Form 10-Q
(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
for the quarterly period ended May 31, 2004. | ||
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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 0-50150
CHS Inc.
Minnesota
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41-0251095 | |
(State or other jurisdiction of
incorporation or organization) |
(I.R.S. Employer
Identification Number) |
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5500 Cenex Drive | ||
Inver Grove Heights, MN 55077
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(651) 355-6000 | |
(Address of principal executive offices,
including zip code) |
(Registrants telephone number,
including area code) |
Include by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES þ NO o
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ
Indicate the number of shares outstanding of each
of the issuers classes of common stock, as of the latest
practicable date.
Number of Shares Outstanding
Class
at May 31, 2004
NONE
INDEX
1
PART I. FINANCIAL INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that may cause the Companys actual results to differ materially from the results discussed in the forward-looking statements. These factors include those set forth in Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations, under the caption Cautionary Statement Regarding Forward-Looking Statements to this Quarterly Report on Form 10-Q for the quarterly period ended May 31, 2004.
2
Item 1. | Financial Statements |
CHS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31,
August 31,
May 31,
2004
2003
2003
(dollars in thousands)
ASSETS
$
138,550
$
168,249
$
160,198
954,440
763,780
741,047
906,801
801,883
678,501
392,714
178,661
194,274
2,392,505
1,912,573
1,774,020
575,154
532,893
528,505
1,203,488
1,122,982
1,095,231
244,222
239,520
185,543
$
4,415,369
$
3,807,968
$
3,583,299
LIABILITIES AND EQUITIES
$
446,500
$
251,131
$
321,131
30,900
14,951
14,987
100,405
58,417
71,527
137,662
123,383
101,534
91,542
85,239
65,291
658,887
627,250
452,140
395,702
254,415
236,081
84,485
39,049
43,287
1,946,083
1,453,835
1,305,978
655,780
648,222
646,153
132,604
111,555
117,404
136,187
112,645
104,491
1,544,715
1,481,711
1,409,273
$
4,415,369
$
3,807,968
$
3,583,299
The accompanying notes are an integral part of the consolidated financial statements (unaudited).
3
CHS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||
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May 31, | May 31, | May 31, | May 31, | ||||||||||||||
2004 | 2003 | 2004 | 2003 | ||||||||||||||
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(dollars in thousands) | |||||||||||||||||
Revenues:
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Net sales
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$ | 2,817,529 | $ | 2,220,455 | $ | 7,961,469 | $ | 6,949,205 | |||||||||
Patronage dividends
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1,809 | 1,351 | 5,770 | 2,310 | |||||||||||||
Other revenues
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41,392 | 29,071 | 104,875 | 89,058 | |||||||||||||
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2,860,730 | 2,250,877 | 8,072,114 | 7,040,573 | ||||||||||||||
Cost of goods sold
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2,734,235 | 2,152,467 | 7,776,864 | 6,792,462 | |||||||||||||
Marketing, general and administrative
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54,174 | 49,483 | 154,717 | 140,703 | |||||||||||||
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Operating earnings
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72,321 | 48,927 | 140,533 | 107,408 | |||||||||||||
Gain on sale of investment
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(14,666 | ) | (14,666 | ) | |||||||||||||
Gain on legal settlements
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(178 | ) | (10,867 | ) | |||||||||||||
Interest
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13,782 | 12,284 | 38,804 | 36,533 | |||||||||||||
Equity income from investments
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(32,406 | ) | (30,003 | ) | (64,193 | ) | (32,396 | ) | |||||||||
Minority interests
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16,417 | 5,913 | 23,559 | 14,689 | |||||||||||||
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Income before income taxes
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89,194 | 60,911 | 157,029 | 99,449 | |||||||||||||
Income taxes
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7,805 | 8,738 | 16,390 | 11,020 | |||||||||||||
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Net income
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$ | 81,389 | $ | 52,173 | $ | 140,639 | $ | 88,429 | |||||||||
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The accompanying notes are an integral part of the consolidated financial statements (unaudited).
4
CHS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three | For the Nine | |||||||||||||||||||
Months Ended | Months Ended | |||||||||||||||||||
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May 31, | May 31, | May 31, | May 31, | |||||||||||||||||
2004 | 2003 | 2004 | 2003 | |||||||||||||||||
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(dollars in thousands) | ||||||||||||||||||||
Cash flows from operating activities:
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Net income
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$ | 81,389 | $ | 52,173 | $ | 140,639 | $ | 88,429 | ||||||||||||
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
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Depreciation and amortization
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26,668 | 25,498 | 80,528 | 77,132 | ||||||||||||||||
Noncash income from equity investments
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(32,406 | ) | (30,003 | ) | (64,193 | ) | (32,396 | ) | ||||||||||||
Minority interests
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16,417 | 5,913 | 23,559 | 14,689 | ||||||||||||||||
Noncash portion of patronage dividends received
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(884 | ) | (671 | ) | (3,714 | ) | (1,352 | ) | ||||||||||||
Gain on sale of property, plant and equipment
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(1,051 | ) | (466 | ) | (910 | ) | (736 | ) | ||||||||||||
Gain on sale of investment
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(14,666 | ) | (14,666 | ) | ||||||||||||||||
Other, net
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247 | 455 | 787 | 2,915 | ||||||||||||||||
Changes in operating assets and liabilities:
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Receivables
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(187,725 | ) | 24,766 | (175,927 | ) | 17,074 | ||||||||||||||
Inventories
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94,466 | 183,252 | (94,647 | ) | 89,617 | |||||||||||||||
Other current assets and other assets
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105,460 | 56,255 | (217,710 | ) | (61,753 | ) | ||||||||||||||
Customer credit balances
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(26,248 | ) | (31,893 | ) | 39,358 | 45,066 | ||||||||||||||
Customer advance payments
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26,346 | (58,004 | ) | 14,267 | (67,589 | ) | ||||||||||||||
Accounts payable and accrued expenses
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168,714 | (13,078 | ) | 152,451 | (57,276 | ) | ||||||||||||||
Other liabilities
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1,099 | 6,103 | 12,817 | (875 | ) | |||||||||||||||
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Net cash provided by (used in) operating
activities
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257,826 | 220,300 | (107,361 | ) | 112,945 | |||||||||||||||
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Cash flows from investing activities:
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Acquisition of property, plant and equipment
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(66,185 | ) | (45,092 | ) | (168,407 | ) | (122,467 | ) | ||||||||||||
Proceeds from disposition of property, plant and
equipment
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2,005 | 3,976 | 31,747 | 15,901 | ||||||||||||||||
Investments
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(47,750 | ) | (36,449 | ) | (48,772 | ) | (40,624 | ) | ||||||||||||
Equity investments redeemed
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10,990 | 3,341 | 54,493 | 31,434 | ||||||||||||||||
Investments redeemed
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1,158 | 2,532 | 7,273 | 5,915 | ||||||||||||||||
Proceeds from sale of investment
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25,000 | 25,000 | ||||||||||||||||||
Changes in notes receivable
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(3,100 | ) | (2,754 | ) | (8,996 | ) | (14,270 | ) | ||||||||||||
Acquisitions of intangibles
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(333 | ) | (767 | ) | ||||||||||||||||
Acquisitions of working capital, net
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(13,030 | ) | ||||||||||||||||||
Distribution to minority owners
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(1,338 | ) | (463 | ) | ||||||||||||||||
Other investing activities, net
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(74 | ) | (34 | ) | 3,129 | 433 | ||||||||||||||
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Net cash used in investing activities
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(77,956 | ) | (74,813 | ) | (105,871 | ) | (137,938 | ) | ||||||||||||
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Cash flows from financing activities:
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Changes in notes payable
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(154,335 | ) | (49,430 | ) | 195,370 | (11,383 | ) | |||||||||||||
Long-term debt borrowings
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35,012 | 35,457 | 175,000 | |||||||||||||||||
Principal payments on long-term debt
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(4,094 | ) | (48,710 | ) | (12,365 | ) | (85,989 | ) | ||||||||||||
Payments on derivative instruments
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(7,574 | ) | ||||||||||||||||||
Changes in checks and drafts outstanding
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(10,762 | ) | 9,541 | 5,528 | (18,960 | ) | ||||||||||||||
Proceeds from sale of preferred stock, net of
expenses
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(98 | ) | (96 | ) | (151 | ) | 82,484 | |||||||||||||
Redemption of preferred stock
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(2,002 | ) | (2,002 | ) | ||||||||||||||||
Preferred stock dividends paid
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(2,113 | ) | (1,327 | ) | (5,861 | ) | (1,701 | ) | ||||||||||||
Retirements of equities
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(2,873 | ) | (2,042 | ) | (5,724 | ) | (26,402 | ) | ||||||||||||
Cash patronage dividends paid
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(563 | ) | (109 | ) | (28,721 | ) | (26,474 | ) | ||||||||||||
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Net cash (used in) provided by financing
activities
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(139,826 | ) | (94,175 | ) | 183,533 | 76,999 | ||||||||||||||
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Net increase (decrease) in cash and cash
equivalents
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40,044 | 51,312 | (29,699 | ) | 52,006 | |||||||||||||||
Cash and cash equivalents at beginning of period
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98,506 | 108,886 | 168,249 | 108,192 | ||||||||||||||||
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Cash and cash equivalents at end of period
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$ | 138,550 | $ | 160,198 | $ | 138,550 | $ | 160,198 | ||||||||||||
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The accompanying notes are an integral part of the consolidated financial statements (unaudited).
5
CHS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The unaudited consolidated balance sheets as of
May 31, 2004 and 2003, and the statements of operations and
cash flows for the three and nine months ended May 31, 2004
and 2003 reflect, in the opinion of management of CHS Inc. (CHS
or the Company), all normal recurring adjustments necessary for
a fair presentation of the financial position and results of
operations and cash flows for the interim periods presented. The
results of operations and cash flows for interim periods are not
necessarily indicative of results for a full fiscal year because
of, among other things, the seasonal nature of the
Companys businesses. The consolidated balance sheet data
as of August 31, 2003 has been derived from the audited
consolidated financial statements but does not include all
disclosures required by accounting principles generally accepted
in the United States of America.
The consolidated financial statements include the
accounts of the Company and all of its wholly-owned and
majority-owned subsidiaries and limited liability companies. The
effects of all significant intercompany accounts and
transactions have been eliminated.
These statements should be read in conjunction
with the consolidated financial statements and notes thereto for
the year ended August 31, 2003, included in the
Companys Annual Report on Form 10-K, as amended,
filed with the Securities and Exchange Commission.
The Company had $27.0 million of goodwill as
of May 31, 2004.
Intangible assets subject to amortization
primarily include trademarks, tradenames, customer lists and
non-compete agreements, and are amortized on a straight-line
basis over the number of years that approximate their respective
useful lives (ranging from 2 to 15 years). The gross
carrying amount of these intangible assets is $35.4 million
with total accumulated amortization of $12.3 million as of
May 31, 2004. Intangible assets of $0.2 million
(non-cash acquisitions) and $0.8 million were acquired
during the nine months ended May 31, 2004 and 2003,
respectively. Total amortization expense for intangible assets
during the three-month and nine-month periods ended May 31,
2004, was approximately $0.9 million and $3.0 million,
respectively, and $1.2 million and $3.5 million,
respectively, for the same periods in 2003. The estimated
amortization expense related to intangible assets subject to
amortization for the next five years will approximate
$2.6 million annually.
In December 2003, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 132R,
Employers Disclosures about Pensions and Other
Postretirement Benefits. This statement requires
additional disclosures to be made by employers regarding
pensions and other postretirement benefit plans, but does not
change the measurement or recognition of those plans. Under this
Statement, the disclosure provisions regarding foreign plans and
estimated future benefit payments are effective for fiscal years
ending after December 15, 2003 and interim periods
beginning after December 15, 2003. The Company has adopted
the interim provisions of this Statement during the current
fiscal quarter ended May 31, 2004. The annual disclosure
provisions of this Statement will be included in the
August 31, 2004 annual report.
On May 19, 2004, the FASB issued a FASB
Staff Position (FSP) regarding
SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions.
FSP 106-2, Accounting and Disclosure Requirements
Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 discusses the effect of the
Medicare Prescription Drug, Improvement and Modernization Act
(the Act) enacted on December 8, 2003.
FSP 106-2 considers the effect of the two new features
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
introduced in the Act in determining accumulated
postretirement benefit obligation (APBO) and net
periodic postretirement benefit cost, which may serve to reduce
a companys post-retirement benefit costs. Companies may
elect to defer accounting for this benefit or may attempt to
reflect the best estimate of the impact of the Act on net
periodic costs currently. The Company has chosen to defer
accounting for the benefit until the FASB issues final
accounting guidance due to various uncertainties related to this
legislation and the appropriate accounting. The Companys
measures of APBO and net periodic postretirement benefit costs
as of and for the quarter ended May 31, 2004 do not reflect
the effect of the Act as permitted by the FSP.
In December 2003, the FASB revised FASB
Interpretation No. 46, Consolidation of Variable
Interest Entities. The interpretation addresses
consolidation of certain entities in which equity investors do
not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. It also requires consolidation by
the primary beneficiary. For public entities the interpretation
applies to interests in variable interest entities for periods
ending after March 15, 2004, the Companys third
quarter. Adoption of this standard did not have a material
effect on the Company.
In May 2003, the FASB issued
SFAS No. 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and
Equity, which establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that
an issuer classify a financial instrument that is within its
scope as a liability (or an asset in certain circumstances).
Many of those instruments were previously classified as equity.
SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period
beginning after June 15, 2003. The Statement is to be
implemented by reporting the cumulative effect of a change in an
accounting principle for financial instruments created before
the issuance date of the Statement and still existing at the
beginning of the interim period of adoption. Adoption of this
standard did not have a material effect on the Company.
Certain reclassifications have been made to prior
years amounts to conform to current year classifications.
In addition, the Company previously amended its Quarterly Report
on Form 10-Q for the period ended May 31, 2003 to
restate its financial statements for such period. The
restatement reduced previously reported net sales and cost of
goods sold to eliminate intercompany sales. These
reclassifications and restatement had no effect on previously
reported net income, equities and comprehensive income, or cash
flows.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
Included in other current assets on May 31,
2004, August 31, 2003 and May 31, 2003 are derivative
assets of $185.1 million, $54.5 million and
$51.6 million, respectively. Included in accrued expenses
on May 31, 2004, August 31, 2003 and May 31, 2003
are derivative liabilities of $182.4 million,
$46.5 million and $26.8 million, respectively.
Prior to the two transactions described below,
the Company had a 25% economic and governance interest in
Agriliance, LLC.
In April 2003, the Company acquired an additional
economic interest in the wholesale crop protection products
business of Agriliance, LLC (the CPP Business),
which constitutes a part of Agriliances business
operations. The Company acquired 13.1% of the CPP Business for a
cash payment of $34.3 million. As a result of this
transaction, the economic interests in Agriliance, LLC were
owned 50% by Land OLakes, Inc., 25% plus an additional
13.1% of the CPP Business by the Company and 25% less 13.1% of
the CPP Business by Farmland Industries, Inc. (Farmland). The
ownership or governance interests in Agriliance, LLC did not
change with the purchase of the additional economic interest.
Agriliance, LLC earnings are split among the members based upon
the respective economic interests of each member.
In March 2004, the Companys Board of
Directors approved the purchase of all of Farmlands
interests in Agriliance, LLC. The purchase was approved
April 20, 2004, by the U.S. District Court overseeing
Farmlands bankruptcy process and was finalized on
April 30, 2004. The purchase price was $27.5 million.
The Company now owns 50% of the economic and governance
interests in Agriliance. The Company continues to account for
this investment using the equity method of accounting.
The following provides summarized unaudited
financial information for the Companys unconsolidated
significant equity investments in Ventura Foods, LLC (50% equity
ownership) and Agriliance, LLC, for the three-month and
nine-month periods as indicated below.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
During the three months ended May 31, 2004,
National Cooperative Refinery Association (NCRA), an approximate
74.5% owned subsidiary, exercised its right of first refusal to
purchase a partial interest in a crude oil pipeline and
subsequently sold a 50% interest in the same pipeline to another
third party. The purchase price was $16.0 million and the
sales price was $25.0 million, resulting in net proceeds
received of $9.0 million. NCRA recorded a gain on the sale
of $14.7 million.
In May 2004, the Company renewed and expanded its
committed lines of revolving credit. The previously established
credit lines consisted of a $600.0 million 364-day revolver
and a $100.0 million three-year revolver. The new committed
credit facilities consist of a $750.0 million 364-day
revolver and a $150.0 million three-year revolver. The
terms of the new credit facilities are essentially the same as
the terms of the credit facilities they replaced.
In March 2004, the Company entered into a note
purchase and private shelf agreement with Prudential Capital
Group, primarily for the purpose of financing the purchase of
Farmlands interest in Agriliance, LLC, as discussed in
Note 5. In April, 2004, the Company borrowed
$30.0 million under this arrangement. One long-term note in
the amount of $15.0 million has an interest rate of 4.08%
and will be repaid in full at the end of the six-year term in
2010. Another long-term note in the amount of $15.0 million
has an interest rate of 4.39% and will be repaid in full at the
end of the seven-year term in 2011.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
The following provides unaudited changes in
equity for the nine-month periods as indicated below:
In 2001 and 2002 the Company issued approximately
$9.5 million (9,454,874 shares) of 8% Preferred Stock
(Old Preferred). In late 2002, the Company suspended sales of
the Old Preferred, and on February 25, 2003 the Company
filed a post-effective amendment to terminate the offering of
the Old Preferred shares. In January 2003, the Company issued
3,450,000 shares of 8% Cumulative Redeemable Preferred
Stock (New Preferred) at a price of $25.00 per share, for
proceeds of $86.3 million, which are listed on the NASDAQ
National Market. The Board of Directors intent is to pay
quarterly dividends. Expenses related to the issuance of the New
Preferred were $3.8 million.
On March 5, 2003, the Companys Board
of Directors authorized the redemption and conversion of the Old
Preferred shares. A redemption notification and a conversion
election form were sent to holders of the Old Preferred shares
on March 21, 2003 explaining that on April 25, 2003
all shares of the Old Preferred would be redeemed by the Company
for $1.00 per share unless they were converted into shares
of the Companys New Preferred. The conversion did not
change the base liquidation amount or dividend amount of the Old
Preferred, since 25 shares of the Old Preferred converted
to 1 share of the New Preferred. The total Old Preferred
converted to the New Preferred was $7.5 million
(7,452,439 shares), and the balance of the Old Preferred
(2,002,435 shares) was redeemed in cash at $1.00 per
share.
In March 2004, $13.0 million of capital
equity certificates were redeemed in exchange for shares of the
Companys New Preferred pursuant to a registration
statement on Form S-2 filed with the Securities and
Exchange Commission. The amount of equities redeemed with each
share of preferred stock issued was $27.10, which was the
closing price per share of the stock on the NASDAQ National
Market on March 2, 2004. As of May 31, 2004 the
Company had $105.7 million (4,226,428 shares) of the
New Preferred outstanding.
Total comprehensive income primarily consists of
net income, additional minimum pension liability and cash flow
hedges. For the three months ended May 31, 2004 and 2003,
total comprehensive income
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
amounted to $81.2 million and
$53.3 million, respectively. For the nine months ended
May 31, 2004 and 2003, total comprehensive income amounted
to $142.7 million and $83.0 million, respectively.
Accumulated other comprehensive loss on May 31, 2004,
August 31, 2003 and May 31, 2003 was
$16.2 million, $18.3 million and $57.4 million,
respectively.
During the nine months ended May 31, 2004
and 2003 the Company accrued dividends and equities payable of
$79.4 million and $41.0 million, respectively.
During the nine months ended May 31, 2004
the Company issued capital equity certificates in the amount of
$13.4 million in exchange for elevator properties.
Employee benefit information for the three months
and nine months ended May 31, 2004 and 2003 is as follows:
As of May 31, 2004, the Company expected to
make contributions of $6.6 million to its pension plan
during the year ended August 31, 2004. These contributions
were made in June 2004.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
The Company manages five business segments, which
are based on products and services, and are Agronomy, Energy,
Country Operations and Services, Grain Marketing, and Processed
Grains and Foods. The Agronomy segment consists of joint
ventures and other investments, from which the Company derives
investment income based upon the profitability of these
investments. The Energy segment derives its revenues through
refining, wholesaling and retailing of petroleum products. The
Country Operations and Services segment derives its revenues
through the origination and marketing of grain, through the
retail sales of petroleum and agronomy products, and processed
sunflower, feed and farm supplies. The Country Operations and
Services segment also derives revenues from service activities
related to crop production. The Grain Marketing segment derives
its revenues from the sale of grains and oilseeds and from
service activities conducted at its export terminals. Processed
Grains and Foods segment derives its revenues from the sales of
soybean meal, soybean refined oil and from the sale of Mexican
food products.
Reconciling Amounts represent the elimination of
sales between segments. Such transactions are conducted at
market prices to more accurately evaluate the profitability of
the individual business segments.
The Company assigns certain corporate general and
administrative expenses to its business segments, based on use
of such services and allocates other services based on factors
or considerations relevant to the costs incurred.
Expenses that are incurred at the corporate level
for the purpose of the general operation of the Company are
allocated to the segments based upon factors which management
considers to be non-asymmetrical. Therefore, due to efficiencies
in scale, cost allocations, and intersegment activity,
management does not represent that these segments, if operated
independently, would report the income before income taxes and
other financial information as presented.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
Segment information for the three months and nine
months ended May 31, 2004 and 2003 is as follows:
13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
The Company incurs capital expenditures related
to the Environmental Protection Agency low sulfur fuel
regulations required by 2006. These expenditures were started in
fiscal 2002, and are expected to be approximately
$87.0 million for the Companys Laurel, Montana
refinery and $324.0 million for NCRAs McPherson,
Kansas refinery, of which $30.8 million has been spent at
the Laurel refinery and $92.7 million has been spent by
NCRA at the McPherson refinery as of May 31, 2004. The
Company expects all of these compliance capital expenditures at
the refineries to be complete by December 31, 2005, and
anticipates funding these projects with a combination of cash
flows from operations and debt proceeds.
In November 2002, the FASB issued FASB
Interpretation No. 45, Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The interpretation
addresses the disclosures to be made by a guarantor in its
interim and annual financial statements about its obligations
under guarantees. The interpretation also clarifies the
requirements related to the recognition of a liability by a
guarantor at the inception of the guarantee for obligations the
guarantor has undertaken in issuing the guarantee.
The Company makes seasonal and term loans to
member cooperatives, and its wholly-owned subsidiary, Fin-Ag,
Inc., makes loans for agricultural purposes to individual
producers. Some of these loans are sold to CoBank, ACB, and the
Company guarantees a portion of the loans sold. In addition, the
Company also guarantees certain debt and obligations under
contracts for its subsidiaries and members.
14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) (Continued)
The Companys obligations pursuant to its
guarantees as of May 31, 2004 are as follows:
15
Note 1.
Accounting Policies
Goodwill and Other Intangible
Assets
Recent Accounting
Pronouncements
Table of Contents
Reclassifications:
Note 2.
Receivables
May 31,
August 31,
May 31,
2004
2003
2003
$
921,847
$
748,398
$
710,524
66,832
47,000
59,743
988,679
795,398
770,267
34,239
31,618
29,220
$
954,440
$
763,780
$
741,047
Table of Contents
Note 3.
Inventories
May 31,
August 31,
May 31,
2004
2003
2003
$
478,951
$
370,381
$
278,480
245,985
292,095
232,877
145,349
95,589
115,747
35,182
42,688
50,128
1,334
1,130
1,269
$
906,801
$
801,883
$
678,501
Note 4.
Derivative Assets and Liabilities
Note 5.
Investments
Ventura Foods, LLC
For the Three Months Ended
For the Nine Months Ended
May 31,
May 31,
May 31,
May 31,
2004
2003
2004
2003
$
370,293
$
296,298
$
1,044,844
$
858,715
25,953
39,779
131,275
119,150
(6,679
)
12,018
40,633
34,421
Table of Contents
May 31,
August 31,
May 31,
2004
2003
2003
$
274,256
$
193,632
$
193,722
255,457
231,649
232,678
160,409
227,400
228,226
195,230
21,738
22,909
Agriliance, LLC
For the Three Months Ended
For the Nine Months Ended
May 31,
May 31,
May 31,
May 31,
2004
2003
2004
2003
$
1,424,747
$
1,402,646
$
2,502,949
$
2,548,766
148,541
157,972
257,190
251,418
78,121
81,490
58,794
36,134
May 31,
August 31,
May 31,
2004
2003
2003
$
1,309,411
$
1,249,941
$
1,211,918
123,519
119,615
126,874
1,044,238
1,083,743
981,879
125,745
27,061
107,437
Note 6.
Notes Payable and Long-Term Debt
Table of Contents
Note 7.
Equities
2004
2003
$
1,481,711
$
1,289,638
140,639
88,429
2,091
(5,465
)
(95,218
)
(88,247
)
90,000
92,900
(5,724
)
(26,402
)
2,851
24,360
13,355
(151
)
82,484
(2,002
)
(5,861
)
(1,701
)
1,249
(79,409
)
(41,049
)
(818
)
(3,672
)
$
1,544,715
$
1,409,273
Note 8.
Comprehensive Income
Table of Contents
Note 9.
Non-Cash Activities
Note 10.
Employee Benefit Plans
Qualified
Non-Qualified
Pension Benefits
Pension Benefits
Other Benefits
2004
2003
2004
2003
2004
2003
$
2,887
$
2,710
$
150
$
200
$
189
$
162
4,301
4,376
206
258
439
431
(6,872
)
(5,947
)
211
202
132
141
(43
)
(43
)
1,037
656
26
40
27
(54
)
234
234
251
$
1,564
$
1,997
$
765
$
639
$
846
$
730
$
8,661
$
8,130
$
451
$
600
$
566
$
486
12,902
13,127
617
775
1,318
1,292
(20,617
)
(17,841
)
632
605
395
423
(130
)
(129
)
3,112
1,967
77
119
81
(161
)
702
702
753
$
4,690
$
5,988
$
2,293
$
1,917
$
2,537
$
2,190
Employer contributions
Table of Contents
Note 11.
Segment Reporting
Table of Contents
Country
Processed
Operations
Grain
Grains and
Reconciling
Agronomy
Energy
and Services
Marketing
Foods
Other
Amounts
Total
$
1,046,218
$
697,097
$
1,125,280
$
240,692
$
(291,758
)
$
2,817,529
$
(15
)
270
1,139
136
249
$
30
1,809
3,343
27,678
6,891
915
2,565
41,392
(15
)
1,049,831
725,914
1,132,307
241,856
2,595
(291,758
)
2,860,730
964,696
686,114
1,143,302
231,881
(291,758
)
2,734,235
1,703
16,772
17,908
5,717
9,928
2,146
54,174
(14,666
)
(14,666
)
(111
)
3,139
4,398
1,729
3,928
699
13,782
(31,111
)
(522
)
(159
)
(3,071
)
2,457
(32,406
)
16,063
354
16,417
$
29,504
$
64,349
$
17,299
$
(15,370
)
$
(6,338
)
$
(250
)
$
$
89,194
$
(31,909
)
$
(248,040
)
$
(11,809
)
$
291,758
$
$
57,695
$
5,831
$
658
$
1,183
$
818
$
66,185
$
312
$
14,423
$
5,225
$
2,034
$
3,913
$
761
$
26,668
$
873,187
$
545,082
$
895,493
$
112,925
$
(206,232
)
$
2,220,455
$
(27
)
334
800
136
84
$
24
1,351
1,994
20,379
4,559
970
1,169
29,071
(27
)
875,515
566,261
900,188
113,979
1,193
(206,232
)
2,250,877
824,921
535,008
893,532
105,238
(206,232
)
2,152,467
1,989
15,997
14,064
5,653
10,354
1,426
49,483
(178
)
(178
)
(204
)
4,297
3,891
865
3,404
31
12,284
(22,983
)
(386
)
(72
)
429
(6,990
)
(1
)
(30,003
)
5,581
332
5,913
$
21,171
$
25,105
$
13,216
$
(291
)
$
1,973
$
(263
)
$
$
60,911
$
(22,288
)
$
(183,562
)
$
(382
)
$
206,232
$
$
22,677
$
3,498
$
1,062
$
17,698
$
157
$
45,092
$
312
$
14,475
$
4,914
$
1,610
$
3,416
$
771
$
25,498
$
2,868,509
$
1,695,654
$
3,698,320
$
584,574
$
(885,588
)
$
7,961,469
$
(15
)
1,382
3,640
436
249
$
78
5,770
5,975
69,216
21,872
2,711
5,101
104,875
(15
)
2,875,866
1,768,510
3,720,628
587,534
5,179
(885,588
)
8,072,114
2,717,030
1,670,844
3,717,233
557,345
(885,588
)
7,776,864
5,471
48,054
49,730
18,031
28,361
5,070
154,717
(14,666
)
(14,666
)
(289
)
10,652
11,902
4,252
11,437
850
38,804
(29,290
)
(811
)
(428
)
(7,777
)
(25,887
)
(64,193
)
22,459
1,100
23,559
$
24,093
$
93,148
$
35,362
$
(11,111
)
$
16,278
$
(741
)
$
$
157,029
$
(87,354
)
$
(767,145
)
$
(31,089
)
$
885,588
$
$
3,185
$
250
$
23,605
$
27,040
$
126,173
$
19,664
$
4,828
$
16,153
$
1,589
$
168,407
$
935
$
43,270
$
16,237
$
6,172
$
11,586
$
2,328
$
80,528
$
324,047
$
1,499,135
$
1,037,487
$
727,313
$
530,500
$
296,887
$
4,415,369
$
2,684,805
$
1,464,980
$
3,161,343
$
355,049
$
(716,972
)
$
6,949,205
$
(84
)
397
1,646
162
111
$
78
2,310
3,831
61,364
17,395
2,826
3,642
89,058
(84
)
2,689,033
1,527,990
3,178,900
357,986
3,720
(716,972
)
7,040,573
2,570,063
1,452,667
3,155,182
331,522
(716,972
)
6,792,462
4,707
43,759
41,999
17,636
28,499
4,103
140,703
(10,867
)
(10,867
)
(882
)
12,308
11,895
3,747
9,069
396
36,533
(12,953
)
(941
)
(542
)
1,325
(19,284
)
(1
)
(32,396
)
13,786
903
14,689
$
9,044
$
50,058
$
31,935
$
1,010
$
8,180
$
(778
)
$
$
99,449
$
(69,234
)
$
(646,522
)
$
(1,216
)
$
716,972
$
$
3,409
$
262
$
23,605
$
27,276
$
56,701
$
16,849
$
1,978
$
45,662
$
1,277
$
122,467
$
935
$
43,523
$
15,668
$
4,820
$
9,818
$
2,368
$
77,132
$
281,597
$
1,343,928
$
861,220
$
395,468
$
486,447
$
214,639
$
3,583,299
Table of Contents
Note 12.
