Joint Venture Agreement

EXHIBIT 10.38


JOINT VENTURE AGREEMENT


THIS JOINT VENTURE AGREEMENT (this "AGREEMENT"), effective January 1, 2000 is entered into by and between FARMLAND INDUSTRIES, INC., a cooperative corporation organized under the laws of Kansas ("FARMLAND"), CENEX HARVEST STATES COOPERATIVES, a cooperative corporation organized under the laws of Minnesota ("CHS"), United Country Brands LLC, a Delaware limited liability company ("UNITED LLC") and LAND O'LAKES, INC., a cooperative corporation organized under the laws of Minnesota ("LOL") (Farmland, CHS, United LLC and LOL each individually a "PARTY" and collectively the "PARTIES". Farmland and CHS together are "UCB PARTIES").


W I T N E S S E T H :
- - - - - - - - - -


WHEREAS, the UCB Parties have formed United LLC as a Delaware limited liability company for the purpose of holding certain of their interests in the joint venture created by this Agreement.


WHEREAS, each of the Parties is engaged in businesses of or related to the wholesale marketing of plant food and crop protection products in North America; and


WHEREAS, in order to better realize the potential of the businesses, UCB Parties and LOL desire to form a joint venture by establishing and operating a limited liability company and by entering into agreements ancillary thereto;


NOW, THEREFORE, in consideration of the premises and the mutual covenants herein, the Parties agree as follows:


ARTICLE I


ESTABLISHMENT OF LIMITED LIABILITY COMPANY


1. Limited Liability Company. On or before the Operational Closing Date,
the Parties shall cause to be formed a Delaware limited liability
company with a name to be determined by the agreement of the Parties
(the "COMPANY"). The members of the Company to be formed shall be
Farmland, CHS, United LLC and LOL (each of which is sometimes referred
to as a "Member" and all of which are herein sometimes referred to
collectively as the "MEMBERS"). United LLC and LOL shall each own a 50%
governance interest in the Company. LOL shall own a 38.75 % economic
interest in the Company. United LLC shall own a 50% economic interest
in the Company. Farmland shall own a 9.795% economic interest in the
Company. CHS shall own a 1.455% economic interest in the Company.
United LLC and LOL each shall at all times exercise all management
rights with respect to the Company in such a manner as to ensure
compliance with the provisions of this Agreement. The Members shall
execute and deliver to each other a Limited Liability Company Agreement
consistent with the provisions hereof and incorporating such other
provisions as may be agreed to by the Parties. Upon completion of the
Limited Liability Company Agreement it shall be separately initialed by
the Parties and attached hereto as EXHIBIT B ("LLC AGREEMENT").


1.1 Purpose and Scope of Joint Venture.


(a) Business Objectives: The Company's objectives and scope of business
include: (i) selling plant food and crop protection products to
cooperative members and patrons of Members (and others as may be
otherwise agreed to by the Members) for resale or use in North American
markets, and (ii) providing other goods and services to Members and
members and patrons of Members (and others as may be otherwise agreed
to by the Members). Until the time of the Working Asset Closing (as
hereinafter defined), the Company shall act as the manager of all of
such direct and indirect businesses of the Members and of WilFarm LLC
and the earnings and losses of such businesses and WilFarm shall inure
to the joint shared benefit of the Members and in accordance with the
agreement of WilFarm with the Company. Following the Working Asset
Closing, the Company shall use the LOL Contributed Assets and the
United LLC Contributed Assets for purposes of operation of the
businesses in its own name pursuant to clauses (a)(i) and (a)(ii)
above.


(b) Term. It is anticipated that the term of the Company shall be
perpetual subject to the earlier termination in accordance with the
provisions of Delaware law. To the extent it is not in material breach
of the LLC Agreement or any of the Ancillary Agreements, at the end of
the term of the venture each of United LLC and LOL will be granted a
right of last refusal to meet or exceed the highest offer for the
assets of the Company in liquidation. In the event that both members
desire to at least meet such highest offer, the Members shall
participate in an internal auction for the purchase by one Member of
the other Member's interest in the Company in accordance with the
procedures set forth in Schedule 1.1(b).


