-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GE6hS3K6YXMBk5do4pFx0LazJvB2LlNRbUjKzjSaS79TfdBzDugEQ9Aszdegn+1C +bUya7cwUg0qdSxO1R/b5g== 0000101063-98-000055.txt : 19980401 0000101063-98-000055.hdr.sgml : 19980401 ACCESSION NUMBER: 0000101063-98-000055 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: AMEX SROS: BSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHIQUITA BRANDS INTERNATIONAL INC CENTRAL INDEX KEY: 0000101063 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 041923360 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-01550 FILM NUMBER: 98580297 BUSINESS ADDRESS: STREET 1: 250 E FIFTH ST CITY: CINCINNATI STATE: OH ZIP: 45202 BUSINESS PHONE: 5137848011 FORMER COMPANY: FORMER CONFORMED NAME: UNITED BRANDS CO DATE OF NAME CHANGE: 19900403 10-K405 1 ------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K / 405 Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended Commission File December 31, 1997 Number 1-1550 CHIQUITA BRANDS INTERNATIONAL, INC. Incorporated under the I.R.S. Employer I.D. Laws of New Jersey No. 04-1923360 250 East Fifth Street, Cincinnati, Ohio 45202 (513) 784-8000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class On Which Registered --------------------- ---------------------- Capital Stock ($.33 par value) New York, Pacific, Boston $2.875 Non-Voting Cumulative Preferred Stock, Series A New York $3.75 Convertible Preferred Stock, Series B New York Securities registered pursuant to Section 12(g) of the Act: None Other securities for which reports are submitted pursuant to Section 15(d) of the Act: 9-1/8% Senior Notes due March 1, 2004 9-5/8% Senior Notes due January 15, 2004 10-1/4% Senior Notes due November 1, 2006 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of February 28, 1998, there were 64,159,706 shares of Common Stock outstanding. The aggregate market value of Common Stock held by non-affiliates at February 28, 1998 was approximately $536 million. Documents Incorporated by Reference Portions of the Chiquita Brands International, Inc. 1997 Annual Report to Shareholders are incorporated by reference in Parts I and II. Portions of the Chiquita Brands International, Inc. Proxy Statement for the 1998 Annual Meeting of Shareholders are incorporated by reference in Part III. CHIQUITA BRANDS INTERNATIONAL, INC. TABLE OF CONTENTS
Page ------- Part I Item 1. Business . . . . . . . . . . . . . . . 1 Item 2. Properties . . . . . . . . . . . . . . 7 Item 3. Legal Proceedings . . . . . . . . . . 8 Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . 9 Executive Officers of the Registrant . . . . . . 10 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . 11 Item 6. Selected Financial Data . . . . . . . . 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . 11 Item 7A. Quantitative and Qualitative Disclosures About Market Risk . . . . . 12 Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . 12 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . . 12 Part III Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . 12 Item 11. Executive Compensation . . . . . . . . 12 Item 12. Security Ownership of Certain Beneficial Owners and Management. . . . 12 Item 13. Certain Relationships and Related Transactions. . . . . . . . . . . . . . 12 Part IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . 13 Signatures. . . . . . . . . . . . . . . . . . . . 14
[CAPTION] PART I ITEM 1 - BUSINESS GENERAL Chiquita Brands International, Inc. ("Chiquita" or the "Company") is a leading international marketer, producer and distributor of bananas and other quality fresh and processed food products sold under the Chiquita and other brand names. In addition to bananas, Chiquita's fresh products include other tropical fruit, such as mangoes, kiwi and citrus, and a wide variety of other fresh produce. Chiquita's operations also include private-label and branded canned vegetables and related products; fruit and vegetable juices and beverages; processed bananas; fresh cut and ready-to-eat salads; and edible oil-based consumer products. The Company has capitalized on its "Chiquita" and other premium brand names by building on its worldwide leadership position in the marketing, distribution and sourcing of bananas and by expanding its quality fruit and vegetable operations. In 1992, the European Union ("EU") announced a banana quota which effectively restricts the volume of bananas from Latin America, Chiquita's primary source of fruit, which may be imported into the EU. The import quota regime, together with additional restrictive and discriminatory quotas and export licenses imposed under the related banana Framework Agreement, have significantly affected the worldwide banana industry and severely burdened Chiquita's banana operations. (See RISKS OF INTERNATIONAL OPERATIONS.) In addition to ongoing operating cost reduction programs and efforts to adjust to the quota regime, the Company's primary objectives since announcement of the quota have included: * expanding the banana business in markets with increasing consumer demand that are not subject to the quota regime, including the established North American market and emerging markets such as Eastern and Central Europe, Russia and China; * developing Chiquita's other core fresh and processed foods businesses; and * reducing debt and interest costs, strengthening the balance sheet and increasing cashflow. In connection with these objectives, in 1997 and early 1998, Chiquita completed acquisitions of three vegetable canning companies which expand the capacity, product lines and geographic coverage of its existing vegetable canning business (see "Processed Food Products"). These acquisitions also strengthened the balance sheet with the issuance of Chiquita stock. The Company has made significant reductions in debt since its peak level in 1992, including prepayments of high cost public debentures and subsidiary debt using proceeds from public offerings of preferred shares and senior notes, as well as from cash available from operations and sales of non-core assets. In 1995, Chiquita completed the sales of various non- core assets, including its meat business, older ships and the Costa Rican operations of its Numar edible oils group. See "Management's Analysis of Operations and Financial Condition" and Note 3 to the Consolidated Financial Statements included in the Company's 1997 Annual Report to Shareholders for a discussion of factors affecting results of operations for 1997, 1996 and 1995. Factors which may cause fluctuations in operating results are also discussed below. No individual customer accounted for more than 10% of the Company's consolidated net sales during any of the last three years. -1- Fresh Food Products -------------------- The Company markets an extensive line of fresh fruits and vegetables sold under the "Chiquita" and other brand names. The core of Chiquita's fresh foods operations is the marketing, distribution and sourcing of bananas. Sales of bananas accounted for approximately 60% of consolidated net sales in each of the last three years. Chiquita believes it derives competitive benefits in the marketing, distribution and sourcing of fresh foods through its: * recognized brand names and reputation for quality; * strong market positions in Europe and North America, its principal markets; * modern, cost-efficient fresh fruit transportation system; * state of the art banana ripening techniques; and * industry leading position in terms of number and geographic diversity of major sources of bananas, which enhances its ability to provide customers with premium quality products on a consistent basis. Marketing. Chiquita markets bananas under brand names including "Chiquita," "Chiquita Jr.," "Consul" and "Amigo." In 1997, Chiquita sold approximately 50% of its banana volume in North America and approximately 45% of its banana volume in Europe. Chiquita sells bananas through its regional sales organizations and commissioned agents throughout the world directly to wholesalers and retail chains, which in turn ripen and resell or distribute the fruit. The Company also sells bananas ripened in its own facilities or under contractual ripening arrangements. Chiquita has been able to obtain a premium price for its bananas due to its reputation for quality and its innovative ripening and marketing techniques, which include providing retail marketing support services to its customers. Bananas are highly perishable and must be brought to market and sold generally within 60 days after harvest. Therefore, the selling price which an importer receives for bananas depends on several factors, including: the availability of bananas and other fruit in each market; the relative quality of competing fruit; and wholesaler and retailer acceptance of bananas offered by competing importers. Excess supplies may result in increased price competition. Profit margins on sales may also be significantly affected by fluctuations in currency exchange rates. (See RISKS OF INTERNATIONAL OPERATIONS.) Adverse weather such as major windstorms or floods in banana growing areas may restrict worldwide supplies and result in increased prices for bananas. However, competing importers may be affected differently, depending upon their ability and the cost to obtain alternate supplies from sources in other geographic areas. Banana marketing in international trade is highly competitive. While smaller companies, including growers' cooperatives, are a competitive factor, Chiquita's primary competitors are a limited number of other international banana importers and exporters. In order to compete successfully, Chiquita must be able to source bananas of uniformly high quality and, on a timely basis, transport and distribute them to -2- worldwide markets. The Company's sales of bananas represent approximately one-fourth of all bananas imported into Europe and North America, its principal markets. Although production of bananas tends to be relatively stable throughout the year, competition in the sale of bananas comes not only from bananas sold by others, but also from other fresh fruit which may be seasonal in nature. The resulting seasonal variations in demand cause banana pricing to be seasonal, with the first six months of the calendar year being the stronger period. Through a network of fresh fruit and vegetable operations in Europe, North America and the Pacific Rim, Chiquita sells and distributes a variety of quality fruit and vegetable products. These products include quality fresh fruit such as apples, apricots, blueberries, cherries, grapes, peaches, pears, plums, strawberries and tomatoes sold under the "Chiquita," "Frupac" and other brand names; and a wide variety of fresh vegetables including asparagus, beans, broccoli, carrots, celery, cucumbers, lettuce, onions, peppers and potatoes sold under the "Premium" and various other brand names. Some of these operations involve both the production and marketing of fresh fruits and vegetables while others involve only marketing. These businesses compete against numerous other regional fresh fruit and vegetable producers and distributors. No single competitor has a dominant market share in this industry due to the regionalized nature of these businesses. Distribution and Logistics. Transportation expenses comprise approximately one-fourth of the total costs incurred by Chiquita in its sale of bananas. Chiquita ships its bananas in vessels owned or chartered by the Company. All of Chiquita's tropical fruit shipments into the North American market are delivered using pallets or containers, which minimize damage to the product by eliminating the need to handle individual boxes. Chiquita owns or controls under long-term lease approximately 65% of its aggregate shipping capacity. The remaining capacity is operated under contractual arrangements having terms of approximately one year. (See also ITEM 2 - PROPERTIES and Notes 5 and 6 to the Consolidated Financial Statements included in the Company's 1997 Annual Report to Shareholders.) Chiquita also operates loading and unloading facilities which it owns or leases in Central and South America and various ports of destination. Sourcing. Chiquita has a greater number and geographic diversity of major sources of bananas than any of its competitors. During 1997, approximately one-fourth of all bananas sold by Chiquita were sourced from each of Panama and Costa Rica. Bananas are sourced from numerous other countries, including Colombia, Ecuador, Guatemala and Honduras which comprised 6% to 13% (depending on the country) of bananas sold by Chiquita during 1997. In 1997, approximately 60% of the bananas sourced by Chiquita were produced by subsidiaries and the remainder were purchased under fruit supply arrangements from other growers. Generally, these arrangements require less initial capital investment by the Company than owned production facilities. Under some of these fruit supply arrangements, Chiquita furnishes financial and technical assistance to its suppliers to support the production and preparation of bananas for shipment. A single supplier in Ecuador provided approximately 6% of the bananas sold by Chiquita in 1997. Bananas are vulnerable to adverse local weather conditions, which are quite common but difficult to predict, and to crop disease. These factors may result in lower sales volume and increased costs, but may also restrict worldwide supplies and lead to increased prices for bananas. In addition, banana production may be affected by political changes in countries where bananas are grown. However, competitors may be affected differently, depending upon their ability to obtain adequate supplies from sources in other -3- geographic areas. Chiquita's overall risk from these factors is reduced by the low concentration of its banana production in individual producing locations. Labor cost, which is a significant portion of the cost of producing bananas, varies depending on the country of origin. Since bananas are shipped in cardboard boxes, paper cost is also significant. The geographically diverse sources of other fresh fruits and vegetables primarily involve formal and informal purchase arrangements with numerous unrelated producers and importers. None of these arrangements is individually significant to the Company's operations. Processed Food Products ----------------------- Chiquita's processed food products include private-label and branded canned vegetables sold in North America and abroad; fruit and vegetable juices and beverages sold in the United States and Europe; processed bananas sold primarily in North America, Europe and the Far East under the "Chiquita" brand; fresh cut and ready-to-eat salads sold in the United States under the "Club Chef" brand; and other consumer products (primarily edible oils) sold in Honduras under the "Numar" and other brand names. Friday Canning Corporation ("Friday"), owned by Chiquita since 1992, is one of the largest private-label vegetable processors in the United States, operating eight processing facilities in Wisconsin and participating in a joint venture in China. In 1997, Chiquita acquired the Owatonna Canning group of companies (the "Owatonna Companies") and American Fine Foods, Inc. ("AFF") and, in early 1998, Chiquita acquired Stokely USA, Inc. ("Stokely"). The acquisition of these vegetable canning companies adds 13 processing facilities to Chiquita s vegetable canning business, and expands both the product lines and geographic coverage of Friday s existing vegetable canning business. These vegetable canning companies market a full line of over twenty-five types of processed vegetables, including corn, green beans, peas and other related products, to retail and food service customers throughout the U.S. and in over 25 other countries. Chiquita s vegetable canning companies enjoy the largest share of the U.S. private-label canned vegetable business and also sell branded products under the "Stokely's," "Friday" and other labels. These companies compete directly with a few major producers of both branded and private-label canned vegetables, as well as indirectly with numerous marketers of frozen and fresh vegetable products. The vegetable processing industry is affected by product supply, which correlates to plantings, growing conditions, crop yields and inventories, all of which may vary from year to year. Chiquita branded fruit juices and beverages sold in the United States include a full line of tropical blends which are manufactured by others to Chiquita's specifications and sold in shelf-stable, refrigerated and frozen varieties. Shelf- stable servings are sold through club stores and mass merchandisers throughout most of the United States. The refrigerated and frozen juice product lines are produced and sold by a national fruit juice producer, from which Chiquita receives a license fee. Chiquita branded fruit juices are sold in Europe in shelf-stable and refrigerated varieties through a 50%-owned joint venture. In the western United States, the Company also produces and markets natural fresh fruit and vegetable juices sold under the "Ferraro's Earth Juice" and "Naked Juice" brand names. The Company s juice products compete with a wide variety of beverages in the highly competitive commercial beverages industry, which includes other regional and national producers of juice and juice drink products. Chiquita's processed banana products include banana puree, sliced bananas and other specialty products which are sold to producers of baby food, fruit beverages, baked goods and fruit-based products, to wholesalers of bakery and dairy food products, and to selected licensees including Beech-Nut and General Mills. These products are primarily produced in Chiquita s processing facilities in Honduras and -4- Costa Rica. Although Chiquita enjoys the largest share of the worldwide processed banana market, this industry remains highly competitive due to the existence of numerous other producers with available processing capacity, including other banana growers, fruit ingredients companies and large, international food companies. The Company's consumer products operations in Honduras are conducted through a 50%-owned joint venture. The joint venture produces and sells its edible oil and other products under the "Numar," "Clover" and other brand names and competes principally with a number of small local firms and subsidiaries of multinational corporations. RISKS OF INTERNATIONAL OPERATIONS The Company conducts operations in many foreign countries. Information about the Company's operations by geographic area is in Note 13 to the Consolidated Financial Statements included in the Company's 1997 Annual Report to Shareholders and is incorporated herein by reference. These operations are subject to a variety of risks inherent in doing business in those countries. On July 1, 1993, the European Union implemented a quota system effectively restricting the volume of Latin American bananas imported into the EU, which had the effect of decreasing the Company's overall volume and market share in Europe. The quota regime is administered through an import licensing system and grants preferred status to producers and importers within the EU and its former colonies, while imposing restrictive quotas and tariffs on bananas imported from other sources, including Latin America, Chiquita's primary source of fruit. Since imposition of the EU quota regime, prices within the EU have increased to a higher level than the levels prevailing prior to the quota. Banana prices in other worldwide markets, however, have been lower than in years prior to the EU quota, as the displaced EU volume has entered those markets. In two separate rulings, General Agreement on Tariffs and Trade ("GATT") panels found the EU banana policies to be illegal. In March 1994, four of the five countries which had initiated GATT complaints, Costa Rica, Colombia, Nicaragua and Venezuela, settled their GATT actions against the EU by entering into a "Framework Agreement" which guaranteed them preferential EU market access for bananas. The Framework Agreement was implemented in 1995 and imposed additional restrictive and discriminatory quotas and export certificate requirements on U.S. banana marketing firms, while leaving EU firms exempt. This significantly increased the Company's cost to export bananas. Since implementation of the quota system: * In September 1994, Chiquita and the Hawaii Banana Industry Association made a joint filing with the Office of the U.S. Trade Representative ( USTR ) under Section 301 of the U.S. Trade Act of 1974 charging that the EU quota and licensing regime and the Framework Agreement are unreasonable, discriminatory, and a burden and restriction on U.S. commerce. * In January 1995, the U.S. Government announced a preliminary finding against the EU banana import policy and, a year later, the USTR found the banana Framework Agreement export policies to be unfair. * In September 1995, the United States, Guatemala, Honduras and Mexico commenced a challenge against the EU quota regime using the procedures of the World Trade Organization -5- ("WTO"). Ecuador, the world s largest exporter of bananas, joined these countries in filing a new WTO action in February 1996. * In May 1997, a WTO arbitration panel issued a report ruling that the licensing and quota systems under the EU quota regime and the Framework Agreement violate numerous international trade obligations to the detriment of Latin American supplying countries and U.S. marketing firms such as Chiquita. The panel recommended that the WTO request the EU to conform its import regime for bananas to these trade obligations. * In June 1997, the EU appealed the WTO panel report. In September 1997, the WTO Appellate Body upheld the panel's report and the full WTO body later adopted both the panel and Appellate Body reports. * In January 1998, a WTO arbitrator ruled that the EU must fully implement banana policies consistent with the WTO report findings not later than January 1, 1999. * In January 1998, the EU governing commission proposed a new quota and license regime for review and possible implementation by the EU. The five governments which filed the WTO complaint, joined by Panama which has recently become a WTO member and initiated its own challenge to the quota and Framework Agreement, have all indicated that they do not believe the current EU proposal complies with the WTO findings. * In March 1998, in a separate proceeding brought by Germany against the EU, the European Court of Justice ruled that the Framework Agreement's exemption of EU marketing firms from the requirement to obtain export certificates for bananas from Costa Rica, Colombia, Nicaragua and Venezuela was discriminatory and violated applicable EU law. Beginning in the second quarter of 1998, the EU will no longer require these export certificates from any marketing firms. If the EU fails to comply with the WTO rulings by January 1, 1999, the WTO authorizes the injured governments to engage in retaliatory trade measures, such as tariffs or withdrawal of trade concessions, against the EU. However, there can be no assurance as to the results of the WTO proceedings, the nature and extent of actions that may be taken by the affected countries or the impact on the EU quota regime or the Framework Agreement. The Company's operations are heavily dependent upon products grown and purchased in Central and South American countries; at the same time, Chiquita s operations are a significant factor in the economies of many of these countries. These activities are subject to risks that are inherent in operating in these countries, including government regulation, currency restrictions and other restraints, risks of expropriation and burdensome taxes. There is also a risk that legal or regulatory requirements will be changed or that administrative policies will change. Certain of these activities are substantially dependent upon leases and other agreements with the governments of these countries. Chiquita leases all the land it uses in Panama from the Republic of Panama. In February 1998, Chiquita signed two new leases with the Republic of Panama for this land, one for land on the Caribbean coast and the other for land on the Pacific coast. The leases have an initial term of 20 years, with two 12-year extensions. Either lease can be canceled by Chiquita at any time on three years prior notice; the Republic of Panama has the right not to renew either lease at the end of the initial term or first extension period provided that it gives four years' prior notice. -6- Certain facilities in Honduras previously owned by Chiquita were transferred in prior years to the government of Honduras with provision for their subsequent use by the Company. Such facilities include a railroad which the Company operates under a lease with the government of Honduras which expires on December 31, 1998. The Company believes that the lease, if required in future years, can be extended or renewed. The Company's worldwide operations and products are subject to numerous governmental regulations and inspections by environmental, food safety and health authorities. These regulations directly affect day-to-day operations. Although the Company believes it is substantially in compliance with such regulations, actions by regulators have in the past required, and in the future may require, operational modifications or capital improvements at various locations or the payment of fines and penalties, or both. Because the Company's operations are conducted in many areas of the world and involve transactions in a variety of currencies, its operating results may be significantly affected by fluctuations of currency exchange rates. Such fluctuations affect Chiquita s banana operations because many of its costs are incurred in currencies different from those that are received from the sale of bananas, and there is normally a time lag between the incurrence of such costs and collection of the related sales proceeds. The Company's policy is to exchange local currencies for dollars immediately upon receipt, thus reducing exchange risk. The Company also engages from time to time in various hedging activities to further reduce potential losses on cash flows originating in currencies other than the U.S. dollar. See Notes 1 and 8 to the Consolidated Financial Statements and "Management's Analysis of Operations and Financial Condition" included in the Company's 1997 Annual Report to Shareholders for information with respect to currency exchange. LABOR RELATIONS The Company employs approximately 40,000 associates. Approximately 31,000 of these associates are employed in Central and South America, including 25,000 workers covered by approximately 65 labor contracts. Approximately 40 contracts covering approximately 15,000 employees are currently being renegotiated or expire in 1998. Strikes or other labor- related actions are sometimes encountered upon expiration of labor contracts or during the term of the contracts. On February 19, 1998, approximately 5,000 workers in the Company's Armuelles division in western Panama commenced a strike citing numerous grievances. The strike was called despite the fact that these workers had recently entered into a new collective bargaining agreement with the Company. The strike is resulting in a curtailment of the bananas produced in Company-owned farms in this division; in 1997 this fruit represented approximately 8% of the bananas marketed by Chiquita. As a result of the strike, the Company is experiencing unrecovered fixed costs in the Armuelles division. The lost volume is being partially replaced through purchases of bananas from alternative sources. The Company is continuing to perform limited agricultural practices on the affected acreage using outside contractors. The Company cannot predict how long the strike will last. ITEM 2 - PROPERTIES -------------------- The Company owns approximately 90,000 acres and leases approximately 50,000 acres of improved land, principally in Colombia, Costa Rica, Panama and Honduras. Nearly all of this land is used for the cultivation of bananas and support activities, including the maintenance of floodways. The Company also owns power plants, packing stations, warehouses, irrigation systems and loading and unloading facilities used in connection with its operations. -7- The Company owns or controls under long-term bareboat charters 16 ocean-going refrigerated vessels and has 10 additional such vessels under time charters, primarily for transporting tropical fruit sold by Chiquita. From time to time, excess capacity may be utilized by transporting cargo for third parties or by chartering or subchartering vessels to other shippers. In addition, the Company enters into spot charters and contracts of affreightment as necessary to supplement its transportation resources. Chiquita also owns or leases other related equipment, including refrigerated container units, used to transport fresh food. The owned ships are pledged as collateral for related financings. Properties used by the Company's processed foods operations include a total of 21 vegetable canning facilities in Wisconsin, Illinois, Iowa, Michigan, Minnesota, Idaho, Washington and Oregon and fruit processing facilities in Costa Rica and Honduras. Other operating units of the Company own, lease and operate properties, principally in the United States, Europe, and Central and South America. The Company leases the space for its headquarters in Cincinnati, Ohio. For further information with respect to the Company's physical properties, see the descriptions under ITEM 1 - BUSINESS - GENERAL above, and Notes 5 and 6 to the Consolidated Financial Statements included in the Company's 1997 Annual Report to Shareholders. ITEM 3 - LEGAL PROCEEDINGS --------------------------- A number of legal actions are pending against the Company, including those described below. Although some of these cases are in very preliminary stages, based on information currently available to it and advice of counsel, management does not believe such litigation will, individually or in the aggregate, have a material adverse effect on the financial statements of the Company. Several suits are pending in different jurisdictions against the manufacturers of an agricultural chemical called DBCP and against the Company and other banana producing companies which used DBCP primarily in the 1970's. The plaintiffs are foreign citizens who claim to have been employees of banana companies and allege sterility and other injuries as a result of exposure to DBCP. Plaintiffs' alleged damage claims have yet to be quantified. Several of these lawsuits were filed in Texas state court in 1993. These cases originally represented claims on behalf of approximately 25,000 individuals, of whom approximately 4,000 purported to have claims against the Company. In 1995, all but one of the cases involving Chiquita were removed to the U.S. District Court for the Southern District of Texas and dismissed on the grounds that courts in the plaintiffs' home countries (limited to Costa Rica, Panama and the Philippines in the case of suits involving the Company) were more appropriate forums for pursuing their claims. The plaintiffs, which include approximately 3,650 alleging claims against Chiquita, have appealed these dismissals to the U.S. Court of Appeals for the Fifth Circuit. In February 1997, the other case involving Chiquita was removed to the U.S. District Court for the Southern District of Texas where the defendants have moved to dismiss on the same grounds. This case involves approximately 2,000 plaintiffs, including approximately 350 who claim that the Company has liability for their alleged injuries. A similar suit was filed in 1995 in Louisiana state court by approximately 4,000 plaintiffs. The Company does not have information concerning how many of these plaintiffs allege that Chiquita has liability for their injuries, but the same manufacturer and banana producer defendants were named in this suit. This case was removed to U.S. District Court for the Eastern District of Louisiana and then remanded to Louisiana state court. -8- Five additional lawsuits, each involving one plaintiff, were filed in 1996 in Mississippi state court against the same manufacturer and banana producer defendants. Each case was removed to the United States District Court for the Southern District of Mississippi, Southern Division, where the defendants filed motions to dismiss on grounds of lack of personal jurisdiction and plaintiffs filed motions to remand the cases to state court. Four of these cases were dismissed in late 1997. The plaintiffs have appealed these dismissals. In October 1997, two additional class-action suits were filed in Hawaii state court. These suits assert claims similar to those asserted in the Texas and Louisiana cases and name the same manufacturer and banana producer defendants. The size and composition of the classes alleged in these suits have not yet been determined. These cases have been removed to the U.S. District Court for the District of Hawaii. As a result of the dismissals of the Texas suits described above, similar suits against the Company and its subsidiaries have been filed in Costa Rica, Panama and the Philippines (in addition to previously filed actions in Costa Rica and Panama). The cases filed in Costa Rica and Panama have been dismissed. Cases involving approximately 1,000 plaintiffs who purport to have claims against the Company are currently pending in the Philippines. In 1997, the DBCP manufacturer defendants, Shell Oil Company, Dow Chemical Company and Occidental Chemical Corporation, entered into agreements providing for settlements with substantially all of the plaintiffs in the cases pending in Texas, Louisiana, Costa Rica, Panama and the Philippines. The Company and the other banana producer defendants are not parties to these agreements. The Company continues to believe it has meritorious defenses in all the DBCP cases. These defenses include the fact that at all times when the Company used DBCP commercially, the product was registered for use by the United States Environmental Protection Agency and that the Company ceased using the product on a commercial basis in 1977, promptly after learning that health hazards might exist. In addition, the Company believes that the responsibility for any injuries to the plaintiffs alleging claims against the Company should be attributed to the manufacturer defendants that supplied DBCP to the Company. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ Not applicable. -9- EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------ Carl H. Lindner (age 78) - Mr. Lindner has been Chairman of the Board of Directors and Chief Executive Officer of the Company since 1984. He is also Chairman of the Board and Chief Executive Officer of American Financial Group, Inc. ("AFG") which, through its subsidiaries, is engaged primarily in specialty and multi-line property and casualty insurance businesses and in the sale of tax-deferred annuities. For nearly 40 years, Mr. Lindner has been Chairman of the Board and Chief Executive Officer of American Financial Corporation ("AFC"), which became an AFG subsidiary in 1995. Keith E. Lindner (age 38) - Mr. Lindner has been Vice Chairman of the Board of Directors since March 1997 and was President and Chief Operating Officer of the Company from 1989 to 1997. He has served the Company in various executive capacities since 1984. Mr. Lindner is also a Co-President and a Director of AFG and AFC. Steven G. Warshaw (age 44) - Mr. Warshaw has been President and Chief Operating Officer and a Director of the Company since March 1997. He served as Executive Vice President and Chief Administrative Officer from 1990 to March 1997 and Chief Financial Officer from 1994 to March 1998. Mr. Warshaw has served the Company in various capacities since 1986. Anthony D. Battaglia (age 53) - Mr. Battaglia has been President of the Company's Diversified Foods Group since March 1997. From 1994 to March 1997 he served as President of the Company's Processed Foods Group and from 1991 to 1994 as its Chief Operating Officer. Mr. Battaglia has served the Company in various capacities since 1985. Peter A. Horekens (age 49) - Mr. Horekens was named President and Chief Operating Officer of the Company's Chiquita Banana Group - Europe in July 1997. Mr. Horekens had previously been employed by Kellogg Company, a multi-national food company, for over five years, most recently as Vice President and Director of Asian Operations. Robert F. Kistinger (age 45) - Mr. Kistinger has been President and Chief Operating Officer of the Company's Chiquita Banana Group since March 1997. He was Senior Executive Vice President of the Chiquita Banana Group from 1994 to 1997 and President of Chiquita Banana Group - North America from 1996 to 1997. He was Executive Vice President, Operations for the Company's Chiquita Tropical Products Division from 1989 to 1994 and has served the Company in various capacities since 1980. Warren J. Ligan (age 44) - Mr. Ligan was named Senior Vice President and Chief Financial Officer in March 1998. Mr. Ligan has been employed by the Company in various capacities since November 1993, most recently as Vice President, Taxation. He previously served G. D. Searle & Co., Inc., a pharmaceutical company, in various capacities, most recently as Director, International Taxes. Robert W. Olson (age 52) - Mr. Olson has been Senior Vice President, General Counsel and Secretary of the Company since 1996. From 1995 to 1996, he was the Company s Vice President, General Counsel and Secretary. From 1987 to 1995, he served as Senior Vice President, General Counsel and Secretary of American Premier Underwriters, Inc. (formerly named The Penn Central Corporation), an affiliate of AFG. He was Senior Vice President and Secretary of AFG from April 1995 until he joined the Company. Benjamin Paz (age 48) - Mr. Paz was named President and Chief Operating Officer of the Company's Chiquita Banana Group - North America in June 1997. Mr. Paz had previously been employed by Dole Food Company, Inc., a multi-national food company, for over five years, most recently as President of its Latin American division. William A. Tsacalis (age 54) - Mr. Tsacalis has been Vice President and Controller of the Company since 1987. He was Controller from 1984 to 1987 and has served the Company in various capacities since 1980. -10- PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS ----------------------------------------------------------- The Company's capital stock is listed for trading on the New York, Boston and Pacific Stock Exchanges under the symbol "CQB." At February 28, 1998, there were 5,960 common shareholders of record. Price ranges of the Company's capital stock and dividends declared thereon are in Note 15 to the Consolidated Financial Statements included in the Company's 1997 Annual Report to Shareholders. Restrictions on the Company's ability to declare and pay dividends are described in Note 7 to the Consolidated Financial Statements included in the Company's 1997 Annual Report to Shareholders. All such information is incorporated herein by reference. On December 8, 1997, the Company issued 1,564,623 shares of its capital stock to the shareholders of American Fine Foods, Inc. in payment of the purchase price for the common stock of AFF. The transaction was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. The shares were valued at $17.11 per share based on an agreed market value of Chiquita capital stock on such date. On March 5, 1998, the Company issued 182,735 shares of its capital stock and 4,712 shares of its $2.50 Convertible Preference Stock, Series C ("Series C Stock"), to the former shareholders of the Owatonna Companies. The transaction was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D thereunder. These shares represent the remaining $3 million of the $49 million adjusted purchase price for the common stock of the Owatonna Companies, which were acquired in September 1997. The Series C Stock was valued at $50.00 per share; 97,497 shares of Chiquita capital stock were valued at $13.91 per share, the agreed market value of Chiquita capital stock on March 17, 1997, the date of the letter of intent relating to the merger, and 85,238 shares were valued at $13.42 per share, the agreed market value of Chiquita capital stock on March 5, 1998. ITEM 6 - SELECTED FINANCIAL DATA --------------------------------- This information is included in the table entitled "Selected Financial Data" on page 26 of the Company's 1997 Annual Report to Shareholders and is incorporated herein by reference. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------------------------------- This information is included under the caption "Management's Analysis of Operations and Financial Condition" included on pages 27 through 30 of the Company's 1997 Annual Report to Shareholders and is incorporated herein by reference. The information included under that caption is hereby supplemented by incorporating the information included in the second paragraph in Part I, Item 1 - BUSINESS - LABOR RELATIONS describing a strike in the Company's Armuelles division in Panama, which was also described in a Current Report on Form 8-K dated February 19, 1998. This Annual Report on Form 10-K contains, or incorporates by reference, in this Item 7 and elsewhere, certain statements that may be deemed "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than historical facts, included -11- in this report and in future filings with the Securities and Exchange Commission and written and verbal statements by the Company and its representatives that address events, developments or financial results that the Company expects, believes or estimates will or may occur in the future are forward-looking statements that are intended to be covered by the safe harbor provisions of that Act. These statements are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments and other factors it believes are appropriate under the circumstances and speak as of the date made. Such statements are subject to a number of assumptions, risks and uncertainties, such as (i) the prices at which Chiquita can sell its products, (ii) the costs at which it can purchase (or grow) fresh produce and other raw materials and inventory, and (iii) the various market, competitive and agricultural factors which may impact those prices and costs, many of which are beyond the control of Chiquita. Investors are cautioned that any such statements are not guarantees of future performance and the actual results or developments may differ materially from the expectations expressed in the forward-looking statements. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Not applicable until after June 15, 1998. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------------------- The Consolidated Financial Statements of Chiquita Brands International, Inc. included on pages 31 through 50 of the Company's 1997 Annual Report to Shareholders, and "Quarterly Financial Data" which is included in Note 15 to the Consolidated Financial Statements, are incorporated herein by reference. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE ---------------------------------------------------------- None. PART III Except for information relating to the Company's executive officers included in Part I of this report, the information required by the following Items will be included in Chiquita's definitive Proxy Statement which will be filed with the Securities and Exchange Commission in connection with the 1998 Annual Meeting of Shareholders and is incorporated herein by reference. ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------------------- ITEM 11 - EXECUTIVE COMPENSATION ---------------------------------- ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ------------------------------------------------------------ ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------------------- -12- PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K -------------------------------------------------------- (a) 1. Financial Statements. The following consolidated financial statements of the Company and the Report of Independent Auditors are included in the Company's 1997 Annual Report to Shareholders and are incorporated by reference in Part II, Item 8:
Page of Annual Report --------- Report of Independent Auditors 25 Consolidated Statement of Income for 1997, 1996 and 1995 31 Consolidated Balance Sheet at December 31, 1997 and 1996 32 Consolidated Statement of Shareholders' Equity for 1997, 1996 and 1995 33 Consolidated Statement of Cash Flow for 1997, 1996 and 1995 34 Notes to Consolidated Financial Statements 35
2. Financial Statement Schedule. Financial Statement Schedule II - Allowance for Doubtful Accounts Receivable is included on page 16 of this Annual Report on Form 10-K. All other schedules are not required under the related instructions or are inapplicable. 3. Exhibits. See Index of Exhibits (page 17) for a listing of all exhibits filed with this Annual Report on Form 10-K. (b) The following reports on Form 8-K have been filed since September 30, 1997: November 20, 1997 - to update unaudited pro forma combined financial statements related to the acquisitions of the Owatonna Companies, AFF and Stokely; to incorporate by reference the consolidated financial statements of Stokely; and to supplement Management s Analysis of Operations and Financial Condition included in the Company s Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 by reporting the continuation into the fourth quarter of the trends of a stronger dollar and higher production costs. December 1, 1997 - to report events related to the European Union banana quota and licensing regime, the Framework Agreement and the World Trade Organization proceedings. December 8, 1997 (as amended by Form 8-K/A filed February 3, 1998) - to report the acquisition of AFF. January 7, 1998 - to report the Company's expected 1997 results of operations. January 16, 1998 - to report the acquisition of Stokely. February 11, 1998 - to report the Company's 1997 results of operations. February 19, 1998 - to report a strike by banana workers at the Company's Armuelles division in western Panama. -13- SIGNATURES ----------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on March 27, 1998. CHIQUITA BRANDS INTERNATIONAL, INC. By /s/ Carl H. Lindner Carl H. Lindner Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated below on March 27, 1998: /s/ Carl H. Lindner Chairman of the Board and Carl H. Lindner Chief Executive Officer /s/ Keith E. Lindner Vice Chairman of the Board Keith E. Lindner /s/ Steven G. Warshaw Director, President and Steven G. Warshaw Chief Operating Officer /s/ Fred J. Runk Director Fred J. Runk Jean Head Sisco* Director Jean Head Sisco William W. Verity* Director William W. Verity -14- Oliver W. Waddell* Director Oliver W. Waddell /s/Warren J. Ligan Senior Vice President and Warren J. Ligan Chief Financial Officer /s/ William A. Tsacalis Vice President and Controller William A. Tsacalis (Chief Accounting Officer) * By /s/ William A. Tsacalis Attorney-in-Fact** --------------------- ** By authority of powers of attorney filed with this Annual Report on Form 10-K. -15- CHIQUITA BRANDS INTERNATIONAL, INC. SCHEDULE II - ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE (In thousands)
Year Ended December 31, 1997 1996 1995 ------- ------- -------- Balance at beginning of period $9,832 $11,310 $13,060 -------- -------- -------- Additions: Charged to costs and expenses 3,049 3,685 4,303 -------- -------- -------- Deductions: Write-offs 1,441 4,268 5,703 Other, net 757 895 350 -------- --------- -------- 2,198 5,163 6,053 -------- --------- -------- Balance at end of period $10,683 $9,832 $11,310 ========= ========= =========
-16- CHIQUITA BRANDS INTERNATIONAL, INC. Index of Exhibits
Exhibit Number Description -------- ----------------- *3-a Second Restated Certificate of Incorporation, filed as Exhibit 3(a) to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, as amended by the Certificate of Amendment establishing the terms of the Series B Preferred Stock, filed as Exhibit 3(a) to Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, and by the Certificate of Amendment establishing the terms of the Series C Preference Stock, filed as Exhibit 3.1 to Current Report on Form 8-K dated September 15, 1997 *3-b By-Laws, filed as Exhibit 3-b to Annual Report on Form 10-K for the year ended December 31, 1992 *4 Indenture dated as of February 15, 1994 between the Company and The Fifth Third Bank, Trustee, with respect to Senior Debt Securities, under which the Company s 9 1/8% Senior Notes due 2004 and the Company s 10 1/4% Senior Notes due 2006 have been issued (incorporated by reference to Exhibit 4(c) of Registration Statement 333-00789), as supplemented by the First Supplemental Indenture dated as of June 15, 1994 (incorporated by reference to Exhibit 6(a)99(c) to Quarterly Report on Form 10-Q for the quarter ended June 30, 1994) and by the Second Supplemental Indenture dated as of July 15, 1996 (incorporated by reference to Exhibit 4 to Quarterly Report on Form 10-Q for the quarter ended June 30, 1996); and as further supplemented by the Certificate of the Vice President and Controller of the Company establishing the terms of the 9 1/8% Senior Notes (incorporated by reference to Exhibit 7(c)(3) to Current Report on Form 8-K dated February 8, 1994) and by the Terms of 10 1/4% Senior Notes approved by the Executive Committee of the Board of Directors of the Company (incorporated by reference to Exhibit 7(c)99.6 to Current Report on Form 8-K dated July 22, 1996) *10-a Agreement dated January 11, 1996 effective January 1, 1996 between Tela Railroad Company and the Honduran National Railroad, filed as Exhibit 10-b to Annual Report on Form 10-K for the year ended December 31, 1995 10-b Operating contracts between the Republic of Panama and Chiriqui Land Company consisting of Contract of Operations (Bocas del Toro), Contract of Operations (Armuelles), Amendment and Extension of the Lease Land Contract, and related documents as published in the Republic of Panama Official Gazette No. 23,485 (dated February 18, 1998) 10-c Credit Agreement dated December 31, 1996 among Chiquita Brands International, Inc., The First National Bank of Boston, as administrative agent, and the financial institutions which are lenders thereunder relating to the Company s $125 million revolving credit facility, filed as Exhibit 10-d to Annual Report on Form 10-K for the year ended December 31, 1996, as amended by Amendment No. 1 thereto dated as of December 8, 1997 Executive Compensation Plans ------------------------------- *10-d 1986 Stock Option and Incentive Plan, as amended, filed as Exhibit 10-e to Annual Report on Form 10-K for the year ended December 31, 1996 *10-e Amended and Restated Deferred Compensation Plan, filed as Exhibit 10-g to Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 -17- *10-f Deferred Compensation Plan for Board of Directors of Chiquita Brands International, Inc. dated January 1, 1997, filed as Exhibit 10-h to Annual Report on Form 10-K for the year ended December 31, 1996 13 Chiquita Brands International, Inc. 1997 Annual Report to Shareholders (pages 25 through 50) 21 Subsidiaries of Registrant 23 Consent of Independent Auditors 24 Powers of Attorney 27-a Financial Data Schedule - 1997 27-b Financial Data Schedule - 1996 ---------------------------- * Incorporated by reference.
-18- EX-13 2 EXHIBIT 13 Statement of Management Responsibility The financial information presented in this Annual Report is the responsibility of Chiquita Brands International, Inc. management, which believes that it presents fairly the Company's consolidated financial position and results of operations in accordance with generally accepted accounting principles. The Company's system of internal accounting controls, which is supported by formal financial and administrative policies, is designed to provide reasonable assurance that the financial records are reliable for preparation of financial statements and that assets are safeguarded against losses from unauthorized use or disposition. Management reviews, modifies and improves these systems and controls as changes occur in business conditions and operations. The Company's worldwide internal audit function reviews the adequacy and effectiveness of controls and compliance with policies. The Audit Committee of the Board of Directors reviews the Company's financial statements, accounting policies and internal controls. In performing its reviews, the Committee meets periodically with the independent auditors, management and internal auditors to discuss these matters. The Company engages Ernst & Young LLP, an independent auditing firm, to audit its financial statements and express an opinion thereon. The scope of the audit is set by Ernst & Young LLP, which has full and free access to all Company records and personnel in conducting its audits. Representatives of Ernst & Young LLP are free to meet with the Audit Committee, with or without members of management present, to discuss their audit work and any other matters they believe should be brought to the attention of the Committee. -24- Report of Ernst & Young LLP, Independent Auditors The Board of Directors and Shareholders of Chiquita Brands International, Inc. We have audited the accompanying consolidated balance sheets of Chiquita Brands International, Inc. as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flow for each of the three years in the period ended December 31, 1997. These financial statements, appearing on pages 31 through 50, are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Chiquita Brands International, Inc. at December 31, 1997 and 1996, and the consolidated results of its operations and its cash flow for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Ernst & Young LLP Cincinnati, Ohio February 11, 1998 -25-
Chiquita Brands International, Inc. SELECTED FINANCIAL DATA (In thousands, except per share amounts) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------------- FINANCIAL CONDITION Working capital $300,348 $379,977 $366,893 $230,434 $266,793 Capital expenditures 76,248 74,641 64,640 136,981 196,554 Total assets 2,401,613 2,466,934 2,623,533 2,774,239 2,722,824 Capitalization Short-term debt 152,564 135,089 172,333 221,051 192,207 Long-term debt 961,972 1,079,251 1,242,046 1,364,836 1,438,378 Shareholders' equity 780,086 724,253 672,207 644,809 584,069 Operations Net sales $2,433,726 $2,435,248 $2,565,992 $2,505,826 $2,532,925 Operating income 100,166 84,336 175,770 71,185 103,848 Income (loss) from continuing operations 343 (27,728) 27,969 (84,311) (51,081) Discontinued operations - - (11,197) 35,611 - Extraordinary loss from debt refinancing - (22,838) (7,560) (22,840) - Net income (loss) 343 (50,566) 9,212 (71,540) (51,081) Share Data Shares used to calculate diluted earnings (loss) per common share 57,025 55,195 53,650 52,033 51,427 Diluted earnings (loss) per common share: - Continuing operations $(.29) $(.72) $.37 $(1.76) $(.99) - Discontinued operations - - (.21) .69 - - Extraordinary items - (.41) (.14) (.44) - - Net income (loss) (.29) (1.13) .02 (1.51) (.99) Dividends per common share .20 .20 .20 .20 .44 Market price per common share: High 18.00 16.38 18.00 19.25 17.50 Low 12.75 11.50 12.25 11.25 10.13 End of year 16.31 12.75 13.75 13.63 11.50
-26- MANAGEMENT'S ANALYSIS OF OPERATIONS AND FINANCIAL CONDITION Operations - ---------- Sales of $2.4 billion in 1997 and 1996 were $130 million lower than in 1995 primarily as a result of the December 1995 sale of the Costa Rican operations of Chiquita's Numar edible oils group ("Numar Costa Rica"). The acquisition of two vegetable canning companies in the latter part of 1997 did not have a significant effect on net sales or operating income for the year. (See Note 3 to the Consolidated Financial Statements for additional discussion of these acquisitions.) Operating income of $100 million for 1997 was adversely affected by a stronger dollar in relation to major European currencies (mitigated in part by the Company's foreign currency hedging program) and by increased banana production costs resulting primarily from widespread flooding in 1996. These factors more than offset the benefit of higher local currency European banana pricing during the second half of the year. In early 1998, the Company is experiencing higher local currency European banana pricing, the effect of a stronger U.S. dollar and lower North American banana pricing in comparison to early 1997. For 1996, operating income was $84 million and included write-downs and costs of $70 million resulting from industry-wide flooding in Costa Rica, Guatemala and Honduras; modification of distribution logistics and the wind-down of particular production facilities to achieve further long-term reductions in the delivered product cost of Chiquita bananas; and certain claims relating to prior European Union ("EU") quota restructuring actions. Operating income for 1995 was $176 million and included a net gain of $19 million primarily resulting from divestitures of operations and other actions taken as part of the Company's ongoing program to improve shareholder value. These divestitures and other actions included sales of older ships, the sale of Numar Costa Rica, the shut-down of a portion of the Company's juice operations and the reconfiguration of banana production assets. Net interest expense decreased by $10 million in 1997 and $33 million in 1996 primarily as a result of refinancing and debt reduction activities. Net income (loss) includes extraordinary charges of $23 million in 1996 and $8 million in 1995 resulting from these activities. Income taxes consist principally of foreign income taxes currently paid or payable. No tax benefit was recorded for unrealized U.S. net operating loss carryforwards or other available tax credits. European Union Regulatory Developments - --------------------------------------- On July 1, 1993, the EU implemented a quota system effectively restricting the volume of Latin American bananas imported into the EU, which had the effect of decreasing the Company's overall volume and market share in Europe. The quota regime is administered through a licensing system and grants preferred status to producers and importers within the EU and its former colonies, while imposing restrictive quotas and tariffs on bananas imported from other sources, including Latin America, Chiquita's primary source of fruit. Since imposition of the EU quota regime, prices within the EU have increased to a higher level than the levels prevailing prior to the quota. Banana prices in other worldwide markets, however, have been lower than in years prior to the EU quota, as the displaced EU volume has entered those markets. -27- In two separate rulings, General Agreement on Tariffs and Trade ("GATT") panels found the EU banana policies to be illegal. In March 1994, four of the five countries which had initiated GATT complaints, Costa Rica, Colombia, Nicaragua and Venezuela, settled their GATT actions against the EU by entering into a "Framework Agreement" which guaranteed them preferential EU market access for bananas. The Framework Agreement was implemented in 1995 and imposed additional restrictive and discriminatory quotas and export licenses on U.S. banana marketing firms, while leaving EU firms exempt. This significantly increased the Company's cost to export bananas. Since implementation of the quota system: * In September 1994, Chiquita and the Hawaii Banana Industry Association made a joint filing with the Office of the U.S. Trade Representative ("USTR") under Section 301 of the U.S. Trade Act of 1974 charging that the EU quota and licensing regime and the Framework Agreement are unreasonable, discriminatory, and a burden and restriction on U.S. commerce. * In January 1995, the U.S. Government announced a preliminary finding against the EU banana import policy and, a year later, the USTR found the banana Framework Agreement export policies to be unfair. * In September 1995, the United States, Guatemala, Honduras and Mexico commenced a challenge against the EU quota regime using the procedures of the World Trade Organization ("WTO"). Ecuador, the world's largest exporter of bananas, joined these countries in filing a new WTO action in February 1996. * In May 1997, a WTO arbitration panel issued a report ruling that the licensing and quota systems under the EU quota regime and the Framework Agreement violate numerous international trade obligations to the detriment of Latin American supplying countries and U.S. marketing firms such as Chiquita. The panel recommended that the WTO request the EU to conform its import regime for bananas to these trade obligations. * In June 1997, the EU appealed the WTO panel report. In September 1997, the WTO Appellate Body upheld the panel's report and the full WTO body later adopted both the panel and Appellate Body reports. * In January 1998, a WTO arbitrator ruled that the EU must fully implement banana policies consistent with the WTO report findings not later than December 31, 1998. * In January 1998, the EU governing commission proposed a new quota and license regime for review and possible implementation by the EU. The five governments which filed the WTO complaint, joined by Panama which has recently become a WTO member and initiated its own challenge to the quota and Framework Agreement, have all indicated that they do not believe the current EU proposal complies with the WTO findings. If the EU fails to comply with the WTO rulings by the end of 1998, the WTO authorizes the injured governments to engage in retaliatory trade measures, such as tariffs or withdrawal of trade concessions, against the EU. However, there can be no assurance as to the results of the WTO proceedings, the nature and extent of actions that may be taken by the affected countries or the impact on the EU quota regime or the Framework Agreement. -28- Financial Condition - -------------------- Cash flow from operations was $67 million in 1997, $123 million in 1996 and $90 million in 1995. The decrease in 1997 operating cash flow compared to 1996 resulted primarily from the use of cash to fund a short-term increase in working capital and the payment in 1997 of prior year claims relating to earlier EU quota restructuring actions. Capital expenditures were $76 million in 1997, $75 million in 1996 and $65 million in 1995. The 1997 and 1996 capital expenditures include $19 million and $15 million, respectively, to rehabilitate banana farms and other assets damaged by storms in 1996. As a result of the Company's investment spending program for transportation system improvements and fresh fruit production capacity during the early 1990's, recurring capital expenditures (which exclude rehabilitation spending) have been less than depreciation and amortization for each of the past three years and have resulted in free cash flow exceeding the Company's results of operations by $34 million to $40 million per year. In late 1997 and early 1998, the Company issued $120 million of capital and preference stock and paid approximately $37 million of cash to acquire the common stock and retire a portion of the outstanding debt of three vegetable canning companies. These acquisitions expand the capacity, product lines and geographic coverage of the Company's existing vegetable canning business. In December 1996, Chiquita entered into a $125 million senior unsecured revolving credit facility. This facility, which is available through January 2001, provides flexibility in funding seasonal working capital and has allowed the Company to maintain lower cash balances, enabling the Company to further reduce debt and interest costs. Accordingly, debt repayments of $116 million were made in 1997. No amounts were drawn under this credit facility in 1997. Chiquita has also strengthened its balance sheet, enhanced short-term liquidity and reduced overall borrowing costs over the past three years through the following achievements: * In 1996, raised a total of $255 million from public offerings of preferred shares and senior notes and used the proceeds to prepay subordinated debt, which carried effective interest rates of 11.5% to 12.1%, and to prepay high cost subsidiary debt. * In December 1995, sold its remaining meat operations to Smithfield Foods, Inc. for approximately $60 million, consisting of $25 million in cash and approximately 1.1 million shares of Smithfield common stock which were sold for cash in 1996. * Sold Numar Costa Rica in December 1995 for approximately $50 million in cash and $50 million in secured notes, which were collected in 1996. * Sold older ships in 1995 for $90 million in cash and used approximately $50 million of the proceeds to prepay the related debt. In addition, the Company sold and leased back shipping containers in 1995, generating proceeds of $40 million and retiring approximately $27 million of related 9.8% debt. -29- * Replaced $153 million of ship loans in 1995 with loans having longer maturities totaling $187 million and negotiated the extension of the maturities on another $23 million ship loan. * Used $36 million of restricted cash to prepay related subsidiary debt in December 1995 and, in 1996, obtained the right to use $40 million of previously restricted cash for general corporate purposes. Hedging Activities - ------------------ Chiquita's products are distributed in more than 60 countries. Its international sales are made primarily in U.S. dollars and major European currencies. The Company manages currency exchange risks from sales originating in currencies other than the dollar generally by exchanging local currencies for dollars immediately upon receipt, and by engaging from time to time in various hedging activities. Debt denominated in currencies of countries other than the U.S. serves as a hedge of the net investments in those countries. At December 31, 1997, the Company had foreign currency option contracts to ensure conversion of approximately $400 million of foreign sales in 1998 at a rate not higher than 1.72 Deutsche marks per U.S. dollar or lower than 1.56 Deutsche marks per U.S. dollar. (See Note 8 to the Consolidated Financial Statements for additional discussion of the Company's hedging activities.) Year 2000 Compliance - -------------------- As has been widely reported, many computer systems process dates based on two digits for the year of a transaction and are unable to process dates in the year 2000 and beyond. In connection with its ongoing information system management efforts, Chiquita has previously replaced or modified a significant portion of its key financial information and operational systems that were not year 2000 compliant. Remaining financial and operational systems have been assessed, and detailed plans have been developed and are being implemented to make the necessary modifications to ensure year 2000 compliance. The financial impact of making the required system changes for year 2000 compliance are not expected to have a material effect on Chiquita's financial statements. -30-
Chiquita Brands International, Inc. CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share amounts) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------- Net sales $2,433,726 $2,435,248 $2,565,992 ----------- ----------- ----------- Operating expenses Cost of sales 1,935,870 1,947,888 1,958,063 Selling, general and administrative expenses 311,568 313,490 333,537 Depreciation 86,122 89,534 98,622 ----------- ----------- ----------- 2,333,560 2,350,912 2,390,222 ----------- ----------- ----------- Operating income 100,166 84,336 175,770 Interest income 16,540 28,276 28,157 Interest expense (108,913) (130,232) (163,513) Other income, net 750 892 1,455 ----------- ----------- ----------- Income (loss) from continuing operations before income taxes 8,543 (16,728) 41,869 Income taxes (8,200) (11,000) (13,900) ----------- ----------- ----------- Income (loss) from continuing operations 343 (27,728) 27,969 Discontinued operations - - (11,197) ----------- ----------- ----------- Income (loss) before extraordinary items 343 (27,728) 16,772 Extraordinary loss from debt refinancing - (22,838) (7,560) ----------- ----------- ----------- Net income (loss) $ 343 $(50,566) $9,212 Less dividends on preferred and preference stock (16,949) (11,955) (8,266) ----------- ----------- ----------- Net income (loss) attributable to common shares $(16,606) $(62,521) $946 =========== =========== =========== Per common share - basic and diluted - Continuing operations $(.29) $(.72) $ .37 - Discontinued operations - - (.21) - Extraordinary items - (.41) (.14) ----------- ----------- ----------- - Net income (loss) $(.29) $(1.13) $.02 =========== =========== =========== See Notes to Consolidated Financial Statements.
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Chiquita Brands International, Inc. CONSOLIDATED BALANCE SHEET December 31, ----------------------- (In thousands) 1997 1996 - -------------------------------------------------------------------------------------------------------- ASSETS Current assets Cash and equivalents $125,702 $285,558 Trade receivables, less allowances of $10,683 and $9,832, respectively 184,913 162,566 Other receivables, net 87,301 91,126 Inventories 349,948 275,177 Other current assets 35,602 29,884 ----------- ----------- Total current assets 783,466 844,311 Property, plant and equipment, net 1,151,396 1,139,677 Investments and other assets 301,173 319,149 Intangibles, net 165,578 163,797 ----------- ----------- Total assets $2,401,613 $2,466,934 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Notes and loans payable $59,659 $78,107 Long-term debt due within one year 92,905 56,982 Accounts payable 205,323 193,875 Accrued liabilities 125,231 135,370 ----------- ----------- Total current liabilities 483,118 464,334 Long-term debt of parent company 689,080 704,763 Long-term debt of subsidiaries 272,892 374,488 Accrued pension and other employee benefits 86,676 83,797 Other liabilities 89,761 115,299 ----------- ----------- Total liabilities 1,621,527 1,742,681 ----------- ----------- Shareholders' equity Preferred and preference stock 253,239 249,256 Capital stock, $.33 par value (61,168 and 55,841 shares outstanding, respectively) 20,389 18,614 Capital surplus 672,944 594,885 Accumulated deficit (166,486) (138,502) ----------- ----------- Total shareholders' equity 780,086 724,253 ----------- ----------- Total liabilities and shareholders' equity $2,401,613 $2,466,934 =========== =========== See Notes to Consolidated Financial Statements.
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Chiquita Brands International, Inc. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY Preferred Total and share- preference Capital Capital Accumulated holders' (In thousands) stock stock surplus deficit equity - ---------------------------------------------------------------------------------------------------------- Balance at December 31, 1994 $190,639 $16,434 $505,800 $(68,064) $644,809 Share issuances Option exercises - 110 3,249 - 3,359 Exchange of capital shares for preference stock (52,270) 1,081 51,189 - - Other - 553 17,659 - 18,212 Minimum pension liability adjustment - - - 15,124 15,124 Net income - - - 9,212 9,212 Dividends Capital stock - - - (10,236) (10,236) Preferred and preference stock - 78 3,122 (11,473) (8,273) --------- --------- --------- --------- --------- Balance at December 31, 1995 138,369 18,256 581,019 (65,437) 672,207 Share issuances Option exercises - 182 5,097 - 5,279 Preferred stock 110,887 - - - 110,887 Other - 176 8,769 - 8,945 Net loss - - - (50,566) (50,566) Dividends Capital stock - - - (11,094) (11,094) Preferred stock - - - (11,405) (11,405) --------- --------- --------- --------- --------- Balance at December 31, 1996 249,256 18,614 594,885 (138,502) 724,253 Share issuances Option exercises - 170 6,045 - 6,215 Acquisition of vegetable canning businesses 3,983 1,528 67,258 - 72,769 Other - 77 4,756 - 4,833 Net income - - - 343 343 Dividends Capital stock - - - (11,395) (11,395) Preferred and preference stock - - - (16,932) (16,932) --------- --------- --------- --------- --------- Balance at December 31, 1997 $253,239 $20,389 $672,944 $(166,486) $780,086 ========= ========= ========= ========= ========= See Notes to Consolidated Financial Statements.
