As filed with the Securities and Exchange Commission on May 23, 1997
Registration No. 333-25501
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(AMENDMENT NO. 1)
ALLIANCE FARMS COOPERATIVE ASSOCIATION
(Name of small business issuer in its charter)
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<CAPTION>
<S> <C> <C>
COLORADO 0213 84-1270685
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
302 IDLEWILD STREET
YUMA, COLORADO 80759
(970) 848-3231
(Address and telephone number of principal executive offices)
44425 COUNTY ROAD Q
ECKLEY, COLORADO 80727
(Address of principal place of business)
WAYNE N. SNYDER, CHAIRMAN OF THE BOARD AND PRESIDENT
3315 NORTH OAK TRAFFICWAY, DEPARTMENT 47
KANSAS CITY, MISSOURI 64116
(816) 891-3686
(Name, address and telephone number of agent for service)
Copies to:
James W. Allen, Esq., Stinson, Mag & Fizzell, P.C.
1201 Walnut Street, Suite 2800
Kansas City, Missouri 64106-6251
(816) 842-8600
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
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
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 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. [ ]
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, as amended, check the following box. [X]
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CALCULATION OF REGISTRATION FEE
Proposed Proposed
maximum maximum
Amount offering aggregate Amount of
Title of each class of securities to be price offering registration
to be registered registered per share(1) price(1) fee(2)
<S> <C> <C> <C> <C>
Common Stock ($.01 par value per share) . . . . . . . 51 shares $80,000 $4,080,000 $1,236
Class B Common Stock ($.01 par value per share). . . 54 shares $60,000 $3,240,000 $982
Class C Common Stock ($.01 par value per share). . 72 shares $45,000 $3,240,000 $982
<FN>
1) Determined by the registrant for use in the offering and for the purpose of
calculating the registration fee.
(2) A total registration fee of $3,527 was paid on April 18, 1997 in connection
with the initial filing of this Registration Statement.
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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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PROSPECTUS (Subject to Completion)
Dated May 23, 1997
ALLIANCE FARMS COOPERATIVE ASSOCIATION
51 Shares of Common Stock
54 Shares of Class B Common Stock
72 Shares of Class C Common Stock
Alliance Farms Cooperative Association, a Colorado cooperative
association ("Alliance" or the "Company"), is offering up to an aggregate of
51 shares (the "Class A Shares") of its Common Stock, $.01 par value ("Class
A Common"), 54 shares (the "Class B Shares") of its Class B Common Stock,
$.01 par value ("Class B Common"), and 72 shares (the "Class C Shares" and
together with the Class A Shares and the Class B Shares, the "Shares") of its
Class C Common Stock, $.01 par value ("Class C Common" and together with the
Class A Common and the Class B Common, the "Common Stock"), exclusively to
producers of agricultural products, associations of such producers, and
federations of such associations, at a price of $80,000 per Class A Share,
$60,000 per Class B Share and $45,000 per Class C Share. The Shares are
being offered on a "best efforts, all-or-none" basis for (a) 17 Class A
Shares (a "Minimum Class A Block"), and thereafter may continue to be offered
on such basis with respect to successive Minimum Class A Blocks until 51
Class A Shares have been issued and sold, (b) 18 Class B Shares (a "Minimum
Class B Block"), and thereafter may continue to be offered on such basis with
respect to successive Minimum Class B Blocks until 54 Class B Shares have
been issued and sold, and (c) 24 Class C Shares (a "Minimum Class C Block"
and together with a Minimum Class A Block and a Minimum Class B Block, a
"Minimum Block"), and thereafter may continue to be offered on such basis
with respect to successive Minimum Class C Blocks until 72 Class C Shares
have been issued and sold. As of the date of this Prospectus, the Company
has not consummated the issuance and sale of any shares of Common Stock in
this offering. The consummation of the issuance and sale of each Minimum
Class A Block will be conditioned upon and subject to the Company obtaining a
commitment for at least $2,720,000 of term debt borrowings. As of the date
of this Prospectus, the Company has obtained such a commitment with respect
to the Class A Shares offered hereby until August 31, 1997. The consummation
of the issuance and sale of each Minimum Class B Block and each Minimum Class
C Block will be conditioned upon and subject to the Company obtaining a
commitment for at least $2,160,000 of term debt borrowings. As of the date
of this Prospectus, the Company is engaged in negotiations with a lender to
obtain such a commitment with respect to the Class B Shares and the Class C
Shares. The offering price per Share has been arbitrarily determined by the
Company based upon the Company's anticipated equity capital requirements for
the development of one new feeder pig production facility with respect to
each Minimum Class A Block sold and upon the anticipated output of feeder
pigs (i.e., pigs weighing at least 30 pounds) from each such facility, and
based upon the Company's anticipated equity capital requirements for the
development of one new weaned pig production facility with respect to each
Minimum Class B Block or Minimum Class C Block sold and upon the anticipated
output of weaned pigs (i.e., pigs weighing at least six pounds) from each
such facility. Each investor must purchase a minimum of (a) one Class A
Share, and in addition must enter into a Feeder Pig Purchase Agreement with
the Company in the form attached to this Prospectus as Exhibit B, (b) one
Class B Share, and in addition must enter into a Weaned Pig Purchase
Agreement with the Company in the form attached to this Prospectus as
Exhibit C, or (c) one Class C Share, and in addition must enter into a Class
C Weaned Pig Purchase Agreement with the Company in the form attached to this
Prospectus as Exhibit D. No fractional shares will be issued. There can be
no assurance that any or all of the Shares in this offering will be sold.
Pending the sale of one or more Minimum Blocks, all funds received in payment
of the public offering price for Shares will be deposited in an interest
bearing escrow account with NationsBank, N.A. (Mid-West) (formerly Boatmen's
National Bank). The offering of the Shares will terminate on , 1998
(550 days from the , 1997 commencement of the offering), unless
extended by the Company for a period of up to an additional 180 days. See
"Business--Financing" and "Plan of Distribution."
The Company intends to sell the Shares through agents designated by the
Company or, if permitted under applicable law, directly to one or more
purchasers through the efforts of its directors, officers and employees. The
Company has retained Interstate/Johnson Lane Corporation ("I/JL") to serve as
its agent in connection with this offering. See "Plan of Distribution."
There is no public market for the Class A Common, Class B Common or
Class C Common of the Company, and no public market is expected to develop as
a result of any offering of the Shares. The Shares offered hereby are
subject to the provisions of the Colorado Cooperative Association Law and the
Company's Articles of Incorporation and Bylaws which restrict the
transferability of the Shares. No assignment or transfer of the Company's
Class A Common, Class B Common or Class C Common will be permitted without
the consent of the Company's Board of Directors, which consent may not be
given unless, the assignee or transferee of the Class A Common executes and
delivers to the Company a Feeder Pig Purchase Agreement, the assignee or
transferee of the Class B Common executes and delivers to the Company a
Weaned Pig Purchase Agreement, and the assignee or transferee of the Class C
Common executes and delivers to the Company a Class C Weaned Pig Purchase
Agreement. No dividends will be paid by Alliance on its Common Stock,
although stockholders will be entitled to patronage distributions based on
the quantity or value of business done by the Company with or for its
stockholders. The ability of the Company to pay patronage distributions in
cash, however, is restricted under the loan agreement with the Company's
existing lender. See "Risk Factors--Distributions and Dividends" and "--
Lack of Liquidity; Absence of Market for Shares," "Patronage Distribution
Policy," "Description of Capital Stock" and "Restrictions on Sale or Other
Transfer of the Shares."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS", APPEARING ON PAGES JWA[1]10 THROUGH 19, FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
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.
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<CAPTION>
UNDERWRITING DISCOUNTS AND PROCEEDS TO THE
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (1)(2)
<S> <C> <C> <C>
Per Share of Class A Common $80,000 $784.31 $79,215.69
Total Class A Minimum (3) $1,360,000 $40,000 $1,320,000
Total Class A Maximum (3) $4,080,000 $40,000 $4,040,000
Per Share of Class B Common $60,000 $740.74 $59,259.26
Total Class B Minimum (3) $1,080,000 $40,000 $1,040,000
Total Class B Maximum (3) $3,240,000 $40,000 $3,200,000
Per Share of Class C Common $45,000 $555.56 $44,444.44
Total Class C Minimum (3) $1,080,000 $40,000 $1,040,000
Total Class C Maximum (3) $3,240,000 $40,000 $3,200,000
</TABLE>
(Footnotes on next page)
The date of this Prospectus is , 1997.
The following paragraph was set vertical on the front page of the Prospectus:
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.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH ANY OFFERING MADE HEREBY OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF CLASS A COMMON, CLASS B
COMMON AND CLASS C COMMON OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
The Company is currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in accordance
therewith the Company files annual and quarterly reports and other information
with the Securities and Exchange Commission (the "Commission"). See "Additional
Information." The Company intends to furnish to its stockholders annual reports
containing financial statements audited by an independent certified public
accounting firm. In addition, the Company intends to make available to its
stockholders quarterly reports containing unaudited financial information for
each of the first three quarters of each fiscal year.
TABLE OF CONTENTS
PAGE
PAGE
Prospectus Summary ........... 3
Risk Factors ................. 10 Principal Stockholders ...... 61
The Company................... 19 Description of Capital Stock 61
Use of Proceeds............... 19 Restrictions on Sale or Other
Patronage Distribution Policy. 24 Transfer
Capitalization ............... 25 of the Shares ............. 63
Selected Financial Data....... 28 Plan of Distribution ......... 65
Management's Discussion and Legal Matters ................ 70
Analysis of Financial Experts ...................... 70
Condition and Results Additional Information ...... 70
of Operations............... 29 Index of Financial Statements F-1
Business...................... 35 Exhibit A -- Form of Subscription
Feeder Pig Purchase Agreement. 49 Agreement .................. A-1
Weaned Pig Purchase Agreements 52 Exhibit B -- Form of Feeder Pig
Management ................... 55 Purchase Agreement ......... B-1
Certain Relationships and Exhibit C -- Form of Weaned Pig
Related Transactions.......... 57 Purchase Agreement ......... C-1
Exhibit D -- Form of Class C Weaned
Pig
Purchase Agreement ......... D-1
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that has been incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
the exhibits are themselves specifically incorporated by reference). Such a
request should be directed to Mr. Wayne N. Snyder, Chairman of the Board and
President of the Company, at Farmland Industries, Inc., 3315 North Oak
Trafficway, Department 47, Kansas City, Missouri 64116 (telephone number 816-
891-3686), until the termination of the offering.
Until , 1997 (90 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
(1) The Company intends to sell the Shares directly to one or more
purchasers through the efforts of its directors, officers and employees, if
permitted under applicable law, in which event no Underwriting Discounts and
Commissions will be paid, or through agents designated by the Company. The
Company has entered into an agency agreement with I/JL providing for the
payment by Alliance of a lump sum fee of $40,000 regardless of whether any or
all of the Shares are sold. For purposes of estimating Per Share amounts, it
is assumed that all 51 Class A Shares, 54 Class B Shares and 72 Class C
Shares will be sold. For purposes of estimating the Proceeds to the Company,
it is assumed that all Shares sold will be sold through the Company's agent,
I/JL. The Company has agreed to indemnify I/JL against certain liabilities,
including liabilities under the Securities Act of 1933. See "Plan of
Distribution."
(2) Before deduction of expenses payable by the Company estimated at
$100,000.
(3) The Company intends to offer and sell the Shares on a "best efforts,
all-or-none" basis for (a) a Minimum Class A Block of 17 Class A Shares, and
thereafter may continue to offer Class A Shares on such basis with respect to
successive Minimum Class A Blocks until 51 Class A Shares have been issued
and sold, (b) a Minimum Class B Block of 18 Class B Shares, and thereafter
may continue to offer Class B Shares on such basis with respect to successive
Minimum Class B Blocks until 54 Class B Shares have been issued and sold, and
(c) a Minimum Class C Block of 24 Class C Shares, and thereafter may continue
to offer Class C Shares on such basis with respect to successive Minimum
Class C Blocks until 72 Class C Shares have been issued and sold. Pending
the sale of a Minimum Block, all funds received in payment of the public
offering price for the Shares will be deposited in an interest-bearing escrow
account. As of the date of this Prospectus, the Company has not consummated
the issuance and sale of any Shares. See "Plan of Distribution."
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
All references to "Alliance" and the "Company" in this Prospectus include
Alliance Farms Cooperative Association and its predecessor, Yuma Feeder Pig
Limited Liability Company ("Yuma LLC"), unless the context indicates otherwise.
THE COMPANY
The Company is a cooperative association engaged in the production of
feeder pigs for sale to its members who own shares of Class A Common, and
intends to engage in the production of weaned pigs for sale to its members who
own shares of Class B Common or Class C Common. The Company was formed as a
cooperative association under the laws of the state of Colorado on May 3, 1994,
but did not engage in any business activity until July, 1994. The Company's
predecessor, Yuma LLC, was formed in October, 1991 and commenced shipment of
feeder pigs in March, 1993. On July 13, 1994 (July 9, 1994 for accounting
purposes), the Company acquired the entire equity ownership rights and interests
in Yuma LLC, and thereupon Yuma LLC was dissolved and liquidated and its assets,
liabilities and feeder pig production operations were assigned to and assumed by
Alliance. As of the date of this Prospectus, the Company owned and operated
five 2,450-sow feeder pig production facilities located in Yuma County, Colorado
(approximately 150 miles east of Denver), one 2,450-sow feeder pig production
facility located in Wayne County, Illinois (approximately 100 miles east of
St. Louis, Missouri), and was in the process of developing one additional feeder
pig facility of comparable size in Wayne County, Illinois. Financing for the
acquisition of real estate, facilities construction and acquisition of breeding
stock with respect to the six existing facilities already has been obtained and
will not be provided by any proceeds from the sale of the Shares offered hereby,
however, the proceeds from the sale of the first Minimum Class A Block of 17
Class A Shares offered hereby will be applied to the Illinois facility presently
under development. See "The Company," "Business" and "Use of Proceeds."
The principal executive offices of the Company are located at 302 Idlewild
Street, Yuma, Colorado 80759, and its telephone number is (970) 848-3231.
RISK FACTORS
The Company and its business, and an investment in the Shares, will be
subject to a high degree of risk, including, without limitation, the various
risks described under "Risk Factors."
THE OFFERING
Securities Offered 51 shares of the Company's Class A Common at an offering
price of $80,000 per share, 54 shares of the Company's
Class B Common at an offering price of $60,000 per
share, and 72 shares of the Company's Class C Common at
an offering price of $45,000 per share. See "Plan of
Distribution" and "Description of Capital Stock."
Investor Suitability The Shares are being offered exclusively to producers of
agricultural products, associations of such producers,
and federations of such associations. In addition, Iowa
investors must satisfy certain net worth and gross
income threshold requirements described herein. Each
investor purchasing one or more Class A Shares must
enter into a Feeder Pig Purchase Agreement, pursuant to
which such investor must purchase his or her
proportionate share of the Company's feeder pig
production, each investor purchasing one or more Class B
Shares must enter into a Weaned Pig Purchase Agreement,
pursuant to which such investor must purchase his or her
proportionate share of the Company's weaned pig
production made available to Class B shareholders, and
each investor purchasing one or more Class C Shares must
enter into a Class C Weaned Pig Purchase Agreement,
pursuant to which such investor must purchase his or her
proportionate share of the Company's weaned pig
production made available to Class C shareholders. See
"Plan of Distribution," "Feeder Pig Purchase Agreement"
and "Weaned Pig Purchase Agreements."
Subscription
and Payment Payment of the public offering price for the Class A
Common being subscribed for, together with two copies of
(i) an executed Subscription Agreement, and (ii) an
executed Feeder Pig Purchase Agreement, must be
delivered to the Company or its agent on or before the
termination of the offering. Payment of the public
offering price for the Class B Common being subscribed
for, together with two copies of (i) an executed
Subscription Agreement, and (ii) an executed Weaned Pig
Purchase Agreement, must be delivered to the Company or
its agent on or before the termination of the offering.
Payment of the public offering price for the Class C
Common being subscribed for, together with two copies of
(i) an executed Subscription Agreement, and (ii) an
executed Class C Weaned Pig Purchase Agreement, must be
delivered to the Company or its agent on or before the
termination of the offering. See "Plan of Distribution-
-Subscription Procedure."
Minimum Investment Each investor must make a minimum investment of one
Share of Class A Common, Class B Common or Class C
Common. See "Plan of Distribution."
Transfer Restrictions The Shares are subject to the provisions of the Colorado
Cooperative Association Law and the Company's Articles
of Incorporation and Bylaws, which restrict the
transferability of Common Stock. These restrictions
include a requirement that the Company's Board of
Directors give its consent prior to any transfer of
Common Stock, that the transferee of Class A Common
enter into a Feeder Pig Purchase Agreement with the
Company, that the transferee Class B Common enter into a
Weaned Pig Purchase Agreement with the Company, and that
the transferee Class C Common enter into a Class C
Weaned Pig Purchase Agreement with the Company. In
addition, the Company has the right to purchase a
member's Common Stock under certain circumstances. See
"Restrictions on Sale or Other Transfer of the Shares."
Closing Conditions The Shares are being offered on a "best efforts, all-or-
none" basis for (a) a Minimum Class A Block of 17 Class
A Shares, and thereafter may continue to be offered on
such basis with respect to successive Minimum Class A
Blocks until 51 Class A Shares have been issued and
sold, (b) a Minimum Class B Block of 18 Class B Shares,
and thereafter may continue to be offered on such basis
with respect to successive Minimum Class B Blocks until
54 Class B Shares have been issued and sold, and (c) a
Minimum Class C Block of 24 Class C Shares, and
thereafter may continue to be offered on such basis with
respect to successive Minimum Class C Blocks until 72
Class C Shares have been issued and sold. As of the
date of this Prospectus, the Company has not consummated
the issuance and sale of any shares of Common Stock in
this offering. This offering will not be consummated
unless (a) at least one Minimum Class A Block of 17
Class A Shares is issued and sold and the Company
receives a commitment for at least $2,720,000 of term
debt borrowings with respect to each such Minimum Class
A Block, or (b) at least one Minimum Class B Block of 18
Class B Shares or one Minimum Class C Block of 24 Class
C Shares is issued and sold and the Company receives a
commitment for at least $2,160,000 of term debt
borrowings with respect to each such Minimum Block. As
of the date of this Prospectus, the Company has obtained
such a commitment with respect to the Class A Shares
offered hereby until August 31, 1997, and is engaged in
negotiations with a lender to obtain such a commitment
with respect to the Class B Shares and Class C Shares.
Pending the Company's acceptance of subscriptions for a
Minimum Block, all funds received in payment of the
public offering price for Shares will be deposited in an
interest-bearing escrow account established at
NationsBank, N.A. (Mid-West) (formerly Boatmen's
National Bank). If Alliance does not issue Shares for
which funds have been deposited in the escrow account
prior to the termination of the offering, such funds
will be refunded to the prospective investors, together
with any interest earned thereon and without deduction
for expenses. See "Business--Financing" and "Plan of
Distribution."
Termination
of the Offering The offering will terminate on , 1998
(550 days from the , 1997 commencement of the
offering), unless extended by the Company for a period of up
to an additional 180 days. See "Plan of Distribution--
Termination of the Offering."
SUMMARY FINANCIAL DATA
The summary historical financial information presented below reflects the
fiscal 1996 operations of Alliance, the fiscal 1995 operations of Alliance, and
the fiscal 1994 combined operations of Yuma LLC from September 1, 1993 through
July 8, 1994 and of Alliance from July 9, 1994 through August 31, 1994. Such
financial information under the captions "Statement of Operations Information"
and "Balance Sheet Information" as of and for the fiscal years ended August 31
is derived from the financial statements of Alliance for the years ended August
31, 1996 and 1995 and the period from inception (July 9, 1994) through
August 31, 1994 and from the financial statements of Yuma LLC for the period
from September 1, 1993 to July 8, 1994, all of which have been audited by the
Company's independent certified public accountants. The summary historical
financial information as of February 28, 1997 and for the six months ended
February 28, 1997 and February 29, 1996 is derived from the unaudited financial
statements of Alliance. In the opinion of the Company, such interim financial
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for such interim
periods. In the opinion of management, the financial condition and results of
operations set forth herein cannot be relied upon as being representative of the
continuing prospects for the Company. The following summary financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
financial statements and related notes thereto and other information included
elsewhere in this Prospectus. See "Selected Financial Data."
STATEMENT OF OPERATIONS
INFORMATION:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, SIX MONTHS ENDED FEBRUARY 28,
1996 1995 1994 1997 1996
<S> <C> <C> <C> <C> <C>
Net sales $ 7,037,927 $ 1,554,113 $ 2,309,319 $ 6,519,998 $ 2,871,276
Cost of goods sold 6,422,838 1,836,388 1,912,268 5,549,049 3,008,706
Gross income (loss) 615,089 (282,275) 397,051 970,949 (137,430)
Expenses related to start-up of 426,926 754,756 B 75,668 B
new facilities and conversion of
existing facility
Administrative expenses 369,787 101,927 36,629 214,996 170,565
Loss on sale of breeding stock 226,738 112,797 56,474 81,020 170,537
Operating income (loss) (408,362) (1,251,755) 303,948 599,265 $ (478,532)
Interest expense (1,001,329) (289,082) (1,375) (680,584) (439,320)
Other income 66,604 27,509 28,246 85,786 7,574
(934,725) (261,573) 26,871 (594,798) (431,746)
Net income (loss) $ (1,343,087) $(1,513,328) $ 330,819 $ 4,467 $ (910,278)
OTHER INFORMATION:
Pigs Sold 148,926 46,858 46,014 112,800 67,241
<CAPTION>
AS OF AUGUST 31, AS OF FEBRUARY 28,
BALANCE SHEET INFORMATION: 1996 1995 1994 1997
<S> <C> <C> <C> <C>
Working C<C>apital (Deficit) $ (257,702) $ 1,238,271 $ 1,980,861 $ (1,139,041)
Total Assets 20,845,613 14,571,940 5,322,834 22,344,378
Shareholders' Equity 4,606,289 4,627,693 4,860,610 4,610,756
</TABLE>
USE OF PROCEEDS
Class A Common The net proceeds to the Company from the sale of the Class A
Shares offered hereby, after deducting expenses payable in
connection with this offering, are estimated to be
approximately $1,220,000 if one Minimum Class A Block is
sold and approximately $3,940,000 if all 51 Class A Shares
offered hereby are sold. The Company intends to use the net
proceeds from the sale of each Minimum Class A Block,
together with approximately $2,720,000 of term debt
borrowings for which the Company seeks to obtain a
commitment with respect to each such Minimum Class A Block,
for the development of one new feeder pig production
facility to be situated in or around Yuma County, Colorado,
Wayne County, Illinois or other locations selected by the
Company, including the purchase of real estate, the
construction of the facility, and the acquisition of
breeding stock, and the demands for working capital during
the initial start-up period for the facility. In this
regard, the net proceeds from the sale of the first Minimum
Class A Block will be applied to the Company=s second
Illinois feeder pig production facility that presently is
under development, including the repayment of up to
$1,360,000 of any related debt financing, together with
interest thereon, provided by Farmland Industries, Inc.
("Farmland"). If all 51 Class A Shares offered hereby are
sold, the net proceeds to the Company, together with
approximately $8,160,000 of term debt borrowings, will be
used for the development of three new 2,450-sow feeder pig
production facilities (including one feeder pig production
facility under development in Wayne County, Illinois). The
Company anticipates that the net proceeds of the offering of
each Minimum Class A Block, the approximately $2,720,000 of
term debt borrowings for which the Company seeks to obtain a
commitment with respect to each such Minimum Class A Block,
and any interest earned thereon, will be adequate to
maintain its current and planned operations during the
Company's start-up phase for each new facility, which is
anticipated to be up to 13 to 15 months after completion of
the offering of such Minimum Class A Block. As of the date
of this Prospectus, the Company has obtained a commitment
until August 31, 1997 for the approximately $2,720,000 of
debt financing required with respect to each Minimum Class A
Block of Class A Shares offered hereby. See "Use of
Proceeds," "Business--Financing" and "Risk Factors."
Class B Common The net proceeds to the Company from the sale of the Class B
Shares offered hereby, after deducting expenses payable in
connection with this offering, are estimated to be
approximately $940,000 if one Minimum Class B Block of 18
Class B Shares is sold and approximately $3,100,000 if all
54 Class B Shares offered hereby are sold. The Company
intends to use the net proceeds from the sale of each
Minimum Class B Block, together with approximately
$2,160,000 of term debt borrowings for which the Company
seeks to obtain a commitment with respect to each such
Minimum Class B Block, for the development of one new weaned
pig production facility to be situated in or around Yuma
County, Colorado, Wayne County, Illinois or other locations
selected by the Company, including the purchase of real
estate, the construction of the facility, and the
acquisition of breeding stock, and the demands for working
capital during the initial start-up period for the facility.
If all 54 Class B Shares offered hereby are sold, the net
proceeds to the Company, together with approximately
$6,480,000 of term debt borrowings, will be used for the
development of three new 2,450-sow weaned pig production
facilities. The Company anticipates that the net proceeds
of the offering of each Minimum Class B Block, the
approximately $2,160,000 of term debt borrowings for which
the Company seeks to obtain a commitment with respect to
each such Minimum Class B Block, and any interest earned
thereon, will be adequate to maintain its planned operations
during the Company's start-up phase for each new facility,
which is anticipated to be up to 11 to 13 months after
completion of the offering of such Minimum Class B Block.
See "Use of Proceeds," "Business--Financing" and "Risk
Factors."
Class C Common The net proceeds to the Company from the sale of the Class C
Shares offered hereby, after deducting expenses payable in
connection with this offering, are estimated to be
approximately $940,000 if one Minimum Class C Block of 24
Class C Shares is sold and approximately $3,100,000 if all
72 Class C Shares offered hereby are sold. The Company
intends to use the net proceeds from the sale of each
Minimum Class C Block, together with approximately
$2,160,000 of term debt borrowings for which the Company
seeks to obtain a commitment with respect to each such
Minimum Class C Block, for the development of one new weaned
pig production facility to be situated in or around Yuma
County, Colorado, Wayne County, Illinois or other locations
selected by the Company, including the purchase of real
estate, the construction of the facility, and the
acquisition of breeding stock, and the demands for working
capital during the initial start-up period for the facility.
If all 72 Class C Shares offered hereby are sold, the net
proceeds to the Company, together with approximately
$6,480,000 of term debt borrowings, will be used for the
development of three new 2,450-sow weaned pig production
facilities. The Company anticipates that the net proceeds
of the offering of each Minimum Class C Block, the
approximately $2,160,000 of term debt borrowings for which
the Company seeks to obtain a commitment with respect to
each such Minimum Class C Block, and any interest earned
thereon, will be adequate to maintain its planned operations
during the Company's start-up phase for each new facility,
which is anticipated to be up to 11 to 13 months after
completion of the offering of such Minimum Class C Block.
See "Use of Proceeds," "Business--Financing" and "Risk
Factors."
FEEDER PIG PURCHASE AGREEMENT
Each investor purchasing one or more Class A Shares must enter into a Feeder
Pig Purchase Agreement, in the form attached hereto as Exhibit B ("Feeder Pig
Purchase Agreement"), pursuant to which the investor member will be required to
purchase, and the Company will be required to sell, Qualifying Pigs (as defined
in the Agreement) in lots of no less than 900, and no more than 1,000, pigs per
lot, as determined by the Company. Lots of Qualifying Pigs are to be made
available to members of the Company on a rotating schedule determined and
implemented by the Company, with the number of lots made available to a member
and the frequency of availability being based upon the member's proportionate
ownership interest in the Company's outstanding Class A Common and the actual
production of Qualifying Pigs from the Company's facilities. If the Company is
successful in implementing its business plan and the proposed new production
facilities are developed on schedule, the initial lots of feeder pigs for new
investor members are not expected to be available for up to 13 to 15 months
after completion of the offering of a Minimum Class A Block to such members.
In the event that the production of feeder pigs exceeds two and seven-tenths
(2.7) lots per share of Class A Common on a prospective rolling 12-month basis,
the Company may sell such excess production to non-members, or retain such
excess production for the Company's own purposes, in lieu of selling such excess
production pursuant to the Feeder Pig Purchase Agreements. The purchase price
for Qualifying Pigs will be established pursuant to a formula consisting of the
sum of the following factors: the financing cost per pig, the operating cost
per pig, and a $4.50 per pig production margin (all as defined in the
Agreement). Payment of the estimated purchase price is due not less than one
day prior to the scheduled shipment date and is subject to adjustment within
five days following delivery for certain variations in the average weight of the
pigs.
A member's Feeder Pig Purchase Agreement will remain in effect for a period
of ten years after the date the first delivery of Qualifying Pigs is made to the
member thereunder and thereafter automatically will be renewed for succeeding
one year terms unless earlier terminated by the member. The Company may
terminate a member's Feeder Pig Purchase Agreement if the member fails to
purchase, pay for, and take delivery of any two lots of Qualifying Pigs when and
as made available to the member; provided, however, that for each ten shares of
Common Stock owned by a member, the number of such failures necessary before the
Company may terminate such member's Agreement is increased by one. In addition,
the member will be responsible for the damages and expenses incurred by the
Company as a result of any such failure, including (a) the difference between
the price payable by the member for the Qualifying Pigs that member has failed
to purchase, pay for, and take delivery under the Agreement and the then current
market price for feeder pigs, (b) $3,000, which amount is intended to cover the
Company's administrative and other costs and expenses associated with such
failure, and (c) all costs of collection, enforcement, and prosecution of the
Company's rights and remedies. The member may terminate the Feeder Pig Purchase
Agreement if the Company materially breaches any obligation or covenant in the
Agreement and such breach is not cured within 30 days following notice of such
breach given by the member to the Company. Furthermore, if the first delivery
of Qualifying Pigs thereunder is not made within 24 months of the date of the
Feeder Pig Purchase Agreement, the member may terminate the Agreement within
three months after the expiration of such 24-month period. A member's Feeder
Pig Purchase Agreement automatically terminates if the member assigns or
transfers all shares of Class A Common from which the member's right to purchase
lots of Qualifying Pigs under the Agreement derives. Except as described above,
a member does not have the right to terminate the Feeder Pig Purchase Agreement
prior to the expiration of the initial or any extended term thereof. As alluded
to above, a member has the right to terminate the Feeder Pig Purchase Agreement
at the expiration of the initial or any extended term thereof by giving notice
to the Company at least one year prior to the expiration of such initial or
extended term that the member desires to exercise such termination right. The
foregoing termination rights constitute the member's exclusive rights of
termination under the Feeder Pig Purchase Agreement.
As security for the performance of the member's obligations under the Feeder
Pig Purchase Agreement and for the Company's option to purchase a member's Class
A Common under certain circumstances, a security interest in all of the member's
Class A Common will be granted to the Company and the certificates representing
shares of Class A Common will be retained by Alliance. A member's failure to
perform his purchase obligation under the Feeder Pig Purchase Agreement, among
other occurrences, may result in the Company's foreclosure on this security
interest. No member has the right to demand the return of or to receive any of
the member's capital from the Company as a result of the termination of the
Feeder Pig Purchase Agreement or otherwise and regardless of whether demanded
prior to the expiration of the initial or any extended term of the Feeder Pig
Purchase Agreement or at any time after the expiration of any such term.
Moreover, the Company is under no obligation to redeem or repurchase its Class A
Common prior to the expiration of the initial or any extended term of the Feeder
Pig Purchase Agreement or at any time after the expiration of any such term.
The Class A Shares will not be readily marketable, and purchasers thereof may
not be able to liquidate their investment in the event of any emergency or
otherwise. See "Risk Factors--Obligation to Purchase Pigs," "-- Right of
Alliance to Acquire Shares" and "-- Lack of Liquidity; Absence of Market for
Shares," "Restrictions on Sale or Other Transfer of the Shares--Cooperative
Association Laws and Charter Documents" and "Feeder Pig Purchase Agreement."
WEANED PIG PURCHASE AGREEMENTS
Each investor purchasing one or more Class B Shares must enter into a Weaned
Pig Purchase Agreement, in the form attached hereto as Exhibit C ("Weaned Pig
Purchase Agreement"), pursuant to which the investor member will be required to
purchase, and the Company will be required to sell, Qualifying Pigs (as defined
in the Agreement) in lots of no less than 925, and no more than 1,025, pigs per
lot, as determined by the Company. Each investor purchasing one or more Class C
Shares must enter into a Class C Weaned Pig Purchase Agreement, in the form
attached hereto as Exhibit D ("Class C Weaned Pig Purchase Agreement" and
together with Weaned Pig Purchase Agreement, "Weaned Pig Agreement"), pursuant
to which the investor member will be required to purchase, and the Company will
be required to sell, Qualifying Pigs (as defined in the Agreement) in lots of no
less than 925, and no more than 1,025, pigs per lot, as determined by the
Company. The Company intends to allocate its production of weaned pigs from all
facilities between those that are to be sent to nurseries and developed by the
Company into feeder pigs, on the one hand, and those that are to be sold as
weaned pigs, on the other hand, in the same proportion that the number of the
Company's operating feeder pig production facilities bears to the number of the
Company's operating weaned pig production facilities. Lots of Qualifying Pigs
are to be made available to members of the Company on a rotating schedule
determined and implemented by the Company, with the number of lots made
available to a member and the frequency of availability being based upon the
member's proportionate ownership interest in the Company's outstanding Class B
Common or Class C Common, as the case may be, and the Company's actual
production of Qualifying Pigs that are to be sold to members of the Company as
weaned pigs. If the Company is successful in implementing its business plan and
the proposed new production facilities are developed on schedule, the initial
lots of weaned pigs for new investor members are not expected to be available
for up to 11 to 13 months after completion of the offering of a Minimum Class B
Block or Minimum Class C Block, as the case may be, to such members. In the
event that the production of weaned pigs exceeds two and seven-tenths (2.7) lots
per share of Class B Common or two and one-tenth (2.1) lots per share of Class C
Common, as the case may be, on a prospective rolling 12-month basis, the Company
may sell such excess production to non-members, or retain such excess production
for the Company's own purposes, in lieu of selling such excess production
pursuant to the Weaned Pig Agreements. The Company intends to cause any such
excess production of weaned pigs to be retained by the Company and developed
into feeder pigs. The purchase price for Qualifying Pigs will be established
pursuant to a formula consisting of the sum of the following factors: the
financing cost per pig, the operating cost per pig, and a $0 to $4.50 per pig
production margin, as determined by the Company (all as defined in the
Agreement). Payment of the estimated purchase price is due not less than one
day prior to the scheduled shipment date and is subject to adjustment within
five days following delivery for certain variations in the average weight of the
pigs.
A member's Weaned Pig Agreement will remain in effect for a period of ten
years after the date the first delivery of Qualifying Pigs is made to the member
thereunder and thereafter automatically will be renewed for succeeding one year
terms unless earlier terminated by the member. The Company may terminate a
member's Weaned Pig Agreement if the member fails to purchase, pay for, and take
delivery of any two lots of Qualifying Pigs when and as made available to the
member; provided, however, that for each ten shares of Common Stock owned by a
member, the number of such failures necessary before the Company may terminate
such member's Agreement is increased by one. In addition, the member will be
responsible for the damages and expenses incurred by the Company as a result of
any such failure, including (a) the difference between the price payable by the
member for the Qualifying Pigs that member has failed to purchase, pay for, and
take delivery under the Agreement and the then current market price for weaned
pigs, (b) $3,000, which amount is intended to cover the Company's administrative
and other costs and expenses associated with such failure, and (c) all costs of
collection, enforcement, and prosecution of the Company's rights and remedies.
The member may terminate the Weaned Pig Agreement if the Company materially
breaches any obligation or covenant in the Agreement and such breach is not
cured within 30 days following notice of such breach given by the member to the
Company. Furthermore, if the first delivery of Qualifying Pigs thereunder is
not made within 24 months of the date of the Weaned Pig Agreement, the member
may terminate the Agreement within three months after the expiration of such 24-
month period. A member's Weaned Pig Agreement automatically terminates if the
member assigns or transfers all shares of Class B Common or Class C Common, as
the case may be, from which the member's right to purchase lots of Qualifying
Pigs under the Agreement derives. Except as described above, a member does not
have the right to terminate the Weaned Pig Agreement prior to the expiration of
the initial or any extended term thereof. As alluded to above, a member has the
right to terminate the Weaned Pig Agreement at the expiration of the initial or
any extended term thereof by giving notice to the Company at least one year
prior to the expiration of such initial or extended term that the member desires
to exercise such termination right. The foregoing termination rights constitute
the member's exclusive rights of termination under the Weaned Pig Agreement.
As security for the performance of the member's obligations under the Weaned
Pig Agreement and for the Company's option under certain circumstances to
purchase a member's Class B Common or Class C Common, as the case may be, a
security interest in all of the member's Class B Common or Class C Common, as
the case may be, will be granted to the Company and the certificates
representing shares of such Common Stock will be retained by Alliance. A
member's failure to perform his purchase obligation under the Weaned Pig
Agreement, among other occurrences, may result in the Company's foreclosure on
this security interest. No member has the right to demand the return of or to
receive any of the member's capital from the Company as a result of the
termination of the Weaned Pig Agreement or otherwise and regardless of whether
demanded prior to the expiration of the initial or any extended term of the
Weaned Pig Agreement or at any time after the expiration of any such term.
Moreover, the Company is under no obligation to redeem or repurchase its Class B
Common or Class C Common, as the case may be, prior to the expiration of the
initial or any extended term of the Weaned Pig Agreement or at any time after
the expiration of any such term. The Class B Shares and Class C Shares will not
be readily marketable, and purchasers thereof may not be able to liquidate their
investment in the event of any emergency or otherwise. See "Risk Factors--
Obligation to Purchase Pigs," "-- Right of Alliance to Acquire Shares" and "--
Lack of Liquidity; Absence of Market for Shares," "Restrictions on Sale or Other
Transfer of the Shares--Cooperative Association Laws and Charter Documents" and
"Weaned Pig Purchase Agreements."
RISK FACTORS
An investment in the Shares involves a high degree of risk. In addition to
general investment risks and other information contained in this Prospectus, the
factors discussed below should be carefully considered in evaluating the Company
and its business and a possible investment in the Shares.
EARLY STAGE OF DEVELOPMENT
The Company was formed in May, 1994 (with its predecessor, Yuma LLC, being
formed in October, 1991) and is at an early stage of development. Although the
Company has been engaged in the production of feeder pigs since July 1994 (which
process includes the production of weaned pigs), the Company has not engaged at
all in the production of weaned pigs for sale. The Company is subject to all of
the risks inherent in the establishment of a new business and the operation of a
business generally, including the need for substantial capital to support its
facilities development efforts, the need to attract and retain qualified
personnel and experienced management, the risks related to facility location and
construction, changes in market conditions and costs, competition, inflation,
production efficiency, quality control, herd health, environmental and other
governmental laws and regulations, and the other risks described in this
Prospectus. There can be no assurance that the Company successfully will
implement its business plan to develop additional feeder pig production
facilities and weaned pig production facilities and realize any significant
economies of scale or that the feeder pigs and weaned pigs, as the case may be,
to be raised at such facilities will be made available to the Company's
stockholders under the Feeder Pig Purchase Agreements, Weaned Pig Purchase
Agreements and Class C Weaned Pig Purchase Agreements in quantities which are
sufficient to meet the requirements of such stockholders and at prices that are
less than otherwise could be obtained from other sources. If the Company is
successful in implementing its business plan and any new pig production
facilities are developed on schedule, the initial lots of feeder pigs resulting
from the development and expansion of the Company's feeder pig production
operations are not expected to be available to new Class A Common investor
members for up to 13 to 15 months after completion of the sale of a Minimum
Class A Block to such members and the initial lots of weaned pigs resulting from
the development of the Company's weaned pig production operations are not
expected to be available to new Class B Common investor members or new Class C
Common investor members, as the case may be, for up to 11 to 13 months after
completion of the sale of a Minimum Block to such members. New investor members
will not be entitled to purchase pigs pursuant to the Feeder Pig Purchase
Agreements, Weaned Pig Purchase Agreements or Class C Weaned Pig Purchase
Agreements, as the case may be, until such time. See "Business."
BREEDING STOCK
The availability in sufficient numbers of genetically consistent breeding
stock that satisfies the characteristics required by the Company and that can be
obtained on acceptable terms and prices is critical to the Company's operations.
No assurances can be given that the Company's requirements for breeding stock
will be satisfied on acceptable terms and prices, if at all. See "Business."
HERD HEALTH
The health of the breeding herd and pigs produced by the Company can greatly
impact, and has greatly impacted, the profitability of the Company. In the
event that the Company's breeding herd or feeder or weaned pig population
contracts a disease causing diminished breeding stock productivity, or extreme
mortality and morbidity, the Company will face substantial cost or loss and its
operating results will be adversely affected. In addition, herd health problems
will result in an increase in the price for pigs under the Feeder Pig Purchase
Agreements, Weaned Pig Purchase Agreements and Class C Weaned Pig Purchase
Agreements as well as a reduction in the pigs available for purchase by
stockholders under said Agreements. Alliance and its members have suffered the
consequences referred to in this paragraph as a result of herd health problems.
Although it is anticipated that each of the new facilities to be developed, in
part, with the proceeds from this offering will be designed in an attempt to
allow for disease separation between the facilities, large numbers of animals
will be raised together and may be vulnerable to disease. No assurance can be
given that the Company will be able to avoid herd health problems. See
"Business," "Feeder Pig Purchase Agreement" and "Weaned Pig Purchase
Agreements."
VOLATILE INPUT COSTS
Because the cost of feed and other supplies constitute a substantial portion
of the cost of producing a feeder or weaned pig, the Company's profitability is
extremely sensitive to changes in the cost of such inputs. These costs are
subject to substantial fluctuations based upon regional and seasonal
availability and demand, including those attributable to crop conditions,
weather and other factors. A substantial increase in the cost of these inputs,
or a substantial decline in the availability of these inputs, could materially
adversely affect the performance of the Company and result in the price for pigs
under the Feeder Pig Purchase Agreements, Weaned Pig Purchase Agreements or
Class C Weaned Pig Purchase Agreements, as the case may be, being higher than
otherwise could be obtained from other sources. Moreover, Alliance's operating
results are dependent upon the sale price paid to Alliance for feeder or weaned
pigs, which in turn is or will be determined in part based on the twelve month
historical rolling average of operating costs incurred by Alliance in producing
feeder pigs and the five month historical rolling average of operating costs
incurred by Alliance in producing weaned pigs. Actual changes in the sale price
of feeder and weaned pigs therefore will lag changes in the related operating
costs and may adversely affect Alliance's operating results, particularly in the
event of sudden movements, or continual increases, in such operating costs. See
"Business--Purchase of Feed and Other Inputs," "Feeder Pig Purchase Agreement"
and "Weaned Pig Purchase Agreements."
ADEQUATE WATER SUPPLY
The Company's operations are dependent upon the availability of an ample
supply of pure water at reasonable cost. Although the Company has obtained the
necessary commercial water well permits to obtain the water necessary to conduct
its current operations in Colorado, the Company has been advised that it will be
unable to obtain any new commercial well permits in Colorado. Accordingly, the
Company has found it necessary in Colorado to obtain the water necessary for its
operations through the purchase of more expensive, irrigated land or other real
property already having the necessary commercial well permits. No assurance can
be given that the Company will be able to obtain the water permits necessary to
enable it to expand its operations in Colorado, Illinois or other locations
selected by the Company. The Company's inability to obtain the necessary water
well permits for the expansion of its operations could have a material adverse
effect on the Company's business. See "Business--Facilities--Location of
Facilities."
OBLIGATION TO PURCHASE PIGS
Each investor purchasing one or more Class A Shares must enter into a Feeder
Pig Purchase Agreement, pursuant to which such investor is obligated to purchase
his or her proportionate share of the Company's feeder pig production for an
initial term of ten years and, unless earlier terminated by the member, for
succeeding one year renewal terms, and each investor purchasing one or more
Class B Shares or Class C Shares, as the case may be, must enter into a Weaned
Pig Agreement, pursuant to which such investor is obligated to purchase his or
her proportionate share of the Company's weaned pig production that is to be
sold to members as weaned pigs for an initial term of ten years and, unless
earlier terminated by the member, for succeeding one year renewal terms. In
each such case, pigs will be made available to members of the Company on a
rotating schedule determined and implemented by the Company, with the number of
lots made available to a member and the frequency of availability being based
upon the member's proportionate ownership interest in the Company's outstanding
Class A Common, with respect to feeder pigs, the member's proportionate
ownership interest in the Company's outstanding Class B Common or Class C
Common, as the case may be, with respect to weaned pigs, and the actual
production of Qualifying Pigs from the Company's facilities. No assurance can
be given that the availability of feeder or weaned pigs to members will coincide
with the member's needs or capacity to take delivery.
The purchase price for feeder and weaned pigs will be established pursuant to
a formula consisting of the sum of the following factors: the financing cost
per pig, the operating cost per pig, and a production margin of $4.50 per pig,
in the case of feeder pigs, and of $0 to $4.50 per pig (as determined by the
Company in its discretion), in the case of weaned pigs (all as defined in the
Feeder Pig Purchase Agreement or Weaned Pig Agreement, as the case may be). The
Company believes the effect of such pricing is to shift the risks of increasing
production costs and lower market prices for pigs from the Company and to the
member. No assurance can be given that the price for feeder and weaned pigs
under the Feeder Pig Purchase Agreement or Weaned Pig Agreement, as the case may
be, will be less than otherwise could be obtained from other sources. Among
other factors, a substantial increase in operating costs, including the costs of
feed and other supplies and the costs associated with diminished breeding stock
health or productivity, or extreme mortality and morbidity, could result in a
higher price to be paid by members for feeder and weaned pigs than otherwise
could be obtained from other sources. Moreover, the prevailing market price for
feeder and weaned pigs could decline below the price to be paid for pigs under
the Feeder Pig Purchase Agreement or Weaned Pig Agreement, as the case may be.
If a member fails to purchase, pay for, and take delivery of any two lots of
pigs when and as made available to the member, the Company may terminate the
member's Feeder Pig Purchase Agreement or Weaned Pig Agreement, as the case may
be, and foreclose upon the Company's security interest in the member's Common
Stock; provided, however, that for each ten shares of Common Stock owned by a
member, the number of such permitted failures is increased by one. In addition,
the member will be responsible for the damages and expenses incurred by the
Company as a result of any failure to purchase, pay for, and take delivery of
any lot of Qualifying Pigs, including (a) damages equal to the difference
between the price payable by the member for the Qualifying Pigs that member has
failed to purchase, pay for, and take delivery under the Agreement and the then
current market price for feeder or weaned pigs, as the case may be, (b) $3,000,
which amount is intended to cover the Company's administrative and other costs
and expenses associated with such failure, and (c) all costs of collection,
enforcement, and prosecution of the Company's rights and remedies.
With certain limited exceptions relating to the Company's breach of any of
its obligations under the Feeder Pig Purchase Agreement or Weaned Pig Agreement,
as the case may be, or the Company's failure to deliver pigs within 24 months of
the date of such Agreement, a member does not have the right to terminate such
Agreement prior to the expiration of the initial or any extended term of such
Agreement. The member's right to terminate the Feeder Pig Purchase Agreement or
Weaned Pig Agreement, as the case may be, at the expiration of the initial or
any extended term thereof may be exercised only if the member gives notice to
the Company at least one year prior to the expiration of such initial or
extended term that the member desires to exercise such termination right. A
member has no other right to terminate the Feeder Pig Purchase Agreement or
Weaned Pig Agreement, as the case may be. Moreover, no member has the right to
demand the return of or to receive any of the member's capital from the Company
as a result of the termination of any such Agreement or otherwise and regardless
of whether demanded prior to the expiration of the initial or any extended term
of such Agreement or at any time after the expiration of any such term. The
Company is under no obligation to redeem or repurchase its Common Stock prior to
the expiration of the initial or any extended term of the Feeder Pig Purchase
Agreement or Weaned Pig Agreement, as the case may be, or at any time after the
expiration of any such term. See "Risk Factors--Right of Alliance to Acquire
Shares" and "-- Lack of Liquidity; Absence of Market for Shares," "Business,"
"Feeder Pig Purchase Agreement," "Weaned Pig Purchase Agreements" and
"Restrictions on Sale or Other Transfer of the Shares--Cooperative Association
Laws and Charter Documents."
UNPURCHASED AND EXCESS PIGS
Each investor purchasing one or more Class A Shares must enter into a Feeder
Pig Purchase Agreement, pursuant to which such investor agrees to purchase his
or her proportionate share of the Company's feeder pig production, and each
investor purchasing one or more Class B Shares or Class C Shares, as the case
may be, must enter into a Weaned Pig Agreement, pursuant to which such investor
agrees to purchase his or her proportionate share (based on the investor's
proportionate ownership interest in the Company's outstanding Class B Common or
Class C Common, as the case may be) of the Company's weaned pig production that
is to be sold to members of the Company as weaned pigs. The failure of the
Company's stockholders to purchase their respective share of the Company's pig
production could materially adversely affect the performance of the Company. In
the event that one or more stockholders fail to purchase their respective share
of the Company's pig production, it will be necessary for the Company to find
alternate purchasers for its unpurchased pigs. In addition, it also may be
necessary to find alternate purchasers to the extent the Company's production of
feeder pigs exceeds two and seven-tenths (2.7) lots per share of Class A Common
on a prospective rolling 12-month basis, to the extent the Company's production
of weaned pigs under the Weaned Pig Purchase Agreements exceeds two and seven-
tenths (2.7) lots per share of Class B Common on a prospective rolling 12-month
basis or to the extent the Company's production of weaned pigs under the Class C
Weaned Pig Purchase Agreements exceeds two and one-tenth (2.1) lots per share of
Class C Common on a prospective rolling 12-month basis. Stockholders will not
be obligated under the Feeder Pig Purchase Agreements or Weaned Pig Agreements
to purchase their proportionate share of such excess production. Although the
Company has agreed to provide Farmland the first opportunity to purchase feeder
and weaned pigs that stockholders have failed to purchase and any excess feeder
and weaned pig production during the five year period ending July 13, 1999, no
assurances can be given that Farmland will exercise its option to purchase any
such excess pigs. In addition, no assurances can be given that alternate
purchasers will be available, or that any such alternate purchasers will agree
to purchase feeder or weaned pigs upon terms as favorable to the Company as
those contained in the Feeder Pig Purchase Agreements or Weaned Pig Agreements,
as the case may be. To the extent that unpurchased feeder or weaned pigs are
sold to alternate purchasers at prices less than would have been obtained under
such Agreements, the price for feeder or weaned pigs to stockholders may
increase. See "Feeder Pig Purchase Agreement," "Weaned Pig Purchase Agreements"
and "Certain Relationships and Related Transactions--Farmland."
LOSSES ASSOCIATED WITH START-UP
The Company was formed recently and has a limited history of operations. The
development of feeder and weaned pig production facilities entails substantial
up front expenditures for the purchase of real estate, the construction of the
facilities, and the acquisition of breeding stock and for working capital during
the initial start-up period for each new facility. As a result, the Company
anticipates that the development of feeder and weaned pig production facilities
will result in Alliance's continued incurrence of losses. There can be no
assurance that Alliance will become profitable after it ceases facilities
development activities. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
NO LOAN COMMITMENT; FUNDING CONDITIONS
With respect to its offering of each Minimum Class A Block of 17 Class A
Shares, the Company anticipates that it will be required to borrow at least
$2,720,000 of term debt in order to further its business strategy in developing
each additional feeder pig production facility. With respect to its offering of
each Minimum Class B Block of 18 Class B Shares and each Minimum Class C Block
of 24 Class C Shares, the Company anticipates that it will be required to borrow
at least $2,160,000 of term debt in order to further its business strategy in
developing each weaned pig production facility. Assuming the sale by the
Company of all 51 Class A Shares offered hereby, the Company intends to borrow
an aggregate of at least $8,160,000, which in combination with the net proceeds
of the offering of such Class A Shares, is anticipated to be sufficient to
enable it to construct or acquire three new feeder pig production facilities
(including one facility under development), acquire breeding stock, and pay
start-up and operating expenses in order to further develop and expand its
feeder pig production business. As of the date of this Prospectus, the Company
has obtained a commitment for the necessary feeder pig production loans from its
current lender, CoBank, ACB ("CoBank") until August 31, 1997 (extended from the
original February 28, 1997 expiration date). No assurances can be given that
the Company will be able to obtain an extension of such commitment after that
date on favorable terms, if at all. Assuming the sale by the Company of all 54
Class B Shares offered hereby, the Company intends to borrow an aggregate of at
least $6,480,000, which in combination with the net proceeds of the offering of
such Class B Shares, is anticipated to be sufficient to enable it to construct
or acquire three new weaned pig production facilities, acquire breeding stock,
and pay start-up and operating expenses in order to develop its weaned pig
production business. Assuming the sale by the Company of all 72 Class C Shares
offered hereby, the Company intends to borrow an aggregate of at least
$6,480,000, which in combination with the net proceeds of the offering of such
Class C Shares, is anticipated to be sufficient to enable it to construct or
acquire three new weaned pig production facilities, acquire breeding stock, and
pay start-up and operating expenses in order to develop its weaned pig
production business. As of the date of this Prospectus, the Company is engaged
in negotiations with a lender to obtain a commitment for the necessary weaned
pig production loans totaling $12,960,000. No assurances can be given that the
Company will be able to obtain such commitment on favorable terms, if at all.
The actual advance of funds under the CoBank commitment or any other loan
commitment that reasonably could be made available to the Company is or will be
subject to the satisfaction of certain conditions precedent. In addition, any
such commitment may be withdrawn or terminated by the prospective lender under
certain circumstances. There is no assurance that the funding conditions
precedent will be satisfied and that the loan funds will be made available to
the Company when needed, that the debt service requirements of such loan will
not result in the price for feeder or weaned pigs under the Feeder Pig Purchase
Agreements or Weaned Pig Agreements, as the case may be, being higher than
otherwise could be obtained from other sources, that alternative sources of
financing will be available on acceptable terms, or that the aggregate borrowing
needs of the Company will not exceed $8,160,000, with respect to feeder pig
production, or $12,960,000, with respect to weaned pig production. In the event
that the CoBank commitment for a feeder pig production loan or any extension of
such commitment is withdrawn or terminated, or the Company is unable to obtain
an acceptable commitment for a weaned pig production loan from a lender prior to
or concurrently with the consummation of the offering of any Minimum Class A
Block, Minimum Class B Block or Minimum Class C Block of Shares, all
subscriptions for each such Minimum Block of Shares will be rejected and any
amount received by the Company in payment of the subscription price will be
returned to the prospective investors, together with any interest earned thereon
and without deduction for expenses. See "Business--Financing," "Plan of
Distribution--Subscription Procedure," "-- Escrow of Proceeds" and "--
Termination of the Offering," "Use of Proceeds" and "Capitalization."
SUBSTANTIAL INDEBTEDNESS
The Company is highly leveraged and will continue to be so after its
anticipated borrowing of term debt in connection with the issuance and sale by
the Company of all or part of the Shares offered hereby. The degree to which
the Company is and will be leveraged could have an adverse impact on the
Company, including (i) increased vulnerability to adverse general economic and
market conditions, (ii) impaired ability to obtain additional financing for
future working capital, capital expenditures, general corporate or other
purposes, and (iii) dedication of a significant portion of cash provided by
operating activities to the payment of debt obligations and thereby reducing
funds available for operations or distribution. The Company's ability to make
required debt service payments in the future will be dependent upon the
Company's operating results, which are subject to financial, economic and other
factors affecting the Company, many of which are beyond its control. Moreover,
such operating results will be dependent upon the sale price paid to the Company
for feeder pigs, which in turn is determined in part based on the twelve month
historical rolling average of operating costs incurred by the Company in
producing such pigs, and upon the sale price paid to the Company for weaned
pigs, which in turn will be determined in part based on the five month
historical rolling average of operating costs incurred by the Company in
producing such pigs. Actual changes in the sale price of feeder and weaned pigs
therefore will lag changes in the related operating costs and may affect the
Company's ability to timely make required debt service payments. No assurance
can be given that the Company will be able to make required debt service
payments. No person has agreed to guarantee the obligation of the Company to
make timely debt service payments. See "Capitalization," "Business--Financing,"
"Feeder Pig Purchase Agreement" and "Weaned Pig Purchase Agreements."
ASSETS SECURING DEBT; CREDIT AGREEMENT RESTRICTIONS
The Company entered into various loan agreements and other documentation with
the Company's existing lender, CoBank. Pursuant to such loan documentation ,
the Company has been, and anticipates that it will be, required to grant liens
on substantially all of its properties and assets to CoBank and to comply with
various affirmative and negative covenants, including but not limited to (i)
maintenance of minimum levels of working capital, (ii) restrictions on the
incurrence of additional indebtedness, (iii) restrictions on certain liens,
mergers, sales of assets, investments, guaranties, loans, advances and business
activities unrelated to existing operations, and (iv) restrictions on the
declaration and payment of dividends or patronage distributions. There can be
no assurance that Alliance will be able to achieve and maintain compliance with
the prescribed covenants of such loan documentation. Alliance has successfully
sought and received consents, waivers and amendments to its loan documentation
on various occasions. If further consents, waivers or amendments are requested
by Alliance, including any such consents, waivers or amendments required for the
payment of rebates on the price of pigs sold, there can be no assurance that
Alliance's lender will again grant such requests. The failure to obtain any
such consents, waivers or amendments would reduce Alliance's flexibility to
respond to adverse industry conditions and could have a material adverse effect
on Alliance's results of operations, financial condition and business. If an
event of default occurs under the Company=s loan documentation, the lender will
have the right to foreclose upon such collateral. In addition, the terms of the
Company's financing with CoBank might adversely affect the ability of the
Company to obtain additional financing for any future expansion efforts,
including the development of feeder or weaned pig production facilities. No
person has agreed to guarantee the obligation of the Company to make timely debt
service payments. See "Business--Financing."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING; AND WORKING CAPITAL
DEFICIT
The Company anticipates that the net proceeds of the offering of each Minimum
Class A Block of 17 Class A Shares, the $2,720,000 of term debt borrowings for
which the Company seeks to obtain a commitment with respect to each such Minimum
Class A Block, and any interest earned thereon, will be adequate to maintain its
current and planned operations during the Company's start-up phase for each new
feeder pig production facility, which is anticipated to be up to 13 to 15 months
after completion of the offering of such Minimum Class A Block. As of the date
of this Prospectus, the Company has obtained a commitment until August 31, 1997
for the approximately $2,720,000 of debt financing required with respect to each
such Minimum Class A Block. The Company anticipates that the net proceeds of
the offering of each Minimum Class B Block of 18 Class B Shares or each Minimum
Class C Block of 24 Class C Shares, the $2,160,000 of term debt borrowings for
which the Company seeks to obtain a commitment with respect to each such Minimum
Block, and any interest earned thereon, will be adequate to maintain its planned
operations during the Company's start-up phase for each new weaned pig
production facility, which is anticipated to be up to 11 to 13 months after
completion of the offering of such Minimum Block. No assurance can be given
that circumstances and events will not occur that would consume capital
resources available for each new feeder or weaned pig production facility before
such time and thereby require additional financing to be raised. The Company is
and will be subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest and the risk that indebtedness will
not be able to be refinanced or that the terms of such refinancing will not be
as favorable as the terms of the original indebtedness and thereby increasing
the cost to stockholders of feeder or weaned pigs made available under the
Feeder Pig Purchase Agreements or Weaned Pig Agreements, as the case may be. As
of February 28, 1997, Alliance had a working capital deficit of $1,139,041. The
Company anticipates that it will be required to raise additional capital in
order to further expand its operations beyond the expansion contemplated in
connection with the offering of Shares made hereby. Such capital may be raised
through additional private or public financings, as well as collaborative
relationships, borrowings and other available sources. If the Company needs to
raise additional funds, there can be no assurance that additional or sufficient
financing will be available, or, if available, that it will be available on
acceptable terms. If additional funds are raised by issuing equity securities
of the Company, dilution to then existing stockholders may result. If adequate
funds are not available, the Company may be required to significantly curtail a
portion of its planned operations. See "Business."
COMPETITION
Many of the Company's existing or potential competitors may have
substantially greater financial, technical and personnel resources than the
Company. There can be no assurance that the Company's competitors will not be
more successful than the Company in developing and improving pork production
technologies and raising consistent high quality feeder and weaned pigs that are
more economical to raise than any which may be developed or raised by the
Company. Moreover, as additional competitors commence operations, the supply of
feeder or weaned pigs may exceed demand and result in a downward pressure on the
prevailing market prices for such pigs. Under the Feeder Pig Purchase
Agreements or Weaned Pig Agreements, as the case may be, each investor will be
obligated to purchase his proportionate share (based on the investor's
proportionate ownership interest in the Company's outstanding Class A Common,
Class B Common or Class C Common, as the case may be) of the Company's feeder or
weaned pig production based in large part on Alliance's cost of production.
Accordingly, if the Company is not successful in developing and improving pork
production technologies relative to its competitors or if the prevailing market
prices for feeder or weaned pigs decline below those applicable under such
Agreements, each investor may be obligated to purchase his proportionate share
of the Company's feeder or weaned pig production at a price higher than could be
available from other sources. The Company's ability to achieve or maintain cost
competitive feeder or weaned pig production operations on an ongoing basis may
depend on its ability to raise additional capital, which may not then be
available on acceptable terms, if at all. See "Business--Business Environment"
and "-- Competition," "Feeder Pig Purchase Agreement" and "Weaned Pig Purchase
Agreements."
ANTI-CORPORATE FARMING SENTIMENT
The development of large corporate farming operations and concentration of
hog production in larger-scale facilities, such as those of the Company, has
increased dramatically over the last decade. This development has engendered
opposition from residents of Colorado, Illinois and other states in which the
Company conducts, or may conduct, its business operations. Such opposition may
reflect various concerns, including concerns about pollution and effluent
emissions, excessive water use, offensive odor, humane treatment of animals and
the perceived threat to small farmers and the family farm. To the extent that
public opposition is expressed with respect to large corporate farming
operations such as those of the Company, national, state or local laws
restricting their operations may be enacted in response, legal proceedings may
be instituted to obtain monetary awards, injunctive orders or other legal or
equitable remedies, potential employees may be dissuaded from accepting a
position with such corporate farming operators, property owners may be reluctant
to sell parcels to such corporate farming operators, or other consequences may
result that could have a material adverse effect on the Company and its
business. No assurances can be given that public opposition will not result in
the occurrence of any one or more of such adverse consequences. See "Business--
Business Environment."
EXPANSION
Within up to 13 to 15 months after the completion of the offering of each
Minimum Class A Block of 17 Class A Shares, the Company anticipates that it will
be able to develop a new feeder pig production facility as a result of such
offering and that the initial lots of feeder pigs produced from such facility
would be available to investor members, and within up to 11 to 13 months after
the completion of the offering of each Minimum Class B Block of 18 Class B
Shares or each Minimum Class C Block of 24 Class C Shares, as the case may be,
the Company anticipates that it will be able to develop a new weaned pig
production facility as a result of such offering and that the initial lots of
weaned pigs produced from such facility would be available to investor members.
There can be no assurance that the Company or its contractors will be able to
achieve this goal. The development and successful operation of each new
facility depends on various factors, including the availability of suitable
sites, regulatory compliance, the ability to meet construction schedules, the
capabilities of the Company's contractors, the ability to maintain facility
construction costs within original estimates, the ability of the Company to
manage its anticipated expansion generally and to hire and train qualified
personnel, and general economic and business conditions. Many of the foregoing
factors are not within the control of the Company or its contractors, and
therefore no assurance can be given that the Company's expansion objectives and
goals will be successfully implemented. See "Business."
CONTROL BY CURRENT STOCKHOLDERS; DISPARATE VOTING RIGHTS; POTENTIAL CONFLICTS OF
INTEREST
As of the date of this Prospectus, Farmland, Farmers Cooperative Elevator
Company, Yuma Farmers Milling and Mercantile Cooperative Company ("Yuma
Cooperative"), and Corn Plus, L.C. collectively own 79 shares of the Company's
Class A Common, which for such stockholders will constitute approximately 42.0%,
9.2%, 10.1% and 5.0%, respectively, of the combined voting power of the shares
of Common Stock outstanding immediately after completion of the offering of one
Minimum Class A Block of 17 Class A Shares, approximately 41.7%, 9.2%, 10.0% and
5.0%, respectively, of the combined voting power of the shares of Common Stock
outstanding immediately after completion of the offering of one Minimum Class B
Block of 18 Class B Shares, approximately 39.7%, 8.7%, 9.5% and 4.8%,
respectively, of the combined voting power of the shares of Common Stock
outstanding immediately after completion of the offering of one Minimum Class C
Block of 24 Class C Shares, approximately 32.7%, 7.2%, 7.8% and 3.9%,
respectively, of the combined voting power of the shares of Common Stock
outstanding immediately after completion of the offering of all 51 Class A
Shares offered hereby, approximately 32.1%, 7.1%, 7.7% and 3.8%, respectively,
of the combined voting power of the shares of Common Stock outstanding
immediately after completion of the offering of all 54 Class B Shares offered
hereby, approximately 28.7%, 6.3%, 6.9% and 3.4%, respectively, of the combined
voting power of the shares of Common Stock outstanding immediately after
completion of the offering of all 72 Class C Shares offered hereby, and
approximately 17.9%, 3.9%, 4.3% and 2.2%, respectively, of the combined voting
power of the shares of Common Stock outstanding immediately after completion of
the offering of all 177 Shares offered hereby (in each case, assuming that such
stockholders do not purchase any Shares in the offering). Although no one
cooperative association stockholder is permitted to vote shares of Common Stock
representing 25% or more of the shares outstanding during any period in which
the Company has borrowed money from a lender subject to regulations of the Farm
Credit Administration regarding loan policies and operations (such as the
Company's current lender), the above-named stockholders could continue to
exercise a significant degree of influence or control over the Company with
respect to the election of directors and other matters if they, or several of
them, agree to vote together on such matters. See "Principal Stockholders" and
"Description of Capital Stock."
On all matters submitted to a vote of the Company's stockholders, holders of
Class A Common and holders of Class B Common each are entitled to one vote per
share while holders of Class C Common are entitled to three-fourths of one vote
per share. See "Description of Capital Stock."
The Company has contracted with Farmland and Yuma Cooperative for the
provision of certain requirements of the Company, including the supply of feed
and other inputs, breeding stock, and administrative services. The Company's
agreements with Farmland and Yuma Cooperative may be modified in the future and
the Company may enter into additional agreements or transactions with Farmland
and Yuma Cooperative. Farmland, through its various business divisions,
subsidiaries and affiliates, is engaged in the production of livestock
elsewhere, in the sale of the above described supplies and services to other
parties, and in the slaughter and processing of hogs. Farmland may have
conflicting interests in the provision of such services to the Company in light
of its other business activities. Similarly, Yuma Cooperative also may have
conflicting interests in the provision of goods and services to the Company.
See "Certain Relationships and Related Transactions."
ATTRACTION AND RETENTION OF EMPLOYEES
The Company is dependent on members of its management and facilities
operations personnel, the loss of whose services might adversely affect the
achievement and success of its planned expansion activities. In addition,
attracting and retaining qualified facilities operations personnel will be
important to the Company's success. The inability to acquire and retain the
services of such management and facilities operations personnel could have a
material adverse effect on the Company's operations and significantly impact its
prospects for success. Although the Company has contracted with Farmland and
others to provide certain managerial, administrative and other services,
Alliance can give no assurance that it will be able to attract and retain the
personnel it needs on acceptable terms. See "Business--Employees," "Management"
and "Certain Relationships and Related Transactions."
DISTRIBUTIONS AND DIVIDENDS
No dividends will be paid by Alliance on its Common Stock. Investors who
anticipate the need for an immediate return on their investment should refrain
from purchasing the Shares. The Company, however, intends to make annual
patronage distributions of its net margins (as hereinafter defined), if any, to
its members on the basis of the quantity or value of business done by the
Company with or for the member-patrons. Such patronage distributions may be
paid in cash, written notices of allocation, whether qualified or non-qualified,
or a combination thereof, as determined by the Company's Board of Directors in
its sole discretion. The Company has entered into various loan agreements and
other documentation with its existing lender which restrict the Company's
ability to pay patronage distributions in cash. See "Patronage Distribution
Policy" and "Business--Financing."
TAXABLE INCOME WITHOUT SUFFICIENT CASH DISTRIBUTIONS TO PAY THE TAX
The Company is required annually to distribute its patronage sourced income
to its stockholder-patrons on the basis of the quantity or value of business
done with or for its stockholder-patrons. Subject to restrictions imposed by
the Company's lender, the Company anticipates that it will distribute its
patronage distributions through a combination of cash and qualified written
notices of allocation. In such case, the recipient stockholder-patron will have
to report in its taxable income the cash and the face amount of the qualified
written notices of allocation. The Company's Board of Directors will determine
each year the portion of the patronage distribution which is to be paid in cash
or qualified written notice of allocation, although the Company anticipates that
at least twenty percent of the patronage distribution will be paid in cash.
Accordingly, a stockholder may have to pay income taxes on the patronage
distributions in an amount that exceeds (possibly by a substantial amount) the
cash distributions which may be made by the Company to the stockholder. See
"Patronage Distribution Policy" and "Business--Federal Income Taxation."
ARBITRARY DETERMINATION OF OFFERING PRICE; DILUTION
The public offering price for the Shares has been determined arbitrarily by
the Company and is not based on any recognized criteria of value. Among the
factors considered in making such determination are the amount of the
anticipated debt borrowings, together with the net proceeds from the sale of the
Shares, required to develop each additional feeder pig production facility or
weaned pig production facility, as the case may be, which factor takes into
account the anticipated development costs for new facilities, the applicable
debt-to-equity ratio or minimum equity amount that the Company anticipated would
be required by its lender, and the anticipated interest and debt service
requirements associated with such borrowings. The public offering price for the
Class A Shares, Class B Shares and Class C Shares, respectively, may not
necessarily reflect any relationship to the Company's assets, historical losses,
book value or other criteria of value. It is anticipated that purchasers of
shares of Common Stock in this offering will experience immediate and
substantial dilution in net tangible book value. See "Plan of Distribution--
Offering Price."
GOVERNMENT REGULATION
The Company is subject to various federal, state and local government
regulations, including those restricting certain types of investor-owned
livestock production operations and those concerning the environment,
occupational safety and health, and zoning. While the Company attempts to
monitor all aspects of its regulatory compliance responsibilities, there can be
no assurance that it will satisfy all applicable governmental regulations or
obtain all required approvals. Failure to comply with applicable regulations
can, among other things, result in fines, suspensions of regulatory approvals,
operating restrictions, and criminal prosecution. Changes in or additions to
applicable regulations also could adversely affect the Company and its business.
See "Business--Government Regulation" and "--Waste Disposal and Environmental
Matters."
RIGHT OF ALLIANCE TO ACQUIRE SHARES
Upon the occurrence of certain events, the Company has the option, but not
the obligation, to purchase an investor's Shares (a) by tendering to the
investor (i) the lesser of (A) the price paid to the Company for such investor's
Shares and (B) the book value of such Shares and capital credits associated
therewith, less (ii) any indebtedness due the Company from the investor, or (b)
by tendering to the investor a nonvoting certificate of participation
representing the investor's interest at the time of such tender in a face amount
equal to the amount specified in clause (a) above. The occurrences giving rise
to such option and to a termination of the investor's membership in the Company
include the following events: (a) the investor's termination of a Feeder Pig
Purchase Agreement or Weaned Pig Agreement, as the case may be, without having
executed and delivered a replacement for such Agreement or the investor's
failure to be a party to such Agreement, and (b) the Company's Board of
Directors by resolution finds that the investor has (i) intentionally or
repeatedly violated any provision of the Company's Articles of Incorporation or
Bylaws, (ii) breached a Feeder Pig Purchase Agreement or Weaned Pig Agreement,
as the case may be, or materially breached any other contract with Company,
(iii) remained indebted to the Company for 90 days after such indebtedness first
becomes payable, or (iv) willfully obstructed any lawful purpose or activity of
the Company. The provisions giving the Company the right to purchase an
investor's Common Stock will make it more difficult to effect a change in
control of the Company. See "Risk Factors--Obligation to Purchase Pigs" and "--
Lack of Liquidity; Absence of Market for Shares," "Feeder Pig Purchase
Agreement," "Weaned Pig Purchase Agreements" and "Restrictions on Sale and Other
Transfer of the Shares--Cooperative Association Laws and Charter Documents."
LACK OF LIQUIDITY; ABSENCE OF MARKET FOR SHARES
Potential investors in the Shares should be fully aware of the long-term
nature of their investment and of their related obligation to purchase feeder or
weaned pigs under the Feeder Pig Purchase Agreement or Weaned Pig Agreements, as
the case may be. No public market presently exists for the Common Stock of the
Company and no public market is expected to develop for the existing Common
Stock of the Company or the Shares as a result of the offering contemplated
hereby. Transfers of Common Stock are subject to significant restrictions and
limitations set forth in the Colorado Cooperative Association Law and the
Company's Articles of Incorporation and Bylaws, including a requirement that the
Company's Board of Directors give its consent prior to any transfer of Shares,
that the transferee of Class A Common enter into a Feeder Pig Purchase Agreement
with the Company, that the transferee of Class B Common enter into a Weaned Pig
Purchase Agreement with the Company, and that the transferee of Class C Common
enter into a Class C Weaned Pig Purchase Agreement with the Company. In
addition, the Company has the right to purchase a member's Common Stock under
certain circumstances at a price that may be less than could otherwise be
obtained from other potential purchasers. The certificates representing the
Shares will bear one or more legends describing or referencing certain
applicable restrictions on transfer. In order to subscribe for Shares, (a) each
investor in Class A Common must enter into a Feeder Pig Purchase Agreement
pursuant to which such investor is obligated to purchase his or her
proportionate share of the Company's feeder pig production for an initial term
of ten years and, unless earlier terminated by the member, for succeeding one
year renewal terms, and (b) each investor in Class B Common or Class C Common,
as the case may be, must enter into a Weaned Pig Agreement pursuant to which
such investor is obligated to purchase his or her proportionate share (based on
the investor's proportionate ownership interest in the Company's outstanding
Class B Common or Class C Common, as the case may be) of the Company's weaned
pig production that is to be sold to members of the Company as weaned pigs for
an initial term of ten years and, unless earlier terminated by the member, for
succeeding one year renewal terms. With certain limited exceptions relating to
the Company's breach of any of its obligations under the Feeder Pig Purchase
Agreement or Weaned Pig Agreement, as the case may be, or the Company's failure
to deliver feeder or weaned pigs within 24 months of the date of such Agreement,
a member does not have the right to terminate such Agreement prior to the
expiration of the initial or any extended term of the Agreement. The member's
right to terminate the Feeder Pig Purchase Agreement or Weaned Pig Agreement, as
the case may be, at the expiration of the initial or any extended term thereof
may be exercised only if the member gives notice to the Company at least one
year prior to the expiration of such initial or extended term that the member
desires to exercise such termination right. A member has no other right to
terminate the Feeder Pig Purchase Agreement or Weaned Pig Agreement, as the case
may be. Moreover, no member has the right to demand the return of or to receive
any of the member's capital from the Company as a result of the termination of
such Agreement or otherwise and regardless of whether demanded prior to the
expiration of the initial or any extended term of such Agreement or at any time
after the expiration of any such term. The Company is under no obligation to
redeem or repurchase its Common Stock prior to the expiration of the initial or
any extended term of the Feeder Pig Purchase Agreement or Weaned Pig Agreement,
as the case may be, or at any time after the expiration of any such term. For
these and other reasons, the Shares will not be readily marketable, and
purchasers thereof must bear the economic risk of investment for an indefinite
period and may not be able to liquidate their investment in the event of any
emergency or otherwise. See "Restrictions on Sale or Other Transfer of the
Shares" and "Description of Capital Stock."
ADDITIONAL FACTORS
Additional risk and uncertainties that may affect future results of
operations, financial condition or business of Alliance include, but are not
limited to: the effect of economic and industry conditions on prices for
Alliance's feeder and weaned pigs and its cost structure; the ability to keep
pace with technological change timely and cost-effectively and to provide better
service and remain competitive; adverse publicity, news coverage by the media,
or negative reports by industry analysts regarding Alliance or its feeder or
weaned pigs which may have the effect of reducing the reputation and goodwill of
Alliance; and the ability to attract and retain capital for growth and
operations on competitive terms.
THE COMPANY
The Company is a cooperative association engaged in the production of feeder
pigs for sale to its members who own shares of Class A Common, and intends to
engage in the production of weaned pigs for sale to its members who own shares
of Class B Common or Class C Common. As of the date of this Prospectus, the
Company owned and operated five 2,450-sow feeder pig production facilities
located in Yuma County, Colorado (approximately 150 miles east of Denver), one
2,450-sow feeder pig production facility located in Wayne County, Illinois
(approximately 100 miles east of St. Louis, Missouri), and was in the process of
developing one additional feeder pig facility of comparable size in Wayne
County, Illinois. Financing for the acquisition of real estate, facilities
construction and acquisition of breeding stock with respect to the six existing
facilities already has been obtained and will not be provided by any proceeds
from the sale of the Shares offered hereby, however, the proceeds from the sale
of the first Minimum Class A Block of 17 Class A Shares offered hereby will be
applied to the Illinois facility presently under development. See "Use of
Proceeds" and "Business." The Company's business strategy is to produce feeder
and weaned pigs for sale to its members at competitive prices by utilizing
modern facilities, management practices designed to maximize productivity and
high quality genetically consistent breeding stock.
The Company was formed as a cooperative association under the laws of the
state of Colorado on May 3, 1994, but did not engage in any business activity
until July, 1994. The Company's predecessor, Yuma LLC, was formed in October,
1991 and commenced shipment of feeder pigs in March, 1993. On July 13, 1994
(July 9, 1994 for accounting purposes), the Company acquired the entire equity
ownership rights and interests in Yuma LLC from Farmland and Yuma Cooperative,
and thereupon Yuma LLC was dissolved and liquidated and its assets, liabilities
and feeder pig production operations were assigned to and assumed by Alliance.
The Company's principal executive offices are located at 302 Idlewild Street,
Yuma, Colorado 80759, and its telephone number is (970) 848-3231. Unless the
context otherwise requires, the terms "Alliance" and the "Company," as used in
this Prospectus, refer to Alliance Farms Cooperative Association and its
predecessor, Yuma LLC.
USE OF PROCEEDS
CLASS A SHARES
The net proceeds to the Company from the sale of the Class A Shares offered
hereby, after deducting expenses payable in connection with this offering, are
estimated to be approximately $1,220,000 if one Minimum Class A Block of 17
Class A Shares is sold and approximately $3,940,000 if all 51 Class A Shares
offered hereby are sold. The Company intends to use the net proceeds from the
sale of each Minimum Class A Block, together with approximately $2,720,000 of
term debt borrowings for which the Company seeks to obtain a commitment with
respect to each such Minimum Class A Block, for the development of one new
feeder pig production facility to be situated in or around Yuma County,
Colorado, Wayne County, Illinois or other locations selected by the Company,
including the purchase of real estate, the construction of the facility, and the
acquisition of breeding stock, and the demands for working capital during the
initial start-up period for the facility. In this regard, the net proceeds from
the sale of the first Minimum Class A Block will be applied to the Company=s
second Illinois feeder pig production facility that presently is under
development, including the repayment of up to $1,360,000 of any related debt
financing, together with interest thereon, provided by Farmland. If all 51
Class A Shares offered hereby are sold, the net proceeds to the Company,
together with approximately $8,160,000 of term debt borrowings, will be used for
the development of three 2,450-sow feeder pig production facilities (including
one feeder pig production facility under development in Wayne County, Illinois).
Each new feeder pig production facility may be developed in tandem with, or as a
part of, one or more other facilities. As of the date of this Prospectus, the
Company has obtained a commitment until August 31, 1997 for the approximately
$2,720,000 of debt financing required with respect to each Minimum Class A Block
of Class A Shares offered hereby.
The allocation of the offering proceeds from the sale of the Class A Shares
offered hereby and term debt borrowings among the uses set forth below
represents the Company's present intention on the basis of circumstances at the
date of this Prospectus. Unforeseen changes in circumstances may result in the
reallocation of such proceeds and term debt borrowings among the uses mentioned
below or to other presently unexpected uses. Pending use of the net proceeds
from the sale of the Class A Shares offered hereby for the purposes set forth
herein, such proceeds will be invested in short-term certificates of deposit or
other interest bearing instruments. The following summary of use of proceeds
does not include any interest income earned on the investment of the net
proceeds from this offering, which income would be added to the Company's
working capital as it is earned.
<TABLE>
<CAPTION>
MINIMUM ENTIRE
OFFERING OFFERING
(17 SHARES) (51 SHARES)*
<S> <C> <C>
SOURCE OF FUNDS:
Gross Proceeds of Offering $ 1,360,000 $ 4,080,000
Less Offering Costs (1) 140,000 140,000
Net Proceeds of Offering 1,220,000 3,940,000
Term Debt Borrowings (2) 2,720,000 8,160,000
Total Funds Available $ 3,940,000 $ 12,100,000
USE OF FUNDS:
Real Estate and Facilities Construction (3) $ 2,750,000 $ 8,600,000
Breeding Stock (4) 625,000 1,875,000
Project Development Costs and
Working Capital (5) 565,000 1,625,000
Total Facilities Development Costs $ 3,940,000 $ 12,100,000
</TABLE>
(1) Offering costs consist of offering agent commissions and expenses, legal
and accounting fees, filing fees, printing costs and other miscellaneous
expenses.
