-----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, Fvh4F194SwODy16paJJzWipPIYaefr/ZH3/tjEPxVIqLdE5v2hjuTIrRXF+RsSZQ 18ynlR5dRXK2k/5IWcHcYg== 0000916002-96-000007.txt : 19960216 0000916002-96-000007.hdr.sgml : 19960216 ACCESSION NUMBER: 0000916002-96-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960214 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDWEST GRAIN PRODUCTS INC CENTRAL INDEX KEY: 0000835011 STANDARD INDUSTRIAL CLASSIFICATION: GRAIN MILL PRODUCTS [2040] IRS NUMBER: 480531200 STATE OF INCORPORATION: KS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-17196 FILM NUMBER: 96520263 BUSINESS ADDRESS: STREET 1: 1300 MAIN ST CITY: ATCHISON STATE: KS ZIP: 66002 BUSINESS PHONE: 9133671480 MAIL ADDRESS: STREET 1: 1300 MAIN STREET CITY: ATCHISON STATE: KS ZIP: 66002 10-Q 1 MIDWEST GRAIN PRODUCTS, INC. 2ND QTR 1996 10Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended December 31, 1995 - Commission File No. 0-17196 MIDWEST GRAIN PRODUCTS, INC. (Exact Name of Registrant as Specified in Its Charter) KANSAS 48-0531200 (State or Other Jurisdiction of IRS Employer Incorporation or Organization) Identification No. 1300 Main Street, Atchison, Kansas 66002 (Address of Principal Executive Offices and Zip Code) (913) 367-1480 (Registrant's Telephone Number, Including Area Code) 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 (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to the filing requirements for at least the past 90 days. [X] YES [ ] NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common stock, no par value 9,765,172 shares outstanding as of February 1, 1996. INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements Independent Accountants' Review Report............ 2 Condensed Consolidated Balance Sheets as of December 31, 1995 and June 30, 1995............. 3 Condensed Consolidated Statements of Income for the Three Months and Six Months Ended December 31, 1995 and 1994........................................ 5 Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1995 and 1994.. 6 Notes to Condensed Consolidated Financial Statements 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............... 8 PART II. OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K.................. 13 {LOGO} Independent Accountants' Review Report Baird, Kurtz & Dobson Board of Directors and Stockholders Midwest Grain Products, Inc. Atchison, Kansas 66002 We have reviewed the condensed consolidated balance sheet of MIDWEST GRAIN PRODUCTS, INC. and subsidiaries as of December 31, Certified 1995, and the related condensed consolidated statements Public of income for the three month and six month periods ended Accountants December 31, 1995 and 1994, and the related condensed consolidated statements of cash flows for the six month periods ended December 31, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of June 30, 1995, and the related consolidated statements of income, stockholders' equity, and cash flows for the year then ended (not presented herein); and, in our report dated August 4, 1995, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of June 30, 1995, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/Baird, Kurtz & Dobson BAIRD, KURTZ & DOBSON Kansas City, Missouri January 25, 1996 City Center Square, Suite 2700, 1100 Main, 816 221-6300 Kansas City, Missouri 64105 FAX 816 221-6380 With Offices in: Arkansas, Colorado, Kansas, Kentucky, Missouri, Nebraska, Oklahoma Member of Moores Rowland International -2- MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands) ASSETS December 31 June 30, 1995 1995 ----------- -------- (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 3,011 $ 460 Receivables 23,680 21,550 Notes receivable 919 Inventories 15,737 14,690 Prepaid expenses 871 560 Deferred income taxes 875 875 Income taxes receivable 1,808 2,338 ------ ------ Total Current Assets 45,982 41,392 ------ ------ PROPERTY AND EQUIPMENT, At cost 208,894 206,336 Less accumulated depreciation 78,000 71,424 ------ ------ 130,894 134,912 ------- ------- OTHER ASSETS 433 445 ------- ------- $177,309 $176,749 ======== ======== See Accompanying Note to Condensed Consolidated Financial Statements -3- MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Continued) (In Thousands) LIABILITIES AND STOCKHOLDERS' EQUITY December 31, June 30, 1995 1995 ------------ -------- (Unaudited) CURRENT LIABILITIES Accounts payable $ 10,465 $ 7,807 Accrued expenses 4,398 6,630 ---------- --------- Total Current Liabilities 14,863 14,437 ---------- --------- LONG-TERM DEBT 40,933 38,908 ---------- --------- POST-RETIREMENT BENEFITS 5,740 5,449 ---------- --------- DEFERRED INCOME TAXES 5,327 5,327 ---------- --------- STOCKHOLDERS' EQUITY Capital stock Preferred, 5% noncumulative, $10 par value; authorized 1,000 shares; issued and outstanding 437 shares 4 4 Common, no par; authorized 20,000,000 shares; issued 6,715 6,715 9,765,172 shares Additional paid-in capital 2,485 2,485 Retained earnings 101,242 103,424 -------- -------- 110,446 112,628 -------- -------- $177,309 $176,749 ======== ======== See Accompanying Note to Condensed Consolidated Financial Statements - 4 - MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994 (Unaudited) Three Months Six Months --------------- -------------- 1995 1994 1995 1994 ------ ------ ------ ------ (in thousands, except per share amounts) NET SALES $55,751 $44,488 $102,911 $90,472 COST OF SALES 52,132 37,754 100,229 76,088 -------- -------- --------- -------- GROSS PROFIT 3,619 6,734 2,682 14,384 SELLING, GENERAL AND ADMINIS- TRATIVE EXPENSES 2,377 2,897 4,840 6,326 --------- --------- --------- -------- 1,242 3,837 (2,158) 8,058 OTHER OPERATING INCOME 54 9 53 13 -------- --------- --------- -------- INCOME (LOSS) FROM OPERATIONS 1,296 3,846 (2,105) 8,071 OTHER INCOME (LOSS) Interest (797) (15) (1,492) (15) Other (180) (72) (9) 335 --------- --------- --------- -------- INCOME (LOSS) BEFORE INCOME TAXES 319 3,759 (3,606) 8,391 PROVISION (CREDIT) FOR INCOME TAXES 124 1,522 (1,424) 3,398 --------- -------- --------- ------- NET INCOME (LOSS) $ 195 $ 2,237 $ (2,182) $ 4,993 ========= ======== ========= ======== EARNINGS (LOSS) PER COMMON SHARE $.02 $.23 $(.22) $.51 ==== ==== ====== ==== See Accompanying Note to Condensed Consolidated Financial Statements - 6 - MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED DECEMBER 31, 1995 AND 1994 (Unaudited) 1995 1994 -------- --------- (in thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (2,182) $ 4,993 Items not requiring (providing) cash: Depreciation 6,677 3,527 Gain on sale of assets (30) (248) Changes in: Accounts receivable (2,130) (1,999) Inventories (1,047) (390) Prepaid expenses and other assets (299) (167) Disbursements in excess of demand deposit cash 3,553 Accounts payable 4,054 (163) Accrued expenses (720) (1,809) Income taxes payable 530 (2,001) -------- -------- Net cash provided by operating activities 4,853 5,296 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (4,093) (21,824) Purchase of short-term investments 14,531 Proceeds from sale of equipment 68 264 Payment received on note for sale of plant 919 343 -------- --------- Net cash used in investing activities (3,106) (6,686) -------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from issuance of long-term debt 6,000 Principal payments on long-term debt (3,975) Dividends paid (1,221) (2,442) -------- -------- Net cash provided by (used in) financing activities 804 (2,442) -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,551 (3,832) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 460 3,832 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,011 $ 0 ======== ========== See Accompanying Note to Condensed Consolidated Financial Statements - 6 - MIDWEST GRAIN PRODUCTS, INC. NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED DECEMBER 31, 1995 (Unaudited) NOTE 1: GENERAL In the opinion of management, the accompanying unaudited condensed financial statements contain all adjustments necessary to present fairly the Company's condensed consolidated financial position as of December 31, 1995, and the condensed consolidated results of its operations and its cash flows for the periods ended December 31, 1995 and 1994, and are of a normal recurring nature. - 7 - MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995 RESULTS OF OPERATIONS General While the Company's earnings in the second quarter of fiscal 1996 decreased compared to the same period a year ago, they represent a substantial improvement over the current year's first quarter loss. The improvement was largely the result of an intense cash management program to reduce costs and improve cash flow, including reductions in management and administrative compensation and benefits; strategies to maximize operating results; and increased sales of premium wheat starch, alcohol products and alcohol by-products. The decline in earnings compared to the prior year's second quarter was due primarily to unusually high raw material costs for grain in the face of lower selling prices for wheat gluten and low prices for fuel alcohol. Fuel alcohol prices remained flat due to increased capacities throughout the industry and lower gasoline prices. Wheat gluten prices not only failed to adjust to the rising grain costs, as is normally the case, but actually declined compared to a year ago due to significantly increased gluten imports from the European Union. Profits from their highly subsidized and protected wheat starch business have allowed European producers to dump their surpluses of gluten, a co-product, in the United States at prices below U.S. production costs. Low U.S. tariff rates on wheat gluten provide little deterrence to this practice, while high tariffs in Europe effectively prohibit non-European Union member countries from competing in the wheat gluten and wheat starch markets there. A measure that should help rectify this problem has been included in a grains agreement being negotiated between the U.S. and E.U. The agreement is expected to be fully ratified during the third quarter of fiscal 1996. It states that "If the market share of European Community origin wheat gluten exports into the Untied States increases in comparison to their average 1990-1992 market share, the European Commission and the United States government shall consult with a view to finding a mutually acceptable solution." Until the intensity of competitive conditions subside, pursuant to the grains agreement or otherwise, and wheat costs substantially decrease, the Company does not anticipate utilizing the 40% increase in gluten production capacity that was completed at its Pekin, Illinois plant in the latter part of the first quarter. As a result of the Company's recent distillery expansion in Pekin, its unit sales of alcohol products in the second quarter rose significantly above the prior year's second quarter amount. Increases occurred in unit sales of both food grade alcohol, which is sold for beverage, industrial