 31,250,000 $ 51,700,000 $ 51,700,000
Industrial Development and Public Grain Elevator
Revenue Bonds, payable through July 2004,
with an interest rate of 7.375% 2,500,000 2,300,000 2,300,000
--------------- -------------- ---------------
33,750,000 54,000,000 54,000,000
Less current portion (3,075,000) (6,344,584) (6,344,584)
--------------- -------------- ---------------
$ 30,675,000 $ 47,655,416 $ 47,655,416
=============== ============== ===============
</TABLE>
The principal maturities of outstanding long-term indebtedness
outstanding at May 13, 1996 are as follows:
Year ending May 31:
1997 $ 6,344,584
1998 8,026,875
1999 8,026,875
2000 8,026,875
2001 6,151,875
2002 and thereafter 17,422,916
7. DIVISIONAL EQUITY
The Division's earnings are distributed to HSC at the end of each
quarter. All patronage-related liability and capital accounts are
maintained at HSC's consolidated level.
8. RETIREMENT PLANS
The Division, through HSC, has noncontributory defined benefit
retirement plans covering substantially all salaried and full-time
hourly employees. The retirement plan benefits for salaried employees
are based on years of service and the participants' total compensation.
Benefits for hourly employees are based on various monthly amounts for
each year of credited service. The plans are funded by annual
contributions to tax-exempt trusts in accordance with federal law and
regulations. Plan assets consist principally of corporate obligations,
U.S. Government bonds, money market funds, and immediate participation
guarantee contracts. Pension costs billed to the Division for 1994,
1995, and 1996 were approximately $52,000, $101,000, and $46,000,
respectively. The Division's portion of the actuarial present value or
accumulated benefit obligations and net pension assets available for
benefits has not been determined. Selected information at May 31 for
HSC's plans are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Accumulated benefit obligation, including vested benefits
of $67,539,069 and $74,406,137, respectively $ 69,898,635 $ 77,127,866
Projected benefit obligation for services rendered to date 73,686,670 81,036,131
Plan assets at fair value 70,122,276 75,743,570
</TABLE>
The determination of the actuarial present value of the projected
benefit obligation was based on a weighted average discount rate of
8.25% in 1994 and 1995 and 7.75% in 1996 and a rate of increase in
future compensation of 5% in 1994, 1995, and 1996. The expected
long-term rate of return on plan assets was 8.5% in 1994 and 1995 and 8%
in 1996.
9. POSTRETIREMENT MEDICAL AND OTHER BENEFITS
The Division, through HSC, provides certain health care benefits for
retired employees. Employees become eligible for these benefits if they
meet minimum age and service requirements and are eligible for
retirement benefits.
The accrued postretirement medical and other benefits costs of HSC that
are not funded were as follows at May 31:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ 5,991,309 $ 2,993,307
Fully eligible active plan participants 1,041,742 1,019,071
Other active plan participants 2,730,508 3,624,620
------------- -------------
Total APBO 9,763,559 7,636,998
Unrecognized transition obligation (9,984,815) (9,430,105)
Unrecognized net gains 2,000,094 4,059,863
------------- -------------
Accrued postretirement medical and other benefits cost $ 1,778,838 $ 2,266,756
============= =============
</TABLE>
The net periodic costs billed to the Division for 1994, 1995, and 1996
were approximately $30,000, $44,000, and $42,000, respectively.
The calculations assumed a discount rate of 8% in 1995 and 7.75% in 1996
and a health care cost trend rate of 10% in 1996, declining to 6% in
2004. If the health care cost trend rate increased by 1%, the APBO would
increase by 8.7% and the service cost and interest cost components would
increase by 10%.
10. PROVISION FOR INCOME TAXES
HSC and its divisions, including the Wheat Milling Division, file
consolidated federal income tax returns. HSC has a policy that provides
for the payment of taxes on an individual company basis for each of its
divisions.
No significant deferred income tax provision was recorded by the
Division.
A reconciliation of the statutory federal tax rate to the effective rate
for the years ended May 31 follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal income tax benefit 2.6 2.6 4.3
Patronage earnings (33.9) (24.2) (31.9)
Other 2.9 .2 2.2
------ ------ ------
Effective rate 6.6% 13.6% 9.6%
====== ====== ======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
The Division leases approximately 242 rail cars with remaining lease
terms of one to ten years. In addition, the Division leases a milling
facility, vehicles, and various manufacturing equipment.
Minimum rental payments due under these operating leases at May 31, 1996
are as follows:
<TABLE>
<CAPTION>
Year ending May 31:
Milling
Rail Cars Facility Other Total
<S> <C> <C> <C> <C>
1997 $ 1,423,200 $ 399,996 $ 5,844 $ 1,829,040
1998 1,001,475 426,668 5,844 1,433,987
1999 825,125 440,004 2,435 1,267,564
2000 815,630 440,004 1,255,634
2001 610,300 440,004 1,050,304
2002 and thereafter 52,850 2,986,672 3,039,522
------------- -------------- ------------- ---------------
$ 4,728,580 $ 5,133,348 $ 14,123 $ 9,876,051
============= ============== ============= ===============
</TABLE>
Total rent expense, net of rail car mileage credits received from the
railroad and subleases, was approximately $1,190,606, $1,180,836, and
$1,624,576 for the years ended May 31, 1994, 1995, and 1996,
respectively. Mileage credits and sublease income were $273,384,
$321,909, and $338,700 for the years ended May 31, 1994, 1995, and 1996,
respectively.
The Division is a party to various lawsuits and administrative
proceedings incidental to its business. It is impossible, at this time,
to estimate what the ultimate legal and financial liability of the
Division will be; nevertheless, management believes, based on the
information available to date and the resolution of prior proceedings,
that the ultimate liability of all litigation and proceedings will not
have a material impact on the financial condition of the Division.
At May 31, 1996, the Division had outstanding grain purchase contracts
of approximately 7,800,000 bushels at prices for durum ranging from
$5.93 per bushel to $7.50 per bushel and prices for spring wheat ranging
from $5.03 per bushel to $7.54 per bushel. In addition, the Division had
outstanding sales contracts of both semolina and commercial baking flour
totaling approximately $59,800,000.
12. RELATED-PARTY TRANSACTIONS
Net sales for the year ended May 31, 1994, 1995, and 1996 included
$870,000, $321,768, and $647,416, respectively, to related parties.
The Division purchases substantially all of its durum and wheat from
HSC, a related party. Included in cost of goods sold for the years ended
May 31, 1994, 1995, and 1996 were $58,900,000, $69,900,000, and
$122,900,000, respectively, of these purchases.
Additionally, HSC performs various direct management services and incurs
certain costs for its operating divisions. Such costs, including data
processing, office services, and insurance, are charged directly to the
divisions. Indirect expenses, such as publications, board expense,
executive management, legal, finance, and human resources, are allocated
to the divisions based on approximate usage.
13. SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
Additional information concerning supplemental disclosures of cash flow
activities for the years ended May 31 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Net cash paid during year for:
Interest $ 1,832,037 $ 2,278,544 $ 4,457,797
Income taxes 350,000 150,000 125,000
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURE ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of the fair
value of all financial instruments to which the Division is a party. All
financial instruments are carried at amounts that approximate estimated
fair value.
15. SUBSEQUENT EVENT
HSC has announced a plan to offer Equity Participation Units (EPUs) to
its members. Each EPU will represent the rights and obligation to
deliver a specified quantity of wheat to HSC. Holders of EPUs will be
entitled to receive patronage earnings related to the Division's
milling of wheat delivered by the holder to HSC, as well as a ratable
share of consolidated HSC non-patronage earnings based upon total
member deliveries to HSC by members of all commodities. EPU's will
represent an equity interest in HSC and will not represent an ownership
interest in any assets of the Division.
In conjunction with the offering of EPUs, HSC announced its intention
to begin charging the Division interest on its daily average of
short-term borrowings at a rate equivalent to the weighted average
interest rate on short-term borrowings of HSC. On May 31,1996, the
weighted average borrowing rate of EPUs short-term borrowings was
6.05%. Amounts due from HSC will accrue interest in the same manner at
the same rate.
OILSEED PROCESSING AND
REFINING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
FINANCIAL STATEMENTS FOR THE YEARS ENDED
MAY 31, 1994, 1995, AND 1996 AND THE THREE MONTHS
ENDED AUGUST 31, 1995 AND 1996 (UNAUDITED)
INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
Board of Directors
Harvest States Cooperatives
Saint Paul, Minnesota
We have audited the balance sheets of the Oilseed Processing and Refining
Division, formerly known as Honeymead Products Company, a division of Harvest
States Cooperatives (HSC) as of May 31, 1995 and 1996 and the related statements
of earnings, divisional equity, and cash flows for each of the three years in
the period ended May 31, 1996. These financial statements are the responsibility
of the Division'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 audits 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, such financial statements present fairly, in all material
respects, the financial position of the Oilseed Processing and Refining Division
at May 31, 1995 and 1996 and the results of its operations and its cash flows
for each of the three years in the period ended May 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
December 10, 1996
<TABLE>
<CAPTION>
OILSEED PROCESSING AND REFINING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
BALANCE SHEETS
MAY 31,
--------------------------- AUGUST 31,
1995 1996 1996
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Receivables (Note 2) $20,387,921 $22,795,612 $25,219,890
Inventories (Note 3) 17,255,215 26,235,220 12,414,154
Prepaid expenses and deposits 524,151 310,692 1,685,087
Due from HSC 5,095,299
----------- ----------- -----------
Total current assets 43,262,586 49,341,524 39,319,131
PROPERTY, PLANT, AND EQUIPMENT (Note 4) 20,410,408 24,771,413 27,073,103
----------- ----------- -----------
$63,672,994 $74,112,937 $66,392,234
=========== =========== ===========
LIABILITIES AND DIVISIONAL EQUITY
CURRENT LIABILITIES:
Due to HSC (Note 5) $ 9,482,351 $ 1,200,000
Accounts payable and accrued expenses $10,281,996 11,239,588 11,801,236
----------- ----------- -----------
Total current liabilities 10,281,996 20,721,939 13,001,236
COMMITMENTS AND CONTINGENCIES (Note 10)
DIVISIONAL EQUITY (Note 6) 53,390,998 53,390,998 53,390,998
----------- ----------- -----------
$63,672,994 $74,112,937 $66,392,234
=========== =========== ===========
See notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
OILSEED PROCESSING AND REFINING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENTS OF EARNINGS
THREE MONTHS ENDED
FOR THE YEARS ENDED AUGUST 31,
-------------------------------------------- -----------------------------
1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Processed oilseed sales $ 358,372,039 $ 398,095,108 $ 399,271,001 $ 93,227,683 $ 113,145,890
Other revenue 1,349,484 1,162,518 1,435,708 1,407,881 599,421
------------- -------------- ------------- ------------- --------------
359,721,523 399,257,626 400,706,709 94,635,564 113,745,311
COSTS AND EXPENSES:
Cost of goods sold 334,968,474 366,407,451 371,424,566 88,122,829 107,833,751
Marketing, general, and administrative 4,722,900 5,137,663 4,544,763 1,214,952 1,194,870
Interest 164,300 151,500 12,600 19,100
------------- -------------- ------------- ------------- --------------
339,855,674 371,545,114 376,120,829 89,350,381 109,047,721
------------- -------------- ------------- ------------- --------------
EARNINGS BEFORE INCOME TAXES 19,865,849 27,712,512 24,585,880 5,285,183 4,697,590
INCOME TAXES (Note 9) 1,650,000 1,500,000 1,600,000 375,000 350,000
------------- -------------- ------------- ------------- --------------
NET EARNINGS $ 18,215,849 $ 26,212,512 $ 22,985,880 $ 4,910,183 $ 4,347,590
============= ============== ============= ============= ==============
See notes to financial statements.
</TABLE>
OILSEED PROCESSING AND REFINING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENTS OF DIVISIONAL EQUITY
BALANCE AT MAY 31, 1993 $ 53,390,998
Net earnings 18,215,849
Divisional equity distributed (18,215,849)
BALANCE AT MAY 31, 1994 53,390,998
Net earnings 26,212,512
Divisional equity distributed (26,212,512)
BALANCE AT MAY 31, 1995 53,390,998
Net earnings 22,985,880
Divisional equity distributed (22,985,880)
BALANCE AT MAY 31, 1996 53,390,998
Net earnings (unaudited) 4,347,590
Divisional equity distributed (unaudited) (4,347,590)
BALANCE AT AUGUST 31, 1996 (UNAUDITED) $ 53,390,998
============
See notes to financial statements.
<TABLE>
<CAPTION>
OILSEED PROCESSING AND REFINING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
FOR THE YEARS ENDED AUGUST 31,
---------------------------------------------- -----------------------------
1994 1995 1996 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 18,215,849 $ 26,212,512 $ 22,985,880 $ 4,910,183 $ 4,347,590
Adjustments to reconcile net earnings
to net cash flows:
Depreciation and amortization 1,940,793 1,724,844 1,598,965 378,976 412,040
Gain (loss) on sale of property,
plant, and equipment 40,721 (431) 31,765
Change in assets and liabilities:
Receivables (116,143) (568,635) (2,407,691) (2,102,406) (2,424,278)
Inventories (8,481,765) 16,861,993 (8,980,005) 1,074,792 13,821,066
Prepaid expenses and deposits 303,248 152,531 213,459 (700,872) (1,374,395)
Accounts payable and accrued
expenses (2,821,112) 482,095 957,592 3,756,061 561,648
------------ ------------ ------------ ------------ ------------
Total adjustments (9,134,258) 18,652,397 (8,585,915) 2,406,551 10,996,081
------------ ------------ ------------ ------------ ------------
Net cash provided by
operating activities 9,081,591 44,864,909 14,399,965 7,316,734 15,343,671
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from disposition of property,
plant, and equipment 1,000
Acquisition of property, plant,
and equipment (6,293,164) (2,557,886) (5,991,735) (1,669,286) (2,713,730)
------------ ------------ ------------ ------------ ------------
Net cash used in
investing activities (6,293,164) (2,556,886) (5,991,735) (1,669,286) (2,713,730)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings from (repayments to) HSC 15,427,422 (16,095,511) 14,577,650 (737,265) (8,282,351)
Divisional equity distributed (18,215,849) (26,212,512) (22,985,880) (4,910,183) (4,347,590)
------------ ------------ ------------ ------------ ------------
Net cash used in financing
activities (2,788,427) (42,308,023) (8,408,230) (5,647,448) (12,629,941)
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH -- -- -- -- --
CASH AT BEGINNING OF PERIOD -- -- -- -- --
------------ ------------ ------------ ------------ ------------
CASH AT END OF PERIOD $ -- $ -- $ -- $ -- $ --
============ ============ ============ ============ ============
See notes to financial statements.
</TABLE>
OILSEED PROCESSING AND REFINING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED MAY 31, 1994, 1995, AND 1996 AND THREE
MONTHS ENDED AUGUST 31, 1995 AND 1996 (UNAUDITED)
- - - - -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS - Harvest States Cooperatives -
Oilseed Processing and Refining Division (the Division), formerly known
as Honeymead Products Company, is a division of Harvest States
Cooperatives (HSC) and is not organized as a separate legal entity. The
Division operates a single soybean crushing and oil refining plant in
Mankato, Minnesota and serves customers throughout the United States.
UNAUDITED INTERIM FINANCIAL STATEMENTS - The Division's balance sheet as
of August 31, 1996, statements of earnings and cash flows for the three
months ended August 31, 1995 and 1996, statement of divisional equity
for the three months ended August 31, 1996, and the interim information
in the notes to the financial statements as of August 31, 1996 and for
the three months ended August 31, 1995 and 1996 are unaudited. In the
opinion of management, such unaudited financial statements include all
adjustments (consisting of only normal, recurring accruals) necessary
for a fair presentation thereof. The results of operations for any
interim period are not necessarily indicative of the results for the
year.
SALES - Sales of processed oilseeds are recognized upon shipment to
customers, net of freight charges.
CASH MANAGEMENT - The Division draws all of its cash requirements from
and deposits all cash generated with a centralized HSC cash management
system.
INVENTORIES - Oilseed and certain processed oilseed products are stated
at market, including appropriate adjustment of open purchase, sales, and
futures contracts and deferral of profit on processed oilseed products.
The Division follows the general policy of hedging its oilseed
inventories and unfilled orders for oilseed products to the extent
considered practicable for minimizing risk from market price
fluctuations. Futures contracts used for hedging are purchased and sold
through regulated commodity exchanges. However, inventories, purchase
commitments, and sales commitments are not completely hedged, due in
part to the Division's appraisal of its exposure from expected price
fluctuations. Noncommodity exchange purchase and sale contracts may
expose the Division to risk in the event that a counterparty to a
transaction is unable to fulfill its contractual obligation. The
Division manages its risk by entering into purchase contracts with
preapproved producers and companies and by establishing appropriate
limits for individual suppliers. Sales contracts are entered into with
organizations of acceptable creditworthiness, as internally evaluated.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are
stated at cost, less accumulated depreciation. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets.
INCOME TAXES - Earnings generated on oilseed purchased by the Division
from nonmembers is characterized as nonpatronage and taxable. Earnings
generated on oilseed purchased from HSC are considered to be patronage
to the extent of HSC's patronage purchase percentage of that particular
commodity; the other portion of those earnings is considered taxable.
Due to the high proportion of patronage earnings, deferred taxes
resulting from temporary differences are not significant.
ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expense during the reporting period. Actual results could differ
from those estimates.
REVENUE FROM SIGNIFICANT CUSTOMERS - Sales to individual customers in
excess of 5% of total sales were approximately $103,700,000 to two
customers, $132,500,000 to three customers, and $152,500,000 to three
customers for the years ended May 31, 1994, 1995, and 1996.
2. RECEIVABLES
<TABLE>
<CAPTION>
May 31,
------------------------------- August 31,
1995 1996 1996
<S> <C> <C> <C>
Trade $ 20,782,921 $ 23,190,612 $ 25,614,890
Less allowance for losses (395,000) (395,000) (395,000)
--------------- -------------- ---------------
$ 20,387,921 $ 22,795,612 $ 25,219,890
=============== ============== ===============
</TABLE>
3. INVENTORIES
<TABLE>
<CAPTION>
May 31,
------------------------------- August 31,
1995 1996 1996
<S> <C> <C> <C>
Oilseed $ 8,369,881 $ 17,141,111 $ 4,567,147
Processed oilseed products 8,885,334 9,094,109 7,847,007
--------------- -------------- ---------------
$ 17,255,215 $ 26,235,220 $ 12,414,154
=============== ============== ===============
</TABLE>
4. PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
Estimated
Useful Life May 31,
------------------------------- August 31,
in Years 1995 1996 1996
<S> <C> <C> <C>
Land $ 630,043 $ 630,043 $ 630,043
Elevators, crushing plant,
and refinery 15 to 20 19,743,982 21,268,532 21,268,532
Machinery and equipment 5 to 18 37,924,258 41,077,104 41,077,104
Furniture and fixtures 3 to 12 357,263 379,363 379,363
Other 5 to 12 99,112 99,112 99,112
--------------- -------------- ----------------
58,754,658 63,454,154 63,454,154
Less accumulated depreciation (40,532,200) (42,310,640) (42,722,680)
--------------- -------------- -----------------
18,222,458 21,143,514 20,731,474
Construction-in-progress 2,187,950 3,627,899 6,341,629
--------------- -------------- ----------------
$ 20,410,408 $ 24,771,413 $ 27,073,103
=============== ============== ================
</TABLE>
5. DUE TO HSC
The Division satisfies its working capital needs through borrowings,
both long and short term, from HSC to the extent HSC's borrowing
capacity permits. Short-term borrowings of $2,300,000 were outstanding
on May 31, 1996. No balance was outstanding on May 31, 1995.
Interest on short-term borrowings from HSC is charged to the Division
and all other HSC divisions based upon a ratable allocation of
consolidated HSC interest expense related to short term borrowings based
upon working capital employed by each division. This results in an
effective borrowing rate that may be less than what the Division could
obtain on an independent basis.
6. DIVISIONAL EQUITY
The Division's earnings are distributed to HSC at the end of each
quarter. All patronage-related liability and capital accounts are
maintained at HSC's consolidated level.
7. RETIREMENT PLANS
The Division, through HSC, has noncontributory defined benefit
retirement plans covering substantially all salaried and full-time
hourly employees. The retirement plan benefits for salaried employees
are based on years of service and the participants' total compensation.
Benefits for hourly employees are based on various monthly amounts for
each year of credited service. The plans are funded by annual
contributions to tax-exempt trusts in accordance with federal law and
regulations. Plan assets consist principally of corporate obligations,
U.S. Government bonds, money market funds, and immediate participation
guarantee contracts. Pension costs billed to the Division for the years
ended May 31, 1994, 1995, and 1996 were approximately $166,000,
$264,000, and $169,000, respectively. The Division's portion of the
actuarial present value or accumulated benefit obligations and net
pension assets available for benefits has not been determined. Selected
information at May 31 for HSC's plans are as follows:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Accumulated benefit obligation, including vested benefits
of $67,539,069 and $74,406,137, respectively $ 69,898,635 $ 77,127,866
Projected benefit obligation for service rendered to date 73,686,670 81,036,131
Plan assets at fair value 70,122,276 75,743,570
</TABLE>
The determination of the actuarial present value of the projected
benefit obligation was based on a weighted average discount rate of
8.25% in 1994 and 1995 and 7.75% in 1996 and a rate of increase in
future compensation of 5% in 1994, 1995, and 1996. The expected
long-term rate of return on plan assets was 8.5% in 1994 and 1995 and 8%
in 1996.
8. POSTRETIREMENT MEDICAL AND OTHER BENEFITS
The Division, through HSC, provides certain health care benefits for
retired employees. Employees become eligible for these benefits if they
meet minimum age and service requirements and are eligible for
retirement benefits.
The accrued postretirement medical and other benefits costs of HSC that
are not funded were as follows at May 31:
<TABLE>
<CAPTION>
1995 1996
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ 5,991,309 $ 2,993,307
Fully eligible active plan participants 1,041,742 1,019,071
Other active plan participants 2,730,508 3,624,620
------------- -------------
Total APBO 9,763,559 7,636,998
Unrecognized transition obligation (9,984,815) (9,430,105)
Unrecognized net gains 2,000,094 4,059,863
------------- -------------
Accrued postretirement medical and other benefits cost $ 1,778,838 $ 2,266,756
============= =============
</TABLE>
The net periodic costs billed to the Division for the years ended May
31, 1994, 1995, and 1996 were approximately $301,000, $238,000, and
$197,000, respectively.
The calculations assumed a discount rate of 8% in 1995 and 7.75% in 1996
and a health care cost trend rate of 10% in 1996, declining to 6% in
2004. If the health care cost trend rate increased by 1%, the APBO would
increase by 8.7% and the service cost and interest cost components would
increase by 10%.
9. PROVISION FOR INCOME TAXES
HSC and its divisions, including the Oilseed Processing and Refining
Division, file consolidated federal income tax returns. HSC has a policy
that provides for the payment of taxes on an individual company basis
for each of its divisions.
No significant deferred income tax provision was recorded by the
Division.
A reconciliation of the statutory federal tax rate to the effective rate
for the years ended May 31 follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes, net of federal income tax benefit 2.6 2.6 4.3
Patronage earnings (32.2) (32.4) (35.0)
Other 2.9 .2 2.2
------ ------ ------
Effective rate 8.3% 5.4% 6.5%
====== ====== ======
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
The Division leases approximately 347 rail cars with remaining lease
terms of one to ten years.
Minimum rental payments due under these operating leases at May 31,
1996 are as follows:
Year ending May 31:
1997 $ 1,983,390
1998 1,669,740
1999 1,494,810
2000 1,219,640
2001 1,002,660
2002 and thereafter 1,905,600
--------------
$ 9,275,840
==============
Total rent expense, net of rail car mileage credits received from the
railroad and subleases, was approximately $1,634,253, $1,771,790, and
$1,832,413 for the years ended May 31, 1994, 1995, and 1996,
respectively.
The Division is a party to various lawsuits and administrative
proceedings incidental to its business. It is impossible, at this time,
to estimate what the ultimate legal and financial liability of the
Division will be; nevertheless, management believes, based on the
information available to date and the resolution of prior proceedings,
that the ultimate liability of all litigation and proceedings will not
have a material impact on the financial condition of the Division.
At May 31, 1996, the Division had outstanding oilseed purchase contracts
of 3,401,670 bushels at prices ranging from $6.27 per bushel to $8.23
per bushel, and outstanding oil purchase contracts of 284,958,713 pounds
at prices ranging from $0.2505 per pound to $0.2930 per pound. In
addition, the Division had outstanding sales contracts totaling
$36,953,870.
11. RELATED-PARTY TRANSACTIONS
Net sales for the years ended May 31, 1994, 1995, and 1996 included
$22,354,368, $79,133,437, and $124,299,369, respectively, to related
parties.
The Division purchases substantially all of it soybeans from HSC, a
related party. Included in cost of goods sold for the years ended May
31, 1994, 1995, and 1996 were $11,468,610, $5,502,705, and $3,772,327,
respectively, of these purchases.
Additionally, HSC performs various direct management services and incurs
certain costs for its operating divisions. Such costs, including data
processing, office services, and insurance, are charged directly to the
divisions. Indirect expenses, such as publications, board expense,
executive management, legal, finance, and human resources, are allocated
to the divisions based on approximate usage.
12. SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
Additional information concerning supplemental disclosures of cash flow
activities for the years ended May 31 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
<S> <C> <C> <C>
Net cash paid to HSC during year for:
Interest $ 164,300 $ - $ 151,500
Income taxes 1,900,000 1,650,000 1,500,000
</TABLE>
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, DISCLOSURE ABOUT
FAIR VALUE OF FINANCIAL INSTRUMENTS, requires disclosure of the fair
value of all financial instruments to which the Division is a party. All
financial instruments are carried at amounts that approximate estimated
fair value.
14. SUBSEQUENT EVENT
HSC has announced a plan to offer Equity Participation Units (EPUs) to
its members. Each EPU will represent the rights and obligation to
deliver a specified quantity of soybeans to HSC. Holders of EPUs will
be entitled to receive patronage earnings related to the Division's
crushing and refining of soybeans delivered by the holder to HSC, as
well as a ratable share of consolidated HSC non-patronage earnings based
upon total member deliveries to HSC by members of all commodities. EPUs
will represent an equity interest in HSC and will not represent an
ownership interest in any assets of the Division.
In conjunction with the offering of EPUs, HSC announced its intention
to begin charging the Division interest on its daily average of
short-term borrowings at a rate equivalent to the weighted average
interest rate on short-term borrowings of HSC. On May 31,1996, the
weighted average borrowing rate of HSC's short-term borrowings was
6.05%. Amounts due from HSC will receive interest in the same manner at
the same rate.
Exhibit A
Exhibit A
SUBSCRIPTION AGREEMENT
HARVEST STATES COOPERATIVES
The undersigned ("Subscriber") subscribes and agrees to purchase:
* _______ Equity Participation Units (Milling) at a price of $_______
per unit.
* _______ Equity Participation Units (Processing and Refining) at a
price of $_______ per unit.
Subscriber certifies that:
* Subscriber has received and carefully reviewed a copy of the Company's
Prospectus dated _______________, 1997.
* Subscriber is [check one]:
[ ] an agricultural producer actually engaged in the production of
agricultural products, or
[ ] an agricultural cooperative (an association of producers of
agricultural products organized and operating so as to adhere to
the provisions of the Agricultural Marketing Act, 12
U.S.C.ss.1141(j)(a), as amended, and the Capper-Volstead Act, 7
U.S.C.ss.ss.291-292, as amended).
* Subscriber (if a producer) is capable of producing in the 1997 growing
season the number of bushels of wheat or soybeans covered by the
Member Marketing Agreement.
This Subscription Agreement is accompanied by:
* A Member Marketing Agreement signed by the Subscriber.
* A check for the purchase price.
The Units shall be registered (please print or type):
_________________________________
Name of Subscriber
_________________________________
Social Security Number or
Taxpayer I.D. Number
Mailing Address:
_________________________________
_________________________________
_________________________________
Signatures
Date: ____________________ ______________________________________
Signature of Subscriber or
Subscriber's authorized representative
If Subscriber is an association of producers (please print or type):
_________________________________
Name of Subscriber's authorized
representative
_________________________________
Position of Subscriber's authorized
representative
Accepted:
HARVEST STATES COOPERATIVES
By ________________________________
Its ______________________________
Exhibit B
HARVEST STATES COOPERATIVES
MEMBER MARKETING AGREEMENT
THIS AGREEMENT is made and entered into as of this _______ day
of ___________________, 199__, by and between HARVEST STATES COOPERATIVES, a
Minnesota cooperative corporation (the "Association"), and __________________, a
____________________ ("Member").
In consideration of the mutual terms and conditions contained
in this agreement (including the Standard Terms and Conditions attached hereto,
as in force from time to time) (this "Agreement"), the Association and Member
agree that Member shall deliver grain to the Association, and the Association
shall accept grain from member, as further provided in this Agreement. This
Agreement contains the entire agreement, and supersedes and replaces any prior
agreements (either written or oral), between the parties with respect to the
subject matter hereof. This Agreement may be modified only as provided in
Section 9 hereof.
IN WITNESS WHEREOF, the Association and Member have executed
this Agreement as of the date first above written.
HARVEST STATES COOPERATIVES ______________________________
MEMBER
By: _____________________________
Its: ____________________________
Address: ________________________ Address: ________________________
________________________ ________________________
________________________ ________________________
HARVEST STATES COOPERATIVES
MEMBER MARKETING AGREEMENT
(STANDARD TERMS AND CONDITIONS)
1. Obligation to Deliver Grain. During each processing year of the term
of this Agreement, Member shall deliver to the Association, and the Association
shall accept from Member, a base amount of one bushel of _______________ (the
"Grain") for each equity participation unit held by Member, subject to tolerance
ranges for deliveries of the Grain that may be established each year by the
Board of Directors of the Association. For purposes of this Agreement, a
processing year shall begin on June 1 of each year and end on May 31 of the
following year. Member understands and agrees that its obligation to deliver
Grain hereunder is unconditional, except as provided in Paragraph 7.2 of this
Agreement. If the undersigned is a producer, rather than a cooperative, Member
warrants that the Grain delivered will be produced by Member.
2. Price and Payment. The Association (directly or through its
agent) shall pay Member the price for Grain delivered, received, accepted and
processed as provided hereunder. The price shall be based on the prevailing
price posted at the authorized local elevator, Association's elevator, plant or
receiving station. In addition, any and all distributions, per-unit retains and
patronage payments relating to the Defined Business Unit of which Member is a
Defined Member (as such terms are defined in the Association's Bylaws)
(including, without limitation, any patronage payments to which Member is
entitled pursuant to the Association's Bylaws), subject to necessary or
appropriate accounting adjustments, shall be paid by the Association to Member.
3. Delivery of Grain. The full legal title of and to Grain
received by the Association shall pass to and vest in the Association
contemporaneously with its delivery to the Association or to its authorized
agent. The Association shall take and hold the full and absolute title of and to
all Grain, including any product or by-products made therefrom; and the
Association shall have and may exercise all of the rights of an absolute owner
in respect of said Grain, except those in express violation of its obligations
hereunder. The Association may reject and refuse to accept delivery of any and
all Grain which in its judgment does not conform to the Association's standards.
Member shall receive credit for the quantity of Grain accepted for delivery.
4. Product Quality Standards. The Member warrants that the Grain
sold under this Agreement shall be merchantable and shall not be adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic Act, as
amended, and regulations, or include any article or commodity that may not,
under the provisions of such Act, be introduced in interstate commerce. All
Grain delivered on behalf of Member to the Association shall meet such
specifications, and be subject to such allowances, deductions and premiums, as
may from time to time be determined by the Association. Grain of substandard
quality, as determined by the Association, shall be either (a) rejected and
returned to Member with all costs relating to the rejection and return charged
to Member; or (b) accepted with deductions and allowances made and charged
against Member because of the inferior quality or condition at the time of
delivery. The Association may credit Member for certain premiums to be paid on
the basis of quality standards which may from time to time be established by the
Association. The Association shall use accepted standards to assess the quality
of Grain delivered by Member. Member agrees to observe and accept any rules and
regulations established by the Association.
5. Security Interests. The Member warrants that the Grain sold
under this Agreement shall be free and clear of any security interest, lien,
penalty, charge, or encumbrance, governmental or otherwise. If Member grants a
security interest in any of the Grain delivered, Member shall inform the
Association, in writing, of any security interest it has granted in such Grain
prior to delivery. The Association shall have the right, but not the obligation,
after acceptance of the Grain, to name the lienholder as a payee on the payment
for the Grain.
6. Consequences of Failure to Deliver. If during any processing
year Member fails to deliver the quantity of Grain required by Section 1 of this
Agreement, (i) Member shall forfeit patronage payments to the extent of such
nondelivery, and (ii) in the event of a loss by the Defined Business Unit of
which Member is a Defined Member, each equity participation unit held by Member
shall be charged, on a pro rata basis, with the amount of such loss, as
liquidated damages for such nondelivery.
7. Force Majeure.
7.1 In case of fire, explosions, interruption of
power, strikes or other labor disturbances, lack of transportation facilities,
shortage of labor or supplies, floods, action of the elements, riot,
interference of civil or military authorities, enactment of legislation or any
unavoidable casualty or cause beyond the control of the Association affecting
the conduct of the Association's business to the extent of preventing or
unreasonably restricting the receiving, handling, production, marketing, or
other operations, the Association shall be excused from performance during the
period that the Association's business or operations are so affected. The
Association in its judgment may, during such period, accept such portion of the
Grain as the Association has informed Member it can economically handle. The
Association shall give written notice to Member of its inability to perform and
the specific cause or causes for the nonperformance. In any event, the
Association shall pay, pursuant to this Agreement, for all the Grain it accepts.
7.2 The Member shall not be liable for failure or
delay in performance of this Agreement to the extent such failure or delay is
caused by a crop failure due to an Act of God, such as drought or flood. If
Member's performance is excused pursuant to this paragraph, Member shall give
written notice to the Association of Member's inability to perform, and shall
forfeit patronage payments to the extent of any resulting nondelivery of Grain,
unless Member elects to buy-in in accordance with policies and procedures
established by Association.
8. Term and Termination. This Agreement shall enter into force as
of the date hereof and shall continue in force indefinitely unless earlier
terminated as follows:
(i) This Agreement may be terminated at any time
by written agreement of Member and the
Association as an incident to Member's
transfer of equity participation Units in
the Association, which transfer must be
approved by the Board of Directors of the
Association as provided in the Bylaws; or
(ii) This Agreement shall terminate within 180
days of the death of Member, unless within
such time period the estate of Member has
entered into a definitive binding
arrangement to transfer Member's equity
participation Units in the Association and
such transfer has been approved by the Board
of Directors of the Association as provided
in the Bylaws; or
(iii) The nonbreaching party may terminate this
Agreement in the event of a breach hereof,
if the breach continues for thirty (30) days
after the nonbreaching party provides notice
of the breach to the breaching party; or
(iv) Member may terminate this Agreement upon
written notice to the Association. Such
termination shall be effective at the end of
the processing year in which the notice was
given.
(v) The Association may terminate this Agreement
upon termination of the business of the
Defined Business Unit.
Upon termination of this Agreement, the rights and obligations of each party
with respect to utilization of, marketing of and payment for Grain previously
delivered by Member to the Association hereunder shall continue in force until
such Grain has been utilized or marketed by the Association, and paid for by the
Association. Termination of this Agreement shall not release either party from
liabilities accrued prior to such termination; provided, however, that a
terminating Member shall not be entitled to receive patronage or other
distributions with respect to equity participation units held by Member.
9. Modification. This Agreement shall at all times remain subject
to modification by the Association upon written notice to Member, provided that
such modification is first approved by Defined Members of the Association
holding a majority of the voting power of the Defined Business Unit of which
Member is a Defined Member who are present and voting at a regular or special
meeting of such Defined Members, where notice of such meeting includes a
statement of the proposed modification.
10. Miscellaneous.
10.1 Assignment. Member may not assign this Agreement
or delegate performance of its obligations without the written consent of the
Board of Directors of the Association. Consent may be granted or denied as the
Association shall determine in the exercise of business judgment, and with due
consideration to related provisions of the Bylaws. This restriction on
assignment shall not be construed to limit Member's right to grant to a third
party a security interest in growing crops or proceeds, subject to Section 6
hereof, and provided that any such security agreement shall not empower either
Member or any secured party other than the Association to avoid Member's
obligations to deliver Grain in performance of this Agreement. Subject to the
foregoing, all of the terms, covenants and conditions of this Agreement shall
inure to the benefit of and shall bind the parties hereto and their successors,
heirs and permitted assigns.
10.2 Waiver of Breach. No waiver of a breach of any
of the agreements or provisions contained in this Agreement shall be construed
to be a waiver of any subsequent breach of the same or of any other provision of
this Agreement.
10.3 Notices. Whenever notice is required by the
terms hereof, it shall be given in writing by delivery or by certified or
registered mail addressed to the other party at the address appearing below such
party's signature above or such other address as such party shall designate by
appropriate notice. If notice is given by mail, it shall be effective three (3)
days after mailing.
10.4 Construction of Terms of Agreement. The language
in all parts of this Agreement shall be constructed as a whole according to its
fair meaning and not strictly for or against any party hereto. Headings in this
Agreement are for convenience only and are not construed as a part of this
Agreement or in any way defining, limiting or amplifying the provisions hereof.
In the event any term, covenant or condition herein contained is held to be
invalid or void by any court of competent jurisdiction, the invalidity of any
such term, covenant or condition shall in no way affect any other term, covenant
or condition herein contained.
10.5 Marketing Commitments; Indemnifications. Member
represents and warrants that it is not under contract or obligation to sell,
market, consign or deliver any of the Grain committed to the Association under
this Agreement to any other person, firm, association, corporation or other
entity. Further, Member shall defend and hold harmless the Association from any
costs, claims, liabilities, suits or other proceedings or actions of any nature
or kind whatsoever arising from or connected with any such prior agreement,
contract or arrangement or the termination or cancellation of any prior
agreements, contracts or arrangements.
10.6 Choice of Law; Dispute Resolution. This
Agreement shall be governed in all respects by the laws of the State of
Minnesota, excluding its conflict of laws rules. All disputes arising under this
Agreement which cannot be amicably resolved between the parties shall be settled
exclusively in state or federal court in the State of Minnesota, and the parties
specifically consent to personal jurisdiction in any such court.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following fees and expenses will be paid by the Company in
connection with the issuance and distribution of the securities registered
hereby. All such expenses, except for the SEC fee are estimated.
SEC registration fee .......................... $30,304
Legal fees and expenses ........................
Accounting fees and expenses ..................
Blue Sky fees and expenses .....................
Transfer Agent's and Registrar's fees ..........
Printing and engraving expenses ................
Miscellaneous ..................................
----------
Total ................................ $
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The statutes of the State of Minnesota give the Company the power to
indemnify any director, officer, manager, employee or agent, who was or is a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, against certain
liabilities and expenses incurred in connection with the action, suit or
proceeding.
Article VII of the Bylaws of the Company provides that the Company
shall indemnify each director, officer, manager, employee, or agent of the
Company, and any person serving at the request of the Company as a director,
officer, manager, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against expenses, including attorneys'
fees, judgments, fines, and amounts paid in settlement actually and reasonably
incurred to he fullest extent to which such directors, officers, managers,
employee or agents of an association may be indemnified under the law of the
State of Minnesota or any amendments thereto or substitutions therefor. Article
VII provides that the Company shall have power to purchase and maintain
insurance against any liability asserted against such persons and incurred by
such persons in any such capacity.
Article X of the Company's Amended and Restated Articles of
Incorporation provides that a director shall not be personally liable to the
Company or its members for monetary damages for breach of fiduciary duty as a
director, except for liability: (i) for a breach of the director's duty of
loyalty to the Company or its members; (ii) for acts of omissions not in good
faith or that involve intentional misconduct or a knowing violation of law;
(iii) for a transaction from which the director derived an improper personal
benefit; or (iv) for an act or omission occurring prior to the date when the
provisions of such Article (or predecessor thereto) became effective. It is the
stated intention of the members of the Company to eliminate or limit the
personal liability of the directors of the Company to the greatest extent
permitted under Minnesota law. Such Article X provides that if amendments to the
Minnesota Statues are passed after the effective date of such Article X which
authorize associations to act to further eliminate or limit the personal
liability of directors, then the liability of the directors of the Company shall
be eliminated or limited to the greatest extent permitted by the Minnesota
Statues, as so amended.
The Company maintains a standard policy of officers' and directors'
liability insurance.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company.
4.1* Resolutions of the Board of Directors creating the Equity
Participation Units (Processing and Refining).
4.2* Resolutions of the Board of Directors creating the Equity
Participation Units (Milling).
5.1* Opinion of Dorsey & Whitney LLP.
10.1+ Lease Agreement between Peavey Company and Amber Milling
Company, a division of Harvest States Cooperatives, effective
as of August 31, 1994.
10.2 Lease between the Port of Kalama and North Pacific Grain
Growers, Inc., dated November 22, 1960.
10.3 Limited Liability Company Agreement for the Wilsey-Holsum
Foods, LLC dated July 24, 1996.
10.4+ Long Term Supply Agreement between Wilsey-Holsum Foods, LLC
and Harvest States Cooperatives dated August 30, 1996.
10.5 Partnership Agreement between Continental Grain Company and
Harvest States Cooperatives dated September 28, 1992.
10.6 Harvest States Cooperatives Deferred Compensation Plan.
10.7 Harvest States Cooperatives Deferred Compensation Supplemental
Retirement Plan.
10.8 Harvest States Cooperatives Management Compensation Program.
10.9 Revolving Credit Agreement by and among Harvest States
Cooperatives, Banque Nationale de Paris et al., the St. Paul
Bank for Cooperatives and CoBank, ACB dated November 1, 1996.
10.10 Amended and Restated Master Syndicated Loan Agreement by and
among Harvest States Cooperatives, CoBank, ACB (successor to
the National Bank for Cooperatives) and the St. Paul Bank for
Cooperatives dated October 28, 1996.
10.11 Fourth Supplement to the August 30, 1994 Master Syndicated
Loan Agreement by and among Harvest States Cooperatives,
CoBank, ACB (successor to the National Bank for Cooperatives)
and the St. Paul Bank for Cooperatives dated October 28, 1996.
10.11(a) Promissory Note of Harvest States Cooperatives to the St. Paul
Bank for Cooperatives for $25,000,000 dated October 28, 1996.
10.11(b) Promissory Note of Harvest States Cooperatives to CoBank, ACB
for $25,000,000 dated October 28, 1996.
10.12 Third Supplement to the August 30, 1994 Master Syndicated Loan
Agreement by and among Harvest States Cooperatives, CoBank,
ACB (successor to the National Bank for Cooperatives) and the
St. Paul Bank for Cooperatives dated December 15, 1995.
10.12(a) Promissory Note of Harvest States Cooperatives to the St. Paul
Bank for Cooperatives for $10,000,000 dated December 15, 1995.
10.12(b) Promissory Note of Harvest States Cooperatives to CoBank, ACB
for $10,000,000 dated December 15, 1995.
10.13 First Supplement to the August 30, 1994 Master Syndicated Loan
Agreement by and among Harvest States Cooperatives, the
National Bank for Cooperatives and the St. Paul Bank for
Cooperatives dated August 30, 1994.
10.13(a) Promissory Note of Harvest States Cooperatives to the St. Paul
Bank for Cooperatives for $42,500,000 dated August 30, 1994.
10.13(b) Promissory Note of Harvest States Cooperatives to the National
Bank for Cooperatives for $42,500,000 dated August 30, 1994.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
23.2* Consent of Dorsey & Whitney LLP (included in Exhibit 5.1 to
this Registration Statement).
24 Power of Attorney.
----------------------------
* To be filed by amendment.
+ Pursuant to Rule 406 of the Securities Act of 1933, as amended,
confidential portions of Exhibits 10.1 and 10.4 have been deleted
and filed separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment.
Pursuant to Instruction 4(iii) of Item 601(b) of Regulation S-K, copies
of certain instruments defining the rights of holders of certain long-term debt
of the Company and its subsidiaries are not filed and, in lieu thereof, the
Company agrees to furnish copies thereof to the Securities Exchange Commission
upon request.
(b) Financial Statement Schedules
None
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change to such information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 320% change in the "maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed
in the registration statement or any material change in the
information set forth in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Falcon Heights, State of Minnesota, on December 13, 1996.
HARVEST STATES COOPERATIVES
By: /s/John D. Johnson
-------------------------------------
John D. Johnson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement on Form S-1 has been signed by the following persons in
the capacities indicated on December 13, 1996.
Signature Title
- - - - --------- -----
/s/John D. Johnson President and Chief Executive Officer
- - - - ----------------------------------- (principal executive officer)
John D. Johnson
/s/T. F. Baker Group Vice President--Finance
- - - - ----------------------------------- (principal financial officer)
T. F. Baker
/s/John Schmitz Vice President--Corporate Accounting
- - - - ----------------------------------- (principal accounting officer)
John Schmitz
Steven Burnet* Chairman of the Board of Directors
Steve Carney* Director
Sheldon Haaland* Director
Jerry C. Hasnedl* Director
Edward Hereford* Director
Gerald Kuster* Director
Tyrone A. Moos* Director
Duane G. Risan* Director
William J. Zarak, Jr.* Director
Edward Ellison* Director
Leonard D. Larsen* Director
Duane Stenzel* Director
Russell W. Twedt* Director
Merlin Van Walleghen* Director
*By /s/John D. Johnson
- - - - -----------------------------------
John D. Johnson
Attorney-in-fact
EXHIBIT INDEX
Number Description Page
- - - - ------ ----------- ----
3.1 Amended and Restated Articles of Incorporation of the Company.
3.2 Amended and Restated Bylaws of the Company.
10.1+ Lease Agreement between Peavey Company and Amber Milling
Company, a division of Harvest States Cooperatives, effective
as of August 31, 1994.
10.2 Lease between the Port of Kalama and North Pacific Grain
Growers, Inc., dated November 22, 1960.
10.3 Limited Liability Company Agreement for the Wilsey-Holsum
Foods, LLC dated July 24, 1996.
10.4+ Long Term Supply Agreement between Wilsey-Holsum Foods, LLC and
Harvest States Cooperatives dated August 30, 1996.
10.5 Partnership Agreement between Continental Grain Company and
Harvest States Cooperatives dated September 28, 1992.
10.6 Harvest States Cooperatives Deferred Compensation Plan.
10.7 Harvest States Cooperatives Deferred Compensation Supplemental
Retirement Plan.
10.8 Harvest States Cooperatives Management Compensation Program.
10.9 Revolving Credit Agreement by and among Harvest States
Cooperatives, Banque Nationale de Paris et al., the St. Paul
Bank for Cooperatives and CoBank, ACB dated November 1, 1996.
10.10 Amended and Restated Master Syndicated Loan Agreement by and
among Harvest States Cooperatives, CoBank, ACB (successor to
the National Bank for Cooperatives) and the St. Paul Bank for
Cooperatives dated October 28, 1996.
10.11 Fourth Supplement to the August 30, 1994 Master Syndicated Loan
Agreement by and among Harvest States Cooperatives, CoBank, ACB
(successor to the National Bank for Cooperatives) and the St.
Paul Bank for Cooperatives dated October 28, 1996.
10.11(a) Promissory Note of Harvest States Cooperatives to the St. Paul
Bank for Cooperatives for $25,000,000 dated October 28, 1996.
10.11(b) Promissory Note of Harvest States Cooperatives to CoBank, ACB
for $25,000,000 dated October 28, 1996.
10.12 Third Supplement to the August 30, 1994 Master Syndicated Loan
Agreement by and among Harvest States Cooperatives, CoBank, ACB
(successor to the National Bank for Cooperatives) and the St.
Paul Bank for Cooperatives dated December 15, 1995.
10.12(a) Promissory Note of Harvest States Cooperatives to the St. Paul
Bank for Cooperatives for $10,000,000 dated December 15, 1995.
10.12(b) Promissory Note of Harvest States Cooperatives to CoBank, ACB
for $10,000,000 dated December 15, 1995.
10.13 First Supplement to the August 30, 1994 Master Syndicated Loan
Agreement by and among Harvest States Cooperatives, the
National Bank for Cooperatives and the St. Paul Bank for
Cooperatives dated August 30, 1994.
10.13(a) Promissory Note of Harvest States Cooperatives to the St. Paul
Bank for Cooperatives for $42,500,000 dated August 30, 1994.
10.13(b) Promissory Note of Harvest States Cooperatives to the National
Bank for Cooperatives for $42,500,000 dated August 30, 1994.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Deloitte & Touche LLP.
24 Power of Attorney.
- - - - -------------------------
+ Pursuant to Rule 406 of the Securities Act of 1933, as amended,
confidential portions of Exhibits 10.1 and 10.4 have been
deleted and filed separately with the Securities and Exchange
Commission pursuant to a request for confidential treatment.
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
HARVEST STATES COOPERATIVES
ARTICLE I.
NAME AND PRINCIPAL PLACE OF BUSINESS
The name of this Association is Harvest States Cooperatives and its
principal place of business is in the City of Falcon Heights, County of Ramsey,
State of Minnesota. The registered office of this Association is 1667 North
Snelling Avenue, St. Paul, Minnesota 55108.
ARTICLE II.
DURATION
This Association shall have perpetual existence.
ARTICLE III.
PURPOSE
This Association is organized for the following purposes:
(a) To manufacture, process, market, purchase, handle, deal in and sell
the agricultural products of its members, non-member patrons and others,
including, without limitation, the processing and exporting of grain and other
agricultural products.
(b) To procure supplies and equipment and to perform any and all
services for its members, non-member patrons and others.
(c) To engage in any other activity, including performance of related
services for its members, for which cooperative associations may be lawfully
organized under the Minnesota Cooperative Law, Minnesota Statutes Chapter 308A.
ARTICLE IV.
POWERS
SECTION 1 - POWERS. This Association shall have all powers, privileges
and rights conferred on cooperative associations by the laws of the State of
Minnesota or the United States of America. The foregoing powers, privileges and
rights shall include, without limitation, the following:
(a) To receive, purchase, store, handle, grade, process, manufacture,
ship, sell and otherwise deal in and act as a commission merchant with respect
to grain and any other farm products offered by its members, non-member patrons
and others, and to purchase, manufacture, process, sell, store, handle, ship,
distribute and otherwise deal in and procure for its members, non-member patrons
and others any and all kinds of supplies and equipment, and to perform any and
all services to and for its members, non-member patrons and others.
(b) To lend money and receive the obligations of others therefor, and
to purchase the obligations of others, whether such loans or purchased
obligations are secured or unsecured.
(c) To purchase, acquire, own, mortgage, pledge, sell, assign, transfer
or otherwise dispose of, equity or debt securities created by any other
corporation or other legal entity wherever organized, with all the rights,
powers and privileges of ownership thereof.
(d) To borrow money, to incur obligations and to assume obligations of
any other person, individual, corporation or other legal entity, in any amount;
and to make contracts of hire.
(e) To issue equity or debt securities, whether certificated or
uncertificated.
(f) To have one or more offices, and to conduct any or all of its
operations and business, and promote its purposes within and without the state
of Minnesota without restriction as to places or amounts.
(g) To carry on any other business in connection with the foregoing and
to engage in any of said activities on its own account or as agent for others,
or alone or in association with others; and to employ agents, consultants and
nominees to perform any or all of the powers herein enumerated.
(h) To engage in any other activity for which cooperative associations
may lawfully be organized under the Minnesota Cooperative Law, Minnesota
Statutes Chapter 308A.
(i) Generally to enjoy all the rights, privileges, and powers
incidental or convenient to the operation and conduct of its business.
The powers, privileges and rights specified herein shall, except where otherwise
expressed, be in no way limited or restricted by reference to or inference from
the terms of any other provision of these Articles of Incorporation. The
enumeration of powers, privileges and rights herein shall not be held to limit
or restrict in any manner the general powers, privileges and rights conferred
upon this Association by the laws of the State of Minnesota.
SECTION 2 - LIMITATION. This Association shall not at any time market
products of non-members in an amount greater in value than the amount in value
in which it handles products of its members, and shall not purchase supplies and
equipment or furnish services for non-members in an amount the value of which
exceeds the value of the supplies and equipment purchased for members and the
services provided to members. All business transacted by this Association for or
on behalf of the United States or any agency of instrumentality thereof shall be
disregarded in determining the volume of member and non-member business
transacted by this Association.
ARTICLE V.
MEMBERSHIP; VOTING; DEBT AND EQUITY SECURITIES
SECTION 1 - MEMBERSHIP. This Association shall admit members upon such
terms and conditions as are prescribed in the Bylaws. Membership in this
Association shall be restricted to the following:
(a) Persons (including individuals and joint ventures, corporations,
partnerships, limited liability companies, limited liability partnerships,
unincorporated associations or other legal entities owned or controlled by
individual farmers or their family groups) that are actually engaged in the
production of agricultural products, including tenants of land used for the
production of such products and lessors of such land that receive as rent
therefor any part of the product of such land; and
(b) Associations of producers of agricultural products organized and
operating so as to adhere to the provisions of the Agricultural Marketing Act,
12 U.S.C. ss 1141(j)(a), as amended, and the Capper-Volstead Act, 7 U.S.C. ss
291-292, as amended.
Additional qualifications, duties, rights and privileges of members of this
Association shall be as provided in, or authorized by the Board of Directors
pursuant to, the Bylaws. The Bylaws (or the Board of Directors acting pursuant
to the Bylaws) may further restrict membership in this Association to persons or
associations that transact a minimum amount of business with or through this
Association. Notwithstanding anything to the contrary herein, this Association
may refuse membership or provide conditional membership to an applicant based on
its findings, determined on reasonable grounds, that the applicant's admission
to membership would prejudice, hinder or otherwise obstruct the interests or
purposes of this Association. A membership in this Association is transferable
only with the consent and approval of the Board of Directors.
SECTION 2 - VOTING. Each member shall have a minimum of one (1) vote in
the affairs of the Association, and may otherwise be entitled to additional
votes as further authorized in the Bylaws. This Association is a cooperative
that is described in Section 308A.641, Subdivision 2, of the Minnesota
Cooperative Law, Minnesota Statutes Chapter 308A.
SECTION 3 - NONSTOCK COOPERATIVE. This Association shall not have
capital stock. This Association may issue equity or debt securities, on a
patronage basis or otherwise, but unless authorized in, or by the Board of
Directors pursuant to, the Bylaws, no such securities shall entitle the holders
thereof to any voting, membership or other rights to participate in the affairs
of this Association. Unless authorized in, or by the Board of Directors pursuant
to, the Bylaws, such equity or debt securities shall not be transferrable
without the prior consent of the Board of Directors.
SECTION 4 - APPROVAL OF CERTAIN CORPORATE ACTION. A merger,
consolidation, liquidation or dissolution involving this Association, or the
sale of all or substantially all of the assets and property of this Association,
may be authorized by the members in accordance with the Minnesota Cooperative
Law, Minnesota Statutes Chapter 308A, upon the approval of two-thirds (2/3) of
the votes cast in person or by mail vote at an annual or special meeting of the
members called for such purpose; provided, however, in the event the Board of
Directors of this Association declares, by resolution adopted by a majority of
the Board of Directors present and voting, that the action involves or is
related to a hostile takeover, then the action may be adopted only upon the
approval of eighty percent (80%) of the total voting power of the members of
this Association, whether or not present and/or voting on the action.
Notwithstanding Article XI of these Articles of Incorporation, this Section 4
may be amended only upon the approval of eighty percent (80%) of the total
voting power of the members of this Association, whether or not present and/or
voting on the amendment.
ARTICLE VI.
PATRONAGE REFUNDS
All net savings of this Association (in excess of dividends declared by
the Board of Directors on outstanding equity securities from time to time and
additions to reserves) shall be distributed to members annually or more often on
the basis of patronage, as more particularly provided for in the Bylaws, and the
records of this Association may show the interest of members and equity holders
in the reserves. The determination of net savings may be made by divisions or
units representing separate or different operations of this Association, upon
such basis as shall be determined to be equitable by the Board of Directors.
Patronage refunds may be distributed in cash, written evidences of equity or
book credits, or any combination thereof, as more particularly provided for in
the Bylaws. Any such allocated capital equity shall be redeemable only at the
option of the Board of Directors.
ARTICLE VII.
FIRST LIEN
This Association shall have a first lien on all certificates of equity,
patronage capital and other equity interests standing on its books (including
any earned but not allocated capital equity issued to members as patronage
refunds), for all indebtedness of the respective holders or owners thereof to
this Association. This Association shall also have the right, exercisable at the
option of the Board of Directors, to set off such indebtedness against the face
amount of such equity interests; provided, however, that nothing contained
herein shall give the holder of such equity interests any right to have such set
off made.
ARTICLE VIII.
DISSOLUTION
In the event of any dissolution, liquidation or winding up of this
Association, whether voluntary or involuntary, all debts and liabilities of this
Association shall be paid first according to their respective priorities. All
equity capital shall then be paid to the holders of such equity capital in
accordance with the terms and priorities provided in the Bylaws. Any remaining
assets of this Association shall be distributed on an allocation unit basis
among the members of this Association in proportion to their patronage.
ARTICLE IX.
BOARD OF DIRECTORS
The business and affairs of this Association shall be managed by a
Board of Directors of not less than thirteen (13) persons as set by the Bylaws.
Directors shall be elected by the members at the annual meeting of this
Association in such manner and for such terms as the Bylaws may prescribe.
ARTICLE X.
DIRECTOR LIABILITY
No director of this Association shall be personally liable to this
Association or its members for monetary damages for breach of fiduciary duty as
a director, except for liability:
(a) for a breach of the director's duty of loyalty to this Association
or its members;
(b) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
(c) for a transaction from which the director derived an improper
personal benefit; or
(d) for an act or omission occurring prior to the date when the
provisions of this Article (or predecessor thereto) became effective.
It is the intention of the members of this Association to eliminate or limit the
personal liability of the directors of this Association to the greatest extent
permitted under Minnesota law. If amendments to the Minnesota Statutes are
passed after the effective date of this Article X which authorize cooperatives
to act to further eliminate or limit the personal liability of directors, then
the liability of the directors of this Association shall be eliminated or
limited to the greatest extent permitted by the Minnesota Statutes, as so
amended. Any repeal or modification of this Article X by the members of this
Association shall not adversely affect any right of or any protection available
to a director of this Association which is in existence at the time of such
repeal or modification.
ARTICLE XI.
AMENDMENT
These Articles of Incorporation may be amended in accordance with the
Minnesota Cooperative Law, Minnesota Statutes Chapter 308A, upon the approval of
a majority of the votes cast in person or by mail vote at an annual or special
meeting of the members called for such purpose; provided, however, in the event
the Board of Directors of this Association declares, by resolution adopted by a
majority of the Board of Directors present and voting, that the amendment
involves or is related to a hostile takeover, then the amendment may be adopted
only upon the approval of eighty percent (80%) of the total voting power of the
members of this Association, whether or not present and/or voting on the
amendment.
AMENDED AND RESTATED BYLAWS
OF
HARVEST STATES COOPERATIVES
ARTICLE I.
MEMBERSHIP; PATRONS' EQUITIES
SECTION 1 - QUALIFICATIONS. Membership in this Association shall be
restricted to those persons and associations which are described in Section 1 of
Article V of the Articles of Incorporation of this Association and who are
Currently Active Patrons (as herein defined) of this Association.
SECTION 2 - INDIVIDUAL MEMBERS. There is hereby established a class of
membership of this Association the members of which shall be known as
"Individual Members." The duties, rights and privileges of Individual Members
shall include the following:
MEMBERSHIP. Individual Members shall be those members who are
persons described in Section 1(a) of Article V of the Articles of
Incorporation and who are Currently Active Patrons of this Association.
SECTION 3 - DEFINED MEMBERS. There is hereby established a class of
membership of this Association the members of which shall be known as "Defined
Members." The duties, rights and privileges of Defined Members shall include the
following:
(a) MEMBERSHIP. Defined Members shall be those members who are persons
described in Section 1(a) or Section 1(b) of Article V of the Articles of
Incorporation and who are holders of Equity Participation Units as further
described in these Bylaws.
(b) DELIVERY RIGHTS AND OBLIGATIONS. The delivery rights and
obligations of each Defined Member shall be as specified in the member marketing
agreement between such Defined Member and this Association. Each such member
marketing agreement shall at all times be subject to modification by this
Association upon written notice to the Defined Member in question, provided that
such modification is first approved by Defined Members holding a majority of the
voting power of the Defined Business Unit in question who are present and voting
at a meeting of Defined Members holding Equity Participation Units in such
Defined Business Unit, where the notice of such meeting contains a statement of
the proposed modification.
(c) DEFINED BUSINESS UNITS. The Board of Directors may, from time to
time and at its sole discretion, organize Defined Business Units. Each Defined
Member holding Equity Participation Units in a Defined Business Unit shall be
eligible to receive patronage distributions from the Defined Business Unit as a
separate allocation unit. The Board of Directors may, from time to time and at
its sole discretion, sell, liquidate, dissolve or wind up any Defined Business
Unit, in which event the assets of such Defined Business Unit shall be used
first to redeem the Equity Participation Units and Preferred Capital
Certificates of the Defined Business Unit on a pro rata basis.
(d) DEFINED MEMBER BOARDS. Each Defined Business Unit shall be
represented by a Defined Member Board. The initial members of each Defined
Member Board shall be selected by the Board of Directors of this Association.
Subsequently, the members of the Defined Business Unit in question shall be
entitled to elect, on a one Defined Member/one vote basis, the members of the
Defined Member Board. Each Defined Member Board shall be made up of at least
five (5) but not more than ten (10) individuals. Each member of a Defined Member
Board must be (i) either a Defined Member or a representative of a Defined
Member, and (ii) in good standing as a Defined Member and in full compliance
with delivery obligations in and to such member's Defined Business Unit;
provided, however, that no employee of this Association may serve as a member of
any Defined Member Board. Each Defined Member Board shall be headed by a
Chairperson selected by and from the Board of Directors of this Association.
Each Defined Member Board shall meet at least quarterly (one of which meetings
may be its annual meeting), and shall be charged with reflecting Defined Member
concerns and providing a direct communication mechanism to the Board of
Directors of this Association. Individuals serving on a Defined Member Board
shall serve for staggered terms of three (3) years and until their successors
are elected and have qualified.
SECTION 4 - AFFILIATED ASSOCIATIONS. There is hereby established a
class of membership of this Association the members of which shall be known as
"Affiliated Associations." The duties, rights and privileges of Affiliated
Associations shall include the following:
MEMBERSHIP. Affiliated Associations shall be those members
that are associations described in Section 1(b) of Article V of the
Articles of Incorporation, that are Currently Active Patrons and that
have transacted at least $100,000 of business with this Association
during the preceding fiscal year. Associations described in Section
1(b) of Article V of the Articles of Incorporation that meet all of the
requirements for Affiliated Association membership except for the
volume-of-business-transacted requirement shall not be eligible for
such membership, but rather shall be referred to in these Bylaws as
"Non-Member Consenting Patrons."
SECTION 5 - TERMINATION OF MEMBERSHIP. Membership in this Association
shall be terminated by the Board of Directors if a member has become ineligible
for membership or may, at the discretion of the Board of Directors, be
terminated whenever the Board of Directors by resolution finds that a member
has:
(a) intentionally or repeatedly violated any Bylaw of this Association,
or
(b) failed to patronize this Association for a period of twelve (12)
consecutive months, or
(c) breached any contract with this Association, or
(d) willfully obstructed any lawful purpose or activity of this
Association, or
(e) remained indebted to this Association for ninety (90) days after
such indebtedness becomes payable, or
(f) died or legally dissolved;
provided, however, that termination of any member as a result of any of the
circumstances listed in paragraphs (a) through (f) above shall not be deemed to
revoke such member's consent contained in Article IX hereof but rather such
member may only revoke such consent in writing. Upon termination of membership
said member shall thereafter have no voting rights in this Association. A
terminated member's patronage credits shall be revolved or retired in the same
manner as the patronage credits of active members. No action taken hereunder
shall impair the obligations or liabilities of either party under any contract
with the Association which may be terminated only as provided therein.
SECTION 6 - INSTRUMENTS AUTHORIZED. At the sole discretion of the Board
of Directors, this Association may issue debt or equity instruments to its
current or former members or its patrons including, without limitation, the
following:
(a) EQUITY PARTICIPATION UNITS. Equity Participation Units may be
issued to and held only by Defined Members. Equity Participation Units shall
have no voting rights. Holders of Equity Participation Units shall have the
right to deliver to this Association for processing in accordance with the
Articles of Incorporation, these Bylaws and a member marketing agreement,
product corresponding to such Equity Participation Units.
(b) CAPITAL EQUITY CERTIFICATES. Capital Equity Certificates, in
denominations fixed by the Board of Directors, with either no maturity date or
such maturity date as may be fixed by the Board of Directors, and bearing no
interest, dividend or other annual payment, may be issued from time to time in
the discretion of the Board of Directors. They may be issued in partial or
complete distribution of patronage refunds.
(c) CERTIFICATES OF INDEBTEDNESS. Certificates of Indebtedness may be
issued from time to time in the discretion of the Board of Directors. Such
certificates shall be in such denominations, shall bear such maturity and rate
of interest, if any, as the Board of Directors may determine and such
certificates shall state. Such certificates shall be callable for payment in
cash or other assets at such times as may be determined by the Board of
Directors.
(d) NON-PATRONAGE EARNINGS CERTIFICATES. Non-Patronage Earnings
Certificates, in denominations fixed by the Board of Directors, with no maturity
date, and bearing no interest, dividend or other annual payment, may be issued
from time to time in the discretion of the Board of Directors. They may be
issued and distributed only to member patrons and to Non-Member Consenting
Patrons (as herein defined) as part of a non-member/non-patronage distribution.
Such certificates shall be callable for payment in cash or other assets at such
times as may be determined by the Board of Directors.
(e) PREFERRED CAPITAL CERTIFICATES. Preferred Capital Certificates may
be issued from time to time in one or more series, the units of each series to
have such designations, preferences and relative participating, optional or
other special rights, and qualifications, privileges, limitations or
restrictions thereof, as shall be stated and expressed herein and in a
resolution or resolutions providing for the issue of such series adopted by the
Board. The Board is hereby expressly authorized, subject to the limitations
provided by law, to establish and designate series of the Preferred Capital
Certificates, to fix the amount of each series and to fix the designations and
the relative powers, rights, preferences, privileges and limitations of the
units of each series and the variations of the relative powers, rights,
preferences, privileges and limitations as between series, and to increase and
to decrease the number of units constituting each series. Preferred Capital
Certificates shall carry no voting rights.
(f) OTHER. Such other debt or equity instruments may be issued to
current or former members or patrons as may from time to time be authorized by
the Board of Directors.
Such debt or equity instruments (including, without limitation, Equity
Participation Units, Capital Equity Certificates, Certificates of Indebtedness,
Non-Patronage Earnings Certificates and Preferred Capital Certificates) are
collectively referred to herein as "Patrons' Equities."
SECTION 7 - TRANSFER OF PATRONS' EQUITIES. Patrons' Equities held by
any person may be transferred only with the consent and approval of the Board of
Directors, and by such instrument of transfer as may be required or approved by
this Association. The Board of Directors of this Association shall also have the
authority to allow conversion of Patrons' Equities into Equity Participation
Units or Preferred Capital Certificates on such terms as shall be established by
the Board of Directors.
SECTION 8 - REDEMPTION OR RETIREMENT OF PATRONS' EQUITIES AND ALLOCATED
RESERVE. No person shall have any right whatsoever to require the retirement or
redemption of any Patrons' Equities except in accordance with their term, or of
any allocated capital reserve. Such redemption or retirement is solely within
the discretion and on such terms as determined from time to time by the Board of
Directors of this Association.
ARTICLE II.
DEBT AND EQUITY INSTRUMENTS
At the sole discretion of the Board of Directors, this Association may
issue debt or equity instruments to any person whatsoever including, without
limitation, the following:
(a) PREFERRED EQUITIES. Preferred Equities may be issued from time to
time in one or more series, the units of each series to have such designations,
preferences and relative participating, optional or other special rights, and
qualifications, privileges, limitations or restrictions thereof, as shall be
stated and expressed herein and in a resolution or resolutions providing for the
issue of such series adopted by the Board. The Board is hereby expressly
authorized, subject to the limitations provided by law, to establish and
designate series of the Preferred Equities, to fix the amount of each series,
and to fix the designations and the relative powers, rights, preferences,
privileges and limitations of the units of each series and the variations of the
relative powers, rights, preferences, privileges and limitations as between
series, and to increase and decrease the number of units constituting each
series. Preferred Equities shall carry no voting rights.
(b) OTHER. Such other debt or equity instruments may be issued to
non-members and non-patrons as well as to members and patrons as may from time
to time be authorized by the Board of Directors.
ARTICLE III.
MEETINGS OF MEMBERS
SECTION 1 - ANNUAL AND SPECIAL MEETINGS. The annual meeting of the
members of the Association shall be held at a time and place fixed by the Board
of Directors falling within six (6) months following the close of the fiscal
year. Special meetings of the members of this Association shall be held at a
time and place specified in the notice of the meeting. A special meeting may be
called by the Board of Directors or upon the written petition of twenty percent
(20%) of the members. No business shall be considered at the special meeting
except as mentioned in the notice of the meeting. Any amendment to the Articles
of Incorporation or Bylaws of this Association shall be considered and voted
upon only at an annual meeting, unless the Board of Directors determines by
resolution that a compelling business reason exists for calling a special
meeting for such purpose.
SECTION 2 - NOTICE OF MEETINGS. Notice of any meeting shall be
published in two succeeding issues of this Association's magazine, periodical or
house organ, with the last issue mailed at least two (2) weeks before the
meeting date; provided that if publication of this Association's magazine,
periodical or house organ occurs less frequently than monthly, such notice may
be published in a single issue, mailed at least thirty (30) days before the
meeting date. In lieu of publication in this Association's magazine, periodical
or house organ, written notice of a meeting of the members may be given by
preparing and mailing such notice by first class mail to the last known post
office address of each and every member personally or, in the case of an
Affiliated Association, to the secretary thereof, not less than fifteen (15)
days prior to the date of the meeting. The notice shall state the date, time,
and place of the meeting, and in the case of a special meeting, the purposes for
which the meeting is called. The Secretary shall execute a certificate which
contains a copy of the notice, shows the date of mailing or publication (as the
case may be), and states the notice was mailed or published (as the case may be)
within the time prescribed by these Bylaws. The certificate shall be made a part
of the meeting. The failure of any member to receive notice shall not invalidate
any action which may be taken by the members at a meeting.
SECTION 3 - VOTING POWER. The voting power of the members of this
Association shall be exercised as follows.
(a) AFFILIATED ASSOCIATIONS. Each Affiliated Association shall be
entitled to delegates based on the following formula:
DOLLAR VOLUME OF SALES TO AND/OR
PURCHASES FROM THIS ASSOCIATION
DURING THIS ASSOCIATION'S FISCAL NUMBER OF
YEAR LAST ENDED PRIOR TO THE MEETING PERMITTED DELEGATES
------------------------------------ -------------------
$ 100,000 - $ 1,500,000 1
1,500,001 - 3,500,000 2
3,500,001 - 6,000,000 3
6,000,001 - 9,000,000 4
9,000,001 - 12,000,000 5
12,000,001 - 15,000,000 6
15,000,001 - 18,000,000 7
18,000,001 - 21,000,000 8
21,000,001 - 24,000,000 9
24,000,001 - 27,000,000 10
27,000,001 - 31,000,000 11
31,000,001 - 35,000,000 12
35,000,001 - 40,000,000 13
40,000,001 - 45,000,000 14
45,000,001 - 15
provided, however, that in any event each such Affiliated Association shall be
entitled to a minimum of two hundred (200) votes and a maximum of three thousand
(3,000) votes on the basis of two hundred (200) votes for each permitted
delegate as set forth above. For the purpose of determining the number of
permitted delegates from an Affiliated Association, the dollar value of
commodities delivered by a Defined Member to the Affiliated Association for
handling by and on behalf of the Association and the Defined Member shall be
included in the Affiliated Association calculation. All votes shall be cast by
each Affiliated Association's delegates, as hereinafter provided.
(b) INDIVIDUAL MEMBERS AND DEFINED MEMBERS. Each Individual Member who
patronizes this Association through a line elevator, a feed mill, or any other
facility owned or leased by this Association, and each Defined Member, shall
have one (1) vote; provided, however, that except as such Individual Member or
such Defined Member shall cast a vote individually in person at an annual or
special meeting (as hereinafter provided), or by mail when a mail ballot has
been provided for, and except for votes of Defined Members for elections to
Defined Member Boards, such Individual Member or Defined Member may be grouped
with other Individual Members and Defined Members in local units ("Patrons'
Associations", as hereinafter further defined) as established from time to time
by the Board of Directors of this Association. An Individual Member who intends
to exercise such Individual Member's vote individually hereunder shall be
entitled to do so only after obtaining a certificate on a form provided by this
Association and signed by the manager of the line elevator, feed mill or other
facility patronized by such Individual Member, certifying that such Individual
Member is a member of this Association. A Defined Member who intends to exercise
such Defined Member's vote individually hereunder shall be entitled to do so
after giving notice of such intent to this Association on a form provided by
this Association. Such certificate or notice (as the case may be) shall be sent
to this Association by such member or manager no less than ten (10) days or more
before the annual or special meeting concerned, provided that in the discretion
of the Credentials Committee, any certificates or notices (as the case may be)
sent thereafter may also be honored.
Each Patrons' Association shall be entitled to be represented at any
and all members' meetings of this Association by delegates of its own choosing.
Such delegates and their alternates shall be elected on a one member/one vote
basis by the Individual Members and the Defined Members identified with the
Patrons' Association at an annual meeting of such Patrons' Association held
following reasonable notice; and in no instance shall managers or other
employees of this Association appoint such delegates or alternates. Such
delegates shall exercise the same powers at such members' meetings as the
delegates of Affiliated Associations may exercise. Each Patrons' Association
shall be entitled to a number of delegates based on the activities of its
Currently Active Patrons (as hereinafter defined) and of its Defined Members
based on the following formula, minus one vote for any Currently Active Patron
or any Defined Member who chooses to cast a vote personally (as hereinbefore
provided):
DOLLAR VOLUME OF SALES TO AND/OR
PURCHASES FROM THIS ASSOCIATION
DURING THIS ASSOCIATION'S FISCAL NUMBER OF
YEAR LAST ENDED PRIOR TO THE MEETING PERMITTED DELEGATES
------------------------------------ -------------------
$ 100,000 - $ 1,500,000 1
1,500,001 - 3,500,000 2
3,500,001 - 6,000,000 3
6,000,001 - 9,000,000 4
9,000,001 - 12,000,000 5
12,000,001 - 15,000,000 6
15,000,001 - 18,000,000 7
18,000,001 - 21,000,000 8
21,000,001 - 24,000,000 9
24,000,001 - 27,000,000 10
27,000,001 - 31,000,000 11
31,000,001 - 35,000,000 12
35,000,001 - 40,000,000 13
40,000,001 - 45,000,000 14
45,000,001 - 15
provided, however, that in any event each such Patrons' Association shall be
entitled to a minimum of two hundred (200) votes less the number of individual
votes (if any) cast by Currently Active Patrons and Defined Members of such
Patrons' Association, and a maximum of three thousand (3,000) votes. All votes
shall be cast by each Patrons' Association's delegates, as hereinafter provided.
A Patrons' Association shall not be entitled to more than one delegate for each
two hundred (200) votes (calculated after subtracting the number of individual
votes cast by Individual Members and Defined Members of such Patrons'
Association).
(c) DEFINITIONS. As used in these Bylaws, the following terms shall
have the meanings indicated:
(i) AGRICULTURAL PRODUCERS: Persons who are actually engaged
in the production of agricultural products, including tenants of land
used for the production of any such product, and lessors of such land
who receive as rent therefor a part of the product of such land.
(ii) CURRENTLY ACTIVE PATRONS: Consenting Agricultural
Producers or associations of Agricultural Producers that have
patronized this Association during the year for which Currently Active
Patron status is being determined. The Board of Directors of this
Association may, from time to time, establish minimum volumes of
patronage required of Agricultural Producers and associations of
Agricultural Producers in order to qualify for Currently Active Patron
status.
(iii) PATRONS' ASSOCIATION: An association of the Individual
Members who are Currently Active Patrons of a grain elevator, a feed
mill or a seed plant or any other facility (including related
operations, as designated by this Association) owned or leased by this
Association, or an association of Defined Members, which shall be so
designated by this Association. The membership of a Patrons'
Association may include both Individual Members and Defined Members
assigned to the Patrons' Association.
SECTION 4 - MANNER OF VOTING. At annual and special meetings of members
of this Association, the votes hereinabove provided for shall be cast in the
following manner:
(a) Each Individual Member and each Defined Member shall be entitled to
cast such Member's own vote in person.
(b) Each Affiliated Association and each Patrons' Association shall be
entitled to cast its votes only through its duly selected delegates (or their
duly selected alternates), except as otherwise herein provided in the case of
mail votes; and it shall be entitled to have present and voting up to a total
number of delegates (or their alternates) equal to one delegate for each two
hundred (200) votes it holds, calculated as hereinabove provided. Each delegate
(or alternate) of an Affiliated Association or a Patron's Association shall be
entitled to cast only two hundred (200) votes in the affairs of any such annual
or special meeting (other than items where a mail vote has been provided for),
unless the Affiliated Association or Patrons' Association certifies to this
Association, in the form and in the manner prescribed by this Association, that
it wishes to register less than the permitted number of delegates. In that
event, the total number of authorized votes of such Affiliated Association or
Patrons' Association shall be divided in multiples of two hundred (200) among
its certified and registered delegates in the manner prescribed by this
Association; provided that in no event shall the number of votes a delegate may
cast exceed six hundred (600) votes per delegate. There shall be subtracted from
the said votes cast by the delegates of Patrons' Associations the votes of those
Individual Members and Defined Members registered in person, in all proceedings
of said meeting; provided further, that no individual shall serve as a delegate
or alternate for more than one Affiliated Association or Patrons' Association.
(c) There shall be no mail voting except in cases where, in the notice
of the meeting, the Board of Directors of this Association shall have submitted
a specific issue or issues for a mail vote. In such case, the said notice may
provide that the mail vote as cast by each Affiliated Association or Patrons'
Association shall be binding upon the Association so voting as to the issue or
issues so submitted, and in such case the vote cast by any association voting by
mail shall be binding upon it and its delegates (if any) and alternates (if any)
attending the said meeting; delegates (or alternates) of Affiliated Associations
and Patrons' Associations which have not cast a vote by mail upon said issue or
issues shall cast the vote or votes of their respective associations upon said
issue or issues in the manner prescribed by the chairman of said meeting. No
combination of mail voting and voting in person by delegates of the same
association upon an issue or issues submitted for mail vote shall be permitted,
and an attempt by any association to do so shall be treated as having the effect
of not voting. Nothing in this section shall, however, prevent an annual or
special meeting of this Association from considering and acting upon issues in
addition to those submitted for mail vote, to the extent permitted by law; and
such issues shall be voted upon by delegates (and alternates) in the manner
hereinabove provided for other than mail votes.
(d) The mail vote cast by each Affiliated Association shall be
determined by the Board of Directors of each said Affiliated Association, unless
specified otherwise by the Board of Directors of this Association in the notice
of the meeting of this Association which provides for said mail votes. Any mail
ballot vote determined or cast by the Board of Directors of an Affiliated
Association shall be proportionate to the affirmative and negative votes cast by
members of that Board of Directors. The ballot used by each such association to
cast its vote shall contain the certificate of the secretary or the president of
said association (1) that the vote shown thereon is so cast by the direction of
said association's Board of Directors, (2) the number of directors voting in the
affirmative and the number of directors voting in the negative, and (3) stating
the number of votes which said association is then entitled to cast, according
to other provisions of this Article (with such supporting information therefor
as may be prescribed by this Association).
(e) The mail vote cast by each Patrons' Association shall be determined
by the delegate or delegates last previously designated by each such association
(and whose identity has been so previously stated in writing to this Association
by such persons and in such manner as may be prescribed by this Association),
including therein the alternate of any delegate who has since died or is unable
to act at the time of such mail vote. The ballot used by each such association
to cast its vote shall contain the certificate of the delegate or delegates (1)
that the vote shown thereon is so cast, and (2) stating the number of votes
which said association is then entitled to cast, according to other provisions
of this Article (with such supporting information therefor as may be prescribed
by this Association).
(f) The mail vote cast by each Individual Member or Defined Member of
this Association shall be on such form of ballot as may be prescribed by the
Board of Directors of this Association, and shall include (i) in the case of
Individual Members, the certificate that such member is a member of this
Association; and (ii) in the case of a Defined Member, the notice of intent to
vote individually, in either case as provided for in Section 3(b) of this
Article.
(g) There shall be no voting by proxy or under power of attorney at any
annual or special meeting of this Association.
SECTION 5 - QUORUM AND REGISTRATION.
(a) A quorum necessary to the transaction of business at any annual or
special meeting of this Association shall be at least ten percent (10%) of the
total number of members in this Association represented in person by delegates
(or alternates) or by mail votes when the members do not exceed five hundred
(500) in number. If the members of this Association exceed five hundred (500) in
number, fifty (50) members of this Association represented in person by
delegates (or alternates) or by mail votes shall constitute a quorum. In
determining a quorum at any meeting, on a question submitted to a vote by mail,
as hereinabove provided, members represented in person by delegates (or
alternates) or represented by mail vote shall be counted. The fact of the
attendance of a sufficient number of members to constitute a quorum shall be
established by a registration of the members of this Association present at such
meeting, which registration shall be verified by the Chairman, President and
Secretary of this Association and shall be reported in the minutes of the
meeting.
(b) Registration of Individual Members and Defined Members and of
delegates (and/or alternates) of Affiliated Associations and Patrons'
Associations shall close at such hour on the day for which an annual or special
meeting is called (or in case it is called for a series of days, at such hour on
the first day thereof) as the Board shall determine and specify in the Notice of
Meeting, or at such later time to which the close of registration may be
extended by majority vote of those registered before said initial time for
closing of registration. Persons otherwise eligible to vote, either as
Individual Members, Defined Members or as delegates or alternates, but not
registered as in attendance at or before said time (original or as extended),
shall have no right to vote in any of the affairs of the meeting (including, but
not limited to, election of Directors).
(c) Each Affiliated Association and Patrons' Association shall certify
its delegates and alternates to this Association, in the manner prescribed by
this Association, at least thirty (30) days before each annual meeting of this
Association, and at least three (3) days before each special meeting; provided
that in the discretion of the Credentials Committee such certificates received
thereafter may also be honored. The delegates and alternates so certified, and
found by this Association to be eligible to be seated at the meeting or meetings
of this Association, shall represent their Affiliated Associations or Patrons'
Associations, as the case may be, to the extent and in the manner provided in
this Article. In matters of which advance notice has been given, such delegates
and alternates shall endeavor to inform themselves as to the views of the
membership of the association which they represent.
(d) A delegate (or alternate) elected or appointed as above provided,
and certified to this Association in the manner prescribed by this Association,
shall hold office and shall represent such delegate's (or alternate's)
association at meetings of this Association to the extent and in the manner
prescribed in this Article until such delegate's (or alternate's) successor is
elected and qualified, but in any event no such certificate of election as
delegate shall be valid for more than two years; provided, further, that any
delegate (or alternate) shall cease to be such if such delegate (or alternate)
ceases to be an Agricultural Producer doing business with such delegate's (or
alternate's) Affiliated Association (or in the case of delegates or alternates
of Patrons' Associations, if such delegate (or alternate) ceases to be an
Agricultural Producer doing business with this Association).
(e) No employee of an Affiliated Association, nor any employee of this
Association, shall serve as a delegate or alternate to any meeting of this
Association; if any such person shall be certified as such a delegate or
alternate, such person shall nevertheless not be seated as such.
(f) A cooperative association which has business transactions with this
Association but which does not qualify as an Affiliated Association shall not be
entitled to have a voting delegate or alternate at any meeting of this
Association, but it may have present a "non-voting delegate", who shall be
entitled to be present at the meetings, but not to vote, and shall only be
recognized to speak at the discretion of the Chairman of the meeting.
(g) Nothing herein shall prevent Individual Members or Defined Members
of this Association or of Affiliated Associations, who are not delegates to the
annual meetings or special meetings of this Association from serving as
chairperson of a district meeting or as chairperson or member of a committee.
(h) Each member of the Board of Directors of this Association shall
have the right to speak on any subject during annual or special meetings of this
Association.
(i) A minimum of one-half (1/2) hour shall be allotted at the annual
meeting during the regular business session for the purpose of entertaining
members' questions.
ARTICLE IV.
DIRECTORS
SECTION 1 - BOARD OF DIRECTORS. The members of this Association shall
elect a Board of Directors of this Association, as more fully provided herein.
Each member of the Board of Directors must be an Agricultural Producer and an
active patron of this Association (either directly or through an Affiliated
Association) for a period of not less than five (5) years at the time of his or
her election, must be less than sixty-eight (68) years of age at the time of
such election, and shall not be an employee of this Association or of an
Affiliated Association.
SECTION 2 - ELECTION OF DIRECTORS.
(a) At each annual meeting of members, directors shall be elected to
fill vacancies created by expired terms; such directors shall be elected for
terms of three (3) years and until their respective successors are elected and
qualified.
(b) The Board of Directors shall be composed of four (4) persons who
must be residents of District Number 1, which shall include the States of
Minnesota, Illinois, Iowa and Wisconsin; four (4) persons who must be residents
of District Number 2, which shall include the State of North Dakota; two (2)
persons who must be residents of District Number 3, which shall include the
States of South Dakota, Kansas and Nebraska; two (2) persons who must be
residents of District Number 4, which shall include the States of Montana and
Wyoming; and two (2) persons who must be residents of District Number 5, which
shall include the States of Washington, Oregon, Utah and Idaho.
(c) Nominations for the election of directors shall be made by the
members of this Association and may be made by balloting, nominating committee,
petition of members or from the floor, provided that nominations from the floor
shall be requested in addition to nominations made by petition or nominating
committee. Before each annual meeting of members the Board of Directors shall
appoint a nominating committee to supervise the nominating procedure for
election of directors, which procedure shall be prescribed by the Board of
Directors.
(d) At each annual meeting of members, the directors of this
Association to be elected shall be elected in the following manner: Individual
Members, Defined Members, delegates and alternates from each District shall meet
separately, and at each such District meeting the director or directors of this
Association then to be elected shall be elected by the majority of the votes
then entitled to be cast. The Board of Directors shall have the power and
authority to adopt a policy and procedure for assigning to an existing district
those members who are not residents of any district established in Section 2(b)
above. Such policy and procedure may be amended from time to time at the
discretion of the Board of Directors. Each such District election shall be
binding upon the annual meeting and upon this Association, without any
ratification or right of rescission or veto by Individual Members or Defined
Members or delegates or alternates, or any combination thereof, of other
districts. A temporary Chairman of each such District meeting shall be selected
by the Chairman of this Association. Election of directors shall be by balloting
when there are two or more nominees for a position to be filled, or when there
are more nominees than there are positions to be filled.
SECTION 3 - VACANCIES. Each vacancy occurring on the Board of Directors
may be filled by the remaining directors until the next annual meeting of the
members when the members shall elect a director to serve for the unexpired term,
provided that vacancies on the Board created by any amendment of the Articles of
Incorporation or Bylaws shall first be filled at the annual meeting of the
members next following the adoption of such amendment unless otherwise provided
in the amendment.
SECTION 4 - MEETINGS. The Board of Directors shall meet regularly at
such times and places as the Board may determine. Special meetings may be called
by the Chairman or any three directors. All meetings shall be held on such
notice as the Board may prescribe provided that any business may be transacted
at any meeting without specification of such business in the notice of such
meeting. Directors may participate in any such meeting by means of a conference
telephone conversation or other comparable method of communication by which all
persons participating in the meeting can hear and communicate with each other;
and for purposes of taking any action at the meeting, any such directors shall
be deemed present in person at the meeting.
SECTION 5 - QUORUM AND VOTING. A quorum shall consist of a majority of
the directors. A majority vote of the directors present shall decide all
questions except where a greater vote is required by the Articles of
Incorporation, by these Bylaws or by law.
SECTION 6 - ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors may be taken without a meeting
if all directors consent thereto in writing and the writing or writings are held
with the minutes or proceedings of the Board of Directors.
SECTION 7 - BORROWINGS. The Board of Directors shall have power to
authorize and approve the borrowing of money and the pledging and mortgaging of
any or all of the assets of this Association as security for the sums so
borrowed.
ARTICLE V.
DUTIES OF DIRECTORS
SECTION 1 - GENERAL POWERS. The Board of Directors shall manage the
business and affairs of this Association, and shall exercise all of the powers
of this Association except such as are by law, the Articles of Incorporation, or
these Bylaws conferred upon or reserved to the members. The Board of Directors
shall adopt such policies, rules, regulations, and actions not inconsistent with
law, the Articles of Incorporation, or these Bylaws, as it may deem advisable.
SECTION 2 - BONDS AND INSURANCE. The Board of Directors shall require
all officers, agents, and employees charged by this Association with
responsibility for the custody of any of its funds or property to give adequate
bonds. Such bonds, unless cash security is given, shall be furnished by a
responsible bonding company and approved by the Board of Directors and the cost
thereof shall be paid by this Association. The Board of Directors shall provide
for the adequate insurance of the property of the Association, or property which
may be in the possession of this Association, or stored by it, and not otherwise
adequately insured, and in addition adequate insurance covering liability for
accidents to all employees and the public.
SECTION 3 - ACCOUNTING SYSTEM AND AUDIT. The Board of Directors shall
install and maintain an adequate system of accounts and records. At least once
in each year the books and accounts of this Association shall be audited and a
review of such audit shall be published annually in this Association's magazine,
periodical or house organ, and a report of such audit shall in addition be made
at the next annual meeting of the members.
SECTION 4 - DEPOSITORY. The Board of Directors shall have power to
select one or more banks to act as depositories of the funds of this
Association, and to determine the manner of receiving, depositing, and
disbursing the funds of this Association, the form of checks, and the person or
persons by whom they shall be signed, with the power to change such banks and
the person or persons signing such checks and the form thereof at will.
ARTICLE VI.
