Registration No. _________
As filed with the Securities and Exchange Commission on May 10, 2001.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
HUSKER AG PROCESSING, LLC
(Exact name of registrant as specified in its charter)
Nebraska 2689 47-0836953
-------- ---- ----------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
510 W. Locust Street, P.O. Box 10, Plainview, Nebraska 68769
(402) 582-4446
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
GARY KUESTER
Chairman of the Board
Husker Ag Processing, LLC
510 W. Locust Street, P.O. Box 10, Plainview, NE 68769
(402) 582-4446
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies of communications to:
Dennis J. Fogland, Esq.
Victoria H. Finley, Esq.
Baird, Holm, McEachen, Pedersen, Hamann & Strasheim
1500 Woodmen Tower, Omaha, Nebraska 68102-2068
(402) 636-8264
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration
Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to
Rule 434, check the following box. |_|
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF
SECURITIES TO BE REGISTERED MAXIMUM MAXIMUM REGISTRATION FEE
REGISTERED OFFERING PRICE AGGREGATE
PER SHARE OFFERING PRICE
- -----------------------------------------------------------------------------------------------
Limited Liability Company
Membership Units 12,000 $1,000 $12,000,000 $3,000
- -----------------------------------------------------------------------------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as maybe necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
Preliminary Prospectus
Subject to Completion, dated May 10, 2001
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[Husker Ag Processing LLC Logo]
HUSKER AG PROCESSING, LLC
$1,000 per Membership Unit
MAXIMUM OFFERING: 12,000 MEMBERSHIP UNITS
MINIMUM OFFERING: 10,000 MEMBERSHIP UNITS
We are offering membership units of Husker Ag Processing, LLC, a Nebraska
limited liability company. We intend to use the proceeds to pay for a portion of
the construction and start-up operational costs of a 20 million gallon per year
ethanol plant to be located near Plainview, Nebraska. We will also need
significant debt financing in order to complete the project. Our financing plan
therefore contemplates substantial leverage. This is our initial public offering
and no public market exists for our membership units. The initial public
offering price for the membership units will be $1,000. Each membership unit
represents a pro rata ownership interest in the company's capital, profits,
losses and distributions. An investor must purchase a minimum of five (5)
membership units ($5,000 minimum investment).
We are selling the membership units directly to investors without using an
underwriter. An aggregate minimum purchase of $10,000,000 by all investors will
be required before we will accept any subscriptions. All funds we receive from
investors will be held in an interest bearing escrow account with Midwest Bank,
N.A. d/b/a Plainview National Bank, Escrow Agent until at least the minimum
subscription amount of $10,000,000 is received by the Company. We will return
your investment to you with interest if we do not raise the $10,000,000 minimum
and secure a binding written agreement for up to $23,000,000 in debt financing
by December 1, 2001.
Minimum Maximum
---------------------- --------------------------
Total Total
Per Unit Proceeds Per Unit Proceeds
======== ======== ======== ========
Per Unit Price to Investor .......... $1,000 $10,000,000 $1,000 $12,000,000
Offering Expenses ................... 350,000 350,000
=========== ===========
Total Proceeds to Husker AG ......... $ 9,650,000 $11,650,000
A PURCHASE OF MEMBERSHIP UNITS INVOLVES RISKS. YOU SHOULD REVIEW THE
SECTION ENTITLED "RISK FACTORS" BEFORE INVESTING IN OUR MEMBERSHIP UNITS. RISKS
INCLUDE:
o significant restrictions on transferability of membership units;
o no public trading market exists for the membership units and no
public market is expected to develop;
o changes in federal and state incentives which support the ethanol
industry may significantly impact our profitability;
o we are operating in a highly regulated and competitive industry;
o fluctuations in corn and gas prices may significantly impact our
profitability;
o risks in construction such as delays due to adverse weather or other
factors and our reliance on our design-builder;
o we are a start-up entity and will not generate revenues until after
the proposed ethanol plant is completed and operating which we do
not expect to happen for an estimated 14 to 16 months after the
offering closes and we have secured all necessary permits;
o cash distributions depend on our future performance which will be
affected by our debt covenants, reserves and operating expenditures;
and
o our ability to obtain debt financing and complete construction of
the plant.
You should not construe the contents of this prospectus as legal, tax or
investment advice. You should consult your personal counsel, accountant and/or
other professional advisors as to legal, tax and related matters concerning the
investment described in this prospectus.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is _______________________ , 2001
PROSPECTUS SUMMARY...............................................................................................1
RISK FACTORS.....................................................................................................3
RISKS ASSOCIATED WITH OUR FINANCING PLAN AND THIS OFFERING..................................................3
There will be significant transfer restrictions on your membership units................................3
Our membership units will not have any public trading market............................................4
Our project is dependent upon obtaining debt financing..................................................4
We may not raise sufficient capital to proceed with our business plan, and if we do not receive
debt financing, we will abandon our business............................................................4
We anticipate having substantial debt service requirements that could make it difficult for us
to engage in certain activities.........................................................................5
We may not be able to generate sufficient revenue from our operations to support our debt,
and that could reduce the value of your membership units................................................5
Our financing agreements will include restrictive loan covenants which will have important
consequences............................................................................................5
If the maximum offering is not completed, it will increase our long-term debt...........................6
We may need additional debt or equity financing after this offering and our initial debt
financing and future sales of our membership units may reduce the value of your membership
units or your share of distributions. ..................................................................6
If we are able to close on the offering, we must spend offering funds before our lenders will
disburse loan proceeds for construction, and this puts investors' money at risk first...................6
The Board of Directors set the price for the membership units without an independent evaluation.........7
You will experience some dilution to the value of your membership units.................................7
We have no underwriter, and therefore we may not be able to complete the offering.......................7
Our ability to sell membership units in certain states may be restricted by those state's
securities laws which could make the offering difficult to complete.....................................7
If you borrow money to purchase membership units, you must repay those loans even if you lose
your entire investment..................................................................................7
RISKS ASSOCIATED WITH CONSTRUCTION AND DEVELOPMENT..........................................................8
We are dependent upon Fagen and ICM to design and build the ethanol plant, but we have no
executed definitive agreements with either of them......................................................8
We may encounter defective material or workmanship from Fagen and that could delay production
and our ability to generate revenues....................................................................8
We may encounter hazardous or unexpected conditions at the construction site that could delay
the construction of the ethanol plant which would delay our ability to generate revenues................8
Fagen is not required to maintain any bond or performance security in connection with the
construction of the ethanol plant, and if Fagen withdraws or does not perform on the project,
we might not complete construction. ....................................................................8
We may not seek consequential damages from Fagen if we suffer damages such as lost profits
from delays in the construction of the proposed ethanol plant...........................................8
The project could suffer delays that could postpone our ability to generate revenues and make
it more difficult for us to pay our debts...............................................................9
RISKS ASSOCIATED WITH OUR FORMATION AND OPERATION...........................................................9
We are a newly formed company with limited working capital..............................................9
Cash distributions are not guaranteed and may fluctuate with our performance...........................10
i
Operations costs could be higher than anticipated......................................................10
Our success depends on hiring competent personnel, which may be difficult to attract to a
rural community........................................................................................11
Our business is not diversified and this could reduce the value of your membership units...............11
Certain material agreements are not final..............................................................11
RISKS ASSOCIATED WITH OUR OPERATING AGREEMENT..............................................................11
You will be bound by our Operating Agreement...........................................................11
No member may own more than 30% of the outstanding membership units....................................11
Our Operating Agreement does not grant members preemptive rights.......................................12
Our Operating Agreement contains restrictions on member's rights to participate in corporate
governance of our affairs..............................................................................12
RISKS ASSOCIATED WITH THE ETHANOL INDUSTRY...............................................................12
We will be operating in an intensely competitive industry and we will compete with larger
better financed entities...............................................................................12
Changes in the supply and demand, and production and price with respect to corn could make it
more expensive to produce ethanol......................................................................13
We intend to establish an output contract with one distributor that will purchase all of the
ethanol we produce, which may not be as financially rewarding as creating our own sales organization...13
Low ethanol prices and low gasoline prices could reduce our profitability..............................13
Increases in the production of ethanol could result in lower prices for ethanol and have other
adverse effects........................................................................................14
Hedging transactions involve risks that could harm our business........................................14
Our industry is subject to changing technologies and consumer demands..................................14
To produce ethanol, we will need a significant supply of water.........................................14
Ethanol production is energy intensive, and we will need significant amounts of electricity and
natural gas and interruptions in our supply of energy could have a material adverse impact
on our business........................................................................................15
Transportation costs are a significant factor in the price of ethanol..................................15
RISKS ASSOCIATED WITH GOVERNMENT REGULATION AND SUBSIDIZATION..............................................15
Federal regulations and tax incentives concerning ethanol could
expire or change, which could reduce our revenues. ....................................................15
Nebraska tax incentives concerning ethanol expired in December 2000 and there is currently pending
legislation to renew these tax incentives..............................................................16
The enforcement of existing environmental and energy policy regulations will impact our business.......16
Other legislative or regulatory developments could adversely affect the ethanol business...............16
We are subject to extensive environmental regulation and operational safety regulations that could
result in higher than expected compliance costs and liabilities........................................17
RISKS RELATED TO TAX ISSUES IN A LIMITED LIABILITY COMPANY.............................................18
You may be required to pay taxes on your share of our income even if we make no distribution to you....18
We have not requested an IRS ruling with respect to the tax consequences to you or to us...............18
You may be unable to fully deduct losses or interest expense...........................................18
If we lose our "partnership" status, we would be taxed as a corporation which would result in
"double taxation" and will reduce the funds available for distribution to our members..................18
ii
Because we are treated as a partnership for federal income tax purposes, the IRS may audit our tax
returns which could result in an audit of your tax returns or in tax obligations to you................19
You may be subject to state, local, self-employment and other taxes simply as a result of an
investment in us.......................................................................................19
We are not making any tax representations to you.......................................................19
FORWARD-LOOKING STATEMENTS......................................................................................19
USE OF PROCEEDS.................................................................................................20
CAPITALIZATION..................................................................................................21
Membership Unit Split..................................................................................21
Capitalization Table...................................................................................21
Principal Members......................................................................................22
Ownership By Management................................................................................23
Purchase by Fagen, Inc.................................................................................23
DILUTION .......................................................................................................23
DISTRIBUTION POLICY.............................................................................................24
SELECTED FINANCIAL DATA.........................................................................................25
MANAGEMENT'S PLAN OF OPERATIONS................................................................................25
Plan for next 12 months of operation...................................................................26
Operating Expenses.....................................................................................27
Books and Records......................................................................................27
Liquidity and Capital Resources........................................................................27
Source of Funds........................................................................................28
Uses of Funds..........................................................................................29
BUSINESS OF THE COMPANY.........................................................................................29
Background - - What is Ethanol?........................................................................29
Federal and State Regulation...........................................................................30
Governmental Incentives................................................................................31
Industry Growth........................................................................................33
Our Ethanol Plant......................................................................................33
Description of Dry Mill Process........................................................................33
Our Principal Products and Their Markets...............................................................34
Corn Supply and Corn Prices............................................................................34
Transportation and Delivery............................................................................35
Utilities..............................................................................................35
Our Primary Competition................................................................................36
Operating Ethanol Plants in the State of Nebraska......................................................38
Competition From Alternative Fuel Additives............................................................39
Ethanol and Distillers Grain Marketing.................................................................40
Employees..............................................................................................40
Development and Construction Team......................................................................41
iii
Construction of the Project and Proposed Design-Build Contract.........................................42
Legal Proceedings......................................................................................44
Regulatory Permits.....................................................................................45
Nuisance...............................................................................................45
MANAGEMENT......................................................................................................46
Executive Officers and Directors.......................................................................46
Business Experience of Directors and Officers..........................................................46
Director and Officer Compensation......................................................................47
Committees of the Board of Directors...................................................................47
CERTAIN TRANSACTIONS AND CONFLICTS OF INTEREST..................................................................48
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS.............................................................48
DESCRIPTION OF MEMBERSHIP UNITS.................................................................................49
Membership Units.......................................................................................49
Maximum Ownership Percentage...........................................................................49
Cumulative Voting for Members..........................................................................49
No Preemptive Rights...................................................................................49
Restrictive Legend on Membership Certificate...........................................................49
RESTRICTIONS ON TRANSFER OF UNITS...............................................................................49
SUMMARY OF THE COMPANY'S SECOND AMENDED AND
RESTATED OPERATING AGREEMENT...........................................................................50
Organization and Duration..............................................................................50
Purpose................................................................................................50
Meetings...............................................................................................51
Rights and Obligations of Members......................................................................51
Access to Books and Records............................................................................51
Member Liability to the Company........................................................................52
Management of the Company..............................................................................52
Allocations of Profits and Losses......................................................................54
Capital Accounts and Distributions.....................................................................54
Transfer of Interests in the Company...................................................................55
Fair Market Value......................................................................................56
Transfer Upon Death of a Member........................................................................56
Payment Terms..........................................................................................56
Effective Date of Transfers............................................................................57
Redemption of a Member.................................................................................57
Dissolution and Winding Up.............................................................................57
Amendments.............................................................................................59
INCOME TAX CONSIDERATIONS OF OWNING OUR UNITS...................................................................59
Tax Status of The Company.............................................................................59
iv
Publicly Traded Partnership Rules......................................................................60
Flow-Through Of Taxable Income -- Use Of Calendar Year.................................................61
Flow-Through Of Taxable Income Or Loss.................................................................62
Tax Consequences to Our Members........................................................................62
Tax Treatment Of Distributions.........................................................................62
Initial Tax Basis Of Units And Periodic Basis Adjustments..............................................62
Deductibility Of Losses; Passive Loss Limitations......................................................63
Alternative Minimum Tax................................................................................64
Allocation of Income and Losses........................................................................65
Tax Consequences Of Disposition Of Units -- Recognition Of Gain Or Loss................................65
Allocations And Distributions Following Unit Transfers.................................................65
Our Dissolution and Liquidation May Be Taxable to You, Unless Our Properties are Distributed In-kind...65
Reporting Requirement..................................................................................66
Tax Information To Members; Consistent Reporting.......................................................66
IRS Audit Procedures...................................................................................66
Interest on Underpayment of Taxes; Accuracy-Related Penalties; Negligence Penalties....................67
State Income Taxes.....................................................................................67
SUBSCRIPTION TO MEMBERSHIP UNITS................................................................................67
The Offer..............................................................................................67
Offering Price.........................................................................................68
Method of Subscribing..................................................................................68
Escrow Procedures and Conditions to Closing............................................................69
Delivery of Certificates...............................................................................69
Plan of Distribution...................................................................................69
LEGAL MATTERS...................................................................................................70
EXPERTS ........................................................................................................70
TRANSFER AGENT..................................................................................................70
ADDITIONAL INFORMATION..........................................................................................71
INDEX TO FINANCIAL STATEMENTS..................................................................................F-i
APPENDIX A.....................................................................................................A-1
APPENDIX B.....................................................................................................B-1
PART II .....................................................................................................II-1
v
PROSPECTUS SUMMARY
================================================================================
Notes to Readers
o References to "we" and "us refer to the entity and business of Husker Ag
processing LLC.
o References to "you" refer to readers of this prospectus and, where
applicable, investors in Husker Ag Processing, LLC
o References to "members" or "unit holders" refer to individuals or entities
that have purchased our membership units.
o References to "membership interest" or "ownership interest" refer to the
pro rata portion of the company's capital, profits, losses and
distribution respresented by the membership units.
================================================================================
THIS SUMMARY OUTLINES THE MAIN POINTS OF THE OFFERING. THIS SUMMARY DOES NOT
REPLACE THE MORE DETAILED INFORMATION FOUND IN THE REMAINDER OF THE PROSPECTUS.
YOU ARE URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
THE OFFERING. We are offering 12,000 membership units under the maximum offering
and 10,000 membership units under the minimum offering. The price per membership
unit is $1,000 per unit with a minimum investment of $5,000. There are currently
916 membership units issued and outstanding. After the offering, there will be
12,916 membership units issued and outstanding under the maximum offering and
10,916 membership units issued and outstanding under the minimum offering.
THE COMPANY. Husker Ag Processing, LLC, a Nebraska limited liability company,
was organized on August 29, 2000 to construct and operate an ethanol plant to be
located near Plainview, Nebraska. We are seeking capital to develop, build and
operate a twenty million gallon per year (20mgy) ethanol plant near Plainview,
Nebraska. We have entered into a letter of intent with two ethanol construction
and engineering firms, Fagen, Inc. and ICM, Inc. to design and construct our
proposed ethanol plant. Fagen will be our design-builder and ICM will be Fagen's
primary subcontractor. The letter of intent is not a binding legal agreement,
and any party may withdraw at any time without penalty or further obligation.
Our business address is currently 510 W. Locust Street, P.O. Box 10, Plainview,
Nebraska 68769. Our telephone number is (402) 582-4446.
THE PLANT. Preliminary planning for our ethanol plant project began in spring
2000. We have purchased approximately 47 acres of real property located 3 1/2
miles east of Plainview, Nebraska between the Northeast Nebraska Railway
railroad and US Highway 20 on which we will build the plant. We anticipate
starting construction promptly after the close of this offering, and expect that
it will take approximately 14 to 16 months to build the ethanol plant after the
site preparations are complete and we have secured all necessary permits. This
schedule is only an estimate and our actual construction schedule could be
longer.
Our ethanol plant is expected to convert, on an annual basis, 7.5 to 8 million
bushels of corn into approximately 20 million gallons of ethanol per year and
160,000 tons of wet distillers grains. We plan to accept corn and produce
ethanol and distiller grains when construction is complete. We currently expect
to sell all of our ethanol to one distributor. We plan to sell our distillers
grain products directly to the market through an in-house sales and marketing
team.
DISTRIBUTION POLICY. We will not distribute cash to our members in the immediate
future. See section entitled "Distribution Policy". We do not expect to generate
revenues until the ethanol plant construction is completed and the ethanol plant
is operational. Once operational, subject to loan covenants and restrictions, we
anticipate distributing our net cash flow to our members in proportion to the
membership units held. By net cash flow, we mean our gross cash proceeds
received less any portion, as determined by our directors in their sole
discretion, used to pay or establish reserves for our expenses, debt payments,
capital improvements, replacements and contingencies. If our financial
performance and loan covenants permit, our directors will try to make cash
distributions at times, and in amounts that will permit unit holders to make
income tax payments, but we may never be in a position to pay cash
distributions.
1
RISK FACTORS. You should consider the risks described in the section entitled
"Risk Factors" before making an investment on our membership units. These risks
include, but are not limited to the following:1
o there are significant restrictions on transferability of membership
units;
o no public trading market exists for the membership units and no
public market is expected to develop;
o changes in federal and state incentives which support the ethanol
industry may significantly impact our profitability;
o we are operating in a highly regulated and competitive industry;
o fluctuations in corn and gas prices may significantly impact our
profitability;
o risks in construction such as delays due to adverse weather or other
factors and our reliance on our general and primary subcontractor;
o we are a start-up entity and will not generate revenues until after
the proposed ethanol plant is completed and operating which we do
not expect to happen for an estimated 14 to 16 months after the
offering closes and we have secured all necessary permits;
o cash distributions depend on our future performance which will be
affected by our debt covenants, reserves and operating expenditures;
and
o our ability to obtain debt financing and complete construction of
the plant.
DEBT FINANCING. The funds raised in this equity offering from the sale of
membership units will not be sufficient to pay all of our construction and
start-up costs. We are therefore seeking approximately $23 million (depending
upon how much equity we raise from this offering) in debt financing to pay the
balance of those expenses. The amount and nature of the debt financing that we
are seeking is subject to the interest rate and the credit environment as well
as other economic factors over which we have no control. We have no binding
contracts or commitments with any bank, lender or financial institution for debt
financing, but we will not close on this offering until we execute binding
financing agreements.
OPERATING AGREEMENT AND MANAGEMENT. We are governed by an Operating Agreement
which all investors must sign. We are managed by nine directors who do not need
to be members. The directors serve three-year staggered terms. The directors
appoint our officers and our directors and officers manage the company. Members
have the right to vote on certain events, such as electing or removing
directors, dissolving the company and other extraordinary transactions. We will
have annual meetings of members at which members will elect directors.
TAX CONSEQUENCES. We expect to be taxed as a partnership for federal income tax
purposes. We will therefore not pay any federal income taxes and will instead
allocate our net income to our members who must include that income as part of
his or her taxable income. This means that you will have to pay taxes on your
allocated share of our income whether or not we make a distribution to you in
that year. Generally you may be able to deduct your share of our losses subject
to certain limitations. You also may have state and local tax obligations that
we do not address in this prospectus. This prospectus has a discussion of income
tax consequences relating to the investment in the membership units under the
section entitled "Income Tax Consequences". You should review this discussion
and consult your tax or financial advisor to determine whether an investment in
the membership units is suitable for you.
SUBSCRIPTION PROCEDURES. Investors must complete the subscription application
included as Appendix B to this prospectus, include a check payable to Midwest
Bank, N.A. d/b/a Plainview National Bank, Escrow Agent for Husker Ag Processing,
LLC and deliver an executed copy of the signature page to our Operating
Agreement. In the subscription application, an investor must make
representations to us concerning, among other things, that he or she has
received our prospectus and any supplements, agrees to be bound by the Operating
Agreement and understands that the membership units are subject to significant
transfer restrictions. The subscription application also requires information
about the nature of your desired ownership of your membership units, your state
of residence and your taxpayer identification or social security number. Our
Board of Directors reserves the right to reject any subscription. If we reject
your subscription, we will return your application, check and signature page
within 30 days.
Investors that may be deemed the beneficial owners of 5% or more, and 10% or
more of our issued and outstanding membership units may have reporting
obligations under Section 13 and Section 16 of the Securities and Exchange Act.
If you believe that you may become the beneficial owner of 5% or more of our
outstanding membership units, you should consult your own legal counsel to
determine what filing and reporting obligations you may have under the federal
securities laws.
2
SUITABILITY. Investing in our membership units is highly speculative and very
risky. Our membership units are suitable only as a long-term investment and only
if you can bear a complete loss of your investment. Our membership units are
suitable only for persons of adequate financial means. We do not expect any
public market to develop for the units, which means that it will be difficult to
sell them. In addition, our Operating Agreement significantly restricts the
transferability of membership units and prohibits any sale or transfer without
the consent of our Board of Directors. You should not buy these membership units
if you need to quickly sell them in the future. We have not identified any
quantitative suitability standards for initial members or transferees. The Board
of Directors reserves the right to reject any subscription for any reason,
including if the Board determines that the membership units are not a suitable
investment for a particular investor.
ESCROW PROCEDURES. Proceeds from subscriptions for the units will be deposited
in an interest-bearing escrow account that we have established with Midwest
Bank, N.A., d/b/a Plainview National Bank as escrow agent under a written escrow
agreement. We will not close on the offering until the specific conditions to
closing the offering are satisfied. The closing of the offering is subject to
certain conditions and we will return your investment with interest within 30
days under the following scenarios:
o If we determine in our sole discretion to terminate the offering
prior to December 1, 2001;
o If we do not raise the $10,000,000 minimum by December 1, 2001; or
o Even if we raise the $10,000,000 minimum, but as of December 1, 2001
we do not have binding written agreements with a lender or lenders
for $23,000,000 or such amount as the Board of Directors deems
sufficient to complete construction and start-up of the plant.
If we close on the offering, we will deliver a certificate representing your
ownership of membership units within 30 days of closing. You will not be able to
access your funds in the escrow account. We will invest the escrow funds in
short-term certificates of deposit issued by a bank, short-term securities
issued by the United States government, or money market funds, including those
available through the escrow agent.
RISK FACTORS
BEFORE YOU INVEST IN OUR MEMBERSHIP UNITS, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER
THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS
PROSPECTUS.
This prospectus contains forward-looking statements. These statements relate to
future events or future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"could," "expects," `plans," "anticipates," "believes," "estimates," "predicts,"
`potential," or "continue" or the negative of such terms and other comparable
terminology. These statements are only predictions. In evaluating these
statements, you should specifically consider various factors, including the
risks outlined below. These factors may cause our actual results to differ
materially from any forward-looking statement.
RISKS ASSOCIATED WITH OUR FINANCING PLAN AND THIS OFFERING
THERE WILL BE SIGNIFICANT TRANSFER RESTRICTIONS ON YOUR MEMBERSHIP UNITS.
Our Operating Agreement, as well as relevant portions of the Nebraska Limited
Liability Company Act and regulations of the Internal Revenue Service ("IRS")
significantly restrict the transfer of the membership units. You cannot assign
or transfer a membership unit without approval from our Board of Directors and
the transfer or assignment must comply with applicable Nebraska laws and IRS
regulations.
3
OUR MEMBERSHIP UNITS WILL NOT HAVE ANY PUBLIC TRADING MARKET.
There is currently no established public trading market for the membership units
and an active trading market will not develop despite this offering. To maintain
our partnership tax status, you may not trade the membership units on an
established securities market or readily trade the membership units on a
secondary market (or the substantial equivalent thereof). We therefore will not
apply for listing of the membership units on any stock exchange or on the NASDAQ
Stock Market. As a result, you will not be able to readily sell your membership
units.
To help ensure that a secondary market does not develop, our Operating Agreement
prohibits transfers without the approval of our Board of Directors. The Board of
Directors will not approve transfers unless they fall within "safe harbors"
contained in the publicly-traded partnership rules under the tax code, which
include, without limitation, the following:
o transfers by gift,
o transfer upon death of a member,
o transfers between family members, and
o transfers that comply with the "qualifying matching services"
requirements.
Any transfers of membership units in violation of the publicly traded
partnership rules or without the prior consent of the Board will be null and
void.
OUR PROJECT IS DEPENDENT UPON OBTAINING DEBT FINANCING.
We must obtain debt financing in order to complete construction and start-up of
the ethanol plant. The amount and nature of the debt financing that we are
seeking is subject to the interest rates and the credit environment as well as
other economic factors over which we have no control. We have no binding
contracts or commitments with any bank, lender or financial institution for our
debt financing, but we will not close on this offering until we execute binding
financing arrangements.
We have an indication of interest from a local branch of a national bank to
consider financing the building of the plant in association with other regional
and correspondent banks. While the Board believes that an acceptable financing
arrangement will be available to the company, there can be no assurance that
this will be the case, or that the company will be able to finalize an agreement
concerning such financing on acceptable terms.
We have had discussions with alternative financing sources but we cannot
guarantee that financing will be available to us from our alternative source or
any other sources. We also cannot guarantee that alternative financing will have
terms acceptable to us. If we cannot obtain adequate financing, we will not be
able to begin building the ethanol plant.
WE MAY NOT RAISE SUFFICIENT CAPITAL TO PROCEED WITH OUR BUSINESS PLAN, AND IF WE
DO NOT RECEIVE DEBT FINANCING, WE WILL ABANDON OUR BUSINESS.
Based on current cost estimates and depending on how much is raised in the
offering, we believe we will need approximately $33,000,000 in total funds to
construct the proposed ethanol plant and finance start-up operations. We have
received no binding commitments from any banks or financial institutions for the
debt financing that we need to construct the ethanol plant. The current credit
market and the start-up nature of our business could make it difficult for us to
obtain lending commitments from one or more senior lenders, and subordinate
lenders, if necessary. If financing is unavailable for any reason, or it is
available at an interest rate that we cannot afford, or comes with covenants
that we will not be able to accept or comply with, we will be forced to abandon
our business. Our ability to obtain debt financing is dependent on the interest
rate and credit environment, general economic conditions and other factors
beyond our control.
4
WE ANTICIPATE HAVING SUBSTANTIAL DEBT SERVICE REQUIREMENTS THAT COULD MAKE IT
DIFFICULT FOR US TO ENGAGE IN CERTAIN ACTIVITIES.
Our debt requirements necessary to implement our business plan will result in
substantial debt service requirements. Our debt load and service requirements
could have important consequences which could reduce the value of your
investment, including:
o Limiting our ability to obtain additional financing;
o Reducing funds available for operations and distributions because a
substantial portion of our cash flows will be used to pay interest
and principal on our debt;
o Making us vulnerable to increases in prevailing interest rates;
o Placing us at a competitive disadvantage because we may be
substantially more leveraged than some of our competitors;
o Subjecting all or substantially all of our assets to liens, which
means that there will be virtually no assets left for members in the
event of a liquidation; and
o Limiting our ability to adjust to changing market conditions, which
could make us more vulnerable to a downturn in general economic
conditions or our business.
WE MAY NOT BE ABLE TO GENERATE SUFFICIENT REVENUE FROM OUR OPERATIONS TO SUPPORT
OUR DEBT, AND THAT COULD REDUCE THE VALUE OF YOUR MEMBERSHIP UNITS.
Our ability to repay our debt will depend on our financial and operating
performance and on our ability to successfully implement our business strategy.
We cannot assure you that we will be successful in implementing our strategy or
in realizing our anticipated financial results. Our financial and operational
performance depends on numerous factors including prevailing economic conditions
and certain financial, business and other factors beyond our control. Our cash
flows and capital resources may be insufficient to repay our anticipated debt
obligations. If we cannot pay our debt service, we may be forced to reduce or
eliminate distributions, reduce or delay capital expenditures, sell assets,
restructure our indebtedness or seek additional capital. If we are unable to
restructure our indebtedness or raise funds through sales of assets, equity or
otherwise, our ability to operate could be harmed and the value of your
membership units could decline.
Any institution lending funds to us, whether through a leasing arrangement or
direct loans, will take a security interest in our assets, including the
property and the ethanol plant. If we fail to make our debt financing payments,
the lender will have the right to repossess the secured assets, including the
property and the plant, in addition to other remedies. Such action would end our
ability to continue operations. If we fail to make our financing payments and we
cease operations, your rights as a holder of membership units are inferior to
the rights of our creditors. We may not have sufficient assets to make any
payments to you after we pay our creditors.
OUR FINANCING AGREEMENTS WILL INCLUDE RESTRICTIVE LOAN COVENANTS WHICH WILL HAVE
IMPORTANT CONSEQUENCES.
The terms of any debt financing agreements we enter into will likely contain
numerous financial, maintenance and other restrictive covenants. These covenants
may limit our ability to, among other things:
o Incur additional indebtedness;
o Make capital expenditures in excess of prescribed thresholds;
5
o Make distributions to our members, redeem or repurchase our
membership units;
o Make various investments;
o Create liens on our assets;
o Utilize asset sale proceeds; or
o Merge or consolidate or dispose of all or substantially all of our
assets.
A breach of these covenants could result in default under applicable debt
agreements. If we default on any covenant, a lender could accelerate our
indebtedness, in which case the entire debt would become immediately due and
payable. If this occurs, we might not be able to repay our debt or borrow
sufficient funds to refinance it. Even if new financing is available, it may not
be on terms that are acceptable to us. These events could cause us to cease
construction, or if the plant is constructed and operating, to cease operations.
IF THE MAXIMUM OFFERING IS NOT COMPLETED, IT WILL INCREASE OUR LONG-TERM DEBT.
If we do not sell the maximum offering, we will have to incur additional debt in
order to finance the construction and start-up costs of the project. This would
increase our debt service obligations and make less cash available for
distribution to our members. Your risk increases as the amount of our borrowing
increases.
WE MAY NEED ADDITIONAL DEBT OR EQUITY FINANCING AFTER THIS OFFERING AND OUR
INITIAL DEBT FINANCING AND FUTURE SALES OF OUR MEMBERSHIP UNITS MAY REDUCE THE
VALUE OF YOUR MEMBERSHIP UNITS OR YOUR SHARE OF DISTRIBUTIONS.
We may need additional debt financing after this offering to meet our expansion
and working capital needs. We do not know the extent, if any, of our potential
need for additional debt financing. We do not know if additional financing will
be available or the terms and conditions of such financing. Your investment risk
increases as the amount of our borrowing increases.
We may also consider offering more membership units subject to the limitations
in our Operating Agreement. If we sell additional membership units, the sale
price could be higher or lower than what you are paying in this offering. If we
sell additional membership units, that could lower the value of your membership
units by diluting your ownership interest in us.
IF WE ARE ABLE TO CLOSE ON THE OFFERING, WE MUST SPEND OFFERING FUNDS BEFORE OUR
LENDERS WILL DISBURSE LOAN PROCEEDS FOR CONSTRUCTION, AND THIS PUTS INVESTORS'
MONEY AT RISK FIRST.
Assuming we are successful in the offering, and are able to obtain the necessary
commitments for our required debt financing, we expect that our lenders will
require that we first spend the capital that we raise in this offering before
using any loan proceeds. This means that investors' money is at risk before loan
proceeds are used. If our lenders do not disburse loan proceeds at the
appropriate time, we could be forced to litigate to get the loan proceeds. This
could result in delays or possibly termination of our business, which would
reduce the value of your membership units. This will also make it very difficult
for you to receive any assets if we were forced into liquidation.
6
THE BOARD OF DIRECTORS SET THE PRICE FOR THE MEMBERSHIP UNITS WITHOUT AN
INDEPENDENT EVALUATION.
The Board of Directors determined the $1,000 per membership unit purchase price
without an independent valuation. The Board established the total offering price
based on our estimate of capital and expense requirements and not based on
perceived market value, book value, or other established criteria. We cannot
guarantee that the company or any other person will purchase your membership
units at the offering price or any other price.
YOU WILL EXPERIENCE SOME DILUTION TO THE VALUE OF YOUR MEMBERSHIP UNITS.
Purchasers of membership units in this offering will experience immediate
dilution of the net tangible book value of their membership units ranging from
approximately $81.42 to $68.82 per membership unit based on the December 31,
2000 pro forma net tangible book value of the company. See the section entitled
"Dilution".
WE HAVE NO UNDERWRITER, AND THEREFORE WE MAY NOT BE ABLE TO COMPLETE THE
OFFERING.
We plan to offer the membership units directly to investors. We plan to issue a
press release and advertise in local media. We also plan to hold one or more
informational meetings in and around Northeast Nebraska and surrounding states.
We will not have an underwriter to purchase the units from us for resale. We
also do not have a placement agent or licensed broker-dealer to help us sell the
units, although we reserve the right to make finder's fee or placement agent
payments to registered placement agents or broker-dealers in accordance with
applicable laws, and upon approval by our Board of Directors. Our Board of
Directors will be principally responsible for raising capital. Each director has
significant operational responsibilities to us, and to other entities. Each
director also has no broker-dealer experience. They may not be able to raise the
$10 million minimum. In addition, the time that each devotes to capital raising
could take them away from important operational responsibilities.
OUR ABILITY TO SELL MEMBERSHIP UNITS IN CERTAIN STATES MAY BE RESTRICTED BY
THOSE STATE'S SECURITIES LAWS WHICH COULD MAKE THE OFFERING DIFFICULT TO
COMPLETE.
We anticipate selling the units in Nebraska, Iowa, South Dakota, Kansas and
Minnesota. We may also sell the units to certain investors in Wisconsin, North
Dakota, Michigan and Illinois. These states all have securities laws that may
limit or prevent us from selling our units without registering them under state
law. Registration in these states may be lengthy and costly, and may delay our
ability to timely close on this offering. These states could impose restrictions
on us or delay our plans. If we cannot sell in one or all of these states, we
may not be able to sell the 10,000 membership unit minimum.
IF YOU BORROW MONEY TO PURCHASE MEMBERSHIP UNITS, YOU MUST REPAY THOSE LOANS
EVEN IF YOU LOSE YOUR ENTIRE INVESTMENT.
An investment in our membership units is a high risk, speculative investment.
Some investors may choose to borrow the money necessary to purchase membership
units. If you obtain a loan, you will be responsible for paying that loan
regardless of whether the ethanol plant is constructed or is profitable, and
regardless of whether you ever receive any distributions. You should carefully
consider whether you should borrow money to purchase membership units.
7
RISKS ASSOCIATED WITH CONSTRUCTION AND DEVELOPMENT
WE ARE DEPENDENT UPON FAGEN AND ICM TO DESIGN AND BUILD THE ETHANOL PLANT, BUT
WE HAVE NO EXECUTED DEFINITIVE AGREEMENTS WITH EITHER OF THEM.
We have a letter of intent with Fagen, Inc. and ICM, Inc. for various design and
construction services. The letter of intent is not a binding contract, and
either party could terminate it at any time without penalty or further
obligation. Fagen has delivered to us a proposed design-build contract that we
are currently negotiating, in which Fagen will serve as our design-builder and
will engage ICM to provide design and engineering services to them. Fagen's
obligation to build the proposed ethanol plant is not reflected in a binding
definitive agreement and a binding definitive agreement may never be executed.
If Fagen or ICM were to terminate their relationship with us, we might not be
able to obtain debt financing and build the plant, which would force us to
abandon our business.
WE MAY ENCOUNTER DEFECTIVE MATERIAL OR WORKMANSHIP FROM FAGEN AND THAT COULD
DELAY PRODUCTION AND OUR ABILITY TO GENERATE REVENUES.
Under the proposed design-build contract, Fagen warrants that the ethanol plant
will be free from defects in material or workmanship. If this warranty is
breached and there are defects in material or workmanship, it may delay our
commencing operations and delay our ability to generate revenues. If defects are
discovered after we begin operating, it could cause us to halt or discontinue
our operation, which could damage our ability to generate revenues and reduce
the value of your membership units.
WE MAY ENCOUNTER HAZARDOUS OR UNEXPECTED CONDITIONS AT THE CONSTRUCTION SITE
THAT COULD DELAY THE CONSTRUCTION OF THE ETHANOL PLANT WHICH WOULD DELAY OUR
ABILITY TO GENERATE REVENUES.
Fagen is not responsible for hazardous or concealed unexpected conditions that
it encounters at the construction site. This could include environmental or
other types of contamination. If Fagen encounters any of these kinds of
conditions, Fagen may immediately stop work in the affected area and we must
correct the problem. This could delay the project and could require us to spend
significant resources to correct the condition. In addition, Fagen may be
entitled to an adjustment in price and time of performance if its price and
performance time have been adversely affected by any unexpected or hazardous
conditions. This could result in additional costs to us and delay our ability to
generate revenues, which could reduce the value of your membership units.
FAGEN IS NOT REQUIRED TO MAINTAIN ANY BOND OR PERFORMANCE SECURITY IN CONNECTION
WITH THE CONSTRUCTION OF THE ETHANOL PLANT, AND IF FAGEN WITHDRAWS OR DOES NOT
PERFORM ON THE PROJECT, WE MIGHT NOT COMPLETE CONSTRUCTION.