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Chiquita Brands International, Inc. CONSOLIDATED STATEMENT OF CASH FLOW (In thousands) 1997 1996 1995 - -------------------------------------------------------------------------------------------------------- Cash provided (used) by: Operations Income (loss) from continuing operations $343 $(27,728) $27,969 Depreciation and amortization 91,588 96,455 104,581 Gain on sales of non-core assets - - (32,100) Write-downs of farms and cultivations - 28,300 - Changes in current assets and liabilities Receivables (12,816) 10,644 16,194 Inventories 4,062 12,402 10,054 Other current assets (3,776) 7,943 (4,722) Accounts payable and accrued liabilities (22,613) (6,375) (28,759) Other 10,155 1,694 (2,906) --------- --------- --------- Cash flow from operations 66,943 123,335 90,311 --------- --------- --------- Investing Capital expenditures (76,248) (74,641) (64,640) Acquisition of vegetable canning businesses (14,819) - - Long-term investments (8,475) (1,831) (814) Restricted cash deposits - 39,520 35,510 Proceeds from sales of non-core assets - 81,504 166,835 Other (1,480) 10,321 (4,188) --------- --------- --------- Cash flow from investing (101,022) 54,873 132,703 --------- --------- --------- Financing Debt transactions Issuances of long-term debt 12,234 191,174 214,171 Repayments of long-term debt (98,034) (377,349) (361,906) Net repayments of notes and loans payable (17,865) (36,817) (10,236) Stock transactions Issuances of preferred stock - 110,887 - Issuances of capital stock 6,215 5,279 3,413 Dividends (28,327) (22,499) (18,509) --------- --------- --------- Cash flow from financing (125,777) (129,325) (173,067) --------- --------- --------- Discontinued operations - - 21,205 --------- --------- --------- Increase (decrease) in cash and equivalents (159,856) 48,883 71,152 Balance at beginning of year 285,558 236,675 165,523 --------- --------- --------- Balance at end of year $125,702 $285,558 $236,675 ========= ========= ========= See Notes to Consolidated Financial Statements.
-34- Chiquita Brands International, Inc. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - Summary of Significant Accounting Policies - --------------------------------------------------------------- American Financial Group, Inc. and its subsidiaries owned approximately 39% of the outstanding capital stock of Chiquita Brands International, Inc. ("Chiquita" or the "Company") as of December 31, 1997. CONSOLIDATION - The consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries, other than the Meat Division which was sold in December 1995 and is accounted for as a discontinued operation (see Note 3). Unless otherwise indicated, the accompanying notes present amounts related only to continuing operations. Intercompany balances and transactions have been eliminated. Investments representing minority interests are accounted for by the equity method when Chiquita has the ability to exercise significant influence in the investees' operations; otherwise, they are accounted for at cost. At December 31, 1997 and 1996, investments in food-related companies of $86 million and $72 million, respectively, were accounted for using the equity method. The excess of the carrying value over Chiquita's share of the fair value of the investees' net assets at the date of acquisition is being amortized over periods ranging from 10 to 40 years ($16 million, net of accumulated amortization, at December 31, 1997). USE OF ESTIMATES - The financial statements have been prepared in conformity with generally accepted accounting principles, which require management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. CASH AND EQUIVALENTS - Cash and equivalents include cash and highly liquid investments with a maturity when purchased of three months or less. INVENTORIES - Inventories are valued at the lower of cost or market. Cost for growing crops and certain banana inventories is determined principally on the "last-in, first-out" (LIFO) basis. Cost for other inventory categories is determined principally on the "first-in, first-out" (FIFO) or average cost basis. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are stated at cost and, except for land, are depreciated on a straight-line basis over their estimated useful lives. INTANGIBLES - Intangibles consist primarily of goodwill and trademarks which are amortized over not more than 40 years. Accumulated amortization was $50 million and $45 million at December 31, 1997 and 1996, respectively. The carrying value of intangibles is evaluated periodically in relation to the operating performance and future undiscounted cash flows of the underlying businesses. REVENUE RECOGNITION - Revenue is recognized on sales of products when the customer receives title to the goods, generally upon delivery. INCOME TAXES - Deferred income taxes are recognized at currently enacted tax rates for temporary differences between the financial reporting and income tax bases of assets and liabilities. Deferred taxes are not provided on the undistributed earnings of subsidiaries operating outside the U.S. that have been or are intended to be permanently reinvested. FOREIGN EXCHANGE - Chiquita generally utilizes the U.S. dollar as its functional currency. Net foreign exchange gains (losses) of $(7) million in 1997, $1 million in 1996 and $7 million in 1995 are included in income. -35- The Company enters into foreign currency option contracts and foreign exchange forward contracts to hedge transactions denominated in foreign currencies. These options and forward contracts are specifically designated as hedges and offset the losses or gains from currency risk associated with the hedged transactions. The Company does not enter into options or forward contracts for speculative purposes. Amounts paid for options and any gains realized thereon, as well as any gains or losses on forward contracts used to hedge firm commitments, are deferred until the hedged transaction occurs. Gains and losses on forward contracts used to hedge transactions where a firm commitment does not exist are included in income on a current basis. EARNINGS PER SHARE - In 1997, Chiquita adopted Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings per Share" and applied the new standard to all periods presented in these financial statements. Under SFAS No. 128, basic earnings per share is calculated on the basis of the weighted average number of shares of common stock outstanding during the year reduced by nonvested restricted stock. Diluted earnings per share also includes the dilutive effect, if any, of assumed conversion of preferred and preference stock and convertible debentures and of assumed exercise of stock options. The adoption of SFAS No. 128 had no effect on reported earnings per share amounts. OTHER NEW ACCOUNTING PRONOUNCEMENTS - In 1997, the Financial Accounting Standards Board issued SFAS No. 130 "Comprehensive Income" and SFAS No. 131 "Segment Information" and, in early 1998, issued SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits." These new standards, which become effective in 1998, are presently under review by the Company. They are not expected to have a material effect on the Company's financial position or results of operations, although they may result in modification of future note disclosures.
Note 2 - Earnings Per Share - -------------------------------------------------------------------------------------------------------- Basic and diluted earnings per share calculations are as follows: (In thousands, except per share amounts) 1997 1996 1995 - -------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations $343 $(27,728) $27,969 Dividends on preferred and preference stock (16,949) (11,955) (8,266) ---------- ---------- ---------- Income (loss) from continuing operations attributable to common shares $(16,606) $(39,683) $19,703 ========== ========== ========== Weighted average common shares outstanding 57,185 55,450 53,647 Nonvested restricted shares (160) (255) (407) ---------- ---------- ---------- Shares used to calculate basic earnings per share 57,025 55,195 53,240 Assumed exercise of stock options - - 410 ---------- ---------- ---------- Shares used to calculate diluted earnings per share 57,025 55,195 53,650 ========== ========== ========== Basic and diluted income (loss) from continuing operations per share $(.29) $(.72) $.37 ========== ========== ==========
-36- The assumed conversions to common stock of preferred stock, preference stock, 7% convertible subordinated debentures and, for 1997 and 1996, the assumed exercise of outstanding stock options would have an anti-dilutive effect on diluted earnings per share and, therefore, have not been included in the computation. For additional information regarding the 7% convertible subordinated debentures, stock options and preferred and preference stock, see Notes 7, 10 and 11. Note 3 - Acquisitions and Divestitures - ----------------------------------------------------------------- During 1997, the Company acquired separately the Owatonna Canning group of companies and American Fine Foods, Inc., privately-owned companies engaged primarily in the vegetable canning business. Chiquita issued capital stock valued at $72 million (including $3 million issued in 1998) and preference stock valued at $4 million to acquire these companies, and paid $19 million to retire debt of the acquired businesses. These transactions were accounted for as purchases and their results of operations since the dates of acquisition have been included in, but did not materially affect, Chiquita's consolidated financial statements. The assets of the acquired companies consist primarily of inventory and property, plant and equipment. In January 1998, Chiquita acquired Stokely USA, Inc., a publicly-owned vegetable canning business. In connection with the acquisition, Chiquita issued $11 million of capital stock in exchange for all outstanding Stokely shares and issued $33 million of capital stock and paid $18 million of cash to retire equal amounts of Stokely debt. After giving effect to these debt retirements, $36 million of Stokely debt remained outstanding and was assumed by Chiquita as part of the acquisition. This transaction will be accounted for as a purchase. The following unaudited pro forma information presents a summary of the consolidated results of operations of the Company as if the acquisitions of Owatonna, AFF and Stokely had occurred on January 1, 1996:
(In thousands, except per share amounts) (Unaudited) 1997 1996 - ------------------------------------------------------------------------------------------------ Net sales $2,707,000 $2,736,000 Loss before extraordinary item (1,300) (33,000) Net loss (1,300) (56,000) Net loss per common share (.29) (1.07)
In December 1995, the Company sold its Meat Division to Smithfield Foods, Inc. for $60 million, consisting of $25 million in cash and 1.1 million shares of Smithfield common stock. These shares were sold for cash in 1996. Smithfield assumed all Meat Division liabilities, including pension obligations. "Discontinued operations" for 1995 consist of the following items relating to the Meat Division: write-off of a minimum pension liability adjustment of $15 million previously charged directly to shareholders' equity; income from operations of $3 million; and a gain on sale of $1 million. Meat Division net sales for 1995 were $1.5 billion. -37- During 1995, the Company took other actions as part of its ongoing program to improve shareholder value. These actions, which included sales of older ships, the sale of the Costa Rican operations of the Numar edible oils group, the shut-down of a portion of the Company's juice operations and the reconfiguration of banana production assets, resulted in a net gain of $19 million. Proceeds consisted of $167 million in cash and $50 million of secured notes, which were collected in 1996.
Note 4 - Inventories - ---------------------- Inventories consist of the following: December 31, (In thousands) 1997 1996 - ----------------------------------------------------------------------------------------------- Bananas and other fresh produce $36,035 $34,557 Canned vegetables 128,824 57,652 Other food products 8,661 9,277 Growing crops 115,007 114,425 Materials and supplies 53,909 49,699 Other 7,512 9,567 ---------- --------- $349,948 $275,177 ========== =========
The carrying value of inventories valued by the LIFO method was $124 million at December 31, 1997 and $119 million at December 31, 1996. If inventories were stated at current costs, total inventory would have been approximately $45 million and $33 million higher than reported at December 31, 1997 and 1996, respectively.
Note 5 - Property, Plant and Equipment - ----------------------------------------------------------------------------------------------------- Property, plant and equipment consist of the following: Weighted average December 31, depreciable (In thousands) 1997 1996 lives - ----------------------------------------------------------------------------------------------------- Land $91,718 $89,780 Buildings and improvements 226,331 204,023 25 years Machinery and equipment 436,761 398,972 12 years Ships and containers 673,605 667,530 19 years Cultivations 293,942 282,528 29 years Other 78,946 72,700 20 years ---------- ----------- 1,801,303 1,715,533 Accumulated depreciation (649,907) (575,856) ---------- ----------- $1,151,396 $1,139,677 ========== ===========
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Note 6 - Leases - ----------------------------------------------------------------------------------------------------- Total rental expense consists of the following: (In thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------- Gross rentals - ships and containers $79,746 $60,911 $94,829 - other 35,509 35,893 35,562 --------- --------- --------- 115,255 96,804 130,391 Less sublease rentals (14,359) (11,094) (17,310) --------- --------- --------- $100,896 $85,710 $113,081 ========= ========= =========
Future minimum rental payments required under operating leases having initial or remaining non-cancelable lease terms in excess of one year at December 31, 1997 are as follows:
Ships and (In thousands) containers Other Total - ----------------------------------------------------------------------------------------------------- 1998 $31,912 $19,175 $51,087 1999 35,185 17,077 52,262 2000 30,649 13,327 43,976 2001 16,255 8,164 24,419 2002 16,416 7,019 23,435 Later years 32,117 13,174 45,291
Portions of the minimum rental payments for ships constitute reimbursement for ship operating costs paid by the lessor. Aggregate future minimum rental payments to be received from non-cancelable subleases at December 31, 1997, principally for office space and ships, total $14 million. -39-
Note 7 - Debt - ----------------------------------------------------------------------------------------------------- Long-term debt consists of the following: December 31, (In thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------- Parent Company 9 1/8% senior notes, due 2004 $175,000 $175,000 9 5/8% senior notes, due 2004 248,004 247,770 10 1/4% senior notes, due 2006 148,861 148,788 7% subordinated debentures, due 2001, convertible into capital stock at $43 per share 117,215 133,205 ----------- ----------- Long-term debt of parent company $689,080 $704,763 =========== =========== Subsidiaries Loans secured by ships and containers, due in installments from 1998 to 2009 - average effective interest rate of 8.6% $242,463 $269,522 Caribbean Basin Projects Financing Authority (CBI Industrial Revenue Bonds 1993 Series A) loan, due 1998 - variable interest rate of 4.6% (4.5% in 1996) 38,000 38,000 Overseas Private Investment Corporation loan, prepaid in January 1998 - variable interest rate of 8.0% (8.3% in 1996) 11,126 13,406 Foreign currency loans maturing through 2008 - average interest rate of 8% (14% in 1996) 10,478 19,969 Other loans maturing through 2012 - average interest rate of 9% 63,730 90,573 Less current maturities (92,905) (56,982) ----------- ------------ Long-term debt of subsidiaries $272,892 $374,488 =========== ============
The 7% subordinated debentures are callable at face value. The 10 1/4% senior notes are callable beginning in 2001 at a price of 105 1/8% of face value declining to face value in 2004. Certain of the covenants under the Company s senior note agreements contain restrictions on the payment of cash dividends. At December 31, 1997, approximately $305 million was available for dividend payments under the most restrictive covenants. As part of its ongoing program to strengthen its balance sheet and reduce interest costs, the Company: * Called its $66 million outstanding 10 1/2% subordinated debentures for redemption at par in June 1996, resulting in an extraordinary loss of $6 million consisting primarily of a non-cash write-off of unamortized discount. * Issued $150 million principal amount of 10 1/4% senior notes due 2006 in July 1996. The proceeds from this offering, together with a portion of the proceeds from the sale of Series B preferred stock (see Note 11), were used to redeem the $220 million outstanding 11 1/2% subordinated notes at a redemption premium of 5.7% of the principal amount. This prepayment resulted in an extraordinary loss of $17 million. -40- * Replaced $153 million of ship loans with loans having longer maturities totaling $187 million during 1995, resulting in an extraordinary loss of $5 million. * Sold and leased back $40 million of container equipment in December 1995 and used $27 million of the sale proceeds to prepay related debt, resulting in an extraordinary loss of $3 million. At December 31, 1997, $116 million of loans secured by ships had interest rates fixed at an average of 7.9% by the terms of the loans or by the operation of interest rate swap agreements (see Note 8). The average effective interest rate on ship and container loans includes the amortization of deferred hedging losses from interest rate futures contracts.
Maturities on long-term debt during the next five years are: Parent (In thousands) Company Subsidiaries Total - ----------------------------------------------------------------------------------------------------- 1998 $- $92,905 $92,905 1999 - 54,986 54,986 2000 - 40,162 40,162 2001 117,215 48,534 165,749 2002 - 32,526 32,526
The Company has a $125 million senior unsecured revolving credit facility available through January 2001. Interest on borrowings under the facility is based on, at the Company's option, the bank corporate base rate, the federal funds effective rate or prevailing interbank Eurodollar offering rates. The credit facility contains covenants which require the Company to satisfy certain ratios related to net worth, debt-to-equity and interest coverage. An annual fee of up to 1/2% is payable on the unused portion of the facility. At December 31, 1997, no amounts were outstanding under the facility. The Company maintains various other lines of credit with domestic and foreign banks for borrowing funds on a short-term basis. The average interest rate for all short-term notes and loans payable outstanding at December 31, 1997 was 7.5% (9.2% at December 31, 1996). Cash payments relating to interest expense were $104 million in 1997, $126 million in 1996 and $156 million in 1995. Note 8 - Hedging Transactions - --------------------------------------------------------------- Chiquita has interest rate swap agreements maturing between 1998 and 2001 to fix the rate of interest on approximately $36 million of its variable rate ship loans. The Company has currency and interest rate swap agreements maturing between 2004 and 2005 which have the effect of converting $44 million of ship loans denominated in British pounds into U.S. dollar loans with variable interest rates that became fixed at 7.7% in 1997. At December 31, 1997, the Company had option contracts which ensure conversion of approximately $400 million of foreign sales in 1998 at a rate not higher than 1.72 Deutsche marks per U.S. dollar or lower than 1.56 Deutsche marks per U.S. dollar. -41- The carrying values and estimated fair values of the Company's debt, associated interest rate agreements and foreign currency swap and option contracts are summarized below:
December 31, 1997 December 31, 1996 ----------------------- ----------------------- Carrying Estimated Carrying Estimated (In thousands) value fair value value fair value - -------------------------------------------------------------------------------------------------------- Debt $(1,114,536) $(1,160,200) $(1,214,628) $(1,237,300) Interest rate swap and cap agreements - (900) 288 (1,200) Foreign currency swap agreements - 6,200 - 7,900 Foreign currency option contracts 7,014 20,600 4,544 9,500
Fair values for the Company's publicly traded debt and foreign currency option contracts are based on quoted market prices. Fair value for other debt is estimated based on the current rates offered to the Company for debt of similar maturities. The fair values of interest rate and foreign currency swap agreements and interest rate cap agreements are estimated based on the cost to terminate the agreements. The Company is exposed to credit loss in the event of nonperformance by counterparties on interest rate and foreign currency swap agreements. However, because the Company's hedging activities are transacted only with highly rated institutions, Chiquita does not anticipate nonperformance by any of these counterparties. The amount of any credit exposure is limited to unrealized gains on all such contracts. Note 9 - Pension and Severance Benefits - ----------------------------------------------------------------- The Company and its subsidiaries have several defined benefit and contribution pension plans covering approximately 5,000 domestic and foreign employees. Approximately 30,000 employees are covered by Central and South American severance plans. Pension plans covering eligible salaried employees and Central and South American severance plans for all employees call for benefits to be based upon years of service and compensation rates. Pension and severance expense consists of the following:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------- Defined benefit and severance plans: Service cost - benefits earned during the period $5,388 $5,650 $5,664 Interest cost on projected benefit obligation 8,396 8,015 8,622 Actual return on plan assets (2,176) (2,320) (2,505) Net amortization and deferral 1,747 1,802 1,441 ---------- ---------- ---------- 13,355 13,147 13,222 Defined contribution plans 3,888 3,424 3,458 ---------- ---------- ---------- Total pension and severance expense $17,243 $16,571 $16,680 ========== ========== ==========
-42- The Company's pension and severance benefit obligations relate primarily to Central and South American benefits which, in accordance with local government regulations, are generally not funded until benefits are paid. Domestic pension plans are funded in accordance with the requirements of the Employee Retirement Income Security Act. Plan assets consist primarily of corporate debt securities, U.S. Government and agency obligations and collective trust funds. The funded status of the Company's domestic and foreign defined benefit pension and severance plans is as follows:
Plans for which Plans for which assets exceed accumulated benefits accumulated benefits exceed assets at December 31, at December 31, ----------------------- ---------------------- (In thousands) 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------- Plan assets at fair market value $16,434 $7,488 $22,281 $19,970 -------- -------- -------- -------- Present value of benefit obligations: Vested 11,023 5,228 75,872 74,421 Nonvested 169 30 949 1,003 -------- -------- -------- -------- Accumulated benefit obligation 11,192 5,258 76,821 75,424 Additional amounts related to projected pay increases 2,752 2,485 16,327 17,327 -------- -------- -------- -------- Projected benefit obligation 13,944 7,743 93,148 92,751 -------- -------- -------- -------- Plan assets in excess of (less than) projected benefit obligation 2,490 (255) (70,867) (72,781) Projected benefit obligation not yet recognized in the balance sheet: Net actuarial loss 954 962 19,162 17,401 Prior service cost 405 94 1,942 3,062 Obligation (asset) at transition, net of amortization (26) (33) 4,031 4,570 Adjustment required to recognize minimum liability - - (8,808) (7,706) -------- -------- -------- -------- Net balance sheet asset (liability) $3,823 $768 $(54,540)* $(55,454)* ======== ======== ======== ========
* Includes $49 million in 1997 and $51 million in 1996 relating to foreign pension and severance plans that are generally not required to be funded until benefits are paid. The projected benefit obligations of Central and South American pension and severance plans in 1997 and 1996 were determined using discount rates of approximately 9 1/4%. The assumed long-term rate of compensation increase was 6% for both years. The projected benefit obligations of the Company's domestic pension plans were determined using assumed discount rates of approximately 7 1/4% in 1997 and 7 3/4% in 1996. The assumed long-term rate of compensation increase was 5 3/4% in 1997 and 1996 and the assumed long-term rates of return on plan assets were approximately 8 1/2% in 1997 and 9% in 1996. -43- Note 10 - Stock Options - ------------------------------- Under its non-qualified 1986 Stock Option and Incentive Plan, the Company may grant up to an aggregate of 15 million shares of capital stock in the form of stock options, stock appreciation rights and stock awards. Under this plan, options have been granted to directors, officers and other key employees to purchase shares of the Company's capital stock at the fair market value at the date of grant. The options vest over ten years and may be exercised over a period not in excess of 20 years. A summary of the Company's stock option activity and related information follows:
- ----------------------------------------------------------------------------------------------------------- 1997 1996 1995 ---------------- ---------------- ---------------- Weighted Weighted Weighted average average average exercise exercise exercise Shares price Shares price Shares price - ----------------------------------------------------------------------------------------------------------- Under option at beginning of year 6,893 $13.09 5,993 $12.71 5,214 $12.53 Options granted 2,539 14.08 1,953 13.40 1,765 13.45 Options exercised (509) 12.21 (546) 9.68 (332) 10.13 Options canceled or expired (520) 13.15 (507) 13.41 (654) 14.55 -------- -------- -------- -------- -------- -------- Under option at end of year 8,403 $13.44 6,893 $13.09 5,993 $12.71 ======== ======== ======== ========= ======== ======== Options exercisable at end of year 2,943 $13.45 2,381 $13.20 2,439 $12.51 ======== ======== ======== ========= ======== ======== Shares available for future grant 2,536 4,811 6,365 ======== ======== ========
Options outstanding as of December 31, 1997 have exercise prices ranging from $10.18 to $34.44 and a weighted average remaining contractual life of 17 years. More than 95% of these options have exercise prices in the range of $10.18 to $16.13. Under Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees," because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. SFAS No. 123 "Accounting for Stock-Based Compensation" requires disclosure of the estimated fair value of stock options granted after 1994 and pro forma financial information assuming compensation expense was recorded using these fair values. The estimated weighted average fair value per option share granted is $6.34 for 1997, $5.93 for 1996 and $6.33 for 1995 using a Black-Scholes option pricing model with the following assumptions: weighted average risk-free interest rates of 6.5% for 1997, 5.8% for 1996 and 7.3% for 1995; dividend yield of 1.5%; volatility factor for the Company's common stock price of approximately 37%; and a weighted average expected life of eight years for options not forfeited. The estimated pro forma compensation expense based on these option fair values would be approximately $3 million ($.05 per share) in 1997, $2 million ($.04 per share) in 1996 and $1 million ($.03 per share) in 1995. Because SFAS No. 123 applies only to options granted subsequent to 1994, the effect of applying this standard to current year pro forma information is not necessarily indicative of the effect in future years. -44- Note 11 - Shareholders' Equity - ---------------------------------------------------------------- At December 31, 1997, 150 million shares of capital stock were authorized, including unissued shares reserved for the following purposes:
Issuance under stock option and employee benefit plans 15 million Conversion of 7% subordinated debentures 3 million Conversion of preferred and preference stock 26 million
During 1996 and 1995, Chiquita issued approximately 296,000 and 725,000 shares of capital stock in repayment of $4 million and $11 million of subsidiary debt, respectively. During 1997, in connection with vegetable canning acquisitions, the Company issued 4,585,210 shares of capital stock and 79,659 shares of new $2.50 Convertible Preference Stock, Series C to the former owners. An additional 182,735 shares of capital stock and 4,712 shares of Series C preference stock were issued in 1998 as part of the final payment for these acquisitions. In January 1998, Chiquita issued 2,966,533 shares of capital stock in connection with the acquisition of Stokely USA, Inc. (see Note 3). At December 31, 1997, three series of preferred and preference stock are outstanding, each share of which has a liquidation preference of $50.00 and has an annual dividend rate and is convertible at the holder's option into a number of shares of Chiquita capital stock as follows:
Annual Holders' Shares dividend conversion outstanding rate rate - ------------------------------------------------------------------------------------------------------- $2.875 Non-Voting Cumulative Preferred Stock, Series A 2,875,000 $2.875 2.6316 $3.75 Convertible Preferred Stock, Series B 2,300,000 3.750 3.3333 $2.50 Convertible Preference Stock, Series C 79,659 2.500 2.9220 - -------------------------------------------------------------------------------------------------------
Each Series A share is convertible at the Company's option (provided the market value of Chiquita capital stock exceeds $24.70 per share) into 2.6316 shares of capital stock through February 2001 and thereafter into a number of shares of capital stock (not exceeding 10 shares) having a total market value of $50.00. Series B shares were issued in 1996 for aggregate net proceeds of $111 million. Each of these shares is convertible at the Company's option beginning in September 1999 into a number of shares of capital stock (not exceeding 10 shares) having a total market value of $51.50 (decreasing thereafter to $50.00 if converted in or after September 2001). Each Series C share is convertible at the Company's option beginning in July 2000 into a number of shares of capital stock (not exceeding 10 shares) having a total market value of $51.50 (decreasing thereafter to $50.00 if converted after June 2002). The Series A and Series B shares are non-voting. The Series C shares have one vote per share, voting with the capital stock. In certain circumstances if the Company fails to pay quarterly dividends on Series A, B and C shares, the holders of such shares, voting as a class, have the right to elect two directors in addition to the regular directors. The Board of Directors has the authority to fix the terms of 4,825,000 additional shares of Non-Voting Cumulative Preferred Stock and 3,915,629 additional shares of Cumulative Preference Stock. -45-
Note 12 - Income Taxes Income taxes consist of the following: - ----------------------------------------------------------------------------------------------------- (In thousands) U.S. Federal U.S. State Foreign Total - ----------------------------------------------------------------------------------------------------- 1997 Current tax expense $375 $1,125 $6,076 $7,576 Deferred tax expense - - 624 624 -------- -------- -------- --------- $375 $1,125 $6,700 $8,200 ======== ======== ======== ========= 1996 Current tax expense $181 $1,210 $9,026 $10,417 Deferred tax expense - - 583 583 -------- -------- -------- --------- $181 $1,210 $9,609 $11,000 ======== ======== ======== ========= 1995 Current tax expense $1,218 $1,011 $12,657 $14,886 Deferred tax benefit - - (986) (986) -------- -------- -------- --------- $1,218 $1,011 $11,671 $13,900 ======== ======== ======== =========
Income (loss) from continuing operations before income taxes consists of the following:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------ Subject to tax in: United States $(39,211) $(54,575) $(17,735) Foreign jurisdictions 47,754 37,847 59,604 ----------- ----------- ----------- $8,543 $(16,728) $41,869 =========== =========== ===========
Income tax expense differs from income taxes computed at the U.S. federal statutory rate for the following reasons:
(In thousands) 1997 1996 1995 - ------------------------------------------------------------------------------------------------------ Income tax expense (benefit) computed at U.S. federal statutory rate $2,990 $(5,855) $14,654 U.S. alternative minimum tax, net of credit - - 821 State income taxes, net of federal benefit 731 787 657 U.S. losses for which no tax benefit has been recognized 13,723 18,819 - Foreign tax differential (12,728) (4,954) 10,595 Use of U.S. net operating loss carryforwards - - (11,959) Goodwill amortization 1,148 1,154 1,218 Other 2,336 1,049 (2,086) ---------- ---------- ---------- Income tax expense $8,200 $11,000 $13,900 ========== ========== ==========
-46- The components of deferred income taxes included on the balance sheet are as follows:
December 31, --------------------- (In thousands) 1997 1996 - ----------------------------------------------------------------------------------------------------- Deferred tax benefits Employee benefits $27,813 $28,223 Accrued expenses 13,074 21,999 Other 29,659 15,846 ---------- ---------- 70,546 66,068 Valuation allowance (4,329) (6,513) ---------- ---------- 66,217 59,555 ---------- ---------- Deferred tax liabilities Depreciation and amortization (29,338) (21,084) Growing crops (20,968) (20,968) Long-term debt (8,284) (9,976) Other (9,344) (9,390) ---------- ---------- (67,934) (61,418) ---------- ---------- Net deferred tax liability $(1,717) $(1,863) ========== ==========
Net deferred taxes do not reflect the benefit that would be available to the Company from the use of its U.S. operating loss carryforwards of $265 million, capital loss carryforwards of $38 million, alternative minimum tax credits of $6 million and foreign tax credit carryforwards of $4 million. The operating loss carryforwards expire from 2007 through 2012, the capital loss carryforwards expire in 2000 and the foreign tax credit carryforwards expire from 1998 through 2002. Undistributed earnings of foreign subsidiaries which have been, or are intended to be, permanently reinvested in operating assets, if remitted, are expected to result in little or no tax by operation of relevant statutes and the carryforward attributes described above. Cash payments for income taxes, net of refunds, were $5 million in 1997, $10 million in 1996 and $14 million in 1995. -47- Note 13 - Geographic Area Information - ---------------------------------------------------------------- The Company is a leading international marketer, producer and distributor of bananas and other quality fresh and processed food products. The Company's products are sold throughout the world and its principal production and processing operations are conducted in Central, South and North America. With the sale of its remaining Meat Division operations in December 1995, the Company's continuing operations constitute a single business segment. Chiquita's earnings are heavily dependent upon products grown and purchased in Central and South America. These activities, a significant factor in the economies of the countries where Chiquita produces bananas and related products, are subject to the risks that are inherent in operating in such foreign countries, including government regulation, currency restrictions and other restraints, risk of expropriation and burdensome taxes. Certain of these operations are substantially dependent upon leases and other agreements with these governments. The Company is also subject to a variety of governmental regulations in certain countries where it markets bananas and other products, including import quotas and tariffs, currency exchange controls and taxes. Financial information by geographic area follows:
(In thousands) 1997 1996 1995 - ----------------------------------------------------------------------------------------------------- Net sales to unaffiliated customers North America $1,327,168 $1,286,096 $1,261,422 Central and South America 54,946 67,228 177,419 Europe and other international 1,051,612 1,081,924 1,127,151 ----------- ----------- ----------- Consolidated net sales $2,433,726 $2,435,248 $2,565,992 =========== =========== =========== Operating income North America $(27,804) $10,864 $31,203 Central and South America 6,395 2,063 64,891 Europe and other international 134,566 84,519 93,102 Unallocated expenses (12,991) (13,110) (13,426) ----------- ----------- ----------- Consolidated operating income $100,166 $84,336 $175,770 =========== =========== =========== Identifiable assets North America $602,968 $445,105 $439,385 Central and South America 749,259 742,415 835,851 Europe and other international 362,973 395,793 409,677 Shipping operations 516,483 545,267 575,761 Corporate assets 169,930 338,354 362,859 ----------- ----------- ----------- Consolidated assets $2,401,613 $2,466,934 $2,623,533 =========== =========== ===========
-48- Net sales in the preceding table excludes intercompany sales of bananas from Central and South America to different geographic areas. These sales, which are eliminated in consolidation and are measured at cost under the method used for internal management financial reporting purposes, were approximately $500 million in each of the last three years. Banana sales to unaffiliated customers in Central and South America and other intergeographic sales are not significant. Operating income for 1996 includes write-offs and costs totaling $70 million primarily resulting from flooding in Central America; certain strategic undertakings designed to achieve further long-term reductions in the delivered product cost of bananas; and certain claims relating to prior EU quota restructuring actions. These write-offs and costs reduced operating income by geographic area as follows: North America, $27 million; Central and South America, $1 million; and Europe and other international, $42 million. In 1995, divestitures of certain operations and other actions had the effect of increasing (decreasing) operating income by geographic area as follows: North America, $(9) million; Central and South America, $37 million; Europe and other international, $(9) million. For purposes of reporting identifiable assets by geographic area, cash and equivalents, marketable securities, restricted cash and trademarks are included in corporate assets. Minority equity investments are included in the geographic area where their operations are located. Note 14 - Litigation - ----------------------------------------------------------------- A number of legal actions are pending against the Company. Based on information currently available to the Company and advice of counsel, management does not believe such litigation will, individually or in the aggregate, have a material adverse effect on the financial statements of the Company. -49- Note 15 - Quarterly Financial Data (Unaudited) - ----------------------------------------------------------------- The following quarterly financial data are unaudited, but in the opinion of management include all necessary adjustments for a fair presentation of the interim results, which are subject to significant seasonal variations.