and commercial applications, and fuel grade alcohol, which is sold as an octane additive and oxygenate commonly known as ethanol. Demand in the food grade markets remains strong. Therefore, the Company plans to continue to maximize production in this category, as market prices for fuel grade alcohol remain depressed in spite of higher grain costs. The Company's unit sales of wheat starch in the second quarter increased substantially above the prior year's second quarter. The increase resulted from - 8 - MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995 higher volumes of unmodified, modified and specialty wheat starches, which was made possible by a 70% increase in the Company's total starch production capacity. Completion of the additional capacity occurred this past July in Pekin and greatly improves the Company's ability to meet current and future increases in demand for wheat starch. While the Company expects higher raw material costs for grain and intense foreign competition to continue having a negative impact on results during much of fiscal 1996, it believes it is in an excellent position to realize significant growth with a return to more favorable market conditions and lower grain prices. Sales Net sales for the second quarter of fiscal 1996 increased by approximately $11.3 million above sales in the second quarter of fiscal 1995. The increase was principally due to a higher sales of premium wheat starch, and significant increases in sales of alcohol products and alcohol by-products, the latter consisting mainly of distillers feeds. The rise in wheat starch sales resulted from strengthened market demand and the Company's ability to meet this demand with its increased production capacity. A 56% increase in total alcohol sales resulted from strengthened demand for food grade beverage and industrial alcohol and higher sales of fuel grade alcohol. Sales of distillers feed climbed 54% compared to a year ago. These increases were partially offset by a 23% decrease in sales of wheat gluten due to intense competitive pressures from European gluten producers. Net sales for the first six months of fiscal 1996 increased by approximately $12.4 million. The vast majority of this increase occurred in the second quarter for the reasons cited above. Changes in selling prices of the Company's vital wheat gluten normally are due to fluctuations in grain costs and competition. Wheat starch prices traditionally track corn starch prices, with the exception of the Company's specialty modified starches. Fuel alcohol prices traditionally follow the movement of gasoline prices. Prices for food grade alcohol for beverage applications normally follow the movement of corn prices, while prices for food grade alcohol for industrial and commercial applications are normally consistent with prices for industrial alcohol derived from synthetic products such as petroleum. In the first and second quarters of fiscal 1996, grain costs increased to exceptionally high levels in the face of competition from foreign exporters of vital wheat gluten and a relatively flat market for fuel grade alcohol. The combination of these factors significantly restricted the ability of the Company to adjust the price of its gluten and fuel grade alcohol to compensate for the high grain costs in the first six months of fiscal 1996. - 9 - MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995 Cost of Sales The cost of sales in the second quarter of fiscal 1996 increased by approximately $14.4 million above the costs of sales in the second quarter of fiscal 1995. The principal cause was a $10.2 million increase in raw material costs for grain. Other manufacturing cost increases principally included higher operating costs associated with increased energy requirements and depreciation resulting from the Company's expanded production facilities at its Pekin, Illinois plant. These increases were partially offset by lower maintenance and repair costs, which returned to more normal levels following the completion of the expansion project in this year's first quarter. The cost of sales for the first six months of fiscal 1996 increased by approximately $24 million over cost of sales for the first six months of fiscal 1995. This was due largely to an increase of approximately $20.8 million in raw material costs. Other factors included the increased operating costs as experienced in the second quarter partially offset by decreased repair and maintenance costs. Selling, General and Administrative Expenses Selling, general and administrative expenses in the second quarter of fiscal 1996 were down approximately $520,000 compared to the same period the prior year. This principally was due to a decrease of almost $457,000 resulting from reductions in compensation, and accruals for the Company's management and employee incentive programs. These and other reductions helped to more than offset increases which were incurred in a minor segment of the expense categories. Selling, general and administrative expenses for the first six months of fiscal 1996 decreased by approximately $1.5 million, largely as the result of compensation and benefit reductions. Other Expense Interest expense increased substantially as the capital expansion at the Pekin plant came on line during the second half of fiscal 1995. Prior to that time, the interest incurred was primarily capitalized as a part of that expansion. The consolidated effective income tax rate is consistent for all periods. The general effects of inflation were minimal. Net Income As the result of the foregoing factors, the Company experienced net income of $195,000 in the second quarter of fiscal 1996 compared to net income of $2,237,000 in the second quarter of fiscal 1995. A first quarter net loss of $2,377,000 more than offset the first quarter income, resulting in a net loss of $2,182,000 for the first six months of fiscal 1996. For the first six months of fiscal 1995, the Company had net income of $4,993,000. - 10 - MIDWEST GRAIN PRODUCTS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) THREE MONTHS AND SIX MONTHS ENDED DECEMBER 31, 1995 LIQUIDITY AND CAPITAL RESOURCES The following table is presented as a measure of the Company's liquidity and financial condition: December 31, June 30, 1995 1995 ----------- -------- (in thousands) Cash and cash equivalents $ 3,011 $ 460 Note payable and long-term debt 40,933 38,908 Working capital 31,119 26,955 The cost management program implemented by the Company at the end of the first quarter bore fruit during the second quarter, resulting in a positive cash flow. Cash provided by operations and increased borrowings on long-term debt improved working capital. Increased inventory requirements caused by a high level of fuel grade alcohol to be sold over the remaining winter months and the escalation of grain costs continued to impact cash flow. Due to the current downturn in operations and cash flow needs, dividends for the first and second quarters were suspended. At December 31, 1995, the Company has only $1.2 million to spend on capital improvement projects, primarily relating to improvements and replacements of existing equipment. The Company had approximately $18.6 million available under existing lines of credit at December 31, 1995. Management believes the available lines of credit, combined with existing working capital and working capital to be generated from future operations, will allow the Company to complete its capital improvement projects and meet its expanded working capital needs. -11- PART II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 4(a) Copy of Consent and Waiver Agreement between Principal Mutual Life Insurance Company and the Company dated as of January 20, 1996. 4(b) Copy of Consent and Waiver Agreement between Commerce Bank of Kansas City, N.A., and the company dated as of February 2, 1996. 11(a) Copy of Midwest Grain Products, Inc. Stock Incentive Plan of 1996. 11(b) Copy of Midwest Grain Products, Inc. 1996 Stock Option Plan for Outside Directors. (15) Letter from independent public accountants pursuant to paragraph (d) of Rule 10-01 of Regulation S-X (incorporated by reference to Independent Accountants' Review Report at page 2 hereof). (20) Report to Stockholders for the six months ended December 31, 1995 (without financial statements). (27) Financial Data Schedule for the six months ended December 31, 1995. (b) Reports on Form 8-K The Company has filed no reports on Form 8-K during the quarter ended December 31, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MIDWEST GRAIN PRODUCTS, INC. February 14, 1996 S/Ladd M. Seaberg _______________________________________ By____________________________ Date Ladd M. Seaberg President and Chief Executive Officer February 14, 1996 s/Robert G. Booe _______________________________________ By_____________________________ Date Robert G. Booe, Vice President and Chief Financial Officer - 12 - EX-99 2 EXHIBIT INDEX EXHIBIT 99 EXHIBIT INDEX Exhibit Number Description 4(a) Copy of Consent and Waiver Agreement between Principal Mutual Life Insurance Company and the Company dated as of January 20, 1996. 4(b) Copy of Consent and Waiver Agreement between Commerce Bank of Kansas City, N.A., and the company dated as of February 2, 1996. 11(a) Copy of Midwest Grain Products, Inc. Stock Incentive Plan of 1996. 11(b) Copy of Midwest Grain Products, Inc. 1996 Stock Option Plan for Outside Directors. 15 Letter from independent public accountants pursuant to paragraph (d) of Rule 10-01 of Regulation S-X (incorporated by reference to Independent Accountants' Review Report at page 2 hereof). 20 Report to Stockholders for the six months ended December 31, 1995 (without financial statements). 27 Financial Data Schedule for the six months ended December 31, 1995. EX-4 3 CONSENT AGREEMENT-PRINCIPAL MUTUAL CONSENT AND WAIVER AGREEMENT Exhibit 4(a) Dated as of January 23, 1996 Reference is made to the Note Agreement, dated as of August 1, 1993 (the "Note Agreement"), by and among Midwest Grain Products, Inc. (the "Company") and Principal Mutual Life Insurance Company ("Principal Mutual"). Pursuant to the Note Agreement, the Company issued, and Principal Mutual purchased, senior notes of the Company (collectively, the "Notes") in the aggregate original principal amount of $25,000,000 due 2008. Capitalized terms used but not defined herein shall have the meanings ascribed to them in the Note Agreement. By their execution of this Consent and Waiver Agreement (the "Agreement") below, the Company and Principal Mutual agree and consent to the following. 1. CONSENT. Principal Mutual consents to the inclusion of depreciation net of major capital maintenance in the calculation of Net Income Available for Fixed Charges for (and only for) the purpose of computation of the fixed charges coverage ratio of Section 5.10 of the Note Agreement for each fiscal quarter of the Company during the period beginning January 1, 1996 and ending December 31, 1996. 