Under the proposed design-build contract, Fagen is not required to obtain any
performance or labor and material payment bonds, or any other form of
performance security. This means that if Fagen does not perform, there is no
underlying financial security that could be used to complete the project. If
Fagen withdraws from the project, we might be unable to complete the
construction. This might cause us to abandon our business and could
significantly reduce the value of your membership units.
WE MAY NOT SEEK CONSEQUENTIAL DAMAGES FROM FAGEN IF WE SUFFER DAMAGES SUCH AS
LOST PROFITS FROM DELAYS IN THE CONSTRUCTION OF THE PROPOSED ETHANOL PLANT.
Fagen is not liable for consequential damages, such as loss of use, lost profits
or harm to our business, reputation or financing, in connection with the
construction of the ethanol plant. We may be entitled to receive direct damages
in the event Fagen fails to substantially complete the ethanol plant by the
scheduled substantial completion date. The substantial completion date is
projected to be approximately 14 to 16 months after the closing of this offering
and we have secured all necessary permits. We are dependent upon
8
Fagen for certain construction permits, and to design and build the ethanol
plant. If Fagen does not procure all necessary construction permits, or if
construction is delayed due to delays in obtaining permits, labor, supply or
material shortages, delays in equipment delivery and installation or other
factors beyond its control, our construction schedule and ability to produce
ethanol and generate revenues will be delayed and our financial condition could
be harmed. We could suffer monetary damages in excess of what our agreement
provides if the construction is delayed. We might not be able to meet our debt
obligations if the plant is not built on time and any damages received do not
cover our losses.
THE PROJECT COULD SUFFER DELAYS THAT COULD POSTPONE OUR ABILITY TO GENERATE
REVENUES AND MAKE IT MORE DIFFICULT FOR US TO PAY OUR DEBTS.
We expect that it will be an estimated 14 to 16 months after we close on this
offering and we have secured all necessary permits before we begin operation of
the proposed ethanol plant. Construction projects often involve delays in
obtaining permits, construction delays due to weather conditions, or other
events that delay the construction schedule. The factors and risks described in
this "Risk Factors" section, as well as changes in interest rates or the credit
environment, changes in weather, permitting delays, or changes in political
administrations at the federal, state or local level that result in policy
change towards ethanol or this project, could cause construction and operation
delays. If it takes longer to raise the financing, obtain necessary permits or
construct the plant than we anticipate, it would delay our ability to generate
revenues and make it difficult for us to meet our debt service obligations. This
could reduce the value of your membership units.
Currently we anticipate breaking ground in early fall 2001. If we encounter
delays in this offering or in obtaining debt financing or the required permits,
our expected date to break ground will also be delayed. If Fagen is not able to
begin construction on the plant early enough to complete the framework and
enclose the plant structure before winter conditions require construction to
cease, our estimated date for commencing operations will likely be delayed
beyond 16 months after closing this offering.
RISKS ASSOCIATED WITH OUR FORMATION AND OPERATION
WE ARE A NEWLY FORMED COMPANY WITH LIMITED WORKING CAPITAL.
We are recently formed and we expect losses that may reduce the value of your
membership units. Husker Ag Processing, LLC was organized on August 29, 2000 and
has no operating history. You should consider our company promotional and in its
early development stages. We have limited experience concerning whether we will
be successful in the proposed construction and operation of the ethanol plant or
that our plans will materialize or prove successful. We cannot make
representations about our future profitable operation or the future income or
losses of the company. We do not know whether we will ever operate at a profit
or that the company will appreciate in value. If our plans prove to be
unsuccessful, you will lose all or a substantial part of your investment.
We presently have very limited working capital and require the proceeds of this
offering to begin constructing the ethanol plant and to meet our operational
needs. Our ability to begin construction of the ethanol plant depends upon the
success of this offering and the receipt of debt financing. Even upon the
successful completion of this offering, the proposed use of proceeds will pay
our expenses for only a limited amount of time and there can be no assurance
that the funds received through this offering will be sufficient to allow us to
continue successfully.
9
CASH DISTRIBUTIONS ARE NOT GUARANTEED AND MAY FLUCTUATE WITH OUR PERFORMANCE.
We do not know the amounts of cash that we will generate, if any, once we begin
operations. At the start, we will generate no revenues and do not expect to
generate any operating revenue until the proposed ethanol plant is operating
fully. Whether we will be able to generate sufficient cash flow from our
business to make distributions to members will depend upon numerous factors,
including, generally:
o Successful and timely completion of construction;
o Profitability of operations;
o Required principal and interest payments on any debt and compliance
with applicable loan covenants;
o Our issuance of debt and equity securities;
o Fluctuations in working capital and operating expenses;
o Capital expenditures;
o Our cost structure generally;
o Reimbursement of officer and director expenses;
o Our ability to operate our plant at full capacity;
o Adjustments and amounts of cash set aside for reserves;
o Prevailing economic conditions;
o Demand and our success at selling ethanol and animal feed products
generally;
o Government regulations and government subsidies and support for
ethanol generally; and
o Technical advances in ethanol production and improvements in MTBE.
Cash distributions will depend on our net cash flow. By net cash flow, we mean
our gross cash proceeds received less any portion, as determined by our
directors in their sole discretion, used to pay or establish reserves for our
expenses, debt payments, capital improvements, replacements and contingencies.
Cash distributions may not always be determined by our profitability, which is
affected by non-cash items. Therefore, we may make cash distributions during
periods when we record losses, and it is possible that we would not make cash
distributions during periods when we record profits, if any. Cash distributions
may also be affected by compliance with loan covenants that we expect to
accompany our debt financing. Cash distributions are not assured, and we may
never be in a position to make distributions.
OPERATIONS COSTS COULD BE HIGHER THAN ANTICIPATED.
In addition to general market fluctuations and economic conditions, we could
experience significant cost increases associated with the on-going operation of
the plant caused by a variety of factors, many of which are beyond our control.
These cost increases could arise from an inadequate supply and resulting
increased prices for corn. Labor costs can increase over time, particularly if
there is any shortage of labor, or shortage of persons with the skills necessary
to operate the ethanol plant. Adequacy and cost of water, electric and natural
gas utilities could also affect our operating costs. Changes in price, operation
and availability of truck and rail transportation may affect our profitability
with respect to the transportation of ethanol and other products to our
customers.
In addition, the operation of the ethanol plant will be subject to ongoing
compliance with all applicable governmental regulations, such as those governing
pollution control, ethanol production, grain purchasing and other matters. If
any of these regulations were to change, it could cost us significantly more to
comply with them. Further, other regulations may arise in future years regarding
the operation of the ethanol plant, including the possibility of required
additional permits and licenses. We might have difficulty obtaining any such
additional permits or licenses, and they could involve significant unanticipated
costs. We will be subject to all of those regulations whether or not the
operation of the ethanol plant is profitable.
10
OUR SUCCESS DEPENDS ON HIRING COMPETENT PERSONNEL, WHICH MAY BE DIFFICULT TO
ATTRACT TO A RURAL COMMUNITY.
The success of the company is primarily dependent upon the personal efforts and
abilities of the nine members of its Board of Directors; however, none of the
directors are full-time employees of the company. The unavailability of their
services for any reason could have a material adverse effect on the company. We
intend to hire additional employees as needed to perform marketing, capital
raising and management functions and to oversee the day to day operations of the
ethanol plant.
Upon completion of the plant, we plan to have approximately 30 employees
operating our business. Our success will depend in part on our ability to
attract and retain competent personnel who will be able to help us achieve our
goals. We must hire qualified managers, accounting, human resources and other
personnel to staff our business. It may be difficult finding and hiring
qualified employees at a salary that we will be able to afford. It may also be
difficult to attract qualified employees to Plainview, Nebraska, a rural and
sparsely populated area. If we are unable to hire productive and competent
personnel, our ability to produce and sell ethanol could be adversely affected.
This would reduce our revenues and the value of your units.
OUR BUSINESS IS NOT DIVERSIFIED AND THIS COULD REDUCE THE VALUE OF YOUR
MEMBERSHIP UNITS.
Our success depends largely upon our ability to timely complete and profitably
operate our ethanol business. We do not have any other lines of business or
other sources of revenue if we are unable to build the ethanol plant and
manufacture ethanol. If we were not able to complete construction, or if
economic or political factors adversely affect the market for ethanol, the value
of your investment could decline because we have no other line of business to
fall back on if the ethanol business declines. Our business would also be
significantly harmed if our ethanol plant could not operate at full capacity for
any extended period of time.
CERTAIN MATERIAL AGREEMENTS ARE NOT FINAL.
Some of the documents and agreements discussed in this prospectus are not yet
final or executed, and certain proposals and plans that are discussed in this
prospectus have not been implemented. The definitive versions of such
agreements, documents, plans, or proposals may contain terms or conditions that
vary significantly from the terms and conditions described in this prospectus
and proposals, plans or agreements that are not yet in final form may not
materialize or, if they do materialize, may not prove to be profitable. After we
complete this offering, we will file reports with the Securities and Exchange
Commission when any of such documents are finalized and they will be available
for your review.
RISKS ASSOCIATED WITH OUR OPERATING AGREEMENT
YOU WILL BE BOUND BY OUR OPERATING AGREEMENT.
We will be governed primarily according to the provisions of our Operating
Agreement and the Nebraska Limited Liability Company Act. Our Operating
Agreement contains provisions relating to, among other things, election of
directors, restrictions on transfers, member voting and other important matters.
If you invest in the Company, you will be bound by this document. You should
carefully review the terms of our Operating Agreement prior to making your
investment decision.
NO MEMBER MAY OWN MORE THAN 30% OF THE OUTSTANDING MEMBERSHIP UNITS.
Under our Operating Agreement, no member can own more than thirty percent (30%)
of the total issued and outstanding membership units. The calculation of your
thirty percent (30%) limitation includes the number of membership units owned by
you and your spouse, children, parents, brothers and sisters, and any membership
units owned by any corporation, partnership or other entity in which you or your
family members owns or controls a majority of the voting power.
11
OUR OPERATING AGREEMENT DOES NOT GRANT MEMBERS PREEMPTIVE RIGHTS.
Our Operating Agreement denies preemptive rights to members of the company. If
we decide to issue additional membership units in the future, we could do so
without first offering the additional units to you. You would then experience
dilution in the percentage of your membership interest in the company.
OUR OPERATING AGREEMENT CONTAINS RESTRICTIONS ON MEMBER'S RIGHTS TO PARTICIPATE
IN CORPORATE GOVERNANCE OF OUR AFFAIRS.
Our Operating Agreement contains significant restrictions on member's rights to
influence the manner or direction of management. Our Operating Agreement
contains restrictions on the ability of members to call a special meeting. A
member or members owning at least 20% of the outstanding membership units may
call a special meeting of the members. These restrictions may make it difficult
for members to propose changes to our Operating Agreement, and would make an
acquisition of us very difficult to accomplish without the Board's consent. If a
vacancy develops in our Board of Directors for any reason other than removal or
expiration of a term, the remaining directors would fill it.
Our directors must discharge their duties with reasonable care, in good faith
and in the best interest of the company and its members. Despite this
obligation, our Operating Agreement limits director liability to members unless
it involves willful misconduct or gross negligence.
RISKS ASSOCIATED WITH THE ETHANOL INDUSTRY
WE WILL BE OPERATING IN AN INTENSELY COMPETITIVE INDUSTRY AND WE WILL COMPETE
WITH LARGER, BETTER FINANCED ENTITIES.
There is significant competition among ethanol producers. Our business faces a
competitive challenge from larger factories, from plants that can produce a
wider range of products than we can, and from other plants similar to our
proposed ethanol plant. Our ethanol plant will be in direct competition with
other ethanol producers, many of which have greater resources than we currently
have. Large ethanol producers such as Archer Daniels Midland, Minnesota Corn
Processors and Cargill, among others, are capable of producing a significantly
greater amount of ethanol than we expect to produce. In addition, there are
several Nebraska, Minnesota, Wisconsin, South Dakota and other Midwest regional
ethanol producers which have recently formed, are in the process of forming, or
are under consideration, which are or would be of a similar size and have
similar resources to us. There are currently seven operational ethanol plants in
Nebraska with at least one new plant in the process of forming. The nearest
operational ethanol plant is approximately 80 miles from Plainview, Nebraska.
The proposed ethanol plant will also compete with producers of other gasoline
additives made from raw materials other than corn having similar octane and
oxygenate values as ethanol, such as producers of methyl tertiary butyl ether
(MTBE). MTBE is a petrochemical derived from methanol which generally costs less
to produce than ethanol. Many major oil companies produce MTBE and strongly
favor its use because it is petroleum-based. Alternative fuels, gasoline
oxygenates and alternative ethanol production methods are also continually under
development. The major oil companies have significantly greater resources than
we have to market MTBE, to develop alternative products, and to influence
legislation and public perception of MTBE and ethanol. These companies also have
significant resources to begin production of ethanol should they choose to do
so.
We believe the principal competitive factors in our markets are: (1) price, (2)
product quality and (3) service.
12
CHANGES IN THE SUPPLY AND DEMAND, AND PRODUCTION AND PRICE WITH RESPECT TO CORN
COULD MAKE IT MORE EXPENSIVE TO PRODUCE ETHANOL.
Ethanol production will require substantial amounts of corn. Corn, as with most
other crops, is affected by weather, governmental policy, disease and other
conditions. A significant reduction in the quantity of corn harvested due to
adverse weather conditions, disease or other factors could result in increased
corn costs which would increase our cost to produce ethanol. Significant
variations in actual growing conditions from normal growing conditions also may
adversely affect our ability to procure corn for the proposed plant. We have no
definitive agreements with any corn producers or grain elevators to provide corn
to the proposed ethanol plant.
Change in the price of corn can significantly affect our business. In general,
rising corn prices produce lower profit margins for the production of ethanol
and therefore represent unfavorable market conditions. This is especially true
when market conditions do not allow us to pass along increased corn costs to our
customers. The price of corn has fluctuated significantly in the past and may
fluctuate significantly in the future. Substantial increases in the price of
corn in 1996 caused some ethanol plants to temporarily cease production or lose
money. We cannot assure you that we will be able to offset any increase in the
price of corn by increasing the price of our products. If we cannot offset
increases in the price of corn, our financial performance may be materially and
adversely affected.
The price of corn is influenced by general economic, market and government
factors. These factors include weather conditions, farmer planting decisions,
domestic and foreign government farm programs and policies, global demand and
supply. The significance and relative impact of these factors on the price of
corn is difficult to predict. Factors such as crop disease or severe weather,
that tend to increase the price of corn could have an adverse impact on our
business because we may be unable to pass on higher corn costs to our customers.
Any events that tend to negatively impact the supply of corn will tend to
increase prices and harm our business.
WE INTEND TO ESTABLISH AN OUTPUT CONTRACT WITH ONE DISTRIBUTOR THAT WILL
PURCHASE ALL OF THE ETHANOL WE PRODUCE, WHICH MAY NOT BE AS FINANCIALLY
REWARDING AS CREATING OUR OWN SALES ORGANIZATION.
We currently intend to sell all of the ethanol we produce to one distributor
pursuant to an output contract. As a result, we will be dependent on one
distributor to sell ethanol. We do not plan to build our own sales force or
sales organization to support the sale of ethanol. If this distributor breaches
our output contract, or is not in the financial position to purchase all of the
ethanol we produce, we will not have any readily available means to sell our
ethanol, and our financial performance will be adversely and materially
affected. In addition, it could be more financially advantageous to sell ethanol
ourselves through our own sales force, but we have decided not to pursue this
route. This strategy could result in lower revenues and reduce the value for
your units if our ethanol distributor does not perform as we plan. Our financial
performance is dependent upon the financial health of the distributor we
contract with. We are currently in discussions with a distributor, but have not
entered into any agreements.
LOW ETHANOL PRICES AND LOW GASOLINE PRICES COULD REDUCE OUR PROFITABILITY.
Prices for ethanol products can vary significantly over time and decreases in
price levels could adversely affect our profitability and viability. The price
for ethanol has some relation to the price for gasoline. The price of ethanol
tends to increase as the price of gasoline increases, and the price of ethanol
tends to decrease as the price of gasoline decreases. Any lowering of gasoline
prices will likely also lead to lower prices for ethanol and adversely affect
our operating results.
13
INCREASES IN THE PRODUCTION OF ETHANOL COULD RESULT IN LOWER PRICES FOR ETHANOL
AND HAVE OTHER ADVERSE EFFECTS.
We expect that existing ethanol plants will expand to increase their production
and that new fuel grade ethanol plants will be constructed as well. We cannot
provide any assurance or guarantee that there will be any material or
significant increases in the demand for ethanol, so the increased production of
ethanol may lead to lower prices for ethanol. The increased production of
ethanol could have other adverse effects as well. For example, the increased
production will also lead to increased supplies of co-products from the
production of ethanol, such as distillers grain/solubles. Those increased
supplies could lead to lower prices for those co-products. Also, the increased
production of ethanol could result in increased demand for corn which could in
turn lead to higher prices for corn, resulting in higher costs of production and
lower profits.
HEDGING TRANSACTIONS INVOLVE RISKS THAT COULD HARM OUR BUSINESS.
In an attempt to minimize the effects of the volatility of corn costs on
operating profits, we will likely take hedging positions in corn futures
markets. Hedging means protecting the price at which we buy corn and the price
at which we will sell our products in the future. It is a way to attempt to
reduce the risk caused by price fluctuation. The effectiveness of such hedging
activities is dependent upon, among other things, the cost of corn and our
ability to sell sufficient amounts of ethanol and distillers grains to utilize
all of the corn subject to the futures contracts. Although we will attempt to
link hedging activities to sales plans and pricing activities, such hedging
activities can themselves result in costs because price movements in grain
contracts are highly volatile and are influenced by many factors which are
beyond our control. We may incur such costs and they may be significant.
OUR INDUSTRY IS SUBJECT TO CHANGING TECHNOLOGIES AND CONSUMER DEMANDS.
The market for clean fuels is characterized by rapidly changing technology,
evolving industry standards, frequent new products and changing consumer
demands. In this type of market, existing products and services can become
obsolete and unmarketable or require unanticipated investments in research and
development. In order to be successful, we will have to adapt to rapidly
changing technologies and improve our products in response to changing customer
and industry demands.
Technological advances in the processes and procedures for processing ethanol
should be expected. It is possible that those advances could make the processes
and procedures that will be utilized at our ethanol plant to become obsolete or
cause the ethanol produced at the plant to be of lesser quality than plants
which utilize any new advanced technology. We cannot assure you that we will be
able to maintain a sufficient level of technology or that we can do it at a
reasonable cost. It is also possible that technological advances in engine and
exhaust system design and performance could reduce the use of oxygenates.
TO PRODUCE ETHANOL, WE WILL NEED A SIGNIFICANT SUPPLY OF WATER.
Water supply and water quality are important requirements to produce ethanol. We
anticipate that our water requirements will be supplied through the drilling of
our own wells on the plant site. A preliminary test well has been drilled on our
plant site and we expect that the proposed wells will provide all of the water
that we will need to operate the proposed ethanol plant and that such water will
be of an adequate quality, but our estimates regarding water needs could be
incorrect or the water quality may be inadequate. If we need more water, we
could be forced to find other sources and this could require us to spend
additional capital which could harm our business and its prospects.
14
ETHANOL PRODUCTION IS ENERGY INTENSIVE INTERRUPTIONS IN OUR SUPPLY OF ENERGY
COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR BUSINESS.
Ethanol production also requires a constant and consistent supply of energy. If
there is any interruption in our supply of energy for whatever reason, such as
supply, delivery or mechanical problems, we may be required to halt production.
If production is halted for any extended period of time, it will have a material
adverse effect on our business. We plan to enter into agreements with local gas
and electric utilities to provide our needed energy, but if we were to suffer
interruptions in our energy supply, either during construction or after we begin
operating the ethanol plant, our business would be harmed.
We have entered into discussions with multiple natural gas suppliers; however,
at the present time we have no binding commitments with any natural gas
supplier. If we are unable to obtain a natural gas supply or procure an
alternative source of natural gas on terms that are satisfactory to us, the
adverse impact on our plant and operations could be material. In addition,
natural gas and electricity prices have historically fluctuated significantly.
Increases in the price of natural gas or electricity would harm our business by
increasing our energy costs.
We will also need to purchase significant amounts of electricity to operate the
proposed ethanol plant. The prices which we will be required to pay for
electrical powers will have a direct impact on our costs of producing ethanol
and our financial results.
TRANSPORTATION COSTS ARE A SIGNIFICANT FACTOR IN THE PRICE OF ETHANOL.
Because ethanol is normally not shipped to its final destination by multi-fuel
pipeline, ethanol must be blended with gasoline at a terminal while the final
product is loaded into trucks or railroad cars. Ethanol can therefore only be
transported long distances, such as from the Midwest to California, by rail or
sea. These added transportation costs are a significant factor in the price of
ethanol.
RISKS ASSOCIATED WITH GOVERNMENT REGULATION AND SUBSIDIZATION
FEDERAL REGULATIONS CONCERNING TAX INCENTIVES COULD EXPIRE OR CHANGE WHICH COULD
REDUCE OUR REVENUES.
Congress currently provides certain federal tax incentives for oxygenated fuel
producers and marketers, including those who purchase ethanol to blend with
gasoline in order to meet federally mandated oxygenated fuel requirements. These
tax incentives include, generally, a lower federal excise tax rate for gasoline
blended with at least 10 percent, 7.7 percent, or 5.7 percent ethanol, and
income tax credits for blenders of ethanol mixtures and small ethanol producers.
Gasoline marketers pay a reduced tax on gasoline that they sell that contains
ethanol. The current credit for gasoline blended with 10% ethanol is 5.4(cent)
per gallon. The subsidy will gradually drop to 5.1(cent) per gallon by 2005.
Currently, a gasoline marketer that sells gas without ethanol must pay a federal
tax of 18.4(cent) per gallon compared to 13(cent) per gallon for gas with 10%
ethanol. The tax on gasoline blended with 10% ethanol will gradually increase to
13.3(cent) per gallon by 2005. Smaller credits are available for gasoline
blended with 7.7 percent and 5.7 percent ethanol.
The ethanol industry and our business depend on continuation of the federal
ethanol credit. This credit has supported a market for ethanol that might
disappear without the credit. The federal subsidies and tax incentives are
scheduled to expire September 30, 2007. These subsidies and tax incentives to
the ethanol industry may not continue beyond their scheduled expiration date or,
if they continue, the incentives may not be at the same level. The revocation or
amendment of any one or more of those laws, regulations or programs could
adversely affect the future use of ethanol in a material way, and we cannot
assure you that any of those laws, regulations or programs will be continued.
The elimination or reduction of federal subsidy and tax incentives to the
ethanol industry would have a material adverse impact on our business by making
it more costly or difficult for us to produce and sell ethanol. If the federal
ethanol tax incentives are eliminated or sharply curtailed, we believe that a
decreased demand for ethanol will result.
15
NEBRASKA TAX INCENTIVES CONCERNING ETHANOL EXPIRED IN DECEMBER 2000 AND THERE IS
CURRENTLY PENDING LEGISLATION TO RENEW THESE TAX INCENTIVES.
In Nebraska, there was a state producer tax credit of 20(cent) per gallon for
the first 20 million gallons per plant; however, this tax credit program expired
in December 2000. There is currently a legislative bill, LB 536, pending with
the Nebraska State Legislature to establish a renewed ethanol production
incentive. Senators Dierks, Cudaback, Cunningham, Schrock and Vritiska
introduced LB 536 and Senator Cunningham has made LB 536 his "priority bill" for
the 2001 legislative session. On April 4, 2001, the Nebraska Revenue Committee
advanced LB 536 to the Nebraska State Legislature's General File with amendments
(AM1356). The Nebraska legislature complete its first round of debate on LB 536
and the bill advanced to Select File on April 30, 2001. There will be a second
round of debate on LB 536 and a second vote prior to the final reading and final
vote by the Nebraska legislature on the bill.
The bill establishes a production tax credit of 20(cent) per gallon of ethanol
produced during an 84 consecutive month period by newly constructed ethanol
facilities in production prior to June 30, 2004. The tax credit is only
available to offset Nebraska motor fuels excise taxes. The tax credit is
transferable and therefore, Husker Ag intends to transfer credits received to a
Nebraska gasoline retailer who then will reimburse Husker Ag for the credit
amounts less a handling fee. No producer can receive tax credits for more than
17,850,000 gallons of ethanol produced in one year and no producer shall receive
tax credits for more than 125 million gallons of ethanol produced over the
consecutive 84 month period. The minimum production level to qualify for credits
is 100,000 gallons of ethanol annually. Previous programs established a 2
million gallon minimum annual production level to qualify for incentives. The
lower production minimum enables the production incentive to be extended to
small scale production facilities. LB 536 provides that no credits will be
granted after June 30, 2011.
Although ethanol producers are currently lobbying the Nebraska legislature to
enact LB 536 and continue the Nebraska producer incentive program, there can be
no assurance that the Nebraska legislature will extend the program. Failure of
the Nebraska legislature to enact LB 536 will have an adverse impact on our
profitability.
THE ENFORCEMENT OF EXISTING ENVIRONMENTAL AND ENERGY POLICY REGULATIONS WILL
IMPACT OUR BUSINESS.
Our success will depend in part on effective enforcement of existing
environmental and energy policy regulations. Many of our potential consumers are
unlikely to switch from the use of conventional fuels unless compliance with
applicable regulatory requirements leads, directly or indirectly, to the use of
ethanol. Both additional regulation and enforcement of such regulatory
provisions are likely to be vigorously opposed by the entities affected by such
requirements. If existing emissions-reducing standards are weakened, or if
governments are not active and effective in enforcing such standards, our
business and results of operations could be adversely affected. Even if the
current trend toward more stringent emissions standards continues, we will
depend on the ability of ethanol to satisfy such emissions standards more
efficiently than other alternative technologies. Certain standards imposed by
regulatory programs may limit or preclude the use of our products to comply with
environmental or energy requirements.
OTHER LEGISLATIVE OR REGULATORY DEVELOPMENTS COULD ADVERSELY AFFECT THE ETHANOL
BUSINESS.
The regulation of the environment is a constantly changing area of the law. It
is possible that more stringent federal or state environmental rules or
regulations could be adopted which could increase our operating costs and
expenses. It is also possible that federal or state environmental rules or
regulations could be adopted which have an adverse effect on the use of ethanol.
For example, changes in the environmental regulations regarding the required
oxygen content of automobile emissions could have an adverse effect on the
ethanol industry. On April 12, 1999, California requested a waiver from the
Environmental Protection Agency of the oxygenated fuel requirement of the 1990
Clean Air Act Amendments. To date, California has not been granted the waiver it
requested. If any state were to receive such a waiver, it would likely harm the
ethanol industry's efforts to expand into markets in that state to a significant
degree.
16
WE ARE SUBJECT TO EXTENSIVE ENVIRONMENTAL REGULATION AND OPERATIONAL SAFETY
REGULATIONS THAT COULD RESULT IN HIGHER THAN EXPECTED COMPLIANCE COSTS AND
LIABILITIES.
Ethanol production involves the emission of various airborne pollutants,
including particulate matters, carbon monoxide, oxides of nitrogen, volatile
organic compounds and sulfur dioxide. To construct the plant and operate our
business, we will need an Air Quality Construction Permit and an Air Quality
Operating Permit from the State of Nebraska Department of Environmental Quality.
We applied for a Construction Permit on March 26, 2001. An Air Quality
Construction Permit is valid for 18 months. If we cannot complete construction
within 18 months our Air Quality Construction Permit will lapse unless we can
demonstrate that the construction of our plant requires additional time, we will
need to apply for an extension. Our debt financing and our ability to commence
construction and operation of the ethanol plant are dependent on our receipt of
this permit. Once the proposed ethanol plant is completed, we must conduct
emission testing and apply for an Operating Permit that will allow us to operate
our business. We anticipate submitting an application for this permit before we
begin operation. We need to obtain this permit to operate the ethanol plan after
the Air Pollution Construction Permit expires. We have twelve months once the
plant becomes operational to obtain an Air Quality Operating Permit. If granted,
we expect the permit will be valid for five years.
We also plan to apply for a Nebraska Pollutant Discharge Elimination General
Permit to allow us to discharge approximately 50,400 gallons per day of water
into a nearby creek and for general discharges. This permit requires a 30-day
public comment period. We may also need to apply with the Nebraska Department of
Environmental Quality for a Storm Water Runoff Permit or a similar permit. We
have not applied for these permits, but anticipate doing so at least 180 days
before we begin operations. If these permits are not granted, we will have to
construct an alternative discharge and treatment system (e.g. storm pond) on
site for which we will need to obtain different permits. If granted, we expect
the permit will be valid for five years.
We will also need to obtain a certain well permits from the Nebraska Department
of Environmental Quality to construct and operate our on-site wells. Without
these permits, we cannot drill our wells and could be forced to use water from
Plainview, if a sufficient supply is available, or terminate our business. Using
water from Plainview may significantly increase our operating costs, harm our
financial performance and reduce the value of your units.
Even if we receive all required permits from the State of Nebraska, we may be
subject to regulations on emissions from the United States Environmental
Protection Agency ("EPA"). Further, EPA and Nebraska's environmental regulations
are subject to change and often such changes are not favorable to industry.
Consequently, even if we have the proper permits now, we may be required to
invest or spend considerable resources to comply with future environmental
regulations.
Our failure to comply or the need to respond to threatened actions involving
environmental laws and regulations may adversely affect our business, operating
results or financial condition. Once our ethanol plant becomes operational and
as our business grows, we will have to develop and follow procedures for the
proper handling, storage, and transportation of finished products and materials
used in the production process and for the disposal of waste products. In
addition, state or local requirements may also restrict our production and
distribution operations. We could incur significant costs to comply with
applicable laws and regulations as production and distribution activity
increases. Protection of the environment will require us to incur expenditures
for equipment or processes.
We also could be subject to environmental nuisance or related claims by
employees, property owners or residents near the proposed ethanol plant arising
from air or water discharges. Ethanol production has been known to produce an
odor to which surrounding residents could object. If odors become a problem, we
may be subject to fines and could be forced to take costly curative measures.
Environmental litigation or increased environmental compliance costs could
increase our operating costs.
17
We also will be subject to federal and state laws regarding operational safety.
Risks of substantial compliance costs and liabilities are inherent in a
large-scale construction project and in ethanol production after the facility is
constructed. Costs and liabilities related to worker safety may be incurred.
Possible future developments-including stricter safety laws for workers or
others, regulations and enforcement policies and claims for personal or property
damages resulting from our construction or operation could result in substantial
costs and liabilities that could reduce the amount of cash that we would
otherwise have to distribute or use to further enhance our business.
RISKS RELATED TO TAX ISSUES IN A LIMITED LIABILITY COMPANY
YOU MAY BE REQUIRED TO PAY TAXES ON YOUR SHARE OF OUR INCOME EVEN IF WE MAKE NO
DISTRIBUTION TO YOU.
We expect to be treated as a partnership for federal income tax purposes unless
there is a change of law or trading in the membership units is sufficient to
classify the company as a "publicly traded partnership." This means that the
company will pay no income tax and all profits and losses will "pass-through" to
our members who will pay tax on their share of the company's profits. It is
likely that you may receive allocations of taxable income that exceed any cash
distributions we make. This may occur because of various factors, including but
not limited to, accounting methodology, lending covenants that restrict our
ability to pay cash distributions, or our decision to retain or use the cash
generated by the business to fund our operating activities and obligations.
Accordingly, you may be required to pay income tax on your allocated share of
our taxable income with personal funds, even if you receive no cash
distributions from us.
WE HAVE NOT REQUESTED AN IRS RULING WITH RESPECT TO THE TAX CONSEQUENCES TO YOU
OR TO US.
We have not requested a ruling from the IRS with respect to any matter affecting
us, including our tax treatment because tax classification is essentially
elective under current IRS regulations. Accordingly, the IRS may adopt positions
that differ from the positions taken by us. It may be necessary to resort to
administrative or court proceedings to sustain some or all of the positions
taken by us. Some or all of our conclusions or positions ultimately may not be
sustained. Any contest with the IRS will result in additional legal and
accounting fees and may materially and adversely impact the value of your
membership units.
YOU MAY BE UNABLE TO FULLY DEDUCT LOSSES OR INTEREST EXPENSE.
It is likely that a member's interest in the company will be treated as a
"passive activity" for most members. In the case of members who are individuals
or closely held corporations, this means that a member's share of any loss
incurred by the company will be deductible only against their income or gains
from other passive activities, e.g., "S" corporations and partnerships that
conduct a business in which they are not a material participant. Passive
activity losses disallowed in any taxable year are suspended and may be carried
forward and used as an offset against passive activity income in future years.
Upon disposition of a taxpayer's entire interest in a passive activity to an
unrelated person in a taxable transaction, suspended losses with respect to that
activity may then be deducted.
IF WE LOSE OUR "PARTNERSHIP" STATUS, WE WOULD BE TAXED AS A CORPORATION WHICH
WOULD RESULT IN "DOUBLE TAXATION" AND WILL REDUCE THE FUNDS AVAILABLE FOR
DISTRIBUTION TO OUR MEMBERS.
If the company is treated as a corporation for federal income tax purposes, the
company would pay tax on its income at corporate rates (currently a maximum 35%
rate if taxable income exceeds $10,000,000), distributions to members would be
taxed again to the member (similar to a corporate dividends), and no income,
gains losses or deductions would flow through to the members. Because a tax
would be imposed upon the company as an entity, the cash available for
distribution to members would be reduced by the amount of the tax paid. Reduced
distributions could cause a reduction in the value of your membership units.
18
BECAUSE WE ARE TREATED AS A PARTNERSHIP FOR FEDERAL INCOME TAX PURPOSES, THE IRS
MAY AUDIT OUR TAX RETURNS WHICH COULD RESULT IN AN AUDIT OF YOUR TAX RETURNS OR
IN TAX OBLIGATIONS TO YOU.
The IRS may audit our tax returns and may disagree with the tax positions that
we take on our returns. If challenged by the IRS, the courts may not support the
position we take on our tax returns. An audit of our tax returns could lead to
separate audits of your tax returns, especially if adjustments are required,
which could result in adjustments on your tax return. This could result in tax
liabilities, penalties and interest to you.
YOU MAY BE SUBJECT TO STATE, LOCAL, SELF-EMPLOYMENT AND OTHER TAXES SIMPLY AS A
RESULT OF AN INVESTMENT IN US.
In addition to federal income taxes, you may be subject to other taxes including
state and local taxes, unincorporated business taxes, self-employment taxes and
estate, inheritance or intangible taxes that are imposed by various
jurisdictions in which you reside or in which we do business or own property.
You may be required to file state and local income tax returns and pay state and
local income taxes in some or all of the jurisdictions in which we do business,
and may be subject to penalties for failure to comply with those requirements.
We expect to initially own assets solely in Nebraska. It is your responsibility
to file all required United States federal, state and local tax returns. Counsel
has not rendered an opinion on the state or local tax consequences of an
investment in us.
WE ARE NOT MAKING ANY TAX REPRESENTATIONS TO YOU.
We cannot make any representations or warranties of any kind that any federal
income tax advantages of an investment in the company will be available to you.
We do not intend to request any ruling from the IRS with respect to any of the
projected tax consequences set forth in this prospectus. You are strongly urged
to consult your own tax advisor prior to your investment in the company.
THE FOREGOING DISCUSSION OF RISK FACTORS IS NOT INTENDED TO BE AN EXHAUSTIVE
DISCUSSION OF ALL THE RISKS THAT MAY BE ASSOCIATED WITH AN INVESTMENT IN THE
COMPANY. MOREOVER, BECAUSE THERE ARE MANY INHERENT RISKS THAT MAY NOT BE
ANTICIPATED BY THE COMPANY, PROSPECTIVE INVESTORS SHOULD BE AWARE THAT
ADDITIONAL RISKS INHERENT IN AN INVESTMENT IN THE COMPANY MAY BE EXPERIENCED
THAT ARE NOT PRESENTLY FORESEEN BY THE COMPANY.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus including the above Risk Factors
section, contains forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by forward-looking words such
as "may," "will," "expect," "anticipate," "believe," "estimate," "project," and
"continue" or similar words. You should read statements that contain these words
carefully because they:
o Discuss our future expectations
o Contain projections of our future results of operations or of our
financial condition
o State other "forward-looking" information
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors listed above, as
well as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our membership units you should be aware that the occurrence of the
events described in these risk factors and elsewhere in this prospectus could
have a material adverse effect on our business, operating results and financial
condition.
19
USE OF PROCEEDS
The gross proceeds from this offering will be $10,000,000 if the minimum number
of membership units offered is sold, and $12,000,000 if the maximum is sold
before deducting expenses. We estimate the offering expenses to be approximately
$350,000, and the net proceeds of the offering to be $9,650,000 if the minimum
is sold, and $11,650,000 if the maximum is sold.
We intend to use the net proceeds of the offering to build an ethanol plant and
to start operating the ethanol plant as a going concern. We must supplement the
proceeds of this offering with debt financing to meet our stated goals. We
estimate total capital expenditures for the construction of the plant will be
$27,750,000. The following table describes our proposed use of proceeds based on
a maximum offering amount of $12,000,000, and a minimum offering amount of
$10,000,000. The following figures are intended to be estimates only, and the
actual use of funds may vary significantly from the descriptions given below.
- --------------------------------------------------------------------------------
Maximum Minimum
OFFERING PROCEEDS: Offering Offering
- --------------------------------------------------------------------------------
Offering Proceeds $12,000,000 $ 10,000,000
- --------------------------------------------------------------------------------
Less Estimated Offering Expenses $ 350,000 $ 350,000
- --------------------------------------------------------------------------------
Net Proceeds from Offering $11,650,000 $ 9,650,000
================================================================================
ESTIMATED USE OF PROCEEDS:
- --------------------------------------------------------------------------------
Financing & Organizational Costs $ 550,000 $ 550,000
- --------------------------------------------------------------------------------
Insurance Costs $ 200,000 $ 200,000
- --------------------------------------------------------------------------------
Plant and Site Preparation $ 550,000 $ 550,000
- --------------------------------------------------------------------------------
General and Administrative Expenses $ 100,000 $ 100,000
- --------------------------------------------------------------------------------
Construction Costs $10,250,000 $ 8,250,000
================================================================================
TOTAL ESTIMATED USE OF PROCEEDS: $11,650,000 $ 9,650,000
- --------------------------------------------------------------------------------
Because we must secure a significant amount of debt, we will first pay financing
costs of approximately $400,000. This is an estimate and our actual debt
financing expenses could be substantially higher. We will also need to pay for
additional organizational costs which we believe will equal approximately
$150,000. The Board of Directors is currently researching various insurance
structures for directors and officers' insurance, general liability insurance
and property insurance. We are reserving approximately $200,000 to cover costs
associated with securing appropriate insurance coverage. This reserve amount is
based on an estimate only and our actual insurance costs may exceed the reserve
amount. We are also reserving $100,000 to pay general and administrative costs
for managerial fees, out-of-pocket reimbursements and general office expenses.