(2) The Company anticipates that in connection with the development of each new
feeder pig production facility, it will require at least $2,720,000 in
addition to the net proceeds from this offering. Accordingly, the
consummation of the issuance and sale of each Minimum Class A Block of 17
Class A Shares will be conditioned upon and subject to the Company
obtaining a commitment for at least $2,720,000 of term debt borrowings. As
of the date of this Prospectus, the Company has obtained such a commitment
with respect to the Class A Shares offered hereby until August 31, 1997
(extended from the original February 28, 1997 expiration date). No
assurances can be given that an extension of such commitment after such
date will be obtained on favorable terms, if at all. See "Business--
Financing."
(3) The Company has budgeted approximately $2,750,000 for completion of the
physical facilities for each new 2,450-sow feeder pig production facility,
which may be developed in tandem with, or as a part of, one or more other
facilities. The Company anticipates that up to $1,360,000 of this amount
with respect to its second Illinois facility presently under development
initially will be financed with a non-revolving term loan obtained from
Farmland, and that the net proceeds from the sale of the first Minimum
Class A Block of 17 Class A Shares offered hereby will be used to repay the
outstanding balance of this loan. As of the date of this Prospectus,
Alliance has borrowed $200,000 from Farmland for the acquisition of certain
real property in Wayne County, Illinois on which the second Illinois
facility is under development, and has obtained a commitment from Farmland
for the provision of an additional $1,160,000 loan. The Farmland loan
provides for amortization over a ten-year period, at a variable rate equal
to CoBank's then national variable rate plus 1.25%. As of the date of this
Prospectus, interest accrued on the outstanding principal balance of the
Farmland loan at a rate of 9.5% per annum (calculated by adding 125 basis
points to CoBank's national variable rate of 8.25% in effect as of such
date). The payment schedule for the Farmland loan requires the Company to
make interest-only payments for the life of the loan, with a final balloon
payment of the outstanding loan balance to be made upon the earlier of (i)
the Company's issuance and sale of a Minimum Class A Block, and (ii) the
expiration of ten years. Funds advanced to Alliance pursuant to the
Farmland loan were used as working capital to fund the acquisition of
certain real property in Wayne County, Illinois and any future advances
would be applied to construction costs and other working capital purposes.
As presently proposed, the construction of each new feeder pig facility,
including breeding, gestation, farrowing, nursery and attendant office
buildings and related equipment, is estimated to cost approximately
$2,250,000, plus the cost of the land and land improvements. This estimate
is based on estimates of construction costs furnished to the Company in
connection with the construction of its five most recently developed
facilities and of the one comparable facility which is in a preliminary
stage of development. The Company has estimated the cost of the land and
land improvements required for each 2,450-sow facility to be approximately
$500,000 based on its anticipated land requirements and the actual cost of
the Company's recent land purchases. Included in the Company's budget
respecting the issuance and sale of all 51 Class A Shares offered hereby is
approximately $350,000 for the construction of ancillary production
buildings or residential facilities for use by facilities operations
personnel if sufficient housing is unavailable. Sites for the one or more
facilities to be developed with the proceeds of this offering have not been
selected by the Company. No assurances can be given that the actual costs
for the acquisition of the necessary land and the construction of the
facilities will not exceed the Company's estimates.
(4) The Company has budgeted approximately $625,000 for the acquisition of the
breeding stock required for each new 2,450-sow facility based on the
Company's recent acquisition costs for other breeding stock and the
Company's estimated cost of developing its own breeding stock from its
breeding stock multiplier herd. The actual cost of acquiring the necessary
breeding stock may exceed the Company's estimates.
(5) If the Company is successful in implementing its business plan and each new
feeder pig production facility is developed on schedule, the initial lots
of feeder pigs produced from such facility are not expected to be available
to Class A Common investor members for up to 13 to 15 months following
completion of the offering. The amounts shown represent costs and expenses
expected to be incurred and expended by the Company during construction of
the facility and the 45- to 60-day breeding stock acclimation period and
prior to shipment of the initial lots of feeder pigs. These amounts are
budgeted at approximately $474,000 for each new 2,450-sow facility and
include working capital for the payment of salaries, feed and veterinary
costs, utilities, insurance, overhead and administration, interest
requirements on up to $1,360,000 of facilities development financing that
the Company anticipates it may incur (although no assurances can be given
that it will obtain such financing) with respect to each new facility
(including interest requirements on the up to $1,360,000 Farmland non-
revolving term loan referred to in note (3) above), taxes, and accounting
and legal fees, among others. Amounts allocated to working capital may be
used for any of the purposes set forth above, as needed, or for any other
use that management for the Company determines to be in the best interests
of the Company.
CLASS B SHARES
The net proceeds to the Company from the sale of the Class B Shares offered
hereby, after deducting expenses payable in connection with this offering, are
estimated to be approximately $940,000 if one Minimum Class B Block of 18 Class
B Shares is sold and approximately $3,100,000 if all 54 Class B Shares offered
hereby are sold. The Company intends to use the net proceeds from the sale of
each Minimum Class B Block, together with approximately $2,160,000 of term debt
borrowings for which the Company seeks to obtain a commitment with respect to
each such Minimum Class B Block, for the development of one new weaned pig
production facility to be situated in or around Yuma County, Colorado, Wayne
County, Illinois or other locations selected by the Company, including the
purchase of real estate, the construction of the facility, and the acquisition
of breeding stock, and the demands for working capital during the initial start-
up period for the facility. If all 54 Class B Shares offered hereby are sold,
the net proceeds to the Company, together with approximately $6,480,000 of term
debt borrowings, will be used for the development of three 2,450-sow weaned pig
production facilities. Each new weaned pig production facility may be developed
in tandem with, or as a part of, one or more other facilities.
The allocation of the offering proceeds from the sale of the Class B Shares
offered hereby and term debt borrowings among the uses set forth below
represents the Company's present intention on the basis of circumstances at the
date of this Prospectus. Unforeseen changes in circumstances may result in the
reallocation of such proceeds and term debt borrowings among the uses mentioned
below or to other presently unexpected uses. Pending use of the net proceeds
from the sale of the Class B Shares offered hereby for the purposes set forth
herein, such proceeds will be invested in short-term certificates of deposit or
other interest bearing instruments. The following summary of use of proceeds
does not include any interest income earned on the investment of the net
proceeds from this offering, which income would be added to the Company's
working capital as it is earned.
<TABLE>
<CAPTION>
MINIMUM ENTIRE
OFFERING OFFERING
(18 SHARES) (54 SHARES)*
<S> <C> <C>
SOURCE OF FUNDS:
Gross Proceeds of Offering $ 1,080,000 $ 3,240,000
Less Offering Costs (1) 140,000 140,000
Net Proceeds of Offering 940,000 3,100,000
Term Debt Borrowings (2) 2,160,000 6,480,000
Total Funds Available $ 3,100,000 $ 9,580,000
USE OF FUNDS:
Real Estate and Facilities Construction (3) $ 2,115,000 $ 6,625,000
Breeding Stock (4) 625,000 1,875,000
Project Development Costs and
Working Capital (5) 360,000 1,080,000
Total Facilities Development Costs $ 3,100,000 $ 9,580,000
</TABLE>
(1) Offering costs consist of offering agent commissions and expenses, legal
and accounting fees, filing fees, printing costs and other miscellaneous
expenses.
(2) The Company anticipates that in connection with the development of each new
weaned pig production facility, it will require at least $2,160,000 in
addition to the net proceeds from this offering. Accordingly, the
consummation of the issuance and sale of each Minimum Class B Block of 18
Class B Shares will be conditioned upon and subject to the Company
obtaining a commitment for at least $2,160,000 of term debt borrowings. As
of the date of this Prospectus, the Company is engaged in negotiations with
a lender to obtain a commitment for the necessary weaned pig production
loans. No assurances can be given that the Company will be able to obtain
such commitment on favorable terms, if at all. See "Business--Financing."
(3) The Company has budgeted approximately $2,115,000 for completion of the
physical facilities for each new 2,450-sow weaned pig production facility,
which may be developed in tandem with, or as a part of, one or more other
facilities. As presently proposed, the construction of each new weaned pig
facility, including breeding, gestation, farrowing, nursery and attendant
office buildings and related equipment, is estimated to cost approximately
$1,819,000, plus the cost of the land and land improvements. This estimate
is based on estimates of construction costs furnished to the Company in
connection with the construction of its five most recently developed feeder
pig production facilities and of the one comparable facility which is in a
preliminary stage of development. The Company has estimated the cost of
the land and land improvements required for each 2,450-sow facility to be
approximately $296,000 based on its anticipated land requirements and the
actual cost of the Company's recent land purchases. Included in the
Company's budget respecting the issuance and sale of all 54 Class B Shares
offered hereby is approximately $280,000 for the construction of ancillary
production buildings or residential facilities for use by facilities
operations personnel if sufficient housing is unavailable. Sites for the
one or more facilities to be developed with the proceeds of this offering
have not been selected by the Company. No assurances can be given that the
actual costs for the acquisition of the necessary land and the construction
of the facilities will not exceed the Company's estimates.
(4) The Company has budgeted approximately $625,000 for the acquisition of the
breeding stock required for each new 2,450-sow facility based on the
Company's recent acquisition costs for other breeding stock and the
Company's estimated cost of developing its own breeding stock from its
breeding stock multiplier herd. The actual cost of acquiring the necessary
breeding stock may exceed the Company's estimates.
(5) If the Company is successful in implementing its business plan and each new
weaned pig production facility is developed on schedule, the initial lots
of weaned pigs produced from such facility are not expected to be available
to Class B Common investor members for up to 11 to 13 months following
completion of the offering. The amounts shown represent costs and expenses
expected to be incurred and expended by the Company during construction of
the facility and the 45- to 60-day breeding stock acclimation period and
prior to shipment of the initial lots of weaned pigs. These amounts are
budgeted at approximately $360,000 for each new 2,450-sow facility and
include working capital for the payment of salaries, feed and veterinary
costs, utilities, insurance, overhead and administration, taxes, and
accounting and legal fees, among others. Amounts allocated to working
capital may be used for any of the purposes set forth above, as needed, or
for any other use that management for the Company determines to be in the
best interests of the Company.
CLASS C SHARES
The net proceeds to the Company from the sale of the Class C Shares offered
hereby, after deducting expenses payable in connection with this offering, are
estimated to be approximately $940,000 if one Minimum Class B Block of 24 Class
C Shares is sold and approximately $3,100,000 if all 72 Class C Shares offered
hereby are sold. The Company intends to use the net proceeds from the sale of
each Minimum Class C Block, together with approximately $2,160,000 of term debt
borrowings for which the Company seeks to obtain a commitment with respect to
each such Minimum Class C Block, for the development of one new weaned pig
production facility to be situated in or around Yuma County, Colorado, Wayne
County, Illinois or other locations selected by the Company, including the
purchase of real estate, the construction of the facility, and the acquisition
of breeding stock, and the demands for working capital during the initial start-
up period for the facility. If all 72 Class C Shares offered hereby are sold,
the net proceeds to the Company, together with approximately $6,480,000 of term
debt borrowings, will be used for the development of three 2,450-sow weaned pig
production facilities. Each new weaned pig production facility may be developed
in tandem with, or as a part of, one or more other facilities.
The allocation of the offering proceeds from the sale of the Class C Shares
offered hereby and term debt borrowings among the uses set forth below
represents the Company's present intention on the basis of circumstances at the
date of this Prospectus. Unforeseen changes in circumstances may result in the
reallocation of such proceeds and term debt borrowings among the uses mentioned
below or to other presently unexpected uses. Pending use of the net proceeds
from the sale of the Class C Shares offered hereby for the purposes set forth
herein, such proceeds will be invested in short-term certificates of deposit or
other interest bearing instruments. The following summary of use of proceeds
does not include any interest income earned on the investment of the net
proceeds from this offering, which income would be added to the Company's
working capital as it is earned.
<TABLE>
<CAPTION>
MINIMUM ENTIRE
OFFERING OFFERING
(24 SHARES) (72 SHARES)*
<S> <C> <C>
SOURCE OF FUNDS:
Gross Proceeds of Offering $ 1,080,000 $ 3,240,000
Less Offering Costs (1) 140,000 140,000
Net Proceeds of Offering 940,000 3,100,000
Term Debt Borrowings (2) 2,160,000 6,480,000
Total Funds Available $ 3,100,000 $ 9,580,000
USE OF FUNDS:
Real Estate and Facilities Construction (3) $ 2,115,000 $ 6,625,000
Breeding Stock (4) 625,000 1,875,000
Project Development Costs and
Working Capital (5) 360,000 1,080,000
Total Facilities Development Costs $ 3,100,000 $ 9,580,000
</TABLE>
(1) Offering costs consist of offering agent commissions and expenses, legal
and accounting fees, filing fees, printing costs and other miscellaneous
expenses.
(2) The Company anticipates that in connection with the development of each new
weaned pig production facility, it will require at least $2,160,000 in
addition to the net proceeds from this offering. Accordingly, the
consummation of the issuance and sale of each Minimum Class C Block of 24
Class C Shares will be conditioned upon and subject to the Company
obtaining a commitment for at least $2,160,000 of term debt borrowings. As
of the date of this Prospectus, the Company is engaged in negotiations with
a lender to obtain a commitment for the necessary weaned pig production
loans. No assurances can be given that the Company will be able to obtain
such commitment on favorable terms, if at all. See "Business--Financing."
(3) The Company has budgeted approximately $2,115,000 for completion of the
physical facilities for each new 2,450-sow weaned pig production facility,
which may be developed in tandem with, or as a part of, one or more other
facilities. As presently proposed, the construction of each new weaned pig
facility, including breeding, gestation, farrowing, nursery and attendant
office buildings and related equipment, is estimated to cost approximately
$1,819,000, plus the cost of the land and land improvements. This estimate
is based on estimates of construction costs furnished to the Company in
connection with the construction of its five most recently developed feeder
pig production facilities and of the one comparable facility which is in a
preliminary stage of development. The Company has estimated the cost of
the land and land improvements required for each 2,450-sow facility to be
approximately $296,000 based on its anticipated land requirements and the
actual cost of the Company's recent land purchases. Included in the
Company's budget respecting the issuance and sale of all 72 Class C Shares
offered hereby is approximately $280,000 for the construction of ancillary
production buildings or residential facilities for use by facilities
operations personnel if sufficient housing is unavailable. Sites for the
one or more facilities to be developed with the proceeds of this offering
have not been selected by the Company. No assurances can be given that the
actual costs for the acquisition of the necessary land and the construction
of the facilities will not exceed the Company's estimates.
(4) The Company has budgeted approximately $625,000 for the acquisition of the
breeding stock required for each new 2,450-sow facility based on the
Company's recent acquisition costs for other breeding stock and the
Company's estimated cost of developing its own breeding stock from its
breeding stock multiplier herd. The actual cost of acquiring the necessary
breeding stock may exceed the Company's estimates.
(5) If the Company is successful in implementing its business plan and each new
weaned pig production facility is developed on schedule, the initial lots
of weaned pigs produced from such facility are not expected to be available
to Class C Common investor members for up to 11 to 13 months following
completion of the offering. The amounts shown represent costs and expenses
expected to be incurred and expended by the Company during construction of
the facility and the 45- to 60-day breeding stock acclimation period and
prior to shipment of the initial lots of weaned pigs. These amounts are
budgeted at approximately $360,000 for each new 2,450-sow facility and
include working capital for the payment of salaries, feed and veterinary
costs, utilities, insurance, overhead and administration, taxes, and
accounting and legal fees, among others. Amounts allocated to working
capital may be used for any of the purposes set forth above, as needed, or
for any other use that management for the Company determines to be in the
best interests of the Company.
PATRONAGE DISTRIBUTION POLICY
No dividends have been, or will be, paid by Alliance on its Common Stock.
The Company intends to distribute, however, at least annually, all of its net
margins, if any, as patronage distributions to its stockholders on the basis of
the quantity or value of business done by the Company with or for each
stockholder with respect to pigs sold pursuant to the Feeder Pig Purchase
Agreements, Weaned Pig Agreements or the Swine Production Services Agreement.
The Company's "net margins" for this purpose generally are equal to the
Company's net income under generally accepted accounting principles (taxable
income through and including August 31, 1997) attributable to patronage sourced
business done with or for the Company's members (determined before reduction for
patronage distributions paid by the Company). In this regard, the Company will
compute its net income or taxable income, as the case may be, separately for
each group of members (including successors and permitted assigns) whose shares
of the Company's Common Stock originally were issued in connection with the
Company's acquisition or development of one or more feeder or weaned pig
production units financed in part thereby. A stockholder's share of the
Company's net margins will be payable to him or her after the close of each
fiscal year. The Company's Board of Directors has the right to pay the
patronage distribution in qualified written notices of allocation, non-qualified
written notices of allocation, cash or any combination thereof. The written
notices of allocation will be issued in the form of Alliance capital credits.
The extent of the cash portion of the patronage distributions will be determined
annually and will depend upon the Company's financial condition, results of
operation, capital commitments and other factors deemed relevant by the Board of
Directors. The Company has entered into various loan agreements and other
documentation with its existing lender which restrict the Company's ability to
pay patronage distributions in cash. See "Business--Financing" and "-- Federal
Income Taxation." The Company's Board of Directors authorized, with the consent
and approval of CoBank, the payment of a $670,167 rebate to its members with
respect to feeder pigs sold to such members by Alliance during the fiscal year
ended August 31, 1996. After the payment of this rebate, the Company does not
intend to make any future rebate payments to its members.
CAPITALIZATION
The following tables set forth the capitalization of the Company as of
February 28, 1997, as adjusted to give effect to the full advancement of the
remaining $142,000 of funds then available under the Company's existing credit
facility, and as further adjusted to give effect to the sale of the minimum of
17 Class A Shares, 18 Class B Shares and 24 Class C Shares, respectively, the
maximum of 51 Class A Shares, 54 Class B Shares and 72 Class C Shares,
respectively, and all 177 Shares offered hereby, the repayment of the non-
revolving term loan obtained from Farmland with respect to Alliance's
development of its second Illinois facility and the Company's anticipated
borrowing of at least $2,720,000 of term debt with respect to the sale of the
minimum of 17 Class A Shares and of at least $8,160,000 of term debt with
respect to the sale of the maximum 51 Class A Shares offered hereby, for which
borrowings the Company seeks to obtain a commitment from its existing lender,
the Company's anticipated borrowing of at least $2,160,000 of term debt with
respect to the sale of the minimum of 18 Class B Shares and of at least
$6,480,000 of term debt with respect to the sale of the maximum 54 Class B
Shares offered hereby, for which borrowings the Company seeks to obtain a
commitment, and the Company's anticipated borrowing of at least $2,160,000 of
term debt with respect to the sale of the minimum of 24 Class C Shares and of at
least $6,480,000 of term debt with respect to the sale of the maximum 72 Class C
Shares offered hereby, for which borrowings the Company seeks to obtain a
commitment. As of the date of this Prospectus, the Company has obtained a
commitment until August 31, 1997 for the approximately $2,720,000 of debt
financing required with respect to each Minimum Class A Block of Class A Shares
offered hereby. These tables should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes thereto and other information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1997
AS FURTHER ADJUSTED FOR THE OFFERING(2)
MINIMUM
AS ADJUSTED
ACTUAL FOR BANK DEBT CLASS A CLASS B CLASS C
<S> <C> <C> <C> <C> <C>
Debt(1)....... $13,700,124 $13,842,124 $16,562,124 $16,002,124 $16,002,124
Stockholders' equity:
Common stock, $.01
par value; 5,000 shares
authorized (102 shares
issued; 102 shares issued,
as adjusted; and 119 shares
issued, as further adjusted
(minimum) ... 1 1 1 1 1
Class B Common stock, $.01
par value; 2,500 shares
authorized (zero shares
issued; zero shares issued,
as adjusted; and 18 shares
issued, as further adjusted
(minimum) ...
Class C Common stock, $.01
par value; 2,500 shares
authorized (zero shares
issued; zero shares issued,
as adjusted; and 24 shares
issued, as further adjusted
(minimum) ...
Additional paid-in
capital 7,487,653 7,487,653 8,707,653 8,427,653 8,427,653
Deficit (2,876,898) (2,876,898) (2,876,898) (2,876,898) (2,876,898)
Total stockholders'
equity 4,610,756 4,610,756 5,830,756 5,550,756 5,550,756
Total capitalization $18,310,880 $18,452,880 $22,392,880 $21,552,880 $21,552,880
</TABLE>
(1) On May 19, 1995, the Company entered into various loan
documents with CoBank related to a $23,600,000 secured credit
facility. This credit facility provides for up to $18,850,000 of
non-revolving term debt and $4,750,000 of revolving term credit.
The unused portion of the credit facility expires August 31, 1997
(extended from the original February 28, 1997 expiration date) with
respect to the non-revolving term debt and June 20, 2006 with
respect to the revolving term credit. As of the date of this
Prospectus, the Company intends to enter into negotiations with
CoBank to obtain an extension of the CoBank loan or to obtain a
commitment for a new loan after the August 31, 1997 expiration of
the existing CoBank loan commitment. No assurances can be given
that such negotiations will be successful and that such commitment
will be obtained on favorable terms, if at all. The Company
borrowed $760,000 from Farmland in August 1996 in order to purchase
certain real property in Yuma County, Colorado. As of February 28,
1997, the outstanding balance of loans made by CoBank under the
credit facility was $13,922,000, and the outstanding balance of the
Farmland loan was $816,424. Amounts shown in the As Adjusted
column assume that all funds available from the CoBank credit
facility and the Farmland loan have been advanced, and amounts
shown in the As Further Adjusted columns assume that all funds from
the anticipated borrowing of non-revolving term debt and revolving
term credit in connection with this offering have been advanced.
(2) Net of offering costs.
<TABLE>
<CAPTION>
AS OF FEBRUARY 28, 1997
AS FURTHER ADJUSTED FOR THE OFFERING(2)
MAXIMUM
AS ADJUSTED ALL THREE
ACTUAL FOR BANK DEBT CLASS A CLASS B CLASS C CLASSES
<S> <C> <C> <C> <C> <C> <C>
Debt(1)...... $13,700,124 $13,842,124 $22,002,124 $20,322,124 $20,322,124 $34,962,124
Stockholders' equity:
Common stock, $.01
par value; 5,000 shares
authorized (102 shares
issued; 102 shares
issued, as adjusted;
and 153 shares issued,
as further adjusted 1 1 2 1 1 2
(maximum) ..
Class B Common stock,
$.01
par value; 2,500 shares
authorized (zero shares
issued; zero shares
issued, as adjusted;
and 54 shares issued, 1 1
as further adjusted
(maximum) ..
Class C Common stock,
$.01
par value; 2,500 shares
authorized (zero shares
issued; zero shares
issued, as adjusted; and
72 shares issued, as 1 1
further adjusted
(maximum)...
Additional paid-in
capital .. 7,487,653 7,487,653 11,427,652 10,587,652 10,587,652 17,907,650
Deficit (2,876,898) (2,876,898) (2,876,898) (2,876,898) (2,876,898) (2,876,898)
Total stockholders' 4,610,756 4,610,756 8,550,756 7,710,756 7,710,756 15,030,756
equity ............
Total capitalization $18,310,880 $18,452,880 $30,552,880 $28,032,880 $28,032,880 $49,992,880
</TABLE>
(1) On May 19, 1995, the Company entered into various loan
documents with CoBank related to a $23,600,000 secured credit
facility. This credit facility provides for up to $18,850,000 of
non-revolving term debt and $4,750,000 of revolving term credit.
The unused portion of the credit facility expires August 31, 1997
(extended from the original February 28, 1997 expiration date) with
respect to the non-revolving term debt and June 20, 2006 with
respect to the revolving term credit. As of the date of this
Prospectus, the Company intends to enter into negotiations with
CoBank to obtain an extension of the CoBank loan or to obtain a
commitment for a new loan after the August 31, 1997 expiration of
the existing CoBank loan commitment. No assurances can be given
that such negotiations will be successful and that such commitment
will be obtained on favorable terms, if at all. The Company
borrowed $760,000 from Farmland in August 1996 in order to purchase
certain real property in Yuma County, Colorado. As of February 28,
1997, the outstanding balance of loans made by CoBank under the
credit facility was $13,922,000, and the outstanding balance of the
Farmland loan was $816,424. Amounts shown in the As Adjusted
column assume that all funds available from the CoBank credit
facility and the Farmland loan have been advanced, and amounts
shown in the As Further Adjusted columns assume that all funds from
the anticipated borrowing of non-revolving term debt and revolving
term credit in connection with this offering have been advanced.
(2) Net of offering costs.
SELECTED FINANCIAL DATA
The selected historical financial information presented below reflects the
fiscal 1996 and 1995 operations of Alliance, and the fiscal 1994 combined
operations of Yuma LLC from September 1, 1993 through July 8, 1994 and of
Alliance from July 9, 1994 through August 31, 1994. Such financial information
under the captions "Statement of Operations Information" and "Balance Sheet
Information" as of and for the fiscal years ended August 31 is derived from the
financial statements of Alliance for the period from inception (July 9, 1994)
through August 31, 1996 and from the financial statements of Yuma LLC for the
period from September 1, 1993 to July 8, 1994, all of which have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. The summary
historical financial information as of February 28, 1997, and for the six months
ended February 28, 1997 and February 29, 1996 is derived from the unaudited
financial statements of Alliance. In the opinion of the Company, such interim
financial information includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for such
interim periods. In the opinion of management, the financial condition and
results of operations set forth herein cannot be relied upon as being
representative of the continuing prospects for the Company. The following
selected financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements and related notes thereto and other information
included elsewhere in this Prospectus.
STATEMENT OF OPERATIONS
INFORMATION:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31, SIX MONTHS ENDED FEBRUARY 28,
1996 1995 1994 1997 1996
<S> <C> <C> <C> <C> <C>
Net sales $ 7,037,927 $ 1,554,113 $ 2,309,319 $ 6,519,998 $ 2,871,276
Cost of goods sold 6,422,838 1,836,388 1,912,268 5,549,049 3,008,706
Gross income (loss) 615,089 (282,275) 397,051 970,949 (137,430)
Expenses related to start-up of 426,926 754,756 B 75,668 B
new facilities and conversion of
existing facility
Administrative expenses 369,787 101,927 36,629 214,996 170,565
Loss on sale of breeding stock 226,738 112,797 56,474 81,020 170,537
Operating income (loss) (408,362) (1,251,755) 303,948 599,265 $ (478,532)
Interest expense (1,001,329) (289,082) (1,375) (680,584) (439,320)
Other income 66,604 27,509 28,246 85,786 7,574
(934,725) (261,573) 26,871 (594,798) (431,746)
Net income (loss) $ (1,343,087) $(1,513,328) $ 330,819 $ 4,467 $ (910,278)
OTHER INFORMATION:
Pigs Sold 148,926 46,858 46,014 112,800 67,241
<CAPTION>
AS OF AUGUST 31, AS OF FEBRUARY 28,
BALANCE SHEET INFORMATION: 1996 1995 1994 1997
<S> <C> <C> <C> <C>
Working Capital (Deficit) $ (257,702) $ 1,238,271 $ 1,980,861 $ (1,139,041)
Total Assets 20,845,613 14,571,940 5,322,834 22,344,378
Shareholders' Equity 4,606,289 4,627,693 4,860,610 4,610,756
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company commenced operations in July, 1994, following its acquisition
of the entire equity ownership rights and interest in Yuma LLC, a Colorado
limited liability company in which Farmland and Yuma Cooperative owned 71.5% and
28.5%, respectively, of the outstanding equity interests. Subsequent to the
Company's acquisition of Yuma LLC, Yuma LLC was dissolved and liquidated and
Alliance received all assets and liabilities of Yuma LLC and continued the
feeder pig production operations of Yuma LLC as described herein. As a result
of these transactions, a portion of the financial information presented herein
relates to the financial condition and results of operations of Yuma LLC. The
results of operations for the year ended August 31, 1994 are principally those
of Yuma LLC, but also include the results of operations of the Company from July
9, 1994 to August 31, 1994. The results of operations for the years ended
August 31, 1996 and 1995, respectively, and the six months ended February 28,
1997 and 1996, respectively, are entirely the results of operations of the
Company. Unlike Yuma LLC, Alliance was burdened with debt financing costs
during the development and start-up of its feeder pig production facilities. In
addition, Alliance generally produces feeder pigs of lighter weight than those
of Yuma LLC, and sells its feeder pigs at prices lower than the price at which
Yuma LLC sold its feeder pigs.
THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
Shipments of feeder pigs were higher for the three months ended February
28, 1997 than in the prior year's period. Alliance shipped 57,746 feeder pigs
for the quarter ended February 28, 1997 compared to 33,290 feeder pigs shipped
for the quarter ended February 29, 1996 for an increase of 73%. Net sales for
the quarter ended February 28, 1997 increased to $3,316,983 from $1,443,563 for
the prior year period, an increase of $1,873,420, or 130%. The selling price
per pig is determined pursuant to the formula established under Alliance's
Feeder Pig Purchase Agreements with its members. The selling price is based on
Alliance's operating costs (which are based on a twelve month rolling average),
debt service and an additional $4.50 per pig. The above increase in volume and
sales dollars is a result of having six units in production for the quarter
ended February 28, 1997 as compared to four units in production for the quarter
ended February 29, 1996. The sales price per pig pursuant to the Feeder Pig
Purchase Agreement also was higher due to an increase in the twelve month
rolling average of operating costs. This increase in the rolling average of
operating costs resulted from a decline in feeder pigs shipped per unit.
Additionally, a sales rebate of $148,230 was accrued during the quarter ended
February 29, 1996 which reduced net sales. During the three months ended
February 28, 1997, Alliance did not accrue the sales rebate of $4.50 per pig
shipped due to Alliance's decision to no longer pay a sales rebate. Average net
sales price was $57.44 and $43.36 during the quarter ended February 28, 1997 and
February 29, 1996, respectively.
Alliance incurred positive gross margins of $347,397 and $12,609 for the
three month periods ended February 28, 1997 and February 29, 1996, respectively.
This improvement in gross margin is primarily due to the nature of the
contractual pricing arrangements applicable to Alliance's sale of feeder pigs to
its members. As previously described, the selling price is based on, among
other things, Alliance's operating costs on a twelve month historical rolling
average. For the second quarter of fiscal 1997, Alliance's net sales price
exceeded then current operating costs (at the time pigs were shipped) by $14.37
per pig sold. For the second quarter of fiscal 1996, the net sales price
exceeded then current operating costs (at the time pigs were shipped) by $7.19
per pig sold.
Sales to Farmland for the three month periods ended February 28, 1997 and
February 29, 1996 were $1,956,704 and $972,066 respectively. The average net
sales price per head was $57.44 and $43.36 and the average industry market price
per head was $56.20 and $34.66 during 1997 and 1996, respectively.
Loss on sale of breeding stock was $21,362 for the three months ended
February 28, 1997 as compared to $96,146 for the prior year period. This
decrease is attributable to the existence of more newly developed facilities
culling animals during the second quarter of fiscal 1996 as compared to more
mature facilities culling animals during the second quarter of fiscal 1997.
Administrative expenses were $122,027 for the three months ended February
28, 1997 compared to $96,898 for the prior year period. This increase reflects
the increased operations and includes higher administrative, payroll and
professional fees.
Interest expense of $357,932 for the three months ended February 28, 1997
as compared to $222,744 for the prior year period, was incurred in financing the
development of four existing and two new feeder pig facilities. This increase
is primarily due to the increase in the outstanding loan balance. As of
February 28, 1997, Alliance had borrowed $13,922,000 from CoBank for
construction and start up costs and $816,424 from Farmland for the purchase of
land which is intended to be used for future expansion.
Alliance incurred a net loss of $110,670 for the three months ended
February 28, 1997 compared to a net loss of $397,770 for the prior year period.
The net loss for the second quarter of fiscal 1997 was attributable to the
current costs exceeding the rolling average cost that per pig sales prices are
based on, caused by a decrease in productivity from the first quarter of fiscal
1997 due to herd health issues, partially offset by decreasing corn prices. The
net loss for the second quarter of fiscal 1996 was attributable primarily to
then current costs exceeding the rolling average cost that per pig sales prices
are based on, caused in part by high death loss due to herd health issues, as
well as rising corn prices. In addition to operating risks and uncertainties
associated with any business, Alliance's ability to generate net income is
limited by any start-up expenses that are incurred with respect to facilities
development and by the selling price formula feeder pigs that contains a $4.50
production margin.
SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
Shipments of feeder pigs were higher for the six months ended February 28,
1997 than in the prior year's period. Alliance shipped 112,800 feeder pigs for
the six months ended February 28, 1997 compared to 67,241 feeder pigs shipped
for the six months ended February 29, 1996 for an increase of 68%. Net sales
for the six months ended February 28, 1997 increased to $6,519,998 from
$2,871,276 for the prior year period, an increase of $3,648,722 or 127%. The
selling price per pig is determined pursuant to the formula established under
Alliance's Feeder Pig Purchase Agreements with its members. The selling price
is based on Alliance's operating costs (which are based on a twelve month
rolling average), debt service and an additional $4.50 per pig. The above
increase in volume and sales dollars is primarily due to six units operating at
full capacity for the six months ended February 28, 1997 as compared to four
units operating at full capacity for the six months ended February 29, 1996.
The sales price per pig pursuant to the Feeder Pig Purchase Agreement also was
higher due to an increase in the twelve month rolling average of operating
costs. Additionally, a sales rebate of $301,010 was accrued during the six
months ended February 29, 1996 which reduced net sales. During the six months
ended February 28, 1997, Alliance did not accrue the sales rebate of $4.50 per
pig shipped due to Alliance's decision to no longer pay a sales rebate. Average
net sales price was $57.80 and $43.07 during the six months ended February 28,
1997 and February 29, 1996, respectively.
Alliance incurred a positive gross margin of $970,949 and a negative gross
margin of $137,430 for the first half of fiscal 1997 and fiscal 1996,
respectively. This improvement in gross margin is primarily due to the nature
of the contractual pricing arrangements applicable to Alliance's sale of feeder
pigs to its members. As previously described, the selling price is based on,
among other things, Alliance's operating costs on a twelve month historical
rolling average. For the first half of fiscal 1997, Alliance's net sales price
exceeded then current operating costs (at the time pigs were shipped) by $14.73
per pig sold. For the first half of fiscal 1996, the net sales price exceeded
then current operating costs (at the time pigs were shipped) by $6.90 per pig
sold.
Sales to Farmland for the first half of fiscal 1997 and 1996 were
$3,961,082 and $1,945,808 respectively. The average net sales price per head
was $57.80 and $43.07 and the average industry market price per head was $53.99
and $35.73 during 1997 and 1996, respectively.
Loss on sale of breeding stock was $81,020 for the six months ended
February 28, 1997 as compared to $170,637 for the prior year period. This
decrease is attributable to the existence of more newly developed facilities
culling animals during the first half of fiscal 1996 as compared to more mature
facilities culling animals during the first half of fiscal 1997.
Administrative expenses were $214,996 for the six months ended February 28,
1997 compared to $170,565 for the prior year period. This increase reflects the
increased operations and includes higher administrative, payroll and
professional fees.
Interest expense of $680,584 for the six months ended February 28, 1997 as
compared to $439,320 for the prior year period, was incurred in financing the
development of four existing and two new feeder pig facilities. This increase
is primarily due to the increase in the outstanding loan balance.
Alliance incurred net income of $4,467 for the six months ended February
28, 1997 compared to a net loss of $910,278 for the prior year period. The
small net income for the first half of fiscal 1997 was partially attributable to
an improvement in productivity at the beginning of the fiscal year which
decreased throughout the first half of fiscal 1997 due to herd health issues,
offset by decreasing corn prices. The net loss for the first half of fiscal
1996 was attributable primarily to then current costs exceeding the rolling
average cost that per pig sales prices are based on, caused in part by high
death loss due to herd health issues, as well as rising corn prices.
Additionally, Alliance's net sales price for pigs exceeded current operating
costs in the first half of fiscal 1997 by $7.83 more than in the first half of
fiscal 1996. Alliance also accrued a $301,010 rebate in the first half of
fiscal 1996 that was not accrued in the first half of fiscal 1997.
FISCAL YEARS ENDED AUGUST 31, 1996 AND 1995.
Shipments of feeder pigs were higher for the fiscal year ended August 31,
1996 than in the prior year=s period. Alliance shipped 148,926 feeder pigs
during fiscal 1996 compared to 46,858 feeder pigs shipped during fiscal 1995, an
increase of approximately 218%. Net sales for the fiscal year ended August 31,
1996 increased to $7,037,927 from $1,554,113 for the prior year, an increase of
$5,438,814 or approximately 350%. This increase in volume and sales dollars is
primarily due to four units operating for the fiscal year ended August 31, 1996
versus one unit for the fiscal year ended August 31, 1995 and the change in
Alliance's contract price, effective July 13, 1995, to include $4.50 per pig in
addition to the financing cost and operating cost on which the price was
previously based.
Alliance=s sales for the fiscal year ended August 31, 1996 have been
reduced by the accrual of a rebate of $670,167 that is intended to be paid to
its members with respect to feeder pigs sold to such members by Alliance during
such fiscal year. See "Patronage Distribution Policy." Alliance incurred a
positive gross margin of $615,089 and a negative gross margin of $282,275 for
fiscal 1996 and 1995, respectively. This improvement in gross margin is
primarily due to the nature of the contractual pricing arrangements applicable
to the Company's sale of feeder pigs to its members. The selling price for
Alliance's feeder pigs is based on, among other things, the 12-month rolling
average of operating costs per pig. For the fiscal year ended August 31, 1996,
the Company's operating costs at the time pigs were sold (the then current
operating costs) exceeded the historical rolling average of operating costs by
$0.09 per head sold. For the fiscal year ended August 31, 1995, the Company's
then current operating costs exceeded the historical rolling average of
operating costs by $6.37 per head sold. The substantial difference between
fiscal 1995's then current operating costs and historical rolling average
operating costs is principally due to Alliance's culling of a greater portion of
its herd than is customary in order to accommodate their replacement with
multiplier unit animals, in addition to the resulting decline in production.
Sales to Farmland (including sales to Farmland of Yuma Cooperative's share
of feeder pigs produced by the Company) for fiscal 1996 and 1995 were $5,035,160
and $1,467,069, respectively. The average net sales price per head was $48.12
and $33.16 and the average industry market price per head was $41.15 and $32.17
during 1996 and 1995, respectively.
Alliance recorded start-up costs of $426,926 and $754,756 relating to the
operation of new production facilities during the fiscal years ended August 31,
1996 and 1995, respectively, and conversion of the existing unit to a multiplier
unit during the fiscal year ended August 31, 1995. All costs for the fiscal
year ended August 31, 1996 and $647,751 of the costs for the fiscal year ended
August 31, 1995 were comprised of utilities, feed, labor and other general
expenses prior to the operation of the new feeder pig production facilities, and
$107,005 of the costs for the fiscal year period ended August 31, 1995 were
attributable to the conversion of the existing 2,450-sow feeder pig unit from a
commercial sow unit to a multiplier sow unit.
Loss on sale of breeding stock was $226,738 for the fiscal year ended
August 31, 1996 as compared to $112,797 for the prior year period. This
increase is attributable to the existence of newly developed facilities in
fiscal 1995, from which culling of animals was not necessary until near the end
of that fiscal year, as compared to more mature facilities in fiscal 1996, from
which culling of animals occurred throughout that fiscal year.
Administrative expenses were $369,787 for the fiscal year ended 1996
compared to $101,927 for the prior year period. This increase reflects the
increased operations and includes higher administrative, payroll and
professional fees.
Interest expense of $1,001,329 for fiscal 1996 compared to $289,082 for
fiscal 1995 was incurred in financing the development of the four existing and
two new feeder pig production facilities.
Alliance incurred a net loss of $1,343,087 for the fiscal year ended August
31, 1996 compared to a net loss of $1,513,328 for the prior year period. The
fiscal 1996 loss was attributable to $426,926 of start-up expenses related to
the development of two feeder pig production facilities and a loss of $226,738
on the sale of breeding stock. The remaining amount of the net loss is
primarily attributable to current costs exceeding the rolling average cost that
per pig prices are base on, caused in part by high death loss due to herd health
issues, as well as rising corn prices. The fiscal 1995 loss was attributable to
$754,756 of start-up expenses related to facilities development and a loss of
$112,797 on the sale of breeding stock. In addition, the Company's operating
costs at the time pigs were sold during both fiscal 1996 and 1995 exceeded the
historical rolling average of operating costs from which the selling price for
pigs was based. During all of fiscal 1996, the selling price for Alliance's
feeder pigs was based on the 12-month rolling average of operating costs per
pig, the debt service financing cost per pig, and a $4.50 per pig production
margin. The Company accrued a $670,167 rebate, however, that is intended to
provide each member with a $4.50 payment per pig sold to such member during
fiscal 1996; thereby effectively eliminating the production margin. The $4.50
per pig production margin was not added to the price of feeder pigs sold during
fiscal 1995 until after July 13, 1995. In addition operating risks and
uncertainties associated with any business, the Company's ability to generate
net income is limited by any start-up expenses that are incurred with respect to
facilities development, by the Company's selling price formula for feeder pigs
that contains a $4.50 production margin, and by the possible return of all or a
portion of such rebate to the Company's members.
FISCAL YEARS ENDED AUGUST 31, 1995 AND 1994.
Shipments of feeder pigs from the Company's feeder pig production
facilities were sustained at approximately the same level for the fiscal year
ending August 31, 1995 as were made in the prior fiscal year. The Company
shipped 46,858 feeder pigs in the fiscal year ended August 31, 1995 as compared
to 46,014 feeder pigs shipped in the prior fiscal year.
Although the level of production for fiscal 1995 was comparable to that for
fiscal 1994, net sales for fiscal 1995 declined to $1,554,113 from $2,309,319
for the prior year period, a decline of $755,206 or approximately 32.7%. This
decline resulted from a reduction in the average selling price of feeder pigs
from $51.04 per pig in fiscal 1994 to $33.16 in fiscal 1995. In addition, the
selling price per pig for approximately ten months of fiscal 1995 was determined
pursuant to the formula established under the Company's Interim Feeder Pig
Purchase Agreements with Farmland and Yuma Cooperative, which selling price is
substantially less than would have been obtained under the feeder pig marketing
agreement to which Yuma LLC was a party in fiscal 1994. Finally, the Company
currently markets a feeder pig of lighter weight than that previously marketed
by Yuma LLC in fiscal 1994, which further accounts for the reduction in the
sales price per pig. The decline in net sales more than offset the $75,880
reduction in cost of goods sold from $1,912,268 in fiscal 1994 to $1,836,388 in
fiscal 1995.
In fiscal 1995, the Company incurred expenses of $754,756 related to the
start-up of three feeder pig production facilities and the conversion of the
existing facility to a multiplier unit. The start-up costs attributable to the
three new facilities, including utilities, feed, labor and other expenses,
accounted for $647,751 and the remaining $107,005 was due to the conversion of
an existing feeder pig facility to a multiplier unit and the related replacement
of commercial sows with more expensive multiplier sows. This conversion began
in August 1994 and was substantially complete in January 1995. Productivity
declined to an average of 17.4 feeder pigs per sow in inventory for fiscal 1995
from an average of 18.8 feeder pigs per sow in the prior fiscal year as the
Company culled a greater portion of its herd than was customary in order to
accommodate their replacement with multiplier unit animals. This herd culling
also accounts for the increased loss on sale of breeding stock from $56,474 for
the year ended August 31, 1994 to $112,797 for fiscal 1995. With the completion
of the facility conversion, management is hopeful that productivity and loss on
sale of breeding stock levels will be comparable to fiscal 1994 levels. No
start-up and conversion expenses were incurred by the Company in fiscal 1994.
Administrative expenses were $101,927 for the year ended August 31, 1995 as
compared to $36,629 for the prior fiscal year. This increase was attributable
to $26,932 of amortization expenses for organizational costs and loan
origination fees, $33,102 of legal fees and $41,893 of miscellaneous expenses,
including administrative employee salaries and office equipment lease payments.
Interest expense was $289,082 for the year ended August 31, 1995 as
compared to $1,375 for the prior year period. Interest for the year ended
August 31, 1995 was due to interest incurred on financing the construction of
three feeder pig production facilities. After repaying the remaining balance of
its long-term debt in October, 1993, the Company had no long-term indebtedness
for the remainder of fiscal 1994. As of August 31, 1995 Alliance had borrowed
$9,165,000 from CoBank.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1997, the Company reported a working capital deficit of
$1,139,041 and total assets of $22,344,378. The Company issued 17 shares of
Class A Common in October 1995 for net proceeds of approximately $1,324,461.
The Company used these funds, in combination with $3,219,899 of net proceeds
from previous sales of Class A Common and borrowings of $14,738,424 through
February 28, 1997, for the development, population, and start-up of five feeder
pig production facilities in Yuma County, Colorado and one feeder pig production
facility in Wayne County, Illinois.
As of the date of this Prospectus, the Company has 102 shares of Class A
Common issued and outstanding and no issued and outstanding shares of Class B
Common or Class C Common, and is offering an additional 51 Class A Shares, 54
Class B Shares and 72 Class C Shares to qualified prospective investors. As of
February 28, 1997, $142,000 was immediately available to Alliance under its
credit facility with CoBank. JWA[2]An additional $211,000 of term loans is to
became available approximately 90 days following completion of construction of
the Company's first Illinois facility (anticipated to occur in May 1997). In
the opinion of management, these arrangements for debt capital are adequate for
Alliance=s present operating and capital plans. In the event that an additional
51 shares of Class A Common are issued and sold prior to the August 31, 1997
expiration of the CoBank loan commitment, another $8,160,000 would be eligible
for borrowing. The net proceeds from any such sale of Class A Common, together
with such additional borrowings, would be used for future capital expansion of
up to three additional feeder pig production facilities, including the Company's
second facility in Wayne County, Illinois. There can be no assurance that any
additional shares of Class A Common will be sold and that the additional
borrowing required for such capital expansion would be available. As of the
date of this Prospectus, the Company intends to enter into negotiations with
CoBank to obtain an extension of the CoBank loan and to obtain a commitment for
a new loan with respect to the offering of Class B Common and Class C Common and
to take the place of the existing CoBank loan commitment that is scheduled to
expire on August 31, 1997. No assurances can be given that such negotiations
will be successful and that such commitments will be obtained on favorable
terms, if at all.
During the six months ended February 28, 1997, Alliance made capital
expenditures of $516,764 for the construction of its fifth feeder pig production
facility in Yuma County, Colorado and its first feeder pig production facility
in Wayne County, Illinois, as well as capital expenditures of $399,650 for the
acquisition of real property on which additional facilities could be developed,
and capital expenditures of $900,271 for the construction of its second feeder
pig production facility in Wayne County, Illinois. The remaining capital
expenditures were for replacement of breeding stock and the completion of
construction related to the Company's first four facilities.
The Company has commenced development of a second feeder pig production
facility in Wayne County, Illinois. Alliance estimates that an additional
$2,300,000 of facilities development costs will be incurred before the facility
is operating at full capacity. As more fully described below, the Company has
agreed with CoBank and Farmland concerning the provision of the necessary
financing of such costs, which financing will consist of an advance of
$2,720,000 under the CoBank credit facility and a loan from Farmland of
$1,360,000 (including $200,000 previously loaned by Farmland to Alliance).
On May 19, 1995, the Company entered into various loan documents with
CoBank related to a $23,600,000 secured credit facility. This credit facility
provides for up to $18,850,000 of non-revolving term debt and $4,750,000 of
revolving term credit. Proceeds from the term debt may be used for construction
of feeder pig production facilities and are advanced by CoBank as construction
costs are incurred by Alliance. Proceeds from revolving term credit may be used
for working capital and other purposes. The actual advance of funds under this
credit facility is subject to the satisfaction of certain conditions precedent
and may be withdrawn or terminated by CoBank under certain circumstances. No
assurances can be given that the funding conditions precedent will be satisfied
and that the Company will be able to obtain sufficient financing when needed, or
that alternative sources of financing will be available on acceptable terms. In
addition, the unused portion of the credit facility expires August 31, 1997 with
respect to the non-revolving term debt and June 20, 2006 with respect to the
revolving term credit. As of the date of this Prospectus, the Company intends to
enter into negotiations with CoBank to obtain an extension of the CoBank loan or
to obtain a commitment for a new loan after the August 31, 1997 expiration of
the existing CoBank loan commitment. No assurances can be given that such
negotiations will be successful and that such commitment will be obtained on
favorable terms, if at all.
The availability of non-revolving term debt and revolving term credit under
the CoBank credit facility is subject to specified equity investment levels in
the Company being satisfied. The availability of $6,330,000 of unused term
loans and $1,830,000 of revolving term credit under the CoBank credit facility
is restricted and may be made available to the Company only to the extent that
additional equity investment is made in the Company. With respect to each
additional equity investment of $1,360,000 obtained by the Company (e.g., 17
shares of Common Stock sold for at least $80,000 each) prior to the August 31,
1997 expiration of the CoBank loan commitment, the Company is entitled to obtain
advances under the credit facility of $2,720,000 ($2,110,000 of term loans and
$610,000 of revolving term credit), up to an aggregate of $8,160,000. The
Company has agreed with CoBank and Farmland that it may obtain an advance under
the CoBank credit facility of $2,720,000 and a loan from Farmland of $1,360,000
(including $200,000 previously loaned by Farmland to Alliance), without the
necessity of satisfying the additional equity investment requirement. See
"Business--Financing."
Installments of principal and interest under the Company's credit facility
are payable monthly in arrears by the 20th day of the month. Principal payments
with respect to the initial $8.3 million of non-revolving term loans are to be
made in 114 monthly installments of $72,500 each, beginning January 20, 1996,
with the remaining unpaid balance being due and payable on July 20, 2005.
Principal payments pursuant to the loan terms with respect to each $2,100,000 of
new non-revolving term loans are to be made in monthly installments of $18,700
each, beginning on the 20th day of the eighteenth month following the date of
the initial advance of such $2,110,000 loan. Principal payments pursuant to the
loan terms with respect to the revolving term loan are to be made in 24 equal
monthly installments of the principal that is outstanding as of the June 20,
2006 expiration of the revolving loan commitment, beginning on the 20th day of
the month following the payment in full of the new non-revolving term loan (but
in no event later than March 20, 2008). Interest accrues on the outstanding
principal balance of the loan at a rate equal to either (i) a variable rate
equal to CoBank's then national variable rate plus 1.25%, or (ii) CoBank's then
quoted rates for fixed rate loans, as may be elected from time to time by the
Company. As of February 28, 1997, interest accrued on the outstanding principal
balance of the loan at a rate of 9.5% per annum (calculated by adding 125 basis
points to CoBank's national variable rate of 8.25% in effect as of such date).
See "Business--Financing."
During the course of the loan, the Company may be required to make equity
investments at a rate not to exceed 1% of the average five-year principal loan
balance (which equity investments may be satisfied out of CoBank's non-cash
patronage distributions) until the Company meets CoBank's target level of equity
investment, which currently is 11.5% of the Company's average five-year
principal loan balance. In addition, the Company is required to comply with
various affirmative and negative covenants, including but not limited to (i)
maintenance of at least $2,250,000 of equity, plus $550,000 of equity for each
facility developed by the Company after its initial four facilities (the Company
had $4,610,756 of equity as of February 28, 1997), (ii) maintenance of modified
working capital (calculated as current assets, plus available revolving term
credit, minus current liabilities (excluding the current portion of term debt
payments)) of at least $210,000, plus $98,000 of modified working capital for
each facility developed by the Company after its initial four facilities (the
Company had $41,259 of modified working capital as of February 28, 1997), (iii)
provision of monthly financial statements and audited annual financial
statements to CoBank, (iv) restrictions on the occurrence of additional
indebtedness, (v) restrictions on certain liens, mergers, sales of assets,
investments, guaranties, loans, advances and business activities unrelated to
existing operations, and (vi) restrictions on the declaration and payment of the
cash portion of patronage distributions and other distributions or allocations
of the Company's earnings, surplus or assets. The Company was in compliance
with each of these covenants as of February 28, 1997, except the modified
working capital covenant as to which the Company has obtained a waiver from
CoBank as of February 28, 1997. Management believes that Alliance will have the
ability to maintain compliance with the above covenants in the foreseeable
future. See "Business--Financing."
The Company intends to continue to operate its existing feeder pig
production facilities and sell feeder pigs produced therefrom. Funding of the
ongoing operation of its facilities will be provided from the sale of feeder
pigs and available working capital. The Company believes that such funding
sources are adequate for current operations. The Company also intends to
develop weaned pig production facilities and sell weaned pigs produced
therefrom. As of the date of this Prospectus, the Company has not obtained a
commitment from any lender for the provision of the requisite term debt
financing for such development efforts.
Cash used by Alliance in its operating activities totaled $280,449 during
the fiscal year ended August 31, 1996 compared with $1,045,286 in the prior year
period This decrease in cash used reflects the improvement in operations before
provision for depreciation and amortization and accrual for rebates offset in
part by increased inventories. Other major uses of cash include $8,808,888 for
capital additions or improvements, $1,366,333 for acquisition of additional
inventory and $580,000 for payments applied to the Company=s outstanding long
term debt. Cash provided by Alliance in its operating activities totaled
$2,132,967 for the six months ended February 28, 1997 compared with $286,505
used by Alliance in its operating activities in the prior year period. The
increase in cash provided by operating activities is primarily attributable to
the improvement in operations before the provision for depreciation and
amortization.
Major sources of cash for the fiscal year ended August 31, 1996 included
$1,321,683 received from the issuance and sale of 17 shares of the Company=s
Class A Common, $3,798,000 of long term debt, and an increase of $1,276,000 in
the Company=s revolving term credit.
INCOME TAXES
The Company is a Colorado cooperative association. Results of its
operations for the years ended August 31, 1996 and 1995 were a loss of
$1,343,087 and $1,513,328, respectively. Deferred income taxes have not been
provided, because all sales are to members and all future sales are anticipated
to be to members. Accordingly, no taxable income resulted for any of these
periods and no provision is made for income taxes by the Company.
INFLATION
Inflation is believed to have a relatively minor impact on the operations
of the Company. While certain costs, such as salaries, are affected by
inflation, the Company believes that the factors which most affect its results
of operations are the cost of feed and other inputs and the productivity of the
breeding stock herd which are each influenced by a variety of factors. Further,
the Company will sell its feeder and weaned pig production under terms which
cause the sales price of feeder pigs to be adjusted for changes in the cost of
production per unit, including increases in costs caused by inflation. The
precise impact of inflation on the Company's costs is not readily ascertainable.
RECENT ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 121 -- Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
("Statement 121") is effective for fiscal years beginning after December 15,
1995 (Alliance's 1997 fiscal year). Statement 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangible assets and goodwill related to those assets to be held and used and
for long-lived assets and certain identifiable intangibles to be disposed of.
The adoption of Statement 121 did not have a significant impact on Alliance=s
financial statements.
BUSINESS
GENERAL
The Company is a cooperative association engaged in the production of
feeder pigs for sale to its members who own shares of Class A Common, and
intends to engage in the production of weaned pigs for sale of its members who
own shares of Class B Common or Class C Common. The Company was formed as a
cooperative association under the laws of the state of Colorado on May 3, 1994,
but did not engage in any business activity until July, 1994. The Company's
predecessor, Yuma LLC, was formed in October, 1991 and commenced shipment of
feeder pigs in March, 1993. On July 13, 1994 (July 9, 1994 for accounting
purposes), the Company acquired the entire equity ownership rights and interests
in Yuma LLC from Farmland and Yuma Cooperative, and thereupon Yuma LLC was
dissolved and liquidated and its assets, liabilities and feeder pig production
operations were assigned to and assumed by Alliance. As of the date of this
Prospectus, the Company owned and operated five 2,450-sow feeder pig production
facilities located in Yuma County, Colorado (approximately 150 miles east of
Denver), one 2,450-sow feeder pig production facility located in Wayne County,
Illinois (approximately 100 miles east of St. Louis, Missouri), and was in the
process of developing one additional feeder pig facility of comparable size in
Wayne County, Illinois. See "Business--Expansion" and "Business--Facilities."
The Company's business strategy is to produce feeder and weaned pigs for
sale to its members at competitive prices by utilizing modern facilities,
management practices designed to maximize productivity and high quality
genetically consistent breeding stock. The Company intends to expand its
existing feeder pig production operations by using the net proceeds from the
sale of additional shares of its Class A Common, together with term debt
borrowings, to develop or acquire and thereafter operate additional 2,450-sow
feeder pig production facilities, and to develop weaned pig production
operations by using the net proceeds from the sale of shares of its Class B
Common or Class C Common, together with term debt borrowings, to develop or
acquire and thereafter operate 2,450-sow weaned pig production facilities. In
this regard, the Company intends to use the net proceeds from the sale of each
block of 17 shares of Class A Common, together with term debt borrowings, to
develop or acquire one such feeder pig production facility, to use the net
proceeds from the sale of each block of 18 shares of Class B Common, together
with term debt borrowings, to develop or acquire one such weaned pig production
facility, and to use the net proceeds from the sale of each block of 24 shares
of Class C Common, together with term debt borrowings, to develop or acquire one
such weaned pig production facility. Accordingly, the net proceeds from the
sale of the 51 Class A Shares offered hereby, together with term debt
borrowings, are intended to be used to develop and operate up to three
additional 2,450-sow feeder pig production facilities, the net proceeds from the
sale of the 54 Class B Shares offered hereby, together with term debt
borrowings, are intended to be used to develop and operate up to three 2,450-sow
weaned pig production facilities, and the net proceeds from the sale of the 72
Class C Shares offered hereby, together with term debt borrowings, are intended
to be used to develop and operate up to three 2,450-sow weaned pig production
facilities. As of the date of this Prospectus, the Company was in the process
of developing its second Illinois feeder pig production facility. The Company
intends to apply the net proceeds from the sale of the first Minimum Class A
Block of 17 Class A Shares offered hereby to the development of this facility,
including the repayment of up to $1,360,000 of any related debt financing,
together with interest thereon, provided by Farmland. See "Description of
Business--Financing."
Operation of the Company's facilities is the responsibility of the
management staff of the Company. The Company has contracted with Farmland to
provide certain administrative services to the Company, including accounting,
production record keeping, feed and other input purchasing, employee training,
and breeding stock replacement logistics. See "Business--Employees,"
"Management" and "Certain Relationships and Related Transactions."
The Company has entered into contractual arrangements with certain of its
members, including Farmland and Yuma Cooperative. Pursuant to the Swine
Production Services Agreement between the Company and Farmland, Farmland has
agreed to provide certain administrative, advisory and consulting services to
the Company. Pursuant to the Feed Purchase Agreement between the Company and
Yuma Cooperative, Yuma Cooperative has agreed to provide Alliance with feed-
grains and feed additives for the production of feed at Yuma Cooperative's
contract rates. Farmland and Yuma Cooperative, as members, have contracted to
purchase a share of the feeder pigs to be produced by the Company under the same
terms required of the Company's other members except that during the period
commencing on July 13, 1994 and ending on August 11, 1995, the date the Company
first produced and shipped feeder pigs pursuant to the Feeder Pig Purchase
Agreements with the Company's existing members, the price paid by Farmland and
Yuma Cooperative for feeder pigs was based only on the Company's operating cost
per pig; provided, however, that such price was increased by $4.50 per feeder
pig after July 13, 1995. Commencing on August 11, 1995, the date the Company
first produced and shipped feeder pigs pursuant to the Feeder Pig Purchase
Agreements with the Company's existing members (other than Farmland and Yuma
Cooperative), the price paid by Farmland and Yuma Cooperative for feeder pigs is
and will be under terms comparable to those applicable to the Company's members
pursuant to the Feeder Pig Purchase Agreements. Finally, the Company has agreed
to provide Farmland the first opportunity to purchase any feeder and weaned pigs
produced by the Company in excess of the Company's supply commitments to other
members or that other members have failed to purchase during the term of the
Swine Production Services Agreement (and in no event less than the five year
period ending July 13, 1999). The Company intends to cause any such excess
production of weaned pigs, however, to be retained by the Company for
developement into feeder pigs. See "Certain Relationships and Related
Transactions" and "Feeder Pig Purchase Agreement" and "Weaned Pig Purchase
Agreements."
Hog production is subject to substantial risks. Success is dependent upon
obtaining high levels of breeding stock productivity, controlling the cost and
efficiency of purchased feed and other inputs while minimizing herd exposure to
disease or other factors which can adversely impact the operation. See "Risk
Factors."
BUSINESS ENVIRONMENT
The pork industry has undergone substantial change in recent years, with
respect to the production and processing of hogs. The Company believes that
current economics of the industry favor large, well-capitalized hog producers,
which use consistent, high-quality breeding stock and employ management
practices designed to maximize productivity. As a result, hog production has
become increasingly differentiated between large-scale farrowing operations
producing feeder pigs and less capital intensive smaller-scale hog finishing
operations.
Concentration of Production. The last decade saw a dramatic increase in the
concentration of hog production in larger scale facilities and a corresponding
decline in the number of farms producing hogs. Based on data available from the
U.S. Department of Agriculture, the number of farms producing hogs in the United
States has declined, while the percentage of the nation's total hog inventory
held on farms having more than a 500 head inventory, as well as the average
number of hogs per farm, has increased.
The Company believes there are several causes for the increasing
concentration of hog production into the hands of larger producers. Large,
specialized hog producers may be able to produce hogs for lower cost than
smaller scale independent farmers through economies of scale and the use of
improved genetics, nutrition, and management practices, many of which are more
easily implemented in modern, large-scale facilities. Since this cost advantage
would seem to be more readily available to those making a substantial investment
in facilities, efficient hog production has become a capital-intensive industry.
The Company believes that in the wake of the "agricultural crisis" of the mid-
1980's, capital for hog production has become more difficult to obtain and has
presented an increasingly large barrier to entry. Additionally, packers
generally pay premiums to producers both for the supply of a large volume of
hogs and for providing hogs of superior carcass merit with respect to the yield,
leanness and consistency. Larger operations populated with genetically
consistent stock bred for high productivity and carcass quality therefore may be
able to obtain a premium on the sale of their hogs that may not be available to
smaller producers.
Production Differentiation. In addition to the increasing concentration of
hog production in larger scale facilities, hog production increasingly has
become differentiated between feeder pig production operations (which includes
operations relating to the production of weaned pigs) and pig finishing
operations. The Company believes that this is partly the result of three-site
management practices which dictate the separation of production into three
stages: breeding through farrowing; nursery; and finishing; with each phase of
production being conducted in separate locations to minimize the risk of
transmission of disease. In producing feeder pigs, the Company engages in the
first two of these stages of production, while the Company's production of
weaned pigs will involve only the first of these stages of production.
Production of feeder and weaned pigs -- which is less dependent upon
variable feed cost and more dependent upon herd health, facilities and breeding
stock investment -- is increasingly being conducted in specialized facilities.
Finishing of hogs to market weight, the economics of which are principally
driven by feed cost, is increasingly handled by producers engaged exclusively in
the finishing of hogs, with many of those producers finishing hogs under
contract to the producer of the feeder pig. The Company believes that this
increasing specialization is attributable to the capital intensive nature of
farrowing operations and the complexity of management.
BREEDING STOCK
Fully populated, each of the Company's feeder and weaned pig production
facilities which is either in existence, under development or proposed is
anticipated to be stocked with approximately 2,450 sows. The Company intends to
maintain an adequate population of female-line grandparent stock in its
multiplier units to produce commercial gilts for use by the Company in any
future facilities development or to replace the commercial herd as it is culled
or lost to death. Barrows and any excess gilts from the multiplier units will
be sold by the Company as feeder or weaned pigs.
The Company's feeder and weaned pigs have been and will continue to be
produced from genetically consistent breeding stock. The Company currently
utilizes breeding stock from both DeKalb Swine Breeders and Pig Improvement
Company ("P.I.C."), but intends to discontinue the use of breeding stock
obtained from DeKalb Swine Breeders by the Autumn of 1997. As further
improvements in genetics are recognized, the characteristics of the Company's
breeding stock may change. The Company intends to continually evaluate the cost
and characteristics of breeding stock developed by other producers, and, in the
Company's discretion, to populate all or a portion of its facilities with such
breeding stock.
The Company continually culls a portion of its breeding herd and replaces
these animals with new breeding stock in order to maintain the productivity of
its breeding herd. The selection of animals to be culled is based on subjective
determinations as to the animal's productivity, which generally declines as the
animals mature. The Company believes that it is positioned to generate all or
substantially all of its breeding stock replacements through its breeding stock
multiplier herd. The Company believes that its multiplier units are and will be
able to produce virtually all of the replacement gilts and initial breeding
stock populations required by the Company for the foreseeable future. The
Company believes that its internal production of replacement gilts will result
in the cost of its breeding stock replacements being lower than could be
obtained from outside sources and will preserve the Company's control over its
entire operation. No assurance can be given that the Company will be successful
in producing any portion of its required breeding stock replacements or that the
cost for such replacements will be lower than could be obtained from outside
sources.
With respect to each facility under development or proposed, the Company
intends to place breeding stock in the facility over a five month period
beginning with the completion of the facility's breeding building. It is
anticipated that approximately 800 head of breeding stock will be delivered to
the facility in the first month followed by deliveries of 400 to 450 head over
the remaining four months until the facility is fully stocked. Following an
initial resting period of 45 to 60 days in order to acclimate and monitor each
group of breeding stock, breeding will be commenced.
Alliance implemented an artificial insemination ("AI") program in its
Colorado operations and plans to use AI in its other facilities. Although no
assurances can be given, Alliance believes that the use of AI will allow more
rapid improvements in carcass quality and assist in maintaining higher health
status of the herds.
Alliance has begun planning operations to depopulate the five 2,450-sow
feeder pig production facilities located in Yuma County, Colorado in order to
repopulate these units with P.I.C. females. It is anticipated that sourcing for
this repopulation will be from Alliance's Illinois facility, which is a P.I.C.
multiplier unit. The P.I.C. females are to be finished into breeding sows on
the facilities of independent Colorado producers. In this regard, Alliance has
contracted with Farmland for the use of facilities as to which Farmland has
acquired rights from the owners of such facilities. See "Certain Relationships
and Related Transactions--Farmland." Although no assurances can be given,
management believes that the repopulation eventually will improve both
productivity and health of the sow units and may result in improved production
results in both nursery and finishing pig performance. Repopulation is expected
to begin in August 1997 with P.I.C. feeder pigs available in October 1997.
Completion of the repopulation project is anticipated to occur by June 1998.
PURCHASE OF FEED AND OTHER INPUTS
Farmland has agreed to assist the Company in arranging for the provision of
the Company's requirements for feed and other inputs, including animal health
products, pursuant to the Swine Production Services Agreement between the
Company and Farmland. The Company intends to purchase a portion of these
products from Yuma Cooperative upon the prices and terms set forth in the Feed
Purchase Agreement between the Company and Yuma Cooperative. Farmland will
establish the specifications of all supplies purchased, as well as for the
purchasing and delivery of all requirements in coordination with the Company.
See "Certain Relationships and Related Transactions."
The Company's Feed Purchase Agreement with Yuma Cooperative provides for
the Company's purchase of feed manufactured by Yuma Cooperative on a delivered
cost basis to be determined based upon a fixed charge for the grinding, mixing,
and delivery of feed ($14 per ton as of November 1, 1996), in addition to the
actual delivered cost of the feed ingredients. Feed rations which are pelleted
are subject to a surcharge ($7 per ton as of November 1, 1996). Both the fixed
charge and the surcharge are subject to annual increases in November of each
year corresponding to any increases in the Consumer Price Index--Retail Items.
Corn provided by Yuma Cooperative for use in feed generally is sold to the
Company at delivered cost plus, in the absence of available Company grain
storage facilities, a $.10 per bushel handling fee. The Company has the right
under the Feed Purchase Agreement, in its sole discretion, to purchase and
provide its own corn for feed manufacturing. Corn and soybean meal may be
substituted from time to time with other ingredients meeting equivalent
nutritional requirements based upon temporal price differentials. See "Risk
Factors," "Business--Sale of Animals" and "Certain Relationships and Related
Transactions."
The Company believes that feed costs presently account for approximately
35% to 40% of the cost of producing a feeder pig and that feed costs will
account for approximately 20% and 25% of the cost of producing a weaned pig.
The principal components of swine feed are corn and soybean meal, which are
commodities subject to substantial fluctuations in cost due to changing market
conditions, seasonality, and regional variations. While the Company intends to
recover changes in feed costs by making corresponding adjustments in the selling
prices for its feeder and weaned pigs, the actual changes in the sales price of
feeder and weaned pigs will lag changes in feed cost because the Company
determines the cost of feeder pigs on a twelve month historical rolling average
basis and intends to determine the cost of weaned pigs on a five month
historical rolling average basis. This pricing method may adversely impact the
Company's operations in the event of sudden movements, or continual increases,
in the cost of feed or other inputs. See "Certain Relationships and Related
Transactions," "Business--Sale of Animals," "Feeder Pig Purchase Agreement" and
"Weaned Pig Purchase Agreements."
SALE OF ANIMALS
The Company intends to sell its feeder and weaned pigs to its members.
Accordingly, the Company has contracted with its members (and intends to
contract with investor members in connection with the offering of Shares made
hereby) for the sale of the feeder and weaned pigs produced at the Company's
facilities. Feeder Pig Purchase Agreements (a form of which is attached hereto
as Exhibit B) are to be executed by investors in connection with the offering of
Class A Shares made hereby as a condition to a subscription for Class A Shares.
Weaned Pig Purchase Agreements (a form of which is attached hereto as Exhibit C)
are to be executed by investors in connection with the offering of Class B
Shares made hereby as a condition to a subscription for Class B Shares. Class C
Weaned Pig Purchase Agreements (a form of which is attached hereto as Exhibit D)
are to be executed by investors in connection with the offering of Class C
Shares made hereby as a condition to a subscription for Class C Shares.
Investors in the Company will be required to purchase, and the Company will be
required to sell, lots of feeder pigs produced by the Company in amounts
proportionate to the respective member's pro rata share of the Company's Class A
Common, but in no event greater than two and seven-tenths (2.7) lots per share
of Class A Common on a prospective rolling 12-month basis. Presently, each
share of Class A Common held in the Company will entitle the respective member
to contract to purchase one delivery allotment per 102-allotment block made
available to the members under the Feeder Pig Purchase Agreements. Similarly,
investors in the Company will be required to purchase, and the Company will be
required to sell, lots of weaned pigs produced by the Company that are to be
sold to members in amounts proportionate to the respective member's pro rata
share of the Company's Class B Common or Class C Common, as the case may be, but
in no event greater than two and seven-tenths (2.7) lots per share of Class B
Common on a prospective rolling 12-month basis and in no event greater than two
and one-tenth (2.1) lots per share of Class C Common on a prospective rolling
12-month basis. The Company intends to allocate its production of weaned pigs
from all facilities between those that are to be sent to nurseries and developed
by the Company into feeder pigs, on the one hand, and those that are to be sold
as weaned pigs, on the other hand, in the same proportion that the number of the
Company's operating feeder pig production facilities bears to the number of the
Company's operating weaned pig production facilities. The lots of feeder and
weaned pigs purchased by the respective member from time to time will not
necessarily be produced from the same feeder or weaned pig production facility.
In the event that the Company issues additional shares of Common Stock for the
construction of additional feeder or weaned pig production facilities, the
number of participants in the allotment of feeder or weaned pigs, as the case
may be, will be increased, although such increase is not anticipated to
materially change an investor's right to receive his anticipated allotment of
pigs. Casualty to the Company's facilities, diminished breeding stock
productivity or extreme mortality or morbidity, among other adverse
circumstances, could reduce the number of feeder or weaned pigs available for
purchase by members and increase the price of pigs under the Feeder Pig Purchase
Agreements or Weaned Pig Agreements, as the case may be. See "Risk Factors."
If the Company is successful in implementing its business plan and any new
feeder and weaned pig production facilities are developed on schedule, the
initial lots of feeder pigs resulting from the development and expansion of the
Company's feeder pig production operations are not expected to be available to
new investor members for up to 13 to 15 months after completion of the sale of a
Minimum Class A Block of Class A Shares to such members and the initial lots of
weaned pigs resulting from the development of the Company's weaned pig
production operations are not expected to be available to new investor members
for up to 11 to 13 months after completion of the sale to such members of a
Minimum Class B Block of Class B Shares or a Minimum Class C Block of Class C
Shares, as the case may be. New investor members will not be entitled to
purchase pigs from the Company until such time. Investors in the Company are
required to contract for the purchase of Qualifying Pigs (as that term is
defined in the Feeder Pig Purchase Agreement or Weaned Pig Agreements, as the
case may be) from the facilities. Each such contract, or Feeder Pig Purchase
Agreement or Weaned Pig Agreements, as the case may be, constitutes an
irrevocable ten-year commitment. Each lot of pigs purchased by an investor
member pursuant to any such Agreement will be priced based upon the following
factors: the financing cost per pig, the operating cost per pig, and a
production margin of $4.50 per pig, in the case of feeder pigs, and of $0 to
$4.50 per pig (as determined by the Company in its discretion), in the case of
weaned pigs (all as defined in such Agreement). In the event that an investor
member fails at least twice to perform his purchase obligation under such
Agreement, such investor member will be in default, which default may result in
the relinquishment of his purchase rights under such Agreement. For each ten
shares of Common Stock owned by a member, the number of such failures that will
result in a default is increased by one. A member's failure to perform his
purchase obligation, among other circumstances, also may result in the Company's
foreclosure on its security interest granted in the member's Common Stock. In
addition, the member will be responsible for the damages and expenses incurred
by the Company as a result of any failure to purchase, pay for, and take
delivery of any lot of Qualifying Pigs under the Feeder Pig Purchase Agreement
or Weaned Pig Agreements, as the case may be, including (a) damages equal to the
difference between the price payable by the member for the Qualifying Pigs that
member has failed to purchase, pay for, and take delivery under the Agreement
and the then current market price for feeder or weaned pigs, as the case may be,
(b) $3,000, which amount is intended to cover the Company's administrative and
other costs and expenses associated with such failure, and (c) all costs of
collection, enforcement, and prosecution of the Company's rights and remedies.
If the Company produces feeder pigs in excess of two and seven-tenths (2.7) lots
per share of Class A Common on a prospective rolling 12-month basis or produces
weaned pigs in excess of two and seven-tenths (2.7) lots per share of Class B
Common or two and one-tenth (2.1) lots per share of Class C Common on a
prospective rolling 12-month basis, the Company may sell such excess production
to non-members, or retain such excess production for the Company's own purposes,
in lieu of selling such excess production pursuant to the Feeder Pig Purchase
Agreements or Weaned Pig Agreements, as the case may be. The Company has agreed
in its Swine Production Services Agreement with Farmland to provide Farmland the
first opportunity to purchase any such excess production and any feeder or
weaned pigs that members have failed to purchase during the term of said
Agreement (and in no event less than the five year period ending July 13, 1999).
The Company intends to cause any such excess production of weaned pigs,
however, to be retained by the Company for developement into feeder pigs. See
"Feeder Pig Purchase Agreement," "Weaned Pig Purchase Agreements," "Certain
Relationships and Related Transactions," "Restrictions on Sale or Other Transfer
of the Shares--Cooperative Association Laws and Charter Documents" and "Plan of
Distribution."
As of the date of this Prospectus, the Company has reached an agreement
with the Company=s existing lender and Farmland concerning the provision by such
lender and Farmland of full debt financing for the development of a second
Illinois facility. See "Business--Financing." In connection with obtaining
this financing, Farmland has contracted to purchase, until the first to occur of
the expiration of one year and the date on which Farmland is repaid on its loan,
the marginal increase in Alliance's production of feeder pigs (approximately 46
lots of feeder pigs on a prospective rolling 12-month basis) resulting from the
development of the facility constructed using the proceeds of such financing.
Farmland=s purchase of such feeder pigs would be under substantially the same
terms required of the Company=s members pursuant to the Feeder Pig Purchase
Agreements, except that the purchase price for pigs does not include the $4.50
per pig production margin. See "Feeder Pig Purchase Agreement."
COMPETITION
The feeder and weaned pig production business is competitive and fragmented
among family-owned and investor-owned farms and large-scale agribusiness pig
production operations. Feeder and weaned pigs are available at sale barn
auction, markets such as Farmland's Pig Finder7 electronic pig auction market,
and under contract from producers. Competition is based upon price, product
consistency and quality, ability to deliver the required quantities and ability
to meet delivery schedules. Although there are a great number of operations
that compete with the Company, as discussed elsewhere in this Prospectus the
Company has contracted with its members (and intends to contract with investor
members in connection with the offering of Shares made hereby) for the sale of
feeder and weaned pigs produced at the Company's facilities. If the Company
produces pigs in excess of its supply commitments to members, however, the
Company may sell such excess production to non-members. The Company believes
that its most important competitive strengths are its ability to provide
competitive pricing and the quality and consistency of the pigs produced by it.
See "Business Environment," "Feeder Pig Purchase Agreement" and "Weaned Pig
Purchase Agreements."
EXPANSION
Expansion is an important element of the Company's business plan. The
Company's present intent is to construct or acquire (a) three 2,450-sow feeder
pig production facilities (including the Company's second Illinois facility
under development and subject to the sale of all Class A Shares offered hereby)
in addition to the Company's existing facilities and facilities under
development, following completion or acquisition of which the Company will be
operating a total of nine such facilities, and (b) six 2,450-sow weaned pig
production facilities (subject to the sale of all Class B Shares and Class C
Shares offered hereby), following completion or acquisition of which the Company
will be operating a total of six such facilities. The ability of the Company to
construct or acquire each of such three feeder pig production facilities is
subject to it obtaining at least $3,940,000 of net financing proceeds (at least
$12,100,000 in the aggregate for all three facilities), and the ability of the
Company to construct or acquire each of such six weaned pig production
facilities is subject to it obtaining at least $3,100,000 of net financing
proceeds (at least $19,160,000 in the aggregate for all six facilities). As of
the date of this Prospectus, the Company has commenced preliminary development
activities with respect to a second feeder pig production facility in Wayne
County, Illinois in anticipation of obtaining such necessary financing. No
assurances can be given that the Company will obtain the financing required for
the development of the second Illinois facility. See "Business--Financing."
The Company believes that substantial economies of scale will be realized
in the event that the Company is able to expand beyond the three feeder pig
production facilities and six weaned pig production facilities that the Company
presently intends to construct or acquire. These additional economies are
expected to include savings and enhancements in the production of breeding
stock, economies in the production of feed, and enhancement of management and
labor productivity. The Company intends to pursue expansion of its operations
as financial, managerial and other resources become available. No assurance can
be given as to when or if such resources will become available to Alliance so as
to allow it to proceed with such expansion.
Hog production operations require the availability of ample pure water at
reasonable cost. Although the Company has obtained access to water necessary
for it to conduct its current operations in Colorado and Illinois, the Company
has been advised that it will be unable to obtain any new commercial well
permits in Colorado. Accordingly, the Company has found it necessary in
Colorado to obtain the water necessary for its operations through the purchase
of more expensive, irrigated land or other real property already having the
necessary commercial well permits. No assurance can be given that the Company
will be able to obtain the water permits necessary to enable it to expand its
operations in Colorado, Illinois or other locations selected by the Company.
See "Risk Factors--Adequate Water Supply."
FINANCING
The ability of the Company (a) to implement its business strategy and
construct or acquire additional feeder pig production facilities is subject to
it obtaining at least $3,940,000 of net financing proceeds with respect to each
such facility, and (b) to implement its business strategy and construct or
acquire new weaned pig production facilities is subject to it obtaining at least
$3,100,000 of net financing proceeds with respect to each such facility. In
this regard, the Company is engaged in the offering of the Shares. In addition
to the proceeds to be received from the possible issuance and sale of one or
more Minimum Class A Blocks, Minimum Class B Blocks or Minimum Class C Blocks,
the Company would be required to obtain additional funds through secured term
debt borrowings. The Company anticipates that (a) with respect to each Minimum
Class A Block of 17 Class A Shares issued by the Company at the offering price
set forth on the cover page of this Prospectus, the Company would be required to
borrow approximately $2,720,000 of term debt borrowings in order to construct
one new feeder pig production facility and related support facilities, to
purchase breeding stock, and to provide working capital for operations, (b) with
respect to each Minimum Class B Block of 18 Class B Shares issued by the Company
at the offering price set forth on the cover page of this Prospectus, the
Company would be required to borrow approximately $2,160,000 of term debt
borrowings in order to construct one new weaned pig production facility and
related support facilities, to purchase breeding stock, and to provide working
capital for operations, and (c) with respect to each Minimum Class C Block of 24
Class C Shares issued by the Company at the offering price set forth on the
cover page of this Prospectus, the Company would be required to borrow
approximately $2,160,000 of term debt borrowings in order to construct one new
weaned pig production facility and related support facilities, to purchase
breeding stock, and to provide working capital for operations. The amount of
this proposed financing has been determined based upon the anticipated capital
expansion and business operations needs of the Company and the anticipated net
proceeds from the issuance of the Shares. See "Risk Factors," "Use of Proceeds"
and "Plan of Distribution."
On May 19, 1995, the Company entered into various loan documents with
CoBank related to a $23,600,000 secured credit facility. This credit facility
provides for up to $18,850,000 of non-revolving term debt and $4,750,000 of
revolving term credit. Proceeds from the term debt may be used for construction
of feeder pig production facilities and are advanced by CoBank as construction
costs are incurred by Alliance. Proceeds from revolving term credit may be used
for working capital and other purposes. The actual advance of funds under this
credit facility is subject to the satisfaction of certain conditions precedent
and may be withdrawn or terminated by CoBank under certain circumstances. No
assurances can be given that the funding conditions precedent will be satisfied
and that the Company will be able to obtain sufficient financing when needed, or
that alternative sources of financing will be available on acceptable terms. In
addition, the unused portion of the credit facility expires August 31, 1997
(extended from the original February 28, 1997 expiration date) with respect to
the non-revolving term debt and June 20, 2006 with respect to the revolving term
credit. As of the date of this Prospectus, the Company intends to enter into
negotiations with CoBank to obtain an extension of the CoBank loan or to obtain
a commitment for a new loan after the August 31, 1997 expiration of the existing
CoBank loan commitment. No assurances can be given that such negotiations will
be successful and that such commitment will be obtained on favorable terms, if
at all.