2. WAIVER. Principal Mutual agrees to waive compliance with Section 5.10 of the Note Agreement for the fiscal quarter of the Company ended December 31, 1995. 3. CONDITIONS PRECEDENT. The consent in paragraph 1 above and the waiver in paragraph 2 above are expressly subject to and shall be effective only upon the satisfaction of the following conditions. 3.1 The Company and Principal Mutual shall have executed this Agreement. 3.2 As of the date of execution hereof by the Company, no Default or Event of Default under the Note Agreement (except for any Default or Event of Default which has been either waived by Principal Mutual or the subject of a previous amendment to the Note Agreement) shall exist or be continuing, after giving effect to the waiver and consent set forth herein. 3.3 The representations and warranties of the Company referred to in Section 3.1 of the Note Agreement, shall be true and complete in all material respects, as if made on and as of the date hereof (except as to those representations and warranties which are made as of a specific date, which shall be true and complete in all material respects as of such specific date, and except as previously disclosed to Principal Mutual in writing). 3.4 The representations of the Company referred to in Section 4 hereof shall be true and complete in all material respects. 4. REPRESENTATIONS OF THE COMPANY. The Company, by its execution and delivery of this Agreement, hereby represents and warrants to Principal Mutual as follows: 4.1 As of the date of this Agreement, no Default or Event of Default under the Note Agreement, or under any other agreement to which the Company is subject, exists or is continuing, after giving effect to the amendments and waiver set forth herein. 4.2 The representations and warranties of the Company referred to in Section 3.1 of the Purchase Agreement are true and correct and complete in all material respects as if made on the date hereof, except as to those representations and warranties made as of a specific date, which are true and correct and materially complete as of such date. 4.3 No dissolution proceedings with respect to the Company have been commenced or are contemplated, and there had been no material adverse change in the business, conditions or operations (financial or otherwise) of the Company and its Restricted Subsidiaries, taken as a whole since August 1, 1993, except as previously disclosed to Principal Mutual. 4.4 This Agreement has been duly authorized, executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company. 5. MISCELLANEOUS. 5.1 It is expressly understood and agreed that this Agreement shall not constitute either (a) a modification, alteration or amendment of the terms, conditions, and covenants of the Note Agreement or the Notes, all of which shall remain unchanged and in full force and effect, except as otherwise specifically set forth herein, or (b) a waiver, release or limitation upon the exercise by Principal Mutual of any of the rights, legal or equitable, present or future, thereunder or with respect thereto, except as to matters as to which Principal Mutual herein expressly consents or waives compliance and only for the relevant time period set forth herein. Nothing herein is intended or shall be construed to release or relieve the Company in any way or to any extent from any of the obligations, covenants or agreements imposed upon the Company by the Note Agreement or the Notes or otherwise, or from the consequences of any breach thereof or default or event of default thereunder, except as to matters as to which the undersigned expressly agree herein. 2 5.2 This Agreement may be executed in as many counterparts as may be deemed necessary or convenient and by the different parties hereto on separate counterparts (provided that the Company will execute each counterpart), and each of which, when so executed, shall be deemed to be an original, but all such counterparts shall constitute but one and the same agreement. 5.3 This Agreement shall be deemed effective as of the date hereof, provided that the provisions and the conditions precedent set forth in Section 3 hereof have been completely satisfied. 5.4 This Agreement (a) shall be binding on the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and their respective successors and assigns, (b) constitutes the entire agreement among the parties hereto with respect to the matters addressed herein, and (c) shall be governed by and construed and enforced in accordance with the laws of the State of Kansas. Agreed and Acknowledged: PRINCIPAL MUTUAL LIFE INSURANCE COMPANY S/Clint Woods By: ________________________ Clint Woods, Counsel s/C Henderson By: ________________________ C Henderson MIDWEST GRAIN PRODUCTS, INC. /s/ Robert g. Booe By: ________________________ VP-CFO, 1-25-96 cjh\mwgrain.amd 3 EX-4 4 CONSENT AGREEMENT-COMMERCE BANK WAIVER AND CONSENT Exhibit 4(b) THIS WAIVER AND CONSENT ("Waiver") is granted as of February 2, 1996, by COMMERCE BANK, N.A. located in Kansas city, Missouri ("Bank") for the benefit of MIDWEST GRAIN PRODUCTS, INC. ("Company"). WHEREAS, pursuant to the Second Amended Line of Credit Loan Agreement dated as of September 18, 1995 by and between Bank and Company ("Loan Agreement"), Bank agreed to make advances to Company, subject to certain terms, conditions and limitations contained therein; and WHEREAS, Company is in violation of certain covenant under the Loan Agreement, and Company has requested that Bank acknowledge its waiver of such covenant; and WHEREAS, pursuant to the terms for Section 5.1 of the Loan Agreement for Fixed waive compliance with covenants by a writing executed by an officer of the Bank and the parties may consent in writing to a modification of the Loan Agreement. NOW, THEREFORE, for valuable consideration, the Bank hereby agrees as follows; 1. Capitalized terms used herein and not defined herein, shall have the meanings ascribed to them in the Loan Agreement. 2. Bank hereby waives compliance with Section 3.1(e) of the Loan Agreement for the fiscal quarter of Company ended December 31, 1995. 3. Bank consents to the inclusion of depreciation net of major capital maintenance in the calculation of New Income Available for Fixed Charges for (and only for) for the propose of computation of the fixed charges coverage ratio of section 3.1(e) of the Loan Agreement for each fiscal quarter of the Company during the period beginning January 1, 1996 and ending December 31, 1996. 4. This Waiver shall be strictly limited to the covenant set forth herein and shall not obligate Bank to grant any further waivers in the future unless otherwise specifically agreed to by the Bank. 5. This Waiver shall be governed by, and construed in accordance with, the laws of the State of Missouri. IN WITNESS WHEREOF, Bank has executed this Waiver, and Company has executed its acknowledgment and agreement herewith, as of the date first above written. COMMERCE BANK, N.A. s/Frederick Marsten By:________________________ Title: V.P. Acknowledged and Accepted: MIDWEST GRAIN PRODUCTS, INC. s/Robert G. Booe By:________________________ Title: V.P. - CFO EX-11 5 STOCK INCENTIVE PLAN Exhibit 11(a) MIDWEST GRAIN PRODUCTS, INC. STOCK INCENTIVE PLAN OF 1996 TABLE OF CONTENTS Section Page 1. Purposes 1 2. Definitions 1 3. Grants of Stock Incentives 3 4. Stock Subject to the Plan 4 5. Stock Awards 5 6. Stock Options 5 7. Stock Appreciation Rights 8 8. Adjustment Provisions 9 9. Term 9 10. Administration 10 11. General Provisions 11 12. Amendment or Discontinuance of Plan 12 13. Change In Control 13 14. Effective Date 13 Approved by Board of Directors, subject to Stockholder Approval: January 5, 1996. Approved by Stockholders: October _, 1996. Effective Date: January 5, 1996. MIDWEST GRAIN PRODUCTS, INC. STOCK INCENTIVE PLAN OF 1996 1. PURPOSES The purposes of the Plan are (a) to provide additional incentive for Key Employees of the Company and its Subsidiaries by authorizing a Committee of the Board of Directors to grant stock incentives to such Key Employees, thereby furthering their identity of interest with the interests of the Company's shareholders, and increasing their interest in and commitment to the future growth and prosperity of the Company; and (b) to enable the Company to induce the employment and continued employment of Key Employees and to compete with other organizations in attracting and retaining the services of highly-qualified personnel. 2. DEFINITIONS Unless otherwise required by the context, the following terms, when used in the Plan, shall have the meanings set forth in this Section 2. Board of Directors or Board: The Board of Directors of the Company. Change in Control: A Change in Control shall be deemed to have occurred upon (i) the acquisition (other than from the Company) by any person, entity or "group," within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, (excluding, for this purpose, the Company or its subsidiaries, any employee benefit plan of the Company or its subsidiaries, trustees of the Cray Family Trust, or any person who acquires Common or Preferred Stock from Cloud L. Cray, Jr. or from any trust controlled by or for the benefit of Cloud L. Cray, Jr. prior to or as a result of his death) of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of at least 30% of the then outstanding shares of Common Stock and 50% of the then outstanding shares of Preferred Stock or 30% of the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or (ii) approval by the stockholders of the Company of a reorganization, merger, consolidation, in each case, with respect to which persons who were the stockholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own collectively as a group more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company. If any of the events enumerated in clauses (i) or (ii) occur, the Board shall determine the effective date of the Change in Control resulting therefrom, for purposes of the Plan. The Code: The Internal Revenue Code of 1986 as now or hereafter amended. Committee: A committee of the Board of Directors of the Company consisting of not less than three disinterested directors as provided in Section 10(a) of the Plan. Common Stock: The Common Stock of the Company, no par value, or such other class of shares or other securities as may be subject to the Plan as the result of an adjustment made pursuant to the provisions of Section 8. Company: Midwest Grain Products, Inc., a Kansas corporation. Fair Market Value of a Share of Common Stock: The fair market value of a share of Common Stock on the date as of which fair market value is to be determined shall be: (a) if the Common Stock is reported on the NASDAQ National Market System of the National Association of Securities Dealers, Inc., the last reported sales price of a share of Common Stock as reported by NASDAQ; or (b) if the Common Stock is listed on an established securities exchange or exchanges, the highest reported closing price of a share of Common Stock on such exchange