<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-70732
TELMARK LLC
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF FORMATION)
DELAWARE 16-1551523
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
333 BUTTERNUT DRIVE, DEWITT, NEW YORK 13214
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 315-449-7935
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
X
--- ---
No Yes
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN ANY DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE OF PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. X
---
STATE THE AGGREGATE MARKET VALUE OF THE VOTING AND NON-VOTING COMMON
EQUITY HELD BY NON-AFFILIATES OF THE REGISTRANT AUGUST 21, 1998.
ZERO
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
EQUITY SECURITIES, AS OF THE LATEST PRACTICABLE DATE.
CLASS OUTSTANDING AT AUGUST 21, 1998
- ---------------------- ------------------------------
MEMBERSHIP CERTIFICATE ONE
TELMARK IS A DIRECT WHOLLY OWNED SUBSIDIARY OF AGWAY HOLDINGS, INC., A
SUBSIDIARY OF AGWAY, INC., WHICH IS A REPORTING COMPANY UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AND MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS
I(1)(A) AND (B) OF FORM 10-K AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
PAGE 1 OF 30. EXHIBIT INDEX APPEARS ON SEQUENTIALLY NUMBERED PAGE 28.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
FORM 10-K ANNUAL REPORT - 1998
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
CROSS-REFERENCE SHEET
PART I
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 1. & 2. Business and Properties................................... 3
Item 3. Legal Proceedings......................................... 4
Item 4. Not Required
PART II
Item 5. Market for the Registrant's Common Equity and
Related Membership Matters.............................. 5
Item 6. Not Required
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 5
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk....................................... 7
Item 8. Financial Statements...................................... 8
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................. 22
PART III
Item 10. Directors and Executive Officers of the Registrant........ 23
Item 11. Executive Compensation.................................... 24
Item 12. Security Ownership of Certain Beneficial
Owners and Management................................... 26
Item 13. Certain Relationships and Related Transactions............ 27
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K................................. 28
Signatures................................................ 30
</TABLE>
2
<PAGE>
PART I
ITEM 1. & 2. BUSINESS AND PROPERTIES
Telmark LLC ("Telmark" or the "Company") was organized in 1964 as Telmark Inc.
under the Business Corporation Law of the State of New York. Effective July 1,
1998, Telmark Inc. was merged into Telmark LLC, a Delaware limited liability
company that was formed solely to carry on the business of Telmark in limited
liabilty company, rather than corporate, form. Telmark is a wholly owned
subsidiary of Agway Holdings, Inc., ("Holdings"). Holdings is an indirect wholly
owned subsidiary of Agway, Inc. ("Agway").
Agway is subject to certain informational reporting requirements of the
Securities Exchange Act of 1934 and in accordance therewith files reports and
other information with the Commission. Reports filed with the Commission can be
inspected at the Public Reference Section of the Commission at 450 Fifth Street
N.W., Washington D.C. 20549 and at the regional offices of the Commission at
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New York
10048. Copies of such materials can be obtained from the Commission at
prescribed rates.
The Company's operations are comprised almost exclusively of direct finance
leasing of agricultural related equipment, vehicles and buildings to farmers or
other rural businesses that serve the agricultural marketplace (herein,
"customers" or "lessees"). The Company's leases offer customers an alternative
to directly purchasing or borrowing to purchase as a means of acquiring the use
of equipment, vehicles or buildings. Telmark has branded its leasing service as
Agrilease(R) and TFS(SM), and the Company highlights its service-oriented
approach in its advertisements and product brochures. Telmark offers a variety
of lease financing packages, with varying payment schedules on a monthly,
quarterly, semiannual or annual basis, depending on the expected timing of
customer cash flows and customer credit quality and the customer's individual
preferences.
With a direct finance lease the customers have use of the leased property over a
specified term for a periodic rental charge: i.e., the lease payment. Lease
payments are made in advance of the period and typically the equivalent of two
monthly payments are required in advance at the outset of the lease to provide
Telmark with some protection in the event of default. Most of the direct finance
leases offered by Telmark are for a period which does not exceed its estimate of
the useful life of the equipment, vehicle, or the building leased. Equipment
leases are typically offered for a period of 3 to 6 years, and generally do not
exceed eight years. Building leases are typically offered for longer terms
(e.g., 5 to 10 years) than for equipment leases, up to maximum terms of 15
years. As of June 30, 1998, the Company's outstanding leases had an average
original term of approximately 5.5 years and average remaining term of
approximately 4 years.
Generally, the lessee selects the supplier of the equipment or other property to
be leased and the Company is not responsible for its suitability, performance,
life, or any other characteristics. The Company's primary responsibility is to
buy the property from the supplier, lease it to the lessee, and collect the
lease payments, although in certain circumstances it has agreed to indemnify
lessees in the event that certain unintended and adverse tax consequences to
such lessee arise in connection with the relevant lease. While Telmark's
liability, if any, under such arrangements cannot be predicted with any
certainty, it views the likelihood of such liability as remote and believes that
the net effect of such liability, if any, would be immaterial. Telmark also
offers financing through specific equipment manufacturer programs. The lessee
assumes all obligations of insurance, repairs, maintenance, service, and
property taxes, while Telmark retains title to the leased property. At the
expiration of the direct finance lease term, the lessee has an option to (i)
purchase the leased property, (ii) renew the lease, or (iii) return the leased
property to the Company. Historically, in approximately 95% of the Company's
lease transactions, the lessee has purchased the leased property or equipment
upon termination of the lease.
Bankruptcies, contract disputes, or defaults by lessees could result in the
non-payment of amounts due to the Company under its leases. The ultimate
collectibility of amounts due under its leases is directly dependent upon the
credit practices employed by Telmark and the creditworthiness of the lessees
under the individual leases comprising its portfolio. Despite current credit
practices and the existence of financial reserves to anticipate the potential
impact of default or nonpayment of leases, there are other factors that could
significantly impact the Company's lease collection experience and its earnings.
These factors include: (i) changes in general economic conditions; (ii) changes
in the level of government expenditures on farm programs and other changes in
government agricultural programs that adversely effect the level of income of
customers of the Company; (iii) adverse weather-related conditions that
negatively impact the agricultural productivity and income of customers of the
Company; and (iv) oversupply of, or reduced demand for, agricultural commodities
produced by customers of the Company.
3
<PAGE>
ITEM 1. & 2. BUSINESS AND PROPERTIES (CONT.)
Credit approval limits are made based on the total amount of leases outstanding
to the customer. Lending authority is assigned to members of management
depending on position, training, and experience. The Board of Directors must
approve all lease amounts exceeding $1 million. Potential lessees undergo a
thorough credit approval process after a Telmark field representative completes
a financial application. Telmark retains title to the equipment or building
leased. If appropriate, Telmark obtains a second lien on the real estate owned
by the farmer or lessee as collateral for payments under a building lease.
Telmark maintains monthly delinquency reports which monitor leases that have
been delinquent for over 30 days, as well as non-earning leases. Generally,
accounts past due at least 120 days, as well as accounts in foreclosure or
bankruptcy, are transferred to non-earning status. The potential losses from
non-earning leases are partly mitigated by the ability of the Company to
repossess leased property and to foreclose on other property in which the
Company has been granted a security interest.
The Company realizes most of its net earnings (profits) to the extent that
revenues from its leases exceeds the Company's operating expenses and income
taxes. The Company's "revenue" from a lease is the sum of all payments due under
the lease plus the residual value of the leased property, less the cost of
purchasing the leased property. "Operating expenses" include interest expense,
provision for credit losses (the dollar amount the Company sets aside to cover
its estimated losses should a lessee fail to make required payments under a
lease), and selling, general and administrative expenses, including the
Company's payroll costs, rent, advertising costs and fees paid for credit
checking and legal and accounting services. "Interest expense" is the single
largest operating cost of the Company and is primarily the interest it must pay
on the amounts borrowed by the Company from banks and other investors to finance
its leases.
The Company leases all of the office space it uses from Agway. It does not own
any of the real property it uses for office facilities.
Telmark has two wholly owned subsidiaries, TFS Limited and Telmark Lease Funding
I, LLC. TFS Limited is a Canadian Corporation formed to conduct certain lease
transactions with Canadian customers. Telmark Lease Funding I, LLC was
established solely to enable a lease securitization financing entered into
during 1997. Telmark Lease Funding Corp. I was organized in 1997 as a New York
Corporation which effective July 1, 1998 was merged into Telmark Lease Funding
I, LLC, a Delaware Limited Liability Company.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation or legal proceedings pending, or to
the best of its knowledge threatened, which, in the opinion of its management,
individually or in the aggregate, would have a material adverse affect on its
results of operations, financial condition, or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
Not required.
4
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED MEMBERSHIP MATTERS
Effective July 1, 1998 Telmark Inc's. common stock was cancelled by virtue of
the merger of Telmark Inc. with and into Telmark LLC, with Telmark LLC being the
surviving entity in the merger. Telmark LLC has one limited liability company
membership interest outstanding, which is indirectly owned by Agway through its
wholly-owned subsidiary Holdings. There is no public market for such membership
interest and none is expected to develop. During the years ended June 30, 1998,
and 1997, Telmark Inc. declared no dividends with respect to its common stock.
Under a loan covenant, dividends are prohibited to the extent they exceed 75% of
net income for the period beginning on October 1, 1997, through the date of
determination, inclusive. As of June 30, 1998, $5.2 million of member's equity
was free of this restriction.
ITEM 6. SELECTED FINANCIAL DATA
Not required.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
1998 COMPARED TO 1997. Telmark's net income increased by $0.9 million (11%) from
$7.9 million in 1997 to $8.8 million in 1998. The increase is principally due to
a larger outstanding portfolio of leases during 1998 as compared to 1997.
Total revenues of $65.5 million in 1998 increased $8.5 million (15%) as compared
to $56.9 million in 1997. The increase is attributable in part to a $49.9
million (11%) increase in net leases and notes during 1998 as compared to 1997.
Increases in the lease portfolio resulting from new booked volume of $227.3
million in 1998 and $231.0 million in 1997 exceeded lease reductions from
collection and net bad debt expense of $177.4 million and $159.8 million in 1998
and 1997, respectively. The increase in new booked volume in excess of
collections and bad debt provisions has the effect of increasing total revenues.
Total revenue, as a percentage of average net leases and notes, decreased
slightly from 13.7% in 1997 to 13.5% in 1998.
While the average cost of interest paid on debt decreased from 7.5% to 7.2%,
interest expense of $26.9 million in 1998 represents an increase of $3.4 million
(14%) compared to $23.5 million in 1997, due to increased borrowings required to
finance the growth of the lease portfolio noted above. Selling, general, and
administrative expenses of $15.6 million in 1998 increased by $3.1 million (25%)
compared to $12.5 million in 1997. The increase was primarily the result of
additional personnel and incentive costs relating to the additional new business
booked as the Company expands its territory.
The provision for credit losses of $7.6 million in 1998 represents a decrease of
$0.3 million (5%) compared to $7.9 million in 1997. This decrease is based on
the Company's analysis of reserves required to provide for uncollectible
receivables. Telmark's allowance for credit losses is determined by a periodic
review of the lease portfolio, including analysis of delinquent accounts,
current economic conditions, estimated residual values, and creditworthiness of
customers. Reserves are established at a level sufficient to cover estimated
losses in the portfolio. During 1997 and 1998, the general economy remained
strong and the total value of non-earning accounts increased only slightly from
$2.7 million in 1997 to $3.0 million in 1998.