1997 (In thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31 - ------------------------------------------------------------------------------------------------------ Net sales $631,410 $646,233 $556,261 $599,822 Cost of sales (464,071) (484,036) (463,993) (523,770) Operating income (loss) 71,386 67,897 (5,376) (33,741) Net income (loss) 43,294 41,083 (28,015) (56,019) Basic earnings (loss) per share .70 .66 (.57) (1.01) Diluted earnings (loss) per share .60 .57 (.57) (1.01) Dividends per common share .05 .05 .05 .05 Capital stock market price High 16.00 15.88 16.13 18.00 Low 12.75 13.75 13.94 15.50
1996 (In thousands, except per share amounts) March 31 June 30 Sept. 30 Dec. 31 - ------------------------------------------------------------------------------------------------------ Net sales $624,806 $713,698 $541,581 $555,163 Cost of sales (471,999) (534,591) (431,385) (509,913) Operating income (loss) 57,861 75,120 15,861 (64,506) Income (loss) before extraordinary item 24,228 43,089 (7,585) (87,460) Extraordinary loss from debt refinancing - (5,556) (17,282) - Net income (loss) 24,228 37,533 (24,867) (87,460) Basic earnings (loss) per share - Before extraordinary items .40 .74 (.20) (1.65) - Extraordinary items - (.10) (.31) - - Net income (loss) .40 .64 (.51) (1.65) Diluted earnings (loss) per share - Before extraordinary items .38 .68 (.20) (1.65) - Extraordinary items - (.09) (.31) - - Net income (loss) .38 .59 (.51) (1.65) Dividends per common share .05 .05 .05 .05 Capital stock market price High 16.38 15.50 13.50 13.88 Low 12.63 13.00 11.50 11.50
Operating income for the quarter ended March 31, 1996 includes write-downs and costs of $12 million resulting from industry-wide flooding in Costa Rica. Operating income for the quarter ended December 31, 1996 includes write-downs and costs of $58 million resulting from industry-wide flooding in Guatemala and Honduras; certain strategic undertakings designed to achieve further long-term reductions in the delivered product cost of bananas; and certain claims relating to prior EU quota restructuring actions. Per share results include the dilutive effect of assumed conversion of preferred stock and options into common stock during the period presented. The effects of assumed conversions are determined independently for each respective quarter and year and may not be dilutive during every period due to variations in operating results. Therefore, the sum of quarterly per share results will not necessarily equal the per share results for the full year. -50- Stock Exchange Listings - --------------------------- New York, Boston and Pacific Stock Symbol - ---------------- CQB Shareholders of Record - ------------------------- At February 28, 1998 there were 5,960 common shareholders of record. Transfer Agent and Registrar - Preferred, Preference and Capital Stock Chiquita Brands International, Inc. c/o Securities Transfer Company One East Fourth Street Cincinnati, Ohio 45202 (513) 579-2414 (800) 368-3417 Dividend Reinvestment - -------------------------- Shareholders who hold at least 100 common shares may increase their investment in Chiquita shares through the Dividend Reinvestment Plan without payment of any brokerage commission or service charge. Full details concerning the Plan may be obtained from Corporate Affairs or the Transfer Agent. Annual Meeting - ------------------- May 13, 1998 10 a.m. Eastern Daylight Time Omni Netherland Plaza Hotel 35 West Fifth Street Cincinnati, Ohio 45202 Investor Inquiries - ------------------------ For other questions concerning your investment in Chiquita, contact Corporate Affairs at (513) 784-6366. Trustees and Transfer Agents - Debentures/Notes - ------------------------------- 7% Convertible Subordinated Debentures due March 28, 2001 Trustee - The Chase Manhattan Bank 450 West 33rd Street New York, New York 10001 Transfer, Paying and Conversion Agents - - ---------------------------------------- The Chase Manhattan Bank New York, New York The Chase Manhattan Bank London, England Banque Paribas Luxembourg S.A. Luxembourg Banque Bruxelles Lambert S.A. Brussels, Belgium Bank Leu, Ltd. Zurich, Switzerland 9 1/8% Senior Notes due March 1, 2004* 9 5/8% Senior Notes due January 15, 2004* 10 1/4% Senior Notes due November 1, 2006* Trustee ------------ The Fifth Third Bank 38 Fountain Square Plaza Cincinnati, Ohio 45263 * Chiquita Brands International, Inc., c/o Securities Transfer Company, is transfer agent for these Notes. -52- EX-21 3 EXHIBIT 21 CHIQUITA BRANDS INTERNATIONAL, INC. SUBSIDIARIES As of March 27, 1998, the major subsidiaries of the Company, the jurisdiction in which organized and the percent of voting securities owned by the immediate parent corporation were as follows:
Percent of Voting Securities Organized Owned by Under Laws of Immediate Parent --------------------- ------------------------ American Fine Foods, Inc. Idaho 100% Chiquita Brands, Inc. Delaware 100% American Produce Company Delaware 100% Banana Supply Co., Inc. Florida 100% California Day-Fresh Foods, Inc. California 100% Caribbean Enterprises, Inc. Delaware 100% Great White Fleet Ltd. Bermuda 100% BVS Ltd. Bermuda 100% CDV Ltd. Bermuda 100% CDY Ltd. Bermuda 100% CRH Shipping Ltd. Bermuda 100% Danfund Ltd. Bermuda 100% Danop Ltd. Bermuda 100% DSF Ltd. Bermuda 100% GPH Ltd. Bermuda 100% NCV Ltd. Bermuda 100% Norvel Ltd. Bermuda 100% Chiquita Brands Company, North America Delaware 100% CB Containers, Inc. Delaware 100% OV Containers, Inc. Delaware 100% Chiquita Citrus Packers, Inc. Delaware 80% Chiquita Banana Company B.V. Netherlands 100% Chiquita Italia, S.p.A. Italy 100% Chiquita Finland Oy Finland 100% Chiquita Norge AS Norway 100% Chiquita Tropical Fruit Company B.V. Netherlands 100% Chiquita Frupac Inc. Delaware 100% (Continued)
EXHIBIT 21 (cont.) CHIQUITA BRANDS INTERNATIONAL, INC. SUBSIDIARIES
Percent of Voting Securities Organized Owned by Under Laws of Immediate Parent ------------- ---------------- Chiquita Gulf Citrus, Inc. Delaware 100% Chiquita International Trading Company Delaware 100% Chiquita Far East Holdings B.V. Netherlands 100% Chiquita Brands South Pacific Limited Australia 79% Chiquita International Limited Bermuda 100% Exportadora Chiquita Limitada Chile 100% M.M. Holding Ltd. Bermuda 100% Chiquita Tropical Products Company Delaware 100% Chiriqui Land Company Delaware 100% Compania Agricola del Guayas Delaware 100% Compania Agricola de Rio Tinto Delaware 100% Compania Bananera Atlantica Limitada Costa Rica 100% Corpofinanzas, S.A. Costa Rica 100% Dunand et Compagnie des Bananes, S.A. France 100% Friday Canning Corporation Wisconsin 100% Maritrop Trading Corporation Delaware 100% Polymer United, Inc. Delaware 100% Progressive Produce Corporation Ohio 100% Theodoredis and Sons Banana Company Delaware 100% Tela Railroad Company Delaware 100% Compania Mundimar, S.A. Costa Rica 100% Owatonna Canning Company, LLC Delaware 100% Stokely USA, Inc. Wisconsin 100%
The names of approximately 300 wholly-owned subsidiaries have been omitted. In the aggregate these subsidiaries, after excluding approximately 100 foreign subsidiaries whose immediate parents are listed above and which are involved in fresh foods operations, do not constitute a significant subsidiary. The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. EX-23 4 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report on Form 10-K of Chiquita Brands International, Inc. of our report dated February 11, 1998, included in the 1997 Annual Report to Shareholders of Chiquita Brands International, Inc. Our audits also included the financial statement schedule of Chiquita Brands International, Inc. and subsidiary companies listed in Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the following Registration Statements and related prospectuses of Chiquita Brands International, Inc. of our report dated February 11, 1998, with respect to the consolidated financial statements and schedule of Chiquita Brands International, Inc. and subsidiary companies incorporated by reference in the Annual Report on Form 10-K for the year ended December 31, 1997.
Registration Form No. Description ---- --------- ---------------- S-3 33-58424 Dividend Reinvestment Plan S-3 33-41057 Common Stock issuable upon conversion of Convertible Subordinated Debentures S-3 333-00789 Debt Securities, Preferred Stock, Preference Stock, Depositary Shares, Common Stock and Securities Warrants S-3 333-46373 Secondary Sale of Common Stock by certain shareholders S-8 33-2241 Chiquita Savings and Investment Plan 33-16801 33-42733 33-56572 333-39671 S-8 33-14254 1986 Stock Option and Incentive Plan 33-38284 33-41069 33-53993 S-8 33-38147 Associate Stock Purchase Plan Cincinnati, Ohio /s/ ERNST & YOUNG LLP March 27, 1998
EX-24 5 EXHIBIT 24 POWER OF ATTORNEY We, the undersigned officers and directors of Chiquita Brands International, Inc. (the Company) hereby severally constitute and appoint William A. Tsacalis and Robert W. Olson, and each of them singly, our true and lawful attorneys and agents with full power to them and each of them to do any and all acts and things in connection with the preparation and filing of the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the Report) pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission thereunder including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name of the Company and the names of the undersigned directors and officers in the capacities indicated below the Report, any and all amendments and supplements thereto and any and all other instruments and documents which said attorneys and agents or any of them may deem necessary or advisable in connection therewith.
Signature Title Date ---------------- ----------------- -------------- -------------------------- Chairman of the Board and March 28, 1998 (Carl H. Lindner) Chief Executive Officer -------------------------- Director, Vice Chairman of March 28, 1998 (Keith E. Lindner) the Board ------------------------- Director, President and March 28, 1998 (Steven G. Warshaw) Chief Operating Officer ------------------------- Director March 28, 1998 (Fred J. Runk) /s/ Jean Head Sisco Director March 28, 1998 (Jean Head Sisco) /s/ William W. Verity Director March 28, 1998 (William W. Verity) /s/ Oliver W. Waddell Director March 28, 1998 (Oliver W. Waddell)
EX-27.A 6
5 This schedule contains summary financial information extracted from the Chiquita Brands International, Inc. Annual Report on Form 10-K for the year ended December 31, 1996 and Quarterly Reports on Form 10-Q for the three, six and nine month periods ended March 31, June 30, and September 30, 1996, respectively, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS 6-MOS 9-MOS 12-MOS DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996 MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996 211,945 205,338 246,835 285,558 31,734 66,865 39,780 0 227,392 229,556 197,270 172,398 11,075 11,105 11,164 9,832 277,141 251,280 283,310 275,177 868,073 859,724 879,028 844,311 1,692,627 1,704,465 1,716,788 1,715,533 529,504 546,239 560,168 575,856 2,594,978 2,575,669 2,544,441 2,466,934 468,002 478,711 453,040 464,334 1,235,739 1,175,178 1,077,643 1,079,251 0 0 0 0 138,369 138,369 249,256 249,256 18,412 18,520 18,552 18,614 538,752 570,519 548,237 456,383 2,594,978 2,575,669 2,544,441 2,466,934 624,806 1,338,504 1,880,085 2,435,248 624,806 1,338,504 1,880,085 2,435,248 471,999 1,006,590 1,437,975 1,947,888 471,999 1,006,590 1,437,975 1,947,888 21,711 44,379 66,448 89,534 0 0 0 0 35,167 70,116 100,742 130,232 30,228 78,317 70,732 (16,728) 6,000 11,000 11,000 11,000 24,228 67,317 59,732 (27,728) 0 0 0 0 0 (5,556) (22,838) (22,838) 0 0 0 0 24,228 61,761 36,894 (50,566) .40 1.05 .53 (1.13) .38 .97 .52 (1.13) Amounts include an extraordinary loss of $.10 per share ($.09 per share diluted) resulting from refinancing of debt in the second quarter. EPS has been restated for the adoption of Statement of Financial Accounting Standards No. 128 "Earnings per Share." Amounts include extraordinary losses of $.41 per share resulting from refinancings of debt.
EX-27.B 7
5 This schedule contains summary financial information extracted from the Chiquita Brands International, Inc. Annual Report on Form 10-K for the year ended December 31, 1997 and Quarterly Reports on Form 10-Q for the three, six and nine month periods ended March 31, June 30, and September 30, 1997, respectively, and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS 6-MOS 9-MOS 12-MOS DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997 MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997 164,670 233,077 172,330 125,702 0 0 0 0 226,654 207,057 214,023 195,596 9,373 9,599 10,235 10,683 267,638 250,136 321,616 349,948 786,140 787,054 803,055 783,466 1,725,060 1,744,368 1,777,345 1,801,303 592,822 613,583 634,340 649,907 2,399,674 2,387,452 2,415,198 2,401,613 412,070 413,913 443,823 483,118 1,024,517 997,365 981,346 961,972 0 0 0 0 249,256 249,256 253,239 253,239 18,748 18,750 19,786 20,389 498,221 532,362 539,651 506,458 2,399,674 2,387,452 2,415,198 2,401,613 631,410 1,277,643 1,833,904 2,433,726 631,410 1,277,643 1,833,904 2,433,726 464,071 948,107 1,412,100 1,935,870 464,071 948,107 1,412,100 1,935,870 21,575 43,041 64,418 86,122 0 0 0 0 28,458 55,778 82,482 108,913 47,594 92,577 64,562 8,543 4,300 8,200 8,200 8,200 43,294 84,377 56,362 343 0 0 0 0 0 0 0 0 0 0 0 0 43,294 84,377 56,362 343 .70 1.36 .78 (.29) .60 1.17 .77 (.29) EPS has been restated for the adoption of Statement of Financial Accounting Standards No. 128 "Earnings per Share."
EX-10.A 8 OFFICIAL GAZETTE EXHIBIT 10-B AGENCY OF THE STATE
Founded by the Cabinet Decree No. 10 of November 11, 1903. JORGE SANIDAS A.YENEXIA I. RUIZ GENERAL DIRECTOR SUBDIRECTOR Avenida Norte (Eloy y Alfaro) Income Direction General and Calle 3a Casa No. 3-12 Edificio Casa Amarilla, San Felipe Ciudad de Panama Telephone 228-8631, 227-9833, Cost of Subscriptions P.O. Box 2189 Panama, Minimum of 6 months in the Republic B/18.00 Republic of PanamaOne year in the Republic B/36.00 LAWS, NOTICES, EDICTS AND OTHER 6 Months Abroad B/18.00 plus air postage PUBLICATIONS One year Abroad B36.00 plus air postage NUMBER ____________ :B/9.50 Advance payment.
LEGISLATIVE ASSEMBLY LAW NO. 13 (Of February 12, 1998) Pursuant to which the Contracts of Operations are approved the Lease Agreement of Lands No. 2 of 1976 executed between the State and the Company known as Chiriqui Land Company is approved and modified. THE LEGISLATIVE ASSEMBLY DECREES: ARTICLE FIRST: The following contracts are approved executed between THE STATE and the company known as CHIRIQUI LAND COMPANY: Contract of Operations between THE STATE and CHIRIQUI LAND COMPANY for the Division of Bocas del Toro. Contract of Operations between THE STATE and CHIRIQUI LAND COMPANY for the Division of Puerto Armuelles. Amendment and Extension Contract to the Lease Contract between THE STATE and CHIRIQUI LAND COMPANY and CHIQUITA BRANDS INTERNATIONAL, INC., previously denominated UNITED BRANDS COMPANY, which are inserted as follows: CONTRACT NO. 134 CONTRACT OF OPERATIONS (BOCAS DEL TORO) Between Mr. RAUL ARANGO GASTEAZORO, Minister of Commerce and Industries, male, Panamanian, of legal age, with personal identification card No. 8-68-519, who acts in the name and on behalf of THE STATE, duly authorized by the Cabinet Council, pursuant to Resolution No. 198 of August 27 of nineteen ninety seven hereinafter named THE STATE, as party of the first part, and as the other party, MANUEL VIRGILIO AIZPURUA VELASQUEZ, male, Panamanian, of legal age, with personal identification card No. 8-94-712, practicing attorney, domiciled in this city, acting in the name and representation of the company denominated CHIRIQUI LAND COMPANY, a corporation organized pursuant to the laws of the State of Delaware, United States of America, duly registered in the Public Registry at volume 39, page 466, Registration 5345, and its registration up-to- date under index card No. 018725, roll 000876, image 0075, and duly authorized, pursuant to power of attorney granted in Cincinnati, Ohio, on the thirteen (13) of March nineteen ninety seven (1997) by the Executive Vice President of said company, hereinafter known as THE COMPANY, entered the present contract of operations, pursuant to the following: CLAUSES: FIRST: From the date this contract is in force, the activities of THE COMPANY in the Republic of Panama and, especially, in its Division of Bocas del Toro, Province of Bocas del Toro, will be governed by the provisions contained therein and by the provisions of the Panamanian legislation of general application that are not contrary thereto. SECOND: THE COMPANY will have the right to export, without licenses or permits, bananas and other agricultural products for exportation and its derivatives thereof. THIRD: THE STATE grants THE COMPANY the priority right, under its own direction, but subject to the fiscalization of THE STATE, of all the wharves, annexes and other port installations that THE COMPANY has built or will build in connection with the activities contemplated in the present contract. THE COMPANY may build on these wharves improvements and annexes in order to facilitate and to make more efficient the exports of its products. The wharves that may be built in the future will be authorized by the National Port Authority in accordance with the legal provisions in force. THE STATE grants THE COMPANY, subject to the fiscalization of THE STATE, the priority use of the wharf, equipments and annexes owned by THE STATE, at the installations port of Almirante. This priority use does not exclude to permit the use of said port, wharf, equipments and annexes, owned by THE STATE to third parties, always provided that it does not interfere with the activities of the banana industry. By virtue of its ownership rights, THE COMPANY will have the private use of the equipments, systems, installations and other properties that THE COMPANY has located or will locate at the wharves or port installations of Almirante or any other wharf and port installations that THE COMPANY may build in the future, always provided that it does not interfere with the maritime or land traffic in existence. Notwithstanding the above, THE COMPANY may facilitate the use of these properties, equipments and systems to third parties by virtue of agreements that may be entered into in the future with them. The costs of repairs and maintenance of the wharf will be prorated between THE COMPANY and THE STATE based in the relative intensity of the use of said installations on the part of THE COMPANY, the latter assuming the portion of the costs of maintenance and repairs that correspond to its utilization, and THE STATE the balance. For purposes of the present clause, cost of maintenance and repairs of wharves are the following: the costs of materials, equipment, fuel, labor and any other cost that under the general rules accepted in Accounting are used at present, are considered as incurred in the maintenance of the wharves for their usual operation. For such same purposes, the proration for intensity of use will be determined by means of the number of hours in which the wharf is utilized by THE COMPANY, divided by the total number of hours that said wharf has been utilized in that same quarter. THE STATE and THE COMPANY will agree in connection with the requirements of new investments of capital for purposes of reposition, remodeling or amplification of the said wharf and in connection with the financing and execution of such investments. THE COMPANY may waive totally or partially this concession, in which case, the obligations acquired by means of the present clause will cease. This waiver shall be notified by THE COMPANY to THE STATE in writing within twelve (12) months ahead of the date in which the same becomes effective or, otherwise, pay proportionally the canon of the concession for the number of months the prior notice are pending to comply within the twelve (12) month requirement. Notwithstanding the above, during the time the present contract is in force, and without the requirement of an amendment thereto, THE COMPANY may, with prior notice to THE STATE, transfer totally or partially, to a new entity in which THE COMPANY may have or may not have participation, the concessions granted in the present clause, for the use, operation and management of the wharf at Almirante as well as the construction, operation and management of another alternate wharf. In the case of an alternate wharf, the location of the same shall be agreed upon with THE STATE through the National Port Authority. At the same time, THE STATE and THE COMPANY will be able to agree in the privatization of the Almirante wharf or of an alternate wharf for purposes of obtaining a better operative efficiency and costs. In that sense, other companies dedicated to this activity may be invited, which possess its own capital, sufficient and ascertainable by THE STATE and THE COMPANY, to participate in the privatization. For these purposes, THE STATE acknowledges that THE COMPANY will have the right to negotiate with a new port operator on the disposition of asset owned by THE COMPANY and the negotiation of tariffs prior to the waiver of the concession of operation of the wharf granted in favor of THE COMPANY. The parties agree that in any scheme of privatization, THE COMPANY is guaranteed the priority use of the privatized wharves. For the rights comprised in this clause, THE COMPANY will pay to THE STATE the sum of SEVENTY FIVE THOUSAND DOLLARS OF THE UNITED STATES OF AMERICA (US$75,000.00) per year for each wharf, payable in four (4) equal installments on the first five (5) working days of each quarter. FOURTH: THE STATE grants THE COMPANY the concession for the operation of the railroads that it owns in the banana division of Bocas del Toro. THE STATE grants THE COMPANY, solely on the national lands, an easement of ten (10) years of ten (10) meters on each side from the center of the railroad line subject of this concession. THE STATE acknowledges the existence of continuous and apparent easements that affect national lands and land that do not belong to the Nation on which the railroad lines of THE COMPANY are located. THE STATE, within the twelve (12) months following the execution of the present contract, will register the easements on the lands on the state lands herein acknowledged. The canon for this concession is TWO HUNDRED AND FIFTY THOUSAND DOLLARS (US$250,000.00) per year, and said amount will be paid in four (4) equal quarterly installments, beginning the first working day of each quarter. THE COMPANY will exercise the control of the railroad transit. THE COMPANY may waive, in part or total, this concession, in which case, its obligation to pay the before mentioned canon will cease. This waiver shall be notified by THE COMPANY to THE STATE, in writting, within fifteen (15) months ahead to the date in which the same will become effective or, otherwise, to pay proportionally the canon of the concession for the number of months that remain prior to the notice for the fifteen (15) month. FIFTH: THE STATE grants THE COMPANY the concession to produce the electric energy they may need in connection with the activities contemplated in the present contract or in the development thereof, including the free utilization of water for these activities. Furthermore, THE COMPANY may offer on sale and dispose of any excess of electric energy not used by it, making it accessible for the price that the parties may agree upon, to the Institute of Hydraulic and Electrification Resources (I.R.H.E.) or, at a reasonable price to the consumer public or other producers or distributors of electric energy when THE STATE is not able to offer or distribute it. During the term of this contract and the amendments thereof, THE COMPANY may, prior notice to THE STATE, transfer totally or partially to another entity, the rights comprised in this clause and, especially, those referred to the activities of generation, distribution and collection of electric energy. The new entity may be organized by juridical or natural persons and THE COMPANY. For these purposes, THE STATE acknowledges to THE COMPANY the right to negotiate with the new entity, prior to the transfer of the concession, the disposition of its assets related to the generation, distribution and collection of electric energy as well as to agree upon preferential tariffs. The new entity will be governed by the laws in force in the Republic of Panama at the date of transfer, but THE STATE will guarantee a period of transition of not less than five (5) years, so that the new entity may carry out the transformations corresponding to the adaptation to the national legislation then in force. The tariffs to be collected will be agreed upon between the new entity and THE STATE through the government agency in charge of public services. The new entity and THE COMPANY may agree on special tariffs in the status of preferential client. Notwithstanding the above, THE COMPANY will have the right to produce electric energy it may need in connection with the activities contemplated in the present contract or in the development thereof, including the gratuitous use of water for these activities. SIXTH: THE COMPANY may operate and establish the installations and communication systems that it may require in the development of the present contract, which will be approved though the official corresponding entity. SEVENTH: THE STATE grants THE COMPANY the right to oeprate the plant, infrastructure and other installations that it presently uses for the supply of water and for irrigation, and those that it may need in the future for its operations, including the gratuitous extraction of water for its activities. THE COMPANY may offer for sale and dispose, in any manner, the excess of water, making it accessible, for the price that the parties may agree upon, to THE STATE through the Institute of Aqueducts and Sewers National Systems (I.D.A.A.N.) or, at a reasonable price to the consumer public or other producers or distributors, when THE STATE is not in capacity of disposing or distributing it. During the term of the present contract and without having to amend it, THE COMPANY may, with prior notice to THE STATE, transfer totally or partially, to a new entity in which THE COMPANY may have or not participation, the concession granted in the present clause. In this case, THE STATE acknowledges to THE COMPANY the right to negotiate with the new entity, prior to the transfer of the concession, the disposal of the assets related to the generation, distribution and collection for the supply of water, as well as agreeing on preferential tariffs. The tariffs to be collected will be agreed upon between the new entity and THE STATE through the state agency in charge of public services. The new entity and THE COMPANY may agree on special tariffs on the status of preferential client. EIGHTH: 1. THE STATE grants THE COMPANY continuous and apparent easements on state lands and acknowledges said continous and apparent easements on lands of third parties where the assets of THE COMPANY go through, like for instance, drainage channels and irrigation, roads, railroads, fresh water lines, water served, electrical wiring, and communication systems, etc., as appears in the blueprints marked as Annexes C, which the parties sign in two (2) counterparts of the same value forming an integral part of this contract. 2. THE COMPANY acknowledges as easements of public use, the roads that appear in the blueprints that are distinguished as Annexes D, which the parties sign in two (2) counterparts of the same value forming an integral part of this contract; and acknowledges as easements for the use on the part of other producers of bananas the drains that appeared in the blueprints distinguished as Annexes E, which the parties sign in two (2) counterparts of the same value forming an integral part of this contract. THE COMPANY may regulate the use of the above-mentioned easements with the purpose of avoiding damages to the plantations and/or any other assets. THE STATE authorizes THE COMPANY to negotiate with the users or beneficiaries the cost of maintaining and/or repairing the easements used referred to in the Annexes mentioned in this section. 3. THE STATE will look over the integrity of the hydrographic drainage in order to guarantee the permanent supply and continous of the waters that may be actually required or may be required in the future for the development of the banana activity in the areas of Bocas del Toro. NINTH: In its labor-employer relations with respect to the operations that it undertakes in the country, THE COMPANY will continue to be governed by the labor legislation in force in the Republic of Panama and the collective agreements and individual labor agreements that it may execute with the workers, in accordance with such legislation. THE COMPANY and Bocas Fruit Company, Ltd. guarantee that in the event the restructuring authorized in clause TWENTY NINTH, would take place, the latter will assume, pursuant to the national labor legislation, the labor obligations of Bocas Division, thus converting itself at the respective legal moment, as sole employer obligated before the total of the workers of said division, without solution of continuity, with respect to its individual work contracts or the Collective Agreement or other agreements in force at the moment of the restructuring taking place. TENTH: To carry on its activites, THE COMPANY may bring to the country foreing specialized personnel on training that it may need, complying with the migration formalities. The migration authorities shall grant in an expedite manner, permits to the personnel that comes in for this purpose to remain in the country, in the understanding that said permits will be effective only while the person is in the country working for THE COMPANY. The foreigner thus contracted may start working at the filing of the respective application for a work permit to the Ministry of Labor and Social Wellfare. THE COMPANY will present annually, to the Ministry of Labor and Social Wellfare, a report that would permit to verify the percentage of foreign workers contracted under this clause. ELEVENTH: THE COMPANY will continue presenting to THE STATE, the following reports: a) Weekly reports of fruit shipped which includes the date of departure, ship, destination, quality of the fruit and volume of boxes by producer, equivalence in bunches, F.O.B. value, gross weight in pounds, which will be delivered through the National Banana Direction. b) Semi-annual report of areas cultivated, which includes hectares in maintenance, preparation, varieties per hectare, number of employees, which will be on the basis of field meetings among the division managers and the technicians of the National Banana Directoin. c) Annual report on the perspectives of the activity and number of employees that will be presented through the Minister of Commerce and Industries with copy to the Minister of Agro-Development. THE STATE is obligated to maintain strict confidentiality with respect to the information that it may receive from THE COMPANY, according to this clause, except for statistic information on the industry in general. TWELFTH: THE COMPANY shall be exempted from tributes, taxes and other encumbrances including the payment of tariffs for the protection or any other denomination, present or future, that are stated below: 1. Tributes, taxes and other encumbrances, present or future, of any type or denomination that fall on the importation, use, consumption or utilization of fuels, as well as those of any denomination that fall on the importation of machineries, equipment, replacements, paper and other items that may be necessary for the devleopment of the banana and agroindustrial activities in any of its phases or places of operation including those pertinent to the activities related to transactions with independent banana producers. The goods exempted of import duties may be re-exported free of taxes and without complying with licenses or permits. Such goods may be sold in Panama, provided the import duties are paid. The goods referred to in this norm may not be leased nor destined to use different from those for which they were acquired, without the prior payment of import taxes in the cases that it would apply. These exemptions will be processed in the usual form through the Ministry of Treasury and the National Banana Direction. THE COMPANY may sell to other persons containers or packages manufactured with items exempted from the national tribute in this clause, if it is given evidence that they be effectively exported or, in lack thereof, that the payment on part of the taxes on import corresponding to the imported value are paid. 2. Any other type of tributes, taxes or encumbrances on banana agroindustrial activities of THE COMPANY, in any of its phases, with the exception of those provided in this contract. 3. Tributes, taxes or encumbrances that fall on the loading or unloading made by any ship whose principal cargo are products of THE COMPANY or equipment, machinery, replacements, paper, fuel and other items for its activities. The duties, tariffs and prices such as immigration services, sanitary, customs and port services are exempted, when it deals with wharves not operated by THE COMPANY. 4. Tributes, taxes or any other encumbrances for wharfage, bring the ship to wharf, tonnage or that fall on the movilization of ships or the use of the present wharves and those that may be used in the future by THE COMPANY, except what is determined by clause THIRD of this contract. 5. Tributes, taxes or any other encumbrances on the production, packaging and transportation of bananas. 6. Any other type of tributes or encumbrances on capital, except the tax on licenses of general application. 7. Consular fees. 8. Tributes, taxes and any other encumbrances on real estate and the improvements thereof. 9. Tributes, taxes and any other encumbrances that may fall on the transfer of personal property such as equipment, materials, items and services for the transformation of goods necessary for the development of the activites of the company. 10. Tributes, taxes or any other encumbrance on the sale of transfer of real estate. 