(c) Products: The Company's main products will be a variety of plant
food and crop protection products mutually agreed upon by the unanimous
decision of the Members.


1.2 Financing of the Company. LOL expects to have contributed 38.75% of the capital of the Company, consisting of cash and the beneficial use of the LOL Contributed Assets referred to in Section 1.4. Farmland, CHS, and United LLC expect to have together directly or indirectly contributed 61.25% of the capital of the Company, consisting of cash and the beneficial use of United LLC Contributed Assets referred to in Section 1.5, subject to the provisions of the LLC Agreement. The Parties shall arrange for financing of the joint venture pursuant to the terms of the LLC Agreement, it being the intent of the Parties to obtain non-recourse as to the Members financing for the Company, as soon as practical and in any event not later than April 30, 2000.


1.3 Compliance with Laws. All matters referred to herein are subject to and conditioned upon compliance with all applicable laws.


1.4 LOL's Contribution to Company.


(a) Contribution of LOL Assets: At the Operational Closing, in
addition to any cash amount required by the LLC Agreement, except as
the parties may otherwise agree,


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LOL shall contribute, or cause to be contributed, to the Company the
economic benefit derived from the use of: (i) all LOL's rights and
interest to real property used by it in the wholesale marketing of
plant food and crop protection products in North America listed on
Schedule 1.4(a) (the "LOL Real Property"), (ii) all of LOL's rights
and interest in the Assigned Investments and Agreements listed on
Schedule 1.4(a) attached hereto (including, without limitation, its
interest and title to, and goodwill attendant thereto, its
ownership, equity, and governance interests in, and the beneficial
use of the assets of, Cenex/LOL Agronomy Company, Agro Distribution
LLC, Omnium LLC, Imperial Inc., and RSA Microtech, Inc.), (iii) all
of LOL's rights and interest in Other Assets (as defined below) and
(iv) the personal property listed on Schedule 1.4(a) attached hereto
(the "LOL PERSONAL PROPERTY") (collectively, the "LOL CONTRIBUTED
ASSETS"). The Parties hereby acknowledge and agree that the economic
benefit derived from the use of LOL Contributed Assets shall be
deemed for all purposes to have been contributed to the Company
effective as of the first day of January, 2000, (the "Effective
Date") and the net earnings or loss arising from such assets from
the Effective Date until the actual date of Closing shall be
included among the assets to be contributed pursuant to this
Agreement. The parties further agree that the earnings and loss
arising from operation of such assets prior to the Effective Date,
including without limitation chemical rebates earned on business
conducted prior to January 1, 2000, shall inure to LOL.


(b) Other Assets: As used herein, the term "OTHER ASSETS" means the
beneficial use of the following items pertaining to the LOL Real
Property (or any portion thereof): (i) any and all rights, licenses,
permits, betterments, accretions, easements, and any personal
property of every kind and character owned by LOL (and/or any
Affiliate thereof), attached to, appurtenant to, located in, or used
or useful in connection with the LOL Real Property; (ii) all
construction, engineering, consulting, architectural and other
similar contracts, and any and all amendments and modifications
thereto, relating to the LOL Real Property and all warranties with
respect thereto; (iii) all architectural, plans, specifications,
soils tests, engineering reports and similar materials relating to
the LOL Real Property; (iv) all deposits, performance bonds,
guarantees or other payments given or made with respect to the LOL
Real Property and any and all modifications and extensions thereto
relating to the LOL Real Property; (v) all governmental entitlements
(including, without limitation, all environmental reports,
declarations, map approvals, conditional use permits, and any other
permits related to the LOL Real Property), permissions,
environmental clearances, rights, licenses and permits which relate
to the LOL Real Property; (vi) all leases, licenses and occupancy
agreements with respect to the LOL Real Property; (vii) all rights
and remedies of LOL against the party from which LOL purchased the
LOL Real Property; and (viii) all other general intangibles relating
to the development and/or use of the LOL Real Property and the
improvements thereon including, without limitation, all refunds and
payments of any kind relating to the ownership, operation, use
and/or disposition of the LOL Real Property, and all proceeds and
claims arising on account of any loss, damage to or taking of the
LOL Real Property (or any part thereof).


