As filed with the Securities and Exchange Commission on October 6, 1998
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
(POST-EFFECTIVE AMENDMENT NO. 1)
______________
ALLIANCE FARMS COOPERATIVE ASSOCIATION
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
0213 84-1270685
COLORADO (Primary Standard Industrial (I.R.S. Employer
(State or jurisdiction of Classification Code Number) Identification No.)
incorporation or organization)
</TABLE>
503 EAST 8TH AVENUE
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
10150 NORTH EXECUTIVE HILLS BOULEVARD
KANSAS CITY, MISSOURI 64153
(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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement in
the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Proposed
maximum Proposed
offering maximum
Amount price aggregate Amount of
Title of each class of securities to be per share(1) offering registration
to be registered registered price(1) fee(2)
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
</TABLE>
(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 ($1,236, $982 and $982 for the shares of
Common Stock, Class B Common Stock and Class C Common Stock, respectively) was
paid on April 18, 1997 in connection with the initial filing of this
Registration Statement.
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 October 6, 1998)
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
consummated the issuance and sale of 17 shares of Class A Common and 36 shares
of Class B Common 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 a $2,720,000 loan, and 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 a $2,160,000 loan. As of the date of this
Prospectus, the Company has obtained such commitments with respect to at least
five Minimum Blocks of the remaining Shares offered hereby until December 31,
2001. 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.,
8- to 9-week old pigs weighing between approximately 30 and 50 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., 20- to 25-day old pigs weighing at
least six pounds) from each such facility. Each investor must purchase a
minimum of one Class A Share, one Class B Share, or one Class C Share, and in
addition must enter into a Pig Purchase Agreement with the Company in the form
attached to this Prospectus as Exhibit B. 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 The Bank of New York. The offering of the Shares
will terminate on January 7, 1999 (550 days from the July 7, 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, Class B Common or Class C Common executes and
delivers to the Company a Pig Purchase Agreement with respect to such class. 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 [JWA1]10 THROUGH 18, 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.
<TABLE>
<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
<FN>(
Footnotes on next page)
</TABLE>
Following was a landscape red herring.
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.
_________________________
The date of this Prospectus is October 6, 1998
.
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
Prospectus Summary ........... 3
Risk Factors ................. 10
The Company................... 19
Use of Proceeds............... 19
Patronage Distribution Policy. 26
Capitalization ............... 26
Selected Financial Data....... 29
Management's Discussion and
Analysis of Financial Condition
and Results of Operations... 30
Business...................... 36
Pig Purchase Agreement........ 49
Management ................... 53
Certain Relationships and Related
Transactions................ 55
Principal Stockholders ....... 58
Description of Capital Stock . 59
Restrictions on Sale or Other Transfer
of the Shares .............. 60
Plan of Distribution.......... 62
Legal Matters................. 67
Experts....................... 67
Additional Information ....... 67
Index of Financial Statements F-1
Exhibit A -- Form of Subscription
Agreement...................A-1
Exhibit B -- Form of Pig
Purchase Agreement..........B-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., 10150 North Executive
Hills Boulevard, Kansas City, Missouri 64153 (telephone number 816-891-3686),
until the termination of the offering.
Until __________, 1998 (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.
_____________________
(Footnotes to table on previous page)
(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 agency agreements with I/JL providing for the
payment by Alliance of total lump sum fees of $80,000 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 consummated the
issuance and sale of 17 Class A Shares and 36 Class B 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 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), two 2,450-sow feeder pig production facilities
located in Wayne County, Illinois (approximately 100 miles east of St. Louis,
Missouri), and was in the process of developing one 2,450-sow weaned pig
production facility in Yuma County, Colorado and one weaned pig production
facility in Wayne County, Illinois. As of the date of this Prospectus, the
Company has commenced preliminary development activities with respect to a
5,000-sow pig production facility in Yuma County, Colorado. Financing for the
acquisition of real estate, facilities construction and acquisition of breeding
stock with respect to the 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 two Minimum Blocks of the
remaining Shares offered hereby will be applied to the Colorado facility
presently under development. See "The Company," "Business" and "Use of
Proceeds."
The principal executive offices of the Company are located at 503 East 8th
Avenue, 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 (of which 17 Class A Shares and 36
Class B Shares already have been issued and sold as of the
date of this Prospectus). 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 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 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 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," "Pig Purchase
Agreement."
Subscription and Payment Payment of the public offering price for the
Common Stock being subscribed for, together with two copies
of (i) an executed Subscription Agreement, and (ii) an
executed 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 Common Stock enter into a 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
consummated the issuance and sale of 17 Class A Shares and
36 Class B Shares 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 a $2,720,000 loan 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 a
$2,160,000 loan with respect to each such Minimum Block. As
of the date of this Prospectus, the Company has obtained
such a commitment with respect to at least five Minimum
Blocks of the remaining Shares offered hereby until December
31, 2001. 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 The Bank of
New York. 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 January 7, 1999
(550 days from the July 7, 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 1997, 1996 and 1995 operations of Alliance. 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 September 1, 1994 through
August 31, 1997, all of which have been audited by the Company's independent
certified public accountants. [JWA2]The summary historical financial
information as of May 31, 1998 and for the nine months ended May 31, 1998 and
1997 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, NINE MONTHS ENDED
MAY 31,
1997 1996 1995 1998 1997
<S> <C> <C> <C> <C> <C>
Net sales $13,669,706 $7,037,927 $ 1,554,113 $13,346,482 $9,871,995
Cost of goods sold 11,222,169 6,422,838 1,836,388 9,587,739 8,239,573
Gross income(loss) 2,447,537 615,089 (282,275) 3,758,743 1,632,422
Expenses related to start-up 281,025 426,926 754,756 791,861 174,215
of
new production facilities
Administrative expenses 424,565 369,787 101,927 751,269 326,170
(Gain) Loss on sale of (94,123) 226,738 112,797 159,057 76,710
breeding stock
Operating income (loss) 1,836,070 (408,362) (1,251,755) 2,056,556 1,055,327
Interest expense (1,321,984) (1,001,329) (289,082) (1,129,039) (919,360)
Other income 144,209 66,604 27,509 298,355 101,111
(1,177,775) (934,725) (261,573) (830,684) (818,249)
Net income (loss) $ 658,295 $(1,343,087) $(1,513,328) $1,225,872 $ 237,078
OTHER INFORMATION:
Pigs Sold 231,611 148,926 46,858 228,040 169,459
</TABLE>
<TABLE>
<CAPTION>
AS OF AUGUST 31, AS OF MAY 31,
<S> <C> <C> <C> <C>
BALANCE SHEET INFORMATION: 1997 1996 1995 1998
Working Capital (Deficit) $ (114,425) $ (257,702) $ 1,238,271 $ (
7,355)
Total Assets 24,380,406 20,845,613 14,571,940 28,855,236
Shareholders' Equity 6,496,168 4,606,289 4,627,693 9,754,168
</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 debt financing,
for the development or acquisition of one new 2,450-sow
feeder pig production facility (which facility may exist as
a stand-alone unit or as part of a 5,000-sow production
complex) 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
anticipation of the sale of one or more Minimum Class A
Blocks, the Company, from time to time, may borrow up to
$1,360,000 per Minimum Class A Block from Farmland
Industries, Inc. ("Farmland") to commence the development or
acquisition of a feeder pig production facility. In such
event the net proceeds from the sale of a Minimum Class A
Block will be applied to such facility, including the
repayment of the 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 debt financing,
will be used for the development or acquisition of feeder
pig production facilities having the capacity of three
2,450-sow units. The Company anticipates that the net
proceeds of the offering of each Minimum Class A Block, the
approximately $2,720,000 of debt financing required 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 December 31, 2001
for the debt financing required with respect to at least
five Minimum Blocks of the remaining 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 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 debt financing,
for the development or acquisition of one new 2,450-sow
weaned pig production facility (which facility may exist as
a stand-alone unit or as part of a 5,000-sow production
complex) 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
anticipation of the sale of one or more Minimum Class B
Blocks, the Company, from time to time, may borrow up to
$1,080,000 per Minimum Class B Block from Farmland to
commence the development or acquisition of a weaned pig
production facility. In such event the net proceeds from
the sale of a Minimum Class B Block will be applied to such
facility, including the repayment of the debt financing,
together with interest thereon, provided by Farmland. If
all 54 Class B Shares offered hereby are sold, the net
proceeds to the Company, together with approximately
$6,480,000 of debt financing, will be used for the
development or acquisition of weaned pig production
facilities having the capacity of three 2,450-sow units.
The Company anticipates that the net proceeds of the
offering of each Minimum Class B Block, the approximately
$2,160,000 of debt financing required 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. As of the date
of this Prospectus, the Company has obtained a commitment
until December 31, 2001 for the debt financing required with
respect to at least five Minimum Blocks of the remaining
Shares offered hereby. 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 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 debt financing,
for the development or acquisition of one new 2,450-sow
weaned pig production facility (which facility may exist as
a stand-alone unit or as part of a 5,000-sow production
complex) 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
anticipation of the sale of one or more Minimum Class C
Blocks, the Company, from time to time, may borrow up to
$1,080,000 per Minimum Class C Block from Farmland to
commence the development or acquisition of a weaned pig
production facility. In such event the net proceeds from
the sale of a Minimum Class C Block will be applied to such
facility, including the repayment of the debt financing,
together with interest thereon, provided by Farmland. If
all 72 Class C Shares offered hereby are sold, the net
proceeds to the Company, together with approximately
$6,480,000 of debt financing, will be used for the
development or acquisition of weaned pig production
facilities having the capacity of three 2,450-sow units.
The Company anticipates that the net proceeds of the
offering of each Minimum Class C Block, the approximately
$2,160,000 of debt financing required 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. As of the date
of this Prospectus, the Company has obtained a commitment
until December 31, 2001 for the debt financing required with
respect to at least five Minimum Blocks of the remaining
Shares offered hereby. See "Use of Proceeds," "Business--
Financing" and "Risk Factors."
PIG PURCHASE AGREEMENT
Each investor purchasing one or more Shares must enter into a Pig Purchase
Agreement, in the form attached hereto as Exhibit B ("Pig Purchase Agreement"),
pursuant to which (a) investor members owning Class A Shares will be required to
purchase, and the Company will be required to sell, feeder pigs constituting
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, and (b) investor
members owning Class B Shares or Class C Shares will be required to purchase,
and the Company will be required to sell, weaned pigs constituting 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 feeder pigs constituting Qualifying Pigs are to
be made available to members of the Company owning Class A Shares 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 feeder pigs constituting Qualifying Pigs
from the Company's facilities. Lots of weaned pigs constituting Qualifying Pigs
are to be made available to members of the Company owning Class B Shares or
Class C Shares 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 go
into operation on schedule, the initial lots of feeder pigs for new investor
members owning Class A Common 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, and the initial lots of weaned pigs for new investor members owning
Class B Shares or Class C Shares 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 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 Pig Purchase Agreements. 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 Pig Purchase
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 in its discretion (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 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 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 the member has failed to purchase, pay for,
and take delivery under the Agreement and the then current market price for
feeder pigs 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. The member may terminate the
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 Pig Purchase Agreement, the member may terminate the Agreement
within three months after the expiration of such 24-month period. A member's
Pig Purchase Agreement automatically terminates if the member assigns or
transfers all shares of Class A Common, 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 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 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 Pig Purchase Agreement.
As security for the performance of the member's obligations under the Pig
Purchase Agreement and for the Company's option to purchase a member's Class A
Common, Class B Common or Class C Common, as the case may be, under certain
circumstances, a security interest in all of the member's Class A Common, 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
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 Pig Purchase Agreement or otherwise and regardless of
whether demanded prior to the expiration of the initial or any extended term of
the 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, 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 Pig Purchase Agreement or
at any time after the expiration of any such term. The 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
"Pig Purchase Agreement."
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 did not engage at
all in the production of weaned pigs for sale until 1998. 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 or acquire 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 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 go into operation on schedule, the initial lots of feeder
pigs resulting from the 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 expansion 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 Pig Purchase Agreements 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 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 or
acquired, 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," "Pig Purchase Agreement."
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 Pig Purchase Agreements being higher than otherwise could be obtained
from other sources. In this regard, the Company's average net sales price for
its pigs exceeded the average industry market price for pigs for the 1995, 1996
and 1997 fiscal years, as well as for the first nine months of fiscal 1998.
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 five month (changed from 12 months effective September 1, 1998
with respect to feeder pigs) historical rolling average of operating costs
incurred by Alliance in producing feeder pigs and weaned pigs, as the case may
be. 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," "Pig Purchase Agreement."
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 Shares must enter into a Pig Purchase
Agreement, pursuant to which each investor owning Class A Shares 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 owning Class B Shares
or Class C Shares, as the case may be, 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 $0 to $4.50 per
pig (changed from $4.50 effective September 1, 1998 with respect to feeder
pigs), as determined by the Company in its discretion (all as defined in the Pig
Purchase Agreement). 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 Pig Purchase Agreement will be less than
otherwise could be obtained from other sources. Indeed, for the 1995, 1996 and
1997 fiscal years and for the first nine months of fiscal 1998, the Company's
average net sales price for its pigs exceeded the average industry market price.
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 Pig Purchase Agreement. 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 Pig Purchase Agreement 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 Pig Purchase Agreement 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 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. A member has no other right
to terminate the Pig Purchase Agreement. 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 Pig Purchase Agreement
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," "Pig Purchase Agreement" 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 Shares must enter into a Pig Purchase
Agreement, pursuant to which each investor owning Class A Shares agrees to
purchase his or her proportionate share of the Company's feeder pig production
and each investor owning Class B Shares or Class C Shares, as the case may be,
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 for sale to investors owing Class B Common 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 for sale to
investors owing Class B Common 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 Pig Purchase 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
Pig Purchase Agreements. 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 "Pig Purchase Agreement" 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
likely 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 and revolving debt in order to further its business strategy
in developing or acquiring each additional feeder pig production facility having
the capacity of a 2,450-sow unit. 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 and revolving debt in order to further its business strategy
in developing or acquiring each weaned pig production facility having the
capacity of a 2,450-sow unit. 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 feeder pig production facilities having the capacity of three 2,450-sow
units, acquire breeding stock, and pay start-up and operating expenses in order
to further develop and expand its feeder pig production business. 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 weaned pig production facilities having the
capacity of three 2,450-sow units, 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 weaned pig
production facilities having the capacity of three 2,450-sow units, 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
has obtained from its current lender, CoBank, ACB ("CoBank"), a commitment until
December 31, 2001 for the loans required for the development or acquisition of
at least five additional 2,450-sow feeder or weaned pig units. 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, or that the Company
will be able to obtain additional loan commitments.
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 Pig Purchase
Agreements 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 the
anticipated borrowing needs described above. In the event that the CoBank
commitment for a pig production loan or any extension of such commitment is
withdrawn or terminated, and the Company is unable to obtain an acceptable loan
commitment from another lender prior to or concurrently with the consummation of
the offering of any Minimum 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 and revolving 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 and weaned pigs, which in turn is determined in part based on
the five month (changed from 12 months effective September 1, 1998 with respect
to feeder pigs) 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," "Pig Purchase Agreement."
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, 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
collateral pledged by the Company. 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 debt financing required
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. 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 debt financing required
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. As
of the date of this Prospectus, the Company has obtained a commitment until
December 31, 2001 for the debt financing required with respect to at least five
Minimum Blocks. 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 Pig Purchase Agreements. As of May 31,
1998, Alliance had a working capital deficit of $7,355. 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 Pig Purchase Agreements each
member will be obligated to purchase his proportionate share (based on the
member'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 member 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. IN THIS REGARD, THE
COMPANY'S AVERAGE NET SALES PRICE FOR ITS PIGS EXCEEDED THE AVERAGE INDUSTRY
MARKET PRICE FOR PIGS FOR THE 1995, 1996 AND 1997 FISCAL YEARS, AS WELL AS FOR
THE FIRST NINE MONTHS OF FISCAL 1998. 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," "Pig Purchase Agreement."
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 put a new feeder pig production facility into operation 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 put a new weaned pig
production facility into operation 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, Yuma Farmers Milling and
Mercantile Cooperative Company ("Yuma Cooperative"), Corn Plus II, L.C. and
Welkco, L.L.C. collectively own 74 shares of the Company's Class A Common and 22
shares of the Company's Class B Common Stock, which for such stockholders will
constitute approximately 32.6%, 7.0%, 5.8% and 10.5%, 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 29.6%, 6.3%, 5.3% and 9.5%, respectively, of the combined
voting power of the shares of Common Stock outstanding immediately after
completion of the offering of all 34 remaining Class A Shares offered hereby,
approximately 32.4%, 6.9%, 5.8% and 10.4%, 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 (constituting all
of the remaining Class B Shares offered hereby), approximately 32.4%, 6.9%, 5.8%
and 10.4%, 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 26.8, 5.7%, 4.8% and 8.6%,
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 21.5%, 4.6%, 3.8% and 6.9%,
respectively, of the combined voting power of the shares of Common Stock
outstanding immediately after completion of the offering of all 124 remaining
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. ALTHOUGH IN THE
PAST THE COMPANY HAS AUTHORIZED THE PAYMENT OF CASH REBATES TO ITS MEMBERS WITH
RESPECT TO FEEDER PIGS SOLD BY THE COMPANY TO SUCH MEMBERS, THE COMPANY DOES NOT
INTEND TO AUTHORIZE ANY FUTURE REBATE PAYMENTS. 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 or acquire each additional feeder pig production
facility or weaned pig production facility, as the case may be, which factor
takes into account the anticipated development or acquisition 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 Pig Purchase
Agreement 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 Pig Purchase Agreement 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," "Pig
Purchase Agreement" 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 Pig Purchase Agreement. 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, and that the transferee of Common Stock enter
into a 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 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 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
Pig Purchase Agreement, 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 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. A member has no other right to
terminate the Pig Purchase Agreement. 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 Pig Purchase
Agreement, 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 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), two 2,450-sow feeder
pig production facilities located in Wayne County, Illinois (approximately 100
miles east of St. Louis, Missouri), and was in the process of developing one
2,450-sow weaned pig production facility in Yuma County, Colorado and one weaned
pig production facility in Wayne County, Illinois. As of the date of this
Prospectus, the Company has commenced preliminary development activities with
respect to a 5,000-sow pig production facility in Yuma County, Colorado.
Financing for the acquisition of real estate, facilities construction and
acquisition of breeding stock with respect to the 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 two
Minimum Blocks of the remaining Shares offered hereby will be applied to the
Colorado 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 503 East 8th Avenue,
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
debt financing required with respect to each such Minimum Class A Block, for the
development or acquisition of one new 2,450-sow feeder pig production facility
(which facility may exist as a stand-alone unit or as part of a 5,000-sow
production complex) 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 anticipation of the sale of one or more Minimum
Class A Blocks, the Company, from time to time, may borrow up to $1,360,000 per
Minimum Class A Block from Farmland to commence the development or acquisition
of a feeder pig production facility. In such event the net proceeds from the
sale of a Minimum Class A Block will be applied to such facility, including the
repayment of the 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 debt financing, will be
used for the development or acquisition of feeder pig production facilities
having the capacity of three 2,450-sow units. 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 December 31, 2001, for the debt financing required with respect
to at least five Minimum Blocks of the remaining Shares offered hereby.
The allocation of the offering proceeds from the sale of the Class A Shares
offered hereby and debt financing 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 debt financing 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)*
SOURCE OF FUNDS:
<S> <C> <C>
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
Debt Financing (2) 2,720,000 8,160,000
Total Funds Available $ 3,940,000 $ 12,120,000
USE OF FUNDS (3):
Real Estate and Facilities Construction (4) $ 2,750,000 $ 8,600,000
Breeding Stock (5) 625,000 1,875,000
Project Development Costs and
Working Capital (6) 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 or
acquisition of 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), 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 debt financing. As of the date of this Prospectus, the
Company has obtained a commitment with respect to at least five Minimum
Blocks of the remaining Shares offered hereby until December 31, 2001. 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 allocation of the offering proceeds from the sale of the Class A Shares
offered hereby and debt financing among the uses specified in the table is
based upon the assumption that the Company would develop a new feeder pig
production facility as opposed to acquiring an existing feeder pig
production facility. In the event that the Company becomes aware of an
existing pig production facility that is available for purchase, the
Company may determine to acquire the existing facility rather than develop
a new one if the Board of Directors determines that such action would be in
the best interests of the Company and its members. No assurances can be
given that any existing facilities will be available for purchase by the
Company or that the Company will acquire any such facility. As of the date
of this Prospectus, the Company has no plans to proceed with the
acquisition of an existing facility.
(4) 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 borrowed $2,160,000 with respect to its 5,000-sow
Colorado facility presently under development under a non-revolving term
loan obtained from Farmland, and anticipates that the net proceeds from the
sale of the first two Minimum Blocks of the remaining Shares offered hereby
will be used to repay the outstanding balance of any such loan. See "Use
of Proceeds--Farmland Loan." 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
existing facilities and of its facilities under 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.
(5) The Company has budgeted approximately $625,000 for the acquisition of the
breeding stock required for each new 2,450-sow facility (which may be
developed in tandem with, or as a part of, one or more other facilities)
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.
(6) 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
include working capital for the payment of salaries, feed and veterinary
costs, utilities, insurance, overhead and administration, interest
requirements on any facilities development financing that the Company 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 $2,160,000 Farmland non-revolving term loan referred to
in note (4) 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 debt
financing required with respect to each such Minimum Class B Block, for the
development or acquisition of one new 2,450-sow weaned pig production facility
(which facility may exist as a stand-alone unit or as part of a 5,000-sow
production complex) 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 anticipation of the sale of one or more Minimum
Class B Blocks, the Company, from time to time, may borrow up to $1,080,000 per
Minimum Class B Block from Farmland to commence the development or acquisition
of a weaned pig production facility. In such event the net proceeds from the
sale of a Minimum Class B Block will be applied to such facility, including the
repayment of the debt financing, together with interest thereon, provided by
Farmland. If all 54 Class B Shares offered hereby are sold, the net proceeds to
the Company, together with approximately $6,480,000 of debt financing, will be
used for the development or acquisition of weaned pig production facilities
having the capacity of three 2,450-sow units. Each new weaned 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 December 31, 2001 for the debt financing required with respect
to at least five Minimum Blocks of the remaining Shares offered hereby.
