RESOLUTIONS
OF THE
BOARD OF DIRECTORS
OF
HARVEST STATES COOPERATIVES
---
CREATING
THE
WHEAT MILLING
DEFINED BUSINESS UNIT
AND
EQUITY PARTICIPATION UNITS (MILLING)
RESOLVED, pursuant to the authority conferred by the Amended
and Restated Articles of Incorporation and the Amended and Restated Bylaws of
the Association, as follows:
Section 1. There is hereby created, as a separate defined
business unit of the Association, the Wheat Milling Defined Business Unit (the
"Milling Business Unit") for the purpose of purchasing wheat (including durum)
and the processing and sale thereof into flour and various byproducts to carry
on the operations of the Wheat Milling Division.
Section 2. The Milling Business Unit shall be created
effective at the close of business on May 31, 1997, and on that date there shall
be allocated to the Milling Business Unit the assets and liabilities, including
commitments, contingencies and obligations, appropriately belonging to the Wheat
Milling Division. The Association shall contribute sufficient cash to the
Milling Business Unit to bring its net worth to $66,597,072 (representing its
equity of $27,797,072 at May 31, 1996 plus $38,800,000) so that construction of
the Pocono facility can be financed from equity capital.
Section 3. There is hereby created an issue of up to
26,800,000 Equity Participation Units (Milling) (the "Units") having the rights,
preferences and privileges set forth herein to be sold to Defined Members of the
Milling Business Unit at a price of $2.00 per Unit in cash or partially in cash
and partially upon conversion of outstanding Capital Equity Certificates. Units
may be purchased and held only by Defined Members, who shall be either persons
actually engaged in the production of agricultural products or associations of
producers of agricultural products. The Association shall be deemed to hold
Equity Participation Units equal to the capacity of the Milling Business Unit
not held by Defined Members.
Section 4. Prior to the sale of any Unit to any person, such
person shall enter into a Member Marketing Agreement in substantially the form
of Exhibit 1 hereto, which gives the right and obligation to such person to
deliver the number of bushels of wheat as shall equal the number of Units to be
purchased by such Defined Member. The delivery right and obligation for the
Milling Business Unit will become fully effective for the fiscal year in which
the Pocono facility begins operating. Initially and until the Member Marketing
Agreement becomes fully effective, it will represent a right and obligation to
deliver 78% of the wheat set forth therein.
Section 5. With the approval of the Board of Directors, Units
may be transferred only to other Members of the Association who enter into a
Member Marketing Agreement equal to the number of Units being transferred. No
producer may purchase Units representing more than such producer's current
anticipated annual production of wheat. No holder of a Unit may hold fewer than
3,000 Units. No one Defined Member may own more than 1% of the outstanding
capacity of the Milling Business Unit. The officers of the Association are
authorized to adopt processes, regulations and forms with respect to the
transfer of Units.
Section 6. Revenues from the sale of products of the Milling
Business Unit shall be credited to the Milling Business Unit, and all direct
expenses incurred by the Milling Business Unit shall be charged against the
Milling Business Unit. Corporate, general and administrative expenses of the
Association shall be allocated to the Milling Business Unit in a reasonable
manner based on the utilization by the Milling Business Unit. Intracompany
accounts shall be established for the advancements to, and the loan of funds by,
the Milling Business Unit, with interest thereon imputed at prevailing rates.
Income taxes shall be allocated to the Milling Business Unit as if it were a
separate taxpayer. The Milling Business Unit shall perform and be responsible
for commitments, contingencies and obligations allocated to the Milling Business
Unit.
Section 7. Patronage sourced income from the operations of the
Milling Business Unit will be allocated by the Association as patronage refunds
based on the total amount of wheat processed, giving effect to Units held and
Units deemed to be held by the Association. As between holders of the Units,
patronage sourced income will be allocated to each Defined Member proportionate
to the number of bushels of wheat delivered pursuant to the Member Marketing
Agreement. Defined Members may also receive, upon allocation by the Board of
Directors, nonpatronage income from operations of the Company, including
operations of the Milling Business Unit generating nonpatronage income.
Section 8. With respect to each year, the total net income
from the Milling Business Unit will be withdrawn by the Association from the
Milling Business Unit, except to the extent that patronage dividends are not
paid in cash and are retained in the Milling Business Unit as equity. The
Association shall be responsible for the allocation of net income arising from
operations of the Milling Business Unit between Defined Members and the
remainder of the Association's operations.
Section 9. Upon the acquisition by the Association from a
third party of any assets (whether by means of an acquisition of assets or
stock, merger, consolidation or otherwise) reasonably related to the Milling
Business Unit, such assets and related liabilities, including commitments,
contingencies and obligations, shall be allocated to the Milling Business Unit
and the aggregate cost or fair market value of such assets and liabilities shall
be paid by the Milling Business Unit. Such allocation and determination of fair
market value may be made by the Board of Directors taking into account such
matters as it and its advisers, if any, deem relevant, and any such allocation
and determination of fair market value shall be final and binding for all
purposes whatsoever.
Section 10. Upon any sale, transfer, assignment or other
disposition by the Association of any or all assets of the Milling Business Unit
(whether by means of a disposition of assets, merger, consolidation, liquidation
or otherwise), all proceeds (including non-cash consideration received) or the
fair market value from such disposition shall be allocated to the Milling
Business Unit. If an asset is allocated to more than one Business Unit, the
proceeds or the fair market value of the disposition shall be allocated among
all Business Units based upon their respective interests in such assets. Such
allocation and determination of fair market value shall be made by the Board of
Directors taking into account such matters as the Board of Directors and its
advisers, if any, deem relevant, and any such allocation and determination of
fair market value shall be final and binding for all purposes whatsoever.
Section 11. The Board of Directors may from time to time
reallocate any asset from the Milling Business Unit to the Association or any
other Business Unit of the Association at fair market value. Such determination
of fair market value shall be made by the Board of Directors taking into account
such matters as the Board of Directors and its advisers, if any, deem relevant,
and any such allocation and determination of fair market value shall be final
and binding for all purposes whatsoever.
Section 12. The Association shall not enter into any agreement
by which the net patronage sourced earnings of the Milling Business Unit shall
be allocated to any person except to a person who owns or is deemed to own Units
proportionate to the patronage being so allocated.
Section 13. In connection with the merger, consolidation,
liquidation or sale of all or substantially all of the assets of the Association
as an entirety or upon the sale of all or substantially all of the assets of the
Milling Business Unit, all, but not less than all, Units of the Milling Business
Unit shall be redeemed at their original purchase price of $2.00, provided that
the Preferred Capital Certificates or unit retains of the Milling Business Unit
not previously paid are also redeemed in connection therewith; that such
payments include any pro rata profit (or loss) associated with disposition of
the assets of the Milling Business Unit as though the assets, subject to the
liabilities, of the Milling Business Unit had been sold in connection with such
event at their fair market value; and that provision is made for the allocation
of patronage sourced income arising prior to such transaction. Any determination
of fair market value shall be made by the Board of Directors taking into account
such matters as the Board of Directors and its advisers, if any, deem relevant.
For purposes of this Section 13, sale of more than 75% of the assets or earning
power will be deemed "all or substantially all" of the assets of the Company or
the Milling Business Unit.
Section 14. The Board of Directors is authorized to establish
and designate one or more series of Preferred Capital Certificates of the
Association that may have a priority in payment over the Units and to fix (and
to increase and decrease) the amount, the designations, and the relative powers,
rights, preferences and limitations of such series.
Section 15. Defined Members who hold Units of the Milling
Business Unit shall have the right to elect a Defined Member Board comprised of
between five and ten individuals. The members of the Defined Member Board must
be either Defined Members or representatives of Defined Members and in good
standing and in full compliance with all delivery obligations with respect to
the Milling Business Unit; provided, however, no employee of the Association may
serve as a member of the Defined Member Board. The initial Defined Member Board
shall consist of five persons designated by the Company's Board of Directors and
shall hold such office until the Association's 1997 Annual Meeting and until
their successors are duly elected and qualified. Thereafter the Defined Member
Board shall be elected by the Defined Members of the Milling Business Unit on a
one Defined Member/one vote basis. The Chairperson shall be selected by and from
the Association's Board of Directors. Individuals serving on a Defined Member
Board shall serve staggered three-year terms, divided into classes as nearly
equal in number as possible. The terms of two members of the Defined Member
Board elected at the 1997 Annual Meeting shall expire in 2000, two in 1999 and
one in 1998, to be determined by lot. The Defined Member Board shall meet at
least quarterly and shall be charged with reflecting Defined Member concerns and
providing a direct communication mechanism to the Association's Board of
Directors.
Section 16. Holders of Units shall have no voting rights
except as Members of the Association and as provided in Sections 15 and 21.
Section 17. The Board of Directors from time to time may
authorize the sale by the Association of Units deemed owned by the Association
for the account of the Association provided that sales shall be at fair market
value determined by the Board of Directors taking into account such matters as
the Board of Directors and its financial advisers, if any, deem relevant.
Section 18. The Association may, if authorized by the Board of
Directors, purchase Units at such price as it shall determine from time to time
for its own account, or for the account of the Milling Business Unit. Units
purchased for the account of the Association shall be deemed outstanding Units
of the Milling Business Unit. Units purchased by the Milling Business Unit shall
be cancelled and shall no longer be deemed outstanding by the Milling Business
Unit.
Section 19. The Board of Directors may authorize the creation,
issuance and sale of additional Equity Participation Units from time to time on
such terms and for such consideration as it shall deem appropriate. Any proceeds
from the sale of such additional Units shall be allocated to the Milling
Business Unit.
Section 20. Holders of Units shall have no preemptive rights
to subscribe for or purchase additional Units or any other securities issued by
the Milling Business Unit or the Association.
Section 21. The operations of the Milling Business Unit shall
be carried out by the Association through the Board of Directors, officers and
management of the Association. The capital assets of the Milling Business Unit
may be disposed of in the ordinary course of business and the disposition of any
substantial portion of the assets of the Milling Business Unit as an entirety
may be authorized by the Board of Directors. The Board of Directors may
determine to sell the assets and operations of the Milling Business Unit or to
abandon or shut down the operations of the Milling Business Unit. Abandonment or
shutting down the operations of a Business Unit (other than on a temporary
basis) will be considered sale of all of the assets of the Business Unit.
Abandonment or shutting down the operations of a Business Unit (other than on a
temporary basis) will be considered sale of all of the assets of the Business
Unit.
Section 22. These resolutions may be amended from time to time
by the Board of Directors of the Association, except for Sections 6 through 13,
which may be amended only with the approval of a majority of Defined Members
owning Units not held or deemed held by the Association.