<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 22, 1997
REGISTRATION NO. 333-32251
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN CRYSTAL SUGAR COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 2063 84-0004720
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
101 NORTH THIRD STREET, MOORHEAD, MINNESOTA 56560-1990
(218) 236-4400
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
MR. JOSEPH J. TALLEY
AMERICAN CRYSTAL SUGAR COMPANY
TREASURER
101 NORTH THIRD STREET
MOORHEAD, MINNESOTA 56560-1990
(218) 236-4400
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
------------------------
COPIES TO:
RONALD D. MCFALL, ESQ.
Doherty, Rumble & Butler Professional Association
2800 Minnesota World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ______________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ______________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
CROSS REFERENCE SHEET
PURSUANT TO S-K ITEM 501(B)
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ----------------------------------------------------------------------- -------------------------------------------------
<C> <C> <S> <C>
1. Forepart of the Registration Statement and Outside Front
Cover Page of Prospectus.................................. Outside Front Cover
2. Inside Front and Outside Back Cover Pages................... Outside Back Cover
3. Summary Information, Risk Factors, and Ratio of Earnings to
Fixed Charges............................................. Summary, Selected Financial Data, Factors to be
Considered
4. Use of Proceeds............................................. Use of Proceeds
5. Determination of Offering Price............................. Determination of Offering Price
6. Dilution.................................................... Dilution
7. Selling Security Holders.................................... Not Applicable
8. Plan of Distribution........................................ Plan of Distribution
9. Description of Securities to be Registered.................. Description of Common Stock and Preferred Stock
10. Interests of Named Experts and Counsel...................... Not Applicable
11. Information with Respect to the Registrant
(a) Description of Business.......................... Description of Business
(b) Description of Property.......................... Property and Processing Facilities
(c) Legal Proceedings................................ Legal Proceedings
(d) Market Price, Dividends, etc..................... Description of Common Stock and Preferred Stock
(e) Financial Statements............................. Financial Statements
(f) Selected Financial Data.......................... Selected Financial Data
(g) Supplementary Financial Information.............. Not Applicable
(h) Management's Discussion.......................... Management's Discussion and Analysis of Financial
Condition and Results of Operations
(i) Disagreements with Accountants................... Not Applicable
(j) Directors and Executive Officers................. Management
(k) Executive Compensation........................... Executive Compensation
(l) Security Ownership............................... Principal Shareholders
(m) Certain Relationships and Related Transactions... Related Party Transactions
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................ Not Applicable
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 22, 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS
DATE , 1997
[LOGO]
AMERICAN CRYSTAL SUGAR COMPANY
500 SHARES OF COMMON STOCK AND 61,500 SHARES OF PREFERRED STOCK
------------------
The shares of Common Stock (the "Common Stock") and Preferred Stock (the
"Preferred Stock") offered hereby are available for purchase only by members of
the Company or "farmer-producers" who wish to become members of the Company,
which is a cooperative of sugarbeet growers. Members of the Company as of July
25, 1997 will be granted the first right to purchase their pro rata portion of
60,000 of the shares of the Preferred Stock offered hereby, with such pro rata
portion rounded to the next whole share of Preferred Stock, all subject to the
terms and conditions described elsewhere in this Prospectus. (Such portion of
the offering is referred to as Pool 1.) If all of the Preferred Stock offered
hereby is not purchased by the members of the Company on a pro rata basis in
Pool 1 by November 21, 1997, then current members who have indicated an interest
in acquiring additional shares of Preferred Stock and have acquired their entire
pro rata portion in Pool 1 will be able to purchase shares of Preferred Stock in
the second segment of the Company's offering, referred to as "Pool 2". In Pool
2, each member may indicate an interest in purchasing additional shares in an
amount up to two (2) times the number of shares of Preferred Stock which such
member is entitled to purchase in Pool 1. The shares of Preferred Stock
available for sale in Pool 2 will be allocated among those members desiring to
acquire such shares in proportion to the number of shares requested and the
number of shares available for sale in Pool 2. Any Preferred Stock remaining
available for purchase after completion of the Pool 2 procedures will be
designated as "Pool 3" shares. Members of the Company wishing to purchase
Preferred Stock in addition to the shares purchased in Pool 1 and Pool 2 and
farmer-producers who wish to become members of the Company will be able to
purchase such Preferred Stock if they obtain the right to purchase such
remaining Preferred Stock in a random drawing for the right to purchase such
remaining Preferred Stock. Each party wishing to purchase shares in this
offering must have submitted appropriate materials to the Company no later than
November 21, 1997; however, in light of the random drawing and other procedures
needed to complete portions of this offering other than the pro rata purchase of
shares by current shareholders, the Company believes that all offering
procedures will not be completed until late December, 1997 or early January,
1998. (See "Plan of Distribution," "Summary" and "Description of Business.") The
shares of Common Stock will be offered only to persons who were not members of
the Company on July 25, 1997, but who purchase shares of Preferred Stock in this
offering. Shares of the Preferred Stock and the Common Stock may be purchased
only by farm operators who, in connection with their ownership of such shares,
will become contractually obligated to sell sugarbeets to the Company. There is
only a limited, private market for the Common Stock and the Preferred Stock;
such shares may be transferred only with the consent of the Company's Board of
Directors. (See "Determination of Offering Price" and "Plan of Distribution").
The Company does not have a commitment from any party to purchase all or any
portion of the Preferred Stock offered hereby. Consequently, less than all of
the Preferred Stock may be sold. The Company has not established a minimum
number of shares of Preferred Stock which must be sold. Instead, the Company
will accept subscriptions for, and complete sales of, any portion of the
Preferred Stock offered hereby.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK AND
PREFERRED STOCK OFFERED HEREBY.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Common Stock(3).......................................... $10 $0 $5,000
Preferred Stock(4)....................................... $1,500 $0 $92,250,000
Total.................................................... $ -- $0 $92,255,000
</TABLE>
(1) The Company will offer and sell the Shares itself and will not pay any
discounts or commissions. Certain of the Company's officers will be
responsible for completing offers and sales of the Shares. Such activities
will be considered part of the services provided by such officers in their
capacity as officers of the Company.
(2) Before deducting expenses of the offering payable by the Company, estimated
at $157,500.
<PAGE>
(3) Each prospective purchaser wishing to become a member of the Company must
acquire one (1) share of Common Stock, which share is required for
membership in the Company. If the prospective purchaser is already a member
of the Company, he or she will already own a share of Common Stock and will
not be required to acquire an additional share of Common Stock. See
"Description of Common Stock and Preferred Stock."
(4) A portion of the purchase price for shares of Preferred Stock will not be
paid upon execution of a Subscription Agreement and instead will be payable
in six (6) annual installments. Therefore, assuming that the maximum number
of shares of Preferred Stock is sold, the amount of proceeds that will be
immediately available to the Company following the closing of the offering
described herein is approximately $42,300,000. (See "Plan of Distribution"
and "Use of Proceeds.")
------------------------
The Preferred Stock is being offered by the Company in three different
pools. The Common Stock and Preferred Stock will not be represented by
certificates, as all of the Company's shares are uncertificated. Confirmation of
the purchase of any Common Stock or Preferred Stock will be delivered to
subscribers at the end of December, 1997 with respect to shares sold in Pool 1,
at the end of January, 1998 with respect to shares sold in Pool 2, and on or
before February 27, 1998 with respect to shares sold in Pool 3.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of Section 15(d)
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports and other information with the Securities and
Exchange Commission (the "Commission"). The reports and other information filed
by the Company with the Commission can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and should be available for inspection at
the Commission's Regional Offices located at 7 World Trade Center, New York, New
York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60611.
Copies of such material also can be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a website (the "Commission Website") that
contains reports and other information regarding the Company. The address of the
Commission Website is http:\\www.sec.gov.
The Company furnishes its members with annual reports containing audited
financial statements.
2
<PAGE>
SUMMARY
THIS SUMMARY OF CERTAIN PROVISIONS OF THIS PROSPECTUS IS INTENDED ONLY FOR
QUICK REFERENCE AND IS NOT A COMPLETE PRESENTATION OF ALL RELEVANT FACTS. IT IS
QUALIFIED IN ITS ENTIRETY BY THE OTHER INFORMATION PROVIDED IN THIS PROSPECTUS.
AMERICAN CRYSTAL SUGAR COMPANY
American Crystal Sugar Company ("American Crystal" or the "Company") is a
Minnesota agricultural cooperative corporation owned by approximately 2,586
sugarbeet growers in the Minnesota and North Dakota portions of the Red River
Valley. (The Red River Valley, the largest sugarbeet growing area in the United
States, forms a band approximately 35 miles wide on either side of the North
Dakota and Minnesota border and extends approximately 200 miles south from the
border of the United States and Canada.) The Company currently processes
sugarbeets from a base level of approximately 440,000 acres, subject to
tolerances for overplanting and underplanting established by the Board of
Directors each year. By owning and operating five sugarbeet processing
facilities in the Red River Valley, the Company provides its shareholders with
the ability to process their sugarbeets into sugar and by-products, such as
molasses and beet pulp. The sugar is pooled and then marketed through the
services of a marketing agent under contract with the Company. The sugar
marketing agent, United Sugars Corporation, is a cooperative owned by its
members, American Crystal, Southern Minnesota Beet Sugar Cooperative and
Minn-Dak Farmers Cooperative. The Company's molasses, beet pulp and Concentrated
Separated By-product (a by-product of the molasses desugarization process) are
also marketed through a marketing agent, Midwest Agri-Commodities Company.
Midwest Agri-Commodities Company is a cooperative whose members are the Company,
Minn-Dak Farmers Cooperative and Southern Minnesota Beet Sugar Cooperative. The
Company is also one of three members of ProGold Limited Liability Company, a
joint venture which owns a corn wet-milling plant in Wahpeton, North Dakota.
American Crystal was organized in 1973 by sugarbeet growers to acquire the
business and assets of American Crystal Sugar Company, then a publicly held New
Jersey corporation in operation since 1899.
American Crystal's corporate headquarters are located at 101 North Third
Street, Moorhead, Minnesota 56560 (telephone number (218) 236-4400). Its fiscal
year ends August 31. See "Description of Business."
SECURITIES OFFERED
The Company is offering a total of 500 shares of its Common Stock, $10 par
value, and 61,500 shares of its Preferred Stock, $76.77 par value, for sale to
sugarbeet farm operators in the territory in which the Company is engaged in
business. To become a member of the Company, each sugarbeet farm operator must
acquire (or already own) a share of the Company's Common Stock. During the first
portion of the offering, designated as "Pool 1," members of the Company as of
July 25, 1997 will be granted the first right to purchase their pro rata portion
of 60,000 of the shares of the Preferred Stock offered hereby, with such pro
rata portion rounded to the next whole share of Preferred Stock. The application
of the rounding procedure increases the number of shares offered from 60,000 to
61,500 shares of Preferred Stock. (Such rights will grant each of the current
members the right to purchase an additional number of shares of Preferred Stock,
equal to approximately 13.5% of the number of shares of Preferred Stock owned by
such member on July 25, 1997 before rounding to the nearest whole share.) If the
Company's members as of July 25, 1997 do not purchase all of the Preferred Stock
offered to them on a pro rata basis in Pool 1, then current members who have
indicated an interest in acquiring additional shares of Preferred Stock and have
purchased his or her entire pro rata portion of the shares of Preferred Stock in
Pool 1, will be able to purchase shares of Preferred Stock in addition to those
which they have purchased under their pro rata purchase rights. In this second
portion of the offering, designated as "Pool 2," each member may purchase
additional shares in an amount up to two (2) times the number of shares of
Preferred Stock which such
3
<PAGE>
member is entitled to purchase pursuant to their pro rata purchase rights in
Pool 1. If the Company has received indications of interest in purchasing
additional shares in Pool 2 which do not exceed the number of shares available
for sale in Pool 2, each member will be entitled to purchase all requested
shares. If the Company has received indications of interest in purchasing
additional shares in Pool 2 which exceed the number of shares available for
purchase in Pool 2, the available shares will be allocated proportionally among
those members in the manner described in "Plan of Distribution," except that the
Company will not issue any fractional shares of its Preferred Stock. Any
Preferred Stock available for purchase after completion of the Pool 2 procedures
described above will be designated as "Pool 3 Shares". All Pool 3 Shares will be
available for purchase by (i) parties who were not members of the Company as of
July 25, 1997 and seek to become members of the Company through the purchase of
a share of Common Stock and some number of shares of Preferred Stock and (ii)
members of the Company as of July 25, 1997 who purchase their pro rata portion
of Pool 1 and all shares of Preferred Stock available to them in Pool 2. The
Pool 3 Shares will be allocated to such prospective purchasers in a random
drawing to be held in December 1997, until no additional shares of Preferred
Stock remain for sale or until the Company elects to terminate the Offerings
described herein.
All of the shares of Common Stock and Preferred Stock purchased in this
offering will be issued upon completion of the offering. At the time of
execution of a Subscription Agreement for the purchase of shares in Pool 1, each
purchaser who was a member of the Company as of July 25, 1997 will be required
to provide (i) subject to the conditions and requirements described in the "Plan
of Distribution", payment in full for the first forty-two percent (42%) of the
shares of Preferred Stock (rounded to the next whole share) available to such
member in Pool 1 and (ii) an initial payment of One Hundred Dollars ($100) for
each other share of Preferred Stock for which the member has subscribed in Pool
1. Within twenty (20) days after receipt of a notice from the Company that the
subscriber is entitled to purchase shares of Preferred Stock in Pool 2, each
purchaser who was a member of the Company as of July 25, 1997 will be required
to provide (i) subject to the conditions and requirements described in this
section, payment in full for forty-two percent (42%) of the shares of Preferred
Stock (rounded to the next whole share) available to such member in Pool 2 and
(ii) an initial payment of One Hundred Dollars ($100) for each other share of
Preferred Stock for which the member has subscribed in Pool 2. Within twenty
(20) days after receipt of a notice from the Company that the subscriber is
entitled to purchase shares of Preferred Stock in Pool 3, each purchaser will be
required to provide, subject to the conditions and requirements described in the
"Plan of Distribution", payment in full for the shares of Preferred Stock
(rounded to the next whole share) available to such member in Pool 3. Payment
for shares of Preferred Stock on the installment basis described above is
available to members of the Company as of July 25, 1997 only with respect to
that number of shares acquired IN EXCESS of forty two percent (42%) of the
shares of Preferred Stock which the member is entitled to purchase in Pool 1 and
the number of shares IN EXCESS of forty two percent (42%) of the shares of
Preferred Stock which become available to such member due to obtaining the right
to purchase such shares in Pool 2. That is, a member who wishes to purchase less
than forty two percent (42%) of all shares of Preferred Stock available under
that member's pro rata purchase rights will be required to pay for such shares
in full upon execution of that member's Subscription Agreement and a member who
purchases less than all shares available under that member's pro rata purchase
right will be required to pay for forty two percent (42%) of the shares of
Preferred Stock available under the member's pro rata purchase rights. A party
who was not a member of the Company as of July 25, 1997 will be required, within
twenty (20) days after receipt of a notice from the Company that the subscriber
is entitled to purchase shares of Preferred Stock in Pool 3, to provide (i)
payment for the share of Common Stock required as a condition of membership in
the Company, and (ii) subject to the conditions and requirements described in
the "Plan of Distribution", payment in full for the shares of Preferred Stock
(rounded to the next whole share) to be purchased by such subscriber.
The remaining portion of the purchase price for shares of Preferred Stock
acquired in Pool 1 and Pool 2 and not paid for in full at the time of
subscription will be due and payable in six (6) annual installments, due on each
anniversary of the date on which executed Subscription Agreements are required
4
<PAGE>
to be returned to the Company, being November 21, 1997. With respect to each
share to be paid for by installment payments, the annual installment will be
$233.33, exclusive of rounding, the Company will provide the subscriber with an
invoice for such amounts 30 days prior to the due date of each such installment.
As security for payment of the remaining installments, the Company will retain a
security interest in those shares of Preferred Stock for which payment has not
yet been made in full. Upon payment of each installment, the Company will
release its lien on an additional number of shares of Preferred Stock (rounded
down to the nearest whole share), in proportion to the amount of the installment
payment. Shares may not be transferred until the Company has received payment in
full; in addition, any prepayment of amounts due with respect to shares of
Preferred Stock will be applied to the last installment payment then remaining
payable.
Each member is entitled to one vote, based upon ownership of a share of
Common Stock. Ownership of Preferred Stock entitles a member to grow sugarbeets
for sale to the Company. Each share of Preferred Stock will entitle the holder
to grow one acre of sugarbeets for the Company. (Under the Company's Bylaws, the
Board of Directors has the authority to adjust the ratio of Preferred Stock
owned by a member to the number of acres of sugarbeets which may be planted by
virtue of ownership of those shares. However, it is management's current
intention and recommendation to the Board of Directors that the relationship
between the shares of Preferred Stock and acres of sugarbeet production be
maintained at a ratio of 1 to 1 for the foreseeable future, subject to
tolerances for overplanting and underplanting established by the Board each
year. Those tolerances can and will vary from year to year; for the 1997
sugarbeet crop, the Board of Directors established a tolerance of plus 8% or
minus 2% of the number of acres represented by issued and outstanding shares of
Preferred Stock.) In connection with the purchase of Preferred Stock, each
purchaser will be required to enter into a Growers' Contract, obligating the
member to sell the sugarbeets grown on one acre of farm land to the Company for
each share of Preferred Stock owned by such member. However, only those shares
of Preferred Stock to be issued in this offering for which the Company has
received full payment prior to April 1, 1998 will represent the right and
obligation to deliver the sugarbeets grown on an acre of farm land in the 1998
crop season. Shares which have been purchased but for which the Company has not
received full payment will represent the right and obligation to deliver the
sugarbeets grown on one half ( 1/2) of an acre of farmland during the 1998 crop
season. Subject to adjustment by the Board of Directors in accordance with the
Company's governing documents and the Growers' Contract, such shares shall
represent the right and obligation to deliver the sugarbeets grown on a full
acre of farm land in the 1999 crop season and years thereafter. The transfer of
both the Common Stock and Preferred Stock is subject to approval by the Board of
Directors and may only be transferred to another sugarbeet farm operator.
Neither the Common Stock nor the Preferred Stock bear dividends. See "Plan of
Distribution" and "Description of Common Stock and Preferred Stock."
RISK FACTORS
A decision to purchase Preferred Stock subjects the purchaser to certain
risks and immediate dilution. Accordingly, a decision to purchase Preferred
Stock may not be appropriate for persons who cannot afford to be subjected to
such risks. See "Risk Factors."
PAYMENTS TO MEMBERS FOR CROPS
Sugarbeets delivered to American Crystal by its members are processed and
the resulting sugar is marketed on a cooperative basis. A particular member's
share of the net proceeds from the sale of sugar is determined by the amount of
sugar recoverable from the sugarbeets the member delivers to the Company. All
members of American Crystal are credited with the same unit price per
hundredweight (100 pounds) of recoverable sugar delivered, a price which is
determined when the sugarbeets of all of the members have been processed and
most of the sugar has been sold. The price paid for sugarbeets is determined by
reducing the adjusted value of recovered sugar from the beets a member delivers
by the member's share of the Company's member business operating expenses and
any unit retains. Each member also receives a pro
5
<PAGE>
rata share of net revenues from by-product sales, based on the tonnage of
sugarbeets delivered by the member. See "Description of Business--Growers'
Contracts."
SELECTED FINANCIAL DATA
The selected financial data of the Company should be read in conjunction
with the financial statements and related notes included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C>
Revenues........................................... $ 677,004 $ 688,012 $ 605,960 $ 563,420 $ 542,665 $ 545,220
Net Proceeds Before Accounting Change.............. $ 366,756 $ 310,206 $ 320,549 $ 273,785 $ 303,842 $ 269,388
Cumulative Effect of Accounting Change(1).......... -- -- -- $ (12,214) -- --
Net Proceeds(2).................................... $ 366,756 $ 310,206 $ 320,549 $ 261,571 $ 303,842 $ 269,388
Total Assets....................................... $ 581,504 $ 465,136 $ 420,890 $ 324,469 $ 303,318 $ 278,989
Long-Term Debt, including current maturities....... $ 204,600 $ 190,919 $ 119,029 $ 115,834 $ 98,039 $ 91,615
Members' Investments............................... $ 175,928 $ 152,136 $ 142,047 $ 115,609 $ 120,113 $ 107,679
Property and Equipment
Additions, net of retirements.................... $ 70,101 $ 43,168 $ 48,394 $ 50,824 $ 35,659 $ 42,046
Working Capital.................................... $ 45,652 $ 32,071 $ 28,046 $ 30,859 $ 32,819 $ 27,254
Ratio of Long-Term Debt to Equity(3)............... 1.07:1 1.17:1 .75:1 .88:1 .71:1 .71:1
Ratio of Net Proceeds to Fixed Charges(4).......... 13.3 14.3 11.6 15.0 14.2 15.0
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31
---------------------------------------------------------------------------
PRODUCTION DATA(5) 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------ --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Acres harvested................................. 459 429 413 396 400 397 400
Tons purchased.................................. 8,313 8,029 8,332 6,450 6,748 6,915 5,345
Tons purchased per acre harvested............... 18.1 18.7 20.2 16.3 16.9 17.4 13.4
Net beet payment per ton of sugarbeets
purchased, plus unit retains.................. $ 46.29 $ 38.69 $ 39.15 $ 42.59 $ 45.11 $ 39.21 $ 48.81
Sugar hundredweight--
Produced...................................... 22,465 19,947 21,369 18,093 18,979 16,474 15,057
Sold, including purchased sugar............... 20,579 22,179 19,702 19,450 17,957 17,262 14,936
Purchased sugar sold.......................... 869 490 509 293 81 195 15
Pulp and molasses tons--
Produced...................................... 690 651 643 488 667 724 570
Sold.......................................... 618 638 659 472 688 706 569
</TABLE>
- ------------------------------
(1) During 1994, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Post-Retirement Benefits Other than
Pensions" and Financial Accounting Standards No. 112, "Employers Accounting
for Post-Employment Benefits." The cumulative effect of application of the
new standards resulted in the reduction of net proceeds shown above for the
year ended August, 1994. See note number 8 to the Financial Statements for
the fiscal year ended August 31, 1996, for a more detailed description of
the accounting change.
(2) Net Proceeds are the Company's gross revenues, less the costs and expenses
of producing and marketing sugar, by-products and beet seed, but before
payments to members for sugarbeets. Payments to be made to members for the
delivery of sugarbeets are liabilities of the Company. (For a more complete
description of the calculation of Net Proceeds, see "Description of
Business-- Growers' Contracts.")
(3) Calculated by dividing the Company's long term debt, exclusive of the
current maturities of such debt, by members' investments.
(4) Computed by dividing (i) the sum of Net Proceeds plus interest plus
depreciation by (ii) the sum of interest plus principal payments. Although
the Company does lease certain items, such as some office furniture, office
equipment and computers, due to the proportionately small amounts involved,
such lease payments have not been included in the total of the Company's
Fixed Charges or the calculation of this ratio.
(5) Information for a fiscal year relates to the crop planted and harvested in
the preceding calendar year (e.g., information for the fiscal year ended
August 31, 1997 relates to the crop of 1996).
6
<PAGE>
RISK FACTORS
INTRODUCTION
The financial results of American Crystal's operations and the payments made
to its members for their beets may be directly and materially affected by many
factors, including prevailing prices of sugar and by-products, American
Crystal's ability to market its sugar competitively, the weather, government
programs and regulations, and costs and expenses, including those related to
energy and transportation.
COMPETITION
American Crystal sells sugar through United Sugars Corporation in all of its
markets in direct competition with beet and cane sugar produced by other sugar
companies. Because sugar is a fungible commodity, competition for sales volume
is based primarily upon customer service, price and reliability, though
differences in proximity to various geographic markets within the United States
result in differences in freight and shipping costs which in turn affect pricing
and competitiveness in general.
In addition to sugar, the overall sweetener market includes corn-based
sweeteners, such as regular and high fructose corn syrups, and non-nutritive,
high-intensity sweeteners such as aspartame. Differences in functional
properties and prices have tended to define the use of these various sweeteners.
For example, corn sweeteners are generally limited to applications where a
liquid sweetener can be used. Non-nutritive sweeteners presently do not provide
the bulk and other physical properties of sugar. Although the various sweeteners
are not interchangeable in all applications, the substitution of other
sweeteners for sugar has occurred in certain products, such as soft drinks. The
Company is not able to predict the availability, development or potential use of
these and other alternative sweeteners and their possible impact on the Company
and its members.
According to U.S. Department of Agriculture (USDA) statistics, the Red River
Valley is generally one of the most cost efficient sugarbeet producing areas in
the nation. As a result, the Company's management believes that it possesses the
ability to compete successfully with other producers of sugar in the United
States. In spite of this competitive advantage, substitute products and sugar
imports could have a material and adverse effect on the Company's operations in
the future.
WEATHER AND OTHER FACTORS
The sugarbeet, as with most other crops, is affected by weather conditions
during the growing season. Additionally, weather conditions during the
processing season affect the Company's ability to store beets held for
processing. Growing and storage conditions different from the Company's
expectations may change the quantity and quality of sugarbeets available for
processing and therefore may affect the quantity of sugar produced by the
Company. See "Description of Business--Growers' Contracts" for more information
regarding such variations in crops and production.
A significant reduction in the quantity or quality of sugarbeets harvested
resulting from adverse weather conditions, disease or other factors could result
in increased per unit processing costs and decreased production, with adverse
financial consequences to the Company and its members.
GOVERNMENT PROGRAMS AND REGULATIONS
Domestic sugar prices are supported under a program administered by the
USDA. Under the current program, which was initiated in 1981 and extended under
the Food Security Act of 1985, the Food, Agriculture, Conservation and Trade Act
of 1990 and the Federal Agriculture Improvement and Reform Act of 1996 (the
"FAIR Act"), the price of sugar is required to be maintained above the price at
which producers could forfeit sugar to repay nonrecourse loans obtained through
the Commodity Credit Corporation (CCC). The USDA maintains sugar prices without
cost to the U.S. Treasury by regulating the quantity of sugar imports. Under the
"Tariff Rate Quota" implemented October 1, 1990, sugar producing
7
<PAGE>
countries are assigned a fixed quantity of imports duty-free or subject to
minimal duties. Unlimited additional quantities may be imported upon payment of
a tariff of 16 cents per pound prior to shipment. (To date, only minute
quantities of sugar have been imported under this higher tariff level.)
The Uruguay Round agreement under the General Agreement on Tariffs and Trade
(GATT) mandates imports of at least 1,257,000 short tons of sugar per year into
the United States. The FAIR Act maintains the basic 18 cent per pound loan rate
for raw sugar and puts in place a 22.90 cent per pound loan rate for refined
beet sugar. Both loan rates are effective for crop years 1996 through 2002.
Price support loans are to be made on a non-recourse basis provided that United
States sugar imports for domestic usage exceed 1.5 million short tons raw value
in a given fiscal (October through September) year. Loans made on a non-recourse
basis enable the sugar processor to forfeit sugar to the CCC if sugar prices are
below the loan rate. If imports during a given year are less than 1.5 million
short tons, loans must be made on a recourse basis, meaning that processors will
not be able to forfeit sugar to the CCC at its full loan value. In order to
recover the full value of a recourse loan, the CCC could require that cash or
other assets be provided in addition to the sugar used as collateral when the
loan is made. Another new provision of the FAIR Act is a one cent per pound
penalty paid by processors if the processor defaults on sugar price support
loans.
The nature and scope of future legislation affecting the sugar market cannot
be predicted and there can be no assurance that price supports will continue in
their present form. If the price support program, including the Tariff Rate
Quota system described above, were eliminated in its entirety or if the
protection the United States' price support program provides from foreign
competitors were materially reduced, the Company could be materially and
adversely effected. In such a situation, if the Company were not able to adopt
strategies which would allow it to compete effectively in a greatly changed
domestic market for sugar, the adverse affects could impact the Company's
continued viability and the desirability of growing sugarbeets for delivery to
the Company. Such events could significantly impair the value of the shares of
Preferred Stock in which are embodied the right and obligation to deliver
sugarbeets.
COMPANY'S INVOLVEMENT IN PROGOLD LIMITED LIABILITY COMPANY
As described elsewhere in this Prospectus, the Company is one of the three
members of ProGold Limited Liability Company ("ProGold"). ProGold was
established as a joint venture mechanism for the Company, Minn-Dak Farmers
Cooperative and Golden Growers Cooperative for the purpose of constructing and
operating a corn wet-milling plant capable of processing corn to produce corn
sweeteners and related corn products. The Company is a 46% owner of ProGold and
has invested a total of approximately $48,024,000 in that entity. ProGold's
wet-milling facility recently became operational and has begun producing corn
sweeteners and other products from the corn delivered to ProGold by its three
members, with the corn deliveries being provided by the members of ProGold in
proportion to their ownership interests in the joint venture. The products
produced through operation of the corn wet-milling facility are being sold
through the efforts of United Sugars Corporation and Midwest Agri-Commodities
Company.
In September 1997, ProGold entered into a Letter of Intent with Cargill,
Incorporated ("Cargill") for the lease of ProGold's corn wet-milling plant to
Cargill, subject to the negotiation of a definitive lease by the parties within
thirty (30) days. The proposed lease would commence on November 1, 1997 and
terminate on October 31, 2007, subject to extension upon certain conditions.
Under the proposed arrangement, the Company and the ProGold members will retain
ownership of the plant, while Cargill will operate the plant. Upon execution of
a definitive lease, ProGold would receive rental payments in a base amount fixed
for each year during the term of the lease. ProGold would also receive
supplemental rent equal to fifty percent (50%) of the amount by which earnings
before taxes from operation of the facility exceed a specified base amount.