1997 COMPARED TO 1996. Telmark's net income increased by $1.1 million (17%) from
$6.8 million in 1996 to $7.9 million in 1997. The increase is principally due to
a larger outstanding portfolio of leases during the year.
Increases in the lease portfolio resulting from new booked volume of $231.0
million in 1997 and $177.5 million in 1996 exceeded lease reductions from
collection and net bad debt expense of $159.8 million and $136.0 million in 1997
and 1996, respectively. The increase in new booked volume in excess of
collections and bad debt provisions has the effect of increasing total revenues.
Total revenues of $56.9 million in 1997 represents an increase of $8.3 million
(17%) as compared to $48.6 million in 1996. The increase is attributable in part
to a $71.2 million (19%) increase in net leases and notes during 1997 as
compared to 1996. Interest and finance charges, as a percentage of average net
leases and notes, increased slightly from 13.5% in 1996 to 13.7% in 1997. During
the same period, the average cost of interest paid on debt remained unchanged at
7.5%.
5
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONT.)
Selling, general, and administrative expenses of $12.5 million in 1997 increased
by $2.7 million (27%) compared to $9.8 million in 1996. Those increases were
primarily the result of additional personnel, incentives paid relating to the
additional new business booked, and advertising. While the average cost of
interest paid on debt remained unchanged, interest expense of $23.5 million in
1997 represents an increase of $3.2 million (16%) compared to $20.3 million in
1996, due to increased borrowings required to finance the growth of the lease
portfolio.
The provision for credit losses of $7.9 million in 1997 represents an increase
of $0.9 million (14%) compared to $7 million in 1996. This increase is based on
the Company's analysis of reserves required to provide for uncollectible
receivables. During 1996 and 1997, the general economy remained strong and the
total value of non-earning accounts was reduced from $2.9 million in 1996 to
$2.7 million in 1997. However, management believes that it was prudent to
increase the level of reserve to approximately $24.0 million because of the
increase in the size of the overall lease portfolio over the prior year.
Accordingly, the provision for credit losses increased.
LIQUIDITY
The ongoing availability of adequate financing to maintain the size of the
Company's current lease portfolio and to permit lease portfolio growth is key to
the Company's continuing profitability and stability. The Company has
principally financed its operations, including the growth of its lease
portfolio, through borrowings under its lines of credit, private placements of
debt with institutional investors and other term debt, lease backed asset
securitization, principal collections on leases and cash provided from
operations. Total assets have grown an average rate of 17% over the past
fourteen years. This growth has been financed through growth in member's equity
and additional capital contribution from Agway, in addition to debt financing.
The ratio of debt to equity was 4.3 at both June 30, 1998 and June 30, 1997.
Cash flows from operations were $21.2 million, $15.2 million, and $12.6 million,
for 1998, 1997, and 1996 respectively. Cash flows from financing activities were
36.8 million, 64.5 million, and 35.7 million for 1998, 1997, and 1996
respectively. The cash generated from these two sources of $58.0 million, $79.7
million, and $48.3 million for 1998, 1997, and 1996 respectively, was used
solely to invest in the lease portfolio of the Company. Telmark has been
successful in arranging its past financing needs and believes that its current
financing arrangements are adequate to meet its foreseeable operating
requirements. There can be no assurance, however, that Telmark will be able to
obtain future financing in amounts or on terms that are acceptable. The
Company's inability to obtain adequate financing would have a material adverse
effect on its operations. Management conducts ongoing discussions and
negotiations with existing and potential lenders for its future financing needs.
See footnote 5 to the Consolidated Financial Statements "Borrowing under Lines
of Credit and Term Debt."
OTHER MATTERS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR"PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company is including the following cautionary statement in this Form 10-K to
make applicable and take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statement made by, or on behalf of, the Company. Where any such forward-looking
statement includes a statement of the assumptions or basis underlying such
forward-looking statement, the Company cautions that, while it believes such
assumptions or basis to be reasonable and makes them in good faith, assumed
facts or basis almost always vary from actual results, and the differences
between assumed facts or basis and actual results can be material, depending
upon the circumstances. Certain factors that could cause actual results to
differ materially from those projected have been discussed herein and include
the factors set forth below. Other factors that could cause actual results to
differ materially include uncertainties of economic, competitive and market
decisions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Where, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, such
expectation or belief is expressed in good faith and believed to have a
reasonable basis, but there can be no assurance that the statement of
expectation or belief will result or be achieved or accomplished. The words
"believe," "expect" and "anticipate" and similar expressions identify
forward-looking statements.
YEAR 2000
See footnote 8 to the Consolidated Financial Statements.
6
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not use derivatives and other interest rate instruments based
on the fixed rate nature of the majority of the Company's debt obligations. The
following table provides information about the Company's debt securities and
loans that are sensitive to changes in interest rates. The table presents
principal cash flows (in 000's) and related weighted average interest rates by
contractual maturity dates.
<TABLE>
<CAPTION>
FIXED INTEREST RATE Fair Value
Liabilities 1999 2000 2001 2002 2003 Thereafter Total 6/30/98
---- ---- ---- ---- ---- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Short Term Bank
Lines of Credit $35,000 - - - - - $35,000 $ 35,000
Weighted Average
Interest Rate 6.30% - - - - -
Long-Term Debt,
including current portion 93,569 88,565 64,849 43,862 22,982 22,833 336,660 342,628
Weighted Average
Interest Rate 7.18% 7.06% 6.96% 6.83% 7.00% 7.01%
Subordinated Debentures,
including current portion - 17,794 2,711 3,398 10,103 - 34,006 34,605
Weighted Average
Interest Rate - 8.23% 7.87% 7.50% 8.42% -
</TABLE>
The Company endeavors to limit the effects of changes in interest rates by
matching as closely as possible, on an ongoing basis, the maturity and repricing
characteristics of funds borrowed to finance its leasing activities with the
maturity and repricing characteristics of its lease portfolio. However, a rise
in interest rates would increase the cost of that portion of the debt which is
not precisely matched to the characteristics of the portfolio and could lower
the value of the Company's outstanding leases in the secondary market. The
Company has a formal risk management policy which limits the short-term exposure
to an amount which is immaterial to the results of operations or cash flows. The
subordinated debentures' interest rate is at the greater of the quoted rate or a
rate based upon the discount rate for U.S. Government Treasury Bills (T-Bill),
with maturities of 26 weeks. Based on the T-Bill rate as of June 30,1998, as
compared to the stated rate of the debentures, a reasonably possible near-term
charge in interest rates and the conversion of debt to a variable rate would not
cause material near-term losses in future earnings or cash flows. Finally, for
the portion of debt which is not precisely matched as of June 30, 1998, the
Company does not believe that reasonable possible near-term changes in interest
rates will result in a material effect on future earnings, fair values, or cash
flows of the Company.
7
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
<S> <C>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES:
Report of Independent Accountants.................................................................... 9
Consolidated Balance Sheets, June 30, 1998 and 1997.................................................. 10
Consolidated Statements of Income and Member's Equity,
for the years ended June 30, 1998, 1997 and 1996............................................ 11
Consolidated Statements of Cash Flows for the fiscal years ended June 30, 1998, 1997 and 1996........ 12
Notes to Consolidated Financial Statements........................................................... 13
</TABLE>
8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Telmark LLC:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and member's equity and cash flows present
fairly, in all material respects, the financial position of TELMARK LLC (a
wholly-owned subsidiary of Agway Holdings, Inc.) and its subsidiaries at June
30, 1998 and 1997, and the results of their operations and their cash flows for
each of the three years in the period ended June 30, 1998, in conformity with
generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Syracuse, New York
August 10, 1998
9
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEETS
JUNE 30, 1998 AND 1997
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
ASSETS
1998 1997
------------ ----------
<S> <C> <C>
Restricted cash........................................ $ 1,704 $ 1,393
Leases and notes, net.................................. 495,626 445,770
Investments............................................ 11,850 10,807
Equipment, net......................................... 1,000 1,055
Deferred income taxes.................................. 7,030 10,644
Other assets........................................... 1,106 937
------------ ----------
Total Assets........................................... $518,316 $ 470,606
============ ==========
LIABILITIES AND MEMBER'S EQUITY
1998 1997
------------ ----------
Borrowings under lines of credit and term debt......... $ 371,677 $ 340,158
Subordinated debentures................................ 34,006 31,044
Accounts payable....................................... 5,108 4,399
Payable to Agway Inc................................... 4,443 450
Accrued expenses, including interest of
$4,262 - 1998 and $4,786 - 1997 ................. 7,918 8,149
------------ ----------
Total Liabilities...................................... 423,152 384,200
Commitments & Contingencies
Member's Equity........................................ 95,164 86,406
------------ ----------
Total Liabilities and Member's Equity............. $ 518,316 $ 470,606
============ ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
10
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF INCOME AND MEMBER'S EQUITY
FISCAL YEARS ENDED JUNE 30, 1998, 1997, AND 1996
(THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- ------------
<S> <C> <C> <C>
Revenues:
Interest and finance charges........$ 63,872 $ 55,451 $ 47,242
Service fees and other income....... 1,604 1,492 1,385
------------- ------------- ------------
Total revenues.................. 65,476 56,943 48,627
------------- ------------- ------------
Expenses:
Interest expense.................... 26,871 23,486 20,305
Provision for credit losses......... 7,587 7,947 7,000
Selling, general and administrative. 15,606 12,507 9,820
------------- ------------- ------------
Total expenses.................. 50,064 43,940 37,125
------------- ------------- ------------
Income before income taxes...... 15,412 13,003 11,502
Provision for income taxes............... 6,654 5,112 4,745
------------- ------------- ------------
Net income...................... 8,758 7,891 6,757
Additional capital contribution.......... 0 0 27,000
Member's equity, beginning of year....... 86,406 78,515 44,758
------------- ------------- ------------
Member's equity, end of year.............$ 95,164 $ 86,406 $ 78,515
============= ============= ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
11
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED JUNE 30, 1998, 1997, AND 1996
(THOUSANDS OF DOLLARS)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................... $ 8,758 $ 7,891 $ 6,757
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization .... 607 529 450
Deferred taxes ................... 3,614 1,259 1,893
Provision for doubtful accounts .. 7,587 7,947 7,000
Patronage refund received in stock (1,043) (769) (660)
Changes in assets and liabilities:
Other assets ................ (169) (1,283) 262
Payables .................... 709 (246) (2,178)
Income taxes payable ........ 1,330 (2,136) (1,878)
Accrued expenses ............ (231) 2,028 916
------------ ------------ ------------
Net cash flow provided by
operating activities ........ 21,162 15,220 12,562
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Leases originated .................... (227,270) (231,006) (177,502)
Leases repaid ........................ 169,827 151,851 129,032
Purchases of equipment ............... (552) (523) (1,127)
Proceeds from sale of equipment ...... 0 0 1,290
------------ ------------ ------------
Net cash flow used
in investing activities ..... (57,995) (79,678) (48,307)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in borrowings
under lines of credit ........... (9,900) 48,900 42,000
Proceeds from notes payable .......... 130,000 130,944 62,000
Repayment of notes payable ........... (88,508) (112,621) (86,622)
Repayment of capital lease ........... (73) (66) (47)
Net change payable to Agway Inc. ..... 2,663 (8,092) 2,330
Repayment of debentures .............. (11,208) 0 0
Proceeds from sale of debentures ..... 14,170 6,786 16,084
Net change in restricted cash ........ (311) (1,393) 0
------------ ------------ ------------
Net cash flow provided by
financing activities ...... 36,833 64,458 35,745
------------ ------------ ------------
Net change in cash ................... 0 0 0
Cash at beginning of year ............ 0 0 0
------------ ------------ ------------
Cash at end of year .................. $ 0 $ 0 $ 0
============ ============ ============
Cash paid during period for:
Interest ......................... $ 27,395 22,761 $ 19,927
Taxes ............................ $ 2,972 6,968 $ 4,729
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
12
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES
Operations
Telmark LLC ("Telmark" or the "Company") was organized in 1964 as Telmark
Inc. under the Business Corporation Law of the State of New York. Effective July
1, 1998, Telmark Inc. was merged into Telmark LLC, a Delaware limited liability
company. The Company is in the business of leasing agricultural related
equipment, vehicles, and buildings. Telmark's customers are farmers and other
rural businesses as well as manufacturers and independent dealers that serve the
agricultural marketplace. The Company is indirectly owned and controlled by
Agway Inc. ("Agway"), one of the largest agricultural supply and services
cooperatives in the United States. Telmark is a wholly-owned subsidiary of Agway
Holdings, Inc. ("Holdings"), a subsidiary of Agway. Telmark operates throughout
the continental United States and the Company's field representatives serve
customers in 29 states including Alabama, Connecticut, Delaware, Florida,
Georgia, Illinois, Indiana, Iowa, Kentucky, Maine, Maryland, Massachusetts,
Michigan, Minnesota, Mississippi, Missouri, New Hampshire, New Jersey, New York,
North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee,
Vermont, Virginia, West Virginia and Wisconsin.