The allocation of the offering proceeds from the sale of the Class B Shares
offered hereby and debt financing 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 debt financing 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)*
SOURCE OF FUNDS:
<S> <C> <C>
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
Debt Financing (2) 2,160,000 6,480,000
Total Funds Available $ 3,100,000 $ 9,580,000
USE OF FUNDS (3):
Real Estate and Facilities Construction (4) $ 2,115,000 $ 6,625,000
Breeding Stock (5) 625,000 1,875,000
Project Development Costs and
Working Capital (6) 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 or
acquisition of 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), 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 debt financing. As of the date of this Prospectus, the
Company has obtained a commitment with respect to at least five Minimum
Blocks of the remaining Shares offered hereby until December 31, 2001. 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 allocation of the offering proceeds from the sale of the Class B Shares
offered hereby and debt financing among the uses specified in the table is
based upon the assumption that the Company would develop a new weaned pig
production facility as opposed to acquiring an existing weaned pig
production facility. In the event that the Company becomes aware of an
existing pig production facility that is available for purchase, the
Company may determine to acquire the existing facility rather than develop
a new one if the Board of Directors determines that such action would be in
the best interests of the Company and its members. No assurances can be
given that any existing facilities will be available for purchase by the
Company or that the Company will acquire any such facility. As of the date
of this Prospectus, the Company has no plans to proceed with the
acquisition of an existing facility.
(4) 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). The Company borrowed $2,160,000 with respect to its 5,000-sow
Colorado facility presently under development under a non-revolving term
loan obtained from Farmland, and anticipates that the net proceeds from the
sale of the first two Minimum Blocks of the remaining Shares offered hereby
will be used to repay the outstanding balance of any such loan. See "Use
of Proceeds--Farmland Loan." As presently proposed, the construction of
each new weaned pig facility, including breeding, gestation, farrowing 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 existing facilities and
of its facilities under 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.
(5) The Company has budgeted approximately $625,000 for the acquisition of the
breeding stock required for each new 2,450-sow facility (which may be
developed in tandem with, or as a part of, one or more other facilities)
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.
(6) 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
include working capital for the payment of salaries, feed and veterinary
costs, utilities, insurance, overhead and administration, interest
requirements on any facilities development financing that the Company 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 $2,160,000 Farmland non-revolving term loan referred to
in note (4) 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 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 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 debt
financing required with respect to each such Minimum Class C Block, for the
development or acquisition of one new 2,450-sow weaned pig production facility
(which facility may exist as a stand-alone unit or as part of a 5,000-sow
production complex) 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 debt
financing, will be used for the development or acquisition of weaned pig
production facilities having the capacity of three 2,450-sow units. Each new
weaned 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 December 31, 2001 for the debt financing
required with respect to at least five Minimum Blocks of the remaining Shares
offered hereby.
The allocation of the offering proceeds from the sale of the Class C Shares
offered hereby and debt financing 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 debt financing 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)*
SOURCE OF FUNDS:
<S> <C> <C>
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
Debt Financing (2) 2,160,000 6,480,000
Total Funds Available $ 3,100,000 $ 9,580,000
USE OF FUNDS (3):
Real Estate and Facilities
Construction (4) $ 2,115,000 $ 6,625,000
Breeding Stock (5) 625,000 1,875,000
Project Development Costs and
Working Capital (6) 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 or
acquisition of 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), 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 debt financing. As of the date of this Prospectus, the
Company has obtained a commitment with respect to at least five Minimum
Blocks of the remaining Shares offered hereby until December 31, 2001. 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 allocation of the offering proceeds from the sale of the Class C Shares
offered hereby and debt financing among the uses specified in the table is
based upon the assumption that the Company would develop a new weaned pig
production facility as opposed to acquiring an existing weaned pig
production facility. In the event that the Company becomes aware of an
existing pig production facility that is available for purchase, the
Company may determine to acquire the existing facility rather than develop
a new one if the Board of Directors determines that such action would be in
the best interests of the Company and its members. No assurances can be
given that any existing facilities will be available for purchase by the
Company or that the Company will acquire any such facility. As of the date
of this Prospectus, the Company has no plans to proceed with the
acquisition of an existing facility.
(4) 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). The Company borrowed $2,160,000 with respect to its 5,000-sow
Colorado facility presently under development under a non-revolving term
loan obtained from Farmland, and anticipates that the net proceeds from the
sale of the first two Minimum Blocks of the remaining Shares offered hereby
will be used to repay the outstanding balance of any such loan. See "Use
of Proceeds--Farmland Loan." As presently proposed, the construction of
each new weaned pig facility, including breeding, gestation, farrowing 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 existing facilities and
of its facilities under 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.
(5) The Company has budgeted approximately $625,000 for the acquisition of the
breeding stock required for each new 2,450-sow facility (which may be
developed in tandem with, or as a part of, one or more other facilities)
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.
(6) 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
include working capital for the payment of salaries, feed and veterinary
costs, utilities, insurance, overhead and administration, interest
requirements on any facilities development financing that the Company 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 $2,160,000 Farmland non-revolving term loan referred to
in note (4) 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.
FARMLAND LOAN
The Company borrowed $2,160,000 with respect to its 5,000-sow Colorado
facility presently under development under a non-revolving term loan obtained
from Farmland, and anticipates that the net proceeds from the sale of the first
two Minimum Blocks of the remaining Shares offered hereby will be used to repay
the outstanding balance of any such 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
9.75% per annum (calculated by adding 125 basis points to CoBank's national
variable rate of 8.5% 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 payment of one-half of the outstanding loan balance to be
made upon the Company's issuance and sale of each of its first two Minimum
Blocks of the remaining Shares offered hereby. The Farmland loan is to be
repaid in full upon the earlier of (i) the Company's issuance and sale of the
first two Minimum Blocks of the remaining Shares offered hereby, and (ii) the
expiration of ten years. Funds advanced to Alliance pursuant to the Farmland
loan, as well as any future advances are being applied to construction costs and
other working capital purposes.
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 Pig Purchase 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 prior to September 1, 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 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, provided that
the Company has positive retained earnings. 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. 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 May
31, 1998, as adjusted to give effect to the full advancement of the remaining
$3,564,000 of funds then available under the Company's existing credit facility,
to the full advancement of $4,320,000 of funds to become available under the
company's existing credit facility upon CoBank's acceptance of certain
documents, and to the full advancement of funds under the $2,160,000 non-
revolving term loan obtained from Farmland for Alliance's development of its
5,000-sow pig production facility in Yuma County, Colorado, 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 the remaining
34 Class A Shares, 18 Class B Shares and 72 Class C Shares, respectively,
offered hereby, and all 124 remaining Shares offered hereby, the repayment of
one-half of the non-revolving term loan obtained from Farmland for Alliance's
development of its 5,000-sow pig production facility in Yuma County, Colorado
with respect to the sale of the minimum of 17 Class A Shares, 18 Class B Shares
or 24 Class C Shares, and the Company's anticipated borrowing of at least
$2,720,000 of debt financing with respect to the sale of the minimum of 17 Class
A Shares and of at least $5,440,000 of debt financing with respect to the sale
of the maximum 34 remaining Class A Shares offered hereby, the Company's
anticipated borrowing of at least $2,160,000 of debt financing with respect to
the sale of the minimum of 18 Class B Shares and of at least $2,160,000 of debt
financing with respect to the sale of the maximum 18 remaining Class B Shares
offered hereby, and the Company's anticipated borrowing of at least $2,160,000
of debt financing with respect to the sale of the minimum of 24 Class C Shares
and of at least $6,480,000 of debt financing with respect to the sale of the
maximum 72 Class C Shares offered hereby. As of the date of this Prospectus,
the Company has obtained a commitment until December 31, 2001 for the debt
financing required with respect to at least five Minimum Blocks of the remaining
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 MAY 31, 1998
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>
$16,845,361 $26,889,361 $26,369,361 $25,809,361 $25,809,361
Debt(1).......
Stockholders' equity:
Class A Common stock, $.01
par value; 5,000 shares
authorized (119 shares
issued; 119 shares issued,
as adjusted; and 136 shares
issued, as further adjusted
(minimum) ... 1 1 1 1 1
Class B Common stock, $.01
par value; 2,500 shares
authorized (36 shares
issued; 36 shares issued,
as adjusted; and 54 shares
issued, as further adjusted
(minimum) ... 0 0 0 1 0
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) ... 0 0 0 0 0
Additional paid-in
capital 10,751,325 10,751,325 12,111,325 11,831,324 11,831,325
Deficit (997,197) (997,197) (997,197) (997,197) (997,197)
Total stockholders'
equity 9,754,129 9,754,129 11,114,129 10,834,129 10,834,129
Total capitalization $26,599,490 $36,643,490 $37,483,490 $36,643,490 $36,643,490
</TABLE>
[FN]
___________________________
(1) On March 18, 1998, the Company entered into various loan
documents with CoBank related to a secured credit facility which
provides for up to $26,846,700 of non-revolving term debt,
$7,660,000 of revolving term credit and $18,400,00 of construction
financing. The unused portion of the credit facility expires
September 30, 2011 with respect to the revolving term credit,
December 31, 2001 with respect to the non-revolving term debt and
September 30, 2001 with respect to the construction financing. The
Company borrowed $760,000 from Farmland in August 1996 in order to
purchase certain real property in Yuma County, Colorado. As of May
31, 1998, the outstanding balance of loans made by CoBank under the
credit facility was $16,345,603, and the outstanding balance of the
Farmland loan was $499,758. In May, 1998, the Company obtained a
$2,160,000 non-revolving term loan from Farmland for Alliance's
development of its 5,000-sow pig production facility in Yuma
County, Colorado. Amounts shown in the As Adjusted column assume
that all funds available from the CoBank credit facility and the
Farmland loans 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 and that
$1,080,000 of the 5,000-sow pig production facility loan from
Farmland has been repaid.
(2) Net of offering costs.
<TABLE>
<CAPTION> AS OF MAY 31, 1998
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)...... $16,845,361 $26,889,361 $25,849,361 $25,809,361 $26,889,361 $34,489,361
Stockholders' equity:
Class A Common stock, $.0
par value; 5,000 shares
authorized (119 shares
issued; 119 shares
issued, as adjusted;
and 153 shares issued,
as further adjusted 1 1 2 1 1 2
(maximum) ..
Class B Common stock, $.0
par value; 2,500 shares
authorized (36 shares
issued; 36 shares
issued, as adjusted; and
54 shares issued, as
further adjusted 0 0 0 1 0 1
(maximum) .
Class C Common stock, $.0
par value; 2,500 shares
authorized (zero shares
issued; zero shares
issued, as adjusted; and
72 shares issued, as
further adjusted 0 0 0 0 1 1
(maximum) ..
Additional paid-in
capital 10,751,325 10,751,325 13,471,324 11,831,324 13,991,324 17,791,322
Deficit (979,197) (997,197) (997,197) (997,197) (997,197) (997,197)
Total stockholders'
equity 9,754,129 9,754,129 12,474,129 10,834,129 12,994,129 16,794,129
Total capitalization $26,599,490 $36,643,490 $38,323,490 $36,643,490 $39,883,490 $51,283,490
</TABLE>
[FN]
___________________________
(1) On March 18, 1998, the Company entered into various loan
documents with CoBank related to a secured credit facility which
provides for up to $26,846,700 of non-revolving term debt,
$7,660,000 of revolving term credit and $18,400,00 of construction
financing. The unused portion of the credit facility expires
September 30, 2011 with respect to the revolving term credit,
December 31, 2001 with respect to the non-revolving term debt and
September 30, 2001 with respect to the construction financing. The
Company borrowed $760,000 from Farmland in August 1996 in order to
purchase certain real property in Yuma County, Colorado. As of May
31, 1998, the outstanding balance of loans made by CoBank under the
credit facility was $16,345,603, and the outstanding balance of the
Farmland loan was $499,758. In May, 1998, the Company obtained a
$2,160,000 non-revolving term loan from Farmland for Alliance's
development of its 5,000-sow pig production facility in Yuma
County, Colorado. Amounts shown in the As Adjusted column assume
that all funds available from the CoBank credit facility and the
Farmland loans 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 and that the
5,000-sow pig production facility loan from Farmland has been
repaid in full.
(2) Net of offering costs.
SELECTED FINANCIAL DATA
The selected historical financial information presented below reflects the
fiscal 1997, 1996 and 1995 operations of Alliance. 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 September 1, 1994 through
August 31, 1997, all of which have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. The summary historical financial
information as of May 31, 1998, and for the nine months ended May 31, 1998 and
1997 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>
NINE MONTHS ENDED MAY 31,
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
1997 1996 1995 1998 1997
<S> <C> <C> <C> <C> <C>
Net sales $13,669,706 $7,037,927 $ 1,554,113 $13,346,482 $9,871,995
Cost of goods sold 11,222,169 6,422,838 1,836,388 9,587,739 8,239,573
Gross income(loss) 2,447,537 615,089 (282,275) 3,758,743 1,632,422
Expenses related to start-up of
new production facilities 281,025 426,926 754,756 791,861 174,215
Administrative expenses 424,565 369,787 101,927 751,269 326,170
(Gain) Loss on sale of
breeding stock (94,123) 226,738 112,797 159,057 76,710
Operating income (loss) 1,836,070 (408,362) (1,251,755) 2,056,556 1,055,327
Interest expense (1,321,984) (1,001,329) (289,082) (1,129,039) (919,360)
Other income 144,209 66,604 27,509 298,355 101,111
(1,177,775) (934,725) (261,573) (830,684) (818,249)
Net income (loss) $ 658,295 $(1,343,087) $(1,513,328) $1,225,872 $ 237,078
OTHER INFORMATION:
Pigs Sold 231,611 148,926 46,858 228,040 169,459
AS OF AUGUST 31, AS OF MAY 31,
BALANCE SHEET INFORMATION: 1997 1996 1995 1998
Working Capital (Deficit) $ (114,425) $ (257,702) $ 1,238,271 $ (7,355)
Total Assets 24,380,406 20,845,613 14,571,940 28,855,236
Shareholders' Equity 6,496,168 4,606,289 4,627,693 9,754,129
</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.
THREE MONTHS ENDED MAY 31, 1998 AND 1997
Shipments of feeder pigs were higher for the three months ended May 31,
1998 than in the prior year's period. Alliance shipped 78,065 feeder pigs for
the quarter ended May 31, 1998 compared to 56,659 feeder pigs shipped for the
quarter ended May 31, 1997 for an increase of 38%. Net sales for the quarter
ended May 31, 1998 increased to $4,375,672 from $3,351,997 for the prior year
period, an increase of $1,023,675 or 31%. The selling price per pig is
determined pursuant to the formula established under Alliance's Pig Purchase
Agreements with its members. The selling price is based on Alliance's operating
costs (which were 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
partially a result of having seven units in production for the quarter ended May
31, 1998 as compared to six units in production for the quarter ended May 31,
1997, in addition to improved productivity during the quarter ended May 31,
1998. The per pig sales price was lower during the three months ended May 31,
1998 compared to the three months ended May 31, 1997 due to higher pig
production partially offset by higher expenses. Average net sales price was
$56.05 and $59.16 during the quarters ended May 31, 1998 and 1997, respectively.
Alliance earned gross margins of $1,019,963 and $661,473 for the three
month periods ended May 31, 1998 and 1997, 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 third quarter of fiscal 1998, Alliance's net sales price exceeded then
current production costs by $13.07 per pig sold. For the third quarter of
fiscal 1997, the net sales price exceeded then current production costs by
$11.67 per pig sold.
Sales to Farmland for the three month periods ended May 31, 1998 and 1997
were $2,293,777 and $2,111,550 respectively. The average net sales price per
head was $56.05 and $59.16 and the average industry market price per head was
$35.14 and $64.99 during 1998 and 1997, respectively.
Alliance recorded $342,814 of start-up costs relating to the operation of
its two newest production facilities under construction during the three months
ended May 31, 1998. Start-up costs for the three month period ended May 31 1998
were comprised of utilities, feed, labor and other general expenses prior to the
operation of the new feeder pig production facilities.
Administrative expenses were $424,610 for the three months ended May 31,
1998 compared to $111,174 for the prior year period. This increase reflects the
increased operations and includes higher administrative, payroll and
professional fees, related primarily to additional facilities being in
operation.
Loss on sale of breeding stock was $103,518 for the three months ended May
31, 1998 as compared to a gain of $4,310 for the prior year period. This change
is attributable to an accelerated cull rate during the third quarter of fiscal
1998 compared to the third quarter of fiscal 1997.
Interest expense of $412,924 for the three months ended May 31, 1998 as
compared to $238,776 for the prior year period, was incurred in financing the
development of seven existing and two new pig production facilities. This
increase is primarily due to the increase in the outstanding loan balance. As
of May 31, 1998, Alliance had borrowed $16,345,603 from CoBank for construction
and start up costs and $499,758 from Farmland for the purchase of land which is
intended to be used for future expansion.
Alliance incurred a net loss of $17,709 for the three months ended May 31,
1998 compared to a net gain of $232,611 for the prior year period. The net loss
for the third quarter of fiscal 1998 was due to losses incurred related to the
two pig production facilities under construction. These losses were
significantly offset by the rolling average cost that the per pig sales prices
are based on exceeding then current costs per pig by $4.16 per pig shipped,
caused primarily by an improvement in productivity. The net gain for the third
quarter of fiscal 1997 was attributable to improved gross margins resulting from
the per pig sales price exceeding current operating costs. 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
for feeder pigs that contains a $4.50 production margin.
NINE MONTHS ENDED MAY 31, 1998 AND 1997
Shipments of feeder pigs were higher for the nine months ended May 31, 1998
than in the prior year's period. Alliance shipped 228,040 feeder pigs for the
nine months ended May 31, 1998 compared to 169,459 feeder pigs shipped for the
nine months ended May 31, 1997 for an increase of 35%. Net sales for the nine
months ended May 31, 1998 increased to $13,346,482 from $9,871,995 for the prior
year period, an increase of $3,474,487, or 35%. The selling price per pig is
determined pursuant to the formula established under Alliance's Pig Purchase
Agreement with its members. The selling price is based on Alliance's operating
costs (which were 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
partially a result of having six units in production for nineteen weeks and
seven units in production for twenty weeks of the first nine months of fiscal
1998 as compared to five units in production for nine weeks and six units in
production for thirty weeks of the first nine months of fiscal 1997, in addition
to improved productivity for the first nine months of fiscal 1998 as compared to
the first nine months of fiscal 1997. The per pig sales price was slightly
higher during the first nine months of fiscal 1998 compared to the first nine
months of fiscal 1997 partially because the pigs shipped weighed more and
partially because the twelve months of costs used to compute the per pig prices
was slightly higher and the twelve months of productivity used to compute the
per pig prices was lower for the first nine months of fiscal 1998 than the first
nine months of fiscal 1997. Average net sales price was $58.53 and $58.26
during the nine months ended May 31, 1998 and 1997, respectively.
Alliance earned a gross margin of $3,758,743 and $1,632,422 for the first
nine months of fiscal 1998 and fiscal 1997, 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 nine months of fiscal 1998, Alliance's net sales price exceeded then
current production costs by $16.48 per pig sold. For the first nine months of
fiscal 1997, the net sales price exceeded then current production costs by $9.64
per pig sold.
Sales to Farmland for the first nine months of fiscal 1998 and 1997 were
$8,009,564 and $6,072,633, respectively. The average net sales price per head
was $58.53 and $58.26 and the average industry market price per head was $39.48
and $57.65 during 1998 and 1997, respectively.
Alliance recorded $791,861 of start-up costs relating to the operation of
it's two newest production facilities under construction during the first nine
months of fiscal 1998 and $174,215 of start-up costs relating to the two
facilities under construction during the first nine months of fiscal 1997.
Start-up costs for the first nine months of fiscal 1998 and 1997 were comprised
of utilities, feed, labor and other general expenses prior to the operation of
the new feeder pig production facilities.
Administrative expenses were $751,269 for the nine months ended May 31,
1998 compared to $326,170 for the prior year period. This increase reflects the
increased operations and includes higher administrative, payroll and
professional fees, related primarily to additional facilities being in
operation.
Loss on sale of breeding stock was $159,057 for the nine months ended May
31, 1998 as compared to $76,710 for the prior year period. This is attributable
to an accelerated cull rate during the third quarter of fiscal 1998, partially
offset with the existence of more mature facilities culling animals during the
first nine months of fiscal 1998 as compared to more newly developed facilities
culling animals during the first nine months of fiscal 1997.
Interest expense of $1,129,039 for the nine months ended May 31, 1998 as
compared to $919,360 for the prior year period, was incurred in financing the
development of four existing and two new pig production facilities. This
increase is primarily due to the increase in the outstanding loan balance,
partially offset by the capitalization of $38,606 of interest in the first nine
months of fiscal 1998 compared to $8,241 in the first nine months of fiscal
1997. As of May 31, 1998, Alliance had borrowed $16,345,603 from CoBank for
construction and start up costs and $499,758 from Farmland for the purchase of
land which is intended to be used for future expansion.
Alliance earned net income of $1,225,872 for the nine months ended May 31,
1998 compared to $237,078 for the prior year period. The net income for the
first nine months of fiscal 1998 was attributable to the rolling average cost
that the per pig sales prices are based on exceeding then current costs per pig
by $8.84 per pig shipped, caused primarily by an improvement in productivity.