Commitments and Contingencies
Environmental
Guarantees
Table of Contents
Guarantee/
Exposure on
Maximum
May 31,
Assets Held as
Entities
Exposure
2004
Nature of Guarantee
Expiration Date
Triggering Event
Recourse Provisions
Collateral
(dollars in thousands)
*
$
11,666
10% of the obligations of borrowers (agri-
cultural cooperatives) under credit agreements for loans sold
None stated, but may be terminated by either
party upon 60 days prior notice in regard to future
obligations
Credit agreement default
Subrogation against borrower
Some or all assets of borrower are held as
collateral and should be sufficient to cover guarantee exposure
*
27,978
15% of the obligations of borrowers under credit
agreements for some of the loans sold, 50% of the obligations of
borrowers for other loans sold, and 100% of the obligations of
borrowers for the remaining loans sold
None stated, but may be terminated by either
party upon 90 days prior notice in regard to future
obligations
Credit agreement default
Subrogation against borrower
Some or all assets of borrower are held as
collateral and should be sufficient to cover guarantee exposure
$
5,000
Indemnification and reimbursement of 24% of
damages related to Horizon Milling LLCs performance under
a flour sales agreement
None stated, but may be terminated by any party
upon 90 days prior notice in regard to future obligations
Non-performance under flour sale agreement
Subrogation against Horizon Milling, LLC
None
$
15,000
Obligations by TEMCO, LLC under credit agreement
None stated
Credit agreement default
Subrogation against TEMCO, LLC
None
*
1,476
Surety for, or indemnification of surety for
sales contracts between affiliates and sellers of grain under
deferred payment contracts
Annual renewal on December 1st in regard to
surety for one third party, otherwise none stated and may be
terminated by the Company at any time in regard to future
obligations
Nonpayment
Subrogation against affiliates
Some or all assets of borrower are held as
collateral but might not be sufficient to cover guarantee
exposure
$
41,120
*
The Companys bank covenants allow for
guarantees of up to $150.0 million, but the Company is
under no obligation to extend these guarantees. The maximum
exposure on any given date is equal to the actual guarantees
extended as of that date.
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Cautionary Statement Regarding Forward-Looking Statements
The information in this Quarterly Report on Form 10-Q for the quarterly period ended May 31, 2004, includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 with respect to the Company. In addition, the Company and its representatives and agents may from time to time make other written or oral forward-looking statements, including statements contained in the Companys filings with the Securities and Exchange Commission and its reports to its members and securityholders. Words and phrases such as will likely result, are expected to, is anticipated, estimate, project and similar expressions identify forward-looking statements. The Company wishes to caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made.
The Companys forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. This Cautionary Statement is for the purpose of qualifying for the safe harbor provisions of the Act and is intended to be a readily available written document that contains factors which could cause results to differ materially from those projected in the forward-looking statements. The following matters, among others, may have a material adverse effect on the business, financial condition, liquidity, results of operations or prospects, financial or otherwise, of the Company. Reference to this Cautionary Statement in the context of a forward-looking statement shall be deemed to be a statement that any one or more of the following factors may cause actual results to differ materially from those which might be projected, forecasted, estimated or budgeted by the Company in the forward-looking statement or statements.
The following factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any particular forward-looking statement. The following review of factors pursuant to the Act should not be construed as exhaustive.
The Company undertakes no obligation to publicly revise any forward-looking statements to reflect future events or circumstances.
Changes in commodity prices. Our revenues and earnings are affected by market prices for commodities such as crude oil, natural gas, grains, oilseeds, and flour. Commodity prices generally are affected by a wide range of factors beyond our control, including weather, disease, insect damage, drought, the availability and adequacy of supply, government regulation and policies, and general political and economic conditions. We are also exposed to fluctuating commodity prices as the result of our inventories of commodities, typically grain and petroleum products, and purchase and sale contracts at fixed or partially fixed prices. At any time, our inventory levels and unfulfilled fixed or partially fixed price contract obligations may be substantial. Increases in market prices for commodities that we purchase without a corresponding increase in the prices of our products or our sales volume or a decrease in our other operating expenses could reduce our revenues and net income.
Grain and energy prices were volatile during the quarter ending May 31, 2004 and the Company expects that this volatility will continue throughout the balance of this fiscal year. While the Company minimizes its risk to price fluctuations through hedging transactions, the Company is exposed to loss in the event of nonperformance by counter-parties to forward purchase or sale contracts. Volatile commodity prices increase the risk that counter-parties may choose to default under the contracts when the market price has changed to their disadvantage.
In our energy operations, profitability depends largely on the margin between the cost of crude oil that we refine and the selling prices that we obtain for our refined products. Prices for both crude oil and for gasoline, diesel fuel and other refined petroleum products fluctuate widely. Factors influencing these prices, many of which are beyond our control, include:
| levels of worldwide and domestic supplies; | |
| capacities of domestic and foreign refineries; |
16
| the ability of the members of OPEC to agree to and maintain oil price and production controls, and the price and level of foreign imports generally; | |
| political instability or armed conflict in oil-producing regions; | |
| the level of consumer demand; | |
| the price and availability of alternative fuels; | |
| the availability of pipeline capacity; and | |
| domestic and foreign governmental regulations and taxes. |
The long-term effects of these and other conditions on the prices of crude oil and refined petroleum products are uncertain and ever-changing. Accordingly, we expect our margins on and the profitability of our energy business to fluctuate, possibly significantly, over time.
Our operating results could be adversely affected if our members were to do business with others rather than with us. We do not have an exclusive relationship with our members and our members are not obligated to supply us with their products or purchase products from us. Our members often have a variety of distribution outlets and product sources available to them. If our members were to sell their products to other purchasers or purchase products from other sellers, our revenues would decline and our results of operations could be adversely affected.
We participate in highly competitive business markets in which we may not be able to continue to compete successfully. We operate in several highly competitive business segments and our competitors may succeed in developing new or enhanced products that are better than ours, and may be more successful in marketing and selling their products than we are with ours. Competitive factors include price, service level, proximity to markets, product quality and marketing. In some of our business segments, such as Energy, we compete with companies that are larger, better known and have greater marketing, financial, personnel and other resources. As a result, we may not be able to continue to compete successfully with our competitors.
Changes in federal income tax laws or in our tax status could increase our tax liability and reduce our net income. Current federal income tax laws, regulations and interpretations regarding the taxation of cooperatives, which allow us to exclude income generated through business with or for a member (patronage income) from our taxable income, could be changed. If this occurred, or if in the future we were not eligible to be taxed as a cooperative, our tax liability would significantly increase and our net income significantly decrease.
We incur significant costs in complying with applicable laws and regulations. Any failure to make the capital investments necessary to comply with these laws and regulations could expose us to financial liability. We are subject to numerous federal, state and local provisions regulating our business and operations and we incur and expect to incur significant capital and operating expenses to comply with these laws and regulations. We may be unable to pass on those expenses to customers without experiencing volume and margin losses. For example, capital expenditures for upgrading our refineries, largely to comply with regulations requiring the reduction of sulfur levels in refined petroleum products, are expected to be approximately $87.0 million for our Laurel, Montana refinery and $324.0 million for the National Cooperative Refinery Associations (NCRA) McPherson, Kansas refinery, of which $30.8 million had been spent at the Laurel refinery and $92.7 million had been spent by NCRA at the McPherson refinery as of May 31, 2004. The Company expects all of these compliance capital expenditures at the refineries to be complete by December 31, 2005, and anticipates funding these projects with a combination of cash flows from operations and debt proceeds.
We establish reserves for the future cost of meeting known compliance obligations, such as remediation of identified environmental issues. However, these reserves may prove inadequate to meet our actual liability. Moreover, amended, new or more stringent requirements, stricter interpretations of existing requirements or the future discovery of currently unknown compliance issues may require us to make
17
Environmental liabilities could adversely affect our results and financial condition. Many of our current and former facilities have been in operation for many years and, over that time, we and other operators of those facilities have generated, used, stored and disposed of substances or wastes that are or might be considered hazardous under applicable environmental laws, including chemicals and fuels stored in underground and above-ground tanks. Any past or future actions in violation of applicable environmental laws could subject us to administrative penalties, fines and injunctions. Moreover, future or unknown past releases of hazardous substances could subject us to private lawsuits claiming damages and to adverse publicity.
Actual or perceived quality, safety or health risks associated with our products could subject us to liability and damage our business and reputation. If any of our food or feed products became adulterated or misbranded, we would need to recall those items and could experience product liability claims if consumers were injured as a result. A widespread product recall or a significant product liability judgment could cause our products to be unavailable for a period of time or a loss of consumer confidence in our products. Even if a product liability claim is unsuccessful or is not fully pursued, the negative publicity surrounding any assertion that our products caused illness or injury could adversely affect our reputation with existing and potential customers and our corporate and brand image. Moreover, claims or liabilities of this sort might not be covered by our insurance or by any rights of indemnity or contribution that we may have against others. In addition, general public perceptions regarding the quality, safety or health risks associated with particular food or feed products, such as the concern in some quarters regarding genetically modified crops, could reduce demand and prices for some of the products associated with our businesses. To the extent that consumer preferences evolve away from products that our members or we produce for health or other reasons, such as the growing demand for organic food products, and we are unable to develop products that satisfy new consumer preferences, there will be a decreased demand for our products.
Our operations are subject to business interruptions and casualty losses; we do not insure against all potential losses and could be seriously harmed by unexpected liabilities. Our operations are subject to business interruptions due to unanticipated events such as explosions, fires, pipeline interruptions, transportation delays, equipment failures, crude oil or refined product spills, inclement weather and labor disputes. For example:
| our oil refineries and other facilities are potential targets for terrorist attacks that could halt or discontinue production; | |
| our inability to negotiate acceptable contracts with unionized workers in our operations could result in strikes or work stoppages; and | |
| the significant inventories that we carry could be damaged or destroyed by catastrophic events, extreme weather conditions or contamination. |
We maintain insurance against many, but not all, potential losses or liabilities arising from these operating hazards, but uninsured losses or losses above our coverage limits are possible. Uninsured losses and liabilities arising from operating hazards could have a material adverse effect on our financial position or results of operations.
Our cooperative structure limits our ability to access equity capital. As a cooperative, we may not sell common equity in our company. In addition, existing laws and our articles of incorporation and bylaws contain limitations on dividends of 8% of any preferred stock that we may issue. These limitations restrict our ability to raise equity capital and may adversely affect our ability to compete with enterprises that do not face similar restrictions.
18
Consolidation among the producers of products we purchase and customers for products we sell could adversely affect our revenues and operating results. Consolidation has occurred among the producers of products we purchase, including crude oil and grain, and it is likely to continue in the future. Consolidation could increase the price of these products and allow suppliers to negotiate pricing and other contract terms that are less favorable to us. Consolidation also may increase the competition among consumers of these products to enter into supply relationships with a smaller number of producers resulting in potentially higher prices for the products we purchase.
Consolidation among purchasers of our products and in wholesale and retail distribution channels has resulted in a smaller customer base for our products and intensified the competition for these customers. For example, ongoing consolidation among distributors and brokers of food products and food retailers has altered the buying patterns of these businesses, as they have increasingly elected to work with product suppliers who can meet their needs nationwide rather than just regionally or locally. If these distributors, brokers, and retailers elect not to purchase our products, our sales volumes, revenues, and profitability could be significantly reduced.
If our customers chose alternatives to our refined petroleum products our revenues and profits may decline. Numerous alternative energy sources currently under development could serve as alternatives to our gasoline, diesel fuel and other refined petroleum products. If any of these alternative products become more economically viable or preferable to our products for environmental or other reasons, demand for our energy products would decline. Demand for our gasoline, diesel fuel and other refined petroleum products also could be adversely affected by increased fuel efficiencies.
Our agronomy business is depressed and could continue to underperform in the future. Demand for agronomy products in general has been adversely affected in recent years by drought and poor weather conditions, idle acreage and development of insect and disease-resistant crops. These factors could cause Agriliance, LLC, an agronomy marketing and distribution venture in which we own a minority interest, to be unable to operate at profitable margins. In addition, these and other factors, including fluctuations in the price of natural gas and other raw materials, an increase in recent years in domestic and foreign production of fertilizer, and intense competition within the industry, in particular from lower-cost foreign producers, have created particular pressure on producers of fertilizers. As a result, CF Industries, Inc., a fertilizer manufacturer in which we hold a minority cooperative interest, has suffered significant losses in recent years as it has incurred increased prices for raw materials and manufacturing those materials, but has been unable to pass those increased costs on to its customers.
Technological improvements in agriculture could decrease the demand for our agronomy products. Technological advances in agriculture could decrease the demand for crop nutrients, and other crop input products and services that we provide. Genetically engineered seeds that resist disease and insects or that meet certain nutritional requirements could affect the demand for our crop nutrients and crop protection products, as well as the demand for fuel that we sell and which is used to operate application equipment relating to these products.
We operate some of our business through joint ventures in which our rights to control business decisions are limited. Several parts of our business, including in particular, our agronomy business segment and portions of our grain marketing, wheat milling and foods businesses, are operated through joint ventures with third parties. By operating a business through a joint venture, we have less control over business decisions than we have in our wholly-owned businesses. In particular, we generally cannot act on major business initiatives in our joint ventures without the consent of the other party or parties in those ventures.
General |
CHS Inc. (CHS or the Company) is one of the nations leading integrated agricultural companies. As a cooperative, the Company is owned by farmers, ranchers and their local cooperatives from the Great Lakes to the Pacific Northwest and from the Canadian border to Texas. CHS buys commodities from, and provides products and services to members and other customers. The Company provides a wide variety of
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The Company has five distinct business segments: Agronomy, Energy, Country Operations and Services, Grain Marketing and Processed Grains and Foods. Summary data for each of these segments for the three months and nine months ended May 31, 2004 and 2003 is shown in Note 11 to the Consolidated Financial Statements.
Many of the Companys business activities are highly seasonal, and as a result, operating results will vary throughout the year. Overall, the Companys income is generally lowest during the second fiscal quarter and highest during the third fiscal quarter. Certain business segments are subject to varying seasonal fluctuations. For example, the Agronomy and Country Operations and Services segments experience higher volumes and income during the spring planting season and in the fall, which corresponds to harvest. The Grain Marketing segment is subject to fluctuations in volumes and earnings based on producer harvests, world grain prices and demand. The Companys Energy segment generally experiences higher volumes and profitability in certain operating areas, such as refined fuels products, in the summer when gasoline and diesel usage is highest. Other energy products, such as propane, experience higher volumes and profitability during the winter heating and fall crop drying seasons.
The Companys revenue can be significantly affected by global market prices for commodities such as petroleum products, natural gas, grains, oilseeds and flour. Changes in market prices for commodities that the Company purchases without a corresponding change in the selling prices of those products can affect revenues and operating earnings. Commodity prices are affected by a wide range of factors beyond the Companys control, including weather, crop damage due to diseases or insects, drought, the availability and adequacy of supply, government regulation and policies, world events, and general political and economic conditions.
While the Companys sales and operating results are derived from businesses and operations which are wholly-owned and majority-owned, a portion of business operations are conducted through companies in which the Company holds ownership interests of 50% or less and does not control the operations. The Company accounts for these investments primarily using the equity method of accounting, wherein CHS records, as equity income from investments, its proportionate share of income or loss reported by the entity, without consolidating the revenues and expenses of the entity in the Companys consolidated statements of operations. These investments principally include the Companys 50% ownership in Agriliance, LLC (Agriliance), the 50% ownership in TEMCO, LLC, the 50% ownership in United Harvest, LLC, the 24% ownership in Horizon Milling, LLC (Horizon) and the 50% ownership in Ventura Foods, LLC (Ventura).
Prior to the two transactions described below, the Company had a 25% economic and governance interest in Agriliance.
In April 2003, the Company acquired an additional economic interest in the wholesale crop protection products business of Agriliance (the CPP Business), which constitutes a part of Agriliances business operations. The Company acquired 13.1% of the CPP Business for a cash payment of $34.3 million. As a result of this transaction, the economic interests in Agriliance were owned 50% by Land OLakes, 25% plus an additional 13.1% of the CPP Business by the Company and 25% less 13.1% of the CPP Business by Farmland Industries, Inc. (Farmland). The ownership or governance interests in Agriliance did not change with the purchase of the additional economic interest. Agriliance earnings are split among the members based upon the respective economic interests of each member.
In March 2004, the Companys Board of Directors approved the purchase of all of Farmlands interests in Agriliance. The purchase was approved April 20, 2004, by the U.S. District Court overseeing Farmlands bankruptcy process and was finalized on April 30, 2004. The purchase price was $27.5 million. The Company now owns 50% of the economic and governance interests in Agriliance. The Company continues to account for this investment using the equity method of accounting.
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Recent
Grain and energy prices were volatile during the quarter ending May 31, 2004 and the Company expects that this volatility will continue throughout the balance of this fiscal year. Shortages of certain grain commodities due to poor growing conditions last year, volatile ocean freight costs, and strong world demand, along with the uncertainty of weather this summer, has created sizable movements in grain prices. Energy prices, driven primarily by uncertain world political conditions and strong demand for gasoline in the U.S. have also changed in a volatile manner. While the Company minimizes its risk to price fluctuations through hedging transactions, the Company is exposed to loss in the event of nonperformance by counter-parties to forward purchase or sale contracts. Volatile commodity prices increase the risk that counter-parties may default under the contracts when the market price has changed.
Considering the risk of default, the Company has valued certain sale contracts within its Grain Marketing segment at less than the respective contract prices based upon our appraisal of current fair market value on May 31, 2004. The valuation at less than contract price had the effect of reducing pre-tax income for the three months and nine months ended May 31, 2004, in the aggregate by $18.5 million, and net income by $11.3 million compared to the results which would have been reported had these contracts been valued at the contract price.
If a counter-party defaults on either a purchase or sale contract, it is the policy of the Company to pursue the matter aggressively in appropriate legal proceedings. The Company is closely monitoring other customers and suppliers where existing contracts are outside of current market values and will react aggressively to enforce these obligations in the event of a default by a counter-party.
Results of Operations
Comparison of the three months ended May 31, 2004 and 2003 |
Net Income. Consolidated net income for the three months ended May 31, 2004 was $81.4 million compared to $52.2 million for the three months ended May 31, 2003, which represents a $29.2 million (56%) increase in earnings. Earnings increased within the Companys Energy, Agronomy, and Country Operations and Services segments, which was partially offset by a decrease in earnings within the Grain Marketing and Processed Grains and Foods segments when comparing the three months ended May 31, 2004 with the same period of a year ago. The Energy segment earnings increased $39.2 million, primarily as a result of improved refining margins and a net gain of $14.7 million from the sale of a portion of a petroleum crude oil pipeline investment. The Agronomy segment generated increased earnings of $8.3 million, of which $6.0 million was the result of the purchase of additional ownership and governance interests in Agriliance so that the Company now owns 50%, and the remainder was primarily the result of improved crop protection margins. The Country Operations and Services segment earnings increased $4.1 million, primarily due to strong operating performance. The Grain Marketing segment reflected decreased earnings of $15.1 million, primarily the result of market adjustments on soybean export contracts. The Processed Grains & Foods segment reflected decreased earnings of $8.3 million, which was primarily the result of an equity loss of $9.4 million from its Ventura investment, which recorded negative market adjustments on edible oil futures contracts.
Net Sales. Consolidated net sales of $2.8 billion for the three months ended May 31, 2004 increased $597.1 million (27%) compared to the three months ended May 31, 2003.
Company-wide grain and oilseed net sales of $1.2 billion increased $249.2 million (25%) during the three months ended May 31, 2004 compared with the sales activity during the three months ended May 31, 2003. Grain Marketing segment sales to external customers totaled $1,113.4 million and $895.1 million during the three months ended May 31, 2004 and 2003, respectively. Grain sales of the Country Operations and Services segment to external customers during these same periods were $113.1 million and $82.2 million, respectively. Sales of grain between the Country Operations and Services segment and the Grain Marketing segment during those periods were $259.8 million and $183.9 million,
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Energy net sales of $1.0 billion increased $163.4 million (19%) during the three months ended May 31, 2004 compared with the sales activity during the three months ended May 31, 2003. During the three months ended May 31, 2004 and 2003, the Energy segment recorded sales to the Country Operations and Services segment of $31.9 million and $22.3 million, respectively. These intersegment sales are eliminated in deriving consolidated sales but are included for segment reporting purposes. The net sales increase of $163.4 million is comprised of an increase of $179.1 million related to price appreciation and a decrease in sales of $15.7 million because of lower sales volume. On a more product-specific basis, refined fuels prices increased $0.25 per gallon (26%) and volumes decreased 2% when comparing the three months ended May 31, 2004 with the same period a year ago. Propane volumes decreased by 7% and prices decreased $0.01 per gallon compared with the same period a year ago. Overall energy markets are up, which caused price increases on refined fuels products. Refined fuels volume decreases reflect a cutback on unbranded sales during the third quarter to offset the effects of the non-renewal of the supply agreement with a Coffeyville, Kansas production facility.
Country operations non-grain net sales of $336.0 million increased by $56.7 million (20%) during the three months ended May 31, 2004 compared to the three months ended May 31, 2003 primarily in crop nutrients, seed and energy products. Overall, the average selling price on these products have increased compared to the same period a year ago. In addition, volumes are up due to acquisitions and an earlier spring planting season compared to the previous year.
Processed Grains and Foods segment net sales of $240.7 million increased $127.8 million (113%) during the three months ended May 31, 2004 compared to the three months ended May 31, 2003. Oilseed processing net sales increased $128.2 million which is comprised of an increase of $70.8 million related to price appreciation and $57.4 million because of higher sales volume. The average selling price of processed oilseed and refined oilseed products increased $99 per ton and $0.17 per pound, respectively, compared to the same period a year ago. The volume increase is primarily due to the new soybean crushing plant in Fairmont, Minnesota that began operations during the first quarter of fiscal year 2004.
Patronage Dividends. Patronage dividends received of $1.8 million increased $0.5 million (34%) during the three months ended May 31, 2004 compared to the three months ended May 31, 2003.
Other Revenues. Other revenues of $41.4 million increased $12.3 million (42%) during the three months ended May 31, 2004 compared to the three months ended May 31, 2003. The most significant increase was related to additional services revenue within the Country Operations and Services segment compared to the same period of a year ago.
Cost of Goods Sold. Cost of goods sold of $2.7 billion increased $581.8 million (27%) during the three months ended May 31, 2004 compared to the three months ended May 31, 2003. The cost of all grains and oilseed procured by the Company through its Grain Marketing and Country Operations and Services segments increased 28% compared to the three months ended May 31, 2003, primarily the result of an $18.5 million market adjustment on soybean export contracts, a $0.44 (11%) average cost per bushel increase and a 15% increase in volumes. Volatile commodity prices and increased shipping cost contributed to the increased cost of goods sold. The Energy segment cost of goods sold increased by $139.8 million (17%) during the three months ended May 31, 2004, compared to the same period of the prior year,
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Marketing, General and Administrative. Marketing, general and administrative expenses of $54.2 million for the three months ended May 31, 2004 increased by $4.7 million (9%) compared to the three months ended May 31, 2003. The primary increase during three months ended May 31, 2004 compared to the prior year is within the Country Operations and Services and Energy segments.
Gain on Sale of Investment. During the third quarter of fiscal 2004, the Company recorded a gain of $14.7 million within the Energy segment from the sale of a portion of a petroleum crude oil pipeline investment. NCRA exercised its right of first refusal to purchase a partial interest in the pipeline, and subsequently sold a 50% interest to another third party for proceeds of $25.0 million.
Gain on Legal Settlements. The Country Operations and Services segment received cash of $0.2 million during the three months ended May 31, 2003 from a class action lawsuit alleging illegal price fixing against various feed vitamin product suppliers.
Interest. Interest expense of $13.8 million for the three months ended May 31, 2004 increased by $1.5 million (12%) compared to the three months ended May 31, 2003. The average level of short-term borrowings increased $244.0 million primarily due to financing higher average working capital needs partially offset by an average short-term interest rate decrease of 0.2% during the three months ended May 31, 2004 compared to the three months ended May 31, 2003.
Equity Income from Investments. Equity income from investments of $32.4 million for the three months ended May 31, 2004 increased $2.4 million (8%) compared to the three months ended May 31, 2003. This increase is primarily attributable to improved earnings of $8.1 million and $3.5 million in the Agronomy and Grain Marketing segment investments, respectively. The income was partially offset by a decrease in earnings of $9.4 million, in the Processed Grains and Foods segment investments.
The Agronomy segment joint ventures generated increased earnings of $8.1 million. In April 2004, the company finalized the purchase of additional ownership interest in Agriliance so that the Company now owns 50%, which accounts for $6.0 million of the increase. The remainder was primarily the result of improved crop protection margins, which was partially offset by reduced crop nutrient margins.
The Grain Marketing segment also shows increased earnings in two exporting joint ventures primarily due to increased export demand and favorable ocean freight spreads from the Pacific Northwest, where the exporting joint venture facilities are located, to the Pacific Rim. These factors contributed to a $1.3 million increase in equity income from the Companys investment in TEMCO, LLC, a joint venture, which exports primarily corn and soybeans. These same conditions contributed to a $1.8 million improvement in equity income from the Companys wheat exporting investment in United Harvest, LLC.
The Processed Grains and Foods segment oilseed based products and packaged foods joint venture (Ventura) recorded decreased earnings of $9.4 million, which is primarily the result of decreased margins and the effects of a market value adjustment on edible oil futures contracts.
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Minority Interests. Minority interests of $16.4 million for the three months ended May 31, 2004 increased by $10.5 million compared to the three months ended May 31, 2003. The net change in minority interests during the three months ended May 31, 2004 compared to the prior three-month period last year was primarily a result of more profitable operations within the Companys majority-owned subsidiaries and the minority interest effect of the gain on the sale of an NCRA investment. Substantially all minority interests relate to NCRA, an approximately 74.5% owned subsidiary.
Income Taxes. Income tax expense of $7.8 million for the three months ended May 31, 2004 compares to $8.7 million for the three months ended May 31, 2003, resulting in effective tax rates of 8.8% and 14.3%, respectively. The $18.5 million market adjustment on soybean contracts reduced income tax expense by $7.2 million for the three months ended May 31, 2004. The federal and state statutory rate applied to nonpatronage business activity was 38.9% for the periods ended May 31, 2004 and 2003. The income taxes and effective tax rate vary each period based upon profitability and nonpatronage business activity during each of the comparable periods.
Comparison of the nine months ended May 31, 2004 and 2003 |
Net Income. Consolidated net income for the nine months ended May 31, 2004 was $140.6 million compared to $88.4 million for the nine months ended May 31, 2003, which represents a $52.2 million (59%) increase in earnings. The most significant increases in earnings, when comparing the nine months ended May 31, 2004 with the same period of a year ago, were generated within the Companys Energy, Agronomy and Processed Grains and Foods segments, which was partially offset by a decrease in earnings within the Grain Marketing segment. The Energy segment earnings increased $43.1 million, primarily as a result of improved refining margins and a gain of $14.7 million on the sale of a portion of a petroleum crude oil pipeline investment. The Agronomy segment generated increased earnings of $15.0 million, of which $6.0 million was the result of the Company purchasing an additional ownership interest in Agriliance so that the Company now owns 50% and the remainder was primarily the result of improved crop protection margins. The Processed Grains and Foods segment earnings increased $8.1 million, primarily as a result of improved equity income of $6.6 million in the Companys wheat milling and packaged foods joint ventures and increased earnings of $2.3 million in oilseed processing compared to the nine months ended May 31, 2003. The Country Operations and Services segment increased earnings of $3.4 million, primarily the result of improved earnings within the services group. The Grain Marketing segment decreased earnings of $12.1 million, primarily the result of market adjustments on soybean export contracts, partially offset by improved equity income from its joint ventures. These earnings were also offset by increased income tax expense of $5.4 million compared to the nine months ended May 31, 2003 as a result of higher non-patronage sourced earnings.
Net Sales. Consolidated net sales of $8.0 billion for the nine months ended May 31, 2004 increased $1.0 billion (15%) compared to the nine months ended May 31, 2003.
Company-wide grain and oilseed net sales of $4.0 billion increased $527.7 million (15%) during the nine months ended May 31, 2004 compared with the sales activity during the nine months ended May 31, 2003. Sales to external customers by the Grain Marketing segment totaled $3,667.2 million and $3,160.1 million during the periods ended May 31, 2004 and 2003, respectively. Grain sales of the Country Operations and Services segment to external customers during these same periods were $285.4 million and $264.8 million, respectively. Sales of grain between the Country Operations and Services segment and the Grain Marketing segment during those periods were $798.2 million and $647.7 million, respectively. These intersegment sales are included for segment reporting purposes, but the Company eliminates all intersegment sales on a consolidated basis. The net sales increase of $527.7 million is attributable to higher grain prices and increased volumes during the nine-month period ended May 31, 2004 compared to those prevailing during the same period a year earlier. The weighted average sale price of all grain and oilseed commodities sold reflected an increase of $0.34 per bushel (8%), which contributed $284.7 million to the increase. Commodity prices in general increased; the market price per bushel of soybeans, corn and spring wheat were $2.14, $0.59 and $0.33 greater than the respective prices for the nine months ended May 31, 2003. Volumes increased 7% during the nine-month period ended May 31, 2004 compared with the same
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Energy net sales of $2.8 billion increased $165.6 million (6%) during the nine months ended May 31, 2004 compared with the sales activity during the nine months ended May 31, 2003. During the nine months ended May 31, 2004 and 2003, the Energy segment recorded sales to the Country Operations and Services segment of $87.4 million and $69.2 million, respectively. Those intersegment sales are eliminated in deriving consolidated sales but are included for segment reporting purposes. The net sales increase of $165.6 million is comprised of an increase of $320.8 million related to price appreciation and a decrease in sales of $155.2 million because of lower sales volume. On a more product-specific basis, refined fuels prices increased $0.12 per gallon (13%) and volumes decreased 4% when comparing the nine months ended May 31, 2004 with the same period a year ago. Propane prices increased $0.10 per gallon (17%) and sales volume decreased 8% in comparison of the same periods. Overall energy markets are up, which caused price increases on refined fuels products. Higher propane prices reflect lower industry stocks in 2003 as the result of a cold winter earlier in the calendar year. The lower sales volume for propane during the nine months ended May 31, 2004 is primarily reflective of a dry autumn which offered minimal opportunity for crop drying (propane is used as the fuel for crop dryers) and a relatively warm early winter which reduced demand for home heating as compared to the same period in 2003.
Country operations non-grain net sales of $643.1 million increased by $89.5 million (16%) during the nine months ended May 31, 2004 compared to the nine months ended May 31, 2003 primarily in crop nutrients, energy and seed products. Overall, the average selling price on these products have increased compared to the previous year. In addition, volumes are up due to acquisitions and an earlier spring planting season compared to the previous year.
Processed Grains and Foods segment net sales of $584.6 million increased $229.5 million (65%) during the nine months ended May 31, 2004 compared to the nine months ended May 31, 2003. Oilseed processing sales increased $232.1 million of which, $116.1 million is due to price appreciation and $116.0 is due to higher sales volumes. The average selling price of processed oilseed and refined oilseed products increased $69 per ton and $0.08 per pound, respectively, compared to the previous year. The volume increase is primarily due to the new crushing plant in Fairmont, Minnesota that began operations during the first quarter of fiscal year 2004.
Patronage Dividends. Patronage dividends received of $5.8 million increased $3.5 million during the nine months ended May 31, 2004 compared to the nine months ended May 31, 2003. This increase is primarily a result of a patronage distribution in one of the Companys cooperative investments which is primarily related to gains on legal settlements and on the sale of a warehouse facility.
Other Revenues. Other revenues of $104.9 million increased $15.8 million (18%) during the nine months ended May 31, 2004 compared to the nine months ended May 31, 2003. The most significant increase was related to additional services revenue within the Country Operations and Services segment compared to the previous year. Safety and loss control credits within the insurance business contributed $2.0 million to the increase. Increased commodity hedging activity within the Companys country hedging group contributed $2.4 million to the increase.