Our actual general and administrative expenses may exceed this amount. The
remainder of the funds will be used to pay construction costs, such as digging,
laying foundations, purchasing and installing equipment, and constructing
buildings.
We must obtain debt financing in order to complete construction on the ethanol
plant. The amount and nature of the debt financing that we are seeking is
subject to the interest rates and the credit environment as well as other
economic factors over which we have no control. We have no binding contracts or
commitments with any bank, lender or financial institution for our debt
financing, but we will not close on this offering until we execute binding
financing arrangements.
20
We have not obtained the services of any underwriter, placement agent or
broker-dealer for this offering, although we reserve the right to pay a finder's
fee or placement agent fee to a registered broker-dealer in connection with the
sale of membership units in accordance with applicable laws , and any such
payment would increase our offering costs materially. We currently do not intend
to pay any such fees unless it is necessary to do so in order to raise at least
the aggregate minimum of $10,000,000.
After completion of this offering and the receipt of the required debt
financing, if we require additional cash, we may seek additional financing by
borrowing, and/or through the sale of additional membership units. We cannot
guarantee that we will be successful in obtaining additional financing if
needed.
CAPITALIZATION
MEMBERSHIP UNIT SPLIT
On March 19, 2001, the Board authorized a two for one membership unit split for
all members of record as of March 19, 2001 which increased the issued and
outstanding membership units from 458 units to 916 units. The number of
membership units and prices paid for the membership units issued throughout the
remainder of this document have been retroactively restated to give effect to
the membership unit split.
CAPITALIZATION TABLE
The following table describes the capitalization of the company as of December
31, 2000 on an actual, pro forma and pro forma as adjusted basis.
Pro forma as adjusted (2)
----------------------------
Actual Pro forma (1) Minimum Maximum
------------ ------------ ------------ ------------
Members' equity (deficit) -- -- -- --
Membership units issued and
outstanding (18 units, actual; 916 units,
pro forma; minimum 10,916 units and
maximum 12,916 units, pro forma as
adjusted) $ 2,250 $ 414,976 $ 10,064,976 $ 12,064,976
Accumulated deficit (19,795) (37,795) (37,795) (37,795)
------------ ------------ ------------ ------------
Total members' equity (deficit) and
capitalization $ (17,545) $ 377,181 $ 10,027,181 $ 12,027,181
============ ============ ============ ============
- -----------------------
(1) Pro forma reflects the net proceeds from issuance of 898 membership units
under the private offering completed January 15, 2001.
(2) Pro forma as adjusted reflects the issuance of 10,000 (minimum) and 12,000
(maximum) membership units at $1,000 per share, net of expenses of
$350,000.
21
PRINCIPAL MEMBERS
The following table presents the names and other information about beneficial or
record owners of more than five percent (5%) of our membership units as of the
date of this prospectus.
- -------------------------------------------------------------------------------------------------------------------
FIVE PERCENT (5%) BENEFICIAL OWNERSHIP
===================================================================================================================
Name and Address Amount and Nature Percent Of
Title of Class Of of Beneficial Class Prior to the
Beneficial Owner Ownership Offering
---------------- --------- --------
- -------------------------------------------------------------------------------------------------------------------
Membership Jack G. Frahm
Units RR 3, Box 53 50 Units(1) 5.459%
Plainview, NE 68769
- -------------------------------------------------------------------------------------------------------------------
Membership Reginald C. Green and
Units Susan K. Green 100 Units(2) 10.917%
RR 2, Box 95A
Creighton, NE 68729
- -------------------------------------------------------------------------------------------------------------------
Membership Claus C. Knuth and
Units Maylo Knuth 60 Units(3) 6.550%
RR 1, Box 38B
Royal, NE 68773
- -------------------------------------------------------------------------------------------------------------------
(1) Includes 30 membership units held by Frahm Farms, Inc.
(2) Reginald C. Green and Susan K. Green hold the membership units as tenants
in common.
(3) Claus C. Knuth and Maylo Knuth hold the membership units as tenants in
common.
22
OWNERSHIP BY MANAGEMENT
The following table describes the ownership of membership units by the company's
directors and officers and by all directors and officers of the company as a
group as of the date of this prospectus.
- --------------------------------------------------------------------------------------------------------------------
UNITS BENEFICIALLY OWNED BY DIRECTORS AND OFFICERS
====================================================================================================================
Directors and Officers of the Number Percentage of Total Percentage of Total
Company of Units Prior to Offering After the Offering(1)
Maximum Minimum
------- -------
- --------------------------------------------------------------------------------------------------------------------
Gary Kuester, Director and Chairman of 2 0.218% 0.015% 0.018%
the Board
- --------------------------------------------------------------------------------------------------------------------
J. Alex Thramer , Director and Vice 30 3.275% 0.232% 0.275%
Chairman
- --------------------------------------------------------------------------------------------------------------------
Jack G. Frahm, Director and 50(2) 5.459% 0.387% 0.458%
Secretary
- --------------------------------------------------------------------------------------------------------------------
Fredrick J. Knievel, Director and 20 2.183% 0.155% 0.183%
Treasurer
- --------------------------------------------------------------------------------------------------------------------
Cory A. Furstenau, Director 14 1.528% 0.108% 0.128%
- --------------------------------------------------------------------------------------------------------------------
Ryan W. Koinzan, Director 10 1.092% 0.077% 0.091%
- --------------------------------------------------------------------------------------------------------------------
Scott J. Carpenter, Director 20 2.183% 0.155% 0.183%
- --------------------------------------------------------------------------------------------------------------------
Mike Kinney, Director 20 2.183% 0.155% 0.183%
- --------------------------------------------------------------------------------------------------------------------
O. Kelly Hodson, Director 30 3.275% 0.232% 0.275%
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
All Directors and Officers as a Group 196 21.397% 1.516% 1.794%
- --------------------------------------------------------------------------------------------------------------------
(1) The percentages reflected assume that the director does not purchase any
additional membership units in this offering.
(2) Includes 30 membership units held by Frahm Farms, Inc.
PURCHASE BY FAGEN, INC.
Pursuant to the terms of our letter of intent with Fagen, Inc. and ICM, Inc.,
Fagen has agreed to a $1,000,000 standby investment commitment. In the event the
company raises $9 million after the commencement of this offering, at the
request of Owner's Board of Directors, Fagen will purchase $1,000,000 of
membership units, or such lesser amount requested by the Board of Directors,
upon the terms set forth in this prospectus.
DILUTION
As of the date of this prospectus, we have 916 membership units issued and
outstanding. The 916 membership units have a pro forma net tangible book value
of $377,181 or $411.77 per membership unit, based on the December 31, 2000
balance sheet, as adjusted to reflect the net proceeds from the company's
private offering completed on January 15, 2001. The "pro forma tangible book
value per unit" is determined by dividing the pro forma tangible book value of
the company less total liabilities by the number of membership units
outstanding.
The following table illustrates the dilution in the value of your equity in a
membership unit based on a total of 10,916 membership units (if the aggregate
minimum units were sold) and of 12,916 membership units (if the aggregate
maximum membership units were sold) units outstanding. The following table
assumes that the net proceeds from this offering were $9,650,000 and $11,650,000
respectively.
23
This table does not take into account any other changes in the net tangible book
value of our membership units occurring after December 31, 2000 or other
expenses not related to this offering.
- ---------------------------------------------------------------------------------------------------
Minimum Maximum
Offering Offering
===================================================================================================
Offering Price per Unit $1,000 $1,000
===================================================================================================
Pro forma net tangible book value of company at December $377,181 $377,181
31, 2000.
- ---------------------------------------------------------------------------------------------------
Pro forma net tangible book value per unit at $411.77 $411.77
December 31, 2000.
- ---------------------------------------------------------------------------------------------------
Increase in pro forma net tangible book value per unit $506.81 $519.41
attributable to the sale of 10,000 (minimum) and 12,000
(maximum) units
- ---------------------------------------------------------------------------------------------------
Pro forma net tangible book value per unit at December 31,
2000 as adjusted for the sale of 10,000 (minimum) and $918.58 $931.18
12,000 (maximum) units
- ---------------------------------------------------------------------------------------------------
Immediate dilution per unit to new investors
$81.42 $68.82
- ---------------------------------------------------------------------------------------------------
DISTRIBUTION POLICY
Distributions are payable at the discretion of our Board of Directors, subject
to the provisions of the Nebraska Limited Liability Company Act and our
Operating Agreement. The Board has no obligation to distribute profits, if any,
to members. We have not declared or paid any distributions on our membership
units.
We do not expect to generate revenues until the proposed ethanol plant is
operational, which we expect will occur approximately 14 to 16 months after this
offering closes and we have secured all necessary permits. After operation of
the proposed ethanol plant begins, we anticipate, subject to any loan covenants
or restrictions with our senior and subordinated lenders, distributing a portion
of our available cash to our members in proportion to the membership units held
and in accordance with our Operating Agreement. By net cash flow, we mean our
gross cash proceeds received less any portion, as determined by our directors in
their sole discretion, used to pay or establish reserves for our expenses, debt
payments, capital improvements, replacements and contingencies. If our financial
performance and loan covenants permit, our directors will try to make cash
distributions at times and in amounts that will permit unit holders to make
income tax payments, but we might not ever be able to make any cash
distributions. Any such distributions are totally discretionary with the Board
and may not, for various reasons, occur. As a result, you could owe more in
taxes due to your share of company profits, than cash distributions received by
you from the company in any taxable year. The Board may elect to retain future
profits to provide operational financing for the plant, debt retirement and
possible plant expansion.
24
SELECTED FINANCIAL DATA
The following table summarizes important financial information from our
financial statements. You should read this table in conjunction with our
financial statements and their notes, and our plan of operation and other
financial information included elsewhere in this prospectus.
February 24, 2000 (Inception)
to
December 31, 2000
-----------------------------
STATEMENT OF OPERATIONS DATA:
Revenues $ --
Operating loss $(61,990)
Net loss $(19,795)
December 31, 2000
---------------------------------------------------------
Pro forma as adjusted(2)
------------------------
Actual Pro forma(1) Minimum Maximum
------ --------- ------- -------
BALANCE SHEET DATA:
Cash and cash equivalents $ 3,257 $425,624 $10,075,624 $12,075,624
Working capital (deficit) (50,713) 371,654 10,021,654 12,021,654
Total assets 36,425 431,151 10,081,151 12,081,151
Total members' equity (deficit) $ (17,545) $377,181 $10,027,181 $12,027,181
- -----------------------
(1) Pro forma reflects the net proceeds of the private offering completed
January 15, 2001.
(2) Pro forma as adjusted reflects the issuance of 10,000 (minimum) and 12,000
(maximum) membership units at $1,000 per share, net of expenses of
$350,000.
MANAGEMENT'S PLAN OF OPERATIONS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE
INDICATED IN SUCH FORWARD-LOOKING STATEMENTS. THE FOLLOWING DISCUSSION OF THE
FINANCIAL CONDITION AND RESULTS OF OUR OPERATIONS SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN
THIS PROSPECTUS.
We are a start-up limited liability company, which was formed for the purpose of
building a plant to produce ethanol and animal feed products on a site we own
located 3 1/2 miles east of Plainview, Nebraska. Our 47-acre site lies between
US Highway 20 on the north, and the Northeastern Railway on the south, and is
expected to have good access to both truck and rail transportation. We purchased
the site for $50,525, which is equal to approximately $1,075 per acre.
Our plant is expected to consume approximately 7 1/2 million bushels of locally
grown corn annually, and produce approximately 20 million gallons of fuel-grade
ethanol and 160,000 tons of wet distillers grains for cattle feed annually. We
currently estimate that it will take 14 to 16 months from the date that we close
the offering, which includes obtaining our debt financing, and obtaining all
necessary permits, to complete the construction of the plant.
25
We anticipate that we will have an agreement with an experienced ethanol
marketer to sell our ethanol production. We also anticipate that we will sell
all of our animal feed products to the local cattle market using our own
in-house staff. We will be hiring staff to handle the direct operation of the
plant, and currently expect to employ approximately 30 people.
PLAN FOR NEXT 12 MONTHS OF OPERATION
We expect to use the next 12 months for the design-development and construction
of the ethanol plant. We also plan to obtain debt financing and negotiate and
execute finalized contracts concerning the construction of the plant, provision
of necessary electricity, natural gas and other power sources, and marketing
agreements for ethanol and distiller grain sales. Assuming the successful
completion of this offering and our obtaining necessary debt financing, we
expect to have sufficient cash on hand to cover construction and related costs
necessary to make the plant operational. We estimate that we will need
approximately $27.75 million to construct the plant, and a total of
approximately $33 million to cover all capital expenditures necessary to
complete the project and make the plant operational and produce revenue.
If we close on the offering and obtain the necessary debt financing, we expect
to have sufficient cash to cover our costs over the next 12 months, and through
the completion of the plant construction, including staffing, general and
administrative expenses and legal, accounting and related expenses. The
following is our estimate of costs and expenditures for the 12 months following
the completion of this offering. These estimates are based on the experience of
Fagen, Inc. in the construction of other ethanol plants. It is only an estimate
and our actual expenses could be much higher because of a number of factors, as
described in the "Risk Factors" section.
Financing and organization costs $ 400,000
Offering costs 350,000
Insurance 200,000
General and administrative costs 85,000
Land and site preparation 550,000
Construction in progress payments 24,050,000
-----------
TOTAL $25,635,000
===========
We anticipate spending approximately $25, 635,000 on our business over the next
12 months, the largest portion of which will be for the construction of our
ethanol plant. The financing and organization costs represent the fees and costs
which we may incur in connection with obtaining our debt financing from our
lenders. These financing costs include lending and legal fees. We have not
obtained the services of a professional advisor in connection with obtaining
debt financing, and our financing costs may be significantly higher if we cannot
obtain such debt financing on our own, and are required to hire a professional
advisor for such purposes. We estimate that we will spend approximately $200,000
on directors and officers' insurance, general commercial liability and property
insurance for our business. We also expect to spend an estimated $85,000 on
general and administrative expenses during the next 12 months, including
managerial fees, general office expenses, and disbursement reimbursements. We
estimate the costs of land and site preparation to be approximately $550,000,
which will include leveling and grading the site, constructing a road from the
plant to Highway 20, and drilling wells to meet our water supply needs.
We expect to spend the majority of our funds over the next 12 months,
approximately $24 million, on plant construction. These costs will include
preparing and pouring foundations, material and labor to construct the plant,
including the grain and ethanol storage and handling facilities, offices and a
cooling tower. We will also be purchasing and installing ethanol production
equipment, such as pumps, grinders, processing equipment, storage tanks and
conveyors. Such construction, equipment purchases and installation will be
handled by Fagen, Inc., which will be paid by us by making monthly progress
payments based on the worked completed and invoiced to us by Fagen, Inc..
26
We estimate our offering costs as follows:
Securities and Exchange Commission registration fee $ 3,000
Legal fees and expenses 100,000
Accounting fees 100,000
Blue Sky filing fees 30,000
Printing expenses 55,000
Escrow agent fees 7,000
Costs relating to sales meetings 15,000
Miscellaneous expenses 40,000
--------
TOTAL $350,000
========
We have not obtained the services of any underwriter, placement agent or
broker-dealer for this offering, although we reserve the right to pay a finder's
fee or placement agent fee to a registered broker-dealer in connection with the
sale of membership units in accordance with applicable laws , and any such
payment would increase our offering costs materially. We currently do not intend
to pay any such fees unless it is necessary to do so in order to raise at least
the aggregate minimum of $10,000,000.
We intend to fund our costs and expenditures for the next 12 months through
proceeds raised in this offering and our debt financing. We currently have one
person who serves as a part-time bookkeeper and interim office manager, and are
searching for a project manager to assist with organizational matters related to
our business. We do not plan to begin hiring additional employees related to the
ethanol plant operations until approximately six months before completion of the
plant construction and commencement of production operations.
OPERATING EXPENSES
We will have certain operating expenses, such as office supplies, utilities and
salaries and related employment costs, when we hire a manager and other staff.
Along with these operating expenses, as noted above, we will have significant
offering and financing and organizational expenses. We have allocated funds in
our capital budget for such expenses, although such expenses may be greater than
those we have budgeted. If such costs are greater than we have budgeted, or if
construction costs run higher than budgeted, we may need to obtain additional
funding to cover such costs.
BOOKS AND RECORDS
We currently do not have a full-time office staff or general manager. We are
currently seeking a project manager to assist us in organizational business
matters, but cannot be assured of hiring such person in the near future. We are
currently dependent on our Board of Directors, and a part-time bookkeeper, for
the maintenance of our books and records. We intend to hire and train full-time
staff personnel prior to commencement of operations, and the salaries of such
persons are included in our budget. Such personnel are and will be responsible
for compliance with the rules and regulations promulgated under the Securities
and Exchange Act of 1934 concerning the maintenance of accurate books and
records, and the timely and accurate submission of annual and periodic reports
with the Securities and Exchange Commission.
LIQUIDITY AND CAPITAL RESOURCES
We are proposing to raise $10 million minimum and $12 million maximum in this
offering. The offering proceeds will be placed in an interest-bearing escrow
account with Midwest Bank, N.A. d/b/a Plainview National Bank. We will not close
on the escrow and accept subscribers' funds until we have executed definitive
agreements for our debt financing. We are seeking approximately $23 million in
debt financing from one or more lenders in order to complete construction of the
ethanol plant.
27
We do not currently have financing commitments for any debt financing. We have
had preliminary discussions with several local banks that have expressed
interest in participating in our debt financing, but we do not have any
commitments and have not entered into any letters of intent or binding
agreements with any lending institutions. Our ability to complete the
construction of the plant is totally dependent upon our ability to successfully
complete this offering and obtain debt financing. If we cannot obtain debt
financing by December 1, 2001, we will return the proceeds raised in this
offering with interest.
We currently expect to enter into a construction loan for up to $23 million,
which will be secured by all our assets, including real property, plant and
equipment, receivables and inventory. We currently expect that the construction
loan will be converted into a term debt, to be paid in full over an agreed upon
term period upon completion of construction and operation of the ethanol plant.
Our ability to obtain both the construction loan and term loan will be dependent
upon our ability to construct the plant on a timely basis. The cost of such
financing will be depend upon the interest rate which we are able to obtain,
which will depend upon factors, such as the debt financing market as a whole,
which we cannot control. In addition to the term loan, we may need a revolving
line of credit during the first year of operations to provide cash flow
necessary to finance our inventories and receivables. Our need for such
financing may be lessened if the maximum amount of $12 million is raised in this
offering. Our current plans call for our maintaining a cash reserve of $2
million after we commence operations, which we have estimated to be
approximately one-month's operating expenses. We do not currently have any
commitments for any of our debt financing requirements, including any line of
credit financing which we may require.
In January 2001, the Nebraska Department of Agriculture awarded us a $75,000
grant under the Agricultural Opportunities and Value-Added Partnerships Act to
assist us with the construction of our ethanol plant. We entered into an
agreement with the Nebraska Department of Agriculture in connection with the
award which governs our obligations relating to the grant award. This agreement
requires us to use the grant funds exclusively for the activities listed in our
application which includes payment of legal fees, accounting fees, consulting
fees and permitting costs associated with the construction of the ethanol plant.
The following table shows the sources of our liquidity in connection with the
construction of our ethanol plant and commencement of its operations. We do not
currently have any commitments or agreements with any third party to provide us
with these funds. The following shows both the minimum offering amount of $10
million and the maximum offering amount of $12 million. Based on the current
interest rate market, the following assumes an interest rate of 8.5% on term
debt. Interest rates have historically fluctuated and our interest rate could be
significantly higher.
The following table represents only ranges of estimates, and our actual sources
and uses of funds could vary materially from the following estimates.
SOURCES OF FUNDS
Minimum Offering Maximum Offering
---------------- ----------------
Equity offering net proceeds $ 9,650,000 $11,650,000
Private offering net proceeds 394,726 394,726
State of Nebraska grant 75,000 75,000
Debt financing 23,000,000 23,000,000
----------- -----------
TOTAL SOURCES OF FUNDS $33,119,726 $35,119,726
=========== ===========
28
USES OF FUNDS
Minimum Offering Maximum Offering
---------------- ----------------
Grain receiving, storage and milling $ 1,655,500 $ 1,655,500
Conversion and liquefaction 1,204,000 1,204,000
Fermentation 3,612,000 3,612,000
Distillation and molecular sieve 2,709,000 2,709,000
Liquid/Solid separation 1,354,500 1,354,500
Evaporation 2,408,000 2,408,000
Product storage 2,107,000 2,107,000
Utilities 1,200,000 1,200,000
General plant 9,000,000 9,000,000
Engineering 2,500,000 2,500,000
Land and site development 550,000 550,000
Capitalized interest 493,286 493,286
Start-up expenses - through first month of production' 2,982,738 2,982,738
Financing and organization costs 850,000 850,000
Cash reserve 493,702 2,493,702
----------- -----------
TOTAL USES OF FUNDS $33,119,726 $35,119,726
=========== ===========
BUSINESS OF THE COMPANY
Husker Ag Processing, LLC, a Nebraska limited liability company, was organized
on August 29, 2000 to construct and operate an ethanol plant. Our principal
business office is currently located at 510 W. Locust Street, P.O. Box 10,
Plainview, Nebraska 68769. We are managed by a nine-member Board of Directors.
We have purchased approximately forty-seven (47) acres of real property located
3 1/2 miles east of Plainview, Nebraska between the railroad and US Highway 20
located in Pierce County, Nebraska. Plainview Development Corporation, which is
a local non-profit, community development corporation, located the property and
obtained an Option to Purchase the property dated July 3, 2000 from the owner of
the property. On November 27, 2000, Plainview Development Corporation assigned
the property option to us. The option gave us the right to buy the property for
a purchase price of $50,525 which equals approximately $1,075 per acre. We
exercised the option and purchased the property on March 9, 2001. We did not
obtain an independent appraisal of the property although the Board of Directors
believes the price represents fair market value for the property. We are
planning to build an ethanol plant that will have an annual capacity to process
approximately 7.5 to 8 million bushels of corn into approximately 20 million
gallons of ethanol per year (mgy). The ethanol plant is also expected to produce
approximately 160,000 tons annually of animal feed known as distiller grains,
which may be sold as distillers dried grains with solubles, distillers modified
wet grains and distillers wet grains. These are the principal co-products of the
ethanol production process.
BACKGROUND - - WHAT IS ETHANOL?
Ethanol is a chemical produced by the fermentation of sugars found in grains and
other biomass. Ethanol can be produced from a number of different types of
grains, such as wheat and sorghum, as well as from agricultural waste products
such as sugar, rice hulls, cheese whey, potato waste, brewery and beverage
wastes and forestry and paper wastes. However, approximately 90% of ethanol in
the United States today is produced from corn because corn produces large
quantities of carbohydrates, which convert into glucose more easily than other
kinds of biomass. Current annual domestic ethanol production is approximately 2
billion gallons.
29
Ethanol contains 35% oxygen by weight. When combined with gasoline, ethanol acts
as an oxygenate, which means that it increases the percentage of oxygen in
gasoline. As a result, the gasoline burns more cleanly, and releases less carbon
monoxide and other exhaust emissions into the atmosphere. Oxygenated gasoline is
commonly referred to as reformulated gasoline or "RFG." Although not all
scientists agree about the existence or extent of environmental benefits
associated with the use of ethanol, the use of ethanol is commonly viewed as a
way to improve the quality of automobile emissions.
FEDERAL AND STATE REGULATION
Most ethanol is used in its primary form for blending with unleaded gasoline and
other fuel products. We believe that the implementation of the Federal Clean Air
act has made ethanol fuels an important domestic renewable fuel additive,
allowing the country to meet its environmental goals and reduce imports of
petroleum based fuels. Ethanol used as a fuel oxygenate provides one of the
easier, less expensive means to control carbon monoxide in problem areas.
Recently, the demand for ethanol has increased somewhat, particularly in the
upper Midwest, as a result of at least one of two major programs established by
the Clean Air Act Amendments of 1990 ("Clean Air Amendments"). The first
program, the Federal Oxygen Program, is a recurring wintertime program, designed
to reduce carbon monoxide levels during the winter months. The Clean Air
Amendments currently requires the use of oxygenated fuels, at a minimum rate of
2.7% oxygen by weight, during the winter months in approximately 44 metropolitan
areas that were not in compliance with carbon monoxide standards.
The demand for ethanol may also be increasing as a result of a second Clean Air
Amendments program, the reformulated gasoline ("RFG") program. This program,
which began on January 1, 1995, is intended to reduce ground level ozone or
smog. The program initially required the use of RFG (containing oxygenates) in
nine metropolitan areas with severe ozone pollution. Other less severe
non-attainment areas are to be phased into the program over time. Although not
required, all or a portion of 14 states and the District of Columbia voluntarily
opted into the program at its inception.
The program has now been in place for approximately five years; however, we
cannot determine the future impact of the RFG program on the demand for ethanol.
Prior to the inception of the program, the Environmental Protection Agency
mandated that a 30% share of the oxygen required in RFG come from renewable
oxygenates, meaning primarily ethanol; however, in April 1995, a federal
appellate court struck down the rule on the basis that the rule exceeded the
EPA's authority. While the ethanol industry has generally discounted the effect
of the court case on the basis that ethanol can compete in the marketplace with
other oxygenates (primarily MTBE (as defined below)) on its own merits, the
prospects for the ethanol market are further clouded by the growing resistance
to the reformulated fuel program. Consumers have resisted higher RFG prices and
a number of regions that had opted-in to the program have now opted-out.
Moreover, Congress has indicated a willingness to reexamine the program.
Currently, ten major U.S. metropolitan areas are out of compliance with the
Clean Air Amendments standards and are required to use RFG year-round. Other
areas are only required to use RFG during the winter months. Fourteen states and
the District of Columbia have voluntarily chosen to use RFG to help achieve
their clean air goals.
Currently, the most common oxygenate is methyl tertiary butyl ether (MTBE).
MTBE, a petroleum-based product, is produced from methanol and natural gas and
is largely imported from the Middle East. About 13% of the nation's RFG uses
ethanol as an oxygenate and MTBE makes up the vast majority of the balance.
Since MTBE was introduced and has become a commonly used oxygenate, MTBE has
been found in well water, lakes and streams. While MTBE has not been classified
as a carcinogen, it has been shown to cause cancer in animals and its continued
use has raised serious environmental concerns. On March 26, 1999, the Governor
of California issued an order requiring the phase out of MTBE in gasoline sold
in California by December 31, 2002. California's actions initiated a national
debate about the use and possible danger of MTBE.
30
In addition to California, many states, including Arizona, Connecticut,
Illinois, New York, Maine, Minnesota and South Dakota have enacted legislation
prohibiting the sale of gasoline containing specified levels of MTBE and/or
requiring the phase-out of MTBE and other ether based oxygenates.
On March 20, 2000, the Environmental Protection Agency called for MTBE to be
banned or to have its use significantly reduced because of environmental
problems associated with its use as a fuel oxygenate.
U.S. Senator Fitzgerald has proposed federal MTBE legislation (S. 265) which
requires the complete phase-out of MTBE within three years. The bill also
requires that prior to the phase-out, all gasoline containing MTBE be properly
labeled. As of February 6, 2001, the bill was referred to the Senate Committee
on Environmental and Public Works.
GOVERNMENTAL INCENTIVES
FEDERAL INCENTIVES.
Federal Tax Incentives
Recognizing the need for a cleaner source of energy, and appreciating that
ethanol is also renewable and can be produced in the United States, legislators
have created federal and state incentives for ethanol production. These tax
incentives allow the ethanol industry to compete successfully in domestic fuel
markets with gasoline blended with MTBE produced by the oil industry. Although
the regulatory program is complicated and there are other federal tax incentives
for ethanol production, the most important incentive for our proposed ethanol
plant and our anticipated customers is the partial exemption from the federal
excise tax on gasoline.
The 5.4(cent) per gallon partial exemption from the federal excise tax on
gasoline is for alcohol fuels such as ethanol that are produced from biomass and
used as fuels. Currently, if gasoline contains up to 10% ethanol produced from
biomass, then the gasoline is exempt from 5.4(cent) of the 18.4(cent) per gallon
federal excise tax. This exemption will be reduced from 5.4(cent) per gallon to
5.2(cent) per gallon for the years 2003 and 2004 and 5.1(cent) per gallon for
2005, 2006 and 2007, when the current legislation is scheduled to expire. The
Energy Policy Act of 1992 revised the tax exemption to include gasoline blends
with less than 10 percent ethanol.
- --------------------------------------------------------------------------------
Ethanol Blend Oxygen Content Tax Exemption
(% volume) (% weight) (cents/gallon blended)
- --------------------------------------------------------------------------------
5.7 2.0 3.0
- --------------------------------------------------------------------------------
7.7 2.7 4.1
- --------------------------------------------------------------------------------
10 3.5 5.4
- --------------------------------------------------------------------------------
Federal Small Producers Credit.
The Budget Reconciliation Act of 1990 established a 10(cent) per gallon tax
credit to help encourage the development of new ethanol production facilities,
effective January 1, 1991. This credit is available for ethanol produced at
plants with 30 million gallons or less of annual capacity. Ethanol producers
that qualify can deduct from their federal income tax 10(cent) per gallon on the
first 15 million gallons produced annually. However, the credit is considered
taxable income and taxes must be paid on the amount credited. The small producer
tax credit is scheduled to sunset December 31, 2007.
31
Based on our intent to be taxed as a partnership, you will be required to report
on your income tax return your allocable share of the company's income, gains,
losses and deductions. The pass-through nature of our anticipated partnership
taxation structure also applies to any small producer tax credit we receive. The
credit, if any, received by us, will be passed through to our members; however,
the amount of any such credit received by a member must also be included in the
gross income of the member, which could result in the taxation of the amount of
the credit distributed to the member.
STATE INCENTIVES.
Producer Tax Incentives
In Nebraska, there was a state producer tax credit of 20(cent) per gallon for
the first 20 million gallons per plant; however, this tax credit program expired
in December 2000. There is currently a legislative bill, LB 536, pending with
the Nebraska State Legislature to establish a renewed ethanol production
incentive. Senators Dierks, Cudaback, Cunningham, Schrock and Vritiska
introduced LB 536 and Senator Cunningham has made LB 536 his "priority bill" for
the 2001 legislative session. On April 4, 2001, the Nebraska Revenue Committee
advanced LB 536 to the Nebraska State Legislature's General File with amendments
(AM1356). On April 25, 2001, LB 536 was approved on its first reading by a vote
of 39 to 6 and advanced to the Select File on April 30, 2001. The bill must
still be approved by the legislature upon its second and final reading and be
signed by the Governor to become law in Nebraska.
The bill establishes a production tax credit of 20(cent) per gallon of ethanol
produced during an 84 consecutive month period by newly constructed ethanol
facilities in production prior to June 30, 2004. The tax credit is in the form
of a motor fuel tax certificate which is only available to offset Nebraska motor
fuels excise taxes. The tax credit is transferable and therefore, we intend to
transfer credits received to Nebraska gasoline retailers who then will reimburse
us for the credit amounts at face value or at face value less a small handling
fee. No producer shall receive tax credits for more than 17,850,000 gallons of
ethanol produced in one year. No producer shall receive tax credits for more
than 125 million gallons of ethanol produced over the consecutive 84 month
period. The minimum production level to qualify for credits is 100,000 gallons
of ethanol annually. Previous programs established a 2 million gallon minimum
annual production level to qualify for incentives. The lower production minimum
enables the production incentive to be extended to small scale production
facilities. LB 536 provides that no credits will be granted after June 30, 2011.
Although ethanol producers are currently lobbying the Nebraska legislature to
enact LB 536 and continue the Nebraska producer incentive program, there can be
no assurance that the Nebraska legislature will extend the program or that the
Governor will not veto the legislation after approved by the legislature.
Investment Tax Credits
Nebraska LB 775 also offers sales/use tax and income tax credits. LB 775 is
available for new or expanding companies. The state requires at least $3,000,000
of new qualified investment and 30 additional full-time equivalent employees to
qualify for the benefits of the program. Program benefits that Husker Ag can
expect are (1) sales/use tax refunds on construction costs of approximately
$750,000 in the year following completion of construction; (2) a tax credit
equal to 5% of the annual total [employee] compensation for a period of 7 years
of approximately $50,000 annually for 7 years; and (3) a tax credit equal to 10%
of the of the total qualified investment of approximately $2.9 million. The
pass-through nature of our anticipated partnership taxation structure also
applies to any sales/use and income tax credits we receive under LB 775.
32
INDUSTRY GROWTH
Because of federal and state policies promoting cleaner air and the state and
federal tax and production incentives mentioned above, the ethanol industry has
grown substantially in recent years. Currently, U.S. ethanol plants produce 2
billion gallons of ethanol annually, compared to only 175 million gallons in
1980. There are more than 55 ethanol production facilities located in the United
States, with the great majority of them located in the Midwest in the
corn-producing states of Illinois, Wisconsin, Minnesota, Iowa, North Dakota,
South Dakota, Nebraska and Kansas.
In addition, automobile companies have begun developing ethanol-friendly
vehicles. Gasoline blends containing up to 10% ethanol are approved under the
warranties of most major domestic and foreign automobile manufacturers marketing
vehicles in the United States, and many recommend the use of cleaner burning
fuel, such as ethanol, in their vehicle owner manuals. Similarly, most major
manufacturers of power equipment, motorcycles, snowmobiles and outboard motors
endorse the use of ethanol blends in their products. In the last several years,
automobile companies have introduced a growing number of flexible fuel vehicles
that operate on fuel mixtures of up to 85% ethanol. In addition, ethanol
industry advocates have developed new diesel fuels, commonly referred to as
"OxyDiesel," which are a blend of diesel fuel and ethanol.
OUR ETHANOL PLANT
The goal of our project is to construct and operate an ethanol plant on the
property described above. The Board chose the plant site which is east of the
City of Plainview based on access to rail transportation, natural gas, and
water, proximity and cost of raw material supplies, proximity to product markets
and amenity to construction. Assuming successful completion of the offering, we
currently intend to break ground on the plant in the fall of 2001. The elapsed
time from ground breaking to mechanical completion of the plant is expected to
take approximately 14 to 16 months. We estimate the total capital costs to
construct the plant are approximately $27,750,000. Our plant will consist
principally of a raw storage and processing area; a fermentation area comprised
principally of fermentation tanks; a finished product storage and distillation
area; and a drying unit for processing the distilled dried grains.
We anticipate that our ethanol plant will use a dry milling process to produce
fuel-grade ethanol as its main product, in addition to the co-product wet
distillers grain. Our plant will have a design capacity to produce 20 million
gallons of ethanol per year (20 mgy), and we expect the plant to produce 65,000
tons of wet distillers grain annually.
DESCRIPTION OF DRY MILL PROCESS
Our ethanol plant will produce ethanol by processing corn. The corn will be
received by rail and by semi-trailer truck, and will be weighed and stored in a
receiving building. It will then be transported to a scalper to remove rocks and
debris before it is conveyed to storage bins. Thereafter, the corn will be
transported to a hammermill or grinder where it is ground into a mash and
conveyed into a tank for processing. We will add water, heat and enzymes to
break the ground corn into a fine liquid. This liquid will be heat sterilized
and pumped to a tank where other enzymes are added to convert the starches into
glucose sugars. Next, the liquid is pumped into fermenters, where yeast is
added, to begin a forty-eight to fifty hour batch fermentation process. A
distillation process will divide the alcohol from the corn mash. The alcohol
which exits the distillation process is then partially dried. The resulting 200
proof alcohol is then blended with gasoline as it is pumped into storage tanks.
Corn mash from the distillation process is then pumped into one of several
centrifuges. Water from the centrifuges is dried into a thick syrup. The solids
that exit the centrifuge or evaporators is called wet cake and is conveyed to
dryers. Corn mash is added to the wet cake as it enters the dryer, where
moisture is removed. This process produces distiller grains, which can be used
as animal feed.
33
OUR PRINCIPAL PRODUCTS AND THEIR MARKETS
The principal products we will produce at our ethanol plant are ethanol and wet
distillers grain. A third product, concentrated distillers solubles ("CDS")
syrup is a potential co-product that is normally sprayed on the distillers grain
and dried. While carbon dioxide is also a co-product of the ethanol production
process, the potential demand for carbon dioxide in the local market has not
been determined and we do not currently intend to capture and sell the carbon
dioxide produced at the plant.
Ethanol. Ethanol is ethyl alcohol, a fuel component made primarily from corn and
various other grains, and can be used as:
o An octane enhancer in fuels;
o An oxygenated fuel additive that can reduce ozone and carbon
monoxide vehicle emissions; and
o A non-petroleum-based gasoline extender.
Ethanol has important applications and is used primarily as a high quality
octane enhancer and an oxygenate capable of reducing air pollution and improving
automobile performance. Approximately 95% of all ethanol is used in its primary
form for blending with unleaded gasoline and other fuel products. As a fuel
additive, the demand for ethanol is derived from the overall demand for
gasoline, as well as the competition of ethanol versus competing oxygenate
products and technologies. Motor vehicles in the United States consume more than
130 billion gallons of gasoline every year.
Distiller Grains. A principal co-product of the ethanol production process are
distiller grains, a high protein, high-energy animal feed supplement primarily
marketed to the dairy and beef industry. Dry mill ethanol processing creates
three forms of distiller grains: distillers wet grains, distillers modified wet
grains, and distillers dried grains. Distillers wet grain is processed corn mash
that contains approximately 70% moisture. It has a shelf life of approximately
three summer days (five winter days) and can be sold only to farms within the
immediate vicinity of an ethanol plant. Distillers modified wet grain is similar
except that it has been dried to approximately 50% moisture. It has a slightly
longer shelf life of approximately two to three weeks and is often sold to
nearby markets. Dried distillers grain is corn mash that has been dried to 10%
moisture. It has an almost indefinite shelf life and may be sold and shipped to
any market regardless of its vicinity to an ethanol plant.