OFFICERS
SECTION 1 - ELECTION OF OFFICERS. Promptly following each annual
meeting the Board of Directors shall elect from its membership a Chairman, one
or more Vice Chairmen, a Secretary and a Treasurer; it shall also elect a
President and one or more Group Vice Presidents, Senior Vice Presidents and Vice
Presidents who may be, but need not be, members of the Board. The offices of
Secretary and Treasurer may be held by the same person and, when so held, shall
be termed Secretary-Treasurer. Nominations for election of officers shall be
made by the Directors and may be made by balloting, nominating committee or from
the floor, provided that nominations from the floor shall be requested in
addition to nominations made by a nominating committee. Election of officers
shall be by balloting when there are two or more nominees for a position to be
filled, or when there are more nominees than there are positions to be filled.
The Board of Directors may appoint such other officers as it shall deem
necessary who shall have such titles, power, and duties as the Board may
prescribe; this shall include, but not be limited to, Presidents and Vice
Presidents of "divisions" of the Association. If any vacancy shall occur among
the principal officers of this Association, it shall be filled by the Board of
Directors at its next regular meeting following the vacancy.
SECTION 2 - CHAIRMAN. The Chairman shall preside at all meetings of the
members and the Board of Directors. Except where the signature of the President
is required, the Chairman shall possess the same power as the President to sign
all certificates, contracts and other instruments of the corporation which may
be authorized by the Board of Directors.
SECTION 3 - PRESIDENT. The President shall be the chief executive
officer of this Association. The President shall have general supervision of the
affairs of this Association, shall sign or countersign all certificates,
contracts or other instruments of this Association as authorized by the Board of
Directors, shall make reports to the Board of Directors and members and shall
perform such other duties as are incident to the President's office or are
properly required by the Board of Directors.
SECTION 4 - VICE CHAIRMEN. In the absence or disability of the
Chairman, the Vice Chairmen, in the order designated by the Board of Directors,
shall perform the duties and exercise the powers of the Chairman. Each Vice
Chairman shall have such other duties as are assigned to such Vice Chairman from
time to time by the Board of Directors.
SECTION 5 - GROUP VICE PRESIDENTS, SENIOR VICE PRESIDENTS AND VICE
PRESIDENTS. In the absence or disability of the President, the Group Vice
Presidents, Senior Vice Presidents and Vice Presidents, in the order designated
by the Board of Directors, shall perform the duties and exercise the powers of
the President. Each Group Vice President, Senior Vice President and Vice
President shall have such other duties as are assigned to such Vice President
from time to time by the President.
SECTION 6 - SECRETARY. The Secretary shall keep complete minutes of
each meeting of the members and of the Board of Directors, and shall sign with
Chairman or the President all notes, conveyances and encumbrances of real
estate, capital securities and instruments requiring the corporate seal;
provided that the Secretary, in writing, may authorize any other officer or
employee to execute or sign the Secretary's name to any or all such instruments.
The Secretary shall keep a record of all business of this Association, prepare
and submit to the annual meeting of the members a report of the previous fiscal
year's business, and give all notice as required by law. The Secretary shall
perform such other duties as may be required by the Board of Directors. The
Board of Directors may delegate, or authorize the Secretary to delegate, to any
other officer or employee, under the supervision of the Secretary, all or any of
the duties enumerated in this section.
SECTION 7 - TREASURER. The Treasurer shall supervise the safekeeping of
all funds and property of this Association, supervise the books and records of
all financial transactions of this Association, and perform such other duties as
may be required by the Board of Directors. The Board of Directors may delegate,
or authorize the Treasurer to delegate, to any other officer or employee, under
the supervision of the Treasurer, all or any of the duties enumerated in this
section.
SECTION 8 - ASSISTANT SECRETARY. The Assistant Secretary or Assistant
Secretaries shall perform such duties as may be assigned by the Board of
Directors, the Chairman, President or the Secretary. In the absence or
disability of the Secretary, or in the event of a vacancy in that office, the
Assistant Secretary shall perform the duties of the Secretary, or if there are
two or more Assistant Secretaries, the Chairman shall designate the order in
which they shall act in place of the Secretary.
SECTION 9 - ASSISTANT TREASURER. The Assistant Treasurer or Assistant
Treasurers shall perform such duties as may be assigned by the Board of
Directors, the Chairman, the President, or the Treasurer. In the absence or
disability of the Treasurer, or in the event of a vacancy in that office, the
Assistant Treasurer shall perform the duties of the Treasurer; or if there are
two or more Assistant Treasurers, the Chairman shall designate the order in
which they shall act in place of the Treasurer.
SECTION 10 - SPECIAL POWERS. Any officer may be vested by the Board of
Directors with any power and charged with any duty not contrary to law or
inconsistent with the Articles of Incorporation or these Bylaws.
ARTICLE VII.
INDEMNIFICATION AND INSURANCE
SECTION 1 - INDEMNIFICATION. This Association shall indemnify each
director, officer, manager, employee, or agent of this Association, and any
person serving at the request of this Association as a director, officer,
manager, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against expenses, including attorneys' fees,
judgments, fines, and amounts paid in settlement actually and reasonably
incurred to the fullest extent to which such directors, officers, managers,
employees or agents of an association may be indemnified under the law of the
State of Minnesota or any amendments thereto or substitutions therefor.
SECTION 2 - INSURANCE. This Association shall have power to purchase
and maintain insurance on behalf of any person who is or was a director,
officer, manager, employee, or agent of this Association, or is or was serving
at the request of this Association as a director, officer, manager, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise against any liability asserted against that person and incurred by
that person in any such capacity.
ARTICLE VIII.
METHOD OF OPERATION - PATRONAGE REFUNDS
SECTION 1 - COOPERATIVE OPERATION. This Association shall be operated
upon the cooperative basis in carrying out its business within the scope of the
powers and purposes defined in the Articles of Incorporation. Each transaction
between this Association and each member shall be subject to and shall include
as a part of its terms each provision of the Articles of Incorporation and
Bylaws of this Association, whether or not the same be expressly referred to in
said transaction. Upon delivering or selling or contracting to deliver or sell,
any agricultural products to this Association, or upon receiving, or buying, or
contracting to receive or buy, any supplies or equipment or services from this
Association, each member so delivering, selling, receiving, buying, or
contracting, as the case may be, shall be entitled to any and all patronage
refunds as defined in this Article VIII arising out of said patronage.
SECTION 2 - MEMBER PATRONAGE.
(a) GROSS RECEIPTS FROM MEMBER PATRONAGE. Gross receipts of the
Association from member patronage shall be all proceeds (including patronage
dividends received) from the sale of products marketed for member patrons, all
sums received for supplies, equipment, commodities, and other property procured
for member patrons, and all sums received (including patronage dividends
received) for services performed for member patrons.
Those gross receipts which by their nature reduce the cost and expenses
incurred in connection with member patronage shall be used to reduce the
deductions from gross receipts enumerated in Section 2(b) of this Article.
(b) DEDUCTIONS FROM GROSS RECEIPTS FROM MEMBER PATRONAGE. The
Association shall deduct from gross receipts from member patronage:
(1) all amounts paid for products marketed, and all necessary
manufacturing, processing and marketing expenses attributable to member
patronage;
(2) the actual cost of supplies, commodities, equipment and
other property procured for member patrons;
(3) the actual cost of services performed for member patrons;
(4) taxes, other than taxes based on income, attributable to
member patronage;
(5) that portion attributable to member patronage of additions
to reserves for depreciation and for other valuation reserves, all
established and computed in accordance with the Internal Revenue Code
of 1986, as amended, and all regulations promulgated thereunder
(collectively, "U.S. Federal Tax Laws");
(6) all other necessary expenses attributable to member
patronage, not including interest or dividends on Preferred Capital
Certificates or other securities deemed to be capital rather than
indebtedness, nor amounts set aside for promoting and encouraging
cooperative organization;
(7) to the extent that the amount available from receipts from
non-member marketing patronage and sources other than patronage (as
described in Section 4 of this Article), plus the amount available from
receipts from non-member patronage of purchasing operations (as
described in Section 3 of this Article), is not sufficient for payment
of income taxes, then such additional sum as shall be necessary for
payment of income tax obligations of the Association; and
(8) a sum determined by the Board of Directors, but not to
exceed five percent (5%) of the gross receipts from member patronage
remaining after deduction of subparagraphs (1) through (7) of this
subsection (b), to be used for the purpose of promoting and encouraging
cooperative organization.
(c) ANNUAL NET SAVINGS FROM MEMBER PATRONAGE. The amount remaining
after reducing the gross receipts from member patronage by the deductions
specified in Section 2(b) of this Article shall constitute the annual net
savings (net income) from member patronage.
SECTION 3 - NON-MEMBER PATRONAGE-PURCHASING.
(a) GROSS RECEIPTS FROM NON-MEMBER PATRONAGE OF PURCHASING OPERATIONS
AND FROM NON-MEMBER CONSENTING PATRON PATRONAGE OF MARKETING OPERATIONS. Gross
receipts of the Association from patronage of Non-Member Consenting Patrons and
from non-member patronage of purchasing operations shall be all proceeds
(including patronage dividends received) from the sale of products marketed for
Non-Member Consenting Patrons of marketing operations and all proceeds
(including patronage dividends received) for supplies, equipment, commodities
and other property procured for such non-member patrons, and all sums received
(including patronage dividends received) for services performed for such
non-member patrons.
Those gross receipts which by their nature reduce the costs and
expenses incurred in connection with such patronage shall be used to reduce the
deductions from gross receipts enumerated in Section 3(b) of this Article.
(b) DEDUCTIONS FROM GROSS RECEIPTS FROM NON-MEMBER PATRONAGEPURCHASING
AND FROM NON-MEMBER CONSENTING PATRON PATRONAGE-MARKETING. The Association shall
deduct from gross receipts from non-member patronage of purchasing operations
and from Non-Member Consenting Patron patronage of marketing operations:
(1) all amounts paid for products marketed, and the actual
cost of supplies, commodities, equipment and other property procured
for non-member patrons;
(2) the actual cost of services performed for non-member
patrons;
(3) taxes, other than taxes based on income, attributable to
non-member patronage of purchasing operations;
(4) that portion attributable to non-member patronage of
purchasing operations and to Non-Member Consenting Patron patronage of
marketing operations of additions to reserves for depreciation and for
other valuation reserves all established and computed in accordance
with U.S. Federal Tax Laws;
(5) all other necessary expenses attributable to non-member
patronage of purchasing operations and Non-Member Consenting Patron
patronage of marketing operations, not including interest or dividends
on Preferred Capital Certificates or other securities deemed to be
capital rather than indebtedness, nor amounts set aside for promoting
and encouraging cooperative organization;
(6) to the extent that the amount available from receipts from
non-member marketing patronage and sources other than patronage (as
described in Section 4 of this Article) is not sufficient for payment
of income taxes then such additional sum as shall be necessary for
payments of income tax obligations of the Association; and
(7) a sum determined by the Board of Directors, but not to
exceed five percent (5%) of the gross receipts from non-member
patronage of purchasing operations and Non-Member Consenting Patron
patronage of marketing operations remaining after deduction of
subparagraphs (1) through (6) of this subsection (b), to be used for
the purpose of promoting and encouraging cooperative organization.
(c) ANNUAL NET SAVINGS FROM NON-MEMBER PATRONAGE OF PURCHASING
OPERATIONS AND FROM NON-MEMBER CONSENTING PATRON PATRONAGE OF MARKETING
OPERATIONS. The amount remaining after reducing the gross receipts from
non-member patronage of purchasing operations and Non-Member Consenting Patron
patronage of marketing operations by the deductions specified in Section 3(b) of
this Article shall constitute the annual net savings (net income) from
non-member patronage of purchasing operations and from Non-Member Consenting
Patron patronage of marketing operations.
SECTION 4 - NON-MEMBER PATRONAGE-MARKETING; NON-PATRONAGE SOURCES.
(a) GROSS RECEIPTS FROM NON-MEMBER PATRONAGE OF MARKETING OPERATIONS
AND FROM SOURCES OTHER THAN PATRONAGE. Gross receipts of the Association from
non-member patronage of marketing operations other than patronage by Non-Member
Consenting Patrons and from all sources other than those described in Sections
2(a) and 3(a) of this Article shall constitute gross receipts from non-member
patronage of marketing operations and sources other than patronage. They shall
be subject to the deductions therefrom hereinafter provided, and any net amount
thereof shall be held or used for the purposes and in the manner hereinafter
provided.
Those gross receipts which by their nature reduce the costs and
expenses incurred in connection with non-member patronage of marketing
operations and business derived from all sources other than those described in
Sections 2(a) and 3(a) of this Article shall be used to reduce the deductions
from gross receipts enumerated in Section 4(b) of this Article.
(b) DEDUCTIONS FROM GROSS RECEIPTS FROM NON-MEMBER PATRONAGE OF
MARKETING OPERATIONS AND SOURCES OTHER THAN PATRONAGE. The Association shall
deduct from gross receipts from non-member patronage of marketing operations and
sources other than patronage:
(1) all amounts paid for products marketed and all necessary
manufacturing, processing and marketing expenses attributable to
non-member patronage of marketing operations and sources other than
patronage;
(2) taxes, other than taxes based on income, attributable to
non-member patronage of marketing operations and sources other than
patronage;
(3) that portion attributable to non-member patronage of
marketing operations and sources other than patronage of additions to
reserves for depreciation and for other valuation reserves, all
established and computed in accordance with U.S. Federal Tax Laws;
(4) all other necessary expenses attributable to non-member
patronage of marketing operations and sources other than patronage, not
including interest or dividends on Preferred Capital Certificates or
other securities deemed to be capital rather than indebtedness, nor
amounts set aside for promoting and encouraging cooperative
organization;
(5) income taxes, if any, regardless of the patronage to which
they are attributable; and
(6) a sum determined by the Board of Directors, but not to
exceed five percent (5%) of the gross receipts from non-member
patronage of marketing operations and sources other than patronage
remaining after deduction of subparagraphs (1) through (5) of this
subsection (b), to be used for the purpose of promoting and encouraging
cooperative organization.
(c) ANNUAL NET SAVINGS FROM NON-MEMBER PATRONAGE OF MARKETING
OPERATIONS AND SOURCES OTHER THAN PATRONAGE. The amount remaining after reducing
the gross receipts from non-member patronage of marketing operations and sources
other than patronage by the deductions specified in Section 4(b) of this Article
shall constitute the annual net savings (net income) from non-member patronage
of marketing operations and sources other than patronage.
SECTION 5 - TOTAL ANNUAL NET SAVINGS. The sum of annual net savings
from member patronage (Section 2), annual net savings from non-member patronage
of purchasing operations (Section 3), and annual net savings from non-member
patronage of marketing operations and sources other than patronage (Section 4)
shall be known as the total annual net savings.
SECTION 6 - NET LOSSES.
(a) NET LOSSES SUSTAINED BY ONE OR MORE DIVISIONS, FUNCTIONS, OR
OPERATIONS WHEN OVERALL NET SAVINGS ARE REALIZED. If in any fiscal year the
Association shall sustain a net loss or net losses from activities of one or
more divisions, functions or operations but shall realize net savings from
overall operations, the patronage dividends distributable to patrons of
divisions, functions, or operations which realized net savings for that fiscal
year shall, at the discretion of the Board of Directors, be reduced by the
amount of such net loss or the aggregate amount of such net losses, and in an
equitable manner; provided, however, that for purposes of determining net
savings or net losses, gains or losses from Defined Business Units shall not be
netted against gains or losses from other divisions, functions or operations of
the Association, or against gains or losses of any other Defined Business Unit.
The Board of Directors in its discretion exercised before the close of the
fiscal year during which the loss is sustained and with due consideration of all
the circumstances which caused the loss, may provide that future net savings of
any such loss division(s), function(s), or operation(s) shall be reduced, for
purposes of distributing patronage dividends for such future years, by all or
any part of the net loss or net losses so applied in reduction of net savings of
other divisions, functions, or operations, a like amount to be distributed as
patronage dividends for the future fiscal year or years to the patrons of
profitable divisions, functions, or operations whose patronage dividends were
reduced in previous years.
(b) NET SAVINGS REALIZED BY ONE OR MORE DIVISIONS, FUNCTIONS OR
OPERATIONS WHEN OVERALL NET LOSS IS SUSTAINED. If in any fiscal year the
Association shall sustain a net loss from overall operations but shall realize
net savings from activities of one or more divisions, functions or operations,
the Board of Directors may, in its discretion (exercised before the close of the
fiscal year during which the loss is sustained and with due consideration of all
the circumstances which caused the loss) provide for the reduction of future net
savings of loss divisions, functions or operations by the aggregate amount of
net savings realized during the year of loss by profitable divisions, functions,
or operations, or any part thereof, for purposes of distributing future
patronage dividends, a like amount to be distributed as patronage dividends for
the future fiscal year or years to the patrons of profitable divisions,
functions or operations whose patronage dividends were eliminated by the net
losses in overall net loss years; provided, however, that gains and losses from
Defined Business Units shall not be netted against each other or any other
divisions, functions or operations.
(c) OVERALL NET LOSSES. In the event this Association shall incur a net
loss in any fiscal year, such net loss may be charged first against any earned
surplus or paid-in surplus which is unallocated, or against any unallocated
reserve other than valuation reserves. If such loss exceeds the total of said
unallocated earned surplus and unallocated reserves or, in any event, if the
Board of Directors so elects, the amount of such loss may be carried forward or
back, or may be recovered from prior or subsequent years' net margins or
savings. This section shall not be construed or administered in such a way as to
deprive the Association of the right to carry back or carry forward net
operating losses to past or future years, in accordance with the applicable
provisions of the Internal Revenue Code or State Taxing statutes.
(d) ASSESSMENTS AGAINST MEMBERS OR PATRONS. There shall be no right of
assessment against members or patrons for the purpose of restoring impairments
to capital caused by net losses.
SECTION 7 - DISTRIBUTION.
(a) PATRONAGE DIVIDENDS -- MEMBER-PATRONAGE. The annual net savings
from member patronage shall be distributed annually or more often as patronage
dividends to the member patrons on the basis of their respective patronage, and
said member patrons shall be notified thereof; provided, however, that no
distribution need be made where the amount otherwise to be distributed to a
member patron is less than $10.00 or such lesser amount as shall be fixed by the
Board of Directors.
(b) PATRONAGE DIVIDENDS -- NON-MEMBER PATRONAGE. The annual net savings
from non-member patronage of the purchasing operations, and from Non-Member
Consenting Patron patronage of marketing operations, shall be distributed
annually or more often as patronage dividends to such non-member patrons on the
basis of their respective patronage, and said non-member patrons shall be
notified thereof; provided, however, that no distribution need be made to
non-consenting patrons, nor where the amount otherwise to be distributed to a
non-member patron is less than $10.00, or such lesser amount as shall be fixed
by the Board of Directors.
(c) ESTABLISHMENT OF ALLOCATION UNITS FOR PATRONAGE DIVIDEND
DISTRIBUTIONS. In making such patronage dividend distributions, due regard shall
be given to the sources from which such savings accrue. The purchasing and
marketing functions of the Association shall be accounted for as separate
allocation units and within each such function, the Board of Directors may
create such separate divisional, departmental, geographic or other allocation
units as it deems to be reasonable and equitable; provided, that each Defined
Business Unit shall be accounted for as a separate allocation unit. The Board of
Directors shall adopt such reasonable and equitable cost accounting procedures
as will, in the Board's judgment, equitably allocate among such allocation units
the Association's revenues and expenses derived from or attributable to its
patronage business.
(d) FORMS OF PATRONAGE DIVIDENDS. Patronage dividends shall be
distributed in cash, credits, revolving fund certificates, Capital Equity
Certificates, Preferred Capital Certificates or Certificates of Indebtedness, or
any combination thereof designated by the Board of Directors. By entering into a
business transaction with this Association, each member patron, the non-member
patron of purchasing operations and Non-Member Consenting Patron of marketing
operations, agrees to accept a distribution of the patronage refund under these
Bylaws, in such form or forms as are hereinabove provided in this Section, in
satisfaction of the obligation of this Association to make the patronage refund;
and the member-patron, the non-member patron of purchasing operations and
Non-Member Consenting Patron of marketing operations shall be deemed to have
received the amount of such patronage refund and reinvested the same in the
capital securities, or credits in a patron's refund account, or in any
combination thereof, as hereinabove provided. The books and records of this
Association shall show the interest of each such patron, which shall be credited
on this Association's books to the respective patron according to such patron's
respective contributions.
(e) NON-MEMBER/NON-PATRONAGE DISTRIBUTIONS -- NON-CONSENTING PATRONS;
NON-MEMBER PATRONAGE, MARKETING; AND NON-PATRONAGE SOURCES. Annual net earnings
attributable (i) to non-consenting non-member patrons of purchasing operations
(i.e., those members or non-member patrons who have not consented to take
patronage refunds into account in computing their net income, as provided in 26
U.S.C. ss 1385, as amended), (ii) from non-member patronage of marketing
operations and (iii) from sources other than patronage may, at the discretion of
the Board of Directors, be distributed annually or more often as
non-member/non-patronage distributions to member patrons and to Non-Member
Consenting Patrons on the basis of their respective patronage. The amount of
such net earnings with respect to a fiscal year distributed hereunder shall not
exceed the net earnings (after provision for income taxes) of the Association
for the fiscal year, as reported in its financial statements for the year, less
patronage dividends paid with respect to the year. Any such net earnings not so
distributed shall be retained by the Association and placed in the capital
reserve (as defined in Section 8 hereof).
(f) NON-MEMBER/NON-PATRONAGE ALLOCATIONS. In making any such
non-member/non-patronage distributions, the Board of Directors may use any
method of allocating the earnings on the basis of patronage to member patrons
and Non-Member Consenting Patrons as shall be reasonable and equitable in the
judgment of the Board of Directors.
(g) FORM OF NON-MEMBER/NON-PATRONAGE DISTRIBUTIONS.
Non-Member/Non-Patronage distributions shall be in cash, property, Non-Patronage
Earnings Certificates, or any combination thereof designated by the Board of
Directors.
SECTION 8 - CAPITAL RESERVE. The Board of Directors shall cause to be
created a Capital Reserve, and shall annually add to such Capital Reserve the
annual net savings attributable (i) to non-consenting, non-member patrons of
purchasing operations, (ii) from non-member patronage of marketing operations,
and (iii) from sources other than patronage which are not distributed to member
patrons and Non-Member Consenting Patron as non-member/non-patronage
distributions. Interest (dividends) paid by the Association on Preferred Capital
Certificates shall be paid first from amounts in the Capital Reserve which
accrued from such sources.
SECTION 9 - DEFINED BUSINESS UNIT RETENTIONS. This Association may
require from time to time, investment in its capital in addition to the
investments from retained patronage and Equity Participation Units. These
investments shall be direct capital investments from a retain on a per unit
basis for the products received by the Association from its Defined Members, and
the same may be determined on either a Qualified or a Nonqualified basis as
defined in Subchapter T of the United States Internal Revenue Code. The per unit
retention, if required, shall be made on products delivered, in the same amount
per unit and shall not become a part of the net annual savings available for
patronage.
Each member, by continuing to be such, agrees to invest in the capital
of this Association. Such investment shall be accounted for separately in a unit
retention account set up on the books of the Association. All such amounts, from
the moment of receipt by this Association, are received and retained with the
understanding that they are furnished by members as capital. This Association is
obligated to account to each member in such manner that the amount of per unit
retains furnished by each member is annually credited to an appropriate record
to the per unit retains capital account of each member. Within a reasonable time
after the close of its fiscal year, this Association shall notify each member of
the amount of capital retains and credit it to the member's account by
reflection upon this Association's books.
When the Board determines in its sole discretion that the Association
has sufficient working capital in the applicable Defined Business Unit, unit
retains may be called for payment at the lesser of their stated or book value.
Unit retains may be paid, redeemed, or revolved in whole or in part at a time
and manner determined by the Board.
ARTICLE IX.
CONSENT
SECTION 1 - CONSENT. Each entity which hereafter applies for and is
accepted to membership in this Association and each member of this Association
as of the effective date of this bylaw who continues as a member after such date
shall, by such act alone, consent that the amount of any distributions, with
respect to its patronage which are made in written notices of allocation (as
defined in 26 U.S.C. '1388), and which are received by the member from the
Association, will be taken into account by the member at their stated dollar
amounts in the manner provided in 26 U.S.C. '1385(a) in the taxable year in
which such written notices of allocation are received by the member.
SECTION 2 - CONSENT NOTIFICATION TO MEMBERS AND PROSPECTIVE MEMBERS.
Written notification of the adoption of this Bylaw, a statement of its
significance and a copy of the provision shall be given separately to each
member and prospective member before becoming a member of the Association.
ARTICLE X.
DISSOLUTION
Subject to the Articles of Incorporation, in the event of any
liquidation, dissolution or winding up of the affairs of this Association,
whether voluntary or involuntary, equity capital shall be distributed to the
holders thereof as follows: first to payment of the face amount (par value) of
all Equity Participation Units and all Preferred Capital Certificates, second to
payment of the face amount (par value) of all Capital Equity Certificates and
other outstanding equities (other than Non-Patronage Earnings Certificates), and
third to payment of the face amount (par value) of Non-Patronage Earnings
Certificates; provided, however, that assets held at such time by any Defined
Business Unit shall first be used to redeem the Equity Participation Units and
Preferred Capital Certificates of the Defined Business Unit on a pro rata basis.
ARTICLE XI.
FISCAL YEAR
The fiscal year of this Association shall commence on the first day of
June each year and shall end on the last day of May of the following year.
ARTICLE XII.
NO SEAL
The Board of Directors may, by resolution, adopt, alter or abandon the
use of a corporate seal.
ARTICLE XIII.
AMENDMENTS
These Bylaws may be amended in accordance with the Minnesota
Cooperative Law, Minnesota Statutes Chapter 308A; upon the approval of a
majority of the votes cast in person or by mail vote at any annual or special
meeting of the members called in accordance with Section 1 of Article III of
these Bylaws; provided, however, in the event the Board of Directors of this
Association declares, by resolution adopted by a majority of the Board of
Directors present and voting, that the amendment involves or is related to a
hostile take over, then the amendment may be adopted only upon the approval of
eighty percent (80%) of the total voting power of the members of this
Association, whether or not present and/or voting on the amendment; and provided
further that notice of such amendment shall have been given in accordance with
Section 2 of Article II of these Bylaws to the members in or with the notice of
such meeting.
LEASE AGREEMENT
THIS AGREEMENT, made effective as of August 31, 1994 by and between
PEAVEY COMPANY, a division of ConAgra, Inc., a Delaware corporation ("Peavey")
and AMBER MILLING COMPANY, a division of Harvest States Cooperative ("Amber").
WITNESSETH:
WHEREAS, Peavey owns and operates a grain terminal facility at Huron,
Ohio which includes a mill building not presently used by Peavey and which has
heretofore been leased to Amber;
WHEREAS, Amber desires to continue to lease the mill building portion
of Peavey's facility for the operation of a durum flour mill and to continue
receiving certain grain handling services from Peavey;
WHEREAS, Peavey and Amber desire to consolidate various amendments to
the prior lease, make certain modifications thereto and enter into this new
lease agreement to supersede the prior lease and amendments relative to the
foregoing;
NOW, THEREFORE, in consideration of the mutual promises hereinafter
contained and other good and valuable consideration, the parties hereby agree as
follows:
1. LEASED PROPERTY. Peavey hereby leases to Amber and Amber hereby
hires and takes from Peavey, upon all the terms and conditions herein contained,
the real and personal property described in this section 1 (hereinafter
collectively referred to as "Leased Property"), all of which is located at
Peavey's grain terminal in Huron, Ohio (hereinafter the "Terminal"). The
Terminal, including the leased Property hereinafter described, is located on the
real estate legally described on Exhibit A attached hereto. The leased Property
consists of the following:
A. The exclusive use of the Mill Building, shown outlined in red on the
drawing attached hereto as Exhibit B, together with all fixtures and
improvements located thereon (hereinafter sometimes referred to as the "Mill
Building"); and
B. The exclusive use of approximately 2,000 square feet of office space
(hereinafter "Office Space") designated by Peavey in the Office Building at the
Terminal (hereinafter "Office Building"), shown outlined in green on the drawing
attached hereto as Exhibit B, together with the non-exclusive right to shared
use of the conference room in the Office Building at mutually convenient times.
C. The non-exclusive use of driveways, parking areas and sidewalks at
the Terminal designated by Peavey for vehicular and pedestrian access to and
from the Mill Building and the Office Building;
D. The exclusive use only of tracks numbered "1" through "6" shown in
brown on Exhibit B attached hereto (hereinafter "Rail Tracks") and the
non-exclusive use of all other rail tracks located at or upon the Terminal,
together with the non-exclusive use of the dock, wharf and vessel loading
facilities, provided that Amber's use thereof does not unreasonably interfere
with Peavey's operations.
E. The warehouse building, shown outlines in blue on Exhibit B attached
hereto.
F. The "Train Shed" for its full width and 200 feet into the shed.
G. Non-exclusive use, on the basis of the first vessel to arrive is the
first vessel to be unloaded, of the self-unloading vessel hopper and associated
equipment.
2. USE.
A. Amber. Amber's use of the Leased Property shall be limited to the
milling of durum flour or other flour products produced and sold solely for use
in the manufacture of pasta, noodles and macaroni products, and residual
by-products, including uses incidental or related thereto (the "Permitted
Uses"). Amber expressly acknowledges that milling of other flour products is
prohibited hereby unless the express consent of Peavey is first obtained in
writing, except that Amber shall have the option to produce a maximum of 5,000
cwt/day of hard flour for non-permitted uses on a per day basis (i.e., not
computed on the basis of multiple day averages). Amber may exercise this option
at any time during the term of this agreement upon giving Peavey not less than
thirty (30) days prior written notice thereof, which notice shall be accompanied
by a fee of $125,000 payable to Peavey, which fee shall be payable annually
thereafter on each anniversary of the date of exercise of this option until the
obligation to continue paying said fee ceases as provided in this paragraph.
Peavey shall have the right to have as independent inspector, Buhler, Inc.,
confirm that Amber is not producing more than 5,000 cwt/day of hard flour for
non-permitted uses from the Leased Property, and Amber shall give the
independent inspector access on a confidential basis to the Leased Property and
Amber's books and records in order to verify compliance with this paragraph.
Amber's obligation to pay the annual $125,000 fee to produce hard flour for
non-permitted uses shall cease upon the sooner to occur of the following:
(i) Upon expiration of the initial lease term on September 30, 2007
(or the renewal terms, if any, which the parties may subsequently agree upon).
(ii) Termination of the lease agreement as a result of Amber
exercising its option to purchase the facility and closing on the purchase.
(iii) Amber ceases production of hard flour for non-permitted uses.
No prorations or rebates will be made of the annual $125,000 hard flour
production fee paid to Peavey by Amber if any of the three events referenced
immediately above occurs in mid-year, after the annual fee is due and payable.
B. Peavey. Amber agrees that its use of the Leased Property shall not
unreasonably interfere with Peavey's operations at the Terminal for purposes for
which Peavey uses the Terminal as of the date hereof. Peavey agrees that it will
not mill durum flour at the Terminal during the term hereof without Amber's
express prior written consent. Peavey further agrees that any other expansions
of its operations at the Terminal shall be implemented with due regard for
Amber's operations and the rights and obligations of the parties hereunder.
C. Common Areas. Peavey and Amber acknowledge that certain areas
(hereinafter "Common Areas") of the Terminal will be used in common by Peavey
and Amber. Peavey reserves that right to establish reasonable rules from time to
time for shared use of such Common Areas and Amber agrees to comply with such
rules. Both parties agree at all times to use the Common Areas cooperatively and
with due regard for the operations of the other.
3. CONSTRUCTION.
A. Improvements. At Amber's sole expense, Amber may from time to time
erect, install and construct all improvements, alterations, fixtures and
equipment needed at the Leased Property for the safe and effective operation of
Amber's business thereon (hereinafter sometimes referred to as the "Amber
Improvements"). Prior to commencement of any construction on the Leased
Property, Amber shall submit final and complete plans and specifications for the
Amber Improvements and all contracts for the labor and materials to be supplied
to Amber at the Leased Property (hereinafter collectively referred to as the
"Contract Documents") to Peavey for approval. Peavey agrees to state any
objections to the Contract Documents in writing within fifteen (15) days after
all Contract Documents have been received by Peavey, which objections shall be
limited to matters which do or could adversely affect Peavey's operations at the
Terminal or the value of Peavey's property at the Terminal. Construction shall
not commence until all such objections are cured or waived and Peavey has given
its written approval to the Contract Documents.
B. Protection of Peavey. All Contract Documents shall contain a
conspicuous statement, satisfactory to Peavey in form and substance, that Peavey
shall have no liability to contractors, subcontractors or material suppliers and
that Peavey's interest in the Leased Property shall not be subject to lien by
unpaid labor or material suppliers. Peavey also reserves the right to post signs
on or near the Leased Property giving notice that Peavey is the owner of some of
the property under construction and that its interest therein is not subject to
lien. Amber shall notify Peavey of all construction and permanent loans
affecting the Leased Property or the Amber Improvements thereon and Peavey
likewise shall have the right to notify such lenders that Peavey shall have no
responsibility for payment of construction costs or loan repayments. Peavey
reserves the right to require a payment bond or similar form of security that
Amber shall fully pay all labor and material suppliers at the Leased Property.
C. Contract Bids and Awards. Prior to awarding any prime contract for
construction, Amber shall notify Peavey of the contractor to whom the contract
will be awarded and shall allow Peavey at least five (5) business days prior to
award to object to the contractor. If Peavey reasonably objects to the
contractor's qualifications to perform the contract work in accordance with the
Contract Documents, then that contract shall not be awarded until Peavey's
objections are resolved.
D. Construction Insurance. All contractors and subcontractors working
at, upon or near the Leased Property shall be required by the Contract Documents
to carry contractor's liability insurance and builder's risk in form and
substance satisfactory to Peavy and issued by responsible insurance companies.
All such policies shall name Peavy and Amber as additional insureds. The
Contract Documents shall require all contractors and other labor and material
suppliers to comply with Peavey's human safety rules and standards in the
performance of all work at the Leased Property.
4. TERM.
A. Initial Term. The Initial Term of this Agreement shall be three (3)
years and one (1) month, commencing on the "effective date" as stated in the
first paragraph of this Agreement and ending on September 30, 1997.
B. Renewal Terms. At Amber's option, provided that Amber is not in
default (subject to any rights to cure) hereunder during the six (6) months
preceding the expiration of the then current term, this Agreement may be renewed
for up to five (5) renewal terms of five (5) years each (each of which is
referred to herein as a "Renewal Term") commencing upon the expiration of the
Initial Term of the then current Renewal Term. Amber's renewal options shall be
exercised by giving written notice thereof to Peavey at least six (6) months
prior to commencement of the Renewal Term for which the option is being
exercised, and shall only be exercisable if any and all options for preceding
Renewal Terms have been exercised. Rent and other charges payable by Amber for
the First, Second and Third Renewal Terms shall be as stated in Paragraph 6 and
elsewhere in this Agreement. The Fourth and Fifth Renewal Terms shall be at such
commercially reasonable rental and other charges as the parties shall negotiate
in good faith and agree upon (which shall be computed in a manner consistent
with, and shall in no event be less than, the rental and other charges payable
hereunder during the Renewal Term immediately preceding the Renewal Term for
which this option to renew is being exercised).
5. HANDLING AND STORAGE.
A. Services. Peavy agrees to unload, store in upright bins and transfer
to the Mill Building, as hereinafter provided, all inbound grain shipments for
Amber. The parties contemplate that inbound grain shipments will arrive at the
Terminal by rail; however, Peavy shall unload grain inbound by vessel or truck
if Amber so requires. Amber agrees to give Peavey at least three (3) working
days advance notice of inbound rail shipments and at least fourteen (14) working
days advance notice of inbound vessel shipments. When vessels are loaded for
Amber, Amber shall thereupon promptly notify Peavey of the vessel's estimated
time of arrival at the Terminal. If Peavy receives such advance notice and if
the inbound shipment actually arrives and is cleared for discharge as scheduled,
Peavey agrees to unload the grain in a timely manner so as to avoid demurrage
liability.
In the event Peavey fails to unload any train in a timely manner, (26
cars per 24 hours after first 7:00 a.m., Saturdays, Sundays, Holidays excluded)
and Amber is charged any demurrage costs, expenses, or penalties, at the
published rate, then Peavey shall reimburse Amber in full for all such amounts.
Peavey (or Amber during non-Peavey operating hours) shall continue to
weigh all outbound trucks by Amber, at Amber's option. The cost for such service
from the effective date hereof through September 30, 1995, shall be $5.00 per
truck, Peavey shall not increase said rate in any year by more than the increase
in the U.S. Consumer Price Index (the "CPI").
B. Storage.
(i) All Amber grain stored at the Terminal by Peavey shall be stored
on an identity-preserved basis. For purposes of handling and storage charges,
all grain transfers into and out of storage shall be treated on a first-in,
first-out basis. Peavey agrees to have available for Amber at all times during
the term hereof sufficient space for storage of 300,000 bushels of grain.
(ii) If Amber requires additional storage space at any time during
the term hereof because of expansion of Amber's milling capacity, Peavey agrees
to provide 50,000 bushels of dedicated identity-preserved storage for each
addition of 1,000 cwt per 24 hours of milling capacity. Peavey Grain Company
shall make this additional space available to Amber in four month periods. A 30
day notice must be given to Peavey prior to each four-month period for the use
of the said space. A minimum rent of $4,250.00 per month for each 50,000 bushels
of additional space will be paid on the first day of each month. This minimum
rent shall be increased to $5,000.00 per month for the Renewal Terms. This
minimum rent shall be credited against the handling charges under Paragraph 6.B,
below.
(iii) Peavey will store Amber wheat unloaded from rail cars or
vessels in bins with a maximum capacity of 45,000 bushels for the first 300,000
bushels and will limit Amber wheat storage to the bins so specified by Peavey.
Once Peavey has specified the bins to be used for storage of Amber wheat, Peavey
will not change the specified storage spaces without reasonable cause and prior
notice to Amber, and will give Amber storage bins of comparable size and
condition. Peavey will transfer grain from storage to the mill from those bins
specified (four maximum) by Amber and in the approximate mix percentages
requested by Amber.
(iv) Peavey further agrees to transfer grain from storage to the
mill at Amber's request five times a week, Sundays and Holidays excluded. Amber
will notify Peavey at least 24 hours prior to each required transfer with the
quantities and specific storage bins where those quantities are stored. When the
mill's capacity is expanded to 9,000 cwt/24 hours (or more), Peavey agrees to
transfer additional grain (to the extent such grain is available from Amber's
storage in Peavey's facility) so as not to cause Amber to run out of wheat and
thus interrupt normal business operations.
(v) If Peavey in good faith determines it has Storage Space
available, over and above Amber's allocated space, and a self-unloading vessel
arrives loaded with bushels over and above Amber's allocated space, then Peavey
agrees to provide said additional space (up to a maximum of 200,000 bushels) to
Amber to allow Amber adequate storage space to finish unloading. There shall be
no charge for the additional storage space for a 24-hour period commencing after
the vessel completes unloading. If after said 24-hour period Amber still has
bushels stored in excess of its allocated space, then Amber agrees to pay Peavey
one-tenth of a cent ($.001) per bushel per day on the bushels which exceed its
allocated space, subject to periodic adjustment by Peavey to keep pace with
inflation as indicated by the CPI. This charge is payable and not subject to
credit or offset by or against any other charges. If Peavey does not have
additional storage space over Amber's allocated space while the vessel is
unloading, then the vessel must stop unloading while Peavey transfers grain to
Amber's mill, and the additional lay time will be for the account of Amber.
C. Outbound Shipments. Amber shall be solely responsible for shipment
of outbound product, including designation of and contracting with carriers.
Notwithstanding the foregoing, all outbound shipping shall be scheduled in
coordination with Peavey's facility manager at the Terminal so as not
unreasonably to interfere with Peavey's operations.
D. Handling and Storage Restrictions.
(i) Peavey shall be required to provide the aforesaid handling and
storage services only for wheat to be milled into the products specified in
Paragraph 2A above at the Leased Property and for no other or additional grain
or grain products.
(ii) All handling shrink shall be for the account of Amber, except
that Peavey shall reimburse Amber for any shrink in excess of 1% of inbound
weights taken by Peavey which occurs while grain lies within the exclusive
custody and control of Peavey, at the market value thereof on the date such
excess shrinkage is first identified and known to both parties. Peavey agrees
that it shall use the same standard care when handling and storing Amber's grain
as it uses when Peavey handles it own grain, including, without limitation,
periodically monitoring the temperature of and (at Amber's request and expense)
the turning of any stored product. Peavey agrees that any wheat of Amber's lost
or damaged during the blending of Amber's grain shall not be deemed to be
shrinkage and Peavey shall reimburse Amber for any such losses caused by Peavey.
(iii) Peavey assumes no responsibility and shall have no liability
to Amber hereunder if grain is received at the Terminal in condition or of a
quality different from the condition or quality which Amber expects or is
entitled to receive. Peavey agrees to give access to Amber and its agents for
the purpose of making reasonable inspection of inbound grain shipments.
(iv) Peavey agrees to give Amber monthly inventory reports which
shall be conclusively deemed accurate unless a written objection is reasonably
made by Amber. If Amber objects to any inventory report made by Peavey and the
parties cannot resolve the differences, then the disputed quantities of grain
shall be loaded out, weighed and replaced in storage. The scale weights thus
taken shall be conclusive and the cost of the loading and weighing shall be
borne equally by the parties hereto. Peavey shall provide Amber with house
unload and house transfer weights of all grain handled by Peavey for Amber. All
transfers and unload weights will be received in writing within 24 hours. Amber
will accept batch weights for its accounting procedures. However, if a railroad
shipper will not accept batch weights, Peavey will weigh the cars at a cost to
Amber to be agreed upon.
(v) Amber shall provide to Peavey the grade, quantity, quality and
car number or vessel name at least three (3) working days prior to arrival of
Amber's grain. Wheat designated for separate storage shall be limited to no more
than eight (8) rail wheat grade classifications and no more than eight (8)
vessel wheat grade classifications provided that no more than a total of eight
(8) wheat grade classifications (whether rail or vessel) shall be subject to
separate storage at any one time, provided Amber shall pay on demand by Peavey
any demurrage resulting from requiring multiple separations. Procedures for
handling multiple wheat grade separations shall be mutually determined by
Peavey's and Amber's respective local managers at the Terminal.
(vi) Peavey, when transferring Amber's wheat from its elevators to
the mill, will, upon request of Amber, provide up to four (4) grades for
blending and shall use reasonable care to provide a requested blend, but will
not guarantee any specific percentage blend. Amber shall not request less than
30,000 bushels of a specified blend or mix at any one time.
E. Vessel Discharge Rates; Holidays. Peavey will accomplish minimum
vessel dishcarge rates per the following (provided, however, Peavey must use
reasonable efforts to exceed said minimum):
<TABLE>
<CAPTION>
OVERALL BEAM DEPTH HATCH SIZE MINIMUM DISCHARGE
LENGTH L W RATE
<S> <C> <C> <C> <C> <C>
Canadian Ranger, 15,000/BU/HR.
self-unloader or similar
vessel
WILLOWGLEN 5,500/BU/HR.
less than 630' less than 60' less than 35' greater than 38' greater than 11' 5,300/BU/HR.
less than 680' less than 67' less than 37' greater than 48' greater than 11' 4,600/BU/HR.
less than 730' less than 75' less than 39' greater than 58' greater than 11' 4,200/BU/HR.
</TABLE>
The discharge time will be calculated from the time the vessel is along
side Peavey's dock and ready to discharge until the vessel is completely
unloaded and all equipment used for unloading purposes has been removed from the
vessel.
Peavey will unload bulk carrier vessels based on said rates everyday
except holidays. Holidays shall be: New Year's Eve Day, New Year's Day,
President's Day, Good Friday, Easter, Memorial Day, Independence Day (July 4th),
Labor Day, Columbus Day, Thanksgiving Day, Friday after Thanksgiving Day,
Christmas Eve Day, Christmas Day, International Longshoremen's Union Meeting
Days, and any other days designated as holidays by the City of Huron, the State
of Ohio, the International Longshoremen's Union, the United States Government or
other governmental authority having lawful jurisdiction. Should any of the
stipulated holidays fall on a Sunday, the following Monday will be deemed as
that holiday. If they fall on Saturday, the preceding Friday will be deemed as
that holiday. Peavey shall not be required to unload on holidays. Down-time
during vessel discharge for reasons not under Peavey's control will not be
calculated toward unload rate. Peavey shall not be liable to Amber for any loss,
damage, delay or failure of performance resulting directly or indirectly from
any cause beyond its reasonable control, including but not limited to force
majeure.
Peavey will unload self-unloading vessels based on said rates every day
except holidays which are recognized by Peavey and provided to Peavey employees.
As in the past, no vessels with side tanks, or multi-level decks will
be unloaded. All vessels are subject to Peavey's approval. The draft of any
vessel must be compatible with the depth of Peavey's slip.
6. RENT AND HANDLING CHARGES.
A. Rent. Amber agrees to pay Peavey rent for rights and privileges
granted herein in the amount of (***) for the Initial Term (which expires
September 30, 1997), payable in monthly installments of (***) each commencing on
the first day of the Initial Term and continuing on the first day of every
calendar month thereafter during the Initial Term, subject to adjustment as
hereinafter provided. Rent for the First Renewal Term (which expires on
September 30, 2002) shall be (***), payable in monthly installments of (***) on
the first day of each calendar month during said First Renewal Term, subject to
adjustment as hereinafter provided. Rent for the Second Renewal Term (which
expires on September 30, 2007) shall be (***), payable in monthly installments
of (***) on the first day of each calendar month during said Second Renewal
Term, subject to adjustment as hereinafter provided. Rent for the Third Renewal
Term (which, if the purchase option in Paragraph 19C is not exercised, expires
September 30, 2012) shall be (***), payable in monthly installments of (***) on
the first day of each calendar month during said Third Renewal Term, subject to
adjustment as hereinafter provided.
B. Handling Charges. Amber agrees to pay Peavey for handling inbound
grain unloaded by any mode by Peavey at the Terminal based upon the following
rate schedules:
(i) During the Initial Term -
for the first 50,000,000 bu. $ (***) per bu.
for the next 5,000,000 bu. (***) per bu.
for bu. over 10,000,000 (***) per bu.
(ii) During the First Renewal Term -
for the first 5,000,000 bu. $ (***) per bu.
for the next 5,000,000 bu. (***) per bu.
for bu. over 10,000,000 (***) per bu.
(iii) During the Second Renewal Term -
for the first 5,000,000 bu. $ (***) per bu.
for the next 5,000,000 bu. (***) per bu.
for bu. over 10,000,000 (***) per bu.
(iv) During the Third Renewal Term -
for the first 5,000,000 bu. $ (***) per bu.
for the next 5,000,000 bu. (***) per bu.
for bu. over 10,000,000 (***) per bu.
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
The foregoing rates are based upon annual volumes of grain measured on October
1, 1995 and October 1, of each year thereafter during the initial and any
Renewal Terms, provided the charges on the volumes put through from the
Effective Date through September 30, 1994, shall be computed at the same rate as
is used on the grain put through for the year ending October 1, 1995.
Handling charges shall be computed and invoiced on an annual basis. The
twelve monthly rental payments received by Peavey for each lease year under
Paragraphs 5.B(ii) and 6.A above shall be credited against the annual invoice
for handling charges payable under this Paragraph 6.B for each lease year. If
the total annual handling charges exceed the total of such annual rental
payments, then the amount of handling charges that exceed the rental charges for
each lease year shall be paid to Peavey annually upon receipt of invoice.
With the credit for rent exception set forth above, the handling charge
is in addition to any other charges provided in this Lease.
C. Storage Charges. Peavey agrees to store 300,000 bu. of Amber's grain
for up to thirty (30) days at no additional charge. Storage of additional
volumes, or for longer periods of time, shall be invoiced monthly by Peavey at
its then current published rate for identity-preserved storage of wheat at the
Terminal, except as otherwise specifically provided in this Lease.
D. Unload Charges for Self-Unloading Vessels. Amber shall pay Peavey a
surcharge of $0.0075 per bushel of grain unloaded from self-unloading vessels.
If at any time in the future Peavey finds a way reasonably acceptable to it to
dry grain or load out rail cars, or both, while a self-unloading vessel is
unloading into the facility, the payment hereunder shall be reduced accordingly,
provided Peavey shall not be required to make any substantial capital
expenditure in order to accomplish the same.
E. Unload Charges for Non-Self-Unloading Vessels. For all vessels other
than self-unloading vessels, Amber agrees to pay Peavey an unload charge of six
and one-half cents ($0.065) per bushel for a period of three (3) years from the
date hereof. Every three (3) years during the ongoing term (including renewals)
of this Lease, the unload charge will be reviewed and a new rate covering
Peavey's increased or decreased cost will be established or, if there has been
no change in Peavey's cost, the old rate continued. Any increase in the rate
shall be limited to not more than ten percent (10%) of the previous rate. Any
decrease shall not be limited.
F. Dockage Charge. Peavey agrees to maintain its dockage rates at ten
cents ($0.10) per gross registered ton of the docking vessel for two (2)
years from August 14, 1992. At the end of each two (2) year period (including
renewals) thereafter, Amber and Peavey will obtain information concerning the
dockage fees charged by the six largest, by volume, loading and unloading grain
facilities on the Great Lakes, and Peavey will charge a dockage rate at the
average of said six dockage fee rates during each ensuing two (2) years. Peavey
agrees to accordingly amend its tariff to allow for these rates.
G. Train Shed Rent. Amber shall pay Peavey $10,000 per year rent for
the Train Shed, which shall be payable on the first day of each calendar month
during the term of this Agreement in installments of $833.34 each.
H. Additional Rent. All other charges which are the responsibility of
Amber hereunder (including without limitation real estate and personal property
taxes, assessments, insurance, utilities and maintenance) shall be deemed
additional rent hereunder, whether paid to Peavey or to third parties and
whether Peavey is or is not directly or indirectly liable therefor.
7. INDEPENDENT OPERATIONS. It is understood and agreed by the parties
that Amber is acting entirely as an independent contractor and not in any
respect as an agent, employee, representative, partner or coventurer with
Peavey. As such, Amber shall, without interference by or on behalf of Peavey,
have full authority over the operation of its business on the Leased Property,
including without limitation the authority to establish prices for its goods and
services.
8. EXPENSES.
A. Equipment and Supplies. Amber shall provide at its own expense all
tools, machinery, equipment, supplies, fuel and utilities which are required for
the operation of its business at the Leased Property. All such items shall be
and remain the property of Amber, unless affixed to the real property which is
owned by Peavey. Nothwithstanding anything to the contrary contained herein,
Peavey shall not be required to supply any such items, even if necessary to
replace obsolete parts of the Leased Property. If utilities supplied to the Mill
Building are furnished through a common delivery system to the Terminal, then
Amber shall, at Amber's expense, cause separate meters to be installed prior to
commencing use of any such utilities for construction or mill operations.
B. Maintenance. Amber agrees at its own expense to keep the Leased
Property, the Rail Tracks and Amber's property at the Terminal in safe, sound
and sanitary condition and to provide all repairs and maintenance required at
the Leased Property, the Rail Tracks or to Amber's property, or any part
thereof, including without limitation structural repairs and maintenance which
would normally be classified as capital expenditures. Peavey shall have no
liability for maintenance or repair to Amber's property at the Terminal, except
with respect to any such matters required as a direct result of the negligence
or recklessness of Peavey, its agents, employees or contractors.
C. Shared Maintenance. Whenever repair or maintenance is required to
areas of the Terminal used commonly by Peavey and Amber (but excluding the Rail
Tracks or other shared items, such as the Train Shed and the truck scale, for
which Amber pays a user fee designated for that item), the costs of such repair
and maintenance shall be shared by the parties in proportion to their respective
use of the items repaired or maintained. In the case of repair or maintenance of
the Rail Tracks, Amber agrees to repair and maintain in a safe and serviceable
condition, at Amber's sole expense, the Rail Tracks. Peavey agrees to repair and
maintain in a safe and serviceable condition, at Peavey's sole expense, all of
the other rail tracks at the Terminal which are in use by Peavey, Amber or both.
D. Safety. Whenever in Peavey's reasonable judgment any condition
exists at or upon the Leased Property which threatens the safety of Peavey's
property or of persons at or near the Terminal, then Peavey shall so notify
Amber and the unsafe condition shall be promptly corrected at Amber's expense.
If Amber fails promptly to correct any such unsafe conditions, then Peavey may
upon notice do so at its own expense and the actual cost thereof shall become
additional rent immediately due and payable hereunder. Whenever in Amber's
reasonable judgment any condition exists at or upon the Terminal (excluding the
Leased Property) which threatens the safety or sanitation of the Leased
Property, or of persons at the Leased Property, then Amber shall so notify
Peavey and the unsafe or unsanitary condition shall be promptly corrected by
Peavey and, if Peavey fails to do so, Amber may correct the condition and Peavey
shall reimburse Amber for the actual cost thereof, on demand.
E. Taxes and Assessments. Amber agrees to pay as the same become due
all real property taxes, personal property taxes and special assessments which
are assessed against the Mill Building and Amber's property and which are due
and payable during any term of this Agreement. Peavey and Amber agree to
cooperate to obtain a division of the Mill Building from the Terminal property
for purposes of real estate and personal property tax assessments.
9. CONDITION OF LEASED PROPERTY. Amber acknowledges that it has had
ample opportunity to inspect the Leased Property and is entering into this
Agreement solely based upon its inspection thereof. Amber acknowledges that
there are no representations or warranties other than those expressly set forth
in this Agreement and further that Peavey makes no representations, warranties,
affirmations or assurances as to the condition of Terminal or of the Leased
Property, or its suitability for use as a durum mill or for any other purpose
whatsoever.
10. IMPROVEMENTS. Except as required or permitted pursuant to
Paragraphs 3 and 8 above, Amber shall make no permanent improvements or
alterations to the Leased Property without the express prior written consent of
Peavey in each instance. Unless Peavey otherwise agrees, all such improvements
and alterations shall be removed by Amber at the Expiration of the term of this
Agreement or, in the case of permanent improvements or alterations, shall become
the property of Peavey upon the termination of this Agreement regardless of the
time or cause of such termination. At the termination of the Lease Agreement,
Amber shall be granted an additional sixty (60) days to remove all of its
property and equipment at $5,000.00 a month rent.
11. INSURANCE.
A. Property. Amber shall procure and maintain throughout all terms of
this Agreement a policy or policies of "all-risk" property insurance, as that
term is generally understood within the insurance industry at the time the
policy or policies are procured, including boiler and machinery coverage, from
insurance carriers approved by Peavey. The said policies shall insure, at full
insurable replacement cost, all real and personal property of Peavey and Amber
which is located at or upon the Leased Property. Peavey shall be named a loss
payee on all such policies of property insurance, as its interest may appear,
and such policies shall provide for continuation of rental income to Peavey in
the event of any property loss or damage covered by the policy.
B. Builder's Risk. If required by any of Amber's contractors providing
labor or materials at or upon the Leased Property, at any time during any term
of this Agreement, Amber shall procure Builder's Risk Insurance as so required,
which insurance shall name Peavey as an additional insured.
C. Liability. Amber shall procure and maintain throughout all terms of
this Agreement a policy or policies of comprehensive general liability insurance
with a combined single limit of coverage of not less than Ten Million Dollars
($10,000,000). Peavey shall be named as an additional insured on all such
policies, and they shall be properly endorsed to include coverage for
contractual liability of Amber pursuant to this Agreement. Amber shall either
procure such coverage in behalf of its contractors providing labor and materials
at or to the Leased Property or shall require that said contractors procure
similar liability insurance, naming Amber and Peavey as additional insureds.
Liability insurance coverage maintained by Amber's contractors shall not relieve
Amber of its obligation to procure insurance or reduce the amount of coverage
required hereunder.
D. Worker's Compensation. Amber shall procure and maintain throughout
all terms of this Agreement worker's compensation insurance in form and amount
as required by applicable statute.
E. Waiver of Subrogation. Amber agrees that each of its insurers
providing coverage herein required shall waive all claims, causes of action and
charges against Peavey for loss or damage to property or injury or death of
persons at or upon the Leased Property, regardless of negligence or fault, and
that such waiver of claims (by subrogation or otherwise) shall be written in the
policy provisions.
F. Evidence of Insurance. Amber shall provide, within five (5) business
days after any request therefor made by Peavey, duly executed certificates of
insurance establishing that the coverage herein required is fully paid and in
full force and effect. The said certificates and underlying policies shall
specifically provide that no change, modification or cancellation of coverage
shall be effective until at least thirty (30) days after written notice thereof
to Peavey, given as herein required.
12. INDEMNITY. Amber agrees to indemnify and hold Peavey harmless from
and against any and all claims, costs, expenses, actions, causes, liens,
liabilities, damages, judgments and attorneys fees arising from or connected
with property damage or personal injury or death caused directly or indirectly
by Amber's acts or omissions as lessee, occupant or operator of or at the Leased
Property, except any such claims, costs, expenses, actions, causes, charges,
liens, liabilities, damages, judgments or attorneys fees which arise from or are
connected with any property damage or personal injury or death caused by
Peavey's negligent acts or omissions. Peavey agrees to indemnify and hold Amber
harmless from and against any and all claims, costs, expenses, actions, causes,
charges, liens, liabilities, damages, judgments and attorney fees arising from
or connected with property damage or personal injury or death caused by Peavey's
operations at the Terminal, except any such claims, costs, expenses, actions,
causes, charges, liens, liabilities, damages, judgment or attorneys fees which
arise from or are connected with any property damage or personal injury or death
caused by Amber's negligent acts or omissions.
13. DAMAGE TO LEASED PROPERTY.
A. Insurance Proceeds. In the event of any loss or damage to the Leased
Property, then Peavey and Amber shall jointly make, negotiate and resolve the
claim arising therefrom against the applicable insurance policies, but each
party alone has the right to resolve, settle or compromise the portions of such
claim arising from loss or damage to that party's property. Insurance proceeds
received shall be apportioned equitably by the parties in proportion to the
value of their lost or damaged property for which proceeds are paid. Each party
shall account to the other for application of insurance proceeds received
consistent with requirements hereof.
B. Reconstruction. Unless otherwise agreed by the parties, any loss or
damage to the Leased Property shall be promptly repaired, restored or replaced
to a condition at least equal to the condition of the Leased Property prior to
the occurrence of the loss or damage. Notwithstanding the foregoing, however,
neither party hereunder shall be required to spend more time than the amount of
insurance proceeds actually received in effecting such repair, restoration or
replacement. Prior to commencement of any repair, restoration or replacement of
any lost or damaged part of the Leased Property, both parties shall review and
approve the plans, specifications and contracts for the repair, restoration or
replacement.
C. Termination of Lease. If the parties agree that the lost or damaged
part or parts of the Leased Property shall not be repaired, restored or
replaced, and if the Leased Property thereafter is not suitable for operation of
a durum flour mill, then this Lease shall be deemed terminated as of the date of
the occurrence of the loss or damage. In such event, Amber shall assign and pay
over to Peavey all insurance proceeds received by Amber for loss or damage to
improvements at or upon the Leased Property which would have become Peavey's
property upon termination hereof pursuant to section 18 below.
14. LIENS. Amber agrees that it shall neither cause nor permit
mechanics' or materialmens' liens to be imposed upon the Leased Property at any
time. If any such lien is placed against the Leased Property, Amber shall
promptly cause the lien to be discharged or, if Amber wishes to defend the lien
claim by proper legal proceedings, Amber shall establish such security as Peavey
may require for the payment of the lien at the conclusion of such legal
proceedings. Any sums which Peavey is required to spend in defense of any such
lien shall be deemed additional rent immediately due and payable hereunder.
15. CONDEMNATION. If the Leased Property or any part thereof shall be
taken by any authority under the power of eminent domain, Amber and Peavey shall
each have claims for compensation for their own property located at or upon the
Leased Property. In addition, each party shall have its claim for relocation or
other allowable expenses in any condemnation proceedings. Such claims shall be
jointly prosecuted if required by the condemning authority, but Peavey and Amber
each shall pay their own expenses therein. If the Leased Property, after
conveyance of the portion thereof taken for public use, is no longer operable
for Amber's purposes hereunder, then this lease shall be terminated as of the
date of the taking.
16. DEFAULT. Upon default by either party under the terms of this
Agreement, the other party shall have all and cumulatively then rights and
remedies provided by law and by this Agreement; provided, however, that prior to
exercise of any such rights or remedies, notice of default shall be given to the
defaulting party allowing such party ten (10) days following said notice to cure
the default. In the event of a default which cannot reasonably be cured in ten
(10) days, the said period for cure shall be extended only for so long as the
defaulting party diligently and continuously works toward effecting such cure.
In the event either party breaches any of the terms and conditions of this Lease
Agreement and the injured party initiates either litigation or arbitration, then
the losing party shall reimburse the prevailing party for any and all costs or
expenses of such proceedings, including reasonable attorney's fees.
17. WAIVER. No waiver of any right or remedy by either party shall be
construed to be a waiver of other rights or remedies of such party, or of the
waived right or remedy for any future occurrence.
18. SURRENDER. Upon the effective date of termination of this
Agreement, without regard to the cause or time of such termination, Amber shall
cease its operations at the Leased Property and shall remove all of its property
therefrom. The Leased Property shall be restored to its original condition,
subject only to ordinary wear and tear and to modifications and substitutions
permitted or accepted by Peavey. The parties understand and agree that
improvements previously or hereafter made by Amber to the Leased Property
include certain permanent fixtures and improvements which, upon the termination
of this Agreement, shall become the property of Peavey without additional
consideration therefor. Nothing herein shall be construed to permit Amber to
remove from the Leased Property any structural modifications, permanent
improvements, fixtures or other items which have become integral with Peavey's
real or personal property at the Terminal.
19. RIGHT OF REFUSAL; OPTION TO PURCHASE.
A. Right of First Refusal to Amber. Peavey hereby grants to Amber for
the entire term of this Agreement a right of refusal to purchase the Terminal
upon terms and conditions offered to and accepted by Peavey from any third party
purchaser (excluding any related or affiliated corporation or other entity). If
Peavey should receive any such acceptable offer, Peavey shall give Amber written
notice thereof including all terms and conditions of the offer. Amber shall have
thirty (30) days in which to exercise its right of refusal by giving written
notice of acceptance to Peavey. If Amber should exercise its right of refusal,
Amber shall become the purchaser of the Terminal upon terms and conditions
identical to those contained in the written offer from the third party buyer to
Peavey. This right of refusal applies only to a sale of the Terminal alone and
not to a sale of the Terminal together with other substantial assets of Peavey's
Grain Merchandising Division.
B. Right of First Refusal to Peavey. Amber hereby grants to Peavey a
right of refusal to purchase Amber's assets at the Leased Property upon terms
and conditions offered to and accepted by Amber from any third party purchaser.
If Amber receives any such acceptable offer, Amber will give Peavey written
notice thereof including all terms and conditions of the offer. Peavey shall
then have thirty (30) days in which to exercise its right of refusal by giving
written notice of acceptance to Amber. If Peavey exercises its right of refusal
hereunder, Peavey shall become the purchaser of Amber's assets at the Leased
Property upon all of the terms and conditions contained in the offer from the
third party purchaser. In the event Peavey fails to exercise its right of first
refusal within thirty (30) days, then Amber shall be free to sell Amber's assets
at the Leased Property to the third party offering to purchase, with the written
consent of Peavey, so long as the sale is on the same terms and conditions
offered to Peavey. The right of first refusal granted to Peavey pursuant to this
Paragraph l9B shall not apply to the sale or lease by Amber of Amber's assets to
any person or entity to whom Amber is permitted to assign its rights and
obligations under this Agreement under the terms of Paragraph 21.
C. Option to Purchase by Amber. Provided Amber has exercised all
renewal options under this Lease and is not otherwise in default hereunder,
Amber shall have the right and option to purchase the entire Terminal on October
1, 2007 (the "closing date"), for a cash purchase price of (***), subject
to the terms and conditions stated herein, which option may only be exercised by
Amber giving Peavey written notice of its election to exercise this option to
purchase not more than two (2) years and not less than six (6) months prior to
said date. Except for the obligations of repair and maintenance imposed upon
Amber pursuant to the terms of this Agreement, from the date Amber properly
exercises its option to purchase until the date of closing hereunder, Peavey
shall keep and maintain the Terminal in substantially the same condition and
repair, subject to normal wear and tear, as it is on the date Amber gives notice
of exercise of this option.
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
On the closing date, Peavey shall cause good and marketable title to
the Terminal to be conveyed to Amber by special warranty deed, subject to
easements, covenants and restrictions of records, applicable zoning, building
and use restrictions, rights and limitations applicable to riparian, filled and
submerged lands, matters which would be shown by a good and sufficient
"as-built" land survey, matters suffered or created by Amber and a lease or
through put agreement in favor of Peavey as more particularly stated in this
paragraph. The cost of title insurance, any land survey work, documentary or
transfer tax and recording fees, shall be shared equally by Amber and Peavey. If
a current title insurance commitment and/or land survey on the Terminal reveal
any defects in title, other than the exceptions permitted above, then Peavey
shall have a reasonable time, not to exceed two (2) months after the scheduled
closing date, within which to cure such defects. If Peavey is unable to cure
such title defects within that time, despite reasonable efforts to do so, then
Amber shall either waive the defects and proceed with the closing or rescind its
exercise of this option to purchase and neither party shall have any further
liability to the other with respect thereto. Taxes on any portion of the
Terminal not heretofore leased by Amber which first become delinquent in the
year of closing shall be prorated as of the date of closing using the most
current tax bills available, and there shall be no reproration subsequent to
closing for any taxes payable in arrears, when the statements for such taxes are
eventually issued by the local taxing authorities. Utilities and other charges
and service contracts shall be determined and adjusted as of closing.
After Amber exercises this option to purchase, but prior to closing
hereunder, Peavey shall notify Amber if Peavey desires to have the right to put
grain through and/or store grain at the Terminal following closing. Upon the
giving of such notice, the parties shall promptly commence and diligently
complete good faith negotiations for such through put and/or storage on such
commercially reasonable terms and conditions as the parties may mutually agree
and shall reduce the same to writing so the agreement will be executed and
delivered at closing by Amber and Peavey.
20. NOTICES. Any notice required or permitted to be given hereunder
shall be deemed given when mailed by prepaid registered or certified mail, or
when delivered to a bonded courier service for prepaid delivery, to the party to
whom such notice is directed at the following addresses (or at such other
address as either party may designate by written notice from time to time):
TO AMBER: Amber Milling Company
c/o Harvest States Cooperatives
1667 North Snelling Avenue
St. Paul, MN 55108
Attn: Legal Department
TO PEAVEY: Peavey Company
c/o ConAgra Grain Companies
730 Second Avenue South
P.O. Box 2105
Minneapolis, MN 55402-0105
21. ASSIGNMENT. Neither party shall sell, assign or transfer this
Agreement or any of the rights or obligations created hereby without the prior
written consent of the other, which consent shall not be unreasonably withheld,
except that such rights or obligations may at any time be assigned by Peavey
without Amber's consent to a purchaser of substantially all of the assets of
Peavey's Grain Merchandising Division or to an affiliated corporation or entity.
Peavey agrees that it will consent to any assignment hereof by Amber which is
solely for the purpose of securing repayment of indebtedness related to Amber's
construction or operations at the Leased Property, provided that said
indebtedness is otherwise consistent with requirements of the Agreement. Amber
shall have the right to assign this Lease to a new entity in which it owns
outright at least a 20% interest (with full voting and other rights relating
thereto), provided that Amber shall nevertheless remain fully and primarily
liable to Peavey for the timely and proper performance of Amber' s obligations
under this lease and, provided further, the new entity does not include any
members, partners or shareholders (other than Harvest States or other
agricultural cooperatives) who are in direct competition with ConAgra, Inc., or
its corporate affiliates in the grain milling business. This Agreement shall be
binding upon and inure to the benefit of approved successors and assigns of the
parties hereto.
22. MEMORANDUM. The parties agree that, upon request of either, a
memorandum of this lease agreement shall be executed and delivered in recordable
form. Said memorandum shall give notice of the possessory interests of the
parties in and to the Terminal property and Leased Property and also of the
mutual rights of refusal granted hereunder.
23. MODIFICATION. No amendment or other change or modification in the
terms of this Agreement shall be effective unless it is made in writing and is
duly executed on behalf of both parties hereto.
24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one agreement.
25. ALARM SYSTEM. Peavey acknowledges that it has given Amber consent
to utilize an alarm system installed at the Huron Terminal with direct
communication to the local fire protection and emergency facilities, provided
that Amber shall install and maintain its own telephone lines connected to said
system. Nothing herein contained or implied from the shared use of the alarm
system shall be construed as an obligation on the part of Peavey to maintain the
alarm system or to incur any costs to connect Amber's telephones to the system.
Amber hereby releases and waives any and all claims it may have arising out of
the shared use of the alarm system, including claims based upon Peavey's failure
to maintain the system in operative condition.
26. OPERATING PROCEDURES. Amber acknowledges that its operations at the
Huron Mill may from time to time require its employees to perform activities or
otherwise be present in the course of their employment on property owned,
controlled or managed by Peavey. In every such instance, Amber agrees that its
employees shall be subject to the safety rules and operating procedures
established by Peavey for its own employees and Peavey is authorized to enforce
such rules and procedures as to Amber employees. If Amber employees regularly
fail to observe such rules and procedures, then Peavey may deny such employees
access to its property and facilities, notwithstanding any other provisions to
the contrary contained herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day and year first above written.
PEAVEY COMPANY, a division of CONAGRA, INC.
By: /s/ T. M. Racciatti
T. M. Racciatti
Its: President
AMBER MILLING COMPANY, a division of
HARVEST STATES COOPERATIVES
HARVEST STATES COOPERATIVES
By: /s/ Garry A. Pistoria
Garry A. Pistoria
Its: Group Vice President
STATE OF NEBRASKA)
) ss.
COUNTY OF DOUGLAS)
On this 30th day of August , 1994, before me, a Notary Public, within and for
said County, personally appeared T. M. Racciatti, to me known to be the
President of PEAVEY COMPANY, a division of CONAGRA, INC., the corporation named
in the foregoing instrument, and which executed the foregoing instrument, and he
acknowledged said instrument to be the free act and deed of said corporation.
[STAMP: GENERAL NOTARY - STATE OF NEBRASKA
MARY O. BOND
MY COMM. EXP. FEB. 22, 1997]
/s/ Mary O. Bond
Notary Public
STATE OF MINNESOTA)
) ss.
COUNTY OF RAMSEY )
On this 25th day of August, 1994, before me, a Notary Public, within and for
said County, personally appeared Garry A. Pistoria, to me known to be the Group
Vice President of HARVEST STATES COOPERATIVES, the corporation named in the
foregoing instrument, and which executed the foregoing instrument, and he
acknowledged said instrument to be the free act and deed of said corporation.
[STAMP: NANCI L. LILJA
NOTARY PUBLIC - MINNESOTA
DAKOTA COUNTY
MY COMM. EXPIRES MAY 16, 1997]
/s/ Nanci L. Lilja
Notary Public
Exhibit A
Situated in the City of Huron, County of Erie and State of Ohio: Being a part of
the Original Lot Thirty-one (31), in Section One (1) of Huron Township, and
being designated as Parcel "A" as set forth on Exhibit "A", said exhibit
attached to the deed recorded in Volume 162, Page 148, Erie County Deed Records
and being the deed from the Wheeling and Lake Erie Railway Company to Eastern
States Cooperative Milling Corporation, and more particularly described as
follows: Beginning at a point on the monumented center line of the Huron Branch
of The Wheeling and Lake Erie Railway South ten degrees, forty-two minutes, six
seconds West (S10 degrees 42'06"W) one thousand ninety-three and sixty-four
hundredths (1093.64) feet from an iron rail monument in the center line of said
Huron Branch located at Standard Chainage Station six hundred fifty-seven plus
seventy-six and six tenths (675 + 76.6) thereof, which point is the place of
intersection of the northerly line of that portion of Van Rensselaer Street
sixty-six (66) feet wide as now located and constructed and said monumented
center line of said Huron Branch; thence North eighty-two degrees, thirty-three
minutes, fifty-four seconds West (N82 degrees 33'54"W) three hundred
ninety-eight (398) feet along the northerly line of said Van Rensselaer Street
to an iron pin, the point proper of beginning, from which point another iron pin
bears South fourteen degrees, thirty-six minutes, six second West (S14 degrees
36'06"W) twenty and fifty-one hundredths (20.51) feet; thence by the following
twelve (12) courses:
Course No. 1. North fourteen degrees, thirty-six minutes, six seconds East (N14
degrees 36'06"E) three hundred six and sixty-six hundredths (306.66) feet to an
iron pin:
Course No. 2. North fifty-five degrees, seventeen minutes, fifty-four seconds
West (N55 degrees 17'54"W) two hundred twelve and forty-one hundredths (212.41)
feet to an iron pin;
Course No. 3. North twenty-one degrees, sixteen minutes, twenty-four seconds
West (N21 degrees 16'24"W) ninety (90) feet to an iron pin;
Course No. 4. North sixty-eight degrees, forty-three minutes, thirty-six seconds
East (N68 degrees 43'36"E) one hundred fifty (150) feet to an iron pin;
Course No. 5. North twenty-one degrees, sixteen minutes, twenty-four seconds
West (N21 degrees 16'24"W) forty-five (45) feet to an iron pin;
Course No. 6. South sixty-eight degrees, forty-three minutes, thirty-six seconds
West (S68 degrees 43'36"W) sixty-six (66) feet to an iron pin which is two
hundred (200) feet westerly from the westerly face line, prolonged southerly, of
the concrete dock of The Wheeling and Lake Erie Railway Company on the easterly
side of Slip No. 2, said iron pin being located from point "0" (so-called, cut
in said concrete dock six and two-tenths (6.2) feet northerly from the southerly
end of said dock) by the following two courses: (a) South twenty-one degrees,
fifteen minutes, fifty-four seconds East (S21 degrees 15' 54" E) fifty-three and
fifty-two hundredths (53.52) feet along the Government base line "L"-"O"
prolonged southerly; and (b) South sixty-eight degrees, forty-three minutes,
thirty-six seconds West (S68 degrees 43'36"W) two hundred one and ninety-four
hundredths (201.94) feet;
Course No. 7. North twenty-one degrees, sixteen minutes, twenty-four seconds
West (N21 degrees 16'24"W) parallel with two hundred (200) feet westerly of said
westerly face line of concrete dock eight hundred thirty-two and seven
hundredths (832.07) feet;
Course No. 8. South seventy-two degrees, twenty minutes, six seconds West (S72
degrees 20'06"W) four hundred eighty-seven (487) feet, more or less to the low
water line upon the east bank of the Huron River;
Course No. 9. Southerly along said low water line of the Huron River upon the
east bank thereof approximately eleven hundred twenty (1120) feet to a point in
the northerly line of that portion of Van Rensselaer Street sixty (60) feet wide
as defined in Erie County Road Records, Volume 3, Pages 350 to 369 inclusive;
Course No. 10. South eighty-two degrees, thirty-three minutes, fifty-four
seconds East (S82 degrees 33'54"E) approximately four hundred ninety-seven (497)
feet along the northerly line of said portion of Van Rensselaer Street (60) feet
wide to the northeasterly corner of the parcel described in the above mentioned
road record;
Course No. 11. North twenty-five degrees, fifty-four minutes, fifty-four seconds
West (N25 degrees 54'54"W) three and fifty-eight hundredths (3.58) feet to the
northerly line of that portion of Van Rensselaer Street sixty-six (66) feet wide
hereinabove mentioned;
Course No. 12. South eighty-two degrees, thirty-three minutes, fifty-four
seconds East (S32 degrees 33'54"E) two hundred fifty-three and twelve hundredths
(253.12) feet along said northerly line of that portion of Van Renssalaer Street
sixty-six (66) feet wide to the point proper of beginning:
containing an area of twenty (20) acres, more or less, and Marked Exhibit "A" as
set forth in Deed Volume 162, Page 148, together with: all riparian rights in
the Huron River between the westerly ends of the 8th and 10th courses of the
description of said Parcel "A" incident or appurtenant to said parcel along the
9th course of the description thereof:
SECOND: Does hereby grant, remise, release and forever quit claim unto the said
Grantee, its successors and assigns, forever, the following described property,
rights and easements:
1. The property between low water line of the east bank of the Huron River and
the center thereof and between the 8th and 10th courses of the description of
Parcel "A" extended westerly to the center of said river;
2. The right and easement to use a partially submerged parcel of property
sixty-six (66) feet wide and eight hundred thirty-two and seven hundredths
(832.07) feet long lying immediately contiguous to the 6th and 7th courses of
the description of Parcel "A" above, said parcel being designated on said print
as Parcel "B" and outlined and attached to the deed recorded in Volume 162, Page
148, and the water thereon, solely for the purposes of navigating, loading,
unloading and mooring thereon, all types of watercraft, together with the rights
of ingress and egress for said watercraft to, from and between Parcel "A", and
Parcel "B" and the center of the Huron River over (a) Slip No. 2 (other than
Parcel "B"), said Slip No. 2 being shown on said print, and (b) the property
between Parcel "C" (hereinafter mentioned), Slip No. 2 and the center of the
Huron River, (said property being entirely submerged) at such time and to such
extent as will not unreasonably interfere with the use of (a) and (b) by the
former Grantor, The Wheeling and Lake Erie Railway Company and persons (other
than the Grantee) lawfully using the same; the center of said river between
Course No. 8 of the description of Parcel "A" extended westerly across said
river and the east line of Slip No. 2 extended northerly across said river shall
be understood to be approximately eighty-five (85) feet from the low water line
along the westerly bank of said river;
3. The right and easement to use a partially submerged parcel of property lying
northerly by Parcel "A" and bounded as follows: On the East by the westerly line
of Parcel "B" extended northerly; on the South by said Course No. 8 and the same
extended westerly to the center of the Huron River; on the West by the center of
the Huron River; and on the North by a line fifty (50) feet from and parallel
with said Course No. 8 and as so extended westerly, said parcel being designated
on said print as Parcel "C" as set forth on the print attached to the recorded
deed in Volume 162, Page 148, and the water thereon, solely for the purpose of
navigating, loading, unloading and mooring thereon, all types of watercraft,
together with the rights of ingress and egress for said watercraft to, from and
between Parcel "A", Parcel "C" and the center.
4. The right and easement to use said property between Parcel "C", Slip No. 2
and the center of the Huron River (without prejudice, however to any rights
hereinbefore granted, remised, released, and quitclaimed unto the Grantee, on,
over and across said property) and the water thereon solely for the purpose of
turning all types of watercraft thereon at such times and to such extent as will
not unreasonably interfere with the use thereof by the former Grantor, The
Wheeling and Lake Erie Railway Company and persons (other than the Grantee)
lawfully using the same.
5. The right and easement to dredge and excavate Parcel "B", Parcel "C", Slip
No. 2 (other than Parcel "B") and said property between Parcel "C", Slip No. 2
and the center of the Huron River and to maintain a depth of water thereon
sufficient to accommodate watercraft of the deepest draught now or hereafter
operating on the Great Lakes to whatever extent may be necessary to assure to
the Grantee the full exercise of the rights and easements granted, remised,
released and quitclaimed in subparagraphs 2, 3 and 4 of the Second paragraph of
this deed, without however, any obligation on its part to do so; subject
however, to the limitation that (with the exception of dredging or excavating in
Parcel "B" and Parcel "C") such dredging or excavating shall be done at such
times and to such extent as will not unreasonably interfere in any way with the
use of Slip No. 2 (other than Parcel "B") and said property between Parcel "C",
Slip No. 2 and the center of the Huron River by the former Grantor, The Wheeling
and Lake Erie Railway Company and persons (other than the Grantee) lawfully
using the same. Being the same premises as conveyed by CPC International Inc.,
formerly known as Corn Products Company to The Pillsbury Company by deed dated
March 21, 1972 and received for record March 31, 1972 at 11:19 A.M., and
recorded in Volume 415 of Deeds Page 450.
[attached graphic: Exhibit B Site Plan Drawing, Huron, Ohio Facility]
L E A S E
THIS AGREEMENT, made and entered into this 22nd day of November, 1960,
by and between the PORT OF KALAMA, a municipal corporation organized under the
laws of the State of Washington, hereinafter referred to as "The Port," and
NORTH PACIFIC GRAIN GROWERS, INC., an Oregon corporation, hereinafter referred
to as "The Company,"
W I T N E S S E T H :
The Port is the sole owner of and, in consideration of the premises and
of the rental to be paid by the Company, hereby leases to the Company the
following described property situated in the County of Cowlitz, State of
Washington, to-wit:
Beginning at a point that is North 292.42 ft. and West 1221.02 ft. from the
corner that is common to Sections 20-21-28-29, Township 6 North, Range 1 West,
W.M., said point being on the Northerly right of way line of the Toteff Road;
thence North 27 deg. 38 min. West 1460.00 ft.; thence North 34 deg. 36 min. West
934.63 ft.; thence North 89 deg. 26 min. West 425 ft. more or less to the bank
of the Columbia River; thence Southeasterly along said bank of the Columbia
River to a point that is South 82 deg. 22 min. West 580 ft. more or less from
the point of beginning; thence North 82 deg. 22 min. East 580 ft. more or less
to the point of beginning. Containing 30 acres more or less, situate in Cowlitz
County, Washington. ALSO second class tidelands abutting above described tract.
RESERVING to the Port, its successors and assigns, the right and privilege to
construct, maintain, repair, and use a public roadway over and across a strip of
land along the westerly side of the above premises adjacent to the Columbia
River and on top of the dike and extending from the North to the South boundary
of said premises and being of the width required by Cowlitz County for road
purposes. TOGETHER WITH that certain grain elevator, including the additions
thereto erected in accordance with the plans and specifications prepared by
Marshall, Barr & Associates, Port Engineers, approved by the Port and the
Company, the location of said grain elevator being more particularly shown on
the plat marked "Exhibit A," attached hereto and by reference made a part of
said agreement, together with all appurtenances thereunto belonging, including
all buildings, sheds, ramps, runways, marine leg, office buildings, shipping
galleries, dock and other structures used exclusively or primarily in connection
with the operation of said elevator, and all machinery, appliances and equipment
then located therein, hereinafter sometimes called the Grain Elevator.
IT IS AGREED BETWEEN THE PARTIES HERETO as follows:
1. Port to build: The Port agrees, with all due diligence, to proceed
with and complete the work of constructing storage facilities for the storing
and handling of approximately 3,000,000 bushels of grain on the parcel of land
enclosed in red lines on the blueprint attached, marked Exhibit A, and the
installation therein of the necessary machinery and equipment, all in accordance
with the plans and specifications therefor prepared by Marshall, Barr &
Associates, Port engineers, and approved by the parties hereto. The Port will
require the contractor or contractors constructing the grain elevator to post
performance bonds up to 100% of their respective contracts. This lease shall be
binding upon the parties hereto and effective from the date of execution
thereof.
2. Term of lease: The term of this lease shall commence on the
"completion date" and shall terminate, unless the same shall be sooner
terminated or extended pursuant to any provision hereof, thirty (30) years after
the "completion date," which shall be the date on which the storage facilities
to be erected and the equipment and machinery to be installed therein, as
required by and in accordance with the plans and specifications hereinabove in
Paragraph 1 referred to, are completed and the same shall be ready for use and
operation, which date shall be fixed by a certificate from the Port engineers to
the effect that the construction and installation thereof have been completed in
accordance with the plans and specifications thereof, and are ready for use and
operation.
3. Rental: The Company shall pay to the Port rental for the grain
elevator at the times and in the amounts set forth in the payment schedule in
Exhibit B which is attached hereto and made a part hereof, but the first payment
of rental shall not be later than November 10, 1962. Any balance in the "Port of
Kalama 1960 Construction Fund" transferred to the Bond Redemption Fund, shall be
credited against the first rental payments due under Schedule B.
IT IS AGREED that upon completion of the rental payments provided in
Exhibit B no further rental shall be due or required to be paid by the Company
during the original term of this lease.
While there are revenue bonds outstanding for which payment has not been
made to the County Treasurer of Cowlitz County, rental payments shall be made
regardless of the extent, nature or scope of the use of the grain elevator
during the term of the lease and regardless of any other happening or
contingency whatsoever, including any default on the part of the Port, except as
herein otherwise expressly provided in Sections 6 and 9, and such rental
payments shall continue to be paid as provided in Exhibit B until the rental has
been paid in full, except as otherwise expressly provided in Sections 6 and 9
hereof. Lessee's covenant to pay such rent shall be deemed for all purposes to
be an independent covenant, provided, however, that if it shall be determined by
a court of last resort having competent jurisdiction that the Company has been
unlawfully or wrongfully evicted from the possession of the premises by the
Port, or evicted by any other party having paramount title, the provisions of
this paragraph shall not be applicable.
The Port agrees, that upon the written request of the Company it will
consider the issue of refunding bonds, and if the Port in the exercise of its
sole discretion deems such action advisable it will take such action as may be
necessary to authorize and issue refunding revenue bonds for the purpose of
paying off the outstanding original revenue bonds, which were used to provide
the funds for the construction of the Grain Elevator (hereinafter sometimes
referred to as revenue bonds or outstanding revenue bonds), all in accordance
with the laws of the State of Washington authorizing the issuance of refunding
revenue bond issues. All expenses incurred by the Port shall be included as a
part of the principal sum of the refunding issue. If, at the time refunding
revenue bonds are issued and such issue involves different payments to service
the same than the payments set forth in Exhibit B, such different schedule of
payments shall constitute the rental which the Company agrees to pay for the use
of the Grain Elevator and shall at such time be substituted for the payments set
forth in Exhibit B attached hereto.
4. Maintenance: The Company further agrees that, as part of the
consideration for this lease, it will, at its own cost and expense, maintain
said elevator, its equipment and appurtenances, all buildings, docks, dolphins,
ramps, railroads, runways, roads, water and electric systems, and all other
structures used exclusively or primarily in connection with the operation of the
elevator, in good operating condition and repair; provided, however, that if the
Port or any tenants or licensee of the Port uses such roads, docks, ramps,
railroad, runways, water or electric system or systems, the Port, its tenants
and such licensee, as a condition of the use thereof, shall be required to pay
its fair share of the maintenance thereof proportionate to use. The Company
shall not be required to make any repairs or replacements made necessary by
reason of defect in workmanship or material in the original construction of the
Grain Elevator, and which is within the liability of the construction contract.
It is the intention of these parties that, while it is the obligation of the
Company to provide, at its expense, for all repair and maintenance of the Grain
Elevator, the Company shall have the benefit of any right of action for defects
in original construction which may accrue to the Port and, in the event of any
disagreement between these parties as to whether the Port in fact has a cause of
action against the contractor pursuant to the construction contract, then the
Port shall, upon the demand of the Company, assign such alleged cause of action
to the Company, or at the option of the Company make demand on the construction
company to make the necessary repairs, or maintain such cause of action for the
use and benefit of, and at the sole expense of the Company, and all attorneys'
fees and costs shall be paid by the Company, the Company to be in charge of such
litigation, if any.
5. Insurance: The Company agrees, from and after completion date until
the termination of this lease, to keep all of the property herein leased insured
against the following risks:
(1) Loss or damage by fire, explosion, tornado, and other casualties
usually insured against in the ordinary course of business, in an amount equal
to not less than 90% of the full insurable value thereof;
(2) Use and occupancy in amount of $250,000.00;
(3) Public liability in amount of $100,000.00 - $300,000.00;
(4) War risks to the extent such insurance is or becomes available
at cost deemed reasonable by Company.
All policies of insurance provided for in sub-paragraphs (1) and (4)
hereof shall provide that any loss thereunder shall be payable to Cowlitz County
Treasurer, Kelso, Washington, as Treasurer for the Port, for disposition as
provided herein and shall contain such other and additional clauses as may be
required under the terms of the loan made to the Port in connection with said
revenue bond issue. The Company agrees to deliver to Cowlitz County Treasurer
from time to time such policies of insurance, or certificates by the insurance
company issuing the same, evidencing that such insurance is in effect, and
renewal policies or certificates evidencing the renewal thereof shall be
delivered to such Treasurer by the Company not less than twenty (20) days prior
to the expiration of such policy or policies, so that such Treasurer may at all
times be satisfied that such insurance is in full force and effect. In case of
the failure of the Company, at any time, to procure and maintain such insurance,
or to renew the same, the Port may obtain and maintain such insurance, and shall
be entitled to such reimbursement of any premiums paid by it therefor from the
Company. It is understood that after said revenue bond issue shall have been
paid off the insurance policies shall provide for the loss thereunder to be
payable to the Port, and said policies shall be held by the Port. The policy of
insurance provided for in sub-paragraph (2) hereof shall be payable to the
Company, provided, however, that the Company shall, at all times, keep on file
and deposit with the Trustee a certificate of insurance certifying that such
insurance is in fact in full force and effect.
Should the Company exercise its option or options for an extension of
the term of this lease from and after the first thirty-five (35) years as
provided for hereinafter, the Port shall, during such extended term, provide, at
its expense, the insurance described in sub-paragraphs (1) and (4) hereof;
provided, however, that such obligation of the Port shall be limited to the
extent that the Port receives rental payments during such extended period of
this lease, and if such rental payments are not in fact received by the Port for
the reason that the Company is entitled to an abatement of rental because of the
repair or reconstruction of the facility or for an interest credit as provided
for in this lease, then it shall be the obligation of the Company to provide
such insurance at its expense.
6. Casualty: In case the entire grain elevator, or any part thereof, is
at any time damaged or destroyed by fire, explosion, tornado, earthquake, flood,
or other casualty, then the same shall be restored or rebuilt, or not restored,
or rebuilt in accordance with the following provisions:
(a) If the insurance proceeds payable as a result of loss or damage are
sufficient for the purpose, the Port shall, at its own expense, and with due
diligence, restore the said grain elevator to as good a condition as the same
was in immediately prior to such injury or damage, or the Port shall, in lieu of
such restoration, if requested in writing by the Company, rebuild a generally
similar facility with like or additional capacity.
(b) If the insurance proceeds are inadequate to cover the cost of
restoration, or the rebuilding of a generally similar facility of at least equal
capacity, then there shall be the following alternate elections:
(1) The Company, may, within 60 days from the date of such damage or
destruction, notify the Port of its election to pay a sum of money which,
together with all available insurance proceeds, if any, and the deposit for the
benefit of the bondholders, shall be sufficient to pay and discharge all
outstanding revenue bonds with interest accrued thereon to earliest date of
payment as provided in said bond issue, which payment shall be made within 90
days from the date of such damage or destruction, and upon the making of such
payment by the Company, this lease shall cease and terminate. In the event of
such election or the election provided in (b) (2) hereof the Port shall direct
the County Treasurer of Cowlitz County to use so much as may be necessary of
such insurance proceeds for redemption of such bonds.