As of the date of this Prospectus, the Company has not obtained a credit
facility for construction of weaned pig production facilities. As of the date
of this Prospectus, the Company is engaged in negotiations with CoBank to obtain
a commitment for such a credit facility. No assurances can be given that such
negotiations will be successful and that such commitment will be obtained on
favorable terms, if at all. If any such commitment is obtained from CoBank or
any other lender, it is anticipated that the actual advance of funds under any
credit facility would subject to the satisfaction of certain conditions
precedent and further subject to early withdrawal or termination by the lender
under certain circumstances. No assurances can be given that the funding
conditions precedent will be satisfied and that the Company will be able to
obtain sufficient financing when needed, or that alternative sources of
financing will be available on acceptable terms.
The availability of non-revolving term debt and revolving term credit under
the CoBank credit facility is subject to specified equity investment levels in
the Company being satisfied. As of February 28, 1997, $142,000 was immediately
available to Alliance under its credit facility with CoBank. JWA[3]An
additional $211,000 of term loans is to become available approximately 90 days
following construction of the Company's facilities under development. The
availability of $6,330,000 of unused term loans and $1,830,000 of revolving term
credit under the CoBank credit facility is restricted and may be made available
to the Company only to the extent that additional equity investment is made in
the Company. With respect to each additional equity investment of $1,360,000
obtained by the Company (e.g., 17 shares of Common Stock sold for at least
$80,000 each), the Company is entitled to obtain advances under the credit
facility of $2,720,000 ($2,110,000 of term loans and $610,000 of revolving term
credit), up to an aggregate of $8,160,000. As more fully described below, as of
the date of this Prospectus, the Company has agreed with CoBank and Farmland
that it may obtain an advance under the CoBank credit facility of $2,720,000 and
a loan from Farmland of $1,360,000 (including $200,000 previously loaned by
Farmland to Alliance), without the necessity of satisfying the additional equity
investment requirement.
Prior to any advance being made by CoBank under the credit facility,
certain conditions precedent must be addressed to CoBank's satisfaction,
including but not limited to (i) provision of environmental audits respecting
the Company's realty, (ii) obtaining performance bonds and lien payment bonds
and builder's risk casualty insurance respecting such construction, (iii)
obtaining a chain of title and title insurance respecting the Company's realty,
and (iv) provision of evidence that CoBank has a perfected first priority lien
on all security for the Company's obligations. As of February 28, 1997, the
outstanding balance of loans made by CoBank under this credit facility was
$13,922,000.
As an temporary alternative to funding an expansion of the Company's
operations with a combination of debt and equity financing, as of the date of
this Prospectus CoBank and Farmland have agreed to the provision of full debt
financing. This financing alternative was obtained in connection with the
commencement of preliminary development activities on a second feeder pig
production facility in Wayne County, Illinois. See "Business--Expansion." Such
financing consists of $2,110,000 of non-revolving term debt and $610,000 of
revolving term debt obtained from CoBank and $1,360,000 of subordinated non-
revolving term debt from Farmland (including $200,000 previously loaned by
Farmland to the Company for the acquisition of certain real property in Wayne
County, Illinois). See "Business--Facilities" and "Certain Relationships and
Related Transactions--Farmland--Real Estate Loans."
The CoBank portion of this financing will be provided under the Company=s
existing credit facility. The Farmland portion of this financing will be
provided on terms substantially identical to those applicable to the $200,000
loan previously made by Farmland to Alliance for the acquisition of certain real
property in Wayne County, Illinois. See "Certain Relationships and Related
Transactions--Farmland--Real Estate Loans." In this regard, the Farmland
portion of the financing will provide for amortization over a ten-year period,
at a variable rate equal to CoBank's then national variable rate plus 1.25%.
The payment schedule for the Farmland loan will require the Company to make
interest-only payments for the life of the loan, with a final balloon payment of
the outstanding loan balance to be made upon the earlier of (i) the Company's
issuance and sale of a Minimum Block of the Shares, and (ii) the expiration of
ten years. Alliance's obligation to Farmland will be secured by a mortgage on
the facilities constructed with the proceeds of the loan, which mortgage will be
second in priority to that of CoBank. In addition, Farmland has agreed to
purchase all feeder pigs produced at the facility that was constructed using the
proceeds of the Farmland loan until the first to occur of the expiration of one
year and the date on which Farmland is repaid on its loan. See "Business--Sale
of Animals." As a result of the larger portion of indebtedness associated with
this financing alternative (and the higher debt service related thereto) as
compared with the debt and equity alternative discussed above, the net proceeds
from the issuance of Shares that would be required must be correspondingly
greater in order to provide for the balloon payment of principal and required
installments of interest under the Farmland loan. No assurances can be given
that the Company will be able to obtain the financing required for the
development of the second Illinois facility.
In connection with the Company=s acquisition of certain real property in
Yuma County, Colorado, the Company borrowed $760,000 from Farmland. This loan
is evidenced by a promissory note providing for amortization over a ten-year
period, at a variable rate of interest equal to CoBank's prime rate. The
payment schedule for this loan requires the Company to make interest-only
payments for the life of the loan, with a final balloon payment of all principal
to be made upon the expiration of the ten-year term. See "Business--Facilities"
and "Certain Relationships and Related Transactions--Farmland--Real Estate
Loans."
The CoBank credit facility provides for the monthly payment of principal
and interest. Principal payments pursuant to the loan terms with respect to the
initial $8.3 million of non-revolving term loans are to be made in 114 monthly
installments of $72,500 each, beginning January 20, 1996, with the remaining
unpaid balance being due and payable on July 20, 2005. Principal payments
pursuant to the loan terms with respect to each $2,110,000 of new non-revolving
term loans are to be made in monthly installments of $18,700 each, beginning on
the 20th day of the eighteenth month following the date of the initial advance
of such $2,110,000 loan. Principal payments pursuant to the loan terms with
respect to the revolving term loan are to be made in 24 equal monthly
installments of the principal that is outstanding as of the June 20, 2006
expiration of the revolving loan commitment, beginning on the 20th day of the
month following the payment in full of the new non-revolving term loan (but in
no event later than March 20, 2008). Interest accrues on the outstanding
principal balance of the loan at a rate equal to either (i) a variable rate
equal to CoBank's then national variable rate plus 1.25%, or (ii) CoBank's then
quoted rates for fixed rate loans, as may be elected from time to time by the
Company, and is payable monthly in arrears by the 20th day of the following
month. During the period in which principal under the loan is outstanding,
portions of such principal may bear interest at such variable rate while other
portions may bear interest at such fixed rate. As of February 28, 1997,
interest accrued on the outstanding principal balance of the loan at a rate of
9.5% per annum (calculated by adding 125 basis points to CoBank's national
variable rate of 8.25% in effect as of such date). The interest rate(s)
applicable to the loan are subject to reduction at specified times upon the
Company's satisfaction of certain conditions relating to the Company's equity
level and debt service coverage ratio. As of February 28, 1997, no reductions
in the Company=s interest rate had been made. The Company is permitted to
prepay the loan at any time without penalty, except that in the event that fixed
rate balances are prepaid, the Company is required to pay CoBank a surcharge in
an amount equal to CoBank's funding losses with respect thereto or, if the
CoBank loan is refinanced by another lender, a surcharge in an amount sufficient
(on a present value basis) to enable CoBank to maintain the yield it would have
earned on the amount repaid for the period such amount was scheduled to be
outstanding at a fixed rate.
In obtaining the initial non-revolving CoBank loan, the Company was
required to pay a $50,000 origination fee as well as make an equity investment
in CoBank of $1,000. In addition, the Company paid a $36,000 origination fee in
connection with the refinancing of its existing CoBank loan, and will be
required to pay a $6,000 fee with respect to the origination of each $2,110,000
of new non-revolving term loans. During the course of the loan, the Company may
be required to make additional equity investments at a rate not to exceed 1% of
the average five-year principal loan balance (which additional equity
investments may be satisfied out of CoBank's non-cash patronage distributions)
until the Company meets CoBank's target level of equity investment, which
currently is 11.5% of the Company's average five-year principal loan balance.
In addition, the Company was required to grant a first perfected lien and
security interest on substantially all of its properties and assets to CoBank
and to assign to CoBank all of the Company's rights in and to the existing
Feeder Pig Purchase Agreements. The Company is required to comply with various
affirmative and negative covenants, including but not limited to (i)maintenance
of at least $2,250,000 of equity, plus $550,000 of equity for each facility
developed by the Company after its initial four facilities ($3,350,000 of equity
was required at February 28, 1997 and the Company had $4,610,756 of equity at
such date), (ii) maintenance of modified working capital (calculated as current
assets, plus available revolving term credit, minus current liabilities
(excluding the current portion of term debt payments)) of at least $210,000,
plus $98,000 of modified working capital for each facility developed by the
Company after its initial four facilities ($406,000 of modified working capital
was required at February 28, 1997 and the Company had $41,259 of modified
working capital at such date), (iii) provision of monthly financial statements
and audited annual financial statements to CoBank, (iv) restrictions on the
incurrence of additional indebtedness, (v) restrictions on certain liens,
mergers, sales of assets, investments, guaranties, loans, advances and business
activities unrelated to existing operations, and (vi) restrictions on the
declaration and payment of the cash portion of patronage distributions and other
distributions or allocations of the Company's earnings, surplus or assets. The
Company was in compliance with each of these covenants as of February 28, 1997,
except the modified working capital covenant as to which the Company has
obtained a waiver from CoBank as of February 28, 1997. Management believes that
Alliance will have the ability to maintain compliance with the above covenants
in the foreseeable future.
FACILITIES
Facilities in Existence or Under Development. As of the date of this
Prospectus, the Company conducted operations from its five existing 2,450-sow
feeder pig production facilities located in Yuma County, Colorado (approximately
150 miles east of Denver), and from its one existing 2,450-sow production
facility in Wayne County, Illinois. As of the date of this Prospectus, the
Company does not have any weaned pig production facilities. The original Yuma
County, Colorado feeder pig production facility was constructed in a
configuration different than that employed with respect to the Company's other
facilities and is anticipated to be different than that employed for future
feeder pig production facilities. The original facility consists of six
separate buildings, including two breeding buildings, two gestation buildings,
and two farrowing buildings, all of which are situated together on an
approximately 160 acre site with a separately accessed nursery building, while
each of the Company's other facilities consist of a three-building sow breeding,
gestation and farrowing complex situated together, with a separately accessed
nursery building. Management believes that the condition of its facilities
presently is adequate for the Company's business, and that its facilities are
adequately covered by insurance. Each of the existing facilities, including
land and buildings, was constructed for between $2,243,000 and $2,495,000, and
has been or will be pledged as security for the Company's loan from CoBank under
the terms of a deed of trust/mortgage.
Between September and December 1995, the Company purchased approximately
1,000 acres of real property in Yuma County, Colorado, upon which the Company
has developed one feeder pig production facility and holds the remaining acreage
for the development of additional production facilities (the "Additional
Colorado Property"). The acquisition cost of this Additional Colorado Property
was approximately $760,000. The Company obtained funding for the purchase of
the Additional Colorado Property from the proceeds of a loan obtained from
Farmland. In conjunction with this loan, the Company delivered to Farmland a
promissory note evidencing the debt providing for the amortization of the loan
over a ten-year period, at a variable rate equal to CoBank's prime rate. As of
February 28, 1997, CoBank's prime rate was 8.25%. The payment schedule of the
promissory note requires that the Company make interest-only payments for the
life of the loan, with a final balloon payment of the principal at the
expiration of the ten-year term. To secure the obligations of the promissory
note, the Company has agreed to execute a deed of trust in favor of Farmland
covering all of the Additional Colorado Property, which deed of trust is second
in priority to that of CoBank with respect to the production facility
constructed thereon. See "Certain Relationships and Related Transactions--
Farmland--Real Estate Loans."
As of the date of this Prospectus, the Company has acquired approximately
442 acres of real property in Wayne County, Illinois, including a 90 acre tract
acquired pursuant to the exercise of the option referred to below. The Company
has developed one feeder pig production facility on these 442 acres. In
addition, as of the date of this Prospectus the Company has commenced
preliminary development activities with respect to a second feeder pig
production facility located on this property. See "Business--Expansion."
In November 1996, the Company entered into a contract pursuant to which the
Company has been granted the option to purchase approximately 500 acres of real
property in Wayne County, Illinois (the "Option Property"). Under the terms of
this option contract, if the Company fails to fully exercise the option as to
the entire Option Property prior to November 1998, the Company shall be
responsible for a $150,000 liquidated damages payment to the owner of the Option
Property. The Company's responsibility for this liquidated damages payment is
secured by a stand-by letter of credit issued by CoBank. Until the expiration
of this letter of credit, the revolving term credit available to the Company
will be reduced by $150,000. In November 1996, the Company exercised its rights
under this option contract to acquire an approximately 90 acre tract of the
Option Property, including 45 acres (the "45 Acre Tract") on which the Company
has commenced preliminary development activities with respect to a second
Illinois sow production facility. The Company obtained funding for the purchase
of the 45 Acre Tract from the proceeds of a $200,000 loan provided by Farmland.
In conjunction with this loan, the Company delivered to Farmland a promissory
note evidencing the debt providing for amortization over a ten-year period, at a
variable rate equal to CoBank's then national variable rate plus 1.25%. The
payment schedule for the Farmland loan requires the Company to make
interest-only payments for the life of the loan, with a final balloon payment of
all principal to be made upon the earlier of (i) the Company's issuance and sale
of a Minimum Block of Shares, and (ii) the expiration of ten years. Alliance's
obligation to Farmland under this note is secured by a mortgage on the 45 Acre
Tract. See "Certain Relationships and Related Transactions--Farmland--Real
Estate Loans."
The Company maintains its administrative offices at 302 Idlewild Street in
Yuma, Colorado. This office space has been made available to the Company by
Farmland at no cost to the Company.
Proposed Facilities. In connection with the offering of the 51 Class A
Shares hereby, the Company intends to construct or acquire up to three
additional 2,450-sow feeder pig production facilities in or around Yuma County,
Colorado, Wayne County, Illinois, or other locations selected by the Company
(one facility with respect to each 17 Class A Shares sold in this offering).
The Company intends to construct or acquire up to six 2,450-sow weaned pig
production facilities in or around Yuma County, Colorado, Wayne County,
Illinois, or other locations selected by the Company (one facility with respect
to each 18 Class B Shares or each 24 Class C Shares sold in this offering) in
connection with the offering of the 54 Class B Shares and 72 Class C Shares
hereby. The Company has commenced preliminary development activities with
respect to a second feeder pig production facility located in Wayne County,
Illinois in anticipation of obtaining the necessary financing. As of the date
of this Prospectus CoBank and Farmland have agreed to the provision of full debt
financing consisting of $2,110,000 of non-revolving term debt and $610,000 of
revolving term debt obtained from CoBank and $1,360,000 of subordinated non-
revolving term debt from Farmland (including $200,000 previously loaned by
Farmland to the Company for the acquisition of certain real property in Wayne
County, Illinois). Upon the Company's issuance and sale of a Minimum Block of
Shares, the net proceeds of such issuance and sale will be applied to the
repayment of the Farmland $1,360,000 subordinated non-revolving term debt. No
assurances can be given that the Company will be able to obtain the financing
required for the development of the second Illinois facility. In addition to
the three feeder pig production facilities and six weaned pig production
facilities that the Company presently intends to construct or acquire, the
Company intends to develop feeder pig production facilities and weaned pig
production facilities in the future as financial, managerial and other resources
become available. No assurance can be given that such resources will become
available to Alliance so as to allow it to proceed with the development of such
additional facilities. See "Business--Expansion" and "--Financing."
It is anticipated that each of the three feeder pig production facilities
to be developed, in part, with the proceeds from the 51 Class A Shares in this
offering, including the second Illinois facility presently in a preliminary
stage of development, will consist of a three-building sow breeding, gestation,
and farrowing complex situated together on a site, with nursery buildings being
separate from the rest of the complex to allow for disease separation between
the facilities. The six weaned pig production facilities to be developed, in
part, with the proceeds from the 54 Class B Shares and 72 Class C Shares in this
offering will consist of a three-building sow breeding, gestation, and farrowing
complex situated together on a site. As presently proposed, the construction of
each new feeder pig production facility is anticipated to cost approximately
$2,750,000, including the cost of land and land improvements, and the
construction of each new weaned pig production facility is anticipated to cost
approximately $2,115,000, including the cost of land and land improvements. The
Company has estimated the cost of land and land improvements to be approximately
$500,000 per feeder pig production facility and approximately $296,000 per
weaned pig production facility. No assurance can be given that the actual
development costs for the new facilities will not exceed the Company's
estimates. See "Use of Proceeds." It is anticipated that construction of the
proposed facilities will be handled by contractors on a "turn-key" basis and
will be phased-in over time, beginning with construction of the breeding
buildings, followed by construction of the gestation, farrowing, and nursery
buildings as production of the breeding herd progresses. In this regard, the
Company has contracted with Central Confinement, Inc., Columbus, Nebraska, for
the construction of the second feeder pig production facility situated in Wayne
County, Illinois. The Company anticipates that it will stagger the construction
of the proposed new facilities, with the construction of no more than one
facility being initiated in each month following completion of an offering. The
development of each feeder pig production facility is anticipated to require up
to 13 to 15 months after completion of the offering of a Minimum Class A Block
of Shares and each weaned pig production facility is anticipated to require up
to 11 to 13 months after completion of the offering of a Minimum Class B Block
of Shares or a Minimum Class C Block of Shares, as the case may be.
As capital funds are available and the economic benefit is determinable,
the Company intends to consider the construction of certain additional
facilities, including a truck wash facility in close proximity to the production
units, an off-site boar stud facility for semen collection, handling, and
laboratory equipment used in artificial insemination, a dead animal disposal
center, bulk storage for the holding of feed grain inventories, and feed
manufacturing equipment. Additionally, depending upon the characteristics of
each site purchased, the Company may be required to construct single-family
housing for its management employees. No determination has been made at this
time as to the necessity of any such construction, and the Company presently has
no firm plan to develop any of such additional facilities.
Location of Proposed Facilities. The Company intends to locate the
proposed new feeder pig production facilities and weaned pig production
facilities in or around Yuma County, Colorado, Wayne County, Illinois or other
locations selected by the Company. With the exception of the second Illinois
facility, the Company has not, as of the date of this Prospectus, identified
specific sites for the location of the facilities. In selecting a site for the
Company's facilities, the Company considers a variety of factors, including
those referred to below.
As a threshold matter, the Company's facilities must be located in a state
such as Colorado and Illinois, among others, in which the applicable laws do not
prohibit ownership of a hog production facility by a corporation, including
cooperative associations such as the Company. Although state laws may contain
restrictions relating to zoning, water management, and environmental
regulations, particularly with respect to feeder and weaned pig production
operations, the Company must not be prohibited from constructing or operating
its facilities. With respect to climatic conditions, temperatures may be cold
in the winter so long as they are believed by the Company to be adequately
temperate and low in humidity to accommodate the existing and planned
operations. Hog production operations require the availability of ample pure
water at reasonable cost. Although the Company has obtained access to water
necessary for it to conduct its current operations in Colorado, the Company has
been advised that it will be unable to obtain any new commercial well permits in
Colorado. Accordingly, the Company has found it necessary in Colorado to obtain
the water necessary for its operations through the purchase of more expensive,
irrigated land or other real property already having the necessary commercial
well permits. No assurance can be given that the Company will be able to obtain
the water permits necessary to enable it to expand its operations in Colorado,
Illinois or other locations selected by the Company. Hog production operations
also must have access to feed at reasonable cost. The cost of feed is a
function of the local availability of high-quality feed grain and soybeans and
the capacity to process these ingredients, all relative to the local demand for
these inputs. Alliance believes that ample production of corn and ingredient
processing facilities exist within the Yuma County, Colorado and Wayne County,
Illinois regions and adequate transportation is available to haul in feed-grains
to the facilities. However, soybean meal must be hauled into Yuma County.
Productivity of the Company's operations largely will be dependent upon its
ability to keep the operations free from diseases. The Company believes that
the location of feeder and weaned pig production facilities in a region that
does not contain a relatively large population of other hogs is desirable in
helping to minimize the risk of disease-related problems.
WASTE DISPOSAL AND ENVIRONMENTAL MATTERS
Several environmental requirements potentially are applicable to feeder and
weaned pig production operations such as those conducted or proposed to be
conducted by the Company. Generally, these requirements take the form of
federal statutory and regulatory requirements that are, in some cases, reflected
in similar state requirements. In other instances, state or local requirements
may exist separately and without federal precedent.
The principal environmental regulations with which the Company must comply
are related to the handling and disposal of waste water generated at the
Company's facilities. The federal Clean Water Act generally prohibits the
discharge of pollutants into the waters of the United States. The Environmental
Protection Agency ("EPA") has further issued regulations that prohibit the
discharge of waste water from animal feedlot operations into the waters of the
United States, except under certain circumstances when excessive rainfall runoff
added to existing process waste water exceeds the design capacity of the waste
water handling and treatment facilities. These regulations therefore generally
require that waste water handling and treatment facilities for "animal feedlots"
(which term is defined broadly enough to cover the Company's operations) be of a
non-discharge nature.
To comply with these federal requirements, animal feedlot operators, such
as the Company, must either obtain a permit from the EPA for its operations, or,
in the case of a state which has been granted authority by EPA to carry out a
Clean Water Act program, application must be made to the state. The State of
Colorado and the State of Illinois each has been granted such authority by EPA.
The Colorado and Illinois regulations generally adopt the format of the EPA
provisions for animal feedlots, and generally require concentrated animal
feeding operations to be operated as no-discharge facilities. These regulations
require that the Company design, construct, and operate waste water control
structures capable of retaining and processing all waste water and storm runoff
which enter the facility, with the exception of water generated from rainfall in
excess of certain prescribed parameters. Moreover, these regulations authorize
the state agency to require the removal of accumulated manure and process waste
water as necessary to prevent the overflow of the containment and processing
structure. The Company uses lagoon containment and processing systems at its
production facilities to comply with these regulations.
Land application of manure and process waste water also is regulated by
Colorado and Illinois regulations. Generally, these regulations authorize the
state agency to require that manure and process waste water not be distributed
on lands in a manner that affects the quality of waters, impairs existing
beneficial uses, or exceeds estimated soil infiltration rates, and shall not be
applied when the land is frozen, saturated or during rainfall. Sprinkler
irrigation equipment must include a back flow prevention device. Land
application rates are established on a case-by-case basis after taking into
account the nature and type of manure or process waste water and the
characteristics of the area to which it is to be applied.
Each feeder or weaned pig production facility is or will be designed to
enable the removal of animal waste by means of emptying shallow pits located
under the slatted floors of each facility. Animal waste falls through the
slatted floor into the pit which is filled with water. Periodically, each pit
is drained and refilled. Waste water drained from a pit is moved into a lagoon
system for treatment. All lagoons must be of a size adequate to accommodate the
anticipated volume of waste water to be generated together with storm water
runoff. Further, each lagoon must be lined with a material that prevents or
inhibits the seepage of waste water into the ground water below.
Cost of design and construction of waste water treatment systems vary by
facility based upon the characteristics of each individual site. The Company
has estimated that the cost of construction of lagoons and the attendant pumps
and piping required to handle the waste water generated at each feeder or weaned
pig production facility will range from approximately $100,000 to $135,000.
Ongoing expenditures to handle waste water consist principally of expenditures
for utilities and maintenance. Such ongoing expenditures do not constitute a
significant operating cost to the Company.
EMPLOYEES
Operating management of each of the Company's existing and future
facilities will be the responsibility of each respective production facility's
General Manager. The General Manager will have overall responsibility for the
operation of the facility. Additional department managers likely will oversee
the breeding/gestation, farrowing, and nursery departments. It is anticipated
that each facility under development or proposed will employ eleven persons in
breeding through farrowing operations, including management and laborers.
Pursuant to the Swine Production Services Agreement between the Company and
Farmland, Farmland has agreed to assist in providing certain administrative
services to the Company, including the coordination of the Company's training of
personnel to be employed by the Company and the selection of employees.
As of February 28, 1997, the Company employed approximately 121 persons, of
whom 117 were full-time employees and four were part-time employees. Of the
Company's 117 full-time employees, 14 employees are assigned to perform various
facilities operation services for Pig Producers I, L.P. ("Pig Producers"), a
limited partnership in which Farmland holds a 12.5% interest. Pig Producers is
engaged in the production of feeder pigs from a 2,450-sow feeder pig production
facility located in Yuma County, Colorado. The Company is reimbursed by Pig
Producers for all wages, benefits and other costs attributable to the 14
Alliance employees performing services for Pig Producers. See "Certain
Relationships and Related Transactions--Farmland." The Company is not a party
to any collective bargaining agreement and considers its relationship with
employees to be satisfactory.
FEDERAL INCOME TAXATION
The following is a general discussion of certain Federal income tax
provisions applicable to Alliance and the Federal income tax consequences of the
ownership of Shares of Alliance by an investor. It is impractical to comment
on all aspects of Federal, state and local laws which may affect the tax
consequences of an investment in the Shares. The following discussion is merely
a summary of some of the federal income tax principles applicable to Alliance
and the investors, and does not purport to be a complete analysis or listing of
all potential tax consequences or risks inherent in purchasing or owning Common
Stock in Alliance. Each prospective investor should consult his or her own tax
advisor.
The following discussion of federal income tax matters is based upon the
Internal Revenue Code of 1986, as amended to date (the "Code"), the regulations
promulgated or proposed thereunder, the position of the Service set forth in its
published revenue rulings, revenue procedures and other announcements and court
decisions as in effect on the date of this Prospectus. No assurance can be
given that future legislative or administrative actions or court decisions will
not result in changes in the law which would result in significant modification
to the following discussion. Any such legislative or administrative action or
decision may or may not be retroactively applied with respect to transactions
completed prior to the effective date of such action.
Taxation of a Taxable Cooperative. Alliance has been formed as a
cooperative association under Colorado law and intends to operate as a
cooperative for Federal income tax purposes. A taxable cooperative is subject
to Federal income tax on its Federal taxable income and generally computes its
taxable income the same as any other C corporation. However, a taxable
cooperative is allowed to deduct in computing its taxable income amounts
distributed to its members or patrons as patronage dividends. Due to the
ability of a cooperative to deduct patronage dividends with respect to its
patronage sourced earnings, the income earned by a cooperative with respect to
business done with or for the cooperative's member-patrons is subject to a
single-level of Federal income taxation, at the level of the member-patrons.
However, a taxable cooperative may not distribute non-patronage sourced earnings
to its member-patrons as patronage dividends. Accordingly, the cooperative must
report such non-patronage sourced income in its taxable income and is subject to
Federal income taxation on such income.
As mentioned above, a cooperative may deduct amounts paid to its member-
patrons as patronage dividends. In order to qualify as a patronage dividend,
the amount paid to each member-patron by the cooperative must be (1) on the
basis of the quantity or value of business done with or for the member; (2)
pursuant to a pre-existing legal obligation; and (3) determined with reference
to the net earnings from the business done with or for its member-patrons. A
cooperative may pay patronage dividends in cash, a written notice of allocation
or a combination thereof. The written notice of allocation either may be a
qualified written notice or a nonqualified written notice. A qualified written
notice of allocation is a written notice of allocation which (1) the distributee
has consented to take into income at the stated dollar amount and has received
at least twenty percent of the dividend in cash or (2) the distributee may
redeem for cash at its stated value for a period of at least ninety days
following the notice. The Company's Bylaws provide that Alliance stockholders
have consented to take qualified written notices of allocation into income at
the stated amount as a result of acquiring Alliance Common Stock. A
nonqualified written notice of allocation is a written notice of allocation that
fails to satisfy the above described requirements for a qualified written notice
of allocation
A patronage dividend paid with a qualified written notice of allocation or
cash is deductible by the cooperative for the year with respect to which the
patronage dividend is paid and is taxable to the member-patron in the year the
patronage dividend is received. Since a cooperative may pay up to eighty
percent of a patronage dividend in a qualified written notice of allocation, a
member-patron may have insufficient cash distributed to the member-patron to pay
the income tax incurred by the patron as a result of the receipt of the
patronage dividend. A nonqualified written notice of allocation is deductible
by the cooperative and taxable to the member-patron when such notice is redeemed
by the cooperative for cash.
As described above, a cooperative may only distribute as patronage
dividends the portion of its income which qualifies as patronage sourced income.
Alliance will operate as a supply cooperative, which produces and sells pigs to
its member-patrons. The income Alliance realizes on its sale of the pigs to its
member-patrons should be treated as patronage sourced income. Alliance is
obligated under the Bylaws to distribute such income to its member-patrons as
patronage dividends based the quantity or value of business done with or for its
member-patrons.
If Alliance realizes income from business which is not done with or for
member-patrons, such as income from the sale of pigs to a person who is not an
Alliance stockholder, such income will not be patronage sourced income and
Alliance will not be able to distribute and deduct such amount to its member-
patrons as a patronage dividend. In such case, Alliance will have to include
such income in the computation of its Federal taxable income. If Alliance
distributes such non-patronage sourced earnings to its stockholders, such
distribution likely will be treated as a taxable dividend to its stockholders.
Taxation of Alliance Stockholder. Alliance is obligated to distribute its
patronage sourced earnings to its member-patrons as patronage dividends. The
member-patrons will be required to include such patronage dividends in their
taxable income although the time at which such amount is includible is dependent
on how the patronage dividend is distributed. Alliance may pay the patronage
dividend in cash, a qualified written notice of allocation or a non-qualified
written notice of allocation, or any combination thereof. A member must include
in its income a patronage dividend paid in cash or a qualified written notice of
allocation in the year such dividend is received. A member must include in its
income a patronage dividend paid by a non-qualified written notice of allocation
in the year in which such notice, or portion thereof, is redeemed by the
cooperative for cash. If Alliance realizes income from non-patronage sources
and distributes such income to its stockholders, the stockholders likely will
have to report such income as dividend income. In connection with the term debt
borrowings for which the Company anticipates it will obtain commitments prior to
or concurrently with the consummation of the offering of each Minimum Block of
Shares, the Company may be required to enter into a credit agreement which
restricts the Company's ability to pay patronage distributions in cash. The
loan agreement with the Company's existing lender contains such a restriction.
See "Patronage Distribution Policy" and "Business--Financing."
The portion of any patronage distributions paid in qualified written
notices of allocations will be made through the issuance of capital credits. If
Alliance redeems the capital credits which were issued, the redeeming member
will recognize capital gain or loss in an amount equal to the difference between
the redemption proceeds received and the member's basis in the redeemed capital
credits. Since a member's basis in a capital credit received as a patronage
dividend is equal to the face amount of the capital credit, a member generally
will not recognize any gain or loss on the redemption of a capital credit.
In the event of a sale of Alliance Common Stock by a member, the gain or
loss realized by the selling member for federal income tax purposes will
generally be characterized as capital gain or loss provided that the Common
Stock was held as a capital asset. The amount of the gain or loss will be equal
to the difference between the adjusted tax basis of his equity sold and the
amount realized on such sale.
THE FOREGOING DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING, PARTICULARLY BECAUSE THE TAX CONSEQUENCES OF AN INVESTMENT IN ALLIANCE
ARE COMPLEX AND NOT THE SAME FOR ALL TAX PURPOSES. PROSPECTIVE INVESTORS ARE
STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local government
regulations, including those restricting certain types of investor-owned
livestock production and those concerning the environment, occupational safety
and health and zoning. In addition, its employment practices are governed by
minimum wage, overtime and other working condition regulations. The Company has
not experienced significant difficulty in complying with applicable regulations
and compliance generally has not had an adverse effect on the Company's
business. See "Business--Waste Disposal and Environmental Matters."
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
FEEDER PIG PURCHASE AGREEMENT
GENERAL
The rights and obligations of the parties with respect to the sale of
feeder pigs by the Company to its members will be governed by the Feeder Pig
Purchase Agreements, in the form attached hereto as Exhibit B. Prospective
investors should carefully examine the Feeder Pig Purchase Agreement. Although
the following summary describes the material provisions of the Feeder Pig
Purchase Agreement, it does not purport to be a complete statement of all
provisions of the Feeder Pig Purchase Agreement and in no way modifies or amends
the Feeder Pig Purchase Agreement.
PURCHASE
The Company intends to sell feeder pigs that meet particular minimum
weight, health, nutrition and genetic quality standards to members of the
Company who have entered into a Feeder Pig Purchase Agreement with the Company.
Feeder pigs that meet such standards, as set forth in the Feeder Pig Purchase
Agreement, are referred to as "Qualifying Pigs." Pursuant to the terms of the
Feeder Pig Purchase Agreement, the member of the Company is required to
purchase, and the Company is required to sell, Qualifying Pigs in lots of no
less than 900, and no more than 1,000, Qualifying Pigs per lot, as determined by
the Company. Such lots of feeder pigs are to be made available to members of
the Company on a rotating schedule determined and implemented by the Company,
with the number of lots made available to a member and the frequency of
availability being based upon the member's proportionate ownership interest in
the Company's outstanding Class A Common and the actual production of Qualifying
Pigs from the Company's facilities. If the Company is successful in
implementing its business plan and the proposed new feeder pig production
facilities are developed on schedule, the initial lots of feeder pigs resulting
from the development and expansion of the Company's feeder pig production
operations are not expected to be available to new investor members for up to 13
to 15 months after completion of the sale of a Minimum Class A Block of Shares
to such members. New investor members will not be entitled to purchase feeder
pigs from the Company until such time. In the event that the production of
feeder pigs exceeds two and seven-tenths (2.7) lots per share of Class A Common
on a prospective rolling 12-month basis, the Company may sell such excess
production to non-members, or retain such excess production for the Company's
own purposes, in lieu of selling such excess production pursuant to the Feeder
Pig Purchase Agreements. Investor members will not be entitled to purchase any
excess production of feeder pigs. The Company has agreed in its Swine
Production Services Agreement with Farmland to provide Farmland the first
opportunity to purchase excess feeder pigs produced by the Company during the
term of said Agreement (and in no event less than the five year period ending
July 13, 1999). See "Certain Relationships and Related Transactions--Farmland."
PRICE
The Company intends to sell Qualifying Pigs, subject to adjustment for
weight as described below, pursuant to a pricing formula consisting of the sum
of the following factors: the financing cost per pig, the operating cost per
pig, and a $4.50 per pig production margin. The financing cost per pig
applicable to a member is to be determined on a rolling 12-month prospective
basis and will be equal to the quotient obtained by dividing (i) the sum of the
anticipated required payments of principal and interest (including any scheduled
sinking fund payments) for the ensuing 12-month period with respect to the term
debt borrowings incurred by the Company in connection with the consummation of
the sale of Class A Common to such member, by (ii) the total number of
Qualifying Pigs anticipated to be produced and shipped by the Company during
such 12-month period from the one or more feeder pig production facilities
developed through the use of such term debt borrowings and the net proceeds from
the sale of Class A Common to such member (such estimate being based on the
total estimated number of Qualifying Pigs to be produced and shipped by the
Company during such 12-month period from all feeder pig production facilities of
the Company). The operating cost per pig is to be determined on a rolling 12-
month historical basis and will be equal to the quotient obtained by dividing
(i) the sum of (A) all expenses (excluding interest expense, depreciation and
amortization) of the Company, plus (B) the net cash flow cost of all capital
expenditures of the Company (including any capital sinking fund payments) for
production facility and breeding stock improvements and replacements, in each
case, for the 12 months preceding the then present month of shipment, by (ii)
the number of Qualifying Pigs produced and shipped by the Company during such
12-month period. At the time the Company notifies a member that a lot is
available for purchase by the member pursuant to the member's Feeder Pig
Purchase Agreement, the Company will furnish to the member an estimate of the
total purchase price of all Qualifying Pigs included in the lot, and the member
is required to pay such estimated total purchase price to the Company not less
than one day prior to the scheduled shipment date. The actual total purchase
price of all Qualifying Pigs included in a lot sold to a member will be based
upon weight at the time of loading and settlement of any adjustments shall be
made within five days following delivery.
WEIGHT ADJUSTMENT
The purchase price for Qualifying Pigs is subject to adjustment based upon
the extent of any variation in the average weight of Qualifying Pigs from 45
pounds. To the extent that the average weight of a shipment of Qualifying Pigs
exceeds 45 pounds per pig, the purchaser will pay an additional $.25 per pound
per pig on the first five pounds by which the average weight exceeds 45 pounds
per pig and an additional $.20 per pound per pig for the average weight between
50 pounds and 60 pounds. To the extent that the average weight of a shipment of
Qualifying Pigs is less than 45 pounds per pig, the purchase price will be
decreased by $.25 per pound per pig.
DELIVERY OF PIGS
The Company will be responsible for obtaining, at the Company's expense,
all health permits necessary to qualify the pigs for interstate shipment. It is
anticipated that all lots of Qualifying Pigs will be weighed at the Company's
expense at a state-inspected scale near the Company's production facility.
Delivery is to be FOB shipping point, with the members bearing the risk of loss
during transit, and the trucks used to haul Qualifying Pigs from the Company's
production facility must be thoroughly cleaned and disinfected prior to loading.
A member may inspect the lot of Qualifying Pigs to be purchased by such member
prior to loading. After the delivery of pigs at their destination, a member
will have the right to seek an appropriate price adjustment for any pig which is
found not to be a Qualifying Pig. Such adjustment will be made following the
Company's inspection of the subject pigs, and will be determined through mutual
agreement of the Company and the member.
TERM AND TERMINATION
A member's Feeder Pig Purchase Agreement will be for an initial term
commencing on the date entered into and continuing for a period of 120 months
after the date the first delivery of Qualifying Pigs is made to the member
thereunder, subject to earlier termination upon the occurrence of certain
events. Feeder Pig Purchase Agreements will be extended automatically for
succeeding one year terms unless the member gives to the Company, not less than
one year prior to the expiration of the initial or any extended term, notice
that the member desires to terminate the Feeder Pig Purchase Agreement as of the
expiration of such initial or extended term. The Company may terminate a
member's Feeder Pig Purchase Agreement if the member fails to purchase, pay for,
and take delivery of any two lots of Qualifying Pigs when and as made available
to the member; provided, however, that for each ten shares of Common Stock owned
by a member, the number of such failures necessary before the Company may
terminate such member's Agreement is increased by one. The member may terminate
the Feeder Pig Purchase Agreement if the Company materially breaches any
obligation or covenant in the Agreement and such breach is not cured within 30
days following notice of such breach given by the member to the Company.
Furthermore, if the first delivery of Qualifying Pigs thereunder is not made
within 24 months of the date of the Feeder Pig Purchase Agreement, the member
may terminate the Agreement within three months after the expiration of such 24-
month period. If either party is prevented from performing under the Feeder Pig
Purchase Agreement because of reasons beyond its control which make it
commercially impossible to perform, however, then that party is relieved from
such performance so long as it remains commercially impossible to perform. A
member's Feeder Pig Purchase Agreement automatically terminates if the member
assigns or transfers all shares of Class A Common from which the member's right
to purchase lots of Qualifying Pigs under the Agreement derives. Except as
described above, a member does not have the right to terminate the Feeder Pig
Purchase Agreement prior to the expiration of the initial or any extended term
thereof. As noted above, the member's right to terminate the Feeder Pig
Purchase Agreement at the expiration of the initial or any extended term thereof
may be exercised only if the member gives notice to the Company at least one
year prior to the expiration of such initial or extended term that the member
desires to exercise such termination right. The foregoing termination rights
constitute the member's exclusive rights of termination under the Feeder Pig
Purchase Agreement. No member has the right to demand the return of or to
receive any of the member's capital from the Company as a result of the
termination of the Feeder Pig Purchase Agreement or otherwise and regardless of
whether demanded prior to the expiration of the initial or any extended term of
the Feeder Pig Purchase Agreement or at any time after the expiration of any
such term. The Company is under no obligation to redeem or repurchase its Class
A Common prior to the expiration of the initial or any extended term of the
Feeder Pig Purchase Agreement or at any time after the expiration of any such
term. See "Risk Factors--Lack of Liquidity; Absence of Market for Shares,"
"Restrictions on Sale or Other Transfer of the Shares--Cooperative Association
Laws and Charter Documents."
EFFECT OF PURCHASER DEFAULT
If a member fails to purchase, pay for, and take delivery of any lot of
Qualifying Pigs when and as made available to the member pursuant to the Feeder
Pig Purchase Agreement, the member is responsible for the damages and expenses
incurred by the Company as a result of such failure. In particular, the member
is liable for (a) the difference between the price payable by the member for the
Qualifying Pigs that member has failed to purchase, pay for, and take delivery
under the Agreement and the then current market price for feeder pigs, (b)
$3,000, which amount is intended to cover the Company's administrative and other
costs and expenses associated with such failure to purchase, pay for, and take
delivery of the Qualifying Pigs, and (c) all costs of collection, enforcement,
and prosecution of the Company's rights and remedies under the Agreement or
otherwise arising. If a member fails to pay promptly the damages and expenses
incurred by the Company as a result of the member's failure to purchase, pay for
and take delivery of a lot of Qualifying Pigs, such member will not be permitted
to purchase any other lots unless and until such damages and expenses are paid,
and such member also will be responsible for all damages and expenses accruing
to the Company with respect to lots that such member is not permitted to
purchase as a result thereof. In addition to the member's responsibility for
such damages and expenses, the Company may pursue other remedies, including the
termination of the member's Feeder Pig Purchase Agreement. If the member is
prevented from performing under the Feeder Pig Purchase Agreement because of
reasons beyond the member's control which make it commercially impossible to
perform, however, then the member is relieved from such performance so long as
it remains commercially impossible to perform. See "Feeder Pig Purchase
Agreement--Term and Termination" and "-- Grant of Security Interest."
GRANT OF SECURITY INTEREST
Pursuant to the Feeder Pig Purchase Agreement, a member grants to the
Company, as security for the performance of all of the member's obligations
under the Feeder Pig Purchase Agreement, a security interest in all of the
member's equity interest in the Company. In this regard, the certificates
representing shares of Class A Common will be retained by Alliance and members
will be required to endorse appropriate stock powers with respect to such
certificates. The Company's security interest in the member's shares of Class A
Common is to be senior to all others, except for any permissible pledge or other
security interest granted in such shares by the member to any financial
institution for purposes of securing a loan used in financing the member's
acquisition of such shares and as otherwise agreed by the Company in its
discretion. A member's failure to perform his purchase obligation under the
Feeder Pig Purchase Agreement, among other occurrences, may result in the
Company's foreclosure on the security interest in the member's Class A Common.
See "Risk Factors--Obligation to Purchase Pigs" and "-- Right of Alliance to
Acquire Shares" and "Restrictions on Sale or Other Transfer of the Shares--
Cooperative Association Laws and Charter Documents."
WARRANTIES
The Company makes no warranties, express or implied, with respect to feeder
pigs produced by it, except as expressly provided in the Feeder Pig Purchase
Agreement. The Company specifically disclaims any warranties of merchantability
or fitness for a particular purpose and makes no warranty as to any specific
level of performance with respect to any pigs sold thereunder.
ARBITRATION
Any controversy arising out or relating to a Feeder Pig Purchase Agreement
or any breach thereof (other than certain controversies that include, but are
not limited to, controversies arising out of a member's failure to purchase, pay
for, and take delivery of any lot of Qualifying Pigs and the Company's exercise
of any rights or remedies related thereto) is required to be submitted to
binding arbitration under the Feeder Pig Purchase Agreement. Arbitration
hearings are to take place in Denver, Colorado, or at such other location as the
Company and such member may agree, with judgment upon the award rendered by the
arbitrator being entered in any court having jurisdiction.
WEANED PIG PURCHASE AGREEMENTS
GENERAL
The rights and obligations of the parties with respect to the sale of
weaned pigs by the Company to its members will be governed by (i) the Weaned Pig
Purchase Agreements, in the form attached hereto as Exhibit C, in the case of
members owning Class B Common ("Weaned Pig Purchase Agreements"), and (ii) the
Class C Weaned Pig Purchase Agreements, in the form attached hereto as
Exhibit D, in the case of members owning Class C Common ("Class C Weaned Pig
Purchase Agreements" and together with the Weaned Pig Purchase Agreements, the
"Weaned Pig Agreements"). Prospective investors should carefully examine the
Weaned Pig Purchase Agreement and the Class C Weaned Pig Purchase Agreement.
Except as otherwise specifically described under this "Weaned Pig Purchase
Agreements" caption, the provisions of the Weaned Pig Purchase Agreements and
the Class C Weaned Pig Purchase Agreements are substantially identical. Although
the following summary describes the material provisions of each of the Weaned
Pig Agreements, it does not purport to be a complete statement of all provisions
of the Weaned Pig Purchase Agreement or the Class C Weaned Pig Purchase
Agreement and in no way modifies or amends either of the Weaned Pig Agreements.
PURCHASE
The Company intends to sell weaned pigs that meet particular minimum
weight, health, nutrition and genetic quality standards to members of the
Company who have entered into a Weaned Pig Agreement with the Company. Weaned
pigs that meet such standards, as set forth in the Weaned Pig Agreements, are
referred to as "Qualifying Pigs." Pursuant to the terms of the Weaned Pig
Agreements, the member of the Company is required to purchase, and the Company
is required to sell, Qualifying Pigs in lots of no less than 925, and no more
than 1,025, Qualifying Pigs per lot, as determined by the Company. Such lots of
weaned pigs are to be made available to members of the Company on a rotating
schedule determined and implemented by the Company, with the number of lots made
available to a member and the frequency of availability being based upon the
member's proportionate ownership interest in the Company's outstanding Class B
Common or Class C Common, as the case may be, and the actual production of
Qualifying Pigs from the Company's facilities. The Company intends to allocate
its production of weaned pigs from all facilities between those that are to be
sent to nurseries and developed by the Company into feeder pigs, on the one
hand, and those that are to be sold as weaned pigs, on the other hand, in the
same proportion that the number of the Company's operating feeder pig production
facilities bears to the number of the Company's operating weaned pig production
facilities. If the Company is successful in implementing its business plan and
the proposed new weaned pig production facilities are developed on schedule, the
initial lots of weaned pigs resulting from the development and expansion of the
Company's weaned pig production operations are not expected to be available to
new investor members for up to 11 to 13 months after completion of the sale of a
Minimum Class B Block or Minimum Class C Block, as the case may be, of Shares to
such members. New investor members will not be entitled to purchase weaned pigs
from the Company until such time. In the event that (i) the production of
weaned pigs that are to be sold to members under the Weaned Pig Purchase
Agreements exceeds two and seven-tenths (2.7) lots per share of Class B Common
on a prospective rolling 12-month basis, or (ii) the production of weaned pigs
that are to be sold to members under the Class C Weaned Pig Purchase Agreements
exceeds two and one-tenth (2.1) lots per share of Class C Common on a
prospective rolling 12-month basis, the Company may sell such excess production
to non-members, or retain such excess production for the Company's own purposes,
in lieu of selling such excess production pursuant to the Weaned Pig Agreements.
Investor members will not be entitled to purchase any excess production of
weaned pigs. The Company intends to cause any such excess production of weaned
pigs to be retained by the Company for development into feeder pigs. The
Company has agreed in its Swine Production Services Agreement with Farmland to
provide Farmland the first opportunity to purchase any excess weaned pigs that
are to be sold by the Company during the term of said Agreement (and in no event
less than the five year period ending July 13, 1999). See "Certain
Relationships and Related Transactions--Farmland."
PRICE
The Company intends to sell Qualifying Pigs, subject to adjustment for
weight as described below, pursuant to a pricing formula consisting of the sum
of the following factors: the financing cost per pig, the operating cost per
pig, and a production margin of $0 to $4.50 per pig (as determined by the
Company in its discretion). The financing cost per pig applicable to a member is
to be determined on a rolling five-month prospective basis and will be equal to
the quotient obtained by dividing (i) the sum of the anticipated required
payments of principal and interest (including any scheduled sinking fund
payments) for the ensuing 12-month period with respect to the term debt
borrowings incurred by the Company in connection with the consummation of the
sale of Class B Common or Class C Common, as the case may be, to such member, by
(ii) the total number of Qualifying Pigs anticipated to be produced and shipped
by the Company during such 12-month period from the one or more weaned pig
production facilities developed through the use of such term debt borrowings and
the net proceeds from the sale of Class B Common or Class C Common, as the case
may be, to such member (such estimate being based on the total estimated number
of Qualifying Pigs to be produced and shipped by the Company during such 12-
month period from all weaned pig production facilities of the Company). The
operating cost per pig is to be determined on a rolling five-month historical
basis and will be equal to the quotient obtained by dividing (i) the sum of (A)
all expenses (excluding interest expense, depreciation and amortization) of the
Company, plus (B) the net cash flow cost of all capital expenditures of the
Company (including any capital sinking fund payments) for production facility
and breeding stock improvements and replacements, in each case, for the five
months preceding the then present month of shipment, by (ii) the number of
Qualifying Pigs produced and shipped by the Company during such five-month
period. The production margin per pig is to be determined by the Company in its
discretion, subject to the satisfaction of any applicable covenants imposed by
the Company's lender. At the time the Company notifies a member that a lot is
available for purchase by the member pursuant to the member's Weaned Pig
Agreement, the Company will furnish to the member an estimate of the total
purchase price of all Qualifying Pigs included in the lot, and the member is
required to pay such estimated total purchase price to the Company not less than
one day prior to the scheduled shipment date. The actual total purchase price
of all Qualifying Pigs included in a lot sold to a member will be based upon
weight at the time of loading and settlement of any adjustments shall be made
within five days following delivery.
WEIGHT ADJUSTMENT
The purchase price for Qualifying Pigs is subject to adjustment based upon
the extent of any variation in the average weight of Qualifying Pigs from 8 to
12 pounds. To the extent that the average weight of a shipment of Qualifying
Pigs exceeds 12 pounds per pig, the purchaser will pay an additional $1.00 per
pound per pig. To the extent that the average weight of a shipment of
Qualifying Pigs is less than 8 pounds per pig, the purchase price will be
decreased by $1.00 per pound per pig.
DELIVERY OF PIGS
The Company will be responsible for obtaining, at the Company's expense,
all health permits necessary to qualify the pigs for interstate shipment. It is
anticipated that all lots of Qualifying Pigs will be weighed at the Company's
expense at a state-inspected scale near the Company's production facility.
Delivery is to be FOB shipping point, with the members bearing the risk of loss
during transit, and the trucks used to haul Qualifying Pigs from the Company's
production facility must be thoroughly cleaned and disinfected prior to loading.
A member may inspect the lot of Qualifying Pigs to be purchased by such member
prior to loading. After the delivery of pigs at their destination, a member
will have the right to seek an appropriate price adjustment for any pig which is
found not to be a Qualifying Pig. Such adjustment will be made following the
Company's inspection of the subject pigs, and will be determined through mutual
agreement of the Company and the member.
TERM AND TERMINATION
A member's Weaned Pig Agreement will be for an initial term commencing on
the date entered into and continuing for a period of 120 months after the date
the first delivery of Qualifying Pigs is made to the member thereunder, subject
to earlier termination upon the occurrence of certain events. Weaned Pig
Agreements will be extended automatically for succeeding one year terms unless
the member gives to the Company, not less than one year prior to the expiration
of the initial or any extended term, notice that the member desires to terminate
the Weaned Pig Agreement as of the expiration of such initial or extended term.
The Company may terminate a member's Weaned Pig Agreement if the member fails to
purchase, pay for, and take delivery of any two lots of Qualifying Pigs when and
as made available to the member; provided, however, that for each ten shares of
Common Stock owned by a member, the number of such failures necessary before the
Company may terminate such member's Agreement is increased by one. The member
may terminate the Weaned Pig Agreement if the Company materially breaches any
obligation or covenant in the Agreement and such breach is not cured within 30
days following notice of such breach given by the member to the Company.
Furthermore, if the first delivery of Qualifying Pigs thereunder is not made
within 24 months of the date of the Weaned Pig Agreement, the member may
terminate the Agreement within three months after the expiration of such 24-
month period. If either party is prevented from performing under the Weaned Pig
Agreement because of reasons beyond its control which make it commercially
impossible to perform, however, then that party is relieved from such
performance so long as it remains commercially impossible to perform. A
member's Weaned Pig Agreement automatically terminates if the member assigns or
transfers all shares of Class B Common or Class C Common, as the case may be,
from which the member's right to purchase lots of Qualifying Pigs under the
Agreement derives. Except as described above, a member does not have the right
to terminate the Weaned Pig Agreement prior to the expiration of the initial or
any extended term thereof. As noted above, the member's right to terminate the
Weaned Pig Agreement at the expiration of the initial or any extended term
thereof may be exercised only if the member gives notice to the Company at least
one year prior to the expiration of such initial or extended term that the
member desires to exercise such termination right. The foregoing termination
rights constitute the member's exclusive rights of termination under the Weaned
Pig Agreements. No member has the right to demand the return of or to receive
any of the member's capital from the Company as a result of the termination of
the Weaned Pig Agreements or otherwise and regardless of whether demanded prior
to the expiration of the initial or any extended term of the Weaned Pig
Agreements or at any time after the expiration of any such term. The Company is
under no obligation to redeem or repurchase its Class B Common or Class C Common
prior to the expiration of the initial or any extended term of the Weaned Pig
Agreements or at any time after the expiration of any such term. See "Risk
Factors--Lack of Liquidity; Absence of Market for Shares," "Restrictions on Sale
or Other Transfer of the Shares--Cooperative Association Laws and Charter
Documents."
EFFECT OF PURCHASER DEFAULT
If a member fails to purchase, pay for, and take delivery of any lot of
Qualifying Pigs when and as made available to the member pursuant to the Weaned
Pig Agreements, the member is responsible for the damages and expenses incurred
by the Company as a result of such failure. In particular, the member is liable
for (a) the difference between the price payable by the member for the
Qualifying Pigs that member has failed to purchase, pay for, and take delivery
under the Agreement and the then current market price for weaned pigs, (b)
$3,000, which amount is intended to cover the Company's administrative and other
costs and expenses associated with such failure to purchase, pay for, and take
delivery of the Qualifying Pigs, and (c) all costs of collection, enforcement,
and prosecution of the Company's rights and remedies under the Agreement or
otherwise arising. If a member fails to pay promptly the damages and expenses
incurred by the Company as a result of the member's failure to purchase, pay for
and take delivery of a lot of Qualifying Pigs, such member will not be permitted
to purchase any other lots unless and until such damages and expenses are paid,
and such member also will be responsible for all damages and expenses accruing
to the Company with respect to lots that such member is not permitted to
purchase as a result thereof. In addition to the member's responsibility for
such damages and expenses, the Company may pursue other remedies, including the
termination of the member's Weaned Pig Agreement. If the member is prevented
from performing under the Weaned Pig Agreements because of reasons beyond the
member's control which make it commercially impossible to perform, however, then
the member is relieved from such performance so long as it remains commercially
impossible to perform. See "Weaned Pig Purchase Agreements--Term and
Termination" and "-- Grant of Security Interest."
GRANT OF SECURITY INTEREST
Pursuant to the Weaned Pig Agreements, a member grants to the Company, as
security for the performance of all of the member's obligations under the Weaned
Pig Agreements, a security interest in all of the member's equity interest in
the Company. In this regard, the certificates representing shares of Class B
Common and Class C Common will be retained by Alliance and members will be
required to endorse appropriate stock powers with respect to such certificates.
The Company's security interest in the member's shares of Class B Common and
Class C Common is to be senior to all others, except for any permissible pledge
or other security interest granted in such shares by the member to any financial
institution for purposes of securing a loan used in financing the member's
acquisition of such shares and as otherwise agreed by the Company in its
discretion. A member's failure to perform his purchase obligation under the
Weaned Pig Agreements, among other occurrences, may result in the Company's
foreclosure on the security interest in the member's Class B Common or Class C
Common, as the case may be. See "Risk Factors--Obligation to Purchase Pigs" and
"-- Right of Alliance to Acquire Shares" and "Restrictions on Sale or Other
Transfer of the Shares--Cooperative Association Laws and Charter Documents."
WARRANTIES
The Company makes no warranties, express or implied, with respect to weaned
pigs produced by it, except as expressly provided in the Weaned Pig Agreements.
The Company specifically disclaims any warranties of merchantability or fitness
for a particular purpose and makes no warranty as to any specific level of
performance with respect to any pigs sold thereunder.
ARBITRATION
Any controversy arising out or relating to a Weaned Pig Agreements or any
breach thereof (other than certain controversies that include, but are not
limited to, controversies arising out of a member's failure to purchase, pay
for, and take delivery of any lot of Qualifying Pigs and the Company's exercise
of any rights or remedies related thereto) is required to be submitted to
binding arbitration under the Weaned Pig Agreements. Arbitration hearings are
to take place in Denver, Colorado, or at such other location as the Company and
such member may agree, with judgment upon the award rendered by the arbitrator
being entered in any court having jurisdiction.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names of the current directors and executive officers of the Company,
their ages and present positions and offices with the Company are as follows:
Name Age Position and Offices Held
Wayne N. Snyder 53 Chairman of the Board, President and Director
Scott R. Webster 36 Vice President and Chief Operating Officer
Doug Brown 38 Treasurer, Secretary and Director
Merl Daniel 51 Director
Gerald D. Johnson 54 Director
Loren Keppy 35 Director
Set forth below is a description of the business experience of each
director and executive officer of the Company.
Wayne N. Snyder has served as Chairman of the Board, President and Director
of the Company since its formation in May, 1994, and has served as General
Manager of Yuma LLC, the Company's predecessor, from October, 1991 to July,
1994. Mr. Snyder has served as Director of Livestock Production for Farmland
since 1989. In that capacity, he is responsible for all activities of
Farmland's livestock production department. His professional career includes
over 20 years of experience with Farmland in a variety of positions, including
Regional Manager and Vice President--Sales.
Scott R. Webster has served as Vice President and Chief Operating Officer
of the Company since July, 1995, and has served as a member of the Company's
senior management since November, 1994. Mr. Webster is Manager of Pork
Production for Farmland, where he is responsible for all of Farmland's pork
production activities. Prior to joining Farmland in November, 1994, Mr. Webster
served as Director of Nutrition, Research and Development at Brown's of Carolina
since June, 1992, where he was involved in developing the company from 8,000
sows to 50,000 sows. He has been involved in pork production activities since
1975 and also was employed by DeKalb Feeds upon the completion of a Master of
Science degree from the University of Missouri in 1985 until June, 1992.
Doug Brown has served as Treasurer and as a Director of the Company since
its formation in May, 1994, and as Secretary of the Company since October, 1994.
He served as a manager of Yuma LLC from October, 1991 to July, 1994. Mr. Brown
has served as the Vice President and General Manager of Yuma Cooperative since
1990. Prior to that time, Mr. Brown served as the general manager of the
Douglas Farmers Cooperative in Douglas, Oklahoma for four years.
Merl Daniel has served as a Director of the Company since March, 1995. Mr.
Daniel has been employed by Farmland since 1968, and has served in his present
capacity of Vice President and Controller for Farmland since July, 1992. From
October, 1990 to July, 1992, he served as Farmland's Director MIS, Operations
and Technical Support, in which capacity he managed Farmland's computer
operations. Prior to October, 1990, Mr. Daniel served Farmland in a variety of
other capacities.
Gerald D. Johnson has served as a Director of the Company since September,
1994. Mr. Johnson has been employed by Farmers Cooperative Elevator Company,
Plymouth, Nebraska as its General Manager since October 1992. Prior to that
date, he served six years as Controller of Farmers Cooperative Business
Association, Shelby, Nebraska. For the approximately 32 years prior to assuming
such position, he served in a variety of positions with several other
cooperative associations.
Loren Keppy has served as a Director of the Company since June 1996. Mr.
Keppy has been self-employed as a farmer since 1984. In this regard, he
currently operates a 5,000 head per year hog finishing operation near Durant,
Iowa, in addition to farming 470 acres of crops. Mr. Keppy received a Bachelor
of Science degree in Industrial Technology from the University of Northern Iowa,
and is a member of the River Valley Coop.
Officers are elected annually by the Board of Directors and serve until
their respective successors are duly elected and qualified. The Company's Board
of Directors currently consists of five directors: Messrs. Snyder, Brown,
Daniel, Johnson and Keppy. The members of the Board of Directors are elected
for one year terms expiring at the annual meeting of stockholders or until their
respective successors are duly elected and qualified, unless sooner removed or
disqualified. The Company's Articles of Incorporation and Bylaws provide that
at least a majority of the directors constituting the Board of Directors shall
be, and less than a majority of the directors need not be, members or duly
authorized representatives of members of the Company.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provides, in effect, that a
director of the Company, in his capacity as such, will not be personally liable
to the Company or its members or stockholders for monetary damages for
violations of a director's fiduciary duty. In accordance with the Colorado
Cooperative Association Law, however, the Articles of Incorporation do not
eliminate or limit the liability of a director for breaching his duty of
loyalty, acting or failing to act in good faith, engaging in intentional
misconduct or knowingly violating a law, or obtaining an improper personal
benefit. Although the Articles of Incorporation preclude monetary damage awards
occasioned by a breach of a director's fiduciary duty, it does not relieve a
director of his fiduciary duties and does not prevent a stockholder from seeking
equitable remedies, including an injunction prohibiting a proposed action or
transaction, or from seeking recision of a transaction.
The Company's Articles of Incorporation permit the Company to indemnify its
directors, officers, employees and agents, or any person who serves at the
request of the Company as a director, officer, partner, trustee, employee,
fiduciary or agent of another corporation or other person or of an employee
benefit plan, to the fullest extent permitted by Colorado law. The Company's
Bylaws require the Company to indemnify any person against all liabilities and
expenses actually and reasonably incurred by such person in connection with any
proceeding by reason of the fact that such person is or was serving as a
director or officer of the Company or, while a director or officer of the
Company, is or was serving at the Company's request as a director, officer,
partner, trustee, employee, fiduciary or agent of another corporation or other
person or of an employee benefit plan; provided that such person acted in good
faith and in a manner such person reasonably believed, in the case of conduct in
an official capacity, to be in the Company's best interests and, in all other
cases, to be not opposed to the Company's best interests, and, with respect to
any criminal action or proceeding, that such person had no reasonable cause to
believe such person's conduct was unlawful; and provided, further, that the
Company shall not indemnify any person for any liabilities or expenses incurred
by such person in connection with a proceeding by or in the right of the Company
in which such person shall have been adjudged to be liable to the Company or in
connection with any other proceeding in which such person shall have been
adjudged to have derived an improper personal benefit. The indemnification
provided by the Company's Articles of Incorporation and Bylaws is not exclusive
of any other rights to which those seeking indemnification may be otherwise
entitled. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company 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.
DIRECTOR COMPENSATION
Although the Company's Bylaws provide that directors may be compensated for
their services, no compensation has been awarded to, earned by or paid to
members of the Company's Board of Directors for service to the Company as such.
Each director may be reimbursed for such director's reasonable out-of-pocket
expenses incurred in the performance of service to the Company as a director if
authorized by the Board of Directors.
EXECUTIVE COMPENSATION
No compensation has been awarded, earned by or paid to Wayne N. Snyder, the
chief executive officer of the Company, by the Company for services rendered to
the Company as such during the period from the Company's organization on May 3,
1994 through August 31, 1996. Mr. Snyder is employed by Farmland, which has
agreed to provide certain administrative, advisory and consulting services to
the Company under the terms of a Swine Production Services Agreement. No
executive officer of the Company at August 31, 1996 was awarded, earned or was
paid compensation in excess of $100,000 for services rendered to the Company as
such during the fiscal year ended August 31, 1996. See "Management--Directors
and Executive Officers" and "Certain Relationships and Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERAL
As of the date of this Prospectus, Farmland and Yuma Cooperative own
approximately 49.0% and 11.8%, respectively, of the Class A Common of the
Company. In connection with the formation of the Company as a Colorado
cooperative association on May 3, 1994, one share of the Company's Class A
Common was issued to Farmland for the purchase price of $100. On July 13, 1994,
the Company acquired the entire equity ownership rights and interests in Yuma
LLC, a Colorado limited liability corporation in which Farmland and Yuma
Cooperative owned approximately 71.5% and 28.5%, respectively, of the
outstanding equity interests. In exchange for their respective equity interests
in Yuma LLC, Farmland and Yuma Cooperative were issued 30 shares and 12 shares,
respectively, of the Company's Class A Common. Yuma LLC thereupon was dissolved
and liquidated and its assets and liabilities were assigned to and assumed by
Alliance. Said assets and liabilities have been reflected on the Company's
balance sheet at Yuma LLC's book value, which consisted of $3,027,091 and
$80,291 in total assets and liabilities, respectively, at July 8, 1994. As of
the date of this Prospectus, the Company has consummated its issuance and sale
to Farmland of an additional 17 Class A Shares in exchange for the purchase
price of $1,360,000. The Company has entered into various contractual
arrangements with both Farmland and Yuma Cooperative for the provision of
specific goods and services. All future transactions between the Company and
its officers, directors, employees and affiliates, including Farmland and Yuma
Cooperative, will be on terms no less favorable to the Company than can be
obtained from unaffiliated parties. All such transactions will be subject to
the approval of a majority of the independent outside members of the Board of
Directors who do not have an interest in the transactions. See "Principal
Stockholders."
FARMLAND
Farmland is a Kansas cooperative association engaged in regional farm
supply and marketing operations, including the processing and marketing of pork
and beef. Farmland's livestock production department is directly engaged in the
production of feeder pigs and finished hogs through contractual arrangements
with independent producers, the ownership of pig production operations in joint
venture with both agricultural cooperatives and independent producers, as well
as other activities including the operation of feeder pig brokerage services.
Wayne N. Snyder, Scott R. Webster and Merl Daniel each are employed by Farmland
and presently serve as directors or executive officers of the Company.
Farmland, through its various business divisions and interests, is engaged
in providing to competitors of the Company certain goods and services, including
the supply of feed and other inputs, breeding stock and administrative services,
among others, which are comparable to those being provided by Farmland to the
Company. Moreover, Farmland also is directly engaged in the production of hogs
through the direct ownership of animals and facilities, through contractual
arrangements with other producers, and through joint venture arrangements
established with other parties. Because of Farmland's various activities, there
may arise conflicts of interest between Farmland and the Company. The Company
anticipates that Farmland may continue to engage and invest in activities and
businesses other than those of Alliance. Thus, Farmland may have conflicts of
interest in allocating its resources and management time, services and functions
among the Company and such other activities. Similarly, with respect to the
employees of Farmland serving as officers or directors of the Company,
Farmland's other business interests may result in competition for their time,
services and functions.
Swine Production Consulting and Services Agreement. The Company has
entered into various contractual arrangements with Farmland for the provision of
specific goods and services. Under the terms of a Swine Production Services
Agreement with the Company, Farmland, acting as independent contractor, has
agreed to provide certain administrative, advisory and consulting services to
the Company, including the following: performing various ministerial services,
including data entry of transactions for accounting purposes and computer
generation of financial and operational reports and checks; compilation of the
production records with respect to each feeder and weaned pig production
facility; logistical backup and coordination, including facilitating the
acquisition, servicing, transportation and sale of genetic stock, breeding
stock, feeder pigs and weaned pigs; facilitating the purchase of inputs for the
Company; assistance in sourcing feed ingredients, animal health products and
veterinarian services; assistance in arranging financing; assistance in
selection of suitable sites for the Company's facilities; assistance in
obtaining appropriate permits for the construction and operation of facilities
for the Company; assistance in the recruitment, selection and training of
general managers for the Company; and advice and consultation with respect to
management practices, feed formulations and other aspects of the Company.
Farmland has agreed to assist the Company in acquiring the necessary
management and labor to adequately staff and operate the Company's pig
production facilities. The Company will cause the new pig production facilities
to be constructed, provide initial and replacement breeding stock purchased from
Farmland or other sources which, under normal circumstances, will be sufficient
to keep the facilities in full production and provide adequate record keeping to
allow Farmland to provide the accounting and reporting functions required of it
under the Swine Production Services Agreement. Finally, the Company will grant
Farmland reasonable access to the facilities, in accordance with good
bio-security practices, to allow Farmland to provide its required services.
Farmland will be paid one dollar ($1.00) for each feeder or weaned pig sold by
the Company as partial compensation for Farmland's duties under the agreement.
Such amount is subject to adjustment annually commensurate with, and based upon,
changes in the Consumer Price Index. For the years ended August 31, 1996 and
1995, the Company paid Farmland a total of $151,905 and $47,045, respectively,
for its provision of administrative, advisory and consulting services pursuant
to the Swine Production Services Agreement. Farmland also may provide a
significant portion of the feed ingredients, nutritional supplements and animal
health supplies required by the Company at Farmland's customary rates. For the
years ended August 31, 1996 and 1995, the Company purchased $303,963 and
$71,438, respectively, of feed ingredients, nutritional supplements and animal
health supplies from Farmland.
Farmland will purchase from the Company gilts produced by the Company for
purposes of finishing for use as breeding stock by the Company, subject to
available finishing capacity of Farmland. Upon completion of such finishing,
Farmland will resell to the Company any such gilts that survive finishing by
Farmland. The purchase price to be paid by Farmland to the Company for gilts
will be based on the purchase price specified in the Feeder Pig Purchase
Agreement between Farmland and the Company or, if no such agreement is then in
effect, the purchase price specified in the most recent effective Feeder Pig
Purchase Agreement between Farmland and the Company. The purchase price to be
paid by the Company to Farmland for finished gilts will be based upon the
prevailing market price of hogs at the time of purchase, plus any royalty fees
payable by Farmland and a handling fee of $10.00 per gilt. For the years ended
August 31, 1996 and 1995, the Company purchased finished gilts from Farmland at
an aggregate price of $872,979 and $189,253, respectively. In the event that
the Company does not purchase any such finished gilts, Farmland may either
market such gilts for slaughter or retain such gilts for use as breeding stock.
Farmland has agreed to pay a $10.00 per head fee to the Company for any such
finished gilts that are retained by Farmland for use as breeding stock. For
the year ended August 31, 1996, Farmland paid $31,590 of such fees to the
Company.
It is anticipated that Farmland may provide hybrid gilts from additional
multiplier facilities to meet a portion of the Company's initial stocking and
ongoing requirements for breeding stock with respect to each pig production
facility in existence, under development or proposed. The actual number of
replacement gilts purchased from Farmland will be affected by the Company's
requirements and the availability of animals from Farmland's facilities. The
purchase price of replacement hybrid breeding stock is to be based upon the
prevailing market price of breeding stock at the time of purchase.
In the Swine Production Services Agreement, the Company has granted
Farmland an option during the term of the Agreement (and in no event less than
the five-year period ending July 13, 1999) to purchase (a) excess feeder pigs
produced by the Company and excess weaned pigs produced by the Company at the
price per pig equal to the average price per pig paid by stockholders under
Feeder Pig Purchase Agreements or Weaned Pig Purchase Agreements, as the case
may be, for the then immediately preceding month, and (b) feeder pigs and weaned
pigs that a stockholder has failed to purchase under such stockholder's Feeder
Pig Purchase Agreement or Weaned Pig Purchase Agreements, as the case may be, at
the price per pig determined pursuant to such Agreement. The Company also has
granted Farmland an option to purchase any shares of Common Stock reacquired by
the Company.
Feeder Pig Purchase Agreement. As a member of the Company, Farmland has
contracted with the Company to purchase a share of the feeder pigs to be
produced by the Company under the same terms required of the Company's other
members, except that during the period commencing on July 13, 1994 and ending on
August 11, 1995, the date the Company first produced and shipped feeder pigs
pursuant to the Feeder Pig Purchase Agreements with the Company's existing
members, the price paid by Farmland for feeder pigs was based only on the
Company's operating cost per pig; provided, however, that such price was
increased by $4.50 per feeder pig after July 13, 1995. Commencing on August 11,
1995, the date the Company first produced and shipped feeder pigs pursuant to
the Feeder Pig Purchase Agreements with the Company's existing members (other
than Farmland and Yuma Cooperative), the price paid by Farmland for feeder pigs
is and will be under terms comparable to those applicable to the Company's
members pursuant to the Feeder Pig Purchase Agreements. For the years ended
August 31, 1996 and 1995, Farmland purchased feeder pigs from the Company
(including Yuma Cooperative's share of feeder pigs produced by the Company) at
an aggregate price of $5,035,160 and $1,467,069, respectively. Finally, the
Company has agreed to provide Farmland the first opportunity to purchase any
feeder pigs produced by the Company in excess of the Company's supply
commitments to other members or that other members have failed to purchase
during the term of the Swine Production Services Agreement (and in no event less
than the five-year period ending July 13, 1999). See "Feeder Pig Purchase
Agreement" and "Certain Relationships and Related Transactions--Yuma
Cooperative--Feeder Pig Purchase Agreement."
Real Estate Loans. Between September and December 1995, the Company
purchased approximately 1,000 acres of real property in Yuma County, Colorado,
upon which the Company has developed one production facility and holds the
remaining acreage for the development of additional production facilities (the
"Additional Colorado Property"). The acquisition cost of this Additional
Colorado Property was approximately $760,000. The Company obtained funding for
the purchase of the Additional Colorado Property from the proceeds of a loan
obtained from Farmland. In conjunction with this loan, the Company delivered to
Farmland a promissory note evidencing the debt providing for the amortization of
the loan over a ten-year period, at a variable rate equal to CoBank's prime
rate. As of August 31, 1996, CoBank's prime rate was 8.25%. The payment
schedule of the promissory note requires that the Company make interest-only
payments for the life of the loan, with a final balloon payment of the principal
at the expiration of the ten-year term. To secure the obligations of the
promissory note, the Company has agreed to execute a deed of trust in favor of
Farmland covering all of the Additional Colorado Property, which deed of trust
is second in priority to that of CoBank with respect to the production facility
constructed thereon. See "Business--Facilities."
In November 1996, the Company exercised its rights under an option contract
to acquire an approximately 90 acre tract of real property in Wayne County,
Illinois, including 45 acres (the "45 Acre Tract") on which the Company has
commenced preliminary development activities with respect to a second Illinois
sow production facility. The Company obtained funding for the purchase of the
45 Acre Tract from the proceeds of a $200,000 loan provided by Farmland. In
conjunction with this loan, the Company delivered to Farmland a promissory note
evidencing the debt providing for amortization over a ten-year period, at a
variable rate equal to CoBank's then national variable rate plus 1.25%. The
payment schedule for the Farmland loan requires the Company to make
interest-only payments for the life of the loan, with a final balloon payment of
all principal to be made upon the earlier of (i) the Company's issuance and sale
of a Minimum Block of Shares, and (ii) the expiration of ten years. Alliance's
obligation to Farmland under this note is secured by a mortgage on the 45 Acre
Tract. See "Business--Facilities."
Pig Producers I, L.P. Farmland holds a 12.5% interest in Pig Producers I,
L.P. ("Pig Producers"), a limited partnership engaged in the production of
feeder pigs from a 2,450-sow feeder pig production facility located in Yuma
County, Colorado. The Company has assigned 14 employees of its employees to
perform various facilities operation services for Pig Producers. Pig Producers
reimburses the Company for all wages, benefits and other costs attributable to
these 14 Alliance employees. From time to time, the Company and Pig Producers
also engage in various commercial transactions related to the sale of genetic
stock, breeding stock, feed ingredients and animal health supplies.
Colorado Repopulation. In connection with the repopulation of the
Company's feeder pig production facilities located in Yuma County, Colorado, the
Company intends to arrange for the finishing of new breeding sows on facilities
of independent producers. In this regard, Alliance has contracted with Farmland
for the use of facilities as to which Farmland has acquired rights from the
owners of such facilities. During the approximately 14 months that Alliance
intends to use such facilities, Alliance will have approximately 9,240 pig
spaces available to it. Alliance will be obligated to pay the facilities owner
a monthly fee equal to $31.50 per pig space divided by 12. In addition,
Farmland will be entitled to a monthly fee from Alliance equal to $1.00 per pig
space divided by 12. See "Business--Breeding Stock."
YUMA COOPERATIVE
Yuma Cooperative is a Colorado cooperative association engaged in farm
supply and grain marketing activities. Doug Brown is Vice President and General
Manager of Yuma Cooperative and serves as a director and executive officer of
the Company.
Yuma Cooperative is engaged in providing to competitors of the Company and
other users certain goods and services, including the supply of feed and animal
health products, which are comparable to those provided by Yuma Cooperative to
the Company. Because of its other business activities, conflicts of interest
may arise between Yuma Cooperative and the Company. With respect to the
employees of Yuma Cooperative serving as officers or directors of the Company,
Yuma Cooperative's other business interests may result in competition for their
time, services and functions.
Feed Purchase Agreement. The Company has entered into a Feed Purchase
Agreement with Yuma Cooperative respecting the supply of manufactured feed and
animal health products. In this capacity, Yuma Cooperative has agreed to
purchase feed-grains and feed additives for the production of feed which,
together with animal health products, will be sold to the Company. In exchange
for providing these goods and services, Yuma Cooperative is entitled to
compensation based upon a fixed charge for the grinding, mixing, and delivery of
feed ($14 per ton as of November 1, 1996), in addition to the actual delivered
cost of the feed ingredients. Feed rations which are pelleted are subject to a
surcharge ($7 per ton as of November 1, 1996). Both the fixed charge and the
surcharge are subject to annual increases in November of each year corresponding
to any increases in the Consumer Price Index -- Retail Items. Corn provided by
Yuma Cooperative for use in feed generally is sold to the Company at delivered
cost plus, in the absence of available Company grain storage facilities, a $.10
per bushel handling fee. The Company has the right under the Feed Purchase
Agreement, in its sole discretion, to purchase and provide its own corn for feed
manufacturing. For the years ended August 31, 1996 and 1995, the Company
purchased $3,423,773 and $1,068,014, respectively, of feed from Yuma
Cooperative. See "Business--Purchase of Feed and Other Inputs."
Feeder Pig Purchase Agreement. As a member of the Company, Yuma Cooperative has
contracted with the Company to purchase a share of the feeder pigs to be
produced by the Company under the same terms required of the Company's other
members, except that during the period commencing on July 13, 1994 and ending on
August 11, 1995, the date the Company first produced and shipped feeder pigs
pursuant to the Feeder Pig Purchase Agreements with the Company's existing
members, the price paid by Yuma Cooperative for feeder pigs was based only on
the Company's operating cost per pig; provided, however, that such price was
increased by $4.50 per feeder pig after July 13, 1995. Commencing on August 11,
1995, the date the Company first produced and shipped feeder pigs pursuant to
the Feeder Pig Purchase Agreements with the Company's existing members (other
than Farmland and Yuma Cooperative), the price paid by Yuma Cooperative for
feeder pigs is and will be under terms comparable to those applicable to the
Company's members pursuant to the Feeder Pig Purchase Agreements. For the years
ended August 31, 1996 and 1995, Yuma Cooperative's share of feeder pigs produced
by the Company was purchased from the Company by Farmland. See "Feeder Pig
Purchase Agreement" and "Certain Relationships and Related Transactions--
Farmland--Feeder Pig Purchase Agreement."
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus regarding the beneficial ownership of Class A Common by Farmland,
Farmers Cooperative Elevator Company, Yuma Cooperative and Farmers Cooperative
Association; the only persons who were the beneficial owners of more than 5% of
the outstanding Class A Common as of such date. No directors or executive
officers of the Company were the beneficial owners of Alliance Class A Common as
of the date of this Prospectus. As of that date, no shares of Class B Common or
Class C Common were outstanding. All information with respect to beneficial
ownership has been furnished by the respective 5% or more stockholder.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS A
BENEFICIAL OWNER BENEFICIAL OWNER(1) COMMON OUTSTANDING
<S> <C> <C>
Farmland Industries, Inc. (2)
3315 North Oak Trafficway
Kansas City, MO 64116 50 49.0%
Farmers Cooperative Elevator
Company (3)
501 East Main Street
Plymouth, NE 68424 11 10.8%
Yuma Farmers Milling and Mercantile
Cooperative Company (4)
101 South Detroit
Yuma, CO 80759 12 11.8%
Corn Plus, L.C. (5)
212 North Agora Street
Marathon, Iowa 50565 6 5.9%
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities. Unless otherwise
indicated, the persons or entities identified in this table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them. Percentage ownership calculations are based on
102 shares of Class A Common outstanding.
(2) The voting and disposition of the shares of Class A Common held by Farmland
are subject to the discretion of the board of Directors of Farmland.
Pursuant to the Company's Articles of Incorporation, Farmland is prohibited
from voting shares of Common Stock representing 25% or more of the shares
outstanding during any period in which the Company has borrowed money from
a lender subject to regulations of the Farm Credit Administration regarding
loan policies and operations (such as the Company's current lender). As of
the date of this Prospectus, the Company had borrowed funds from such a
lender. See "Business--Financing" and "Description of Capital Stock."
(3) The voting and disposition of the shares of Class A Common held by Farmers
Cooperative Elevator Company are subject to the discretion of the Board of
Directors of Farmers Cooperative Elevator Company.
(4) The voting and disposition of the shares of Class A Common held by Yuma
Cooperative are subject to the discretion of the Board of Directors of Yuma
Cooperative.