or exchanges. The fair market value of the Common Stock if not so reported or listed and the fair market value of any other property on the date as of which fair market value is to be determined shall mean the fair market value as determined by the Committee in its sole discretion. Incentive Compensation: Bonuses, extra and other compensation payable in addition to a salary or other base amount, whether contingent or not, whether discretionary or required to be paid pursuant to an agreement, resolution, arrangement, plan or practice, and whether payable currently or on a deferred basis, in cash, Common Stock or other property. Incentive Stock Option: A stock option granted hereunder which satisfies the conditions of Section 6 of the Plan, and the requirements of Section 422 of the Code. Key Employee: A salaried, full-time employee of the Company or of a Subsidiary, including an officer or director who is an employee, who in the opinion of the Committee can contribute significantly to the growth and successful operations of the Company or a Subsidiary. The determination by the Committee that a Stock Incentive be granted to an employee shall be deemed a determination by the Committee that such employee is a Key Employee. Mature Stock: shall mean shares of Common Stock which have been obtained through the exercise of an option under this Plan or any other plan of the Company, which are delivered to the Company in order to exercise an Option and which have been held continuously by an Optionee for six months or more. Option: An option to purchase shares of Common Stock or, where the context so requires, the instrument which evidences such an option as provided in paragraph (c) of Section 3 of the Plan. Plan: The Stock Incentive Plan of 1996 herein set forth as the same may from time to time be amended. Restricted Shares: Shares of Common Stock issued or transferred subject to terms and conditions with respect to payment or forfeiture as authorized by Section 5. Stock Appreciation Right: A right to receive a number of shares of Common Stock, cash, or a combination of the two based on the increase in the Fair Market Value of shares of Common Stock subject to an Option, as set forth in Section 7 of the Plan. Stock Award: An issuance or transfer of shares of Common Stock at the time a Stock Incentive is granted or as soon thereafter as practicable, or an undertaking to issue or transfer such shares in the future, including, without limitation, such an issuance, transfer or undertaking with respect to a Stock Incentive that is contingent, in whole or in part, upon the attainment of a specified objective or objectives. Stock Incentive: A stock incentive granted under the Plan in one of the forms authorized in Section 3. Subsidiary: A corporation or other form of business association of which shares (or other ownership interests) having 50% or more of the voting power are owned or controlled, directly or indirectly, by the Company. 3. GRANTS OF STOCK INCENTIVES. (a) Eligibility. Subject to the provisions of the Plan, the Committee may at any time grant Stock Incentives under the Plan to, and only to, Key Employees who are not members of the Committee; provided that Incentive Stock Options may only be granted to a key employee who is an employee of the Company or of a subsidiary which is a corporation. (b) Types of Stock Incentives. Stock Incentives may be granted in the following forms: (i) a Stock Award, in accordance with Section 5, or (ii) a Stock Option, in accordance with Section 6, or (iii) a Stock Appreciation Right, in accordance with Section 7, or (iv) a combination of any of the foregoing. (c) Evidence of Grant. Each Stock Incentive shall be evidenced by a written instrument in a form prescribed by the Committee, which instrument shall be consistent with the Plan, shall incorporate the Plan by reference, and shall be signed on behalf of the Company by a person authorized by the Committee. Any such instrument may contain such additional provisions consistent with the Plan as the Committee may deem advisable. (d) Amendments. The Committee may from time to time authorize the amendment of outstanding stock incentives so long as such amendments are consistent with the Plan, as amended. Without limiting the foregoing such amendments may, in the case of any outstanding stock option not immediately exercisable in full, accelerate the time in which the option may be exercised by the removal or modification of installments imposed in the initial grant of such option pursuant to Section 6(d). Any amendment shall be evidenced by a written instrument in a form prescribed by the Committee, which instrument shall be consistent with the Plan, and shall be signed on behalf of the Company by a person authorized by the Committee. Any such amendment may contain such additional provisions consistent with the Plan, as amended, as the Committee may deem advisable. 4. STOCK SUBJECT TO THE PLAN. (a) Number of Shares. Subject to the provisions of paragraph (c) of this Section 4 and of Section 8, the aggregate number of shares of Common Stock which may be issued or transferred pursuant to Stock Incentives granted under the Plan shall not exceed four hundred and fifty thousand (450,000) shares of Common Stock. (b) Source of Shares. Subject to the requirements of applicable Kansas law, authorized but unissued shares of Common Stock and shares of Common Stock held in the treasury, whether acquired by the Company specifically for use under the Plan or otherwise, may be used, as the Board of Directors may from time to time determine, for purposes of the Plan; provided, however, that any shares acquired or held by the Company for the purposes of the Plan shall, unless and until transferred to a Key Employee in accordance with the terms and conditions of a Stock Incentive, be and at all times remain treasury shares of the Company, available for any corporate purpose, irrespective of whether such shares are entered in a special account for purposes of the Plan. (c) Charges Against Plan Limit. If any shares of Common Stock subject to a Stock Incentive shall not be issued or transferred or shall cease to be issuable or transferable under such Stock Incentive, or if any such shares shall, after issuance or transfer, be reacquired by the Company or Subsidiary because of an employee's failure to comply with or meet the terms and conditions of a Stock Incentive, such shares shall no longer be charged against the limitation provided for in paragraph (a) of this Section 4 and may again be made subject to Stock Incentives; and, only the net additional shares issued upon the exercise of a stock incentive through the delivery or withholding of shares of Common Stock in payment of the exercise price or withholding taxes shall be counted against the number of shares which are authorized for issuance under Section 3(a). The limitation provided for in paragraph (a) of this Section 4, shall also be increased by the number of shares subject to any Substitute Stock Options granted under Section 6(j). Notwithstanding the foregoing, shares shall be deemed to have been issued pursuant to an Option or Stock Award and shall be charged against the limitation provided for in paragraph (a) of this Section 4, whether actually delivered, to the extent of the number of shares covered by that portion of the related option or award granted under the Plan which is settled by the exercise of a Stock Appreciation Right or by a cash payment under a Stock Award. (d) Certain Limitations on Grants. Notwithstanding any provision herein to the contrary, and subject to adjustment as provided in Section 8, no Executive Officer of the Company may receive Stock Incentives under the Plan in any calendar year that relate to more than fifty thousand (50,000) shares of Common Stock. In addition, and subject to other provisions of the plan permitting the expiration of restrictions under certain circumstances, no Stock Award shall be granted under Section 5 unless the shares subject to the Award (other than shares purchased for cash at fair market value on date of purchase under a related Stock Purchase Right) are subject to restrictions on transfer and/or ownership specified by the Committee and the restrictions continue for a period of one year from the date of grant in the case of Awards that are performance based and continue for a period of three years from the date of grant in the case of Awards that are not performance based. 5. STOCK AWARDS Stock Incentives in the form of Stock Awards shall be subject to the following provisions: (a) Consideration. A Stock Award shall be granted only in payment of (i) Incentive Compensation that has been earned, (ii) as Incentive Compensation to be earned, or (iii) a combination of (i) and (ii). (b) General. Shares of Common Stock subject to a Stock Award may be issued or transferred to a Key Employee at the time the Stock Award is granted, or at any time subsequent thereto, or in installments from time to time, as the Committee shall determine. With respect to a Stock Award providing for issuance or transfer of shares subsequent to the time it is granted, the Committee may provide for payment to the grantee of amounts not exceeding the cash dividends which would have been payable in respect of such shares (as adjusted under Section 8 of the Plan) if they had been issued or transferred at the time the Stock Award was granted. Such payments may be made in cash, shares of Common Stock or a combination of cash and shares. Such payments may be made at the time the shares are issued or transferred, or at the time or times the cash dividends would have been payable if the shares had been issued or transferred at the time the Stock Award was granted. Any amount payable in shares of Common Stock under the terms of the Stock Award may be paid in cash on each date on which delivery of shares would otherwise have been made, in an amount equal to the Fair Market Value on such date of the shares which would otherwise have been delivered. (c) Restrictions on Transfer, Forfeiture. A Stock Award may contain such terms and conditions as the Committee may determine with respect to transfer, payment or forfeiture of all or any part of the Stock Award. (d) Other Terms. A Stock Award may be subject to such other terms and conditions, including, without limitation, restrictions on sale or other disposition of the Stock Award or of the shares issued or transferred pursuant to the Stock Award, as the Committee may determine; provided, however, that upon the issuance or transfer of shares pursuant to a Stock Award, the recipient shall, with respect to such shares, be and become a shareholder of the Company fully entitled to receive dividends, to vote and to exercise all other rights of a shareholder except to the extent otherwise provided in the Stock Award. 