CORN SUPPLY AND CORN PRICES
We anticipate that our ethanol plant will need between approximately 7.5 to 8
million bushels of corn per year or 21,000 bushels per day as the feedstock for
its dry milling process. The grain supply for our plant will be obtained
primarily from local markets. In the last five years, in the five county area
surrounding the plant, corn production has averaged 94 million bushels annually.
The following table provides a summary of the approximate number of bushels of
corn produced by suppliers located within the five counties surrounding the our
ethanol plant during recent years:
- ------------------------------------------------------------------------------
County Bushels of Corn Produced
Per Year
- ------------------------------------------------------------------------------
Pierce 17,000,000
- ------------------------------------------------------------------------------
Antelope 25,000,000
- ------------------------------------------------------------------------------
Knox 12,000,000
- ------------------------------------------------------------------------------
Holt 24,000,000
- ------------------------------------------------------------------------------
Madison 16,000,000
==============================================================================
TOTAL 94,000,000
- ------------------------------------------------------------------------------
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The price and availability of corn are subject to significant fluctuations
depending upon a number of factors which affect commodity prices in general,
including crop conditions, weather, governmental programs and foreign purchases.
Because the market price of ethanol is not related to grain prices, ethanol
producers are generally not able to compensate for increases in the cost of
grain feedstock through adjustments in prices charged for their ethanol. We
therefore anticipate that our plant's profitability will be negatively impacted
during periods of high grain prices.
TRANSPORTATION AND DELIVERY
The plant will have the facilities to receive corn by truck and rail and to load
ethanol and distillers grains onto trucks and rail cars. We expect that the
Northeast Nebraska Railway will provide rail service directly to the proposed
site. We expect to negotiate a marketing service relationship with the Northeast
Nebraska Railway but do not currently have an agreement to provide such
services.
In terms of freight rates, rail is considerably more cost effective. Currently,
moving product from Nebraska to the Northwestern United States or California
could be accomplished for about $.10 to $.14 per gallon. Generally, the market
prices in those areas reflect the additional freight costs associated with
getting the ethanol there. We may be able to obtain lower rates through
negotiated contracts. In terms of markets that are closer, but yet beyond the
range of economical truck transportation, railed product could be shipped to
Minneapolis for example, for about $.06 per gallon, to Chicago for $.07 per
gallon, and to Kansas City for $.03 - .04 per gallon. These rates are to be
considered as rough estimates since a short line railroad is involved and all
cars leaving the plant will have to be delivered to a main line railroad for
completing the shipping process.
UTILITIES
The production of ethanol is a very energy intensive process which uses
significant amounts of electricity and natural gas. Water supply and quality are
also important considerations.
ENERGY SERVICES. Significant strides have been made over the past 15 years to
reduce the energy intensiveness of ethanol production. Presently, about 40,000
BTUs of energy are required to produce a gallon of ethanol. However, because of
our intention to sell distillers wet grain, our actual BTU per gallon
requirements are estimated to be approximately 29,400 BTUs. To the extent we use
dryers to create modified wet grain or dried distillers grain, our energy usage
will increase.
NATURAL GAS. We anticipate that our plant will require a natural gas supply of
at least 0.75 billion cubic feet per year at a minimum rate of 100 MCF per hour
and at a minimum of 200 psig at the plant site. To access sufficient supplies of
natural gas to operate the plant, a connection to a distribution pipeline
located underground at our site will be required. We have no current agreement
with any third party to construct such a connection.
We anticipate that natural gas may also be procured from various suppliers on
the open market and we could enter into a contract for distribution services
that would include the costs of construction of the connection to the
underground pipeline to our plant. We have received proposals from two different
natural gas suppliers, although we currently have no agreement with a natural
gas supplier. We anticipate entering into an agreement with a natural gas
supplier before we begin construction of the plant and that the natural gas
supply will be sufficient to meet our needs; however, both natural gas suppliers
have stated that they can not guarantee that the natural gas supply will be
uninterrupted. We intend to purchase a propane tank to serve as a back-up energy
source in the event of interruption of our natural gas supply, we expect that
our back-up propane tank will allow us to continue operations for about three to
four days.
Natural gas prices have historically fluctuated dramatically, which could
significantly affect the profitability of our operations.
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ELECTRICITY. The proposed plant will require a continuous supply of 15,000 KVA,
12,400 volt electrical energy. We expect to purchase electricity from Northeast
Nebraska Public Power District but have not yet entered into any agreement with
this utility regarding the specific type and nature of service to be provided.
We anticipate doing so before we begin construction of the ethanol plant.
WATER. We will require a significant supply of water. Fresh water requirements
for a 20 mgy ethanol plant are approximately 180 gallons per minute. Much of the
water used in an ethanol plant is recycled back into the process. There are,
however, certain areas of production where fresh water is needed. Those areas
include boiler makeup water and cooling tower water. Boiler makeup water is
treated on-site to minimize all elements that will harm the boiler and recycled
water cannot be used for this process. Cooling tower water is deemed non-contact
water (it does not come in contact with the mash) and, therefore, can be
regenerated back into the cooling tower process. The makeup water requirements
for the cooling tower are primarily a result of evaporation. Depending on the
type of technology utilized in the plant design, much of the water can be
recycled back into the process, which will minimize the effluent. This will have
the long-term effect of lowering waster water treatment costs. Many new plants
today are zero or near zero effluent facilities. At most, there should be no
more than 200 gallons per minute of effluent. The water from the cooling tower
and the boiler blow-down water will be put in a pond and eventually released to
the environment. We anticipate that our water requirements will be supplied
through the drilling of our own wells.
OUR PRIMARY COMPETITION
We will be in direct competition with numerous other ethanol producers, many of
whom have greater resources than we do. We also expect that additional ethanol
producers will enter the market if the demand for ethanol continues to increase.
Our proposed ethanol plant will compete with other ethanol producers on the
basis of price and, to a lesser extent, delivery service. We believe we can
compete favorably with other ethanol producers due to our proximity to ample
corn supplies at favorable prices. Historically, prices for corn grown in
Nebraska have been lower, compared to prices for corn grown in other areas of
the United States.
During the last twenty years, ethanol production capacity in the United States
has grown from almost nothing to an estimated approximately 1.8 billion gallons
per year. Plans to construct new plants or to expand existing plants have been
announced which would increase capacity by approximately 235 million gallons per
year and this increase in capacity may continue in the future. We cannot
determine the effect of this type of an increase upon the demand or price of
ethanol, although such plants may compete with us in the sale of ethanol and
related products.
The ethanol industry has grown to over 55 production facilities in the United
States. Industry authorities estimate that these facilities are capable of
producing approximately 2 billion gallons of ethanol per year. The largest
ethanol producers include Archer Daniels Midland, Cargill, Minnesota Corn
Processors, Midwest Grain, Williams Energy Service, New Energy Corporation and
High Plains Corporation, all of which are capable of producing more ethanol than
we expect to produce. In addition, there are several regional entities recently
formed, or in the process of formation, of a similar size and with similar
resources to ours.
36
The following table identifies most of the producers in the United States along
with their production capacities.
U.S. PRODUCTION CAPACITY
million gallons per year (mgy)
COMPANY FEEDSTOCK LOCATION MGY
A.E. Staley corn Loudon, TN 45
AGP corn Hastings, NE 52
Agri-Energy, LLC corn Luverne, MN 17
Alchem corn/barley Grafton, ND 11
Al-Corn Clean Fuels corn Claremont, MN 17
Archer Daniels Midland corn Decatur, IL 310
Archer Daniels Midland corn Peoria, IL 200
Archer Daniels Midland corn Cedar Rapids, IA 200
Archer Daniels Midland corn Clinton, IA 160
Archer Daniels Midland corn Walhalla, ND 28
Broin Enterprises corn Scotland, SD 8
Cargill corn Blair, NE 70
Cargill corn Eddyville, IA 35
Chief Ethanol corn Hastings, NE 62
Corn Plus corn Winnebago, MN 18
Chippewa Valley Ethanol corn Benson, MN 20
ESE Alcohol corn Leoti, KS 1.1
Ethano12000 corn Bingham Lake, MN 32
Exol corn Albert Lea, MN 17
Georgia-Pacific paper waste Bellingham, WA 7
Golden Cheese Company cheese whey Corona, CA 2.8
Gopher State Ethanol corn St. Paul, MN 15
Grain Processing Corp. corn Muscatine, IA 10
Heartland Corn Products corn Winthrop, MN 17
Heartland Grain Fuel corn Aberdeen, SD 8
Heartland Grain Fuel corn Huron, SD 12
High Plains Corp. milo/corn York, NE 35
High Plains Corp. milo/corn Colwich, KS 20
High Plains Corp. milo/corn Portales, NM 12
J.R. Simplot potato waste Caldwell, ID 3
J.R. Simplot potato waste Burley, ID 3
Jonton Alcohol corn Edinburg, TX 1.2
Kraft, Inc. cheese whey Melrose, MN 3
Manildra Ethanol corn/mil/wheat starch Hamburg, IA 7
Merrick/Coors brewery waste Golden, CO1.5 1.5
Midwest Grain Products corn/wheat starch Atchison, KS 30
Midwest Grain Products corn/wheat starch Pekin, IL 72
Minnesota Clean Fuels waste sucrose Dundas, MN 1.5
Minnesota Corn Processors corn Columbus, NE 80
Minnesota Corn Processors corn Marshall, MN 35
37
Minnesota Energy corn Buffalo Lake, MN 12
Diversified Energy Co. (DENCO) corn Morris, MN 15
Nebraska Energy corn Aurora, NE 30
Northeast Missouri Ethanol corn Macon, MO 17
New Energy Corp. corn South Bend, IN 85
Pabst Brewing brewery waste Olympia, WA 0.7
Parrallel Products food/bev. waste Bartow, FL 2
Parrallel Products food/bev. waste Rancho Cucamonga, CA 3
Parrallel Products food/bev. waste Louisville, KY 7
Permeate Refining sugars and starches Hopkinton, IA 1.5
Pro-Corn, LLC corn Preston, MN 17
Reeve Agri-Energy corn/milo Garden City, KS 10
Sunrise Energy corn Blairstown, IA 7
Sutherland Associates corn Sutherland, NE 15
Williams Energy Services corn Pekin, IL 100
Wyoming Ethanol corn Torrington, WY 6
TOTAL ETHANOL PRODUCTION CAPACITY 2024.3 MILLION GALLONS
Source: American Coalition for Ethanol 11/2/2000.
OPERATING ETHANOL PLANTS IN THE STATE OF NEBRASKA
Currently there are seven operational ethanol plants in the state of Nebraska.
BLAIR, NEBRASKA. Cargill operates a wet milling plant in Blair using corn as its
feedstock. It is a 75 million gallons per year plant, producing ethanol and corn
sweeteners. Plans are now underway to install a large new facility as a joint
venture with Dow to build a large biobased plastics plant adjacent to the
ethanol facility. This facility uses approximately 65 million bushels of corn
annually.
HASTINGS, NEBRASKA. Chief Ethanol Fuels operates a dry mill plant in Hastings
using corn and milo as its feedstock. The Chief Ethanol Fuels plant has been
expanded several times since the late 1980's and processes about 24 million
bushels of corn annually to produce 60 million gallons per year of fuel grade
ethanol.
HASTINGS, NEBRASKA. Ag Processing, Inc. is a 45 million gallons per year dry
mill ethanol plant which uses corn and milo as its feedstock. The plant uses
approximately 18 million bushels annually.
YORK, NEBRASKA. High Plains Corporation of Wichita, Kansas operates a 40 million
gallons per year dry mill, fuel grade ethanol plant in York, Nebraska using corn
and milo as its feedstock. The York plant consumes 16 million bushels of corn
per year. The company is currently expanding its facility to increase total
production to approximately 60 million gallons per year.
COLUMBUS, NEBRASKA. Minnesota Corn Processors of Marshall, Minnesota, owns and
operates an 80 million gallons per year, fuel-ethanol plant in Columbus. This is
a wet milling facility that produces ethanol and corn sweetener from
approximately 80 million bushels of corn each year.
SUTHERLAND, NEBRASKA. Delta-T Corporation has purchased and completely renovated
an idled plant in Sutherland. Sutherland Ethanol Company, LLC is a 15 million
gallons per year dry mill facility which operates with corn as its feedstock.
The plant uses approximately 6 million bushels of corn annually. The plant is
currently one of the furthest west grain-to-ethanol facilities in the United
States.
38
AURORA, NEBRASKA. Williams Energy Ventures, Inc. and a partnership of Nebraska
cooperatives own and operate Nebraska Energy, LLC a 30 million gallons per year
fuel ethanol facility in Aurora. This is a dry mill plant which uses corn and
milo as its feedstock.
There are also current plans for a new ethanol plant in Kearney County about 9
miles west of Minden, Nebraska. The Kearney Area Ag Producers Alliance has
announced that it intends to build a 30 million gallons per year ethanol plant
that will consume 11 million bushels of corn annually.
None of the above Nebraska ethanol plants are located in close proximity to our
proposed plant near Plainview, Nebraska. The nearest ethanol plant listed above
is in Columbus, Nebraska which is approximately 80 miles from Plainview,
Nebraska.
COMPETITION FROM ALTERNATIVE FUEL ADDITIVES
Alternative fuels, gasoline oxygenates and ethanol production methods are
continually under development by ethanol and oil companies with far greater
resources that we have. New products or methods of ethanol production developed
by larger and better financed competitors could provide them competitive
advantages over us and harm our business.
The development of ethers to be used as oxygenates may provide a growth segment
for ethanol. Ethers are composed of isobutylene (a product of the refining
industry) and ethanol or methanol. The products are ethyl tertiary butyl ether
("ETBE") or methyl tertiary butyl ether ("MTBE"). We expect to compete with
producers of MTBE, a petrochemical derived from methanol which costs less to
produce than ethanol. MTBE is a commonly used oxygenate used in fuels for
compliance with Federal Clean Air Act mandates, and is a major competitor of
ethanol. Many major oil companies produce MTBE, and strongly favor its use
because it is petroleum based. These companies have significant resources to
market MTBE and to influence legislation and public perception of MTBE. These
companies also have sufficient resources to begin production of ethanol should
they choose to do so.
However, MTBE has recently been linked to groundwater contamination at various
locations in the East and West. As a result, California currently intends to
completely phaseout MTBE from its gasoline pool by December 2002. Similarly, New
York currently intends to phase out the use of MTBE by December 2004. The Iowa
Senate declared MTBE to be a threat to public health and the environment and
passed a bill limiting the MTBE content of gasoline to a maximum of 0.5%.
Ethanol is the most readily available substitute for MTBE in these markets.
Assuming that additional states and/or the US Environmental Protection Agency
force elimination of MTBE, the demand for ethanol is estimated to increase from
the current 1.34 billion gallons per year to 3.17 billion gallons per year in
2004, although there can be no assurance that this will occur. The additional
capacity would need to come from existing plant expansions and new plant
construction.
ETBE's advantages over ethanol in a blend include its low affinity for water and
low vapor pressure. Because petroleum pipelines and storage tanks contain water
in various amounts, ETBE's low affinity for water allows it to be distributed
through existing pipeline systems, as contrasted with ethanol which must be
shipped via transport truck or rail car. In addition, blending ETBE with
gasoline reduces the overall vapor pressure of the blend thereby reducing the
normal volatile organic compound evaporative emissions. ETBE is not widely
commercially available yet, and it may suffer from the same negative
environmental effects as MTBE. Scientific research to better define the
properties of ETBE as it relates to the environment is underway.
39
ETHANOL AND DISTILLERS GRAIN MARKETING
ETHANOL. We intend to sell and market ethanol through normal and established
markets. We expect to sell the ethanol produced by our plant in bulk to a single
distributor pursuant to an output contract. We believe that most of our ethanol
will be sold into markets throughout the United States and will be shipped
primarily by rail. The target market area for the ethanol produced at the plant
is expected to include local, regional and national markets. The local and
regional markets include the State of Nebraska, as well as markets in South
Dakota, Kansas, Missouri, Indiana, Colorado, Minnesota, Illinois, Wisconsin and
Iowa.
The plant is being designed with rail facilities and connections to the
Northeast Nebraska Railway railroad system, which will facilitate transporting
the ethanol we produce to our national target markets. We expect that in
Nebraska 80% of our ethanol will be marketed by rail and 20% by truck. Marketing
to markets outside of Nebraska will likely increase the percentage of ethanol
marketed by rail. Based on the Nebraska market and our target national market,
we currently anticipate approximately two-thirds of the ethanol to be marketed
by rail, although this may change as various market conditions change. Rail
costs are more expensive than truck costs and therefore, as our rail market
increases, so will our marketing costs. The national target rail markets for the
facility will include the Pacific Northwest, the Southern and Southwest markets,
as well as potential new markets on the East Coast and California due to
anticipated MTBE phase outs.
Northeast markets are another growing market. Groups in New Jersey and
surrounding states have been very active in seeking a ban on the use of MTBE. As
in California, the primary drivers are the health and water concerns surrounding
the use of MTBE. As New Jersey and other Northeastern states become successful
in their attempts to ban MTBE, additional market potential for ethanol will
emerge.
We are currently negotiating with potential ethanol marketers to market and sell
100% of our ethanol, although we have not yet entered into any agreements with
such marketers.
DISTILLER GRAINS. The dry milling process that produces ethanol also produces
distillers grains, which is primarily used as a high protein animal feed. The
price of distillers grains generally varies with grain prices, so that increases
in grain costs are partially offset by increases in distillers grain prices. We
intend to aggressively pursue development of a local distillers wet grain or
modified distillers wet grain market. We expect to sell our distillers wet grain
primarily to feedlots, cattle feeders and dairies within a 50-mile to 100-mile
radius of the ethanol plant.
We intend to develop an internal marketing and sales force to market and sell
the distillers wet grains and modified distillers wet grains we produce and to
keep all distillers grains marketing and sales efforts in-house. We expect that
a substantial portion of our distiller grains will be sold to farms in close
proximity to the proposed ethanol plant. Our business is expected to enjoy a
significant competitive freight advantage in the distiller grains market since
we believe that a sufficient market is located within the plant's service area
to consume the majority of the distiller grains we produce.
EMPLOYEES
We have hired Linda Demerath to provide part-time bookkeeping services and to
act as an interim office manager for $2,500 per month plus reimbursement of
expenses. Prior to completion of the plant construction and commencement of
operations, we intend to hire approximately 30 additional employees and,
depending upon work load, may hire up to forty (40) persons. Approximately ten
(10) of our employees will be involved primarily in management and
administration and the remainder will be involved primarily in plant operations.
40
The following table represents some of the anticipated positions within the
plant and the minimum number of individuals we intend to employ for each
position:
-------------------------------------------------
Position # Employed
-------------------------------------------------
General Manager 1
-------------------------------------------------
Plant Manager 1
-------------------------------------------------
Controller 1
-------------------------------------------------
Lab Manager 1
-------------------------------------------------
Lab Technician 2
-------------------------------------------------
Secretary/Clerical 4
-------------------------------------------------
Shift Supervisors 4
-------------------------------------------------
Maintenance Supervisor 1
-------------------------------------------------
Maintenance Craftsmen 4
-------------------------------------------------
Plant Operators 12
-------------------------------------------------
The position titles, job responsibilities and numbers allocated to each position
may differ when we begin to employ individuals for each position.
We may hire a commodities manager to ensure the consistent scheduling of grain
deliveries and to establish and fill forward contracts through grain elevators.
The commodities manager would coordinate grain deliveries between the railroad
and the participating elevators, as well as negotiate price protection with
hedging specialists.
We intend to enter into written confidentiality and assignment agreements with
our officers and employees. Among other things, these agreements will require
such officers and employees to keep strictly confidential all proprietary
information developed or used by the company in the course of its business.
DEVELOPMENT AND CONSTRUCTION TEAM
We have entered into a non-binding letter of intent with Fagen, Inc. and ICM,
Inc in connection with the design, construction and operation of the proposed
ethanol plant. The letter of intent is not a contract, and it can be terminated
by any of the parties without penalty or further obligation. No party has any
obligation to enter into a binding definitive agreement. The letter of intent
obligates the parties to engage in good faith negotiations to prepare definitive
agreements covering the provisions described in the letter of intent.
FAGEN. Fagen, Inc. has been involved in the construction of many ethanol plants.
Fagen is acting as the design-builder for the project. Fagen has extensive
experience in the area of heavy industrial projects, particularly agricultural
based facilities. Fagen's expertise in integrating process and facility design
into an operationally efficient facility is important to us. Fagen has been the
principal contractor and has performed work on many ethanol projects throughout
the United States.
ICM. ICM, Inc. is a full service engineering, manufacturing and merchandising
firm based in Colwich, Kansas. Engineering operations consist of consulting,
design by professional engineers, procurement and project management, as well as
manufacturing engineering for dryers and ICM/Phoenix Bio-Methanator wastewater
treatment product lines used in ethanol plants. ICM's merchandising operation
currently procures and markets various grain products. ICM personnel have many
years of experience in the ethanol industry and combined dry and wet mill
operation and design. They have been involved in the research, design,
construction, fabrication and operation of many ethanol plants.
41
ICM also works closely with Phoenix Bio-Systems, which has experience with
brewery and ethanol production. Phoenix Bio Systems designed a Bio-Methanator, a
treatment system that removes waste produced in ethanol production before water
is recycled into production. This design will be incorporated into our proposed
ethanol plant, which will have no process water discharge during normal
operation. When the Bio-Methanator malfunctions, we will continue to recycle
water without treatment, which may cause slight production inefficiencies until
the Methanator is restored to normal operation.
CONSTRUCTION OF THE PROJECT AND PROPOSED DESIGN-BUILD CONTRACT
Fagen has provided us a proposed Design-Build contract, which we have not
executed. The Board is currently negotiating the terms of the proposed
Design-Build contract which is expected to be executed at the closing of this
offering. Even upon completion of our negotiations with Fagen regarding the
terms of the proposed Design-Build contract, the contract is not binding and is
subject to modification and approval by lenders. Under the proposed Design-Build
contract, Fagen will act as our design-builder and will design and construct the
ethanol plant. We expect that the Design-Build contract we enter into with Fagen
will include provisions substantially similar to those described below.
GENERAL TERMS AND CONDITIONS. We will pay Fagen a guaranteed maximum of
$27,750,000 to design and construct the ethanol plant. All drawings,
specifications and other construction related documents belong to Fagen. We will
be granted a limited license to use documents in connection with our occupancy
of the ethanol plant. If the contract is terminated by us without cause or by
Fagen for cause, such as failing to pay undisputed amounts when due, then we
must pay Fagen a fee of up to $1,000,000 if we resume construction of the
ethanol plant through our own employees or third parties.
We will make payments to Fagen on a progress billing basis, based upon monthly
applications for payment for all work performed as of the date of the
application. We will retain 10% of the amount submitted in each payment
application; but when 50% of the work has been completed, we will pay the full
amount of each payment application. When the ethanol plant is substantially
complete, we will pay Fagen all amounts we have retained. If we do not pay all
undisputed amounts due within five days after the due date, we will be charged
interest at a rate of 18% per annum.
If Fagen encounters "differing site conditions," then it will be entitled to an
adjustment in the contract price and time of performance if such conditions
adversely affect its costs and performance time. "Differing site conditions"
refers to any concealed physical conditions at the site that:
o Materially differ from the conditions contemplated in the contract;
or
o Any unusual conditions which differ materially from the conditions
ordinarily encountered in similar work.
We expect that once the proposed Design-Build contract is executed, and the site
has been graded pursuant to Fagen and ICM's specifications, work on the ethanol
plant will begin within five days after Fagen receives notice from us to
proceed. Substantial completion of the ethanol plant is expected to occur no
later than 486 calendar days after Fagen receives notice from us to proceed.
"Substantial completion," means that the ethanol plant is sufficiently complete
so that we can occupy and use the plant to produce ethanol.
Fagen will also be responsible for:
o Providing design services, such as architectural and engineering
design services;
o Performing all work in accordance with all legal requirements;
42
o Obtaining all permits, approvals, licenses and fees related to the
construction of the ethanol plant, except for environmental permits
that we are responsible for;
o Performing its responsibilities in a safe manner to prevent damage,
injury or loss;
o Providing a warranty that the work performed for us is new, of good
quality, conforms to the contract and is free of defect in materials
and workmanship;
o Correcting defects in materials and workmanship for one year after
substantial completion;
o Obtaining insurance covering us for claims for worker's
compensation, disability, damage or destruction of tangible personal
property; and
o Indemnifying, defending and holding us, our officers, directors,
agents and employees harmless against any claims, losses, damages,
liabilities, including attorney's fees and expenses, for any claims
arising from Fagen's negligent acts or omissions.
We are responsible for:
o Liability insurance to protect us from claims which may arise from
performance of our responsibilities;
o Property insurance for the full insurable value of the ethanol plant;
o Indemnifying, defending and holding Fagen, its officers, directors, agents
and employees harmless against any claims, losses, damages, liabilities,
including attorney's fees for any claims arising from our negligent acts
or omissions;
o Rough grading the construction site to the specifications of Fagen or ICM;
o At least one access road of sufficient quality to withstand semi-truck
traffic;
o Air Quality Construction and Operating Permits;
o Nebraska Pollutant Discharge Elimination Permit and Storm Water Runoff
Permit;
o Continuous supply of natural gas of at least 0.75 billion cubic feet per
year and supply meter and regulators to provide burner tip pressures as
specified by ICM;
o Continuous supply of electricity of 15,000 kVA, 12,400-volt electrical
energy, a high voltage switch, a substation, if required, and meter as
specified by the electric company;
o Water supply of at least 180 gallons per minute pursuant to Fagen's or
ICM's specifications;
o Waste water discharge if we cannot discharge our cooling water into a
nearby creek;
o Rail tracks, ties and ballast to the ethanol plant at grades specified by
ICM; and
o Providing Fagen or ICM sufficient time to integrate any potential carbon
dioxide plant engineering with the detailed engineering on the ethanol
plant.
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Fagen has the right to stop or postpone work and to make reasonable adjustments
to the time for completion of the ethanol plant if any of the following occurs:
o We do not provide reasonable evidence indicating we have adequate
funds to fulfill all of our contractual obligations, or do not pay
amounts properly due under the progress payments;
o Any acts, omissions, conditions, events or circumstances beyond its
control, unless caused by Fagen;
o The presence of any hazardous conditions at the construction site;
or
o Work on the ethanol plant has stopped for 60 consecutive days, or
more than 90 days total, because of any order from us or a court or
governmental authority, if such stoppage is not because of any act
or omission of Fagen.
We have the right to terminate the Design-Build contract for any reason; but if
our termination is without cause, then we must provide Fagen with 10 days prior
written notice. In addition, we must pay Fagen for:
o All work completed and any proven loss, cost or expense incurred in
connection with such work;
o Reasonable costs and expenses attributable to the termination,
including demobilization costs and amounts due to settle terminated
contracts with subcontractors and consultants; and
o Overhead and profit equal to 15% of the sum of the above payments.
LIMITATION OF CONSEQUENTIAL DAMAGES; EARLY COMPLETION BONUS. Neither party is
liable to the other for any consequential damages or losses such as loss of use,
profits, business, reputation or financing. However, we will be entitled to
liquidated damages of $10,000 per day in the event Fagen fails to substantially
complete the ethanol plant within 45 days after the scheduled substantial
completion date. We expect that the substantial completion date will be
approximately 14-16 months after we close on this offering. This will be the
date that the ethanol plant is fully operational and we are producing ethanol.
If Fagen finishes the ethanol plant and it is fully operational within 45 days
after the scheduled substantial completion date, then we must pay Fagen a
performance bonus of $.185 per gallon of ethanol produced before the 45th day
after the scheduled substantial completion date. At full capacity, this equates
to approximately $10,000 per day, and could amount to a $10,000 bonus if the
ethanol plant is completed by the scheduled completion date, and we are
producing ethanol at full capacity for 45 days thereafter.
CONSTRUCTION AND TIMETABLE FOR COMPLETION OF THE PROJECT. Assuming the offering
is successful, and we are able to complete the debt portion of our financing, we
estimate that the project will be completed approximately 14-16 months after we
close on this offering and we have secured all necessary permits. This assumes
that we will be able to close this offering in the early fall of 2001. This
schedule further assumes that site improvements, such as rough grading is
complete and the site is ready for construction when we close the offering. This
schedule also assumes that weather, interest rates and other factors beyond our
control do not upset our timetable. Factors or events beyond our control could
hamper our efforts to complete the project in a timely fashion.
LEGAL PROCEEDINGS
We are not currently a party to any legal proceedings.
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REGULATORY PERMITS
We will be required to obtain various environmental, construction and operating
permits, as discussed below. Pursuant to the proposed Design-Build contract,
Fagen and ICM are responsible for construction permits and registrations. The
inability to obtain any necessary permit or to comply with the various
environmental or other governmental regulations may have a material effect on
our business and may prevent our proposed plant from being constructed.
NEBRASKA AIR QUALITY PERMITS. We have hired an environmental permitting
consultant to provide professional consulting and support services in air
quality monitoring, modeling, permitting, analysis, and research. Our consultant
has completed our Air Quality Construction Permit Application which we will
filed with the Nebraska Department of Environmental Quality on March 26, 2001.
An Air Quality Construction Permit is valid for 18 months. If we cannot complete
construction within 18 months our Air Quality Construction Permit will lapse
unless we can demonstrate that the construction of our plant requires additional
time, we will need to apply for an extension. To operate our business, we will
also need an Air Quality Operating Permit from the State of Nebraska Department
of Environmental Quality. Once the proposed ethanol plant is completed, we must
conduct emission testing and apply for an Air Pollution Operation Permit that
will allow us to operate our business. We anticipate submitting an application
for this permit approximately four months before the Air Pollution Construction
Permit expires. We need this permit to operate the ethanol plant after the Air
Pollution Construction Permit expires. We have twelve months once the plant
becomes operational to obtain an Air Quality Operating Permit. If granted, we
expect the permit will be valid for five years.
NATIONAL POLLUTANT DISCHARGE ELIMINATION PERMIT. We must obtain a National
Pollutant Discharge Elimination Permit for any waste water discharges and
surface water runoff. Specifically, we will use a significant amount of water
per day to cool our closed circuit systems in the proposed ethanol plant and to
produce ethanol. We will likely discharge the water into a nearby creek,
although we may also be required to discharge it to a larger body of water. The
National Pollutant Discharge Elimination Permit application will be filed with
the Nebraska Department of Environmental Quality. This permit must be applied
for at least 180 days prior to any discharge. We have not applied for this
permit, but plan to do so soon after we begin construction. There can be no
assurance that this permit will be granted to us. If granted, we expect the
permit will be valid for five years.
WELL PERMITS. We plan to drill two separate wells near the ethanol plant to
provide us with our necessary water supply. The Department of Environmental
Quality considers these wells high capacity wells, and we must obtain a High
Capacity Well Permit before we can begin digging the wells. To get this permit,
we must apply to the Department of Environmental Quality, which will determine
if the location of the well will support a sufficient water supply, and whether
it is safe from any soil or ground water contamination. We are currently
negotiating with a well construction company to provide us services for the
digging and construction of these wells. We will apply for the required permits
before we begin digging our wells.
SPILL PREVENTION, CONTROL AND COUNTERMEASURES PLAN. We must prepare a spill
prevention, control and countermeasures plan in accordance with standards set by
the Environmental Protection Agency. The plan will outline our spill prevention
measures for oil-based products such as denatured ethanol and will be supervised
by the Nebraska Department of Environmental Quality. The plan must be reviewed
and certified by a professional engineer.
NUISANCE
Even if we receive all Nebraska environmental permits for construction and
operation of the ethanol plant, we may be subject to the regulations on
emissions by the Environmental Protection Agency. We could also be subject to
environmental or nuisance claims from adjacent property owners or residents in
the area arising from odors or other air or water discharges from the plant,
although we do not expect any such claims.
45
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our Operating Agreement provides that the initial Board of Directors will be
comprised of nine (9) members to be elected at the annual meeting of the members
by the affirmative vote of members holding a majority of the outstanding
membership interests. The Operating Agreement further provides for a staggered
Board of Directors where each director is elected for a term of three (3) years.
Class I directors' terms expire at the 2002 annual meeting. Class II directors'
terms expire at the 2003 annual meeting. Class III directors' terms expire at
2004 annual meeting. The initial classification of the board members was
determined by random selection through a lottery.
The following table shows the directors and officers of the company as of the
date of this prospectus:
----------------------------------------------------------------------------------------
NAME AGE POSITION DIRECTOR TERM EXPIRES
----------------------------------------------------------------------------------------
Gary Kuester 55 Class III Director, Chairman 2004
----------------------------------------------------------------------------------------
J. Alex Thramer 72 Class II Director, Vice Chairman 2003
----------------------------------------------------------------------------------------
Jack G. Frahm 51 Class I Director, Secretary 2002
----------------------------------------------------------------------------------------
Fredrick J. Knievel 59 Class III Director, Treasurer 2004
----------------------------------------------------------------------------------------
Cory A. Furstenau 23 Class III Director 2004
----------------------------------------------------------------------------------------
Ryan W. Koinzan 20 Class II Director 2003
----------------------------------------------------------------------------------------
Mike Kinney 43 Class II Director 2003
----------------------------------------------------------------------------------------
Scott J. Carpenter 38 Class I Director 2002
----------------------------------------------------------------------------------------
O. Kelly Hodson 46 Class I Director 2002
----------------------------------------------------------------------------------------
All officers have been elected to serve until the next succeeding annual meeting
and until their successors have been elected and qualified. We scheduled our
annual meeting in June of each year commencing in the year 2002.
BUSINESS EXPERIENCE OF DIRECTORS AND OFFICERS
The following is a brief description of the business experience and background
of the above-named officers and directors of the company.
GARY KUESTER is the owner of Kuester Hay, a company that buys and sells alfalfa
and grass hay located near Stanton, Nebraska. Kuester Hay has been in business
for twenty-one (21) years. Mr. Kuester has been involved in ethanol production
for many years through a small ethanol production facility located on his family
farm and has been licensed to produce ethanol since 1992. He is presently
enlarging his farm facility to two million gallons annual production.
J. ALEX THRAMER is self-employed in the irrigation sales and services industry
by Thramer Irrigation located near Ewing, Nebraska which has been in operation
for over thirty (30) years.
JACK G. FRAHM has been Secretary and Treasurer of Frahm Farms, Inc. since its
incorporation in 1976. Frahm Farms, Inc. is a crop farming and cattle feeding
business that has used distillers grains for several years. Frahm Farms, Inc. is
located in Plainview, Nebraska and has been a Pioneer Seed representative since
1976.
46
FREDRICK J. KNIEVEL is the President and co-owner of Knievel Farms, Inc. which
is a farming operation located near Clearwater, Nebraska and engaged in the
production of corn, soybeans, hay and cattle.
CORY A. FURSTENAU has been self-employed as a farmer since May 1998. Prior to
May 1998, Mr. Furstenau attended Northeast Community College in Norfolk,
Nebraska where he received a major in Agribusiness/Farm Ranch Management. Mr.
Furstenau and his parents are partners in a partnership which operates their
family farm located near Tilden, Nebraska. They raise corn, soybeans and
alfalfa. They also operate a cow calf operation.
RYAN W. KOINZAN is currently a student at the University of Nebraska-Lincoln and
he has recently completed an internship with Cargill in Argentina. Mr. Koinzan
was Nebraska State Star Farmer in Ag Production in 1999. He owns his own calf
herd which is located near Nealy, Nebraska and is experienced in all phases of
agriculture production.
MIKE KINNEY has been employed by Kinney, Inc., which is a family farm
corporation located near Elgin, Nebraska since 1974. He is currently serving as
Vice President of Kinney, Inc. Mr. Kinney is also a partner in Kinney Bros.
SCOTT J. CARPENTER is employed by Carpenter Farms, Inc., which is a family farm
corporation in existence since 1991 located near Creighton, Nebraska. He is
currently Vice President of the corporation. Mr. Carpenter has been involved in
farming for twenty (20) years, including grain, cattle and swine production.
O. KELLY HODSON has been President and manager of West-Hodson Lumber Company,
Inc. since 1980, a retail building material sales and construction company
located in Osmond, Nebraska. Mr. Hodson has been President of the Creighton,
Nebraska branch of West-Hodson Lumber Company, Inc since 1999. He has also been
a partner in West-Hodson Lumber Company, a partnership located in Crofton,
Nebraska, since 1995.
DIRECTOR AND OFFICER COMPENSATION
All directors, officers and employees of the company receive reimbursement for
expenses incurred by them on behalf of the company. We may also pay directors
fees to our directors for attendance at the Board of Directors meetings,
although currently no such fees are being paid by the company to the current
Board members.
COMMITTEES OF THE BOARD OF DIRECTORS
We have not established a compensation committee. The entire Board of Directors
currently serves as our audit committee. Our Operating Agreement permits the
Board to establish committees having the authority of the Board of Directors. A
committee may consist of one or more persons that need not be directors. The
Board has established the following committees:
Legislative and Public Relations: Ryan W. Koinzan, J. Alex Thramer,
Mike Kinney and Gary Kuester.
Construction and Design: Scott Carpenter, Gary Kuester and
O. Kelly Hodson
Legal and Accounting: Frederick J. Knievel, Jack G. Frahm
and Mike Kinney
Finance and Investors: Ryan W. Koinzan, Cory A. Furstenau,
Jack G. Frahm and O. Kelly Hodson
47
CERTAIN TRANSACTIONS AND CONFLICTS OF INTEREST
Conflicts of interest may arise in the future as a result of the relationships
between and among our members, officers, directors and their affiliates,
although our officers and directors have fiduciary duties to us. We do not have
a committee of independent directors or members or an otherwise disinterested
body to consider transactions or arrangements that result from conflicts of
interest. Our Operating Agreement permits the company to enter into agreements
with directors, officers, members and their affiliates, provided that any such
transactions are on terms no more favorable to the directors, officers, members
(or their affiliates) than generally afforded to non-affiliated parties in a
similar transaction. Conflicts of interest could arise in the situations
described below:
o We will engage in transactions with our directors or their affiliates with
respect to the purchase of corn and the sale of distillers grains although
such transactions will be on the same terms and conditions as with
non-affiliated persons or entities.. Members will have no right to
individually enforce the obligations of our directors or their affiliates
in our favor.
o Our directors' decisions regarding various matters, including expenditures
that we make for our business, reserves for accrued expenses, including
officers salaries and reimbursement of director's expenses, loan
covenants, capital improvements and contingencies will affect the amount
of cash available for distribution to members.
o We will reimburse our directors for out-of-pocket expenses relating to our
business. We do not have a reimbursement policy or guideline for
determining what expenses will be reimbursed. We will review and reimburse
all reasonable expenses that directors submit to us.
o We have retained counsel that has assisted us in various aspects of our
formation and development. We have not retained separate counsel on behalf
of unit holders.