(2) The Company may within 60 days from the date of such damage or
destruction, elect to continue to pay rental as provided in Paragraph 3 until
the total of such rental payments plus the deposit made for the benefit of the
holders of the revenue bonds, plus insurance proceeds, if any, is sufficient to
retire all outstanding bonds and interest thereon according to their terms. When
such bonds have been paid, then this lease shall terminate.
(3) If the Company does not make either of the elections provided
for in sub-paragraphs (1) or (2) hereof within 60 days of such damage or
destruction, which election shall be made by giving notice as provided in
Paragraph 14 hereof, then the Port shall, with due diligence, and at its own
expense to the extent that insurance proceeds are available for such purpose,
repair or restore said grain elevator so far as possible to the same condition
as the same was in prior to such damage or destruction, or the Port shall, in
lieu of such restoration or repair, and upon written request of the Company,
rebuild or construct a workable facility for handling grain with such capacity
as may be agreed upon by both parties.
If the parties agree that there shall be expended on the cost of
restoration or for rebuilding more than the insurance proceeds recovered, the
Company shall then provide the necessary funds for such restoration or
rebuilding, in which event it shall be reimbursed therefor as provided in
sub-paragraph (c) (1), or by mutual agreement and subject to the terms of the
original revenue bond issue, if there be bonds outstanding, the parties may
agree to the Port refunding such issue, or if there be no bonds outstanding,
the Port may provide for a new bond issue, and thus provide the necessary funds
for such restoration or rebuilding, and in such case, the rental payments shall
be made by the Company to service the refunding bond issue as provided in the
last sub-paragraph of Paragraph 3, hereof, or to service a new bond issue as the
case may be.
(c) If the insurance proceeds exceed the cost of restoration or
rebuilding, the excess shall be credited on rental which is payable hereunder in
accordance with Paragraph 3, and if such rental has been paid in full, such
excess shall be paid to the Company up to the fair market value of the unexpired
portion of the 5 year term following the original 30 year term of this lease.
(1) If the insurance proceeds are insufficient to pay the cost of
such restoration or rebuilding, or if there are no insurance proceeds, and the
Company advances the funds necessary therefor, it shall be entitled to a credit
on future rental for the period after the first 35 years of the term of this
lease, equal to the difference between the cost of restoration or rebuilding,
and the insurance proceeds, if any, plus interest at the rate of 4% per annum on
the amount of such difference from the date of payment thereof to completion of
reimbursement.
(2) In the event that it is determined not to restore or rebuild the
grain elevator or a generally similar structure, then the Port shall direct the
Cowlitz County Treasurer to use the insurance proceeds to pay and retire the
outstanding revenue bonds, if any, in accordance with their terms and the
excess, if any, of such insurance proceeds over the amount necessary to retire
said outstanding revenue bonds or all of such proceeds if there be no such
outstanding revenue bonds, shall be paid to the Company up to an amount equal to
the fair market value of the unexpired 5 year term following the original 30
year term of this lease and the balance, if any, of such insurance proceeds
shall be retained by the Port, and upon such payment this lease shall terminate.
(3) The fair market value of the unexpired part of said five (5)
year term shall be based upon an annual net rental equal to five (5%) per cent
of the value of the land covered by this lease as of the date thereof plus the
value of the improvements thereon at cost depreciated at the rate of two per
cent (2%) per year to date of casualty, and the value of the dollar shall be
adjusted to the value of the dollar as of the beginning of the calendar year in
which the casualty took place as measured by the United States Bureau of Labor
Index, or if there be no such index, then as measured by acceptable standards.
(d) If the operation of the grain elevator is substantially interfered
with during any period of repair or restoration by reason of any damage or
injury, whether such repair or restoration be by the Port or the Company, the
Company shall continue to pay the rental falling due during such period;
however, in such case, the term of this lease shall be further extended by a
period equal to the period during which the operation of the grain elevator is
so substantially interfered with. During such extended period, the Company shall
not be required to pay any rental. Such extension of the lease term due to
substantial interference with the operation of the elevator plant shall be in
addition to the extension provided for in case of advances by the Company and
also in addition to any and all other extensions under or pursuant to any
extension contained in this lease. Provided, however, that should the revenue
bonds mentioned herein be paid and discharged in full prior to such period of
substantial interference, then the rental shall be abated during such period of
substantial interference and the term hereof shall be extended for a period of
time equal in duration to such period of substantial interference and the
Company shall pay during such extended period the rental which was abated during
the period of substantial interference.
(e) In the event the Port fails to commence restoration as required by
sub-paragraph (2) within 60 days, the Company may proceed to restore or repair
said grain elevator, or rebuild a grain handling facility, and in such event,
shall be entitled to receive and the Cowlitz County Treasurer shall pay to the
Company all insurance proceeds which are collected as a result of damage or
destruction of all or part of the grain elevator, for use in such restoration,
repair or rebuilding.
(f) If the Company gives notice of the exercise of any of the options
authorized in this section seeking to terminate the lease and if there be
insufficient money to pay interest, premiums, if any, and principal of all the
revenue bonds outstanding to the date when they may be first redeemed, the lease
shall remain in effect and the Company shall continue to pay rental until such
rental, plus other funds in the hands of the treasurer are sufficient to make up
such deficiency.
7. Maximum term of lease: It is expressly understood and agreed that in
no event shall the term of this lease be extended, under or pursuant to any
provision of this lease and irrespective as to the number of such extensions or
the number of provisions herein granting the same, to a date more than fifty
(50) years from the commencement of the term of the lease, provided that, if
there is a change in state law allowing a Port to make or extend a lease for
more than fifty (50) years, upon such law becoming effective, the maximum term
shall be as provided in such law.
8. Bond: The Port shall accept and the Company will furnish a bond
within thirty days after the execution of this lease, but not later than the
time the revenue bonds are delivered to the purchasers thereof, conditioned to
perform the terms of the lease for five years from the commencement of the term
hereof, and another like bond shall be delivered to the Port by the Company
within two years and not less than one year prior to the expiration of the
period covered by the existing bond, covering an additional five years and so on
until the end of the term (unless the remainder of the unexpired term is less
than five years, and in such case for the full remainder) so that there will
always be in force a bond securing the performance of the lease. The penalty in
the bonds to secure performance of the lease shall be the rental for one-half of
the period covered by each such bond. No bond shall be construed to secure the
furnishing of any other bond. The Company shall furnish the surety sufficient
collateral for such bond and for all subsequent bonds to assure that the surety
will issue subsequent lease performance bonds as required herein. The Company
shall furnish the Port evidence of such collateral having been deposited with
the surety. Collateral shall remain on deposit until the issuance of the last
bond required under the provisions of this lease.
9. Provisions in event of seizure, eminent domain, et al.:
(a) In the event that the leased property shall be seized, confiscated,
or the evacuation thereof required by any civil or military authority of the
United States, or if such property shall be seized or captured by any foreign
power, or if the same be taken under the right of eminent domain, the rights of
the parties shall be as follows:
(1) If there are any revenue bonds outstanding for which payment has
not been provided, this lease shall continue in effect and rental shall be paid
as provided in Exhibit B until such bonds have been paid in full, provided that
any compensation received by or paid to the Port by any government, federal,
state or local, or any agency or subdivision thereof, or by any person, firm or
corporation for or on account of any such seizure, confiscation, evacuation or
for any taking by eminent domain, shall be applied by the Port to the payment of
any such outstanding revenue bonds, and if such compensation exceeds the amount
so required, such excess shall be paid by the Port to the Company to the extent
of the fair market value of the rental for the unexpired 5 year term following
the original 30 year term of this lease, as such fair market value is defined in
Paragraph 6 of this lease. Upon payment of the balance of the outstanding
revenue bonds, according to the terms of their issue, the payment to the Company
of any prepaid rental and the fair market value of such 5 year term (only to the
extent of funds available from such award), this lease and all future rights and
obligations thereunder shall immediately cease and terminate except the right of
reinstatement set forth below.
(2) In the event payment has been provided for all revenue bonds
outstanding, this lease and all future rights and obligations thereunder shall
immediately cease and terminate, except the right of reinstatement set forth
below, and except for the obligation of the Port to make payment to the Company
as herein provided. If the Company shall have paid any rental for any period
beyond such date of termination, the Port agrees to repay promptly to the
Company the amount of such prepaid rental. Any compensation as described in
sub-paragraph (1) above shall be the property of the Port provided that the Port
shall pay the Company from the sum recovered an amount equal to the fair market
value of the rental for the unexpired 5 year term following the original 30 year
term of this lease, as such fair market value is defined in Paragraph 6 of this
lease.
(b) The Port will not agree to accept any award of compensation as the
term is used in sub-paragraph (a) (1) above in an amount less than the amount it
is obligated to pay the Company for the unexpired 5 year term heretofore
referred to, prepaid rental, if any, and in the event revenue bonds are
outstanding, the amount of such revenue bonds outstanding, without the consent
in writing of the Company, and in the event litigation is required to obtain
such compensation, the Company shall have the option to participate in such
litigation at its own expense, such participation to be in the name of the Port
if the Company so requests.
(c) It is further agreed, however, that upon the return of such property
to the Port in a usable condition, the Company shall have the right, at its
option, to reinstate the lease for a period of time equal to the unexpired term
of the lease at the time the leased property was seized, confiscated, evacuated,
or taken by right of eminent domain, and if the Company has not received the
fair market value of the 5 year term provided by Section 13 (a), then plus the
option for such 5 year term and the right to options provided in 13 (b) or (c),
subject to the terms and conditions as to rental or otherwise herein contained
for such balance of the term, and for such optional periods.
10. Provision for payment in event insurance rate is increased because
of erection of building by Port: The Port agrees that if, by reason of the
erection of any building or improvement by the Port or any other tenant of the
Port, or the use thereof, on any part of its property in proximity to the
elevator plant, the insurance rate on the property herein leased, or the
contents thereof, is increased, it will pay to the Company the amount of any
additional premium caused by such increase in rate.
11. Additional installations: It is further understood and agreed that
the Company shall have the right, at its own expense, and at such time as it may
determine, to build one or more car dumps at or near the grain elevator, and in
such case, it may at the termination of this lease remove the machinery thereof,
provided it shall, if requested by the Port, restore the premises to
substantially the condition in which they were prior thereto. The Company may
also, at its own expense, at any time or from time to time, build additional
storage space adjoining the grain elevator of such type and capacity as it may
desire. The Company may also, at any time and from time to time, at its own
expense, make or construct such other additions to or improvements in and about
the grain elevator and its appurtenances, whether structural or otherwise, and
install such additional machinery, equipment, and facilities therein as it may
consider proper or advisable in and about the use and operation of said plant;
provided, however, that nothing shall be done by the Company in any way
affecting any structural part or portion of the improvements specifically
provided to be made by the Port in paragraph 1 hereof without the written
consent of the Port. It is understood that any structural improvements and
additions shall become the property of the Port and shall not be removed at the
termination of this lease.
The company shall have the right to drill such well or wells upon the
premises under lease, as it may require to supply water for its use at any
time and from time to time during the period of this lease or any extension
thereof, and may install such pumping or other equipment as it may deem
advisable. The Company shall obtain permit for drilling such well or wells from
the appropriate State authority for the protection of the parties to this lease,
and at the end of the term and all extensions thereof shall assign its interest
in such permit to the Port.
It is further understood that the Company may, at the expiration of this
lease or any extension or renewal hereof remove from said premises any fixtures
and equipment, which were not installed as replacement fixtures and equipment
for original fixtures and equipment, installed by the Company at its expense,
and any structural damage to the grain elevator resulting from or connected with
such removal shall be repaired by the Company at its expense. Provided, however,
that the Port shall have the option, at its election, to purchase such fixtures
and equipment at the fair market value thereof, less the cost of any structural
repair which would be required if the same were removed from the premises by the
Company. The Company shall notify the Port, in writing, of the installation of
any such fixtures and equipment and the purchase price thereof, all within
thirty (30) days of the date of installation thereof. The Company may, but shall
not be required to maintain insurance on such items of machinery or equipment,
other than replacement of original installation by the Port, either by separate
policies or by including the same in policies obtained pursuant to Paragraph 5
hereof. As to such items of machinery and equipment, loss under such policies
shall be made payable exclusively to the Company, and the Company shall be
entitled to collect and retain the proceeds thereof.
12. Notice of termination: It is further agreed that the Port will not
terminate this lease nor the Company's right to possession of the demised
property, by reason of any default hereunder, unless written notice of any such
default shall have been given by the Port to the Company, and such default shall
have continued for a period of not less than thirty (30) days after receipt of
such notice of default by the Company; provided, however, that this lease may
not be terminated until the outstanding revenue bonds have been redeemed and
retired, or adequate provision made for the redemption and retirement thereof.
13. Provisions for optional extensions: It is further expressly
understood and agreed by and between the parties hereto and as a special
inducement to the Company in entering into this lease that the Company shall
have and it is hereby granted the right and option to extend the terms of this
lease as follows:
(a) For a period of five (5) years at an annual rental of One Hundred
Dollars ($100.00) per year. This option is given in consideration of the Company
having spent substantial sums in site location and preliminary work and in
consideration of the Company having made and provided for the deposit of
$380,000.00 for security for the payment of said revenue bonds.
(b) For three (3) successive five (5) year terms, the first of which
shall commence at the expiration of the five (5) year term provided for in
sub-paragraph (a) hereof; provided that, if, in accordance with Paragraph 6 (d)
of this lease, the Company is entitled to any extension of term because of loss
of use due to damage or destruction, and repair or restoration during such
period, the first term of extension under (b) shall begin at the end of such
extension. Each such five (5) year period shall be subject to the requirements
for notice as hereinafter set forth. The annual rental for the extensions
provided for in this paragraph shall be a sum equal to 5% of the fair market
value of the grain elevator as established at a date thirty-five (35) years from
the date hereof in accordance with the formula for establishing fair market
value as set forth in Paragraph 6 (c) (3) hereof, or
(c) For a term of fifteen (15) years commencing at the expiration of the
extension provided for in sub-paragraph (a) hereof and the annual rental during
such fifteen (15) year period shall be computed as set forth in sub-paragraph
(b) hereof.
The Company, if it elects to exercise the options granted herein, shall
notify the Port, in writing, of its intention so to do at least thirty (30) days
prior to the expiration of the then existing term. Such notice shall be given in
the form and manner provided in Paragraph 14 hereof.
The Company's right to exercise any of the options provided for in this
section shall be conditioned upon the full and faithful performance of all the
terms and conditions of the lease including the full payment of all rentals due
and payable hereunder, and which may have accrued prior to and at the time of
the exercise of either of such options by the Company.
It is understood and agreed by and between the Port and the Company that
the estimated life of the grain elevator is in excess of fifty (50) years and
that the grain elevator has an estimated useful life in excess of the term of
this lease and the extensions hereinbefore provided for, returning to the Port
at the conclusion of this lease a valuable asset. This agreement and
determination is based upon the appraisal of engineering experts that the life
of the facilities to be constructed with monies received from the sale of
revenue bonds by the Port is in excess of fifty (50) years.
14. Notices: In every case whereunder any of the provisions of this
lease, or in the opinion of either the Port or the Company or otherwise, it
shall or may become necessary or desirable to make, give or serve any
declaration, demand, or notice of any kind or character for any purpose
whatsoever, it shall be sufficient to deliver either (1) the same or a copy
thereof, in person, to the President or Secretary of the Port Commission of the
Port of Kalama, if given by the Company, or to the President or Vice-President
of the Company, if given by the Port, or (2) mail the same or a copy thereof, by
registered mail, postage prepaid, addressed to the other party, to such address
as may have theretofore been designated in writing by such party, by notice
served in the manner herein provided, and until such other address shall have
been so designated the address of the Port for the purpose of mailing such
notices shall be: Port of Kalama, Kalama, Washington, and the address of the
Company shall be: North Pacific Grain Growers, Inc., Lewis Building, Portland 4,
Oregon.
All such declarations, demands, or notices are required to be in
writing. Service of any such written declaration, demand, or notice in either of
the rules above provided, shall be sufficient and effectual for all purposes and
no other or further declaration, demand, or notice or method or manner of
giving, service, or delivering the same shall be required.
15. Elevator to be licensed for public grain storage: In order to serve
the general needs and purposes of the Port, the Company covenants and agrees to
operate the grain elevator at all times during the term of this lease as a
public grain terminal warehouse under the provisions of Chapter 22.08, Revised
Code of Washington, and under the provisions of any and all other statutes of
the State of Washington relating to public warehouses which may be applicable to
such facility.
16. Right to use of spur tracks, dock, and moorage facilities: The Port
reserves the right to use the spur railroad tracks to be constructed on the
leased premises and to construct a switch therein for the purpose of furnishing
railroad service to other property of the Port; provided, however, that the use
of such spur shall be conducted in a manner which will not interfere with the
use thereof by the Company and with all spotting of cars to be done off the
switch, the switch and spur to be kept clear of standing cars. The Port shall be
obligated to bear its proportionate share of the maintenance of such railroad
spur tracks based on the relative number of cars handled by it as compared to
that handled by the Company. In order to serve the general needs and purposes of
the Port, it reserves the right to use any portion of the dock and moorage
facilities which at that time the Company may not be using in connection with
its operations; provided, however, that no such use by the Port shall be made at
a time or in a manner as to interfere with the prior rights of the Company
hereby granted, and to the extent of such use the Port will pay its fair share
of the maintenance of said dock and moorage facilities.
17. Easements: The Port hereby grants to the Company easements over
other Port property to continue contemporaneously with the term of this lease to
occupy and use such rights of way as are necessary or convenient for the
construction, maintenance, and operation of the grain elevator, and of pole
lines or underground lines for the transmission of electric current or pipelines
for water, oil, or gas across all of the property of the Port adjacent to the
grain elevator, at such convenient locations as may be mutually agreed upon.
Such easements shall be used in a manner so as not to interfere with the use or
development of such other Port property, and the Port reserves the right, at its
expense, to relocate the utilities and transmission lines constructed over, upon
and through such other property of the Port. The Port reserves the right to
construct or have constructed, use, operate, maintain, repair, and replace pole
lines for the transmission of electric current or underground lines for water,
oil, or gas, over, across, and through the property leased to the Company; that
the same shall be used or done in a manner so as not to interfere with the use
of said premises by the Company, and the location of the same shall be subject
to agreement by the Company.
18. Dock and switching charges: It is further understood and agreed that
the Port may, at its option, elect to levy and collect reasonable ship's service
charge for the mooring of any and all vessels at the dock to be constructed in
connection with the grain elevator and may elect to levy and collect other and
further reasonable charges for the mooring, loading, and unloading of any and
all vessels but not in excess of such charges as may be levied and collected by
other Ports on the Columbia River having elevator plants and dock facilities,
but the Port will not make or allow any use of such dock if it in any manner
will interfere with Company's use thereof. Provided, however, that no such
charges, in excess of actual expenses of the Port, shall be made for vessels
owned, chartered, or leased by the Company. The Port may, at its option, elect
to levy and collect reasonable charges from the railroad for railroad cars and
engines crossing over and being upon any railroad spur or spurs constructed by
and/or owned by the Port.
19. Port to construct roads: The Port shall, at no expense to the
Company, and not as an expense in the construction of the grain elevator,
construct or cause to be constructed a road as shown on the attached Exhibit A
as approved by the Port and the Company, as marked therein in red and designated
"Road to be constructed by Port." When requested by the Company, the said road
shall be brought to grade as provided in the Marshall, Barr & Associates
specifications referred to on Page 2 of this lease, and as soon as reasonably
convenient after request by the Company, ballast shall be installed thereon.
Upon completion of the grain elevator, or at an earlier time if requested by the
Company, asphalt type paving to a width of 20 feet shall be installed on said
road. The said road and paving shall be constructed and built in accordance with
the existing specifications of Cowlitz County, State of Washington, for the
building of county roads, which specifications are by this reference
incorporated herein as if set forth in full herein.
20. County Treasurer: The Cowlitz County Treasurer, as Treasurer for the
Port, shall receive all payments of rental made hereunder and all rental bonds,
insurance policies and certificates of renewal thereof required to be furnished
by the Company under the terms of this lease, and such payments of rental and
delivery of such documents shall constitute payment and delivery to the Port.
21. Reserve Account for benefit of bondholders:
(a) The Company has made advances in payment of fees to Marshall, Barr &
Associates for the preparation of plans and specifications, on account of the
contract for piling and of other sums for the construction of improvements
preliminary to the main construction contract of the grain elevator on which
advances the Port has agreed to pay interest from the date of each such advance
to the date of repayment at the rate of 4% per annum. It has been agreed between
the parties that such advances shall be deducted from the proceeds of the sale
of revenue bonds to be sold by the Port, and as and when such advances become
payable $380,000.00 thereof, representing an amount equal to approximately one
year's rental under the lease as shown in Schedule B, shall be deposited with
the County Treasurer of Cowlitz County as Treasurer of the Port in a Reserve
Account, sometimes herein referred to as a deposit fund, for the benefit of the
bondholders. Any excess of advances as hereinabove mentioned, plus interest,
which may be due to the Company from the Port over the amount to be deposited in
the Reserve Account, shall be paid to the Company.
The Port, at the written request of the Company, will cause the County
Treasurer to purchase immediately such certificates, notes, bonds or other
direct obligations of the United States of America, or any agency or
instrumentality thereof, herein referred to as securities, and wherever
practical such securities shall be registered in the name of the Port. For the
purpose of the initial deposit such securities shall be valued at the purchase
price thereof.
The Reserve Account herein created is to provide additional security for
the holders of the revenue bonds and shall be used and maintained as provided in
this section of the lease.
(b) The Company, may at any time, while the Reserve Account is in
existence, request the Port to invest cash thereof in any of the specific
securities described in (a) hereof, and may instruct the Port to sell securities
at any time converting such securities to cash or to purchase other securities.
At quarterly intervals the Port will give to the Company an itemized list of the
assets making up the Reserve Account, and the receipts and disbursements thereof
since the last report to the Company. The Company may request the Port to pay
all interest received on the Reserve Account or any securities thereof to the
Company at the time the Company makes payment of each installment of rental, and
such payment shall be made if the Company is not in declared default in payment
of rental.
(c) The Port agrees to carry out promptly the instructions of the
Company to buy or sell securities, but the Port shall not be liable for any
market decline in securities, unless there is a delay of more than ten days from
the date of receipt of written order to purchase or sell before such order is
placed. All instructions herein provided shall be in writing.
(d) In the event the Company fails to make any payment of rental as
provided in Exhibit B and prior to payment under the lease performance bond, the
Port may advance from the Reserve Account, and may sell such securities as may
be necessary in order to make such payment, such amount as may be necessary to
meet the interest payment, or interest and principal payment, according to the
terms of said revenue bonds, and shall immediately give notice in writing to the
Company of such payment. If and when the Company makes the payment of rental
which was past due, the Port shall repay to the Reserve Account so much thereof
as had been deducted therefrom for payment to the bondholders. In event of
default in rental payments by the Company, advances may be made from the reserve
account only in case of delay in payment under the lease performance bond, it
being the intention of the parties that, in the event of such default, rental
payments shall be made first from the proceeds of the lease performance bond and
only upon the exhaustion thereof from the Reserve Account.
(e) If the Company is in default of payment of rental for more than 20
days after written notice of such default is given to the Company, the Port
shall call on the surety of the statutory bond provided for in Paragraph 8 of
this lease to pay so much of the rental as is in default after applying to such
rental all interest received on the Reserve Account or on securities thereof
since the last payment therefrom to the Company. Payment by the surety will be
deposited by the Port in the Reserve Account to the extent that any advance has
been made therefrom to the bondholders.
(f) If the Company exercises the option provided in Paragraph 6 (b) (1),
and after making provision for the payment of the balance of the outstanding
revenue bonds according to the terms thereof, any part of the Reserve Account
which has not been used for such purpose, shall be paid promptly by the Port to
the Company, and if part of such Reserve Account is in the form of securities,
such securities shall be transferred to the Company, or at its request, shall be
sold and the proceeds paid to the Company. The Company shall make written demand
on the Port for such payment, transfer or sale of securities as the case may be.
(g) Wherever provision is made in this lease for payment of all
outstanding revenue bonds, the Reserve Account shall be used for that purpose
provided there are sufficient other funds, which, together with the amount
therein is sufficient to retire all bonds according to their terms.
(h) If, after payment of all outstanding revenue bonds, either at their
maturity or through refunding operations prior to maturity or otherwise, there
remains any balance in the Reserve Account, such balance shall be paid and
transferred to the Company.
(i) In the event the surety on said statutory bond has made any payment
to the Port, if there be any balance of said Reserve Account after the revenue
bonds have been paid in full, or provision is made for such payment, and if said
surety has not been reimbursed by the Company, or does not hold adequate
collateral to cover its payment, said surety shall be subrogated to the rights
of the Company in Reserve Account up to the extent of any unreimbursed payment
which it has made.
22. Financing of additional improvements by Port: If any additional
improvements or facilities, other than as provided in Paragraph 1 hereof, are to
be constructed by the Port for the Company upon land covered by this lease, and
are to be financed by revenue bonds to be issued by the Port, it is agreed that
such land may then be withdrawn from this lease, but without changing the rental
payments set forth in Exhibit B, and provided further that such withdrawal would
not affect substantially the improvements and facilities provided for in
Paragraph 1 hereof. Such withdrawn land would then be the subject of a new lease
to be entered into between the parties hereto.
23. Right to assign or sub-let: This lease may be assigned or the
premises herein described sub-let by the Company, but such assignment or
sub-letting shall not relieve the Company from any obligations hereunder.
24. Credit for advances not otherwise provided for: Should the Company
make any advances required by this lease and for which provision has not been
made elsewhere in this lease, it shall be entitled to interest thereon at the
rate of 4% per annum from date of advance to completion of reimbursement, such
reimbursement to be in the form of a credit on rental for the period after the
first 35 years of the term of this lease, to the extent of such advances plus
interest thereon as above provided.
25. Payment from Construction Fund on approval by the Company: No
payment shall be made from the Construction Fund which shall be set up from the
Revenue Bond proceeds, without written approval of the Company, which approval
shall not be unreasonably withheld.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their duly authorized officers, and their respective corporate seals
to be hereto affixed this 22nd day of November, 1960.
PORT OF KALAMA, a municipal corporation
By: /s/ Otto E. Engelmann President
(SEAL) By: /s/ V. E. Stevens Secretary
NORTH PACIFIC GRAIN GROWERS, INC.,
an Oregon corporation
By: /s/ Robert H. Tank President
(SEAL) By: /s/ W. S. Richards Secretary
SEMI-ANNUAL LEASE RENTAL PAYMENTS
Date of Date of
Payment Amount Payment Amount
------- ------ ------- ------
November 10, 1962 $241,400.00 May 10, 1977 $ 90,543.75
May 10, 1963 134,300.00 November 10, 1977 290,543.75
November 10, 1963 244,300.00 May 10, 1978 85,918.75
May 10, 1964 132,100.00 November 10, 1978 295,918.75
November 10, 1964 247,100.00 May 10, 1979 81,062.50
May 10, 1965 129,800.00 November 10, 1979 301,062.50
November 10, 1965 249,800.00 May 10, 1980 75,975.00
May 10, 1966 127,400.00 November 10, 1980 305,975.00
November 10, 1966 252,400.00 May 10, 1981 70,656.25
May 10, 1967 124,900.00 November 10, 1981 309,656.25
November 10, 1967 254,900.00 May 10, 1982 64,980.00
May 10, 1968 122,300.00 November 10, 1982 314,980.00
November 10, 1968 257,300.00 May 10, 1983 59,042.50
May 10, 1969 119,600.00 November 10, 1983 322,042.50
November 10, 1969 259,600.00 May 10, 1984 52,796.25
May 10, 1970 116,625.00 November 10, 1984 328,796.25
November 10, 1970 266,625.00 May 10, 1985 46,241.25
May 10, 1971 113,437.50 November 10, 1985 334,241.25
November 10, 1971 268,437.50 May 10, 1986 39,401.25
May 10, 1972 110,143.75 November 10, 1986 341,401.25
November 10, 1972 270,143.75 May 10, 1987 32,228.75
May 10, 1973 106,743.75 November 10, 1987 348,228.75
November 10, 1973 276,743.75 May 10, 1988 24,723.75
May 10, 1974 102,918.75 November 10, 1988 354,723.75
November 10, 1974 277,918.75 May 10, 1989 16,886.25
May 10, 1975 98,981.25 November 10, 1989 363,886.25
November 10, 1975 283,981.25 May 10, 1990 8,645.00
May 10, 1976 94,818.75 November 10, 1990 372,645.00
November 10, 1976 284,818.75
EXHIBIT "B"
All moneys remaining in the Construction Fund after payment of all costs
of constructing the improvements provided for in the lease, and after payment of
all costs incidental thereto, shall be transferred to the Bond Redemption Fund
created by Resolution Number 503 of the Commission of the Port of Kalama, and
shall be applied in payment of the first rentals due as set in the above
schedule.
AGREEMENT
THIS AGREEMENT, made and entered into this 15th day of August, 1979, by
and between the PORT OF KALAMA, a municipal corporation organized under the laws
of the state of Washington, hereinafter referred to as "Port", and NORTH PACIFIC
GRAIN GROWERS, INC., an Oregon corporation, hereinafter referred to as
"Company".
WHEREAS the parties hereto entered into a lease dated November 22, 1960,
(hereinafter LEASE") for a term of 30 years from February 6, 1963, plus options,
and thereafter by agreement dated August 11, 1976, and by letter dated July 5,
1966, modified lease. Copies of said modification are attached hereto as
Exhibits A and B respectively and are by this reference incorporated herein.
WHEREAS Company has made several modifications and improvements to the
grain elevator constructed pursuant to LEASE, and
WHEREAS Company is considering the construction and installation of
further modifications and expansions of the grain elevators and associated
equipment which substantially increase the value of the leased property, improve
its operating efficiency, increase its potential to store and move grain and
thereby attract cargo ships to the Port of Kalama which will increase Port's
revenues.
NOW, THEREFORE, in consideration of the premises and to induce Company
to attempt to arrange for such further modifications and expansions and thereby
improve opportunities for future increased revenue to Port, it is agreed as
follows:
1. PREVIOUS MODIFICATIONS RESCINDED: The agreement dated August 11,
1965, and the letter dated July 5, 1966, are hereby rescinded.
2. ADDITIONAL OPTIONS: In addition to the options granted to Company
under paragraph 13 of LEASE, Company shall have and it is hereby granted the
right and option to lease the Property, as hereby modified or expanded, covered
by LEASE for one or more of the three succeeding five-year terms following the
last of the options exercised by Company under paragraph 13 of LEASE. The three
option periods in this paragraph 2 cover the period from February 6, 2013, to
February 5, 2028.
3. ANNUAL RENTAL & FIVE YEAR ADJUSTMENTS:
a. Annual rental for the option extensions provided in paragraph
13(b) of the LEASE and for the additional terms provided in paragraph 2 above
shall be the sum of the following:
(1) An amount which is computed by adjusting $78,500 (1963
dollars) to the then current value of the dollar as measured by the United
States Bureau of Consumer Price Index (or, if there be no such index, then as
measured by acceptable standards), as of the beginning of the calendar year in
which the respective optional extensions provided in paragraph 13 (b) of the
LEASE and paragraph 2 hereof. ($78,540.00 results from a maximum of 70%
depreciation of the initial construction cost of the building which was
$5,250,000.00. This product was then multiplied by 5%.), PLUS
(2) 5% of the value of the real property being leased hereunder.
This market value shall be determined by agreement between the parties and in
the event they are unable to agree each shall appoint an appraiser who shall
agree upon the value. In the event the appraisers unable to agree they shall
appoint a third appraiser and the decision of the three appraisers shall be
binding.
b. After the first option period provided for in paragraph 13 (b) and
for each option period thereafter, the rent shall be adjusted as follows:
(1) The amount above-described in paragraph 3.a.(1) shall be
adjusted to the value of the dollar as measured by the United States Bureau of
Labor Consumer Price Index (or if there be no such index, then measured by
acceptable standards), PLUS
(2) The real property rental which shall be adjusted and computed
pursuant to the procedure above described in paragraph 3.a.(2).
4. RESCINDING OF 13.(c) LEASE: Paragraph 13.(c) of the November 22,
1960, lease is hereby rescinded by the parties.
5. OTHER TERMS & CONDITIONS: Except as modified by this agreement, LEASE
is incorporated herein and its provisions shall apply as if fully set forth.
6. EXECUTION OF DOCUMENTS: Port and Company agree to execute such
documents as reasonably necessary to carry out the intent of this agreement
including amendments prepared by the Company to this agreement or a new lease so
long as such amendments or new lease do not materially change the parties rights
and liabilities under LEASE and this agreement. In the event that any provision
of this agreement is in violation of the laws of the State of Washington or is
deemed to constitute an act of default of the terms of the revenue bonds
referred to in the LEASE and company is unable or unwilling to take such action
as necessary to remedy such a violation or default the Port may, after 30 days
written notice during which such action is not taken, declare this agreement, or
such portion of this agreement as is necessary to remedy such a violation or
default, as rescinded.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their duly authorized officers this 15th day of August, 1979.
PORT OF KALAMA
a municipal corporation
By: /s/ Louis L. Rasmussen
President
By: /s/ Calvin L. Cox
Secretary
NORTH PACIFIC GRAIN GROWERS, INC.,
an Oregon corporation
By: /s/ Ronald Watkins
President
By: /s/ R. K. Bauer
Secretary
STATE OF WASHINGTON )
) ss.
COUNTY OF COWLITZ )
On this 22nd day of August, 1979, before me personally appeared LOUIS
RASMUSSEN and CALVIN COX, to me known to be the President and Secretary,
respectively, of the Port Commission of the Port of Kalama, a municipal
corporation, and the corporation that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation, for the uses and purposes therein mentioned,
and on oath stated that they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand on the date first
hereinabove written.
/s/ Linda M. Durgeloh
Notary Public in and for the State
of Washington, residing at Kalama
STATE OF OREGON )
) ss.
COUNTY OF MULTNOMAH )
On this 17th day of August, 1979, before me personally appeared RONALD
WATKINS and R. K. BAUER, to me known to be the President and Secretary,
respectively, of the corporation that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation, for the uses and purposes therein mentioned,
and on oath stated that they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand on the date first
hereinabove written.
/s/ Clinton M. Helvey
Notary Public in and for the State of
Oregon, Residing at Milwaukie, Oregon
My Commission Expires Oct. 5, 1979
AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _______, 1985,
by and between the PORT OF KALAMA, a municipal corporation organized under the
laws of the State of Washington ("Port"), and NORTH PACIFIC GRAIN GROWERS, INC.,
a Oregon corporation ("Company").
WHEREAS the parties hereto entered into a lease dated November 22, 1960,
recorded under Auditor's File No. 526606, ("Lease") for a term of 30 years from
February 6, 1963, plus options, and said agreement was modified by an agreement
dated August 15, 1979; and
WHEREAS, the Port has acquired interests in certain property the use of
which will be beneficial to the Company; and
WHEREAS, certain facilities and property which are currently leased to
the Company are no longer used, useful or necessary to the Port or the Company
in the operation of facilities described in the Lease;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
below the parties agree as follows:
1. Legal Description Modified. The legal description contained in the
Lease is hereby modified, and the legal description of the property leased,
together with appurtenances and improvements thereon, shall be as follows:
A parcel of land in Government Lots 4 and 5 and in Jacob Ahles DLC No.
44 in Section 20, Township 6 North, Range 1 West, Willamette Meridian,
Cowlitz County, Washington. Described as follows:
Commencing at the Southeast corner of said Section 20;
THENCE North 87 degrees 46' 44" West along the South line of Section 20
a distance of 599.0 feet to a point on the corner of the right of way of
the Burlington Northern Railroad;
THENCE North 25 degrees 28' 47" West along the corner of said right of
way a distance of 396.31 feet to a point on the Easterly extension of
the North line of Toteff Road;
THENCE South 84 degrees 28' 00" West on said North line and its Easterly
extension a distance of 207.02 feet to the true point of beginning;
THENCE North 59 degrees 21' 02" West a distance of 125.34 feet;
THENCE North 5 degrees 32' 00" West a distance of 13.15 feet;
THENCE South 84 degrees 28' 00" West a distance of 17.98 feet;
THENCE North 59 degrees 21' 02" West a distance of 132.79 feet;
THENCE along the arc of a curve to the right whose radius point bears
North 30 degrees 38' 58" East a distance of 558.00 feet and having a
central angle of 32 degrees 42' 17" for an arc distance of 318.51 feet;
THENCE North 28 degrees 47' 00" West a distance of 1927.79 feet to a
point on the South line of the Virginia Chemical property;
THENCE North 88 degrees 55' 59" West along said South line a distance of
590 feet more or less to the top of bank of the Columbia River;
THENCE Southeasterly along said top of bank to a point on the North line
of Toteff Road that bears South 84 degrees 28' 00" West a distance of
822.68 feet from the true point of beginning;
THENCE North 84 degrees 28' 00" East a distance of 822.68 feet along the
North line of Toteff Road to the true point of beginning. Containing
41.4 acres.
Also that portion of tideland lots 5 and 6 as shown on the official plat
of Kalama tidelands on file with the Commissioner of Public Lands in Olympia,
Washington, adjacent to and abutting said property.
Said property is depicted on a survey map recorded in Cowlitz County
under Auditor's File No. 840905024, Book 6 of Surveys, Pages 243 and 244.
2. Grant of rail easement. Pursuant to that certain right of way
easement granted to the Port by Public Utility District No. 1 of Cowlitz County,
Washington, and Public Utility District No. 1 of Clark County, Washington, dated
October 21, 1980, and recorded June 24, 1982, as Auditor's File No. 820624001 in
volume 939, page 554 of the records of Cowlitz County, Washington, the Port
hereby grants to the Company during the term of the Lease and any options or
extensions thereof the nonexclusive right to use the following described real
property as a rail spur for access to its faility:
A parcel of land in Government Lot 5 and the Robert Weldon DLC No. 37 in
Section 20 and the Robert Weldon DLC No. 37 in Section 29, Township 6
North, Range 1 West of the Willamette Meridian, Cowlitz County,
Washington bounded and described as follows:
Beginning at the intersection of the Westerly right of way line of the
Burlington Northern Railroad and the South line of said Section 20 which
point bears North 87 degrees 46' 44" West a distance of 655.47 feet from
the Southeast corner of Section 20.
THENCE North 25 degrees 28' 47" West along said Westerly right of way
line a distance of 62.96 feet;
THENCE South 82 degrees 06' 43" West a distance of 27.39 feet to a point
on the Westerly right of way line of Old Toteff Road;
THENCE along an arc of a curve to the right whose radius point bears
North 45 degrees 35' 26" East a distance of 210.98 feet and having a
central angle of 19 degrees 03' 34" for an arc distance of 70.18 feet;
THENCE North 25 degrees 21' 00" West a distance of 98.80 feet;
THENCE along an arc of a curve to the left whose radius point bears
South 64 degrees 39' 00" West a distance of 170.98 feet and having a
central angle of 25 degrees 56' 49" for an arc distance of 77.43 feet;
THENCE North 25 degrees 10' 18" West a distance of 69.44 feet;
THENCE along an arc of a curve to the left whose radius point bears
South 32 degrees 34' 54" West a distance of 210.98 feet and having a
central angle of 27 degrees 02' 54" for an arc distance of 99.60 feet;
THENCE South 84 degrees 28' 00" West a distance of 266.87 feet;
THENCE along an arc of a curve to the right whose radius point bears
South 11 degrees 13' 12" West a distance of 235.60 feet and having a
central angle of 10 degrees 35' 45" for an arc distance of 43.57 feet;
THENCE South 68 degrees 11' 03" East a distance of 189.75 feet;
THENCE along an arc of a curve to the right whose radius point bears
South 21 degrees 48' 57" West a distance of 544.96 feet and having a
central angle of 21 degrees 58' 45" for an arc distance of 209.05 feet;
THENCE South 46 degrees 12' 18" East a distance of 66.09 feet;
THENCE South 41 degrees 04' 59" East a distance of 104.96 feet;
THENCE South 52 degrees 42' 09" East a distance of 143.33 feet to a
point on the Westerly right of way line of the Burlington Northern
Railroad;
THENCE North 25 degrees 28' 47" West along said right of way line a
distance of 106.65 feet to the point of beginning. Containing 1.31
acres.
Said property is depicted on a survey map recorded in Cowlitz County
under Auditor's File No. 840905024, Book 6 of Surveys, Pages 243 and 244.
3. Consideration. In consideration of the modified leased premises, the
Company hereby agrees to pay to the Port the amount of $15,120.00. In
consideration of the right to use the rail spur easement as described above,
together with related transactions, the Company hereby agrees to pay to the Port
the amount of $12,500.00. The sum of these two amounts ($27,620.00) shall be
payable over a ten year period. The first payment (1/10th of the total) shall be
due as of February 6, 1983, and annual payments shall be due and payable
thereafter, in advance, on the 6th day of February of each year until paid. The
amount due and payable shall be increased by 5 percent each year, as follows:
1983 $2,762.00
1984 2,900.10
1985 3,045.11
1986 3,197.36
1987 3,357.23
1988 3,525.09
1989 3,701.34
1990 3,886.41
1991 4,080.73
1992 4,285.10
In addition to the payments hereinder, the Company shall pay any
leasehold taxes and other taxes applicable concerning said payments.
In addition, the Company agrees to pay to the Port, within 15 days,
survey fees and attorneys' fees incurred in connection with the modifications
and transactions described above.
4. Other terms and conditions. Except as modified herein the original
lease dated November 22, 1960, as amended by the agreement dated August 15,
1979, shall remain in full force and effect.
5. Preservation of lease. In the even that any provision of this
Agreement is in violation of the laws of the State of Washington or is deemed to
constitute an act of default of the terms of the revenue bonds referred to in
the Lease, and the Port or the Company is unable or unwilling to take such
action as necessary to remedy such a violation or default, the Port or the
Company may, after 30 days' written notice during which such action is not
taken, declare this Agreement, or such portion of this Agreement as is necessary
to remedy such a violation of default, as rescinded.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their duly authorized officers this _____ day of ________, 1985.
PORT OF KALAMA
a municipal corporation
By __________________________________
President
By __________________________________
Secretary
NORTH PACIFIC GRAIN GROWERS, INC.,
an Oregon corporation
By /s/ Garry A. Pistoria
President
By /s/ Harvey S. Kaner
Secretary
STATE OF WASHINGTON )
) ss.
COUNTY OF COWLITZ )
On this _____ day of __________, 1985, before me personally appeared
CALVIN L. COX and MILFORD S. WESTIN, to me known to be the President and
Secretary, respectively, of the Port Commision of the Port of Kalama, a
municipal corporation and the corporation that executed the within and foregoing
instrument, and ackowledged the said instrument to be the free and voluntary act
and deed of said corporation, for the uses and purposes therein lmentioned, and
on oath stated that they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand on the date first
hereinabove written.
______________________________________
NOTARY PUBLIC in and for the State
of Washington, Residing at
______________________.
STATE OF MINNESOTA )
) ss.
COUNTY OF RAMSEY )
On this 28th day of May, 1985, before me personally appeared Garry A.
Pistoria and Harvey S. Kaner, to me known to be the President and Secretary,
respectively, of NORTH PACIFIC GRAIN GROWERS, INC., an Oregon corporation and
the corporation that executed the within and foregoing instrument, and
acknowledged the said instrument to be the free and voluntary act and deed of
said corporation, for the uses and purposes therein lmentioned, and on oath
stated that they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand on the date first
hereinabove written.
/s/ Nanci L. Lilja
NOTARY PUBLIC in and for the State of
Minnesota, Residing at Dakota County
My commission expires June 25, 1991
[STAMP: NANCI L. LILJA
NOTARY PUBLIC - MINNESOTA
DAKOTA COUNTY
MY COMM. EXPIRES JUNE 25, 1991]
THIRD AMENDMENT TO LEASE
THIS AGREEMENT is made and entered into this 8th day of July, 1986, by
and between the PORT OF KALAMA, a municipal corporation organized under the laws
of the State of Washington ("Port"), and NORTH PACIFIC GRAIN GROWERS, INC., an
Oregon corporation ("NPGG").
I. Recitals
A. The parties hereto entered into a lease dated November 22, 1960,
recorded under Auditor's File No. 526606, ("Lease") for a term of 30 years from
February 6, 1963, plus options. Said Lease was modified by an agreement dated
August 15, 1979 and an agreement dated August 28, 1985.
B. Because of adverse economic conditions NPGG ceased its normal
operations in March, 1985.
C. It is in the best interest of the Port to have the facility in full
operation since it generates dockage revenue for the Port and creates
significant employment for individuals within the Port district.
D. The Port and NPGG have been working together and with other parties
involved in the operation of the facility for a number of months in order to
resolve differences between the parties and to produce agreements which would
make operation of the facility economically viable.
II. Agreement
NOW, THEREFORE, in consideration of the terms and conditions set forth
below, the parties agree as follows:
A. Each of the twelve months starting July 1, 1986 and ending June 30,
1987 will be identified as a "quota-month." NPGG will load a minimum of two
ships during each of nine quota-months. NPGG will load a minimum of one ship
during each of three quota-months. NPGG shall notify the Port, in writing, by
the last day of the month immediately following each quota-month whether NPGG
elects it to be a "one ship" or a "two ship" quota-month.
B. During the period from July 1, 1986 until June 30, 1987, for each
quota-month that the quotas set forth above are met, the Port will pay NPGG
$11,250. For purposes of determining whether the quotas are met, NPGG may count
ships loaded in the month immediately preceding and/or the month immediately
following each quota-month. A single ship call shall not be counted to fill the
quota for more than one quota-month. The Port will make payment to NPGG on or
before the 15th of the month immediately following the notification as required
in paragraph A above.
C. Sub-paragraph 13(a), Page 15, of the original lease agreement dated
November 22, 1960, shall be stricken and shall be replaced by the following
paragraph:
13(a) For a period of five (5) years commencing on February 6, 1993 and
ending on February 5, 1998. During each year of the option the annual
rental shall be as follows:
February 6, 1993-February 5, 1994 As set forth in Paragraph
3, page 2, of that
Agreement between the
parties dated
August 15, 1979.
February 6, 1994-February 5, 1995 $100.00
February 6, 1995-February 5, 1996 $100.00
February 6, 1996-February 5, 1997 $100.00
February 6, 1997-February 5, 1998 $100.00
This option is given in consideration of the Company
having spent substantial sums in site location and
preparation work and in consideration of the Company
having made and provided for the deposit of $380,000
for security for the payment of said revenue bonds.
E. Other terms and conditions. Except as modified herein, the original
lease dated November 22, 1960, as amended by the Agreement dated August 15, 1979
and the Agreement dated August 28, 1985, shall remain in full force and effect.
F. Preservation of lease. In the event that any provision of this Third
Amendment to Lease is in violation of the laws of the State of Washington or is
deemed to constitute an act of default of the terms of the revenue bonds
referred to in the Lease, and the Port or NPGG is unable or unwilling to take
such action as necessary to remedy such a violation or default, the Port or NPGG
may, after 30 days' written notice during which such action is not taken,
declare this Third Amendment to Lease or such portion of this Third Amendment to
Lease as is necessary to remedy such a violation of default, as rescinded.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their duly authorized officers this 8th day of July, 1986.
PORT OF KALAMA,
a municipal corporation
By /s/ James Lucas
President
By /s/ Calvin L. Cox
Secretary
NORTH PACIFIC GRAIN GROWERS, INC.,
an Oregon corporation
By /s/ T. F. Baker
Treasurer
By /s/ Harvey S. Kaner
Secretary
STATE OF WASHINGTON )
) ss
COUNTY OF COWLITZ )
On this 9th day of July, 1986, before me personally appeared JAMES LUCAS
and CALVIN L. COX, to me known to be the President and Secretary, respectively,
of the Port Commission of the Port of Kalama, a municipal corporation and the
corporation that executed the within and foregoing instrument, and acknowledged
the said instrument to be the free and voluntary act and deed of said
corporation, for the uses and purposes therein mentioned, and on oath stated
that they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand on the date first
hereinabove written.
/s/ Linda M. Durgeloh
NOTARY PUBLIC in and for the State
of Washington, residing at Kalama
STATE OF MINNESOTA )
) ss
COUNTY OF RAMSEY )
On this 8th day of July, 1986, before me personally appeared T. F. Baker
and Harvey S. Kaner to me known to be the Treasurer and Secretary, respectively,
of NORTH PACIFIC GRAIN GROWERS, INC., an Oregon corporation and the corporation
that executed the within and foregoing instrument, and acknowledged the said
instrument to be the free and voluntary act and deed of said corporation, for
the uses and purposes therein mentioned, and on oath stated that they were
authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand on the date first
hereinabove written.
/s/ William L. Devitt
NOTARY PUBLIC in and for the State
of Minnesota, residing at
STAMP: WILLIAM L. DEVITT
NOTARY PUBLIC - MINNESOTA
HENNEPIN COUNTY
MY COMMISSION EXPIRES NOV. 5, 1990
FOURTH AMENDMENT TO LEASE
BETWEEN
THE PORT OF KALAMA,
A MUNICIPAL CORPORATION OF THE STATE OF WASHINGTON
AND
HARVEST STATES COOPERATIVES,
A MINNESOTA ASSOCIATION
EFFECTIVE DATE: FEBRUARY 1, 1988
AGREEMENT DATED: April 12, 1988
TABLE OF CONTENTS
I. Recitals 1
II. Agreement
A. Term of Agreement 2
B. Quota-Months 2
1. Quota-Periods 2
2. Quota-Month Defined 2
3. Ship Loading Defined 3
C. Payments 3
1. Monthly Amount To Be Paid 3
2. Payments for Short-Quota Months 4
3. Ship Counting Procedure 4
D. Identification of Accounts 4
1. Operations Expense Account 4
2. General Maintenance Account 5
3. Capital Investment Account 6
E. Other Terms and Conditions 6
F. Preservation of Lease 6
FOURTH AMENDMENT TO LEASE
THIS AGREEMENT is made and entered into as of the 1st day of February,
1988, by and between the PORT OF KALAMA, a municipal corporation organized under
the laws of the State of Washington ("Port"), and HARVEST STATES COOPERATIVES, a
Minnesota cooperative association ("HSC"), (formerly NORTH PACIFIC GRAIN
GROWERS, INC.) organized under the laws of the State of Minnesota.
I. Recitals
A. The parties hereto entered into a lease dated November 22, 1960,
recorded under Auditor's File No. 526606, ("Lease") for a term of 30 years from
February 6, 1963, plus options. Said Lease was modified by agreements dated
August 15, 1979, August 28, 1985 and July 8, 1986.
B. Because of adverse economic conditions HSC ceased its normal
operations in July, 1987.
C. It is in the best interest of the Port to have the facility in full
operation since it generates dockage revenue for the Port and creates
significant employment for individuals within the Port district.
D. The Port and HSC have been working together and with other parties
involved in the operation of the facility for a number of months in order to
resolve differences between the parties and to produce agreements which would
make operation of the facility economically viable.
II. Agreement
NOW, THEREFORE, in consideration of the terms and conditions set forth
below, the parties agree as follows:
A. TERM OF AGREEMENT. This agreement shall be in effect commencing on
the first day of February, 1988, and shall terminate on the 31st day of January,
1991.
B. QUOTA-MONTHS.
1. Quota Periods. The agreement shall be divided into three
twelve-month Quota Periods as follows:
a. Quota-Period ONE (QP-1) from February 1, 1988, and
ending on January 31, 1989.
b. Quota-Period TWO (QP-2) from February 1, 1989, and
ending on January 31, 1990.
c. Quota-Period THREE (QP-3) from February 1, 1990, and
ending on January 31, 1991.
2. Quota-Month Defined. Within each Quota-Period, each month
shall be identified as a "quota-month." HSC will load a minimum of three
ships during each of nine quota-months within each Quota-Period. Said
months shall be identified as "three ship" quota-months. HSC will load a
minimum of five ships during the remaining three quota-months combined
within each Quota-Period. Said months will be identified as "short"
quota-months. HSC shall notify the Port, in writing, by the last day of
the month immediately following each quota-month whether HSC elects it
to be a short quota-month or a three ship quota-month. Should HSC fail
to make the election and notification as required, said month shall be
deemed to be a three-ship quota-month.
3. Ship Loading Defined. For purposes of this agreement, in
order to be counted, a ship must be a motorized seagoing vessel which
has received a minimum of 5,000 tons of grain elevated through the
Kalama HSC facility for purposes of conveying the grain to export
destinations.
C. PAYMENTS.
1. Monthly Amount To Be Paid. During each month of this
agreement, except as set forth below in Paragraph 2, $19,400 shall be
paid to the three accounts identified below in Paragraph D. For each
quota-month that the quotas set forth above are met, the Port will pay
$19,400 to said accounts. For each quota-month that the quotas are not
met, HSC will pay $19,400 to said accounts. The parties will make
payments to the account as required herein on or before the 15th of the
month following the notification as required above in Paragraph B.
2. Payments for Short Quota-Months. The short quota-months
require a cumulative total of five ships during all of said short
quota-months in each Quota-Period in order to earn the payments
hereunder. For the first two short quota-months neither party shall make
any payments to the accounts upon receipt of the notice from HSC
electing a month to be a short quota-month. When the third short
quota-month has passed, if HSC has met the quota (five ships total),
then the Port shall pay $58,200) ($19,400 per quota-month) to the
accounts for the three short quota-months. When the third short
quota-month has passed, if HSC has not met the quota (five ships total),
then HSC shall pay $58,200 ($19,400 per quota-month) to the accounts for
the three short quota-months.
3. Ship Counting Procedure. For purposes of determining whether
the quotas are met, HSC may count ships loaded in the month immediately
preceding and/or the month immediately following each quota-month.
Notwithstanding the preceding sentence, ships loading in one
Quota-Period may not be counted in another Quota-Period. A single ship
shall not be counted to fill the quota for more than one quota-month.
D. IDENTIFICATION OF ACCOUNTS.
1. Operations Expense Account - This account shall be
distributed on a monthly basis. For each month the ship-quota is met,
the Port shall pay to HSC $6,466 from the payment of the $19,400
required to be paid in Paragraph C above. For each month the ship-quota
is not met, HSC shall pay to the Port $6,466 from the payment of the
$19,400 required to be paid in Paragraph C above. The money received by
either party shall be deposited in its general operating account to be
utilized for operating expenditures.
2. General Maintenance Account - Each month, from the payment of
the $19,400 required to be paid in Paragraph C above, the appropriate
party shall pay into this account $6,467. The account shall be used for
general maintenance "hard items" such as heat sensitive bearings,
buckets for belts and other such expenditures. The Port will establish
and maintain an interest bearing account separate from its other
accounts and all interest shall accrue to the benefit of the account.
Such items may be purchased by HSC on Port approval after fifteen (15)
days written notice and explanation. If a dispute arises over any
voucher approval, it shall be settled as set forth below in Paragraph
D.3. Upon purchase, HSC shall bill the Port, which billings shall have
attached copies of invoices and/or receipts for each purchase. Payments
shall be disbursed within thirty (30) days after the close of each
calendar quarter.
3. Capital Investment Account - Each month, from the payment of
$19,400 required to be paid in Paragraph C above, the appropriate party
shall pay $6,467 into this account. The Port will establish and maintain
an interest bearing account separate from its other accounts and all
interest shall accrue to the benefit of the account.
Payments expended from the account shall be by agreement of the parties.
It is expected that by the 30th month of this agreement the parties will
have decided on the capital expenditure(s) which will utilize the fund.
The decision will be made by the Port Manager and the HSC Commodity
Export Operations Manager. In the event they are unable to agree on the
priority of the project(s), then the President of HSC and the President
of the Port Commission (not designees) shall meet and determine the
priorities.
E. OTHER TERMS AND CONDITIONS. Except as modified herein, the Lease
dated November 22, 1960, as amended by agreements dated August 15, 1979, August
28, 1985, and July 8, 1986, shall remain in full force and effect.
F. PRESERVATION OF LEASE. In the event that any provision of this Fourth
Amendment to Lease is in violation of the laws of the State of Washington or is
deemed by bond counsel to constitute an act of default of the terms of the
revenue bonds referred to in the Lease, and the Port or HSC is unable or
unwilling to take such action as necessary to remedy such a violation or
default, the Port or HSC may, after 30 days' written notice during which such
action is not taken, declare this Fourth Amendment to Lease as rescinded.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their duly authorized officers this 12th day of April, 1988.
PORT OF KALAMA, a municipal corporation
By: /s/ Milford S. Westin
President
By: /s/ James Lucas
Secretary
HARVEST STATES COOPERATIVES, a
cooperative association
By: /s/ Michael H. Bergeland
Its Group Vice President
By: /s/ Dennis D. Wendland
Its Vice President
STATE OF WASHINGTON )
) ss.
COUNTY OF COWLITZ )
On this 22nd day of April, 1988, before me personally appeared MILFORD
S. WESTIN, and JAMES LUCAS to me known to be the President and Secretary,
respectively, of the Port Commission of the Port of Kalama, a municipal
corporation and the corporation that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation, for the uses and purposes therein mentioned,
and on oath stated that they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand on the date first
hereinabove written.
/s/ Linda M. Durgeloh
NOTARY PUBLIC for the State of
Washington, residing at Kalama
STATE OF MINNESOTA )
) ss.
COUNTY OF RAMSEY )
On this 12th day of April, 1988, before me personally appeared MICHAEL
H. BERGELAND and DENNIS D. WEDLAND to me known to be the Group Vice President
and Vice President respectively, of HARVEST STATES COOPERATIVES, a cooperative
association and the association that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation, for the uses and purposes therein mentioned,
and on oath stated that they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand on the date first
hereinabove written.
/s/ Nanci L. Lilja
NOTARY PUBLIC for the State of
Minnesota, residing at Eagan, Minnesota
[STAMP: NANCI L. LILJA
NOTARY PUBLIC - MINNESOTA
DAKOTA COUNTY
MY COMM. EXPIRES JUNE 25, 1991]
FIFTH AMENDMENT TO LEASE
THIS AGREEMENT is made and entered into as of the 9th day of November,
1988, by and between the PORT OF KALAMA, a municipal corporation organized under
the laws of the State of Washington ("Port"), and HARVEST STATES COOPERATIVES, a
Minnesota cooperative association ("HSC"), (formerly NORTH PACIFIC GRAIN
GROWERS, INC.) organized under the laws of the State of Minnesota.
I. Recitals
A. The parties hereto entered into a lease dated November 22, 1960,
recorded under Auditor's File No. 526606, ("Lease") for a term of thirty (30)
years from February 6, 1963, plus options. Said Lease was modified by agreements
dated August 15, 1979, August 28, 1985, July 8, 1986, and April 12, 1988.
B. AT&T Communications of the Pacific Northwest ("AT&T") has requested a
long term lease over certain property which is presently covered by the Lease
between the Port and HSC.
C. The parties wish to adjust the northern boundary line of the lease
agreement in order to facilitate the long term Lease between the Port and AT&T.
II. Agreement
NOW, THEREFORE, in consideration of the terms and conditions set forth
below, the parties agree as follows:
A. EFFECTIVE DATE. This agreement shall take effect upon the date first
written above.
B. ADJUSTMENT OF BOUNDARY LINE. The Property which is the subject of the
Lease between the parties is hereby amended. Henceforth the property leased is
described as follows, to-wit:
REAL PROPERTY:
A parcel of land in Government Lots 4 and 5 and in Jacob Ahles DLC No.
44 in Section 20, Township 6 North, Range 1 West, Willamette Meridian,
Cowlitz County, Washington described as follows:
Commencing at the Southeast corner of said Section 20;
THENCE North 87 degrees 46'44" West along the South line of Section 20 a
distance of 599.0 feet to a point on the centerline of the right of way
of the Burlington Northern Railroad;
THENCE North 25 degrees 28'47" West along the centerline of said right
of way a distance of 396.31 feet to a point on the Easterly extension of
the North line of Toteff Road;
THENCE South 84 degrees 28'00" West on said North line and its Easterly
extension a distance of 207.02 feet to the true point of beginning;
THENCE North 59 degrees 21'02" West a distance of 125.34 feet;
THENCE North 5 degrees 32'00" West a distance of 13.15 feet;
THENCE South 84 degrees 28'00" West a distance of 17.98 feet;
THENCE North 59 degrees 21'02" West a distance of 132.79 feet;
THENCE along the arc of a curve to the right whose radius bears North 30
degrees 38'58" East a distance of 558.00 feet and having a central angle
of 32 degrees 42'17" for an arc distance of 318.51 feet;
THENCE North 28 degrees 44'32" West a distance of 1,927.86 feet to a
point on the South line of the property conveyed by deed to the Port of
Kalama and recorded under Auditor's File No. 850805007;
THENCE North 88 degrees 46'22" West along said South line a distance of
245.10 feet;
THENCE South 01 degree 13'38" East 120.00 feet;
THENCE along the arc of a curve to the left whose radius point bears
South 88 degrees 46'22" East a distance of 445.81 feet and having a
central angle of 18 degrees 20'40" for an arc distance of 142.73 feet;
THENCE South 63 degrees 44'59" West 200.26 feet more or less to the top
of bank of the Columbia River;
THENCE Southeasterly along said top of bank to a point on the North line
of Toteff Road that bears South 84 degrees 28'00" West a distance of
822.68 feet from the true point of beginning;
THENCE North 84 degrees 28'00" East a distance of 822.68 feet along the
North line of Toteff Road to the true point of beginning. Containing
39.55 acres.
EASEMENT:
Together with an easement for ingress and egress described as follows:
Commencing at the Southeast corner of said Section 20;
THENCE North 87 degrees 46'44" West along the South line of Section 20 a
distance of 599.0 feet to a point on the center line of the right of way
of the Burlington Northern Railroad;
THENCE North 25 degrees 28'47" West along the center line of said right
of way a distance of 396.31 feet to a point on the Easterly extension of
the North line of Toteff Road;
THENCE South 84 degrees 28'00" West on said North line and its Easterly
extension a distance of 207.02 feet;
THENCE North 59 degrees 21'02" West a distance of 125.34 feet;
THENCE North 5 degrees 32'00" West a distance of 13.15 feet;
THENCE South 84 degrees 28'00" West a distance of 17.98 feet;
THENCE North 59 degrees 21'02" West a distance of 132.79 feet;
THENCE along the arc of a curve to the right whose radius point bears
North 30 degrees 38'58" East a distance of 558.00 feet and having a
central angle of 32 degrees 42'17" for an arc distance of 318.51 feet;
THENCE North 28 degrees 44'32" West a distance of 1,927.86 feet to a
point on the South line of the property conveyed by deed to the Port of
Kalama and recorded under Auditor's File No. 850805007;
THENCE North 88 degrees 46'22" West along said South line a distance of
245.10 feet to the true point of beginning;
THENCE South 01 degree 13'38" West 120.00 feet;
THENCE along the arc of a curve to the left whose radius point bears
South 88 degrees 46'22" East a distance of 445.81 feet and having a
central angle of 18 degrees 20'40" for an arc distance of 142.73 feet;
THENCE South 63 degrees 44'59" West 20.25 feet;
THENCE along the arc of a curve to the right whose radius point bears
North 72 degrees 29'15" East a distance of 465.81 feet and having a
central angle of 18 degrees 44'23" for an arc distance of 152.35 feet;
THENCE North 01 degree 13'38" East 120.00 feet;
THENCE North 01 degree 12'00" West 612.50 feet;
THENCE North 20 degrees 23'00" West 186.52 feet to the Southwesterly
line of Hendrickson Drive;
THENCE South 37 degrees 24'37" East along said Southwesterly line 68.30
feet;
THENCE leaving said Southwesterly line South 20 degrees 23'00" East
124.54 feet;
THENCE South 01 degree 12'00" East 616.78 feet to the true point of
beginning
C. MAP OF PROPERTY. Attached hereto as Exhibit A and by this reference
incorporated herein is a map prepared by Barbieri and Associates, dated the 21st
day of October, 1988, which depicts the lease property as defined herein. Said
map is recorded in Cowlitz County in Book 9 of Surveys, at page 50, Auditor's
File #881110033.
D. PAYMENT TO HSC. The Port shall pay to HSC four (4) times one-half of
the first year's rent identified in the Port of Kalama/AT&T lease. The exact
amount of the first years rent has not been determined at this time although it
is expected to be approximately $2,500 making the payment to HSC estimated to be
$5,000. The payment to HSC is due within thirty (30) days of the execution of
the agreement between the Port and AT&T.
E. OTHER TERMS AND CONDITIONS. Except as modified herein, the Lease
dated November 22, 1960, as amended by agreements dated August, 15, 1979, August
28, 1985, July 8, 1986, and April 12, 1988, shall remain in full force and
effect.
F. PRESERVATION OF LEASE. In the event that any provision of this Fifth
Amendment to Lease is in violation of the laws of the State of Washington or is
deemed by bond counsel to constitute an act of default of the terms of the
revenue bonds referred to in the Lease, and the Port or HSC is unable or
unwilling to take such action as necessary to remedy such a violation or
default, the Port or HSC may, after thirty (30) days' written notice during
which such action is not taken, declare this Fifth Amendment to Lease as
rescinded.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their duly authorized officers this 9th day of November, 1988.
PORT OF KALAMA, a municipal corporation
By /s/ Milford S. Westin
Milford S. Westin,
President
By /s/ James Lucas
James Lucas, Secretary
HARVEST STATES COOPERATIVES, a
cooperative association
By /s/ Michael H. Bergeland
Michael H. Bergeland,
Group Vice President
By /s/ Dennis D. Wendland
Dennis D. Wendland, Vice
President
STATE OF WASHINGTON )
) ss.
COUNTY OF COWLITZ )
On this 9th day of November, 1988, before me personally appeared MILFORD
S. WESTIN and JAMES LUCAS to me known to be the President and Secretary,
respectively, of the Port Commission of the Port of Kalama, a municipal
corporation and the corporation that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation, for the uses and purposes therein mentioned,
and on oath stated that they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand on the date first
hereinabove written.
/s/ Linda M. Durgeloh
NOTARY PUBLIC for the State of
Washington, residing at Kalama
My Commission Expires: 1-26-90
STATE OF MINNESOTA )
) ss.
COUNTY OF RAMSEY )
On this 4th day of November, 1988, before me personally appeared MICHAEL
H. BERGELAND and DENNIS D. WENDLAND to me known to be the Group Vice President
and Vice President respectively, of HARVEST STATES COOPERATIVES, a cooperative
association and the association that executed the within and foregoing
instrument, and acknowledged the said instrument to be the free and voluntary
act and deed of said corporation, for the uses and purposes therein mentioned,
and on oath stated that they were authorized to execute said instrument.
IN WITNESS WHEREOF, I have hereunto set my hand on the date first
hereinabove written.
/s/ Esther I. Longseth
NOTARY PUBLIC for the State of
Washington, residing at Stillwater, MN
My Commission Expires: 6/30/91
STAMP: ESTHER I. LONGSETH
NOTARY PUBLIC - MINNESOTA
WASHINGTON COUNTY
MY COMM. EXPIRES JUNE 30, 1991
[attached graphic: Port of Kalama drawing]
LIMITED LIABILITY COMPANY AGREEMENT
FOR
WILSEY-HOLSUM FOODS, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
Dated as of July 24, 1996
TABLE OF CONTENTS
Page
ARTICLE 1 - GENERAL PROVISIONS 1
1.1 Formation 1
1.2 Name 1
1.3 Filings; Registered Office and Statutory Agent 1
1.4 Principal Executive Office 2
1.5 Purpose 2
1.6 Company Powers 2
1.7 Term 3
1.8 Qualification in Other Jurisdictions 3
1.9 Definitions 3
ARTICLE 2 - MEMBERS 12
2.1 Members 12
2.2 Access to Books of Account 12
2.3 Confidential Information 13
2.4 Duty of Members to Cooperate 14
ARTICLE 3 - MANAGEMENT 15
3.1 Management 15
3.2 Members Committee 15
3.3 Powers of the Members Committee 16
3.4 Members Committee Meetings 18
3.5 Voting 19
3.6 Deadlock. Deadlock Resolution 20
3.7 Members 21
ARTICLE 4 - OFFICERS AND EMPLOYEES 21
4.1 Officers 21
4.2 Chief Executive Officer 21
4.3 Treasurer 21
4.4 Secretary 22
4.5 Executive Vice Presidents 22
ARTICLE 5 - INTENTIONALLY OMITTED 22
ARTICLE 6 - DISPUTE RESOLUTION 22
6.1 Dispute Resolution 22
ARTICLE 7 - BUY-SELL RIGHT 26
7.1 Buy-Sell 26
7.2 Certain Agreements 28
ARTICLE 8 - CAPITAL CONTRIBUTIONS 29
8.1 Capital Accounts 29
8.2 Initial Contributions of Capital 30
8.3 Additional Contributions by Members 30
8.4 Member Obligations 31
8.5 Withdrawals of Capital Accounts 31
8.6 Interest on Capital Accounts 31
8.7 Revaluation of Company Assets 31
8.8 Redetermination of Percentage Interests 32
8.9 Determination of Fair Market Value 32
(a) Selection of Appraisers 32
(b) Evaluation Procedures 33
(c) Fair Market Determination 33
(d) Selection of and Procedure for Third
Appraiser 34
(e) Alternative Determination of Fair Market 34
(f) Costs 34
(g) Conclusive Determination 35
(h) Initial Capital Contributions 35
ARTICLE 9 - ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS 35
9.1 Allocation of Profits and Losses 35
9.2 Allocation of Taxable Income and Loss 38
(a) General 38
(b) Section 704(c) Allocations 38
(c) Recapture 38
(d) Credits 38
(e) Conformity of Reporting 38
9.3 Distribution of Assets by the Company. 39
9.4 Wilsey Deferred Tax Distributions 39
(a) Reversal through Depreciation 39
(b) Reversal through Disposition 40
ARTICLE 10 - TAX MATTERS AND REPORTS; ACCOUNTING 40
10.1 Filing of Tax Returns 40
10.2 Tax Matters Partner 40
10.3 Tax Reports to Current and Former Members 41
10.4 Accounting Records. Independent Audit 41
10.5 Fiscal Year 41
10.6 Tax Accounting Method 41
10.7 Withholding 41
10.8 Tax Elections 42
10.9 Prior Tax Information 42
ARTICLE 11 - TRANSFER AND ASSIGNMENT OF INTERESTS;
PUBLIC OFFERING; ADDITIONAL MEMBERS 42
11.1 Transfer and Assignment of Interests 42
11.2 Permitted Transfers 43
11.3 Assignment of Right to Appoint Committee Members 44
11.4 Right of First Refusal Procedures 44
11.5 Assignees and Substituted Members 45
11.6 Additional Members 46
ARTICLE 12 - DISSOLUTION AND LIQUIDATION 46
12.1 Events of Dissolution 46
12.2 Voluntary Dissolution 47
12.3 Buy-Sell Procedure Rights 47
12.4 Liquidation and Order of Dissolution 47
12.5 Liquidator 48
12.6 Termination of Company 49
12.7 Orderly Winding Up 49
ARTICLE 13 - INDEMNIFICATION AND EXCULPATION; CERTAIN AGREEMENTS 49
13.1 Indemnification of the Members 49
13.2 Reimbursement and Indemnity 50
13.3 Exculpation 50
13.4 Indemnification Relating To Initial Contributions 51
ARTICLE 14 - MISCELLANEOUS 51
14.1 Notices 51
14.2 Governing Law 52
14.3 Amendments 52
14.4 Entire Agreement 52
14.5 Waiver of Partition 52
14.6 Consents 53
14.7 Successors 53
14.8 Counterparts 53
14.9 Severability 53
14.10 Survival 53
14.11 No Third Party Beneficiaries 53
LIMITED LIABILITY COMPANY AGREEMENT
FOR
WILSEY-HOLSUM FOODS, LLC,
A DELAWARE LIMITED LIABILITY COMPANY
This Limited Liability Agreement of WILSEY-HOLSUM FOODS, LLC (the
"Company") is made as of July 24, 1996, by and between WILSEY FOODS, INC., a
Delaware corporation ("Wilsey") and HARVEST STATES COOPERATIVES, a Minnesota
corporation ("Harvest States"), each of which shall be a Member (as hereinafter
defined) from and after said date for all purposes hereof.
WHEREAS, Wilsey and Harvest States have concluded that it will be in
their best interests to form a limited liability company for the purpose of
acquiring, owning and operating the Business hereinafter described and, in
furtherance thereof, Wilsey and Harvest States wish to become Members in the
Company; and
NOW, THEREFORE, in consideration of the promises, mutual covenants and
agreements herein contained and in order to set forth the respective rights,
obligations and interests of the Members to one another and to the Company, the
Members hereby agree as follows:
ARTICLE 1
GENERAL PROVISIONS
1.1 Formation. Wilsey and Harvest States hereby agree to form the
Company as a limited liability company under and pursuant to the Act (as
hereinafter defined), and this Agreement. Except as provided in this Agreement,
the rights, duties, liabilities and obligations of the Members and the
administration, dissolution, winding up and termination of the Company shall be
governed by the Act.
1.2 Name. The name of the Company shall be "Wilsey-Holsum Foods, LLC".
The name of the Company may be changed with the unanimous approval of the
Members acting through the Members Committee.
1.3 Filings; Registered Office and Statutory Agent.
(a) The Members shall cause the Certificate to be filed with
the Secretary of State of Delaware and any other office in accordance
with the Act. The Members shall cause additional amendments to the
Certificate to be filed whenever required by the Act. The Members shall
take any and all other actions as may be reasonably necessary to
perfect and maintain the status of the Company as a limited liability
company under the Act.
(b) The registered office of the Company in the State of
Delaware required by the Act shall be c/o The Corporation Trust
Company, 1209 Orange Street, County of New Castle, Wilmington, Delaware
19801, as set forth in the Certificate, until such time as the
registered office is changed with the unanimous approval of the Members
acting through the Members Committee in accordance with the Act and the
filing of an amendment to the Certificate.
(c) The statutory agent of the Company in the State of
Delaware required by the Act shall be the Corporation Trust Company,
1209 Orange Street, County of New Castle, Wilmington, Delaware 19801
until such time as the statutory agent is changed with the unanimous
approval of the Members acting through the Members Committee in
accordance with the Act and the filing of an amendment to the
Certificate.
1.4 Principal Executive Office. The principal executive office for the
transaction of the business of the Company may be fixed upon the unanimous
approval of the Members acting through the Members Committee within or without
the State of Delaware.
1.5 Purpose. The purpose of the Company shall be to enter into the
Joint Venture Agreement (as hereinafter defined), acquire, own and operate
substantially all of the assets (real and personal, tangible and intangible),
businesses and operations of Wilsey and the Holsum Foods division of Harvest
States ("Holsum") and Ventura Foods, L.L.C., a limited liability company under
the laws of the State of Delaware owned equally by Wilsey and Harvest States
("Ventura Foods") and to conduct such other business activities as may from time
to time be unanimously approved by the Members acting through the Members
Committee (collectively the "Business"). The terms and conditions of the
acquisition of the Business shall be more fully described in the Joint Venture
Agreement.
1.6 Company Powers.
(a) The Company shall have the power: (i) to acquire and
operate the Business; (ii) to acquire or lease all equipment, supplies
and services and to make improvements necessary for the ownership,
operation, management and maintenance of the Business; (iii) to borrow
or raise money necessary for the acquisition, ownership, operation,
management and maintenance of the Business; (iv) to use any
contributions from the Members for such purposes; (v) to execute any
documents required in connection with the foregoing; (vi) to do any and
all acts and things which may be necessary, appropriate, proper,
advisable, incidental or convenient to or for the furtherance of the
Business as contemplated by this Agreement; and (vii) to take any other
action permissible under the Act in connection with the Business;
(b) The Company may enter into, deliver and perform all
contracts, agreements and other undertakings and engage in all
activities and transactions as may be necessary or appropriate to carry
out the foregoing purposes. Without limiting the foregoing, the Company
may:
(i) acquire, sell, lease, exchange, transfer, assign,
encumber, pledge or mortgage assets of the Business or
otherwise exercise all rights, powers, privileges and other
incidents of ownership or possession with respect to such
assets;
(ii) borrow or raise money and secure the payment of
any obligations of the Company by mortgage upon, or pledge or
hypothecation of, all or any part of the assets of the
Company;
(iii) engage personnel, whether part-time or
full-time, to do such acts as are necessary or advisable in
connection with the maintenance, operation and administration
of the Company and its investments; and
(iv) engage attorneys, independent accountants,
investment bankers, consultants or such other Persons as are
necessary or advisable.
1.7 Term. The term of the Company shall commence on the date that the
Certificate is executed and filed in the Office of the Secretary of State of the
State of Delaware pursuant to Section 18-201 of the Act. The duration of the
Company shall be perpetual, unless earlier dissolved as provided in Article 12,
or by applicable law.
1.8 Qualification in Other Jurisdictions. The Members acting through
the Members Committee shall cause the Company to be qualified, formed, or
registered under assumed or fictitious name statutes or similar laws in any
jurisdiction in which the Company owns property or engages in activities if such
qualification, formation or registration is necessary to permit the Company
lawfully to own property and engage in the Company's Business. The Members shall
execute, file and publish all such certificates, notices, statements or other
instruments necessary to permit the Company to engage in the Company's Business
as a limited liability company in all jurisdictions where the Company elects to
engage in or do Business.
1.9 Definitions. For purposes of this Agreement the following terms
have the following meanings unless indicated otherwise, all Article and Section
references are to Articles and Sections in this Agreement, and all Schedule
references are to Schedules to this Agreement:
"Acceptance" shall mean an unconditional written acceptance by a Member
of any Offer made pursuant to Section 7.1.
"Act" means Title 6 Chapter 18 of the Delaware Code (the Delaware
Limited Liability Company Act), as from time to time in effect in the State of
Delaware, or any corresponding provision or provisions of any succeeding or
successor law of such State; provided, however, that in the event that any
amendment to the Act, or any succeeding or successor law, is applicable to the
Company only if the Company has elected to be governed by the Act as so amended
or by such succeeding or successor law, as the case may be, the term "Act" shall
refer to the Act as so amended or to such succeeding or successor law only after
the appropriate election by the Company, if made, has become effective.
"Additional Member" means any additional Person admitted as a Member to
the Company pursuant to Article 11.
"Adjusted Capital Contributions" means, for each Member, the cumulative
amount of such Member's capital contributions to the Company which for purposes
of this definition shall be equal to the sum of (i) the amount of cash and the
Fair Market Value as of the date of contribution of any other property
contributed to the capital of the Company, plus (ii) the cumulative amount of
Adjusted Revaluation Gain, and less (iii) the cumulative amount of Adjusted
Revaluation Loss.
"Adjusted Revaluation Gain" or "Adjusted Revaluation Loss" means,
respectively, the Revaluation Gain or Revaluation Loss, as the case may be, with
respect to an asset being revalued which would have arisen had the basis used in
computing Revaluation Gain or Revaluation Loss been equal to the Capital Account
book basis of such asset immediately following the later of its contribution or
acquisition or any immediately preceding revaluation.
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls, is controlled by or is under common control with
the Person specified. For purposes of this definition, the term "control"
(including the terms "controlling," "controlled by" and "under common control
with") of a Person means the possession, direct or indirect, of the power to (i)
vote in excess of 50% of the Voting Stock of such Person, or (ii) direct or
cause the direction of the management and policies of such Person, whether by
contract or otherwise. Anything hereinabove to the contrary notwithstanding,
under no circumstances shall the Company be deemed to be an Affiliate of Wilsey,
Harvest States or any of their respective Affiliates.
"Affiliate Transferee" means, with respect to a Member, a Wholly Owned
Affiliate of such Member to which an ownership interest of all or any part of
its Membership Interest has been transferred in accordance with Article 11
hereof.
"Agent" means any officer, director, Committee Member, employee,
partner, shareholder or agent of any Person.
"Agreement" means this Limited Liability Company Agreement, as it may
be amended, supplemented or restated from time to time.
"Appraiser" means any of the First Appraiser, the Second Appraiser and
the Third Appraiser as defined in Section 8.9 of this Agreement.
"Appraiser's Certificate" means a certificate prepared by an Appraiser,
executed on behalf of an Appraiser by a duly authorized officer thereof, and
setting forth such Appraiser's opinion as to the Fair Market Value of an asset.
"Asset Member" shall have the meaning set forth in Section 8.9(a) of
this Agreement.
"Asset Value" with respect to any Company asset means:
(a) The Fair Market Value when contributed of such asset
contributed to the Company by any Member;
(b) The Fair Market Value on the date of distribution of such
asset distributed by the Company to any Member as consideration for its
Membership Interest;
(c) The Fair Market Value of such asset upon a revaluation
pursuant to Section 8.7 of this Agreement; or
(d) The Basis of the asset in all other circumstances.
"Assignee" means the Person to whom a transfer of a Membership Interest
is made; an Assignee is not a Substituted Member unless and until the Assignee
complies with Section 11.5(b) of this Agreement.
"Basis" with respect to an asset means the adjusted basis from time to
time of such asset for United States federal income taxes purposes.
"Budget" means a one-year revenue, expense and capital expenditure
budget for the Company, as it may be amended from time to time in accordance
with the terms of this Agreement. Each such annual Budget shall include, in
respect of the Company for the next fiscal year, an income statement, balance
sheet and capital budget (with line item detail showing revenues and expenses
projected for the Business) prepared on an accrual basis for the Company for the
forthcoming fiscal year; a cash flow statement which shall show in reasonable
detail the receipts and disbursements (including without limitation, the
anticipated distributions) projected for the Company for the forthcoming fiscal
year and the amount of any corresponding cash deficiency or surplus, and the
amount and due dates of all required capital contributions, if any; and any
information reasonably available which could assist the Members in evaluating
such Budgets. Each such Budget shall be prepared on a basis consistent with the
Company's financial statements and the Business Plan approved by the Members
Committee.
"Business" shall have the meaning set forth in Section 1.5.
"Business Plan" means a rolling [three]-year business plan for the
Company, as it may be amended from time to time in accordance with the terms of
this Agreement, which shall include (i) an annual operating budget for each year
contemplated in the Business Plan; (ii) a [two]-year financial plan (including
financial view and financial commitment, such as capital contributions) for the
Company; and (iii) a detailed description of the key underlying assumptions and
key strategies. The Business Plan shall also include, for each year thereof, the
following details: information on the objectives and funding requirements
(including any proposed borrowings); methods and sources of financing,
including, with respect to compensation plans, monthly projected profit and loss
statements, monthly balance sheets, monthly projected cash flow statements,
capital expenditure budgets, departmental budgets, projected detailed personnel
requirements, annual key performance milestones for the business and any
proposed capital improvements or expansions; and detailed management plans.
"Buy-Sell Procedure" shall have the meaning set forth in Section 3.6(c)
of this Agreement.
"Capital Account" means the capital account maintained by the Company
for each Member as described in Section 8.1 of this Agreement.
"Certificate" means the certificate of formation filed with the
Secretary of State of the State of Delaware pursuant to the Act to form the
Company as originally executed and amended, modified or restated from time to
time.
"Closing" shall have the meaning set forth in Section 7.1(e) of this
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means the limited liability company formed pursuant to this
Agreement and the Certificate.
"Confidential Information" means all documents and information
(including, without limitation, confidential and proprietary information with
respect to customers, sales, marketing, production, costs and the design and
development of new products or services) of each of the Company, the Members and
their respective Affiliates, except to the extent that such information can be
shown to have been (a) generally available to the public other than as a result
of a breach of the provisions of Section 2.4 of this Agreement; (b) already in
the possession of the receiving Person or its Agents without restriction and
prior to any disclosure in connection with the Company or pursuant to any of the
terms of this Agreement; (c) lawfully disclosed to the receiving Person or its
Agents by a third party who is free lawfully to disclose the same; or (d)
independently developed by the receiving Person without use of any Confidential
Information obtained in connection with the transactions leading up to and
contemplated by this Agreement and the operation of the Company or its
businesses.
"CPR" shall mean the CPR Institute for Dispute Resolution (formerly,
the Center for Public Resources).
"CPR Rules" shall mean the Rules for Non-Administered Arbitration of
International Disputes promulgated by CPR.
"Default Amount" shall have the meaning set forth in Section 8.3(b) of
this Agreement.
"Default Fee" shall have the meaning set forth in Section 8.3(b) of
this Agreement.
"Defaulting Member" shall have the meaning set forth in Section 8.3(b)
of this Agreement.
"Depreciation" for any fiscal year or other period means the cost
recovery or amortization deduction with respect to an asset for such year or
other period as determined for federal income tax purposes, provided that if the
Asset Value of such asset differs from its Basis at the beginning of such year
or other period, depreciation shall be determined by applying tax recovery
periods and methods to the Asset Value of the asset as provided in Income Tax
Regulation Section 1.704-l(b)(2)(iv)(g)(3).
"Dispute" shall have the meaning set forth in Section 6.1.
"Distribution Agreement" means the Master Distribution Agreement
between the Company and Mitsui & Co., Ltd., attached as Exhibit L to the Joint
Venture Agreement.
"Effective Date" means the date upon which the acquisition by the
Company of the Business shall have been consummated, pursuant to the Joint
Venture Agreement.
"Employment Agreement" means the employment agreement dated as of
January 1, 1996 between Wilsey and Jack Davis, assigned to and assumed by the
Company as of the Effective Date.
"Fair Market Value" means, with respect to any asset, as of the date of
determination, the cash price at which a willing seller would sell, and a
willing buyer would buy, each being apprised of all relevant facts and neither
acting under compulsion, such asset in an arm's-length negotiated transaction
with an unaffiliated third party without time constraints, all as determined
under Section 8.9 of this Agreement.
"GAAP" means generally accepted accounting principles, consistently
applied with prior periods.
"Harvest States Substituted Member" means any Substituted Member which
has acquired its Membership Interest from Harvest States or whose Membership
Interest was originally owned by Harvest States.
"Holsum" shall have the meaning set forth in Section 1.5 of this
Agreement.
"Income Tax Regulations" means the United States federal income tax
regulations, including temporary (but not proposed) regulations, promulgated
under the Code.
"Initial Offer" shall have the meaning set forth in Section 7.1(a) of
this Agreement.
"Initiating Member" shall have the meaning set forth in Section 7.1(a)
of this Agreement.
"Joint Venture Agreement" means the Joint Venture Agreement to be
entered into among Wilsey, Harvest States and the Company, pursuant to which
Wilsey and Harvest States shall, not later than September 30, 1996, transfer the
Business to the Company in consideration of their respective Membership
Interests in the Company.
"Lien" means, as to any Membership Interest, liens, encumbrances,
security interests and other rights, interests or claims of others therein
(including, without limitation, warrants, options, rights of first refusal,
rights of first offer, co-sale and similar rights).
"Liquidator" has the meaning set forth in Section 12.5.
"Member" means each of Wilsey and Harvest States, and includes any
Person admitted as an Additional Member or Substituted Member of the Company
pursuant to Article 11 of this Agreement. Wilsey and Harvest States shall be
admitted as Members of the Company on the date hereof. A Person who is not
admitted on the date hereof as a Member of the Company shall be deemed admitted
as a Member upon satisfaction of the requirements of Article 11.
"Membership Interest" means the interest and ownership of a Member in
the Company, including the Capital Account of such Member, its participation in
the profits and losses of the Company in accordance with its Percentage
Interest, and all of its other rights and obligations under this Agreement and
the Act, relating to the Company.
"Net Operating Available Cash" means at the time of determination, (a)
all cash and cash equivalents on hand in the Company, less (b) the Forecast Cash
Requirements, if any, of the Company, as determined by the Members [in a manner
consistent with an Approved Budget.] For purposes of this definition, "Forecast
Cash Requirements" means, for the twelve-month period following the date of
determination, the excess, if any, of (a) forecast capital expenditures, capital
contributions to other entities and other investments, acquisitions, cash income
tax payments and debt service (including principal and interest) requirements
and other non-cash credits to income, plus forecast cash reserves for future
operations or other requirements, over (b) forecast net income of the Company,
plus the sum of forecast depreciation, amortization, interest expenses, income
tax expenses and other non-cash charges to income, in each case to the extent
deducted in determining such net income, plus or minus forecast changes in
working capital, plus the forecast cash proceeds of dispositions of assets (net
of expenses), plus an amount equal to the forecast net proceeds or debt
financings.
"Non-Defaulting Members" shall have the meaning set forth in Section
8.3(b) of this Agreement.
"Offer" means the Initial Offer and any subsequent offer made pursuant
to Section 7.1 of this Agreement to the Initiating Member or the Other Member,
as the case may be, each of which offers shall comply with the following
requirements:
(a) Such offer shall be in writing, duly authorized, executed
and delivered, irrevocable and remain available for acceptance for a
period following receipt thereof by the Member to whom it was delivered
for a period at least equal to the lesser of (x) 60 days, or (y) the
period ending on the date, if any, upon which the offeree delivers a
subsequent Offer pursuant to Section 7.1 of this Agreement;
(b) Such offer shall be for cash only;
(c) Such offer shall be to purchase all, but not less than
all, of the Membership Interest held by the Member to whom it is
addressed;
(d) Such offer shall stipulate the Price of the Membership
Interest, the Total Value from which such Price was derived, and the
Percentage Interest of the Member to whom the offer is addressed.
"Offeree Members" means Members other than the Selling Member who must
be offered a right of first refusal to purchase the Selling Member's Membership
Interest all as provided in Section 11.4 of this Agreement.
"Other Member" shall have the meaning set forth in Section 7.1(a) of
this Agreement.
"Parent Entity" means, as to any Person, an Affiliate of which such
Person is a Wholly Owned Subsidiary.
"Percentage Interest" means, for each Member, the Percentage Interest
of the Member as set forth on Schedule I, as such Percentage Interests may be
modified pursuant to Section 8.8.
"Person" means any individual, corporation, partnership, limited
liability company, firm, joint venture, association, joint-stock company, trust,
estate, unincorporated organization, governmental or regulatory body or other
entity.
"Price" means a dollar amount determined by multiplying the Percentage
Interest of the Member to whom an Offer is addressed by the Total Value
stipulated in such Offer, provided that the Price stipulated in any Initial
Offer arising by reason of initiating the Buy-Sell Procedures under Section
3.6(c) of this Agreement shall be not less than the balance of the Capital
Account of the offeree, as reflected in the most recently available financial
statements of the Company.
"Prime Rate" means the per annum rate publicly announced by Union Bank
of California from time to time at its head office in San Francisco, California
as its "Reference Rate".