6. STOCK OPTIONS Stock Incentives granted under the Plan in the form of Stock Options shall be subject to the following provisions: (a) Date of Grant. The "Date of Grant" of an Option shall be the date the action of the Committee providing for the grant of the Option is taken, or such later date as the Committee may provide. (b) Option Price. The price at which shares of Common Stock may be purchased under an Option (the "Option Price") shall be specified in the Option and shall be not less than 100% of the Fair Market Value of such stock on the Date of Grant of the Option. In the case of options other than incentive stock options, the Committee may grant options at a price equal to such percentage of the Fair Market Value of the stock on the date of grant as the Committee may specify, provided that in no case shall the price be less than 100% of such Fair Market Value. (c) Term of Option. An Option shall be exercisable only during a term (the "Term of the Option" or "Term") commencing not sooner than six months and one day after the Date of Grant of the Option and ending (unless the Option shall have terminated earlier under other provisions of the Plan) on a date fixed by the Committee and stated in the Option, which date shall be an anniversary of the Date of Grant of the Option and shall not be later than the tenth anniversary. If an Option is granted for an original Term of less than ten years, the Committee may, at any time prior to the expiration of the Option, extend its Term for a period ending not later than the tenth anniversary of the Date of Grant of the Option. (d) Installments. An Option may provide that it shall be exercisable in full or in part at any time during the Term of the Option, or that it shall be exercisable in a specified series of installments. Unless otherwise provided in the Option, installments or portions thereof not exercised in earlier periods shall be cumulative and shall be available for exercise in later periods. The Committee may, by so providing in an Option, require any partial exercise thereof to be with respect to a specified minimum number of shares. (e) Termination of Employment other than by Death or Retirement. If an optionee shall cease, for a reason other than his death or retirement, to be employed by the Company or Subsidiary, the Option shall terminate ninety (90) days after the cessation of employment if the option is an Incentive Stock Option and not later than one year after the cessation of employment with respect to other options, unless the Incentive or other option terminates earlier by its terms or under other provisions of the Plan. Until the Option terminates it may be exercised by the optionee, his estate or legal representatives for all or a portion of the shares as to which the right of purchase had accrued under the Plan at the time of cessation of employment, subject to all applicable conditions and restrictions provided in the Plan and the Option. In no event shall an Option be exercisable later than the date of expiration of the Term of the Option, and in no event shall an Option be exercisable for any shares as to which the right of purchase had not accrued at the time of cessation of employment. Employment for the purposes of this paragraph shall mean continuous full-time salaried employment. Vacations, sick leaves and any approved absence on leave shall not constitute a termination of employment or an interruption of continuous full-time salaried employment. (f) Retirement. If an optionee shall retire, the Option shall terminate on the third anniversary of such retirement, unless it terminates earlier by its terms or under other provisions of the Plan. Until the Option terminates it may be exercised by the optionee, his estate or legal representatives for all or a portion of the shares as to which the right of purchase had accrued as of the date of such exercise, subject to all applicable conditions and restrictions provided in the Plan and the Option. In no event shall an Option be exercisable later than the date of expiration of the Term of the Option, and in no event shall an Option be exercisable for any shares as to which the right of purchase had not accrued at the time of exercise. "Retirement" for purposes of paragraph 6(e) and (f) shall be defined by the Committee with respect to age, service, and other requirements. Notwithstanding the foregoing, if the option is an Incentive Stock Option, it may be exercised as an incentive stock option by the retired optionee or his estate not later than the day three months after the date of termination of his employment and by his estate not later than the first anniversary of such termination of employment if the optionee's death occurred prior to the day three months after the termination of employment. (g) Death. If an optionee shall die while in the employ of the Company or a Subsidiary and if the Option was in effect at the time of his death (whether or not its terms had then commenced), the Option may, until the expiration of one year from the date of death of the optionee or until the earlier expiration of the Term of the Option, be exercised as and to the extent it could have been exercised by the optionee had he been living at the time, by the legal representatives of the optionee or by any person, persons or entity to whom his rights under the Option shall have been transferred pursuant to the provisions of paragraph (g) of Section 11 of the Plan. Such exercise shall not be limited to the shares as to which the right of purchase had accrued at the date of death of the optionee, but shall be subject to all applicable conditions and restrictions prescribed in the Plan and the Option, including any installment provision. (h) Exercise. To the extent that the right to purchase shares has accrued under an Option, the Option may be exercised from time to time by the optionee or by a person or persons entitled to exercise the Option, by delivery to the Company of a written notice, in the manner and in such form as may be prescribed by the Committee, stating the number of shares with respect to which the Option is being exercised, and by making provision satisfactory to the Company for the payment in full of the Option price of the shares prior to or in connection with the delivery of certificates evidencing the shares. The Committee may, in its discretion and upon request of the Participant, issue shares of Common Stock upon the exercise of an Option directly to a brokerage firm or firms to be approved by the Company, without payment of the purchase price by the optionee but upon delivery of an irrevocable guarantee by such brokerage firm or firms of the payment of such purchase price or upon the participant's issuance to the brokerage firm of irrevocable instructions to sell or margin a sufficient portion of the shares and deliver the sale or margin loan proceeds directly to the Company to pay the exercise price and any withholding taxes. Upon receipt of such notice and payment arrangement in form satisfactory to the Company, the Company shall deliver to or upon the order of the optionee, or such other person entitled to exercise the Option, at the General Office of the Company, or at such place as shall be mutually acceptable, a certificate of certificates evidencing such shares. An Option may not be exercised for fractional shares of Common Stock. Payment in form satisfactory to the Company may, at the option of the Company, include payment by transfer to the Company of other shares of Mature Stock or other Common Stock which was not obtained through the exercise of a stock option owned by the Optionee or by the withholding of shares to be distributed in connection with the exercise of a Stock Incentive. Common Stock transferred to the Company or withheld from shares to be distributed in payment of the option price or withholding taxes shall be valued at the Fair Market Value of the Common Stock on the date of the exercise. (i) No Rights Before Exercise. No person shall have any rights of a stockholder by virtue of an Option except with respect to shares actually issued to him, and issuance of shares shall not confer retroactive rights to dividends. (j) Substitute Options. Options may be granted under the Plan from time to time in substitution for stock options held by employees of other corporations who are about to become employees of the Company or a Subsidiary as the result of a merger or consolidation of the employing corporation with the Company or a Subsidiary, or the acquisition by the Company or a Subsidiary of the assets of the employing corporation, or the acquisition by the Company or a Subsidiary of stock of the employing corporation as the result of which it becomes a Subsidiary. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this Section 6 to such extent as the Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the options in substitution for which they are granted. (k) Certain Limits on Incentive Stock Options. In the case of Incentive Stock Options, the amounts, terms and conditions of such grants shall be subject to and comply with the requirements for Incentive Stock Options as set forth in Section 422 of the Code, as from time to time amended, and any regulations implementing such statute. 7. STOCK APPRECIATION RIGHTS. (a) Grant. Stock Appreciation Rights may be granted in connection with any Option granted under the Plan, either at the time of the grant of such Option or at any time thereafter during the term of the Option. A grant of Stock Appreciation Rights shall either be included in the instrument evidencing the Option to which they relate or evidenced by a separate instrument meeting the requirements of Section 3 of the Plan. (b) Settlement. A person entitled to exercise an Option in connection with which Stock Appreciation Rights shall have been granted shall be entitled, at such time or times and subject to such terms and conditions as may be stated in the granting instrument, to settle all or part of the Option by requesting the Company to pay, in cancellation of the part of the Option to be settled, consideration in an amount equal to the number of shares of Common Stock subject to the canceled part of the Option times the amount by which the fair market value of one share on the exercise date exceeds the Option Price (the "Appreciation"). The election shall be made in a written instrument, in form satisfactory to the Committee, delivered in the manner prescribed in Section 6(h) for the exercise of options. (c) Form of Consideration. The form of the consideration to be paid for the Appreciation shall either be cash, shares of Common Stock having an aggregate market value on the exercise date equal to the Appreciation, or a combination of cash and shares. Such form of consideration shall be specified either by the Committee or, subject to the approval of the Committee, by the person exercising the Stock Appreciation Right, provided that such form of consideration shall in no event include fractional shares of Common Stock. (d) Provisions in a Related Option. An Option in connection with which Stock Appreciation Rights are granted may prescribe or limit the period or periods of time during which the Stock Appreciation Rights may be exercised as provided in paragraph (b) of this Section 7, and may prescribe such additional terms and conditions applicable to the exercise of the Stock Appreciation Rights as may be determined by the Committee and as are consistent with the Plan. In no event may Stock Appreciation rights be exercised at a time when the Option in connection with which they were granted is not exercisable. 