Basis of Consolidation
The consolidated financial statements include the accounts of all wholly
owned subsidiaries. All significant intercompany transactions and balances have
been eliminated in consolidation.
Cash and Equivalents
The Company considers all investments with a maturity of three months or
less when purchased to be cash equivalents. Certain cash accounts amounting to
$1,704 and $1,393 at June 30, 1998, and 1997 respectively related to securitized
leases are held in segregated cash accounts pending distribution to the
lease-backed note holders and are restricted in their use.
Lease Accounting
Completed lease contracts, which qualify as direct finance leases as
defined by Statement of Financial Accounting Standards ("SFAS") No. 13
"Accounting for Leases," are accounted for by recording on the balance sheet the
total future minimum lease payments receivable, plus the estimated unguaranteed
residual value of leased equipment, less the unearned interest and finance
charges. Unearned interest and finance charges represent the excess of the total
future minimum lease payments plus the estimated unguaranteed residual value
expected to be realized at the end of the lease term over the cost of the
related equipment. Interest and finance charge income is recognized as revenue,
by using the interest method over the term of the lease, which for most
commercial and agricultural leases is 60 months or less with a maximum of 180
months for buildings. Income recognition is suspended on all leases and notes
which become past due greater than 120 days. As of June 30, 1998, and 1997, the
recognition of interest income was suspended on leases and notes totaling
approximately $3,000 and $2,700, respectively.
Initial direct costs incurred in consummating a lease are capitalized as
part of the investment in direct finance leases and amortized over the lease
term as a reduction in the yield. Initial direct costs incurred were $5,256,
$5,354, and $4,748 for the years ended June 30, 1998, 1997, and 1996,
respectively.
Provisions for credit losses are charged to income in amounts sufficient
to maintain the allowance at a level considered adequate to cover losses in the
existing portfolio. The net investment in a lease is charged against the
allowance for credit losses when determined to be uncollectible.
13
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (Continued)
(THOUSANDS OF DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES (CONT )
Investments
Investments comprise capital stock of a cooperative bank acquired from the
bank at par or stated value. This stock is not traded and is historically
redeemed on a periodic basis by the bank at cost. By its nature, this stock is
held for redemption and is reported at cost. Dividends on this stock are
recorded as a reduction of interest expense and totalled $1,489, $1,099, and
$942 for the years ended June 30, 1998, 1997, and 1996, respectively.
Equipment
Depreciation is calculated using the straight-line method over the
estimated useful lives of the equipment.
Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense
for the years ended June 30, 1998, 1997, and 1996, was approximately $900, $800,
and $600.
Income Taxes
The Company provides for income taxes in accordance with the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under the liability method specified by SFAS No. 109, deferred
tax assets and liabilities are based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the tax rates
which are anticipated to be in effect when these differences reverse. The
deferred tax provision represents the net change in the assets and liabilities
for deferred tax.
The Company is included in a consolidated federal tax return filed by
Agway Inc. Under the Agway/Telmark tax sharing agreement, the provision for
income taxes and related credits and carry forwards are calculated on a separate
company basis and billed to the Company as appropriate on an interim basis. The
Company files separate state tax returns. Effective July 1, 1998, the Company is
included in consolidated state tax returns filed by Holdings.
Use of 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 expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to conform prior year financial
statements with the current year presentation.
14
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
2. LEASES, NOTES AND ALLOWANCE FOR CREDIT LOSSES
Leases and notes as of June 30 were as follows:
1998 1997
-------- --------
Leases:
Commercial and agricultural $667,222 $596,391
Leasing to Agway Inc. and subsidiaries 302 460
-------- --------
667,524 596,851
Retail installment loans 21,464 16,682
-------- --------
Total leases and notes $688,988 $613,533
======== ========
Net investment in leases and notes at June 30 are summarized as follows:
1998 1997
--------- ---------
Leases and notes $ 688,988 $ 613,533
Unearned interest and finance charges (175,887) (152,591)
Net deferred origination costs 9,596 8,842
--------- ---------
Net investment 522,697 469,784
Allowance for credit losses (27,071) (24,014)
--------- ---------
Leases and notes, net $ 495,626 $ 445,770
========= =========
Included within the above leases and notes is unguaranteed estimated residual
values of leased property approximating $72,400 and $63,700 at June 30, 1998,
and 1997, respectively.
Contractual maturities of leases and notes were as follows at June 30,
1998:
Leases
---------------------------
Commercial To Agway Retail
and Inc. and Installment
Agricultural Subsidiaries Loans Total
------------ ------------ ----------- -----------
1999 $198,536 $ 82 $ 8,933 $207,551
2000 153,181 69 4,949 158,199
2001 112,071 58 2,623 114,752
2002 73,746 51 1,333 75,130
2003 42,159 26 700 42,885
Thereafter 87,529 16 2,926 90,471
------------ ------------ ----------- -----------
Totals $667,222 $ 302 $ 21,464 $688,988
============ ============ =========== ===========
Changes in the allowance for credit losses for the years ended June 30 were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year $ 24,014 $ 19,776 $ 15,331
Provision for credit losses charged to operations 7,587 7,947 7,000
Charge-offs (6,513) (5,481) (4,612)
Recoveries 1,983 1,771 2,057
-------- -------- --------
Balance, end of year $ 27,071 $ 24,014 $ 19,776
======== ======== ========
</TABLE>
15
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
3. EQUIPMENT
Equipment, at cost, including capital leases, consisted of the following
at June 30:
1998 Owned Leased Combined
- ---- ------- ------- -------
Office and other equipment .. $ 2,413 $ 203 $ 2,616
Less accumulated depreciation
and amortization .... (1,430) (186) (1,616)
------- ------- -------
$ 983 $ 17 $ 1,000
======= ======= =======
1997
Office and other equipment .....$ 2,017 $ 203 $ 2,220
Less accumulated depreciation
and amortization ....... (1,046) (119) (1,165)
------- ------- -------
$ 971 $ 84 $ 1,055
======= ======= =======
4. INCOME TAXES
The provision for income taxes consists of the following:
1998 1997 1996
------ ------ ------
Currently payable:
Federal ..... $2,321 $3,215 $1,998
State ....... 719 638 854
Deferred ......... 3,614 1,259 1,893
------ ------ ------
$6,654 $5,112 $4,745
====== ====== ======
The Company's effective income tax rate on pre-tax income differs from the
federal statutory tax rate as follows:
1998 1997 1996
---- ----- -----
Statutory federal income tax rate ..... 34.0% 34.0% 34.0%
Tax effects of:
State taxes, net of federal benefit 8.7 5.4 6.7
Other items ....................... .5 (.1) .6
----- ----- -----
Effective income tax rate ............. 43.2% 39.3% 41.3%
===== ===== =====
16
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
4. INCOME TAXES (CONT.)
The components of the net deferred tax asset as of June 30 were as follows:
1998 1997
------- -------
Deferred tax assets:
Lease receivable reserves ......... $10,726 $ 9,514
Other reserves .................... 761 813
Alternative minimum tax
credit carry forward ........... 3,462 1,118
Other ............................. 456 469
------- -------
Total deferred tax assets ......... 15,405 11,914
------- -------
Deferred tax liabilities:
Difference between book and
tax treatment of leases ....... 8,192 1,087
Other ............................. 183 183
------- -------
Total deferred tax liabilities 8,375 1,270
------- -------
Net deferred tax asset ....... $ 7,030 $10,644
======= =======
Based on the Company's history of taxable earnings and its expectations for the
future, management has determined that operating income will more likely than
not be sufficient to recognize its deferred tax assets. At June 30, 1998, the
Company's federal AMT credit can be carried forward indefinitely.
5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT
As of June 30, 1998, the Company has credit facilities available from banks
which allow the Company to borrow up to an aggregate of $294,000. Uncommitted
short-term line of credit agreements permit the Company to borrow up to $44,000
on an unsecured basis with interest paid upon maturity. The lines bear interest
at money market variable rates. A committed $250,000 partially collateralized
revolving term loan facility permits the Company to draw short-term funds
bearing interest at money market rates or draw long-term debt at rates
appropriate for the term of the note drawn. The total amount outstanding as of
June 30, 1998, under the short-term lines of credit and the revolving term loan
facility was $20,000 and $165,000, respectively.
The Company, through a wholly owned special purpose subsidiary, Telmark Lease
Funding I, LLC issued $24,000 of Class A lease-backed notes and $2,000 of Class
B lease-backed notes to three insurance companies. The subsidiary pays interest
at 6.58% on the Class A notes and 7.01% on the Class B notes. The notes are
collateralized by leases having an aggregate present value of contractual lease
payments equal to the principal balance of the notes, and the notes are further
collateralized by the residual values of these leases.
Telmark borrows under its short-term line of credit agreements and its revolving
term agreement from time to time to fund its operations. Short-term debt serves
as interim financing between the issuances of long-term debt. Telmark renews its
lines of credit annually. The $44,000 lines of credit all have terms expiring
during the next 12 months. The $250,000 revolving term loan facility is
available through February 1, 1999. The increase in the availability and
outstanding's under the lines of credit are necessary to support growth of the
Company's portfolio of leases and notes. The Company believes it has sufficient
lines of credit in place to meet interim funding needs.