Cost of Goods Sold. Cost of goods sold of $7.8 billion increased $984.4 million (14%) during the nine months ended May 31, 2004 compared to the nine months ended May 31, 2003. The cost of all grains and oilseed procured by the Company through its Grain Marketing and Country Operations and Services segments increased $545.0 million (16%) compared to the nine months ended May 31, 2003, primarily the result of an $18.5 million market adjustments on soybean export contracts, a $0.37 (9%) average cost per bushel increase and a 7% increase in volumes compared to the prior year. Volatile commodity prices and increased shipping costs contributed to the increase in cost of goods sold. The Energy segment cost of goods sold increased by $147.0 million (6%) during the nine months ended May 31, 2004 compared to the same period of the prior year, primarily due to increased average costs which was partially offset by reduced volumes. On a more product-specific basis, the average cost of refined fuels increased by $0.11 per gallon, which was partially offset by a 4% decrease in volumes
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Marketing, General and Administrative. Marketing, general and administrative expenses of $154.7 million for the nine months ended May 31, 2004 increased by $14.0 million (10%) compared to the nine months ended May 31, 2003. The net increase includes additional expenses within the Energy and Country Operations and Services segments.
Gain on Sale of Investment. During the third quarter of fiscal 2004, the Company recorded a gain of $14.7 million within the Energy segment from the sale of a portion of a petroleum crude oil pipeline investment. NCRA exercised its right of first refusal to purchase a partial interest in the pipeline, and subsequently sold a 50% interest to another third party for proceeds of $25.0 million.
Gain on Legal Settlements. The Country Operations and Services segment received cash of $10.9 million during the nine months ended May 31, 2003 from a class action lawsuit alleging illegal price fixing against various feed vitamin product suppliers.
Interest. Interest expense of $38.8 million for the nine months ended May 31, 2004 increased by $2.3 million (6%) compared to the nine months ended May 31, 2003. The average level of short-term borrowings increased $120.1 million, primarily due to financing higher average working capital needs and was partially offset by an average short-term interest rate decrease of 0.3% during the nine months ended May 31, 2004 compared to the nine months ended May 31, 2003.
Equity Income from Investments. Equity income from investments of $64.2 million for the nine months ended May 31, 2004 increased $31.8 million (98%) compared to the nine months ended May 31, 2003. This increase is primarily attributable to improved earnings from investments within the Companys Agronomy segment of $16.3 million, Grain Marketing segment of $9.1 million and Processed Grains and Foods segment of $6.6 million.
The Agronomy segment joint ventures generated increased earnings of $16.3 million. In April 2004, the Company finalized the purchase of additional ownership in Agriliance so that the Company now owns 50%, which accounts for $6.0 million of the increase. In addition, Agriliance recorded increased earnings due to improved margins in both retail and wholesale crop protection operations compared to the same period of a year ago. However, the crop nutrient volumes are down 18% over last year, which slightly reduced Agriliances income.
The Grain Marketing segment showed increased earnings in two exporting joint ventures primarily due to increased export demand and favorable ocean freight spreads from the Pacific Northwest, where the exporting facilities are located, to the Pacific Rim. These factors contributed to a $4.3 million improvement in equity income from the Companys wheat exporting investment in United Harvest, LLC. These same conditions contributed to a $4.0 million increase in equity income from the Companys investment in TEMCO, LLC, a joint venture which exports primarily corn and soybeans.
The Processed Grains and Foods segment oilseed based products and packaged foods joint venture (Ventura) earnings increase is primarily due to increased sales and improved gross profits compared to the previous nine-month period.
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Minority Interests. Minority interests of $23.6 million for the nine months ended May 31, 2004 increased by $8.9 million (60%) compared to the nine months ended May 31, 2003. The net change in minority interests during the nine months ended May 31, 2004 compared to the prior nine-month period last year was primarily a result of more profitable operations within the Companys majority-owned subsidiaries and the gain on sale of an NCRA investment. Substantially all minority interests relate to NCRA, an approximately 74.5% owned subsidiary.
Income Taxes. Income tax expense of $16.4 million for the nine months ended May 31, 2004 compares to $11.0 million for the nine months ended May 31, 2003, resulting in effective tax rates of 10.4% and 11.1%, respectively. The $18.5 million market adjustment on soybean export contracts reduced income tax expense by $7.2 million for the three months and nine months ended May 31, 2004. The federal and state statutory rate applied to nonpatronage business activity was 38.9% for the periods ended May 31, 2004 and 2003. The income taxes and effective tax rate vary each period based upon profitability and nonpatronage business activity during each of the comparable periods.
Liquidity and Capital Resources
On May 31, 2004, the Company had working capital, defined as current assets less current liabilities, of $446.4 million and a current ratio, defined as current assets divided by current liabilities, of 1.2 to 1.0 compared to working capital of $458.7 million and a current ratio of 1.3 to 1.0 on August 31, 2003. On May 31, 2003, the Company had working capital of $468.0 million and a current ratio of 1.4 to 1.0, compared to working capital of $249.1 million and a current ratio of 1.2 to 1.0 on August 31, 2002. The increase in working capital between August 31, 2002 and May 31, 2003 was primarily attributable to the issuance of $175.0 million of long-term debt with a group of insurance companies in October, 2002, and the sale of preferred stock to the general public which generated net proceeds for the Company of $82.5 million in January, 2003. This financing was initiated in part to fund capital expenditures related to the low sulfur fuel regulations discussed below in Cash Flows from Investing Activities. Working capital on May 31, 2004 compared to August 31, 2003 has remained relatively constant despite capital expenditures of $168.4 million during the first nine months of fiscal 2004 due to strong earnings during that period.
During May, 2004 the Company renewed and expanded its committed lines of revolving credit which are used primarily to finance inventories and receivables. The previously established credit lines consisted of a $600 million 364-day revolver and a $100 million three-year revolver. The new committed credit facilities consist of a $750 million 364-day revolver and $150 million three-year revolver. These credit facilities are established with a syndicate of domestic and international banks, and the inventories and receivables financed with these loans are highly liquid. The terms of the new credit facilities are essentially the same as the terms for the credit facilities they replace. On May 31, 2004, $445.3 million was outstanding on these lines of credit. Upon completion of the new and expanded facilities, the Company and CoBank, ACB mutually agreed to cancel two uncommitted credit facilities totaling $100 million which had been established during the second quarter of fiscal 2004 and a third facility totaling $50 million which was established during the third quarter. There were no outstanding balances on these facilities at the time of cancellation.
In March, 2004, the Company borrowed $30 million through a long-term facility established with Prudential Capital Group, primarily for the purpose of financing the purchase of Farmlands interest in Agriliance, as previously discussed.
Cash Flows from Operations |
Cash flows from operations are generally affected by commodity prices. These commodity prices are affected by a wide range of factors beyond our control, including weather, crop conditions, drought, the availability and the adequacy of supply and transportation, government regulations and policies, world events, and general political and economic conditions. These factors are described in the preceding cautionary statement above, and may affect net operating assets and liabilities, and liquidity.
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Cash flows used in operating activities were $107.4 million for the nine months ended May 31, 2004. Cash provided by operating activities was $112.9 million for the nine months ended May 31, 2003. Volatility in cash flows from operations for these periods is primarily the result of changing grain and crude oil prices. On May 31, 2004, the market prices per bushel of spring wheat, soybeans and corn, were $0.33 (9%), $2.14 (36%), and $0.59 (24%) greater than their respective values on August 31, 2003. Crude oil prices on May 31, 2004 increased $8.31 per barrel (26%) when compared to August 31, 2003. These increases in grain and crude oil prices had the affect of contributing significantly to an increase in net operating asset and liability values compared with those on August 31, 2003, thus using cash resources. In contrast, on May 31, 2003, the market prices per bushel of spring wheat and corn were $1.58 (30%) and $0.16 (6%) lower than their respective values on August 31, 2002. As of the same date, the market prices per bushel of soybeans and barrel of crude oil were $0.30 (5%) and $0.58 (2%) higher than their respective values on August 31, 2002. These factors, when combined, contributed to only a small increase in net operating assets and liabilities when compared to those on August 31, 2002.
Operating activities of the Company used net cash of $107.4 million during the nine months ended May 31, 2004. Net income of $140.6 million and net non-cash expenses of $21.4 million were offset by an increase in net operating assets and liabilities of $269.4 million. The primary components of net non-cash expenses included depreciation and amortization of $80.5 million, minority interest of $23.6 million and a partial offset of income from equity investments of $64.2 million. The increase in net operating assets and liabilities was caused primarily by increases in the prices of the three primary grain commodities handled by the Company, and an increase in crude oil prices, as explained in the previous paragraph. These and other less significant factors increased net operating assets and liabilities by $269.4 million and was the largest use of cash from operations. A major part of this increase in net operating assets and liabilities was financed with short-term notes payable. Because the change in short-term notes payable is shown in cash flows from financing activities, this source of cash does not offset the corresponding use of cash as part of the cash flows from operating activities in the Consolidated Statements of Cash Flows.
Operating activities of the Company provided net cash of $112.9 million during the nine months ended May 31, 2003. Net income of $88.4 million and net non-cash expenses of $60.2 million were partially offset by an increase in net operating assets and liabilities $35.7 million. The primary components of net non-cash expenses included depreciation and amortization of $77.1 million, minority interests of $14.7 million and a partial offset of income from equity investments of $32.4 million. Grain and crude oil prices on May 31, 2003 were comparable to the prices on August 31, 2002, consequently, net operating assets and liabilities did not change significantly on May 31, 2003 when compared to the prior fiscal year-end.
Operating activities of the Company provided net cash of $257.8 million during the three months ended May 31, 2004. Net income of $81.4 million and a decrease in net operating assets and liabilities of $182.1 million were partially offset by net non-cash expenses of $5.7 million. The primary components of net non-cash expenses included depreciation and amortization of $26.7 million, minority interests of $16.4 million and an offset of income from equity investments of $32.4 million. The decrease in net operating assets and liabilities was caused primarily by lower grain prices on May 31, 2004 compared to February 29, 2004, as well as decreased seasonal inventories at the Companys country operations locations, partially offset by increased receivables from the sale of those inventories. These and other less significant factors decreased net operating assets and liabilities by $182.1 million and was the largest source of cash from operations.
Operating activities of the Company provided net cash of $220.3 million during the three months ended May 31, 2003. Net income of $52.2 million, net non-cash expenses of $0.7 million and a decrease in net operating assets and liabilities of $167.4 million provided the net cash from operating activities. The primary components of net non-cash expenses included depreciation and amortization of $25.5 million, minority interests of $5.9 million and a partial offset of income from equity investments of $30.0 million. The decrease in net operating assets and liabilities was primarily due to lower crude oil and certain grain prices on May 31, 2003 compared to February 28, 2003, as well as decreased seasonal inventories at the Companys country operations locations, partially offset by increased receivables from the sale of those
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Grain and energy prices were volatile during the quarter ending May 31, 2004 and the Company expects that this volatility will continue throughout the balance of this fiscal year. Shortages of certain grain commodities due to poor growing conditions last year, volatile ocean freight costs, and strong world demand, along with the uncertainty of weather this summer, has created sizable movements in grain prices. Energy prices, driven primarily by uncertain world political conditions and strong demand for gasoline in the U.S. have also changed in a volatile manner.
Cash Flows from Investing Activities |
For the three months ended May 31, 2004 and 2003, the net cash flows used in the Companys investing activities totaled $78.0 million and $74.8 million, respectively.
The acquisition of property, plant and equipment comprised the primary use of cash totaling $66.2 million and $45.1 million for the three months ended May 31, 2004 and 2003, respectively. For the year ended August 31, 2004 the Company expects to spend approximately $252.7 million for the acquisition of property, plant and equipment. Capital expenditures started in fiscal year 2002, related to the U.S. Environmental Protection Agency (EPA) low sulfur fuel regulations required by 2006, are expected to be approximately $87.0 million for the Companys Laurel, Montana refinery and $324.0 million for NCRAs McPherson, Kansas refinery, of which $30.8 million has been spent at the Laurel refinery and $92.7 million has been spent by NCRA at the McPherson refinery as of May 31, 2004. The Company expects all of these compliance capital expenditures at the refineries to be completed by December 31, 2005, and anticipates funding these projects with a combination of cash flows from operations and debt proceeds.
Investments made during the three months ended May 31, 2004 and 2003 totaled $47.8 million and $36.4 million, respectively. During the three months ended May 31, 2003 the Company purchased an additional 13.1% economic interest of the crop protection business of Agriliance for a cash payment of $34.3 million, as previously discussed. During the three months ended May 31, 2004 the Company purchased all of Farmlands interest in Agriliance for a cash payment of $27.5 million, as previously discussed. Subsequent to purchasing Farmlands interest, the Company owns 50% of the economic and governance interests in Agriliance. Also during the three months ended May 31, 2004, NCRA exercised its right of first refusal to purchase a partial interest in a crude oil pipeline for $16.0 million.
Partially offsetting cash outlays in investing activities were proceeds from the disposition of property, plant and equipment of $2.0 million and $4.0 million for the three months ended May 31, 2004 and 2003, respectively. Also partially offsetting cash usages were distributions received from joint ventures and investments totaling $12.1 million and $5.9 million for the three months ended May 31, 2004 and 2003, respectively. During the three months ended May 31, 2004, NCRA exercised its right of first refusal to purchase a partial interest in a crude oil pipeline as previously discussed, and subsequently sold a 50% interest in the same pipeline to another third party for proceeds of $25.0 million and recorded a gain on the sale of $14.7 million.
For the nine months ended May 31, 2004 and 2003, the net cash flows used in the Companys investing activities totaled $105.9 million and $137.9 million, respectively.
The acquisition of property, plant and equipment comprised the primary use of cash totaling $168.4 million and $122.5 million for the nine months ended May 31, 2004 and 2003, respectively. For the nine months ended May 31, 2003, the acquisitions of property, plant and equipment included $8.5 million acquired as part of a business. Construction of an oilseed processing facility in Fairmont, Minnesota was essentially complete during the first quarter of fiscal 2004 when the facility became operational. Also during the first quarter of fiscal 2004, the Company entered into a sale-leaseback transaction for the facility equipment and received cash proceeds of $19.8 million from the sale.
29
Investments made during the nine months ended May 31, 2004 and 2003 totaled $48.8 million and $40.6 million, respectively. The Company purchased additional interests in Agriliance during the nine months ended May 31, 2004 and 2003, as previously described in the three-month discussion. Also during the nine months ended May 31, 2004, NCRA exercised its right of first refusal to purchase a partial interest in a crude oil pipeline for $16.0 million.
Acquisitions of intangibles were $0.8 million for the nine months ended May 31, 2003, and net working capital acquired in business acquisitions was $13.0 million during the same period.
During the nine months ended May 31, 2004 and 2003, the changes in notes receivable resulted in decreases in cash flows of $9.0 million and $14.3 million, respectively, primarily from related party notes receivables at NCRA from its minority owners, Growmark, Inc. and MFA Oil Company.
Distributions to minority owners for the nine months ended May 31, 2004 and 2003, were $1.3 million and $0.5 million, respectively, and primarily relate to NCRA. Cash distributions NCRA has made to its members decreased since 2002, due to the funding requirements for environmental capital expenditures previously discussed.
Partially offsetting cash outlays in investing activities were proceeds from the disposition of property, plant and equipment of $31.7 million and $15.9 million for the nine months ended May 31, 2004 and 2003, respectively. During the nine months ended May 31, 2004, proceeds of $19.8 million were from a sale-leaseback transaction previously discussed. Also partially offsetting cash usages were distributions received from joint ventures and investments totaling $61.8 million and $37.3 million for the nine months ended May 31, 2004 and 2003, respectively. During the nine months ended May 31, 2004, NCRA sold a 50% interest in a crude oil pipeline for proceeds of $25.0 million, as previously described in the three-month discussion.
Cash Flows from Financing Activities |
The Company finances its working capital needs through short-term lines of credit with a syndication of domestic and international banks. In May 2004, the Company renewed and expanded its committed lines of revolving credit. The previously established credit lines consisted of a $600.0 million 364-day revolver and a $100.0 million three-year revolver. The new committed credit facilities consist of a $750.0 million 364-day revolver and $150.0 million three-year revolver. The terms of the new credit facilities are essentially the same as the terms of the credit facilities they replaced. In addition to these lines of credit, the Company has a two-year revolving credit facility dedicated to NCRA, with a syndication of banks in the amount of $15.0 million committed. On May 31, 2004, August 31, 2003 and May 31, 2003, the Company had total short-term indebtedness outstanding on these various facilities and other short-term notes payable totaling $446.5 million, $251.1 million and $321.1 million, respectively. The increase in short-term notes payable on May 31, 2004 was primarily due to increased grain and crude oil prices on May 31, 2004 compared to August 31, 2003. Upon completion of the new and expanded facilities, the Company and CoBank, ACB mutually agreed to cancel two uncommitted credit facilities totaling $100 million which had been established during the second quarter of fiscal 2004 and a third facility totaling $50 million which was established during the third quarter. There were no outstanding balances on these facilities at the time of cancellation. In October 2002, $175.0 million received from private placement proceeds was used to pay down the Companys 364-day credit facility. In January 2003, $83.0 million of proceeds received from the issuance of the Companys preferred stock (net of brokers commissions of $3.2 million) was also used to pay down the 364-day credit facility.
In June 1998, the Company established a five-year revolving credit facility with a syndication of banks, with $200.0 million committed. This credit facility expired in May 2003 and had no outstanding balance on that date. Repayments of $75.0 million were made on this facility during the nine months ended May 31, 2003.
The Company finances its long-term capital needs, primarily for the acquisition of property, plant and equipment, with long-term agreements with various insurance companies and banks. In June 1998, the
30
Also in June 1998, the Company completed a private placement offering with several insurance companies for long-term debt in the amount of $225.0 million with an interest rate of 6.81%. Repayments will be made in equal annual installments of $37.5 million each in the years 2008 through 2013.
In January 2001, the Company entered into a note purchase and private shelf agreement with Prudential Insurance Company. The long-term note in the amount of $25.0 million has an interest rate of 7.9% and will be repaid in equal annual installments of approximately $3.6 million, in the years 2005 through 2011. A subsequent note for $55.0 million was issued in March 2001, related to the private shelf facility. The $55.0 million note has an interest rate of 7.43% and will be repaid in equal annual installments of approximately $7.9 million, in the years 2005 through 2011.
In October 2002, the Company completed a private placement with several insurance companies for long-term debt in the amount of $175.0 million, which was layered into two series. The first series of $115.0 million has an interest rate of 4.96% and will be repaid in equal semi-annual installments of approximately $8.8 million during the years 2007 through 2013. The second series of $60.0 million has an interest rate of 5.60% and will be repaid in equal semi-annual installments of approximately $4.6 million during fiscal years 2012 through 2018.
In March 2004, the Company entered into a note purchase and private shelf agreement with Prudential Capital Group, primarily for the purpose of financing the purchase of Farmlands interest in Agriliance, as previously discussed. In April, 2004, the Company borrowed $30.0 million under this arrangement. One long-term note in the amount of $15.0 million has an interest rate of 4.08% and will be repaid in full at the end of the six year term in 2010. Another long-term note in the amount of $15.0 million has an interest rate of 4.39% and will be repaid in full at the end of the seven year term in 2011.
The Company, through NCRA, had revolving term loans outstanding of $12.8 million, $15.0 million and $15.8 million on May 31, 2004, August 31, 2003 and May 31, 2003, respectively. Interest rates on May 31, 2004 ranged from 6.48% to 6.99%. Repayments of approximately $0.8 million and $2.3 million were made during each of the three months and nine months ended May 31, 2004 and 2003.
On May 31, 2004, the Company had total long-term debt outstanding of $686.7 million, of which $158.2 million was bank financing, $510.0 million was private placement proceeds and $18.5 million was industrial development revenue bonds and other notes and contracts payable. The aggregate amount of long-term debt payable presented in the Managements Discussion and Analysis in the Companys Annual Report on Form 10-K for the year ended August 31, 2003 has not materially changed during the three months and nine months ended May 31, 2004. The Companys long-term debt is unsecured except for other notes and contracts in the amount of $10.1 million; however, restrictive covenants under various agreements have requirements for maintenance of minimum working capital levels and other financial ratios. The Company is in compliance with all debt covenants and restrictions as of May 31, 2004.
During the three months ended May 31, 2004 and 2003, the Company borrowed on a long-term basis $35.0 million and no dollars, respectively, and during the same periods repaid long-term debt of $4.1 million and $48.7 million, respectively.
During the nine months ended May 31, 2004 and 2003, the Company borrowed on a long-term basis $35.5 million and $175.0 million, respectively, and during the same periods repaid long-term debt of $12.4 million and $86.0 million, respectively.
31
In accordance with the bylaws and by action of the Board of Directors, annual net earnings from patronage sources are distributed to consenting patrons following the close of each fiscal year. Patronage refunds are calculated based on amounts using financial statement earnings. The cash portion of the patronage distribution is determined annually by the Board of Directors, with the balance issued in the form of capital equity certificates. The patronage earnings from the fiscal year ended August 31, 2003 were primarily distributed during the second quarter of the current fiscal year. The cash portion of this distribution deemed by the Board of Directors to be 30% was $28.7 million. During the prior fiscal year the Company distributed cash patronage of $26.5 million from the patronage earnings of the fiscal year ended August 31, 2002.
The current equity redemption policy, as authorized by the Board of Directors, allows for the redemption of capital equity certificates held by inactive direct members and patrons and active direct members and patrons at age 72 or death that were of age 61 or older on June 1, 1998. Such redemptions are at the discretion of the Board of Directors. For active direct members and patrons who were of age 60 or younger on June 1, 1998, and member cooperatives, equities older than 10 years may be redeemed annually based on a prorata formula where the numerator is dollars available for such purpose as determined by the Board of Directors, and the denominator is the sum of the patronage certificates older than 10 years held by such eligible members and patrons. Total cash redemptions related to the year ended August 31, 2003, to be distributed in fiscal year 2004, are expected to be approximately $10.8 million, of which $2.9 million was redeemed during the three months ended May 31, 2004 compared to $2.0 million during the three months ended May 31, 2003 and $5.7 million was redeemed during the nine months ended May 31, 2004 compared to $26.4 million during the nine months ended May 31, 2003. An additional $13.0 million of capital equity certificates were redeemed in March 2004 in exchange for shares of the Companys 8% Cumulative Redeemable Preferred Stock (New Preferred) pursuant to a registration statement on Form S-2 filed with the Securities and Exchange Commission. The amount of equities redeemed with each share of preferred stock issued was $27.10, which was the closing price per share of the stock on the NASDAQ National Market on March 2, 2004. On May 31, 2004 the Company had $105.7 million (4,226,428 shares) of the New Preferred outstanding.
In 2001 and 2002 the Company issued approximately $9.5 million (9,454,874 shares) of 8% Preferred Stock (Old Preferred). In late 2002, the Company suspended sales of the Old Preferred, and on February 25, 2003 the Company filed a post-effective amendment to terminate the offering of the Old Preferred shares. In January 2003, the Company issued 3,450,000 shares of 8% Cumulative Redeemable Preferred Stock (New Preferred) at a price of $25.00 per share, for proceeds of $86.3 million, which are listed on the NASDAQ National Market. The Board of Directors intent is to pay quarterly dividends. Expenses related to the issuance of the New Preferred were $3.8 million.
On March 5, 2003, the Companys Board of Directors authorized the redemption and conversion of the Old Preferred shares. A redemption notification and a conversion election form were sent to holders of the Old Preferred shares on March 21, 2003 explaining that on April 25, 2003 all shares of the Old Preferred would be redeemed by the Company for $1.00 per share unless they were converted into shares of the Companys New Preferred. The conversion did not change the base liquidation amount or dividend amount of the Old Preferred, since 25 shares of the Old Preferred converted to 1 share of the New Preferred. The total Old Preferred converted to the New Preferred was $7.5 million (7,452,439 shares), and the balance of the Old Preferred (2,002,435 shares) was redeemed in cash at $1.00 per share.
Off Balance Sheet Financing Arrangements
Lease Commitments: |
The Companys lease commitments presented in Managements Discussion and Analysis in the Companies Annual Report on Form 10-K for the year ended August 31, 2003 have not materially changed during the nine months ended May 31, 2004. The largest new lease commitment entered into during the nine months ended May 31, 2004 has annual lease payments of approximately $3.0 million over the next seven years.
32
Guarantees: |
The Company is a guarantor for lines of credit for related companies of which $41.1 million was outstanding on May 31, 2004. The Companys bank covenants allow maximum guarantees of $150.0 million. In addition, the Companys bank covenants allow for guarantees dedicated solely for NCRA in the amount of $125.0 million. All outstanding loans with respective creditors are current as of May 31, 2004.
Debt: |
There is no material off balance sheet debt.
Critical Accounting Policies
The Companys Critical Accounting Policies are presented in the Companys Annual Report on Form 10-K, as amended, for the year ended August 31, 2003. There have been no changes to these policies during the nine months ended May 31, 2004.
Effect of Inflation and Foreign Currency Transactions
The Company believes that inflation and foreign currency fluctuations have not had a significant effect on its operations. During fiscal 2003, the Company opened a grain marketing office in Brazil that impacts its exposure to foreign currency fluctuations, but to date, there has been no material effect.
Recent Accounting Pronouncements
In December 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 132R, Employers Disclosures about Pensions and Other Postretirement Benefits. This statement requires additional disclosures to be made by employers regarding pensions and other postretirement benefit plans, but does not change the measurement or recognition of those plans. Under this Statement, the disclosure provisions regarding foreign plans and estimated future benefit payments are effective for fiscal years ending after December 15, 2003 and interim periods beginning after December 15, 2003. The Company has adopted the interim provisions of this Statement during the current fiscal quarter ended May 31, 2004. The annual disclosure provisions of this Statement will be included in the August 31, 2004 annual report.
On May 19, 2004, the FASB issued a FASB Staff Position (FSP) regarding SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. FSP 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 discusses the effect of the Medicare Prescription Drug, Improvement and Modernization Act (the Act) enacted on December 8, 2003. FSP 106-2 considers the effect of the two new features introduced in the Act in determining accumulated postretirement benefit obligation (APBO) and net periodic postretirement benefit cost, which may serve to reduce a companys post-retirement benefit costs. Companies may elect to defer accounting for this benefit or may attempt to reflect the best estimate of the impact of the Act on net periodic costs currently. The Company has chosen to defer accounting for the benefit until the FASB issues final accounting guidance due to various uncertainties related to this legislation and the appropriate accounting. The Companys measures of APBO and net periodic postretirement benefit costs as of and for the quarter ended May 31, 2004 do not reflect the effect of the Act as permitted by the FSP.
In December 2003, the FASB revised FASB Interpretation No. 46, Consolidation of Variable Interest Entities. The interpretation addresses consolidation of certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. It also requires consolidation by the primary beneficiary. For public entities the interpretation applies to interests
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In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in certain circumstances). Many of those instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Statement is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. Adoption of this standard did not have a material effect on the Company.
Item 3. | Quantitative and Qualitative Disclosures about Market Risk |
Other than the nonperformance of contracts by counter-parties mentioned below, the Company did not experience any adverse changes in market risk exposures for the period ended May 31, 2004, that materially affect the quantitative and qualitative disclosures presented in the Companys Annual Report on Form 10-K, as amended, for the year ended August 31, 2003.
Grain and energy prices were volatile during the quarter ending May 31, 2004 and the Company expects that this volatility will continue throughout the balance of this fiscal year. While the Company minimizes its risk to price fluctuations through hedging transactions, the Company is exposed to loss in the event of nonperformance by counter-parties to forward purchase or sale contracts. Volatile commodity prices increase the risk that counter-parties may default under the contracts when the market price has changed.
Considering the risk of default, the Company has valued certain sale contracts within its Grain Marketing segment at less than the respective contract prices based upon our appraisal of current fair market value on May 31, 2004. The valuation at less than contract price had the effect of reducing pre-tax income for the three months and nine months ended May 31, 2004, in the aggregate by $18.5 million, and net income by $11.3 million compared to the results which would have been reported had these contracts been valued at the contract price.
If a counter-party defaults on either a purchase or sale contract, it is the policy of the Company to pursue the matter aggressively in appropriate legal proceedings. The Company is closely monitoring other customers and suppliers where existing contracts are outside of current market values and will react aggressively to enforce these obligations in the event of a default by the counter-party.
Item 4. | Controls and Procedures |
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the Exchange Act)) as of May 31, 2004. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of that date our disclosure controls and procedures were effective.
During the third quarter ended May 31, 2004, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 6. | Exhibits and Reports on Form 8-K |
(a)
Exhibits
Exhibit
Description
10
.1
First Amendment to Credit Agreement dated as of
May 20, 2004 between CHS Inc., CoBank, ACB, and the
Syndication Parties
10
.2
Sixth Amendment to Credit Agreement (Term Loan)
dated as of May 20, 2004 by and among CHS Inc., CoBank,
ACB, and the Syndication Parties
10
.3
Note Purchase and Private Shelf Agreement dated
as of April 13, 2004
31
.1
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31
.2
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32
.1
Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
32
.2
Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K on June 10, 2004 to add a provision to its existing code of ethics.
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SIGNATURES
Pursuant to the requirements 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.
CHS INC. | |
(Registrant) | |
/s/ JOHN SCHMITZ | |
|
|
John Schmitz | |
Executive Vice President and | |
Chief Financial Officer |
July 12, 2004
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FIRST AMENDMENT TO CREDIT AGREEMENT
Parties:
CoBank:
|
CoBank, ACB
5500 South Quebec Street Greenwood Village, Colorado 80111 |
|
Borrower:
|
CHS Inc.
5500 Cenex Drive Inver Grove Heights, Minnesota 55077 |
|
Syndication Parties:
|
Whose signatures appear below |
Execution Date
:
|
As of May 20, 2004 |
Recitals:
A. CoBank (in its capacity as the Administrative Agent ( Agent ) and as a Syndication Party) , the Syndication Parties identified on Schedule 1 thereto, and Borrower entered into that certain Credit Agreement (Revolving Loan) dated as of May 21, 2003 (as amended, modified, or supplemented from time to time, the Credit Agreement ) pursuant to which CoBank and such Syndication Parties have extended certain credit facilities to Borrower under the terms and conditions set forth in the Credit Agreement.
B. Borrower has requested that the Agent and the Syndication Parties extend the 364-Day Maturity Date and the 3-Year Maturity Date and increase the 364-Day Commitment and the 3-Year Commitment, which the Agent and the Syndication Parties are willing to do under the terms and conditions as set forth in this First Amendment to Credit Agreement ( First Amendment ).
C. CoBank, as Administrative Agent, gave written notification ( Renewal Notice ) (i) to those Syndication Parties that had an Individual 364-Day Commitment seeking a renewal of their respective Individual 364-Day Commitments; and (ii) to all Syndication Parties seeking their consent to (A) an extension of the 364-Day Maturity Date, (B) an extension of the 3-Year Maturity Date, and (C) the other amendments to the Credit Agreement set forth in this First Amendment, in each case pursuant to the provisions of Section 16.10 of the Credit Agreement.
D. The Syndication Parties that had Individual Commitments have provided the Administrative Agent with written notice of their agreement to continue to maintain Individual 364-Day Commitments and to extend their Individual 3-Year Commitments, and one or more institutions, which were not Syndication Parties prior to the date hereof, have agreed to become Syndication Parties as indicated on Schedule A hereto and by their execution of this Amendment Agreement and their execution of a Syndication Adoption Agreement.
1
Agreement:
Now, therefore, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendments to Credit Agreement . The Credit Agreement is amended as of the Effective Date as follows:
1.1 The following Sections of Article 1 are hereby amended in their entirety to read as follows:
1.160 364-Day Commitment: shall be $750,000,000, subject to reduction as provided in Section 2.8 hereof.
1.167 364-Day Maturity Date: May 19, 2005.