8. ADJUSTMENT PROVISIONS In the event of a reorganization of the Company, an equitable adjustment shall be made in: (a) the number and class of shares or other securities that may be issued or transferred pursuant to Stock Incentives in the aggregate or to any individual, (b) the number and class of shares or other securities which have not been issued or transferred under outstanding Stock Incentives, (c) the purchase price to be paid per share under outstanding Options, and (d) the price to be paid per share by the Company or a subsidiary for shares or other securities issued or transferred pursuant to Stock Incentives which are subject to a right of the Company or a Subsidiary to reacquire such shares or other securities. For this purpose, a "reorganization" shall be deemed to have occurred in the event: (i) any recapitalization, reclassification, split-up or consolidation of shares of Common Stock shall be effected; (ii) the outstanding shares of Common Stock are, in connection with a merger or consolidation of the Company or the acquisition by another corporation of Common Stock or of all or part of the assets of the Company, exchanged for a different number or class of shares of stock or other securities of the Company or for shares of the stock or other securities of another corporation; (iii) New, different or additional shares or other securities of the Company or of another corporation are received by the holders of Common Stock with respect to such stock; or (iv) any distribution other than a cash dividend is made to the holders of Common Stock. The Committee may also unilaterally amend outstanding stock incentives to remove restrictions or otherwise change the terms of outstanding stock incentives to permit such incentives to be substituted for comparable incentives to be provided by any entity which assumes the Company's obligations with respect to such outstanding stock incentives upon terms and conditions approved by the Board of Directors or Stockholders. In the event of any other change in the capital structure or in the capital stock of the Company, the Committee shall be authorized to make such appropriate adjustments in the maximum number of shares of Common Stock available for issuance under the Plan in the aggregate or to any individual and any adjustments and/or modifications to outstanding Stock Incentives as it deems appropriate. The action of the Committee in approving any adjustment or change contemplated by this Section 8 shall be conclusively deemed to be equitable, appropriate, fair and/or comparable and shall be binding on all persons holding rights under the Plan. 9. TERM (a) Effective Date. The Plan shall be effective as of January 5, 1996, subject to approval by the affirmative vote of the holders of a majority of the shares of the Company's Common Stock present or represented, and entitled to vote at a meeting duly held in accordance with applicable law within one year after such effective date. (b) Expiration Date. No Stock Incentives shall be granted under the Plan after January 4, 2006. Unless otherwise expressly provided in the Plan or in an applicable award agreement, any Stock Incentive granted hereunder may, and the authority of the Board or the Committee to amend, alter, adjust, suspend, discontinue, or terminate any such Award or to waive any conditions or rights under any such Stock Incentive shall, continue after the authority for grant of new Stock Incentives hereunder has been exhausted. 10. ADMINISTRATION. (a) Composition of Committee. The Plan shall be administered by the Committee which shall consist of not less than three directors of the Company designated by the Board of Directors; provided, however, that no director shall be designated as or continue to be a member of the Committee unless he shall at the time of designation and throughout his service be a "disinterested person" within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934 (or any successor rule or statute at the time in effect). (b) Delegation of Board Authority. The Board of Directors may delegate to the Committee any or all its authority under the Plan, including the authority to award Stock Incentives, but excluding the authority to amend or discontinue the Plan. (c) Rules, etc. The Committee may establish such rules and regulations and may construe, interpret and further define terms used in the Plan so long as such rules, regulations and other actions are not inconsistent with the provisions of the Plan and are otherwise believed to be necessary or appropriate to promote the purposes of the Plan, and may amend or revoke the same. All such rules, regulations, determinations, definitions and interpretations shall be binding and conclusive upon all persons granted stock incentives under the Plan, the Company, its Subsidiaries, its stockholders and all employees; upon their respective legal representatives, beneficiaries, successors and assigns, and upon all other persons claiming under or through any of them. (d) Limited Liability. No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Stock Incentive granted under the Plan, and shall incur no liability except for willful misconduct in the performance of their duties. 11. GENERAL PROVISIONS (a) No right to Continued Employment. Nothing in the Plan nor in any instrument executed pursuant thereto shall confer upon any employee any right to continue in the employ of the Company or a Subsidiary or shall affect the right of the Company or of a Subsidiary to terminate the employment of any employee with or without cause. (b) Legal Requirements for Transfers. No shares of Common Stock shall be issued or transferred pursuant to a Stock Incentive unless the Company is satisfied that there has been compliance with all legal requirements applicable to the issuance or transfer of such shares. In connection with any such issuance or transfer, the person acquiring the shares shall, if requested by the Company, give assurances satisfactory to the Company that the shares are being acquired for investment and not with a view to resale or distribution thereof and assurances in respect of such other matters as the Company may deem desirable to assure compliance with all applicable legal requirements. (c) No Rights in shares Before Issue or Transfer. No employee (individually or as a member of a group), and no beneficiary or other person claiming under or through him, shall have any right, title or interest in or to any shares of Common Stock allocated or reserved for the purposes of the Plan or subject to any Stock Incentive, except as to such shares of Common Stock, if any, as shall have been issued or transferred to him. (d) Grants to Prospective Key Employees. The Company or Subsidiary may, with the approval of the Committee, enter into an agreement or other commitment to grant a Stock Incentive in the future to a person who is or will be at the time of grant a Key Employee, and, notwithstanding any other provision of the Plan, any such agreement or commitment shall not be deemed the grant of a Stock Incentive until the date on which the Committee takes action to implement such agreement or commitment, which date shall for the purpose of the Plan be the date of grant. (e) Implementation by subsidiary. In the case of a grant of a Stock Incentive to any employee of a Subsidiary, such grant may, if the Committee so directs, be implemented by the Company issuing or transferring the shares, if any, covered by the Stock Incentive to the Subsidiary, for such lawful consideration as the Committee may specify, upon the condition or understanding that the Subsidiary will transfer the shares to the employee in accordance with the terms of the Stock Incentive. Notwithstanding any other provision hereof, such Stock Incentive may be issued by and in the name of the Subsidiary and shall be deemed granted on the date it is approved by the Committee or on such later date as the Committee shall specify. (f) Taxes. The Company or a Subsidiary may make such provisions as it may deemappropriate for the withholding and payment of any taxes which the Company or Subsidiary determines it is required to withhold or which the employee deems to be payable in connection with any Stock Incentive. Such provisions may include a requirement that all or part of the amount of such taxes be paid to the Company or Subsidiary, in cash or by transfer to the Company of shares of Mature Stock or other Stock which was not obtained through the exercise of a stock option owned by the employee, or by the withholding of cash or shares of Common Stock payable to the employee under the stock incentive, or by any combination of the foregoing. To the extent that tax provisions are satisfied with shares of the Company's Common Stock, such stock shall be valued at Fair Market Value on the appropriate transaction date. (g) No Assignments. No Stock Incentive and no rights under a Stock Incentive or under the Plan, contingent or otherwise, shall, by operation of law or otherwise, be transferable or assignable or subject to any encumbrance, pledge, hypothecation or charge of any nature, or to execution, attachment or other legal process, except that, in the event of the death of the holder of a Stock Incentive, the holder's rights under the Stock Incentive may pass, as provided by law, to the legal representatives of the holder, and such legal representatives may transfer any rights in respect of such Stock Incentive to the person or persons or entity (including a trust) entitled thereto under the will of the holder of such Stock Incentive, or in the case of intestacy, under the applicable laws relating to intestacy. During the life of a holder of a Stock Incentive, the Stock Incentive shall be exercisable only by such holder. Notwithstanding the foregoing, a Stock Incentive may be transferable, to the extent set forth in the applicable award agreement, (i) if such Award Agreement provisions do not disqualify such Award for exemption under Rule 16b-3 or (ii) if such Stock Incentive is not intended to qualify for exemption under such rule. (h) No Restriction on Other Plans. Nothing in the Plan is intended to be a substitute for, or shall preclude or limit the establishment or continuation of, any other plan, practice or arrangement for the payment of compensation or fringe benefits to employees generally, or to any class or group of employees, which the Company or any Subsidiary now has or may hereafter lawfully put into effect, including, without limitation, any retirement, pension, profit-sharing, insurance, stock purchase, incentive compensation or bonus plan. (i) Applicable Law. The place of administration of the Plan shall conclusively be deemed to be within the State of Kansas and the validity, construction, interpretation and administration of the Plan and of any rules and regulations or determinations or decisions made thereunder, and the rights of any and all persons having or claiming to have any interest therein or thereunder, shall be governed by and be determined exclusively and solely in accordance with, the laws of the State of Kansas. Without limiting the generality of the foregoing, the period within which any action arising under or in connection with the Plan, or any payment or award made or purportedly made under or in connection therewith, must be commenced, shall be governed by the laws of the State of Kansas, irrespective of the place where the act or omission complained of took place and of the residence of any party to such action and irrespective of the place where the action may be brought. 12. AMENDMENT OR DISCONTINUANCE OF PLAN (a) Amendments. The Plan may be amended by the Board of Directors at any time, provided that without the affirmative vote of the holders of a majority of the shares of the Company's Common Stock and a vote of the holders of a majority of the Company's Preferred Stock present or represented, and entitled to vote at a meeting duly held in accordance with applicable law, no amendment shall be made which (i) increases the aggregate number of shares of Common Stock that may be issued or transferred pursuant to Stock Incentives as provided in paragraph (a) of Section 4, (ii) amends the provisions of paragraph (a) of Section 10 with respect to eligibility and disinterest of members of the Committee, (iii) permits any person who is not determined to be a Key Employee to be granted a Stock Incentive, (iv) amends the provisions of paragraph (b) of Section 6, (v) amends Section 9 to extend the term of the Plan, or (vi) amends this Section 12. (b) Plan Termination. The Board of Directors may by resolution adopted by a majority of the entire Board of Directors discontinue the Plan. (c) Effect of Amendment or Termination. No amendment or discontinuance of the Plan by the Board of Directors or the shareholders of the Company shall adversely affect, without the consent of the holder thereof, any Stock Incentive theretofore granted. 13. CHANGE IN CONTROL. Unless the Committee shall otherwise provide in the award agreement relating to a Stock Incentive granted under the Plan, upon the occurrence of a Change in Control: (a) In the case of Stock Options and Stock Appreciation Rights granted under the Plan (i) each outstanding option or right that is not then fully exercisable shall automatically become fully exercisable until the termination of the option exercise period of the option or right [as modified by subsection (ii) that follows], and (ii) in the event the Participant's employment is terminated within two years after a Change in Control, his or her outstanding options or rights at that date of termination shall be immediately exercisable for a period of three months following such termination, provided, however, that, to the extent the option or right by its terms otherwise permits a longer option exercise period after such termination, such longer period shall govern, and provided further that in no event shall such option or right be exercisable more than ten years after the date of grant; and (b) Any restrictions and provisions for forfeiture on all outstanding Stock Awards shall automatically expire and immediately lapse and all such awards shall be immediately and fully vested. 14. EFFECTIVE DATE OF PLAN. The Plan shall become effective on its adoption by the Board, provided, however, the Plan shall be submitted for approval by the holders of a majority of the shares of the Company's Common Stock and by the holders of a majority of the shares of the Company's Preferred Stock, present or represented and entitled to vote at a meeting duly held in accordance with applicable law prior to the first anniversary of such adoption by the Board. Any Stock Incentive granted prior to stockholder approval of the Plan shall become null and void if such approval is not obtained before the first anniversary of the effective date. Such grants shall also contain provisions for the return or cancellation of benefits if such stockholder approval is not obtained. CERTIFICATIONS The undersigned Secretary of Midwest Grain Products, Inc., hereby certifies that the foregoing Plan was duly adopted by the Board of Directors at a regular meeting of the Board duly called, noticed, convened and held on January 5, 1996, in accordance with the Certificate of Incorporation, Bylaws and applicable laws of the State of Kansas. Dated January 5, 1996. s/Norma C. Ewbank ___________________________ Norma C. Ewbank, Secretary The undersigned Secretary of Midwest Grain Products, Inc., hereby certifies that the foregoing Plan was duly approved by the holders of a majority of the Common and Preferred Stock present or represented and entitled to vote at the Annual Meeting of Stockholders duly called, noticed, convened and held on October __, 1996, in accordance with the Certificate of Incorporation, Bylaws and applicable laws of the State of Kansas. Dated October __, 1996. ________________________________ Norma C. Ewbank, Secretary EX-11 6 STOCK OPTION PLAN Exhibit 11(b) MIDWEST GRAIN PRODUCTS, INC. 1996 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS MIDWEST GRAIN PRODUCTS, INC. 1996 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS Section 1. Name; Purposes; Definitions. The name of this plan is the Midwest Grain Products, Inc. 1996 Stock Option Plan for Outside Directors (the "Plan"). The purposes of the Plan are to promote the long-term success of the Company by enhancing the long-term mutuality of interests between the non-employee directors of the Company and the stockholders of the Company and by providing incentives that will enhance the Company's ability to attract highly qualified persons to serve as directors of the Company. For purposes of this Plan, the following terms shall be defined as set forth below: (a) "Board" means the Board of Directors of the Company. (b) "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. (c) "Committee" means the Human Resources Committee of the Board, or any other committee the Board may subsequently appoint to administer the Plan pursuant to Section 2. (d) "Company" shall mean Midwest Grain Products, Inc., a corporation organized under the laws of the State of Kansas (or any successor corporation). (e) "Effective Date" shall mean the date the plan is approved by the stockholders of the Company. (f) "Fair Market Value" of a share of Common Stock on the date as of which fair market value is to be determined shall be: (a) if the Common Stock is reported on the NASDAQ National Market System of the National Association of Securities Dealers, Inc., the last reported sales price of a share of Common Stock as reported by NASDAQ; or (b) if the Common Stock is listed on an established securities exchange or exchanges, the highest reported closing price of a share of Common Stock on such exchange or exchanges. (g) "Mature Stock" shall mean Stock which was obtained through the exercise of an option under this Plan or any other plan of the Company, which is delivered to the Company in order to exercise an Option and which has been held continuously by an Optionee for six months or more. (h) "Nonqualified Stock Option" means any Stock Option that by its terms is designated as not being an "incentive stock option" within the meaning Section 422 of the Code. (i) "Optionee" means the recipient of a Stock Option. (j) "Stock" means the Company's presently authorized Common Stock, par value $1.00 per share, except as this definition may be modified pursuant to Section 3 hereunder. (k) "Stock Option" means any nonqualified option to purchase shares of Stock granted pursuant to Section 5. Section 2. Administration. The Plan shall be administered by a Committee of not less than two Directors, who shall be appointed by the Board and who shall serve at the pleasure of the Board. Until otherwise specified by the Board, the Plan shall be administered by the Human Resources Committee of the Board. If at any time no Committee shall be in office, then the functions of the Committee shall be exercised by the Board. Section 3. Stock Subject to Plan. (a) The total number of shares of Stock reserved and available for issuance under the Plan shall be 90,000. Such shares may consist, in whole or in part, of authorized and unissued shares or treasury shares. (b) In the event of any merger, reorganization, consolidation, recapitalization, Stock dividend, or other change in corporate structure affecting the Stock, a substitution or adjustment shall be made in (i) the aggregate number of shares reserved for issuance under the Plan, (ii) the number of options to be granted automatically each year to non-employee directors of the Company, (iii) the limits on the number of options that may be granted to each non-employee director under the plan and (iv) the number and option price of shares subject to outstanding Stock Options granted under the Plan as may be determined by the Board, provided that the number of shares subject to any award shall always be a whole number. (c) If any shares of Common Stock subject to a Stock Option shall not be issued or transferred or shall cease to be issuable or transferable under such Stock Option, such shares shall no longer be charged against the limitation provided for in paragraph (a) of this Section 3 and may again be made subject to Stock Options; and, only the net additional shares issued upon the exercise of a stock option through the delivery or withholding of shares of Common Stock in payment of the exercise price or withholding taxes shall be counted against the number of shares which are be authorized for issuance under Section 3(a). Section 4. Eligibility. Each non-employee member of the Board shall receive Nonqualified Stock Options in accordance with the provisions of Section 5. Section 5. Stock Options. (a) On the first business day after the 1996 Annual Meeting of Stockholders of the Company, and on the first business day after each annual stockholders' meeting of the Company thereafter during the term of the Plan, 2 each non-employee member of the Board shall be granted a Nonqualified Stock Option to purchase 1,000 shares of Stock. (b) Stock Options granted under the Plan shall be subject to the following terms and conditions: (1) The exercise price per share of Stock purchasable under such Stock Options shall be 100% of the Fair Market Value of the Stock on the date of grant. (2) Each Stock Option shall be exercisable on the 184th day following the date of grant by written notice to the Company of the election to exercise