"Profits and Losses" for any fiscal year or other period means an
amount equal to the Company's taxable income for United States federal income
tax purposes for such year or period determined in accordance with Code Section
703(a) and the Income Tax Regulations thereunder with the following adjustments:
(a) All items of income, gain, loss, and deduction of the
Company required to be stated separately shall be included in taxable
income or loss;
(b) Income of the Company exempt from United States federal
income tax shall be treated as taxable income;
(c) Expenditures of the Company described in Code Section
705(a)(2)(B) or treated as such expenditures under Income Tax
Regulation Section 1.704-l(b)(2)(iv)(i) shall be subtracted from
taxable income;
(d) Revaluation Gain and Revaluation Loss shall be included;
(e) Gain or loss resulting from the disposition of property
from which gain or loss is recognized for United States federal income
tax purposes shall be determined with reference to the Asset Value of
such property; and
(f) Depreciation shall be determined based upon Asset Value
instead of as determined for United States federal income tax purposes.
"Public Offering" means an offering of securities of the Company
registered with the Securities and Exchange Commission with a total public
offering price of at least $5,000,000.
"Revaluation Gain" means the amount of gain which would have been
realized had there been a taxable disposition of any Company asset being
revalued under Section 8.7 of this Agreement for an amount of cash equal to such
asset's then Fair Market Value, determined in accordance with the provisions of
Section 8.9 of this Agreement.
"Revaluation Loss" means the amount of loss which would have been
realized had there been a taxable disposition of any Company asset being
revalued under Section 8.7 of this Agreement for an amount of cash equal to such
asset's then Fair Market Value, determined in accordance with the provisions of
Section 8.9 of this Agreement.
"Selling Member" means the Member proposing to transfer all or a part
of its Membership Interest, which transfer is subject to rights of first refusal
in the other Members as provided in Section 11.4 of this Agreement.
"Substituted Member" shall have the meaning set forth in Section 11.5
of this Agreement.
"Supply Agreement" means the Long Term Supply Agreement between the
Company and Harvest States, attached as Exhibit K to the Joint Venture
Agreement.
"Tax Matters Partner" means the Tax Matters Partner of the Company as
referred to in Section 10.2 of this Agreement.
"Taxes" means all taxes, charges, fees, levies or other assessments
imposed by any taxing authority, including, but not limited to, income, gross
receipts, excise, property, sales, use, transfer, payroll, license, ad valorem,
value added, withholding, social security, national insurance (or other similar
contributions or payments), franchise, estimated, severance and stamp taxes
(including any interest, fines, penalties or additions attributable to, or
imposed on or with respect to, any such taxes, charges, fees, levies or other
assessments) and "Tax Return" means any return, report, information return or
other document (including any related or supporting information) with respect to
Taxes.
"Total Value" means a dollar amount stipulated in the Offer by the
Offeror, in its sole discretion, to be the value of 100% of the Percentage
Interests of all Members, provided that in all Offers made subsequent to the
Initial Offer, the Total Value stipulated therein shall be at least 105% of the
Total Value stipulated in the most recent Offer received by the offeror from the
other Member with respect to the purchase of the Offeror's Membership Interest.
"Transfer" means as a verb to transfer, sell, assign, exchange, pledge,
give, hypothecate or otherwise convey or encumber all or any portion of a
Membership Interest, and, as a noun, any transfer, sale, assignment, exchange,
change, gift, hypothecation or other conveyance or encumbrance of all or any
portion of a Membership Interest.
"Ventura Foods" shall have the meaning set forth in Section 1.5 of this
Agreement.
"Wilsey Net Deferred Income Tax Liability" shall have the meaning as
defined in Article 1 of the Joint Venture Agreement.
"Wilsey Substituted Member" means any Substituted Member which has
acquired its Membership Interest from Wilsey or whose Membership Interest was
originally owned by Wilsey.
"Wholly Owned Affiliate" means, as to any Person, a Parent Entity or
any Affiliate that is a Wholly Owned Subsidiary of such Parent Entity.
"Wholly Owned Subsidiary" means, as to any Person, a corporation or
other entity all of the capital stock or other equity interests of which
corporation or entity is at the time owned, directly or indirectly, through one
or more intermediaries, or both, by such Person.
ARTICLE 2
MEMBERS
2.1 Members. Each of the parties to this Agreement, and each Person
admitted as a Member of the Company pursuant to the Act and Article 11 of this
Agreement, shall be Members of the Company until they cease to be Members in
accordance with the provisions of the Act, the Certificate, or this Agreement.
The names of the Members shall be set forth in Schedule I hereto, as such
Schedule I may be amended from time to time.
2.2 Access to Books of Account. Each Member shall have the right at all
reasonable times during usual business hours to audit, examine, and make copies
or extracts of or from the complete books of account of the Company, including
but not limited to the books and records maintained in accordance with Section
10.4 and all other books and records of the Company. Such right may be exercised
through any Agent of such Member designated by it or by independent certified
public accountants or counsel designated by such Member. Each Member shall bear
all expenses incurred in any examination made for such Member's account.
2.3 Confidential Informaiton.
(a) The Company and each Member shall not use or disclose to
others any Confidential Information received from the Company or any
other Member for any purpose other than provided for in this Agreement,
and shall take or cause to be taken such precautions as are reasonably
necessary to prevent disclosure or use of Confidential Information to
others, except to or by (i) any lender to the Company, or (ii) any
Member or any of their respective Affiliates or Agents on a "need to
know" basis in connection with the transactions leading up to and
contemplated by this Agreement, including with respect to any
agreements or contracts between the Member and the Company, and the
operation of the Company and its Business, and such Member disclosing
Confidential Information pursuant to this Section 2.3 shall use, and
shall cause its Affiliates and Agents to use, such Confidential
Information only for the benefit of the Company in conducting the
Business or for any other specific purposes for which it was disclosed
to such party; provided that the disclosure of financial statements of,
or other information relating to, the Company shall not be deemed to be
the disclosure of Confidential Information (i) to the extent that any
Member is required by law or GAAP to disclose such financial statements
or other information or (ii) to the extent that in order to sustain a
position taken for tax purposes, any Member deems it necessary and
appropriate to disclose such financial statements or other information.
All Confidential Information disclosed in connection with the Company
or pursuant to this Agreement shall remain the property of the Person
whose property it was prior to such disclosure.
(b) No Confidential Information regarding the plans or
operations of any Member or any Affiliate thereof received or acquired
by or disclosed to any other Member or Affiliate thereof in the course
of the conduct of the Business, or otherwise as a result of the
existence of the Company, may be used by such other Member or Affiliate
thereof for any purpose other than for the benefit of the Company in
conducting the Business.
(c) In the event that a Member or anyone to whom a Member
transmits any Confidential Information becomes legally compelled (by
oral questions, interrogatories, requests for information or documents,
subpoena, investigative demand or similar process) to disclose any of
the Confidential Information, such Member will provide the other
Members and the Company with prompt written notice prior to disclosure
so that the other Members and the Company may seek a protective order
or other appropriate remedy and/or waive compliance with the provisions
of this Agreement. In the event that such protective order or other
remedy is not obtained, or that the Company and the other Members waive
compliance with the provisions of this Section 2.3, the Member or
Person who is compelled to disclose such Confidential Information will
take reasonable measures to minimize any required disclosure.
(d) Each Member who ceases to be such will, and will cause its
Affiliates, Representatives and Agents to, maintain the confidentiality
required by this Section 2.3 and to destroy or return upon request, all
documents and other materials, and all copies thereof, obtained by such
Member or on its behalf from either the Company or the other Members or
any of their Affiliates in connection with the transactions leading up
to and contemplated by this Agreement and the operation of the Company
and its Business, that are subject to such confidentiality obligations.
The obligations under this Section 2.3 shall survive the dissolution of
the Company for a period of five years.
(e) To the fullest extent permitted by law, if a Member or any
of its Affiliates or Agents breaches, or threatens to commit a breach
of, this Section 2.3, the other Members and the Company shall have the
right and remedy to have this Section 2.3 specifically enforced by and
pursuant to the arbitration provisions in Section 6.1, and to obtain
injunctive relief as authorized by Section 6.1, it being acknowledged
and agreed that money damages will not provide an adequate remedy to
such other Members or the Company. Nothing in this Section 2.3 shall be
construed to limit the right of any Member or the Company to collect
money damages in the event of breach of this Section 2.3.
2.4 Duty of Members to Cooperate. Each Member will, to the extent
permitted by applicable law and consistent with this Agreement, furnish such
information, execute such applications and similar documents as are required by
governmental authorities, and take such other action reasonably requested by the
other Members or the Members Committee and as may be necessary or reasonably
desirable in connection with the Business of the Company.
ARTICLE 3
MANAGEMENT
3.1 Management. The Business of the Company shall be managed by the
Members in accordance with this Article 3. Except as provided in Section 3.7,
all decisions concerning the management of the Company's Business shall be made
by the Members acting through the Members Committee and the officers of Company,
in each case as further described in Sections 3.2 and 3.3. Any Person not a
party to this Agreement which deals with the Company shall be entitled to rely
conclusively upon the power and authority of the Members Committee. Except upon
the express authorization or designation by the Members or the Members Committee
in accordance with this Agreement, no Member shall have any unilateral right or
authority to take any action on behalf of the Company with respect to third
parties.
3.2 Members Committee.
(a) The Members Committee of the Company shall be composed of
ten individuals, five of whom shall be appointed by Wilsey and five of
whom shall be appointed by Harvest States (collectively the "Committee
Members" and individually a "Committee Member"). Each Committee Member
shall be an officer, director or employee of the appointing Member and
shall not be an officer or employee of the Company. The foregoing
restriction on qualifications of Committee Members shall be subject to
waiver and exceptions if approved by all Members. The Committee Members
shall serve without compensation.
(b) Each Member's initial Committee Members shall be as set
forth in Schedule II. Effective upon the giving of written notice
thereof to the other Members, any Member may, at any time, in its sole
discretion and with or without cause, replace any or all of its
appointed Committee Members with other individuals and may designate
one or more alternates for any or all of its Committee Members;
provided that such replacement Committee Members or alternates meet the
requirements provided in Section 3.2(a) above. Each Committee Member
shall serve on the Members Committee until his or her successor is
appointed, or until his or her earlier death, resignation or removal.
In the event that a Committee Member ceases to serve for any reason,
the Member that appointed such Committee Member shall promptly
designate a successor. Effective upon a Member ceasing to be a member
of the Company, the Committee Members representing such Member on the
Members Committee shall cease to be Committee Members.
3.3 Powers of the Members Committee.
(a) Without prejudice to the general powers of the Members to
manage the Business of the Company subject to Section 3.7, but subject
to any limitations contained in the Act, it is hereby expressly
declared that the Members delegate to the Members Committee the full
and complete authority, power and discretion to manage and control the
Business of the Company including the following powers, authority
duties:
(i) to cause the Company to enter into (a) the Joint
Venture Agreement and all other documents, instruments and
agreements in connection with the transfer of the Business of
the Company; (b) all credit agreements with the lenders and
other agreements or instruments relating thereto, with respect
to any loans or other financing obtained by the Company; (c)
the Supply Agreement with Harvest States; (d) the Distribution
Agreement with Mitsui & Co., Ltd.; and (e) the Employment
Agreement;
(ii) to change the scope of the Business of the
Company;
(iii) to adopt the annual Budgets and Business Plans
for the Company and the amendments thereto;
(iv) to approve the admission of an Additional Member
of the Company;
(v) to approve a merger or consolidation of the
Company with or into any other Person;
(vi) to approve the sale of all or substantially all
of the Company's assets;
(vii) to establish or dissolve any subsidiary of the
Company;
(viii) to require any additional capital
contributions and determine the form of such contributions;
(ix) to form or dissolve a joint venture, partnership
or any other similar arrangement between the Company and any
other Person;
(x) to appoint, replace or discharge the Chief
Executive Officer ("CEO") of the Company;
(xi) to appoint, replace or discharge the Chief
Operating Officer ("COO") (if any) and one or more of the
Executive Vice Presidents (other than the two Executive Vice
Presidents appointed by Wilsey and Harvest States as set forth
in Section 4.4 of this Agreement) the Senior Vice Presidents
or the Vice Presidents, the Secretary, the Treasurer and the
other officers of the Company, in each case after receiving
the recommendation of the CEO of the Company;
(xii) to approve any acquisitions or disposition of
shares or bonds of any other equity or other interest in any
other Person or business enterprise;
(xiii) to authorize any acquisition of assets of any
other Person, or any disposition of assets of the Company,
except in the ordinary course of business;
(xiv) to borrow money or incur indebtedness in the
name of the Company and in connection therewith issue notes or
other debt securities of the Company and secure any such
indebtedness by mortgage, pledge or other lien excluding all
or any portion of the Company's assets;
(xv) to appoint or change the independent auditor of
the Company;
(xvi) except as otherwise provided in this Agreement,
to make any distribution to the Members of the Company;
(xvii) to bring and defend actions in law or at
equity and compromise, submit to arbitration, or settle all
claims in favor of or against the Company;
(xviii) to settle or compromise any claims against
the Company;
(xix) to make any accounting and income tax
elections, determinations or other decisions;
(xx) to appoint one or more subcommittees of the
Members Committee, such subcommittees to have such power and
authority as shall be delegated to them by the Members
Committee; and
(xxi) to establish, amend or abolish internal rules
of the Company with respect to the authority of the CEO and
other designated officers and to create, reorganize or abolish
departments and offices of the Company.
(b) The powers, authority and duties delegated to the Members
Committee in Section 3.3(a) above may be delegated by the Members
Committee to any sub-committee established by the Members Committee or
to any one or more officers of the Company, provided that any such
delegation with respect to the items enumerated in Section 3.3(a)(i)
through Section 3.3(a)(viii) shall require the unanimous affirmative
vote of all Committee Members then serving. Each Member, by execution
of this Agreement, agrees to, consents to, and acknowledges the
delegation of the powers, authority and duties of the Members to the
Committee Members in accordance with this Agreement, and to the actions
and decisions of the Committee Members within the scope of their
authority as provided herein.
3.4 Members Committee Meetings.
(a) The Members Committee shall hold regular meetings (at
least quarterly) at such time and place as shall be determined by the
Members Committee (or the Presiding Chairman of the Members Committee).
Special meetings of the Members Committee may be called at any time by
any Committee Member by delivering a notice of meeting in accordance
with Section 3.4(g) hereof. The CEO and other officers of the Company
may be invited by any Committee Member to attend and express their
respective opinions at meetings of the Members Committee.
(b) There shall be two Chairmen of the Members' Committee, one
of whom shall be appointed by Wilsey from among its appointed Committee
Members and the other of whom shall be appointed by Harvest States from
among its appointed Committee Members. Each Chairman so appointed shall
serve as such at the pleasure of the Member appointing such Chairman
and until his respective successor is appointed by the Member who
appointed him. The Chairman appointed by Wilsey shall serve as the
Presiding Chairman until December 31, 1997. The Chairman appointed by
Harvest States shall serve as the Presiding Chairman during calendar
year 1998, the next Chairman appointed by Wilsey shall serve as the
Presiding Chairman during calendar year 1999, and so on, with the
Chairman appointed by each of Wilsey and Harvest States alternating as
the Presiding Chairman, calendar year by calendar year. If the
Presiding Chairman shall be absent from any meeting of the Members
Committee, the other Chairman shall act as the Presiding Chairman in
his place. The Presiding Chairman shall establish the agendas for, and
regulate the proceedings of, meetings of the Members Committee, but
must include on such agendas matters requested by any Committee Member
in writing received at least two business days in advance of any
meeting.
(c) Committee Members may participate in a meeting of the
Members Committee by conference telephone or similar communications
equipment by means of which all Persons participating in the meeting
can hear each other, and such participation shall constitute presence
in person of such Committee Members at such meeting.
(d) Any action required or permitted to be taken at any
meeting of the Members Committee may be taken without a meeting upon
the unanimous written consent of all of the Committee Members.
(e) The Members Committee may appoint, from time to time, a
person to act as Secretary of one or more meetings of the Members
Committee ("Committee Secretary"). The Committee Secretary may or may
not be the same person as the Secretary of the Company described in
Section 4.4. The Committee Secretary shall prepare complete written
minutes of the meetings of the Members Committee and shall cause same
to be kept with the books and records of the Company. A duplicate copy
of such written minutes shall be provided to each Committee Member.
(f) A Committee Member shall have the right by written notice
to the Presiding Chairman to designate an alternate Person to attend
meetings of the Members Committee, instead and in place of such
Committee Member, and to exercise all of the functions of such
Committee Member. Any such alternate shall be deemed to be a Committee
Member for all purposes hereunder until such designation is revoked. A
Committee Member shall also have the right to give a written proxy to
any other Committee Member for a specific meeting to exercise all
voting rights of the Committee Member at such meeting.
(g) Notice of each regular meeting and each special meeting of
the Members Committee shall be given in writing to each Committee
Member at least fourteen (14) business days before such meeting.
Notices of special meetings shall contain a description, in reasonable
detail, of the items of business to be conducted at such meeting and no
business other than those items (unless expressly and unanimously
agreed to by all of the Committee Members) may be conducted at such
special meeting. The notice provisions of this Section 3.4(g) shall be
waived upon either the signing of a written waiver thereof or
attendance at a meeting by all of the Committee Members appointed by
each Member.
3.5 Voting. Except as provided in the next sentence, any action that
may be taken by the Members Committee, including without limitation in exercise
of the powers set forth in Section 3.3, shall require the affirmative vote of a
majority of Committee Members present (in person or by proxy) at the meeting;
provided that in the event that all Committee Members representing any Member
shall abstain from the vote on any matter (because of a conflict of interest or
for any other reason), the outcome of such vote shall be determined by the
affirmative vote of Committee Members representing the other Member entitled to
vote on such matter, and such vote shall constitute the act of the Members
Committee with respect to such matter. Notwithstanding the foregoing, any action
taken by the Members Committee with respect to the items enumerated in Section
3.3(a)(i) through Section 3.3(a)(viii) shall require the unanimous affirmative
vote of all Committee Members; provided that as long as there is any vacancy on
the Members Committee the affirmative vote of all of the Committee Members then
serving shall be sufficient. A quorum of any meeting of the Members Committee
shall require the presence (in person or by proxy) of at least six (6) Committee
Members. Each Committee Member shall be entitled to one vote regarding all
matters coming before the Members Committee and each Committee Member may vote
in the best interests of the Member who appointed him or her, and shall have no
duty to consider or to vote with regard to the best interests of the Company or
any other Member.
3.6 Deadlock. Deadlock Resolution.
(a) If the Members Committee fails to adopt, by the requisite
affirmative vote, the annual Budget and Business Plan for the Company
prior to the first day of any fiscal year of the Company, the Company
shall be operated in accordance with the annual Budget and Business
Plan for the next previous fiscal year of the Company until the Members
Committee adopts the annual Budget and Business Plan for the relevant
fiscal year.
(b) If the Members Committee fails to resolve, by the
requisite affirmative vote, any matter submitted thereto (other than
the annual Budget and Business Plan), within ninety (90) days after
such matter is first referred to the Members Committee, then each
Member shall appoint a delegate in order to resolve such disagreement.
Such delegates shall then meet as necessary to resolve such
disagreement and attempt to resolve such disagreement by mutual
agreement. If such delegates fail to resolve the disagreement within
ninety (90) days of their appointment, no action with respect to such
matter will be taken by the Company.
(c) If either Wilsey or Harvest States shall give the other
written notice of its proposal that a Public Offering and/or the
incorporation of the Company take place, as contemplated by Section
11.2(c), each of them shall enter into good faith discussions with the
other concerning the proposed terms and conditions and the business,
legal and tax consequences to the Company and each other of the
proposal. If, within ninety (90) days after the giving of such notice
both Wilsey and Harvest States shall have failed to consent to such
proposal, or some modification thereof, as contemplated by Paragraph
11.2(c), then, either Wilsey or Harvest States (but no other Member)
shall have the right to initiate the buy-sell procedure described in
Article 7 of this Agreement (the "Buy-Sell Procedure"). If the Buy-Sell
Procedure is initiated pursuant to this Section 3.6(c), the Initial
Offer shall be not less than the balance of the capital account of the
Offeree Member, as set forth in Article 7.
3.7 Members. Notwithstanding anything contained herein to the contrary,
the Members reserve the right, power and authority by unanimous written consent
to take the following actions:
(a) to amend the Certificate;
(b) to amend the Agreement;
(c) to approve the dissolution or liquidation of the Company
other than as required by the Act;
(d) to direct the Members Committee to take any action or
make, modify or amend any decision.
ARTICLE 4
OFFICERS AND EMPLOYEES
4.1 Officers. The officers of this Company shall include a chief
executive officer ("CEO"), two Executive Vice Presidents, a Secretary, a
Treasurer and such other officers, including a chief operating officer ("COO"),
as the CEO shall recommend for the operation and management of this Company. The
powers, rights, duties and responsibilities of the officers shall be as provided
in this Agreement or determined by the Members Committee. The CEO shall
recommend to the Members Committee the appointment, discharge or replacement of
the COO (if any), the Secretary, the Treasurer and other officers (excluding the
Executive Vice Presidents appointed pursuant to section 4.4 below) of the
Company.
4.2 Chief Executive Officer. The CEO shall have the responsibility for
the general active day-to-day management of the business of the Company. The CEO
shall see that all orders and resolutions of the Members Committee are carried
into effect. Except to the extent otherwise directed by the Members Committee,
the CEO shall have the general powers and duties usually vested in the office of
the Chief Executive Officer of a Delaware corporation and shall have such other
powers and perform such other duties as may from time to time be prescribed by
the Members Committee.
Jack Davis shall serve as the initial CEO of the Company until his
resignation or removal and subject to the terms of the Employment Agreement.
4.3 Treasurer. The Treasurer shall be the Chief Financial Officer of
the Company and shall have the care and custody of the Company's funds and
securities and shall disburse the funds of the Company as may be ordered from
time to time by the Members Committee or the CEO. The Treasurer shall keep or
cause to be kept full and accurate accounts of receipts and disbursements in
books belonging to the Company and shall deposit all moneys and other valuable
effects and all securities of the Company in the name and to the credit of the
Company in such depositories as may be designated from time to time by the
Members Committee. Except to the extent that some other person or persons may be
specifically authorized by the Members Committee to so do, the Treasurer shall
make, execute and endorse all checks and other commercial paper on behalf of the
Company. The Treasurer shall report the financial condition of the Company when
requested to do so by the Members Committee or the CEO and shall perform such
other duties as may from time to time be prescribed by the Members Committee or
the CEO.
4.4 Secretary. The Secretary shall keep or cause to be kept at the
principal executive office of the Company with the books and records of the
Company, or such other place as the CEO may order, a complete book of written
minutes of all proceedings of the Members and of the Members Committee, with the
time and place of holding, whether regular or special, and if special how
authorized, the notice thereof given, the names of those present and the number
of votes present or represented at Members' or Members Committee meetings, and
all written consents in lieu of meetings. The Secretary or an assistant
secretary, or, if they are absent or unable or refuse to act, any other officer
of the Company, shall give or cause to be given notice of all the meetings of
the Members required by the Agreement or by law to be given, and he or she shall
keep the seal of the Company, if any, in safe custody and shall have such other
powers and perform such other duties as may be prescribed by the CEO or by this
Agreement or by the Members Committee.
4.5 Executive Vice Presidents. Each of Wilsey and Harvest States shall
have the right to appoint one Executive Vice President of the Company and
replace such Executive Vice President, at any time in its sole discretion. Such
Executive Vice Presidents shall have such compensation, powers and duties as
determined by the Members Committee. No such Executive Vice President, so
appointed by Wilsey or Harvest States may be removed or replaced except by the
Member appointing him.
ARTICLE 5
INTENTIONALLY OMITTED
ARTICLE 6
DISPUTE RESOLUTION
6.1 Dispute Resolution. The Members desire to avoid all forms of
traditional litigation, subject to the provision for preliminary injunctive
relief described in Section 6.1(d) below. Any dispute, controversy or claim of
any nature whatsoever between the Members arising out of or relating to this
Agreement or the breach, termination or invalidity of this Agreement or any
related agreements, whether in contract, tort or equity, or under any statute or
regulation arising out of or relating to such agreements, the relationship
between or among the Members or any circumstances pertaining to the creation or
termination thereof, including without limitation, claims of discrimination,
breach of fiduciary duty, bad faith, or interference with other business
opportunities and including determining in the first instance the interpretation
or scope of this dispute resolution agreement and other preliminary
jurisdictional questions (a "Dispute"), shall be resolved in accordance with
this Article 6. All other remedies to which the Members (including their
respective Affiliates) may otherwise have been entitled, whether at law or in
equity, are hereby waived to the fullest extent allowed by law. The obligations
under this Article 6 shall survive the dissolution of the Company.
The preceding provision notwithstanding, if a Dispute arises out of
third-party litigation against any Member, these procedures shall not be
mandatory, and such Member shall have the right to engage in such litigation
with the third-party claimant and with other Members concerning such Dispute.
For purposes of this exception pertaining to Disputes arising out of third-party
litigation, a third-party means a party (i) which is not an Affiliate of a
Member, (ii) has no record or beneficial financial, ownership or other
significant interest in or with a Member and (iii) in which a Member has no
record or beneficial financial, ownership or other significant interest.
(a) Informal Dispute Resolution. The Members shall initially
attempt in good faith to resolve any Dispute promptly by confidential
negotiations between representatives of the Members with authority to
settle the matter. All such negotiations shall be treated as compromise
and settlement negotiations for purposes of the relevant rules of
evidence. Any Member making a claim shall give the other Member written
notice that the Member is invoking the dispute resolution procedures of
this Article 6 with respect to a specified Dispute. Within ten (10)
days after delivery of the written notice, the receiving Members shall
submit to the other Member a written response. The notice and the
response shall include (a) a statement of each Member's position and a
summary of arguments supporting that position, and (b) the name of the
Person(s) who will represent that Member and the name of any other
Person who will accompany the representative(s) to the meeting. Within
thirty (30) days after delivery of the written notice, the
representatives of both parties shall meet at a mutually acceptable
time and place (or failing such agreement at the Company's
headquarters), or confer by telephone and thereafter as often as they
reasonably deem necessary, to attempt to resolve the Dispute.
(b) Mediation. If the Dispute has not been resolved by
negotiation within forty-five (45) days of the initial written notice,
any Member may notify the other Members that it intends to submit such
Dispute to non-binding mediation under the then current model procedure
for mediation of business disputes promulgated by CPR. In such event
the Members shall mediate the Dispute. The Members shall promptly
attempt to agree upon a reputable and experienced mediation service.
Failing agreement within five (5) days after the notice of intent to
mediate has been given by a Member, the mediator will be selected in
accordance with the previously mentioned CPR procedure. Any such
mediation process shall be conducted in Los Angeles, California and
must be completed within seventy-five (75) days of delivery of the
initial written notice unless otherwise agreed by the Members.
(c) Formal Dispute Resolution.
(i) Any Dispute which remains unresolved seventy-five
(75) days after delivery of the initial written notice shall
be promptly resolved by final and binding arbitration. Such
arbitration shall be conducted pursuant to the CPR Rules
except to the extent herein otherwise provided. The place of
arbitration shall be Los Angeles, California unless all
Members which are parties to the arbitration agree to a
different locale. There shall be a single neutral and
impartial arbitrator appointed by CPR experienced in the
subject matter of the Dispute and who has not had a material
personal or financial relationship with any participant to the
Dispute or any Affiliate of any such participant in the
preceding three years, to be selected in accordance with the
CPR Rules. The arbitration shall be conducted in the English
language, provided that a witness may testify in another
language if the party calling such witness shall provide a
competent interpreter at such party's expense. The arbitrator
shall follow the laws of the State of California (without
regard to conflict of law provisions) in resolving any
Dispute, provided that any question concerning arbitrability
shall be governed exclusively by the United States Arbitration
Act as then in force. Each Member hereby waives any right to
and the arbitrator shall not have the power to award punitive,
exemplary, double or treble damages. The award of the
arbitrator shall be final and binding, and judgment on it may
be entered in any court having jurisdiction. The Members agree
that any decision or award resulting from proceedings in
accordance with this dispute resolution provision shall have
no preclusive or other effect in any other matter between the
Members or involving a third-party.
(ii) The arbitrator may consolidate an arbitration
under this Agreement with any other arbitration between the
Members if the subject of the Dispute arises out of or relates
essentially to the same facts or transaction(s). No other
person may be included in the arbitration of a Dispute,
whether by consolidation, joinder or in any other manner,
except by written consent of the Members which are parties to
the Dispute.
(d) Injunctive Relief. The Members agree that notwithstanding
anything to the contrary contained herein, any Member may seek a
temporary restraining order or a preliminary injunction from any court
of competent jurisdiction in order to prevent immediate and irreparable
injury, loss or damage; provided such Member has commenced in good
faith an informal dispute resolution proceeding pursuant to this
Article 6. The arbitrator once appointed shall have the power to modify
or vacate such temporary restraining order or preliminary injunction or
to issue a restraining order or injunction.
(e) Confidentiality. The dispute resolution proceedings
contemplated by this Article 6 shall be as confidential and private as
permitted by law. To that end, the Members shall not disclose the
existence, content or results of any proceedings conducted in
accordance with this provision, and materials submitted in connection
with such proceedings shall not be admissible in any other proceeding,
provided, however, that this confidentiality provision shall not
prevent a petition to vacate or enforce an arbitral award, and shall
not bar disclosures required by law.
(f) Limitations Period. The statutes of limitation of the
State of California shall be applicable to the arbitration of any
Dispute hereunder just as if such arbitration were a lawsuit between
the Members, except that all applicable statutes of limitation and
defenses based upon the passage of time shall be tolled during the
pendency of any informal dispute resolution or mediation under Sections
6.1(a) and (b).
ARTICLE 7
BUY-SELL RIGHT
7.1 Buy-Sell.
(a) For purposes of this Article 7, only Harvest States or
Wilsey may be the Initiating Member or Other Member for purposes of
delivering any Offer or Acceptance contemplated below. No Additional
Member or Substituted Member shall be entitled or obligated to sell any
part of its Membership Interest nor to purchase any part of the
Membership Interest of Harvest States or Wilsey under this Article in
the event either Harvest States or Wilsey initiate Buy-Sell Procedures
herein.
(b) If Harvest States or Wilsey (the "Initiating Member")
shall have the right to initiate these Buy-Sell Procedures pursuant to
Section 3.6(c) or Section 12.3 of this Agreement, such right shall be
exercisable by written notice (the "Initial Offer") to the other Member
(the "Other Member"), to offer to buy the Other Member's Membership
Interest in the Company at a Price and upon the other terms specified
in the Initial Offer, including the Total Value from which such Price
was derived.
(c) Upon receipt of an Initial Offer pursuant to Section
7.1(a) or any subsequent Offer pursuant to Section 7.1(c), the Other
Member shall be obligated, within 60 days after such receipt, to do one
of the following:
(i) Deliver to the Initiating Member its Acceptance
of such Offer; or
(ii) Deliver to the Initiating Member an Offer to
purchase the Membership Interest in the Company held by the
Initiating Member at a Price, based upon a Total Value at
least equal to 105% of the Total Value specified in the
Initial Offer to the Other Member.
(d) Upon receipt of any Offer pursuant to Section 7.1(b), the
Initiating Member shall be obligated, within 60 days after such
receipt, to do one of the following:
(i) Deliver to the Other Member its Acceptance of
such Offer; or
(ii) Deliver to the Other Member an Offer to purchase
the Membership Interest in the Company held by the Other
Member at a Price based upon a Total Value at least equal to
105% of the Total Value specified in the most recent Offer to
the Initiating Member.
(e) The process set forth in Sections 7.1(b) and 7.1(c) above
shall continue, with each Member receiving an Offer to purchase its
Membership Interest in the Company being obligated, within 60 days of
receipt of such Offer, to accept same or offer to purchase the
Membership Interest of the other Member at a Price based upon a Total
Value at least equal to 105% of the Total Value specified in the most
recent Offer received from such other Member, until a Member accepts an
Offer. In the event a Member receiving an Offer fails, within 60 days
after receipt thereof, either to deliver its Acceptance of such Offer
or deliver a new Offer, as provided above, to purchase the Membership
Interest of the other Member, then such Member shall be conclusively
deemed to have accepted the Offer to purchase its Membership Interest
and to have delivered its Acceptance of such Offer to the other Member.
(f) Upon the delivery by a Member of an Acceptance of any
Offer delivered hereunder, the closing of the purchase to be made
pursuant thereto (the "Closing") shall take place on the date
established by the purchasing party (not less than 10 days nor more
than 120 days after delivery of such Acceptance), or, if federal or
applicable state agencies' approval for such assignment is required,
not more than thirty days after such approval has been obtained. At the
Closing, the purchasing Member and the selling Member shall deliver
such certificates and such assignment documents in customary form as
may be reasonably requested in order to consummate the transaction, and
the purchasing Member shall deliver the purchase price in immediately
available funds to such bank account as shall have been specified by
the selling Member at least three days prior to the closing (or, if no
such notice has been given, by delivery of a certified or bank check).
At such Closing, the selling Member shall sell and transfer its
Membership Interest to the purchaser free and clear of Liens other than
Liens arising out of Company financing and shall so warrant to the
purchasing Member. The selling Member shall also represent and warrant
to the purchasing Member that the selling Member has good and
marketable title to the Membership Interest being sold and transferred.
In addition, each of the selling Member and the purchasing Member shall
make customary representations and warranties to the other including
representations and warranties with respect to organization, valid
existence, authorization, and non-contravention. With respect to
obligations arising out of Company financing, the purchasing Member
shall, in addition to paying the Price as provided above, either (i)
satisfy or otherwise obtain release from all liability on the part of
the selling Member and its Affiliates with respect to all obligations
of the Company, including debt and lease obligations, which such
selling Member and/or its Affiliates shall have guaranteed, or (ii)
indemnify and hold harmless the selling Member and its Affiliates
against such liability and secure such indemnification with a letter of
credit or payment bond reasonably satisfactory to such selling Member.
7.2 Certain Agreements.
(a) The parties acknowledge that the intent of this Article 7
is, following an Initial Offer, to create a private auction between the
Members with increases in the Total Value (from which the offered Price
of a Membership Interest is derived) in 5% increments, until a Member
buys another Member's entire Membership Interest in the Company.
(b) In the event a Member accepts an Offer to sell its
Membership Interest and either the buyer or the seller fails timely to
consummate such purchase, then the non-defaulting party may seek
judicial redress in the courts of the State of California in and for
the County of Los Angeles against the defaulting party, where such
relief may include, but need not necessarily be limited to, an award of
damages, specific performance, and/or an injunction. In such case, the
Dispute Resolution provisions of Article 6 shall not apply. Without
limiting the foregoing, in such event the non-defaulting party may
elect to purchase the Membership Interest of the defaulting party at
the Price such non-defaulting party initially offered to purchase the
Membership Interest of the defaulting party either as the Initial Offer
or the immediately subsequent Offer to the Initial Offer.
(c) Notwithstanding the foregoing, a Member shall not be
entitled to make an Initial Offer or subsequent Offer pursuant to this
Article 7 if (i) such Member shall have ceased to be a member of the
Company by reason of its dissolution or the transfer of its Percentage
Interest (ii) such Member shall have become unable to pay its debts
generally as they become due or shall make a general assignment for the
benefit of creditors, or shall file a petition in bankruptcy, or shall
have been adjudicated or declared bankrupt or insolvent, or shall file
a petition or answer seeking, consenting to or acquiescing in any
reorganization, arrangement, adjustment, composition, readjustment,
liquidation, dissolution or similar relief under any present or future
statute, law or regulation, or shall file an answer admitting or not
contesting the material allegations of a petition or answer filed
against it for or proposing any such relief or if any proceeding
against such Member of the type referred to herein seeking any such
relief shall not have been dismissed within thirty (30) days after
commencement thereof or if a trustee, receiver or liquidator of such
Member or of any material part of such Member's assets or properties
shall be appointed with the consent or acquiescence of such Member, or
if any such appointment not so consented to or acquiesced in, shall
remain unvacated or unstayed or such trustee, receiver or liquidator
shall not have been dismissed or discharged for an aggregate of thirty
(30) days (whether or not consecutive), (iii) such Member shall be in
default with respect to any of its material obligations under this
Agreement (including without limitation failure to pay any amount when
due thereunder), or (iv) except for dissolutions under Sections 12.2(b)
and 12.2(c), the Company shall have been dissolved or be in the process
of dissolution and liquidation under the provisions of Article 12.
(d) Without limiting any of the foregoing, the Members shall
not, and shall cause each of their respective Affiliates not to, (i)
take any action the effect of which would prevent or frustrate the
carrying out of the procedures contemplated by this Article 7 or (ii)
at any time (whether before or after any termination of this Agreement)
make any assertion, claim or defense that this Article 7 or any of the
provisions hereof violate or are inconsistent with the terms of this
Agreement or any laws or public policies.
ARTICLE 8
CAPITAL CONTRIBUTIONS
8.1 Capital Accounts.
(a) A single capital account shall be maintained for each
Member (regardless of the class of interests owned by such Member and
regardless of the time or manner in which such interests were acquired)
in accordance with the capital accounting rules of section 704(b) of
the Code, and the Income Tax Regulations thereunder (including
particularly section 1.704-l(b)(2)(iv) of the Income Tax Regulations)
(a "Capital Account").
(b) In general, under such rules, a Member's Capital Account
shall be:
(i) Increased by (x) the amount of money contributed
by the Member to the Company (including the amount of any
make-up contributions made by such Member pursuant to Section
8.3(b) and the amount of any Company liabilities that are
assumed by such Member other than in connection with
distribution of Company property); (y) the Fair Market Value
(determined in accordance with Section 8.9(c) hereof) of
property contributed by the Member to the Company (net of
liabilities secured by such contributed property that the
Company is considered to assume or take subject to under
section 752 of the Code); and (z) allocations to the Member of
Company Profits; and
(ii) Decreased by (w) the amount of money distributed
to the Member by the Company (including the amount of such
Member's individual liabilities that are assumed by the
Company other than in connection with contribution of property
to the Company); (x) the Fair Market Value (determined in
accordance with Section 8.9 hereof) of property distributed to
the Member by the Company (net of liabilities secured by such
distributed property that such Member is considered to assume
or take subject to under section 752 of the Code); (y)
allocations to the Member of expenditures of the Company not
deductible in computing its taxable income and not properly
capitalized; and (z) allocations to the Member of Company
Losses; and
(iii) Increased or decreased by any Revaluation Gain
or Revaluation Loss determined under Section 8.7.
8.2 Initial Contributions of Capital. On or before the Effective Date,
Wilsey and Harvest States shall each make the contributions of assets and
liabilities to the Company as set forth on Schedule I hereto.
8.3 Additional Contributions by Members.
(a) In the event that the Members Committee determine that an
additional capital contribution, payable in cash or other property (or
combination thereof), is necessary or advisable, each Member will be
notified in writing by the Members Committee, at least sixty (60) days
prior to the date on which such capital contribution is payable (the
"Due Date"), of the amount of the capital contribution required from
each of them, on a pro rata basis, determined in accordance with such
Member's respective Percentage Interest, and the Due Date for such
capital contribution. Each such capital contribution shall be payable
in cash unless otherwise determined by vote of the Members Committee.
Such contributions, when made by a Member, shall be credited to such
Member's Capital Account.
(b) In the event that a Member fails to make a required
capital contribution on or prior to the Due Date thereof (a "Defaulting
Member"), the other Members, who have made their respective capital
contributions and are not Affiliate Transferees of the Defaulting
Member (the "Non-Defaulting Members"), within thirty (30) days
following the mailing of notice from the Company that payment from the
Defaulting Member has not been made, may (but shall not be obligated
to) [by a vote of the Non-Defaulting Members representing a majority of
the Percentage Interests of the Non-Defaulting Members exercise any or
all of the following remedies with respect to the contribution which
the Defaulting Member failed to make to the capital of the Company (a
"Default Amount"):
(i) Withdraw the required capital contributions
contributed by each of the Non-Defaulting Members from the
Company;
(ii) Pay to the Company the Default Amount on behalf
of the Defaulting Members;
provided that each of the Non-Defaulting Members shall be
required to contribute a portion of the Default Amount that is
equal to such Non-Defaulting Member's Percentage Interest
divided by the Percentage Interests of all Non-Defaulting
Members unless the Non-Defaulting Members otherwise agree to
contribute different percentages of the Default Amount. To the
extent that a Default Amount shall be paid in whole or in part
by one or more Non-Defaulting Members, the Capital Accounts of
the Non-Defaulting Members who make such payment and their
Percentage Interests shall be appropriately increased and the
Percentage Interest of the Defaulting Member shall be
appropriately decreased.
(iii) Initiate and maintain an action, under the sole
control of the Non-Defaulting Members, against the Defaulting
Member for the Default Amount and to pursue any available
remedy, including but not limited to seeking payment by the
Defaulting Member of such Default Amount or the unpaid portion
thereof and damages incurred by the Company in connection
therewith. The costs of any action commenced by the Company
pursuant to this Section 8.3(b)(iii) shall be paid by the
Company and shall be reimbursed by the Defaulting Member to
the Company and to the extent not so reimbursed shall be
deducted from such Defaulting Member's Capital Account and
Adjusted Capital Contributions.
8.4 Member Obligations. No Member shall have any obligation to restore
any portion of any deficit balance in such Member's Capital Account, whether
upon liquidation of its interest in the Company, liquidation of the Company or
otherwise.
8.5 Withdrawals of Capital Accounts. No Member shall be entitled to
withdraw any amount from its Capital Account prior to dissolution of the
Company.
8.6 Interest on Capital Accounts. No interest or compensation shall be
paid on or with respect to the Capital Account or capital contributions of any
of the Member, except as otherwise expressly provided herein.
8.7 Revaluation of Company Assets.
(a) The assets of the Company shall be revalued in accordance
with Section 8.9 hereof to their then Fair Market Values as of the date
of and immediately prior to (i) the acquisition of an additional
interest in the Company (including adjustments to Percentage Interests
arising as a result of a failure of any Member to make a required
capital contribution pursuant to Section 8.3 hereof) by any new or
existing Member in exchange for more than a de minimis capital
contribution to the Company, (ii) the distribution by the Company of
more than a de minimis amount of property as consideration for the
redemption of a portion (but not all) of a Member's interest in the
Company and (iii) the liquidation of a Member's entire interest in the
Company, or immediately prior to the distribution of Company assets in
liquidation of the Company within the meaning of Income Tax Regulations
section 1.704-l(b)(2)(ii)(g); provided, however, that no revaluation
shall occur if the Members Committee reasonably determines that a
revaluation would not materially affect the Capital Accounts of the
Members or that the cost of such revaluation would be disproportionate
to any benefit to be derived by the Members from such revaluation.
(b) Immediately prior to the distribution of any asset by the
Company, the Members Committee shall revalue such asset to its then
Fair Market Value.
(c) Any Revaluation Gain or Revaluation Loss arising from a
revaluation of any Company asset pursuant to this Section 8.7 shall
respectively be credited to or debited from the Members' Capital
Accounts in accordance with their respective Percentage Interests
immediately prior to the event giving rise to such revaluation.
8.8 Redetermination of Percentage Interests. The respective Percentage
Interests of each of the Members shall be redetermined immediately after the
election of the Non-Defaulting Members to contribute the Default Amount pursuant
to Section 8.3(b)(ii) or (b) the admission of an Additional Member pursuant to
Section 11.
8.9 Determination of Fair Market Value. The Fair Market Value, as of
the date of determination, of any asset shall be determined (a) by mutual
agreement of the Members or (b) if no such agreement is reached within ten days
of the relevant date of determination, as follows:
(a) Selection of Appraisers. Each of (A) the Member who is
either contributing an asset to the Company, receiving an asset as a
distribution from the Company or transferring an asset which is being
valued hereunder (or, if there is no such Member, Wilsey) (the "Asset
Member") and (B) the other Members shall designate by written notice to
the Company and each Member a firm of recognized national standing
familiar with appraisal techniques applicable to assets of the type
being evaluated to serve as an Appraiser pursuant to this Section 8.9
(the firms designated by the Asset Member and the other Members being
referred to herein as the "First Appraiser" and the "Second Appraiser,"
respectively) within five business days after the expiration of the ten
day period referred to in clause (b) above. In the event that either
the Asset Member or the other Members fail to designate its or their
Appraiser within the foregoing time period, the other(s) shall have the
right to designate such Appraiser by rectifying the failing party or
parties in writing of such designation (and the Appraiser so designated
shall be the First Appraiser or the Second Appraiser, as the case may
be).
(b) Evaluation Procedures. Each Appraiser shall be directed to
determine the Fair Market Value of the asset. Each Appraiser will also
be directed to deliver an Appraiser's Certificate to each Member on or
before the 30th day after their respective designation (the
"Certificate Date"), upon the conclusion of its evaluation, and each
Appraiser's Certificate once delivered may not be retracted or modified
in any respect. Each Appraiser shall keep confidential all information
disclosed by the Company in the course of conducting its evaluation,
and, to that end, will execute such customary documentation as the
Company may reasonably request with respect to such confidentiality
obligation. The Members shall cooperate in causing the Company to
provide each Appraiser with such information within the Company's
possession which may be reasonably requested in writing by the
Appraiser for purposes of its evaluation hereunder. The Appraisers
shall consult with each other in the course of conducting their
respective evaluations. Each Member shall have full access to each
Appraiser's work papers. Each Appraiser shall be directed to comply
with the provisions of this Section 8.9, and to that end each Member
shall provide to its respective Appraiser a complete and correct copy
of this Section 8.9 (and the definitions of capitalized terms used in
this Section 8.9 that are defined elsewhere in this Agreement).
(c) Fair Market Determination. The Fair Market Value of any
asset shall be determined on the basis of the Appraisers' Certificates
in accordance with the provisions of this subparagraph (iii), each of
which shall be simultaneously delivered to each Member. The higher of
the values set forth in the Appraisers' Certificates is hereinafter
referred to as the "Higher Value" and the lower of such values is
hereinafter referred to as the "Lower Value". If the Higher Value is
not more than 110% of the Lower Value, the Fair Market Value will be
the arithmetic average of such two Values. If the Higher Value is more
than 110% of the Lower Value, a third appraiser shall be selected in
accordance with the provisions of subparagraph (iv) below, and the Fair
Market Value shall be determined in accordance with the provisions of
subparagraph (v) below.
(d) Selection of and Procedure for Third Appraiser. If the
Higher Value is more than 110% of the Lower Value, then within seven
days after delivery to the Members of the Appraiser's Certificates, the
First Appraiser and the Second Appraiser shall agree upon and jointly
designate a third firm of recognized national standing familiar with
appraisal techniques applicable to assets of the type being evaluated
to serve as an appraiser pursuant to this Section &.9 (the "Third
Appraiser"), by written notice to each Member. If, within ten days
after delivery of the Appraiser's Certificates, as provided in clause
(iii) above, the First Appraiser and the Second Appraiser shall have
failed to so designate the Third Appraiser, then any Member may apply
to the American Arbitration Association to appoint the Third Appraiser
which shall be a firm of recognized national standing familiar with
appraisal techniques applicable to assets of the type being evaluated.
The Members shall direct the Third Appraiser to determine the Fair
Market Value of the asset (the "Third Value") in accordance with the
provisions of subparagraph (ii) above, and to deliver to the Members an
Appraiser's Certificate on or before the 30th day after the designation
of such Appraiser hereunder. The Third Appraiser shall be directed to
comply with the provisions of this Section 8.9, and to that end the
parties shall provide to the Third Appraiser a complete and correct
copy of this Section 8.5 (and the definitions of capitalized terms used
in this Section 8.9 that are defined elsewhere in this Agreement).
(e) Alternative Determination of Fair Market. Upon the
delivery of the Appraiser's Certificate of the Third Appraiser, the
Fair Market Value shall be determined as provided in this subparagraph
(v). The Fair Market Value shall be (w) the Lower Value, if the Third
Value is less than the Lower Value, (x) the Higher Value, if the Third
Value is greater than the Higher Value, (y) the arithmetic average of
the Third Value and the other Value (Lower or Higher) that is closer to
the Third Value if the Third Value falls within the range between (and
including) the Lower Value and the Higher Value and (z) the Third
Value, if the Lower Value and the Higher Value are equally close to the
Third Value.
(f) Costs. Each of the Asset Member and the other Members
shall bear the cost of the Appraiser designated by it or on its behalf.
If the Higher Value is not more than 115% of the Lower Value, or if the
Higher Value and the Lower Value are equally close to the Third Value,
each of the Asset Member and the other Members shall bear 50% of the
cost of the Third Appraiser, if any; otherwise, the party whose
Appraiser's determination of Fair Market Value is further away from the
Third Value shall bear the entire cost of the Third Appraiser. The
Members agree to pay when due the fees and expenses of the Appraisers
in accordance with the foregoing provisions.
(g) Conclusive Determination. To the fullest extent provided
by law, the determination of the Fair Market Value made pursuant to
this Section 8.9 shall be final and binding on the Company and the
Members and such determination shall not be appealable to or reviewable
by any court or arbitrator; provided that the foregoing shall not limit
a Member's rights to seek arbitration of the obligations of the other
Members and the Company hereunder.
(h) Initial Capital Contributions. The Members hereby agree that
the Fair Market Value of the Wilsey Assets and the Holsum Assets, as
defined in the Joint Venture Agreement, shall be as specified in
Schedule I.
ARTICLE 9
ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS
9.1 Allocation of Profits and Losses.
(a) Company Profits and Losses, and items of income, gain,
loss and deduction included in determining Profits and Losses, shall be
allocated among the Members as provided in this Section. As set forth
in the definition of Profit and Loss, the amounts allocated under this
Section are determined by using Asset Value, which may be based on Fair
Market Value at the time of contribution or revaluation pursuant to
Section 8.7. The allocation of taxable income and loss is governed by
Section 9.2.
(b) Except as otherwise provided in this Section 9.1, Company
Profits, Losses and items of income, gain, loss and deduction included
in determining Profits and Losses shall be allocated among the Members
proportionately in accordance with their respective Percentage
Interests as set forth on Schedule I and, if applicable, as
redetermined under Section 8.8.
(c) Minimum Gain Chargeback. Notwithstanding anything to the
contrary in this Article 9, if there is a net decrease in "Partnership
Minimum Gain" or "Partner Nonrecourse Debt Minimum Gain" (as such terms
are defined in sections 1.704-2(b) and 1.704-2(i)(2), respectively, of
the Income Tax Regulations) during a Company taxable year, then each
Member shall be allocated items of Company income and gain for such
year (and, if necessary, for subsequent years), to the extent required
by, and in the manner provided in, section 1.704-2 of the Income Tax
Regulations.
This provision is intended to be a "minimum gain chargeback"
within the meaning of sections 1.704-2(f) and 1.704-2(i)(4) of the
Income Tax Regulations and shall be interpreted and implemented as
therein provided.
(d) Qualified Income Offset. Subject to the provisions of
Section 9.1(c), but otherwise notwithstanding anything to the contrary
in this Article 9, if any Member's Capital Account has a deficit
balance in excess of such Member's obligation to restore its Capital
Account balance, computed in accordance with the rules of paragraph
(b)(2)(ii)(d) of section 1.704-1 of the Income Tax Regulations
(including such Member's share of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain as provided in sections 1.704-2(g) and
1.704-2(i)(5) of the Income Tax Regulations), then sufficient amounts
of income and gain (consisting of a pro rata portion of each item of
Company income, including gross income, and gain for such year) shall
be allocated to such Member in an amount and manner sufficient to
eliminate such deficit as quickly as possible. This provision is
intended to be a "qualified income offset" within the meaning of
section 1.704-l(b)(2)(ii)(d) of the Income Tax Regulations and shall be
interpreted and implemented as therein provided.
(e) Loans. Except as otherwise provided in Section 9.1(g), if
and to the extent any Member is deemed to recognize income as a result
of any loans described herein pursuant to the rules of sections 1272,
1273, 1274, 1274A, 7872, 482 or 483 of the Code, or any similar
provision now or hereafter in effect, any corresponding resulting
deduction of the Company shall be allocated to the Member who is
charged with the income. Subject to the provisions of section 704(c) of
the Code and Sections 9.1(c) (d) and (g) hereof, if and to the extent
the Company is deemed to recognize income as a result of any loans
described herein pursuant to the rules of sections 1272, 1273, 1274,
1274A, 7872, 482 or 403 of the Code, or any similar provision now or
hereafter in effect, such income shall be allocated to the Member who
is entitled to any corresponding resulting deduction.
(f) Change in Interests. Except as provided in Section 9.1(e)
hereof or as otherwise required by law, if the Company Interests of the
Members are changed herein during any taxable year, all items to be
allocated to the Members for such entire taxable year shall be prorated
on the basis of the portion of such taxable year which precedes each
such change and the portion of such taxable year on and after each such
change according to the number of days in each such portion, and the
items so allocated for each such portion shall be allocated to the
Members in the manner in which such items are allocated as provided in
this Article 9 during each such portion of the taxable year in
question.
(g) Losses.
(i) Items of deduction and loss attributable to
recourse liabilities of the Company (within the meaning of
section 1.752-l(a)(1) of the Income Tax Regulations, but
excluding "partner nonrecourse debt" within the meaning of
section 1.7042(b)(4) of the Income Tax Regulations) shall be
allocated among the Members in accordance with the ratio in
which the Members share the economic risk of loss (within the
meaning of section 1.752-2 of the Income Tax Regulations) for
such liabilities.
(ii) Items of deduction and loss attributable to
"Partner Nonrecourse Debt" within the meaning of section
1.704-2(b)(4) of the Income Tax Regulations shall be allocated
to the Members bearing the economic risk of loss with respect
to such debt in accordance with section 1.704-2(i) of the
Income Tax Regulations.
(iii) Items of deduction and loss attributable to the
Company's "Nonrecourse Liabilities" within the meaning of
section 1.704-2(b)(3) of the Income Tax Regulations shall be
allocated among the Members proportionately in accordance with
their Percentage Interests.
(iv) All other items of operating net loss ("Net
Loss") shall be allocated among the Members, proportionately
in accordance with their Percentage Interests, except that Net
Loss shall not be allocated to any Member to the extent it
would create a deficit balance in excess of such Member's
obligation to restore its capital account balance, computed in
accordance with the rules of section 1.704-l(b)(2)(ii)(d) of
the Income Tax Regulations (including such Member's share of
Partnership Minimum Gain and Partner Nonrecourse Debt Minimum
Gain as provided in sections 1.704-2(g) and 1.704-2(i)(5) of
the Income Tax Regulations). Any Net Loss which cannot be
allocated to a Member because of the limitation set forth in
the previous sentence shall be allocated first to the other
Members to the extent such other Members would not be subject
to such limitation and second any remaining amount to the
Members in the manner required by the Code and the Income Tax
Regulations.
(h) Purpose and Application. The purpose and the intent of the
special allocations provided for in Sections 9.1(c), (d), and (g) are
to comply with the provisions of sections 1.704-l(b) and 1.704-2 of the
Income Tax Regulations, and such special allocations are to be made so
as to accomplish that result. However, to the extent possible, the
Members in allocating items of income, gain, loss, or deduction among
the Members shall take into account the special allocations in such a
manner that the net amount of allocations to each Member shall be the
same as such Member's distributive share of Profits and Losses would
have been had the events requiring the special allocations not taken
place. The Members shall apply the provisions of this Section 9.1 in
whatever order they reasonably believe will minimize any economic
distortion that otherwise might result from the application of the
special allocations.
9.2 Allocation of Taxable Income and Loss.
(a) General. Items of income, gain, loss, and deduction
reported for federal income tax purposes shall be allocated in the same
manner as the corresponding items included in Profits and Losses and
allocated under Section 9.1, except as provided in this Section 9.2.
(b) Section 704(c) Allocations. A Member's distributive share
of income, gain, loss, or deduction with respect to any tangible
property with Asset Value that differs from Basis shall be determined
in accordance with the principles of the "remedial allocation method"
set forth in section 1.704-3(d) of the Income Tax Regulations. A
Member's distributive share of income, gain, loss, or deduction with
respect to any intangible property with Asset Value that differs from
Basis shall be determined in accordance with the principles of the
"traditional allocation method" set forth in section 1.704-3(b) of the
Income Tax Regulations.
(c) Recapture. Subject to the provisions of section 704(c) of
the Code and Sections 9.1 and 5.2(b) hereof, gain recognized (or deemed
recognized under the provisions hereof) upon the sale or other
disposition of Company property, which is treated as depreciation
recapture, shall be allocated to the Member who was entitled to deduct
such depreciation.
(d) Credits. Except as otherwise required by law, tax credits
shall be allocated among the Members pro rata in accordance with the
manner in which Company profits are allocated to the Members under this
Article 9, as of the time the credit property is placed in service or
if no property is involved, as of the time the credit is earned.
Recapture of any tax credit required by the Code shall be allocated to
the Members in the same proportion in which such tax credit WAS
allocated.
(e) Conformity of Reporting. The Members hereby agree to be
bound by the provisions of this Article 9 in reporting their shares of
Company income, loss, credits and other items for income tax purposes.
9.3 Distribution of Assets by the Company.
(a) Subject to any restrictions under applicable law, as
promptly as practical after the end of each quarter, but in any event
within thirty (30) days after the end of each quarter, the Company
shall estimate the Company's Net Profits and Net Operating Available
Cash for the fiscal year to date and shall distribute to the Members
the lesser of (i) 50% of the Company's estimated Net Profits and (ii)
all of the Company's estimated Net Operating Available Cash, in each
case reduced by any amounts distributed with respect to the fiscal year
to date. Subject to any restrictions under applicable law, as promptly
as practical after the end of the fiscal year but in any event within
sixty (60) days after the end of the fiscal year, the Company shall
distribute to the Members the lesser of (i) 50% of the Company's Net
Profits; and (ii) all Net Operating Available Cash of the Company (as
determined based on the Company's financial statements for the relevant
fiscal year), reduced by any amounts distributed to date to the Members
with respect to such fiscal year. Other distributions, whether in cash
or in kind, shall be made to the Members at such times and in such
amounts as shall be determined by the Members Committee. The amount of
any in-kind distribution shall be distributed on the basis of the
property's then Fair Market Value (determined in accordance with
Section 8.9 hereof).
(b) Except as provided in Section 5.3(c), distributions shall
be made among the Members in accordance with their respective
Percentage Interests at the time of such distribution.
(c) Upon liquidation of the Company, within the meaning of
Income Tax Regulations section 1.704-l(b)(2)(ii)(g), distributions
shall be made among the Members as provided in Section 12.4.
(d) All matters not expressly provided for by the terms of
Article 9 or elsewhere in this Agreement concerning the valuation of
any assets of the Company, the allocation of profits and losses and
items thereof (including credits) among the Members and accounting
procedures shall be agreed by the Members or referred to arbitration
under Article 6.
9.4 Wilsey Deferred Tax Distributions. The Company shall make
distributions to Wilsey to satisfy the Company's Wilsey Net Deferred Income Tax
Liability. These distributions shall be determined as follows:
(a) Reversal through Depreciation. The Company shall make
distributions to Wilsey on or before March 15 of each year equal to the
product of (i) the tax rate used in determining the Wilsey Net Deferred
Income Tax Liability, and (ii) the excess of (x) depreciation that
would have been allocated to Wilsey for the preceding year under
Section 9.1 if the Asset Value of property contributed by Wilsey were
equal to the book value of such property on Wilsey's Closing Balance
Sheet (as defined in the Joint Venture Agreement) on the contribution
date over (y) tax depreciation allocated to Wilsey for the preceding
year in respect to such property under Section 9.2(b).
(b) Reversal through Dispostion. The Company shall make
distributions to Wilsey on or before March 15 of each year equal to the
product of (i) the tax rate used in determining the Wilsey Net Deferred
Income Tax Liability and (ii) the excess of gain or loss on
dispositions during the preceding year of Wilsey-contributed property
that would have been allocated to Wilsey under Section 9.1 if Asset
Value had been equal to book value on the contribution date over tax
gain or loss allocated under Section 9.2(b).
ARTICLE 10
TAX MATTERS AND REPORTS; ACCOUNTING
10.1 Filing of Tax Returns. The Members Committee shall prepare and
file, or cause the accountants of the Company to prepare and file, all federal,
state and local Tax Returns for each tax year of the Company and shall upon
request, provide copies of such Tax Returns to each Member.
10.2 Tax Matters Partner.
(a) The "Tax Matters Partner" of the Company within the
meaning of section 6231(a)(7) of the Code shall be Harvest States.
Unless otherwise expressly provided herein, the Tax Matters Partner is
authorized to take any action that it determines to be necessary or
appropriate with respect to all tax matters, provided that the Tax
Matters Partner shall not have the authority to bind any other Member
to any consent, determination, resolution of a dispute or other legal
matter.
(b) The Tax Matters Partner shall promptly advise the other
Members of all audits or other actions by the Internal Revenue Service
and shall furnish to the Company and to each Member a copy of each
notice or other communication received by the Tax Matters Partner from
the Internal Revenue Service except such notice or communication sent
directly to the Members by the Internal Revenue Service. All expenses
incurred by the Tax Matters Partner in its capacity as such shall be
expenses of the Company and shall be paid by the Company.
(c) To the fullest extent permitted by law, the Company shall
indemnify Members on an after-tax basis against any liabilities
incurred while acting as the Tax Matters Partner of the Company but
only to the extent such Member acts within the scope of its authority
as Tax Matters Partner under this Agreement or the Tax Matters Partner
has acted in reliance on advice of the Company's tax accountants or
legal counsel or at the direction of the Members Committee. The Tax
Matters Partner shall not be indemnified against any liability
regarding Company tax matters arising by reason of the willful
misconduct, bad faith, gross negligence or reckless disregard of the
duties of the Tax Matters Partner.
10.3 Tax Reports to Current and Former Members. After the end of each
fiscal year, the Company shall, in a timely manner, prepare and mail, or cause
its accountants to prepare and mail, to each Member and, to the extent
necessary, to each former Member (or its legal representatives), a report
setting forth in sufficient detail such information as is required to be
furnished to members or partners by law (e.a., section 6031(b) of the Code and
the Income Tax Regulations thereunder) and as shall enable such Member or former
Member (or its legal representatives) to prepare their respective federal and
state income tax or informational returns in accordance with the laws, rules and
regulations then prevailing and, if requested, a full copy of the Company's Tax
Return.
10.4 Accounting Records. Independent Audit. Complete books and records
accurately reflecting the accounts, business, transactions and Members of the
Company shall be maintained and kept by the Company at the Company's principal
place of business. The accounting records of the Company shall be maintained to
assure preparation of the financial statements in accordance with GAAP. The
accounting records of the Company shall be audited by a firm of independent
certified public accountants selected by the Management Committee.
10.5 Fiscal Year. Except as may otherwise be required by the federal
tax laws, the fiscal year of the Company for both financial and tax reporting
purposes shall end on December 31.
10.6 Tax Accounting Method. The books and accounts of the Company shall
be maintained using the accrual method of accounting for tax purposes.
10.7 Withholding. Notwithstanding any other provision of this
Agreement, the Members Committee is authorized to take any action that it
determines to be necessary or appropriate to cause the Company to comply with
any federal, state and local withholding requirement with respect to any
allocation, payment or distribution by the Company to any Member or other
Person. All amounts withheld to satisfy any federal, state or local withholding
requirement with respect to a Member shall be treated as distributions to such
Member. If any such withholding requirement with respect to any Member exceeds
the amount distributable to such Member under this Agreement, or if any such
withholding requirement was not satisfied with respect to any amount previously
allocated or distributed to such Member, such Member and any successor or
assignee with respect to such Member's interest in the Company hereby, to the
fullest extent permitted by law, indemnifies and agrees to hold harmless the
Members and the Company for such excess amount or such withholding requirement,
as the case may be.
10.8 Tax Elections. Upon the request of a transferee of an Interest in
the Company or a distributee of a Company distribution, the Company shall make
the election under section 754 of the Code in accordance with applicable Income
Tax Regulations thereunder for the first fiscal year in which such election
could apply. The Company may seek to revoke such election (if made) if agreed to
by the Members Committee. In addition to the foregoing, the Members Committee
shall, determine whether to make any other available tax elections and select
any other appropriate tax accounting methods and conventions for any purpose
under this Agreement.
10.9 Prior Tax Information. Each Member agrees to deliver to the
Company all relevant information regarding Taxes that the Company will require
in order to comply with its own tax accounting and reporting requirements,
including without limitation schedules setting forth the fair market value and
tax basis of each asset that may from time to time be contributed by a Member to
the Company; provided, however, that no Member shall be required to disclose the
income tax returns of itself or any of its Affiliates.
ARTICLE 11
TRANSFER AND ASSIGNMENT OF INTERESTS;
PUBLIC OFFERING; ADDITIONAL MEMBERS
11.1 Transfer and Assignment of Interests. Except as provided in
Section 11.2, no Member shall be entitled to Transfer, all or any part of its
Membership Interest, including any economic interest therein except with the
prior written approval of each other Member, which approval may be given or
withheld as the other Members may determine in their sole discretion. Any
Transfer of a Membership Interest in contravention of this Article 11 shall be
null and void and of no force whatsoever. No Member, without the prior written
consent of the other Members, shall retire or withdraw from the Company.
11.2 Permitted Transfers. Notwithstanding Section 11.1, commencing with
the third anniversary of the Effective Date, the Members may Transfer all or any
part of their respective Membership Interests as follows:
(a) Wilsey and Harvest States may each Transfer privately, at
any time and from time to time, a portion of their respective
Membership Interests free of any right of first refusal on the part of
any Member and without the consent of any Member, so long as
immediately after such Transfer, the transferor shall own not less than
25.5% of the outstanding Membership Interests in the Company.
(b) Subject to Section 11.2(a) above, and the procedures set
forth in Section 11.4, any Member who receives a bona fide written
offer to purchase all or a part of its Membership Interest may Transfer
all or any part of its Membership Interest in the Company in a case
other than that permitted under Section 11.2(a) or 11.2(c), subject,
however, to rights of first refusal in favor of the other Members. For
purposes of this paragraph 11.2(b), a right of first refusal shall mean
the right of the other Members to purchase the offering Member's
offered Membership Interest at a price and upon the terms and
conditions contained in a bona fide offer from a third party to
purchase such offered interest, all in accordance with the procedures
set forth in Section 11.4.
(c) Any Member may Transfer all or a part of its Member's
Interest in the Company free and clear of the restrictions and rights
of first refusal set forth in Sections 11.1, 11.2(a) and 11.2(b) above
pursuant to a Public Offering of securities of the Company by the
Company and/or by one or more Members of the Company, and all such
restrictions on Transfer and rights of first refusal shall terminate
upon the consummation of such Public Offering, provided that provided
that neither a Public Offering nor the incorporation of the Company in
connection therewith shall occur without the prior written consent of
(i) the holders of a majority of the Membership Interests, and (ii)
Wilsey and Harvest States. Nothing in this Paragraph 11.2(c) shall be
deemed to obligate either Wilsey or Harvest States to consent to a
Public Offering or incorporate nor entitle either of them (or any other
Member) to have any of their respective Membership Interests or other
securities in the Company included in such Public Offering. Wilsey and
Harvest States each acknowledge their interest in pursuing the
possibility of a Public Offering in the future and each agrees, upon
the request of the other, to discuss and consider in good faith the
feasibility of a Public Offering, recognizing that a Public Offering
may, as a practical matter, require the incorporation of the Company.
In any such discussion, the parties agree to consider (i) providing
preferential rights to the Members and/or their members or shareholders
to subscribe for the purchase of securities in the Public Offering, and
(ii) providing rights to the Members to have Company securities owned
by them included in the Public Offering, all subject to the approval of
the underwriters of the Public Offering. Wilsey and Harvest States
acknowledge that the incorporation of the Company in connection with a
Public Offering may cause Harvest States and its members to lose the
benefit of certain tax exempt "patronage dividends". In agreeing to
discuss and consider in good faith the feasibility of a Public
Offering, Harvest States may take the loss of such benefit into account
as well as the benefits to be derived from a Public Offering by it and
its members.
11.3 Assignment of Right to Appoint Committee Members. In the event of
any transfer pursuant to Sections 11.2(a) or 11.2(b) above, the transferor
Member may, in its discretion, assign to the transferee the right to appoint one
or more representatives to the Members Committee out of the selling Member's
right to appoint five (5) such representatives provided that, so long as the
transferor Member retains an interest in the Company of at least 25.5%, such
transferor Member shall retain (and may not assign) its right to appoint at
least three (3) representatives to the Members Committee.
11.4 Right of First Refusal Procedures. If any Member (hereinafter
"Selling Member") should receive a bona fide written offer for the purchase of
all or any part of its Membership Interest in a transfer other than that
permitted under Section 11.2(a) or 11.2(c), the Selling Member shall give
written notice of said offer to the remaining Members ("Offeree Members"). The
Membership Interest being offered for sale shall be first offered for sale to
the Offeree Members at the same price and upon the same terms as that offered by
the offeror to the Selling Member. Each Offeree Members shall have the right to
purchase such percentage of the Membership Interest being offered for such as
the Percentage Interest owned by it to the total Percentage Interests owned by
all Offeree Members desiring to exercise their right of first refusal. The
purchasing Offeree Members shall exercise their right to purchase all of said
Membership Interest offered for sale by giving written notice of acceptance of
the offer to the Selling Member within sixty (60) days from receipt of written
notice of the offer as provided in this Section.
If the Offeree Members do not exercise their right to purchase
all of the Membership Interest offered for sale within the prescribed
sixty (60) day period, said Membership Interest may then be sold by the
Selling Member to the offeror upon the terms and conditions no more
favorable that set forth in the bona fide written offer; provided,
however, that said Membership Interest purchased by the offeror shall
remain subject to this Agreement; and provided, however, that such sale
shall be completed within one hundred twenty (120) days after the
failure of the Offeree Members to exercise their right to purchase such
Membership Interest, in which case any sale of such Membership Interest
shall again be subject to the terms of this right of first refusal.
11.5 Assignees and Substituted Members.
(a) In the event of a Transfer of part or all of any
Membership Interest permitted pursuant to the provisions of this
Article XI, the Assignee of such Membership Interest shall become a
Member hereunder upon and subject to compliance with Section 11.5(b).
If Section 11.5(b) is not complied with, the Person to whom such
Transfer is made shall not become a Member hereunder and shall be
considered only an Assignee of the Membership Interest and, as such,
shall only be entitled to share in those distributions, if any, in
which its assignor would be eligible. An Assignee who does not comply
with Section 11.5(b) shall have no right to require any information or
accounting of any transactions of the Company or inspect the Company
books and records.
(b) An Assignee of a Membership Interest pursuant to a
Transfer permitted under the provisions of this Article may become a
Substituted Member with all the rights and liabilities of its assignor
under the Agreement (except as limited by Section 11.3) if and only if
[] (i) the Assignee expressly assumes and agrees to be bound by the
Agreement, (ii) the appropriate instruments, documents, or statements,
if any, are prepared, executed, acknowledged, filed, recorded,
published and delivered as required by the law, (iii) the Assignee pays
or obligates itself to pay any and all reasonable expenses of the
Company connected with such substitution, and (iv) the Assignee causes
to be delivered to the Company, at its sole cost and expense, a
favorable opinion of legal counsel reasonably acceptable to the other
Members, to the effect that (1) the contemplated Transfer of such
Membership Interest to the Assignee will not violate any applicable
federal or state laws, including securities laws, (2) the Assignee has
the legal right, power and capacity to own the Membership Interest, (3)
the contemplated Transfer will not cause the Company to cease to be
classified as a partnership for federal tax purposes, and (4) the
contemplated Transfer will not cause any of the Members any material
adverse tax consequences. Upon compliance with all provisions hereof
applicable to such Person becoming a Member, all other Members agree to
execute and deliver such amendments hereto as are necessary to
constitute such Person a Member of the Company.
(c) Upon a Transfer by a Member of all or part of its
Membership Interest and substitution of a Substituted Member with
respect to all or such portion of its Membership Interest, the
transferring Member shall cease to be a Member to the extent of the
Membership Interest so Transferred.
(d) The admission of a Substituted Member shall not result in
the release of the Member who assigned the Membership Interest from any
liability that such transferor Member may have incurred prior to the
assignment and substitution.
11.6 Additional Members. With the unanimous consent of the Members,
acting by and through the Members Committee, the Company may issue additional
Membership Interests for such consideration and on such terms and conditions and
to such Persons as the Members, acting through the Members Committee, shall
unanimously approve, provided that (i) the Person or Persons to whom such
additional Membership Interests are to be issued ("Additional Members")
expressly assume and agree to be bound by this Agreement, (ii) the appropriate
instruments, documents or statements, if any, are prepared, executed,
acknowledged, filed, recorded, published and delivered as required by law, (iii)
if required by the Company, the Additional Member or Additional Members pays or
obligates itself or themselves to pay any and all reasonable expenses of the
Company incurred in connection with the issuance of such additional Membership
Interests, and (iv) the Company shall have received the favorable opinion of
legal counsel to the Company reasonably acceptable to the existing Members of
the Company to the effect that (1) the issuance of such additional Membership
Interests to such Additional Member or Additional Members will not violate any
applicable federal or state laws, including securities laws, (2) the Additional
Member or Additional Members have the legal right, power and capacity to own the
additional Membership Interests, (3) the issuance of the additional Membership
Interests will not cause the Company to cease to be classified as a partnership
for federal tax purposes, and (4) the issuance of such additional Membership
Interests will not cause any of the Members any material adverse tax
consequences.
ARTICLE 12
DISSOLUTION AND LIQUIDATION
12.1 Events of Dissolution. The Company shall be dissolved upon (a)
October 1, 1996 if the Effective Date shall not have occurred, (b) an election
to dissolve the Company pursuant to Section 12.2, (c) the expulsion, bankruptcy
or dissolution of a Member, or the occurrence of any other event that results in
a Member ceasing to be a Member of the Company under the Act; provided, the
Company shall not be dissolved and required to be wound up in connection with
any of the events specified in this clause (d) if within ninety (90) days after
the occurrence of such event, all of the remaining Members agree in writing to
continue the business of the Company and to the appointment, if necessary or
desired, effective as of the date of such event, of one or more additional
Members of the Company, (e) the entry of a decree of judicial dissolution
pursuant to Section 18-802 of the Act, and (vi) the unanimous written consent of
the Members.
12.2 Voluntary Dissolution. Either Wilsey or Harvest States but no
other Member may elect, upon the occurrence of any of the following events, by
written notice to the Company and the other Members, to require the Company to
dissolve and wind up in accordance with the terms of this Article 12:
(a) If the other Member shall, for any reason, fail to make
all of the initial capital contributions required to be made by such
other Member under Section 8.2 and the Joint Venture Agreement, when
and as required by Section 8.2.
(b) If the Company shall at any time have cumulative losses,
as reflected in the most recent financial statements of the Company, in
excess of $25,000,000; or
(c) If the Company is unable to discharge its liabilities as
they become due.
12.3 Buy-Sell Procedure Rights. Upon the occurrence of any event
described in 12.2(b) or 12.2(c) above either Wilsey or Harvest States may
initiate the Buy-Sell Procedure described in Article 7. If the Buy-Sell
Procedure has been or is initiated by a Member, then the Company shall not be
dissolved notwithstanding a request therefor under Section 12.2. Any initiation
of the Buy-Sell Procedure by a Member after a request for dissolution has been
made must take place on or before sixty (60) days following receipt by such
Member of the written notice requesting dissolution of the Company. If the
Buy-Sell Procedure is initiated pursuant to this Section 12.3, there shall be no
minimum Initial Offer.
12.4 Liquidation and Order of Dissolution. In all cases of dissolution
of the Company, the Business of the Company shall be continued to the extent
necessary to allow an orderly winding up of its affairs, including the
liquidation and termination of the Company pursuant to the provisions of this
Article 12, as promptly as practicable thereafter, and each of the following
shall be accomplished:
(a) The Liquidator shall cause to be prepared a statement
setting forth the assets and liabilities of the Company as of the date
of dissolution, a copy of which statement shall be furnished to each
Member.
(b) The property and assets of the Company shall be liquidated
by the Liquidator as promptly as possible, but in an orderly and
businesslike manner. The Liquidator may, in the exercise of its
business judgment, determine not to sell all or any portion of the
remaining assets of the Company, in which event such remaining assets
shall be distributed in kind pursuant to Section 12.4(d).
(c) Any gain or loss realized by the Company upon the sale of
its assets shall be deemed recognized and allocated to the Members in
the manner set forth in Article 9. To the extent that an asset is to be
distributed in kind, such asset shall be deemed to have been sold at
its Fair Market Value on the date of distribution, the gain or loss
deemed recognized upon such deemed sale shall be allocated in
accordance with Article 9 and the amount of the distribution shall be
considered to be such fair market value of the asset.
(d) The proceeds of sale and all other assets of the Company,
including Operating Cash Flow of the Company, shall be applied and
distributed as follows and in the following order of priority:
(i) To pay (or make reasonable provision for the
payment of) all creditors of the Company, including to the
extent permitted by law, Members or their Affiliates who are
creditors, in satisfaction of liabilities of the Company in
the order of priority provided by law, including expenses
relating to the dissolution and winding up of the affairs of
the Company (including, without limitation, expenses of
selling assets of the Company, discharging the liabilities of
the Company, distributing the assets of the Company and
terminating the Company as a limited liability company in
accordance with this Agreement and the Act); and
(ii) To the Members in proportion to their respective
positive Capital Account balances, as those balances are
determined after all adjustments to such Capital Accounts as
required by this Agreement for all periods immediately prior
to such distribution.
(iii) If the Company shall be dissolved by reason of
the failure of the Effective Date to occur prior to October 1,
1996, then, anything hereinabove to the contrary
notwithstanding, Wilsey and Harvest States shall be liable for
all of the liabilities and expenses of the Company incurred
through the date of dissolution, in the proportions of 60% and
40%, respectively, subject to any rights or remedies each may
have against the other arising out of the Joint Venture
Agreement, this Agreement or any other matter.
12.5 Liquidator. The Members Committee is hereby named as the
Liquidator and the Chairman thereof is irrevocably appointed as the true and
lawful attorney in the name, place and stead of each of the Members, such
appointment being coupled with an interest, to make, execute, sign, acknowledge
and file with respect to the Company all papers which shall be necessary or
desirable to effect the dissolution, liquidation and termination of the Company
in accordance with the provisions of this Article. Notwithstanding the
foregoing, if either Wilsey or Harvest States objects to the Members Committee
acting as the Liquidator, then the Members will cooperate in naming a third
party to act as Liquidator, or if the Members are unable to agree on a third
party Liquidator within thirty [30] days after the event of dissolution, either
Member may seek a court appointed Liquidator. Without limiting the foregoing,
the Liquidator shall, upon the final dissolution of the Company, file an
appropriate certificate to such effect in the proper governmental office or
offices under the Act as then in effect. Notwithstanding the foregoing, each
Member, upon the request of the Liquidator, shall promptly execute, acknowledge
and deliver all such documents, certificates and other instruments as the
Liquidator shall reasonably request to effectuate the proper dissolution,
liquidation and termination of the Company, including the winding up of the
Business of the Company.
12.6 Termination of Company. The Company shall be terminated upon (a)
completion of any dissolution and liquidation thereof pursuant to the provisions
of this Article, and (b) preparation, execution, acknowledgment, filing,
recordation, publication, delivery and/or cancellation of any instruments,
documents or statements if and as required by the Act, the Code or any other
applicable laws.
12.7 Orderly Winding Up. Notwithstanding anything to the contrary in
this Article 12 upon winding up and liquidation, if required to maximize the
proceeds of liquidation, the Members may, upon unanimous approval, transfer the
assets of the Company to a liquidating trustee or trustees.
ARTICLE 13
INDEMNIFICATION AND EXCULPATION; CERTAIN AGREEMENTS
13.1 Indemnification of the Members. The Company shall indemnify and
hold harmless the Members, the Committee Members, and their Affiliates, and
their respective Agents and/or the legal representatives of any of them, and
each other Person who may incur liability as a Member or otherwise in connection
with the management or ownership of the Company (each, an "Indemnified Party"),
against all liabilities and expenses (including amounts paid in satisfaction of
judgments, in compromise, as fines and penalties, and as counsel fees)
reasonably incurred by him, her or it in connection with the investigation,
defense or disposition of any action, suit or other proceeding, whether civil or
criminal, in which any Indemnified Party may be involved or with which he, she
or it may be threatened, while a Member or serving in such other capacity or
thereafter, by reason of its being or having been a Member, or by serving in
such other capacity, except with respect to any matter which constitutes willful
misconduct, bad faith, gross negligence or reckless disregard of the duties of
his office, or criminal intent. The Company shall have the right to approve any
counsel selected by any Indemnified Party and to approve the terms of any
proposed settlement. The rights accruing to a Member and each other Indemnified
Party under this Section 13.1 shall not exclude any other right to which it or
they may be lawfully entitled; provided that any right of indemnity or
reimbursement granted in this Section 13.1 or to which any Indemnified Party may
be otherwise entitled may only be satisfied out of the assets of the Company,
and no Member and no withdrawn Member shall be personally liable with respect to
any such claim for indemnity or reimbursement. Notwithstanding any of the
foregoing to the contrary, the provisions of this Section 13.1 shall not be
construed so as to provide for the indemnification of a Member or any other
Indemnified Party for any liability to the extent (but only to the extent) that
such indemnification would be in violation of applicable law or such liability
may not be waived, modified or limited under applicable law, but shall be
construed so as to effectuate the provisions of this Section 13.1 to the fullest
extent permitted by law.
13.2 Reimbursement and Indemnity. If a Member shall, pursuant to
authorization of or approval by the Members Committee or a final judgment of a
court of competent jurisdiction or in compliance with law or order of any
governmental agency, pay any amount on behalf of or for the account of the
Company with respect to any liability, obligation, undertaking, damage, or claim
for which the Company shall or may, pursuant to contract or applicable law, be
liable or responsible, or with respect to making good any loss or damage
sustained by, or paying any duty, cost, claim, or damage incurred by, the
Company, then the Company shall reimburse such Member for such amount as shall
have been so paid by such Member. If the Company shall fail fully to reimburse
such paying Member, the other Member shall indemnify such paying Member by
paying to it that share of the excess of (a) such payments over (b) the
aggregate reimbursement, if any, which such paying Member shall have received
from the Company in respect of such payments, as shall be proportionate to the
other Member's Percentage Interest. This Section 13.2 shall have no application
to any liability incurred by the Company to a Member pursuant to any contract
between the Company and such Member, including without limitation, the Long Term
Supply Agreement between the Company and Harvest States referred to in Section
2.7(c) of the Joint Venture Agreement.
13.3 Exculpation. No Officer, Committee Member, Company employee,
Member or Affiliate thereof or their respective Agents and/or the legal
representatives of any of them shall be liable to any Member or the Company for
mistakes of judgment or for any action or inaction which may cause or result in
any loss or damage to the Company or the other Members unless such action or
inaction constitutes fraud or willful misconduct. Each Member may (on its own
behalf or on the behalf of any Committee Member or Officer designated by such
Member, any Affiliates of such Member or their respective Agents and/or legal
representatives of any of them), consult with counsel, accountants and other
experts in respect of the Company's affairs and such Person shall be fully
protected and justified in any action or inaction which is taken in accordance
with the advice or opinion of such counsel, accountants or other experts;
provided that they shall have been selected with reasonable care. The Members
shall have no duties or obligations to the Company or the other Members unless
expressly imposed by this Agreement.
13.4 Indemnification Relating To Initial Contributions. Wilsey and
Harvest States each hereby agree to indemnify and hold harmless each other from
and against any and all liability, loss or damage which shall result from the
failure of either of them, for any reason, to timely make the initial
contributions of capital to the Company required by Section 8.2. Such indemnity
shall include, but shall not be limited to, the reimbursement by the defaulting
party of the non-defaulting party for 100% of all organizational expenses
incurred by the non-defaulting party in connection with the Joint Venture
Agreement, this Agreement and the transactions contemplated thereby and hereby,
including but not limited to the expenses provided in Section 14.2 of the Joint
Venture Agreement to be reimbursed by the Company.
The indemnification provided for in this Section 13.4 shall apply only
in the case of the failure of either Wilsey or Harvest States to timely make the
initial capital contributions required by Section 8.2 and shall not apply to
their respective obligations to contribute additional capital to the Company or
to any other of their respective obligations under this Agreement, preserving
unto each of Wilsey and Harvest States, however, such rights as may be afforded
them under applicable law in the case of a breach of any of such other
obligations.
ARTICLE 14
MISCELLANEOUS
14.1 Notices. All notices, requests, demands or other communications
required by or otherwise with respect to this Agreement shall be in writing and
shall be deemed to have been duly given to any party (i) where delivered
personally (by courier service or otherwise), (ii) when delivered by facsimile
and confirmed by return facsimile, (iii) on the business day after the date sent
by a nationally recognized overnight courier service, or (iv) seven days after
being mailed by first-class, registered or certified mail, postage prepaid and
return receipt requested, in each case to the applicable addresses set forth
below:
If to Harvest States: Harvest States Cooperatives
P.O. Box 64594
1667 Snelling Avenue
N. St. Paul, Minnesota 55164
Attn: Senior Vice President
Consumer Products Packaging
Facsimile: (612) 641-6832
With copies to: Harvest States Cooperatives
P.O. Box 64594
St. Paul, Minnesota 55164
Attention: Legal Department
Facsimile: (612) 641-6832
If to Wilsey: Wilsey Foods, Inc.
14840 East Don Julian Road
City of Industry, CA 91746
Attn: President
Facsimile: (818) 336-4217
With copies to: Mitsui & Co., Ltd.
2-1, Ohtemachi 1-chome
Chiyoda-ku
Tokyo 100, Japan
Attention: General Manager
Oil Seeds, Oils &
Fats Division (TKPOZ)
Facsimile: 81-3-3285-9032
or to such other address or facsimile number as any party may have furnished to
the other parties in writing in accordance with this Section 14.1.
14.2 Governing Law. This Agreement shall be governed by, interpreted,
and construed in accordance with the laws of the State of Delaware, without
regard to Delaware choice of law provisions.
14.3 Amendments.
(a) This Agreement may be modified or amended only by an
instrument in writing signed by each Member, and, as so modified and
amended, shall inure to the benefit of all of the Members.
(b) Wilsey and Harvest States acknowledge that in the event of
the admission of one or more Additional Members or Substituted Members
of the Company, appropriate revision of portions of this Agreement will
be necessary, to be mutually agreed by Wilsey and Harvest States as a
condition of the admission of such Additional Member or Substituted
Member.
14.4 Entire Agreement. Except to the extent other agreements are
specifically referred to herein, this Agreement constitutes the entire agreement
between the Members with respect to the matters covered hereby and thereby and
supersedes all prior agreements, understandings, offers and negotiations, oral
or written.
14.5 Waiver of Partition. Each Member hereby irrevocably waives any
and all rights that it may have to maintain an action for partition of any of
the Company's property.
14.6 Consents. All consents, agreements and approvals required or
permitted by this Agreement shall be in writing and a signed copy thereof shall
be filed and kept with the books of the Company.
14.7 Successors. Subject to Articles 11, all rights and duties of the
Members hereunder shall inure to the benefit of and be binding upon their
respective successors and assigns.
14.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
14.9 Severability. Each provision of this Agreement shall be considered
severable and if for any reason any provision which is not essential to the
effectuation of the basic purposes of the Agreement is determined by a court of
competent jurisdiction to be invalid or unenforceable and contrary to existing
or future applicable law, such invalidity shall not impair the operation of or
affect those provisions of this Agreement which are valid. In that case, this
Agreement shall be construed so as to limit any term or provision so as to make
it enforceable or valid within the requirements of any applicable law, and in
the event such term or provision cannot be so limited, this Agreement shall be
construed to omit such invalid or unenforceable provisions.
14.10 Survival. All indemnities and reimbursement obligations made
pursuant to this Agreement shall survive dissolution and liquidation of the
Company until expiration of the longest applicable statute of limitations
(including extensions and waivers) with respect to the matter for which a party
would be entitled to be indemnified or reimbursed, as the case may be.
14.11 No Third Party Beneficiaries. Nothing contained in this Agreement
is intended to, or shall, confer upon any Person other than the parties hereto
any rights or remedies hereunder.
IN WITNESS WHEREOF, the Members have executed this Limited Liability
Company Agreement as of the date first hereinabove written.
HARVEST STATES COOPERATIVES
By: /s/ James D. Tibbetts
Name: James D. Tibbetts
Title: Senior Vice President
WILSEY FOODS, INC.
By: /s/ Jack Davis
Name: Jack Davis
Title: President/CEO
EXHIBITS
Schedules
I Members; Capital Contributions; Percentage Interests
II Initial Committee Members
SCHEDULE I
INITIAL CAPITAL CONTRIBUTION OF MEMBERS
<TABLE>
<CAPTION>
====================================================================================================
INITIAL CAPITAL CONTRIBUTION
- - - - ----------------------- --------------------------------------------------- ========================
Percentage
Member Total Interest
- - - - ----------------------- --------------------------------------------------- ========================
<S> <C> <C>
Wilsey The Wilsey Assets described in the Joint Venture 60%
Agreement with an agreed Fair Market Value (net
of the Wilsey Liabilities assumed by the Company)
of $40,544,000
======================= =================================================== ========================
Harvest States The Holsum Assets described in the Joint Venture 40%
Agreement with an agreed Fair Market Value (net
of the Holsum Liabilities assumed by the Company)
of $27,030,000
======================= =================================================== ========================
</TABLE>
SCHEDULE II
INITIAL APPOINTEES TO MEMBERS COMMITTEE
WILSEY HARVEST STATES
------ --------------
Shigeru Endo Steven Burnet
Hiroshi Ito John D. Johnson
Hiroshi Ichikawa Tom F. Baker
Nobutaro Shimizu James Tibbetts
Yasuyuki Suzuki Patrick Kluempke
LONG TERM SUPPLY AGREEMENT
BETWEEN
WILSEY-HOLSUM FOODS L.L.C.