The directors have not received any cash compensation for services as directors
(i.e. directors' or meeting fees). The Board of Directors therefore granted each
director an option to purchase up to eight membership units for $250 per
membership unit upon completion of the private offering which expired on January
15, 2001. The director option expired on February 15, 2001. Eight of the nine
directors exercised their options and purchased an aggregate of 64 membership
units.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
As permitted by the Nebraska Limited Liability Company Act, the company's
Operating Agreement provides that no director will be personally liable to the
company or its members for monetary damages for any action taken, or for any
failure to take action as a director except for liability that results from
gross negligence or willful misconduct.
The company's Operating Agreement also provides that the company must indemnify
its directors, officers, employee or agent to the fullest extent permitted by
law. Generally under Nebraska law, a director or officer may be indemnified if
that individual acted in good faith and had reasonable basis to believe that (1)
in the case of conduct in the individual's official capacity with the company,
that the individual's conduct was in the company's best interests; (2) in all
other cases, that the individual's conduct was at least not opposed to the
company's best interest; and (3) regarding any criminal proceedings, the
individual had no reasonable cause to believe the individual's conduct was
unlawful.
There is no pending litigation or proceeding involving a director, officer,
employee or agent of the company as to which indemnification is being sought. We
are not aware of any other threatened litigation that may result in claims for
indemnification by any director, officer, employee or agent.
48
DESCRIPTION OF MEMBERSHIP UNITS
MEMBERSHIP UNITS
Ownership rights in the company are evidenced by membership units. Each
membership unit represents a pro rata ownership interest in the company's
capital, profits, losses and distributions and the right to vote and participate
in the management of the company as provided in the Operating Agreement. The
company maintains a membership register setting forth the name, address, capital
contributions and number of units held by each member at its principal office.
MAXIMUM OWNERSHIP PERCENTAGE
Under our Operating Agreement, no member can own more than thirty percent (30%)
of the total issued and outstanding membership units. The calculation of your
thirty percent (30%) limitation includes the number of membership units owned by
you and your spouse, children, parents, brothers and sisters, and any membership
units owned by any corporation, partnership or other entity in which you or your
family members owns or controls a majority of the voting power.
CUMULATIVE VOTING FOR MEMBERS
Each membership unit is entitled to one vote per unit except that voting is
cumulative in the election of directors. With cumulative voting, each member is
entitled to as many votes as the total number of units held of record by such
member multiplied by the number of directors to be elected at the meeting. Each
member is then entitled to cumulate his votes and cast all of them for one
nominee or distribute them among any or all of the nominees in such proportion
as the member may desire. The nominees receiving the highest number of votes on
the foregoing basis, up to the total number of directors to be elected at the
meeting, will be elected.
NO PREEMPTIVE RIGHTS
Our Operating Agreement denies preemptive rights to members of the company. If
we decide to issue additional membership units in the future, we could do so
without first offering the additional units to you. You would then experience a
dilution in your percentage membership interest in the company.
RESTRICTIVE LEGEND ON MEMBERSHIP CERTIFICATE
We will place on your membership certificate or any other document evidencing
ownership of our membership units, restrictive legends similar to the following:
The sale, pledge, hypothecation, assignment or transfer of the ownership
interest represented by this CERTIFICATE OF OWNERSHIP is subject to the
terms and conditions of the Operating Agreement of Husker Ag Processing,
LLC, as amended from time to time. Copies of the Operating Agreement may
be obtained upon written request to the Board of Directors of Husker Ag
Processing, LLC.
RESTRICTIONS ON TRANSFER OF UNITS
For the reasons described below, investment in the company should be undertaken
only by those investors who can afford an illiquid investment and who do not
intend to resell or transfer their membership units.
All transfers are subject to a determination that the transfer will not cause
the Company to be deemed a publicly traded partnership.
49
We have restricted your ability to transfer your membership units to ensure that
the company is not deemed a "publicly traded partnership" and thus taxed as a
corporation. Under the Operating Agreement, no transfers may occur without the
approval of the Board of Directors. The Board of Directors will only permit
transfers that fall within "safe harbors" contained in the publicly traded
partnership rules under the Internal Revenue Code. These include:
o transfers by gift,
o transfers upon the death of a member,
o intra-family transfers and
o other transfers during the tax year that in the aggregate do not
exceed 2% of the total outstanding membership units.
Any transfer in violation of the publicly traded partnership requirements or
without the prior consent of the Board will be null and void.
SUMMARY OF THE COMPANY'S
SECOND AMENDED AND RESTATED OPERATING AGREEMENT
Your rights and obligations as a member of Husker Ag will be governed by the
Second Amended and Restated Operating Agreement. A copy of the Second Amended
and Restated Operating Agreement is attached hereto as Appendix A. Before buying
any membership units you should carefully study the Operating Agreement in its
entirety. The following is a summary of some of the terms and provisions of the
Operating Agreement which govern the company and its members. This summary is
qualified in its entirety by reference to the full text of the Operating
Agreement, and in the event of a conflict or apparent conflict between this
summary and the full text of the Operating Agreement, the Operating Agreement
shall control. The following provisions of our Operating Agreement are
summarized in greater detail elsewhere in this prospectus:
o For distributions, please see "Distribution Policy";
o For limitation of liability and indemnification of directors and
members, please see "Management--Limitations of Directors' and
Members' Liability and Indemnification"
o For federal income tax issues, please see "Federal Income Tax
Consequences of Owning Our Membership Units."
ORGANIZATION AND DURATION
We were organized on August 29, 2000 as a Nebraska limited liability company. We
will continue to operate until our members or a court determines that we should
dissolve, liquidate and wind up our business.
PURPOSE
Our purpose is to construct, own and operate an ethanol plant. In addition, we
may engage in any other business or activity as long as our directors approve
the activity, and it does not violate Nebraska law. We may engage in any
transactions that are necessary, appropriate and proper to further our purpose.
50
MEETINGS
Starting in 2002, the company will hold annual meetings of the members in June
to transact business which comes before the meeting. Special meetings of the
members may be called:
o by the Chairman of the Board,
o by any three (3) directors, or
o by member(s) holding twenty percent (20%) of the outstanding
membership interests.
Special meetings will be held at the principal place of business of the company,
or elsewhere as the notice of such meeting shall direct. You may attend any
meeting in person or by proxy. Written notice to all members stating the date,
time and place of the meeting and a description of the purpose(s) of the meeting
must be mailed, not fewer than ten (10) nor more than sixty (60) calendar days
before the date of the meeting.
Members holding at least a majority in interest represented in person or by
proxy constitutes a quorum at any meeting of members.
RIGHTS AND OBLIGATIONS OF MEMBERS
The dissolution and winding up of the company requires the approval of members
required under the Nebraska Limited Liability Company Act, as amended from time
to time; provided, however, in the event that the statute referred to above is
amended to require approval of members holding less than eighty percent (80%),
the dissolution and winding up of the company shall require the affirmative vote
of members holding eighty percent (80%) of the outstanding percentage interests.
The members shall further have the right, by the affirmative vote of members
holding at least a two-thirds (2/3) majority in interest, to approve the
following actions:
o the sale, exchange or other disposition of all, or substantially
all, of the company's assets (other than in the ordinary course of
the company's business) which is to occur as part of a single
transaction or plan; and
o the merger or consolidation of the company with another entity.
Individual members do not have the authority or power to act for or on behalf of
the company, to do any act that would be binding on the company or to incur any
expenditures on behalf of the company.
You do not have the right to withdraw from the company as a member except as
permitted in the Operating Agreement under Article 10 covering transfers of
membership interests. You do not have preemptive rights to acquire any
additional membership units or other interest in the company.
ACCESS TO BOOKS AND RECORDS
Upon five days written notice to the company, you have the right to inspect and
copy during regular business hours at the company's principal office the
following records:
(i) Articles or Restated Articles of Organization and all amendments
thereto currently in effect;
(ii) Operating Agreement and all restatements and amendments thereto
currently in effect;
(iii) Minutes of all member meetings and records of all action taken by
members without a meeting for the past three years;
51
(iv) All written communications to the members generally within the past
three years;
(v) Annual financial statements that include a balance sheet as of the
end of the fiscal year, an income statement for that year and a
statement of changes in members' equity for that year unless such
information appears elsewhere in the financial statements, along
with the accountant's report if the annual financial statements are
reported upon by a public accountant;
(vi) A list of the names and business addresses of the company's current
directors and officers; and
(vii) The most recent annual report delivered by the company to the
Nebraska Secretary of State.
Upon five days prior written notice to the company, you also have the right to
inspect and copy during regular business hours at a reasonable location
specified by the company any of the following records if (a) your demand is made
in good faith and for a proper purpose; (b) you describe with reasonable
particularity your purpose and the records you desire to inspect; and (c) the
records are directly connected with your purpose:
(i) Excerpts from minutes of any meeting of the Board of Directors,
records of any action of a committee of the Board of Directors while
acting in place of the Board of Directors on behalf of the company,
minutes of any meeting of the members, and records of action taken
by the members or Board of Directors without a meeting, to the
extent not subject to inspection under subsection (1) of this
section;
(ii) Accounting records of the company; and
(iii) The membership register.
MEMBER LIABILITY TO THE COMPANY
Your liability shall be limited as set forth in the Operating Agreement, the
Nebraska Limited Liability Company Act and other applicable law. You will not be
personally liable for any debts or losses of the company beyond your respective
capital contributions as set forth in the Operating Agreement, except as
provided in the Operating Agreement or as otherwise required by law. If you
receive a distribution made by the company which is either: (1) in violation of
the Operating Agreement, or (2) made when the company's liabilities exceed its
assets (after giving effect to the distribution), you remain liable to the
company for a period of six (6) years after such distribution for the amount of
the distribution.
MANAGEMENT OF THE COMPANY
The Board of Directors manages, directs and controls the business and affairs of
the company. Except for situations in which the approval of the members is
required by the Operating Agreement or by applicable law, the Board has the full
and complete authority, power and discretion to manage and control the business,
affairs and properties of the company, to make all decisions regarding those
matters and to perform any and all other acts or activities customary or
incident to the management of the company's business.
The Board of Directors has nine (9) directors who are elected at the annual
meeting of the members. The Operating Agreement provides for a staggered Board
of Directors where each director is elected for a term of three (3) years.
o Class I directors' terms expire at the 2002 annual meeting.
52
o Class II directors' terms expire at the 2003 annual meeting.
o Class III directors' terms expire at the 2004 annual meeting.
The initial classification of the board members was determined by random
selection through a lottery. Each director shall hold office for his respective
term until his successor shall have been elected and qualified. Directors do not
need to be residents of the State of Nebraska or members of the company.
The Board's power and authority includes, but is not limited to, the right to
take the following actions on behalf of the company:
(a) expend company funds in connection with the operation of the
company's business or otherwise pursuant to the Operating Agreement;
(b) employ and dismiss from employment any and all employees, agents,
independent contractors, attorneys and accountants;
(c) prosecute, settle or compromise all claims against third parties,
compromise, settle or accept judgment on, claims against the company
and execute all documents and make all representations, admissions
and waivers in connection therewith;
(d) borrow money on behalf of the company from any person, issue
promissory notes; drafts and other negotiable and nonnegotiable
instruments and evidences of indebtedness, secure payment of the
principal of any such indebtedness and the interest thereon by
mortgage, pledge, property of the company, whether at the time owned
or thereafter acquired;
(e) hold, receive, mortgage, pledge, lease, transfer, exchange,
otherwise dispose of, grant options with respect to, and otherwise
deal in the exercise all rights, powers, privileges and other
incidents of ownership or possession with respect to all property of
whatever nature held or owned by, or licensed to, the company;
(f) lend any of the company property with or without security;
(g) have and maintain one or more offices within or without the State of
Nebraska;
(h) open, maintain and close bank accounts and money market mutual funds
accounts, and draw checks and other orders for the payment of
monies;
(i) engage accountants, custodians, consultants and attorneys and any
and all other agents and assistants (professional and
nonprofessional) and pay such compensation in connection with such
engagement that the Board of Directors determines is appropriate;
(j) enter into, execute, make, amend, supplement, acknowledge, deliver
and perform any and all contracts, agreements, licenses, and other
instruments, undertakings and understandings that the Board
determines is necessary, appropriate or incidental to carrying out
the business of the company;
(k) file a petition in bankruptcy on behalf of the company; and
(l) delegate to the Chairman, President and other Officers such
responsibility and authority as the Board deems necessary or
appropriate from time to time.
53
The Operating Agreement requires the affirmative vote of a majority of the Board
of Directors for:
o incurring any indebtedness or expense in excess of $20,000 other
than in the ordinary course of business;
o pledging, mortgaging, encumbering or granting any lien on any assets
of the company other than in the ordinary course of business; and
o purchasing any asset or making capital expenditures in excess of
$20,000.
Members of the Board must perform their duties as directors in good faith, in a
manner he or she reasonably believes to be in the best interests of the company.
Each member of the Board must use such care as an ordinarily prudent person in a
like position would use under similar circumstances.
The Board does not, in any way, guarantee the return of your capital
contributions or a profit for you from the operations of the company. The Board
shall not be liable to the company or to any member for any loss or damage
sustained by the company or its members, unless the loss or damage shall have
been the result of fraud, deceit, gross negligence, willful misconduct, breach
of the Operating Agreement or a wrongful taking by the Board.
A director may resign at any time by giving written notice to the members of the
company. The resignation of any director shall take effect upon receipt of
notice thereof or at such later time as shall be specified in such notice; and,
unless, otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective. The resignation of a director who is also
a member shall not affect the director's rights as a member and shall not
constitute a withdrawal of a member.
At a meeting called expressly for that purpose, a director may be removed at any
time, with or without cause, by the affirmative vote of members holding eighty
percent (80%) of the percentage interests. The removal of a director who is also
a member shall not affect the director's rights as a member and shall not
constitute a withdrawal of a member.
ALLOCATIONS OF PROFITS AND LOSSES
We will allocate the company's profits and losses to you according to your
membership interest, as adjusted from time to time. The Board will determine
whether to distribute or retain the profits. The Board may agree to distribute
cash to the members irrespective of profits. The Board may agree to distribute
in kind property held by the company.
CAPITAL ACCOUNTS AND DISTRIBUTIONS
You will have a capital account on the books of the company.
We will credit your capital account with the following:
(i) the cash and the fair market value of any property other than cash
contributed by you to the capital of the company;
(ii) your allocable share of profits and any items of income or gain
which are specially allocated to you; and
(iii) the amount of any company liabilities assumed by you which are
secured by any property of the company distributed to you.
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We will debit your capital account for the following:
(i) the cash and the fair market value of any property other than cash
distributed to you;
(ii) your allocable share of losses and any items of expense or loss
which are specially allocated to you; and
(iii) the amount of any of your liabilities assumed by the company or
which are secured by any property contributed by you to the company.
TRANSFER OF INTERESTS IN THE COMPANY
You may not transfer all or any portion of your interest without the prior
written consent of the Board of Directors. You cannot transfer any membership
unit if the Board determines the transfer would cause the company to be treated
as a "publicly traded partnership". Transfers that violate any restrictions of
the Operating Agreement or applicable law are null and void with no force or
effect whatsoever, and the intended transferee will not acquire any rights in
the membership unit.
Subject to the limits on total maximum ownership set forth in the Operating
Agreement and subject to Board approval, the following transfers are "permitted
transfers" for purposes of the Operating Agreement and subject to Board
approval:
(a) a transfer by a member and any related persons (as defined in the
Internal Revenue Code) in one or more transactions during any thirty
(30) calendar day period of interests representing in the aggregate
more than two percent (2%) of the total interests in company; or
(b) a transfer or series of related transfers by one or more members
(acting together) which involves the transfer of fifty percent (50%)
or more of the outstanding units; or
(c) a transfer effected through a qualified matching service; or
(d) a transfer by gift or bequest only to a spouse or child of such
transferring member, or to a trust established for the benefit of
such spouse or child, or to an existing member of the company upon
ten (10) days' prior written notice to the company of such gift or
bequest.
The Board of Directors, in its sole discretion, may also require the following
upon any transfer of membership units,
o an opinion of counsel (whose fees and expenses shall be borne by the
transferor) satisfactory in form and substance to the Board that
such transfer may be lawfully made without registration or
qualification under applicable state and federal securities laws, or
such transfer is properly registered or qualified under applicable
state and federal securities laws, and if requested by the company,
that the transfer will not cause the company to be treated as a
publicly traded partnership;
o such documents and instruments of conveyance executed by the
transferor and transferee as may be necessary or appropriate in the
opinion of counsel to the company to effect such transfer, except
that in the case of a transfer of units involuntarily by operation
of law, the transfer shall be confirmed by presentation of legal
evidence of such transfer, in form and substance satisfactory to the
company;
o the transferor's membership certificate;
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o the transferee's taxpayer identification number and sufficient
information to determine the transferee's initial tax basis in the
interest transferred, and any other information reasonably necessary
to permit the company to file all required federal and state tax
returns and other legally required information statements or
returns;
o evidence satisfactory in form and substance to the Board that the
transferee meets the maximum unit ownership limitations; and
o other conditions on the transfer of units adopted by the Board from
time to time as it deems appropriate.
FAIR MARKET VALUE
Fair market value of a membership interest on any date will be equal to the most
recent fair market valuation determination of the per membership unit value by
the Board in good faith; provided, that the valuation will be calculated on a
basis as consistent as practicable from period to period. The Board may, in its
sole discretion, employ the advice of independent and qualified professionals in
the determination of the fair market value, but is not under any obligation to
do so. The fair market value of the company's membership units shall be
determined at least annually. Valuations shall generally be performed, at the
discretion of the Board, as of the end of each fiscal year of the company's
operations at the annual meeting of the Board; however, the Board, in its sole
discretion, may have fair market valuations of the company performed at any time
or from time to time during any year Except as otherwise specifically provided
in the Operating Agreement, the Board will use the results of the most recent
valuation in determining the fair market value of a membership interest. No
member or any party other than the Board shall have the right to require or
request that a new or more recent valuation be performed for purposes of
determining the fair market value of the company or a membership interest. The
Board will not establish the fair market value more than four (4) times during
the company's taxable year.
TRANSFER UPON DEATH OF A MEMBER
If you die, your estate or personal representative may request that the company
repurchase your interest within one hundred twenty (120) days after your death.
The company is not obligated to repurchase your membership units and we cannot
assure you that the company would have sufficient liquidity to agree with any
request for redemption, or that the Board of Directors in its discretion would
agree to use the company's cash on hand for such purpose. The purchase price
will be the fair market value of your interest in effect as of the date of
receipt of notification of your death. Your estate or personal representative
may exercise this right by providing written notice to the company within one
hundred twenty (120) days after the date of your death; provided, however, the
Company will not repurchase such interest earlier than sixty (60) days after the
company receives notice of the repurchase request. Transfers upon death are
subject to a determination by the Board that the transfer will not cause the
company to be deemed a publicly traded partnership.
PAYMENT TERMS
If the purchase price for an interest transferred due to death exceeds five
thousand dollars ($5,000.00), the company or the purchasing member has the right
to pay for the interest purchased by paying five thousand dollars ($5,000) at
closing and executing a promissory note for the balance of the purchase price.
The company must pay the promissory note in five (5) equal annual installments
due on the anniversary date of the closing and the promissory note will accrue
interest at a rate determined by the Board which will not be less than the then
current prime rate established by a major bank selected by the Board for loans
to such bank's most creditworthy commercial borrowers. The company may prepay
the promissory note, in whole or in part, at any time without penalty or
premium. The company may increase or decrease the purchase price by an amount
equal to any indebtedness owed the selling member by the company, or the
deduction of any indebtedness owed the company by the selling member, or both.
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Upon the sale of an interest by a member, all rights of the member with respect
to the interest, including the right to vote such interest and to receive
distributions, shall terminate except for the member's right to receive payment
therefor.
EFFECTIVE DATE OF TRANSFERS
The effective date for any transfer of membership unit will be the day of the
month and year:
(i) in which the transfer occurs (as reflected by the form of
assignment); and
(ii) the transferee's name and address and the nature and extent of the
transfer are reflected in the records of the company;
provided, however, the effective date of a transfer for purposes of allocation
of profits and losses and for distributions shall be determined as set forth
below.
The Board may establish interim periods in which transfers may occur (the
"Interim Transfer Periods"); provided, however, the Board shall provide members
reasonable notice of the Interim Transfer Periods and advance notice of any
change to the Interim Transfer Periods. For purposes of making allocations of
profits and losses, and distributions, the company will use the interim closing
of the books method (rather than a daily proration of profit or loss for the
entire period) and recognize the transfer as of the first day following the
close of Interim Transfer Period in which the member complied with the notice,
documentation and information requirements of Article 10 of the Operating
Agreement . All distributions on or before the end of the applicable Interim
Transfer Period in which such requirements have been substantially complied with
shall be made to the transferor and all distributions thereafter shall be made
to the transferee. The Board has the authority to adopt other reasonable methods
and/or conventions with respect to allocations and distributions.
REDEMPTION OF A MEMBER
You may request a repurchase of your membership units by the company upon sixty
(60) calendar days' prior written notice to the Board of Directors. The
redemption price will be the fair market value of your interest in effect as of
the date of receipt of your request for redemption. The company is not obligated
to repurchase your membership units and we cannot assure you that the company
would have sufficient liquidity to agree with any request for redemption, or
that the Board of Directors in its discretion would agree to use the company's
cash on hand for such purpose. The redemption must be approved by the Board and
the redemption must comply with all applicable IRS regulations. Upon any
redemption which is approved, you will receive a payment equal to the fair
market value of your interest in the company as of the effective date of the
redemption. But, if the remaining members of the company agree to dissolve the
company, you will receive your share of the assets of the company instead of a
redemption payment. Redemption transfers are subject to a determination by the
Board that the transfer will not cause the company to be deemed a publicly
traded partnership.
DISSOLUTION AND WINDING UP
The dissolution and winding up of the company requires the approval of members
required under the Nebraska Limited Liability Company Act, as amended from time
to time; provided, however, in the event that the statute referred to above is
amended to require approval of members holding less than eighty percent (80%),
the dissolution and winding up of the company requires the affirmative vote of
members holding eighty percent (80%) of the membership interests. Upon the
voluntary or involuntary withdrawal or removal of a member, the company will
dissolve and wind up its business affairs in accordance with the Operating
Agreement, unless the remaining members elect to continue the operations and
existence of the company. The members must make this election in a writing
signed by all remaining members. The company can continue to operate and exist
with only one remaining member.
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The company may also be dissolved and its affairs wound up as otherwise required
or permitted by the Nebraska Limited Liability Company Act.
The Board is responsible for winding up the company's affairs if dissolved.
Unless prohibited by Nebraska law, if the company dissolves, the Board will
distribute the company's assets as set forth below unless otherwise prohibited
by applicable law. The Board is authorized to do all acts authorized by law to
wind up the company's affairs, including, the right to sell the company's assets
or to distribute the assets in kind to the members.
The fair market value of the company's assets will be determined, including the
value of any real or personal property held by the company in accordance with
the terms of the Operating Agreement.
The Board will distribute the company's assets in the following manner and
order:
(1) to the claims of all creditors of the company, including members who
are creditors, to the extent permitted by law, in satisfaction of
liabilities of the company, other than liabilities for distributions
to members;
(2) to members and former members in satisfaction of liabilities for
distribution, pursuant to Section 21-1625(1)(b) of the Nebraska
Limited Liability Company Act, and
(3) to the members with positive capital account balances in accordance
with their percentage interests.
If you are entitled to a distribution of any of the company's assets upon
dissolution, you will receive your share of such assets in cash or in kind, and
the portion of such share that is received in cash may vary from member to
member. If the company cannot return the full amount of your capital
contribution, you have no recourse against the Board of Directors, the company
or against any other member.
In the discretion of the Board, a pro rata portion of the distributions that
would otherwise be made to the members upon dissolution may be:
o distributed to a trust established for the benefit of the members
for the purposes of liquidating company assets, collecting amounts
owed to the company, and paying any contingent or unforeseen
liabilities or obligations of the company or of the members arising
out of or in connection with the company. The assets of any such
trust shall be distributed to the members from time to time, in the
reasonable discretion of the Board, in the same proportions as the
amount distributed to such trust by the company would otherwise have
been distributed to the members; or
o withheld to provide a reasonable reserve for company liabilities
(contingent or otherwise) and to reflect the unrealized portion of
any installment obligations owed to the company, provided that such
withheld amounts shall be distributed to the members as soon a
practicable.
You will have no liability to the company, to the other members, or to the
creditors of the company on account of any deficit balance in your capital
account balance except to the extent such deficit arises from your failure to
contribute the full amount of your agreed upon capital contribution or any
additional agreed upon capital contribution.
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AMENDMENTS
Amendments to the Operating Agreement may be adopted upon the affirmative vote
of two thirds of the members of the Board. The Operating Agreement may also be
amended upon an affirmative vote of two-thirds (2/3) majority in interest of the
members. If the Board materially modifies or amends the Operating Agreement, the
Board will send notice to the members of the material change within a reasonable
period of time after the effective date of the modification or amendment.
INCOME TAX CONSIDERATIONS
OF OWNING OUR MEMBERSHIP UNITS
The following summary of the material federal income tax considerations relating
to the tax treatment of the company and its members is based on current law, is
for general purposes only, and is not tax advice. The summary is not intended to
represent a detailed description of the federal income tax consequences
applicable to you. The summary is based on current provisions of the Internal
Revenue Code, current and proposed Treasury Regulations, court decisions, and
other administrative rulings and interpretations. These sources are subject to
change, and these changes may be applied retroactively. We cannot provide any
assurance that any such change, future provisions of the Internal Revenue Code
or other legal authorities will not alter significantly the tax considerations
we describe in this summary.
YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR REGARDING THE FEDERAL, STATE, AND
LOCAL TAX CONSEQUENCES TO YOU ON THE PURCHASE, OWNERSHIP AND SALE OF THE
MEMBERSHIP UNITS. THIS SECTION IS NOT TO BE CONSTRUED AS A SUBSTITUTE FOR
CAREFUL TAX PLANNING.
Except as expressly noted, the statements, conclusions, and opinions contained
in this section and the opinion attached as Exhibit 8.1 to the registration
statement constitute the opinion of our tax counsel regarding general federal
income tax consequences of owning our units. Our tax counsel's opinion is based
on existing law as contained in the Internal Revenue Code, Treasury Regulations,
administrative rulings, and court decisions as of the date of this prospectus.
No rulings have been or will be requested from the IRS concerning any of the tax
matters we describe. Accordingly, the IRS or a court may disagree with the
following discussion or with any of the positions taken by us for federal income
tax reporting purposes.
TAX STATUS OF THE COMPANY
Single-tax treatment and the ability to make cash distributions to members
without incurring an entity level federal income tax depends on the treatment of
the company as a partnership for income tax purposes. We expect to be taxed as a
partnership for federal income tax purposes. This means that the company will
pay no federal income tax and members will pay tax on their share of the
company's net income. Under Treasury Regulations known as the "check-the-box"
regulations, an unorganized entity such as a limited liability company will be
taxed as a partnership unless the entity is considered a "publicly traded
partnership" or the entity affirmatively elects to be taxed as a corporation. We
will not elect to be taxed as a corporation and will endeavor to take such steps
as are feasible and advisable to avoid classification as a publicly traded
limited partnership.
If we fail to qualify for partnership taxation for whatever reason, we will
treated as a "C corporation" for federal income tax purposes. As a "C
corporation," we will be taxed on its taxable income at corporate rates
(currently a maximum 35% federal rate for taxable revenue in excess of
$10,000,000), distributions would generally be taxed again to members as
corporate dividends, and the members will not be required or allowed to report
their share of the company's income, gains, losses or deductions on their tax
returns. Because a tax would be imposed upon the company as an entity, the cash
available for distribution to members would be reduced by the amount of tax paid
which could cause a reduction in the value of the membership units.
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PUBLICLY TRADED PARTNERSHIP RULES
To qualify for taxation as a partnership, the company cannot be subject to the
"publicly traded partnership" rules under Section 7704 of the Internal Revenue
Code. Generally, the Internal Revenue Code provides that a publicly traded
partnership will be taxed as a corporation.
THE INTERNAL REVENUE CODE DEFINES A PUBLICLY TRADED PARTNERSHIP AS A PARTNERSHIP
WHOSE INTERESTS ARE TRADED ON AN ESTABLISHED SECURITIES MARKET, OR ARE READILY
TRADABLE ON A SECONDARY MARKET (OR THE SUBSTANTIAL EQUIVALENT THEREOF). Although
there is no legal authority on whether a limited liability company is subject to
the publicly traded partnership rules, it is probable that the company is
subject to the publicly traded partnership rules because it has elected to be
classified and taxed as a partnership. We will attempt to avoid treatment as a
publicly traded partnership.
Under Section 1.7704-1(d) of the Treasury Regulations, interests in a
partnership are not considered traded on an established securities market or
readily tradable on a secondary market unless:
o the partnership participates in the establishment of the market or
the inclusion of its interests thereon, or
o the partnership recognizes any transfers made on the market by
redeeming the transferor partner or admitting the transferee as a
partner.
WE DO NOT INTEND TO LIST THE MEMBERSHIP UNITS ON ANY STOCK EXCHANGE OR THE
NASDAQ STOCK MARKET. IN ADDITION, THE OPERATING AGREEMENT PROHIBITS ANY TRANSFER
OF MEMBERSHIP UNITS WITHOUT THE APPROVAL OF THE BOARD. The Board will only
approve transfers that fall within certain safe harbor provisions of the
Treasury Regulations and therefore will not cause the company to be classified
as a publicly traded partnership. These safe harbor provisions generally provide
that interests will not be treated as readily tradable on a secondary market (or
the substantial equivalent thereof) if the interests are transferred: (1) in
"private transfers"; (2) in qualified redemptions and repurchases; (3) pursuant
to a qualified matching service; or (4) in limited amounts that satisfy a 2%
test.
Private transfers include, among others:
o transfers such as gifts in which the transferee's tax basis is
determined by reference to the transferor's tax basis in the
interests transferred,
o transfers at death, including transfers from an estate or
testamentary trust,
o transfers between members of a family (as defined in Section
267(c)(4) of the Internal Revenue Code),
o transfers from retirement plans qualified under Section 401(a) of
the Internal Revenue Code or an IRA, and
o "block transfers". A "block transfer" is a transfer by a member and
any related persons (as defined in the Internal Revenue Code) in one
or more transactions during any thirty (30) calendar day period of
interests representing in the aggregate more than two percent (2%)
of the total interests in partnership capital or profits.
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Transfers pursuant to a qualified redemption or repurchase are disregarded in
determining whether interests are readily tradable on a secondary market if all
of the following conditions are met:
(1) the redemption or repurchase cannot occur until at least sixty (60)
days after the partnership receives written notice of the member's
intent to exercise the redemption or repurchase right;
(2) either the purchase price is not established until at least sixty
(60) days after receipt of such notification, or the purchase price
is established not more than four times during the entity's tax
year; and
(3) the sum of the interests in capital or profits transferred during
the year (other than in private transfers) cannot exceed ten percent
(10%) of the total interests in partnership capital or profits.
Transfers through a qualified matching service also are disregarded in
determining whether interests are readily tradable. A matching service is
qualified only if:
(1) it consists of a computerized or printed system that lists
customers' bid and/or ask prices in order to match members who want
to sell with persons who want to buy,
(2) matching occurs either by matching the list of interested buyers
with the list of interested sellers or through a bid and ask process
that allows interested buyers to bid on the listed interest,
(3) the seller cannot enter into a binding agreement to sell the
interest until the fifteenth (15th) calendar day after his interest
is listed (which date must be confirmable by maintenance of
contemporaneous records),
(4) the closing of a sale effected through the matching service does not
occur prior to the forty-fifth (45th) calendar day after the
interest is listed,
(5) the matching service displays only quotes that do not commit any
person to buy or sell an interest at the quoted price (non firm
price quotes) or quotes that express an interest in acquiring an
interest without an accompanying price (nonbinding indications of
interest) and does not display quotes at which any person is
committed to buy or sell a interest at the quoted price (firm
quotes),
(6) the seller's information is removed within one hundred twenty (120)
days of its listing and is not reentered into the system for at
least sixty (60) days after its deletion, and
(7) the sum of the percentage interests transferred during the entity's
tax year (excluding private transfers) cannot exceed ten percent
(10%) of the total interests in partnership capital or profits.
In addition, interests are not treated as readily tradable if the sum of the
percentage interests transferred during the entity's tax year (excluding private
transfers, qualified redemptions and qualified matching service transfers) do
not exceed two percent (2%) of the total interests in partnership capital or
profits.
FLOW-THROUGH OF TAXABLE INCOME -- USE OF CALENDAR YEAR
Based on our intent to be taxed as a partnership, we do not anticipate that the
company will pay any federal income tax. Instead, you will be required to report
on your income tax return your allocable share of the company's income, gains,
losses and deductions. You must report these amounts regardless of whether you
received any corresponding cash distributions.
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Because the company will be taxed as a partnership, it will have its own taxable
year separate from the taxable years of its members. Unless a business purpose
can be established to support a different taxable year, a partnership must use
the "majority interest taxable year" which is the taxable year that conforms to
the taxable year of the holders of more than fifty percent (50%) of its
interests.
In the company's case, the majority interest taxable year is the calendar year.
Establishing a valid business purpose for a nonconforming taxable year is
difficult. The IRS has ruled that, in determining whether a partnership has
established a sufficient business purpose to justify consent to use a
nonconforming taxable year, both tax factors and nontax factors must be
considered. Moreover, the ruling states that, where the use by a partnership of
a nonconforming year results in deferral or distortion of income, the nontax
factors must be "compelling." The examples in the ruling indicate that the IRS
is not likely to view many nontax factors as compelling. Although we may explore
the possibility of successfully applying for a nonconforming taxable year,
members should assume that the company will be required to use the calendar
year.
FLOW-THROUGH OF TAXABLE INCOME OR LOSS
You must report your share of the company's income, gains, losses and deductions
on your income tax return for your taxable year with which or within which ends
the company's taxable year regardless of whether you received any cash
distributions. To illustrate:
o If you are a calendar year member, you will include your share of
the company's 2001 taxable income or loss on your 2001 income tax
return.
o If you are a member with a June 30 fiscal year, you will report your
share of the company's 2001 taxable income of loss on your income
tax return for the fiscal year ending June 30, 2002.
TAX CONSEQUENCES TO OUR MEMBERS
As a member, you will be required to report on your income tax return for your
taxable year with which or within which our taxable year ends, your distributive
share of our income, gains, losses and deductions without regard to whether any
cash distributions are received. To illustrate, each calendar year member will
include his or her share of our 2000 taxable income or loss on his or her 2000
income tax return. A member with a June 30 fiscal year will report his or her
share of our 2000 taxable income or loss on his or her income tax return for the
fiscal year ending June 30, 2001. We will provide each member with an annual
Schedule K-1 indicating such holder's share of our income, loss and their
separately stated components.
TAX TREATMENT OF DISTRIBUTIONS
Distributions to you generally will not be taxable to you for federal income tax
purposes as long as distributions do not exceed your basis in your membership
units immediately before the distribution. Cash distributions in excess of your
membership unit basis (which are considered unlikely) are treated as gain from
the sale or exchange of the membership units under the rules for membership unit
dispositions.
INITIAL TAX BASIS OF UNITS AND PERIODIC BASIS ADJUSTMENTS
Your basis in your membership units will increase to reflect:
o the amount of cash you contribute or the adjusted basis in any
property you contribute;
o the amount of any depletions (not likely to be relevant);
o your distributive share of the company's taxable income and
tax-exempt income; and
o increase in a your share of the company's debt.
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Your basis in your membership unit basis will decrease (but not below zero) to
reflect:
o the amount of any cash distributed to you or the basis of any
property distributed to you;
o the amount of certain depletion deductions;
o your distributive share of company losses and nondeductible
expenditures that are "not properly chargeable to capital account";
and
o any reduction in your share of company's debt.
The membership unit basis calculations are complex. You are only required to
compute your membership unit basis if the computation is necessary to determine
your tax liability but accurate records should be maintained. Typically, basis
computations are necessary at the following times:
(1) The end of a taxable year during which the company suffered a loss,
for the purpose of determining the deductibility of your share of
the loss;
(2) Upon the liquidation or disposition of your membership interest, and
(3) Upon the nonliquidating distribution of cash or property to you, in
order to ascertain the basis of distributed property or the
taxability of cash distributed.
Except in the case of a taxable sale of a membership unit or liquidation of the
company, exact computations usually are not necessary. For example, if you
regularly receive cash distributions that are less than or equal to your share
of the company's taxable income, you will have a positive membership unit basis
at all times. Consequently, no computations are necessary to demonstrate that
cash distributions are not taxable to you under Internal Revenue Code Section
731(a) (1). The purpose of the basis adjustments is to keep track of your "tax
investment" in company, with a view toward preventing double taxation or
exclusion from taxation of income items upon ultimate disposition of the
membership units.
DEDUCTIBILITY OF LOSSES; PASSIVE LOSS LIMITATIONS
In general, you may deduct losses allocated to you, subject to a number of
restrictions. Those restrictions include a general rule that losses cannot be
deducted if (1) they exceed your basis in your membership units, or (2) to the
extent they exceed your at-risk amount. These specific restrictions are not
likely to impact you. However, if the company incurs a taxable loss or if
taxable income is insufficient to cover interest expense on the company related
borrowing, the passive activity loss deduction rules are likely to have
widespread effect. Internal Revenue Code Section 469 substantially restricts the
ability of taxpayers to deduct losses from passive activities.