This net income was partially offset due to losses incurred in the third quarter
of fiscal 1998 related to the construction of the two new pig production
facilities. The net income for the first nine months 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, and increased again during the third quarter of fiscal 1997.
FISCAL YEARS ENDED AUGUST 31, 1997 AND 1996.
Shipments of feeder pigs were higher for the fiscal year ended August 31,
1997 than in the prior year. Alliance shipped 231,598 feeder pigs during fiscal
1997 compared to 148,926 feeder pigs shipped during fiscal 1996, an increase of
approximately 56%. Net sales for the fiscal year ended August 31, 1997
increased to $13,669,706 from $7,037,927 for the prior year, an increase of
$6,631,779 or approximately 94%. This increase in volume and sales dollars is
primarily due to six units operating for the fiscal year ended August 31, 1997
versus four units for the fiscal year ended August 31, 1996.
Alliance's sales for the fiscal year ended August 31, 1996 have been
reduced by the accrual of a rebate of $670,167 that was 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 positive gross
margins of $2,447,537 and $615,089 for fiscal 1997 and 1996, 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, 1997, the Company's operating costs at the time pigs were
sold (the then current operating costs) were lower than the historical rolling
average of operating costs by $1.39 per head sold. For the fiscal year ended
August 31, 1996, the Company's then current operating costs exceeded the
historical rolling average of operating costs by $0.09 per head sold.
Sales to Farmland (including sales to Farmland of Yuma Cooperative's share
of feeder pigs produced by the Company) for fiscal 1997 and 1996 were $7,924,763
and $5,035,160, respectively. The average net sales price per head was $59.02
and $48.12 ($52.62 prior to giving effect to a $4.50 per pig rebate) and the
average industry market price per head was $56.84 and $41.15 during 1997 and
1996, respectively.
Alliance recorded start-up costs of $281,025 and $426,926 relating to the
operation of new production facilities during the fiscal years ended August 31,
1997 and 1996, respectively. All of the costs for the fiscal year ended August
31, 1997 and all of the costs for the fiscal year ended August 31, 1996 were
comprised of utilities, feed, labor and other general expenses prior to the
operation of the new feeder pig production facilities.
Gain on sale of breeding stock was $94,123 for the fiscal year ended August
31, 1997 as compared to a loss of $226,738 for the prior year period. This
increase is attributable to an unusually strong market for hogs and the culling
by Alliance of a larger percentage of its herd, which consists of a higher
quality of animal. In connection with the ongoing repopulation of the Company's
Colorado facilities, Alliance is culling all of its DeKalb breeding stock and
replacing it with P.I.C. genetics.
Administrative expenses were $424,565 for the fiscal year ended 1997
compared to $369,787 for the prior year period. This increase reflects the
increased operations and includes higher administrative, payroll and
professional fees.
Interest expense of $1,321,984 for fiscal 1997 compared to $1,001,329 for
fiscal 1996 was incurred in financing the development of the six existing and
one new feeder pig facilities. The increase reflects an increase in outstanding
borrowings in 1997.
Alliance earned net income of $658,295 for the fiscal year ended August 31,
1997 compared to a net loss of $1,343,087 for the prior year period. The fiscal
1997 net income was attributable to improved gross margins resulting from the
per pig sales price exceeding operating costs, caused in part by improved
productivity as well as lower corn prices from fiscal 1996. 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 1996 net loss was
primarily attributable to then current costs exceeding the rolling average cost
that per pig prices were based on, caused in part by high death loss due to herd
health issues, as well as rising corn prices. In addition, the Company's
operating costs at the time pigs were sold during part of fiscal 1997 and all of
fiscal 1996 exceeded the historical rolling average of operating costs from
which the selling price for pigs was based. The selling price for Alliance's
feeder pigs is 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.
During all of fiscal 1996, however, the Company accrued a $670,167 rebate that
was 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. There was no accrual of a rebate during fiscal 1997. 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 and the Company's selling price
formula for feeder pigs that contains a $4.50 production margin.
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 based 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.
LIQUIDITY AND CAPITAL RESOURCES
At May 31, 1998, the Company reported a working capital deficit of $7,355
and total assets of $28,855,236. The Company issued 17 shares of Class A Common
in August 1997 for net proceeds of $1,231,584. Alliance used these funds, in
combination with $2,110,000 of borrowings through May 31, 1998 for the repayment
of a $1,360,000 loan made by Farmland, and for the development, population, and
start-up of its second feeder pig facility in Wayne County, Illinois. Alliance
issued 36 shares of Class B Common in November 1997 for net proceeds of
$2,032,087. Alliance used these funds to repay the balance owed Farmland
pursuant to another $1,360,000 loan agreement, and for the development,
population, and start-up of one weaned pig facility in Yuma County, Colorado and
one in Wayne County, Illinois.
As of the date of this Prospectus, the Company has 119 shares of Class A
Common issued and outstanding, 36 shares of Class B Common issued and
outstanding, no issued and outstanding shares of Class C Common, and is offering
an additional 34 Class A Shares, 18 Class B Shares and 72 Class C Shares to
qualified prospective investors. At May 31, 1998, Alliance had $3,564,000
immediately available under its credit facility with CoBank, consisting of
$2,316,000 of term loans and $1,248,000 of revolving term credit. An additional
$4,320,000 is to become available following CoBank's acceptance of certain
documents, as specified in the loan agreement. 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 May 31, 1998, Alliance has borrowed $499,758 from Farmland to purchase
land for future expansion. See "BusinessBFinancing." In the opinion of
management, these arrangements for debt capital are adequate for Alliance's
present operating and capital plans.
As of May 31, 1998, Alliance has borrowed $499,758 from Farmland to
purchase land for future expansion. During the nine month period ended May 31,
1998, Alliance had capital expenditures of $2,349,630 for construction of its
first weaned pig production facility in Yuma County, Colorado and $1,735,736 for
its first weaned pig production facility in Wayne County, Illinois. The
remaining capital expenditures were for replacement breeding stock and building
construction for the first seven production facilities.
Major uses of cash during the nine months ended May 31, 1998 include
$7,305,367 for capital expenditures on new and existing facilities, $309,782
decrease in revolving term credit, $970,400 of principal payments on long term
debt, and $116,666 paid to Farmland pursuant to a $760,000 loan agreement.
Major sources of cash include $2,032,087 of proceeds, net of offering costs,
from the issuance of capital stock, $2,658,785 of proceeds from the issuance of
long term debt and $3,319,809 in cash provided by operating activities.
On March 18, 1998, Alliance entered into a new $34,506,700 secured credit
facility with CoBank to provide financing for the debt portion of the
construction of up to six 2,450-sow weaned and/or feeder pig production
facilities, related support facilities and initial breeding stock associated
with each unit and to restate and modify the terms and conditions of the
existing loan agreements, including the commitments for financing the debt
portion of the two 2,450-sow weaned pig production facilities already under
construction, along with these units related support facilities, initial
breeding stock and capitalized start-up costs. This agreement provides for
$26,846,700 of term loans and $7,660,000 of revolving term credit. 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. There is no assurance that additional shares of common
stock will be sold and the specified equity investment levels satisfied. Under
this new credit facility, proceeds from the construction loan are used for
construction of facilities and are advanced by CoBank as construction costs are
incurred by Alliance. Proceeds from the term loans and revolving term credit
are used to repay the construction loan upon completion of a facility, and for
working capital.
The new credit facility provides for the monthly payment of principal and
interest. The existing non-revolving term loans will change from ten year to
eight year terms effective August 31, 1998. Each new tranche of non-revolving
term credit will be repaid with monthly interest payments and with 97 monthly
principal payments of $21,800 for feeder pig facilities and $17,300 for weaned
pig facilities to begin 18 months after the initial advance on each new
construction loan commitment. The revolving credit facility will mature on
August 31, 2010 and will decrease in 40 equal amounts at the end of each of the
Company's fiscal quarters based on the amount of available commitment at August
31, 2001.
Alliance is required to comply with various covenants, including, but not
limited to (i) maintaining a total equity to total assets ratio of not less than
0.25, (ii) maintaining a debt service coverage ratio of not less than 1.00
(calculated as average annual cash flow divided by current debt), (iii)
restrictions on the occurrence of additional indebtedness. As of May 31, 1998,
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 May 31, 1998, substantially all assets of Alliance were pledged
to CoBank.
INCOME TAXES
The Company operates as a cooperative that is not exempt from federal
income taxes and, therefore, is subject to taxes on all income not paid or
allocated to members. Deferred income taxes have not been provided because all
sales since inception have been to members and all future sales are anticipated
to be to members.
Alliance incurred patronage-sourced losses through August 31, 1996 which
were not allocated to members. These patronage-sourced losses are therefore
available to offset future patronage-sourced income. During the year ended
August 31, 1997, a portion of patronage-sourced losses were used to offset 1997
patronage-sourced income. At August 31, 1997, approximately $3,594,000 of
patronage-sourced losses were available to offset future patronage-sourced
income. These losses expire in 2009 through 2011.
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
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, Reporting Comprehensive Income. This statement establishes standards
for reporting and display of items that may affect shareholder equity but are
not components of reported net income. The Company is required to adopt SFAS
No. 130 in the first quarter of fiscal 1999. It is not expected that this
pronouncement will have a significant effect on the Company's financial
reporting.
In June 1997, the FASB also issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". This statement supersedes
and expands on the segment disclosure requirements of SFAS No. 14. The
statement requires certain financial disclosures about business segments. The
definition of business segments has been changed from an industry definition to
that of a management definition. The Company will adopt the provisions of SFAS
No. 131 effective August 31, 1999. It is not expected that the statement will
have a significant effect on the Company's financial reporting.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits". This statement amends SFAS
Nos. 87, 88, and 106. The statement standardizes and expands the disclosure
requirements of the prior pronouncements in order to facilitate enhanced
financial analysis. The Company will adopt the provisions of SFAS No. 132
effective August 31, 1999. It is not expected that the statement will have a
significant effect on the Company's financial reporting.
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement, which is effective for all
fiscal quarters beginning after June 15, 1999, will have no impact on Alliance's
reported financial position, results of operations or cash flows.
YEAR 2000
The Company has completed an assessment of the changes needed to make its
financial system, operational system and equipment year 2000 compliant. A plan
has been developed to implement such changes. Researching, selecting and
purchasing a software application that will meet the financial and reporting
needs of the Company and that is year 2000 compliant are expected to be
completed by late 1998. Installation, testing and training are anticipated to
occur in early 1999. The cost of replacement software is anticipated to be
approximately $20,000. Currently, the Company is reviewing the non-information
technology related systems. At this time, no equipment that is date sensitive
has been identified. The time frame and cost associated with becoming year 2000
compliant is based on management's best estimates, although no assurances can be
given in this regard. The Company intends to evaluate its reliance on third
parties to determine and minimize the extent to which its operations may be
dependent on such third parties to remediate year 2000 issues in their systems.
In addition, as systems are tested the Company intends to develop a contingency
backup plan for systems which exhibit possible year 2000 problems.
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 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), two
2,450-sow feeder pig production facilities located in Wayne County, Illinois
(approximately 100 miles east of St. Louis, Missouri), and was in the process of
developing one 2,450-sow weaned pig production facility in Yuma County, Colorado
and one weaned pig production facility in Wayne County, Illinois. As of the
date of this Prospectus, the Company has commenced preliminary development
activities with respect to a 5,000-sow pig production facility in Yuma County,
Colorado. 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 debt financing,
to develop or acquire and thereafter operate additional feeder pig production
facilities, and to expand its 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 debt financing, to develop or acquire and thereafter operate
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 debt financing, to develop or acquire one feeder pig production
facility having the capacity of a 2,450-sow unit, to use the net proceeds from
the sale of each block of 18 shares of Class B Common, together with debt
financing, to develop or acquire one weaned pig production facility having the
capacity of a 2,450-sow unit, and to use the net proceeds from the sale of each
block of 24 shares of Class C Common, together with debt financing, to develop
or acquire one weaned pig production facility having the capacity of a 2,450-sow
unit. Accordingly, the net proceeds from the sale of the 51 Class A Shares
offered hereby, together with debt financing, are intended to be used to develop
and operate up to three such feeder pig production facilities, the net proceeds
from the sale of the 54 Class B Shares offered hereby, together with debt
financing, are intended to be used to develop and operate up to three such
weaned pig production facilities, and the net proceeds from the sale of the 72
Class C Shares offered hereby, together with debt financing, are intended to be
used to develop and operate up to three such weaned pig production facilities.
As of the date of this Prospectus, the Company has commenced preliminary
development activities with respect to a 5,000-sow pig production facility in
Yuma County, Colorado. Financing for the acquisition of real estate, facilities
construction and acquisition of breeding stock with respect to the 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 two Minimum Blocks of the remaining Shares offered hereby will be
applied to the Colorado facility presently under development. 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 pigs to be produced by the Company under the same terms
required of the Company's other members. Commencing on August 11, 1995, the
date the Company first produced and shipped feeder pigs pursuant to the Pig
Purchase Agreements with the Company's existing members (other than Farmland and
Yuma Cooperative), the price paid by Farmland and Yuma Cooperative for pigs has
been under terms comparable to those applicable to the Company's other members.
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 development into feeder pigs. See "Certain
Relationships and Related Transactions" and "Pig Purchase Agreement."
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 that is either in existence, under development or proposed (which
facilities may be developed in tandem with, or as a part of, one or more other
facilities) 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 principally from Pig Improvement Company ("P.I.C."),
after discontinuing the use of breeding stock obtained from DeKalb Swine
Breeders and repopulating its Colorado facilities. 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 is engaged in the depopulation of its operational 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 continue to be from Alliance's Illinois facility. 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 began in August 1997 with P.I.C. feeder
pigs first being made available in October 1997. Completion of the repopulation
project is anticipated to occur by September 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 continue 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
establishes the specifications of all supplies purchased, as well as the
specifications for the purchase and delivery of all feed 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 ($13.00 per ton as of the date of this Prospectus), in
addition to the actual delivered cost of the feed ingredients. Feed rations
which are pelleted are subject to a surcharge ($6.00 per ton as of the date of
this Prospectus). The fixed charge will drop to $12.00 per ton on September 1,
1998, and thereafter the fixed charge and the surcharge will remained fixed
through the expiration of the Feed Purchase Agreement on August 31, 1999. 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 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 (five month, after August 31, 1998) 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," "Pig Purchase Agreement."
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 any new members) for the sale of the feeder and weaned pigs
produced at the Company's facilities. Pig Purchase Agreements (a form of which
is attached hereto as Exhibit B) are to be executed by investors as a condition
to a subscription for Shares. Members in the Company are and will be required
to purchase, and the Company is and 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 119-allotment block made available under the Pig Purchase
Agreements to the members owning Class A Common. Similarly, members 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. Presently, each share of Class B Common held in the Company will entitle
the respective member to contract to purchase one delivery allotment per 36-
allotment block made available under the Pig Purchase Agreements to the members
owning Class B Common. 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 Pig Purchase
Agreements. 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. Members in the Company are
required to contract for the purchase of Qualifying Pigs (as that term is
defined in the Pig Purchase Agreement) from the facilities. Each such contract,
or Pig Purchase Agreement, constitutes an irrevocable ten-year commitment. Each
lot of pigs purchased by a 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 ($0 to $4.50 after August 31,
1998, as determined by the Company in its discretion) 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 a member fails at least twice to perform his purchase obligation
under such Agreement, such 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 Pig Purchase Agreement,
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 Pig Purchase Agreements. 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 development into feeder pigs. See
"Pig Purchase Agreement," "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 100% debt financing for the development of a 5,000-sow
pig production facility in Yuma County, Colorado. 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 weaned pigs (approximately 97 lots of weaned 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
weaned pigs would be under substantially the same terms required of the
Company's members pursuant to the Pig Purchase Agreements, except that the
purchase price for pigs does not include the production margin. See "Pig
Purchase Agreements."
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 any new
members) 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" and "Pig Purchase Agreement."
EXPANSION
Expansion is an important element of the Company's business plan. The
Company's present intent is to construct or acquire additional 2,450-sow feeder
pig production facilities (which facilities may exist as stand-alone units or as
part of 5,000-sow production complexes) and additional 2,450-sow weaned pig
production facilities (which facilities may exist as stand-alone units or as
part of 5,000-sow production complexes). The ability of the Company to
construct or acquire each such feeder pig production facility is subject to it
obtaining at least $3,940,000 of net financing proceeds, and the ability of the
Company to construct or acquire each such weaned pig production facility is
subject to it obtaining at least $3,100,000 of net financing proceeds.
The Company believes that substantial economies of scale will be realized
in the event that the Company is able to expand beyond its existing feeder pig
production facilities and weaned pig production facilities. 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 to implement its business strategy and (a)
construct or acquire additional feeder pig production facilities having the
capacity of 2,450-sow units is subject to it obtaining at least $3,940,000 of
net financing proceeds with respect to each such facility, and (b) construct or
acquire new weaned pig production facilities having the capacity of 2,450-sow
units 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 Blocks, the Company would be
required to obtain additional funds through secured debt financing. 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 debt financing in order to construct one new feeder pig production
facility having the capacity of a 2,450-sow unit, 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 debt financing in order to construct or
acquire one new weaned pig production facility having the capacity of a 2,450-
sow unit, 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 debt financing in order to construct or acquire one new weaned pig
production facility having the capacity of a 2,450-sow unit, 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 March 18, 1998, the Company entered into various loan documents with
CoBank related to a secured credit facility which provides for up to $26,846,700
of non-revolving term debt, $7,660,000 of revolving term credit and $18,400,00
of construction financing. Proceeds from the term debt will be used for
refinancing the existing non-revolving term debt, as well as to finance the
construction or acquisition of additional pig production facilities. Proceeds
from the revolving term credit will be used for refinancing the existing
revolving term credit, as well as to provide working capital. Proceeds from the
construction loan may be used for the construction or acquisition of pig
production facilities and are advanced by CoBank as construction costs are
incurred by Alliance. 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 September 30, 2011 with respect to
the revolving term credit, December 31, 2001 with respect to the non-revolving
term debt and September 30, 2001 with respect to the construction financing.
The availability of non-revolving term debt, revolving term credit and
construction debt under the CoBank credit facility is subject to specified
equity investment levels in the Company being satisfied. As of May 31, 1998,
$3,564,000 was immediately available to Alliance under its credit facility.
The availability of $14,270,000 of unused term loans, $4,130,000 of revolving
term credit and $14,080,000 of construction loans under the CoBank credit
facility is restricted and may be made available to the Company to the extent
that: (a) with regard to a feeder pig production facility having the capacity of
a 2,450-sow unit (i) an additional equity investment of $1,360,000 (e.g., 17
shares of Class A Common Stock sold for at least $80,000 each) is made in the
Company; or (ii) the Company secures a $1,360,000 subordinated non-revolving
term loan from Farmland (representing an amount equal to an equity investment)
(a AFeeder Equity Loan@), or (b) with regard to a weaned pig production facility
having the capacity of a 2,450 sow unit (i) an additional equity investment of
$1,080,000 (e.g., 18 shares of Class B Common Stock sold for at least $45,000
each or 24 shares Class C Common Stock sold for at least $60,000 each) is made
in the Company; or (ii) the Company secures a $1,080,000 subordinated non-
revolving term loan from Farmland (representing an amount equal to an equity
investment) (a AWeaned Equity Loan@). With respect to each additional equity
investment or Feeder Equity Loan of $1,360,000 obtained by the Company for the
construction of a feeder pig unit, 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 $5,440,000. With respect to
each additional equity investment or Weaned Equity Loan of $1,080,000 obtained
by the Company for the construction of a weaned pig unit, the Company is
entitled to obtain advances under the credit facility of $2,160,000 ($1,675,000
of term loans and $485,000 of revolving term credit) up to an aggregate of
$8,640,000.
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 a survey of the Company's realty
upon which the construction will take place, including any effluent and water
easements servicing the realty, (ii) provision of environmental audits
respecting the Company's realty, (iii) obtaining performance bonds and lien
payment bonds and builder's risk casualty insurance respecting such
construction, (iv) obtaining a chain of title and title insurance respecting the
Company's realty, (v) provision of evidence that CoBank has a perfected first
priority lien on all security for the Company's obligations, (vi) submission of
a construction budget and schedule, along with the plans and specifications for
the proposed facility, and (vi) an appraisal of the proposed facility to be
constructed based upon the plans and specifications. As of May 31, 1998, the
outstanding balance of loans made by CoBank under this credit facility was
$16,345,603.
It is anticipated that the Feeder Equity Loans and Weaned Equity Loans
would be provided on terms substantially identical to those applicable to the
facilities expansion loans previously made by Farmland to Alliance. See
"Certain Relationships and Related Transactions--Farmland--Real Estate Loans."
In this regard, such loans would 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 a Feeder Equity Loan would 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 17 Shares of Class A Common
Stock , or (ii) the expiration of ten years. The payment schedule for a Weaned
Equity Loan would 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 18 Shares of Class B Common Stock or 24 Shares of Class C Common Stock,
or (ii) the expiration of ten years. Alliance's obligation to Farmland would
be secured by a mortgage on the facilities constructed with the proceeds of the
loan, which mortgage would be second in priority to that of CoBank. In
addition, it is anticipated that Farmland would contract to purchase all feeder
and weaned pigs, as the case may be, produced at the facility that was
constructed using the proceeds of the Farmland loan until the first to occur of
the expiration of ten years and the date on which Farmland is repaid. 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 each Feeder Equity Loan and Weaned
Equity Loan. The CoBank credit facility limits the number of outstanding equity
loans, including Feeder Equity Loans and Weaned Equity Loans, at any one time,
to eight. No assurances can be given that Farmland will now, or in the future,
make an Equity Loan, either Feeder or Weaned, on acceptable terms or terms that
are comparable to those described herein.
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 in September 30, 2005. 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
existing non-revolving term debt are to be made in equal monthly installments of
$128,600, commencing April 20, 1998 and continuing thereafter until and
including August 20, 1998, and thereafter in equal monthly installments of
$151,000, with the remaining unpaid balance being due and payable on that date
which is ninety-nine months after the final advance under the non-revolving term
loan. 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 $21,800 each, beginning on the 20th day of the eighteenth month
following the date of the initial advance of such $2,110,000 loan. Pursuant to
the loan terms, with respect to each $2,720,000 of new construction loans,
payment of the entire outstanding principal balance is to be made on that date
that is sixteen (16) months after the date of the initial advance for
construction of the proposed facility. According to the loan terms, the
revolving loan commitment will be reduced in 40 equal payments commencing on
August 31, 2001, such that after the fortieth reduction, the revolving loan
commitment will be zero. To the extent that the outstanding principal balance
under the revolving loan exceeds the revolving loan commitment, the Company will
be required to immediately make a principal payment in a amount sufficient to
reduce the outstanding principal balance under the revolving loan to an amount
not exceeding the revolving loan commitment. 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 a base rate
margin of 1.25% for non-revolving term loans, 1.25% for revolving loans or 2.25%
for construction loans, 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. Of the existing non-revolving
term debt, Bank has agreed that $3,020,250 will accrue interest at the rate of
9.39% through July 16, 2001 and $8,652,550 will accrue interest at the rate of
9.25% through October 13, 1998. Each future advance under the non-revolving
term loan will automatically bear interest at CoBank's then quoted rates unless
the Company has, prior to the ninety-first day following such an advance,
entered into a swap, hedge or other similar agreement designed to artificially
fix the interest rate. During the period in which principal under the loan is
outstanding, portions of such principal may bare interest at such variable rate
while other portions may bear interest at such fixed rate. As of May 31, 1998,
interest accrued on the outstanding principal balance on the respective loans at
a rate of 9.75% per annum for non-revolving term loans, 9.75% per annum for
revolving term loans and 10.75% per annum for construction loans. The interest
rates 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 May 31, 1998, 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.
In obtaining the secured credit facility, and for each year in which the
credit facility is effective, the Company is required to pay a commitment fee
equal to 0.5% on the outstanding revolving loan commitment and 0.25% on the
unadvanced amount of the construction loan commitment. In addition, the Company
will be required to pay a activation fee equal to 1% on the amount withdrawn
under the construction loan, along with 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 all of its properties and
assets to CoBank and to assign to CoBank all of the Company's rights in and to
existing and future 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 a 0.25 ratio of total equity to total assets for
the period ending August 31, 1998, and thereafter 0.35 ratio of total equity to
total assets, (ii) maintenance of a debt service coverage ratio (calculated by
dividing average annual cash flow by the current debt) of not less than one,
(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 May 31, 1998.
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 two 2,450-sow feeder pig production
facilities in Wayne County, Illinois. As of the date of this Prospectus, the
Company does not have any weaned pig production facilities, although it is in
the process of developing one 2,450-sow weaned pig production facility in Yuma
County, Colorado and one weaned pig facility in Wayne County, Illinois. 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
May 31, 1998, CoBank's prime rate was 8.5%. 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 executed 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
475 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 two feeder pig production facilities on this property. In
addition, as of the date of this Prospectus the Company is developing a weaned
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.
The Company maintains offices at 503 East 8th Avenue in Yuma, Colorado.
Farmland and the Company share equally the cost for this office space.
Proposed Facilities. In connection with the offering of the 51 Class A
Shares hereby, the Company intends to construct or acquire feeder pig production
facilities having the capacity of three 2,450-sow units in or around Yuma
County, Colorado, Wayne County, Illinois, or other locations selected by the
Company (one 2,450-sow facility with respect to each 17 Class A Shares sold in
this offering). The Company intends to construct or acquire weaned pig
production facilities having the capacity of six 2,450-sow units in or around
Yuma County, Colorado, Wayne County, Illinois, or other locations selected by
the Company (one 2,450-sow 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. As of the date of this
Prospectus, the Company has consummated the issuance and sale of 17 Class A
Shares and 34 Class B Shares in this offering. The Company has commenced
preliminary development activities with respect to a 5,000-sow pig production
facility located in Yuma County, Colorado 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 $4,320,000 under
the Company's credit facility with CoBank and $2,160,000 of subordinated non-
revolving term debt from Farmland. Upon the Company's issuance and sale of two
Minimum Blocks of Shares, the net proceeds of such issuance and sale will be
applied to the repayment of the Farmland $2,160,000 subordinated non-revolving
term debt. 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 additional facilities. See "Business--Expansion" and "--
Financing" and "Certain Relationships and Related Transactions--Farmland--Real
Estate Loans."
It is anticipated that each of the feeder pig production facilities to be
developed, in part, with the proceeds from this offering, 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 weaned pig
production facilities to be developed, in part, with the proceeds from 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 having the capacity of a 2,450-sow unit
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 having the capacity of a 2,450-sow unit 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. 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. 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 the
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 May 31, 1998, the Company employed 136 persons, of whom 135 were
full-time employees and one was a part-time employee. Of the Company's full-
time employees, 13 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 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 debt
financing 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.
PIG PURCHASE AGREEMENT{TC \L1 "PIG PURCHASE AGREEMENT}
GENERAL
The rights and obligations of the parties with respect to the sale of
feeder pigs and weaned pigs by the Company to its members will be governed by
the Pig Purchase Agreements, in the form attached hereto as Exhibit B.
Prospective investors should carefully examine the Pig Purchase Agreement.
Although the following summary describes the material provisions of the Pig
Purchase Agreement, it does not purport to be a complete statement of all
provisions of the Pig Purchase Agreement and in no way modifies or amends the
Pig Purchase Agreement.
PURCHASE
The Company intends to sell feeder pigs and weaned pigs that meet
particular minimum weight, health, nutrition and genetic quality standards to
members of the Company who have entered into a Pig Purchase Agreement with the
Company. Feeder pigs and weaned pigs that meet such standards, as set forth in
the Pig Purchase Agreement, are referred to as "Qualifying Pigs." Pursuant to
the terms of the Pig Purchase Agreement, (a) a member of the Company owning
Class A Shares is required to purchase, and the Company is required to sell,
feeder pigs constituting Qualifying Pigs in lots of no less than 900, and no
more than 1,000, pigs per lot, as determined by the Company, and (b) a member of
the Company owning Class B Shares or Class C Shares is required to purchase, and
the Company is required to sell, weaned pigs constituting Qualifying Pigs in
lots of no less than 925, and no more than 1,025, pigs per lot, as determined by
the Company. Lots of feeder pigs constituting Qualifying Pigs are to be made
available to members of the Company owning Class A Shares 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 feeder pigs constituting Qualifying Pigs
from the Company's facilities. Lots of weaned pigs constituting Qualifying Pigs
are to be made available to members of the Company owning Class B Shares or
Class C Shares 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. 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 production facilities go into operation on schedule, the
initial lots of feeder pigs for new investor members owning Class A Common 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, and the initial lots of
weaned pigs for new investor members owning Class B Shares or Class C Shares 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. 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 Pig
Purchase Agreements. 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 Pig Purchase Agreements.
The Company intends to cause any such excess production of weaned pigs to be
retained by the Company and developed into feeder pigs. Investor members will
not be entitled to purchase any excess production of pigs. The Company has
agreed in its Swine Production Services Agreement with Farmland to provide
Farmland the first opportunity to purchase excess 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 $0 to $4.50 per pig production margin (changed from $4.50 effective
September 1, 1998 with respect to feeder pigs), as determined by the Company in
its discretion. 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 debt financing incurred by the
Company in connection with the consummation of the sale of Common Stock to such
member (or his predecessor in interest), which debt financing (except with
respect to certain existing Pig Purchase Agreements) shall be deemed to be at
least $1,970,000 per feeder pig production facility and $1,600,000 per weaned
pig production facility, by (ii) the total number of feeder pigs or weaned pigs,
as the case may be, constituting Qualifying Pigs anticipated to be produced
and shipped by the Company during such 12-month period from the one or more
pig production facilities developed through the use of such debt financing
and the net proceeds from the sale of Common Stock to such member (or
his predecessor in interest) (such estimate being based on the total estimated
number of feeder pigs or weaned pigs, as the case may be, constituting
Qualifying Pigs to be produced and shipped by the Company during such 12-month
period from all pig production facilities of the Company). The operating cost
per pig is to be determined on a rolling five-month (changed from 12-month
effective September 1, 1998 with respect to feeder pigs) 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 (changed from 12-month effective September 1, 1998 with respect to feeder
pigs) preceding the then present month of shipment, by (ii) the number of
Qualifying Pigs produced and shipped by the Company during such five-month (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 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
(a) the extent of any variation in the average weight of feeder pigs
constituting Qualifying Pigs from 45 pounds, and (b) the extent of any variation
in the average weight of weaned pigs constituting Qualifying Pigs from 8 to 12
pounds. To the extent that the average weight of a shipment of feeder pigs
constituting 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 $.15 (or $.20 under
some existing Agreements) per pound per pig for the average weight between 50
pounds and 60 pounds. To the extent that the average weight of feeder pigs
constituting Qualifying Pigs is less than 45 pounds per pig, the purchase price
will be decreased by $.25 per pound per pig. To the extent that the average
weight of a shipment of weaned pigs constituting 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 weaned pigs constituting
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 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. 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 Pig Purchase Agreement as of the expiration of such initial or extended
term. The Company may terminate a member's 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 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 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 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 Pig Purchase Agreement automatically terminates if the member assigns
or transfers all shares of Common Stock 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 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 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 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 Pig Purchase
Agreement or otherwise and regardless of whether demanded prior to the
expiration of the initial or any extended term of the 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 Common Stock prior to the expiration of
the initial or any extended term of the 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 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 Pig Purchase Agreement. If the member is prevented
from performing under the 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 "Pig Purchase Agreement--Term and Termination" and
"-- Grant of Security Interest."
GRANT OF SECURITY INTEREST
Pursuant to the Pig Purchase Agreement, a member grants to the Company, as
security for the performance of all of the member's obligations under the 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 Common
Stock 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 Common Stock 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 Pig Purchase Agreement, among other
occurrences, may result in the Company's foreclosure on the security interest in
the member's Common Stock. 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 and weaned pigs produced by it, except as expressly provided in the 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 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 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.
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 54 Chairman of the Board, President and
Director
Doug Brown 39 Treasurer, Secretary and Director
Merl Daniel 52 Director
Loren Keppy 36 Director
Larry Welsh 45 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 Vice President of Livestock Production for Farmland
since July 1997 and as a Director of Livestock Production for Farmland from 1989
to June 1997. In his present 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.
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.
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.
Larry Welsh has served as a Director of the Company since November 1997.
Mr. Welsh has engaged in farming since 1976 through family partnerships with
1,100 acres of crops. Mr. Welsh serves as President of Welkco, L.L.C., a
family-owned hog enterprise capable of finishing 50,000 market hogs per year as
a member of Effingham Equity Cooperative. He has a Bachelor of Science degree
in Mechanical Technology and Business Administration from Indiana State
University.
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 six directors: Messrs. Snyder, Brown,
Daniel, Keppy and Welsh, and the sixth directorship presently is vacant. 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, 1997. 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, 1997 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, 1997. 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 36.1% and 7.1%, respectively, of the outstanding Common Stock 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. As of the date of this Prospectus, the Company has consummated its
issuance and sale to Farmland of additional shares of Alliance capital stock.
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 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, 1997 and
1996, the Company paid Farmland a total of $250,967 and $151,905, 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, 1997 and 1996, the Company purchased $638,730 and
$303,963, 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 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 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, 1997 and 1996,
the Company purchased finished gilts from Farmland at an aggregate price of
$2,367,524 and $872,979, 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 years ended August 31,
1997 and 1996, Farmland paid $123,620 and $31,590, respectively, 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
and weaned pigs produced by the Company at the price per pig equal to the
average price per pig paid by stockholders under Pig Purchase Agreements for the
then immediately preceding month, and (b) feeder pigs and weaned pigs that a
stockholder has failed to purchase under such stockholder's Pig Purchase
Agreement 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.
Pig Purchase Agreements. As a member of the Company, Farmland has
contracted with the Company to purchase a share of the feeder and weaned pigs to
be produced by the Company under the same terms required of the Company's other
members. Commencing on August 11, 1995, the date the Company first produced and
shipped feeder pigs pursuant to the Pig Purchase Agreements with the Company's
existing members (other than Farmland and Yuma Cooperative), the price paid by
Farmland for pigs has been under terms comparable to those applicable to the
Company's other members. For the years ended August 31, 1997 and 1996, Farmland
purchased feeder pigs from the Company (including Yuma Cooperative's share of
feeder pigs produced by the Company) at an aggregate price of $7,924,763 and
$5,035,160, respectively. 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 development into feeder pigs.
See "Pig Purchase Agreement" and "Certain Relationships and Related
Transactions--Yuma Cooperative--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, 1997, CoBank's prime rate was 8.50%. 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 development activities with respect to a second Illinois sow
production facility. The Company obtained funding for the purchase of the 45
Acre Tract, and subsequent development of a feeder pig facility, from the
proceeds of a $1,360,000 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%. This loan was repaid by the
Company in full in August 1997, and the promissory note has been cancelled. In
November 1997, the Company obtained a second $1,360,000 from Farmland to provide
for additional facilities expansion. 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%. This loan was repaid by the Company in full
in November 1997, and the promissory note has been cancelled. In May 1998, the
Company obtained a $2,160,000 loan from Farmland to provide for the development
of a 5,000-sow pig production facility in Yuma County, Colorado. 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 balloon payment of one-
half of the principal and interest to be made upon the Company's issuance and
sale of a Minimum Block of Shares. The remaining principal and interest is
payable upon the Company's issuance and sale of a second Minimum Block of
Shares. To the extent that there remains any unpaid amount owed under this loan
as of the May 1, 2008 maturity date, the entire loan is then payable in full.
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 approximately 13 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 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 arranged 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 ($13.00 per ton as of the date of this Prospectus), in addition to the
actual delivered cost of the feed ingredients. Feed rations which are pelleted
are subject to a surcharge ($6.00 per ton as of the date of this Prospectus).
The fixed charge will drop to $12.00 per ton on September 1, 1998, and
thereafter the fixed charge and the surcharge will remained fixed through the
expiration of the Feed Purchase Agreement on August 31, 1999. 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, 1997 and 1996, the Company
purchased $4,338,732 and $3,423,773, respectively, of feed from Yuma
Cooperative. See "Business--Purchase of Feed and Other Inputs."
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. Commencing on August 11, 1995, the date the Company first produced and
shipped feeder pigs pursuant to the Pig Purchase Agreements with the Company's
existing members (other than Farmland and Yuma Cooperative), the price paid by
Yuma Cooperative for feeder pigs has been under terms comparable to those
applicable to the Company's other members. For the years ended August 31, 1997
and 1996, Yuma Cooperative's share of feeder pigs produced by the Company was
purchased from the Company by Farmland. See "Pig Purchase Agreement" and
"Certain Relationships and Related Transactions--Farmland--Pig Purchase
Agreements."
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus regarding the beneficial ownership of Alliance capital stock by the
only persons who were the beneficial owners of more than 5% of the outstanding
capital stock as of such date. No directors or executive officers of the
Company were the beneficial owners of Alliance capital stock as of the date of
this Prospectus. As of that date, no shares of Alliance Class C Common were
outstanding. All information with respect to beneficial ownership has been
furnished by the respective 5% or more stockholder.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) STOCK OUTSTANDING
BENEFICIAL OWNER
CLASS A CLASS B CLASS A CLASS B ALL
COMMON COMMON COMMON COMMON CLASSES
<S> <C> <C> <C> <C> <C>
Farmland Industries, Inc. (2) 52 4 43.7% 11.1% 36.1%
3315 North Oak Trafficway
Kansas City, MO 64116
Yuma Farmers Milling and Mercantile 12 -- 10.1% -- 7.7%
Cooperative Company(3)
101 South Detroit
Yuma, CO 80759
Corn Plus II, L.C. (3) 10 -- 8.4% -- 6.5%
212 North Agora Street
Marathon, IA 50565
Welkco, L.L.C. (3) -- 18 -- 50.0% 11.6%
21101 East 1950 Road
Marshall, IL 62441
</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
119 shares of Class A Common outstanding and 36 shares of Class B Common
outstanding.
(2) The voting and disposition of the shares of Class A Common and Class B
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 and Class B
Common held by these beneficial owners are subject to the discretion of the
Board of Directors (manager in the case of Corn Plus II, L.C.) of the
applicable beneficial owner.
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 119 shares
of Class A Common outstanding, which were held of record by 21 stockholders; 36
shares of Class B Common outstanding, which were held of record by eight
stockholders; and no shares of 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 Pig Purchase
Agreement may own Common Stock. 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. 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 prior to September 1, 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 margins 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) Pig Purchase Agreement 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 remaining 34 Class A Shares, 18 Class B Shares and 72 Class C
Shares offered hereby 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
119 shares of Class A Common held by existing stockholders of the Company, 34
shares are freely transferable without restriction under the Act, and the
remaining 85 shares are owned by "affiliates" of the Company. Of the 36 shares
of Class B Common held by existing stockholders of the Company, 14 shares are
freely transferable without restriction under the Act, and the remaining 22
shares are owned by "affiliates" of the Company. 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. 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 Common Stock
executes and delivers to the Company a 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 Pig Purchase Agreement. 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 Pig Purchase
Agreement 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 Pig Purchase Agreement 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" and "Pig Purchase Agreement."
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 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 Shares offered hereby
are sold. The Company has agreed 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 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 consummated
the issuance and sale of 17 shares of Class A Common and 36 shares of Class B
Common 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 remaining 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 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 feeder pigs
constituting Qualifying Pigs from the Company's facilities. The Company
anticipates that the production of a feeder pig production facility having the
capacity of a 2,450-sow unit 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 "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 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 weaned pigs constituting Qualifying
Pigs from the Company's facilities. The Company anticipates that the production
of a weaned pig production facility having the capacity of a 2,450-sow unit 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 "Pig Purchase Agreement."
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 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 weaned pigs constituting Qualifying
Pigs from the Company's facilities. The Company anticipates that the production
of a weaned pig production facility having the capacity of a 2,450-sow unit 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 "Pig Purchase Agreement."
The minimum investment for each investor is not less than one Share. In
addition, each investor purchasing one or more Shares must enter into a Pig
Purchase Agreement with the Company in the form attached to this Prospectus as
Exhibit B. 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
debt financing with respect to each Minimum Class A Block of Class A Shares and
a commitment for at least $2,160,000 of debt financing 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 from its current lender, CoBank, until December 31, 2001 with respect
to at least five Minimum Blocks of the remaining Shares offered hereby. No
assurances can be given that an extension of such commitment will be obtained on
favorable terms, if at all. 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. 465450" in
an amount representing the aggregate purchase price of the Shares
being subscribed for; and
(3) two completed and executed copies of a Pig Purchase Agreement
in the form attached to this Prospectus as Exhibit B.
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 The Bank of New York (successor trustee to NationsBank, N.A.),
New York, New York. Payment of the offering price must be made payable to the
order of "Alliance Farms Cooperative Association Escrow No. 465450," 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 Pig Purchase Agreement 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
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 Pig Purchase Agreement
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 "Pig
Purchase Agreement."