At June 30, 1998, the Company had balances outstanding on unsecured senior note
private placements totaling $169,000. Interest is payable semiannually on each
senior note. Principal payments are both semiannual and annual. The note
agreements are similar to one another and each contain financial covenants, the
most restrictive of which prohibit (i) tangible net worth, defined as
consolidated tangible assets less total liabilities (excluding notes payable to
Agway Holdings, Inc.), from being less than $75,000, (ii) the ratio of total
liabilities less subordinated notes payable to Agway Holdings, Inc. to member's
equity plus subordinated notes payable to Agway Holdings, Inc. from exceeding
5:1, (iii) the ratio of earnings available for fixed charges from being less
than 1.25:1, and (iv) dividend distributions and restricted investments (as
defined) made after September 30, 1997 that exceed 75% of consolidated net
income for the period beginning on October 1, 1997 through the date of
determination, inclusive. As of June 30, 1998, $5,243 of member's equity was
free of this restriction.
17
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
5. BORROWINGS UNDER LINES OF CREDIT AND TERM DEBT (CONT.)
At June 30, term debt consisted of the following:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Notes payable to banks due in varying amount and dates through
October 16, 2000 with interest ranging from 5.88% to 8.40% .................. $185,000 $194,900
Unsecured notes payable to insurance companies due in varying
amount and dates through May 29, 2004, with interest
ranging from 5.90% to 8.88% ................................................. 169,000 119,722
Lease-backed notes payable to insurance companies in varying
amounts and dates through December 15, 2004, with interest
rates ranging from 6.58% to 7.01% ........................................... 17,660 25,446
Capital lease payable in 1999 .................................................. 17 90
-------- --------
Total Term Debt ........................................................... 371,677 340,158
Subordinated debentures due in varying amount and dates through
March 31, 2002, with interest ranging from 7.75% to 8.50% ................... 34,006 31,044
-------- --------
Total Debt ................................................................ $405,683 $371,202
======== ========
</TABLE>
The notes payable to banks represents the portion outstanding at June 30, 1998,
and 1997, of the amount available under credit facilities totaling $294,000 and
$204,000 respectively. Of the amount outstanding at June 30, 1998, $165,000 is
partially collateralized by the Company's investment in a cooperative bank
having a book value of $11,850 at June 30, 1998. The subordinated debentures
represent the outstanding balance of registered debentures offered to and held
by the general public.
The debentures are unsecured and are subordinate to all senior debt of the
Company.
The carrying amounts and estimated fair values of the Company's significant
financial instruments held for purposes other than trading at June 30, were as
follows:
<TABLE>
<CAPTION>
1998 1997
------------------ ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------ ----- ------ -----
<S> <C> <C> <C> <C>
Liabilities:
Lines of Credit and
Term Debt (excluding capital leases) $371,660 $377,628 $340,068 $344,972
Subordinated Debentures 34,006 34,605 31,044 30,946
</TABLE>
The aggregate amounts of notes payable, capital leases, and subordinated
debentures maturing after June 30, 1998, are as follows:
<TABLE>
<CAPTION>
Notes Payable
-------------------------- Capital Subordinated
Year Ending June 30, Bank Ins. Companies Lease Debentures Total
--------- -------------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1999 $ 98,000 $ 30,569 $ 20 $ 0 $ 128,589
2000 59,000 29,565 0 17,794 106,359
2001 28,000 36,849 0 2,711 67,560
2002 0 43,862 0 3,398 47,260
2003 0 22,982 0 10,103 33,085
Thereafter 0 22,833 0 0 22,833
--------- --------- --------- ---------- ---------
185,000 186,660 20 34,006 405,686
Imputed Interest 0 0 (3) 0 (3)
--------- --------- --------- ---------- ---------
$ 185,000 $ 186,660 $ 17 $ 34,006 $ 405,683
========= ========= ========= ========== =========
</TABLE>
18
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
6. EMPLOYEE BENEFIT PLANS
Employees of Telmark participate in Agway's employee benefit plans, which
include a defined benefit retirement plan, a defined contribution 401(K) plan, a
medical and dental benefit plan, a postretirement medical plan, and a life and
health insurance plan. Total benefit costs under these plans are allocated by
Agway to Telmark primarily based on payroll costs. Benefit costs for those plans
included in selling, general and administrative expense were approximately
$1,100, $1,200, and $800 for the periods ended June 30, 1998, 1997, and 1996,
respectively.
7. RELATED PARTY TRANSACTIONS
Cash Management
In lieu of having its own cash account the Company utilizes the depository
accounts of its parent, Agway Inc., drawing checks against these accounts and
making deposits to them. The balance represented by the Payable to Agway Inc. is
dependant on the timing of deposits and the drawing of checks.
Inter-Company Transactions
Selected amounts related to transactions with Agway Inc. and Subsidiaries are
separately disclosed in the financial statements. Certain other transactions for
the years ended June 30 with Agway Inc. and Subsidiaries were approximately:
<TABLE>
<CAPTION>
(Revenue) Expense 1998 1997 1996
- ----------------- -------- -------- --------
<S> <C> <C> <C>
Interest and finance charges ..... $ (49) $ (38) $ (52)
Administrative and general expense 1,638 1,780 1,828
</TABLE>
Interest and finance charges are earned on equipment leases to Agway Inc. and
subsidiaries. The administrative and general expense caption described above
includes certain shared expenses incurred by Agway Inc. on behalf of the
Company, including the corporate insurance program, information services,
payroll, benefits, and accounts payable administration and facilities
management. These expenses were allocated to the Company and management believes
the methodology used is reasonable.
In 1996, the Board of Directors of Agway approved a capital contribution of
$27,000 from Holdings to Telmark. There were no other changes in paid in capital
or member's equity in the three years ended June 30, 1998.
8. COMMITMENTS & CONTINGENCIES
COMMITMENTS
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses. Since some
of the commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.
Outstanding commitments to extend lease financing at June 30, 1998 approximated
$27,800.
LEGAL PROCEEDINGS
The Company is not a party to any litigation or legal proceedings pending, or to
the best of its knowledge threatened, which, in the opinion of its management,
individually or in the aggregate, would have a material adverse affect on its
results of operations, financial position or liquidity.
19
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
YEAR 2000
The approach of the year 2000 presents potential issues to all organizations who
use computers in the conduct of their business or depend on business partners
who use computers. To the extent computer use is date-sensitive, hardware or
software that recognizes the year by the last two digits may erroneously
recognize "00" as 1900 rather than 2000, which could result in errors or system
failures.
Telmark utilizes a number of computers and computer software (systems) in the
conduct of its business that are principally involved in the flow of
information. Telmark initiated its year 2000 compliance efforts in January 1996.
The initial focus of the Company's compliance efforts was on the Company's
information systems, including assessment of the issue, planning the conversion
to compliance, plan implementation, and testing. All systems have been
inventoried. Those systems determined to be at risk were prioritized, and plans
were put in place to upgrade systems by remediation, replacements, or doing
without these systems. Through June 1998, the assessment and planning phases
have been completed. The remaining portion of these plans are in process of
implementation with final implementation scheduled to be completed in March
1999. Testing of systems is being conducted for each system as implemented. The
interaction of updated systems will be tested in the enterprise-wide testing
environment.
In addition to the information technology systems review noted above, the
Company has also initiated processes to review and to modify, where appropriate,
other areas impacted by year 2000. These areas include, but are not limited to,
hardware and software associated with end-user computing functions, vendor and
supplier relationships, external interfaces to internal information technology
systems, remote location access to information technology systems, facility
management, and certain non-information technology issues, such as the extent to
which embedded chips are used in business operations. The Company anticipates
that solutions to all year 2000 areas above will be implemented and tested no
later than December 1999.
The Company's Parent Agway Inc. engaged an international consulting firm in
March 1998 to evaluate the Parent Company's overall approach to year 2000 plans
and implementation compared to industry "best practices." Based on this review,
Telmark has increased the involvement of higher-level management to assure a
focus on the implementation timetable and the development of specific
contingency plans, and has initiated development of a more comprehensive
enterprise-wide testing environment to be in place by December 1998.
The year 2000 compliance issue is an uncertainty that is continuously being
monitored as the Company implements its plans. Based on the work performed to
date, the Company presently believes that the likelihood of the year 2000 having
a material effect on the results of operations, liquidity, or financial
condition is remote. Notwithstanding the foregoing, it is not presently clear
that all parts of the country's infrastructure, including such things as the
national banking systems, electrical power, transportation of goods,
communications, and governmental activities, will be fully functioning as the
year 2000 approaches. To the extent failure occurs in such activities, which are
outside the Company's control, it could affect the Company's ability to service
its customers with the same degree of effectiveness with which they are served
presently. The Company is identifying elements of the infrastructure that are of
greater significance to its operations, obtaining information on an ongoing
basis as to their expected year 2000 readiness, and determining alternative
solutions if required.
The Company expects to incur internal staff costs as well as consulting and
other expenses related to its year 2000 efforts. Due to the level of effort
required to complete remediation for the year 2000, non-business critical system
enhancements have been deferred until the year 2000 efforts have been completed.
The conversion and testing of existing systems are expected to cost the Company
approximately $300, of which $110 has been incurred and $190 is expected to be
incurred from July 1998 through December 1999. These costs will vary as the
Company continues to assess and implement its plans or if the Company is
required to invoke contingency plans. The Company treats non-capital costs
associated with year 2000 as period costs and they are expensed when incurred.
20
<PAGE>
TELMARK LLC AND CONSOLIDATED SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(THOUSANDS OF DOLLARS)
9. FINANCIAL INSTRUMENTS
Off Balance-Sheet Risk
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of its business to meet the financing needs of its customers.
These financial instruments consist of commitments to extend credit not
recognized in the balance sheet. In the event of non-performance by the other
party to the financial instrument, the Company's credit risk is limited to the
amount of Telmark's commitment to extend credit. The Company's exposure to
credit loss in the event of nonperformance by the other party to the financial
instrument for commitments to extend credit is represented by the contractual
amount of the instrument. The Company uses the same credit and collateral
policies in making commitments as it does for on-balance sheet instruments.
Market Risk
Telmark's business is concentrated in agriculture in the New England,
Mid-Atlantic, and Midwest states with approximately 75% of its leases directly
related to production agriculture. At June 30, 1998, approximately 46% of the
Company's net lease investment was in the states of Michigan, New York, Ohio,
and Pennsylvania. Adverse developments in any of these areas of concentration
could affect operating results adversely.
The Company endeavors to limit the effects of changes in interest rates by
matching as closely as possible, on an ongoing basis, the maturity and repricing
characteristics of funds borrowed to finance its leasing activities with the
maturity and repricing characteristics of its lease portfolio. However, a rise
in interest rates would increase the cost of that portion of the debt which is
not precisely matched to the characteristics of the portfolio and could lower
the value of the Company's outstanding leases in the secondary market.
21
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT MEMBERS OF MANAGEMENT
OF THE REGISTRANT
The Directors of the Company determine Company policy and are elected by the
member at each annual meeting to serve until the next annual meeting or until
their successors are elected and qualified. The following table sets forth
certain information regarding the Company's Directors, executive officers and
significant members of management:
<TABLE>
<CAPTION>
Years served Year Became Term
Name Age Position as Officer a Director Expires
---------------------------------------------------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Peter J. O'Neill 51 Treasurer,
Chairman of the
Board and Director 4 1995 July, 1999
Andrew J. Gilbert 39 Director 1997 July, 1999
Gary K. Van Slyke 55 Director 1996 July, 1999
Samuel F. Minor 60 Director 1989 July, 1999
William W. Young 45 Director 1992 July, 1999
Daniel J. Edinger 47 President and Director 10 1988 July, 1999
Herbert E. Gerhart 53 Secretary and 21
Financial Manager
Raymond G. Fuller 47 Director of Customer 4
Operations
Richard A. Kalin 49 Controller 4
Kipp R. Weaver 48 Director of Credit 4
</TABLE>
The Board of Directors, except for Messrs. O'Neill and Edinger, are paid an
annual retainer fee of $1,000 for their services on the Telmark Board. The
executive officers and significant members of management of the Company provide
operating control to carry out the policies established by the Board of
Directors and serve at the discretion of the Board with no guarantee of
employment. Telmark is organized with nine functional managers and six region
managers reporting to the President, Daniel J. Edinger. The officers with
company wide responsibilities who report to the President are the Director of
Credit, Director of Customer Operations, Financial Manager, and the Controller.