Passive activities generally include activities conducted by pass-through
entities, such as the company and other partnerships, limited liability
companies or "S" corporations, in which the taxpayer does not materially
participate. Generally, losses from passive activities are deductible only to
the extent of the taxpayer's income from other passive activities. Passive
activity losses that are not deductible because of these rules may be carried
forward and deducted against future passive activity income or may be deducted
in full upon disposition of a member's entire interest in the company to an
unrelated party in a fully taxable transaction. It is important to note that
"passive activities" do not include dividends and interest income that normally
is considered to be "passive" in nature; nor do they include farming operations
in which the taxpayer is a material participant.
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Your ability to deduct any losses we allocate to you, is determined by applying
the following three limitations dealing with basis, at-risk amounts and passive
losses.
(1) Basis. You may deduct an amount not to exceed your adjusted basis in
your units pursuant to Internal Revenue Code Section 704(d). If your
share of our losses exceeds your basis in your units at the end of
any taxable year, such excess losses, to the extent they exceed your
adjusted basis, may be carried over indefinitely and deducted to the
extent that at the end of any succeeding year your adjusted basis in
your units exceeds zero.
(2) At-Risk Rules. Under the "at-risk" provisions of Section 465 of the
Internal Revenue Code, if you are an individual taxpayer (including
an individual partner in a partnership) or a closely-held
corporation, you may deduct losses from a trade or business
activity, and thereby reduce your taxable income from other sources,
only to the extent you are considered "at risk" with respect to that
particular activity. The amount you are considered to have "at risk"
includes money contributed to the activity and certain amounts
borrowed with respect to the activity for which you may be liable.
(3) Passive Loss Rules. Section 469 of the Internal Revenue Code may
substantially restrict your ability to deduct losses and tax credits
from passive activities. Passive activities generally include
activities conducted by pass-through entities, such as our limited
liability company, certain partnerships, of S corporations, in which
the taxpayer does not materially participate. Generally, losses from
passive activities are deductible only to the extent of the
taxpayer's income from other passive activities. Passive activity
losses that are not deductible may be carried forward and deducted
against future passive activity income or may be deducted in full
upon disposition of a member's entire interest in us to an unrelated
party in a fully taxable transaction. It is important to note that
"passive activities" do not include dividends and interest income
that normally is considered to be "passive" in nature.
For members who borrow money to purchase their units, interest expense
attributable to the amount borrowed will be aggregated with other items of
income and loss from passive activities and subjected to the passive activity
loss limitation. To illustrate, if a member's only passive activity is our
limited liability company, and if we incur a net loss, no interest expense on
the related borrowing would be deductible. If that member's share of our taxable
income is less than the related interest expense, the excess would be
nondeductible. In both instances, the disallowed interest would be suspended and
would be deductible against future passive activity income or upon disposition
of the member's entire interest in our limited liability company to an unrelated
party in a fully taxable transaction.
ALTERNATIVE MINIMUM TAX
If the company adopts accelerated methods of depreciation, it is possible that
taxable income for alternative minimum tax purposes might exceed regular taxable
income passed through to the members. We cannot guarantee whether you are likely
to be adversely affected by such excess alternative minimum taxable income.
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ALLOCATION OF INCOME AND LOSSES
Your distributive share of our income, gain, loss, or deduction for federal
income tax purposes generally is determined in accordance with our Operating
Agreement. Under Section 704(b) of the Internal Revenue code, however, an
allocation, or portion thereof, will be respected only if it either has
"substantial economic effect" or is in accordance with the "partner's interest
in the partnership." If the allocation or portion thereof contained in our
operating agreement does not meet either test, the IRS may make a reallocation
of such items in accordance with their determination of each member's economic
interest in us. Treasury Regulations contain guidelines as to whether
partnership allocations have substantial economic effect. The allocations
contained in the Operating Agreement are intended to comply with the Treasury
Regulations' test for having substantial economic effect.
TAX CONSEQUENCES OF DISPOSITION OF UNITS -- RECOGNITION OF GAIN OR LOSS
You will recognize gain or loss on a sale of your membership units equal to the
difference between the amount realized and your basis in the membership units
sold. Amount realized includes cash and the fair market value of other property
received plus your share of the company's debt. Because of the inclusion of debt
in basis, it is possible that you could have a tax liability on the sale that
exceeds your actual proceeds of the sale.
Gain or loss recognized by you on the sale or exchange of a membership unit held
for more than one year generally will be taxed as long-term capital gain or
loss. A portion of this gain or loss, however, will be separately computed and
taxed as ordinary income or loss under Internal Revenue Code Section 751 to the
extent attributable to depreciation recapture or other "unrealized receivables"
or "substantially appreciated inventory" owned by the company.
ALLOCATIONS AND DISTRIBUTIONS FOLLOWING UNIT TRANSFERS
The Board, in its sole discretion, may establish interim periods in which
transfers may occur (the "Interim Transfer Periods"); provided, however, the
Board will provide members reasonable notice of the Interim Transfer Periods and
advance notice of any change to the Interim Transfer Periods.
For purposes of making allocations of profits and losses, and distributions, the
company will use the interim closing of the books method (rather than a daily
proration of profit or loss for the entire period) and recognize the transfer as
of the first day following the close of Interim Transfer Period in which the
member complied with the notice, documentation and information requirements of
Article 10 of the Operating Agreement. All distributions on or before the end of
the applicable Interim Transfer Period in which such requirements have been
substantially complied with shall be made to the transferor and all
distributions thereafter shall be made to the transferee. The Board the
authority to adopt other reasonable methods and/or conventions.
OUR DISSOLUTION AND LIQUIDATION MAY BE TAXABLE TO YOU, UNLESS OUR PROPERTIES ARE
DISTRIBUTED IN-KIND
Our dissolution and liquidation will involve the distribution to you of the
assets, if any, remaining after payment of all of our debts and liabilities.
Upon dissolution, your units may be liquidated by one or more distributions of
cash or other property. If you receive only cash upon the dissolution, gain
would be recognized by you to the extent, if any, that the amount of cash
received exceeds your adjusted basis in your units. No gain or loss will be
recognized if we distribute our own property in a dissolution. However, since
our primary asset likely be the ethanol plant, it is unlikely that we will make
a distribution in kind.
65
REPORTING REQUIREMENT
Article 10 of the Operating Agreement contains the requirements for a valid
transfer of membership units, including proper documentation and Board approval.
In addition, the IRS requires a taxpayer who sells or exchanges a membership
unit to notify company in writing within thirty days or, for transfers occurring
on or after December 16 of any year, by January 15 of the following year.
Although the IRS reporting requirement is limited to "Section 751(a) exchanges,"
it is likely that any transfer of an company membership unit will constitute a
Section 751(a) exchange. The written notice required by the IRS must include the
names and addresses of both parties to the exchange, the identifying numbers of
the transferor and, if known, of the transferee and the exchange date. Currently
the IRS imposes a penalty of $50 for failure to file the written notice unless
reasonable cause can be shown.
TAX INFORMATION TO MEMBERS; CONSISTENT REPORTING
The company will be required to provide each member with a Schedule K-1(or
authorized substitute therefore) on an annual basis. Harsh penalties are
provided for failure to do so unless reasonable cause for the failure is
established. Each member's Schedule K-1 will set out the holder's distributive
share of each item of income, gain, loss, deduction or credit that is required
to be separately stated. Each member must report all items consistently with
Schedule K-1 or, if an inconsistent position is reported, must notify the IRS of
any inconsistency by filing Form 8062 "Notice of Inconsistent Treatment or
Administrative Adjustment Request (AAR) with the original or amended return in
which the inconsistent position is taken.
IRS AUDIT PROCEDURES
Prior to 1982, regardless of the size of a partnership, adjustments to a
partnership's items of income, gain, loss, deduction, or credit had to be made
in separate proceedings with respect to each partner individually. Because a
large partnership sometimes had many partners located in different audit
districts, adjustments to items of income, gains, losses, deductions, or credits
of the partnership had to be made in numerous actions in several jurisdictions,
sometimes with conflicting outcomes. The Tax Equity and Fiscal Responsibility
Act of 1982 ("TEFRA") established unified audit rules applicable to all but
certain small partnerships. These rules require the tax treatment of all
"partnership items" to be determined at the partnership, rather than the
partner, level. Partnership items are those items that are more appropriately
determined at the partnership level than at the partner level, as provided by
regulations. Since the company will be taxed as a partnership, the TEFRA rules
are applicable to it and its members.
The IRS may challenge the reporting position of a partnership by conducting a
single administrative proceeding to resolve the issue with respect to all
partners. But the IRS must still assess any resulting deficiency against each of
the taxpayers who were partners in the year in which the understatement of tax
liability arose. Any partner of a partnership can request an administrative
adjustment or a refund for his own separate tax liability. Any partner also has
the right to participate in partnership-level administrative proceedings. A
settlement agreement with respect to partnership items binds all parties to the
settlement. The TEFRA rules establish the "Tax Matters Member" as the primary
representative of a partnership in dealings with the IRS. The Tax Matters Member
must be a "member-manager" which is defined as an company member who, alone or
together with others, is vested with the continuing exclusive authority to make
the management decisions necessary to conduct the business for which the
organization was formed. In the company's case, this would be a member of the
Board of Directors who is also a member of company. Section 11.4 of the
Operating Agreement provides for Board designation of the Tax Matters Member and
for default designations if it fails to do so. The IRS generally is required to
give notice of the beginning of partnership-level administrative proceedings and
any resulting administrative adjustment to all partners whose names and
addresses are furnished to the IRS.
66
INTEREST ON UNDERPAYMENT OF TAXES; ACCURACY-RELATED PENALTIES; NEGLIGENCE
PENALTIES
If we incorrectly report your distributive share of our net income, such may
cause you to underpay your taxes. If it is determined that you underpaid your
taxes for any taxable year, you must pay the amount of taxes you underpaid plus
interest on the underpayment and possibly certain penalties from the date the
tax was originally due. Under recent law changes, the accrual of interest and
penalties may be suspended for certain qualifying individual taxpayers if the
IRS does not notify you of amounts owing within 18 months of the date you filed
your income tax return. The suspension period ends 21 days after the IRS sends
the required notice. The rate of interest is compounded daily and is adjusted
quarterly.
Under Section 6662 of the Internal Revenue Code, penalties may be imposed
relating to the accuracy of tax returns that are filed. A 20% penalty is imposed
with respect to any "substantial understatement of income tax" and with respect
to the portion of any underpayment of tax attributable to a "substantial
valuation misstatement" or to "negligence." All of those penalties are subject
to an exception to the extent a taxpayer had reasonable cause for a position and
acted in good faith.
The IRS may impose a 20% penalty with respect to any underpayment of tax
attributable to negligence. An underpayment of taxes is attributable to
negligence if such underpayment results from any failure to make a reasonable
attempt to comply with the provisions of the Code, or any careless, reckless, or
intentional disregard of the federal income tax rules or regulations. In
addition, regulations provide that the failure by a taxpayer to include on a tax
return any amount shown on an information return is strong evidence of
negligence. The disclosure of a position on the taxpayer's return will not
necessarily prevent the imposition of the negligence penalty.
STATE INCOME TAXES
Members generally are subject to tax in their state of residence as well as in
those states in which the entity does business if their share of income exceeds
the minimum filing requirements. The company anticipates doing business in
several states which could create a substantial reporting burden for the
members. Most states, however, allow "composite reporting" by partnerships and
limited liability companies which means that the entity pays income taxes to the
various states and the individual members are relieved of the reporting
responsibility in states other than their state of residence. Members' states of
residence generally will allow a tax credit for state income taxes paid by the
entity for the benefit of the member. For example, a member who is a resident of
Nebraska will report his entire share of the company's income but will receive
credit on his Nebraska return for taxes paid to Nebraska and other states on his
behalf. The Nebraska resident member generally will not have to file
individually in other states.
This prospectus makes no attempt to summarize the state and local tax
consequences to an investor. You should consult your own tax advisor regarding
your state and local tax obligations.
SUBSCRIPTION TO MEMBERSHIP UNITS
THE OFFER
We are hereby offering a maximum of 12,000 and a minimum of 10,000 membership
units of Husker Ag Processing, LLC at an offering price of $1,000 per unit. We
intend to use the proceeds of this offering to construct an ethanol plant and to
operate the plant as a going concern. A minimum purchase of 5 membership units
(minimum investment of $5,000) is required.
67
OFFERING PRICE
The $1,000 per unit purchase price has been determined by the company without an
independent valuation of the membership units. We established the offering price
based on our estimate of capital and expense requirements, not based on
perceived market value, book value, or other established criteria. We did not
obtain an independent appraisal opinion on the valuation of the membership
units. The membership units may have a value significantly less than the
offering price and there is no guarantee that the units will ever obtain a value
equal to or greater than the offering price.
METHOD OF SUBSCRIBING
In order to purchase our units investors must complete the subscription
application and deliver an executed copy of the signature page to our Operating
Agreement. In the subscription application, each investor must represent to us,
among other things, that, he or she has:
o received our prospectus and any supplements,
o agrees to be bound by the Operating Agreement, and
o understands that the membership units are subject to significant
transfer restrictions.
The subscription application also requires information about the nature of
ownership of the units, the investor's state of residence and taxpayer
identification or social security number.
Payment in full of this subscription price for all membership units must be made
by certified check, bank draft or money order payable to the order of Midwest
Bank, N.A. - Escrow Agent for Husker Ag Processing, LLC], upon submission of the
subscription application. We will provide assistance, if desired, in
wire-transfer of funds to the escrow agent.
You should deliver to us by mail or in person the completed required documents
and check as follows:
By Mail: By Hand Delivery:
------------------------- -------------------------
Husker Ag Processing, LLC Husker Ag Processing, LLC
P.O. Box 10 510 W. Locust Street
Plainview, Nebraska 68769 Plainview, Nebraska 68769
ALL SUBSCRIPTIONS ARE SUBJECT TO ACCEPTANCE BY THE COMPANY AND MAY BE REJECTED
BY THE COMPANY IN ITS SOLE DISCRETION. Upon our receipt of the required
documents, we will accept or reject your subscription. Our Board of Directors
reserves the right to reject any subscription. If we reject your subscription,
we will return your application, check and signature page within 30 days. If we
accept your application, your check will be deposited in our escrow account at
Midwest Bank, N.A. d/b/a Plainview National Bank. We will hold your signature
page to the Operating Agreement, and return it to you at either closing of the
offering, or when the offering is terminated by the Board of Directors.
Investors that may be deemed the beneficial owners of 5% or more and 10% or more
of our issued and outstanding units may have reporting obligations under Section
13 and Section 16 of the Securities Exchange Act. Each investor who may become
the beneficial owner of 5% or more of our units should consult their own counsel
to determine what filing and reporting obligations he or she may have under the
federal securities laws.
68
ESCROW PROCEDURES AND CONDITIONS TO CLOSING
All proceeds from subscriptions for the units will be deposited in an escrow
account that we have established with Midwest Bank, N.A., d/b/a Plainview
National Bank, a local branch of Midwest Bank, N.A. as escrow agent under a
written escrow agreement. We will not close on the offering until the specific
conditions to closing the offering are satisfied. The closing of the offering is
subject to certain conditions, and we will return your investment including your
pro rata portion of accrued interest within 30 days under the following
scenarios:
o If we determine in our sole discretion to terminate the offering
prior to December 1, 2001;
o If we do not raise the $10,000,000 minimum by December 1, 2001; or
o Even if we raise the $10,000,000 minimum, but at December 1, 2001 we
do not have binding written agreements with a lender or lenders for
$23,000,000 or such amount as the Board of Directors deems
sufficient to complete construction of the plant.
Unless we return your funds in accordance with these conditions, you will not be
able to access your funds in the escrow account. Unless we return your funds in
accordance with these conditions, all interest earned on the escrow account will
belong to us. Once your funds are deposited in the escrow, you will not be able
to retrieve them unless we do not close on the offering in accordance with the
provisions described above. We will invest all funds in the escrow account in
either short-term certificates of deposit issued by a bank, short-term
securities issued and guaranteed by the United States Government, or money
market funds, including funds available through the escrow agent. None of the
funds will be invested in corporate equity or debt securities, repurchase
agreements, bankers' acceptances, commercial papers, or municipal securities.
DELIVERY OF CERTIFICATES
If we satisfy all offering conditions, upon closing of the offering, we will
issue certificates for the membership units subscribed for in this offering.
Unless otherwise specifically provided in the subscription agreement, we will
issue certificates for any subscription signed by more than one subscriber as
joint tenants, with full rights of survivorship. We will imprint the
certificates with a conspicuous legend referring to the restrictions on
transferability and sale of the units.
PLAN OF DISTRIBUTION
We have no underwriter and we are selling the membership units directly to
investors. We have not obtained the services of any placement agent or
broker-dealer for this offering, although we reserve the right to pay a finder's
fee or placement agent fee to a registered broker-dealer in connection with the
sale of membership units in accordance with applicable laws , and any such
payment would increase our offering costs materially. We currently do not intend
to pay any such fees unless it is necessary to do so in order to raise at least
the aggregate minimum of $10,000,000.
Subject to the requirements of the Securities Act and applicable blue sky laws,
we plan to promote the offering by issuing a press release, and advertising in
newspapers or other media in Nebraska, Iowa, Kansas, Minnesota and South Dakota.
We may also mail our press release and prospectuses to certain bankers and grain
elevators and cooperatives in the same states.
We also plan to hold one or more informational meetings for potential investors
at various locations in or near Plainview and Northeastern Nebraska, as well as
surrounding states. Attendance at the meeting will not be required to purchase
the membership units offered in the prospectus. The informational meeting is
intended to give investors an opportunity to ask questions of the company and,
if they choose, to bring their legal or financial advisors to ask questions and
obtain information about our business. All attendees at the informational
meeting will receive a prospectus.
69
We intend to offer and sell the membership units in Nebraska, Iowa, Kansas,
Minnesota and South Dakota. We may also sell to certain investors in North
Dakota, Michigan, Illinois and Wisconsin. We must obtain approval or rely on an
exemption from these state securities' regulatory authorities, and from the
authorities in any other state that we may offer or sell the membership units.
Our directors will be the principal persons involved in selling the units. We
will not pay our directors any commissions in connection with any sales. Our
directors have no relationship to any broker-dealer. Consequently, there may be
less due diligence performed in conjunction with this offering than would be
performed in an underwritten offering. We consider these individuals not to be
brokers under the Securities Exchange Act of 1934 because they have not been,
and will not be in the business of effecting transactions in securities for the
accounts of others. Their participation in our offering of securities is limited
to this transaction, and not part of a general business of effecting securities
transactions. Each of these individuals has substantial operational
responsibilities. They have not, and will not receive any compensation or
commissions on account of their participation in the sales of our securities. We
also believe our directors are not brokers or associated persons of brokers
under Rule 3a4-1 of the Exchange Act for the following reasons:
o Each performs substantial duties for us, and will continue to do so
after the offering;
o Each is not subject to a statutory disqualification under the
Exchange Act at the time of his participation in the sale of our
securities;
o Each will not be compensated for his participation in the sale of
our securities by the payment of a commission or other remuneration
based either directly or indirectly on transactions in securities;
o Each has not been, for the past twelve months, and is not presently
an associated person of a broker or dealer; and
o Each has not participated in the offering of securities for any
issuer more than once every 12 months.
LEGAL MATTERS
The validity of the membership units offered by the company and certain tax
matters will be passed upon for the company by Baird, Holm, McEachen, Pedersen,
Hamann & Strasheim, which has acted as counsel to the company in connection with
this offering.
EXPERTS
The financial statements of Husker Ag Processing, LLC as of December 31, 2000
and for the period from February 24, 2000 (inception) through December 31, 2000,
appearing in this prospectus and registration statement have been audited by
Grant Thornton LLP, independent certified public accountants, as set forth in
their report thereon appearing elsewhere herein, and is included in reliance
upon such report given on the authority of such firm as experts in accounting
and auditing.
TRANSFER AGENT
The company will serve as its own transfer agent and registrar.
70
ADDITIONAL INFORMATION
The company has filed with the Securities and Exchange Commission a registration
statement on Form SB-2 under the Securities Act with respect to the membership
units offered hereby. This prospectus does not contain all of the information
set forth in the registration statement and the exhibits thereto. For further
information with respect to Husker Ag Processing, LLC and the membership units
offered hereby, reference is made to the registration statement and the exhibits
thereto. Statements contained in this prospectus regarding the contents of any
contract or any other document to which reference is made are not necessarily
complete, and, in each instance where a copy of such contract or other document
has been filed as an exhibit to the registration statement, reference is made to
the copy so filed, each such statement being qualified in all respects by such
reference. A copy of the registration statement and the exhibits thereto may be
inspected without charge at the Public Reference Room of the Commission at
Judiciary Plaza, 450 Fifth Street, N.W, Washington, D.C. 20549, and copies of
all or any part of the registration statement may be obtained from the Public
Reference Section of the Commission upon the payment of the fees prescribed by
the Commission. The public may obtain information on the operation of the Public
Reference Room by calling the Commission at 1-800-SEC-0330. The Commission also
maintains a Web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
We intend to provide our members with annual reports containing financial
statements audited by an independent accounting firm and make available upon
request quarterly reports containing unaudited financial data for the first
three quarters of each fiscal year.
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is an offer to sell, or a
solicitation of offers to buy, shares of membership units only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or any sale of membership units.
71
INDEX TO FINANCIAL STATEMENTS
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS
BALANCE SHEET F-2
STATEMENT OF OPERATIONS F-3
STATEMENT OF MEMBERS' DEFICIT F-4
STATEMENT OF CASH FLOWS F-5
NOTES TO FINANCIAL STATEMENTS F-6
F-i
FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
HUSKER AG PROCESSING, LLC
(A Development Stage Enterprise)
Period from February 24, 2000 (inception) to
December 31, 2000
F-ii
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Husker Ag Processing, LLC
We have audited the accompanying balance sheet of Husker Ag Processing, LLC (a
development stage limited liability company) as of December 31, 2000 and the
related statements of operations, members' deficit, and cash flows for the
period from February 24, 2000 (inception) through December 31, 2000. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Husker Ag Processing, LLC as of
December 31, 2000, and the results of its operations and its cash flows for the
period from February 24, 2000 (inception) through December 31, 2000 in
conformity with accounting principles generally accepted in the United States of
America.
GRANT THORNTON LLP
Lincoln, Nebraska
March 23, 2001 (except for Note C, as to which
the date is May 7, 2001)
F-1
Husker Ag Processing, LLC
(A Development Stage Enterprise)
BALANCE SHEET
December 31, 2000
ASSETS
CURRENT ASSETS
Cash $ 3,257
PROPERTY AND EQUIPMENT, at cost
Site development 4,500
Office equipment 1,101
--------
5,601
Less accumulated depreciation 74
--------
5,527
DEFERRED OFFERING COSTS 27,641
--------
$ 36,425
========
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 53,970
COMMITMENT
MEMBERS' DEFICIT
Membership units, eighteen units issued and outstanding 2,250
Deficit accumulated during the development stage (19,795)
--------
(17,545)
--------
$ 36,425
========
The accompanying notes are an integral part of this statement.
F-2
Husker Ag Processing, LLC
(A Development Stage Enterprise)
STATEMENT OF OPERATIONS
February 24, 2000 (inception) through December 31, 2000
REVENUE $ --
OPERATING EXPENSES
General and administrative $ 61,990
--------
Operating loss (61,990)
OTHER INCOME
Non-member contributions 42,195
--------
Net loss $(19,795)
========
Basic and diluted loss per membership unit $ (1,100)
--------
Weighted average units outstanding 18
========
The accompanying notes are an integral part of this statement.
F-3
Husker Ag Processing, LLC
(A Development Stage Enterprise)
STATEMENT OF MEMBERS' DEFICIT
February 24, 2000 (inception) through December 31, 2000
Deficit
accumulated
Membership units during
------------------ development Members'
Number Amount stage deficit
------ ------ ----------- -------
Initial member contributions 18 $ 2,250 $ -- $ 2,250
Net loss -- -- (19,795) (19,795)
-- -------- -------- --------
Balance at December 31, 2000 18 $ 2,250 $(19,795) $(17,545)
== ======== ======== ========
The accompanying notes are an integral part of this statement.
F-4
Husker Ag Processing, LLC
(A Development Stage Enterprise)
STATEMENT OF CASH FLOWS
February 24, 2000 (inception) through December 31, 2000
INCREASE (DECREASE) IN CASH
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(19,795)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation expense 74
Change in operating liabilities:
Accounts payable 26,329
--------
Net cash provided by operating activities 6,608
CASH FLOWS FROM INVESTING ACTIVITIES
Site development (4,500)
Purchase of office equipment (1,101)
--------
Net cash used in investing activities (5,601)
--------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of membership units 2,250
--------
Net increase in cash 3,257
Cash at beginning of period --
--------
Cash at end of period $ 3,257
========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Accounts payable incurred for deferred offering costs $ 27,641
The accompanying notes are an integral part of this statement.
F-5
Husker Ag Processing, LLC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
February 24, 2000 (inception) through December 31, 2000
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
A summary of the organization and significant accounting policies
consistently applied in the preparation of the accompanying financial
statements follows.
1. Nature and Organization of Company
Husker Ag Processing, LLC, a Nebraska Limited Liability Company, was
formed August 29, 2000 and is located in Plainview, Nebraska. Prior to
formation of the LLC, the Company operated as a partnership. Accordingly,
the financial statements reflect all activities of the LLC and partnership
since inception in February 2000.
The Company has been organized to obtain equity investors and debt
financing to construct, own and operate a 20 million gallon per year
ethanol plant. Construction is planned to begin in 2001 and operations are
expected to commence 14 to 16 months later. The Company's products will
include fuel grade ethanol and distiller grains. The Company expects to
sell ethanol in limited markets throughout the United States and distiller
grains in the surrounding counties in Nebraska.
Since inception in February 2000, the Company has devoted substantially
all its efforts to organizational, project feasibility and financing
activities. Accordingly, the Company is in the development stage as it has
not commenced operations and generated revenues.
The Company has incurred losses since inception. The Company will require
additional debt and equity financing to meet working capital needs and to
finance its planned construction project. Although management believes the
Company will obtain such financing, there can be no assurances that such
financing will be available in the future on terms acceptable to the
Company.
The Company is subject to the risks and uncertainties encountered by
development stage enterprises. The Company's success will depend on
management's ability to implement the Company's business plan. Even if the
Company successfully implements its business plan, it may not succeed
financially due to numerous other factors.
2. Fiscal Reporting Period
The Company has adopted a fiscal year ending December 31 for reporting
financial operations.
F-6
Husker Ag Processing, LLC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
February 24, 2000 (inception) through December 31, 2000
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES - Continued
3. Non-Member Contributions
Contributions by non-members were received to assist the Company in paying
for its costs during the development stage. Such contributions are
recognized as other income.
4. Property and Equipment
Property and equipment are recorded at cost. The Company will incur site
selection and plant development costs that will be capitalized and
depreciated if the project becomes viable. Depreciation will be computed
using the straight-line method over the estimated useful lives of property
and equipment from the date the assets are placed in service. Office
equipment is being depreciated over a five year estimated useful life.
Repairs and maintenance will be expensed as incurred, while major
improvements will be capitalized.
5. Deferred Offering Costs
The Company defers the costs incurred to raise equity financing until the
financing occurs. At such time that the issuance of new membership units
occurs, these costs will be netted against the proceeds received; or if
the equity financing does not occur, they will be expensed.
6. Income Taxes
The Company, as a limited liability company, is treated as a partnership
for Federal and state income tax purposes and does not incur income taxes.
Under this type of organization, the company's income and losses pass
through to the members based on their respective percentage of membership
interest, and are taxed at the member level. Accordingly, no income tax
provision has been included in these financial statements.
Differences between the financial statement basis of assets and tax basis
of assets of approximately $3,710 at December 31, 2000 are related to
capitalization and amortization of organization and start up costs for tax
purposes, whereas these costs are expensed for financial statement
purposes. There are no differences between the financial statement basis
and tax basis of the Company's liabilities.
F-7
Husker Ag Processing, LLC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
February 24, 2000 (inception) through December 31, 2000
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES - Continued
7. Membership Units Split
In March 2001, the Company effected a two-for-one membership unit split.
The number of units, prices paid for units issued, and earnings per
membership unit have been retroactively restated to give effect to the
unit split.
8. Earnings Per Membership Unit
For purposes of calculating basic earnings per membership unit, units
subscribed and issued by the Company are considered outstanding on the
effective date of issue. For purposes of calculating diluted earnings per
membership unit, units subscribed for but not issued by the Company are
also included in the computation of outstanding membership units.
9. Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
10. Recently Issued Accounting Standards
The Company intends to utilize derivative instruments and hedging
activities after commencement of plant operations.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
(subsequently amended by SFAS No. 138). This Statement requires companies
to record derivatives on the balance sheet as assets and liabilities
measured at fair value. The accounting for gains or losses resulting from
changes in the values of those derivatives will depend on the use of the
derivatives and whether they qualify for hedge accounting. In June 1999,
the FASB issued SFAS No. 137, delaying the effective date of SFAS No. 133
for one year, to fiscal years beginning after June 15, 2000. The Company
has not yet determined the effects SFAS No. 133 will have on its financial
position or the results of its operations prospectively.
F-8
Husker Ag Processing, LLC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
February 24, 2000 (inception) through December 31, 2000
NOTE B - MEMBERS' EQUITY
During January 2001, the Company completed a private offering of 834
membership units to accredited investors for $500 per unit. Upon
completion of the private offering, each director was also granted an
option to purchase up to eight units for $250 per unit until the option
expired on February 15, 2001. The Company recognized $18,000 of
compensation expense related to the granting of these options. The
directors purchased 64 membership units upon exercise of the options. In
total, the Company sold 898 units and realized net proceeds of $394,726,
net of offering costs of $38,274.
The Company is using the net proceeds of the private offering to pay for
costs associated with obtaining debt financing totaling up to
approximately $23,000,000 and a planned public equity offering of 10,000
to 12,000 membership units at an offering price of $1,000 per unit. The
purpose of these capital raising activities is to raise sufficient capital
to build the ethanol plant and commence operations.
The following table presents the December 31, 2000 members' equity on a
pro forma basis to reflect the sale of the membership units in January
2001:
Deficit
accumulated
Member units during Members'
-------------------- development equity
Number Amount stage (deficit)
------ ------ ------------ ---------
Balance at December 31, 2000 18 $ 2,250 $ (19,795) $ (17,545)
Member contributions from
private offering, net of offering
costs of 38,274 834 378,726 -- 378,726
Grant and exercise of director options 64 34,000 (18,000) 16,000
--- --------- --------- ---------
Pro forma balances 916 $ 414,976 $ (37,795) $ 377,181
=== ========= ========= =========
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Husker Ag Processing, LLC
(A Development Stage Enterprise)
NOTES TO FINANCIAL STATEMENTS
February 24, 2000 (inception) through December 31, 2000
NOTE B - MEMBERS' EQUITY - Continued
There are significant transfer restrictions on transferability of
membership units. The Company's Operating Agreement, as well as relevant
portions of the Nebraska Limited Liability Company Act and regulations of
the Internal Revenue Service ("IRS") significantly restrict the transfer
of the membership units. Unit holders cannot assign or transfer a
membership unit without approval from the Company's Board of Directors and
the transfer or assignment must comply with applicable Nebraska laws and
IRS regulations.
The Board of Directors will not approve transfers unless they fall within
"safe harbors" contained in the publicly-traded partnership rules under
the tax code, which include, without limitation, the following:
o transfers by gift,
o transfer upon death of a member
o transfers between family members, and
o transfers that comply with the "Qualifying Matching Services"
requirements.
Any transfers of membership units in violation of the publicly traded
partnership rules or without the prior consent of the Board will be null
and void.
NOTE C - COMMITMENT
The Company has signed a letter of intent in May 2001 with a contractor
and engineer for the design and building of the ethanol plant subject to
certain conditions including obtaining adequate financing and negotiating
suitable prices and a final contract. Plant construction costs are
estimated to be $27,750,000 and exclude land, site development and
capitalized interest costs. The letter of intent terminates December 1,
2001.
NOTE D - SUBSEQUENT EVENTS
In addition to the completion of the private offering in January 2001, the
Company received a $75,000 grant from the Nebraska Department of
Agriculture in January 2001 for use in pursuing its business plan. The
Company also exercised a purchase option to purchase 47 acres of land for
approximately $50,000 during March 2001.
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Appendix A
SECOND AMENDED
and
RESTATED
OPERATING AGREEMENT
of
HUSKER AG PROCESSING, LLC
a Nebraska limited liability company
THIS OPERATING AGREEMENT
CONTAINS RETRICTIONS ON TRANSFERABILITY OF
MEMBERSHIP INTERESTS
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HUSKER AG PROCESSING, LLC
SECOND AMENDED
and
RESTATED
OPERATING AGREEMENT
THIS SECOND AMENDED AND RESTATED OPERATING AGREEMENT (this "Agreement") is
made and entered into as of April 30, 2001 by Husker Ag Processing, LLC (the
"Company"), a Nebraska limited liability company.
In consideration of the mutual covenants contained herein, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
1.1 "Act" shall mean the Nebraska Limited Liability Company Act, as amended
from time to time.
1.2 "Affiliate" shall mean, in the case of any Person (the "Specified -
Person"), any other Person (a) that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common control with the
Specified Person, or (b) that is an officer, director, Director, employee or
agent of, partner or member in, or trustee of, or serves in a similar capacity
with respect to, the Specified Person or an Affiliate of the Specified Person,
or (c) of which the Specified Person is an officer, director, Director employee,
agent, partner, member or trustee, or serves in a similar capacity.
1.3 "Agreement" shall mean this Operating Agreement, as originally executed or
as amended, modified, supplemented or restated from time to time.
1.4 "Capital Account Balance" shall have the meaning set forth in Section 5.1.
1.5 "Capital Contribution" shall mean, in the case of any Member as of any
date of determination, the aggregate amount of cash, property, or services
rendered, or a promissory note or other binding obligation to contribute cash or
property or to perform services that such Member shall have contributed to the
Company on or prior to such date and a Member's share of any of the Company's
liabilities as determined in accordance with the Code and Treasury Regulations
(or, if such Member is not the original holder of the Interest of such Member,
the Capital Contribution with respect to the Interest). In the event that any
capital is returned to a Member, such Member's Capital Contribution shall be
adjusted to reflect such return.
1.6 "Code" shall mean the Internal Revenue Code of 1986, as amended from time
to time and any successor statute or subsequent codification or recodification
of the federal income tax laws of the United States.
1.7 "Company" shall mean Husker Ag Processing, LLC, a Nebraska limited
liability company, as such limited liability company may from time to time be
constituted, or any successor in interest for such limited liability company.
1.8 "Distribution" shall mean any distribution pursuant to Section 5.4 by the
Company of cash to the Members or any Distribution in Kind.
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1.9 "Distribution in Kind" shall have the meaning set forth in paragraph(b) of
Section 5.4.
1.10 "Interest" shall mean, in the case of any Member at any time, such
Member's share of the Profits and Losses of the Company at such time and the
right of such Member to receive distributions of Company assets to which such
Member may be entitled as provided in this Agreement and applicable law, and the
right of such Member to vote and participate in the management of the Company as
provided in this Agreement.
1.11 "Losses" shall mean the net losses and deductions of the Company
determined in accordance with accounting principles consistently applied from
year to year employed under the method of accounting adopted by the Company and
as reported separately or in the aggregate, as appropriate, on the tax return of
the Company filed for federal income tax purposes.
1.12 "Director" shall mean one or more Persons designated by the Members to be
members of the Board of Directors. The "Board of Directors" or "Board" shall
manage the Company as provided in Article 6.
1.13 "Majority in Interest" shall mean the affirmative vote of those Members
holding more than fifty percent (50%) of the Percentage Interests. With respect
to the Board, "Majority of the Board" shall mean the affirmative vote of more
than fifty percent (50%) of the Directors.
1.14 "Member" shall mean any Person who, at the time referenced, owns an
Interest in the Company.
1.15 "Officer" shall mean a Member or other Person designated by the Board or
Members as provided in Section 6.11.
1.16 "Person" shall mean an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an estate, an unincorporated
organization or any other entity or a government or any department or agency
thereof.
1.17 "Percentage Interest" means the percentage figure calculated by dividing a
Member's Capital Account Balance at any given time by the total sum of the
Capital Account Balances of all Members.
1.18 "Pro Rata" means the ratio computed by dividing the Units of each Member
to whom a particular provision of this Agreement is stated to apply by the
aggregate of the Units of all Members to whom that provision is stated to apply.
1.19 "Profits" shall mean the net income and gains of the Company determined in
accordance with accounting principles consistently applied from year to year
employed under the method of accounting adopted by the Company and as reported
separately or in the aggregate, as appropriate, on the tax return of the Company
filed for federal income tax purposes. Profits includes taxable income, capital
gain, and income exempt from taxation.
1.20 "Publicly Traded Partnership" shall mean a partnership whose interests are
traded on an established securities market, or are readily tradable on a
secondary market (or the substantial equivalent thereof).
1.21 "Qualified Matching Service Program" shall mean a matching service that
satisfies the requirements of a qualified matching service within the meaning of
Treasury Regulation Section 1.7704-1(g)(2), as amended from time to time, during
limited time periods specified and approved by Board from time to time, in its
sole discretion.
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1.22 "Super-Majority Vote" or "Two-Thirds Majority" shall mean the affirmative
vote of those Members holding more than Two-Thirds (2/3) of the Percentage
Interests. With respect to the Board, "Super-Majority Vote" or "Two-Thirds
Majority" shall mean the affirmative vote of more than two-thirds (2/3) of the
Directors.
1.23 "Transfer" or derivations thereof, of a Unit or Interest means, as a noun,
the sale, assignment, exchange, pledge, hypothecation or other disposition of a
Unit or Interest, or any part thereof, directly or indirectly, or the sale,
assignment, exchange, pledge, hypothecation, or other disposition of a
controlling interest in the equity securities of a Member, and as a verb,
voluntarily to transfer, sell, assign, exchange, pledge, hypothecate or
otherwise dispose of.
1.24 "Treasury Regulations" shall mean the regulations of the United States
Department of the Treasury pertaining to the income tax, as from time to time in
force.
1.25 "Units" means equal units of the entire ownership interest of all Members
of the Company, and all rights and liabilities associated therewith, at any
particular time, including, without limitation, rights to distributions
(liquidating or otherwise), allocations, information, and consent or approve.
1.26 "Value" shall mean, with respect to any Distributions, if cash, the amount
of such cash, or if not cash, the value of such Distribution calculated pursuant
to paragraph (e) of Section 5.4.