Under the terms of the Letter of Intent, Cargill will also enter into a corn
supply agreement with ProGold, pursuant to which ProGold will be obligated to
deliver approximately 15.6 million bushels of corn per fiscal year. The
Company's obligation to deliver corn to ProGold will be terminated as part of
the transactions. Cargill will pay ProGold a market price for any corn delivered
to
8
<PAGE>
Cargill under the corn supply agreement. There can be no assurance that ProGold
and Cargill will be able to successfully negotiate definitive agreements.
Upon execution of a definitive lease and associated corn supply agreement
between ProGold and Cargill, Cargill would begin operation of the ProGold
facility and ProGold would become entitled to receive a fixed rental, with the
opportunity to receive supplemental rental amounts if Cargill's operation of the
ProGold facility meets the specified financial criteria. In addition, if ProGold
and Cargill enter into the definitive lease and corn supply agreement, the
Company's obligation to deliver corn to ProGold for processing would be
eliminated. Such events would eliminate the Company's risk of procuring corn for
delivery to ProGold and receiving payment in an amount less than the cost of
acquiring that corn. If ProGold and Cargill do not enter into a definitive
arrangement, ProGold and its members would continue to be exposed to the risks
of participation in the corn sweetener market, including the risk of financial
losses by ProGold and the necessity of additional capital investment from
ProGold's members, including the Company. Therefore, in the event that ProGold
and Cargill do not enter into the contemplated lease and corn supply agreement,
the Company can be expected to experience reduction of its own reserves and
working capital as a result of its involvement in ProGold.
ENERGY AND TRANSPORTATION
American Crystal uses large quantities of energy in its operations,
principally for heating the cossettes (sliced beets), evaporating water from
juices containing sugar, drying wet beet pulp, and generating electrical power.
Each of the Company's five factories currently burn low sulphur coal as their
primary source of energy. However, the Company is in the process of converting
certain of its dryer facilities to operate with natural gas as the energy
source. (The factories in East Grand Forks, Crookston and Moorhead have been
converted to natural gas operation.) The Company presently obtains all of its
coal from Montana under a supply contract expiring July 31, 2005. The Company
has also entered into a contract with a gas marketing company to meet the dryer
facilities' natural gas requirements primarily from Canadian sourced gas
supplies, with an initial term ending October 31, 2001. The Company has also
entered into a related contract, with a term ending in November, 2011, for
transportation of gas from the Canadian border. Changes in the cost and sources
of energy may affect the financial results of the Company's operations and the
Net Beet Payment to members for their crops.
Transportation is another significant expense. Transportation costs include
the delivery costs of beets, sugar and the Company's major operating supplies,
including coal, coke, limerock and chemicals. Transportation costs for the
delivery of operating supplies are included in the cost of the supplies and
represent a major part of the Company's operating costs in connection with the
production of sugar and sugarbeet by-products.
As described elsewhere in this Prospectus, the Company markets its sugar
through United Sugars Corporation and its sugarbeet by-products through Midwest
Agri-Commodities Company. While those entities are responsible for marketing and
distributing the Company's products, the costs involved in such marketing and
distribution reduce the proceeds received by the Company from those
organizations in exchange for sugar and sugarbeet by-products. Most of the
Company's products are now quoted and sold to customers for a price which
includes the cost of delivery. As noted above, the cost of transporting sugar
has a significant impact on the geographic markets into which the Company is
able to sell its products. A significant change in transportation costs could
have an adverse impact on the Company.
ENVIRONMENTAL MATTERS
American Crystal is subject to extensive federal and state environmental
laws and regulations with respect to water and air quality, solid waste disposal
and odor and noise control. The Company conducts an on-going and expanding
control program designed to meet these environmental laws and regulations.
9
<PAGE>
American Crystal believes that it is in substantial compliance with applicable
environmental laws and regulations.
The Company cannot predict whether future changes in environmental laws or
regulations might increase the cost of operating its facilities and conducting
its business. Any such changes could have adverse financial consequences for the
Company and its members.
LIMITED TRANSFERABILITY AND MARKETABILITY; COMPANY'S RIGHT OF FIRST REFUSAL; NO
OBLIGATION TO REPURCHASE
The purchase of the Common Stock and Preferred Stock should be considered a
long-term decision by each prospective member. Because the number of acres of
sugarbeets a member may grow for sale to the Company is directly related to the
number of shares of Preferred Stock owned, a limited, private market for
Preferred Stock exists. However, it is not anticipated that a general public
market for the Company's shares of Common Stock or Preferred Stock will develop
due to the limitations on transfer and the various membership requirements which
must be satisfied in order to acquire such shares.
A member desiring to sell his or her Common Stock or Preferred Stock must
first offer them to the Company for purchase at par value. If the Company
declines to purchase such shares, either class may be sold to a new member
(i.e., another farm operator not already a member) and Preferred Stock may be
sold to one or more existing members or farm operators approved for membership,
in each case subject to approval by the Board of Directors. To date, the
Company's Board of Directors has not exercised the Company's right of first
refusal to purchase shares offered for sale by its members. In the absence of
the exercise of such right of first refusal, the Company is aware of sales of
Preferred Stock at prices in excess of the par value of those shares. However,
as the Company does not require parties seeking approval for transfers to
provide information regarding the transfer price, the Company does not possess
verifiable information regarding the transfer price involved in recent transfers
of the Company's Preferred Stock. See "Description of Common Stock and Preferred
Stock."
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Prospectus contains forward-looking statements regarding, among other
items, the Company's growth strategy and anticipated trends in the Company's
business. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, certain of
which are beyond the Company's control. Actual results could differ materially
from these forward-looking statements as a result of the factors described under
"Risk Factors" and elsewhere herein, including, among others, regulatory or
economic influences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus will
in fact transpire or prove to be accurate.
DETERMINATION OF OFFERING PRICE
There is only a very limited, private market for the Company's Preferred
Stock and no market for shares of the Company's Common Stock. The price for the
Common Stock offered hereby is the par value of such shares as established by
the Company's Articles of Incorporation. Ownership of the Company's Preferred
Stock provides a shareholder with the opportunity to (1) produce sugarbeets on
the farm, (2) participate in the Company's value added processing and (3) market
sugar and by-products through the Company's marketing agents, United Sugars
Corporation and Midwest Agri-Commodities Company. The price for the Preferred
Stock offered hereby has been determined by the Company's Board of Directors
after giving consideration to many complex factors. Although many factors have
been considered, the specific offering price for the preferred stock does not
have any direct relationship to the assets, earnings, book value, or other
measurable criteria of the Company. The Company makes no representations,
10
<PAGE>
whether express or implied, as to the value of the Preferred Stock offered
hereby. There can be no assurance that such shares can be sold at either the
offering price or any other price in the future.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Preferred Stock offered
hereby, after payment of expenses of the offering totaling approximately
$157,500 are estimated to be approximately $92.09 million if the maximum number
of shares of Preferred Stock is sold. Of that amount, it is estimated that
approximately $42.3 million will be immediately available to the Company
following the closing of the offering and during the 1998 fiscal year if all of
the share of Preferred Stock are sold. A significant portion of the purchase
price for shares of Preferred Stock will be payable on an installment basis. The
Company intends to use such proceeds as working capital for the Company's
business activities. Such amounts will be used in connection with the Company's
other sources of working capital, for the purposes described below.
The Company's sources of working capital during the 1998 fiscal year
beginning on September 1, 1997 are projected as follows:
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT
CATEGORY (IN MILLIONS)
- ------------------------------------------------------------------------- -------------------
<S> <C>
Net Proceeds of Offering................................................. $ 42.3(1)
Unit Retains............................................................. 16.6
Depreciation and Amortization............................................ 26.6
Long Term Debt........................................................... 43.0
------
$ 128.5
Non-Member Loss other than ProGold Loss.................................. (3.8)
------
$ 124.7
------
------
</TABLE>
The projected sources of working capital listed above are based upon the
Company's best estimates of the availability of the Company's resources during
the fiscal year beginning on September 1, 1997. In particular, the Company's
estimates are based upon decisions by the Board of Directors regarding unit
retains to be established with regard to the 1996 sugarbeet crop and the
availability of long-term debt financing. The Company's projections regarding
the availability of working capital resources are subject to a variety of risks
and uncertainties, including the total amount of the Company's Non-Member loss
for the fiscal year to end on August 31, 1997, the discretion of the Board of
Directors in establishing unit retains and the continued availability of
long-term debt financing. See "Risk Factors--Forward Looking Statements and
Associated Risks".
11
<PAGE>
During the upcoming 1998 fiscal year, the Company intends to use such
working capital for the following purposes:
<TABLE>
<CAPTION>
APPROXIMATE AMOUNT
CATEGORY (IN MILLIONS)
- ------------------------------------------------------------------------- -------------------
<S> <C>
Payment of Current Maturities of Long Term Debt.......................... $ 18.8
Revolvement of Unit Retains.............................................. 7.7
Payments to Estates of Deceased Members.................................. 0.7
Property Additions and Improvements...................................... 72.5
Investment in United Sugars Corporation.................................. 7.0
Investment in ProGold Limited Liability Company.......................... 12.0(2)
------
$ 118.7
------
------
</TABLE>
- ------------------------
(1) In the event that the Company sells less than all of the Preferred Stock
available in this offering, the Company will increase its borrowing to the
extent reasonably necessary to obtain the working capital required for the
Company's planned activities. Later this year, the Company will begin
negotiations with its lenders to obtain financing for the fiscal year
beginning on September 1, 1997. Although the Company does not have a binding
commitment from its banks to provide the specified amount, the Company
believes that its relationships with its lenders are good. The various uses
of working capital shown above are listed in the order of their priority to
the Company.
(2) This amount reflects the Company's belief regarding the additional
investment which may be requested by ProGold Limited Liability Company
during the fiscal year beginning on September 1, 1997 in the event that the
proposed transaction between ProGold and Cargill is not completed. As noted
elsewhere in this document, the members of ProGold are contractually
committed to provide no more than $5,000,000 in capital investment in
ProGold during any year; the Company's proportionate share of that amount is
$2,300,000. Additional amounts may be required only with the unanimous
consent of all of the members of ProGold, including the Company. No action
has been taken by the members of ProGold which would obligate the Company to
provide capital investment in excess of the Company's portion of the
$5,000,000 described above, nor has the Company's Board of Directors taken
any action indicating a willingness to invest more than the amounts to which
the Company is contractually committed.
The foregoing use of the Company's working capital is based upon the
Company's assumptions concerning its business objectives, finances and other
matters affecting the Company. It also assumes that all of the Preferred Stock
offered hereby will be sold. If current assumptions are not accurate, other
unforeseen conditions affecting the Company's business arise, or if less than
all of the shares of Preferred Stock offered are sold, there could be material
changes to the Company's projections. The Company would first seek debt
financing to allow it to complete its planned activities during the fiscal year
beginning on September 1, 1997. If such debt financing is not available or is
not available on appropriate terms, the Company could find it advisable to
allocate its working capital, including the offering proceeds, in a manner
different from that described above. Such adjustments may involve deferral or
reduction of certain capital expenditures.
Based on the Company's current financial resources and assuming the
availability of (i) the proceeds from the sale of all of the Preferred Stock and
(ii) debt financing in amounts and on terms and conditions acceptable to the
Company, the Company would not be required to raise additional equity capital
(other than through Unit Retains) to continue its current expansion plan for
increased processing capacity. However, the Company may consider obtaining
additional equity capital through future sales of its securities in order to
pursue strategic objectives.
Pending application of the proceeds of this offering, the Company will use
the funds to reduce its borrowings or invest in short-term interest-bearing
securities.
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<PAGE>
DILUTION
The net tangible book value of the Company, based on the Company's financial
statements as of August 31, 1997 was $173,021,977 or approximately $396.01 per
share of Preferred Stock. "Net tangible book value per share" represents the
tangible assets of the Company less total liabilities divided by the number of
shares of Preferred Stock outstanding. Without taking into account changes in
net tangible book value subsequent to August 31, 1997 other than to give effect
to (i) the sale of the Preferred Stock offered hereby and (ii) the application
of the net proceeds of such sales, the pro forma net tangible book value of the
Company at August 31, 1997 would increase to $265,114,477, or approximately
$531.92 per share if the maximum number of Shares are sold. Accordingly, the net
tangible book value of the shares of Preferred Stock held by the present
shareholders of the Company will be increased by approximately $135.91 per share
if the maximum number of shares of Preferred Stock is sold. The new investors
will incur dilution of approximately $968.08 per share of Preferred Stock if the
maximum number of such shares are sold.
Dilution per share of Preferred Stock represents the difference between the
price for each share of Preferred Stock to be paid by new investors and the net
tangible book value per share as of August 31, 1997, as adjusted to give effect
to the offering of shares of Preferred Stock made hereby. The dilution per share
of Preferred Stock, calculated as described above, is illustrated in the
following table:
<TABLE>
<S> <C>
Offering price per share......................................... $1,500.00
---------
Net tangible book value per share before offering................ $ 396.01
Increase to current stockholders in net tangible book value per
share due to offering.......................................... $ 135.91
---------
Net tangible book value per share after offering................. $ 531.92
---------
Dilution per share to new investors.............................. $ 968.08
---------
---------
</TABLE>
In the event that the Company sells less than the maximum number of shares
of Preferred Stock offered hereby, each purchaser in this offering can expect to
incur dilution in excess of that described above.
The following table summarizes, as of the date of this Prospectus, the
differences among current stockholders and new members with respect to the
number of shares of Preferred Stock purchased from the Company, the total
consideration paid, and the average consideration paid per share, assuming the
sale of the maximum number of shares of Preferred Stock. See "Plan of
Distribution."
<TABLE>
<CAPTION>
PRESENT PURCHASERS IN
STOCKHOLDERS THIS OFFERING
------------------- ----------------
<S> <C> <C>
Average cost per share................................ $ 207.98 $ 1,500.00
Percent of outstanding shares owned after offering.... 87.7% 12.3%
Total investment of group............................. $ 90,871,500.00 $ 92,250,000.00
Percentage of total investment........................ 49.6% 50.4%
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS.
THIS DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING, BUT NOT LIMITED TO, THOSE SET FORTH UNDER "RISK FACTORS" AND
ELSEWHERE IN THIS PROSPECTUS.
LIQUIDITY AND CAPITAL RESOURCES
Because American Crystal operates as a cooperative, payments for member
delivered sugarbeets, the principal raw material used in producing the sugar and
agri-products it sells, are subordinated to all member business expenses. In
addition, actual cash payments to members are spread over a period of
approximately one year following delivery of their sugarbeet crops to American
Crystal and are net of unit retains allocated to them, both of which remain
available to meet American Crystal's capital requirements. This member financing
arrangement may result in an additional source of liquidity and reduced outside
financing requirements in comparison to a similar business operated on a
non-cooperative basis. However, because sugar is sold throughout the year (while
sugarbeets are processed primarily in the fall and winter) and because
substantial amounts of equipment are required for its operations, American
Crystal has utilized substantial outside financing on both a seasonal and
long-term basis to fund such operations. The majority of such financing has been
provided by the St. Paul Bank for Cooperatives (the "Bank"). American Crystal
has a long-term debt commitment with the Bank in 1997 of $216 million. The
Company also has a seasonal line of credit with the Bank of $240 million,
including any amounts obtained through issuance of instruments in its commercial
paper program. American Crystal also has a line of credit with Norwest Bank for
$10 million. The Company utilizes a commercial paper program, which provides for
short-term borrowings of up to $75 million.
As described in "Risk Factors" and in "Description of Business," the Company
is a member of ProGold Limited Liability Company ("ProGold"). Due to unexpected
changes in market conditions, ProGold is expected to suffer significant losses
for several years. To the extent that ProGold's operations do not result in a
profit, the Company will receive distributions from ProGold in an amount less
than the Company's cost to acquire the corn delivered to ProGold for processing.
To the extent that the Company's reserves and working capital are unable to
satisfy the Company's proportionate share of ProGold losses, the Company could
be required to increase its unit retains withheld from amounts distributed to
members, thereby reducing revenues available for distribution to members in the
form of net beet payments. However, as also described in "Risk Factors" and
"Description of Business", ProGold and Cargill, Incorporated ("Cargill") have
entered into a letter of intent calling for Cargill to lease and operate the
ProGold facility for an initial period of ten (10) years. ProGold would receive
a base rental amount fixed for each year during the term and could also receive
supplemental rental payments in the event that Cargill's operation of the
ProGold facility meets the specified financial criteria. If ProGold and Cargill
do not enter into a definitive arrangement, ProGold and its members would
continue to be exposed to the risks of participation in the corn sweetener
market, including the risk of financial losses by ProGold and the necessity of
additional capital investment from ProGold's members, including the Company.
RESULTS OF OPERATIONS
INDUSTRY ENVIRONMENT
During most of the 1970s and 1980s, the sweetener industry witnessed two
significant trends: the increase in consumption of non-nutritive sweeteners,
principally aspartame, and the increased use of high
14
<PAGE>
fructose corn syrup (HFCS) in place of refined sugar (sucrose) in certain food
products, primarily beverages.
During the late 1980s and the early 1990s, the domestic consumption of U.S.
sugar continuously increased, from 146 million hundredweights in 1986 to 180
million hundredweights in 1996. The growth has been at a compounded rate of
approximately 2% a year during that period, although sugar consumption is
currently growing at a rate of approximately 1.6% per year. The Company believes
that this recent market trend has been due to population growth and general
acceptability of sugar as a desirable natural ingredient of a normal diet.
Consumption of corn sweeteners is projected to grow at an annual rate of 4
to 5% over the next five years. Food manufacturers are currently increasing
their research and development budgets to expand their ingredients to include
corn sweeteners. Information received by the Company from industry experts
suggests that a number of companies are switching some of their corn sweetener
production capacity into the production of additives for functional foods. These
additives may include B complex, lysine, glycerin, and various vitamins.
The Company's results of operations are substantially dependent on market
factors, including domestic prices for refined sugar. These market factors are
influenced by a variety of forces, including sugarbeet production, weather
conditions and United States farm and trade policy, that the Company is unable
to predict. See "Business--Government Programs and Regulations." In addition,
weather conditions during the growing, harvesting and processing seasons, as
well as diseases and insects, may materially affect the quality and quantity of
sugarbeets available for purchase as well as the unit costs of raw materials and
processing. Sugar prices are currently at a premium due to sugarbeet shortages
and insufficient refinery capacity during 1995 and 1996.
COMPARISON OF THE YEAR ENDED AUGUST 31, 1997 AND 1996
Revenue for the year ended August 31, 1997, was $677 million, a decrease of
$11 million from the same period in 1996. Revenue from total sugar sales
decreased 1.8% reflecting a 7.2% decrease in hundredweight sold and a 5.9%
increase in the average selling price per hundredweight. Revenue from pulp sales
increased 5.1% due to a 2.9% increase in the volume of pulp sold and a 2.1%
increase in the average selling price per ton. Revenue from molasses sales
decreased 11.5% due to a 12.3% decrease in the volume of molasses sold partially
offset by a .9% increase in the average selling price per ton. Revenue from
Concentrated Separated By-Product (CSB) increased 21.2% due to a 10.3% decrease
in the volume of CSB sold and a 35.5% increase in the average selling price per
ton.
Cost of product sold, exclusive of payments to members for sugarbeets,
decreased $79.9 million. The decrease was primarily due to the amount of
products sold compared to the prior year which was partially offset by increased
direct processing costs. Changes in product inventory levels decreased the cost
of product sold by $103 million. The cost associated with sugar purchased to
meet customer needs was up $1.1 million due to the short supply of inventory at
the beginning of the fiscal year. Fixed and committed expenses increased by 4.7%
due to higher depreciation costs.
Selling expenses decreased $10.5 million. The decrease is attributable
primarily to the decrease in the volume of sugar and by-products sold. General
and Administrative expenses decreased $2.7 million due primarily to lower
outside services and other general cost decreases.
Interest expense increased $7.1 million from $11.2 million during the year
ended August 31, 1996, to $18.3 million for the same period in 1997. This
resulted from higher average borrowing levels for long and short-term debt.
Non-member business activities resulted in a loss of $18.1 million for the
year ended August 31, 1997 as compared to a loss of $396,000 for the same period
in 1996. The majority of this loss is related to American Crystal's investment
in ProGold Limited Liability Company. See "Risk Factors--Company's
15
<PAGE>
Involvement in ProGold Limited Liability Company" and "Description of
Business--Joint Venture with ProGold Limited Liability Company" for a discussion
of the Company's involvement in ProGold.
Payments to members for sugarbeets increased by $73.6 million from $294.6
million during the year ending August 31, 1996 to $368.2 million during the same
period in 1997. The increase is attributable to an increase in the sales price
for the Company's products, a reduction in the Company's expenses and additional
tons harvested.
COMPARISON OF THE YEARS ENDED AUGUST 31, 1996, AND 1995
Revenue for the year ended August 31, 1996, was $688.0 million, an increase
of $82.0 million from 1995. Revenue from total sugar sales increased 15.4%,
reflecting a 12.6% increase in hundredweight sold and a 2.5% increase in the
average selling price per hundredweight. Revenue from pulp sales decreased 7.5%,
due to a 16.9% decrease in the volume of pulp sold partially offset by an 11.3%
increase in the average selling price per ton. Revenue from molasses sales
increased 32.4%, due to a 29.0% increase in the volume of molasses sold and a
2.6% increase in the average selling price per ton. Revenue from Concentrated
Separated By-Products ("CSB") increased 4.6%, due to a 2.4% increase in the
volume of CSB sold and a 2.2% increase in the average selling price per ton.
Revenue from beet seed sales was down 4.5%, primarily due to decreased sales
volume offset by an increase in sales prices.
Cost of product sold, exclusive of payments to members for sugarbeets,
increased $72.5 million. The increase was primarily due to changes in product
inventory levels between 1996 and 1995, which impacted the cost of product sold
unfavorably by $77.1 million. Direct processing costs for sugar and pulp
decreased 2.5% primarily due to the harvesting and processing of a 3.6% smaller
crop. Fixed and committed expenses decreased by 2.9% due to a shorter processing
campaign.
Selling expenses increased $17.9 million. The increase was attributable
primarily to increased sales volume. General and administrative expenses
increased $4.5 million due primarily to higher information services costs,
capital projects expense and general increases in personnel costs, partially
offset by a favorable settlement of an IRS tax case.
Interest expense decreased $3.2 million from $14.5 million in 1995, to $11.3
million in 1996. This resulted from lower 1996 average interest rates for both
long-term and short-term debt, partially offset by higher average borrowing
levels.
Non-member business activities resulted in a loss of $396,000 in 1996 and a
loss of $15,000 in 1995.
Unit retains of $16.0 million and $16.6 million were withheld from members
in 1996 and 1995, respectively. The unit retain per-ton-purchased was $2.00 in
1996 and 1995.
Payments to members for sugarbeets decreased by $14.9 million from $309.5
million in 1995 to $294.6 million in 1996. The decrease is attributable
primarily to a decrease in tons harvested and a lower average sugar content from
the 1995 crop of sugarbeets.
COMPARISON OF THE YEARS ENDED AUGUST 31, 1995, AND 1994
Revenue for the year ended August 31, 1995 was $606 million, an increase of
$42.5 million from 1994. Revenue from total sugar sales increased 4.6%,
reflecting a 1.3% increase in hundredweight sold and a 3.3% increase in the
average selling price per hundredweight. Revenue from pulp sales increased
42.8%, due to a 41.6% increase in the volume of pulp sold and an 0.8% increase
in the average selling price per ton. Revenue from molasses sales increased
49.9% due to a 36.1% increase in the volume of molasses sold and a 10.1%
increase in the average selling price per ton. Revenue from beet seed sales was
down 4.1% primarily due to decreased sales volume.
Cost of product sold, exclusive of payments for sugarbeets, decreased $25.4
million from $169.1 million in 1994 to $143.7 million in 1995. This was
primarily due to changes in product inventory levels
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<PAGE>
between 1995 and 1994, which impacted the cost of product sold favorably by
$61.2 million. Also, the cost of product sold was partially offset by increased
process costs associated with a large crop and higher costs for purchased sugar
due to increased sales volume.
Selling, general and administrative expenses increased $19.1 million from
$113.7 million to $132.8 million. This was due primarily to higher selling
expenses associated with the increased volumes of products sold. General and
administrative expenses increased 15.4% due primarily to higher outside service
costs and general increases in personnel costs.
Interest expenses increased $6.6 million from $7.9 million in 1994 to $14.5
million in 1995. This resulted from a higher 1995 average borrowing level and
higher interest rates for both long-term and short-term debt.
Non-member business activities resulted in a loss of $15,000 in 1995 and a
loss of $544,000 in 1994.
Unit retains of $16.6 million and $19.3 million were withheld from members
in 1995 and 1994, respectively. The unit retain per-ton-purchased was $2.00 in
1995 and $3.00 in 1994.
Payments to members for sugarbeets increased by $54.1 million from $255.4
million in 1994, to $309.5 million in 1995 due primarily to an increase in tons
harvested in the 1994 crop.
1996 CROP AND ESTIMATED FISCAL YEAR 1997 INFORMATION
As noted in the "Growers Contracts" subsection of the "Description of
Business", the agreements between the Company and its members regarding the
delivery of sugarbeets to the Company require payment for members' sugarbeets in
four installments throughout the year after harvest of the applicable sugarbeet
crop. As only the final payment is made after the close of the fiscal year in
question, the first three payments to members for their sugarbeets are, of
necessity, based upon the Company's then-current estimates of the Net Beet
Payment arising from the processing of the crop in question and the subsequent
sale of the products obtained from processing those sugarbeets. Because the
harvest of the 1997 crop is only partially completed, the Company is not yet
able to provide any meaningful estimates of financial results for the 1997 crop.
The following discussion contains a summary of the Company's financial results
obtained from the Company's processing of the 1996 sugarbeet crop.
The sugarbeet crop grown during 1996 produced a total of 8.3 million tons of
sugarbeets, or approximately 18.1 tons of sugarbeets per acre from roughly
459,000 acres, compared with 16.8 tons per acre, which is the ten-year average
of tons per acre for the years from 1986 through 1995. The sugar content of the
1996 crop was 17.3%, in comparison to a ten year average for the applicable
period of approximately 17.5%. The Company produced a total of roughly 22.5
million hundredweight of sugar from the 1996 sugarbeet crop, representing an
estimated increase of approximately 2.5 million hundredweight of sugar in
comparison to the 1995 sugarbeet crop. Such sugar production provides a total
sugar recovery of approximately 267 pounds of sugar for each ton of sugarbeets
harvested by the Company.
By-products revenue from molasses, beet pulp and Concentrated Separated
By-Product are included in the Company's total revenue. As the Company's net
selling prices for the by-products from the 1996 crop were greater than the net
selling prices for such products produced from the 1995 crop, the Company
obtained additional revenue of $7.11 per ton of sugarbeets.
The Company's operating costs, which are currently estimated to be $26.49
per ton, must be deducted from the revenues generated from the sale of products
produced from each ton of sugarbeets. The deduction of those operating costs
results in a gross beet payment of $47.12 per ton of sugarbeets. With the
subsequent deduction of a hauling allowance of $.83 per ton and unit retains of
$2.00 per ton for the fiscal year ending on August 31, 1997, the Company's Net
Beet Payment is $44.29 per ton of sugarbeets. The Company's Net Beet Payment
exceeded the ten year average Net Beet Payment by roughly $3.62 per ton.
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THE COMPANY'S CURRENT STRATEGIC PLAN
The Company's Board of Directors and management have been involved in a
continuing process of reviewing the Company's current business plans for the
future. In considering the Company's future activities, the Company's Board of
Directors and management have focused on possible scenarios in which the
marketplace might present a future environment in which prices for the Company's
products remain relatively stable while the Company's costs might increase at
roughly the rate of inflation. In order to prevent the possible negative impact
if such a scenario were to arise, the Company's Board of Directors and
management have identified three key strategies which the Company intends to
pursue. First, the Company believes that it would be in the best interests of
the Company to increase its market share. Second, the Company believes it
appropriate to optimize the selling price for its sugar while, third,
maintaining its current low cost producer status by further reducing costs.
With respect to increasing the Company's share of the domestic market for
sugar, the Company believes that it could sell more product if it could produce
the additional sugar. However, including the sugarbeet production represented by
the shares of Preferred Stock to be sold in the offering described in this
prospectus, the Company's facilities will be near or exceed their current
production capacity. Instead of investing the substantial sums necessary to
build another sugarbeet processing facility, the Company's management proposes
to increase the Company's capacity to process sugarbeets through sequential
increases in processing capacity at some of the Company's current facilities
over the course of the next ten years. The Company believes that adopting such a
procedure will allow the Company to complete an appropriate course of expansion
without being exposed to excessive debt or financing risk and while still
allowing the Company to retain the flexibility to reconsider the decision with
respect to each incremental increase in production capacity immediately prior to
engaging in that activity. The Company also believes that it may be possible for
the Company to increase its market share through acquisitions of or joint
ventures with other sugar producers. The Company will consider each such
transaction if and when such opportunities arise.
In order to obtain the best selling price for its products, the Company
intends to focus on sales and marketing strategies which allow the Company to
provide its customers with an appropriate mixture of the Company's products. The
Company is optimizing its customer mix, improving logistics and continually
trying to evaluate and improve its customer performance.
To pursue the goal of maintaining and improving upon its current status as a
low cost producer, the Company intends to focus on working with its members to
increase the productivity of the members' sugarbeet farming operations. In
addition, the Company plans to focus on cost reduction at the factory level. At
the member level, the Company expects to focus on, among others, programs for
nitrogen management and new seed varieties. At the factory level, the Company
intends to pursue on-going maintenance and improvements related to, for example,
diffuser replacement at the East Grand Forks factory and expansion of sugarbeet
storage facilities. In addition, the Company is currently contemplating
participation in a joint venture to be formed to construct and operate a
molasses desugarization plant at one of the Company's plants, which would allow
the Company to desugar the balance of its molasses to extract additional sugar.
Currently, approximately one-half of the Company's molasses is desugared. The
Company's goal in participating in the molasses desugarization plant is to
reduce the Company's average cost of sugar production, through the use of
current separation technologies.