11. Stamp tax. THIRTEENTH: THE COMPANY may acquire, in the local market, the goods that it may need for its activities, free of taxes referred to in sections 1 and 9 of clause TWELFTH of this contract. For the effects of tax control of these transactions, the procedure of Annex A of the present contract will apply which, once is signed by the parties, forms an integral part thereof. The Tax Authorities may agree with THE COMPANY the updating and changes of Annex A that may be necessary for a better fiscal supervision. FOURTEENTH: THE COMPANY will be subject to income taxes pursuant to the tariffs and provisions of general application of the fiscal legislation of the Republic of Panama. FIFTEENTH: THE COMPANY will enjoy benefits not less in the same or similar conditions of those granted to any other company that is dedicated to the production or export of bananas in the Republic of Panama. SIXTEENTH: THE COMPANY will pay as municipal taxes for the activities that it undertakes, including the right of extraction of stone, sand and gravel in national lands, the amount of THREE HUNDRED AND TWELVE THOUSAND DOLLARS OF THE UNITED STATES OF AMERICA (US$312,000.00) per year, to the Municipality of Changuinola, in twelve (12) equal monthly payments, at the latest the last working day of each month. If THE COMPANY would be assessed a larger amount for municipal taxes or if it would be assessed with new taxes, the additional obligations and those that exceed THREE HUNDRED AND TWELVE THOUSAND DOLLARS OF THE UNITED STATES OF AMERICA (US$312,000.00) per year, will be assumed by THE STATE. With respect to the acquisition of municipal lands whether by lease, sale, exchange , or any other form of transmission of dominion, will be the matter for negotiation between the respective municipality and THE COMPANY. Said negotiation on real state will be undertaken based on reasonable parameters, similar to those contained in the present contrat. For these effects, the municipality shall request the corresponding evaluations to the General Comptroller Office of the Republic and to the Ministry of Treasury. THE COMPANY, on its part, will do the same with its own Enginnering Department or an entity that it may contract. SEVENTEENTH: THE COMPANY will be subject to the other taxes, duties, encumbrances, rates, national contributions, charges or impositions established or to be legally established in the future different to those from which THE COMPANY enjoys exemption pursuant to this contract, if there are of general application. It would not be considered of general application those taxes, duties, encumbrances, rates, contributions, charges or impositions that are applied only to one industry or determined activity or that are specifically appplied on banana activities, except the tax on export of bananas, always provided said tax is applied in general form to those in the banana activity. EIGHTEENTH: THE COMPANY will be free of any responsibility with respect to non-compliance of this contract due to force majeure or fortuitous circumstance, within or outside the country while its effects are maintained. THE COMPANY will inform THE STATE in writting, as soon as possible, the occurrence of any contingency of force majeure or fortuitous circumstance. For the purposes of this contract, it would be considered as force majeure or fortuitous circumstance, any case or event on which THE COMPANY was not able to exercise a reasonable control and that would be of such nature that would delay, restrict or impede the timely compliance on the part of THE COMPANY of the obligations acquired by virtue of the present contract, including, but not limited to the following events: strikes and other labor conflicts, wars, revolutions, insurrections, civil disturbances, blockades, riots, embargoes, fires, lightning, failure of the installations or machinery, epidemics, viruses, fungus, plagues and any other diseases, earthquakes, avalanches, storms, floods and other causes of nature and orders, instructions or regulations of any government. NINETEENTH: It will also be considered among the supposed facts of force majeure or fortuitous circumstance comprised in the preceding clause, the situations of the market that would impede, difficult or make economic onerous the marketing of the fruit for export and other economic causes that would make excessively onerous the compliance of its obligations. At the occurrence of any of these situations, THE COMPANY will inform THE STATE in writing, the circumtances ocurring and the effects that it may have had or may have in relation to this contract. THE STATE will analyze the document presented by THE COMPANY and will inform it its criteria and, especially, if it agrees or not with the position of THE COMPANY. If THE STATE does not agree totally or partially with the position of THE COMPANY, the parties will examine with the most objective and amicable-will possible, the differences for the purpose of giving them solutions. If after this exercise some differences subsist, these will be treated in accordance with the provision of clause TWENTY SEVENTH of the present contract. TWENTIETH: Even when THE STATE would establish in Panama exchange controls of foreign currency, THE STATE will facilitate THE COMPANY, the foreign exchange freely convertible in an amount not less than the requirement for the following, independently of the source of the funds of THE COMPANY: 1. The payment of goods and services acquired abroad for its operations in Panama. 2. The payment of capital and interest on debts in foreign currency contracted for its investments or operations in Panama. 3. Remittance of profits and repatriation of capital. TWENTY FIRST: With respect to the termination of the lease contract between THE STATE and THE COMPANY on the lands on the Division of Bocas del Toro, the parties agree as follows: A) If THE COMPANY is the one to decide that the lease contract should be terminated or not to agree in any of its extension, the following will apply. 1) Once THE COMPANY has advised THE STATE of its intention of terminating the lease contract or not to extend it, both parties agree to undertake its best efforts during a period of three (3) years counted from the date of the notice of termination or the extension thereof, to find a new operator that may continue the agroindustrial activities developed by THE COMPANY in this division up to that moment. THE COMPANY and the potential new operator may freely negotiate the prices for the sale, the type of transaction and other conditions related with the transfer of the business or the assets owned by THE COMPANY, including those concessions and other rights and contractual and/or out of contract obligations of THE COMPANY. In case the transfer is carried out on said operations, THE STATE will guarantee the new operator, conditions of operation and lease not less beneficial than those THE COMPANY has the right to under the present contract and under the lease contract agreed among the parties and approved on this date. 2) In the even that the parties will not find a new operator or that the new operator and THE COMPANY do not agree with respect to the transfer of the business or the assets, the liquidation of the assets will be carried out in the following manner. i) THE COMPANY may remove, transfer or dipose of its assets at its will and without the application of tributes of any kind. ii) THE STATE will pay THE COMPANY for the growing crops fifty percent (50%) of the value of the same determined in accordance with Annex B of this contract, that, once executed by the parties, forms an integral part thereof. iii) If within a period of three (3) years counted from the date of the termination of this contract or the lease contract, THE STATE decides to continue totally or partially, on its own, or through another natural or juridical person, the agricultural or agroindustrial operations on the lands where the assets of THE COMPANY are located, or it should decide, in any form, to transfer or give in use said lands or parts thereof, it should pay THE COMPANY the price for those assets that THE COMPANY has not removed, at its commercial value as defined in paragraph G of this clause. B) IF THE STATE who, pursuant to the rights enumerated in section three (3) of Clause TWENTY EIGHT, decides in not agreeing on any of the possible extensions of the present contract, the parties agree to proceed as follows: 1) THE STATE is obligated to purchase and THE COMPANY to sell the assets owned by it, that it has decided not to remove, located in the division of Bocas del Toro. i) With respect to the growing crops, the price will be one hundred percent (100%) of the value established pursuant to Annex B of this contract that, once executed by the parties, forms an integral part thereof. The total amount of the payment must be made immediately upon the date of termination of this contract. ii) The price of the rest of the assets will be their commercial value. This value will be determined on the basis of an evaluation carried out by two experts appointed by THE STATE and the other two experts appointed by THE COMPANY. The experts will be apointed by the parties with at least three (3) years prior to the date in which THE COMPANY must abandon the leased lands. iii) In the event that these experts would not come to an agreement with respect to the price of the assets in the term of six (6) months counted from the date of the appointment thereof or the time in which they should be appointed, or in the case if one of the parties or both do not apppoint experts during the term previously established, the price will be determined pursuant to the procedures established in clause TWENTY SEVENTH of the present contract. The value determined by the experts or by arbitration will be paid by THE STATE to THE COMPANY in four (4) equal and consecutive installments beginning the first of those within two (2) years prior to the date in which THE COMPANY must evacuate the leased lands. Under no circumstances, THE COMPANY will be required to abandon the properties leased unless the total amount of the price of the assets has been paid on the agreed upon date. 2) THE STATE, by these means, assumes the obligation to reimbuse THE COMPANY the real amount of the indemnification paid to its workers after the notice of termination has expired. Said obligation shall be limited to the amount in which the indemnification exceeds the discounted value of the reserves in the books of THE COMPANY for indemnifications, including the trust established pursuant to Law 44 of August 12, 1995. C) There is excluded from the sale or transfer referred to in this clause, in addition to any other goods that THE COMPANY may decide to retire, cash, bank deposits, receivables, intangible assets such as patents, trademarks, commercial trademarks and commercial licenses, comercial names, advertisements and commercial posters, goodwill and any other deferred charge that has not been expressly assumed by THE STATE. D) From the date of the notice of termination or the notice of extention by any of the parties, and up to the date of the termination of the Lease Contract, THE COMPANY will only be obligated to give to the assets, the basic maintenance for their preservation pursuant to the agricultural practices of maintenance of the last three (3) years and, in no case, it would be obligated to incurr expenses or new investments of capital, in new goods or on existing goods, whether by force majeure or fortuitous circumstance or any other cause. As an example, it would be understood that investments or capital expenses on existing property would constitute those related to drainage or reconstruction of drainage, excluding the so-called boquetes or boquetones ; total or partial reconstruction or major repairs related to machinery and equipment; remodelations, alternations or major repairs related to constructions, cable-ways and other infracstructure work. THE STATE will have the power to request from THE COMPANY work related to machinery, equipment, drainage and other capital goods, prior to an agreement of payment with THE COMPANY of the amount that the parties agreed for such purposes. E) If to the contrary the contract terminates by default by any of the parties, once the procedures established in clauses TWENTY SIXTH AND TWENTY SEVENTH of this contract had been followed, the procedure of paragraph A) of this clause will be followed if the default is imputable to THE COMPANY or pursuant to that established in paragraph B) if the default is imputable to THE STATE. F) The transfer to THE STATE of the assets referred to in this clause will not be subject to any tax. G) For the purposes of this clause, it will be understood as commercial value: the amount of money required to replace said assets in the same conditions of operation and in the same place where they are located. TWENTY SECOND: THE STATE and THE COMPANY agree that what is related to the use of the farms described as follows, it would be ruled by the concept of lease of lands: Farm number four thousand six hundred and ninety seven (4697) registered at roll thirteen thousand three hundred (13300), document nine (9), registration one (1), with an area of two hectares plus two thousand three hundred and twenty one square meters nineteen square decimeters (2 Has +2,321.19 M2); Farm number four thousand six hundred and eighty nine (4689) registered at roll thirteen thousand two hundred and seventy (13279), document three (3), registration one (1), with an area of eighty one hectares plus nine thousand nine hundred and forty one square meters fifty four square decimeters (81 Has + 9,940.42 M2); Farm number four thousand seven hundred and one (4701) registered at roll thirteen thousand three hundred four (13304), document four (4), registration one (1), with an area of thrity seven hectares plus one thousand three hundred and eight square meters seventy nine square decimeters (37 Has + 1,308.79 M2); Farm number four thousand six hundred and ninety three (4693) registered at roll thirteen thousand three hundred (13300), document five (5), registration one (1), with an area of five hundred and five hectares plus eight thousand three hundred and eighty four square meters sixteen square decimeters (505 Has + 8,384.16 M2); Farm number four thousand six hundred and eighty seven (4687) registered at roll thirteen thousand two hundred and seventy nine (13279), document one (1), registration one (1), with an area of seventy four hectares plus six thousand six square meters sixty nine square decimeters (74 Has + 6,006.69 M2); Farm number four thousand six hundred and ninety nine (4699) registered at roll thirteen thousand three hundred four (13304), document two (2), registration one (1), with an area of four hundred seventeen hectares plus six thousand five hundred and thirty seven square meters thirty five square decimeters (417 Has + 6,537.35 M2); Farm number four thousand six hundred and ninety five (4695) registered at roll thirteen thousand three hundred (13300), document seven (7), registration one (1), with an area of one thousand seven hundred and two hectares plus six thousand two hundred and sixty eight square meters nineteen square decimeters fifty square centimeters (1,702 Has +6,268.1950 M2); Farm number four thousand seven hundred and six (4706) registered at roll thirteen thousand three hundred and twenty three (13323), document two (2), registration one (1), with an area of nine hundred and seventy eight hectares plus four thousand three hundred and seventy five square meters sixty six square decimeters forty square centimeters (978 Has + 4,375.6640 M2); Farm number four thousand six hundred and ninety two (4692) registered at roll thirteen thousand three hundred (13300), document four (4), registration one (1), with an area of six hundred and forty two hectares plus seven thousand five hundred thirty seven square meters forty three square decimeters ninety square centimeters (642 Has + 7,537.4390 M2); Farm number four thousand seven hundred and two (4702) registered at roll thirteen thousand three hundred and four (13304), document eight (8), registration one (1), with an area of two thousand five hundred twenty one square meters seventy four square decimeters (2,521.74 M2); Farm number two hundred and sixty five (265) registered at volume seven hundred and eight eight P (788P), folio three hundred and ninety (390), with an area of one hectare plus nine thousand fifty square meters (1 Ha +9,050.00 M2); Farm number one hundred and twelve (112) registered at volume seven hundred and eighty eight P (788P), folio three hundred and thirty six (336), with an area of five hundred sixty square meters (560.00 M2); Farm number one hundred and three (103) registered at volume seven hundred and eighty eight P (788P), folio three hundred and seventy two (372), with an area of seventy three hectares plus two thousand five hundred and five square meter forty three square decimeters (73 Has +2,505.43 M2); Farm number six hundred and twenty six (626) registered at volume eighty seven (87) folio twenty four (24), with an area of one hectare plus six thousand six hundred and twenty five square meters (1 Ha + 6,625.00 M2); Farm number five hundred and ninety two (592) registered at volume sixty nine (69), folio three hundred and four (304), with an area of eight thousand nine hundred and sixty seven square meters (8,967.00 M2); Farm number five hundred and ninety three (593) registered at volume sixty nine (69), folio three hundred and six (306), with an area of seven hundred and seventy five square meters (775.00 M2); Farm number two hundred sixty two (262) registered at volume twenty four (24), folio two hundred and thirty six (236), with an area of two thousand one hundred and fifty square meters (2,150.00 M2); Farm number two hundred seventy one (271) registered at volume twenty four (24), folio three hundred and four (304), with an area of four thousand four hundred square meters (4,400.00 M2); Farm number two hundred seventy two (272) registered at volume twenty four (24), folio three hundred and twelve (312), with an area of one thousand six hundred square meters (1,600.00 M2); Farm number four thousand six hundred and ninety six (4696) registered at roll thirteen thousand three hundred (13300), document eight (8), registration one (1), with an area of one hundred and forty five hectares plus seven thousand two hundred and twenty nine square meters three square decimeters fifty square centimeters (145 Has + 7,229.0350 M2); Farm number four thousand six hundred and ninety eight (4698) registered at roll thirteen thousand three hundred and four (13304), document one (1), registration one (1), with an area of twenty nine hectares plus one thousand thirty four square meters forty three square decimeters (29 Has + 1,034.43 M2); Farm number four thousand seven hundred (4700) registered in roll thirteen hundred three hundred and four (13304), document three (3), registration one (1), with an area of three hundred and eighty two hectares plus four thousand seven hundred and twelve square meters nine square decimeters thirty square centimeters (382 Has + 4,712.0930 M2); Farm number four thousand six hundred and eighty eight (4688) registered at roll thirteen thousand two hundred seventy nine (13279), document two (2), registration one (1), with an area of one hundred and ninety three hectares plus one thousand four hundred and eighty one square meters ninety five square decimeters (193 Has + 1,481.95 M2); Farm number four thousand six hundred and ninety (4690) registered at roll thirteen thousand two hundred and ninety three (13293), document seven (7), registration one (1), with an area of one thousand three hundred and thirty three hectares plus eight thousand two hundred and twenty seven square meters and fifty six square decimeters (1,333 Has +8,227.56 M2); Farm number four thousand six hundred and ninety four (4694) registered at roll thirteen thousand three hundred (13300), document six (6), registration one (1), with an area of three hundred and ninety eight hectares plus six thousand six hundred and fifty square meters forty one square decimeters (398 Has + 6,650.41 M2); Farm number four thousand seven hundred and three (4703) registered at roll thirteen thousand three hundred and four (13304), document nine (9), registration one (1), with an area of three hundred and forty six hectares plus seven thousand five hundred and ninety seven square meters forty four square decimeters (346 Has + 7,597.44 M2); Farm number four thousand seven hundred (4704) registered at roll thirteen thousand three hundred and four (13304), document nine (9), registration one (1), with an area of five hectares plus eight thousand thirty seven square meters ninety square decimeters (5 Has + 8,037.90 M2), all of the Public Registry, Property Section, Province of Bocas del Toro. These lands are not subject to sale to anyone neither now nor in the future. This limitation will be registered at the margin of said farms in the Public Registry by any of the parties, serving as a basis for their registration the Official Gazette with the Law that approves this contract is published. TWENTY THIRD: The notices and other communications that may be required pursuant to the provisions of the present contract will, unless the parties agree otherwise, be made in writing and will be personally delivered or sent to the address that each party communicates to the other, through notices in writing with return receipt. TWENTY FOURTH: With the execution of the present contract, both parties declare as terminated and definitively concluded any claim or differences that exist or may exist with respect to the execution and compliance with the contracts until this time existing between THE NATION and THE COMPANY, or in connection with any type of tributes or any other sum that may be deducted from the operations of THE COMPANY up to the 31st December of 1996, except those which each party have accepted to cover. In the event that processes or procedures are pending before any judicial or administrative body of the Republic of Panama, each party will take the necessary measures to terminate them. This settlement excludes the tax processes that have been duly notified to THE COMPANY on Augsut 27, 1997. These cases will follow the normal proedures, being understood that none of the parties waive the rights the respective cases may contemplate. TWENTY FIFTH: The present contract shall be the legal norm between the parties and it will be governed by the laws applicable, presently in force or that may be in force in the future in the Republic of Panama, except in the measure in which such laws or legal provisions are contrary or less beneficial, or inconsistant or incompatible with this contract, or are not of general application. TWENTY SIXTH: In the event that any of the parties considers the other has defaulted in the compliance of the obligations acquired pursuant to the present contract or those acquired pursuant to Contract No. 2 of 1976, aproved by Law No. 5 of January 7, 1976 and its additions and amendments, it will notify of this fact to the other party, suggesting the measures that it considers convenient to correct the default. Within ninety (90) days following the receipt of the corresponding notice, the party thus notified may counterpropose what are most adequate measures considered by it. Said measures must be implemented within the term of thirty (30) working days counted from the date in which acceptance of the counter proposal is made, except that both parties may agree in a longer term by reason of inherent circumstances to the activities to be undertaken. Notwithstanding the above, if any of the parties is not in agreement that a default has occurred, or in the manner to cure it, any of the parties may use the procedure established in clause TWENTY SEVENTH of this contract, in order to resolve the respective differences. TWENTY SEVENTH: The parties declare their firm purpose to examine with the most objective and amicable intention all differences that may arise between them in connection to the present contract, for the purpose of giving them a solution. All conflicts that may arise in connection with the present contract and with the Lease Contract No. 2 of 1976, approved by Law No. 5 of January 7, 1976 and its subsequent additions and amendments, that could not be solved in the form before indicated, should be resolved by arbitration, before and pursuant to the rules of procedure of the Interamerican Commercial Arbitration Commission, referred to in the agreement between the Republic of Panama and the United States of America on the treatment of and protection to investments, in force on the date of the execution of the present contract, unless the parties agree expressly at the time of submitting to arbitration, in accepting the rules then in force. They will be subject to arbitration pursuant to the provision of this clause, the controversies that arise among the parties related to the purpose, application, implementation or interpretation of this contract and of Contract No.2 of 1976, approved by Law No. 5 of January 7, 1976 and its subsequent additions and amendments, as well as those related to the compliance or termination thereof. The arbitration shall be circumscribed to the topic object of the controversy and the same, pending its resolution, will not have the effect of suspending or delaying the compliance with the obligations arising from the said contracts, except in the cases of force majeure or fortuitous circumstance. TWENTY EIGHTH: 1. INITIAL TERM. The initial term of the present contract will be of twenty (20) years counted from the first of January nineteen ninety eight (1998). 2. ADVANCED TERMINATION. During the term of this contract or the extensions thereof, if THE COMPANY will waive the rest of the term of the same, it shall give notice of termination to THE STATE in writing, but the contract will not be considered as terminated up to three (3) years counted from the first of January immediately following the date the notification has been made, which notification will give the economic reasons that motivate the decision of THE COMPANY. 3. ADDITIONAL EXTENSIONS TO THE INITIAL TERM. During the first nine (9) months of the sixteenth year from the initial term, any of the parties may notify the other of its intention of not extending the contract. In the event that notice is not given, the term of the present contract will be extended for a period of twelve (12) additional years, following the initial term of twenty (20) years. In the event that the eighth (8) year of the term of the first extension goes by without notification of termination, the contract will be extended again for an additional and successive period of twelve (12) years. The provision of this clause with respect to opportunities of termination and new extension during the term of the first extension, will apply equally to the second extension and subsequent extensions which, in consequence, may occur. The extensions will be considered as agreed among the parties if ninety (90) calendar days prior to the ending of each anniversary in which an opportunity of extension exists, neither party has notified in writing the other party, the termination of which this clause refers to. TWENTY NINTH: For the purpose of modernizing the legal and operative structure under which THE COMPANY has operated in the country, the parties agree that Chiriqui Land Company may suffer a restructuration in a way that the total amount of assets and liabilities corresponding to the Division of Bocas del Toro be transferred to its subsidiary Bocas Fruit Co., Ltd. , a commercial company organized and existing pursuant to the laws of the Bermuda Islands, British Occidental Indies, with principal domicile in the city of Hamilton, Bermuda Islands and offices in the city of Panama, Avenida Balboa, Banco Exterior Building, twenty first floor. Said restructuring and consequent transfer of assets and assumption of liabilities will not cause taxes of any kind in the Republic of Panama. THE STATE consents in that, as part of the restructuring described, THE COMPANY may assign the present contract in favor of the mentioned subsidiary so that the latter remains as sole holder of the rights and obligations before THE STATE. THIRTIETH: All sums of money that any of the parties should owe or may owe to the other pursuant to the present contract, shall be paid solely in dollars, legal currency of the United States of America. All obligations not subject to the term or condition in the present contract will be understood to be of immediate compliance. In this latter case, the obligations shall be complied with at the end of the term or fulfillment of compliance with the condition. THIRTY FIRST: The parties obligate themselves to extend, execute and register all the documents in order to give validity and efficacy to this contract and those that in the future be required for its compliance, and furthermore, they commit to undertake all efforts necessary in order to comply with the obligations agreed upon herein. THIRTY SECOND: The stamp tax caused by the present contract will be SIX THOUSAND FIVE HUNDRED BALBOAS (B/6,500.00). Furthermore, THE COMPANY shall cancel the amount of ONE HUNDRED EIGHT BALBOAS (B/.108.00) in registration rights for the registration agreed upon in the previous Clause TWENTY SECOND. THIRTY THIRD: This contract totally substitutes, in a perfect form and without solution of continuity, Contract No. 3 of January 7, 1976, approved by Law No. 5 of the same date, promulgated in the Official Gazette No. 18.002 of January 8 of the same year. THIRTY FOURTH: The present contract will be in force beginning on the date of promulgation of the law that approves it. In witness whereof the present contract is signed in two (2) counterparts of the same value and effect in the city of Panama, Republic of Panama, on the 12 days of the month of September 1997 FOR THE STATE FOR THE COMPANY /s/RAUL ARANGO GASTEAZORO /s/MANUEL VIRGILIO AIZPURUA Ministry of Commerce Vice President of Legal and Industries and Governmental Matters AUTHENTICATION /s/GENERAL COMPTROLLER OF THE REPUBLIC CONTRACT NO. 135 CONTRACT OF OPERATIONS (PUERTO ARMUELLES) Between RAUL ARANGO GASTEAZORO, Minister of Commerce and Industries, male, Panamanian, of legal age, with personal identity card No. 8-68-519, who acts in the name and in representation of THE STATE, duly authorized by the Council of the Cabinet, by Resolution No. 198 of August 27 nineteen ninety seven hereinafter known as THE STATE, as party of the first part, and for the other part, MANUEL VIRGILIO AIZPURUA VELASQUEZ, male, Panamanian, of legal age, with personal identity card No. 8-94-712, practicing attorney, domiciled in this city, acting in the name and in representation of the company named CHIRIQUI LAND COMPANY, a corporation organized pursuant to the laws of the State of Delaware, United States of America, duly registered in the Public Registry, volume 39, folio 466, registration 5345, and registration up-to- date under filing card No. 018725, roll 000876, image 0075, and duly authorized, pursuant to a power of attorney granted in Cincinnati, Ohio on the thirteen (13) of March nineteen hundred and ninety seven (1997) by the Executive Vice President of said company, hereinafter known as THE COMPANY, execute the present contract of operations, pursuant to the following clauses. CLAUSES: FIRST: From the date the present contract is in force, the activities of THE COMPANY in the Republic of Panama and, especially, in its Division of Puerto Armuelles, Province of Chiriqui, will be governed by the provisions contained herein and by the provisions of the Panamanian legislation of general application that would not be contrary thereto. SECOND: THE COMPANY will have the right to export, without licences or permits, bananas and other agricultural products for exportation and its derivatives. THIRD: THE STATE grants THE COMPANY the priority right of use, under its own management, but subject to the fiscalization of THE STATE, of all the wharves, annexes and other port installations that THE COMPANY may have built or build in connection with the activities contemplated in the present contract. THE COMPANY may build on these wharves improvements and annexes to facilitate and make more efficient the export of its products. The wharves that may be built in the future will be authorized by the National Port Authority in accordance with the legal provisions in force. THE STATE grants THE COMPANY, subject to the fiscalization of THE STATE, the priority use of the wharf, equipment and annexes that are owned by THE STATE, on the port installations of Puerto Armuelles. This priority use does not exclude permitting the use of said wharf, equipment and annexes, owned by THE STATE, to third parties, always provided it does not interfere with the activities of the banana industry. Pursuant to its right of ownership, THE COMPANY will have the private use of the equipment, systems, installations and other property that THE COMPANY has located or may locate on the wharves or port installations of Puerto Armuelles or any other wharf and port installations that THE COMPANY may build in the future, always provided that it would not interfere with the presently existing maritime or land traffic. Notwithstanding the above, THE COMPANY may facilitate to others these properties, equipment and systems to third parties pursuant to the agreements that may be agreed upon in the future. The costs of repairs and maintenance of the wharf will be prorated between THE COMPANY and THE STATE based on the relative intensity of use of said installations on the part of THE COMPANY, the latter assuming the portion of the costs of maintenance and repairs that will correspond to its use, and THE STATE for the balance. For purposes of the present clause, it will be understood as cost of maintenance and repair of the wharves the following: cost of materials, equipment, fuel, labor and any other costs that under the general rules accepted by Accounting used at the present time, will be considered incurred in the maintenance of the wharves for their usual operation. For the same effects, the prorating by intensity of use will be determined by means of the number of hours the wharf is used by THE COMPANY, divided by the total number of hours that said wharf has been utilized in the same quarter. THE STATE and THE COMPANY will come to an agreement in connection with the requirements of the new capital investments for purposes of replacement, remodeling or extension of the mentioned wharf and in connection with the financing and execution of such investments. THE COMPANY may waive totally or partially this concession, in which case, the obligations acquired pursuant to this clause will cease. This waiver must be notified by THE COMPANY to THE STATE , in writing, within twelve (12) months prior to the date in which it will become effective, or otherwise, pay proportionally the canon of the concession for the number of months that remain to the prior notice for the completion of the twelve (12) months. Notwithstanding the above, during the term of the present contract and without having to amend it, THE COMPANY may, prior notice to THE STATE, transfer totally or partially, to a new entity, in which THE COMPANY may or may not have a participation, the concessions granted in the present clause, as well as the use, operation and management of the wharf of Puerto Armuellles, as well as the construction, operation and management of another alternate wharf. In the event of an alternate wharf, the location thereof will be agreed upon with THE STATE through the National Port Authority. At the same time, THE STATE and THE COMPANY may agree in the privatization of the wharf of Puerto Armuelles or of an alternate wharf, for the purpose of obtaining a more efficient operation and costs. In that sense, other companies dedicated to this activity may