(5) The voting and disposition of the shares of Class A Common held by Corn
Plus, L.C. are subject to the discretion of the managerJWA[4] of Corn Plus,
L.C.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 5,000 shares of
(Class A) common stock, $.01 par value per share, 2,500 shares of Class B common
stock, $.01 par value per share, and 2,500 shares of Class C common stock, $.01
par value per share. As of the date of this Prospectus, there were 102 shares
of Class A Common outstanding, which were held of record by 17 stockholders, and
no shares of Class B Common or Class C Common outstanding. Only producers of
agricultural products, associations of such producers, and federations of such
associations who have executed and delivered to the Company a Feeder Pig
Purchase Agreement may own Class A Common, only producers of agricultural
products, associations of such producers, and federations of such associations
who have executed and delivered to the Company a Weaned Pig Purchase Agreement
may own Class B Common, and only producers of agricultural products,
associations of such producers, and federations of such associations who have
executed and delivered to the Company a Class C Weaned Pig Purchase Agreement
may own Class C Common. Only stockholders of the Company may be members of the
Company. Except as otherwise specifically described under this "Description of
Capital Stock" caption, the powers, preferences and rights of the Class A
Common, Class B Common and Class C Common are in all respects identical. To the
extent permitted by applicable law, the Board of Directors of the Association is
authorized to provide by resolution for the issuance of shares of stock of any
class or of any series of any class at any time and to determine, prior to the
issuance of any shares of stock of that class or series, the designations,
preferences, limitations and relative rights, if any, thereof.
Except as described in the immediately following sentence, holders of Class
A Common and Class B Common are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and holders of Class C Common are
entitled to three-fourths of one vote for each share held on all matters
submitted to a vote of stockholders. During any period in which the Company has
borrowed money from a lender subject to regulations of the Farm Credit
Administration regarding loan policies and operations (such as the Company's
current lender), (i) no cooperative association stockholder is permitted to vote
shares of Common Stock representing 25% or more of the shares then outstanding
with respect to any matter as to which members are not entitled to vote
separately as a group or class and (ii) no cooperative association stockholder
is permitted to vote shares of Common Stock representing 25% or more of the
shares of any class then outstanding with respect to any matter as to which
members are entitled to vote separately as a group or class. JWA[5]A majority
of the outstanding shares of Common Stock entitled to vote constitutes a quorum
at any stockholder meeting, except that if any class of capital stock is
entitled to vote separately as a class or group, such a quorum must also be
obtained with respect to such class. The affirmative vote of at least two-
thirds of the shares represented at a meeting at which a quorum is present is
required to amend the Company's Articles of Incorporation, to approve certain
mergers, consolidations or sales of all or substantially all of the Company's
assets and to approve certain other matters. Holders of the Class A Common,
holders of the Class B Common and holders of the Class C Common must vote
separately as groups or classes with respect to amendments to the Articles of
Incorporation that alter or change the designation, preferences, limitations or
relative rights of their respective classes of stock so as to affect them
adversely and with respect to such other matters as may require group or class
votes under applicable law. Holders of the Common Stock do not have cumulative
voting rights in the election of directors or preemptive rights to purchase
additional shares of Common Stock, and have no subscription, redemption or
conversion rights.
All outstanding shares of Common Stock are, and when issued the Shares
offered hereby will be, validly issued, fully paid and nonassessable. Holders
of Common Stock are entitled to such patronage distributions as may be paid in
the manner determined by the Board of Directors out of funds legally available
therefor, subject to certain provisions contained in the loan agreement with the
Company's existing lender which restrict the ability of Alliance to pay
patronage distributions in cash. The Company intends to distribute, at least
annually, all of its net margins, if any, as patronage distributions to its
stockholders on the basis of the quantity or value of business done by the
Company with or for each stockholder. The Company's "net margins" for this
purpose generally are equal to the Company's net income under generally accepted
accounting principles (taxable income through and including August 31, 1997)
attributable to patronage sourced business done with or for the Company's
members (determined before reduction for patronage distributions paid by the
Company). In this regard, the Company will compute its net income or taxable
income, as the case may be, separately for each group of members (including
successors and permitted assigns) whose shares of the Company's Common Stock
originally were issued in connection with the Company's acquisition or
development of one or more feeder or weaned pig production units financed in
part thereby. See "Patronage Distribution Policy."
Upon liquidation, dissolution or winding-up of the Company, the assets
legally available for distribution to stockholders, after satisfying the prior
distribution rights of creditors of the Company, are distributable ratably among
the holders of capital credits and Common Stock at that time outstanding in
proportion to the sum of (a) the consideration received by the Company in
exchange for each such share of Common Stock issued to the holder thereof (or
such holder's predecessors in interest), plus (b) the aggregate amount of
principal payments made by such holder (or such holder's predecessors in
interest) pursuant to such holder's (or such holder's predecessors in
interest's) Feeder Pig Purchase Agreement, Weaned Pig Purchase Agreement or
Class C Weaned Pig Purchase Agreement, as the case may be, with respect to the
debt incurred by the Company for the construction and working capital needs of
the production facilities constructed with respect to the issuance of such
holder's shares of Common Stock.
The Shares are subject to provisions of the Colorado Cooperative
Association Law and the Company's Articles of Incorporation and Bylaws which
restrict the transferability of the Common Stock, and include a Bylaw provision
that gives the Company the right to purchase the Common Stock of a stockholder
upon the occurrence of certain events. Such provisions will make it more
difficult to effect a change in control of the Company. See "Restrictions on
Sale or Other Transfer of the Shares." In addition, the Company's Articles of
Incorporation require approval by the holders of at least two-thirds of a quorum
of the outstanding shares of Common Stock to amend, alter, change or repeal any
provision of the Company's Articles of Incorporation, to approve any sale,
lease, exchange or other disposition of all or substantially all of the property
and assets of the Company, to approve any merger or consolidation of which the
Company is a party and to which the vote of the members is required by law, or
to approve any dissolution or voluntary termination of the Company. Such
provision could make it more difficult to effect a change in control of the
Company.
The transfer agent for the Common Stock is the Secretary of the Company.
RESTRICTIONS ON SALE OR OTHER TRANSFER OF THE SHARES
SECURITIES LAWS
Upon completion of this offering (assuming the sale and issuance of all 51
Class A Shares, all 54 Class B Shares and all 72 Class C Shares offered hereby),
there will be 279 shares of Common Stock outstanding, including 153 shares of
Class A Common, 54 shares of Class B Common and 72 shares of Class C Common. Of
these shares, the 51 Class A Shares, 54 Class B Shares and 72 Class C Shares
issued and sold in this offering will be freely transferable without restriction
under the Securities Act of 1933, as amended (the "Act"), unless acquired by an
"affiliate" (as that term is defined under the Act) of the Company, in which
case they will be subject to certain resale limitations under the Act. Of the
remaining 102 shares of Class A Common held by existing stockholders of the
Company, 10 shares are freely transferable without restriction under the Act, 68
shares (including 55 shares owned by "affiliates" of the Company) are
"restricted securities" (as such term is used in Rule 144 under the Act), and
the remaining 24 shares are owned by an "affiliate" of the Company. The
restricted shares and the shares owned by "affiliates" of the Company are
subject to restrictions on resale imposed by the Act and must be held
indefinitely unless they are registered under the Act or an exemption from
registration thereunder is then available. The Company is the only party who
may register its Common Stock under the Act, and it has not agreed to register
any shares of Common Stock under the Act for resale or to comply with any
exemption under the Act for the resale of any such shares.
Section 4(1) of the Act provides an exemption from registration under the
Act for the resale of securities in the event that the seller of such
securities is not then an "issuer", "dealer" or "underwriter" of the securities
proposed to be resold. Rule 144 was adopted by the Securities and Exchange
Commission as a safe harbor for determining whether a seller would be considered
an "underwriter" for purposes of that exemption. Sales of "restricted" shares
or shares owned by an "affiliate" cannot be made under Rule 144 unless each of
its requirements are satisfied at the time of such sale. Although Rule 144
provides a means for reselling restricted shares and shares owned by affiliates,
it is not the exclusive means for reselling such securities.
In general, Rule 144 currently provides that a person (or persons whose
shares are aggregated) who has beneficially owned restricted shares for at least
one year, including persons who may be deemed to be affiliates of the Company,
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding shares or the average
weekly reported trading volume for the shares during the four weeks preceding
such sale, provided that the Company has filed certain periodic reports with the
Securities and Exchange Commission (or made publicly available certain
information concerning it) and the sale is made in a "broker's transaction" or
in a transaction directly with a "market-maker," as those terms are used in Rule
144, without the solicitation of buy orders by the broker or such person, and
without such person making any payment to any person other than the broker who
executes the order to sell the shares of Common Stock. A person (or persons
whose shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such person, and who
has beneficially owned restricted shares for at least two years, would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations and public information and manner of sale requirements described
above. The term "affiliate" is defined to mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the Company. The Securities and Exchange
Commission ordinarily would presume, without limitation, that an officer,
director or the beneficial owner of five percent or more of the outstanding
voting securities of the Company would fall within this definition.
Restricted shares properly sold in reliance upon Rule 144 are thereafter
freely tradeable without restriction or registration under the Act, unless
thereafter held by an affiliate of the Company. The 68 shares of Class A Common
held by existing stockholders that are restricted securities have been
beneficially owned for over two years, and an aggregate of 13 of these shares
are owned by non-affiliates. No person has any right to demand registration of
shares of the Common Stock.
COOPERATIVE ASSOCIATION LAWS AND CHARTER DOCUMENTS
The Colorado Cooperative Association Law and the Company's Articles of
Incorporation provide that the certificates of membership in the Company (which
also represent shares of Common Stock of the Company) shall not be assignable or
transferable except upon consent of the Board of Directors, and that the Company
shall have the right in its Bylaws to limit the transfer or assignment of
membership and the terms and conditions upon which transfers or assignments may
be allowed. The Company's Bylaws provide that the equity interests issued by
the Company may not be assigned or transferred, except upon the consent of the
Company's Board of Directors, and that the Company's Board of Directors may not
give such consent unless any such assignee or transferee of Class A Common
executes and delivers to the Company a Feeder Pig Purchase Agreement, any such
assignee or transferee of Class B Common executes and delivers to the Company a
Weaned Pig Purchase Agreement and any such assignee or transferee of Class C
Common executes and delivers to the Company a Class C Weaned Pig Purchase
Agreement. Only producers of agricultural products, associations of such
producers, and federations of such associations may own Common Stock of the
Company.
In addition to the foregoing transfer restrictions, the Company's Bylaws
give the Company the right to purchase a member's Common Stock under certain
circumstances, which may adversely affect transferability. Such right is in
addition to any right the Company may have to foreclose on the security interest
in member's Common Stock pursuant to the Feeder Pig Purchase Agreement, Weaned
Pig Purchase Agreement or Class C Weaned Pig Purchase Agreement, as the case may
be. In particular, the Company has the option under its Bylaws to purchase a
member's Shares upon the occurrence of certain specified events (a) by tendering
to the member (i) the lesser of (A) the price paid to the Company for such
investor's Shares, and (B) the book value of the Shares and capital credits
associated therewith, less (ii) any indebtedness due the Company from the
member, or (b) by tendering to the member a nonvoting certificate of
participation representing the member's interest at the time of such tender in a
face amount equal to the amount specified in clause (a) above. The occurrences
giving rise to such option include the following events: (a) a member's
termination of a Feeder Pig Purchase Agreement, Weaned Pig Purchase Agreement or
Class C Weaned Pig Purchase Agreement, as the case may be, without having
executed and delivered a replacement for such Agreement or the member's failure
to be a party to such Agreement, and (b) the Company's Board of Directors by
resolution finds that a member has (i) intentionally or repeatedly violated any
provision of the Company's Articles of Incorporation or Bylaws, (ii) breached a
Feeder Pig Purchase Agreement, Weaned Pig Purchase Agreement or Class C Weaned
Pig Purchase Agreement, as the case may be, or materially breached any other
contract with Company, (iii) remained indebted to the Company for 90 days after
such indebtedness first becomes payable, or (iv) willfully obstructed any lawful
purpose or activity of the Company. In the event the Company exercises either
option, the voting stock of the member shall be canceled, and the member shall
thereafter have no voting rights in the Company. The Company is under no
obligation, however, to redeem or repurchase an investor's Common Stock at any
time. See "Risk Factors--Right of Alliance to Acquire Shares" and "-- Lack of
Liquidity; Absence of Market for Shares," "Feeder Pig Purchase Agreement" and
Weaned Pig Purchase Agreements."
Finally, a legend in substantially the following form will be placed on
each certificate representing Shares of Common Stock issued in the offering:
Sale, transfer or hypothecation of the shares represented by this
certificate is restricted by the provisions of the Colorado
cooperative association law and the Articles of Incorporation and
Bylaws of Alliance Farms Cooperative Association (the "Company"), a
copy of which provisions may be inspected at the principal offices of
the Company, and all provisions of which are hereby incorporated by
reference in this certificate.
The transfer and other restrictions discussed above could make it more
difficult to effect a change in control of the Company.
PLAN OF DISTRIBUTION
GENERAL
The Company intends to sell the Shares through agents designated by the
Company or, if permitted under applicable law, directly to one or more
purchasers through the efforts of its directors, officers and employees. In
this regard, the Company has retained Interstate/Johnson Lane Corporation
("I/JL") to serve as its agent in connection with this offering. The Company
has reserved the right to sell the Shares directly to investors on its own
behalf in those jurisdictions where and in such manner as it is authorized to do
so. In the event that the Company sells Shares directly to investors through
the efforts of its directors, officers and employees, such directors, officers
and employees will not be compensated in connection with such participation
through the payment of commissions or other remuneration based either directly
or indirectly on transactions in the Shares offered. Any offering of the Shares
will be made exclusively to producers of agricultural products, associations of
such producers, and federations of such associations. No one has committed to
purchase any of the Shares.
Agents participating in the distribution of the Shares may be deemed to be
underwriters within the meaning of the Securities Act of 1933, and any
commissions and other compensation received by them may be deemed to be
underwriting discounts and commissions under the Act. The Company anticipates
that it will enter into an agency agreement with I/JL providing for the payment
by Alliance of a lump sum fee of $40,000 regardless of whether any or all Shares
offered hereby are sold. It is anticipated that the Company will agree to
reimburse I/JL for its reasonable out-of-pocket expenses in connection with the
offering of the Shares. The net proceeds to the Company from the sale of the
Shares will be the public offering price of the Shares less any commissions and
other attributable expenses of issuance and distribution.
I/JL may be entitled, under an agency agreement to be entered into with the
Company, to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act of 1933, and may be entitled to
contribution with respect to payments which I/JL may be required to make in
respect thereof. Agents may engage in transactions with or perform services for
the Company in the ordinary course of business.
INVESTOR SUITABILITY STANDARDS
The Shares may be offered and sold only to producers of agricultural
products, associations of such producers, and federations of such associations.
In addition, if any investor in the offering is a resident of Iowa, or otherwise
is subscribing for Shares in Iowa, such investor must (i) have a net worth, or
joint net worth with that investor's spouse, in either case, exclusive of home,
furnishings and automobiles ("Adjusted Net Worth") of at least $65,000 at the
time of such investor's purchase, and an annual gross income of at least $65,000
for each of the investor's two most recent tax years; or (ii) have Adjusted Net
Worth of at least $250,000 at the time of such investor's purchase. Each
investor will be required to represent in writing in the Subscription Agreement
that the investor is a producer of agricultural products, an association of such
producers, or a federation of such associations and, if a resident of Iowa, or
otherwise subscribing for Shares in Iowa, that the investor meets the foregoing
suitability standards for Iowa investors.
MINIMUM BLOCK REQUIREMENT
The Class A Shares will be offered on a "best efforts, all-or-none" basis
for 17 Class A Shares (a "Minimum Class A Block"), and thereafter may continue
to be offered on such basis with respect to successive Minimum Class A Blocks of
Shares until 51 Class A Shares have been issued and sold. The Class B Shares
will be offered on a "best efforts, all-or-none" basis for 18 Class B Shares (a
"Minimum Class B Block"), and thereafter may continue to be offered on such
basis with respect to successive Minimum Class B Blocks of Shares until 54 Class
B Shares have been issued and sold. The Class C Shares will be offered on a
"best efforts, all-or-none" basis for 24 Class C Shares (a "Minimum Class C
Block"), and thereafter may continue to be offered on such basis with respect to
successive Minimum Class C Blocks of Shares until 72 Class C Shares have been
issued and sold. As of the date of this Prospectus, the Company has not
consummated the issuance and sale of any shares of Common Stock in this
offering. Any agent of the Company involved in the offer or sale of the Shares
will be acting on such "best efforts, all-or-none" basis during the period of
such agent's appointment. There can be no assurance that any or all of the
Shares will be sold.
The number of Class A Shares constituting a Minimum Class A Block has been
determined by the Company based on the number of lots of feeder pigs (900 to
1,000 pigs per lot) that the Company anticipates can most efficiently be made
available to members of the Company from a single 2,450-sow feeder pig
production facility. Pursuant to the Feeder Pig Purchase Agreements to be
entered into by investors at the time a subscription for Class A Shares is made,
each member of the Company owning shares of Class A Common will be required to
purchase feeder pigs in lots of no less than 900, and no more than 1,000, pigs
per lot, as determined by the Company. Such lots of feeder pigs are to be made
available to such members of the Company on a rotating schedule determined and
implemented by the Company. The number of lots made available to a member and
the frequency of availability are to be based upon the member's proportionate
equity interest in the Company's Class A Common and the actual production of
Qualifying Pigs from the Company's facilities. The Company anticipates that the
production of one 2,450-sow feeder pig production facility will be adequate to
provide lots of between 900 and 1,000 feeder pigs to 17 members (assuming that
each such member owns only one Class A Share) in order of rotation such that
delivery of a lot of between 900 and 1,000 feeder pigs can be made to a member
at approximately the time at which the pigs previously delivered to such member
are finished to market weight and available for shipment to slaughter. There
can be no assurance that the Company will be successful in meeting this
production schedule, or that feeder pigs will be available for shipment to a
member at a time when the member is able to accommodate their delivery.
Accordingly, the Company believes that a Minimum Class A Block requirement is
necessary to provide for sufficient new members to accommodate the anticipated
output of feeder pigs from a single 2,450-sow feeder pig production facility.
See "Feeder Pig Purchase Agreement."
The number of Class B Shares constituting a Minimum Class B Block has been
determined by the Company based on the number of lots of weaned pigs (925 to
1,025 pigs per lot) that the Company anticipates can be made available to
members of the Company from a single 2,450-sow weaned pig production facility.
Pursuant to the Weaned Pig Purchase Agreements to be entered into by investors
at the time a subscription for Class B Shares is made, each member of the
Company owning shares of Class B Common will be required to purchase weaned pigs
in lots of no less than 925, and no more than 1,025, pigs per lot, as determined
by the Company. Such lots of weaned pigs are to be made available to such
members of the Company on a rotating schedule determined and implemented by the
Company. The number of lots made available to a member and the frequency of
availability are to be based upon the member's proportionate equity interest in
the Company's Class B Common and the actual production of Qualifying Pigs from
the Company's facilities. The Company anticipates that the production of one
2,450-sow weaned pig production facility will be adequate to provide lots of
between 925 and 1,025 weaned pigs to 18 members (assuming that each such member
owns only one Class B Share) in order of rotation such that delivery of two and
seven-tenths (2.7) lots of weaned pigs can be made to a member on a rolling 12-
month basis. There can be no assurance that the Company will be successful in
meeting this production schedule, or that weaned pigs will be available for
shipment to a member at a time when the member is able to accommodate their
delivery. Accordingly, the Company believes that a Minimum Class B Block
requirement is necessary to provide for sufficient new members to accommodate
the anticipated output of weaned pigs from a single 2,450-sow weaned pig
production facility according to the schedule described above. See "Weaned Pig
Purchase Agreements."
The number of Class C Shares constituting a Minimum Class C Block has been
determined by the Company based on the number of lots of weaned pigs (925 to
1,025 pigs per lot) that the Company anticipates can be made available to
members of the Company from a single 2,450-sow weaned pig production facility.
Pursuant to the Class C Weaned Pig Purchase Agreements to be entered into by
investors at the time a subscription for Class C Shares is made, each member of
the Company owning shares of Class C Common will be required to purchase weaned
pigs in lots of no less than 925, and no more than 1,025, pigs per lot, as
determined by the Company. Such lots of weaned pigs are to be made available to
such members of the Company on a rotating schedule determined and implemented by
the Company. The number of lots made available to a member and the frequency of
availability are to be based upon the member's proportionate equity interest in
the Company's Class C Common and the actual production of Qualifying Pigs from
the Company's facilities. The Company anticipates that the production of one
2,450-sow weaned pig production facility will be adequate to provide lots of
between 925 and 1,025 weaned pigs to 24 members (assuming that each such member
owns only one Class C Share) in order of rotation such that delivery of two and
one-tenth (2.1) lots of weaned pigs can be made to a member on a rolling 12-
month basis. There can be no assurance that the Company will be successful in
meeting this production schedule, or that weaned pigs will be available for
shipment to a member at a time when the member is able to accommodate their
delivery. Accordingly, the Company believes that a Minimum Class C Block
requirement is necessary to provide for sufficient new members to accommodate
the anticipated output of weaned pigs from a single 2,450-sow weaned pig
production facility according to the schedule described above. See "Weaned Pig
Purchase Agreements."
The minimum investment for each investor is not less than one Share. In
addition, each investor purchasing one or more Class A Shares must enter into a
Feeder Pig Purchase Agreement with the Company in the form attached to this
Prospectus as Exhibit B, each investor purchasing one or more Class B Shares
must enter into a Weaned Pig Purchase Agreement with the Company in the form
attached to this Prospectus as Exhibit C, and each investor purchasing one or
more Class C Shares must enter into a Class C Weaned Pig Purchase Agreement with
the Company in the form attached to this Prospectus as Exhibit D. No fractional
shares will be issued.
FINANCING COMMITMENT REQUIREMENT
The consummation of the issuance and sale of the Shares will be conditioned
upon and subject to Alliance obtaining a commitment for at least $2,720,000 of
term debt borrowings with respect to each Minimum Class A Block of Class A
Shares and a commitment for at least $2,160,000 of term debt borrowings with
respect to each Minimum Class B Block of Class B Shares and each Minimum Class C
Block of Class C Shares. As of the date of this Prospectus, the Company has
obtained a commitment for the necessary loans with respect to the Class A Shares
from its current lender, CoBank, until August 31, 1997. No assurances can be
given that an extension of such commitment will be obtained on favorable terms,
if at all. As of the date of this Prospectus, the Company has not obtained a
commitment for the necessary loans with respect to the Class B Shares or the
Class C Shares, but is engaged in negotiations with a lender to obtain a
commitment for such loans. If any loan commitment is withdrawn or terminated,
or the Company is unable to obtain an acceptable commitment for such a loan from
another lender prior to or concurrently with the termination date of the
offering, all outstanding subscriptions for Shares in a Minimum Block for which
such a commitment is not obtained will be rejected and any amounts received by
the Company in payment of the public offering price will be returned to
subscribers. See "Business--Financing."
SUBSCRIPTION PROCEDURE
In order for an investor to subscribe for one or more Shares in a Minimum
Block, the following items must be delivered to the Company or its agent on or
before the termination of the offering (see "Termination of the Offering"
below):
(1) two completed and executed copies of a Subscription
Agreement in the form attached to this Prospectus as Exhibit A;
(2) the subscriber's check, bank draft or wire transfer
(contact Alliance for wire transfer instructions), payable to the
order of "Alliance Farms Cooperative Association Escrow No. 1482300"
in an amount representing the aggregate purchase price of the Shares
being subscribed for; and
(3) two completed and executed copies of a Feeder Pig Purchase
Agreement in the form attached to this Prospectus as Exhibit B, with
respect to a subscription for Class A Shares, two completed and executed
copies of a Weaned Pig Purchase Agreement in the form attached to this
Prospectus as Exhibit C, with respect to a subscription for Class B Shares,
and two completed and executed copies of a Class C Weaned Pig Purchase
Agreement in the form attached to this Prospectus as Exhibit D, with
respect to a subscription for Class C Shares.
In addition, if any investor in the offering is a resident of Iowa, or
otherwise is subscribing for Shares in Iowa, such investor may be required to
deliver to the Company a completed and executed Potential Investor
Questionnaire with respect to the Adjusted Net Worth and gross income
thresholds described under "-- Investor Suitability Standards" above.
Pending the Company's acceptance of subscriptions for a Minimum Class A
Block of 17 Class A Shares, a Minimum Class B Block of 18 Class B Shares or a
Minimum Class C Block of 24 Class C Shares in this offering, all funds received
by the Company and its agents in payment of the public offering price for the
Shares promptly will be deposited in an interest-bearing escrow account
established at NationsBank, N.A. (Mid-West) (formerly Boatmen's National Bank),
Kansas City, Missouri. Payment of the offering price must be made payable to
the order of "Alliance Farms Cooperative Association Escrow No. 1482300," the
escrow account established at such bank. Upon the Company's acceptance of
subscriptions for one or more Minimum Class A Blocks, one or more Minimum Class
B Blocks or one or more Minimum Class C Blocks, as the case may be, and the
satisfaction of certain other conditions, all funds deposited in the escrow
account with respect to such Shares will be paid to the Company. Subscriptions
for Shares that collectively do not constitute a Minimum Block of Shares will
not be accepted by the Company. In the event that Alliance does not issue
Shares for which funds have been deposited in the escrow account prior to the
termination of the offering, such funds will be refunded to the prospective
investors, together with any interest earned thereon and without any deduction
being made for expenses. All subscriptions for Shares submitted by subscribers
shall be irrevocable and shall survive the death or disability of the
subscriber, in the case of an individual, or the dissolution or bankruptcy of
the subscriber, in the case of an entity. There can be no assurance that any or
all of the Shares will be sold. See "Plan of Distribution--Escrow of Proceeds."
Alliance reserves the right, in its sole and absolute discretion, to
accept or reject any subscription, in whole or in part, and no subscription
shall be binding on Alliance unless and until accepted by Alliance. Each
subscriber will be promptly notified by Alliance as to whether his or her
subscription has been accepted. If a subscription is accepted, an authorized
officer of Alliance will execute both copies of the Subscription Agreement and
the Feeder Pig Purchase Agreement, Weaned Pig Purchase Agreement or Class C
Weaned Pig Purchase Agreement, as the case may be, submitted by the subscriber
and return one executed copy of each such agreement. The Shares of Common Stock
shall not be deemed to be owned by an investor until both copies of the
Subscription Agreement and the applicable Feeder Pig Purchase Agreement, Weaned
Pig Purchase Agreement or Class C Weaned Pig Purchase Agreement have been
executed by the investor and countersigned by Alliance and the subscription
procedure described above otherwise has been complied with. Alliance and its
agent will arrange for delivery of the certificates for Shares of Common Stock
as promptly as practicable thereafter, which certificates will, however, be
retained by Alliance as security for the performance by the investor of his
obligations under the Feeder Pig Purchase Agreement, Weaned Pig Purchase
Agreement or Class C Weaned Pig Purchase Agreement, as the case may be, to
purchase his proportionate share of the Company's pig production. In this
regard, investors will be required to endorse appropriate stock powers with
respect to such certificates. The Company may agree in its discretion, however,
to permit the investor to pledge or grant a security interest in the investor's
shares of Common Stock to any financial institution for purposes of securing a
loan used in financing the investor's acquisition of such shares. See "Feeder
Pig Purchase Agreement" and "Weaned Pig Purchase Agreements."
ESCROW OF PROCEEDS
The Company has entered into an escrow agreement (the "Escrow Agreement")
pursuant to which all funds received by the Company and its agents in payment of
the public offering price for the Shares promptly will be deposited in an
interest-bearing escrow account with NationsBank, N.A. (Mid-West) (formerly
Boatmen's National Bank), Kansas City, Missouri (the "Escrow Agent"). All such
funds will be held in escrow during the "Escrow Period" which shall begin with
the commencement of the offering and terminate upon the earlier of (i) the date
upon which the Escrow Agent has disbursed and delivered $4,080,000 in collected
funds with respect to Class A Shares, $3,240,000 with respect to Class B Shares
and $3,240,000 with respect to Class C Shares to the Company in accordance with
the Escrow Agreement, and (ii) the termination of the offering, whether by lapse
of time or the election of the Company to do so. During the Escrow Period,
subscribers will have no right to a return of their payment. All escrowed funds
may be invested in bank accounts, bank money-market accounts, short-term
certificates of deposit issued by a bank or short-term securities issued or
guaranteed by the U.S. Government, as specified by the Company.
Funds deposited into escrow may be disbursed to the Company, in the amount
of $1,360,000 with respect to Class A Shares, $1,080,000 with respect to Class B
Shares and $1,080,000 with respect to Class C Shares (the "Minimum"), or an
integral multiple thereof, upon the satisfaction of the following conditions:
(i) the Escrow Agent has received written confirmation from the Company that the
Company has obtained a commitment for at least $2,720,000 of debt financing or
borrowings with respect to the disbursement of each Minimum for Class A Shares
and a commitment for at least $2,160,000 of debt financing or borrowings with
respect to the disbursement of each Minimum for Class B Shares or Class C
Shares; (ii) the Escrow Agent has received an affidavit from the Company and its
agents in the offering identifying the number of Shares subscribed for and the
amount of proceeds deposited into escrow and certifying that (a) there have been
no material omissions or changes in the financial condition of the Company, or
other changes of circumstances, that would render the amount of proceeds
inadequate to finance the Company's proposed plan of operations, business or
enterprise, and (b) there have been no material omissions or changes that would
render the representations contained in the registration statement, including
the prospectus constituting a part thereof, to be fraudulent, false or
materially misleading; and (iii) the Escrow Agent has received an order
permitting the requested disbursement of proceeds from the securities
administrators of those states which impose such condition, if any. The Company
shall be entitled to any interest earned on the funds disbursed to it and
remaining after deduction for fees and reimbursement of costs and expenses due
the Escrow Agent.
Upon the termination of the Escrow Period, any proceeds remaining in escrow
are to be disbursed to the prospective investor from whom they were received
upon the Escrow Agent's receipt of an order permitting the requested
disbursement of proceeds from the securities administrators of those states
which impose such condition, if any. Such refunded proceeds are to be disbursed
to investors without any deduction, penalty or expense thereon being made.
Interest earned on funds to be returned to prospective investors shall be paid
to such investors as designated or approved in writing by the Company.
In consideration of its services under the Escrow Agreement, the Escrow
Agent has been paid an initial acceptance fee in an amount equal to $750, and
will be paid an annual base fee in an amount equal to $750. In addition, the
Company will pay to the Escrow Agent $7 for each cash transaction processed by
the Escrow Agent to reimburse it for its actual cost in accepting and disbursing
funds, and $15 for each investment transaction made with respect to the escrowed
funds. A cash management fee equal to 3 of 1% per annum of the principal amount
of the escrowed funds may also be payable depending upon the investment selected
for the escrowed funds. No fees, reimbursement for costs and expenses, or any
moneys whatsoever shall be paid out of or chargeable to investors' funds held in
escrow by the Escrow Agent.
OFFERING PRICE
The Shares are being offered at the public offering price set forth on the
cover page of this Prospectus. This public offering price has been arbitrarily
determined by the Company and is not based on any recognized criteria of value.
Among the factors considered in making such determination are the amount of the
anticipated debt borrowings, together with the net proceeds from the sale of the
Shares, required to develop each additional feeder or weaned pig production
facility, which factor takes into account the anticipated development costs for
new facilities, the applicable debt-to-equity ratio or minimum equity amount
that the Company anticipates will be required by potential lenders, and the
anticipated interest and debt service requirements associated with such
borrowings. The Company also considered the interest requirements on up to
$1,360,000 of feeder pig facilities development financing that the Company
anticipates it may incur with respect to each new feeder pig production
facility. See "Business--Financing." To a much lesser extent the Company also
considered the prevailing market conditions for feeder pigs and weaned pigs, the
financial prospects and anticipated business potential of the Company, the
history of and prospects for the industry in which the Company competes, the
state of the Company's development and other similar factors. The public
offering price may not necessarily reflect any relationship to the Company's
assets, historical losses, book value or other financial statement criteria of
value.
ABSENCE OF PUBLIC MARKET
There is no public market for the Common Stock of the Company, and no
public market for the Common Stock is expected to develop as a result of the
offering of the Shares. Transfers of the Shares will be subject to significant
restrictions and limitations set forth in the Colorado Cooperative Association
Law and the Company's Articles of Incorporation and Bylaws. The certificates
representing the Shares will bear one or more legends describing or referencing
certain applicable restrictions on transfer. For these and other reasons, the
Shares will not be readily marketable, and purchasers thereof must bear the
economic risk of investment for an indefinite period and may not be able to
liquidate their investment in the event of any emergency or otherwise. See
"Restrictions on Sale or Other Transfer of the Shares" and "Description of
Capital Stock."
The Company does not intend to apply for listing of the Shares on a
national securities exchange.
TERMINATION OF THE OFFERING
The offering of the Shares will terminate on , 1998 (550 days
from the , 1997 commencement of the offering), unless extended by
the Company for a period of up to an additional 180 days. Alliance has the
right to terminate the offering at any time. In the event a Minimum Class A
Block has not been fully subscribed for prior to the termination date of the
offering, or Alliance does not have a commitment for at least $2,720,000 of term
debt borrowings with respect to a Minimum Class A Block prior to or concurrently
with such date, all outstanding subscriptions for Class A Shares that do not
constitute a Minimum Class A Block or for which such a commitment is not
obtained, as the case may be, will be rejected and any amounts received by the
Company in payment of the public offering price will be returned to subscribers.
In the event a Minimum Class B Block has not been fully subscribed for prior to
the termination date of the offering, or Alliance does not have a commitment for
at least $2,160,000 of term debt borrowings with respect to a Minimum Class B
Block prior to or concurrently with such date, all outstanding subscriptions for
Class B Shares that do not constitute a Minimum Class B Block or for which such
a commitment is not obtained, as the case may be, will be rejected and any
amounts received by the Company in payment of the public offering price will be
returned to subscribers. In the event a Minimum Class C Block has not been
fully subscribed for prior to the termination date of the offering, or Alliance
does not have a commitment for at least $2,160,000 of term debt borrowings with
respect to a Minimum Class C Block prior to or concurrently with such date, all
outstanding subscriptions for Class C Shares that do not constitute a Minimum
Class C Block or for which such a commitment is not obtained, as the case may
be, will be rejected and any amounts received by the Company in payment of the
public offering price will be returned to subscribers. See "Plan of
Distribution--Subscription Procedure."
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by Stinson,
Mag & Fizzell, P.C., 1201 Walnut Street, Kansas City, Missouri 64106-2150.
EXPERTS
The financial statements of Alliance Farms Cooperative Association as of
August 31, 1996 and August 31, 1995 and for the years ended August 31, 1996 and
1995, included herein and elsewhere in the registration statement of which this
Prospectus is a part, have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is currently subject to the informational requirements of the
Exchange Act, and in accordance therewith the Company files annual and quarterly
reports and other information with the Commission. Such reports and other
information may be inspected and copied at the Commission's office located at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the regional
offices of the Commission located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials can be obtained
from the Public Reference Section of the Commission located at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. Materials also may be
obtained from the Commission's Web site (http://www.sec.gov), which contains
reports, proxy and information statements and other information regarding
companies that file electronically with the Commission.
This Prospectus constitutes an integral part of a Registration Statement on
Form SB-2 (No. 333-25501) (which, together with all amendments, exhibits and
schedules thereto, is referred to as the "Registration Statement") filed by the
Company with the Commission in Washington, D.C. under the Securities Act of
1933, as amended, with respect to the Shares being offered by this Prospectus.
This Prospectus does not contain all information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Shares offered hereby, reference is made to the Registration
Statement and related exhibits. The Registration Statement, including the
exhibits and schedules thereto, may be inspected and copied at the Commission's
offices located at the addresses set forth above. Copies of the Registration
Statement or any portion thereof can be obtained at prescribed rates from the
Public Reference Section of the Commission located at the address set forth
above.
INDEX OF FINANCIAL STATEMENTS
Page
ALLIANCE FARMS COOPERATIVE ASSOCIATION
Independent Auditors' Report........................................F-2
Balance Sheets as of August 31, 1996 and 1995.......................F-3
Statements of Operations for the
years ended August 31, 1996 and 1995..........................F-4
Statement of Shareholders' Equity for the
years ended August 31, 1996 and 1995..........................F-5
Statements of Cash Flows for the years ended
August 31, 1996 and 1995......................................F-6
Notes to Financial Statements.......................................F-7
Condensed Balance Sheets as of February 28, 1997
(unaudited) and August 31, 1996 .............................F-12
Condensed Statements of Operations for the
three and six months ended February 28, 1997
and 1996 (unaudited).........................................F-13
Condensed Statements of Cash Flows for the six months ended
February 28, 1997 and 1996 (unaudited)............................F-14
Notes to Condensed Financial Statements............................F-15
Independent Auditors' Report
The Board of Directors
Alliance Farms Cooperative Association:
We have audited the accompanying balance sheets of Alliance Farms Cooperative
Association as of August 31, 1996 and 1995 and the related statements of
operations, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Association'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 Alliance Farms Cooperative
Association as of August 31, 1996 and 1995 and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
Kansas City, Missouri KPMG Peat Marwick LLP
October 23, 1996
ALLIANCE FARMS COOPERATIVE ASSOCIATION
BALANCE SHEETS
August 31, 1996 and 1995
<TABLE>
<CAPTION>
August 31, 1996 August 31, 1995
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $0 $1,477,213
Receivables 72,448 31,887
Inventory (Note 4) 2,435,477 1,069,144
Other current assets 48,273 19,274
Total current assets 2,556,198 2,597,518
Property, plant and equipment, at cost (Note 5) 16,491,601 10,345,236
Less accumulated depreciation 1,333,291 705,989
15,158,310 9,639,247
Breeding stock 3,928,215 2,877,957
Less accumulated depreciation 1,013,872 708,363
2,914,343 2,169,594
Other assets, net of $51,568 and $29,462
accumulated amortization 216,762 165,581
$20,845,613 $14,571,940
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft 575,749 0
Current maturities of long-term debt (Note 6) 870,000 580,000
Accounts payable (Note 3) 526,193 672,957
Accrued rebates (Note 2) 670,167 41,139
Accrued expenses 171,791 65,151
Total current liabilities 2,813,900 1,359,247
Long-term debt (Note 6) 13,425,424 8,585,000
Shareholders' equity
Common stock of $.01 par value; authorized
10,000 shares, issued and outstanding 102 shares
(85 shares at August 31, 1995) 1 1
Additional paid-in capital 7,487,653 6,165,970
Accumulated deficit (2,881,365) (1,538,278)
Total shareholders' equity 4,606,289 4,627,693
Commitments (Note 7) ------ ------
$20,845,613 $14,571,940
<FN>
See accompanying notes to financial statements
</TABLE>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF OPERATIONS
For the years ended August 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net sales (Note 2) $7,037,927 $1,554,113
Cost of goods sold 6,422,838 1,836,388
Gross margin/(loss) 615,089 (282,275)
Expenses related to start-up
of new production facilities 426,926 754,756
Administrative expenses 369,787 101,927
Loss on sale of breeding stock 226,738 112,797
Operating loss ($408,362) ($1,251,755)
Other income (expense):
Interest expense (1,001,329) (289,082)
Other 66,604 27,509
(934,725) (261,573)
Net loss ($1,343,087) ($1,513,328)
<FN>
See accompanying notes to financial statements
</TABLE>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended August 31, 1996 and August 31, 1995
<TABLE>
<CAPTION>
Additional Total
Common paid-in Accumulated Shareholders'
stock capital deficit equity
<S> <C> <C> <C> <C>
Balance at August 31, 1994 $1 4,885,559 (24,950) $4,860,610
Sale of 17 shares of common
stock - $.01 par per share,
net of $82,356 offering costs --- 1,280,411 --- 1,280,411
Net loss --- --- (1,513,328) (1,513,328)
Balance at August 31, 1995 $1 6,165,970 (1,538,278) $4,627,693
Sale of 17 shares of common
stock - $.01 par per share,
net of $38,317 offering costs --- 1,321,683 --- 1,321,683
Net loss --- --- (1,343,087) (1,343,087)
Balance at August 31, 1996 $1 7,487,653 (2,881,365) $4,606,289
<FN>
See accompanying notes to financial statements
</TABLE>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF CASH FLOWS
For the years ended August 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Cash flow from operating activities:
Net loss $(1,343,087) $(1,513,328)
Adjustment to reconcile net loss to net cash
used in operating activities:
Provision for depreciation and amortization 1,721,482 862,206
Loss on sale of breeding stock 226,738 112,797
Changes in assets and liabilities:
Receivables (40,561) 1,185
Inventory (1,366,333) (791,628)
Other current assets (28,999) 5,624
Other assets (38,593) (39,165)
Accounts payable (146,764) 245,943
Accrued rebates 629,028 41,139
Accrued expenses 106,640 29,941
Net cash used in (280,449) (1,045,286)
operating activities
Cash flows from investing activities:
Capital expenditures (8,808,888) (10,044,382)
Proceeds from sale of breeding stock 626,268 88,051
Net cash used in investing activities (8,182,620) (9,956,331)
Cash flows from financing activities
Proceeds from issuance of long term debt 3,798,000 9,165,000
Net increase in revolving term credit 1,276,000 ---
Payment on long term debt (580,000) ---
Increase in note payable to Farmland 636,424 ---
Issuance of common stock, net of offering costs 1,321,683 1,280,411
Loan origination fees (42,000) (74,180)
Bank overdraft 575,749 ---
Net cash provided by
financing activities: 6,985,856 10,371,231
Decrease in cash and cash
equivalents (1,477,213) (630,386)
Cash and cash equivalents at beginning of period $1,477,213 $2,107,599
Cash and cash equivalents at end of period $0 $1,477,213
Supplemental schedule of cash paid for interest: $989,334 $228,977
<FN>
See accompanying notes to financial statements
</TABLE>
Alliance Farms Cooperative Association
Notes to Financial Statements
1. Description of the Business and Summary of Significant Accounting Policies
Alliance Farms Cooperative Association (Alliance) is a cooperative
association engaged in the production of feeder pigs for sale to its
members. As of August 31, 1996 Alliance owned and was operating five
2,450-sow feeder pig production facilities in Yuma County, Colorado and a
comparable facility was being developed in Wayne County, Illinois.
( a ) Inventory
Inventories are stated at the lower of cost or market. Cost has been
determined by the average cost method for feeder pigs.
Inventoriable costs are costs incurred in producing feeder pigs at the
feeder pig production facility from the time of gestation through sale of
the feeder pig. Such costs include feed, care and a proportionate share of
the depreciation of the breeding stock and facilities. Market value used
for purposes of computing lower of cost or market approximates the ultimate
sale price of feeder pigs which is determined contractually between
Alliance Farms and its members/patrons.
( b ) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives of
the assets, generally from three to twenty years. Major repairs that
extend the life of an asset are capitalized. Normal repair and maintenance
costs are expensed.
Statement of Financial Accounting Standards No. 121 - Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
("Statement 121") is effective for fiscal years beginning after December
15, 1995 (Alliance's 1997 fiscal year). Statement 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangible assets and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. Management expects the adoption of
Statement 121 will not have a significant impact on Alliance's financial
statements.
( c ) Breeding Stock
Breeding stock is stated at cost. Depreciation on breeding stock is
calculated on the straight-line method over the estimated breeding life of
the animals, three years.
( d ) Cash and Cash Equivalents
Cash and cash equivalents in the accompanying statement of cash flows
include cash on hand and short-term investments with original maturities of
less than ninety days.
( e ) Other Assets
Other assets consist of organizational costs which are amortized over five
years and loan origination fees which are amortized over the term of the
loan, 12 years.
( f ) Sales
Alliance Farms recognizes sales at the time pigs are shipped.
( g ) Income Taxes
Alliance Farms is subject to income taxes on all income not distributed to
patrons as patronage refunds. Deferred income taxes have not been
provided, because all sales were to members for the periods ended August
31, 1996, 1995 and 1994 and all future sales are anticipated to be to
members.
( h ) Use of Estimates
Management of Alliance has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
2. Sales
Alliance has sold 100% of its feeder pigs to its members for the fiscal
year ended August 31, 1996 and 1995 at a contractual price which is based
on Alliance's operating costs (which are based on a twelve month rolling
average), debt service and, after July 13, 1995, an additional $4.50 per
pig and at a contractual price which was based on Alliance's operating
costs (which were based on a twelve month rolling average) for the first
nine months of the fiscal year ended August 31, 1995.
Alliance's sales for the fiscal years ended August 31, 1996 and 1995 have
been reduced by the accrual of a rebate of $670,167 and $41,139,
respectively. The 1996 accrual is intended to be paid to its members after
the end of the fiscal year.
Because the contractual price for the sale of a feeder pig is determined
based upon, among other things, a twelve month historical rolling average
for operating costs and to the extent that current operating costs per pig
exceed the historical average operating costs, Alliance may incur a
negative gross margin on the sale of its feeder pigs during periods of
rising costs.
Alliance's average net sales price and the average industry market price
were as follows:
Fiscal Year Ended
August 31
1996 1995
Average Net Sales Price 48.12 33.16
Average Industry Market* 41.15 32.17
*As published by Spark's Companies, Inc. (from the USDA's Market News
Service)
3. Transactions with Farmland and Yuma Cooperative
As of August 31, 1996 and 1995, Farmland Industries, Inc. (Farmland) owned
approximately 49% and 47.1%, respectively, of the Common Stock of Alliance,
and Yuma Farmers' Milling and Mercantile Cooperative (Yuma Cooperative)
owned approximately 11.8% and 14.1%, respectively, of the Common Stock of
Alliance.
Alliance purchased feed from Yuma Cooperative and animal health supplies
and breeding stock from Farmland based on market prices. Yuma Cooperative
and Farmland are members of Alliance. Alliance also sold feeder pigs to
Farmland and Yuma Cooperative. Such purchases and sales were as follows:
Fiscal Year Ended
August 31
1996 1995
Feed Purchases $ 3,423,773 $ 1,068,014
Animal Health Purchases 303,963 71,438
Breeding Stock 872,979 189,253
Feeder Pig Sales 5,035,160 1,467,069
Farmland provides the Company with an administrative office in Yuma,
Colorado at no cost to the Company. Farmland also performs administrative,
advisory and consulting services on behalf of Alliance pursuant to a
contractual agreement. The agreement provides that Farmland will be
compensated for such services in an amount equal to one dollar per pig
shipped adjusted annually for inflation for a term of ten years commencing
July 13, 1994. Amounts paid by Alliance to Farmland under such agreement
were as follows:
Fiscal Year Ended
August 31
1996 1995
Management Fee $ 151,905 $ 47,045
Alliance owed $38,650 and $137,722 at August 31, 1996 and $66,597 and
$32,882 at August 31, 1995 to Farmland and Yuma Cooperative respectively,
for goods and services. Alliance is also obligated to Farmland in the
amount of $636,424 at August 31, 1996 pursuant to a $760,000 promissory
note. See note 6.
4. Inventory
Major components of inventories as of August 31, 1996 and August 31, 1995
are as follows:
August 31
1996 1995
Feeder Pigs $ 2,265,056 $ 993,554
Other 170,421 75,590
$ 2,435,477 $ 1,069,144
5. Property, Plant and Equipment
Property, plant and equipment at August 31, 1996 and 1995 consisted of the
following:
1996 1995
Land $ 1,717,079 $ 261,340
Buildings 13,129,134 7,599,070
Site Improvements 1,019,936 422,458
Machinery and equipment 254,316 123,034
Mobile equipment 27,346 ----
Furniture and office equipment 21,694 11,139
Construction in progress 322,096 1,928,195
$ 16,491,601 $10,345,236
6. Long-Term Debt
Long term debt at August 31, 1996 and 1995 consisted of the following:
1996 1995
CoBank Term Loan $ 11,518,000 $ 8,300,000
CoBank Revolving Term Credit 2,141,000 865,000
Note Payable to Farmland 636,424 ----
14,295,424 9,165,000
Less Current Maturities 870,000 580,000
$ 13,425,424 $ 8,585,000
On May 19, 1995, Alliance entered into a $23,600,000 secured credit
facility with CoBank. This agreement provides for $18,850,000 of term
loans and $4,750,000 of revolving term credit. Proceeds from the term
loans are used for construction of feeder pig production facilities and are
advanced by CoBank as Alliance incurs construction costs. Proceeds from
revolving term credit may be used for working capital and other purposes.
The unused commitments expire February 28, 1997 for the term loans and June
20, 2006 for the revolving term credit. Interest accrues on the
outstanding principle balance of the loan at a rate equal to CoBank's
national variable rate, plus 1.25% (9.5% at August 31, 1996). Alliance
capitalized $38,181 and $60,105 of interest on construction for the fiscal
years ended August 31, 1996 and 1995 respectively.
At August 31, 1996, no additional term loans were immediately available,
$422,000 of term loans will be made available by CoBank upon final
acceptance of the feeder pig production facilities and $779,000 of
revolving term credit was immediately available.
Additional amounts available of term loans of $6,330,000 and revolving term
credit of $1,830,000 are restricted and available only as additional shares
of common stock are sold ($2,110,000 of term loans and $610,000 of
revolving term credit for every $1,360,000 of common stock sold).
Alliance is required to comply with various covenants, including, but not
limited to (i) maintaining at least $3,350,000 of shareholder's equity,
(ii) maintaining modified working capital (calculated as current assets,
plus the available revolving term credit, minus current liabilities
excluding the current portion of term debt payments) of at least $406,000,
(iii) restrictions on the incurrence of additional indebtedness, and (iv)
restrictions on the declaration and payment of the cash portion of
patronage distributions and other distributions or allocations of earnings,
surplus or assets. As of August 31, 1996 Alliance was in compliance with
all covenants. Alliance may be required to make equity investments in
CoBank in an amount not to exceed 1% of the average five-year principal
loan balance until Alliance meets CoBank's target level of equity
investment, which is currently 11.5% of the average five-year principal
loan balance. As of August 31, 1996, substantially all assets of Alliance
were pledged to CoBank.
At August 31, 1996, $636,424 had been borrowed from Farmland pursuant to a
$760,000 loan agreement. The loan agreement with Farmland provides for
interest at CoBank's prime rate and requires repayment in 2005.
Long-term debt as of August 31, 1996 matures during the fiscal years ending
August 31 in the following amounts:
1997 $870,000
1998 1,262,700
1999 1,318,800
2000 1,318,800
2001 1,318,800
Thereafter 8,206,324
$14,295,424
7. Commitments
As of August 31, 1996, Alliance Farms was operating five 2,450 sow feeder
pig production units and had an additional unit under construction. At August
31, 1996, commitments for construction of such facilities totaled approximately
$655,000. These commitments will be funded through bank borrowings.
8. Fair Value of Financial Instruments
Alliance has financial instruments which are comprised of cash and cash
equivalents, receivables, and long-term debt. The fair value of receivables and
long-term debt are estimated using current interest rates for similar
instruments. The carrying amounts of cash and cash equivalents approximate fair
value because of the short maturity of these instruments.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, 1997 AUGUST 31, 1996
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Receivables $ 81,664 $ 72,448
Inventory (Note 4) 2,749,075 2,435,477
Other current assets 63,718 48,273
Total current assets 2,894,457 2,556,198
Property, plant and equipment, at cost 18,487,977 16,491,601
Less accumulated depreciation 1,744,283 1,333,291
16,743,694 15,158,310
Breeding stock 3,748,486 3,928,215
Less accumulated depreciation 1,244,087 1,013,872
2,504,399 2,914,343
Other assets, net of $66,502 and $51,568
accumulated amortization 201,828 216,762
$ 22,344,378 $20,845,613
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank Overdraft $287,900 $575,749
Current maturities of long-term debt (Note 5) 1,038,300 870,000
Accounts payable (Note 3) 1,846,953 526,193
Accrued rebates (Note 2) 670,167 670,167
Accrued expenses 190,178 171,791
Total current liabilities 4,033,498 2,813,900
Long-term debt (Note 5) 13,700,124 13,425,424
Shareholders' Equity
Common stock of $.01 par value; authorized 1 1
100,000 shares, issued and outstanding 102 shares
Additional paid-in capital 7,487,653 7,487,653
Accumulated deficit (2,876,898) (2,881,365)
Total shareholders' equity 4,610,756 4,606,289
Commitments (Note 6) B B
$ 22,344,378 $ 20,845,613
<FN>
See accompanying notes to condensed financial statements
</TABLE>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED FEBRUARY 28
FEBRUARY 28
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales (Note 2) $3,316,983 $1,443,563 $6,519,998 $2,871,276
Cost of goods sold 2,969,586 1,430,954 5,549,049 3,008,706
Gross income (loss) 347,397 12,609 970,949 (137,430)
Expenses realted to start-up of new -- -- 75,668 --
production facilities
Adminstrative expenses 122,027 96,898 214,996 170,565
Loss on sale of breeding stock 21,362 96,146 81,020 170,537
Operating income (loss) $204,008 ($180,435) $599,265 ($478,532)
Other income (expense):
Interest expense (357,932) (222,744) (680,584) (439,320)
Other 43,254 5,409 85,786 7,574
(314,678) (217,335) (594,798) (431,746)
($110,670) ($397,770) $4,467 ($910,278)
Net income (loss)
<FN>
See accompanying notes to condensed financial statements
</TABLE>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
SIX MONTH PERIODS ENDED
FEBRUARY 28
1997 1996
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 4,467 $ (910,278)
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for depreciation and amortization 1,046,591 764,849
Loss on sale of breeding stock 81,020 170,537
Changes in assets and liabilities:
Receivables (9,216) (9,183)
Inventory (313,598) (397,012)
Other current assets (15,444) (18,587)
Other assets B 36,116
Accounts payable 1,320,760 13,094
Accrued expenses 18,387 63,959
Net cash provided by (used in) operating activities 2,132,967 (286,505)
Cash flows from investing activities:
Capital expenditures (2,681,508) (5,085,248)
Proceeds from sale of breeding stock 393,390 175,170
Net cash used in investing activities ( 2,288,118) (4,910,078)
Cash flows from financing activities:
Proceeds from issuance of long term debt 211,000 B
Net increase in revolving term credit 487,000 1,735,000
Payment on long term debt (435,000) (145,000)
Increase in note payable to Farmland 180,000 636,424
Issuance of common shares, net of offering cost B 1,321,683
Loan origination fees B (42,000)
Increase (decrease) in bank overdraft (287,849) 213,263
Net cash provided by financing activities: 155,151 3,719,370
Decrease in cash and cash equivalents B (1,477,213)
Cash and cash equivalents at beginning of period B 1,477,213
Cash and cash equivalents at end of period $ B B
<FN>
See accompanying notes to condensed financial statements
</TABLE>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Financial Statements
The accompanying condensed unaudited financial statements reflect all
adjustments (consisting of only normal recurring adjustments) which in the
opinion of management, are necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods presented. Income taxes have not been provided because Alliance
Farms Cooperative Association ("Alliance") expects to derive 100% of its
net income principally from the sale of feeder pigs to its members which
will be apportioned and distributed to members of Alliance on a patronage
basis in accordance with its by-laws.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying unaudited
condensed financial statements should be read in conjunction with the
financial statements and notes in Alliance's August 31, 1996 Annual Report
on Form 10-KSB.
2. Sales
Alliance sold 100% of its feeder pigs to its members for the three and six
month periods ended February 28, 1997 and February 29, 1996 at a
contractual price which is based on Alliance's operating costs (which are
based on a twelve month rolling average), debt service and an additional
$4.50 per pig sold.
Alliance accrued a rebate of $670,167 as of February 28, 1997 and August
31, 1996. Such rebate was accrued in fiscal 1996 and is payable to
Alliance's members. Alliance intends to pay the accrued rebate in fiscal
1997 when sufficient cash and working capital is available. Alliance has
not accrued a rebate in fiscal 1997 as it does not intend to pay a rebate
to its members on fiscal 1997 sales.
Because the contractual price for the sale of a feeder pig is determined
based upon, among other things, a twelve month historical rolling average
for operating costs and to the extent that current operating costs per pig
exceed the historical average operating costs, Alliance may incur a
negative gross margin on the sale of its feeder pigs during periods of
rising costs.
Alliance's average net sales price and the average industry market price
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28 February 28
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Average Net Sales Price 57.44 43.36 57.80 43.07
Average Industry Market* 56.20 34.66 53.99 35.73
*As published by the USDA's Market News Service
</TABLE>
3. Transactions with Farmland and Yuma
Alliance purchased feed from Yuma Farmers' Milling and Mercantile
Cooperative ("Yuma"), and animal health supplies and breeding stock from
Farmland Industries, Inc. ("Farmland") based on market prices. Yuma and
Farmland are members of Alliance. Alliance also sold feeder pigs to
Farmland and Yuma. Such purchases and sales were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28 February 28
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Feed Purchases .............$ 983,028 $681,697 $2,095,440 $1,268,134
Animal Health Purchases .....165,698 33,056 377,247 93,256
Breeding Stock ...............351,062 381,333 494,756 457,950
Feeder Pig Sales ...........1,956,704 972,066 3,961,082 1,945,808
</TABLE>
Farmland also pays Alliance a royalty for any pigs raised by Alliance and
sold to a Farmland finisher that are then selected as breeding stock for
Farmland's contract herds pursuant to the swine production services agreement.
The royalty, which is $10 per head selected, paid to Alliance under such
agreement was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28 February 28
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Royalty Income $ 40,000 $ 0 $ 72,600 $ 0
</TABLE>
Farmland also performs administrative, advisory and consulting services on
behalf of Alliance pursuant to a contractual agreement. The agreement
provides that Farmland will be compensated for such services in an amount
equal to one dollar per pig shipped adjusted annually for inflation for a
term of ten years commencing July 13, 1994. Amounts paid by Alliance to
Farmland under such agreement were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 28 February 28
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Management Fee $ 63,980 $ 33,956 $121,596 $ 68,586
</TABLE>
Alliance owed $222,590 and $203,624 at February 28, 1997 and $36,850 and
$137,722 at August 31, 1996 to Farmland and Yuma respectively, for goods
and services.
4. Major components of inventories as of February 28, 1997 and August 31, 1996
are as follows:
<TABLE>
<CAPTION>
FEBRUARY 28 AUGUST 31
1997 1995
<S> <C> <C>
Feeder Pigs...................... $2,502,303 $2,265,056
Other............................ 246,772 170,421
$2,749,075 $2,435,477
</TABLE>
5. Long-Term Debt
On May 19, 1995, Alliance entered into a $23,600,000 secured credit
facility with CoBank. This agreement provides for $18,850,000 of term
loans and $4,750,000 of revolving term credit. Proceeds from the term
loans are used for construction of feeder pig production facilities and are
advanced by CoBank as Alliance incurs construction costs. Proceeds from
revolving term credit may be used for working capital and other purposes.
The expiration date for the unused commitments for the term loans has been
extended from February 28, 1997 to August 31, 1997. The unused revolving
term credit expires June 20, 2006. Interest accrues on the outstanding
principal balance of the loan at a rate equal to CoBank's national variable
rate, plus 1.25% (9.5% at February 28, 1997).
Long term debt at February 28, 1997 and August 31, 1996 consisted of the
following:
FEBRUARY 28 AUGUST 31
1997 1995
CoBank Term Loan................... $11,294,000 $11,518,000
CoBank Revolving Term Credit....... $ 2,628,000 $ 2,141,000
Note Payable, Farmland............. $ 816,424 $ 636,424
$14,738,424 $14,295,424
Less Current Maturities............ $ 1,038,300 $ 870,000
$13,700,124 $13,425,424
At February 28, 1997, no additional term loans were immediately available,
$211,000 of term loans will be available upon acceptance by CoBank of a
feeder pig production facility and $142,000 of revolving term credit was
immediately available.
Additional amounts of term loans of $6,330,000 and revolving term credit of
$1,830,000 are restricted and available only as additional shares of common
stock are sold ($2,110,000 of term loans and $610,000 of revolving term
credit for every $1,360,000 of common stock sold).
Alliance is required to comply with various covenants, including, but not
limited to (i) maintaining at least $3,350,000 of shareholder's equity,
(ii) maintaining modified working capital (calculated as current assets
plus the available revolving term credit minus current liabilities
excluding the current portion of term debt payments) of at least $406,000,
(iii) restrictions on the occurrence of additional indebtedness,
(iv) restrictions on the declaration and payment of the cash portion of
patronage distributions and other distributions or allocations of earnings,
surplus or assets. As of February 28, 1997, Alliance was in compliance
with all covenants, except the modified working capital covenant, for which
Alliance has obtained a waiver from CoBank as of February 28, 1997.
Management believes that Alliance will have the ability to maintain
compliance with the above covenants in the foreseeable future. Alliance
may be required to make equity investments in CoBank in an amount not to
exceed 1% of the average five-year principal loan balance until Alliance
meets CoBank's target level of equity investment, which is currently 11.5%
of the average five-year principal loan balance. As of February 28, 1997,
substantially all assets of Alliance were pledged to CoBank.
At February 28, 1997, $816,424 had been borrowed from Farmland pursuant to
a $760,000 loan agreement and a $200,000 loan agreement. The $760,000 loan
agreement provides for interest at CoBank's prime rate and requires
repayment in 2005. The $200,000 loan agreement provides for interest at
CoBank's prime rate plus 1.25% and requires repayment in November 2006, or
upon the sale of an additional 17 shares of common stock by Alliance if
that occurs prior to November 2006
Long-term debt as of February 28, 1997 matures during the fiscal years
ending August 31 in the following amounts:
1997................... $ 870,000
1998................... 1,262,700
1999................... 1,318,800
2000................... 1,318,800
2001................... 1,318,800
Thereafter............. 7,611,024
$13,700,124
6. Alliance Farms is currently operating six 2,450 sow feeder pig production
units and has an additional unit under construction in Wayne County,
Illinois. As of February 28, 1997, commitments for construction of this
facility totaled approximately $2,109,900.
EXHIBIT A
SUBSCRIPTION AGREEMENT
Alliance Farms Cooperative Association
c/o Farmland Industries, Inc.
3315 North Oak Trafficway
Department 47
Kansas City, Missouri 64116
Attention: Wayne N. Snyder
Gentlemen:
1. Subscription.
a. The undersigned understands that Alliance Farms Cooperative
Association, a Colorado cooperative association (the "Company"), may offer up to
(i) an aggregate of 51 shares (the "Class A Shares") of its (Class A) Common
Stock, $.01 par value, on a "best efforts, all-or-none" basis for not less than
17 Class A Shares (a "Minimum Class A Block"), and thereafter may continue to
offer Class A Shares on such basis with respect to successive Minimum Class A
Blocks until 51 Class A Shares have been issued and sold, (ii) an aggregate of
54 shares (the "Class B Shares") of its Class B Common Stock, $.01 par value, on
a "best efforts, all-or-none" basis for not less than 18 Class B Shares (a
"Minimum Class B Block"), and thereafter may continue to offer Class B Shares on
such basis with respect to successive Minimum Class B Blocks until 54 Class B
Shares have been issued and sold, and (iii) an aggregate of 72 shares (the
"Class C Shares" and together with the Class A Shares and the Class B Shares,
the "Shares") of its Class C Common Stock, $.01 par value, on a "best efforts,
all-or-none" basis for not less than 24 Class C Shares (a "Minimum Class C
Block"), and thereafter may continue to offer Class C Shares on such basis with
respect to successive Minimum Class C Blocks until 72 Class C Shares have been
issued and sold. The undersigned acknowledges and agrees that prior to the
execution of this Subscription Agreement, the undersigned has received the
Company's Prospectus dated , 1997 for the Shares, which Prospectus
contains the form of this Subscription Agreement.
b. The undersigned hereby subscribes for and agrees to purchase
(i) Class A Shares at a price of $80,000 per share, (ii) Class B
Shares at a price of $60,000 per share, and (iii) Class C Shares at a
price of $45,000 per share, pursuant to the terms and conditions of this
Subscription Agreement (the "Subscription")<F1>. The undersigned understands and
agrees that in order to subscribe for any Shares, the following items must be
delivered to the Company on or before 5:00 p.m. on , 1998 (or by 5:00
p.m. on , 1999 if the termination of the offering is extended by the
Company):
[FN]
One Class A Share, one Class B Share or one Class C Share is the minimum
number of Shares for which an investor may subscribe, as described in the
Prospectus.
(A) two completed and executed copies of this Subscription
Agreement;
(B) the undersigned's check, bank draft or wire transfer
(contact the Company for wire transfer instructions), payable to the order
of "Alliance Farms Cooperative Association Escrow No. 1482300" in an amount
representing the aggregate purchase price of the Shares being subscribed
for hereunder (which amount is equal to the sum of (i) the product obtained
by multiplying the number of Class A Shares being subscribed for by $80,000
per Share, plus (ii) the product obtained by multiplying the number of
Class B Shares being subscribed for by $60,000 per Share, plus (iii) the
product obtained by multiplying the number of Class C Shares being
subscribed for by $45,000 per Share);
(C) (if the undersigned is subscribing for any Class A Shares)
two completed and executed copies of the Feeder Pig Purchase Agreement in
the form attached to the Prospectus as Exhibit B;<F2>
[FN]
Please do not date the Feeder Pig Purchase Agreement; the Company will date
the Feeder Pig Purchase Agreement upon acceptance of subscriptions.
(D) (if the undersigned is subscribing for any Class B Shares)
two completed and executed copies of the Weaned Pig Purchase Agreement in
the form attached to the Prospectus as Exhibit C;<F3> and
[FN]
Please do not date the Weaned Pig Purchase Agreement; the Company will date
the Weaned Pig Purchase Agreement upon acceptance of subscriptions.
(E) (if the undersigned is subscribing for any Class C Shares)
two completed and executed copies of the Class C Weaned Pig Purchase
Agreement in the form attached to the Prospectus as Exhibit D;<F4> and
[FN]
Please do not date the Class C Weaned Pig Purchase Agreement; the Company
will date the Class C Weaned Pig Purchase Agreement upon acceptance of
subscriptions.
(F) one executed stock power respecting the Class A Shares
subscribed by the undersigned hereunder in favor of the Company as
contemplated by Section 17 of the Feeder Pig Purchase Agreement.<F5>
[FN]
A form stock power is attached hereto as Annex 1 for your convenience.
Please do not date or otherwise complete the stock power; the Company will
date and complete the stock power upon acceptance of subscriptions.
(G) one executed stock power respecting the Class B Shares
subscribed by the undersigned hereunder in favor of the Company as
contemplated by Section 17 of the Weaned Pig Purchase Agreement.<F6>
[FN]
A form stock power is attached hereto as Annex 1 for your convenience.
Please do not date or otherwise complete the stock power; the Company will
date and complete the stock power upon acceptance of subscriptions.
(H) one executed stock power respecting the Class C Shares
subscribed by the undersigned hereunder in favor of the Company as
contemplated by Section 17 of the Class C Weaned Pig Purchase Agreement.
<F7>
[FN]
A form stock power is attached hereto as Annex 1 for your convenience.
Please do not date or otherwise complete the stock power; the Company will
date and complete the stock power upon acceptance of subscriptions.
In addition, if the undersigned is a resident of Iowa, or otherwise is
subscribing for Shares in Iowa, the undersigned may be required to deliver to
the Company a completed and executed Potential Investor Questionnaire with
respect to the representation and warranty made pursuant to Section 3.l below.
The undersigned understands that pending the Company's acceptance of
subscriptions for a Minimum Class A Block, a Minimum Class B Block or a Minimum
Class C Block in this offering and the satisfaction of certain other conditions,
all funds received by the Company in payment of the offering price for the
Shares promptly will be deposited in an interest-bearing escrow account
established at NationsBank, N.A. (Mid-West) (formerly Boatmen's National Bank),
Kansas City, Missouri. Payment of the applicable offering price must be made
payable to the order of "Alliance Farms Cooperative Association Escrow No.
1482300", the escrow account established at such bank. Upon the Company's
acceptance of subscriptions for a Minimum Class A Block of 17 Class A Shares,
for a Minimum Class B Block of 18 Class B Shares or for a Minimum Class C Block
of 24 Class C Shares, and the satisfaction of certain other conditions, all
funds deposited in the escrow account with respect to such Shares, together with
any interest earned thereon, will be paid to the Company. In the event that the
Company does not issue Shares for which funds have been deposited in the escrow
account prior to the termination of the offering, such funds will be refunded to
the respective subscribers, together with any interest earned thereon and
without any deduction being made for expenses.
c. The undersigned understands that this Subscription shall be
irrevocable, except as otherwise provided by virtue of applicable federal and
state securities laws, and shall survive the death or disability of the
undersigned, in the case of an individual, or the dissolution or bankruptcy of
the undersigned, in the case of an entity.
2. Acceptance of Subscription. The undersigned understands that if and
to the extent this Subscription is not accepted by the Company, in whole or in
part, prior to 5:00 p.m. on , 1998 (or by 5:00 p.m. on ,
1999 if the termination date of the offering is extended by the Company), any
amount so received by the Company will be returned to the undersigned. The
undersigned acknowledges that the management of the Company reserves the right,
in its sole and absolute discretion, to accept or reject this Subscription, in
whole or in part, and that this Subscription shall not be binding unless and
until accepted by the Company. The undersigned agrees that subscriptions need
not be accepted in the order they are received.
3. Representations, Warranties and Agreement. The undersigned represents
and warrants to the Company and its officers, directors, employees, agents and
controlling persons, and agrees with such persons, as follows:
a. The undersigned and his or her representative, if any, have
been furnished all additional information relating to the Company, its
business and financial condition, the offering of the Shares and any
other matter set forth in the Prospectus which they have requested.
b. The undersigned agrees that the certificates evidencing the
Shares being purchased by the undersigned shall be stamped or
otherwise imprinted with a conspicuous legend in substantially the
following form:
Sale, transfer or hypothecation of the shares represented by
this certificate is restricted by the provisions of the
Colorado cooperative association law and the Articles of
Incorporation and Bylaws of Alliance Farms Cooperative
Association (the "Company"), a copy of which provisions may
be inspected at the principal offices of the Company, and
all provisions of which are hereby incorporated by reference
in this certificate.
The undersigned agrees that the Shares or any of them shall be sold,
pledged, assigned, hypothecated, or otherwise transferred (with or
without consideration) (a "Transfer") only if such Transfer is
permissible under the Colorado cooperative association law and the
Company's Articles of Incorporation and Bylaws. The undersigned
understands that the Company has not agreed to register the Shares for
distribution in accordance with the provisions of certain applicable
state securities law (the "State Acts"), that the Company is the only
party who may register the Shares under certain State Acts and that
the Company has not agreed to comply with any exemption under the
State Acts for the resale of the Shares. The undersigned understands
that there is and likely will be no market for the (Class A) Common
Stock, Class B Common Stock or Class C Common Stock of the Company and
that the undersigned therefore may be unable to sell or dispose of the
Shares.
c. The undersigned agrees that a stop transfer order shall be
placed on the transfer books maintained with respect to the Shares
which gives effect to the restrictive legend set forth in Section 3.b.
d. The undersigned understands that no federal or state agency
has passed upon the Shares or upon the accuracy or adequacy of the
Prospectus, or made any finding or determination as to the fairness of
the investment or any recommendation or endorsement of the Shares.
The undersigned understands that the Prospectus may not have been
filed with or reviewed by certain state securities administrators.
e. The undersigned is a producer of agricultural products, an
association of such producers, or a federation of such associations.
f. If a natural person, the undersigned is a citizen of the
United States of America, is at least 21 years of age, and has the
legal capacity to execute, deliver and perform this Agreement, and his
or her principal residence is located within the state designated
under his or her name below.
g. If the undersigned is a corporation, trust, partnership, or
any other entity, such entity is authorized and otherwise duly
qualified and empowered to execute and deliver this Subscription
Agreement and thereupon shall become legally bound thereby, all
necessary actions have been taken to authorize and approve the
investment in the Shares, such entity was not formed for the purpose
of making the investment in the Shares and such entity's principal
place of business is located at the address set forth on the signature
page hereof.
h. The undersigned acknowledges and agrees that certain
commissions as described in the Prospectus may be due and payable to
certain selling agents or other representatives of the Company in
connection with this Subscription.
i. The undersigned acknowledges that the Company may assign the
Company's rights in and to the Feeder Pig Purchase Agreement and/or
Weaned Pig Purchase Agreement and/or Class C Weaned Pig Purchase
Agreement executed by the undersigned and any and all other assets of
the Company to any lender that may provide financing to the Company in
connection with the construction of feeder or weaned pig production
facilities or the operation thereof, or both, and the undersigned
consents to any such assignment.
j. If the undersigned is a resident of Iowa, or otherwise is
subscribing for Shares in Iowa, the undersigned certifies that the
undersigned either (i) has a net worth, or joint net worth with the
undersigned's spouse, in either case, exclusive of home, furnishings
and automobiles ("Adjusted Net Worth") of at least $65,000 as of the
date hereof, and an annual gross income of at least $65,000 for each
of the undersigned's two most recent tax years; or (ii) has Adjusted
Net Worth of at least $250,000 as of the date hereof.
4. Taxpayer Identification Number. The undersigned agrees to complete,
execute and return to the Company a Form W-9, "Payer's Request for Taxpayer
Identification Number and Certification", concurrently with the delivery of the
executed copy of this Subscription Agreement.<F8>
[FN]
A Form W-9 is attached hereto as Annex 2 for your convenience.
5. Indemnification. The undersigned agrees to indemnify and hold
harmless the Company, its officers, directors, employees, shareholders and
affiliates, and any person acting on behalf of the Company, from and against any
and all damage, loss, liability, cost and expense (including attorneys' fees)
which any of them may incur by reason of the failure by the undersigned to
fulfill any of the terms or conditions of this Subscription Agreement. All
representations, warranties and covenants contained in this Subscription
Agreement, and the indemnification contained in this Section 5 shall survive the
acceptance of this Subscription.
6. No Waiver. Notwithstanding any of the representations, warranties,
acknowledgements or agreements made herein by the undersigned, the undersigned
does not thereby or in any other manner waive any of the rights granted to the
undersigned under federal or state securities law.
7. Entire Agreement; Modification. This Subscription Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof, and neither this Subscription Agreement nor any
provisions hereof shall be waived, changed, discharged or terminated except by
an instrument in writing signed by the party against whom any waiver, change,
discharge or termination is sought.
8. Notices. Any notice, demand or other communication which any party
hereto may be required, or may elect, to give to anyone interested hereunder
shall be effective only if it is in writing and personally delivered or sent by
certified or registered mail, return receipt requested, postage prepaid, or by a
nationally recognized overnight delivery service, with delivery confirmed,
addressed to: in the case of the Company: Alliance Farms Cooperative
Association, c/o Farmland Industries, Inc., 3315 North Oak Trafficway,
Department 47, Kansas City, Missouri 64116, Attention: Wayne N. Snyder, or at
such other address as the Company shall so notify the undersigned pursuant
hereto, and in the case of the undersigned at the address set forth on the
signature page thereof or at such other address as the undersigned shall so
notify the Company pursuant hereto. Any such notice, demand or other
communication shall be deemed to have been given as of the date when so
delivered.
9. Binding Effect. Except as otherwise provided herein, this
Subscription Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators,
successors, legal representatives and assigns. If the undersigned is more than
one person, the obligations of the undersigned shall be joint and several and
the agreements, representations, warranties and acknowledgements herein
contained shall be deemed to be made by and be binding upon each such person and
the undersigned's respective heirs, executors, administrators, successors, legal
representatives and assigns.
10. Type of Ownership. The Subscriber wishes to own the Shares as follows
(mark one):
[ ] Separate or individual property;
[ ] Joint tenants with right of survivorship (both parties must sign all
required documents);
[ ] Community property (both parties must sign all required documents);
[ ] Trust (include name of trust, name of trustee, and include a copy of
the trust instrument);
[ ] Corporation (include articles of incorporation, bylaws and certified
corporate resolution authorizing the investment and signature);
[ ] Partnership (include a copy of the partnership agreement and a written
consent of partners authorizing the investment and signature);
[ ] Other (specify): .
(Note: Subscribers should seek the advice of their attorney in deciding in
which of the above forms they should take ownership of the Shares, since
different forms of ownership may have varying gift tax, estate tax, income tax
and other consequences, depending on the state of the Subscriber's domicile and
the Subscriber's particular personal circumstances.)
The name(s) in which the Shares are to be held is:
11. Assignability. The undersigned agrees not to transfer or assign this
Subscription Agreement, or any of the undersigned's interest herein, and further
agrees that the transfer or assignment of the Shares shall be made only in
accordance with the terms and conditions of this Subscription Agreement, the
Company's Articles of Incorporation and Bylaws, and all applicable laws.
12. Applicable Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
[The remainder of this page intentionally has been left blank]
THE UNDERSIGNED HEREBY REPRESENTS THAT THE UNDERSIGNED HAS READ THIS
SUBSCRIPTION AGREEMENT IN ITS ENTIRETY.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this day of , 199 , at ,
.
(city) (state)
INDIVIDUALS SIGN HERE
Note: If the Subscriber wishes to
own the Shares with another person as
joint tenants, or as community Signature
property, both individuals must sign
this Subscription Agreement.
Name (please print)
Social Security Number
Principal Residence Address of
Subscriber
Street Address
City and State Zip Code
Additional Individual (if any)
Signature
Name (please print)
Social Security Number
Principal Residence Address of
Subscriber
Street Address
City and State Zip Code
THE UNDERSIGNED HEREBY REPRESENTS THAT THE UNDERSIGNED HAS READ THIS
SUBSCRIPTION AGREEMENT IN ITS ENTIRETY.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this day of , 199 , at ,
.
(city) (state)
ORGANIZATIONS SIGN HERE
Note: If signed on behalf of a
corporation, please submit the
corporation's articles of Printed Name of Organization
incorporation, bylaws, and certified
corporate resolution authorizing the
investment and signature. If signed By:
on behalf of a partnership, please Signature
submit a copy of the partnership
agreement and a written consent of
partners authorizing the investment Printed Name and Title
and signature. If signed on behalf
of a trust, please submit the name of
the trust, name of the trustee, and a By:
copy of the trust instrument. (Additional signature if required
by
governing instrument)
Printed Name and Title
Federal Taxpayer Identification
Number
Address of Principal Place of
Business:
Street Address
City and State Zip Code
Country (if other than U.S.A.)
ALLIANCE FARMS COOPERATIVE ASSOCIATION hereby [accepts][rejects] the above
Subscription on this day of , 199 , at ,
Colorado.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By:
Name:
Title:
ANNEX 1
STOCK POWER
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
( ) Shares of the Common Capital Stock of the Alliance Farms
Cooperative Association standing in its name on the books of said association
represented by Certificate No. herewith and do hereby irrevocably
constitute and appoint attorney to transfer the said
stock on the books of the within named Company with full power of substitution
in the premises.
Dated 19
In the Presence of
ANNEX 2
Form W-9
(Rev. March 1994) REQUEST FOR TAXPAYER Give form to the
Department of the requester. Do NOT
Treasury IDENTIFICATION NUMBER send to the IRS.
AND CERTIFICATION
Internal Revenue Service
Please print or type:
Name (if joint names, list first and circle the name of the person or entity
whose number you enter in Part 1 below. SEE INSTRUCTIONS ON PAGE 2 IF YOUR NAME
HAS CHANGED.)
Business name (Sole proprietors see instructions on page 2.)
Please check appropriate box: [ ] Individual/Sole proprietor [ ]
Corporation
[ ] Partnership [ ] Other
Address (number, street, and apt. or suite no.)
Requester's name and address
(optional)
City, state and ZIP code
PART I TAXPAYER IDENTIFICATION NUMBER (TIN) List account
numbers(s) here
(optional)
Enter your TIN in the appropriate box. Forindividuals, this is your social
security number (SSN). For sole proprietors, see the instructions on page 2.
For other entities, it is your employer identification number (EIN). IF you do
not have a number, see HOW TO GET A TIN below.
Note: If the account is in more than one name, see the chart on page 2 for
guidelines on whose number to enter.
Social security number
- -
PART II For Payees Exempt From Backup Withholding (See Part II Instructions on
page 2)
OR
Employer identification number
PART III CERTIFICATION
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and
2.I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (d) the IRS has notified me that I am no longer
subject to backup withholding.
CERTIFICATION INSTRUCTIONS.--You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return. For real estate
transactions, item 2 does not apply. For mortgage interest paid, the
acquisition or abandonment of secured property, cancellation of debt,
contributions to an individual retirement arrangement (IRA), and generally
payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN. (Also see PART III
INSTRUCTIONS on page 2.)
Sign
Here Signature > Date >
Section references are to the Internal Revenue Code.
PURPOSE OF FORM.--A person who is required to file an information return with
the IRS must get your correct TIN to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, cancellation of debt, or contributions you made to an IRA.
Use Form W-9 to give your correct TIN to the requester (the person requesting
your TIN) and, when applicable, (1) to certify the TIN you are giving is correct
(or you are waiting for a number to be issued), (2) to certify you are not
subject to backup withholding, or (3) to claim exemption from backup withholding
if you are an exempt payee. Giving your correct TIN and making the appropriate
certifications will prevent certain payments from being subject to backup
withholding.
NOTE: If a requester gives you a form other than a W-9 to request your TIN, you
must use the requester's form if it is substantially similar to this Form W-9.
WHAT IS BACKUP WITHHOLDING?--Persons making certain payments to you must
withhold and pay to the IRS 31% of such payments under certain conditions. This
is called "backup withholding." Payments that could be subject to backup
withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee pay, and certain payments from
fishing boat operators. Real estate transactions are not subject to backup
withholding.
If you give the requester your correct TIN, make the proper certifications, and
report all your taxable interest and dividends on your tax return, your payments
will not be subject to backup withholding. Payments you receive will be subject
to backup withholding if:
1. You do not furnish your TIN to the requestor, or
2. The IRS tells the requester that you furnished an incorrect TIN, or
3. The IRS tells you that you are subject to backup withholding because
you did not report all your interest and dividends on your tax return (for
reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup
withholding under 3 above (for reportable interest and dividend accounts opened
after 1983 only), or
5. You do not certify your TIN. See the Part III instructions for
exceptions.