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DESCRIPTION OF BUSINESS
GENERAL
American Crystal is a Minnesota agricultural cooperative corporation owned
by approximately 2,586 sugarbeet growers in the Minnesota and North Dakota
portions of the Red River Valley. (The Red River Valley, the largest sugarbeet
growing area in the United States, forms a band approximately 35 miles wide on
either side of the North Dakota and Minnesota border and extends approximately
200 miles south from the border of the United States and Canada.) The Company
currently processes sugarbeets from a base level of approximately 440,000 acres,
subject to tolerances for overplanting and underplanting established by the
Board of Directors each year. By owning and operating five sugarbeet processing
facilities in the Red River Valley, the Company provides its shareholders with
the ability to process their sugarbeets into sugar and by-products, such as
molasses and beet pulp. The sugar is pooled and then marketed through the
services of a marketing agent under contract with the Company. The sugar
marketing agent, United Sugars Corporation, is a cooperative owned by its
members, American Crystal, Southern Minnesota Beet Sugar Cooperative and
Minn-Dak Farmers Cooperative. The Company's molasses, beet pulp and Concentrated
Separated By-Product (CSB) (a by-product of the molasses desugarization process)
are also marketed through a marketing agent, Midwest Agri-Commodities Company.
Midwest Agri-Commodities Company is a cooperative whose members are the Company,
Minn-Dak Farmers Cooperative and Southern Minnesota Beet Sugar Cooperative. The
Company is also one of three members of ProGold Limited Liability Company, a
joint venture which owns a corn wet-milling plant in Wahpeton, North Dakota.
American Crystal was organized in 1973 by sugarbeet growers to acquire the
business and assets of American Crystal Sugar Company, then a publicly held New
Jersey corporation in operation since 1899.
American Crystal's corporate headquarters are located at 101 North Third
Street, Moorhead, Minnesota 56560 (telephone number (218) 236-4400). Its fiscal
year ends August 31.
PRODUCTS AND PRODUCTION
American Crystal is engaged primarily in the production and marketing of
sugar from sugarbeets. American Crystal also markets beet pulp, molasses and
CSB, which are by-products of the sugar it produces, and sugarbeet seed.
American Crystal processes sugarbeets grown by its members in five factories
located in the Red River Valley area of Minnesota and North Dakota. The growing
area is divided into five factory districts, each containing one sugarbeet
processing plant.
The period during which the Company's plants are in operation to process
sugarbeets into sugar and by-products is referred to as the "campaign." During
the campaign, each of the Company's factories is operated twenty-four hours per
day, seven days per week. The campaign is expected to begin in September, when a
small portion of the sugarbeet crop is harvested, and continues until the
available supply of beets has been depleted, which generally occurs in April or
May of the following year. Based on current processing capacity, an average
campaign lasts approximately 245 days, assuming normal crop yields.
Once the sugarbeets are harvested, rapid processing is important to maximize
sugar extraction and minimize spoilage. Members transport their crop by truck to
receiving stations designated by the Company and receive a hauling allowance
under the Grower's Contract. Beets are then stored in factory yards and at
outlying piling stations until processed.
American Crystal's total sugar production is presently influenced by the
amount and quality of sugarbeets grown by its members, the processing capacity
of the Company's plants and by the ability to store harvested beets. Most of the
beet harvest is stored in piles. Although frozen sugarbeets may be stored for
extended periods, beets stored in unprotected piles at temperatures above
freezing must be processed within approximately 150 days. In most years,
therefore, the cold weather in North Dakota and Minnesota offers an advantage to
the Company as it permits the outdoor storage of sugarbeets in below-freezing
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weather conditions. By contrast, unprotected piles of sugarbeets would
experience cycles of freezing and thawing and, therefore, be subject to some
deterioration. Subject to such freeze and thaw cycles, beets on the exterior of
piles freeze naturally. Beets near the center of the piles, however, may not
freeze and thus may be subject to spoilage. The Company utilizes a process
called "split pile storage" in which beets from the center of the piles are
removed for processing first. Split pile storage permits more of the stored
beets to freeze naturally.
American Crystal also utilizes a ventilation technique to further reduce
spoilage. In this process, fans circulate air through ventilation channels
constructed within beet piles in order to precool and then deep freeze the
beets. Approximately 11% of an average crop may be stored in ventilated storage
sites. Enclosed cold storage facilities are also used to extend the beet storage
period at each of the Company's factory locations. Cold storage sites presently
have the capacity to cover approximately 8% of an average crop.
Once the sugarbeets arrive in the factory, the basic steps in producing
sugar from them include: washing; slicing into thin strips called "cossettes";
extracting the sugar from the cossettes in a diffuser; purifying the resulting
"raw juice" and boiling it, first in an evaporator to thicken it and then in
vacuum pans to crystalize the sugar; separating the sugar crystals in a
centrifuge; drying the sugar; storing sugar in bulk form and grading and
screening the crystals for packaging and bulk shipping.
The Company's sugarbeet by-products include molasses and beet pulp. After
the extraction of raw juice from the cossettes, the remaining pulp is dried and
processed into animal feeds. The Company processes approximately one-half of its
molasses through its molasses desugarization facility to extract additional
sugar. The remaining molasses and CSB from the molasses desugarization process
are marketed through Midwest Agri-Commodities Company and are sold primarily to
yeast and pharmaceutical manufacturers and for use in animal feeds.
The Company also has its own Seed Division, which has been in existence
since the 1920's. The goal of the Seed Division is to ensure that the Company's
shareholders have the highest quality sugarbeet hybrids available to maximize
their production. Since the mid-1970s, American Crystal has had an effective
working arrangement with Danisco Seed of Denmark. Exchange of germplasm between
American Crystal and Danisco provides a wide genetic base in developing hybrids
by both companies. The Seed Division markets its seed to sugarbeet growers in
Michigan, Ohio, Montana, Wyoming, Colorado, Nebraska, Idaho, Oregon and
Washington.
RECENT CROPS
The harvest of the 1997 sugarbeet crop has only recently begun. As a result,
the Company is not yet able to provide any meaningful estimates of financial
results for the 1997 crop.
The sugarbeet crop grown during 1996 produced a total of approximately 18.1
tons of sugarbeets per acre from roughly 459,000 acres. That production exceeded
16.8 tons per acre, which is the ten-year average of tons per acre for the years
from 1986 through 1995. The sugar content of the 1996 crop was 17.3%, in
comparison to a ten year average for the applicable period of 17.5%. The Company
produced a total of roughly 22.2 million hundredweight of sugar from the 1996
sugarbeet crop.
American Crystal's members harvested approximately 8.0 million tons of
sugarbeets from 430,000 acres for the 1995 crop. The approximately 18.7 ton per
acre crop yield was higher than the then-current 16.6 ton per acre 10 year
average. Sugar content for the 1995 crop was approximately 16.4%, which is 1.1%
lower than the then-current ten year average of 17.5%. Beet processing began on
September 7, 1995 and the Company produced 20.2 million hundredweights of sugar
during the 1995-1996 campaign.
For a discussion of the 1996, 1995 and 1994 crops and results of operations
for fiscal years 1996, 1995 and 1994, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
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<PAGE>
MARKET AND COMPETITION
According to United States government estimates, the United States market
for sugar during the year beginning on October 1, 1995 and ending on September
30, 1996 totaled approximately 176 million hundredweights of sugar. That
estimate suggests the continuation of a trend of growth in the market in recent
years at a compounded rate of approximately 2% per year. For example, from a
market of approximately 146 million hundredweights in 1986, the total domestic
market grew to a total of approximately 180 million hundredweights in 1996.
Given the size of the total market, the Company's sugar production and sales
represented slightly more than 11.1% of the total domestic market for refined
sugar in 1994 and 1995.
The growth in the market for refined sugar in the late 1980s and the early
1990s is a reversal of trends in the 1970s and early 1980s which resulted in a
reduced market for refined sugar. During the 1970s and early 1980's, high
fructose corn syrup was increasingly used as a replacement for refined sugar in
certain food products. (The prime example of this trend was the use of high
fructose corn syrup in beverages such as soft drinks.) In addition,
non-nutritive sweeteners such as aspartame were developed and used in food
products. While high fructose corn syrup and non-nutritive sweeteners constitute
a large portion of the overall sweetener market, the Company believes that the
recent trend of increased use of refined sugar results from population growth
and increased acceptance of the use of sugar as a desirable natural ingredient
in a normal diet.
The trends described in the preceding paragraph are illustrated by the
following chart:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MILLION SHORT TONS RAW VALUE
<S> <C>
81/2 9.206
82/3 8.874
83/4 8.578
84/5 8.097
85/6 7.794
86/7 8.046
87/8 8.193
88/9 8.264
89/0 8.531
90/1 8.901
91/2 9.006
92/3 9.197
93/4 9.333
94/5 9.337
95/6 9.700
</TABLE>
The Company's main competitors in the domestic market are beet sugar
processors including Holly Sugar Corporation (a division of Imperial Holly
Corporation), Western Sugar Company (a subsidiary of Tate & Lyle, PLC.),
Amalgamated Sugar Company, Michigan Sugar Company (wholly-owned by Savannah
Foods and Industries, Inc.) and Monitor Sugar Company, Inc. The Company's
products also compete with
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<PAGE>
cane sugar refined by Savannah Foods and Industries, Inc., Hawaiian Sugar
Company, U.S. Sugars, Imperial Holly Corporation and Domino Sugar (a subsidiary
of Tate & Lyle, PLC) Because sugar is a fungible commodity, competition for
sales volume is based primarily upon price, customer service and reliability.
According to USDA statistics, the Red River Valley is generally one of the
most cost efficient sugarbeet producing areas in the nation. As a result, the
Company's management believes that it possesses the ability to compete
successfully with other producers of sugar in the United States. In spite of
this competitive advantage, substitute products and sugar imports could have a
material and adverse effect on the Company's operations in the future.
Consumption of corn sweeteners is projected to grow at an annual rate of 4
to 5% over the next five years. However, as noted elsewhere herein,
forward-looking statements such as the projected increase in the consumption of
corn sweeteners are subject to uncertainty. See "Risk Factors--Forward-Looking
Statements and Associated Risks." Food manufacturers are currently increasing
their research and development budgets to expand their ingredients to include
corn sweeteners. Information received by the Company from industry experts
suggests that a number of companies are switching some of their corn sweetener
production capacity into the production of additives for functional foods. These
additives may include B complex, lysine, glycerin, and various vitamins.
GOVERNMENT PROGRAMS AND REGULATION
Domestic sugar prices are supported under a program administered by the
USDA. Under the current program, which was initiated in 1981 and extended under
the Food Security Act of 1985, the Food, Agriculture, Conservation and Trade Act
of 1990 and the Federal Agriculture Improvement and Reform Act of 1996 (the
"FAIR Act"), the price of sugar is maintained above the price at which producers
could forfeit sugar to repay nonrecourse loans obtained through the Commodity
Credit Corporation (the "CCC"). The USDA maintains sugar prices without cost to
the U.S. Treasury by regulating the quantity of sugar imports. Under the "Tariff
Rate Quota" implemented October 1, 1990, sugar producing countries are assigned
a fixed quantity of imports duty-free or subject to minimal duties. Unlimited
additional quantities may be imported upon payment of a tariff of 16 cents per
pound prior to shipment. (To date, only minute quantities of sugar have been
imported under this higher tariff level.)
The Uruguay Round agreement under the General Agreement on Tariffs and Trade
(GATT) mandates imports of at least 1,257,000 short tons of sugar per year into
the United States. The FAIR Act maintains the basic 18 cent per pound loan rate
for raw sugar and puts in place a 22.90 cent per pound loan rate for refined
beet sugar. Both loan rates are effective for crop years 1996 through 2002.
Price support loans are to be made on a non-recourse basis provided that United
States sugar imports for domestic usage exceed 1.5 million short tons raw value
in a given fiscal (October through September) year. Loans made on a non-recourse
basis enable the sugar processor to forfeit sugar to the CCC if sugar prices are
below the loan rate. If imports during a given year are less than 1.5 million
short tons, loans must be made on a recourse basis, meaning that processors will
not be able to forfeit sugar to the CCC at its full loan value. In order to
recover the full value of a recourse loan, the CCC could require that cash or
other assets be provided in addition to the sugar used as collateral when the
loan is made. Another provision of the FAIR Act is a one cent per pound penalty
paid by processors if the processor defaults on sugar price support loans.
The nature and scope of future legislation affecting the sugar market cannot
be predicted and there can be no assurance that price supports will continue in
their present form. If the price support program, including the Tariff Rate
Quota system described above, were eliminated in its entirety or if the
protection the United States' price support program provides from foreign
competitors were materially reduced, the Company could be materially and
adversely effected. In such a situation, if the Company were not able to adopt
strategies which would allow it to compete effectively in a greatly changed
domestic market for sugar, the adverse affects could impact the Company's
continued viability and the desirability of growing
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<PAGE>
sugarbeets for delivery to the Company. Such events could significantly impair
the value of the shares of Preferred Stock in which are embodied the right and
obligation to deliver sugarbeets.
MARKETING, CUSTOMERS AND PRICES
Since January, 1994, American Crystal's sugar has been marketed by United
Sugars Corporation, a cooperative common marketing agency. United Sugars
Corporation was formed in late 1993, at which time American Crystal contributed
approximately $6,880,000, in the form of certain assets, to the capital of
United Sugars Corporation. In exchange for that capital contribution, the
Company received an ownership interest of approximately 69%. (American Crystal's
representatives on the United Sugars Corporation Board of Directors total
one-third of the members of the United Sugars Corporation Board of Directors
and, therefore, American Crystal does not possess a controlling interest in the
day-to-day affairs of United Sugars Corporation, except to the extent that
certain Board actions must also be approved by the members of the association
including, for example, mergers or consolidations, sales or liquidations of
substantially all of the association's assets, and dissolution of the
association.) Upon completion of the incorporation and capitalization of United
Sugars Corporation, American Crystal entered into a "Uniform Member Marketing
Agreement" with United Sugars Corporation. Under that agreement, the sugar
produced by American Crystal is pooled with sugar produced by Minn-Dak Farmers
Cooperative and Southern Minnesota Beet Sugar Cooperative and is then sold
through the efforts of United Sugars Corporation. The Company receives payment
for its sugar by receiving its pro rata share of the net proceeds from the sale
of the pooled sugar. The net proceeds of such sales represent the gross proceeds
of sale of the sugar, adjusted for the various costs and expenses of marketing
the pooled sugar, including the Company's pro rata share of the marketing and
sales expenses incurred by United Sugars Corporation. Any net proceeds from the
operation of United Sugars Corporation are distributed to the various members on
a patronage basis.
On October 1, 1997, United Sugars Corporation entered into a Transaction
Agreement with United States Sugar Corporation ("USSC"), a grower of sugar cane
and other agricultural products, relating to the admission of USSC as a member
of United Sugars Corporation. The Transaction Agreement provides for an escrow
closing within 45 days of the agreement and a final closing on April 8, 1998, at
which time USSC will formally become a member of United Sugars Corporation.
United Sugars Corporation and USSC will enter into a Uniform Cane Sugar
Marketing Agreement, which provides that USSC will market all of its refined
sugar through United Sugars Corporation. Existing members of United Sugars
Corporation, including the Company, will be required to enter into amended
marketing agreements reflecting the admission of USSC. With the addition of
USSC, United Sugars will be able to distribute both cane sugar and beet sugar.
In 1993 and earlier years, American Crystal marketed most of its sugar
through direct sales efforts, supplemented by the efforts of sugar brokers
retained by the Company. Since 1994, the Company has marketed its sugar
exclusively through United Sugars Corporation. The Company's sugar is sold in
bulk, as liquid sugar and in cartons and bags ranging in size from 1 to 100
pounds.
The Company's sugar is marketed by United Sugars Corporation primarily to
industrial users such as confectioners, breakfast cereal manufacturers and
bakeries. For the fiscal year ended August 31, 1996, 85% (by weight) of the
Company's sugar production was sold to industrial users. The remaining portion
is marketed by United Sugars Corporation through sugar brokers to wholesalers
and retailers under the "Crystal Sugar" brand name and various private labels
for household consumption.
A recently-executed licensing agreement with Pillsbury Company will allow
United Sugars Corporation to sell sugar nationwide under the "Pillsbury" name.
United Sugars Corporation has indicated that it believes that the opportunity to
distribute sugar nationwide under the Pillsbury name will allow the expansion of
its presence in the consumer portion of the sugar market, with the goal of
expanding the portion of its members' sugar sold in that higher margin segment
of the sugar market.
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<PAGE>
Customers are located primarily in Illinois, Minnesota, Iowa, Wisconsin,
Pennsylvania, Michigan, Indiana, Ohio, Missouri and Tennessee. During fiscal
1996, the Company's 10 largest customers purchased approximately 51% (by weight)
of the Company's sugar sold.
The prices at which United Sugars Corporation sells the Company's sugar
fluctuates periodically based on changes in domestic sugar supply and demand.
The largest proportion of American Crystal's sales are contracted one or more
quarters in advance, with the effect of stabilizing fluctuations in revenue from
quarter to quarter. Retail (grocery) products are sold on a spot price basis.
Sugar prices are currently at a premium due to sugarbeet shortages and
insufficient refinery capacity during 1995 and 1996.
American Crystal markets dried beet pulp, molasses and CSB through Midwest
Agri-Commodities Company, a cooperative whose members are American Crystal,
Minn-Dak Farmers Cooperative and Southern Minnesota Beet Sugar Cooperative. Beet
pulp is marketed to livestock feed mixers and livestock feeders in the United
States and foreign markets. For the year ended August 31, 1996, the majority of
American Crystal's pulp production was exported to Japan and Europe. The market
for beet pulp is affected by the availability and quality of competitive
feedstuffs. Beet molasses is marketed primarily to yeast manufacturers,
pharmaceutical houses, livestock feed mixers and livestock feeders. By-product
sales accounted for approximately 9.5% of the Company's total revenues during
fiscal 1996. This relationship is primarily a function of the average market
prices for sugar, pulp and molasses and is not necessarily indicative of future
relationships between by-product and sugar revenues, because prices of these
commodities fluctuate independently of each other.
For a short period of time in the early 1990s, the Company (through United
Sugars Corporation) sold a portion of its sugar in the Canadian market. Due to
the imposition of significant duties, the Company does not currently consider
Canada to be a market for its products. The Company believes that consumption in
the United States represents an adequate market for the Company's sugar.
GROWERS' CONTRACTS
American Crystal purchases virtually all of its sugarbeets from members
under contract with the Company. All members have five-year contracts with the
Company covering the growing seasons of 1993 through 1997 (the "Growers'
Contracts"). Each member will be obligated to enter into a new five-year
contract for subsequent years. In addition, each member has an annual contract
with the Company specifying the number of acres the member is obligated to grow
during that year. Each share of Preferred Stock held by a member entitles that
member to grow one acre of sugarbeets for sale to the Company. The Company's
Board of Directors has the discretion to adjust the acreage which may be planted
for each share of Preferred Stock held by the members. However, it is
management's current intention and recommendation to the Board of Directors that
the relationship between shares of Preferred Stock and acres of sugarbeet
production be maintained at a ratio of 1 to 1 for the foreseeable future,
subject to tolerances for overplanting and underplanting established by the
Board each year.
The total price for sugarbeets paid to a member (the "Net Beet Payment") is
based on the "Gross Beet Payment," as adjusted by certain allowances, costs and
deductions. The Gross Beet Payment is the value of recovered sugar from the
beets a member delivers plus the member's share of by-product revenues, minus
the member's share of member business operating costs, including depreciation
and interest. The following allowances, costs and deductions, if applicable, are
used to adjust the Gross Beet Payment to arrive at the Net Beet Payment: hauling
allowance program costs, early delivery allowance program costs, minimum payment
allowance program costs, and unit retains. Growers are paid a hauling allowance
based on the distance they must transport beets for delivery to the Company and
may also receive minimum beet payments and an allowance for early delivery of
beets prior to the commencement of the stockpiling of harvested sugarbeets. The
costs of these programs are shared among members on the basis of the net tonnage
of beets delivered by each member.
24
<PAGE>
Under the current Growers' Contracts, payments to members for sugarbeets
must be made in at least four installments: (i) on or about November 15, the
Company pays its members an amount equal to 60% of the Company's estimate of the
grower's Net Beet Payment; (ii) on or about March 31, the Company pays an amount
which combined with the November payment equals 85% of the estimated Net Beet
Payment; (iii) on or about September 30, the Company pays an amount which
combined with the November and March payments equals 95% of the estimated Net
Beet Payment; and (iv) not more than 15 days after completion and acceptance of
the audit of the Company's annual financial statements, the Company pays the
remainder of the member's Net Beet Payment. Except for unit retains, the Company
must pay to members for their sugarbeets all proceeds from the sale of sugar and
by-products in excess of related member business operating costs, as described
above.
The following tables summarize the "Gross Beet Payment" and "Net Beet
Payment" and the "Sugar Content of Sugarbeets" for each of the last 10 completed
fiscal years, respectively:
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993
---------- ---------- ---------- ---------- ---------- ----------
DISTRIBUTION OF NET PROCEEDS--TOTALS (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Proceeds..................................... $ 270,736 $ 216,878 $ 209,510 $ 259,229 $ 269,388 $ 303,842
Non-Member (Income)/Loss......................... (802) 844 698 1,058 1,075 77
Hauling Allowance................................ 5,769 3,482 3,900 4,140 5,522 5,413
---------- ---------- ---------- ---------- ---------- ----------
Gross Beet Payment............................... $ 275,703 $ 221,204 $ 214,108 $ 264,427 $ 275,985 $ 309,332
Unit Retains..................................... (9,610) (7,316) (7,995) (8,010) (10,364) (20,223)
Member Tax ADJ, Net.............................. (3,141) 1,908 1,922 589 676 447
Hauling Allowance................................ (5,769) (3,482) (3,900) (4,140) (5,522) (5,413)
---------- ---------- ---------- ---------- ---------- ----------
Net Beet Payment................................. $ 257,183 $ 212,314 $ 204,135 $ 252,866 $ 260,775 $ 284,143
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
DISTRIBUTION OF NET PROCEEDS--PER TON HARVESTED(1)
<S> <C> <C> <C> <C> <C> <C>
Net Proceeds..................................... $ 42.22 $ 44.44 $ 39.27 $ 48.50 $ 38.95 $ 45.03
Non-Member (Income)/Loss......................... (0.12) 0.17 0.13 0.20 0.16 0.01
Hauling Allowance................................ 0.90 0.71 0.73 0.77 0.80 0.80
---------- ---------- ---------- ---------- ---------- ----------
Gross Beet Payment............................... $ 43.00 $ 45.32 $ 40.13 $ 49.47 $ 39.91 $ 45.84
Unit Retains..................................... (1.50) (1.50) (1.50) (1.50) (1.50) (3.00)
Member Tax ADJ, Net.............................. (0.49) 0.39 0.36 0.11 0.10 0.07
Hauling Allowance................................ (0.90) (0.71) (0.73) (0.77) (0.80) (0.80)
---------- ---------- ---------- ---------- ---------- ----------
Net Beet Payment................................. $ 40.11 $ 43.50 $ 38.26 $ 47.31 $ 37.71 $ 42.11
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
<CAPTION>
SUGAR CONTENT OF SUGARBEETS(1)
<S> <C> <C> <C> <C> <C> <C>
Tons Harvested (In Thousands):................... 6,413 4,881 5,336 5,345 6,915 6,748
Tons Purchased Per Acre Harvested:............... 19.3 13.4 14.5 13.4 17.4 16.9
Sugar Content of Beets:.......................... 18.1% 18.2% 16.7% 18.6% 17.0% 18.0%
<CAPTION>
1994 1995 1996 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Proceeds..................................... $ 261,571 $ 320,549 $ 310,206 $ 366,756
Non-Member (Income)/Loss......................... 544 15 396 18,074
Hauling Allowance................................ 4,531 6,144 6,038 6,893
---------- ---------- ---------- ----------
Gross Beet Payment............................... $ 266,646 $ 326,708 $ 316,640 $ 391,723
Unit Retains..................................... (19,328) (16,648) (16,040) (16,611)
Member Tax ADJ, Net.............................. 12,585 5,621 0 0
Hauling Allowance................................ (4,531) (6,144) (6,038) (6,893)
---------- ---------- ---------- ----------
Net Beet Payment................................. $ 255,372 $ 309,537 $ 294,562 $ 368,219
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Proceeds..................................... $ 40.55 $ 38.47 $ 38.64 $ 44.12
Non-Member (Income)/Loss......................... 0.09 0.00 0.05 2.17
Hauling Allowance................................ 0.70 0.74 0.75 0.83
---------- ---------- ---------- ----------
Gross Beet Payment............................... $ 41.34 $ 39.21 $ 39.44 $ 47.12
Unit Retains..................................... (3.00) (2.00) (2.00) (2.00)
Member Tax ADJ, Net.............................. 1.95 0.68 0.00 0.00
Hauling Allowance................................ (0.70) (0.74) (0.75) (0.83)
---------- ---------- ---------- ----------
Net Beet Payment................................. $ 39.59 $ 37.15 $ 36.69 $ 44.29
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Tons Harvested (In Thousands):................... 6,450 8,332 8,029 8,313
Tons Purchased Per Acre Harvested:............... 16.3 20.2 18.7 18.1
Sugar Content of Beets:.......................... 17.6% 16.8% 16.4% 17.3%
</TABLE>
- ------------------------
(1) Information provided with respect to net proceeds, gross beet payment,
net beet payment, tons harvested per acre and sugar content of beets
represents an average of the financial and production results experienced
by the Company's members. As described elsewhere in this prospectus, the
return to members for their sugarbeets is based upon the value of the
recovered sugar from the beets delivered to the Company by each member. As
a result of variations in the sugar content of the sugarbeets delivered by
the various members to the Company, the payments received by the various
members also vary.
RESEARCH AND DEVELOPMENT
American Crystal operates a research complex in Moorhead, Minnesota. The
Research Center is primarily involved in the development of technologies related
to improved factory operations, development of process efficiency technology,
and development of new technologies in beet seeds. The Company's research and
development expenses for 1996, 1995, and 1994 were approximately $4,535,000,
$4,669,000, and $4,566,000, respectively.
In recent years research conducted by the Company has been diversified into
technical services and agriculture research. Technical services has focused
primarily on the testing and evaluation of technologies related to improved
factory operations and development of process efficiency concepts. Technical
services research also concentrates on developing tests and recommending
instrumentation for use in monitoring beet sugar processes, including molasses
desugarization. The results of these efforts will allow plant operators to be
proactive and to react to problems quickly, thereby improving the overall
recovery of sugar from the beets.
25
<PAGE>
The Company is also engaged in ongoing research with respect to beet seed.
This research focuses primarily on the development of agricultural practices for
the piling and storage of sugarbeets, as well as the monitoring and treatment of
sugarbeet diseases and insect infestations. Additionally, coded variety testing
and reporting are key services this area provides for the growers. The results
of this testing is critical in assisting growers' decision making during the
selection of beet seed for planting. The Company and its members also contribute
resources to a number of public research institutions for general research
related to sugarbeets and their use. Those institutions include North Dakota
State University, University of Minnesota, University of Minnesota Crookston,
the Beet Sugar Development Foundation and programs operated by the USDA.
ENVIRONMENTAL MATTERS
American Crystal is subject to extensive federal and state environmental
laws and regulations with respect to water and air quality, solid waste disposal
and odor and noise control. The Company conducts an on-going and expanding
control program designed to meet these environmental laws and regulations.
American Crystal believes that it is in substantial compliance with applicable
environmental laws and regulations.
The Company was cited in July 1994 by the State of Minnesota for
non-compliance with nitrous oxide emissions from the pulp driers at the East
Grand Forks facility. The notice of violation indicated that the operation of
the East Grand Forks facility created emissions in excess of those described in
the permit previously granted by the Minnesota Pollution Control Agency ("MPCA")
for that facility. The East Grand Forks facility subsequently converted to the
use of natural gas, rather than coal. The conversion to natural gas has resulted
in lower nitrous oxide emissions, in compliance with MPCA limits. The MPCA has
sent the Company a letter stating that the Company's nitrous oxide emissions
from the East Grand Forks facility are currently in compliance with MPCA limits.
The Company has converted the pulp drier operations in three of its five
factories. The conversion from coal to natural gas will allow the Company to
operate the driers in compliance with state and federal requirements. The
conversion for East Grand Forks was completed in 1995. The conversion for the
Moorhead and Crookston facilities was completed in 1996.
A notice of violation was received in April 1995, from the State of North
Dakota regarding emissions from the pulp drier at the Hillsboro factory. The
Company retested emissions from the drier and is in compliance with North Dakota
emission limits.
JOINT VENTURE WITH PROGOLD LIMITED LIABILITY COMPANY
American Crystal is one of three members of ProGold Limited Liability
Company ("ProGold"). ProGold was formed in July, 1994 as a limited liability
company to serve as a joint venture mechanism for the Company, Minn-Dak Farmers
Cooperative and Golden Growers Cooperative, a North Dakota cooperative
association comprised of corn producers. The joint venture was formed to
construct and operate a corn wet-milling plant capable of processing corn to
produce corn sweeteners (including high fructose corn syrups) and various
by-products. ProGold's plant, which became operational in late 1996, is
currently fully operational and has obtained certification from its significant
customers. On September 30, 1997, ProGold entered into a letter of intent with
Cargill, Incorporated ("Cargill") for Cargill to lease ProGold's corn
wet-milling plant, subject to the negotiation of a definitive lease by the
parties within thirty (30) days.