be invited, that may have their own sufficient capital, duly corroborated by THE STATE and THE COMPANY, to participate in the privatization. For these purposes, THE STATE acknowledges that THE COMPANY will have the right to negotiate with the new port operator the disposition of the assets owned by THE COMPANY and the negotiation of tariffs prior to the waiver of the concession for the operation of the wharf granted in favor of THE COMPANY. The parties agree that in any scheme of privatization, THE COMPANY will be guaranteed the priority use of the privatized wharves. For the rights included in this clause, THE COMPANY will pay THE STATE the amount of SEVENTY FIVE THOUSAND DOLLARS OF THE UNITED STATES OF AMERICA (US$75,000.00) per year, per wharf, payable in four (4) equal installments during the first five (5) working days of each quarter. FOURTH: THE STATE grants THE COMPANY the concession of operations of the railroads that the latter owns in the banana division of Chiriqui and of the rights of use of the railroad line of Progreso-Armuelles. THE STATE grants THE COMPANY, solely on the national lands, an easement of ten (10) meters on each side of the center of the railroad line subject of this concession. THE STATE acknowledges the existence of continuous and apparent easements that affect the national lands not owned by the Nation on which the railroad lines of THE COMPANY are located. THE STATE, within the twelve (12) months following the execution of the present contract, will register the easements of state lands herein acknowledged. The canon for this concession is TWO HUNDRED AND FIFTY THOUSAND DOLLARS OF THE UNITED STATES OF AMERICA (US$250,000.00) per year, and said amount shall be paid in four (4) equal quarterly installments, at the latest the first working day of each quarter. THE COMPANY will exercise control of the railroad transit. THE COMPANY may waive, in total or in part, this concession in which case, its obligation of paying the canon before mentioned will cease. This waiver will have to be notified by THE COMPANY to THE STATE, in writing, with fifteen (15) months in advance to the date in which the same becomes effective or, in its absence, pay proportionally the canon of the concession for the number of months that remain the prior notice to complete the fifteen (15) months. FIFTH: THE STATE grants THE COMPANY a concession to produce the electric energy it may require in connection with the activities contemplated in the present contract or the development of the same, including the gratuitous use of water for these activities. Furthermore, THE COMPANY may offer on sale and dispose of any excess of electric energy not utilized by it, making it accessible for the price that the parties may agree upon, to the Institute of Hydraulic and Electrification Resources (I.R.H.E.) or, at a reasonable price, to the public consumer or other producers or distributors of electric energy when THE STATE is not capable or able to offer or distribute it. It is understood that THE COMPANY may waive, totally or partially, the concession herein granted, but in any event, will maintain the right to produce electric energy that it may need in connection with the activities contemplated in the present contract or in the development thereof, including the gratuitous use of water for these activities. SIXTH: THE COMPANY may operate and establish the installations and systems of communication that may be required in the implementation of this contract, which will be approved through the official corresponding entity. SEVENTH: THE STATE grants THE COMPANY the right to operate the plants, infrastructure and other installations that it presently uses for the supply of water and for irrigation, and that which may be needed in the future for its operations, including the gratuitous extraction of water for its activities. THE COMPANY may offer on sale and dispose of any excess of water, making it accessible, for the price the parties may agree upon, to THE STATE, through the National Institute of Aqueducts and Sewers (I.D.A.A.N.) or, at a reasonable price, to the consumer public or any other producer or distributor when THE STATE is not capable of disposing or offer or distribute it. During the term of the present contract and without having to amend it, THE COMPANY may, prior notice to THE STATE, transfer totally or partially, to a new entity in which THE COMPANY may or may not have participation, the concession granted in the present clause. In this case, THE STATE acknowledges THE COMPANY the right to negotiate with the new entity, prior to the transfer of the concession, dispose of its assets in connection with the generation, distribution and collection for the water supply, as well as to agree on preferential tariffs. The tariffs to be collected will be agreed upon between the new entity and THE STATE through a state agency in charge of public services. The new entity and THE COMPANY may agree on special tariffs as preferential client. EIGHTH: 1. THE STATE grants THE COMPANY continuous and apparent easements on state lands and acknowledges that continuous and apparent easements on lands of third parties where the assets of THE COMPANY are located, as for example, drainage and irrigation channels, roads, railroads, fresh water lines, water served, electrical wiring, communication systems, etc., and that appear in the blueprints marked as Annexes C, which the parties sign in two (2) counterparts of the same value and effect forming an integral part of this contract. 2. THE COMPANY acknowledges as easements of public use, the roads that appear in the blueprints marked as Annexes D, which the parties sign in two (2) counterparts of the same value and effect, forming an integral part of this contract; and acknowledges as easements for the use on the part of other banana producers, the drainage that appears in the blueprints marked as Annexes E, which are signed by the parties in two (2) counterparts of the same value and effect, forming an integral part of this contract. THE COMPANY may regulate the use of the easements above- mentioned so as to avoid damages to the plantations and/or any of its assets. THE STATE authorizes THE COMPANY to negotiate with the users or beneficiaries the cost of maintenance and/or repairs of the easements used and referred to in the Annexes referred to in this section. 3. THE STATE will see to the integrity of the hydrographic drainage areas to guarantee the permanent and continuous supply of water that may be required presently or in the future, for the development of the banana activity in the areas of Baru and Alanje. NINTH: In its employer worker labor relations with respect to the operations undertaken in the country, THE COMPANY will continue to be governed by the labor legislation in force in the Republic of Panama and by the collective contracts or individual labor contracts that it may agree to with its workers, pursuant to said legislation. THE COMPANY, and Puerto Armuelles Fruit Co., ltd. guarantee that, in the event of the restructuring authorized in clause TWENTY NINTH would occur, the latter will assume, pursuant to the labor legislation then in force, the labor liabilities of the Division of Puerto Armuelles, thus becoming, at the respective legal moment, in the sole employer, obligating itself before the total number of workers of said division, without solution of continuity, to all the respective individual labor contracts or collective contracts other agreements in force at the moment the restructuring occurs. TENTH: In order to carry out its activities, THE COMPANY may bring to the country foreign specialized personnel or specialized training that it may need, complying with the formalities of migration. The migration authorities will grant, in an expeditious form, permits for the personnel to remain in the country with the understanding that said permit will only be effective while the person is in the country working for THE COMPANY. The foreigner thus contracted may start working at the presentation of the respective application for permit to the Ministry of Labor and Social Welfare. THE COMPANY will file annually before the Ministry of Labor and Social Welfare, a report that may verify the percentage of foreign workers contracted under this clause. ELEVENTH: THE COMPANY will continue to present to THE STATE, the following reports: a) Weekly reports of fruit shipped which include date of departure, name of ship, destination, quality of the fruit and volume of boxes by producer, equivalent in hands, FOB value, gross weight in pounds, which will be delivered through the National Banana Direction. b) Six months reports on cultivated areas, which will include hectares in maintenance, preparation, hectares according to varieties, number of employees, which will be based on field meetings between the division managers and the technicians of the National Banana Direction. c) Annual report on the perspective of the activity and number of employees that will be filed through the Ministry of Commerce and Industries with copy to the Ministry of AgroDevelopment. THE STATE commits to maintain strict confidentiality with respect to the information that it may receive from THE COMPANY, according to this clause, except statistical information on the industry in general. TWELFTH: THE COMPANY will be exempted form tributes, taxes and other encumbrances including the payment of protection tariffs or another denomination, present or future, that are listed below: 1. Tributes, taxes and other encumbrances present or future, of any kind or denomination, that fall on the import, use, consumption or usage of fuel, as well as those of any denomination that fall on the importation of machinery, equipment, replacements, paper, and other items that may be necessary for the development of the banana and agroindustrial activities in any of its phases or places of operation, including those pertaining to the activities related to transactions with independent banana producers. The goods exempted from import taxes may be re-exported free of taxes and without licenses or permits . Said goods may be sold in Panama always provided the import taxes are paid. The goods referred to in this norm will not be leased nor destined to uses different from those for which they were acquired, without the prior payment of the import taxes, when applicable. These exemptions shall be processed in the usual form through the Ministry of the Treasury and the National Banana Direction. THE COMPANY may sell to third parties containers or packages manufactured with exempted items as mentioned in this clause, provided that there is evidence that these are effectively exported or, in its absence, the payment is made of the import taxes corresponding to the value of the imported items. 2. Any type of tribute, tax or encumbrance on banana, agro or agroindustrial activities of THE COMPANY, in any of its phases with the exception of those included in this contract. 3. Tributes, taxes or encumbrances that fall on the loading and unloading made by any ship that has as principal cargo products of THE COMPANY or equipment, machinery, replacements, paper, fuel and other items for its activities. Excepted are the rates, tariffs, and prices such as immigration services, sanitary, customs services, and those of the ports when dealing with wharves not operated by THE COMPANY. 4. Tributes, taxes, or any other encumbrance for wharfage, bringing the ship in, tonnage or that fall under the mobilization of ships or the utilization of the present wharves and those to be used in the future by THE COMPANY, except those provisions of clause THIRD in this contract. 5. Tributes, taxes or any other encumbrances on production, packaging and transportation of bananas. 6. Any type of tributes or encumbrances on capital, except licence taxes of general application. 7. Consular fees. 8. Tributes, taxes or any other encumbrance on real estate and the improvements thereof. 9. Tributes, taxes or any other encumbrance that falls on the transfer of personal property like equipment, materials, items on services for the transformation of goods necessary for the development of the activities of the company. 10. Tributes, taxes or any encumbrance on the sale or transfer of real property. 11. Tax stamps. THIRTEENTH: THE COMPANY, may acquire, in the local market, the goods that it may need for its activites, free of taxes referred to in sections 1 and 9 of clause TWELFTH of this contract. For purposes of fiscal control of these transactions, the procedure contained in Annex A of the present contract will apply, once signed by both parties, forming an integral part thereof. The Tax Authorities may agree with THE COMPANY the actualization and amendments to Annex A, that may be necessary for a better fiscal supervision. FOURTEENTH: THE COMPANY shall be subject to income taxes pursuant to the rates and provisions of general application of the fiscal legislation of the Republic of Panama. FIFTEENTH: THE COMPANY shall enjoy benefits not less and in the same or similar conditions, to those granted to any company that is in the production or export of banana activities in the Republic of Panama. SIXTEENTH: THE COMPANY will pay as municipal taxes, because of the activities that undertakes, including the right of extraction of stone, sand and gravel on national lands, the sum of THREE HUNDRED TWELVE THOUSAND DOLLARS OF THE UNITED STATES OF AMERICA (US$312,000.00) per year, to the Municipality of Baru, in twelve (12) equal installments, at the latest the last working day of each month. If THE COMPANY would be assessed with a larger amount by municipal taxes or if it was assessed with new taxes, the additional obligations and those exceeding THREE HUNDRED AND TWELVE THOUSAND DOLLARS OF THE UNITED STATES OF AMERICA (US$312,000.00), per year, will be assumed by THE STATE. With reference to the acquisition of municipal lands whether by lease, sale, exchange or other form of transmission of property, this would be subject of negotiations between the respective municipality and THE COMPANY. Said negotiations on real property, will be based on reasonable parameters, similar to those contained in the present contract. For these purposes, the municipality will request the corresponding evaluations to the General Comptroller office of the Republic and the Ministry of the Treasury. THE COMPANY, on its part, will do the same through its Department of Engineer or by a contracted entity. SEVENTEENTH: THE COMPANY will be subject to other taxes, rights, encumbrances, rates, national contributions, charges or impositions established, or that would be legally established, in the future, different to those to which THE COMPANY enjoys the exemption by virtue of the present contract, provided they are of general application. It will not be considered of general application those taxes, rights, encumbrances, rates, contributions, charges or impositions that are only applied to an industry or a determined activity or fall specifically on banana activities, except the tax on export of bananas, provided said taxes are applied in a general manner to all those that are in the banana activity. EIGHTEENTH: THE COMPANY will be free of any liability with respect to the default on this contract due to causes of force majeure or fortuitous circumstance, within or outside the country, while they are in effect. THE COMPANY will inform in writing, THE STATE, as soon as possible, the occurrence of any contingency of force majeure or fortuitous circumstance. For the purposes of this contract, it will be considered as force majeure or fortuitous circumstance, any fact or event on which THE COMPANY cannot exercise a reasonable control and that would be of the nature that would delay, restrict or impede the opportune compliance, on the part of THE COMPANY, of the obligations contracted pursuant to the present contract, including, but not limited, to the following events: strikes and other labor conflicts, wars, revolutions, insurrections, civil disturbances, blockades, riots, embargoes, fires, lightnings, failure in the installations or machinery, epidemics, viruses, fungus, plagues and other diseases, earthquakes, avalanches, storms, flooding and other factors of nature and orders, instructions or regulations of any government. NINETEENTH: It would be included within the cases of force majeure or fortuitous circumstances comprised in the preceding clause, the situations of the market that impede, difficult or making it economically onerous the marketing of the fruit for export or other economic causes that make the compliance with obligations excessively onerous. Upon the occurrence of these situations, THE COMPANY will inform in writing THE STATE, the circumstances thereof and the effect that it may have had or may have in connection with this contract. THE STATE will analyze the document presented by THE COMAPNY and will inform it of its criteria and, specially, if it is in agreement or not with the position of THE COMPANY. If THE STATE does not coincide totally or partially with the position of THE COMPANY, the parties will examine with the most objective and amicable desire, the difference arising with the purpose of giving them solution. If after this exercise some differences still exist, these will be resolved in accordance with the provisions of clause TWENTY SEVENTH of the present contact. TWENTIETH: Even when THE STATE would establish in Panama exchange controls of foreign currency, THE STATE will facilitate THE COMPANY, the foreign currency, freely convertible, in an amount not inferior to what it may need for the following, independently of the source of the funds of THE COMPANY: 1. The payment of goods and services acquired abroad for its operations in Panama. 2. The payment of capital and interest on debt in foreign currency contracted for its investments or operations in Panama. 3. Remittance of profits and repatriation of capital. TWENTY FIRST: With respect to the termination of the lease contract between THE STATE and THE COMPANY on lands on the Division of Puerto Armuelles, the parties agree as follows: A) If it is THE COMPANY the one that decides to terminate the lease contract or not to agree in any of its extensions, the following will apply: 1) Once THE COMPANY has notified THE STATE its intention to terminate the lease contract or not to extend it, both parties agree in giving its best efforts during the period of three (3) years counted from the date of the notice of termination or not to extend, to find a new operator that may continue the agroindustrial activities developed by THE COMPANY, in this division, up to that moment. THE COMPANY and the potential new operator may freely negotiate the prices for the sale, type of transaction and other conditions related to the transfer of the business or the assets owned by THE COMPANY, including those concessions and other rights and contractual and/or extra contractual obligations of THE COMPANY. In the event the transfer of said operations takes place, THE STATE will guarantee the new operator, conditions of operation and lease not less beneficial that those to which THE COMPANY has the right to under the present contract and under the lease contract, agreed upon among the parties and approved on this date. 2) In the event that the parties do not find a new operator or that the new operator and THE COMPANY do not reach an agreement with respect to the transfer of the business or the assets, the liquidation of the assets will be carried out in the following manner. i) THE COMPANY may remove, transfer or dispose of its properties as it pleases and without taking into account tributes of any kind. ii) THE STATE will pay THE COMPANY for the growing crops fifty percent (50%) of the value of the same determined in accordance with Annex B of this contract that once executed by the parties forms an integral part hereof. iii) If in a period of three (3) years counted upon the date of the termination of this contract or the lease agreement, THE STATE decides to continue totally or partially on its own or through another natural or juridical person, the agricultural or agroindustrial operations on the lands where assets of THE COMPANY are located, or if it decides, in any form, to transfer or give in use said lands or parts thereof, the latter will pay THE COMPANY the price of the assets that THE COMPANY has not removed, or its commercial value pursuant to the definition given in paragraph G of this clause. B) If THE STATE who, pursuant to the powers enumerated in section three (3) of Clause TWENTY EIGHTH, decides not to agree in any of the possible extensions of the present contract, the parties agree to proceed in the following manner: 1) THE STATE is obligated to buy and THE COMPANY is obligated to sell the assets owned by it, that it has decided not to remove, which are located in the division of Puerto Armuelles. i) With respect to the growing crops, the price will be one hundred percent (100%) of the value established pursuant to Annex B of this contract that once executed by the parties forms an integral part thereof. The total amount of the payment must be made immediately at the date of the termination of this contract. ii) The price of the remaining assets will be its commercial value. This value will be determined on the basis of an expertise carried out by two experts appointed by THE STATE and another two by THE COMPANY. The experts will be appointed by the parties with at least three (3) years prior to the date in which THE COMPANY must abandon the leased lands. iii) In the event that these experts would not agree with respect to the price of the assets within the term of six (6) months counted from the date of their appointment or the time in which they should be appointed, or in the case that one of the parties, or both, do not appoint their experts during the term previously established, the price will be determined pursuant to the procedures established in clause TWENTY SEVENTH of the present contract. The value determined by the experts, or by arbitration, will be paid by THE STATE to THE COMPANY in four (4) equal consecutive installments the first of which of two (2) years prior to the date in which THE COMPANY must evacuate the leased lands. Under no circumstance, THE COMPANY will be required to abandon the leased properties unless the total price of all the assets has been paid at the agreed upon date. 2) THE STATE, by these means, assumes the obligation to reimburse THE COMPANY the real amount of the indemnifications incurred by it with its workers after the notice of termination has expired. Said obligation will be limited to the amount in which the indemnification exceeds the discounted value of the reserves in books of THE COMPANY for indemnifications, including the trust established pursuant to Law 22 of August 12, 1995. C) The sale or transfer referred to in this clause will exclude, in addition to any property THE COMPANY wishes to retire, cash, bank deposits, accounts receivables, intangible assets such as patents, trademarks, commercial trademarks and commercial licenses, commercial names, commercial advertising and commercial posters, good will and any other deferred charge that has not been expressly assumed by THE STATE. D) After the notice of termination or the notice of not to extend, by any of the parties, and up to the time of termination of the Lease Contract, THE COMPANY will be only obligated to give the assets, the basic maintenance for its preservation pursuant to the agricultural practices of maintenance of the last three (3) years, and in no case, will be obligated to make expenses or new investments of capital, in new properties or those in existence, whether by force majeure or fortuitous circumstance or for any other cause. As an example, it will be understood as investments or capital expenses on the property in existence, those related to digging or reconstruction of drainage, excluding those called boquetes or boquetones ; reconstruction whether total or partial or major repairs related to machinery and equipment; remodeling, alternations or major repairs related to constructions, cable- roads and other infrastructure work. THE STATE will have the right to request of THE COMPANY works related to machinery, equipment, drainage and other capital goods, prior agreement with THE COMPANY on payment of the amounts that the parties agree for such purposes. E) If the contract is terminated by default of any of the parties, once the procedures established in clauses TWENTY SIXTH AND TWENTY SEVENTH of this contract have been exhausted, the parties will proceed pursuant to paragraph A) of this clause if the default is imputable to THE COMPANY or pursuant to the provision of paragraph B) if the default is imputable to THE STATE. F) The transfer to THE STATE of the assets referred to in this clause will not be subject to any tax. G) For purposes of this clause, it will be understood by commercial value: the amount of money required to replace said assets in the same conditions of operation and in the same place where they are now located. TWENTY SECOND: THE STATE and THE COMPANY, agree that whatever is related to the use of the farms described as follows, will be ruled under the concept of lease of lands: Farm number thirty two thousand forty four (34044) registered at roll thirteen thousand two hundred and eighty (13280), document five (5), registration one (1), with an area of three thousand six hundred and ninety nine square meters twenty six square decimeters ten square centimeters (3,699.2610 M2); Farm number thirty two thousand forty three (32043) registered at roll thirteen thousand two hundred and eighty (13280), document five (5), registration one (1), with an area of seven thousand eight hundred and sixty seven square meters eighty square centimeters (7,867.80 M2); Farm number thirty two thousand fifty five (32055) registered at roll thirteen thousand two hundred and ninety three (13293), document four (4), registration one (1), with an area of one thousand one hundred and thirty two hectares plus two thousand eight hundred thirty eight square meters eight square decimeters (1,132, Has +2,838.08M2); Farm number thirty two thousand thirty six (32036) registered at roll thirteen thousand two hundred and seventy nine (13279), document five (5), registration one (1), with an area of one hectare plus three thousand five hundred and ninety four square meters sixteen square decimeters (1 Ha + 3,594.16 M2); Farm number thirty two thousand sixty three (32063) registered at roll thirteen thousand three hundred and four (13304), document seven (7), registration one (1), with an area of one thousand forty three square meters ninety square decimeters (1,043.90 M2); Farm number thirty two thousand thirty seven (32037) registered at roll thirteen thousand two hundred and seventy nine (13279), document six (6), registration one (1), with an area of six hundred sixty square meters thirty square decimeters (660.30 M2); Farm number thirty two thousand fifty two (32052) registered at roll thirteen thousand two hundred and ninety three (13293), document one (1), registration one (1), with an area of nine hundred and sixty four square meters eighty nine square decimeters (964.89 M2); Farm number thirty two thousand thirty eight (32038) registered at roll thirteen thousand two hundred and seventy nine (13279), document seven (7), registration one (1), with an area of one thousand three hundred twenty nine square meters sixty square decimeters (1,329.60 M2); Farm number thirty two thousand fifty four (32054) registered at roll thirteen thousand two hundred and ninety three (13293), document three (3), registration one (1), with an area of eight hundred seventy six square meters seventy two square decimeters (876.72 M2); Farm number thirty two thousand thirty five (32035) registered at roll thirteen thousand two hundred and seventy nine (13279), document four (4), registration one (1), with an area of six thousand six hundred fifty square meters fifty eight square decimeters (6, 650.58 M2); Farm number ten thousand seven hundred sixty six (10766) registered at roll nine hundred sixty four (964), folio four hundred (400), with an area of seven thousand four hundred square meters (7,400.00 M2); Farm number thirty two thousand sixty one (32061) registered at roll thirteen thousand three hundred and four (13304), document five (5), registration one (1), with an area of one hectare plus six hundred eighty three square meters ninety nine square decimeters eighty square centimeters (1 Ha +683.9980 M2); Farm number thirty two thousand eighty five (32085) registered at roll thirteen thousand three hundred twenty three (13323), document three (3), registration one (1), with an area of one hectare plus five hundred fifty eight square meters thirty six square decimeters twenty square centimeters (1 Ha +558.3620 M2); Farm number thirty two thousand eighty six (32086) registered at roll thirteen thousand three hundred twenty three (13323), document three (3), registration one (1), with an area of five hundred forty two square meters nine square decimeters sixty centimeters (542.0960 M2); Farm number thirty two thousand fifty eight (32058) registered at roll thirteen thousand two hundred ninety three (13293), document six (6), registration one (1), with an area of twenty two hectares plus two hundred fourteen square meters eighty nine square decimeters (22 Has + 1,214.89 M2); Farm number thirty two thousand eighty four (32084) registered at roll thirteen thousand three hundred twenty three (13323), document one (1), registration one (1), with an area of thirty six hectares plus one hundred thirty five square meters thirteen square decimeters (36 Has + 135.13 M2); Farm number thirty two thousand sixty two (32062) registered at roll thirteen thousand three hundred four (13304), document six (6), registration one (1), with an area of two thousand five hundred sixty six square meters ninety one square decimeters (2,566.91 M2); Farm number thirty two thousand fifty six (32056) registered at roll thirteen thousand two hundred ninety three (13293), document five (5), registration one (1), with an area of three hundred forty nine hectares plus six thousand two hundred eighteen square meters forty three square decimeters (349 Has + 6,218.43 M2); Farm number thirty two thousand fifty seven (32057) registered at roll thirteen thousand two hundred ninety three (13293), document five (5), registration one (1), with an area of two thousand seven hundred sixty six hectares plus four thousand six hundred thirty six square meters ninety six square decimeters (2,766 Has + 4,636.96 M2); Farm number thirty two thousand fifty three (32053) registered at roll thirteen thousand two hundred ninety three (13293), document two (2), registration one (1), with an area of sixty hectares plus seven thousand seven hundred fifteen square meters thirty one square decimeters (60 Has + 7,715.31 M2); Farm number thirty two thousand thirty nine (32039) registered at roll thirteen thousand two hundred seventy nine (13279), document eight (8), registration one (1), with an area of one thousand six hundred sixty five hectares plus seven thousand three hundred twenty five square meters forty three square decimeters eighty square centimeters (1665 Has + 7,325.4380 M2); Farm number thirty two thousand forty (32040) registered at roll thirteen thousand two hundred eighty (13280), document one (1), registration one (1), with an area of nine hectares plus seven thousand one hundred square meters (9 Has + 7,100.00 M2); Farm number thirty two thousand forty one (32041) registered at roll thirteen thousand two hundred eighty (13280), document two (2), registration one (1), with an area of four hectares plus one thousand four hundred ten square meters twenty square decimeters (4 Has + 1,410.22 M2); Farm number thirty two thousand forty two (32042) registered at roll thirteen thousand two hundred eighty (13280), document three (3), registration one (1), with an area of seventeen hectares plus seven thousand five hundred twelve square meters fifteen square decimeters (17 Has + 7,512.15 M2); all of the Public Registry, Property Section, Province of Chiriqui. These lands are not subject to sale to anyone neither now nor in the future. This limitation will appear at the margin of said farms in the Public Registry by any of the parties, serving as a basis for their registration at the Official Gazette in which the Law that approves this contract is published. TWENTY THIRD: The notices and other communications that may be required pursuant to the provisions of the present contract shall be, unless the parties agree otherwise, be made in writing and delivered in person or sent to the addresses that each party communicates to the other, through notices in writing with return receipt. TWENTY FOURTH: With the execution of the present contract, both parties consider as terminated and definitively concluded any claim or difference that exist or may exist with respect to the implementation and compliance of the contracts that up to now did exist between THE NATION and THE COMPANY, or in connection with any type of tribute or any other sum that is deducted from the operations of THE COMPANY up to the 31st of December of 1996, except those which each party has accepted to cover. In the event that processes or procedures exist pending before any judicial or administrative body of the Republic of Panama, each party will take the necessary measures to terminate them. This settlement excepts the tax processes that have been duly notified to THE COMPANY on August 27, 1997. These cases will follow their procedural course, being understood that none of the parties waive their rights to said cases may have. TWENTY FIFTH: The present contract will constitute the legal norm between the parties, and the same will be governed by the laws that are applicable thereto, presently in force or that may be in force in the future in the Republic of Panama, except in the measure that such laws or legal provisions may be contrary or less beneficial, or inconsistent or incompatible with this contract, or would not be of general application. TWENTY SIXTH: In the event that one of the parties considers that the other has failed in the compliance of the obligations arising from the present contract or those arising from Contract No. 2 of 1976, approved by Law No. 5 of January 7, 1976 and additions and amendments thereof, will notify this fact to the other party, suggesting the measures that it considers convenient to cure the default. Within ninety (90) days following the receipt of the corresponding notice, the party thus notified may counter propose the measures that it considers more adequate. Said measures will be implemented within the term of thirty (30) working days counted from the date in which the acceptance of the counterproposal is communicated, except that both parties agree on a larger term for reasons of the circumstances inherent to the activities to be undertaken. Notwithstanding the above, if any of the parties is not in agreement that a default has occurred, or in the manner of curing it, any of the parties may use of the procedure established in clause TWENTY SEVENTH of this contract, for the purpose of resolving the respective differences. TWENTY SEVENTH: The parties declare their firm intention of examining with the most objective and amicable approach all the differences that may come up with relation to the present contract, for the purpose of solving them. All conflicts that arise in connection with the present contract and with the Lease Contract No. 2 of 1976, approved by Law No. 5 of January 7, 1976 and subsequent additions and amendments, and that may not be solved in the form before mentioned, must be resolved through arbitration, in compliance with the rules and procedures of the Interamerican Arbitration Commission, referred to in the agreement between the Republic of Panama and the United States of America on the treatment and protection of investments, in force on the date of the execution of the present contract, unless the parties expressly agree at the moment of submission to arbitration, in accepting the rules then in force. There will be subject to arbitration pursuant to the provisions of this clause the controversies that may arise between the parties related to the subject, implementation, execution or the interpretation of this contract and of Contract No. 2 of 1976, approved by Law No.5 of January 7, 1976 and subsequent additions and admenments , as well as those related with the compliance or termination thereof. The arbitration shall be circumscribed to the topic subject of the controversy and the same, pending its resolution, will not have the effect of suspending or delaying the compliance with the obligations arising from the mentioned contracts, except if force majeure or fortuitous circumstance would be involved. TWENTY EIGHTH: 1. INITIAL TERM. The initial term of the present contract shall be twenty (20) years counted from the first of January nineteen hundred and ninety eight (1998). 