AND
HARVEST STATES COOPERATIVES
AUGUST 30, 1996
- TABLE OF CONTENTS
RECITALS................................................................... 1
1. PRODUCTS; SPECIFICATIONS .............................................. 2
2. MINIMUM QUANTITY REQUIREMENT........................................... 3
3. OPTIONAL QUANTITY; RIGHT OF FIRST REFUSAL ............................. 5
4. QUANTITY DEFICIENCIES ................................................. 7
5. VOLUME FORECASTS....................................................... 11
6. TERM; TERMINATION...................................................... 11
7. MINIMUM QUANTITY PRICE................................................. 13
Definitions: ......................................................... 13
8. WESTERN CASH CRUDE BASIS............................................... 14
9. ADJUSTMENT OF REFINING PREMIUMS........................................ 16
10. ADJUSTMENT OF REFINING LOSS............................................ 17
11. PURCHASE ORDERS: TERMS OF PAYMENT; DELIVERY............................ 17
a) Terms of Payment.................................................... 17
b) Delivery............................................................ 18
12. RISK OF LOSS ......................................................... 18
13. QUALITY; QUALITY CONTROL; QUALITY RESPONSIBILITIES..................... 18
a) Quality............................................................. 19
b) Quality Control..................................................... 19
c) Quality Responsibilities............................................ 19
14. INSPECTIONS............................................................ 19
15. NON-SPECIFICATION PRODUCTS............................................. 20
a) Rejection; Replacement.............................................. 20
b) Reworking........................................................... 21
16. MODIFICATIONS TO SPECIFICATIONS; NEW PRODUCTS.......................... 21
17. FOREIGN OIL............................................................ 24
18. CUSTOMER OIL PURCHASING OPERATIONS..................................... 24
19. SCOPE OF THIS AGREEMENT................................................ 25
20. EDIBLE OIL PURCHASES BY CUSTOMER AFTER SEVENTH CONTRACT
YEAR................................................................... 25
21. MATERIAL ADVERSE EFFECT................................................ 27
22. INDEMNIFICATION BY SUPPLIER............................................ 29
23. INDEMNIFICATION BY CUSTOMER............................................ 30
24. INDEMNIFICATION PROCEDURES............................................. 32
25. INSURANCE.............................................................. 34
26. TRADEMARKS AND TRADE NAMES............................................. 35
27. CONFIDENTIAL INFORMATION............................................... 35
28. RELATIONSHIP OF PARTIES................................................ 37
28. FORCE MAJEURE.......................................................... 37
30. GOVERNING LAW.......................................................... 37
31. ARBITRATION OF REFINING PREMIUM ADJUSTMENTS............................ 38
32. GENERAL DISPUTE RESOLUTION PROVISIONS.................................. 39
33. SEVERABILITY........................................................... 46
34. ASSIGNMENTS............................................................ 46
35. NOTICES................................................................ 47
36. ENTIRE AGREEMENT....................................................... 47
Draft 8/8/96
____________, 1996
LONG TERM SUPPLY AGREEMENT
This Agreement is made and entered into this 30th day of August, 1996,
between WILSEY-HOLSUM FOODS, L.L.C., a Delaware limited liability company
("Customer") and HARVEST STATES COOPERATIVES, a Minnesota corporation
("Supplier").
RECITALS
Pursuant to a Joint Venture Agreement dated August _, 1996 ("Joint
Venture Agreement") between WILSEY FOODS, INC. ("Wilsey") and Supplier, Wilsey
has this date transferred to Customer substantially all of its assets and
liabilities and Supplier has transferred to Customer substantially all of the
assets of its Holsum Foods Division and certain liabilities more particularly
described in the Joint Venture Agreement. As a result of the transaction, Wilsey
is a sixty (60%) percent owner of Customer and Supplier is a forty (40%) percent
owner of Customer. Wilsey and Supplier have entered into a Limited Liability
Company Agreement ("LLC Agreement") under the terms of which Customer is
governed by a Members Committee comprised of an equal number of representatives
of Wilsey and Supplier. It is a condition to the obligations of both Wilsey and
Supplier under the Joint Venture Agreement that this Agreement be entered into
by said parties at the closing of the transactions contemplated by the Joint
Venture Agreement. All references herein to Exhibits, Schedules and Paragraphs
are to the exhibits and schedules attached to this Agreement and to the
Paragraphs of this Agreement.
* * *
1. PRODUCTS; SPECIFICATIONS. The products to be sold by Supplier to Customer
under this Agreement shall be as follows:
a) Soybean Salad Oil;
b) Hydrogenated Soybean Oil 100 I.V. and below;
c) Hydrogenated Soybean Oil above 100 I.V; and
d) subject to Paragraph 16, any other edible oils which Supplier may
hereafter refine during the term of this Agreement.
All of the products described in a) through d) above are hereinafter
collectively referred to as the "Products". The specifications for the Products
described in a) through c) above are attached hereto as Exhibit A. Such
specifications, together with the specifications of any new Products referred to
in d) above, are hereinafter collectively referred to as the "Specifications".
2. MINIMUM QUANTITY REQUIREMENT. Subject to Paragraphs 4 and 7,
Supplier shall be obligated to sell to Customer and Customer shall be obligated
to purchase from Supplier, pursuant to the terms and conditions of this
Agreement, but only out of and subject to Customer's "Requirements", as defined
below, for each calendar year during the term of this Agreement ("Contract
Year"), the greater of (i) 430,000,000 pounds of Products, or (ii) fifty (50%)
percent of such Requirements, provided that if Customer's Requirements for any
Contract Year shall be less than 430,000,000 pounds of Products, then Customer
shall be obligated to purchase from Supplier 100% of Customer's Requirements for
Products during such Contract Year. The amount of Products described in the
preceding sentence of this Paragraph 2 is hereinafter referred to as the
"Minimum Quantity." The obligations of Supplier and Customer pursuant to this
Paragraph 2 are subject to the following:
a) The term "Requirements" as used herein means Customer's
requirements for Products which it shall satisfy through purchases from outside
suppliers, including Supplier, but shall not include that portion, if any, of
Customer's requirements for Products which Customer shall satisfy internally
from its Lou Ana Foods facility at Opelousas, Louisiana.
b) Of the total annual purchases of Products by Customer
within the Minimum Quantity, not less than (***) percent shall be (***).
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
c) Supplier's obligation to sell the Minimum Quantity to
Customer is absolute and subject to no conditions or qualifications, except for
Force Majeure as provided in Paragraph 29. If Supplier, for any reason
whatsoever, shall lack the capacity or otherwise be unable to deliver the
Minimum Quantity to Customer in the quarterly quantities set forth in the
Volume Forecasts provided for in Paragraph 5 and by the requested shipment dates
as provided in Paragraph 11, or if Supplier in its discretion shall so elect,
Supplier shall be obligated, subject to said Force Majeure provision, to
purchase on the open market in the United States for delivery to Customer the
Products necessary to satisfy Supplier's obligation to sell to Customer the
Minimum Quantity in the quantities requested by Customer pursuant to Paragraphs
5 and 11 and at the price and otherwise on the terms and conditions provided in
this Agreement.
3. OPTIONAL QUANTITY; RIGHT OF FIRST REFUSAL. For and during each of
the first seven (7) Contract Years of this Agreement, Supplier shall have the
right of first refusal to sell to Customer and Customer shall be obligated to
purchase from Supplier, to the extent such right of first refusal is exercised,
an amount of liquid or hydrogenated soybean oil (of any kind) equal to (***)
during each of said Contract Years, less the Minimum Quantity ("Optional
Quantity"). Subject to Paragraph 5, during each such Contract Year, Customer
shall, at such times as Customer in its sole discretion shall deem appropriate,
and regardless of whether or not Customer's obligation to purchase the Minimum
Quantity for any Contract Year shall have then been satisfied, disclose to
Supplier the type, quantity, shipment date, payment terms and delivered price of
such soybean oil which Customer is prepared to purchase from a third party,
identifying the third party, and shall offer to purchase the same type and
quantity of such soybean oil from Supplier for the same delivered price to the
relevant Customer Plant and otherwise on the same terms and conditions offered
by such third party. Such offer by Customer (the "Offer") may be made orally and
need not be in writing. Supplier shall advise Customer, not later than 11:00
A.M., Los Angeles time, on the next trading day of the Chicago Board of Trade
after the day upon which such Offer is made, whether Supplier accepts or rejects
such Offer. If Supplier shall fail to advise Customer that it accepts any such
Offer within the time specified in the preceding sentence, such Offer shall be
deemed to have been rejected by Supplier and the obligation of Customer to grant
Supplier a right of first refusal under this Paragraph 3 shall be thereby deemed
to have been satisfied with respect to the number of pounds of soybean oil
stipulated in such Offer. If Supplier shall reject any such Offer within the
time set forth above, Customer shall have the right to purchase the type and
quantity of soybean oil described in such Offer to Supplier from the third party
source identified in such Offer (or from any other source) but only for the same
(or a lower) delivered price to the relevant Customer facility and otherwise on
the same terms and conditions set forth in such Offer to Supplier, or on terms
and conditions not more favorable to the third party supplier than those set
forth in such Offer to Supplier. Complete information relating to any such
purchase from a third party source shall be furnished to Supplier upon request.
Such information shall be limited to information relating to Customer's
purchases of refined soybean oil from third parties after Customer shall have
previously offered to purchase such soybean oil from Supplier pursuant to
Supplier's right of first refusal granted by this Paragraph 3. The purpose of
such information right is to permit Supplier to confirm Customer's compliance
with the provisions of this Paragraph 3. Otherwise, Supplier shall have no right
to any information concerning prices paid by Customer to other suppliers of
refined soybean oil, in any particular or specific transaction, except as
provided in Paragraph 4.
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
4. QUANTITY DEFICIENCIES. If, during any Contract Year, Customer shall,
for any reason whatsoever (other than a "Supplier Deficiency", as defined
below), fail to purchase from Supplier the Minimum Quantity for such Contract
Year, as provided in Paragraph 2, the difference between the Minimum Quantity
and the amount of Products actually purchased during such Contract Year shall be
deemed the "Minimum Quantity Deficiency". If, during any Contract Year, Customer
shall, for any reason whatsoever, other than a Supplier Deficiency, fail to
offer to purchase from Supplier the Optional Quantity for such Contract Year, as
provided in Paragraph 3, the difference between the Optional Quantity and the
amount of Products which Customer shall have actually offered to purchase during
such Contract Year shall be deemed the "Optional Quantity Deficiency". The sum
of the Minimum Quantity Deficiency, if any, and the Optional Quantity
Deficiency, if any, for any Contract Year, shall be deemed the "Quantity
Deficiency" for such Contract Year.
In the event of a Quantity Deficiency for any Contract Year
("Deficiency Contract Year") and absent a Supplier Deficiency during the
Deficiency Contract Year, anything herein above to the contrary notwithstanding,
Customer shall be obligated, during the next succeeding Contract Year
("Succeeding Contract Year"), to offer to purchase all of its Requirements for
Products from Supplier until its purchases of Products, in pounds, equal the
Quantity Deficiency attributable to the Deficiency Contract Year. The purchase
price of Products so purchased in order to satisfy any such Quantity Deficiency
shall be determined in the same manner that the purchase price of the Minimum
Quantity of Products is determined pursuant to Paragraphs 7 and 8,
notwithstanding that the Quantity Deficiency may include an Optional Quantity
Deficiency. The purchase by Customer of Products during the Succeeding Contract
Year, for the purpose of satisfying a Quantity Deficiency attributable to the
preceding Deficiency Contract Year, shall not be counted toward Customer's
obligation to purchase the Minimum Quantity of Products during the Succeeding
Contract Year, provided, however, that Supplier shall not be obligated to sell
to Customer more than the Minimum Quantity of Products in the Succeeding
Contract Year nor any other Contract Year, except to the extent Supplier shall
have accepted Offers to sell to Customer all or part of the Optional Quantity,
pursuant to Paragraph 3. If Customer shall offer to purchase Products from
Supplier in a Succeeding Contract Year for the purpose of satisfying a Quantity
Deficiency from the preceding Deficiency Contract Year and Supplier shall, for
any reason, decline to accept such Offer or Offers, then Customer's obligation
to satisfy such Quantity Deficiency shall be deemed satisfied.
For purposes of this Paragraph 4, a "Supplier Deficiency" means the
inability of Supplier, for any reason whatsoever (including Force Majeure and
regardless of whether the cause thereof constitutes a breach by Supplier of its
obligations under this Agreement) to ship any Product timely ordered by Customer
on or before the shipment date stipulated in Customer's purchase order, in
accordance with the provisions of Paragraph 11.
If a Quantity Deficiency shall occur and shall not be caused, in whole
or in part, by a Supplier Deficiency, such Quantity Deficiency shall not
constitute a breach of this Agreement by Customer, so long as the same is
satisfied in the Succeeding Year by Customer as provided above. If a Supplier
Deficiency shall occur, the same shall not constitute a breach of this Agreement
by Supplier if excused by Force Majeure, as provided in Paragraph 29. If a
Supplier Deficiency constitutes a breach by Supplier of its obligations under
this Agreement, Customer may terminate this Agreement if such Supplier
Deficiency shall continue for more than ninety (90) days and, provided further
that, regardless of the cause of such Supplier Deficiency (including Force
Majeure), if the same shall continue for more than three hundred and sixty-five
(365) days, Customer may terminate this Agreement. Any such termination of this
Agreement by Customer shall be upon thirty (30) days prior written notice to
Supplier. The termination of this Agreement by Customer, as provided above,
shall not be the exclusive remedy by Customer and Customer shall have, in
addition, such other remedies as shall be afforded by law or equity.
For so long as any Supplier Deficiency shall continue, regardless of
its cause, Customer shall have the right to purchase Products from other
suppliers. If, during any Contract Year, there shall exist one or more Supplier
Deficiencies, regardless of their cause or causes, then, the provisions of this
Agreement shall continue to apply during such Supplier Deficiencies and Customer
shall be obligated to purchase the Minimum Quantity and to offer to purchase the
Optional Quantity for such Contract Year, failing which Quantity Deficiencies
shall arise, as provided above and with the same effect as in all other cases
except that:
a) The number of pounds of Products purchased by Customer from
other suppliers during all such Supplier Deficiencies shall firstly be counted
toward Customer's obligation to purchase the Minimum Quantity for the Contract
Year during which such Supplier Deficiencies shall exist; and
b) The number of pounds of Products purchased by Customer from
other suppliers during all such Supplier Deficiencies shall secondly be counted
toward Customer's obligation to offer to purchase the Optional Quantity for the
Contract Year during which such Supplier Deficiencies shall exist, as if
Customer shall have made Offers, pursuant to Paragraph 3, with respect to all
such Products so purchased from such other suppliers in excess of the amount
described in (a) above and as if all such Offers shall have been rejected.
Customer shall have no obligation actually to make any such Offers to Supplier
during the existence of a Supplier Deficiency. Information relating to such
purchases of Products from other suppliers shall be furnished by Customer to
Supplier upon request, subject to the same limitations provided in Paragraph 3
with respect to information relating to purchases of soybean oil from third
parties.
5. VOLUME FORECASTS. Within thirty (30) days prior to (i) the
commencement of the first Contract Year under this Agreement and (ii) March 31,
June 30, September 30 and December 31 of each Contract Year thereafter, Customer
shall furnish Supplier with its Volume Forecast for the ninety (90) day period
commencing on the first day of the next succeeding month ("Quarter"). Each such
Volume Forecast shall be in writing and shall contain Customer's non-binding
estimate of (a) the number of pounds of Products out of the Minimum Quantity
provided for in Paragraph 2 which Customer expects to purchase from Supplier
during such Quarter, and (b) the number of pounds of soybean oil out of the
Optional Quantity provided for in Paragraph 3 which Customer expects to offer to
purchase from Supplier during such Quarter.
6. TERM; TERMINATION. The term of this Agreement shall commence on
January 1, 1997 (the "Commencement Date") and shall expire upon the later of
December 31, 2011 or the date upon which Supplier shall cease to own at least
twenty-five and one-half (25.5%) percent of the total outstanding equity of
Customer. This Agreement may be sooner terminated:
(a) By Customer in the event of a Supplier Deficiency
constituting a breach of this Agreement and continuing for more than ninety (90)
days, as provided in Paragraph 4;
(b) By Customer in the event of a Supplier Deficiency not
constituting a breach of this Agreement and continuing for more than five
hundred and forty (540) days, as provided in Paragraph 4;
(c) By Customer in the event of a material breach by Supplier
of its obligations under this Agreement (other than as provided in (a) above)
but only if such breach is not cured by Supplier within thirty (30) days after
notice thereof by Customer to Supplier; and
(d) By Supplier in the event of a material breach by Customer
of its obligations under this Agreement, including but not limited to its
obligation to timely pay to Supplier the price of Products, but only if such
breach is not cured by Customer within thirty (30) days after notice thereof by
Supplier to Customer.
7. MINIMUM QUANTITY PRICE. Subject to Paragraphs 8 and 9, the price per
pound of Products for the Minimum Quantity of Products shall be F.O.B. (***), as
defined below, and shall be determined in accordance with the following formula:
Price = (***)
Definitions: (***)
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
8. (***) Customer shall furnish Supplier with copies of all pruchase
orders and other documentation reasonably necessary to evidence the purchase
price of such (***).
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
9. ADJUSTMENT OF (***). The parties shall annually
renegotiate all (***) stipulated in this Agreement and all (***) applicable to
each new Product as provided in Paragraph 16. Such negotiations shall commence
within ninety (90) days prior to each anniversary of the Commencement Date (the
"Negotiation Period"). The (***) shall be renegotiated for the purpose of
adjusting them, as nearly as practicable, to (***) which would, as of the
adjustment date, be available to Customer from competitive alternative sources
in the marketplace ("Market Standard"). If the parties shall fail to agree on
the Market Standard and the resulting adjustment to the (***) within sixty (60)
days after the beginning of the Negotiation Period, the disagreement may be
referred to mediation by either party within ten (10) days after the expiration
of said sixty (60) day period. If either party shall so refer the matter to
mediation, the other party shall be obligated to participate in the mediation.
If no settlement of the disagreement is reached through mediation within thirty
(30) days after the end of said sixty (60) day period, the disagreement shall be
referred to binding arbitration as provided in Paragraph 31.
For purposes hereof, "mediation" shall consist of the designation by
the parties of a professional mediator whose fees and expenses shall be equally
borne by the parties. Any settlement recommended or negotiated by the mediator
must be acceptable to both parties in order to be binding upon them.
(***) Denotes confidential information that has been omitted from the exhibit
and filed separately, accompanied by a confidential treatment request,
with the Securities Exchange Commission pursuant to Rule 406 of the
Securities Act of 1933, as amended.
10. ADJUSTMENT OF REFINING LOSS. There shall be no adjustment to the
Refinery Loss during the term of this Agreement unless and until Subsection C
(Adjustments for Loss) of Section 3 (Settlements for Crude Soybean Oil) of Rule
102 (Grade, Quality, Settlements of Crude Soybean Oil and Referee Chemists)
promulgated by the National Oilseed Processors Association shall be amended to
provide for payment by "Shipper" to "Consignee" for more or less than "each 1.0%
loss above 5.0% calculated on the official net weight crude."In the event of any
such change, the Refining Loss shall be proportionately adjusted, upward or
downward, to reflect such change as of the date of such change.
11. PURCHASE ORDERS; TERMS OF PAYMENT; DELIVERY.
a) Terms of Payment. Purchase orders for Products shall be in
writing and received by Supplier at least five (5) days in advance of the
requested shipment date. All Products ordered by Customer hereunder shall be
invoiced by Supplier to Customer as of the date of shipment. Terms of payment
shall be net cash 30 days from date of invoice.
b) Delivery. Although the price of the Minimum Quantity of
Products is F.O.B. Supplier's Plant, as provided in Paragraph 7, the delivery of
such Products and of Products comprising the Optional Quantity, as provided in
Paragraph 3, shall be deemed to have occurred, for all purposes of this
Agreement, when the Products are unloaded from the carrier at the facility of
Customer to which shipment is made ("Customer's Plant"). Notice of delivery
shall be promptly furnished Supplier. Shipping, transportation and delivery
charges shall be paid by Customer and included in the invoices to Customer to
the extent incurred or advanced by Supplier.
12. RISK OF LOSS. Supplier shall bear the risk of loss or damage to
Products until the Products are delivered pursuant to Customer's instructions,
to Customer's Plant. Customer shall bear the risk of loss or damage to Products
after the same shall have been delivered by the carrier to Customer's Plant.
13. QUALITY; QUALITY CONTROL; QUALITY RESPONSIBILITIES.
a) Quality. All Products shall be manufactured, processed and
packaged by Supplier under this Agreement in accordance with the Specifications,
which have been prepared by Customer. Products shall (i) not be short in weight,
adulterated, misbranded, mispackaged or mislabeled within the meaning of
applicable federal, state or local food and drug laws and regulations, and (ii)
be merchantable, of good quality and fit for the purpose intended.
b) Quality Control. In connection with the manufacture and
refining of Products under this Agreement, Supplier shall comply with the
quality standards and procedures set forth in the Specifications. Supplier shall
conduct periodic ingredient and process tests as set forth in the Specifications
and shall reject any ingredients or process which do not conform to the
standards set forth in the Specifications.
c) Quality Responsibilities. Supplier's responsibility to
Customer for the quality of Products sold by Supplier to Customer under this
Agreement shall be limited to its obligations set forth in Subparagraphs (a) and
(b) of this Paragraph 13. Anything herein to the contrary notwithstanding,
Supplier shall have no responsibility to Customer for the adequacy of the
Specifications.
14. INSPECTIONS. Customer shall have the right to have representatives
of Customer enter any Supplier's Plant for the purpose of observing, in behalf
of Customer, all aspects of Supplier's manufacturing techniques, quality
control, sanitation procedures and testing procedures. Supplier shall maintain
and make available to such representatives all records of chemical, physical and
microbiological tests of raw materials and ingredients used in the manufacture
of Products. Such representatives shall also be permitted to inspect Products
after manufacture and prior to delivery to Customer, provided that such
inspections shall not delay or in any manner interfere with Supplier's
production or delivery schedules.
15. NON-SPECIFICATION PRODUCTS. The term "Non-Specification Product"
shall mean any Product which is not manufactured and refined in accordance with
the Specifications.
a) Rejection; Replacement. Customer shall have the right to
reject any Non-Specification Products prior to their being delivered to
Customer's Plant or within three (3) business days thereafter. Rejection shall
be made by written notice to Supplier, stating in reasonable detail the reasons
for such rejection. Non-Specification Products so rejected after delivery may be
returned by Customer to Supplier at Supplier's Plant and within 10 days after
written request by Customer, Supplier shall refund the purchase price of
rejected Non-Specification Products. If Customer elects to return the rejected
Non-Specification Products, Supplier shall reimburse Customer for all reasonable
shipping and handling costs incurred thereby. If Customer shall return rejected
Non-Specification Products, other than the obligation to reimburse Customer for
any such shipping and handling costs, Supplier shall replace same with Products
which meet the Specifications ("Replacement Products") at Supplier's sole cost
and expense.
b) Reworking. Supplier shall not use or rework for Customer's
account any Non-Specification Products into Replacement Products unless such
Replacement Products meet the Specifications.
16. MODIFICATIONS TO SPECIFICATIONS; NEW PRODUCTS. The Specifications
for the Products described in Paragraph 1 and attached hereto as Exhibit A have
been prepared by Customer and may be changed by Customer, in its discretion, at
any time and from time to time, by ten (10) business days prior written notice
to Supplier, in which event, the Specifications, so changed, shall thereafter be
deemed to be the "Specifications" for all purposes of this Agreement, provided
that Customer and Supplier shall first agree upon the Refinery Premium
applicable to such changed Specifications. If Supplier shall, during the term of
this Agreement, manufacture or refine edible oils other than those described in
Paragraph 1 and Exhibit A ("New Products"), then such New Products shall be
deemed to be "Products" for all purposes of this Agreement, provided that:
a) Customer and Supplier shall agree on the specifications for
such New Products, in which case such specifications shall be deemed part of the
"Specifications" for all purposes of this Agreement; and
b) Customer and Supplier shall agree upon the Refinery Premium
applicable to each such New Product.
Unless and until Customer and Supplier agree upon the Refinery Premium
applicable to changed Specifications for Products subject to this Agreement, the
change in Specifications shall not become effective, in which case the Product,
if manufactured by another supplier in accordance with such changed
Specifications, shall not be deemed a "Product" under this Agreement and
Customer shall be entitled to purchase same from other suppliers without any
limitation imposed by this Agreement. Unless and until Customer and Supplier
agree upon the specifications for New Products and the Refinery Premium
applicable to such New Products, such New Products shall not be deemed
"Products" for purposes of this Agreement and Customer shall be entitled to
purchase such New Products from other suppliers without any limitation imposed
by this Agreement.
Notwithstanding anything to the contrary in Paragraphs 2, 3 or
elsewhere in this Agreement, Customer's obligation to purchase from Supplier the
"Minimum Quantity" as defined in Paragraph 2 shall apply only to the Products
specifically described in subparagraphs (a), (b) and (c) of Paragraph 1 and in
Exhibit A and shall not apply to any New Products. Instead, with respect to New
Products, Supplier shall be obligated to sell to Customer and Customer shall be
obligated to purchase from Supplier, fifty (50%) percent of Customer's
"Requirements" (as such term is defined in Paragraph 2(a)) for any New Product
during each full Contract Year during the term of this Agreement after the
Contract Year during which such New Product is first deemed a "Product"
hereunder as provided above and continuing for each Contract Year thereafter.
Such obligation shall be in addition to the obligations of the parties to
purchase and sell the Minimum Quantity of the Products specified in subparagraph
(a), (b) and (c) of Paragraph 2. Any deficiency in the quantity of New Products
actually purchased by Customer during any Contract Year below the 50% annual
obligation stated above, shall be deemed a Quantity Deficiency within the
meaning of Paragraph 4 and shall be satisfied in the manner provided in
Paragraph 4 in the case of Quantity Deficiencies.
17. FOREIGN OIL. Anything herein above to the contrary notwithstanding,
if at any time during the term of this Agreement, the delivered purchase price
of crude soybean oil from a source outside the United States to the Supplier's
Plant nearest such foreign source shall be less than the lowest purchase price
of Western Crude Soybean Oil delivered to the same Supplies Plant from any of
the prime Western locations in the United States listed in Paragraph 8, such
foreign delivered purchase price shall be deemed to be the Western Cash Crude
for purposes of determining the price of the Minimum Quantity Products payable
to Supplier by Customer pursuant to the formula set forth in Paragraph 7; or if,
at any time during the term of this Agreement, the delivered price of refined
soybean oil, i.e. "Products", from a source outside the United States to a
Customer Plant ordering such Products shall be less than the price of such
Products determined in accordance with the formula stipulated in Paragraph 7
(except that such price shall include freight to such Customer Plant),then the
price of such Products shall be such delivered price from such foreign source,
notwithstanding the provisions of said Paragraph 7.
18. CUSTOMER OIL PURCHASING OPERATIONS. Customer shall have the sole
and exclusive authority over all its purchases of vegetable oil and other raw
materials. All such purchasing shall be conducted and the execution of all
purchase orders shall be made from Customer's offices in the City of Industry,
California and/or such other locations as Customer shall in its discretion
elect.
19. SCOPE OF THIS AGREEMENT. This Agreement shall apply only to the
sale by Supplier and the purchase by Customer of the Minimum Quantity of
Products as provided in Paragraph 2, the Optional Quantity of Products as
provided in Paragraph 3 and 50% of Customer's annual Requirements for any New
Products, as provided in Paragraph 16. Otherwise, Customer shall have the right
to purchase any and all other vegetable oils and other commodities from any
other sources, without any rights of first refusal in favor of Supplier being
applicable thereto, and for such prices and on such terms and conditions as
Customer shall in its sole discretion elect.
20. EDIBLE OIL PURCHASES BY CUSTOMER AFTER SEVENTH CONTRACT
YEAR. Under the provisions of Paragraph 3, the right of first refusal of
Supplier to sell liquid and hydrogenated soybean oil to Customer in excess of
the Minimum Quantity of Products will expire after the seventh Contract Year of
this Agreement, i.e. December 31, 2003 (the "Rights Expiration Date"). If, on or
before the Rights Expiration Date, Wilsey shall have given notice to Supplier to
the effect that one or more of its affiliates ("Wilsey Affiliate") have entered
into, or plans to enter into, the business of crushing soybeans and/or refining
soybean oil or other vegetable oils or other raw materials purchased by
Customer, including but not limited to "Products" then subject to this Agreement
("Raw Materials"),then the purchase of Raw Materials by Customer (but only to
the extent in excess of the Minimum Quantity of Products required to be
purchased from Supplier under this Agreement) shall be allocated between
purchases from Supplier and purchases from any such Wilsey Affiliate (and if
there should be more than one Wilsey Affiliate, all Wilsey Affiliates shall be
treated in the aggregate as one for this purpose ), in proportion to the then
respective equity ownership interests of Wilsey and Supplier in Customer and
otherwise on such terms and conditions as shall be fair and equitable to
Customer, Supplier and such Wilsey Affiliate or Affiliates. For purposes of this
Paragraph 20, the term "Affiliate" means any entity which controls Wilsey or is
controlled by Wilsey or which is under common control with Wilsey.
If, on or before the Rights Expiration Date, Wilsey shall not have
given notice to Supplier that a Wilsey Affiliate has entered into or plans to
enter into the business of crushing, refining, manufacturing or otherwise
producing Raw Materials, then, upon timely request of Supplier, Customer and
Supplier shall, during the six months prior to the Rights Expiration Date, enter
into negotiations relating to one or more new rights of first refusal on the
part of Supplier to sell to Customer additional amounts of Products, as then
defined under this Agreement, in excess of the Minimum Quantity, provided that
neither Customer nor Supplier shall be obligated to agree to any such additional
rights of first refusal.
21. MATERIAL ADVERSE EFFECT. If, at any time during the term of this
Agreement, either Customer or Supplier shall claim, in written notice to the
other, that economic, business or other conditions have changed since the
Commencement Date, with the result that the continuation of this Agreement would
have a material adverse effect upon its financial condition, business
operations, business prospects or business opportunities ("Material Adverse
Effect"), then the parties shall be obligated to negotiate in good faith in an
attempt to agree upon an amendment to this Agreement which will eliminate or
substantially reduce such claimed Material Adverse Effect. If, within 90 days
after the date of such notice, the issue shall not have been resolved to the
satisfaction of both parties, then the party claiming a Material Adverse Effect
may apply to CPR (as defined in Paragraph 32) for arbitration of the dispute in
accordance with the CPR Rules (as defined in Paragraph 32) and otherwise in
accordance with the arbitration rules and procedures provided for in Paragraph
32 in the case of other disputes under this Agreement except that
Subparagraph(a) of Paragraph 32 (informal dispute resolution) and Subparagraph
(b) of Paragraph 32 (mediation) shall not apply, nor shall the seventy-five (75)
day waiting period in the first sentence of Subparagraph (c) of Paragraph 32
apply. The arbitration proceedings shall commence upon referral of the dispute
to arbitration by either party after the expiration of the 90 day period
referred to above. In any such case, the sole issue to be determined by the
arbitrator shall be whether or not a Material Adverse Effect exists and to
determine with reasonable specificity the nature and extent thereof. The
arbitrator shall not have the authority to require any amendment to this
Agreement. If, the arbitrator shall determine that a Material Adverse Effect
exists, then the parties shall again negotiate in good faith in an attempt to
agree upon an amendment to this Agreement which will eliminate or substantially
reduce the Material Adverse Effect, as the same shall have been determined by
the arbitrator. Neither party shall be under any obligation to agree upon any
such amendment but only to negotiate in good faith. If, within 90 days after the
agreement of both parties that a Material Adverse Effect exists or the
arbitrator's decision to that effect, the parties shall not have executed an
amendment to this Agreement satisfactory to the party who referred to matter to
arbitration, then said party may, within 30 days after the expiration of said 90
day period, if said Material Adverse Effect shall then be continuing, by written
notice to the other party, suspend the effectiveness of this Agreement for so
long as the said Material Adverse Effect shall continue. Absent the agreement of
both parties that a Material Adverse Effect exists or a decision of an
arbitrator to that effect, as set forth above, this Agreement shall continue
unsuspended and in full force and effect in all of its parts and clauses. If the
other party shall, at the time of said suspension notice or at any time
thereafter, contend that the Material Adverse Effect has ceased and that the
suspension of this Agreement should, therefore, not occur or continue, then,
unless the parties shall agree on the matter, the party so contending may refer
the dispute to binding arbitration in accordance with Subparagraph (c) of
Paragraph 32, provided that the sole issue to be determined by the arbitrator
shall be whether or not the Material Adverse Effect has ceased or is continuing.
If the arbitrator shall find that the Material Adverse Effect has ceased, the
suspension of this Agreement shall cease as of the date of the arbitrator's
decision and this Agreement shall be reinstated and in full force and effect but
only as of the date of the arbitrator's decision. If this Agreement shall,
pursuant to this Paragraph 21, be suspended for a continuous period of more than
two years, then either party may, by written notice to the other, terminate this
Agreement.
22. INDEMNIFICATION BY SUPPLIER. Except as otherwise limited below,
Customer and its officers, directors, employees, successors and assigns shall be
indemnified and held harmless by Supplier from any and all liabilities, losses,
damages, claims, costs and expenses, interest, awards, judgments and penalties
(including, without limitation, reasonable legal costs and expenses) actually
suffered or incurred by it or them (hereinafter a "Customer Loss"), actually
arising out of or resulting from:
a) the breach of any representation, warranty, covenant or
agreement by Supplier contained herein;
b) the consumption or use by any person of any products sold
by Customer which include Products purchased by Customer from Supplier if such
Products fail to meet the Specifications or otherwise fail to meet the quality
standards set forth in Paragraph 13.
Notwithstanding the foregoing, Supplier shall have no obligation to
indemnify or hold harmless Customer to the extent such Customer Losses shall
result from (i) the negligence of Customer, (ii) compliance with the
Specifications, or (iii) the acts or omissions of employees or agents of
Customer. The provisions of this Paragraph 22, relating to indemnification of
Customer, shall not apply to Supplier's liability to Customer for
Non-Specification Products, which is governed exclusively by the provisions of
Paragraph 15.
23. INDEMNIFICATION BY CUSTOMER. Except as otherwise limited below,
Supplier and its officers, directors, employees, successors and assigns shall be
indemnified and held harmless by Customer from any and all liabilities, losses,
damages, claims, costs and expenses, interest, awards, judgment and penalties
(including, without limitation, reasonable legal costs and expenses) actually
suffered or incurred by it or them (hereinafter a "Supplier Loss") actually
arising out of or resulting from:
a) the breach of any representation, warranty, covenant or
agreement by Customer contained herein;
b) the consumption or use by any person of any Products which
meet the Specifications, provided that such Supplier Loss shall not have been
caused by the adulterating, mispackaging or mislabeling of such Products by
Supplier, within the meaning of applicable federal, state or local food and drug
laws or regulations;
c) the negligence of Customer;
d) defects in the Specifications; or
e) the acts or omissions of employees or other agents of
Customer while present in a Supplier Plant or otherwise.
24. INDEMNIFICATION PROCEDURES.
a) For the purposes of this Paragraph 24, the term
"indemnitee" shall refer to the person indemnified, or entitled, or claiming to
be entitled to be indemnified, pursuant to the provisions of Paragraphs 22 or
23, as the case may be, and the term "indemnitor" shall refer to the person
having the obligation to indemnify pursuant to such provisions. "Losses" shall
refer to "Customer Losses" or "Supplier Losses", as the case may be.
b) An Indemnitee shall give written notice (a "Notice of
Claim") to the Indemnitor within ten (10) business days after the Indemnitee has
knowledge of any claims (including a Third Party Claim, as hereinafter defined)
which could give rise to a right of indemnification under this Agreement. No
failure to give such Notice of Claim shall affect the indemnification
obligations of the Indemnitor hereunder, except to the extent Indemnitor can
demonstrate such failure materially prejudiced such Indemnitor's ability to
successfully defend the matter giving rise to the claim. The Notice of Claim
shall state the nature of the claim, the amount of the Loss, if known, and the
method of computation thereof, all with reasonable particularity and containing
a reference to the provisions of this Agreement in respect of which such right
of indemnification is claimed or arises.
c) The obligations and liabilities of an Indemnitor under this
Paragraph 24 with respect to Losses arising from claims of any third party that
are subject to the indemnification provisions provided for in this Paragraph 24
("Third Party Claims") shall be governed by and be contingent upon the following
additional terms and conditions:
The Indemnitee at the time it gives a Notice of Claim to the Indemnitor
of the Third Party Claim shall advise the Indemnitor that it shall be permitted,
at its option, to assume and control the defense of such Third Party Claim at
its expense and through counsel of its choice if it gives prompt notice of its
intention to do so to the Indemnitee and confirms that the Third Party Claim is
one with respect to which the Indemnitor is obligated to indemnify. In the event
that Indemnitor exercises its right to undertake the defense against any such
Third Party Claim as provided above, the Indemnitee shall cooperate with the
Indemnitor in such defense and make available to the Indemnitor all witnesses,
pertinent records, materials and information in its possession or under its
control relating thereto as is reasonably required by the Indemnitor and the
Indemnitee may participate through its own counsel and, subject to the proviso
below, at its own expense in the defense of such Third Party Claim; provided,
however, that in the event both the Indemnitee and the Indemnitor are named as
parties and the Indemnitee shall in good faith determine that representation by
the same counsel is inappropriate, the fees and expenses of the Indemnitee's
separate counsel shall be at the expense of the Indemnitor. Similarly, in the
event the Indemnitee is, directly or indirectly, conducting the defense against
any such Third Party Claim, the Indemnitor shall cooperate with the Indemnitee
in such defense and make available to it all such witnesses, records, materials
and information in its possession or under its control relating thereto as shall
be reasonably required by the Indemnitee and the Indemnitor may participate by
its own counsel and at its own expense in the defense of such Third Party
Action. Except for the settlement of a Third Party Claim which involves the
payment of money only, no Third Party Claim may be settled by the Indemnitor
without the written consent of the Indemnitee, which consent shall not be
unreasonably withheld or delayed. No Third Party Claim may be settled by the
Indemnitee without the written consent of the Indemnitor, which consent shall
not be unreasonably withheld or delayed.
25. INSURANCE. During the term of this Agreement, Supplier shall
maintain comprehensive general liability insurance of at least $10,000,000, with
a deductible not to exceed $500,000, endorsed to cover the indemnifications
contained in this Agreement. Customer shall maintain comprehensive general
liability insurance of at least $10,000,000 with a deductible not to exceed
$500,000 endorsed to cover the indemnifications contained in this Agreement.
Upon the execution of this Agreement, Supplier and Customer shall furnish each
other with certificates of insurance evidencing such coverages. Such
certificates shall contain clauses for notification of both Supplier and
Customer thirty days in advance of any cancellation, reduction or change in
coverage.
26. TRADEMARKS AND TRADE NAMES. Supplier shall have no right, title or
interest in and to the trademarks or trade names of Customer. Supplier shall not
use any of such trademarks or trade names except as authorized in writing by
Customer.
27. CONFIDENTIAL INFORMATION. The term "Confidential Information" as
used herein shall mean (i) all information relating to the Specifications, (ii)
all information contained in the Volume Forecasts, and (iii) all other sales
volume information, Product distribution information, and other technical
information disclosed by Customer to Supplier and designated in writing by
Customer as "Confidential Information." Supplier shall hold the Confidential
Information in confidence and shall use the same only for the purpose of
manufacturing Products under this Agreement, provided that Supplier may disclose
the Confidential Information to such of its employees who shall have a need to
know same in order to carry out, in behalf of Supplier, Supplier's obligations
under this Agreement. Upon the expiration or termination of this Agreement,
Supplier shall return to Customer all such Confidential Information which shall
be in written form, together with all copies thereof, and retain none for its
files.
The restriction in this Paragraph 27, relating to Confidential
Information, shall not apply to such Confidential Information that (i) is or
becomes available to the public or part of the public domain other than as a
result of wrongful disclosure by Supplier, its employees, agents or
representatives, (ii) was known by Supplier (without a non-disclosure obligation
on the part of Supplier) before disclosure by Customer, its employees, agents or
representatives, (iii) becomes known to Supplier from any source (except from
parties obligated not to disclose same) other than Customer, its employees,
agents or representatives, (iv) is approved for release by written authorization
of Customer, or (v) shall be required by law to be disclosed. In the case of
clause (v), Supplier shall promptly notify Customer before such Confidential
Information is disclosed so that Customer may seek a protective order or other
appropriate remedy or waive compliance with this Paragraph. In the event that
such protective order or other remedy is not obtained, Supplier shall disclose
only that portion of the Confidential Information it is legally required to
disclose, as confirmed by a legal opinion of a nationally recognized law firm,
and will exercise all reasonable efforts to assist Customer to obtain reliable
assurance that confidential treatment will be accorded the Confidential
Information, provided, however, that any such assistance rendered by Supplier,
its agents and representatives, shall be at the sole cost and expense of
Customer.
28. RELATIONSHIP OF PARTIES. The parties hereto are independent
contractors and engage in the operation of their own respective businesses and
neither Supplier nor Customer shall be considered the agent of the other for any
purpose whatsoever, and neither Supplier nor Customer has any authority to enter
into any contracts or assume any obligations for the other or to make any
warranties or representations on behalf of the other. Nothing in this Agreement
shall be considered to establish a relationship of co-partners or joint
venturers between Supplier and Customer.
29. FORCE MAJEURE. If either Customer or Supplier is prevented from
performing any of its obligations under this Agreement or is substantially
delayed in such performance by reason of any cause beyond its reasonable
control, including any governmental restrictions, act of God, riots, war,
insurrections, fire, labor disputes, crop failure or other cases of force
majeure, such party shall be excused from the performance of its obligations
affected by the reasons referred to, or from the delay in such performance.
30. GOVERNING LAW. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of California without
regard to its provisions concerning conflicts or choice of law.
31. ARBITRATION OF REFINING PREMIUM ADJUSTMENTS. In the event of a
dispute between Supplier and Customer with respect to the annual adjustment of
one or more Refining Premiums, as provided in Paragraph 9, if no settlement of
the dispute is reached though mediation within ten (10) days after the beginning
of the mediation, as provided in Paragraph 9, then either Supplier or Customer
may apply to CPR (as defined in Paragraph 32) for arbitration of the dispute in
accordance with the CPR Rules (as defined in Paragraph 32) and otherwise in
accordance with the arbitration rules and procedures provided for in Paragraph
32 in the case of other disputes under this Agreement, except that the following
special rules shall apply:
a) Subparagraph (a) of Paragraph 32 (informal dispute
resolution) and Subparagraph (b) of Paragraph 32 (mediation) shall not apply,
nor shall the sixty-five (65) day waiting period in the first sentence of
Subparagraph (c) of Paragraph 32 apply. The arbitration proceedings shall
commence upon the referral of the dispute to arbitration by either party after
the expiration of the sixty (60) and thirty (30) day periods referred to in
Paragraph 9.
b) Prior to the commencement of the arbitration each of
Supplier and Customer shall communicate in writing to the arbitrator their
respective positions concerning the appropriate Refining Premiums to be
applicable to each Product under the Agreement for the Contract Year in
question.
c) The determination of the arbitrator shall be limited solely
to the issue of whether Supplier's or Customer's proposed Refining Premiums is
the closest to the "Market Standard", as defined in Paragraph 9.
d) The fees and expenses of the arbitrator shall be borne
solely by the losing party.
32. GENERAL DISPUTE RESOLUTION PROVISIONS.
The parties hereto desire to avoid all forms of traditional litigation,
subject to the provision for preliminary injunctive relief described in
Paragraph 32(d) below. Any dispute, controversy or claim of any nature
whatsoever between the parties hereto arising out of or relating to this
Agreement or the breach, termination or invalidity of this Agreement or any
related agreements, whether in contract, tort or equity, or under any statute or
regulation arising out of or relating to such agreements (a "Dispute"), shall be
resolved in accordance with this Paragraph 32. All other remedies to which the
parties (including their respective Affiliates) may otherwise have been
entitled, whether at law or in equity, are hereby waived to the fullest extent
allowed by law. The obligations under this Paragraph 32 shall survive
termination of this Agreement.
The preceding provision notwithstanding, if a Dispute arises out of
third-party litigation against any party hereto, these procedures shall not be
mandatory, and such party shall have the right to engage in such litigation with
the third-party claimant and with each other concerning such Dispute. For
purposes of this exception pertaining to Disputes arising out of third-party
litigation, a third-party means a party (i) which is not an Affiliate of a party
hereto, (ii) has no record or beneficial, financial, ownership or other
significant interest in or with a party hereto and (iii) in which a party hereto
has no record or beneficial, financial, ownership or other significant interest.
(a) Informal Dispute Resolution. The parties shall attempt in
good faith to resolve any Dispute promptly by confidential negotiations between
representatives of the parties with authority to settle the matter. All such
negotiations shall be treated as compromise and settlement negotiations for
purposes of the relevant rules of evidence. Any party making claim shall give
the other party written notice that the party is invoking the dispute resolution
procedures of this Paragraph 32 with respect to a specific Dispute. Within ten
(10) days after delivery of the written notice, the receiving party shall submit
to the other a written response. The notice and the response shall include (a) a
statement of each party's position and a summary of arguments supporting that
position, and (b) the name of the person (s) who will represent that party and
the name of any other person (and an indication, if applicable, that such other
person is an attorney) who will accompany the representatives (s) to the
meeting. Within thirty (30) days after delivery of the written notice, the
representatives of both parties shall meet at a mutually acceptable time and
place (or failing such agreement at Supplier's headquarters), or confer by
telephone and thereafter as often as they reasonably deem necessary, to attempt
to resolve the Dispute.
(b) Mediation. If the Dispute has not been resolved by
negotiation within forty-five (45) days of the initial written notice (or such
longer time as the parties may agree), either party may notify the other that it
intends to submit such Dispute to non-binding mediation under the then current
model procedure for mediation of business disputes promulgated by CPR. In such
event the parties shall mediate the Dispute. The parties shall promptly attempt
to agree upon a reputable and experienced mediator. Failing agreement within
five (5) days after the notice of intent to mediate has been given by a party
hereto (or such longer time as the parties may agree), the mediator will be
selected in accordance with the previously mentioned CPR procedure. Any such
mediation process shall be concluded in Los Angeles, California and must be
completed within seventy-five (75) days of delivery of the initial written
notice unless otherwise agreed by the parties
(c) Formal Dispute Resolution.
(i) Any Dispute which remains unresolved seventy-five
(75) days after delivery of the initial written notice shall
be promptly resolved by final and binding arbitration. Such
arbitration shall be conducted pursuant to the CPR Rules
except to the extent herein otherwise provided. The place of
arbitration shall be Los Angeles, California unless both
parties agree to a different locale. There shall be a single
neutral and impartial arbitrator appointed by CPR experienced
in the subject matter of the Dispute and who has not had a
material personal or financial relationship with either
participant to the Dispute or any Affiliate of either
participant in the preceding three years, to be selected in
accordance with the CPR Rules. The arbitration shall be
conducted in the English language, provided that a witness may
testify in another language if the party calling such witness
shall provide an interpreter at such party's expense. The
arbitrator shall follow the laws of the State of California
(without regard to conflict of law provisions) in resolving
any Dispute, provided that any question concerning
arbitrability shall be governed exclusively by the United
States Arbitration Act as then in force. Each party hereby
waives any right to and the arbitrator shall not have the
power to award punitive, exemplary, double or treble damages.
The award of the arbitrator shall be final and binding, and
judgment on it may be entered in any court having
jurisdiction. The parties agree that any decision or award
resulting from proceedings in accordance with this dispute
resolution provision shall have not preclusive or other effect
in any other matter between the parties or involving a
third-party.
(ii) The arbitrator may consolidate an arbitration
under this Agreement with any other arbitration between the
parties to this Agreement if the subject of the Dispute arises
out of or relates essentially to the same facts or
transaction(s). No other person may be included in the
arbitration of a Dispute, whether by consolidation, joinder or
in any other manner, except by written consent of both parties
to the Dispute.
(iii) Each party shall bear its own costs and
attorneys' fees, and the parties shall equally bear the fees,
costs and expenses of the arbitrator and the arbitration
proceedings; provided, however, that the arbitrator may
exercise discretion to award costs and/or attorneys' fees to
the prevailing party.
(d) Injunctive Relief. The parties agree that notwithstanding
anything to the contrary contained herein, any party may seek a temporary
restraining order or a preliminary injunction from any court of competent
jurisdiction in order to prevent immediate and irreparable injury, loss or
damage; provided such party has commenced in good faith an informal dispute
resolution proceeding pursuant to this Paragraph 32. The arbitrator once
appointed shall have the power to modify or vacate such temporary restraining
order or preliminary injunction or to issue a restraining order or injunction.
(e) Confidentiality. The dispute resolution proceedings
contemplated by this Paragraph 32 shall be as confidential and private as
permitted by law. To that end, the parties shall not disclose the existence,
content or results of any proceedings conducted in accordance with this
Paragraph 32, and materials submitted in connection with such proceedings shall
be treated as confidential, and not be admissible in any other proceeding,
provided, however, that this confidentiality provision shall not prevent a
petition to vacate or enforce an arbitral award, and shall not bar disclosures
required by law. Any decision or award resulting from proceedings in accordance
with this Paragraph 32 shall have no preclusive effect in any matter involving
third parties.
(f) Limitations Period. The statutes of limitation of the
State of California shall be applicable to the arbitration of any Dispute
hereunder just as if such arbitration were a lawsuit between the parties, except
that all applicable statutes of limitation and defenses based upon the passage
of time shall be tolled during the pendency of any informal dispute resolution
or mediation under Subparagraphs 32(a) and (b) hereof. The parties shall take
such action, if any, as may be required to effectuate the tolling provided for
in this Subparagraph 32(f).
(g) Continued Performance. Each party is required to continue
to perform its obligations under the Agreement pending final resolution of any
dispute arising out of or relating to this Agreement.
(h) Certain Definitions. For purposes of Paragraph 31 and this
Paragraph 32, the following definitions shall apply:
(i) "Affiliate" shall mean a person, form or
corporation, which directly or indirectly, alone or through
one or more intermediaries, controls, or is controlled by, or
is under common control with a party to this Agreement.
(ii) "CPR" shall mean the CPR Institute for Dispute
Resolution (formerly, the Center for Public Resources).
(iii) "CPR Rules" shall mean the Non-Administered
International Arbitration Rules promulgated by CPR.
33. SEVERABILITY. If any portion of this Agreement shall be in
violation of any applicable law, such paragraph or portion shall be inoperative,
but the remainder of this Agreement shall remain valid and shall continue to
bind the parties.
34. ASSIGNMENTS. This Agreement shall be binding and inure to the
benefit of each of the parties, their successors and assigns, provided that this
Agreement may not be transferred or assigned by either party without the prior
written consent of the other party.
35. NOTICES. All notices permitted or required to be given by Customer
and Supplier hereunder shall be given in the manner set forth in the Joint
Venture Agreement.
36. ENTIRE AGREEMENT. This Agreement, together with the Schedules
attached hereto, contains all of the terms, warranties, representations,
agreements, covenants, conditions, and provisions agreed upon by the parties
with respect to the matters described herein. This agreement shall not be
altered or changed unless the change shall be in writing and signed by
authorized officials of both parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
HARVEST STATES COOPERATIVE
By: /s/ Merritt E. Peterson
--------------------------------
Name: Merritt E. Peterson
-------------------------------
Title: Group Vice President
------------------------------
WILSEY-HOLSUM FOODS, L.L.C.
By: HARVEST STATES COOPERATIVE By: WILSEY FOODS, INC.
Member Member
By: /s/ James D. Tibbitts By: /s/ Jack Davis
--------------------- --------------------------------
James D. Tibbitts Name: Jack Davis
Senior Vice President -------------------------------
Title: President and CEO
------------------------------
TACOMA EXPORT MARKETING COMPANY
PARTNERSHIP AGREEMENT
BETWEEN
CONTINENTAL GRAIN COMPANY
AND
HARVEST STATES COOPERATIVES
DATED AS OF SEPTEMBER 28, 1992
THIS PARTNERSHIP AGREEMENT made as of this 28th day of September, 1992,
between HARVEST STATES COOPERATIVES, a Minnesota corporation ("Harvest States")
and CONTINENTAL GRAIN COMPANY, a Delaware corporation ("Continental").
WITNESSETH:
WHEREAS, the Partners desire to form a general partnership for the
purpose of engaging in the buying, selling, storing and handling of certain
feedgrains and oilseeds for export from the Pacific Northwest, United States
primarily through Continental's presently leased facility at Tacoma, Washington
(the "Tacoma Facility") and such other business activities as are related
thereto, and
WHEREAS, the partnership formed hereby desires to sublease the Tacoma
Facility from Continental and Continental desires to sublease the Tacoma
Facility to the partnership.
NOW, THEREFORE, in consideration of the premises and covenants and
agreements hereinafter set forth, the Partners hereby agree as follows:
ARTICLE I
DEFINITIONS
Definitions. The following terms wherever used in this
Agreement shall have the meanings hereinafter assigned to them:
"Affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under common control
with such Person.
"Agreement" means this Partnership Agreement as in effect on
the date hereof and as the same may be modified or amended by action of the
Partners as provided herein.
"Control" (including "controlling", "controlled by" and "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person by
ownership of more than 50% of the voting securities of a corporation or by
contract or otherwise.
"Controlling Affiliate" means, with respect to any Person, any
Affiliate of such Person that Controls such Person.
"Encumbrance" means and includes any mortgage, pledge, lien,
charge, encumbrance, lease, sublease, security interest or trust interest; and
to "Encumber" an asset is to create an Encumbrance thereon.
"Feedqrains" means the corn and sorghum as provided in Section
7.1.
"Fundamental Issues" means those issues which require the vote
of both of the Partners or the approval of the Management Committee, as provided
in Section 5.3.
"Management Committee" means the Management Committee
constituted as provided in Section 5.2.
"Net Income" and "Net Loss" shall mean the income and losses
of the Partnership, determined on an accrual basis in accordance with generally
accepted accounting principles consistently applied, after all expenses of the
Partnership have been taken into account (including allowances for depreciation
or amortization of Partnership assets) and shall include gain or loss realized
by the Partnership on the sale or the disposition of assets in connection with a
dissolution of the Partnership pursuant to Article XI.
"Oilseeds" means soybeans as provided in Section 7.1.
"Partner" or "Partners" means Continental or Harvest States or
both Continental or Harvest States, as the case may be, and their permitted
successors and assigns.
"Partner Account" means, with respect to each Partner, the
account maintained for such Partner in accordance with Section 10.10.
"Partner Interest" means the interest of a Partner in the
Partnership.
"Partnership Law" means the Washington Uniform Partnership
Act, Ch. 25.04 RCW as amended from time to time.
"Person" means any natural person, firm, trust, partnership,
joint venture, unincorporated association, corporation, government or
governmental agency.
"Prime Rate" means the prime or base rate announced from time
to time by the Chase Manhattan Bank, N.A. The Prime Rate shall be adjusted on a
[daily] basis.
"Secretary" means the Secretary of the Partnership as provided
in Section 6.2.
"Share", when used with respect to either Partner means fifty
percent (50%) unless and until such percentage shall be changed by a vote of the
Partners.
"Treasurer" means the Treasurer of the Partnership as provided
in Section 6.3.
ARTICLE II
2.1 The Partnership. The Partners hereby form and constitute a
partnership as a general partnership (the "Partnership") under the Partnership
Law of the State of Washington upon the terms and conditions set forth in this
Agreement. Except as otherwise provided in this Agreement, the rights and
liabilities of the Partners shall be governed by the Partnership Law.
2.2 Name. The Partnership shall operate under the name of Tacoma Export
Marketing Company ("TEMCO").
2.3 Principal Office. The principal office of the Partnership shall be
located at 222 SW Columbia Street, Koin Tower, Suite 1100, Portland, Oregon
97201 or at such other place as may be designated by the Management Committee as
hereinafter defined.
2.4 Duration. The Partnership shall commence on September 15, 1992 and
shall continue through the close of business on September 14, 1997, unless
sooner terminated as provided herein. The term of the Partnership shall be
extended automatically for successive five (5) year periods unless either
Partner delivers written notice to the other Partner not less than 120 days
prior to the expiration of the then current term that it elects not to renew or
extend the term of the Partnership. In no event, however, shall the term of the
Partnership continue beyond 2012 without the written agreement of both Partners.
2.5 Purpose. The purpose of the Partnership is to engage in the
business of buying, trading, selling, handling and transporting for export and
exporting Feedgrains and Oilseeds, as defined in Section 7.1, primarily from the
Pacific Northwest, United States through the Tacoma Facility to Pacific Basin
destinations and engaging in such other activities and business as may be
incidental or related thereto or necessary or desirable in furtherance of such
purpose. The Partnership shall establish or cause to be established such
business organizations and shall own, directly or indirectly, such assets as the
Partners shall agree are appropriate to achieve the purpose of the Partnership.
2.6 Scope. The Partnership is and shall be a partnership only for the
purposes specified in this Agreement and nothing contained in this Agreement
shall be deemed to create a general partnership between the Partners with
respect to any activities whatsoever other than activities within the proper
business purposes of the Partnership. Neither of the Partners shall have the
power to bind the other Partner or the Partnership except as specifically
provided in this Agreement. Neither of the Partners or the Partnership shall be
responsible or liable for any indebtedness, liability or obligation of the other
Partner incurred either before or after the execution of this Agreement except
for indebtedness, liabilities, and obligations incurred after the execution of
this Agreement in connection with authorized activities within the proper
business purposes of the Partnership. Each Partner, respectively, hereby
indemnifies and agrees to hold the other Partner, and its Affiliates and
directors and officers, and the Partnership harmless from and against all such
indebtedness, liabilities and obligations incurred by it which are not
authorized and within the proper business purposes of the Partnership.
ARTICLE III
3.1 Initial Capital Contributions. The initial capital of the
Partnership shall consist of $100.00 cash, contributed by the Partners in
proportion to their Shares. Each Partner shall make its initial capital
contribution contemporaneous with the execution of this Agreement.
3.2 Additional Capital Contributions.
(a) The Partners agree that the Partnership shall meet its
capital needs through the borrowing of funds as provided in Section 10.3 and
that unless specifically agreed to by the Partners and except as set forth in
this Section 3.2, the Partners shall not be obligated to make any additional
capital contributions to the Partnership. If the Partners agree to make
additional capital contributions, the contributions shall be made at such times,
in such amounts and under such conditions as shall be determined by the Partners
in accordance with the provisions of this Agreement.
(b) No interest shall accrue on any Partner's Partner Account.
A Partner shall not be entitled to withdraw any part of its capital in the
Partnership or to receive any capital distribution from the Partnership except
as part of a distribution of capital agreed to by the Management Committee as
hereinafter defined or as provided in Article XI.
(c) All capital contributions and other payments required or
permitted to be made by a Partner under this Agreement shall be either in cash
or, at the request of any Partner and if agreed to by the Management Committee,
on such conditions and for such fair value as the Management Committee as
hereinafter defined shall so determine, in kind.
(d) If a Partner (a "Delinquent Partner") shall fail to make
when due a contribution required pursuant to this Agreement, the other Partner
(the "Contributing Partner") may, in its sole discretion, advance all or part of
that amount to the Partnership. Such advance shall be deemed to be a demand loan
by the Contributing Partner to the Delinquent Partner at an interest rate equal
to 2% in excess of the Prime Rate for the period during which the advance is
outstanding. This loan shall be repaid, together with such interest, by the
Delinquent Partner promptly upon demand from any funds of the Delinquent
Partner, including, without limitation, any distribution from the Partnership
which would otherwise be payable to the Delinquent Partner. Unless and until the
Delinquent Partner makes such repayment, the Partnership shall make no cash
distribution to such Partner (except that a cash distribution shall be applied
to make such repayment and the balance then made to the formerly Delinquent
Partner). The Contributing Partner to which such debt is due (or to which a debt
pursuant to Article VIII is due) shall have a security interest in the Partner
Interest of the Delinquent Partner to secure such amounts owed to it, and such
security interest is hereby granted by each Partner. To the extent that the
principal amount of the delinquency is repaid, the principal amount of such
repayment (excluding any interest) shall be deemed a contribution to the capital
of the Partnership by the Delinquent Partner and shall be reflected as such in
the Partner Account of the Delinquent Partner.
ARTICLE IV
4.1 Allocation of Profits and Losses. Except as otherwise specifically
provided in Section 10.10; all items of Net Income and Net Loss shall be
allocated to the Partners in accordance with their respective Shares.
ARTICLE V
5.1 Voting and Meeting of the Partners. Each Partner shall have an
equal vote in the management of the Partnership. Meetings of the Partners may be
called by either Partner on ten (10) Business Days prior notice to discuss any
matter including, without limitation, any matter related to the finances,
operations, management, policies, or personnel of the Partnership. Notice of
meetings may be waived by the Partner entitled to such notice.
5.2 Management Committee.
(a) The conduct of the business and affairs of the Partnership
shall be managed by a standing Management Committee consisting of four (4)
members, with each Partner appointing two (2) regular members and such alternate
members as such Partner deems advisable. Each of the Partners may initially
appoint or replace any or all of its members or alternate members of the
Management Committee by written notice to the Partnership and the other Partner.
Each of the Partners shall at all times maintain in effect the appointment of at
least one (1) member of the Management Committee. Each member of the Management
Committee shall serve for indefinite terms at the pleasure of the appointing
Partner.
(b) The Management Committee shall meet not less than
quarterly at such times and places as it may determine. Meetings of the
Management Committee may be called by one (1) member of the Management
Committee. The General Manager shall have the right to attend all meetings of
the Management Committee but shall not be entitled to participate in the voting
on any decision or other matter before the Management Committee. Notice of each
meeting of the Management Committee shall be telexed, telecopied, sent by mail
or delivered personally, or by telephone, to each regular and alternate member
not later than ten (10) Business Days before the date on which the meeting is to
be held. Notice of meetings may be waived by the member or members entitled to
such notice.
(c) The attendance of one (1) member from each Partner shall
constitute a quorum for the transaction of business of the Management Committee.
Each member at the meeting shall be entitled to one vote for each matter to be
voted upon by the Management Committee. Any decision or approval before the
Management Committee shall be taken by majority vote of those of the Management
Committee present or participating in a meeting at which a quorum is present;
provided, however, no action shall be authorized unless at least one (1) member
appointed by each Partner votes affirmatively on such action. The failure of the
Management Committee to authorize action with respect to any matter pursuant to
the foregoing sentence shall constitute a Deadlocked Matter pursuant to Section
5.4.
(d) Any decision or approval of the Management Committee may
be made without a meeting if either (i) such decision is first approved in
writing by one of the members or alternates of each of the Partners or (ii) such
meeting is held by means of a conference telephone or similar communications
equipment allowing all Persons participating in the meeting to hear each other
at the same time.
(e) The regular members of the Management Committee shall
alternately act as chairman of meetings of the Management Committee. Minutes of
all meeting shall be prepared by the Secretary and shall be distributed to all
regular members (and alternate members if present at a meeting) within thirty
(30) days following any meeting.
5.3 Fundamental Issues. No action may be taken or decision made which
binds the Partnership by the General Manager, any Partner on behalf of the
Partnership, or the Partnership, with regard to any of the Fundamental Issues
without the vote (or written consent) of the Management Committee in accordance
with Section 5.2(c). Fundamental Issues shall include decisions and actions on
the following matters, and such other matters as may be deemed Fundamental
Issues, from time to time, by the Management Committee:
(a) calls for additional capital or guarantees hereunder;
(b) the issuance of any notes, bonds, debentures or other
obligations by the Partnership, or the incurrence of or assumption of any
indebtedness if, after giving effect thereto, the aggregate principal amount of
all such indebtedness of the Partnership, other than indebtedness previously
approved by the Management Committee (including, without limitation, the
utilization by the Partnership of lines of credit previously approved by the
Management Committee for the purpose of financing the business of the
Partnership in the ordinary course), would either (i) exceed the amounts
specifically provided therefor and sufficiently identified in the Partnership's
current annual budgets referred to in Sections 5.3(p) and 10.1, or (ii) result
in direct or indirect liability on either or both of the Partners for repayment
of such indebtedness;
(c) any acquisition, disposition, sale, conveyance, lease,
sublease, exchange or other disposition of any interest in the Tacoma Facility
other than the sublease contemplated by Section 7.2 hereof;
(d) the acquisition, disposition, sale, conveyance, lease,
sublease, exchange or other disposition of real property having a value greater
than a threshold amount to be determined by the Management Committee;
(e) the acquisition, disposition, sale, conveyance, lease,
sublease, exchange or other disposition of personal property, other than
agricultural commodities traded in the ordinary course of business, with a value
greater than a threshold amount to be determined by the Management Committee;
(f) investing in any Person;
(g) the establishment of trading position limits for
agricultural commodities traded by the Partnership;
(h) the making of loans or provision of guaranties, or the
extension or pledge of credit to others, except endorsements and extensions of
credit in the ordinary course of business;
(i) the sale of any equity interests (or operation, warrant,
conversion in similar rights with respect thereto) in the Partnership;
(j) the selection, appointment, remuneration, removal and
determination of the terms and conditions of employment agreements of officers,
executives and key employees of the Partnership;
(k) the payment of bonuses and perquisites to officers,
executives and key employees of the Partnership;
(l) the confession of any judgment against the Partnership or
the creation, assumption, incurrence, or suffering to be created, assumed or
incurred or to exist of, any encumbrance upon any of the assets or property of
the Partnership, or the acquisition or holding or agreement to acquire or hold
such property or assets subject to any encumbrance other than (i) liens for
taxes not yet due or which are being contested in good faith by appropriate
proceedings, and (ii) other minor encumbrances incidental to the conduct of the
business of the Partnership or the ownership of its property and assets which
are not incurred in connection with the borrowing of money or the obtaining of
advances or credit, and which do not in the aggregate materially detract from
the value of such property or assets or materially impair the use thereof in the
operation of the business of the Partnership;
(m) the compromise or submission to arbitration (other than
contract specifically providing for arbitration) or litigation of any claim due,
or any dispute or controversy involving the Partnership for any claim, dispute
or controversy in excess of any amount to be determined by the Management
Committee;
(n) the entering into of any contract or commitment (other
than those contracts made in the ordinary course of business) involving
aggregate expenditures in excess of an amount to be determined by the Management
Committee;
(o) the entering into any contract or commitment (other than
those commodity, sales and purchase contracts made in the ordinary course of the
Partnership's grain merchandising business) involving either Partner, or any of
their affiliates;
(p) the approval of the annual business operating budget,
capital expenditure budget and business plan and the amount of cash for
distribution and adoption of other major financial policies of the Partnership;
(q) the approval of the opening financial statements of the
Partnership as referred to in Section 10.7;
(r) the appointment and removal of the independent accountants
for the Partnership;
(s) the appointment and removal of the Liquidator of the
Partnership pursuant to Section 11.2;
(t) any material changes in the purposes of the Partnership
beyond that expressly contemplated by this Agreement as provided in Section 2.5;
(u) the voluntary dissolution and winding-up of the
Partnership, provided, however, that this provision shall in no way limit the
rights of the Partners under Article XI.
(v) any changes in the scope or method of operations or
business policies of the Partnership which is likely to materially increase the
working capital or cash requirements of the Partnership.
(w) approval of the credit policy applicable to export sales
and any material deviation therefrom.
5.4 Deadlock.
(a) In the event that the Partners or the Management Committee
cannot agree on any Fundamental Issue considered by the Management Committee (or
otherwise by the Partners) within 45 days following the Management Committee
meeting at which a decision on such Fundamental Issue was sought (a "Deadlocked
Matter"), either Partner may elect to dissolve the Partnership in accordance
with Article XI by notice in writing to the other Partner ("Notice of
Dissolution"). The Partners shall attempt within such 45 days period to resolve
any Deadlocked Matter in good faith.
5.5 Subcommittees. The Management Committee shall appoint an operating
committee which shall consist of four members, two persons appointed from
Harvest States and two Persons appointed from Continental (the "operating
Committee"). The Operating Committee shall meet regularly to assure that the
proper implementation of the operations objectives of the Partnership, the
adequate coordination of supporting services, such as accounting and
administration provided by the Partners to the Partnership and the adequacy of
communication between the Partnership and the Partners. The Operating Committee
shall report to the Management Committee. The Management Committee shall appoint
such other subcommittees as it deems advisable, each with an equal number of
representatives from each Partner.
ARTICLE VI
OFFICERS AND EMPLOYEES
6.1 The General Manager.
(a) The General Manager of the Partnership shall be appointed
by the Management Committee and shall serve for a term of one (1) year unless
extended by action of the Management Committee. The General Manager is hereby
vested with such executive and financial authority as to enable him to direct
the business and affairs of the Partnership, subject to the directions of the
Management Committee and in accordance with this Agreement. The General Manager
shall be authorized to execute documents within the scope of his authority on
behalf of the Partnership which will bind the Partnership without the necessity
of obtaining the signature of either of the Partners. The General Manager shall
be responsible for the implementation of the various decisions of the Management
Committee and for the day-to-day management and operation of the Partnership.
The General Manager shall regularly inform the Management Committee of the
Partnership's on-going activities. The General Manager shall report to and take
direction from the Management Committee. The General Manager shall enter into
transactions on behalf of the Partnership except that the General Manager is not
authorized to take any action on a Fundamental Issue unless such action shall
have been approved by the Partners of the Management Committee under Section
5.2.
(b) The General Manager shall provide the following reports to
the Management Committee:
(i) daily position reports;
(ii) a weekly management report;
(iii) a monthly report on the financial condition and the
business prospects of the Partnership;
(iv) a monthly report summarizing all claims made and suits
filed against the Partnership, all potential claims and suits, and the final
settlement or other resolution of claims and suits; and
(v) other reports requested by the Management Committee or
one of the Partners.
6.2 Secretary. The Secretary shall be appointed by the Management
Committee and shall report to the General Manager. The Secretary shall act as
Secretary of all meetings of the Management Committee, shall keep the minutes
thereof in the proper book or books to be provided for that purpose, shall see
that all notices required to be given by the Partnership are duly given and
served, shall have charge of the books, records and papers of the Partnership
relating to its organization and management as a Partnership, and shall see that
the reports, statements and other documents required by law are properly kept
and filed; and shall, in general, perform all the duties incident to the office
of Secretary and such other duties as from time to time may be assigned to him
by the Management Committee and the General Manager.
6.3 Treasurer. The Treasurer shall be appointed by the Management
Committee. The Treasurer shall report to the Management Committee. The Treasurer
shall perform all the duties assigned to him by this Agreement including,
without limitation, (a) arranging for the Partnership to borrow funds pursuant
to Section 10.3; (b) submission to each Partner of quarterly comparisons
pursuant to Section 10.1(b), current cash estimates pursuant to Section 10.2,
and statements relating to Emergency Needs pursuant to Section 10.2(b); (c)
determination of the amount of Cash for Distribution and the distribution of
such Cash for Distribution pursuant to Section 10.4; (d) causing to be prepared
and given to each Partner unaudited financial statements pursuant to Section
10.8(b); (e) having charge of, and being responsible for, all funds, securities
and notes of the Partnership; (f) receiving and giving receipts for moneys due
and payable to the Partnership from any sources whatsoever; (g) depositing all
such moneys in the name of the Partnership in such banks, trust companies or
other depositories as shall be selected by the Management Committee; (h) against
proper vouchers, causing such funds to be disbursed by checks or drafts on the
authorized depositories of the Partnership, and being responsible for accuracy
of the amounts of all moneys so disbursed; (i) regularly entering or causing to
be entered into books to be kept by him or under his discretion full and
adequate account of all moneys received or paid by him for the account of the
Partnership; (j) having the right to require, from time to time, reports or
statements giving such information as he may desire with respect to any and all
financial transactions of the Partnership from the officers or agents
transacting the same; and, (k) in general, all the duties incident to the office
of Treasurer and such other duties as from time to time may be assigned to him
by the Management Committee or the General Manager.
6.4 Other Persons. The Management Committee may appoint such other
executive and management employees, including Persons employed by Continental or
Harvest States, as it shall from time to time deem appropriate, and may approve
a plan for hiring of other salaried employees including employees from
Continental and Harvest states.
6.5 Appointment and Removal of Officers and Employees. The appointment
and removal of officers and employees of the Partnership shall be made by the
Management Committee. Either Partner may request the removal of any officer or
employee.
6.6 Affiliations. The officers, executives and other employees of the
Partnership may also be employees of the Partners or their Affiliates, and shall
not be required (except as may be determined by the Management Committee) to be
full-time employees of the Partnership. The Management Committee and the
Partners will agree on the designation of employees of the respective Partners
to be made available by the respective Partners for the purpose of providing
marketing, transportation, logistics, export administration, grain settlements,
accounting and other services, for and on behalf of the Partnership. Such
designated employees shall at all times remain employees of the respective
Partners. The duties performed by such designated employees for and on behalf of
the Partnership in conducting and performing Partnership business shall be
Partnership business activities. In consideration of each of the Partner's
making such employees available to the Partnership, the Partnership shall pay to
each of the Partners the charges for services by and other expenses incurred by
such designated employees in performing Partnership business and agreed by the
Management Committee as reflected in the operating budget. The Partnership shall
have the right to direct the action of such designated employees in performance
of their duties for and on behalf of the Partnership. If the Partnership does
not desire to maintain the services of any such designated employee, the
Partnership may so advise the respective Partner employing such designated
employee and such Partner shall cause the designated employee to cease
performing such services for and on behalf of the Partnership. Each Partner
retains the right to fire its employees even if designated to the Partnership or
to transfer any such employee to other duties within the business of such
Partner; provided, however, that such Partner will cooperate with the
Partnership to provide a suitable replacement so that the services, of like kind
provided by such dismissed or transferred employee will continue to be provided
to the Partnership.
6.7 Exculpation. Any regular or alternate member of the Management
Committee, the officers, executives and employees of the Partnership which are
employed by either Partner or its Affiliate shall not be liable to the
Partnership or to the Partners for any action taken or omitted to be taken by
him with respect to the Partnership, except to the extent any such act or
omission was attributable to the willful misconduct, gross negligence or bad
faith of such member of the Management Committee, officer, executive or
employee.
ARTICLE VII
7.1 The Partnership business shall be limited to corn and sorghum
("Feedgrains") and soybeans ("Oilseeds") destined primarily for export from the
Pacific Northwest, United States. The Partnership intends to source Feedgrains
and Oilseeds from its Partners and its Partners intend to supply Feedgrains and
Oilseeds on market terms from their grain originating facilities and, in the
case of Harvest States, its affiliated cooperatives from which it purchases such
Feedgrains and Oilseeds, customarily tributory to the Pacific Northwest export
market.
7.2 In order to facilitate the ability of the Partnership to transport
and handle the Feedgrains and Oilseeds which it intends to market into export
channels, the Partnership desires to utilize the Tacoma Facility and
concurrently with the execution of this Agreement, the Partnership has executed
the five-year Sublease Agreement between Continental Grain Company and the
Partnership providing annual rental of $2.5 million payable to Continental by
the Partnership with provision for one five-year renewal option at $3 million
rental annually (the "Sublease"). The Sublease shall terminate on the
termination, expiration or dissolution of the Partnership.
ARTICLE VIII
NATURE OF OBLIGATIONS; INDEMNITIES; CHARGES
8.1 Obligations. As between the Partner, no Partner shall be liable or
bear responsibility for more than its Share of each and all of the costs,
expenses, liabilities and charges incurred or accrued by the Partnership. If any
Partner shall pay or be required to pay, discharge or otherwise bear
responsibility for any amount in excess of its share of the costs, expenses,
liabilities and charges incurred or accrued by the Partnership, (i) such payment
shall be deemed a demand loan by the advancing Partner to the other Partner, and
shall be treated in the same manner as a loan pursuant to Section 3.2(d), and
(ii) the other Partner covenants and agrees to indemnify, hold harmless and
reimburse such Partner against and for the amount of such excess.
8.2 Indemnities. Each Partner covenants and agrees to indemnify and
hold harmless the Partnership and the other Partner from and against any and all
damage, losses and expenses caused by or arising out of any and all of the
following: (i) any failure to perform any obligation required to be performed by
such Partner hereunder and (ii) any wrongful or negligent act or omission by
such Partner in connection with the Partnership's property or the ownership or
operation thereof.
8.3 Charges. Upon the request of the General Manager or the Management
Committee, either Partner, without charge, shall provide to the Partnership
basic management and administrative advice and consultation of the kind
generally provided by corporate staff to operating line functions and, including
but not limited to, legal services, loss prevention and safety counselling,
transportation and human resources counselling, and insurance counselling (but
excluding management information services), so long as that Partner is providing
those services to its other business segments.
ARTICLE IX
TRANSFER OF INTERESTS
9.1 No Transfer of Interest. Except as hereinafter otherwise provided
in this Article IX, during the term of this Agreement, no Partner (or any
successor) shall, directly or indirectly in any manner, sell, transfer, assign,
encumber or otherwise dispose of any interest in the Partnership, nor shall any
such interest be subject, in whole or in part, directly or indirectly, to sale,
transfer, assignment, encumbrance or other disposition by operation of law or
agreement, without the prior written consent of the other Partner, and any
attempt so to do shall be void.
9.2 Transfer to Affiliates. Notwithstanding anything in Section 9.1 to
the contrary, any Partner may sell, transfer or otherwise dispose of its Partner
Interest to any entity which is an Affiliate of such Partner or of the ultimate
Controlling Affiliate of such Partner, subject, however, to the conditions that
(i) in the opinion of counsel to the Partnership, such sale, transfer or other
disposition would not (a) constitute a default under any material agreement to
which the Partnership is a party or (b) result in the termination of the
Partnership for Federal income tax purposes, (ii) the transferee may not be a
debtor subject to any proceeding under Title 7 or 11 of the United States
Bankruptcy Code or any successor legislation or similar state legislation
(unless otherwise consented to in writing by the other Partner), and (iii) the
transferor and its Affiliates shall not be released from any of its or their
obligations under this Agreement or the Sublease.
9.3 Reasonableness of Restrictions. Each Partner acknowledges and
agrees that the restrictions on the transfer of interests herein are reasonable
in view of the purpose and intent of the Partners.
9.4 Certain Encumbrances Permitted. Anything in this Agreement to the
contrary notwithstanding, any Partner (and the Affiliates of any Partner) may
encumber all or part of such Partner's Partner Interest to the extent and in the
manner which may be required pursuant to financing agreements contemplated by
Section 10.3.
ARTICLE X
FINANCIAL MATTERS
10.1 Programs and Budgets.
(a) The General Manager shall, not later than one (1) month prior
to the commencement of the next succeeding fiscal year of the Partnership,
prepare and submit to the Management Committee for its review and approval a
business operating budget and a capital expenditure budget for such fiscal year.
(b) Not later than the 25th calendar day after the close of each
fiscal quarter, the Controller shall submit to each Partner a comparison, for
the immediately preceding quarter and for the year-to-date, of the results of
operations of the Partnership with the applicable fiscal year budget.
10.2 Estimates on Cash Needs.
(a) Based on the budgets referred to in Section 10.1 (a), and the
quarterly comparisons referred to in Section 10.1 (b), the Treasurer will, at
such time and for such periods as requested by the Management Committee, submit
to the Management Committee a current cash estimate showing: (i) the estimated
cash disbursements which the Partnership will be required to make during the
next succeeding calendar period for operating costs; (ii) estimated receipts;
(iii) amounts needed for additional working capital; and (iv) the amount of
funds ("Cash Needs") that will be required to cover the amount, if any, by which
estimated cash disbursements and amounts needed for additional working capital
exceed estimated receipts available to cover such cash disbursements and
additional working capital. The current cash estimate shall also specify the
dates on which the Partnership must receive the necessary funds.
(b) In the event an emergency requires cash payments ("Emergency
Needs") not provided for by such current cash estimates, the General Manager or
the Treasurer, may at any time furnish a statement thereof to the Management
Committee, giving the maximum period of notice for any such additional cash
payments as is practicable in the circumstances, specifying in detail the
reasons for such emergency cash payment and the amount thereof. Upon receipt of
such emergency cash statement, the Management Committee shall promptly decide,
taking into account the circumstances, how the Emergency Needs shall be met.
(c) Unless otherwise agreed by the Management Committee, the Cash
Needs and the Emergency Needs shall be made through borrowings of the
Partnership in accordance with Section 10.3.
10.3 Partnership Borrowings and Partner Loans. In the event that the
Management Committee decides at any time during the term of this Agreement that
it is desirable for the Partnership to borrow funds to acquire significant
inventories or to meet the Cash Needs, Emergency Needs or other requirements of
the Partnership, the Treasurer shall, within the limits of his authority as
defined by the Management Committee, negotiate on behalf of the Partnership to
borrow such funds from financial institutions. The Management Committee may
approve, reject, or modify the terms negotiated by the Treasurer and may
negotiate or authorize others to negotiate borrowings on behalf of the
Partnership in order to find terms more beneficial to the Partnership. The
Partnership may, upon approval of the Management Committee, also borrow from the
Partners, based on their respective Shares, on terms to be separately agreed.
The parties agree to use their best efforts to obtain Partnership borrowings
from financing institutions who will agree to limit recourse to each Partner to
50% of any sums financed.
10.4 Cash for Distribution. The Treasurer shall determine, at such
times as requested by the Management Committee, the amount of cash for
distribution and shall distribute such cash for distribution, if any, to the
Partners, in accordance with their Shares; provided, however, that (a) if any
Partner has advanced loans to a Delinquent Partner, the distributions otherwise
payable to the Delinquent Partner shall be made to the other Partner up to an
amount sufficient to repay such loans in full with interest, and (b) if any
Partner is in default or delinquent in respect of an obligation to the
Partnership, no distribution shall be made to such Partner until such default is
cured or such delinquent obligation is paid.
10.5 Deposits and Investments. The funds of the Partnership shall be
deposited in the name of the Partnership in accounts designated by the
Management Committee in banks or banking institutions to be selected by the
Management Committee or invested in such manner as shall be authorized by the
Management Committee. The Management Committee shall prescribe such procedures
as it shall deem necessary with respect to making such investments.
10.6 Fiscal Year. The fiscal year of the Partnership shall end on March
31 in each year.
10.7 Books of Account.
(a) The Management Committee shall approve the opening financial
statements for the Partnership as of the date hereof.
(b) Accurate books of account of the Partnership shall be
maintained in accordance with generally accepted accounting principles
consistently applied. In those instances in which more than one generally
accepted accounting principle can be applied, the Management Committee shall
determine, in consultation with the Partnership's independent accountants, which
principle will be adopted by the Partnership. Such books shall at any reasonable
time be available for examination by either Partner or Persons acting on its
behalf at the sole expense of such Partner.
10.8 Financial Statements.
(a) Within ninety (90) days after the close of each fiscal year of
the Partnership there shall be prepared and submitted to each Partner the
following financial statements, accompanied by the report thereon of the
independent accountants for the Partnership:
(1) a balance sheet of the Partnership as at the end
of such fiscal year;
(2) a statement of profit and loss for such fiscal
year;
(3) a statement of changes in financial position; and
(4) a statement of the respective Partner Accounts
and changes therein for such fiscal year.
(b) Within twenty (2) Business Days after the close of each fiscal
month the Treasurer will cause to be prepared and given to each Partner
unaudited financial statements comparable to those referred to in Section
10.8(a)(1) and (2).
10.9 Tax Matters.
(a) The Partners hereby agree that the Partnership shall be
treated as a partnership for purposes of United States, Federal, state and local
income tax or other taxes, and further agree not to take any position or make
any election, in a tax return or otherwise, inconsistent therewith.
(b) The Management Committee shall cause all required United
States Federal, state and local partnership income, franchise, property or other
tax returns, including information returns, to be filed with the appropriate
office of the Internal Revenue Service or any other relevant taxing
jurisdiction, as the case may be. As promptly as practicable, and in any event
in sufficient time to permit timely preparation and filing by each Partner of
its respective state and Federal tax returns, the Partnership shall deliver to
each Partner a copy of each state and Federal tax return or tax report filed by
the Partnership.
(c) All elections for Federal income tax purposes, except as
stated in Section 10.9(a), required or permitted to be made by the Partnership,
and all material decisions with respect to the calculation of its income or loss
for tax purposes, shall be made in such manner as the Management Committee shall
determine.
10.10 Partner Accounts.
(a) An individual partner account ("Partner Account") shall be
maintained for each Partner and shall be adjusted as set forth herein.
(b) The Partner Account maintained for each Partner (x) shall be
credited with the sum of (a) the fair market value at the time of contribution
of all capital contributions made by such Partner to the Partnership and the
amount of all Net Income credited to the Partner account of such Partner
pursuant to Section 4 and decreased by the sum of (i) the amount of all
distributions made to such Partner and (ii) the amount of Net Loss charged to
the Partner Account of such Partner pursuant to Section 4.1;
(c) Partnership income, gains, losses and deductions shall, solely
for income tax purposes, be allocated among the Partners in accordance with
Section 704(c) of the Internal Revenue Code of 1986, as amended.
ARTICLE XI
DISSOLUTION AND WINDING UP
11.1 Dissolution Events. The Partnership shall be dissolved in case any
of the following events shall occur:
(a) The term of the Partnership shall expire pursuant to Section
2.4 of this Agreement.
(b) Either Partner shall deliver the Notice of Dissolution
following a Deadlocked Matter pursuant to Section 5.4.
(c) The sale, abandonment or disposal by the Partnership of all or
substantially all of its assets not in the ordinary course of business.
(d) The Partnership or either Partner shall (i) file a petition in
bankruptcy, (ii) petition or apply to any tribunal for the appointment of a
receiver or any trustee for it or a substantial part of its assets, (iii)
commence any proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statue of any
jurisdiction, whether now or hereafter in effect, or (iv) make an assignment for
the benefit of creditors or take any other similar action for the protection or
benefit of creditors; or if there shall have been filed any such petition or
application, or any such petition shall have been commenced against it, in which
an order for relief is entered or which remains undismissed for a period of
forty-five (45) days or more; or the Partnership or either Partner by any act or
omission shall indicate its consent to, approval of or acquiescence in any such
petition, application or proceeding or order for relief or the appointment of a
receiver or any trustee for it or any substantial part of any of its properties,
or shall suffer any such receivership or trusteeship to continue undischarged
for a period of forty-five (45) days or more.
No Partner shall have the right to dissolve or terminate the
Partnership for any reason other than as set forth above or to withdraw from the
Partnership other than as set forth in Article IX, and each Partner hereby
waives any other right it may have with respect thereto.
11.2 Winding Up. Upon dissolution of the Partnership pursuant to
Section 11.1, the Partnership shall be wound up and liquidated in accordance
with law and the following provisions:
(a) Each Partner shall pay to the Partnership all amounts owing by
it to the Partnership.
(b) The Partnership shall continue with the business necessary to
complete and perform existing contracts until the distribution of the
Partnership's assets as hereinafter provided. No new business or contracts shall
be undertaken except as necessary to wind up and liquidate the Partnership.
(c) The property and business of the Partnership shall be wound up
and liquidated under the direction of the Management Committee or a Person duly
appointed by the Management Committee (in any such case, the "Liquidator"). Upon
the dissolution of the Partnership, the Liquidator shall cause a statement
setting forth the assets and liabilities of the Partnership as of the date of
dissolution of the Partnership (the "Dissolution Date") (including the fair
market value of all of the assets of the Partnership) to be prepared promptly
and furnished to each of the Partners, or upon the written request of either
Partner, by the independent auditors of the Partnership. In preparing such a
statement, the Liquidator may retain such independent appraisers or other
advisors as the Liquidator deems advisable. All fees, costs, and expenses
incurred in connection therewith shall be borne by the Partnership.
(d) following the preparation and distribution of such statement,
the Liquidator shall distribute all the assets and assign all the liabilities of
the Partnership to the Partners in the ratio of the Partner Account balances of
the Partners after adjustment of the Partner Accounts for any profit or loss in
the year of liquidation, any profit or loss realized or to be realized on any
property sold or disposed of as part of the liquidation, and any profit which
would be realized if any property distributed in kind had been sold at its fair
market value by the Partnership.
ARTICLE XII
DISPUTES; ARBITRATION
12.1 Resolution of Controversies. Any dispute, controversy or claim
between the Partners arising from this Agreement or the performance thereof
shall be settled solely by arbitration in accordance with the provisions of
Section 12.2.
12.2 Method of Arbitration. The arbitration shall be effected by
arbitrators selected as hereinafter provided and shall be conducted by the
American Arbitration Association in Chicago, Illinois applying the Commercial
Arbitration Rules in effect on the date thereof. The dispute shall be submitted
to three arbitrators, each of who shall have had at least five (5) years'
experience in connection with the business of the Partnership, one arbitrator
being selected by the Partner submitting the controversy or dispute to
arbitration, the second arbitrator being selected by the other Partner and the
third arbitrator being selected by the two arbitrators so selected. Conditions
of any such arbitration shall include (a) that the arbitrators shall not have
the authority to modify, amend or supplement the terms of this Agreement and
shall interpret this Agreement strictly in accordance with its terms; and (b)
that the Partner submitting such controversy or dispute to arbitration shall
appoint its arbitrator within fifteen (15) Business Days after the date of such
submission. The failure of the Partner requesting arbitration to timely appoint
such arbitrator shall void the effectiveness of the notice of submission of the
matter to arbitration. The second arbitrator to be selected by the other Partner
as hereinbefore provided shall be selected within fifteen (15) Business Days
after receipt of notice by such Partner of the selection of the submitting
arbitrator and, if the second arbitrator is not so selected, the determination
of the single arbitrator selected by the submitting Partner shall be binding and
conclusive. If the non-submitting Partner shall have timely selected the second
arbitrator, then the two selected arbitrators shall select the third arbitrator
within five (5) Business Days following the selection of the second arbitrator.
The meetings of the arbitrators shall be held at such place or places as may be
agreed upon by the arbitrators, and each Partner shall bear the cost of the fees
and expenses of the arbitrator selected by or for it, with the fees and expenses
of the third arbitrator to be borne equally. Upon making any order or award,
which order may include an order to dissolve the Partnership pursuant to the
provisions of Article X, the arbitrators shall retain jurisdiction to determine
any subsequent claim that a defaulting Partner has failed to comply with terms
of any such order or award. The arbitrators shall have no authority to impose a
fine or penalty.
ARTICLE XIII
CONFIDENTIAL INFORMATION
13.1 Confidential Information. During the continuance of the
Partnership and for a period of three (3) years after its termination, no
Partner or its Affiliates or any officer or employee thereof shall divulge to
any Person (except an Affiliate of such Person which shall undertake to be bound
to the provisions of this Article XIII) any trade secret, or secret process,
method or means or any other confidential information concerning the business or
properties of the Partnership, the Partners or their Affiliates, or the
manufacture, sale or licensing of products, processes and designs made or owned
by the Partnership, the Partners, or their Affiliates, that come to the
knowledge of such Partner, Affiliate, officer or employee by reason of the
relationship of such Partner, Affiliate, officer or employee with the
Partnership. The obligations under this Article XIII shall not apply to any
information to the extent that (a) such information is or shall become part of
the public domain, by publication or otherwise, through no fault of the Partner
seeking to use or disclose such information, or (b) the receiving Partner,
Affiliate, officer or employee shall be able to show such information to have
been in its or his possession prior to the receipt thereof from the Partnership
or other Partner or Affiliate or to have been received from a third party which
shall not itself have received such information on a confidential basis from the
Partnership or any Partner or Affiliate of a Partner.