American Crystal contributed a total of approximately $48 million for its
membership interest in ProGold and received a 46% interest in ProGold. Golden
Growers Cooperative contributed approximately $51 million in exchange for a 49%
interest in ProGold, while Minn-Dak Farmers Cooperative made a capital
contribution of approximately $5.2 million in exchange for a 5% interest in
ProGold. Under the terms of the ProGold Member Control Agreement, in each year
after September 1, 1997, the ProGold
26
<PAGE>
Board of Governors can require that the three members of ProGold provide
additional capital contributions in an aggregate amount not to exceed $5 million
per year, with each member obligated to provide a portion of that capital
contribution proportionate to its ownership interest in ProGold. As a result,
the Company could be required to make annual contributions in an amount of up to
$2.3 million per year, based on the Company's ownership of a 46% interest in
ProGold. Any other capital contributions can be required only with the prior
written consent of all of ProGold's members, including the Company.
Representatives of ProGold, the Company, Minn-Dak Farmers Cooperative and
Golden Growers Cooperative have entered into various agreements relating to the
ownership and operation of ProGold and the corn wet-milling plant. The contracts
include (i) contract marketing agreements under which United Sugars Corporation
and Midwest Agri-Commodities Company would market various products on behalf of
ProGold, (ii) Uniform Member Marketing Agreements under which American Crystal,
Minn-Dak Farmers Cooperative and Golden Growers Cooperative are obligated to
deliver to ProGold the corn to be processed at the processing plant and (iii)
administrative services agreements under which the Company provides services
such as accounting, financial planning support and human resources services to
both ProGold and Golden Growers Cooperative.
Under the current arrangements, the Company is responsible for providing
corn to ProGold in proportion to the Company's ownership interest in ProGold. As
a result, the Company provides 46% of the corn used at ProGold's facility. In
years when the ProGold facility is operating at full capacity, the Company would
be required to deliver approximately 13.8 million bushels of corn to ProGold.
Under the Company's agreements with ProGold, the Company does not receive
payment for the corn upon delivery. Instead, the Company will receive payment of
its proportionate share of ProGold's revenues from the sale of corn sweeteners
and related products, less its proportionate share of ProGold's operating
expenses (which will not include the cost of corn.) The distribution of
ProGold's net revenues is intended to provide both compensation for the corn
delivered to ProGold by the Company and the Company's share of ProGold's
profits, if any. While ProGold intends to distribute net revenues to its members
as soon as possible following receipt of proceeds from the sale of its products,
the Company anticipates that it will receive periodic distributions from ProGold
during each year, with a final distribution to be made following the close of
ProGold's fiscal year. However, as described in "Risk Factors", ProGold's
current analysis suggests that the ProGold plant will operate at a loss for an
extended period of time. To the extent that ProGold's operations do not result
in a profit, the Company will receive distributions from ProGold in an amount
less than the Company's cost to acquire the corn delivered to ProGold for
processing. As described in "Risk Factors" and "Management's Discussion and
Analysis", in the absence of a definitive agreement between ProGold and Cargill
the Company can expect to suffer adverse consequences from the losses expected
to be incurred by ProGold.
In connection with its involvement with ProGold, the Company provides a
variety of services related to corn procurement. Doing business under the name
"ProGold Grain", the Company, acting through certain of its employees, procures
corn to satisfy the obligations of the Company and Minn-Dak Farmers Cooperative
to deliver corn to ProGold. In addition, the Company also manages the corn
procurement function and corn pool arrangements for Golden Growers Cooperative.
In the performance of those services, the Company purchases large quantities of
corn, as well as entering into various commodities contracts (including hedge
and futures contracts) with the goal of reducing price, delivery and other risks
associated with the purchase of corn and sale of corn sweetener. ProGold's corn
wet-milling facility is expected to require 30 million bushels of corn for
processing each year. In the event that Cargill and ProGold enter into the
proposed lease and corn supply agreement described elsewhere in this Prospectus,
the Company's involvement in corn procurement activities would end, after a
brief transition period.
If, through future operation of the corn wet-milling facility, ProGold is
successful in generating profits for distribution to is members, those
distributions would become the property of the Company. Under the Company's
Articles of Incorporation and Bylaws, the return, if any, from the Company's
involvement with ProGold would be classified as amounts received from
"non-patronage" sources. The Company's Bylaws
27
<PAGE>
currently provide that any non-patronage net income is to become the property of
the Company and is not to be distributed directly to the members of the Company.
Distributions from ProGold could, in the discretion of the Company's Board of
Directors, yield benefits to the Company's members through such means as future
reductions of annual unit retain amounts, repayment of unit retains in advance
of the current seven year repayment schedule and the use of such returns, if
any, for capital investment in the Company. To date, the Company's Board of
Directors has not adopted any resolutions or made any commitments regarding the
distribution of non-patronage revenues directly to the Company's members or the
application of any such amounts for the indirect benefit of the Company's
members. As described above, any decisions regarding the application of
distributions received by the Company from ProGold will be made in the
discretion of the Company's Board of Directors.
As stated above, ProGold and Cargill have entered into a nonbinding Letter
of Intent for the lease of ProGold's corn wet-milling plant to Cargill, subject
to the negotiation of a definitive lease by the parties within thirty (30) days.
The proposed lease would commence on November 1, 1997, and terminate on October
31, 2007. The letter of intent specifies a variety of alternatives which may
take effect upon expiration of the initial term of the definitive lease. ProGold
and Cargill could negotiate a ten year extension of the lease upon mutually
agreeable terms and conditions, ProGold could offer to sell the facility to
Cargill at a fair market value or ProGold could offer to sell Cargill a fifty
percent (50%) ownership interest in ProGold. If the parties are unable to agree
upon the terms and conditions of any such transaction, ProGold can enter into a
similar transaction with a third party. However, in each case, including a lease
of the facility to a third party, Cargill would have the first right to engage
in the proposed transaction upon the same terms as agreed to by the third party.
Under the proposed arrangement, the Company and its ProGold partners will retain
ownership of the plant, while Cargill will operate the plant. Upon execution of
a definitive lease, ProGold would receive rental payments in a base amount fixed
for each year during the term of the lease. ProGold would also receive
supplemental rent equal to fifty percent (50%) of the amount by which earnings
before taxes from Cargill's operation of the facility exceeds a
contractually-specified base amount. Under the terms of the Letter of Intent,
Cargill will also enter into a corn supply agreement with ProGold, pursuant to
which ProGold will be obligated to deliver approximately 15.6 million bushels of
corn per fiscal year. Cargill will pay ProGold a market price for any corn
delivered to Cargill under the corn supply agreement.
Upon execution of a definitive lease and associated corn supply agreement
between ProGold and Cargill, Cargill would begin operation of the ProGold
facility and ProGold would become entitled to receive a fixed rental, with the
opportunity to receive supplemental rental amounts if Cargill's operation of the
ProGold facility meets the specified financial criteria. In addition, if ProGold
and Cargill enter into the definitive lease and corn supply agreement, the
Company's obligation to deliver corn to ProGold for processing would be
eliminated. Such events would reduce the Company's risk of procuring corn for
delivery to ProGold and receiving payment in an amount less than the cost of
acquiring that corn. If ProGold and Cargill do not enter into a definitive
arrangement, ProGold and its members would continue to be exposed to the risks
of participation in the corn sweetener market, including the risk of financial
losses by ProGold and the necessity of additional capital investment from
ProGold's members, including the Company.
28
<PAGE>
PROPERTY AND PROCESSING FACILITIES
American Crystal operates five sugarbeet processing factories in the Red
River Valley. The factories are located in Crookston, East Grand Forks and
Moorhead, Minnesota and Drayton and Hillsboro, North Dakota. American Crystal
owns all of its factories and the land on which they are located. The factories
range in size from 150,000 to 400,000 square feet and have a combined beet
processing capacity, expressed in terms of quantity of sugarbeets which may be
sliced into strips or "cossettes," of approximately 30,400 tons per day. The
Crookston, Minnesota plant has a capacity of 5,300 tons of sugarbeets per day,
the East Grand Forks, Minnesota plant has a capacity of 8,000 tons of sugarbeets
per day and the Moorhead plant has a capacity of 5,300 tons of sugarbeets per
day. The Company's Hillsboro, North Dakota plant has a capacity of 5,900 tons of
sugarbeets per day, while the Drayton, North Dakota plant has a capacity of
5,900 tons of sugarbeets per day. Each of the processing factories includes the
physical facilities and equipment necessary to process sugarbeets into sugar.
Each factory has space for sugarbeet storage, including ventilated and cold
storage sites. However, only approximately 20% of the sugarbeet crop is stored
in either ventilated storage sites or cold storage facilities. Each processing
factory includes the washing and slicing equipment necessary to cut the
sugarbeets into cossettes, the diffusers necessary to extract sugar from the
cossettes in the form of "raw juice" and the purification systems necessary to
remove impurities from the raw juice. The factories also contain the evaporators
and vacuum pans necessary to thicken the raw juice and then to crystalize the
sugar. Each factory also contains the centrifuges and dryers necessary to
complete the process. The Company's sugar packaging facilities are located at
the Moorhead, Hillsboro, Crookston and East Grand Forks factories. Each of the
Company's facilities is currently operating at or near its capacity. The capital
expenditures discussed in "Use of Proceeds", along with additional efforts to
increase processing capacity at the Company's facilities, will enable the
Company to increase its sugarbeet processing capacity to process the additional
sugarbeets to be delivered in connection with the shares of Preferred Stock
issued in the offering described herein.
In 1996, the Company completed a number of capital improvements to its sugar
factories. For example, beet storage facilities and refined sugar
conditioning/storage bins were added at both the Hillsboro and Drayton
factories. (The beet storage facilities allow for expanding acres by extending
the length of the beet slicing campaign. The sugar conditioning/storage bins are
used to condition and store refined sugar.) A clarifier mud press was added to
the Moorhead factory to help reduce odors. The Moorhead factory also completed a
sugar screening station project designed to improve the packaging operations
there. A new beet piler was purchased for the Drayton factory district to
increase beet receiving capacity and efficiency. New juice purification stations
have been added at Drayton, Crookston and Moorhead. Evaporation equipment at
Hillsboro and East Grand Forks has been upgraded.
The Board of Directors has approved funding for a number of capital
expenditures aimed at enhancing the Company's processing capacity. From the date
hereof until August 31, 1998, the Company proposes to spend a total of up to
$56.9 million on increasing the ability of the current Hillsboro processing
facility to slice sugarbeets by approximately 1,800 tons per day. In addition,
the Company plans to increase its total number of beet storage facilities.
The Company is currently contemplating the formation of a joint venture for
the purpose of constructing a molasses desugarization plant at one of its
plants, which would allow the Company to desugar the balance of its molasses to
extract additional sugar. Currently, approximately one-half of the Company's
molasses is desugared. The Company's goal in entering into a joint venture to
construct the molasses desugarization plant is to reduce the Company's average
cost of sugar production, through the use of current separation technologies.
Although the Company's Board of Directors has approved the strategic initiative
of constructing the desugarization plant, the specific terms of a joint venture
have not yet been adopted and the Company has not entered into any agreements or
letters of intention or understanding with respect to the proposed joint
venture. As a result, the Company cannot predict the precise financial or legal
structure involved in pursuing the desugarization project, nor can it estimate
with
29
<PAGE>
particularity the capital expenditures which will be required of the Company to
proceed with the molasses desugarization project.
American Crystal's corporate office is located in a 30,000 square foot,
two-story office building in Moorhead, Minnesota. The Company also has a 100,000
square foot research center situated on approximately 200 acres in Moorhead,
Minnesota, a portion of which is used for the offices of United Sugars
Corporation, the Company's marketing agent. (United Sugars Corporation does own
certain facilities separate from the facilities owned by the Company.) The
Company owns both facilities, and owns numerous sites as sugarbeet receiving and
storage stations. All the Company's property, plant and equipment is mortgaged
or pledged as collateral for its indebtedness to the St. Paul Bank for
Cooperatives.
EMPLOYEES
As of May 31, 1997, American Crystal had 1,207 full-time employees, of which
984 were hourly and 223 were salaried. The Company also had 43 part-time
employees. In addition, the Company employs approximately 1,262 additional
hourly seasonal workers during the sugarbeet harvest and approximately 531
hourly seasonal workers during the remainder of the sugarbeet processing
campaign.
Substantially all of the hourly employees at the factories, including
full-time and seasonal employees, are represented by the American Federation of
Grain Millers, AFL-CIO, and are covered by a collective bargaining agreement
expiring July 31, 1999. Office, clerical and management employees are not
unionized, except for certain office employees at the Moorhead and Crookston,
Minnesota, and Hillsboro, North Dakota, factories who are covered by the
collective bargaining agreement with the Grain Millers. The Company considers
its employee relations to be excellent.
Substantially all employees who meet eligibility requirements of age and
length of service are covered by one of the Company's two retirement plans. Plan
A (nonunion employees) and Plan B (union employees) are defined benefit,
noncontributory plans. The plans provide for vesting in five years with benefits
for early retirement, normal retirement and disability or death. The Company's
policy is to fund pension costs accrued, and the plans were fully funded for
vested benefits as of February 28, 1997, the end of the most recent plan year.
Union and nonunion employees are also eligible to participate in 401(k) savings
plans.
30
<PAGE>
MANAGEMENT
BOARD OF DIRECTORS
The Board of Directors of the Company consists of three directors from each
of the five factory districts. Directors must be common shareholders or
representatives of common shareholders belonging to the district they represent
and are elected by the members of that district. In the case of a common
shareholder who is other than a natural person, a duly appointed or elected
representative of such common shareholder may serve as a director. The directors
have been elected to serve three-year terms expiring in December of the years
indicated in the table below. One director is elected each year from each
factory district. Elections will be held in November 1997, with respect to those
Board seats to which the term expires in December, 1997.
The table below lists the current directors of the Company. Brief
biographies for each of the directors are included after the table.
<TABLE>
<CAPTION>
TERM
YEAR DIRECTOR EXPIRES
NAME AND ADDRESS OF BIRTH FACTORY DISTRICT SINCE IN DEC.
- -------------------------------------------------------------- ----------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
Michael A. Astrup ............................................ 1953 Moorhead 1996 1999
Box 219
Dilworth, MN 56529
Jerry D. Bitker .............................................. 1948 Hillsboro 1996 1999
R. R. #1, Box 106
Halstad, MN 56548
Paul Borgen .................................................. 1947 Moorhead 1985 1997
R.R. 1, Box 43
Georgetown, MN 56546
Aime J. Dufault .............................................. 1954 East Grand Forks 1990 1997
R.R.1, Box 162
Argyle, MN 56713
Steven M. Goodwin ............................................ 1958 East Grand Forks 1995 1998
R.R. 3, Box 116
Angus, MN 56712
Court G. Hanson .............................................. 1948 Hillsboro 1993 1998
R.R. 2, Box 1
Blanchard, ND 58009
Lonn M. Kiel ................................................. 1953 Crookston 1994 1997
R.R. 3, Box 71
Crookston, MN 56716
David J. Kragnes ............................................. 1952 Moorhead 1995 1998
R.R. 1, Box 100
Felton, MN 56536
Francis L. Kritzberger ....................................... 1945 Hillsboro 1996 1997
R. R. #1, Box 22
Hillsboro, ND 58045
Wayne Langen ................................................. 1939 Drayton 1988 1997
P.O. Box 133
Kennedy, MN 56733
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
TERM
YEAR DIRECTOR EXPIRES
NAME AND ADDRESS OF BIRTH FACTORY DISTRICT SINCE IN DEC.
- -------------------------------------------------------------- ----------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
Patrick D. Mahar ............................................. 1942 Drayton 1993 1999
R.R. 1, Box 363
Cavalier, ND 58220-9789
Barry W. Malme ............................................... 1947 Crookston 1986 1998
R.R. 1, Box 19K
Shelly, MN 56581
Ronald E. Reitmeier .......................................... 1945 Crookston 1996 1999
Route 1, Box 49
Fisher, MN 56723
G. Terry Stadstad ............................................ 1943 East Grand Forks 1993 1999
R.R. 2, Box 98
Grand Forks, ND 58203-9644
Robert Vivatson .............................................. 1949 Drayton 1992 1998
P.O. Box 63
Cavalier, ND 58220
</TABLE>
MICHAEL A. ASTRUP. Mr. Astrup has been a director since 1996. He has been a
farmer near Dilworth, Minnesota, since 1977.
JERRY D. BITKER. Mr. Bitker has been a director since 1996 and has been a
farmer since 1974 near Halstad and Ada, Minnesota.
PAUL BORGEN. Mr. Borgen has been a director since 1985 and has been a
farmer since 1968. Mr. Borgen's operations are near Georgetown, Minnesota, where
Mr. Borgen serves as President of Paul Borgen Farms, Inc. Mr. Borgen serves on
the Boards of Directors of United Sugars Corporation and American Sugarbeet
Growers Association, Washington, D.C.
AIME J. DUFAULT. Mr. Dufault has been a director since 1990. He has farmed
near Argyle, Minnesota since 1974.
STEVEN M. GOODWIN. Mr. Goodwin has been a director since 1995. Mr. Goodwin
has been a farmer since 1980 and owns and operates a farm near Angus, Minnesota.
COURT G. HANSON. Mr. Hanson has been a director since 1993 and has been a
farmer since 1971. Mr. Hanson is president of C. Hanson Farm, Inc., operating
near Blanchard, North Dakota. Prior to farming, Mr. Hanson was an assistant
national bank examiner from 1970 to 1973.
LONN M. KIEL. Mr. Kiel has been a director since 1994 and has been farming
near Crookston, Minnesota since 1982. He is the President of Kiel Corporation
and also serves on the Board of Directors of the Crookston Fuel Company.
DAVID J. KRAGNES. Mr. Kragnes has been a director since 1995. Mr. Kragnes
has been a farmer since 1972, with his farming operation located near Felton,
Minnesota.
FRANCIS L. KRITZBERGER. Mr. Kritzberger has been a director since 1996. He
has previously served as a director with the Company, from July 30, 1989 until
July 30, 1993. Mr. Kritzberger has been a farmer since 1964.
WAYNE LANGEN. Mr. Langen has been a director since 1988 and a farmer since
1963. Mr. Langen is a partner of Langen Bros. Joint Venture and operates its
farming operations near Kennedy, Minnesota.
32
<PAGE>
Mr. Langen serves on the Board of Directors of Kennedy Farmers Elevator Company,
United Sugars Corporation and Midwest Agri-Commodities Company.
PATRICK D. MAHAR. Mr. Mahar has been a director since 1993 and has been a
farmer since 1962. He is currently a partner of Mahar Farms near Cavalier, North
Dakota. Mr. Mahar previously served as president of the Red River Valley
Sugarbeet Growers Association, Fargo, North Dakota, and as president of the
American Sugarbeet Growers Association, Washington, D.C. Mr. Mahar is currently
serving on the Boards of Directors of First State Bank and Farmers Coop
Elevator, both of Cavalier, North Dakota.
BARRY W. MALME. Mr. Malme has been a director since 1986. Mr. Malme has been
a farmer near Shelly, Minnesota since 1974. Mr. Malme is a director of Midwest
Agri-Commodities Company.
RONALD E. REITMEIER. Mr. Reitmeier has been a director since 1996, and has
been a farmer since 1968. He previously served on the Board of Directors of PKM
Electric Co-op for ten years.
G. TERRY STADSTAD. Mr. Stadstad has been a director since 1993 and has been
farming near Grand Forks, North Dakota since 1965. Mr. Stadstad serves on the
Board of Directors of United Sugars Corporation.
ROBERT VIVATSON. Mr. Vivatson has been a director since 1992. Operating as a
farmer near Cavalier, North Dakota since 1975, Mr. Vivatson is a partner of
Vivatson Bros. and president of Vivatson Farms Inc. Mr. Vivatson is serving on
the Board of Directors of First State Bank, Cavalier, North Dakota and on the
Board of Governors of ProGold Limited Liability Company.
The Board of Directors meets monthly. The Company provides its directors
with minimal compensation, consisting of (i) a payment of $200 per month, (ii) a
per diem payment of $200 for each day spent on Company activities, including
board meetings and other Company functions, and (iii) reimbursement of expenses
for attendance at Board of Directors' meetings. The Chairman of the Board of
Directors receives a payment of $500 per month, rather than $200 per month; the
Chairman also receives a per diem in the amount of $200 for each day spent on
Company activities.
33
<PAGE>
EXECUTIVE OFFICERS
The table below lists the principal officers of the Company, none of whom
owns any shares of Common or Preferred Stock. Officers are elected annually by
the Board of Directors.
<TABLE>
<CAPTION>
YEAR
NAME OF BIRTH POSITION
- ------------------------------------------ ----------- -------------------------------------------------------------
<S> <C> <C>
Daniel J. McCarty......................... 1952 Chief Executive Officer
Marcus F. Richardson...................... 1941 Chief Operating Officer
James J. Horvath.......................... 1945 Chief Financial Officer
Robert W. Levos........................... 1943 Vice President-Agriculture
Lawrence L. Mathias....................... 1941 Vice President-Human Resources and Public Relations
David A. Berg............................. 1954 Vice President-Business Development
James Dudley.............................. 1950 Vice President-Operations
Ralph K. Morris........................... 1940 Secretary
Samuel S.M. Wai........................... 1953 Corporate Controller
Joseph J. Talley.......................... 1960 Treasurer and Assistant Secretary
Mark L. Lembke............................ 1955 Assistant Secretary & Assistant Treasurer
Daniel C. Mott............................ 1959 Assistant Secretary
Ronald K. Peterson........................ 1955 Assistant Treasurer
Brian Ingulsrud........................... 1962 Assistant Treasurer & Assistant Secretary
</TABLE>
DANIEL J. MCCARTY. Mr. McCarty was named Chief Executive Officer in April,
1996. Mr. McCarty has over fifteen years of experience in managing major
agricultural businesses. From 1992 through 1995, he was with Pet, Inc. as Group
Vice-President and President of the William Underwood subsidiary. He was
previously with Del Monte Foods for over ten years, where he was Director of the
flagship Del Monte Vegetable brand. Mr. McCarty serves on several Boards of
Directors, including United Sugars Corporation, Midwest Agri-Commodities
Company, the Sugar Association, Inc. and the U.S. Beet Sugar Association.
MARCUS F. RICHARDSON. Mr. Richardson has been Chief Operating Officer since
1995. Mr. Richardson has served in various manufacturing positions with the
Company since 1980 including, from 1986 to 1995, Vice President-Operations. Mr.
Richardson currently serves as a director of the Beet Sugar Development
Foundation, a non-profit industry association, and on the Board of Governors of
ProGold Limited Liability Company. Mr. Richardson also serves on the Board of
Directors of the Moorhead Economic Development Authority.
JAMES J. HORVATH. Mr. Horvath was named Chief Financial Officer in March,
1996. From June, 1994 to March, 1996, Mr. Horvath served as the Company's Vice
President-Joint Ventures as well as Chief Manager and Chief Operating Officer of
ProGold Limited Liability Company. Mr. Horvath also served as the Company's Vice
President-Finance from 1985-1994. Mr. Horvath currently serves on the Boards of
Directors of United Sugars Corporation and Midwest Agri-Commodities Company.
ROBERT W. LEVOS. Mr. Levos has been Vice President-Agriculture since 1986.
From 1981 to 1986 he was General Agriculturalist. He has been employed by the
Company since 1965. Mr. Levos currently serves on the Boards of Directors of
West Coast Beet Seed Company and the Beet Sugar Development Foundation.
LAWRENCE L. MATHIAS. Mr. Mathias has been Vice President-Human Resources and
Public Relations since 1990. He was Industrial Relations Manager with the
Company from 1976 to 1990. He currently serves on the Board of Directors of Blue
Cross Blue Shield of Minnesota.
DAVID A. BERG. Mr. Berg was named Vice President-Business Development in
1996. He served as the Company's Vice President Strategic Planning from 1994 to
1996, Director-Market Information from 1992-1994, Manager of Marketing and
Analysis from 1990 to 1992 and Manager-Economic Research from
34
<PAGE>
1987 to 1990. He currently serves on the Regulatory Task Force of the U.S. Beet
Sugar Association and the Domestic Sugar Committee of the New York Coffee, Sugar
and Cocoa Exchange.
JAMES DUDLEY. Mr. Dudley has been Vice President-Operations since 1995. From
1993 until August of 1995, Mr. Dudley served as Regional Manager and then as
Factory Operations Manager. Mr. Dudley served as Operations Manager at the
Company's Crookston factory from 1985 through 1993.
RALPH K. MORRIS. Mr. Morris has been Secretary of the Company since 1995. He
is a shareholder and the Chief Executive Officer of the law firm of Doherty,
Rumble & Butler Professional Association. The firm acts as corporate counsel to
American Crystal. Mr. Morris is not an employee of the Company.
SAMUEL S.M. WAI. Mr. Wai served as the Company's Treasurer from 1985 to
1996. He now serves as the Company's Corporate Controller. He held various
financial positions with the Company from 1979 to 1985.
JOSEPH J. TALLEY. Mr. Talley was named the Company's Treasurer in 1996. He
served as Finance Director, Assistant Treasurer and Assistant Secretary from
March 1996 until his appointment as Treasurer. From July 1994 to March 1996, Mr.
Talley served as Finance Director of ProGold Limited Liability Company. He
currently serves as Assistant Treasurer and Assistant Secretary of ProGold
Limited Liability Company, as well as Assistant Treasurer and Assistant
Secretary of Golden Growers Cooperative. Prior to July 1994, Mr. Talley was a
partner with the accounting firm of Eide Helmeke PLLP.
MARK L. LEMBKE. Mr. Lembke was named Assistant Secretary and Assistant
Treasurer in March 1996. Mr. Lembke has also served as the Company's Corporate
Accounting Manager since August 1995. From July 1987 through July 1995, Mr.
Lembke served as Factory Accounting Supervisor.
DANIEL C. MOTT. Mr. Mott has been Assistant Secretary of the Company since
1995. He is a shareholder in the law firm of Doherty, Rumble & Butler
Professional Association. The firm acts as corporate counsel to American
Crystal. Mr. Mott is not an employee of the Company.
RONALD K. PETERSON. Mr. Peterson has served as the Financial Systems Manager
since 1996 and as Assistant Treasurer since 1993. He currently holds both
positions. From 1993 through 1996, Mr. Peterson served as the Company's
Assistant Secretary. Mr. Peterson also served as the Company's Corporate
Accounting Manager from 1991 through 1996. Mr. Peterson has held various
financial positions with the Company since 1979.
BRIAN INGULSRUD. Mr. Ingulsrud became the Company's Financial Planning
Manager in 1997. He also serves as Assistant Treasurer and Assistant Secretary.
Mr. Ingulsrud began his employment with the Company in 1990, initially serving
as a Financial Analyst. In 1994, Mr. Ingulsrud became an Operations Financial
Planning Supervisor and in 1995 a Factory Office Manager. Prior to assuming his
current position as Financial Planning Manager, in 1996 Mr.Ingulsrud served as
SAP Implementation Manager.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the amount of compensation paid for services
rendered to the Company during the fiscal year ended August 31, 1997 and the two
prior fiscal years to those persons serving as the Company's Chief Executive
Officer and to the four other most highly compensated executive officers of the
Company whose cash compensation exceeded $100,000 per annum.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------------------
AWARDS
ANNUAL COMPENSATION ---------------------- PAYOUTS
---------------------------------------------- RESTRICTED ------------------------
OTHER ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) SARS PAYOUTS COMPENSATION
YEAR ($) ($) ($)(1) ($) (#) ($) ($)
--------- --------- --------- ------------- ----------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel J. 1997 $ 410,000 $ 184,000 $ 19,102 $ 146,938(3)
McCarty(2) .......... 1996 $ 149,808 $ 70,000 $ 77,372
Chief Executive
Officer
Joseph P. 1997 $ 0 $ 0 $ 0 $ 159,510(5)
Famalette(4) . 1996 $ 0 $ 0 $ 0 $ 83,333(5)
Chief Executive 1995 $ 296,966 $ 0 $ 48,904
Officer
Marcus F. Richardson(6) 1997 $ 254,555 $ 114,550 $ 71,718 $ 112,110(3)
Chief Operating 1996 $ 245,000 $ 93,683 $ 60,550
Officer 1995 $ 268,000 $ 81,104 $ 31,220
James J. Horvath ...... 1997 $ 217,650 $ 97,943 $ 37,958 $ 45,925(3)
Chief Financial 1996 $ 205,330 $ 71,866 $ 27,646
Officer 1995 $ 175,000 $ 61,250 $ 17,603
Robert W. Levos ....... 1997 $ 189,200 $ 85,140 $ 47,399 $ 43,223(3)
Vice President-- 1996 $ 178,490 $ 62,472 $ 37,222
Agriculture 1995 $ 163,750 $ 57,313 $ 19,192
Lawrence L. Mathias ... 1997 $ 172,610 $ 69,044 $ 42,839 $ 36,469(3)
Vice President-- 1996 $ 162,840 $ 56,994 $ 31,121
Human Resources and 1995 $ 148,710 $ 52,049 $ 20,084
Public Relations
</TABLE>
- ------------------------
(1) Includes the cost of additional life insurance coverage, use of a company
car, costs of tax return preparation, imputed interest, taxable moving
expenses reimbursed, the Company's matching contribution for 401(k) and SERP
and pension valuations.
(2) Mr. McCarty's employment with the Company began on March 28, 1996.
Calculated on an annualized basis, Mr. McCarty's salary for the fiscal year
ending on August 31, 1996 was $410,000.
(3) Represents the sum of (i) dollar value at $1,485 per share of contract
rights with respect to the vested portion of contract rights granted to the
executive under the Company's LTIP plan (described below) during the fiscal
year and (ii) "profit per acre payments" made to the executive under the
Company's LTIP plan. The profit per acre payments are determined by
subtracting from the Company's beet payment per acre the average cost of
production per acre incurred by the Company's members and multiplying the
result by the number of contract rights held by the executive.
(4) Mr. Famalette's employment with the Company ended on May 31, 1995.