1.173 3-Year Commitment: shall be $150,000,000, subject to reduction as provided in Section 3.8 hereof.
1.180 3-Year Maturity Date: May [21], 2007.
1.2 The following new Sections are added to Article 1, reading as follows:
1.184 Borrower Indemnification Payment: shall have the meaning set forth in Section 4.12.
1.185 CCC: shall have the meaning set forth in Section 4.12.
1.186 CCC Guarantee: shall have the meaning set forth in Section 4.12.
1.187 Confirmation Amount: shall have the meaning set forth in Section 4.12.
1.188 Confirmation Request: shall have the meaning set forth in Section 4.12.
1.189 Export Grain Transaction: means a transaction whereby Borrower has agreed to sell grain to a purchaser ( Importer ) located in a country other than the United States under circumstances whereby the transaction will be eligible for issuance of a Credit Guarantee Assurance by the U.S. Commodity Credit Corporation under the United States Export Credit Guarantee Programs GSM-102 or GSM103.
1.190 Importer: shall have the meaning set forth in Section 1.189.
2
1.191 Importer LC: shall have the meaning set forth in Section 4.12.
1.192 Indemnification Date: shall have the meaning set forth in Section 4.12.
1.193 LC Confirmation: shall have the meaning set forth in Section 4.12.
1.194 LC Confirmation Commitment: means $3,000,000.
1.3 A new Section 4.12 is added reading as follows:
4.12 LC Confirmation Indemnification. In connection with any Export Grain Transaction, Borrower may, subject to the terms and conditions of this Section, at any time before 2:30 P.M. (Central time) on a Banking Day, request CoBank (acting in its individual capacity and not as Administrative Agent or Syndication Party) to confirm ( LC Confirmation ) the letter of credit issued by the applicable Importers bank ( Importer LC ), in accordance with the provisions of this Section. Borrowers request for an LC Confirmation ( Confirmation Request ) may be made orally or in writing by facsimile (if orally, shall be confirmed in writing on the same Banking Day), must be directed to CoBank, with a copy to the Administrative Agent, and must (a) identify (i) the Export Grain Transaction, (ii) the Importer LC (and, if available, attach a copy of the Importer LC), and (iii) the issuer of the Importer LC, in each case for which the LC Confirmation is being requested; (b) specify the dollar amount to be covered by the LC Confirmation ( Confirmation Amount ), and (c) be accompanied by a written confirmation from the U.S. Department of Agriculture that (i) the Export Grain Transaction has been registered with the Commodity Credit Corporation ( CCC ) and the guarantee fee has been submitted to the CCC. In the event CoBank has not received the Credit Guarantee Assurance letter issued by the CCC ( CCC Guarantee ) and an assignment thereof to CoBank, on or before the thirtieth (30th) day following the date of CoBanks issuance of the LC Confirmation ( Indemnification Date ), Borrower shall promptly, but no later than 3:30 P.M. on the Banking Day following the Indemnification Date, reimburse CoBank in full for the Confirmation Amount plus any additional costs or fees incurred by CoBank in connection therewith ( Borrower Indemnification Payment ). Such reimbursement may, at Borrowers discretion, but subject to the conditions of this Credit Agreement, be made by an Advance under the 3-Year Facility. In the event the CCC Guarantee, and written assignment thereof from Borrower to CoBank, with respect to a specific LC Confirmation is received by CoBank on or before the Indemnification Date, Borrower shall have no further obligations regarding such LC Confirmation. LC Confirmations shall be made only by CoBank and CoBank shall be entitled to retain for
3
its account the full amount of any fees charged to Borrower for the issuance an any LC Confirmation. Borrowers entitlement to receive, and the CoBanks obligation to issue, any LC Confirmation shall be subject to the conditions and limitations set forth in Section 3.1 hereof and applicable to 3-Year Advances generally, and, in addition, the aggregate amount of all outstanding LC Confirmations shall not at any time exceed the LC Confirmation Commitment. Until such time as a CCC Guarantee is issued, or Borrower makes the required Borrower Indemnification Payment with respect to a specific LC Confirmation, the Confirmation Amount of such LC Confirmation shall be included in CoBanks Individual Outstanding 3-Year Obligations. LC Confirmations are not Letters of Credit for the purposes of this Agreement.
1.4 Clause (e) of Section 13.1 is hereby amended so that the entire Section 13.1 reads as follows:
13.1 Borrowing. Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) create, incur, assume or permit to exist, directly or indirectly, any Debt, except for: (a) Debt of Borrower arising under this Credit Agreement and the other Loan Documents; (b) trade payables arising in the ordinary course of business; (c) Capital Leases in existence from time to time; (d) current operating liabilities (other than for borrowed money) incurred in the ordinary course of business; (e) unsecured Debt arising under uncommitted lines of credit; provided that the maximum principal amount that may be outstanding at any one time shall not exceed $100,000,000; (f) Debt in existence on the date hereof as set forth in Exhibit 13.1 attached hereto; (g) unsecured long-term Debt; (h) Debt of Borrower incurred pursuant to the Term Loan Credit Agreement; (i) documentary and standby letters of credit issued at the request of Borrower or any Restricted Subsidiary by a financial institution other than the Letter of Credit Bank or a Syndication Party, provided the aggregate principal amount outstanding under such letters of credit together with the undrawn face amount under all of the Letters of Credit does not exceed $75,000,000, and provided further that the aggregate principal amount outstanding under such letters of credit together with all 3-Year Advances, the undrawn face amount of all the Letters of Credit and unreimbursed obligations with respect to payments made under all the Letters of Credit shall not exceed the 3-Year Commitment; and (j) such other Debt agreed upon in writing between Borrower and the Syndication Parties.
1.5 Subsection 16.10.1(a) is amended to read as follows:
(a) Amending the definition of Required Lenders as set forth herein or amending Subsections 16.10.1 or 16.10.2; or
4
1.6 Schedule 1 to the Credit Agreement is replaced in its entirety by Schedule 1 hereto, and each of the Syndication Parties acknowledges and agrees that it is obligated to provide the Individual 364-Day Commitment and the Individual 3-Year Commitment shown by its name on Schedule 1, subject to reduction in accordance with Sections 2.8 and 3.8, respectively.
2. Conditions to Effectiveness of this First Amendment . The effectiveness of this First Amendment is subject to satisfaction, in the Administrative Agents sole discretion, of each of the following conditions precedent (the date on which all such conditions precedent are so satisfied shall be the " Effective Date ):
2.1 Representations and Warranties . The representations and warranties of Borrower in the Credit Agreement shall be true and correct in all material respects on and as of the Effective Date as though made on and as of such date.
2.2 No Event of Default . No Event of Default shall have occurred and be continuing under the Credit Agreement as of the Effective Date of this First Amendment.
2.3 Execution of Documents . The Administrative Agent shall have received (a) this First Amendment executed by the Administrative Agent, Borrower, and each Syndication Party; (b) Syndication Adoption Agreements executed by each of the new Syndication Parties; and (c) such new or replacement 364-Day Facility Notes and such new or replacement 3-Year Facility Notes, executed by Borrower, as the Administrative Agent shall require to reflect the increase in the Aggregate 364-Day Commitment and in the Aggregate 3-Year Commitment and any transfers by or among the Syndication Parties.
2.4 Corporate Resolution; Legal Opinion . The Administrative Agent shall have received (a) a certificate of Borrowers corporate secretary certifying as to resolutions of Borrowers board of directors authorizing the execution of this First Amendment and the transactions described herein; and (b) an opinion of Borrowers legal counsel as to Borrowers due authorization of this First Amendment and such other matters as the Administrative Agent may reasonably require.
2.5 Payment of Fees and Expenses . Borrower shall have paid the Administrative Agent, by wire transfer of immediately available federal funds (a) all fees presently due under the Credit Agreement; (b) all expenses owing as of the Effective Date pursuant to Section 17.1 of the Credit Agreement; and (c) the fees as set forth in the Fee Letter dated March 3, 2004 by and between the Administrative Agent and Borrower.
3. General Provisions .
3.1 No Other Modifications . The Credit Agreement, as expressly modified herein, shall continue in full force and effect and be binding upon the parties thereto.
5
3.2 Successors and Assigns . This First Amendment shall be binding upon and inure to the benefit of Borrower, Agent, and the Syndication Parties, and their respective successors and assigns, except that Borrower may not assign or transfer its rights or obligations hereunder.
3.3 Definitions . Capitalized terms used, but not defined, in this First Amendment shall have the meaning set forth in the Credit Agreement.
3.4 Severability . Should any provision of this First Amendment be deemed unlawful or unenforceable, said provision shall be deemed several and apart from all other provisions of this First Amendment and all remaining provision of this First Amendment shall be fully enforceable.
3.5 Governing Law . To the extent not governed by federal law, this First Amendment and the rights and obligations of the parties hereto shall be governed by, interpreted and enforced in accordance with the laws of the State of Colorado.
3.6 Headings . The captions or headings in this First Amendment are for convenience only and in no way define, limit or describe the scope or intent of any provision of this First Amendment.
3.7 Counterparts . This First Amendment may be executed by the parties hereto in separate counterparts, each of which, when so executed and delivered, shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. Copies of documents or signature pages bearing original signatures, and executed documents or signature pages delivered by a party by telefax, facsimile, or e-mail transmission of an Adobe® file format document (also known as a PDF file) shall, in each such instance, be deemed to be, and shall constitute and be treated as, an original signed document or counterpart, as applicable. Any party delivering an executed counterpart of this First Amendment by telefax, facsimile, or e-mail transmission of an Adobe® file format document also shall deliver an original executed counterpart of this First Amendment, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this First Amendment.
3.8 Release . BORROWER HEREBY RELEASES, WAIVES AND FOREVER DISCHARGES ADMINISTRATIVE AGENT AND EACH SYNDICATION PARTY AND EACH OF THEIR RESPECTIVE SHAREHOLDERS, DIRECTORS, OFFICERS, EMPLOYEES, AND AGENTS FROM ALL KNOWN AND UNKNOWN, ABSOLUTE AND CONTINGENT, CLAIMS, DEFENSES, SETOFFS, COUNTERCLAIMS, CAUSES OF ACTION, ACTIONS, SUITS OR OTHER LEGAL PROCEEDINGS OF ANY KIND EXISTING OR ACCRUED AS OF THE DATE OF THIS FIRST AMENDMENT IN FAVOR OF BORROWER.
[ Signatures to follow on next page. ]
6
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed as of the Effective Date.
7
ADMINISTRATIVE AGENT:
CoBank, ACB
By:
Name:
Title:
Vice President
BORROWER:
CHS Inc.
By:
Name:
Title:
SYNDICATION PARTIES:
CoBank, ACB
By:
Name:
Title:
Vice President
SunTrust Bank
By:
Name:
Title:
Vice President
Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., Rabobank
International New York Branch
By:
Name:
Title:
By:
Name:
Title:
Harris Trust and Savings Bank
|
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By: | ||||
Name: | ||||
Title: | Vice President | |||
Wells Fargo Bank, National Association
|
||||
By: | ||||
Name: | ||||
Title: | Vice President | |||
BNP Paribas
|
||||
By: | ||||
Name: | ||||
Title: | Vice President | |||
By: | ||||
Name: | ||||
Title: | Vice President | |||
Deere Credit, Inc.
|
||||
By: | ||||
Name: | ||||
Title: | Vice President | |||
Bank of America, N.A.
|
||||
By: | ||||
Name: | ||||
Title: | Vice President | |||
The Bank of Tokyo-Mitsubishi, Ltd.,
Chicago Branch |
||||
By: | ||||
Name: | ||||
Title: | Vice President |
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Fortis Capital Corp.
|
||||
By: | ||||
Name: | ||||
Title: | Vice President | |||
The Bank of Nova Scotia
|
||||
By: | ||||
Name: | ||||
Title: | Vice President | |||
U.S. Bank National Association
|
||||
By: | ||||
Name: | ||||
Title: | Vice President | |||
Natexis Banques Populaires
|
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By: | ||||
Name: | ||||
Title: | Vice President | |||
By: | ||||
Name: | ||||
Title: | Vice President | |||
AgFirst Farm Credit Bank
|
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By: | ||||
Name: | ||||
Title: | Vice President | |||
Calyon New York Branch
(formerly known as
Credit Agricole Indosuez) |
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By: | ||||
Name: | ||||
Title: | Vice President | |||
By: | ||||
Name: | ||||
Title: | Vice President |
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National City Bank of Indiana
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By: | ||||
Name: | ||||
Title: | Vice President | |||
M&I Marshall & Ilsley Bank
|
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By: | ||||
Name: | ||||
Title: | Vice President | |||
By: | ||||
Name: | ||||
Title: | Vice President | |||
UFJ Bank Limited
|
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By: | ||||
Name: | ||||
Title: | Vice President | |||
10
SIXTH AMENDMENT
TO
CREDIT AGREEMENT
(Term Loan)
This Sixth Amendment to Credit Agreement (Term Loan) ( Amendment Agreement ) is made May 20, 2004, to be effective as of the Effective Date, by and among CHS Inc. (formerly known as Cenex Harvest States Cooperatives) , a Minnesota cooperative corporation ( Borrower ), CoBank, ACB ( CoBank ) as the Administrative Agent for the benefit of the present and future Syndication Parties (in that capacity Administrative Agent ), and the Syndication Parties signatory hereto, including CoBank in such capacity (each a Syndication Party and collectively, the Syndication Parties ).
RECITALS
A. Borrower, CoBank, St. Paul Bank for Cooperatives ( St. Paul Bank ), and the Syndication Parties signatory thereto entered into a Credit Agreement (Term Loan) (as amended, the Credit Agreement ) dated as of June 1, 1998.
B. The Credit Agreement was amended by the First Amendment to Credit Agreement (Term Loan) effective as of May 31, 1999 ( First Amendment ), by the Second Amendment to Credit Agreement (Term Loan) effective as of May 23, 2000 ( Second Amendment ), by the Third Amendment to Credit Agreement (Term Loan) dated as of May 23, 2001 ( Third Amendment ), by the Fourth Amendment to Credit Agreement (Term Loan) dated as of May 22, 2002 ( Fourth Amendment ), and by the Fifth Amendment to Credit Agreement (Term Loan) dated as of May 21, 2003 ( Fifth Amendment ).
C. CoBank is the successor by merger to the interests and obligations of St. Paul Bank under the Credit Agreement.
D. The parties hereto desire to amend the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, including the mutual promises and agreements contained herein, the parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used herein without definition shall have the definition given to them in the Credit Agreement if defined therein.
2. Amendments to Credit Agreement. The parties hereto agree that the Credit Agreement shall be amended as follows as of the Effective Date:
2.1 Clause (e) of Section 10.1 is amended so that Section 10.1 shall read as follows:
10.1 Borrowing . Borrower shall not (nor shall it permit any of its Restricted Subsidiaries to) create, incur, assume or permit to exist, directly or indirectly, any Debt, except for: (a) Debt of Borrower arising under this Credit Agreement and the other Loan Documents; (b) trade payables arising in the ordinary course of business; (c) Capital Leases in existence from time to time; (d) current operating liabilities (other than for borrowed money) incurred in the ordinary course of business; (e) unsecured Debt arising under uncommitted lines of credit; provided that the maximum principal amount that may be outstanding at any one time shall not exceed $100,000,000; (f) Debt in existence on the date hereof as set forth in Exhibit 10.1 attached hereto; (g) unsecured long-term Debt; (h) Debt of Borrower incurred pursuant to the Revolving Loan Credit Agreement; (i) documentary and standby letters of credit issued at the request of Borrower or any Restricted Subsidiary, provided the aggregate undrawn face amount under all such letters of credit does not exceed $75,000,000; and (j) such other Debt agreed upon in writing between Borrower and the Syndication Parties.
3. Borrowers Representations. Borrower hereby represents and warrants that, after giving effect to this Amendment Agreement and the transactions contemplated hereby, no Potential Default or Event of Default has occurred and is continuing under the Credit Agreement or other Loan Documents.
4. Effective Date. This Amendment Agreement shall become effective on May 20, 2004 ( Effective Date ), so long as on or before that date the Administrative Agent receives (a) an original copy of this Amendment Agreement (or original counterparts thereof) duly executed by each party hereto, (b) an opinion of Borrowers counsel in all respects acceptable to the Administrative Agent; and (c) payment by wire transfer of each of the costs, expenses described in Section 5 hereof. Upon the satisfaction of all conditions precedent hereto, the Administrative Agent will notify each party hereto in writing and will provide copies of all appropriate documentation in connection herewith.
5. Costs; Expenses and Taxes. Borrower agrees to reimburse the Administrative Agent on demand for all out-of-pocket costs, expenses and charges (including, without limitation, all fees and charges of external legal counsel for the Administrative Agent) incurred by the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Amendment Agreement and any other instruments and documents to be delivered hereunder.
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6. General Provisions.
6.1 The Credit Agreement, except as expressly modified herein, shall continue in full force and effect and be binding upon the parties thereto.
6.2 Borrower agrees to execute such additional documents as the Administrative Agent may require to carry out or evidence the purposes of this Amendment Agreement.
6.3 The execution, delivery and effectiveness of this Amendment Agreement shall not operate as a waiver of any right, power or remedy of the Administrative Agent or any Syndication Party under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents, and the Credit Agreement, as expressly modified hereby, and each other Loan Document are hereby ratified and confirmed and shall continue in full force and effect and be binding upon the parties thereto. Any direct or indirect reference in the Loan Documents to the Credit Agreement shall be deemed to be a reference to the Credit Agreement as amended by this Amendment Agreement.
7. Governing Law. This Amendment Agreement shall be governed by and construed in accordance with the laws of the State of Colorado.
8. Counterparts. This Amendment Agreement may be executed in any number of counterparts and by different parties to this Amendment Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Copies of documents or signature pages bearing original signatures, and executed documents or signature pages delivered by a party by telefax, facsimile, or e-mail transmission of an Adobe® file format document (also known as a PDF file) shall, in each such instance, be deemed to be, and shall constitute and be treated as, an original signed document or counterpart, as applicable. Any party delivering an executed counterpart of this Amendment Agreement by telefax, facsimile, or e-mail transmission of an Adobe® file format document also shall deliver an original executed counterpart of this Amendment Agreement, but the failure to deliver an original executed counterpart shall not affect the validity, enforceability, and binding effect of this Amendment Agreement.
[EXECUTION PAGES BEGIN ON THE NEXT PAGE].
3
IN WITNESS WHEREOF,
the parties hereto have caused this Sixth Amendment to
Credit Agreement (Term Loan) to be executed by their duly authorized officers
as of the Effective Date.
BORROWER:
CHS INC., a cooperative corporation formed
under the laws of the State of Minnesota
By:
Name:
John Schmitz
Title:
Executive Vice President Finance and
Administration, and Chief Financial Officer
ADMINISTRATIVE AGENT:
COBANK, ACB
By:
Name:
Michael Tousignant
Title:
Vice President
SYNDICATION PARTY:
COBANK, ACB
By:
Name:
Michael Tousignant
Title:
Vice President
4
EXECUTION COPY
CHS, INC.
NOTE PURCHASE AND PRIVATE SHELF AGREEMENT
$15,000,000 4.08% Series F Senior Notes due April 13, 2010
$15,000,000 4.39% Series G Senior Notes due April 13, 2011
and
$70,000,000
Private Shelf Facility
Dated as of April 13, 2004
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-iv-
Exhibits and Schedules
Purchaser Schedule
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|
||||
Information Schedule
|
||||
|
||||
Exhibit A-1
|
| Form of Series F Note | ||
Exhibit A-2
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| Form of Series G Note | ||
Exhibit A-3
|
| Form of Shelf Note | ||
Exhibit B
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| Form of Disbursement Direction Letter | ||
Exhibit C
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| Form of Request for Purchase | ||
Exhibit D
|
| Form of Confirmation of Acceptance | ||
Exhibit E-1
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| Form of Opinion of Company Counsel (Series F and G Notes) | ||
Exhibit E-2
|
| Form of Opinion of Company Counsel (Shelf Notes) | ||
Schedule 6D
|
| List of Existing Liens | ||
Schedule 8G
|
| Agreements Restricting Debt |
-v-
CHS, INC.
As of April 13, 2004
Prudential Investment Management, Inc. ( Prudential )
Each of the Purchasers named in
the Purchaser Schedule attached
hereto as purchasers of Series F Notes
or Series G Notes (the
Initial
Purchasers
)
Each Prudential Affiliate (as hereinafter defined)
which becomes bound by certain provisions
of this Agreement as hereinafter provided
c/o Prudential Capital
Group
Two Prudential Plaza
Suite 5600
Chicago, Illinois 60601
Ladies and Gentlemen:
The undersigned, CHS Inc. , a nonstock agricultural cooperative corporation organized under the laws of Minnesota formerly known as Cenex Harvest States Cooperatives (herein called the Company ), hereby agrees with you as set forth below. Reference is made to paragraph 10 hereof for definitions of capitalized terms used herein and not otherwise defined herein.
1. AUTHORIZATION OF ISSUE OF NOTES.
1A(1). Authorization of Issue of Series F Notes. The Company will authorize the issue of its senior promissory notes (the Series F Notes ) in the aggregate principal amount of $15,000,000, to be dated the date of issue thereof, to mature April 13, 2010, to bear interest on the unpaid balance thereof from the date thereof until the principal thereof shall have become due and payable at the rate of 4.08% per annum and on overdue principal, Yield-Maintenance Amount and interest at the rate specified therein, and to be substantially in the form of Exhibit A-1 attached hereto. The terms Series F Note and Series F Notes as used herein shall include each Series F Note delivered pursuant to any provision of this Agreement and each Series F Note delivered in substitution or exchange for any such Series F Note pursuant to any such provision.
1A(2). Authorization of Issue of Series G Notes. The Company will authorize the issue of its senior promissory notes (the Series G Notes ) in the aggregate principal amount of $15,000,000, to be dated the date of issue thereof, to mature April 13, 2011, to bear interest on the unpaid balance thereof from the date thereof until the principal thereof shall have become due and payable at the rate of 4.39% per annum and
on overdue principal, Yield-Maintenance Amount and interest at the rate specified therein, and to be substantially in the form of Exhibit A-2 attached hereto. The terms Series G Note and Series G Notes as used herein shall include each Series G Note delivered pursuant to any provision of this Agreement and each Series G Note delivered in substitution or exchange for any such Series G Note pursuant to any such provision.
1B. Authorization of Issue of Shelf Notes. The Company will authorize the issue of its additional senior promissory notes (the Shelf Notes ) in the aggregate principal amount of $70,000,000, to be dated the date of issue thereof, to mature, in the case of each Shelf Note so issued, no more than 15 years after the date of original issuance thereof, to have an average life, in the case of each Shelf Note so issued, of no more than 15 years after the date of original issuance thereof, to bear interest on the unpaid balance thereof from the date thereof at the rate per annum, and to have such other particular terms, as shall be set forth, in the case of each Shelf Note so issued, in the Confirmation of Acceptance with respect to such Shelf Note delivered pursuant to paragraph 2B(5), and to be substantially in the form of Exhibit A-3 attached hereto. The terms Shelf Note and Shelf Notes as used herein shall include each Shelf Note delivered pursuant to any provision of this Agreement and each Shelf Note delivered in substitution or exchange for any such Shelf Note pursuant to any such provision. The terms Note and Notes as used herein shall include each Series F Note, each Series G Note and each Shelf Note delivered pursuant to any provision of this Agreement and each Note delivered in substitution or exchange for any such Note pursuant to any such provision. Notes which have (i) the same final maturity, (ii) the same principal prepayment dates, (iii) the same principal prepayment amounts (as a percentage of the original principal amount of each Note), (iv) the same interest rate, (v) the same interest payment periods and (vi) the same date of issuance (which, in the case of a Note issued in exchange for another Note, shall be deemed for these purposes the date on which such Notes ultimate predecessor Note was issued), are herein called a Series of Notes.
2. PURCHASE AND SALE OF NOTES.
2A. Purchase and Sale of Series F Notes and Series G Notes. The Company hereby agrees to sell to each Initial Purchaser and, subject to the terms and conditions herein set forth, each Initial Purchaser agrees to purchase from the Company the aggregate principal amount of Series F Notes and/or Series G Notes set forth opposite such Initial Purchasers name on the Purchaser Schedule attached hereto at 100% of such aggregate principal amount. On April 13, 2004 (herein called the Series F/G Closing Day ), the Company will deliver to each Initial Purchaser at the offices of Schiff Hardin LLP, at 6600 Sears Tower, Chicago, Illinois, one or more Series F Notes and/or Series G Notes registered in such Initial Purchasers name (or, if specified in the Purchaser Schedule, in the name of the nominee(s) for such Initial Purchaser specified in the Purchaser Schedule), evidencing the aggregate principal amount of Series F Notes and/or Series G Notes to be purchased by such Initial Purchaser and in the denomination or denominations specified with respect to such Initial Purchaser in the Purchaser Schedule attached hereto, against payment of the purchase price thereof by transfer of immediately available funds for credit to the account or accounts as shall be specified in a letter on the Companys letterhead, in substantially the form of Exhibit B attached hereto, from the Company to the Initial Purchasers delivered prior to the Series F/G Closing Day.
2
2B. Purchase and Sale of Shelf Notes.
2B(1). Facility. Prudential is willing to consider, in its sole discretion and within limits which may be authorized for purchase by Prudential Affiliates from time to time, the purchase of Shelf Notes pursuant to this Agreement. The willingness of Prudential to consider such purchase of Shelf Notes is herein called the Facility . At any time, the aggregate principal amount of Shelf Notes stated in paragraph 1B, minus the aggregate principal amount of Shelf Notes purchased and sold pursuant to this Agreement prior to such time, minus the aggregate principal amount of Accepted Notes (as hereinafter defined) which have not yet been purchased and sold hereunder prior to such time, is herein called the Available Facility Amount at such time. NOTWITHSTANDING THE WILLINGNESS OF PRUDENTIAL TO CONSIDER PURCHASES OF SHELF NOTES BY PRUDENTIAL AFFILIATES, THIS AGREEMENT IS ENTERED INTO ON THE EXPRESS UNDERSTANDING THAT NEITHER PRUDENTIAL NOR ANY PRUDENTIAL AFFILIATE SHALL BE OBLIGATED TO MAKE OR ACCEPT OFFERS TO PURCHASE SHELF NOTES, OR TO QUOTE RATES, SPREADS OR OTHER TERMS WITH RESPECT TO SPECIFIC PURCHASES OF SHELF NOTES, AND THE FACILITY SHALL IN NO WAY BE CONSTRUED AS A COMMITMENT BY PRUDENTIAL OR ANY PRUDENTIAL AFFILIATE.
2B(2). Issuance Period. Shelf Notes may be issued and sold pursuant to this Agreement until the earlier of (i) the third anniversary of the date of this Agreement (or if the date of such anniversary is not a Business Day, the Business Day next preceding such anniversary), (ii) the 30th day after Prudential shall have given to the Company, or the Company shall have given to Prudential, a written notice stating that it elects to terminate the issuance and sale of Shelf Notes pursuant to this Agreement (or if such 30th day is not a Business Day, the Business Day next preceding such 30th day), (iii) the last Closing Day after which there is no Available Facility Amount, (iv) the termination of the Facility under paragraph 7A of this Agreement, and (v) the acceleration of any Note under paragraph 7A of this Agreement. The period during which Shelf Notes may be issued and sold pursuant to this Agreement is herein called the Issuance Period .
2B(3). Request for Purchase. The Company may from time to time during the Issuance Period make requests for purchases of Shelf Notes (each such request being herein called a Request for Purchase ). Each Request for Purchase shall be made to Prudential by telecopier or overnight delivery service, and shall (i) specify the aggregate principal amount of Shelf Notes covered thereby, which shall not be less than $10,000,000 and not be greater than the Available Facility Amount at the time such Request for Purchase is made, (ii) specify the principal amounts, final maturities (which shall be no more than 15 years from the date of issuance), average life (which shall be no more than 15 years from the date of issuance), principal prepayment dates (if any) and amounts and interest payment periods (quarterly or semi-annually in arrears) of the Shelf Notes covered thereby, (iii) specify the use of proceeds of such Shelf Notes, (iv) specify the proposed day for the closing of the purchase and sale of such Shelf Notes, which shall be a Business Day during the Issuance Period not less than 10 days and not more than 25 days after the making of such Request for Purchase, (v) specify the number of the account and the name and address of the depository institution to which the purchase prices of such Shelf Notes are to be transferred on the Closing Day for such purchase and sale, (vi) certify that the representations and warranties contained in paragraph 8 are true on and as of the date of such Request for Purchase and that there exists on
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the date of such Request for Purchase no Event of Default or Default, and (vii) be substantially in the form of Exhibit C attached hereto. Each Request for Purchase shall be in writing and shall be deemed made when received by Prudential.
2B(4). Rate Quotes. Not later than five Business Days after the Company shall have given Prudential a Request for Purchase pursuant to paragraph 2B(3), Prudential may, but shall be under no obligation to, provide to the Company by telephone or telecopier, in each case between 9:30 A.M. and 1:30 P.M. New York City local time (or such later time as Prudential may elect) interest rate quotes for the several principal amounts, maturities, principal prepayment schedules and interest payment periods of Shelf Notes specified in such Request for Purchase. Each quote shall represent the interest rate per annum payable on the outstanding principal balance of such Shelf Notes at which a Prudential Affiliate or Affiliates would be willing to purchase such Shelf Notes at 100% of the principal amount thereof.
2B(5). Acceptance. Within the Acceptance Window with respect to any interest rate quotes provided pursuant to paragraph 2B(4), the Company may, subject to paragraph 2B(6), elect to accept such interest rate quotes as to not less than $10,000,000 aggregate principal amount of the Shelf Notes specified in the related Request for Purchase. Such election shall be made by an Authorized Officer of the Company notifying Prudential by telephone or telecopier within the Acceptance Window that the Company elects to accept such interest rate quotes, specifying the Shelf Notes (each such Shelf Note being herein called an Accepted Note ) as to which such acceptance (herein called an Acceptance ) relates. The day the Company notifies Prudential of an Acceptance with respect to any Accepted Notes is herein called the Acceptance Day for such Accepted Notes. Any interest rate quotes as to which Prudential does not receive an Acceptance within the Acceptance Window shall expire, and no purchase or sale of Shelf Notes hereunder shall be made based on such expired interest rate quotes. Subject to paragraph 2B(6) and the other terms and conditions hereof, the Company agrees to sell to a Prudential Affiliate or Affiliates, and Prudential agrees to cause the purchase by a Prudential Affiliate or Affiliates of, the Accepted Notes at 100% of the principal amount of such Notes. As soon as practicable following the Acceptance Day, the Company and each Prudential Affiliate which is to purchase any such Accepted Notes will execute a confirmation of such Acceptance substantially in the form of Exhibit D attached hereto (herein called a Confirmation of Acceptance ). If the Company should fail to execute and return to Prudential within three Business Days following the Companys receipt thereof a Confirmation of Acceptance with respect to any Accepted Notes, Prudential or any Prudential Affiliate may at its election at any time prior to Prudentials receipt thereof cancel the closing with respect to such Accepted Notes by so notifying the Company in writing.
2B(6). Market Disruption. Notwithstanding the provisions of paragraph 2B(5), if Prudential shall have provided interest rate quotes pursuant to paragraph 2B(4) and thereafter prior to the time an Acceptance with respect to such quotes shall have been notified to Prudential in accordance with paragraph 2B(5) the domestic market for U.S. Treasury securities or other financial instruments shall have closed or there shall have occurred a general suspension, material limitation, or significant disruption of trading in securities generally on the New York Stock Exchange or in the domestic market for U.S. Treasury securities or other financial instruments, then such interest rate quotes shall expire, and no purchase or sale of Shelf Notes hereunder shall be made based on such expired interest rate quotes. If the Company thereafter
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notifies Prudential of the Acceptance of any such interest rate quotes, such Acceptance shall be ineffective for all purposes of this Agreement, and Prudential shall promptly notify the Company that the provisions of this paragraph 2B(6) are applicable with respect to such Acceptance.