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 The Bank of New York (successor trustee to
NationsBank, N.A.), New York, New York (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's predecessor has been paid an initial acceptance fee in an amount equal
to $750. The Escrow Agent 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 remaining 34 Class A Shares, 18 Class B Shares and 72
Class C Shares offered hereby will terminate on January 7, 1999 (550 days from
the July 7, 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 debt financing
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 debt financing 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 debt financing 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, 1997 and August 31, 1996 and for the years ended August 31, 1997 and
1996, 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 Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511 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. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. Materials also may be obtained from the
Commission's Internet 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, 1997 and 1996 F-3
Statements of Operations for the years ended
August 31, 1997 and 1996 F-4
Statement of Shareholders' Equity for the years
ended August 31, 1997 and 1996 F-5
Statements of Cash Flows for the years ended
August 31, 1997 and 1996 F-6
Notes to Financial Statements F-7
Condensed Balance Sheets as of May 31, 1998
(unaudited) and August 31, 1997 F-13
Condensed Statements of Operations for the three
and nine months ended
May 31, 1998 and 1997 (unaudited) F-14
Condensed Statements of Cash Flows for the nine months ended
May 31, 1998 and 1997 (unaudited) F-15
Notes to Condensed Financial Statements F-16
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, 1997 and 1996 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, 1997 and 1996 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 10, 1997
<TABLE>
<CAPTION>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
BALANCE SHEETS
August 31, 1997 and 1996
August 31, 1997 August 31, 1996
<S> <C> <C>
ASSETS
Current Assets:
Receivables, trade 69,550 48,546
Receivables, non-trade (Note 3) 200,137 23,902
Inventory (Note 4) 3,179,402 2,435,477
Other current assets 0 48,273
Total current assets 3,449,089 2,556,198
Property, plant and equipment, at cost (Note 5) 19,610,833 16,491,601
Less accumulated depreciation 2,193,650 1,333,291
17,417,183 15,158,310
Breeding stock 4,603,996 3,928,215
Less accumulated depreciation 1,353,650 1,013,872
3,250,346 2,914,343
Other assets, net of $77,261 and $51,568
accumulated amortization 263,788 216,762
$24,380,406 $20,845,613
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft 1,106,122 575,749
Current maturities of long-term debt (Note 6) 1,262,700 870,000
Accounts payable (Note 3) 952,431 526,193
Accrued rebates (Note 2) 0 670,167
Accrued expenses 242,261 171,791
Total current liabilities 3,563,514 2,813,900
Long-term debt (Note 6) 14,320,724 13,425,424
Shareholders' equity
Class A common stock of $.01 par value; authorized
5,000 shares, issued and outstanding 119 shares
(102 shares at August 31, 1996) 1 1
Class B common stock of $.01 par value; authorized
2,500 shares, none issued 0 0
Class C common stock of $.01 par value; authorized
2,500 shares, none issued 0 0
Additional paid-in capital 8,719,237 7,487,653
Accumulated deficit (2,223,070) (2,881,365)
Total shareholders' equity 6,496,168 4,606,289
Commitments (Note 7 & 8)
------ ------
$24,380,406 $20,845,613
See accompanying notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF OPERATIONS
For the years ended August 31, 1997 and 1996
1997 1996
<S> <C> <C>
Net sales (Notes 2 and 3) $13,669,706 $7,037,927
11,222,169 6,422,838
Cost of goods sold (Note 3)
Gross margin 2,447,537 615,089
Expenses related to start-up
of new production facilities 281,025 426,926
Administrative expenses 424,565 369,787
(Gain) loss on sale of breeding stock (94,123) 226,738
Operating income (loss) $1,836,070 ($408,362)
Other income (expense):
Interest expense (1,321,984) (1,001,329)
Other 144,209 66,604
(1,177,775) (934,725)
Net income (loss) $658,295 ($1,343,087)
See accompanying notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended August 31, 1997 and August 31, 1996
Class A Additional Total
Common paid-in Accumulated Shareholders'
stock capital deficit equity
<S> <C> <C> <C> <C>
Balance at August 31, 1995 1 6,165,970 (1,538,278) 4,627,693
Sale of 17 shares of Class A 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
Sale of 17 shares of Class A common
stock - $.01 par per share, net of
$128,416 offering costs
--- 1,231,584 --- 1,231,584
Net income --- --- 658,295 658,295
Balance at August 31, 1997 1 8,719,237 (2,223,070) 6,496,168
See accompanying notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF CASH FLOWS
For the years ended August 31, 1997 and 1996
1997 1996
Cash flow from operating activities:
<S> <C> <C>
Net income (loss) $ 658,295 $(1,343,087)
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for depreciation and amortization 2,179,473 1,721,482
(Gain) Loss on sale of breeding stock (94,123) 226,738
Changes in assets and liabilities:
Receivables (197,239) (40,561)
Inventory (743,925) (1,366,333)
Other current assets 48,273 (28,999)
Other assets (70,896) (38,593)
Accounts payable 426,238 (146,764)
Accrued rebates (670,167) 629,028
Accrued expenses 70,470 106,640
Net cash provided by (used in) 1,606,399 (280,449)
operating activities
Cash flows from investing activities:
Capital expenditures (5,896,799) (8,808,888)
Proceeds from sale of breeding stock 1,246,443 626,268
Net cash used in investing activities (4,650,356) (8,182,620)
Cash flows from financing activities
Proceeds from issuance of long term debt 1,877,131 3,798,000
Net increase in revolving term credit 300,869 1,276,000
Payment on long term debt (870,000) (580,000)
Increase (decrease) in note payable to Farmland (20,000) 636,424
Issuance of Class A common stock,
net of offering costs 1,231,584 1,321,683
Loan origination fees (6,000) (42,000)
Increase (decrease) in bank overdraft 530,373 575,749
Net cash provided by
financing activities: 3,043,957 6,985,856
Decrease in cash and cash
equivalents 0 (1,477,213)
Cash and cash equivalents at beginning of period 0 1,477,213
Cash and cash equivalents at end of period $0 $0
Supplemental schedule of cash paid for interest: $1,337,319 $989,334
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, 1997 Alliance owned and was operating
five 2,450-sow feeder pig production facilities in Yuma County,
Colorado, one 2,450-sow feeder pig production facility in Wayne
County, Illinois and a second 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 and
under the FIFO method for other inventories.
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") was adopted by Alliance on
September 1, 1996. 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 is
not expected to 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 operates as a cooperative that is not exempt from federal
income taxes and, therefore, is subject to taxes on all income not
paid or allocated to members. Deferred income taxes have not been
provided because all sales since inception have been to members and
all future sales are anticipated to be to members.
Alliance incurred patronage-sourced losses through August 31, 1996
which were not allocated to members. These patronage-sourced
losses are therefore available to offset future patronage-sourced
income. During the year ended August 31, 1997, a portion of
patronage sourced losses were used to offset 1997 patronage-sourced
income. At August 31, 1997, approximately $3,594,000 of patronage-
sourced losses are available to offset future patronage-sourced
income. These losses expire in 2009 through 2011.
( h) Common Stock
The common stock of Alliance is subject to certain restrictions as
to transferability and Alliance has the right to purchase a
member's common stock under certain circumstances.
The authorized common stock of Alliance consists of Class A common
stock, Class B common stock and Class C common stock. Only
qualified agricultural producers who have delivered a Feeder Pig
Purchase Agreement may own Class A common stock, only qualified
agricultural producers who have delivered a Weaned Pig Purchase
Agreement may own Class B common stock, and only qualified
agricultural producers who have delivered a Class C Weaned Pig
Purchase Agreement may own Class C common stock. Holders of Class
A common stock and Class B common stock are entitled to one vote
for each share held, and holders of Class C common stock are
entitled to three-fourths of one vote for each share held. The
preferences, powers and rights of Class A, Class B and Class C
common stock are identical. Alliance intends to compute its
patronage-sourced income or loss separately for each class of
stockholders (members).
( i ) 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 years ended August 31, 1997 and 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.
Alliance's sales for the fiscal year ended August 31, 1996 were
reduced by the accrual of a rebate of $670,167. The 1996 rebate
was paid to members during fiscal 1997. 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:
Fiscal Year Ended
August 31
1997 1996
Average Net Sales Price 59.02 48.12
Average Industry Market* 56.84 41.15
*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, 1997 and 1996, Farmland Industries, Inc.
(Farmland) owned approximately 43.7% and 49%, respectively, of the
Common Stock of Alliance, and Yuma Farmers' Milling and Mercantile
Cooperative (Yuma Cooperative) owned approximately 10.08% and
11.8%, 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
1997 1996
Feed Purchases $4,338,732 $3,423,773
Animal Health Purchases 638,730 303,963
Breeding Stock 2,367,524 872,979
Feeder Pig Sales 7,924,763 5,035,160
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 a swine
production services agreement. The royalty, which is $10 per head
selected, paid to Alliance under such agreement was as follows:
Fiscal Year Ended
August 31
1997 1996
Royalty Income $123,620 $31,590
Farmland provides Alliance with an administrative office in Yuma,
Colorado at no cost. 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
1997 1996
Management Fee $250,967 $151,905
Alliance had $200,137 and $23,902 of non-trade receivables at
August 31, 1997 and 1996, respectively. Of the $200,137 due
Alliance at August 31, 1997, $120,195 was due from Yuma Cooperative
as a result of a feed pricing adjustment and the remainder was due
from Farmland for items received out of Alliance's shop stock
inventory, and from Pig Producers I, LP ("Pig Producers"), a
limited partnership in which Farmland holds a 12.5% interest, for
the reimbursement of wages, benefits and other costs attributable
to Alliance employees that are assigned to perform various duties
at Pig Producers, as well as for items received out of Alliance's
shop stock inventory. The $23,902 due Alliance at August 31, 1996
was due for wages and benefits as described above from Pig
Producers, in addition to charges for items received out of
Alliance's shop stock inventory by both Pig Producers and Farmland.
Alliance owed $197,755 and $185,413 at August 31, 1997 and $38,650
and $137,722 at August 31, 1996 to Farmland and Yuma Cooperative,
respectively, for goods and services. Alliance is also obligated
to Farmland in the amount of $616,424 at August 31, 1997 pursuant
to a $760,000 promissory note. See note 6.
4. Inventory
Major components of inventories as of August 31, 1997 and August
31, 1996 are as follows:
1997 1996
Feeder Pigs $2,922,594 $2,265,056
Other 256,808 170,421
$3,179,402 $2,435,477
5. Property, Plant and Equipment
Property, plant and equipment at August 31, 1997 and 1996 consisted
of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land $ 1,875,125 $ 1,717,079
Buildings 15,693,994 13,129,134
Site Improvements 1,494,249 1,019,936
Machinery and equipment 368,572 254,316
Mobile equipment 60,719 27,346
Furniture and office equipment 21,454 21,694
Construction in progress 96,720 322,096
$19,610,833 $16,491,601
</TABLE>
6. Long-Term Debt
Long term debt at August 31, 1997 and 1996 consisted of the
following:
1997 1996
CoBank Term Loan $12,525,131 $11,518,000
CoBank Revolving Term Credit 2,441,869 2,141,000
Note Payable to Farmland 616,424 636,424
15,583,424 14,295,424
Less Current Maturities 1,262,700 870,000
$14,320,724 $13,425,424
On May 19, 1995, Alliance entered into a $23,600,000 secured credit
facility with CoBank. This agreement provided 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 December 31, 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% (9.75% at August 31, 1997). Alliance
capitalized $29,533 and $38,181 of interest on construction for the
fiscal years ended August 31, 1997 and 1996 respectively.
At August 31, 1997, $443,869 of term loans were immediately
available, $211,000 of term loans will be made available by CoBank
upon final acceptance of the feeder pig production facility under
construction in Wayne County, Illinois and $938,131 of revolving
term credit was immediately available.
Additional amounts available of term loans of $4,220,000 and
revolving term credit of $1,220,000 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 $3,900,000 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 $504,000, (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, 1997 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, 1997, substantially all assets of Alliance were pledged
to CoBank.
At August 31, 1997, $616,424 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, 1997 matures during the fiscal
years ending August 31 in the following amounts:
1998 1,262,700
1999 1,550,400
2000 1,550,400
2001 1,550,400
2002 1,550,400
Thereafter 6,289,924
$15,583,424
7. Operating Leases
Alliance incurred $121,754 and $2,137 of lease expenses related to
operating lease agreements the company entered into for facilities
and equipment for the fiscal years ended August 31, 1997 and 1996,
respectively. Future minimum lease payments for the next five
fiscal years ending August 31 are as follows:
1998 $ 266,954
1999 23,319
2000 23,319
2001 23,319
2002 and thereafter 23,319
$342,740
8. Commitments
As of August 31, 1997, Alliance Farms was operating six 2,450 sow
feeder pig production units and had an additional unit under
construction. At August 31, 1997, commitments for construction of such
facilities totaled approximately $699,000. These commitments will be
funded through bank borrowings.
9. Fair Value of Financial Instruments
Alliance has financial instruments which are comprised of cash and
cash equivalents, receivables, payables, and long-term debt. The fair
value of long-term debt is estimated using current interest rates for
similar instruments. The fair value of long-term debt approximates the
carrying amount at August 31, 1997 because the long-term debt accrues
interest at a variable rate. The carrying amounts of cash and cash
equivalents, receivables and payables approximate fair value because of
the short maturity of these instruments.
<TABLE>
<CAPTION>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
UNAUDITED BALANCE SHEETS
MAY 31, 1998 AUGUST 31, 1997
ASSETS
Current Assets:
<S> <C> <C>
Receivables, trade 13,589 69,550
Receivables, non-trade (Note 3) 191,376 200,137
Inventory (Note 4) 3,720,201 3,179,402
Other current assets 68,025 0
Total current assets 3,993,191 3,449,089
Property, plant and equipment, at cost 24,376,151 19,610,833
(Note 5)
Less accumulated depreciation 2,982,345 2,193,650
MAY 31, 1998 AUGUST 31, 1997
21,393,806 17,417,183
Breeding stock 4,190,176 4,603,996
Less accumulated depreciation 1,055,288 1,353,650
3,134,888 3,250,346
Other assets, net of $100,476 and $77,261
accumulated amortization 333,351 263,788
$ 28,855,236 $24,380,406
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank Overdraft 400,074 1,106,122
Current maturities of long-term debt (Note 5) 1,744,800 1,262,700
Accounts payable (Note 3) 1,464,717 952,431
Accrued expenses 390,955 242,261
Total current liabilities 4,000,546 3,563,514
Long-term debt (Note 5) 15,100,561 14,320,724
MAY 31, 1998 AUGUST 31, 1997
Shareholders' Equity
Class A common stock of $.01 par value; 1 1
authorized 5,000 shares, issued and
outstanding 119 shares
Class B common stock of $.01 par value; 0 0
authorized 2,500 shares, issued and
outstanding 36 shares
Class C common stock of $.01 par value; 0 0
authorized 2,500 shares, none issued
Additional paid-in capital 10,751,325 8,719,237
Accumulated deficit (997,197) (2,223,070)
Total shareholders' equity 9,754,129 6,496,168
Commitments (Note 6) B B
$ 28,855,236 $ 24,380,406
</TABLE>
See accompanying notes to condensed financial statements
ALLIANCE FARMS COOPERATIVE ASSOCIATION
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTH PERIODS ENDED NINE MONTH PERIODS ENDED
MAY 31 MAY 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales (Note 2) $4,375,672 $3,351,997 $13,346,482 $9,871,995
Cost of goods sold 3,355,709 2,690,524 9,587,739 8,239,573
Gross income 1,019,963 661,473 3,758,743 1,632,422
Expenses related to start-up of ne
production facilities 342,814 98,547 791,861 174,215
Administrative expenses 424,610 111,174 751,269 326,170
(Gain) Loss on sale of breeding
stock
103,518 (4,310) 159,057 76,710
Operating income $149,021 $456,062 $2,056,556 $1,055,327
Other income (expense):
Interest expense (412,924) (238,776) (1,129,039) (919,360)
Other 246,194 15,325 298,355 101,111
(166,730) (223,451) (830,684) (818,249)
Net income (loss) ($17,709) $232,611 $1,225,872 $237,078
</TABLE>
See accompanying notes to condensed financial statements
ALLIANCE FARMS COOPERATIVE ASSOCIATION
UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTH PERIODS ENDED
MAY 31
1998 1997
Cash flow from operating activities:
<S> <C> <C>
Net income $ 1,225,872 $ 237,078
Adjustment to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization 1,922,780 1,581,526
Loss on sale of breeding stock 159,057 76,710
Changes in assets and liabilities:
Receivables 64,722 13,138
Inventory (540,799) (594,810)
Other current assets (68,025) (39,945)
Other assets (104,778) (70,897)
Accounts payable 512,286 741,510
Accrued expenses 148,694 105,882
NINE MONTH PERIODS ENDED
MAY 31
1998 1997
Net cash provided by operating activities 3,319,809 2,050,192
Cash flows from investing activities:
Capital expenditures (7,305,367) (3,888,065)
Proceeds from sale of breeding stock 1,385,582 609,636
Net cash used in investing activities ( 5,919,785) (3,278,429)
Cash flows from financing activities:
Proceeds from issuance of long term debt 2,658,785 422,000
Net decrease in revolving term credit (309,782) 151,000
Payment on long term debt (970,400) (652,500)
Increase (decrease) in note payable to Farmland (116,666) 1,340,000
Loan origination fees 12,000 0
Issuance of common shares, net of offering cost 2,032,087 0
Increase (decrease) in bank overdraft (706,048) (32,263)
Net cash provided by financing activities: 2,599,976 1,228,237
NINE MONTH PERIODS ENDED
MAY 31
1998 1997
Change in cash and cash equivalents 0 0
Cash and cash equivalents at beginning of period 0 0
Cash and cash equivalents at end of period $ 0 $ 0
</TABLE>
See accompanying notes to condensed financial statements
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.
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, 1997 Annual Report on Form 10-KSB.
The balance sheet as of August 31, 1997 has been derived from the
audited financial statements as of that date.
2. Sales
Alliance sold nearly 100% of its feeder pigs to its members for the
three and nine month periods ended May 31, 1998 and 1997 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.
Because the contractual price for the sale of a feeder pig is
determined based upon, among other things, a twelve month
historical rolling average of 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.
Conversely, in periods of falling costs, Alliance may earn higher
than normal gross margins.
Alliance's average net sales price and the average industry market
price for feeder pigs were as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
May 31 May 31
1998 1997 1998 1997
<S> <C> <C> <C>
Average Net Sales Price 56.05 59.16 58.53 58.26
Average Industry Market* 35.14 64.99 39.48 57.65
</TABLE>
*
As published by the USDA's Market News Service
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 Nine Months Ended
May 31 May 31
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Feed Purchases............................. $ 806,062 $1,072,431 $2,874,834 $3,167,871
Animal Health Purchases ................... 82,698 172,686 169,736 549,933
Breeding Stock............................. 795,685 789,328 2,308,245 1,284,084
Feeder Pig Sales........................... 2,293,777 2,111,550 8,009,564 6,072,633
</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 a swine
production services agreement. The royalty, which is $10 per head
selected, paid to Alliance under such agreement was as follows:
Three Months Ended Nine Months Ended
May 31 May 31
1998 1997 1998 1997
Royalty Income $ 14,730 $7,240 $ 21,100 $ 79,840
Alliance had $191,376 and $200,137 of non-trade receivables at May
31,1998 and August 31, 1997, respectively. The $191,376 due to
Alliance at May 31, 1998 was due from Farmland for royalties as
described above and for items received by Farmland out of
Alliance's shop stock inventory, and from Pig Producers I, LP ("Pig
Producers"), a limited partnership in which Farmland holds a 12.5%
interest, for the reimbursement of wages, benefits and other costs
attributable to Alliance employees that are assigned to perform
various duties at Pig Producers, as well as for items received by
Pig Producers out of Alliance's shop stock inventory. Of the
$200,137 due to Alliance at August 31, 1997, $120,195 was due from
Yuma Cooperative as a result of a feed pricing adjustment and the
remainder was due for wages and benefits as described above from
Pig Producers, in addition to charges for items received out of
Alliance's shop stock inventory by both Pig Producers and Farmland.
Farmland 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:
Three Months Ended Nine Months Ended
May 31 May 31
1998 1997 1998 1997
Management Fee $87,277 $61,701 $254,344 $183,297
Alliance owed $60,762 and $188,849 at May 31, 1998 and $197,755 and
$185,413 at August 31, 1997 to Farmland and Yuma, respectively, for
goods and services. Alliance is also obligated to Farmland in the
amounts of $499,758 and $616,424 at May 31, 1998 and August 31,
1997, respectively, pursuant to a promissory note. See note 5.
4. Major components of inventories as of May 31, 1998 and August 31,
1997 are as follows:
MAY 31 AUGUST 31
1998 1997
Feeder Pigs................... $3,590,694 $2,922,594
Other............................ 129,507 256,808
$3,720,201 $3,179,402
5. Long-Term Debt
Long term debt at May 31, 1998 and August 31, 1997 consisted of the
following:
MAY 31 AUGUST 31
1998 1997
CoBank Term Loan.............. $12,209,600 $12,525,131
CoBank Construction Loan...... $ 2,003,916 0
CoBank Revolving Term Credit.. $ 2,132,087 $ 2,441,869
Note Payable, Farmland........ $ 499,758 $ 616,424
$16,845,361 $15,583,424
Less Current Maturities....... $ 1,744,800 $ 1,262,700
$15,352,861 $14,320,724
On May 19, 1995, Alliance entered into a new $34,506,700 secured
credit facility with CoBank to provide financing for the debt
portion of the construction of up to six 2,450-sow weaned and/or
feeder pig production facilities, related support facilities and
initial breeding stock associated with each unit and to restate and
modify the terms and conditions of the existing loan agreements,
including the commitments for financing the debt portion of the two
2,450-sow weaned pig facilities already under construction, along
with these units related support facilities, initial breeding stock
and capitalized start-up costs. This agreement provides for
$26,846,700 of term loans and $7,660,000 of revolving term credit.
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. There is
no assurance that additional shares of common stock will be sold
and the specified equity investment levels satisfied. Under this
new credit facility, proceeds from the construction loan are used
for construction of facilities and are advanced by CoBank as
construction costs are incurred by Alliance. Proceeds from the
term loans and revolving term credit are used to repay the
construction loan upon completion of a facility, and for working
capital.
The credit facility was also amended to accommodate the
construction of two weaned pig facilities in place of two feeder
pig facilities. The unused revolving term credit expires June 20,
2006. Interest accrues on the outstanding principle balance of the
loan at a rate equal to CoBank's national variable rate, plus 1.25%
(9.75% at May 31, 1998). Alliance capitalized $38,606 and $8,241
of interest on construction for the nine months ended May 31, 1998
and 1997 respectively.
At May 31, 1998, Alliance had $3,564,000 immediately available
under its credit facility with CoBank, consisting of $2,316,000 of
term loans and $1,248,000 of revolving term credit. An additional
$4,320,000 is to become available following CoBank's acceptance of
certain documents, as specified in the loan agreement.
The new credit facility provides for the monthly payment of
principal and interest. The existing non-revolving term loans will
change from ten year to eight year terms effective August 31, 1998.
Each new tranche of non-revolving term credit will be repaid with
monthly interest payments and with 97 monthly principal payments of
$21,800 for feeder pig facilities and $17,300 for weaned pig
facilities to begin 18 months after the initial advance on each new
construction loan commitment. The revolving credit facility will
mature on August 31, 2010 and will decrease in 40 equal amounts at
the end of each of the Company's fiscal quarters based on the
amount of available commitment at August 31, 2001.
Alliance is required to comply with various covenants, including,
but not limited to (i) maintaining a total equity to total assets
ratio of not less than 0.25, (ii) maintaining a debt service
coverage ratio of not less than 1.00 (calculated as average annual
cash flow divided by current debt), (iii) restrictions on the
occurrence of additional indebtedness. As of May 31, 1998,
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 May 31, 1998, substantially all assets of Alliance were
pledged to CoBank.
At May 31, 1998, $499,758 had been borrowed from Farmland pursuant
to a $760,000 loan agreement. The $760,000 loan agreement provides
for interest at CoBank's prime rate and requires repayment in 2005.