Certain payees and payments are exempt from backup withholding and
information reporting. See the Part II instructions and the separate
INSTRUCTIONS FOR THE REQUESTER OF FORM W-9.
HOW TO GET A TIN.--If you do not have a TIN, apply for one immediately. To
apply, get FORM SS-5, Application for a Social Security Number Card (for
individuals), from your local office of the Social Security Administration, or
FORM SS-4, Application for Employer Identification Number (for businesses and
all other entities), from your local IRS office.
If you do not have a TIN, write "Applied For" in the space for the TIN in
Part I, sign and date the form, and give it to the requester. Generally, you
will then have 60 days to get a TIN and give it to the requester. If the
requester does not receive your TIN within 60 days, backup withholding, if
applicable, will begin and continue until you furnish your TIN.
NOTE: Writing "Applied For" on the form means that you have already applied for
a TIN OR that you intend to apply for one soon.
As soon as you receive your TIN, complete another Form W-9, include your
TIN, sign and date the form, and give it to the requester.
PENALTIES
FAILURE TO FURNISH TIN.--If you fail to furnish your correct TIN to a requester,
you are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a
false statement with no reasonable basis that results in no backup withholding,
you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
MISUSE OF TINS.--If the requester discloses or uses TINs in violation of Federal
law, the requester may be subject to civil and criminal penalties.
SPECIFIC INSTRUCTIONS
NAME.--If you are an individual, you must generally enter the name shown on your
social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
social security card, and your new last name.
Sole Proprietor.--You must enter your INDIVIDUAL name. (Enter either your
SSN or EIN in Part I.) You may also enter your business name or "doing
business as" name on the business name line. Enter your name as shown on your
social security card and business name as it was used to apply for your EIN on
Form SS-4.
PART I--TAXPAYER IDENTIFICATION NUMBER (TIN)
You must enter your TIN in the appropriate box. If you are a sole proprietor,
you may enter your SSN or EIN. Also see the chart on this page for further
clarification of name and TIN combinations. If you do not have a TIN, follow
the instructions under HOW TO GET A TIN on page 1.
PART II--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
Individuals (including sole proprietors) are NOT exempt from backup withholding.
Corporations are exempt from backup withholding for certain payments, such as
interest and dividends. For a complete list of exempt payees, see the separate
Instructions for the Requestor of Form W-9.
If you are exempt from backup withholding, you should still complete this
form to avoid possible erroneous backup withholding. Enter your correct TIN in
Part I, write "Exempt" in Part II, and sign and date the form. If you are a
nonresident alien or a foreign entity not subject to backup withholding, give
the requester a completed FORM W-8, Certificate of Foreign Status.
PART III--CERTIFICATION
For a joint account, only the person whose TIN is shown in Part I should sign.
1. INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You must give your correct TIN,
but you do not have to sign the certification.
2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER
1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may
cross out item 2 of the certification.
4. OTHER PAYMENTS. You must give your correct TIN, but you do not have to
sign the certification unless you have been notified of an incorrect TIN. Other
payments include payments made in the course of the requester's trade or
business for rents, royalties, goods (other than bills for merchandise), medical
and health care services, payments to a nonemployee for services (including
attorney and accounting fees), and payments to certain fishing boat crew
members.
5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, CANCELLATION OF DEBT, OR IRA CONTRIBUTIONS. You must give your
correct TIN, but you do not have to sign the certification.
PRIVACY ACT NOTICE
Section 6109 requires you to give your correct TIN to persons who must file
information returns with the IRS to report interest, dividends, and certain
other income paid to you, mortgage interest you paid, the acquisition or
abandonment of secured property, cancellation of debt, or contributions you made
to an IRA. The IRS uses the numbers for identification purposes and to help
verify the accuracy of your tax return. You must provide your TIN whether or
not you are required to file a tax return. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not give a TIN to a payer. Certain penalties may also apply.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
FOR THIS TYPE OF ACCOUNT GIVE NAME AND SSN OF:
1.Individual The individual
2. Two or more individuals (joint account) The actual owner of the
account or, if combined
funds, the first individual
on the account(1)
3.Custodian account of a minor (Uniform The minor(2)
Gift to Minors Act)
4. a. The usual revocable savings (grantor The grantor-trustee(1)
is also trustee)
b. So-called trust account that is not a The actual owner(1)
legal or valid trust under state law
5.Sole proprietorship The owner(3)
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF:
6.Sole proprietorship The owner(3)
7.A valid trust, estate, or pension trust Legal entity(4)
8.Corporate The corporation
9. Association, club, religious, charitable, The organization
educational, or other tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of Agriculture The public entity
in the name of a public entity (such as a
state or local government, school district, or
prison) that receives agricultural program
payments
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's SSN.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN.
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
EXHIBIT B
FEEDER PIG PURCHASE AGREEMENT
THIS FEEDER PIG PURCHASE AGREEMENT (this "Agreement") is entered into as of
this day of , 199 , by and between ALLIANCE FARMS
COOPERATIVE ASSOCIATION (hereinafter "Association"), and _________________
(hereinafter "Purchaser").
WHEREAS, Association is engaged in the production and sale of feeder pigs;
and
WHEREAS, Purchaser is a purchaser of feeder pigs, possesses expertise in
swine production and management, and desires to enter into this Agreement for
membership purposes of Association;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
1. PURCHASE/SALE OF FEEDER PIGS.
(a) GENERAL. Upon and subject to all terms and conditions set forth
in this Agreement, Purchaser shall purchase from Association, and Association
shall sell to Purchaser, Qualifying Pigs (as defined in Section 2) produced by
Association during the term of this Agreement in lots (hereinafter "Lot" or
"Lots") of no less than 900, and no more than 1,000, Qualifying Pigs per Lot, as
determined by Association, which Lots shall be made available to Purchaser on a
rotating schedule with other members of Association owning Class A Common Stock
(as defined in Article SIXTH of Association's Articles of Incorporation), as
such rotating schedule is determined and implemented by Association on any
reasonable basis.
(b) SCHEDULE. Purchaser acknowledges that Association intends to
conduct a blind drawing, immediately following the consummation of each and
every offering of Class A Common Stock by Association, for purposes of adjusting
such rotating schedule as warranted by the resulting changes in the members of
the Association.
(c) AVAILABILITY. The number of Lots made available to Purchaser and
the frequency of availability of such Lots will be based upon Purchaser's
proportionate equity interest in Association with respect to Association's Class
A Common Stock. Purchaser acknowledges that Lots will not be made available to
Purchaser under this Agreement until Qualifying Pigs are produced and available
from the facilities constructed using the proceeds of the issuance of Class A
Common Stock of Association (including Class A Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase such Lots under this Agreement derives, and that the number of Lots
made available to Purchaser and the frequency of availability of such Lots will
be subject to actual production of Qualifying Pigs from all facilities of
Association. Association shall give notice to Purchaser when a Lot is available
for purchase by Purchaser hereunder, which notice shall specify the anticipated
number of Qualifying Pigs in such Lot and the scheduled shipment date.
(d) EXCESS PRODUCTION. The production of feeder pigs is anticipated
to produce, on a prospective rolling 12-month basis, approximately two and
seven-tenths (2.7) Lots of Qualifying Pigs per share of Class A Common Stock of
Association owned by members of Association for which Lots are to be made
available for purchase hereunder. To the extent that the production of feeder
pigs exceeds such anticipated production, Association shall either sell such
excess production to any person (including a member of Association), at a price
as shall be determined by Association in good faith, or retain such excess
production for Association's own purposes, in lieu of selling such excess
production to the members of Association pursuant to the Feeder Pig Purchase
Agreements between Association and the members of Association.
2. QUALIFYING PIGS. For purposes of this Agreement, the term "Qualifying
Pig" shall mean an individual feeder pig having a minimum weight of 30 pounds,
managed in accordance with Section 7, and free of the following defects (with
terms used in reference to defects being given the meaning generally utilized in
the swine industry) at the time of loading:
(a) uncastrated or freshly castrated males;
(b) ruptures, umbilical or scrotal hernia larger than a two-inch
diameter;
(c) unthrifty, poor-doing pigs;
(d) observable signs of lameness, stiffness, or other locomotor
disorders evidenced by swelling or malformed joints;
(e) transmissible gastroenteritis;
(f) observable abscesses; and
(g) anal prolapse.
3. PURCHASE PRICE OF PIGS.
(a) PRICE. The purchase price for each Qualifying Pig purchased by
Purchaser under this Agreement shall be an amount equal to the sum of the
following:
Financing Cost Per Pig, plus
Operating Cost Per Pig, plus
Production Margin.
Purchaser acknowledges that Association has constructed, or is in the process of
constructing, or both, Production Units as a result of previous offers and sales
of shares of its capital stock and that Association from time to time may
construct additional Production Units as a result of additional offers and sales
of shares of its capital stock. In light of the foregoing, the determination of
the Financing Cost Per Pig portion of the purchase price for a Qualifying Pig
hereunder shall be made separately with respect to each Lot in relation to the
Production Unit(s) that were constructed using the proceeds of the issuance of
Class A Common Stock of Association (including Class A Common Stock of the
Association assigned or transferred to Purchaser) from which Purchaser's right
to purchase such Lot under this Agreement derives.
(b) DEFINITIONS. As used in this Section 3, the following terms
shall have the following meanings:
FINANCING COST PER PIG shall be determined on a prospective rolling 12-
month basis and shall mean an amount equal to the quotient of (i) the sum
of the required payments of interest and principal (including any scheduled
sinking fund payments) to be made during the upcoming 12-month period with
respect to Purchaser's Debt, divided by (ii) Pigs Shipped.
OPERATING COST PER PIG shall be determined on a rolling 12-month historical
basis and shall mean an amount equal to the quotient of (i) the sum of (A)
all direct and indirect production, operating, selling, general,
administrative, and other expenses JWA[1]incurred by Association in the 12
months preceding the then present month of shipment as determined by
Association's accountants utilizing generally accepted accounting
principles consistently applied (excluding any provision for interest
expense or depreciation or amortization of the cost of buildings,
equipment, breeding stock or other capitalized costs which were purchased
as a result of Purchaser's Debt or as a result of the issuance of any
capital stock of Association to any third party), plus (B) the net cash
flow cost of all capital expenditures by Association (including any capital
sinking fund payments) for production facility and breeding stock
improvements and replacements in the 12 months preceding the then present
month of shipment as determined by Association's accountants, divided by
(ii) Pigs Shipped. The direct and indirect production and operating
expenses attributable to a Production Unit which is in the process of
commencing production shall not be included in the determination of
Operating Cost Per Pig, and shipments of pigs attributable to such
Production Unit shall not be included in Pigs Shipped, until such
Production Unit has completed one entire month of full production, shipping
pigs in each week thereof. The net cash flow with respect to capital
expenditures for production facility and breeding stock improvements and
replacements (which net cash flow shall be determined after taking into
account the breeding stock and production facility retirements attributable
to a Production Unit which is in the process of commencing production)
shall not be included in the determination of Operating Cost Per Pig until
the respective Production Unit has completed one entire month of full
production, shipping pigs in each week thereof.
PRODUCTION MARGIN shall mean an amount of up to $4.50, as determined by the
Board of Directors of Association, from time to time, in its sole and
absolute discretionJWA[2].
PIGS SHIPPED shall mean the number of Qualifying Pigs produced and shipped
from Association over the same 12-month period in determining the Operating
Cost Per Pig and the estimated number of Qualifying Pigs that will be
produced and shipped by Association over the 12-month period in determining
the Financing Cost Per Pig. For purposes of determining the Financing Cost
Per Pig, Pigs Shipped shall be equal to the product of (i) Association's
total estimated number of Qualifying Pigs to be produced and shipped by
Association during such 12-month period, multiplied by (ii) a fraction, the
numerator of which shall be the number of Production Units constructed by
Association with respect to the issuance of Class A Common Stock of
Association (including Class A Common Stock of the Association assigned or
transferred to Purchaser) from which the right of Purchaser to purchase
Lots of Qualifying Pigs under this Agreement derives, and the denominator
of which shall be the number of Production Units constructed by Association
with respect to JWA[3]all issuances of its Class A Common Stock. All
estimates relating to Pigs Shipped shall be made by Association using such
historical data and projections as are available to Association.
PRODUCTION UNIT shall mean the land and facilities necessary to house, feed
and care for a group of 2,450 sows and the attendant offspring thereof.
PURCHASER'S DEBT shall mean (i) the debt incurred by Association for the
Production Unit(s) constructed by Association with respect to the issuance
of Class A Common Stock of Association (including Class A Common Stock of
the Association assigned or transferred to Purchaser) from which the right
of Purchaser to purchase Lots of Qualifying Pigs under this Agreement
derives, including any debt incurred for purposes of financing the
acquisition of land for, and construction of, such Production Unit(s),
(ii) any debt incurred for the initial working capital requirements with
respect to the operation of such Production Unit(s), and (iii) any debt
incurred for purposes of refinancing any such debt.
4. PAYMENT OF PURCHASE PRICE. Association shall furnish to Purchaser, at
the time Association notifies Purchaser that a Lot is available for purchase by
Purchaser hereunder, an estimate of the total purchase price of the Qualifying
Pigs included in the Lot, and Purchaser shall, not less than one day prior to
the scheduled shipment date as specified in the notice by Association to
Purchaser, pay such estimated total purchase price to Association in cash, or by
such other means as may be acceptable to Association in its sole and absolute
discretion. Association shall have no obligation to commence transportation of
such Qualifying Pigs to Purchaser prior to full payment of such estimated total
purchase price for such Qualifying Pigs as herein provided. The actual total
purchase price of all Qualifying Pigs included in a Lot shall be based upon
weight at the time of loading and settlement of any adjustments shall be made
within five days following delivery.
5. WEIGHT ADJUSTMENT. The purchase price for each Qualifying Pig as
provided in Section 3 is for a Lot of Qualifying Pigs having an average weight
of 45 pounds. In the event that the average weight of the Qualifying Pigs in a
Lot sold to Purchaser exceeds 45 pounds, Purchaser shall pay Association an
additional twenty-five cents ($0.25) per pound per Qualifying Pig on the number
of pounds (not to exceed five pounds) that the Lot's average shipping weight per
pig exceeds 45 pounds, and an additional twenty cents ($0.20) per pound per
Qualifying Pig on the number of pounds (not to exceed ten pounds) that the Lot's
average shipping weight per pig exceeds 50 pounds. To the extent that the
average weight of the Qualifying Pigs in a Lot sold to Purchaser is less than 45
pounds, twenty-five cents ($0.25) per pound on the number of pounds that the
Lot's average shipping weight per pig is less than 45 pounds shall be deducted
from the purchase price that Purchaser is to pay to Association for each
Qualifying Pig. Purchaser shall have the right to, but shall not be obligated
to, purchase a Lot of Qualifying Pigs hereunder at an average weight of less
than 35 pounds per pig.
6. GENETIC QUALITY. Qualifying Pigs produced by Association will be
progeny from genetic stock selected by Association, from time to time, in its
sole and absolute discretion. Such selection of such genetic stock will be
determined and implemented by Association on a basis that reasonably would be
expected to produce Qualifying Pigs that are capable of producing market hogs
having carcasses that are responsive to consumer demand and thereby maximize the
sales price to be received therefore.
7. MANAGEMENT OF HEALTH AND NUTRITION. Association agrees to comply with
the following health and nutrition programs with respect to all pigs to be
purchased under this Agreement:
(a) Association shall dock tails within 48 hours of a pig's
birth.
(b) Association shall castrate male pigs within ten days of the pig's
birth.
(c) Association shall administer all vacines and antibiotic
treatments and perform such other procedures that are reasonably determined
by Association to be necessary or advisable with respect to a herd health
program.
(d) Association shall maintain Association's swine free from the
psuedorabies virus ("PRV") or any swine disease that would prohibit
interstate shipment of pigs produced by Association, or that might
otherwise materially impair Purchaser's ability to utilize the pigs to be
purchased under this Agreement. If, in the opinion of two veterinarians
selected by Association and reasonably acceptable to Purchaser, any of the
swine produced by Association or used in the production of feeder pigs for
delivery hereunder contracts PRV, Association shall have the opportunity to
cure such impairment within a reasonable period of time and to suspend, at
any time and from time to time, the sale and purchase of feeder pigs
hereunder until such time as said veterinarians determine that PRV no
longer exists.
(e) Association shall use a feeding regimen, feed products, and herd
health products developed or marketed by Farmland Industries, Inc., or any
of its affiliates.
8. RIGHT OF INSPECTION. Upon reasonable notice to Association, Purchaser
or its representative shall have the right to inspect Association's production
records to verify the genetic quality and management of nutrition and health
programs prescribed by this Agreement during normal business hours.
9. ADJUSTMENT FOR NON-QUALIFYING PIGS. Purchaser shall have the right to
inspect Purchaser's Lot of Qualifying Pigs prior to loading. In the event that,
after delivery of such Lot, Purchaser believes that any pig was not a Qualifying
Pig prior to loading (a "Subject Pig"), Purchaser shall notify Association by
telephone of such belief within one (1) business day following delivery as well
as promptly notify Association of such belief in the manner provided in Section
19 hereof. Association shall have the right to inspect any and all Subject Pigs
in investigation of Purchaser's belief, and thereafter Association and Purchaser
shall agree in good faith upon an appropriate adjustment, if any, with respect
to such Subject Pigs. Purchaser hereby acknowledges and agrees that such
adjustment described above shall be Purchaser's sole and exclusive remedy as
against Association arising out of the purchase hereunder of a pig that was not
a Qualifying Pig at the time of loading and that the failure of Association to
deliver Qualifying Pigs as otherwise required hereunder shall not give rise to a
right of Purchaser to terminate this Agreement. Furthermore, in no event shall
Purchaser reject delivery of a Lot of pigs hereunder, but in lieu thereof
Purchaser shall accept each delivery of a Lot of pigs hereunder and, with
respect to any and all pigs that Purchaser believes were not Qualifying Pigs
prior to loading, shall comply with the provisions of this Section 9 and, until
such adjustment, if any, is agreed upon by Association and Purchaser, shall, at
Purchaser's expense, feed, water, treat and care for any and all such pigs as if
Purchaser believed such pigs were Qualifying Pigs prior to loading.
10. HEALTH PERMITS. Association shall provide Purchaser, at Association's
expense, all health permits necessary to qualify all Qualifying Pigs for
interstate shipment.
11. WEIGHING CONDITIONS. All Lots of Qualifying Pigs shall be weighed at
Association's expense at a state-inspected scale in close proximity to
Association's production facility. A copy of all scale tickets will be provided
to Association and to Purchaser.
12. IDENTIFICATION. Association shall appropriately identify, prior to
shipment, all Qualifying Pigs in accordance with the rules that will allow
interstate shipment to the states to which the pigs are being shipped.
13. TRANSPORTATION OF PIGS. Qualifying Pigs shall be shipped to Purchaser
FOB shipping point. Association shall at Purchaser's expense arrange for
transportation of Qualifying Pigs from any of Association's production
facilities as determined by Association; provided, however, that Purchaser shall
pay such transportation costs no later than the time of delivery. Trucks shall
be thoroughly cleaned and disinfected prior to hauling any pigs from
Association's production facilities and after any previously hauled pigs.
14. TERM OF AGREEMENT. The term of this Agreement shall commence on the
date first written above and shall continue for 120 months after the month in
which the first Lot of Qualifying Pigs is shipped by Association to Purchaser
(or Purchaser's direct or indirect assignor or transferor) with respect to the
Class A Common Stock of the Association (including Class A Common Stock of the
Association assigned or transferred to Purchaser) from which the right of
Purchaser to purchase Lots of Qualifying Pigs under this Agreement derives,
subject to the following:
(a) In the event that Purchaser fails to purchase, pay for, and take
delivery of any two Lots (as defined herein or in any other agreement
between Purchaser and Association) when and as made available to Purchaser
in accordance with the terms of this Agreement, any other Feeder Pig
Purchase Agreement or any Weaned Pig Purchase Agreement between Purchaser
and Association, this Agreement shall terminate and Association shall have
the right to exercise its remedies as provided in Section 17 hereof;
provided, however, that in the event Purchaser owns ten or more shares of
capital stock of Association, this Agreement shall terminate and
Association shall have the right to exercise its remedies as provided in
Section 17 hereof only upon Purchaser failing to purchase, pay for, and
take delivery of a number of Lots (as defined herein or in any other
agreement between Purchaser and Association) when and as made available to
Purchaser in accordance with the terms of this Agreement, of any other
Feeder Pig Purchase Agreement or of any Weaned Pig Purchase Agreement
between Purchaser and Association equal to the sum of (i) the quotient
(rounded down to the nearest whole number) of (A) the number of shares of
capital stock owned by Purchaser, divided by (B) ten (10), plus (ii) two
(2).
(b) In the event of a material breach of any agreement or covenant of
Association contained in this Agreement, Purchaser may give written notice
of such breach to Association and, in the event that such breach is not
cured within a period (the "Cure Period") of thirty (30) days following
such notice of breach by Purchaser to Association, Purchaser shall have the
right to terminate this Agreement upon notice to Association, provided that
such notice of termination is given by Purchaser to Association within
thirty (30) days following the Cure Period.
(c) If the first Lot of Qualifying Pigs is not shipped to Purchaser
hereunder within twenty-four (24) months of the date of this Agreement,
Purchaser shall have the right to terminate this Agreement upon notice to
Association, provided that such notice of termination is given by Purchaser
to Association within three (3) months after the expiration of such twenty-
four (24) month period; provided, however, that any such termination shall
not terminate or otherwise affect any other Feeder Pig Purchase Agreement
or any Weaned Pig Purchase Agreement between Purchaser and Association.
(d) In the event Purchaser assigns or transfers, in accordance with
the Articles of Incorporation and Bylaws of Association, all shares of
Class A Common Stock of Association from which Purchaser's right to
purchase Lots under this Agreement derives, this Agreement automatically
shall terminate.
(e) This Agreement shall be extended automatically for
succeeding and consecutive twelve (12) month terms unless Purchaser
gives to Association, not less than twelve (12) months prior to the
expiration of the initial term or any extended term hereof, notice
that Purchaser desires to terminate this Agreement as of the
expiration of such initial or extended term.
Notwithstanding the foregoing, however, the rights of Association to collect
damages and to exercise its remedies under Section 17 hereunder shall survive
any termination of this Agreement.
15. WARRANTIES. ASSOCIATION MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED
TO PURCHASER OTHER THAN AS HEREIN EXPRESSLY PROVIDED, AND SPECIFICALLY (A) MAKES
NO WARRANTY AS TO ANY SPECIFIC LEVEL OF PERFORMANCE WITH RESPECT TO ANY PIGS
SOLD HEREUNDER, AND (B) DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE.
16. FORCE MAJEURE. Either party to this Agreement shall be relieved of
its responsibility and obligations hereunder during any period when performance
is commercially impossible because of reasons beyond its control such as, but
not limited to, fire, explosion, strike, accident, governmental regulations or
intervention, and acts of God.
17. DEFAULT BY PURCHASER; GRANT OF SECURITY INTEREST. Purchaser
acknowledges that the damages suffered by Association in the event of any
failure by Purchaser to purchase, pay for, and take delivery of any Lot when and
as made available to Purchaser in accordance with the terms hereof shall equal,
and Purchaser shall be liable to Association for and shall pay to Association
upon demand, the sum of the following: (a) the difference between the price
payable by Purchaser hereunder for Qualifying Pigs included in such Lot and the
then current market price (as of the scheduled shipment date for such Lot) for
Qualifying Pigs as quoted in any independent industry publication or source
selected by Association, multiplied by the number of Qualifying Pigs in such Lot
that Purchaser has failed to purchase, pay for, and take delivery of, in
accordance with the terms hereof; plus (b) administrative and other costs and
expenses relating to such Lot, which are hereby agreed to equal the amount of
$3,000; plus (c) costs of collection, enforcement, and prosecution of
Association's rights and remedies hereunder or otherwise arising, whether or not
involving a case, action, or other proceeding before any state or federal court
or other body, including, but not limited to, reasonable attorney's fees,
collection agency fees, and other costs of collection; provided, however, that
to the extent applicable law prohibits collection of attorney's fees and/or
costs, this subsection (c) shall be null and void to the extent of such
prohibition, except to preserve Association's rights pursuant to 11 U.S.C.
' 506(b). During any period in which Purchaser has been notified that it is
obligated to pay an amount for damages pursuant to the immediately preceding
sentence and has not paid such amount within three days of such demand,
Association shall not make any future Lots available to Purchaser for purchase
hereunder or under any other Feeder Pig Purchase Agreement between Purchaser and
Association until Purchaser has paid such amount. In the event that Purchaser
is not made available any Lot for purchase hereunder pursuant to the immediately
preceding sentence that Association otherwise would have made available to
Purchaser for purchase hereunder, then Purchaser shall be deemed to have failed
to purchase, pay for, and take delivery of such Lot, and Purchaser shall be
liable for damages with respect to such Lot computed in accordance with the
first sentence of this Section. Upon any termination of this Agreement,
Purchaser's liability for damages incurred by Association with respect to
Purchaser's obligation to purchase, pay for and take delivery of Lots made
available to the Purchaser shall be limited to the damages with respect to such
Lots computed in accordance with the preceding provisions of this Section 17,
and Purchaser shall not be liable for any other damages for the failure to
purchase, pay for or take delivery of Lots hereunder after the termination of
this Agreement.
As security for the due and punctual performance of all of Purchaser's
obligations under this Agreement, Purchaser hereby pledges and grants to
Association, its successors and assigns, a security interest in and lien upon
any and all interest (the "Coop Interest") Purchaser now has or hereafter may
have in Association, including, without limitation, any capital stock or other
rights or interests owned or held by Purchaser, or to which Purchaser is
entitled, as a stockholder of Association and any interest of Purchaser in and
to any dividends, capital or other credits, patronage or other distributions, or
participations arising therefrom. Purchaser shall also deliver and endorse such
stock or other certificates and execute and deliver such financing statements
and other instruments (including, without limitation, stock powers duly endorsed
in blank), and take such other action, as Association may request for purposes
of perfecting or protecting the security interest granted under this Section 17.
Purchaser represents, warrants and agrees that the pledge of the Coop Interest
pursuant to this Section 17 creates a valid and perfected first priority
security interest in the Coop Interest in favor of Association, subordinate only
to any permissible pledge or other security interest granted by Purchaser to any
financial institution for purposes of securing a loan by such financial
institution to Purchaser, the proceeds of which are used to finance Purchaser's
acquisition of the Coop Interest. Notwithstanding the foregoing, however,
Association may release such pledge and grant of a security interest for good
cause, as determined in Association's sole and absolute discretion.
If Purchaser shall be in default under this Agreement, Association may
exercise any and all rights and remedies available to Association hereunder,
under the Articles of Incorporation or Bylaws of Association, under any
applicable Uniform Commercial Code, or otherwise at law or in equity. The
rights and remedies afforded to Association hereunder shall be cumulative and in
addition to, and not in limitation of, any rights and remedies which Association
may otherwise have under the Articles of Incorporation or Bylaws of Association
or under applicable law, including any applicable Uniform Commercial Code. The
exercise or partial exercise of any right or remedy of Association hereunder or
under the Articles of Incorporation or Bylaws of Association or under applicable
law shall not preclude or prejudice the further exercise of that right or remedy
or the exercise of any other right or remedy of Association. No delay or
omission on the part of Association in exercising any right hereunder or
otherwise shall operate as a waiver of such right. A waiver on any one occasion
shall not be construed as a bar or waiver of any right or remedy on any future
occasion.
18. ARBITRATION. In the event of any controversy arising out of or
relating to this Agreement, or any breach hereof, other than any controversy
arising out of or relating to Section 17 hereof or the exercise of any rights or
remedies thereunder, the parties agree to submit the dispute to binding
arbitration in accordance with the Commercial Arbitration Rules then in force of
the American Arbitration Association. Such arbitration shall be initiated by
either party by notifying the other party in writing and requesting a panel of
five (5) arbitrators from the American Arbitration Association, which
arbitrators shall be individuals skilled in the legal and business aspects of
the subject matter of this Agreement and of the dispute. Alternate strikes
shall be made to the panel commencing with the party requesting the arbitration
until one individual remains. Such individual shall be the arbitrator for the
controversy. The party requesting the arbitration shall notify the arbitrator
who shall hold a hearing(s) within 60 days of the notice. Any hearing(s) shall
take place in Denver, Colorado, or such other location as the parties may agree
upon. The arbitrator shall render a decision, including a written opinion in
support thereof, within 30 days after the conclusion of the hearing(s), which
decision shall be final and binding upon the parties without right of appeal.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Costs of the arbitration will be assessed by the
arbitrator against either or both of the parties, and will be paid promptly by
the party or parties so assessed.
19. NOTICES. Any notice given or required to be given hereunder shall be
deemed to have been effectively given when delivered personally or sent by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed or transmitted to Association at Alliance Farms Cooperative
Association, c/o Farmland Industries, Inc., 3315 North Oak Trafficway,
Department 47, Kansas City, Missouri 64116, Attention: Mr. Wayne N. Snyder, and
to Purchaser at the address set forth below Purchaser's signature, and/or to
such other (or additional) address(es) requested by a notice given in accordance
with this Section.
20. ENTIRE AGREEMENT. This Agreement contains all of the terms agreed
upon by the parties with respect to the subject matter hereof and supersedes all
prior agreements of the parties as to the subject matter hereof; provided,
however, any and all other Feeder Pig Purchase Agreements between Purchaser and
Association respecting issuances of capital stock of Association (including
capital stock of the Association assigned or transferred to Purchaser) from
which the right of Purchaser to purchase Lots under this Agreement does not
derive, and any and all Weaned Pig Purchase Agreements between Purchaser and
Association, shall not be superseded, modified or otherwise affected by this
Agreement. This Agreement may not be modified except in writing, signed by the
parties hereto, that specifically references this Agreement.
21. ASSIGNMENT. This Agreement may not be assigned by either party
without prior written consent of the other party; provided, however, that
Association may assign Association's rights herein and hereto to any lender that
may provide financing to Association in connection with the construction of
facilities or the operation thereof, or both. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors, and permitted assigns.
22. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado. The parties hereto hereby
agree that if any part, term or provision of this Agreement is held by a court
of competent jurisdiction to be illegal or unenforceable or in conflict with any
controlling state law, the validity of the remaining parts, terms and provisions
of this Agreement shall not be affected, and the rights and obligations of the
parties shall be construed and enforced as if this Agreement did not contain the
particular part, term or provision held to be illegal or unenforceable or in
conflict with any controlling state law. This Agreement and the transactions
contemplated hereunder constitute commercial, and not consumer, transactions.
[The remainder of this page intentionally has been left blank]
THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE THAT MAY BE ENFORCED
BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
day and year first above written.
ASSOCIATION: PURCHASER:
ALLIANCE FARMS COOPERATIVE
ASSOCIATION
By: By:
Name: Name:
Title: Title:
Purchaser's Address:
EXHIBIT C
WEANED PIG PURCHASE AGREEMENT
THIS WEANED PIG PURCHASE AGREEMENT (this "Agreement") is entered into as of
this day of , 199 , by and between ALLIANCE FARMS
COOPERATIVE ASSOCIATION (hereinafter "Association"), and
(hereinafter "Purchaser").
WHEREAS, Association is or will be engaged in the production and sale of
weaned pigs; and
WHEREAS, Purchaser is a purchaser of weaned pigs, possesses expertise in
swine production and management, and desires to enter into this Agreement for
membership purposes of Association;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
1. PURCHASE/SALE OF WEANED PIGS.
(A) GENERAL. Upon and subject to all terms and conditions set forth
in this Agreement, Purchaser shall purchase from Association, and Association
shall sell to Purchaser, Qualifying Pigs (as defined in Section 2) produced by
Association during the term of this Agreement in lots (hereinafter "Lot" or
"Lots") of no less than 925, and no more than 1,025, Qualifying Pigs per Lot, as
determined by Association, which Lots shall be made available to Purchaser on a
rotating schedule with other members of Association owning Class B Common Stock
(as defined in Article SIXTH of Association's Articles of Incorporation), as
such rotating schedule is determined and implemented by Association on any
reasonable basis.
(B) SCHEDULE. Purchaser acknowledges that Association intends to
conduct a blind drawing, immediately following the consummation of each and
every offering of Class B Common Stock by Association, for purposes of adjusting
such rotating schedule as warranted by the resulting changes in the members of
the Association.
(C) AVAILABILITY. The number of Lots made available to Purchaser and
the frequency of availability of such Lots will be based upon Purchaser's
proportionate equity interest in Association with respect to Association's Class
B Common Stock. Purchaser acknowledges that Lots will not be made available to
Purchaser under this Agreement until Qualifying Pigs are produced and available
from the facilities constructed using the proceeds of the issuance of Class B
Common Stock of Association (including Class B Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase such Lots under this Agreement derives, and that the number of Lots
made available to Purchaser and the frequency of availability of such Lots will
be subject to actual production of Qualifying Pigs from all facilities of
Association. Association shall give notice to Purchaser when a Lot is available
for purchase by Purchaser hereunder, which notice shall specify the anticipated
number of Qualifying Pigs in such Lot and the scheduled shipment date.
(D) EXCESS PRODUCTION. The production of weaned pigs is anticipated
to produce, on a prospective rolling 12-month basis, approximately two and
seven-tenths (2.7) Lots of Qualifying Pigs per share of Class B Common Stock of
Association owned by members of Association for which Lots are to be made
available for purchase hereunder. To the extent that the production of weaned
pigs exceeds such anticipated production, Association shall either sell such
excess production to any person (including a member of Association), at a price
as shall be determined by Association in good faith, or retain such excess
production for Association's own purposes, in lieu of selling such excess
production to the members of Association pursuant to the Weaned Pig Purchase
Agreements between Association and the members of Association.
2. QUALIFYING PIGS. For purposes of this Agreement, the term "Qualifying
Pig" shall mean an individual weaned pig that is not utility grade, that has a
minimum weight of at least six (6) pounds at point in time of delivery, that has
the genetic characteristics described in Section 6, that has been managed in
accordance with Section 7, and that has a significant likelihood to perform
economically and reach market weight efficiently.
3. PURCHASE PRICE OF PIGS.
(a) PRICE. The purchase price for each Qualifying Pig purchased by
Purchaser under this Agreement shall be an amount equal to the sum of the
following:
Financing Cost Per Pig, plus
Operating Cost Per Pig, plus
Production Margin.
Purchaser acknowledges that Association has constructed, or is in the process of
constructing, or both, Production Units as a result of previous offers and sales
of shares of its capital stock and that Association from time to time may
construct additional Production Units as a result of additional offers and sales
of shares of its capital stock. In light of the foregoing, the determination of
the Financing Cost Per Pig portion of the purchase price for a Qualifying Pig
hereunder shall be made separately with respect to each Lot in relation to the
Production Unit(s) that were constructed using the proceeds of the issuance of
Class B Common Stock of Association (including Class B Common Stock of the
Association assigned or transferred to Purchaser) from which Purchaser's right
to purchase such Lot under this Agreement derives.
(b) DEFINITIONS. As used in this Section 3, the following terms
shall have the following meanings:
FINANCING COST PER PIG shall be determined on a prospective rolling 12-
month basis and shall mean an amount equal to the quotient of (i) the sum
of the required payments of interest and principal (including any scheduled
sinking fund payments) to be made during the upcoming 12-month period with
respect to Purchaser's Debt, divided by (ii) Pigs Shipped.
OPERATING COST PER PIG shall be determined on a rolling five-month
historical basis and shall mean an amount equal to the quotient of (i) the
sum of (A) all direct and indirect production, operating, selling, general,
administrative, and other expenses incurred by Association in the five
months preceding the then present month of shipment as determined by
Association's accountants utilizing generally accepted accounting
principles consistently applied (excluding any provision for interest
expense or depreciation or amortization of the cost of buildings,
equipment, breeding stock or other capitalized costs which were purchased
as a result of Purchaser's Debt or as a result of the issuance of any
capital stock of Association to any third party), plus (B) the net cash
flow cost of all capital expenditures by Association (including any capital
sinking fund payments) for production facility and breeding stock
improvements and replacements in the five months preceding the then present
month of shipment as determined by Association's accountants, divided by
(ii) Pigs Shipped. The direct and indirect production and operating
expenses attributable to a Production Unit which is in the process of
commencing production shall not be included in the determination of
Operating Cost Per Pig, and shipments of pigs attributable to such
Production Unit shall not be included in Pigs Shipped, until such
Production Unit has completed one entire month of full production, shipping
pigs in each week thereof. The net cash flow with respect to capital
expenditures for production facility and breeding stock improvements and
replacements (which net cash flow shall be determined after taking into
account the breeding stock and production facility retirements attributable
to a Production Unit which is in the process of commencing production)
shall not be included in the determination of Operating Cost Per Pig until
the respective Production Unit has completed one entire month of full
production, shipping pigs in each week thereof.
PRODUCTION MARGIN shall mean an amount of up to $4.50, as determined by the
Board of Directors of Association, from time to time, in its sole and
absolute discretion.
PIGS SHIPPED shall mean the number of Qualifying Pigs produced and shipped
from Association over the same five-month period in determining the
Operating Cost Per Pig and the estimated number of Qualifying Pigs that
will be produced and shipped by Association over the 12-month period in
determining the Financing Cost Per Pig. For purposes of determining the
Financing Cost Per Pig, Pigs Shipped shall be equal to the product of (i)
Association's total estimated number of Qualifying Pigs to be produced and
shipped by Association during such 12-month period, multiplied by (ii) a
fraction, the numerator of which shall be the number of Production Units
constructed by Association with respect to the issuance of Class B Common
Stock of Association (including Class B Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase Lots of Qualifying Pigs under this Agreement derives, and the
denominator of which shall be the number of Production Units constructed by
Association with respect to all issuances of its Class B Common Stock. All
estimates relating to Pigs Shipped shall be made by Association using such
historical data and projections as are available to Association.
PRODUCTION UNIT shall mean the land and facilities necessary to house, feed
and care for a group of 2,450 sows and the attendant offspring thereof.
PURCHASER'S DEBT shall mean (i) the debt incurred by Association for the
Production Unit(s) constructed by Association with respect to the issuance
of Class B Common Stock of Association (including Class B Common Stock of
the Association assigned or transferred to Purchaser) from which the right
of Purchaser to purchase Lots of Qualifying Pigs under this Agreement
derives, including any debt incurred for purposes of financing the
acquisition of land for, and construction of, such Production Unit(s),
(ii) any debt incurred for the initial working capital requirements with
respect to the operation of such Production Unit(s), and (iii) any debt
incurred for purposes of refinancing any such debt.
4. PAYMENT OF PURCHASE PRICE. Association shall furnish to Purchaser, at
the time Association notifies Purchaser that a Lot is available for purchase by
Purchaser hereunder, an estimate of the total purchase price of the Qualifying
Pigs included in the Lot, and Purchaser shall, not less than one day prior to
the scheduled shipment date as specified in the notice by Association to
Purchaser, pay such estimated total purchase price to Association in cash, or by
such other means as may be acceptable to Association in its sole and absolute
discretion. Association shall have no obligation to commence transportation of
such Qualifying Pigs to Purchaser prior to full payment of such estimated total
purchase price for such Qualifying Pigs as herein provided. The actual total
purchase price of all Qualifying Pigs included in a Lot shall be based upon
weight at the time of loading and settlement of any adjustments shall be made
within five days following delivery.
5. WEIGHT ADJUSTMENT. The purchase price for each Qualifying Pig as
provided in Section 3 is for a Lot of Qualifying Pigs having an average weight
of between 8 pounds and 12 pounds. In the event that the average weight of the
Qualifying Pigs in a Lot sold to Purchaser exceeds 12 pounds, Purchaser shall
pay Association an additional one dollar ($1.00) per pound per Qualifying Pig on
the number of pounds that the Lot's average shipping weight per pig exceeds 12
pounds. To the extent that the average weight of the Qualifying Pigs in a Lot
sold to Purchaser is less than 8 pounds, one dollar ($1.00) per pound on the
number of pounds that the Lot's average shipping weight per pig is less than 8
pounds shall be deducted from the purchase price that Purchaser is to pay to
Association for each Qualifying Pig. Purchaser shall have the right to, but
shall not be obligated to, purchase a Lot of Qualifying Pigs hereunder at an
average weight of less than 8 pounds per pig.
6. GENETIC QUALITY. Qualifying Pigs produced by Association will be
progeny from genetic stock selected by Association, from time to time, in its
sole and absolute discretion. Such selection of such genetic stock will be
determined and implemented by Association on a basis that reasonably would be
expected to produce Qualifying Pigs that are capable of producing market hogs
having carcasses that are responsive to consumer demand and thereby maximize the
sales price to be received therefore.
7. MANAGEMENT OF HEALTH AND NUTRITION. Association agrees to comply with
the following health and nutrition programs with respect to all pigs to be
purchased under this Agreement:
(a) Association shall dock tails within 48 hours of a pig's
birth.
(b) Association shall castrate male pigs within ten days of the pig's
birth.
(c) Association shall administer all vacines and antibiotic
treatments and perform such other procedures that are reasonably determined
by Association to be necessary or advisable with respect to a herd health
program.
(d) Association shall maintain Association's swine free from the
psuedorabies virus ("PRV") or any swine disease that would prohibit
interstate shipment of pigs produced by Association, or that might
otherwise materially impair Purchaser's ability to utilize the pigs to be
purchased under this Agreement. If, in the opinion of two veterinarians
selected by Association and reasonably acceptable to Purchaser, any of the
swine produced by Association or used in the production of weaned pigs for
delivery hereunder contracts PRV, Association shall have the opportunity to
cure such impairment within a reasonable period of time and to suspend, at
any time and from time to time, the sale and purchase of weaned pigs
hereunder until such time as said veterinarians determine that PRV no
longer exists.
(e) Association shall use a feeding regimen, feed products, and herd
health products developed or marketed by Farmland Industries, Inc., or any
of its affiliates.
8. RIGHT OF INSPECTION. Upon reasonable notice to Association, Purchaser
or its representative shall have the right to inspect Association's production
records to verify the genetic quality and management of nutrition and health
programs prescribed by this Agreement during normal business hours.
9. ADJUSTMENT FOR NON-QUALIFYING PIGS. Purchaser shall have the right to
inspect Purchaser's Lot of Qualifying Pigs prior to loading. In the event that,
after delivery of such Lot, Purchaser believes that any pig was not a Qualifying
Pig prior to loading (a "Subject Pig"), Purchaser shall notify Association by
telephone of such belief within one (1) business day following delivery as well
as promptly notify Association of such belief in the manner provided in Section
19 hereof. Association shall have the right to inspect any and all Subject Pigs
in investigation of Purchaser's belief, and thereafter Association and Purchaser
shall agree in good faith upon an appropriate adjustment, if any, with respect
to such Subject Pigs. Purchaser hereby acknowledges and agrees that such
adjustment described above shall be Purchaser's sole and exclusive remedy as
against Association arising out of the purchase hereunder of a pig that was not
a Qualifying Pig at the time of loading and that the failure of Association to
deliver Qualifying Pigs as otherwise required hereunder shall not give rise to a
right of Purchaser to terminate this Agreement. Furthermore, in no event shall
Purchaser reject delivery of a Lot of pigs hereunder, but in lieu thereof
Purchaser shall accept each delivery of a Lot of pigs hereunder and, with
respect to any and all pigs that Purchaser believes were not Qualifying Pigs
prior to loading, shall comply with the provisions of this Section 9 and, until
such adjustment, if any, is agreed upon by Association and Purchaser, shall, at
Purchaser's expense, feed, water, treat and care for any and all such pigs as if
Purchaser believed such pigs were Qualifying Pigs prior to loading.
10. HEALTH PERMITS. Association shall provide Purchaser, at Association's
expense, all health permits necessary to qualify all Qualifying Pigs for
interstate shipment.
11. WEIGHING CONDITIONS. All Lots of Qualifying Pigs shall be weighed at
Association's expense at a state-inspected scale in close proximity to
Association's production facility. A copy of all scale tickets will be provided
to Association and to Purchaser.
12. IDENTIFICATION. Association shall appropriately identify, prior to
shipment, all Qualifying Pigs in accordance with the rules that will allow
interstate shipment to the states to which the pigs are being shipped.
13. TRANSPORTATION OF PIGS. Qualifying Pigs shall be shipped to Purchaser
FOB shipping point. Association shall at Purchaser's expense arrange for
transportation of Qualifying Pigs from any of Association's production
facilities as determined by Association; provided, however, that Purchaser shall
pay such transportation costs no later than the time of delivery. Trucks shall
be thoroughly cleaned and disinfected prior to hauling any pigs from
Association's production facilities and after any previously hauled pigs.
14. TERM OF AGREEMENT. The term of this Agreement shall commence on the
date first written above and shall continue for 120 months after the month in
which the first Lot of Qualifying Pigs is shipped by Association to Purchaser
(or Purchaser's direct or indirect assignor or transferor) with respect to the
Class B Common Stock of the Association (including Class B Common Stock of the
Association assigned or transferred to Purchaser) from which the right of
Purchaser to purchase Lots of Qualifying Pigs under this Agreement derives,
subject to the following:
(a) In the event that Purchaser fails to purchase, pay for, and take
delivery of any two Lots (as defined herein or in any other agreement
between Purchaser and Association) when and as made available to Purchaser
in accordance with the terms of this Agreement, any other Weaned Pig
Purchase Agreement or any Feeder Pig Purchase Agreement between Purchaser
and Association, this Agreement shall terminate and Association shall have
the right to exercise its remedies as provided in Section 17 hereof;
provided, however, that in the event Purchaser owns ten or more shares of
capital stock of Association, this Agreement shall terminate and
Association shall have the right to exercise its remedies as provided in
Section 17 hereof only upon Purchaser failing to purchase, pay for, and
take delivery of a number of Lots (as defined herein or in any other
agreement between Purchaser and Association) when and as made available to
Purchaser in accordance with the terms of this Agreement, of any other
Weaned Pig Purchase Agreement or of any Feeder Pig Purchase Agreement
between Purchaser and Association equal to the sum of (i) the quotient
(rounded down to the nearest whole number) of (A) the number of shares of
capital stock owned by Purchaser, divided by (B) ten (10), plus (ii) two
(2).
(b) In the event of a material breach of any agreement or covenant of
Association contained in this Agreement, Purchaser may give written notice
of such breach to Association and, in the event that such breach is not
cured within a period (the "Cure Period") of thirty (30) days following
such notice of breach by Purchaser to Association, Purchaser shall have the
right to terminate this Agreement upon notice to Association, provided that
such notice of termination is given by Purchaser to Association within
thirty (30) days following the Cure Period.
(c) If the first Lot of Qualifying Pigs is not shipped to Purchaser
hereunder within twenty-four (24) months of the date of this Agreement,
Purchaser shall have the right to terminate this Agreement upon notice to
Association, provided that such notice of termination is given by Purchaser
to Association within three (3) months after the expiration of such twenty-
four (24) month period; provided, however, that any such termination shall
not terminate or otherwise affect any other Weaned Pig Purchase Agreement
or any Feeder Pig Purchase Agreement between Purchaser and Association.
(d) In the event Purchaser assigns or transfers, in accordance with
the Articles of Incorporation and Bylaws of Association, all shares of
Class B Common Stock of Association from which Purchaser's right to
purchase Lots under this Agreement derives, this Agreement automatically
shall terminate.
(e) This Agreement shall be extended automatically for
succeeding and consecutive twelve (12) month terms unless Purchaser
gives to Association, not less than twelve (12) months prior to the
expiration of the initial term or any extended term hereof, notice
that Purchaser desires to terminate this Agreement as of the
expiration of such initial or extended term.
Notwithstanding the foregoing, however, the rights of Association to collect
damages and to exercise its remedies under Section 17 hereunder shall survive
any termination of this Agreement.
15. WARRANTIES. ASSOCIATION MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED
TO PURCHASER OTHER THAN AS HEREIN EXPRESSLY PROVIDED, AND SPECIFICALLY (A) MAKES
NO WARRANTY AS TO ANY SPECIFIC LEVEL OF PERFORMANCE WITH RESPECT TO ANY PIGS
SOLD HEREUNDER, AND (B) DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE.
16. FORCE MAJEURE. Either party to this Agreement shall be relieved of
its responsibility and obligations hereunder during any period when performance
is commercially impossible because of reasons beyond its control such as, but
not limited to, fire, explosion, strike, accident, governmental regulations or
intervention, and acts of God.
17. DEFAULT BY PURCHASER; GRANT OF SECURITY INTEREST. Purchaser
acknowledges that the damages suffered by Association in the event of any
failure by Purchaser to purchase, pay for, and take delivery of any Lot when and
as made available to Purchaser in accordance with the terms hereof shall equal,
and Purchaser shall be liable to Association for and shall pay to Association
upon demand, the sum of the following: (a) the difference between the price
payable by Purchaser hereunder for Qualifying Pigs included in such Lot and the
then current market price (as of the scheduled shipment date for such Lot) for
Qualifying Pigs as quoted in any independent industry publication or source
selected by Association, multiplied by the number of Qualifying Pigs in such Lot
that Purchaser has failed to purchase, pay for, and take delivery of, in
accordance with the terms hereof; plus (b) administrative and other costs and
expenses relating to such Lot, which are hereby agreed to equal the amount of
$3,000; plus (c) costs of collection, enforcement, and prosecution of
Association's rights and remedies hereunder or otherwise arising, whether or not
involving a case, action, or other proceeding before any state or federal court
or other body, including, but not limited to, reasonable attorney's fees,
collection agency fees, and other costs of collection; provided, however, that
to the extent applicable law prohibits collection of attorney's fees and/or
costs, this subsection (c) shall be null and void to the extent of such
prohibition, except to preserve Association's rights pursuant to 11 U.S.C.
Section 506(b). During any period in which Purchaser has been notified that it
is obligated to pay an amount for damages pursuant to the immediately preceding
sentence and has not paid such amount within three days of such demand,
Association shall not make any future Lots available to Purchaser for purchase
hereunder or under any other Weaned Pig Purchase Agreement or any Feeder Pig
Purchase Agreement between Purchaser and Association until Purchaser has paid
such amount. In the event that Purchaser is not made available any Lot for
purchase hereunder pursuant to the immediately preceding sentence that
Association otherwise would have made available to Purchaser for purchase
hereunder, then Purchaser shall be deemed to have failed to purchase, pay for,
and take delivery of such Lot, and Purchaser shall be liable for damages with
respect to such Lot computed in accordance with the first sentence of this
Section. Upon any termination of this Agreement, Purchaser's liability for
damages incurred by Association with respect to Purchaser's obligation to
purchase, pay for and take delivery of Lots made available to the Purchaser
shall be limited to the damages with respect to such Lots computed in accordance
with the preceding provisions of this Section 17, and Purchaser shall not be
liable for any other damages for the failure to purchase, pay for or take
delivery of Lots hereunder after the termination of this Agreement.
As security for the due and punctual performance of all of Purchaser's
obligations under this Agreement, Purchaser hereby pledges and grants to
Association, its successors and assigns, a security interest in and lien upon
any and all interest (the "Coop Interest") Purchaser now has or hereafter may
have in Association, including, without limitation, any capital stock or other
rights or interests owned or held by Purchaser, or to which Purchaser is
entitled, as a stockholder of Association and any interest of Purchaser in and
to any dividends, capital or other credits, patronage or other distributions, or
participations arising therefrom. Purchaser shall also deliver and endorse such
stock or other certificates and execute and deliver such financing statements
and other instruments (including, without limitation, stock powers duly endorsed
in blank), and take such other action, as Association may request for purposes
of perfecting or protecting the security interest granted under this Section 17.
Purchaser represents, warrants and agrees that the pledge of the Coop Interest
pursuant to this Section 17 creates a valid and perfected first priority
security interest in the Coop Interest in favor of Association, subordinate only
to any permissible pledge or other security interest granted by Purchaser to any
financial institution for purposes of securing a loan by such financial
institution to Purchaser, the proceeds of which are used to finance Purchaser's
acquisition of the Coop Interest. Notwithstanding the foregoing, however,
Association may release such pledge and grant of a security interest for good
cause, as determined in Association's sole and absolute discretion.
If Purchaser shall be in default under this Agreement, Association may
exercise any and all rights and remedies available to Association hereunder,
under the Articles of Incorporation or Bylaws of Association, under any
applicable Uniform Commercial Code, or otherwise at law or in equity. The
rights and remedies afforded to Association hereunder shall be cumulative and in
addition to, and not in limitation of, any rights and remedies which Association
may otherwise have under the Articles of Incorporation or Bylaws of Association
or under applicable law, including any applicable Uniform Commercial Code. The
exercise or partial exercise of any right or remedy of Association hereunder or
under the Articles of Incorporation or Bylaws of Association or under applicable
law shall not preclude or prejudice the further exercise of that right or remedy
or the exercise of any other right or remedy of Association. No delay or
omission on the part of Association in exercising any right hereunder or
otherwise shall operate as a waiver of such right. A waiver on any one occasion
shall not be construed as a bar or waiver of any right or remedy on any future
occasion.
18. ARBITRATION. In the event of any controversy arising out of or
relating to this Agreement, or any breach hereof, other than any controversy
arising out of or relating to Section 17 hereof or the exercise of any rights or
remedies thereunder, the parties agree to submit the dispute to binding
arbitration in accordance with the Commercial Arbitration Rules then in force of
the American Arbitration Association. Such arbitration shall be initiated by
either party by notifying the other party in writing and requesting a panel of
five (5) arbitrators from the American Arbitration Association, which
arbitrators shall be individuals skilled in the legal and business aspects of
the subject matter of this Agreement and of the dispute. Alternate strikes
shall be made to the panel commencing with the party requesting the arbitration
until one individual remains. Such individual shall be the arbitrator for the
controversy. The party requesting the arbitration shall notify the arbitrator
who shall hold a hearing(s) within 60 days of the notice. Any hearing(s) shall
take place in Denver, Colorado, or such other location as the parties may agree
upon. The arbitrator shall render a decision, including a written opinion in
support thereof, within 30 days after the conclusion of the hearing(s), which
decision shall be final and binding upon the parties without right of appeal.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Costs of the arbitration will be assessed by the
arbitrator against either or both of the parties, and will be paid promptly by
the party or parties so assessed.
19. NOTICES. Any notice given or required to be given hereunder shall be
deemed to have been effectively given when delivered personally or sent by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed or transmitted to Association at Alliance Farms Cooperative
Association, c/o Farmland Industries, Inc., 3315 North Oak Trafficway,
Department 47, Kansas City, Missouri 64116, Attention: Mr. Wayne N. Snyder, and
to Purchaser at the address set forth below Purchaser's signature, and/or to
such other (or additional) address(es) requested by a notice given in accordance
with this Section.
20. ENTIRE AGREEMENT. This Agreement contains all of the terms agreed
upon by the parties with respect to the subject matter hereof and supersedes all
prior agreements of the parties as to the subject matter hereof; provided,
however, any and all other Weaned Pig Purchase Agreements between Purchaser and
Association respecting issuances of capital stock of Association from which the
right of Purchaser to purchase Lots under this Agreement does not derive, and
any and all Feeder Pig Purchase Agreements between Purchaser and Association,
shall not be superseded, modified or otherwise affected by this Agreement. This
Agreement may not be modified except in writing, signed by the parties hereto,
that specifically references this Agreement.
21. ASSIGNMENT. This Agreement may not be assigned by either party
without prior written consent of the other party; provided, however, that
Association may assign Association's rights herein and hereto to any lender that
may provide financing to Association in connection with the construction of
facilities or the operation thereof, or both. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors, and permitted assigns.
22. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado. The parties hereto hereby
agree that if any part, term or provision of this Agreement is held by a court
of competent jurisdiction to be illegal or unenforceable or in conflict with any
controlling state law, the validity of the remaining parts, terms and provisions
of this Agreement shall not be affected, and the rights and obligations of the
parties shall be construed and enforced as if this Agreement did not contain the
particular part, term or provision held to be illegal or unenforceable or in
conflict with any controlling state law. This Agreement and the transactions
contemplated hereunder constitute commercial, and not consumer, transactions.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE THAT MAY BE ENFORCED
BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
day and year first above written.
ASSOCIATION: PURCHASER:
ALLIANCE FARMS COOPERATIVE
ASSOCIATION
By: By:
Name: Name:
Title: Title:
Purchaser's Address:
EXHIBIT D
CLASS C WEANED PIG PURCHASE AGREEMENT
THIS CLASS C WEANED PIG PURCHASE AGREEMENT (this "Agreement") is entered
into as of this day of , 199 , by and between ALLIANCE FARMS
COOPERATIVE ASSOCIATION (hereinafter "Association"), and ____________________
(hereinafter "Purchaser").
WHEREAS, Association is or will be engaged in the production and sale of
weaned pigs; and
WHEREAS, Purchaser is a purchaser of weaned pigs, possesses expertise in
swine production and management, and desires to enter into this Agreement for
membership purposes of Association;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
1. PURCHASE/SALE OF WEANED PIGS.
(A) GENERAL. Upon and subject to all terms and conditions set forth
in this Agreement, Purchaser shall purchase from Association, and Association
shall sell to Purchaser, Qualifying Pigs (as defined in Section 2) produced by
Association during the term of this Agreement in lots (hereinafter "Lot" or
"Lots") of no less thanJWA[1] 925, and no more than 1,025, Qualifying Pigs per
Lot, as determined by Association, which Lots shall be made available to
Purchaser on a rotating schedule with other members of Association owning Class
C Common Stock (as defined in Article SIXTH of Association's Articles of
Incorporation), as such rotating schedule is determined and implemented by
Association on any reasonable basis.
(B) SCHEDULE. Purchaser acknowledges that Association intends to
conduct a blind drawing, immediately following the consummation of each and
every offering of Class C Common Stock by Association, for purposes of adjusting
such rotating schedule as warranted by the resulting changes in the members of
the Association.
(C) AVAILABILITY. The number of Lots made available to Purchaser and
the frequency of availability of such Lots will be based upon Purchaser's
proportionate equity interest in Association with respect to Association's Class
C Common Stock. Purchaser acknowledges that Lots will not be made available to
Purchaser under this Agreement until Qualifying Pigs are produced and available
from the facilities constructed using the proceeds of the issuance of Class C
Common Stock of Association (including Class C Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase such Lots under this Agreement derives, and that the number of Lots
made available to Purchaser and the frequency of availability of such Lots will
be subject to actual production of Qualifying Pigs from all facilities of
Association. Association shall give notice to Purchaser when a Lot is available
for purchase by Purchaser hereunder, which notice shall specify the anticipated
number of Qualifying Pigs in such Lot and the scheduled shipment date.
(D) EXCESS PRODUCTION. The production of weaned pigs is anticipated
to produce, on a prospective rolling 12-month basis, approximately two and
JWA[2]one-tenth (2.1) Lots of Qualifying Pigs per share of Class C Common Stock
of Association owned by members of Association for which Lots are to be made
available for purchase hereunder. To the extent that the production of weaned
pigs exceeds such anticipated production, Association shall either sell such
excess production to any person (including a member of Association), at a price
as shall be determined by Association in good faith, or retain such excess
production for Association's own purposes, in lieu of selling such excess
production to the members of Association pursuant to the Class C Weaned Pig
Purchase Agreements between Association and the members of Association.
2. QUALIFYING PIGS. For purposes of this Agreement, the term "Qualifying
Pig" shall mean an individual weaned pig that is not utility grade, that has a
minimum weight of at least six (6) pounds at point in time of delivery, that has
the genetic characteristics described in Section 6, that has been managed in
accordance with Section 7, and that has a significant likelihood to perform
economically and reach market weight efficiently.
3. PURCHASE PRICE OF PIGS.
(A) PRICE. The purchase price for each Qualifying Pig purchased by
Purchaser under this Agreement shall be an amount equal to the sum of the
following:
Financing Cost Per Pig, plus
Operating Cost Per Pig, plus
Production Margin.
Purchaser acknowledges that Association has constructed, or is in the process of
constructing, or both, Production Units as a result of previous offers and sales
of shares of its capital stock and that Association from time to time may
construct additional Production Units as a result of additional offers and sales
of shares of its capital stock. In light of the foregoing, the determination of
the Financing Cost Per Pig portion of the purchase price for a Qualifying Pig
hereunder shall be made separately with respect to each Lot in relation to the
Production Unit(s) that were constructed using the proceeds of the issuance of
Class C Common Stock of Association (including Class C Common Stock of the
Association assigned or transferred to Purchaser) from which Purchaser's right
to purchase such Lot under this Agreement derives.
(B) DEFINITIONS. As used in this Section 3, the following terms
shall have the following meanings:
FINANCING COST PER PIG shall be determined on a prospective rolling 12-
month basis and shall mean an amount equal to the quotient of (i) the sum
of the required payments of interest and principal (including any scheduled
sinking fund payments) to be made during the upcoming 12-month period with
respect to Purchaser's Debt, divided by (ii) Pigs Shipped.
OPERATING COST PER PIG shall be determined on a rolling five-month
historical basis and shall mean an amount equal to the quotient of (i) the
sum of (A) all direct and indirect production, operating, selling, general,
administrative, and other expenses incurred by Association in the five
months preceding the then present month of shipment as determined by
Association's accountants utilizing generally accepted accounting
principles consistently applied (excluding any provision for interest
expense or depreciation or amortization of the cost of buildings,
equipment, breeding stock or other capitalized costs which were purchased
as a result of Purchaser's Debt or as a result of the issuance of any
capital stock of Association to any third party), plus (B) the net cash
flow cost of all capital expenditures by Association (including any capital
sinking fund payments) for production facility and breeding stock
improvements and replacements in the five months preceding the then present
month of shipment as determined by Association's accountants, divided by
(ii) Pigs Shipped. The direct and indirect production and operating
expenses attributable to a Production Unit which is in the process of
commencing production shall not be included in the determination of
Operating Cost Per Pig, and shipments of pigs attributable to such
Production Unit shall not be included in Pigs Shipped, until such
Production Unit has completed one entire month of full production, shipping
pigs in each week thereof. The net cash flow with respect to capital
expenditures for production facility and breeding stock improvements and
replacements (which net cash flow shall be determined after taking into
account the breeding stock and production facility retirements attributable
to a Production Unit which is in the process of commencing production)
shall not be included in the determination of Operating Cost Per Pig until
the respective Production Unit has completed one entire month of full
production, shipping pigs in each week thereof.
PRODUCTION MARGIN shall mean an amount of up to $4.50, as determined by the
Board of Directors of Association, from time to time, in its sole and
absolute discretion.
PIGS SHIPPED shall mean the number of Qualifying Pigs produced and shipped
from Association over the same five-month period in determining the
Operating Cost Per Pig and the estimated number of Qualifying Pigs that
will be produced and shipped by Association over the 12-month period in
determining the Financing Cost Per Pig. For purposes of determining the
Financing Cost Per Pig, Pigs Shipped shall be equal to the product of (i)
Association's total estimated number of Qualifying Pigs to be produced and
shipped by Association during such 12-month period, multiplied by (ii) a
fraction, the numerator of which shall be the number of Production Units
constructed by Association with respect to the issuance of Class C Common
Stock of Association (including Class C Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase Lots of Qualifying Pigs under this Agreement derives, and the
denominator of which shall be the number of Production Units constructed by
Association with respect to all issuances of its Class C Common Stock. All
estimates relating to Pigs Shipped shall be made by Association using such
historical data and projections as are available to Association.
PRODUCTION UNIT shall mean the land and facilities necessary to house, feed
and care for a group of 2,450 sows and the attendant offspring thereof.
PURCHASER'S DEBT shall mean (i) the debt incurred by Association for the
Production Unit(s) constructed by Association with respect to the issuance
of Class C Common Stock of Association (including Class C Common Stock of
the Association assigned or transferred to Purchaser) from which the right
of Purchaser to purchase Lots of Qualifying Pigs under this Agreement
derives, including any debt incurred for purposes of financing the
acquisition of land for, and construction of, such Production Unit(s),
(ii) any debt incurred for the initial working capital requirements with
respect to the operation of such Production Unit(s), and (iii) any debt
incurred for purposes of refinancing any such debt.
4. PAYMENT OF PURCHASE PRICE. Association shall furnish to Purchaser, at
the time Association notifies Purchaser that a Lot is available for purchase by
Purchaser hereunder, an estimate of the total purchase price of the Qualifying
Pigs included in the Lot, and Purchaser shall, not less than one day prior to
the scheduled shipment date as specified in the notice by Association to
Purchaser, pay such estimated total purchase price to Association in cash, or by
such other means as may be acceptable to Association in its sole and absolute
discretion. Association shall have no obligation to commence transportation of
such Qualifying Pigs to Purchaser prior to full payment of such estimated total
purchase price for such Qualifying Pigs as herein provided. The actual total
purchase price of all Qualifying Pigs included in a Lot shall be based upon
weight at the time of loading and settlement of any adjustments shall be made
within five days following delivery.
5. WEIGHT ADJUSTMENT. The purchase price for each Qualifying Pig as
provided in Section 3 is for a Lot of Qualifying Pigs having an average weight
of between 8 pounds and 12 pounds. In the event that the average weight of the
Qualifying Pigs in a Lot sold to Purchaser exceeds 12 pounds, Purchaser shall
pay Association an additional one dollar ($1.00) per pound per Qualifying Pig on
the number of pounds that the Lot's average shipping weight per pig exceeds 12
pounds. To the extent that the average weight of the Qualifying Pigs in a Lot
sold to Purchaser is less than 8 pounds, one dollar ($1.00) per pound on the
number of pounds that the Lot's average shipping weight per pig is less than 8
pounds shall be deducted from the purchase price that Purchaser is to pay to
Association for each Qualifying Pig. Purchaser shall have the right to, but
shall not be obligated to, purchase a Lot of Qualifying Pigs hereunder at an
average weight of less than 8 pounds per pig.
6. GENETIC QUALITY. Qualifying Pigs produced by Association will be
progeny from genetic stock selected by Association, from time to time, in its
sole and absolute discretion. Such selection of such genetic stock will be
determined and implemented by Association on a basis that reasonably would be
expected to produce Qualifying Pigs that are capable of producing market hogs
having carcasses that are responsive to consumer demand and thereby maximize the
sales price to be received therefore.
7. MANAGEMENT OF HEALTH AND NUTRITION. Association agrees to comply with
the following health and nutrition programs with respect to all pigs to be
purchased under this Agreement:
(A) Association shall dock tails within 48 hours of a pig's
birth.
(B) Association shall castrate male pigs within ten days of the pig's
birth.
(C) Association shall administer all vacines and antibiotic
treatments and perform such other procedures that are reasonably determined
by Association to be necessary or advisable with respect to a herd health
program.
(D) Association shall maintain Association's swine free from the
psuedorabies virus ("PRV") or any swine disease that would prohibit
interstate shipment of pigs produced by Association, or that might
otherwise materially impair Purchaser's ability to utilize the pigs to be
purchased under this Agreement. If, in the opinion of two veterinarians
selected by Association and reasonably acceptable to Purchaser, any of the
swine produced by Association or used in the production of weaned pigs for
delivery hereunder contracts PRV, Association shall have the opportunity to
cure such impairment within a reasonable period of time and to suspend, at
any time and from time to time, the sale and purchase of weaned pigs
hereunder until such time as said veterinarians determine that PRV no
longer exists.
(E) Association shall use a feeding regimen, feed products, and herd
health products developed or marketed by Farmland Industries, Inc., or any
of its affiliates.
8. RIGHT OF INSPECTION. Upon reasonable notice to Association, Purchaser
or its representative shall have the right to inspect Association's production
records to verify the genetic quality and management of nutrition and health
programs prescribed by this Agreement during normal business hours.
9. ADJUSTMENT FOR NON-QUALIFYING PIGS. Purchaser shall have the right to
inspect Purchaser's Lot of Qualifying Pigs prior to loading. In the event that,
after delivery of such Lot, Purchaser believes that any pig was not a Qualifying
Pig prior to loading (a "Subject Pig"), Purchaser shall notify Association by
telephone of such belief within one (1) business day following delivery as well
as promptly notify Association of such belief in the manner provided in Section
19 hereof. Association shall have the right to inspect any and all Subject Pigs
in investigation of Purchaser's belief, and thereafter Association and Purchaser
shall agree in good faith upon an appropriate adjustment, if any, with respect
to such Subject Pigs. Purchaser hereby acknowledges and agrees that such
adjustment described above shall be Purchaser's sole and exclusive remedy as
against Association arising out of the purchase hereunder of a pig that was not
a Qualifying Pig at the time of loading and that the failure of Association to
deliver Qualifying Pigs as otherwise required hereunder shall not give rise to a
right of Purchaser to terminate this Agreement. Furthermore, in no event shall
Purchaser reject delivery of a Lot of pigs hereunder, but in lieu thereof
Purchaser shall accept each delivery of a Lot of pigs hereunder and, with
respect to any and all pigs that Purchaser believes were not Qualifying Pigs
prior to loading, shall comply with the provisions of this Section 9 and, until
such adjustment, if any, is agreed upon by Association and Purchaser, shall, at
Purchaser's expense, feed, water, treat and care for any and all such pigs as if
Purchaser believed such pigs were Qualifying Pigs prior to loading.
10. HEALTH PERMITS. Association shall provide Purchaser, at Association's
expense, all health permits necessary to qualify all Qualifying Pigs for
interstate shipment.
11. WEIGHING CONDITIONS. All Lots of Qualifying Pigs shall be weighed at
Association's expense at a state-inspected scale in close proximity to
Association's production facility. A copy of all scale tickets will be provided
to Association and to Purchaser.
12. IDENTIFICATION. Association shall appropriately identify, prior to
shipment, all Qualifying Pigs in accordance with the rules that will allow
interstate shipment to the states to which the pigs are being shipped.
13. TRANSPORTATION OF PIGS. Qualifying Pigs shall be shipped to Purchaser
FOB shipping point. Association shall at Purchaser's expense arrange for
transportation of Qualifying Pigs from any of Association's production
facilities as determined by Association; provided, however, that Purchaser shall
pay such transportation costs no later than the time of delivery. Trucks shall
be thoroughly cleaned and disinfected prior to hauling any pigs from
Association's production facilities and after any previously hauled pigs.
14. TERM OF AGREEMENT. The term of this Agreement shall commence on the
date first written above and shall continue for 120 months after the month in
which the first Lot of Qualifying Pigs is shipped by Association to Purchaser
(or Purchaser's direct or indirect assignor or transferor) with respect to the
Class C Common Stock of the Association (including Class C Common Stock of the
Association assigned or transferred to Purchaser) from which the right of
Purchaser to purchase Lots of Qualifying Pigs under this Agreement derives,
subject to the following:
(A) In the event that Purchaser fails to purchase, pay for, and take
delivery of any two Lots (as defined herein or in any other agreement
between Purchaser and Association) when and as made available to Purchaser
in accordance with the terms of this Agreement, any other Weaned Pig
Purchase Agreement or any Feeder Pig Purchase Agreement between Purchaser
and Association, this Agreement shall terminate and Association shall have
the right to exercise its remedies as provided in Section 17 hereof;
provided, however, that in the event Purchaser owns ten or more shares of
capital stock of Association, this Agreement shall terminate and
Association shall have the right to exercise its remedies as provided in
Section 17 hereof only upon Purchaser failing to purchase, pay for, and
take delivery of a number of Lots (as defined herein or in any other
agreement between Purchaser and Association) when and as made available to
Purchaser in accordance with the terms of this Agreement, of any other
Weaned Pig Purchase Agreement or of any Feeder Pig Purchase Agreement
between Purchaser and Association equal to the sum of (i) the quotient
(rounded down to the nearest whole number) of (A) the number of shares of
capital stock owned by Purchaser, divided by (B) ten (10), plus (ii) two
(2).
(B) In the event of a material breach of any agreement or covenant of
Association contained in this Agreement, Purchaser may give written notice
of such breach to Association and, in the event that such breach is not
cured within a period (the "Cure Period") of thirty (30) days following
such notice of breach by Purchaser to Association, Purchaser shall have the
right to terminate this Agreement upon notice to Association, provided that
such notice of termination is given by Purchaser to Association within
thirty (30) days following the Cure Period.
(C) If the first Lot of Qualifying Pigs is not shipped to Purchaser
hereunder within twenty-four (24) months of the date of this Agreement,
Purchaser shall have the right to terminate this Agreement upon notice to
Association, provided that such notice of termination is given by Purchaser
to Association within three (3) months after the expiration of such twenty-
four (24) month period; provided, however, that any such termination shall
not terminate or otherwise affect any other Weaned Pig Purchase Agreement
or any Feeder Pig Purchase Agreement between Purchaser and Association.
(D) In the event Purchaser assigns or transfers, in accordance with
the Articles of Incorporation and Bylaws of Association, all shares of
Class C Common Stock of Association from which Purchaser's right to
purchase Lots under this Agreement derives, this Agreement automatically
shall terminate.
(E) This Agreement shall be extended automatically for
succeeding and consecutive twelve (12) month terms unless Purchaser
gives to Association, not less than twelve (12) months prior to the
expiration of the initial term or any extended term hereof, notice
that Purchaser desires to terminate this Agreement as of the
expiration of such initial or extended term.
Notwithstanding the foregoing, however, the rights of Association to collect
damages and to exercise its remedies under Section 17 hereunder shall survive
any termination of this Agreement.
15. WARRANTIES. ASSOCIATION MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED
TO PURCHASER OTHER THAN AS HEREIN EXPRESSLY PROVIDED, AND SPECIFICALLY (A) MAKES
NO WARRANTY AS TO ANY SPECIFIC LEVEL OF PERFORMANCE WITH RESPECT TO ANY PIGS
SOLD HEREUNDER, AND (B) DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE.
16. FORCE MAJEURE. Either party to this Agreement shall be relieved of
its responsibility and obligations hereunder during any period when performance
is commercially impossible because of reasons beyond its control such as, but
not limited to, fire, explosion, strike, accident, governmental regulations or
intervention, and acts of God.
17. DEFAULT BY PURCHASER; GRANT OF SECURITY INTEREST. Purchaser
acknowledges that the damages suffered by Association in the event of any
failure by Purchaser to purchase, pay for, and take delivery of any Lot when and
as made available to Purchaser in accordance with the terms hereof shall equal,
and Purchaser shall be liable to Association for and shall pay to Association
upon demand, the sum of the following: (a) the difference between the price
payable by Purchaser hereunder for Qualifying Pigs included in such Lot and the
then current market price (as of the scheduled shipment date for such Lot) for
Qualifying Pigs as quoted in any independent industry publication or source
selected by Association, multiplied by the number of Qualifying Pigs in such Lot
that Purchaser has failed to purchase, pay for, and take delivery of, in
accordance with the terms hereof; plus (b) administrative and other costs and
expenses relating to such Lot, which are hereby agreed to equal the amount of
$3,000; plus (c) costs of collection, enforcement, and prosecution of
Association's rights and remedies hereunder or otherwise arising, whether or not
involving a case, action, or other proceeding before any state or federal court
or other body, including, but not limited to, reasonable attorney's fees,
collection agency fees, and other costs of collection; provided, however, that
to the extent applicable law prohibits collection of attorney's fees and/or
costs, this subsection (c) shall be null and void to the extent of such
prohibition, except to preserve Association's rights pursuant to 11 U.S.C.
' 506(b). During any period in which Purchaser has been notified that it is
obligated to pay an amount for damages pursuant to the immediately preceding
sentence and has not paid such amount within three days of such demand,
Association shall not make any future Lots available to Purchaser for purchase
hereunder or under any other Weaned Pig Purchase Agreement or any Feeder Pig
Purchase Agreement between Purchaser and Association until Purchaser has paid
such amount. In the event that Purchaser is not made available any Lot for
purchase hereunder pursuant to the immediately preceding sentence that
Association otherwise would have made available to Purchaser for purchase
hereunder, then Purchaser shall be deemed to have failed to purchase, pay for,
and take delivery of such Lot, and Purchaser shall be liable for damages with
respect to such Lot computed in accordance with the first sentence of this
Section. Upon any termination of this Agreement, Purchaser's liability for
damages incurred by Association with respect to Purchaser's obligation to
purchase, pay for and take delivery of Lots made available to the Purchaser
shall be limited to the damages with respect to such Lots computed in accordance
with the preceding provisions of this Section 17, and Purchaser shall not be
liable for any other damages for the failure to purchase, pay for or take
delivery of Lots hereunder after the termination of this Agreement.
As security for the due and punctual performance of all of Purchaser's
obligations under this Agreement, Purchaser hereby pledges and grants to
Association, its successors and assigns, a security interest in and lien upon
any and all interest (the "Coop Interest") Purchaser now has or hereafter may
have in Association, including, without limitation, any capital stock or other
rights or interests owned or held by Purchaser, or to which Purchaser is
entitled, as a stockholder of Association and any interest of Purchaser in and
to any dividends, capital or other credits, patronage or other distributions, or
participations arising therefrom. Purchaser shall also deliver and endorse such
stock or other certificates and execute and deliver such financing statements
and other instruments (including, without limitation, stock powers duly endorsed
in blank), and take such other action, as Association may request for purposes
of perfecting or protecting the security interest granted under this Section 17.
Purchaser represents, warrants and agrees that the pledge of the Coop Interest
pursuant to this Section 17 creates a valid and perfected first priority
security interest in the Coop Interest in favor of Association, subordinate only
to any permissible pledge or other security interest granted by Purchaser to any
financial institution for purposes of securing a loan by such financial
institution to Purchaser, the proceeds of which are used to finance Purchaser's
acquisition of the Coop Interest. Notwithstanding the foregoing, however,
Association may release such pledge and grant of a security interest for good
cause, as determined in Association's sole and absolute discretion.
If Purchaser shall be in default under this Agreement, Association may
exercise any and all rights and remedies available to Association hereunder,
under the Articles of Incorporation or Bylaws of Association, under any
applicable Uniform Commercial Code, or otherwise at law or in equity. The
rights and remedies afforded to Association hereunder shall be cumulative and in
addition to, and not in limitation of, any rights and remedies which Association
may otherwise have under the Articles of Incorporation or Bylaws of Association
or under applicable law, including any applicable Uniform Commercial Code. The
exercise or partial exercise of any right or remedy of Association hereunder or
under the Articles of Incorporation or Bylaws of Association or under applicable
law shall not preclude or prejudice the further exercise of that right or remedy
or the exercise of any other right or remedy of Association. No delay or
omission on the part of Association in exercising any right hereunder or
otherwise shall operate as a waiver of such right. A waiver on any one occasion
shall not be construed as a bar or waiver of any right or remedy on any future
occasion.
18. ARBITRATION. In the event of any controversy arising out of or
relating to this Agreement, or any breach hereof, other than any controversy
arising out of or relating to Section 17 hereof or the exercise of any rights or
remedies thereunder, the parties agree to submit the dispute to binding
arbitration in accordance with the Commercial Arbitration Rules then in force of
the American Arbitration Association. Such arbitration shall be initiated by
either party by notifying the other party in writing and requesting a panel of
five (5) arbitrators from the American Arbitration Association, which
arbitrators shall be individuals skilled in the legal and business aspects of
the subject matter of this Agreement and of the dispute. Alternate strikes
shall be made to the panel commencing with the party requesting the arbitration
until one individual remains. Such individual shall be the arbitrator for the
controversy. The party requesting the arbitration shall notify the arbitrator
who shall hold a hearing(s) within 60 days of the notice. Any hearing(s) shall
take place in Denver, Colorado, or such other location as the parties may agree
upon. The arbitrator shall render a decision, including a written opinion in
support thereof, within 30 days after the conclusion of the hearing(s), which
decision shall be final and binding upon the parties without right of appeal.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Costs of the arbitration will be assessed by the
arbitrator against either or both of the parties, and will be paid promptly by
the party or parties so assessed.
19. NOTICES. Any notice given or required to be given hereunder shall be
deemed to have been effectively given when delivered personally or sent by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed or transmitted to Association at Alliance Farms Cooperative
Association, c/o Farmland Industries, Inc., 3315 North Oak Trafficway,
Department 47, Kansas City, Missouri 64116, Attention: Mr. Wayne N. Snyder, and
to Purchaser at the address set forth below Purchaser's signature, and/or to
such other (or additional) address(es) requested by a notice given in accordance
with this Section.
20. ENTIRE AGREEMENT. This Agreement contains all of the terms agreed
upon by the parties with respect to the subject matter hereof and supersedes all
prior agreements of the parties as to the subject matter hereof; provided,
however, any and all other Weaned Pig Purchase Agreements between Purchaser and
Association respecting issuances of capital stock of Association from which the
right of Purchaser to purchase Lots under this Agreement does not derive, and
any and all Feeder Pig Purchase Agreements between Purchaser and Association,
shall not be superseded, modified or otherwise affected by this Agreement. This
Agreement may not be modified except in writing, signed by the parties hereto,
that specifically references this Agreement.
21. ASSIGNMENT. This Agreement may not be assigned by either party
without prior written consent of the other party; provided, however, that
Association may assign Association's rights herein and hereto to any lender that
may provide financing to Association in connection with the construction of
facilities or the operation thereof, or both. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors, and permitted assigns.
22. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado. The parties hereto hereby
agree that if any part, term or provision of this Agreement is held by a court
of competent jurisdiction to be illegal or unenforceable or in conflict with any
controlling state law, the validity of the remaining parts, terms and provisions
of this Agreement shall not be affected, and the rights and obligations of the
parties shall be construed and enforced as if this Agreement did not contain the
particular part, term or provision held to be illegal or unenforceable or in
conflict with any controlling state law. This Agreement and the transactions
contemplated hereunder constitute commercial, and not consumer, transactions.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE THAT MAY BE ENFORCED
BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
day and year first above written.