More detailed biographies of each person listed above, except for those who have
been a director or officer for more than 5 years, are set forth below.
PETER J. O'NEILL - Mr. O'Neill has been employed by Agway for more than five
years. He was elected Senior Vice President, Finance and Control in 1992.
ANDREW J. GILBERT - Mr. Gilbert is a member of the Agway Board of Directors. He
has been engaged in full-time farming for more than five years.
GARY K. VAN SLYKE - Mr. Van Slyke is a member of the Agway Board of Directors.
He has been engaged in full-time farming for more than five years.
RAYMOND G. FULLER - Mr. Fuller was Collection Manager from 1985 to 1996, and was
named Director of Customer Operations in September 1996.
RICHARD A. KALIN - Mr. Kalin was named Controller in July 1995. He served as
Accounting Manager for the prior three years.
KIPP R. WEAVER - Mr. Weaver was named Director of Credit in May 1995. During the
prior three years he was employed as an officer of the Farm Credit Bank of
Baltimore.
23
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Employees of Telmark are eligible to participate in Agway Inc.'s benefits and
compensation plans. The following table sets forth information regarding annual
and long-term compensation for services in all capacities to the Company for the
fiscal years ended June 1998, 1997, and 1996, of the chief executive officer and
any of the other four most highly compensated executive officers of the Company
(other than the CEO) who were serving in such capacity at June 30,1998 and was
compensated over $100,000. In accordance with the rules on executive officer
compensation adopted by the Securities and Exchange Commission, compensation
information is not provided for any executive officers of the Company receiving
aggregate total compensation of less than $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------
ANNUAL
COMPENSATION(4)
----------------------------
ALL OTHER
NAME AND COMPENSATION
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) (3)
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Daniel J. Edinger 1998 $178,853 $105,240 $ 3,033
President 1997 130,619 52,801 2,807
1996 120,016 90,000 2,513
Raymond G. Fuller 1998 $ 60,580 $ 38,688 $ 814
Director of 1997 59,414 27,261 774
Customer Operations 1996 54,262 11,014 681
Herbert E. Gerhart 1998 $ 61,152 $ 39,059 $ 1,253
Secretary and Financial 1997 61,152 21,403 1,170
Manager 1996 60,255 12,230 1,110
Richard A. Kalin 1998 $ 61,412 $ 39,220 $ 1,258
Controller 1997 61,412 21,494 1,183
1996 60,297 12,282 870
Kipp R. Weaver 1998 $ 82,394 $ 52,632 $ 968
Director of Credit 1997 82,394 28,838 704
1996 81,198 16,479 6,787
</TABLE>
- ------------------
(1) Total compensation (defined as base salary or wages, overtime and bonus
or incentive compensation) is used in determining the average annual
compensation pursuant to the Agway Inc. Retirement Plan. This amount includes
all deferred amounts under the Agway Inc. Employees' Thrift Investment Plan and
the Agway Inc. Employee's Benefits Equalization Plan.
(2) Members of the Agway Inc. chief executive officer's staff and other
executives designated by the Agway Inc. chief executive officer are eligible for
participation in the Agway Inc. management incentive plan. Within Telmark, the
President qualified for this program. A bonus may be paid to each eligible
executive contingent upon each individual's performance as determined by the
President and CEO of Agway Inc., Telmark's net margin, and other performance
factors. Bonuses for other Telmark executive officers may be paid to each
eligible executive contingent upon each individual's performance as determined
by the President of Telmark, Telmark's net margin and other performance factors.
Bonuses are reflected in the fiscal year earned regardless of payment date.
(3) Amounts shown include contributions made by the Company to the Agway
Inc. Employees' Thrift Investment Plan and the Agway Inc. Employees' Benefits
Equalization Plan and any other payment not appropriately characterized as
salary or bonus.
(4) There are no perquisites paid by the Company in excess of the lesser of
$50,000 or 10% of an executives total salary and bonus for the years disclosed.
24
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EMPLOYEES' RETIREMENT PLAN
The Employees' Retirement Plan of Agway Inc. (the Retirement Plan) is a
non-contributory defined benefit plan covering nearly all employees. The
Retirement Plan was amended effective July 1, 1998, to include a pension equity
formula, as well as to recognize incentive compensation as pensionable
compensation for all employees. It provides for retirement benefits, based upon
average annual compensation received during the highest 36 consecutive months in
the last 10 years of service and credits earned for years of service with the
Company. Full credits are earned for service on and after July 1, 1998, and
credits equal to approximately 3/4 of the full credits are earned for service
prior to July 1, 1998. The benefit is defined as an account balance and can be
paid out as a lump sum or an annuity. An employee is 100% vested in his benefit
after completing 5 years of service or attaining age 55 after completing one
year of service.
The following table shows estimated rounded annual benefits payable upon
retirement using the credit formula in effect for service after June 30, 1998,
based on certain 3-year average remuneration levels and years-of-service
classifications. The table was developed assuming a normal retirement at age 65
and using current annuity conversion factors and current Social Security Wage
Base.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
(NEW FORMULA)
YEARS OF CREDITED SERVICE
- ---------------------------------------------------------------------------------------------
3-YEAR AVERAGE
REMUNERATION 5 10 15 20 25 30 35
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $ 6,600 $ 12,500 $ 18,400 $ 23,900 $ 29,300 $ 34,300 $ 39,300
125,000 8,300 15,800 23,300 30,300 37,200 43,500 49,900
150,000 10,100 19,200 28,300 36,600 45,000 52,700 60,400
175,000 11,800 22,500 33,200 43,000 52,900 61,900 71,000
200,000 13,600 25,900 38,100 49,400 60,700 71,100 81,500
225,000 15,300 29,200 43,000 55,800 68,600 80,300 92,100
250,000 17,100 32,500 48,000 62,200 76,500 89,500 102,600
275,000 18,900 35,900 52,900 68,600 84,300 98,700 113,200
300,000 20,600 39,200 57,800 75,000 92,200 107,900 123,700
325,000 22,400 42,600 62,700 81,400 100,000 117,100 134,300
350,000 24,100 45,900 67,600 87,800 107,900 126,300 144,800
375,000 25,900 49,200 72,600 94,100 115,700 135,600 155,400
</TABLE>
Active participants are entitled to receive no less than the value of their
benefits accrued under the old formula through June 30, 1998. In addition, most
active participants whose age plus service totaled 55 years or more as of July
1, 1998, will receive the greater of the benefit determined under the new
formula described above, or the benefit determined had the old formula remained
in effect.
The old formula is based upon average annual compensation received during the
highest 60 consecutive months in the last 10 years of service and credited years
of service. Optional earlier retirement and other benefits are also provided.
The old formula pays a monthly retirement benefit based on the greater amount
calculated under two formulas. The benefit amount under one formula is subject
to an offset for Social Security benefits.
25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION - CONTINUED
EMPLOYEES' RETIREMENT PLAN (CONTINUED)
The following table shows estimated annual benefits under the old formula upon
retirement based on certain 5-year average remuneration levels and
year-of-service classifications. The table was developed assuming a normal
retirement at age 65 and does not reflect an offset for up to 50% of the Social
Security benefit, subject to certain minimum benefits.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
(OLD FORMULA)
YEARS OF CREDITED SERVICE
- ---------------------------------------------------------------------------------------------
5-YEAR AVERAGE
REMUNERATION 5 10 15 20 25 30 35
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000 $ 8,000 $ 16,000 $ 24,000 $ 32,000 $ 40,000 $ 48,000 $ 56,000
125,000 10,000 20,000 30,000 40,000 50,000 60,000 70,000
150,000 12,000 24,000 36,000 48,000 60,000 72,000 84,000
175,000 14,000 28,000 42,000 56,000 70,000 84,000 98,000
200,000 16,000 32,000 48,000 64,000 80,000 96,000 112,000
225,000 18,000 36,000 54,000 72,000 90,000 108,000 126,000
250,000 20,000 40,000 60,000 80,000 100,000 120,000 140,000
275,000 22,000 44,000 66,000 88,000 110,000 132,000 154,000
300,000 24,000 48,000 72,000 96,000 120,000 144,000 168,000
325,000 26,000 52,000 78,000 104,000 130,000 156,000 182,000
350,000 28,000 56,000 84,000 112,000 140,000 168,000 196,000
375,000 30,000 60,000 90,000 120,000 150,000 180,000 210,000
</TABLE>
Amount under the Retirement Plan may be subject to reduction because of the
limitations imposed under the Internal Revenue Code; however, the extent of any
reduction will vary in individual cases according to circumstances existing at
the time pension payments commence. The Agway Inc. Employees' Benefit
Equalization Plan has been established to provide for the amount of any such
reduction in annual pension benefits under the Retirement Plan.
The benefits shown are computed on a straight life basis and do not reflect an
offset for up to 50% of the Social Security benefits, subject to certain minimum
benefits. Also, the benefits are based on continuing the Plan's benefit formulas
as in effect on June 30, 1998. As of June 30, 1998, the officers and their
respective number of credited years of service under the Retirement Plan were as
follows: Messrs. Edinger, 19; Fuller, 13; Gerhart, 25; Kalin, 25; and Weaver, 3.
"Compensation" is defined as the regular salary or wages, as reported in the
"Salary" column of the Summary Compensation Table, which is paid to an employee
for services rendered to Agway Inc., including overtime, vacation pay and
bonuses or special pay.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company has no compensation committee. The salary of Daniel J. Edinger,
President of Telmark is determined by Donald P. Cardarelli, President and CEO of
Agway Inc., the parent Company of Telmark. The salary of the other Executive
Officers of Telmark is determined by Mr. Edinger. Salaries of all Executive
Officers are included in the annual operating budget, which budget is approved
by the entire Board of Directors of Telmark.
None of the Executive Officers or Directors who participated in establishing
compensation policies had interlocks reportable under Section 402 (j) of
Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the outstanding member's equity of the Company is indirectly owned by
Agway Inc. None of the executive officers or directors of the Company owns any
membership interest of Telmark or either individually or in the aggregate, own
greater than 1% of any class of equity securities of its parent company or
subsidiaries. All of the other directors are also directors of Agway Inc. Agway
is an agricultural cooperative and each of its members including each director
owns one share of $25 par value common stock. None of the executive officers and
directors either individually or in the aggregate, own greater than 1% of any
class of equity security of the Company or of Agway Inc.
26
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is an indirect wholly-owned subsidiary of Agway and as such, had
intercompany transactions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 7 to the Financial
Statement for further information.
PRINCIPAL MEMBER
Telmark is a wholly-owned subsidiary of Agway Holdings, Inc. Agway Holdings,
Inc. is a wholly-owned subsidiary of Agway Financial Corporation which in turn
is a wholly-owned subsidiary of Agway. Agway is one of the largest supply and
services cooperatives in the United States.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE
LOCATION
(A) INDEX TO DOCUMENT LIST --------
(1) FINANCIAL STATEMENTS
Among the responses to this Item 14(a)(1) are the
following financial statements which are included in
Item 8.
