UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended
AUGUST 31, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-------------------------
Commission File
No. 33-94644
-------------------------
MINN-DAK FARMERS COOPERATIVE
(Exact name of registrant as specified in its charter)
North Dakota 23-7222188
(State of incorporation) (I.R.S. Employer Identification Number)
7525 Red River Road
Wahpeton, North Dakota 58075 (701) 642-8411
(Address of principal executive offices) (Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b)OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g)OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _X_ NO ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of November 21, 1996, 480 shares of the Registrant's Common Stock
and 58,525 "units" of the Registrant's Preferred Stock, each consisting of 1
share of Class A Preferred Stock, 1 share of Class B Preferred Stock and 1 share
of Class C Preferred Stock, were outstanding. There is only a limited, private
market for shares of the Company's Common or Preferred Stock, as such shares may
be held only by farmer-producers who are eligible for membership in the Company.
The Company's shares are not listed for trading on any exchange or quotation
system. Although transfers of the Company's shares may occur only with the
consent of the Company's Board of Directors, the Company does not verify
information regarding the transfer price in connection with such transfers. A
number of stock transfers, representing approximately 6% of available stock,
were not arms length (estate settlements, estate planning from one generation to
the next, etc.) and an accurate value for that stock was not available.
Management believes less than 1% of the Company's available stock was traded at
arms length during the fiscal year ended 8-31-96. Of the stock transferred at
arms length, the transfers were made during the second and third quarters of the
Company's fiscal year and range in price from $2,300 to $2,500 per unit.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits to this Report are incorporated by reference
from the Company's Registration Statement on Form S-1 (File number
33-94644), declared effective on September 11, 1995.
PART I
ITEM 1. BUSINESS
Minn-Dak Farmers Cooperative ("Minn-Dak" or the "Company") is a North
Dakota agricultural cooperative which was formed in 1972 and has approximately
480 members. Membership in the Company is limited to sugar beet growers located
in those areas of North Dakota and Minnesota within an approximate fifty (50)
mile radius of the Company's offices and sugar beet processing facilities in
Wahpeton, North Dakota. The Company's facilities allow the members to process
their sugar beets into sugar and other products. The products are pooled and
then marketed through the services of a marketing agent under contract with the
Company. The sugar marketing agent, United Sugars Corporation, is a cooperative
owned by its members, the Company, American Crystal Sugar Company, and Southern
Minnesota Beet Sugar Cooperative. The Company's beet molasses and beet pulp are
also marketed through a marketing agent, Midwest Agri-Commodities. Midwest
Agri-Commodities is a cooperative owned by its members, the Company, American
Crystal Sugar Company and Southern Minnesota Beet Sugar Cooperative.
Minn-Dak's corporate headquarters are located at 7525 Red River Road,
Wahpeton, North Dakota 58075 (telephone number (701) 642-8411). Its fiscal year
ends August 31.
PRODUCTS AND PRODUCTION
Minn-Dak is engaged primarily in the production and marketing of sugar
from sugar beets. Minn-Dak also markets certain by-products of the sugar it
produces, such as beet molasses and beet pulp. The Company also owns an 80%
interest in Minn-Dak Yeast Company, which has facilities located near the
Company's sugar production location. Minn-Dak Yeast Company provided revenues
totaling approximately 5.8% of the Company's gross revenues for the fiscal year
ended August 31, 1996.
The Company processes sugar beets grown by its members at its sugar
mill located in Wahpeton, North Dakota. The period during which the Company's
plant is in operation to process into sugar and by-products is referred to as
the "campaign." The campaign is expected to begin in September of each year and
continues until the available supply of beets has been depleted, which generally
occurs in March or April of the following year, depending on the size of the
crop. Based on current processing capacity, an average campaign lasts
approximately 200-215 days, assuming normal crop yields.
Once the sugar beets are harvested, rapid processing is important to
maximize sugar extraction and minimize spoilage. Members transport their crop by
truck to receiving stations designated by the Company. Beets are then stored in
the Company's factory yard and at outlying piling stations until processing.
Under the Company's "growers agreement" with its members, the Company furnishes
all loading equipment at loading stations and, after delivery of the beets to
the Company, pays all freight and mileage charges for hauling the sugar beets
from the piling stations to the factory for processing.
Minn-Dak's total sugar production is presently influenced by the amount
and quality of sugar beets grown by its members, the processing capacity of the
Company's plant and by the ability to store harvested beets. Most of the beet
harvest is stored in piles. Although piled sugar beets that have been frozen by
the winter temperatures may be stored for extended periods, beets stored in
unprotected piles at temperatures above freezing must be processed within
approximately 160 days.
Sugar beets deteriorate in storage due to the organic nature of their
existence. Beets harvested prior to obtaining a root temperature of fifty
degrees or less must be processed within seven days or sugar loss will occur and
they will deteriorate. The plant start up in the fall is timed to the
anticipated end processing in the spring. The plan of the Company is, after the
expenditures for plant expansion described herein, to finish processing
unprotected beets prior to March 10, ventilated beets prior to March 31, and
storage shed beets as soon thereafter as is possible.
Unprotected beets are "split" by processing the center of the piles
first. This method allows the processing of the center beets, which do not
freeze and therefore deteriorate more rapidly, at the earliest possible date.
Ventilated beets have culverts with air holes running every eleven feet
into the pile. Prior to freezing of the beets, air is blown into the piles to
bring the pile temperature to an average temperature of approximately
thirty-five degrees. When a week or more of sub zero temperatures are forecast,
the fans are turned on when the temperature reaches zero degrees and continues
to ventilate until the pile temperature reaches zero to five degrees.
After completing expenditures on storage sheds as part of a proposed
expansion (see MINN DAK FARMERS COOPERATIVE STOCK SALE AND EXPANSION PLAN, in
Part 1 Item 1 of this section), storage shed beets will be handled in the same
manner as the ventilated beets. The difference between the processes is the
building itself, which insulates the beets from sun, wind, and warmer spring
temperatures. With the buildings, storage of the beets can run as late as mid
May of each year.
In addition, unprotected and ventilated beets will, in long campaigns,
have extra steps taken to extend their life. Beets are sprayed with lime to
create a reflectance and reduce the harmful impact from the sun's rays in the
spring. Straw is also applied to the sides of some later processed piles to
further insulate the beets from sun, wind, and temperature.
Once the sugar beets arrive in the factory, the basic steps in
producing sugar from them include: washing; slicing into thin strips called
"cossettes"; extracting the sugar from the cossettes in a diffuser; purifying
the resulting "raw juice" and boiling it, first in an evaporator to thicken it
and then in vacuum pans to crystallize the sugar; separating the sugar crystals
in a centrifuge; drying the sugar; and storing sugar in bulk form for bulk and
bag shipping.
The Company's sugar beet by-products include beet molasses and beet
pulp. After the extraction of raw juice from the cossettes, the remaining pulp
is dried and processed into and sold as animal feeds. The beet molasses is the
sugar juice left after all economical means have been taken to extract the sugar
from the sugar juice. The beet molasses is sold primarily to yeast and
pharmaceutical manufacturers and for use in animal feeds. The beet molasses and
beet pulp are marketed through Midwest Agri-Commodities.
RECENT CROPS
Minn-Dak's members harvested 1,506,646 tons of sugar beets from 82,575
acres for the 1996 crop. The crop yield of 18.25 tons per acre for the 1996 crop
was about on par versus the Company's five year average ton per acre. Sugar
content of the 1996 crop at harvest was 18.61%, as compared to an average of
17.21% for the five most recent years. The Company's projected production is 4.2
million hundredweights of sugar from the 1996 crop sugar beets, well above the
five year average of 3.4 million hundredweight. (A "hundredweight" is equal to
one hundred pounds and is hereinafter abbreviated as cwt.)
For a discussion of the 1995, 1994 and 1993 crops and results of
operations for fiscal years 1996, 1995 and 1994, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
MARKET AND COMPETITION
According to United States government estimates, the United States
market for sugar during the year beginning on October 1, 1995 and ending on
September 30, 1996 will total approximately 179 million cwt. of sugar. That
estimate for 1996 suggests the continuation of a trend of growth in the market
in recent years at a compounded rate of approximately 2% per year. For example,
from a market of approximately 165 million cwt. in 1992, the total domestic
market grew to a total of approximately 179 million cwt. in 1996. Latest
government estimates indicate a projected domestic market for sugar of 185
million cwt in 1997, a 3.5% increase from 1996. However the Company continues to
believe that domestic market growth will average the 2% long term growth trend.
Given the size of the domestic market, the Company's sugar production and sales
represented slightly less than 2.0% of the total domestic market for refined
sugar in fiscal 1996.
The growth in the market for refined sugar in the late 1980's and into
the 1990's is a reversal of trends in the 1970's and early 1980's which resulted
in a reduced market for refined sugar. During the 1970's and early 1980's, high
fructose corn syrup was increasingly used as a replacement for refined sugar in
certain food products. (The prime example of this trend was the use of high
fructose corn syrup in beverages such as soft drinks.) In addition,
non-nutritive sweeteners such as aspartame were developed for use in food
products.
While high fructose corn syrup and non-nutritive sweeteners constitute
a large portion of the overall sweetener market, the Company believes that the
market for sugar will continue to grow at a rate similar to recent trends
because of increased use of refined sugar and population growth.
The Company's main competitors in the domestic market are beet sugar
processors including Holly Sugar Corporation (a division of Imperial Holly
Corporation), Western Sugar Company (a subsidiary of Tate & Lyle, Inc.), The
Amalgamated Sugar Company, Michigan Sugar Company (wholly-owned by Savannah
Foods and Industries, Inc.) and Monitor Sugar Company, Inc. The Company's
products also compete with cane sugar refined by Savannah Foods and Industries,
Inc., California and Hawaiian Sugar Company, Imperial Holly Corporation and
Domino Sugar, a subsidiary of Tate & Lyle, Inc. Because sugar is a fungible
commodity, competition for sales volume is based primarily upon price, customer
service and reliability.
According to United States Department of Agriculture (USDA) statistics,
the Red River Valley is generally one of the most cost efficient sugar beet
producing areas in the nation. As a result, the Company's management believes
that it possesses the ability to compete successfully with other American
producers of sugar. In spite of this competitive advantage, substitute sweetener
products and sugar imports could have an adverse effect on the Company's
operations in the future.
GOVERNMENT PROGRAMS AND REGULATION
Domestic sugar prices are supported under a program administered by the
United States Department of Agriculture ("USDA"). The program, which is called
the Agricultural Market Transition Act of 1996, requires the price of sugar to
be maintained above the price at which producers could forfeit sugar to repay
nonrecourse loans obtained through the Commodity Credit Corporation. Such
support prices for sugar are in effect as long as the "Tariff Rate Quota" for
imports of sugar are 1.5 million short tons, raw value or more. Under the tariff
rate quota implemented October 1, 1990, certain sugar producing countries are
assigned a fixed quantity of imports duty-free or subject to minimal duties.
Unlimited additional quantities may be imported upon payment of a tariff of 16
cents per pound prior to shipment (to date, very little sugar has been imported
under this higher tariff level). (Note: the tariff schedule was established at
17 cents on July 1, 1995, 16 cents July 1, 1996 and will reduce by .31 cents
each year for years 1997 through 2001, until it reaches 14.45 cents per pound of
sugar). If the tariff rate quota for sugar is less than 1.5 million short tons,
raw value, the loans then become recourse loans, and price support is no longer
possible through the loans. Further, imports of sugar under the tariff rate
quota are based upon the difference between domestic sugar consumption and
domestic sugar production, with one exception. Under the terms of the General
Agreement on Tariffs and Trade (GATT) the minimum imports of sugar are
established at 1,256,000 short tons, raw value. Therefore, even if the
difference between domestic sugar consumption and production are less than
1,256,000 short tons, raw value, GATT will require that 1,256,000 short tons be
imported into the United States from the quota holding foreign countries.
Because this is the first year of the new sugar program, the Company cannot
accurately predict the impact, if any, to the sugar market.
The current sugar program will expire after the 2002 crop and the
nature and scope of future legislation and United States trade policy affecting
the sugar market cannot be accurately predicted and there can be no assurance
that price supports will continue in their present form beyond the 2002 crop
year, or that there will even be enacted a sugar program beyond the existing
program. As a result of uncertainty regarding the impact of the absence of price
supports if no sugar program existed, the Company cannot accurately predict if
any changes in legislation or trade policy would have a material adverse impact
on Minn-Dak Farmers Cooperative and its members, or the magnitude of such
impact.
Revenue Canada (the Canadian Department of Revenue) initiated an
investigation in March, 1995 regarding the trade "dumping" of sugar by foreign
exporters of sugar to Canada. This investigation has included inquiries of
United Sugars Corporation and Minn-Dak and involves an examination of potential
"unfair" foreign subsidies and the injury that they may have caused to the
Canadian sugar industry. After a lengthy investigation the Department made a
determination that "dumping" did occur by foreign exporters. In November, 1995
the Canadian International Trade Tribunal found that there were was no injury to
the Canadian sugar industry caused by U.S.-based exporters. But they did
determine that "future" damages could result to members of the Canadian sugar
industry, and that remedial action was appropriate. The outcome of the action
was the imposition of duties on imports of foreign sugar into Canada. Such an
outcome ended the Company's ability to market sugar into Canada. During fiscal
year 1996, the Company, through United Sugars Corporation, exported no sugar
into Canada, compared to a total of approximately 108,000 cwt. (the Company's
share) of sugar in fiscal year 1995. That 108,000 cwt. quantity of sugar
represented approximately 2.5% of the total 1994 crop sugar produced by the
Company. The Company does not expect to sell sugar into Canada again in the
foreseeable future.
MARKETING, CUSTOMERS AND PRICES
Until December 31, 1993 the Company marketed most of its sugar through
the efforts of North Central Sugar Marketing, a sugar marketing cooperative
jointly owned by the Company and Southern Minnesota Sugar Cooperative. Since
January 1, 1994, the Company's sugar has been marketed by United Sugars
Corporation, a cooperative owned by the Company, Southern Minnesota Beet Sugar
Cooperative and American Crystal Sugar Company to market sugar produced by the
three cooperatives. United Sugars Corporation was formed in late 1993, at which
time the Company contributed assets valued at approximately $226,000 (the
Company's share of the value of the assets of North Central Sugar Marketing
Cooperative - the organization that was being merged into United Sugars
Corporation), for the capitalization of United Sugars Corporation. In addition,
the Company has further contributed approximately $552,000 in cash for initial
capitalization of the operations of United Sugars Corporation through fiscal
year 1996, and has agreed to provide additional anticipated cash contributions
totaling $368,000 in 1997 and 1998. The total anticipated capital contribution
of $1,146,000 will be in exchange for an initial ownership interest of 13.53% of
United Sugars Corporation. In addition, through August 31, 1996 the Company has
contributed additional capital to United Sugars Corporation totaling $2,691,000
for the purpose of the purchase of certain fixed assets related to the sales and
distribution of sugar through United Sugars Corporation. At August 31, 1996 the
Company had an ownership interest in United Sugars Corporation (initial
contributed capital plus additional fixed assets) totaling $3,468,922, which
represented 12.63%.
Upon completion of the incorporation and capitalization of United
Sugars Corporation, the Company entered into a "Uniform Member Marketing
Agreement" with United Sugars Corporation. Under that agreement, the sugar
produced by the Company is pooled with sugar produced by American Crystal Sugar
Company and Southern Minnesota Beet Sugar Cooperative and is then sold through
the efforts of United Sugars Corporation. The Company receives payment for its
sugar by receiving its pro rata share of the net proceeds from the sale of the
pooled sugar. The net proceeds of such sales represent the gross proceeds of the
sale of the sugar, adjusted for the various costs and expenses of marketing the
pooled sugar, including the the Company's pro rata share of the marketing and
sales expenses incurred by United Sugars Corporation. Any net proceeds from the
operation of United Sugars Corporation are distributed to the various members on
a patronage basis.
United Sugars Corporation sells industrial bulk sugar, industrial
bagged sugar, retail bagged sugar, and specialty sugars. The Company's sugar is
marketed by United Sugars Corporation primarily to industrial users such as
confectioners, breakfast cereal manufacturers and bakeries. The customer base of
United Sugars Corporation includes most of the large industrial sugar users,
such as Kraft-General Foods, Hershey's, General Mills, Nabisco, Nestles, Brach
Candy, and Quaker Oats. The customer base also includes retail grocery customers
such as Super Value, Kroegers and others. The Company has no single customer
which accounts for more than ten percent (10%) of its consolidated revenues. For
the fiscal year ended August 31, 1996, 98% of the Company's sugar was marketed
in bulk form, mostly to industrial users, and 2% in bagged powdered sugar.
Fiscal year 1996 was the first year that the Company has shipped other than bulk
sugar for United Sugars Corporation, and represents a consolidated effort by the
members of United Sugars Corporation to create the most efficient method for the
production of the different sugar products needed. For fiscal year 1997, the
Company estimates that it will produce 275,000 cwt of powdered sugar, which
represents 6.5% of the Company's estimated production.
The prices at which United Sugars Corporation sells the Company's sugar
fluctuates periodically based on changes in domestic sugar supply and demand.
The largest portion of the Company's sales are contracted one or more quarters
in advance, with the effect of stabilizing fluctuations in revenue from quarter
to quarter.
The Company markets dried beet pulp and beet molasses through Midwest
Agri-Commodities, a cooperative whose members are the Company, American Crystal
Sugar Company and Southern Minnesota Beet Sugar Cooperative. Beet pulp is
marketed to livestock feed mixers and livestock feeders in the United States and
foreign markets. For the year ended August 31, 1996, approximately 39% of the
Company's pulp production was exported to Japan, approximately 43% was exported
to Europe and the remaining 18% was sold domestically. The market for beet pulp
is affected by the availability and quality of competitive feedstuffs. Beet
molasses is marketed primarily to yeast manufacturers, pharmaceutical houses,
livestock feed mixers and livestock feeders. By-product sales accounted for
approximately 12% of the Company's total consolidated revenues during fiscal
1996. This relationship is primarily a function of the average market prices for
sugar, beet pulp and beet molasses and is not necessarily indicative of future
relationships between by-product and sugar revenues, because prices of these
commodities fluctuate independently of each other.
The Company is an eighty percent equity owner of Minn-Dak Yeast
Company. Minn-Dak Yeast Company manufactures fresh baker's yeast in a plant
located adjacent to the Company's sugar plant in Wahpeton, North Dakota. The
Company started the yeast business in 1989 in order to add value to its
by-product beet molasses. Beet molasses is the main ingredient (growth medium)
in the fermentation process used to grow baker's yeast to commercial volumes.
The Company's beet molasses is used exclusively in the Minn-Dak Yeast process
and is sold through a supply agreement between the companies. The remaining
twenty percent equity stake is held by Universal Foods Corporation, Milwaukee,
Wisconsin. Minn-Dak Yeast Company also has a long-term marketing agreement
whereby Universal Foods Corporation will buy production of baker's yeast
produced by Minn-Dak Yeast Company in return for certain guaranteed sales
volumes.
MINN-DAK FARMERS COOPERATIVE STOCK SALE AND EXPANSION PLANS
The strategic plan of the Company calls for an expansion of its
processing capacity as well as its length of operating season. This strategic
plan was undertaken in order to increase its chances of continuing to be a long
term viable, profitable business for its shareholders. Expansion of the
processing capabilities of the plant will bring about certain economies of
scale. Company projections indicate that this will allow the Company to continue
to pay its shareholders for beets and a return on their investment similar to
the levels encountered in the past, given all other business factors being
equal. However, the Company cannot say with certainty that, after the expansion
plan has been completed, shareholder returns will be the same as or better than
what has been experienced in the past.
The Company plans to expend approximately $86,200,000 over a three year
period beginning with the fiscal year ended 8-31-96 covered in this report for
improvements and additions to its facilities. Base capital expenditures for uses
other than expansion are estimated to be $31,200,000 and expansion capital
expenditures are estimated to be $56,000,000. The planned capital expenditures
include $14,700,000 for air and water environmental improvements, $1,700,000 for
improvements for beet receiving and storage unrelated to expansion, $23,300,000
for beet receiving and storage improvements to increase capacity, $7,500,000 for
specific factory improvements unrelated to expansion, $24,500,000 for factory
improvements to increase capacity, and appropriate reserves for contingency and
overhead considerations.
$37,400,000 will be raised through the sale of the maximum number of
Units Subscribed via the Company's 1995 stock offering. The funds generated from
the stock offering will be used to assist in paying for the costs associated
with expansion. Those costs not covered through the stock offering will be
funded through a long term debt agreement, with the St. Paul Bank for
Cooperatives for Cooperatives (a cooperative lending institution who acquires
funds from the Funding Corporation, who has agency status) who is providing the
construction financing and is the principal lender.
In fiscal 1996, the Company was able to secure a lease from Richland
County, funded by low interest, fifteen year tax exempt solid waste disposal
bonds in the amount of $12.0 million with zero principle amortization for the
first three years and $1.0 million per year of principle amortization for the
next 12 years. These bonds were required to be secured by a Letter of Credit
from a non-government agency bank (Norwest Bank North Dakota) who in turn was
secured by a Letter of Credit from the St. Paul Bank for Cooperatives, the
Company's primary lender. Solid waste disposal bonds are available under certain
conditions where a by-product of manufacturing must be further manufactured or
refined to produce a salable product and/or reduce the amount of solid waste
produced by a manufacturing plant. In the company's primary case, the funds were
used to fund further manufacturing of a by-product to produce a salable product.
The long term debt created by this expansion will be repaid with funds
generated through depreciation, income tax savings, and reduced costs per cwt of
production. (Depreciation expense is a non-cash expense that under the Company's
accounting procedures reduces the amounts available for payments to the
Company's members. The resources represented by such non-cash expenses are
available as a source of working capital for the Company, which may be used for
payment of long term debt.)
The expansion as of 8-31-96 was on schedule and within budget.
JOINT VENTURE WITH PROGOLD LIMITED LIABILITY COMPANY
Minn-Dak is a five percent (5%) equity owner in ProGold Limited
Liability Company ("ProGold"). ProGold was formed in 1994 by three entities for
the purpose of building a plant to produce from corn and market high fructose
corn syrup; and to produce and market corn gluten feed, corn gluten meal and
corn germ, all co-products produced by the plant. The other two equity owners
are American Crystal Sugar Company, Moorhead, Minnesota (46%) and Golden Growers
Cooperative, Fargo, North Dakota (49%). American Crystal Sugar Company is a
cooperative that produces sugar from sugar beets and has approximately 2,300
stockholder-growers that grow sugar beets on approximately 450,000 acres of
land. Golden Growers Cooperative was formed in 1994 by approximately 2,000
shareholder-farmers located in the three state area of North and South Dakota
and Minnesota. An agreement between Minn-Dak and the other parties involved in
the formation of ProGold have agreed upon capital contributions to be made by
each. Minn-Dak has contributed approximately $5.2 million in exchange for its 5%
ownership position, American Crystal Sugar Company has contributed approximately
$48.0 million for its 46% ownership share and Golden Growers Cooperative 51.0
million for its 49% ownership share.
Representatives of ProGold, Minn-Dak, American Crystal Sugar Company
and Golden Growers Cooperative have entered into various agreements relating to
the ownership and operation of ProGold and the corn wet-milling plant The
agreements include (i) Member Control Agreement, (ii) Uniform Member Marketing
Agreement, and (iii) Administrative Services Agreements. Under the terms of the
ProGold member control agreement, in each year after September 1, 1997, the
ProGold Board of Governors can require that the three members of ProGold provide
additional capital contributions in an amount not to exceed $5 million per year,
with each member obligated to provide a portion of the $5 million proportionate
to their ownership share in ProGold. As such, Minn-Dak could be required to make
annual capital contributions in an amount not to exceed $250,000 per year, based
upon its 5% ownership share in ProGold. Any other capital contributions can be
required only with the prior written consent of all of ProGold's owners. Under
the terms of the ProGold Uniform Member Marketing Agreement, the owners of
ProGold would be obligated to deliver to ProGold the corn to be processed at the
plant. Under the terms of the Administrative Services Agreement, ProGold would
be provided services such as accounting, financial planning support and human
resources services by American Crystal Sugar Company.
When ProGold's corn wet-mill plant is fully operational, it is expected
to grind approximately 30 million bushels of corn per year. However, that
quantity will be subject to adjustment depending upon the final operational
characteristics of the facility. Minn-Dak will be responsible for providing corn
to ProGold in proportion to its ownership percentage in ProGold, or 5%. In the
years that ProGold is operating at full capacity, Minn-Dak would be required to
provide approximately 1.5 million bushels of corn to ProGold. Based upon current
market prices for corn, the Minn-Dak would expect to pay approximately $3.6
million each year to provide corn to ProGold. In fiscal year 1997 (which begins
September 1, 1996) when the plant is expected to begin operations, the plant is
expected to run at less than full capacity. Therefore Minn-Dak expects to
deliver approximately 992,000 bushels of corn valued at approximately $3.4
million, based upon fiscal year 1997 budgeted costs for corn. Under the
Company's agreements with ProGold, the Company does not receive payment for the
corn upon delivery. Instead, the Company will receive payment of its
proportionate share of ProGold's revenues from the sale of corn sweeteners and
related products, less its proportionate share of ProGold's operating expenses
(which will not include the cost of corn). The distribution of ProGold's
revenues is intended to provide both compensation for the corn delivered to
ProGold and the Minn-Dak's share of ProGold's profits, if any. While ProGold
intends to distribute net revenues to its members as soon as possible following
receipt of proceeds from the sale of its products, Minn-Dak anticipates that it
will receive periodic distributions from ProGold each year, with a final
distribution to be made following the close of ProGold's fiscal year.
Minn-Dak believes that ProGold will suffer a loss during its initial
operations of the corn wet-milling plant. Minn-Dak's portion of any such loss is
not expected to be material to Minn-Dak or its financial condition. If, through
the operation of the corn wet-milling plant, ProGold is successful in generating
profits for distribution to its members, those distributions would be classified
as non-member patronage and therefore retained by Minn-Dak and would be posted
to Minn-Dak's retained earnings account. However, those distributions, in the
discretion of Minn-Dak's Board of Directors, could act to reduce the amount of
working capital needed by Minn-Dak from its shareholders by reducing future unit
retain and allocated patronage amounts. Minn-Dak has acted in such a manner in
the past with other non-member patronage, such as non-member patronage from its
subsidiary company, Minn-Dak Yeast Company. As described above, any decisions
regarding the application of distributions received by Minn-Dak from ProGold
will be made in the discretion of Minn-Dak's Board of Directors.
GROWERS' CONTRACTS
The Company purchases virtually all of its sugar beets from members
under contract with the Company. All members have three-year contracts with the
Company covering the growing seasons of 1996 through 1998 (the "Growers'
Agreement"). At the end of each year, the Growers Agreement automatically
extends for an additional year, so that such agreements always have a remaining
term of three years, unless notice of termination has been given by the Company
prior to the automatic renewal. In that situation, the agreement will not renew,
but will continue in effect for the two year period then remaining under the
agreement. Each Unit of Preferred Stock currently entitles a member to grow 1.35
acres of sugar beets for sale to the Company. The Company's Board of Directors
has the discretion to adjust the acreage which may be planted for each Unit of
Preferred Stock held by the members. For the 1996 crop year the Company's Board
of Directors authorized members to plant 1.40 acres per share. For the 1997
crop, unless the Company's Board of Directors decide otherwise, the acres will
return to 1.35 acres per unit of Preferred Stock.
Under the terms of the Growers Agreement, each member receives payment
for his or her sugar beets based on a price per pound of extractable sugar. The
price per pound of extractable sugar is determined by dividing the total grower
distribution of net proceeds (less the amount credited to members investment
from member patronage and credited to retained earnings from non-member
patronage) by the total of members' pounds of extractable sugar. Extractable
pounds of sugar are obtained by the processing of beet samples taken from
members' sugar beets during harvest. Each member's grower payment is obtained by
multiplying that member's total pounds of extractable sugar times the price per
pound of extractable sugar as determined above. Under the Growers Agreement,
each member receives an initial installment of the payment for his or her sugar
beets on or about November 15, soon after delivery of his or her crop to the
Company. That initial installment is subject to adjustment by the Cooperative's
Board of Directors and management, but will not exceed 65% of the estimated
price per pound of extractable sugar. A second installment is paid in early
February; that installment, in combination with the first installment, will not
exceed 70% of the estimated price per pound of extractable sugar. A third
installment is paid in early April, with the aggregate of all installments paid
to that date not to exceed 80% of the estimated price per pound of extractable
sugar. A fourth installment payment is paid in July, with the total of
installment payments to that date not to exceed 95% of the estimated price per
pound of extractable sugar. The final payment is determined after the end of the
Company's fiscal year, ending on August 31, and is in an amount necessary to
bring the total of all payments to the price to be paid per pound of extractable
sugar to all growers during the applicable fiscal year. In addition, the
Company's annual patronage net income, which is equal to the Company's sales
less all expenditures and member beet payments, is distributed to the members on
the basis of the pounds of extractable sugar obtained from each of the members'
sugar beets; such amounts are distributed in either cash payments or in the form
of patronage credits to the member's patronage credit account on the books of
the Company.
COMPANY DISTRICTS
The Company's by-laws provide that the Company's members are to be
divided into districts for the purposes of voting and the election of members of
the Board of Directors. Those districts do not have specific geographic
boundaries but, instead, contain a loosely defined area representing the area
served by a particular piling station to which members deliver their sugar beets
for storage until the sugar beets are to be processed. When a member joins the
Company, he or she is assigned to a particular district based upon criteria
including (i) the physical location of the shareholder's sugar beet growing
acres relative to a piling site and (ii) if the previous criteria does not
clearly indicate the district to which the shareholder should be assigned, the
physical location of the shareholder's base of farming operations relative to a
piling site. (Some members deliver sugar beets to more than one piling site due
to the locations of their various fields, even though they are assigned to
membership in only one district.)
Given that shareholders are assigned to districts based upon ease of
delivery of harvested sugar beets and because shareholders own different numbers
of Units of Preferred Stock, each district includes a different number of acres
of sugar beet production and, therefore, a different quantity of sugar beets
delivered to the Company. However, none of the districts provides the Company
with a materially disproportionate quantity of the sugar beets produced by the
Company's members. While the allocation of members to the various districts have
a significant impact on the election of directors, the Company does not believe
that the districts represent a significant factor in the day-to-day business
operations of the Company.
RESEARCH AND DEVELOPMENT
The Company is not involved in its own research and development
activities, but does participate in some sugar industry research and development
activities. Any research findings are then shared by the entire sugar industry.
Participatory research and development is accomplished through such
organizations as Beet Sugar Development Foundation, Sugar Association, and North
Dakota/Minnesota Research and Education Board. The Company participates in the
organizations listed above through the efforts of its representatives to the
boards of directors of those entities. The Company's representatives, either a
member of the Company's Board of Directors or a management employee of the
Company, allow the Company to participate in and help direct agricultural and
factory operations research and development activities carried out by the listed
organizations. Those organizations also have established various committees on
which the Company has placed certain of its employees; that practice is designed
to provide the company with direct access to any research and development
information available from the applicable committees. (Through its employees,
the Beet Sugar Development Foundation also provides some legislative and
lobbying efforts on a national level. Those efforts are directed at maintaining
funding for the various federal sugarbeet research facilities.) None of the
Company's employees or directors devote a significant portion of their time and
energies to the activities described in this section; instead, such efforts are
a minor portion of their continuing duties on behalf of the Company.
During the fiscal year ended on August 31, 1996, the Company
contributed approximately $58,000 to the North Dakota/Minnesota Research and
Education Board to fund that entity's research and development activities.
$10,000 in connection with research activities of the Beet Sugar Development
Foundation and $44,000 to the Sugar Association for their research activities
and membership dues.
The Company also has established a sugarbeet seed committee which
reviews the performance of new and existing sugarbeet seed varieties. The
committee then advises the Board of Directors with regard to those sugarbeet
seed varieties which should be approved by use by the Company's shareholders.
ENVIRONMENTAL MATTERS
Minn-Dak is subject to extensive federal and/or state environmental
laws and regulations with respect to water and air quality, solid waste disposal
and odor and noise control. The Company conducts an on-going and expanding
control program designed to meet these environmental laws and regulations. While
the Company will continue to have ongoing environmental compliance issues, there
are not currently any pending regulatory enforcement actions and the Company
believes that it is in substantial compliance with applicable environmental laws
and regulations.
The Company cannot accurately predict to what extent future changes in
environmental laws or regulations will have on the cost of operating its
facilities and conducting its business. However, any such changes could have
adverse financial consequences for the Company and its members.
EMPLOYEES
As of August 31, 1996, the Company had 234 full-time employees, of
which 206 were hourly and 28 were salaried. It also employs approximately 295
additional hourly seasonal workers during the sugar beet harvest and processing
campaign. In January, 1995 the Company concluded the negotiations for a
collective bargaining agreement with the American Federation of Grain Millers
(AFL/CIO) union for its factory employee group. The written contract is in
effect from January 23, 1995 through May of the year 2000. Office, clerical,
management and harvest employees are not unionized. Full time employees are
provided with health and dental insurance, a defined benefit pension or
retirement plan, a 401(k) retirement savings plan, a short and long term
disability plan, term life insurance, and vacation and holiday pay plans.
Seasonal workers are provided some of the above employee benefits. The Company
considers its employee relations to be excellent.
ITEM 2 PROPERTIES
The Company operates a single sugarbeet processing factory at Wahpeton,
North Dakota which is located in the Red River Valley. The Company owns the
factory, receiving sites, and the land on which they are located. The 1994 crop
set new records for average daily slice rate (6,967 of beets tons per day),
total tons sliced (1,535,961 tons), and sugar production (4,400,000 cwt.). With
the planned expansion (as more fully explained in Item 1 entitled Stock Sale and
Expansion Plans)., the plant is projected to have the minimum capacity to slice
7,500 tons per day and the $15,200,000 spent on special ventilated storage and
beet storage buildings should extend the number of days the factory is able to
process beets.
Minn-Dak Yeast Company (Minn-Dak is an 80% owner) operates a single
yeast processing factory at Wahpeton, North Dakota which is located in the Red
River Valley. Minn-Dak Yeast Company owns the factory and the land on which it
is located. During fiscal 1996, 25.6 million pounds of yeast were produced which
is at full capacity for the plant.
ITEM 3. LEGAL PROCEEDINGS
From time to time and in the ordinary course of its business, the
Company is named as a defendant in legal proceedings related to various issues,
including worker's compensation claims, tort claims and contractual disputes.
Other than as provided herein, the Company is not currently involved in legal
proceedings which have arisen in the ordinary course of its business and the
Company is also unaware of certain other potential claims which could result in
the commencement of legal proceedings. The Company carries insurance which
provides protection against certain types of claims.
While the Company is not, other than as provided herein, currently
involved in any legal proceedings, the investigation that was conducted by
Revenue Canada and the results stemming from that investigation had an adverse
impact on the Company's business. Revenue Canada (the Canadian Department of
Revenue) initiated an investigation regarding the trade "dumping" of sugar by
foreign exporters of sugar to Canada. This investigation included inquiries of
United Sugars Corporation and the Company and involved an examination of
potential "unfair" foreign subsidies and the injury that they may have caused to
the Canadian sugar industry. The Department made a preliminary determination
that "dumping" did occur by foreign exporters and proceeded to a final
determination of what, if any, damage resulted to members of the Canadian sugar
industry and what remedial action would be appropriate. In November, 1995 the
Canadian International Trade Tribunal found that there was no injury to the
Canadian sugar industry, but that there was potential for "future" injury to
occur. The remedial action resulted in the imposition of duties on imports of
foreign sugar into Canada. Such an outcome significantly limited the Company's
ability to market sugar into Canada. During fiscal year 1996, the Company,
through United Sugars Corporation, exported no sugar into Canada, compared to a
total of approximately 108,000 cwt. (the Company's share) of sugar in fiscal
year 1995. That 108,000 cwt. quantity of sugar represented approximately 2.5% of
the total 1994 crop sugar produced by the Company. The Company does not expect
to sell sugar into Canada again in the foreseeable future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's shareholders
during the quarter ended August 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is only a limited, private market for shares of the Company's
Common or Preferred Stock, as such shares may be held only by farmer-producers
who are eligible for membership in the Company. The Company's shares are not
listed for trading on any exchange or quotation system. Although transfers of
the Company's shares may occur only with the consent of the Company's Board of
Directors, the Company does not verify information regarding the transfer price
in connection with such transfers. A number of stock transfers, representing
approximately 6% of available stock, were not arms length (estate settlements,
estate planning from one generation to the next, etc.) and an accurate value for
that stock was not available. Management believes less than 1% of the Company's
available stock was traded at arms length during the fiscal year ended 8-31-96.
Of the stock transferred at arms length, the transfers were made during the
second and third quarters of the Company's fiscal year and range in price from
$2,300 to $2,500 per unit.
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data for each of the
last five completed fiscal years. The selected financial data of the Company
should be read in conjunction with the financial statements and related notes
included elsewhere in this Report.
Fiscal Year Ended August 31,(1)
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FINANCIAL DATA
(Numbers in Thousands) 1996 1995 1994 1993 1992
Revenues $ 114,811 $ 133,326 $ 82,081 $ 119,652 $ 96,057
Net Proceeds Before
Accounting Change 56,872 75,422 33,643 70,609 52,452
Cumulative Effect of
Accounting Change(1) 0 0 1,350 0 0
Net Proceeds(2) 56,872 75,422 34,993 70,609 52,452
Total Assets 138,270 99,991 74,771 82,954 70,071
Long-term Debt, including
current maturities net of bond
investments, 1996 55,809 28,269 17,096 17,911 19,825
Members' Investment(3) 57,324 43,992 44,153 41,804 36,474
Property and Equipment
Additions, net of retirements 34,457 9,202 2,041 5,811 6,530
Working Capital 11,845 9,295 8,034 7,362 8,045
Ratio of Long-Term Debt to
Members' Investment(4) .98 .59 0.33 0.40 0.52
Ratio of Net Proceeds to
Fixed Charges(5) 16.76 26.38 22.62 45.48 45.76
PRODUCTION DATA(6)
Acres harvested 74,915 75,878 67,086 65,888 65,709
Tons purchased 1,458,918 1,636,094 834,545 1,350,659 1,223,062
Tons purchased per
acre harvested 19.47 21.56 12.44 20.50 18.61
Net beet payment paid to
member per ton of sugar beets
delivered, plus allocated
patronage and unit retains(7) 38.34 46.41 40.17 52.00 42.84
Sugar hundredweight -
Produced 3,375,570 4,384,485 2,499,307 4,000,566 2,882,459
Sold, including purchased sugar 3,841,443 3,988,284 3,027,614 3,351,156 2,919,786
Pulp tons
Produced 77,352 92,139 50,536 80,884 67,861
Sold 74,743 93,284 49,212 78,709 68,158
Molasses tons
Produced 61,194 62,516 37,170 51,153 60,317
Sold 43,882 46,768 14,821 31,956 40,360
Yeast pounds (in thousands)
Produced 25,556 17,511 21,853 22,064 18,938
Sold 25,495 17,436 21,853 22,064 18,938
</TABLE>
(1) On September 1, 1993, the Company adopted Statement of Financial
Accounting Standards Statement #109 (SFAS 109), "Accounting for Income
Taxes". The cumulative effect of application of the new standard resulted
in a benefit from income taxes. See Note 6 to the financial statements for
a more detailed description of the accounting change.
(2) Net Proceeds are the Company's gross revenues, less the costs and expenses
of producing, purchasing and marketing sugar, sugar by-products, yeast,
dietary fiber and resale commodities, but before payments to members for
sugar beets. (For a more complete description of the calculation of Net
Proceeds, see "Description of Business-Growers' Contracts".)
(3) Members' investment includes preferred and common stock, unit retention
capital, allocated patronage and retained earnings (deficit).
(4) Calculated by dividing the Company's long-term debt, exclusive of the
current maturities of such debt, by members' investments.
(5) Computed by dividing (i) the sum of Net Proceeds plus fixed charges, plus
amortization of capitalized interest by (ii) the sum of interest expense
and interest capitalized. The Company does lease certain items, such as
some office equipment. Due to the proportionately small amounts involved,
an interest factor on lease payments have not been included in the total
of the Company's fixed charges or the calculation of this ratio.
(6) Information for a fiscal year relates to the crop planted and harvested in
the preceding calendar year (e.g., information for the fiscal year ended
August 31, 1996, relates to the 1995 crop).
(7) Reflects the total amount paid in cash and allocated to individual grower
equity accounts for each ton of beets delivered.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS:
LIQUIDITY AND CAPITAL RESOURCES
Because the Company operates as a cooperative, payments for
member-delivered sugar beets, the principal raw material used in producing the
sugar and agri-products it sells, are subordinated to all member business
expenses. In addition, actual cash payments to members are spread over a period
of approximately one year following delivery of sugar beet crops to the Company
and are net of unit retains and patronage allocated to them, all three of which
remain available to meet the Company's capital requirements. This member
financing arrangement may result in an additional source of liquidity and
reduced outside financing requirements in comparison to a similar business
operated on a non-cooperative basis. However, because sugar is sold throughout
the year (while sugar beets are processed primarily between September and April)
and because substantial amounts of equipment are required for its operations,
the Company has utilized substantial outside financing on both a seasonal and
long-term basis to fund such operations. The majority of such financing has been
provided by the St. Paul Bank for Cooperatives for Cooperatives (the "Bank").
The Company has a short-term line of credit with the Bank in 1996 of
$35,000,000.
The various loan agreements between the Bank and the Company obligate
the Company to achieve certain amounts of working capital and certain financial
activities and also imposes certain restrictions on the Company. As of 8-31-96,
the Company was in compliance with its loan agreements.
Working capital increased $2.5 million for fiscal year 1996. This
increase was the result of the difference between the amount of estimated long
term debt borrowing anticipated to be needed to cover projected year end capital
project demands on working capital and the amount that was actually needed. The
targeted working capital position was approximately $7.0 million. Management's
estimated working capital target for 8-31-97 will again approximate $7.0
million.
Capital expenditures for fiscal 1994 were $2.1 million, fiscal 1995
were $12.1 million, and fiscal 1996 were $30.0 million. Capital expenditures for
fiscal year 1997 are currently estimated at $35.9 million, $33.9 million
resulting from the Company's strategy of expanding capacity and improving
operating efficiencies.
In September, 1994, the Company became a five percent (5%) owner of a
new company, Pro-Gold, to produce corn sweetener products. The total capital for
this purchase was $5.2 million. $1.3 million was be called for this project in
fiscal year 1995 and the remaining $3.9 million in fiscal year 1996.
The Company anticipates that the funds necessary for compliance with
the Bank's working capital requirements and future capital expenditures will be
derived from the net proceeds of a stock offering that was completed in 1996,
Company depreciation, unit retains, non-patronage income, and long-term
borrowing. Those costs not covered through the stock offering will be funded
through a long term debt agreement, with the Bank who is the principal lender.
The long term debt created by this expansion will be repaid with funds generated
through depreciation, income tax savings, and reduced costs per cwt of
production. (Depreciation expense is a non-cash expense that under the Company's
accounting procedures reduces the amounts available for payments to the
Company's members. The resources represented by such non-cash expenses are
available as a source of working capital for the Company, which may be used for
payment of long term debt.) The strategic plan of the Company calls for the
economies of scale generated by the expansion project to first be applied to the
long term debt associated with the project. The initial operational savings and
working capital considerations will be used to pay off the incremental debt for
the project. After the incremental long term debt has been satisfied, the
Company believes that the shareholders will see the savings through operations
and other working capital considerations being reflected in higher per ton beet
payments, all other factors affecting the per ton payments being equal. In
fiscal 1996, the Company was able to secure a lease from Richland County, North
Dakota funded by low interest, fifteen year tax exempt solid waste disposal
bonds in the amount of $12.0 million with zero principle amortization for the
first three years and $1.0 million per year of principle amortization for the
next 12 years. These bonds were required to be secured by a Letter of Credit
from a non-government agency bank (Norwest Bank North Dakota) who in turn was
secured by a Letter of Credit from the St. Paul Bank for Cooperatives, the
Company's primary lender. Solid waste disposal bonds are available under certain
conditions where a by-product of manufacturing must be further manufactured or
refined to produce a salable product and/or reduce the amount of solid waste
produced by a manufacturing plant. In the Company's primary case, the funds were
used to fund further manufacturing of a by-product to produce a salable product.
(See Part 1, Item 1 "MINN DAK FARMERS COOPERATIVE STOCK SALE & EXPANSION PLAN".)
1997 FISCAL YEAR
The Company has distributed to its members the initial installment of
the projected net beet payment for the 1996 sugar beet crop delivered to the
Company by its members in the fall of 1996. That initial payment anticipates an
annual aggregate net beet payment of approximately $69,500,000 for fiscal year
1997 (1996 crop year), based upon (i) an average sugar content of 18.61%, (ii) a
total sugar beet crop of 1,506,646 tons and (iii) the Company's projected
selling price for its sugar. Such an aggregate net beet payment represents a
projected net beet payment per ton of approximately $46.08, based on an average
sugar content of 18.61%. There can be no assurance that the Company's estimates
of the selling price for its sugar or the average sugar recovery from the sugar
beets delivered by the Company's members will be accurate; the Company
anticipates that there will be minor adjustments in its estimates throughout the
fiscal year and that future installments of the beet payment to the Company's
members will reflect such adjustments. Interest expense is expected to increase
$1.5 million to $2.0 million for fiscal year 1997 due to further increases in
long term debt needed to fund plant expansion activities.
COMPARISON OF THE YEARS ENDED AUGUST 31, 1996, AND 1995
Revenue for the year ended August 31, 1996 decreased $18.5 million from
1995. Revenue from total sugar sales decreased 0.8% reflecting a 2.5% increase
in the average selling price per cwt and a 3.3% decrease in cwts sold. Revenue
from pulp sales decreased 11.8% reflecting a reduction of 24.8% in volume and
10.5% increase in the average selling price per ton. Revenue from molasses sales
decreased 4.1% reflecting a 6.6% decrease in volume and an increase of 2.3% in
the average selling price per pound. The decrease in volumes for sugar, pulp and
molasses was primarily due to the lower quality (sugar and purity) of the beets
delivered and quantity (tons) delivered for 1996.
Revenues from yeast sales increased 28.2% reflecting an increase in
volume of 31.6% and a decrease of 5.3% in the average selling price per pound.
Finished product inventories decreased $7.9 million in 1996 primarily due to the
1995 fiscal year crop having domestic marketing quota's imposed on it and having
that excess quota sugar sold during the 1996 fiscal year.
Cost of product sold, exclusive of payments for sugar beets, increased
$.6 million. Sales and Distribution costs increased $.7 million. General and
Administrative expenses decreased ($.2) million. Interest expense increased $.1
million.
Non-member business income increased $1.4 million in fiscal year 1996.
This increase was primarily due to increased net income from the Minn-Dak Yeast
Company subsidiary operations. Minn-Dak Yeast Company had encountered difficult
operating conditions in fiscal year 1995 do to sterilization problems that
plagued plant operations for most of the year. That resulted in reduced
throughput, higher operating costs and reduced income. By fiscal year end 1995
the problem had been solved and production volumes were back to normal and unit
costs were down. This resulted in more normal net income levels for fiscal year
1996.
During the fiscal year ended 8-31-95, the Company recognized a loss on
disposition of fiber assets of $.9 million. The Company had been involved in a
value-added project where dietary fiber for human consumption under the trade
name of Fibrex would be produced from its beet pulp by-product. After building a
production facility and marketing the product for a number of years, sufficient
sales volume at reasonable prices did not appear obtainable. One of the major
marketing considerations was the inability to get GRAS status from the FDA. In
fiscal 1995 the Company elected to discontinue with its attempts to obtain GRAS
status and took the necessary steps to discontinue operations and redirect the
use of the assets.
Net payments to members for sugar beets decreased by $20.0 million in
1996. This decrease was primarily due to the lower quality (sugar and purity) of
the beets delivered and quantity (tons) delivered for 1996.
COMPARISON OF THE YEARS ENDED AUGUST 31, 1995, AND 1994
Revenue for the year ended August 31, 1995 increased $51.2 million from
1994. Revenue from total sugar sales increased 23.6% reflecting a 1.9% increase
in the average selling price per cwt and a 22.1% increase in cwts sold. Revenue
from pulp sales increased 47.4% reflecting an increase of 47.3% in volume and
.2% increase in the average selling price per ton. Revenue from molasses sales
increased 71.6% reflecting a 68.6% increase in volume and an increase of 9.7% in
the average selling price per ton. The increase in volumes for sugar, pulp and
molasses was primarily due to the higher quality (sugar and purity) of the beets
delivered and quantity (tons) delivered for 1995. Revenues from Yeast sales
decreased 59.5% reflecting a decrease in volume of 25.2% and a decrease of 27.4%
in the average selling price per pound. Finished product inventories increased
$10.4 million in 1995 primarily due to the 1995 fiscal year crop having domestic
marketing quotas imposed on the Company and having that excess quota sugar sold
during the 1996 fiscal year.
In 1994, the Company purchased $4.1 million of sugar beets on a
non-member basis from another sugar company as a result of the Company's short
crop and resulting excess available capacity.
Cost of product sold, exclusive of payments for sugar beets, increased
$5.4 million. Sales and Distribution costs increased $5.9 million. General and
Administrative expenses decreased $.1 million. Interest expense increased $1.4
million.
On September 1, 1993, the Company adopted Statement of Financial
Accounting Standards Statement #109 (SFAS109), "Accounting for Income Taxes".
The new standards changed the method of accounting for income taxes from the
deferred method to the asset and liability method. As a result of the change
noted above, the Company recognized a benefit from income taxes totaling $1.4
million representing the cumulative effect of the change on results for the
years prior to September 1, 1993. The adoption has no effect on income before
income taxes for the year ended August 31, 1994.
Non-member business income decreased $2.0 million for the year ended
August 31, 1995. This decrease was primarily due to a change in accounting for
income taxes (see above paragraph) resulting in a $1.4 million one time gain for
fiscal year 1994. Also, the Company's subsidiary, Minn-Dak Yeast Company,
operations encountered production difficulties in the year ended August 31, 1995
due to a sterilization problem in the third and fourth quarters of the fiscal
year, which reduced production by 25% from the prior year.
During the fiscal year ended 8-31-95, the Company recognized a loss on
disposition of fiber assets of $.9 million. The Company had been involved in a
value-added project where dietary fiber for human consumption under the trade
name of Fibrex would be produced from its beet pulp by-product. After building a
production facility and marketing the product for a number of years, sufficient
sales volume at reasonable prices did not appear obtainable. One of the major
marketing considerations was the inability to get GRAS status from the FDA. In
fiscal 1995 the Company elected to discontinue with its attempts to obtain GRAS
status and took the necessary steps to discontinue operations and redirect the
use of the assets.
Net payments to members for sugar beets increased by $42.4 million in
1995. This increase was primarily due to the higher quality (sugar and purity)
of the beets delivered and quantity (tons) delivered for 1995.
<TABLE>
<CAPTION>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Minn-Dak Farmers Cooperative
Wahpeton, North Dakota
We have audited the accompanying consolidated balance sheets of Minn-Dak Farmers
Cooperative (a North Dakota cooperative) as of August 31, 1996, 1995, and 1994,
and the related consolidated statements of operations, changes in members'
investments and cash flows for the years then ended. These financial statements
are the responsibility of the cooperative'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. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Minn-Dak Farmers
Cooperative as of August 31, 1996, 1995, and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
As discussed in Notes 1 and 6 to the financial statements, the company changed
its method of accounting for income taxes in fiscal 1994, as required by the
provisions of Statement of Financial Accounting Standards No. 109.
October 7, 1996
Eide Helmeke PLLP
Fargo, North Dakota
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1996, 1995, AND 1994
ASSETS 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 853,102 $ 287,007 $ 794,952
------------ ------------ ------------
Receivables:
Trade accounts 10,293,751 11,164,406 6,205,308
Growers 2,840,447 2,250,380 2,066,279
------------ ------------ ------------
13,134,198 13,414,786 8,271,587
------------ ------------ ------------
Advances to affiliate 780,442 731,196 1,073,308
------------ ------------ ------------
Inventories:
Refined sugar, pulp and molasses to be sold
on a pooled basis 7,748,715 15,660,336 5,225,975
Nonmember refined sugar 468,322 109,613 482,939
Dietary pulp fiber 0 0 217,294
Yeast 108,704 91,297 78,051
Materials and supplies 4,026,951 4,108,359 3,951,853
New crop beets 0 0 985,000
Other 97,626 108,014 73,186
------------ ------------ ------------
12,450,318 20,077,619 11,014,298
------------ ------------ ------------
Deferred charges 1,119,274 939,868 1,066,664
------------ ------------ ------------
Prepaid expenses 1,789,078 2,220,282 615,151
------------ ------------ ------------
Property and equipment available for sale 789,350 819,150 0
------------ ------------ ------------
Total current assets 30,915,762 38,489,908 22,835,960
------------ ------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 11,956,354 10,167,650 8,471,699
Buildings 22,254,129 19,244,883 19,081,592
Factory equipment 72,462,793 59,457,833 58,285,564
Other equipment 2,200,809 1,851,931 1,381,170
Construction in progress 22,352,000 6,047,195 347,160
------------ ------------ ------------
131,226,085 96,769,492 87,567,185
Less accumulated depreciation 48,551,028 45,686,542 44,061,830
------------ ------------ ------------
82,675,057 51,082,950 43,505,355
------------ ------------ ------------
OTHER ASSETS:
Investments restricted for capital lease projects 7,514,242
Investment in stock of other corporations, unconsolidated
marketing subsidiaries and other cooperatives 12,663,265 6,239,135 3,649,228
Deferred income taxes 3,450,000 3,450,000 3,950,000
Other 1,051,761 728,760 830,221
------------ ------------ ------------
24,679,268 10,417,895 8,429,449
------------ ------------ ------------
$138,270,087 $ 99,990,753 $ 74,770,764
============ ============ ============
See Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND MEMBERS' INVESTMENT 1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Short-term notes payable $ 0 $ 13,877,000 $ 1,262,000
------------ ------------ ------------
Current portion of long-term debt 2,512,500 2,428,523 2,327,518
------------ ------------ ------------
Accounts payable:
Trade 6,622,505 3,112,788 2,208,230
Growers 6,063,827 6,506,163 6,912,124
------------ ------------ ------------
12,686,332 9,618,951 9,120,354
------------ ------------ ------------
Advances from affiliate 1,202,466 1,064,005 653,291
------------ ------------ ------------
Accrued liabilities 2,669,019 2,206,166 1,439,171
------------ ------------ ------------
Total current liabilities 19,070,317 29,194,645 14,802,334
LONG-TERM DEBT, NET OF CURRENT PORTION 48,810,417 25,840,308 14,767,928
OBLIGATION UNDER CAPITAL LEASE 12,000,000
OTHER 728,296 881,837 882,393
------------ ------------ ------------
Total liabilities 80,609,030 55,916,790 30,452,655
------------ ------------ ------------
MINORITY INTEREST IN EQUITY OF SUBSIDIARY 337,439 81,529 165,585
------------ ------------ ------------
MEMBERS' INVESTMENT:
Preferred stock:
Class A - 100,000, 75,000, and 75,000 shares authorized in 1996, 1995,
and 1994, respectively; $105 par value; 58,525, 52,000, and 52,000
shares issued and outstanding
in 1996, 1995, and 1994, respectively 6,145,125 5,460,000 5,460,000
Class B - 100,000, 75,000, and 75,000 shares authorized in
1996, 1995, and 1994, respectively; $75 par value; 58,525,
52,000, and 52,000 shares issued and outstanding in 1996,
1995, and 1994, respectively 4,389,375 3,900,000 3,900,000
Class C - 100,000, 75,000, and 75,000 shares authorized in
1996, 1995, and 1994, respectively; $76 par value; 58,525,
52,000, and 52,000 shares issued and outstanding in 1996,
1995, and 1994, respectively 4,447,900 3,952,000 3,952,000
------------ ------------ ------------
14,982,400 13,312,000 13,312,000
Common stock, 600, 440, and 440 shares authorized in 1996, 1995, and 1994,
respectively; $250 par value; issued and outstanding, 481, 346, and 345,
shares in 1996, 1995,
and 1994, respectively 120,250 86,500 86,250
Paid in capital in excess of par 10,296,457
Unit retention capital 6,262,469 5,421,441 4,513,590
Qualified allocated patronage 3,720,385 4,296,400 5,751,400
Nonqualifieduallocated patronage 21,575,006 21,507,010 20,611,593
Retained earnings (deficit) 366,651 (630,917) (122,309)
------------ ------------ ------------
57,323,618 43,992,434 44,152,524
------------ ------------ ------------
$138,270,087 $ 99,990,753 $ 74,770,764
============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
REVENUE:
From sales of sugar, by-products, Fibrex, yeast and resale
commodities, net of discounts $ 114,334,522 $ 133,301,561 $ 81,422,106
Other income 476,775 23,982 658,685
------------- ------------- -------------
114,811,297 133,325,543 82,080,791
------------- ------------- -------------
EXPENSES:
Production costs of sugar, by-products, Fibrex, yeast and
resale commodities sold 30,872,535 30,318,782 24,887,586
Purchased beets 4,127,135
Sales and distribution costs 19,955,374 19,302,651 13,404,312
General and administrative 4,213,379 4,412,248 4,461,609
Interest 2,898,338 2,972,574 1,556,979
Loss on disposition of fiber assets 897,742
------------- ------------- -------------
57,939,626 57,903,997 48,437,621
------------- ------------- -------------
NET PROCEEDS RESULTING FROM MEMBER AND
NON-MEMBER BUSINESS BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 56,871,671 75,421,546 33,643,170
PLUS CUMULATIVE EFFECT OF ACCOUNTING
CHANGE (See Note 7) 1,350,000
------------- ------------- -------------
NET PROCEEDS RESULTING FROM MEMBER AND
NONMEMBER BUSINESS $ 56,871,671 $ 75,421,546 $ 34,993,170
============= ============= =============
DISTRIBUTION OF NET PROCEEDS:
Credited to members' investment:
Components of net income:
Income (loss) from non-member business $ 929,738 $ (504,766) $ 121,566
Cumulative effect of accounting change 1,350,000
Patronage income 1,620,262 1,439,517 3,039,950
------------- ------------- -------------
Net income 2,550,000 934,751 4,511,516
Unit retention capital 1,389,899 1,636,105 834,555
------------- ------------- -------------
Net credit to members' investment 3,939,899 2,570,856 5,346,071
Payments to members for sugarbeets, net of unit
retention capital 52,931,772 72,850,690 29,647,099
------------- ------------- -------------
NET PROCEEDS RESULTING FROM MEMBER AND
NONMEMBER BUSINESS $ 56,871,671 $ 75,421,546 $ 34,993,170
============= ============= =============
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income allocated to members' investment $ 2,550,000 $ 934,751 $ 4,511,516
Add (deduct) noncash items:
Depreciation and amortization 3,061,758 2,874,476 2,880,499
Equipment disposals - loss 51,765 893,990 638
Increase in investment due to step up in asset basis of
marketing subsidiary (95,138)
Accrued interest income added to note receivable principal (34,956)
Net loss allocated from unconsolidated marketing subsidiaries 91,083 95,558 118,741
Noncash portion of patronage capital credits (562,047) (373,096) (399,196)
Retention of nonqualified unit retains 1,389,899 1,636,105 834,555
Deferred income taxes 550,000 (1,050,000)
Decrease (increase) in cash surrender of officer life insurance 9,904 1,394 (1,315)
Changes in operating assets and liabilities:
Accounts receivable and advances 231,342 (4,801,087) (1,369,574)
Inventory and prepaid expenses 8,058,505 (10,668,452) 9,996,015
Deferred charges (212,795) 76,796 (183,138)
Other assets (20,719) (15,022)
Accounts payable, advances, and accrued liabilities 3,331,198 544,826 (4,506,516)
------------ ------------ ------------
Net cash provided by (used in) operating activities 17,979,893 (8,249,761) 10,702,131
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of property, plant and equipment 4,055 35,541 26,935
Capital expenditures (30,066,812) (12,057,422) (2,084,748)
Proceeds from notes receivable 691,053
Issuance of long-term receivable (267,055)
Investment in stock of other corporations, unconsolidated
marketing subsidiaries and other cooperatives (5,915,938) (1,714,408) (247,370)
Net proceeds from patronage refunds and equity revolvements 30,601 45,859 46,536
Minority interest in equity of subsidiaries 255,910 (84,057) 1,553
------------ ------------ ------------
Net cash used by investing activities (35,692,184) (13,774,487) (1,833,096)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale and repurchase of common stock, net (500) 250 (1,000)
Net proceeds from issuance of short-term debt (13,877,000) 12,615,000 (4,878,000)
Proceeds from issuance of long-term debt 29,000,000 13,500,000
Proceeds from stock offering 12,001,107
Payment of financing fees (406,111)
Payment of long-term debt (5,945,914) (2,326,615) (816,167)
Payment of unit retains and allocated patronage (2,493,196) (2,272,332) (3,109,726)
------------ ------------ ------------
Net cash (used in ) provided by financing activities 18,278,386 21,516,303 (8,804,893)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH 566,095 (507,945) 64,142
CASH, BEGINNING OF YEAR 287,007 794,952 730,810
------------ ------------ ------------
CASH, END OF YEAR $ 853,102 $ 287,007 $ 794,952
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 2,472,853 $ 2,335,411 $ 1,615,512
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Board approval of unit retention capital and allocated patronage
revolvement $ 2,508,452 $ 2,493,196 $ 2,709,679
============ ============ ============
Board approval of distribution of cash portion of qualified
allocated patronage $ 168,700 $ 288,000 $ 287,000
============ ============ ============
Increase in investment in unconsolidated marketing subsidiary by
increasing accounts payable $ -- $ 593,819 $ --
============ ============ ============
Increase in investment from receipt of Economic Development Grant $ 67,830 $ 50,000 $ --
============ ============ ============
Transfer of property and equipment to property and equipment
available for sale $ -- $ 819,150 $ --
============ ============ ============
Aquisition of equipment under capital lease $ 4,485,758
Acquisition of investment restricted for capital lease projects 7,514,242
------------
Proceeds from issuance of obligation under capital lease $ 12,000,000 $ -- $ --
============ ============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' INVESTMENT
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994
PAID IN CAPITAL UNIT
PREFERRED COMMON IN EXCESS OF RETENTION
STOCK STOCK PAR VALUE CAPITAL
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1993 $ 13,312,000 $ 87,250 $ 4,403,382
COMMON STOCK:
Sales (10 shares) 2,500
Repurchase (14 shares) (3,500)
UNIT RETENTION CAPITAL:
Revolvement (724,347)
Proceeds 834,555
REVOLVEMENT OF PRIOR YEARS'
ALLOCATED PATRONAGE
NET INCOME FOR YEAR ENDED AUGUST 31, 1994
ACCRUED PAYMENT OF CURRENT YEAR'S
QUALIFIED ALLOCATED PATRONAGE
------------ ------------ ------------
BALANCE, AUGUST 31, 1994 $ 13,312,000 $ 86,250 4,513,590
COMMON STOCK:
Sales (4 shares) 1,000
Repurchases (3 shares) (750)
UNIT RETENTION CAPITAL:
Revolvement (728,254)
Proceeds 1,636,105
REVOLVEMENT OF PRIOR YEAR'S
ALLOCATED PATRONAGE
ECONOMIC DEVELOPMENT GRANT
RECEIVED BY INVESTEE
NET INCOME FOR THE YEAR ENDED
AUGUST 31, 1995
ACCRUED PAYMENT OF CURRENT YEAR'S
QUALIFIED ALLOCATED PATRONAGE
------------ ------------ ------------ ------------
BALANCE, AUGUST 31, 1995 13,312,000 86,500 5,421,441
COMMON STOCK:
Sales (10 shares) 2,500
Repurchases (12 shares) (3,000)
Stock offering (137 shares) 1,670,400 34,250 10,400,850
Stock issue costs (104,393)
UNIT RETENTION CAPITAL:
Revolvement (548,871)
Proceeds 1,389,899
REVOLVEMENT OF PRIOR YEARS'
ALLOCATED PATRONAGE
ECONOMIC DEVELOPMENT GRANT
RECEIVED BY INVESTEE
NET INCOME FOR THE YEAR ENDED AUGUST 31, 1996
ACCRUED PAYMENT OF CURRENT YEAR'S
QUALIFIED ALLOCATED PATRONAGE
------------ ------------ ------------ ------------
BALANCE, AUGUST 31, 1996 $ 14,982,400 $ 120,250 $ 10,296,457 6,262,469
============ ============ ============ ============
[WIDE TABLE CONTINUED FROM ABOVE]
QUALIFIED NON-QUALIFIED RETAINED
ALLOCATED ALLOCATED EARNINGS
PATRONAGE PATRONAGE (DEFICIT) TOTAL
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1993 $ 5,912,150 $ 19,683,225 $ (1,593,875) $ 41,804,132
COMMON STOCK:
Sales (10 shares) 2,500
Repurchase (14 shares) (3,500)
UNIT RETENTION CAPITAL:
Revolvement (724,347)
Proceeds 834,555
REVOLVEMENT OF PRIOR YEARS' (693,750) (1,291,582) (1,985,332)
ALLOCATED PATRONAGE
NET INCOME FOR YEAR ENDED AUGUST 31, 1994 820,000 2,219,950 1,471,566 4,511,516
ACCRUED PAYMENT OF CURRENT YEAR'S
QUALIFIED ALLOCATED PATRONAGE (287,000) (287,000)
------------- ------------ ------------ ------------
BALANCE, AUGUST 31, 1994 $ 5,751,400 $ 20,611,593 $ (122,309) $ 44,152,524
COMMON STOCK:
Sales (4 shares) 1,000
Repurchases (3 shares) (750)
UNIT RETENTION CAPITAL:
Revolvement (728,254)
Proceeds 1,636,105
REVOLVEMENT OF PRIOR YEAR'S (1,617,000) (147,942) (1,764,942)
ALLOCATED PATRONAGE
ECONOMIC DEVELOPMENT GRANT 50,000 50,000
RECEIVED BY INVESTEE
NET INCOME FOR THE YEAR ENDED
AUGUST 31, 1995 800,000 693,359 (558,608) 934,751
ACCRUED PAYMENT OF CURRENT YEAR'S
QUALIFIED ALLOCATED PATRONAGE (288,000) (288,000)
------------- ------------ ------------ ------------
BALANCE, AUGUST 31, 1995 4,646,400 21,157,010 (630,917) 43,992,434
COMMON STOCK:
Sales (10 shares) 2,500
Repurchases (12 shares) (3,000)
Stock offering (137 shares) 12,105,500
Stock issue costs (104,393)
UNIT RETENTION CAPITAL:
Revolvement (548,871)
Proceeds 1,389,899
REVOLVEMENT OF PRIOR YEARS' (1,239,315) (720,266) (1,959,581)
ALLOCATED PATRONAGE
ECONOMIC DEVELOPMENT GRANT 67,830 67,830
RECEIVED BY INVESTEE
NET INCOME FOR THE YEAR ENDED AUGUST 31, 1996 482,000 1,138,262 929,738 2,550,000
ACCRUED PAYMENT OF CURRENT YEAR'S
QUALIFIED ALLOCATED PATRONAGE (168,700) (168,700)
------------- ------------ ------------ ------------
BALANCE, AUGUST 31, 1996 $ 3,720,385 $ 21,575,006 $ 366,651 $ 57,323,618
============= ============ ============ ============
See Notes to Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED AUGUST 31, 1996, 1995, AND 1994
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND
CONCENTRATIONS OF RISK
ORGANIZATION - Minn-Dak Farmers Cooperative (Minn-Dak) is a North Dakota
cooperative corporation owned by its member-growers for the purpose of
processing sugar beets and marketing sugar and by-products. Minn-Dak Yeast is a
North Dakota corporation engaged primarily in the production and marketing of
bakers yeast.
The majority of the net proceeds from Minn-Dak is from member business, whereas
Minn-Dak Yeast is considered non-member business.
PRINCIPLES OF CONSOLIDATION - The financial statements include the accounts of
Minn-Dak and its subsidiary, Minn-Dak Yeast Company, Inc. (Minn-Dak Yeast) which
is 80% owned by the cooperative.
INVENTORIES - Inventories of refined sugar, pulp and molasses to be sold on a
pooled basis are valued at net realizable value, while third-party purchased
refined sugar to be sold on a pooled basis is valued at the lower of cost or
market. Inventories of dietary pulp fiber, yeast, and materials and supplies are
valued at the lower of average cost or market.
In valuing inventories at net realizable value, the cooperative, in effect sells
the remaining inventory to the subsequent years sugar and by-product pool.
DEFERRED CHARGES - Agricultural development and labor procurement costs incurred
in connection with the beet crop to be harvested in September and October are
deferred and subsequently charged to expense during the ensuing processing
period.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION - Property, plant and equipment are
stated at cost. Additions, renewals and betterments are capitalized, whereas
expenditures for maintenance and repairs are charged to expense. The cost and
related accumulated depreciation of assets retired or sold are removed from the
appropriate asset and depreciation accounts and the resulting gain or loss is
reflected in income.
It is the policy of the cooperative to provide depreciation based on methods
designed to amortize the cost of the properties over their estimated useful
lives. Property, plant and equipment are depreciated for financial reporting
purposes, principally using declining balance methods, with estimated useful
lives ranging from 8 to 40 years. Statutory lives and methods are used for
income tax reporting purposes.
Indirect costs capitalized were $435,686, $133,550 and $98,590 for the years
ended August 31, 1996, 1995, and 1994. Construction-period-interest capitalized
for the years ended August 31, 1996, and 1995, were $669,347 and $8,217
respectively. There was no construction-period-interest capitalized for the year
ended August 31, 1994.
EQUITY VALUE INVESTMENTS - The investments in United Sugars Corporation, Midwest
Agri-Commodities Company and ProGold Limited Liability Company are accounted for
using the equity method, wherein the investment is recorded at the amount of the
underlying equity in the net assets of the investments and adjusted to recognize
the cooperative's share of the undistributed earnings or losses.
INVESTMENTS IN OTHER COOPERATIVES - The investments in stocks and capital
credits of other cooperatives are stated at cost, plus the cooperative's share
of allocated patronage and capital credits.
INCOME TAXES - As discussed more fully in Note 6 to the financial statements,
the company adopted SFAS No. 109, ACCOUNTING FOR INCOME TAXES, for the year
ended August 31, 1994.
A consolidated federal income tax return is filed for the cooperative and its
subsidiary. Deferred income taxes are provided for in the timing of certain
temporary deductions/increases for financial and income tax reporting purposes.
Significant temporary differences are as follows:
1. When nonqualified unit retention capital and allocated
patronage are elected by the board of directors, the cooperative is not
allowed an income tax deduction until they are distributed in cash to
the member-producers, whereas qualified unit retention capital and
allocated patronage are deducted when declared.
2. Depreciation - For financial reporting purposes, the
companies use straight-line and accelerated methods of depreciation
with lives of 8 to 40 years, while, for income tax purposes, the
companies use required statutory depreciable lives and methods.
3. Non-qualified patronage credits from investments in other
cooperatives - For financial statement purposes, the companies
recognize income when the patronage credit notification is received
while, for income tax purposes, the companies recognize income when the
patronage is received in cash.
4. Inventory capitalization - For income tax reporting
purposes, certain overhead costs are included as a part of inventory
costs in accordance with inventory capitalization rules. These costs
are charged to expense as incurred for financial reporting purposes.
5. Deferred compensation - For financial reporting purposes,
deferred compensation is charged to expense as amounts are accrued. For
income tax purposes, deferred compensation is deductible when paid.
6. Recognition of vacation pay - For financial reporting
purposes, vacation pay is charged to expense as accrued, whereas, for
income tax purposes, vacation pay is deducted when paid.
ACCOUNTING ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
UNINSURED CASH BALANCE - The company maintains cash balances at various
financial institutions throughout the United States. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. At times during the year, the company's balances exceeded this limit.
CREDIT RISK - The cooperative and subsidiary grant credit to food processors
located throughout the United States. In addition, the cooperative grants credit
to members for sugarbeet seed, located in North Dakota and Minnesota.
NOTE 2 - NATURE OF OPERATIONS
NATURE OF OPERATIONS - Minn-Dak is a North Dakota cooperative corporation owned
by its member-growers for the purpose of processing sugar beets and marketing
sugar and by-products. Minn-Dak Yeast is a North Dakota corporation engaged
primarily in the production and marketing of bakers yeast.
<TABLE>
<CAPTION>
NOTE 3 - SHORT-TERM DEBT
Information regarding short-term debt at August 31, 1996, 1995, and 1994, is as
follows:
1996 1995 1994
<S> <C> <C> <C>
Seasonal loan with St. Paul Bank for Cooperatives, due
December 31, 1996, interest variable, currently at 8.00% $ - $ 13,877,000 $ 1,262,000
========== ============ ===========
</TABLE>
The cooperative has a $35,000,000 seasonal line of credit with the St. Paul Bank
for Cooperatives, of which there were advances against it of $13,877,000 and
$1,262,000, at August 31, 1995, and 1994, respectively. The seasonal line of
credit is secured with a first lien on substantially all property and equipment
and current assets of Minn-Dak.
Maximum borrowings, average borrowing levels and average interest rates for
short-term debt for the years ended August 31, 1996, 1995, and 1994, are as
follows:
August 31
-----------------------------------------
1996 1995 1994
-----------------------------------------
Maximum borrowings $ 59,566,800 $ 30,769,850 $25,000,000
============ ============ ===========
Average borrowing levels $ 50,578,800 $ 21,798,100 $ 5,142,700
============ ============ ===========
Average interest rates 6.0% 7.0% 4.0%
=== === ===
<TABLE>
<CAPTION>
NOTE 4 - LONG-TERM DEBT
Information regarding long-term debt at August 31, 1996, 1995, and 1994, is as
follows:
August 31
------------------------------------
1996 1995 1994
------------------------------------
<S> <C> <C> <C>
Term loan with the St. Paul Bank for Cooperatives, due in varying
principal repayments through September 30, 2008, interest variable,
currently at 6.27% to 8.34%, with a first lien on substantially all
property and equipment and current assets of Minn-Dak $ 51,250,000 $ 28,150,000 $ 16,950,000
1996 1995 1994
---- ---- ----
Term loan with Norwest Bank of North Dakota, N.A., due
August 31, 1997, interest free, secured by equipment 33,415 47,530
------ ------
Term loan with R.S.R. Electric Cooperative, Inc., due
October 12, 2002, interest free, unsecured 72,917 85,416 97,916
--- ----- ------ ------ ------
51,322,917 28,268,831 17,095,446
Less current maturities (2,512,500) (2,428,523) 2,327,518)
----------- ----------- -----------
$ 48,810,417 $ 25,840,308 $ 14,767,928
========== ========== ==========
</TABLE>
As to the loan with the St. Paul Bank for Cooperatives, the cooperative has
agreed to the following significant loan conditions:
1. Invest in Class C or other stock of the bank, as may be
designated, in such amounts as may be prescribed by the board of
directors of the bank.
2. Maintain working capital of not less than $6 million, a
current ratio of not less than 1.2:1.0, and a long-term debt to equity
ratio of not less than 1:1.
3. Obtain prior consent from the bank to pay cash patronage
dividends in excess of 35% of qualified patronage income as required by
the Internal Revenue Service to qualify the entire patronage dividend
as an income tax deduction.
Minn-Dak has complied with the terms of its loan agreement for the years ended
August 31, 1996, 1995, and 1994.
In addition, Minn-Dak can make special advance payments on its term loans with
the St. Paul Bank for Cooperatives after its seasonal loans have been paid in
full, with the understanding that the special advance payments will be
readvanced subject to the reinstatement provisions, prior to the granting of any
new seasonal loans. Any such advance payments are subject to a commitment fee of
.25% of the daily unadvanced commitment.
Interest expense, net of amount capitalized, totaled $2,898,338, $2,972,574 and
$1,556,979 for 1996, 1995, and 1994, respectively. Interest capitalized totaled
$669,347 and $8,217 for 1996 and 1995 respectively. No interest was capitalized
in 1994.
Principal amounts due on all the cooperative's long-term debt are as follows:
YEARS ENDING AUGUST 31:
1997 $ 2,512,500
1998 2,512,500
1999 4,637,500
2000 4,637,500
2001 4,637,500
Thereafter 32,385,417
----------
$ 51,322,917
==========
NOTE 5 - OBLIGATIONS UNDER CAPITAL LEASES
During the current year, the cooperative entered into a capital lease with
Richland County, North Dakota for equipment relating to solid waste disposal.
The county has financed the leased assets with a bond issue and accordingly have
structured the cooperative's lease payments to correspond with the bond issue's
interest and principal requirements. Details relative to the cooperatives
obligations under the lease agreement are as follows:
1996
FINAL CURRENT
PAYEE INTEREST MATURITY PORTION TOTAL
----- -------- -------- ------- -----
Richland County, North Dakota 4.85% 1/11 $ 582 ,000 $ 17,509,844
Less deferred finance charges 582,000 5,509,844
---------- ------------
$ - $ 12,000,000
========== ============
Minimum future principal payments required on the obligations under capital
leases are as follows:
YEARS ENDING AUGUST 31:
2000 $ 730,000
2001 775,000
Thereafter 10,495,000
------------
$ 12,000,000
============
Currently, the assets subject to the lease agreement are being constructed and
accordingly are recorded as construction in progress and investments restricted
for capital projects.
NOTE 6 - MEMBERS' INVESTMENT AND GROWER PAYMENTS
The ownership of nondividend bearing common stock is restricted to a
"member-producer," as defined in the bylaws of Minn-Dak. Each member-producer
shall own only one share of common stock and is entitled to one vote at any
meeting of the members. Each member-producer is required to purchase one share
of each of the three preferred stocks for each base acre of sugar beet crops
grown under a grower's contract with Minn-Dak. The preferred shares are
nonvoting and nondividend bearing. All transfers and sales of stock must be
approved by the board of directors.
Minn-Dak's net income, determined in accordance with generally accepted
accounting principles consistently applied, shall be distributed annually on the
basis of dollar volume of patronage, in cash or in the form of credits to each
member-producer's patronage credit account as established on the books of the
cooperative. In the event of a loss in any one year, the cooperative shall act
in such a manner as to first recoup the loss from those patrons who were patrons
in the year in which the loss occurred.
Under the terms of Minn-Dak's beet growing contracts with each of its
member-producers, Minn-Dak is obligated to pay the member-producers for beets
delivered at a price per pound of extractable sugar. However, if, in the opinion
of the St. Paul Bank for Cooperatives, the working capital position of the
cooperative is insufficient, Minn-Dak shall retain from the price to be paid per
ton for beets such amounts as are deemed by the bank to be necessary for
operations, the deductions to be made at such time as the bank shall require.
The amount so retained shall be evidenced in the records of Minn-Dak by equity
credits in favor of the growers. The board of directors has the power to
determine whether such retains shall be "qualified" or "nonqualified" for income
tax purposes.
For the year ended August 31, 1996, Minn-Dak had retained $660,435 and $729,464,
respectively for sugar silo and frozen beet storage. This is based on $.50 per
ton of beets delivered for sugar silo storage, and the lesser of the maximum
obligation required or $.50 per ton of beets delivered for frozen beet storage.
For the years ended August 31, 1995, and 1994, Minn-Dak had retained $1,636,105
and $834,555, respectively, for sugar silo and frozen beet storage on the basis
of $1.00 per ton of beets delivered.
During the year ended August 31, 1994, Minn-Dak revolved the remaining 62.5% of
the unit retains and allocated patronage for the fiscal year ended August 31,
1988, totaling $2,709,679.
During the year ended August 31, 1995, Minn-Dak revolved 70% of the unit retains
and allocated patronage for the fiscal year ended August 31, 1989, totaling
$2,493,196.
During the year ended August 31, 1996, Minn-Dak revolved the remaining 30% of
the unit retains and allocated patronage for the fiscal year ended August 31,
1989, and 35% for 1990, totaling $2,508,452.
NOTE 7 - INCOME TAXES
Minn-Dak Farmers Cooperative is a nonexempt cooperative as described under
Section 1381(a)(2) of the Internal Revenue Code of 1986. Accordingly, net
margins from business done with member patrons, which are allocated and paid as
prescribed in Section 1382 of the Code, will be taxable to the members and not
to the cooperative. To the extent that net margins are not allocated and paid as
stated above or arise from business done with non-members, the cooperative shall
have taxable income subject to corporate income tax rates.
Deferred income taxes arise from certain timing differences for financial and
income tax reporting purposes. As discussed in Note 1, the cooperative adopted
Statement of Financial Accounting Standards Statement #109 (SFAS 109),
Accounting for Income Taxes, as of September 1, 1993. The accounting of SFAS 109
changed the company's method of accounting for income taxes from the deferred
method to the asset and liability method. SFAS 109 requires recognition of
deferred tax liabilities and assets for the expected future tax consequences of
events that have been recognized in the financial statements or tax returns.
Under this method, deferred tax liabilities and assets are determined based on
the difference between the financial statement carrying amounts and the tax
bases of assets and liabilities using enacted rates in effect in the year in
which the differences are expected to reverse.
As a result of the change noted above, the cooperative recognized a benefit from
income taxes totaling $1,350,000, representing the cumulative effect of the
change on results for years prior to September 1, 1993. The cumulative effect
represented the adjustment of previously recorded deferred tax assets and
liabilities to reflect the currently higher prevailing tax rates. The adoption
has no effect on income before income taxes for the year ended August 31, 1994.
<TABLE>
<CAPTION>
The significant components of deferred tax assets and liabilities included on
the balance sheet at August 31, 1996, 1995, and 1994, are as follows:
1996 1995 1994
----------------------------------------
<S> <C> <C> <C>
Deferred tax assets:
Non-qualified unit retains and allocated
patronage due to members $ 10,600,000 $ 10,300,000 $ 9,950,000
Other 1,300,000 880,000 950,000
------------ ------------ ------------
Gross deferred tax assets 11,900,000 11,180,000 10,900,000
Less valuation allowance (1,200,000) (1,440,000) (930,000)
------------ ------------ ------------
Total deferred tax assets 10,700,000 9,740,000 9,970,000
------------ ------------ ------------
Deferred tax liabilities:
Depreciation 6,200,000 5,320,000 5,020,000
Non-qualified patronage credits from
investment in cooperatives 750,000 665,000 645,000
Other 5,000 5,000
------------ ------------ ------------
Total deferred tax liabilities 6,950,000 5,990,000 5,670,000
------------ ------------ ------------
$ 3,750,000 $ 3,750,000 $ 4,300,000
============ ============ ============
Classified as follows:
Current asset $ 300,000 $ 300,000 $ 350,000
Long-term asset 3,450,000 3,450,000 3,950,000
------------ ------------ ------------
Net deferred tax asset $ 3,750,000 $ 3,750,000 $ 4,300,000
============ ============ ============
</TABLE>
The cooperative has had non-member income tax losses. These losses have been
used to offset member income. Accordingly, there is no provision for (benefit
from) income taxes recorded for the years ended August 31, 1996, 1995, and 1994.
NOTE 8 - EMPLOYEES' PENSION PLAN
The cooperative has a non-contributory defined benefit plan which covers
substantially all employees who meet certain requirements of age, length of
service and hours worked per year. The benefits provided are based upon the
employee's average monthly compensation during the previous three highest
consecutive years multiplied by a formula and the participant's service ratio.
It is the cooperative's funding policy to contribute to the plan at least the
minimum amount required by ERISA as determined by the actuarial firm.
The 1995 and 1994 assumed discount rate was 8%. The expected long-term rate of
return on plan assets was estimated to be 8% per year and future salary
increases were estimated to be 5.5% per year.
The assets of the cooperative plan are maintained via insurance contracts with
Lincoln National Life Insurance Company of Fort Wayne, Indiana, and mutual funds
with Strong Funds of Milwaukee, Wisconsin.
The following table sets forth the plan's funded status at August 31, 1996,
1995, and 1994:
<TABLE>
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $(4,130,135) $(3,472,526) $(2,834,250)
=========== =========== ===========
Accumulated benefit obligation $(4,314,938) $(3,556,608) $(2,956,290)
=========== =========== ===========
Projected benefit obligation $(7,096,231) $(5,531,507) $(5,114,924)
Plan assets at fair value 5,514,202 4,589,336 4,558,292
----------- ----------- -----------
Projected benefit obligation in excess of plan assets (1,582,029) (942,171) (556,632)
Unrecognized net (gain)/loss 523,555 (87,710) (38,468)
Unrecognized prior service cost 574,562 629,435 684,308
Unrecognized net asset at adoption date
September 1, 1987) (136,279) (154,509) (172,739)
Settlement expense (263,756)
----------- ----------- -----------
Pension liability (620,191) (554,955) (347,287)
Less current portion 144,213 158,407
----------- ----------- -----------
Long-term pension liability $ (475,978) $ (396,548) $ (347,287)
=========== =========== ===========
The net periodic pension cost for the years ended
August 31, 1996, 1995, and
1994, includes the following components:
Service cost-benefits earned during the period $ 313,069 $ 321,773 $ 279,952
Interest cost on projected benefit obligation 442,520 377,445 376,593
Actual return on plan assets (753,673) 103,874 (201,147)
Net amortization and deferral 421,406 (314,313) (60,318)
----------- ----------- -----------
Net periodic pension cost before settlement expense 423,322 488,779 395,080
Settlement expense 263,756
----------- ----------- -----------
Net periodic pension cost $ 423,322 $ 488,779 $ 658,836
=========== =========== ===========
</TABLE>
On September 1, 1993, the cooperative's benefit plan included the employees from
Minn-Dak Yeast, Midwest Agri-Commodities (Midwest) and North Central Sugar
Marketing Cooperative (North Central). During 1994, North Central merged with
United Sugars Corporation (United Sugars) resulting in a settlement expense
related to the transfer of assets associated with North Central employees. The
settlement loss represents the difference between the assets transferred as of
August 31, 1994 in excess of the unrecognized net gain.
The cooperative has also entered into an agreement with United Sugars to recover
the settlement expense. The conditions of the agreement stipulate in the event
that United Sugars continues to be a participating employer in their current
plan from August 31, 1994, through September 1, 1996, United Sugars will make a
cash payment to the cooperative of $267,055 plus accrued interest at 6.43%. The
payment from United Sugars is due on or before September 15, 1996.
NOTE 9 - ENVIRONMENTAL MATTERS
Minn-Dak is subject to extensive federal and state environmental laws and
regulations with respect to water and air quality, solid waste disposal and odor
and noise control. Minn-Dak conducts an ongoing and expanding control program
designed to meet these environmental laws and regulations. While Minn-Dak will
continue to have ongoing environmental compliance issues, currently there are no
pending regulatory enforcement actions and Minn-Dak believes that it is in
substantial compliance with applicable environmental laws and regulations.
Minn-Dak cannot predict whether future changes in environmental laws or
regulations might increase the cost of operating its facilities and conducting
its business. Any such changes could have adverse financial consequences for
Minn-Dak and its members.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Minn-Dak is expanding its plant facilities as part of a three-year plan, and has
contracted for approximately $50,000,000. As of August 31, 1996, Minn-Dak has
incurred approximately $40,000,000 and was committed to an additional
$10,000,000.
Minn-Dak is subject to various lawsuits and claims which arise in the ordinary
course of its business. While the results of such litigation and claims cannot
be predicted with certainty, management believes the disposition of all such
proceedings, individually or in aggregate, should not have a material adverse
effect on the company's financial position, results of operations or cash flows.
Minn-Dak participates in a multi-employer, self-funded employee medical
insurance plan with Minn-Dak Yeast Company and Midwest Agri-Commodities Company.
The terms of the plan call for the reimbursements to the plan administrator for
all claims paid, up to a maximum amount of $30,000 per employee per year and an
aggregate maximum of $1,400,000 per year.
NOTE 11 - INVESTMENT IN MARKETING COOPERATIVES
Minn-Dak has formed common marketing agency agreements with United Sugars
Corporation (United Sugars) and Midwest Agri-Commodities (Midwest) to be the
exclusive marketing agents for all products produced by them and other member
processors. Prior to January 1, 1994, Minn-Dak marketed its sugar through a
marketing agreement with North Central Sugar Marketing Cooperative (North
Central).
Minn-Dak has a one-third ownership interest in Midwest. The amount of the
investment is accounted for using the equity method. All beet pulp and a portion
of the molasses produced is sold by Midwest as an agent for Minn-Dak. The amount
of sales and related costs to be recognized by each owner is allocated based on
their pro-rata share of production for the year. The owners provide Midwest with
cash advances on an ongoing basis for operating and marketing expenses incurred
by Midwest. Minn-Dak advanced Midwest $2,157,891, $1,777,508 and $1,701,236
respectively, during the years ended August 31, 1996, 1995, and 1994. Minn-Dak
had outstanding advances due from Midwest of $780,442, $731,196 and $1,073,308
as of August 31, 1996, 1995, and 1994, respectively. The owners are guarantors
of the short-term line of credit Midwest has with the St. Paul Bank for
Cooperatives (bank).
On January 1, 1994, Minn-Dak entered into an agreement whereby their investment
in North Central was merged into United Sugars. Minn-Dak had a 50% ownership
interest in North Central and acquired a 13% ownership interest in United Sugars
with one-third voting rights. The amount of the investment is accounted for
using the equity method and the amount of sales and related costs to be
recognized by each owner is allocated based on their pro-rata share of
production for the year. Minn-Dak provided North Central and United Sugars with
cash advances on an ongoing basis for operating and marketing expenses incurred.
During the years ended August 31, 1996, 1995, and 1994, Minn-Dak had advanced
$14,948,115, $16,334,843 and $7,945,850, respectively. Minn-Dak had outstanding
advances due to United for $1,202,466, $1,064,005 and $653,291 for the years
ended August 31, 1996, 1995, and 1994, respectively.
NOTE 12 - OPERATING LEASES
The cooperative is a party to various operating leases for vehicles and
equipment. Future minimum payments for the years ending August 31 under these
obligations are approximately as follows:
1997 $ 712,000
1998 618,000
1999 458,000
2000 349,000
2001 96,000
Thereafter 80,000
Operating lease and contract expenses for the years ended August 31, 1996, 1995,
and 1994, totaled approximately $713,000, $710,000 and $1,012,000, respectively.
NOTE 13 - STOCK TRANSFER RESTRICTION
The cooperative has entered into an agreement with Minn-Dak Yeast's minority
shareholder, whereby neither party shall sell, option or transfer its interest
in Minn-Dak Yeast to any person, firm or corporation (third party) without first
offering, in writing, the other party the right to acquire such interest on the
same terms. If the offer is not accepted by the offeree within 30 days, the
offeror may sell, option or transfer its interest to the third party within 120
days after expiration of the 30-day period.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is generally defined as the amount at
which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced liquidation sale. Quoted market prices are
generally not available for the company's financial instruments. Accordingly,
fair values are based on judgments regarding anticipated cash flows, future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. Changes in the assumptions
could significantly affect the estimates.
The following methods and assumptions were used by the company to estimate fair
value of the financial instruments, and the estimated fair values of the
company's financial instruments as of August 31, 1996, 1995 and 1994 are as
follows:
INVESTMENTS - The investment in St. Paul Bank for Cooperatives, R.S.R. Electric
Cooperative, Inc. and all other cooperatives are stated at cost, plus the
cooperative's share of allocated patronage and capital credits. The investment
in United Sugars Corporation, Midwest Agri-Commodities and ProGold Limited
Liability Company are accounted for using the equity method, wherein the
investment is recorded at the amount of the underlying equity in the net assets
of the investments and adjusted to recognize the cooperative's share of the
undistributed earnings or losses. Minn-Dak Farmers Cooperative believes it is
not practicable to estimate the fair value without incurring excessive costs
because there is no established market for this stock and it is inappropriate to
estimate future cash flows which are largely dependent on future patronage
earnings of the investment.
LONG-TERM DEBT - The fair value of obligations under long-term debt are
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered for debt of similar maturities.
OBLIGATIONS UNDER CAPITAL LEASES - The fair value of obligations under capital
leases, was based on present value models using current financing rates
available to the cooperative. At August 31, 1996, the carrying value of
obligations under capital leases was $12,000,000 and the estimated fair value
was $9,800,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
<TABLE>
<CAPTION>
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
The table below lists the current directors of the Comapny. The Board
of Directors consists of one director from each district. Directors must be
common shareholders or representatives of common shareholders belonging to the
district they represent and are elected by the members of that district. In the
case of a common shareholder who is other than a natural person, a duly
appointed or elected representative of such common shareholder may serve as a
director. The directors have been elected to serve three-year terms expiring in
December of the years indicated in the table below. One director is elected each
year from three selected districts. Brief biographies for each of the directors
and directors-elected are included after the table.
Term Expires
Name and Address Age District Director Since in December
- ---------------- --- -------- -------------- -----------
<S> <C> <C> <C> <C>
Robert Breuer 64 District #2 - Factory 1984 1998
302 Mooreton Avenue North West
Mooreton, ND 58061
Lawrence Deal 59 District #8 - Lyngaas 1982 1997
RR #1, Box 173
Doran, MN 56522
Michael Hasbargen 51 District #4 - Factory 1993 1996(1)
RR #2, Box 71 East
Breckenridge, MN 56520
John Hought 55 District #6 - Yaggie 1985 1997
RR #2, Box 9
Foxhome, MN 56543
Victor Krabbenhoft 47 District #9 - Peet 1989 1998
RR #2, Box 45
Glyndon, MN 56547
Jack Lacey 55 District #5 - Hawes 1993 1996(2)
RR #1, Box 66
Wendell, MN 56590
Jerry Meyer 58 District #1 - Tyler 1994 1997
1433 15th Street North
Wahpeton, ND 58075
Edward Moen 70 District #3 - Gorder 1989 1998
17060 County Road 8
Colfax, ND 58018
Paul Summer 54 District #7 - Lehman 1993 1996(3)
RR #2, Box 84
Herman, MN 56248
- ------------
</TABLE>
1) Mr. Hasbargen's term as a director of the Company from District #4-Factory
East expires on December 10, 1996.
2) Mr. Lacey's term as a director of the Company from District #5-Hawes
expires on December 10, 1996.
3) Mr. Summer's term as director of the Company from District #7-Lehman
expires on December 10, 1996.
ROBERT BREUER has been a director since 1984 and is a former chairman.
Mr. Breuer has been farming since 1958 near Mooreton, ND. He serves on the board
of directors for United Sugars, Minn-Dak Yeast Company, and the Mooreton City
Council, Mooreton, ND.
LAWRENCE DEAL has been a director since 1982 and is a former chairman
and secretary. Mr. Deal has been farming near Doran, MN, since 1959. He is
president of the American Sugarbeet Growers Association, Washington, DC.
MICHAEL HASBARGEN has been a director since 1992 and is currently
serving as board vice chairman. Mr. Hasbargen has been farming near
Breckenridge, MN since graduating from NDSU in Ag Economics in 1967. Mr.
Hasbargen also service on the board of directors of United Sugars Corporation
and Midwest Agri-Commodities Company.
JOHN HOUGHT has been a director since 1985. Mr. Hought has been farming
near Foxhome, MN since 1959. He also serves on the board of directors for
Minn-Dak Yeast Company.
VICTOR KRABBENHOFT has been a director since 1989, currently serves as
board chairman, and is a former vice chairman. Mr. Krabbenhoft has been farming
near Glyndon, MN since 1971. He also serves on the board of directors for
Midwest Agri-Commodities Company, United Sugars Corporation, and Minn-Dak Yeast
Company.
JACK LACEY has been a director since 1993. Mr. Lacey has been farming
with his wife, Sharon, near Wendell, MN since 1963. He is also on the board of
directors for Midwest Agri-Commodities Company and the American Sugarbeet
Growers Association in Washington, DC.
JERRY MEYER has been a director since 1994. Mr. Meyer has been farming
near Fairmount, ND since 1958. He also services on the board of directors for
Minn-Dak Yeast Company.
ED MOEN has been a director since 1989 and is currently serving as
board treasurer. Mr. Moen has been farming near Galchutt, ND since 1945. He also
serves on the board of directors for Midwest Agri-Commodities Company.
PAUL SUMMER has been a director since 1993 and is currently serving as
board secretary. Mr. Summer has been farming near Herman, MN since 1963. He also
serves on the board for United Sugars Corporation.
The Board of Directors meet monthly. The Company provides its directors
with minimal compensation, consisting of (i) a payment of $225.00 per meeting
for regular and special board meetings, (ii) the greater (a) $112.50 for any day
in which directors partake in activities on the Company's behalf for under five
hours or (b) $225.00 for any day in which directors partake in activities on the
Company's behalf for five hours or more. The Chairman of the Board of Directors
also receives a flat $200.00 per month.
EXECUTIVE OFFICERS
The table below lists the principal officers of the Company, none of
whom owns any common or preferred shares. The president and chief executive
officer, executive vice president and chief financial officer, vice president
agriculture, vice president engineering, and vice president operations are
elected annually by the Board of Directors to serve on the board. Brief
biographies for each of the officers are included after the table.
Name Age Position
Larry D. Steward 58 President and Chief Executive Officer
Steven M. Caspers 46 Executive Vice President and Chief
Financial Officer
Thomas D. Knudsen 42 Vice President, Agriculture
John E. Groneman 60 Vice President, Engineering
Richard K. Richter 56 Vice President, Operations
Jerald W. Pierson 57 Personnel Director
Jeffrey L. Carlson 41 Director of Technical Services
John S. Nyquist 41 Purchasing Manager
Patricia J. Estes 56 Director of Communications
Kevin R. Shannon 42 Safety and Special Projects Director
LARRY D. STEWARD joined the Company in December, 1990 as president and
chief executive officer. Mr. Steward serves on the boards of United Sugars
Corporation, and Midwest Agri-Commodities. He is chairman of the board of
Minn-Dak Yeast Company, Inc. Mr. Steward is a trustee of United States Beet
Sugar Association, a director on the board of the National Council of Farmer
Cooperatives based in Washington, DC and a board member on the North Dakota
Development Fund based in Bismarck, ND . Prior to joining the Company, Mr.
Steward was midwest sales manager for Harborlite Corporation. From 1963 to 1988
Mr. Steward was employed by Great Western Sugar Company, Denver, Colorado and
from 1984 to 1988 he served as its vice president. Mr. Steward holds a degree in
chemistry and math from the University of Nebraska, Kearney, Nebraska.
STEVEN M. CASPERS is a graduate of the University of North Dakota with
a bachelor of science in business administration and a major in accounting. He
has been employed at the Company since May 5, 1974 and is active in numerous
local civic and fraternal organizations, and national, industry related boards
and committees. He is president of Minn-Dak Yeast Company and services on the
boards of directors of Midwest Agri-Commodities, United Sugars Corporation and
ProGold, LLC.
JOHN E. GRONEMAN is a graduate of Colorado State University with a
bachelor of science in engineering. He began his experience in the sugar
industry in 1960, this includes five years as a factory manager. Mr. Groneman
began employment with the Company on March 1, 1974.
THOMAS D. KNUDSEN is a graduate of North Dakota State University with a
bachelor of science in horticulture and has attended the Beet Sugar Institute at
Fort Collins, Colorado. He began employment with the Company on May 24, 1977.
RICHARD R. RICHTER has completed both the beet and sugar end coursework
of the Beet Sugar Institute of Fort Collins, Colorado. He began his sugar
industry experience in 1958 with employment at the Company beginning in August
of 1976.
JERALD W. PIERSON is a graduate of Black Hills State University with 28
years human resources experience. He is active in numerous local civic and
fraternal organizations including the Greater North Dakota Association, North
Dakota Workers Compensation, and the North Dakota Job Service Employer
Committee. He began his employment with the Company on March 15, 1982.
JEFFREY L. CARLSON is a graduate of the University of Minnesota-Morris
with a bachelor of arts in chemistry and the University of North Dakota with a
Ph.D in physical chemistry. He began his career as a research chemist and an
assistant professor in 1986. Mr. Carlson began his employment with the Company
on June 4, 1990.
JOHN S. NYQUIST attended the North Dakota State College of Science,
majoring in accounting and computer programs. Mr. Nyquist began his purchasing
and inventory control experience in 1975 in the Company storeroom. Mr. Nyquist
is active in local civic and fraternal organizations and the National
Association of Purchasing Managers. Mr. Nyquist began employment with the
Company on September 15, 1975.
PATRICIA J. ESTES is a graduate of Moorhead State University with a
bachelor of science in mass communications and master of arts in liberal arts.
Ms. Estes is active in local civic organizations and began her
publication-communications experience in 1973. Ms. Estes began full-time
employment with the Company on December 26, 1989.
KEVIN R. SHANNON attended Taylor Institute and Vanguard Vo-Tech,
majoring in instrumentation. He is active in local civic organizations. Mr.
Shannon began his technical and supervisory career in 1974. His employment with
the Company began on June 1, 1983. Prior to becoming the safety and special
projects director in September of 1992, Mr. Shannon was the Company's tare lab
supervisor.
ITEM 11. EXECUTIVE COMPENSATION
Management employees are eligible for performance bonuses which are
partially based upon on the performance of the Company and partially on
achievement of certain management performance objectives. Those performance
objectives are determined by the President and CEO for officers and significant
other management employees of the Company, and by the Board of Directors for the
President and CEO. Management employees are also eligible to participate in the
Company's defined benefit retirement plan as well as its 401(k) retirement
savings plan, each of which are described below.
The Company has established a noncontributory, defined benefit
retirement plan which is available to all eligible employees of the Company. The
benefits of the plan are funded by periodic contributions by the Company to a
retirement trust which invests the contributions and earnings from such
contributions to pay benefits to employees. The plan provides for the payment of
a monthly retirement benefit determined under a formula based on years of
service and each employee's compensation level. See "Executive
Compensation--Qualified Benefits Table." Benefits are paid to the employees upon
reaching early (age 55 or older) or normal (age 65) retirement age. The plan
also provides for the payment of certain disability and death benefits.
The Company maintains a Section 401(k) retirement savings plan that
permits employees to elect to set aside, on a pre-tax basis, a portion of their
gross compensation in trust to pay future retirement benefits. Effective on
April 1, 1995, the Company began providing a matching contribution of 25% of
each employee's first 4% of compensation that is set aside under the plan. The
match increases over time until it reaches 75% of the first 4% in the year 1999.
The amounts set aside by each employee and the Company vest immediately and are
paid to each employee upon the happening of certain events, all as more fully
described in the master plan document. During 1996, Federal law limited employee
pre-tax income contributions to $9,240 for each participating employee. Benefits
under the 401(k) plan begin to be paid to the employee: (i) upon the attainment
of normal retirement age (65), or if the employee chooses, any time after
attaining early retirement date (age 55); (ii) the date the employee terminates
employment with the Company; or (iii) a pre-retirement distribution equal to the
value of the employees 401(k) account, provided the employee has attained age 59
1/2 and provided a written consent of the spouse (if married).
The following table summarizes the amount of compensation paid for
services rendered to the Company during the fiscal year ended August 31, 1996
and the two prior fiscal years to the Company's Chief Executive Officer and
Executive Vice President & CFO:
Name and Other Annual Total
Principal Position Year Salary Bonus Compensation Compensation
- ------------------ ---- ------ ----- ------------ ------------
(1)
---
Larry Steward 1996 $178,017 $ 48,900 $ 15,111 $242,028
President & CEO 1995 $169,802 $ 30,000 $ 37,741 $237,543
1994 $155,393 $ 27,500 $ 14,454 $197,347
Steven Caspers 1996 $111,365 $ 24,000 $ 19,562 $154,927
EVP & CFO 1995 $104,406 $ 22,000 $ 22,570 $148,976
1994 $ 94,104 $-0- $ 6,374 $100,478
- -----------------------------
1) In addition to the salary and bonus described above, Mr. Steward and
Mr. Caspers are provided with "Other Annual Compensation," which
includes the value of the excess life insurance cost, individual LTD
plan, Company match of the 401(k) plan and sold vacation. In fiscal
1996, the company adopted a new policy where Supervisory, Professional
and Management employees are required on or before their anniversary
date in 1997, to attain and maintain their vacation and floating
holiday hour combined balance at two hundred and forty (240) hours or
less. While not encouraged, the cash optioning of vacation and floating
holiday accrued hours is allowable. Employees with account balances in
excess of 240 hours may elect to cash option up to fifty percent (50%)
of the number of hours exceeding 240. Employees at or below the 240
hour limit may elect to cash option fifty percent (50%) of their
combined vacation and floating holiday annually accrued hours.
The Company has entered into an employment agreement with Mr. Steward
which establishes his salary and benefits as an employee of the Company. The
agreement may terminate on sixty days written notice by either party for any
reason. Mr. Steward has been employed by the Company for six years and,
therefore, would be affected by the table limits on the qualified benefits table
below.
In 1992, the Company undertook a compensation review study to determine
that its employees' compensation was commensurate with responsibilities of the
various Company positions, and that the compensation was equitable between jobs
within the Company and externally competitive with other comparable jobs and
responsibilities within the Company's geographic region. The compensation review
study was performed by a national compensation consultant called Hay Management
Consultants. This study was made of all management employees, including Mr.
Steward, and non-union employees. As of August 31, 1996 all employees' wages had
been adjusted to levels consistent with the Hay Management Consultants findings
and recommendations.
QUALIFIED BENEFITS TABLE
The following table reflects the estimated annual benefits payable to a
fully-vested executive officer of the Cooperative under the defined benefit
retirement plan upon retirement at age 65, after 15, 20, 25, 30, and 35 years of
annual service at the compensation levels set forth hereon:
Years of Service
------------------------------------------------------------
Pension 15 20 25 30 35
Compensation -- -- -- -- --
------------
$125,000 $ 28,065 $ 37,420 $ 46,775 $ 56,130 $ 65,485
$150,000 $ 34,065 $ 45,420 $ 56,775 $ 68,130 $ 79,485
$175,000 $ 34,065 $ 45,420 $ 56,775 $ 68,130 $ 79,485
$200,000 $ 34,065 $ 45,420 $ 56,775 $ 68,130 $ 79,485
$225,000 $ 34,065 $ 45,420 $ 56,775 $ 68,130 $ 79,485
$250,000 $ 34,065 $ 45,420 $ 56,775 $ 68,130 $ 79,485
$275,000 $ 34,065 $ 45,420 $ 56,775 $ 68,130 $ 79,485
$300,000 $ 34,065 $ 45,420 $ 56,775 $ 68,130 $ 79,485
$325,000 $ 34,065 $ 45,420 $ 56,775 $ 68,130 $ 79,485
$350,000 $ 34,065 $ 45,420 $ 56,775 $ 68,130 $ 79,485
$375,000 $ 34,065 $ 45,420 $ 56,775 $ 68,130 $ 79,485
The two executive officers named in the Summary Compensation Table have
years of service under the plan as follows: Mr. Steward has served for 6 years;
Mr. Caspers has served for 22 years.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information with respect to the
ownership of preferred shares as of November 21, 1996, by each director. Each
shareholder has direct ownership with respect to the share shown as beneficially
owned, except as otherwise indicated in a footnote. To the Company's knowledge,
as of November 21, 1996, no person owned beneficially more than 5% of the
Company's outstanding preferred shares and none of the prinicipal officers
listed below owned any such shares.
Name Position with Company Number of Shares Percent of Shares
---- --------------------- ---------------- -----------------
Robert Breuer Director 160 less than 1%
Lawrence Deal Director 156 less than 1%
Michael Hasbargen Director 346 less than 1%
John Hought Director 260 less than 1%
Victor Krabbenhoft Director 200 less than 1%
Jack Lacey (1) Director 250 less than 1%
Jerry Meyer Director 436 less than 1%
Ed Moen Director 180 less than 1%
Paul Summer (2) Director 195 less than 1%
All Directors 2183 3.73%
- ------------
(1) Mr. Lacey's shares are grown under the name of Jack Lacey Company.
(2) Mr. Summer's shares are grown under the name of P V Unlimited Corp.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Each of the Company's directors is also a sugar beet grower or a
shareholder member or representative of a shareholder member. By virtue of their
status as such members of the Company, each director or the member he represents
sells sugar beets to the Company and receives payments for those sugar beets.
Such payments for sugar beets often exceed $60,000. However, such payments are
received by the directors or the entities they represent on exactly the same
basis as payments are received by other members of the Company for the delivery
of their sugar beets. Except for the sugar beet sales described in the preceding
sentences, none of the directors or executive officers of the Company have
engaged in any other transactions with the Company involving amounts in excess
of $60,000.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENT SCHEDULES
None
REPORTS ON FORM 8-K
The Company was not required to and did not file any reports on Form
8-K during the three months ended August 31, 1996.
EXHIBITS
Index
- -----
3(i) Articles of Amendment to the Articles of Incorporation of Minn-
Dak Farmers Cooperative
*3(ii) Articles of Incorporation of Minn-Dak Farmers Cooperative
3(ii) Amended Bylaws of Minn-Dak Farmers Cooperative
10(a) Growers' Agreement (three-year Agreement) (example of agreement
which each Shareholder is required to sign)
*10(b) Uniform Member Marketing Agreement by and between United Sugars
Corporation and Minn-Dak Farmers Cooperative
10(c) Supplement to Uniform Member Marketing Agreement by and between
United Sugars Corporation and Minn-Dak Farmers Cooperative
*10(d) Capitalization Agreement by and among Southern Minnesota Beet
Sugar Cooperative, Minn-Dak Farmers Cooperative, American
Crystal Sugar Company, and United Sugars Corporation
*10(e) Memorandum of Understanding and Uniform Member Marketing
Agreement by and between Midwest Agri-Commodities Company and
Minn-Dak Farmers Cooperative
*10(f) Molasses Purchase Contract by and between Minn-Dak Farmers
Cooperative and Universal Foods Corporation (Confidential
Treatment for certain sections)
*10(g) Yeast Purchase Contract by and between Universal Foods
Corporation and Minn-Dak Yeast Company, Inc. (Confidential
Treatment for certain sections)
*10(i) Operating Agreement of ProGold Limited Liability Company
*10(j) ProGold Limited Liability Company Member Control Agreement
*10(k) Agreement for Electrical Service
10(l) Agreements for Coal Supply, Transportation, and Oiling Service
(Confidential Treatment Requested as to certain provisions.)
*10(m) Minn-Dak Farmers Cooperative Pension Plan
*10(n) Larry D. Steward Employment Agreement
*10(o) Management Consulting Agreement between Minn-Dak Yeast Company
and Universal Foods Corporation, (Confidential Treatment for
certain sections)
12 Statement re Computation of Ratio of Net Proceeds to Fixed
Charges
*21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
- ---------------------------
* Incorporated by reference from the Company's Registration Statement
on Form S-1 (File No. 33-94644), declared effective September 11, 1995.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
MINN-DAK FARMERS COOPERATIVE
BY /S/ Larry D. Steward
---------------------------------
LARRY D. STEWARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DUTIES INDICATED.
SIGNATURE TITLE REPORT DATE
- ---------- ----- -----------
/s/ Larry D. Steward November 21, 1996
- ------------------------ President and ------------------------
Larry D. Steward Chief Executive Officer
/s/ Steven M. Caspers November 21, 1996
- ------------------------ Vice President - Finance ------------------------
Steven M. Caspers
/s/ Allen E. Larson November 21, 1996
- ------------------------ Controller ------------------------
Allen E. Larson
/s/ Robert Breuer November 21, 1996
- ------------------------ Director ------------------------
Robert Breuer
/s/ Victor Krabbenhoft November 21, 1996
- ------------------------ Director ------------------------
Victor Krabbenhoft
/s/ Lawrence Deal November 21, 1996
- ------------------------ Director ------------------------
Lawrence Deal
/s/ Edward Meon, Jr. November 21, 1996
- ------------------------ Director ------------------------
Edward Meon, Jr.
/s/ Mike Hasbargen November 21, 1996
- ------------------------ Director ------------------------
Mike Hasbargen
/s/ John Hought November 21, 1996
- ------------------------ Director ------------------------
John Hought
/s/ Jack Lacey November 21, 1996
- ------------------------ Director ------------------------
Jack Lacey
/s/ Jerry Meyer November 21, 1996
- ------------------------ Director ------------------------
Jerry Meyer
/s/ Paul Summer November 21, 1996
- ------------------------ Director ------------------------
Paul Summer
Exhibit 3(i)
ID#1648600
#437357 File #11620C
North Dakota Cooperative Association Fee: $20.00
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
MINN-DAK FARMERS COOPERATIVE
Pursuant to the provisions of Chapter 10-15 of the North Dakota Century
Code, the undersigned Association adopts the following Articles of Amendment to
its Articles of Incorporation:
ARTICLE 1. The name of the cooperative association is Minn-Dak Farmers
Cooperative.
ARTICLE 2. The following amendment of the Articles of Incorporation was
adopted by the members of the cooperative on December 5, 1995 in the manner
prescribed by Chapter 10-15, North Dakota Century Code:
ARTICLE 5. The number and par value of each authorized
class of stock are as follows:
The capital stock of the association shall consist of 300,600
shares divided into
a) 600 shares of common voting membership stock of a
par value of $250.00 per share.
b) 100,000 shares of Class A non-voting non-dividend
bearing preferred stock of a par value of $105.00
per share.
c) 100,000 shares of Class B non-voting non-dividend
bearing preferred stock of a par value of $75.00 per
share.
d) 100,000 shares of Class C non-voting non-dividend
bearing preferred stock of a par value of $76.00 per
share.
ARTICLE 3. The total number of membership shares of the cooperative
outstanding at the time of such adoption was three hundred forty-eight (348) and
the number of membership shares entitled to vote thereon was three hundred
forty-eight (348).
ARTICLE 4. The designation and number of outstanding shares of each
class entitled to vote thereon as a class are as follows: three hundred
forty-eight (348) shares of common stock, each share entitled to one (1) vote
were outstanding at the time of adoption.
ARTICLE 5. The number of shares voting for such amendment was one
hundred thirty-eight (138); and the number of shares voting against such
amendment was None.
Dated this 6th day of December, 1995.
MINN-DAK FARMERS COOPERATIVE
By /s/ Victor Krabbenhoft
-----------------------
Chairman
and /s/ Paul Summer
-----------------------
Secretary
VERIFICATION
Paul Summer, being first duly sworn says that he is the Secretary of the Board
of Directors of Minn-Dak Farmers Cooperative and that he has read the foregoing
application and knows the contents thereof, and verily believes the statements
made therein to be true.
/s/ Paul Summer
---------------------------------
Subscribed and sworn to before me this 6th day of December, 1995.
/s/ Simone M. Sandberg
--------------------------------
Simone M. Sandberg,Notary Public
Richland County, North Dakota
My Commission Exp: 8/31/1997
Certificate No._____________________
Filing Date__12/28_________ 1995
/s/ Alvin A. Jaeger By_________
Secretary of State
Exhibit 3(ii)
BY-LAWS
OF
MINN-DAK FARMERS COOPERATIVE
We, the undersigned, together constituting and being all of the
members, directors and incorporators of Minn-Dak Farmers Cooperative, a
Cooperative nonprofit corporation, do hereby adopt the following code of by-laws
as and for the by-laws of said association.
ARTICLE I
PURPOSE
The purposes for which this association is formed are set forth in the
Third Article of the Articles of Incorporation of the Association.
ARTICLE II
CORPORATE SEAL
The corporate seal shall consist of a circle, having within its
circumference the words, "Minn-Dak Farmers Cooperative, August 30, 1972, North
Dakota".
ARTICLE III
MEETINGS OF MEMBERS
Section 1. REGULAR MEETINGS. A regular annual meeting of the members
shall be held at a place to be designated by the Board of Directors within 75
miles of Wahpeton, North Dakota, and Breckenridge, Minnesota, at 10:00 A.M. on a
day to be designated by the Board of Directors, within five months after the end
of the fiscal year, for the purpose of electing a board of directors and
transacting such other business as may come before the meeting.
Section 2. NOTICE OF REGULAR MEETINGS. Notice of each regular meeting
of the members shall be given. Such notice must state the time and place of the
meeting, and that the purposes thereof are the election of a board of directors
and the transaction of such other business as may come before the meeting, and a
copy thereof shall be mailed to each member of the association; such notices
shall be deposited in the post office at Wahpeton, North Dakota, with postage
prepaid, not less than ten nor more than 30 days prior to the time for holding
such meeting. (Amended and reenacted December 4, 1989.)
Section 3. SPECIAL MEETINGS. Except where otherwise prescribed by law
or elsewhere in these by-laws, a special meeting of the members may be called at
any time by the chairman, or by the board of directors, or by 20 percent of the
members. (Amended and reenacted December 4, 1989.)
Section 4. NOTICE OF SPECIAL MEETINGS. Notice of each special meeting
of the members shall be given. Such notice must state the time and place of the
meeting, and the business to be transacted at the meeting; a copy thereof shall
be mailed to each member of the association; such notice shall be deposited in
the post office at Wahpeton, North Dakota, with postage prepaid, at least five
days prior to the time for holding such meeting.
Section 5. QUORUM. Fifty members or 15 percent of the members,
whichever is less, shall constitute a quorum at any meeting but the members
present at a duly organized meeting may continue to do business until
adjournment notwithstanding the withdrawal of enough members to leave less than
a quorum. If a meeting cannot be organized because a quorum has not attended,
those present may adjourn the meeting to such time and place as they may
determine.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. NUMBER. The corporate powers, business and property of the
association shall be exercised, conducted and controlled by a board of directors
of nine members.
Section 2. ELECTION, QUALIFICATION AND TENURE. Three directors shall be
elected annually at the regular meeting of the membership of the association,
with the rotations of Districts 4, 5 and 7 - starting in 1993; Districts 1, 6
and 8 - starting in 1994; and Districts 2, 3 and 9 - starting in 1995. No person
shall be eligible to become or remain a director of, or to hold any other
position of trust in, the cooperative who is not at least 18 years of age or is
in any way employed by or financially interested in a competing enterprise. No
director shall serve more than five consecutive three-year terms. One director
shall be elected from the members in each of the nine districts. The election of
directors shall be by membership of the district. Directors shall be elected by
secret ballot. No director shall be elected from a district without receiving a
majority of the votes cast in that district. In the event no candidate receives
a majority of the votes cast on the first ballot, runoff ballots will be
conducted with the candidate receiving the fewest number of votes being dropped
from the balloting. Successive runoff ballots will be conducted until one
candidate receives a majority of the votes cast at which time the candidate will
be declared elected. For the purpose of this section, a majority shall be
defined a 50 percent plus one vote. District No. 1 shall consist of the
following: The area served by the Tyler Piler; District No. 2 shall consist of
the following: All the area in Richland County served by the Factory Piler;
District No. 3 shall consist of the following: The area served by the Gorder
Piler; District No. 4 shall consist of the following: All the area in Wilkin
County served by the Factory Piler; District No. 5 shall consist of the
following: The area served by the Hawes Piler; District No. 6 shall consist of
the following: The area served by the Yaggie Piler; District No. 7 shall consist
of the following: The area served by the Lehman Piler; District No. 8 shall
consist of the following: The area served by the Lyngaas Piler; District No. 9
shall consist of the following: The area served by the Peet Piler. No member
shall be eligible to become or remain a director who is not a grower of the
district from which he is elected, and meets the qualifications of membership
under these Bylaws of the Cooperative. Upon establishment of the fact that a
nominee for director lacks eligibility under this section or as may be provided
elsewhere in these by-laws, it shall be the duty of the chairman presiding at
the meeting at which such nominee would otherwise be voted upon to disqualify
such nominee. Upon the establishment of the fact that any person being
considered for or already holding, a directorship or other position of trust in
the cooperative lacks eligibility under this section, it shall be the duty of
the board of directors to withhold such position from such person, or to cause
him to be removed therefrom, as the case may be. Nothing in this section shall,
or shall be construed to affect in any manner, whatsoever, the validity of any
action taken at any meeting of the board of directors. (Amended and reenacted
December 7, 1993.)
Section 3. VACANCIES. Vacancies in the board of directors shall be
filled by the other directors in office; and such persons shall hold office
until the election of their successor by the members.
Any director who ceases to be a member or who violates any contract
with this association in any particular, shall cease to be a member of the board
as soon as majority of the board pass a resolution to such effect. The vacancy
caused thereby shall be filled by the directors.
Any member may bring charges against an officer or director by filing
them in writing with the secretary of the association, together with a petition
signed by ten percent of the members, request the removal of the officer or
director in question. The removal shall be voted upon at the next regular or
special meeting of the association, and, by a vote of a majority of the members,
the association may remove the officer or director and fill the vacancy. The
director or officer against whom such charges have been brought, shall be
informed in writing of the charges previous to the meeting and shall have an
opportunity at the meeting to be heard in person or by counsel and to present
witnesses; and the person or persons bringing the charges against him shall have
the same opportunity.
Section 4. FIRST MEETING OF DIRECTORS. Within 24 hours after each
election of directors, the newly elected directors shall hold a special,
reorganizational meeting to elect a chairman, a vice chairman, a secretary and a
treasurer, and any or all other officers, agents or employees of the
association. (Amended and reenacted December 10, 1991.)
Section 5. REGULAR MEETINGS. In addition to the special meetings
mentioned, a regular meeting of the board of directors shall be held at the
offices of the association or at such time and place as the board may direct,
but at least once a month.
Section 6. SPECIAL MEETINGS. A special meeting of the board of
directors shall be held whenever called by the chairman or by a majority of the
directors. Any and all business may be transacted at a special meeting. Each
call for a special meeting shall be in writing, signed by the person or persons
making the same, addressed and delivered to the secretary, and shall state the
time and place of such meeting.
Section 7. NOTICE OF REGULAR OR SPECIAL MEETINGS. Notice of regular or
special meetings of the directors shall be mailed to each director at least
three days prior to the time set for the meeting. Provided, however, that one
day, but not less than 24 hours notice shall be sufficient if notice is given by
telephone or in person to the directors.
Section 8. QUORUM. Seven directors shall constitute a quorum of the
board at all meetings and the affirmative vote of at least a majority of the
directors present and voting shall be necessary to pass any resolution or
authorize any corporate act.
Section 9. COMPENSATION. Directors shall receive no stated salary for
their services as directors, but shall receive such sum per meeting as is
determined by the Board to be reasonable compensation based on the type and
length of meeting attended. Any sum so determined to apply to an upcoming year
may be reviewed by the membership of the cooperative at an annual meeting of the
members upon proper motion. A director shall be allowed reasonable expenses
while engaged in the business of the cooperative, to be audited, allowed, and
paid as other claims against the cooperative. (Amended and reenacted December
10, 1991.)
Section 10. ELECTRONIC COMMUNICATIONS. A meeting of the Board of
Directors may be conducted by:
(a.) A conference among directors using any means of communication
through which the directors may simultaneously hear each other
during the conference constitutes a meeting of the Board of
Directors, if the same notice is given of the conference as
would be required by Article IV, Section 7 for a meeting, and
if the number of directors participating in the conference
would be sufficient to constitute a quorum at a meeting.
Participation in meeting by that means constitutes presence in
person at the meeting; or
(b.) Any means of communication through which the director, other
directors so participating, and all directors physically
present at the meeting may simultaneously hear each other
during the meeting. Participation in a meeting by that means
constitutes presence in person at the meeting. (Enacted
December 5, 1995.)
ARTICLE V
POWERS OF DIRECTORS
The Directors shall have the power:
1. To call a special meeting of the members when they deem it
necessary; and they shall call a meeting at any time upon the
written request of one-fifth (1/5) of the members. (Amended and
reenacted December 4, 1989.)
2. To appoint and remove, at pleasure, all officers, agents and
employees of the association, prescribe their duties, fix their
compensation and require from them, if advisable, security for
faithful service.
3. To select one or more banks to act as depository of the funds of
the association and determine the manner of receiving, depositing
and disbursing the funds and the form of checks and the person or
persons by whom shall be signed, with power to change such banks
and the person or persons signing said checks and the form thereof
at will;
4. To conduct, manage and control the affairs and business of the
association and to make rules and regulations for the guidance of
the officers and management of its affairs;
5. To make and enter into agreements with processors, brokers, or
others for the sale or consignment of sugar or other products grown
by members of the association; to make and enter into agreements
with any processors, brokers, or others for the packaging of sugar
or other products grown by the members of the association for the
sale of sugar or other products grown by the members of the
association.
6. To carry out the crop contracts of the association and members in
every way advantageous to the association, representing the members
collectively.
7. To settle, in the name of its members, any claims for damages which
may occur to the products in transit.
ARTICLE VI
DUTIES OF DIRECTORS
It shall be the duty of the board of directors:
1. To keep a complete record of all its acts and of the proceedings of
its meetings, and to present a full statement at the regular
meetings of the members, showing in detail the condition of the
affairs of the association.
2. To supervise all officers, agents and employees, and see that their
duties are properly performed, and to cause to be issued
appropriate certificates of membership.
3. To install such a system of bookkeeping and auditing that each
member may know and be advised from time to time fully concerning
the receipts and disbursements of the association.
ARTICLE VII
OFFICERS
The officers of the association shall be a chairman, vice chairman,
secretary and treasurer who shall be elected from the board of directors,
together with a president, one or more vice presidents, and any other
administrative officers who need not be directors or stockholders, which the
board of directors may see fit in its discretion to provide for by resolution
entered upon its minutes.
ARTICLE VIII
THE CHAIRMAN
If at any time the chairman shall be unable to act, the vice chairman
shall take his place and perform his duties; and if the vice chairman shall be
unable to act, the board shall appoint a director to do so. The chairman or such
vice chairman or director:
1. Shall preside over all meetings of the members and directors.
2. Shall sign, as chairman, all certificates of membership, and all
contracts and instruments which have been first approved by the
board of directors.
3. Shall call the directors together whenever he deems it necessary,
and shall have, subject to the advice of the directors, direction
of the affairs of the association and generally shall discharge
such other duties as may be required of him by these by-laws or by
the board.
ARTICLE IX
SECRETARY
It shall be the duty of the secretary:
1. To keep a record of the proceedings of the meetings of the board of
directors and of the members.
2. To keep the corporate seal and the book of blank membership
certificates and countersign all certificates issued and affix said
corporate seal to all papers requiring a seal.
3. To keep a proper membership book, showing the name of each member
of the association, the number of his membership certificate, the
date of issuance, surrender, cancellation, forfeiture or transfer.
4. To execute and sign contract, notes, papers and documents.
5. To discharge such other duties as pertain to his office or may be
prescribed by the board of directors.
ARTICLE X
TREASURER
It shall be the duty of the treasurer:
1. To receive and deposit all funds of the association, to be paid out
only on checks drawn as herein before provided, and account for all
receipts, disbursements and balance on hand.
2. To furnish a bond in such form and in such amount as to the board
of directors may from time to time require.
3. To discharge such other duties as pertain to his office or may be
prescribed by the board of directors.
ARTICLE XI
EXECUTIVE OR ADVISORY COMMITTEE
The board of directors may appoint an executive or advisory committee
from among its members, determine the number of its members and tenure of office
and its powers and duties. The chairman and vice chairman shall be members of
such executive or advisory committee.
ARTICLE XII
AUDITING COMMITTEE
The board of directors may appoint an auditing committee from among its
members, determine the number of its members and its tenure of office. The board
may prescribe rules and regulations with reference to the manner and form in
which claims shall be presented against the association and the manner of
auditing the same, and in lieu of such action by the board, the auditing
committee may prescribe rules and regulations with reference to its meetings and
procedure.
ARTICLE XIII
BOOKS AND PAPERS
The books and such papers as may be placed on file by vote of the
members or directors shall at all times in business hours be subject to the
inspection of the board and of any member of the association, or his
representative, duly authorized in writing.
The board of directors shall cause to be sent to all the members of
this association, not later than 120 days after the close of the fiscal or
calendar year, an annual report of the operations of the association. Such
annual report shall include a balance sheet as of the closing date. Such
financial statement shall be prepared in a form sanctioned by sound accounting
practices and approved by a duly certified public accountant.
ARTICLE XIV
PROXIES
THIS ARTICLE HAS BEEN REPEALED.
ARTICLE XV
BORROWING MONEY
The association shall have the power to borrow money in such amounts
and upon such terms and conditions as may from time to time seem to the board of
directors advisable or necessary, by a two-thirds (2/3) vote of all the
directors.
ARTICLE XVI
STOCK CERTIFICATES
Section 1. COMMON STOCK. Each certificate of common stock shall have
the following statement printed on its face: "The common stock of the
association may be purchased, owned, and/or held only by producers who shall
patronize the association in accordance with uniform terms and conditions
prescribed thereby and only such persons shall be regarded as eligible members
of the association. In the event the board of directors shall find following a
hearing that any of the common stock has come into the hands of any person who
is not an eligible member, or that the holder thereof has ceased to be an
eligible member, or shall have failed to patronize this cooperative for a period
of 12 consecutive calendar months, or shall have intentionally or repeatedly
violated any by-laws or shall have breached any contract between him and this
cooperative, or shall have willfully obstructed any purpose or proper activity
of this cooperative, then in any such event, the board of directors shall in its
discretion recall all common stock owned by such member, and the cooperative
shall refund to him the par value or book value of such stock, whichever is
lesser, and such refund shall be made in cash. Each eligible holder of common
stock shall be entitled to only one vote in any meeting of the stockholders,
regardless of the number of shares of stock owned by him. This association shall
have a lien on all of its issued common stock for all indebtedness of the
holders thereof to the association. Such stock is also subject to all the other
terms and conditions now or hereafter contained in the Articles of Incorporation
or By-laws of this association."
Section 2. PREFERRED STOCK. Each certificate of preferred stock of
this association shall have the following statement printed on its face:
"The preferred stock of this association shall carry no voting rights
and may be transferred only on the books of the association; and may be redeemed
in whole or in part on a pro rata basis at par at any time on 30 day's notice by
the association, provided said stock is redeemed in the same order as originally
issued by years, and on failure to deliver the certificate or certificates
evidencing any such stock the association may cancel the same on its books.
Stock which has been redeemed may, in the discretion of the board of directors,
be reissued or retired. All such preferred stock so redeemed shall be paid for
in cash at the par value thereof. This association shall have a lien on all of
its issued preferred stock for all indebtedness of the holders thereof to the
association. Upon dissolution or distribution of the assets of the association,
the holders of all preferred stock shall be entitled to receive the par value of
their stock, before any distribution is made on the common stock."
"In the event that the board of directors of the association shall
find, following a hearing, that any of the preferred stock of this association
has come into the hands of any person who is not eligible for membership, or
that the holder thereof has ceased to be an eligible member, or that such holder
has not, for a period of one year, marketed through the association the products
covered by a marketing agreement or agreements with it, or has not otherwise
patronized the association, such holder shall have no rights or privileges on
account of such stock, or voice in the management or affairs of the association
other than the right to participate in accordance with law in case of
dissolution. The association shall have the right, at its option, (a) to
purchase such stock at its book or par value, whichever is less, as determined
by the board of directors of the association; or (b) to require the transfer of
any such stock at such book or par value, to any person eligible to hold it."
ARTICLE XVII
MEMBERS
QUALIFICATIONS. Membership in this association shall be limited to producers (a)
who reside in the territory served by this association, (b) who patronize the
association in accordance with uniform terms and conditions prescribed by it,
and (c) who have been approved by the board of directors. "Member-Producer"
shall mean and include persons (natural or corporate) actually engaged in the
production of sugar beets, or other agricultural products, including tenants of
land used for the production of any such products, and lessors of such land who
receive as rent therefor part of any such products of such land, and cooperative
associations (corporate or otherwise) of such member-producers.
ARTICLE XVIII
AMENDMENTS TO BY-LAWS. The by-laws of the cooperative may be altered,
amended, rescinded or added to by the vote of majority of the members present at
a special meeting convened for such purpose or at a regular meeting, but the
notice of the special or regular meeting must set forth fully and clearly the
proposed alteration, amendment, rescission or addition.
ARTICLE XIX
LOSSES
To the extent that there is a loss resulting from the business
operations of the cooperative in any one year, the cooperative shall act in such
a manner as to first recoup the loss from those patrons who were patrons in the
year in which the loss occurred. This section shall not be administered in such
a way as to preclude the Association from availing itself of the right to carry
back or carry forward net operating losses to past or future years.
ARTICLE XX
DIVISION OF PROFITS
That the proceeds of sales, less necessary expenses, shall be allocated
or distributed to the patron members on the basis of either the quantity or
value of the products furnished by them. The cooperative shall allocate or
distribute its profits from marketing and purchasing among its patron members on
the basis of either the quantity or the value of the products furnished or
purchased by them.
ARTICLE XXI
PATRONAGE REFUNDS
Section 1. NET INCOME. The net income of this corporation determined in
accordance with generally accepted accounting principals consistently applied,
shall be distributed annually on the basis of dollar value of patronage, in cash
or in the form of credits in a patronage credit account set up on the books of
the corporation. Distribution of patronage shall be made as soon as practicable
after the close of each fiscal year and written notice thereof shall be sent to
each shareholder showing the total amount of distribution made to him and the
manner of such distribution setting forth the amount distributed in cash and in
credits.
Section 2. CASH AND PATRONAGE DISTRIBUTION. The corporation may
distribute to its shareholders, in cash, a percentage of the patronage dividends
to which each individual shareholder is entitled. Such percentage to be
determined by action of the board of directors. The board of directors shall
have the power to determine whether a patronage credit will be "qualified
written notice of allocation" or a "non-qualified written notice of allocation".
Section 3. CONSENT BY-LAW. Each shareholder of this corporation shall,
by the act of continuing as a shareholder, and by that act alone, consent that
the amount of any distribution with respect to the patronage of this corporation
which are made in written notices of allocations (as defined in 26 U.S.C. 1388,
Internal Revenue Code) and which are received by him from the corporation, will
be taken into account by him at the stated dollar amount in the manner provided
in 26 U.S.C. 1385 in the taxable year in which such written notices of
allocation are received by him.
Section 4. RETIREMENT OF PATRONAGE CREDITS. Whenever in the discretion
of the board of directors, the capital represented by patronage credits is found
to be in excess of the amount needed for the operation of the business, such
excess may be distributed in cash; and when paid in cash, it shall be the policy
to pay the oldest outstanding patronage credits first. At the discretion of the
board of directors, a shareholder's credits may be paid in cash in other than
the regular order when such credits are carried on the books of the corporation
in the name of a deceased person, or when earlier payments of individual amounts
will facilitate the corporation's records, aims, purposes and good will.
Patronage credits shall be redeemed only when such redemption is not in
violation of any loan agreements entered into by the corporation.
Section 5. TRANSFER OF CREDITS. Patronage credits shall not be
transferred except with the approval and consent of the board of directors.
ARTICLE XXII
NON-PATRONAGE INCOME
Section 1. UNIT RETAIN. The corporation may require investment in its
capital in addition to the investments from retained patronage. These
investments shall be direct capital investments from a retain on a per unit
basis of the products purchased from its common shareholders. The unit
retention, if required, shall be made on all products delivered, in the same
amount per unit and shall at no time become a part of net income available for
patronage. Each shareholder, by continuing to be such, agrees that he will
invest in capital of this corporation as prescribed in this article. Such
investments shall be accounted for separately in a unit retention account set up
on the books of the corporation.
Section 2. INCOME TAX TREATMENT. The board of directors shall have the
power to determine whether such unit retain shall be a "qualified per unit
retain" or a "non-qualified per unit retain". In the event that the board of
directors determine that such unit retains are to be a "qualified per unit
retain", such shareholder of this corporation by the act of continuing as a
shareholder and by that act alone agrees that the amount of any unit retain
charged him as provided in this article will be taken into account by him at its
stated dollar amount in the manner provided in 27 U.S.C. 1385 and will be
reported by him in his income tax returns for the taxable year in which written
notice of such retention is received by him. The purpose of this consent by-laws
is to make such unit retain a "qualified per unit retain" within the meaning of
the United States Internal Revenue Code.
Section 3. RETIREMENT OF UNIT RETENTION CAPITAL. Whenever in the
discretion of the board of directors the capital represented by the unit
retention capital investment is found to be in excess of the amount needed for
the operation of the business and the service of its debts, then it shall
distribute such excess in cash, and when paid in cash it shall be the policy to
pay the oldest outstanding unit retention capital investment first. At the
discretion of the board of directors, unit retention capital investment may be
paid in cash in other than the regular order when such credits are carried on
the books of the corporation in the name of a deceased person, or when earlier
payment of other individual amounts will facilitate the corporation's records,
aims, purposes and good will. Unit retention capital investments shall be
redeemed only when such redemption is not in violation of any loan agreements
entered into by the corporation.
Section 4. TRANSFER OF RETENTION CAPITAL. Unit retention capital
investments shallnot be transferred except with the approval and consent of the
board of directors.
ARTICLE XXIII
NON-PATRONAGE INCOME
All amounts received by the corporation from non-patronage sources, in
excess of costs and expenses related to such non-patronage sources or net income
derived from business done by persons who are not common shareholders, net of
taxes thereon, shall become property of the corporation.
ARTICLE XXIV
INDEMNIFICATION OF DIRECTOR OR OFFICER
Section 1. INDEMNIFICATION OF DIRECTOR OR OFFICER. The corporation
shall indemnify every Director or Officer, their heirs, executors and
administrators, against expenses reasonably incurred by him or her in connection
with any action, suit or proceedings to which he or she may be made a party by
reason of his or her being or having been a Director or Officer of the
corporation, indemnification shall be provided only in connection with such
matters covered by the settlement as to which the corporation is advised by
council that the person to be indemnified did not commit such a breach of duty.
ARTICLE XXV
TRANSFER OR SALE OF MEMBER EQUITY OR STOCK
Section 1. From and after December 8, 1987 the board of directors shall
at the option of the member permit the sale of a member's stock in the
cooperative without the transfer of the member's accumulated patronage credits
and unit retention capital. It is the declared policy of the cooperative that
after such a sale the purchaser must assume any and all obligations of the
seller to the cooperative in relation to the stock purchased.
ARTICLE XXVI
SUGAR BEET SEED
All sugar beet seed to be planted by the Growers must be purchased by
the Growers from the Cooperative.
November 25, 1996
Exhibit 10(a)
GROWERS AGREEMENT
(REVISED 3-08-96)
(Applicable to all Farmer-Grower-Stockholders
of Minn-Dak Farmers Cooperative)
This agreement is entered into between____________________________,
a farmer-grower-stockholder of Minn-Dak Farmers Cooperative, Wahpeton, North
Dakota, whose mailing address is:
__________________________________________________________________________, and
MINN-DAK FARMERS COOPERATIVE of Wahpeton, North Dakota.
This Growers Agreement provides as follows:
1. The Grower agrees to prepare the land, plant, care for, harvest and
deliver the product of _______ Units of stock times 1.35 acres of sugar beets
each year for the farming years commencing on January 1, 1996 and continuing for
a period of one (1) year. (Each Unit consists of one share of the Company's
Class A Preferred Stock, par value $105 per share, one share of the Company's
Class B Preferred Stock, par value $75 per share and one share of the Company's
Class C Preferred Stock, par value $76 per share). At the end of each "farming
year" the term of this agreement shall automatically be renewed for an
additional period of one (1) year so that at the commencement of each year of
farming, there shall be a term of one (1) year remaining, unless notice of
termination shall have been given by the Cooperative to the grower prior to the
beginning any farming year with the termination effective as of the end of that
year. For purposes of this agreement, a "farming year" shall commence on January
1 and run through December 31 of each year.
(a) The Grower agrees that in the planting of said sugar beets he will
follow a crop rotation plan which will be established by the Cooperative from
time to time.
(b) The Grower agrees that annually he will furnish and enter into an
annual requirement agreement with the Cooperative setting forth the description
of the land on which said sugar beets will be grown and including such other
information as may be required by the Cooperative.
(c) The Grower agrees that his designations of acreage location shall
be subject to approval of the Cooperative based on location, soil type and
drainage considerations.
(d) The Grower further agrees to notify and receive approval from an
Agricultural Staff Member before acreage is destroyed.
2. The Grower agrees to furnish the Cooperative with such information
as it may request from time to time regarding the crop or crops covered by this
agreement. Representatives of the Cooperative shall also have the right to enter
the Grower's beet fields from time to time during the growing and harvesting
seasons to inspect the crops thereon and to take samples for testing in
ascertaining the quality of the beets.
3. The Grower will harvest and deliver to the Cooperative all beets
grown by him under this contract, said delivery to be made at such times and in
such quantities and to such place or places as may be designated by the
Cooperative. All beets delivered hereunder shall be properly topped as
designated by the Cooperative's Agricultural Department. All beets shall be
subject to a proper deduction for tare. There shall be deducted from the gross
weight of beets delivered hereunder, before net tons are determined, the
Grower's tare weight, as determined by the Cooperative's method of sampling
loads of tare and through the use of the Cooperative's laboratory which measures
each Grower's beet sample for dirt, stones, trash and other foreign substances.
Each Grower's daily average tare percentage, as determined by all load samples
of the Grower for that delivery day or delivery day by field, if field method is
used by Grower, is used to determine the rate weight of all beets delivered by
the Grower for that delivery day. The beets shall be protected from sun and
frost after removal from the ground, including beets that are loaded on trucks.
The Cooperative has the option of rejecting any diseased, frozen or damaged
beets; beets which, in the Cooperative's opinion, are not suitable for the
manufacture of sugar; beets as to which in the Cooperative's opinion, the terms
and conditions of this contract have not been properly complied with or for any
other bona fide reason.
4. Any grower deciding not to plant 1.25 acres per unit of Cooperative
stock owned by him in any one year, shall be subject to cancellation of his
membership in the Cooperative and recall of all his stock following a hearing by
the Board of Directors. Such grower would be paid the established book value of
his stock as determined by the Cooperative. Provided, however, if weather
conditions or an act of God prevented said grower from planting all his acreage
and after a review has been conducted by the Director and Agricultural
Department Staff person from the grower's district, and a finding to that effect
is made by the Board of Directors, such failure may be excused.
5. Any Cooperative member grower refusing to replant acreage where
necessary through June 20, will be required to pay the Cooperative a sum equal
to 100% of the Cooperative's direct overhead costs per acre. The Cooperative's
direct overhead costs per acre shall be determined by dividing the Cooperative's
total overhead costs by the number of acres harvested. For Example: (Projected
1995 - 1996(Overhead Cost
$11,916,000 Overhead Costs) = $ 159.02 per Acre)
74,932 ( 1995 Harvested Acres)
Such penalty will be assessed on all of the acres, up to 1.25 acres per unit
of stock owned, which such grower fails to replant through June 20.
6. Any Cooperative member grower failing to properly care for his crop
will be assessed a penalty for each acre not properly cared for. Such penalty
shall be calculated as set forth in provision 5 above.
7. Any grower harvesting any unreported and unmeasured acres over and
above his contracted acres plus the over-plant permitted in that year, will be
penalized for such excess of unreported and unmeasured acres in the following
manner. First, there shall be a hearing before the Board of Directors and a
finding made as to the number of acres in violation. Second, the Board of
Directors shall reduce the grower's contracted acres by a number equal to the
unreported and unmeasured acres in violation. Third, upon the recall and
cancellation of the units of stock backing up such canceled acres, the grower
shall be paid the book value of said units of stock as last determined by the
Cooperative.
8. It is understood and agreed that if any Governmental authority shall
establish any restrictions, allotment or quota upon the growing, production or
processing of beets, or the output, transportation or sale of beet sugar, then
the Cooperative may reduce to the extent which it deems necessary the acreage of
beets herein contracted for, and shall be obligated to purchase beets only from
such reduced acreage.
9. Grower also agrees not to apply to the crop or land on which the
crop is grown any pesticide chemical, or other substance, as defined in the
Federal Food, Drug and Cosmetic Act, as amended, unless a regulation shall then
be in effect under said Act, exempting such chemical from the necessity of a
tolerance or establishing a tolerance for such chemical, in which event such
chemical shall be applied to the crop or land only at such time and in such
manner and quantities as shall be specified in the labeling of such chemical and
so that any residue of such chemical on beets delivered hereunder shall be
within the tolerance specified in such regulation. The Cooperative reserves the
right to reject the delivery of any beets not complying with this provision.
10. The Grower agrees that, in connection with the growing and delivery
of beets under this contract, he will comply with all applicable laws, including
but not limited to child and migrant labor laws, and all regulations or rulings
relating thereto issued by any duly authorized governmental authority.
11. Seed varieties to be planted by Growers must be approved by the
Cooperative's Seed Committee. All sugar beet seed to be planted by the Growers
must be purchased by the Grower from the Cooperative. The Cooperative agrees to
use its best efforts to obtain its seed inventory at the best possible prices
and terms and to resell such seed to the Grower at no profit to the Cooperative.
The Cooperative makes no warranty of merchantability, fitness for a particular
purpose, productiveness or any other warranty as to any seed furnished by the
Cooperative, except that seed furnished by the Cooperative is warranted, to the
extent of the purchase price only, to be as described on the seed containers
within recognized tolerances. It is also expressly agreed that the Cooperative
does not guarantee a crop.
12. It is agreed that the amount charged for all beet seed furnished by
the Cooperative to Grower hereunder, and all advances made to the Grower by the
Cooperative shall constitute a debt from the Grower to the Cooperative which the
Cooperative shall have the right to collect as in the case of any other
contractual obligation. The Cooperative shall have the right, at its option, to
treat any such amounts, advances or indebtedness as part payment for beets grown
and delivered under this contract. Any such amounts, advances, or indebtedness
which are due and payable or which hereafter may become due and payable from the
Grower to the Cooperative shall be, become, and remain a first and prior lien on
the crop of sugar beets to be grown hereunder and shall be deducted by the
Cooperative from the initial payment or any subsequent payment from the
Cooperative to the Grower which shall become due hereunder, or under any
subsequent beet contract between the Cooperative and the Grower.
13. The Cooperative will furnish all loading equipment at the loading
stations, pay all freight charges from outside piling stations, and pay mileage
on beets assigned to and delivered to all receiving stations in accordance with
policies determined by the Cooperative. Upon delivery to and acceptance by the
Cooperative of the sugar beets as provided for herein, title thereto shall be
deemed to vest, and shall be vested, in the Cooperative.
14. Each year of this agreement, the Cooperative will pay to the Grower
for beets delivered and accepted at the time and in the manner hereinafter
provided, a price per pound of extractable sugar, determined to be as follows:
(a) Extractable pounds of sugar will be determined by the Cooperative
in its laboratory from beet samples statistically taken from each Grower at its
receiving stations. The beet samples will be tested for sugar content and
purity, and said results used in a formula to determine extractable pounds of
sugar delivered.
(b) In addition, each Grower will be reviewed for eligibility for early
harvest bonus extractable pounds of sugar. The bonus extractable pounds of sugar
will be determined by a formula that takes into account the delivery date in
early harvest, as well as the extractable pounds of sugar delivered on that same
date.
(c) Payment to the Grower will be an amount equal to the individual
Grower's total delivered extractable pounds of sugar (as determined in 14a.)
plus the calculated pounds of early harvest bonus sugar (as determined in 14b.),
multiplied by the price to be paid per pound of extractable sugar to all
Growers.
(d) The price per pound of extractable sugar to all Growers will be
determined by dividing the total Grower proceeds by the total pounds of
extractable and bonus sugar delivered from all Growers. Growers proceeds are
defined as the amount after deducting from gross sales, all costs, charges,
expenses, and margins (including reserves but excluding payments to growers) as
are regularly and customarily deducted from gross sales in accordance with the
Cooperative's system of accounting heretofore established.
(e) If in the opinion of the Board of Directors of the Cooperative, the
working capital position of the Cooperative is at any time insufficient, the
Cooperative may and shall retain from the price to be paid for beets such
amount(s) as are deemed necessary by the Board of Directors, the deduction(s) to
be made at such time(s) as the Board of Directors shall require; and such
amount(s) as may be retained shall be evidenced in the records of the
Cooperative by equity credits in favor of the Growers.
15. Settlements shall be made as follows:
For all beets delivered from the beginning of harvest up to and
including October 31st, initial payments shall be made on or about November 15th
of the year in which beets are delivered to the Cooperative; for all beets
delivered after October 31st, initial payment shall be made on the 15th day of
each month for beets delivered during the previous calendar month. Further, each
Grower agrees to the following:
(a) The first payment shall not exceed 65 percent of the price to be
paid per pound of extractable sugar to all Growers;
(b) The second payment shall be paid on the first Friday in February,
and shall bring the total of the first and second payments to an amount not to
exceed 70 percent of the price to be paid per pound of extractable sugar to all
Growers;
(c) The third payment shall be paid on the first Friday in April, and
shall bring the total of the first, second and third payments to an amount not
to exceed 80 percent of the price to be paid per pound of extractable sugar to
all Growers;
(d) The fourth payment shall be paid on the first Friday in July, and
shall bring the total of the first, second, third and fourth payments to an
amount not to exceed 95 percent of the price to be paid per pound of extractable
sugar to all Growers;
(e) The final payment shall be determined as of the end of the
Cooperative's fiscal year, after the Board of Directors has reviewed the final
audited financial statements of the Cooperative; and shall bring the total of
the payments to an amount equal to the price to be paid per pound of extractable
sugar to all Growers.
16. The Grower is an independent contractor. Agricultural or other
advice may be offered the Grower by the Cooperative's representatives, but the
Grower's status as an independent contractor shall not be thereby affected. In
no event shall the Cooperative be responsible for any failures or partial
failures of the crop or damage to the beets.
17. In case of the bankruptcy of the Association or of the total
destruction of the factory and the Cooperative's failure to rebuild the same,
the Cooperative shall not be subject to any damage for failing to receive the
sugar beets of the Grower, the Grower hereby waiving and abandoning any rights
or claims which he may have for such damages, if any. Furthermore, such
bankruptcy or total destruction of the factory shall exempt the respective
parties hereto from the performance of this contract; provided, however, in the
event the Bank shall through foreclosure or otherwise acquire in whole or in
part the assets of the Cooperative, the growers shall remain obligated hereunder
as though the contract were originally entered into between the Growers and the
Bank.
18. Fire, strikes, accidents, acts of God and the public enemy, or
other causes beyond the control of the parties which prevent the Grower from the
performance of this contract or the Cooperative from utilizing the beets
contracted for in the manufacture of sugar therefrom, shall excuse the
respective parties hereto from the performance of this contract.
19. In no event shall the Cooperative be liable to the Grower for
partial or complete failure of crop or for any injury or damage to beets.
20. The parties agree that this contract is one of a series depending
for its true value upon the compliance by all of the Growers obligating them to
plant a total minimum of 79,008acres of sugar beets in crop year 1996,
90,405acres of sugar beets in crop year 1997, and 97,470in crop year 1998 and
each year thereafter, but no breach, waiver of breach, cancellation or recision
of any other contract of this series shall affect this agreement. It is mutually
agreed that there are no other or different documents, representations, promises
or agreements affecting this agreement, and that this agreement, the Articles of
Incorporation and By-Laws of the Cooperative, constitute the full, free and
complete understanding of the parties.
21. This agreement shall be binding upon both the Grower, his heirs,
legal representative, and assigns, and upon the Cooperative, its successors and
assigns, and shall not be transferable by the Grower without the written consent
of the Cooperative, its successors and assigns; and shall apply equally to
owned, rented or leased acres.
22. No agent of the Cooperative has any authority to change, waive, or
modify any of the terms or provisions of this contract.
IN WITNESS WHEREOF, the Grower has hereunto executed this Growers
Agreement on this _______ day of ______________________________, 19 _______.
- ----------------------------------- ----------------------------------------
Stockholder Stockholder
- --------------------------------------------------------------------------------
ACCEPTANCE BY COOPERATIVE
This Growers Agreement is hereby accepted by the Board of Directors of
Minn-Dak
Farmers Cooperative on this _______ day of _________________________, 19_______.
MINN-DAK FARMERS COOPERATIVE
By _________________________________
Exhibit 10(c)
SUPPLEMENT
TO
UNIFORM MEMBER MARKETING AGREEMENT
THIS SUPPLEMENT, made effective as of the 1st day of August,
1966, is by and between United Sugars Corporation, a cooperative marketing
association organized under the laws of the State of Minnesota (hereinafter
referred to as "Marketing Agent") and Minn-Dak Farmers Cooperative, a
cooperative association organized under the laws of the State of Minnesota
(hereinafter referred to as "Processor").
WHEREAS, Marketing Agent and Processor have entered into a
Uniform Member Marketing Agreement dated as of January 1, 1994 (the
"Agreement"); and
WHEREAS, Marketing Agent and Processor desire to clarify and
supplement the Agreement by amending certain provisions set forth therein.
NOW, THEREFORE, the parties agree as follows:
1. Section 3 of the Agreement provides that distributions of
net proceeds to Processor and other participants in the pool shall be adjusted
by Marketing Agent periodically as production figures are determined. The
Agreement further provides that the adjustment is to include an interest charge
to any participant in the pool who has received an excess distribution based
upon preliminary estimates. Notwithstanding the provisions of Section 3 of the
Agreement, from and after January 1, 1994, such interest charge shall be based
on the average of (i) the monthly Commodity Credit Corporation loan rate for the
period in question and (ii) the rate charged by the St. Paul Bank to American
Crystal Sugar Company for thirty (30) day seasonal fixed rate financing for the
period in question.
2. It is understood that Marketing Agent has assumed all
marketing responsibilities of Processor. This includes and has always been
intended to include the purchase of sugar from third parties and the sale of
that purchased sugar to facilitate the marketing objectives of the Processor. It
is further understood that such purchases by Marketing Agent are in furtherance
of its responsibilities as Marketing Agent for Processor. As such, the parties
desire to specifically confirm this responsibility by adding a new paragraph to
Section 1 of the Agreement to read as follows:
It is understood and agreed that Marketing Agent may
from time to time procure certain Products from third parties
in order to meet the requirements of sales contracts or as
otherwise determined to be in the best interest of Processor
and the other member processors of Marketing Agent. Processor
and Marketing Agent agree that Marketing Agent shall act as an
agent for Processor in connection with such purchases of
Products and that the costs of acquiring such Products and
revenues received from the sale of such Products shall be
allocated to Processor and other member processors of
Marketing Agent on the same basis as allocations from the pool
for which the Products were purchased.
3. Except as otherwise specifically provided in Paragraph 1 of
this Supplement, the terms and conditions of the Agreement shall remain in
effect as provided therein. Paragraph 2 of this Supplement is only intended to
clarify the original intent of the parties with respect to the Agreement as in
effect on January 1, 1994.
IN WITNESS WHEREOF, the parties have executed this Supplement
effective as of the day and year first above written.
UNITED SUGARS CORPORATION MINN-DAK FARMERS COOPERATIVE
BY ROBERT B. ATWOOD BY LARRY D. STEWARD
ITS PRESIDENT ITS PRESIDENT/CEO
Exhibit 10(l)
CONFIDENTIAL TREATMENT REQUESTED FOR CERTAIN PROVISIONS
xx = INFORMATION FOR WHICH CONFIDENTIALITY IS REQUESTED
COAL SUPPLY AGREEMENT
THIS AGREEMENT is made and entered into this 14th day of August,
1995, by and between Kennecott Energy Company, a Delaware corporation, with
offices in Gillette, Wyoming, for and on behalf of Spring Creek Coal Company, a
Montana corporation (hereinafter together called "Seller"), and Minn-Dak Farmers
Cooperative ("Minn-Dak"), a North Dakota cooperative with offices at Route 1,
Box 10, Wahpeton, North Dakota 58075("Buyer").
RECITALS
Buyer desires to secure a coal supply for use in the operation of its
sugar factory in Wahpeton, North Dakota ("Sugar Factory").
Seller desires to sell to Buyer coal to be mined from its Spring Creek
Mine (the "Mine") near Decker, Montana.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties set forth below, Seller agrees to sell and deliver, and Buyer
agrees to purchase and accept, coal of the quantity and quality specified below,
at the price and on the terms and conditions stated in this Agreement.
SECTION 1. TERM; CAMPAIGN SEASONS.
1.01 Term. The term of this Agreement shall commence on August
1, 1994 ("the Effective Date") and shall continue to July 31, 2005.
1.02 Campaign Seasons. Shipments under this Agreement are to
be divided into periods of approximately ten months commencing on or about
August 15 and continuing until about May 31 of the following calendar year, with
the last such period running from about August 15, 2004, to about May 31, 2005.
These ten-month periods of coal deliveries shall be referred to as "Campaign
Seasons."
SECTION 2. COAL SOURCE.
The coal sold under this Agreement shall be from Seller's Mine located
near Decker, Montana. If an event of force majeure, as defined in Section 8,
prevents delivery of coal at the Mine, Seller may, but shall not be required to,
supply coal from sources other than the Mine ("Substitute Coal"), provided that
the price for Substitute Coal shall be adjusted as necessary so that the total
delivered cost per million Btu for Substitute Coal delivered to the Sugar
Factory, taking into account Buyer's actual transportation costs, equals the
delivered cost per million Btu for coal from the Mine, subject to any price
adjustments pursuant to Sections 4.02 and 6.01. Seller's right to furnish
Substitute Coal shall not affect its right to claim a force majeure or to claim
excuse from performance pursuant to Section 8 below. Buyer may, but shall not be
required to, accept substitute coal with field averages different than Spring
Creek Mine field averages specified in Section 4.01 (a) of this Agreement. If
Seller fails to deliver for reasons other than force majeure, Seller will supply
Substitute Coal.
SECTION 3. COAL QUANTITY; SHIPMENT SCHEDULE.
3.01 Quantity. Seller agrees to sell and Buyer agrees to
purchase all of the coal that Buyer requires to operate its Sugar Factory during
the term of this Agreement, which Buyer in good faith estimates to be xxx,xxx
tons per Campaign Season. The term "ton" shall mean 2,000 pounds of coal,
weighed as provided in Section 5.03.
3.02 Estimates.
(a) Campaign Season Estimates. Upon execution of this
Agreement and by August 1 of each subsequent year, Buyer shall furnish Seller
with a written estimate of the quantity of coal to be delivered FOB Seller's
Mine during the Campaign Seasonbeginning in that year.
(b) Extension of Campaign Season. Buyer may extend
any Campaign Season by three months before August 15 or after May 31 of such
Campaign Season upon six weeks' written notice to Seller.
3.03 Shipments. Buyer shall use reasonable efforts to schedule
arrivals of trains at the Mine such that Seller can deliver coal in
approximately equal monthly amounts during any Campaign Season; provided that
deliveries in the first months of a Campaign Season will be larger to allow
Buyer to build stockpiles at the Sugar Factory. Weekly deliveries will be in
substantially equal quantities consistent with the monthly delivery quantity.
Seller shall use reasonable efforts to deliver as much coal as Buyer desires to
take in any week. Buyer agrees to pay for and accept delivery of up to 12
percent more than Buyer's estimated or amended coal requirements in any month,
provided that Buyer shall not be required to pay for more coal than it has
requested during any Campaign Season.
SECTION 4. QUALITY OF COAL.
4.01 Quality and Size of Coal.
(a) Field Averages. Field averages for Spring
Creek Coal are as follows:
Btu: xxxxx per pound
Sulfur: 0.xx percent
Sodium oxide: x.xx percent
Ash: x.xx percent
Moisture: xx.xx percent
Size: run-of-mine, sized to pass through
two-inch round screen (crushed 2" x 0)
Buyer acknowledges that actual quality of particular coal shipments will vary as
different portions of the field are mined. Buyer's exclusive remedies for
variations from field averages are those set forth in Section 4.02 below.
(b) Sampling. Representative samples of coal from
each trainload shall be taken at the loading facilities at Seller's Mine by
agents of an independent commercial testing organization, using methods and
procedures approved by the American Society for Testing and Materials (ASTM).
The resulting analysis shall be accepted as the quality of coal on which
invoices are to be rendered and payments made in accordance with Section 6. Any
change in the quality of coal during subsequent transportation or storage shall
have no effect on the quality of coal as shown on the invoice.
4.02 Remedies for Quality Variations. Buyer may not reject any
trainload of coal once the coal has commenced loading onto railcars at the Point
of Delivery as defined in Section 5.01. The following remedies shall be Buyer's
exclusive remedies for variations in the quality of coal delivered under this
Agreement.
(a) Btu/lb. If any five consecutive trainloads of
coal contain a cumulative weighted average Btu/lb less than xxxx Btu/lb, then
the Purchase Price of the fifth and each consecutive trainload that, when
averaged with the previous four trains, maintains a weighted average Btu/lb less
than xxxx Btu/lb ("low Btu coal") shall be adjusted according to the following
formula:
Weighted Average Btu content per pound-xxxx
(for five consecutive trainloads) x Purchase
xxxx
If any five consecutive trainloads of coal contain a cumulative
weighted average Btu/lb greater than xxxx Btu/lb, then the Purchase Price of the
fifth and each consecutive trainload that, when averaged with the previous four
trains, maintains a weighted average Btu/lb greater than xxxx Btu/lb ("high Btu
coal") shall be adjusted according to the following formula:
Weighted Average Btu content per pound - xxxx
(for five consecutive trainloads) x Purchase
xxxx
(b)(i) Sulfur Dioxide. If delivered coal cannot be
burned at the Sugar Factory to which it is shipped because the cumulative
weighted average sulfur dioxide content of any five consecutive trainloads of
coal exceeds x.x pounds per million Btu of sulfur dioxide, Buyer shall have the
following remedies:
(aa) Buyer may, at its option, reconsign all
segments of the fifth and each consecutive trainload that maintains a cumulative
weighted average in excess of x.x pounds per million Btu of sulfur dioxide at
Seller's expense to a Sugar Factory that can burn such coal, or
(bb) If Seller cannot cure the problem
within seven (7) days by providing Substitute Coal or otherwise, Buyer may
discontinue coal purchases (as to any unit train that has not commenced loading)
with respect to the affected Sugar Factory. Reduction in tonnage to the affected
Sugar Factory shall be Buyer's sole remedy per this Section (b) (i) (bb), and
Seller shall not be liable for any incidental or consequential damages,
including lost profits, caused thereby.
(c) Sodium Oxide, Moisture and Ash. With respect to
sodium oxide, moisture and ash content, Buyer assumes the risk of all variations
from field averages.
SECTION 5. UNIT TRAINS, LOADING AND WEIGHING.
5.01 Point of Delivery. The coal for the Sugar Factory shall
be delivered FOB loaded in railcars provided by Buyer on the railroad loading
siding at the Mine or, if Substitute Coal is delivered to the Sugar Factory, at
the railroad loading siding located at the Substitute Coal Source (the "Point of
Delivery"), with freight paid by Buyer.
5.02 Title. Upon the completion of loading of a railcar, the
title and risk of loss for all coal in that car shall be Buyer's.
5.03 Weighing. The weight of coal sold under this Agreement
shall be determined on appropriate commercial scales chosen by Seller and
installed at Seller's loading facilities at the Mine. Seller's scales shall be
inspected and certified by Hoke and Associates at six-month intervals during the
term of this Agreement. The weights determined at Seller's Mine shall be
accepted by Buyer as the quantity of coal for which invoices are to be rendered
and payments made in accordance with Section 6 below. Any change in the weight
of coal during subsequent transportation or storage shall have no effect on the
weight of coal shown on the invoice. In the event Seller's scales are
inoperative for a period, Seller shall inform Buyer and use its best efforts to
restore operation of the scales as soon as possible. The weight of coal per
railcar delivered during such period that scales are inoperative shall be deemed
equal to the average weight per railcar for coal delivered during the preceding
month. If Seller's scales are inoperative during the first month of this
Agreement, the weight of coal delivered shall be determined by mutually
acceptable independent means.
SECTION 6. PRICE; PRICE ADJUSTMENTS.
6.01 Purchase Price. The Purchase Price per ton of coal (2,000
pounds) to be paid by Buyer to Seller for each delivery of coal FOB Point of
Delivery in railcars under this Agreement shall be the sum of (a) the Base
Price, as defined and as adjusted as provided below, plus (b) the Pass-Through
Costs, as defined in Section 6.04, plus (c) the New Costs, as defined in Section
6.05, applicable to such delivery. The Purchase Price, as thus determined, shall
be subject to adjustment for changes in the depletion allowance as provided in
Section 6.06 and for Btu variations as provided in Section 4.02.
As of the Effective Date, the initial Base Price per ton of coal FOB
Point of Delivery is equal to $x.xxx (the "Initial Base Price"), the
Pass-Through Costs are equal to $x.xxx and the Purchase Price is therefore equal
to $x.xxx per ton. The Purchase Price per ton of coal delivered by Seller to
Buyer during the Campaign Season from August 1994 to May 1995 ("the Campaign
Season 1994-95"), shall be adjusted from the Purchase Price to be paid by Buyer
for such coal delivery pursuant to the Coal Supply Agreement made between Buyer
and Spring Creek Coal Company, dated August 1, 1994, to the Purchase Price
referred to in this Section 6.01. Such adjustments in Purchase Price for
deliveries of coal already made during the Campaign Season 1994-95 to the date
of this Agreement shall be paid or credited to Buyer in accordance with Section
6.08 hereof.
6.02 Index Adjustment of Base Price. The Initial Base Price as
of the Effective Date shall be divided, for purposes of escalation, into three
Initial Base Price Components, weighted in percentage terms as follows: (1)
Gross Domestic Product-Implicit Price Deflator (GDP-IPD Component: xx%); (2) SIC
Code 122 AHE (Labor Component: xx%); and (3) PPI 112 (Machinery Component: xx%).
The Initial Base Price values are set forth as follows:
GDP - IPD = First published, first quarter 1994 value (125.7) [Source:
Department of Commerce, Bureau of Economic Analysis] as published in
the April 1994 monthly report, "Survey of Current Business", Table
7.13.
SIC 122 = First published, May 1994 value (17.85) [Source: U.S.
Department of Labor, Bureau of Labor Statistics] as published in the
July 1994 monthly report, "Employment & Earnings" currently in Table
B-15.
PPI - 112 = First published, June 1994 value (133.6) [Source: U.S.
Department of Labor, Bureau of Labor Statistics] as published in the
June 1994 monthly report, "Producer Price Indexes", currently in Table
6.
The Initial Base Price will apply to all shipments of coal made during
the Campaign Season 1994-1995 and all shipments thereafter through September 30,
1995.
The Initial Base Price will be adjusted on the first day of each
calendar quarter during the term of this Agreement, beginning October 1, 1995.
The Initial Base Price, as adjusted, will be referred to as the "Base Price".
These adjustments will be calculated as follows using the most current first
published index information available at the beginning of each quarter:
ABP = .x x (AG) +.x x (AL) + .x x (AM) x IBP
(125.7) (17.85) (133.6)
where,
ABP = Adjusted Base Price for the current calendar quarter.
AG = GDP/IPD first published index value for the second
preceding quarter.
AL = SIC 122 AHE first published index value for the third
preceding month.
AM = PPI - 112 first published index value for the second
preceding month.
IBP = The Initial Base Price as referred to in Section 6.01.
6.03 Changes in Indices. Should any of the indices referred to
in Section 6.02 above be discontinued, the parties shall select a substitute
index or indices by mutual agreement.
6.04 Pass-Through Costs. Seller's costs per ton of coal
produced and delivered, falling into the categories below, shall be treated as
"Pass-Through Costs" fully reimbursable by Buyer to Seller over and above the
Base Price determined under Sections 6.01 and 6.02. The amounts set forth in
attached Exhibit A are the amounts that will be included in the Purchase Price
as of August 1, 1994, for each Pass-Through Cost Item. Pass-Through Costs, other
than pass through costs assessed on values relating to the sales price, shall be
prorated over the total volume of Seller's production from the Mine, and Buyer
shall be assigned, as its actual Pass-Through Costs, only that prorated share
based on Buyer's share of the total of Seller's production from the Mine. Buyer
shall receive a refund or credit against future purchases (if applicable) in the
event Seller receives a reduction in or refund of any Pass-Through Costs charged
to Buyer. The categories of Pass-Through Costs are more specifically defined as
follows:
(a) Taxes and Black Lung Costs. All taxes and black
lung costs (other than taxes directly borne by Buyer or taxes imposed on or
measured by net income and franchise taxes) levied or assessed by any
governmental authority on the coal, on its severance from the soil, or on
Seller's mining facilities or operations or other activities incident to the
performance of its obligations under this Agreement, including all taxes and
governmental charges levied or assessed against Seller with respect to the coal
for reclamation by any governmental authority; taxes imposed pursuant to 26 USC
ss. 4121 or other successor provision of law, or other taxes that may be imposed
to provide health or safety benefits to Seller's employees; and all costs, other
than taxes, incurred by Seller in connection with production of coal at the Mine
for black lung, including (without limitation) premiums for black lung
insurance, or payments made or accrued to a private or public trust (including a
trust fund established pursuant to Section 501(c)(21) of the Internal Revenue
Code) or reserve for future black lung claims. In the event Seller chooses to
cover its potential black lung liability by a means other than black lung
insurance, the amount included as black lung costs under this provision shall
not exceed the cost of such insurance. Buyer is to bear and pay directly (or
reimburse Seller for any such taxes Seller pays) all sales, use, or similar
taxes levied or assessed on the coal purchased hereunder. The parties agree that
if taxes are assessed on values related to the sales price, taxes paid by Buyer
under this Agreement shall be computed using the Purchase Price under this
Agreement.
(b) Royalties. All royalties in effect on the coal
sold to Buyer and for which Seller is liable under the leases then prevailing,
notwithstanding suspension of payment pending any appeal of the royalty or
adjustment thereof. In the event any royalty or adjustment is appealed by Seller
and decreased as a result, Seller will refund to Buyer any overpayments. The
amount of royalties to be paid by Buyer as to any month's deliveries of coal
mined under leases held by Seller ("Leased Coal") shall equal the applicable
royalty per ton multiplied by the number of tons of Leased Coal delivered to
Buyer from the Mine during that month. If royalties are assessed on values
related to the sales price, royalties paid by Buyer under this Agreement shall
be computed using the Purchase Price under this Agreement.
6.05 New Costs. The Base Price provided in Section 6.01
includes Seller's best estimate of the cost, per ton of coal, of complying with
all federal, state, and local laws, rules, and regulations in force as of July
1, 1994, except for those items specifically designated as Pass-Through Costs,
as they were implemented, interpreted, and enforced on the Effective Date, which
estimate shall, for purposes of this provision, be binding upon Seller (such
costs shall be referred to as "Compliance Costs"). To the extent that new laws,
rules, regulations, or governmental orders coming into effect after July 1,
1994, or changes in the implementation, interpretation or enforcement of laws,
rules and regulations in effect on July 1, 1994, cause any increase or decrease
in the Compliance Costs, the Purchase Price shall be increased or decreased, as
the case may be, by the amount that accurately reflects the change in Compliance
Costs incurred. Such changes in Compliance Costs shall be referred to as "New
Costs."
New Costs shall be prorated over the total volume of Seller's
production from the Mine if the new cost is based on tonnage sold from the Mine,
and Buyer shall be assigned, as its actual New Costs, only that prorated share
based on its share of the total of Seller's production from the Mine. If the New
Cost is based on a percentage of Sales Price, Buyer shall pay its portion of the
new cost based on its Sales Price.
6.06 Adjustment of Purchase Price for Changes in Depletion
Allowance. If at any time after the Effective Date changes are made in the law
regarding the allowance for depletion on coal that affect the state and federal
income tax deductions for depletion available to Seller, the Purchase Price
shall be increased or decreased by the amount needed to provide Seller with the
same cash flow from the sale of each ton of coal under this Agreement after
state and federal income taxes. In calculating Seller's after-tax cash flow from
the sale of a ton of coal for this purpose, Seller shall compute its taxes as if
it filed separate (nonconsolidated) state and federal income tax returns and
paid state and federal income taxes at the maximum rate for corporations.
6.07 Billing and Payment. Seller shall invoice Buyer
semimonthly for coal delivered. Payment shall be made by check or wire transfer,
due within twenty (20) days after the date of each invoice; provided, that,
Buyer may withhold payment of the portion of any invoice which is the subject of
a bona fide dispute under the provisions of this Agreement. Checks and wire
transfers shall be made to Seller's account, as follows:
Wire Transfer:
Bank: FIRST SECURITY BANK OF UTAH
ABA No.: xxxxxxxxx
Account No.: xxxxxxxxx
Account Name: Spring Creek Coal Company
Check:
Account Name: Spring Creek Coal Company
Account No: xxxxxxxxx
Address: P.O. Box 26094
Salt Lake City, Utah 84126-0094
The details of this account shall, from time to time, be notified in
writing to Buyer. All amounts due for which payment is not timely made shall
bear interest from the date on which payment became due at the then prevailing
prime interest rate quoted by Morgan Guaranty Trust Company plus 2 percent per
annum. All invoiced amounts shall be subject, however, to subsequent adjustment
wherever this Agreement specifically so provides, and no interest shall be
payable to either party with respect to the amounts of such adjustments. If
payment is not made when due, Seller may give Buyer written notice of such past
due payment. Three (3) days after such notice is effective, pursuant to Section
10.07, Seller may suspend deliveries until the invoice, including any interest,
has been paid. If the invoice is not paid within fifteen (15) days after
Seller's notice becomes effective, Buyer's failure to make payment when due
shall constitute a material breach of this Agreement by Buyer, and Seller may,
at its sole option, cancel this Agreement.
6.08 Adjustments. The parties recognize that at the time each
invoice for coal is prepared, it may not be possible to calculate definitively
the costs and other price adjustment factors applicable to the calendar
half-month for which such invoice is rendered; each invoice will, therefore, be
based upon the most current data reasonably available at the time of invoicing.
Upon receipt of information permitting determination of price adjustments,
Seller shall prepare and furnish to Buyer a supplemental invoice reflecting that
information. Seller or Buyer shall, within fifteen (15) days after mailing of
such supplemental invoice, pay the sum required by such invoice as above
provided.
6.09 Finality of Invoices. Except as otherwise expressly
provided in this Agreement, any invoice that is not contested within twenty-four
(24) months after the date thereof shall be deemed correct and final unless any
of the Pass-Through Costs have retrospective effect on the Purchase Price of
coal more than 24 months after the date of invoice, and provided that Seller
shall advise Buyer of any such effect or potential effect within a reasonable
time following Seller becoming so aware.
6.10 Records and Audits. Seller shall keep accurate records
and books of accounts showing all data relating to price, quantity and quality
determinations and adjustments required for purposes of this agreement. At the
election of Buyer, once each fiscal year of Seller, Seller shall make such
records and books of account covering the preceding fiscal year available for
audit at Seller's offices during Seller's normal office hours. Such audits shall
be prepared and certified to by a nationally recognized firm of certified public
accountants to be mutually agreed by Buyer and Seller and Buyer shall bear the
expenses of the audit. The findings of the audit will be binding on the parties
absent a finding by either party of a material error in the audit which error is
identified within 60 days after completion of the audit and submission of the
findings to the Seller. If the audit discloses that an overpayment or an
underpayment has been made, the amount thereof shall promptly be paid to the
party to whom it is owed by the other party. Buyer shall have the option of
having the audit prepared by Seller's independent auditors as part of the
regular annual audit of Seller's books and records. In such event, only those
expenses in excess of Seller's normal audit expenses will be borne by Buyer. The
accounting firm conducting the audit shall be bound not to disclose and shall
treat as confidential any and all proprietary information of Seller furnished to
or examined by such firm in connection with the audit.
SECTION 7. DISCLAIMER OF WARRANTIES, LIMITATION ON LIABILITY.
7.01 EXPRESS WARRANTIES. BUYER AGREES THAT SELLER MAKES NO
EXPRESS WARRANTIES OTHER THAN THOSE IDENTIFIED AS SUCH IN THIS AGREEMENT.
7.02 IMPLIED WARRANTIES. ALL WARRANTIES OF MERCHANTABILITY OR
OF FITNESS FOR A PARTICULAR PURPOSE OR ARISING FROM A COURSE OF DEALING OR USAGE
OF TRADE ARE SPECIFICALLY EXCLUDED.
7.03 Limitation on Liability. In no event shall either party
have liability to the other party for incidental or consequential damages except
as expressly stated in this Agreement.
SECTION 8. FORCE MAJEURE.
If either party is unable to meet any of its obligation under this
Agreement as a result of flood, earthquake, storm, or other act of God, fire,
derailment, accident, strike, lockout, boycotts, picketing, shortages of or
inability to obtain electric power, raw materials, railcars or machinery,
mechanical breakdown in facilities, war, insurrection, riot, catastrophic sugar
beet or corn crop failure (as applicable), railroad line abandonment, act of
government or governmental agency, or due to any cause beyond the reasonable
control of either party, including the inability of the Sugar Factory, the Mine
and/or the rail carrier to meet its obligations for reasons whether similar or
dissimilar to the foregoing and whether foreseeable or unforeseeable, such event
will be deemed an event of force majeure. In addition, it shall be deemed an
event of force majeure in the event Buyer is unable to burn Seller's coal due to
ash-fouling, sulfur dioxide emissions, or other legally enforceable
environmental restrictions, or either party permanently closes or experiences
partial failure or nonoperation of any of its facilities lasting a minimum of
seven (7) days as a result of reasons beyond the control of such party. In the
event of force majeure, the obligations of the parties, other than payment for
coal previously delivered, shall be suspended for the duration of the event of
force majeure, provided that reasonable notice is given. Whenever in Seller's
judgment any event of force majeure requires restriction of deliveries, Seller
reserves the right in its discretion to allocate its available supply of coal in
a fair and equitable manner without obligation to furnish products from other
sources. No suspension or reduction for reason of force majeure shall invalidate
the remainder of this Agreement; but on removal of the cause, shipments shall
resume at the specified rate; deficiencies in shipments so caused shall not be
made up except by mutual consent. If an event of force majeure prevents the
performance of either party for a period of one year or more despite that
party's efforts to eliminate the force majeure event and to mitigate its impact,
then the party not claiming an event of force majeure may terminate this
Agreement by providing at least thirty (30) days written notice of termination
to the other party. The provisions of this Section shall not excuse either party
from performing unless that party gives a reasonable notice to the other party
of the occurrence of an event of force majeure.
SECTION 9. DISPUTES.
In the event any dispute arises between the parties concerning any
issue of law or fact arising out of this Agreement, it shall be settled by
arbitration pursuant to the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award may be entered in any court
having jurisdiction over the matter.
The parties to the arbitration shall be entitled to such discovery as
would be available to them under the Federal Rules of Civil Procedure, and the
arbitrators will have all the authority of a court under such Rules incidental
to such discovery, including but not limited to orders to produce documents or
other materials and orders to appear and submit to deposition and to impose
appropriate sanctions, including but not limited to awarding sanctions against a
party for failure to comply with any order.
The arbitration panel shall consist of three arbitrators with
experience in the coal industry, one appointed by Seller, one by Buyer and the
third by the arbitrators appointed by Seller and Buyer. If the party appointed
arbitrators cannot agree within fifteen (15) days after their appointment on
appointment of the third arbitrator, then the third arbitrator shall be
appointed by the American Arbitration Association.
SECTION 10. GENERAL PROVISIONS.
10.01 Waiver. Failure of either party at any time to require
performance of any provision of this Agreement shall not limit that party's
right to enforce the provisions, nor shall any waiver of any breach of any
provision be a waiver of any succeeding breach of the provision itself or of any
other provision.
10.02 Headings. The headings in this Agreement are included
only for convenience and shall not control or affect the meaning or construction
of this Agreement.
10.03 Entire Agreement. This Agreement is the entire agreement
between the parties. There are no other provisions, representations, warranties
or understandings, express or implied. No modification, variation or amendment
of this Agreement shall be of any force or effect unless it is in writing and
signed by all the parties.
10.04 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, their respective successors and assigns.
10.05 Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of North Dakota.
10.06 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.
10.07 Notices. Notices under this Agreement shall be in
writing and shall be effective when actually delivered. If mailed, a notice
shall be deemed effective five (5) days after mailing as registered or certified
mail, postage prepaid, directed to the other party as set out below. If via
prepaid commercial courier or express service, a notice shall be deemed
effective upon its receipt, if directed to the other party as set forth below.
If via telefacsimile, a notice shall be deemed effective upon receipt of the
successful telefax transmission report, directed to the other party as set out
below:
SELLER: KENNECOTT ENERGY COMPANY
Attn: Contract Administration
505 South Gillette Avenue
Gillette, Wyoming 82716
or
Caller Box 3009
Gillette, Wyoming 82717-3009
Fax No. (307) 687-6009
BUYER: MINN-DAK FARMERS COOPERATIVE
Attn: Controller
7525 Red River Road
Wahpeton, North Dakota 58075-9698
Fax No. (701) 642-6814
The addresses and fax numbers of any party may be changed by giving notice in
writing at any time to the other party.
10.08 Confidentiality. Any nonpublic information, oral or
written, including the contents of this Agreement and any related agreement,
disclosed by either party to the other shall be considered confidential
information, and such information shall not be disclosed to any third party
other than to Seller's parent corporation or its employees, accountants,
attorneys, and lenders, and will be kept secret and confidential during the term
of this Agreement.
10.09 Attorneys' Fees. If any legal action or suit is
commenced by either party arising out of this Agreement, the prevailing party in
such action or suit shall be entitled to recover reasonable attorneys' fees and
expenses, including fees and expenses on appeal, as determined by the court.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the Effective Date.
SELLER KENNECOTT ENERGY COMPANY FOR AND ON
BEHALF OF SPRING CREEK COAL COMPANY
By Malcolm R. Thomas
Title: V.P. Marketing & Sales
BUYER MINN-DAK FARMERS COOPERATIVE
By Larry D. Steward
Title: President/CEO
EXHIBIT A
Estimated Pass-Through Costs
Included in Base Price
as of August 1, 1994
Price Per
Ton
Section 6.04(a) - Taxes
Severance Tax $0.xxx
Gross Proceeds Tax 0.xxx
Resource Indemnity Trust Tax 0.xxx
Federal Reclamation Fee 0.xxx
Black Lung Excise Tax 0.xxx
Black Lung Insurance 0.xxx
Property Taxes 0.xxx
-----
Depletion Allowance 0.xxx
Total Taxes $x.xxx
Section 6.04(b) - Royalties
BLM Royalty $x.xxx
Rosebud Royalty x.xxx
-----
Total Royalty $x.xxx
TOTAL ESTIMATED PASS-THROUGH COSTS $X.XXX
CONFIDENTIAL TREATMENT REQUESTED AS TO CERTAIN PROVISIONS
xx = INFORMATION FOR WHICH CONFIDENTIALITY IS REQUESTED
COAL TRANSPORTATION AGREEMENT
THIS AGREEMENT is made and entered into this 14th day of August, 1995,
by and between Northern Coal Transportation Company, an Oregon corporation with
an office in Gillette, Wyoming ("Northern"), and Minn-Dak Farmers Cooperative, a
North Dakota cooperative with offices at 7525 Red River Road, Wahpeton, North
Dakota 58075 ("Shipper").
RECITALS
1. Concurrent with this Coal Transportation Agreement ("Agreement"),
Kennecott Energy Company, for and on behalf of Spring Creek Coal Company, has
executed a Coal Supply Agreement with Shipper (the "Coal Supply Agreement") for
the sale and purchase of coal from the Spring Creek Mine (the "Mine") to
Shipper. The coal is to be used in Shipper's sugar factory in Wahpeton, North
Dakota (the "Sugar Factory"). Capitalized terms not otherwise defined in this
Agreement will have the meaning set forth in the Coal Supply Agreement.
2. The Coal Supply Agreement contemplates the establishment of a
transportation system that can take delivery at the Point of Delivery (as that
term is defined in Section 5.01 of the Coal Supply Agreement) of estimated
requirements of coal in approximately equal weekly and monthly amounts and
transport those amounts to the Sugar Factory.
3. Shipper has appointed United Sugars Corporation, a Minnesota company
with offices at 1700 Eleventh Street, Moorhead, Minnesota ("USC") to act as its
agent in procuring and facilitating the transportation of coal to the Sugar
Factory. USC has the authority and is acting on behalf of Shipper in relation to
the transportation of coal under the Coal Supply Agreement. USC will be acting
on behalf of Shipper under this Agreement.
4. Northern desires to enter into a contract with Shipper to arrange
for the transportation of coal called for by the Coal Supply Agreement and to
perform all of the obligations of Shipper with respect to the transportation of
coal required by the Coal Supply Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of the parties set forth below, the parties to this Agreement agree as follows:
SECTION 1. TERM; CAMPAIGN SEASONS.
1.01 Term. The term of this Agreement shall commence on July
1, 1995 ("the Effective Date"), and shall continue to July 31, 2005.
1.02 Campaign Seasons. Shipments under the Coal Supply
Agreement have been divided into periods of approximately ten months commencing
on or about August 15 and continuing until about May 31 of the following
calendar year, with the last such period running from about August 15, 2004, to
about May 31, 2005. These ten-month periods of coal deliveries shall be referred
to in this Agreement as "Campaign Seasons."
SECTION 2. SHIPMENTS.
2.01 Description of Transportation System. Northern agrees to
transport from the Mine to the Sugar Factory the estimated annual requirements
under the Coal Supply Agreement in approximately equal weekly and monthly
amounts. The coal is to be delivered to Shipper FOB Point of Delivery. Northern
may transport Shipper's coal in unit trains which contain coal being shipped for
American Crystal Sugar, a Minnesota cooperative ("ACS"). The Coal Supply
Agreement anticipates that deliveries in the first months of a Campaign Season
will be larger to allow Shipper sufficient time to build stockpiles at each
Sugar Factory. Northern will design the system to allow Shipper substantial
flexibility to increase or decrease the amount of coal delivered to the Sugar
Factory by each unit train (when broken into segments), subject to the tonnage
minimum stated in Section 2.09 of this Agreement. However, Shipper may not stop
a unit train from cycling except in the event of a force majeure as provided in
Section 5 of this Agreement, since such interruptions greatly increase the
difficulty of transportation management. Northern reserves the right to tender
trains of not more than xx cars in total or xxx,xxx tons of coal in total per
calendar month consisting of the total cars to Shipper and/or American Crystal
Sugar Company ("ACS") for the destination Sugar Factory and ACS's Sugar
Factories so that following telephonic notice to Shipper of such limitation,
Northern shall not be required to tender trains totaling xx cars or xxx,xxx tons
per calendar month under this Agreement to ACS and Shipper, until such time as
Northern gives telephonic notice to Shipper that the limitation no longer
applies. In unit trains with combined deliveries to ACS and Shipper, there will
be a stop at Fargo, North Dakota, for removal of cars to be delivered to
Moorhead and Wahpeton, North Dakota. At origin, Northern may place all cars for
delivery via Fargo, North Dakota, at the head of the train. A detailed
description of the transportation system, as set forth in Northern's agreement
with the Burlington Northern Railroad (the "Carrier"), is set forth in Exhibit
A.
2.02 Responsibilities Concerning Delivery. Northern shall
deliver coal to the Sugar Factory. Northern will deliver coal in railcars
directly to sidings on Shipper's property at the Sugar Factory. Northern will,
on Shipper's behalf, fully pursue all claims against third parties for loss of
the coal in any given railcar from the time that the railcar is completely
loaded at the Spring Creek Mine until the railcar is on property at a Sugar
Factory.
2.03 Coordination. Northern shall be responsible for arranging
all transportation and for coordinating with Spring Creek Coal Company the
arrival of railroad trains for loading at the Point of Delivery (as defined in
Section 5.01 of the Coal Supply Agreement). Northern shall use reasonable
efforts to schedule arrivals of trains at the Point of Delivery such that coal
can be delivered in approximately equal monthly amounts during any Campaign
Season; provided that deliveries in the first months of a Campaign Season will
be larger to allow Shipper to build stockpiles at the Sugar Factory. Weekly
shipments will be in substantially equal quantities consistent with the monthly
delivery quantity.
2.04 Notice of Changes in Train Segments. If Shipper desires
to alter the size of train segments to be transported to the Sugar Factory
during a Campaign Season, Shipper may notify Northern by mail or by telephone,
telegraph or other electronic means. Any electronic notice shall be confirmed in
writing within ten (10) days. Requested changes in the size of train segments to
be transported to any Sugar Factory will be implemented for the first train
loaded more than 24 hours after notice is received; provided that Northern shall
not be obligated to provide unit trains of more than xx cars or fewer than xx
cars, which trains are comprised of Shipper and ACS cars. Shipper shall monitor
and control its coal stockpiles so that requested increases or decreases in the
size of train segments delivered to the Sugar Factory will not result in a unit
train with more than xx cars or fewer than xx cars which may be combined with
ACS shipments. USC will act on Shipper's behalf in coordinating unit train
composition with ACS and Northern.
2.05 Right to Transport Excess Coal. To maintain the efficient
operation of its transportation system, Northern may transport from the Spring
Creek Mine to the Sugar Factory up to 12 percent more than Shipper's estimated
or amended coal requirements in any month, as contemplated by Section 3.03 of
the Coal Supply Agreement. Shipper agrees to accept and pay for the
transportation of such coal, provided that Shipper shall not be required to pay
transportation for more coal than it has requested during any Campaign Season,
subject to the minimum tonnage stated in Section 2.09 of this Agreement.
2.06 Extended Campaign Season. Under Section 3.02(b) of the
Coal Supply Agreement, Shipper may extend any Campaign Season by three months
before August 15 or after May 31 of such Campaign Season upon six weeks written
notice to Spring Creek Coal Company. If Shipper chooses to extend any Campaign
Season, it shall also be required to give Northern six weeks written notice and
Shipper shall pay Northern for any increased transportation costs as specified
in Section 2.08 of this Agreement.
2.07 Unloading. Shipper agrees to provide facilities at the
Sugar Factory to permit delivery by Northern of segments of a train. Said
facilities shall be designed and constructed for carload unloading. Northern
will place the loaded cars on a siding on Shipper's property. The Shipper will
complete unloading operation at its own expense. The Shipper shall exercise
reasonable care and caution when unloading railcars at their facilities and will
insure that railcar doors are closed with latches in the locked position, with
cargo hoppers free and clear of any foreign debris. The Shipper shall pay for
the actual costs incurred by Northern in respect of any failure of Shipper to
exercise such reasonable care and caution, including any origin demurrage
incurred by Northern as a result thereof. Plant personnel are responsible to
notify USC, who will in turn notify Northern, of any problems or deficiencies
found concerning the railcars. When a train reaches the Sugar Factory, the coal
shall be unloaded from each railcar within five (5) full days of the date of the
arrival of such railcar to ensure that at least xx empty railcars are available
at all times to make up unit trains. In the event that railcars are not unloaded
within the time specified above, Northern reserves the right to charge a
mutually acceptable demurrage rate on each such railcar.
2.08 Changes in Transportation System. Shipper acknowledges
that changes in the transportation system including, but not limited to, (i) any
break in the unit train cycle due to failure to unload railcars or other reasons
caused by Shipper; (ii) any extension of the Campaign Season as provided in
Section 2.06 of this Agreement, and (iii) Carriers Line Abandonment as set forth
in Section 7.01 may result in changes in Northern's railcar and other costs as
set forth in Exhibit A. Unless excused by Section 5, Shipper agrees to pay all
such changes in transportation costs caused by or attributable to Shipper or
USC. Northern will be responsible for changes in transportation costs caused by
or attributable to Northern.
2.09 Freight Costs Due to Quantity Variations.
Shipper acknowledges that if it takes delivery of less than a
total of xx,xxx tons of coal in any Campaign Season, Northern may incur
additional freight costs. If, in any Campaign Season (1) Shipper and ACS take
combined deliveries of less than a cumulative total of xxx,xxx tons of coal, and
(2) Shipper takes delivery of less than a cumulative total of xx,xxx tons of
coal, Shipper agrees to pay Northern an amount representing liquidated damages
(and not a penalty) as defined and specified in Exhibit B. Such cumulative
minimum volumes of coal will be reduced as excused or permitted by Sections
2.09(b) or 5 of the Shipper's and ACS Coal Transportation Agreements.
(b) Notwithstanding the provisions of Section 5 of this
Agreement, the cumulative minimum volume of coal to be transported during each
Campaign Season during the term hereof shall be reduced if, after the exhaustion
of all other commercially reasonable efforts by Shipper which are coordinated
with Northern, Shipper installs gas-fired pulp dryers at any one or more of its
processing facilities in order to comply with air particulate emission
regulatory requirements. Shipper shall notify Northern of its intention to
convert any of its coal-fired pulp dryers to gas-fired pulp dryers and the
effective date of such conversion(s) under this Section. Upon the effective date
of such conversion(s), the annual minimum volume requirements of coal to be
shipped hereunder by Shipper shall be reduced to the extent necessary to reflect
that amount of coal no longer required as the result of the conversion. This
reduction in annual minimum volume shall be proportionately reduced in the first
year of the conversion to reflect the portion of the year with respect to which
the reduction is to be effective.
2.10 Frozen Coal. Shipper assumes the risk that coal may
freeze in transit between the Mine or any source of Substitute Coal and the
Sugar Factory. No price adjustment or delay in unloading shall be allowed for
frozen coal.
2.11 Sole Representative. For the purpose of proper and
efficient communication, it is expressly understood between Northern and the
Shipper that Northern is the sole representative of Shipper, USC and the Sugar
Company for all services stated or contemplated in this Agreement and that all
communication, verbal or written, relating in any way to the rates, terms,
conditions, and performance of this Agreement be accomplished solely between
Northern, Northern Mine's Representative and Carrier. The only exception to the
above will involve day-to-day communications between USC or the Sugar Company
and the Carrier pertaining or relating to railcar switching from and to the
Sugar Factory or such switching or destination related operations.
SECTION 3. TRANSPORTATION COSTS; ADJUSTMENTS; BILLING AND PAYMENT.
3.01 Transportation Costs. Shipper will pay Northern the sum
of (a) the transportation costs as set out in Exhibit C and as adjusted pursuant
to Section 3.03, below, plus (b) any increased costs caused by changes in the
transportation system under Section 2.08 which are caused by Shipper, plus (c)
any increased costs caused by Quantity Variations under Section 2.09 (together
called "Transportation Costs").
3.02 Weighing. Loaded cars will not be weighed by Northern.
Weights to be used for the assessment of transportation charges shall be those
ascertained by Spring Creek Coal Company at the Mine pursuant to Section 5.03 of
the Coal Supply Agreement.
3.03 Adjustment for Changes in Transportation Costs. The
Transportation Costs shall be adjusted quarterly by adding to them the product
of (a) the applicable Transportation Costs shown on Exhibit C, multiplied by (b)
the percentage change of seventy percent (70%) GDP FW most recent quarterly
growth rate (described in Exhibit D) effective October 1, 1995, provided always
that the Transportation Costs shall not reduce below those set forth in Exhibit
C hereto. In the event the GDP FW is discontinued, the successor tariff or index
applicable to Northern's transportation agreements with the Carrier (as outlined
in Exhibit D) shall apply for purposes of this provision.
3.04 Billing and Payment. Northern shall invoice Shipper
semimonthly for Transportation Costs. Payment shall be due on each invoice
within twenty (20) days after the date of the invoice by check or wire transfer
to Northern's account, as follows:
Wire Transfer:
BANK: First Security Bank of Utah
ABA No: xxxxxxxxxx
Account No: xxxxxxxxxx
Account Name: Northern Coal Transportation
Check:
Account Name: Northern Coal Transportation
Account No.: xxxxxxxxx
Address: P.O. Box 26094
Salt Lake City, Utah 84126-0094
All amounts due for which payment is not timely made shall bear interest from
the date on which payment became due at the then prevailing prime interest rate
quoted by Morgan Guaranty Trust Company plus two percent per annum. All invoiced
amounts shall be subject, however, to subsequent adjustment wherever this
Agreement specifically so provides, and no interest shall be payable to either
party with respect to the amounts of such adjustments. If payment is not made
when due, Northern may give Shipper written notice of such past due payment.
Three days after such notice is effective, pursuant to Section 7.08, Northern
may suspend transportation until the invoice, including any interest and any
increased transportation costs caused by the suspension of deliveries, has been
paid. If the invoice is not paid within 15 days after Northern's notice becomes
effective, Shipper's failure to make payment when due shall constitute a
material breach of this Agreement by Shipper, and Northern may, at its sole
option, cancel this Agreement.
3.05 Adjustments. The parties recognize that at the time each
invoice for Transportation Costs is prepared, it may not be possible to
calculate definitively the costs and other adjustment factors applicable to the
calendar half-month for which such invoice is rendered; each invoice will,
therefore, be based upon the most current data reasonably available at the time
of invoicing. Upon receipt of information permitting determination of price
adjustments, Northern shall prepare and furnish to Shipper a supplemental
invoice reflecting that information. Northern or Shipper shall, within fifteen
(15) days after mailing of such supplemental invoice, pay the sum required by
such invoice as above provided.
3.06 Finality of Invoices. Except as otherwise expressly
provided in this Agreement, any invoice that is not contested within twenty-four
(24) months after the date thereof shall be deemed correct and final.
3.07 Records and Audits. Northern shall keep accurate records
and books of accounts showing all data relating to Transportation Costs for
purposes of this Agreement. At the election of Shipper, once each fiscal year of
Northern, Northern shall make such records and books of account covering the
preceding fiscal year available for audit at Northern's offices during
Northern's normal office hours. Such audits shall be prepared and certified to
by a nationally recognized firm of certified public accountants to be selected
by Shipper and Shipper shall bear the expenses of the audit. The findings of the
audit will be binding on the parties absent a finding of material error in the
audit which is brought to the attention of Northern within 90 days after
submission of the audit results to Northern by Shipper. If the audit discloses
that an overpayment or an underpayment has been made, the amount thereof shall
promptly be paid to the party to whom it is owed by the other party. Shipper
shall have the option of having the audit prepared by Northern's independent
auditors as part of the regular annual audit of Northern's books and records. In
such event, only those expenses in excess of Northern's normal audit expenses
will be borne by Shipper. The accounting firm conducting the audit shall be
bound not to disclose and shall treat as confidential any and all proprietary
information of Northern furnished to or examined by such firm in connection with
the audit.
3.08 Termination. Shipper may terminate this Agreement at any
time upon giving at least two months notice in writing to Northern. In the event
of such termination, Shipper shall pay, as liquidated damages and not as a
penalty, twenty-five percent (25%) of the lowest effective Transportation Costs
for the Sugar Factory, as set forth in Exhibit C and as adjusted pursuant to
Section 3.03 in effect on the last day of the Campaign Season, times the tonnage
requirement of xx,xxx tons per Campaign Season, as adjusted pursuant to Sections
2.09(b) and 5, for the remaining term of this Agreement less all tons shipped
during the Campaign Season in which the notice of termination is given.
SECTION 4. LIABILITY AND INDEMNIFICATION.
4.01 Liability for Property Damage and Personal Injury. Each
party shall assume and be responsible for any liability for loss and damage to
property and for personal injury, including death, to any person caused by the
negligence of that party and arising out of or connected with performance of
this Agreement.
4.02 Joint Liability. If liability is due to the joint and
concurring negligence of the parties, it shall be shared by them proportionately
on the basis of the negligence of each party involved.
4.03 LIMITATION ON LIABILITY. IN NO EVENT SHALL EITHER PARTY
HAVE LIABILITY TO THE OTHER PARTY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES EXCEPT
AS EXPRESSLY STATED IN THIS AGREEMENT.
SECTION 5. FORCE MAJEURE.
(a) If either party is unable to meet any of its obligations
under this Agreement as a result of flood, earthquake, storm, or other act of
God, fire, derailment, accident, strike, lockout, boycotts, picketing, shortages
of or inability to obtain electric power, raw materials, railcars or machinery,
mechanical breakdown in facilities, war, insurrection, riot, catastrophic sugar
beet or corn crop failure (as applicable), act of government or governmental
agency, or due to any cause beyond the reasonable control of either party,
including the inability of the Sugar Factory, the Mine and/or the Carrier to
meet its obligations for reasons whether similar or dissimilar to the foregoing
and whether foreseeable or unforeseeable, such event will be deemed an event of
force majeure. In addition, it shall be deemed an event of force majeure in the
event Shipper is unable to burn Northern's coal due to ash-fouling, sulfur
dioxide emissions, or other legally enforceable environmental restrictions, or
either party permanently closes or experiences partial failure or nonoperation
of any of its facilities lasting a minimum of seven (7) days as a result of
reasons beyond the control of such party. In the event of force majeure, the
obligations of the parties, other than payment for Transportation Costs
incurred, shall be suspended for the duration of the event of force majeure,
provided that reasonable notice is given. Whenever in Northern's judgment any
event of force majeure requires restriction of deliveries, Northern reserves the
right in its discretion to allocate its transportation services in a fair and
equitable manner without obligation to furnish products from other sources. No
suspension or reduction for reason of force majeure shall invalidate the
remainder of this Agreement; but on removal of the cause, shipments shall resume
at the specified rate; deficiencies in shipments so caused shall not be made up
except by mutual consent. If an event of force majeure prevents the performance
of either party for a period of one year or more despite that party's efforts to
eliminate the force majeure event and to mitigate its impact, then the party not
claiming an event of force majeure may terminate this Agreement by providing at
least thirty (30) days written notice of termination to the other party. The
provisions of this Section shall not excuse either party from performing unless
that party gives a reasonable notice to the other party of the occurrence of an
event of force majeure.
(b) For the purposes of any partial or total event of Force Majeure
under this Agreement, it will be presumed that, except for the event, total
loading of coal onto trains at the mine and total deliveries to Shipper by
Northern at the Sugar Factory would have been xxx Tons per Campaign Season day,
under the xx,xxx Ton Minimum Volume Requirement, for each continuous 24-hour
period. The Minimum Tonnage Requirement of xx,xxx tons (subject to reduction as
provided herein) will be proportionately reduced per Campaign Season day for
each Force Majeure day claimed.
SECTION 6. DISPUTES.
In the event any dispute arises between the parties concerning any
issue of law or fact arising out of this Agreement, it shall be settled by
arbitration pursuant to the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon the award may be entered in any court
having jurisdiction over the matter.
The parties to the arbitration shall be entitled to such discovery as
would be available to them under the Federal Rules of Civil Procedure, and the
arbitrators will have all the authority of a court under such Rules incidental
to such discovery, including but not limited to orders to produce documents or
other materials and orders to appear and submit to deposition and to impose
appropriate sanctions, including but not limited to awarding sanctions against a
party for failure to comply with any order.
The arbitration panel shall consist of three arbitrators, one appointed
by Northern, one by Shipper and the third by the arbitrators appointed by
Northern and Shipper. If the partyappointed arbitrators cannot agree within 15
days after their appointment on appointment of a third person, then the third
person shall be appointed by the American Arbitration Association.
SECTION 7. GENERAL PROVISIONS.
7.01 Line Abandonment. The terms of this Agreement in no way
obligate Carrier or Northern to continue ownership, maintenance (including
Weight standards), or operation of any rail lines. Northern will not be liable
for any consequential damages or increased transportation costs that may be
incurred by Shipper as the result of Carrier's discontinuation of ownership,
maintenance (including Weight standards), or operation of any rail lines. If
Shipper fails to meet its Minimum Tonnage Requirements due to lawful cessation
of service or abandonment of any rail lines during the term of this Agreement,
as the sole remedy of Shipper, the rates on all coal which moved in accordance
with this Agreement during the then current Campaign Season shall be determined
as if the Minimum Tonnage Requirement had been met.
7.02 Waiver. Failure of either party at any time to require
performance of any provision of this Agreement shall not limit that party's
right to enforce the provisions, nor shall any waiver of any breach of any
provision be a waiver of any succeeding breach of the provision itself or of any
other provision.
7.03 Headings. The headings in this Agreement are included
only for convenience and shall not control or affect the meaning or construction
of this Agreement.
7.04 Entire Agreement. This Agreement is the entire agreement
between the parties. There are no other provisions, representations, warranties
or understandings, express or implied. No modification, variation or amendment
of this Agreement shall be of any force or effect unless it is in writing and
signed by all the parties.
7.05 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties, their respective successors and assigns.
7.06 Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of North Dakota.
7.07 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.
7.08 Notices. Notices under this Agreement shall be in writing
and shall be effective when actually delivered. If mailed, a notice shall be
deemed effective five (5) days after mailing as registered or certified mail,
postage prepaid, directed to the other party as set out below. If via
telefacsimile, a notice shall be deemed effective upon receipt of the successful
telefax transmission report, directed to the other party as set out below:
NORTHERN: NORTHERN COAL TRANSPORTATION COMPANY
Attn: Contract Administration
505 South Gillette Avenue
Gillette, Wyoming 82716
or
Caller Box 3009
Gillette, Wyoming 82717-3009
Fax No. (307) 687-6009
SHIPPER: MINN-DAK FARMERS COOPERATIVE
Attn: Controller
7525 Red River Road
Wahpeton, North Dakota 58075
Fax No. (701) 642-6814
The addresses and fax numbers of any party may be changed by giving notice in
writing at any time to the other party.
7.08 Confidentiality. Any nonpublic information, oral or
written, including the contents of this Agreement and any related agreement,
disclosed by a party to the other shall be considered confidential information,
and such information shall not be disclosed to any third party, other than to
Northern's parent corporation, USC, Shipper, or the employees, accountants,
attorneys, and lenders of such parties, and will be kept secret and confidential
during the term of this Agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the Effective Date set forth above.
NORTHERN COAL TRANSPORTATION COMPANY
By Malcom R. Thomas
Title V.P. Marketing & Sales
MINN-DAK FARMERS COOPERATIVE
By Larry D. Steward
Title President/CEO
EXHIBIT A
DESCRIPTION OF TRANSPORTATION
(Excerpted From the Agreement between the Burlington Northern
Railroad Company and the Northern Coal Transportation Company)
Trains of not less than xx or more than xx Northern cars will be
tendered at Origin destined to Grand Forks, North Dakota, with a stop at Fargo,
North Dakota, for removal of cars to be delivered to destinations via Fargo,
North Dakota. All cars for delivery via Fargo, North Dakota, will be loaded at
the head end of the train by Northern.
Before tendering each shipment to Carrier at Origin, Northern will
specify on the Bill of Lading the car number, the number of cars and the loaded
weight to be delivered to each Destination. Loaded trains will be divided into
segments as previously designated by Northern on the Bill of Lading and the
segments will be delivered by the Carrier to the specified Destinations. Carrier
will deliver each segment to a siding on Receiver's property at each destination
to which delivery is to be made. Empty cars shall be stored on Receiver's
property at each Destination until picked up by Carrier. Carrier shall be
responsible for making up trains of empty cars for movement to Origin. Northern
agrees to pay for line-haul transportation at the Effective Rates and for
Accessorial Services at the Effective Charges.
At request of Northern, Carrier will permit a change in the Destination
shown on the Bill of Lading to another Destination after departure from Origin
if instructions are received by Carrier, as set forth below before arrival of
train at Fargo, North Dakota, or Grand Forks, North Dakota. A diversion charge
of $xxx.00 per car will apply when cars are so diverted. When instructions to
divert cars are received after arrival of train at Fargo, North Dakota, a
diversion charge of $xxx.00 per each diverted car will apply.
Services provided by Carrier which are included in the Base Freight
Component include line-haul transportation of Coal from Origin to Destination,
operating trains through loading facilities at Origin, placing the loaded cars
on a siding on Receiver's property at Destination, returning empty
Northern-furnished cars to the Origin loading facilities, storing and handling
Northern-owned spare cars as replacement for bad order cars and providing all
motive power, necessary cabooses (if required) and related transportation
facilities and equipment. Carrier assumes full responsibility and risk for the
efficient scheduling of such operations.
If it is determined by the Carrier that 55 empty cars are not available
at Grand Forks, North Dakota, and origin for return movement to the Origin for
loading, Carrier will notify Northern. Northern will instruct Carrier whether to
release the motive power at a charge of $xxx.00 or to let train return to Origin
with the empty cars available at Grand Forks, North Dakota, plus whatever empty
cars Northern may instruct the Carrier to pick up en route to Origin. An
additional charge of $xxx.00 will apply to restart the cycle.
Carrier agrees to perform, and Northern agrees to pay for, certain
Accessorial Services as directed by Northern.
Northern may discontinue any train cycle by giving Carrier at least 24
hours advance notice. The following charges shall apply for each such
interruption to the train cycle:
(a) $xxx.00, which shall include release of motive power and crew;
and $xxx.00 for restarting of train cycle. An additional
$xxx.00 per 24-hour period or fraction thereof will apply for
the storage of Seller cars on Carrier track, or
(b) $xxx.00, which shall include release of motive power and crew;
and $xxx.00 for restarting a train cycle provided that
Northern cars are stored on private track directly accessible
to Carrier.
EXHIBIT B
LIQUIDATED DAMAGES
If, for reasons other than termination of the Agreement as provided in
Section 3.08, (1) Shipper and ACS fail to tender to Northern at least xxx,xxx
tons combined in the Campaign Season as adjusted or as excused in Sections
2.09(b) and 5 of the Shipper's and Minn-Dak's Coal Transportation Agreement and
(2) Shipper fails to tender to Northern at least xx,xxx tons as adjusted in
Sections 2.09(b) and 5 during the Campaign Season, liquidated damages to
Northern shall be paid to Northern as follows: 45% of the lowest Effective
Transportation Costs for the Sugar Factory, as set forth in Exhibit C and as
adjusted pursuant to Section 3.03, in effect on the last day of the Campaign
Season, times the difference between the tons actually delivered to Shipper
during that Campaign Season and xx,xxx tons, as adjusted in Sections 2.09(b) and
5.
EXHIBIT C TRANSPORTATION COSTS, INCLUDING FREIGHT COST AND
RAILCAR COST (Effective July 1, 1995, per Ton)
Base
Plant Site Transportation Costs
---------- --------------------
Wahpeton $xx.xx Per Net Ton
EXHIBIT D
ADJUSTMENT OF RATES AND CHARGES
Except as otherwise provided in this Agreement, the rates and charges
set forth in Section 2.08 and Exhibit A of this Agreement, including the Base
Rate(s) set forth in Exhibit C, shall be adjusted quarterly, upward or downward,
by an amount equal to seventy percent (70%) of the GDP FW most recent quarterly
growth rate, to produce the Effective Transportation Costs as described in
Exhibits A and C.
Adjustments shall become effective quarterly on January 1, April 1,
July 1, and October 1 of each calendar year, with the first adjustment to become
effective on October 1, 1995. Northern shall notify USC in writing of all
adjustments and furnish supporting calculations prior to the effective date of
the adjustment, or, as soon thereafter as the information necessary to calculate
the adjustment is made by the Carrier. The new Transportation Costs so
determined shall be applicable retroactive to the adjustment date in question.
The percentage change shall be equal to the "Previous Quarter's GDP FW
Index" minus the "Next Previous Quarter's GDP FW Index," divided by the "Next
Previous Quarter's GDP FW Index" for each current adjustment time period. An
example of the quarterly percentage change calculation is described below:
((Q3 1994 - Q2 1994))/Q2 1994
((130.3 - 129.4)/129.4 = .0069552 rounded to .00696)
The quarterly GDP FW index percentage change (in decimal) will be
multiplied by seventy percent (70%) to produce the Adjustment Percentage Change
(in decimal). The previous quarterly Transportation Costs are multiplied by the
Adjustment Percentage Change to produce the "Change Amount." The previous
Transportation Costs plus the Change Amount equals the new quarter's
Transportation Costs.
Example:
Adjustment Percentage Change (decimal):
.0000696 TIMES .70 = .00487 rounded = .0049
Change Amount:
$10.00 (Previous Effective Rate) X .0049 = $0.45 rounded =
$0.05 New Transportation Cost:
$10.00 (Previous Transportation Cost) + $0.05 (Change Amount)
= $10.05
Source: U.S. Department of Commerce
Survey of Current Business
Table 7.1 for GDP Fixed Weight
Survey of Current
Adjustment Period Business Issue
----------------- -----------------
First Quarter October
Second Quarter January
Third Quarter April
Fourth Quarter July
All calculated numbers shall be rounded to the nearest fifth digit
after the decimal point (i.e., .00001499 = .00001). All final adjustment
computations shall be rounded to the nearest whole one cent by going to the
lower one cent when computations result in a balance of less than one-half cent
and to the next higher whole one cent when computations result in a balance of
one-half cent or more.
It is the intent of the parties that the adjustment index (the GDP FW)
reflects changes in railroad input costs. If the U.S. Department of Commerce or
any successor organizations cease to publish the GDP FW index required for the
calculations outlined in this Section, the parties shall mutually determine and
agree upon the most appropriate substitute index or indices which most closely
matches the economic structure (that is, to measure changes in railroad input
costs) of the discontinued index or indices to be used for adjustments for the
remainder of the Agreement term immediately following such action. If the
parties do not come to an agreement as to the substitute index or indices by an
adjustment date, the Transportation Costs shall not be adjusted until such time
as the index or indices are agreed to, at which time a retroactive adjustment
shall be made retroactive to said adjustment date. If the parties do not come to
an agreement as to the substitute index or indices by 60 days following an
adjustment date, the provision of Section 6 shall apply.
CONFIDENTIAL TREATMENT REQUESTED AS TO CERTAIN PROVISION
xx = INFORMATION FOR WHICH CONFIDENTIAL TREATMENT IS REQUESTED.
OILING SERVICE AGREEMENT
THIS AGREEMENT, made and entered into this 14th day of August, 1995,
by and between Spring Creek Coal Company, a Montana corporation ("SCC") and
Minn-Dak Farmers Cooperative, a North Dakota cooperative ("Minn-Dak").
WHEREAS, Minn-Dak has agreed to purchase coal from SCC (the "Coal"),
produced at the Spring Creek Mine (the "Mine"), pursuant to a coal supply
agreement dated _______________, 1995 (the "Coal Supply Agreement"); and
WHEREAS, the Coal to be shipped to Minn-Dak from the Mine for use in
the operation of its sugar factory in Wahpeton, North Dakota, shall have oil
applied to it by SCC on the terms and conditions set forth herein.
NOW, THEREFORE, for and in consideration of the promises contained
herein, and for such other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
Supply of Oil. All Coal to be shipped from the Mine to
Minn-Dak for use in the operation of its sugar factory in Wahpeton, North
Dakota, from the period from August 1, 1995 to July 31, 2005, and covering the
sugar campaign seasons of Minn-Dak through March 31, 2005 (the "Term"), will,
unless otherwise excused hereunder, have oil of a type and quality appropriate
for the purposes of this Agreement and generally conforming to generally
accepted industrial standards for lubricants used in coal applications. SCC
shall use its best efforts to operate and maintain such equipment in accordance
with the supplier's instructions and absent supplier's instructions, shall use
best efforts to follow good operation and maintenance practices.
Rate of Oiling. Such oil will be applied at the rate of one
and one half (1 1/2) to two (2) gallons per ton unless the parties otherwise
agree.
Price. Minn-Dak shall pay SCC a charge for oiling each ton of
Coal shipped by SCC to Minn-Dak to which oil is applied hereunder at a Base
Price of $x.xx per ton as of August 1, 1995. The Base Price shall be adjusted as
of the first day of each calendar quarter by an amount determined by multiplying
the Base Price by the percentage change in Table 6 of the Producer Price Index,
Finished Lubricants, BLS Code 0576 (published by the Bureau of Labor Statistics,
based on calendar year 1982 = 100) from the first published value of such index
for May 1995. The index value used for billing in any quarter shall be the first
published value for the second preceding month prior to the start of such
quarter.
Separate charges made pursuant to this paragraph shall be rendered at
the same time that bills for the Coal so oiled are rendered pursuant to the Coal
Supply Agreement and shall be payable within twenty (20) days of receipt. In
rendering such invoices, should the Index be unavailable, SCC shall use the
Index for the then most recent month as to which the Index has been published.
Adjustments to charges made necessary by the unavailability of data
required to compute the price for oiling as provided for above shall be made
promptly after such information becomes known, with SCC sending Minn-Dak an
appropriate invoice payable as above provided, or reimbursing Minn-Dak for the
amount of any excess payments within 15 days after the data becomes available.
Purchase and Transportation of Oil. SCC agrees to arrange for
the purchase and transportation of the oil to SCC's tanks at the Mine. The costs
associated with such purchase and transportation of the oil are included in the
Base Price set forth above. SCC agrees to use reasonable efforts in ordering,
purchasing and shipping the oil and Minn-Dak recognizes that SCC shall not be
responsible in the event that oil for this purpose becomes unavailable.
Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North Dakota as though all
acts or omissions hereunder occurred in such state.
Binding Effect; Modification; Assignment. This Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns. This Agreement may not be modified except by
a writing signed by the parties hereto. This Agreement shall not be assigned by
either party hereto without the prior written consent of the other party, which
consent shall not be unreasonably withheld.
Notices. All notices and other communications relating to this
Agreement shall be in writing and shall be effective when actually delivered. If
mailed, a notice shall be deemed effective five days after mailing as registered
or certified mail, postage prepaid, directed to the other party as follows:
If to SCC:
Spring Creek Coal Company
c/o Kennecott Energy Company
Attn: Director, Sales and Contract Administration
505 S. Gillette Avenue
Gillette, Wyoming 82716
OR
Caller Box 3009
Gillette, Wyoming 82717-3009
Fax Number: (307) 687-6009
If to Minn-Dak:
Minn-Dak Farmers Cooperative
Attn: Controller
7525 Red River Road
Wahpeton, North Dakota 58075-9698
Force Majeure. If either party is unable to meet its
obligations under this Agreement as a result of flood, earthquake, storm, or
other act of God, fire, derailment, accident, strike, lockout, boycotts,
picketing, shortages of or inability to obtain electric power, raw materials,
railcars or machinery, mechanical breakdown in facilities, force majeure
affecting SCC's transportation provider as defined under its transportation
contract, war, insurrection, riot, act of government or governmental agency, or
due to any cause beyond the reasonable control of either party, whether similar
or dissimilar to the foregoing and whether foreseeable or unforeseeable, such
event will be deemed an event of force majeure. In addition, it shall be deemed
an event of force majeure in the event Minn-Dak cannot use the oiling services
hereunder because Minn-Dak is unable to burn the Coal due to ash-fouling,
unlawfully high sulfur dioxide emissions, or other environmental restrictions or
in the event either party permanently closes or experiences partial failure or
nonoperation of any of its facilities lasting a minimum of seven days. In the
event of force majeure, the obligations of the parties, other than payment for
oiling services previously performed, shall be suspended for the duration of the
event of force majeure, provided that reasonable notice is given. Whenever in
SCC's judgment any event of force majeure requires restriction of its oiling
services, Seller reserves the right in its discretion to allocate its available
supply of oil in a fair and equitable manner without obligation to furnish oil
from other sources. No suspension or reduction for any reason of force majeure
shall invalidate the remainder of this Agreement; but on removal of the cause,
oiling services shall thereafter resume.
Warranties; Limitations of Liability. EXCEPT AS SPECIFICALLY
WARRANTED HEREIN, SCC HAS MADE NO OTHER EXPRESS WARRANTIES IN THIS AGREEMENT.
ALL WARRANTIES IMPLIED AT COMMON LAW OR OTHERWISE, INCLUDING, WITHOUT
LIMITATION, ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR OF FITNESS FOR A
PARTICULAR PURPOSE, ARE SPECIFICALLY DISCLAIMED AND EXCLUDED. IN NO EVENT SHALL
EITHER PARTY HERETO BE LIABLE TO THE OTHER FOR LOST PROFITS OR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES WHETHER CAUSED BY NEGLIGENCE, INTENTIONAL MISCONDUCT OR
BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT HEREIN.
SPRING CREEK COAL COMPANY
By Malcolm R. Thomas
Its V.P. Marketing & Sales
MINN-DAK FARMERS COOPERATIVE
By Larry D. Steward
Its President/CEO
Exhibit 12
<TABLE>
<CAPTION>
MINN DAK FARMER'S COOPERATIVE
COMPUTATION OF RATIO OF NET PROCEEDS TO FIXED CHARGES
(IN THOUSANDS)
Year Ended August 31,
--------------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings:
Net proceeds before income taxes
from continuing operations 56,872 75,422 33,643 70,609 52,452
Fixed charges, excluding capitalized
interest, see below 2,898 2,973 1,557 1,588 1,034
Amortization of capitalized interest 18 18 18 18 13
------ ------ ------ ------ ------
Net Proceeds 59,788 78,413 35,218 72,215 53,499
====== ====== ====== ====== ======
Fixed Charges:
Interest Expense 2,898 2,973 1,557 1,588 1,034
Interest factor included in rentals (1) -- -- -- -- --
------ ------ ------ ------ ------
Fixed charges, excluding capitalized
interest 2,898 2,973 1,557 1,588 1,034
Interest capitalized 669 -- -- -- 135
------ ------ ------ ------ ------
Fixed charges 3,567 2,973 1,557 1,588 1,169
====== ====== ====== ====== ======
Ratio of net proceeds to fixed charges 16.76 26.38 22.62 45.48 45.76
====== ====== ====== ====== ======
(1) The company does lease certain items, such as office equipment. Due to the
proportionately small amounts involved, interest on such lease payments
has not been included in the total of the company's fixed charges of the
calculation of this ratio.
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated October 7, 1996, with respect to the
consolidated financial statements of Minn-Dak Farmers Cooperative for the year
ended August 31, 1996, in this Form 10-K (file number 33-94644).
November 25, 1996
Eide Helmeke PLLP
Fargo, North Dakota
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000948218
<NAME> MINN-DAK FARMER'S COOP.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 853,102
<SECURITIES> 0
<RECEIVABLES> 13,134,198
<ALLOWANCES> 0
<INVENTORY> 12,450,318
<CURRENT-ASSETS> 30,915,762
<PP&E> 131,226,085
<DEPRECIATION> 48,551,028
<TOTAL-ASSETS> 138,270,087
<CURRENT-LIABILITIES> 19,070,317
<BONDS> 12,000,000
0
14,982,400
<COMMON> 120,250
<OTHER-SE> 42,220,968
<TOTAL-LIABILITY-AND-EQUITY> 138,270,087
<SALES> 114,334,522
<TOTAL-REVENUES> 114,811,297
<CGS> 50,827,909
<TOTAL-COSTS> 50,827,909
<OTHER-EXPENSES> 4,213,379
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,898,338
<INCOME-PRETAX> 3,939,899
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,939,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,989,899
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