ASSOCIATION: PURCHASER:
ALLIANCE FARMS COOPERATIVE
ASSOCIATION
By: By:
Name: Name:
Title: Title:
Purchaser's Address:
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant is organized under the provisions of article 55 of title 7
of the Colorado Revised Statutes (the "Colorado Cooperative Association Law").
Section 7-55-107.5 of the Colorado Cooperative Association Law provides that
cooperative associations shall have the same powers, rights, and obligations and
shall be subject to the same limitations as apply to corporations for profit as
set forth in article 109 of the Colorado Business Corporation Act. Article 109
of the Colorado Business Corporation Act provides for the indemnification by a
corporation of its officers, directors and certain other persons as follows:
7-109-101. DEFINITIONS. As used in this article:
(1) "Corporation" includes any domestic or foreign entity that is a
predecessor of a corporation by reason of a merger or other transaction in which
the predecessor's existence ceased upon consummation of the transaction.
(2) "Director" means an individual who is or was a director of a
corporation or an individual who, while a director of a corporation, is or was
serving at the corporation's request as a director, officer, partner, trustee,
employee, fiduciary, or agent of another domestic foreign corporation or other
person or of an employee benefit plan. A director is considered to be serving
an employee benefit plan at the corporation's request if his or her duties to
the corporation also impose duties on, or otherwise involve services by, the
director to the plan or to participants in or beneficiaries of the plan.
"Director" includes, unless the context requires otherwise, the estate or
personal representative of a director.
(3) "Expenses" includes counsel fees.
(4) "Liability" means the obligation incurred with respect to a proceeding
to pay a judgment, settlement, penalty, fine, including an excise tax assessed
with respect to an employee benefit plan, or reasonable expenses.
(5) "Official capacity" means, when used with respect to a director, the
office of director in a corporation and, when used with respect to a person
other than a director as contemplated in section 7-109-107, the office in a
corporation held by the officer or the employment, fiduciary, or agency
relationship undertaken by the employee, fiduciary, or agent on behalf of the
corporation. "Official capacity" does not include service for any other
domestic or foreign corporation or other person or employee benefit plan.
(6) "Party" includes a person who was, is, or is threatened to be made a
named defendant or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, or investigative and
whether formal or informal.
7-109-102. AUTHORITY TO INDEMNIFY DIRECTORS. (1) Except as provided in
subsection (4) of this section, a corporation may indemnify a person made a
party to a proceeding because the person is or was a director against liability
incurred in the proceeding if:
(a) The person conducted himself or herself in good faith; and
(b) The person reasonably believed:
(I) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's best
interests; and
(II) In all other cases, that his or her conduct was at least not
opposed to the corporation's best interests; and
(c) In the case of any criminal proceeding, the person had no
reasonable cause to believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit plan for a
purpose the director reasonably believed to be in the interests of the
participants in or beneficiaries of the plan is conduct that satisfies the
requirement of subparagraph (II) of paragraph (b) of subsection (1) of this
section. A director's conduct with respect to an employee benefit plan for a
purpose that the director did not reasonably believe to be in the interests of
the participants in or beneficiaries of the plan shall be deemed not to satisfy
the requirements of paragraph (a) of subsection (1) of this section.
(3) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the director did not meet the standard of conduct
described in this section.
(4) A corporation may not indemnify a director under this section:
(a) In connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation;
or
(b) In connection with any other proceeding charging that the director
derived an improper personal benefit, whether or not involving action in an
official capacity, in which the director was adjudged liable on the basis
that he or she derived an improper personal benefit.
(5) Indemnification permitted under this section in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with proceeding.
7-109-103. MANDATORY INDEMNIFICATION OF DIRECTORS. Unless limited by its
articles of incorporation, a corporation shall indemnify a person who was wholly
successful, on the merits or otherwise, in the defense of any proceeding to
which the person was a party because the person is or was a director, against
reasonable expenses incurred by him or her in connection with the proceeding.
7-109-104. ADVANCE OF EXPENSES TO DIRECTORS. (1) A corporation may pay
for or reimburse the reasonable expenses incurred by a director who is a party
to a proceeding in advance of final disposition of the proceeding if:
(a) The director furnishes to the corporation a written affirmation of
the director's good faith belief that he or she has met the standard of
conduct described in section 7-109-102;
(b) The director furnishes to the corporation a written undertaking,
executed personally or on the director's behalf, to repay the advance if it
is ultimately determined that he or she did not meet the standard of
conduct; and
(c) A determination is made that the facts then known to those making
the determination would not preclude indemnification under this article.
(2) The undertaking required by paragraph (b) of subsection (1) of this
section shall be an unlimited general obligation of the director but need not be
secured and may be accepted without reference to financial ability to make
repayment.
(3) Determinations and authorizations of payments under this section shall
be made in the manner specified in section 7-109-106.
7-109-105. COURT-ORDERED INDEMNIFICATION OF DIRECTORS. (1) Unless
otherwise provided in the articles of incorporation, a director who is or was a
party to a proceeding may apply for indemnification to the court conducting the
proceeding or to another court of competent jurisdiction. On receipt of an
application, the court, after giving any notice the court considers necessary,
may order indemnification in the following manner:
(a) If it determines that the director is entitled to mandatory
indemnification under section 7-109-103, the court shall order
indemnification, in which case the court shall also order the corporation
to pay the director's reasonable expenses incurred to obtain court-ordered
indemnification.
(b) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances,
whether or not the director met the standard of conduct set forth in
section 7-109-102(1) or was adjudged liable in the circumstances described
in section 7-109-102(4), the court may order such indemnification as the
court deems proper; except that the indemnification with respect to any
proceeding in which liability shall have been adjudged in the circumstances
described in section 7-109-102(4) is limited to reasonable expenses
incurred in connection with the proceeding and reasonable expenses incurred
to obtain court-ordered indemnification.
7-109-106. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION OF
DIRECTORS. (1) A corporation may not indemnify a director under section 7-109-
102 unless authorized in the specific case after a determination has been made
that indemnification of the director is permissible in the circumstances because
the director has met the standard of conduct set forth in subsection 7-109-102.
A corporation shall not advance expenses to a director under section 7-109-104
unless authorized in the specific case after the written affirmation and
undertaking required by section 7-109-104(1)(a) and (1)(b) are received and the
determination required by section 7-109-104(1)(c) has been made.
(2) The determinations required by subsection (1) of this section shall be
made:
(a) By the board of directors by a majority vote of those present at a
meeting at which a quorum is present, and only those directors not parties
to the proceeding shall be counted in satisfying the quorum; or
(b) If a quorum cannot be obtained, by a majority vote of a committee
of the board of directors designated by the board of directors, which
committee shall consist of two or more directors not parties to the
proceeding; except that directors who are parties to the proceeding may
participate in the designation of directors for the committee.
(3) If a quorum cannot be obtained as contemplated in paragraph (a) of
subsection (2) of this section, and a committee cannot be established under
paragraph (b) of subsection (2) of this section, or, even if a quorum is
obtained or a committee is designated, if a majority of directors constituting
such quorum or such committee so directs, the determination required to be made
by subsection (1) of this section shall be made:
(a) By independent legal counsel selected by a vote of the board of
directors or the committee in the manner specified in paragraph (a) or (b)
of subsection (2) of this section, or, if a quorum of the full board cannot
be obtained and a committee cannot be established, by independent legal
counsel selected by a majority vote of the full board of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and advance of expenses shall be made
in the same manner as the determination that indemnification or advance of
expenses is permissible; except that, if the determination that indemnification
or advance of expenses is permissible is made by independent legal counsel,
authorization of indemnification and advance of expenses shall be made by the
body that selected such counsel.
7-109-107. INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES, AND
AGENTS.
(1) Unless otherwise provided in the articles of incorporation:
(a) An officer is entitled to mandatory indemnification under section
7-109-103, and is entitled to apply for court-ordered indemnification under
section 7-109-105, in each case to the same extent as a director;
(b) A corporation may indemnify and advance expenses to an officer,
employee, fiduciary, or agent of the corporation to the same extent as to a
director; and
(c) A corporation may also indemnify and advance expenses to an
officer, employee, fiduciary, or agent who is not a director to a greater
extent, if not inconsistent with public policy, and if provided for by its
bylaws, general or specific action of its board of directors or
shareholders, or contract.
7-109-108. INSURANCE. A corporation may purchase and maintain insurance
on behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the corporation, or who, while a director, officer, employee,
fiduciary, or agent of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of another domestic or foreign corporation or other person or of an
employee benefit plan, against liability asserted against or incurred by the
person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary, or agent, whether or not the corporation would
have power to indemnify the person against the same liability under section 7-
109-102, 7-109-103, or 7-109-107. Any such insurance may be procured from any
insurance company designated by the board of directors, whether such insurance
company is formed under the laws of this state or any other jurisdiction of the
United States or elsewhere, including any insurance company in which the
corporation has an equity or any other interest through stock ownership or
otherwise.
7-109-109. LIMITATION OF INDEMNIFICATION OF DIRECTORS. (1) A provision
treating a corporation's indemnification of, or advance of expenses to,
directors that is contained in its articles of incorporation or bylaws, in a
resolution of its shareholders or board of directors, or in a contract, except
an insurance policy, or otherwise, is valid only to the extent the provision is
not inconsistent with sections 7-109-101 to 7-109-108. If the articles of
incorporation limit indemnification or advance of expenses, indemnification and
advance of expenses are valid only to the extent not inconsistent with the
articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a corporation's power to
pay or reimburse expenses incurred by a director in connection with an
appearance as a witness in a proceeding at a time when he or she has not been
made a named defendant or respondent in the proceeding.
7-109-110. NOTICE TO SHAREHOLDERS OF INDEMNIFICATION OF DIRECTOR. If a
corporation indemnifies or advances expenses to a director under this article in
connection with a proceeding by or in the right of the corporation, the
corporation shall give written notice of the indemnification or advance to the
shareholders with or before the notice of the next shareholders' meeting. If
the next shareholder action is taken without a meeting at the instigation of the
board of directors, such notice shall be given to the shareholders at or before
the time the first shareholder signs a writing consent to such action.
Section 7-55-107(1)(h) of the Colorado Cooperative Association Law provides
that a cooperative association has the power:
If so provided in the articles of incorporation, to eliminate or limit
the personal liability of a director to the association or to its
members or stockholders for monetary damages for breach of fiduciary
duty as a director; except that such provision shall not eliminate or
limit the liability of a director for: Any breach of the director's
duty of loyalty to the association or its members or stockholders;
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; or any transaction from
which the director derived an improper personal benefit. No such
provision shall eliminate or limit the liability of a director to the
association or to its members or stockholders for monetary damages for
any act or omission occurring prior to the date when such provision
becomes effective.
Article NINTH of the Registrant's Articles of Incorporation (a copy of which is
set forth in Exhibits 3.1, 3.1.1, 3.1.2, 3.1.3 and 3.1.4) contains such a
provision, in addition to permitting the Registrant to indemnify its directors,
officers, employees and agents, or any person who serves at the request of the
Registrant as a director, officer, partner, trustee, employee, fiduciary or
agent of another corporation or other person or of an employee benefit plan, to
the fullest extent permitted by the laws of the State of Colorado.
Article V of the Registrant's Bylaws (a copy of which is set forth in
Exhibits 3.2 and 3.2.1) (the "Bylaws") provides that the Registrant shall
indemnify officers and directors of the Registrant to the fullest extent
permitted by and in the manner permissible under the laws of the State of
Colorado. Section 5.8 of the Bylaws also permits the Board of Directors to
authorize the Registrant to purchase and maintain insurance against any
liability asserted against or incurred by any director, officer, employee,
fiduciary or agent of the Company arising out of his or her capacity as such.
Section 6 of the Agency Agreement (the proposed form of which is set forth
in Exhibit 1.1) provides for indemnification of the Registrant and its
directors and officers in certain circumstances.
For more information regarding the Registrant's undertaking to submit to
adjudication of the issue of indemnification for violation of the securities
laws, see "Undertakings," Item 28 hereof.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets for the various expenses in connection with the
issuance and distribution of the securities being registered hereby, other than
underwriting discounts and commissions. All amounts shown are estimates, except
the SEC registration fee and the NASD filing fee.
SEC registration fee........................... $3,527
NASD filing fee ............................... 1,664
Printing and engraving......................... 10,000
Legal fees and expenses........................ 45,000
Accounting fees and expenses................... 10,000
Escrow agent fees.............................. 1,575
Blue Sky fees and expenses
(including fees of counsel)................. 15,000
Miscellaneous................................. 13,234
TOTAL ..............................$100,000
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In connection with the organization of the Registrant in May, 1994, the
Registrant sold one share of its common stock, par value $1 per share (the
"Common Stock"), to Farmland Industries, Inc. ("Farmland") for the purchase
price of $100. No underwriters were involved in connection with this sale.
This sale was made in reliance upon the exemption from the registration
requirements of the Securities Act of 1933 (the "Securities Act") pursuant to
Section 4(2) of the Securities Act for transactions by an issuer not involving a
public offering.
In July, 1994, the Registrant sold 25 shares of the Common Stock pursuant
to its Confidential Private Placement Memorandum dated May 4, 1994, as
supplemented by Supplement No. 1 to the Confidential Private Placement
Memorandum dated July 6, 1994, for a cash purchase price of $80,000 per share
and, thus, an aggregate purchase price of $2,000,000. No underwriters were
involved in connection with this sale. The 25 shares of Common Stock were
offered only to producers of agricultural products, associations of such
producers, and federations of such associations. Of the 25 shares offered for
sale, 5 shares were sold to producers of agricultural products and 20 shares
were sold to associations of such producers. This sale of 25 shares of the
Common Stock was made in reliance upon the exemption from the registration
requirements of the Securities Act pursuant to Rule 506 of the Securities Act.
This exemption from registration was available because (i) the 25 shares of the
Common Stock was sold to less than 35 purchasers, (ii) the Registrant reasonably
believed prior to making any sale of the Common Stock that each purchaser who
was not an accredited investor either alone or with his purchaser representative
had such knowledge and experience in financial and business matters that he was
capable of evaluating the merits and risks of the investment in the Common
Stock, (iii) the Registrant furnished to each purchaser that was not an
accredited investor the information required by 17 C.F.R. ' 230.502(b)(2) a
reasonable time prior to sale, (iv) neither the Registrant nor any person acting
on its behalf offered or sold the Common Stock by any form of general
solicitation or general advertising, and (v) the Registrant exercised reasonable
care to assure that the purchasers of the shares of the Common Stock were not
underwriters within the meaning of Section 2(11) of the Securities Act.
Immediately prior to such sale of 25 shares of the Registrant's Common
Stock, the Registrant issued to Farmland 30 shares (in addition to its then one
outstanding share) of Common Stock and to Yuma Farmers Milling-Mercantile
Cooperative Registrant ("Yuma Cooperative") 12 shares of Common Stock in
exchange for their respective equity ownership rights and interests in the Yuma
Feeder Pig Limited Liability Company ("Yuma LLC"). Thereupon, Yuma LLC was
liquidated, whereby all of the assets and liabilities of Yuma LLC were
transferred to the Registrant. Said assets and liabilities have been reflected
on the Registrant's financial statements at Yuma LLC's book value, which was
equal to approximately $2,946,800. No underwriters were involved in connection
with this exchange. This sale was made in reliance upon the exemption from the
registration requirements of the Securities Act pursuant to Section 4(2) of the
Securities Act for transactions by an issuer not involving a public offering.
ITEM 27. EXHIBITS
The following exhibits are filed as part of this Registration Statement:
Exhibit No. Description
** 1.1 Form of Agency Agreement between
Interstate/Johnson Lane Corporation and the
Registrant
** 3.1 Articles of Incorporation
** 3.1.1 Articles of Amendment
** 3.1.2 Articles of Amendment
** 3.1.3 Articles of Amendment
** 3.1.4 Articles of Amendment
** 3.2 Amended and Restated Bylaws
** 3.2.1 Amendments to Amended and Restated Bylaws
** 4.1 Articles of Incorporation (filed as Exhibit
3.1)
** 4.1.1 Articles of Amendment (filed as Exhibit 3.1.1)
** 4.1.2 Articles of Amendment (filed as Exhibit 3.1.2)
** 4.1.3 Articles of Amendment (filed as Exhibit 3.1.3)
** 4.1.4 Articles of Amendment (filed as Exhibit 3.1.4)
** 4.2 Amended and Restated Bylaws (filed as Exhibit
3.2)
** 4.2.1 Amendments to Amended and Restated Bylaws (filed
as Exhibit 3.2.1)
# 4.3 Specimen Form of Certificate Representing
Membership in the Company and the (Class A) Common
Stock (filed on November 7, 1994 as Exhibit 4.3 to
the Registrant's Registration Statement on Form
SB-2 (No. 33-86068) and incorporated herein by
reference)
* 4.4 Specimen Form of Certificate Representing
Membership in the Company and the Class B Common
Stock
# 4.5 Loan Agreement, dated as of September 21, 1994,
between National Bank for Cooperatives and the
Registrant (filed on November 7, 1994 as Exhibit
10.6 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 4.5.1 Term Loan Amendment, dated as of May 19, 1995,
between CoBank, ACB (formerly National Bank for
Cooperatives) and the Registrant (filed with the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended August 31, 1995 as Exhibit
10.6.1 and incorporated herein by reference)
# 4.6 The Registrant's Promissory Note, dated
September 21, 1994, to National Bank for
Cooperatives (filed on November 7, 1994 as
Exhibit 10.7 to the Registrant's Registration
Statement on Form SB-2 (No. 33-86068) and
incorporated herein by reference)
# 4.7 Security Agreement, dated September 21, 1994,
made by the Registrant to National Bank for
Cooperatives (filed on November 7, 1994 as
Exhibit 10.8 to the Registrant's Registration
Statement on Form SB-2 (No. 33-86068) and
incorporated herein by reference)
# 4.8 Correction Deed of Trust, dated November 4,
1994, between the Public Trustee of the County of
Yuma, State of Colorado and the Registrant (filed
on January 23, 1995 as Exhibit 10.9 to Amendment
No. 1 to the Registrant's Registration Statement
on Form SB-2 (No. 33-86068) and incorporated
herein by reference)
# 4.9 Master Loan Agreement, dated as of May 19,
1995, between CoBank, ACB and the Registrant
(filed with the Registrants' Annual Report on Form
10-KSB for the fiscal year ended August 31, 1995
as Exhibit 10.11 and incorporated herein by
reference)
# 4.10 Multiple Advance Term Loan Supplement, dated as of
May 19, 1995, between CoBank, ACB and the
Registrant (filed with the Registrants' Annual
Report on Form 10-KSB for the fiscal year ended
August 31, 1995 as Exhibit 10.12 and incorporated
herein by reference)
* 4.10.1 Amendment to Multiple Advance Term Loan
Supplement, dated as of February 11, 1997, between
CoBank, ACB and the Registrant respecting the
extension of the CoBank credit facility (filed as
Exhibit 10.14.1)
# 4.11 Revolving Term Loan Supplement, dated as of May
19, 1995, between CoBank, ACB and the Registrant
(filed with the Registrants' Annual Report on Form
10-KSB for the fiscal year ended August 31, 1995
as Exhibit 10.13 and incorporated herein by
reference)
# 4.12 Correction Deed of Trust, dated October 23, 1996,
between the Public Trustee of the County of Yuma,
State of Colorado and the Registrant (filed with
the Registrant's Quarterly Report on Form 10-QSB
for the quarter ended February 28, 1997 as Exhibit
10.6 and incorporated herein by reference)
# 4.13 Illinois Mortgage, dated February 23, 1996, from
the Registrant to CoBank, ACB (filed with the
Registrant's Quarterly Report on Form 10-QSB for
the quarter ended February 28, 1997 as Exhibit
10.10 and incorporated herein by reference)
* 4.14 Letter Agreement between the Registrant to CoBank,
ACB respecting the extension of the CoBank credit
facility (filed as Exhibit 10.28)
** 4.15 Specimen Form of Certificate Representing
Membership in the Company and the Class C Common
Stock
** 5.1 Opinion of Stinson, Mag & Fizzell, P.C.,
counsel for the Registrant, with respect to the
Registrant's (Class A) Common Stock, Class B
Common Stock and Class C Common Stock
# 10.1 Form of Feeder Pig Purchase Agreement (filed on
January 23, 1995 as Exhibit 10.1 to Amendment No.
1 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 10.2 Swine Production Services Agreement, dated July
13, 1994, between Farmland Industries, Inc. and
the Registrant (filed on November 7, 1994 as
Exhibit 10.2 to the Registrant's Registration
Statement on Form SB-2 (No. 33-86068) and
incorporated herein by reference)
# 10.2.1 First Amendment to Swine Production Services
Agreement, dated as of July 26, 1996, between
Farmland Industries, Inc. and the Registrant
(filed with the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended February 28,
1997 as Exhibit 10.1 and incorporated herein by
reference)
* 10.2.2 Second Amendment to Swine Production Services
Agreement, dated as of April 14, 1997, between
Farmland Industries, Inc. and the Registrant
# 10.3 Feed Purchase Agreement, dated July 13, 1994,
between the Yuma Farmers Milling-Mercantile
Cooperative Company of Yuma, Colorado and the
Registrant (filed on November 7, 1994 as Exhibit
10.3 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 10.4 Interim Feeder Pig Purchase Agreement, dated July
13, 1994, between Farmland Industries, Inc. and
the Registrant (filed on November 7, 1994 as
Exhibit 10.4 to the Registrant's Registration
Statement on Form SB-2 (No. 33-86068) and
incorporated herein by reference)
# 10.4.1 First Amendment to Interim Feeder Pig Purchase
Agreement, dated July 13, 1994, between Farmland
Industries, Inc. and the Registrant (filed on
November 7, 1994 as Exhibit 10.4.1 to the
Registrant's Registration Statement on Form SB-2
(No. 33-86068) and incorporated herein by
reference)
# 10.5 Interim Feeder Pig Purchase Agreement, dated July
13, 1994, between the Yuma Farmers Milling-
Mercantile Cooperative Company of Yuma, Colorado
and the Registrant (filed on November 7, 1994 as
Exhibit 10.5 to the Registrant's Registration
Statement on Form SB-2 (No. 33-86068) and
incorporated herein by reference)
# 10.5.1 First Amendment to Interim Feeder Pig Purchase
Agreement, dated July 13, 1994, between the Yuma
Farmers Milling-Mercantile Cooperative Company of
Yuma, Colorado and the Registrant (filed on
November 7, 1994 as Exhibit 10.5.1 to the
Registrant's Registration Statement on Form SB-2
(No. 33-86068) and incorporated herein by
reference)
# 10.6 Loan Agreement, dated as of September 21, 1994,
between National Bank for Cooperatives and the
Registrant (filed on November 7, 1994 as Exhibit
10.6 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 10.6.1 Term Loan Amendment, dated as of May 19, 1995,
between CoBank, ACB (formerly National Bank for
Cooperatives) and the Registrant (filed with the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended August 31, 1995 as Exhibit
10.6.1 and incorporated herein by reference)
# 10.7 The Registrant's Promissory Note, dated September
21, 1994, to National Bank for Cooperatives (filed
on November 7, 1994 as Exhibit 10.7 to the
Registrant's Registration Statement on Form SB-2
(No. 33-86068) and incorporated herein by
reference)
# 10.8 Security Agreement, dated September 21, 1994, made
by the Registrant to National Bank for
Cooperatives (filed on November 7, 1994 as Exhibit
10.8 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 10.9 Correction Deed of Trust, dated November 4, 1994,
between the Public Trustee of the County of Yuma,
State of Colorado and the Registrant (filed on
January 23, 1995 as Exhibit 10.9 to Amendment No.
1 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 10.10 Effluent Agreement, dated September 15, 1994,
between RMR Ranch, Inc., and the Registrant
(filed on November 7, 1994 as Exhibit 10.13 to the
Registrant's Registration Statement on Form SB-2
(No. 33-86068) and incorporated herein by
reference)
# 10.11 Swine Production Management Agreement, dated March
2, 1992, between DEKALB Swine Breeders, Inc. and
Yuma Feeder Pig Limited Liability Company (the
predecessor to the Registrant) (filed on November
7, 1994 as Exhibit 10.20 to the Registrant's
Registration Statement on Form SB-2 (No. 33-86068)
and incorporated herein by reference)
# 10.12 Contract to License Primary Swine (No. 3158),
executed by the Registrant on July 20, 1994,
between DEKALB Swine Breeders, Inc. and the
Registrant (filed on January 23, 1995 as Exhibit
10.21 to Amendment No. 1 to the Registrant's
Registration Statement on Form SB-2 (No. 33-86068)
and incorporated herein by reference)
# 10.13 Master Loan Agreement, dated as of May 19, 1995,
between CoBank, ACB and the Registrant (filed with
the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1995 as
Exhibit 10.11 and incorporated herein by
reference)
# 10.14 Multiple Advance Term Loan Supplement, dated as of
May 19, 1995, between CoBank, ACB and the
Registrant (filed with the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended
August 31, 1995 as Exhibit 10.12 and incorporated
herein by reference)
* 10.14.1 Amendment to Multiple Advance Term Loan
Supplement, dated as of February 11, 1997, between
CoBank, ACB and the Registrant respecting the
extension of the CoBank credit facility
# 10.15 Revolving Term Loan Supplement, dated as of May
1995, between CoBank, ACB and the Registrant
(filed with the Registrant's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1995
as Exhibit 10.13 and incorporated herein by
reference)
# 10.16 Contract for Alliance Farms Cooperative
Association, dated September 14, 1995, between the
Registrant and Farmer Boy Ag, Inc. (filed with the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended August 31, 1995 as Exhibit 10.14
and incorporated herein by reference).
# 10.17 Master Construction Agreement, dated September 18,
1995, between the Registrant and Central
Confinement Service, Ltd. (filed with the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended August 31, 1995 as Exhibit 10.15
and incorporated herein by reference).
# 10.18 The Registrant's Promissory Note, dated August
30, 1995, to Farmland Industries, Inc. (filed with
the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1995 as
Exhibit 10-16 and incorporated herein by
reference.
# 10.19 Camborough-22 Closed Herd Multiplier Agreement,
dated March 1, 1996, between Pig Improvement
Company, Inc. and the Registrant (filed with the
Registrant's Quarterly Report on Form 10-QSB for
the quarter ended February 28, 1997 as Exhibit
10.2 and incorporated herein by reference)
# 10.20 Option Contract, dated November 20, 1996, between
Bill L. Bailey and Norma Jean Bailey, and the
Registrant (filed with the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended
February 28, 1997 as Exhibit 10.3 and incorporated
herein by reference)
* 10.21 The Registrant's Promissory Note, dated November
27, 1996, to Farmland Industries, Inc.
* 10.22 Amended and Restated Illinois Mortgage, dated as
of November 27, 1996, from the Registrant to
Farmland Industries, Inc.
# 10.23 Correction Deed of Trust, dated October 23, 1996,
between the Public Trustee of the County of Yuma,
State of Colorado and the Registrant (filed with
the Registrant's Quarterly Report on Form 10-QSB
for the quarter ended February 28, 1997 as Exhibit
10.6 and incorporated herein by reference)
# 10.24 Master Construction Agreement, dated November 22,
1996 (Illinois #2 sow unit), between the
Registrant and Central Confinement Service, Ltd.
(filed with the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended February 28,
1997 as Exhibit 10.7 and incorporated herein by
reference)
# 10.25 Master Construction Agreement, dated November 22,
1996 (Illinois #2 nursery), between the Registrant
and Central Confinement Service, Ltd. (filed with
the Registrant's Quarterly Report on Form 10-QSB
for the quarter ended February 28, 1997 as Exhibit
10.8 and incorporated herein by reference)
# 10.26 Master Construction Agreement, dated November 22,
1996 (Illinois #2 isolation building), between the
Registrant and Central Confinement Service, Ltd.
(filed with the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended February 28,
1997 as Exhibit 10.9 and incorporated herein by
reference)
# 10.27 Illinois Mortgage, dated February 23, 1996, from
the Registrant to CoBank, ACB (filed with the
Registrant's Quarterly Report on Form 10-QSB for
the quarter ended February 28, 1997 as Exhibit
10.10 and incorporated herein by reference)
* 10.28 Letter Agreement between the Registrant to CoBank, ACB respecting
the extension of the CoBank credit facility
* 10.29 Form of Weaned Pig Purchase Agreement
* 10.30 Loan Agreement, dated as of November 27, 1996,
between the Registrant and Farmland Industries,
Inc.
* 10.31 Security Agreement, dated as of November 27, 1996,
made by the Registrant to Farmland Industries,
Inc.
* 10.32 Accrued Interest Agreement, dated as of February
28, 1997, between the Registrant and Farmland
Industries, Inc.
* 10.33 Excess Feeder Pig Purchase Agreement, dated as of
February 28, 1997, between the Registrant and
Farmland Industries, Inc.
** 10.34 Form of Class C Weaned Pig Purchase Agreement
** 10.35 Colorado Breeding Farm Side Agreement, dated April
11, 1997, between the Registrant and Farmland
Industries, Inc.
** 10.36 Colorado Breeding Farm Agreement, dated April 11,
1997, between the Registrant, G & G Pork
Producers, LLC and Farmland Industries, Inc.
** 10.37 Colorado Breeding Farm Agreement, dated April 21,
1997, between the Registrant, Triple R and
Farmland Industries, Inc.
** 23.1 Consent of KPMG Peat Marwick LLP, the Registrant's
Independent Public Accountant
** 23.2 Consent of Stinson, Mag & Fizzell, P.C., the
Registrant's counsel, is contained in the Opinion
of Counsel filed as Exhibit 5.1
* 24.1 Power of Attorney (included on the signature page
to this Registration Statement)
# 99.1 Escrow Agreement, dated as of February 17, 1995,
among the Registrant, Doug Brown,
Interstate/Johnson Lane Corporation and
NationsBank, N.A. (Mid-West) (formerly Boatmen's
National Bank) (filed on February 22, 1995 as
Exhibit 99.1 to Amendment No. 2 to the
Registrant's Registration Statement on Form SB-2
(No. 33-86068) and incorporated herein by
reference)
* 99.1.1 Amendment to Escrow Agreement, dated as of
January 31, 1997, among the Registrant, Doug
Brown, Interstate/Johnson Lane Corporation and
NationsBank, N.A. (Mid-West) (formerly Boatmen's
National Bank)
** 99.2 Form of Subscription Agreement
* Filed with the original filing of Registration Statement No. 333-25501
on April 18, 1997.
** Filed herewith.
# Documents filed as exhibits to previous filings of the Registrant under
the Securities Act of 1993 or the Securities Exchange Act of 1934 and
incorporated herein by reference.
ITEM 28. UNDERTAKINGS
A. The undersigned registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events
which, individually or together, represent a fundamental change
in the information in the registration statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act of 1933, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to be
the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
B. The undersigned registrant hereby undertakes that, if it is registering
equity securities for sale in an underwritten offering, it will provide to the
underwriter at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 24
hereof, 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 its 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
Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Kansas
City, State of Missouri, on May 20, 1997.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By: /s/ WAYNE N. SNYDER
Wayne N. Snyder, President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
Signature and Title Date
/s/ WAYNE N. SNYDER
Wayne N. Snyder May 20, 1997
Chairman of the Board, President
and Director (Principal Executive Officer and Principal
Financial and Accounting Officer)
* May 20, 1997
Doug Brown
Treasurer, Secretary and Director
* May 20, 1997
Merl Daniel
Director
* May 20, 1997
Gerald D. Johnson
Director
* May 20, 1997
Loren Keppy
Director
* By
/s/ WAYNE N. SNYDER
Wayne N. Snyder
Attorney-in-fact
EXHIBIT 99
EXHIBIT INDEX
Exhibit No. Description Page
** 1.1 Form of Agency Agreement between
Interstate/Johnson Lane Corporation and the
Registrant
** 3.1 Articles of Incorporation
** 3.1.1 Articles of Amendment
** 3.1.2 Articles of Amendment
** 3.1.3 Articles of Amendment
** 3.1.4 Articles of Amendment
** 3.2 Amended and Restated Bylaws
** 3.2.1 Amendments to Amended and Restated Bylaws
** 4.1 Articles of Incorporation (filed as Exhibit 3.1)
** 4.1.1 Articles of Amendment (filed as Exhibit 3.1.1)
** 4.1.2 Articles of Amendment (filed as Exhibit 3.1.2)
** 4.1.3 Articles of Amendment (filed as Exhibit 3.1.3)
** 4.1.4 Articles of Amendment (filed as Exhibit 3.1.4)
** 4.2 Amended and Restated Bylaws (filed as Exhibit
3.2)
** 4.2.1 Amendments to Amended and Restated Bylaws (filed
as Exhibit 3.2.1)
# 4.3 Specimen Form of Certificate Representing
Membership in the Company and the (Class A) Common
Stock (filed on November 7, 1994 as Exhibit 4.3 to
the Registrant's Registration Statement on Form
SB-2 (No. 33-86068) and incorporated herein by
reference)
* 4.4 Specimen Form of Certificate Representing
Membership in the Company and the Class B Common
Stock
# 4.5 Loan Agreement, dated as of September 21, 1994,
between National Bank for Cooperatives and the
Registrant (filed on November 7, 1994 as Exhibit
10.6 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 4.5.1 Term Loan Amendment, dated as of May 19, 1995,
between CoBank, ACB (formerly National Bank for
Cooperatives) and the Registrant (filed with the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended August 31, 1995 as Exhibit
10.6.1 and incorporated herein by reference)
# 4.6 The Registrant's Promissory Note, dated
September 21, 1994, to National Bank for
Cooperatives (filed on November 7, 1994 as
Exhibit 10.7 to the Registrant's Registration
Statement on Form SB-2 (No. 33-86068) and
incorporated herein by reference)
# 4.7 Security Agreement, dated September 21, 1994,
made by the Registrant to National Bank for
Cooperatives (filed on November 7, 1994 as
Exhibit 10.8 to the Registrant's Registration
Statement on Form SB-2 (No. 33-86068) and
incorporated herein by reference)
# 4.8 Correction Deed of Trust, dated November 4,
1994, between the Public Trustee of the County of
Yuma, State of Colorado and the Registrant (filed
on January 23, 1995 as Exhibit 10.9 to Amendment
No. 1 to the Registrant's Registration Statement
on Form SB-2 (No. 33-86068) and incorporated
herein by reference)
# 4.9 Master Loan Agreement, dated as of May 19,
1995, between CoBank, ACB and the Registrant
(filed with the Registrants' Annual Report on Form
10-KSB for the fiscal year ended August 31, 1995
as Exhibit 10.11 and incorporated herein by
reference)
# 4.10 Multiple Advance Term Loan Supplement, dated as of
May 19, 1995, between CoBank, ACB and the
Registrant (filed with the Registrants' Annual
Report on Form 10-KSB for the fiscal year ended
August 31, 1995 as Exhibit 10.12 and incorporated
herein by reference)
* 4.10.1 Amendment to Multiple Advance Term Loan
Supplement, dated as of February 11, 1997, between
CoBank, ACB and the Registrant respecting the
extension of the CoBank credit facility (filed as
Exhibit 10.14.1)
# 4.11 Revolving Term Loan Supplement, dated as of May
19, 1995, between CoBank, ACB and the Registrant
(filed with the Registrants' Annual Report on Form
10-KSB for the fiscal year ended August 31, 1995
as Exhibit 10.13 and incorporated herein by
reference)
# 4.12 Correction Deed of Trust, dated October 23, 1996,
between the Public Trustee of the County of Yuma,
State of Colorado and the Registrant (filed with
the Registrant's Quarterly Report on Form 10-QSB
for the quarter ended February 28, 1997 as Exhibit
10.6 and incorporated herein by reference)
# 4.13 Illinois Mortgage, dated February 23, 1996, from
the Registrant to CoBank, ACB (filed with the
Registrant's Quarterly Report on Form 10-QSB for
the quarter ended February 28, 1997 as Exhibit
10.10 and incorporated herein by reference)
* 4.14 Letter Agreement between the Registrant to CoBank,
ACB respecting the extension of the CoBank credit
facility (filed as Exhibit 10.28)
** 4.15 Specimen Form of Certificate Representing
Membership in the Company and the Class C Common
Stock
** 5.1 Opinion of Stinson, Mag & Fizzell, P.C.,
counsel for the Registrant, with respect to the
Registrant's (Class A) Common Stock, Class B
Common Stock and Class C Common Stock
# 10.1 Form of Feeder Pig Purchase Agreement (filed on
January 23, 1995 as Exhibit 10.1 to Amendment No.
1 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 10.2 Swine Production Services Agreement, dated July
13, 1994, between Farmland Industries, Inc. and
the Registrant (filed on November 7, 1994 as
Exhibit 10.2 to the Registrant's Registration
Statement on Form SB-2 (No. 33-86068) and
incorporated herein by reference)
# 10.2.1 First Amendment to Swine Production Services
Agreement, dated as of July 26, 1996, between
Farmland Industries, Inc. and the Registrant
(filed with the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended February 28,
1997 as Exhibit 10.1 and incorporated herein by
reference)
* 10.2.2 Second Amendment to Swine Production Services
Agreement, dated as of April 14, 1997, between
Farmland Industries, Inc. and the Registrant
# 10.3 Feed Purchase Agreement, dated July 13, 1994,
between the Yuma Farmers Milling-Mercantile
Cooperative Company of Yuma, Colorado and the
Registrant (filed on November 7, 1994 as Exhibit
10.3 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 10.4 Interim Feeder Pig Purchase Agreement, dated July
13, 1994, between Farmland Industries, Inc. and
the Registrant (filed on November 7, 1994 as
Exhibit 10.4 to the Registrant's Registration
Statement on Form SB-2 (No. 33-86068) and
incorporated herein by reference)
# 10.4.1 First Amendment to Interim Feeder Pig Purchase
Agreement, dated July 13, 1994, between Farmland
Industries, Inc. and the Registrant (filed on
November 7, 1994 as Exhibit 10.4.1 to the
Registrant's Registration Statement on Form SB-2
(No. 33-86068) and incorporated herein by
reference)
# 10.5 Interim Feeder Pig Purchase Agreement, dated July
13, 1994, between the Yuma Farmers Milling-
Mercantile Cooperative Company of Yuma, Colorado
and the Registrant (filed on November 7, 1994 as
Exhibit 10.5 to the Registrant's Registration
Statement on Form SB-2 (No. 33-86068) and
incorporated herein by reference)
# 10.5.1 First Amendment to Interim Feeder Pig Purchase
Agreement, dated July 13, 1994, between the Yuma
Farmers Milling-Mercantile Cooperative Company of
Yuma, Colorado and the Registrant (filed on
November 7, 1994 as Exhibit 10.5.1 to the
Registrant's Registration Statement on Form SB-2
(No. 33-86068) and incorporated herein by
reference)
# 10.6 Loan Agreement, dated as of September 21, 1994,
between National Bank for Cooperatives and the
Registrant (filed on November 7, 1994 as Exhibit
10.6 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 10.6.1 Term Loan Amendment, dated as of May 19, 1995,
between CoBank, ACB (formerly National Bank for
Cooperatives) and the Registrant (filed with the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended August 31, 1995 as Exhibit
10.6.1 and incorporated herein by reference)
# 10.7 The Registrant's Promissory Note, dated September
21, 1994, to National Bank for Cooperatives (filed
on November 7, 1994 as Exhibit 10.7 to the
Registrant's Registration Statement on Form SB-2
(No. 33-86068) and incorporated herein by
reference)
# 10.8 Security Agreement, dated September 21, 1994, made
by the Registrant to National Bank for
Cooperatives (filed on November 7, 1994 as Exhibit
10.8 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 10.9 Correction Deed of Trust, dated November 4, 1994,
between the Public Trustee of the County of Yuma,
State of Colorado and the Registrant (filed on
January 23, 1995 as Exhibit 10.9 to Amendment No.
1 to the Registrant's Registration Statement on
Form SB-2 (No. 33-86068) and incorporated herein
by reference)
# 10.10 Effluent Agreement, dated September 15, 1994,
between RMR Ranch, Inc., and the Registrant
(filed on November 7, 1994 as Exhibit 10.13 to the
Registrant's Registration Statement on Form SB-2
(No. 33-86068) and incorporated herein by
reference)
# 10.11 Swine Production Management Agreement, dated March
2, 1992, between DEKALB Swine Breeders, Inc. and
Yuma Feeder Pig Limited Liability Company (the
predecessor to the Registrant) (filed on November
7, 1994 as Exhibit 10.20 to the Registrant's
Registration Statement on Form SB-2 (No. 33-86068)
and incorporated herein by reference)
# 10.12 Contract to License Primary Swine (No. 3158),
executed by the Registrant on July 20, 1994,
between DEKALB Swine Breeders, Inc. and the
Registrant (filed on January 23, 1995 as Exhibit
10.21 to Amendment No. 1 to the Registrant's
Registration Statement on Form SB-2 (No. 33-86068)
and incorporated herein by reference)
# 10.13 Master Loan Agreement, dated as of May 19, 1995,
between CoBank, ACB and the Registrant (filed with
the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1995 as
Exhibit 10.11 and incorporated herein by
reference)
# 10.14 Multiple Advance Term Loan Supplement, dated as of
May 19, 1995, between CoBank, ACB and the
Registrant (filed with the Registrant's Annual
Report on Form 10-KSB for the fiscal year ended
August 31, 1995 as Exhibit 10.12 and incorporated
herein by reference)
* 10.14.1 Amendment to Multiple Advance Term Loan
Supplement, dated as of February 11, 1997, between
CoBank, ACB and the Registrant respecting the
extension of the CoBank credit facility
# 10.15 Revolving Term Loan Supplement, dated as of May
1995, between CoBank, ACB and the Registrant
(filed with the Registrant's Annual Report on Form
10-KSB for the fiscal year ended August 31, 1995
as Exhibit 10.13 and incorporated herein by
reference)
# 10.16 Contract for Alliance Farms Cooperative
Association, dated September 14, 1995, between the
Registrant and Farmer Boy Ag, Inc. (filed with the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended August 31, 1995 as Exhibit 10.14
and incorporated herein by reference).
# 10.17 Master Construction Agreement, dated September 18,
1995, between the Registrant and Central
Confinement Service, Ltd. (filed with the
Registrant's Annual Report on Form 10-KSB for the
fiscal year ended August 31, 1995 as Exhibit 10.15
and incorporated herein by reference).
# 10.18 The Registrant's Promissory Note, dated August
30, 1995, to Farmland Industries, Inc. (filed with
the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended August 31, 1995 as
Exhibit 10-16 and incorporated herein by
reference.
# 10.19 Camborough-22 Closed Herd Multiplier Agreement,
dated March 1, 1996, between Pig Improvement
Company, Inc. and the Registrant (filed with the
Registrant's Quarterly Report on Form 10-QSB for
the quarter ended February 28, 1997 as Exhibit
10.2 and incorporated herein by reference)
# 10.20 Option Contract, dated November 20, 1996, between
Bill L. Bailey and Norma Jean Bailey, and the
Registrant (filed with the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended
February 28, 1997 as Exhibit 10.3 and incorporated
herein by reference)
* 10.21 The Registrant's Promissory Note, dated November
27, 1996, to Farmland Industries, Inc.
* 10.22 Amended and Restated Illinois Mortgage, dated as
of November 27, 1996, from the Registrant to
Farmland Industries, Inc.
# 10.23 Correction Deed of Trust, dated October 23, 1996,
between the Public Trustee of the County of Yuma,
State of Colorado and the Registrant (filed with
the Registrant's Quarterly Report on Form 10-QSB
for the quarter ended February 28, 1997 as Exhibit
10.6 and incorporated herein by reference)
# 10.24 Master Construction Agreement, dated November 22,
1996 (Illinois #2 sow unit), between the
Registrant and Central Confinement Service, Ltd.
(filed with the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended February 28,
1997 as Exhibit 10.7 and incorporated herein by
reference)
# 10.25 Master Construction Agreement, dated November 22,
1996 (Illinois #2 nursery), between the Registrant
and Central Confinement Service, Ltd. (filed with
the Registrant's Quarterly Report on Form 10-QSB
for the quarter ended February 28, 1997 as Exhibit
10.8 and incorporated herein by reference)
# 10.26 Master Construction Agreement, dated November 22,
1996 (Illinois #2 isolation building), between the
Registrant and Central Confinement Service, Ltd.
(filed with the Registrant's Quarterly Report on
Form 10-QSB for the quarter ended February 28,
1997 as Exhibit 10.9 and incorporated herein by
reference)
# 10.27 Illinois Mortgage, dated February 23, 1996, from
the Registrant to CoBank, ACB (filed with the
Registrant's Quarterly Report on Form 10-QSB for
the quarter ended February 28, 1997 as Exhibit
10.10 and incorporated herein by reference)
* 10.28 Letter Agreement between the Registrant to CoBank, ACB respecting
the extension of the CoBank credit facility
* 10.29 Form of Weaned Pig Purchase Agreement
* 10.30 Loan Agreement, dated as of November 27, 1996,
between the Registrant and Farmland Industries,
Inc.
* 10.31 Security Agreement, dated as of November 27, 1996,
made by the Registrant to Farmland Industries,
Inc.
* 10.32 Accrued Interest Agreement, dated as of February
28, 1997, between the Registrant and Farmland
Industries, Inc.
* 10.33 Excess Feeder Pig Purchase Agreement, dated as of
February 28, 1997, between the Registrant and
Farmland Industries, Inc.
** 10.34 Form of Class C Weaned Pig Purchase Agreement
** 10.35 Colorado Breeding Farm Side Agreement, dated April
11, 1997, between the Registrant and Farmland
Industries, Inc.
** 10.36 Colorado Breeding Farm Agreement, dated April 11,
1997, between the Registrant, G & G Pork
Producers, LLC and Farmland Industries, Inc.
** 10.37 Colorado Breeding Farm Agreement, dated April 21,
1997, between the Registrant, Triple R and
Farmland Industries, Inc.
** 23.1 Consent of KPMG Peat Marwick LLP, the Registrant's
Independent Public Accountant
** 23.2 Consent of Stinson, Mag & Fizzell, P.C., the
Registrant's counsel, is contained in the Opinion
of Counsel filed as Exhibit 5.1
* 24.1 Power of Attorney (included on the signature page
to this Registration Statement)
# 99.1 Escrow Agreement, dated as of February 17, 1995,
among the Registrant, Doug Brown,
Interstate/Johnson Lane Corporation and
NationsBank, N.A. (Mid-West) (formerly Boatmen's
National Bank) (filed on February 22, 1995 as
Exhibit 99.1 to Amendment No. 2 to the
Registrant's Registration Statement on Form SB-2
(No. 33-86068) and incorporated herein by
reference)
* 99.1.1 Amendment to Escrow Agreement, dated as of
January 31, 1997, among the Registrant, Doug
Brown, Interstate/Johnson Lane Corporation and
NationsBank, N.A. (Mid-West) (formerly Boatmen's
National Bank)
** 99.2 Form of Subscription Agreement
* Filed with the original filing of Registration Statement No. 333-25501
on April 18, 1997.
** Filed herewith.
# Documents filed as exhibits to previous filings of the Registrant under
the Securities Act of 1993 or the Securities Exchange Act of 1934 and
incorporated herein by reference.
Exhibit 1.1
ALLIANCE FARMS COOPERATIVE ASSOCIATION
A COLORADO COOPERATIVE ASSOCIATION
AGENCY AGREEMENT
, 1997
Interstate/Johnson Lane Corporation
121 West Trade Street
Charlotte, North Carolina 28202
Gentlemen:
The undersigned, Alliance Farms Cooperative Association, a Colorado
cooperative association (the "Association"), hereby confirms its agreement with
you as follows:
1. INTRODUCTION.
This Agreement sets forth the understanding and agreement among the
Association and you whereby you will serve as agent for the Association in
connection with the Association's sale, on a best efforts basis, of (a) a
minimum of 17 and a maximum of 51 shares of the Association's (Class A) Common
Stock (the "Class A Shares"), (b) a minimum of 18 and a maximum of 54 shares of
the Association's Class B Common Stock (the "Class B Shares"), and (c) a minimum
of 24 and a maximum of 72 shares of the Association's Class C Common Stock (the
"Class C Shares", and together with the Class A Shares and the Class B Shares,
the "Shares"), at the respective purchase prices and subject to the terms and
conditions set forth in the Prospectus dated , 1997, as amended or
as supplemented if the Association shall have filed with the Securities and
Exchange Commission any amendment thereof or supplement thereto (the
"Prospectus"), relating to the offer and sale of the Shares. The Prospectus is
included in a Registration Statement on Form SB-2 (Registration No. 333-25501)
filed with the Securities and Exchange Commission (the "Registration
Statement"), which Registration Statement has become effective pursuant to
Section 8 of the Securities Act of 1933, as amended, on the date of the
execution of this Agreement. Capitalized terms used herein which are not
otherwise defined shall have the same meanings as provided in the Prospectus.
2. REPRESENTATIONS AND WARRANTIES OF THE ASSOCIATION.
The Association represents and warrants to you and agrees with you
that:
(a) When the Registration Statement became effective and upon the
first delivery of the Prospectus to you, the Prospectus did contain and
will contain, as the case may be, all statements that are required to be
stated therein in accordance with applicable federal and state securities
laws and regulations and in all material respects conforms and will
conform, as the case may be, to the requirements of such laws and
regulations and did not include and will not include, as the case may be,
any untrue statements of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading,
except that no representations or warranties are made with respect to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Association with respect to you, by
you or on your behalf expressly for use in the Prospectus or any amendment
or supplement thereof.
(b) The Association is a cooperative association duly organized and
validly existing pursuant to the Colorado Cooperative Association Law (the
"CAL"), with all corporate authority necessary to conduct its business as
described in all material respects in the Prospectus, subject only to
regulatory approvals as described in the Prospectus. The Association has
been duly organized to function as a cooperative association as described
in all material respects in the Prospectus. The Board of Directors has
authorized the Shares to be issued pursuant to the Registration Statement
and the Prospectus. Provided the requisite minimum number of Subscriptions
are received and accepted by the Association, upon acceptance of such
Subscriptions and payment therefor each such accepted subscriber will
become a shareholder of the Association entitled to all the benefits of a
shareholder under the CAL.
(c) There is no litigation or governmental proceeding pending or to
the Association's knowledge threatened involving the business of the
Association that might materially and adversely affect the value or the
operation of the business or the financial condition of the Association,
except as may be disclosed in the Prospectus.
(d) Any historical financial statements (other than pro forma
financial statements) together with related schedules and notes included in
the Prospectus present fairly the financial position of the subject entity
as of the respective dates and for the respective periods indicated and
such financial statements have been prepared in conformity with generally
accepted accounting principles applied on a basis that is consistent in all
material respects during the periods involved, except as may be disclosed
in the Prospectus.
(e) The Association is not in default which has not been waived in
the performance of any obligation, agreement or condition contained in any
agreement by which the Association is bound. Neither the execution and
delivery of this Agreement nor the consummation of the transactions herein
contemplated, nor compliance with the terms and provisions hereof conflict
with or result in a breach of any of the terms, provisions or conditions of
any agreement or instrument to which the Association is a party or by which
it is bound, or any order, rule or regulation applicable to the Association
of any court or any governmental body or administrative agency having
jurisdiction over the Association.
(f) The Shares conform in all material respects to the description
thereof contained in the Prospectus, and will have been duly and validly
authorized for issuance and, when paid for as described in the Prospectus,
will be validly issued, fully paid and nonassessable.
(g) The person or persons executing this Agreement on behalf of the
Association are duly authorized so to sign, and this Agreement is and will
be a valid, legal and binding agreement of the Association, enforceable in
accordance with its terms, except as rights to indemnity hereunder may be
limited by federal or state securities laws and except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting the rights of creditors generally and subject to
general principles of equity.
(h) No officer or director of the Association or shareholder of the
Association identified under the heading "Principal Stockholders" in the
Prospectus is affiliated with a member of the National Association of
Securities Dealers, Inc., nor is any of those persons subject to "statutory
disqualification" (as defined in Section 3(a)(39) of the Securities
Exchange Act of 1934) regarding any such affiliation, except that Farmland
Industries, Inc., a shareholder of the Association, is affiliated with
Farmland Securities Company, a member of the National Association of
Securities Dealers, Inc.
(i) No affiliate of the Association has received nor is entitled to
receive, directly or indirectly, any compensation or other benefit
including, but not limited to, any commission or similar fee relating to
the investments in or of the Association, except as specifically described
in the Prospectus.
(j) Any additional written or oral information provided to
prospective purchasers of Shares by authorized representatives of the
Association ("Authorized Persons") will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading.
3. AGENT IN CONNECTION WITH OFFERING.
(a) The Association hereby appoints you its non-exclusive agent in
connection with this offering to assist in the sale for the account and
risk of the Association (1) a minimum of 17 and a maximum of 51 Class A
Shares, (2) a minimum of 18 and a maximum of 54 Class B Shares, and (3) a
minimum of 24 and a maximum of 72 Class C Shares. Your appointment
hereunder shall continue from the effective date of this Agreement until
the earlier to occur of (i) the date this Agreement terminates or (ii) the
date the offering is fully subscribed as determined by the Association.
You agree to use your best efforts as agent in connection with this
offering to assist in the sale of such numbers of Class A Shares, Class B
Shares and Class C Shares as contemplated by this Agreement at the
respective prices and subject to the terms and conditions set forth in the
Prospectus; provided, however, that the Association reserves the right to
reject any prospective investor ("Investor") or reduce his Subscription as
provided herein. Subject to the terms and conditions and upon the basis of
the representations and warranties set forth herein, you accept such
appointment and agree to assist in the sale of the Shares. The Company has
reserved the right to sell the Shares directly to Investors on its own
behalf through the efforts of its officers and employees in those
jurisdictions where and in such manner as it is authorized to do so.
(b) Each person desiring to purchase Shares will be required to
complete and execute the Subscription Agreement in the form included in the
Prospectus as Exhibit A thereto and to deliver the Subscription Agreement
to you together with payment of the applicable subscription price (the
"Subscription Documents"). In addition, each subscriber of Class A Shares
must complete and execute a Feeder Pig Purchase Agreement in the form
included in the Prospectus as Exhibit B thereto and to deliver said
agreement to you, each subscriber of Class B Shares must complete and
execute a Weaned Pig Purchase Agreement in the form included in the
Prospectus as Exhibit C thereto and to deliver said agreement to you, and
each subscriber of Class C Shares must complete and execute a Class C
Weaned Pig Purchase Agreement in the form included in the Prospectus as
Exhibit D thereto and to deliver said agreement to you. The subscription
price is payable by delivery of a check or bank draft, or by wire transfer,
in the amount of $80,000.00 per Class A Share subscribed, in the amount of
$60,000.00 per Class B Share subscribed and in the amount of $45,000.00 per
Class C Share subscribed. Checks and bank drafts should be made payable to
the order of "Alliance Farms Cooperative Association Escrow No. 1482300"
and delivered to NationsBank, N.A. (Mid-West) (formerly Boatmen's National
Bank), the Escrow Agent for the Association, at 920 Main Street, 11th
Floor, Corporate Trust Department, Kansas City, Missouri 64105, Attention:
Augusta Nelson.
(c) All sales to Investors will be conditioned upon the receipt of
Subscriptions accepted by the Association for 17 Class A Shares (the
"Minimum Class A Sales"), or an integral multiple thereof, for 18 Class B
Shares (the "Minimum Class B Sales"), or an integral multiple thereof, or
for 24 Class C Shares (the "Minimum Class C Sales"), or an integral
multiple thereof, in each case, on or before , 1998 at 5:00
P.M., Kansas City, Missouri, time (or until , 1999, if the
offering is extended by the Association or a prior date designated by the
Association). The date on which the Association determines that the
offering is to be terminated is herein referred to as the "Termination
Date". If Minimum Class A Sales, Minimum Class B Sales or Minimum Class C
Sales have not been made by the Termination Date, or if the Association has
exercised its discretion, as provided in the Prospectus, to terminate the
offering, this Agreement shall terminate and there shall be returned,
within 30 days of such termination, to Investors who have subscribed for
Shares, their executed Subscription Agreements and Counterpart Signature
Pages, plus any and all other documents executed by the Investors together
with a refund by the Escrow Agent of their subscription payments plus
interest, as provided in the Escrow Agreement.
(d) At the Closing Date, you will direct the Escrow Agent to deliver
to the Association the subscription funds together with accrued interest
thereon and other documents in its possession attributable to subscribers
whose subscription agreements have been accepted in accordance with the
Escrow Agreement. Upon receipt of subscription funds from the Escrow
Agent, the Association will pay all sums then currently due to you.
(e) The term "Closing Date" as used herein shall refer to the date on
which the Escrow Agent transfers funds received from subscribers for Shares
to the Association. The Closing Date may occur on such date or dates as
you and the Association shall agree at any time after you have received,
and the Association has accepted, subscriptions for at least 17 Class A
Shares, at least 18 Class B Shares or at least 24 Class C Shares and final
regulatory approvals have been received as described in the Prospectus.
The right of the Association to receive such funds on the Closing Date is
subject to fulfillment of the conditions of the Escrow Agreement. This
Agreement and the offering of Shares contemplated hereby will terminate on
the earlier of (a) the acceptance and receipt by the Association of
subscriptions for 51 Class A Shares, 54 Class B Shares and 72 Class C
Shares, (b) the Termination Date, or (c) the date on which the Association
exercises its discretion to terminate the offering.
(f) The Shares will be sold only to persons who warrant or represent
that they meet the suitability requirements set forth in the Prospectus and
the Subscription Agreement.
(g) In consideration for your execution of this Agreement, and for
the performance of your obligations hereunder, the Association agrees to
pay or cause to be paid to you a fixed lump sum fee of $40,000 whether or
not a successful closing of the offering contemplated in the Prospectus has
occurred.
4. FURTHER AGREEMENTS OF THE ASSOCIATION.
The Association further agrees that it will:
(a) Deliver to you promptly such number of copies of the Prospectus
as you may reasonably request.
(b) If during the offering of Shares any event relating to or
affecting the Association shall occur as a result of which it is necessary,
in the opinion of the Association's counsel, to amend or supplement the
Prospectus in order to make the Prospectus not misleading in light of the
circumstances existing at the time it is delivered to an Investor, the
Association will forthwith prepare and furnish to you a reasonable number
of copies of an amendment or amendments of, or a supplement or supplements
to, the Prospectus that will amend or supplement the Prospectus so that it
will not contain an untrue statement of a material fact or omit a statement
of material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances existing at the
time the Prospectus is delivered to an Investor, not misleading.
(c) Furnish or make available to you or your counsel any and all
documentation reasonably requested in connection with your due diligence
efforts regarding information in the Prospectus.
5. PAYMENT OF EXPENSES.
The Association will pay all expenses in connection with (i) the
preparation, printing, filing and delivering of the Registration Statement and
the Prospectus, including the cost of all copies thereof and any amendments
thereof or supplements thereto, (ii) the preparation and copying of other
solicitation material and related documents, (iii) filing fees and expenses
necessary to comply with the laws of any state for the offering and sale of the
Shares, including reasonable fees of your counsel, (iv) the fees of the
Association's counsel and accountant, and all reasonable out-of-pocket expenses
incurred by you including fees of counsel in connection with this transaction
whether or not the transactions contemplated herein are consummated.
6. INDEMNIFICATION.
(a) Subject to the conditions set forth below, the Association agrees
to indemnify and hold harmless you and each person, if any, who controls
you within the meaning of Section 15 of the Securities Act of 1933, as
amended (the "1933 Act"), against any and all losses, liabilities, claims,
damages and expenses whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing for,
defending against or settling any litigation, commenced or threatened, or
any claim whatsoever) arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in the Prospectus (as from
time to time amended or supplemented) or arising from the omission or
alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading, unless such
statement or omission was made in reliance upon and in conformity with
written information furnished to the Association by you or on your behalf
expressly for use in the Prospectus or any amendment or supplement thereof,
and will reimburse you and each such controlling person for any legal or
other expenses reasonably incurred by you or any such controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action.
You agree to indemnify and hold harmless the Association and each
person, if any, who controls the Association within the meaning of
Section 15 of the 1993 Act against any and all losses, liabilities, claims,
damages and expenses whatsoever (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing for,
defending against or settling any litigation, commenced or threatened, or
any claim whatsoever) arising out of or based upon any untrue or alleged
untrue statement of a material fact contained in the Prospectus (as from
time to time amended or supplemented) or arising from the omission or
alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading, only to the
extent that such statement or omission was made in reliance upon and in
conformity with written information furnished to the Association by you or
on your behalf expressly for use in the Prospectus or any amendment or
supplement thereof, and will reimburse the Association and each such
controlling person for any legal or other expenses reasonably incurred by
the Association or any such controlling person in connection with
investigating or defending any such loss, claims, damage, liability or
action.
No indemnified party will have any liability (whether direct or
indirect, in contract, tort or otherwise) to the Association for or in
connection with such engagement except for any such liability for losses,
damages, liabilities, expenses or claims incurred by the Association that
result primarily from the indemnified party's bad faith or gross negligence
or as otherwise provided above.
(b) Promptly after receipt by an indemnified party under this section
of notice of the commencement of any action, but in no event later than
fifteen (15) business days after receipt of notice of such commencement,
such indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this section, notify in writing the
indemnifying party of the commencement thereof; and the omission so to
notify the indemnifying party will relieve it from any liability under this
section as to the particular item for which indemnification is then being
sought, but not for any other liability that it may have to any indemnified
party, and if the indemnified party notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein, and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel who shall be to the reasonable satisfaction of such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
section for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation incurred at the written request of the
indemnifying party; provided, however, that if, notwithstanding the
election of an indemnifying party to assume the defense thereof, the
indemnifying party shall not have employed counsel to take charge of the
defense of such action or proceeding or such indemnified party shall have
reasonably concluded that there may be defenses available to it that are
different from or additional to those available to the indemnifying party
(in which case the indemnifying party shall not have the right to direct
the defense of such action or proceeding on behalf of the indemnified
party), then in any such events such legal or other expenses of the
indemnified party shall be borne by the indemnifying party. Any such
indemnifying party shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected without the
consent of such indemnifying party.
(c) Notwithstanding any other provision of this section, you and each
person who controls you within the meaning of Section 15 of the 1933 Act
shall not be indemnified for any violation of federal securities laws
arising out of the offer and sale of the Shares unless (i) such
indemnification is specifically approved by a court of law or equity that
shall have been advised as to the current position of the Securities and
Exchange Commission regarding indemnification for violations of such
securities laws or (ii) such indemnification is for (A) settlement costs
(which may include legal and other expenses) or (B) litigation costs (which
may include legal and other expenses) if a successful defense has been
made.
7. DUE DILIGENCE.
You undertake and represent that you have reasonable grounds to
believe, based on information made available to you by the Association, that all
material facts have been adequately and accurately disclosed and provide a
reasonable basis for evaluating an investment in the Association.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE.
Except as the context otherwise requires, all representations,
warranties and agreements contained in this Agreement shall be deemed to be
representations, warranties and agreements of the Association and shall remain
operative and in full force and effect regardless of any investigation made by
you, or on your behalf, or by any controlling person or by or on behalf of the
Association and shall survive the Closing Date in the event of the closing of
the offering contemplated in the Prospectus, but shall not survive the
Termination Date in the event that Minimum Class A Sales, Minimum Class B Sales
or Minimum Class C Sales are not made prior to the termination of such offering.
9. EFFECTIVE DATE, TERM AND TERMINATION OF AGREEMENT.
(a) This Agreement shall become effective as of the date first
written above. This Agreement shall terminate on the date corresponding to
the occurrence of:
i. The exercise by the Association of its discretion to
terminate the offering prior to the Closing Date; or, if not
so exercised,
ii. The failure to make the Minimum Class A Sales, Minimum Class
B Sales or Minimum Class C Sales by the Closing Date; or, if
such sales are made;
iii. The failure of the Association to receive the regulatory
approvals as contemplated in the Prospectus; or, if such
approvals are granted,
iv. The payment to you of all amounts due under this Agreement.
(b) If this Agreement shall be terminated after Minimum Class A
Sales, Minimum Class B Sales or Minimum Class C Sales are made by reason of
any failure on the part of the Association to perform any undertaking or to
satisfy any condition of this Agreement by it to be performed or satisfied
(the parties hereto understanding that the Association shall not bear any
responsibility for failure of regulatory approvals to be received and that
said failure would not trigger the application of this Subsection (b)), the
Association shall be obligated to pay you the fee and expenses
reimbursement as provided herein but will have no additional liability to
you except for such liabilities, if any, as may exist or thereafter arise
under Section 6 hereof.
10. NOTICES.
(a) All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and if sent to you shall be
mailed by overnight delivery or certified mail, return receipt requested,
postage prepaid, or hand-delivered to:
Interstate/Johnson Lane Corporation
Attention: Mr. James H. Glen, Jr.
121 West Trade Street
Charlotte, NC 28202
If sent to the Association, such communications shall be mailed by
overnight delivery or certified mail, return receipt requested, postage
prepaid, or hand-delivered to:
Alliance Farms Cooperative Association
Attention: Mr. Wayne N. Snyder
3315 North Oak Trafficway
Department 47
Kansas City, MO 64116
with a copy to:
Stinson, Mag & Fizzell, P.C.
Attention: James W. Allen, Esquire
1201 Walnut Street, Suite 2800
Kansas City, MO 64106-6237
(b) A notice shall be deemed to be given by you to the Association or
by the Association to you when it is mailed as provided in Subsection (a)
of this Section 11 or upon hand delivery to the appropriate address.
11. PARTIES.
This Agreement shall inure solely to the benefit of, and shall be
binding upon you, the Association and the controlling persons referred to in
Section 6 hereof, and their respective successors, heirs, legal representatives
and assigns, and no other person shall be construed to have any legal or
equitable right, remedy or claim under or in respect of or by virtue of this
Agreement or any provision herein contained.
12. CONSTRUCTION.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Colorado.
13. ENTIRE AGREEMENT.
This Agreement sets forth the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes and cancels any and all prior agreements and understandings, written
or oral, among the parties hereto with respect to the subject matter.
14. AMENDMENT.
This Agreement may be amended only by a writing signed by all of the
parties hereto. Except as otherwise provided herein, any provision contained in
this Agreement may be waived by any party hereto upon a writing signed by the
party against whom such waiver is sought to be enforced.
15. AGREEMENT.
The foregoing agreement shall be in addition to any rights that any
indemnified party may have at common law or otherwise, and shall be in addition
to any liability which the Association may otherwise have. The Association
hereby consents to personal jurisdiction, service and venue in any court in
which any claim which is subject to this agreement is brought against you or the
Association. This Agreement and the duties, rights and obligations arising
hereunder may be assigned by a party hereto only with the prior written consent
of all other parties hereto.
16. COUNTERPARTS.
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which shall together constitute
one and the same instrument.
If the foregoing correctly sets forth the understanding between you
and the Association, please so indicate in the space provided below for that
purpose, whereupon this letter shall constitute a binding agreement between us.
Sincerely,
ALLIANCE FARMS COOPERATIVE
ASSOCIATION
By:
Wayne N. Snyder
Chairman of the Board
and President
Approved and Agreed to:
INTERSTATE/JOHNSON LANE CORPORATION
By:
James H. Glen, Jr.
Senior Vice President
Date: , 1997
Exhibit 3.1
ARTICLES OF INCORPORATION
OF
ALLIANCE FARMS COOPERATIVE ASSOCIATION
The undersigned, being natural persons, a majority of whom are
residents of the State of Colorado, for the purpose of forming a cooperative
association under Article 55 of Title 7 of the Colorado Revised Statutes, do
hereby adopt the following Articles of Incorporation:
FIRST. Name. The name of the Association is:
ALLIANCE FARMS COOPERATIVE ASSOCIATION
SECOND. Purpose. The purpose for which the Association is formed is
to promote the mutual interests of its members by engaging in any lawful act or
activity for which cooperative associations may be organized under Article 55 of
Title 7 of the Colorado Revised Statutes, including, without limitation, to
erect, maintain and operate swine breeding facilities with all necessary and
convenient appurtenances and equipment, in and about which to engage in the
business of breeding, by artificial insemination or otherwise, buying, selling,
and otherwise dealing in swine.
THIRD. Principal Place of Business and Registered Office and Agent.
(a) Principal Place of Business. The principal place of business of
the Association is 101 South Detroit, Yuma, Colorado 80759.
(b) Registered Office and Agent. The address of the Association's
initial registered office in the State of Colorado is 1675 Broadway, Suite 1200,
Denver, Colorado 80202, and the name of its initial registered agent at such
address is The Corporation Company.
FOURTH. Term. The term for which the Association is to exist is
perpetual.
FIFTH. Directors. The initial number of directors to constitute the
Board of Directors of the Association is four (4), and hereafter the number of
directors to constitute the Board of Directors of the Association shall be fixed
by, or in the manner provided in, the Bylaws; provided, however, that in no
event shall the number of directors constituting the Board of Directors of the
Association be less than three (3) or more than twelve (12). Each director
shall hold such office, unless sooner removed or disqualified, until the next
succeeding annual meeting or until such director's successor is duly elected and
qualified. Each director shall be a member of the Association or the
representative, duly authorized in writing, of a legal entity that is a member
of the Association; provided, however, that more than one director may be a
representative, duly authorized in writing, of the same legal entity that is a
member of the Association.
The names and addresses of the persons to constitute the first Board
of Directors, each of whom shall hold office until the first annual meeting of
members or until such director's respective successor is duly elected and
qualified, are as follows:
Name Address
Wayne N. Snyder 3315 North Oak Trafficway
Kansas City, Missouri 64116
Davey L. Kock 1211 370th Street
Breda, Iowa 51436
V. James Reitz Route 3, Box 106A
Seneca, Kansas 66538
Doug Brown 606 West Beatty Avenue
Yuma, Colorado 80759
SIXTH. Stock and Stockholders.
(a) Capitalization. The authorized capital stock of the
Association is $100.00, divided into 10,000 shares of common stock, of the par
value of one cent ($0.01) per share.
(b) No Preemptive Rights. No holder of any shares of stock of
the Association of any class shall have a preemptive right to acquire unissued
shares of the capital stock of the Association or otherwise be entitled as such,
as a matter of right, to subscribe for or purchase any shares of stock of the
Association of any class, whether now or hereafter authorized or whether issued
for cash, property or services or as a dividend or otherwise, or to subscribe
for or purchase any obligations, bonds, notes, debentures, other securities or
stock convertible into shares of stock of the Association of any class or
carrying or evidencing any right to purchase shares of stock of any class.
SEVENTH. Members.
(a) Authorized Number of Memberships. The authorized number of
memberships is the same number of shares of common stock authorized by these
Articles of Incorporation.
(b) Capital Subscriptions of Members. No capital subscriptions
have been entered into by the incorporators.
(c) Qualifications. Only stockholders of the Association may be
members of the Association, and each stockholder of the Association shall be a
member of the Association.
(d) Voting Rights. Only members of the Association shall have
voting rights. Each member is entitled to one (1) vote, in person or by mail,
for each share of common stock of the Association standing in such member's name
on the transfer books of the Association. Cumulative voting is not permitted in
the election of directors. To the extent permitted by law, any and all actions
to be taken by members of the Association may be approved by a majority of the
votes entitled to be cast with respect thereto by members present, in person or
by mail, at a meeting at which a quorum is present; provided, however, that any
amendment, alteration, change or repeal of any provision of these Articles of
Incorporation, any sale, lease, exchange or other disposition of all or
substantially all of the property and assets of the Association, whether or not
in the usual and regular course of its business, any merger or consolidation of
which the Association is a party and to which the vote of the members is
required by law, and any dissolution or voluntary termination of the
Association, shall first be approved by a two-thirds (2/3) majority of the votes
entitled to be cast with respect thereto by members present, in person or by
mail, at a meeting at which a quorum is present.
(e) Membership Certificates and Transferability. The
Association shall issue to each member a certificate of membership, which shall
also represent shares of common stock of the Association. The Association also
may issue certificates of participation and capital credits as provided in the
Bylaws. Each certificate of membership, together with the shares of common
stock and any capital credits represented thereby, shall not be assignable or
transferable except upon consent of the Board of Directors, and the
Association shall have the right by its Bylaws to limit transfer or assignment
of membership, shares of common stock, capital credits and certificates of
participation and the terms and conditions upon which transfer shall be allowed.
EIGHTH. Incorporators. The names and addresses of the incorporators
are as follows:
Name Address
Mick Daniel 2619 Yorkshire Street
Ft. Collins, Colorado 80526
Fredrick R. Fangmeier 25701 W.C.R. 543
Kersey, Colorado 80644
Paticia A. Rutherford 2609 Buena Vista Drive
Greeley, Colorado 80631
Dennis Eckard 7720 North Grand
Kansas City, Missouri 64118
Dallas Reeve 7809 North Euclid
Kansas City, Missouri 64118
NINTH. Terms and Conditions of Offices and Positions. The
Association may agree to the terms and conditions upon which any director,
officer, employee or agent accepts his or her office or position and in its
Bylaws, by contract or in any other manner, may agree to indemnify and protect
any director, officer, employee or agent of the Association, or any person who
serves at the request of the Association as a director, officer, partner,
trustee, employee, fiduciary or agent of another domestic or foreign corporation
or other person or of an employee benefit plan, to the fullest extent permitted
by the laws of the State of Colorado.
Without limiting the generality of the foregoing provisions of this
Article NINTH, to the fullest extent permitted or authorized by the laws of the
State of Colorado, including, without limitation, the provisions of subsection
(1)(h) of Colorado Revised Statutes section 7-55-107 as now in effect and as may
from time to time hereafter be amended, no director of the Association shall be
personally liable to the Association or to its members or stockholders for
monetary damages for breach of fiduciary duty as a director; provided, however,
that the foregoing shall not eliminate or limit the liability of a director for
(a) any breach of the director's duty of loyalty to the Association or its
members or stockholders, (b) acts or omissions not in good faith or which
involve intentional misconduct or a knowing violations of law, or (c) any
transaction from which the director derived an improper personal benefit. Any
repeal or modification of the elimination and limitation of liability provided
by the immediately preceding sentence shall not adversely affect any right or
protection of a director of the Association existing hereunder with respect to
any act or omission occurring prior to or at the time of such repeal or
modification.
TENTH. Bylaws. The original Bylaws of the Association shall be
adopted in any manner provided by law. Thereafter, the Bylaws of the
Association may from time to time be amended or repealed, or new Bylaws may be
adopted, in any of the following ways: (i) by the members holding a majority of
the votes entitled to be cast with respect thereto by members present, in person
or by mail, at a meeting at which a quorum is present, unless a greater vote is
specified in the Bylaws, or (ii) by a majority of the full Board of Directors,
and any change so made by the members may thereafter be further changed by a
majority of the directors; provided, however, that the power of the Board of
Directors to amend or repeal the Bylaws, or to adopt new Bylaws, (A) may be
denied as to any Bylaws or portion thereof by the members if at the time of
enactment the members shall so expressly provide, and (B) shall not divest the
members of their power, nor limit their power, to amend or repeal the Bylaws, or
to adopt new Bylaws.
ELEVENTH. Identity of Members. Except as may be otherwise provided
by statute, the Association shall be entitled to treat the registered holder of
any shares of the Association as the owner of such shares and of all rights
derived from such shares for all purposes, and the Association shall not be
obligated to recognize any equitable or other claim to or interest in such
shares or rights on the part of any other person, including, but without
limiting the generality of the term "person" to, a purchaser, pledgee, assignee
or transferee of such shares or rights, unless and until such person becomes the
registered holder of such shares. The foregoing shall apply whether or not the
Association shall have either actual or constructive notice of the claim by or
the interest in such person.
TWELFTH. Books. The books of the Association may be kept (subject
to any provision contained in the statutes of the State of Colorado) outside the
State of Colorado at such place or places as may be designated from time to time
by the Board of Directors or in the Bylaws of the Association.
THIRTEENTH. Amendment. The Association reserves the right to amend,
alter, change or repeal any provision contained in these Articles of
Incorporation in the manner now or hereafter prescribed by statute and by
paragraph (d) of Article SEVENTH of these Articles of Incorporation, and all
rights conferred upon stockholders or members herein are granted subject to this
reservation.
FOURTEENTH. Distribution of Earnings. The Association shall
distribute, at least annually, all of the net margins of the Association as
patronage dividends to the patrons of the Association on the basis of quantity
or value of business done with or for such patron as provided in the Bylaws of
the Association. Patronage dividends may be distributed in cash, stock or
capital credits, or any combination thereof, as more fully described in the
Bylaws of the Association. The Bylaws of the Association shall give a detailed
statement of the methods to be followed in distributing earnings or savings.
FIFTEENTH. Seal. The Association shall not have a corporate seal.
[ THE REMAINDER OF THIS PAGE INTENTIONALLY HAS BEEN LEFT BLANK ]
In witness whereof, the above-named incorporators have signed these
Articles of Incorporation this 30th day of April, 1994.
Name: Mick Daniel
Incorporator
Name: Fredrick R. Fangmeier
Incorporator
Name: Patricia A. Rutherford
Incorporator
Name: Dennis Eckard
Incorporator
Name: Dallas Reeve
Incorporator
Exhibit 3.1.1
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ALLIANCE FARMS COOPERATIVE ASSOCIATION
The undersigned, Alliance Farms Cooperative Association, a Colorado
cooperative association (the "Association"), for the purpose of amending the
Articles of Incorporation of the Association in accordance with Article 55 of
Title 7 of the Colorado Revised Statutes, does hereby make and execute these
Articles of Amendment of Articles of Incorporation and does hereby certify that:
1. The name of the Association is Alliance Farms Cooperative Association.
2. The following two resolutions were unanimously approved by the Board
of Directors of the Association and thereafter unanimously approved by the
members of the Association in accordance with the provisions of Section 7-55-109
of the Colorado Revised Statutes and set forth the text of two amendments to the
Articles of Incorporation of the Association:
RESOLVED, that the first paragraph of Article FIFTH of the
Articles of Incorporation of the Association be, and it hereby is,
amended to read in its entirety as follows:
FIFTH. Directors. The initial number of directors to constitute
the Board of Directors of the Association is four (4), and thereafter
the number of directors to constitute the Board of Directors of the
Association shall be fixed by, or in the manner provided in, the
Bylaws; provided, however, that in no event shall the number of
directors constituting the Board of Directors of the Association be
less than three (3) or more than twelve (12). Each director shall
hold such office, unless sooner removed or disqualified, until the
next succeeding annual meeting or until such director's successor is
duly elected and qualified. At least a majority of the directors
constituting the Board of Directors shall be, and less than a majority
of the directors constituting the Board of Directors need not be,
members of the Association or representatives, duly authorized in
writing, of legal entities that are members of the Association;
provided, however, that more than one director may be a
representative, duly authorized in writing, of the same legal entity
that is a member of the Association.
RESOLVED, that subparagraph (d) of Article SEVENTH of the
Articles of Incorporation of the Association be, and it hereby is,
amended to read in its entirety as follows:
(d) Voting Rights. Only members of the Association shall have
voting rights. Each member is entitled to cast one (1) vote, in
person or by mail, with respect to each share of common stock of the
Association standing in such member's name on the transfer books of
the Association; provided, however, in the event that the Association
borrows money from a lender subject to the provisions of 12 C.F.R.
Part 614, as amended from time to time, and that any cooperative
association member holds, at any time during the period in which any
portion of such indebtedness remains outstanding, twenty-five percent
(25%) or more of the issued and outstanding shares of common stock of
the Association, then for voting purposes only, the number of shares
of common stock of the Association with respect to which such member
shall be entitled to vote shall be deemed, during the period of time
that any portion of such indebtedness remains outstanding, to equal an
whole number of shares nearest to, but less than, twenty-five percent
(25%) of the issued and outstanding shares of common stock of the
Association. Cumulative voting is not permitted in the election of
directors. To the extent permitted by law, any and all actions to be
taken by members of the Association may be approved by a majority of
the votes entitled to be cast with respect thereto by members present,
in person or by mail, at a meeting at which a quorum is present;
provided, however, that any amendment, alteration, change or repeal of
any provision of these Articles of Incorporation, any sale, lease,
exchange or other disposition of all or substantially all of the
property and assets of the Association, whether or not in the usual
and regular course of its business, any merger or consolidation of
which the Association is a party and to which the vote of the members
is required by law, and any dissolution or voluntary termination of
the Association, shall first be approved by a two-thirds (2/3)
majority of the votes entitled to be cast with respect thereto by
members present, in person or by mail, at a meeting at which a quorum
is present.
3. The date of the approval of each of the foregoing amendments by the
members of the Association is September 28, 1994.
4. No voting group of members were entitled to vote separately on either
of the foregoing amendments.
IN WITNESS WHEREOF, these Articles of Amendment have been executed by
the Association by its President, and attested to by its Secretary, on October
17, 1994.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By:
Wayne N. Snyder, President
ATTEST:
Dallas Reeve, Secretary
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 17th day of
October, 1994, by Wayne N. Snyder, President of Alliance Farms Cooperative
Association, a Colorado cooperative association, on behalf of the cooperative
association.
Notary Public
My Commission expires: .
Exhibit 3.1.2
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ALLIANCE FARMS COOPERATIVE ASSOCIATION
The undersigned, Alliance Farms Cooperative Association, a Colorado
cooperative association (the "Association"), for the purpose of amending the
Articles of Incorporation of the Association in accordance with Article 55 of
Title 7 of the Colorado Revised Statutes, does hereby make and execute these
Articles of Amendment of Articles of Incorporation and does hereby certify that:
1. The name of the Association is Alliance Farms Cooperative Association.
2. The following three resolutions were unanimously approved by the Board
of Directors of the Association and thereafter approved by the members of the
Association in accordance with the provisions of Section 7-55-109 of the
Colorado Revised Statutes and set forth the text of three amendments to the
Articles of Incorporation of the Association:
RESOLVED, that Article SIXTH of the Articles of Incorporation of
the Association be, and it hereby is, amended by adding a new
subparagraph (c) to said Article which shall be inserted immediately
following the existing subparagraph (b) of said Article, such new
subparagraph (c) to read in its entirety as follows:
(c) No Dividends. No dividends shall be paid on the
outstanding shares of capital stock of the Association.