(i) Report of Independent Accountants................ 9
(ii) Consolidated Balance Sheets,
June 30, 1998 and 1997........................... 10
(iii)Consolidated Statements of Income and Member's
Equity, for the years ended
June 30, 1998, 1997, and 1996.................... 11
(iv) Consolidated Statements of Cash Flow,
for the years ended June 30, 1998,
1997, and 1996................................... 12
(v) Notes to the Consolidated Financial Statements... 13
(2) FINANCIAL STATEMENT SCHEDULES
Schedules are omitted for the reason that they are not
required or are not applicable, or the required
information is shown in the financial statements or notes
thereto.
(3) THE FOLLOWING REQUIRED EXHIBITS ARE EITHER ATTACHED HERETO
OR ARE HEREBY INCORPORATED BY REFERENCE TO PREVIOUSLY
FILED REGISTRATION STATEMENTS FILED AS SPECIFIED.
3 - ARTICLES OF INCORPORATION
3(a) - Certificate of Incorporation of
Telmark Inc. (predecessor to Telmark
LLC) dated June 4, 1964, as amended
September 8, 1964; January 15, 1975;
and June 16, 1987, filed by
reference to Exhibit 3 of the
Registration Statement (Form S-1),
File No. 33-70732, dated October 22,
1993.
BY-LAWS
3(b) - By-laws of Telmark Inc. (predecessor
to Telmark LLC) as amended
September 19, 1995, filed by
reference to Exhibit 3 of the Annual
Report (Form 10-K) dated
August 23, 1996.
CERTIFICATE OF FORMATION
3(c) - Certificate of formation of Telmark
LLC dated June 25, 1998, filed
herein.
LIMITED LIABILITY COMPANY AGREEMENT
3(d) - Operating agreement of Telmark LLC
dated July 1, 1998, filed herein.
CERTIFICATE OF MERGER
3(e) - Certificate of Merger of Telmark
Inc. into Telmark LLC effective
July 1, 1998, filed herein.
28
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(CONTINUED)
4 - INSTRUMENT DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
4(a) - The Indenture dated as of September 30, 1993, between
Telmark Inc. and OnBank & Trust Co. of Syracuse, New York,
Trustee, filed by reference to Exhibit 4 of the
Registration Statement (Form S-1), File No. 33-70732, dated
October 22, 1993.
4(b) - Telmark Inc. Board of Directors resolutions dated as of
June 21, 1995, authorizing the issuance of Debentures under
the Indenture filed by reference to Exhibit 4 of the post
effective Amendment No. 1 to the Registration Statement
(Form S-1), File No. 33-84442, dated August 28, 1995.
4(c) - Supplemental Indenture dated as of June 30, 1998 between
Telmark Inc. and Manufacturers and Trust Company, filed by
reference to Exhibit 4 of the Current Report (Form 8-K),
File No. 33-70732, dated July 6, 1998.
4(d) - Supplemental Indenture dated as of July 1, 1998 between
Telmark Inc. and Telmark LLC and Manufacturers and Traders
Trust Company, filed by reference to Exhibit 4 of the
Current Report (Form 8-K), File No. 33-70732, dated July
6, 1998.
(B) REPORT ON FORM 8-K
A Current Report (Form 8-K) was filed on July 6, 1998 relating to
the merger of Telmark Inc. into Telmark LLC. The merger changed
the Company's legal form of doing business from a New York
corporation to a Delaware limited liability company.
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TELMARK LLC
(Registrant)
By DANIEL J. EDINGER
President
(Principal Executive Officer)
Date 8/25/98
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
DANIEL J. EDINGER President 8/25/98
(Principal Executive Officer)
PETER J. O'NEILL Treasurer and Chairman of the Board 8/25/98
and Director
(Principal Financial Officer
& Principal Accounting Officer)
ANDREW J. GILBERT Director 8/25/98
SAMUEL F. MINOR Director 8/25/98
GARY K. VANSLYKE Director 8/25/98
WILLIAM W. YOUNG Director 8/25/98
30
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,703,569
<SECURITIES> 0
<RECEIVABLES> 688,987,877
<ALLOWANCES> 27,071,157
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,615,487
<DEPRECIATION> 1,615,572
<TOTAL-ASSETS> 518,315,661
<CURRENT-LIABILITIES> 0
<BONDS> 405,683,977
0
0
<COMMON> 0
<OTHER-SE> 95,163,541
<TOTAL-LIABILITY-AND-EQUITY> 518,315,661
<SALES> 0
<TOTAL-REVENUES> 65,475,612
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,587,000
<INTEREST-EXPENSE> 26,870,984
<INCOME-PRETAX> 15,411,644
<INCOME-TAX> 6,654,141
<INCOME-CONTINUING> 8,757,503
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,757,503
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<PAGE>
Exhibit
Item 14. (a)(3) 3(c)
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF LIMITED
LIABILITY COMPANY OF "TELMARK LLC", FILED IN THIS OFFICE ON THE TWENTY-FIFTH DAY
OF JUNE, A.D. 1998, AT 9 O'CLOCK A.M.
(secretary's office)
(seal) /S/ EDWARD J. FREEL
(Delaware) ___________________________________
Edward J. Freel, Secretary of State
2913139 8100 AUTHENTICATION: 9161461
981246465 DATE: 06-25-98
<PAGE>
CERTIFICATE OF FORMATION
OF
TELMARK LLC
This Certificate of Formation of Telmark LLC (the "LLC"), dated as of
June 24, 1998, is being duly executed and filed by Daniel J. Edinger, as an
authorized person, to form a limited liability company under the Delaware
Limited Liability Company Act (6 Del.C.ss. 18-101, et seq.).
FIRST. The name of the limited liability company is Telmark LLC.
SECOND. The address of the registered office of the LLC in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle.
THIRD. The name of its registered agent or such address is The
Corporation Trust Company.
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Formation of Telmark LLC as of the date first above written.
/S/DANIEL J. EDINGER
---------------------
Daniel J. Edinger
Authorized Person
<PAGE>
EXHIBIT
ITEM 14. (a)(3) 3(d)
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
OF
TELMARK LLC
This Limited Liability Company Agreement (together with the
schedules attached hereto, this "Agreement") of Telmark LLC, a Delaware limited
liability company (the "Company"), is entered into by Agway Holdings Inc., a
Delaware corporation, as the sole member (the "Initial Member"). Capitalized
terms used herein and not otherwise defined have the meanings set forth on
Schedule A hereto.
- ----------
The Initial Member, by execution of this Agreement, (i) hereby
forms and continues the Company as a limited liability company pursuant to and
in accordance with the Delaware Limited Liability Company Act (6 Del. C.
--------
ss.18-101, et seq.), as amended from time to time (the "Act"), and (ii) hereby
-- ----
agrees as follows:
1. Name.
-----
The name of the limited liability company heretofore formed
and continued hereby is Telmark LLC.
2. Principal Business Office.
--------------------------
The principal business office of the Company shall be located
at 333 Butternut Drive, DeWitt, New York, or at such other location as may
hereafter be determined by the Member.
3. Registered Office.
------------------
The address of the registered office of the Company in the
State of Delaware is The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware 19801.
4. Registered Agent.
-----------------
The name and address of the registered agent of the Company
for service of process on the Company in the State of Delaware is The
Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801.
<PAGE>
5. Members.
--------
The name and the mailing address of the Initial Member are set
forth on Schedule B attached hereto.
----------
6. Certificates.
-------------
Daniel J. Edinger, as an "authorized person" within the
meaning of the Act, shall execute, deliver and file the Certificate of Formation
with the Secretary of State of the State of Delaware. Upon the filing of the
Certificate of Formation with the Secretary of State of the State of Delaware,
his powers as an "authorized person" shall cease, and the Member thereupon
became the designated "authorized person" and shall continue as the designated
"authorized person" within the meaning of the Act. The Member or an Officer
shall execute, deliver and file any other certificates (and any amendments
and/or restatements thereof) necessary for the Company to qualify to do business
in New York State and in any other jurisdiction in which the Company may wish to
conduct business.
7. Purposes.
---------
The Company is formed for the object and purpose of, and the
nature of the business to be conducted and promoted by the Company is, engaging
in any lawful act or activity for which limited liability companies may be
formed under the Act.
8. Powers.
-------
The Company (i) shall have and exercise all powers necessary,
convenient or incidental to accomplish its purposes as set forth in Section 7
and (ii) shall have and exercise all of the powers and rights conferred upon
limited liability companies formed pursuant to the Act.
9. Management.
-----------
a. Board of Directors. The business and affairs of the Company
-------------------
shall be managed by or under the direction of a Board of one or more Directors.
The Member may determine at any time in its sole and absolute discretion the
number of Directors to constitute the Board. The authorized number of Directors
may be increased or decreased by the Member at any time in its sole and absolute
discretion. The initial number of Directors shall be six. The initial Directors
shall be the following individuals:
Daniel J. Edinger
Andrew J. Gilbert
Samuel F. Minor
Peter J. O'Neill
Gary K. Van Slyke
William W. Young
<PAGE>
Each Director elected, designated or appointed shall hold office until a
successor is elected and qualified or until such Director's earlier death,
resignation or removal. Each Director shall execute and deliver the Management
Agreement. Directors need not be Members.
b. Powers. The Board of Directors shall have the power to do
-------
any and all acts necessary, convenient or incidental to or for the furtherance
of the purposes described herein, including all powers, statutory or otherwise.
The Board of Directors has the authority to bind the Company.
c. Meeting of the Board of Directors. The Board of Directors
-----------------------------------
of the Company may hold meetings, both regular and special, within or outside
the State of Delaware. Regular meetings of the Board may be held without notice
at such time and at such place as shall from time to time be determined by the
Board. Special meetings of the Board may be called by the President on not less
than one day's notice to each Director by telephone, facsimile, mail, telegram
or any other means of communication, and special meetings shall be called by the
President or Secretary in like manner and with like notice upon the written
request of any one or more of the Directors.
d. Quorum; Acts of the Board. At all meetings of the Board, a
---------------------------
majority of the Directors shall constitute a quorum for the transaction of
business and, except as otherwise provided in any other provision of this
Agreement, the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board. If a quorum shall not be
present at any meeting of the Board, the Directors present at such meeting may
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present. Any action required or permitted
to be taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
e. Electronic Communications. Members of the Board, or any
---------------------------
committee designated by the Board, may participate in meetings of the Board, or
any committee, by means of telephone conference or similar communications
equipment that allows all persons participating in the meeting to hear each
other, and such participation in a meeting shall constitute presence in person
at the meeting. If all the participants are participating by telephone
conference or similar communications equipment, the meeting shall be deemed to
be held at the principal place of business of the Company.
f. Committees of Directors.
------------------------
(i) The Board may, by resolution passed by a majority of
the whole Board, designate one or more committees, each committee to consist of
one or more of the Directors of the Company. The Board may designate one or more
Directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee.
<PAGE>
(ii) In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member.