ARTICLE XIV
SECURITY INTEREST
14.1 Security for Indemnity. To secure their respective indemnity
obligations hereunder, each Partner hereby grants to the Partnership and to the
other Partner, pursuant to Article I of the Uniform Commercial Code, a security
interest in their respective right, title and interest in and to the
Partnership, and under the Partnership Agreement, including all present and
future rights to any profits, payments, distributions, or other rights to
payment arising under or in connection with the Partnership Agreement (the
"Collateral"); provided, however, that for so long as a Partner is not in
default of any of its indemnity obligations hereunder, that Partner may receive
all payments or distributions to which its is entitled as Partner of the
Partnership. In the event a Partner is in default under its indemnity
obligation, to the extent such default may be cured by the payment of money, the
Partnership may, at the request of the non-defaulting Partner make such payment
and pay to the non-defaulting Partner the next available funds which would
otherwise have been distributed to the defaulting Partner, up to an amount which
will make the non-defaulting Partner whole, together with interest thereon from
the date paid by the Partnership until reimbursed to the other Partner at the
rate of 2% in excess of the Prime Rate.
Alternatively, if such loss is incurred by the other Partner, such
other Partner shall be entitled to receive all subsequent distributions
otherwise payable to the defaulting Partner until the non-defaulting Partner has
recovered the full amount of its loss together with interest at the rate of 2%
in excess of the Prime Rate.
Neither Partner will transfer or assign, grant a security interest in
or otherwise dispose of its respective interests as debtor in and to the
Collateral and will maintain the Collateral free and clear of all other liens,
claims and security interests whatsoever. Provided that a Partner has discharged
its respective obligations under and it not otherwise in default of its
obligations hereunder, and is not the subject of any bankruptcy or insolvency
proceeding, this security interest shall terminate only upon the settlement of
all debts and claims outstanding with respect to the dissolution of the
Partnership. Each Partner shall furnish to the Partnership and the other
Partner, upon request, duly executed UCC-1 financing statements covering the
Collateral and such other documents, certifications and instruments as requested
by the Partnership or the other Partner, to evidence, grant, perfect and
prioritize the security interest granted in the Collateral.
ARTICLE XV
GOVERNING LAW
15.1 Governing Law. The Partnership is formed pursuant to and shall be
governed by and construed in accordance with the Partnership Law and laws of the
State of Washington, exclusive of Washington's conflict of laws rules.
ARTICLE XVI
16.1 Amendments. The terms of this Agreement cannot be modified, varied
or amended orally but only by a written instrument executed by all the Partners.
ARTICLE XVII
NOTICES
17.1 Notices.
(a) All notices, consents, demands, requests, reports and other
documents authorized or required to be given pursuant to this Agreement shall be
given in writing and either personally served as an officer or a member of the
Management Committee of the Partner to whom it is given or mailed by registered
or certified first class mail, postage prepaid, or sent by facsimile or
telegram, addressed as follows:
If to Continental:
CONTINENTAL GRAIN COMPANY
222 South Riverside Plaza
Suite 2600
Chicago, IL 60606
Attention: Mr. John T. Zick
Senior Vice President,
North American Grain Division
Facsimile No.: (312) 207-5236
With a copy to:
CONTINENTAL GRAIN COMPANY
277 Park Avenue
New York, NY 10172
Attention: David G. Friedman
Deputy General Counsel
Facsimile No.: (212) 207-2980
If to Harvest-States:
HARVEST STATES COOPERATIVES
1667 Snelling Avenue North
St. Paul, Minnesota 55184
Attention: Legal Department
Facsimile No.: (612) 641-6832
(b) Any Partner may change the address to which notices and other
communications to it shall be sent by giving to the other Partner written notice
of such change, in which case notices and other communications to the Partner
giving the notice of the change of address shall not be deemed to have been
sufficiently given or delivered unless addressed to it at the new address as
stated in said notice. Notices shall be deemed to have been given (except as
otherwise expressly set forth in this Agreement) (i) when delivered, if given by
personal delivery or actual delivery during normal business hours, (ii) three
(3) Business Days after posting, if given by registered or certified mail,
return receipt requested, (iii) two (2) Business Days after dispatch if given by
telegram, or (iv) upon receipt, if given by facsimile.
ARTICLE XVIII
SUCCESSORS AND ASSIGNS
18.1 Successors and Assigns. Subject to the provisions of Article IX,
this Agreement shall inure to the benefit of and be binding upon the permitted
successors and assigns of the respective parties hereto in all respects as if
they were mentioned throughout by words of proper designation.
ARTICLE XIX
MISCELLANEOUS
19.1 Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the Partners with respect to the formation and operation of
the Partnership and related transactions contemplated by this Agreement, and
supersedes all prior agreements and understandings, written or oral, between the
Partners with respect thereto.
19.2 Severability. The unenforceability, invalidity, or illegality of
any provision of this Agreement shall not affect or impair any other provision
hereof or render it unenforceable, invalid or illegal.
19.3 Interpretation. Wherever used in this Agreement, unless the
context clearly indicates otherwise, the use of the singular includes the
plural, and vice versa; and the use of any gender is applicable to any other
gender.
19.4 Captions. Captions contained in this Agreement are inserted only
as a matter of convenience and in no way define, limit, extend or describe the
scope of this Agreement or the intent of any provision hereof.
19.5 Partition Waived. The Partners agree that the Partnership's
interest, properties and investments are not and will not be suitable for
partition. Accordingly, each of the Partners hereby irrevocable waives any and
all rights that it may have to maintain any action for partition of any of such
interest, properties or investments.
19.6 Waiver and Consent. No consent or waiver, express or implied, by
any Partner to or of any breach or default by any other Partner in the
performance by such other Partner of its obligations hereunder shall be deemed
or construed to be a consent or waiver to or of any other breach or default in
the performance by such other Partner of the same or any other obligations of
such Partner hereunder. Failure on the part of any Partner to complain of any
act or failure to act of the other Partner or to declare such other Partner in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such Partner of its right hereunder.
19.7 Commercial Efficacy. The Partners shall take all reasonable
actions to give commercial efficacy to the terms and conditions of this
Agreement and to promote the business of the Partnership, including, but not
limited to, taking or causing the members of the Management Committee appointed
by them to take all necessary actions in a timely fashion, in order for the
Partnership to pursue the business contemplated by this Agreement, entering into
all the agreements contemplated hereby and any additional agreements or
instruments of further assurance, as on advice from legal counsel, the Partners
shall reasonably deem necessary, and seeking all necessary governmental
approvals.
19.8 Counterparts. This Agreement may be executed in any number of
counterpart copies, each of which shall constitute an original and all of which
shall constitute one agreement.
19.9 GAAP Basis. In the event the auditors of the Partnership are
required hereunder to determine the values, accounts, give opinions or make any
other valuation of any nature, the auditors shall employ generally accepted
accounting principles consistently applied unless the context otherwise requires
the application of the principles of tax accounting (or differing regulatory
rules).
IN WITNESS WHEREOF, the Partners have executed this Agreement as of the
date first above written.
CONTINENTAL GRAIN COMPANY
By /s/ Stephen Morganstern
Name: Stephen Morganstern
Title: Senior VP Finance and
Administration
Commodity Marketing Sector
HARVEST STATES COOPERATIVE
By /s/ Michael H. Bergeland
Name: Michael H. Bergeland
Title: Group V.P.
HARVEST STATES COOPERATIVES
DEFERRED COMPENSATION PLAN
ARTICLE I
GENERAL
SEC. 1.1 NAME OF PLAN. The name of this plan is "Harvest States
Cooperatives Deferred Compensation Plan" (referred to hereinafter as the
"Plan").
SEC. 1.2 PURPOSE. The Plan has been established to provide additional
future compensation to certain highly compensated employees through voluntary
deferrals of compensation so that such employees may be retained and their
productive efforts encouraged.
SEC. 1.3 EFFECTIVE DATE. The "Effective Date" of the Plan, the date as
of which the Plan was established, is April 1, 1994.
SEC. 1.4 HARVEST STATES. For purposes of this Plan, "Harvest States"
means Harvest States Cooperatives, a Minnesota corporation, and any Successor
Employer thereof.
SEC. 1.5 CONSTRUCTION AND APPLICABLE LAW. The Plan is intended to be an
unfunded plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees,
within the meaning of section 201(2), 301(a)(3) and 401(a)(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan shall be
administered and construed consistent with said intent. This Plan also shall be
governed and construed in accordance with the laws of the State of Minnesota as
applied to contracts executed and to be wholly performed within said state to
the extent that such laws are not preempted by the laws of the United States of
America.
ARTICLE II
DEFINITIONS
SEC. 2.1 ACCOUNT. An "Account" shall be established for each eligible
Participant reflecting the deferred compensation owed to the Participant or the
Participant's Beneficiary under the terms of this Plan.
SEC. 2.2 BENEFICIARY. "Beneficiary" means the person or persons
designated as such pursuant to the provisions of Sec. 5.3.
SEC. 2.3 PARTICIPANT. A "Participant" is an individual described as
such in Article III.
SEC. 2.4 PLAN YEAR. A "Plan Year" is the 12-consecutive-month period
commencing on each January 1 and ending December 31. However, the first Plan
Year commences on April 1, 1994 and ends on December 31, 1994.
SEC. 2.5 QUALIFIED EMPLOYEE. "Qualified Employee" means any select
management or highly compensated employee of Harvest States who is designated as
eligible to participate in this Plan on Exhibit A. The President of Harvest
States may amend Exhibit A to add or delete eligible employees at any time;
provided, however, that all such changes shall apply prospectively only.
SEC. 2.6 SUCCESSOR EMPLOYER. A "Successor Employer" is any entity that
succeeds to the business of Harvest States through merger, consolidation,
acquisition of all or substantially all of its assets, or any other means and
which elects before or within a reasonable time after such succession, by
appropriate action evidenced in writing, to continue the Plan.
SEC. 2.7 TERMINATION OF EMPLOYMENT. The "Termination of Employment" of
an employee for purposes of the Plan shall be deemed to occur upon the
employee's resignation, discharge, retirement, death, failure to return to
active work at the end of an authorized leave of absence or the authorized
extension or extensions thereof, failure to return to work when duly called
following a temporary layoff, or upon the happening of any other event or
circumstance which, under the policy of Harvest States as in effect from time to
time, results in the termination of the employer-employee relationship.
ARTICLE III
PARTICIPATION
SEC. 3.1 ELIGIBILITY FOR PARTICIPATION. An employee of Harvest States
shall become a Participant in the Plan on the earliest date (on or after the
Effective Date) on which he or she is a Qualified Employee and has elected to
make contributions under Sec. 4.1. Prior to the time a Qualified Employee
becomes a Participant, the employee shall make the elections required under Sec.
5.1.
SEC. 3.2 DURATION OF PARTICIPATION. A Participant shall continue to be
such until the earliest of:
(a) The Participant's Termination of Employment.
(b) The date on which the Participant ceases to be a Qualified
Employee.
(c) The date the Participant fails to meet the requirements of
any regulations which may be issued by the Department of Labor that
define the phrase "select group of management or highly compensated
employees" under ERISA.
SEC. 3.3 NO GUARANTEE OF EMPLOYMENT. Participation in the Plan does not
constitute a guarantee or contract of employment with Harvest States. Such
participation shall in no way interfere with any rights Harvest States would
have in the absence of such participation to determine the duration of the
employee's employment with Harvest States.
ARTICLE IV
DEFERRED COMPENSATION AND ACCOUNTS
SEC. 4.1 ELECTION OF DEFERRED COMPENSATION. Prior to the first day of
any Plan Year beginning on or after the Effective Date, a Participant may elect
to have an amount of deferred compensation credited to the Participant's Account
for the Plan Year. The compensation actually earned during the Plan Year by a
Participant who elects deferred compensation under this section shall be reduced
by the percentage or amount so elected.
(a) Elections for the Plan Year commencing on April 1, 1994
must be filed with Harvest States by March 25, 1994. Elections for
subsequent Plan Years must be filed by the preceding December 15.
However, if an individual becomes a Qualified Employee during a Plan
Year, an election for that year may be filed within 30 days following
the date the individual became a Qualified Employee and shall apply to
compensation earned following the date the election is filed.
(b) A Participant may elect to have either or both of the
following types of deferrals made from the Participant's compensation:
(1) The Participant may elect to contribute a
percentage of each payment of base compensation. The
percentage may not exceed 30%, and must be expected to result
in annual contributions totaling at least $1000.
(2) The Participant may elect to contribute either a
percentage or a specific dollar amount (not less than $1000)
of any bonus or similar incentive payment which may become
payable during the Plan Year. If a specific dollar amount is
elected and that amount exceeds the amount of bonuses payable
on or prior to a particular date during the year, 100% of the
bonus will be contributed under this Plan. If a percentage is
elected, the contribution will not be less than the smaller of
$1000 or 100% of the bonus payable.
(c) A Participant may elect to change the amount to be
contributed, or discontinue contributions, in a future Plan Year by
filing an approved form with Harvest States on or before the December
15th preceding that Plan Year. If no such election is filed, the
election in effect during the previous Plan Year will continue in
effect during the next Plan Year. Each election for a Plan Year shall
become irrevocable on the December 15th deadline for that year.
SEC. 4.2 ALLOCATION TO ACCOUNTS. The deferred compensation credited
under the Plan by Harvest States on behalf of a Participant for a Plan Year
shall be allocated to the Account of the Participant as of the date that the
compensation would otherwise have been paid to the Participant in cash.
SEC. 4.3 VALUATION OF ACCOUNTS. As of any date as of which an Account
is to be valued, the value of the Account shall be adjusted to reflect the
effect of additional credits under Sec. 4.1 and any credit for income with
respect to that Account, less any distributions under the Plan with respect to
said Account, since the last date the value of the Account was determined.
Income shall be credited to each Account each Plan Year at an annual rate equal
to 1% over the five-year U. S. Treasury Bond rate as of October 1 of the year
preceding the Plan Year, adjusted as appropriate to reflect contributions to and
distributions from the Account during the Plan Year.
SEC. 4.4 UNSECURED OBLIGATIONS. A Participant's credits in his or her
Account shall be an unsecured obligation of Harvest States to pay the
Participant (or the Participant's Beneficiary, in the event of the Participant's
death) the actual amount of the credits at the time designated in Article V.
Each Participant or Beneficiary is only a general creditor of Harvest States
with respect to his or her Account. Accounts are maintained for recordkeeping
purposes only. Notwithstanding the foregoing, obligations of Harvest States to
pay benefits under this Plan may be satisfied by distributions from a grantor
trust created by Harvest States in its sole discretion for such purpose.
ARTICLE V
DISTRIBUTION OF ACCOUNTS
SEC. 5.1 DISTRIBUTION ON TERMINATION OF EMPLOYMENT OR OTHER EVENT.
Prior to the date an employee becomes a Participant in the Plan, the employee
shall elect a time and method in which the amount credited to the Participant's
Account is to be paid by Harvest States to the Participant. The election shall
be irrevocable as to all contributions credited to an Account and all earnings
on those contributions until the Participant files a subsequent election
changing the time and/or method of payment of future contributions and earnings
on such contributions. The elected time must be a definitely determinable date,
such as the date of the Participant's Termination of Employment or the date the
Participant attains a specified age. The elected method may be either a lump sum
payment or a schedule of installment payments. If payments are to be made in
installments, the Participant's Account shall continue to be revalued prior to
each payment as provided in Sec. 4.3. The amount of the installments during each
Plan Year shall be equal to the balance in the Account on the first day of the
Plan Year divided by the number of years in which installments remain to be
paid. Installment payments by Harvest States to any Participant or Beneficiary
shall cease when the Participant's Account balance is reduced to zero. Harvest
States in its sole discretion may allow a Participant to elect a different time
or method than specified in the preceding sentences of this section, provided
that the payment method is definitely determinable at the time the election is
filed.
SEC. 5.2 DISTRIBUTION ON DEATH. Upon the death of a Participant,
Harvest States shall pay to the Participant's Beneficiary an amount equal to the
entire balance of the Participant's Account. Such payment shall be made in a
single sum payment to the Participant's Beneficiary as soon as administratively
feasible following the Participants's death; provided, however, that if the
Participant has made a written election as to the time and method of
distribution to a Beneficiary, the Account shall instead be distributed in
accordance with said election.
SEC. 5.3 BENEFICIARY DESIGNATION. Each Participant shall have the
right, at any time, to designate any person or persons as Beneficiary or
Beneficiaries to whom payments under this Plan shall be made in the event of the
Participant's death prior to complete distribution of the amount credited to the
Participant's Account. Each Participant shall have the right to change his or
her Beneficiary designation at any time. Each Beneficiary designation shall
become effective only when filed in writing with Harvest States during the
Participant's life on a form prescribed by Harvest States. If a Participant
fails to designate a Beneficiary as provided above, then the Participant's
Beneficiary shall be the Participant's estate.
SEC. 5.4 DISTRIBUTION ON DISABILITY. A Participant's election under
Sec. 5.1 may include a separate election of the time and method of payment of a
Participant's account in the event the Participant incurs a disability which
entitles the Participant to benefits under a long-term disability plan sponsored
by Harvest States which covers the Participant, subject to approval by Harvest
States. In the absence of such a separate election, the Participant's election
under Sec. 5.1 shall control.
SEC. 5.5 DISTRIBUTIONS FOR UNFORESEEABLE EMERGENCY. Notwithstanding any
election under the foregoing sections of this Article V, Harvest States in its
sole discretion may approve a request by a Participant (or by a Beneficiary
following the Participant's death) for a withdrawal from the Participant's
Account due to an unforeseeable emergency. An "unforeseeable emergency" is an
unanticipated emergency that is caused by an event beyond the control of the
Participant or Beneficiary and that would result in severe financial hardship to
the individual if an early withdrawal is not permitted. Any such early
withdrawal approved by Harvest States may not exceed the amount necessary to
meet the emergency.
SEC. 5.6 WITHHOLDING OF TAXES. The benefits payable under this Plan
shall be subject to the deduction of any federal, state, or local income taxes
or other taxes which are required to be withheld from such payments by
applicable laws and regulations.
ARTICLE VI
ADMINISTRATION
SEC. 6.1 ADMINISTRATION BY HARVEST STATES. Harvest States shall
administer the Plan, establish, adopt, or revise such rules and regulations as
it may deem necessary or advisable for the administration of the Plan and
interpret the provisions of the Plan. The interpretations of Harvest States
shall be conclusive.
ARTICLE VII
AMENDMENT AND TERMINATION
SEC. 7.1 AMENDMENT. The President of Harvest States may at any time
amend the Plan in whole or in part for any reason. No amendment shall decrease
the benefits under the Plan which have accrued prior to the date of such
amendment, but an amendment may modify the interest rate under Sec. 4.3 to be
used following the adoption of the amendment, both for future deferrals and for
the balance in each Account on the date the amendment was adopted.
SEC. 7.2 TERMINATION OF PLAN. Harvest States, by action of its
President, may at any time terminate the Plan. After such termination, no
employee of Harvest States shall become a Participant, and no further amounts
shall be credited pursuant to Sec. 4.1 to Accounts of Participants. At the
discretion of Harvest States, the amounts credited to the Accounts of such
Participants may be either (i) distributed to such Participants as soon as
reasonably possible after the date of termination or (ii) distributed in
accordance with Article V.
ARTICLE VIII
MISCELLANEOUS
SEC. 8.1 BENEFITS MAY NOT BE ASSIGNED OR ALIENATED. Neither a
Participant nor any Beneficiary thereof shall have the right to sell, assign,
transfer, encumber or otherwise convey any right to receive any payment
hereunder. No part of the amounts payable hereunder shall be subject to seizure
or sequestration for the payment of any debts or judgments owed by a Participant
or any other person.
SEC. 8.2 HEADINGS. Headings at the beginning of articles and sections
hereof are for convenience of reference, shall not be considered a part of the
text of the Plan, and shall not influence its construction.
SEC. 8.3 CAPITALIZED DEFINITIONS. Capitalized terms used in the Plan
shall have their meaning as defined in the Plan unless the context clearly
indicates to the contrary.
SEC. 8.4 GENDER. Any references to the masculine gender include the
feminine and vice versa.
SEC. 8.5 USE OF COMPOUNDS OF WORD "HERE". Use of the words "hereof",
"herein", "hereunder", or similar compounds of the word "here" shall mean and
refer to the entire Plan unless the context clearly indicates to the contrary.
SEC. 8.6 CONSTRUED AS A WHOLE. The provisions of the Plan shall be
construed as a whole in such manner as to carry out the provisions hereof and
shall not be construed separately without relation to the context.
HARVEST STATES COOPERATIVES
Deferred Compensation Supplemental Retirement Plan
General
Beginning in 1994, Harvest States Cooperatives will offer a deferred
compensation plan, the Harvest States Cooperatives Deferred Compensation Plan,
to selected management employees. Compensation deferred under that plan is not
eligible for Pay Credits or Special Career Credits under the Harvest States
Cooperatives Cash Balance Retirement Plan Retirement or matching contributions
under the Harvest States Cooperatives Savings Plan. This plan is intended to
replace the benefits lost under those plans due to internal Revenue Code (IRC)
414(s) and participation in the Harvest States Cooperatives Deferred
Compensation Plan, and for any compensation which cannot be considered for
purposes of benefits due to IRC Section 401 (a)(17) under the qualified plans
that Harvest States Cooperatives offers.
This Supplemental Retirement Plan is only for a select group of
management or highly compensated employees of Harvest States Cooperatives. This
Plan is completely separate from the Harvest States Cooperatives Cash Balance
Retirement Plan and the Harvest States Cooperatives Savings Plan and is not
funded or qualified for special tax treatment under the Internal Revenue Code.
ARTICLE I
General
Section 1.1 Name of Plan. The name of this plan is "Harvest States
Cooperatives Deferred Compensation Supplemental Retirement Plan" (referred to
hereinafter as the "Plan").
Section 1.2 Purpose. The Plan has been established to replace the
benefits lost under the Harvest States Cooperatives Cash Balance Retirement Plan
and the Harvest States Cooperatives Savings Plan due to Internal Revenue Code
(IRC) Section 414(s) and participation in the Harvest States Cooperatives
Deferred Compensation Plan, and for any compensation which cannot be considered
for purposes of benefits due to IRC Section 401(a)(17)
Section 1.3 Effective Date. The "Effective Date" of the Plan, the date
as of which the plan is established, is January 1, 1994.
Section 1.4 Harvest States. For purposes of this Plan, "Harvest States"
means Harvest States Cooperatives, a Minnesota corporation, and any Successor
Employer thereof, as that term is defined in the Harvest States Cooperatives
Deferred Compensation Plan.
Section 1.5 Construction and Applicable Law. The Plan is intended to be
an unfunded plan maintained primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees,
within the meaning of Section 201(2), 301(a)(3) and 401(a)(1) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). The Plan shall be
administered and construed consistent with said intent. This Plan also shall be
governed and construed in accordance with the laws of the State of Minnesota as
applied to contracts executed and to be wholly performed within said state to
the extent that such laws are not preempted by the laws of the United States of
America.
ARTICLE II
Definitions
Section 2.1 Beneficiary "Beneficiary" means the person or persons
designated as such under the provisions of Section 5.3 of the Harvest States
Cooperatives Cash Balance Retirement Plan.
Section 2.2 Class Year Account "Class Year Account" shall refer to all
Pay Credits, Special Career Credits, and Matching Contribution Credits allocated
to a Participant's accounts during a single Plan Year and all future Investment
Credits and Interest Credits allocated to a Participant's Accounts due to such
year's Contributions.
Section 2.3 Contribution "Contribution" shall refer collectively to Pay
Credits, Special Career Credits, and Matching Contribution Credits.
Section 2.4 Participant "Participant" shall mean an Active Participant
or an Inactive Participant, as those terms are defined in Article III.
Section 2.5 Plan Year "Plan Year" is the 12-consecutive-month period
commencing on each January 1 and ending December 31.
Section 2.6 Successor Employer. "Successor Employer" shall have the
same meaning as that term is defined in the Harvest States Cooperatives Deferred
Compensation Plan.
Section 2.7 Termination of Employment. "Termination of Employment"
shall have the same meaning as that term is defined in the Harvest States
Cooperatives Deferred Compensation Plan.
ARTICLE III
Eligibility
Section 3.1 Participation. The term Participant shall refer to Active
Participants and Inactive Participants. All employees named in appendix A will
become Active Participants in this Plan effective January 1, 1994. No other
employees may become Active Participants in this Plan unless specifically
included by the President of Harvest States Cooperative (the President).
Section 3.2 Reclassification. The President may reclassify any Active
Participant as an Inactive Participant for any Plan Year prior to the beginning
of such Plan Year by notifying such Participant in writing. The term Plan Year
shall have the same meaning as that term has in the Harvest States Cooperatives
Cash Balance Retirement Plan.
ARTICLE IV
Amount of Benefits
Section 4.1 Amount of Benefits. The benefit payable under this Plan is
the sum of the amount in the Cash Balance Make-up Account and the Savings Plan
Make-up Account.
Section 4.2 Cash Balance Make-up Account
Section 4.2.1 Opening Balance Each Participant shall have an Opening
Balance at January 1, 1994 in the Cash Balance Make-up Account equal to the
amount listed in Appendix B. At any time after that, a Participant's balance
shall be the sum of the Opening Balance, the Pay Credits, the Special Career
Credits, and the Investment Credits allocable to such Participant's account.
Section 4.2.2 Investment Credits Each December 31, a Participant's
account shall be credited with an Investment Credit equal to the product of the
balance in the Cash Balance Make-up Account at January 1 of the same year
(adjusted for distributions during the year), and the Investment Percentage in
effect during such Plan Year in the Harvest States Cooperatives Cash Balance
Retirement Plan.
If a Participant terminates employment and commences benefit payments prior to
December 31 of any Plan Year under an annuity or lump sum form of payment, pro
rata Investment Credits shall be credited for such Plan Year for the period
January 1 of such Plan Year to the date benefit payments commence.
Section 4.2.3 Pay Credits Each December 31, an Active Participant's
account shall be credited with a Pay Credit equal to the excess, if any, of:
a. the amount of such Active Participant's Pay Credit that would
be credited under the Harvest States Cooperatives Cash Balance
Retirement Plan if the Active Participant did not defer any
compensation under the Harvest States Cooperatives Deferred
Compensation Plan and without regard to Section 401(a)(17) of
the Internal Revenue Code regarding maximum compensation
over
b. the actual amount of such Active Participant's Pay Credit that
is credited under the provisions of the Harvest States
Cooperatives Cash Balance Retirement Plan, subject to the
limitations of IRC Section 401 (a)(17) and 414(s).
If an Active Participant terminates employment prior to December 31 of any Plan
Year, Pay Credits shall be credited for such Plan Year for the period January 1
of such Plan Year to the date of termination under the provisions of this
section.
Section 4.2.4 Special Career Credits Each December 31, an Active
Participant's account shall be credited with a Special Career Credit equal to
the excess, if any, of:
a. the amount of such Participant's Special Career Credit that
would be credited under the Harvest States Cooperatives Cash
Balance Retirement Plan if the Active Participant did not
defer any compensation under the Harvest States Cooperatives
Deferred Compensation Plan and without regard to Section
401(a)(17) of the Internal Revenue Code regarding maximum
compensation
over
b. the actual amount of such Active Participant's Special Career
Credit that is credited under the provisions of the Harvest
States Cooperatives Cash Balance Retirement Plan, subject to
the limitations of IRC Section 401(a)(17) and 414(s).
If an Active Participant terminates employment prior to December 31 of any Plan
Year, Special Career Credits shall be credited for such Plan Year for the period
January 1 of such Plan Year to the date of termination under the provisions of
this section.
Section 4.3 Savings Plan Make-up Account
Section 4.3.1 Interest Credits Each December 31, a Participant's
account shall be credited with an Interest Credit equal to the product of the
balance in the Savings Plan Make-up Account at January 1 of the same year
(adjusted for distributions during the year), and the Investment Percentage
which is credited during such year in the Harvest States Cooperatives Cash
Balance Retirement Plan.
If a Participant terminates employment and commences benefit payments prior to
December 31 of any Plan Year under an annuity or lump sum form of payment, pro
rata Interest Credits shall be credited for such Plan Year for the period
January 1 of such Plan Year to the date benefit payments commence.
Section 4.3.2 Matching Contribution Credits Each December 31, an Active
Participant's account shall be credited with a Matching Contribution Credit
equal to the excess, if any, of:
a. the amount of such Active Participant's Matching Contribution
that would be contributed under the Harvest States
Cooperatives Savings Plan if the Active Participant did not
defer any compensation under the Harvest States Cooperatives
Deferred Compensation Plan and without regard to Section
401(a)(17) of the Internal Revenue Code regarding maximum
compensation
over
b. the actual amount of such Active Participant's Matching
Contribution that is contributed during the Plan Year under
the provisions of the Harvest States Cooperatives Savings
Plan, subject to limitations of IRC Section 401 (a) ( 17) and
414(s) .
For purposes of this section, only employee contributions (either pre-tax or
after-tax) actually contributed to the Harvest States Cooperatives Savings Plan
shall be considered for calculating the amount of matching contributions.
If an Active Participant terminates employment prior to December 31 of any Plan
Year, Matching Contribution Credits shall be credited for such Plan Year for the
period January 1 of such Plan Year to the date of termination under the
provisions of this section .
Section 4.4 Unsecured Obligations. The amounts in a Participant's
accounts shall be an unsecured obligation of Harvest States to pay the
Participant (or the Participant's Beneficiary, in the event of the Participant's
death) the actual amount of the accounts according to the provisions of Article
VI. Each Participant or Beneficiary is only a general creditor of Harvest States
with respect to his or her accounts. Accounts are maintained for record keeping
purposes only. Notwithstanding the foregoing, obligations of Harvest States to
pay benefits under this Plan may be satisfied by distributions from a grantor
trust created by Harvest States in its sole discretion for such purposes.
ARTICLE V
Vesting
Section 5.1 Vesting Requirements. Contributions, as that term is
defined in Section 2.3, are allocated to Participants' accounts each December
31, subject to the provisions of Article IV. The Class Year Account due to such
Contribution shall not be payable to a Participant unless the Class Year Account
becomes vested. Class Year Accounts shall become vested at the fifth anniversary
of the date the Contribution was allocated to the Participant's account. If a
Participant has attained age 55, all the Class Year Accounts of such Participant
shall be vested regardless of when they were established.
In addition, each Participant shall sign a Confidentiality/Non - Compete
agreement. No benefits shall be payable under this Plan unless the terms of that
agreement are fully satisfied, whether such benefits are vested or not.
Section 5.2 Vesting on Death or Disability. Notwithstanding the
provisions of Section 5.1 above, benefits shall be payable in the event of death
or disability, as that term is defined in the Harvest States Cooperatives Cash
Balance Retirement Plan.
ARTICLE VI
Method and Timing of Payments
Section 6.1 Payment Commencement. Subject to the provisions of Article
V and this Article VI, the benefits under this Plan shall not be payable prior
to Termination of Employment. Benefits may commence under this Plan in
accordance with the benefit payment commencement rules set forth in the Harvest
States Cooperatives Cash Balance Retirement Plan except that the spousal consent
rules of such Plan are not applicable to this Plan. In the case of a death
benefit payable on account of the Participant's death prior to benefit
commencement, the designated beneficiary under this Plan shall be the same
beneficiary designated under the Harvest States Cooperatives Cash Balance
Retirement Plan. Participants or the Participant's beneficiary must apply in
writing for a benefit at least 90 days prior to the first payment.
Section 6.2 Optional Payment Forms. The normal form of payment is an
installment plan over a period of three years. Optional forms of payment,
including all options available under the Harvest Sates Cooperatives Cash
Balance Retirement Plan are available. Additionally, an installment option with
payments of installments over a fixed number of years, not to exceed 10 years,
is available. Under the installment option, Investment Credits and Interest
Credits will continue to be credited each calendar year at the Investment
Percentage rate in effect under the Harvest States Cooperatives Cash Balance
Retirement Plan for such year and the Participant shall designate a beneficiary
to receive any remaining payments in the event of the participant's death prior
to the expiration of the installment period.
Section 6.3 Election of Optional Form of Payment. Participants may
elect an optional form of payment at any time, except that any election or
change of election that occurs less than one year before Termination of
Employment shall be disregarded. In the absence of any valid election,
installments over 3 years will become the automatic payment form.
Section 6.4 Approval of Distribution Request. All requests for
distributions must be approved by the President. In the event the President
denies a request for a lump sum distribution, installments over 3 years will
become the automatic payment form. Once benefit payments have commenced, a
Participant cannot change his election on the form of payment.
ARTICLE VII
Amendment or Termination
Section 7.1 Procedures for Amendment or Termination. The President of
Harvest States Cooperatives may amend or terminate this Plan at any time, but
any such amendment or termination:
1. Shall not adversely affect the rights of any participant or beneficiary
then receiving benefits, or of the beneficiary of any participant then
receiving benefits under this Plan.
2. Shall not reduce the amount of benefit payable under this Plan below
the amount that would be payable if the participant retired or died on
the date of such amendment or termination.
The plan shall be considered amended or terminated once the President notifies
each affected Participant in writing of such amendment or termination.
ARTICLE VIII
Section 8.1 Benefits May Not Be Assigned or Alienated. Neither a
Participant nor any Beneficiary thereof shall have the right to sell, assign,
transfer, encumber or otherwise convey any right to receive any payment
hereunder. No Part of the amounts payable hereunder shall be subject to seizure
or sequestration for the payment of any debt or judgements owed by a Participant
or any other person.
Appendix A
To the Harvest States Cooperatives Deferred Compensation
Supplemental Retirement Plan
T. F. Baker
Michael Bergeland
John Johnson
Merritt E. Peterson
Allen J. Anderson
Patrick Kluempke
Mark Palmquist
David Swenson
Dennis Wendland
Gaylon Bratland
John Schmitz
Debra A. Thornton
Richard Browne
Thomas DeSmet
Kevin Ruda
Albert Ambrose
Larry Salzwedel
Pat Jacoby
HARVEST STATES
MANAGEMENT COMPENSATION PROGRAM
FISCAL YEAR JUNE 1, 1996 THROUGH MAY 31, 1997
OBJECTIVES
* Provide more structure to our current Management Compensation Program
(MCP).
* Communicate company, group, divisional and/or profit center goals and
objectives to employees.
* Encourage and reward performance which contributes to the success of
the company as defined by company objectives and the group/divisional
and/or profit center objectives.
* Promote strong links between employee contributions and overall
company performance to enhance stakeholder/member value.
* Reward and recognize innovation and creativity in accomplishing
business objectives.
* Attract and retain the technical and managerial talent necessary for
the company's success.
* Provide compensation based on individual and company annual
performance without increasing compensation fixed costs.
ELIGIBILITY AND PARTICIPATION
Eligibility to participate in the program will be limited to key
management employees whose positions have a continuous opportunity to
significantly influence the profitability or direction of the company. Senior
Management will select employees for participation. The Chief Executive Officer
has sole discretion to determine eligibility, participation, and interpretation
of this policy.
All employees such as sales representatives or facility managers whose
compensation includes an opportunity for sales commissions or share of profits
are excluded from participation in this program. Other employees whose positions
no longer meet the eligibility criteria, or whose performance is less than
satisfactory, may also be excluded from the program at any time.
The level of participation and eligibility will be determined prior to
the beginning of each fiscal year. Participants who are hired or promoted to
positions of eligibility during the calendar year will participate on a pro-rata
basis. Also, those who terminate due to disability, retirement, or death, will
participate on a pro-rata basis. Termination for any other reason will not
normally qualify for participation.
Eligible participants will be selected on meeting most of the following
criteria:
* Strong performance in a position that impacts business
functions and operations.
* Possessing potential for higher levels of contribution in
critical business functions and operations.
* Possessing valuable, often difficult to replace, skills or
skill levels essential for critical business functions and
operations.
* Possessing technical or management leadership roles in
critical projects.
ADMINISTRATION
The Compensation Committee, including the Chief Executive Officer, will
approve the overall Management Compensation Program and review for equity across
operating divisions. The committee may amend, suspend, terminate, or reinstate
any or all provisions of this program. In the event that the company profit or
level of performance is not achieved, the incentive payments may be modified or
eliminated by the Chief Executive Officer in specific units/divisions/groups or
for the entire company.
The Chief Executive Officer and group management will review the annual
business and financial goals and the group management's individual performance
objectives, and will ensure they are consistent with the company's long-term
strategic plan and goals. The performance targets will be established and
communicated to all eligible participants prior to the beginning of each fiscal
year.
Incentive payments will be made in cash payments or as adjustments to
base wages after year-end results have been verified.
ANNUAL SALARY
The program will normally maintain base salaries up to the midpoint
(competitive market level) of the respective job classification. This will
enable the company to manage fixed salary costs.
Participants paid below the midpoint of their salary range will be on a
learning curve. As the participants gain experience, their knowledge and skills
will develop. Once the participant reaches full competency, he/she will be paid
at the midpoint of the job being performed. Additional compensation under this
program will be used as a motivational tool and generally would be awarded only
to those participants who put forth great effort and achieve truly outstanding
results.
Once an employee reaches the midpoint pay level for that position,
additional compensation, in most cases, will only be received from the incentive
performance bonus program. All participants are eligible for the performance
bonus, regardless of their place in the salary range. However, significant
adjustments to base pay will offset a portion of the amount of the bonus award.
Base pay is managed to the midpoint of the salary range, with any
earnings above that point available from a non-reoccurring annual bonus.
Salaries are administered to the midpoint of the salary range with an aggressive
performance and development-based merit program, thus ensuring competitive pay
levels.
LEVEL OF INCENTIVE OPPORTUNITY
At the beginning of each fiscal year, participants will be assigned to
an eligibility group determined by management responsibility and position, which
will be based on the continuous opportunity to significantly influence the
profitability or direction of the company.
Each of the groups will have different opportunities designed around a
"target" award (a level which the company expects to pay over time if it
achieves its business program objectives), a "threshold" award (unacceptable
company performance), and a "maximum" award (above which no additional awards
are payable, normally achieved by very unusual circumstances).
The following table represents the threshold, target, and maximum bonus
payments available and is based on a percentage of the actual salary assigned to
each participant.
Target Incentive Example
Eligibility Group Threshold Target Maximum
- - - - ----------------- --------- ------ -------
I 0 40% 60%
II 0 30% 45%
III 0 20% 30%
IV 0 10% 15%
COMPANY, GROUP, DIVISION, AND/OR PROFIT CENTER PERFORMANCE TARGETS
Company, group, division, and/or profit center performance will be
evaluated by the following criteria and will account for a specific incentive
opportunity as defined by Attachment I. Corporate participants will be rewarded
according to total company performance. Operating unit participants will be
rewarded proportionally for company, group, division or profit center
performance to ensure a cooperative effort in maximized performance.
Criteria for company, group, division and/or profit center performance
evaluations:
1. Economic Value Added (EVA)
2. Pretax Earnings:
Pretax earnings of the company, group, divisional, or
profit center.
MEMBER VALUE OBJECTIVES
Individual or team performance will be measured for each participant
for the program year based on objectives which are predetermined and contribute
economic value to members. Member Value Objectives (MVOs) will be based on the
participant's specific job responsibilities and mutually determined in advance
with the participant's immediate supervisor. Goals established should reflect
truly significant accomplishments which support the business programs and goals.
It is critical that the individual participant can in fact impact the
outcomes stated in the participant MVOs. The manager will determine the final
MVOs and monitor them throughout the year to ensure that the objectives are
current and reflective of changing business conditions and the needs of our
members.
At the end of each year, the participant's manager will assess
performance according to the objectives and recommend an individual award within
the range from threshold to maximum.
Member Value Objectives will be measurable and consistent with the business plan
and goals, the performance of job responsibilities, and must contribute economic
value to members.
Some examples of measurable objectives which enhance
customer/member/stakeholder value are presented in the list below. Additional
information and guides to writing effective objectives are available from the
Human Resources department.
Unless noted, objectives below are listed for FY 96-97:
* Successfully implement the Harvest States Investment Plan. -
or- Implement the Harvest States Investment Plan with at least
30% commitment of shares.
* Make significant progress on the implementation of the
strategic plan though the specific group or divisional
imperative. (state the imperative.)
* Increase Harvest States' presence by offering of a service or
product in a specific location or territory.
* Reduce final unit production or service cost by ___%.
* Increase the productivity or profit level of a business unit
by ___%.
* Increase efficiency of a manufacturing or grain
handling/processing facility by ___%.
* Decrease defects in ________________ product by ___%.
* Reduce input costs by ___%.
* Increase market share of current members by ___%.
* Increase member equity by ___%.
* Develop and implement two Member Educational/Information
Programs that involve 200 participants.
* Increase customer service level by answering phone calls
within 3 rings; answering accounting questions within one
hour.
* Contact the member customer at least ______ a day with market
and production information.
* Create a new publication or insert to increase management and
cooperative information to our members.
* Create a member development program to assist in the analysis
and management of position risk.
* Foster an environment which promotes the development of
employee leadership skills.
* Increase the level of delegation to subordinates.
5/24/96
REVOLVING CREDIT AGREEMENT
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS, ACCOUNTING TERMS, COMPUTATION OF TIME PERIODS,
AND RULES OF CONSTRUCTION.......................................1
Section 1.01. Definitions..................................................1
Section 1.02. Accounting Terms............................................13
Section 1.03. Computation of Time Periods.................................14
Section 1.04. Rules of Construction.......................................14
ARTICLE II. LOANS..........................................................14
Section 2.01. 364 Day Facility............................................14
Section 2.02. Bid Rate....................................................15
Section 2.03. All Loans...................................................16
Section 2.04. Notice and Manner of Borrowing for 364 Day Facility Loans...16
Section 2.05. Notice and Manner of Requesting Bid Loans...................16
Section 2.06. Interest Periods............................................17
Section 2.07. Interest....................................................18
Section 2.08. Fees........................................................19
Section 2.09. Notes.......................................................20
Section 2.10. Optional Prepayments........................................20
Section 2.11. Method of Payment...........................................21
Section 2.12. Use of Proceeds.............................................21
Section 2.13. Conversions or Continuations................................21
ARTICLE III. LETTERS OF CREDIT..............................................22
Section 3.01. Letters of Credit...........................................22
Section 3.02. Relationship Between This Agreement and Each Letter of
Credit Agreement............................................23
Section 3.03. Outstanding Letters of Credit...............................23
Section 3.04. Reimbursement Obligations on Letters of Credit..............23
ARTICLE IV. CONDITIONS PRECEDENT...........................................23
Section 4.01. Conditions Precedent to Initial Use of a Credit Facility
on and After the Closing Date...............................23
Section 4.02. Conditions Precedent to Each Credit Facility................25
Section 4.03. Deemed Representation.......................................25
ARTICLE V. REPRESENTATIONS AND WARRANTIES.................................25
Section 5.01. Incorporation, Good Standing and Due Qualification..........25
Section 5.02. Corporate Power and Authority; No Conflicts.................26
Section 5.03. Legally Enforceable Agreements..............................26
Section 5.04. Litigation..................................................26
Section 5.05. Financial Statements........................................26
Section 5.06. Ownership and Liens.........................................27
Section 5.07. Taxes.......................................................27
Section 5.08. ERISA.......................................................27
Section 5.09. Operation of Business.......................................27
Section 5.10. No Default on Outstanding Judgments or Orders...............27
Section 5.11. No Defaults on Other Agreements.............................28
Section 5.12. Labor Disputes and Acts of God..............................28
Section 5.13. Governmental Regulation.....................................28
Section 5.14. Environmental Protection....................................28
Section 5.15. Margin Securities...........................................28
ARTICLE VI. AFFIRMATIVE COVENANTS..........................................29
Section 6.01. Maintenance of Eligibility and Capitalization...............29
Section 6.02. Maintenance of Existence....................................29
Section 6.03. Maintenance of Properties...................................29
Section 6.04. Maintenance of Records......................................29
Section 6.05. Maintenance of Insurance....................................29
Section 6.06. Compliance with Laws........................................30
Section 6.07. Right of Inspection.........................................30
Section 6.08. Employee Benefit Plans......................................30
Section 6.09. Reporting Requirements......................................30
Section 6.10. Compliance With Environmental Laws..........................32
Section 6.11. Maintenance of Commodity Position...........................32
ARTICLE VII. NEGATIVE COVENANTS.............................................33
Section 7.01. Debt........................................................33
Section 7.02. Liens.......................................................33
Section 7.03. Fiscal Year.................................................35
Section 7.04. Sale of Assets..............................................35
Section 7.05. Mergers, Etc................................................36
Section 7.06. Change in Business..........................................36
Section 7.07. Investments.................................................36
Section 7.08. Contingent Liabilities......................................36
Section 7.09. Loans.......................................................36
Section 7.10. Transaction with Affiliates.................................37
Section 7.11. Patronage Refunds, Etc......................................37
ARTICLE VIII. FINANCIAL COVENANTS............................................37
Section 8.01. Consolidated Working Capital................................37
Section 8.02. Consolidated Members' and Patrons' Equity...................37
Section 8.03. Consolidated Funded Debt to Consolidated Members' and
Patrons' Equity.............................................37
ARTICLE IX. EVENTS OF DEFAULT..............................................38
Section 9.01. Events of Default...........................................38
Section 9.02. Remedies....................................................40
ARTICLE X. CHANGE IN CIRCUMSTANCES........................................41
Section 10.01. Additional Costs...........................................41
Section 10.02. Limitation on Types of Advances............................42
Section 10.03. Illegality.................................................43
Section 10.04. Treatment of Affected Loans................................43
Section 10.05. Certain Compensation.......................................43
Section 10.06. Capital Adequacy...........................................44
Section 10.07. Right of Substitution......................................44
ARTICLE XI. FACILITY AND SYNDICATION AGENTS................................45
Section 11.01. Appointment, Powers and Immunities of Facility Agents......45
Section 11.02. Reliance by Facility Agents................................45
Section 11.03. Defaults...................................................46
Section 11.04. Rights of Facility Agents as Banks.........................46
Section 11.05. Indemnification of Facility Agents.........................46
Section 11.06. Non-Reliance on Facility Agents and Syndication Agents
and Other Bank Parties.....................................47
Section 11.07. Failure of Facility Agents to Act..........................47
Section 11.08. Resignation or Removal of Facility Agents..................47
Section 11.09. Amendments Concerning Agency Function......................48
Section 11.10. Liability of Facility Agents...............................48
Section 11.11. Transfer of Agency Function................................48
Section 11.12. Notices to Administrative Agent............................48
Section 11.13. Reports....................................................49
Section 11.14. Withholding Taxes..........................................49
Section 11.15. Non-Receipt of Funds by Administrative Agent...............49
ARTICLE XII. MISCELLANEOUS..................................................50
Section 12.01. Amendments and Waivers.....................................50
Section 12.02. Usury......................................................50
Section 12.03. Expenses; Indemnification..................................51
Section 12.04. Assignment; Participation..................................51
Section 12.05. Notices....................................................53
Section 12.06. Setoff.....................................................53
Section 12.07. Jurisdiction; Immunities...................................54
Section 12.07. Jurisdiction; Immunities...................................54
Section 12.09. Counterparts...............................................54
Section 12.10. Exhibits and Schedules.....................................54
Section 12.11. Table of Contents; Headings................................55
Section 12.12. Severability...............................................55
Section 12.13. Integration................................................55
Section 12.14. Renewal of 364 Day Facilities..............................55
Section 12.15. Consents and Terminations..................................56
Section 12.16. Confidentiality............................................56
Section 12.17. Agreement in Writing.......................................56
Section 12.18. Jury Trial Waiver..........................................57
REVOLVING CREDIT AGREEMENT
dated as of November 1, 1996
among
HARVEST STATES COOPERATIVES,
as Borrower
BANQUE NATIONALE DE PARIS
BOATMEN'S NATIONAL BANK
CAISSE NATIONALE DE CREDIT AGRICOLE
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK
FIRST BANK NATIONAL ASSOCIATION
HARRIS TRUST AND SAVINGS BANK
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
as Banks
and
ST. PAUL BANK FOR COOPERATIVES,
as Syndication Agent and Bank
and
CoBANK, ACB,
as Syndication Agent, Administrative Agent, Bid Agent and Bank
REVOLVING CREDIT AGREEMENT dated as of November 1, 1996 among HARVEST
STATES COOPERATIVES a Minnesota cooperative corporation ("Borrower"), CoBANK,
ACB ("CoBank"), ST. PAUL BANK FOR COOPERATIVES ("St. Paul Bank"), BANQUE
NATIONALE DE PARIS, BOATMEN'S NATIONAL BANK, CAISSE NATIONALE DE CREDIT
AGRICOLE, COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH, DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, FIRST BANK
NATIONAL ASSOCIATION, HARRIS TRUST AND SAVINGS BANK, NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, and each other lender which may hereafter execute and
deliver an Assignment and Assumption Agreement pursuant to Section 12.04 of this
Agreement (each a "Bank" and collectively, the "Banks"), CoBank, as
administrative agent for the Banks (in such capacity, together with its
successors in such capacity, "Administrative Agent"), CoBank, as syndication
agent for the Banks (in such capacity, together with its successors in such
capacity, "Syndication Agent"), St. Paul Bank, as syndication agent for the
Banks (in such capacity, together with its successors in such capacity,
"Syndication Agent"), and CoBank, as bid agent for the Banks (in such capacity,
together with its successors in such capacity, "Bid Agent").
The parties to this Agreement hereby agree as follows:
ARTICLE I. DEFINITIONS, ACCOUNTING TERMS,
COMPUTATION OF TIME PERIODS, AND RULES OF CONSTRUCTION
SECTION 1.01. DEFINITIONS. As used in this Agreement the following
terms have the following meanings (terms defined in the singular to have a
correlative meaning when used in the plural and vice versa):
"364 Day Borrowing Notice" has the meaning specified in Section 2.04.
"364 Day Facility" means the 364 Day Facility Loans, the Bid Loans, and
Letters of Credit.
"364 Day Facility Advance" has the meaning specified in Section 2.01.
"364 Day Facility Commitment" means with respect to the Banks the
aggregate amount of the Individual 364 Day Facility Commitments of the Banks.
"364 Day Facility Loan" has the meaning specified in Section 2.01.
"364 Day Facility Maturity Date" means October 31, 1997 or such later
date as extended in accordance with the provisions of Section 12.14.
"364 Day Facility Note" has the meaning specified in Section 2.09.
"Additional Cost" has the meaning specified in Section 10.01.
"Administrative Agent" has the meaning specified in the preamble.
"Administrative Agent's Office" means Administrative Agent's address as
set forth on the signature page of this Agreement, or such other address as
Administrative Agent may designate from time to time by written notice to
Borrower, each Bank and Bid Agent.
"Advance" means a 364 Day Facility Advance or Bid Advance, or any or
all of the foregoing, as the context may require.
"Affected Loan" has the meaning specified in Section 10.04.
"Affiliate" means, as to any Person, any other Person which directly or
indirectly controls, or is controlled by, or is under common control with such
Person. The term "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract, or
otherwise.
"Agreement" means this Revolving Credit Agreement, as may be amended
from time to time.
"Annual Operating Budget" means the annual operating budget for
Borrower and its Subsidiaries in substantially the form of, and containing
substantially the same or similar information as set forth in, the Annual
Operating Budget (Business Plan) for Borrower and its Subsidiaries included in
the Confidential Information Memorandum dated September 6, 1996 delivered to the
Banks prior to the Closing Date.
"Applicable Lending Office" means, for each Bank and for each type of
Advance, the lending office of such Bank designated as such for such type of
Advance on its signature page hereof or in the applicable Assignment and
Assumption Agreement or such other office of such Bank as such Bank may from
time to time specify to Administrative Agent and Borrower as the office by which
its Advances of such type are to be made and maintained.
"Applicable Margin" means the margin specified as follows: (i) for the
First Availability Period, forty-five basis points (.45%); (ii) for the Second
Availability Period, a margin mutually acceptable to Borrower and the
Syndication Agents on or before July 31, 1997 if such day is a Banking Day, or
if such date is not a Banking Day, then the next preceding day that is a Banking
Day, (iii) for the Third Availability Period, a margin mutually acceptable to
Borrower and the Syndication Agents on or before July 31, 1998 if such day is a
Banking Day, or if such date is not a Banking Day, then the next preceding day
that is a Banking Day.
"Assignee" has the meaning specified in Section 12.04.
"Assignment and Assumption Agreement" means an Assignment and
Assumption Agreement, substantially in the form of Exhibit G, pursuant to which
a Bank assigns and an Assignee assumes rights and obligations in accordance with
Section 12.04.
"Bank" or "Banks" has the meaning specified in the preamble to this
Agreement.
"Bank Parties" means the Banks.
"Bank Party" means a Bank.
"Bank's Office" means in the case of each Bank the office of such Bank
designated on the signature page hereof, or as designated in the applicable
Assignment and Assumption Agreement or such other office as such Bank may from
time to time specify by notice to Borrower and each of the Facility Agents.
"Banking Day" means (1) any day on which commercial banks are not
authorized or required by law to close in Denver, Colorado, Kansas City,
Missouri, Minneapolis, Minnesota or New York, New York, and (2) whenever such
day relates to a LIBOR Advance, an Interest Period with respect to a LIBOR
Advance, or notice with respect to any LIBOR Advance, a day on which dealings in
Dollar deposits are also carried on in the London interbank market.
"Base Advance" means any Advance when and to the extent the interest
rate for such Advance is determined in relation to the Base Rate.
"Base Loan" means any Loan when and to the extent the interest rate for
the Advances made as part of such Loan are determined in relation to the Base
Rate.
"Base Rate" means, for any day, that rate defined as the "prime rate"
as published from time to time in the Eastern Edition of THE WALL STREET JOURNAL
as the average base rate for corporate loans posted by at least seventy-five
percent (75%) of the United States thirty (30) largest commercial banks, or if
THE WALL STREET JOURNAL shall cease publication or cease publishing the "prime
rate" on a regular basis, such other regularly published average prime rate
applicable to such commercial banks as is acceptable to Administrative Agent in
its reasonable discretion with the consent of Borrower which will not be
unreasonably withheld.
"Bid Advance" has the meaning specified in Section 2.02.
"Bid Agent" has the meaning specified in the preamble.
"Bid Loan" has the meaning specified in Section 2.02.
"Bid Maturity Date" has the meaning specified in Section 2.05.
"Bid Note" has the meaning specified in Section 2.09.
"Bid Notice of Borrowing" has the meaning specified in Section 2.05.
"Bid Quote" has the meaning specified in Section 2.05.
"Bid Quote Request" has the meaning specified in Section 2.05.
"Bid Rate" means the annual rate of interest offered by a Bank in
response to a Bid Quote Request that is accepted by Borrower in accordance with
Section 2.05.
"Board of Governors" means the Board of Governors of the Federal
Reserve System.
"Borrower" has the meaning specified in the preamble.
"Borrower's Funding Account" means the following account: Norwest Bank
Minnesota, National Association ABA Number 091000019, Beneficiary Account Number
44070, or such other account as may be designated by Borrower in a written
notice to each Facility Agent.
"Capital Lease" means any lease of property (whether real, personal or
mixed) by a Person which has been or should be , in accordance with GAAP,
reflected on the balance sheet of such Person as a capital lease.
"Cash Collateral" means a deposit by Borrower, made in immediately
available funds, to the cash investment service at Administrative Agent and the
execution of all documents and the taking of all steps required to give such
Administrative Agent, for the benefit of each of the Banks issuing a Letter of
Credit, a perfected first security interest in such investment.
"Closing Date" means November 1, 1996.
"CoBank" has the meaning specified in the preamble.
"Code" means the Internal Revenue Code of 1986.
"Commitment" means the 364 Day Facility Commitment.
"Commitment Fee" has the meaning specified in Section 2.08.
"Consolidated Funded Debt" means at all times the Funded Debt of
Borrower and its Subsidiaries on a consolidated basis.
"Consolidated Members' and Patrons' Equity" means at any time the
amount of capital stock accounts plus (or minus in the case of a deficit) the
amount of surplus and retained earnings accounts of Borrower and its
Subsidiaries, on a consolidated basis determined at such time, provided that the
total amount of intangible assets of Borrower and its Subsidiaries (including,
without limitation, unamortized debt discount and expense, deferred charges and
good will) included therein shall not exceed $30,000,000; all as determined in
accordance with GAAP, but excluding therefrom any minority interests in any
Subsidiaries without duplication of deduction if already deducted in determining
retained earnings and surplus.
"Credit Facility" means any or all of the Loans and Letters of Credit.
"Current Assets" of any Person means at any time the aggregate amount
of assets of such Person which, in accordance with GAAP, may be properly
classified as current assets after deducting adequate reserves where proper all
determined at such time.
"Current Liabilities" of any Person means at any time (i) all Debt of
such Person due on demand or within one year from the date of determination
thereof; and (ii) all other items (including taxes accrued as estimated) which,
in accordance with GAAP, may be properly classified as current liabilities all
determined at such time.
"Debt" of any Person shall mean as of any time the same is to be
determined, the aggregate of (i) all liabilities, reserves and any other items
which would be classified as a liability on a balance sheet of such Person in
accordance with GAAP, (ii) all obligations of such Persons under Capital Leases,
(iii) all indebtedness and liabilities secured by any lien or any security
interest on any property or assets of such Person, whether or not the same would
be classified as a liability on a balance sheet of such Person but excluding all
general contingency reserves and reserves for deferred income taxes and
investment credit.
"Default" means any event which with the giving of notice or lapse of
time, or both, would become an Event of Default.
"Default Rate" means, with respect to an amount of any Advance not paid
when due at maturity or earlier by reason of acceleration or otherwise, a rate
per annum equal to: (1) if such Advance is a Base Advance, a variable rate two
percent (2%) above the rate of interest then in effect thereon; (2) if such
Advance is a LIBOR Advance, a fixed rate two percent (2%) above the rate of
interest in effect thereon (including the Applicable Margin) at the time of
default until the end of the then current Interest Period therefor and,
thereafter, a variable rate two percent (2%) above the rate of interest for a
Base Advance; and (3) if such Advance is a Bid Advance, a fixed rate two percent
(2%) above the rate of interest in effect thereon at the time of default until
the applicable Bid Maturity Date and, thereafter, a variable rate two percent
(2%) above the rate of interest for a Base Advance.
"Dollars" and the sign "$" mean lawful money of the United States of
America.
"Environmental Discharge" means any discharge or release of any
Hazardous Materials in violation of any applicable Environmental Law.
"Environmental Law" means any Law relating to pollution of the
environment, including Laws relating to noise or to emissions, discharges,
releases or threatened releases of Hazardous Materials into the workplace, the
community or the environment, or otherwise relating to the generation,
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
"Environmental Notice" means any written complaint, order, citation,
letter, inquiry, notice or other written communication from any Person (1)
affecting or relating to Borrower's or any of its Subsidiaries' compliance with
any Environmental Law in connection with any activity or operations at any time
conducted by Borrower or such Subsidiary, (2) relating to the occurrence or
presence of or exposure to or possible or threatened or alleged occurrence or
presence of or exposure to Environmental Discharges or Hazardous Materials at
any of Borrower's or such Subsidiary's locations or facilities, including,
without limitation: (a) the existence of any contamination or possible or
threatened contamination at any such location or facility; and (b) remediation
of any Environmental Discharge or Hazardous Materials at any such location or
facility or any part thereof; and (3) any violation or alleged violation of any
applicable Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, including any rules and regulations promulgated thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as Borrower or is under common control (within the
meaning of Section 414(c) of the Code) with Borrower, provided, however, that
for purposes of provisions herein concerning minimum funding obligations
(imposed under Section 412 of the Code or Section 302 of ERISA), the term "ERISA
Affiliate" shall also include any entity required to be aggregated with Borrower
under Section 414(m) or 414(o) of the Code.
"Event of Default" has the meaning specified in Section 9.01.
"Existing Credit Agreements" means (i) the Credit Agreement dated as of
October 29, 1993 among Borrower, Harris Trust and Savings Bank as Agent and the
banks signatory to such Agreement, as amended and (ii) the Supplement to Master
Syndicated Loan Agreement dated as of January 3, 1995 and numbered ML015452(B)
among Borrower, CoBank and St. Paul Bank, as amended.
"Facility Agents" means, collectively, Administrative Agent and Bid
Agent.
"Facility Fee" has the meaning specified in Section 2.08.
"Fees" means the Commitment Fee or the Facility Fee, or both, all as
the context may require.
"Fee Letter" means the fee letter dated August 20, 1996 from the
Syndication Agents, Administrative Agent and Bid Agent to Borrower.
"First Availability Period" means the period from the Closing Date
through October 30, 1997.
"Fiscal Year" means each period from June 1 to May 31.
"Funded Debt" means, with respect to any Person, at any time, all Debt
of such Person in each case maturing by its terms more than one year after the
date of creation thereof, or which is renewable or extendable at the option of
such Person for a period ending more than one year after the date of creation
thereof, and shall include Debt of such maturity created or assumed by such
Person either directly or indirectly, including obligations of such maturity
secured by liens upon property of such Person and upon which such Person
customarily pays the interest, and all obligations of such Person under Capital
Leases of such maturity, and the net present value of obligations under
Operating Leases as discounted by a rate which is 1.5% less than the Base Rate,
and all obligations to reimburse any Bank with respect to all Letters of Credit
which do not support long-term debt, with expiration dates in excess of one year
from the date of issuance thereof.
"GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time.
"Good Faith Contest" means the contest of an item if (1) the item is
diligently contested in good faith by appropriate proceedings timely instituted,
(2) either the item is (a) bonded or (b) adequate reserves are established with
respect to the contested item if and to the extent required in accordance with
GAAP, (3) during the period of such contest, the enforcement of any contested
item is effectively stayed, and (4) the failure to pay or comply with the
contested item could not reasonably be expected to result in a Material Adverse
Change.
"Governmental Approvals" means any authorization, consent, approval,
license, permit, certification, or exemption of, registration or filing with or
report or notice to, any Governmental Authority.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Hazardous Materials" means any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes or substances, as any of those terms are
defined from time to time in or for the purposes of any applicable Environmental
Law, including asbestos fibers and friable asbestos, polychlorinated biphenyls,
and any petroleum or hydrocarbon-based products or derivatives.
"Individual 364 Day Facility Commitment" means, with respect to each
Bank, the commitment of such Bank to make 364 Day Facility Advances hereunder in
an amount set forth opposite such Bank's name on the signature page hereto, or
as designated in the applicable Assignment and Assumption Agreement, provided,
however, that the aggregate of all the Individual 364 Day Facility Commitments
shall at no time exceed the Total 364 Day Facility Commitment.
"Individual Letter of Credit Obligations" means, with respect to each
Bank, the total, without duplication, of (1) the aggregate undrawn face amount
of all outstanding Letters of Credit issued by such Bank, (2) the aggregate
amount of all unreimbursed obligations with respect to amounts paid under such
Letters of Credit and (3) the aggregate amount of all outstanding overdrafts
created to satisfy any of the foregoing obligations under (1) or (2) above.
"Individual Unused 364 Day Facility Commitment" means at any time for a
Bank, the amount (which in no event shall be less than zero) that is equal to
(1) the Individual 364 Day Facility Commitment minus (2) the total, without
duplication, of (a) the aggregate outstanding principal amount of 364 Day
Facility Advances made by such Bank, (b) the aggregate outstanding principal
amount of Bid Advances made by such Bank, (c) the aggregate Individual Letter of
Credit Obligations owed to such Bank, and (d) the principal amount of all 364
Day Facility Advances which such Bank is obligated to make as a result of
Borrower having furnished notice to the Bank pursuant to Section 2.04 hereof all
determined at such time.
"Interest Period" means with respect to any LIBOR Advance, the period
commencing on the date such Advance is made, converted from a Base Advance, or
continued, as the case may be, and ending, as Borrower may select pursuant to
Section 2.10 on the numerically corresponding day in the first, second, third or
sixth calendar month thereafter, provided that each such Interest Period which
commences on the last Banking Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Banking Day of the appropriate calendar month.
"Investment" means, with respect to any Person, (1) any loan or advance
by such Person to any other Person, (2) the purchase or other acquisition by
such Person of any capital stock, obligations or securities of, or any capital
contribution to, or investment in, or the acquisition by such Person of all or
substantially all of the assets of, or any interest in, any other Person, (3)
the providing by such Person being the account party with respect to any
performance or standby letter of credit where the proceeds of such letter of
credit are to be used for the benefit of any other Person, (4) the agreement by
such Person to make funds available for the benefit of another Person to either
cover cost overruns incurred in connection with the construction of a project or
facility, or to fund a debt service reserve account, (5) the agreement by such
Person to assume, guarantee, endorse or otherwise be or become directly or
contingently responsible or liable for the obligations or Debts of any other
Person (other than by endorsement for collection in the ordinary course of
business), (6) an agreement to purchase any obligations, stocks, assets, goods
or services but excluding an agreement to purchase any assets, goods or services
entered into in the ordinary course of business, (7) an agreement to supply or
advance any funds, assets, goods or services, or (8) an agreement to maintain or
cause such Person to maintain a minimum working capital or net worth or
otherwise to assure the creditors of any Person against loss.
"Law" means any federal, state or local statute, law, rule, regulation,
ordinance, order, code, or policy, now or hereafter in effect, and any judicial
or administrative interpretation thereof by a Governmental Authority, including
any judicial or administrative order, consent decree or judgment.
"Letter of Credit" has the meaning specified in Section 3.01.
"Letter of Credit Agreement" means the application for a letter of
credit and/or reimbursement agreement entered into between Borrower and the
applicable Bank with regard to a Letter of Credit.
"LIBOR Advance" means any Advance when and to the extent the interest
rate therefor is determined by reference to the LIBOR Rate.
"LIBOR Base Rate" means a rate for deposits in Dollars, with a maturity
comparable to the selected LIBOR Interest Period, that appears on the display
designated as page "3750" of the Telerate Service (or such other page as may
replace the 3750 page of that service or such other service or services as may
be nominated by the British Bankers' Association for the purpose of displaying
London interbank offered rates for Dollar deposits), determined as of 11:00 a.m.
(London time), two (2) Banking Days prior to the commencement of such Interest
Period.
"LIBOR Loan" means a Loan when and to the extent the interest rate for
the Advances made as part of such Loan are determined in relation to the LIBOR
Rate.
"LIBOR Rate" means, for each LIBOR Advance, the rate per annum (rounded
upwards, if necessary, to the nearest 1/10,000 of 1%) determined by
Administrative Agent to be equal to the quotient of (1) the LIBOR Base Rate for
such LIBOR Advance for such Interest Period divided by (2) one minus the LIBOR
Reserve Requirement for such Interest Period.
"LIBOR Reserve Requirement" means, for any LIBOR Advance, the average
actual rate at which reserves (including any marginal, supplemental or emergency
reserves) are required to be maintained during the Interest Period for such
LIBOR Advance under Regulation D by member banks of the Federal Reserve System
in New York City with deposits exceeding One Billion Dollars ($1,000,000,000)
against "Eurocurrency liabilities" (as such term is used in Regulation D).
Without limiting the effect of the foregoing, but without duplication, the LIBOR
Reserve Requirement shall also reflect any other reserves required to be
maintained by such member banks by reason of any Regulatory Change against (1)
any category of liabilities which includes deposits by reference to which the
LIBOR Base Rate is to be determined as provided in the definition of LIBOR Base
Rate in Section 1.01 or (2) any category of extensions of credit or other assets
which include LIBOR Advances.
"Lien" means with respect to any asset any mortgage, deed of trust,
pledge, security interest, hypothecation, assignment for security purposes,
encumbrance, lien (statutory or other), or other security agreement or charge,
or encumbrance of any kind or nature whatsoever (including, without limitation,
any conditional sale, Capital Lease or other title retention agreement related
to such asset).
"Loan Documents" means each and every one of this Agreement, the Notes,
and the Letter of Credit Agreements.
"Loans" means the 364 Day Facility Loans, the Bid Loans or any or all
of the foregoing, all as the context may require.
"Material Adverse Change" means either (1) a material adverse change in
the status of the business, assets, liabilities, results of operations,
condition (financial or otherwise), property or prospects of the Borrower and
its Subsidiaries taken together, or (2) any event or occurrence of whatever
nature which could reasonably be expected to have a material adverse effect on
Borrower's ability to perform its obligations under the Loan Documents.
"Minimum Assignment" means, with respect to each Bank that is making an
assignment in accordance with the terms of Section 12.04, an assignment of
Commitments and Credit Facility with an aggregate principal or face amount of at
least Fifteen Million Dollars ($15,000,000) where such amount is determined by
aggregating each of the following assigned by such Bank: (1) Unused 364 Day
Facility Commitment, (2) the aggregate principal amount of the outstanding 364
Day Facility Advances, (3) the aggregate principal amount of Bid Advances, and
(4) Individual Letter of Credit Obligations.
"Minimum Hold" means, with respect to each Bank, Fifteen Million
Dollars ($15,000,000) of its Individual 364 Day Facility Commitment.
"Monthly Date" means the fifth Banking Day of each month occurring on
or after the Closing Date.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a Plan defined as such in Section 3(37) of
ERISA.
"Notes" means the 364 Day Facility Notes, or the Bid Notes, or any or
all of the foregoing, all as the context may require.
"Operating Lease" means any lease of property (whether real, personal
or mixed) by a Person under which such Person is lessee, other than a Capital
Lease.
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning specified in Section 12.04.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Investments" means (1) marketable obligations issued or
unconditionally guaranteed by the United States of America, or issued by any
agency thereof and backed by the full faith and credit of the United States of
America, in each case maturing within one year from the date of acquisition
thereof, (2) certificates of deposit maturing within one year from the date of
acquisition thereof issued by (i) any Bank or (ii) any commercial bank with a
short term credit rating of either of the two highest short term credit ratings
provided by either S&P or Moody's, (3) commercial paper payable in the United
States of America in Dollars and rated as at any date of determination A-1 or
better (or comparably if the rating system is changed) by S&P or P-1 or better
(or comparably if the rating system is changed) by Moody's, (4) payments of
amounts required to satisfy patronage refunds or equity redemptions of Borrower
as determined by the Board of Directors of Borrower, (5) Investments in CoBank
and St. Paul Bank, (6) Investments in cooperatives in which Borrower is a member
made in the ordinary course of Borrower's business, (7) marketable general
obligations of a state, a territory or a possession of the United States or any
political subdivision of any of the foregoing, or the District of Columbia,
unconditionally secured by the full faith and credit of such state, territory,
possession, political subdivision or district provided that such state,
territory, possession, political subdivision or district has general taxing
authority and the power to levy such taxes as may be required for the payment of
principal and interest thereof; provided that such obligations are rated in
either of the two top rating categories established by the national rating
agencies for such obligations, and (8) repurchase, reverse repurchase agreements
and security lending agreements collateralized by securities of the type
described in subsection (1) above, provided that Borrower or Subsidiary, as the
case may be, which is a party to such arrangement shall hold (individually or
through an agent) all securities relating thereto during the entire term of each
such arrangement.
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
Governmental Authority, limited liability company or other entity of whatever
nature.
"Plan" means any plan, agreement, arrangement or commitment which is an
employee benefit plan, as defined in Section 3(3) of ERISA, maintained by
Borrower or any Subsidiary or any ERISA Affiliate or with respect to which
Borrower or any Subsidiary or any ERISA Affiliate at any relevant time has any
liability or obligation to contribute.
"presence", when used in connection with any Environmental Discharge or
Hazardous Materials, means and includes presence, generation, manufacture,
installation, treatment, use, storage, handling, encapsulation, disposal,
transportation, spill, discharge and release.
"Prohibited Transaction" means any transaction prohibited under Section
406 of ERISA or Section 4975 of the Code.
"Quarterly Date" means each May 31, August 30, November 30 and February
28.
"Regulation D" means Regulation D of the Board of Governors.
"Regulatory Change" means, with respect to any Bank, any change after
the date of this Agreement in United States federal, state, or municipal Laws or
foreign Laws or regulations (including Regulation D) or the adoption or making
after such date of any interpretations, directives or requests applying to a
class of banks including such Bank of or under any United States federal, state,
or municipal Law or foreign Laws or regulations (whether or not having the force
of Law) by any court or governmental or monetary authority charged with the
interpretation or administration thereof.
"Reportable Event" means any of the events set forth in Section 4043(b)
of ERISA or in the regulations thereunder.
"Requisite Banks" means at any time a minimum of four (4) Banks that
are providing at least eighty percent (80%) of the Total 364 Day Facility
Commitment.
"S&P" means Standard & Poor's Rating Group, a division of the
McGraw-Hill Companies.
"Second Availability Period" means October 31, 1997 through October 29,
1998, provided this Agreement has been extended pursuant to the provisions of
Section 12.14.
"Subsidiary" means, as to any Person, any corporation, partnership,
association or other business entity of which securities or other ownership
interests representing more than fifty percent (50%) of the ordinary voting
power, or more than fifty percent (50%) of general partnership interest at the
time is owned, or the management of which is otherwise controlled, directly, or
indirectly through one or more intermediaries, or both, by such Person.
"Supermajority Banks" means at any time the Banks that are providing
one hundred percent (100%) of all Total 364 Day Facility Commitment.
"Syndication Agents" means, collectively, CoBank and St. Paul Bank.
"Third Availability Period" means October 30, 1998 through October 28,
1999, provided this Agreement has been extended pursuant to the provisions of
Section 12.14.
"Total 364 Day Facility Commitment" means Five Hundred Fifty Million
Dollars ($550,000,000).
"Total Letter of Credit Obligations" means at any time an amount equal
to the sum, without duplication, of (1) the aggregate undrawn face amount of all
outstanding Letters of Credit, (2) the aggregate principal amount of all
unreimbursed obligations in respect of amounts paid under Letters of Credit and
(3) the aggregate amount of all outstanding overdrafts created to satisfy any of
the foregoing obligations under (1) or (2) above all determined at such time.
"Total Unused 364 Day Facility Commitment" means at any time, the
amount (which in no event shall be less than zero) that is equal to (1) the 364
Day Facility Commitment minus (2) the total, without duplication, of (a) the
aggregate outstanding principal amount of 364 Day Facility Advances, (b) the
aggregate outstanding principal amount of Bid Advances, (c) Total Letter of
Credit Obligations, and (d) the principal amount of all 364 Day Facility
Advances which the Banks are obligated to make as a result of Borrower having
furnished notice to the Banks pursuant to Section 2.04 hereof all determined at
such time.
SECTION 1.02. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP. All accounting terms
which are defined herein with regard to the Borrower and its Subsidiaries shall
mean such accounting term determined on a consolidated basis in accordance with
GAAP for Borrower and each of its Subsidiaries. All financial data required to
be delivered hereunder shall be prepared in accordance with GAAP (except as
specified above and as otherwise provided in this Agreement).
SECTION 1.03. COMPUTATION OF TIME PERIODS. Except as otherwise provided
herein, in this Agreement, in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and words "to" and "until" each means "to but excluding".
SECTION 1.04. RULES OF CONSTRUCTION. When used in this Agreement: (1) a
reference to a Law includes any amendment or modification to such Law; (2) a
reference to a Person includes its permitted successors and permitted assigns
and a reference to a Person in a particular capacity excludes such Person in any
other capacity; (3) a reference to an agreement, instrument or document shall
include such agreement, instrument or document as the same may be amended,
modified or supplemented from time to time and, if applicable, as permitted by
the Loan Documents, and reference to any Note includes any note issued pursuant
hereto in extension or renewal thereof and in substitution or replacement
therefor; (4) reference to any gender includes each other gender; (5) the words
"herein," "hereof" and "hereunder" and other words of similar import refer to
this Agreement as a whole and not to any particular Article, Section or other
subdivision; (6) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or Section hereof or
such Schedule or Exhibit hereto; and (7) the words "including" (and with
correlative meaning "include") means including, without limiting the generality
of any description preceding such term. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof. Any reference to Central time shall mean such time as in
effect in the United States of America.
ARTICLE II. LOANS
SECTION 2.01. 364 DAY FACILITY. Subject to the terms and conditions of
this Agreement, each of the Banks severally agrees to make loans (each loan made
by an individual Bank pursuant to this Section 2.01 a "364 Day Facility Advance"
and the total of all such loans made by all the Banks at the same time, the "364
Day Facility Loans") to Borrower from time to time during the period from the
Closing Date to the 364 Day Facility Maturity Date, provided that
(1) with respect to all Banks, the aggregate principal amount
of all 364 Day Facility Loans outstanding at any time does not exceed
the amount equal to (a) the Total 364 Day Facility Commitment, minus
(b) the aggregate principal amount of all Bid Loans outstanding at such
time, minus (c) the Total Letter of Credit Obligations all determined
at such time;
(2) with respect to each Bank, the aggregate principal amount
of such Bank's 364 Day Facility Advances outstanding at any time does
not exceed the amount equal to (a) such Bank's Individual 364 Day
Facility Commitment, minus (b) such Bank's Bid Advances outstanding at
such time, minus (c) such Bank's Individual Letter of Credit
Obligations all determined at such time.
Each 364 Day Facility Loan, with the specific exception of Advances
made pursuant to Section 3.04, will be made by the Banks ratably in proportion
to their then existing Individual Unused 364 Day Facility Commitments bears to
the total of all Banks' then existing Individual Unused 364 Day Facility
Commitments determined as of (1) in the case of LIBOR Loans, 12:00 noon (Central
Time) on the Banking Day Borrower delivers the 364 Day Borrowing Notice pursuant
to which Borrower requests such LIBOR Loan, and (2) in the case of Base Loans,
12:00 noon (Central Time) on the Banking Day Borrower delivers the 364 Day
Borrowing Notice pursuant to which Borrower requests such Base Loan.
SECTION 2.02. BID RATE. Subject to the terms and conditions of this
Agreement, including the procedures set forth in Section 2.05, each Bank may in
its sole discretion make loans (each loan made by a Bank pursuant to this
Section 2.02 a "Bid Advance" and the total of such loans made by the Banks the
"Bid Loans") to Borrower from time to time during the period from the Closing
Date to the 364 Day Facility Maturity Date, provided that
(1) with respect to all Banks, the aggregate principal amount
of all Bid Loans outstanding at any time does not exceed an amount
equal to (a) the Total 364 Day Facility Commitment, minus (b) the
aggregate principal amount of all outstanding 364 Day Facility Loans,
minus (c) the Total Letter of Credit Obligations all determined at such
time,
(2) with respect to each Bank, the aggregate principal amount
of such Bank's Bid Advances outstanding at any one time may, in the
sole discretion of each Bank, together with (a) the aggregate principal
amount of such Bank's 364 Day Facility Advances outstanding at such
time, and (b) such Bank's Individual Letter of Credit Obligations owed
to such Bank, exceed such Bank's Individual 364 Day Facility Commitment
all determined at such time.
In the case of Bid Loans, each Bid Quote Request shall be in an amount
at least equal to One Million Dollars ($1,000,000) and in integral multiples of
Five Hundred Thousand Dollars ($500,000), and each Bid Quote shall be in an
amount at least equal to Five Hundred Thousand Dollars ($500,000). Each Bid
Advance made by the applicable Bank will be in the amount of its bids that are
accepted by Borrower in accordance with Section 2.05.
In the case of Bid Loans, each Bid Quote Request for an interest rate
period of five Banking Days or less shall be directed to only CoBank and St.
Paul Bank and in addition to the limitations set forth above, the aggregate
principal outstanding of such Bid Loans shall not at any time exceed Thirty-Five
Million Dollars ($35,000,000).
SECTION 2.03. ALL LOANS. The failure of any Bank to make any requested
364 Day Facility Advance or Bid Advance to be made by it on the date specified
for such Advance shall not relieve any other Bank of its obligation (if any) to
make any Advance on such date, but no Bank shall be responsible for the failure
of any other Bank to make any such Advance to be made by such other Bank.
SECTION 2.04. NOTICE AND MANNER OF BORROWING FOR 364 DAY FACILITY
LOANS. Borrower shall give Administrative Agent prior written or telegraphic or
facsimile notice (effective upon receipt) of each request for a 364 Day Facility
Loan (1) in the case of a Base Loan, on or before 12:00 noon (Central time) on
the day of making such Base Loan, and (2) in the case of a LIBOR Loan, on or
before 12:00 noon (Central time) at least three (3) Banking Days prior to the
date of making such LIBOR Loan.
Each of the foregoing notices, substantially in the form of Exhibit C
("364 Day Borrowing Notice") must specify (1) the amount of such Loan, (2) the
proposed date of making such Loan, (3) whether the Loan will bear interest at
(a) the Base Rate minus twenty-five basis points (.25%) or (b) the LIBOR Rate
plus the Applicable Margin, and (4) in the case of a LIBOR Loan, the initial
Interest Period applicable thereto. Administrative Agent shall promptly notify
each Bank of each such 364 Day Borrowing Notice. Not later than 2:00 P.M.
(Central time) on the date of a 364 Day Facility Loan, each Bank will make
available to Administrative Agent at Administrative Agent's Office, in
immediately available funds, such Bank's share of such Loan. After
Administrative Agent's receipt of such funds, but not later than 3:00 P.M.
(Central time), and upon fulfillment of the applicable conditions set forth in
Article IV, Administrative Agent will make such Loan available to Borrower, in
immediately available funds, and will transmit such funds by wire transfer to
Borrower's Account.
SECTION 2.05. NOTICE AND MANNER OF REQUESTING BID LOANS. Borrower may
request offers from all of the Banks, acting severally and not jointly, to make
Bid Loans. Borrower shall give Bid Agent written or telegraphic or facsimile
notice (effective upon receipt), substantially in the form of Exhibit D (a "Bid
Quote Request"), of a proposed Bid Loan on or before 9:00 A.M. (Central time) on
the date of the proposed Bid Loan. Promptly after receipt of a Bid Quote
Request, Bid Agent shall send to all of the Banks by telegraphic or facsimile
transmissions a copy of such Bid Quote Request.
Each Bid Quote Request must specify (1) the total amount of such
requested Bid Loans, (2) the individual amount of each requested Bid Loan with a
different proposed Bid Maturity Date, (3) the proposed date of making such Bid
Loan, and (4) the proposed maturity dates which must be Banking Days ("Bid
Maturity Date") for such Bid Loans. Borrower may request offers to make more
than one Bid Loan, each with a different Bid Maturity Date, in a single Bid
Quote Request.
Each Bank may, in its sole discretion, submit to Bid Agent a written
quote, substantially in the form of Exhibit E (a "Bid Quote"), containing an
offer or offers to make Bid Advances in response to any Bid Quote Request (and
may elect to bid with respect to any or all Bid Loans with different Bid
Maturity Dates specified in the Bid Quote Request), provided, however, each Bank
is limited to one Bid Quote submission per day (which may cover more than one
Bid Maturity Date). Each Bid Quote for CoBank and/or St. Paul Bank will be
submitted by CoBank. Each Bid Quote by a Bank (other than Bid Agent acting in
its capacity as a Bank) must be submitted to Bid Agent by facsimile not later
than 10:30 A.M. (Central time) on the proposed date of making the proposed Bid
Loan. Each Bid Quote made by Bid Agent in its capacity as a Bank must be
finalized not later than 10:15 A.M. (Central time) on the proposed date of
making the proposed Bid Loan and forwarded to Borrower. Each Bid Quote so made
shall be irrevocable. A Bid Quote may set forth offers for up to five (5)
separate Bid Rates for each of the applicable Bid Advances, provided that each
Bid Quote shall specify the aggregate principal amount of Bid Advances for all
Bid Maturity Dates that the Bank submitting such Bid Quote is willing to make at
the specified Bid Rates pursuant to such Bid Quote. Bid Agent shall disregard a
Bid Quote if it (1) is not substantially in conformity with Exhibit E, (2)
contains qualifying or conditional language, (3) proposes terms other than or in
addition to those set forth in the applicable Bid Quote Request, or (4) arrives
after the applicable time set forth in this Section. Promptly after 10:30 A.M.
(Central time), Bid Agent shall advise Borrower of the terms of each Bid Quote
received by Bid Agent.
Not later than 12:00 noon (Central time) on the proposed date for
making a Bid Loan, Borrower shall notify Bid Agent of its acceptance or
non-acceptance of the offers submitted to Bid Agent pursuant to this Section,
and Bid Agent shall provide notice to Administrative Agent of the offers
accepted by Borrower and the terms thereof. In the case of acceptance, such
notice, which shall be in the form of Exhibit F (a "Bid Notice of Borrowing"),
shall specify the aggregate principal amount of offers for each of the Bid
Advances that are accepted. Regardless of the amounts or interest rates bid by
any Bank, Borrower may accept any Bid Quote in whole or in part, provided that
(1) the aggregate principal amount of Bid Loans may not exceed the applicable
amount set forth in the related Bid Quote Request, and (2) Borrower may not
accept any offer that fails to comply with this Section. Promptly after receipt
of a Bid Notice of Borrowing, Bid Agent shall send to the applicable Bank by
telegraphic or facsimile transmission a copy of such Bid Notice of Borrowing.
Not later than 2:00 P.M. (Central time) on the date of making each Bid
Loan, each Bank that is to make a Bid Advance will make available to
Administrative Agent at Administrative Agent's Office, in immediately available
funds, its Bid Advance. After Administrative Agent's receipt of such funds, but
not later than 3:00 P.M. (Central time), and upon fulfillment of the applicable
conditions set forth in Article IV, Administrative Agent will make such Advances
available to Borrower, in immediately available funds, and will transmit such
funds by wire transfer to Borrower's Account.
SECTION 2.06. INTEREST PERIODS. In the case of each LIBOR Loan,
Borrower shall select an Interest Period of any duration in accordance with the
definition of Interest Period in Section 1.01, subject to the following
limitations, (1) for each 364 Day Facility Advance, no Interest Period may
extend beyond the 364 Day Facility Maturity Date, (2) no Interest Period shall
have a duration of less than one (1) month, and if any such proposed Interest
Period would otherwise be for a shorter period, such Interest Period shall not
be available, and (3) if an Interest Period would end on a day which is not a
Banking Day, such Interest Period shall be extended to the next Banking Day,
unless, such Banking Day would fall in the next calendar month, in which event
such Interest Period shall end on the immediately preceding Banking Day.
Notwithstanding anything herein to the contrary, each LIBOR Loan shall
be in an amount at least equal to One Million Dollars ($1,000,000) and in
integral multiples of Five Hundred Thousand Dollars ($500,000) (LIBOR Loans
having different Interest Periods at the same time hereunder to be deemed
separate Loans for purposes of the foregoing, one for each Interest Period).
Notwithstanding anything herein to the contrary, no Bank will be
required to have with respect to such Bank's share of the 364 Day Facility Loans
more than fifteen (15) different Interest Periods outstanding at any time.
SECTION 2.07. INTEREST. Borrower shall pay interest to the
Administrative Agent for the account of each Bank on the outstanding and unpaid
principal amount of such Bank's Advances, at a rate per annum as follows (1) for
a Base Advance at a rate equal to the Base Rate minus twenty-five basis points
(.25%), (2) for a LIBOR Advance at a rate equal to the LIBOR Rate plus the
Applicable Margin, and (3) for a Bid Advance at a rate per annum equal to the
Bid Rate set forth in the Bid Quote for such Bid Advance accepted by Borrower in
its Bid Notice of Borrowing. Any principal amount not paid when due (at
maturity, by acceleration or otherwise) shall, after written notice to Borrower
by the Administrative Agent, bear interest thereafter, payable on demand, at the
applicable Default Rate. The Administrative Agent will distribute such interest
paid by Borrower to each Bank under items (1) and (2) above ratably in
proportion of such Bank's 364 Day Facility Advances then outstanding bears to
the aggregate amount of all 364 Day Facility Advances and with respect to item
(3) above, ratably in proportion of such individual Bid Advances made by such
Bank then outstanding bears to the aggregate principal amount of all Bid
Advances then outstanding. All unreimbursed obligations with respect to payments
made by an issuing Bank under a Letter of Credit shall bear interest, payable on
demand, at the Base Rate plus the Default Rate.
The interest rate on each Base Advance shall change when the Base Rate
changes. Interest on each Advance shall not exceed the maximum amount permitted
under applicable Law and shall be calculated on the basis of a year of three
hundred sixty (360) days for the actual number of days elapsed.
Accrued interest shall be due and payable in arrears (1) for each Base
Loan, on each Monthly Date, commencing with the first such date after making
such Loan, (2) for each LIBOR Loan, on the last day of the Interest Period with
respect thereto and, in the case of an Interest Period greater than three
months, at three month intervals after the first day of such Interest Period,
(3) for each Bid Advance, on the applicable Bid Maturity Date, and, in the case
of a Bid Advance with a period from the date of making the Bid Loan to a Bid
Maturity Date of greater than 90 days, at 90 day intervals after the first day
of making such Bid Advance, and (4) interest accruing at the Default Rate shall
be due and payable on demand.
Administrative Agent shall provide to Borrower three days prior to the
date interest is due and payable to Administrative Agent written notice of the
amount of interest to be due and payable. Failure of Administrative Agent to
provide such prior written notice, however, shall not affect Borrower's
obligation to make such interest payments when due.
SECTION 2.08. FEES. Borrower agrees to pay to each Bank an annual
facility fee ("Facility Fee") in an amount equal to five basis points (.05%) per
annum on the amount of such Bank's Individual 364 Day Facility Commitment
payable in quarterly installments, on the fifth Banking Day after each Quarterly
Date, commencing on November 30, 1996, and on the 364 Day Facility Maturity
Date.
Borrower agrees to pay to each Bank a commitment fee ("Commitment Fee")
in an amount equal to seven and one half basis points (.075%) per annum on the
average daily Individual Unused 364 Day Facility Commitment of such Bank,
payable in arrears, and based on a year of three hundred sixty (360) days for
the actual number of days elapsed, on the fifth Banking Day after each Quarterly
Date and on the 364 Day Facility Maturity Date. In the event a Bank elects to
make Bid Advances in an amount that exceeds its Individual 364 Day Facility
Commitment pursuant to the provisions of Section 2.02, then the Commitment Fee
for each other Bank that has an Individual Unused 364 Day Facility Commitment
shall be calculated as follows:
(1) The total Commitment Fee shall be calculated by
multiplying the average daily Total Unused 364 Day Facility Commitment,
after giving effect to such excess Advance(s), by seven and one half
basis points (.075%) per annum.
(2) The portion of the Commitment Fee calculated under (1)
above that is payable to a Bank shall be determined by (i) dividing the
actual average daily Individual Unused 364 Day Facility Commitment of
such Bank by the sum of the average daily Individual Unused 364 Day
Facility Commitments of all Banks and then (ii) multiplying the
quotient by the amount of all excess Bid Advances. The end result is
subtracted from such Bank's actual average daily Individual Unused 364
Day Facility Commitment and divided by the average daily Total Unused
364 Day Facility Commitment and then multiplied by the Commitment Fee
calculated under (1) above.