ARTICLE II
STRUCTURE OF THE COMPANY
2.1 Formation. The parties to this Agreement have organized a limited
liability company under the provisions of the Act by delivering Articles of
Organization to the Secretary of State of the State of Nebraska for filing. The
Board may take such further actions as it deems necessary or advisable to permit
the Company to conduct business as a limited liability company in any
jurisdiction. The rights and liabilities of the Members under this Agreement
shall be as provided by Nebraska law.
2.2 Name. The name of the Company shall be Husker Ag Processing, LLC, or any
other name permitted by the Act as the Members shall afterwards designate by
appropriate amendment to the Company's Articles of Organization.
2.3 Principal Office. The principal office of the Company shall be at 510 W.
Locust, Box 10, Plainview, Nebraska 68769 or such place as the Members may, from
time to time, designate by appropriate amendment to the Company's Articles of
Organization. The Board may establish additional places of business for the
Company when and where required by the business of the Company.
2.4 Names and Addresses of Members. The names, addresses, Capital
Contributions and number of Units held by each Member are set forth on Appendix
A to this Agreement which shall be modified from time to time as Transfers occur
or as additional Units are issued pursuant to the provisions of this Agreement.
2.5 Member Units and Register. Ownership rights in the Company are evidenced
by Units. The Company shall maintain a membership register (the "Membership
Register") at its principal office or by a duly appointed agent of the Company
setting forth the name, address, Capital Contributions and number of Units held
by each Member which shall be modified from time to time as Transfers occur or
as additional Units are issued pursuant to the provisions of this Agreement.
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2.6 Fiscal Year. The fiscal year of the Company shall begin on January 1 and
end on December 31 of each year. The fiscal year in which the Company shall
terminate shall end on the date of termination of the Company.
2.7 No Partnership. The Directors and the Members intend that as a result of
this Agreement: (i) the Company not be a partnership (including, without
limitation, a limited partnership) or joint venture for any purposes other than
federal and state tax purposes, (ii) no Member or Director be a partner or joint
venturer of any other Member, for any purposes other than federal and state tax
purposes, and (iii) this Agreement may not be construed to suggest otherwise.
This Section 2.7 does not prohibit any Member or Director, in his individual or
independent capacity, from being associated with another Member or another
Person.
2.8 Intent of this Agreement.
(a) The parties to this Agreement have reached an understanding
concerning various aspects of (i) their business relationship with each other
and (ii) the organization and operation of the Company and its business. They
wish to use rights created by statute to record and bind themselves to that
understanding.
(b) The parties intend for this Agreement to control, to the extent
stated or fairly implied, the business and affairs of the Company, including the
Company's governance structure and the Company's dissolution and winding up, as
well as the relations among the Company's Members.
2.9 Advice of Counsel. Each Person signing this Agreement: (a) understands
that this Agreement contains legally binding provisions; (b) has had the
opportunity to consult with that Person's own lawyer; and (c) has either
consulted that lawyer or consciously decided not to consult a lawyer.
ARTICLE III
BUSINESS OF THE COMPANY
The Company may engage in any lawful business, other than banking or insurance.
The Agreement shall be construed in light of such purpose.
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 Initial Paid-In Capital. The Members listed on Appendix A to this
Agreement shall have contributed the cash to the capital of the Company as set
forth on Appendix A. The Capital Contributions set forth on Appendix A shall be
made by each of such Members within thirty (30) calendar days after the last
date of execution of this Agreement by the Members listed on Appendix A.
4.2 Additional Capital Contributions. No Member shall be required to make any
additional contributions to the capital of the Company. No Member shall be
obligated to satisfy any negative Capital Account Balance, except to the extent
expressly set forth herein or in the Articles of Organization. No Member shall
be paid interest on any Capital Contribution.
4.3 Maximum Ownership. No Member together with its Affiliates shall own
Percentage Interests in the Company in excess of thirty percent (30%).
4.4 Withdrawal or Reduction of Members' Capital Contributions. The withdrawal
or reduction of Members' contributions to the capital of the Company shall be
governed by Section 21-2619 of the Act, as amended from time to time; provided,
however:
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(a) No Member has the right to withdraw all or any part of his Capital
Contribution or to receive any return on any portion of his Capital
Contribution, except as may be otherwise specifically provided in this
Agreement. Under circumstances involving a return of any Capital Contribution,
no Member has the right to receive property other than cash.
(b) No Member shall have priority over any other Members, either as to
the return of Capital Contributions or as to Losses and Profits, or
distributions, except as otherwise provided herein.
4.5 Loans from Directors and Members. The Company may borrow money from and
enter into other transactions with any Director or Member. Borrowing from or
engaging in other transactions with one or more Directors or Members does not
obligate the Company to provide comparable opportunities to other Directors or
Members. Any loan made by a Director or Member to the Company shall be evidenced
by a promissory note made payable from the Company to such Director or Member.
Loans by a Director or Member to the Company shall not be considered Capital
Contributions and shall be repaid pursuant to Section 5.4(a) below.
4.6 Loans by Company to Members. Unless otherwise approved by the Board of
Directors, the Company will not make any loans to Members.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 Capital Accounts. A "Capital Account" shall be established for each Member
on the books of the Company and maintained in accordance with Section
1.704-1(b)(2) of the Treasury Regulations, as amended from time to time.
(a) To each Member's Capital Account there shall be credited:
(i) the cash and the Value of any property other than cash
contributed by such Member to the capital of the Company;
(ii) such Member's allocable share of Profits, and any items of
income or gain which are specially allocated to the Member; and
(iii) the amount of any Company liabilities assumed by such Member
of which are secured by any property of the Company distributed to such
Member.
The principal amount of a promissory note which is not readily traded on
an established securities market and which is contributed to the Company by the
maker of the note shall not be credited to the Capital Account of any Member
until the Company makes a taxable disposition of the note or until (and only to
the extent) principal payments are made on the note.
(b) To each Member's Capital Account there shall be debited:
(i) the amount of cash and the Value of any property other than
cash distributed to such Member pursuant to Section 5.4;
(ii) such Member's allocable share of Losses and any items of
expense or loss which are specially allocated to the Member; and
(iii) the amount of any liabilities of such Member assumed by the
Company or which are secured by any property contributed by such Member to
the Company.
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Provided; however, all of the foregoing to be determined in accordance with the
rules set forth in Section 1.704-1(b)(2)(iv) of the Treasury Regulations, as
amended from time to time.
5.2 Allocation of Profits. Profits of the Company shall be allocated to the
Members according to their Percentage Interests.
5.3 Allocation of Losses. Losses of the Company shall be allocated to the
Members according to their Percentage Interests.
5.4 Distributions.
(a) The Board of Directors shall determine, in its sole discretion,
whether to distribute or retain all or any portion of the Profits. The Directors
may distribute cash to the Members irrespective of Profits. All cash
distributions shall be made to the Members in accordance with paragraph (c) of
this Section 5.4. Provided, however, no Member has a right to any distribution
prior to the dissolution of the Company without the approval of the Board;
provided, further, notwithstanding any other language herein no distributions in
dissolution will be made until all loans from all Members, including all
principal and interest, are repaid in full. Such repayments shall be made on a
Pro Rata basis. Nothing herein shall be construed as requiring the making of
distributions prior to the repayment of loans from unrelated parties.
(b) The Board may agree to distribute to the Members in kind any
property held by the Company. Any such distribution of property shall be
referred to herein as a "Distribution in Kind." The value of any such
Distribution in Kind at the time of such distribution shall be determined in
accordance with paragraph (d) of this Section 5.4 and such distribution shall be
made to the Members in accordance with paragraph (c) of this Section 5.4.
Distributions in Kind, made pursuant to this paragraph (b), shall be subject to
such restrictions and conditions as the Board shall have determined are
necessary or appropriate in order for such distributions to be made in
accordance with applicable law.
(c) Any distribution of Profits in accordance with this Section 5.4, and
any distribution, other than Profits, of cash pursuant to paragraph (a) of this
Section 5.4 or Distribution in Kind pursuant to paragraph (b) of Section 5.4,
shall be made to the Members according to their Percentage Interests.
(d) The Value of any Distribution in Kind as of any date of
determination (or in the event such date is a holiday or other day that is not a
business day, as of the next preceding business day) shall be the estimated fair
market value of any property distributed.
(e) All distributions are subject to set-off by the Company for any
past-due obligation of the Members to the Company.
5.5 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses, or any other items
allocable to any period, Profits, Losses and any such other items shall be
determined on a daily, monthly, or other basis, as determined by the Board,
using any permissible method under Section 706 of the Code and the Treasury
Regulations thereunder.
(b) The Members are aware of the income tax consequences of the
allocations made by this Article 5 and hereby agree to be bound by the
provisions of this Article 5 in reporting their shares of Company income and
loss for income tax purposes.
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5.6 Transfer of Capital Accounts. In the event all or a portion of an Interest
in the Company is Transferred in accordance with the terms of the Articles of
Organization and this Agreement, the transferee shall succeed to that portion of
the Capital Account of the transferor which is allocable to the transferred
Interest.
ARTICLE VI
MANAGEMENT OF THE COMPANY
6.1 Management.
(a) The Company shall be managed by a Board of Directors appointed by
the Members (in accordance with Section 6.1(c)). All powers of the Company shall
be exercised by or under the authority of, and the business affairs of the
Company managed under the direction of the Board of Directors in accordance with
this Agreement. Individual Directors or Officers designated by the Board from
time to time may act for or on behalf of the Company and execute all agreements
on behalf of the Company and otherwise bind the Company as to third parties
without the consent of the Members or remainder of the Board of Directors;
provided, however, that with respect to those issues requiring approval of the
Members under the Act or as set forth in this Agreement, such approval must
first be obtained; provided, further, that the affirmative vote of a Majority of
the Board shall be required for (a) incurring any indebtedness or expense in
excess of $20,000 other than in the ordinary course of business; (b) pledging,
mortgaging, encumbering or granting any lien on any assets of the Company other
than in the ordinary course of business; or (c) purchasing any asset or making
capital expenditures in excess of $20,000.
(b) The salaries and other compensation, if any, of the Directors for
management services shall be fixed annually by a Super Majority Vote of the
Board. A Board decision on this matter may be changed by a Super Majority Vote
of the Members at any duly-called annual or special meeting.
(c) The initial Board of Directors shall be comprised of nine (9)
members who shall be elected at the annual meeting of the Members by the
affirmative vote of a Majority in Interest of the Members in accordance with
Section 8.2 of this Agreement. The first year, three (3) Directors shall be
elected for one year, three Directors shall be elected for two years, and three
Directors shall be elected for three years. Thereafter, each Director shall be
elected for a term of three (3) years and shall serve until his or her successor
is duly elected or, if earlier, until such Director's death, resignation or
removal.
6.2 Authority of the Board of Directors. In addition to and not in limitation
of any rights and powers conferred by law or other provisions of this Agreement,
and except as limited, restricted or prohibited by the express provisions of
this Agreement, the Board of Directors shall have and may exercise on behalf of
the Company, all powers and rights necessary, proper, convenient or advisable to
effectuate and carry out the purposes, business and objectives of the Company.
Such powers shall include, without limitation, the power to:
(a) expend Company funds in connection with the operation of the
Company's business or otherwise pursuant to this Agreement;
(b) employ and dismiss from employment any and all employees, agents,
independent contractors, attorneys and accountants;
(c) prosecute, settle or compromise all claims against third parties,
compromise, settle or accept judgment on, claims against the Company and execute
all documents and make all representations, admissions and waivers in connection
therewith;
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(d) borrow money on behalf of the Company from any Person, issue
promissory notes; drafts and other negotiable and nonnegotiable instruments and
evidences of indebtedness, secure payment of the principal of any such
indebtedness and the interest thereon by mortgage, pledge, property of the
Company, whether at the time owned or thereafter acquired;
(e) hold, receive, mortgage, pledge, lease, transfer, exchange,
otherwise dispose of, grant options with respect to, and otherwise deal in the
exercise all rights, powers, privileges and other incidents of ownership or
possession with respect to all property of whatever nature held or owned by, or
licensed to, the Company;
(f) lend any of the Company property with or without security;
(g) have and maintain one or more offices within or without the State of
Nebraska;
(h) open, maintain and close bank accounts and money market mutual funds
accounts, and draw checks and other orders for the payment of monies;
(i) engage accountants, custodians, consultants and attorneys and any
and all other agents and assistants (professional and nonprofessional) and pay
such compensation in connection with such engagement that the Board of Directors
determines is appropriate;
(j) enter into, execute, make, amend, supplement, acknowledge, deliver
and perform any and all contracts, agreements, licenses, and other instruments,
undertakings and understandings that the Board determines is necessary,
appropriate or incidental to carrying out the business of the Company;
(k) file a petition in bankruptcy on behalf of the Company; and
(l) delegate to the Chairman, President and other Officers such
responsibility and authority as the Board deems necessary or appropriate from
time to time.
In exercising its powers, the Board of Directors may (i) rely upon and
shall be protected in acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, or document believed by him
or her to be genuine and to have been signed or presented by the proper party or
parties; (ii) consult with counsel, accountants, and other experts selected by
him or her and any opinion of an independent counsel, accountant or expert shall
be full and complete authorization and protection in respect of any action taken
or suffered or omitted by the Board of Directors in good faith and in accordance
with such opinion; and (iii) execute any of his or her powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys.
6.3 Obligations of the Board of Directors. The Board of Directors shall:
(a) devote to the Company and apply to the accomplishment of Company
purposes so much of the Board of Directors' time and attention as they determine
to be necessary or advisable to manage properly the affairs of the Company;
(b) maintain accounting records from which a Company Capital Account
Balance can be determined for each Member;
(c) execute, file, record or publish all certificates, statements and
other documents and do all things appropriate for the formation, qualification
and operation of the Company and for the conduct of its business in all
appropriate jurisdictions;
(d) employ attorneys to represent the Company when necessary or
appropriate;
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(e) use their best efforts to maintain the status of the Company as a
"limited liability company" for state law purposes, and as a "partnership" for
federal income tax purposes;
(f) have fiduciary responsibility for the safekeeping and use of all
funds and assets of the Company, and not employ or permit others to employ such
funds or assets (including any interest earned thereon) in any manner except for
the benefit of the Company; and
(g) maintain a current list of the names, last known addresses and
Percentage Interest of each Member at the Company's principal office.
6.4 Resignation of Director. Any Director may resign as Director of the
Company upon written notice to the Board of Directors.
6.5 Removal of a Director. Any Director may be removed from time to time with
or without cause by the affirmative vote of Members holding eighty percent (80%)
or more of the Percentage Interests.
6.6 Vacancies. Any vacancy occurring in the position of Director may be filled
by the affirmative vote of a Majority of the Board based on the remaining
Directors.
6.7 Meetings of the Board. Meetings of the Board may be called by the Chairman
of the Board or any two (2) Directors and shall be held at the principal place
of business of the Company, or elsewhere as the notice of such meeting shall
direct. Except as otherwise expressly provided in this Agreement, the Articles,
or the Act, the affirmative vote of a majority of the Directors present at a
duly convened meeting of the Board at which a quorum is present shall constitute
the act of the Board.
6.8 Place of Meeting. The Board may designate any place, either in or out of
the State of Nebraska, as the place of meeting for any meeting. If no
designation is made, the place of meeting shall be the Company's principal
office. Directors may attend any such meeting in person or by telephonic or
video conference call.
6.9 Notice of Meetings. Written or oral notice of every meeting of the Board,
stating the place, date and hour of the meeting, and the purpose or purposes for
which the meeting is called, shall be given by the Secretary of the Company to
each other Director at least twenty-four (24) hours prior to the meeting, unless
such notice is waived in accordance with Article 9 hereof.
6.10 Quorum. The presence of a Majority in Interest of the Directors shall
constitute a quorum for the transaction of business. If a quorum is not present
at a meeting, a majority of the Directors represented may adjourn the meeting
from time to time without further notice.
6.11 Officers.
(a) The Board may elect a Chairman, Vice Chairman, President, one or
more Vice Presidents, Treasurer, and Secretary from among its Directors. Any two
(2) or more offices may be held by the same person.
(b) The Officers of the Company shall be elected annually by the Board
at the first meeting of the Board held after each annual meeting of Members. If
the election of Officers shall not be held at such meeting, such election shall
be held as soon thereafter as conveniently may be. Vacancies may be filled or
new offices created and filled at any meeting of the Board. Each Officer shall
hold office until his or her successor shall have been duly elected and
qualified or until his or her death, or until he or she shall resign or shall
have been removed in the manner hereinafter provided. Election or appointment of
an Officer or agent shall not of itself create contract rights.
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(c) Any Officer or agent may be removed by the Board at any time with or
without cause, but such removal does not affect the contract rights, if any,
with the Company of the person so removed.
(d) A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the Board for the unexpired
portion of the term. An Officer may resign at any time by delivering notice to
the Company. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date and the Company accepts the future effective date, the Board may fill
the pending vacancy before the effective date if the Board provides that the
successor does not take office until the effective date.
6.12 Liabilities of Directors. In carrying out their duties hereunder, the
Directors shall not be liable to the Company or to any Member for any actions
taken in good faith and reasonably believed by them to be in the best interest
of the Company or in reliance on the provisions of this Agreement or the
Articles, or for good faith errors of judgment, but shall only be liable for
willful misconduct or gross negligence in the performance of their duties as
Directors. The Directors shall not be expected to devote their full time and
attention to the affairs of the Company, but shall devote such amounts of time
and attention as are reasonable and appropriate in their good faith judgment
under the circumstances prevailing from time to time.
6.13 Indemnification of the Directors, their Affiliates and Control Persons.
(a) Neither the Directors nor any Officer shall be liable to the Company
or any Member for any act or omission based upon errors of judgment or other
fault in connection with the business or affairs of the Company if the Board
determines that such course of conduct was in the best interest of the Company
and did not result from the gross negligence or willful misconduct of such
Director or Officer.
(b) To the fullest extent permitted by law, the Directors and Officers
(each such person being referred to herein as an "Indemnitee"), shall be
indemnified and held harmless by the Company from and against any and all
losses, claims, damages, settlements and other amounts arising from any and all
claims (including attorneys' fees and expenses, as such fees and expenses are
incurred), demands, actions, suits or proceedings (civil, criminal,
administrative or investigative), in which they may be involved, as a party or
otherwise, by reason of their management of the affairs of the Company, whether
or not they continue to be such at the time any such liability or expense is
paid or incurred; provided that Indemnitee shall not be entitled to the
foregoing indemnification if a court of competent jurisdiction shall have
determined that such losses, claims, damages, liabilities, expenses or such
other amounts resulted primarily from the gross negligence or willful misconduct
of such Indemnitee. The termination of a proceeding by judgment, order,
settlement or conviction upon a plea of nolo contenders, or its equivalent,
shall not, of itself, create any presumption that such losses, claims, damages,
liabilities, expenses or such other amounts resulted primarily from the gross
negligence or willful misconduct of any Indemnitee or that the conduct giving
rise to such liability, was not in the best interest of the Company. The Company
shall also indemnify any Indemnitee who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or in the right
of the Company to procure a judgment in its favor by reason of the fact that
such Indemnitee is or was an agent of the Company, against any losses, claims,
damages, liabilities, expenses or any other amounts incurred by such Indemnitee
in connection with the defense or settlement of such action; provided that no
Indemnitee shall be entitled to the foregoing indemnification if a court of
competent jurisdiction shall have determined that any such losses, claims,
damages, liabilities, expenses or such other amounts resulted from the gross
negligence or willful misconduct of such Indemnitee. The Company may advance any
Indemnitee any expenses (including, without limitation, attorneys' fees and
expenses) incurred as a result of any demand, action, suit or proceeding
referred to in this paragraph (b) provided that (i) the legal action relates to
the performance of duties or services by the Indemnitee on behalf of the
Company; and (ii) the Indemnitee gives a full recourse promissory note to the
Company for the amounts of such advances payable in the event that the
Indemnitee is determined to be not entitled to indemnification hereunder.
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(c) The indemnification provided by paragraph (b) of this Section 6.13
shall not be deemed to be exclusive of any other rights to which any Indemnitee
may be entitled under any agreement, as a matter of law, in equity or otherwise,
and shall continue as to an Indemnitee who has ceased to have an official
capacity and shall inure to the benefit of the heirs, successors and
administrators of such Indemnitee.
(d) Any indemnification pursuant to this section will be payable only
from the Company's assets.
6.14 Transactions with the Directors or their Affiliates. The Board, on behalf
of the Company, may enter into contracts with the Directors, Officers or Members
(or their Affiliates), provided that any such transactions shall be on terms no
more favorable to the Directors, Officers, Members (or their Affiliates) than
generally afforded to non-affiliated parties in a similar transaction.
6.15 Conflicts of Interest. Subject to the other express provisions of this
Agreement, the Directors at any time and from time to time may engage in and
possess interests in other business ventures of any and every type and
description, independently or with others, including ones in competition with
the Company, with no obligation to offer to the Company or any other Member the
right to participate therein.
ARTICLE VII
RIGHTS AND OBLIGATIONS OF MEMBERS
7.1 Limitation of Liability. Each Member's liability shall be limited as set
forth in this Agreement, the Act and other applicable law.
7.2 Company Debt Liability. A Member will not be personally liable for any
debts or losses of the Company beyond his or her respective Capital
Contributions except as provided in Section 7.6 or as otherwise required by law.
7.3 Liability to Third Parties. No Member or Director is liable for the debts,
obligations or liabilities of the Company, whether arising in contract, tort or
otherwise, including under a judgment, decree or order of a court.
7.4 Lack of Authority. No Member (other than a Director or an Officer as
provided under Article VI) has the authority or power to act for or on behalf of
the Company, to do any act that would be binding on the Company or to incur any
expenditures on behalf of the Company.
7.5 List of Members. Upon written request of any Member, the Board shall
provide a list showing the names, addresses and Interests of all Members. Such
Member shall pay any reasonable expense associated with such request.
7.6 Member Liability to the Company.
(a) A Member who rightfully receives the return in whole or in part of
its Capital Contribution is nevertheless liable to the Company to the extent now
or hereafter provided by the Act.
(b) A Member who receives a Distribution made by the Company: (i) which
is either in violation of this Agreement, or (ii) when the Company's liabilities
exceed its assets (after giving effect to the Distribution), is liable to the
Company for a period of six (6) years after such Distribution for the amount of
the Distribution.
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7.7 Representations and Warranties. Each Member hereby represents and warrants
to the Company that: (i) the Member has full power and authority to execute and
agree to this Agreement and to perform its obligations hereunder, and that all
actions necessary for the due authorization, execution, delivery and performance
of this Agreement by that Member have been duly taken; (ii) the Member has duly
executed and delivered this Agreement; and (iii) the Member's authorization,
execution, delivery, and performance of this Agreement do not conflict with any
other agreement or arrangement to which the Member is a party or by which the
Member is bound.
7.8 Member Information
(a) In addition to the other rights specifically set forth in this
Agreement, each Member is entitled to the information to which that Member is
entitled to have access pursuant to the Act, under the circumstances therein
stated.
(b) The Members acknowledge that, from time to time, they may receive
information from or concerning the Company in the nature of trade secrets or
that otherwise is confidential, the release of which may damage the Company or
Persons with which it does business. Each Member shall hold in strict confidence
any information that it receives concerning the Company that is identified as
being confidential (and if that information is provided in writing, that is so
marked) and may not disclose it to any Person other than another Member or the
Director, except for disclosures (i) compelled by law (but the Member must
notify the Director promptly of any request for that information, before
disclosing it, if legal and practicable); (ii) to Persons to whom that Member's
Interest may be transferred as permitted by this Agreement, but only if the
recipients have agreed to be bound by the provisions of this Section 7.8; or
(iii) of information that the Member also has received from a source independent
of the Company and the Member reasonably believes that source obtained the
information without breach of any obligation of confidentiality. The Members
acknowledge that breach of the provisions of this Section 7.8 may cause
irreparable injury to the Company for which monetary damages are inadequate,
difficult to compute, or both. Accordingly, the Members agree that the
provisions of this Section 7.8 may be enforced by specific performance.
7.9 Membership Certificates. "Membership Certificates" in the form determined
by the Board may be delivered representing all Interests to which Members are
entitled. If issued, such Membership Certificates shall be consecutively
numbered, and shall be entered in the books of the Company and on the Membership
Register, as they are issued. Each Membership Certificate shall state on the
face thereof the holder's name, the Interests and such other matters as may be
required by applicable laws. Each such Membership Certificate shall be signed by
a Director of the Company and may be sealed with the seal of the Company or a
facsimile thereof if adopted. The signature of the Director upon the Membership
Certificates may be facsimile. Subject to Article 10, upon surrender to the
Company of a Membership Certificate for Interests duly endorsed or accompanied
by proper evidence of succession, assignment or authority to Transfer, it shall
be the duty of the Company to issue a new Membership Certificate to the person
entitled thereto, cancel the old Membership Certificate and record the
transaction upon its books and records and the Membership Register. Each Member
hereby agrees that the following legend, as the same may be amended by the Board
in its sole discretion, may be placed upon any counterpart of this Agreement,
the Articles, or any other document or instrument evidencing ownership of Units:
The sale, pledge, hypothecation, assignment or transfer of the ownership
interest represented by this CERTIFICATE OF OWNERSHIP is subject to the
terms and conditions of the Operating Agreement of Husker Ag Processing,
LLC, as amended from time to time. Copies of the Operating Agreement may
be obtained upon written request to the Board of Directors of Husker Ag
Processing, LLC.
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ARTICLE XIII
MEETINGS OF MEMBERS
8.1 Voting Power. The affirmative vote of Members holding a Majority in
Interest at a meeting at which there is a quorum present shall be the act of the
Members; provided, however, that the dissolution and winding up of the Company
requires the approval of Members required under Section 21-2622 of the Act, as
amended from time to time; provided, however, in the event that the statute
referred to above is amended to require approval of Members holding less than
eighty percent (80%), the dissolution and winding up of the Company shall
require the affirmative vote of Members holding eighty percent (80%) of the
Percentage Interests. Provided, further, that a Super-Majority Vote of the
Members shall be required for approval of the following actions: (a) the sale,
exchange, lease, mortgage, pledge or other transfer of all or substantially all
of the assets of the Company other than in the ordinary course of business; and
(b) the merger or consolidation of the Company with another entity.
8.2 Cumulative Voting. At each election for Directors, every Member entitled
to vote at such election shall have the right to vote, in person or by proxy,
the number of Units owned by him or her for as many persons as there are
Directors to be elected and for whose election he or she has a right to vote, or
to cumulate his or her votes by giving one candidate as many votes as the number
of such Directors multiplied by the number of his or her Units, or by
distributing such votes on the same principle among any number of candidates.
8.3 Meetings of Members. The annual meeting of Members shall be held on such
date as the Board shall by resolution specify within a period commencing on
January 1 and ending on June 30 in each year, beginning with 2002. At each
annual meeting, Members shall conduct such business as may be properly presented
to such meeting. If the day fixed for the annual meeting shall be a legal
holiday, such meeting shall be held on the next succeeding business day. Special
meetings of Members of the Company may be called by the Chairman of the Board,
by any three (3) Directors, or by the affirmative vote of Members holding at
least a twenty percent (20%) Percentage Interest and shall be held at the
principal place of business of the Company, or elsewhere as the notice of such
meeting shall direct. Members may attend any such meeting in person or by proxy.
8.4 Place of Meeting. The Board of Directors may designate any place, either
in or out of the State of Nebraska, as the place of meeting for any meeting. If
no designation is made, the place of meeting shall be the Company's principal
office.
8.5 Notice of Meetings. Written notice stating the date time and place of the
meeting and a description of the purpose or purposes for which the meeting is
called, shall be mailed, unless oral notice is reasonable under the
circumstances, not fewer than ten (10) nor more than sixty (60) calendar days
before the date of the meeting, by or at the direction of the Board of Directors
to each Member of record entitled to vote at the meeting. If mailed, such notice
is effective when mailed addressed to the Member's address shown in the
Company's current record of Members, with postage prepaid.
8.6 Quorum. The presence of Members holding a majority of the Percentage
Interests in person or by proxy shall constitute a quorum for the transaction of
business. If a quorum is not present at a meeting, a majority of the Percentage
Interests represented may adjourn the meeting from time to time without further
notice.
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ARTICLE IX
WAIVER AND CONSENT
9.1 Written Waiver. Whenever any notice whatsoever is required to be given
under the provisions of this Agreement or under the provisions of the Articles
or the Act, waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice.
9.2 Waiver by Attendance. A Member's or Director's attendance at a meeting of
the Members or Directors, respectively: (i) waives objection to lack of notice
or defective notice of the meeting, unless the Member or Director at the
beginning of the meeting or promptly upon the Member's or Director's arrival
objects to holding the meeting or transacting business at the meeting, and (ii)
waives objection to consideration of a particular matter at the meeting that is
not within the purpose or purposes described in the meeting notice, unless the
Member or Director objects to considering the matter when it is presented.
9.3 Consent to Action Without Meeting. Any action required or permitted to be
taken by the Members or Mangers by vote may be taken without a meeting on
written consent. The consent shall set forth the actions so taken and be signed
by a Two-Third's Majority of the Members or Directors.
ARTICLE X
TRANSFER OF MEMBERSHIP INTERESTS
10.1 Restrictions on Transfer. No Member shall Transfer all or any portion of
an Interest without the prior written consent of the Board of Directors which
consent may be withheld in the sole discretion of the Board. Notwithstanding
anything contained herein to the contrary, no Member shall Transfer any Unit if,
in the determination of the Board, such Transfer would cause the Company to be
treated as a Publicly Traded Partnership, and any Transfer of Unit(s) not
approved by the Board of Directors or that would result in a violation of the
restrictions in this Agreement or applicable law shall be null and void with no
force or effect whatsoever, and the intended transferee shall acquire no rights
in such Unit.
10.2 Permitted Transfers. Subject to Section 10.1 above and the limits on total
maximum ownership set forth in Section 4.3 of this Agreement, any Transfer of
Units made in accordance with the following provisions will constitute a
"Permitted Transfer" for purposes of this Agreement:
(a) A Transfer by a Member and any related persons (as defined in the
Code) in one or more transactions during any thirty (30) calendar day period of
Interests representing in the aggregate more than two percent (2%) of the total
Interests in Company;
(b) A Transfer or series of related Transfers by one or more Members
(acting together) which involves the Transfer of fifty percent (50%) or more of
the outstanding Units; or
(c) Transfers of Units effected through a Qualified Matching Services
Program; or
(d) A Transfer by gift or bequest only to a spouse or child of such
transferring Member, or to a trust established for the benefit of such spouse or
child, or to an existing Member of the Company upon ten (10) days' prior written
notice to the Company of such gift or bequest.
10.3 Conditions Precedent to Transfers. The Board of Directors, in its sole
discretion, may elect not to recognize any Transfer of Units unless and until
the Company has received:
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(a) an opinion of counsel (whose fees and expenses shall be borne by the
transferor) satisfactory in form and substance to the Board that such Transfer
may be lawfully made without registration or qualification under applicable
state and federal securities laws, or such Transfer is properly registered or
qualified under applicable state and federal securities laws and if, requested
by the Company that such Transfer will not cause the Company to be treated as a
Publicly Traded Partnership;
(b) such documents and instruments of conveyance executed by the
transferor and transferee as may be necessary or appropriate in the opinion of
counsel to the Company to effect such Transfer, except that in the case of a
Transfer of Units involuntarily by operation of law, the Transfer shall be
confirmed by presentation of legal evidence of such Transfer, in form and
substance satisfactory to the Company;
(c) the transferor's Membership Certificate;
(d) the transferee's taxpayer identification number and sufficient
information to determine the transferee's initial tax basis in the interest
transferred, and any other information reasonably necessary to permit the
Company to file all required federal and state tax returns and other legally
required information statements or returns;
(e) evidence satisfactory in form and substance to the Board that the
transferee meets the maximum Unit ownership limitation set forth in Section 4.3
of this Agreement; and
(f) other conditions on the Transfer of Units adopted by the Board from
time to time as it deems appropriate, in its sole discretion.
10.4 Death of Member.
(a) Upon the death of any Member, the estate or personal representative
of the deceased Member shall have the right and option to request the Company
repurchase the deceased Member's Interest subject to and in accordance with the
applicable Code and Treasury Regulations regarding Publicly Traded Partnerships.
If the estate or personal representative exercises such right and option the
Company shall, subject to Section 10.4(b) below, purchase the deceased Member's
Interest at the Fair Market Value of such Interest in effect at the date of
death as determined in accordance with Section 10.10 below, and on the terms and
conditions set forth in Section 10.5 and Section 10.6 below. This right and
option may be exercised by the deceased Member's estate or personal
representative by providing written notice to the Company within one hundred
twenty (120) days after the date of your death; provided, however, the Company
will not repurchase such interest earlier than sixty (60) days after receipt of
the written notice from the estate or personal representative requesting the
purchase.
(b) Any Transfer pursuant to this Section 10.4 shall be subject to a
determination by the Board that such Transfer shall not cause the Company to be
deemed a Publicly Traded Partnership, and such Transfer shall be affected in
accordance with this Agreement, the Code and applicable Treasury Regulations,
and shall be further subject to the prior approval of the Board which may be
withheld in its sole discretion.
10.5 Payment Terms. If the purchase price for an Interest transferred pursuant
to Section 10.4 above exceeds five thousand dollars ($5,000.00), the Company
shall have the option to pay for the Interest purchased by paying five thousand
dollars ($5,000) at Closing (as defined below) and executing a promissory note
for the balance of the purchase price. The promissory note shall be paid in five
(5) equal annual installments due on the anniversary date of the Closing and
shall accrue interest per annum at a rate determined by the Board which shall
not be less than the then current prime rate established by any major bank
selected by the Board for loans to the bank's most creditworthy commercial
borrowers. The Company may prepay the promissory note, in whole or in part, at
any time without penalty or premium.
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10.6 Events in Connection with the Sale of Interests.
(a) If there is a sale of Interest under Section 10.4 of this Agreement
to the Company, the closing ("Closing") shall occur at a time mutually agreeable
to the parties and in accordance with the time periods set forth in the
applicable provision of this Agreement; provided, however, the Closing shall not
occur until at least sixty (60) days after the Company's receipt of notice from
the estate or personal representative requesting the Company repurchase the
deceased Member's Interest, but in no event later than one hundred twenty (120)
days after the date of the Company's receipt of such notice.
(b) In the event of a sale of Interest under Section 10.4 of this
Agreement to the Company, the purchase price shall be increased or decreased, as
the case may be, by an amount equal to any indebtedness owed the deceased Member
by the Company, or the deduction of any indebtedness owed the Company by the
deceased Member, or both.
(c) In the event of the sale of Interests under this Agreement by a
Member, all rights of the Member with respect to the Interest, including the
right to vote such Interest and to receive distributions, shall terminate at
Closing, except for the Member's right to receive payment therefor.
10.7 Redemption of Interests.
(a) A Member (the "Requesting Member") may request redemption of his or
her Interest upon not less than sixty (60) calendar days' prior written notice
to the Board of Directors. The Board, in its sole discretion, shall determine
whether to redeem such Interest and the Board is under no obligation to redeem
any Interest of any Requesting Member.
(b) Notwithstanding anything contained herein to the contrary, any
redemption pursuant to this Section 10.7 shall be subject to a determination by
the Board, in its sole discretion, that such redemption shall not cause the
Company to be deemed a Publicly Traded Partnership, and such redemption shall be
affected in accordance with this Agreement, the Code and applicable Treasury
Regulations, and shall be further subject to the prior approval of the Board
which may be withheld in its sole discretion.
10.8 Redemption Payment.
(a) Upon the redemption of a Member under Section 10.7, the Requesting
Member shall be entitled to a payment equal to the Fair Market Value of such
Member's Interest in the Company as of the effective date of the (the
"Redemption Payment"); provided, however, if the remaining Members of the
Company agree to dissolve the Company in accordance with Section 13.1 of this
Agreement, then in no event shall such Member be entitled to a Redemption
Payment, but such Member will be entitled to such Member's share of the assets
of the Company pursuant to Section 13.3 below.
(b) The Redemption Payment shall not be paid until at least sixty (60)
days after the Company's receipt of the notice from the Requesting Member
required under Section 10.7(a) above. The Redemption Payment shall be paid in
cash, or if the Redemption Payment exceeds five thousand dollars ($5,000), the
Company shall have the option to pay the Redemption Payment by paying five
thousand dollars ($5,000) upon the effective date of the redemption and
executing a promissory note for the balance of the Redemption Payment. Such note
shall be dated and delivered on the effective date of the withdrawal and shall
be paid in five (5) equal annual installments due on the anniversary date of the
withdrawal and shall accrue interest per annum at a rate determined by the Board
which shall not be less than the then current prime rate established by any
major bank selected by the Board for loans to the bank's most creditworthy
commercial borrowers. The Company may prepay the promissory note, in whole or in
part, at any time without penalty or premium.
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(c) The Redemption Payment shall be increased or decreased, as the case
may be, by an amount equal to any indebtedness owed the Requesting Member by the
Company, or the deduction of any indebtedness owed the Company by the Requesting
Member, or both. All rights of the Member with respect to the Interest,
including the right to vote such Interest and to receive distributions, shall
terminate at Closing, except for the Member's right to receive payment therefor
upon the effective date of the redemption which shall be determined in
accordance with Section 10.9 below.
10.9 Effective Date of Transfer.
(a) Any Transfer of a Unit shall be deemed effective as of the day of
the month and year: (i) which the Transfer occurs (as reflected by the form of
assignment); and (ii) the transferee's name and address and the nature and
extent of the Transfer are reflected in the records of the Company; provided,
however, the effective date of a Transfer for purposes of allocation of Profits
and Losses and for Distributions shall be determined pursuant to Section 10.9(b)
below. Any transferee of a Unit shall take subject to the restrictions on
Transfer imposed by this Agreement.
(b) The Board, in its sole discretion, may establish interim periods in
which Transfers may occur (the "Interim Transfer Periods"); provided, however,
the Board shall provide Members reasonable notice of the Interim Transfer
Periods and advance notice of any change to the Interim Transfer Periods. For
purposes of making allocations of Profits and Losses, and Distributions, the
Company will use the interim closing of the books method (rather than a daily
proration of profit or loss for the entire period) and recognize the Transfer as
of the first day following the close of Interim Transfer Period in which the
Member complied with the notice, documentation and information requirements of
Article 10. All Distributions on or before the end of the applicable Interim
Transfer Period in which such requirements have been substantially complied with
shall be made to the transferor and all Distributions thereafter shall be made
to the transferee. The Board the authority to adopt other reasonable methods
and/or conventions.