(iii) Any such committee, to the extent provided in the
resolution of the Board, shall have and may exercise all the powers and
authority of the Board in the management of the business and affairs of the
Company. Such committee or committees shall have such name or names as may be
determined from time to time by resolution adopted by the Board. Each committee
shall keep regular minutes of its meetings and report the same to the Board when
required.
g. Compensation of Directors; Expenses. The Board shall have
-------------------------------------
the authority to fix the compensation of Directors. The Directors may be paid
their expenses, if any, of attendance at meetings of the Board, which may be a
fixed sum for attendance at each meeting of the Board or a stated salary as
Director. No such payment shall preclude any Director from serving the Company
in any other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
h. Removal of Directors. Unless otherwise restricted by law,
---------------------
any Director or the entire Board of Directors may be removed, with or without
cause, by the Member, and, any vacancy caused by any such removal may be filled
by action of the Member.
i. Directors as Agents. To the extent of their powers set
---------------------
forth in this Agreement, the Directors are agents of the Company for the purpose
of the Company's business, and the actions of the Directors taken in accordance
with such powers set forth in this Agreement shall bind the Company.
10. Duties of Directors.
--------------------
Except as provided in this Agreement, in exercising their
rights and performing their duties under this Agreement, the Directors shall
have fiduciary duties of loyalty and care similar to those of a director of a
business corporation organized under the General Corporation Law of the State of
Delaware.
11. Officers.
---------
a. Officers. The Officers of the Company shall be chosen by
---------
the Board and shall consist of at least a President, a Secretary and a
Treasurer. The Board of Directors may also choose one or more Vice Presidents,
Assistant Secretaries and Assistant Treasurers. Any number of offices may be
held by the same person. The Board shall choose a President, a Secretary and a
Treasurer. The Board may appoint such other Officers and agents as it shall deem
necessary or advisable who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board. The salaries of all Officers and agents of the Company shall
<PAGE>
be fixed by or in the manner prescribed by the Board. The Officers of the
Company shall hold office until their successors are chosen and qualified. Any
Officer elected or appointed by the Board may be removed at any time, with or
without cause, by the affirmative vote of a majority of the Board. Any vacancy
occurring in any office of the Company shall be filled by the Board.
b. President. The President shall be the chief executive
----------
officer of the Company, shall preside at all meetings of the Members, if any,
shall be responsible for the general and active management of the business of
the Company and shall see that all orders and resolutions of the Board are
carried into effect. The President shall execute all bonds, mortgages and other
contracts, except: (i) where required or permitted by law or this Agreement to
be otherwise signed and executed; (ii) where signing and execution thereof shall
be expressly delegated by the Board to some other Officer or agent of the
Company; and (iii) as otherwise permitted in Section 11c.
c. Vice President. In the absence of the President or in the
----------------
event of the President's inability to act, the Vice President, if any (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated by the Directors, or in the absence of any designation, then in the
order of their election), shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The Vice Presidents, if any, shall perform such other duties and
have such other powers as the Board may from time to time prescribe.
d. Secretary and Assistant Secretary. The Secretary shall be
-----------------------------------
responsible for filing legal documents and maintaining records for the Company.
The Secretary shall attend all meetings of the Board and all meetings of the
Members, if any, and record all the proceedings of the meetings of the Company
and of the Board in a book to be kept for that purpose and shall perform like
duties for the standing committees when required. The Secretary shall give, or
cause to be given, notice of all meetings of the Members, if any, and special
meetings of the Board, and shall perform such other duties as may be prescribed
by the Board or the President, under whose supervision the Secretary shall
serve. The Assistant Secretary, or if there be more than one, the Assistant
Secretaries in the order determined by the Board (or if there be no such
determination, then in order of their election), shall, in the absence of the
Secretary or in the event of the Secretary's inability to act, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
e. Treasurer and Assistant Treasurer. The Treasurer shall have
----------------------------------
the custody of the Company funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Company and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Company in such depositories as may be designated by the Board.
The Treasurer shall disburse the funds of the Company as may be ordered by the
Board, taking proper vouchers for such disbursements, and shall render to the
President and to the Board, at its regular meetings or when the Board so
requires, an account of all of the Treasurer's transactions and of the financial
condition of the Company and shall have such other duties as may from time to
time be prescribed by the Board of Directors. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board (or if there be no such determination, then in the order of their
election), shall, in the absence of the Treasurer or in the event of the
Treasurer's inability to act, perform
<PAGE>
the duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board may from time to time prescribe.
f. Officers as Agents. The Officers, to the extent of their
-------------------
powers set forth in this Agreement or otherwise vested in them by action of the
Board not inconsistent with this Agreement, are agents of the Company for the
purpose of the Company's business, and, the actions of the Officers taken in
accordance with such powers shall bind the Company.
g. Duties of Officers. Except to the extent otherwise provided
-------------------
herein, each Officer shall have fiduciary duties of loyalty and care similar to
those of officers of business corporations organized under the General
Corporation Law of the State of Delaware.
12. Limited Liability.
------------------
Except as otherwise expressly provided by the Act, the debts,
obligations and liabilities of the Company, whether arising in contract, tort or
otherwise, shall be the debts, obligations and liabilities solely of the
Company, and neither any Member nor any Director shall be obligated personally
for any such debt, obligation or liability of the Company solely by reason of
being a Member or Director of the Company.
13. Capital Contributions.
----------------------
The Initial Member was deemed admitted as the Member of the
Company upon the execution and delivery of the Initial LLC Agreement. The
Initial Member shall contribute the amount of cash to the Company listed on
Schedule B attached hereto.
14. Additional Contributions.
-------------------------
The Initial Member is not required to make any additional
capital contribution to the Company. However, a Member may make additional
capital contributions to the Company at any time upon the written consent of
such Member. To the extent that the Member makes an additional capital
contribution to the Company, the Member shall revise Schedule B of this
-----------
Agreement. The provisions of this Agreement, including this Section 14, are
intended solely to benefit the Member and, to the fullest extent permitted by
law, shall not be construed as conferring any benefit upon any creditor of the
Company (and no such creditor of the Company shall be a third-party beneficiary
of this Agreement) and no Member shall have any duty or obligation to any
creditor of the Company to make any contribution to the Company or to issue any
call for capital pursuant to this Agreement.
<PAGE>
15. Allocation of Profits and Losses.
---------------------------------
The Company's profits and losses shall be allocated to the
Member.
16. Distributions.
--------------
Distributions shall be made to the Member at the times and in
the aggregate amounts determined by the Board. Notwithstanding any provision to
the contrary contained in this Agreement, the Company shall not be required to
make a distribution to any Member on account of its interest in the Company if
such distribution would violate Section 18-607 of the Act or any other
applicable law or the Basic Documents.
17. Books and Records.
------------------
The Board shall keep or cause to be kept complete and accurate
books of account and records with respect to the Company's business. The books
of the Company shall at all times be maintained by the Board. Each Member and
its duly authorized representatives shall have the right to examine the Company
books, records and documents during normal business hours. The Company, and the
Board on behalf of the Company, shall not have the right to keep confidential
from the Member any information that the Board would otherwise be permitted to
keep confidential from the Member pursuant to Section 18-305(c) of the Act. The
Company's books of account shall be kept using the method of accounting
determined by the Member. The Company's independent auditor shall be an
independent public accounting firm selected by the Member.
17.1 Fiscal Year.
------------
The fiscal year of the Company shall begin on the first day of
July in each year, unless otherwise provided by the Board of Directors.
18. Exculpation and Indemnification.
--------------------------------
a. No Member, Officer, Director, employee or agent of the
Company and no employee, representative, agent or Affiliate of the Member
(collectively, the "Covered Persons") shall be liable to the Company or any
other Person who has an interest in or claim against the Company for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Covered Person in good faith on behalf of the Company and in a manner
reasonably believed to be within the scope of the authority conferred on such
Covered Person by this Agreement, except that a Covered Person shall be liable
for any such loss, damage or claim incurred by reason of such Covered Person's
gross negligence or willful misconduct.
b. To the fullest extent permitted by applicable law, a
Covered Person shall be entitled to indemnification from the Company for any
loss, damage or claim incurred by such Covered Person by reason of any act or
omission performed or omitted by such Covered Person in good faith on behalf of
the Company and in a manner reasonably believed to be within the
<PAGE>
scope of the authority conferred on such Covered Person by this Agreement,
except that no Covered Person shall be entitled to be indemnified in respect of
any loss, damage or claim incurred by such Covered Person by reason of such
Covered Person's gross negligence or willful misconduct with respect to such
acts or omissions; provided, however, that any indemnity under this Section 18
shall be provided out of and to the extent of Company assets only, and no Member
shall have personal liability on account thereof.
c. To the fullest extent permitted by applicable law, expenses
(including legal fees) incurred by a Covered Person defending any claim, demand,
action, suit or proceeding shall, from time to time, be advanced by the Company
prior to the final disposition of such claim, demand, action, suit or proceeding
upon receipt by the Company of an undertaking by or on behalf of the Covered
Person to repay such amount if it shall be determined that the Covered Person is
not entitled to be indemnified as authorized in this Section 18.
d. A Covered Person shall be fully protected in relying in
good faith upon the records of the Company and upon such information, opinions,
reports or statements presented to the Company by any Person as to matters the
Covered Person reasonably believes are within such other Person's professional
or expert competence and who has been selected with reasonable care by or on
behalf of the Company, including information, opinions, reports or statements as
to the value and amount of the assets, liabilities, or any other facts pertinent
to the existence and amount of assets from which distributions to the Member
might properly be paid.
e. To the extent that, at law or in equity, a Covered Person
has duties (including fiduciary duties) and liabilities relating thereto to the
Company or to any other Covered Person, a Covered Person acting under this
Agreement shall not be liable to the Company or to any other Covered Person for
its good faith reliance on the provisions of this Agreement or any approval or
authorization granted by the Company or any other Covered Person. The provisions
of this Agreement, to the extent that they restrict the duties and liabilities
of a Covered Person otherwise existing at law or in equity, are agreed by the
Member to replace such other duties and liabilities of such Covered Person.
f. The foregoing provisions of this Section 18 shall survive
any termination of this Agreement.
19. Assignments.
------------
The Member may assign in whole or in part its limited
liability company interest in the Company. If the Member transfers all of its
limited liability company interest in the Company pursuant to this Section 19,
the transferee shall be admitted to the Company as a member of the Company upon
its execution of an instrument signifying its agreement to be bound by the terms
and conditions of this Agreement, which instrument may be a counterpart
signature page to this Agreement. Such admission shall be deemed effective
immediately prior to the transfer, and, immediately following such admission,
the transferor Member shall cease to be a member of the Company.
<PAGE>
20. Resignation.
------------
A Member may resign from the Company with the written consent
of the Initial Member. If a Member is permitted to resign pursuant to this
Section 20, an additional member of the Company shall be admitted to the
Company, subject to Section 21, upon its execution of an instrument signifying
its agreement to be bound by the terms and conditions of this Agreement, which
instrument may be a counterpart signature page to this Agreement. Such admission
shall be deemed effective immediately prior to the resignation, and, immediately
following such admission, the resigning Member shall cease to be a member of the
Company.
21. Admission of Additional Members.
--------------------------------
One or more additional members of the Company may be admitted
to the Company with the written consent of the Member.