FURTHER RESOLVED, that subparagraph (c) of Article SEVENTH of the
Articles of Incorporation of the Association be, and it hereby is,
amended to read in its entirety as follows:
(c) Qualifications. Only stockholders of the Association
may be members of the Association, and each stockholder of the
Association shall be (i) a member of the Association, and (ii) a
producer of agricultural products, an association of such
producers or a federation of such associations; provided that
substantially all of the issued and outstanding shares of capital
stock or memberships are owned, held and controlled, directly or
indirectly, by producers of agricultural products.
FURTHER RESOLVED, that Article FOURTEENTH of the Articles of
Incorporation of the Association be, and it hereby is, amended to read
in its entirety as follows:
FOURTEENTH. Distribution of Earnings. The Association
shall distribute, at least annually, all of the net margins of
the Association as patronage dividends to the patrons of the
Association on the basis of quantity or value of business done
with or for such patron as provided in the Bylaws of the
Association. Patronage dividends may be distributed in cash,
stock or capital credits, or any combination thereof, as more
fully described in the Bylaws of the Association. The Bylaws of
the Association shall give a detailed statement of the methods to
be followed in distributing earnings or savings. The quantity or
value of business done by the Association with or for non-members
shall not exceed the quantity or value of business done by the
Association with or for members during any fiscal year of the
Association.
3. The date of the approval of each of the foregoing amendments by the
members of the Association is December 5, 1995.
4. No voting group of members were entitled to vote separately on either
of the foregoing amendments.
IN WITNESS WHEREOF, these Articles of Amendment have been executed by
the Association by its President, and attested to by its Secretary, on December
5, 1995.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By:
Wayne N. Snyder, President
ATTEST:
Doug Brown, Secretary
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 5th day of
December, 1995, by Wayne N. Snyder, President of Alliance Farms Cooperative
Association, a Colorado cooperative association, on behalf of the cooperative
association.
Notary Public
My Commission expires: .
Exhibit 3.1.3
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ALLIANCE FARMS COOPERATIVE ASSOCIATION
The undersigned, Alliance Farms Cooperative Association, a Colorado
cooperative association (the "Association"), for the purpose of amending the
Articles of Incorporation of the Association in accordance with Article 55 of
Title 7 of the Colorado Revised Statutes, does hereby make and execute these
Articles of Amendment of Articles of Incorporation and does hereby certify that:
1. The name of the Association is Alliance Farms Cooperative Association.
2. The following three resolutions were unanimously approved by the Board
of Directors of the Association and thereafter approved by the members of the
Association in accordance with the provisions of Section 7-55-109 of the
Colorado Revised Statutes and set forth the text of three amendments to the
Articles of Incorporation of the Association:
RESOLVED, that subparagraph (a) of Article SIXTH of the Articles
of Incorporation of the Association is amended to read in its entirety
as follows:
(a) Capitalization. The authorized capital stock of the
Association is $100.00, divided into 5,000 shares of common
stock, par value of one cent ($0.01) per share (designated as
"Class A Common Stock"), and 5,000 shares of Class B common
stock, par value of one cent ($0.01) per share (designated as
"Class B Common Stock"). For purposes of these Articles of
Incorporation, Class A Common Stock and Class B Common Stock are
collectively referred to as "common stock". Immediately prior to
the amendment of this subparagraph (a) of Article SIXTH dividing
the authorized capital stock of the Association into two classes,
the authorized capital stock of the Association consisted of
10,000 shares of common stock, par value of one cent ($0.01) per
share, that have been designated "Class A Common Stock" as a
result of such amendment.
Except as otherwise required by law or expressly provided in
these Articles of Incorporation or in the Bylaws, the powers,
preferences and rights of the Class A Common Stock and Class B
Common Stock, and the qualifications, limitations or restrictions
thereof, shall be in all respects identical.
To the extent permitted by law, including Articles 55 and
106 of Title 7 of the Colorado Revised Statutes, the Board of
Directors of the Association is authorized to provide by
resolution for the issuance of shares of stock of any class or of
any series of any class at any time and from time to time and, in
the manner from time to time prescribed under the laws of the
State of Colorado, to determine, prior to the issuance of any
shares of stock of that class or series, the designations,
preferences, limitations and relative rights, if any, thereof
(including, without limitation, those preferences, limitations
and relative rights relating to redemption, dissolution,
conversion and exchange).
RESOLVED, that subparagraph (d) of Article SEVENTH of the
Articles of Incorporation of the Association is amended to read in its
entirety as follows:
(d) Voting Rights. Only members of the Association shall
have voting rights. Each member is entitled to cast one (1)
vote, in person, by mail or, to the extent permitted by law, by
other means approved by the Board of Directors, with respect to
each share of common stock of the Association standing in such
member's name on the transfer books of the Association; provided,
however, (i) in the event that the Association borrows money from
a lender subject to the provisions of 12 C.F.R. Part 614, as
amended from time to time, and any cooperative association member
holds, at any time during the period in which any portion of such
indebtedness remains outstanding, twenty-five percent (25%) or
more of the issued and outstanding shares of common stock of the
Association, then for voting purposes only with respect to any
matter as to which members casting votes with respect to shares
of common stock are not entitled to vote separately as a group or
class, the number of shares of common stock of the Association
with respect to which such member shall be entitled to vote shall
be deemed, during the period of time that any portion of such
indebtedness remains outstanding, to equal an whole number of
shares nearest to, but less than, twenty-five percent (25%) of
the issued and outstanding shares of common stock of the
Association, (ii) in the event that the Association borrows money
from a lender subject to the provisions of 12 C.F.R. Part 614, as
amended from time to time, and any cooperative association member
holds, at any time during the period in which any portion of such
indebtedness remains outstanding, twenty-five percent (25%) or
more of the issued and outstanding shares of Class A Common Stock
of the Association, then for voting purposes only with respect to
any matter as to which members casting votes with respect to
shares of Class A Common Stock are entitled to vote separately as
a group or class, the number of shares of Class A Common Stock of
the Association with respect to which such member shall be
entitled to vote shall be deemed, during the period of time that
any portion of such indebtedness remains outstanding, to equal an
whole number of shares nearest to, but less than, twenty-five
percent (25%) of the issued and outstanding shares of Class A
Common Stock of the Association, and (iii) in the event that the
Association borrows money from a lender subject to the provisions
of 12 C.F.R. Part 614, as amended from time to time, and any
cooperative association member holds, at any time during the
period in which any portion of such indebtedness remains
outstanding, twenty-five percent (25%) or more of the issued and
outstanding shares of Class B Common Stock of the Association,
then for voting purposes only with respect to any matter as to
which members casting votes with respect to shares of Class B
Common Stock are entitled to vote separately as a group or class,
the number of shares of Class B Common Stock of the Association
with respect to which such member shall be entitled to vote shall
be deemed, during the period of time that any portion of such
indebtedness remains outstanding, to equal an whole number of
shares nearest to, but less than, twenty-five percent (25%) of
the issued and outstanding shares of Class B Common Stock of the
Association. Cumulative voting is not permitted in the election
of directors. To the extent permitted by law, any and all
actions to be taken by members of the Association may be approved
by a majority of the votes entitled to be cast with respect
thereto by members present, in person, by mail or, to the extent
permitted by law, by other means approved by the Board of
Directors, at a meeting at which a quorum (determined in
accordance with the Bylaws) is present, with the members casting
votes with respect to shares of Class A Common Stock and the
members casting votes with respect to shares of Class B Common
Stock voting together as a single group or class; provided,
however, that any amendment, alteration, change or repeal of any
provision of these Articles of Incorporation, any sale, lease,
exchange or other disposition of all or substantially all of the
property and assets of the Association, whether or not in the
usual and regular course of its business, any merger or
consolidation of which the Association is a party and to which
the vote of the members is required by law, and any dissolution
or voluntary termination of the Association, shall first be
approved by a two-thirds (2/3) majority of the votes entitled to
be cast with respect thereto by members present, in person, by
mail or, to the extent permitted by law, by other means approved
by the Board of Directors, at a meeting at which a quorum
(including a quorum with respect to any class of capital stock
entitled to vote separately as a group or class) is present; and
provided further, however, that members casting votes with
respect to shares of Class A Common Stock and members casting
votes with respect to shares of Class B Common Stock shall vote
separately as groups or classes with respect to amendments to
these Articles of Incorporation that alter or change the
designation, preferences, limitations or relative rights of their
respective classes of stock so as to affect them adversely and
with respect to such other matters as may require group or class
votes under applicable law, including Articles 55 and 110 of
Title 7 of the Colorado Revised Statutes.
RESOLVED, that Article SEVENTH of the Articles of Incorporation
of the Association is amended by adding a new subparagraph (f) to said
Article which shall be inserted immediately following the existing
subparagraph (e) of said Article, such new subparagraph (f) to read in
its entirety as follows:
(f) Liquidation Rights. In the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding up, of the Association, the assets of the
Association remaining for payment or distribution to holders of
outstanding capital credits and the Association's capital stock
shall be distributed as specified in the Bylaws.
3. The date of the approval of each of the foregoing amendments by the
members of the Association is April 14, 1997.
4. No voting group of members were entitled to vote separately on either
of the foregoing amendments.
IN WITNESS WHEREOF, these Articles of Amendment have been executed by
the Association by its President, and attested to by its Secretary, on April 14,
1997.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By:
Wayne N. Snyder, President
ATTEST:
Doug Brown, Secretary
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 14th day of
April, 1997, by Wayne N. Snyder, President of Alliance Farms Cooperative
Association, a Colorado cooperative association, on behalf of the cooperative
association.
Notary Public
My Commission expires:
Exhibit 3.1.3
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
ALLIANCE FARMS COOPERATIVE ASSOCIATION
The undersigned, Alliance Farms Cooperative Association, a Colorado
cooperative association (the "Association"), for the purpose of amending the
Articles of Incorporation of the Association in accordance with Article 55 of
Title 7 of the Colorado Revised Statutes, does hereby make and execute these
Articles of Amendment of Articles of Incorporation and does hereby certify that:
1. The name of the Association is Alliance Farms Cooperative Association.
2. The following three resolutions were unanimously approved by the Board
of Directors of the Association and thereafter approved by the members of the
Association in accordance with the provisions of Section 7-55-109 of the
Colorado Revised Statutes and set forth the text of three amendments to the
Articles of Incorporation of the Association:
RESOLVED, that subparagraph (a) of Article SIXTH of the Articles
of Incorporation of the Association is amended to read in its entirety
as follows:
(a) Capitalization. The authorized capital stock of the
Association is $100.00, divided into 5,000 shares of common
stock, par value of one cent ($0.01) per share (designated as
"Class A Common Stock"), and 5,000 shares of Class B common
stock, par value of one cent ($0.01) per share (designated as
"Class B Common Stock"). For purposes of these Articles of
Incorporation, Class A Common Stock and Class B Common Stock are
collectively referred to as "common stock". Immediately prior to
the amendment of this subparagraph (a) of Article SIXTH dividing
the authorized capital stock of the Association into two classes,
the authorized capital stock of the Association consisted of
10,000 shares of common stock, par value of one cent ($0.01) per
share, that have been designated "Class A Common Stock" as a
result of such amendment.
Except as otherwise required by law or expressly provided in
these Articles of Incorporation or in the Bylaws, the powers,
preferences and rights of the Class A Common Stock and Class B
Common Stock, and the qualifications, limitations or restrictions
thereof, shall be in all respects identical.
To the extent permitted by law, including Articles 55 and
106 of Title 7 of the Colorado Revised Statutes, the Board of
Directors of the Association is authorized to provide by
resolution for the issuance of shares of stock of any class or of
any series of any class at any time and from time to time and, in
the manner from time to time prescribed under the laws of the
State of Colorado, to determine, prior to the issuance of any
shares of stock of that class or series, the designations,
preferences, limitations and relative rights, if any, thereof
(including, without limitation, those preferences, limitations
and relative rights relating to redemption, dissolution,
conversion and exchange).
RESOLVED, that subparagraph (d) of Article SEVENTH of the
Articles of Incorporation of the Association is amended to read in its
entirety as follows:
(d) Voting Rights. Only members of the Association shall
have voting rights. Each member is entitled to cast one (1)
vote, in person, by mail or, to the extent permitted by law, by
other means approved by the Board of Directors, with respect to
each share of common stock of the Association standing in such
member's name on the transfer books of the Association; provided,
however, (i) in the event that the Association borrows money from
a lender subject to the provisions of 12 C.F.R. Part 614, as
amended from time to time, and any cooperative association member
holds, at any time during the period in which any portion of such
indebtedness remains outstanding, twenty-five percent (25%) or
more of the issued and outstanding shares of common stock of the
Association, then for voting purposes only with respect to any
matter as to which members casting votes with respect to shares
of common stock are not entitled to vote separately as a group or
class, the number of shares of common stock of the Association
with respect to which such member shall be entitled to vote shall
be deemed, during the period of time that any portion of such
indebtedness remains outstanding, to equal an whole number of
shares nearest to, but less than, twenty-five percent (25%) of
the issued and outstanding shares of common stock of the
Association, (ii) in the event that the Association borrows money
from a lender subject to the provisions of 12 C.F.R. Part 614, as
amended from time to time, and any cooperative association member
holds, at any time during the period in which any portion of such
indebtedness remains outstanding, twenty-five percent (25%) or
more of the issued and outstanding shares of Class A Common Stock
of the Association, then for voting purposes only with respect to
any matter as to which members casting votes with respect to
shares of Class A Common Stock are entitled to vote separately as
a group or class, the number of shares of Class A Common Stock of
the Association with respect to which such member shall be
entitled to vote shall be deemed, during the period of time that
any portion of such indebtedness remains outstanding, to equal an
whole number of shares nearest to, but less than, twenty-five
percent (25%) of the issued and outstanding shares of Class A
Common Stock of the Association, and (iii) in the event that the
Association borrows money from a lender subject to the provisions
of 12 C.F.R. Part 614, as amended from time to time, and any
cooperative association member holds, at any time during the
period in which any portion of such indebtedness remains
outstanding, twenty-five percent (25%) or more of the issued and
outstanding shares of Class B Common Stock of the Association,
then for voting purposes only with respect to any matter as to
which members casting votes with respect to shares of Class B
Common Stock are entitled to vote separately as a group or class,
the number of shares of Class B Common Stock of the Association
with respect to which such member shall be entitled to vote shall
be deemed, during the period of time that any portion of such
indebtedness remains outstanding, to equal an whole number of
shares nearest to, but less than, twenty-five percent (25%) of
the issued and outstanding shares of Class B Common Stock of the
Association. Cumulative voting is not permitted in the election
of directors. To the extent permitted by law, any and all
actions to be taken by members of the Association may be approved
by a majority of the votes entitled to be cast with respect
thereto by members present, in person, by mail or, to the extent
permitted by law, by other means approved by the Board of
Directors, at a meeting at which a quorum (determined in
accordance with the Bylaws) is present, with the members casting
votes with respect to shares of Class A Common Stock and the
members casting votes with respect to shares of Class B Common
Stock voting together as a single group or class; provided,
however, that any amendment, alteration, change or repeal of any
provision of these Articles of Incorporation, any sale, lease,
exchange or other disposition of all or substantially all of the
property and assets of the Association, whether or not in the
usual and regular course of its business, any merger or
consolidation of which the Association is a party and to which
the vote of the members is required by law, and any dissolution
or voluntary termination of the Association, shall first be
approved by a two-thirds (2/3) majority of the votes entitled to
be cast with respect thereto by members present, in person, by
mail or, to the extent permitted by law, by other means approved
by the Board of Directors, at a meeting at which a quorum
(including a quorum with respect to any class of capital stock
entitled to vote separately as a group or class) is present; and
provided further, however, that members casting votes with
respect to shares of Class A Common Stock and members casting
votes with respect to shares of Class B Common Stock shall vote
separately as groups or classes with respect to amendments to
these Articles of Incorporation that alter or change the
designation, preferences, limitations or relative rights of their
respective classes of stock so as to affect them adversely and
with respect to such other matters as may require group or class
votes under applicable law, including Articles 55 and 110 of
Title 7 of the Colorado Revised Statutes.
RESOLVED, that Article SEVENTH of the Articles of Incorporation
of the Association is amended by adding a new subparagraph (f) to said
Article which shall be inserted immediately following the existing
subparagraph (e) of said Article, such new subparagraph (f) to read in
its entirety as follows:
(f) Liquidation Rights. In the event of voluntary or
involuntary liquidation, distribution or sale of assets,
dissolution or winding up, of the Association, the assets of the
Association remaining for payment or distribution to holders of
outstanding capital credits and the Association's capital stock
shall be distributed as specified in the Bylaws.
3. The date of the approval of each of the foregoing amendments by the
members of the Association is April 14, 1997.
4. No voting group of members were entitled to vote separately on either
of the foregoing amendments.
IN WITNESS WHEREOF, these Articles of Amendment have been executed by
the Association by its President, and attested to by its Secretary, on April 14,
1997.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By:
Wayne N. Snyder, President
ATTEST:
Doug Brown, Secretary
STATE OF MISSOURI )
) ss.
COUNTY OF JACKSON )
The foregoing instrument was acknowledged before me this 14th day of
April, 1997, by Wayne N. Snyder, President of Alliance Farms Cooperative
Association, a Colorado cooperative association, on behalf of the cooperative
association.
Notary Public
My Commission expires:
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
ALLIANCE FARMS COOPERATIVE ASSOCIATION
ARTICLE I
OFFICES AND RECORDS
1.1 Corporate Offices. The Association may have such corporate
offices and places of business anywhere within or without the State of Colorado
as the Board of Directors may from time to time designate or the business of the
Association may require.
1.2 Registered Office and Resident Agent. The location of the
registered office and the name of the resident agent of the Association in the
State of Colorado shall be as stated in the Articles of Incorporation or as
shall be determined from time to time by resolution of the Board of Directors
and on file in the appropriate public offices of the State of Colorado pursuant
to applicable provisions of law.
1.3 Books, Accounts and Records, and Inspection Rights. The books,
accounts and records of the Association, except as may be otherwise required by
the laws of the State of Colorado, may be kept outside of the State of Colorado,
at such place or places as the Board of Directors may from time to time
determine; provided, however, that the Association shall keep a copy of each of
the following records at its principle office: (a) the Articles of
Incorporation; (b) these Bylaws; (c) the minutes of all members' meetings, and
records of all action taken by members without a meeting, for the then
immediately preceding three years; (d) all written communications within the
then immediately preceding three years to members as a group; (e) a list of the
names and business addresses of the current directors and officers of the
Association; (f) the most recent corporate report delivered to the Colorado
Secretary of State; and (g) all financial statements prepared for periods ending
during the immediately preceding three years. Any member, in person or by
attorney or other agent, upon giving the Association written demand at least
five business days before the date on which the member wishes to inspect or
copy, or both, may inspect or copy, or both, the books, accounts and records of
the Association during regular business hours at any such place permitted by law
as may be specified by the Association, but only for such purposes that entitle
such member to so inspect or copy, or both, as provided by law.
ARTICLE II
MEMBERS
2.1 Limitations and Qualifications. Only producers of agricultural
products, associations of such producers, and federations of such associations,
who have executed and delivered to the Association a Feeder Pig Purchase
Agreement (as defined in Section 3.2 of these Bylaws), may own the capital stock
of the Association. Only stockholders of the Association may be members of the
Association, and each stockholder of the Association shall be a member of the
Association.
2.2 Termination of Membership. In the event that (a) a member (i)
has terminated a Feeder Pig Purchase Agreement between the Association and the
member without having executed and delivered to the Association a replacement
Feeder Pig Purchase Agreement or (ii) fails to be a party to a Feeder Pig
Purchase Agreement with the Association, or (b) the Board of Directors by
resolution finds that a member has (i) intentionally or repeatedly violated any
provision of the Articles of Incorporation or these Bylaws, or (ii) breached a
Feeder Pig Purchase Agreement or materially breached any other contract with the
Association, or (iii) remained indebted to the Association for ninety (90) days
after such indebtedness first became payable, or (iv) willfully obstructed any
lawful purpose or activity of the Association, then the Board of Directors, in
its sole discretion, may terminate such member's membership in and association
with the Association in any manner hereinafter provided.
Any such termination shall be either by (x) purchasing the capital
stock and capital credits of such member by tendering to the member (i) the
lesser of (A) the amount of consideration paid to the Association upon the
issuance of such capital stock, and (B) the book value of such capital stock and
capital credits, less (ii) any indebtedness due the Association by such member,
or (y) purchasing the capital stock and capital credits of such member by
tendering to the member a nonvoting certificate of participation representing
the member's interest at the time of such tender in a face amount equal to the
amount specified in clause (x) of this paragraph. Such nonvoting certificate of
participation shall not be entitled to receive interest, dividends or patronage
distributions. In the event that a termination is effected under either clause
(x) or (y) of this paragraph, the voting stock of said member shall be
cancelled, and said member shall thereafter have no voting rights in the
Association. No action taken hereunder shall impair the obligations or
liabilities of any party under any contract with the Association, except as
otherwise provided in such contract.
In the Board of Directors' sole discretion, the Association may, but
shall not be obligated to, reconvert a nonvoting certificate of participation
into capital stock and capital credits of the Association in the event that the
holder thereof satisfies, or is ready, willing and able to satisfy, the
qualifications of ownership of capital stock of the Association.
2.3 Non-Assessable. The shares of capital stock, certificates of
participation and capital credits of the Association shall be non-assessable.
The Association shall have a first lien upon and setoff rights against the
shares of capital stock, certificates of participation and capital credits
issued to a member for any and all debts and demands owing by said member to the
Association. No shares of capital stock, certificates of participation or
capital credits may be surrendered or redeemed until said member is free of all
indebtedness to the Association.
2.4 Transferability of Equity Interests. The equity interests issued
by the Association may not be assigned or transferred, except upon consent of
the Board of Directors; provided, however, that the Board of Directors shall not
give such consent absent the execution and delivery to the Association of a
Feeder Pig Purchase Agreement by such assignee or transferee.
2.5 Consent Bylaw. Each person who becomes a member of the
Association consents, and membership in the Association shall constitute consent
by a member, that the amount of any distribution with respect to such member's
patronage that is made in qualified written notices of allocation (as defined in
26 U.S.C. 1388), and that is received by such member from the Association, will
be taken into account by such member at its stated dollar amount, in the manner
provided in 26 U.S.C. 1385(a), in the taxable year in which such written notices
of allocation are received by such member.
2.6 Members' Capital Credits. The capital credits issued by the
Association to its members shall be a permanent capital investment on the part
of each member, subject to the redemption herein provided.
2.7 Failure to Pay Subscription Price. If a subscriber to capital
stock to be issued by the Association fails to pay any installment thereon that
may become due, the Association shall have the right to proceed to collect the
amount due in the same manner as any debt due the Association. If such
installment remains unpaid for a period of twenty (20) days after written demand
for payment has been made therefor, the Association shall have the right, to the
extent permitted by law, to cancel such subscription and retain as liquidated
damages all installments that have been paid thereon.
2.8 Place of Meetings. All meetings of the members shall be held at
such place either within or without the State of Colorado as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
2.9 Annual Meetings. An annual meeting of the members of the
Association shall be held at such date and time as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting. At
each such meeting, the members shall elect directors to serve until their
respective successors are duly elected and qualified, or until their respective
earlier resignation or removal. At each annual meeting, the members may
transact such other business as may be desired, whether or not the same was
specified in the notice of the meeting, unless the consideration of such other
business, without its having been specified in the notice of the meeting as one
of the purposes thereof, is prohibited by law.
2.10 Special Meetings. Special meetings of the members may be held
for any purpose or purposes, unless otherwise prohibited by law or by the
Articles of Incorporation, and may be called by the Chairman of the Board, the
President, the Secretary, the Board of Directors, or the members holding, or any
officer or member upon the written request of the members holding, not less than
20% of the outstanding stock entitled to vote at such meeting, and shall be
called by any officer directed to do so by the Board or requested to do so in
writing by a majority of the Board. Such written request shall state the
purpose or purposes of the proposed meeting.
The "call" and the "notice" of any such meeting shall be deemed to be
synonymous.
2.11 Action Without a Meeting. Unless otherwise provided in the
Articles of Incorporation, any action required to be taken at any annual or
special meeting of members of the Association, or any action which may be taken
at any annual or special meeting of such members, may be taken without a
meeting, without prior notice and without a vote, if consent in writing, setting
forth the action so taken, shall be signed by all members entitled to vote
thereon and the writing or writings that evidence such consent are filed with
the minutes of proceedings of members.
2.12 Notice. Written notice of each meeting of the members, whether
annual or special, stating the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes thereof, shall be given to
each member of record of the Association entitled to vote at such meeting,
either personally or by mail, not less than ten (10) days nor more than fifty
(50) days prior to the meeting; provided, however, that if the number of
authorized shares is to be increased, at least thirty (30) days' notice shall be
given. If mailed, such notice shall be deemed to be given when it is deposited
in the United States mail, postage prepaid, directed to the member at such
member's address as it appears on the records of the Association.
2.13 Waiver of Notice. Whenever any notice is required to be given
to any member under any law, the Articles of Incorporation or these Bylaws, a
written waiver thereof, signed by the person entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Attendance by a member at a meeting shall constitute a
waiver of notice of such meeting, except when the member attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the members need be specified in any written
waiver of notice unless so required by the Articles of Incorporation or these
Bylaws.
2.14 Quorum; Voting Requirements. The members holding of a majority
of the outstanding shares of capital stock conferring voting powers, present in
person or represented by mail, shall constitute a quorum at all meetings of the
members for the transaction of any business, except as otherwise provided by
law, the Articles of Incorporation or these Bylaws. In all matters other than
the election of directors, the affirmative vote of the members holding a
majority in amount of the shares of capital stock constituting such quorum shall
be valid as a corporate act, except in those specific instances in which a
larger vote is required by law, the Articles of Incorporation or these Bylaws.
In the election of directors, cumulative voting is not permitted and, unless
otherwise provided by law, directors shall be elected by a plurality vote.
If the members holding a majority of the outstanding shares of capital
stock conferring voting powers are not present in person or represented by mail
at a meeting of members, the members holding a majority of the stock present in
person, but not represented by mail, at such meeting shall have power
successively to adjourn the meeting from time to time to a specified time and
place, without notice to anyone other than an announcement at the meeting at
which such adjournment is taken, until a quorum shall be present in person or
represented by mail. At the subsequent session of the adjourned meeting at
which a quorum is present in person or represented by mail, any business may be
transacted which might have been transacted at the original meeting. If the
adjournment is for more than 30 days, or if after adjournment a new record date
is fixed for the subsequent session of the adjourned meeting, a notice of the
subsequent session of the adjourned meeting shall be given to each member of
record entitled to vote at the meeting.
2.15 Voting. Unless otherwise provided in the Articles of
Incorporation, each member shall have one vote for each share of capital stock
entitled to vote at such meeting registered in such member's name on the books
of the Association including, without limitation, respecting the election of
directors. At all meetings of members the voting may be otherwise than by
ballot, including the election of directors, except that, unless otherwise
provided by the Articles of Incorporation, any member entitled to vote may
request a vote by written ballot on any matter, in which event such vote shall
be taken by written ballot.
2.16 Membership and Stock Ledger. The original or duplicate
membership and stock ledger shall be the only evidence as to who are the members
entitled to examine the membership and stock ledger, the list required under
Section 2.17 of these Bylaws or the books of the Association, or to vote in
person or by mail at any meeting of the members.
2.17 Members' Lists. The Secretary or an Assistant Secretary, who
shall have charge of the membership and stock ledger, shall prepare and make a
complete list of the members entitled to vote at each meeting of the members,
arranged in alphabetical order, and showing the address of each member and the
number of shares registered in the name of each member. Such list shall be
available for inspection by any member during ordinary business hours, for a
period beginning at least ten (10) days prior to the meeting and not later than
two (2) business days after the notice of the meeting is given and continuing
through the meeting, at the principle office of the Association, but only for
such purposes that entitle such member to so inspect as provided by law. The
list also shall be produced and kept at the time and place of the meeting during
the whole time thereof, and may be inspected by any member who is present.
ARTICLE III
BOARD OF DIRECTORS
3.1 Number and Qualification. Unless and until changed by the Board
of Directors as hereinafter provided, the number of directors to constitute the
Board shall be the same as the initial number of directors provided in the
Articles of Incorporation. The Board shall have the power to change from time
to time the number of directors constituting the Board by resolution adopted by
a majority of the total number of directors that the Association would have if
the Board had no vacancies; provided, however, that in no event shall the number
of directors constituting the Board be less than three (3) or more than twelve
(12). Each director shall be a member of the Association or a representative,
duly authorized in writing, of a legal entity that is a member of the
Association; provided, however, that more than one director may be a
representative, duly authorized in writing, of the same legal entity that is a
member of the Association.
3.2 Powers of the Board.
(a) General. The business and affairs of the Association shall
be managed by or under the direction of the Board of Directors. In addition to
the powers and authority by these Bylaws and the Articles of Incorporation
expressly conferred upon it, the Board may exercise all such powers of the
Association, and do all such lawful acts and things, as are not by statute or by
the Articles of Incorporation or by these Bylaws directed or required to be
exercised or done by the members.
(b) Feeder Pig Purchase Agreements. Without limiting the
foregoing, the Association may make uniform feeder pig purchase agreements
("Feeder Pig Purchase Agreements") with its members requiring the members to,
among other things, purchase from the Association feeder pigs that meet
particular minimum weight, management and quality standards; provided, however,
that the application of the terms of the Feeder Pig Purchase Agreements may
result in different prices for the purchase of feeder pigs. The Board of
Directors shall have the power to carry out all agreements of the Association
with its members in every way advantageous to the Association representing the
members collectively and to modify the terms of the form of Feeder Pig Purchase
Agreements so long as each such modification maintains the relative economics of
each member's financing cost per pig as of the date or dates that each such
member's shares of capital stock were issued by the Association.
3.3 Meetings of the Newly Elected Board. The first meeting of the
members of each newly elected Board of Directors shall be held (a) at such time
and place either within or without the State of Colorado as shall be suggested
or provided by resolution of the members of the Association at the meeting at
which such newly elected Board was elected, and no notice of such meeting shall
be necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present, or (b) if not so suggested or
provided for by resolution of the members or if a quorum shall not be present,
at such time and place as shall be consented to in writing by a majority of the
newly elected directors, provided that written or printed notice of such meeting
shall be given to each of the other directors in the same manner as provided in
Section 3.4 of these Bylaws with respect to the giving of notice for special
meetings of the Board except that it shall not be necessary to state the purpose
of the meeting in such notice, or (c) regardless of whether or not the time and
place of such meeting shall be suggested or provided for by resolution of the
members, at such time and place as shall be consented to in writing by all of
the newly elected directors.
Every director of the Association, upon such director's election,
shall qualify by accepting the office of director, and such director's
attendance at, or such director's written approval of the minutes of, any
meeting of the Board subsequent to such director's election shall constitute
such director's acceptance of such office; or such director may execute such
acceptance by a separate writing, which shall be placed in the minute book.
3.4 Notice of Meetings; Waiver of Notice.
(a) Regular Meetings. Regular meetings of the Board of
Directors or any committee thereof may be held without notice at such times and
places either within or without the State of Colorado as from time to time shall
be fixed by resolution adopted by the Board. Any business may be transacted at
a regular meeting.
(b) Special Meetings.
(i) Special meetings of the Board of Directors or any
committee thereof may be called at any time by the Chairman of the Board, the
President, any Vice President, the Secretary, or any of the directors. The
place may be within or without the State of Colorado as designated in the
notice.
(ii) Written notice of each special meeting of the Board of
Directors, stating the place, day and hour of the meeting, shall be mailed to
each director at least three days before the day on which the meeting is to be
held, or shall be sent to the director by telegram or telefacsimile, or
delivered to the director personally, at least two days before the day on which
the meeting is to be held. If mailed, such notice shall be deemed to be
delivered when it is deposited in the United States mail with postage thereon
addressed to the director at the director's residence or usual place of
business. If given by telegraph, such notice shall be deemed to be delivered
when it is delivered to the telegraph company. If given by telefacsimile, such
notice shall be deemed to be delivered when its transmission is confirmed to the
director's telefacsimile at the director's residence or usual place of business.
The notice may be given by any person having authority to call the meeting.
(iii) "Notice" and "call" with respect to such meetings shall
be deemed to be synonymous.
(c) Waiver of Notice. Whenever any notice is required to be
given to any director under any law, the Articles of Incorporation or these
Bylaws, a written waiver thereof, signed by the director entitled to such
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. Attendance by a director at a meeting shall constitute a
waiver of notice of such meeting, except when the director attends a meeting for
the express purpose of objecting, at the beginning of the meeting or promptly
upon such director's later arrival, to the transaction of any business because
the meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
directors or members of a committee of directors need be specified in any
written waiver of notice unless so required by law, the Articles of
Incorporation or these Bylaws.
3.5 Meetings by Conference Telephone or Similar Communications
Equipment. Unless otherwise restricted by law, the Articles of Incorporation or
these Bylaws, members of the Board of Directors of the Association, or any
committee designated by the Board, may participate in a meeting of the Board or
committee by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant hereto shall constitute presence in
person at such meeting.
3.6 Action Without a Meeting. Unless otherwise restricted by law,
the Articles of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or any committee thereof
may be taken without a meeting if written consent thereto is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board or of such
committee.
3.7 Quorum; Voting Requirements.
(a) Unless otherwise required by law, the Articles of
Incorporation or these Bylaws, a majority of the total number of directors shall
constitute a quorum for the transaction of business at any meeting, and the vote
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors.
(b) If at least one-third of the total number of directors is
present at any meeting at which a quorum is not present, a majority of the
directors present at such meeting shall have power successively to adjourn the
meeting from time to time to a subsequent date, without notice to any director
other than announcement at the meeting at which the adjournment is taken. At
such subsequent session of the adjourned meeting at which a quorum is present,
any business may be transacted which might have been transacted at the original
meeting which was adjourned. If the adjournment is for more than 30 days, a
notice of the subsequent session of the adjourned meeting shall be given to each
director.
3.8 Vacancies and Newly Created Directorships. Vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by the sole remaining director, unless it is otherwise
provided in the Articles of Incorporation or these Bylaws, and the directors so
chosen shall hold office until such director's successor is duly elected and
qualified, or until such director's earlier resignation or removal. If there
are no directors in office, then an election of directors may be held in the
manner provided by statute.
3.9 Committees.
(a) The Board of Directors may, by resolution or resolutions
passed by a majority of all of the directors then in office when the action is
taken, unless a greater number of directors is required by law, designate one or
more committees, each committee to consist of one or more directors of the
Association. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee.
(b) In the absence or disqualification of a member of a
committee, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
(c) Any such committee, to the extent provided in the resolution
of the Board of Directors or in these Bylaws, shall have and may exercise all of
the powers and authority of the Board in the management of the business and
affairs of the Association; but no such committee, except as otherwise permitted
by law, shall have the power or authority of the Board to declare or authorize
dividends or patronage distributions (or the composition of patronage
distributions), approve or recommend to the members actions or proposals
required by law to be approved by the members, fill vacancies on the board of
directors or any committee thereof, amend the Articles of Incorporation, amend
or repeal these Bylaws, approve a plan of merger not requiring member approval,
reduce earned or capital surplus, authorize or approve the reacquisition of
shares or capital credits unless pursuant to a general formula or method
specified by the Board, or authorize or approve the issuance or sale of, or any
contract to issue or sell, shares or designate the terms of a series or a class
of shares.
(d) All committees so appointed shall, unless otherwise provided
by the Board of Directors, keep regular minutes of the transactions at their
meetings and shall cause them to be recorded in books kept for that purpose in
the office of the Association and shall report the same to the Board at its next
meeting. The Secretary or an Assistant Secretary of the Association may act as
secretary of the committee if the committee or the Board so requests.
3.10 Compensation. Unless otherwise restricted by law, the Articles
of Incorporation or these Bylaws, the Board of Directors may, by resolution, fix
the compensation to be paid directors for serving as directors of the
Association and may, by resolution, fix a sum which shall be allowed and paid
for attendance at each meeting of the Board and may provide for reimbursement of
expenses incurred by directors in attending each meeting; provided, however,
that nothing herein contained shall be construed to preclude any director from
serving the Association in any other capacity and receiving such person's
regular compensation therefor. Members of standing or temporary committees may
be allowed similar compensation for attending standing or temporary committee
meetings.
3.11 Resignations. Any director may resign at any time upon written
notice to the Association. Such resignation shall take effect at the time
specified therein or shall take effect upon receipt thereof by the Association
if no time is specified therein, and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
3.12 Reliance on Records. In discharging his or her duties, a
director, or a member of any committee designated by the Board of Directors, is
entitled to rely on information, opinions, reports or statements, including
financial statements and other financial data, if prepared or presented by (a)
one or more officers or employees of the Association whom the director
reasonably believes to be reliable and competent in the matters presented, (b)
legal counsel, a public accountant or another person as to matters the director
reasonably believes are within such person's professional or expert competence,
or (c) a committee of the board of directors of which the director is not a
member if the director reasonably believes that the committee merits confidence,
unless the director has knowledge concerning the matter in question that makes
such reliance unwarranted.
ARTICLE IV
OFFICERS
4.1 Designations.
(a) The officers of the Association shall be a Chairman of the
Board, a President, one or more Vice Presidents, a Secretary, a Treasurer, one
or more Assistant Secretaries and one or more Assistant Treasurers. The Board
of Directors shall elect a President, one or more Vice Presidents, a Secretary
and a Treasurer at its first meeting after each annual meeting of the members.
The Board then, or from time to time, also may elect one or more of the other
prescribed officers as it may deem advisable, but need not elect any officers
other than a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Board may, if it desires, elect or appoint additional officers
and may further identify or describe any one or more of the officers of the
Association.
(b) The officers of the Association need not be members of the
Board of Directors. Unless otherwise provided by law or the Articles of
Incorporation, any two or more offices may be held by the same person.
(c) An officer shall be deemed qualified when such person enters
upon the duties of the office to which such person has been elected or appointed
and furnishes any bond required by the Board of Directors; provided, however,
that the Board also may require such person's written acceptance and promise
faithfully to discharge the duties of such office.
4.2 Term of Office. Each officer of the Association shall hold such
person's office at the pleasure of the Board of Directors or for such other
period as the Board may specify at the time of such person's election or
appointment, or until such person's death, resignation or removal by the Board,
whichever first occurs. In any event, each officer of the Association who is
not reelected or reappointed at the annual election of officers by the Board
next succeeding such person's election or appointment shall be deemed to have
been removed by the Board, unless the Board provides otherwise at the time of
such person's election or appointment.
4.3 Other Agents. The Board of Directors from time to time may
appoint such other agents for the Association as it shall deem necessary or
advisable, each of whom shall serve at the pleasure of the Board or for such
period as the Board may specify, and shall exercise such powers, and have such
titles and such duties, responsibilities and authority as shall be determined
from time to time by the Board or by an officer empowered by the Board to make
such determinations.
4.4 Removal. Any officer or agent elected or appointed by the Board
of Directors, and any employee, may be removed or discharged by the Board
whenever in its judgment the best interests of the Association would be served
thereby, but such removal or discharge shall be without prejudice to the
contract rights, if any, of the person so removed or discharged.
4.5 Salaries and Compensation. Salaries and compensation of all
elected officers of the Association shall be fixed, increased or decreased by
the Board of Directors, but this power, except as to the salary or compensation
of the Chairman of the Board and the President, may, unless prohibited by law,
be delegated by the Board to the Chairman of the Board, the President or a
committee. Salaries and compensation of all appointed officers, agents and
employees of the Association may be fixed, increased or decreased by the Board,
but until action is taken with respect thereto by the Board, the same may be
fixed, increased or decreased by the President or such other officer or officers
as may be empowered by the Board to do so.
4.6 Delegation of Authority to Hire, Discharge and Designate Duties.
The Board of Directors from time to time may delegate to the Chairman of the
Board, the President or other officer or executive employee of the Association,
authority to hire and discharge and to fix and modify the duties and salary or
other compensation of employees of the Association under the jurisdiction of
such person, and the Board may delegate to such officer or executive employee
similar authority with respect to obtaining and retaining for the Association
the services of attorneys, accountants and other experts.
4.7 Chairman of the Board. If a Chairman of the Board is elected,
the Chairman of the Board shall preside at all meetings of the members and
directors at which the Chairman of the Board may be present and shall perform
such other duties and have such other powers, responsibilities and authority as
may be prescribed elsewhere in these Bylaws. The Board of Directors may
delegate such other powers, responsibilities and authority and assign such
additional duties to the Chairman of the Board, other than those conferred by
law exclusively upon the President or other officer, as the Board may from time
to time determine, and, to the extent permissible by law, the Board may
designate the Chairman of the Board as the chief executive officer of the
Association with all of the duties, powers, responsibilities and authority
otherwise conferred upon the President of the Association under Section 4.8 of
these Bylaws, or the Board may, from time to time, divide the duties, powers,
responsibilities and authority for the general control and management of the
Association's business and affairs between the Chairman of the Board and the
President.
4.8 President.
(a) Unless the Board of Directors otherwise provides, the
President shall be the chief executive officer of the Association with such
general executive duties, powers, responsibilities and authority of supervision
and management as are usually vested in the office of the chief executive
officer of a corporation, and the President shall carry into effect all
directions and resolutions of the Board. The President, in the absence of the
Chairman of the Board or if there is no Chairman of the Board, shall preside at
all meetings of the members and the Board.
(b) The President may execute all bonds, notes, debentures,
mortgages, contracts and other instruments for and in the name of the
Association.
(c) Unless the Board of Directors otherwise provides, the
President, or any person designated in writing by the President, shall have full
power and authority on behalf of the Association to (i) attend and to vote or
take action at any meeting of the holders of securities of corporations in which
the Association may hold securities, and at such meetings shall possess and may
exercise any and all rights and powers incident to being a holder of such
securities, and (ii) execute and deliver waivers of notice and proxies for and
in the name of the Association with respect to any securities held by the
Association.
(d) The President shall, unless the Board of Directors otherwise
provides, be ex officio a member of all standing committees.
(e) The President shall perform such other duties and have such
other powers, responsibilities and authority as may be prescribed elsewhere in
these Bylaws or from time to time by the Board of Directors.
(f) If a Chairman of the Board is elected and designated as the
chief executive officer of the Association, as provided in Section 4.7 of these
Bylaws, the President shall perform such duties and have such powers,
responsibilities and authority as may be specifically delegated to the President
by the Board of Directors or are conferred by law exclusively upon the President
and, in the absence or disability of the Chairman of the Board or in the event
of the Chairman of the Board's inability or refusal to act, the President shall
perform the duties and exercise the powers of the Chairman of the Board.
4.9 Vice Presidents. In the absence or disability of the President
or in the event of the President's inability or refusal to act, any Vice
President may perform the duties and exercise the powers of the President until
the Board of Directors otherwise provides. Vice Presidents shall perform such
other duties and have such other powers, responsibilities and authority as the
Board may from time to time prescribe.
4.10 Secretary and Assistant Secretaries.
(a) The Secretary shall attend all meetings of the Board of
Directors and all meetings of the members, shall prepare minutes of all
proceedings at such meetings and shall preserve them in a minute book of the
Association. The Secretary shall perform similar duties for each standing or
temporary committee when requested by the Board or such committee.
(b) The Secretary shall see that all books, records, lists and
information, or duplicates, required to be maintained in the State of Colorado,
or elsewhere, are so maintained.
(c) The Secretary shall have the general duties, powers,
responsibilities and authority of a secretary of a corporation and shall perform
such other duties and have such other powers, responsibilities and authority as
may be prescribed elsewhere in these Bylaws or from time to time by the Board of
Directors or the chief executive officer of the Association, under whose direct
supervision the Secretary shall be.
(d) In the absence or disability of the Secretary or in the
event of the Secretary's inability or refusal to act, any Assistant Secretary
may perform the duties and exercise the powers of the Secretary until the Board
of Directors otherwise provides. Assistant Secretaries shall perform such other
duties and have such other powers, responsibilities and authority as the Board
may from time to time prescribe.
4.11 Treasurer and Assistant Treasurers.
(a) The Treasurer shall have responsibility for the safekeeping,
supervision and custody of the funds and securities of the Association, shall
keep or cause to be kept full and accurate accounts of receipts and
disbursements in books belonging to the Association and shall keep or cause to
be kept all other books of account and accounting records of the Association.
The Treasurer shall deposit or cause to be deposited all moneys and other
valuable effects in the name and to the credit of the Association in such
depositories as may be designated by the Board of Directors or by any officer of
the Association to whom such authority has been granted by the Board.
(b) The Treasurer shall disburse, or permit to be disbursed, the
funds of the Association as may be ordered, or authorized generally, by the
Board of Directors, and shall render to the chief executive officer of the
Association and the directors, whenever they may require, an account of all
transactions as Treasurer, and of those under the Treasurer's jurisdiction, and
of the financial condition of the Association.
(c) The Treasurer shall have the general duties, powers,
responsibilities and authority of a treasurer of a Association and shall, unless
otherwise provided by the Board of Directors, be the chief financial and
accounting officer of the Association. The Treasurer shall perform such other
duties and shall have such other powers, responsibilities and authority as may
be prescribed elsewhere in these Bylaws or from time to time by the Board.
(d) If required by the Board of Directors, the Treasurer shall
give the Association a bond in a sum and with one or more sureties satisfactory
to the Board for the faithful performance of the duties of the Treasurer's
office and for the restoration to the Association, in the case of the
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Treasurer's
possession or under the Treasurer's control which belong to the Association.
(e) In the absence or disability of the Treasurer or in the
event of the Treasurer's inability or refusal to act, any Assistant Treasurer
may perform the duties and exercise the powers of the Treasurer until the Board
of Directors otherwise provides. Assistant Treasurers shall perform such other
duties and have such other powers, responsibilities and authority as the Board
may from time to time prescribe.
4.12 Duties of Officers May Be Delegated. If any officer of the
Association is absent or unable to act, or for any other reason that the Board
of Directors may deem sufficient, the Board may delegate, for the time being,
some or all of the functions, duties, powers, responsibilities and authority of
any officer to any other officer, or to any other agent or employee of the
Association or other responsible person, provided a majority of the total number
of directors concurs.
4.13 Reliance on Records. To the extent permitted by law, in
discharging his or her duties, an officer is entitled to rely on information,
opinions, reports or statements, including financial statements and other
financial data, if prepared or presented by (a) one or more officers or
employees of the Association whom the officer reasonably believes to be reliable
and competent in the matters presented, or (b) legal counsel, a public
accountant or another person as to matters the officer reasonably believes are
within such person's professional or expert competence, unless the director has
knowledge concerning the matter in question that makes such reliance
unwarranted.
ARTICLE V
LIABILITY AND INDEMNIFICATION
5.1 Limitation of Liability. No person shall be liable to the
Association or its members for any loss, damage, liability or expense suffered
by the Association on account of any action taken or omitted to be taken by such
person as a director or officer if (a) such person conducted himself or herself
in good faith, (b) such person reasonably believed (i) in the case of conduct in
an official capacity, that such person's conduct was in the Association's best
interests, and (ii) in all other cases, that such person's conduct was at least
not opposed to the Association's best interests, and (c) in the case of any
criminal proceeding, such person had no reasonable cause to believe such
person's conduct was unlawful.
5.2 Indemnification, Generally. In addition to and without limiting
the rights to indemnification and advancement of expenses specifically provided
for in the other Sections of this Article V, the Association shall indemnify and
advance expenses to each director or officer of the Association to the full
extent permitted by the laws of the State of Colorado as in effect on the date
of the adoption of these Bylaws and as may hereafter be amended.
5.3 Indemnification. The Association shall indemnify each person
made a party to a proceeding because the person is or was a director or officer
against liability incurred in the proceeding if (a) such person conducted
himself or herself in good faith, (b) such person reasonably believed (i) in the
case of conduct in an official capacity, that such person's conduct was in the
Association's best interests, and (ii) in all other cases, that such person's
conduct was at least not opposed to the Association's best interests, and (c) in
the case of any criminal proceeding, such person had no reasonable cause to
believe such person's conduct was unlawful; provided, however, that the
Association shall not indemnify a director or officer (x) in connection with a
proceeding by or in the right of the Association in which the director or
officer was adjudged liable to the Association, or (y) in connection with any
other proceeding charging that the director or officer derived an improper
personal benefit, whether or not involving action in an official capacity, in
which proceeding such person was adjudged liable on the basis that such person
derived an improper personal benefit; further provided, however, that
indemnification under this Section in connection with a proceeding by or in the
right of the Association is limited to reasonable expenses incurred in
connection with the proceeding. The conduct of a director or officer with
respect to an employee benefit plan for a purpose such person reasonably
believed to be in the interests of the participants in or beneficiaries of the
plan is conduct that satisfies the requirement of subsection (b)(ii) of this
Section. The conduct of a director or officer with respect to an employee
benefit plan for a purpose that such person did not reasonably believe to be in
the interests of the participants in or the beneficiaries of the plan shall be
deemed not to satisfy the requirements of subsection (a) of this Section. The
termination of a proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent is not, of itself, determinative that
the director or officer did not meet the standard of conduct described in this
Section.
5.4 Mandatory Indemnification. The Association shall indemnify each
person who was wholly successful, on the merits or otherwise, in the defense of
any proceeding to which the person was a party because the person is or was a
director or officer, against reasonable expenses incurred by such person in
connection with the proceeding.
5.5 Expenses. The Association may pay for or reimburse the
reasonable expenses incurred by a director or officer who is a party to a
proceeding in advance of final disposition of the proceeding if (a) such person
furnishes to the Association a written affirmation of such person's good faith
belief that such person has met the standard of conduct described in Section 5.3
of these Bylaws, (b) such person furnishes to the Association a written
undertaking, executed personally or on such person's behalf, to repay the
advance if it is ultimately determined that such person did not meet the
standard of conduct, which undertaking shall be an unlimited general obligation
of such person but need not be secured and may be accepted without reference to
financial ability to make repayment, and (c) a determination is made that the
facts then known to those making the determination would not preclude
indemnification under this Article V. Determinations and authorizations of
payments under this Section shall be made in the manner specified in Section 5.6
of these Bylaws.
5.6 Determination of Right to Indemnification.
(a) The Association shall not indemnify a director or officer
under Section 5.3 of these Bylaws unless authorized in the specific case after a
determination has been made that indemnification of such person is permissible
in the circumstances because such person has met the standard of conduct set
forth in Section 5.3 of these Bylaws. The Association shall not advance
expenses to a director or officer under Section 5.5 of these Bylaws unless
authorized in the specific case after (i) the written affirmation and
undertaking required by subsections (a) and (b) of Section 5.5 of these Bylaws
are received, and (ii) a determination required by subsection (c) of Section 5.5
of these Bylaws has been made.
(b) The determinations required by subsection (a) of this
Section shall be made (i) by the Board of Directors by a majority vote of those
present at a meeting at which a quorum is present, and only those directors not
parties to the proceeding shall be counted in satisfying the quorum, or (ii) if
such quorum cannot be obtained, by a majority vote of a committee of the Board
designated by the Board, which committee shall consist of two or more directors
not parties to the proceeding (except that directors who are parties to the
proceeding may participate in the designation of directors for the committee).
(c) If a quorum cannot be obtained as contemplated by subsection
(b)(i) of this Section, and a committee cannot be established under subsection
(b)(ii) of this Section, or, even if a quorum is obtained or a committee
designated, if a majority of the directors constituting such quorum or such
committee so directs, the determination required to made by subsection (a) of
this Section shall be made (i) by independent legal counsel selected by a vote
of the Board or the committee in the manner specified in subsection (b) of this
Section, (ii) if a quorum of the full Board cannot be obtained and a committee
cannot be established, by independent legal counsel selected by a majority vote
of the full Board, or (iii) by the members.
(d) Authorization of indemnification and advance of expenses
shall be made in the same manner as the determination that the indemnification
or advance of expenses is permissible; provided, however, that if the
determination that indemnification or advance of expenses is permissible is made
by independent legal counsel, authorization of indemnification and advance of
expenses shall be made by the body that selected such counsel.
5.7 Non-Exclusivity. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Article V shall not be exclusive of
any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any statute, the Articles of Incorporation, these
Bylaws or any agreement, vote of members or disinterested directors, policy of
insurance or otherwise, both as to action in their official capacity and as to
action in another capacity while holding their respective offices, and shall not
limit in any way any right which the Association may have to make additional
indemnifications with respect to the same or different persons or classes of
persons.
5.8 Insurance. Upon resolution passed by the Board of Directors, the
Association may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee, fiduciary or agent of the Association, or
is or was serving at the request of the Association as a director, officer,
partner, trustee, employee, fiduciary or agent of another domestic or foreign
corporation or other person or of an employee benefit plan, against liability
asserted against or incurred by such person in that capacity, or arising from
such person's status as a director, officer, employee, fiduciary or agent,
whether or not the Association would have the power to indemnify such person
against such liability under the provisions of this Article V.
5.9 Vesting of Rights. The rights granted by this Article V shall be
vested in each person entitled to indemnification hereunder as a bargained-for,
contractual condition of such person's serving or having served as a director or
officer, and while this Article V may be amended or repealed, no such amendment
or repeal shall release, terminate or adversely affect the rights of such person
under this Article V with respect to any act taken or the failure to take any
act by such person prior to such amendment or repeal or with respect to any
proceeding with respect to such act or failure to act filed after such amendment
or repeal.
5.10 Definitions. For purposes of this Article V, references to:
(a) "the Association" includes any domestic or foreign entity
that is a predecessor of the Association by reason of a merger or other
transaction in which the predecessor's existence ceased upon consummation of the
transaction;
(b) "director or officer" means an individual who is or was a
director or officer of the Association or an individual who, while a director or
officer of the Association, is or was serving at the Association's request as a
director, officer, partner, trustee, employee, fiduciary or agent of another
domestic or foreign corporation or other person or of an employee benefit plan.
A director or officer is considered to be serving an employee benefit plan at
the Association's request if such person's duties to the Association also impose
duties on, or otherwise involve services by, the director or officer to the plan
or to participants in or beneficiaries of the plan. "Director or officer"
includes, unless the context requires otherwise, the estate or personal
representative of a director or officer;
(c) "expenses" includes counsel fees;
(d) "liability" means the obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty, fine, including an excise tax
assessed with respect to an employee benefit plan, or reasonable expenses;
(e) "official capacity" means, when used with respect to a
director, the office of director in the Association and, when used with respect
to an officer, the office in the Association held by the officer. "Official
capacity" does not include service for any other domestic or foreign corporation
or other person or employee benefit plan;
(f) "party" includes a person who was, is, or is threatened to
be made a named defendant or respondent in a proceeding; and
(g) "proceeding" means any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal.
5.11 Severability. If any provision of this Article V or the
application of any such provision to any person or circumstance is held invalid,
illegal or unenforceable for any reason whatsoever, the remaining provisions of
this Article V and the application of such provisions to other persons or
circumstances shall not be affected thereby and, to the fullest extent possible,
the court finding such provision invalid, illegal or unenforceable shall modify
and construe the provision so as to render it valid and enforceable as against
all persons or entities and to give the maximum possible protection to persons
subject to indemnification hereby within the bounds of validity, legality and
enforceability. Without limiting the generality of the foregoing, if any
director or officer is entitled under any provision of this Article V to
indemnification by the Association for some or a portion of the judgments,
amounts paid in settlement, attorneys' fees, ERISA excise taxes or penalties,
fines or other expenses actually and reasonably incurred by any such person in
connection with any proceeding, but not, however, for all of the total amount
thereof, the Association shall nevertheless indemnify such person for the
portion thereof to which such person is entitled.
5.12 Notice to Members. In the event that the Association
indemnifies or advances expenses to a director or officer under this Article V
in connection with a proceeding by or in the right of the Association, the
Association shall give written notice of the indemnification or advance to the
members with or before the notice of the next members' meeting or, if the next
member action is taken without a meeting at the instigation of the Board of
Directors, such notice shall be given to the members at or before the time the
first member signs a writing consenting to such action.
ARTICLE VI
MEMBERSHIP AND STOCK
6.1 Certificates Representing Membership and Shares of Stock.
Certificates representing membership and shares of capital stock of the
Association shall be issued in numerical order, and each member shall be
entitled to a certificate signed by, or in the name of the Association by, the
Chairman of the Board or the President or a Vice President, and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying
such member's membership in the Association and the number of shares owned by
such member. To the extent permitted by statute, any or all of the signatures
on such certificate may be a facsimile. In the event that any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, such certificate may nevertheless
be issued by the Association with the same effect as if such officer, transfer
agent or registrar who signed such certificate, or whose facsimile signature
shall have been placed thereon, were such officer, transfer agent or registrar
of the Association at the date of issue.
6.2 Transfers of Membership and Stock. Transfers of membership and
stock shall be made only upon the transfer books of the Association, kept at the
office of the Association or of the transfer agent designated to transfer
membership and stock, and before a new certificate is issued the old certificate
shall be surrendered for cancellation, subject to the provisions of Section 6.6
of these Bylaws. Until and unless the Board of Directors appoints some other
person, firm or corporation as the Association's transfer agent (and upon the
revocation of any such appointment, thereafter until a new appointment is
similarly made), the Secretary of the Association shall be the transfer agent of
the Association without the necessity of any formal action of the Board, and the
Secretary, or any person designated by the Secretary, shall perform all of the
duties of such transfer agent.
6.3 Registered Members. Only members whose names are registered in
the membership and stock ledger shall be entitled to be treated by the
Association as members and as holders and owners in fact of the shares standing
in their respective names, and the Association shall not be bound to recognize
any equitable or other claim to or interest in such shares on the part of any
other person, whether or not it shall have express or other notice thereof,
except as expressly provided by the laws of the State of Colorado.
6.4 Record Date.
(a) Members' Meetings. In order that the Association may
determine the members entitled to notice of or to vote at any meeting of members
or any adjournment thereof, the Board of Directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board, and which record date shall not be more
than fifty (50) nor less than ten (10) days before the date of such meeting. If
no record date is fixed by the Board, the record date for determining members
entitled to notice of or to vote at a meeting of members shall be at the close
of business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of members of record entitled to
notice of or to vote at a meeting of members shall apply to any adjournment of
the meeting except that the Board may fix a new record date for the adjourned
meeting, which it shall do if the meeting is adjourned to a date more than 120
days after the date fixed for the original meeting.
(b) Consent of Members to Action Without a Meeting. Unless
otherwise provided by law, the record date for determining the members entitled
to consent to corporate action in writing without a meeting is the date a
writing upon which the action is taken pursuant to Section 2.11 of these Bylaws
is first received by the Association.
(c) Dividends and Other Distributions. In order that the
Association may determine the members entitled to receive payment of any
dividend, patronage distribution, or other distribution or allotment of any
rights or the members entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall not be more than 50 days prior to such action. If
no record date is fixed, the record date for determining members for any such
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto.
6.5 Regulations. The Board of Directors shall have power and
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, conversion and registration of certificates of
membership and nonvoting certificates of participation of the Association, not
inconsistent with the laws of the State of Colorado, the Articles of
Incorporation or these Bylaws.
6.6 Lost Certificates. The Board of Directors may direct that a new
certificate or certificates be issued in place of any certificate or
certificates theretofore issued by the Association, alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate or certificates to be lost, stolen or destroyed. When
authorizing the issue of such replacement certificate or certificates, the Board
may, in its discretion and as a condition precedent to the issuance thereof,
require the owner of such allegedly lost, stolen or destroyed certificate or
certificates, or such person's legal representative, to give the Association a
bond in such sum as it may direct to indemnify the Association against any claim
that may be made against it on account of the alleged loss, theft or destruction
of the certificate or certificates or the issuance of such new certificate or
certificates.
ARTICLE VII
CORPORATE FINANCE
7.1 Dividends. No dividends shall be paid on the outstanding shares
of capital stock of the Association.
7.2 Creation of Reserves. The Board of Directors may set apart out
of any of the funds of the Association a reserve or reserves for any proper
purpose and may abolish any such reserve, except as otherwise provided by law.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Fiscal Year. The Board of Directors shall have power to fix and
from time to time change the fiscal year of the Association. In the absence of
action by the Board, the fiscal year of the Association shall end each year on
the date which the Association treated as the close of its first fiscal year
until such time, if any, as the fiscal year shall be changed by the Board.
8.2 Corporate Seal. The Association shall not have a corporate seal.
8.3 Depositories. The moneys of the Association shall be deposited
in the name of the Association in such bank or banks or other depositories as
the Board of Directors shall designate, and shall be drawn out only by check or
draft signed by persons designated by resolution adopted by the Board.
Notwithstanding the foregoing, the Board may by resolution authorize an officer
or officers of the Association to designate any bank or banks or other
depositories in which moneys of the Association may be deposited, and to
designate the persons who may sign checks or drafts on any particular account or
accounts of the Association, whether created by direct designation of the Board
or by an authorized officer or officers as aforesaid.
8.4 Contracts. The Board of Directors may authorize any officer or
officers, or agent or agents, to enter into any contract or execute and deliver
any instrument for and in the name of the Association, and such authority may be
general or confined to specific instances.
8.5 Amendments. These Bylaws may be altered, amended or repealed, or
new Bylaws may be adopted, in the manner provided in the Articles of
Incorporation; provided, however, that any alteration, amendment or repeal of
this Section 8.5 or Section 2.1, 2.2, 2.3, 2.4 or 2.5 of these Bylaws shall
first be approved by a two-thirds (2/3) majority of the votes entitled to be
cast with respect thereto by members present, in person or by mail, at a meeting
at which a quorum is present.
ARTICLE IX
DISTRIBUTIONS AND ALLOCATIONS OF PATRONAGE EARNINGS
9.1 Net Margins and Patronage Distributions. The Association shall
annually distribute as patronage distributions to its member-patrons all of its
net margins realized by the Association on its patronage sourced income. The
Association's net margins are equal to the Association's Federal taxable income
realized by the Association from patronage sourced business done with or for its
member-patrons, computed before the reduction for patronage distributions paid
by the Association hereunder. The Association may pay such patronage
distributions to its patrons in cash, qualified written notices of allocation,
non-qualified written notices of allocation or any combination thereof. The
written notices of allocation shall be issued by the Association in the form of
capital credits. The Association shall maintain appropriate records as to the
capital credits of each member and the year in which such capital credits are
credited to each such member.
9.2 Apportionment to Member-Patrons. The net margins shall be deemed
to be the member-patrons' net margins. All of the member-patrons' net margins
shall, as received by this Association, belong to and be held for them and shall
be apportioned among them on a patronage basis at the close of each fiscal year.
9.3 Computation. The allocation of the net margins among the member-
patrons shall be made on the basis of or in proportion to the amount or value of
the business done with or for the member-patrons.
9.4 Redemption of Capital Credits. If, at any time prior to the
dissolution or liquidation of the Association, the Board of Directors shall
determine that the financial condition of the Association will not be impaired,
the Association may retire, in full or in part, the Association's outstanding
capital credits. Any such retirement of capital credits shall be made, on a pro
rata basis, in the order of priority according to the year in which the capital
credits were credited to the members.
9.5 Dissolution or Liquidation. In the event of the dissolution or
liquidation of the Association, the Association shall distribute its assets in
the following order of priority: (1) to the payment of debts and liabilities of
the Association; (2) to setting up such reserves as the Board of Directors shall
determine to be reasonably necessary or appropriate for any contingent or
unforeseen liabilities or obligations of the Association; (3) to the payment of
outstanding capital credits without priority on a pro rata basis; and (4) pro
rata to based upon the ownership of stock.
CERTIFICATE
The undersigned Secretary of Alliance Farms Cooperative Association, a
Colorado cooperative association, hereby certifies that the foregoing Bylaws are
the amended and restated Bylaws of the Association adopted by the sole member of
the Association.
Dated: July 13, 1994.
Dallas Reeve, Secretary
Exhibit 3.2
AMENDED AND RESTATED
BYLAWS
OF
ALLIANCE FARMS COOPERATIVE ASSOCIATION
As adopted on July 13, 1994.
TABLE OF CONTENTS
Page
ARTICLE I. OFFICES AND RECORDS
1.1 Corporate Offices ........................... 1
1.2 Registered Office and Resident Agent ........ 1
1.3 Books, Accounts and Records, and Inspection
Rights .................................... 1
ARTICLE II. MEMBERS
2.1 Limitations and Qualifications............... 2
2.2 Termination of Membership.................... 2
2.3 Non-Assessable .............................. 3
2.4 Transferability of Equity Interests ......... 3
2.5 Consent Bylaw ............................... 3
2.6 Members' Capital Credits .................... 3
2.7 Failure to Pay Subscription Price ........... 3
2.8 Place of Meetings ........................... 4
2.9 Annual Meetings ............................. 4
2.10 Special Meetings ............................ 4
2.11 Action Without a Meeting .................... 4
2.12 Notice ...................................... 4
2.13 Waiver of Notice ............................ 5
2.14 Quorum; Voting Requirements ................. 5
2.15 Voting ...................................... 6
2.16 Membership and Stock Ledger ................. 6
2.17 Members' Lists .............................. 6
ARTICLE III. BOARD OF DIRECTORS
3.1 Number and Qualification..................... 6
3.2 Powers of the Board ......................... 7
3.3 Meetings of Newly Elected Board ............. 7
3.4 Notice of Meetings; Waiver of Notice ........ 8
3.5 Meetings by Conference Telephone or
Similar Communications Equipment .......... 9
3.6 Action Without a Meeting .................... 9
3.7 Quorum; Voting Requirements ................. 9
3.8 Vacancies and Newly Created Directorships ... 10
3.9 Committees .................................. 10
3.10 Compensation ................................ 11
3.11 Resignations ................................ 11
3.12 Reliance on Records ......................... 11
ARTICLE IV. OFFICERS
4.1 Designations ................................ 12
4.2 Term of Office .............................. 12
4.3 Other Agents ................................ 12
4.4 Removal ..................................... 13
4.5 Salaries and Compensation ................... 13
4.6 Delegation of Authority to Hire, Discharge
and Designate Duties ...................... 13
4.7 Chairman of the Board ....................... 13
4.8 President ................................... 14
4.9 Vice Presidents ............................. 14
4.10 Secretary and Assistant Secretaries ......... 15
4.11 Treasurer and Assistant Treasurers .......... 15
4.12 Duties of Officers May Be Delegated ......... 16
4.13 Reliance on Records ......................... 16
ARTICLE V. LIABILITY AND INDEMNIFICATION
5.1 Limitation of Liability ..................... 17
5.2 Indemnification, Generally .................. 17
5.3 Indemnification ............................. 17
5.4 Mandatory Indemnification ................... 18
5.5 Expenses .................................... 18
5.6 Determination of Right to Indemnification ... 18
5.7 Non-Exclusivity ............................. 19
5.8 Insurance ................................... 19
5.9 Vesting of Rights ........................... 20
5.10 Definitions ................................. 20
5.11 Severability ................................ 21
5.12 Notice to Members ........................... 21
ARTICLE VI. MEMBERSHIP AND STOCK
6.1 Certificates Representing Membership and
Shares of Stock ........................... 21
6.2 Transfers of Membership and Stock ........... 22
6.3 Registered Members .......................... 22
6.4 Record Date ................................. 22
6.5 Regulations ................................. 23
6.6 Lost Certificates ........................... 23
ARTICLE VII. CORPORATE FINANCE
7.1 Dividends ................................... 24
7.2 Creation of Reserves ........................ 24
ARTICLE VIII. GENERAL PROVISIONS
8.1 Fiscal Year ................................. 24
8.2 Corporate Seal .............................. 24
8.3 Depositories ................................ 24
8.4 Contracts ................................... 24
8.5 Amendments .................................. 25
ARTICLE IX. DISTRIBUTIONS AND ALLOCATIONS OF
PATRONAGE EARNINGS
9.1 Net Margins and Patronage Distributions ..... 25
9.2 Apportionment to Member-Patrons ............. 25
9.3 Computation ................................. 25
9.4 Redemption of Capital Credits ............... 25
9.5 Dissolution or Liquidation .................. 26
Exhibit 3.2.1
AMEMDMENTS
TO
AMENDED AND RESTATED BYLAWS
OF
ALLIANCE FARMS COOPERATIVE ASSOCIATION
I. The first paragraph of Section 2.14 and Section 3.1 of the Amended and
Restated Bylaws of Alliance Farms Cooperative Association (the "Association")
were amended and restated by the Board of Directors in a statement of unanimous
consent dated September 12, 1994, effective upon the effectuation of the
amendments to subparagraph (d) of Article SEVENTH and the first paragraph of
Article FIFTH of the Articles of Incorporation of the Association, as follows:
2.14 Quorum; Voting Requirements. The members holding a majority of
the outstanding shares of capital stock conferring voting powers, present
in person or represented by mail, shall constitute a quorum at all meetings
of the members for the transaction of any business, except as otherwise
provided by law, the Articles of Incorporation or these Bylaws. In all
matters other than the election of directors, the affirmative vote of the
members holding a majority in amount of the shares of capital stock
entitled to vote thereon, present in person or represented by mail, shall
be valid as a corporate act, except in those specific instances in which a
larger vote is required by law, the Articles of Incorporation or these
Bylaws. In the election of directors, cumulative voting is not permitted
and, unless otherwise provided by law, directors shall be elected by a
plurality vote.
* * *
3.1 Number and Qualification. Unless and until changed by the
Board of Directors as hereinafter provided, the number of directors to
constitute the Board shall be the same as the initial number of directors
provided in the Articles of Incorporation. The Board shall have the power
to change from time to time the number of directors constituting the Board
by resolution adopted by a majority of the total number of directors that
the Association would have if the Board had no vacancies; provided,
however, that in no event shall the number of directors constituting the
Board be less than three (3) or more than twelve (12). At least a majority
of the directors constituting the Board shall be, and less than a majority
of the directors constituting the Board need not be, members of the
Association or representatives, duly authorized in writing, of legal
entities that are members of the Association; provided, however, that more
than one director may be a representative, duly authorized in writing, of
the same legal entity that is a member of the Association.
# # #
II. Section 9.1 of the Amended and Restated Bylaws of Alliance Farms
Cooperative Association (the "Association") were amended by the Board of
Directors in a statement of unanimous consent dated January 9, 1995, pursuant to
the following resolution:
WHEREAS, the Board of Directors desires to amend the Bylaws of
the Association to clarify the manner in which the Association's net
margins are to be allocated;
NOW THEREFORE, BE IT RESOLVED, that the Bylaws of the Association
are hereby amended by inserting the following new sentence immediately
following the present Section 9.1:
The net margins shall be allocated with respect to feeder
pigs sold pursuant to the terms of the Feeder Pig Purchase
Agreements between the Association and the members and
feeder pigs sold pursuant to the Swine Production Services
Agreement between the Association and Farmland Industries,
Inc. (or its successors or assigns).
# # #
III. Section 9.1 of the Amended and Restated Bylaws of Alliance Farms
Cooperative Association (the "Association") were amended by the Board of
Directors at a meeting held on July 18, 1995, pursuant to the following
resolution:
WHEREAS, the Board of Directors desires to amend the Bylaws of
the Association to clarify the manner in which the Association's net
margins are to be determined;
NOW THEREFORE, BE IT RESOLVED, that the Bylaws of the Association are
hereby amended by deleting the present Section 9.1 thereof in its entirety
and inserting the following new Section 9.1 in lieu thereof:
9.1 Net Margins and Patronage Distributions.
(a) The Association annually shall distribute as patronage
distributions to its member-patrons all of its net margins realized by
the Association on its patronage sourced income. The Association's
net margins are equal to the Association's Federal taxable income
realized by the Association from patronage sourced business done with
or for its member-patrons, computed before reduction for patronage
distributions paid by the Association hereunder. The Association
shall compute its taxable income separately for each group of member-
patrons, together with their successors and permitted assigns (each
such group of member-patrons, including their successors and permitted
assigns, are referred to as a "Member Group"), whose shares of capital
stock originally were issued by the Association in connection with the
provision of financing for the acquisition or development of one or
more production units that were the subject of the issuance of capital
stock to such group (each, a "Member Group's Production Unit"). In
determining the amount of the Member Group's taxable income, the
Association shall separately take into account the depreciation
deductions and financing costs attributable to the related Member
Group's Production Unit(s). The amount of the patronage dividend
shall be computed separately for each Member Group and the patronage
dividend shall be equal to the net margin computed for each such
Member Group, and not reduced by any net loss realized by any other
Member Group. The allocation of net margins as patronage
distributions shall be made only with respect to feeder pigs sold
pursuant to the terms of the Feeder Pig Purchase Agreements between
the Association and the members and feeder pigs sold pursuant to the
Swine Production Services Agreement between the Association and
Farmland Industries, Inc. (or its successors or assigns).
(b) The Association may pay such patronage distributions to its
patrons in cash, qualified written notices of allocation, non-
qualified written notices of allocation or any combination thereof.
The written notices of allocation shall be issued by the Association
in the form of capital credits. The Association shall maintain
appropriate records as to the capital credits of each member and the
year in which such capital credits are credited to each such member.
# # #
IV. The Amended and Restated Bylaws of Alliance Farms Cooperative
Association (the "Association") were amended by the Board of Directors at its
April 1, 1996 meeting, as follows:
RESOLVED, that unless and until changed by the Board of Directors as
provided in Section 3.1 of the Bylaws, the number of directors to
constitute the Board of Directors of the Association shall be increased
from four (4) to five (5).
FURTHER RESOLVED, that the designation by the Board of Directors of a
person to fill the vacancy resulting from the increase in the authorized
number of directors as aforesaid be deferred until such later date as is
sufficient, in the discretion of the Board of Directors, to enable it to
complete its consideration and evaluation of the persons being considered
to fill such vacancy.
# # #
V. The Amended and Restated Bylaws of Alliance Farms Cooperative
Association (the "Association") were amended by the Board of Directors at its
March 21, 1997 meeting and by the members of the Association at its April 14,
1997 meeting, as follows:
RESOLVED, that the Bylaws of the Association be, and they hereby
are, amended as follows:
1. The present Section 2.1 of the Bylaws is deleted in its entirety and
the following new Section 2.1 is inserted in lieu thereof:
2.1 Limitations and Qualifications. Only producers of
agricultural products, associations of such producers, and
federations of such associations, who have executed and
delivered to the Association a Feeder Pig Purchase Agreement
(as defined in Section 3.2 of these Bylaws) may own Class A
Common Stock (as defined in Article SIXTH of the Articles of
Incorporation) of the Association. Only producers of
agricultural products, associations of such producers, and
federations of such associations, who have executed and
delivered to the Association a Weaned Pig Purchase Agreement
(as defined in Section 3.2 of these Bylaws) may own Class B
Common Stock (as defined in Article SIXTH of the Articles of
Incorporation) of the Association. Except as provided in
the two immediately preceding sentences, no person may own
the capital stock of the Association. Only stockholders of
the Association may be members of the Associations, and each
stockholder of the Association shall be a member of the
Association.
2. The first paragraph of the present Section 2.2 of the Bylaws is
deleted in its entirety and the following new first paragraph is
inserted in lieu thereof:
In the event that (a) a member (i) has terminated a
Feeder Pig Purchase Agreement between the Association and
the member or a Weaned Pig Purchase Agreement between the
Association and the member without having executed and
delivered to the Association a replacement Feeder Pig
Purchase Agreement or a replacement Weaned Pig Purchase
Agreement, as the case may be, or (ii) fails to be a party
to a Feeder Pig Purchase Agreement with the Association or a
Weaned Pig Purchase Agreement with the Association, or (b)
the Board of Directors by resolution finds that a member has
(i) intentionally or repeatedly violated any provision of
the Articles of Incorporation or these Bylaws, or (ii)
breached a Feeder Pig Purchase Agreement or a Weaned Pig
Purchase Agreement or materially breached any other contract
with the Association or (iii) remained indebted to the
Association for ninety (90) days after such indebtedness
first became payable, or (iv) willfully obstructed any
lawful purpose or activity of the Association, then the
Board of Directors, in its sole discretion, may terminate
such member's membership in and association with the
Association in any manner hereinafter provided.
3. The present Section 2.4 of the Bylaws is deleted in its entirety and
the following new Section 2.4 is inserted in lieu thereof:
2.4 Transferability of Equity Interests. The equity
interests issued by the Association may not be assigned or
transferred, except upon consent of the Board of Directors;
provided, however, that the Board of Directors shall not
give such consent absent the execution and delivery to the
Association of a Feeder Pig Purchase Agreement, with respect
to an assignment or transfer of Class A Common Stock (as
defined in Article SIXTH of the Articles of Incorporation),
or a Weaned Pig Purchase Agreement, with respect to an
assignment or transfer of Class B Common Stock (as defined
in Article SIXTH of the Articles of Incorporation), by such
assignee or transferee.
4. The present Section 3.2(b) of the Bylaws is deleted in its entirety
and the following new Section 3.2(b) is inserted in lieu thereof:
(b) Feeder Pig Purchase Agreements and Weaned Pig Purchase
Agreements. Without limiting the foregoing, the Association may
make (i) uniform feeder pig purchase agreements ("Feeder Pig
Purchase Agreements") with its members owning Class A Common
Stock (as defined in Article SIXTH of the Articles of
Incorporation) that require such members to, among other things,
purchase from the Association feeder pigs that meet particular
minimum weight, management and quality standards; provided,
however, that the application of the terms of the Feeder Pig
Purchase Agreements may result in different prices for the
purchase of feeder pigs, and (ii) uniform weaned pig purchase
agreements ("Weaned Pig Purchase Agreements") with its members
owning Class B Common Stock (as defined in Article SIXTH of the
Articles of Incorporation) that require such members to, among
other things, purchase from the Association weaned pigs that meet
particular minimum weight, management and quality standards;
provided, however, that the application of the terms of the
Weaned Pig Purchase Agreements may result in different prices for
the purchase of weaned pigs. The allocation of any and all pigs
produced by the Association between those that are to be retained
by the Association for development into feeder pigs and those
that are to be sold pursuant to the Weaned Pig Purchase
Agreements will be determined by the Association based on the
average production of pigs at weaned pig age from all Production
Units (as defined below) and will be distributed in proportion to
the number of Class A Production Units (as defined below), on the
one hand, and the number of Class B Production Units (as defined
below), on the other hand. For purposes of this Section 3.2, (i)
"Production Units" means the Class A Production Units and Class B
Production Units, (ii) a "Class A Production Unit" means a feeder
pig production facility necessary to house, feed and care for a
group of approximately 2,450 sows and the attendant offspring
thereof (A) that is constructed using the proceeds of the
issuance of 17 shares of Class A Common Stock of Association and
(B) from which an initial lot of weaned pigs has been produced,
and (iii) a "Class B Production Unit" means a weaned pig
production facility necessary to house, feed and care for a group
of approximately 2,450 sows and the attendant offspring thereof
(A) that is constructed using the proceeds of the issuance of 18
shares of Class B Common Stock of Association and (B) from which
an initial lot of weaned pigs has been produced. The Board of
Directors shall have the power to carry out all agreements of the
Association with its members in every way advantageous to the
Association representing the members collectively and to modify
the terms of the form of Feeder Pig Purchase Agreements and of
the form of Weaned Pig Purchase Agreements so long as each such
modification maintains the relative economics of each member's
financing cost per pig as of the date or dates that each such
member's shares of capital stock were issued by the Association.
5. The present Section 9.1(a) of the Bylaws is deleted in its entirety
and the following new Section 9.1(a) is inserted in lieu thereof:
(a) The Association annually shall distribute as patronage
distributions to its member-patrons all of its net margins
realized by the Association on its patronage sourced income. The
Association's net margins through and including August 31, 1997
are equal to the Association's Federal taxable income realized by
the Association from patronage sourced business done with or for
its member-patrons, computed before reduction for patronage
distributions paid by the Association hereunder, and the
Association's net margins from and after September 1, 1997 are
equal to the Association's net income (computed under generally
accepted accounting principles) realized by the Association from
patronage sourced business done with or for its member-patrons,
computed before reduction for patronage distributions paid by the
Association hereunder. The Association shall compute its net
income (taxable income through and including August 31, 1997)
separately for each group of member-patrons, together with their
successors and permitted assigns (each such group of member-
patrons, including their successors and permitted assigns, are
referred to as a "Member Group"), whose shares of capital stock
originally were issued by the Association in connection with the
provision of financing for the acquisition or development of one
or more production units that were the subject of the issuance of
capital stock to such group (each, a "Member Group's Production
Unit"). In determining the amount of the Member Group's net
income (taxable income through and including August 31, 1997),
the Association shall separately take into account the
depreciation deductions and financing costs attributable to the
related Member Group's Production Unit(s). The amount of the
patronage dividend shall be computed separately for each Member
Group and the patronage dividend shall be equal to the net margin
computed for each such Member Group, and not reduced by any net
loss realized by any other Member Group. The allocation of net
margins as patronage distributions shall be made only with
respect to feeder pigs sold pursuant to the terms of the Feeder
Pig Purchase Agreements between the Association and the members,
weaned pigs sold pursuant to the terms of the Weaned Pig Purchase
Agreements between the Association and the members, and feeder
pigs and weaned pigs sold pursuant to the Swine Production
Services Agreement between the Association and Farmland
Industries, Inc. (or its successors or assigns).