Administrative Agent shall provide to Borrower promptly after each
Quarterly Date written notice of the amount of the Commitment Fee and Facility
Fee due to it to be due and payable on the fifth Banking Day after such
Quarterly Date. Failure of Administrative Agent to provide such written notice,
however, shall not affect Borrower's obligation to pay such Fees.
Borrower agrees to pay to the Facility Agents and the Syndication
Agents the fees set forth in the Fee Letter.
SECTION 2.09. NOTES. All 364 Day Facility Advances made by each Bank
shall be evidenced by, and repaid with interest in accordance with, a single
promissory note of Borrower in substantially the form of Exhibit A duly
completed, in the stated maximum principal amount equal to such Bank's
Individual 364 Day Facility Commitment, dated the date such Bank becomes a Bank,
payable to such Bank for the account of its Applicable Lending Office, and
maturing as to principal on the 364 Day Facility Maturity Date (each a "364 Day
Facility Note" and collectively, the "364 Day Facility Notes").
All Bid Advances made by any Bank shall be evidenced by, and repaid
with interest in accordance with, a single promissory note in substantially the
form of Exhibit B duly completed, dated the date such Bank becomes a Bank,
payable to such Bank for the account of its Applicable Lending Office, and each
Bid Advance will mature as to principal on the applicable Bid Loan Maturity Date
(each a "Bid Note" and collectively, the "Bid Notes").
Each Bank shall record on its books and records the amount of each
Advance and any unreimbursed obligations to such Bank with respect to payments
by such Bank under Letters of Credit issued by such Bank made by it hereunder,
the rate and interest period applicable thereto, all payments of principal and
interest, and the principal balance from time to time outstanding. The Bank's
record thereof shall be prima facie evidence as to all such amounts and shall be
binding on Borrower absent manifest error. Notwithstanding the foregoing,
Borrower will never be required to pay as principal more than the principal
amount of the Loans made by the Banks and any unreimbursed obligations to such
Bank with respect to payments by such Bank under Letters of Credit issued by
such Bank.
SECTION 2.10. OPTIONAL PREPAYMENTS. Borrower may prepay any LIBOR Loans
upon giving Administrative Agent prior written or telegraphic or facsimile
notice (effective upon receipt) no later than 3:00 P.M. (Central time) three
Banking Days prior to the date of such prepayment. Promptly after receipt of
such notice of prepayment, Administrative Agent will notify the applicable Banks
with regard to such notice.
Each such prepayment of the Loans may be made in whole or in part and
will be made with accrued interest to the date of such prepayment on the amount
prepaid, provided that (1) each partial prepayment shall be in a principal
amount of not less than One Million Dollars ($1,000,000) and integral multiples
of Five Hundred Thousand Dollars ($500,000), (2) unless Borrower pays
compensation in accordance with Section 10.05, LIBOR Loans may only be prepaid
on the last day of the Interest Period for such Loan, and (3) Bid Loans may not
be prepaid. In addition, each such prepayment of the Loans shall be paid to the
Banks ratably based upon the amount each such Bank's outstanding Advances bears
to such Loans then outstanding.
SECTION 2.11. METHOD OF PAYMENT. Borrower shall make each payment under
this Agreement and under each Note not later than 2:00 P.M. (Central time) on
the date when due in Dollars in immediately available funds in the case of 364
Day Facility Loans and Bid Loans, to Administrative Agent at Administrative
Agent's Office for the account of the Applicable Lending Office of each Bank
entitled to receive all or a portion of such payment. Administrative Agent will
promptly thereafter cause to be disbursed such payments of principal and
interest under this Section in like funds to the Banks entitled to receive all
or a portion of such payment.
Borrower hereby authorizes each Bank, if and to the extent payment of
the Loans or interest thereon, or any Fees are not made when due under this
Agreement or under the Notes, to charge from time to time against any account it
maintains with such Bank any such amount so due to such Bank and/or any or all
of the other Banks.
Except to the extent provided in this Agreement, whenever any payment
to be made under this Agreement or under the Notes shall be stated to be due on
any day other than a Banking Day, such payment shall be made on the next
succeeding Banking Day, and such extension of time shall in such case be
included in the computation of the payment of interest and the Commitment Fees.
SECTION 2.12. USE OF PROCEEDS. The proceeds of the Loans will be used
by Borrower for general corporate purposes. Borrower will not, directly or
indirectly, use any part of such proceeds for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors or to extend credit to any Person for the purpose of purchasing or
carrying any such margin stock.
SECTION 2.13. CONVERSIONS OR CONTINUATIONS. Provided that no Default or
Event of Default has occurred and is continuing, Borrower shall have the right
to convert all or a part of one type of Loan into another type of Loan or to
continue all or any part of a LIBOR Loan, at any time or from time to time,
provided that (1) Borrower shall give Administrative Agent and each Bank (a)
notice of each such conversion into a Base Loan by no later than 12:00 noon
(Central time) on the date of such conversion and (b) notice of each conversion
into and continuation of a LIBOR Loan by no later than 12:00 noon (Central time)
three Banking Days prior to such conversion or continuation, (2) LIBOR Loans may
be converted or continued only on the last day of an Interest Period for such
Loans, and (3) after giving effect to such continuation or conversion the
minimum principal amount of the outstanding LIBOR Loans with the same Interest
Period will be One Million Dollars ($1,000,000) and integral multiples of Five
Hundred Thousand Dollars ($500,000). All notices given under this Section shall
be irrevocable.
Each such notice of conversion or continuation shall specify the Loan
to be converted or continued and the amount thereof and the date of conversion
or continuation (which shall be a Banking Day) and, in respect of a LIBOR Loan,
the duration of an Interest Period. Each such notice of the duration of an
Interest Period shall specify the LIBOR Loan to which such Interest Period is to
relate. In the event that Borrower fails to select the type of Loan, or the
duration of any Interest Period for any LIBOR Loan, within the time period and
otherwise as provided in this Section, such Loan (if outstanding as a LIBOR
Loan) will be automatically converted into a Base Loan on the last day of the
then current Interest Period for such LIBOR Loan.
ARTICLE III. LETTERS OF CREDIT
SECTION 3.01. LETTERS OF CREDIT. Any Bank may, in its sole discretion,
issue for the account of Borrower either (1) a documentary letter of credit or
(2) a standby letter of credit, in each case with an expiration date of three
hundred sixty-four (364) days or less (without regard to any renewal provisions
thereof) from the date of issuance of such letter of credit (each of the letters
of credit under (1) and (2), a "Letter of Credit") on terms and conditions
agreed to by such Bank and Borrower from time to time during the period from the
Closing Date to the 364 Day Facility Maturity Date, provided, that
(1) with regard to all Banks, at no time will the outstanding
Total Letter of Credit Obligations exceed the lesser of (a) Fifty
Million Dollars ($50,000,000), or (b) an amount equal to (i) the Total
364 Day Facility Commitment, minus (ii) the aggregate principal amount
of all outstanding 364 Day Facility Loans, minus (iii) the aggregate
principal amount of all outstanding Bid Loans, minus (iv) the aggregate
principal amount of all unreimbursed obligations in respect to amounts
paid under such Letters of Credit all determined at such time, and
(2) with respect to each Bank, no Letter of Credit may be
issued unless there is sufficient Individual Unused 364 Day Facility
Commitment of such Bank to cover the requested Letter of Credit.
Outstanding Individual Letter of Credit Obligations of a Bank shall not
be affected if such Bank elects to offer a Bid Advance in excess of its
Individual 364 Day Facility Commitment pursuant to Section 2.02(2).
The terms and conditions relating to each Letter of Credit will be set
forth in a Letter of Credit Agreement, and such Letter of Credit Agreement will
provide that all draws under such Letter of Credit will be reimbursed at the
time of such draw. The expiration date of a Letter of Credit may be after the
364 Day Facility Maturity Date. Each Letter of Credit will be an obligation of
the Bank issuing such Letter of Credit and the other Banks are not required to
purchase participations in such Letter of Credit. Prior to the issuance of each
Letter of Credit, the Bank proposing to issue such Letter of Credit will confirm
with Administrative Agent that such Letter of Credit will not exceed the
limitations set forth in this Section.
SECTION 3.02. RELATIONSHIP BETWEEN THIS AGREEMENT AND EACH LETTER OF
CREDIT AGREEMENT. Each Bank agrees that to the extent its Letter of Credit
Agreement (including with respect to any Letters of Credit listed on Schedule
3.03) contains (1) representations and warranties, covenants or events of
default covering substantially the same matters or items that are covered by the
representations and warranties, covenants or Events of Default set forth in this
Agreement, or (2) any of the items covered by Section 12.07 of this Agreement,
such as jurisdiction, service of process, waivers of immunity and so forth, that
in all such cases the terms of this Agreement supersede such provisions and the
terms of this Agreement are controlling. In addition, each Bank and Borrower
agree that the reimbursement obligation on all Letters of Credit are not, and
will not be, secured by a Lien on any assets of Borrower or any Subsidiary,
except for Liens permitted under Section 7.02.
SECTION 3.03. OUTSTANDING LETTERS OF CREDIT. Borrower and each Bank
agrees that all letters of credit previously issued by such Bank for the account
of Borrower which remain outstanding as of the Closing Date, all of which are
set forth in Schedule 3.03, will automatically as of such Date be deemed to be
Letters of Credit, as set forth in such Schedule, and, except for previously
agreed upon fees and expenses, as such, all such Letters of Credit will be
subject to the terms of this Agreement.
SECTION 3.04. REIMBURSEMENT OBLIGATIONS ON LETTERS OF CREDIT. Borrower
and each Bank agree that all reimbursement obligations of Borrower in respect to
amounts paid under a Letter of Credit will immediately and automatically be
satisfied by such Bank's making a 364 Day Facility Advance and that all such 364
Day Facility Advances shall in the amount of such payments bear interest at the
interest rate for a Base Advance under Section 2.07 and that Borrower hereby
irrevocably authorizes such Bank to make such Advance(s) without the receipt of
any notice or request of Borrower.
ARTICLE IV. CONDITIONS PRECEDENT
SECTION 4.01. CONDITIONS PRECEDENT TO INITIAL USE OF A CREDIT FACILITY
ON AND AFTER THE SECTION 4.01. CONDITIONS PRECEDENT TO INITIAL USE OF A CREDIT
FACILITY ON AND AFTER THE CLOSING DATE. The obligations of the Banks on or after
the Closing Date to make a 364 Day Facility Loan or, the ability of Borrower to
request either a Letter of Credit or a Bid Request is subject to the condition
precedent that the Banks shall have received on or before the Closing Date each
of the following documents, in form and substance satisfactory to the
Syndication Agents and their counsel, and each of the following requirements
shall have been fulfilled:
(1) Evidence of Due Organization and all Corporate Actions by
Borrower. A certificate of the Secretary or Assistant Secretary of
Borrower, dated the Closing Date, attesting to the certificate of
incorporation of Borrower and all amendments thereto, to the by-laws
and all amendments thereto of Borrower, and to all corporate actions
taken by Borrower, including resolutions of its board of directors,
authorizing the execution, delivery and performance of the Loan
Documents, and each other document to be delivered pursuant to the Loan
Documents;
(2) Incumbency and Signature Certificate of Borrower. A
certificate of the Secretary or Assistant Secretary of Borrower, dated
the Closing Date, certifying the names and true signatures of the
officers of Borrower authorized to sign the Loan Documents, and the
other documents to be delivered pursuant to the Loan Documents;
(3) Good Standing Certificate of Borrower. A certificate,
dated within ten (10) Banking Days of the Closing Date, from the
Secretary of State (or other appropriate official) of the jurisdiction
of incorporation of Borrower certifying as to the due incorporation and
good standing of Borrower;
(4) Notes. For each of the Banks each of its Notes, properly
completed and duly executed by Borrower;
(5) Opinion of Counsel for Borrower. Favorable opinion of
in-house counsel for Borrower addressed to the Banks, dated the Closing
Date;
(6) Payment of Fees. Payment in full to the Facility Agents
and the Syndication Agents of all fees required to be paid as of such
date to each of the Facility Agents and the Syndication Agents pursuant
to the terms of the Fee Letter, and payment in full of all other fees
or expenses required to be paid as of such date in accordance with the
Loan Documents;
(7) Officer's Certificate. The following statements shall be
true and Administrative Agent shall have received a certificate signed
by a duly authorized officer of Borrower dated the Closing Date stating
that:
(a) The representations and warranties contained in
this Agreement are, as of the Closing Date, as though made on
and as of such Date, correct in all material respects; and
(b) No Default or Event of Default has occurred and
is continuing;
(8) Cancellation of Existing Credit Agreements. Termination of
the Existing Credit Agreements and repayment in full of all loans
outstanding under and as defined in such agreements; and
(9) Additional Documentation. Such other approvals, opinions
or documents as any Bank Party may reasonably request.
SECTION 4.02. CONDITIONS PRECEDENT TO EACH CREDIT FACILITY. The
obligations of the Banks to make each 364 Day Facility Loan after the Closing
Date or, the ability of Borrower to request after the Closing Date either a
Letter of Credit or a Bid Request, shall be subject to the further conditions
precedent that on the date of providing such Credit Facility or request:
(1) Representations and Warranties; No Defaults or Events of
Default. The following statements shall be true:
(a) all the representations and warranties contained
in this Agreement and in each of the other Loan Documents are,
as of the date of providing such Credit Facility, as though
made on and as of such date, correct in all material respects;
and
(b) no Default or Event of Default has occurred and
is continuing.
(2) Additional Documentation. Administrative Agent shall have
received such other approvals, opinions or documents as any Bank Party
may reasonably request.
SECTION 4.03. DEEMED REPRESENTATION. Each request for a Credit Facility
and acceptance by Borrower of any proceeds of such Loan or the issuance,
extension or increase in the face amount of any Letter of Credit, as the case
may be, shall constitute a representation and warranty by Borrower that the
statements contained in Section 4.02(1) are true and correct both on the date of
such notice and as of the date of the providing of such Loan or issuance or
amendment of such Letter of Credit, as the case may be.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants that:
SECTION 5.01. INCORPORATION, GOOD STANDING AND DUE QUALIFICATION.
Borrower and each Subsidiary is duly incorporated or formed, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation, has the corporate power and authority to own its assets and to
transact the business in which it is now engaged or proposed to be engaged, and
is duly qualified as a foreign corporation or entity and in good standing under
the laws of each other jurisdiction in which such qualification is required,
except to the extent that its failure to be so qualified has not, and could not
reasonably be expected to, result in a Material Adverse Change.
SECTION 5.02. CORPORATE POWER AND AUTHORITY; NO CONFLICTS. The
execution, delivery and performance by Borrower of the Loan Documents to which
it is a party have been duly authorized by all necessary corporate action and do
not and will not: (1) require any consent or approval of its stockholders which
has not been obtained; (2) contravene its certificate of incorporation or
by-laws; (3) violate any provision of, or require any filing, registration,
consent or approval under, any Law (including, without limitation, Regulations
G, T, U and X of the Board of Governors), order, writ, judgment, injunction,
decree, determination or award presently in effect having applicability to
Borrower or any Subsidiary; (4) result in a breach of or constitute a default
under or, except for any obtained, require any consent under any indenture or
loan or credit agreement or any other agreement, lease or instrument to which
Borrower or any Subsidiary is a party or by which it or its properties may be
bound or affected; (5) except as contemplated by this Agreement, 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 Borrower or any Subsidiary; or
(6) cause Borrower or any Subsidiary to be in default under any such Law, order,
writ, judgment, injunction, decree, determination or award or any such
indenture, agreement, lease or instrument (upon obtaining all consents which
have been obtained on or before the date hereof).
SECTION 5.03. LEGALLY ENFORCEABLE AGREEMENTS. This Agreement and each
of the other Loan Documents constitute the legal, valid and binding obligations
of Borrower enforceable in accordance with their terms, except to the extent
that such enforcement may be limited by applicable bankruptcy, insolvency, and
other laws affecting creditors' rights generally.
SECTION 5.04. LITIGATION. Except as specified on Schedule 5.04, there
are no actions, suits or proceedings (private or governmental) pending or, to
the knowledge of Borrower, threatened, against or affecting Borrower or any
Subsidiary before any Governmental Authority or arbitrator, which have resulted
in, or could be reasonably expected to result in, in any one case or in the
aggregate, a Material Adverse Change.
SECTION 5.05. FINANCIAL STATEMENTS. The consolidated balance sheet of
Borrower and its Subsidiaries as of May 31, 1996, and the related consolidated
statements of operations, cash flows and consolidated statements of capital
shares and equities for the Fiscal Year then ended, and the accompanying
footnotes, together with the unqualified opinion thereon, dated August 19, 1996
of Deloitte & Touche LLP, independent certified public accountants, copies of
which have been furnished to the Banks, fairly present in all material respects
the consolidated financial condition of Borrower and its Subsidiaries as at such
dates and the results of the consolidated operations of Borrower and its
Subsidiaries for the periods covered by such statements, all in accordance with
GAAP consistently applied.
Since May 31, 1996, there has been no Material Adverse Change.
As of the Closing Date, there are no liabilities of Borrower or any of
its Subsidiaries, fixed or contingent, which are material but are not reflected
in the financial statements of Borrower and its Subsidiaries referred to above
or referred to in the notes thereto, other than liabilities arising in the
ordinary course of business since May 31, 1996. No information, exhibit, or
report furnished by Borrower or any of its Subsidiaries to either or both
Facility Agents or Syndication Agents in connection with the negotiation of this
Agreement contained any material misstatement of fact or omitted to state a
material fact or any fact necessary to make the statements contained therein not
materially misleading in light of the circumstances in which they were made and
taken together with the other information, exhibits and reports furnished to the
Bank Parties.
SECTION 5.06. OWNERSHIP AND LIENS. Borrower and each Subsidiary have
good and marketable title to, or valid leasehold interests in, all of their
material properties and assets, real and personal, including the properties and
assets and leasehold interests reflected in the financial statements of the
Borrower and its Subsidiaries referred to in Section 5.05, except (1) any
properties or assets disposed of in the ordinary course of business, and (2) for
minor defects in title and minor encumbrances not in any case materially
detracting from the value or use of the assets affected thereby; and none of the
properties and assets owned by Borrower or any Subsidiary and none of their
leasehold interests are subject to any Lien, except as may be permitted under
this Agreement.
SECTION 5.07. TAXES. Borrower and each Subsidiary have filed all tax
returns (federal, state and local) required to be filed (or obtained extensions
with respect thereto) and have paid all taxes, assessments and governmental
charges and levies thereon prior to the time they are delinquent, including
interest and penalties, except (1) to the extent they are the subject of a Good
Faith Contest and (2) as otherwise disclosed in Schedule 5.07.
SECTION 5.08. ERISA. The Borrower and its Subsidiaries are in
compliance in all material respects with ERISA, to the extent applicable to
them, and have received no notice to the contrary from the PBGC or any other
governmental entity or agency.
SECTION 5.09. OPERATION OF BUSINESS. Borrower and each Subsidiary
possess all licenses, permits, franchises, and trade names, or rights thereto,
to conduct their respective businesses substantially as now conducted and as
presently proposed to be conducted, and Borrower and each Subsidiary are not in
violation of any valid rights of others with respect to any of the foregoing,
except to the extent such lack of possession or violation has not resulted in,
and could not reasonably be expected to result in, a Material Adverse Change.
SECTION 5.10. NO DEFAULT ON OUTSTANDING JUDGMENTS OR ORDERS. Borrower
and each Subsidiary have satisfied all judgments and Borrower and each
Subsidiary are not in default with respect to any judgment, writ, injunction,
decree, rule or regulation of any court, arbitrator or federal, state, municipal
or other Governmental Authority, commission, board, bureau, agency or
instrumentality, domestic or foreign, except to the extent such failure to
satisfy any or all such judgments or to be in such a default has not resulted
in, and could not reasonably be expected to result in, a Material Adverse
Change.
SECTION 5.11. NO DEFAULTS ON OTHER AGREEMENTS. Neither Borrower nor any
Subsidiary is a party to any indenture, loan or credit agreement or any lease or
other agreement or instrument or subject to any certificate of incorporation or
corporate restriction which has resulted in, or could reasonably be expected to
result in, a Material Adverse Change. Neither Borrower nor any Subsidiary is in
default in any respect in the performance, observance or fulfillment of any of
the obligations, covenants or conditions contained in any agreement or
instrument where such failure to perform, observe or fulfill has resulted in, or
could reasonably be expected to result in, a Material Adverse Change.
SECTION 5.12. LABOR DISPUTES AND ACTS OF GOD. Neither the business nor
the properties of Borrower or any Subsidiary are currently affected by any fire,
explosion, accident, strike, lockout or other labor dispute, drought, storm,
hail, earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) which has resulted in, or could reasonably
be expected to result in, a Material Adverse Change.
SECTION 5.13. GOVERNMENTAL REGULATION. Neither Borrower nor any
Subsidiary is subject to regulation under the Public Utility Holding Company Act
of 1935, the Investment Company Act of 1940, the Interstate Commerce Act, the
Federal Power Act or any statute or regulation, in each case, limiting its
ability to incur indebtedness for money borrowed as contemplated hereby.
SECTION 5.14. ENVIRONMENTAL PROTECTION. Except as set forth on Schedule
5.14, Borrower and each Subsidiary have obtained all permits, licenses and other
authorizations which are required under all applicable Environmental Laws,
except to the extent failure to have any such permit, license or authorization
could not reasonably be expected to result in a Material Adverse Change. Except
as set forth on Schedule 5.14, Borrower and each Subsidiary are in compliance
with all Environmental Laws and the terms and conditions of the required
permits, licenses and authorizations, and are also in compliance with all other
limitations, restrictions, obligations, schedules and timetables contained in
those Laws or contained in any plan, order, decree, judgment, injunction, notice
or demand letter issued, entered, promulgated or approved thereunder, except to
the extent, in each case, failure to comply has not resulted in, and could not
reasonably be expected to result in, a Material Adverse Change.
SECTION 5.15. MARGIN SECURITIES. No more than twenty-five percent (25%)
of the value of the assets subject to Section 7.02 consists of "margin
securities" as that term is defined in Regulations G and U of the Board of
Governors of the Federal Reserve System.
ARTICLE VI. AFFIRMATIVE COVENANTS
So long as any of the Notes shall remain unpaid or any Individual
Letter of Credit Obligation shall remain outstanding or any Bank shall have any
Individual 364 Day Facility Commitment hereunder or any other amount is owing by
Borrower to any Bank Party hereunder or under any other Loan Document, Borrower
shall:
SECTION 6.01. MAINTENANCE OF ELIGIBILITY AND CAPITALIZATION. Preserve
and maintain its status as an entity eligible to borrow from CoBank and St. Paul
Bank; and for each Advance made by CoBank and St. Paul Bank purchase such equity
in CoBank and St. Paul Bank as CoBank and St. Paul Bank may from time to time
require in accordance with CoBank's or St. Paul Bank's bylaws and capital plan.
Borrower hereby acknowledges receipt prior to the execution of this Agreement of
a written description of the terms and conditions under which equity in CoBank
or St. Paul Bank is issued. CoBank and St. Paul Bank reserve the right to sell
participations under the provisions of Section 12.04 on a non-patronage basis.
SECTION 6.02. MAINTENANCE OF EXISTENCE. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, its corporate or other entity
existence and good standing in the jurisdiction of its incorporation or
formation, and qualify and remain qualified as a foreign corporation or entity
in each jurisdiction in which such qualification is required except (1) where
the failure to so qualify has not and could not reasonably be expected to result
in a Material Adverse Change, and (2) for any mergers permitted under Section
7.05.
SECTION 6.03. MAINTENANCE OF PROPERTIES. Maintain, keep and preserve,
and cause each Subsidiary to maintain, keep and preserve, all of its material
properties (tangible and intangible) necessary or used in the proper conduct of
its business in good working order and condition, ordinary wear and tear
excepted, and shall cause to be made all repairs, renewals, replacements,
betterments and improvements thereof, all as in the sole judgment of Borrower
may be reasonably necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times.
SECTION 6.04. MAINTENANCE OF RECORDS. Keep, and cause each of its
Subsidiaries to keep, adequate records and books of account, in which complete
entries will be made in accordance with GAAP, reflecting all of its and their
financial transactions.
SECTION 6.05. MAINTENANCE OF INSURANCE. Maintain, and cause each
Subsidiary to maintain, insurance with financially sound and reputable insurance
companies or associations in such amounts and covering such risks as are usually
carried by companies engaged in the same or a similar business and similarly
situated, provided, however, that Borrower may, to the extent permitted by Law,
provide for appropriate self-insurance with respect to worker's compensation. At
the request of Administrative Agent, copies of all policies (or such other proof
of compliance with this Section 6.05 as may be reasonably satisfactory) shall be
delivered to the Banks.
SECTION 6.06. COMPLIANCE WITH LAWS. Comply in all material respects,
and cause each Subsidiary to comply in all material respects, with all
applicable Laws, such compliance to include, without limitation, paying before
the same become delinquent all taxes, assessments and governmental charges
imposed upon it or upon its property, unless such failure to comply is the
subject of a Good Faith Contest.
SECTION 6.07. RIGHT OF INSPECTION. At any time and from time to time
during normal business hours and upon reasonable notice to Borrower, permit, and
cause its Subsidiaries to permit, any Bank Party or any agent or representative
thereof, to examine and make copies and abstracts from the financial records and
books of account of, and visit the properties of, Borrower and any Subsidiary,
and to discuss the affairs, finances and accounts of Borrower and any Subsidiary
with any of their respective officers and directors and independent accountants,
provided, that, in the case of each meeting with the independent accountants
Borrower is given an opportunity to have a representative present at such
meeting.
SECTION 6.08. EMPLOYEE BENEFIT PLANS. Make or cause to be made, and
cause each Subsidiary to make or cause to be made, all payments or contributions
to all Plans covered by Title IV of ERISA, which are necessary to enable those
Plans to continuously meet all minimum funding standards or requirements.
SECTION 6.09. REPORTING REQUIREMENTS. Furnish directly to
Administrative Agent:
(1) BORROWER'S MONTHLY FINANCIAL STATEMENTS. As soon as
available and in any event within forty-five (45) days after the end of
each month (except for the last such month in each fiscal year of
Borrower), one copy of the consolidated balance sheet, the consolidated
summary of earnings, consolidated statement of cash flow of the
Borrower and its Subsidiaries, all for such monthly period and the year
to date of the Borrower and its Subsidiaries, and for the corresponding
periods of the preceding fiscal year, all in reasonable detail,
prepared by the Borrower in conformance with GAAP consistently applied
and certified to by the Borrower's Group Vice President-Finance, or
other officer of Borrower acceptable to the Administrative Agent
(subject to normal year end adjustments); and
(2) BORROWER'S ANNUAL AUDIT. As soon as available and in any
event within 120 days after the close of each fiscal year of Borrower,
one copy of the audit report for such year and accompanying
consolidated financial statements (including all footnotes thereto),
including a consolidated balance sheet, a consolidated statement of
earnings, a consolidated statement of capital, and a consolidated
statement of cash flow for the Borrower and its Subsidiaries, showing
in comparative form the figures for the previous year, all in
reasonable detail, prepared in conformance with GAAP consistently
applied and certified without qualification by Deloitte & Touche LLP,
or other independent public accountants of nationally recognized
standing selected by the Borrower and satisfactory to the
Administrative Agent, and to be accompanied by a copy of the management
letter of such accountants addressed to the board of directors of
Borrower related to such annual audit; and
(3) CERTIFICATE OF NO DEFAULT. At the time of the delivery of
each of the financial statements referred to under (1) and (2) of this
Section 6.09, a certificate of the Group Vice President, Finance of
Borrower (a) certifying that no Default or Event of Default has
occurred and is continuing or, if a Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof and
the action which is proposed to be taken with respect thereto, and (b)
with computations demonstrating compliance with Sections 7.01(e), 7.08
and 7.11 as well as the financial covenants contained in Article VIII.
(4) NOTICE OF LITIGATION. Promptly after the commencement
thereof, notice of all actions, suits, arbitration and any other
proceedings before any Governmental Authority, affecting Borrower or
any Subsidiary which, if determined adversely to Borrower or any
Subsidiary, could reasonably be expected to require Borrower or any
Subsidiary to have to pay or deliver assets having a value of Five
Million Dollars ($5,000,000) or more (whether or not the claim is
covered by insurance) or could reasonably be expected to result in a
Material Adverse Change.
(5) NOTICES OF DEFAULTS AND EVENTS OF DEFAULT. As soon as
possible and in any event within three (3) days after the occurrence of
each Default or Event of Default, a written notice setting forth the
details of such Default or Event of Default and the action which is
proposed to be taken by Borrower and the Subsidiaries with respect
thereto.
(6) ERISA REPORTS. As soon as possible and in any event within
twenty (20) days after Borrower or any Subsidiary knows or has reason
to know that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or that the PBGC or Borrower or any
Subsidiary has instituted or will institute proceedings under Title IV
of ERISA to terminate any Plan, or that Borrower, any Subsidiary or any
ERISA Affiliate has completely or partially withdrawn from a
Multiemployer Plan, or that a Plan which is a Multiemployer Plan is in
reorganization (within the meaning of Section 4241 of ERISA), is
insolvent (within the meaning of Section 4245 of ERISA) or is
terminating, Borrower or such Subsidiary will deliver to each of the
Banks a certificate of the Group Vice President-Finance of Borrower or
such Subsidiary setting forth details as to such Reportable Event or
Prohibited Transaction or Plan termination or withdrawal or
reorganization or insolvency and the action Borrower or such Subsidiary
proposes to take with respect thereto, provided, however, that
notwithstanding the foregoing, no reporting is required under this
subsection (6) unless the matter(s), individually or in the aggregate,
result, or could be reasonably expected to result, in aggregate
obligations or liabilities of Borrower and/or the Subsidiaries in
excess of One Million Dollars ($1,000,000).
(7) ANNUAL BUDGET. Promptly upon becoming available and in any
event within ninety (90) days after each Fiscal Year end, a copy of the
Annual Operating Budget for the next succeeding Fiscal Year approved by
Borrower's board of directors, together with the assumptions and
projections on which such budget is based and a copy of forecasts of
operations and capital expenditures (including investments) and a
projection of cash flow by months for each fiscal year. In addition, if
any material changes are made to such budget or projections or
forecasts during the year, then Borrower will furnish copies to the
Administrative Agent of any such changes promptly after such changes
have been approved.
(8) MATERIAL ADVERSE CHANGE. As soon as possible and in any
event within five (5) days after the occurrence of any event or
circumstance which could reasonably be expected to result in or has
resulted in a Material Adverse Change, written notice thereof.
(9) ENVIRONMENTAL NOTICES. As soon as possible and in any
event within five (5) days after receipt, copies of all Environmental
Notices received by Borrower or any Subsidiary which indicate a
potential liability of Five Million Dollars ($5,000,000) or more for
Borrower and all its Subsidiaries taken together or which could
reasonably be expected to result in or has resulted in a Material
Adverse Change.
(10) GENERAL INFORMATION. With reasonable promptness, such
other information respecting the condition or operations, financial or
otherwise, of Borrower or any Subsidiary as any Bank Party may from
time to time reasonably request.
SECTION 6.10. COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause
each of its Subsidiaries to comply, in all respects with all applicable
Environmental Laws, where the failure to comply could reasonably be expected to
result in a Material Adverse Change, except where the failure to comply is the
subject of a Good Faith Contest, and promptly pay or cause to be paid all costs
and expenses incurred in connection with such compliance.
SECTION 6.11. MAINTENANCE OF COMMODITY POSITION. Protect its commodity
inventory holdings or commitments to buy or sell commodities against adverse
price movements, including the taking of equal and opposite positions in the
cash and futures markets, to minimize losses and protect margins in commodity
production, storage, processing and marketing as is recognized as financially
sound and reputable by prudent business persons in the commodity business.
ARTICLE VII. NEGATIVE COVENANTS
So long as any of the Notes shall remain unpaid or any Individual
Letter of Credit Obligation shall remain outstanding or any Bank shall have any
Individual 364 Day Facility Commitment hereunder or any other amount is owing by
Borrower to any Bank Party hereunder or under any other Loan Document, Borrower
shall not and shall not permit any of its Subsidiaries to:
SECTION 7.01. DEBT. Create, incur, assume, or allow to exist, directly
or indirectly, any Debt or liability for borrowed money or for the deferred
purchase price of property or services, except for: (a) indebtedness of Borrower
arising under this Agreement and the other Loan Documents; (b) trade payables
arising in the ordinary course of business; (c) Capital Leases in existence from
time to time, (d) current operating liabilities (other than for borrowed money)
incurred in the ordinary course of business; (e) unsecured indebtedness of
Borrower and its Subsidiaries arising under uncommitted lines of credit;
provided that the maximum principal amount that may be outstanding at any one
time shall not exceed $15,000,000, (f) indebtedness of Borrower and its
Subsidiaries on the date hereof as set forth in Schedule 7.01 attached hereto,
(g) unsecured long-term indebtedness of Borrower and its Subsidiaries, (h)
documentary and standby letters of credit issued at the request of Borrower or
any Subsidiary by a financial institution other than a Bank, provided the
aggregate principal amount outstanding under such letters of credit together
with the principal outstanding under Letters of Credit do not exceed $50,000,000
and provided further that the aggregate principal amount outstanding under such
letters of credit together with all Advances, principal outstanding under
Letters of Credit and unreimbursed obligations to Banks with respect to payments
made by such Banks under Letters of Credit shall not exceed the Commitment and
(i) such other indebtedness agreed upon in writing between Borrower and the Bank
Parties.
SECTION 7.02. LIENS. Create, incur, assume or suffer to exist any Lien,
upon or with respect to any of its real or personal properties (including,
without limitation, leasehold interests, leasehold improvements and any other
interest in real property or fixtures), now owned or hereafter acquired, except:
(1) Liens for taxes or assessments or other charges or levies
of any Governmental Authority, that are not delinquent or if delinquent
(i) are the subject of a Good Faith Contest but in no event past the
time when a penalty would be incurred, and (ii) the aggregate amount of
liabilities so secured (including interest and penalties) does not
exceed $10,000,000 at any one time outstanding;
(2) Liens imposed by Law, such as mechanic's, worker's,
repairman's, miner's, agister's, attorney's, materialmen's, landlord's,
warehousemen's and carrier's Liens and other similar Liens which are
securing obligations incurred in the ordinary course of business for
sums not yet due and payable or if due and payable which are the
subject of a Good Faith Contest;
(3) Liens under worker's compensation, unemployment insurance,
social security or similar legislation (other than ERISA), or to secure
payments of premiums for insurance purchased in the ordinary course of
business, or to secure the performance of tenders, statutory
obligations, surety and appearance bonds and bids, bonds for release of
an attachment, stay of execution or injunction, leases, government
contracts, performance and return-of-money bonds and other similar
obligations, all of which are incurred in the ordinary course of
business and not in connection with the borrowing of money;
(4) any attachment or judgment Lien, the time for appeal or
petition for rehearing of which shall not have expired or in respect of
which Borrower or the Subsidiary is protected in all material respects
by insurance or for the payment of which adequate reserves have been
provided, provided, that the execution or other enforcement of such
Liens is effectively stayed and the claims secured thereby are the
subject of a Good Faith Contest, and provided further that the
aggregate amount of liabilities of Borrower and its Subsidiaries so
secured (including interest and penalties) shall not be in excess of
$5,000,000 at any one time outstanding;
(5) easements, rights-of-way, restrictions, encroachments,
covenants, servitudes, zoning and other similar encumbrances which, in
the aggregate, do not materially interfere with the occupation, use and
enjoyment by Borrower or any Subsidiary of the property or assets
encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto;
(6) Liens arising in the ordinary course of business and
created in connection with amounts on deposit in charge card and like
accounts (such as Visa or MasterCard);
(7) Liens on land, buildings and equipment existing at the
time of their acquisition or Liens to secure the payment of all or any
part of the purchase price of such land, buildings or equipment or to
secure Funded Debt incurred prior to, at the time of, or within 180
days after the acquisition of such property for the purpose of
financing all or any part of the purchase price thereof, provided that
any such Liens shall not encumber any other property of Borrower or its
Subsidiaries;
(8) Liens assumed in connection with permitted mergers and
acquisitions, but only to the extent that such Liens shall secure only
Funded Debt and shall not encumber any other property of Borrower or
any Subsidiary;
(9) Liens on financed property created or incurred in
connection with leases, mortgages, conditional sales contracts,
security interests or arrangements for the retention of title entered
into by Borrower or any of its Subsidiaries to secure "industrial
revenue bonds" as defined in Section 103(b)(2) of the Code and treated
as obligations described in legislation similar to the provisions of
said Sections of the Code enacted in any State of the United States or
Puerto Rico, which are issued to finance property useful and intended
to be used in carrying on the business of Borrower or any of its
Subsidiaries, provided that upon creation of any such Lien Borrower or
such Subsidiary shall incur Funded Debt secured thereby in conformity
with the provisions of Section 8.03 hereof;
(10) Liens related to Letters of Credit, provided such Liens
attach only to property financed through such Letters of Credit;
(11) Cash Collateral provided to Administrative Agent for the
benefit of the Banks to secure Letters of Credit as provided for under
Section 9.02;
(12) Liens on property or assets of a Subsidiary to secure
Debt of such Subsidiary to Borrower or another Subsidiary;
(13) Liens of CoBank, St. Paul Bank and other cooperatives,
respectively, on Investments by Borrower in the stock, participation
certificates, or allocated reserves of CoBank, St. Paul Bank or other
cooperatives, respectively, owned by Borrower;
(14) all precautionary filings of financing statements under
the Uniform Commercial Code which cover property that is made available
to or used by Borrower or any Subsidiary pursuant to the terms of an
Operating Lease or Capital Lease;
SECTION 7.03. FISCAL YEAR. Change its Fiscal Year to a period other
than its Fiscal Year in effect on the Closing Date.
SECTION 7.04. SALE OF ASSETS. Sell, lease, assign, transfer or
otherwise dispose of any material part of its now owned or hereafter acquired
assets, except: (1) the sale of inventory, equipment and fixtures disposed of in
the ordinary course of business, (2) the sale or other disposition of assets no
longer necessary or useful for the conduct of its business. For purposes of this
Section, "material part" shall mean 5% or more of the lesser of the book value
or the market value of the assets of Borrower at the time of such sale, lease,
assignment, transfer or other disposition.
SECTION 7.05. MERGERS, ETC. Merge or consolidate with, or sell, assign,
lease or otherwise dispose of (whether in one transaction or in a series of
related transactions) all or substantially all of its assets (whether now owned
or hereafter acquired) to, any Person, or acquire all or substantially all of
the assets or the business of any Person (or enter into any agreement to do any
of the foregoing); however, that the foregoing shall not prevent any
consolidation or merger if after giving affect thereto:
(1) The book value of Borrower and its Subsidiaries does not
increase due to all such mergers, consolidations or acquisitions by an
aggregate amount in excess of $25,000,000 in any fiscal year of
Borrower;
(2) The Borrower is the surviving entity; and
(3) No Event of Default or Default shall have occurred and be
continuing.
SECTION 7.06. CHANGE IN BUSINESS. Engage in any material respects in
any business activity or operations which are substantially different from or
unrelated to its present business activities or operations.
SECTION 7.07. INVESTMENTS. In any fiscal year of Borrower make, or
suffer to exist, any Investment except (1) Permitted Investments, (2)
Investments in Subsidiaries, (3) Investments permitted under Sections 7.05, 7.09
and 7.10 and (4) Investments that are not Permitted Investments in an aggregate
amount not exceeding $5,000,000 for each Fiscal Year of Borrower.
SECTION 7.08. CONTINGENT LIABILITIES. Assume, guarantee, become liable
as a surety, endorse, contingently agree to purchase, or otherwise be or become
liable, directly or indirectly (including, but not limited to, by means of a
maintenance agreement, an asset or stock purchase agreement, or any other
agreement designed to ensure any creditor against loss), for or on account of
the obligation of any Person, except (1) by the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of the Borrower's or any Subsidiary's business, (2) guarantees made from
time to time by Borrower and its Subsidiaries in the ordinary course of their
respective businesses; provided, however, that the aggregate amount of all
indebtedness guaranteed under Subsection (2) shall not exceed $100,000,000 in
the aggregate.
SECTION 7.09. LOANS. Lend or advance money, credit, or property to any
Person, except for (1) loans to Subsidiaries, (2) trade credit extended in the
ordinary course of business, (3) loans made by Borrower to its members on open
account maintained by such members with Borrower or made by Borrower to its
members pursuant to its Affiliate Financing CoBank Participation Program;
provided that the aggregate principal amount of all such loans outstanding at
any time shall not exceed $150,000,000 and (4) loans made by Fin-Ag, Inc. to
agricultural producers, provided that the aggregate principal amount of all such
loans outstanding at any time shall not exceed $35,000,000.
SECTION 7.10. TRANSACTION WITH AFFILIATES. Enter into any transaction,
including, without limitation, the purchase, sale, lease or exchange of any
property, or the rendering of any service, with any Affiliate of Borrower or a
Subsidiary except in the ordinary course of and pursuant to the reasonable
requirements of Borrower and its Subsidiaries business and upon fair and
reasonable terms which are not materially less favorable to Borrower than would
be obtained in a comparable arm's-length transaction with a Person not an
Affiliate of Borrower or a Subsidiary.
SECTION 7.11. PATRONAGE REFUNDS, ETC. In any fiscal year (1) declare or
pay any cash patronage refunds to patrons or members which in the aggregate
exceed 20% of Borrower's consolidated net patronage income for the Fiscal Year
of Borrower preceding the Fiscal Year in which such patronage refunds are to be
paid or (2) directly or indirectly redeem or otherwise retire its equity or (3)
make any cash distributions of any kind or character in respect of its equity
unless (i) at the time of taking such action no Event of Default or Default
exists hereunder and (ii) after giving effect thereto no Event of Default or
Default would exist hereunder.
ARTICLE VIII. FINANCIAL COVENANTS
So long as any of the Notes shall remain unpaid or any Individual
Letter of Credit Obligation shall remain outstanding or any Bank shall have any
Individual 364 Day Facility Commitment hereunder or any other amount is owing by
Borrower to any Bank Party hereunder or under any other Loan Document:
SECTION 8.01. CONSOLIDATED WORKING CAPITAL. Borrower and its
Subsidiaries shall have at all times an excess of Current Assets over Current
Liabilities on a consolidated basis of not less than One Hundred Million Dollars
($100,000,000).
SECTION 8.02. CONSOLIDATED MEMBERS' AND PATRONS' EQUITY. Borrower and
its Subsidiaries shall have at all times Consolidated Members' and Patrons'
Equity in an amount not less than Two Hundred Seventy-Five Million Dollars
($275,000,000).
SECTION 8.03. CONSOLIDATED FUNDED DEBT TO CONSOLIDATED MEMBERS' AND
PATRONS' EQUITY. Borrower and its Subsidiaries shall not permit the ratio of
Consolidated Funded Debt of Borrower and its Subsidiaries to Consolidated
Members' and Patrons' Equity to exceed at any time .80 to 1.00.
ARTICLE IX. EVENTS OF DEFAULT EVENTS OF DEFAULT
SECTION 9.01. EVENTS OF DEFAULT. Any of the following events shall be
an "Event of Default":
(1) PAYMENT DEFAULT. Failure by Borrower to make any payment
required to be made hereunder or under any other Loan Document when
due; or
(2) REPRESENTATIONS AND WARRANTIES. Any representation or
warranty made by Borrower herein or in any agreement, certificate or
document related hereto or furnished in connection herewith, shall
prove to have been false or misleading in any material respect on or as
of the date made; or
(3) CERTAIN AFFIRMATIVE COVENANTS. Failure by Borrower to
perform or comply with any covenant set forth in Sections 6.03 through
6.07, and 6.09 (other than Sections 6.09(5), (6), (9) and (10)) and
6.10 hereof and such failure continues for 15 days after written notice
thereof shall have been delivered to Borrower by any Bank; or
(4) OTHER COVENANTS AND AGREEMENTS. Borrower shall fail to
perform or comply with any other covenant or agreement contained
herein, including any covenant excluded in (3) above, provided,
however, the provisions of this Subsection (4) notwithstanding, it
shall be an Event of Default if Borrower shall fail to comply with the
provisions of Sections 7.01 and/or 7.02 and such failure is in excess
of $5,000,000 or if such failure is equal to or less than $5,000,000
and such failure is not cured within five (5) Banking Days after such
failure is discovered by Borrower's Group Vice President, Finance; and
provided further, the provisions of this Subsection (4)
notwithstanding, it shall be an Event of Default if Borrower and its
Subsidiaries shall fail to maintain compliance with the working capital
requirements of Section 8.01, and such failure continues beyond the
date financial statements are provided under Subsections 6.09(1) and
(2); or
(5) CROSS-DEFAULT. Borrower shall, after any applicable grace
period, breach or be in default under the terms of any other Loan
Document or of any other agreement between Borrower and any Bank; or
(6) OTHER DEBT. Borrower or any Subsidiary shall: (a) fail to
pay all or any portion of a Debt (other than the payment obligations
described in (1) above) of Borrower or any Subsidiary when due (whether
by scheduled maturity, required prepayment, acceleration, demand or
otherwise) where the aggregate amount of all such Debt is equal to or
in excess of Five Million Dollars ($5,000,000) except for the failure
to pay such Debt where (i) such Debt constitutes trade obligations, and
(ii) such failure to pay is subject to a Good Faith Contest; or (b)
fail to perform or observe any term, covenant or condition on its part
to be performed or observed under any agreement or instrument relating
to any such Debt included in clause (a) above, when required to be
performed or observed, and such failure shall not be waived and shall
continue after the applicable grace period, if any, if the effect of
such failure to perform or observe is to accelerate, or to permit the
acceleration of, after the giving of notice or the lapse of time, or
both, the maturity of such Debt; or any such Debt included in clause
(a) above shall be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled required prepayment or
voluntary prepayment), prior to the stated maturity thereof, unless
such failure is subject to a Good Faith Contest; or
(7) LEASES. Borrower or any Subsidiary shall fail to pay or to
perform any obligations of Five Million Dollars ($5,000,000) or more
under or with respect to any material lease of goods (except to the
extent that the existence of any such default is subject to a Good
Faith Contest); or
(8) MATERIAL ADVERSE CHANGE. The Requisite Banks shall have
determined that an event or circumstance constituting a Material
Adverse Change has occurred; or
(9) ERISA. Any reportable event (as defined in ERISA) which
constitutes grounds for the termination of any Plan, or for the
appointment of a trustee to administer or liquidate any such Plan,
shall have occurred and be continuing 30 days after written notice to
such effect shall have been given to Borrower by any Bank; or any such
Plan shall be terminated; or a trustee shall be appointed; or the PBGC
shall institute proceedings to terminate any such Plan; or
(10) BANKRUPTCY, ETC. Borrower or any of its Subsidiaries: (a)
shall generally not, or be unable to, or shall admit in writing its
inability to, pay its debts as such debts become due; (b) shall make an
assignment for the benefit of creditors, petition or apply to any
tribunal for the appointment of a custodian, receiver or trustee for it
or a substantial part of its assets; (c) shall commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution or liquidation law or statute of any jurisdiction,
whether now or hereafter in effect; (d) shall have had any such
petition or application filed involuntarily against it; and with
respect to proceedings for dissolution or liquidation in which an
adjudication or appointment is made or order for relief is entered and
continues unstayed for a period of sixty (60) days or more; or shall be
the subject of any such proceeding under which its assets may be
subject to seizure, forfeiture or divestiture; or (e) by any act or
omission shall indicate its consent to, approval of or acquiescence in
any such petition, application or proceeding or order for relief or the
appointment of a custodian, receiver or trustee for all or any
substantial part of its property.
SECTION 9.02. REMEDIES. If any Event of Default shall occur and be
continuing, Administrative Agent shall, upon request of the Requisite Banks, by
notice to Borrower (1) declare the Commitments to be terminated, whereupon the
same shall forthwith terminate, (2) declare the outstanding Notes, all interest
thereon, and all other amounts payable under this Agreement and any other Loan
Document to be forthwith due and payable, whereupon the Notes, all such
interest, and all such amounts due under this Agreement and under any other Loan
Document shall become and be forthwith due and payable, without presentment,
demand, protest, or further notice of any kind, all of which are hereby
expressly waived by Borrower, (3) require Borrower to provide Cash Collateral to
Administrative Agent for the benefit of the Banks that have issued a Letter of
Credit that is outstanding in an amount up to the aggregate undrawn face amount
of all outstanding Letters of Credit, (4) exercise any remedies provided in any
of the Loan Documents, and/or (5) exercise any rights and remedies provided by
Law, provided, however, that upon the occurrence of an Event of Default referred
to in Section 9.01(10), the Commitment shall automatically terminate and the
outstanding Notes, and any other amounts payable under this Agreement or any of
the other Loan Documents, and all interest on any of the foregoing, shall be
forthwith due and payable without presentment, demand, protest or further notice
of any kind, all of which are hereby expressly waived by Borrower The parties
hereto agree that all payments on Loans, unreimbursed obligations with respect
to payments made under Letters of Credit after the occurrence of an Event of
Default and the principal amount of all Letters of Credit that are outstanding
and that have not been provided with Cash Collateral under (3) above will be
applied ratably based upon the percentage which the aggregate amount of all
Advances by such Bank then outstanding, unreimbursed obligations then
outstanding to such Bank with respect to payments by such Bank under such
Letters of Credit issued by such Bank and that have not been provided with Cash
Collateral under (3) above bears to the aggregate amount of all Advances to the
Banks then outstanding, unreimbursed obligations with respect to payments by
Banks under Letters of Credit owed to all Banks and that have not been provided
with Cash Collateral under (3) above. In addition, the parties hereto also agree
that all Cash Collateral held on Letters of Credit that expire undrawn or on
which the reimbursement obligation is paid will be applied to all the Loans as
provided in the prior sentence.
At any time after the principal of, and interest accrued on, any or all
of the Notes are declared due and payable, the Supermajority Banks, by written
notice to Borrower, may, in their sole and complete discretion, rescind and
annul any such declaration and its consequences if (1) Borrower has paid all
overdue interest on the Notes and the principal of any Notes which have become
due otherwise than by reason of such declaration, and at a rate or rates per
annum from time to time equal to the Default Rate(s), (2) all Events of Default
and Defaults, other than nonpayment of amounts which have become due solely by
reason of such declaration, have been cured or waived, and (3) no judgment or
decree has been entered for the payment of any monies due pursuant to the Notes
or this Agreement; but no such rescission and annulment shall extend to or
affect any subsequent Event of Default or Default or impair any right consequent
thereon.
ARTICLE X. CHANGE IN CIRCUMSTANCES
SECTION 10.01. ADDITIONAL COSTS. Borrower shall pay directly to each
Bank within ten (10) days of a request for payment under this Section (which
request shall be accompanied by a statement setting forth the basis for the
request), such amounts as such Bank may determine to be necessary to compensate
it for any increased costs which such Bank determines are attributable to its
making or maintaining any LIBOR Advance, or its obligation to convert any Base
Advance to a LIBOR Advance hereunder, or any reduction in any amount receivable
by such Bank hereunder in respect of any of such LIBOR Advances or such
obligation (such increases in costs and reductions in amounts receivable being
herein called "Additional Costs"), resulting from any Regulatory Change which:
(1) changes the basis of taxation of any amounts payable to
such Bank under this Agreement or the Notes in respect of any of such
LIBOR Advances (other than changes in the rate of income tax imposed on
such Bank or its Applicable Lending Office by the jurisdiction in which
such Bank has its principal office or such Applicable Lending Office);
(2) imposes or modifies or deems applicable any reserve,
special deposit, deposit insurance or assessment, minimum capital,
capital ratio or similar requirements relating to any extensions of
credit of the type specified herein or other assets of, or any deposits
with or other liabilities of, such Bank (including any LIBOR Advances
or any deposits referred to in the definition of "LIBOR Rate" in
Section 1.01 hereof), or any Individual 364 Day Facility Commitment of
a Bank; or
(3) imposes any other condition affecting this Agreement or
the Notes (or any of such extensions of credit or liabilities).
Without limiting the effect of the provisions of the first paragraph of
this Section, in the event that, by reason of any Regulatory Change, any Bank
either (1) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Bank which includes deposits by reference to which the LIBOR Rate is
determined as provided in this Agreement or a category of extensions of credit
or other assets of such Bank which includes loans based on the LIBOR Rate or (2)
becomes subject to restrictions on the amount of such a category of liabilities
or assets which it may hold, then, if such Bank so elects by notice to Borrower
(with a copy to Administrative Agent), the obligation of such Bank to make or
continue, or to convert Base Advances into, LIBOR Advances, as the case may be,
shall be suspended until such Regulatory Change ceases to be in effect (in which
case the provisions of Section 10.04 hereof shall be applicable).
Determinations and allocations by such Bank for purposes of this
Section of the effect of any Regulatory Change pursuant to this Section, on its
costs or rate of return of maintaining the Advances or on amounts receivable by
it in respect of the Advances, and the amounts required to compensate such Bank
under this Section, shall be conclusive absent manifest error. However, to the
extent Additional Costs relate to a Bank's loans in general and not specifically
to a Loan hereunder, such Bank shall use reasonable averaging and attribution
methods. In addition, each Bank agrees that, as promptly as practical after it
becomes aware of the occurrence of an event or the existence of a condition that
would entitle it to exercise its rights under this Section, it will use
commercially reasonable efforts to make, fund or maintain the affected Advance
through another lending office of such Bank if (a) as a result thereof the
additional money that would otherwise be required to be paid in respect of such
Advance could be reduced and (b) the making, funding or maintaining of such
Advance through such other lending office would not adversely affect such
Advance or such Bank. Finally, if a Bank is to require Borrower to pay
Additional Costs under this Section then such Bank must make a demand on
Borrower to pay such Additional Costs within ninety (90) days of the later of
(1) the date on which such Additional Costs are actually incurred by such Bank,
or (2) the date on which such Bank knows, or should have known, that such
Additional Costs have been incurred by such Bank.
SECTION 10.02. LIMITATION ON TYPES OF ADVANCES. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of the LIBOR Rate
for any Interest Period:
(1) Administrative Agent determines (which determination shall
be conclusive) that quotations of interest rates in the definition of
"LIBOR Rate" in Section 1.01 hereof are not being provided in the
relevant amounts or for the relevant maturities for purposes of
determining rates of interest for LIBOR Loans as provided in this
Agreement; or
(2) any Bank determines (which determination shall be
conclusive) that the relevant rates of interest referred to in the
definition of "LIBOR Rate" in Section 1.01 hereof upon the basis of
which the rate of interest for LIBOR Loans for such Interest Period is
to be determined do not adequately cover the cost to the Banks of
making or maintaining such LIBOR Loans for such Interest Period;
then Administrative Agent shall give Borrower prompt notice thereof, and so long
as such condition remains in effect, in the case of subsection (1) above, the
Banks, and in the case of subsection (2) above, the Bank that makes the
determination, shall be under no obligation to make LIBOR Loans, convert Base
Loans into LIBOR Loans, or continue LIBOR Loans, and Borrower shall, on the last
day(s) of the then current applicable Interest Period(s) for the outstanding
LIBOR Loans, either prepay such LIBOR Loans or convert such LIBOR Loans into a
Base Loan in accordance with Section 2.13.
SECTION 10.03. ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Bank or its Applicable
Lending Office to honor its obligation to make or maintain LIBOR Loans hereunder
or convert Base Loans into LIBOR Loans, then such Bank shall promptly notify
Administrative Agent and Borrower thereof and such Bank's obligation to make or
continue, or to convert Base Loans into, LIBOR Loans shall be suspended until
such time as such Bank may again make and maintain LIBOR Loans (in which case
the provisions of Section 10.04 hereof shall be applicable).
SECTION 10.04. TREATMENT OF AFFECTED LOANS. If the obligations of any
Bank to make or continue LIBOR Loans, or to convert Base Loans into LIBOR Loans,
are suspended pursuant to Section 10.02 or 10.03 hereof (all LIBOR Loans so
affected being herein called "Affected Loans"), such Bank's Affected Loans shall
be automatically converted into Base Loans on the last day(s) of the then
current Interest Period(s) for the Affected Loans (or, in the case of a
conversion required by Section 10.02 or 10.03, on such earlier date as such Bank
may specify to Borrower).
To the extent that such Bank's Affected Loans have been so converted,
all payments and prepayments of principal which would otherwise be applied to
such Bank's Affected Loans shall be applied instead to its Base Loans. All Loans
which would otherwise be made or continued by such Bank as LIBOR Loans shall be
made or continued instead as Base Loans, and all Base Loans of such Bank which
would otherwise be converted into LIBOR Loans shall remain as Base Loans.
SECTION 10.05. CERTAIN COMPENSATION. Borrower shall pay to each Bank on
demand the amount specified below to compensate it for any loss, cost or expense
which such Bank determines is attributable to:
(1) any payment or prepayment of a LIBOR Advance made to such
Bank on a date other than the last day of an Interest Period for such
Advance whether by reason of acceleration or otherwise;
(2) any failure by Borrower for any reason to borrow, convert
or continue a LIBOR Loan to be made, converted or continued by such
Bank on the date specified therefor in the relevant notice issued by
Borrower (except for any default by any Bank Party); or
(3) any payment or prepayment, whether by reason of
acceleration or otherwise, of a Bid Advance, or any failure by Borrower
for any reason (after acceptance thereof) to borrow, on the date
specified therefor for a Bid Advance.
Such payment to such Bank shall be in an amount which would result in
such Bank being made whole (on a present value basis) for the actual or imputed
funding losses (including, without limitation, any loss, cost or expense
incurred by reason of obtaining, liquidating or employing deposits or other
funds acquired by such Bank to fund or maintain such LIBOR Advance or Bid
Advance) incurred by such Bank as a result thereof. A determination of a Bank as
to the amounts payable pursuant to this Section shall be conclusive absent
manifest error.
SECTION 10.06. CAPITAL ADEQUACY. If any Bank shall have determined
that, after the date hereof, the adoption of any applicable Law, rule or
regulation regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any Governmental Authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or the compliance of such Bank with, or any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such Governmental Authority, central bank or comparable agency, has or would
have the effect of reducing the rate of return on capital of such Bank (or its
Parent) as a consequence of such Bank's obligations hereunder to a level below
that which such Bank (or its Parent) could have achieved but for such adoption,
change, or compliance (taking into consideration its policies with respect to
capital adequacy existing on the date of this Agreement) by an amount deemed by
such Bank to be material, then from time to time, within fifteen (15) days after
demand by such Bank (with a copy to Administrative Agent), Borrower shall pay to
such Bank such additional amount or amounts as will compensate such Bank (or its
Parent) for such reduction. A certificate of any Bank claiming compensation
under this Section, setting forth in reasonable detail the basis therefor, shall
be conclusive in the absence of manifest error.
However, to the extent capital costs relate to a Bank's loans in
general and not specifically to a Loan hereunder, such Bank shall use reasonable
averaging and attribution methods. In addition, each Bank agrees that, as
promptly as practical after it becomes aware of the occurrence of an event or
the existence of a condition that would entitle it to exercise its rights under
this Section, it will use commercially reasonable efforts to make, fund or
maintain the affected Advances through another lending office of such Bank if
(1) as a result thereof the additional money that would otherwise be required to
be paid in respect of such Advances would be reduced, and (2) the making,
funding or maintaining of such Advances through such other lending office would
not adversely affect such Advances or such Bank. Finally, if a Bank is to
require Borrower to make payments under this Section then Bank must make a
demand on Borrower to make such payment within ninety (90) days of the later of
(1) the date on which such capital costs are actually incurred by such Bank, or
(2) the date on which such Bank knows, or should have known, that such capital
costs have been incurred by such Bank.
SECTION 10.07. RIGHT OF SUBSTITUTION. Borrower and the Banks agree that
if (1) a Bank requests compensation pursuant to Section 10.01 or Section 10.06
or (2) Section 10.03 applies, Borrower shall have the right to substitute a bank
to replace the Bank in question, provided, that, (1) all the terms and
requirements of Section 12.04 are complied with, (2) Borrower compensates the
Bank being removed for the losses, costs and expenses incurred by such Bank as a
result of such substitution, which shall be limited to the costs and expenses of
substituting the new bank as the issuer of all Letters of Credit issued by the
Bank to be replaced, and payment to the replaced Bank of compensation in
accordance with Section 10.05 as if all Loans transferred to the new bank by the
replaced Bank were prepaid on the date of such assignment and the payment of the
principal and interest owed to such replaced Bank.
ARTICLE XI. FACILITY AND SYNDICATION AGENTS
SECTION 11.01. APPOINTMENT, POWERS AND IMMUNITIES OF FACILITY AGENTS.
Each Bank hereby irrevocably appoints and authorizes each Facility Agent to act
as its agent hereunder and under any other Loan Document with such powers as are
specifically delegated to such Facility Agent by the terms of this Agreement and
any other Loan Document, together with such other powers as are reasonably
incidental thereto. Neither Facility Agent shall have any duties or
responsibilities except those expressly set forth in this Agreement and any
other Loan Document, and shall not by reason of this Agreement be a trustee or
fiduciary for any Bank Party. Neither Facility Agent shall be responsible to any
Bank Party for any recitals, statements, representations or warranties made by
Borrower or any Subsidiary or any officer or official of Borrower or any
Subsidiary or any other Person contained in this Agreement or any other Loan
Document, or in any certificate or other document or instrument referred to or
provided for in, or received by any of them under, this Agreement or any other
Loan Document, or for the value, legality, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
any other document or instrument referred to or provided for herein or therein,
or for any failure by Borrower or any Subsidiary to perform any of its
obligations hereunder or thereunder. Either Facility Agent may employ agents and
attorneys-in-fact and shall not be responsible, except as to money or securities
received by it or its authorized agents, for the negligence or misconduct of any
such agents or attorneys-in-fact selected by it with reasonable care. Neither
Facility Agent nor any of their respective directors, officers, employees or
agents shall be liable or responsible for any action taken or omitted to be
taken by it or them hereunder or under any other Loan Document or in connection
herewith or therewith, except for its or their own gross negligence or willful
misconduct. Borrower shall pay any fee agreed to by Borrower and such Facility
Agent with respect to such Facility Agent's services hereunder.
SECTION 11.02. RELIANCE BY FACILITY AGENTS. Each Facility Agent shall
be entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telex, facsimile, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or
on behalf of the proper Person or Persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected by such
Facility Agent. Each Facility Agent may deem and treat each Bank as the holder
of the Advances made by it and Letters of Credit issued by it for all purposes
hereof unless and until a notice of the assignment or transfer thereof
satisfactory to such Facility Agent signed by such Bank shall have been
furnished to such Facility Agent, but neither Facility Agent shall be required
to deal with any Person who has acquired a participation in any Loan or a Letter
of Credit from a Bank. As to any matters not expressly provided for by this
Agreement or any other Loan Document, each Facility Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder in accordance
with instructions signed by the Requisite Banks or Supermajority Banks, as the
case may be, and any action taken or failure to act pursuant thereto shall be
binding on all of the Banks and both Facility Agents and any other holder of all
or any portion of any Loan or the issuer of any Letter of Credit.
SECTION 11.03. DEFAULTS. Administrative Agent shall not be deemed to
have knowledge of the occurrence of a Default or Event of Default unless
Administrative Agent has received notice from a Bank or Borrower specifying such
Default or Event of Default and stating that such notice is a "Notice of
Default." In the event that Administrative Agent receives such a Notice of
Default, Administrative Agent shall give prompt notice thereof to the Banks.
Administrative Agent shall take such action with respect to such Default or
Event of Default which is continuing as shall be directed by the Requisite Banks
or Supermajority Banks, as the case may be; provided that, unless and until
Administrative Agent shall have received such directions, Administrative Agent
may take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interest of
the Banks; and provided further that Administrative Agent shall not be required
to take any such action which it determines to be contrary to Law or this
Agreement or any other Loan Documents.
SECTION 11.04. RIGHTS OF FACILITY AGENTS AS BANKS. With respect to its
Individual 364 Day Facility Commitment and the Advances and Letters of Credit
provided by it, each Facility Agent in its capacity as a Bank hereunder shall
have the same rights and powers hereunder as any other Bank and may exercise the
same as though it were not acting as a Facility Agent, and the term "Bank" or
"Banks" shall, unless the context otherwise indicates, include each Facility
Agent in its capacity as a Bank. Both Facility Agents and their respective
Affiliates may (without having to account therefor to any Bank) accept deposits
from, lend money to (on a secured or unsecured basis), and generally engage in
any kind of banking, trust or other business with Borrower or any of its
Subsidiaries or any of their Affiliates as if it were not acting as a Facility
Agent, and both Facility Agents may accept fees and other consideration from
Borrower or any of its Subsidiaries for services in connection with this
Agreement or otherwise without having to account for the same to any Bank.
SECTION 11.05. INDEMNIFICATION OF FACILITY AGENTS. Each Bank agrees to
indemnify each Facility Agent (to the extent not reimbursed under Section 12.03
or under the applicable provisions of any other Loan Document, but without
limiting the obligations of Borrower under Section 12.03 or such provisions),
for its proportionate share (based upon each Bank's Individual 364 Day Facility
Commitment to the Total 364 Day Facility Commitment) of any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever which may be imposed
on, incurred by or asserted against either or both Facility Agents in any way
relating to or arising out of this Agreement or any other Loan Document, or any
other documents contemplated by or referred to herein or therein, or the
transactions contemplated hereby or thereby (including, without limitation, the
costs and expenses which Borrower is obligated to pay under Section 12.03) or
under the applicable provisions of any other Loan Document or the enforcement of
any of the terms hereof or thereof or of any such other documents or
instruments; provided that no Bank shall be liable for any of the foregoing to
the extent they arise from the gross negligence or willful misconduct of such
Facility Agent or its directors, officers, employees or agents.
SECTION 11.06. NON-RELIANCE ON FACILITY AGENTS AND SYNDICATION AGENTS
AND OTHER BANK SECTION 11.06. NON-RELIANCE ON FACILITY AGENTS AND SYNDICATION
AGENTS AND OTHER BANK PARTIES. Each Bank agrees that it has, independently and
without reliance on either Facility Agent, either Syndication Agent, any other
Bank, Letter of Credit Bank, or any other Bank Party, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis of Borrower and its Subsidiaries and the decision to enter into this
Agreement and the other Loan Documents and that it will, independently and
without reliance upon either Facility Agent, either Syndication Agent, any other
Bank, or any other Bank Party, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any other Loan
Document. None of the Facility Agents or Syndication Agents shall be required to
keep itself informed as to the performance or observance by Borrower or any of
its Subsidiaries of this Agreement or any other Loan Document or any other
document referred to or provided for herein or therein or to inspect the
properties or books of Borrower or any Subsidiary (or any of their Affiliates).
Neither Facility Agent shall be required to file this Agreement or any other
Loan Document or any document or instrument referred to herein or therein, for
record or give notice of this Agreement or any other Loan Document or any
document or instrument referred to herein or therein, to anyone. Each of the
Banks acknowledges and agrees that the Syndication Agents only have the duties
and responsibilities explicitly set forth in the Loan Documents.
SECTION 11.07. FAILURE OF FACILITY AGENTS TO ACT. Except for action
expressly required of the applicable Facility Agent hereunder, each Facility
Agent shall in all cases be fully justified in failing or refusing to act
hereunder unless it shall have received further assurances (which may include
Cash Collateral) of the indemnification obligations of the Banks under Section
11.05 in respect of any and all liability and expense which may be incurred by
it by reason of taking or continuing to take any such action.
SECTION 11.08. RESIGNATION OR REMOVAL OF FACILITY AGENTS. Subject to
the appointment and acceptance of a successor Administrative Agent or Bid Agent,
as the case may be, as provided below, either Facility Agent may resign at any
time by giving written notice thereof to the Banks, Borrower, and the
Syndication Agents, and either Facility Agent may be removed at any time with or
without cause by a vote of at least 75% in number of the Banks and Bid Agent may
be removed at any time with or without cause by Borrower; provided that Borrower
and each other Bank Party shall be promptly notified thereof. Upon any such
resignation or removal, the Requisite Banks shall have the right to appoint a
successor Facility Agent which must be located in the United States of America.
If no successor Facility Agent shall have been so appointed by the Requisite
Banks and shall have accepted such appointment within thirty (30) days after the
retiring Facility Agent's giving of notice of resignation or the Requisite
Banks' or Borrower's removal of such retiring Facility Agent, then such retiring
Facility Agent may, on behalf of the Banks, appoint a successor Facility Agent
which must be located in the United States of America. The Requisite Banks or
the retiring Facility Agent, as the case may be, shall upon the appointment of a
successor Facility Agent promptly so notify Borrower and each other Bank Party.
Upon the acceptance of any appointment as Administrative Agent or Bid Agent
hereunder by a successor Administrative Agent or Bid Agent, as the case may be,
such successor Administrative Agent or Bid Agent, as the case may be, shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent or Bid Agent, as the case may
be, and the retiring Administrative Agent or Bid Agent, as the case may be,
shall be discharged from its duties and obligations hereunder. After any
retiring Administrative Agent's or Bid Agent's, as the case may be, resignation
or removal hereunder as Administrative Agent or Bid Agent, as the case may be,
the provisions of this Article XI shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was acting as
Administrative Agent or Bid Agent, as the case may be.
SECTION 11.09. AMENDMENTS CONCERNING AGENCY FUNCTION. Neither Facility
Agent shall be bound by any waiver, amendment, supplement or modification of
this Agreement or any other Loan Document which affects its duties hereunder or
thereunder unless it shall have given its prior written consent thereto.
SECTION 11.10. LIABILITY OF FACILITY AGENTS. Neither Facility Agent
shall have any liabilities or responsibilities to Borrower or any Subsidiary or
any of their Affiliates on account of the failure of any Bank to perform its
obligations hereunder or to any Bank on account of the failure of Borrower or
any Subsidiary or any of their Affiliates to perform their respective
obligations hereunder or under any other Loan Document.
SECTION 11.11. TRANSFER OF AGENCY FUNCTION. Without the consent of
Borrower or any Bank Party, either Facility Agent may at any time or from time
to time transfer its functions as Administrative Agent or Bid Agent, as the case
may be, hereunder to any of its offices located in the United States of America,
provided that such Facility Agent shall promptly notify Borrower and each Bank
Party.
SECTION 11.12. NOTICES TO ADMINISTRATIVE AGENT. On or prior to 2:30
p.m. (Central time) on each Banking Day each Bank, will notify Administrative
Agent of each Letter of Credit issued by such Bank on such Day, and all payments
on, reimbursements made to such Bank, or terminations of Letters of Credit on
such Day.
SECTION 11.13. REPORTS. Promptly upon receipt of any information
provided to Administrative Agent under Section 6.09, Administrative Agent will
provide such information to each of the Banks. Within fifteen (15) days of the
end of each month Administrative Agent will send to Borrower and each Bank a
report for the prior month indicating as of the end of such month all Credit
Facility provided by such Bank.
SECTION 11.14. WITHHOLDING TAXES. Each Bank represents that it is
entitled to receive any payments to be made to it hereunder without the
withholding of any tax and will furnish to Administrative Agent and to Borrower
such forms, certifications, statements and other documents as Administrative
Agent or Borrower may request from time to time to evidence such Bank's
exemption from the withholding of any tax imposed by any jurisdiction or to
enable Administrative Agent or Borrower, as the case may be, to comply with any
applicable Laws or regulations relating thereto. Without limiting the effect of
the foregoing, if any Bank is not created or organized under the Laws of the
United States of America or any state thereof, such Bank will furnish to
Administrative Agent and Borrower Form 4224 or Form 1001 of the Internal Revenue
Service, or such other forms, certifications, statements or documents, duly
executed and completed by such Bank, as evidence of such Bank's exemption from
the withholding of United States tax with respect thereto. Notwithstanding
anything herein to the contrary, Borrower shall not be obligated to make any
payments hereunder to such Bank in respect of any Advance and reimbursements of
Letters of Credit until such Bank shall have furnished to Administrative Agent
and Borrower the requested form, certification, statement or document.
SECTION 11.15. NON-RECEIPT OF FUNDS BY ADMINISTRATIVE AGENT. Unless
Administrative Agent shall have received notice from a Bank prior to the date on
which such Bank is to provide funds to Administrative Agent for an Advance to be
made by such Bank that such Bank will not make available to Administrative Agent
such funds, Administrative Agent may assume that such Bank has made such funds
available to Administrative Agent on the date of such Advance in accordance with
the terms of this Agreement and Administrative Agent in its sole discretion may,
but shall not be obligated to, in reliance upon such assumption, make available
to Borrower on such date a corresponding amount. If and to the extent such Bank
shall not have made such funds available to Administrative Agent, such Bank
agrees to repay Administrative Agent forthwith on demand such corresponding
amount together with interest thereon, for each day from the date such amount is
made available to Borrower until the date such amount is repaid to
Administrative Agent, at the customary rate set by Administrative Agent for the
correction of errors among banks for three (3) Banking Days and thereafter at
the Base Rate. If such Bank shall repay to Administrative Agent such
corresponding amount, such amount so repaid shall constitute such Bank's Advance
for purposes of this Agreement. If such Bank does not pay such corresponding
amount forthwith upon Administrative Agent's demand therefor, Administrative
Agent shall promptly notify Borrower, and Borrower shall immediately pay such
corresponding amount to Administrative Agent with the interest thereon, for each
day from the date such amount is made available to Borrower until the date such
amount is repaid to Administrative Agent, at the rate of interest applicable at
the time to such proposed Advance.
Unless Administrative Agent shall have received notice from Borrower
prior to the date on which any payment is due to any Bank hereunder that
Borrower will not make such payment in full, Administrative Agent may assume
that Borrower has made such payment in full to Administrative Agent on such date
and Administrative Agent in its sole discretion may, but shall not be obligated
to, in reliance upon such assumption, cause to be distributed to each Bank on
such due date an amount equal to the amount then due such Bank. If and to the
extent Borrower shall not have so made such payment in full to Administrative
Agent, each Bank shall repay to Administrative Agent forthwith on demand such
amount distributed to such Bank together with interest thereon, for each day
from the date such amount is distributed to such Bank until the date such Bank
repays such amount to Administrative Agent at the customary rate set by
Administrative Agent for the correction of errors among banks for three (3)
Banking Days and thereafter at the Base Rate.
ARTICLE XII. MISCELLANEOUS
SECTION 12.01. AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of this Agreement or any other Loan Document, nor consent to any
departure by Borrower therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Facility Agents, the Syndication Agents
and the Requisite Banks, and, in the case of the waiver provided for under the
second paragraph of Section 9.02, the Supermajority Banks, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given, provided, however, that no amendment, waiver or consent
shall, unless in writing and signed by all Supermajority Banks, do any of the
following: (1) increase the Commitment; (2) reduce the principal of, or interest
on, the Notes or the Fees; (3) postpone the date fixed for the payment of
principal of, or interest on, the Notes or such Fees or any other amount due
hereunder or under any other Loan Document, or, except as specifically provided
for under Section 9.02 with regard to a waiver by the Supermajority Banks, waive
any default in the payment of principal, interest, reimbursement obligations, or
any other amount due hereunder or under any other Loan Document; (4) change the
definition of "Requisite Banks", (5) change the definition of "Supermajority
Banks", or (6) amend this Section. No failure on the part of Administrative
Agent or any Bank or any other Bank Party to exercise, and no delay in
exercising, any right hereunder shall operate as a waiver thereof or preclude
any other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by Law. No Individual 364 Day Facility Commitment of a Bank may be
increased or decreased without the written consent of such Bank.
SECTION 12.02. USURY. Anything herein to the contrary notwithstanding,
the obligations of Borrower under this Agreement and the Notes shall be subject
to the limitation that payments of interest shall not be required to the extent
that receipt thereof would be contrary to provisions of Law applicable to a Bank
limiting rates of interest which may be charged or collected by such Bank.
SECTION 12.03. EXPENSES; INDEMNIFICATION. Borrower agrees to reimburse
each of the Facility Agents and the Syndication Agents, on demand for all costs,
expenses, and charges (including, without limitation, all reasonable fees and
charges of external legal counsel for either Syndication Agent) incurred by such
Facility Agents and Syndication Agents, in connection with the preparation of
the Loan Documents. Borrower agrees to reimburse Administrative Agent, Bid Agent
and each of the Banks on demand for all costs, expenses, and charges (including,
without limitation, all fees and charges of external legal counsel for
Administrative Agent, Bid Agent and each Bank) incurred by Administrative Agent,
Bid Agent or any Bank in connection with compliance with any of the Loan
Documents, or enforcement of this Agreement, the Notes, the Letters of Credit,
or any other Loan Document. In addition to the foregoing, Borrower agrees to
reimburse Administrative Agent and Bid Agent on demand for all fees and charges
of external legal counsel for Administrative Agent or Bid Agent, as the case may
be, incurred in connection with the administration of this Agreement (including,
without limitation, the preparation of any amendments hereto or to the other
Loan Documents or any consents furnished hereunder or under the other Loan
Documents, but excluding any costs incurred in connection with any participation
or assignment by a Bank). Borrower agrees to and hereby does indemnify each Bank
Party and their respective directors, officers, employees and agents from, and
hold each of them harmless against, any and all losses, liabilities, claims,
damages or expenses incurred by any of them arising out of or by reason of any
investigation or litigation or other proceedings (including any threatened
investigation or litigation or other proceedings) relating to this Agreement or
any of the Loan Documents or to any actual or proposed use by Borrower of the
proceeds of the Loans or use of the Letters of Credit or to any violation or
alleged violation of any Environmental Law by Borrower or any Subsidiary,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation or litigation or other
proceedings (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified or its directors, officers, employees or agents).
Borrower, each of the Banks and Administrative Agent agree that the
cost of each wire transfer to be made by each such Person pursuant to the terms
of this Agreement will be borne by the Person making such transfer.
The obligations of Borrower under this Section shall survive the
repayment of the Loans, the reimbursement of all Letters of Credit, and payment
of all amounts due under or in connection with any of the Loan Documents and the
termination of the Commitments.
SECTION 12.04. ASSIGNMENT; PARTICIPATION. This Agreement shall be
binding upon, and shall inure to the benefit of, Borrower, Administrative Agent,
Bid Agent, Syndication Agents and Banks and their respective successors and
permitted assigns. Borrower may not assign or transfer its rights or obligations
hereunder. With the consent of Borrower (which consent shall not be unreasonably
withheld or delayed), any Bank may at any time grant to one or more banks or
other financial institutions (each a "Participant") participating interests in
its portion of the Loans, and its Letters of Credit; provided, however, that at
all times the selling Bank must retain for its own account an amount of its
Individual 364 Day Facility Commitment equal to or greater than its Minimum
Hold. In no event shall a Participant constitute a Bank for purposes hereof. In
the event of any such grant by a Bank of a participating interest to a
Participant, whether or not upon notice to Borrower and Administrative Agent,
such Bank shall remain responsible for the performance of its obligations
hereunder, and Borrower and the Facility Agents shall continue to deal solely
and directly with such Bank in connection with such Bank's rights and
obligations hereunder. Any agreement pursuant to which any Bank may grant such a
participating interest shall provide that such Bank shall retain the sole right
and responsibility to enforce the obligations of Borrower hereunder and under
any other Loan Document including, without limitation, the right to approve any
amendment, modification or waiver of any provision of this Agreement or any
other Loan Document, provided that such participation agreement may provide that
such Bank will not agree to any modification, amendment or waiver of this
Agreement described in the proviso in Section 12.01 without the consent of the
Participant.
Any Bank may at any time assign to one or more banks or insurance
companies, investment banks or other financial institutions (each an "Assignee")
all, or a part (which are required to be proportional between the 364 Day
Facility Commitment and the 364 Day Facility Loans (other than the Bid Loans) of
its rights and obligations under this Agreement and its Notes, and such Assignee
shall assume rights and obligations, pursuant to an Assignment and Assumption
Agreement executed by such Assignee and such Bank, with and subject to the
consent of each of the Syndication Agents and Borrower (which consent shall not
be unreasonably withheld or delayed) provided, that, if the Assignee of any Bank
is an Affiliate of such Bank, neither the consent of the Syndication Agents nor
the consent of Borrower shall be required for such assignment; provided that, in
each case, (1) the Commitments and Credit Facility assigned are equal to or
greater than the Minimum Assignment, (2) during the period from the Closing Date
to, but not including, October 31, 1997 and at all times thereafter that the
assigning Bank is providing an Individual 364 Day Facility Commitment, the
Commitments and Credit Facility retained by the assigning Bank are equal to or
greater than its Minimum Hold, and (3) the assigning Bank or Assignee shall pay
Administrative Agent a processing and recordation fee of Two Thousand Five
Hundred Dollars ($2,500) for each assignment. The Bank making the assignment and
the Assignee will make whatever arrangement they decide to with regard to the
outstanding Letters of Credit of the Bank making the assignment. If the
assigning Bank continues to be the issuer of any Letters of Credit then it shall
remain a Bank under this Agreement with regard to such Letters of Credit. Upon
execution and delivery of such instrument and payment by such Assignee to the
Bank of an amount equal to the purchase price agreed between the Bank and such
Assignee, such Assignee shall be a Bank Party to this Agreement and shall have
all the rights and obligations of a Bank with respect to the Individual 364 Day
Facility Commitment as set forth in such Assignment and Assumption Agreement,
and the assigning Bank shall be released from its obligations hereunder to a
corresponding extent, and no further consent or action by any party shall be
required. Upon the consummation of any assignment pursuant to this paragraph, a
new Note or Notes shall be issued by Borrower. If the Assignee is not
incorporated under the laws of the United States of America or a state thereof,
it shall, prior to the first date on which interest or fees are payable
hereunder for its account, deliver to Borrower and Administrative Agent
certification as to exemption from deduction or withholding of any United States
federal income taxes in accordance with Section 11.14.
Any Bank may at any time assign all or any portion of its rights under
this Agreement and its Note to a Federal Reserve Bank. No such assignment shall
release the transferor Bank from its obligations hereunder.
Borrower agrees to provide all assistance reasonably requested by a
Bank to enable such Bank either to sell participations in or make assignments of
its portion of the Loans and Letters of Credit as permitted by this Section.
SECTION 12.05. NOTICES. Unless the party to be notified otherwise
notifies each other party in writing as provided in this Section, and except as
otherwise provided in this Agreement, notices shall be given to each of the
Facility Agents and each of the Syndication Agents by telephone, confirmed by
telex, facsimile, or other writing, and to the Banks and to Borrower by ordinary
mail, facsimile or telex addressed to such party at its address on the signature
page of this Agreement. Notices shall be effective: (1) if given by mail, upon
receipt; and (2) if given by telex or facsimile, when the telex or facsimile is
transmitted to the telex or facsimile number as aforesaid; provided that notices
to each of the Facility Agents and the Banks shall be effective upon receipt.
SECTION 12.06. SETOFF. Borrower agrees that, in addition to (and
without limitation of) any right of setoff, bankers' lien or counterclaim a Bank
may otherwise have, each Bank shall be entitled, at its option, to offset
balances (general or special, time or demand, provisional or final) held by it
for the account of Borrower at any of such Bank's offices, in Dollars or in any
other currency, against any amount payable by Borrower to such Bank under this
Agreement or such Bank's Notes, or any other Loan Document which is not paid
when due (regardless of whether such balances are then due to Borrower), in
which case such Bank shall promptly notify Borrower and Administrative Agent
thereof; provided that such Bank's failure to give such notice shall not affect
the validity thereof. Each Bank agrees that to the extent any such payment is
received by it as the result of a set-off or otherwise and such payment results
in such Bank receiving a greater payment than it would have been entitled to,
had the total amount of such payment been paid to each of the Banks, then such
Bank shall immediately purchase for cash from the other Banks participations
sufficient in amount so that such payment shall effectively be shared pro rata
with the other Banks in accordance with the amount, and to the extent, of their
respective interests in all the Loans and Letters of Credit, provided, however,
that if all or any portion of such payment is thereafter recovered from such
Bank at any time, the purchase shall be rescinded and the purchase price
returned to the extent of such recovery, but without interest or other return
thereon.
SECTION 12.07. JURISDICTION; IMMUNITIES. Borrower hereby irrevocably
submits to the jurisdiction of any Minnesota State or United States Federal
court sitting in Minneapolis, MN over any action or proceeding arising out of or
relating to this Agreement, the Notes, the Letters of Credit, or any other Loan
Document, and Borrower hereby irrevocably agrees that all claims in respect of
such action or proceeding may be heard and determined in such Minnesota State or
Federal court. Borrower irrevocably consents to the service of any and all
process in any such action or proceeding by the mailing of copies of such
process to Borrower at its address specified in Section 12.05. Borrower agrees,
to the extent permitted by law, that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by Law. Borrower further
waives any objection to venue in such State and any objection to an action or
proceeding in such State on the basis of forum non convenience. Borrower agrees
that any action or proceeding brought against any Bank Party shall be brought
only in Minnesota State or United States Federal court sitting in Minneapolis,
Minnesota.
Nothing in this Section shall affect the right of any Bank Party to
serve legal process in any other manner permitted by Law or affect the right of
any Bank Party to bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction.
To the extent that Borrower has or hereafter may acquire any immunity
from jurisdiction of any court or from any legal process (whether from service
or notice, attachment prior to judgment, attachment in aid of execution,
execution or otherwise) with respect to itself or its property, Borrower hereby
irrevocably waives, to the extent permitted by law, such immunity in respect of
its obligations under this Agreement, the Notes, the Letters or Credit, and any
other Loan Document.
SECTION 12.08. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the substantive Laws (other than conflict of laws)
of the State of Minnesota applicable to agreements made and to be performed
entirely within such State.
SECTION 12.09. COUNTERPARTS. This Agreement may be executed by the
parties hereto in separate counterparts, each of which, when so executed and
delivered, shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof, each signed by less than all, but together signed by all of
the parties hereto.
SECTION 12.10. EXHIBITS AND SCHEDULES. The Exhibits and Schedules are a
part of this Agreement as if fully set forth herein. All references herein to
Sections, subsections, clauses, Exhibits and Schedules shall be deemed
references to such parts of this Agreement, unless the context shall otherwise
require.
SECTION 12.11. TABLE OF CONTENTS; HEADINGS. The headings in the Table
of Contents and in this Agreement are for reference only, and shall not affect
the interpretation or construction of this Agreement.
SECTION 12.12. SEVERABILITY. If any word, phrase, sentence, paragraph,
provision or section of this Agreement shall be held, declared, pronounced or
rendered invalid, void, unenforceable or inoperative for any reason by any court
of competent jurisdiction, Governmental Authority, statute or otherwise, such
holding, declaration, pronouncement or rendering shall not adversely affect any
other word, phrase, sentence, paragraph, provision or section of this Agreement,
which shall otherwise remain in full force and effect and be enforced in
accordance with its terms.
SECTION 12.13. INTEGRATION. The Loan Documents set forth the entire
agreement among the parties hereto relating to the transactions contemplated
thereby and, except with regard to the Fee Letters, supersede any prior oral or
written statements or agreements with respect to such transactions.
SECTION 12.14. RENEWAL OF 364 DAY FACILITIES. On or before July 31,
1997 and July 31, 1998 (or the next preceding Banking Day if such dates(s) is
not a Banking Day), the Syndication Agents and Borrower will mutually agree to
and the Syndication Agents will advise each of the Banks of the Applicable
Margin and the applicable interest spread related to Base Advances that will
apply to the 364 Day Facility Loans if the 364 Day Facility is extended for an
additional 364 Days after its then effective 364 Day Facility Maturity Date. On
or before each such date, Borrower shall have the right to cancel the Commitment
effective on the 364 Day Facility Maturity Date by giving written notice thereof
to the Administrative Agent. Each Bank may determine, in its sole discretion,
whether to agree to such renewal and shall give notice to Administrative Agent
(which shall promptly send a copy of such notice to Borrower) on or before
September 15, 1997 or September 15, 1998, respectively, of such determination,
provided, that, the failure of a Bank to give such notice of determination shall
be deemed to be a rejection of such extension by such Bank. If Banks providing
one hundred percent (100%) of the Commitment approve of such renewal, then the
364 Day Facility Maturity Date will be extended for an additional 364 days as of
the then effective 364 Day Facility Maturity Date. If Banks providing between
(but not including) seventy-five percent (75%) and one hundred percent (100%) of
the Commitment approve of such renewal, then the 364 Day Facility Maturity Date
will be extended for an additional 364 days as of the then effective 364 Day
Facility Maturity Date but the Commitment during such period will be reduced to
an amount equal to the total of (1) the aggregate of all Individual 364 Day
Facility Commitments of the Banks renewing such Commitments plus (2) the
aggregate of all Individual 364 Day Facility Commitments assigned from a
non-renewing Bank to an Assignee in accordance with Section 12.04 that agrees to
such extension of the 364 Day Facility Maturity Date, plus (3) the aggregate of
all Individual 364 Day Facility Commitments to be provided by other banks or
financial institutions that become effective as of the requested renewal date
for such Facility. A Bank that does not approve of such renewal will not have an
Individual 364 Day Facility Commitment as of the date of renewal of the 364 Day
Facility. In the event less than 100% of the Commitment is renewed pursuant to
this Section, then the Syndication Agents will utilize their best efforts to
obtain replacement commitments prior to the effective date of the renewal. If
Banks providing seventy-five percent (75%) or less of the Commitment approve of
such renewal, then the 364 Day Facility will terminate on its scheduled 364 Day
Facility Maturity Date.
SECTION 12.15. CONSENTS AND TERMINATIONS. Each Bank that is a party to
this Agreement hereby consents, to the extent required under any agreement
between the Bank and Borrower, to Borrower entering into this Agreement and
obtaining the Credit Facility provided under this Agreement. Borrower and each
Bank that is a party to the Existing Credit Agreement acknowledge that the
Existing Credit Agreement expired on October 26, 1996.
SECTION 12.16. CONFIDENTIALITY. Each Bank Party shall maintain the
confidential nature of, and shall not use or disclose, any of Borrower's
financial information, confidential information or trade secrets without first
obtaining Borrower's written consent. Nothing in this Section shall require any
Bank Party to obtain the consent after there is an Event of Default. The
obligations of the Bank Parties shall in no event apply to: (1) providing
information about Borrower to any financial institution contemplated in Section
12.04 or to such Bank Party's parent holding company or any of such Bank Party's
Affiliates; (2) any situation in which any Bank Party is required by Law or
required by any Governmental Authority to disclose information; (3) providing
information to counsel to any Bank Party in connection with the transactions
contemplated by the Loan Documents; (4) providing information to independent
auditors retained by the Banks; (5) any information that is in or becomes part
of the public domain otherwise than through a wrongful act of such Bank Party or
any of its employees or agents thereof; (6) any information that is in the
possession of any Bank Party prior to receipt thereof from Borrower or any other
Person known to such Bank Party to be acting on behalf of Borrower; (7) any
information that is independently developed by any Bank Party; and (8) any
information that is disclosed to any Bank Party by a third party that has no
obligation of confidentiality with respect to the information disclosed. A
Bank's confidentiality requirements continue after it is no longer a Bank under
this Agreement.