22. Dissolution.
------------
a. The Company shall be dissolved, and its affairs shall be
wound up upon the first to occur of the following: (i) the retirement,
resignation or dissolution of the Member or the occurrence of any other event
which terminates the continued membership of the Member in the Company unless
the business of the Company is continued in a manner permitted by the Act or
(ii) the entry of a decree of judicial dissolution under Section 18-802 of the
Act.
b. The bankruptcy (as defined in Section 18-101(1) of the Act)
of the Member shall not cause the Member to cease to be a member of the Company
and upon the occurrence of such an event, the business of the Company shall
continue without dissolution.
c. In the event of dissolution, the Company shall conduct only
such activities as are necessary to wind up its affairs (including the sale of
the assets of the Company in an orderly manner), and the assets of the Company
shall be applied in the manner, and in the order of priority, set forth in
Section 18-804 of the Act.
23. Waiver of Partition; Nature of Interest.
----------------------------------------
Except as otherwise expressly provided in this Agreement, to
the fullest extent permitted by law, each Member hereby irrevocably waives any
right or power that such Member might have to cause the Company or any of its
assets to be partitioned, to cause the appointment of a receiver for all or any
portion of the assets of the Company, to compel any sale of all or any portion
of the assets of the Company pursuant to any applicable law or to file a
complaint or to institute any proceeding at law or in equity to cause the
dissolution, liquidation, winding up or termination of the Company. No Member
shall have any interest in any specific assets of the Company, and no Member
shall have the status of a creditor with respect to any distribution pursuant to
Section 16 hereof. The interest of the Members in the Company is personal
property.
<PAGE>
24. Benefits of Agreement; No Third-Party Rights.
---------------------------------------------
None of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditor of the Company or by any creditor of
any Member. Nothing in this Agreement shall be deemed to create any right in any
Person (other than Covered Persons) not a party hereto, and this Agreement shall
not be construed in any respect to be a contract in whole or in part for the
benefit of any third Person.
25. Severability of Provisions.
---------------------------
Each provision of this Agreement shall be considered severable
and if for any reason any provision or provisions herein are determined to be
invalid, unenforceable or illegal under any existing or future law, such
invalidity, unenforceability or illegality shall not impair the operation of or
affect those portions of this Agreement which are valid, enforceable and legal.
26. Entire Agreement.
-----------------
This Agreement constitutes the entire agreement of the parties
with respect to the subject matter hereof.
27. Governing Law.
--------------
This Agreement shall be governed by and construed under the
laws of the State of Delaware (without regard to conflict of laws principles),
all rights and remedies being governed by said laws.
28. Amendments.
-----------
This Agreement may not be modified, altered, supplemented or
amended except pursuant to a written agreement executed and delivered by the
Member.
29. Counterparts.
-------------
This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original of this Agreement and all of which
together shall constitute one and the same instrument.
30. Notices.
--------
Any notices required to be delivered hereunder shall be in
writing and personally delivered, mailed or sent by telecopy, electronic mail,
or other similar form of rapid transmission, and shall be deemed to have been
duly given upon receipt (a) in the case of the Company, to the Company at its
address in Section 2, (b) in the case of a Member, to such Member at its address
<PAGE>
as listed on Schedule B attached hereto and (c) in the case of either of the
----------
foregoing, at such other address as may be designated by written notice to the
other party.
31. Enforcement by Director.
------------------------
Notwithstanding any other provision of this Agreement, the
Member agrees that this Agreement constitutes a legal, valid and binding
agreement of the Member, and is enforceable against the Member by the Directors,
in accordance with its terms.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
hereby, has duly executed this Agreement as of the 1st day of July, 1998.
MEMBER:
AGWAY HOLDINGS INC.
By: /s/PETER J. O'NEILL
------------------------
Name: Peter J. O'Neill
Title: Vice President
<PAGE>
SCHEDULE A
Definitions
-----------
A. Definitions
-----------
When used in this Agreement, the following terms not otherwise defined
herein have the following meanings:
"Act" has the meaning set forth in the preamble to this Agreement.
---
"Affiliate" means, with respect to any Person, any other Person
---------
directly or indirectly Controlling or Controlled by or under direct or indirect
common Control with such Person.
"Agreement" means this Limited Liability Company Agreement of the
---------
Company, together with the schedules attached hereto, as amended, restated or
supplemented form time to time.
"Board" or "Board of Directors" means the Board of Directors of
----- -------------------
the Company.
"Certificate of Formation" means the Certificate of Formation of
-------------------------
the Company to be filed with the Secretary of State of the State of Delaware on
June 25, 1998, as amended or amended and restated from time to time.
"Control" means the possession, directly or indirectly, or the
-------
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities or general
partnership or managing member interests, by contract or otherwise.
"Controlling" and "Controlled" shall have correlative meanings. Without limiting
the generality of the foregoing, a Person shall be deemed to Control any other
Person in which it owns, directly or indirectly, a majority of the ownership
interests.
"Covered Persons" has the meaning set forth in Section 18a.
---------------
"Directors" means the directors elected to the Board of Directors
---------
from time to time by the Member, including the Independent Director. A Director
is hereby designated as a "manager" of the Company within the meaning of Section
18-101(10) of the Act.
"Initial Member" means Agway Holdings Inc., a Delaware
----------------
corporation, as the sole member of the Company.
"Management Agreement" means the agreement of the Directors in
--------------------
the form attached hereto as Schedule C.
----------
<PAGE>
"Member" means the Initial Member and includes any Person admitted
------
as an additional member of the Company or a substitute member of the Company
pursuant to the provisions of this Agreement.
"Officer" means an officer of the Company described in Section 11.
-------
The initial Officers are listed on Schedule D hereto.
"Person" means any individual, corporation, partnership, joint
------
venture, limited liability company, limited liability partnership, association,
joint-stock company, trust, unincorporated organization, or other organization,
whether or not a legal entity, and any governmental authority.
B. Rules of Construction
---------------------
Definitions in this Agreement apply equally to both the singular and
plural forms of the defined terms. The words "include" and "including" shall be
deemed to be followed by the phrase "without limitation." The terms "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular Section, paragraph or
subdivision. The Section titles appear as a matter of convenience only and shall
not affect the interpretation of this Agreement. All Section, paragraph, clause,
Exhibit or Schedule references not attributed to a particular document shall be
references to such parts of this Agreement.
<PAGE>
SCHEDULE B
Members
-------
Agreed Value of Percentage
Name Mailing Address Capital Contribution Interest
- ------------------- --------------- -------------------- ----------
Agway Holdings Inc. c/o Agway Inc. $1000 100%
P. O. Box 4933
Syracuse, NY 13221
<PAGE>
SCHEDULE C
Management Agreement
--------------------
As of June 30, 1998
Telmark LLC
333 Butternut Drive
DeWitt, New York 13214
Re: Management Agreement
Telmark LLC
-----------
Ladies and Gentlemen:
For good and valuable consideration, each of the undersigned
persons, who have been designated as directors of Telmark Lease Funding I LLC, a
Delaware limited liability company (the "Company"), in accordance with the
Limited Liability Company Agreement of the Company, dated as of June __, 1998,
as it may be amended or restated from time to time (the "LLC Agreement"), hereby
agree as follows:
1. Each of the undersigned accepts such person's rights and authority
as a Director (as defined in the LLC Agreement) under the LLC Agreement and
agrees to perform and discharge such person's duties and obligations as a
Director under the LLC Agreement, and further agrees that such rights,
authorities, duties and obligations under the LLC Agreement shall continue until
such person's successor as a Director is designated or until such person's
resignation or removal as a Director in accordance with the LLC Agreement. Each
of the undersigned agrees and acknowledges that it has been designated as a
"manager" of the Company within the meaning of the Delaware Limited Liability
Company Act.
2. THIS MANAGEMENT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, AND ALL RIGHTS AND REMEDIES
SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Management Agreement as of the day and year first above written.
/S/DANIEL J. EDINGER
----------------------
Name: Daniel J. Edinger
/S/ANDREW J. GILBERT
-----------------------
Name: Andrew J. Gilbert
/S/SAMUEL F. MINOR
--------------------
Name: Samuel F. Minor
/S/PETER J. O'NEILL
--------------------
Name: Peter J. O'Neill
/S/GARY K. VAN SLYKE
----------------------
Name: Gary K. Van Slyke
/S/WILLIAM W. YOUNG
-----------------------
Name: William W. Young
<PAGE>
SCHEDULE D
to Limited Liability Company Agreement
--------------------------------------
INITIAL OFFICERS
----------------
Name Title
- ---- -----
Daniel J. Edinger President
Peter J. O'Neill Vice President & Treasurer
Herbert E. Gerhart Secretary
Stacey M. Button Assistant Secretary
Brenda J. Craner Assistant Secretary
Patricia A. Edwards Assistant Secretary
Raymond G. Fuller Assistant Secretary
Richard A. Kalin Assistant Secretary
Gwen M. McGraw Assistant Secretary
Kipp R. Weaver Assistant Secretary
Mary H. Bowen Assistant Treasurer
Martin P. Frankenfield Assistant Treasurer
Karen A. Johnson Assistant Treasurer
George F. Lott Assistant Treasurer
<PAGE>
EXHIBIT
ITEM 14. (a)(3) 3(e)
<PAGE>
PAGE 1
State of Delaware
Office of the Secretary of State
------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE,
DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE
CERTIFICATE OF MERGER, WHICH MERGES:
"TELMARK INC.", A NEW YORK CORPORATION,
WITH AND INTO "TELMARK LLC" UNDER THE NAME OF "TELMARK LLC", A
LIMITED LIABILITY COMPANY ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF
DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE THIRTIETH DAY OF JUNE, A.D.
1998, AT 4 O'CLOCK P.M.
AND I DO HEREBY FURTHER CERTIFY THAT THE EFFECTIVE DATE OF THE
AFORESAID CERTIFICATE OF MERGER IS THE FIRST DAY OF JULY, A.D. 1998.
(secretary's office)
(seal) /S/EDWARD J. FREEL
(Delaware) -----------------------------------
Edward J. Freel, Secretary of State
2913139 8100M AUTHENTICATION: 9172559
981255676 DATE: 06-30-98
<PAGE>
CERTIFICATE OF MERGER
OF
TELMARK INC.
INTO
TELMARK LLC
The undersigned limited liability company formed and existing under and
by virtue of the Delaware Limited Liability Company Act, 6 Del.C. ss.18-101, et
seq. (the "Act")
DOES HEREBY CERTIFY:
FIRST: The name and jurisdiction of formation or organization of each
of the constituent entities which is to merge are as follows:
Jurisdiction of
Name Formation or Organization
---- -------------------------
Telmark Inc. New York
Telmark LLC Delaware
SECOND: An Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged in accordance with Section 904-a of
Business Corporation Law of the State of New York and in accordance with Section
18-209 of the Act by (i) Telmark Inc. and (ii) Telmark LLC.
THIRD: The name of the surviving Delaware limited liability company is
Telmark LLC.
FOURTH: The merger of Telmark Inc. into Telmark LLC shall be effective
at 12:01 a.m. Eastern Daylight Savings Time on July 1, 1998.
FIFTH: The executed Agreement and Plan of Merger is on file at the
principal place of business of the surviving limited liability company. The
address of the principal place of business of the surviving limited liability
company is 333 Butternut Drive, DeWitt, New York 13214.
SIXTH: A copy of the Agreement and Plan of Merger will be furnished by
the surviving limited liability company, on request and without cost, to any
member of Telmark LLC, and to any person holding an interest in Telmark Inc.
Date: June 29, 1998
Telmark LLC
By: /S/DANIEL J. EDINGER
----------------------------
Daniel J. Edinger, President
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 4:00 PM 6/30/98
981255676 - 2913139
<PAGE>