6. The present Section 9.5 of the Bylaws is deleted in its entirety and
the following new Section 9.5 is inserted in lieu thereof:
9.5 Dissolution or Liquidation. Except as otherwise
provided in the Articles of Incorporation, in the event of the
dissolution or liquidation of the Association, the Association
shall distribute its assets in the following order of priority:
(1) to the payment of debts and liabilities of the Association;
(2) to setting up such reserves as the Board of Directors shall
determine to be reasonably necessary or appropriate for any
contingent or unforeseen liabilities or obligations of the
Association; and (3) among the holders of outstanding capital
credits and the Association's capital stock ratably in proportion
to the sum of:
(a) the cash, property or other consideration received
by the Association in exchange for each such share
of capital stock issued to the holder thereof (or
such holder's predecessors in interest of such
share), as determined by the Board of Directors,
plus
(b) the aggregate amount of any and all payments of
principal made by such holder (or such holder's
predecessors in interest), as determined by the
Board of Directors, pursuant to such holder's (or
such holder's predecessors in interest's) Feeder
Pig Purchase Agreement or Weaned Pig Purchase
Agreement, as the case may be, with respect to
(i) the debt incurred by the Association for the
production facilities constructed by the
Association with respect to the issuance of each
such share of capital stock from which the right
of such holder (or such holder's predecessors in
interest) to purchase pigs under such Agreement
derives, (ii) any debt incurred for the initial
working capital requirements with respect to the
operation of such production facilities, and
(iii) any debt incurred for purposes of
refinancing any such debt respectively.
# # #
VI. The Amended and Restated Bylaws of Alliance Farms Cooperative
Association (the "Association") were amended by the Board of Directors pursuant
to Statement of Unanimous Consent dated May 7, 1997 and by the members of the
Association at its May 21, 1997 meeting, as follows:
RESOLVED, that the Bylaws of the Association be, and they hereby are,
amended as follows:
1. The present Section 2.1 of the Bylaws is deleted in its entirety and
the following new Section 2.1 is inserted in lieu thereof:
2.1 Limitations and Qualifications. Only producers of
agricultural products, associations of such producers, and
federations of such associations, who have executed and delivered
to the Association a Feeder Pig Purchase Agreement (as defined in
Section 3.2 of these Bylaws) may own Class A Common Stock (as
defined in Article SIXTH of the Articles of Incorporation) of the
Association. Only producers of agricultural products,
associations of such producers, and federations of such
associations, who have executed and delivered to the Association
a Weaned Pig Purchase Agreement (as defined in Section 3.2 of
these Bylaws) may own Class B Common Stock (as defined in Article
SIXTH of the Articles of Incorporation) of the Association. Only
producers of agricultural products, associations of such
producers, and federations of such associations, who have
executed and delivered to the Association a Class C Weaned Pig
Purchase Agreement (as defined in Section 3.2 of these Bylaws)
may own Class C Common Stock (as defined in Article SIXTH of the
Articles of Incorporation) of the Association. Except as
provided in the three immediately preceding sentences, no person
may own the capital stock of the Association. Only stockholders
of the Association may be members of the Associations, and each
stockholder of the Association shall be a member of the
Association.
2. The first paragraph of the present Section 2.2 of the Bylaws is
deleted in its entirety and the following new first paragraph is
inserted in lieu thereof:
In the event that (a) a member (i) has terminated a Feeder
Pig Purchase Agreement between the Association and the member, a
Weaned Pig Purchase Agreement between the Association and the
member or a Class C Weaned Pig Purchase Agreement between the
Association and the member without having executed and delivered
to the Association a replacement Feeder Pig Purchase Agreement, a
replacement Weaned Pig Purchase Agreement or a replacement Class
C Weaned Pig Purchase Agreement, as the case may be, or (ii)
fails to be a party to a Feeder Pig Purchase Agreement with the
Association, a Weaned Pig Purchase Agreement with the Association
or a Class C Weaned Pig Purchase Agreement with the Association,
or (b) the Board of Directors by resolution finds that a member
has (i) intentionally or repeatedly violated any provision of the
Articles of Incorporation or these Bylaws, or (ii) breached a
Feeder Pig Purchase Agreement, a Weaned Pig Purchase Agreement or
a Class C Weaned Pig Purchase Agreement or materially breached
any other contract with the Association or (iii) remained
indebted to the Association for ninety (90) days after such
indebtedness first became payable, or (iv) willfully obstructed
any lawful purpose or activity of the Association, then the Board
of Directors, in its sole discretion, may terminate such member's
membership in and association with the Association in any manner
hereinafter provided.
3. The present Section 2.4 of the Bylaws is deleted in its entirety and
the following new Section 2.4 is inserted in lieu thereof:
2.4 Transferability of Equity Interests. The equity
interests issued by the Association may not be assigned or
transferred, except upon consent of the Board of Directors;
provided, however, that the Board of Directors shall not give
such consent absent the execution and delivery to the Association
of a Feeder Pig Purchase Agreement, with respect to an assignment
or transfer of Class A Common Stock (as defined in Article SIXTH
of the Articles of Incorporation), a Weaned Pig Purchase
Agreement, with respect to an assignment or transfer of Class B
Common Stock (as defined in Article SIXTH of the Articles of
Incorporation), or a Class C Weaned Pig Purchase Agreement, with
respect to an assignment or transfer of Class C Common Stock (as
defined in Article SIXTH of the Articles of Incorporation), by
such assignee or transferee.
4. The present Section 3.2(b) of the Bylaws is deleted in its entirety
and the following new Section 3.2(b) is inserted in lieu thereof:
(b) Feeder Pig Purchase Agreements, Weaned Pig Purchase
Agreements and Class C Weaned Pig Purchase Agreements. Without
limiting the foregoing, the Association may make (i) uniform
feeder pig purchase agreements ("Feeder Pig Purchase Agreements")
with its members owning Class A Common Stock (as defined in
Article SIXTH of the Articles of Incorporation) that require such
members to, among other things, purchase from the Association
feeder pigs that meet particular minimum weight, management and
quality standards; provided, however, that the application of the
terms of the Feeder Pig Purchase Agreements may result in
different prices for the purchase of feeder pigs, (ii) uniform
weaned pig purchase agreements ("Weaned Pig Purchase Agreements")
with its members owning Class B Common Stock (as defined in
Article SIXTH of the Articles of Incorporation) that require such
members to, among other things, purchase from the Association
weaned pigs that meet particular minimum weight, management and
quality standards; provided, however, that the application of the
terms of the Weaned Pig Purchase Agreements may result in
different prices for the purchase of weaned pigs, and (iii)
uniform Class C weaned pig purchase agreements ("Class C Weaned
Pig Purchase Agreements") with its members owning Class C Common
Stock (as defined in Article SIXTH of the Articles of
Incorporation) that require such members to, among other things,
purchase from the Association weaned pigs that meet particular
minimum weight, management and quality standards; provided,
however, that the application of the terms of the Class C Weaned
Pig Purchase Agreements may result in different prices for the
purchase of weaned pigs. The allocation of any and all pigs
produced by the Association between those that are to be retained
by the Association for development into feeder pigs and those
that are to be sold pursuant to the Weaned Pig Purchase
Agreements will be determined by the Association based on the
average production of pigs at weaned pig age from all Production
Units (as defined below) and will be distributed in proportion to
the number of Class A Production Units (as defined below), on the
one hand, and the sum of the number of Class B Production Units
(as defined below) and the number of Class C Production Units (as
defined below), on the other hand. For purposes of this Section
3.2, (i) "Production Units" means the Class A Production Units,
Class B Production Units and Class C Production Units, (ii) a
"Class A Production Unit" means a feeder pig production facility
necessary to house, feed and care for a group of approximately
2,450 sows and the attendant offspring thereof (A) that is
constructed using the proceeds of the issuance of 17 shares of
Class A Common Stock of Association and (B) from which an initial
lot of weaned pigs has been produced, (iii) a "Class B Production
Unit" means a weaned pig production facility necessary to house,
feed and care for a group of approximately 2,450 sows and the
attendant offspring thereof (A) that is constructed using the
proceeds of the issuance of 18 shares of Class B Common Stock of
Association and (B) from which an initial lot of weaned pigs has
been produced, and (iv) a "Class C Production Unit" means a
weaned pig production facility necessary to house, feed and care
for a group of approximately 2,450 sows and the attendant
offspring thereof (A) that is constructed using the proceeds of
the issuance of 24 shares of Class C Common Stock of Association
and (B) from which an initial lot of weaned pigs has been
produced. The Board of Directors shall have the power to carry
out all agreements of the Association with its members in every
way advantageous to the Association representing the members
collectively and to modify the terms of the form of Feeder Pig
Purchase Agreements, of the form of Weaned Pig Purchase
Agreements and of the form of Class C Weaned Pig Purchase
Agreements so long as each such modification maintains the
relative economics of each member's financing cost per pig as of
the date or dates that each such member's shares of capital stock
were issued by the Association.
5. The present Section 9.1(a) of the Bylaws is amended by deleting the
last sentence thereof in its entirety and inserting in lieu thereof
the following new sentence:
The allocation of net margins as patronage distributions shall be
made only with respect to feeder pigs sold pursuant to the terms
of the Feeder Pig Purchase Agreements between the Association and
the members, weaned pigs sold pursuant to the terms of the Weaned
Pig Purchase Agreements between the Association and the members,
weaned pigs sold pursuant to the terms of the Class C Weaned Pig
Purchase Agreements between the Association and the members, and
feeder pigs and weaned pigs sold pursuant to the Swine Production
Services Agreement between the Association and Farmland
Industries, Inc. (or its successors or assigns).
6. The present Section 9.5 of the Bylaws is deleted in its entirety and
the following new Section 9.5 is inserted in lieu thereof:
9.5 Dissolution or Liquidation. Except as otherwise
provided in the Articles of Incorporation, in the event of the
dissolution or liquidation of the Association, the Association
shall distribute its assets in the following order of priority:
(1) to the payment of debts and liabilities of the Association;
(2) to setting up such reserves as the Board of Directors shall
determine to be reasonably necessary or appropriate for any
contingent or unforeseen liabilities or obligations of the
Association; and (3) among the holders of outstanding capital
credits and the Association's capital stock ratably in proportion
to the sum of:
(a) the cash, property or other consideration received by
the Association in exchange for each such share of
capital stock issued to the holder thereof (or such
holder's predecessors in interest of such share), as
determined by the Board of Directors, plus
(b) the aggregate amount of any and all payments of
principal made by such holder (or such holder's
predecessors in interest), as determined by the Board
of Directors, pursuant to such holder's (or such
holder's predecessors in interest's) Feeder Pig
Purchase Agreement, Weaned Pig Purchase Agreement or
Class C Weaned Pig Purchase Agreement, as the case may
be, with respect to (i) the debt incurred by the
Association for the production facilities constructed
by the Association with respect to the issuance of each
such share of capital stock from which the right of
such holder (or such holder's predecessors in interest)
to purchase pigs under such Agreement derives, (ii) any
debt incurred for the initial working capital
requirements with respect to the operation of such
production facilities, and (iii) any debt incurred for
purposes of refinancing any such debt respectively.
EXHIBIT 4.15
INCORPORATED UNDER THE COOPERATIVE ASSOCIATION LAWS OF COLORADO
Number Shares
ALLIANCE FARMS COOPERATIVE ASSOCIATION
a Colorado cooperative association
This Certificate of Membership also represents shares of Class C
common stock of the Association.
2,500 shares of Class C common stock authorized, $0.01 par value
THIS CERTIFIES THAT is a member of, and is the owner
of Shares of the Class C Common Stock of,
ALLIANCE FARMS COOPERATIVE ASSOCIATION,
transferable by the holder hereof on the books of the Association in person or
by duly authorized attorney only upon surrender of this Certificate properly
endorsed. The Articles of Incorporation of the Association, as from time to
time amended, the Bylaws of the Association, as from time to time amended, and
the laws of the State of Colorado, as from time to time amended, are by
reference incorporated herein, and the holder hereof, by accepting this
Certificate, consents to the provisions thereof and agrees to be bound thereby.
(See reverse for limitations and other provisions.)
IN WITNESS WHEREOF, the Association has caused this Certificate to be
signed by its duly authorized officers this day of A.D. 19 .
PRESIDENT SECRETARY
Sale, transfer or hypothecation of the shares represented by this certificate is
restricted by the provisions of the Colorado cooperative association law and the
Articles of Incorporation and Bylaws of Alliance Farms Cooperative Association
(the "Company"), a copy of which provisions may be inspected at the principal
offices of the Company, and all provisions of which are hereby incorporated by
reference in this certificate.
CERTIFICATE
of
Membership
and
Shares
of the
Class C Common Stock
of
ALLIANCE FARMS
COOPERATIVE ASSOCIATION
ISSUED TO
DATE
For Value Received, hereby sell, assign and transfer unto
Shares of the Class C Common Stock represented by the within Certificate,
and do hereby irrevocably constitute and appoint
attorney to transfer the said Stock on the books of the within named
Association with full power of substitution in the premises.
Dated 19
In presence of
Exhibit 5.1
May 23, 1997
Alliance Farms Cooperative Association
201 South Main Street
Yuma, Colorado 80759
Gentlemen:
We refer to the Registration Statement on Form SB-2 (No. 333-25501) of
Alliance Farms Cooperative Association, a Colorado cooperative association (the
"Company"), filed with the Securities and Exchange Commission for the purpose of
registering under the Securities Act of 1933, as amended, 51 shares of (Class A)
Common Stock, par value of $.01 per share, 54 shares of Class B Common Stock,
par value of $.01 per share, and 72 shares of Class C Common Stock, par value
of $.01 per share, to be offered by the Company.
We have examined the Articles of Incorporation, as amended, and the
Amended and Restated Bylaws of the Company, as presently in effect, minutes of
the applicable meetings of the board of directors and stockholders of the
Company, together with such other corporate records, certificates of public
officials and other documents as we have deemed relevant to this opinion.
Based upon the foregoing, it is our opinion that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Colorado.
2. All necessary corporate action has been taken to authorize the
issuance and sale by the Company of 51 shares of (Class A) Common Stock, par
value $.01 per share, 54 shares of Class B Common Stock, par value of $.01 per
share, and 72 shares of Class C Common Stock, par value of $.01 per share, for
the consideration set forth in such Registration Statement, and, upon the
issuance and sale of such shares for such consideration, such shares will be
duly and legally issued, fully paid and nonassessable.
We hereby consent to the reference to our firm under the heading
"Legal Matters" in the Prospectus which constitutes a part of such Registration
Statement. We also consent to the inclusion of this opinion in the Registration
Statement as an exhibit thereto.
Very truly yours,
JWA:ard
Exhibit 10.34
CLASS C WEANED PIG PURCHASE AGREEMENT
THIS CLASS C WEANED PIG PURCHASE AGREEMENT (this "Agreement") is entered
into as of this day of , 199 , by and between ALLIANCE FARMS
COOPERATIVE ASSOCIATION (hereinafter "Association"), and
(hereinafter "Purchaser").
WHEREAS, Association is or will be engaged in the production and sale of
weaned pigs; and
WHEREAS, Purchaser is a purchaser of weaned pigs, possesses expertise in
swine production and management, and desires to enter into this Agreement for
membership purposes of Association;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
1. PURCHASE/SALE OF WEANED PIGS.
(A) GENERAL. Upon and subject to all terms and conditions set forth
in this Agreement, Purchaser shall purchase from Association, and Association
shall sell to Purchaser, Qualifying Pigs (as defined in Section 2) produced by
Association during the term of this Agreement in lots (hereinafter "Lot" or
"Lots") of no less than 925, and no more than 1,025, Qualifying Pigs per Lot, as
determined by Association, which Lots shall be made available to Purchaser on a
rotating schedule with other members of Association owning Class C Common Stock
(as defined in Article SIXTH of Association's Articles of Incorporation), as
such rotating schedule is determined and implemented by Association on any
reasonable basis.
(B) SCHEDULE. Purchaser acknowledges that Association intends to
conduct a blind drawing, immediately following the consummation of each and
every offering of Class C Common Stock by Association, for purposes of adjusting
such rotating schedule as warranted by the resulting changes in the members of
the Association.
(C) AVAILABILITY. The number of Lots made available to Purchaser and
the frequency of availability of such Lots will be based upon Purchaser's
proportionate equity interest in Association with respect to Association's Class
C Common Stock. Purchaser acknowledges that Lots will not be made available to
Purchaser under this Agreement until Qualifying Pigs are produced and available
from the facilities constructed using the proceeds of the issuance of Class C
Common Stock of Association (including Class C Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase such Lots under this Agreement derives, and that the number of Lots
made available to Purchaser and the frequency of availability of such Lots will
be subject to actual production of Qualifying Pigs from all facilities of
Association. Association shall give notice to Purchaser when a Lot is available
for purchase by Purchaser hereunder, which notice shall specify the anticipated
number of Qualifying Pigs in such Lot and the scheduled shipment date.
(D) EXCESS PRODUCTION. The production of weaned pigs is anticipated
to produce, on a prospective rolling 12-month basis, approximately two and one-
tenth (2.1) Lots of Qualifying Pigs per share of Class C Common Stock of
Association owned by members of Association for which Lots are to be made
available for purchase hereunder. To the extent that the production of weaned
pigs exceeds such anticipated production, Association shall either sell such
excess production to any person (including a member of Association), at a price
as shall be determined by Association in good faith, or retain such excess
production for Association's own purposes, in lieu of selling such excess
production to the members of Association pursuant to the Class C Weaned Pig
Purchase Agreements between Association and the members of Association.
2. QUALIFYING PIGS. For purposes of this Agreement, the term "Qualifying
Pig" shall mean an individual weaned pig that is not utility grade, that has a
minimum weight of at least six (6) pounds at point in time of delivery, that has
the genetic characteristics described in Section 6, that has been managed in
accordance with Section 7, and that has a significant likelihood to perform
economically and reach market weight efficiently.
3. PURCHASE PRICE OF PIGS.
(A) PRICE. The purchase price for each Qualifying Pig purchased by
Purchaser under this Agreement shall be an amount equal to the sum of the
following:
Financing Cost Per Pig, plus
Operating Cost Per Pig, plus
Production Margin.
Purchaser acknowledges that Association has constructed, or is in the process of
constructing, or both, Production Units as a result of previous offers and sales
of shares of its capital stock and that Association from time to time may
construct additional Production Units as a result of additional offers and sales
of shares of its capital stock. In light of the foregoing, the determination of
the Financing Cost Per Pig portion of the purchase price for a Qualifying Pig
hereunder shall be made separately with respect to each Lot in relation to the
Production Unit(s) that were constructed using the proceeds of the issuance of
Class C Common Stock of Association (including Class C Common Stock of the
Association assigned or transferred to Purchaser) from which Purchaser's right
to purchase such Lot under this Agreement derives.
(B) DEFINITIONS. As used in this Section 3, the following terms
shall have the following meanings:
FINANCING COST PER PIG shall be determined on a prospective rolling 12-
month basis and shall mean an amount equal to the quotient of (i) the sum
of the required payments of interest and principal (including any scheduled
sinking fund payments) to be made during the upcoming 12-month period with
respect to Purchaser's Debt, divided by (ii) Pigs Shipped.
OPERATING COST PER PIG shall be determined on a rolling five-month
historical basis and shall mean an amount equal to the quotient of (i) the
sum of (A) all direct and indirect production, operating, selling, general,
administrative, and other expenses incurred by Association in the five
months preceding the then present month of shipment as determined by
Association's accountants utilizing generally accepted accounting
principles consistently applied (excluding any provision for interest
expense or depreciation or amortization of the cost of buildings,
equipment, breeding stock or other capitalized costs which were purchased
as a result of Purchaser's Debt or as a result of the issuance of any
capital stock of Association to any third party), plus (B) the net cash
flow cost of all capital expenditures by Association (including any capital
sinking fund payments) for production facility and breeding stock
improvements and replacements in the five months preceding the then present
month of shipment as determined by Association's accountants, divided by
(ii) Pigs Shipped. The direct and indirect production and operating
expenses attributable to a Production Unit which is in the process of
commencing production shall not be included in the determination of
Operating Cost Per Pig, and shipments of pigs attributable to such
Production Unit shall not be included in Pigs Shipped, until such
Production Unit has completed one entire month of full production, shipping
pigs in each week thereof. The net cash flow with respect to capital
expenditures for production facility and breeding stock improvements and
replacements (which net cash flow shall be determined after taking into
account the breeding stock and production facility retirements attributable
to a Production Unit which is in the process of commencing production)
shall not be included in the determination of Operating Cost Per Pig until
the respective Production Unit has completed one entire month of full
production, shipping pigs in each week thereof.
PRODUCTION MARGIN shall mean an amount of up to $4.50, as determined by the
Board of Directors of Association, from time to time, in its sole and
absolute discretion.
PIGS SHIPPED shall mean the number of Qualifying Pigs produced and shipped
from Association over the same five-month period in determining the
Operating Cost Per Pig and the estimated number of Qualifying Pigs that
will be produced and shipped by Association over the 12-month period in
determining the Financing Cost Per Pig. For purposes of determining the
Financing Cost Per Pig, Pigs Shipped shall be equal to the product of (i)
Association's total estimated number of Qualifying Pigs to be produced and
shipped by Association during such 12-month period, multiplied by (ii) a
fraction, the numerator of which shall be the number of Production Units
constructed by Association with respect to the issuance of Class C Common
Stock of Association (including Class C Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase Lots of Qualifying Pigs under this Agreement derives, and the
denominator of which shall be the number of Production Units constructed by
Association with respect to all issuances of its Class C Common Stock. All
estimates relating to Pigs Shipped shall be made by Association using such
historical data and projections as are available to Association.
PRODUCTION UNIT shall mean the land and facilities necessary to house, feed
and care for a group of 2,450 sows and the attendant offspring thereof.
PURCHASER'S DEBT shall mean (i) the debt incurred by Association for the
Production Unit(s) constructed by Association with respect to the issuance
of Class C Common Stock of Association (including Class C Common Stock of
the Association assigned or transferred to Purchaser) from which the right
of Purchaser to purchase Lots of Qualifying Pigs under this Agreement
derives, including any debt incurred for purposes of financing the
acquisition of land for, and construction of, such Production Unit(s),
(ii) any debt incurred for the initial working capital requirements with
respect to the operation of such Production Unit(s), and (iii) any debt
incurred for purposes of refinancing any such debt.
4. PAYMENT OF PURCHASE PRICE. Association shall furnish to Purchaser, at
the time Association notifies Purchaser that a Lot is available for purchase by
Purchaser hereunder, an estimate of the total purchase price of the Qualifying
Pigs included in the Lot, and Purchaser shall, not less than one day prior to
the scheduled shipment date as specified in the notice by Association to
Purchaser, pay such estimated total purchase price to Association in cash, or by
such other means as may be acceptable to Association in its sole and absolute
discretion. Association shall have no obligation to commence transportation of
such Qualifying Pigs to Purchaser prior to full payment of such estimated total
purchase price for such Qualifying Pigs as herein provided. The actual total
purchase price of all Qualifying Pigs included in a Lot shall be based upon
weight at the time of loading and settlement of any adjustments shall be made
within five days following delivery.
5. WEIGHT ADJUSTMENT. The purchase price for each Qualifying Pig as
provided in Section 3 is for a Lot of Qualifying Pigs having an average weight
of between 8 pounds and 12 pounds. In the event that the average weight of the
Qualifying Pigs in a Lot sold to Purchaser exceeds 12 pounds, Purchaser shall
pay Association an additional one dollar ($1.00) per pound per Qualifying Pig on
the number of pounds that the Lot's average shipping weight per pig exceeds 12
pounds. To the extent that the average weight of the Qualifying Pigs in a Lot
sold to Purchaser is less than 8 pounds, one dollar ($1.00) per pound on the
number of pounds that the Lot's average shipping weight per pig is less than 8
pounds shall be deducted from the purchase price that Purchaser is to pay to
Association for each Qualifying Pig. Purchaser shall have the right to, but
shall not be obligated to, purchase a Lot of Qualifying Pigs hereunder at an
average weight of less than 8 pounds per pig.
6. GENETIC QUALITY. Qualifying Pigs produced by Association will be
progeny from genetic stock selected by Association, from time to time, in its
sole and absolute discretion. Such selection of such genetic stock will be
determined and implemented by Association on a basis that reasonably would be
expected to produce Qualifying Pigs that are capable of producing market hogs
having carcasses that are responsive to consumer demand and thereby maximize the
sales price to be received therefore.
7. MANAGEMENT OF HEALTH AND NUTRITION. Association agrees to comply with
the following health and nutrition programs with respect to all pigs to be
purchased under this Agreement:
(A) Association shall dock tails within 48 hours of a pig's
birth.
(B) Association shall castrate male pigs within ten days of the pig's
birth.
(C) Association shall administer all vacines and antibiotic
treatments and perform such other procedures that are reasonably determined
by Association to be necessary or advisable with respect to a herd health
program.
(D) Association shall maintain Association's swine free from the
psuedorabies virus ("PRV") or any swine disease that would prohibit
interstate shipment of pigs produced by Association, or that might
otherwise materially impair Purchaser's ability to utilize the pigs to be
purchased under this Agreement. If, in the opinion of two veterinarians
selected by Association and reasonably acceptable to Purchaser, any of the
swine produced by Association or used in the production of weaned pigs for
delivery hereunder contracts PRV, Association shall have the opportunity to
cure such impairment within a reasonable period of time and to suspend, at
any time and from time to time, the sale and purchase of weaned pigs
hereunder until such time as said veterinarians determine that PRV no
longer exists.
(E) Association shall use a feeding regimen, feed products, and herd
health products developed or marketed by Farmland Industries, Inc., or any
of its affiliates.
8. RIGHT OF INSPECTION. Upon reasonable notice to Association, Purchaser
or its representative shall have the right to inspect Association's production
records to verify the genetic quality and management of nutrition and health
programs prescribed by this Agreement during normal business hours.
9. ADJUSTMENT FOR NON-QUALIFYING PIGS. Purchaser shall have the right to
inspect Purchaser's Lot of Qualifying Pigs prior to loading. In the event that,
after delivery of such Lot, Purchaser believes that any pig was not a Qualifying
Pig prior to loading (a "Subject Pig"), Purchaser shall notify Association by
telephone of such belief within one (1) business day following delivery as well
as promptly notify Association of such belief in the manner provided in Section
19 hereof. Association shall have the right to inspect any and all Subject Pigs
in investigation of Purchaser's belief, and thereafter Association and Purchaser
shall agree in good faith upon an appropriate adjustment, if any, with respect
to such Subject Pigs. Purchaser hereby acknowledges and agrees that such
adjustment described above shall be Purchaser's sole and exclusive remedy as
against Association arising out of the purchase hereunder of a pig that was not
a Qualifying Pig at the time of loading and that the failure of Association to
deliver Qualifying Pigs as otherwise required hereunder shall not give rise to a
right of Purchaser to terminate this Agreement. Furthermore, in no event shall
Purchaser reject delivery of a Lot of pigs hereunder, but in lieu thereof
Purchaser shall accept each delivery of a Lot of pigs hereunder and, with
respect to any and all pigs that Purchaser believes were not Qualifying Pigs
prior to loading, shall comply with the provisions of this Section 9 and, until
such adjustment, if any, is agreed upon by Association and Purchaser, shall, at
Purchaser's expense, feed, water, treat and care for any and all such pigs as if
Purchaser believed such pigs were Qualifying Pigs prior to loading.
10. HEALTH PERMITS. Association shall provide Purchaser, at Association's
expense, all health permits necessary to qualify all Qualifying Pigs for
interstate shipment.
11. WEIGHING CONDITIONS. All Lots of Qualifying Pigs shall be weighed at
Association's expense at a state-inspected scale in close proximity to
Association's production facility. A copy of all scale tickets will be provided
to Association and to Purchaser.
12. IDENTIFICATION. Association shall appropriately identify, prior to
shipment, all Qualifying Pigs in accordance with the rules that will allow
interstate shipment to the states to which the pigs are being shipped.
13. TRANSPORTATION OF PIGS. Qualifying Pigs shall be shipped to Purchaser
FOB shipping point. Association shall at Purchaser's expense arrange for
transportation of Qualifying Pigs from any of Association's production
facilities as determined by Association; provided, however, that Purchaser shall
pay such transportation costs no later than the time of delivery. Trucks shall
be thoroughly cleaned and disinfected prior to hauling any pigs from
Association's production facilities and after any previously hauled pigs.
14. TERM OF AGREEMENT. The term of this Agreement shall commence on the
date first written above and shall continue for 120 months after the month in
which the first Lot of Qualifying Pigs is shipped by Association to Purchaser
(or Purchaser's direct or indirect assignor or transferor) with respect to the
Class C Common Stock of the Association (including Class C Common Stock of the
Association assigned or transferred to Purchaser) from which the right of
Purchaser to purchase Lots of Qualifying Pigs under this Agreement derives,
subject to the following:
(A) In the event that Purchaser fails to purchase, pay for, and take
delivery of any two Lots (as defined herein or in any other agreement
between Purchaser and Association) when and as made available to Purchaser
in accordance with the terms of this Agreement, any other Weaned Pig
Purchase Agreement or any Feeder Pig Purchase Agreement between Purchaser
and Association, this Agreement shall terminate and Association shall have
the right to exercise its remedies as provided in Section 17 hereof;
provided, however, that in the event Purchaser owns ten or more shares of
capital stock of Association, this Agreement shall terminate and
Association shall have the right to exercise its remedies as provided in
Section 17 hereof only upon Purchaser failing to purchase, pay for, and
take delivery of a number of Lots (as defined herein or in any other
agreement between Purchaser and Association) when and as made available to
Purchaser in accordance with the terms of this Agreement, of any other
Weaned Pig Purchase Agreement or of any Feeder Pig Purchase Agreement
between Purchaser and Association equal to the sum of (i) the quotient
(rounded down to the nearest whole number) of (A) the number of shares of
capital stock owned by Purchaser, divided by (B) ten (10), plus (ii) two
(2).
(B) In the event of a material breach of any agreement or covenant of
Association contained in this Agreement, Purchaser may give written notice
of such breach to Association and, in the event that such breach is not
cured within a period (the "Cure Period") of thirty (30) days following
such notice of breach by Purchaser to Association, Purchaser shall have the
right to terminate this Agreement upon notice to Association, provided that
such notice of termination is given by Purchaser to Association within
thirty (30) days following the Cure Period.
(C) If the first Lot of Qualifying Pigs is not shipped to Purchaser
hereunder within twenty-four (24) months of the date of this Agreement,
Purchaser shall have the right to terminate this Agreement upon notice to
Association, provided that such notice of termination is given by Purchaser
to Association within three (3) months after the expiration of such twenty-
four (24) month period; provided, however, that any such termination shall
not terminate or otherwise affect any other Weaned Pig Purchase Agreement
or any Feeder Pig Purchase Agreement between Purchaser and Association.
(D) In the event Purchaser assigns or transfers, in accordance with
the Articles of Incorporation and Bylaws of Association, all shares of
Class C Common Stock of Association from which Purchaser's right to
purchase Lots under this Agreement derives, this Agreement automatically
shall terminate.
(E) This Agreement shall be extended automatically for
succeeding and consecutive twelve (12) month terms unless Purchaser
gives to Association, not less than twelve (12) months prior to the
expiration of the initial term or any extended term hereof, notice
that Purchaser desires to terminate this Agreement as of the
expiration of such initial or extended term.
Notwithstanding the foregoing, however, the rights of Association to collect
damages and to exercise its remedies under Section 17 hereunder shall survive
any termination of this Agreement.
15. WARRANTIES. ASSOCIATION MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED
TO PURCHASER OTHER THAN AS HEREIN EXPRESSLY PROVIDED, AND SPECIFICALLY (A) MAKES
NO WARRANTY AS TO ANY SPECIFIC LEVEL OF PERFORMANCE WITH RESPECT TO ANY PIGS
SOLD HEREUNDER, AND (B) DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE.
16. FORCE MAJEURE. Either party to this Agreement shall be relieved of
its responsibility and obligations hereunder during any period when performance
is commercially impossible because of reasons beyond its control such as, but
not limited to, fire, explosion, strike, accident, governmental regulations or
intervention, and acts of God.
17. DEFAULT BY PURCHASER; GRANT OF SECURITY INTEREST. Purchaser
acknowledges that the damages suffered by Association in the event of any
failure by Purchaser to purchase, pay for, and take delivery of any Lot when and
as made available to Purchaser in accordance with the terms hereof shall equal,
and Purchaser shall be liable to Association for and shall pay to Association
upon demand, the sum of the following: (a) the difference between the price
payable by Purchaser hereunder for Qualifying Pigs included in such Lot and the
then current market price (as of the scheduled shipment date for such Lot) for
Qualifying Pigs as quoted in any independent industry publication or source
selected by Association, multiplied by the number of Qualifying Pigs in such Lot
that Purchaser has failed to purchase, pay for, and take delivery of, in
accordance with the terms hereof; plus (b) administrative and other costs and
expenses relating to such Lot, which are hereby agreed to equal the amount of
$3,000; plus (c) costs of collection, enforcement, and prosecution of
Association's rights and remedies hereunder or otherwise arising, whether or not
involving a case, action, or other proceeding before any state or federal court
or other body, including, but not limited to, reasonable attorney's fees,
collection agency fees, and other costs of collection; provided, however, that
to the extent applicable law prohibits collection of attorney's fees and/or
costs, this subsection (c) shall be null and void to the extent of such
prohibition, except to preserve Association's rights pursuant to 11 U.S.C.
Section 506(b). During any period in which Purchaser has been notified that it
is obligated to pay an amount for damages pursuant to the immediately preceding
sentence and has not paid such amount within three days of such demand,
Association shall not make any future Lots available to Purchaser for purchase
hereunder or under any other Weaned Pig Purchase Agreement or any Feeder Pig
Purchase Agreement between Purchaser and Association until Purchaser has paid
such amount. In the event that Purchaser is not made available any Lot for
purchase hereunder pursuant to the immediately preceding sentence that
Association otherwise would have made available to Purchaser for purchase
hereunder, then Purchaser shall be deemed to have failed to purchase, pay for,
and take delivery of such Lot, and Purchaser shall be liable for damages with
respect to such Lot computed in accordance with the first sentence of this
Section. Upon any termination of this Agreement, Purchaser's liability for
damages incurred by Association with respect to Purchaser's obligation to
purchase, pay for and take delivery of Lots made available to the Purchaser
shall be limited to the damages with respect to such Lots computed in accordance
with the preceding provisions of this Section 17, and Purchaser shall not be
liable for any other damages for the failure to purchase, pay for or take
delivery of Lots hereunder after the termination of this Agreement.
As security for the due and punctual performance of all of Purchaser's
obligations under this Agreement, Purchaser hereby pledges and grants to
Association, its successors and assigns, a security interest in and lien upon
any and all interest (the "Coop Interest") Purchaser now has or hereafter may
have in Association, including, without limitation, any capital stock or other
rights or interests owned or held by Purchaser, or to which Purchaser is
entitled, as a stockholder of Association and any interest of Purchaser in and
to any dividends, capital or other credits, patronage or other distributions, or
participations arising therefrom. Purchaser shall also deliver and endorse such
stock or other certificates and execute and deliver such financing statements
and other instruments (including, without limitation, stock powers duly endorsed
in blank), and take such other action, as Association may request for purposes
of perfecting or protecting the security interest granted under this Section 17.
Purchaser represents, warrants and agrees that the pledge of the Coop Interest
pursuant to this Section 17 creates a valid and perfected first priority
security interest in the Coop Interest in favor of Association, subordinate only
to any permissible pledge or other security interest granted by Purchaser to any
financial institution for purposes of securing a loan by such financial
institution to Purchaser, the proceeds of which are used to finance Purchaser's
acquisition of the Coop Interest. Notwithstanding the foregoing, however,
Association may release such pledge and grant of a security interest for good
cause, as determined in Association's sole and absolute discretion.
If Purchaser shall be in default under this Agreement, Association may
exercise any and all rights and remedies available to Association hereunder,
under the Articles of Incorporation or Bylaws of Association, under any
applicable Uniform Commercial Code, or otherwise at law or in equity. The
rights and remedies afforded to Association hereunder shall be cumulative and in
addition to, and not in limitation of, any rights and remedies which Association
may otherwise have under the Articles of Incorporation or Bylaws of Association
or under applicable law, including any applicable Uniform Commercial Code. The
exercise or partial exercise of any right or remedy of Association hereunder or
under the Articles of Incorporation or Bylaws of Association or under applicable
law shall not preclude or prejudice the further exercise of that right or remedy
or the exercise of any other right or remedy of Association. No delay or
omission on the part of Association in exercising any right hereunder or
otherwise shall operate as a waiver of such right. A waiver on any one occasion
shall not be construed as a bar or waiver of any right or remedy on any future
occasion.
18. ARBITRATION. In the event of any controversy arising out of or
relating to this Agreement, or any breach hereof, other than any controversy
arising out of or relating to Section 17 hereof or the exercise of any rights or
remedies thereunder, the parties agree to submit the dispute to binding
arbitration in accordance with the Commercial Arbitration Rules then in force of
the American Arbitration Association. Such arbitration shall be initiated by
either party by notifying the other party in writing and requesting a panel of
five (5) arbitrators from the American Arbitration Association, which
arbitrators shall be individuals skilled in the legal and business aspects of
the subject matter of this Agreement and of the dispute. Alternate strikes
shall be made to the panel commencing with the party requesting the arbitration
until one individual remains. Such individual shall be the arbitrator for the
controversy. The party requesting the arbitration shall notify the arbitrator
who shall hold a hearing(s) within 60 days of the notice. Any hearing(s) shall
take place in Denver, Colorado, or such other location as the parties may agree
upon. The arbitrator shall render a decision, including a written opinion in
support thereof, within 30 days after the conclusion of the hearing(s), which
decision shall be final and binding upon the parties without right of appeal.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Costs of the arbitration will be assessed by the
arbitrator against either or both of the parties, and will be paid promptly by
the party or parties so assessed.
19. NOTICES. Any notice given or required to be given hereunder shall be
deemed to have been effectively given when delivered personally or sent by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed or transmitted to Association at Alliance Farms Cooperative
Association, c/o Farmland Industries, Inc., 3315 North Oak Trafficway,
Department 47, Kansas City, Missouri 64116, Attention: Mr. Wayne N. Snyder, and
to Purchaser at the address set forth below Purchaser's signature, and/or to
such other (or additional) address(es) requested by a notice given in accordance
with this Section.
20. ENTIRE AGREEMENT. This Agreement contains all of the terms agreed
upon by the parties with respect to the subject matter hereof and supersedes all
prior agreements of the parties as to the subject matter hereof; provided,
however, any and all other Weaned Pig Purchase Agreements between Purchaser and
Association respecting issuances of capital stock of Association from which the
right of Purchaser to purchase Lots under this Agreement does not derive, and
any and all Feeder Pig Purchase Agreements between Purchaser and Association,
shall not be superseded, modified or otherwise affected by this Agreement. This
Agreement may not be modified except in writing, signed by the parties hereto,
that specifically references this Agreement.
21. ASSIGNMENT. This Agreement may not be assigned by either party
without prior written consent of the other party; provided, however, that
Association may assign Association's rights herein and hereto to any lender that
may provide financing to Association in connection with the construction of
facilities or the operation thereof, or both. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors, and permitted assigns.
22. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado. The parties hereto hereby
agree that if any part, term or provision of this Agreement is held by a court
of competent jurisdiction to be illegal or unenforceable or in conflict with any
controlling state law, the validity of the remaining parts, terms and provisions
of this Agreement shall not be affected, and the rights and obligations of the
parties shall be construed and enforced as if this Agreement did not contain the
particular part, term or provision held to be illegal or unenforceable or in
conflict with any controlling state law. This Agreement and the transactions
contemplated hereunder constitute commercial, and not consumer, transactions.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE THAT MAY BE ENFORCED
BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
day and year first above written.
ASSOCIATION: PURCHASER:
ALLIANCE FARMS COOPERATIVE
ASSOCIATION
By: By:
Name: Name:
Title: Title:
Purchaser's Address:
Exhibit 10.35
COLORADO BREEDING FARM SIDE AGREEMENT
THIS COLORADO BREEDING FARM SIDE AGREEMENT is made and entered into as of
the 11th day of April, 1997, by and between Alliance Farms Cooperative
Association (hereinafter "Alliance") and Farmland Industries, Inc. (hereinafter
"Farmland").
WHEREAS, Farmland has entered into various agreements with certain
producers for the care and feeding of swine on facilities of the producers;
WHEREAS, Alliance desires to contract for the use of such facilities for
the feeding and care by Alliance of development gilts owned by Alliance pursuant
to one or more Colorado Breeding Farm Agreements among Alliance, Farmland and
certain producers;
WHEREAS, in order to induce Farmland to enter into such Colorado Breeding
Farm Agreements which permit Alliance to have access to the facilities of
certain producers and, thus, suspend Farmland's access to such facilities for
its livestock production operations, Alliance is willing to enter into this
Agreement;
NOW, THEREFORE, the parties agree as follows:
1. Farmland agrees to use its reasonable efforts in assisting Alliance
identify producers willing to enter into Colorado Breeding Farm Agreements with
Alliance and Farmland.
2. With respect to each Colorado Breeding Farm Agreement entered into by
Alliance, Farmland and a producer, Alliance shall pay to Farmland, during the
term of the applicable Colorado Breeding Farm Agreement, a monthly payment equal
to (a) $1.00 per pig space subject to the Colorado Breeding Farm Agreement,
divided by (b) 12, which payment shall be paid to Farmland approximately 14 days
after the start of each month.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By:
Name:
Title:
FARMLAND INDUSTRIES, INC.
By:
Name:
Title:
Exhibit 10.36
COLORADO BREEDING FARM AGREEMENT
THIS AGREEMENT is made and entered into this 11 day of April, 1997 by and
between Alliance Farms Cooperative Association, of 3315 North Oak Trafficway,
Kansas City, Missouri 64116, (hereinafter "Alliance"); G & G Pork Producers,
LLC, (hereinafter "Producer"); and Farmland Industries, Inc. of 3315 North Oak
Trafficway, Kansas City, Missouri 64116 (hereinafter "Farmland").
WHEREAS, Producer has facilities suitable for the feeding of swine (the
"Facilities"),
WHEREAS, Farmland and Producer have entered into a Colorado Grow/Finish
Agreement, dated January 4, 1993, for the care and feeding of swine
("Grow/Finish Agreement"),
WHEREAS, Alliance desires to contract for the use of Producer's Facilities
for the feeding and care by Alliance of development gilts owned by Alliance.
NOW, THEREFORE, the parties agree as follows:
1. ACCESS. Producer specifically agrees that at all times during the term of
this Agreement, Alliance, its agents, employees and representatives shall have
the absolute and irrevocable right to enter upon the Facilities to conduct all
activities associated with the care and management of gilts. Producer further
agrees that Producer shall restrict the access of Producer, its agents,
employees and representatives to the Facilities to conduct only those limited
activities directly required by this Agreement. All parties agree that this
contract will not restrict access of Producer, its agents, employees and
representatives for the purposes of conducting activities on the Facilities as
it relates to the research, construction, management and maintenance of the
structures on the Facilities, and waste management system.
2. MANAGEMENT RESPONSIBILITIES. Alliance shall arrange for the delivery of
gilts to the Facilities at Alliance's expense. The gilts shall be delivered in
such numbers and in such intervals as determined by Alliance in its sole
discretion (each such delivery shall hereinafter be referred to as a "Lot").
Alliance shall be solely responsible for the daily management and care of the
gilts. Alliance shall provide and deliver to the Facilities all feed, grain,
proteins, minerals, and medications (hereinafter collectively referred to as
"Supplies"). All Supplies remain the property of Alliance and any Supplies
remaining after the gilts have been removed from the Facilities may be picked up
by Alliance. Alliance shall be responsible for the transfer fees of utilities
from Producer to Alliance and back from Alliance to Producer. Alliance shall be
responsible for the provision and payment of all utilities and labor necessary
for the operation of the Facilities. Such payment for utilities shall be
mutually determined in good faith by Alliance and Producer.
3. PRODUCER RESPONSIBILITIES. Producer shall be responsible for the following:
a) Disposal of waste as required by all applicable governmental
regulations and good management practices. This may include all assistance as
required by Agents of Producer, for the purposes of conducting research studies
regarding the facilities and waste management system.
b) Providing Alliance unrestricted access to the Facilities to conduct
activities associated with this Agreement.
c) Providing power washer for cleaning of Facilities.
d) Power washing and disinfecting the inside of the Facilities and
feeders prior to admittance of the first Lot.
e) At the request of Alliance, Producer agrees to assist in maintaining
access to facilities on the real property owned by Producer which does not
include county or state roads.
f) Producer shall not be responsible for maintenance of the Facilities
except that Producer will maintain the structural and mechanical systems,
provided that Alliance shall be responsible for repairing any structural or
mechanical failures due to their acts and neglect.
4. SUSPENSION OF GROW/FINISH AGREEMENT. During the term or earlier termination
of this Agreement, Farmland and Producer agree that:
a) all of Farmland's responsibilities to Producer, including, but not
limited to the obligation to make payment to Producer, under the Grow/Finish
Agreement shall be suspended;
b) all of Producer's performance obligations to Farmland under the
Grow/Finish Agreement shall be suspended;
c) Farmland shall not be required to pay the Minimum Annual Payment (as
said term is defined in the Grow/Finish Agreement) or any portion thereof, as
required under the Grow/Finish Agreement for any period attributable to the
term in which this Agreement is in effect;
d) a default or breach by Alliance of its responsibilities and
obligations under this Agreement shall not constitute a default or breach under
the Grow/Finish Agreement; and
e) a default or breach by Producer of its responsibilities and
obligations under this Agreement shall NOT constitute a default or breach under
the Grow/Finish Agreement.
The foregoing rights and responsibilities of Farmland and Producer as well as
all provisions provided under the Grow/Finish Agreement shall automatically
resume upon the termination of this Agreement, and the term of the Grow/Finish
Agreement shall be extended for a period of time equal to the Term of this
Agreement.
5. INSURANCE.
a) Alliance shall maintain at Alliance's expense, a general liability
insurance policy providing a minimum of $1,000,000 bodily injury and replacement
value property damage coverage for the Facilities and shall provide Producer
with a certificate of insurance evidencing such coverage.
b) Producer shall maintain, at Producer's expense, a general liability
insurance policy providing a minimum of $500,000 replacement value property
damage and bodily injury coverage as it relates to any injury to Producer and
its agents and for damage to Facilities due to Producer's actions, and Producer
shall provide Alliance with a certificate of insurance evidencing such coverage.
6. ALTERATIONS, ADDITIONS AND IMPROVEMENTS TO PROPERTY. Alliance may make such
alterations, additions, or improvements in such parts of the Facilities as
Alliance deems necessary for its purposes, provided, however, written consent
of Producer is first obtained. Any fixtures erected in or attached to premises
by Alliance may be removed by Alliance at the termination of this Agreement,
provided (i) Alliance shall not then be in default in the performance of any of
its agreements herein, (ii) that such removal shall not permanently injure the
building, and (iii) that removal shall be made before the expiration of the Term
of this Agreement.
7. PAYMENT TO PRODUCER. Alliance shall pay Producer, subject to Producer's
compliance with the terms and conditions of this Agreement, a monthly payment
determined by using the following payment calculation:
Monthly Payment = $32.55 x Pig Spaces
12
Such payments shall be paid to Producer on or before the 14th day of each month.
Failure to provide timely payment shall result in a late fee equivalent to the
accrual of interest on the monthly payment due at the rate of 1.5% per month
until paid, to be assessed to the amount due and payable by Alliance. Producer
and Alliance acknowledge and agree that for the Term (as defined herein),
Producer shall look solely to Alliance for any and all payments due hereunder;
provided, however, the parties hereto agree that any partial calendar month of
the Term shall be prorated according to the actual number of days said pig
spaces are available for use by Alliance. This Agreement is for four (4) units
of Nine Hundred (900) pig spaces each.
8. TERM AND TERMINATION.
a) This Agreement shall commence on April 14, 1997 and shall remain in
full force and effect, unless terminated earlier according to the terms hereof,
for a period of 14 months thereafter (the "Initial Term").
b) Possession and payment on the first two (2) units shall commence April
14, 1997. Possession and payment on the remaining two (2) units shall commence
April 21, 1997.
c) It is expressly understood that Producer may inform Alliance, by
written notice made to Alliance at least 90 days prior to the end of the Initial
Term, that Producer chooses to end this Agreement and resume the Grow/Finish
Agreement upon completion of the Initial Term. In such event, it shall be
Alliance's duty to inform Farmland that the Grow/Finish Agreement will resume at
the completion of the Initial Term. Otherwise, after the expiration of the
Initial Term, and with the consent of Farmland, this Agreement shall continue
thereafter on a month to month basis, upon the same terms and condition
provided herein, except that Alliance may terminate this Agreement at any time
after the tenth month of the Initial Term has expired, upon thirty (30) days
prior written notice (the Initial Term together with any subsequent extension
thereof shall hereinafter be defined as the "Term").
d) Upon termination of this Agreement, Alliance agrees to power wash and
disinfect the inside of the Facilities and feeders prior to admittance of the
first Lot under the Grow/Finish Agreement.
e) Upon termination of this Agreement and automatic resumption of the
Grow/Finish Agreement, Alliance promises that should Farmland fail to repopulate
the facility within seven (7) days, Alliance will continue to pay as
compensation to Producer, an amount equal to that which is contemplated under
paragraph 7 hereinabove. However, payment by Alliance contemplated under this
paragraph shall not apply if (i) this contract is terminated due to default by
Producer, or (ii) if there is a casualty of the Facilities.
9. EVENTS OF DEFAULT. Any party to this Agreement shall be in default upon the
happening of any of the following events:
a) Actual or attempted levy, seizure or attachment of any of the swine or
any of Alliance's property delivered to the Facilities or otherwise to Producer;
b) Insolvency or bankruptcy of any party;
c) The happening of any action which is not in conformance with industry
standards, which endangers or impairs the swine, Alliance's property or
Producer's property;
d) failure of any party to perform its obligations under this Agreement;
or
e) Any representation or warranty made by any party or on behalf of any
party which proves to be incorrect or otherwise misleading.
10. ACTION BY PARTIES UPON BREACH. This Agreement may be terminated by any
party in the event of any default by the other party(s), upon written notice by
the party to the Defaulting party of such default, and the default remains
uncured for a period of ten (10) days (or such longer period as required by law)
from the date of the notice of such default.
Notwithstanding the provisions of this Section, Alliance shall have the
right to immediately remove the swine, if, in its sole judgment, such removal is
reasonably necessary to protect the swine or Alliance's interest therein from
imminent danger, and Alliance shall have the right to terminate this Agreement
pursuant to paragraph 9 hereinabove.
11. CONDITION OF PREMISES UPON TERMINATION. Alliance agrees to give up
possession of the Facilities upon the expiration of the Term in as good as
condition as when the Term began, normal wear and tear, loss by fire, and other
casualty or inevitable accident excepted. Alliance agrees to pay for any damage
to the Facilities in violation of this provision.
12. WAIVER OF DEFAULT. No waiver by Alliance of any default shall operate as a
waiver of any other default or of the same default on a future occasion.
13. INDEPENDENT CONTRACTOR. The relationship created by this Agreement is that
of independent contractor and nothing contained herein is intended or shall be
construed as creating any agency, employer-employee or other relationship.
14. FACILITIES LOCATION. The Facilities are located at the same location or
locations as is designated in the Grow/Finish Agreement.
15. INDEMNIFICATION. Except as provided in paragraph 11 herein, Alliance
agrees to indemnify and hold Producer harmless from and against all loss,
liability, claims, fines, expenses, damage, costs and demands for loss or damage
arising out of or in connection with the use, acts and negligence of Alliance,
its employees and agents upon the Facilities. Alliance agrees to pay all
expenses, including costs and reasonable attorney's fees, which may be incurred
by Producer in defending any action for damages brought against Producer and
arising out of said use, acts and negligence of Alliance upon the Facilities.
16. COMPLIANCE WITH LAW. All parties agree to materially comply with the laws
of the United States, the State of Colorado, and County of Yuma, Colorado.
Additionally, should it become necessary now or in the future, that any type of
permit is required by law, for the activities directly or indirectly related to
the performance contemplated under paragraphs 2 and 3 of this Agreement, then
the party responsible for said performance agrees to pay costs regarding the
acquisition of said permits.
17. OWNERSHIP. Producer understands and agrees that all swine delivered to the
Facilities during the term of this Agreement are the property of Alliance, and
the swine and all increase thereof, if any, shall be and at all times remain the
property of Alliance. Producer shall have no ownership interest of any kind in
any of the swine.
18. NOTICE. Unless otherwise provided in this Agreement, any notice, tender,
or delivery to be given by either party to the other may be effected by personal
delivery, or by registered or certified mail, postage prepaid, and shall be
deemed delivered when mailed. Any mailed notice made to Producer shall be made
as follows: G & G Pork Producers, LLC, Christopher Glaze, registered agent, 514
South Ash, Yuma, Colorado 80759. Any mailed notice made to Alliance shall be
made as follows: 3315 North Oak Trafficway, Department 189, Kansas City,
Missouri 64166. Any mailed notice made to Farmland shall be made as follows:
3315 North Oak Trafficway, Department 189, Kansas City, Missouri 64116. Each
party may designate a new mailing address by written notice to the other party.
19. ASSIGNMENT AND MODIFICATION. This Agreement is binding on the heirs,
executors, and assigns of the parties. This Agreement cannot be changed,
modified or assigned without the prior written consent of both parties.
20. NO JOINT VENTURE. Nothing contained herein shall create a partnership, nor
joint venture between Producer and Alliance, Producer and Farmland, Alliance
and Farmland or any combination thereof.
21. HEADINGS. The headings used in this Agreement are inserted for convenience
only and constitute neither a portion of this Agreement nor in any manner affect
the provisions or interpretations of this Agreement.
22. CHOICE OF LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Colorado without reference to its
conflict of law rules.
23. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the Arbitrator(s) may be entered in any
Court having jurisdiction thereof.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
PRODUCER
By: Christopher E. Glaze
Name: Christopher E. Glaze
Title: Member
514 S. Ash
(Address)
(970) 848-2998
(Telephone No.)
###-##-####
(Social Security No.)
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By: /s/ Wayne N. Snyder
Name: Wayne N. Snyder
Title: President & Chairman
FARMLAND INDUSTRIES, INC.
By: /s/ Gary E. Evans
Name: Gary E. Evans
Title: Executive Vice President
Exhibit 10.37
COLORADO BREEDING FARM AGREEMENT
THIS AGREEMENT is made and entered into as of this 21 day of April, 1997 by
and between Alliance Farms Cooperative Association, of 3315 North Oak
Trafficway, Kansas City, Missouri 64116, (hereinafter "Alliance"); Triple R of
Yuma, Colorado (hereinafter "Producer"); and Farmland Industries, Inc. of 3315
North Oak Trafficway, Kansas City, Missouri 64116 (hereinafter "Farmland").
WHEREAS, Producer has facilities suitable for the feeding of swine (the
"Facilities"),
WHEREAS, Farmland and Producer have entered into a Colorado Grow/Finish
Agreement, dated 8/4/92, 4/4/94, 7/1/96 for the care and feeding of swine
("Grow/Finish Agreement"),
WHEREAS, Alliance desires to contract for the use of Producer's Facilities
for the feeding and care by Alliance of development gilts owned by Alliance.
NOW, THEREFORE, the parties agree as follows:
1. ACCESS. Producer specifically agrees that at all times during the term of
this Agreement, Alliance, its agents, employees and representatives shall have
the absolute and irrevocable right to enter upon the lands constituting
Producer's farm, the Facilities and any other designated swine production area
to conduct all activities associated with the care and management of Alliance's
gilts. Producer further agrees that Producer shall restrict the access of
Producer, its agents, employees and representatives to the Facilities to conduct
only those limited activities required by this Agreement.
2. MANAGEMENT RESPONSIBILITIES. Alliance shall arrange for the delivery of
gilts to the Facilities at Alliance's expense. The gilts shall be delivered in
such numbers and in such intervals as determined by Alliance in its sole
discretion (each such delivery shall hereinafter be referred to as a "Lot").
Alliance shall be solely responsible for the daily management and care of the
gilts. Alliance shall provide and deliver to the Facilities all feed, grain,
proteins, minerals, and medications (hereinafter collectively referred to as
"Supplies"). All Supplies remain the property of Alliance and any Supplies
remaining after the gilts have been removed from the Facilities may be picked up
by Alliance. Alliance shall be responsible for the provision and payment of all
utilities and labor necessary for the operation of the Facilities. Such payment
for utilities shall be mutually determined in good faith by Alliance and
Producer.
3. PRODUCER RESPONSIBILITIES. Producer shall be responsible for the following:
a) Maintenance of the Facilities and all equipment located therein
in proper functioning order.
b) Disposal of waste as required by all applicable governmental
regulations and good management practices.
c) Obtaining and maintaining all required governmental permits necessary
to own the Facilities and to comply with Producer's responsibilities
and obligations as detailed herein.
d) Maintaining all weather service roads to the Facilities in good
condition, free of any overhanging wires or other obstacles, with
adequate space for turning swine transport and service vehicles.
Failure to so maintain service roads and turning areas will result in
Producer's liability for any towing charges or other damages incurred
by Alliance.
e) Implementation of rodent and fly control procedures around the
Facilities.
f) Providing power washer for cleaning of the Facilities.
g) Power washing and disinfecting the inside of the Facilities and
feeders prior to admittance of the first Lot.
h) Keeping dogs, cats and other domestic animals out of the Facilities.
i) Providing Alliance unrestricted access to the Facilities to conduct
activities associated with this Agreement.
4. SUSPENSION OF GROW/FINISH AGREEMENT. During the term or earlier termination
of this Agreement, Farmland and Producer agree that:
a) all of Farmland's responsibilities to Producer, including, but not
limited to the obligation to make payment to Producer, under the
Grow/Finish Agreement shall be suspended.
b) all of Producer's performance obligations to Farmland under the
Grow/Finish Agreement as to the care and feeding of swine provided by
or on behalf of Farmland shall be suspended.
c) Farmland shall not be required to pay the Minimum Annual Payment (as
said term is defined in the Grow/Finish Agreement) or any portion
thereof, as required under the Grow/Finish Agreement for any period
attributable to the term in which this Agreement is in effect.
d) a default or breach by Alliance of its responsibilities and
obligations under this Agreement shall not constitute a default or
breach under the Grow/Finish Agreement.
e) a default or breach by Producer of its responsibilities and
obligations under this Agreement shall constitute a default or breach
under the Grow/Finish Agreement.
The foregoing rights and responsibilities of Farmland and Producer under the
Grow/Finish Agreement shall resume upon the termination of this Agreement;
provided, however, this Agreement shall act to extend the original term of the
Grow/Finish Agreement for the length of this Agreement.
5. INSURANCE. Producer shall maintain, at Producer's expense, a general
liability insurance policy providing a minimum of $500,000 bodily injury and
replacement value property damage coverage for the Facilities and shall provide
Alliance with a certificate of insurance evidencing such coverage.
6. ALTERATIONS, ADDITIONS AND IMPROVEMENTS TO PROPERTY. Alliance may make such
alterations, additions or improvements in such parts of the Facilities as it
deems necessary for its purposes; provided, however, Alliance must obtain the
consent of Producer prior to any such alteration, addition or improvement. Any
fixtures erected in or attached to the Facilities by Alliance may be removed by
Alliance at the termination of this Agreement, provided that any such removal
shall not permanently injure the building.
7. PAYMENT TO PRODUCER. Alliance shall pay Producer, subject to Producer's
compliance with the terms and conditions of this Agreement, a monthly payment
determined by using the following payment calculation:
Monthly Payment = $31.50 x Pig Spaces
12
Such payment shall be paid to Producer approximately 14 days after the start of
each month. Producer and Alliance acknowledge and agree that for the Term (as
defined herein), Producer shall look solely to Alliance for any and all payments
due hereunder; provided, however, the parties hereto agree that any partial
calendar month of the Term shall be prorated according to the actual number of
days said pig spaces are available for use by Alliance. This Agreement is for
5,640 pig spaces.
8. TERM AND TERMINATION. This Agreement shall commence on 5-1, 1997 and shall
remain in full force and effect, unless terminated earlier according to the
terms hereof, for a period of 14 months thereafter (the "Initial Term"). After
the expiration of the Initial Term, and with the consent of Farmland, this
Agreement shall continue thereafter on a month to month basis, upon the same
terms and conditions provided herein, except that Alliance may terminate this
Agreement at any time thereafter upon thirty (30) days prior written notice (the
Initial Term together with any subsequent extension thereof shall hereinafter be
defined as the "Term").
9. CONDITION OF PREMISES UPON TERMINATION. Alliance agrees to give up
possession of the Facilities upon the expiration of the Term in as good as
condition as when the Term began, normal wear and tear, loss by fire, other
casualty or inevitable accident excepted.
10. WAIVER OF PROPERTY DAMAGE. Subject to the provisions of Section 9 hereof,
Producer hereby waives any and all claims for recovery from Alliance or Farmland
for loss or damage to Producer's property caused directly or indirectly by the
swine.
11. EVENTS OF DEFAULT. Producer shall be in default upon the happening of any
of the following events:
a)Default under any financing agreement, security agreement, note or any
other document, writing or instrument evidencing an obligation of
Producer to a lending institution;
b)Actual or attempted levy, seizure or attachment of any of the swine or
any of Alliance's property delivered to the Facilities or otherwise to
Producer;
c)Producer using abusive language or threatening physical harm to Alliance
or its authorized representatives or preventing or impeding Alliance or
its authorized representatives from accessing the Facilities or the
swine;
d)Insolvency or bankruptcy of the Producer;
e)The happening of any event which in the opinion of Alliance endangers or
impairs the swine or Alliance's property;
f)Failure of Producer to perform its obligations under this Agreement; or
g)Any representation or warranty made by Producer or on behalf of Producer
proves to be incorrect or otherwise misleading.
12. ACTION BY ALLIANCE ON DEFAULT OF PRODUCER. This Agreement may be
terminated by Alliance in the event of any default by Producer, upon written
notice by Alliance to Farmland and Producer of such default, and the default
remains uncured for a period of ten (10) days (or such longer period as required
by law) from the date of the notice of such default. In the event there are two
defaults by Producer of a same or similar nature in any one year period which
are cured by Producer, upon the happening of a third default by Producer of a
same or similar nature to the first two defaults within such one year period,
Alliance shall have the right to terminate this Agreement without the Producer
having any cure rights. Alliance reserves the right to exercise any other
rights it may have at law or in equity.
Notwithstanding the provisions of this Section, Alliance shall have the
right to immediately remove the swine, if, in its sole judgment, such removal is
reasonably necessary to protect the swine or Alliance's interest therein from
imminent danger, and Alliance shall have the right to terminate this Agreement.
13. WAIVER OF DEFAULT. No waiver by Alliance of any default shall operate as a
waiver of any other default or of the same default on a future occasion.
14. INDEPENDENT CONTRACTOR. The relationship created by this Agreement is that
of independent contractor and nothing contained herein is intended or shall
be construed as creating any agency, employer-employee or other
relationship.
15. FACILITIES LOCATION. The Facilities shall be located at such location or
locations as is designated in the Grow/Finish Agreement.
16. OWNERSHIP. Producer understands and agrees that all swine delivered to the
Facilities during the term of this Agreement are the property of Alliance, and
the swine and all increase thereof, if any, shall be and at all times remain the
property of Alliance. Producer shall have no ownership interest of any kind in
any of the swine. Producer shall execute any UCC-1 financing statement or other
documents Alliance deems necessary or advisable to protect Alliance's ownership
of the swine.
17. LIENS. Producer waives any right Producer may have to assert and agrees
not to assert or permit to be asserted any lien upon any of the swine which are
the subject matter of this Agreement and will INDEMNIFY, REIMBURSE AND HOLD
ALLIANCE HARMLESS from any and all such liens or claims to any of the swine or
the proceeds thereof.
18. ASSIGNMENT AND MODIFICATION. This Agreement is binding on the heirs,
executors, and assigns of the parties. This Agreement cannot be changed,
modified or assigned without the prior written consent of both parties.
19. NO JOINT VENTURE. Nothing contained herein shall create a partnership, nor
joint venture between Producer and Alliance, Producer and Farmland, Alliance
and Farmland or any combination thereof.
20. HEADINGS. The headings used in this Agreement are inserted for convenience
only and constitute neither a portion of this Agreement nor in any manner affect
the provisions or interpretations of this Agreement.
21. CHOICE OF LAW. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Colorado without reference to its
conflict of law rules.
22. ARBITRATION. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the Arbitrator(s) may be entered in any
Court having jurisdiction thereof.
THIS CONTRACT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year first above written.
PRODUCER
By: /s/ Donald Rutledge
Name: Triple R
Title: President
10639 C Rd 30, Yuma, Co
(Address)
970-848-2549
(Telephone No.)
(Social Security No.)
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By: /s/ Wayne N. Snyder
Name: Wayne N. Snyder
Title: President
FARMLAND INDUSTRIES, INC.
By: /s/ Gary E. Evans
Name: Gary E. Evans
Title: Executive Vice President
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Alliance Farms Cooperative Association:
We consent to the use of our reports included herein, and to the reference to
our firm under the headings "Selected Financial Data" and "Experts" in the
Prospectus.
KPMG Peat Marwick LLP
Kansas City, Missouri
May 23, 1997
Exhibit 99.2
SUBSCRIPTION AGREEMENT
Alliance Farms Cooperative Association
c/o Farmland Industries, Inc.
3315 North Oak Trafficway
Department 47
Kansas City, Missouri 64116
Attention: Wayne N. Snyder
Gentlemen:
1. Subscription.
a. The undersigned understands that Alliance Farms Cooperative
Association, a Colorado cooperative association (the "Company"), may offer up to
(i) an aggregate of 51 shares (the "Class A Shares") of its (Class A) Common
Stock, $.01 par value, on a "best efforts, all-or-none" basis for not less than
17 Class A Shares (a "Minimum Class A Block"), and thereafter may continue to
offer Class A Shares on such basis with respect to successive Minimum Class A
Blocks until 51 Class A Shares have been issued and sold, (ii) an aggregate of
54 shares (the "Class B Shares") of its Class B Common Stock, $.01 par value, on
a "best efforts, all-or-none" basis for not less than 18 Class B Shares (a
"Minimum Class B Block"), and thereafter may continue to offer Class B Shares on
such basis with respect to successive Minimum Class B Blocks until 54 Class B
Shares have been issued and sold, and (iii) an aggregate of 72 shares (the
"Class C Shares" and together with the Class A Shares and the Class B Shares,
the "Shares") of its Class C Common Stock, $.01 par value, on a "best efforts,
all-or-none" basis for not less than 24 Class C Shares (a "Minimum Class C
Block"), and thereafter may continue to offer Class C Shares on such basis with
respect to successive Minimum Class C Blocks until 72 Class C Shares have been
issued and sold. The undersigned acknowledges and agrees that prior to the
execution of this Subscription Agreement, the undersigned has received the
Company's Prospectus dated , 1997 for the Shares, which Prospectus
contains the form of this Subscription Agreement.
b. The undersigned hereby subscribes for and agrees to purchase
(i) Class A Shares at a price of $80,000 per share, (ii) Class B
Shares at a price of $60,000 per share, and (iii) Class C Shares at a
price of $45,000 per share, pursuant to the terms and conditions of this
Subscription Agreement (the "Subscription")<F1>. The undersigned understands and
agrees that in order to subscribe for any Shares, the following items must be
delivered to the Company on or before 5:00 p.m. on , 1998 (or by 5:00
p.m. on , 1999 if the termination of the offering is extended by the
Company):
[FN]
One Class A Share, one Class B Share or one Class C Share is the minimum
number of Shares for which an investor may subscribe, as described in the
Prospectus.
(A) two completed and executed copies of this Subscription
Agreement;
(B) the undersigned's check, bank draft or wire transfer
(contact the Company for wire transfer instructions), payable to the order
of "Alliance Farms Cooperative Association Escrow No. 1482300" in an amount
representing the aggregate purchase price of the Shares being subscribed
for hereunder (which amount is equal to the sum of (i) the product obtained
by multiplying the number of Class A Shares being subscribed for by $80,000
per Share, plus (ii) the product obtained by multiplying the number of
Class B Shares being subscribed for by $60,000 per Share, plus (iii) the
product obtained by multiplying the number of Class C Shares being
subscribed for by $45,000 per Share);
(C) (if the undersigned is subscribing for any Class A Shares)
two completed and executed copies of the Feeder Pig Purchase Agreement in
the form attached to the Prospectus as Exhibit B;<F2>
[FN]
Please do not date the Feeder Pig Purchase Agreement; the Company will date
the Feeder Pig Purchase Agreement upon acceptance of subscriptions.
(D) (if the undersigned is subscribing for any Class B Shares)
two completed and executed copies of the Weaned Pig Purchase Agreement in
the form attached to the Prospectus as Exhibit C;<F3> and
[FN]
Please do not date the Weaned Pig Purchase Agreement; the Company will date
the Weaned Pig Purchase Agreement upon acceptance of subscriptions.
(E) (if the undersigned is subscribing for any Class C Shares)
two completed and executed copies of the Class C Weaned Pig Purchase
Agreement in the form attached to the Prospectus as Exhibit D;<F4> and
[FN]
Please do not date the Class C Weaned Pig Purchase Agreement; the Company
will date the Class C Weaned Pig Purchase Agreement upon acceptance of
subscriptions.
(F) one executed stock power respecting the Class A Shares
subscribed by the undersigned hereunder in favor of the Company as
contemplated by Section 17 of the Feeder Pig Purchase Agreement.<F5>
[FN]
A form stock power is attached hereto as Annex 1 for your convenience.
Please do not date or otherwise complete the stock power; the Company will
date and complete the stock power upon acceptance of subscriptions.
(G) one executed stock power respecting the Class B Shares
subscribed by the undersigned hereunder in favor of the Company as
contemplated by Section 17 of the Weaned Pig Purchase Agreement.<F6>
[FN]
A form stock power is attached hereto as Annex 1 for your convenience.
Please do not date or otherwise complete the stock power; the Company will
date and complete the stock power upon acceptance of subscriptions.
(H) one executed stock power respecting the Class C Shares
subscribed by the undersigned hereunder in favor of the Company as
contemplated by Section 17 of the Class C Weaned Pig Purchase Agreement.
<F7>
[FN]
A form stock power is attached hereto as Annex 1 for your convenience.
Please do not date or otherwise complete the stock power; the Company will
date and complete the stock power upon acceptance of subscriptions.
In addition, if the undersigned is a resident of Iowa, or otherwise is
subscribing for Shares in Iowa, the undersigned may be required to deliver to
the Company a completed and executed Potential Investor Questionnaire with
respect to the representation and warranty made pursuant to Section 3.l below.
The undersigned understands that pending the Company's acceptance of
subscriptions for a Minimum Class A Block, a Minimum Class B Block or a Minimum
Class C Block in this offering and the satisfaction of certain other conditions,
all funds received by the Company in payment of the offering price for the
Shares promptly will be deposited in an interest-bearing escrow account
established at NationsBank, N.A. (Mid-West) (formerly Boatmen's National Bank),
Kansas City, Missouri. Payment of the applicable offering price must be made
payable to the order of "Alliance Farms Cooperative Association Escrow No.
1482300", the escrow account established at such bank. Upon the Company's
acceptance of subscriptions for a Minimum Class A Block of 17 Class A Shares,
for a Minimum Class B Block of 18 Class B Shares or for a Minimum Class C Block
of 24 Class C Shares, and the satisfaction of certain other conditions, all
funds deposited in the escrow account with respect to such Shares, together with
any interest earned thereon, will be paid to the Company. In the event that the
Company does not issue Shares for which funds have been deposited in the escrow
account prior to the termination of the offering, such funds will be refunded to
the respective subscribers, together with any interest earned thereon and
without any deduction being made for expenses.
c. The undersigned understands that this Subscription shall be
irrevocable, except as otherwise provided by virtue of applicable federal and
state securities laws, and shall survive the death or disability of the
undersigned, in the case of an individual, or the dissolution or bankruptcy of
the undersigned, in the case of an entity.
2. Acceptance of Subscription. The undersigned understands that if and
to the extent this Subscription is not accepted by the Company, in whole or in
part, prior to 5:00 p.m. on , 1998 (or by 5:00 p.m. on ,
1999 if the termination date of the offering is extended by the Company), any
amount so received by the Company will be returned to the undersigned. The
undersigned acknowledges that the management of the Company reserves the right,
in its sole and absolute discretion, to accept or reject this Subscription, in
whole or in part, and that this Subscription shall not be binding unless and
until accepted by the Company. The undersigned agrees that subscriptions need
not be accepted in the order they are received.
3. Representations, Warranties and Agreement. The undersigned represents
and warrants to the Company and its officers, directors, employees, agents and
controlling persons, and agrees with such persons, as follows:
a. The undersigned and his or her representative, if any, have
been furnished all additional information relating to the Company, its
business and financial condition, the offering of the Shares and any
other matter set forth in the Prospectus which they have requested.
b. The undersigned agrees that the certificates evidencing the
Shares being purchased by the undersigned shall be stamped or
otherwise imprinted with a conspicuous legend in substantially the
following form:
Sale, transfer or hypothecation of the shares represented by
this certificate is restricted by the provisions of the
Colorado cooperative association law and the Articles of
Incorporation and Bylaws of Alliance Farms Cooperative
Association (the "Company"), a copy of which provisions may
be inspected at the principal offices of the Company, and
all provisions of which are hereby incorporated by reference
in this certificate.
The undersigned agrees that the Shares or any of them shall be sold,
pledged, assigned, hypothecated, or otherwise transferred (with or
without consideration) (a "Transfer") only if such Transfer is
permissible under the Colorado cooperative association law and the
Company's Articles of Incorporation and Bylaws. The undersigned
understands that the Company has not agreed to register the Shares for
distribution in accordance with the provisions of certain applicable
state securities law (the "State Acts"), that the Company is the only
party who may register the Shares under certain State Acts and that
the Company has not agreed to comply with any exemption under the
State Acts for the resale of the Shares. The undersigned understands
that there is and likely will be no market for the (Class A) Common
Stock, Class B Common Stock or Class C Common Stock of the Company and
that the undersigned therefore may be unable to sell or dispose of the
Shares.
c. The undersigned agrees that a stop transfer order shall be
placed on the transfer books maintained with respect to the Shares
which gives effect to the restrictive legend set forth in Section 3.b.
d. The undersigned understands that no federal or state agency
has passed upon the Shares or upon the accuracy or adequacy of the
Prospectus, or made any finding or determination as to the fairness of
the investment or any recommendation or endorsement of the Shares.
The undersigned understands that the Prospectus may not have been
filed with or reviewed by certain state securities administrators.
e. The undersigned is a producer of agricultural products, an
association of such producers, or a federation of such associations.
f. If a natural person, the undersigned is a citizen of the
United States of America, is at least 21 years of age, and has the
legal capacity to execute, deliver and perform this Agreement, and his
or her principal residence is located within the state designated
under his or her name below.
g. If the undersigned is a corporation, trust, partnership, or
any other entity, such entity is authorized and otherwise duly
qualified and empowered to execute and deliver this Subscription
Agreement and thereupon shall become legally bound thereby, all
necessary actions have been taken to authorize and approve the
investment in the Shares, such entity was not formed for the purpose
of making the investment in the Shares and such entity's principal
place of business is located at the address set forth on the signature
page hereof.
h. The undersigned acknowledges and agrees that certain
commissions as described in the Prospectus may be due and payable to
certain selling agents or other representatives of the Company in
connection with this Subscription.
i. The undersigned acknowledges that the Company may assign the
Company's rights in and to the Feeder Pig Purchase Agreement and/or
Weaned Pig Purchase Agreement and/or Class C Weaned Pig Purchase
Agreement executed by the undersigned and any and all other assets of
the Company to any lender that may provide financing to the Company in
connection with the construction of feeder or weaned pig production
facilities or the operation thereof, or both, and the undersigned
consents to any such assignment.
j. If the undersigned is a resident of Iowa, or otherwise is
subscribing for Shares in Iowa, the undersigned certifies that the
undersigned either (i) has a net worth, or joint net worth with the
undersigned's spouse, in either case, exclusive of home, furnishings
and automobiles ("Adjusted Net Worth") of at least $65,000 as of the
date hereof, and an annual gross income of at least $65,000 for each
of the undersigned's two most recent tax years; or (ii) has Adjusted
Net Worth of at least $250,000 as of the date hereof.
4. Taxpayer Identification Number. The undersigned agrees to complete,
execute and return to the Company a Form W-9, "Payer's Request for Taxpayer
Identification Number and Certification", concurrently with the delivery of the
executed copy of this Subscription Agreement.<F8>
[FN]
A Form W-9 is attached hereto as Annex 2 for your convenience.
5. Indemnification. The undersigned agrees to indemnify and hold
harmless the Company, its officers, directors, employees, shareholders and
affiliates, and any person acting on behalf of the Company, from and against any
and all damage, loss, liability, cost and expense (including attorneys' fees)
which any of them may incur by reason of the failure by the undersigned to
fulfill any of the terms or conditions of this Subscription Agreement. All
representations, warranties and covenants contained in this Subscription
Agreement, and the indemnification contained in this Section 5 shall survive the
acceptance of this Subscription.
6. No Waiver. Notwithstanding any of the representations, warranties,
acknowledgements or agreements made herein by the undersigned, the undersigned
does not thereby or in any other manner waive any of the rights granted to the
undersigned under federal or state securities law.
7. Entire Agreement; Modification. This Subscription Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof, and neither this Subscription Agreement nor any
provisions hereof shall be waived, changed, discharged or terminated except by
an instrument in writing signed by the party against whom any waiver, change,
discharge or termination is sought.
8. Notices. Any notice, demand or other communication which any party
hereto may be required, or may elect, to give to anyone interested hereunder
shall be effective only if it is in writing and personally delivered or sent by
certified or registered mail, return receipt requested, postage prepaid, or by a
nationally recognized overnight delivery service, with delivery confirmed,
addressed to: in the case of the Company: Alliance Farms Cooperative
Association, c/o Farmland Industries, Inc., 3315 North Oak Trafficway,
Department 47, Kansas City, Missouri 64116, Attention: Wayne N. Snyder, or at
such other address as the Company shall so notify the undersigned pursuant
hereto, and in the case of the undersigned at the address set forth on the
signature page thereof or at such other address as the undersigned shall so
notify the Company pursuant hereto. Any such notice, demand or other
communication shall be deemed to have been given as of the date when so
delivered.
9. Binding Effect. Except as otherwise provided herein, this
Subscription Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators,
successors, legal representatives and assigns. If the undersigned is more than
one person, the obligations of the undersigned shall be joint and several and
the agreements, representations, warranties and acknowledgements herein
contained shall be deemed to be made by and be binding upon each such person and
the undersigned's respective heirs, executors, administrators, successors, legal
representatives and assigns.
10. Type of Ownership. The Subscriber wishes to own the Shares as follows
(mark one):
[ ] Separate or individual property;
[ ] Joint tenants with right of survivorship (both parties must sign all
required documents);
[ ] Community property (both parties must sign all required documents);
[ ] Trust (include name of trust, name of trustee, and include a copy of
the trust instrument);
[ ] Corporation (include articles of incorporation, bylaws and certified
corporate resolution authorizing the investment and signature);
[ ] Partnership (include a copy of the partnership agreement and a written
consent of partners authorizing the investment and signature);
[ ] Other (specify): .
(Note: Subscribers should seek the advice of their attorney in deciding in
which of the above forms they should take ownership of the Shares, since
different forms of ownership may have varying gift tax, estate tax, income tax
and other consequences, depending on the state of the Subscriber's domicile and
the Subscriber's particular personal circumstances.)
The name(s) in which the Shares are to be held is:
11. Assignability. The undersigned agrees not to transfer or assign this
Subscription Agreement, or any of the undersigned's interest herein, and further
agrees that the transfer or assignment of the Shares shall be made only in
accordance with the terms and conditions of this Subscription Agreement, the
Company's Articles of Incorporation and Bylaws, and all applicable laws.
12. Applicable Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
[The remainder of this page intentionally has been left blank]
THE UNDERSIGNED HEREBY REPRESENTS THAT THE UNDERSIGNED HAS READ THIS
SUBSCRIPTION AGREEMENT IN ITS ENTIRETY.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this day of , 199 , at ,
.
(city) (state)
INDIVIDUALS SIGN HERE
Note: If the Subscriber wishes to
own the Shares with another person as
joint tenants, or as community Signature
property, both individuals must sign
this Subscription Agreement. Name (please print)
Social Security Number
Principal Residence Address of
Subscriber
Street Address
City and State Zip Code
Additional Individual (if any)
Signature
Name (please print)
Social Security Number
Principal Residence Address of
Subscriber
Street Address
City and State Zip Code
THE UNDERSIGNED HEREBY REPRESENTS THAT THE UNDERSIGNED HAS READ THIS
SUBSCRIPTION AGREEMENT IN ITS ENTIRETY.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this day of , 199 , at ,
.
(city) (state)
ORGANIZATIONS SIGN HERE
Note: If signed on behalf of a Printed Name of Organization
corporation, please submit the
corporation's articles of
incorporation, bylaws, and certified By:
corporate resolution authorizing the Signature
investment and signature. If signed
on behalf of a partnership, please
submit a copy of the partnership Printed Name and Title
agreement and a written consent of
partners authorizing the investment By:
and signature. If signed on behalf (Additional signature if required
of a trust, please submit the name of by
the trust, name of the trustee, and a governing instrument)
copy of the trust instrument.
Printed Name and Title
Federal Taxpayer Identification
Number
Address of Principal Place of
Business:
Street Address
City and State Zip Code
Country (if other than U.S.A.)
ALLIANCE FARMS COOPERATIVE ASSOCIATION hereby [accepts][rejects] the above
Subscription on this day of , 199 , at ,
Colorado.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By:
Name:
Title:
