EXHIBIT 10.20
LIMITED LIABILITY COMPANY AGREEMENT
OF
COUNTRY ENERGY, LLC
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS 1
1.1 Terms Defined in the Act 1
1.2 Terms Defined Herein 1
1.3 Other Definitional Provisions. 13
ARTICLE II BUSINESS PURPOSE 13
2.1 Name; Business Purpose 13
2.2 Powers 14
2.3 Registered Office and Registered Agent 14
2.4 Amendment of the Certificate 14
2.5 Effective Date 14
2.6 Agreement to Finalize Certain Operative Documents 14
2.7 Due Diligence 14
2.8 Liability of Members 15
2.9 Authority; Investment Intent; Restriction Against Transfer 15
2.10 Business Plan 15
2.11 Risk Management Policy 16
2.12 Representations Regarding 1997 Sales Figures 16
ARTICLE III CAPITALIZATION 16
3.1 Initial Contributions 16
3.2 Capital Calls 17
3.3 Defaults on Initial Contributions or Capital Calls 17
3.4 Capital Accounts. 19
3.5 Capital Withdrawal Rights, Interest and Priority 20
3.6 Loans 20
ARTICLE IV ALLOCATIONS AND DISTRIBUTIONS 21
4.1 Non-Liquidating Cash Distributions 21
4.2 Liquidation Distributions 21
4.3 Profits, Losses and Distributive Shares of Tax Items 22
4.4 Allocation of Income, Loss and Credits 22
4.5 Special Rules Regarding Allocations 22
4.6 Preferred Return 25
4.7 Withholding of Distributions 25
4.8 No Priority 25
4.9 Tax Withholding 25
4.10 Reserves 25
4.11 Setoff 26
ARTICLE V MANAGEMENT AND OPERATIONS 26
5.1 Management 26
5.2 Co-Presidents/President 27
5.3 Officers and Employees 28
5.4 Agency 29
5.5 Agency Fee 29
5.6 Sales Split 29
5.7 Exchange Agreements 31
5.8 Management Services 31
5.9 Lease of Office Space 31
5.10 Contracts with Members or their Affiliates 31
5.11 Other Business Ventures 31
5.12 Competition 32
5.13 Confidentiality 32
5.14 Truck Transportation 32
5.15 Claims Arising from the Sale of Energy Products 32
5.16 Execution of Documents Filed with Secretary of State of
Delaware 33
5.17 Liability and Indemnification 33
ARTICLE VI ACCOUNTING AND BANK ACCOUNTS 36
6.1 Fiscal Year 36
6.2 Books and Records 37
6.3 Financial Reports 37
6.4 Tax Returns and Elections; Tax Matters Member 37
6.5 Section 754 Election 38
6.6 Bank Accounts 38
ARTICLE VII TRANSFERS OF INTERESTS 38
7.1 Prohibition on Transfer 38
7.2 Involuntary Transfers 38
7.3 Substitute Member 39
7.4 Binding on Transferee 39
ARTICLE VIII DISPUTE RESOLUTION 39
8.1 General Management Issues 39
8.2 Business Issues and Legal Issues 40
ARTICLE IX DISSOLUTION AND TERMINATION 41
9.1 Events Causing Dissolution 41
9.2 Effect of Dissolution 43
9.3 Plan of Liquidation 43
9.4 Application of Proceeds 44
9.5 Continuing Obligations 44
ARTICLE X MISCELLANEOUS 44
10.1 Title to Assets 44
10.2 Nature of Interest in the Company 44
10.3 Notices 44
10.4 Waiver of Default 44
10.5 No Third Party Rights 45
10.6 Entire Agreement 45
10.7 Amendments to this Agreement 45
10.8 Severability 45
10.9 Binding Agreement 45
10.10 Headings 45
10.11 Counterparts 45
10.12 Governing Law 46
SCHEDULES:
Schedule 2.12(a)
Schedule 2.12(b)
Schedule 5.6(d)
EXHIBITS:
Exhibit A Asset Contribution Agreements
Exhibit B Management Services Agreements
Exhibit C Personnel Lease Agreements
Exhibit D Agency Agreements
Exhibit E Exchange Agreements
Exhibit F Office Lease Agreements
LIMITED LIABILITY COMPANY AGREEMENT
OF
COUNTRY ENERGY, LLC
THIS LIMITED LIABILITY COMPANY AGREEMENT is entered into as of June 29,
1998, by Cenex Harvest States Cooperatives, a Minnesota cooperative corporation
("CHS") and Farmland Industries, Inc., a Kansas cooperative corporation
("Farmland") (each, a "Member," and collectively, the "Members").
RECITAL
The Members have caused Country Energy, LLC (the "Company") to be
formed under the Delaware Limited Liability Company Act for the following
purposes: (a) to serve as the exclusive agent for the Members for (i) the
marketing, sales and distribution of Energy Products to Customers, (ii) the
invoicing and collection of receivables arising from the sale of Energy Products
to Customers and (iii) the purchasing of Energy Products; and (b) to perform all
acts necessary and incidental to the foregoing. The Members adopt this Agreement
as the Limited Liability Company Agreement of the Company as contemplated in the
Delaware Limited Liability Company Act.
AGREEMENT
In consideration of the foregoing and the mutual covenants and promises
contained herein, the Members agree as follows:
ARTICLE I
DEFINITIONS
1.1 Terms Defined in the Act. Unless defined specifically herein, terms
relating to a limited liability company shall have the meanings given in the
Delaware Limited Liability Company Act.
1.2 Terms Defined Herein. As used herein, the following terms shall
have the following meanings, unless the context otherwise specifies:
"ACT" means the Delaware Limited Liability Company Act, as
amended from time to time.
"ADJUSTED CAPITAL ACCOUNT DEFICIT" means, with respect to each
Member, the deficit balance, if any, in such Member's Capital Account
as of the end of the relevant fiscal year, after giving effect to the
following adjustments: (i) increased for any amounts such Member is
unconditionally obligated to restore and the amount of such Member's
share of Company Minimum Gain and Member Minimum Gain after taking into
account any changes during such year; and (ii) reduced by the items
described in Treasury Regulations ss. 1.704-1(b)(2)(ii)(d)(4), (5) and
(6).
"AFFILIATE" of a Person means an entity which controls, is
controlled by or is under common control with such Person.
"AGENCY AGREEMENT" means an agreement between the Company and
a Member in the form attached as Exhibit D, pursuant to which the
Company will serve as the exclusive agent for the Member for (i) the
marketing, sales and distribution of Energy Products to Customers, (ii)
the invoicing and collection of receivables arising from the sale of
Energy Products to Customers, and (iii) the purchasing of Energy
Products.
"AGENCY FEE" means the fee to be paid to the Company by each
Member as compensation for serving as such Member's agent pursuant to
the Agency Agreement.
"AGENCY FEE PERCENTAGE" means, for each fiscal year or other
period, with respect to a Member, the total amount of Agency Fees
payable to the Company by such Member with respect to such period
divided by the total amount of Agency Fees payable to the Company by
all Members with respect to such period, multiplied by 100.
"AGREEMENT" means this Limited Liability Company Agreement of
Country Energy, LLC, as amended from time to time.
"ANNUAL CAPITAL BUDGET" shall have the meaning set forth in
Section 2.10.
"ANNUAL OPERATING BUDGET" shall have the meaning set forth in
Section 2.10.
"ASSET CONTRIBUTION AGREEMENT" means an agreement between the
Company and a Member in the form attached hereto as Exhibit A, pursuant
to which such Member shall make its Initial Contribution to the
Company.
"AVAILABLE CASH" means the aggregate amount of cash on hand or
in bank, money market or similar accounts of the Company as of the end
of each fiscal year derived from any source (other than Capital
Contributions and Liquidation Proceeds) that the Members determine is
available for Distribution to the Members after taking into account any
amount required or appropriate to maintain a reasonable amount of
Reserves.
"BANKRUPTCY" means, with respect to any Person, the entry of
an order for relief against such Person or the voluntary filing for
relief by such Person under the Federal Bankruptcy Code.
"BRANDED FUEL" means Refined Fuel that is sold by a Member in
truckload or smaller quantities (i) to members of such Member on a
patronage basis, (ii) to AMPRIDE non-member dealers or (iii) to CHS
owned or direct brand non-member dealers.
"BRANDED FUEL BASE FEE" means the fee to be paid to the
Company by each Member for each gallon of Branded Fuel sold by the
Company as an agent for such Member, which fee shall be as set forth in
the Business Plan.
"BRANDED LUBE OIL" means gallons of Lube Oil packaged and sold
in a container bearing the Cenex or Farmland logo and bulk gallons of
Lube Oil sold under the Cenex or Farmland logo, irrespective of
patronage treatment by the Members; provided, however, that for
purposes of this Agreement, the SF Services logo will be considered a
Farmland logo in the event that the proposed merger between Farmland
and SF Services, Inc. is consummated.
"BRANDED LUBE OIL BASE FEE" means the fee to be paid to the
Company by each Member for each gallon of Branded Lube Oil sold by the
Company as an agent for such Member, which fee shall be as set forth in
the Business Plan.
"BUSINESS DAY" means any day other than: (a) a Saturday or
Sunday; (b) any of the following holidays: Christmas Day, New Year's
Day, Memorial Day Holiday, Independence Day, Labor Day Holiday,
Thanksgiving Day and the Friday following Thanksgiving Day; or (c) with
respect to a Member receiving any Notice required or permitted
hereunder, a day on which such Member's offices are closed.
"BUSINESS ISSUE" means a dispute between the Members that
involves the failure to reach agreement with respect to (i) a Business
Plan, or any portion thereof (including an Annual Operating Budget or
an Annual Capital Budget), or (ii) the election of the Co-Presidents or
the President.
"BUSINESS ISSUE EXPIRATION DATE" means, in the event a
Business Issue shall arise during the term of this Agreement, that date
on which the previous agreement between the Members with respect to
such Business Issue expires, which shall be, as applicable, the
expiration date of the then current Business Plan or the date that is
three years from the date the Co-Presidents or the President was last
elected by the Members.
"BUSINESS PLAN" means any business plan adopted by the Members
pursuant to Section 2.10.
"CAPITAL ACCOUNT" means the separate account established and
maintained by the Company for each Member pursuant to Section 3.4.
"CAPITAL CALL" shall have the meaning set forth in Section
3.2.
"CAPITAL CONTRIBUTION" means, with respect to each Member, the
total amount of cash and the Fair Value of Contributed Assets
contributed by such Member (or such Member's predecessor-in-interest)
to the capital of the Company for such Member's Interest.
"CHS" means Cenex Harvest States Cooperatives, a Minnesota
cooperative corporation.
"CHS BASE LINE VOLUME" means the base line sales volume of CHS
with respect to a Product Line, as determined in accordance with the
provisions of Section 5.6.
"CERTIFICATE" means the Certificate of Formation of the
Company filed with the Secretary of State of Delaware, as amended from
time to time.
"CHANGE IN CONTROL" means, with respect to a Member, (a) any
merger, consolidation, sale of all or substantially all of the assets
or similar transaction as a result of which a majority of the directors
of such Member no longer constitutes a majority of the directors of the
surviving entity, (b) the liquidation or dissolution of such Member,
(c) entering into any Bankruptcy, insolvency or other proceeding
whereby such Member seeks protection from its creditors or (d) any
public offering or other transaction, as a result of which such Member
ceases to be organized under the cooperative form of organization.
"CODE" means the Internal Revenue Code of 1986, as amended
from time to time, or the corresponding provisions of future laws.
"COMPANY" means Country Energy, LLC, a Delaware limited
liability company.
"COMPANY MINIMUM GAIN" shall have the same meaning as the term
"partnership minimum gain" set forth in Treasury Regulation ss.
1.704-2(d)(1). Company Minimum Gain shall be determined, first, by
computing for each Nonrecourse Debt any gain that the Company would
realize if the Company disposed of the property subject to that
liability for no consideration other than full satisfaction of such
liability and, then, aggregating the separately computed gains. For
purposes of computing gain, the Company shall use the basis of such
property that is used for purposes of determining the amount of the
Capital Accounts under Section 3.4. In any taxable year in which a
Revaluation occurs, the net increase or decrease in Company Minimum
Gain for such taxable year shall be determined by: (a) calculating the
net decrease or increase in Company Minimum Gain using the current
year's book value and the prior year's amount of Company Minimum Gain;
and (b) adding back any decrease in Company Minimum Gain arising solely
from the Revaluation.
"COMPANY'S BUSINESS" shall have the meaning set forth in
Section 2.1.
"CONTRIBUTED ASSETS" of a Member shall have the meaning
assigned in the Asset Contribution Agreement between such Member and
the Company.
"CREDITS" means all tax credits allowed by the Code with
respect to activities of the Company or the Property.
"CUSTOMERS" means customers of any Member for Energy Products,
including customers that are local cooperatives that are members or
patrons of one or more Members, independent dealers and other
purchasers of Energy Products.
"DEDICATED EMPLOYEES" means employees of any Member assigned
to fill specific work positions of the Company in accordance with the
terms of a Personnel Lease Agreement.
"DEFAULT" shall have the meaning set forth in Section 3.3(a).
"DEFAULT DATE" shall have the meaning set forth in Section
3.3(b).
"DEFAULT NOTICE" shall have the meaning set forth in Section
3.3(a).
"DEFAULTED AMOUNT" shall have the meaning set forth in Section
3.3(b).
"DEFAULTING MEMBER" shall have the meaning set forth in
Section 3.3(b).
"DISTRIBUTIONS" means any distributions by the Company to the
Members of Available Cash, Liquidation Proceeds or other amounts.
"EFFECTIVE DATE" means September 1, 1998.
"EMERGENCY SITUATION" means an unforeseen situation in which
immediate action is necessary to prevent personal injury or substantial
property damage.
"ENERGY PRODUCTS" means Refined Fuels, Lubricants and Propane.
"EXCHANGE AGREEMENTS" means the agreements among the Members
and the Company in the forms attached hereto as Exhibit E, pursuant to
which the Members shall exchange Energy Products with each other and
purchase Energy Products from each other.
"FAIR VALUE" of an asset means: (a) with respect to a Member's
Contributed Assets, the book value of such Contributed Assets as
reflected on the books and records of such Member as of the date of the
contribution; and (b) for all other purposes, the actual fair market
value of such asset.
"FARMLAND" means Farmland Industries, Inc., a Kansas
cooperative corporation.
"FARMLAND BASE LINE VOLUME" means the base line sales volume
of Farmland with respect to a Product Line, as determined in accordance
with the provisions of Section 5.6.
"GENERAL MANAGEMENT ISSUE" means a disagreement between the
Members with respect to (i) the execution or implementation of a
Business Plan, (ii) the action that should be taken by the Company in
an Emergency Situation or (iii) any other matter concerning the
Company, this Agreement or any Operating Agreement that is not a
Business Issue or a Legal Issue.
"GREASE" means a mixture of a fluid lubricant and a thickener
dispersed in the oil.
"GREASE BASE FEE" means the fee to be paid to the Company by
each Member for each pound of Grease sold by the Company as an agent
for such Member, which fee shall be as set forth in the Business Plan.
"INCOME" and "LOSS" mean, respectively, for each fiscal year
or other period, an amount equal to the Company's taxable income or
loss for such year or period, determined in accordance with Code
Section 703(a), except that for this purpose: (a) all items of income,
gain, deduction or loss required to be separately stated by Code
Section 703(a)(1) shall be included in taxable income or loss; (b) tax
exempt income shall be added to taxable income or loss; (c) any
expenditures described in Code Section 705(a)(2)(B) (or treated as Code
Section 705(a)(2)(B) expenditures pursuant to Treasury Regulation ss.
1.704-1(b)(2)(iv)(i)) and not otherwise taken into account in computing
taxable income or loss shall be subtracted; and (d) taxable income or
loss shall be adjusted to reflect any item of income or loss specially
allocated in Article IV.
"INITIAL CONTRIBUTION" means the Contributed Assets and cash
contributed by each Member for its Interest pursuant to Section 3.1.
"INITIAL PERIOD" means the period commencing on the Effective
Date and ending on August 31, 2000.
"INTEREST" refers to all of a Member's rights and interests in
the Company in such Member's capacity as a Member, as provided in the
Certificate, this Agreement and the Act, including, without limitation,
the Member's right to vote and its interest in the total capital,
profits and losses of the Company.
"INVESTMENT CHANGE" means (i) the capital investment or
divestment (individually or in a series of related transactions) of
capital assets (including by merger, joint venture, etc.) as a result
of which a Member acquires or divests sales volume of Energy Products
or (ii) a transaction between a Member and a regional agricultural
cooperative that results in a direct patronage relationship between
such Member and a group of local cooperatives with respect to Energy
Products.
"LATE PAYMENT FEE" shall have the meaning set forth in Section
3.3(b).
"LEGAL ISSUE" means a dispute between the Members that
involves (i) any claim for damages, (ii) the determination of any CHS
Base Line Volume, Farmland Base Line Volume, Total Base Line Volume or
Sales Split pursuant to Section 5.6(d) or (iii) a dispute as to the
interpretation of this Agreement or any Operative Agreement.
"LIQUIDATION PROCEEDS" means all Property at the time of
liquidation of the Company and all proceeds thereof.
"LUBE OIL" means oils used for the control of friction and
wear between moving surfaces in contact.
"LUBRICANTS" means products that generally control friction
and wear between moving surfaces in contact, including Branded Lube
Oil, Unbranded Lube Oil and Grease.
"MANAGEMENT COMMITTEE" means the committee composed of
Representatives of the Members pursuant to Section 5.1.
"MANAGEMENT SERVICES AGREEMENT" means an agreement between the
Company and a Member in the form attached hereto as Exhibit B, pursuant
to which such Member will provide management services to the Company
and the Company will provide management services to such Member.
"MATERIAL ITEM" means any item having a material affect on the
business or financial condition of the Company and any other item that
is specifically designated as a "Material Item" in the then current
Business Plan.
"MEMBER" means each Person executing this Agreement, including
any Substitute Member.
"MEMBER MINIMUM GAIN" shall have the same meaning as the term
"partner nonrecourse debt minimum gain" as set forth in Treasury
Regulation ss. 1.704-2(i)(3). With respect to each Member Nonrecourse
Debt, Member Minimum Gain shall be determined by computing for each
Member Nonrecourse Debt any gain that the Company would realize if the
Company disposed of the property subject to that liability for no
consideration other than full satisfaction of such liability. For
purposes of computing gain, the Company shall use the basis of such
property that is used for purposes of determining the amount of the
Capital Accounts under Section 3.4. In any taxable year in which a
Revaluation occurs, the net increase or decrease in Member Minimum Gain
for such taxable year shall be determined by: (a) calculating the net
decrease or increase in
Member Minimum Gain using the current year's book value and the prior
year's amount of Member Minimum Gain; and (b) adding back any decrease
in Member Minimum Gain arising solely from the Revaluation.
"MEMBER NONRECOURSE DEBT" shall have the same meaning as the
term "partner nonrecourse debt" set forth in Treasury Regulation ss.
1.704-2(b)(4).
"MEMBER NONRECOURSE DEDUCTIONS" shall have the same meaning as
the term "partner nonrecourse deductions" set forth in Treasury
Regulation ss. 1.704-2(i)(2). Generally, the amount of Member
Nonrecourse Deductions with respect to a Member Nonrecourse Debt for a
fiscal year equals the net increase during the year in the amount of
the Member Minimum Gain (determined in accordance with Treasury
Regulation ss. 1.704-2(i)) reduced (but not below zero) by the
aggregate distributions made during the year of proceeds of Member
Nonrecourse Debt and allocable to the increase in Member Minimum Gain
determined according to the provisions of Treasury Regulation ss.
1.704-2(i).
"NON-DEFAULTING MEMBER" shall have the meaning set forth in
Section 3.3(b).
"NON-TRANSFERRING MEMBER," means, in the case of a Transfer by
a Member of its Interest, the Member that did not Transfer its
Interest.
"NONRECOURSE DEDUCTIONS" shall have the same meaning as the
term "nonrecourse deductions" set forth in Treasury Regulation ss.
1.704-2(c). Generally, the amount of Nonrecourse Deductions for a
fiscal year equals the net increase in the amount of Company Minimum
Gain (determined in accordance with Treasury Regulation ss. 1.704-2(d))
during such year reduced (but not below zero) by the aggregate
distributions made during the year of proceeds of a Nonrecourse Debt
that are allocable to the increase in Company Minimum Gain, determined
according to the provisions of Treasury Regulation ss. 1.704-2(c) and
(h).
"NONRECOURSE DEBT" means a Company liability with respect to
which no Member bears the economic risk of loss as determined under
Treasury Regulations ▇▇.▇▇. 1.752-1(a)(2) and 1.752-2.
"NOTICE" shall have the meaning set forth in Section 10.3.
"OFFICE LEASE AGREEMENT" means an agreement between the
Company and a Member in the form attached hereto as Exhibit F, pursuant
to which such Member shall provide office facilities for use by the
Company.
"OPERATIVE AGREEMENTS" means, collectively, the Asset
Contribution Agreements, Management Services Agreements, Personnel
Lease Agreements, Agency Agreements, Exchange Agreements and Office
Lease Agreements.
"PAYMENT DATE" shall have the meaning set forth in Section
3.3(b).
"PERCENTAGE INTEREST" means, with respect to each Member, such
Member's percentage interest in the Company. The Percentage Interest of
each Member, prior to any adjustments required by the provisions of
this Agreement, shall be as follows:
Percentage
Member Interest
------------------------------------------
CHS 50%
Farmland 50%
"PERSON" means any individual, partnership, limited liability
company, corporation, cooperative association, estate, trust,
custodian, nominee or other entity in its own or any representative
capacity.
"PERSONNEL LEASE AGREEMENT" means an agreement between the
Company and a Member in the form attached hereto as Exhibit C, pursuant
to which such Member will lease Dedicated Employees to the Company.
"PREFERRED RETURN" shall have the meaning set forth in Section
4.6.
"PRESIDENT" or "CO-PRESIDENT" means the individual or
individuals designated by the Members pursuant to Section 5.2 to manage
the day-to-day operations of the Company.
"PRIME RATE" means the prime lending rate published from time
to time in The Wall Street Journal; provided, however, that if no prime
lending rate is then published in The Wall Street Journal, the term
"Prime Rate" shall mean the rate of interest announced from time to
time by The Chase Manhattan Bank, or its successor, as its prime
lending rate.
"PRODUCT LINE" means any one of the following types of Energy
Products: Branded Fuel, Unbranded Fuel, Tender Sale Fuel, Branded Lube
Oil, Unbranded Lube Oil, Grease and Propane.
"PROPANE" means a hydrocarbon with the composition C3H8 that
meets HD-5 or Commercial Grade specifications, as those specifications
are defined in the Natural Gas Processors Association Publication
#2140-62, and all revisions thereof.
"PROPANE BASE FEE" means the fee to be paid to the Company by
each Member for each gallon of Propane sold by the Company as an agent
for such Member, which fee shall be as set forth in the Business Plan.
"PROPERTY" means all properties and assets (including
supplies, equipment, real estate or leasehold or subleasehold interests
therein, intellectual property, contract rights
and other intangible assets) that the Company may own or otherwise have
an interest in from time to time.
"REFINED FUEL SALES SPLIT" means the combined Sales Split for
Branded Fuel and Unbranded Fuel; specifically, the Refined Fuel Sales
Split shall be "A% CHS/B% Farmland," where
A = CHS Base Line Volume for Branded Fuel + CHS Base Line
Volume for Unbranded Fuel X 100
Total Base Line Volume for Branded Fuel + Total Base Line
Volume for Unbranded Fuel
and
B = Farmland Base Line Volume for Branded Fuel + Farmland Base
Line Volume for Unbranded Fuel X 100.
Total Base Line Volume for Branded Fuel + Total Base Line
Volume for Unbranded Fuel,
provided, however, that A and B shall be rounded to the nearest whole
percentage.
"REFINED FUELS" means gasoline and distillates, including
Branded Fuels, Unbranded Fuels and Tender Sale Fuels.
"REGULAR PRODUCT LINE" means any one of the following types of
Energy Products: Branded Fuel, Unbranded Fuel, Branded Lube Oil,
Unbranded Lube Oil, Grease and Propane.
"REPRESENTATIVES" shall mean a Member's representative on the
Management Committee.
"RESERVES" means amounts set aside from time to time by the
Members pursuant to Section 4.10.
"RETAINED EARNINGS BALANCE" means, with respect to a Member,
the difference between (i) the sum of all allocations made to such
Member, pursuant to Article IV, of Company income and gain (or items
thereof) during the term of this Agreement and (ii) the sum of (A) the
sum of all allocations made to such Member, pursuant to Article IV, of
Company loss and deductions (or items thereof) during the term of this
Agreement, (B) the amount of money distributed to such Member during
the term of this Agreement and (C) the Fair Value of property
distributed to such Member (net of liabilities secured by such
distributed property that such Member is considered to assume or take
subject to under Code Section 752) during the term of this Agreement.
"RETAINED EARNINGS BALANCE PERCENTAGE" means, with respect to
a Member, the Retained Earnings Balance of such Member divided by the
sum of the Retained Earnings Balances of all of the Members, multiplied
by 100.
"REVALUATION" means the occurrence of any event described in
clause (x), (y) or (z) of Section 3.4(c) in which the book basis of
Property is adjusted to its Fair Value.
"SALES SPLIT" means the percentage of each sale of an Energy
Product made to a Customer by the Company as an agent for the Members
that is deemed to be made by each of the Members, as determined in
accordance with the provisions of Section 5.6.
"SALES YEAR" shall have the meaning set forth in Section
5.6(d).
"SPOT SALE GALLONS" means, for a given fiscal year, (a) with
respect to Farmland, the Zone 1 Member Spot Sale Gallons for Farmland
for such year, and (b) with respect to CHS, the sum of the Zone 1
Member Spot Sale Gallons for CHS for such year and the Zone 2 CHS Spot
Sale Gallons for such year.
"SPOT SALE GALLON BASE FEE" means the fee to be paid to the
Company by each Member for each Spot Sale Gallon of the Member, which
fee shall be as set forth in the Business Plan.
"SUBSTITUTE MEMBER" means a Transferee admitted to the Company
as a Member in accordance with Section 7.3.
"TAX MATTERS MEMBER" means the Member designated pursuant to
Section 6.4 to represent the Company in matters before the Internal
Revenue Service.
"TENDER SALE FUEL" means (i) Refined Fuel that is sold by a
Member by the barrel in pipeline or terminal locations (other than
Refined Fuel that is Branded Fuel or Unbranded Fuel), which fuel may be
sold on a patronage or non-patronage basis, or (ii) any other Refined
Fuel that is sold by a Member to Customers that is not Branded Fuel or
Unbranded Fuel.
"TOTAL BASE LINE VOLUME" means the sum of the Farmland Base
Line Volume and the CHS Base Line Volume.
"TRANSFER" means: (a) when used as a verb, to give, sell,
exchange, assign, transfer, lease, pledge, hypothecate, bequeath,
devise or otherwise dispose of or encumber; and (b) when used as a
noun, the nouns corresponding to such verbs, in either case voluntarily
or involuntarily, by operation of law or otherwise.
"TRANSFEREE" shall have the meaning set forth in Section 7.2.
"TRANSFEROR" shall have the meaning set forth in Section 7.2.
"TREASURY REGULATIONS" means the regulations promulgated by
the Treasury Department with respect to the Code, as such regulations
are amended from time to time, or the corresponding provisions of
future regulations.
"UNBRANDED FUEL" means Refined Fuel that is sold by a Member
(i) in truckload quantities on a non-patronage basis, (ii) by the
barrel in pipeline or terminal locations on a non-patronage basis to a
Customer that regularly purchased Refined Fuel from such Member in
truckload quantities on a non-patronage basis prior to the date of this
Agreement but subsequently changed its purchasing practices to
purchases at pipeline or terminal locations as a result of changes in
the industry or the size of such Customer, or (iii) to a regional
agricultural cooperative (other than a Member); provided, however, that
the term "Unbranded Fuel" shall not include any fuel that is Branded
Fuel.
"UNBRANDED FUEL BASE FEE" means the fee to be paid to the
Company by each Member for each gallon of Unbranded Fuel sold by the
Company as an agent for such Member, which fee shall be as set forth in
the Business Plan.
"UNBRANDED LUBE OIL" means Lube Oil that is not Branded Lube
Oil, including, without limitation, Lube Oil sold under non-premium
brand logos such as Ampride, Bull's Eye and Viking, irrespective of
patronage treatment by the Members.
"UNBRANDED LUBE OIL BASE FEE" means the fee to be paid to the
Company by each Member for each gallon of Unbranded Lube Oil sold by
the Company as an agent for such Member, which fee shall be as set
forth in the Business Plan.
"ZONE 1 MEMBER SPOT SALE GALLONS" means, with respect to a
Member, for a given fiscal year, that number of gallons of Refined Fuel
that is equal to amount, if any, by which (a) is greater than (b),
where (a) is equal to the total number of gallons of Refined Fuel
produced during such year at all petroleum refineries owned by such
Member that are located in Zone 1 (as defined in the Refined Fuel
Exchange Agreement attached hereto as part of Exhibit E) and (b) is
equal to the sum of (i) the number of gallons of Branded Fuel sold by
the Company as an agent for such Member in Zone 1 during such year,
(ii) the number of gallons of Unbranded Fuel sold by the Company as an
agent for such Member in Zone 1 during such year and (iii) the number
of gallons of Refined Fuel owned by such Member that was moved from
Zone 1 to another Zone (as defined in the Refined Fuel Exchange
Agreement attached hereto as part of Exhibit E) during such year in
order to deliver Refined Fuel to third parties pursuant to third party
exchange agreements or to move Refined Fuel among the Zones without
transferring it to a third party; provided, however, that with respect
to a petroleum refinery that is only partially owned by a Member, the
total number of gallons of Refined Fuel produced at such refinery
during such year for purposes of this Agreement shall be equal to the
product obtained by multiplying (A) the total number of gallons of
Refined Fuel produced at such refinery during such year by (B) such
Member's percentage ownership interest in such refinery.
"ZONE 2 CHS SPOT SALE GALLONS" means, for a given fiscal year,
that number of gallons of Refined Fuel that is equal to the amount, if
any, by which (a) is greater than (b), where (a) is equal to the total
number of gallons of Refined Fuel produced during such year at all
petroleum refineries owned by CHS that are located in Zone 2 (as
defined
in the Refined Fuel Exchange Agreement attached hereto as part of
Exhibit E) and (b) is equal to the sum of (i) the number of gallons of
Branded Fuel sold by the Company as an agent for CHS in Zone 2 during
such year, (ii) the number of gallons of Unbranded Fuel sold by the
Company as an agent for CHS in Zone 2 during such year and (iii) the
number of gallons of Refined Fuel owned by CHS that was moved from Zone
2 to another Zone (as defined in the Refined Fuel Exchange Agreement
attached hereto as part of Exhibit E) during such year in order to
deliver Refined Fuel to third parties pursuant to third party exchange
agreements or to move Refined Fuel among the Zones without transferring
it to a third party; provided, however, that with respect to a
petroleum refinery that is only partially owned by CHS, the total
number of gallons of Refined Fuel produced at such refinery during such
year for purposes of this Agreement shall be equal to the product
obtained by multiplying (A) the total number of gallons of Refined Fuel
produced at such refinery during such year by (B) CHS's percentage
ownership interest in such refinery.
1.3 Other Definitional Provisions.
(a) As used in this Agreement, accounting terms not defined in
this Agreement, and accounting terms partly defined to the extent not
defined, shall have the respective meanings given to them under
generally accepted accounting principles.
(b) The words "hereof," "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement, and section, subsection, schedule and exhibit references are
to this Agreement unless otherwise specified.
(c) Words of the masculine gender shall be deemed to include
the feminine or neuter genders, and vice versa, where applicable. Words
of the singular number shall be deemed to include the plural number,
and vice versa, where applicable.
ARTICLE II
BUSINESS PURPOSE
2.1 Name; Business Purpose
(a) The name of the Company shall be Country Energy, LLC. The
name of the Company may be changed from time to time by the Members.
(b) The purpose of the Company (the "Company's Business") is:
(i) to serve as the exclusive agent for the Members for (A) the
marketing, sales and distribution of Energy Products to Customers, (B)
the invoicing and collection of receivables arising from the sale of
Energy Products to Customers and (C) the purchasing of Energy Products;
and (ii) to perform all acts necessary or incidental to the foregoing.
(c) The Members expect that significant benefits will flow
from the formation and operation of the Company that are unavailable to
the Members independently. Specifically, the Members expect that the
Company, through integrating the resources of the Members, will be able
to: (i) reduce the overall costs of production of Energy Products; (ii)
minimize the costs of distribution of Energy Products; (iii) expand and
enhance the products and services offered to the members and Customers
of the Members; (iv) fully develop and exploit the intellectual
property rights of the Members; (v) increase the membership of the
Members and the membership opportunities for current and prospective
members of the Members; and (vi) expand the overall production and
sales of Energy Products to members and Customers of the Members. The
Members acknowledge that all of the various Energy Products included in
this Agreement utilize the same sales and marketing channels and
resources, and that the formation and operation of the Company would
not be feasible without the inclusion of all of the Energy Products
included herein.
2.2 Powers. The Company may carry on any lawful business, purpose or
activity permitted by the Act and shall possess and may exercise all powers
granted by the Act, any other law or this Agreement, together with any powers
incidental, necessary or convenient to the conduct, promotion or attainment of
the business, purposes or activities of the Company.
2.3 Registered Office and Registered Agent. The location of the
registered office and the name of the registered agent of the Company in the
State of Delaware shall be as stated in the Certificate. The registered office
and registered agent of the Company in the State of Delaware may be changed from
time to time by the Members.
2.4 Amendment of the Certificate. The Company shall amend the
Certificate at such time or times and in such manner as may be approved by the
Members or required by the Act or this Agreement.
2.5 Effective Date. This Agreement shall be effective as of the
Effective Date.
2.6 Agreement to Finalize Certain Operative Documents. The Members
recognize that certain Exhibits to this Agreement, which consist of certain
Operative Agreements, have not been agreed upon as of the date hereof. The
Members agree to negotiate and work together in good faith to finalize such
Operative Agreements in accordance with the understandings of the Members as of
the date hereof. If the Members are able to reach agreement with respect to the
terms of all of the Operative Agreements prior to July 31, 1998, the Members and
the Company shall execute such agreements prior to July 31, 1998 and attach such
agreements as Exhibits to this Agreement as indicated. In the event that the
Members have not executed all of the Operative Agreements prior to July 31,
1998, then this Agreement and all other
previously executed Operative Agreements shall automatically terminate on
September 1, 1998 and shall be null and void and of no effect.
2.7 Due Diligence. Each Member (for purposes of this Section 2.7, an
"Investigated Member") shall permit the other Member (for purposes of this
Section 2.7, an "Investigating Member") to conduct such investigations and due
diligence with respect to the marketing, sale, distribution and purchasing of
Energy Products previously conducted by the Investigated Member as the
Investigating Member deems advisable. Each Member shall have completed its due
diligence activities prior to July 31, 1998. In the event that the due diligence
activities of an Investigating Member lead to the discovery of discrepancies
between the representations and warranties set forth in Section 2.12 and the
actual Farmland or CHS sales volumes for the 1997 fiscal years of each of
Farmland and CHS, then the data currently listed in Schedule 5.6(d) regarding
the Farmland or CHS Base Line Volumes shall be adjusted to correct any such
discrepancies. In the event that the due diligence activities of an
Investigating Member lead to the discovery of any other information which
impacts the assumptions made by such Member in entering into this Agreement (for
purposes of this Section 2.7, a "Due Diligence Issue"), the Members shall meet
to discuss in good faith and resolve such Due Diligence Issue. In the event any
Due Diligence Issue is not resolved to the satisfaction of the Members prior to
September 1, 1998, then either Member may elect to terminate this Agreement and
all other previously executed Operative Agreements by giving notice to the other
Member of such election.
2.8 Liability of Members. No Member, Representative, Co-President or
President, solely by reason of such status, shall be liable, under a judgment,
decree or order of a court, or in any other manner, for any debt, obligation or
liability of the Company, whether arising in contract, tort, by statute or
otherwise, or for the acts or omissions of any other Member, Representative or
employee of the Company. The failure of the Company to observe any formalities
or requirements relating to the exercise of its powers or management of its
business or affairs under this Agreement or the Act shall not be grounds for
imposing liability on the Members, Representatives or any Co-President or
President for liabilities of the Company.
2.9 Authority; Investment Intent; Restriction Against Transfer. Each
Member warrants to the Company and the other Member that: (a) the Member is duly
organized, validly existing and in good standing under the laws of its state of
organization and has the requisite power and authority to execute this Agreement
and the Operative Agreements and perform its obligations hereunder and
thereunder; (b) the Member is acquiring an Interest for such Member's own
account as an investment and without any intent to distribute such Interest or
any portion thereof or interest therein; and (c) the Member acknowledges that
the Interests have not been registered under the Securities Act of 1933 or any
state securities laws, and such Member's Interest may not be resold or
transferred except pursuant to a registration statement under or an exemption
from the registration provisions of the federal and applicable state securities
laws, and in no event except in compliance with the terms of this Agreement.
2.10 Business Plan
(a) Prior to the Effective Date, the Members agree to work
together in good faith to adopt a Business Plan covering the three
fiscal years commencing on September 1, 1998 (the "Initial Business
Plan"). In the event that the Members are unable to agree upon an
Initial Business Plan prior to September 1, 1998, then this Agreement
shall automatically terminate on September 1, 1998 and shall be null
and void and of no effect.
(b) On or before June 30 of each year, commencing June 30,
1999, the Management Committee shall adopt a Business Plan covering the
three fiscal years immediately following the then current fiscal year.
(c) Each Business Plan shall include: (i) an annual operating
budget (the "Annual Operating Budget") for each of the three fiscal
years, including projected operating revenues, expenses and working
capital reserves; (ii) an annual capital budget (the "Annual Capital
Budget") for each of the three fiscal years, including projected
capital expenditures and investments; (iii) the Branded Fuel Base Fee,
Unbranded Fuel Base Fee, Spot Sale Gallon Base Fee, Branded Lube Oil
Base Fee, Unbranded Lube Oil Base Fee, Grease Base Fee and Propane Base
Fee with respect to each of the three fiscal years; (iv) the monthly
estimated Agency Fee payment to be paid to the Company by each Member
during each of the three fiscal years, pursuant to the terms and
conditions of the Agency Agreements attached hereto as Exhibit D; (v)
any Capital Calls to be made in support of the Company's Business
during the three-year period covered by the Business Plan; and (vi)
such other information, plans and strategies as the Members deem
advisable. The Business Plan shall be as detailed as is practical in
order to minimize disputes with respect to the execution of the
Business Plan. The Members may amend the Company's Business Plan at any
time.
2.11 Risk Management Policy. Prior to the Effective Date, the Members
shall work together in good faith to adopt a risk management policy for the
Company.
2.12 Representations Regarding 1997 Sales Figures
(a) Farmland hereby represents and warrants to CHS that the
volumes listed on Schedule 2.12(a) hereto represent the sales volumes
of Farmland for each Product Line listed on Schedule 2.12(a) for
Farmland's 1997 fiscal year and do not differ in any material respect
from such actual sales volumes.
(b) CHS hereby represents and warrants to Farmland that the
volumes listed on Schedule 2.12(b) hereto represent the sales volumes
of CHS for each Product
Line listed on Schedule 2.12(b) for CHS's 1997 fiscal year and do not
differ in any material respect from such actual sales volumes.
2.13 Term. The term of this Agreement shall commence on the Effective
Date. The Company shall have perpetual existence unless sooner dissolved as
provided herein.
ARTICLE III
CAPITALIZATION
3.1 Initial Contributions
(a) Each Member shall execute, deliver and perform all
obligations of such Member under its respective Asset Contribution
Agreement. On the Effective Date, each Member shall make an Initial
Contribution to the Company consisting of: (i) such Member's
Contributed Assets, in accordance with the terms and conditions of such
Member's Asset Contribution Agreement; plus (ii) an amount, in cash,
equal to the difference between $1,250,000 and the Fair Value of such
Member's Contributed Assets.
(b) Each Member's Contributed Assets shall be transferred to
the Company on the Effective Date free and clear of any and all liens,
claims, liabilities, restrictions and encumbrances.
3.2 Capital Calls. The Members recognize that the Company may from time
to time require capital in addition to the Initial Contributions in order to
conduct the Company's Business or accomplish further objectives approved by the
Members. Accordingly, the Members may provide in the Business Plan that
additional cash capital contributions shall be due and payable by the Members in
designated amounts at designated times. A call for such additional capital
contributions shall be referred to herein as a "Capital Call." The Co-Presidents
or President shall make Capital Calls in accordance with the Business Plan. The
Co-Presidents or President shall make a Capital Call by giving at least 30
Business Days' prior written notice to the Members of the amount of the required
additional capital contribution and the date that such contribution is due. Each
Member shall be obligated to comply with a Capital Call by making the
contribution required thereunder on or prior to the date such contribution is
due. A failure to comply with a Capital Call shall be deemed a material breach
of this Agreement.
3.3 Defaults on Initial Contributions or Capital Calls
(a) If any Member fails for any reason to make all or any
portion of its Initial Contribution or fails for any reason to meet a
Capital Call by the due date therefor (which failure shall be referred
to as a "Default"), the Company, acting pursuant to the vote of the
Member which has made the Initial Contribution or met the Capital Call,
as the case may be (the "Non-Defaulting Member"), may give written
notice of such failure (a "Default Notice") to the non-paying Member.
The non-paying Member may cure such failure by paying the entire unpaid
amount within five Business Days after receipt of the Default Notice,
in which event such Member shall not be deemed a "Defaulting Member."
(b) If the non-paying Member does not cure such Default
within five Business Days after receipt of the Default Notice, such
Member shall be deemed a "Defaulting Member," and the following shall
apply:
(i) Effective on the sixth Business Day after the
date of the Defaulting Member's receipt of the Default Notice
(the "Default Date"), the Percentage Interests of the Members
shall be automatically adjusted to take into account the
failure of the Defaulting Member to make such Initial
Contribution or meet such Capital Call. The Percentage
Interest of each Member shall be the respective percentage
obtained by dividing the total amount contributed by such
Member to the Company through and including the Default Date
by the total amount contributed by all the Members through and
including the Default Date. The sum of the Percentage
Interests of the Members, as adjusted in accordance with this
Section 3.3(b)(i), shall equal 100%.
(ii) Effective as of the Default Date and continuing
until the Defaulting Member cures its Default in the manner
provided in Section 3.3(b)(v), the Defaulting Member shall no
longer have the right to vote as a Member, give its approval
or consent as Member, name Representatives to the Management
Committee or participate in the management of the business and
affairs of the Company, and the vote, consent or approval of
the Non-Defaulting Member shall be sufficient for taking all
action required or permitted to be taken by the Members under
this Agreement.
(iii) The portion of any Initial Contribution or
Capital Call not made when due by a Defaulting Member (the
"Defaulted Amount") shall bear interest at the Prime Rate plus
four percentage points until the Defaulting Member cures its
Default in whole. Such interest shall be payable to the
Company and be allocated and distributed in accordance with
Section 4.6.
(iv) The Defaulted Amount shall also bear a 10% late
payment fee ("Late Payment Fee"). The Late Payment Fee shall
be payable to the Company and be allocated and distributed in
accordance with Section 4.6.
(v) Notwithstanding the foregoing provisions of this
Section 3.3, the Defaulting Member may cure its Default at any
time prior to the expiration of 30 days after the Default Date
by paying to the Company the entire Defaulted Amount, together
with interest at the rate provided in Section 3.3(b)(iii) and
the Late Payment Fee. If the Defaulting Member cures its
Default in such manner, the Percentage Interests of the
Members shall be re-adjusted to take such cure into account.
The Percentage Interest of the Defaulting Member and of the
Non-Defaulting Member shall be the respective percentage
obtained by dividing the total amount contributed (excluding
interest and the Late Payment Fee) by such Member to the
Company through and including the date on which the Defaulting
Member cured its Default (the "Payment Date") by the total
amount contributed to the Company by all the Members through
and including the Payment Date. The sum of the Percentage
Interests of the Members, as adjusted in accordance with this
Section 3.3(b)(v), shall equal 100%. The foregoing adjustment
shall not take into account any interest or Late Payment Fee
paid by the Defaulting Member. Any payment by a Non-Defaulting
Member of a Defaulting Member's Defaulted Amount shall
constitute a loan to the Company in accordance with Section
3.6 and shall not be deemed part of such Member's Capital
Contribution. The Defaulting Member shall no longer be a
Defaulting Member upon cure of its Default in accordance with
this Section 3.3(b)(v).
(c) The Defaulting Member shall remain liable to the Company
and to creditors of the Company that extended credit prior to such
Default for the Defaulted Amount and shall remain liable to the Company
for interest at the rate provided in Section 3.3(b)(iii) and for the
Late Payment Fee, until the Defaulting Member cures its Default as
provided in Section 3.3(b)(v) or until such Defaulted Amount is
recovered by the Company in accordance with this Section 3.3(c) or is
otherwise paid by the Defaulting Member. The Company, upon the vote of
the Non-Defaulting Member, is hereby empowered to collect from the
Defaulting Member for the account of the Company the Defaulted Amount,
together with interest at the rate provided in Section 3.3(b)(iii) and
the Late Payment Fee. The Company is authorized to institute an action
at law against the Defaulting Member in a court of competent
jurisdiction to recover such amounts. If the Company is the prevailing
party in such action, the Company shall be entitled to recover from the
Defaulting Member, in addition to the Defaulted Amount plus interest
and the Late Payment Fee, its costs of collection, including the
reasonable fees and expenses of attorneys incurred in connection
therewith. The Non-Defaulting Member may in its sole discretion cause
the Company to settle or compromise any such claim. If the Company
recovers from the Defaulting Member the Defaulted Amount plus all
additional amounts contemplated by this Section 3.3(c), the Defaulting
Member shall no longer be a Defaulting Member.
3.4 Capital Accounts.
(a) A separate Capital Account shall be maintained for each
Member. Each Member's Capital Account shall be: (i) increased by: (A)
the amount of money contributed by such Member; (B) the Fair Value of
property contributed by such Member (net of liabilities secured by such
contributed property that the Company is considered to
assume or take subject to under Code Section 752, but in any event not
in limitation of the provisions of Section 3.1(b)); (C) allocations to
such Member, pursuant to Article IV, of Company income and gain (or
items thereof); and (D) to the extent not already netted out under
clause (ii)(b) below, the amount of any Company liabilities assumed by
the Member or which are secured by any property distributed to such
Member; and (ii) decreased by: (A) the amount of money distributed to
such Member; (B) the Fair Value of property distributed to such Member
(net of liabilities secured by such distributed property that such
Member is considered to assume or take subject to under Code Section
752); (C) allocations to such Member, pursuant to Article IV, of
Company loss and deductions (or items thereof); and (D) to the extent
not already netted out under clause (i)(B) above, the amount of any
liabilities of the Member assumed by the Company or which are secured
by any property contributed by such Member to the Company.
(b) In the event any Interest is transferred in accordance
with the terms of this Agreement, the Transferee shall succeed to the
Capital Account of the Transferor to the extent it relates to the
transferred Interest and the Capital Account of the Transferee shall be
increased and decreased in the manner set forth in Section 3.4(a).
(c) In the event of: (x) a Defaulting Member's Default or a
Defaulting Member's cure of its Default that results in a shift in
Percentage Interests; (y) the distribution by the Company to a Member
of Property (other than cash) or a distribution of Property as
consideration for an Interest; or (z) the liquidation of the Company
within the meaning of Treasury Regulation ss. 1.704-1(b)(2)(ii)(g), the
book basis of the Property shall be adjusted to Fair Value, and the
Capital Accounts of the Members shall be adjusted simultaneously to
reflect the aggregate net adjustment to book basis as if the Company
recognized gain or loss equal to the amount of such aggregate net
adjustment; provided, however, that the adjustments resulting from
clause (x) or (y) above shall be made only if the Members determine
that such adjustments are necessary or appropriate to reflect the
relative economic interests of the Members.
(d) In the event Property is subject to Code Section 704(c) or
is revalued on the books of the Company in accordance with Section
3.4(c) pursuant to Treasury Regulation ss. 1.704-1(b)(2)(iv)(f), the
Members' Capital Accounts shall be adjusted in accordance with Treasury
Regulation ss. 1.704-1(b)(2)(iv)(g) for allocations to the Members of
depreciation, amortization and gain or loss, as computed for book
purposes (and not tax purposes) with respect to such Property.
(e) The provisions of this Section 3.4 and the other
provisions of this Agreement relating to the maintenance of the Capital
Accounts are intended to comply with Treasury Regulations ▇▇.▇▇.
1.704-1(b) and 1.704-2, and shall be interpreted and applied in a
manner consistent with such Treasury Regulations. If the Members
determine it is prudent or advisable to modify the manner in which the
Capital Accounts, or any increases or decreases therein, are computed
in order to comply with such Treasury Regulations, the Members may
cause such modification to be made, provided
such modification is not likely to have a material effect on the
amounts distributable to any Member upon dissolution of the Company.
3.5 Capital Withdrawal Rights, Interest and Priority. Except as
expressly provided in this Agreement, no Member shall be entitled to reduce its
Capital Account or to receive any Distributions. No Member shall be entitled to
demand or receive any Distributions in any form other than in cash. No Member
shall be entitled to receive or be credited with any interest on the balance in
its Capital Account at any time. Except as otherwise expressly provided herein,
no Member shall have priority over any other Member as to the return of the
balance in such Member's Capital Account.
3.6 Loans
(a) Subject to unanimous approval by the Members (which for
purposes of this 3.6(a) may include the loaning Member), any Member may
advance funds as a loan to the Company in such amounts and at such
times as may be approved by such Members. Any such loan shall bear a
rate of interest and shall be on terms no more favorable to the loaning
Member as are then available on similar loans from independent
financial institutions.
(b) Notwithstanding the provisions of Section 3.6(a), in the
event of a Defaulting Member's Default, any Non-Defaulting Member may
elect to advance all or a portion of the Defaulted Amount to the
Company. Such advance shall be deemed a loan to the Company and not a
Capital Contribution. Any such loan shall be repayable in monthly
installments of principal together with interest at the Prime Rate over
a term of not greater than 60 months.
(c) Loans by a Member to the Company shall not be considered
contributions to the capital of the Company.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
4.1 Non-Liquidating Cash Distributions. The amount, if any, of
Available Cash shall be determined by the Members after each fiscal year end and
shall be distributed to the Members within 90 days following the end of such
fiscal year, or at such other time(s) as determined by the Members, in the
following order of priority:
(a) First, to each Member in an amount equal to the sum of the
mutually agreed upon fees and expenses of outside counsel, all fees and
expenses of accountants and consultants and all other organization
expenses that are paid by such Member in connection with the formation
of the Company and the negotiation, preparation and closing of this
Agreement and the Operative Agreements, less all prior Distributions
made in accordance with this Section 4.1(a); provided, in no event
shall the
aggregate Distributions to each Member pursuant to this Section 4.1(a)
exceed $250,000. The amounts reimbursed in accordance with this Section
4.1(a) shall constitute organizational expenses of and shall be
amortizable by the Company.
(b) Next, to the Members in proportion to their respective
Retained Earnings Balance Percentages, until the cumulative amount of
the distribution made pursuant to this Section 4.1(b) equals the sum of
the Retained Earnings Balances of all of the Members.
(c) Next, to the Members in proportion to and to the extent of
their respective positive Capital Account balances.
(d) Finally, to the Members in accordance with each Member's
Percentage Interest.
4.2 Liquidation Distributions. Liquidation Proceeds shall be
distributed in the following order of priority:
(a) First, to the payment of debts and liabilities of the
Company (including to Members to the extent otherwise permitted by law)
and the expenses of liquidation.
(b) Next, to the setting up of such reserves as the Person
required or authorized by law to wind up the Company's affairs may
reasonably deem necessary or appropriate for any disputed, contingent
or unforeseen liabilities or obligations of the Company, provided that
any such reserves shall be paid over by such Person to an independent
escrow agent, to be held by such agent or its successor for such period
as such Person shall deem advisable for the purpose of applying such
reserves to the payment of such liabilities or obligations and, at the
expiration of such period, the balance of such reserves, if any, shall
be distributed as hereinafter provided.
(c) Next, in the event the Company was dissolved pursuant to
Section 9.1(c), then (i) the Member that terminated the Company in
accordance with the provisions of Section 9.1(c) (for purposes of this
Section 4.2(c), the "Terminating Member") and the other Member (for
purposes of this Section 4.2(c), the "Nonterminating Member") shall
each retain the exclusive right to any brand name owned by such Member,
(ii) all additive system equipment owned by the Company will be
distributed in kind to the Nonterminating Member and (iii) the
exclusive right to any brand names developed and owned by the Company
will be distributed in kind to the Nonterminating Member.
(d) Next, to the Members in proportion to and to the extent of
their respective Capital Account balances after taking into account the
allocation of all Income or Loss pursuant to this Agreement for the
fiscal year(s) in which the Company is liquidated.
(e) Finally, to the Members in accordance with their
respective Percentage Interests.
4.3 Profits, Losses and Distributive Shares of Tax Items. The Company's
net income or net loss, as the case may be, for each fiscal year of the Company
or part thereof, as determined in accordance with such method of accounting as
may be adopted for the Company pursuant to Article VI, shall be allocated to the
Members for both financial accounting and income tax purposes as set forth in
this Article IV, except as otherwise provided for herein or unless the Members
agree otherwise.
4.4 Allocation of Income, Loss and Credits. Income or Loss and Credits
shall be allocated between the Members in proportion to their respective Agency
Fee Percentages for the applicable fiscal year or other period.
4.5 Special Rules Regarding Allocations. Notwithstanding the foregoing
provisions of this Article IV, the following special rules shall apply in
allocating the net income or net loss of the Company:
(a) Section 704(c) and Revaluation Allocations. In accordance
with Code Section 704(c) and the Treasury Regulations thereunder,
income, gain, loss and deduction with respect to any property
contributed to the capital of the Company shall, solely for tax
purposes, be allocated among the Members so as to take account of any
variation between the adjusted basis of such property to the Company
for federal income tax purposes and its Fair Value at the time of
contribution. In the event of a Revaluation, subsequent allocations of
income, gain, loss and deduction with respect to such property shall
take account of any variation between the adjusted basis of such
property to the Company for federal income tax purposes and its Fair
Value immediately after the adjustment in the same manner as under Code
Section 704(c) and the Treasury Regulations thereunder. Any elections
or other decisions relating to such allocations shall be made by the
Members in a manner that reasonably reflects the purpose and intention
of this Agreement. Allocations pursuant to this Section 4.5(a) are
solely for income tax purposes and shall not affect, or in any way be
taken into account in computing, for book purposes, each Member's
Capital Account or share of income or loss, pursuant to any provision
of this Agreement.
(b) Minimum Gain Chargeback. Notwithstanding any other
provision of this Article IV, if there is a net decrease in Company
Minimum Gain during a Company taxable year, each Member shall be
allocated items of income and gain for such year (and, if necessary,
for subsequent years) in an amount equal to that Member's share of the
net decrease in Company Minimum Gain during such year (hereinafter
referred to as the "Minimum Gain Chargeback Requirement"). A Member's
share of the net decrease in Company Minimum Gain is the amount of the
total decrease multiplied by the Member's percentage share of the
Company Minimum Gain at the end of the
immediately preceding taxable year. A Member is not subject to the
Minimum Gain Chargeback Requirement to the extent: (i) the Member's
share of the net decrease in Company Minimum Gain is caused by a
guarantee, refinancing or other change in the debt instrument causing
it to become partially or wholly recourse debt or a Member Nonrecourse
Debt, and the Member bears the economic risk of loss for the newly
guaranteed, refinanced or otherwise changed liability; (ii) the Member
contributes capital to the Company that is used to repay the
Nonrecourse Debt and the Member's share of the net decrease in Company
Minimum Gain results from the repayment; or (iii) the Minimum Gain
Chargeback Requirement would cause a distortion and the Commissioner of
the Internal Revenue Service waives such requirement.
A Member's share of Company Minimum Gain shall be computed in
accordance with Treasury Regulation ss. 1.704-2(g) and as of the end of
any Company taxable year shall equal: (1) the sum of the Nonrecourse
Deductions allocated to that Member up to that time and the
distributions made to that Member up to that time of proceeds of a
Nonrecourse Debt allocable to an increase of Company Minimum Gain;
minus (2) the sum of that Member's aggregate share of net decrease in
Company Minimum Gain plus that Member's aggregate share of decreases
resulting from revaluations of Property subject to Nonrecourse Debts.
In addition, a Member's share of Company Minimum Gain shall be adjusted
for the conversion of recourse and Member Nonrecourse Debts into
Nonrecourse Debts in accordance with Treasury Regulation ss.
1.704-2(g)(3). In computing the above, amounts allocated or distributed
to the Member's predecessor in interest shall be taken into account.
(c) Member Minimum Gain Chargeback. Notwithstanding any other
provision of this Article IV other than Section 4.5(b) above, if there
is a net decrease in Member Minimum Gain during a Company taxable year,
each Member which has a share of the Member Minimum Gain (determined
under Treasury Regulation ss. 1.704-2(i)(5) as of the beginning of the
year) shall be allocated items of income and gain for such year (and,
if necessary, for subsequent years) equal to that Member's share of the
net decrease in Member Minimum Gain. In accordance with Treasury
Regulation ss. 1.704-2(i)(4), a Member is not subject to this Member
Minimum Gain Chargeback requirement to the extent the net decrease in
Member Minimum Gain arises because the liability ceases to be Member
Nonrecourse Debt due to a conversion, refinancing or other change in
the debt instrument that causes it to be partially or wholly a
Nonrecourse Debt. The amount that would otherwise be subject to the
Member Minimum Gain Chargeback requirement is added to the Member's
share of Company Minimum Gain.
(d) Qualified Income Offset. In the event a Member
unexpectedly receives an adjustment, allocation or distribution
described in Treasury Regulation ss. 1.704.1(b)(2)(ii)(d)(4), (5) or
(6), that causes or increases such Member's Adjusted Capital Account
Deficit, items of Company income and gain shall be specially allocated
to such Member in an amount and manner sufficient to eliminate such
Adjusted Capital Account Deficit as quickly as possible, provided that
an allocation under this Section 4.5(d) shall be made if and only to
the extent such Member would have an Adjusted Capital Account Deficit
after all other allocations under this Article IV have been made.
(e) Nonrecourse Deductions. Nonrecourse Deductions for any
fiscal year or other period shall be allocated to the Members in
proportion to their Agency Fee Percentages for such fiscal year or
other period.
(f) Member Nonrecourse Deductions. Any Member Nonrecourse
Deductions shall be allocated to the Members which bear the risk of
loss with respect to the loan to which such Member Nonrecourse
Deductions are attributable in accordance with Treasury Regulation ss.
1.704-2(i).
(g) Curative Allocations. Any special allocations of items of
income, gain, deduction or loss pursuant to Sections 4.5(b), (c), (d),
(e) and (f) hereof shall be taken into account in computing subsequent
allocations of income and gain pursuant to this Article IV, so that the
net amount of any items so allocated and all other items allocated to
each Member pursuant to this Article IV shall, to the extent possible,
be equal to the net amount that would have been allocated to each such
Member pursuant to the provisions of this Article IV if such
adjustments, allocations or distributions had not occurred. In
addition, allocations pursuant to this Section 4.5(g) with respect to
Nonrecourse Deductions in Section 4.5(e) and Member Nonrecourse
Deductions in Section 4.5(f) shall be deferred to the extent the
Members reasonably determine that such allocations are likely to be
offset by subsequent allocations of Company Minimum Gain or Member
Minimum Gain, respectively.
(h) Loss Allocation Limitation. Notwithstanding the other
provisions of this Article IV, unless otherwise agreed to by all the
Members, no Member shall be allocated Loss in any taxable year that
would cause or increase an Adjusted Capital Account Deficit as of the
end of such taxable year.
(i) Share of Nonrecourse Liabilities. Solely for purposes of
determining a Member's proportionate share of the "excess nonrecourse
liabilities" of the Company within the meaning of Treasury Regulation
ss. 1.752-3(a)(3), each Member's interest in Company profits is equal
to such Member's respective Agency Fee Percentages for the fiscal year
in which such determination is made.
(j) Compliance with Treasury Regulations. The foregoing
provisions of this Section 4.5 are intended to comply with Treasury
Regulation ss.ss.1.704-1(b), 1.704-2 and 1.752-1 through 1.752-5, and
shall be interpreted and applied in a manner consistent with such
Treasury Regulations. In the event it is determined by the Members that
it is prudent or advisable to amend this Agreement in order to comply
with such Treasury Regulations, the Members are empowered to so amend
or modify this Agreement, notwithstanding any other provision of this
Agreement.
(k) General Allocation Provisions. For purposes of determining
Income, Loss or any other items for any period, Income, Loss or any
such other items shall be determined on a daily basis, using any
permissible method under Code Section 706 and the Treasury Regulations
thereunder.
4.6 Preferred Return. The Company shall allocate an amount of gross
income and shall distribute to the Non-Defaulting Member an amount equal to any
interest and Late Payment Fee paid to the Company by or collected by the Company
from a Defaulting Member under Section 3.3(b) or (c) (the "Preferred Return"),
less the amount of interest paid by the Company pursuant to Section 3.6(a) on a
loan to the Company by the Non-Defaulting Member of the Defaulting Member's
Defaulted Amount pursuant to Section 3.3(b)(v).
4.7 Withholding of Distributions. Notwithstanding any other provision
of this Agreement, the Members (or any Person required or authorized by law to
wind up the Company's affairs) may suspend, reduce or otherwise restrict
Distributions of Available Cash and Liquidation Proceeds when the Members deem
such action is in the best interests of the Company.
4.8 No Priority. Except as may be otherwise expressly provided herein,
no Member shall have priority over any other Member as to Company income, gain,
loss, credits and deductions or distributions.
4.9 Tax Withholding. Notwithstanding any other provision of this
Agreement, the Members are authorized to take any action they determine to be
necessary or appropriate to cause the Company to comply with any withholding
requirements established under any federal, state or local tax law, including,
without limitation, withholding on any Distribution to any Member. For the
purposes of this Article IV, any amount withheld on any Distribution and paid
over to the appropriate governmental body shall be treated as if such amount had
in fact been distributed to the Member.
4.10 Reserves. The Members through their Representatives shall have the
right to establish, maintain and expend Reserves to provide for working capital,
for future maintenance, repair or replacement of Property, for debt service, and
future investments, and for such other purposes as the Members deem necessary or
advisable.
4.11 Setoff. All Distributions to a Member shall be subject to setoff
by the Company for any past due obligations of such Member (or its predecessor
in interest) to the Company.
ARTICLE V
MANAGEMENT AND OPERATIONS
5.1 Management. The business and affairs of the Company shall be
managed by the Members in the manner provided in this Article V.
(a) Management Committee. The Members shall meet and transact
business through a Management Committee. During the Initial Period, the
Management Committee shall be composed of three Representatives of each
Member. Following the Initial Period, the Management Committee shall be
composed of two Representatives of each Member. Each Member shall act
through its Representatives, who shall be empowered to attend
Management Committee meetings and cast such Member's vote. Each
Representative of a Member shall be a director, officer or employee of
such Member. A Member may appoint or substitute its Representatives
orally or in writing. Each Representative shall serve at the pleasure
of the Member appointing such Representative, and each Member may
designate a successor Representative at any time. Each Member may rely
on the other Members' Representatives with respect to the authority of
such Representatives to act for their respective Members.
Representatives shall serve without compensation unless otherwise
determined by the Members.
(b) Meetings. The Management Committee shall meet at least
quarterly and shall hold an annual meeting following the end of each
fiscal year. Any Member may call a special meeting of the Management
Committee. The Chairman or Secretary of the Management Committee shall,
not later than five days after preliminary financial results for a
fiscal quarter become available, call a regular quarterly meeting of
the Management Committee, and shall, not later than five days after
preliminary financial results for a fiscal year become available, call
the annual Management Committee meeting. The initial Management
Committee meeting shall be held at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇, and thereafter the Management Committee meetings shall
be held alternately at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇, and ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇, or at
such other place as shall be designated by the Person calling the
meeting and stated in the notice of the meeting or a duly executed
waiver of notice thereof. Representatives may participate in a
Management Committee meeting by means of video or audio conferencing or
similar communications equipment whereby all Representatives
participating in the meeting can hear each other.
(c) Election of Chairman and Secretary. At the first meeting
of the Management Committee following the Effective Date, and
thereafter at each annual meeting of the Management Committee, the
Members through their Representatives shall elect, from among
themselves, a Chairman and a Secretary of the Management Committee,
each to serve until a successor is elected or until removed by the
Members. Notwithstanding the foregoing, (i) the Chairman of the
Management Committee shall alternate on an annual basis between a
Representative of CHS and a Representative of Farmland and (ii) no
Co-President or President shall be eligible to serve as the Chairman
of the Management Committee. The Chairman and Secretary of the
Management Committee shall serve without compensation unless otherwise
determined by the Members.
(d) Notice of Meeting. Notice of each meeting of the
Management Committee, stating the place, day and hour of the meeting,
and, in the case of a special meeting, the purpose or purposes of the
meeting, shall be given to each member of the Management Committee at
least ten days before the day on which the meeting is to be held.
(e) Waiver of Notice. Whenever any notice is required to be
given to a Member or to a member of the Management Committee under the
provisions of this Agreement, a waiver thereof in writing signed by at
least one of such Member's Representatives or other authorized officer,
whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance of a Representative
at any meeting of the Management Committee shall constitute waiver of
notice of such meeting by the Member he represents, except where a
Representative attends a meeting for the express purpose of stating his
Member's objection to the transaction of any business because the
meeting is not lawfully called or convened.
(f) Quorum. A quorum for Management Committee meetings shall
consist of at least one Representative of each of the Members.
(g) Voting. Each Member shall have one vote, which may be cast
by all or one of the Representatives of such Member. All Management
Committee decisions and all actions of the Members shall require the
unanimous affirmative vote of the Members.
(h) Action Without a Meeting. Any action that is required to
or may be taken at a meeting of the Management Committee may be taken
without a meeting if consents in writing, setting forth the action so
taken, are signed by at least one Representative or authorized officer
of each Member. Such consents shall have the same force and effect as a
unanimous affirmative vote at a meeting duly held.
5.2 Co-Presidents/President
(a) The day-to-day business and affairs of the Company shall
be managed by two Co-Presidents during the Initial Period and one
President thereafter, as set forth in Sections 5.2(b) and 5.2(c). The
Co-Presidents (during the Initial Period) and the President
(thereafter) shall have the authority and duties ordinarily imposed
upon the chief executive officer of a corporation or as otherwise
determined by the Management Committee from time to time. The
Co-Presidents (during the Initial Period) and the President
(thereafter) shall take all actions required to implement the Business
Plan and the decisions of the Management Committee and to conduct the
day-to-day management of the
business and affairs of the Company. The Co-Presidents (during the
Initial Period) and the President (thereafter) shall serve at the
direction of the Management Committee in all respects. The Management
Committee shall determine the compensation and benefits of the
Co-Presidents (during the Initial Period) and the President
(thereafter).
(b) During the Initial Period, there shall be two
Co-Presidents. Each Member shall appoint one Co-President to be
selected from the Representatives appointed by such Member. Each
Co-President shall serve at the pleasure of the Member appointing such
Co-President, and each Member may designate a successor Co-President at
any time during the Initial Period. A Member may appoint or substitute
its Co-President by giving written notice to the other Member. The two
Co-Presidents shall manage the day-to-day business and affairs of the
Company jointly. In the event of a disagreement regarding the manner in
which their responsibilities should be carried out, the Co-Presidents
shall make a good faith effort to resolve such disagreement. If the
Co-Presidents, acting reasonably and in good faith, are unable to
achieve a mutually acceptable resolution to the disagreement, then the
Management Committee shall attempt to resolve the disagreement at its
next meeting. If the Management Committee is able to resolve the
matter, it shall direct the Co-Presidents accordingly. In the event
that the Management Committee is unable to resolve the matter, then the
Chairman of the Management Committee shall make the final decision with
respect to the item in question and shall direct the Co-Presidents
accordingly.
(c) Following the Initial Period, the Members shall elect a
single President on an annual basis, who shall serve until his
successor is elected or until removed by the Members. The President
shall not be eligible to serve as a Representative. In the event that
the Members fail to elect a President in any year, the then current
President shall continue to serve as President until that date that is
three years from the date such President was last elected by the
Members as President, unless such President is removed or a successor
is elected prior to such date.
5.3 Officers and Employees
(a) The Co-Presidents or President may appoint other officers
of the Company to serve in such capacities and with such titles as such
Co-Presidents or President deem necessary or appropriate.
(b) In accordance with the Business Plan, the Co-Presidents or
President shall determine the staffing requirements of the Company and
shall cause the Company to lease or hire (as provided in this Section
5.3) such employees as required for the conduct of the Company's
operations. During the period commencing on the Effective Date and
ending on December 31, 1998, the Company shall not hire its own
employees, but shall meet its staffing
requirements with Dedicated Employees leased by the Members. Each
Member shall enter into a Personnel Lease Agreement with the Company
and shall lease to the Company such Dedicated Employees as are
designated by the Co-Presidents or President, in accordance with the
terms and conditions of such Personnel Lease Agreement. Following
December 31, 1998, unless otherwise determined by the Members: (i) the
Company shall hire its own workforce; (ii) the leasing of Dedicated
Employees by the Members shall cease; and (iii) those Dedicated
Employees who continue to be required in the Company's Business shall
be hired as employees of the Company.
5.4 Agency. The Company shall serve as the exclusive agent for the
Members for (i) the marketing, sales and distribution of Energy Products to
Customers, (ii) the invoicing and collection of receivables arising from the
sale of Energy Products to Customers and (iii) the purchasing of Energy
Products, in accordance with the terms and conditions of the Agency Agreements
attached hereto as Exhibit D.
5.5 Agency Fee. Each Member shall pay an Agency Fee to the Company, all
in accordance with the terms and conditions of the Agency Agreements attached
hereto as Exhibit D.
5.6 Sales Split
(a) Each sale of an Energy Product made by the Company as an
agent for the Members shall be deemed to be made in part by CHS and in
part by Farmland, in accordance with the applicable Sales Split for the
Product Line of such Energy Product. For example, if the Company sells
100 gallons of Branded Fuel to a Customer as an agent for the Members
and the Sales Split with respect to Branded Fuel at the time of the
sale is 62%CHS/38% Farmland, then 62 gallons of Branded Fuel will be
sold to the Customer by CHS and 38 gallons of Branded Fuel will be sold
to the Customer by Farmland. The Company shall act as agent for CHS
with respect to its portion of the sale and as agent for Farmland with
respect to its portion of the sale.
(b) The Sales Split for Tender Sale Fuel shall always be equal
to the Refined Fuel Sales Split.
(c) The Sales Split for each Regular Product Line will be
based upon the relative sales volume of each Member with respect to
such Regular Product Line. Specifically, the Sales Split for a given
Regular Product Line shall be "X% CHS/Y% Farmland," where X is equal to
the CHS Base Line Volume for such Regular Product Line divided by the
Total Base Line Volume for such Regular Product Line, multiplied by
100, and Y is equal to the Farmland Base Line Volume for such Regular
Product Line divided by the Total Base Line Volume for such Regular
Product Line, multiplied by 100; provided, however, that X and Y shall
be rounded to the nearest whole percentage.
(d) The initial CHS Base Line Volume, Farmland Base Line
Volume and resulting Total Base Line Volume and Sales Split with
respect to each Regular Product Line shall be as set forth in Schedule
5.6(d) hereto.
(e) On or before August 31 of each calendar year, commencing
August 31, 1999, the Management Committee will determine, with respect
to each Regular Product Line, the CHS Base Line Volume, Farmland Base
Line Volume and the resulting Total Base Line Volume and Sales Split
that will apply during the fiscal year immediately following the then
current fiscal year in accordance with the provisions of this Section
5.6. The CHS Base Line Volume, Farmland Base Line Volume and resulting
Total Base Line Volume and Sales Split with respect to each Regular
Product Line that are applicable to the then current fiscal year will
remain unchanged and will be applicable during the following fiscal
year unless (1) there was an Investment Change by a Member during the
one-year period ending on June 30 of the then current calendar year
(the "Sales Year") that affected the sales volume of such Regular
Product Line during the Sales Year or (2) disregarding the effect on
sales volume of any Investment Change by a Member during the Sales
Year, the sales volume for such Regular Product Line for the Sales Year
is greater than the Total Base Line Volume with respect to such Regular
Product Line, in which case the following adjustments shall be made to
the then current CHS Base Line Volume, Farmland Base Line Volume, Total
Base Line Volume and Sales Split for such Regular Product Line to
establish the new CHS Base Line Volume, Farmland Base Line Volume,
Total Base Line Volume and Sales Split for such Regular Product Line:
(i) If there are any unit sales volume increases or
decreases with respect to such Regular Product Line that are
due to an Investment Change by a Member during the Sales Year,
then the number of units of the applicable Energy Product that
would have been attributable to such Investment Change during
the Sales Year if such Investment Change had been made on the
first day of the Sales Year (which shall be equal to the
number of units of the applicable Energy Product attributable
to the Investment Change during the Sales Year divided by the
number of days in the Sales Year following the date of the
Investment Change, multiplied by 365) shall be added to, or in
the case of a decrease in volume, subtracted from, that
Member's Base Line Volume (either the CHS Base Line Volume or
the Farmland Base Line Volume, as applicable) with respect to
such Regular Product Line;
(ii) If, disregarding the effect on unit sales volume
of any Investment Change by a Member during the Sales Year,
the sales volume for such Regular Product Line for the Sales
Year is greater than the Total Base Line Volume with respect
to such Regular Product Line, then the number of units of
increased volume for such Regular Product Line (for
purposes of this Section 5.6(e)(ii), the "Increased Volume
Units"), which is equal to the difference between the number
of units of the applicable Energy Product sold during the
Sales Year and the Total Base Line Value for such Regular
Product Line, shall be allocated between the Members such that
50% of the Increased Volume Units shall be added to the CHS
Base Line Volume and 50% of the Increased Volume Units shall
be added to the Farmland Base Line Volume, irrespective of the
source of the increased volume; and
(iii) After the adjustments to the CHS Base Line
Volume and Farmland Base Line Volume set forth in Sections
5.6(e)(i) and 5.6(e)(ii) have been made, the resulting Total
Base Line Volume shall be calculated as provided in the
definition of Total Base Line Volume in Section 1.2 and the
resulting Sales Split shall be calculated as provided in
Section 5.6(c).
5.7 Exchange Agreements. The Members shall exchange Energy Products
with each other and purchase Energy Products from each other in accordance with
the terms and conditions of the Exchange Agreements attached hereto as Exhibit
E. The Members agree that a sale of Energy Products by one Member to the other
Member pursuant to any Exchange Agreement shall not be considered a sale for
purposes of determining patronage sales to the other Member, and each Member
hereby waives any and all rights under the bylaws or other organizational
documents of the other Member to receive any patronage dividends or
distributions from the other Member as a result of any purchases of Energy
Products made pursuant to any Exchange Agreement.
5.8 Management Services. Each Member shall provide services to the
Company and the Company shall provide services to each Member in accordance with
the terms and conditions of the Management Services Agreements attached hereto
as Exhibit B. The Company will manage the lubricant plants owned by the Members
and the corporation known as Cenex-Farmland, Inc., which is a joint venture
between the Members, pursuant to such Management Services Agreements.
5.9 Lease of Office Space. Each Member shall lease office space to the
Company for the conduct of the Company's administrative operations in accordance
with the terms and conditions of the Office Lease Agreements attached hereto as
Exhibit F.
5.10 Contracts with Members or their Affiliates. Except for the
transactions contemplated by the Operative Agreements, which are hereby approved
by the Members, and except as provided in Section 3.6, any contract or
transaction between the Company and one of its Members or any of a Member's
Affiliates is permissible only if such contract or transaction, and the Member's
interest therein, are fully disclosed to and the terms of such contract or
transaction are approved by the disinterested Member.
5.11 Other Business Ventures. Subject to the provisions of Section
5.12, any Member may engage in or possess an interest in other business ventures
of every nature and description, independently or with others, and neither the
Company nor the other Members shall have any right by virtue of this Agreement
in or to such other business ventures or to the income or profits derived
therefrom. The Members and Representatives shall not be required to devote all
of their time or business efforts to the affairs of the Company, but shall
devote so much of their time and attention to the Company as is reasonably
necessary and advisable to manage the affairs of the Company in a prudent
manner.
5.12 Competition. Notwithstanding the provisions of Section 5.11, each
Member covenants that it will not, directly or through any Affiliate, own or
engage in any business within the United States of America, Canada or Mexico
which is in competition with the Company's Business. Each Member acknowledges
that the foregoing restrictions are reasonable in scope and duration and are
necessary to protect the Company's Business and the investment of each Member in
the Company. If any Member, directly or through an Affiliate, violates any of
its respective covenants in this Section 5.12, the Company, upon the approval of
the non-violating Member, shall be permitted to obtain specific, injunctive or
other equitable relief against such violation from a court of competent
jurisdiction, without the necessity of posting bond or proving lack of an
adequate remedy at law. Such remedy shall be cumulative and not exclusive of any
other remedy available to the Company at law or in equity. Each Member shall be
released from its respective covenants in this Section 5.12 upon dissolution or
termination of the Company.
5.13 Confidentiality. The Company and each Member, in the course of
their activities pursuant to this Agreement and the Operative Agreements, shall
have access to, and shall have disclosed to them, proprietary and other
confidential information concerning their respective business affairs relating
to the sale of the Energy Products subject to this Agreement. This proprietary
and confidential information constitutes valuable business assets of each of
them, any of which, if used, applied or disclosed, will cause substantial and
irreparable damage to the business and asset value of each, respectively.
Accordingly, none of the Company or the Members shall, at any time, use, apply
or disclose any of such confidential and proprietary information without the
prior written consent of each of the others. The Company shall not obtain, and
the Members shall not exchange, confidential or proprietary information
concerning the activities of the Members that are outside the scope of the
Company's Business. Each of the Company and the Members shall, in addition to
any other available rights and remedies, be entitled to enjoin and restrain any
of the others from violating or continuing to violate the preceding obligations.
The obligations referred to in this Section 5.13 shall survive the dissolution
of the Company.
5.14 Truck Transportation. It is the intent of the Members that the
Company shall not be responsible for providing truck transportation with respect
to Energy Products. It is acknowledged that each of the Members operates its own
truck
transportation business, and the Company shall not be required to use the
transportation services of the Members when it arranges truck transportation for
Customers.
5.15 Claims Arising from the Sale of Energy Products. Except to the
extent of a breach by a Member of a representation, warranty or agreement
contained in this Agreement or any of the Operative Agreements, it is understood
and agreed that the liability and costs associated with a claim arising from the
sale of Energy Products by the Company on behalf of the Members as contemplated
herein and in the Operative Agreements, shall be shared based on the portion of
the Energy Products sold by each Member giving rise to such claim. Further, the
Members and the Company agree to cooperate in the defense of any such claim to
most efficiently administer and defend such claim, including entering into
appropriate joint defense agreements.
5.16 Execution of Documents Filed with Secretary of State of Delaware.
Each Member shall be authorized to execute and file with the Secretary of State
of Delaware any document permitted or required by the Act. Such documents shall
be executed and filed only after the Management Committee has approved or
consented to such action.
5.17 Liability and Indemnification
(a) Limitation of Liability. No Person shall be liable to the
Company or the Members for any loss, damage, liability or expense
suffered by the Company or its Members on account of any action taken
or omitted to be taken by such Person as a Member, Representative,
Co-President, President or other officer, or by such Person while
serving at the request of the Company as a director, officer or in any
other comparable position of any Other Enterprise, if such Person
discharges such Person's duties in good faith and in a manner such
Person reasonably believes to be in or not opposed to the best interest
of the Company. The liability of a Member, Representative,
Co-President, President or officer hereunder shall be limited only for
those actions taken or omitted to be taken by such Person in connection
with the management of the business and affairs of the Company. The
provisions of this Section 5.17 are not intended to limit the liability
of any Member in any other connection, including but not limited to any
obligations of such Member undertaken in this Agreement.
(b) Right to Indemnification. The Company shall indemnify each
Person who has been or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative, investigative or appellate
(regardless of whether such action, suit or proceeding is by or in the
right of the Company or by third parties) by reason of the fact that
such Person is or was a Member, Representative, Co-President, President
or other officer, or employee of the Company, or is or was serving at
the request of the Company as a director, officer or in any other
comparable position of any Other Enterprise, against all liabilities
and expenses, including, without limitation, judgments, amounts paid in
settlement, attorneys' fees, ERISA excise taxes or penalties, fines and
other expenses, actually and reasonably
incurred by such Person in connection with such action, suit or
proceeding (including, without limitation, the investigation, defense,
settlement or appeal of such action, suit or proceeding); provided,
however, that the Company shall not be required to indemnify or advance
expenses to any Person from or on account of such Person's conduct that
was finally adjudged to have been knowingly fraudulent, deliberately
dishonest or to constitute willful misconduct or recklessness; provided
further, that the Company shall not be required to indemnify or advance
expenses to any Person in connection with an action, suit or proceeding
initiated by such Person unless the initiation of such action, suit or
proceeding was authorized in advance by the unanimous approval of the
Members. A Member, Representative, Co-President, President or other
officer or employee shall be indemnified hereunder only for those
actions taken or omitted to be taken by such Person in connection with
the discharge of such Person's obligations for the management of the
business and affairs of the Company. The provisions of this Section
5.17 are not intended to extend indemnification to any Member for any
obligations of such Member undertaken in this Agreement.
(c) Enforcement of Indemnification. If the Company refuses to
indemnify any Person who may be entitled to be indemnified or to have
expenses advanced under this Section 5.17, such Person shall have the
right to maintain an action in any court of competent jurisdiction
against the Company to determine whether or not such Person is entitled
to such indemnification or advancement of expenses hereunder. If such
court action is successful and the Person is determined to be entitled
to such indemnification or advancement of expenses, such Person shall
be reimbursed by the Company for all fees and expenses (including
attorneys' fees) actually and reasonably incurred in connection with
any such action (including, without limitation, the investigation,
defense, settlement or appeal of such action).
(d) Advancement of Expenses. Expenses (including attorneys'
fees) reasonably incurred in defending an action, suit or proceeding,
whether civil, criminal, administrative, investigative or appellate,
shall be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such Person to repay such amount if it shall ultimately be
determined that such Person is not entitled to indemnification by the
Company. In no event shall any advance be made in instances where the
Members or independent legal counsel reasonably determine that such
Person would not be entitled to indemnification hereunder.
(e) Non-Exclusivity. The indemnification and advancement of
expenses provided by this Section 5.17 shall not be exclusive of any
other rights to which those seeking indemnification or advancement of
expenses may be entitled under any statute or any agreement, Member
vote, policy of insurance or otherwise, both as to action in their
official capacity and as to action in another capacity while holding
their respective offices, and shall not limit in any way any right or
obligation that the Company may have to make additional
indemnifications with respect to the same or different Persons or
classes of Persons. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 5.17 shall continue
as to a Person who has ceased to be a Member, Representative,
Co-President or President or other officer or employee, and as to a
Person who has ceased serving at the request of the Company as a
director, officer or in any other comparable position of any Other
Enterprise and shall inure to the benefit of the heirs, executors and
administrators of such Person.
(f) Indemnification of Representatives by Members.
Notwithstanding the provisions of this Section 5.17, each Member shall
indemnify its Representatives against liability to the extent and in
the manner as provided by each Member's governing documents A
Representative's right to indemnification shall be satisfied first by
the Member appointing such Representative, and thereafter by the
Company only to the extent such obligation is not fully satisfied after
the indemnification by such Member is taken into account.
(g) Insurance. If approved by the Management Committee, the
Company may purchase and maintain insurance on behalf of any Person who
is or was a Member, Representative, Co-President, President or other
officer or employee, or is or was serving at the request of the Company
as a director, officer or in any other comparable position of any Other
Enterprise, against any liability asserted against such Person and
incurred by such Person in any such capacity, or arising out of such
Person's status as such, whether or not the Company would have the
power, or the obligation, to indemnify such Person against such
liability under the provisions of this Section 5.17.
(h) Amendment and Vesting of Rights. Notwithstanding any other
provision of this Agreement, the terms and provisions of this Section
5.17 shall not be amended or repealed and the rights to indemnification
and advancement of expenses created hereunder shall not be changed,
altered or terminated except by unanimous vote of the Members. The
rights granted or created hereby shall be vested in each Person
entitled to indemnification hereunder as a bargained-for, contractual
condition of such Person's serving or having served as a Member,
Representative, Co-President, President or other officer or employee or
serving at the request of the Company as a director, officer or in any
other comparable position of any Other Enterprise and, while this
Section 5.17 may be amended or repealed, no such amendment or repeal
shall release, terminate or adversely affect the rights of such Person
under this Section 5.17 with respect to any act taken by such Person or
the failure by such Person to take any act prior to such amendment or
repeal, whether the claim arising from such action or failure to act is
asserted before or after such amendment.
(i) Definitions. For purposes of Section 5.17, references to:
(i) The "Company" shall include, in addition to the
resulting or surviving limited liability company, any
constituent limited liability company (including any
constituent of a constituent) absorbed in a consolidation or
merger so that any Person who is or was serving as a member or
manager of such constituent limited liability company, or is
or was serving at the request of such constituent limited
liability company
as a director or officer or in any other comparable position
of any Other Enterprise shall stand in the same position under
the provisions of this Section 5.17 with respect to the
resulting or surviving limited liability company as such
Person would if such Person had served the resulting or
surviving limited liability company in the same capacity.
(ii) "Other Enterprises" or "Other Enterprise" shall
include, without limitation, any other limited liability
company, corporation, cooperative association, partnership,
joint venture, trust, employee benefit plan or other entity.
(iii) "fines" shall include any excise taxes assessed
against a Person with respect to an employee benefit plan.
(iv) "defense" shall include investigations of any
threatened, pending or completed action, suit or proceeding as
well as appeals thereof and shall also include any defensive
assertion of a cross-claim or counterclaim.
(v) "serving at the request of the Company" shall
include any service as a director, officer or in any other
comparable position that imposes duties on, or involves
services by, a Person with respect to an employee benefit
plan, its participants or beneficiaries.
(vi) a Person who acted in good faith and in a manner
such Person reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan
shall be deemed to have acted "in the best interest of the
Company" as referred to in this Section 5.17.
(j) Severability. If any provision of this Section 5.17 or the
application of any such provision to any Person or circumstance is held
invalid, illegal or unenforceable for any reason whatsoever, the
remaining provisions of this Section 5.17 and the application of such
provision to other Persons or circumstances shall not be affected
thereby and, to the fullest extent possible, the court finding such
provision invalid, illegal or unenforceable shall modify and construe
the provision so as to render it valid and enforceable as against all
Persons and to give the maximum possible protection to Persons subject
to indemnification hereby within the bounds of validity, legality and
enforceability. Without limiting the generality of the foregoing, if
any Member, Representative, Co-President, President or other officer or
employee or any Person who is or was serving at the request of the
Company as a director, officer or in any other comparable position of
any Other Enterprise, is entitled under any provision of this Section
5.17 to indemnification by the Company for some or a portion of the
judgments, amounts paid in settlement, attorneys' fees, ERISA excise
taxes or penalties, fines or other expenses actually and reasonably
incurred by any such Person in connection with any threatened, pending
or completed action, suit or proceeding (including, without limitation,
the investigation, defense, settlement or appeal of such action, suit
or proceeding), whether civil, criminal, administrative, investigative
or appellate, but not,
however, for all of the total amount thereof, the Company shall
nevertheless indemnify such Person for the portion thereof to which
such Person is entitled.
ARTICLE VI
ACCOUNTING AND BANK ACCOUNTS
6.1 Fiscal Year. The fiscal year and taxable year of the Company shall
end on August 31 of each year, unless a different year is required by the Code
or adopted by the Members.
6.2 Books and Records. At all times during the existence of the
Company, the Company shall cause to be maintained full and accurate books of
account, which shall reflect all Company transactions and be appropriate and
adequate for the Company's Business. The books and records of the Company shall
be maintained at such place or places as the Members shall determine. Each
Member or its Representatives shall have the right during ordinary business
hours and upon reasonable notice to inspect and copy (at such Member's own
expense) all books and records of the Company. The Members may cause the Company
to retain a firm of certified public accountants of recognized standing to audit
the financial statements of the Company.
6.3 Financial Reports
(a) Within 30 days after the end of each month there shall be
prepared and delivered to each Member a balance sheet and related
financial statements for the month then ended.
(b) Within 75 days after the end of each fiscal year, there
shall be prepared and delivered to each Member all information with
respect to the Company necessary for the preparation of the Members'
federal and state income tax returns.
(c) Within 90 days after the end of each fiscal year, there
shall be prepared and delivered to each Member:
(i) a balance sheet as of the end of such year and
related financial statements for the year then ended; and
(ii) other pertinent information regarding the
Company.
6.4 Tax Returns and Elections; Tax Matters Member. The Company shall
cause to be prepared and timely filed all federal, state and local income tax
returns and other returns or statements required of the Company by applicable
law. The Company shall claim all deductions and make such elections for federal
or state income tax purposes that the Members reasonably believe will produce
the most favorable tax results for the Members. CHS is hereby designated as the
Company's "Tax Matters Member," as contemplated under the Code, and in such
capacity is hereby authorized and
empowered to act for and represent the Company and each of the Members before
the Internal Revenue Service in any audit or examination of any Company tax
return and before any court selected by the Members for judicial review of any
adjustment assessed by the Internal Revenue Service. CHS hereby accepts such
designation. CHS shall provide Farmland with written notice of any federal
income tax audit and shall keep Farmland informed of all material developments
involved in such proceedings. CHS shall consult with Farmland with respect to
any proposed consent or adjustment, and shall not agree to any proposed consent
or adjustment to the Company's income, gain, loss or deductions without the
consent of Farmland, which consent shall not be unreasonably withheld. Without
limiting the general applicability of this Section 6.4, CHS shall not be liable,
responsible or accountable in damages or otherwise to the Company or Farmland
with respect to any action taken by CHS in its capacity as the Tax Matters
Member, provided CHS acted in a manner it believed to be in the best interests
of the Company and its Members. All reasonable out-of-pocket expenses incurred
by CHS in its capacity as the Tax Matters Member shall be considered expenses of
the Company for which CHS shall be entitled to full reimbursement. Nothing in
this Section 6.4 shall limit the ability of the Members to take any action in
their individual capacity relating to those tax audit matters that are left to
the determination of an individual partner under Code Section 6222 through Code
Section 6232.
6.5 Section 754 Election. In the event there occurs a distribution of
Company assets that satisfies the provisions of Section 734 of the Code, upon
the determination of the Members, the Company shall elect, pursuant to Section
754 of the Code, to adjust the basis of the Property to the extent allowed by
Section 734 and shall cause such adjustments to be made and maintained. Any
additional accounting expenses incurred by the Company in connection with making
or maintaining any such basis adjustment shall be reimbursed to the Company from
time to time by the distributee who benefits from the making and maintenance of
such basis adjustment.
6.6 Bank Accounts. All funds of the Company shall be deposited in a
separate bank, money market or similar account(s) approved by the Management
Committee and in the Company's name. Withdrawals therefrom shall be made only by
such persons as are authorized by the Management Committee.
ARTICLE VII
TRANSFERS OF INTERESTS
7.1 Prohibition on Transfer. Except as expressly provided in this
Agreement, no Member may Transfer all or any part of its Interest. Any purported
Transfer of all or part of an Interest in violation of the terms of this
Agreement shall be null and void and of no effect. Effective as of the date of
any attempted Transfer of all or part of an Interest in violation of this
Agreement and continuing for a two-year period thereafter, a Member that
attempts to Transfer all or part of its Interest in violation of this Agreement
shall no longer have the right to vote as a Member, give its approval or
consent as Member, name Representatives to the Management Committee or
participate in the management of the business and affairs of the Company, and
the vote, consent or approval of the Non-Defaulting Member shall be sufficient
for taking all action required or permitted to be taken by the Members under
this Agreement.
7.2 Involuntary Transfers. In the event of an involuntary Transfer of
the Interest of a Member (the "Transferor") upon the Bankruptcy of such Member
or other involuntary transfer by such Member, any assignee of such Interest who
does not become a Substitute Member as provided in Section 7.3 (a "Transferee")
shall not be a Member and shall not have any right to vote as a Member, give its
consent or approval as a Member, name Representatives to the Management
Committee or participate in the management of the business and affairs of the
Company. In addition, unless and until admitted as a Substitute Member, a
Transferee shall not be entitled to exercise any other rights of a Member in the
Company, including the right to grant approvals or give consents with respect to
the transferred Interest, the right to require any information or accounting of
the Company's Business, or the right to inspect the Company's books and records.
The Transferee shall, however, be entitled to receive Distributions and
allocations of the Company, as provided in Article IV of this Agreement,
attributable to the Interest that is the subject of the Transfer to such
Transferee. A Transferor shall cease to be a Member upon Transfer of its
Interest.
7.3 Substitute Member. A "Substitute Member" is a Transferee admitted
to the Company as a Member and entitled to all rights and bound by all
obligations of the Member for which it is substituted. A Transferee shall have
the right to become a Substitute Member only upon the occurrence of all of the
following:
(a) The Transferee executes an instrument acceptable to the
Non-Transferring Member adopting and agreeing to abide by the terms and
provisions of this Agreement;
(b) The Transferor or Transferee has paid all reasonable
expenses of the Company in connection with the admission of the
Transferee as a Substitute Member; and
(c) The Non-Transferring Member, in its sole and absolute
discretion, shall have consented in writing to such Transferee becoming
a Substitute Member.
Upon satisfaction of all of the foregoing conditions, the
Members shall cause this Agreement to be duly amended to reflect the
admission of the Transferee as a Substitute Member.
7.4 Binding on Transferee. The provisions of this Article VII shall be
binding upon any Transferee of a transferring Member's or Transferee's Interest.
ARTICL VIII
DISPUTE RESOLUTION
8.1 General Management Issues. In the event that a General Management
Issue shall arise during the term of this Agreement, the Co-Presidents or
President of the Company (as applicable) shall resolve the disagreement and make
the final decision with respect to the item in question. The decision of the
Co-Presidents or President shall be binding on the Members (except to the extent
such decision may be modified pursuant to the provisions of this Section 8.1).
Any Member may appeal, in accordance with the procedure established in this
Section 8.1, any decision made by the Co-Presidents or President pursuant to
this Section 8.1 involving a Material Item. A Member may commence such an appeal
by giving written notice to the other Member, at which time the matter that is
the subject of the appeal shall be submitted to the Management Committee for
review. The Management Committee shall review the matter at its next meeting and
may modify the decision of the Co-Presidents or President to the extent the
Management Committee deems advisable. If the Management Committee fails to
resolve the matter to the satisfaction of the appealing Member, the matter shall
be submitted to the Chief Executive Officers of the Members, who shall promptly
review the matter and may modify the decision of the Co-Presidents or President
to the extent such Chief Executive Officers may agree is advisable. If the Chief
Executive Officers of the Members fail to resolve the matter to the satisfaction
of the appealing Member, the appealing Member shall continue to be bound by the
decision of the Co-Presidents or President.
8.2 Business Issues and Legal Issues
(a) Management Escalation. In the event that a Business Issue
or a Legal Issue shall arise during the term of this Agreement, the
Management Committee shall first make a good faith effort to promptly
resolve such dispute. If the Management Committee is unable to reach
agreement with respect to such dispute within 60 days, then the dispute
shall be submitted to the Chief Executive Officers of the Members, who
shall meet within 30 days to attempt in good faith to resolve the
dispute. If the Chief Executive Officers have not resolved the dispute
within 60 days of the submission of the dispute to the Chief Executive
Officers, then the dispute shall be resolved in accordance with the
provisions of Sections 8.2(b) or 8.2(c), as applicable.
(b) Business Issues. In the event that the Members are unable
to reach agreement with respect to a Business Issue during the term of
this Agreement, the previous agreement with respect to such Business
Issue shall remain in effect until the earlier of the Business Issue
Expiration Date or the date an agreement is reached by the Members with
respect to such Business Issue. If the Members are unable to reach
agreement with respect to such Business Issue prior to the date that is
one year prior to the Business Issue Expiration Date, then each Member
shall have the right to cause the Company to be dissolved by giving
notice to the
other Member, upon which the Company shall be dissolved on that date
that is six months after the date of such notice. If no Member
exercises the right to dissolve the Company pursuant to the preceding
sentence prior to that date that is six months' prior to the Business
Issue Expiration Date, then the Company shall be dissolved upon the
Business Issue Expiration Date.
(c) Legal Issues. In the event that the Members are unable to
resolve a Legal Issue pursuant to the provisions of Section 8.2(a)
hereof, such dispute shall be submitted to non-binding mediation
administered by the American Arbitration Association in accordance with
its Commercial Mediation Rules. If the Member initiating the mediation
is CHS, the mediation shall take place in Kansas City, Missouri, and if
the Member initiating the mediation is Farmland, the mediation shall
take place in Minneapolis, Minnesota. The Members shall share the
expenses of the mediation on an equal basis. If such dispute is not
resolved by non-binding mediation, the dispute shall be resolved by
binding arbitration administered by the American Arbitration
Association in accordance with its Commercial Arbitration Rules (as
modified hereby). If the Member initiating the arbitration proceeding
is CHS, the arbitration shall be conducted in Kansas City, Missouri,
and if the Member initiating the arbitration proceeding is Farmland,
the arbitration shall be conducted in Minneapolis, Minnesota. Any award
rendered in the arbitration proceeding shall be final and binding upon
the Members and a judgment thereon may be entered in any court having
competent jurisdiction. The Member initiating the arbitration shall
request, and the American Arbitration Association shall: (i) appoint as
the arbitrator a single retired trial judge in the state where the
arbitration takes place who is familiar with the business conducted by
the Company; (ii) direct the arbitrator to follow substantive rules of
law and the Federal Rules of Evidence; (iii) allow the parties to
conduct discovery pursuant to the rules then in effect under the
Federal Rules of Civil Procedure (excluding confidential records of CHS
or Farmland that are not relevant to the issues being arbitrated) for a
period not to exceed 60 days; (iv) require the testimony to be
transcribed; and (v) require the award to be accompanied by findings of
fact and a statement of reasons for the decision. If a Member is
determined to be liable in any dispute that is determined and/or
settled by arbitration pursuant to this Section 8.2(c), then all costs
and expenses, including reasonable attorney's fees and expert's fees,
of all parties incurred with respect to such dispute shall be borne by
the Member determined to be liable in respect of such dispute;
provided, however, that if complete liability is not assessed against
only one Member, the Members shall share the expenses in proportion to
their respective amounts of liability so determined. In the event that
no Member is determined to be liable in a dispute that is determined
and/or settled by arbitration pursuant to this Section 8.2(c), then the
expenses of arbitration shall be shared equally by the parties unless
otherwise decided by the arbitrator(s). The Members agree to continue
performing their respective obligations under this Agreement while the
dispute is being resolved, except to the extent such obligations are
clearly the subject of the dispute. Notwithstanding any provision
of this Section 8.2(c), any Member may seek injunctive relief from any
judicial or administrative authority of competent jurisdiction to
enjoin the other Member from breaching any provision of this Agreement
or any Operative Agreement pending resolution of a dispute by mediation
or arbitration pursuant to this Section 8.2(c).
ARTICLE IX
DISSOLUTION AND TERMINATION
9.1 Events Causing Dissolution. The Company shall be dissolved upon the
first to occur of the following events:
(a) The unanimous agreement of the Members to dissolve.
(b) Upon the entry of a decree of dissolution with respect to
the Company by a court of competent jurisdiction.
(c) Upon the voluntary termination of the Company by a Member
in accordance with the provisions of this Section 9.1(c). At any time
after September 1, 2000, a Member may effect a voluntary termination of
the Company by (i) giving notice to the other Member of its intent to
terminate the Company under this Section 9.1(c) and (ii) making a cash
payment to the other Member in an amount equal to the greater of (A)
$5,000,000 or (B) twenty-five percent (25%) of the aggregate of the
other Member's Volume Adjusted Patronage Income (as defined below) for
the two fiscal years ending immediately preceding the date of such
notice (for purposes of this Section 9.1(c), the "Applicable Fiscal
Years"). The Company shall be dissolved pursuant to this Section 9.1(c)
on the date specified in such notice, which date shall be between six
and nine months after the date of such notice. The amount payable by
the terminating Member hereunder shall be paid on the date of
dissolution. For purposes of this Section 9.1(c), a Member's "Volume
Adjusted Patronage Income" for the Applicable Fiscal Years means (1)
for the Member with the greater aggregate patronage sales revenues from
Refined Fuels in the Applicable Fiscal Years (for purposes of this
Section 9.1(c), "Member A"), that Member's aggregate patronage income
from the sale of Refined Fuels for the Applicable Fiscal Years and (2)
for the other Member (for purposes of this Section 9.1(c), "Member B"),
that Member's total patronage income from the sale of Refined Fuels for
the Applicable Fiscal Years multiplied by a fraction, the numerator of
which is the aggregate patronage sales revenues from Refined Fuels of
Member A in the Applicable Fiscal Years and the denominator of which is
the aggregate patronage sales revenues from Refined Fuels of Member B
in the Applicable Fiscal Years. For purposes hereof, patronage sales
revenues and patronage income shall be determined from the books and
records of the Member in accordance with the methods used by such
Member in determining such amounts for patronage dividend allocations
and distributions, and patronage income shall be the amount of such
Member's patronage sourced income attributable to business done with or
for its members and patrons and shall be computed
without regard to taxes based on income. By way of illustration of the
foregoing, if Member A had aggregate patronage income of $40 million
and aggregate patronage sales revenues of $2.0 billion from Refined
Fuels in the Applicable Fiscal Years, and Member B had $20 million in
aggregate patronage income and $1.5 billion in aggregate patronage
sales revenues from Refined Fuels in such years, then Member A's Volume
Adjusted Patronage Income would be $40 million, and Member B's Volume
Adjusted Patronage Income would be $26.67 million (I.E., $20 million
times ($2.0 billion divided by $1.5 billion)). Member B could terminate
by making a cash payment of $10 million to Member A (I.E., 25% of $40
million). Member A could terminate by making a cash payment of $6.67
million to Member B (I.E., 25% of $26.67 million).
(d) Upon notice given by a Member to the other Member within
60 days after a Change in Control of the other Member; provided,
however, that the Company shall be dissolved pursuant to this Section
9.1(d) on the date specified in such notice, which date shall be
between six and nine months after the date of such notice.
(e) Upon notice given by a Member to the other Member pursuant
to this Section 9.1(e) following an event giving rise to a right to
dissolve the Company pursuant to this Section 9.1(e); provided,
however, that the Company shall be dissolved pursuant to this Section
9.1(e) on the date specified in such notice, which date shall be
between six and nine months after the date of such notice. A Member may
elect to dissolve the Company (by giving notice thereof as hereinafter
provided) in the event that the other Member experiences a material
non-operating loss (for purposes of this Section 9.1(e), a "Material
Loss") and such other Member accounts for the Material Loss in a manner
which will have a material negative impact on the patronage income of
such Member from Energy Products in any fiscal year subsequent to the
fiscal year with respect to which the Material Loss is recorded for
financial accounting purposes. This provision shall not apply to the
application of article and/or bylaw provisions that require or result
in charges against patronage income of all allocation units made on a
non-discriminatory basis and made for purposes of contributing to a
capital reserve. The right of a Member to dissolve the Company
hereunder may be exercised by giving notice to the other Member at any
time after such Member becomes aware of the event giving rise to such
right to dissolve, but in any event shall be exercised within 60 days
after the other Member notifies such Member that an event to which this
Section 9.1(e) applies has occurred.
(f) Upon notice given by a Member to the other Member in the
event that the other Member materially breaches this Agreement or any
Operative Agreement and fails to cure such breach within 60 days after
receiving notice of such breach.
(g) As provided in Section 8.2(b).
To the extent permitted by law, the foregoing are the only events that
may cause a dissolution of the Company, notwithstanding the provisions of
Section 18-801 of the Act.
9.2 Effect of Dissolution. Except as otherwise provided in this
Agreement, upon the dissolution of the Company, the surviving Members shall take
such actions as may be required pursuant to the Act and shall proceed to wind
up, liquidate and terminate the business and affairs of the Company. In
connection with the winding up of the Company, the Members shall have the
authority to liquidate and reduce to cash (to the extent necessary or
appropriate) the assets of the Company as promptly as is consistent with
obtaining Fair Value therefor, to apply and distribute the proceeds of such
liquidation and any remaining assets in accordance with the provisions of
Section 9.4 hereof, and to do any and all acts and things authorized by, and in
accordance with, the Act and other applicable laws for the purpose of winding up
and liquidation.
9.3 Plan of Liquidation. Commencing upon the earlier of (i) the giving
of notice by a Member of its intent to cause a dissolution of the Company
pursuant to Section 8.2(b), 9.1(c), 9.1(d) or 9.1(e), (ii) in the event of a
dissolution of the Company upon the expiration of an agreement with respect to a
Business Issue pursuant to Section 8.2(b), that date that is six months' prior
to the expiration of such agreement, or (iii) the dissolution of the Company,
the Members shall use their best efforts to agree upon a plan of liquidation
that includes a reasonable allocation between the Members of all of the
Company's vendor contracts, employees and other assets and commitments. Upon the
dissolution of the Company, the Members shall wind up and liquidate the Company
pursuant to any such plan of liquidation.
9.4 Application of Proceeds. Upon dissolution and liquidation of the
Company, the assets of the Company shall be applied and distributed in the order
of priority set forth in Section 4.2.
9.5 Continuing Obligations. If any Member is required to assume or pay
any debt, expense, obligation or liability of the Company following dissolution
or termination, each of the other Members shall contribute its respective pro
rata share of such debt, expense, obligation or liability until the same is
discharged.
ARTICLE X
MISCELLANEOUS
10.1 Title to Assets. Title to the Property and all other assets
acquired by the Company shall be held in the name of the Company. No Member
shall individually have any ownership interest or rights in the Property or any
other assets of the Company, except indirectly by virtue of such Member's
ownership of an Interest. No Member shall have any right to seek or obtain a
partition of the Property or other assets of the Company, nor shall a Member
have the right to any specific assets of the Company upon the liquidation of or
any distribution from the Company.
10.2 Nature of Interest in the Company. An Interest shall be personal
property for all purposes.
10.3 Notices. Any notice, demand, request or other communication
required or permitted to be given pursuant to this Agreement or the Act to the
Company, any Member or any other Person (a "Notice") shall be sufficient if in
writing and if hand-delivered or sent by certified mail return receipt
requested, commercial overnight delivery service, or facsimile transmission
followed by hard copy within not less than three Business Days, to the Company
at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ and at ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or to a Member at its office
address or facsimile number as appearing on the records of the Company. All
Notices that are mailed shall be deemed given as of the date shown on the return
receipt. All Notices that are hand-delivered shall be deemed given upon
delivery. All Notices sent by commercial overnight delivery shall be deemed
given upon receipt. All notices sent by facsimile transmission shall be deemed
given upon electronic confirmation of delivery if delivered no later than 4:30
p.m. Central Time on a Business Day or, if not delivered by 4:30 p.m. Central
Time on a Business Day, on the next Business Day following the date of such
delivery.
10.4 Waiver of Default. No consent or waiver, express or implied, by
the Company or a Member with respect to any breach or default by the other
Member shall be deemed a consent or waiver with respect to any other breach or
default by such Member or the other Member of the same provision or of any other
provision of this Agreement. Failure on the part of the Company or any Member to
complain of any act or failure to act of another Member or to declare such other
Member in default shall not constitute a waiver by the Company or the Member of
any rights hereunder.
10.5 No Third Party Rights. None of the provisions in this Agreement
shall be for the benefit of or enforceable by any third parties, including, but
not limited to creditors of the Company; however, the Company may enforce any
right granted to the Company under the Act, the Certificate or this Agreement.
10.6 Entire Agreement. Together with the Certificate, the Operative
Agreements and the Confidentiality Agreement between Farmland and Cenex, Inc.
(now known as Cenex Harvest States Cooperatives) dated August 13, 1997, this
Agreement constitutes the entire agreement between the Members, in such
capacity, relative to the formation, operation and continuation of the Company.
10.7 Amendments to this Agreement
(a) This Agreement shall not be modified or amended except by
written instrument executed by all the Members.
(b) Notwithstanding the provisions of Sections 5.1(a) and
10.7(a), this Agreement shall be amended in order to reflect the
occurrence of any of the following
events, provided all the conditions, if any, contained in the relevant
Sections of this Agreement with respect to such event have been
satisfied:
(i) An adjustment in the Percentage Interests of the
Members upon a Defaulting Member's Default.
(ii) The readjustment of the Percentage Interests as
a result of the cure of a Defaulting Member's Default.
(iii) The modification of this Agreement to comply
with the relevant tax laws pursuant to Sections 3.4 or 4.5(j)
hereof.
10.8 Severability. If any provision of this Agreement is held illegal,
invalid or unenforceable to any extent, the legality, validity and
enforceability of the remainder of this Agreement shall not be affected thereby,
and the remainder of this Agreement shall continue in full force and effect.
10.9 Binding Agreement. Subject to the restrictions on the disposition
of Interests herein contained, the provisions of this Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
10.10 Headings. Article and Section headings in this Agreement are for
convenience of reference only and shall have no effect in the interpretation of
this Agreement.
10.11 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original and all of which, taken together, shall
constitute a single instrument.
10.12 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without giving effect to
conflicts of laws principles.
IN WITNESS WHEREOF, the Members have executed this Agreement as of the
date set forth above.
FARMLAND INDUSTRIES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Executive Vice President & Chief Operating
Officer, Ag Input Businesses
CENEX HARVEST STATES COOPERATIVES
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