2. ADVANCED TERMINATION. During the term of this contract or its extensions, if THE COMPANY would waive the rest of the term thereof, it will give THE STATE notice of termination in writing, but the contract will not be terminated unless three (3) years have elapsed, counted from the first of January immediately following the date in which the notification was made, which will give the economic reasons that motivate the decision of THE COMPANY. 3. ADDITIONAL EXTENSIONS TO THE INITIAL TERM. Withing the first nine (9) months of the sixteenth years of the initial term, any of the parties may notify the other its intention of not extending the contract. In the event said notice is not given, the term of the present contract will be extended for a period of twelve (12) additional and successive years to the initial term of twenty (20) years. In the event that the eighth (8) year of the term of the first extension elapses without notification of termination, the contract will be newly extended for an additional and successive period of twelve (12) years. The provision of this clause with respect to the opportunities of termination and the new extension during the term of the first extension, will apply the same way to the second extension and the subsequent extensions that, consequently, may take place. The extensions will be considered as agreed by the parties if ninety (90) calendar days before the finalization of each anniversary in which an opportunity of extension exists, neither party has sent the other written notice of termination of which this clause speaks of. TWENTY NINTH: For purposes of modernizing the legal and operative structure under which THE COMPANY has operated in the country, the parties agree that Chiriqui Land COMPANY may go through a restructuring so that the total assets and liabilities corresponding to the Division of Puerto Armuelles be transferred to its subsidiary Puerto Armuelles Fruit Co., Ltd. , a commercial COMPANY organized and existing pursuant to the laws of the Islands of Bermuda, British Occidental Indies, with principle domicile in the city of Hamilton, Bermuda Islands and offices in the city of Panama, Balboa Avenue, Banco Exterior building, twenty first floor. Said restructuring and consequent transfer of assets and assumption of liabilities will cost no tax whatsoever in the Republic of Panama. THE STATE agrees that, as part of the restructuring described, THE COMPANY may cede the present contract in favor of the mentioned subsidiary so that the latter remains its only holder of rights and obligations before THE STATE. THIRTIETH: All the sums of money that any of the parties should or could owe to the other pursuant to the present contract, will be payable only in dollars, legal currency of the United States of America. It would be understood that all the obligations not subject to term or condition in the present contract will be considered of immediate compliance. In this latter case, the obligations shall be fulfilled at the end of the term of complying with the condition. THIRTY FIRST: The parties commit to the extension, subscription and registration required of all the documents to give validity and efficacy to this contract and to those that in the future may require for their compliance and, further, they commit to undertake all efforts necessary in order to implement the obligations agreed upon therein. THIRTY SECOND: The tax stamp caused by the present contract will be SIX THOUSAND FIVE HUNDRED BALBOAS (B/6,500.00). Furthermore, THE COMPANY shall cancel the sum of NINETY SIX BALBOAS (B/96.00) in registration rights for the registration agreed upon in clause TWENTY SECOND above. THIRTY THIRD: This contract substitutes, in perfect form and without solution of continuity, Contract No. 3 of January 7, 1976, approved by law No. 5 of the same date, promulgated in the Official Gazette No. 18.002 of January 8th of the same year. THIRTY FOURTH: The present contract will be in force beginning on the date of the promulgation of the law that approves it. In witness whereof, the present contract is signed in two (2) counterparts of the same value and effect, in the city of Panama, Republic of Panama, on the 12 day of the month of September 1997. FOR THE STATE FOR THE COMPANY /s/RAUL ARANGO GASTEAZORO /s/MANUEL VIRGILIO AIZPURUA Minister of Commerce Vice President of Legal and Industries and Governmental Matters AUTHENTICATION /s/ COMPTROLLER GENERAL OF THE REPUBLIC CONTRACT NO. 133 AMENDMENT AND EXTENSION OF THE LEASE LAND CONTRACT Between RAUL ARANGO GASTEAZORO, Ministry of Commerce and Industries, male, Panamanian, of legal age, with personal identity card No. 8-68-519, who acts in the name and on behalf of THE STATE, duly authorized by the Council of the Cabinet, by Resolution No. 198 of August 27 nineteen ninety seven hereinafter known as THE STATE, as party of the first part, and for the other part, MANUEL VIRGILIO AIZPURUA VELASQUEZ, male, Panamanian, of legal age, with personal identity card No. 8-94-712, practicing attorney, domiciled in this city, acting in the name and representation of CHIRIQUI LAND COMPANY, a corporation organized pursuant to the laws of the State of Delaware, United States of America, duly registered in the Public Registry, Section of Mercantile Persons, volume 39, folio 466, registration 5345 Bis, the registration up-to-date under index card No. 018725, roll 000876, image 0075, and CHIQUITA BRANDS INTERNATIONAL, INC., previously known as, UNITED BRANDS COMPANY, a corporation organized pursuant to the laws of the State of New Jersey, United States of America, and duly authorized to act in the Republic of Panama, as it appears in volume (751), folio one hundred fifty four (154), registration one hundred thirty eight thousand three hundred thirty three (138,333) of the Public Registry, Section of Mercantile Persons, duly authorized, according to power of attorney, granted in Cincinnati, Ohio, on the thirteen (13) of March nineteen hundred and ninety seven (1997) by the Executive Vice President of said company, hereinafter known as THE COMPANY, agree on the present Amendment and Extension of Contract No. 2 of January 7, 1976, approved by Law No. 5 of the same date, promulgated int he Official Gazette No. 18.002 of January of the same year, hereinafter the Lease Contract, pursuant to the following: FIRST: DECLARATION OF PRINCIPLES. The parties declare that pursuant to the said contract, THE COMPANY has leased approximately fifteen thousand seven hundred hectares (15,700 Has), but at the term of the amendments to this contract, maintains under lease, lands belonging to THE STATE with an area of THIRTEEN THOUSAND SIX HUNDRED AND THIRTY ONE hectares plus NINE THOUSAND TWO HUNDRED AND TWENTY FIVE square meter THIRTY ONE square decimeters, FIFTY square centimeters (13,631 Has + 9225.3150 M2). Said lands are located in the Provinces of Chiriqui and Bocas del Toro, corresponding to the banana division of Puerto Armuelles (Province of Chiriqui) six thousand two hundred eighty three hectares six thousand five hundred square meters with two hundred and ninety five square decimeters (6,283 Has + 6,500.295 M2), and to the Banana Division of Bocas del Toro (Province of Bocas del Toro) seven thousand three hundred forty eight hectares plus two thousand seven hundred twenty five square meters two square decimeters (7,348 Has + 2,725.02 M2), operated by THE COMPANY. As a consequence of the negotiation of two operating contracts, executed on the same date as the present document, between THE STATE and THE COMPANY, for the purpose of adapting to the new realities of the market, the parties agree to carry out the following amendments to the Lease Contract, extending its terms and amending the amount of the lease canon as indicated in the following clauses: SECOND: The present clause sixth of the lease contract is subrogated and substituted for the following: Clause sixth : Two separate canons for the lease of the lands referred to in this contract are hereby established: For the lease of the six thousand two hundred eighty three hectares plus six thousand five hundred square meters with two hundred and ninety five square decimeters (6,283 Has + 6,500.295 M2) of lands actually in possession of THE COMPANY at its division of Puerto Armuelles, which are located in the Province of Chiriqui, THE COMPANY will pay a canon as follows: a) For the year nineteen hundred ninety eight (1998), the yearly canon will be the sum of five hundred ninety three thousand eight hundred four dollars with ninety three cents (US$593,804.93); b) for the year nineteen hundred ninety nine (1999), the yearly canon will be the sum of five hundred ninety three thousand eighty hundred four dollars with ninety three cents (US$593,804.93); c) for the year two thousand (2000), the yearly canon will be the sum of six hundred seventy eight thousand six hundred thirty four with twenty cents (US$678,634.20); d) for the year two thousand one (2001), the yearly cannon will the sum of seven hundred and sixty three thousand four hundred and sixty three dollars with forty eight cents (US$763,463.48); and e) for the year of two thousand two (2002) and following years, the yearly cannon will be the sum of eight hundred and forty eight thousand two hundred and ninety two dollars with seventy cents (US$848,292.75). For the lease of the seven thousand three hundred forty eight hectares plus two thousand seven hundred square meters with two square decimeters (7,438 has + 2,725.02 M2) of the lands actually in possession of THE COMPANY at its division of Bocas del Toro, which are located in the province of Bocas del Toro, THE COMPANY will pay a canon as follows: a) For the year nineteen hundred ninety eight (1998), the yearly canon will be the sum of six hundred ninety four thousand four hundred eleven dollars with seventy five cents (US$694,411.75); b) for the year nineteen hundred and ninety nine (1999), the yearly canon will be the sum of six hundred ninety four thousand four hundred eleven dollars with seventy five cents (US$694,411.75); c) for the year two thousand (2000), the yearly canon will be the sum of seven hundred ninety three thousand six hundred thirteen dollars with forty three cents (US$793,613.43); d) for the year two thousand one (2001), the yearly canon will be the sum of eight hundred ninety two thousand eight hundred fifteen dollars with eleven cents (US$892,815.11); and e) for the year two thousand two (2002) and following years, the yearly canon will be the sum of nine hundred ninety two thousand eight hundred sixteen dollars with seventy nine cents (US$992,016.79). Both canons, or those referring to the lands in possession of THE COMPANY in its divisions of Puerto Armuelles and Bocas del Toro, will be payable in four (4) equal installments, by the end of the quarters at the 31st of March, 30th of June, 30th of September and 31st of December of each year. Beginning on the first (1st) of January of the year two thousand four (2004) both canons will be readjusted each two (2) years, the basis of which will be the absolute variation accumulated in the indexes of wholesale prices for importations compiled by the Comptroller General of the Republic for the two (2) years that end, for the purposes of this calculation, on the thirty (30) of September of the year immediately prior to the moment of readjustment. Notwithstanding the above, in no case said final adjustments will increase or diminish the lease canons in force at the time of the readjustment, in more than four point zero four percent (4.04%) every two (2) years. For example, for the effective readjustment beginning the first (1) of January of the year two thousand four (2004), the absolute variation accumulated in the indexes of said prices during the period of two (2) years that run from the first (1) of October of the year two thousand one (2001) to the thirty (30) of September to the year two thousand three (2003) will be considered. This readjustment, if any, would not increase or diminish the lease canons in more than four point zero four percent (4.04%). TRANSITORY PARAGRAPH: It is understood for the purpose of this Lease Contract that the canon per hectare has been established on the basis of ONE HUNDRED AND THIRTY FIVE DOLLARS (US$135.00) per hectare, which results in the amount of EIGHT HUNDRED AND FORTY EIGHT THOUSAND TWO HUNDRED NINETY TWO DOLLARS WITH SEVENTY FIVE CENTS (US$848,292.75) AND NINE HUNDRED AND NINETY TWO AND SIXTEEN THOUSAND DOLLARS WITH SEVENTY NINE CENTS (US$992,016.79), referred to in sections e) of this article. Equally it is understood that the sums established in sections a) and b) represent seventy percent (70%) of this total amount; that the sum of section c) represents eighty percent (80%) of this total amount; and the sum of section d) represents ninety percent (90%) of this total amount; percentages which have been established in order so THE COMPANY adapts to the new realities of the market referred to in the DECLARATION OF PRINCIPLES of this Contract and the necessity of reconversion of THE COMPANY for such effects. THIRD: The present clause eight of the Lease Contract is subrogated and substituted for the following: CLAUSE EIGHTH: A. Puerto Armuelles. 1. Initial term. For the lands leased in the Division of Puerto Armuelles, the initial term of the lease will be twenty (20) years counted from January one nineteen hundred and ninety eight (1998) 2. Advanced termination. During the term of this contract or the extensions thereof, if THE COMPANY waives the rest of the term thereof, it must give written notice of termination to THE STATE, but the contract will not be considered as terminated but after three (3) years has elapsed counted from the first of January immediately following the date in which the notice has been given, which will contain the economic reasons that motivate the decision of THE COMPANY. 3. Additional extensions to the initial term. During the first nine months of the sixteenth year of the initial term, any of the parties may give notice to the other of its intention of not extending the contract. In the event said notice is not given, the term of the present contract will be extended for a period of twelve (12) additional and successive years to the initial term of twenty (20) years. In the event the eight (8) year of the term from the first extension has elapsed without notification of termination, the contract will be newly extended for an additional and successive term of twelve (12) years. The provision of this clause relating to the opportunities of termination and new extensions during the term of the first extension will be applied in the same manner as the second extension and the subsequent extensions which, in consequence, may be produced. The extensions will be understood as agreed upon between the parties if ninety (90) calendar days before the end of each anniversary in which the opportunity of extension exists, neither party has sent written notice of termination to the other as mentioned in this section. B. Bocas del Toro Division 1. Initial Term. For the lands leased in the Division of Bocas del Toro, the initial term of the lease will be twenty (20) years counted from the first of January nineteen ninety eight (1998). 2. Advanced Termination. During the term of this contract or the extensions thereof, if THE COMPANY waives the rest of the term thereof, it must give written notice of termination to THE STATE, but the contract will not be considered as terminated but after three (3) years has elapsed counted from the first of January immediately following the date in which the notice has been given, which will contain the economic reasons that motivate the decision of THE COMPANY. 3. Additional extensions to the initial term. During the first nine months of the sixteenth year of the initial term, any of the parties may give notice to the other of its intention of not extending the contract. In the event said notice is not given, the term of the present contract will be extended for a period of twelve (12) additional and successive years to the initial term of twenty (20) years. In the event the eight (8) year of the term from the first extension has elapsed without notification of termination, the contract will be newly extended for an additional and successive term of twelve (12) years. The provision of this clause with respect to the opportunities of termination and new extensions during the term of the first extension will be applied in the same manner as the second extension and the subsequent extensions which, in consequence, may be produced. The extensions will be understood as agreed upon between the parties if ninety (90) calendar days before the ending of each anniversary in which the opportunity of extension exists, neither party has sent written notice of termination to the other as mentioned in this section. FOURTH : All the provisions of clauses first, second, third, fourth, fifth, seventh, ninth and tenth of the Lease Contract, are ratified which will have full force and effect. FIFTH: The amendments to the Lease Contract herein agreed upon will be in force on the date of the promulgation of the present contract. SIXTH: THE STATE agrees to abstain from transferring or in any other form dispose of its rights of ownership on the lands affected by the present contract, while THE COMPANY: a) does not return them pursuant to clause seventh of the Lease Contract; b) ends the lease with respect to the division pursuant to clause eighth of said contract, or c) previously expressly consents to the transfer or disposal. SEVENTH: Two clauses are added to the lease contract as follows: ELEVENTH: The relation of lease corresponding to the division of Bocas del Toro may be ceded so that it constitutes an independent contract in favor of Bocas Fruit Company Ltd. , a corporation organized and existing pursuant to the laws of the Bermuda Islands, with principal domicile in the city of Hamilton, Bermuda Islands, and offices in the city of Panama, Balboa Avenue, Banco Exterior Building, twenty first floor. The lease relationship corresponding to the division of Puerto Armuelles may be ceded so that it will constitute an independent contract in favor of Puerto Armuelles Fruit Co., Ltd. , a corporation organized and existing pursuant to the laws of Bermuda Islands and offices in the city of Panama, Balboa Avenue, Banco Exterior Building, twenty first floor. THE STATE and THE COMPANY agree that these cessions herein indicated will cause no tax whatsoever in the Republic of Panama. Once the cessions herein consented have been perfected and as a direct effect from it, the mentioned subsidiaries will substitute THE COMPANY as sole and independent holders among themselves, from the two contractual lease relations that are created between THE STATE and THE COMPANY pursuant to the present contract. TWELFTH: All the amounts that any of the parties owed or may owe the other party pursuant to the present contract will be solely paid in dollars, currency of the United States of America. All the obligations not subject to term or conditions in the present contract will be considered as of immediate compliance. In this latter case, the obligations will be complied with at the end of the term or the condition is met. EIGHTH: This contract will cause stamp taxes for the amount of SIXTEEN THOUSAND FIFTY NINE BALBOAS (B/16,059.00). NINTH: The notarial and registration fees that may arise from this contract will be for the account of THE COMPANY. TENTH: The present contract will be in force from the day of its promulgation. In witness whereof the present contract is signed in two (2) counterparts of the same value and effect, in the city of Panama, Republic of Panama, on the 12th day of the month of September 1997. FOR THE STATE FOR THE COMPANY /s/RAUL ARANGO GASTEAZORO /s/MANUEL VIRGILIO AIZPURUA Minister of Commerce Vice President of Legal and Industries and Governmental Matters AUTHENTICATION /s/COMPTROLLER GENERAL OF THE REPUBLIC ARTICLE SECOND: The terms of implementation and interpretation of certain clauses, conditions and regulations of the contract executed by THE STATE and CHIRIQUI LAND COMPANY, such as they were agreed upon by the parties, are approved as follows: The parties, RAUL ARANGO GASTEAZORO, Ministry of Commerce and Industries, male, Panamanian, of legal age, with personal identity card No. 8-68-519, who acts in the name and on behalf of THE STATE, duly authorized by the Council of the Cabinet, through Resolution No. 4 of January 16, 1998 hereinafter known as THE STATE, as party of the first part, and for the other part, MANUEL VIRGILIO AIZPURUA VELASQUEZ, male, Panamanian, of legal age, with personal identity card No. 8-94-712, practicing attorney, domiciled in this city, acting in the name and in representation of the company named CHIRIQUI LAND COMPANY, a corporation organized pursuant to the laws of the State of Delaware, United States of America, duly registered in the Public Registry, at volume 39, folio 466, registration 5345, the registration up-to-date under index card No. 018725, roll 000876, image 0075, and duly authorized, pursuant to a power of attorney granted in Cincinnati, Ohio on the thirteen (13) day of March nineteen ninety seven (1997) by the Executive Vice President of said company, hereinafter called THE COMPANY, agreed on the following terms of implementation and interpretation of some of the clauses, conditions and regulations of the Contracts entered into among them: FIRST. ON THE IMPLEMENTATION OF THE CONTRACTS IN SOME ASPECTS IN MATTERS OF LANDS. For all legal purposes the parties agree that the clauses related to certain aspects of lands contained in the Contracts of Operations, must be understood and applied as follows: 1. THE LANDS OF THE AREA KNOWN AS COCHICA IN THE DISTRICT OF BARU, FARM 32056, ROLL 13293, DOCUMENT 5, REGISTRATION 1: On this topic it was agreed that THE COMPANY will release, at the beginning of the term of the new contracts, the most part of said lands, excluding the parts where THE COMPANY has cultivations that have been defined between the latter and MIDA (areas of experimentation and dumping). Furthermore, a piece of land of 50 meters will be established and recognized along the area described as security; acknowledging within this land only rights of use of the parcels of lands which, at December of 1997, were occupied by squatters listed that will be submitted to MIDA. In addition, THE COMPANY will remove the cables and installations of an area known as Los Cables , which has been determined in blueprints prepared by MIDA and THE COMPANY. MIDA and THE COMPANY will enter into an agreement to that respect, in which the easements that it may need for its operations will be respected and the occupants at December of 1997 will be listed. 2. THE BUILDINGS ON THE EASEMENT LESS THAN 10 METERS OF THE RAILROAD LINE: It has been agreed that THE COMPANY will not object to the respective buildings that may exist already built within this easement at December 1997. It is understood that, in the case of railroad disasters, THE COMPANY will not assume any responsibility. Within the months following the date in which the new contracts are totally and definitively approved and are in force, MIDA, the respective municipalities and THE COMPANY will establish the list of building and their owners that are within the definition in this point (easement of 10 meters). The occupants will be responsible for damages caused by them or their dependents to installations that are within this easement, such as electrical wiring, water pipes, fresh water, fuel and others, since THE COMPANY will not assume responsibility at all for any damages caused. 3. THE HOUSES SOLD BY THE COMPANY WITHIN THE EASEMENT OF 10 METERS, WITHIN THE MUNICIPALITY COMMON LANDS AND IN OTHER AREAS LEASED BY THE STATE TO THE COMPANY: It has been agreed that at the time these contracts become effective, THE COMPANY will release the areas where the respective buildings are located, referred to in this point, in favor of the corresponding entity who owns the same, whether it is the municipality of Baru, the municipality of Changuinola, MIDA or the Nation. In the adjudication of those lands, the state agencies will respect the easements necessary for the operation of THE COMPANY. These agencies will determine, independently of THE COMPANY and through the corresponding legal mechanisms, the respective value of the pieces of land to be adjudicated to these persons. 4. LANDS UNDER LEASE ON WHICH INSTALLATIONS, CULTIVATIONS AND ASSETS OF THE COMPANY ARE LOCATED AT A LATER DATE THE CONTRACTS OF 1976 WERE TRANSFERRED BY PUBLIC DEED TO THE RESPECTIVE MUNICIPALITIES OF BARU AND CHANGUINOLA, AS MUNICIPAL COMMON LANDS: With respect to this topic, the same municipalities and THE COMPANY will enter into the corresponding agreement under the parameters established in Clause Sixteenth of the Contract of Operations presently submitted to the consideration of the Honorable Legislative Assembly. 5. CULTIVATIONS IN THE ZONE OF MALAGUETO AND CEIBA, FARM 32055, ROLL 13293, DOCUMENT 4, REGISTRATION 1: With respect to the lands occupied by the banana producers in the area of Malagueto and Ceiba, which are located within the areas leased by THE STATE to THE COMPANY, the Ministry of Agricultural Development and THE COMPANY agree as follows: I. THE COMPANY will release in favor of MIDA, a portion of said lands planted with bananas the general boundaries of which are the following: NORTH: a line that will run parallel, twenty meters to the south of the second irrigation pipe (the one most to the south), that goes across the area: SOUTH: the channel of black waters that runs from West to East and goes to the Colorado canal; EAST: The Colorado Canal and WEST: Ceiba farm. The MIDA and THE COMPANY will measure this area and will demark it with exactitude by permanent points of reference on the field. THE COMPANY will have the right, within the area, to release ports, to establish drain channels towards the channel of black waters in order to prevent the deposit of black waters, irrigation, rain, etc., along the distinct works of infrastructure there existing, such as Malagueto dump, the stationing of containers and other quadrants. These tracts or drainage channels shall be defined by agreement between THE COMPANY and the technicians of MIDA with the participation of SITRACHILCO- Puerto Armuelles, trying to minimize the damage to the banana fields. Furthermore, THE COMPANY will keep access to the channel of black waters to the Colorado Canal and to the other works of infrastructure owned by it, in order to give adequate maintenance, including digging in the case of channels, for which the corresponding wall zone will be designated in agreement with MIDA and SITRACHILCO-Puerto Armuelles. It will also include areas around the diesel tanks for reasons of security (contention pool) and other areas such as the present location of containers and the area of shops. II. Within the area that THE COMPANY will keep, the latter will continue to permit the persons that presently occupy them with banana cultivations, only in the following areas and conditions: A. AREAS: 1. Within an extension of five meters wide that will run from East to West parallel and adjacent to the North boundary of the area to be released. 2. A piece of land of approximately of 2.5 hectares located between the house or warehouse of maintenance of tracts up to Ceiba Farm. 3. 2. A piece of land of approximately one hectare located across the dump of Malagueto next to the irrigation pumps 4- 05 and 4-20. B. CONDITIONS 1. The areas described will be measured and marked with road marks or another similar method by MIDA, in such a manner that the limits of the lands of THE COMPANY will be clearly marked, where cultivation will be permitted and the name of the farmers that are located therein, with the understanding that their rights of use will not be transferable to third parties. 2. THE COMPANY will have free and expedite access to such areas in order to give maintenance to the infrastructure works located therein, which access will be along said areas. In the event that, in the functions of maintenance, THE COMPANY causes damages to the banana plantations, they will not be subject to indemnification. In order to minimize said potential damages, THE COMPANY will give notice to the farmers affected, except in the case of urgency. In case the farmer cannot be located, the notice can be delivered at the respective City Hall. 3. In the event THE COMPANY should decide to occupy totally or partially the areas described in which the cultivation of bananas will be permitted, the latter will be obligated to indemnify the farmers authorized in the sum that will be determined through evaluation carried out by THE COMPANY, MIDA and SITRACHILCO-Puerto Armuelles in the understanding that it will not pay the farmers, as indemnification, a sum superior to the cost of production of bananas at that moment. III. With the exception of the indicated areas in Point II above, the rest of the area that THE COMPANY will keep as leased, will be left free from the part that is cultivated. For such purposes, said agricultural workers will have a term in order to collect their crops which will conclude January 31, 1999. THE COMPANY will have the same term in order to release the lands indicated in Point I above. Notwithstanding the above, in the event that the areas that THE COMPANY will keep, the cultivations cease and the release thereof occurs before January 31, 1999, THE COMPANY will release, in favor of MIDA, a proportion equivalent to the lands not occupied. 6. LEASE OF LANDS. THE STATE and THE COMPANY agree that the matter connected with the use of the farms described in clause twenty second of the contract of operations, will be ruled under the concept of leased lands. SECOND. On the application of the contract in matter of easement. In this aspect, clause eighth of the Contract of Operations contained in this Law, the parties agree will be applied as follows: 1. PUBLIC EASEMENTS In addition to the public easements described in the Contract of Operations of Bocas del Toro, THE COMPANY will continue permitting the free and continuous transit of persons on the secondary roads and roads of cable ways within the plantations of Bocas del Toro, on the date the contracts becoming in force, are utilized by persons that live or have cultivations in the limits of the plantations. THE COMPANY will adopt the necessary controls to avoid damages to the plantations, properties, equipment and any other asset of the company, that would not interfere in the normal development of the banana activity. 2. ROADS: 1. At the entrance of Malagueto and Palmito the control will be carried out through gates with security guards, so as to verify the transit of vehicles. This refers to the road that starts in Malagueto passing through Ceiba, Corredor, Blanco, Zapatero-Higueron, Caoba09, to finish in Palmito Signs will be placed that will indicate the dimensions, weight and speed of the vehicles the passage of which is permitted in the places where they are necessary. II. The roads that will be used by private and collective transportation of passengers within the farms are described, with the type of units that are presently used thereon, in the same conditions on this date circulate: a) Coming in by Palo Blanco Farm, Section 35, up to the central road (going through the railroad line) Section 26 of Nispero Farm. The control will be through clamps. b) Central corridor, La Kuzuca de Corredor (Section 25) from here to Section 5 all of Higuito Farm, passing in front of the Majagua Packing Plant up to section 8 of Majagua Farm. c) From Section 22 of the Mango Farm to the Jocote Packing Plant. III. On the following roads: a) From Section 25 to 6 and 4 of Palo Blanco Farm will be maintained the same. b) From Section 23 (Guayacan Farm) to the end of the Nispero Project the clamp will be moved to install it at this point. In this stretch a transit for collective transportation of passengers could be accessible up to the measure (height) of the limitations found on the road. c) From Section 32 of Farm Malagueto up to Section 14 of Jocote Farm, in this span the transit of collective transportation of passengers will be accessible up to the measure (height) of the limitation found on the road. IV. Zapatero-Burica road , the present clamp will be maintained and a movable arm will be added to the present clamp. V. The clamps that remain will be adjusted in height to that of Malagueto. VI. Use of Paths and Roads. The use of paths and roads of THE COMPANY will be made without causing damages to the properties, fruit trees and assets thereof. THIRD. On the application of the contracts in matters of water takes. With respect to clause seventh of the Contract of Operations contained in this Law, the parties agree that, with reference to the Almendro Aqueduct, the following will apply: ALMENDRO AQUEDUCT: With respect to this area stated as Farm No. 32042, roll 13280, document 3, registration 1, with an area of seventeen (17) hectares plus 7,512.15 M2, property section of the province of Chiriqui, will remain as a hydraulic reserve, the area of which will not be transferred, with the exception of the sector of thirteen families that bought homes from THE COMPANY. In this farm, THE COMPANY will have a water easement, that is regulated by INRENARE. FOURTH. On the application of the contract in matters of environmental and phitosanitary protection. For all legal effects, the parties agree that in matters of environmental and phitosanitary protection THE COMPANY, the same as all of farmers of the country, will be ruled, in this aspect, by the laws and regulations that govern this mater. FIFTH. Interpretation of some clauses, conditions, terms and regulations in the text of the Contracts of Operations entered into between THE STATE and THE COMPANY, for the divisions of Puerto Armuelles and Bocas del Toro. On these aspects the parties agree the following: With the purpose of attending to the exposition presented on labor matters by the Labor Unions of THE COMPANY, Divisions of Puerto Armuelles and Bocas del Toro, on the 25 of November of 1997 and January 7, 1998, respectively, in connection with Contracts of Operations entered into between THE STATE and THE COMPANY for the Divisions of Puerto Armuelles and Bocas del Toro, representatives of the Negotiating Commission met with representatives of each one of said social organizations and, as a consequence thereof, the parties have agreed in connection with these contract to be understood as follows: None of the clauses of these contracts affect the labor relations existing between THE COMPANY and its workers, since all reference to this aspect will continue to be ruled by the labor legislation in force in the Republic of Panama and the collective contracts individual labor contracts or other labor arrangements that it may agree with its workers in accordance with said legislation, as it has been agreed upon in clause ninth of the contracts. Pursuant to the above enunciated principle, the following is stated: 1. The phrase without solution of continuity that appears in the second paragraph of clause ninth of the contracts of operations, signifies for the parties: without interruption of the individual labor contracts or the collective contracts or other labor agreements in force at the time the authorized restructuring takes place. 