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(c) Transfer on an "AS-IS" Basis. Each Party acknowledges and agrees
that, except for the express representations and warranties set
forth in this Agreement, the Company is acquiring the beneficial use
of LOL Contributed Assets "AS IS" without any representation or
warranty of LOL (or any other Party), express, implied or statutory,
as to the nature or condition of the Contributed Assets, the
condition of title to the Contributed Assets or the fitness for use
of the Contributed Assets.


(d) Prorations and Adjustments. The following shall be prorated and
adjusted between LOL and the Company as of the Effective Date,
except as otherwise specified:


(i) General real estate, personal property and ad valorem
taxes and assessments for the current tax year for the
Contributed Assets with LOL being responsible for the payment
of such items for the period before the Effective Date and the
Company being responsible for such payment for the period on
and after the Effective Date.


(ii) Utility charges, if any, costs of maintaining the
Contributed Assets, if any, and such other items that are
customarily prorated in transactions of this nature shall be
ratably prorated with LOL being responsible for the payment of
such items for the period before the Effective Date and the
Company being responsible for such payment for the period on
and after the Effective Date.


(e) Commissions or Fees. LOL hereby represents and warrants to the
Company and the other Members that no person or entity is entitled
to any commission, broker's fee or other compensation based on
contacts or understandings between such claimant and LOL or its
Affiliates with respect to the contribution of the LOL Contributed
Assets.


1.5 United LLC's Contribution to Company.


(a) Contribution of United LLC Assets: At the Operational Closing,
in addition to any cash amount required by the LLC Agreement, except
as the Parties may otherwise agree, the UCB Parties and United LLC
shall contribute to the Company the economic benefit derived from
the use of (i) all rights and interest of UCB Parties and United LLC
to real property used by any of them in the wholesale marketing of
plant food and crop protection products in North America listed on
Schedule 1.5(a) (the "UNITED LLC REAL PROPERTY") (ii) all of the
rights and interest in the Assigned Investments and Agreements
listed on Schedule 1.5(a) attached hereto (including, without
limitation, all interest and title to, and goodwill attendant
thereto, its ownership, equity, and governance interests in WilFarm,
Cenex/LOL Agronomy Company, Agro Distribution LLC, Omniun LLC,
Imperial Inc., and RSA Microtech, Inc.), (iii) all rights and
interest in Other Assets (as defined below) and (iv) the personal
property listed on Schedule 1.5(a) attached hereto (the "UNITED LLC
PERSONAL PROPERTY") (collectively, the "UNITED LLC CONTRIBUTED
ASSETS"). Farmland will also contribute or, pursuant to the contract
with Wilbur Ellis


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attached hereto as Exhibit C (to be provided no later than the
Operational Closing) will cause Wilbur Ellis to contribute its
ownership, equity, and governance interests in WilFarm and goodwill
attendant thereto. The Parties hereby acknowledge and agree that the
United LLC Contributed Assets shall be deemed for all purposes to
have been contributed to the Company effective as of the Effective
Date, and the net earnings or loss arising from the assets from the
Effective Date until the actual date of Closing shall be included
among the assets to be contributed pursuant to this Agreement. The
parties further agree that the earnings and loss arising from
operation of such assets prior to the Effective Date, including
without limitation chemical rebates earned on business conducted
prior to January 1, 2000, shall inure to the UCB Parties.