Long-term debt as of May 31, 1998 matures during the fiscal years
ending August 31 in the following amounts:
1998........... $ 385,800
1999........... 1,812,000
2000........... 2,227,200
2001........... 2,280,502
2002........... 2,440,409
Thereafter..... 7,699,450
$16,845,361
6. Alliance Farms is currently operating seven 2,450 sow feeder pig
facilities and has one weaned pig facility under construction in
Yuma County, Colorado and in Wayne County, Illinois. As of May 31,
1998, commitments for construction of these two facilities totaled
$261,396. Also, there is a commitment of $3,243,200 for an
additional 5,000 sow facility in Yuma County, Colorado. As of May
31, 1998 construction had not begun.
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
______________, 1998 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 January 7, 1999 (or by 5:00 p.m. on July 6,
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. 465450" 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) two completed and executed copies of the
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) one executed stock power respecting the
Class A Shares, Class B Shares and Class C Shares,
respectively, subscribed for by the undersigned
hereunder in favor of the Company as contemplated by
Section 17 of the Pig Purchase Agreement.<F3>
[FN]
Please do not date the Weaned Pig Purchase Agreement; the
Company will date the Weaned Pig Purchase Agreement 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 The
Bank of New York (successor trustee to NationsBank, N. A.),
New York, New York. Payment of the applicable offering
price must be made payable to the order of "Alliance Farms
Cooperative Association Escrow No. 465450", 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 [JWA2]January 7, 1999 (or by 5:00 p.m. on July
6, 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 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.<F4>
[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, acknowledgments 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 acknowledgments 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 property,
both individuals must sign this Subscription Agreement.
Signature
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 Printed Name of
articles of incorporation, Organization
bylaws, and certified
corporate resolution
authorizing the investment By:
and signature. If signed Signature
on behalf of a partnership,
please submit a copy of the
partnership agreement and a Printed Name and Title
written consent of partners
authorizing the investment
and signature. If signed By:
on behalf of a trust, (Additional signature
please submit the name of if required by
the trust, name of the governing instrument)
trustee, and a 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 Yuma, Colorado.
ALLIANCE FARMS COOPERATIVE
ASSOCIATION
By:
Name:
Title:
ANNEX 1
STOCK POWER
FOR VALUE RECEIVED, hereby sell,
assign and transfer unto
(__________) Shares of the Class __ 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)
Department of the Treasury
Internal Revenue Service
Request for Taxpayer
Identification Number and Certification
Give form to the requester. Do NOT send to the IRS.
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. For Social security
number individuals, 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,
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.
Part II For Payees Exempt
From Backup Withholding (See, see Part II Instructions on
page 2)
OR
Employer identification
____ - _____________ >
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
A-26
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, 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-tustee(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,
educational, or other tax-exempt
organization The organization
10. Partnership The partnership
11. A broker or registered nominee The broker or
nominee
12. Account with the Department of The public
Agriculture 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
PIG PURCHASE AGREEMENT
THIS 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 weaned pigs; and
WHEREAS, Purchaser is a purchaser of 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 PIGS.
(A) GENERAL. This Agreement provides for the sale by Association to
Purchaser of feeder pigs or weaned pigs, as the case may be, as determined by
reference to the class of capital stock of Association identified below from
which the right of Purchaser to purchase Lots (as defined below) of Qualifying
Pigs (as defined in Section 2) under this Agreement derives (check one box
only):
Class A Common Stock. If this box is checked, (i) the class of
capital stock of Association from which the right of Purchaser to
purchase Lots under this Agreement derives is Class A Common Stock (as
defined in Article SIXTH of Association's Articles of Incorporation),
(ii) the Lots to which such right extends shall consist solely of
feeder pigs, and (iii) this Agreement shall constitute a "Feeder Pig
Purchase Agreement", as such term is used in Association's Bylaws.
Class B Common Stock. If this box is checked, (i) the class of
capital stock of Association from which the right of Purchaser to
purchase Lots under this Agreement derives is Class B Common Stock (as
defined in Article SIXTH of Association's Articles of Incorporation),
(ii) the Lots to which such right extends shall consist solely of
weaned pigs, and (iii) this Agreement shall constitute a "Weaned Pig
Purchase Agreement", as such term is used in Association's Bylaws.
Class C Common Stock. If this box is checked, (i) the class of
capital stock of Association from which the right of Purchaser to
purchase Lots under this Agreement derives is Class C Common Stock (as
defined in Article SIXTH of Association's Articles of Incorporation),
(ii) the Lots to which such right extends shall consist solely of
weaned pigs, and (iii) this Agreement shall constitute a "Class C
Weaned Pig Purchase Agreement", as such term is used in Association's
Bylaws.
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 produced by Association during the term of this
Agreement in lots (hereinafter "Lot" or "Lots") of (A) feeder pigs of no less
than 900, and no more than 1,000, Qualifying Pigs per Lot (as determined by
Association), if the right of Purchaser to purchase Lots under this Agreement
derives from Class A Common Stock, or (B) weaned pigs of no less than 925, and
no more than 1,025, Qualifying Pigs per Lot (as determined by Association), if
the right of Purchaser to purchase Lots under this Agreement derives from Class
B Common Stock or Class C Common Stock, which Lots of feeder pigs or weaned
pigs, as the case may be, shall be made available to Purchaser on a rotating
schedule with other members of Association owning the class of capital stock of
Association from which the right of Purchaser to purchase Lots under this
Agreement derives, 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 the class of capital stock of Association from which the right
of Purchaser to purchase Lots under this Agreement derives, for purposes of
adjusting such rotating schedule as warranted by the resulting changes in the
members of 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 the class of
capital stock of Association from which the right of Purchaser to purchase Lots
under this Agreement derives. 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 or acquired using the
proceeds of the issuance of the capital stock of Association (including the
capital stock of 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; provided, however, that any increased
production of Qualifying Pigs attributable to the addition of a Production Unit
constructed or acquired by Association with the proceeds of a facilities
expansion loan (and not the proceeds of Association's issuance of capital stock)
may be made available by Association exclusively to the provider of such loan,
as determined by Association in its discretion. 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 Qualifying Pigs is
anticipated to produce, on a prospective rolling 12-month basis, (i)
approximately two and seven-tenths (2.7) Lots of feeder 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, (ii) approximately two and seven-
tenths (2.7) Lots of weaned 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, and (iii) approximately two and one-tenths
(2.1) Lots of weaned 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 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 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 pig, of the type (feeder or weaned) to which this
Agreement relates, that has the genetic characteristics described in Section 6,
that has been managed in accordance with Section 7, and that (a) in the case of
weaned pigs, is not utility grade, has a minimum weight of at least six (6)
pounds at point in time of delivery, and has a significant likelihood to perform
economically and reach market weight efficiently, and (b) in the case of feeder
pigs, has a minimum weight of 30 pounds and is 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:
(i) uncastrated or freshly castrated males;
(ii) ruptures, umbilical or scrotal hernia larger than a two-inch
diameter;
(iii) unthrifty, poor-doing pigs;
(iv) observable signs of lameness, stiffness, or other locomotor
disorders evidenced by swelling or malformed joints;
(v) transmissible gastroenteritis;
(vi) observable abscesses; and
(vii) 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 acquired, or is in
the process of constructing or acquiring, 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
or acquired using the proceeds of the issuance of the capital stock of
Association (including the capital stock of 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 producing the
type of pigs (feeder or weaned) to which this Agreement relates during 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 incurred by Association in producing the type
of pigs (feeder or weaned) to which this Agreement relates during 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.
PIGS SHIPPED shall mean (a) for purposes of determining the Operating Cost
Per Pig, the total number of Qualifying Pigs produced and shipped from
Association over the same five-month period used in determining the
Operating Cost Per Pig, and (b) for purposes of determining the Financing
Cost Per Pig, the product of (i) Association's total estimated number of
Qualifying Pigs to be produced and shipped by Association from all
Production Units during the 12-month period used in determining the
Financing Cost Per Pig, multiplied by (ii) a fraction, the numerator of
which shall be the number of Production Units constructed or acquired by
Association with respect to the issuance of the capital stock of
Association (including the capital stock of 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 or acquired by
Association with respect to all issuances of any class of capital stock of
Association. All estimates relating to Pigs Shipped shall be made by
Association using such historical data and projections as are available to
Association.
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.
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 and
which land and facilities are used in the production of the type of pigs
(feeder or weaned) to which this Agreement relates. A Production Unit may
exist on a stand-alone basis or as a part of a multi-Production Unit
complex.
PURCHASER'S DEBT shall mean the greater of: (a) $1,970,000 for each
Production Unit constructed or acquired by Association with respect to
the issuance of the capital stock of Association (including the capital
stock of Association assigned or transferred to Purchaser) from which
the right of Purchaser to purchase Lots of Qualifying Pigs under this
Agreement derives in the event that this Agreement relates to feeder pigs
and $1,600,000 for each such Production Unit in the event that this
Agreement relates to weaned pigs, or (b) the sum of (i) the debt incurred
by Association for the Production Unit(s) constructed or acquired by
Association with respect to the issuance of the capital stock of
Association (including the capital stock of 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 or acquisition 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 receiving 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 (i) 45 pounds, in the case of feeder pigs, and (ii) between 8 pounds and 12
pounds, in the case of weaned pigs. In the event that this Agreement relates to
feeder pigs and the average weight of a Lot of feeder pigs is more or less than
45 pounds, the purchase price for such Lot of feeder pigs is subject to
adjustment pursuant to subsection (a) of this Section 5. In the event that this
Agreement relates to weaned pigs and the average weight of a Lot of weaned pigs
is less than 8 pounds or more than 12 pounds, the purchase price for such Lot of
weaned pigs is subject to adjustment pursuant to subsection (b) of this
Section 5.
(A) FEEDER PIG PRICE ADJUSTMENT. In the event that the average
weight of the Qualifying Pigs in a Lot of feeder pigs 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 feeder 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 feeder pig exceeds 50 pounds. To the extent that the average weight
of the Qualifying Pigs in a Lot of feeder pigs 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 feeder 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 feeder pig.
(B) WEANED PIG PRICE ADJUSTMENT. In the event that the average
weight of the Qualifying Pigs in a Lot of weaned pigs 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 weaned pig exceeds 12 pounds. To the extent that the average weight
of the Qualifying Pigs in a Lot of weaned pigs 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 weaned 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 weaned 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 vaccines 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
pseudorabies 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 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 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 each
share of the capital stock of Association (including the capital stock of
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, or any other 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 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 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 the
capital 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 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 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 (without reference to
conflict of laws principles) applicable to agreements made and to be performed
entirely within such State. 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:
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 50,000
Accounting fees and expenses 10,000
Escrow agent fees 1,575
Blue Sky fees and expenses (including fees of counsel) 15,000
Miscellaneous 8,234
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 (filed on May 23, 1997 as Exhibit 1.1
to Amendment No. 1 to the Registrant's
Registration Statement on Form SB-2 (No. 333-
25501) and incorporated herein by reference)
** 3.1 Articles of Incorporation (filed on May 23,
1997 as Exhibit 3.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.1.1 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.1.2 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.2 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.1.3 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.3 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.1.4 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.4 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.2 Amended and Restated Bylaws (filed on May 23,
1997 as Exhibit 3.2 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.2.1 Amendments to Amended and Restated Bylaws (filed
on May 23, 1997 as Exhibit 3.2.1 to Amendment No.
1 to the Registrant's Registration Statement on
Form SB-2 (No. 333-25501) and incorporated herein
by reference)
** 4.1 Articles of Incorporation (filed on May 23,
1997 as Exhibit 3.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.1.1 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.1.2 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.2 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.1.3 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.3 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.1.4 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.4 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.2 Amended and Restated Bylaws (filed on May 23,
1997 as Exhibit 3.2 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.2.1 Amendments to Amended and Restated Bylaws (filed
on May 23, 1997 as Exhibit 3.2.1 to Amendment No.
1 to the Registrant's Registration Statement on
Form SB-2 (No. 333-25501) and incorporated herein
by reference)
# 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 (filed on April 18, 1997 as Exhibit 4.4 to
the Registrant's Registration Statement on Form
SB-2 (No. 333-25501) and incorporated herein by
reference)
** 4.5 Specimen Form of Certificate Representing Membership
in the Company and the Class C Common Stock (filed on
May 23, 1997 as Exhibit 4.15 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2 (No.
333-25501) and incorporated herein by reference)
# 4.6 Master Loan Agreement, dated as of March 18,
1998, between CoBank, ACB and the Registrant
(filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-QSB for the fiscal
quarter ended February 28, 1998 and incorporated
herein by reference)
** 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 (filed on
May 23, 1997 as Exhibit 5.1 to Amendment No. 1 to
the Registrant's Registration Statement on Form
SB-2 (No. 333-25501) and incorporated herein by
reference)
*** 10.1 Form of Pig Purchase Agreement
# 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
(filed on April 18, 1997 as Exhibit 10.2.2 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
# 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 Master Loan Agreement, dated as of March 18, 1998,
between CoBank, ACB and the Registrant (filed as
Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-QSB for the fiscal quarter ended
February 28, 1998 and incorporated herein by
reference)
# 10.7 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.
# 10.8 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)
# 10.9 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)
*** 10.10 Loan Agreement, dated as of May 1, 1998, between
the Registrant and Farmland Industries, Inc.
*** 10.11 Excess Weaned Pig Purchase Agreement, dated as of
May 1, 1998, between the Registrant and Farmland
Industries, Inc.
** 10.12 Colorado Breeding Farm Side Agreement, dated April
11, 1997, between the Registrant and Farmland
Industries, Inc. (filed on May 23, 1997 as Exhibit
10.35 to Amendment No. 1 to the Registrant's
Registration Statement on Form SB-2 (No. 333-
25501) and incorporated herein by reference)
** 10.13 Colorado Breeding Farm Agreement, dated April 11,
1997, between the Registrant, G & G Pork
Producers, LLC and Farmland Industries, Inc.
(filed on May 23, 1997 as Exhibit 10.36 to
Amendment No. 1 to the Registrant's Registration
Statement on Form SB-2 (No. 333-25501) and
incorporated herein by reference)
** 10.14 Colorado Breeding Farm Agreement, dated April 21,
1997, between the Registrant, Triple R and
Farmland Industries, Inc. (filed on May 23, 1997
as Exhibit 10.37 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
*** 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 (filed on May 23,
1997 as Exhibit 5.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
* 24.1 Power of Attorney (included on the signature page
to this Registration Statement filed on April 18,
1997)
# 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) (filed on April 18, 1997 as Exhibit
99.1.1 to the Registrant's Registration Statement
on Form SB-2 (No. 333-25501) and incorporated
herein by reference)
*** 99.1.2 Agreement of Resignation, Appointment and
Acceptance, dated as of August 25, 1997, among the
Registrant, Doug Brown, Interstate/Johnson Lane
Corporation and NationsBank, N.A., and The Bank of
New York.
*** 99.2 Form of Subscription Agreement
_____________________________
* Filed with the original filing of Registration Statement No. 333-25501
on April 18, 1997.
** Filed with Amendment No. 1 to Registration Statement No. 333-25501 on
May 23, 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 October 6, 1998.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By: ____/s/____________________________________
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/
October 6, 1998
Wayne N. Snyder
Chairman of the Board, President
and Director (Principal Executive Officer and Principal
Financial and Accounting Officer)
* October 6, 1998
Doug Brown
Treasurer, Secretary and Director
* October 6, 1998
Merl Daniel
Director
October 6, 1998
Larry Welsh
Director
* October 6, 1998
Loren Keppy
Director
* By /s/
Wayne N. Snyder
Attorney-in-fact
EXHIBIT INDEX
Exhibit No. Description Page
** 1.1 Form of Agency Agreement between
Interstate/Johnson Lane Corporation and the
Registrant (filed on May 23, 1997 as Exhibit 1.1
to Amendment No. 1 to the Registrant's
Registration Statement on Form SB-2 (No. 333-
25501) and incorporated herein by reference)
** 3.1 Articles of Incorporation (filed on May 23,
1997 as Exhibit 3.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.1.1 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.1.2 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.2 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.1.3 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.3 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.1.4 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.4 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.2 Amended and Restated Bylaws (filed on May 23,
1997 as Exhibit 3.2 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 3.2.1 Amendments to Amended and Restated Bylaws (filed
on May 23, 1997 as Exhibit 3.2.1 to Amendment No.
1 to the Registrant's Registration Statement on
Form SB-2 (No. 333-25501) and incorporated herein
by reference)
** 4.1 Articles of Incorporation (filed on May 23,
1997 as Exhibit 3.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.1.1 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.1.2 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.2 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.1.3 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.3 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.1.4 Articles of Amendment (filed on May 23, 1997 as
Exhibit 3.1.4 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.2 Amended and Restated Bylaws (filed on May 23,
1997 as Exhibit 3.2 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
** 4.2.1 Amendments to Amended and Restated Bylaws (filed
on May 23, 1997 as Exhibit 3.2.1 to Amendment No.
1 to the Registrant's Registration Statement on
Form SB-2 (No. 333-25501) and incorporated herein
by reference)
# 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 (filed on April 18, 1997 as Exhibit 4.4 to
the Registrant's Registration Statement on Form
SB-2 (No. 333-25501) and incorporated herein by
reference)
** 4.5 Specimen Form of Certificate Representing Membership
in the Company and the Class C Common Stock (filed on
May 23, 1997 as Exhibit 4.15 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2 (No.
333-25501) and incorporated herein by reference)
# 4.6 Master Loan Agreement, dated as of March 18,
1998, between CoBank, ACB and the Registrant
(filed as Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-QSB for the fiscal
quarter ended February 28, 1998 and incorporated
herein by reference)
** 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 (filed on
May 23, 1997 as Exhibit 5.1 to Amendment No. 1 to
the Registrant's Registration Statement on Form
SB-2 (No. 333-25501) and incorporated herein by
reference)
*** 10.1 Form of Pig Purchase Agreement
# 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
(filed on April 18, 1997 as Exhibit 10.2.2 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
# 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 Master Loan Agreement, dated as of March 18, 1998,
between CoBank, ACB and the Registrant (filed as
Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-QSB for the fiscal quarter ended
February 28, 1998 and incorporated herein by
reference)
# 10.7 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.
# 10.8 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)
# 10.9 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)
*** 10.10 Loan Agreement, dated as of May 1, 1998, between
the Registrant and Farmland Industries, Inc.
*** 10.11 Excess Weaned Pig Purchase Agreement, dated as of
May 1, 1998, between the Registrant and Farmland
Industries, Inc.
** 10.12 Colorado Breeding Farm Side Agreement, dated April
11, 1997, between the Registrant and Farmland
Industries, Inc. (filed on May 23, 1997 as Exhibit
10.35 to Amendment No. 1 to the Registrant's
Registration Statement on Form SB-2 (No. 333-
25501) and incorporated herein by reference)
** 10.13 Colorado Breeding Farm Agreement, dated April 11,
1997, between the Registrant, G & G Pork
Producers, LLC and Farmland Industries, Inc.
(filed on May 23, 1997 as Exhibit 10.36 to
Amendment No. 1 to the Registrant's Registration
Statement on Form SB-2 (No. 333-25501) and
incorporated herein by reference)
** 10.14 Colorado Breeding Farm Agreement, dated April 21,
1997, between the Registrant, Triple R and
Farmland Industries, Inc. (filed on May 23, 1997
as Exhibit 10.37 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
*** 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 (filed on May 23,
1997 as Exhibit 5.1 to Amendment No. 1 to the
Registrant's Registration Statement on Form SB-2
(No. 333-25501) and incorporated herein by
reference)
* 24.1 Power of Attorney (included on the signature page
to this Registration Statement filed on April 18,
1997)
# 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) (filed on April 18, 1997 as Exhibit
99.1.1 to the Registrant's Registration Statement
on Form SB-2 (No. 333-25501) and incorporated
herein by reference)
*** 99.1.2 Agreement of Resignation, Appointment and
Acceptance, dated as of August 25, 1997, among the
Registrant, Doug Brown, Interstate/Johnson Lane
Corporation and NationsBank, N.A., and The Bank of
New York.
*** 99.2 Form of Subscription Agreement
_____________________________
* Filed with the original filing of Registration Statement No. 333-25501
on April 18, 1997.
** Filed with Amendment No. 1 to Registration Statement No. 333-25501 on
May 23, 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 10.1
PIG PURCHASE AGREEMENT
THIS 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 weaned pigs; and
WHEREAS, Purchaser is a purchaser of 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 PIGS.
(A) GENERAL. This Agreement provides for the sale by Association to
Purchaser of feeder pigs or weaned pigs, as the case may be, as determined by
reference to the class of capital stock of Association identified below from
which the right of Purchaser to purchase Lots (as defined below) of Qualifying
Pigs (as defined in Section 2) under this Agreement derives (check one box
only):
G Class A Common Stock. If this box is checked, (i) the class of
capital stock of Association from which the right of Purchaser to
purchase Lots under this Agreement derives is Class A Common Stock (as
defined in Article SIXTH of Association's Articles of Incorporation),
(ii) the Lots to which such right extends shall consist solely of
feeder pigs, and (iii) this Agreement shall constitute a "Feeder Pig
Purchase Agreement", as such term is used in Association's Bylaws.
G Class B Common Stock. If this box is checked, (i) the class of
capital stock of Association from which the right of Purchaser to
purchase Lots under this Agreement derives is Class B Common Stock (as
defined in Article SIXTH of Association's Articles of Incorporation),
(ii) the Lots to which such right extends shall consist solely of
weaned pigs, and (iii) this Agreement shall constitute a "Weaned Pig
Purchase Agreement", as such term is used in Association's Bylaws.
G Class C Common Stock. If this box is checked, (i) the class of
capital stock of Association from which the right of Purchaser to
purchase Lots under this Agreement derives is Class C Common Stock (as
defined in Article SIXTH of Association's Articles of Incorporation),
(ii) the Lots to which such right extends shall consist solely of
weaned pigs, and (iii) this Agreement shall constitute a "Class C
Weaned Pig Purchase Agreement", as such term is used in Association's
Bylaws.