2. The situation of the workers, in case of waiver or transfer of the concession for the use of the wharf referred to in clause third of the contracts or the railroad concession referred to in clause fourth therein, will be ruled by the labor legislation in force in the Republic of Panama. The same criteria will apply to the case of transfer of other concessions agreed in those contracts, like electric energy and water in the sense that the labor aspects will be ruled by the provision of the labor legislation in force in the Republic of Panama. 3. The events of force majeure and fortuitous circumstance as referred to in clauses eighteenth and nineteenth of the contract of operations are applicable only and specifically between the parties of the contracts, that is, THE STATE and THE COMPANY. 4. With respect to the future labor relations between THE COMPANY and its Union and the workers, if the restructuring occurs referred to in clause nineteenth of the contracts, the parties clarify that, in such case, the labor situations will be ruled by the provision of the labor legislation in force in the Republic of Panama, the individual labor contracts and the collective agreements or other labor agreements, as the case may be. 5. In connection with the contracting of foreign specialized personnel, the Ministry of Labor will adopt the internal necessary measures in order to obtain the corresponding work permit in an expedite manner without affecting the percentages established by articles 17 and 18 of the Labor Code. SIXTH. On the validity and efficacy of the agreements that are incorporated to the original text by the contracting parties. It is understood that the agreements established in the previous articles will be subject, with respect to its validity and efficacy, to the contracts between THE COMPANY and THE STATE becoming in force contained in Bill No. 53. In witness whereof, the present Agreement is entered into in two (2) counterparts of the same value and effect, in the city of Panama, Republic of Panama, on the 16th day of the month of January 1998. FOR THE STATE FOR THE COMPANY /s/RAUL ARANGO GASTEAZORO /s/ MANUEL VIRGILIO AIZPURUA Minister of Commerce and Vice President Industries of Legal and Governmental Matters AUTHENTICATION /s/GENERAL COMPTROLLER OF THE REPUBLIC ARTICLE THIRD: In order to strengthen the production, marketing and industrialization of bananas, the benefits to which THE COMPANY has the right pursuant to the contracts of operations approved by this Law, with the exception of the public concessions such as ports, railroads, fresh water, electric energy, may be extensive and acknowledged to other natural or juridical persons without the execution of contracts, provided always, that the interested party maintains or undertakes investments in the country, and the same are destined or dedicated to the objectives that this provision contains. For such effects, the Ministry of Commerce and Industries, prior consultation with the National Banana Commission, will take into consideration the magnitude of such investments as well as any other technical or economic parameter contemplated in legal provisions in force, that regulate these activities, or that are intrinsic to the nature of production, marketing of fresh Panamanian bananas for export or industrialization, such as aptitude and feasibility of lands, economic feasibility of the project, number of direct jobs created by the plantation, for the reasonability and proportionality of the obligations and commitments that the interested parties must assume and the maintenance in time, as well as the correlative benefits, to which it may have the right to. The Executive Branch will regulate this provision. ARTICLE FOURTH: This Law will be in force beginning on the promulgation thereof. BE IT PUBLISHED AND COMPLIED WITH. Approved in third debate, at the Justo Arosemena Palace, city of Panama, on the 22nd day of the month of January nineteen ninety eight. Approved in third debate, at the Justo Arosemena Palace, city of Panama, on the 22nd day of the month of January nineteen ninety eight. /s/GERARDO GONZALEZ VERNAZA /s/JOSE DIDIMO ESCOBAR President General Secretary (a.i.) NATIONAL EXECUTIVE BRANCH- PRESIDENCY OF THE REPUBLIC PANAMA, REPUBLIC OF PANAMA, JANUARY 12, 1998 /s/ERNESTO PEREZ BALLADARES /s/RAUL ARANGO GASTEAZORO President of the Republic Ministry of Commerce and Industries ANNEX A TO THE CONTRACT OF OPERATIONS BETWEEN THE STATE AND CHIRIQUI LAND COMPANY FOR THE DIVISION OF PUERTO ARMUELLES. PROCEDURE FOR THE APPLICATION OF CLAUSE THIRTEENTH OF THE CONTRACT OF OPERATIONS ENTERED INTO BETWEEN THE STATE AND CHIRIQUI LAND COMPANY FOR THE DIVISION OF BOCAS DEL TORO. FIRST: For the purposes of acknowledgment of the exemption of taxes for the transfer of personal property (I.T.B.M.) and the tributes, taxes and other encumbrances related to the import as a consequence thereof, THE COMPANY will present to the Income Tax Direction General a list of not more than fifty (50) suppliers which will contain the following information: a) name or corporate name of the supplier, b) R.U.C. number of the supplier, and any other data for the pertinent identification, c) document subscribed by the supplier or the legal representative thereof indicating acknowledgment of the present Annex and the contract entered into between THE STATE and THE COMPANY and that it obligates itself to comply with all the obligations that result therefrom, plus the fiscal corresponding duties and obligations. This list may be amended, (added to or reduced) by THE COMPANY from time to time, in accordance with the necessities of supply, provided it does not exceed fifty (50) suppliers. SECOND: THE COMPANY will establish special number or code for each one of the suppliers that will be of the exclusive use and confidential of THE COMPANY and of the Income Direction General for the control of the orders or local acquisitions, the purpose of which is the corresponding verification in the cross of information. THIRD: On each operation, THE COMPANY will issue to the supplier the respective requisition or request of the goods or services that it wishes to acquire. FOURTH: THE COMPANY will prepare and present monthly to the Income Direction General in the city of Panama, a report of purchases and local acquisition of goods or services including, at least, the following data: 1) corporate name of the supplier, 2) R.U.C. of the supplier, 3) amount of the requisition issued to each supplier, 4) amount of the requisitions handled and accepted by the supplier, 5) amount of each one of the acquisitions perfected, 6) amount of each exempted tribute regarding the transactions undertaken. FIFTH: THE COMPANY and the suppliers will keep in their files copy of this report and of the transactions carried out under the procedure established in this Annex. SIXTH: THE COMPANY and the suppliers will keep separate registries of the acquisitions and sale of goods and services carried out pursuant to this procedure for purposes of permitting the corresponding fiscalization. SEVENTH: The suppliers duly accredited shall, at the moment of issuing the corresponding bill of sale, leave evidence of said document, in addition to the requirements established in the pertinent provisions of the Fiscal Code, the amount of each tribute, tax or other encumbrances related to the importation or as a consequence thereof, and if that was the case, the respective customs document. EIGHTH: The suppliers will apply the corresponding credit arising from the transfer of goods and services to THE COMPANY pursuant to the legal norms in force on the application of credits under this taxing concept. NINTH: With respect to the credits arising from the exemption of the tributes, taxes and other encumbrances related to the importation, or as consequence thereof, the suppliers must request from the Income Direction General their acknowledgment so that, once is approved, will be use in future imports. This request must be resolved by the Income Direction General within a period of one (1) month counted from the date of its presentation. TENTH: The suppliers will keep in their files, at the disposal of the Income Direction General, all the registration and documentation related to these exempted operations, in separate forms and duly supported by the requisitions or requests for the purchase of goods and services exempted and copy of the corresponding bill of sale. ELEVENTH: The Income General Direction may, at any moment, cross the information that THE COMPANY may supply with the information maintained by the suppliers and with any other pertinent information, in order to facilitate the functions of the corresponding fiscalization. TWELFTH: In the event of default in the duties and corresponding fiscal obligations, the legal provisions in force on the matter at the time may be applied. THIRTEENTH: The contracts of THE COMPANY may make use of this procedure when they are undertaking works or providing services in benefit of the latter. For these effects, THE COMPANY will present information to the Income Direction General on who are the contractors, the date of identification and R.U.C. corresponding thereto, the type of works to undertake or services to be rendered and the estimated duration of the same. These contractors will acknowledge, in document duly executed by them, or their legal representative, the Contract of Operations between THE STATE and THE COMPANY and of the present Annex, obligating itself to assume the same responsibilities and obligations assumed by THE COMPANY. These contractors will only be able to provide goods and services exempted, from the suppliers included in the list referred to in article first of the present Annex. FOURTEENTH: This Annex could be modified from time to time by a mutual agreement between the Income Direction General and THE COMPANY in order to facilitate the transactions exempted and, principally, to adequate it to any mechanism of control that may require to be updated. Signed:/s/Mr. RAUL ARANGO GASTEAZORO ------------------------------ FOR THE STATE Signed:/s/MANUEL VIRGILIO AIZPURUA VELASQUEZ ------------------------------------- FOR THE COMPANY ANNEX B TO THE CONTRACT OF OPERATIONS BETWEEN THE STATE AND CHIRIQUI LAND COMPANY FOR THE DIVISION OF PUERTO ARMUELLES. The price of the growing crops referred to in Clause Twenty First of this contract will be determined according to accounting norms applied by CHIQUITA BRANDS INTERNATIONAL, INC. , home office, at the execution of this contract, for the determination of the value of the inventory of the growing crop. In synthesis, that value is equal to 60% of all the costs imputable to the growing crops during twelve (12) months, without including the investments in plantings nor the costs of the operation of harvest and of subsequent phases thereof. The costs of twelve (12) months are used to eliminate the effect of the seasonable variations and they are multiplied by 0.6 (60%) to consider the average duration (7.2 months) of the stem to grow and be harvested (7.2 divided between 12 equal 0.6 percent). The costs imputable to the growing harvest, according to the accounting norms before mentioned, include, according to the terminology employed by THE COMPANY: a) Variable acre, b) Administration of farms, c) Depreciation of farms, d) a portion of the fixed costs, and e) the portion of the loss of property. The portions of the fixed costs and the loss of property are determined on the basis of the proportion of salaries of variable acre with respect to the total of salaries of variable acre and variable volume paid by THE COMPANY. In summary, to determine the value of the growing crop, the following percentages will be taken into account of the respective costs: CONCEPT PERCENTAGE OF COST Variable Acre 100 CONCEPT PERCENTAGE OF COST Cost of administration of the farms 100 Cost of depreciation of farms 100 Cost of packing operations 0 Cost of deprecation of packing plants 0 Cost of quality control 0 All the other fixed costs m Property Losses m where m = Salaries per variable acre x100 Salaries per variable acre + Salaries and variable volume The sum of the costs thus obtained in the period of twelve (12) months is the total cost imputable to the growing crop that is multiplied by 0.60 gives a result of the value of the growing crop at a given date. Signed:/s/Mr. RAUL ARANGO GASTEAZORO ------------------------------ FOR THE STATE Signed:/s/MANUEL VIRGILIO AIZPURUA VELASQUEZ ------------------------------------- FOR THE COMPANY [Attached to the signed documents are 13 maps illustrating the easements of the farms discussed in this Annex B for the Division of Puerto Armuelles.] ANNEX A TO THE CONTRACT OF OPERATIONS BETWEEN THE STATE AND CHIRIQUI LAND COMPANY FOR THE DIVISION OF BOCAS DEL TORO. PROCEDURE FOR THE APPLICATION OF CLAUSE THIRTEENTH OF THE CONTRACT OF OPERATIONS ENTERED INTO BETWEEN THE STATE AND CHIRIQUI LAND COMPANY FOR THE DIVISION OF BOCAS DEL TORO. FIRST: For the purposes of acknowledgment of the exemption of taxes for the transfer of personal property (I.T.B.M.) and the tributes, taxes and other encumbrances related to the import as a consequence thereof, THE COMPANY will present to the Income Tax Direction General a list of not more than fifty (50) suppliers which will contain the following information: a) name or corporate name of the supplier, b) R.U.C. number of the supplier, and any other data for the pertinent identification, c) document subscribed by the supplier or the legal representative thereof indicating acknowledgment of the present Annex and the contract entered into between THE STATE and THE COMPANY and that it obligates itself to comply with all the obligations that result therefrom, plus the fiscal corresponding duties and obligations. This list may be amended, (added to or reduced) by THE COMPANY from time to time, in accordance with the necessities of supply, provided it does not exceed fifty (50) suppliers. SECOND: THE COMPANY will establish special number or code for each one of the suppliers that will be of the exclusive use and confidential of THE COMPANY and of the Income Direction General for the control of the orders or local acquisitions, the purpose of which is the corresponding verification in the cross of information. THIRD: On each operation, THE COMPANY will issue to the supplier the respective requisition or request of the goods or services that it wishes to acquire. FOURTH: THE COMPANY will prepare and present monthly to the Income Direction General in the city of Panama, a report of purchases and local acquisition of goods or services including, at least, the following data: 1) corporate name of the supplier, 2) R.U.C. of the supplier, 3) amount of the requisition issued to each supplier, 4) amount of the requisitions handled and accepted by the supplier, 5) amount of each one of the acquisitions perfected, 6) amount of each exempted tribute regarding the transactions undertaken. FIFTH: THE COMPANY and the suppliers will keep in their files copy of this report and of the transactions carried out under the procedure established in this Annex. SIXTH: THE COMPANY and the suppliers will keep separate registries of the acquisitions and sale of goods and services carried out pursuant to this procedure for purposes of permitting the corresponding fiscalization. SEVENTH: The suppliers duly accredited shall, at the moment of issuing the corresponding bill of sale, leave evidence of said document, in addition to the requirements established in the pertinent provisions of the Fiscal Code, the amount of each tribute, tax or other encumbrances related to the importation or as a consequence thereof, and if that was the case, the respective customs document. EIGHTH: The suppliers will apply the corresponding credit arising from the transfer of goods and services to THE COMPANY pursuant to the legal norms in force on the application of credits under this taxing concept. NINTH: With respect to the credits arising from the exemption of the tributes, taxes and other encumbrances related to the importation, or as consequence thereof, the suppliers must request from the Income Direction General their acknowledgment so that, once is approved, will be use in future imports. This request must be resolved by the Income Direction General within a period of one (1) month counted from the date of its presentation. TENTH: The suppliers will keep in their files, at the disposal of the Income Direction General, all the registration and documentation related to these exempted operations, in separate forms and duly supported by the requisitions or requests for the purchase of goods and services exempted and copy of the corresponding bill of sale. ELEVENTH: The Income General Direction may, at any moment, cross the information that THE COMPANY may supply with the information maintained by the suppliers and with any other pertinent information, in order to facilitate the functions of the corresponding fiscalization. TWELFTH: In the event of default in the duties and corresponding fiscal obligations, the legal provisions in force on the matter at the time may be applied. THIRTEENTH: The contracts of THE COMPANY may make use of this procedure when they are undertaking works or providing services in benefit of the latter. For these effects, THE COMPANY will present information to the Income Direction General on who are the contractors, the date of identification and R.U.C. corresponding thereto, the type of works to undertake or services to be rendered and the estimated duration of the same. These contractors will acknowledge, in document duly executed by them, or their legal representative, the Contract of Operations between THE STATE and THE COMPANY and of the present Annex, obligating itself to assume the same responsibilities and obligations assumed by THE COMPANY. These contractors will only be able to provide goods and services exempted, from the suppliers included in the list referred to in article first of the present Annex. FOURTEENTH: This Annex could be modified from time to time by a mutual agreement between the Income Direction General and THE COMPANY in order to facilitate the transactions exempted and, principally, to adequate it to any mechanism of control that may require to be updated. Signed:/s/Mr. RAUL ARANGO GASTEAZORO ------------------------------ FOR THE STATE Signed:/s/MANUEL VIRGILIO AIZPURUA VELASQUEZ ------------------------------------- FOR THE COMPANY ANNEX B TO THE CONTRACT OF OPERATIONS BETWEEN THE STATE AND CHIRIQUI LAND COMPANY FOR THE DIVISION OF BOCAS DEL TORO. The price of the growing crops referred to in Clause Twenty First of this contract will be determined according to accounting norms applied by CHIQUITA BRANDS INTERNATIONAL, INC. , home office, at the execution of this contract, for the determination of the value of the inventory of the growing crop. In synthesis, that value is equal to 60% of all the costs imputable to the growing crops during twelve (12) months, without including the investments in plantings nor the costs of the operation of harvest and of subsequent phases thereof. The costs of twelve (12) months are used to eliminate the effect of the seasonable variations and they are multiplied by 0.6 (60%) to consider the average duration (7.2 months) of the stem to grow and be harvested (7.2 divided between 12 equal 0.6 percent). The costs imputable to the growing harvest, according to the accounting norms before mentioned, include, according to the terminology employed by THE COMPANY: a) Variable acre, b) Administration of farms, c) Depreciation of farms, d) a portion of the fixed costs, and e) the portion of the loss of property. The portions of the fixed costs and the loss of property are determined on the basis of the proportion of salaries of variable acre with respect to the total of salaries of variable acre and variable volume paid by THE COMPANY. In summary, to determine the value of the growing crop, the following percentages will be taken into account of the respective costs: CONCEPT PERCENTAGE OF COST Variable Acre 100 CONCEPT PERCENTAGE OF COST Cost of administration of the farms 100 Cost of depreciation of farms 100 Cost of packing operations 0 Cost of deprecation of packing plants 0 Cost of quality control 0 All the other fixed costs m Property Losses m where m = Salaries per variable acre x 100 Salaries per variable acre + Salaries and variable volume The sum of the costs thus obtained in the period of twelve (12) months is the total cost imputable to the growing crop that is multiplied by 0.60 gives a result of the value of the growing crop at a given date. Signed:/s/Mr. RAUL ARANGO GASTEAZORO ------------------------------ FOR THE STATE Signed:/s/MANUEL VIRGILIO AIZPURUA VELASQUEZ ------------------------------------- FOR THE COMPANY [Attached to the signed documents are 10 maps illustrating the easements of the farms discussed in this Annex B for the Division of Bocas Del Toro.] EX-10.B 9 EXHIBIT 10-C EXECUTION COPY AMENDMENT NO. 1 TO CREDIT AGREEMENT AMENDMENT NO. 1, dated as of December 8, 1997, to the Credit Agreement, dated as of December 31, 1996 (the "Credit Agreement"), among (i) CHIQUITA BRANDS INTERNATIONAL, INC., a New Jersey corporation ("Borrower"), (ii) the financial institutions which are now, or in accordance with Section 12.2 of the Credit Agreement hereafter become, parties to the Credit Agreement (collectively, "Lenders"), (iii) BANKBOSTON, N.A. (formerly named "The First National Bank of Boston"), as Administrative Agent for the Lenders, and (iv) BANKBOSTON, N.A., ING BANK N.V., GRONINGEN BRANCH, and PNC BANK, OHIO, NATIONAL ASSOCIATION, as Co-agents for the Lenders. RECITALS The Borrower, the Lenders and the Agents party to this Amendment No. 1 ("this Agreement") have agreed to amend certain of the provisions contained in the Credit Agreement as set forth herein. Accordingly, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. Definitions. Unless otherwise defined herein, terms defined in the Credit Agreement are used herein as therein defined. ARTICLE II AMENDMENTS Effective on and as of September 30, 1997 ("Effective Date"), the Credit Agreement is hereby amended in each of the following respects: SECTION 2.1. Amendments to Defined Terms. (a) The defined term "Consolidated EBITDA" appearing in Section 1.1 of the Credit Agreement is hereby amended by inserting the following new paragraph immediately after the first paragraph of the defined term "Consolidated EBITDA": "For purposes of determining the Consolidated EBITDA of the Borrower and its Subsidiaries for any Reference Period, (i) there shall be excluded from such Consolidated EBITDA the sum of (A) all operating income for such period, (B) all depreciation and amortization expense for such period, and (C) "Other Income (Expense), net" as shown on the consolidated statement of income of the Borrower and its Subsidiaries for such period, but only to the extent, in the case of each of subclause (A), (B) and (C), attributable to all Property that is the subject of each Sale completed during such period by the Borrower or its Subsidiaries other than in the ordinary course of business as if no Property subject to any of such Sales was owned at any time during such period by the Borrower or its Subsidiaries, and (ii) there shall be included in such Consolidated EBITDA the sum of (A) all operating income for such period, (B) all depreciation and amortization expense for such period, and (C) "Other Income (Expense), net" as shown on the consolidated statement of income of the Borrower and its Subsidiaries for such period, but only to the extent, in the case of each of subclause (A), (B) and (C), attributable to all Property that is the subject of each Acquisition completed during such period by the Borrower or its Subsidiaries other than in the ordinary course of business as if all Property subject to any of such Acquisitions was owned by the Borrower or its Subsidiaries at all times during such period." (b) The defined term "Consolidated Net Interest Expense" appearing in Section 1.1 of the Credit Agreement is hereby amended by inserting the following new paragraph immediately after the first paragraph of the defined term "Consolidated Net Interest Expense": "For purposes of determining the Consolidated Net Interest Expense of the Borrower and its Subsidiaries for any Reference Period, (i) there shall be excluded from such Consolidated Net Interest Expense the aggregate of the interest expense for such period on all of the Indebtedness for Borrowed Money of the Borrower or its Subsidiaries repaid in connection with the completion of each Sale of Property by the Borrower or its Subsidiaries during such period other than in the ordinary course of business, (ii) there shall be included in such Consolidated Net Interest Expense the aggregate of the interest expense on all of the Indebtedness for Borrowed Money of the Borrower or its Subsidiaries incurred in connection with the completion of each Acquisition by the Borrower or its Subsidiaries during such period (A) as if all of the Indebtedness for Borrowed Money so incurred in connection with each such Acquisition had (in each case) been incurred on the first day of such period, and (B) as if interest had accrued on such Indebtedness for Borrowed Money during such period prior to the date of the actual incurrence thereof at an annual interest rate equal to the annual interest rate payable on such Indebtedness for Borrowed Money on the date first incurred, and (C) the Consolidated Net Interest Expense of the Borrower and its Subsidiaries for such period shall also be adjusted to give pro forma effect to all changes in interest income of the Borrower and its Subsidiaries for such period directly attributable to each of the Sales or Acquisitions completed during such period." (c) The defined term "Special Covenant Conditions" appearing in Section 1.1 of the Credit Agreement is hereby amended by amending and restating in its entirety clause (d) of such defined term as follows: "(d) no breach of the financial covenant set forth in Section 9.2.3(b) would have occurred as at the end of the Reference Period ending immediately prior to the date of completion of such Restricted Transaction had such financial covenant been calculated for such Reference Period (i) as if such Restricted Transaction and all (if any) of the other Restricted Transactions completed after the end of such Reference Period but prior to completion of such Restricted Transaction had been completed immediately prior to the beginning of such Reference Period, (ii) as if all (if any) Indebtedness for Borrowed Money incurred in connection with each of such Restricted Transactions had (in each case) been incurred on the first day of such Reference Period, (iii) as if interest had accrued on such Indebtedness for Borrowed Money during such Reference Period at an annual interest rate equal to the annual interest rate payable on such Indebtedness for Borrowed Money on the date it is first incurred, and (iv) as if all (if any) Indebtedness for Borrowed Money repaid in connection with each of such Restricted Transactions had (in each case) been repaid immediately prior to the beginning of such Reference Period; and" SECTION 2.2. Amendment to Section 9.2.4. Paragraph (a) of Section 9.2.4 of the Credit Agreement is hereby amended and restated in its entirety to read as follows: "(a) the making by any Subsidiary of the Borrower (i) to the Borrower or to any other Subsidiary of the Borrower of any Restricted Payments of the kind described in clause (c) of the definition "Restricted Payments", and (ii) of any Restricted Payments of the kind described in clause (b) of the definition "Restricted Payments"; provided, however, that no such Restricted Payments of the kind described in clause (b) of the definition "Restricted Payments" shall in any event be permitted unless any such Restricted Payments on any shares of a particular class of Capital Stock of a corporation shall be made on or with respect to all of the issued and outstanding shares of such class of Capital Stock of such corporation on a pro rata basis, at the same time and on the same terms." ARTICLE III REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants to each Agent and Lender as follows: SECTION 3.1. Representations in Loan Documents. Each of the representations and warranties made by or on behalf of the Borrower to the Agents and the Lenders in the Loan Documents was true and correct in all material respects when made and is true and correct in all material respects on and as of the date hereof, except, in each case, (a) as affected by the consummation of the transactions contemplated by the Loan Documents (including this Agreement), and (b) to the extent that any such representation or warranty relates by its express terms solely to a prior date. SECTION 3.2. Corporate Authority, etc. The execution and delivery by the Borrower of this Agreement and the performance by the Borrower of its agreements and obligations under this Agreement have been duly and properly authorized by all necessary corporate or other action on the part of the Borrower, and do not and will not conflict with, result in any violation of, or constitute any default under (a) any provision of any Governing Document of the Borrower, (b) any Contractual Obligation of the Borrower, or (c) any Applicable Law. SECTION 3.3. Validity, etc. This Agreement has been duly executed and delivered by the Borrower and constitutes the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, reorganization, insolvency, moratorium or other similar laws at the time in effect affecting the enforceability of the rights of creditors generally and to general equitable principles. The Borrower hereby ratifies and confirms all of the Obligations in all respects. SECTION 3.4. No Defaults. Before and after giving effect to this Agreement, no Defaults or Events of Default are or will be continuing under the Credit Agreement. ARTICLE IV PROVISIONS OF GENERAL APPLICATION This Agreement shall become effective on and as of the Effective Date once the Administrative Agent has received duly executed counterparts hereof signed by the Borrower and the Required Lenders. Except as otherwise expressly provided by this Agreement, all of the terms, conditions and provisions of the Credit Agreement and each of the other Loan Documents shall remain unaltered. This Agreement is a Loan Document for all purposes of the Credit Agreement. This Agreement and the rights and obligations hereunder of each of the parties hereto shall in all respects be construed in accordance with and governed by the internal laws of the State of New York. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, but all of such counterparts shall together constitute but one and the same agreement. In making proof of this Agreement, it shall not be necessary to produce or account for more than one counterpart hereof signed by each of the parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be executed by their respective authorized officers as of the date first above written. THE BORROWER: CHIQUITA BRANDS INTERNATIONAL, INC. By:/s/Gerald R. Kondritzer -------------------------- Name: Gerald R. Kondritzer Title: Vice President and Treasurer THE AGENTS AND LENDERS: BANKBOSTON, N.A., as Administrative Agent, as one of the Co-agents, and as one of the Lenders By: /s/Robert F. Milordi ------------------------ Name: Robert F. Milordi Title: Managing Director ING BANK N.V., GRONINGEN BRANCH, as one of the Co-agents and as one of the Lenders By: /s/U.P. Wiersum ---------------------------- Name:U.P. Wiersum Title: PNC BANK, OHIO, NATIONAL ASSOCIATION, as one of the Co-agents and as one of the Lenders By: /s/Bruce A. Kintner ----------------------- Name: Bruce A. Kintner Title: Vice President THE SUMITOMO BANK, LIMITED, CHICAGO BRANCH, as one of the Lenders By:/s/John H. Kemper ----------------------- Name: John H. Kemper Title: Senior Vice President BANK OF AMERICA ILLINOIS, as one of the Lenders By: /s/W. Thomas Barnett ----------------------- Name: W. Thomas Barnett Title: Managing Director CHRISTIANIA BANK OG KREDITKASSE, NEW YORK BRANCH, as one of the Lenders By: /s/Martin Lunder /s/Hans Chr. Kjelsrud ------------------------------------------ Name: Martin Lunder Hans Chr. Kjelsrud Title: First Vice President First Vice President THE MITSUBISHI TRUST AND BANKING CORPORATION, as one of the Lenders By: /s/Nobuo Tominaga -------------------------------- Name:Mr. Nobuo Tominaga Title:Chief Manager STAR BANK, N.A., as one of the Lenders By: /s/Derek S. Roudebush ------------------------------- Name: Derek S. Roudebush Title: Vice President SUNTRUST BANK, N.A., as one of the Lenders By: /s/Elsa Pelaez Lopez -------------------------------- Name: Elsa Pelaez Lopez Title: Vice President -----END PRIVACY-ENHANCED MESSAGE-----