(5) Represents forgiveness of installment payments due under loans from the
Company to Mr. Famalette. During Mr. Famalette's tenure with the Company,
the Company entered into certain contractual arrangements with Mr. Famalette
regarding his employment by the Company. Although the agreements
specifically indicated that Mr. Famalette was an employee at will, they were
intended to govern both (i) Mr. Famalette's bonuses during the period prior
to 1996 and (ii) severance payments due Mr. Famalette should his employment
with the Company be terminated. Effective March 2, 1992, the Company and Mr.
Famalette entered into a "Compensation, Loan and Severance Agreement". Among
other terms, that agreement established Mr. Famalette's initial compensation
at $250,000 per year. The agreement also provided for a loan of $250,000 to
Mr. Famalette. Evidenced by a promissory note, the loan was to be repaid in
three equal installments of $83,333.33. The first such installment was due
on March 2, 1993, the next installment was due on March 2, 1994 and the
final installment became due on March 2, 1995. However, the "Compensation,
Loan and Severance Agreement" provided that for each full year in which Mr.
Famalette remained employed as the President and Chief Executive Officer of
the Company, the sum of $83,333.33 due under the note would be forgiven. As
a result, on March 2, 1993, March 2, 1994, and March 2, 1995 the Company
forgave the installment payments due under the promissory note. The
"Compensation, Loan and Severance Agreement" specified that the loan and any
amounts forgiven under the terms of the agreement were provided to Mr.
Famalette in lieu of any other severance benefits to be paid upon
termination of Mr. Famalette's employment with the Company. Effective
October 1, 1993, the Company entered into a Compensation and Loan Agreement
with Mr. Famalette. The agreement governed Mr. Famalette's compensation for
36
<PAGE>
Mr. Famalette's employment by the Company. The Compensation and Loan
Agreement stated that Mr. Famalette's annual base compensation during the
period was to be $250,000, unless adjusted by the Board of Directors of the
Company. Effective October 1, 1994, Mr. Famalette's annual base compensation
was established as $359,500. The agreement further provided that Mr.
Famalette was not eligible for any executive incentive compensation or
bonuses, but would receive the loan described in this paragraph. Instead of
participating in the executive incentive program described below, Mr.
Famalette received a loan in the amount of $420,000. The loan bore no
interest and was due in full on January 2, 1997; provided, that the loan was
to be forgiven on January 2, 1997 if Mr. Famalette remained in the employ of
the Company through September 30, 1996. Upon Mr. Famalette's departure from
the Company, an Amendment to the Compensation and Loan Agreement was
mutually agreed upon providing that $140,000 of the loan would be forgiven
at such time as Mr. Famalette repaid the other $280,000 of the loan. Mr.
Famalette has since repaid the whole $280,000. On March 11, 1994, a loan was
made to Mr. Famalette. The amount of the loan was $420,000 and bore interest
at a rate of 4% per annum. Mr. Famalette repaid the loan in full on August
29, 1994.
(6) Mr. Richardson also served as interim Chief Executive Officer between June
1995 and March 1996.
Effective April 8, 1996, the Company and Mr. McCarty entered into an
"Employment Agreement" regarding Mr. McCarty's employment by the Company. The
agreement provides that such employment is for an initial term of three years,
after which Mr. McCarty shall serve as an "at will" employee at the pleasure of
the Board of Directors. Among other terms, the agreement establishes Mr.
McCarty's base compensation at $410,000 per year, and also provides that he may
participate in other benefit plans offered by the Company. Pursuant to the
agreement, Mr. McCarty was paid a signing bonus by the Company of $70,000 (less
applicable deductions), in lieu of participation in the Company's annual
management incentive plan through August 31, 1996. If during the initial term
the Board of Directors terminates Mr. McCarty's employment with the Company
without cause, Mr. McCarty is entitled to receive a severance payment equal to
$7,884.62 times the number of weeks between the date of termination and April 7,
1999. The agreement was amended in 1997 to reclassify Mr. McCarty as an "at
will" employee at all times. The amendment to the agreement provides for a
three-year wage and benefit continuation if the Board of Directors terminates
Mr. McCarty's employment without cause. Under the terms of the amendment, Mr.
McCarty is subject to a one-year restrictive covenant against his involvement in
the production, marketing and sale of refined sugar.
Certain management employees are entitled to participate in an incentive
program that provides for cash awards based partially on the performance of the
Company and partially on achievement of certain management performance
objectives. Those performance objectives are determined by the Board of
Directors. An executive is not eligible for any awards under the incentive
program unless that executive's performance for the applicable fiscal year is
rated as "fully satisfactory" or better. Depending on the executive's
responsibilities, the performance of the Company (measured in terms of revenues
returned to the members) and the results of the executive's evaluation for the
fiscal year, the program provides for an incentive bonus in amounts ranging from
4% to 40% of the eligible executive's base salary.
The Company has also adopted a Long Term Incentive Plan ("LTIP") which
provides deferred compensation to certain key executives of American Crystal
effective September 1, 1995. The LTIP creates financial incentives that reward
executives for long-term commitment to the Company and for successfully
implementing the Company's long-term growth strategies. Such incentives are
based upon contract rights which are available to the executive under the terms
of the LTIP, the value of which is related to the value of preferred shares of
the Company. The LTIP allows participants to purchase a limited number of
contract rights at the end of each three-year cycle. The LTIP establishes both
minimum and maximum ownership levels. When an executive reaches his minimum
ownership level, he or she may sell any vested shares over the minimum to any
qualified grower. The executive or his estate may also sell any vested shares at
the time of his termination, disability or death. At the point of sale, the
contract right becomes a share of Preferred Stock which the Company issues to
the purchasing grower. The executive receives the proceeds of the sale, less
appropriate taxes. The long-term cost of the stock will not be to the Company,
but to the grower who eventually purchases the stock from the executive. The
LTIP also provides for annual payments of "profit per acre payments" to
executives holding contract rights. The profit per acre payments are determined
by subtracting from the Company's beet payment per acre the average cost of
production per acre incurred by the Company's members and multiplying the result
by the number of contract rights held by the executive.
37
<PAGE>
A total of 389 contract rights have been granted under the plan, although
none have been exercised to date. As of the date hereof, those executives listed
above have been granted and hold contract rights with respect to number of
shares set forth below. Each contract right listed below carried a stated value
upon grant of $1,485 per share; the current stated value is $1,500 per share.
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------
CONTRACT REPRESENTATIVE
EXECUTIVE RIGHTS PAYOUT(1)
- -------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Daniel J. McCarty................................................... 155 $ 31,850
Marcus F. Richardson................................................ 83 $ 19,669
James J. Horvath.................................................... 34 $ 8,057
Robert W. Levos..................................................... 32 $ 7,583
Lawrence L. Mathias................................................. 27 $ 6,398
</TABLE>
- ------------------------
(1) The amount shown represents a representative amount, determined for the last
fiscal year, with respect to "profit per acre payments", which are non-stock
price based payments. The profit per acre payments are determined by
subtracting from the Company's beet payment per acre the average cost of
production per acre incurred by the Company's members and multiplying the
result by the number of contract rights held by the executive. Based on that
formula, the Company must provide a beet payment per acre to its members
equal to the average cost of production for an acre of sugarbeets in order
for executives holding contract rights to obtain any payment of profit per
acre payments. Given the method of determining the profit per acre payments,
there is no maximum payment amount.
Management employees are also eligible to participate in the Company's
Retirement Plan "A," a 401(k) savings plan and, beginning on September 1, 1994,
a "Supplemental Executive Plan." Those plans are described below.
RETIREMENT PLANS
The Company has established noncontributory, defined benefit retirement
plans which are available to all eligible employees of the Company. Those
employees who are covered by a collective bargaining agreement participate in
one plan, while employees who are not subject to a collective bargaining
agreement, including the executive officers listed on the Summary Compensation
Table, participate in another pension plan. That plan is known as Retirement
Plan "A." The benefits of the plan are funded by periodic Company contributions
to a retirement trust which invests the Company's contributions and the earnings
from such contributions in order to pay the benefits to the employees. The plan
provides for the payment of monthly retirement benefits determined under a
calculation based on years of service and a participant's compensation.
Retirement benefits are paid to participants upon normal retirement at the age
of 65 or later or upon early retirement. The plan also provides for the payment
of certain disability and death benefits.
The following table reflects the estimated annual benefits payable to a
fully-vested executive officer of the Company under Retirement Plan "A," upon
retirement at age 65, after 15, 20, 25, 30 and 35 years of annual service at the
remuneration levels set forth in the table:
38
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
1996 CALCULATION
PLAN A--QUALIFIED BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
REMUNERATION 15 20 25 30 35
- ----------------------------------------------------------- --------- --------- --------- --------- ---------
$125,000................................................... $ 24,595 $ 32,794 $ 40,993 $ 49,191 $ 49,191
$150,000................................................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$175,000................................................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$200,000................................................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$225,000................................................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$250,000................................................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$300,000................................................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$400,000................................................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$500,000................................................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
</TABLE>
The five executive officers named in the Summary Compensation Table have
years of service under the plan as follows: Mr. McCarty has served for less than
1 year; Mr. Richardson has served for 16 years; Mr. Horvath has served for 12
years; Mr. Levos has served for 31 years; and Mr. Mathias has served for 21
years.
The Company maintains a Section 401(k) plan that permits employees to elect
to set aside, on a pre-tax basis, a portion of their gross compensation in trust
to pay future retirement benefits. The Company matches 100% of the employee's
first 4% of compensation. The total annual pre-income tax addition to any
employees' account in any calendar year may not exceed the lesser of (i) $30,000
or (ii) 25% of annual compensation less the amount of the contribution and any
salary conversion. During 1996, the employee pre-income tax contribution was
limited to $9,500. An employee may also contribute up to 10% of his annual
compensation on an after-tax basis. Benefits under the 401(k) plan begin to be
paid to the employee upon the close of the plan year in which one of the
following events has occurred: the date the employee attains age 65, the date
the employee terminates his service with the employer and the date specified in
a written election made by the employee to receive benefits no later than April
1 of the year following the calendar year in which the employee retires, dies,
becomes disabled, reaches age 70 1/2 or is terminated.
Effective September 1, 1994, certain executive employees of the Company
became eligible to participate in a "Supplemental Executive Retirement Plan."
That plan was adopted by the Company's Board of Directors on June 30, 1994.
Subject to the discretion of the Board of Directors, the plan provides for the
Company to credit to the account of each executive eligible to participate in
the Supplemental Plan amounts equal to (i) the difference between amounts
actually contributed to the Company's 401(k) plan on behalf of the executive and
the amounts which could have been contributed if certain provisions of the
Internal Revenue Code did not prohibit the contribution of such amounts and (ii)
the difference between the benefits actually payable to the executive under the
provisions of Retirement Plan "A" and the amounts which would be payable under
Retirement Plan "A" if certain provisions of the Internal Revenue Code did not
prohibit the payment of such benefits. In addition, the executive may elect to
defer a portion of his or her compensation, ranging from 2% to 16%, by regular
payroll deductions under the Supplemental Plan, and may also so defer 100% of
all bonus and profits-per-acre payments. The Supplemental Plan is an "unfunded"
plan, with all amounts to be paid under the Supplemental Plan to be paid from
the general assets of the Company when due and also to be subject to the claims
of the Company's creditors.
The following table reflects the estimated annual benefits payable to a
fully-vested executive officer of the Company under the Supplemental Plan, upon
retirement at age 65, after 15, 20, 25, 30 and 35 years of annual service at the
remuneration levels set forth in the table:
39
<PAGE>
PLAN A--NON QUALIFIED BENEFITS 1996 CALCULATION
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REMUNERATION 15 20 25 30 35
- ------------------------------------------------------- --------- --------- ---------- ---------- ----------
$125,000............................................... $ 0 $ 0 $ 0 $ 0 $ 0
$150,000............................................... $ 0 $ 0 $ 0 $ 0 $ 0
$175,000............................................... $ 5,250 $ 7,000 $ 8,750 $ 10,500 $ 10,500
$200,000............................................... $ 10,500 $ 14,000 $ 17,500 $ 21,000 $ 21,000
$225,000............................................... $ 15,750 $ 21,000 $ 26,250 $ 31,500 $ 31,500
$250,000............................................... $ 21,000 $ 28,000 $ 35,000 $ 42,000 $ 42,000
$300,000............................................... $ 31,500 $ 42,000 $ 52,500 $ 63,000 $ 63,000
$400,000............................................... $ 52,500 $ 70,000 $ 87,500 $ 105,000 $ 105,000
$450,000............................................... $ 63,000 $ 84,000 $ 105,000 $ 126,000 $ 126,000
$500,000............................................... $ 73,500 $ 98,000 $ 122,500 $ 147,000 $ 147,000
</TABLE>
PRINCIPAL SHAREHOLDERS
As of the date hereof, no director owns beneficially more than 1% of the
Company's issued and outstanding Preferred Stock and the directors, as a group,
beneficially own less than 3% of the Company's issued and outstanding Preferred
Stock. To the best of the Company's knowledge, no other party beneficially owns
more than 1% of the Company's Preferred Stock.
DESCRIPTION OF COMMON STOCK AND PREFERRED STOCK
AUTHORIZED AND OUTSTANDING STOCK
As of May 31, 1997, American Crystal was authorized to issue 4,000 shares of
Common Stock, $10 par value, and 600,000 shares of Preferred Stock, $76.77 par
value. As of May 31, 1997, there were 2,562 shares of Common Stock and 436,915
shares of Preferred Stock issued and outstanding.
QUALIFICATIONS FOR SHARE OWNERSHIP
Ownership of both Common Stock and Preferred Stock is restricted to
sugarbeet farm operators in the territory in which the Company is engaged in
business. The term "operator" means a person, firm, partnership or corporation
who is the legal owner of the sugarbeet crop, has a majority financial interest
in the crop, has general control of the sugarbeet operations of the farm where
the sugarbeet crop is grown, and is a "bona fide farmer" as that term is defined
in the United States Farm Credit Administration regulations (12 C.F.R. Section
613.3020). As used in this Prospectus, "member" means a farm operator who is a
common shareholder of the Company.
COMMON STOCK
No member may own more than one share of Common Stock. Only holders of a
share of Common Stock are entitled to vote for the election of directors and on
other matters relating to the management and affairs of the Company determined
by shareholders. Each member has an equal vote in the election of directors (but
only from the member's district) and on other matters, regardless of the number
of acres grown or volume of business done with American Crystal. Three directors
are elected from each of the Company's five factory districts by the members
(common shareholders) in each such district.
The Board of Directors, may, by resolution, determine that a member is no
longer eligible to be a holder of Common Stock. Upon such determination, the
Board may refund the par value of the member's share of Common Stock and, upon
such payment, the member will cease to have voting rights as a shareholder.
40
<PAGE>
All of the outstanding shares of Common Stock, and the shares of Common
Stock to be sold pursuant to this offering, are validly issued and
non-assessable.
PREFERRED STOCK
Ownership of Preferred Stock entitles a member to grow sugarbeets for sale
to American Crystal. The Board of Directors determines the acreage that may be
grown for each share of Preferred Stock owned. However, as noted above, after
November 30, 1994, each share of Preferred Stock has represented the right to
sell the sugarbeets produced on approximately one acre of land to the Company.
Management's current intention is that a 1 to 1 ratio between shares and acres
be maintained for the foreseeable future, subject to tolerances for overplanting
and underplanting established by the Board each year. Those tolerances vary from
year to year, in the discretion of the Board of Directors. Shares of Preferred
Stock have no voting rights. The Company has no obligation to repurchase the
Preferred Stock of a grower found to be ineligible for continued membership.
SALE AND TRANSFER OF SHARES
A member desiring to sell his or her Common Stock or Preferred Stock must
first offer them to the Company for purchase at par value. If the Company
declines to purchase such shares, either class may be sold to a new member
(i.e., another farm operator not already a member) and Preferred Stock may be
sold to one or more existing members or farm operators approved for membership,
in each case subject to approval by the Board of Directors. Because the number
of acres of sugarbeets a member may grow for sale to the Company is directly
related to the number of shares of Preferred Stock owned, a limited, private
market for Preferred Stock exists. To date, the Company's Board of Directors has
not exercised the Company's right of first refusal to purchase shares offered
for sale by its members. In the absence of the exercise of such right of first
refusal, the Company is aware of sales of Preferred Stock at prices in excess of
the par value of those shares. However, as the Company does not require parties
seeking approval for transfers to provide information regarding the transfer
price, the Company does not possess verifiable information regarding the
transfer price involved in recent transfers of the Company's Preferred Stock.
NO DIVIDENDS
The Company's Bylaws prohibit the payment of dividends on the Common Stock
and Preferred Stock. Shareholders receive distributions from the Company in the
form of beet payments and the return of unit retains.
DISTRIBUTION OF ASSETS UPON DISSOLUTION
The Company's Bylaws establish the following order and priority for
distribution of the Company's assets upon dissolution, with each category to be
satisfied in full before any distribution is made to the next: first, all debts
and liabilities of the Company must be paid; second, the par value of the
Preferred Stock must be returned to the holders thereof; third, all capital
furnished through patronage and unit retains must be retired without priority as
to year on a pro rata basis; fourth, all paid-in surplus theretofore allocated
to particular shareholders or former shareholders must be returned; and fifth,
the par value of the Common Stock must be returned to the holders thereof. The
liquidation value of any property and assets of the Company remaining after such
priority distributions are then to be distributed among the holders of Preferred
Stock in proportion to the Preferred Stock held by each.
AMENDMENTS TO BYLAWS
The Company's Bylaws may be amended by a majority of shareholders present at
any regular or special meeting at which a quorum is present or represented by
mail vote. The notice of such meeting must contain a summary of the proposed
amendment.
41
<PAGE>
UNIT RETAINS
As a means of raising capital, an agricultural cooperative may retain a
portion of the payments otherwise due members for their crops. This is called a
"unit retain" or "unit retention capital." A unit retain "qualified" under the
Internal Revenue Code is not taxable income to the cooperative under federal law
and is taxable income to the cooperative's members, but is available for the
general business purposes of the cooperative, including debt service. (Unit
retains which are not "qualified" are taxable to the cooperative at the time
when declared but are not taxed again when distributed to the cooperative's
members.)
American Crystal's Board of Directors may set a variable unit retain
annually. Under the Company's Bylaws, the unit retain may be up to 10% of the
weighted average gross per ton payment to all members for sugarbeets. For the
fiscal years ended August 31, 1989, 1990, 1991 and 1992, American Crystal's unit
retain was $1.50 per ton of sugarbeets delivered. The unit retain for the years
ended August 31, 1993 and 1994 was $3.00 per ton, while the unit retain in the
years ended August 31, 1995 and August 31, 1996 was $2.00 per ton of sugarbeets
delivered.
Cooperatives often have programs to return excess unit retains in subsequent
years. American Crystal's unit retains may be returned to members if the
Company's Board of Directors, in its discretion, finds the aggregate amount of
outstanding unit retains to be in excess of the amounts needed for operating the
Company's business and servicing its debts. The Company's Bylaws provide that it
is the general policy to pay the oldest outstanding unit retains first. In
recent years, the practice of the Company's Board of Directors has been to
return unit retains after seven years.
American Crystal has a policy of refunding all accumulated unit retains of
disabled or deceased former members. During the years ended August 31, 1996,
1995, and 1994, such payments were approximately $296,000, $361,000, and
$552,000, respectively.
TAX TREATMENT
Subchapter T of the Internal Revenue Code sets forth rules for the tax
treatment of cooperatives and applies both to cooperatives exempt from tax under
Section 521 of the Internal Revenue Code and to non-exempt corporations
operating on a cooperative basis. American Crystal is a non-exempt cooperative.
As a cooperative, American Crystal is not taxed on amounts withheld from its
members in the form of qualified unit retains or on the amounts distributed to
its members in the form of payments for sugarbeets. Consequently, such amounts
are taxed only at the member level.
Income derived by American Crystal from non-member business is not entitled
to the "single tax" benefit of Subchapter T and is taxed to the cooperative at
corporate income tax rates. For the fiscal year ended August 31, 1996, American
Crystal had approximately $396,000 of net loss after taxes from its non-member
business.
PLAN OF DISTRIBUTION
The Company is offering and selling the Common Stock and Preferred Stock
without the assistance of any underwriter or agent. Instead, certain of the
Company's officers and directors will be responsible for completing the offer
and sale of the Common Stock and Preferred Stock. Such officers will not receive
any commission or compensation for such activities, other than their normal
compensation as employees of the Company.
With this Prospectus, each current member of the Company will receive a
Subscription Agreement, identified as Subscription Document A. That document
will indicate the number of shares of Preferred Stock he or she owned as of July
25, 1997. Based upon ownership of those shares of Preferred Stock, such member
will be entitled to purchase in this offering his or her pro rata portion of
60,000 of the shares of
42
<PAGE>
Preferred Stock offered hereby, with such pro rata portion rounded to the next
whole share of Preferred Stock. The number of shares of Preferred Stock
represented by such pro rata portion will equal approximately 13.5% of the
number of shares of Preferred Stock owned as of July 25, 1997, prior to rounding
to the nearest whole share. (In addition to indicating the number of shares of
Preferred Stock owned by a member as of July 25, 1997, the Subscription
Agreement will also indicate the number of Preferred Stock which the member is
entitled to purchase in this Offering.) EACH SUCH MEMBER WILL HAVE UNTIL 5:00
P.M., NOVEMBER 21, 1997 TO INDICATE TO THE COMPANY THAT HE OR SHE WISHES TO
PURCHASE HIS OR HER PORTION OF THE PREFERRED STOCK OFFERED HEREBY. TO INDICATE
HIS OR HER DESIRE TO PURCHASE SUCH SHARES, EACH MEMBER MUST RETURN TO THE
COMPANY AN EXECUTED ORIGINAL OF THE SUBSCRIPTION AGREEMENT, ALONG WITH PAYMENT
IN THE AMOUNT DETERMINED UNDER THE SUBSCRIPTION AGREEMENT, WHICH IS TO BE
CALCULATED IN THE MANNER DESCRIBED BELOW. (THE OFFER AND SALE OF SHARES OF
PREFERRED STOCK TO THE COMPANY'S CURRENT MEMBERS UPON THE BASIS OF THE RIGHTS
DESCRIBED IN THIS PARAGRAPH IS REFERRED TO AS "POOL 1".) A MEMBER MAY RETURN HIS
OR HER RESPONSE TO THE COMPANY'S CORPORATE HEADQUARTERS BY PERSONAL DELIVERY OR
BY CERTIFIED OR OTHER MAIL. HOWEVER, AS ALL RESPONSES MUST BE RECEIVED PRIOR TO
THE DESIGNATED TIME, MEMBERS CHOOSING TO MAIL THEIR RESPONSE TO THE COMPANY ARE
CAUTIONED TO ALLOW ADEQUATE TIME FOR AMERICAN CRYSTAL'S RECEIPT OF THE RESPONSE.
IF THE COMPANY HAS NOT RECEIVED A RESPONSE FULLY COMPLYING WITH THE REQUIREMENTS
DESCRIBED IN THIS SECTION FROM ANY MEMBER BY 5:00 P.M. ON NOVEMBER 21, 1997,
EACH MEMBER FROM WHOM THE COMPANY HAS NOT RECEIVED A RESPONSE WILL BE
CONCLUSIVELY PRESUMED TO HAVE WAIVED HIS OR HER RIGHT TO PARTICIPATE IN THIS
OFFERING.
A current member of the Company can also participate in a second portion of
the offering, designated as "Pool 2", available only to current members of the
Company. Each current member can indicate, by returning a completed "Indication
of Interest in Purchasing Additional Shares" (identified as Subscription
Document B), that he or she is willing to purchase shares of Preferred Stock in
addition to the Preferred Stock which he or she has a right to purchase in Pool
1 of this offering. Each member may indicate a desire to purchase additional
shares in an amount up to two (2) times the number of shares of Preferred Stock
which such member is entitled to purchase in Pool 1 of the offering described in
this Prospectus. Such response card must also be received by the Company before
5:00 p.m. on November 21, 1997. A member must purchase his or her pro rata
portion of the shares of Preferred Stock offered in Pool 1 in order to be
eligible to purchase any additional Preferred Stock in Pool 2. However, the
member will be entitled to purchase any such additional Preferred Stock only if
the procedure with respect to "Pool 2 Shares" described below results in the
member being granted the opportunity to acquire additional Preferred Stock. A
member of the Company as of July 25, 1997 may also indicate his or her interest
in participating in "Pool 3" of the offering, by returning an executed
"Indication of Interest in Purchasing Pool 3 Shares of Preferred Stock",
(identified as Subscription Document C). Each such member may purchase a maximum
of 50 shares of Preferred Stock in Pool 3, but only if such shares are available
for sale in Pool 3 and only if the procedure with respect to Pool 3 described
below results in the member being granted the opportunity to purchase any Pool 3
Shares.
A party who is not a member of the Company as of July 25, 1997 may
participate only in that portion of the offering designated as "Pool 3". To do
so, a prospective member must indicate, by returning an executed "Indication of
Interest in Purchasing Pool 3 Shares of Preferred Stock (identified as
Subscription Document C) and an executed form of "Representations and Warranties
For New Members" (identified as Subscription Document D), that he or she is
willing to purchase the Preferred Stock and meets the various criteria for
eligibility for membership in the Company. Each such subscriber may purchase a
maximum of 50 shares of the Preferred Stock, but only if shares of Preferred
Stock are available for sale in Pool 3 and only if the procedure with respect to
"Pool 3 Shares" described below results in the prospective member being granted
the opportunity to purchase Pool 3 Shares. The appropriate subscription
documents must be received by the Company before 5:00 p.m. on November 21, 1997.
After November 21, 1997, representatives of the Company will examine all
responses received from prospective purchasers of Preferred Stock. All members
who have indicated that they desire to acquire their pro rata portion of 60,000
of the shares of Preferred Stock offered in this offering will be allocated
43
<PAGE>
such portion of the Preferred Stock offered hereby, subject to rounding to the
nearest whole share (or such lesser number of shares of Preferred Stock as a
current member may request to purchase). The allocation of shares of Preferred
Stock on the basis of the pro rata rights to purchase described above will
constitute Pool 1 of the offering described in this Prospectus. Any Preferred
Stock remaining for sale after the Preferred Stock has been allocated to current
members in Pool 1 will be designated as "Pool 2 Shares."
The Preferred Stock available for purchase in Pool 2 will then be allocated
among those members as of July 25, 1997 who have completed Subscription Document
B, the "Indication of Interest in Purchasing Additional Shares." The Company's
representatives will determine the number of Pool 2 Shares available for
purchase. If the Company has received indications of interest in purchasing
shares in Pool 2 which do not exceed the number of shares available for sale in
Pool 2, each member who has completed subscription Document B will be entitled
to purchase all shares requested on Subscription Document B. If the Company has
received indications of interest in purchasing shares in Pool 2 which exceeds
the number of shares available for purchase in Pool 2, the available shares will
be allocated among those members who have completed Subscription Document B such
that each participating member will be entitled to purchase that portion of the
available Pool 2 Shares which is in the proportion of the number of shares
requested by such member on Subscription Document B as compared to all shares
requested by members from Pool 2. (The Company will not, however, issue any
fractional shares of Preferred Stock.) Upon completion of such allocation of
Pool 2 Shares, the Company's representatives will notify each member that he or
she is eligible to purchase shares in Pool 2; upon receipt of such notice, such
member will have a period of twenty (20) days in which to provide the Company
with a completed Subscription Agreement for the purchase of Pool 2 Shares and
payment for such shares, as described below. The Company's representatives will
also determine if any Pool 2 Shares remain available for sale. If no Pool 2
Shares remain available for sale, the Company's offering will be completed. If
Pool 2 Shares remain available and each member of the Company as of July 25,
1997 has purchased all shares of Preferred Stock which such member expressed an
interest in purchasing on Subscription Document B, the remaining Pool 2 Shares
will be designated as "Pool 3 Shares" and will become subject to the procedures
described below for the allocation of Pool 3 Shares.
Any Preferred Stock available for purchase after completion of the Pool 2
procedures described above will be designated as "Pool 3 Shares". All Pool 3
Shares will be available for purchase by (i) parties who were not members of the
Company as of July 25, 1997 and seek to become members of the Company through
the purchase of a share of Common Stock and some number of shares of Preferred
Stock and (ii) members of the Company as of July 25, 1997 who did not receive
the opportunity to purchase all desired shares in Pool 2. (However, any member
of the Company who seeks to participate in Pool 3 must have indicated an
interest in purchasing the maximum number of shares which could be requested in
Pool 2 and purchased the maximum number of shares available to them in Pool 2.)
The Pool 3 Shares will be allocated to such prospective purchasers in a random
drawing to be held in December 1997, until no additional shares of Preferred
Stock remain for sale or until the Company elects to terminate the Offerings
described herein. After completion of the drawing, those subscribers whose
Subscription Agreements have been drawn in the random drawing will be notified
in writing of the number of shares of Preferred Stock which they are eligible to
purchase. Payment of the amounts described below will be due within twenty (20)
days of the date of the Company's notice to such parties. If payment for such
shares is not received by the Company by the applicable due date, such
prospective purchaser's ability to purchase any portion of the Pool 3 Shares
will be terminated; the Company will then randomly draw a response card from
another subscriber, who will be granted the opportunity to purchase the
applicable portion of the Pool 3 Shares. The Company will continue with such
procedure until all Pool 3 Shares have been purchased or until the Company
elects, in its sole discretion, to cease efforts to sell the remaining shares of
Preferred Stock. All parties who have purchased shares of Common Stock and/or
Preferred Stock in this offering will receive confirmation of such purchase on
or about February 27, 1998.
44
<PAGE>
At the time of execution of Subscription Agreement A for the purchase of
shares, each purchaser who was a member of the Company as of July 25, 1997 will
be required to provide (i) subject to the conditions and requirements described
in this section, payment in full for the first forty-two percent (42%) of the
shares of Preferred Stock (rounded to the next whole share) available to such
member in Pool 1 and (ii) an initial payment of One Hundred Dollars ($100) for
each other share of Preferred Stock for which the member has subscribed in Pool
1. Within twenty (20) days after receipt of a notice from the Company that the
subscriber is entitled to purchase shares of Preferred Stock in Pool 2, each
purchaser who was a member of the Company as of July 25, 1997 will be required
to provide (i) subject to the conditions and requirements described in this
section, payment in full for the first forty-two percent (42%) of the shares of
Preferred Stock (rounded to the next whole share) available to such member in
Pool 2 and (ii) an initial payment of One Hundred Dollars ($100) for each other
share of Preferred Stock for which the member has subscribed in Pool 2. Within
twenty (20) days after receipt of a notice from the Company that the subscriber
is entitled to purchase shares of Preferred Stock in Pool 3, each purchaser will
be required to provide, subject to the conditions and requirements described in
this section, payment in full for the shares of Preferred Stock (rounded to the
next whole share) available to such member in Pool 3.
Payment for shares of Preferred Stock on the installment basis described
above is available to members of the Company as of July 25, 1997 only with
respect to that number of shares acquired IN EXCESS of forty two percent (42%)
of the shares of Preferred Stock acquired in Pool 1 and that number of shares IN
EXCESS of forty two percent (42%) of the shares of Preferred Stock which are
available to such member due to obtaining the right to purchase such shares in
Pool 2.
A party who was not a member of the Company as of July 25, 1997 will be
required, within twenty (20) days after receipt of a notice from the Company
that the subscriber is entitled to purchase shares of Preferred Stock in Pool 3,
to provide (i) payment for the share of Common Stock required as a condition of
membership in the Company, and (ii) subject to the conditions and requirements
described in this section, payment in full for the shares of Preferred Stock
(rounded to the next whole share) to be purchased by such subscriber.
The remaining portion of the purchase price for shares of Preferred Stock
not paid in full upon execution of Subscription Agreements A and B will be due
and payable in six (6) annual installments, due on each anniversary of the date
on which executed Subscription Agreements are required to be returned to the
Company, being November 21, 1997. With respect to each share to be paid for by
installment payments, the annual installment will be $233.33, exclusive of
rounding, the Company will provide the subscriber with an invoice for such
amounts 30 days prior to the due date of each such installment.
As noted elsewhere herein, all shares for which subscriptions have been
received will be issued upon completion of the offering described herein, with
each share of Preferred Stock to represent the right and obligation to deliver
the sugarbeets grown on an acre of farm land. However, only those shares for
which payment in full has been received prior to April 1, 1998 will represent
the right and obligation to deliver the sugarbeets grown on a full acre of land
in the 1998 crop season. Shares which have been purchased but for which the
Company has not received full payment prior to April 1, 1998 will represent the
right and obligation to deliver the sugarbeets grown on one half ( 1/2) of an
acre of farmland during the 1998 crop season. Subject to adjustment by the Board
of Directors in accordance with the Company's governing documents and the
Growers Contract, such shares shall represent the right and obligation to
deliver the sugarbeets grown on a full acre of farm land in the 1999 crop season
and years thereafter. As security for payment of the remaining installments, the
Company shall retain a security interest in those shares of Preferred Stock for
which payment has not yet been made. Upon payment of each installment, the
Company will release its lien on an additional number of shares of Preferred
Stock, in proportion to the amount of the installment payment. Shares may not be
transferred until the Company has received payment in full; in addition, any
prepayment of amounts due with respect to shares of Preferred Stock will be
applied to the last installment payment then remaining payable.
45
<PAGE>
Pursuant to the Company's Articles of Incorporation and Bylaws, the Company
reserves the right to reject subscriptions from any party, in the Company's sole
discretion. As described in "Description of Common and Preferred Stock," each
prospective purchaser of Common Stock and Preferred Stock must also satisfy the
requirements for membership in the Company contained in the Company's Articles
of Incorporation and Bylaws.
LEGAL PROCEEDINGS
From time to time and in the ordinary course of its business, the Company is
named as a defendant in legal proceedings related to various issues, including
worker's compensation claims, tort claims and contractual disputes. The Company
is currently involved in certain legal proceedings which have arisen in the
ordinary course of American Crystal's business; the Company is also aware of
certain other potential claims which could result in the commencement of legal
proceedings. The Company carries insurance which provides protection against
certain types of claims. With respect to current litigation and potential claims
of which the Company is aware, the Company's management believes that (i) the
Company has insurance protection to cover all or a portion of any judgments
which may be rendered against the Company with respect to certain claims or
actions and (ii) any judgments which may be entered against the Company and
which may exceed such insurance coverage or which may arise in actions involving
potential liabilities not covered by insurance policies are not likely to have a
material adverse effect upon the Company, or its assets or operations.
RELATED PARTY TRANSACTIONS
Each of the Company's directors is also a sugarbeet farmer and a shareholder
member or representative of a shareholder member of American Crystal. By virtue
of their status as such members of the Company, each director or the member he
represents sells sugarbeets to the Company and receives payments for those
sugarbeets. Such payments for sugarbeets often exceed $60,000. However, such
payments are received by the directors or the entities they represent on exactly
the same basis as payments are received by other members of the Company for the
delivery of their sugarbeets. Except for the sugarbeet sales described in the
preceding sentences, none of the directors or executive officers of the Company
have engaged in any other transactions with the Company involving amounts in
excess of $60,000.
FINANCIAL STATEMENTS
The financial statements of the Company for the fiscal years ended August
31, 1997, 1996 and 1995 have been audited by Eide Helmeke PLLP, Fargo, North
Dakota, independent certified public accountants. Such financial statements have
been included herein in reliance upon the report of Eide Helmeke PLLP.
46
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AMERICAN CRYSTAL SUGAR COMPANY
FINANCIAL STATEMENTS:
Report of Independent Auditors.................................................... F-2
Balance Sheets as of August 31, 1997 and 1996..................................... F-4
Statements of Operations for the Years Ended August 31, 1997, 1996 and 1995....... F-6
Statements of Changes in Members' Investment for the Years Ended August 31, 1997,
1996, and 1995................................................................... F-7
Statement of Cash Flows for the Years Ended August 31, 1997, 1996, and 1995....... F-8
Notes to Consolidated Financial Statements........................................ F-9
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Members of American Crystal Sugar Company
Moorhead, Minnesota
We have audited the accompanying balance sheets of the American Crystal
Sugar Company (a Minnesota cooperative corporation) as of August 31, 1997, and
1996, and the related statements of operations, changes in members' investments
and cash flows for the years ended August 31, 1997, 1996, and 1995. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with Generally Accepted Auditing
Standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the American Crystal Sugar
Company as of August 31, 1997, and 1996, and the results of its operations and
its cash flows for the years ended August 31, 1997, 1996, and 1995, in
conformity with Generally Accepted Accounting Principles.
As described in Note 1 to the Financial Statements, the company changed its
method of depreciating certain classes of property and equipment in 1996.
[SIGNATURE]
Eide Helmeke PLLP
October 10, 1997
Fargo, North Dakota
F-2
<PAGE>
(This page has been left blank intentionally.)
F-3
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
AUGUST 31
------------------------
1997 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents............................................................. $ 11,551 $ 3,807
Receivables:
Trade................................................................................. 60,940 50,915
Members............................................................................... 2,857 3,845
Other................................................................................. 5,618 1,399
Advances to Related Parties............................................................. 15,064 10,308
Inventories............................................................................. 140,057 72,677
Prepaid Expenses........................................................................ 2,892 3,088
----------- -----------
Total Current Assets.................................................................... 238,979 146,039
----------- -----------
Property and Equipment:
Land.................................................................................. 13,101 12,059
Buildings and Equipment............................................................... 635,671 572,446
Construction in Progress.............................................................. 43,938 41,098
Less Accumulated Depreciation......................................................... (413,211) (391,665)
----------- -----------
Net Property and Equipment.............................................................. 279,499 233,938
----------- -----------
Other Assets:
Investments in Banks for Cooperatives................................................. 14,568 15,177
Investments in Marketing Cooperatives................................................. 1,650 15,468
Investments in ProGold Limited Liability Company...................................... 43,007 51,330
Other Assets.......................................................................... 3,801 3,184
----------- -----------
Total Other Assets...................................................................... 63,026 85,159
----------- -----------
Total Assets............................................................................ $ 581,504 $ 465,136
----------- -----------
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-4
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
LIABILITIES AND MEMBERS' INVESTMENTS
<TABLE>
<CAPTION>
AUGUST 31
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Current Liabilities:
Short-Term Debt......................................................................... $ 67,960 $ 13,643
Current Maturities of Long-Term Debt.................................................... 17,800 13,525
Accounts Payable........................................................................ 25,897 24,550
Other Current Liabilities............................................................... 15,515 15,132
Amounts Due Members..................................................................... 66,155 47,118
---------- ----------
Total Current Liabilities................................................................. 193,327 113,968
Long-Term Debt, Net of Current Maturities................................................. 186,800 177,394
Deferred Income Taxes..................................................................... 1,540 --
Other Liabilities......................................................................... 23,909 21,638
---------- ----------
Total Liabilities......................................................................... 405,576 313,000
---------- ----------
Members' Investments:
Preferred Stock......................................................................... 33,542 31,879
Common Stock............................................................................ 26 24
Additional Paid-In Capital.............................................................. 64,596 33,041
Unit Retains............................................................................ 105,450 97,191
Pension Liability Adjustment............................................................ (4,131) (4,518)
Retained Earnings....................................................................... (23,555) (5,481)
---------- ----------
Total Members' Investments................................................................ 175,928 152,136
---------- ----------
Total Liabilities and Members' Investments................................................ $ 581,504 $ 465,136
---------- ----------
---------- ----------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-5
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net Revenue.................................................................. $ 677,004 $ 688,012 $ 605,960
Cost of Product Sold, Excluding Payments
to Members for Sugarbeets.................................................. 136,330 216,229 143,652
---------- ---------- ----------
Gross Proceeds............................................................... 540,674 471,783 462,308
Selling, General and Administrative Expenses................................. 141,949 155,188 132,752
---------- ---------- ----------
Operating Proceeds........................................................... 398,725 316,595 329,556
---------- ---------- ----------
Other Income (Expense):
Interest Income............................................................ 2,063 3,564 281
Other Income............................................................... 1,066 1,121 1,934
Interest Expense, Net...................................................... (18,321) (11,252) (14,532)
Other Expenses............................................................. (15,050) (371) (612)
---------- ---------- ----------
(30,242) (6,938) (12,929)
---------- ---------- ----------
Proceeds Before Income Taxes................................................. 368,483 309,657 316,627
Income Taxes Benefit/(Expense)............................................... (1,727) 549 3,922
---------- ---------- ----------
Net Proceeds Resulting from Member and Non-Member Business................... $ 366,756 $ 310,206 $ 320,549
---------- ---------- ----------
---------- ---------- ----------
Distributions of Net Proceeds:
Credited (Charged) to Members' Investments:
Member Tax Accounting Adjustment, Net.................................... $ -- $ -- $ (5,621)
Non-Member Business (Loss)............................................... (18,074) (396) (15)
Unit Retains Declared to Members......................................... 16,611 16,040 16,648
---------- ---------- ----------
Net Credit (Charge) to Members' Investments.................................. (1,463) 15,644 11,012
Payments to Members for Sugarbeets, Net of
Unit Retains Declared...................................................... 368,219 294,562 309,537
---------- ---------- ----------
Total........................................................................ $ 366,756 $ 310,206 $ 320,549
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-6
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF CHANGES IN MEMBERS' INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL PENSION
PREFERRED PAID-IN UNIT LIABILITY RETAINED
STOCK COMMON STOCK CAPITAL RETAINS ADJUSTMENT EARNINGS TOTAL
----------- ------------- ----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1994............ $ 30,429 $ 24 $ 5,558 $ 81,433 $ (2,386) $ 551 $ 115,609
----------- --- ----------- ----------- ----------- ----------- ---------
Member Tax Accounting Adjustment,
Net............................. -- -- -- -- -- (5,621) (5,621)
Non-Member Business (Loss)........ -- -- -- -- -- (15) (15)
Unit Retains Withheld from Members
($2.00/Ton)..................... -- -- -- 16,648 -- -- 16,648
Payments to Estates and Disabled
Individuals..................... -- -- -- (374) -- -- (374)
Payments of 1987 Crop Unit Retains
to Members...................... -- -- -- (9,220) -- -- (9,220)
Contributed Capital of Investee... -- -- 460 -- -- -- 460
Pension Liability Adjustment...... -- -- -- -- (3,288) -- (3,288)
Common Stock Issued/(Redeemed),
Net............................. 1,450 (1) 26,399 -- -- -- 27,848
----------- --- ----------- ----------- ----------- ----------- ---------
BALANCE, AUGUST 31, 1995............ $ 31,879 $ 23 $ 32,417 $ 88,487 $ (5,674) $ (5,085) $ 142,047
----------- --- ----------- ----------- ----------- ----------- ---------
Member Tax Accounting Adjustment,
Net............................. -- -- -- -- -- -- --
Non-Member Business (Loss)........ -- -- -- -- -- (396) (396)
Unit Retains Withheld from Members
($2.00/Ton)..................... -- -- -- 16,040 -- -- 16,040
Payments to Estates and Disabled
Individuals..................... -- -- -- (296) -- -- (296)
Payments of 1988 Crop Unit Retains
to Members...................... -- -- -- (7,040) -- -- (7,040)
Contributed Capital of Investee... -- -- 624 -- -- -- 624
Pension Liability Adjustment...... -- -- -- -- 1,156 -- 1,156
Stock Issued/(Redeemed), Net...... -- 1 -- -- -- -- 1
----------- --- ----------- ----------- ----------- ----------- ---------
BALANCE, AUGUST 31, 1996............ $ 31,879 $ 24 $ 33,041 $ 97,191 $ (4,518) $ (5,481) $ 152,136
----------- --- ----------- ----------- ----------- ----------- ---------
MEMBER TAX ACCOUNTING ADJUSTMENT,
NET............................. -- -- -- -- -- -- --
NON-MEMBER BUSINESS (LOSS)........ -- -- -- -- -- (18,074) (18,074)
UNIT RETAINS WITHHELD FROM MEMBERS
($2.00/TON)..................... -- -- -- 16,611 -- -- 16,611
PAYMENTS TO ESTATES AND DISABLED
INDIVIDUALS..................... -- -- -- (673) -- -- (673)
PAYMENTS OF 1989 CROP UNIT RETAINS
TO MEMBERS...................... -- -- -- (7,679) -- -- (7,679)
CONTRIBUTED CAPITAL OF INVESTEE... -- -- 892 -- -- -- 892
PENSION LIABILITY ADJUSTMENT...... -- -- -- -- 387 -- 387
STOCK ISSUED/(REDEEMED), NET...... 1,663 2 30,663 -- -- -- 32,328
----------- --- ----------- ----------- ----------- ----------- ---------
BALANCE, AUGUST 31, 1997............ $ 33,542 $ 26 $ 64,596 $ 105,450 $ (4,131) $ (23,555) $ 175,928
----------- --- ----------- ----------- ----------- ----------- ---------
----------- --- ----------- ----------- ----------- ----------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-7
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Cash Provided By (Used In) Operations:
Net Proceeds Resulting from Member and Non-Member Business..................... $ 366,756 $ 310,206 $ 320,549
Payments to Members for Sugarbeets, Net of Unit Retains........................ (368,219) (294,562) (309,537)
Add (Deduct) Non-Cash Items:
Depreciation and Amortization.................................................. 26,165 20,314 28,174
Loss on Investment Activities.................................................. 13,918 343 495
Deferred Income Taxes.......................................................... 1,540 (1,216) (3,629)
Loss on the Disposition of Property and Equipment.............................. 37 230 50
Non-Cash Portion of Patronage Dividend from the Banks for Cooperatives......... 609 (1,404) (1,653)
Deferred Gain Recognition...................................................... (213) (223) (223)
Changes in Certain Elements of Working Capital:
Accounts Receivable:
Trade........................................................................ (10,025) (2,802) (14,120)
Members...................................................................... 988 362 8
Other........................................................................ (4,219) 3,795 (2,827)
Inventories.................................................................. (67,380) 30,614 (49,511)
Prepaid Expenses............................................................. 196 737 1,727
Advances to Related Parties.................................................. (4,756) (4,217) (1,898)
Accounts Payable............................................................. 1,347 (1,343) 9,831
Other Current Liabilities.................................................... 384 1,214 525
Amount Due Members........................................................... 19,037 6,881 (3,658)
--------- --------- ---------
Net Cash (Used)/Provided By Operations........................................... (23,835) 68,929 (25,697)
--------- --------- ---------
Cash Provided By (Used In) Investing Activities:
Purchases of Property and Equipment............................................ (70,805) (43,549) (48,636)
Proceeds from the Sale of Property and Equipment............................... 667 151 191
Investments in the Banks for Cooperatives...................................... -- 159 770
Investments in Marketing Cooperatives.......................................... 14,031 (9,700) (4,482)
Investment in ProGold Limited Liability Company................................ (5,595) (39,221) (12,757)
Changes in Other Assets........................................................ (2,372) (271) 178
--------- --------- ---------
Net Cash Used in Investing Activities............................................ (64,074) (92,431) (64,736)
--------- --------- ---------
Cash Provided By (Used In) Financing Activities:
Net Proceeds (Payments) on Short-Term Debt..................................... 54,317 (40,289) 53,932
Proceeds from Long-Term Debt................................................... 28,200 85,000 20,300
Long-Term Debt Repayment....................................................... (14,525) (13,115) (17,110)
Payment of Unit Retains........................................................ (8,352) (7,336) (9,594)
Changes in Preferred Stock..................................................... 1,663 -- 1,450
Changes in Common Stock........................................................ 2 1 1
Changes in Additional Paid-In Capital.......................................... 31,555 623 26,859
Changes in Other Long-Term Liabilities......................................... 2,793 (995) 3,601
--------- --------- ---------
Net Cash Provided by Financing Activities........................................ 95,653 23,889 79,439
--------- --------- ---------
Increase (Decrease) in Cash and Cash Equivalents................................. 7,744 387 (10,994)
Cash and Cash Equivalents, Beginning of Period................................... 3,807 3,420 14,414
--------- --------- ---------
Cash and Cash Equivalents, End of Period......................................... $ 11,551 $ 3,807 $ 3,420
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
F-8
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
American Crystal Sugar Company (American Crystal) is a Minnesota
agricultural cooperative corporation, which processes and markets sugar and
sugarbeet pulp, molasses and seed. Business done with its shareholders (members)
constitutes "patronage business" as defined by the Internal Revenue Code and the
net proceeds therefrom are credited to members' investments in the form of unit
retains or distributed to members in the form of payments for sugarbeets.
Members are paid the net amounts realized from the current year's production
less member operating costs determined on a book basis.
On April 26, 1995, the Company's shareholders amended the Bylaws of the
Company and the Grower Agreement between the Company and each of its
shareholders. The amendment changed the method by which the grower beet payment
is determined. Previously, the grower beet payment was on the basis of the
Company's taxable income. Effective with the fiscal year beginning September 1,
1995, the grower beet payment is calculated on the basis of the Company's
financial statement income as reported in conformity with Generally Accepted
Accounting Principles.
CASH AND CASH EQUIVALENTS
American Crystal considers all highly liquid debt instruments and equity
instruments purchased with a maturity of three months or less to be cash
equivalents. American Crystal places its temporary cash investments with high
credit quality financial institutions. At times, such investments may be in
excess of the applicable insurance limit.
RECEIVABLES
American Crystal grants credit, individually and through its marketing
cooperatives, to its customers which are primarily companies in the food
processing industry located throughout the United States. Ongoing credit
evaluations of customers' financial condition are performed and the Company
maintains a reserve for potential credit losses. American Crystal does not
believe it is dependent upon one or a few customers, as no one customer
accounted for more than 10% of sales.
INVENTORIES
Sugar, pulp and molasses inventories are valued at estimated net realizable
value. Maintenance parts and supplies, corn and beet seed inventories are valued
at the lower of average cost or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost. Indirect costs and construction
period interest are capitalized as a component of the cost of qualified assets.
Property and equipment are depreciated for financial reporting purposes
principally using straight-line methods with estimated useful lives ranging from
3 to 45 years. Statutory lives and methods are used for income tax reporting
purposes.
Property and equipment acquired prior to September 1, 1995, was depreciated
for financial statement purposes, principally using declining-balance methods
with estimated useful lives ranging from 3 to 45 years. Effective September 1,
1995, property and equipment is being depreciated using the straight-line
method. The straight-line method of depreciation was adopted during fiscal 1996
to more accurately reflect
F-9
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the allocation of the cost of the property and equipment in the proper period
and to conform with general industry practice.
Indirect costs capitalized were $1.1 million, $1.0 million and $845,000 in
1997, 1996 and 1995, respectively. Construction period interest capitalized was
$2.6 million, $3.8 million and $1.5 million in 1997, 1996 and 1995,
respectively.
INVESTMENTS
Investments in the Banks for Cooperatives are stated at cost plus unredeemed
patronage refunds received or estimated to be received in the form of capital
stock. No patronage was accrued in 1997. Investments in Marketing Cooperatives
and ProGold Limited Liability Company (ProGold) are accounted for using the
equity method. The net capitalized interest related to the investment in ProGold
totaled $1.1 million and $3.1 million for the years ended August 31, 1997 and
1996, respectively.
MEMBERS' INVESTMENTS
PREFERRED AND COMMON STOCK--The ownership of common and preferred stock is
restricted to a "farm operator" as defined by the bylaws of American Crystal.
Each "farm operator" may own only one share of common stock and is entitled to
one vote in the affairs of American Crystal. Each "farm operator" is entitled to
grow a specified number of acres of sugarbeets in proportion to the shares of
preferred stock owned. The preferred shares are non-voting. All transfers of
stock must be approved by American Crystal's board of directors and any
shareholder desiring to sell stock must first offer it to American Crystal for
repurchase at its par value. American Crystal has never exercised this
repurchase option. The bylaws do not allow dividends to be paid on either the
common or preferred stock. The articles of incorporation of the Company were
amended on August 31, 1994, to allow recapitalization of the Company to
authorize the issuance of 600,000 shares of preferred stock with a par value of
$76.77. As part of that recapitalization, each share of preferred stock was
changed and reclassified into 65/100 (.65) of one share of preferred stock, with
a par value of $76.77 per share.
<TABLE>
<CAPTION>
SHARES SHARES ISSUED
PAR VALUE AUTHORIZED & OUTSTANDING
----------- ----------- --------------
<S> <C> <C> <C>
Preferred Stock:
August 31, 1997..................................... $ 76.77 600,000 436,915
August 31, 1996..................................... 76.77 600,000 415,255
August 31, 1995..................................... 76.77 600,000 415,255
Common Stock:
August 31, 1997..................................... $ 10.00 4,000 2,585
August 31, 1996..................................... 10.00 4,000 2,444
August 31, 1995..................................... 10.00 4,000 2,343
</TABLE>
UNIT RETAINS--The bylaws authorize American Crystal's board of directors to
require additional direct capital investments by members in the form of a
variable unit retain of up to a maximum of 10% of the weighted average gross
per-ton beet payment. American Crystal has a policy whereby the company refunds,
to the entity legally entitled thereto, the unit retains attributable to a
deceased or totally and permanently disabled former shareholder.
F-10
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RETAINED EARNINGS--Retained earnings represent the cumulative net
income/(loss) resulting from non-member business and the difference between
member income as determined for financial reporting purposes and federal income
tax reporting purposes prior to 1996. The non-member net loss was $18.1 million,
$396,000, and $15,000 in 1997, 1996 and 1995, respectively.
INTEREST EXPENSE, NET
American Crystal earns patronage dividends from the Bank for Cooperatives
based on American Crystal's share of the net interest income earned by the Bank.
These patronage dividends are applied against interest expense.
INCOME TAXES
American Crystal is a non-exempt cooperative for federal income tax
purposes. As such, American Crystal is subject to corporate income taxes on its
net income from non-member sources. The provision for income taxes relates to
the results of operations from non-member business, state income taxes and
certain other permanent differences between financial and income tax reporting.
Deferred income taxes are provided for timing differences between financial and
income tax reporting.
As of August 31, 1997, American Crystal had accumulated approximately $9.4
million of net operating loss carryforwards. The majority of the net operating
loss carryforwards expire in 2012. American Crystal has provided a valuation
allowance for the entire balance of the deferred tax asset related to the loss
carryforwards.
Examinations of the Company's federal income tax returns for the years ended
on or before August 31, 1992, were conducted by the Internal Revenue Service
(IRS) in prior years. During the year ended August 31, 1997, all open issues
with respect to these years were settled with the IRS which resulted in a net
refund. The IRS will be examining the Company's federal tax returns for August
31, 1993, 1994 and 1995 beginning in October, 1997.
At this time, it is not possible to determine the additional taxes and
interest, if any, that may become due upon the resolution of the remaining
contested matters. The eventual resolution of these income tax matters will not
have a material effect on these financial statements. Net income tax payments
(refunds) for the years ended August 31, 1997, 1996 and 1995 were $(4,000),
$(139,000) and $183,000 respectively.
ACCOUNTING ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-11
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(2) INVENTORIES:
The major components of inventories are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Refined Sugar, Pulp, Molasses and Beet Seed............................ $ 115,026 $ 46,155
Corn................................................................... 3,758 --
Maintenance Parts and Supplies......................................... 21,273 26,522
---------- ---------
Total Inventories.................................................. $ 140,057 $ 72,677
---------- ---------
---------- ---------
</TABLE>
(3) INVESTMENT IN MARKETING COOPERATIVES:
As of January 1, 1994, American Crystal entered into a marketing agreement
with United Sugars Corporation (United), whereby United will market the
cooperative's production of sugar. The amount of the investment is accounted for
using the equity method. American Crystal's investment in United was comprised
of contributed assets with a net book value of $1.7 million and transferred
liabilities of $1.1 million. Upon transfer, certain assets were revalued based
on appraisals that increased the value of those assets by $4.2 million. This
increased value was recorded by United as a capital contribution from American
Crystal. American Crystal has recorded this $4.2 million as a deferred gain, net
of deferred income taxes, and will amortize it over a period of 31 years. The
investment in United is reported net of the unamortized deferred gain. During
1996, American Crystal invested an additional $10.0 million in United. This
investment was associated with the funding of United's current capital projects.
All sugar produced is sold by United as an agent for American Crystal. As of
August 31, 1997, American Crystal has a 70% ownership interest in United,
however, American Crystal has only one-third voting rights. The amount of sales
and related costs to be recognized by each owner is allocated based on their pro
rata share of production for the year. The owners provide United with cash
advances on an ongoing basis for operating and marketing expenses incurred by
United. As of August 31, 1997, $15.3 million worth of marketing assets were
transferred to American Crystal from United Sugars. American Crystal had net
advances to United of $11.9 million and $7.1 million as of August 31, 1997 and
1996, respectively. American Crystal provides administrative services for United
and is reimbursed for costs incurred. American Crystal was reimbursed $745,000
and $708,000 for services provided during 1997 and 1996, respectively.
In July, 1997, United Sugars Corporation and United States Sugar Corporation
( USSC), entered into a preliminary agreement wherein USSC intends to become an
equity member of United Sugars Corporation. The actual equity investment will be
adjusted based upon relative annual sugar volume marketed by United Sugars
Corporation.
Under the planned arrangement, United Sugars Corporation would market all
sugar produced by USSC under approximately the same terms as now done for other
members. USSC is presently constructing a cane sugar refining production
facility at Clewiston, Florida, which is expected to be in operation in June,
1998, and have annual capacity of approximately 10 million hundredweight.
American Crystal has a one-third ownership interest in Midwest
Agri-Commodities Company (Midwest). The amount of the investment is accounted
for using the equity method. All beet pulp and molasses produced is sold by
Midwest as an agent for American Crystal. The amount of sales and related costs
to be recognized by each owner is allocated based on their pro rata share of
production for the year. The owners
F-12
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENT IN MARKETING COOPERATIVES: (CONTINUED)
provide Midwest with cash advances on an ongoing basis for operating and
marketing expenses incurred by Midwest. American Crystal had outstanding
advances to Midwest of $2.3 million and $3.2 million as of August 31, 1997, and
1996, respectively. The owners are guarantors of the short-term line of credit
Midwest has with the St. Paul Bank for Cooperatives (Bank). As of August 31,
1997, Midwest had outstanding short-term debt with the Bank of $1.5 million, of
which $1.1 million was guaranteed by American Crystal.
(4) PROGOLD LIMITED LIABILITY COMPANY:
American Crystal has a 46% ownership interest in ProGold. ProGold operates a
corn wet milling plant, which produces high-fructose corn syrup sweetener. The
plant started operations on October 25, 1996 with saleable product being
produced on January 1, 1997. Following is summary financial information for
ProGold.
SUMMARY INFORMATION
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Current Assets.......................................... $ 38,788 $ 1,222
Fixed Assets............................................ 223,815 194,916
Other Assets............................................ 13,731 5,026
--------- ---------
Total Assets.......................................... $ 276,334 $ 201,164
--------- ---------
--------- ---------
Current Liabilities..................................... $ 24,164 $ 24,268
Long Term Liabilities................................... 171,844 71,962
--------- ---------
Total Liabilities..................................... 196,008 96,230
Equity.................................................. 80,326 104,934
--------- ---------
Total Liabilities and Equity............................ $ 276,334 $ 201,164
--------- ---------
--------- ---------
Sales Revenue........................................... $ 46,725 $ --
Cost of Sales........................................... 59,145 --
--------- ---------
Gross Margins (Loss).................................... (12,420) --
Other Income............................................ 344 482
Expenses................................................ (18,182) (1,228)
--------- ---------
Net (Loss).............................................. $ (30,258) $ (746)
--------- ---------
--------- ---------
</TABLE>
On September 30, 1997, ProGold entered into a letter of intent to lease
substantially all of its assets to Cargill, Incorporated. Under the terms of
this operating lease, Cargill, Incorporated would manage all aspects of the
operations of the ProGold corn wet-milling plant.
F-13
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM AND SHORT-TERM DEBT:
The long-term debt outstanding as of August 31, 1997 and 1996, is summarized
below:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Term loans from the St. Paul Bank for Cooperatives, due in varying
amounts through 2008, interest at 5.9% to 9.5%, with first lien on
substantially all property and equipment.............................. $ 172,300 $ 168,800
Term loans from First Bank, Minneapolis, due in equal amounts through
2002, interest at 7.60% to 8.25%, unsecured........................... 5,000 6,000
Term loan from the Bank of North Dakota due in equal amounts through
2009, with interest at 6.34%, unsecured............................... 9,600 10,400
Pollution control and industrial development revenue bonds, due in
varying amounts through 2018, interest at 3.76% to 8.00%.............. 17,700 5,719
--------- ---------
204,600 190,919
Less current maturities............................................... (17,800) (13,525)
--------- ---------
Total long-term debt................................................ $ 186,800 $ 177,394
--------- ---------
--------- ---------
</TABLE>
Aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1998.............................................................. $ 17,800
1999.............................................................. 18,800
2000.............................................................. 18,915
2001.............................................................. 18,925
2002.............................................................. 18,930
Thereafter........................................................ 111,230
---------
Total........................................................... $ 204,600
---------
---------
</TABLE>
As of August 31, 1997, the new unused portion of the term loan line of
credit with the St. Paul Bank for Cooperatives was $44 million. The undrawn
amount of cash relating to the Pollution Control and Industrial Development
Revenue bonds was $11.3 million.
During the year ended August 31, 1997, American Crystal borrowed from the
St. Paul Bank for Cooperatives, the Commodity Credit Corporation and issued
commercial paper to meet its short-term borrowing requirements. American Crystal
had outstanding short-term commercial paper debt of $67.9 million as of August
31, 1997. During the year ended August 31, 1997, American Crystal had available
short-term lines of credit totaling $240 million.
Average borrowing levels and average interest rates for short-term debt for
the years ended August 31, 1997 and 1996, follow:
<TABLE>
<CAPTION>
AUGUST 31,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Maximum borrowing levels (in 000's)................................... $ 230,000 $ 190,798
Average borrowing levels (in 000's)................................... $ 113,227 $ 118,481
Average interest rates................................................ 6.06% 5.77%
---------- ----------
---------- ----------
</TABLE>
F-14
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The terms of the loan agreements with the St. Paul Bank for Cooperatives
contain certain covenants related to, among other matters, the: level of working
capital; ratio of term liabilities to members' investments; ratio of short-term
debt balances to working capital; level of term debt to net funds generated; and
investment in bank stock in amounts prescribed by the bank. As of August 31,
1997, American Crystal was in compliance with the terms of the loan agreements.
Interest paid was $21.6 million, $16.1 million and $16.8 million for the
years ended August 31, 1997, 1996, and 1995, respectively. Interest expense
incurred was $18.3 million, $11.3 million and $14.5 million for the years ended
August 31, 1997, 1996, and 1995, respectively. Interest capitalized was $2.6
million, $3.8 million, and $1.5 million for the years ended August 31, 1997,
1996, and 1995, respectively.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS:
The fair value of financial instruments is generally defined as the amount
at which the instrument could be exchanged in a current transaction between
willing parties, other than a forced liquidation sale. Quoted market prices are
generally not available for the Company's financial instruments. Accordingly,
fair values are based on judgments regarding anticipated cash flows, future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. These estimates involve
uncertainties and matters of judgment, and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
The estimated fair values of the Company's financial instruments as of
August 31, 1997 and 1996, are as follows:
LONG-TERM DEBT--Based upon current borrowing rates with similar maturities,
the fair value of the long-term debt approximates the carrying value.
INVESTMENTS IN BANKS FOR COOPERATIVES. INVESTMENTS IN MARKETING COOPERATIVES
AND INVESTMENT IN PROGOLD LIMITED LIABILITY COMPANY--American Crystal believes
it is not practical to estimate the fair value of these investments without
incurring excessive costs because there is no established market for these
securities and it is inappropriate to estimate future cash flows that are
largely dependent on future earnings of these organizations.
(7) EMPLOYEE BENEFIT PLANS:
COMPANY-SPONSORED DEFINED BENEFIT PENSION PLANS
Substantially all employees who meet eligibility requirements of age and
length of service are covered by a Company-sponsored retirement plan. Plan A
(nonunion employees) and Plan B (union employees) are defined benefit,
noncontributory plans. The plans provide for vesting after 5 years of service
with benefits for early retirement, normal retirement and disability or death.
The assets of the plans are held by an insurance company. American Crystal's
funding policy for Plan A is to contribute the normal cost of the plan
determined under the entry age normal actuarial cost method, plus amounts
necessary to amortize changes over 30 years. The funding policy for Plan B is to
F-15
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFIT PLANS: (CONTINUED)
contribute the minimum required amount determined under the frozen initial
liability actuarial cost method. The actuarial assumptions are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Discount Rate.................................................................. 7.5% 7.5% 7.5%
Compensation Rate Increase (Plan A Only)....................................... 5.0% 5.0% 5.0%
Rate of Return................................................................. 9.0% 9.0% 9.0%
</TABLE>
During 1996, the Company adopted a non-qualified Supplemental Executive
Retirement Plan for a select group of management and employees. The plan is
unfunded and provides for vesting after 5 years of service with benefits for
early retirement, normal retirement and disability or death.
The plans' status as of August 31, 1997, 1996, and 1995, is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Normal Service Cost.............................................................. $ 1,545 $ 1,366 $ 1,281
Interest Cost on Projected Benefit Obligation.................................... 4,066 3,718 3,388
Return on Plan Assets............................................................ (5,561) (7,414) (3,458)
Multiple Employer Adjustment..................................................... (34) (17) (21)
Net Amortization (Deferral)...................................................... 2,078 4,739 511
--------- --------- ---------
Net Pension Expense.............................................................. $ 2,094 $ 2,392 $ 1,701
--------- --------- ---------
--------- --------- ---------
Actuarial Present Value of Benefit Obligations:
Estimated Present Value of Vested Benefits..................................... $ 46,359 $ 44,933 $ 41,855
Estimated Present Value of Non-Vested Benefits................................. 5,758 3,368 2,901
--------- --------- ---------
Accumulated Benefit Obligation................................................... 52,117 48,301 44,756
Value of Future Pay Increases.................................................... 6,667 7,239 6,086
--------- --------- ---------
Projected Benefit Obligation..................................................... 58,784 55,540 50,842
Estimated Market Value of Plan Assets............................................ 49,058 43,853 37,385
--------- --------- ---------
Projected Benefit Obligation in Excess of Plan Assets............................ 9,726 11,687 13,457
Unrecognized Net Costs........................................................... (12,331) (14,407) (17,262)
Unrecognized Net Assets.......................................................... 1,753 2,049 2,345
Minimum Pension Liability Adjustment............................................. 6,350 6,872 9,043
--------- --------- ---------
Net Pension Liability............................................................ $ 5,498 $ 6,201 $ 7,583
--------- --------- ---------
--------- --------- ---------
</TABLE>
As required by Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," American Crystal has recognized, as of
August 31, 1997, a minimum pension liability of $6.3 million, an intangible
pension asset of $2.2 million and a direct equity reduction of $4.1 million.
LONG TERM INCENTIVE PLAN
The Long Term Incentive Plan provides deferred compensation to certain key
executives of American Crystal Sugar Company effective September 1, 1995. The
Plan creates financial incentives that are based upon contract rights which are
available to the executive under the terms of the Plan, the value of which is
related to the value of preferred shares of the Company. As of August 31, 1997,
there were 389 rights
F-16
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFIT PLANS: (CONTINUED)
issued, of which 234 were 75% vested and 155 were 50% vested. During 1997, the
Company incurred $379,500 of expense related to this plan.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
American Crystal Sugar Company has a medical plan and a Medicare supplement
plan which are available to substantially all American Crystal retirees.
American Crystal also has a medical plan that covers disabled employees who have
not attained retirement age. The cost of this program is paid by the company.
The rates used in determining the actuarial present value of the accumulated
other postretirement and postemployment benefit (OPEB) obligations are in the
following table:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Discount Rate.......................................................... 7.5% 7.5% 7.5%
Increase in Future Health Cost......................................... 10.5% 9.75% 10.5%
Health Care Trend Rate................................................. 5.5% 5.5% 5.5%
</TABLE>
The components of accumulated OPEB obligations and the periodic OPEB cost
are set forth in the following table. If the health care cost trend rate was
increased by one percentage point for each year, OPEB expense would have
increased approximately $254,427 in 1997, and the actuarial present value of
accumulated OPEB obligations at August 31, 1997, would have increased
approximately $2.3 million.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial Present Value of Accumulated OPEB Obligations:
Retiree Benefits................................................... $ 4,314 $ 3,552 $ 3,261
Other Fully Eligible Active Plan Participants...................... 2,690 2,295 1,934
Other Active Plan Participants..................................... 9,383 7,186 5,292
--------- --------- ---------
Present Value of Accumulated OPEB Obligations...................... 16,387 13,033 10,487
Unrecognized Net Gain from Experience Different from Actuarial
Assumptions.......................................................... 462 1,255 2,627
--------- --------- ---------
Total Accrued OPEB Obligation.................................... 16,849 14,288 13,114
Less Current Portion............................................. 643 831 397
--------- --------- ---------
Noncurrent Accrued OPEB Obligation............................... $ 16,206 $ 13,457 $ 12,717
--------- --------- ---------
--------- --------- ---------
Net Periodic OPEB Cost:
Service Cost......................................................... $ 1,199 $ 903 $ 770
Interest Cost........................................................ 917 742 802
Amortization......................................................... (4) (100) (11)
--------- --------- ---------
Net Periodic OPEB Cost............................................... $ 2,112 $ 1,545 $ 1,561
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-17
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFIT PLANS: (CONTINUED)
DEFINED CONTRIBUTION PLANS
American Crystal also has qualified 401(k) plans for all eligible employees.
The plans provide for immediate vesting of benefits. Participants contribute a
percentage of their gross earnings each pay period as provided in the
participation agreement. The Company matches the nonunion and union
participants' contribution up to 4% and 1% respectively, of their gross
earnings. The company's contributions to this plan were $1,149,000, $936,000 and
$887,000 for the years ended August 31, 1997, 1996, and 1995, respectively.
(8) ENVIRONMENTAL MATTERS:
American Crystal is subject to extensive federal and state environmental
laws and regulations with respect to water pollution, discharge permits, air
pollution, noise pollution and solid waste disposal. American Crystal conducts
an on-going pollution control program designed to meet these environmental laws
and regulations. American Crystal was cited in May, 1994, by the State of
Minnesota for noncompliance with nitrous oxide emissions for the pulp driers at
the East Grand Forks facility. The Company was assessed a penalty of $61,000 by
virtue of noncompliance with the air quality permit. This amount was charged to
expense in 1995. The Company has installed natural gas pulp driers at the East
Grand Forks facility at a cost of approximately $1.4 million. These driers are
designed to bring the East Grand Forks facility into compliance with emission
standards as well as provide operational efficiencies. A notice of violation was
received in April 1995, from the State of North Dakota regarding emissions from
the pulp drier at the Hillsboro factory. The Company retested emissions from the
drier and is in compliance with North Dakota emission limits.
(9) COMMITMENTS AND CONTINGENCIES:
American Crystal had outstanding letters of credit totaling $29.5 million as
of August 31, 1997.
American Crystal is subject to various lawsuits and claims that arise in the
ordinary course of its business. Management believes the disposition of all such
proceedings, individually or in the aggregate, should not have a material
adverse effect on the Company's financial condition.
Under the terms of the ProGold Limited Liability Company (ProGold) Member
Control Agreement, the ProGold Board of Governors can require American Crystal
to provide additional capital contributions not to exceed $2.3 million per year.
ProGold Grain, a division of American Crystal, acts as an agent to procure
corn to satisfy the obligations of American Crystal, Minn-Dak Farmers
Cooperative and some members of Golden Growers Cooperative to deliver corn to
ProGold. To reduce the price risk of market fluctuations, American Crystal
follows a policy of hedging substantially all corn purchase contracts and
related sweetener sale contracts on behalf of ProGold. As of August 31, 1997,
the Company had outstanding purchase commitments of 3.7 million bushels of corn
at $2.75 per bushel. The market price of corn as of October 10, 1997, was $2.45
per bushel.
During 1997, American Crystal's Board of Directors authorized the
construction of a project to increase the slice capacity at the Hillsboro
facility at a total estimated cost of $56.9 million. As of August 31, 1997,
American Crystal has incurred costs of $17.6 million related to this project.
F-18
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES: (CONTINUED)
American Crystal has outstanding commitments totaling $15.9 million as of
August 31, 1997, for consulting services, equipment and construction contracts
related to various capital projects.
On September 29, 1997, the Board of Directors authorized management to
negotiate toward the formation of a joint venture with Newcourt Credit Group
Inc. of Toronto, Canada, to acquire molasses desugarization technology from
Idreco USA Ltd. and to construct a molasses desugarization plant in the Red
River Valley. The facility is anticipated to cost between $90 to $100 million.
American Crystal and Newcourt are expected to contribute 3% of the cost in the
form of equity capital with American Crystal contributing an additional 13.5% of
subordinated debt to the joint venture. The remaining cost of the facility is
anticipated to be underwritten by Newcourt in the form of senior debt. The
plant, when completed, is expected to process approximately 200,000 tons of
molasses and recover sugar and other by-products. The formation of the joint-
venture is expected to be completed in January, 1998 and construction of the
facility to begin in the Spring of 1998 for completion in March, 1999.
(10) SUPPLEMENTARY INCOME STATEMENT INFORMATION:
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Selling, general and administrative expenses:
Maintenance and repairs........................................... $ 33,106,000 $ 32,852,000 $ 30,641,223
Research and development.......................................... 4,288,000 4,301,000 3,899,000
Advertising....................................................... * * *
Other income (expense):
Gain on sale of stock held for investment......................... 567,560
Marketing cooperative earnings.................................... (594,065) (256,545) (151,962)
ProGold Loss...................................................... (13,918,376) (343,360) (495,350)
</TABLE>
- ------------------------
* American Crystal's advertising expense is paid by United Sugars Corporation.
See Note 3 for further discussion regarding United Sugars Corporation.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR AN OFFER TO PURCHASE ANY
SECURITIES OTHER THAN THE COMMON STOCK AND PREFERRED STOCK TO WHICH IT RELATES
OR AN OFFER TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................................................... 3
Selected Financial Data................................................... 6
Risk Factors.............................................................. 7
Determination of Offering Price........................................... 10
Use of Proceeds........................................................... 11
Dilution.................................................................. 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 14
Description of Business................................................... 19
Property and Processing Facilities........................................ 29
Employees................................................................. 30
Management................................................................ 31
Executive Compensation.................................................... 36
Description of Common Stock and Preferred Stock........................... 40
Plan of Distribution...................................................... 42
Legal Proceedings......................................................... 46
Related Party Transactions................................................ 46
Financial Statements...................................................... 46
</TABLE>
500 SHARES
OF COMMON STOCK
AND
61,500 SHARES
OF PREFERRED STOCK
[LOGO]
AMERICAN CRYSTAL
SUGAR COMPANY
COMMON STOCK
AND
PREFERRED STOCK
---------------------
PROSPECTUS
---------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS:
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 27,956
NASD review fee................................................... $ 0
Accounting fees and expenses...................................... $ 25,000
Legal fees and expenses........................................... $ 60,000
Printing expenses................................................. $ 40,000
Blue Sky fees and expenses........................................ $ 1,000
Miscellaneous..................................................... $ 3,544
---------
Total......................................................... $ 157,500
---------
---------
</TABLE>
Except for the SEC registration fee, all of the foregoing expenses have been
estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Bylaws provide for the indemnification of certain corporate
agents, including the Company's directors, officers and employees. Such
indemnification is provided to the full extent provided by Minnesota Statutes
Section 300.082 and acts amendatory thereof or supplementary thereto. The
indemnification provided to the Company's directors, officers and employees
includes coverage for amounts actually and reasonably incurred by such
individuals in connection with proceedings arising by reason of each such
individual's status as an officer, director or employee. The amount for which
the director, employee or officer is to be indemnified includes expenses,
including attorney's fees, judgments, fines and amounts paid in settlement of
claims.
The Registrant also carries a directors' and officers' liability insurance
policy in the amount of $15,000,000.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company has borrowed a total principal amount of $5,500,000 from the
City of East Grand Forks, Minnesota; the funds required for the City of East
Grand Forks to provide such a loan were obtained from the issuance of "Pollution
Control Revenue Refunding Bonds", in transactions exempt from the registration
requirements of the federal and state securities laws.
In 1994, 1995 and 1996 the Company also issued negotiable commercial paper
notes (the "Notes") in an amount of $25,000,000 per year. In 1997, the Company
issued negotiable commercial paper notes (the "Notes") in an amount of
$75,000,000. The Notes were issued to institutional purchasers and sophisticated
individual investors. The Notes issued in 1994, 1995 and 1996 have been repaid;
a portion of the notes issued in 1997 have not yet become due and therefore have
not been repaid. The Notes were issued in reliance on the exemption from
registration provided by Section 3(a)(3) of the Securities Act of 1933, as
amended, and in reliance on a No-Action Letter from the Securities and Exchange
Commission to the Company dated October 13, 1987.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<C> <S>
*3(i) Restated Articles of Incorporation of American Crystal Sugar Company.
#3(ii) Restated By-laws of American Crystal Sugar Company.
**5.1 Opinion of Doherty, Rumble & Butler Professional Association.
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
#10(f) Growers' Contract (5-year Agreement).
*10(g) Growers' Contract (Annual Contract).
*10(h) Coal Supply Agreement between Registrant and Spring Creek Coal Company,
dated August 1, 1986.
*10(i) Coal Transportation Agreement between Registrant and Northern Coal
Transportation Company, dated August 1, 1986.
*10(j) Beet Loading and Hauling Agreement between Registrant and Transystems,
Inc., dated May 18, 1993.
*10(k) Form of Uniform Member Marketing Agreement between Registrant and United
Sugars Corporation, dated January 1, 1994.
*10(l) Trademark License Agreement between Registrant and United Sugars
Corporation, dated November 1, 1993.
*10(m) Uniform Member Marketing Agreement, Pool Basis between Registrant and
Midwest Agri-Commodities Company, dated April 14, 1992.
*10(n) Stipulation Agreement between Registrant and State of Minnesota Pollution
Control Agency.
*10(o) Master Agreement between Registrant, United Sugars Corporation, American
Federation of Grain Millers, AFL-CIO, CLC, et al.
*10(p) Loan Agreement between Registrant and St. Paul Bank for Cooperatives,
dated December 20, 1993.
*10(q) Amended and Restated Loan Agreement between Registrant and First Bank
National Association, dated November 22, 1993.
*10(r) Pension Contract and Amendments.
*10(s) Compensation, Severance and Loan Agreement with Mr. J. Famalette, dated
March 2, 1992.
*10(t) Compensation and Loan Agreement with Mr. J. Famalette, dated October 1,
1993.
*10(u) Form of Operating Agreement between Registrant and ProGold Limited
Liability Company.
*10(v) Form of Member Control Agreement between Registrant and ProGold Limited
Liability Company.
*10(w) Administrative Services Agreement between Registrant and ProGold Limited
Liability Company
*10(x) Uniform Member Marketing Agreement.
#10(y) Coal Supply Agreement between Registrant and Spring Creek Coal Company,
dated August 25, 1995 (Confidential treatment granted as to certain
provisions).
#10(z) Coal Transportation Agreement between Registrant and Northern Coal
Transportation Company, dated August 25, 1995 (Confidential treatment
granted as to certain provisions).
#10(aa) Gas Sales Contract between Registrant and Coastal Gas Marketing Company,
dated as of March 20, 1996 (Confidential treatment granted as to certain
provisions.)
#10(bb) Employment Agreement with Mr. Daniel McCarty, dated as of April 8, 1996.
**10(cc) Amendment to Employment Agreement with Mr. Daniel McCarty, dated as of
July, 1997.
10(dd) Form of Subscription Agreement for Preferred Stock (Current Members).
Subscription Document A.
10(ee) Form of Indication of Interest in Purchasing Additional Shares of
Preferred Stock (Current Members). Subscription Document B.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10(ff) Form of Indication of Interest in Purchasing Pool 3 Shares of Preferred
Stock. Subscription Document C.
10(gg) Form of Statement of Representations and Warranties for New Members
(Prospective Members). Subscription Document D.
10(hh) Subscription Document Instructions.
+10(ii) Trademark License Agreement between Registrant and The Pillsbury Company,
dated as of April 9, 1997 (Confidential treatment granted as to certain
provisions).
10(jj) Subscription Agreement for Pool 2 Preferred Stock
10(kk) Subscription Agreement for Pool 3 Preferred Stock
23 Consent of Independent Public Accountant.
**24 Power of Attorney (included in the signature page to the Registration
Statement).
</TABLE>
- ------------------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-83868), declared effective November 23, 1994.
# Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-11693), declared effective November 13, 1996.
** Previously filed.
+ Pursuant to Rule 406(b) of the Securities Act of 1933, confidential portions
of the exhibit have been deleted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential treatment,
which request has been granted.
(b) Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
MOORHEAD, STATE OF MINNESOTA ON OCTOBER 17, 1997.
<TABLE>
<S> <C> <C>
AMERICAN CRYSTAL SUGAR COMPANY
By /s/ DANIEL J.MCCARTY
-----------------------------------------
Daniel J. McCarty, CHIEF EXECUTIVE OFFICER
Dated: October 17, 1997
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 2 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ DANIEL J. MCCARTY
- ------------------------------ Chief Executive Officer October 17, 1997
Daniel J. McCarty
/s/ JAMES J. HORVATH*
- ------------------------------ Chief Financial Officer October 17, 1997
James J. Horvath
/s/ SAMUEL S. M. WAI*
- ------------------------------ Corporate Controller October 17, 1997
Samuel S. M. Wai
/s/ MICHAEL A. ASTRUP*
- ------------------------------ Director October 17, 1997
Michael A. Astrup
/s/ JERRY D. BITKER*
- ------------------------------ Director October 17, 1997
Jerry D. Bitker
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ PAUL BORGEN*
- ------------------------------ Director October 17, 1997
Paul Borgen
/s/ AIME J. DUFAULT*
- ------------------------------ Director October 17, 1997
Aime J. Dufault
/s/ STEVEN M. GOODWIN*
- ------------------------------ Director October 17, 1997
Steven M. Goodwin
/s/ COURT G. HANSON*
- ------------------------------ Director October 17, 1997
Court G. Hanson
/s/ LONN M. KIEL*
- ------------------------------ Director October 17, 1997
Lonn M. Kiel
/s/ DAVID J. KRAGNES*
- ------------------------------ Director October 17, 1997
David J. Kragnes
/s/ FRANCIS L. KRITZBERGER*
- ------------------------------ Director October 17, 1997
Francis L. Kritzberger
/s/ WAYNE LANGEN*
- ------------------------------ Director October 17, 1997
Wayne Langen
/s/ PATRICK D. MAHAR*
- ------------------------------ Director October 17, 1997
Patrick D. Mahar
/s/ BARRY W. MALME*
- ------------------------------ Director October 17, 1997
Barry W. Malme
/s/ RONALD E. REITMEIER*
- ------------------------------ Director October 17, 1997
Ronald E. Reitmeier
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ G. TERRY STADSTAD*
- ------------------------------ Director October 17, 1997
G. Terry Stadstad
/s/ ROBERT VIVATSON*
- ------------------------------ Director October 17, 1997
Robert Vivatson
</TABLE>
* Daniel J. McCarty, by signing his name hereto, does hereby sign this
document on behalf of each of the above-named officers and directors of the
Registrant pursuant to a power of attorney duly executed by such persons.
By: /s/ DANIEL J. MCCARTY
-------------------------
Daniel J. McCarty
ATTORNEY-IN-FACT
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
*3(i) Restated Articles of Incorporation of American Crystal Sugar Company.........................
#3(ii) Restated By-laws of American Crystal Sugar Company...........................................
**5.1 Opinion of Doherty, Rumble & Butler Professional Association.................................
#10(f) Growers' Contract (5-year Agreement).........................................................
*10(g) Growers' Contract (Annual Contract)..........................................................
*10(h) Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 1,
1986.......................................................................................
*10(i) Coal Transportation Agreement between Registrant and Northern Coal Transportation Company,
dated August 1, 1986.......................................................................
*10(j) Beet Loading and Hauling Agreement between Registrant and Transystems, Inc., dated May 18,
1993.......................................................................................
*10(k) Form of Uniform Member Marketing Agreement between Registrant and United Sugars Corporation,
dated January 1, 1994......................................................................
*10(l) Trademark License Agreement between Registrant and United Sugars Corporation, dated November
1, 1993....................................................................................
*10(m) Uniform Member Marketing Agreement, Pool Basis between Registrant and Midwest
Agri-Commodities Company, dated April 14, 1992.............................................
*10(n) Stipulation Agreement between Registrant and State of Minnesota Pollution Control Agency.....
*10(o) Master Agreement between Registrant, United Sugars Corporation, American Federation of Grain
Millers, AFL-CIO, CLC, et al...............................................................
*10(p) Loan Agreement between Registrant and St. Paul Bank for Cooperatives, dated December 20,
1993.......................................................................................
*10(q) Amended and Restated Loan Agreement between Registrant and First Bank National Association,
dated November 22, 1993....................................................................
*10(r) Pension Contract and Amendments..............................................................
*10(s) Compensation, Severance and Loan Agreement with Mr. J. Famalette, dated March 2, 1992........
*10(t) Compensation and Loan Agreement with Mr. J. Famalette, dated October 1, 1993.................
*10(u) Form of Operating Agreement between Registrant and ProGold Limited Liability Company.........
*10(v) Form of Member Control Agreement between Registrant and ProGold Limited Liability Company....
*10(w) Administrative Services Agreement between Registrant and ProGold Limited Liability Company...
*10(x) Uniform Member Marketing Agreement...........................................................
#10(y) Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 25, 1995
(Confidential treatment granted as to certain provisions)..................................
#10(z) Coal Transportation Agreement between Registrant and Northern Coal Transportation Company,
dated August 25, 1995 (Confidential treatment granted as to certain provisions)............
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ----------- ---------
<C> <S> <C>
#10(aa) Gas Sales Contract between Registrant and Coastal Gas Marketing Company, dated as of March
20, 1996 (Confidential treatment granted as to certain provisions.)........................
#10(bb) Employment Agreement with Mr. Daniel McCarty, dated as of April 8, 1996......................
**10(cc) Amendment to Employment Agreement with Mr. Daniel McCarty, dated as of July, 1997............
10(dd) Form of Subscription Agreement for Preferred Stock (Current Members). Subscription Document
A..........................................................................................
10(ee) Form of Indication of Interest in Purchasing Additional Shares of Preferred Stock (Current
Members). Subscription Document B..........................................................
10(ff) Form of Indication of Interest in Purchasing Pool 3 Shares of Preferred Stock. Subscription
Document C.................................................................................
10(gg) Form of Statement of Representations and Warranties for New Members (Prospective Members).
Subscription Document D....................................................................
10(hh) Subscription Document Instructions...........................................................
+10(ii) Trademark License Agreement between Registratnt and The Pillsbury Company, dated as of April
9, 1997 (Confidential treatment granted as to certain provisions)..........................
10(jj) Subscription Agreement for Pool 2 Preferred Stock
10(kk) Subscription Agreement for Pool 3 Preferred Stock
23 Consent of Independent Public Accountant.....................................................
**24 Power of Attorney (included in the signature page to the Registration Statement).............
</TABLE>
- ------------------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-83868), declared effective November 23, 1994.
# Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-11693), declared effective November 13, 1996.
** Previously filed.
+ Pursuant to Rule 406(b) of the Securities Act of 1933, confidential portions
of the exhibit have been deleted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential treatment,
which request has been granted.
f<PAGE>
SUBSCRIPTION DOCUMENT A
AMERICAN CRYSTAL SUGAR COMPANY
SUBSCRIPTION AGREEMENT FOR PREFERRED STOCK
Number of shares of preferred stock, par
value $76.77, owned of record by the
shareholder as of July 25, 1997:__________
Name and address of shareholder: A. Number of shares of preferred stock, par
________________________________ value $76.77, that the shareholder is
________________________________ entitled to purchase in Pool 1:__________
________________________________
________________________________ Total purchase price: $XXXX.XX
B. Payment for 42% of the shares: $XXXX.XX
Payment of $100 for each
other share: $XXXX.XX
PAYMENT DUE NOW: $XXXX.XX
*Number of shares of preferred
stock, par value $76.77, that the Total Capital Contribution Installment
shareholder intends to purchase in Amount: $XXXX.XX
Pool 1 (if different from A. above): Annual Capital Contribution Installment
____________________________ Payment: $XXXX.XX
According to the records of American Crystal Sugar Company (the
"Company"), as of July 25, 1997, the member listed above owned one (1) share
of the company's common stock and __________ shares of the Company's
preferred stock, par value $76.77. Based on such ownership, the member
listed above has the right to purchase __________ shares of the Company's
preferred stock in Pool 1 of the Company's public offering of a total of
61,500 shares of preferred stock, as described in the Company's October,
1997 prospectus and any supplements.
The undersigned member hereby subscribes for and agrees to purchase
__________ shares of preferred stock, at a price of $1,500.00 per share, and
delivers herewith a check payable to "American Crystal Sugar Company" in full
payment for forty-two percent (42%) of the shares which the member is
entitled to purchase and an initial payment of $100 for each other share
which the member desires to purchase hereunder. The amount due upon
execution of this agreement is $__________ if the undersigned member
purchases the total number of shares which the member is entitled to
purchase. THAT AMOUNT REPRESENTS THE TOTAL PURCHASE PRICE WITH RESPECT TO
FORTY-TWO PERCENT (42%) OF THE SHARES AND $100 PER SHARE FOR EACH OTHER
SHARE. (If the undersigned member wishes to purchase less than forty-two
percent (42%) of the shares of preferred stock that such member is entitled
to purchase in Pool 1, payment for all shares purchased is due in full upon
execution of this Subscription Agreement. If the undersigned member wishes to
purchase less than all of the shares of preferred stock that such member is
entitled to purchase in Pool 1 BUT MORE THAN FORTY-TWO PERCENT (42%) OF SUCH
SHARES, payment in full for forty-two percent (42%) of the shares which the
member is entitled to purchase in Pool 1 will be due in full upon execution
of this Subscription Agreement. With respect to shares in excess of forty-two
percent (42%) of the shares which the member is entitled to purchase in Pool
1, payment of $100 per share is required upon execution of this Subscription
Agreement and the remaining amounts may be paid as described below.)
The remaining portion of the total purchase price for shares of preferred
stock not paid in full upon execution of this Subscription Agreement will be
due and payable in six (6) annual capital contribution installments, due on
each anniversary of the closing of this offering. With respect to each share
to be paid for by capital contribution installment payments, the annual
capital contribution installment will be $233.33, exclusive of rounding; the
Company will provide the subscriber with an invoice for such amounts at least
30 days prior to the due date of each such capital contribution installment.
As security for payment of the remaining installments, the Company shall
retain a security interest in those shares of preferred stock for which
payment has not yet been made. Shares subject to a security interest may not
be transferred until the Company has received payment in full.
THIS SUBSCRIPTION AGREEMENT INCORPORATES THE PROVISIONS LOCATED ON THE
REVERSE SIDE.
INSTRUCTIONS: If the shareholders are co-owners or joint owners, each should
sign. If the shareholder is a corporation, an officer should sign and give
his or her title. If the shareholder is a general partnership, a limited
partnership, a partner, a general partner or an authorized member,
respectively, he or she should sign and give his or her title and by signing,
certifies that he or she is entitled to sign on behalf of the entity.
Dated:_________________________ ____________________________________________
(Signature) (title)
Dated:_________________________ ____________________________________________
(Signature) (title)
<PAGE>
SUBSCRIPTION DOCUMENT A
The undersigned member hereby declares and represents that (i) the
undersigned continues to be eligible for membership in the Company as of the
date hereof, in accordance with the Company's Articles of Incorporation and
Bylaws, (ii) the undersigned member acknowledges and agrees that the purchase
of the shares of preferred stock will obligate such member to provide
sugarbeets to the Company in accordance with the terms and conditions of the
member's "grower's agreement(s)" with the Company and (iii) that such
grower's agreements shall be deemed amended to include the shares of
preferred stock purchased hereby.
THIS SUBSCRIPTION AGREEMENT MUST BE RECEIVED BY THE COMPANY AT ITS CORPORATE
OFFICE, 101 NORTH THIRD STREET, MOORHEAD, MINNESOTA 56560, NO LATER THAN
NOVEMBER 21, 1997 AT 5:00 P.M. YOUR CHECK MUST BE RETURNED WITH THIS
SUBSCRIPTION AGREEMENT.
<PAGE>
SUBSCRIPTION DOCUMENT B
AMERICAN CRYSTAL SUGAR COMPANY
INDICATION OF INTEREST IN PURCHASING
ADDITIONAL SHARES OF PREFERRED STOCK IN POOL 2
Name and address of shareholder: Maximum number of shares of preferred stock,
par value $76.77, that the shareholder is
entitled to request in Pool 2:________________
________________________________ Total purchase price: $XXXX.XX
________________________________ ________________
________________________________ Payment for 42% of the shares: $XXXX.XX
________________________________ Payment of $100 for each other
share: $XXXX.XX
________________
PAYMENT DUE NOW: $XXXX.XX
________________
Total capital contribution
installment amount: $XXXX.XX
Annual capital contribution
installment payment: $XXXX.XX
*Number of shares of preferred
stock, par value $76.77, that
the shareholder requests to
purchase in Pool 2 (if different
from above): ________________
The undersigned member of American Crystal Sugar Company (the "Company")
hereby represents and agrees that (i) the undersigned has executed a
Subscription Agreement A to purchase his or her pro rata portion of Pool 1 of
the Company's public offering of shares of preferred stock described in the
Company's October, 1997 prospectus and any supplements; and (ii) the
undersigned requests to purchase a total of __________ additional shares of
preferred stock in Pool 2 of the Company's Offering (maximum of two times the
number of shares of preferred stock which the member was entitled to purchase
in Pool 1 of the Offering), at a price of $1,500.00 per share. The
undersigned understands that the additional shares of preferred stock will be
available in Pool 2 based upon the total number of shares available in Pool 2
and the number of additional shares the undersigned requests in Pool 2. The
undersigned understands that within twenty (20) days of the date of the
notice indicating that the undersigned is entitled to purchase the additional
shares of preferred stock in Pool 2, the undersigned must pay the sum of (i)
the total purchase price for forty-two percent (42%) of such additional
shares of preferred stock and (ii) $100 per share for each other share in
which the undersigned has indicated an interest in purchasing by execution of
this document. The payment of all remaining amounts shall be governed by the
same capital contribution payment schedule as shares purchased pursuant to
Subscription Document A in Pool 1, in accordance with such procedures as are
described in the Company's October, 1997 prospectus and any supplements.
The undersigned member hereby subscribes for and agrees to purchase the
additional shares of preferred stock described above if such shares become
available for purchase by the undersigned and hereby reaffirms with respect
to such additional shares of preferred stock the declarations and
representations contained in the undersigned's Subscription Agreement
(Subscription Document A) accompanying this indication of interest.
INSTRUCTIONS: if the shareholders are co-owners or joint owners, each should
sign. If the shareholder is a corporation, an officer should sign and give
his or her title. If the shareholder is a general partnership, a limited
partnership, a partner, a general partner or an authorized member,
respectively, he or she should sign and give his or her title and by signing,
certifies that he or she is entitled to sign on behalf of the entity.
Member name: ________________________________________
(Signature) (title)
________________________________________
(Signature) (title)
Dated: ______________________ , 1997
THIS INDICATION OF INTEREST MUST BE ACCOMPANIED BY SUBSCRIPTION DOCUMENT A
AND MUST BE RECEIVED BY THE COMPANY AT ITS CORPORATE OFFICE, 101 NORTH THIRD
STREET, MOORHEAD, MINNESOTA 56560, NO LATER THAN NOVEMBER 21, 1997 AT 5:00 P.M.
PAYMENT FOR THE ADDITIONAL SHARES REQUESTED IN THIS DOCUMENT IS NOT REQUIRED
AT THIS TIME BUT WILL BE REQUIRED WITHIN TWENTY (20) DAYS OF NOTICE THAT THE
REQUESTED SHARES ARE AVAILABLE FOR PURCHASE AND WILL BE PAYABLE ON THE TERMS
DESCRIBED ABOVE.
<PAGE>
SUBSCRIPTION DOCUMENT C
AMERICAN CRYSTAL SUGAR COMPANY
INDICATION OF INTEREST IN PURCHASING
SHARES OF POOL 3 PREFERRED STOCK
The applicant hereby represents and agrees that (i) the undersigned is
eligible for membership in American Crystal Sugar Company (the "Company") as
of the date hereof or is a member of the Company as of the date hereof, (ii)
if not a member, desires to become a member of the Company through the
purchase of one share of the Company's common stock at a price of $10.00 per
share; (iii) desires to subscribe for the purchase of _____ shares (maximum
of fifty (50) shares) of the Company's preferred stock, at a price of
$1,500.00 per preferred share, with such purchases to be part of Pool 3 of
the Company's public offering of common stock and preferred stock, all as
described in the Company's October, 1997 prospectus and any supplements; and
(iv) the undersigned understands that such share of common stock and the
shares of preferred stock will be available only if this response is randomly
drawn in a drawing to be held by the Company and that, within twenty (20)
days of the date of the notice indicating that the undersigned is entitled to
purchase the shares, the undersigned must pay (i) if not already a member of
the Company, the ten dollar ($10) purchase price of the share of common stock
required as a condition of membership, and (ii) payment in full for the
purchase price of each share of preferred stock to be purchased.
INSTRUCTIONS: if the shareholders are co-owners or joint owners, each should
sign. If the shareholder is a corporation, an officer should sign and give
his or her title. If the shareholder is a general partnership, a limited
partnership, a partner, a general partner or an authorized member,
respectively, he or she should sign and give his or her title and by signing,
certifies that he or she is entitled to sign on behalf of the entity.
Name: __________________________
Address:________________________ ___________________________________________
________________________________ (Signature)
________________________________
Dated:_______________________________, 1997
Telephone:______________________
THIS INDICATION OF INTEREST MUST BE RECEIVED BY THE COMPANY AT ITS CORPORATE
OFFICE, 101 NORTH THIRD STREET, MOORHEAD, MINNESOTA 56560, NO LATER THAN
NOVEMBER 21, 1997 AT 5:00 P.M. PAYMENT FOR THE SHARES LISTED ABOVE IS NOT
REQUIRED AT THIS TIME BUT WILL BE REQUIRED WITHIN TWENTY (20) DAYS OF NOTICE
THAT THE REQUESTED SHARES ARE AVAILABLE FOR PURCHASE UPON THE TERMS DESCRIBED
ABOVE. IF THE APPLICANT IS NOT CURRENTLY A MEMBER OF THE COMPANY, THIS
INDICATION OF INTEREST MUST BE ACCOMPANIED BY SUBSCRIPTION DOCUMENT D.
<PAGE>
SUBSCRIPTION DOCUMENT D
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENT OF
REPRESENTATIONS AND WARRANTIES
FOR NEW MEMBERS
Name and address of new member
_________________________________________________
_________________________________________________
_________________________________________________
The undersigned hereby declares and represents to the Company as follows:
1. The grower is eligible for membership in the Company by being: (i) engaged
in the production of agricultural products as a farmer; and (ii) a bona
fide sugarbeet farm operator who is and will be (a) the legal owner of
the sugarbeet crop; (b) one who has the majority financial interest in the
crop; (c) one who has general control of the sugarbeet operation on the
farm where the sugarbeet crop is grown, and (d) one who is a "bona fide
farmer" eligible to borrow from federal land banks.
2. The grower has not been or will not be guaranteed cash rent or guaranteed
cash lease payments by any party for stock issued or to be issued in the
name of the grower.
3. The grower has no agreements or understandings, written or otherwise, with
any parties and/or individuals in regard to the planting, growing,
harvesting and delivery of sugarbeets which require (a) guaranteed cash
payments; (b) transfer of common or preferred stock of the Company to such
party; or (c) amend or alter any partnership or joint venture agreement
after the stock has been issued to the grower.
4. The grower is and will be at risk as to the planting, growing, harvesting
and delivery of beets.
5. Should it be determined the grower is a nonqualified owner of stock in the
Company, the undersigned agrees to hold harmless and indemnify the Company
and all shareholders of the Company for any and all loss or damages the
Company or its shareholders may sustain as a result of the grower being
found to be a nonqualified owner of stock in the Company.
6. The grower acknowledges that he or she may be expelled from membership in
the Company should it be determined that he or she is a nonqualified member
of the Company as provided by the bylaws of the Company.
7. The grower is and will be required to grow and deliver sugarbeets to the
Company under the five year agreement and annual contract between the
Company and the grower. Failure to grow and deliver beets to the Company
pursuant to said five year agreement and annual contract may be cause for
expulsion of the grower as a member of the Company.
8. Hauler identification cards issued to the grower must be used for the
delivery of beets by the grower.
9. The grower does not have any agreement or understanding with any party
which would grant such party any equity or beneficial ownership interest in
the shares of common and preferred stock to be purchased by the grower in
the sale referenced in this statement of representations and warranties.
INSTRUCTIONS: If the shareholders are co-owners or joint owners, each should
sign. If the shareholder is a corporation, an officer should sign and give
his or her title. If the shareholder is a general partnership, a limited
partnership, a partner, a general partner or an authorized member,
respectively, he or she should sign and give his or her title and, by
signing, certifies that he or she is entitled to sign on behalf of the entity.
This statement of representations and warranties has been signed by the
undersigned at
____________________________ on ___________________ , 1997.
(City or town) (State) (Month) (Date)
____________________________________________
(Signature)
THIS SUBSCRIPTION DOCUMENT D MUST BE ACCOMPANIED BY SUBSCRIPTION DOCUMENT C
AND MUST BE RECEIVED BY THE COMPANY AT ITS CORPORATE OFFICE, 101 NORTH THIRD
STREET, MOORHEAD, MINNESOTA 56560, NO LATER THAN NOVEMBER 21, 1997 AT 5:00
P.M. PAYMENT FOR THE SHARES REFERENCED IN SUBSCRIPTION DOCUMENT C IS NOT
REQUIRED AT THIS TIME BUT WILL BE REQUIRED WITHIN TWENTY (20) DAYS OF NOTICE
THAT THE REQUESTED SHARES ARE AVAILABLE FOR PURCHASE UPON THE TERMS DESCRIBED
ABOVE.
<PAGE>
INSTRUCTIONS FOR COMPLETING SUBSCRIPTION DOCUMENTS--CURRENT MEMBERS
1. SUBSCRIPTION DOCUMENT A (POOL 1) INSTRUCTIONS:
(i) PURCHASING ALL ELIGIBLE SHARES: At the top of Subscription Document A,
the right column contains information regarding the number of shares of
preferred stock you are entitled to purchase in Pool 1, the total
purchase price for those shares and information regarding the payment
required upon execution of the subscription agreement and the capital
contribution payments required in the future to complete payment for
shares. PLEASE INDICATE THAT YOU DESIRE TO PURCHASE THE NUMBER OF SHARES
INDICATED ON LINE A BY INSERTING THAT NUMBER INTO THE BLANK LINE FOUND
IN THE FIRST LINE OF THE SECOND PARAGRAPH OF THE TEXT OF THE
SUBSCRIPTION DOCUMENT A.You should then sign and date the subscription
agreement by following the instructions found on Subscription Document
A, including preparing a check to the Company in the appropriate amount.
You are eligible but not required to participate in Pool 2. If you
desire to do so, please go directly to Section 2. below, SUBSCRIPTION
DOCUMENT B (POOL 2) INSTRUCTIONS.
(ii) PURCHASING LESS THAN ALL ELIGIBLE SHARES: If you wish to purchase less
than all of the shares of Preferred Stock that you are entitled to
purchase in Pool 1, you will need to indicate the number of preferred
shares you desire to purchase by inserting that number into BOTH the
line in the left section of Subscription Document A which bears an *
and the blank line found in the first line of the second paragraph of
the text of the Subscription Agreement. To complete your subscription
agreement, you will then need to (a) calculate the amount of the
payment due American Crystal Sugar Company for the number of shares you
desire to purchase, (b) prepare a check to the Company in the
appropriate amount, and (c) sign and date the Subscription Agreement by
following the instructions on Subscription Document A. Also, see
attached "CALCULATION SHEET" to determine the required payment due now.
You are not eligible to participate in Pool 2 or Pool 3.
2. SUBSCRIPTION DOCUMENT B (POOL 2) INSTRUCTIONS
(i) REQUESTING ALL ELIGIBLE SHARES: At the top of Subscription Document B,
the right column contains information regarding the maximum number of
shares of preferred stock you are entitled to request in Pool 2, the
total purchase price for those shares, information regarding the payment
which will be required if you become eligible to purchase that number of
shares in Pool 2 and the capital contribution payments required in the
future to complete payment for the shares. IF YOU DESIRE TO PURCHASE ALL
OF THE SHARES OF PREFERRED STOCK THAT YOU ARE ENTITLED TO REQUEST IN
POOL 2, PLEASE INDICATE THAT YOU DESIRE TO PURCHASE THE NUMBER OF SHARES
INDICATED IN THE TOP SECTION OF SUBSCRIPTION DOCUMENT B BY INSERTING
THAT NUMBER INTO THE BLANK LINE FOUND IN THE FOURTH LINE OF THE FIRST
PARAGRAPH OF THE TEXT OF THE INDICATION OF INTEREST. You should then
sign and date the Indication of Interest by following the instructions
on Subscription Document B, including preparing a check to the Company
in the appropriate amount. You are eligible but not required to
participate in Pool 3. If you desire to do so, please go directly to
Section 3. below, SUBSCRIPTION DOCUMENT C (POOL 3) INSTRUCTIONS.
(ii) REQUESTING LESS THAN ALL ELIGIBLE SHARES: If you wish to purchase less
than all of the shares of Preferred Stock that you are entitled to
request in Pool 2, you will need to indicate the number of preferred
shares you desire to purchase by inserting that number into BOTH the
line in the top right section of Subscription Document B which bears an
* and the blank line found in the fourth line of the first paragraph of
the text of the Indication of Interest. You should then sign and date
the Indication of Interest by following the instructions on
Subscription Document B. However, in order to be assured that you
understand the payments to be due in the event you acquire the right to
purchase your desired number of shares of Preferred Stock in Pool 2,
please use the CALCULATION SHEET to determine the payment due upon
acceptance of a subscription agreement for the specified number of
shares in Pool 2. You are not eligible to participate in Pool 3.
<PAGE>
3. SUBSCRIPTION DOCUMENT C (POOL 3) INSTRUCTIONS
IF YOU DESIRE TO PARTICIPATE IN POOL 3, PLEASE INSERT THE NUMBER OF SHARES OF
PREFERRED STOCK, UP TO A MAXIMUM OF FIFTY (50) SHARES, THAT YOU WISH TO PURCHASE
IN POOL 3, IN THE SPACE PROVIDED IN THE FIRST FULL PARAGRAPH OF SUBSCRIPTION
DOCUMENT C. You should then sign and date the Indication of Interest for Pool 3
by following the instructions on Subscription Document C.
CALCULATION SHEET
POOL 1
<TABLE>
<CAPTION>
INSTRUCTIONS EXAMPLE
<S> <C>
To calculate the amount due with respect to the number This example is for a member entitled to purchase
of shares of Preferred Stock you desire to acquire in Twenty-Five (25) shares in Pool 1, but who only desires
Pool 1, fill in the following lines on this instruction to purchase Twenty (20) shares.
sheet. (An example of this calculation is shown in the
right column.)
(1) Number of shares of Preferred Stock that the member (1) Number of shares of Preferred Stock that the member
intends to purchase in Pool 1 (Insert number of intends to purchase in Pool 1 (Insert number of
shares from Subscription Document A, Line *) shares from Subscription Document A, Line *)
_________ EXAMPLE: 20
(2) Number of shares representing 42% of shares which (2) Number of shares representing 42% of shares which
shareholder is entitled to purchase in Pool 1 shareholder is entitled to purchase in Pool 1
(Insert 42% of the number of shares printed on Line (Insert 42% of the number of shares printed on Line
A of Subscription Document A, rounded up to the next A of Subscription Document A, rounded up to the next
whole share.) ________ whole share (25 x .42 = 11.)) EXAMPLE: 11
(3) Number of shares of Preferred Stock which must be (3) Number of shares of Preferred Stock which must be
paid for in full upon purchase (lesser of lines 1 paid for in full upon purchase (lesser of lines 1
and 2 above) ________ and 2 above) EXAMPLE: 11
(4) Number of other shares to be paid for by capital (4) Number of other shares to be paid for by capital
contribution installments (Line 1 minus Line 2, but contribution installments (Line 1 minus Line 2, but
not less than 0) ______ not less than 0) EXAMPLE: 9
(5) Payment of $100 for each capital contribution (5) Payment of $100 for each capital contribution
installment share ($100 x number of shares indicated installment share ($100 x number of shares indicated
on Line 4) $_______ on Line 4) EXAMPLE: $100 X 9 = $900
(6) Payment in full for shares of Preferred Stock which (6) Payment in full for shares of Preferred Stock which
member must pay for in full at time of execution of member must pay for in full at time of execution of
Subscription Document A (number of shares indicated Subscription Document A (number of shares indicated
on Line 3 x $1,500) $________ on Line 3 x $1,500) EXAMPLE: 11 X $1,500 = $16,500
(7) Payment Due with Subscription Document A (Total of (7) Payment Due with Subscription Document A (Total of
Line 5 plus Line 6) $________ Line 5 plus Line 6) EXAMPLE: $900 + $16,500 =
$17,400
</TABLE>
See Reverse Side for Calculation of Pool 2
<PAGE>
CALCULATION SHEET
POOL 2
<TABLE>
<CAPTION>
INSTRUCTIONS EXAMPLE
<S> <C>
To calculate the amount due with respect to the number This example assumes a member who was entitled to
of shares of Preferred Stock you desire to acquire in purchase Twenty-Five (25) shares in Pool 1, who was
Pool 2, fill in the following lines on this instruction entitled to request Fifty (50) shares in Pool 2, but
sheet. (An example of this calculation is shown in the indicated an interest in purchasing Forty (40) shares in
right column.) Pool 2, which Forty (40) shares become available to the
shareholder in Pool 2.
(1) Number of shares of Preferred Stock that the member (1) Number of shares of Preferred Stock that the member
intends to purchase in Pool 2 (Insert number of intends to purchase in Pool 2 (Insert number of
shares from Subscription Document B, line at top shares from Subscription Document B, line at top
right bearing an *) _________ right bearing an *) EXAMPLE: 40
(2) Number of shares representing 42% of shares which (2) Number of shares representing 42% of shares which
are available to the shareholder to purchase in Pool are available to the shareholder to purchase in Pool
2 rounded up to next whole share, which shares must 2 rounded up to next whole share, which shares must
be paid for in full within twenty (20) days after be paid for in full within twenty (20) days after
American Crystal Sugar Company sends out American Crystal Sugar Company sends out
notification of available shares (Line 1 x .42, if notification of available shares (Line 1 x .42, if
available). available). EXAMPLE: 40 X .42 = 17 (AFTER ROUNDING)
(3) Number of other shares to be paid for by capital (3) Number of other shares to be paid for by capital
contribution installments (Line 1 minus Line 2, but contribution installments (Line 1 minus Line 2, but
not less than 0) ______ not less than 0) EXAMPLE: 23
(4) Payment of $100 for each capital contribution (4) Payment of $100 for each capital contribution
installment share ($100 x number of shares indicated installment share ($100 x number of shares indicated
on Line 3) $_______ on Line 3) EXAMPLE: $100 X 23 = $2,300
(5) Payment in full for shares of Preferred Stock for (5) Payment in full for shares of Preferred Stock for
which member must pay in full within twenty (20) which member must pay in full within twenty (20)
days after American Crystal Sugar Company indicates days after American Crystal Sugar Company indicates
that the member is entitled to purchase in Pool 2 that the member is entitled to purchase in Pool 2
(number of shares indicated on Line 2 x $1,500) (number of shares indicated on Line 2 x $1,500)
$________. EXAMPLE: 17 X $1,500 = $25,500
(6) Payment Due for Pool 2 Shares (Total of Line 4 plus (6) Payment Due for Pool 2 Shares (Total of Line 4 plus
Line 5) $________ Line 5) EXAMPLE: $2,300 + $25,500 = $27,800
</TABLE>
PAYMENT FOR THE AMOUNT SPECIFIED ON LINE 6 WILL BECOME DUE ONLY IF THE MEMBER
ACQUIRES THE RIGHT TO PURCHASE THAT NUMBER OF SHARES OF PREFERRED STOCK IN POOL
2 IN ACCORDANCE WITH THE OFFERING PROCEDURES DESCRIBED IN THE COMPANY'S OCTOBER,
1997 PROSPECTUS.
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
SUBSCRIPTION AGREEMENT FOR POOL 2 PREFERRED STOCK
<TABLE>
<CAPTION>
Name and address of subscriber: A. Number of shares of preferred stock, par
value $76.77, that the shareholder is
entitled to purchase in Pool 2:
Total purchase price:
$
B. PAYMENT FOR 42% OF THE SHARES:
$
PAYMENT OF $100 FOR EACH OTHER SHARE:
$
PAYMENT DUE NOW: $
<S> <C>
* Number of shares of preferred stock, Total capital contribution installment amount:
par value $76.77, that the shareholder $
intends to purchase in Pool 2 (if different
than A. above) . Annual capital contribution installment
payment:
$
</TABLE>
The undersigned member hereby subscribes for and agrees to purchase
__________ shares of preferred stock, at a price of $1,500.00 per share, and
delivers herewith a check payable to "American Crystal Sugar Company" in full
payment for forty-two percent (42%) of the shares which the member is entitled
to purchase and an initial payment of $100 for each other share which the member
desires to purchase hereunder. The amount due upon execution of this agreement
is $__________ if the undersigned member purchases the total number of shares
which the member is entitled to purchase in Pool 2. THAT AMOUNT REPRESENTS THE
TOTAL PURCHASE PRICE WITH RESPECT TO FORTY-TWO PERCENT (42%) OF THE SHARES AND
$100 PER SHARE FOR EACH OTHER SHARE. (If the undersigned member wishes to
purchase less than forty-two percent (42%) of the shares of preferred stock that
such member is entitled to purchase in Pool 2, payment for all shares purchased
is due in full upon execution of this Subscription Agreement. If the undersigned
member wishes to purchase less than all of the shares of preferred stock that
such member is entitled to purchase in Pool 2 but more than forty-two percent
(42%) of such shares, payment in full for forty-two percent (42%) of the shares
which the member is entitled to purchase in Pool 2 will be due in full upon
execution of this Subscription Agreement. With respect to shares in excess of
forty-two percent (42%) of the shares which the member is entitled to purchase
in Pool 2, payment of $100 per share is required upon execution of this
Subscription Agreement and the remaining amounts may be paid as described
below.)
The remaining portion of the total purchase price for shares of preferred
stock not paid in full upon execution of this Subscription Agreement will be due
and payable in six (6) annual capital contribution installments, due on each
anniversary of the closing of this offering. With respect to each share to be
paid for by capital contribution installment payments, the annual capital
contribution installment will be $233.33, exclusive of rounding; the Company
will provide the subscriber with an invoice for such amounts at least 30 days
prior to the due date of each such capital contribution installment. As security
for payment of the remaining installments, the Company shall retain a security
interest in those shares of preferred stock for which payment has not yet been
made. Shares subject to a security interest may not be transferred until the
Company has received payment in full.
THIS SUBSCRIPTION AGREEMENT INCORPORATES THE PROVISIONS LOCATED ON THE REVERSE
SIDE.
INSTRUCTIONS: if the shareholders are co-owners or joint owners, each should
sign. If the shareholder is a corporation, an officer should sign and give his
or her title. If the shareholder is a general partnership, a limited
partnership, a partner, a general partner or an authorized member, respectively,
he or she should sign and give his or her title and, by signing, certifies that
he or she is entitled to sign on behalf of the entity.
Dated:___________________________ _______________________________
(Signature) (title)
Dated:___________________________ _______________________________
(Signature) (title)
<PAGE>
This Subscription Agreement must be received by the Company at its corporate
office, 101 N. Third Street, Moorhead, Minnesota 56560, no later than
___________ at 5 p.m. Your check must be returned with this subscription
agreement.
The undersigned member hereby declares and represents that (i) the
undersigned continues to be eligible for membership in the American Crystal
Sugar Company as of the date hereof, in accordance with the Company's Articles
of Incorporation and Bylaws, (ii) the undersigned member acknowledges and agrees
that the purchase of the shares of preferred stock will obligate such member to
provide sugarbeets to the Company in accordance with the terms and conditions of
the member's "grower's agreement(s)" with the Company and (iii) that such
grower's agreements shall be deemed amended to include the shares of preferred
stock purchased hereby.
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
SUBSCRIPTION AGREEMENT FOR POOL 3 PREFERRED STOCK
Name and address of subscriber:
- --------------------------------------
- --------------------------------------
- --------------------------------------
- --------------------------------------
The undersigned subscriber hereby subscribes for and agrees to purchase
__________ shares of preferred stock, at a price of $1,500.00 per share, and
delivers herewith a check payable to "American Crystal Sugar Company" in full
payment for such shares. (If the undersigned is not a member of American Crystal
Sugar Company as of the date of this agreement, the undersigned also agrees to
purchase one share of Common Stock for a purchase price of $10; the subscriber's
check should be increased to include the $10 purchase price.)
The undersigned subscriber hereby declares and represents that (i) either
the subscriber continues to be eligible for membership in American Crystal Sugar
Company as of the date hereof, in accordance with the Company's Articles of
Incorporation and Bylaws or that the subscriber is eligible for membership in
American Crystal Sugar Company, as indicated by the subscriber's prior execution
of Subscription Document D, (ii) the undersigned subscriber acknowledges and
agrees that the purchase of the shares of preferred stock will obligate such
subscriber to provide sugarbeets to the Company in accordance with the terms and
conditions of the subscriber's "grower's agreement(s)" with the Company and
(iii) that such grower's agreements shall be deemed amended to include the
shares of preferred stock purchased hereby.
INSTRUCTIONS: if the subscribers are co-owners or joint owners, each should
sign. If the subscriber is a corporation, an officer should sign and give his or
her title. If the subscriber is a general partnership, a limited partnership, a
partner, a general partner or an authorized member, respectively, he or she
should sign and give his or her title and, by signing, certifies that he or she
is entitled to sign on behalf of the entity.
<TABLE>
<S> <C>
Dated: --------------------- ------------------------------------------
(Signature) (title)
Dated: --------------------- ------------------------------------------
(Signature) (title)
</TABLE>
This Subscription Agreement must be received by the Company at its corporate
office, 101 N. Third Street, Moorhead, Minnesota 56560, no later than
___________ at 5 p.m. Your check must be returned with this subscription
agreement.
<PAGE>
[LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
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We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 10, 1997, with respect to the financial
statements of American Crystal Sugar Company in Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-32251) and the related prospectus of
American Crystal Sugar Company.
/s/ Eide Helmeke PLLP
October 17, 1997
Fargo, North Dakota