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 produced by Association during the term of this
Agreement in lots (hereinafter "Lot" or "Lots") of (A) feeder pigs of no less
than 900, and no more than 1,000, Qualifying Pigs per Lot (as determined by
Association), if the right of Purchaser to purchase Lots under this Agreement
derives from Class A Common Stock, or (B) weaned pigs of no less than 925, and
no more than 1,025, Qualifying Pigs per Lot (as determined by Association), if
the right of Purchaser to purchase Lots under this Agreement derives from Class
B Common Stock or Class C Common Stock, which Lots of feeder pigs or weaned
pigs, as the case may be, shall be made available to Purchaser on a rotating
schedule with other members of Association owning the class of capital stock of
Association from which the right of Purchaser to purchase Lots under this
Agreement derives, 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 the class of capital stock of Association from which the right
of Purchaser to purchase Lots under this Agreement derives, for purposes of
adjusting such rotating schedule as warranted by the resulting changes in the
members of 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 the class of
capital stock of Association from which the right of Purchaser to purchase Lots
under this Agreement derives. 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 or acquired using the
proceeds of the issuance of the capital stock of Association (including the
capital stock of 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; provided, however, that any increased
production of Qualifying Pigs attributable to the addition of a Production Unit
constructed or acquired by Association with the proceeds of a facilities
expansion loan (and not the proceeds of Association's issuance of capital stock)
may be made available by Association exclusively to the provider of such loan,
as determined by Association in its discretion. 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 Qualifying Pigs is
anticipated to produce, on a prospective rolling 12-month basis, (i)
approximately two and seven-tenths (2.7) Lots of feeder 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, (ii) approximately two and seven-
tenths (2.7) Lots of weaned 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, and (iii) approximately two and one-tenths
(2.1) Lots of weaned 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 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 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 pig, of the type (feeder or weaned) to which this
Agreement relates, that has the genetic characteristics described in Section 6,
that has been managed in accordance with Section 7, and that (a) in the case of
weaned pigs, is not utility grade, has a minimum weight of at least six (6)
pounds at point in time of delivery, and has a significant likelihood to perform
economically and reach market weight efficiently, and (b) in the case of feeder
pigs, has a minimum weight of 30 pounds and is 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:
(i) uncastrated or freshly castrated males;
(ii) ruptures, umbilical or scrotal hernia larger than a two-inch
diameter;
(iii) unthrifty, poor-doing pigs;
(iv) observable signs of lameness, stiffness, or other locomotor
disorders evidenced by swelling or malformed joints;
(v) transmissible gastroenteritis;
(vi) observable abscesses; and
(vii) 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 acquired, or is in
the process of constructing or acquiring, 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
or acquired using the proceeds of the issuance of the capital stock of
Association (including the capital stock of 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 producing the
type of pigs (feeder or weaned) to which this Agreement relates during 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 incurred by Association in producing the type
of pigs (feeder or weaned) to which this Agreement relates during 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.
PIGS SHIPPED shall mean (a) for purposes of determining the Operating Cost
Per Pig, the total number of Qualifying Pigs produced and shipped from
Association over the same five-month period used in determining the
Operating Cost Per Pig, and (b) for purposes of determining the Financing
Cost Per Pig, the product of (i) Association's total estimated number of
Qualifying Pigs to be produced and shipped by Association from all
Production Units during the 12-month period used in determining the
Financing Cost Per Pig, multiplied by (ii) a fraction, the numerator of
which shall be the number of Production Units constructed or acquired by
Association with respect to the issuance of the capital stock of
Association (including the capital stock of 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 or acquired by
Association with respect to all issuances of any class of capital stock of
Association. All estimates relating to Pigs Shipped shall be made by
Association using such historical data and projections as are available to
Association.
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.
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 and
which land and facilities are used in the production of the type of pigs
(feeder or weaned) to which this Agreement relates. A Production Unit may
exist on a stand-alone basis or as a part of a multi-Production Unit
complex.
PURCHASER'S DEBT shall mean (i) the debt incurred by Association for the
Production Unit(s) constructed or acquired by Association with respect to
the issuance of the capital stock of Association (including the capital
stock of 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 or acquisition 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 receiving 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 (i) 45 pounds, in the case of feeder pigs, and (ii) between 8 pounds and 12
pounds, in the case of weaned pigs. In the event that this Agreement relates to
feeder pigs and the average weight of a Lot of feeder pigs is more or less than
45 pounds, the purchase price for such Lot of feeder pigs is subject to
adjustment pursuant to subsection (a) of this Section 5. In the event that this
Agreement relates to weaned pigs and the average weight of a Lot of weaned pigs
is less than 8 pounds or more than 12 pounds, the purchase price for such Lot of
weaned pigs is subject to adjustment pursuant to subsection (b) of this
Section 5.
(A) FEEDER PIG PRICE ADJUSTMENT. In the event that the average
weight of the Qualifying Pigs in a Lot of feeder pigs 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 feeder 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 feeder pig exceeds 50 pounds. To the extent that the average weight
of the Qualifying Pigs in a Lot of feeder pigs 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 feeder 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 feeder pig.
(B) WEANED PIG PRICE ADJUSTMENT. In the event that the average
weight of the Qualifying Pigs in a Lot of weaned pigs 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 weaned pig exceeds 12 pounds. To the extent that the average weight
of the Qualifying Pigs in a Lot of weaned pigs 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 weaned 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 weaned 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 vaccines 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
pseudorabies 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 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 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 each
share of the capital stock of Association (including the capital stock of
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, or any other 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 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 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 the
capital 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 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 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 (without reference to
conflict of laws principles) applicable to agreements made and to be performed
entirely within such State. 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 10.10
LOAN AGREEMENT
THIS LOAN AGREEMENT (the AAgreement@) is made and entered into as of
May 1, 1998, by and between Alliance Farms Cooperative Association, a Colorado
cooperative association (the ABorrower@), and Farmland Industries, Inc., a
Kansas corporation (the ALender@).
RECITALS:
A. The Borrower is engaged in the business of producing feeder
and weaned pigs for sale to its members and third parties.
B. Previously, the Borrower has constructed its (i) feeder pig
production facilities by using the proceeds from a sale of a block of seventeen
(17) shares of its Class A common stock, and (ii) weaned pig production
facilities by using the proceeds from a sale of a block of eighteen (18) or
twenty-four (24) shares, respectively, of its Class B or Class C common stock,
together with the proceeds of loans from CoBank, ACB, pursuant to the CoBank
Loan Documentation (as hereinafter defined).
C. The Borrower now desires to construct a 5,000-sow pig
production facility in Yuma County, Colorado on the real property described on
Schedule 1 hereto, by using the proceeds of the Loan (as hereinafter defined)
from the Lender and the proceeds of additional advances under the CoBank Loan
Documentation.
SECTION 1 - DEFINITIONS
1.1. Defined Terms. As used in this Loan Agreement, the following
terms have the following meanings:
AApplicable Rate@ means the per annum rate equal to the sum of (a) one
and one-quarter percent (1.25% or 125 basis points), plus (b) the National
Variable Rate.
ABusiness Day@ means a day other than a Saturday, Sunday or business
holiday in the State of Missouri.
ACoBank@ means CoBank, ACB (formerly National Bank for Cooperatives),
the Borrower=s primary lender.
ACoBank Loan Documentation@ collectively means the Master Loan
Agreement (MLA No. E039T), dated as of March 18, 1998, between CoBank and the
Borrower, a true and correct copy of which is attached hereto as Exhibit D, and
all promissory notes, security agreements, mortgages and other documents and
agreements executed pursuant to such Master Loan Agreement.
AContractual Obligation@ means, with respect to any Person, any
provision of any security issued by such Person or of any agreement, instrument
or undertaking to which such person is a party or by which it or any of its
properties is bound.
AEvent of Default@ means any of the events described in Section 7,
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition, has been satisfied.
AGAAP@ means generally accepted accounting principles in the United
States of America in effect from time to time.
AGovernmental Authority@ means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled (through
stock or capital ownership or otherwise) by any of the foregoing.
AIndebtedness@ means, with respect to any Person, at a particular
time, any indebtedness, obligation or liability in respect of which such Person
is an obligor, whether matured or unmatured, liquidated or unliquidated, direct
or contingent, joint or several.
ALien@ means and includes any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction).
ALoan@ shall have the meaning ascribed to such term in Section 2.1
hereof.
AMortgage@ collectively means the Colorado Deed of Trust,
substantially in the form of Exhibit C, to be executed and delivered by the
Borrower to the Lender, and all additional deeds of trust and mortgages as may
from time to time be executed and delivered to or in favor of the Lender by the
Borrower.
ANational Variable Rate@ means the rate most recently announced by
CoBank as its ANational Variable Rate.@ The National Variable Rate is one of
CoBank's Applicable Rates and serves as a basis upon which effective rates of
interest are calculated for those loans making reference thereto, and is
evidenced by the recording thereof after its announcement in such internal
publication or publications as CoBank may designate.
ANote@ means the Promissory Note, substantially in the form of Exhibit
A, to be executed and delivered by the Borrower to the Lender.
APerson@ means an individual, partnership, corporation, business
trust, joint stock company, trust, unincorporated association, joint venture,
Governmental Authority or other entity of whatever nature.
ARequirement of Law@ means, with respect to any Person, the
certificate of incorporation and bylaws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or any
interpretation thereof by a Governmental Authority, or any determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its properties or to which such Person
or any of its properties is subject.
ASecurity Agreement@ means the Security Agreement, substantially in
the form of Exhibit B, to be executed and delivered by the Borrower in favor of
the Lender.
ASecurity Documents@ means and includes the Security Agreement and the
Mortgage and all additional security agreements and pledge agreements as may
from time to time be executed and delivered to or in favor of the Lender by the
Borrower.
1.2 Construction. (a) Unless otherwise defined therein, all
terms defined in this Loan Agreement shall have their respective herein defined
meanings when used in the Note, the Security Documents, or any certificate or
other document made or delivered pursuant hereto or thereto. All such
certificates and documents and all Exhibits and Schedules attached to this Loan
Agreement are a part hereof for all purposes.
(b) Unless the context otherwise requires or unless otherwise
provided herein, the terms defined in this Loan Agreement which refer to a
particular agreement, instrument or document also refer to and include all
renewals, extensions, modifications, amendments, and restatements of such
agreement, instrument or document, provided, however, that nothing contained in
this sentence shall be construed to authorize any such renewal, extension,
modification, amendment or restatement other than in accordance with subsection
8.1.
(c) As used in this Loan Agreement and in the Note and in any
certificate or other document made or delivered pursuant to this Loan Agreement,
accounting terms, to the extent not defined in this Agreement, shall have the
respective meanings given to them under GAAP.
(d) Words of the masculine gender shall be deemed and construed to
include correlative words of the feminine and neuter genders. Unless the
context shall otherwise indicate, words importing the singular number shall
include the plural and vice versa, and words importing person shall include
individuals, corporations, partnerships, joint ventures, associations,
joint-stock companies, trusts, unincorporated organizations and governments and
any agency or political subdivision thereof.
(e) The table of contents, captions and headings in this Loan
Agreement are for convenience only and in no way define, limit or describe the
scope or intent of any provisions or sections of this Loan Agreement.
1.3 Calculations. All interest and fees accruing under this Loan
Agreement, the Note or any Security Document or under any other document or
instrument delivered pursuant hereto or thereto shall be calculated on the basis
of actual days elapsed and a year of 360 days.
SECTION 2 - LENDING ARRANGEMENT
2.1. The Loan. The Lender agrees, on the terms and subject to the
satisfaction of the conditions hereinafter set forth, to make a loan to the
Borrower, by means of one or more advances, in the aggregate principal amount of
Two Million One Hundred Sixty Thousand Dollars ($2,160,000.00) (the ALoan@),
which shall be evidenced by the Note. One-half of the Loan shall be payable as
to principal and interest on the closing date with respect to the Borrower=s
first issuance and sale of a block of seventeen (17) shares of its Class A
common stock, $.01 par value, or eighteen (18) shares of its Class B common
stock, $.01 par value, or twenty-four (24) shares of its Class C common stock,
$.01 par value, occurring after the date hereof, and the balance of the Loan
shall be payable as to principal and interest on the closing date with respect
to the Borrower=s second issuance and sale of a block of seventeen (17) shares
of its Class A common stock, $.01 par value, or eighteen (18) shares of its
Class B common stock, $.01 par value, or twenty-four (24) shares of its Class C
common stock, $.01 par value, occurring after the date hereof; provided,
however, that to the extent there remains any unpaid amount owed in respect of
the Loan as of the ____ day of May, 2008, the Loan shall be payable in full as
to principal and interest on said date. The Borrower shall not close any
issuance and sale of shares of its Class A, Class B or Class C common stock,
$.01 par value unless (a) not less than (i) seventeen (17) shares of its Class A
common stock, $.01 par value, (ii) eighteen (18) shares of its Class B common
stock, $.01 par value, or (iii) twenty-four (24) shares of its Class C common
stock, $.01 par value, are issued and sold in connection with such closing, and
(b) concurrently with the closing of the Borrower=s next two issuances and sales
of a block of seventeen (17), eighteen (18) or twenty-four (24) shares,
respectively, of its Class A, Class B or Class C common stock, $.01 par value,
the Borrower shall cause the repayment of the Loan in accordance with this
Section 2.1.
2.2. Advances. Advances under this Loan Agreement will be made to
Borrower upon request and deposited into the Construction Account established
with CoBank under the CoBank Loan Documentation and will be subject to the terms
and provisions pertaining to such advances.
2.3. Interest.
(a) The Borrower agrees to pay interest on the unpaid principal
amount of the Loan from the date the proceeds thereof are made available to the
Borrower until maturity (whether by acceleration or otherwise) at a rate per
annum equal to the Applicable Rate. The Applicable Rate shall be adjusted
annually based on the National Variable Rate in effect on the anniversary date
of this Loan Agreement.
(b) Overdue principal and, to the extent permitted by law, overdue
interest in respect of the Loan shall bear interest at a rate per annum equal to
the lower of two percent (2%) above the Applicable Rate in effect from time to
time or the maximum rate of interest allowed by applicable law; provided,
however, that in no event shall the Loan bear interest after maturity at a rate
per annum less than the rate of interest applicable thereto at maturity.
(c) Interest shall accrue from and including the date of the Loan
to but excluding the date of any repayment thereof and shall compound on the
first day of June, 1998, and the first day of each successive month thereafter,
and such accrued and compounded interest shall be payable, at maturity (whether
by acceleration or otherwise) and, after such maturity, on demand.
2.4. Payment. Except as otherwise specifically provided herein,
all payments due under this Loan Agreement shall be made to the Lender not later
than 12:00 noon (central time) on the date when due and shall be made in lawful
money of the United States of America in immediately available funds at the
Lender's principal office. Whenever any payment to be made hereunder or under
the Note shall be stated to be due on a day which is not a Business Day, payment
shall be made on the next successive Business Day with the same effect as though
made on the due date.
2.5. Prepayment. The Borrower shall have the right to prepay all
or any portion of the Loan at any time and from time to time without premium or
penalty of any kind.
2.6. Additional Costs. If, due to either (i) any Requirement of
Law or (ii) compliance by the Lender with any request from any Governmental
Authority, there shall be any increase in the cost to the Lender of agreeing to
make or making, funding or maintaining the Loan, the Borrower shall from time to
time, upon demand by the Lender, pay to the Lender additional amounts sufficient
to indemnify the Lender against such increased costs. The determination of such
increased costs by the Lender shall be conclusive if made reasonably and in good
faith.
SECTION 3 - REPRESENTATIONS AND WARRANTIES
To induce the Lender to make the Loan hereunder, the Borrower hereby
represents and warrants to the Lender as follows:
3.1. Financial Condition. The Borrower has furnished the Lender
with the audited balance sheet of the Borrower as at the end of the most recent
fiscal year of the Borrower and the related statement of operations, statement
of shareholder=s equity and statement of cash flows for the fiscal year then
ended, which fairly present the financial position and results of operations of
the Borrower at the times and for the periods covered thereby, all in accordance
with GAAP, and which indicate all contingent liabilities which reasonably would
be expected to have a material adverse effect on the Borrower.
3.2. No Change. Since the date of the end of the most recent
fiscal year of the Borrower, there has been no material adverse change in the
business, operations, assets or financial or other condition of the Borrower.
3.3. Corporate Existence; Compliance with Law. The Borrower is duly
organized and validly existing under applicable law, is qualified to do business
and is in good standing in each jurisdiction where required and has complied
with all laws necessary to conduct its business as presently conducted.
3.4. Corporate Power and Authority. The Borrower has authority,
and has completed all proceedings and obtained all approvals and consents
necessary to execute, deliver, and perform this Loan Agreement, the Note, the
Security Documents and the transactions contemplated hereby and thereby.
3.5. Enforceable Obligations. This Loan Agreement, the Note and
the Security Documents, when executed by the Borrower and delivered to the
Lender, will constitute the legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except as may
be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally.
3.6. No Legal Bar. The execution, delivery and performance by the
Borrower of this Loan Agreement, the Note and the Security Documents, the
borrowings by the Borrower hereunder, the use of the proceeds thereof and the
granting of the security interests pursuant to the Security Documents will not
violate any Requirement of Law or any Contractual Obligation of the Borrower
(including, without limitation, Borrower=s obligations under the CoBank Loan
Documentation) and will not result in or require the creation or imposition of
any Lien on any of their respective properties or revenues pursuant to any
Requirement of Law or Contractual Obligation, except for the Liens created
pursuant to the Security Documents or created pursuant to the CoBank Loan
Documentation.
3.7. No Litigation. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or, to the best
knowledge of the Borrower, threatened by or against the Borrower or against any
of its properties or revenues (a) with respect to this Loan Agreement, the Note
or any of the Security Documents or any of the transactions contemplated hereby
or thereby, or (b) which reasonably would be expected to have a material adverse
effect on the business, operations, assets or financial or other condition of
the Borrower .
3.8. No Default. The Borrower is not in default under any
agreement to which it is a party or by which it may be bound (including, without
limitation, under the CoBank Loan Documentation) that reasonably would be
expected to materially adversely affect the Borrower or the Borrower's ability
to perform and observe the obligations binding on it under this Loan Agreement,
the Security Documents and the Note.
3.9. Taxes. All tax returns required of the Borrower have been
filed, there is, to the Borrower=s knowledge, no proposed tax assessment or
liability against the Borrower or its properties which would be material to the
Borrower, and no extension of time for the assessment of any tax of the Borrower
is in effect or has been requested, except as disclosed in financial statements
previously furnished to the Lender.
3.10. Use of Proceeds. All proceeds of the Loan shall be used by
the Borrower for the construction of a 5,000-sow pig production facility in Yuma
County, Colorado.
3.11. Subsidiaries. The Borrower, as of the date of this Loan
Agreement, has no subsidiaries.
3.12. Security Documents.
(a) Each Security Document will be effective to create in favor of
the Lender a legal, valid and enforceable security interest in all right, title
and interest of the Borrower in the collateral described therein. When
financing statements have been duly filed and, when appropriate, possession of
such collateral has been taken by the Lender, each of such Security Documents
shall constitute a fully perfected security interest in all right, title and
interest of the Borrower in such collateral (subject only to any security
interest held by CoBank).
(b) The Mortgage will be effective to grant to the Lender a legal,
valid and enforceable mortgage lien on the mortgaged property thereunder. When
the Mortgage is duly recorded and all recording fees and taxes in respect
thereof are paid, the Mortgage shall constitute a fully perfected first lien on
such mortgaged property, subject only to the encumbrances and exceptions to
title set forth therein and any lien held by CoBank. All such interests of the
Lender shall, except as noted above, be superior in right to any Lien, existing
or future, which the Borrower or any third Person may have against the mortgaged
property or interests therein.
3.13. Representations and Warranties to CoBank. Each representation
and warranty set forth in the CoBank Loan Documentation is true and correct in
all material respects as of the date hereof, and the Borrower hereby makes and
confirms such representations and warranties to the Lender as if such
representations and warranties were contained in this Loan Agreement and
directly made to the Lender as of the date hereof.
SECTION 4 - CONDITIONS PRECEDENT
The Lender shall have no obligation to make any advance of the Loan
hereunder unless, on or prior to the date of the Loan, the Lender shall have
received the following items (all in form satisfactory to the Lender):
(a) the Note, duly executed by the Borrower;
(b) the Security Agreement, duly executed by the Borrower;
(c) the Mortgage, duly executed by the Borrower; and
(d) any other documents, instruments and reports as the Lender shall
reasonably request including, without limitation, itemized statements and
evidence of expenses incurred by the Borrower in connection with the
construction contemplated by this Loan Agreement.
SECTION 5 - AFFIRMATIVE COVENANTS
So long as any part of the indebtedness contemplated hereby shall
remain unpaid, the Borrower covenants and agrees as follows:
5.1. Financial Statements. (a) The Borrower shall furnish to the
Lender, as soon as available and in any event within 120 days after the end of
each fiscal year of the Borrower, a copy of the annual audited balance sheet of
the Borrower, and the related statement of operations, statement of
shareholder=s equity and statement of cash flows for such fiscal year, all
accompanied by the report by independent certified public accountants of
recognized standing acceptable to the Lender.
(b) The Borrower shall furnish to the Lender, as soon as available
and in any event within 45 days after the end of each of the first three
quarterly periods of each fiscal year of the Borrower, a copy of the unaudited
balance sheet of the Borrower as at the end of each such quarter and the related
statement of operations, statement of shareholder=s equity and statement of cash
flows for such quarterly period and the portion of the fiscal year through such
date, setting forth in each case in comparative form the figures for the
previous fiscal year, certified by the Borrower's chief financial officer
(subject to normal year-end audit adjustments).