2B(7). Facility Closings. Not later than 11:30 A.M. (New York City local time) on the Closing Day for any Accepted Notes, the Company will deliver to each Purchaser listed in the Confirmation of Acceptance relating thereto at the offices of Prudential Capital Group, 180 North Stetson Street, Suite 5600, Chicago, Illinois 60601, Attention: Law Department, the Accepted Notes to be purchased by such Purchaser in the form of one or more Notes in authorized denominations as such Purchaser may request for each Series of Accepted Notes to be purchased on the Closing Day, dated the Closing Day and registered in such Purchasers name (or in the name of its nominee), against payment of the purchase price thereof by transfer of immediately available funds for credit to the Companys account specified in the Request for Purchase of such Notes. If the Company fails to tender to any Purchaser the Accepted Notes to be purchased by such Purchaser on the scheduled Closing Day for such Accepted Notes as provided above in this paragraph 2B(7), or any of the conditions specified in paragraph 3 shall not have been fulfilled by the time required on such scheduled Closing Day, the Company shall, prior to 1:00 P.M., New York City local time, on such scheduled Closing Day notify Prudential (which notification shall be deemed received by each Purchaser) in writing whether (i) such closing is to be rescheduled (such rescheduled date to be a Business Day during the Issuance Period not less than one Business Day and not more than 10 Business Days after such scheduled Closing Day (the Rescheduled Closing Day )) and certify to Prudential (which certification shall be for the benefit of each Purchaser) that the Company reasonably believes that it will be able to comply with the conditions set forth in paragraph 3 on such Rescheduled Closing Day and that the Company will pay the Delayed Delivery Fee in accordance with paragraph 2B(8)(iii) or (ii) such closing is to be canceled. In the event that the Company shall fail to give such notice referred to in the preceding sentence, Prudential (on behalf of each Purchaser) may at its election, at any time after 1:00 P.M., New York City local time, on such scheduled Closing Day, notify the Company in writing that such closing is to be canceled. Notwithstanding anything to the contrary appearing in this Agreement, the Company may not elect to reschedule a closing with respect to any given Accepted Notes on more than one occasion, unless Prudential shall have otherwise consented in writing.
2B(8). Fees.
2B(8)(i). [Intentionally Omitted].
2B(8)(ii). Issuance Fee. The Company will pay to each Purchaser in immediately available funds a fee (herein called the Issuance Fee ) on each Closing Day in an amount equal to 0.10% of the aggregate principal amount of Notes sold to such Purchaser on such Closing Day.
2B(8)(iii). Delayed Delivery Fee. If the closing of the purchase and sale of any Accepted Note is delayed for any reason beyond the original Closing Day for such Accepted Note, the Company will pay to the Purchaser which shall have agreed to purchase such Accepted Note (a) on the Cancellation Date or actual closing date of such purchase and sale and (b) if earlier, the next Business Day following 90 days after
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the Acceptance Day for such Accepted Note and on each Business Day following 90 days after the prior payment hereunder, a fee (herein called the Delayed Delivery Fee ) calculated as follows:
(BEY MMY) X DTS/360 X PA
where BEY means Bond Equivalent Yield, i.e., the bond equivalent yield per annum of such Accepted Note; MMY means Money Market Yield, i.e., the yield per annum on a commercial paper investment of the highest quality selected by Prudential and having a maturity date or dates the same as, or closest to, the Rescheduled Closing Day or Rescheduled Closing Days for such Accepted Note (a new alternative investment being selected by Prudential each time such closing is delayed); DTS means Days to Settlement, i.e., the number of actual days elapsed from and including the original Closing Day for such Accepted Note (in the case of the first such payment with respect to such Accepted Note) or from and including the date of the next preceding payment (in the case of any subsequent Delayed Delivery Fee payment with respect to such Accepted Note) to but excluding the date of such payment; and PA means Principal Amount, i.e., the principal amount of the Accepted Note for which such calculation is being made. In no case shall the Delayed Delivery Fee be less than zero. Nothing contained herein shall obligate any Purchaser to purchase any Accepted Note on any day other than the Closing Day for such Accepted Note, as the same may be rescheduled from time to time in compliance with paragraph 2B(7).
2B(8)(iv). Cancellation Fee. If the Company at any time notifies Prudential in writing that the Company is canceling the closing of the purchase and sale of any Accepted Note, or if Prudential notifies the Company in writing under the circumstances set forth in the last sentence of paragraph 2B(5) or the penultimate sentence of paragraph 2B(7) that the closing of the purchase and sale of such Accepted Note is to be canceled, or if the closing of the purchase and sale of such Accepted Note is not consummated on or prior to the last day of the Issuance Period (the date of any such notification or the last day of the Issuance Period, as the case may be, being herein called the Cancellation Date ), the Company will pay to the Purchaser which shall have agreed to purchase such Accepted Note in immediately available funds an amount (the Cancellation Fee ) calculated as follows:
PI X PA
where PI means Price Increase, i.e., the quotient (expressed in decimals) obtained by dividing (a) the excess of the ask price (as determined by Prudential) of the Hedge Treasury Note(s) on the Cancellation Date over the bid price (as determined by Prudential) of the Hedge Treasury Notes(s) on the Acceptance Day for such Accepted Note by (b) such bid price; and PA has the meaning ascribed to it in paragraph 2B(8)(iii). The foregoing bid and ask prices shall be as reported by TradeWeb LLC (or, if such data for any reason ceases to be available through TradeWeb LLC, any publicly available source of similar market data). Each price shall be rounded to the second decimal place. In no case shall the Cancellation Fee be less than zero.
3. CONDITIONS OF CLOSING. The obligation of any Purchaser to purchase and pay for any Notes is subject to the satisfaction, on or before the Closing Day for such Notes, of the following conditions:
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3A. Certain Documents. Such Purchaser shall have received the following, each dated the date of the applicable Closing Day:
(i) This Agreement;
(ii) The Note(s) to be purchased by such Purchaser;
(iii) A favorable opinion of David A. Kastelic, General Counsel of the Company (or such other counsel designated by the Company and acceptable to the Purchaser(s)) satisfactory to such Purchaser and substantially in the form of Exhibit E-1 (in the case of the Series F Notes and Series G Notes) or E-2 (in the case of any Shelf Notes) attached hereto and as to such other matters as such Purchaser may reasonably request. The Company hereby directs each such counsel to deliver such opinion, agrees that the issuance and sale of any Notes will constitute a reconfirmation of such direction, and understands and agrees that each Purchaser receiving such an opinion will and is hereby authorized to rely on such opinion;
(iv) a Secretarys Certificate signed by the Secretary or an Assistant Secretary and one other officer of the Company certifying, among other things, (A) as to the names, titles and true signatures of the officers of the Company authorized to sign this Agreement, the Notes and the other documents to be delivered in connection with this Agreement, (B) that attached as Exhibit A thereto is a true, accurate and complete copy of the Articles of Incorporation of the Company, certified by the Secretary of State of Minnesota as of a date not more than ten Business Days from the Closing Day, (C) that attached as Exhibit B thereto is a true, accurate and complete copy of the Companys Bylaws which were duly adopted and are presently in effect and have been in effect immediately prior to and at all times since the adoption of the resolutions referred to in clause (D) below, (D) that attached as Exhibit C thereto is a true, accurate and complete copy of the resolutions of the Companys Board of Directors (authorizing the issuance and sale of the Notes and the execution, delivery and performance of this Agreement) duly adopted by written action or at a meeting of the Companys Board of Directors, and such resolutions have not been rescinded, amended or modified and (E) that attached as Exhibit D thereto is a good standing certificate for the Company from the Secretary of State of Minnesota;
(v) an Officers Certificate certifying that (A) the representations and warranties contained in paragraph 8 shall be true on and as of the Closing Day, except to the extent of changes caused by the transactions herein contemplated; and (B) on the date of closing no Event of Default or Default exists;
(vi) certified copies of Requests for Information or Copies (Form UCC-11) or equivalent reports listing all effective financing statements which name the Company or any Subsidiary (under its present name and previous names used in the last seven years) as debtor and which are filed in the office of the Secretary of State of Minnesota together with copies of such financing statements; and
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(vii) additional documents or certificates with respect to legal matters or corporate or other proceedings related to the transactions contemplated hereby as may be reasonably requested by such Purchaser.
3B. Opinion of Purchasers Special Counsel. Such Purchaser shall have received from Wiley S. Adams, Vice President and Corporate Counsel of Prudential or such other counsel who is acting as special counsel for it in connection with this transaction, a favorable opinion satisfactory to such Purchaser as to such matters incident to the matters herein contemplated as it may reasonably request.
3C. Representations and Warranties; No Default. The representations and warranties contained in paragraph 8 shall be true on and as of such Closing Day, except to the extent of changes caused by the transactions herein contemplated; there shall exist on such Closing Day no Event of Default or Default; and the Company shall have delivered to such Purchaser an Officers Certificate, dated such Closing Day, to both such effects.
3D. Purchase Permitted by Applicable Laws. The purchase of and payment for the Notes to be purchased by such Purchaser on the terms and conditions herein provided (including the use of the proceeds of such Notes by the Company) shall not violate any applicable law or governmental regulation (including, without limitation, Section 5 of the Securities Act or Regulation U, T or X of the Board of Governors of the Federal Reserve System) and shall not subject such Purchaser to any tax, penalty, liability or other onerous condition under or pursuant to any applicable law or governmental regulation, and such Purchaser shall have received such certificates or other evidence as it may request to establish compliance with this condition.
3E. Payment of Fees and Expenses. The Company shall have paid to such Purchaser any fees due it pursuant to or in connection with this Agreement, including any Issuance Fee due pursuant to paragraph 2B(8)(ii) and any Delayed Delivery Fee due pursuant to paragraph 2B(8)(iii) and the reasonable fees, charges and disbursements of any special counsel to the Purchasers.
4. PREPAYMENTS. The Series F Notes and the Series G Notes shall not be subject to scheduled required prepayments. Any Shelf Notes shall be subject to required prepayment as and to the extent provided in paragraphs 4B. The Series F Notes, the Series G Notes and any Shelf Notes shall also be subject to prepayment under the circumstances set forth in paragraph 4C. Any prepayment made by the Company pursuant to any other provision of this paragraph 4 shall not reduce or otherwise affect its obligation to make any required prepayment as specified in paragraph 4B.
4A. [Intentionally Omitted]..
4B. Required Prepayments of Shelf Notes. Each Series of Shelf Notes shall be subject to required prepayments, if any, set forth in the Notes of such Series.
4C. Optional Prepayment with Yield-Maintenance Amount. The Notes of each Series shall be subject to prepayment, in whole at any time or from time to time in part (in integral multiples of $1,000,000 and in a minimum amount of $5,000,000), at the option of the Company,
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at 100% of the principal amount so prepaid plus interest thereon to the prepayment date and the Yield-Maintenance Amount, if any, with respect to each such Note. Any partial prepayment of a Series of the Notes pursuant to this paragraph 4C shall be applied in satisfaction of required payments of principal in inverse order of their scheduled due dates.
4D. Notice of Optional Prepayment. The Company shall give the holder of each Note of a Series to be prepaid pursuant to paragraph 4C irrevocable written notice of such prepayment not less than 10 Business Days prior to the prepayment date, specifying such prepayment date, the aggregate principal amount of the Notes of such Series to be prepaid on such date, the principal amount of the Notes of such Series held by such holder to be prepaid on that date and that such prepayment is to be made pursuant to paragraph 4C. Notice of prepayment having been given as aforesaid, the principal amount of the Notes specified in such notice, together with interest thereon to the prepayment date and together with the Yield-Maintenance Amount, if any, herein provided, shall become due and payable on such prepayment date. The Company shall, on or before the day on which it gives written notice of any prepayment pursuant to paragraph 4C, give telephonic notice of the principal amount of the Notes to be prepaid and the prepayment date to each Significant Holder which shall have designated a recipient for such notices in the Purchaser Schedule attached hereto or the applicable Confirmation of Acceptance or by notice in writing to the Company.
4E. Application of Prepayments. In the case of each prepayment of less than the entire unpaid principal amount of all outstanding Notes of any Series pursuant to paragraphs 4A, 4B or 4C, the amount to be prepaid shall be applied pro rata to all outstanding Notes of such Series (including, for the purpose of this paragraph 4E only, all Notes prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates other than by prepayment pursuant to paragraph 4A, 4B or 4C) according to the respective unpaid principal amounts thereof.
4F. Retirement of Notes. The Company shall not, and shall not permit any of its Subsidiaries or Affiliates to, prepay or otherwise retire in whole or in part prior to their stated final maturity (other than by prepayment pursuant to paragraphs 4A, 4B or 4C or upon exercise of the put option pursuant to paragraph 5E, or upon acceleration of such final maturity pursuant to paragraph 7A), or purchase or otherwise acquire, directly or indirectly, Notes held by any holder unless the Company or such Subsidiary or Affiliate shall have offered to prepay or otherwise retire or purchase or otherwise acquire, as the case may be, the same proportion of the aggregate principal amount of Notes held by each other holder of Notes at the time outstanding upon the same terms and conditions. Any such offer shall provide each holder with sufficient information to enable it to make an informed decision with respect to such offer, and shall remain open for at least 30 Business Days. If the holders of more than 5% of the principal amount of the Notes then outstanding accept such offer, the Company shall promptly notify the remaining holders of such fact and the expiration date for the acceptance by holders of Notes of such offer shall be extended by the number of days necessary to give each such remaining holder at least 15 Business Days from its receipt of such notice to accept such offer. Any notes so prepaid or otherwise retired or purchased or otherwise acquired by the Company or any of its Subsidiaries or Affiliates shall not be deemed to be outstanding for any purpose under this Agreement, except as provided in paragraph 4E.
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5. AFFIRMATIVE COVENANTS. During the Issuance Period and so long thereafter as any Note is outstanding and unpaid, the Company covenants as follows:
5A. Financial Statements; Notice of Defaults. The Company covenants that it will deliver to each Significant Holder in duplicate:
(i) as soon as practicable and in any event within 45 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year consolidated statements of income, members equity and cash flows of the Company and its Subsidiaries for the period from the beginning of the current fiscal year to the end of such quarterly period, and a consolidated balance sheet of the Company and its Subsidiaries as at the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding period in the preceding fiscal year, all in reasonable detail and satisfactory in form to the Required Holder(s) and certified by an authorized financial officer of the Company, subject to changes resulting from year-end adjustments; provided, however, that delivery pursuant to clause (iii) below of copies of the Quarterly Report on Form 10-Q of the Company for such quarterly period, if any, including such financial statements filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (i);
(ii) as soon as practicable and in any event within 90 days after the end of each fiscal year, consolidating and consolidated statements of income and cash flows and a consolidated statement of members equity of the Company and its Subsidiaries for such year, and a consolidating and consolidated balance sheet of the Company and its Subsidiaries as at the end of such year, setting forth in each case in comparative form corresponding consolidated figures from the preceding annual audit, all in reasonable detail and satisfactory in form to the Required Holder(s) and, as to the consolidated statements, reported on by independent public accountants of recognized national standing selected by the Company whose report shall be unqualified and without limitation as to scope of the audit and satisfactory in substance to the Required Holder(s) and, as to the consolidating statements, certified by an authorized financial officer of the Company provided, however, that delivery pursuant to clause (iii) below of copies of the Annual Report on Form 10-K of the Company for such fiscal year including such financial statements filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this clause (ii);
(iii) promptly upon transmission thereof, copies of all such financial statements and copies of all registration statements (without exhibits) and all reports which it files with the Securities and Exchange Commission (or any governmental body or agency succeeding to the functions of the Securities and Exchange Commission);
(iv) promptly upon receipt thereof, a copy of each other report submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company or any Subsidiary; and
(v) with reasonable promptness, such other information as such Significant Holder may reasonably request.
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Together with each delivery of financial statements required by clauses (i) and (ii) above, the Company will deliver to each Significant Holder an Officers Certificate demonstrating (with computations in reasonable detail) compliance by the Company and its Subsidiaries with the provisions of paragraphs 6B, 6C, 6D and 6F and stating that there exists no Event of Default or Default, or, if any Event of Default or Default exists, specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto. Together with each delivery of financial statements required by clause (ii) above, the Company will deliver to each Significant Holder a certificate of such accountants stating that, in making the audit necessary for their report on such financial statements, they have obtained no knowledge of any Event of Default or Default arising under paragraph 6B or 6C or under paragraph 6E(ii) or 6F(iv) insofar as such Default or Event of Default relates to 6E(ii)(c)(y) or 6F(iv)(b)(y) and existing as of the last day of the Companys fiscal year, or, if they have obtained knowledge of any Event of Default or Default arising under any such paragraph, specifying the nature and period of existence thereof. Such accountants, however, shall not be liable to anyone by reason of their failure to obtain knowledge of any Event of Default or Default which would not be disclosed in the course of an audit conducted in accordance with generally accepted auditing standards. The Company also covenants that immediately after any Responsible Officer obtains knowledge of an Event of Default or Default, it will deliver to each Significant Holder an Officers Certificate specifying the nature and period of existence thereof and what action the Company proposes to take with respect thereto.
5B. Information Required by Rule 144A. The Company covenants that it will, upon the request of the holder of any Note, provide such holder, and any qualified institutional buyer designated by such holder, such financial and other information as such holder may reasonably determine to be necessary in order to permit compliance with the information requirements of Rule 144A under the Securities Act in connection with the resale of Notes, except at such times as the Company is subject to and in compliance with the reporting requirements of section 13 or 15(d) of the Exchange Act. For the purpose of this paragraph 5B, the term qualified institutional buyer shall have the meaning specified in Rule 144A under the Securities Act.
5C. Inspection of Property. The Company covenants that it will permit any Person designated by any Significant Holder in writing, at such Significant Holders expense (if no Default or Event of Default then exists) or at the expense of the Company (if a Default or an Event of Default then exists), to visit and inspect any of the properties of the Company and its Subsidiaries, to examine the corporate books and financial records of the Company and its Subsidiaries and make copies thereof or extracts therefrom and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and its independent public accountants; provided, however, that the Company shall have the option to have a representative present at any meeting between its independent public accountants and such Significant Holder, all at such reasonable times and as often as such Significant Holder may reasonably request.
5D. Covenant to Secure Notes Equally. The Company covenants that, if it or any Subsidiary shall create or assume any Lien upon any of its property or assets, whether now owned or hereafter acquired, other than Liens permitted by the provisions of paragraph 6D (unless prior
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written consent to the creation or assumption thereof shall have been obtained pursuant to paragraph 11C), it will make or cause to be made effective provision whereby the Notes will be secured by such Lien equally and ratably with any and all other Debt thereby secured so long as any such other Debt shall be so secured.
5E. Offer to Prepay Notes in the Event of a Change in Control.
5E(1) Notice of Impending Change in Control. The Company will not take any action that consummates or finalizes a Change in Control unless at least 30 days prior to such action it shall have given to each holder of the Notes written notice of such impending Change in Control.
5E(2) Notice of Occurrence of Change in Control. The Company will, within five Business Days after any Responsible Officer has knowledge of the occurrence of any Change in Control, give written notice of such Change in Control to each holder of the Notes. If a Change in Control has occurred, such notice shall contain and constitute an offer to prepay the Notes as described in paragraph 5E(4) and shall be accompanied by the certificate described in paragraph 5E(7).
5E(3) Notice of Acceptance of Offer Under Paragraph 5E(2). If the Company shall at any time receive an acceptance to an offer to prepay Notes under paragraph 5E(2) from some, but not all of, the holders of the Notes, then the Company will, within two Business Days after the receipt of such acceptance, give written notice of such acceptance to each other holder of the Notes.
5E(4) Offer to Prepay Notes. The offer to prepay Notes contemplated by paragraph 5E(2) shall be an offer to prepay, in accordance with and subject to this paragraph 5E, all, but not less than all, of the Notes held by each holder (in this case only, holder in respect of any Note registered in the name of a nominee for a disclosed beneficial owner shall mean such beneficial owner) on a date specified in such offer (the Proposed Prepayment Date ). Such Proposed Prepayment Date shall be not less than 30 days and not more than 60 days after the date of such offer (if the Proposed Prepayment Date shall not be specified in such offer, the Proposed Prepayment Date shall be the 30th day after the date of such offer). Notwithstanding the foregoing, if the Company shall be required to give a notice of acceptance under paragraph 5E(3) hereof with respect to any offer to prepay Notes under paragraph 5E(2), then the Proposed Prepayment Date for such offer shall be the later of (i) the date specified in the immediately preceding sentences, or (ii) the 10th Business Day after the date the first such notice of acceptance with respect to such offer was given by the Company under paragraph 5E(3).
5E(5) Rejection; Acceptance. A holder of Notes may accept the offer to prepay made pursuant to this paragraph 5E by causing a notice of such acceptance to be delivered to the Company prior to the Proposed Prepayment Date. A failure by a holder of Notes to so respond to an offer to prepay made pursuant to this paragraph 5E shall be deemed to constitute a rejection of such offer by such holder.
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5E(6) Prepayment. Prepayment of the Notes to be prepaid pursuant to this paragraph 5E shall be at 100% of the principal amount of such Notes, together with interest on such Notes accrued to the date of prepayment. The prepayment shall be made on the Proposed Prepayment Date.
5E(7) Officers Certificate. Each offer to prepay the Notes pursuant to this paragraph 5E shall be accompanied by a certificate, executed by a Responsible Officer of the Company and dated the date of such offer, specifying (i) the Proposed Prepayment Date, (ii) that such offer is made pursuant to this paragraph 5E, (iii) the principal amount of each Note offered to be prepaid, (iv) the interest that would be due on each Note offered to be prepaid, accrued to the Proposed Prepayment Date, (v) that the conditions of this paragraph 5E have been fulfilled, and (vi) in reasonable detail, the nature and date of the Change in Control.
5F. Compliance with Law. The Company covenants that it will, and will cause each of its Subsidiaries to, comply with all laws, ordinances or governmental rules or regulations to which each of them is subject (unless such failure to comply is subject to a good faith contest), including, without limitation, environmental laws, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations would not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries, taken as a whole.
5G. Insurance. The Company covenants that it will, and will cause each of its Subsidiaries to, maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated; provided, however, the Company may, to the extent permitted by law, provide for appropriate self-insurance with respect to workers compensation.
5H. Maintenance of Properties. The Company covenants that it will, and will cause each of its Subsidiaries to, maintain and keep, or cause to be maintained and kept, their respective Properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted in all material respects at all times, provided that this paragraph shall not prevent the Company or any Subsidiary from discontinuing the operation and the maintenance of any of its Properties if such discontinuance is desirable in the conduct of its business and such discontinuance would not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole.
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5I. Payment of Taxes. The Company covenants that it will, and will cause each of its Subsidiaries to, file all income tax or similar tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges or levies payable by any of them, and to pay and discharge all amounts payable for work, labor and materials, in each case to the extent such taxes, assessments, charges, levies and amounts payable have become due and payable and before they have become delinquent, provided that neither the Company nor any Subsidiary need pay any such tax, assessment, charge, levy or amount payable if (i) the amount, applicability or validity thereof is being actively contested by the Company or such Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Subsidiary has established adequate reserves therefor in accordance with generally accepted accounting principles on the books of the Company or such Subsidiary or (ii) the nonpayment of all such taxes, assessments, charges, levies and amounts payable in the aggregate would not reasonably be expected to have a materially adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole.
5J. Corporate Existence, etc. Subject to paragraph 6E, the Company will at all times preserve and keep in full force and effect its corporate existence and will at all times preserve and keep in full force and effect the corporate existence of each of its Subsidiaries except to the extent the failure to do so could not reasonably be expected to result in a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. The Company will at all times preserve and keep in full force and effect all certificates of convenience and necessity, rights and franchises, licenses, permits, operating rights and other authorization from federal, state, foreign, regional, municipal and other local regulatory bodies or administrative agencies or governmental bodies having jurisdiction over the Company and its Subsidiaries or any of their respective Properties as are necessary for the ownership, operation and maintenance of its respective businesses and Properties, unless the termination of or failure to preserve and keep in full force and effect such corporate existence, right, certificate or franchise, license, permit, operating right or other authorization would not reasonably be expected, individually or in the aggregate, to have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole.
5K. Lines of Business. The Company shall not engage in any material respects in any business activity or operations other than operations or activities (i) in or reasonably related to the agriculture industry, (ii) in the food industry, or (iii) which are not substantially different from or related to its present business activities or operations.
5L. Agreement Assuming Liability on Notes. The Company covenants that, if at any time any Person should become liable (as co-obligor, endorser, guaranty or surety) on any other material obligation of the Company, the Company will, at the same time, cause such Person to deliver to the holder of the Notes an agreement pursuant to which such Person becomes similarly liable on the Notes; provided this paragraph 5L shall not apply to any Person becoming liable solely as an endorser of a check, or as a signatory to a letter of credit for trade liabilities of the Company incurred, in the ordinary course of business.
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6. NEGATIVE COVENANTS. During the Issuance Period and so long thereafter as any Note or other amount due hereunder is outstanding and unpaid, the Company covenants as follows:
6A. [Intentionally Left Blank].
6B. Financial Covenants.
6B(1). Working Capital. The Company covenants that it will not permit Working Capital at any time to be less than the minimum level of Working Capital (or comparable term) that the Company is then required to maintain under the Companys Primary Bank Facility without causing a default or event of default thereunder. As used herein, the term Working Capital means Consolidated Current Assets minus Consolidated Current Liabilities.
6B(2). Funded Debt to Consolidated Cash Flow. The Company shall not permit the ratio of (i) consolidated Funded Debt of the Company and its Subsidiaries at such time to (ii) Consolidated Cash Flow determined as of the end of the four fiscal quarter period then most recently ended, to exceed 3.00 to 1.00 at any time.
6B(3). Adjusted Consolidated Funded Debt to Consolidated Members and Patrons Equity. The Company shall not permit the ratio of Adjusted Consolidated Funded Debt to Consolidated Members and Patrons Equity to exceed .80 to 1.00 at any time.
6C. Priority Debt. The Company covenants that it will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, issue, incur or assume any Priority Debt if after giving effect thereto the aggregate outstanding principal amount of all Priority Debt would exceed 20% of Consolidated Net Worth at the time of such creation, issuance, incurrence or assumption.
6D. Liens. The Company covenants that it will not, and will not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or suffer to be created, incurred or assumed or to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any Property of the Company or any of its Subsidiaries, whether now owned or held or hereinafter acquired (unless (1) provision is made for the equal and ratable securing of the Notes in accordance with paragraph 5D, and (2) the obligees of the obligations secured by such Liens shall have entered into an intercreditor agreement with the holders of the Notes in form and substance satisfactory to the holders of the Notes), except:
(i) Liens for taxes, assessments or other governmental charges or levies securing obligations not overdue, or if overdue, being actively contested in good faith by appropriate proceedings that will prevent the forfeiture or sale of any Property, provided that adequate reserves are established in accordance with generally accepted accounting principles on the books of the Company or a Subsidiary of the Company;
(ii) attachment, judgment and other similar Liens arising in connection with court proceedings, provided the execution or other enforcement of such Lien(s) is effectively stayed and the claims secured thereby are being actively contested in good faith in such manner
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that the Property subject to such Lien(s) is not subject to forfeiture or sale, and further provided that adequate reserves are established in accordance with generally accepted accounting principles on the books of the Company or a Subsidiary of the Company;
(iii) Liens incidental to the normal conduct of the business of the Company or a Subsidiary of the Company or to the ownership by the Company or a Subsidiary of the Company of its Property which were not incurred in connection with the borrowing of money or the obtaining of credit or advances and which do not in the aggregate materially detract from the value of the Property of the Company or any Subsidiary of the Company for the purpose of such business or materially impair the use thereof in the operation of the business of the Company or any Subsidiary of the Company;
(iv) Liens existing as of the date of this Agreement and set forth on Schedule 6D hereto;
(v) any Lien renewing, extending or refunding any Lien permitted by clause (iv) of this paragraph 6D, provided that (a) the principal amount of the Debt secured by such Lien immediately prior to such extension, renewal or refunding is not increased or the maturity thereof reduced, (b) such Lien is not extended to any other Property, and (c) immediately after such extension, renewal or refunding no Default or Event of Default would exist;
(vi) Liens on Property of the Company or any of its Subsidiaries securing Debt owing to the Company or to any of its Wholly-Owned Subsidiaries;
(vii) any Lien created to secure all or any part of the purchase price or cost of construction, or to secure Debt incurred or assumed to pay all or a part of the purchase price or cost of construction, of any Property acquired or constructed by the Company or a Subsidiary of the Company after the date of closing, provided that (a) any such Lien shall extend solely to the item or items of such Property so acquired or constructed or rights relating solely to such item or items or Property, (b) the principal amount of the Debt secured by any such Lien shall at no time exceed an amount equal to 100% of the fair market value of the Property acquired or constructed at the time of such acquisition or construction, and (c) such Lien shall be created contemporaneously with, or within 180 days after, the acquisition or completion of construction of such Property;
(viii) any Lien existing on Property acquired by the Company or any Subsidiary of the Company at the time such Property is so acquired (whether or not the Debt secured thereby is assumed by the Company or such Subsidiary) or any Lien existing on Property of a Person immediately prior to the time such Person is merged into or consolidated with the Company or any Subsidiary of the Company, provided that (a) no such Lien shall have been created or assumed in contemplation of such acquisition of Property or such consolidation or merger, (b) such Lien shall extend only to the Property acquired or the Property of such Person merged into or consolidated with the Company or Subsidiary which was subject to such Lien as of the time of such consolidation or merger, and (c) the principal amount of the
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Debt secured by any such Lien shall at no time exceed an amount equal to 100% of the fair market value of the Property subject thereto at the time of the acquisition thereof or at the time of such merger or consolidation;
(ix) Liens to CoBank, St. Paul Bank and other cooperatives with respect to equity held by Company in such banks or other cooperatives securing Debt with the aggregate amount of such equity securing Debt not to exceed $50,000,000 at any one time; and
(x) other Liens not otherwise permitted under clause (i) through (ix) of this paragraph 6D securing Debt, provided that the creation, issuance, incurrence or assumption of such Debt is permitted under paragraphs 6B and 6C hereof.
For the avoidance of doubt, the Company acknowledges that it will not, and will not permit any Subsidiary to, secure or grant any Liens in respect of the Primary Bank Facility, unless an equal and ratable Lien is granted in respect of the Notes.
6E. Merger and Consolidation. The Company covenants that it will not, and will not permit any of its Subsidiaries to, merge or consolidate with any other Person, except that
(i) any Subsidiary of the Company may merge into the Company or any Wholly-Owned Subsidiary, provided that the Company or such Wholly-Owned Subsidiary is the surviving corporation, and
(ii) the Company may merge or consolidate with any other Person provided that (a) the successor formed by such consolidation or the survivor of such merger (the Surviving Corporation ) is a solvent corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia, (b) if the Company is not the Surviving Corporation, the Surviving Corporation shall have executed and delivered to each holder of the Notes its written assumption of the due and punctual performance and payment of each covenant and condition in this Agreement and the Notes, which assumption shall be in form and substance approved in writing by the Required Holders, and the Company shall have caused to be delivered to each holder of Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof, and (c) immediately after giving effect to such merger or consolidation, (x) no Default or Event of Default shall exist and (y) the Surviving Corporation is able to incur at least $1.00 of additional Funded Debt under the provisions of paragraph 6B(2) and (3) and at least $1.00 of additional Priority Debt under the provisions of paragraph 6C hereof.
6F. Sale of Assets. The Company covenants that it will not, and will not permit any of its Subsidiaries to, sell, transfer, convey, lease or otherwise dispose of (a Transfer ) any Property (including capital stock of or other ownership interests in any Subsidiary of the Company), except that:
(i) the Company or any Subsidiary of the Company may Transfer any of its inventory, fixtures or equipment in the ordinary course of business;
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(ii) any Subsidiary may Transfer any of its Property to the Company or a Wholly-Owned Subsidiary; and
(iii) the Company or any Subsidiary of the Company may lease its assets to any joint venture entity, of which the Company or any Subsidiary of the Company holds an ownership interest and shares in the earnings; provided that the terms of any such lease and the division of the joint ventures earnings, when viewed as a whole, can be reasonably expected to generate the same or greater book earnings and cash flow for the Company or Subsidiary of the Company as would be generated absent such lease;
(iv) the Company or any Subsidiary of the Company may Transfer any of its Properties at the fair market value thereof provided that (a) either (1) the aggregate amount of the Disposition Value of all Property Transferred pursuant to this clause (iv) on or after the date of closing does not exceed an amount equal to 25% of Consolidated Total Assets as of the end of the fiscal year of the Company most recently ended prior to the date of such Transfer, or (2) concurrently with the making of such Transfer the Net Proceeds Amount for such Transfer is (A) applied to the acquisition by the Company or the Subsidiary making such Transfer of other Property of a nature similar to, and of at least an equivalent value of, the Property Transferred, or is committed to be applied to such acquisition within one year of the date of such Transfer, or (B) applied to the payment of the outstanding principal of all of the Funded Debt of the Company (excluding any Funded Debt owed to any Subsidiary or Affiliate of the Company and excluding any Funded Debt in respect of any revolving credit or similar credit facility providing the Company with the right to obtain loans or other extensions of credit from time to time, except to the extent that, in connection with such payment of such Funded Debt, the availability of loans or other extensions of credit under such credit facility is permanently reduced by an amount not less than the amount of such proceeds applied to the payment of such Funded Debt) pro rata in proportion to the respective outstanding principal amounts thereof, and (b) immediately after giving effect to such Transfer (x) no Default or Event of Default shall exist and (y) the Company is able to incur at least $1.00 of additional Funded Debt under the provisions of paragraph 6B(2) and (3) hereof and at least $1.00 of additional Priority Debt under the provisions of paragraph 6C hereof.
6G. Transactions with Affiliates. The Company will not, and will not permit any Subsidiary of the Company to, enter into directly or indirectly any transaction (including, without limitation, the purchase, lease, sale or exchange of Properties of any kind or the rendering of any service) with any Affiliate, except pursuant to the reasonable requirements of the Companys or such Subsidiarys business and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would be obtainable in a comparable arms-length transaction with a Person not an Affiliate.
6H. Subsidiary Dividend Restrictions. The Company covenants that it will not, and will not permit any Subsidiary of the Company to, enter into, or be otherwise subject to, any contract or agreement (including its certificate of incorporation) which limits the amount of, or otherwise imposes restrictions on the payment of, dividends by any Subsidiary of the Company.
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6I. Subsidiary Preferred Stock. The Company covenants that it will not, and will not permit any Subsidiary of the Company to, issue or permit to be outstanding any class of capital stock which has priority over any other class of capital stock of such Subsidiary as to dividends or in liquidation.
6J. Issuance of Stock by Subsidiaries. The Company covenants that it will not permit any Subsidiary of the Company to issue, sell or otherwise dispose of any shares of any class of its stock (either directly or indirectly by the issuance of rights or options for, or securities convertible into, such shares) except to the Company or another Subsidiary of the Company.
7. EVENTS OF DEFAULT.
7A. Acceleration. If any of the following events shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise):
(i) the Company defaults in the payment of any principal of, or Yield- Maintenance Amount payable with respect to, any Note when the same shall become due, either by the terms thereof or otherwise as herein provided; or
(ii) the Company defaults in the payment of any interest on any Note for more than 5 Business Days after the date due; or
(iii) the Company or any Subsidiary of the Company defaults (whether as primary obligor or as guarantor or other surety) in any payment of principal of or interest on any other obligation for money borrowed (or any Capitalized Lease Obligation, any obligation under a conditional sale or other title retention agreement, any obligation issued or assumed as full or partial payment for property whether or not secured by a purchase money mortgage or any obligation under notes payable or drafts accepted representing extensions of credit) beyond any period of grace provided with respect thereto, or the Company or any Subsidiary of the Company fails to perform or observe any other agreement, term or condition contained in any agreement under which any such obligation is created (or if any other event thereunder or under any such agreement shall occur and be continuing) and the effect of such failure or other event is to cause, or a holder or holders of such obligation (or a trustee on behalf of such holder or holders) causes, such obligation to become due (or to be repurchased by the Company or any Subsidiary of the Company) prior to any stated maturity, provided that the aggregate amount of all obligations as to which such a payment default shall occur and be continuing or such a failure or other event causing acceleration (or resale to the Company or any Subsidiary of the Company) shall occur and be continuing exceeds $5,000,000; or
(iv) any representation or warranty made by the Company herein or by the Company or any of its officers in any writing furnished in connection with or pursuant to this Agreement shall be false in any material respect on the date as of which made or deemed to have been made; or
(v) the Company fails to perform or observe any agreement contained in paragraph 5E or paragraph 6; or
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(vi) the Company fails to perform or observe any other agreement, term or condition contained herein and such failure shall not be remedied within 30 days after any Responsible Officer obtains actual knowledge thereof; or
(vii) the Company or any Subsidiary of the Company makes an assignment for the benefit of creditors or is generally not paying its debts as such debts become due; or
(viii) any decree or order for relief in respect of the Company or any Subsidiary of the Company is entered under any bankruptcy, reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution or liquidation or similar law, whether now or hereafter in effect (herein called the Bankruptcy Law), of any jurisdiction; or
(ix) the Company or any Subsidiary of the Company petitions or applies to any tribunal for, or consents to, the appointment of, or taking possession by, a trustee, receiver, custodian, liquidator or similar official of the Company or any Subsidiary of the Company, or of any substantial part of the assets of the Company or any Subsidiary of the Company, or commences a voluntary case under the Bankruptcy Law of the United States or any proceedings (other than proceedings for the voluntary liquidation and dissolution of a Subsidiary) relating to the Company or any Subsidiary of the Company under the Bankruptcy Law of any other jurisdiction; or
(x) any such petition or application is filed, or any such proceedings are commenced, against the Company or any Subsidiary of the Company and the Company or such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein, or an order, judgment or decree is entered appointing any such trustee, receiver, custodian, liquidator or similar official, or approving the petition in any such proceedings, and such order, judgment or decree remains unstayed and in effect for more than 30 days; or
(xi) any order, judgment or decree is entered in any proceedings against the Company decreeing the dissolution of the Company and such order, judgment or decree remains unstayed and in effect for more than 60 days: or
(xii) any order, judgment or decree is entered in any proceedings against the Company or any Subsidiary of the Company decreeing a split-up of the Company or such Subsidiary which requires the divestiture of assets representing a substantial part, or the divestiture of the stock of a Subsidiary of the Company whose assets represent a substantial part, of the consolidated assets of the Company and its Subsidiaries (determined in accordance with generally accepted accounting principles) or which requires the divestiture of assets, or stock of a Subsidiary of the Company, which shall have contributed a substantial part of the consolidated net income of the Company and its Subsidiaries (determined in accordance with generally accepted accounting principles) for any of the three fiscal years then most recently ended, and such order, judgment or decree remains unstayed and in effect for more than 60 days; or
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(xiii) a final judgment in an amount in excess of $5,000,000 is rendered against the Company or any Subsidiary of the Company and, within 45 days after entry thereof, any such judgment is not discharged or execution thereof stayed pending appeal, or within 45 days after the expiration of any such stay, such judgment is not discharged; or
(xiv) the Company or any ERISA Affiliate, in its capacity as an employer under a Multiemployer Plan, makes a complete or partial withdrawal from such Multiemployer Plan resulting in the incurrence by such withdrawing employer of a withdrawal liability in an amount exceeding $10,000,000 unless paid within 60 days;
then (a) if such event is an Event of Default specified in clause (i) or (ii) of this paragraph 7A, any holder of any Note (other than the Company or any of its Affiliates or Subsidiaries) may at its option, by notice in writing to the Company, declare all of the Notes held by such holder to be, and all of the Notes held by such holder shall thereupon be and become, immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, (b) if such event is an Event of Default specified in clause (viii), (ix) or (x) of this paragraph 7A with respect to the Company, all of the Notes at the time outstanding shall automatically become immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company, and (c) with respect to any event constituting an Event of Default, the Required Holder(s) of the Notes of any Series may at its or their option during the continuance of such Event of Default, by notice in writing to the Company, declare all of the Notes of such Series to be, and all of the Notes of such Series shall thereupon be and become, immediately due and payable together with interest accrued thereon and together with the Yield-Maintenance Amount, if any, with respect to each Note of such Series, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Company. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of Yield-Maintenance Amount by the Company in the event the Notes are prepaid or are accelerated as a result of an Event of Default is intended to provide compensation for the deprivation of such right under such circumstances.
7B. Rescission of Acceleration. At any time after any or all of the Notes of any Series shall have been declared immediately due and payable pursuant to paragraph 7A, the Required Holder(s) of the Notes of such Series may, by notice in writing to the Company, rescind and annul such declaration and its consequences if (i) the Company shall have paid all overdue interest on the Notes of such Series, the principal of and Yield-Maintenance Amount, if any, payable with respect to any Notes of such Series which have become due otherwise than by reason of such declaration, and interest on such overdue interest and overdue principal and Yield-Maintenance Amount at the rate specified in the Notes of such Series, (ii) the Company shall not have paid any amounts which have become due solely by reason of such declaration, (iii) all Events of Default and Defaults, other than non-payment of amounts which have become due solely by reason of such declaration, shall have been cured or waived pursuant to paragraph 11C, and (iv) no judgment or decree shall have been entered for the payment of any amounts due pursuant to the Notes of such Series or this Agreement. No such rescission or annulment shall extend to or affect any subsequent Event of Default or Default or impair any right arising therefrom.
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7C. Notice of Acceleration or Rescission. Whenever any Note shall be declared immediately due and payable pursuant to paragraph 7A or any such declaration shall be rescinded and annulled pursuant to paragraph 7B, the Company shall forthwith give written notice thereof to the holder of each Note of each Series at the time outstanding.
7D. Other Remedies. If any Event of Default or Default shall occur and be continuing, the holder of any Note may proceed to protect and enforce its rights under this Agreement and such Note by exercising such remedies as are available to such holder in respect thereof under applicable law, either by suit in equity or by action at law, or both, whether for specific performance of any covenant or other agreement contained in this Agreement or in aid of the exercise of any power granted in this Agreement. No remedy conferred in this Agreement upon the holder of any Note is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to every other remedy conferred herein or now or hereafter existing at law or in equity or by statute or otherwise.
8. REPRESENTATIONS, COVENANTS AND WARRANTIES. The Company represents, covenants and warrants as follows (all references to Subsidiary and Subsidiaries in this paragraph 8 shall be deemed omitted if the Company has no Subsidiaries at the time the representations herein are made or repeated):
8A(1). Organization. The Company is a nonstock agricultural cooperative corporation duly organized and existing in good standing under the laws of the State of Minnesota and each Subsidiary of the Company is duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated. The Company and each of its Subsidiaries have duly qualified or been duly licensed, and are authorized to do business and are in good standing, in each jurisdiction in which the ownership of their respective properties or the nature of their respective businesses makes such qualification or licensing necessary and in which the failure to be so qualified or licensed would be reasonably likely to have a material adverse effect on the business condition (financial or otherwise) or operations of the Company and its Subsidiaries, taken as a whole.
8A(2). Power and Authority. The Company and each Subsidiary of the Company has all requisite corporate power to own and operate its respective properties and to conduct its business as currently conducted and as currently proposed to be conducted. The Company has all requisite corporate power to execute, deliver and perform its obligations under this Agreement and the Notes. The execution, delivery and performance of this Agreement and the Notes has been duly authorized by all requisite corporate action, and this Agreement and the Notes have been duly executed and delivered by authorized officers of the Company and are valid obligations of the Company, legally binding upon and enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors rights generally and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
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8B. Financial Statements. The Company has furnished each Purchaser of any Note with the following financial statements, identified by a principal financial officer of the Company: (i) a consolidated balance sheet of the Company and its Subsidiaries as at August 31 in each of the three fiscal years of the Company most recently completed prior to the date as of which this representation is made or repeated to such Purchaser (other than fiscal years completed within 90 days prior to such date for which audited financial statements have not been released) and consolidated statements of income and cash flows and a consolidated statement of members equity of the Company and its Subsidiaries for each such year, all reported on by either Deloitte & Touche, L.L.P. or Pricewaterhouse Coopers, LLP or other nationally recognized independent public accounting firm and (ii) consolidated balance sheet of the Company and its Subsidiaries as at the end of the quarterly period (if any) most recently completed prior to such date and after the end of such fiscal year (other than quarterly periods completed within 60 days prior to such date for which financial statements have not been released) and the comparable quarterly period in the preceding fiscal year and consolidated statements of income and cash flows and a consolidated statement of members equity for the periods from the beginning of the fiscal years in which such quarterly periods are included to the end of such quarterly periods, prepared by the Company. Such financial statements (including any related schedules and/or notes) are true and correct in all material respects (subject, as to interim statements, to changes resulting from audits and year-end adjustments), have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods involved and show all liabilities, direct and contingent, of the Company and its Subsidiaries required to be shown in accordance with such principles. The balance sheets fairly present the condition of the Company and its Subsidiaries as at the dates thereof, and the statements of income, stockholders equity and cash flows fairly present the results of the operations of the Company and its Subsidiaries and their cash flows for the periods indicated. There has been no material adverse change in the business, condition (financial or otherwise), operations of the Company and its Subsidiaries taken as a whole since the end of the most recent fiscal year for which such audited financial statements have been furnished.
8C. Actions Pending. There is no action, suit, investigation or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, or any properties or rights of the Company or any of its Subsidiaries, by or before any court, arbitrator or administrative or governmental body which, individually or in the aggregate, could reasonably be expected to result in any material adverse change in the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole.
8D. Outstanding Debt. Neither the Company nor any of its Subsidiaries has outstanding any Debt except as permitted by paragraph 6B. There exists no default under the provisions of any instrument evidencing such Debt or of any agreement relating thereto.
8E. Title to Properties. The Company has and each of its Subsidiaries has good and indefeasible title to its respective real properties (other than properties which it leases) and good title to all of its other respective properties and assets, including the properties and assets reflected in the most recent audited balance sheet referred to in paragraph 8B (other than properties and assets disposed of in the ordinary course of business), except for defects in title not reasonably expected to result in a material adverse effect, subject to no Lien of any kind except Liens
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permitted by paragraph 6D. All leases necessary in any material respect for the conduct of the respective businesses of the Company and its Subsidiaries are valid and subsisting and are in full force and effect.
8F. Taxes. The Company has and each of its Subsidiaries has filed all federal, state and other income tax returns which, to the knowledge of the officers of the Company, are required to be filed, and each has paid all taxes as shown on such returns and on all assessments received by it to the extent that such taxes have become due, except such taxes as are being actively contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with generally accepted accounting principles or with respect to which the failure to so pay could not be reasonably expected to have a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole or the ability of the Company to satisfy its obligations under this Agreement. The Company is a cooperative association taxed under the provisions of subchapter T of the Code and the Company does not presently intend to alter its status as a subchapter T cooperative association for federal income tax purposes.
8G. Conflicting Agreements and Other Matters. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement or subject to any charter or other corporate restriction which materially and adversely affects its business, property or assets, condition (financial or otherwise) or operations. Neither the execution nor delivery of this Agreement or the Notes, nor the offering, issuance and sale of the Notes, nor fulfillment of nor compliance with the terms and provisions hereof and of the Notes will conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company or any of its Subsidiaries pursuant to, the charter or by-laws of the Company or any of its Subsidiaries, any award of any arbitrator or any agreement (including any agreement with stockholders), instrument, order, judgment, decree, statute, law, rule or regulation to which the Company or any of its Subsidiaries is subject. Neither the Company nor any of its Subsidiaries is a party to, or otherwise subject to any provision contained in, any instrument evidencing Debt of the Company or such Subsidiary, any agreement relating thereto or any other contract or agreement (including its charter) which limits the amount of, or otherwise imposes restrictions on the incurring of, Debt of the Company of the type to be evidenced by the Notes except as set forth in the agreements listed in Schedule 8G attached hereto (as such Schedule 8G may have been modified from time to time by written supplements thereto delivered by the Company and accepted in writing by Prudential).
8H. Offering of Notes. Neither the Company nor any agent acting on its behalf has, directly or indirectly, offered the Notes or any similar security of the Company for sale to, or solicited any offers to buy the Notes or any similar security of the Company from, or otherwise approached or negotiated with respect thereto with, any Person other than institutional investors, and neither the Company nor any agent acting on its behalf has taken or will take any action which would subject the issuance or sale of the Notes to the provisions of Section 5 of the Securities Act or to the provisions of any securities or Blue Sky law of any applicable jurisdiction.
8I. Use of Proceeds. The proceeds of the Series F Notes and the Series G Notes will be used to fund capital expenditures and general
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corporate purposes. The Company is not engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and the aggregate market value of all margin stock owned by the Company and its Subsidiaries does not exceed 25% of the aggregate value of the assets thereof, as determined by any reasonable method. Neither the Company nor any agent acting on its behalf has taken or will take any action which might cause this Agreement or the Notes to violate Regulation U, Regulation T or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Exchange Act, in each case as in effect now or as the same may hereafter be in effect.
8J. ERISA. No accumulated funding deficiency (as defined in section 302 of ERISA and section 412 of the Code), whether or not waived, exists with respect to any Plan (other than a Multiemployer Plan) which could be reasonably expected to have a material adverse effect on the business condition (financial or otherwise) or operations of the Company and its Subsidiaries) taken as a whole or the ability of the Company to satisfy its obligations under this Agreement. No liability to the PBGC has been or is expected by the Company or any ERISA Affiliate to be incurred with respect to any Plan (other than a Multiemployer Plan) by the Company, any Subsidiary or any ERISA Affiliate which is or would be materially adverse to the business, property or assets, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. Neither the Company, any Subsidiary nor any ERISA Affiliate has incurred or presently expects to incur any withdrawal liability under Title IV of ERISA with respect to any Multiemployer Plan which is or would be materially adverse to the business, property or assets, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole. The execution and delivery of this Agreement and the issuance and sale of the Notes will be exempt from or will not involve any transaction which is subject to the prohibitions of section 406 of ERISA and will not involve any transaction in connection with which a penalty could be imposed under section 502(i) of ERISA or a tax could be imposed pursuant to section 4975 of the Code. The representation by the Company in the next preceding sentence is made in reliance upon and subject to the accuracy of the representation of each Purchaser in paragraph 9B as to the source of funds to be used by it to purchase any Notes.
8K. Governmental Consent. Neither the nature of the Company or of any Subsidiary, nor any of their respective businesses or properties, nor any relationship between the Company or any Subsidiary and any other Person, nor any circumstance in connection with the offering, issuance, sale or delivery of the Notes is such as to require any authorization, consent, approval, exemption or any action by or notice to or filing with any court or administrative or governmental body (other than routine filings after the Closing Day for any Notes with the Securities and Exchange Commission and/or state Blue Sky authorities) in connection with the execution and delivery of this Agreement, the offering, issuance, sale or delivery of the Notes or fulfillment of or compliance with the terms and provisions hereof or of the Notes.
8L. Environmental Compliance. The Company and its Subsidiaries and all of their respective properties and facilities have complied at all times and in all respects with all federal, state, local and regional statutes, laws, ordinances and judicial or administrative orders, judgments, rulings and regulations including, without limitation, those relating to protection of the environment except, in any such case, where failure to
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comply, individually or in the aggregate, would not reasonably be expected to result in a material adverse effect on the business, condition (financial or otherwise) or operations of the Company and its Subsidiaries taken as a whole.
8M. Regulatory Status. Neither the Company nor any Subsidiary is (i) an Investment company or a company controlled by an investment company within the meaning of the Investment Company Act of 1940, as amended, (ii) a holding company or a subsidiary company or an affiliate of a holding company or a subsidiary company of a holding company, within the meaning of the Public Utility Holding Company Act of 1935, as amended, or (iii) a public utility within the meaning of the Federal Power Act, as amended.
8N. Permits and Other Operating Rights. The Company and each Subsidiary of the Company has all such valid and sufficient certificates of convenience and necessity, franchises, licenses, permits, operating rights and other authorizations from federal, state, foreign, regional, municipal and other local regulatory bodies or administrative agencies or other governmental bodies having jurisdiction over the Company or any Subsidiary of the Company or any of its Properties, as are necessary for the ownership, operation and maintenance of its businesses and Properties, as presently conducted and as proposed to be conducted while the Notes are outstanding, subject to exceptions and deficiencies which, individually or in the aggregate, would not reasonably be expected to materially adversely affect the business and operations of the Company, any Subsidiary of the Company or any material part thereof, and such certificates of convenience and necessity, franchises, licenses, permits, operating rights and other authorizations from federal, state, foreign, regional, municipal and other local regulatory bodies or administrative agencies or other governmental bodies having jurisdiction over the Company, any Subsidiary of the Company or any of its Properties are free from restrictions or conditions which, individually or in the aggregate, would reasonably be expected to be materially adverse to the business or operations of the Company and its Subsidiaries and neither the Company nor any Subsidiary of the Company is in violation of any restriction or condition thereof in any material respect.
8O. Disclosure. Neither this Agreement nor any other document, certificate or statement furnished to any Purchaser by or on behalf of the Company in connection herewith contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading. There is no fact peculiar to the Company or any of its Subsidiaries which materially adversely affects or in the future may (so far as the Company can now foresee) materially adversely affect the business, property or assets, condition (financial or otherwise) or operations of the Company or any of its Subsidiaries and which has not been set forth in this Agreement.
8P. Hostile Tender Offers. None of the proceeds of the sale of any Notes will be used to finance a Hostile Tender Offer. Each Purchaser represents as follows:
9. REPRESENTATIONS OF THE PURCHASERS.
Each Purchaser represents as follows:
9A. Nature of Purchase. Such Purchaser is not acquiring the Notes purchased by it hereunder with a view to or for sale in connection with
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any distribution thereof within the meaning of the Securities Act, provided that the disposition of such Purchasers property shall at all times be and remain within its control. Such Purchaser will not sell or otherwise transfer the Notes to be purchased by it hereunder in violation of the Securities Act.
9B. Source of Funds. At least one of the following statements is an accurate representation as to each source of funds (a Source ) to be used by such Purchaser to pay the purchase price of the Notes to be purchased by such Purchaser hereunder:
(i) the Source is an insurance company general account (as the term is defined in the United States Department of Labors Prohibited Transaction Exemption ( PTE ) 95-60) in respect of which the reserves and liabilities (as defined by the annual statement for life insurance companies approved by the National Association of Insurance Commissioners (the NAIC Annual Statement )) for the general account contract(s) held by or on behalf of any employee benefit plan together with the amount of the reserves and liabilities for the general account contract(s) held by or on behalf of any other employee benefit plans maintained by the same employer (or affiliate thereof as defined in PTE 95-60) or by the same employee organization in the general account do not exceed 10% of the total reserves and liabilities of the general account (exclusive of separate account liabilities) plus surplus as set forth in the NAIC Annual Statement filed with such Purchasers state of domicile; or
(ii) the Source is a separate account that is maintained solely in connection with such Purchasers fixed contractual obligations under which the amounts payable, or credited, to any employee benefit plan (or its related trust) that has any interest in such separate account (or to any participant or beneficiary of such plan (including any annuitant)) are not affected in any manner by the investment performance of the separate account; or
(iii) the Source is either (a) an insurance company pooled separate account, within the meaning of PTE 90-1, or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 and, except as disclosed by such Purchaser to the Company in writing pursuant to this clause (iii), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or
(iv) the Source constitutes assets of an investment fund (within the meaning of Part V of PTE 84-14 (the QPAM Exemption )) managed by a qualified professional asset manager or QPAM (within the meaning of Part V of the QPAM Exemption), no employee benefit plans assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled
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by the QPAM (applying the definition of control in Section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (a) the identity of such QPAM and (b) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this clause (iv); or
(v) the Source constitutes assets of a plan(s) (within the meaning of Section IV of PTE 96-23 (the INHAM Exemption )) managed by an in-house asset manager or INHAM (within the meaning of Part IV of the INHAM Exemption), the conditions of Part I(a), (g) and (h) of the INHAM Exemption are satisfied, neither the INHAM nor a person controlling or controlled by the INHAM (applying the definition of control in Section IV(h) of the INHAM Exemption) owns a 5% or more interest in the Company and (a) the identity of such INHAM and (b) the name(s) of the employee benefit plan(s) whose assets constitute the Source have been disclosed to the Company in writing pursuant to this clause (v); or
(vi) the Source is a governmental plan; or
(vii) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this clause (vii); or
(viii) the Source does not include assets of any employee benefit plan, other than a plan exempt from the coverage of ERISA.
As used in this paragraph 9B, the terms employee benefit plan , governmental plan , and separate account shall have the respective meanings assigned to such terms in Section 3 of ERISA.
10. DEFINITIONS; ACCOUNTING MATTERS. For the purpose of this Agreement, the terms defined in paragraphs 10A and 10B (or within the text of any other paragraph) shall have the respective meanings specified therein and all accounting matters shall be subject to determination as provided in paragraph 10C.
10A. Yield-Maintenance Terms.
Called Principal shall mean, with respect to any Note, the principal of such Note that is to be prepaid pursuant to paragraph 4C, is put to the Company pursuant to paragraph 5E or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires.
Discounted Value shall mean, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (as converted to reflect the periodic basis on which interest on such Note is payable, if payable other than on a semi-annual basis) equal to the Reinvestment Yield with respect to such Called Principal.
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Reinvestment Yield shall mean, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by (i) the yields reported as of 10:00 a.m. (New York City local time) on the Business Day next preceding the Settlement Date with respect to such Called Principal for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date on the display designated as Page PX1 on the Bloomberg Financial Services Screen (or such other display as may replace Page PX1 on the Bloomberg Financial Services Screen or, if Bloomberg Financial Services shall cease to report such yields or shall cease to be Prudential Capital Groups customary source of information for calculating yield-maintenance amounts on privately placed notes, then such source as is then Prudential Capital Groups customary source of such information), or if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, (ii) the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the Business Day next preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between yields reported for various maturities. The Reinvestment Yield will be rounded to that number of decimal places as appears in the coupon for the Notes.
Remaining Average Life shall mean, with respect to the Called Principal of any Note, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining Scheduled Payment of such Called Principal (but not of interest thereon) by (b) the number of years (calculated to the nearest one-twelfth year) which will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment.
Remaining Scheduled Payments shall mean, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due on or after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date.
Settlement Date shall mean, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to paragraph 4C, is put to the Company pursuant to paragraph 5E or is declared to be immediately due and payable pursuant to paragraph 7A, as the context requires.
Yield-Maintenance Amount shall mean, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Called Principal of such Note over the sum of (i) such Called Principal plus (ii) interest accrued thereon as of (including interest due on) the Settlement Date with respect to such Called Principal. The Yield-Maintenance Amount shall in no event be less than zero.
10B. Other Terms.
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Acceptance shall have the meaning specified in paragraph 2B(5).
Acceptance Day shall have the meaning specified in paragraph 2B(5).
Acceptance Window shall mean, with respect to any interest rate quotes provided by Prudential pursuant to paragraph 2B(4), the time period after the time Prudential shall have provided such interest rate quotes to the Company designated by Prudential as the time period during which the Company may elect to accept such interest rate quotes. If no such time period is designated by Prudential with respect to any such interest rate quotes, then the Acceptance Window for such interest rate quotes will be 10 minutes after the time Prudential shall have provided such interest rate quotes to the Company.
Accepted Note shall have the meaning specified in paragraph 2B(5).
Adjusted Consolidated Funded Debt shall mean all indebtedness for borrowed money of the Company and its Subsidiaries, in each case maturing by its terms more than one year after, or which is renewable or extendible for a period ending one year or more after the date of determination, and shall include Debt of such maturity created or assumed by the Company or any Subsidiary of the Company either directly or indirectly, including obligations of such maturity secured by liens upon property of the Company or its Subsidiaries and upon which such entity customarily pays the interest, and all rental payments under capital leases of such maturity, and the net present value of operating leases as discounted by a rate of 10% per annum.
Affiliate shall mean (i) with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under direct or indirect common control with, such first Person, except a Subsidiary of the Company shall not be an Affiliate of the Company, and (ii) with respect to Prudential, shall include any managed account, investment fund or other vehicle for which Prudential Financial, Inc. or any Affiliate of Prudential Financial, Inc. acts as investment advisor or portfolio manager. A Person shall be deemed to control a corporation or other entity if such Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation or other entity, whether through the ownership of voting securities, by contract or otherwise.
Authorized Officer shall mean (i) in the case of the Company, its chief executive officer, its chief financial officer, any vice president of the Company designated as an Authorized Officer of the Company in the Information Schedule attached hereto or any vice president of the Company designated as an Authorized Officer of the Company for the purpose of this Agreement in an Officers Certificate executed by the Companys chief executive officer or chief financial officer and delivered to Prudential, and (ii) in the case of Prudential, any officer of Prudential designated as its Authorized Officer in the Information Schedule or any officer of Prudential designated as its Authorized Officer for the purpose of this Agreement in a certificate executed by one of its Authorized Officers or a lawyer in its law department. Any action taken under this Agreement on behalf of the Company by any individual who on or after the date of this Agreement shall have been an Authorized Officer of the Company and whom Prudential in good faith believes to be an Authorized Officer of the Company at the time of
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such action shall be binding on the Company even though such individual shall have ceased to be an Authorized Officer of the Company, and any action taken under this Agreement on behalf of Prudential by any individual who on or after the date of this Agreement shall have been an Authorized Officer of Prudential and whom the Company in good faith believes to be an Authorized Officer of Prudential at the time of such action shall be binding on Prudential even though such individual shall have ceased to be an Authorized Officer of Prudential.
Available Facility Amount shall have the meaning specified in paragraph 2B(1).
Bankruptcy Law shall have the meaning specified in clause (viii) of paragraph A.
Business Day shall mean any day other than (i) a Saturday or a Sunday, (ii) a day on which commercial banks in New York City are required or authorized to be closed and (iii) for purposes of paragraph 2B(3) hereof only, a day on which Prudential is not open for business.
Cancellation Date shall have the meaning specified in paragraph 2B(8)(iv).
Cancellation Fee shall have the meaning specified in paragraph 2B(8)(iv).
Capitalized Lease Obligation shall mean any rental obligation which, under generally accepted accounting principles, is or will be required to be capitalized on the books of the Company or any Subsidiary, taken at the amount thereof accounted for as indebtedness (net of interest expenses) in accordance with such principles.
Change of Control shall mean any Person or Persons acting in concert, together with the Affiliates thereof, directly or indirectly controlling or owning (beneficially or otherwise) in the aggregate more than 50% of the aggregate voting power of the issued and outstanding Voting Interests of the Company.
Closing Day shall mean, with respect to the Series F Notes and the Series G Notes, the Series F/G Closing Day and, with respect to any Accepted Note, the Business Day specified for the closing of the purchase and sale of such Accepted Note in the Request for Purchase of such Accepted Note, provided that (i) if the Company and the Purchaser which is obligated to purchase such Accepted Note agree on an earlier Business Day for such closing, the Closing Day for such Accepted Note shall be such earlier Business Day, and (ii) if the closing of the purchase and sale of such Accepted Note is rescheduled pursuant to paragraph 2B(7), the Closing Day for such Accepted Note, for all purposes of this Agreement except references to original Closing Day in paragraph 2B(8)(iii), shall mean the Rescheduled Closing Day with respect to such Accepted Note.
Code shall mean the Internal Revenue Code of 1986, as amended.
Confirmation of Acceptance shall have the meaning specified in paragraph 2B(5).
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Consolidated Cash Flow for any period shall mean the sum of (i) earnings before income taxes of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with generally accepted accounting principles, plus (ii) the amounts that have been deducted in the determination of such earnings before income taxes for such period for (a) interest expense, (b) depreciation, (c) amortization, and (d) extraordinary non-cash or one-time non-cash losses, minus (iii) the amounts that have been included in the determination of such earnings before income taxes for such period for (a) one-time gains, (b) extraordinary income, (c) non-cash patronage income, and (d) non-cash equity earnings in joint ventures.
Consolidated Current Assets means total current assets of the Company and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles.
Consolidated Current Liabilities means total current liabilities of the Company and its Subsidiaries determined on a consolidated basis in accordance with generally accepted accounting principles.
Consolidated Members and Patrons Equity shall mean the amount of equity accounts plus (or minus in the case of a deficit) the amount of surplus and retained earnings accounts of the Company and its Subsidiaries and the minority interest in Subsidiaries, provided that the total amount of intangible assets of the Company and its Subsidiaries (including, without limitation, unamortized debt discount and expense, deferred charges and goodwill) included therein shall not exceed $30,000,000 (and to the extent such intangible assets exceed $30,000,000, they will not be included in the calculation of Consolidated Members and Patrons Equity); all as determined in accordance with generally accepting accounting principles consistently applied, but excluding therefrom any minority interests in any Subsidiaries without duplication of deduction if already deducted in determining retained earnings and surplus.
Consolidated Net Worth shall mean, as of any date, members equity of the Company and its Subsidiaries as of such date, determined on a consolidated basis in accordance with generally accepted accounting principles consistently applied.
Consolidated Total Assets shall mean, as of any date, the total assets of the Company and its Subsidiaries as of such date, determined on a consolidated basis in accordance with generally accepted accounting principles consistently applied.
Debt shall mean, with respect to any Person (i) all obligations of such Person for borrowed money (including all obligations for borrowed money secured by any Lien with respect to any Property owned by such Person whether or not such Person has assumed or otherwise become liable for such obligations), (ii) all obligations of such Person for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement with respect to such property), (iii) all Capital Lease Obligations of such Person and (iv) all Guarantees of such Person with respect to liabilities of the type described in clause (i), (ii) or (iii) of any other Person, provided that (a) Debt of a Subsidiary
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of the Company shall exclude such obligations and Guarantees of such Subsidiary if owed or guaranteed by a Subsidiary to the Company or a Wholly-Owned Subsidiary of the Company, (b) Debt of the Company shall exclude such obligations and Guarantees if owed or guaranteed by the Company to a Wholly-Owned Subsidiary of the Company and (c) Debt of the Company shall exclude any unfunded obligations which may exist now and in the future in the Companys pension plans.
Delayed Delivery Fee shall have the meaning specified in paragraph 2B(8)(iii).
Disposition Value shall mean, with respect to the Transfer of any Property:
(i) in the case of Property that does not constitute capital stock of or other ownership interests in any Subsidiary of the Company, the book value thereof, valued at the time of such Transfer in good faith by the board of directors of the Company, and
(ii) in the case of Property that constitutes capital stock of or other ownership interests in any Subsidiary of the Company, an amount equal to that percentage of book value of the assets of the Subsidiary that issued such capital stock or other ownership interests as is equal to the percentage that the book value that such capital stock or other ownership interests represents of the book value of all of the outstanding capital stock of or other ownership interests in such Subsidiary (assuming, in making such calculations, that all securities convertible into such capital stock or other ownership interests are so converted and giving full effect to all transactions that would occur or be required in connection with such conversion), determined at the time of such Transfer in good faith by the board of directors of the Company.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate shall mean any corporation which is a member of the same controlled group of corporations as the Company within the meaning of section 414(b) of the Code, or any trade or business which is under common control with the Company within the meaning of section 414(c) of the Code.
Event of Default shall mean any of the events specified in paragraph 7A, provided that there has been satisfied any requirement in connection with such event for the giving of notice, or the lapse of time, or the happening of any further condition, event or act, and Default shall mean any of such events, whether or not any such requirement has been satisfied.
Exchange Act shall mean the Securities Exchange Act of 1934, as amended.
Facility shall have the meaning specified in paragraph 2B(1).
Funded Debt shall mean, with respect to any Person, all Debt which would, in accordance with generally accepted accounting principles, be required to be classified as a long term liability on the books of such Person, and shall include, without limitation (i) any Debt which by its terms or by the terms of any instrument or agreement relating thereto matures, or which is otherwise payable or unpaid, more than
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one year from the date of creation thereof, (ii) any Debt outstanding under a revolving credit or similar agreement providing for borrowings (and renewals and extensions thereof) which would, in accordance with generally accepted accounting principles, be required to be classified as a long term liability of such Person, (iii) any Capital Lease Obligation of such Person, and (iv) any Guarantee of such Person with respect to Funded Debt of another Person. Notwithstanding anything to the contrary contained herein, any Debt outstanding under a revolving credit or similar agreement providing for borrowings where no amount of such Debt is outstanding for a period of 30 consecutive days during each 12 month period (and which has not been refinanced with other Debt which does not constitute Funded Debt) will not be deemed to constitute Funded Debt.
Guarantee shall mean, with respect to any Person, any direct or indirect liability, contingent or otherwise, of such Person with respect to any Debt, lease, dividend or other obligation of another, including, without limitation, any such obligation directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business) or discounted or sold with recourse by such Person, or in respect of which such Person is otherwise directly or indirectly liable, including, without limitation, any such obligation in effect guaranteed by such Person through any agreement (contingent or otherwise) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain the solvency or any balance sheet or other financial condition of the obligor of such obligation, or to make payment for any products, materials or supplies or for any transportation or service, regardless of the non-delivery or non-furnishing thereof, in any such case if the purpose or intent of such agreement is to provide assurance that such obligation will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected against loss in respect thereof. The amount of any Guarantee shall be equal to the outstanding principal amount of the obligation guaranteed or such lesser amount to which the maximum exposure of the guarantor shall have been specifically limited.
Hedge Treasury Note(s) shall mean, with respect to any Accepted Note, the United States Treasury Note or Notes whose duration (as determined by Prudential) most closely matches the duration of such Accepted Note.
Hostile Tender Offer shall mean, with respect to the use of proceeds of any Note, any offer to purchase, or any purchase of, shares of capital stock of any corporation or equity interests in any other entity, or securities convertible into or representing the beneficial ownership of, or rights to acquire, any such shares or equity interests, if such shares, equity interests, securities or rights are of a class which is publicly traded on any securities exchange or in any over-the-counter market, other than purchases of such shares, equity interests, securities or rights representing less than 5% of the equity interests or beneficial ownership of such corporation or other entity for portfolio investment purposes, and such offer or purchase has not been duly approved by the board of directors of such corporation or the equivalent governing body of such other entity prior to the date on which the Company makes the Request for Purchase of such Note.
including shall mean, unless the context clearly requires otherwise, including without limitation.
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Initial Purchasers shall have the meaning given in the address block of this Agreement.
Issuance Fee shall have the meaning given in paragraph 2B(8)(i) hereof.
Issuance Period shall have the meaning specified in paragraph 2B(2).
Lien shall mean any mortgage, pledge, security interest, encumbrance, lien (statutory or otherwise) or charge of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature thereof, and the filing of or agreement to give any financing statement under the Uniform Commercial Code of any jurisdiction other than solely for notification purposes as opposed to security purposes), any interest or title of a lessor under a lease the obligations under which constitute Capitalized Lease Obligations, or any other type of preferential arrangement for the purpose, or having the effect, of protecting a creditor against loss or securing the payment or performance of an obligation.
Multiemployer Plan shall mean any Plan which is a multiemployer plan (as such term is defined in section 4001(a)(3) of ERISA.
Net Proceeds Amount shall mean, with respect to any Transfer of any Property by any Person, an amount equal to the difference of (i) the aggregate amount of the consideration (valued at the fair market value of such consideration at the time of the consummation of such Transfer) received by such Person in respect of such Transfer, minus (ii) all ordinary and reasonable out-of-pocket costs and expenses actually incurred by such Person in connection with such Transfer.
Notes shall have the meaning specified in paragraph 1B.
Officers Certificate shall mean a certificate signed in the name of the Company by an Authorized Officer of the Company.
Person shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, a limited liability company, an unincorporated organization and a government or any department or agency thereof.
Plan shall mean any employee pension benefit plan (as such term is defined in section 3 of ERISA) which is or has been established or maintained, or to which contributions are or have been made, by the Company or any ERISA Affiliate.
Primary Bank Facility shall mean an agreement, guaranty or other instrument (or agreements, guaranties or other instruments to the extent such agreements, guaranties or other instruments were entered into in concert in one or a series of transactions): (i) entered into by the Company in connection with the provision of recourse credit in the form of revolving loans, term loans, letters of credit or other extensions of credit commonly provided under syndicated bank credit agreements to the Company or any of its Subsidiaries and (ii) under which the aggregate amount of credit extended (whether in the form of loans or commitments) to the Company or for which the Company is obligated as a guarantor or otherwise is $150,000,000 or more.
35
Priority Debt shall mean (i) all Debt of the Company or any Subsidiary of the Company secured by a Lien (other than Debt secured only by Liens permitted under clauses (i) through (viii) of paragraph 6D hereof), and (ii) all Funded Debt of the Subsidiaries of the Company.
Property shall mean any interest in any kind of property or asset, whether real, personal or mixed, tangible or intangible.
Prudential shall have the meaning given in the address block of this Agreement.
Prudential Affiliate shall mean any Affiliate of Prudential.
Purchasers shall mean, with respect to the Series F Notes and the Series G Notes, the Initial Purchasers and, with respect to any Accepted Notes, the Prudential Affiliate(s) which are purchasing such Accepted Notes.
Related Party shall mean (i) any Significant Stockholder, (ii) all persons to whom any Significant Stockholder is related by blood, adoption or marriage and (iii) all Affiliates of the foregoing Persons.
Request for Purchase shall have the meaning specified in paragraph 2B(3).
Required Holder(s) shall mean the holder or holders of at least a majority of the aggregate principal amount of the Notes or of a Series of Notes, as the context may require, from time to time outstanding.
Rescheduled Closing Day shall have the meaning specified in paragraph 2B(7).
Responsible Officer shall mean the chief executive officer, chief operating officer, chief financial officer or chief accounting officer of the Company, general counsel of the Company or any other officer of the Company involved principally in its financial administration or its controllership function.
Securities Act shall mean the Securities Act of 1933, as amended.
Series shall have the meaning specified in paragraph 1B.
Series F/G Closing Day shall have the meaning specified in paragraph 2A.
Series F Note(s) shall have the meaning specified in paragraph 1A(1).
Series G Note(s) shall have the meaning specified in paragraph 1A(2).
Shelf Notes shall have the meaning specified in paragraph 1B.
Significant Holder shall mean (i) Prudential, (ii) each Purchaser, so long as such Purchaser or any of its Affiliates shall hold (or be
36
committed under this Agreement to purchase) any Note, (iii) any other holder of at least 5% of the aggregate principal amount of the Notes from time to time outstanding, or (iv) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form.
Subsidiary shall mean with respect to any Person any other Person greater than 50% of the total combined voting power of all classes of Voting Interests of which shall, at the time as of which any determination is being made, be owned by such first Person either directly or through other Subsidiaries of such first Person.
Transfer shall have the meaning given in paragraph 6F hereof.
Transferee shall mean any direct or indirect transferee of all or any part of any Note purchased by any Purchaser under this Agreement.
Voting Interests shall mean (a) with respect to any stock corporation, any shares of stock of such corporation whose holders are entitled under ordinary circumstances to vote for the election of directors of such corporation or persons performing similar functions (irrespective of whether at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency), and (b) with respect to the Company or any other entity, membership or other ownership interests in the Company or such other entity whose holders are entitled under ordinary circumstances to vote for the election of the directors of the Company or such other entity or persons performing similar functions (irrespective of whether at the time membership or other ownership interests of any other class or classes shall have or might have voting power by reasoning of the happening of any contingency).
Wholly-Owned Subsidiary shall mean any Subsidiary of the Company all of the capital stock or other ownership interests of every class of which is, at the time as of which any determination is being made, owned by the Company either directly or through a wholly-owned Subsidiary.
10C. Accounting Principles, Terms and Determinations. All references in this Agreement to generally accepted accounting principles shall be deemed to refer to generally accepted accounting principles in effect in the United States at the time of application thereof. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all unaudited financial statements and certificates and reports as to financial matters required to be furnished hereunder shall be prepared, in accordance with generally accepted accounting principles applied on a basis consistent with the most recent audited financial statements delivered pursuant to clause (ii) of paragraph 5A or, if no such statements have been so delivered, the most recent audited financial statements referred to in clause (i) of paragraph 8B. Any reference herein to any specific law, statute, rule or regulation shall refer to such law, statute, rule or regulation as the same may be may be modified, amended or replaced from time to time.
37
11. MISCELLANEOUS.
11A. Note Payments. The Company agrees that, so long as any Purchaser shall hold any Note, it will make payments of principal of, interest on, and any Yield-Maintenance Amount payable with respect to, such Note, which comply with the terms of this Agreement, by wire transfer of immediately available funds for credit (not later than 12:00 noon, New York City local time, on the date due) to (i) the account or accounts of such Purchaser specified in the Purchaser Schedule attached hereto in the case of any Series F Note or Series G Note, (ii) the account or accounts of such Purchaser specified in the Confirmation of Acceptance with respect to such Note in the case of any Shelf Note or (iii) such other account or accounts in the United States as such Purchaser may from time to time designate in writing, notwithstanding any contrary provision herein or in any Note with respect to the place of payment. Each Purchaser agrees that, before disposing of any Note, it will make a notation thereon (or on a schedule attached thereto) of all principal payments previously made thereon and of the date to which interest thereon has been paid. The Company agrees to afford the benefits of this paragraph 11A to any Transferee which shall have made the same agreement as the Purchasers have made in this paragraph 11A.
11B. Expenses. The Company agrees, whether or not the transactions contemplated hereby shall be consummated, to pay, and save Prudential, each Purchaser and any Transferee harmless against liability for the payment of, all out-of-pocket expenses arising in connection with such transactions, including (i) all document production and duplication charges and the fees and expenses of any special counsel engaged by the Purchasers or any Transferee in connection with this Agreement, the transactions contemplated hereby and any subsequent proposed modification of, or proposed consent under, this Agreement, whether or not such proposed modification shall be effected or proposed consent granted, and (ii) the costs and expenses, including attorneys fees, incurred by any Purchaser or any Transferee in enforcing (or determining whether or how to enforce) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the transactions contemplated hereby or by reason of any Purchasers or any Transferees having acquired any Note, including without limitation costs and expenses incurred in any bankruptcy case and (iii) all costs and expenses, including, without limitation, reasonable attorneys fees, of obtaining a Private Placement Number from CUSIP Service Bureau of Standard and Poors Ratings Group with respect to the Notes. The obligations of the Company under this paragraph 11B shall survive the transfer of any Note or portion thereof or interest therein by any Purchaser or any Transferee and the payment of any Note.
11C. Consent to Amendments. This Agreement may be amended, and the Company may take any action herein prohibited, or omit to perform any act herein required to be performed by it, if the Company shall obtain the written consent to such amendment, action or omission to act, of the Required Holder(s) of the Notes of each Series except that, (i) with the written consent of the holders of all Notes of a particular Series, and if an Event of Default shall have occurred and be continuing, of the holders of all Notes of all Series, at the time outstanding (and such written consents), the Notes of such Series may be amended or the provisions thereof waived to change the maturity thereof, to change or affect the principal thereof, or to change or affect the rate or time of payment of interest on or any Yield-Maintenance Amount payable with respect to the Notes of such Series, (ii) without the written consent of the holder or holders of all Notes at the time outstanding, no amendment to or waiver of the provisions of this Agreement shall change or affect the provisions of paragraph 7A or this paragraph 11C insofar as such
38
provisions relate to proportions of the principal amount of the Notes of any Series, or the rights of any individual holder of Notes, required with respect to any declaration of Notes to be due and payable or with respect to any consent, amendment, waiver or declaration, (iii) with the written consent of Prudential (and without the consent of any other holder of the Notes) the provisions of paragraph 2B may be amended or waived (except insofar as any such amendment or waiver would affect any rights or obligations with respect to the purchase and sale of Notes which shall have become Accepted Notes prior to such amendment or waiver), and (iv) with the written consent of all of the Purchasers which shall have become obligated to purchase Accepted Notes of any Series (and not without the written consent of all such Purchasers), any of the provisions of paragraphs 2B and 3 may be amended or waived insofar as such amendment or waiver would affect only rights or obligations with respect to the purchase and sale of the Accepted Notes of such Series or the terms and provisions of such Accepted Notes. Each holder of any Note at the time or thereafter outstanding shall be bound by any consent authorized by this paragraph 11C, whether or not such Note shall have been marked to indicate such consent, but any Notes issued thereafter may bear a notation referring to any such consent. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein and in the Notes, the term this Agreement and references thereto shall mean this Agreement as it may from time to time be amended or supplemented.
11D. Form, Registration, Transfer and Exchange of Notes; Lost Notes. The Notes are issuable as registered notes without coupons in denominations of at least $100,000, except as may be necessary to reflect any principal amount not evenly divisible by $100,000. The Company shall keep at its principal office a register in which the Company shall provide for the registration of Notes and of transfers of Notes. Upon surrender for registration of transfer of any Note at the principal office of the Company, the Company shall, at its expense, execute and deliver one or more new Notes of like tenor and of a like aggregate principal amount, registered in the name of such transferee or transferees. At the option of the holder of any Note, such Note may be exchanged for other Notes of like tenor and of any authorized denominations, of a like aggregate principal amount, upon surrender of the Note to be exchanged at the principal office of the Company. Whenever any Notes are so surrendered for exchange, the Company shall, at its expense, execute and deliver the Notes which the holder making the exchange is entitled to receive. Each prepayment of principal payable on each prepayment date upon each new Note issued upon any such transfer or exchange shall be in the same proportion to the unpaid principal amount of such new Note as the prepayment of principal payable on such date on the Note surrendered for registration of transfer or exchange bore to the unpaid principal amount of such Note. No reference need be made in any such new Note to any prepayment or prepayments of principal previously due and paid upon the Note surrendered for registration of transfer or exchange. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by a written instrument of transfer duly executed, by the holder of such Note or such holders attorney duly authorized in writing. Any Note or Notes issued in exchange for any Note or upon transfer thereof shall carry the rights to unpaid interest and interest to accrue which were carried by the Note so exchanged or transferred, so that neither gain nor loss of interest shall result from any such transfer or exchange. Upon receipt of written notice from the holder of any Note of the loss, theft, destruction or mutilation of such Note and, in the case of any such loss, theft or destruction, upon receipt of such holders unsecured indemnity agreement, or in the case of any such mutilation upon surrender and cancellation of
39
such Note, the Company will make and deliver a new Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
11E. Persons Deemed Owners; Participations. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of and interest on, and any Yield-Maintenance Amount payable with respect to, such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to the preceding sentence, the holder of any Note may from time to time grant participations in all or any part of such Note to any Person on such terms and conditions as may be determined by such holder in its sole and absolute discretion, provided that any such participation shall be in a principal amount of at least $100,000 except as may be necessary to reflect any principal amount not evenly divisible by $100,000.
11F. Survival of Representations and Warranties; Entire Agreement. All representations and warranties contained herein or made in writing by or on behalf of the Company in connection herewith shall survive the execution and delivery of this Agreement and the Notes, the transfer by any Purchaser of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any Transferee, regardless of any investigation made at any time by or on behalf of any Purchaser or any Transferee. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter.
11G. Successors and Assigns. All covenants and other agreements in this Agreement contained by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto (including, without limitation, any Transferee) whether so expressed or not.
11H. Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is prohibited by any one of such covenants, the fact that it would be permitted by an exception to, or otherwise be in compliance within the limitations of, another covenant shall not avoid (i) the occurrence of a Default or Event of Default if such action is taken or such condition exists or (ii) in any way prejudice an attempt by the holder of any Note to prohibit through equitable action or otherwise the taking of any action by the Company or any Subsidiary which would result in a Default or Event of Default.
11I. Notices. All written communications provided for hereunder (other than communications provided for under paragraph 2) shall be sent by first class mail or nationwide overnight delivery service (with charges prepaid) and (i) if to any Purchaser, addressed as specified for such communications in the Purchaser Schedule attached hereto (in the case of the Series F Notes or the Series G Notes) or the Purchaser Schedule attached to the applicable Confirmation of Acceptance (in the case of any Shelf Notes) or at such other address as any such Purchaser shall have specified to the Company in writing, (ii) if to any other holder of any Note, addressed to it at such address as it shall have specified in
40
writing to the Company or, if any such holder shall not have so specified an address, then addressed to such holder in care of the last holder of such Note which shall have so specified an address to the Company and (iii) if to the Company, addressed to it at 5500 Cenex Drive, Inver Grove Heights, Minnesota, 55077, Attention: Chief Financial Officer with a copy to the attention of the General Counsel, or at such other address as the Company shall have specified to the holder of each Note in writing; provided, however, that any such communication to the Company may also, at the option of the Person sending such communication, be delivered by any other means either to the Company at its address as determined above or to any Authorized Officer of the Company. Any communication pursuant to paragraph 2 shall be made by the method specified for such communication in paragraph 2, and shall be effective to create any rights or obligations under this Agreement only if, in the case of a telephone communication, an Authorized Officer of the party conveying the information and of the party receiving the information are parties to the telephone call, and in the case of a telecopier communication, the communication is signed by an Authorized Officer of the party conveying the information, addressed to the attention of an Authorized Officer of the party receiving the information, and in fact received at the telecopier terminal the number of which is listed for the party receiving the communication in the Information Schedule or at such other telecopier terminal as the party receiving the information shall have specified in writing to the party sending such information.
11J. Payments Due on Nom-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or interest on, or Yield-Maintenance Amount payable with respect to, any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day. If the date for any payment is extended to the next succeeding Business Day by reason of the preceding sentence, the period of such extension shall not be included in the computation of the interest payable on such Business Day.
11K. Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
11L. Descriptive Headings. The descriptive headings of the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
11M. Satisfaction Requirement. If any agreement, certificate or other writing, or any action taken or to be taken, is by the terms of this Agreement required to be satisfactory to any Purchaser, to any holder of Notes or to the Required Holder(s), the determination of such satisfaction shall be made by such Purchaser, such holder or the Required Holder(s), as the case may be, in the sole and exclusive judgment (exercised in good faith) of the Person or Persons making such determination.
11N. Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF ILLINOIS.
41
11O. Severalty of Obligations. The sales of Notes to the Purchasers are to be several sales, and the obligations of Prudential and the Purchasers under this Agreement are several obligations. No failure by Prudential or any Purchaser to perform its obligations under this Agreement shall relieve any other Purchaser or the Company of any of its obligations hereunder, and neither Prudential nor any Purchaser shall be responsible for the obligations of, or any action taken or omitted by, any other such Person hereunder.
11P. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument.
11Q. Binding Agreement. When this Agreement is executed and delivered by the Company, Prudential and the Initial Purchasers, it shall become a binding agreement between the Company, on one hand, and Prudential, on the other hand. This Agreement shall also inure to the benefit of each Purchaser which shall have executed and delivered a Confirmation of Acceptance and each such Purchaser shall be bound by this Agreement to the extent provided in such Confirmation of Acceptance.
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Very truly yours, | ||||
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CHS INC. | ||||
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By: | ||||
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Name: | ||||
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Title: | ||||
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The foregoing Agreement is hereby
accepted as of the date first above written.
THE PRUDENTIAL INVESTMENT
By:
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Vice President |
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
By:
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Vice President |
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ING LIFE INSURANCE AND ANNUITY COMPANY | ||
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By:
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Prudential Private Placement Investors, | |
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L.P. (as Investment Advisor) | |
By:
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Prudential Private Placement Investors, Inc. | |
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(as its General Partner) | |
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By:
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Vice President |
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UNITED OF OMAHA LIFE INSURANCE COMPANY | ||
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By:
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Prudential Private Placement Investors, | |
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L.P. (as Investment Advisor) | |
By:
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Prudential Private Placement Investors, Inc. | |
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(as its General Partner) | |
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By:
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Vice President |
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RELIASTAR LIFE INSURANCE COMPANY | ||
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By:
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Prudential Private Placement Investors, | |
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L.P. (as Investment Advisor) | |
By:
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Prudential Private Placement Investors, Inc. | |
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(as its General Partner) | |
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By:
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Vice President |
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MUTUAL OF OMAHA INSURANCE COMPANY | ||
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By:
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Prudential Private Placement Investors, | |
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L.P. (as Investment Advisor) | |
By:
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Prudential Private Placement Investors, Inc. | |
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(as its General Partner) |
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By:
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Vice President |
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INFORMATION SCHEDULE
Authorized Officers for Prudential
P. Scott von Fischer
Managing Director
Prudential Capital Group
Two Prudential Plaza, Suite 5600
Chicago, Illinois 60601
Telephone: (312) 540-4225
Facsimile: (312) 540-4222
Julia Buthman
Senior Vice President
Prudential Capital Group
Two Prudential Plaza, Suite 5600
Chicago, Illinois 60601
Telephone: (312) 540-4237
Facsimile: (312) 540-4222
Tan Vu
Vice President
Prudential Capital Group
Two Prudential Plaza, Suite 5600
Chicago, Illinois 60601
Telephone: (312) 540-5437
Facsimile: (312) 540-4222
Authorized Officers for Company
John Johnson
President and Chief Executive Officer
CHS Inc.
5500 Cenex Drive
Inver Grove Heights, MN 55077
Telephone: 651-355-3764
Facsimile: 651-355-6417
John Schmitz
Executive Vice President and Chief Financial Officer
CHS Inc.
5500 Cenex Drive
Inver Grove Heights, MN 55077
Telephone: 651-355-3778
Facsimile: 651-355-3743
PURCHASER SCHEDULE
Series F Notes
CHS INC.
Aggregate | ||||||
Principal | ||||||
Amount of | ||||||
Series F Notes | Note | |||||
to be Purchased
|
Denomination(s)
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|||||
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THE PRUDENTIAL INSURANCE COMPANY OF AMERICA | $7,500,000 | $7,500,00 |
(1) |
All payments on account of Series F Notes held by such purchaser
shall be made by wire transfer of immediately available funds for credit to: |
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Account No.: 890-0304-391
The Bank of New York New York , NY (ABA No.: 021-000-018) |
||||
Each such wire transfer shall set forth the name of the Company, a
reference to 4.08% Senior Notes due 2010, Security No. !INV 10504!, and the due date and application (as among principal, interest and Yield-Maintenance Amount) of the payment being made. |
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(2) | Address for all notices relating to payments: | |||
The Prudential Insurance Company of America
c/o Investment Operations Group Gateway Center Two, 10th Floor 100 Mulberry Street Newark, NJ 07102-4077 |
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Attention: Manager, Billings and Collections | ||||
(3) | Address for all other communications and notices: | |||
The Prudential Insurance Company of America
c/o Prudential Capital Group Two Prudential Plaza, Suite 5600 180 N. Stetson Ave. Chicago, IL 60601 |
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Attention: Managing Director |
1
(4) | Recipient of telephonic prepayment notices: | |||
Manager, Trade Management Group | ||||
Telephone: (973) 367-3141
Facsimile: (800) 224-2278 |
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(5) | Address for Delivery of Notes: | |||
Prudential Capital Group
Two Prudential Plaza, Suite 5600 180 N. Stetson Ave. Chicago, IL 60601 |
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Attention: Wiley S. Adams
Telephone: (312) 540-4204 |
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(6) | Tax Identification No.: 22-1211670 |
2
Aggregate | ||||||
Principal | ||||||
Amount of | ||||||
Series F Notes | Note | |||||
to be Purchased
|
Denomination(s)
|
|||||
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ING LIFE INSURANCE AND ANNUITY COMPANY | $3,750,000 | $3,750,000 |
(1) |
All principal, interest and Yield-Maintenance payments
on account of Series F Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: |
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The Bank of New York
ABA No.: 021-000-018 BNF: 1OC566 Attention: P&I Department Reference: ING Life Insurance and Annuity Company; Account No. 216101 |
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Each such wire transfer shall set forth the name of the Company,
a reference to 4.08% Senior Notes due 2010, and the due date and application (as among principal, interest and Yield-Maintenance Amount) of the payment being made. |
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(2) |
All payments, other than principal, interest or Yield-Maintenance,
on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: |
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The Bank of New York
ABA No.: 021-000-018 BNF 1OC565 Reference: ING Life Insurance and Annuity Company; Account No. 216101 |
||||
Each such wire transfer shall set forth the name of the Company,
a reference to 4.08% Senior Notes due 2010, and the due date and application (Type of Fee) of the payment being made. |
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(3) | Address for all notices relating to payments: | |||
ING Investment Management LLC
5780 Powers Ferry Road, NW, Suite 300 Atlanta, GA 30327-4943 |
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Attention: Securities Accounting | ||||
Facsimile: (770) 690-4886 |
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(4) | Address for all other communications and notices: | |||
Prudential Private Placement Investors, L.P.
4 Gateway Center, 100 Mulberry Street Newark, NJ 07102 |
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Attention: Albert Trank, Managing Director | ||||
Telephone: (973) 802-8608
Facsimile: (973) 624-6432 |
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(5) | Recipient of telephonic prepayment notices: | |||
Manager, Trade Management Group | ||||
Telephone: (973) 802-8107
Facsimile: (800) 224-2278 |
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(6) | Address for Delivery of Notes: |
(a) | Send Physical Security to: | |||
Bank of New York
1 WaIl Street 3rd Floor, Free Received Dept. New York, NY 10286 |
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Attention: Jerrick Smallwood
Telephone: (212) 635-4652 Facsimile: (212) 635-8844 |
||||
Please include in the cover letter accompanying the
Notes a reference to the Purchasers account number (ING Life Insurance and Annuity Company; Account Number: 216101) |
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(b) | Send copy via overnight mail to: | |||
Prudential Capital Group
Gateway Center 4 100 Mulberry, 7th Floor Newark, NJ 07102 |
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Attention: Trade Management, Manager
Telephone: (973) 367-3141 |
(7) | Tax Identification No.: 71-0294708 |
4
Aggregate | ||||||
Principal | ||||||
Amount of | ||||||
Series F Notes | Note | |||||
to be Purchased
|
Denomination(s)
|
|||||
UNITED OF OMAHA LIFE INSURANCE COMPANY | $3,750,000 | $3,750,000 |
(1) |
All principal, interest and Yield-Maintenance payments on
account of Series F Notes held by such purchaser shall be made by wire transfer of immediately available finds for credit to: |
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JPMorgan Chase Bank
ABA No. 02 1-000-021 Private Income Processing |
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For credit to:
United of Omaha Life Insurance Company Account No. 900-9000200 a/c: G09588 |
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Each such wire transfer shall set forth the name of the Company, a reference
to 4.08% Senior Notes due 2010, and the due date and application (as among principal, interest and Yield-Maintenance Amount) of the payment being made. |
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(2) |
All payments, other than principal, interest or Yield-Maintenance on,
account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: |
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JPMorgan Chase Bank
ABA No. 021-000-021 Account No. G09588 Account Name: United of Omaha Life Insurance Co. |
||||
Each such wire transfer shall set forth the name of the Company, a
reference to 4.08% Senior Notes due 2010, and the due date and application (Type of Fee) of the payment being made. |
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(3) | Address for all notices relating to payments: | |||
JPMorgan Chase Bank
14201 Dallas Parkway - 13th Floor Dallas, TX 75254-2917 |
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Attn: Income Processing - C. Ruiz
a/c: G09588 |
5
(4) | Address for all other communications and notices: | |||
Prudential Private Placement Investors, L.P.