(c) The Board shall have the power and authority to adopt another
reasonable method and/or convention with respect to such allocations and
distributions; provided, neither the Company, the Board, any Director nor any
Member shall incur any liability for making allocations and distributions in
accordance with the provisions of this Section 10.9 (other than tax liabilities
which may be incurred by Members), whether or not the Board or any Director or
the Company or any Member has knowledge of any Transfer of ownership of any
Interest in the Company.
10.10 Fair Market Value. Upon the Transfer of any Interest pursuant to Section
10.4, or the redemption of an Interest pursuant to Section 10.7, the purchase
price or Redemption Payment shall be equal to the Fair Market Value of the
Interest. "Fair Market Value" of an Interest on any date shall, unless otherwise
specifically provided in this Agreement, be equal to the most recent fair market
valuation determination of the per Unit value of the Company by the Board in
good faith; provided, that such valuation shall be calculated on a basis as
consistent as practicable from period to period. The Board may, in its sole
discretion, employ the advice of independent and qualified professionals in the
determination of the Fair Market Value, but is not under any obligation to do
so. The Fair Market Value of the Company shall be determined at least annually.
Valuations shall generally be performed, at the discretion of the Board, as of
the end of each fiscal year of the Company's operations at the annual meeting of
the Board; however, the Board, in its sole discretion, may have fair market
valuations of the Company performed at any time or from time to time during any
year and, except as otherwise specifically provided in this Agreement, shall
utilize the results of the most recent valuation in determining the Fair Market
Value of an Interest for purposes of this Agreement. No Member or any party
other than the Board shall have the right to require or request that a new or
more recent valuation be performed for purposes of determining the Fair Market
Value of the Company or an Interest hereunder. The Company shall not establish
the Fair Market Value more than four (4) times during the Company's taxable
year.
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10.11 Expenses. Except as otherwise expressly provided herein, all expenses of
the Company incident to the admission of the transferee to the Company as a
Member shall be charged to and paid by the transferring Member.
ARTICLE XI
RECORDS, FINANCIAL AND TAX REPORTING
11.1 Records and Accounting. The books of account and other records of the
Company shall be maintained at the Company's principal place of business. The
Company shall prepare its financial statements using generally accepted
accounting principles, consistently applied.
11.2 Tax Information. The Board will use its best efforts to cause to be
delivered, as soon as practical after the end of each fiscal year of the
Company, to the Members and Persons who were Members during such fiscal year all
information concerning the Company necessary to enable such Member or Person to
prepare such Member's (or Person's) Federal and state income tax returns for
such fiscal year, including a statement indicating such Member's (or Person's)
share of Profits, Losses, deductions and credits for such fiscal year for
Federal and state income tax purposes, and the amount of any Distribution made
to or for the account of such Member or Person during such fiscal year pursuant
to this Agreement.
11.3 Tax Returns. The Board shall cause income tax returns for the Company to
be prepared and timely filed in accordance with applicable law.
11.4 Tax Matter Member. Jack G. Frahm is hereby appointed and authorized to
perform all duties imposed by Sections 6221 and 6232 of the Code as "tax matter
partner" of the Company. The Company shall indemnify, to the full extent
permitted by law, the tax matter partner from and against any damages and losses
(including attorneys' fees) arising out of or incurred in connection with any
action taken or omitted to be taken by in carrying out responsibilities as tax
matter partner, provided such action taken or omitted to be taken does not
constitute fraud, gross negligence or willful misconduct.
11.5 Access to Books and Records.
(a) A Member of the Company shall be entitled to inspect and copy during
regular business hours at the Company's principal office the following records
if he or she gives the Company written notice of his or her demand at least five
business days before the date on which he or she wishes to inspect and copy:
(i) Articles or Restated Articles of Organization and all
amendments thereto currently in effect;
(ii) Operating Agreement and all restatements and amendments
thereto currently in effect;
(iii) Minutes of all Member meetings and records of all action taken
by Members without a meeting for the past three years;
(iv) All written communications to the Members generally within the
past three years;
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(v) Annual financial statements that include a balance sheet as of
the end of the fiscal year, an income statement for that year and a
statement of changes in Members' equity for that year unless such
information appears elsewhere in the financial statements, along with the
accountant's report if the annual financial statements are reported upon
by a public accountant;
(vi) A list of the names and business addresses of the Company's
current directors and officers; and
(vii) The most recent annual report delivered by the Company to the
Nebraska Secretary of State.
(b) A Member shall be entitled to inspect and copy during regular
business hours at a reasonable location specified by the Company any of the
following records of the Company if the Member meets the requirements of Section
11.5(c) below and gives the Company written notice of his or her demand at least
five business days before the date on which he or she wishes to inspect and
copy:
(i) Excerpts from minutes of any meeting of the Board of
Directors, records of any action of a committee of the Board of Directors
while acting in place of the Board of Directors on behalf of the Company,
minutes of any meeting of the Members, and records of action taken by the
Members or Board of Directors without a meeting, to the extent not subject
to inspection under subsection (1) of this section;
(ii) Accounting records of the Company; and
(iii) The Membership Register.
(c) A Member may inspect and copy the records described in Section
11.5(b) above only if: (i) the Member's demand is made in good faith and for a
proper purpose; (ii) the Member describes with reasonable particularity his or
her purpose and the records he or she desires to inspect; and (iii) the records
are directly connected with the Member's purpose.
ARTICLE XII
FISCAL AFFAIRS
12.1 Elections.
(a) The Board of Directors may elect to adjust the basis of the assets
of the Company for federal income tax purposes in accordance with Section 754 of
the Code in the event of a distribution of Company property as described in
Section 734 of the Code or a transfer by any Member of the Interest of such
Member in the Company as described in Section 743 of the Code.
(b) The Board of Directors, at any time and from time to time, may also
make such other tax elections as it deems necessary or desirable, in its
discretion.
12.2 Interim Closing of the Books. There shall be an interim closing of the
books of account of the Company (i) at any time a taxable year of the Company
shall end pursuant to the Code, and (ii) at any other time determined by the
Board of Directors to be required for good accounting practice or otherwise
appropriate under the circumstances.
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ARTICLE XIII
TERMINATION AND DISSOLUTION
13.1 Events Requiring Termination and Dissolution. The Company shall be
dissolved upon the occurrence of any event which would make unlawful the
continuing existence of the Company or in accordance with Section 21-2622 of the
Act, as amended from time to time; provided, however, in the event that the
statute referred to above is amended to require approval of Members holding less
than eighty percent (80%) of the Percentage Interests, the Company shall only be
dissolved upon the approval of Members holding eighty percent (80%) of the
Percentage Interests (each a "Liquidating Event").
13.2 Winding Up Period. Upon the occurrence of a Liquidating Event, the Company
shall continue solely for the purposes of winding up its affairs in an orderly
manner, liquidating its assets, and satisfying the claims of its creditors and
Members. No Member shall take any action that is inconsistent with, or not
necessary to or appropriate for, the winding up the Company's business and
affairs. To the extent not inconsistent with the foregoing, all covenants and
obligations in this Agreement shall continue in full force and effect until such
time as the assets of the Company have been distributed pursuant to this Section
and the Company has terminated. The Board shall be responsible for overseeing
the winding up and liquidation of the Company, shall take full account of the
Company's liabilities and assets, shall cause the assets to be liquidated as
promptly as is consistent with obtaining the Value thereof, and shall cause the
proceeds therefrom, to the extent sufficient therefor, to be applied and
distributed in the manner required by the Act. Without limiting the generality
of the foregoing, the Board of Directors, in carrying out such winding up and
distribution, shall have full power and authority to sell the Company's assets,
or any part thereof, or to distribute the same in kind to the Members.
13.3 Distribution.
(a) Upon the occurrence of a Liquidating Event and the dissolution of
the Company, the affairs of the Company shall be wound up in accordance with
Section 13.2 above. The fair market value of the assets of the Company shall be
determined, with the Value of any real or personal property held by the Company
being determined in accordance with paragraph (e) of Section 5.4 and the fair
market value of any other assets held by the Company (other than cash) being
determined by an independent appraiser selected by the Board. Thereupon, the
assets of the Company shall be distributed in the following manner and order:
(i) to the claims of all creditors of the Company, including Members who are
creditors, to the extent permitted by law, in satisfaction of liabilities of the
Company, other than liabilities for distributions to Members; (ii) to Members
and former Members in satisfaction of liabilities for distribution, pursuant to
Section 21-2625(1)(b) of the Act, and (iii) to the Members with positive Capital
Account Balances in accordance with their Percentage Interests. Each such Member
entitled to a distribution of any assets of the Company, pursuant to clause
(iii) of this paragraph (a), shall receive such Member's share of such assets in
cash or in kind, and the portion of such share that is received in cash may vary
from Member to Member, all as the Board of Directors in their discretion may
decide. If distributions to any Member upon termination of the Company are
insufficient to return to such Member the full amount of such Member's Capital
Contribution, such Member shall have no recourse against the Board of Directors,
the Company or against any other Member.
(b) In the discretion of the Board, a Pro Rata portion of the
distributions that would otherwise be made to the Members pursuant to Section
13.3(a) hereof may be:
A-21
(i) distributed to a trust established for the benefit of the
Members for the purposes of liquidating Company assets, collecting amounts
owed to the Company, and paying any contingent or unforeseen liabilities
or obligations of the Company or of the Members arising out of or in
connection with the Company. The assets of any such trust shall be
distributed to the Members from time to time, in the reasonable discretion
of the Board, in the same proportions as the amount distributed to such
trust by the Company would otherwise have been distributed to the Members
pursuant to Section 13.3(a) hereof; or
(ii) withheld to provide a reasonable reserve for Company
liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Company, provided that
such withheld amounts shall be distributed to the Members as soon a
practicable.
13.4. Deficit Capital Account Balance. The Members shall have no liability to
the Company, to the other Members, or to the creditors of the Company on account
of any deficit balance in such Member's Capital Account Balance except to the
extent such deficit arises from the failure of the Member to contribute the full
amount of its Capital Contribution. The Company shall be solely responsible for
payment of liabilities to its creditors.
ARTICLE XIV
MISCELLANEOUS
14.1 Notices. All Notices or other communications under this Agreement shall be
in writing (unless otherwise expressly provided herein) and shall be considered
properly given if delivered by hand or mailed by first class United States Mail,
postage prepaid, addressed in care of the respective Members or Directors at
their last-known address. Notice may also be delivered by means of a confirmed
telecopy, provided the original of the notice is also promptly deposited in the
United States Mail, first class postage prepaid, addressed to the Members or
Director's at such address. Notice of change of address shall be given to the
Company by hand or first class united States Mail, after the date of receipt of
which notice, the change of address shall be effective. Unless actual receipt of
a notice is required by an express provision hereof, any such notice shall be
deemed to be effective as of the earliest of (a) the date of delivery or
confirmed telecopy, or (b) the third business day following the date of deposit
with the United States Post Office or in a regularly maintained receptacle for
the deposit of United States Mail. Any refusal to accept delivery of any such
communication shall be considered successful delivery thereof.
14.2 Insurance. The Company may purchase and maintain insurance on behalf of
any person who is or was a Director, Member, employee or agent of the Company or
is or was serving at the request of the Company as a Director, member, officer,
director, employee or agent of another limited liability company, corporation,
partnership, joint venture, trust, or other enterprise, against any liability
asserted against such person and incurred in any such capacity or arising out of
his or her status as such.
14.3 Successors. This Agreement and all of the terms and provisions thereof
shall be binding upon the Directors and all Members and their respective legal
representatives, heirs, successors and permitted assigns.
14.4 Applicable Law. This Agreement and the rights and obligations of the
Members thereunder shall be construed and interpreted under the laws of the
State of Nebraska without regard to its conflict of law principals.
A-22
14.5 Amendments. This Agreement may not be modified or amended except upon the
Super-Majority Vote of the Board or upon an affirmative vote of Two-Thirds (2/3)
Majority of the Members. Upon the modification or amendment of this Agreement,
the Board shall promptly execute such amendments or other documents as the
Company deems appropriate to reflect such amendments under the law of the State
of Nebraska. In the event the Board materially modifies or amends this Agreement
pursuant to this Section 14.5, the Board shall send notice to the Members of the
material modification or amendment within a reasonable period of time after the
effective date of such modification or amendment.
14.6 Waiver of Partition. Each of the Members of the Company irrevocably waives
any right to maintain any action for partition with respect to the property of
the Company.
14.7 Company Property. The legal title to any real or personal property or
interest therein now or hereafter acquired by the Company shall be owned, held
or operated in the name of the Company, and no Member, individually, shall have
any ownership interest in such property.
14.8 Acceptance of Prior Acts by New Members. Each Person becoming a Member, by
becoming a Member, ratifies all action duly taken by the Company, pursuant to
the terms of this Agreement, prior to the date such person becomes a Member.
14.9 Section Headings. The division of this Agreement into sections,
subsections and exhibits is for convenience of reference only and shall not
affect the interpretation or construction of this Agreement.
14.10 Severability. In the event that one or more of the provisions contained in
this Agreement or any portions thereof are unenforceable or are declared invalid
for any reason whatsoever, such enforceability or invalidity shall not affect
the enforceability or validity of the remaining terms or portions of this
Agreement, and each such unenforceable or invalid portion hereof shall be
severable from the remainder of this Agreement and the remainder of this
Agreement shall be interpreted as if such unenforceable or invalid provision or
portion thereof had not been included as a part thereof.
14.11 Agreement for Further Execution. At any time or times, upon the request of
the Board, the Members agree to sign and swear to any certificate required by
the Act, to sign and swear to any amendment to or cancellation of such
certificate whenever such amendment or cancellation is required by law or by
this Agreement, and to cause the filing of any of the same of record wherever
such filing is required by law.
14.12 Time. Time is an essential element to the performance of this Agreement by
each Member.
14.13 Copies Reliable and Admissible. This Agreement shall be considered to have
been executed by a person if there exists a photocopy, facsimile copy, or a
photocopy of a facsimile copy of an original hereof or of a counterpart hereof
which has been signed by such person. Any photocopy, facsimile copy, or
photocopy of facsimile copy of this Agreement or a counterpart hereof shall be
admissible into evidence in any proceeding as though the same were an original.
14.14 Entire Agreement. This Agreement is the sole operating agreement of the
Company and constitutes the entire agreement among the parties; it supersedes
any prior agreements or understandings among the parties, oral or written, all
of which are hereby canceled.
14.15 Gender. Whenever the context shall require, each term stated in either the
singular or plural shall include the singular and the plural, and masculine or
neuter pronouns shall include the masculine, the feminine and the neuter.
A-23
14.16 No Waiver. No failure or delay on the part of any Member in exercising any
rights under this Agreement, or in insisting on strict performance of any
covenant or condition contained in this Agreement, shall operate as a waiver of
any of such Member's rights hereunder.
14.17 Submission to Jurisdiction. Each of the parties to this Agreement hereby
submits to the jurisdiction of and agrees that suit will only be brought in the
state or federal court sitting in Omaha, Nebraska (the "Nebraska Court") in any
action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby. Each party also agrees not to bring any action
or proceeding arising out of or relating to this Agreement or the transactions
contemplated thereby in any other court except as may be necessary to enforce
any judgment or order of the Nebraska Court. Each of the parties waives any
defense of inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety or other security that might be required of
any other party with respect thereto.
14.18 Specific Performance. Each of the parties acknowledges and agrees that the
other party would be damaged irreparably in the event any of the provisions of
this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the parties agrees that the other
parties shall be entitled, without posting a bond or other collateral, to an
injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically this Agreement and the terms and
provisions hereof in any action instituted in the Nebraska Court, in addition to
any other remedy to which it may be entitled, at law or in equity.
14.19 Counterparts. This Agreement may be executed in several counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same instrument.
14.20 Creditors. None of the provisions of this Agreement shall be for the
benefit of or enforceable by any creditors of the Company.
A-24
IN WITNESS WHEREOF, all of the Members of Husker Ag Processing, LLC have
executed this Agreement effective as of the 18th day of December, 2000.
/s/ Jack G. Frahm /s/ Gary Kuester
- -------------------------------- ------------------------------------
Jack G. Frahm, Member Gary Kuester, Member
/s/ Fred Knievel /s/ Cory Furstenau
- -------------------------------- ------------------------------------
Fred Knievel, Member Cory Furstenau, Member
/s/ Ryan Koinzan /s/ Scott Carpenter
- -------------------------------- ------------------------------------
Ryan Koinzan, Member Scott Carpenter, Member
/s/ Mike Kinney /s/ Kelly Hodson
- -------------------------------- ------------------------------------
Mike Kinney, Member Kelly Hodson, Member
/s/ Alex Thramer
------------------------------------
Alex Thramer, Member
A-25
Appendix B
HUSKER AG PROCESSING, LLC
SUBSCRIPTION APPLICATION AND AGREEMENT
Membership Units
$1,000.00 Per Unit
INSTRUCTIONS TO INVESTORS:
YOU MUST COMPLETE ALL ITEMS AND SIGN THE APPLICATION FORM. YOU SHOULD READ THE
PROSPECTUS IN ITS ENTIRETY INCLUDING FINANCIAL STATEMENTS AND APPENDICES FOR A
COMPLETE EXPLANATION OF AN INVESTMENT IN THE COMPANY.
YOU MUST COMPLETE THE ENCLOSED AGREEMENT, SUBMIT THE REQUIRED PURCHASE PRICE,
AND SUBMIT AN EXECUTION PAGE OF THE OPERATING AGREEMENT. IF THE COMPANY REJECTS
YOUR APPLICATION, YOUR AGREEMENT AND CHECK WILL BE RETURNED TO YOU WITHIN 30
DAYS OF OUR RECEIPT OF YOUR DOCUMENTS. IF YOUR APPLICATION IS ACCEPTED, YOUR
FUNDS WILL BE PLACED IN THE COMPANY'S ESCROW ACCOUNT AT MIDWEST BANK, N.A. D/B/A
PLAINVIEW NATIONAL BANK, AND THE FUNDS WILL BE RELEASED TO THE COMPANY OR
RETURNED TO YOU IN ACCORDANCE WITH THE ESCROW ARRANGEMENTS DESCRIBED IN THE
PROSPECTUS.
Item 1. Check the appropriate box to indicate form of ownership. If the
investor is a Custodian, Corporation, Partnership or Trust, please
provide additional information and documents requested.
Item 2. Indicate the number of membership units you are purchasing (5
membership units is the minimum) and indicate the dollar amount of
your investment ($5,000 is the minimum investment). Your ownership
interest may not exceed 30% of all of our outstanding membership
units.
Item 3. Please print the name(s) in which membership units are to be
registered and provide your address and telephone numbers. Check the
appropriate box if you are a non-resident alien, an U.S. Citizen
residing outside the United States or subject to back up
withholding. IRAs and KEOGHS should provide the taxpayer
identification number of the account and the social security number
of the accountholder. Trusts should provide their taxpayer
identification number. Custodians should provide the minor's social
security number. All individual investors should provide their
social security number. Other entities should provide their taxpayer
identification number.
Item 4. Shareholder Report Address. If you would like duplicate copies of
shareholder reports sent to an address that is different than the
address identified in Item 3, please complete this section.
Item 5. Please indicate your state of residence.
Item 6 You must sign Item 6 and the date of signing must be inserted in the
line provided.
B-1
After following these instructions, return the Subscription Agreement, Signature
Page and the Operating Agreement to:
Husker Ag Processing, LLC
510 W. Locust Street
P.O. Box 10
Plainview, Nebraska 68769
TOGETHER WITH A CHECK MADE PAYABLE TO "MIDWEST BANK, N.A. -- ESCROW AGENT FOR
HUSKER AG PROCESSING, LLC."
TRUSTS MUST FURNISH A COPY OF THE SIGNATURE AND TITLE PAGES OF THE TRUST
AGREEMENT AND ALL AMENDMENTS THERETO. CORPORATIONS SHOULD FURNISH APPROPRIATE
RESOLUTION AUTHORIZING THE PURCHASE OF THE UNITS. PARTNERSHIPS SHOULD FURNISH A
COPY OF THE PARTNERSHIP AGREEMENT.
THE INVESTOR NAMED BELOW, UNDER PENALTIES OF PERJURY, CERTIFIES THAT
(I) THE NUMBER SHOWN UNDER ITEM 3 ON THIS SUBSCRIPTION AGREEMENT IS HIS,
HER OR ITS CORRECT TAXPAYER IDENTIFICATION NUMBER,
(II) HE, SHE OR IT IS NOT SUBJECT TO BACK UP WITHHOLDING EITHER BECAUSE
HE, SHE OR IT HAS NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS") THAT
HE, SHE OR IT IS SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF A FAILURE TO
REPORT ALL INTEREST OR DIVIDENDS, OR THE IRS HAS NOTIFIED HIM, HER OR IT THAT HE
IS NO LONGER SUBJECT TO BACKUP WITHHOLDING (NOTE CLAUSE (II) SHOULD BE CROSSED
OUT IF THE BOX IN ITEM 3 IS CHECKED)
1. FORM OF OWNERSHIP
Check one Box
|_| Individual
|_| Joint Tenants with Right of Survivorship
(Both signatures must appear in Item 7)
|_| Custodian for _______________, ____________state of uniform gift to
minor Corporation or Partnership
(Corporate Resolutions or Partnership Agreement must be enclosed)
|_| IRA
|_| KEOGH
|_| Pension or Profit Sharing Plan
|_| Trust (Signature and title pages of Trust Agreement and all
amendments must be enclosed)
Trustee name: ____________________________
Trust date: _______________________________
|_| Other
|_| Estate
B-2
2. PURCHASE INFORMATION*
A. Number of Units Purchased (minimum 5 membership units)_________
B. Dollar amount of investment (minimum $5,000 investment)_________
* Subject to a 30% limit on issued and outstanding membership units.
3. INVESTOR INFORMATION
Names and addresses will be recorded exactly as printed below:
__________________________________________________________________________
Name:_____________________________________________________________________
Name of Joint Investor:___________________________________________________
Address: _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
City State Zip Code
|_| Check box if you are a non-resident alien
|_| Check box if you are a U.S. citizen residing outside of
the United States
|_| Check box if you are subject to backup withholding
______________________________ ____________________________________
Investor's Social Security No. Joint Investor's Social Security No.
_____________________________
Taxpayer Identification No.
4. SHAREHOLDER REPORT ADDRESS (FILL OUT IF YOU WANT DUPLICATE INFORMATION
SENT TO ANOTHER ADDRESS THAN THAT LISTED IN ITEM 3)
Address: _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
City State Zip Code
B-3
5. STATE OF RESIDENCE
________________________________
6. SIGNATURE OF INVESTOR. By signing below the subscriber represents and
warrants to the company that he, she or it:
(i) has received a copy of and is familiar with the company's prospectus
dated _____________, 2001, all modifications or supplements thereto
(collectively the "Prospectus");
(ii) is aware that the Prospectus is a part of the company's Registration
Statement on Form SB-2 as filed with the United States Securities
and Exchange Commission, that such Registration Statement contains
important information, materials and exhibits not included with the
Prospectus, that such additional materials are considered to be
material or informative in connection with a decision to acquire the
Units, and the Subscriber has been directed to and has been informed
of the existence of such additional information in the Registration
Statement;
(iii) understands that there is no present market for the Company's
membership units, that the membership units will not trade on an
exchange or automatic quotation system, that no such market is
expected to develop in the future and that there are significant
restrictions on the transferability of the membership units;
(iv) agrees that if the membership units or any part thereof are sold or
distributed in the future, the subscriber shall sell or distribute
them pursuant to the requirements of the Securities Act of 1933, as
amended, and applicable state securities laws;
(v) has received a copy of the Husker Ag Processing Operating Agreement,
and understands that upon closing the escrow by the Company, the
subscriber will be bound by the provisions of the Operating
Agreement which contains, among other things, provisions that
restrict the transfer of membership units; and
(vi) understands that the Company will place a restrictive legend on any
certificate representing any unit containing substantially the
following language:
THE SALE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR TRANSFER OF THE
OWNERSHIP INTEREST REPRESENTED BY THIS CERTIFICATE OF OWNERSHIP IS
SUBJECT TO THE TERMS AND CONDITIONS OF THE OPERATING AGREEMENT OF
HUSKER AG PROCESSING, LLC, AS AMENDED FROM TIME TO TIME. COPIES OF
THE OPERATING AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE
BOARD OF DIRECTORS OF HUSKER AG PROCESSING, LLC.
And that, to enforce the above legend, the Company may place a stop
transfer order with its registrar and stock transfer agent (if any)
covering all certificates representing any of the membership units.
____________________________________ _________________________________
Signature of Investor Date
____________________________________ _________________________________
Signature of Joint Investor Date
B-4
ADDENDUM TO SIGNATURE PAGE
of
OPERATING AGREEMENT
of
HUSKER AG PROCESSING, LLC
INTENDING TO BE LEGALLY BOUND, the parties hereto have executed and
delivered this Addendum to Operating Agreement as of __________________, 2001.
MEMBER:
___________________________________
MEMBER:
___________________________________
B-5
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Securities and Exchange Commission registration fee $ 3,000
Legal fees and expenses 100,000
Accounting fees 100,000
Blue Sky filing fees 30,000
Printing expenses 55,000
Escrow agent fees 7,000
Costs relating to sales meetings 15,000
Miscellaneous expenses 40,000
--------
Total $350,000*
========
* All of the above items except the registration fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Directors, officers, employees and agents of Husker Ag Processing, LLC (the
"Company") may be entitled to benefit from the indemnification provisions
contained in the Company's Articles of Organization and the Nebraska Limited
Liability Company Act. The general effect of these provisions is summarized
below:
The Articles of Organization and Operating Agreement provide that to the extent
permitted by law, the Company shall indemnify any director, officer, employee or
agent who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative or investigative, including any action or suit by or in
the right of the Company to procure a judgment in its favor, by reason of the
fact that such person is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture or
other enterprise or as a trustee, officer, employee or agent of an employee
benefit plan. Such indemnification shall be against expenses, including attorney
fees, and except for actions by or in the right of the Company, judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Generally under Nebraska law, any individual who is made a party to a proceeding
because the individual is or was a director may be indemnified if the individual
acted in good faith and had reasonable basis to believe that (1) in the case of
conduct in the individual's official capacity with the Company, that the
individual's conduct was in the Company's best interests; (2) in all other
cases, that the individual's conduct was at least not opposed to the Company's
best interest; and (3) regarding any criminal proceedings, the individual had no
reasonable cause to believe the individual's conduct was unlawful. Nebraska law
also extends such indemnification to officers of the Company and provides that
the Company may advance expenses to a director or officer of the company.
Further, Nebraska law provides that neither a director or officer is liable for
any action taken as a director or officer, or any failure to take any action, as
long as the individual discharged his or her duties (1) in good faith, (2) with
the care of an ordinarily prudent person in a like position would exercise under
similar circumstances, and (3) in a manner the individual reasonably believes to
be in the best interests of the Company.
II-1
The Operating Agreement also provides that to the extent permitted by law, the
Company has the power to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Company against any
liability asserted against such person while acting in such capacity or arising
out of his or her status as such, whether or not the Company would have the
power to indemnify him or her against such liability. Nebraska law provides that
the Company may purchase and maintain insurance on behalf of an individual who
is or was a director or officer of the company, or who, while a director or
officer of the Company, serves at the company's request as a director, officer,
member of a limited liability company, partner, trustee, employee, or agent of
another domestic or foreign corporation, limited liability company, partnership,
joint venture, trust, employee benefit plan, or other entity, against liability
asserted against or incurred by that individual in that capacity or arising from
the individual's status as a director or officer, whether or not the Company
would have the power to indemnify or advance expenses under Nebraska law.
The Operating Agreement provides that the indemnity set forth in the Operating
Agreement shall not be deemed to be exclusive of any other rights to which those
indemnified may be otherwise entitled, nor shall the provisions of the Operating
Agreement be deemed to prohibit the Company from extending its indemnification
to cover other persons or activities to the extent permitted by law or pursuant
to any provisions in the Operating Agreement.
There is no pending litigation or proceeding involving a director, officer,
employee or agent of the Company as to which indemnification is being sought.
The Company is not aware of any other threatened litigation that may result in
claims for indemnification by any director, officer, employee or agent.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since the Company's formation on August 29, 2000, it has issued and sold the
following membership units. All sales were made only to accredited investors as
defined under Rule 501(a), Regulation D. Each of these sales were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2)
and Rule 506 of the Securities Act, as well as Rule 152, as transactions by an
issuer not involving a public offering. The Company conducted no general
solicitation in connection with the offer or sale of the securities. The
recipients of securities in each such transaction represented their intention to
acquire the securities for investment only and not with a view to, or for sale
in connection with, any distribution thereof, and appropriate legends were
affixed to unit certificates and instruments issued in such transactions. All
purchasers (other than the 9 directors in the initial September 1, 2000
organization and purchase) were provided a private placement memorandum
containing all material information concerning the company and the offering. The
following table has been adjusted to reflect the two to one membership split
effected by the Board on March 19, 2001.
TITLE AMT DATE PRICE DISCOUNTS* EXEMPTION
Gary Kuester 2 9/1/00 $125 $0
J. Alex Thramer 2 9/1/00 $125 $0
Jack G. Frahm 2 9/1/00 $125 $0
Frederick J. Knievel 2 9/1/00 $125 $0
Cory A. Furstenau 2 9/1/00 $125 $0
Ryan W. Koinzan 2 9/1/00 $125 $0
Mike Kinney 2 9/1/00 $125 $0
Scott J. Carpenter 2 9/1/00 $125 $0
O. Kelly Hodson 2 9/1/00 $125 $0
Richard E. Adkins, Jr. 10 1/15/01 $500 $0
II-2
John Arens and Susan A. Arens, as 20 1/15/01 $500 $0
joint tenants with rights of
survivorship
Antelope Bancshares Inc. 10 1/15/01 $500 $0
Brozek & Sons Inc. 10 1/15/01 $500 $0
Scott J. Carpenter 10 1/15/01 $500 $0
Jeffrey E. Curtiss 20 1/15/01 $500 $0
Richard L. Demerath 10 1/15/01 $500 $0
Frahm Farms, Inc. 20 1/15/01 $500 $0
Jack G. Frahm 10 1/15/01 $500 $0
Duane L. Fulton 10 1/15/01 $500 $0
Gordon W. Fulton 10 1/15/01 $500 $0
Cory A. Furstenau 4 1/15/01 $500 $0
Galen D. Furstenau and Debra L. 30 1/15/01 $500 $0
Furstenau, as tenants in common
Randall D. Gansebom 10 1/15/01 $500 $0
Reginald C. Green and Susan K. 100 1/15/01 $500 $0
Green, as tenants in common
Douglas A. Hall 20 1/15/01 $500 $0
Donna L. Herrick 20 1/15/01 $500 $0
O. Kelly Hodson 20 1/15/01 $500 $0
Hoffman & Sons, Inc. 20 1/15/01 $500 $0
Gary L. Johnson 10 1/15/01 $500 $0
Gayle D. Johnson 10 1/15/01 $500 $0
Greg A. Johnson 10 1/15/01 $500 $0
Harry H. Johnston 10 1/15/01 $500 $0
Mike Kinney and Karin Kinney, as 10 1/15/01 $500 $0
joint tenants with rights of
survivorship
Fredrick J. Knievel 10 1/15/01 $500 $0
Claus C. Knuth and Maylo Knuth, as 60 1/15/01 $500 $0
tenants in common
James W. Krause and Janet L. 20 1/15/01 $500 $0
Krause, as joint tenants with
rights of survivorship
Kent D. Lingenfelter 10 1/15/01 $500 $0
Warren Lingenfelter 40 1/15/01 $500 $0
Wilbert E. Reinke and Ruth D. 10 1/15/01 $500 $0
Reinke, as joint tenants with
rights of survivorship
II-3
TITLE AMT DATE PRICE DISCOUNTS* EXEMPTION
Courtland Roberts and Darlene 10 1/15/01 $500 $0
Roberts, as joint tenants with
rights of survivorship
Dennis Sanne and Diane Sanne, as 10 1/15/01 $500 $0
joint tenants with rights of
survivorship
Vincent H. Sauser and Sharon K. 10 1/15/01 $500 $0
Sauser, as joint tenants with
rights of survivorship
Rhett R. Sears and Carol N. Sears, 10 1/15/01 $500 $0
as joint tenants with rights of
survivorship
Sunshine Ranch Co. 40 1/15/01 $500 $0
Roger D. Synovec 10 1/15/01 $500 $0
Wausa Bancshares, Inc. 10 1/15/01 $500 $0
Barbara West 20 1/15/01 $500 $0
Eugene Young 20 1/15/01 $500 $0
Duane K. Fudge 30 1/15/01 $500 $0
Gowen 2000 Trust, dated September 10 1/15/01 $500 $0
20, 2000,
Terence Hunnley Gowen, Trustee and
Audrey Elaine Gowen, Trustee
George R. and Catherine M. Hemenway 20 1/15/01 $500 $0
Family Revocable Trust, George R.
Hemenway, Trustee and Catherine M.
Hemenway, Trustee
Duncan H. Mauran 10 1/15/01 $500 $0
J. K. Spittler 10 1/15/01 $500 $0
J. Alex Thramer 20 1/15/01 $500 $0
David F. Johnson, Jr. 20 1/15/01 $500 $0
Cory A. Furstenau 8 2/15/01 $250 $250
Mike Kinney 8 2/15/01 $250 $250
J. Alex Thramer 8 2/15/01 $250 $250
O. Kelly Hodson 8 2/15/01 $250 $250
Fredrick J. Knievel 8 2/15/01 $250 $250
Scott J. Carpenter 8 2/15/01 $250 $250
Jack G. Frahm 8 2/15/01 $250 $250
Ryan William Koinzan 8 2/15/01 $250 $250
II-4
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
EXHIBIT
NUMBER EXHIBIT TITLE
3.1 Articles of Organization
3.2 Amended and Restated Operating Agreement*
4.1 Form of Membership Unit Certificate
4.2 Form of Subscription Application**
4.3 Escrow Agreement
5.1 Form of Opinion of Baird, Holm, McEachen, Pedersen, Hamann &
Strasheim LLP as to certain securities matters.***
8.1 Form of Opinion of Baird, Holm, McEachen, Pedersen, Hamann &
Strasheim LLP as to certain tax matters.***
10.1 Letter of Intent by and among Fagen Inc., ICM, Inc. and Husker Ag
Processing, LLC dated January 29, 2001
10.2 Agreement with the Nebraska Department of Agriculture
10.3 Warranty Deed
23.1 Form of consent of Baird, Holm, McEachen, Pedersen Hamann &
Strasheim LLP***
23.2 Form of consent of Grant Thornton LLP
24.1 Power of Attorney executed by Gary Kuester
24.2 Power of Attorney executed by J. Alex Thramer
24.3 Power of Attorney executed by Jack G. Frahm
24.4 Power of Attorney executed by Fredrick J. Knievel
24.5 Power of Attorney executed by Cory A. Furstenau
24.6 Power of Attorney executed by Ryan W. Koinzan
24.7 Power of Attorney executed by Mike Kinney
24.8 Power of Attorney executed by Scott J. Carpenter
24.9 Power of Attorney executed by O. Kelly Hodson
- ----------
* Included as Appendix A to the prospectus
** Included as Appendix B to the prospectus
*** To be filed by amendment
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-5
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3,
Form 5-8 or Form F-3, and the information required to be included in
a post-effective amendment by those paragraphs is contained in
periodic reports filed with or furnished to the Commission by the
registrant pursuant to section 13 or section 15(d) of the Securities
Exchange Act of 1934 that are organized by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Plainview, State of
Nebraska on this 7th day of May, 2001.
HUSKER AG PROCESSING, LLC
By: /s/ GARY KUESTER
----------------------------------
Gary Kuester, Chairman of the Board
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities of
Husker Ag Processing, LLC on the 7th day of May, 2001.
Signature Capacity
--------- --------
/s/ Gary Kuester Chairman of the Board, President, Director
-----------------------
Gary Kuester
/s/ J. Alex Thramer Vice Chairman, Vice President, Director
-----------------------
J. Alex Thramer
/s/ Jack G. Frahm Secretary and Director
-----------------------
Jack G. Frahm
/s/ Fredrick J. Knievel Treasurer and Director
----------------------- (Principal Accounting Officer)
Fredrick J. Knievel
* Director
-----------------------
Cory A. Furstenau
* Director
-----------------------
Ryan W. Koinzan
/s/ Scott J. Carpenter Director
-----------------------
Scott J. Carpenter
/s/ Mike Kinney Director
-----------------------
Mike Kinney
/s/ O. Kelly Hodson Director
-----------------------
O. Kelly Hodson
*By: /s/ Gary Kuester
-----------------------
Gary Kuester
As: Attorney-in-fact
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION PAGE
3.1 Articles of Organization
3.2 Second Amended and Restated Operating Agreement*
4.1 Form of Membership Unit Certificate
4.2 Form of Subscription Application**
4.3 Escrow Agreement
5.1 Form of Opinion of Baird, Holm, McEachen, Pedersen, Hamann &
Strasheim LLP as to certain securities matters***
8.1 Form of Opinion of Baird, Holm, McEachen, Pedersen, Hamann &
Strasheim LLP as to certain tax matters***
10.1 Letter of Intent by and among Fagen Inc., ICM, Inc.
and Husker Ag Processing, LLC dated January 29, 2001
10.2 Agreement with the Nebraska Department of Agriculture
10.3 Warranty Deed
23.1 Form of consent of Baird, Holm, McEachen, Pedersen
Hamann & Strasheim LLP***
23.2 Form of consent of Grant Thornton LLP
24.1 Power of Attorney executed by Gary Kuester
24.2 Power of Attorney executed by J. Alex Thramer
24.3 Power of Attorney executed by Jack G. Frahm
24.4 Power of Attorney executed by Fredrick J. Knievel
24.5 Power of Attorney executed by Cory A. Furstenau
24.6 Power of Attorney executed by Ryan W. Koinzan
24.7 Power of Attorney executed by Mike Kinney
24.8 Power of Attorney executed by Scott J. Carpenter
24.9 Power of Attorney executed by O. Kelly Hodson
- ----------
* Included as Appendix A to the prospectus
** Included as Appendix B to the prospectus
*** To be filed by amendment
II-8