SECTION 12.17. AGREEMENT IN WRITING.
ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW
SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US (CREDITORS) FROM
MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH
MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE
STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING
TO MODIFY IT.
THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS BETWEEN HARVEST
STATES COOPERATIVES AND THE BANKS AND SYNDICATION AGENTS LISTED BELOW, IS THE
FINAL EXPRESSION OF THE AGREEMENT BETWEEN SUCH PARTIES. THE LOAN DOCUMENTS MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR OR CONTEMPORANEOUS ORAL CREDIT
AGREEMENTS OR PRIOR WRITTEN CREDIT AGREEMENTS BETWEEN SUCH PARTIES RELATING TO
THE SUBJECT MATTER HEREOF. ANY ADDITIONAL TERMS OF THE LOAN DOCUMENTS BETWEEN
SUCH PARTIES ARE SET FORTH BELOW.
THERE ARE NO SUCH ORAL AGREEMENTS BETWEEN SUCH PARTIES.
SECTION 12.18. JURY TRIAL WAIVER. EACH PARTY TO THIS AGREEMENT HEREBY
IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR OTHER LOAN DOCUMENT
TO WHICH IT IS A PARTY OR ANY INSTRUMENT OR DOCUMENT DELIVERED HEREUNDER.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
HARVEST STATES COOPERATIVES
By: /s/ T.F. Baker
Name: T.F. Baker
Title: Group Vice President - Finance
Address for Notices:
1667 North Snelling Avenue
St. Paul, MN 55108
Attn: T.F. Baker
Telephone No.: (612) 641-3736
Telecopy No.: (612) 641-3743
CoBANK, ACB,
as Syndication Agent, Administrative
Agent, Bid Agent and Bank
Commitments:
364-Day Facility
Commitment: $277,000,000
By: /s/ J. Daniel Malan
Name: J. Daniel Malan
Title: Vice President
Applicable Lending Office for Base and
LIBOR Advances:
1415 Olive Street
St. Louis, Missouri 63103
Address for Notices:
1415 Olive Street
St. Louis, Missouri 63103
Attention: J. Daniel Malan
Telephone No.: (314) 342-3272
Telecopy No.: (314) 342-3348
Telex No.: 3720469
Answerback: COBANK
Bank's National Office:
5500 S. Quebec Street
Englewood, Colorado 80111
Payment Instructions:
Bank Name: CoBank, ACB
ABA No. 3070-8875-4
Account Name: CoBank, ACB
Account No.: Harvest States SYND
Reference: Acct. #: 22274433
ST. PAUL BANK FOR COOPERATIVES,
as Syndication Agent, and Bank
Commitments:
364-Day Facility
Commitment: $123,000,000
By: /s/ Jeff Swanhorst
Name: Jeff Swanhorst
Title: Associate Vice President
Applicable Lending Office for Base and
LIBOR Advances:
375 Jackson Street
St. Paul, MN 55101-1849
Address for Notices:
375 Jackson Street
St. Paul, MN 55101-1849
Attention: Jeff Swanhorst
Telephone No.: (612) 282-8205
Telecopy No.: (612) 282-8201
Telex No.: ________________
Answerback: _____________
Bank's Office:
375 Jackson Street
St. Paul, MN 55101-1849
Payment Instructions:
Bank Name: St. Paul Bank
ABA No. 296090471
Account Name: ST BK COOPS
Account No.: 271929
Reference: Acct. #: Harvest States
BANQUE NATIONALE DE PARIS,
as Bank
Commitments: By: /s/ Arnaud Collin Du Bolage
364-Day Facility Title: EVP and General Manager
Commitment: $20,000,000
By: _____________________________________
Name: Michelle A. Tolliver
Title: Vice President
By: _____________________________________
Name: Cathleen Schaede
Title: Assistant Vice President
Applicable Lending Office for Base and
LIBOR Advances:
209 S. LaSalle Street, Fifth Floor
Chicago, IL 60604
Address for Notices:
209 S. LaSalle Street, Fifth Floor
Chicago, IL 60604
Attention: Michelle A. Tolliver
Attention: Cathleen Schaede
Telephone No.: (312) 977-2242
(Michelle Tolliver)
Telephone No.: (312) 977-1384
(Cathleen Schaede)
Telecopy No.: (312) 977-1380
Telex No.: 82995
Answerback: BNPCH
Bank's Office:
209 S. LaSalle Street, Fifth Floor
Chicago, IL 60604
Payment Instructions:
Bank Name: Banque Nationale de Paris -
New York
ABA No. 026007689
Account Name: Banque Nationale de Paris -
Chicago
Account No.: 14119400189
Reference: Acct. #: HARVEST STATES
BOATMEN'S NATIONAL BANK,
as Bank
Commitments:
364-Day Facility
Commitment: $15,000,000
By: /s/ Ellen M. Isch
Name: Ellen M. Isch
Title: Vice President
Applicable Lending Office for Base and
LIBOR Advances:
14 W. 10th Street
Kansas City, MO 64183
Address for Notices:
14 W. 10th Street
Kansas City, MO 64183
Attention: Ellen M. Isch
Telephone No.: (816) 691-7748
Telecopy No.: (816) 691-7426
Telex No.: ________________
Answerback: _____________
Bank's Office:
10th and Baltimore
Kansas City, MO 64183
Payment Instructions:
Bank Name: Boatmen's Natl Bk
ABA No. 101 000 035
Account Name: Comml Loan Ops
Account No.: 112180-1000
Reference: Acct. #: Harvest States
CAISSE NATIONALE DE CREDIT AGRICOLE,
as Bank
Commitments:
364-Day Facility
Commitment: $20,000,000
By: /s/ W. Leroy Startz
Name: W. Leroy Startz
Title: First Vice President
Applicable Lending Office for Base and
LIBOR Advances:
55 East Monroe Street
Chicago, IL 60630-5702
Address for Notices:
55 East Monroe Street
Chicago, IL 60630-5702
Attention: Leroy Startz
Telephone No.: (312) 917-7455
Telecopy No.: (312) 372-3455
Telex No.: ________________
Answerback: _____________
Bank's Office:
55 East Monroe Street
Chicago, IL 60630-5702
Payment Instructions:
Bank Name: Morgan Guaranty Tr. Co., NY
ABA No. 021 000 238
Account Name: CNCA Chicago Branch
Account No.: 630 00 205
Reference: Acct. #: Harvest States
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.
"RABOBANK NEDERLAND", NEW YORK BRANCH,
as Bank
Commitments:
364-Day Facility
Commitment: $20,000,000
By: /s/ Ot Quast
Name: Ot Quast
Title: Vice President
By: /s/ Barbara A. Hyland
Name: Barbara A. Hyland
Title: Senior Vice President
Applicable Lending Office for Base and
LIBOR Advances:
245 Park Avenue
New York, NY 10167
Address for Notices:
245 Park Avenue
New York, NY 10167
Attention: Nancy J. O'Connor
Telephone No.: (212) 916-7843
Telecopy No.: (212) 916-3731
Telex No.: 424337
Answerback: RABONY
Bank's Office:
245 Park Avenue
New York, NY 10167
Payment Instructions:
Bank Name: BANK OF NEW YORK
ABA No. 021000018
Account Name: RABOBANK NEDERLAND
Account No.: 802-6002-533
Reference: Acct. #: Harvest States
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
as Bank
Commitments:
364-Day Facility
Commitment: $15,000,000
By: /s/ John L. Dean
Name: John L. Dean
Title: Senior Vice President
By: /s/ Karen A. Brinkman
Name: Karen A. Brinkman
Title: Vice President
Applicable Lending Office for Base and
LIBOR Advances:
609 Fifth Avenue
New York, NY 10017-1021
Address for Notices:
609 Fifth Avenue
New York, NY 10017-1021
Attention: John L. Dean
Telephone No.: (212) 745-1400
Telecopy No.: (212) 745-1556
Telex No.: ________________
Answerback: _____________
Bank's Office:
609 Fifth Avenue
New York, NY 10017-1556
Payment Instructions:
Bank Name: DG BANK Deutsche
Genossenschaftsbank
ABA No. 845
Account Name: DG BANK
Account No.: N/A
Reference: Acct. #: Harvest States
FIRST BANK NATIONAL ASSOCIATION,
as Bank
Commitments:
364-Day Facility
Commitment: $20,000,000
By: /s/ David Kopolow
Name: David Kopolow
Title: Vice President
Applicable Lending Office for Base and
LIBOR Advances:
601 Second Avenue South
Minneapolis, MN 55402-4302
Address for Notices:
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: David Kopolow
Telephone No.: (612) 973-0516
Telecopy No.: (612) 973-0824
Telex No.: ________________
Answerback: _____________
Bank's Office:
601 Second Avenue South
Minneapolis, MN 55402-4302
Payment Instructions:
Bank Name: First Bank National
Association
ABA No. 091 0000 22
Account Name: Commercial Loan Operations
Account No.: 30000472160600
Reference: Acct. #: Harvest States
3597573000
HARRIS TRUST AND SAVINGS BANK
as Bank
Commitments:
364-Day Facility
Commitment: $25,000,000
By: _____________________________________
Name:
Title:
By: /s/ H. Glen Clarke
Name: H. Glen Clarke
Title: Vice President
Applicable Lending Office for Base and
LIBOR Advances:
111 West Monroe
Chicago, IL 60690
Address for Notices:
111 West Monroe
Chicago, IL 60690
Attention: Patrick S. Thornton
Attention: Brian Moeller
Telephone No.: (312) 461-2329
(Patrick Thornton)
Telephone No.: (312) 461-2121
(Brian Moeller)
Telecopy No.: (312) 765-8095
Telex No.: ________________
Answerback: _____________
Bank's Office:
111 West Monroe
Chicago, IL 60690
Payment Instructions:
Bank Name: Harris Trust and Savings Bank
ABA No. 071000288
Account Name: Credit Services
Operations Division
Account No.: 109-215-4
Reference: Acct. #: Harvest States
Cooperatives
NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION,
as Bank
Commitments:
364-Day Facility
Commitment: $15,000,000
By: /s/ Mary D. Falck
Name: Mary D. Falck
Title: Vice President
Applicable Lending Office for Base and
LIBOR Advances:
Sixth and Marquette
Minneapolis, MN 55479-0085
Address for Notices:
Sixth and Marquette
Minneapolis, MN 55479-0085
Attention: Mary D. Falck
Telephone No.: (612) 667-9674
Telecopy No.: (612) 667-4145
Telex No.: ________________
Answerback: _____________
Bank's Office:
Sixth and Marquette
Minneapolis, MN 55479-0085
Payment Instructions:
Bank Name: Norwest Bank Minnesota, N.A.
ABA No. 091000019
Account Name: Commercial Loan
Clearing Acct
Account No.: 840-165
Reference: Acct. #: Harvest States
Cooperatives
AMENDED AND RESTATED MASTER SYNDICATED
LOAN AGREEMENT
THIS MASTER SYNDICATED LOAN AGREEMENT (the "Agreement") is entered into
as of this 28th day of October 1996, among HARVEST STATES COOPERATIVES (the
"Company"), COBANK, ACB (successor to the National Bank for Cooperatives
("CoBank")), and the ST. PAUL BANK FOR COOPERATIVES ("St. Paul").
BACKGROUND
From time to time CoBank and St. Paul (collectively, the "Banks") may
make loans to the Company. In order to reduce the amount of paperwork associated
with making such loans, the parties would like to enter into a master syndicated
loan agreement. As contemplated by the parties, the master agreement would: (1)
set forth the general terms and conditions governing all loans made by the Banks
thereunder; and (2) provide for the issuance of supplements thereto to evidence
the Banks' commitment to make a loan to the Company, as well as the specific
terms and conditions applicable thereto. For such purpose, the parties are
entering into this agreement.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:
SECTION 1. SUPPLEMENTS. In the event the Company desires to borrow from
the Banks under this Agreement and the Banks are willing to lend to the Company
hereunder, the parties will enter into a supplement to this Agreement (a
"Supplement"). Each Supplement will set forth the amount of the loan, the
purpose of the loan, the manner in which the loan will be made available, the
interest rate or rate options applicable to that loan, the repayment terms of
the loan, and any other terms and conditions applicable to that particular loan.
Each loan will be governed by the terms and conditions contained in this
Agreement and in the Supplement relating to the loan.
SECTION 2. CONDITIONS PRECEDENT.
(A) CONDITIONS TO INITIAL LOAN. The Banks' obligation to extend
credit under the first Supplement hereto is subject to the following conditions
precedent:
(1) DUE EXECUTION. That the Banks receive a duly executed
copy of this Agreement and all instruments and documents contemplated hereby.
(2) APPROVALS. That the Banks receive evidence satisfactory
to them that all consents and approvals which are necessary for, or required as
a condition of, the validity and enforceability of this Agreement and all
instruments and documents contemplated hereby, have been obtained and are in
full force and effect.
(B) CONDITIONS TO EACH LOAN. The Banks' obligation to extend
credit under each Supplement hereto, including the initial Supplement, is
subject to the following conditions precedent:
(1) DUE EXECUTION, ETC. That the Banks receive a duly
executed copy of the Supplement relating to that loan, duly executed copies of
promissory notes (one in favor of each Bank) in form and content acceptable to
the Banks evidencing the Company's obligation to repay the loans made under the
Supplement (the "Notes"), and all instruments and documents contemplated by the
Supplement.
(2) APPROVALS. That the Banks receive evidence satisfactory
to them that all consents and approvals which are necessary for, or required as
a condition of, the validity and enforceability of the Supplement, the Notes and
all instruments and documents contemplated by the Supplement have been obtained
and are in full force and effect.
(3) PERFECTION AND PRIORITY OF LIENS. That the Banks receive
evidence satisfactory to them that the Banks have, as of the date of the initial
advance under the Supplement, a duly perfected first priority Lien on any
security provided in the Supplement relating to such loan.
(4) EVENT OF DEFAULT. That no Event of Default (as defined
in Section 6 hereof), or event which with the giving of notice or the passage of
time, or both, would become an Event of Default hereunder, exists.
SECTION 3. REPRESENTATIONS AND WARRANTIES. The execution by the Company
of each Supplement hereto shall constitute a representation and warranty by the
Company that as of the date of the Supplement:
(A) APPLICATION. All representations, warranties, and information
set forth in, or furnished in connection with, any application submitted in
connection with such Supplement are true and correct.
(B) CONFLICTING AGREEMENTS, ETC. Neither this Agreement, any
Supplement, nor any other instrument or document contemplated hereby or thereby
conflicts with any agreement to which the Company is a party or with any
provision of the Company's bylaws or articles of incorporation.
(C) BINDING AGREEMENTS. This Agreement, all Supplements, and all
other instruments and documents contemplated hereby or thereby constitute legal,
valid, and binding obligations of the Company, enforceable in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and other Laws relating to creditors' rights.
(D) COMPLIANCE. The Company is in compliance with the terms of
this Agreement.
SECTION 4. DEFINITIONS. As used herein or in any Supplement:
"Affiliate" shall mean any person, firm or corporation which, directly or
indirectly, Controls, or is Controlled By, or is under Common Control with, the
Company.
"Base Rate" shall mean, for any day, that rate defined as the "prime
rate" as published from time to time in the Eastern Edition of The Wall Street
Journal as the average Base Rate for corporate loans posted by at least
seventy-five percent (75%) of the United States thirty (30) largest commercial
banks, or if The Wall Street Journal shall cease publication or cease publishing
the "prime rate" on a regular basis, such other regularly published average
prime rate applicable to such commercial banks as is acceptable to
Administrative Agent in its reasonable discretion with the consent of the
Company which will not be unreasonably withheld.
"Business Day" shall mean any day on which the Banks and the Federal
Reserve Banks are generally open for business.
"Capital Lease" shall mean any lease of Property (whether real, personal
or mixed) by a Person which has been or should be, in accordance with generally
accepted accounting principles, reflected on the balance sheet of such Person as
a Capital Lease.
"Cash Collateral" shall mean a deposit by the Company, made in
immediately available funds, to the cash investment service at administrative
agent and the execution of all documents and the taking of all steps required to
give such administrative agent, for the benefit of each of the Banks issuing a
Letter of Credit, a perfected first security interest in such investment.
"Code" shall mean the Internal Revenue Code of 1986.
"Consolidated Funded Debt" shall mean at all times the Funded Debt of the
Company and its Subsidiaries on a consolidated basis.
"Consolidated Members' and Patrons' Equity" shall mean at any time the
amount of capital stock accounts plus (or minus in the case of a deficit) the
amount of surplus and retained earnings accounts of the Company and its
Subsidiaries, on a consolidated basis determined at such time, provided that the
total amount of intangible assets of the Company and its Subsidiaries
(including, without limitation, unamortized debt discount and expense, deferred
charges and good will) included therein shall not exceed $30,000,000; all as
determined in accordance with generally accepted accounting principles, but
excluding therefrom any minority interests in any Subsidiaries without
duplication of deduction if already deducted in determining retained earnings
and surplus.
"Consolidated Net Income" shall mean net income of the Company and its
Consolidated Subsidiaries as determined in accordance with generally accepted
accounting principles, consistently applied.
"Consolidated Net Patronage Income" shall mean the Company's net income
derived from business activities with parties eligible under the Company's
bylaws to receive patronage refunds.
"Consolidated Net Working Capital" shall mean the excess for the Company
and its Consolidated Subsidiaries of its Current Assets over its Current
Liabilities.
"Consolidated Subsidiary" shall mean any Subsidiary whose accounts are
consolidated with those of the Company in accordance with generally accepted
accounting principles.
"Control" or "Controlled By" or "Under Common Control" shall mean
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of voting securities, by
contract or otherwise); provided that, in the event any Person which
beneficially owns, directly or indirectly, 10% or more (in number of votes) of
the securities having ordinary voting power for the election of directors of a
corporation shall be conclusively presumed to control such corporation.
"Current Assets" of any Person shall mean the aggregate amount of assets
of such Person which in accordance with generally accepted accounting principles
may be properly classified as current assets after deducting adequate reserves
where proper.
"Current Liabilities" of any Person shall mean: (i) all Debt of such
Person due on demand or within one year from the date of determination thereof;
and (ii) all other items (including taxes accrued as estimated) which, in
accordance with generally accepted accounting principles, may be properly
classified as current liabilities.
"Debt" of any Person shall mean as of any time the same is to be
determined, the aggregate of (i) all liabilities, reserves and any other items
which would be classified as a liability on a balance sheet of such Person in
accordance with generally accepted accounting principles, (ii) all obligations
of such Persons under Capital Leases, (iii) all indebtedness and liabilities
secured by any Lien or any security interest on any Property or assets of such
Person, whether or not the same would be classified as a liability on a balance
sheet of such Person but excluding all general contingency reserves and reserves
for deferred income taxes and investment credit.
"Environmental Discharge" shall mean any discharge or release of any
Hazardous Materials in violation of any applicable Environmental Law.
"Environmental Law" shall mean any Law relating to pollution of the
environment, including Laws relating to noise or to emissions, discharges,
releases or threatened releases of Hazardous Materials into the workplace, the
community or the environment, or otherwise relating to the generation,
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
"Environmental Notice" shall mean any written complaint, order, citation,
letter, inquiry, notice or other written communication from any Person: (1)
affecting or relating to the Company's or any of its Subsidiaries' compliance
with any Environmental Law in connection with any activity or operations at any
time conducted by the Company or such Subsidiary, (2) relating to the occurrence
or presence of or exposure to or possible or threatened or alleged occurrence or
presence of or exposure to Environmental Discharges or Hazardous Materials at
any of the Company's or such Subsidiary's locations or facilities, including,
without limitation: (a) the existence of any contamination or possible or
threatened contamination at any such location or facility; and (b) remediation
of any Environmental Discharge or Hazardous Materials at any such location or
facility or any part thereof; and (3) any violation or alleged violation of any
applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, including any rules and regulations promulgated thereunder.
"ERISA Affiliate" shall mean any corporation or trade or business which
is a member of the same controlled group of corporations (within the meaning of
Section 414(b) of the Code) as the Company or is under common control (within
the meaning of Section 414(c) of the Code) with the Company, provided, however,
that for purposes of provisions herein concerning minimum funding obligations
(imposed under Section 412 of the Code or Section 302 of ERISA), the term "ERISA
Affiliate" shall also include any entity required to be aggregated with the
Company under Section 414(m) or 414(o) of the Code.
"Estimated Cost of Funds" shall mean the all-in cost (including debt
placement fees but excluding overhead) that the Banks' estimate that they would
likely incur to fund a loan bearing interest at a fixed rate through the
issuance of an instrument by the Federal Farm Credit Banks Funding Corporation.
"Event of Default" shall mean any event or condition identified as such
in Section 6 hereof.
"Funded Debt" shall mean, with respect to any Person, at any time, all
Debt of such Person in each case maturing by its terms more than one year after
the date of creation thereof, or which is renewable or extendable at the option
of such Person for a period ending more than one year after the date of creation
thereof, and shall include Debt of such maturity created or assumed by such
Person either directly or indirectly, including obligations of such maturity
secured by Liens upon Property of such Person and upon which such Person
customarily pays the interest, and all obligations of such Person under Capital
Leases of such maturity, and the net present value of obligations under
Operating Leases as discounted by a rate which is 1.5% less than the Base Rate,
and all obligations to reimburse any Bank with respect to all Letters of Credit
which do not support long-term debt, with expiration dates in excess of one year
from the date of issuance thereof.
"Good Faith Contest" shall mean the contest of an item if: (1) the item
is diligently contested in good faith by appropriate proceedings timely
instituted; (2) either the item is: (a) bonded or (b) adequate reserves are
established with respect to the contested item if and to the extent required in
accordance with generally accepted accounting principles; (3) during the period
of such contest, the enforcement of any contested item is effectively stayed;
and (4) the failure to pay or comply with the contested item could not
reasonably be expected to result in a Material Adverse Change.
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranty" shall mean all endorsements, guaranties, and all other
obligations, contingent or otherwise, which in effect guaranty any indebtedness,
dividend or other obligation of any other Person in any manner, whether by
agreement to purchase the indebtedness of any other Person or through the
purchase of goods, supplies or services, or maintenance of working capital or
other balance sheet covenants or conditions, or by way of stock purchase,
capital contribution, advances or loans (except indebtedness or other obligation
of any Subsidiary), but excluding endorsements and guaranties in the ordinary
course of business of negotiable instruments for deposit and collection.
"Hazardous Materials" shall mean any pollutant, effluents, emissions,
contaminants, toxic or hazardous wastes or substances, as any of those terms are
defined from time to time in or for the purposes of any applicable Environmental
Law, including asbestos fibers and friable asbestos, polychlorinated biphenyls,
and any petroleum or hydrocarbon-based products or derivatives.
"Inventory" shall mean all raw materials, work in process, finished
goods, and goods held for sale or lease or furnished or to be furnished under
contracts of service in which the Company now has or hereafter acquires any
rights.
"Investment" means, with respect to any Person, (1) any loan or advance
by such Person to any other Person, (2) the purchase or other acquisition by
such Person of any capital stock, obligations or securities of, or any capital
contribution to, or investment in, or the acquisition by such Person of all or
substantially all of the assets of, or any interest in, any other Person, (3)
the providing by such Person being the account party with respect to any
performance or standby letter of credit where the proceeds of such letter of
credit are to be used for the benefit of any other Person, (4) the agreement by
such Person to make funds available for the benefit of another Person to either
cover cost overruns incurred in connection with the construction of a project or
facility, or to fund a debt service reserve account, (5) the agreement by such
Person to assume, guarantee, endorse or otherwise be or become directly or
contingently responsible or liable for the obligations or Debts of any other
Person (other than by endorsement for collection in the ordinary course of
business), (6) an agreement to purchase any obligations, stocks, assets, goods
or services but excluding an agreement to purchase any assets, goods or services
entered into in the ordinary course of business, (7) an agreement to supply or
advance any funds, assets, goods or services, or (8) an agreement to maintain or
cause such Person to maintain a minimum working capital or net worth or
otherwise to assure the creditors of any Person against loss.
"Law" shall mean any federal, state or local statute, law, rule,
regulation, ordinance, order, code, or policy, now or hereafter in effect, and
any judicial or administrative interpretation thereof by a Governmental
Authority, including any judicial or administrative order, consent decree or
judgment.
"Letter of Credit" shall mean: (1) a documentary letter of credit or (2)
a standby letter of credit.
"Lien" shall mean with respect to any asset any mortgage, deed of trust,
pledge, security interest, hypothecation, assignment for security purposes,
encumbrance, lien (statutory or other), or other security agreement or charge,
or encumbrance of any kind or nature whatsoever (including, without limitation,
any conditional sale, Capital Lease or other title retention agreement related
to such asset).
"Loan Documents" shall mean this Agreement, the Supplements, and all
instruments and documents contemplated hereby or thereby or executed in
connection herewith or therewith.
"Material Adverse Change" shall mean either: (1) a material adverse
change in the status of the business, assets, liabilities, results of
operations, condition (financial or otherwise), Property or prospects of the
Company and its Subsidiaries taken together; or (2) any event or occurrence of
whatever nature which could reasonably be expected to have a material adverse
effect on the Company's ability to perform its obligations under the Loan
Documents.
"Note" or "Notes" shall have the meaning set forth in Section 2(B)(1)
hereof.
"Operating Lease" shall mean any lease of Property (whether real,
personal or mixed) by a Person under which such Person is lessee, other than a
Capital Lease.
"PBGC" shall mean the Pension Benefit Guaranty Corporation.
"Plan" shall have the meaning set forth in Section 5(U) hereof.
"Permitted Investments" means (1) marketable obligations issued or
unconditionally guaranteed by the United States of America, or issued by any
agency thereof and backed by the full faith and credit of the United States of
America, in each case maturing within one year from the date of acquisition
thereof, (2) certificates of deposit maturing within one year from the date of
acquisition thereof issued by (i) any Bank or (ii) any commercial bank with a
short term credit rating of either of the two highest short term credit ratings
provided by either S&P or Moody's, (3) commercial paper payable in the United
States of America in Dollars and rated as at any date of determination A-1 or
better (or comparably if the rating system is changed) by S&P or P-1 or better
(or comparably if the rating system is changed) by Moody's, (4) payments of
amounts required to satisfy patronage refunds or equity redemptions of the
Company as determined by the Board of Directors of the Company, (5) Investments
in CoBank and St. Paul Bank, (6) Investments in cooperatives in which the
Company is a member made in the ordinary course of the Company's business, (7)
marketable general obligations of a state, a territory or a possession of the
United States or any political subdivision of any of the foregoing, or the
District of Columbia, unconditionally secured by the full faith and credit of
such state, territory, possession, political subdivision or district provided
that such state, territory, possession, political subdivision or district has
general taxing authority and the power to levy such taxes as may be required for
the payment of principal and interest thereof; provided that such obligations
are rated in either of the two top rating categories established by the national
rating agencies for such obligations, and (8) repurchase, reverse repurchase
agreements and security lending agreements collateralized by securities of the
type described in subsection (1) above, provided that the Company or Subsidiary,
as the case may be, which is a party to such arrangement shall hold
(individually or through an agent) all securities relating thereto during the
entire term of each such arrangement.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
cooperative association, institution, entity, party or government (whether
national, federal, state, provincial, county, city, municipal, or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"Potential Default" shall mean any event or condition which, with the
lapse of time, or giving of notice, or both, would constitute an Event of
Default.
"Prohibited Transaction" shall mean any transaction prohibited under
Section 406 of ERISA or Section 4975 of the Code.
"Property" shall mean any interest in any kind of property or assets,
whether real, personal or mixed, or tangible or intangible.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA or in the regulations thereunder.
"Subsidiary" shall mean collectively any corporation or other entity at
least a majority of the outstanding voting shares of which is at the time owned
directly or indirectly by the Company and/or its Subsidiaries.
Any accounting term or the character or amount of any asset or liability
or item of income or expense or any consolidation or other accounting
computation required to be determined under this Agreement, shall be determined
or made in accordance with generally accepted accounting principles at the time
in effect, to the extent applicable, except where such principles are
inconsistent with the requirements of the Agreement. If there should be any
material change in generally accepted accounting principles after the date
hereof which materially affects the financial covenants in this Agreement, the
parties hereto shall negotiate in good faith to revise such covenants.
SECTION 5. COVENANTS. It is understood and agreed that so long as this
Agreement is in effect, except to the extent compliance in any case or cases is
waived in writing by the Banks:
(A) MAINTENANCE OF PROPERTY. The Company will, and will cause each
Subsidiary to, keep and maintain all of its Properties necessary or useful in
its business in good condition, and make all renewals, replacements, additions,
betterments and improvements which the Company deems necessary; provided,
however, that subject to Sections 5(W) and 6(A)(7)(ii) hereof, nothing in this
Section shall prevent the Company or any Subsidiary from discontinuing the
operation and maintenance of any of its Properties if such discontinuance is, in
the judgment of the Company, desirable in the conduct of its business.
(B) TAXES. The Company will, and will cause each Subsidiary to,
duly pay and discharge all taxes, rates, assessments, fees and governmental
charges upon or against the Company or such Subsidiaries or against its
Properties in each case before the same becomes delinquent and before penalties
accrue thereon unless and to the extent that the same is being contested in good
faith and by appropriate proceedings.
(C) MAINTENANCE OF INSURANCE. The Company will, and will cause
each Subsidiary to, maintain insurance with insurers recognized as financially
sound and reputable by prudent business persons in such forms and amounts and
against such risks as are prudent in light of the nature and extent of the
Company's business and operations; provided, however, that the Company may self
insure, provided such self insurance is administered in accordance with prudent
business practices.
(D) STOCK INVESTMENT. The Company will purchase such stock of the
Banks as may be designated, in such amounts according to each Banks'
capitalization plan and bylaws. The Banks shall have a first Lien on all stock
or other equities of the Company in the Banks as collateral for the payment of
any indebtedness of the Company to the Banks.
(E) EQUITY RETIREMENT POLICY. The Company shall not change its
equity retirement policy without the written consent of the Banks, which consent
shall not be unreasonably withheld; provided, however, that without the consent
of the Banks, the Company may allocate non-patronage earnings to members and,
subject to Section 5(S) hereof, may redeem or retire such equity.
(F) FINANCIAL REPORTS. The Company will, and will cause each
Subsidiary to, maintain a standard and modern system of accounting in accordance
with sound accounting practice and will furnish with reasonable promptness to
each Bank and its duly authorized representatives such information respecting
the business and financial condition of the Company and its Subsidiaries as may
be reasonably requested and, without any request, will furnish to each Bank:
(1) as soon as available, and in any event within forty-five
(45) days after the close of each monthly fiscal period of the company (except
the last such period in each fiscal year), one copy of the consolidated balance
sheet, the consolidated summary of earnings, individual statements of net
operating earnings by division, and a consolidated statement of cash flows of
the Company and its Consolidated Subsidiaries, all for such monthly period and
the year to date of the Company and each Consolidated Subsidiary, and for the
corresponding periods of the preceding fiscal year, all in reasonable detail,
prepared by the Company and certified to by the Company's Group Vice President -
Finance;
(2) as soon as available, and in any event within one
hundred twenty (120) days after the close of each fiscal year, one copy of the
audit report for such year and accompanying consolidated financial statements
(including all footnotes thereto), including a consolidated balance sheet, a
consolidated statement of operations, a consolidated statement of capital, and a
consolidated statement of cash flows for the Company and its Consolidated
Subsidiaries, showing in comparative form the figures for the previous fiscal
year, all in reasonable detail, prepared and certified by Deloitte and Touche,
or other independent public accountants of nationally recognized standing
selected by the Company and satisfactory to the Banks;
(3) each of the financial statements furnished to the Banks
pursuant to paragraphs (1) and (2) above shall be accompanied by a written
statement of the Company signed by its Group Vice President - Finance (i) to the
effect that the signer thereof has reexamined the terms and provisions of the
Loan Documents and that to the best of his or her knowledge and belief no
Potential Default or Event of Default has occurred during the period covered by
such statements or, if any such Potential Default or Event of Default has
occurred during such period, setting forth the description of such Potential
Default of Event of Default and specifying the action, if any taken by the
Company to remedy the same; and (ii) setting forth the information and
computations (in sufficient detail) required to establish whether the Company
was in compliance with the requirements of Subsections (J), (K), (L), (N),
(O)(5) and (S) hereof during the period covered by the financial statements then
being furnished; and
(4) promptly after board approval thereof, copies of its
annual budgets and forecasts of operations and capital expenditures including
investments and a projection of cash flow by months for each fiscal year.
(G) INSPECTION. The Company shall permit the Banks by their
representatives and agents, to inspect any of the Properties, corporate books
and financial records of the Company and each Subsidiary, to examine and make
copies of the books of accounts and other financial records of the Company and
each Subsidiary, and to discuss the affairs, finances and accounts of the
Company and each Subsidiary with, and to be advised as to the same by, their
respective officers at such reasonable times, during regular business hours and
intervals as the Banks may designate.
(H) MERGERS, ETC. The Company will not merge or consolidate with,
or sell, assign, lease or otherwise dispose of (whether in one transaction or in
a series of related transactions) all or substantially all of its assets
(whether now owned or hereafter acquired) to, any Person, or acquire all or
substantially all of the assets or the business of any Person (or enter into any
agreement to do any of the foregoing); however, that the foregoing shall not
prevent any consolidation or merger if after giving effect thereto:
(1) The book value of the Company and its Subsidiaries does
not increase due to all such mergers, consolidations or acquisitions by an
aggregate amount in excess of $25,000,000 in any fiscal year of the Company;
(2) The Company is the surviving entity; and
(3) No Event of Default or Default shall have occurred and
be continuing.
(I) TRANSACTIONS WITH AFFILIATES. The Company will not, and it
will not permit any Subsidiary to, enter into any transaction, including without
limitation, the purchase, sale, lease or exchange of any Property, or the
rendering of any service, with any Affiliate of the Company except in the
ordinary course of and pursuant to the reasonable requirements of the Company's
(and Subsidiaries') business and upon fair and reasonable terms which are not
materially less favorable to the Company than would be obtained in a comparable
arm's-length transaction with a Person not an Affiliate of the Company.
(J) CONSOLIDATED NET WORKING CAPITAL. The Company will maintain at
all times Consolidated Net Working Capital in an amount not less than
$100,000,000.
(K) CONSOLIDATED MEMBERS' AND PATRONS' EQUITY. The Company will
maintain at all times Consolidated Members' and Patrons' Equity in an amount not
less than $275,000,000.
(L) CONSOLIDATED FUNDED DEBT TO CONSOLIDATED MEMBERS' AND PATRONS'
EQUITY RATIO. The Company will not permit the ratio of Consolidated Funded Debt
of the Company and its Consolidated Subsidiaries to Consolidated Members' and
Patrons' Equity to exceed at any time 0.8 to 1.0.
(M) LIENS. The Company will not create, incur, assume or suffer to
exist any Lien, upon or with respect to any of its real or personal Properties
(including, without limitation, leasehold interests, leasehold improvements and
any other interest in real Property or fixtures), now owned or hereafter
acquired, except:
(1) Liens for taxes or assessments or other charges or
levies of any Governmental Authority, that are not delinquent or if delinquent:
(i) are the subject of a Good Faith Contest but in no event past the time when a
penalty would be incurred; and (ii) the aggregate amount of liabilities so
secured (including interest and penalties) does not exceed $15,000,000 at any
one time outstanding;
(2) Liens imposed by Law, such as mechanic's, worker's,
repairman's, miner's, agister's, attorney's, materialmen's, landlord's,
warehousemen's and carrier's Liens and other similar Liens which are securing
obligations incurred in the ordinary course of business for sums not yet due and
payable or if due and payable which are the subject of a Good Faith Contest;
(3) Liens under worker's compensation, unemployment
insurance, social security or similar legislation (other than ERISA), or to
secure payments of premiums for insurance purchased in the ordinary course of
business, or to secure the performance of tenders, statutory obligations, surety
and appearance bonds and bids, bonds for release of an attachment, stay of
execution or injunction, leases, government contracts, performance and
return-of-money bonds and other similar obligations, all of which are incurred
in the ordinary course of business and not in connection with the borrowing of
money;
(4) any attachment or judgment Lien, the time for appeal of
petition for rehearing of which shall not have expired or in respect of which
the Company or the Subsidiary is protected in all material respects by insurance
or for the payment of which adequate reserves have been provided; provided, that
the execution or other enforcement of such Liens is effectively stayed and the
claims secured thereby are the subject of a Good Faith Contest, and provided
further that the aggregate amount of liabilities of the Company and its
Subsidiaries so secured (including interest and penalties) shall not be in
excess of $5,000,000 at any one time outstanding;
(5) easements, rights-of-way, restrictions, encroachments,
covenants, servitudes, zoning, and other similar encumbrances which, in the
aggregate, do not materially interfere with the occupation, use and enjoyment by
the Company or any Subsidiary of the Property or assets encumbered thereby in
the normal course of its business or materially impair the value of the Property
subject thereto;
(6) Liens arising in the ordinary course of business and
created in connection with amounts on deposit in charge card and like accounts
(such as Visa or MasterCard);
(7) Liens on land, buildings and equipment existing at the
time of their acquisition or Liens to secure the payment of all or any part of
the purchase price of such land, buildings or equipment or to secure Funded Debt
incurred prior to, at the time of, or within one hundred eighty (180) days after
the acquisition of such Property for the purpose of financing all or any part of
the purchase price thereof, provided that any such Liens shall not encumber any
other Property of the Company or its Subsidiaries;
(8) Liens assumed in connection with permitted mergers and
acquisitions, but only to the extent that such Liens shall secure only Funded
Debt and shall not encumber any other Property of the Company or any Subsidiary;
(9) Liens on financed Property created or incurred in
connection with leases, mortgages, conditional sales contracts, security
interests or arrangements for the retention of title entered into by the Company
or any of its Subsidiaries to secure "industrial revenue bonds" as defined in
Section 103(b)(2) of the Code and treated as obligations described in
legislation similar to the provisions of said sections of the Code enacted in
any State of the United States or Puerto Rico, which are issued to finance
Property useful and intended to be used in carrying on the business of the
Company or any of its Subsidiaries, provided that upon creation of any such Lien
the Company or such Subsidiary shall incur Funded Debt secured thereby in
conformity with the provisions of Section 5(L) hereof.
(10) Liens related to Letters of Credit, provided such Liens
attach only to Property financed through such Letters of Credit;
(11) Cash Collateral provided to secure letters of credit;
(12) Liens on Property or assets of a Subsidiary to secure
Debt of such Subsidiary to the Company or another Subsidiary;
(13) Liens of CoBank, St. Paul and other cooperatives
respectively, on Investments by the Company in the stock, participation
certificates, or allocated reserves of CoBank, St. Paul or other cooperatives,
respectively, owned by the Company;
(14) all precautionary filings of financing statements under
the Uniform Commercial Code which cover Property that is made available to or
used by the Company or any Subsidiary pursuant to the terms of an Operating
Lease or Capital Lease.
(N) GUARANTIES. The Company will not, and it will not permit any
Consolidated Subsidiary to, be or remain liable, whether as endorser, surety,
guarantor or otherwise, for or in respect of any liability or indebtedness of
any other Person than:
(1) Guaranties under which the maximum aggregate amount of
the guaranteed indebtedness, dividend or obligation can be mathematically
determined on the date on which such guaranties are made;
(2) the liability of the Company and its Subsidiaries
arising out of the endorsement for deposit or collection of commercial paper
received in the ordinary course of business; or
(3) Guarantees made from time to time by the Company and its
Consolidated Subsidiaries in the ordinary course of their respective business;
provided, however, that the aggregate amount of all indebtedness guaranteed
under Guaranties described in Section (1) and (3) above shall not exceed
$100,000,000 in the aggregate.
(O) DEBT. The Company will not, and it will not permit any
Subsidiary to, create, incur, assume, or allow to exist, directly or indirectly,
any Debt or liability for borrowed money or for the deferred purchase price of
Property or services, except for:
(1) indebtedness of the Company arising under this Agreement
and the other Loan Documents;
(2) trade payables arising in the ordinary course of
business;
(3) Capital Leases in existence from time to time;
(4) current operating liabilities (other than for borrowed
money) incurred in the ordinary course of business;
(5) unsecured indebtedness of the Company and its
Subsidiaries arising under uncommitted lines of credit; provided that the
maximum principal amount that may be outstanding at any one time shall not
exceed $15,000,000;
(6) indebtedness of the Company and its Subsidiaries on the
date hereof as set forth in Schedule A;
(7) unsecured long-term indebtedness of the Company and its
Subsidiaries;
(8) documentary or standby letters of credit issued at the
request of the Company or any Subsidiary by a financial institution other than a
Bank, provided the aggregate principal amount outstanding under such letters of
credit together with the principal outstanding under Letters of Credit do not
exceed $50,000,000 and provided further that the aggregate principal amount
outstanding under such letters of credit together with all advances, principal
outstanding under Letters of Credit and unreimbursed obligations to Banks with
respect to payments made by such Banks under Letters of Credit shall not exceed
the Commitment; and
(9) such other indebtedness agreed upon in writing between
the Company and the Banks.
(P)(A)INVESTMENTS. In any fiscal year the Company may make, or
suffer to exist, any Investment except:
(1) Permitted Investments;
(2) Investments in Subsidiaries;
(3) Investments permitted under Sections 5(H), 5(I) and
5(P)(B); and
(4) Investments that are not Permitted Investments in an
aggregate amount not exceeding $5,000,000 for each fiscal year of the Company.
(P)(B)LOANS, ADVANCES AND ACQUISITIONS. The Company will not, and
it will not permit any Subsidiary to, make or retain any investment (whether
through the purchase of stock, obligations or otherwise) in or make any loan or
advance to, any other Person, other than:
(1) loans to Subsidiaries;
(2) trade credit extended in the ordinary course of
business;
(3) loans made by the Company to its members on open account
maintained by such members with the Company or made by the Company to its
members pursuant to its Affiliate Financing CoBank Participation Program;
provided that the aggregate principal amount of all such loans outstanding at
any time shall not exceed $150,000,000; and
(4) loans made by Fin-Ag, Inc. to agricultural producers,
provided that the aggregate principal amount of all such loans outstanding at
any time shall not exceed $35,000,000.
(Q) SALE OF PROPERTY. The Company will not sell, lease, assign,
transfer or otherwise dispose of (whether in one transaction or in a series of
transactions) all or a material part of its Property to any other Person;
provided, however, that so long as not Event of Default or Potential Default has
occurred and is continuing, this Section shall not prohibit:
(1) sales of Inventory by the Company in the ordinary course
of business; and
(2) sales or leases by the Company of its surplus, obsolete
or worn-out land, plant, machinery and equipment;
For the purposes of this Section, "material part" shall mean 5% or more
of the lesser of the book or fair market value of the Property of the Company.
(R) MAINTENANCE OF COMMODITY POSITION. The Company will, and will
cause each Subsidiary to, protect its commodity Inventory holdings or
commitments to buy or sell commodities against adverse price movements,
including the taking equal and opposite positions in the cash and futures
markets, to minimize loses and protect margins in commodity production, storage,
processing and marketing as is recognized as financially sound and reputable by
prudent business persons in the commodity business.
(S) PATRONAGE REFUNDS AND CERTAIN OTHER RESTRICTED PAYMENTS. The
Company will not in any fiscal year: (a) declare or pay any cash patronage
refunds to patrons or members which in the aggregate exceed 20% of the Company's
Consolidated Net Patronage Income for the fiscal year of the Company preceding
the fiscal year in which such patronage refunds are to be paid; or (b) directly
or indirectly redeem or otherwise retire its equity unless: (i) at the time of
taking such action no Event of Default or Potential Default exists hereunder and
(ii) after giving effect thereto no Event of Default or Potential Default would
exist hereunder.
(T) NOTICE OF SUIT, ADVERSE CHANGE IN BUSINESS OR DEFAULT. The
Company shall, as soon as possible, and in any event within five (5) days after
the Company learns of the following, give written notice to the Banks of: (i)
any proceeding(s) being instituted or threatened to be instituted by or against
the Company or any Subsidiary in any federal, state, local or foreign court or
before any commission or other regulatory body (federal, state, local or
foreign) which, if decided adversely to the Company or any Subsidiary, could
have a material adverse effect on the business, Property, or condition,
financial or otherwise, of the Company or any Subsidiary; (ii) any material
adverse change in the business, Property, or condition, financial or otherwise,
of the Company or any Subsidiary; and (iii) the occurrence of any Potential
Default or Event of Default.
(U) ERISA REPORTS. As soon as possible and in any event within
twenty (20) days after the Company or any Subsidiary knows or has reason to know
that any Reportable Event or Prohibited Transaction has occurred with respect to
any Plan or that the PBGC or the Company or any Subsidiary has instituted or
will institute proceedings under Title IV of ERISA to terminate any Plan, or
that the Company, any Subsidiary or any ERISA Affiliate has completely or
partially withdrawn from a Multiemployer Plan, or that a Plan which is a
Multiemployer Plan is in reorganization (within the meaning of Section 4241 of
ERISA), is insolvent (within the meaning of Section 4245 of ERISA) or is
terminating, the Company or such Subsidiary will deliver to each of the Banks a
certificate of the Group Vice President - Finance of the Company or such
Subsidiary setting forth details as to such Reportable Event or Prohibited
Transaction or Plan termination or withdrawal or reorganization or insolvency
and the action the Company or such Subsidiary proposes to take with respect
thereto, provided, however, that notwithstanding the foregoing, no reporting is
required under this subsection (U) unless the matter(s), individually or in the
aggregate, result, or could be reasonably expected to result, in aggregate
obligations or liabilities of the Company and/or the Subsidiaries in excess of
Five Million Dollars ($5,000,000).
(V) CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE. The Company
and its Subsidiaries, taken as a whole, will continue to engage in business of
the same general type as now conducted by them, and the Company will preserve,
renew and keep in full force and effect its corporate existence, its status as a
cooperative association as defined in the Farm Credit Act of 1971, as amended,
and all of its rights, privileges and franchises necessary or desirable in the
normal conduct of business.
(W) COMPLIANCE WITH LAW. The Company and its Subsidiaries will not
violate any Law which, if violated, would result in a material adverse change in
the Properties, financial condition, or operations of the Company or any
Subsidiary.
(X) NOTICE OF LITIGATION. Promptly after the commencement thereof,
the Company will give notice to the Banks of all actions, suits, arbitration and
any other proceedings before any Governmental Authority, affecting the Company
or any Subsidiary which, if determined adversely to the Company or any
Subsidiary, could reasonably be expected to require the Company or any
Subsidiary to have to pay or deliver assets having a value of Five Million
Dollars ($5,000,000) or more (whether or not the claim is covered by insurance)
or could reasonably be expected to result in a Material Adverse Change.
(Y) ENVIRONMENTAL NOTICES. As soon as possible and in any event
within five (5) days after receipt, the Company will provide to the Banks copies
of all Environmental Notices received by the Company or any Subsidiary which
indicate a potential liability of Five Million Dollars ($5,000,000) or more for
the Company and all its Subsidiaries taken together or which could be reasonably
be expected to result in or has resulted in a Material Adverse Change.
SECTION 6. EVENTS OF DEFAULT AND REMEDIES.
(A) DEFINITIONS. Any one or more of the following shall constitute
an Event of Default:
(1) Default in the payment five days after the date due of
any principal of or interest on the Notes, or in the payment five days after the
due date thereof of any costs, expenses, fees or capital requirements under this
Agreement;
(2) Default in the observance or performance of any
covenant, condition, agreement or provision in the Agreement or in any of the
other Loan Documents and, in the case of each such covenant, condition, etc.
other than Section 5(T)(iii) hereof, such default shall continue for five days
after written notice thereof to the Company by the Banks;
(3) Default shall occur under any evidence of indebtedness
issued or assumed or guaranteed by the Company or any Subsidiary or under any
mortgage, agreement or similar instrument under which the same may be issued,
and such default shall continue for a period of time sufficient to permit the
acceleration of maturity of any indebtedness evidenced thereby or outstanding
thereunder without the Company securing a waiver of any such default;
(4) Any representation or warranty made by the Company
herein or in any statement, certificate or application furnished by it pursuant
hereto or in connection with any Supplement proves untrue and any material
respect as of the date of the issuance or making thereof;
(5) Any judgment or judgments, writ or writs, or warrant or
warrants of attachment, or any similar process or processes in the aggregate
amount in excess of $1,000,000 shall be entered or filed against the Company or
any Subsidiary or against any of its Property or assets and remains unpaid,
unvacated, unbonded or unstayed for a period of ninety (90) days from the date
of its entry.
(6) Any Reportable Event which constitutes grounds for the
termination of any Plan or for the appointment of a trustee to administer or
liquidate any such Plan, shall have occurred and be continuing for thirty (30)
days after written notice to such effect shall have been given to the Company;
or any such Plan shall be terminated; or a trustee shall be appointed to
administer any such Plan; or the PBGC shall institute proceedings to administer
or terminate any such Plan;
(7) INSOLVENCY, ETC. The Company: (i) shall become insolvent
or shall generally not, or shall be unable to, or shall admit in writing its
inability to pay its debts as they come due; or (ii) shall suspend it business
operations or a material part thereof or make an assignment for the benefit of
creditors; or (iii) shall apply for, consent to, or acquiesce in the absence of
such application, consent, or acquiesce, a trustee, receiver, or other custodian
is so appointed; or (iv) shall commence or have commenced against it any
proceeding under any bankruptcy, reorganization, arrangement, readjustment of
debt, dissolution, or liquidation Law or statute of any jurisdiction and in the
case of any such proceeding being commenced against it, such proceeding is not
dismissed within 60 days of the date thereof.
SECTION 7. SUSPENSION OF COMMITMENT DURING GRACE PERIOD. During the
continuance of any Potential Default, either Bank may, without notice to the
Company, suspend the unused portion of its commitment(s) to the Company.
SECTION 8. REMEDIES UPON DEFAULT. Upon the occurrence of and during the
continuance of each and every Event of Default:
(A) TERMINATION, ETC. Either Bank may, without notice to the
Company, suspend the unused portion of its commitment(s) and, upon notice to the
Company, may terminate its commitment(s) and declare the entire unpaid principal
balance of its Notes, all accrued interest thereon, and all other amounts
payable to that Bank under this Agreement, all Supplements, and all other
agreements between the Bank and the Company to be immediately due and payable,
without protest, presentment, demand, or further notice of any kind, all of
which are hereby expressly waived by the Company. Upon such a declaration and
notwithstanding anything to the contrary contained herein or in any Supplement,
interest shall automatically accrue at 2% (two percent) per annum in excess of
the rates that would otherwise be in effect.
(B) ENFORCEMENT. Either Bank may proceed to protect exercise, and
enforce such rights and remedies as may be provided by agreement or under Law.
Each and every one of such rights and remedies shall be cumulative and may be
exercised from time to time, and no failure on the part of the Banks to
exercise, and no delay in exercising, any right or remedy shall operate as a
waiver thereof, and no single or partial exercise of any right or remedy shall
preclude any other or future exercise thereof, or the exercise of any other
right. Without limiting the foregoing, CoBank may hold and/or set off and apply
against the Company's indebtedness, any and all cash, accounts, securities, or
other Property of the Company in CoBank's possession or under its control.
(C) APPLICATION OF FUNDS. All amounts received by the Banks shall
be applied to the amounts owing under the Loan Documents in whatever order and
manner as the Banks shall elect in their sole discretion.
SECTION 9. COMPLETE AGREEMENT, AMENDMENTS. The Loan Documents are
intended by the parties to be a complete and final expression of their
agreement. No amendment, modification, or waiver of any provision hereof or
thereof, and no consent to any departure of the Company herefrom or therefrom,
shall be effective unless approved by CoBank and contained in a writing signed
by or on behalf of the Banks, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given. In
the event this Agreement is amended or restated, each such amendment or
restatement shall be applicable to all Supplements hereto.
SECTION 10. APPLICABLE LAW. Except to the extent governed by applicable
federal Law, the Loan Documents shall be governed by and construed in accordance
with the Laws of the State of Minnesota, without reference to choice of Law
doctrine.
SECTION 11. NOTICES. All notices hereunder shall be in writing and shall
be deemed to be duly given upon delivery, if personally delivered or sent by
telegram or facsimile transmission, or three (3) days after mailing if sent by
express, certified or registered mail, to the parties at the following addresses
(or such other address for a party as shall be specified by like notice):
If to the Banks, as follows: If to the Company, as follows:
CoBank, ACB Harvest States Cooperatives, Inc.
1415 Olive Street 1667 North Snelling Avenue
St. Louis, Missouri 63103 St. Paul, Minnesota 55108
Attention: Vice President - Credit Attention: Financial Services
Telephone Number: (314) 342-3200 Telephone Number: (612) 641-3736
Fax Number: (314) 342-3348 Fax Number: (612) 641-6423
St. Paul Bank for Cooperatives
375 Jackson Street
St. Paul, Minnesota 55101
Attention: Chief Credit Officer
Telephone Number: (612) 282-8800
Fax Number: (612) 282-8201
SECTION 12. PREPAYMENT SURCHARGE. Notwithstanding any provision contained
in any Supplement giving the Company the right to repay any loan or advance
prior to the date when it would otherwise be due and payable, the Company agrees
that in the event it repays any loan or advance bearing interest at a fixed rate
prior to the last day of the fixed rate period (whether such payment is made
voluntarily, as a result of an acceleration, or otherwise), the Company will pay
to the Bank a prepayment surcharge equal to the present value of the difference
between: (i) the amount of interest that would have accrued at the non-default
rate during the remaining fixed rate period had such balance not been paid; less
(ii) the amount of interest that would accrue on the balance being prepaid if
such balance accrued interest at the Banks' Estimated Cost of Funds on the
prepayment date for a period equal to the remaining fixed rate period. In
calculating present value, the discount rate shall be the rate determined
pursuant to (ii) hereof plus 25 basis points.
SECTION 13. AGREEMENT AMONG BANKS. The Banks agree to cooperative to the
fullest extend possible in making and administering loans hereunder. Without
limiting the foregoing, the Banks agree to: (i) share all pertinent information
related to the Company; (ii) timely discuss and, if possible, mutually agree on,
all matters requiring the consent of the Banks or the exercise of any rights and
remedies belonging to the Banks; and (iii) coordinate their visits to the
Company under Section 5(G) hereof. In addition, to the extent necessary to
collect the loans, the Banks agree to appoint one of the Banks as agent for the
other and to share in all extraordinary costs and expenses (including legal
fees) which the agent may incur in fulfillment of its responsibilities as agent
or either one of the Banks shall incur with the consent of the other. In the
event collection becomes necessary, the Banks will meet to discuss the impact of
any loans made by either Bank to the Company outside of this Agreement of the
Banks' pro rata rights to proceeds.
SECTION 14. EFFECTIVENESS AND SEVERABILITY. This Agreement shall continue
in effect until: (i) all indebtedness and obligations of the Company under the
Loan Documents shall have been repaid; (ii) all Supplements hereto have been
terminated; and (iii) either party sends notice to the other that it considers
this agreement to be terminated. Any provision of this Agreement, or the other
Loan Documents which is prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
thereof.
SECTION 15. SUCCESSORS AND ASSIGNS. This Agreement and each Supplement
shall be binding upon and inure to the benefit of the Company and the Banks and
their respective successors and assigns, except that the Company may not assign
or transfer its rights or obligations under this Agreement or any Supplement
without the prior written consent of the Banks. St. Paul may sell a
participation in loans made by it under any Supplement to CoBank.
SECTION 16. COSTS AND EXPENSES. To the extent allowed by Law, the Company
agrees to pay to each Bank on demand, all out-of-pocket costs and expenses
incurred by each Bank (including the reasonable fees and expenses of counsel) in
connection with the enforcement of the terms of this Agreement, each Supplement
and all instruments and documents executed in connection herewith or the
collection of any amounts owing hereunder or thereunder, including any of the
foregoing actions taken or done in any proceeding for relief of debtors under
the Bankruptcy Code. In addition, the Company agrees to reimburse each Bank for
all expenses incurred in connection with perfecting, maintaining, determining
the priority of and releasing any security provided for under this Agreement and
the Supplements.
SECTION 17. NON-SYNDICATED LOANS. Nothing contained in this Agreement
shall be deemed to prohibit either Bank from making and/or maintaining
non-syndicated loans or relationships with the Company. In the event the Company
and any Bank having such a separate relationship desire to have this Agreement
govern that relationship, then the Company and that Bank may enter into a
separate Supplement to this Agreement entitled "CoBank Supplement" or St. Paul
Supplement," as the case may be. For each such supplement, this agreement shall
be construed as if only that Bank and the Company were parties to this
Agreement. CoBank and St. Paul shall notify each other prior to executing any
separate Supplement under this Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the date shown above.
COBANK, ACB HARVEST STATES COOPERATIVES, INC.
By: /s/ Daniel Malan By: /s/ T.F. Baker
------------------------------- -------------------------------
T.F. Baker
Title: VP Title: Group Vice President - Finance
------------------------------- -------------------------------
By: /s/ Joanne Burmeister
-------------------------------
Joanne Burmeister
Title: Assistant Secretary
-------------------------------
ST. PAUL BANK FOR COOPERATIVES
By: /s/ Marvin L. Lindo
-------------------------------
Marvin L. Lindo
Title: Senior Vice President
-------------------------------
FOURTH SUPPLEMENT
TO MASTER SYNDICATED LOAN AGREEMENT
THIS FOURTH SUPPLEMENT to the Master Syndicated Loan Agreement is entered
into as of October 28, 1996, by and among HARVEST STATES COOPERATIVES (the
"Company"), COBANK, ACB (successor to the National Bank for Cooperatives
("CoBank")) and the ST. PAUL BANK FOR COOPERATIVES ("St. Paul") (collectively,
the "Banks")
SECTION 1. THE COMMITMENTS. On the terms and conditions set forth in this
Supplement and the Amended and Restated Master Syndicated Loan Agreement dated
October 28, 1996, (the "MLA"), the Banks agree to make loans to the Company
during the period commencing on October 31, 1996, and ending on but not
including October 31, 1997, in an aggregate principal amount for each Bank not
to exceed $25,000,000 (the "Commitments"). Loans will be made directly by each
Bank to the Company in the manner set forth below. However, all loans will be
made on a pro rata basis so that at all times each Bank shall have the same
amount outstanding hereunder. Amounts borrowed under the Commitments and later
repaid may not be reborrowed.
SECTION 2. PURPOSE. The purpose of the Commitments is to finance 1997 and
a portion of 1998 fixed asset expenditures to be made by the Company.
SECTION 3. AVAILABILITY. Subject to Section 1 hereof, loans will be made
available on any Business Day upon the telephonic or written request of an
authorized employee of the Company. Requests for loans must be received by the
Banks no later than 12:00 noon, Company's local time on the day the loan is
desired. Unless otherwise agreed, all loans will be made available by wire
transfer of immediately available funds. Wire transfers will be made to such
account(s) as the Company may authorize from time to time on forms supplied by
the Banks. In making loans on telephonic request, each Bank shall be entitled to
rely on (and shall incur no liability to the Company in acting upon) any request
made by a person identifying himself or herself as one of the persons authorized
by the Company to request loans hereunder.
SECTION 4. INTEREST AND FEES.
(A) INTEREST RATE OPTIONS. The Company agrees to pay interest on the
unpaid principal balance of the loans in accordance with one or more of the
following options, as selected by the Company in accordance with the terms
hereof:
(i) VARIABLE RATE OPTION. At a rate per annum equal at all times
to the rate of interest announced by CoBank from time to time as its National
Variable Rate which Rate is intended by CoBank to be a reference rate and not
its lowest rate. The National Variable Rate will change on the date established
by CoBank as the effective date of any change therein and CoBank agrees to
notifiy the Company and St. Paul promptly after any such change.
(ii) FIXED RATE OPTION. At a fixed rate per annum equal to: (1) in
the case of rates fixed on or before August 30, 1997, 90 basis points above the
Banks' Estimated Cost of Funds for periods ranging from 30 days to the life of
the loan, as selected by the Company; and (2) in the case of rates fixed after
August 30, 1997, at a rate to be quoted by the Banks in their sole discretion in
each instance. Upon the expiration of any fixed rate period, interest shall
automatically accrue at the variable rate provided for above unless the amount
fixed is repaid or fixed for an additional period. Interest shall be calculated
on the actual number of days each loan is outstanding on the basis of a year
consisting of 360 days and shall be payable monthly in arrears by the 20th day
of the following month.
(B) ARRANGEMENT FEE. In consideration of the Commitment, the Company
agrees to pay to the Banks an arrangement fee on the amount of the Commitment at
the rate of .125% per annum payable in equal quarterly installments by November
20, 1996; February 20, 1997; May 20, 1997, and August 20, 1997. If any
installment due date is not a Business Day, then such installment shall be
payable on the next Business Day.
SECTION 5. REPAYMENT. The loans made by each Bank shall be repaid in
thirty-two (32) equal consecutive quarterly installments, with the first
installment due on November 20, 1997, and the last installment due on August 20,
2005. If any installment due date is not a Business Day, then such installment
shall be payable on the next Business Day.
SECTION 6. PREPAYMENT. The loans may be prepaid on any Business Day on
one Business Days' prior written notice. Unless the Banks otherwise agree, all
prepayments will be applied pro rata to principal installments owing to each
Bank in the inverse order of their maturity and to the various fixed and
variable rate balances outstanding on the loans in the following order: (i)
first, to any balances fixed for the periods being prepaid; and (ii) next, to
such balances, fixed or variable, as the Company may elect; provided, however,
that the Company may not elect to apply prepayments in such a manner as to cause
the Company to have to repay any fixed rate balance prior to the last day of its
fixed rate period in order to pay any scheduled installment of principal.
Notwithstanding the foregoing, the Company's right to prepay any fixed rate
balance shall be conditioned upon the payment of a prepayment surcharge
calculated in accordance with Section 12 of the MLA.
SECTION 7. MANNER AND TIME OF PAYMENT. All payments shall be made by wire
transfer of immediately available funds to: (i) in the case of CoBank, ABA
#30-70-88754 for advice to and credit of CoBANK; and (ii) in the case of St.
Paul, ABA #296090471 (or to such other account as either CoBank or St. Paul may
designate by notice). The Company shall give the Banks telephonic notice no
later than 12:00 noon, Company's local time, of its intent to pay by wire
transfer. Wire transfers received after 3:00 p.m., Company's local time, shall
be credited on the next business day.
IN WITNESS WHEREOF, the parties have caused this Supplement to be
executed by their duly authorized officers as of the date shown above.
COBANK, ACB HARVEST STATES COOPERATIVES
By: /s/ J. Daniel Malan By: /s/ T.F. Baker
-------------------------------
T.F. Baker
Title: VP Title: Group Vice President - Finance
------------------------------ -------------------------------
ST. PAUL BANK FOR COOPERATIVES
By: /s/ Marvin L. Lindo
------------------------------
Marvin L. Lindo
Title: Senior Vice President
------------------------------
PROMISSORY NOTE
Loan No. 35100
Note of Harvest States Cooperatives
St. Paul, Minnesota
Dated: October 28, 1996
$25,000,000.00
For value received, the undersigned promises to pay to St. Paul Bank for
Cooperatives ("Payee"), or order, at the times set forth in that certain Fourth
Supplement to Amended and Restated Master Syndicated Loan Agreement dated
October 28, 1996, as that Supplement may be amended to restated from time to
time (the " Fourth Supplement"), the principal sum of up to TWENTY-FIVE MILLION
DOLLARS (25,000,000.00). The undersigned also promises to pay interest on such
sum at the times and rates, or in accordance with the rate options, set forth in
the Fourth Supplement.
This note is given for one or more advances to be made by the Payee to the
undersigned pursuant to the Fourth supplement and the Amended and Restated
Master Syndicated Loan Agreement under which it was issued, as that Amended and
Restated Master Syndicated Loan Agreement may be restated from time to time, all
of the terms and provisions of which (including provisions regarding the manner
of payment, default interest and acceleration) are hereby incorporated by
reference. Advances, accrued interest, and payments shall be posted by the Payee
upon an appropriate accounting record, which record (and all computer printouts
thereof) shall constitute prima facie evidence of the outstanding principal and
interest on the advances.
The makers or endorsers hereof waive presentment for payment, demand, protest,
and notice of dishonor and nonpayment of this note, and all defenses on the
ground of delay or of any extension of time for the payment hereof which may be
hereafter given by the holder or holders hereof to them or either of them or to
anyone who has assumed the payment of this note, and it is specifically agreed
that the obligations of said makers and endorsers shall not be in anywise
affected or altered to the prejudice of the holder or holders hereof by reason
of the assumption of payment of the same by any other person or entity.
Except to the extent governed by applicable federal law, this note shall be
governed by and construed in accordance with the laws of the state of Minnesota,
without reference to choice of law doctrine.
HARVEST STATE COOPERATIVES
By /s/ T.F. Baker
T.F. Baker
Title Group Vice President - Finance
PROMISSORY NOTE
Loan No. ML0154T3
Note of Harvest States Cooperatives
St. Paul, Minnesota
Dated: October 28, 1996
$25,000,000.00
For value received, the undersigned promises to pay to CoBank, ACB ("Payee"), or
order, at the times set forth in that certain Fourth Supplement to Amended and
Restated Master Syndicated Loan Agreement dated October 28, 1996, as that
Supplement may be amended to restated from time to time (the "Fourth
Supplement"), the principal sum of up to TWENTY-FIVE MILLION DOLLARS
($25,000,000.00). The undersigned also promises to pay interest on such sum at
the times and rates, or in accordance with the rate options, set forth in the
Fourth Supplement.
This note is given for one or more advances to be made by the Payee to the
undersigned pursuant to the Fourth Supplement and the Amended and Restated
Master Syndicated Loan Agreement under which it was issued, as that Amended and
Restated Master Syndicated Loan Agreement may be restated from time to time, all
of the terms and provisions of which (including provisions regarding the manner
of payment, default interest and acceleration) are hereby incorporated by
reference. Advances, accrued interest, and payments shall be posted by the Payee
upon an appropriate accounting record, which record (and all computer printouts
thereof) shall constitute prima facie evidence of the outstanding principal and
interest on the advances.
The makers or endorsers hereof waive presentment for payment, demand, protest,
and notice of dishonor and nonpayment of this note, and all defenses on the
ground of delay or of any extension of time for the payment hereof which may be
hereafter given by the holder or holders hereof to them or either of them or to
anyone who has assumed the payment of this note, and it is specifically agreed
that the obligations of said makers or endorsers shall not be in anywise
affected or altered to the prejudice of the holder or holders hereof by reason
of the assumption of payment of the same by any other person or entity.
Except to the extent governed by applicable federal law, this note shall be
governed by and construed in accordance with the laws of the State of Minnesota,
without reference to choice of law doctrine.
HARVEST STATES COOPERATIVES
By /s/ T.F. Baker
Title Group Vice President - Finance
ML0154T2
THIRD SUPPLEMENT
TO MASTER SYNDICATED LOAN AGREEMENT
THIS SUPPLEMENT to the Master Syndicated Loan Agreement dated August
30, 1994 (the "MLA"), is entered into as of December 15, 1995, by and among
HARVEST STATES COOPERATIVES (the "Company"), COBANK, ACB (successor to the
National Bank for Cooperatives ("CoBank")) and the ST. PAUL BANK FOR
COOPERATIVES ("St. Paul") (collectively, the "Banks").
SECTION 1. THE REVOLVING TERM LOAN COMMITMENT. On the terms and
conditions set forth in the MLA and this Supplement, each Bank agrees to make
loans to the Company during the period commencing on December 15, 1995, and
ending on but not including November 1, 1996, in an aggregate principal amount
for each Bank not to exceed $10,000,000.00 (the Commitments"). Loans will be
made directly by each Bank to the Company in the manner set forth below.
However, all loans will be made on a pro rata basis so that at all times each
Bank shall have the same amount outstanding hereunder. Within the limits of the
Commitments, the Company may borrow, prepay and reborrow.
SECTION 2. PURPOSE. The purpose of the Commitments is to provide
working capital.
SECTION 3. TERM. The term of the Commitments shall be from December 15,
1995, up to but not including November 1, 1996, or such later date as the Banks
may, in their sole discretion, authorize in writing.
SECTION 4. INTEREST AND FEES.
(A) INTEREST. The unpaid principal balance of each loan shall bear
interest at a rate per annum equal at all times to the rate of interest
established by CoBank from time to time as its National Variable Rate, which
Rate is intended by CoBank to be a reference rate and not its lowest rate. The
National Variable Rate will change on the date established by CoBank as the
effective date of any change therein and CoBank agrees to notify the Company and
St. Paul promptly after any such change. Notwithstanding the foregoing, from
time to time at the request of the Company, the rate of interest charged
hereunder may be fixed on such balances, for such periods, and at such rates as
may be quoted by the Banks in their sole and absolute discretion in each
instance. Upon the expiration of any fixed rate period, interest shall
automatically accrue at the variable rate provided for above unless the amount
fixed is repaid or fixed for an additional period. Interest shall be calculated
on the actual number of days each loan is outstanding on the basis of a year
consisting of 360 days and shall be payable monthly in arrears by the 20th day
of the following month.
(B) COMMITMENT FEE. In consideration of the Commitment, the Company
agrees to pay to the Banks a commitment fee on the average daily unused portion
of the Commitment at the rate of plus 25 basis points (calculated on a 360 day
basis), payable quarterly in arrears by the 20th day following each calendar
quarter. Such fee shall be payable for each quarter (or portion thereof)
occurring during the original or any extended term of the Commitment.
SECTION 5. PROMISSORY NOTE. The Company promises to repay the loans
that are outstanding at the time the Commitments expire in 32 equal, consecutive
quarterly installments with the first such installment due on November 20, 1997,
and the last such installment due on August 20, 2005.
SECTION 6. PREPAYMENT. The loans may be prepaid in whole or in part on
one Banks' business day's prior written notice. During the term of the
Commitment, prepayments shall be applied to such balances, fixed or variable, as
the Company shall specify. After the expiration of the term of the Commitments,
prepayments shall, unless the Banks otherwise agree, be applied to principal
installments in the inverse order of their maturity and to such balances, fixed
or variable, as the Banks shall specify.
SECTION 7. MANNER AND TIME OF PAYMENT. All payments shall be made by
wire transfer of immediately available funds to St. Paul, ABA #296090471 (or to
such other account as St. Paul may designate by notice). The Company shall give
St. Paul telephonic notice no later than 12:00 noon, Company's local time, of
its intent to pay by wire transfer. Wire transfers received after 3:00 p.m.,
Company's local time, shall be credited on the next business day.
SECTION 8. CONDITION PRECEDENT. The Banks' obligation to make the
initial advance of this Revolving Term Loan is contingent upon Loan No. ML0154T1
being fully drawn, all payments of principal and interest thereon being current
and that there be no defaults under any loan provisions of Loan No. ML0154T1.
IN WITNESS WHEREOF, the parties have caused this Supplement to be
executed by their duly authorized officers as of the date shown above.
COBANK, ACB HARVEST STATES COOPERATIVES
By: /s/ J. Daniel Malan By: /s/ T.F. Baker
------------------------------- ------------------------------
T.F. Baker
Title: Vice President Title: Group Vice President - Finance
------------------------------- ------------------------------
ST. PAUL BANK FOR COOPERATIVES
By: /s/ Lee Estenson
-------------------------------
Title: Vice President
-------------------------------
PROMISSORY NOTE
Loan No. ML0154T2
Note of Harvest States Cooperatives
St. Paul, MN
Dated: December 15, 1995
$10,000,000.00
For value received, on the Maturity Date as set forth in that certain Master
Syndicated Loan Agreement dated August 30, 1994, and numbered ML0154, or in any
amendments thereto ("Master Syndicated Loan Agreement Supplement"), the
undersigned promises to pay to ST. PAUL BANK FOR COOPERATIVES ("Payee"), or
order, at the times and in the manner set forth in the Master Syndicated Loan
Agreement Supplement, the sum of up to TEN MILLION DOLLARS ($10,000,000). The
undersigned also promises to pay interest on the unpaid principal balance hereof
at such rate or rates and at such times as is provided for in the Master
Syndicated Loan Agreement Supplement.
This note is given for one or more advances to be made by the Payee to the
undersigned from time to time in accordance with the terms and conditions of the
Loan No. ML0154T2, all the terms and conditions of which are incorporated herein
by reference. Advances, accrued interest, and payments shall be posted by the
Payee upon an appropriate accounting record, which record shall constitute prima
facie evidence of the outstanding principal and interest on the advances. The
total of such advances may exceed the face amount of this note but the unpaid
principal balance shall not at any time exceed the face amount. Any amount of
principal hereof which is not paid when due, whether at stated maturity, by
acceleration or otherwise, shall bear interest from the date when due until said
principal amount is paid in full, payable on demand, at a rate per annum set
forth in the Master Syndicated Loan Agreement Supplement.
The makers or endorsers hereof hereby waive presentment for payment, demand,
protest, and notice of dishonor and nonpayment of this note, and all defenses on
the ground of delay or of any extension of time for the payment hereof which may
be hereafter given by the holder or holders hereof to them or either of them or
to anyone who has assumed the payment of this note, and it is specifically
agreed that the obligations of said makers or endorsers shall not be in anywise
affected or altered to the prejudice of the holder or holders hereof by reason
of the assumption of payment of the same by any other person or entity.
Should this note be placed in the hands of an attorney for collection or the
services of any attorney become necessary in connection with enforcing its
provisions, the undersigned agrees to pay reasonable attorneys' fees, together
with all costs and expenses incident thereto, to the extent allowed by law.
Except to the extent governed by applicable federal law, this note shall be
governed by and construed in accordance with the laws of the State of Minnesota,
without reference to choice of law doctrine.
HARVEST STATES COOPERATIVES
By: /s/ T. F. Baker
T.F. Baker
Title: Group Vice President - Finance
PROMISSORY NOTE
Loan No. ML0154T2
Note of Harvest States Cooperatives
St. Paul, MN
Dated: December 15, 1995
$10,000,000.00
For value received, on the Maturity Date as set forth in that certain Master
Syndicated Loan Agreement dated August 30, 1994, and numbered ML0154, or in any
amendments thereto ("Master Syndicated Loan Agreement Supplement"), the
undersigned promises to pay to COBANK, ACB ("Payee"), or order, at the times and
in the manner set forth in the Master Syndicated Loan Agreement Supplement, the
sum of up to TEN MILLION DOLLARS ($10,000,000). The undersigned also promises to
pay interest on the unpaid principal balance hereof at such rate or rates and at
such times as is provided for in the Master Syndicated Loan Agreement
Supplement.
This note is given for one or more advances to be made by the Payee to the
undersigned from time to time in accordance with the terms and conditions of the
Loan No. ML0154T2, all the terms and conditions of which are incorporated herein
by reference. Advances, accrued interest, and payments shall be posted by the
Payee upon an appropriate accounting record, which record shall constitute prima
facie evidence of the outstanding principal and interest on the advances. The
total of such advances may exceed the face amount of this note but the unpaid
principal balance shall not at any time exceed the face amount. Any amount of
principal hereof which is not paid when due, whether at stated maturity, by
acceleration or otherwise, shall bear interest from the date when due until said
principal amount is paid in full, payable on demand, at a rate per annum set
forth in the Master Syndicated Loan Agreement Supplement.
The makers or endorsers hereof hereby waive presentment for payment, demand,
protest, and notice of dishonor and nonpayment of this note, and all defenses on
the ground of delay or of any extension of time for the payment hereof which may
be hereafter given by the holder or holders hereof to them or either of them or
to anyone who has assumed the payment of this note, and it is specifically
agreed that the obligations of said makers or endorsers shall not be in anywise
affected or altered to the prejudice of the holder or holders hereof by reason
of the assumption of payment of the same by any other person or entity.
Should this note be placed in the hands of an attorney for collection or the
services of any attorney become necessary in connection with enforcing its
provisions, the undersigned agrees to pay reasonable attorneys' fees, together
with all costs and expenses incident thereto, to the extent allowed by law.
Except to the extent governed by applicable federal law, this note shall be
governed by and construed in accordance with the laws of the State of Minnesota,
without reference to choice of law doctrine.
HARVEST STATES COOPERATIVES
By /s/ T.F. Baker
Title: Group Vice President - Finance
FIRST SUPPLEMENT
TO MASTER SYNDICATED LOAN AGREEMENT
THIS FIRST SUPPLEMENT to the Master Syndicated Loan Agreement is entered into as
of the 30th day of August, 1994, by and among HARVEST STATES COOPERATIVES (the
"Company"), the NATIONAL BANK FOR COOPERATIVES (`CoBank"), and the ST. PAUL BANK
FOR COOPERATIVES ("St. Paul") (collectively, the "Banks").
SECTION 1. THE COMMITMENTS. On the terms and conditions set forth in
this Supplement and the Master Syndicated Loan Agreement dated August 30, 1994,
(the "MLA"), each Bank agrees to make loans to the Company during the period
commencing on August 30, 1994, and ending on but not including August 30, 1995,
in an aggregate principal amount for each Bank not to exceed $42,500,000 (the
"Commitments"). Loans will be made directly by each Bank to the Company in the
manner set forth below. However, all loans will be made on a pro rata basis so
that at all times each Bank shall have the same amount outstanding hereunder.
Amounts borrowed under the Commitments and later repaid may not be reborrowed.
SECTION 2. PURPOSE. The purpose of the Commitments is to finance
capital expenditures to be made by the Company pursuant to its 1995 board
approved budget.
SECTION 3. AVAILABILITY. Subject to Section 1 hereof, loans will be
made available on any Business Day upon the telephonic or written request of an
authorized employee of the Company. Requests for loans must be received by the
Banks no later than 12:00 noon, Company's local time on the day the loan is
desired. Unless otherwise agreed, all loans will be made available by wire
transfer of immediately available funds. Wire transfers will be made to such
account(s) as the Company may authorize from time to time on forms supplied by
the Banks. In making loans on telephonic request, each Bank shall be entitled to
rely on (and shall incur no liability to the Company in acting upon) any request
made by a person identifying himself or herself as one of the persons authorized
by the Company to request loans hereunder.
SECTION 4. INTEREST.
(A) INTEREST RATE OPTIONS. The Company agrees to pay interest
on the unpaid principal balance of the loans in accordance with one or more of
the following options, as selected by the Company in accordance with the terms
hereof:
(i) VARIABLE RATE OPTION. At a rate per annum equal
at all times to the rate of interest announced by CoBank from time to time as
its National Variable Rate (the "Variable Rate Option"). The National Variable
Rate will change on the date established by CoBank as the effective date of any
such change and CoBank agrees to notify the Company and St. Paul promptly after
any change in the National Variable Rate.
(ii) FIXED RATE OPTION. At a fixed rate per annum
equal to: (i) in the case of rates fixed on or before August 30, 1997, 90 basis
points above the Banks' Estimated Cost of Funds for periods ranging from 30 days
to the life of the loan, as selected by the Company; and (ii) in the case of
rates fixed after August 30, 1997, at a rate to be quoted by the Banks in their
sole discretion in each instance (collectively the "Fixed Rate Option"). Under
this option, rates may be fixed on individual, non-amortizing balances of
$100,000 or more (for each Bank). However, unless the Banks otherwise agree in
their sole discretion in each instance, rates may not be fixed in such a manner
as to require the Company to have to repay any fixed rate balance prior to the
last day of its fixed rate period in order to pay any installment of principal.
First Supplement
The Company shall select the applicable option at the time it obtains a loan
hereunder and may, by 12:00 noon, Company's local time on any Business Day,
elect to convert qualifying amounts outstanding under the Variable Rate Option
to the Fixed Rate Option. In addition, by 12:00 noon, Company's local time on
the last day of any fixed rate period, the Company may elect to fix a rate for
an additional period or convert the balance to the Variable Rate Option. In the
absence of any such election, interest shall automatically accrue at the
Variable Rate Option. Notwithstanding the foregoing, the Company shall exercise
its options hereunder in such a manner as to ensure that loans made by each Bank
are accruing interest at the same rates for the same periods.
(B) CALCULATION AND PAYMENT. Interest shall be calculated on
the actual number of days each loan is outstanding on the basis of a year
consisting of 360 days, and shall be payable monthly in arrears by the 20th day
of the following month. In calculating interest, the date each loan is made
shall be included and the date each loan is repaid shall, if received before
3:00 p.m., Company's local time, be excluded.
SECTION 5. REPAYMENT. The loans made by each Bank shall be repaid in
120 equal consecutive monthly installments, with the first installment due on
August 20, 1996, and the last installment due on July 20, 2006. If any
installment due date is not a Business Day, then such installment shall be
payable on the next Business Day.
SECTION 6. PREPAYMENT. The loans may be prepaid on any Business Day on
one Business Days' prior written notice. Unless the Banks otherwise agree, all
prepayments will be applied pro rata to principal installments owing to each
Bank in the inverse order of their maturity and to the various fixed and
variable rate balances outstanding on the loans in the following order: (i)
first, to any balances fixed for the periods being prepaid; and (ii) next, to
such balances, fixed or variable, as the Company may elect; provided, however,
that the Company may not elect to apply prepayments in such a manner as to cause
the Company to have to repay any fixed rate balance prior to the last day of its
fixed rate period in order to pay any scheduled installment of principal.
Notwithstanding the foregoing, the Company's right to prepay any fixed rate
balance shall be conditioned upon the payment of a prepayment surcharge
calculated in accordance with Section 12 of the MLA.
SECTION 7. MANNER AND TIME OF PAYMENT. All payments shall be made by
wire transfer of immediately available funds to: (i) in the case of CoBank, ABA
#30-70-88754 for advice to and credit of NATL BK COOP ENGWD; and (ii) in the
case of St. Paul, ABA #296090471 (or to such other accounts as either CoBank or
St. Paul may designate by notice). The Company shall give the Banks telephonic
notice no later than 12:00 noon, Company's local time, of its intent to pay by
wire transfer. Wire transfer received after 3:00 p.m., Company's local time,
shall be credited on the next business day.
IN WITNESS WHEREOF, the parties have caused this Supplement to be
executed by their duly authorized officers as of the date shown above.
NATIONAL BANK FOR COOPERATIVES HARVEST STATES COOPERATIVES
By: /s/ Elizabeth L. Hund By: /s/ T.F. Baker
Title: Vice President Title: Group Vice President
ST. PAUL BANK FOR COOPERATIVES
By: /s/ Lee Estenson
Title: Vice President
PROMISSORY NOTE
Loan No. 36500
Note of Harvest States Cooperatives
St. Paul, Minnesota
Dated: August 30, 1994
$42,500,000.00
For value received, the undersigned promises to pay to the St. Paul Bank for
Cooperatives ("Payee"), or order, at the times set forth in that certain First
Supplement To Master Syndicated Loan Agreement dated August 30, 1994, as that
Supplement may be amended or restated from time to time (the "First
Supplement"), the principal sum of up to FORTY TWO MILLION FIVE HUNDRED THOUSAND
DOLLARS ($42,500,000.00). The undersigned also promises to pay interest on such
sum at the times and rates, or in accordance with the rate options, set forth in
the First Supplement.
This note is given for one or more advances to be made by the Payee to the
undersigned pursuant to the First Supplement and the Master Syndicated Loan
Agreement under which it was issued, as that Master Syndicated Loan Agreement
may be amended or restated from time to time, all of the terms and provisions of
which (including provisions regarding the manner of payment, default interest
and acceleration) are hereby incorporated by reference. Advances, accrued
interest, and payments shall be posted by the Payee upon an appropriate
accounting record, which record (and all computer printouts thereof) shall
constitute prima facie evidence of the outstanding principal and interest on the
advances.
The makers or endorsers hereof hereby waive presentment for payment, demand,
protest, and notice of dishonor and nonpayment of this note, and all defenses on
the ground of delay or of any extension of time for the payment hereof which may
be hereafter given by the holder or holders hereof to them or either of them or
to anyone who has assumed the payment of this note, and it is specifically
agreed that the obligations of said makers or endorsers shall not be in anywise
affected or altered to the prejudice of the holder or holders hereof by reason
of the assumption of payment of the same by any other person or entity.
Except to the extent governed by applicable federal law, this note shall be
governed by and construed in accordance with the laws of the State of Minnesota,
without reference to choice of law doctrine.
HARVEST STATES COOPERATIVES
By /s/ T.F. Baker
Title: Group Vice President
PROMISSORY NOTE
Loan No. ML0154T-1
Note of Harvest States Cooperatives
St. Paul, Minnesota
Dated: August 30, 1994
$42,500,000.00
For value received, the undersigned promises to pay to the National Bank for
Cooperatives ("Payee"), or order, at the times set forth in that certain First
Supplement To Master Syndicated Loan Agreement dated August 30, 1994, as that
Supplement may be amended or restated from time to time (the "First
Supplement"), the principal sum of up to FORTY TWO MILLION FIVE HUNDRED THOUSAND
DOLLARS ($42,500,000.00). The undersigned also promises to pay interest on such
sum at the times and rates, or in accordance with the rate options, set forth in
the First Supplement.
This note is given for one or more advances to be made by the Payee to the
undersigned pursuant to the First Supplement and the Master Syndicated Loan
Agreement under which it was issued, as that Master Syndicated Loan Agreement
may be amended or restated from time to time, all of the terms and provisions of
which (including provisions regarding the manner of payment, default interest
and acceleration) are hereby incorporated by reference. Advances, accrued
interest, and payments shall be posted by the Payee upon an appropriate
accounting record, which record (and all computer printouts thereof) shall
constitute prima facie evidence of the outstanding principal and interest on the
advances.
The makers or endorsers hereof hereby waive presentment for payment, demand,
protest, and notice of dishonor and nonpayment of this note, and all defenses on
the ground of delay or of any extension of time for the payment hereof which may
be hereafter given by the holder or holders hereof to them or either of them or
to anyone who has assumed the payment of this note, and it is specifically
agreed that the obligations of said makers or endorsers shall not be in anywise
affected or altered to the prejudice of the holder or holders hereof by reason
of the assumption of payment of the same by any other person or entity.
Except to the extent governed by applicable federal law, this note shall be
governed by and construed in accordance with the laws of the State of Minnesota,
without reference to choice of law doctrine.
HARVEST STATES COOPERATIVES
By: /s/ T.F. Baker
Title: Group Vice President
SUBSIDIARIES OF HARVEST STATES COOPERATIVES
STATE OF INCORPORATION/
SUBSIDIARY/ADDRESS ORGANIZATION
The Terminal Agency, Inc. Minnesota
1667 North Snelling Avenue
P.O. Box 64594
St. Paul, MN 55164
Country Hedging, Inc. Delaware
1667 North Snelling Avenue
P.O. Box 64594
St. Paul, MN 55164
Fin-Ag, Inc. South Dakota
4001 South Westport Avenue
P.O. Box 88808
Sioux Falls, SD 57105
Harvest States Cooperatives - N.D. North Dakota
P.O. Box 108
Norma, North Dakota 58746
Harvest States Cooperatives - Montana Montana
P.O. Box B
Circle, Montana 59215
Harvest States Cooperatives - Idaho, Inc. Idaho
1200 Snake River Avenue
Lewiston, Idaho 83501
Harvest States Cooperatives - Minnesota
Northwest Grain, Inc.
1667 North Snelling Avenue
St. Paul, MN 55108
PGG/HSC Feed Company, L.L.C. Oregon
300 West Feedville Road
Hermiston, Oregon 97838
Ag States Agency, LLC Minnesota
1667 North Snelling Avenue
P.O. Box 64594
St. Paul, Minnesota 55164
Harvest States Farmland Specialty Feed Minnesota
800 24th Avenue NW
P.O. Box 493
Owatonna, MN 55060-0493
Tacoma Export Marketing Company Washington
222 SW Columbia Street
Koin Tower, Suite 1100
Portland, OR 97201
subs
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Harvest States
Cooperatives on Form S-1 of our reports on the consolidated financial statements
of Harvest States Cooperatives, the Oilseed Processing and Refining Division
(a division of Harvest States Cooperatives), and the Wheat Milling Division (a
division of Harvest States Cooperatives) dated August 19, 1996, December 10,
1996, and December 11, 1996, respectively, appearing in the prospectus, which
is part of this Registration Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such prospectus.
/s/ Deloitte & Touche LLP
Minneapolis, Minnesota
December 11, 1996
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose
signature appears below hereby constitutes and appoints John D. Johnson, T. F.
Baker and Debra A. Thornton, and each of them, his or her true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him or her and in his or her name, place and stead, in
any and all capacities, to sign a Registration Statement on Form S-1 under the
Securities Act of 1933, as amended, of Harvest States Cooperatives, and any and
all amendments thereto, including post-effective amendments, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, each acting alone, or the substitutes for such attorneys-in-fact and
agents, may lawfully do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/John D. Johnson President and Chief Executive Officer December 4, 1996
- - - - ------------------------------- (principal executive officer)
John D. Johnson
/s/T.F. Baker Group Vice President Finance December 4, 1996
- - - - ------------------------------- (principal financial officer)
T. F. Baker
/s/John Schmitz Vice President Corporate Accounting December 4, 1996
- - - - ------------------------------- (principal accounting officer)
John Schmitz
/s/Steven Burnet Chairman of the Board of Directors December 4, 1996
- - - - -------------------------------
Steven Burnet
/s/Steve Carney Director December 4, 1996
- - - - -------------------------------
Steve Carney
/s/Sheldon Haaland Director December 4, 1996
- - - - -------------------------------
Sheldon Haaland
/s/Jerry C. Hasnedl Director December 4, 1996
- - - - -------------------------------
Jerry C. Hasnedl
/s/Edward Hereford Director December 4, 1996
- - - - -------------------------------
Edward Hereford
/s/Gerald Kuster Director December 4, 1996
- - - - -------------------------------
Gerald Kuster
/s/Tyrone A. Moos Director December 4, 1996
- - - - -------------------------------
Tyrone A. Moos
/s/Duane G. Risan Director December 4, 1996
- - - - -------------------------------
Duane G. Risan
/s/William J. Zarak, Jr. Director December 4, 1996
- - - - -------------------------------
William J. Zarak, Jr.
/s/Edward Ellison Director December 4, 1996
- - - - -------------------------------
Edward Ellison
/s/Leonard D. Larsen Director December 4, 1996
- - - - -------------------------------
Leonard D. Larsen
/s/Duane Stenzel Director December 4, 1996
- - - - -------------------------------
Duane Stenzel
/s/ Russell W. Twedt Director December 4, 1996
- - - - -------------------------------
Russell W. Twedt
/s/Merlin Van Walleghen Director December 4, 1996
- - - - -------------------------------
Merlin Van Walleghen
</TABLE>