4 Gateway Center, 100 Mulberry Street Newark, NJ 07102 |
||||
Attention: Albert Trank, Managing Director
Telephone: (973) 802-8608 Facsimile: (973) 624-6432 |
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(5) | Address for Delivery of Notes: |
(a) | Send Physical Security to: | |||
JP Morgan Chase
North America Insurance - 5th Floor 3 Chase Metrotech Center Brooklyn, NY 11245 |
||||
Attention: Patricia A. Radzicki
Telephone: (718) 242-8475 |
||||
Please include in the cover letter accompanying the | ||||
Notes a reference to the Purchasers account number (United of
Omaha Life Insurance Company; Account Number: G09588). |
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(b) | Send copy via overnight mail to: | |||
Prudential Capital Group
Gateway Center 4 100 Mulberry, 7th Floor Newark, NJ 07102 |
||||
Attention: Trade Management, Manager
Telephone: (973) 367-3141 |
(6) | Tax Identification No.: 47-0322111 |
6
PURCHASER SCHEDULE
Series G Notes
CHS INC.
Aggregate | ||||||
Principal | ||||||
Amount of | ||||||
Series G Notes | Note | |||||
to be Purchased
|
Denomination(s)
|
|||||
|
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA | $7,500,000 | $,7,500,000 |
(1) |
All payments on account of Series G Notes held by such
purchaser shall be made by wire transfer of immediately available funds for credit to: |
|||
Account No.: 890-0304-391
The Bank of New York New York, NY (ABA No.: 021-000-018 |
||||
Each such wire transfer shall set forth the name of the Company,
a reference to 4.39% Senior Notes due 2011, Security No. !INV 10511!, and the due date and application (as among principal, interest and Yield-Maintenance Amount) of the payment being made. |
||||
(2) | Address for all notices relating to payments: | |||
The Prudential Insurance Company of America
c/o Investment Operations Group Gateway Center Two, 10 th Floor 100 Mulberry Street Newark, NJ 07102-4077 |
||||
Attention: Manager, Billings and Collections | ||||
(3) | Address for all other communications and notices: | |||
The Prudential Insurance Company of America
c/o Prudential Capital Group Two Prudential Plaza, Suite 5600 180 N. Stetson Ave. Chicago, IL 60601 |
||||
Attention: Managing Director |
7
(4) | Recipient of telephonic prepayment notices: | |||
Manager, Trade Management Group | ||||
Telephone: (973) 367-3141
Facsimile: (800) 224-2278 |
||||
(5) | Address for Delivery of Notes: | |||
Prudential Capital Group
Two Prudential Plaza, Suite 5600 180 N. Stetson Ave. Chicago, IL 60601 |
||||
Attention: Wiley S. Adams
Telephone: (312) 540-4204 |
||||
(6) | Tax Identification No.: 22-1211670 |
8
Aggregate | ||||||
Principal | ||||||
Amount of | ||||||
Series G Notes | Note | |||||
to be Purchased
|
Denomination(s)
|
|||||
|
RELIASTAR LIFE INSURANCE COMPANY | $3,750,000 | $,3,750,000 |
(1) |
All principal, interest and Yield-Maintenance payments on
account of Series G Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: |
|||
The Bank of New York
ABA No.: 021-000-018 BNF: 1OC566/INSTL CUSTODY |
||||
Reference: ReliaStar Life Insurance Company; Account No. 187035 | ||||
Each such wire transfer shall set forth the name of the Company,
a reference to 4.39% Senior Notes due 2011, and the due date and application (as among principal, interest and Yield- Maintenance Amount) of the payment being made. |
||||
(2) |
All payments, other than principal, interest or Yield-
Maintenance, on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: |
|||
The Bank of New York
ABA No.: 021-000-018 BNF: IOC565/INSTL CUSTODY |
||||
Reference: ReliaStar Life Insurance Company; Account No.187035 | ||||
Each such wire transfer shall set forth the name of the Company,
a reference to 4.39% Senior Notes due 2011, and the due date and application (Type of Fee) of the payment being made. |
||||
(3) | Address for all notices relating to payments; | |||
ING Investment Management LLC
5780 Powers Ferry Road, NW, Suite 300 Atlanta, GA 30327-4943 |
||||
Attention: Securities Accounting | ||||
Facsimile: (770) 690-4886 |
9
(4) | Address for all other communications and notices: | |||
Prudential Private Placement Investors, L.P.
4 Gateway Center, 100 Mulberry Street Newark, NJ 07102 |
||||
Attention: Albert Trank, Managing Director | ||||
Telephone: (973 802-8608
Facsimile: (973) 624-6432 |
||||
(5) | Recipient of telephonic prepayment notices: | |||
Manager, Trade Management Group | ||||
Telephone: (973) 802-8107
Facsimile: (800) 224-2278 |
||||
(6) | Address for Delivery of Notes: |
(a) | Send Physical Security to: | |||
Bank of New York
1 Wall Street 3 rd Floor, Free Received Dept. New York, NY 10286 |
||||
Attention: Jerrick Smallwood
Telephone: (212) 635-4652 Facsimile: (212) 635-8844 |
||||
Please include in the cover letter accompanying the
Notes a reference to the Purchasers account number ([Account Name]; [Account Number]). |
||||
[Account Numbers: | ||||
Reliastar Life Insurance Company; Account
Number: 187035 |
||||
Reliastar Life Insurance Company Reinsurance
Business Account; Account Number: 301612] |
||||
(b) |
Send copy via overnight mail to:
Prudential Capital Group Gateway Center 4 100 Mulberry, 7 th Floor Newark, NJ 07102 |
|||
Attention: Trade Management, Manager
Telephone: (973)367-3141 |
(7) | Tax Identification No.: 41-0451140 |
10
Aggregate | ||||||
Principal | ||||||
Amount of | ||||||
Series G Notes | Note | |||||
to be Purchased
|
Denomination(s)
|
|||||
|
MUTUAL OF OMAHA INSURANCE COMPANY | $3,750,000 | $,3,750,000 |
(1) |
All principal, interest and Yield-Maintenance payments on
account of Series G Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: |
|||
JPMorgan Chase Bank
ABA No.: 021-000-021 Private Income Processing |
||||
For credit to:
Mutual of Omaha Insurance Company Account No. 900-9000200 a/c: G09587 |
||||
Each such wire transfer shall set forth the name of the Company,
a reference to 4.39% Senior Notes due 2011, and the due date and application (as among principal interest and Yield- Maintenance Amount) of the payment being made. |
||||
(2) |
All payments, other than principal, interest or Yield-
Maintenance, on account of Notes held by such purchaser shall be made by wire transfer of immediately available funds for credit to: |
|||
JPMorgan Chase Bank
ABA No.: 021-000-021 Account No.: G09587 Account Name: Mutual of Omaha Insurance Co. |
||||
Each such wire transfer shall set forth the name of the Company,
a reference to 4.39% Senior Notes due 2011, and the due date and application (Type of Fee) of the payment being made. |
||||
(3) | Address for all notices relating to payments: | |||
JP Morgan Chase Bank
14201 Dallas Parkway 13 th Floor Dallas, TX 75254-2917 |
||||
Attention: Income Processing G. Ruiz
a/c: G09587 |
11
(4) | Address for all other communications and notices: | |||
Prudential Private Placement Investors, L.P.
4 Gateway Center, 100 Mulberry Street Newark, NJ 07102 |
||||
Attention: Albert Trank, Managing Director | ||||
Telephone: (973) 802-8608
Facsimile: (973) 624-6432 |
||||
(5) | Address for Delivery of Notes: |
(a) | Send Physical Security to: | |||
JP Morgan Chase
North America Insurance 5 th Floor 3 Chase Metrotech Center Brooklyn, NY 11245 |
||||
Attention: Patricia A. Radzicki
Telephone: (718) 242-8475 |
||||
Please include in the cover letter accompanying
the Notes a reference to the Purchasers account number (United of Omaha Life Insurance Company; Account Number: G09588). |
||||
(b) | Send copy via overnight mail to: | |||
Prudential Capital Group
Gateway Center 4 100 Mulberry, 75h Floor Newark, NJ 07102 |
||||
Attention: Trade Management, Manager
Telephone: (973) 367-3141 |
(6) | Tax Identification No.: 47-0246511 |
12
EXHIBIT A-1
[FORM OF SERIES F NOTE]
CHS INC.
4.08% SERIES F SENIOR NOTE DUE APRIL 13, 2010
No.
|
[ Date ] | |
$
|
PPN |
FOR VALUE RECEIVED, the undersigned, CHS Inc., a nonstock agricultural cooperative corporation organized under the laws of the State of Minnesota formerly known as Cenex Harvest States Cooperatives (herein called the Company), hereby promises to pay to , or registered assigns, the principal sum of DOLLARS on April 13, 2010, with interest (computed on the basis of a 360-day year30-day month) (a) on the unpaid balance thereof at the rate of 4.08% per annum from the date hereof, payable quarterly on the 13th day of July, October, January and April in each year, commencing with the July 13, October 13, January 13 or April 13 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Yield-Maintenance Amount (as defined in the Note Agreement referred to below), payable quarterly as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 6.08% or (ii) 2.0% over the rate of interest publicly announced by The Bank of New York from time to time in New York City as its Prime Rate.
Payments of principal of, interest on and any Yield-Maintenance Amount payable with respect to this Note are to be made at the main office of The Bank of New York in New York City or at such other place as the holder hereof shall designate to the Company in writing, in lawful money of the United States of America.
This Note is one of a series of Series F Senior Notes (herein called the Notes) issued pursuant to a Note Purchase and Private Shelf Agreement, dated as of April 13, 2004 (herein called the Agreement), among the Company, on one hand, and Prudential Investment Management, Inc., the Initial Purchasers named in the Purchaser Schedule attached thereto and each Prudential Affiliate which becomes party thereto, on the other hand, and is entitled to the benefits thereof.
This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holders attorney duly authorized in writing, a new Note for the then outstanding principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the
A-1-1
purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement.
Capitalized terms used and not otherwise defined herein shall have the meanings (if any) provided in the Agreement.
This Note is intended to be performed in the State of Illinois and shall be construed and enforced in accordance with the laws of such State.
CHS INC. | ||||
By: | ||||
|
||||
Title: | ||||
|
A-1-2
EXHIBIT A-2
[FORM OF SERIES G NOTE]
CHS INC.
4.39% SERIES G SENIOR NOTE DUE APRIL 13, 2011
No.
|
[ Date ] | |
$
|
PPN |
FOR VALUE RECEIVED, the undersigned, CHS Inc., a nonstock agricultural cooperative corporation organized under the laws of the State of Minnesota formerly known as Cenex Harvest States Cooperatives (herein called the Company), hereby promises to pay to , or registered assigns, the principal sum of DOLLARS on April 13, 2011, with interest (computed on the basis of a 360-day year30-day month) (a) on the unpaid balance thereof at the rate of 4.39% per annum from the date hereof, payable quarterly on the 13th day of July, October, January and April in each year, commencing with the July 13, October 13, January 13 or April 13 next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Yield-Maintenance Amount (as defined in the Note Agreement referred to below), payable quarterly as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 6.39% or (ii) 2.0% over the rate of interest publicly announced by The Bank of New York from time to time in New York City as its Prime Rate.
Payments of principal of, interest on and any Yield-Maintenance Amount payable with respect to this Note are to be made at the main office of The Bank of New York in New York City or at such other place as the holder hereof shall designate to the Company in writing, in lawful money of the United States of America.
This Note is one of a series of Series G Senior Notes (herein called the Notes) issued pursuant to a Note Purchase and Private Shelf Agreement, dated as of April 13, 2004 (herein called the Agreement), among the Company, on one hand, and Prudential Investment Management, Inc., the Initial Purchasers named in the Purchaser Schedule attached thereto and each Prudential Affiliate which becomes party thereto, on the other hand, and is entitled to the benefits thereof.
This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holders attorney duly authorized in writing, a new Note for the then outstanding principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the
A-2-1
purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement.
Capitalized terms used and not otherwise defined herein shall have the meanings (if any) provided in the Agreement.
This Note is intended to be performed in the State of Illinois and shall be construed and enforced in accordance with the laws of such State.
CHS INC. | ||||
By: | ||||
|
||||
Title: | ||||
|
A-2-2
EXHIBIT A-3
[FORM OF SHELF NOTE]
CHS INC.
SENIOR SERIES NOTE
No.
ORIGINAL PRINCIPAL AMOUNT:
ORIGINAL ISSUE DATE:
INTEREST RATE:
INTEREST PAYMENT DATES:
FINAL MATURITY DATE:
PRINCIPAL PREPAYMENT DATES AND AMOUNTS:
FOR VALUE RECEIVED, the undersigned, CHS Inc. (herein called the Company), a nonstock agricultural cooperative corporation organized and existing under the laws of the State of Minnesota formerly known as Cenex Harvest States Cooperatives, hereby promises to pay to , or registered assigns, the principal sum of DOLLARS [on the Final Maturity Date specified above] [, payable on the Principal Prepayment Dates and in the amounts specified above, and on the Final Maturity Date specified above in an amount equal to the unpaid balance of the principal hereof,] with interest (computed on the basis of a 360-day year30-day month) (a) on the unpaid balance thereof at the Interest Rate per annum specified above, payable on each Interest Payment Date specified above and on the Final Maturity Date specified above, commencing with the Interest Payment Date next succeeding the date hereof, until the principal hereof shall have become due and payable, and (b) on any overdue payment (including any overdue prepayment) of principal, any overdue payment of Yield Maintenance Amount and any overdue payment of interest, payable on each Interest Payment Date as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to the greater of (i) 2% over the Interest Rate specified above or (ii) 2% over the rate of interest publicly announced by Bank of New York from time to time in New York City as its Prime Rate.
Payments of principal, Yield Maintenance Amount, if any, and interest are to be made at the main office of Bank of New York in New York City or at such other place as the holder hereof shall designate to the Company in writing, in lawful money of the United States of America.
This Note is one of a series of Senior Notes (herein called the Notes) issued pursuant to a Note Purchase and Private Shelf Agreement, dated as of April 13, 2004 (herein called the Agreement), between the Company, on the one hand, and Prudential Investment Management, Inc., the Initial Purchasers named in the Purchaser Schedule attached thereto and each Prudential Affiliate (as defined in the Agreement) which becomes party thereto, on the other hand, and is entitled to the benefits thereof.
A-3-1
This Note is subject to optional prepayment, in whole or from time to time in part, on the terms specified in the Agreement.
This Note is a registered Note and, as provided in the Agreement, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holders attorney duly authorized in writing, a new Note for the then outstanding principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company shall not be affected by any notice to the contrary.
In case an Event of Default shall occur and be continuing, the principal of this Note may be declared or otherwise become due and payable in the manner and with the effect provided in the Agreement.
Capitalized terms used and not otherwise defined herein shall have the meanings (if any) provided in the Agreement.
This Note is intended to be performed in the State of Illinois and shall be construed and enforced in accordance with the laws and decisions of such State.
CHS INC. | ||||
By: | ||||
|
||||
Title: | ||||
|
A-3-2
EXHIBIT B
[FORM OF DISBURSEMENT DIRECTION LETTER]
CHS INC.
[On Company Letterhead place on one page]
[Date]
[Names and Addresses of
Initial Purchasers]
|
Re: |
4.08% Series F Senior Notes due April 13, 2010 and
4.39% Series G Senior Notes due April 13, 2011 (collectively, the Notes) |
Ladies and Gentlemen:
Reference is made to that certain Note Purchase and Private Shelf Agreement (the Note Agreement), dated April 13, 2004, between CHS Inc. (the Company), Prudential Investment Management, Inc., and you. Capitalized terms used herein shall have the meanings assigned to such terms in the Note Agreement.
You are hereby irrevocably authorized and directed to disburse the $30,000,000 purchase price of the Notes by wire transfer of immediately available funds to [bank name and address], ABA # , for credit to the account of , account no. .
Disbursement when so made shall constitute payment in full of the purchase price of the Notes and shall be without liability of any kind whatsoever to you.
Very truly yours, | ||||
CHS INC. | ||||
By: | ||||
|
||||
Title: | ||||
|
B-1
EXHIBIT C
[FORM OF REQUEST FOR PURCHASE]
CHS INC.
Reference is made to the Note Purchase and Private Shelf Agreement (the Agreement), dated as of April 13, 2004, between CHS Inc. (the Company), on the one hand, and Prudential Investment Management, Inc. (Prudential), the Initial Purchasers named in the Purchaser Schedule attached thereto and each Prudential Affiliate which becomes party thereto, on the other hand. Capitalized terms used and not otherwise defined herein shall have the respective meanings specified in the Agreement.
Pursuant to Paragraph 2B(3) of the Agreement, the Company hereby makes the following Request for Purchase:
1. |
Aggregate principal amount of
the Notes covered hereby the Notes) $ 1 |
2. | Individual specifications of the Notes: |
3. | Use of proceeds of the Notes: |
4. | Proposed day for the closing of the purchase and sale of the Notes: |
5. | The purchase price of the Notes is to be transferred to: |
1 Minimum principal amount of $10,000,000. |
C-1
6. | The Company certifies (a) that the representations and warranties contained in paragraph 8 of the Agreement are true on and as of the date of this Request for Purchase except to the extent of changes caused by the transactions contemplated in the Agreement and (b) that there exists on the date of this Request for Purchase no Event of Default or Default. | |||
7. | The Issuance Fee to be paid pursuant to the Agreement will be paid by the Company on the closing date. |
Dated:
|
CHS INC. | ||||
|
|||||
|
By: | ||||
|
|
||||
|
Authorized Officer |
C-2
EXHIBIT D
[FORM OF CONFIRMATION OF ACCEPTANCE]
CHS INC.
Reference is made to the Note Purchase and Private Shelf Agreement (the Agreement), dated as of April 13, 2004 between CHS Inc. (the Company), on the one hand, and Prudential Investment Management, Inc. (Prudential), the Initial Purchasers named in the Purchaser Schedule attached thereto and each Prudential Affiliate which becomes party thereto, on the other hand. All terms used herein that are defined in the Agreement have the respective meanings specified in the Agreement.
The Prudential Affiliate which is named below as a Purchaser of Notes hereby confines the representations as to such Notes set forth in paragraph 9 of the Agreement, and agrees to be bound by the provisions of paragraphs 2B(5) and 2B(7) of the Agreement relating to the purchase and sale of such Notes and by the provisions of the penultimate sentence of paragraph 11A of the Agreement.
Pursuant to paragraph 2B(5) of the Agreement, an Acceptance with respect to the following Accepted Notes is hereby confirmed:
I. | Accepted Notes: Aggregate principal amount $_______________ |
D-1
II. | Issuance Fee: | |||
III. | Closing Day: |
Dated:
|
CHS INC. | |||
|
||||
|
By:
|
|||
|
Title:
|
|||
|
||||
|
[PRUDENTIAL AFFILIATE] | |||
|
||||
|
By:
|
|||
|
Vice President |
D-2
EXHIBIT E-1
[FORM OF OPINION OF COMPANYS COUNSEL]
[Letterhead of General Counsel ]
, 2004
The Prudential Insurance Company of America
[Pruco Life Insurance Company]
[U.S. Private Placement Fund]
c/o Prudential Capital Group
Two Prudential Plaza
Suite 5600
Chicago, Illinois 60601
Ladies and Gentlemen:
I am general counsel of CHS Inc., a nonstock agricultural cooperative corporation formerly known as Cenex Harvest States Cooperatives (the Company), in connection with the Note Purchase and Private Shelf Agreement, dated as April 13, 2004 (the Agreement) between the Company, on one hand, and Prudential Investment Management, Inc., the Initial Purchasers named in the Purchaser Schedule attached thereto and each Prudential Affiliate which becomes a party thereto, on the other hand, pursuant to which the Company has issued to you today its 4.08% Senior Series F Notes in the aggregate principal amount of $15,000,000 and 4.39% Senior Series G Notes in the aggregate principal amount of $15,000,000 (collectively, the Notes). Capitalized terms used and not otherwise defined herein shall have the meanings provided in the Agreement. This letter is being delivered to you in satisfaction of the condition set forth in paragraph 3A(iii) of the Agreement and with the understanding that you are purchasing the Notes in reliance on the opinions expressed herein.
In this connection, I have examined such certificates of public officials, certificates of officers of the Company and copies certified to my satisfaction of corporate documents and records of the Company and of other papers, and have made such other investigations, as I have deemed relevant and necessary as a basis for my opinion hereinafter set forth. I have relied upon such certificates of public officials and of officers of the Company with respect to the accuracy of material factual matters contained therein which were not independently established. With respect to the opinion expressed in paragraph 3 below, I have also relied upon the representation made by you in paragraph 9A of the Agreement. For purposes of this opinion, I have assumed that you have all requisite power and authority and have taken all necessary action to execute and deliver the Agreement and to effect the transactions contemplated thereby.
Based on the foregoing, it is my opinion that:
1. The Company is a nonstock agricultural cooperative corporation duly organized and validly existing and in good standing under the laws of the State of Minnesota. The Company has the corporate power to carry on its business as now being conducted.
E-1-1
2. The Agreement and the Notes have been duly authorized by all requisite corporate action and duly executed and delivered by authorized officers of the Company, and are valid obligations of the Company, legally binding upon and enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
3. It is not necessary in connection with the offering, issuance, sale and delivery of the Notes under the circumstances contemplated by the Agreement to register the Notes under the Securities Act or to qualify an indenture in respect of the Notes under the Trust Indenture Act of 1939, as amended.
4. The extension, arranging and obtaining of the credit represented by the Notes do not result in any violation of regulation U, T or X of the Board of Governors of the Federal Reserve System.
5. The execution and delivery of the Agreement and the Notes, the offering, issuance and sale of the Notes and fulfillment of and compliance with the respective provisions of the Agreement and the Notes do not conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company pursuant to, or require any authorization, consent, approval, exemption, or other action by or notice to or filing with any court, administrative or governmental body or other Person (other than routine filings after the date hereof with the Securities and Exchange Commission and/or state Blue Sky authorities) pursuant to, the Articles of Incorporation or by-laws of the Company, any applicable law (including any securities or Blue Sky law), statute, rule or regulation or to our knowledge any agreement (including, without limitation, any agreement listed in Schedule 8G to the Agreement), instrument, order, judgment or decree to which the Company is a party or otherwise subject.
I am a member of the Bar of the State of Minnesota, and the opinions expressed herein are based upon and are limited exclusively to the laws of that state and the Federal laws of the United States of America. For purposes of the opinion given in paragraph 2, I have assumed with your permission that the laws of the State of Illinois are the same in all material respects as the laws of the State of Minnesota. The foregoing opinion is for the benefit of and may be relied upon only by you and Transferees permitted by the Agreement.
Very truly yours,
E-1-2
EXHIBIT E-2
[FORM OF OPINION OF COMPANYS COUNSEL]
[Letterhead of General Counsel ]
[Date of Closing]
[List Purchasers]
c/o Prudential Capital Group
Two Prudential Plaza
Suite 5600
Chicago, Illinois 60601
Ladies and Gentlemen:
I am the general counsel of CHS Inc., a nonstock agricultural cooperative corporation organized under the laws of Minnesota formerly known as Cenex Harvest States Cooperatives (the Company), in connection with the Note Purchase and Private Shelf Agreement, dated as April 13, 2004 (the Agreement) between the Company, on the one hand, and Prudential Investment Management, Inc., the Initial Purchasers named in the Purchaser Schedule attached thereto and each Prudential Affiliate which becomes a party thereto, on the other hand, pursuant to which the Company has issued to you today Senior Series Notes of the Company in the aggregate principal amount of $ (the Notes). Capitalized terms used and not otherwise defined herein shall have the meanings provided in the Agreement. This letter is being delivered to you in satisfaction of the condition set forth in paragraph 3A(iii) of the Agreement and with the understanding that you are purchasing the Notes in reliance on the opinions expressed herein.
In this connection, I have examined such certificates of public officials, certificates of officers of the Company and copies certified to my satisfaction of corporate documents and records of the Company and of other papers, and have made such other investigations, as I have deemed relevant and necessary as a basis for my opinion hereinafter set forth. I have relied upon such certificates of public officials and of officers of the Company with respect to the accuracy of material factual matters contained therein which were not independently established. With respect to the opinion expressed in paragraph 3 below, I have also relied upon the representation made by you in paragraph 9A of the Agreement. For purposes of this opinion, I have assumed that you have all requisite power and authority and have taken all necessary action to execute and deliver the Agreement and to effect the transactions contemplated thereby.
Based on the foregoing, it is my opinion that:
E-2-1
1. The Company is a nonstock agricultural cooperative corporation duly organized and validly existing and in good standing under the laws of the State of Minnesota. The Company has the corporate power to carry on its business as now being conducted.
2. The Agreement and the Notes have been duly authorized by all requisite corporate action and duly executed and delivered by authorized officers of the Company, and are valid obligations of the Company, legally binding upon and enforceable against the Company in accordance with their respective terms, except as such enforceability may be limited by (a) bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law).
3. It is not necessary in connection with the offering, issuance, sale and delivery of the Notes under the circumstances contemplated by the Agreement to register the Notes under the Securities Act or to qualify an indenture in respect of the Notes under the Trust Indenture Act of 1939, as amended.
4. The extension, arranging and obtaining of the credit represented by the Notes do not result in any violation of regulation U, T or X of the Board of Governors of the Federal Reserve System.
5. The execution and delivery of the Agreement and the Notes, the offering, issuance and sale of the Notes and fulfillment of and compliance with the respective provisions of the Agreement and the Notes do not conflict with, or result in a breach of the terms, conditions or provisions of, or constitute a default under, or result in any violation of, or result in the creation of any Lien upon any of the properties or assets of the Company pursuant to, or require any authorization, consent, approval, exemption, or other action by or notice to or filing with any court, administrative or governmental body or other Person (other than routine filings after the date hereof with the Securities and Exchange Commission and/or state Blue Sky authorities) pursuant to, the Articles of Incorporation or by-laws of the Company, any applicable law (including any securities or Blue Sky law), statute, rule or regulation or to my knowledge any agreement (including, without limitation, any agreement listed in Schedule 8G to the Agreement), instrument, order, judgment or decree to which the Company is a party or otherwise subject.
I am a member of the Bar of the State of Minnesota, and the opinions expressed herein are based upon and are limited exclusively to the laws of that state and the Federal laws of the United States of America. For purposes of the opinion given in paragraph 2, I have assumed with your permission that the laws of the State of Illinois are the same in all material respects as the laws of the State of Minnesota. The foregoing opinion is for the benefit of and may be relied upon only by you and Transferees permitted by the Agreement.
Very truly yours,
E-2-2
SCHEDULE 6D
LIST OF EXISTING LIENS
SCHEDULE 8G
AGREEMENTS RESTRICTING DEBT
The following loan agreements restrict the Company from incurring additional indebtedness. However, the indebtedness insured under the Note Purchase and Private Shelf Agreement is permitted to be incurred by the Company pursuant to exceptions as noted:
1. | Note Agreement to provide for $225,000,000 6.81% Series A Senior Notes due June 19, 2013 dated June 19, 1998. Exception provided by section 6B(iv). | |||
2. | $200,000,000 Term Loan Agreement dated June 1, 1998. Exception provided by section 10.1(g). | |||
3. | Note Purchase and Private Shelf Agreement for $25,000,000 7.90% Series B Senior Notes due January 10, 2001 and $55,000,000 Private Shelf Facility dated as of January 10, 2001. Exceptions provided by sections 6B(2) and 6B(3). | |||
4. | Note Purchase Agreement dated as of October 18, 2002 for $115,000,000 4.96% Series D Notes due October 18, 2012 and $60,000,000 5.60% Series E Senior Notes due October 18, 2017. Exceptions provided by sections 10.3 and 10.4. | |||
5. | $600,000,000 364-day Revolving Loan and $100,000,000 3-year Revolving Loan Agreement dated May 21, 2003. Exception provided by section 13.1(g). |
CERTIFICATION PURSUANT TO SECTION 302 OF
THE
I, John D. Johnson, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of CHS Inc.;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying
officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation of internal controls over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
a. designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
b. evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c. disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants
internal control over financial reporting; and
a. all significant deficiencies and material
weaknesses in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process,
summarize and report financial information; and
b. any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal control over financial
reporting.
/s/ JOHN D. JOHNSON
John D. Johnson
President and Chief Executive
Officer
Date: July 12, 2004
CERTIFICATION PURSUANT TO SECTION 302 OF
THE
I, John Schmitz, certify that:
1. I have reviewed this quarterly report on
Form 10-Q of CHS Inc.;
2. Based on my knowledge, this report does
not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were
made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial
statements, and other financial information included in this
report, fairly present in all material respects the financial
condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrants other certifying
officer(s) and I are responsible for establishing and
maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
5. The registrants other certifying
officers and I have disclosed, based on our most recent
evaluation of internal controls over financial reporting, to the
registrants auditors and the audit committee of the
registrants board of directors (or persons performing the
equivalent functions):
a. designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material
information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
report is being prepared;
b. evaluated the effectiveness of the
registrants disclosure controls and procedures and
presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and
c. disclosed in this report any change in
the registrants internal control over financial reporting
that occurred during the registrants most recent fiscal
quarter (the registrants fourth fiscal quarter in the case
of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrants
internal control over financial reporting; and
a. all significant deficiencies and material
weaknesses in the design or operation of internal controls over
financial reporting which are reasonably likely to adversely
affect the registrants ability to record, process,
summarize and report financial information; and
b. any fraud, whether or not material, that
involves management or other employees who have a significant
role in the registrants internal control over financial
reporting.
/s/ JOHN SCHMITZ
John Schmitz
Executive Vice President and Chief Financial
Officer
Date: July 12, 2004
CERTIFICATION PURSUANT TO
In connection with the Quarterly Report of CHS
Inc. (the Company) on Form 10-Q for the
quarterly period ended May 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the
Report), I, John D. Johnson, President and
Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the
requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report
fairly presents, in all material respects, the financial
condition and result of operations of the Company.
/s/ JOHN D. JOHNSON
John D. Johnson
President and Chief Executive
Officer
July 12, 2004
CERTIFICATION PURSUANT TO
In connection with the Quarterly Report of CHS
Inc. (the Company) on Form 10-Q for the
quarterly period ended May 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the
Report), I, John Schmitz, Executive Vice
President and Chief Financial Officer of the Company, certify,
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that:
(1) The Report fully complies with the
requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report
fairly presents, in all material respects, the financial
condition and result of operations of the Company.
/s/ JOHN SCHMITZ
John Schmitz
Executive Vice President and Chief Financial
Officer
July 12, 2004