and of the number of shares elected to be purchased in such form as the Committee has prescribed or approved, together with payment in full of the purchase price in cash, personal check, wire transfer, certified or cashier's check, or delivery of Stock certificates for Mature Stock or other Stock which was not obtained through the exercise of a stock option, endorsed in blank or accompanied by executed stock powers with signatures guaranteed by a national bank or trust company or a member of a national securities exchange. (3) If an Optionee resigns or does not stand for election (prior to retirement from the Board of Directors upon reaching age 70) or is removed from his or her position as a Director or is not re-elected to his or her position as a Director, any unexercised portion of any Stock Option granted to him or her under the terms of the Plan shall terminate ninety (90) days following the date of such resignation, removal or end of the term of such position. If an Optionee dies while a Director, any unexercised portion of any Stock Option granted to him or her under the terms of the Plan shall terminate one year from the date of death. If an Optionee does not stand for re-election due to retirement from the Board of Directors upon reaching age 70, any unexercised portion of any Stock Option granted to him or her under the terms of the Plan shall terminate three years from the date of the end of his or her term. It is understood, however, that such right to exercise any outstanding Options during any period following a terminating event shall only exist to the extent such Options were exercisable immediately preceding the terminating event. (4) Each Stock Option shall cease to be exercisable on the date that is five years following the date of grant. (5) The aggregate number of shares of Stock that may be granted to any non-employee member of the Board pursuant to the Plan may not exceed 10,000 shares. (6) No Stock Options shall be transferable by the Optionee otherwise than by will or by the laws of decent and distribution, and as may otherwise be permitted by Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Act"), and all Stock Options shall be exercisable, during the Optionee's lifetime, only by the Optionee or in accordance with the terms of such transfer. (7) Any withholding taxes required to be paid to the Company in connection with the exercise of any option shall be paid, at the election of the director, in cash or by the Company's withholding of shares of Common Stock issuable to the director under the stock option, or by any combination of the foregoing. To the extent that tax provisions are satisfied with shares of the 3 Company's Common Stock, such stock shall be valued at Fair Market Value on the appropriate transaction date. (c) Each Optionee shall enter into a stock option agreement with the Company, which agreement shall set forth, among other things, the exercise price of the option, the term of the option and provisions regarding exercisability of the option granted thereunder, which provisions shall not be inconsistent with the terms set forth herein. Section 6. Amendment and Termination. The Board may amend, alter, modify or discontinue the Plan at any time, provided that the Board may not amend or alter the provisions of the Plan relating to the amount, price and timing of awards more than once every six months, other than to comply with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder; and provided, further that the Board may not amend the Plan without the approval of the stockholders if the amendment would: (A) materially increase the benefits accruing to Optionees; (B) materially increase the number of securities that may be issued under the Plan; or (C) materially modify the requirements as to eligibility for participation in the Plan. Notwithstanding the foregoing, stockholder approval shall be required only at such times and under such circumstances as would be required under Rule 16b-3 of the Act with respect to any material amendment to any employee benefit plan of the Company. Section 7. Unfunded Status of Plan. The Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a recipient by the Company, nothing contained herein shall give any such recipient any rights that are greater than those of a general creditor of the Company. Section 8. General Provisions. (a) If necessary to effect compliance with applicable securities laws, each person purchasing shares pursuant to a Stock Option must represent to and agree with the Company in writing that such person is acquiring the shares without a view to the distribution thereof. (b) All certificates for shares of Stock delivered under the Plan shall be subject to such stock transfer orders and other restrictions under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Stock is then listed, and any applicable federal or state securities law, and a legend or legends may be put on any such certificates to make appropriate reference to any required restriction on transfer. (c) Nothing contained in the Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required; and such arrangements may be either generally applicable or applicable only in specific cases. The adoption of the Plan shall not confer upon any member of the Board any right to continued membership on such Board. (d) No member of the Board or the Committee, nor any officer or employee of the Company acting on behalf of the Board or the Committee, shall 4 be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan, and all members of the Board and the Committee and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect to any such action, determination or interpretation. Section 9. Term of Plan. No stock Option shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date, but awards theretofore granted may extend beyond that date. CERTIFICATIONS The undersigned Secretary of Midwest Grain Products, Inc., hereby certifies that the foregoing Plan was duly adopted by the Board of Directors at a regular meeting of the Board duly called, noticed, convened and held on January 5, 1996, in accordance with the Certificate of Incorporation, Bylaws and applicable laws of the State of Kansas. Dated January 5, 1996. s/Norma C. Ewbank -------------------------------- Norma C. Ewbank, Secretary The undersigned Secretary of Midwest Grain Products, Inc., hereby certifies that the foregoing Plan was duly approved by the holders of a majority of the Common and Preferred Stock present or represented and entitled to vote at the Annual Meeting of Stockholders duly called, noticed, convened and held on October __, 1996, in accordance with the Certificate of Incorporation, Bylaws and applicable laws of the State of Kansas. Dated October , 1996. -------------------------------- Norma C. Ewbank, Secretary 5 EX-20 7 REPORT TO STOCKHOLDERS Letter to Stockholders Exhibit 20 February 9, 1996 Dear Stockholder: I am pleased to report that while our earnings for the second quarter of fiscal 1996 were down from the same period a year ago, they represent a sizeable improvement compared to this year's first quarter loss. Our net income for the second quarter was $195,000, or $0.02 per share on sales of $55,751,000 versus net income of $2,237,000, or $0.23 per share on sales of $44,488,000 for the prior year's second quarter. For the first six months of fiscal 1996, we experienced a net loss of $2,182,000, or $0.22 per share on sales of $102,911,000. For the first half of fiscal 1995, we had net income of $4,993,000, or $0.51 per share on sales of $90,472,000. The improvements we experienced since the first quarter were largely the result of an intense cash management program, and increased sales of premium wheat starch, alcohol products and alcohol by-products, which consist mainly of distillers feeds. I am encouraged by the direction we are taking. I am also encouraged by a proposed agreement between our government and the European Union (E.U.), which includes a measure to curb excess shipments of wheat gluten to the United States. Final ratification of the agreement is expected to occur during the current quarter. It states that "If the market share of European Commission origin wheat gluten exports into the United States increases in comparison to their average 1990-92 market share, the European Commission and the United States government shall consult with a view to finding a mutually acceptable solution." The continuing flood of gluten imports from Europe in the second quarter, however, together with exorbitantly high raw material costs for wheat, had a severe negative impact on our results compared to the same period a year ago. Our average per bushel cost for wheat in the quarter was approximately 26% higher than the prior year's second quarter average. Wheat prices continue to hover well above levels that were in place a year ago due to a worldwide wheat shortage. Prices for corn and milo also remain exceptionally high due to global shortages of these grains as well. Our costs in the second quarter averaged 54% more per bushel compared to the second quarter of fiscal 1995. This adversely affected alcohol production costs, especially in the fuel grade category. While conditions in the fuel grade alcohol market remain flat, demand for our food grade alcohol for beverage and industrial applications continues to be strong. Demand for our premium wheat starches, both modified and unmodified, also remains strong due to their effectiveness in satisfying functional requirements in a growing variety of food products. As we go forward, we will continue to focus on increasing the effectiveness of our cash management measures and on improving cost efficiencies in all marketing, production and administrative processes. As I stated in my last report to you on November 9, we are prepared to increase production and sales in all three of our principal product areas and to realize significant long-term growth when grain costs and selling prices return to more normal levels. Sincerely, s/Ladd M. Seaberg Ladd M. Seaberg President and CEO EX-27 8 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MIDWEST GRAIN PRODUCTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE SIX MONTHS ENDED DECEMBER 31, 1996, AND CONDENSED CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000835011 MIDWEST GRAIN PRODUCTS, INC. 1,000 6-MOS JUN-30-1996 JUL-01-1995 DEC-31-1995 3,011 0 23,680 0 15,737 45,982 208,894 78,000 177,309 14,863 40,933 6,715 0 4 103,727 177,309 102,911 102,964 100,229 100,229 4,840 0 1,492 (3,606) (1,424) (2,182) 0 0 0 (2,182) (.22) (.22) After deduction of allowances and addition of Notes Receivable. See Note F1. Reflects Retained Earnings and Additional Paid In Capital. Reflects net sales plus Other Operating Income. Consists of Selling, General and Administrative Expenses. Total revenues includes "Other Income." Other Income reflects excess Other Income after deducting interest expense.
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