(c) All such financial statements shall be complete and correct in
all material respects and be prepared in reasonable detail and in accordance
with GAAP (consistent with the financial statements referred to in subsection
3.1) and applied consistently throughout the periods reflected therein.
5.2. Certificates. The Borrower shall furnish to the Lender,
promptly after becoming aware thereof, notice of the occurrence of any event or
condition which would constitute an Event of Default under this Loan Agreement.
5.3. Contractual Obligations, Requirements of Law. The Borrower
shall duly and promptly comply with each Contractual Obligation and Requirement
of Law to which it is subject or by which any of its properties is bound.
5.4. Payment of Indebtedness. The Borrower shall pay, discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all its Indebtedness, except when the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
the Borrower.
5.5. Maintenance of Existence. The Borrower shall preserve and
maintain its corporate existence, franchises and privileges in its jurisdiction
of incorporation, and qualify and remain qualified as a foreign corporation in
each jurisdiction where such qualification is necessary and the failure to be so
qualified would materially adversely affect the business of the Borrower.
5.6. Insurance. The Borrower shall maintain insurance reasonably
satisfactory to the Lender with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which the Borrower operates.
5.7. Books and Records. The Borrower shall maintain proper books
of record and account in accordance with GAAP.
5.8. Notices. The Borrower shall promptly notify the Lender in
writing of the occurrence of any event which reasonably would be expected to
materially adversely affect the Borrower.
5.9. Further Assurances. The Borrower shall execute and file all
such further instruments and perform such other acts as the Lender may
reasonably determine are necessary or advisable to maintain the priority of the
liens and security interests created by the Security Documents in all property
subject thereto.
SECTION 6 - NEGATIVE COVENANTS
So long as any part of the Loan shall remain unpaid, the Borrower
covenants and agrees that the Borrower shall not, without the prior written
consent of the Lender, (a) take any actions, or permit to occur any events,
described in the Sections of the CoBank Loan Documentation presently titled
ANegative Covenants@, regardless of whether CoBank otherwise agrees thereto, or
(b) supplement, amend or otherwise modify the CoBank Loan Documentation.
SECTION 7 - DEFAULT
If any of the following events occurs and is continuing:
(a) failure by the Borrower to pay in full when due any amount of
principal or interest on the Note; or
(b) failure by the Borrower to perform or observe any of the
provisions contained in Section 6; or
(c) failure by the Borrower to perform or observe any of the
provisions contained in any other subsection hereof if such failure is not
cured within thirty (30) days of the Borrower's knowledge of the failure;
or
(d) failure of any Security Document, for any reason, to be in
full force and effect or any party thereto shall default in the observance
or performance of any of the covenants or agreements contained therein or a
default or an event of default shall occur under any Security Document; or
(e) any representation or warranty made by the Borrower herein
shall be false or misleading in any material respect; or
(f) the Borrower shall default in the payment when due (subject to
any applicable grace period), whether by acceleration or otherwise, of any
other Indebtedness for borrowed money of, or guaranteed by, the Borrower
(including, without limitation, any Indebtedness under the CoBank Loan
Documentation), or the Borrower shall be in default (after giving effect to
any applicable grace period), or an event of default has occurred, under
the terms and conditions of the CoBank Loan Documentation or any other
agreement or evidence of other Indebtedness of the Borrower; or
(g) any admission by the Borrower of its inability to pay its
debts as they mature, the commencement of any bankruptcy, insolvency,
arrangement, reorganization or other debt-relief proceedings by, or the
dissolution, termination of existence or insolvency (however evidenced) of,
the Borrower or any action authorized, taken or suffered by the Borrower
with a view toward any of the same; or
(h) failure by the Borrower within sixty (60) days after the
institution of any proceedings against the Borrower under any law relating
to bankruptcy, insolvency, arrangement, reorganization or relief of debtors
or similar law to have such proceeding dismissed;
then the Lender may, at its election and without demand or notice of any kind,
which are hereby expressly waived, refuse to make further advances of the Loan
hereunder, declare the unpaid balance of any outstanding Note and accrued
interest thereon immediately due and payable, proceed to collect same, and
exercise any and all other rights, powers and remedies given it by this Loan
Agreement, the Note, the Security Documents or by law or in equity.
SECTION 8 - MISCELLANEOUS
8.1. Amendment and Waiver. Neither this Loan Agreement, the Note or
any other instrument or document entered into in connection herewith, nor any
provisions hereof or thereof, may be supplemented, amended, modified, waived,
discharged or terminated orally, but only by an instrument in writing signed by
an authorized officer of the Borrower and of the Lender, respectively.
8.2. Notices. All notices, demands or other communications hereunder
shall be given or made in writing and shall be delivered personally, or sent by
telex, telecopier or registered or certified mail, postage prepaid, return
receipt requested, to the party or parties to whom they are directed at the
following addresses, or at such other addresses as may be designated by notice
from such party to all other parties.
To the Borrower: Alliance Farms Cooperative Association
3315 N. Oak Trafficway
P. O. Box 7305
Kansas City, Missouri 64116
Attention: Randall Wilson, Dept. 122
To the Lender: Farmland Industries, Inc.
3315 N. Oak Trafficway
P. O. Box 7305
Kansas City, Missouri 64116
Attention: Randy Vance, Dept. 160
with a copy in either case to:
CoBank, ACB
245 North Waco
Wichita, Kansas 67202
Attention: Greg Somerhalder, Vice President
Any notice, demand or other communication given in a manner prescribed in this
paragraph shall be deemed to have been delivered on receipt.
8.3. No Waiver; Cumulative Remedies. Any forbearance, failure, or
delay by the Lender in exercising any right, power or remedy shall not preclude
the further exercise thereof, and all of the Lender's rights, powers and
remedies shall continue in full force and effect until specifically waived in
writing by the Lender. The rights, remedies, powers and privileges herein or
therein are cumulative and not exclusive of any rights, remedies, powers and
privileges provided by law. The Borrower shall pay all reasonable and necessary
expenses (including reasonable attorney's fees and disbursements) incurred in
connection with the collection or enforcement of this Loan Agreement and the
Note.
8.4. Survival. The representations and warranties of the Borrower
contained herein shall survive the making of Loan and the making of the advances
of the Loan, and shall remain effective until all indebtedness contemplated
hereby shall have been paid by the Borrower in full.
8.5. Payment of Expenses and Taxes. The Borrower shall (a) pay all
reasonable out-of-pocket costs and expenses of the Lender incurred in the
collection, enforcement and prosecution of its rights and remedies hereunder,
whether or not involving a case, action or proceeding before any state or
federal court (including, without limitation, the reasonable fees and
disbursements of legal counsel) and (b) indemnify and hold the Lender harmless
from and against any and all current and future stamp and other similar taxes
with respect to the foregoing matters and from and against any and all
liabilities with respect to or resulting from any delay or omission (other than
to the extent attributable to the Lender) to pay such taxes.
8.6. Indemnity. The Borrower shall indemnify and hold the Lender
harmless from and against all liabilities, obligations, claims, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements
whatsoever which may be imposed on, incurred by or asserted against the Lender
(whether or not caused by the Lender's negligence) growing out of or resulting
from this Loan Agreement, the Note, the Security Documents and any other
document or instrument delivered hereunder or thereunder and all transactions
and events at any time associated therewith (including the enforcement of any
right of the Lender or the defense of any action or inaction by the Lender in
connection therewith), except to the limited extent such liabilities,
obligations, claims, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements are proximately caused by the Lender's gross
negligence or willful misconduct.
8.7. Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, the Lender is hereby
authorized at any time and from time to time, without presentment, demand,
protest or other notice of any kind to the Borrower or to any other Person, any
such notice being hereby expressly waived, to setoff and to appropriate and
apply any and all indebtedness at any time held or owing by the Lender to or for
the credit of the Borrower against and on account of the obligations and
liabilities of the Borrower to the Lender under this Loan Agreement and the
Note, including (without limitation) all claims of any nature or description
arising out of or connected with this Loan Agreement and the Note, irrespective
of whether or not the Lender shall have made any demand hereunder and although
said obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
8.8. Successors and Assigns. This Loan Agreement shall be binding
upon and inure to the benefit of the Borrower, the Lender and their respective
successors and assigns; provided, however, that the Borrower may not assign or
otherwise transfer any of its interest under this Loan Agreement without prior
written consent of the Lender.
8.9. Counterparts. This Loan Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one agreement, and
any party hereto may execute this Loan Agreement by signing any such
counterpart.
8.10. Severability. In case any one or more of the provisions
contained in this Loan Agreement should be invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
8.11. Governing Law. This Loan Agreement and all rights hereunder
shall be governed by and construed in accordance with the laws of the State of
Missouri, without reference to conflict of laws principles of said state.
8.12. Acknowledgments and Admissions. The Borrower hereby
represents, warrants, acknowledges and admits that (a) the Borrower has made an
independent decision to enter into this Loan Agreement and such other
instruments and documents, without reliance on any representation, warranty,
covenant or undertaking by the Lender, whether written, oral or implicit, other
than as expressly set forth in this Loan Agreement, (b) the Lender has not made
any representation, covenant or undertaking to the Borrower in connection with
the rights and obligations of the Borrower pursuant to this Loan Agreement or
any such instruments and documents, (c) there are no representations,
warranties, covenants or undertakings or agreements by the Lender as to this
Loan Agreement or such instruments and documents except as expressly set forth
herein or therein, (d) the relationship between the Lender and the Borrower,
pursuant to this Loan Agreement and such instruments and documents, is and shall
be solely that of creditor and debtor, respectively, (e) the Lender has relied
upon the truthfulness of the foregoing acknowledgments in deciding to execute
and deliver this Loan Agreement and to accept the Note.
8.13. Entire Agreement. This Loan Agreement and the Exhibits
attached hereto embody the entire agreement and understanding between the
parties hereto and supersedes all prior agreements and understandings relating
to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed and delivered this Loan
Agreement as of the date first above written.
ALLIANCE FARMS COOPERATIVE
ASSOCIATION
By:
Name:
Title:
FARMLAND INDUSTRIES, INC.
By:
Name:
Title:
Exhibit 10.11
EXCESS WEANED PIG PURCHASE AGREEMENT
THIS EXCESS WEANED PIG PURCHASE AGREEMENT (this "Agreement") is entered
into as of this 1st day of May, 1998, by and between ALLIANCE FARMS COOPERATIVE
ASSOCIATION (hereinafter "Association"), and FARMLAND INDUSTRIES, INC.
(hereinafter "Purchaser").
WHEREAS, Association is or will be engaged in the production and sale of
weaned pigs;
WHEREAS, Purchaser is a purchaser of weaned pigs, possesses expertise in
swine production and management, and desires to enter into this Agreement for
purposes of acquiring weaned pigs;
WHEREAS, Purchaser and Association are parties to a Swine Production
Services Agreement, dated as of July 13, 1994, as amended (the "Services
Agreement"), pursuant to which, among other things, Purchaser has been granted
the right to purchase all, or any portion, of Association's excess production of
weaned pigs; and
WHEREAS, the operation of the facilities being constructed with the
proceeds of the Farmland Debt (as defined in Section 2) will produce excess
weaned pigs.
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
1. PURCHASE/SALE OF EXCESS 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 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. The entire production of weaned pigs attributable to the Production Unit
being constructed with the proceeds of the Farmland Debt shall be deemed Excess
Pigs (as defined in Section 8 of the Services Agreement), as to which Purchaser
has been granted the right of purchase under the Services Agreement.
Purchaser's purchase obligation hereunder corresponds to the anticipated
production of weaned pigs from such Production Unit and shall not exceed 97 Lots
of Qualifying Pigs per any 12-month period occurring within the term of this
Agreement.
(B) AVAILABILITY. The number of Lots of Qualifying Pigs made
available to Purchaser and the frequency of availability of such Lots shall
correspond to the availability and frequency that would be applicable to a
member of Association owning 36 shares of Association's Class B common stock,
$0.01 par value, out of the total number of Association's shares of Class B
Common Stock actually outstanding plus 36 shares, which Lots are made available
on a rotating schedule with members of Association owning 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 Farmland Debt (as defined in
Section 2), 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.
2. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
FARMLAND DEBT shall mean the loan to Association made by Purchaser pursuant
to that certain Loan Agreement, dated as of May 1, 1998, by and between
Purchaser and Association, and evidenced by that certain Promissory Note,
dated May 1, 1998, of Association to Purchaser in the principal amount of
$2,160,000.
QUALIFYING PIGS shall mean weaned pigs having 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 completed offers and
sales of shares of its capital stock and the provision of the Farmland Debt. 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 in relation
to the Production Unit that is being constructed using the proceeds of the
Farmland Debt.
(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 and Farmland 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 equal to zero dollars ($0.00).
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 two (i.e., the number of
Production Units being constructed using the proceeds of the Farmland
Debt), and the denominator of which shall be the total number of Production
Units constructed by Association with respect to all issuances of its
capital stock or constructed using the proceeds of the Farmland Debt. 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
(which facilities may be a stand-alone unit or a part of a 5,000-sow
production complex).
PURCHASER'S DEBT shall mean (i) the debt, excluding the Farmland Debt,
incurred by Association for the Production Unit being constructed using the
proceeds of the Farmland Debt, including any debt incurred for purposes of
financing the acquisition of land for, and construction of, such Production
Unit, (ii) any debt, excluding the Farmland Debt, incurred for the initial
working capital requirements with respect to the operation of such
Production Unit, 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 vaccines 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
pseudorabies 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
hereunder, subject to the following:
(a) In the event that Purchaser fails to purchase, pay for, and take
delivery of any two Lots when and as made available to Purchaser in
accordance with the terms of this Agreement, Association shall have the
right, in its sole discretion, to terminate this Agreement and to exercise
its remedies as provided in Section 17 hereof. The occurrence of any such
failure to purchase, pay for, and take delivery of any two Lots hereunder
shall not constitute, trigger or be deemed a default or breach under any
Feeder Pig Purchase Agreement, Weaned Pig Purchase Agreement or Class C
Weaned Pig Purchase Agreement between Purchaser and Association.
(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 Feeder Pig Purchase Agreement, Weaned
Pig Purchase Agreement or Class C Weaned Pig Purchase Agreement between
Purchaser and Association.
(d) Upon the repayment in full of the Farmland Debt (whether by
prepayment, payment as a result of acceleration or payment at maturity),
this Agreement automatically shall terminate.
(e) This Agreement shall be extended automatically for
succeeding and consecutive twelve (12) month terms unless either party
gives to the other party, not less than two (2) months prior to the
expiration of the initial term or any extended term hereof, notice
that such party 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. 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 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.
If Purchaser shall be in default under this Agreement, Association may
exercise any and all rights and remedies available to Association hereunder,
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 applicable law, including any applicable
Uniform Commercial Code. The exercise or partial exercise of any right or
remedy of Association hereunder 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 Feeder Pig Purchase Agreements and 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 without regard to the
conflicts of laws principles of such State. 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 FARMLAND INDUSTRIES, INC.
ASSOCIATION
By: By:
Name: Name:
Title: Title:
Purchaser's Address:
Farmland Industries, Inc.
3315 North Oak Trafficway
Department 160
Kansas City, Missouri 64116
Attention: Randy Vance
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
______________, 1998 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 January 7, 1999 (or by 5:00 p.m. on July 6,
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. 465450" 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) two completed and executed copies of the
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) one executed stock power respecting the
Class A Shares, Class B Shares and Class C Shares,
respectively, subscribed for by the undersigned
hereunder in favor of the Company as contemplated by
Section 17 of the Pig Purchase Agreement.<F3>
[FN]
Please do not date the Weaned Pig Purchase Agreement; the
Company will date the Weaned Pig Purchase Agreement 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 The
Bank of New York (successor trustee to NationsBank, N. A.),
New York, New York. Payment of the applicable offering
price must be made payable to the order of "Alliance Farms
Cooperative Association Escrow No. 465450", 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
A-4
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 [JWA2]January 7, 1999 (or by 5:00 p.m. on July
6, 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
A-8
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 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.<F4>
[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, acknowledgments 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 acknowledgments 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 property,
both individuals must sign this Subscription Agreement.
A-14
Signature
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 Printed Name of
articles of incorporation, Organization
bylaws, and certified
corporate resolution
authorizing the investment By:
and signature. If signed Signature
on behalf of a partnership,
please submit a copy of the
partnership agreement and a Printed Name and Title
written consent of partners
authorizing the investment
and signature. If signed By:
on behalf of a trust, (Additional signature
please submit the name of if required by
the trust, name of the governing instrument)
trustee, and a 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 Yuma, Colorado.
ALLIANCE FARMS COOPERATIVE
ASSOCIATION
By:
Name:
Title:
ANNEX 1
STOCK POWER
FOR VALUE RECEIVED, hereby sell,
assign and transfer unto
(__________) Shares of the Class __ 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)
Department of the Treasury
Internal Revenue Service
Request for Taxpayer
Identification Number and Certification
Give form to the requester. Do NOT send to the IRS.
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. For Social security
number individuals, 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,
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.
Part II For Payees Exempt
From Backup Withholding (See, see Part II Instructions on
page 2)
OR
Employer identification
____ - _____________ >
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
A-26
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-tustee(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,
educational, or other tax-exempt
organization The organization
10. Partnership The partnership
11. A broker or registered nominee The broker or
nominee
12. Account with the Department of The public
Agriculture 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 99.1.2
AGREEMENT
AGREEMENT OF RESIGNATION, APPOINTMENT AND ACCEPTANCE, dated as of August
25, 1997 by and among ALLIANCE FARMS COOPERATIVE ASSOCIATION (the issuer), DOUG
BROWN (the Brown), INTERSTATE/JOHNSON LANE CORPORATION (the Outside Agent),
COLLECTIVELY, THE "DEPOSITORS", NATIONSBANK, N.A. (FORMERLY BOATMEN'S TRUST
COMPANY) the "PRIOR ESCROW AGENT" and THE BANK OF NEW YORK, a banking
corporation duly organized and existing under the laws of the State of New York
and having its principal corporate trust office at 101 Barclay Street, Floor 12
East, New York, New York 10286 the "SUCCESSOR ESCROW AGENT".
RECITALS:
WHEREAS, the Depositors and Prior Escrow Agent entered into an Escrow
Agreement dated as of February 17, 1995 (the "Agreement"), as amended January
31, 1997;
WHEREAS, the Depositors desire to appoint Successor Escrow Agent as Escrow
Agent to succeed Prior Escrow Agent in such capacity under the Agreement; and
WHEREAS, Successor Escrow Agent is willing to accept such appointment as
successor Escrow Agent under the Agreement; and
NOW, THEREFORE, the Depositors, the Prior Escrow Agent and Successor Escrow
Agent, for and in consideration of the premises of other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
hereby consent and agree as follows:
ARTICLE I
THE PRIOR ESCROW AGENT
SECTION 1.01 Prior Escrow Agent hereby resigns as Escrow Agent under the
Agreement.
SECTION 1.02 Prior Escrow Agent hereby assigns, transfers, delivers and
confirms to Successor Escrow Agent all right, title and interest of Prior Escrow
Agent in and to the property created and held under the Agreement and all the
rights, powers and obligations of the Prior Escrow Agent under the Agreement and
Successor Escrow Agent hereby accepts such assignment. Prior Escrow Agent shall
execute and deliver such further agreements and shall do such other things as
Successor Escrow Agent may reasonably require so as to more fully and certainly
vest and confirm in Successor Escrow Agent all the rights, powers and
obligations hereby assigned, transferred, delivered and confirmed to Successor
Escrow Agent as Escrow Agent.
ARTICLE II
THE DEPOSITORS
SECTION 2.01 The Depositors hereby accept the resignation of Prior Escrow
Agent as Escrow Agent under the Agreement.
SECTION 2.02 All conditions relating to the appointment of The Bank of New
York as Successor Escrow Agent under the Agreement, have been met by the
Depositors, and the Depositors hereby appoint Successor Escrow Agent as Escrow
Agent under the Agreement with like effect as if originally named as Escrow
Agent in the Agreement.
ARTICLE III
THE SUCCESSOR ESCROW AGENT
SECTION 3.01 Successor Escrow Agent hereby represents and warrants to Prior
Escrow Agent and to the Depositors that Successor Escrow Agent is not
disqualified to act as Escrow Agent under the Agreement.
SECTION 3.02 Successor Escrow Agent hereby accepts its appointment as
successor Escrow Agent under the Agreement and accepts the rights, powers,
duties and obligations of Prior Escrow Agent as Escrow Agent under the
Agreement, upon the terms and conditions set forth therein, with like effect as
if originally named as Escrow Agent under the Agreement.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01 This Agreement and the resignation, appointment and acceptance
effected hereby shall be effective as of the date of this Agreement.
SECTION 4.02 This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
SECTION 4.03 This Agreement may be executed in any number of counterparts
each of which shall be an original, but such counterparts shall together
constitute but one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement of
Resignation, Appointment and Acceptance to be duly executed and acknowledged as
of the day and year first above written.
DOUG BROWN ALLIANCE FARMS COOPERATIVE
AS DEPOSITOR ASSOCIATION
AS DEPOSITOR
____________________________ By: ___________________________
DOUG BROWN Name: ___________________________
Title: ___________________________
INTERSTATE/JOHNSON LANE
CORPORATION
AS DEPOSITOR
By: ___________________________
Name: ___________________________
Title: ___________________________
NATIONSBANK, N.A.
(FORMERLY BOATMEN'S TRUST COMPANY)
AS PRIOR ESCROW AGENT
By: ___________________________
Name: ___________________________
Title: ___________________________
THE BANK OF NEW YORK
AS SUCCESSOR ESCROW AGENT
By: ___________________________
Name: ___________________________
Title: ___________________________
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Alliance Farms Cooperative Association:
We consent to the use of our report 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
October 6, 1998