(b) Other Assets: As used herein, the term "OTHER ASSETS" means the
beneficial use of the following items pertaining to the United LLC
Real Property (or any portion thereof): (i) any and all rights,
licenses, permits, betterments, accretions, easements, and any
personal property of every kind and character owned by United LLC
(and/or any Affiliate thereof), attached to, appurtenant to, located
in, or used or useful in connection with the United LLC Real
Property; (ii) all construction, engineering, consulting,
architectural and other similar contracts, and any and all
amendments and modifications thereto, relating to the United LLC
Real Property and all warranties with respect thereto; (iii) all
architectural, plans, specifications, soils tests, engineering
reports and similar materials relating to the United LLC Real
Property; (iv) all deposits, performance bonds, guarantees or other
payments given or made with respect to the United LLC Real Property
and any and all modifications and extensions thereto relating to the
United LLC Real Property; (v) all governmental entitlements
(including, without limitation, all environmental reports,
declarations, map approvals, conditional use permits, and any other
permits related to the United LLC Real Property), permissions,
environmental clearances, rights, licenses and permits which relate
to the United LLC Real Property; (vi) all leases, licenses and
occupancy agreements with respect to the United LLC Real Property;
(vii) all rights and remedies of UCB parties or United LLC against
the party from which such UCB Party or United LLC purchased the
United LLC Real Property; and (viii) all other general intangibles
relating to the development and/or use of the United LLC Real
Property and the improvements thereon including, without limitation,
all refunds and payments of any kind relating to the ownership,
operation, use and/or disposition of the United LLC Real Property,
and all proceeds and claims arising on account of any loss, damage
to or taking of the United LLC Real Property (or any part thereof).


(c) Transfer on an "AS-IS" Basis. Each Party acknowledges and agrees
that, except for the express representations and warranties set
forth in this Agreement, the Company is acquiring the beneficial use
of United LLC Contributed Assets "AS IS" without any representation
or warranty of United LLC, Farmland, CHS (or any other Party),
express, implied or statutory, as to the nature or condition of the
United LLC Contributed Assets, the condition of title to the United
LLC Contributed Assets or the fitness for use of the United LLC
Contributed Assets.


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(d) Prorations and Adjustments. The following shall be prorated and
adjusted between United LLC or the UCB Parties as appropriate on the
one part and the Company on the other part as of the Effective Date,
except as otherwise specified:


(i) General real estate, personal property and ad valorem
taxes and assessments for the current tax year for the United
LLC Contributed Assets with United LLC or the UCB Parties
being responsible for the payment of such items for the period
before the Effective Date and the Company being responsible
for such payment for the period on and after the Effective
Date.


(ii) Utility charges, if any, costs of maintaining the United
LLC Contributed Assets, if any, and such other items that are
customarily prorated in transactions of this nature shall be
ratably prorated with United LLC or the UCB Parties being
responsible for the payment of such items for the period
before the Effective Date and the Company being responsible
for such payment for the period on and after Effective Date.


(e) Commissions or Fees. Each of the UCB Parties and United LLC
hereby represent and warrant to the Company and the other Members
that no person or entity is entitled to any commission, broker's fee
or other compensation based on contacts or understandings between
such claimant and UCB Parties, United LLC, or their respective
Affiliates with respect to the contribution of the United LLC
Contributed Assets.


1.6 No Adjustment of Economic Interest. Barring any purchase or sale of any economic interest in the Company among Members, all of which such sales and purchases may be made by agreement by any of the Members and as to which consent of each of the other Members is hereby given, the economic interests of the Parties shall remain as they are except as may be agreed to from time to time by the Parties. It is anticipated that any expansion of the wholesale fertilizer and crop protection business by the Parties hereto shall be solely through the Company with any and all assets used in such expansion being acquired by, and pursuant to terms negotiated by, the Company. If any of the Members acquire any wholesale fertilizer and/or crop protection business assets in North America by operation of law or otherwise, the Company and such Member shall negotiate in good faith to sell such assets to the Company upon terms and conditions acceptable to both parties. If the Company and such Member or are unable to reach agreement on the terms of the sale to the Company such assets shall, within a two (2) year period following the acquisition by such Member , be sold or transferred to a third party unrelated to such Member by ownership or by continuing contract. Pending such sale such assets shall to the extent legally permissible be operated and managed by the Company for the sole economic benefit of such Member. To the extent such management and operation is not legally permissible in the reasonable determination of the Company, such assets shall, pending sale, be operated by the Member on a full arms length basis for its own account.


1.7 Fertilizer and Agricultural Chemical Procurement and Marketing Arrangements with LOL, United LLC and UCB Parties.


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(a) Procurement. It is anticipated that the Company will procure
plant food product primarily from Farmland and CF Industries Inc.
("CF"). Procurement of product from Farmland will be accomplished
directly by the Company. Such purchases will not be on a patronage
basis, and production earnings therefrom will remain with Farmland
for retention or distribution in its sole determination. The
purchases of CF product, either directly or through CHS or LOL, will
not be on a patronage basis from the perspective of the Company, and
any patronage earned will go to or remain with CHS or LOL for
retention or distribution in their sole determination. Product
procured from non-CF third parties shall be procured directly by the
Company, or if through the Members, shall be by each Member ratably
in proportion to its economic interest in the Company.


(b) Allocation of Product Sourced from CF. For purposes of CF
patronage and the CF base capital plan, CHS and LOL will allocate
between themselves nitrogen product purchased from CF on the basis
described herein. For purposes of this section, Farmland and CF
shall each have an annual "base level" of product to be supplied to
the Company as follows:


Nitrogen Products (on a total N basis)
--------------------------------------
Farmland - 2,998,000 tons annually
CF - 1,831,000 tons annually


The base percentage split between the Members ("Base Percentage
Split"), for all CF-sourced nitrogen product (on a total N basis)
shall be LOL 61.8% and CHS 38.2%. The Base Percentage Split shall
apply to all nitrogen product sourced from CF in any fiscal year up
to the CF base level. For CF-sourced product over the base level and
to the extent such increase results from an increase in produced
tons available to the Company, LOL shall receive credit for 100% of
such product, but only to the extent that Farmland-sourced product
exceeds Farmland's base level as a result of an increase in Farmland
production being sold to the Company; provided that this sentence
shall apply only in the case of a merger between Farmland and CHS or
other combination resulting in the participation by CHS in the
economic results of the Farmland fertilizer production business and,
if no such merger or other combination has occurred the Parties will
renegotiate the terms of this sentence to protect the rights of all
Members to participate in such increase in sourcing and production
on an equitable basis. To the extent that CF-sourced product exceeds
the CF base level by more tons than the Farmland-sourced product
exceeds the Farmland base level, the CF-sourced product shall be
subject to the Base Percentage Split between CHS and LOL.


(c) Phosphate Fertilizer. The allocation for phosphate fertilizer
will operate in the same manner as the nitrogen allocation except
that the following base levels shall apply:


Farmland 589,000 tons
CF 552,000 tons


All CF-sourced phosphate fertilizer shall be sourced for the account
of LOL or CHS in accordance with the Base Percentage Split.


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(d) Potash. There shall not be any special allocation rule for
potash. All potash sourced from CF shall be sourced subject to the
Base Percentage Split.


(e) Supply. The Company will be the preferred supplier of fertilizer
and agricultural chemicals to the Members, and the Members agree to
purchase such product from the Company for retail resale so long as
it is commercially reasonable to do so and the prices and terms
offered by the Company are competitive.


1.8 Exhibits and Schedules. The Exhibits and Schedules attached to this Agreement shall be construed with and be an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. In case of any inconsistency between the terms of this Agreement and the terms of any Exhibit or Schedule, the terms of this Agreement shall prevail. The following are the Exhibits and Schedules attached to or to be attached and incorporated in this Agreement:


Name of Exhibit or Schedule Description - --------------------------- -----------


Schedule 1.1(b) Internal Auction Process


Schedule 1.4(a) List of LOL Property Contributed to the Company


Schedule 1.5(a) List of United LLC Property Contributed to the
Company


Schedule 3.1(c) LOL Consents and Approvals


Schedule 3.1(d) LOL Violations or Conflicts

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