<Page>
[Mid-States Appraisal Services, Inc. Letterhead]
SOUTH DAKOTA
SOYBEAN PROCESSORS
VOLGA, SOUTH DAKOTA
JUNE 30, 2001
<Page>
A COMPLETE APPRAISAL
IN A
SUMMARY REPORT FORMAT
ON THE
MARKET VALUE
OF THE
BUSINESS ENTERPRISE
OF THE
SOUTH DAKOTA SOYBEAN PROCESSORS
PROCESSING PLANT AND RELATED ASSETS
LOCATED AT
VOLGA, SOUTH DAKOTA
AS OF
JUNE 30, 2001
BY
MID-STATES APPRAISAL SERVICES, INC.
<Page>
[Mid-States Appraisal Services, Inc. Letterhead]
July 26, 2001
Ms. Connie Kelly
Chief Financial Officer
South Dakota Soybean Processors
PO Box 500
Volga, South Dakota 57071
RE: A Complete Appraisal of the Processing Plant and Related Assets
Located at Volga, South Dakota, owned by South Dakota Soybean
Processors
Ms. Kelly:
I have inspected the above subject property and related assets as outlined in
the enclosed complete appraisal report in a summary report format dated June 30,
2001. The purpose of this report is to estimate the Market Value for an internal
company purpose. For special purpose properties of this type, it is my opinion a
market value sale could include a time period up to one year.
The value conclusion reached is subject to the assumptions and limiting
conditions as set forth in the accompanying report. Only the assets outlined
herein are appraised. The property rights appraised are the Business Enterprise
which includes the going concern and the underlying property rights of Fee
Simple Estate on the owned land, Leasehold Estate on leased land (if any) with
Merchantable Title to all fixed assets, rolling and portable equipment appraised
herein, free and clear of any liens. This appraiser has not considered any
possible noncompliance (if any) with the requirements of the Americans with
Disabilities Act (ADA). The appraisal is based on the assumption that there is
no environmental contamination above any threshold that would require any
remediation. An independent audit of any environmental concerns should be
conducted by an appropriately qualified inspection company. This appraisal
report has been prepared in compliance with the Uniform Standard of Professional
Appraisal.
Based on my investigation and analysis of the data gathered, I have formed the
opinion that the Market Value of the subject property which includes the
business enterprise, fee simple estate, leasehold estate (if any), buildings,
improvements, rolling and portable equipment "as is" free and clear of any liens
as outlined in the enclosed report as of June 30, 2001, was a total of
Thirty-Three Million Nine Hundred Thousand Dollars ($33,900,000). The
contribution of personal property (rolling and portable equipment) was estimated
at Four Hundred Ten Thousand Dollars ($410,000). The contribution of the fee
simple estate and leasehold estate (if any) which includes the going concern
(business enterprise) was estimated at Thirty-Three Million Four Hundred Ninety
Thousand Dollars ($33,490,000). See page 99 for discussion on other asset
values.
Sincerely, Certified General Appraiser
State of Kansas
/s/ Dennis E. Vogan License No. G-210
Dennis E. Vogan, IFAS, CBA State of South Dakota
Temporary Permit No. 0238-T2001
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
EXECUTIVE SUMMARY
-----------------
<Table>
Property type: Soybean processing plant rated
at 2,400 tons per day (TPD)
Location: Volga, South Dakota
Date of value estimate: June 30, 2001
Type of Report: A Complete Appraisal in a Summary
Appraisal Report Format
Property rights appraised: Business Enterprise includes going
concern value and underlying Fee
Simple Estate and Leasehold Estate
with Merchantable Title to all fixed
assets and equipment.(1)
Site: 46.84 acres, more or less, owned
land.
Zoning: Commercial/Industrial
Improvements: The subject property is a soybean
processing plant with a rated capacity
of 2,400 TPD built new in 1996 with
1.5 million bushels in grain storage
and 105,034 tons in oil storage.
Business
ENTERPRISE(1)
Cost Approach: $ 33,900,000
Income Capitalization Approach: $ 32,300,000
Sales Comparison Approach: $ 35,400,000
Market Value Estimate (Total)1: $ 33,900,000
Contribution of Existing Personal Property
(rolling and portable equipment) included
in the above total (page 63) rounded: $ 410,000
Estimated Contribution of
Real Estate Components1: $ 33,490,000
See page 99 for discussion on
other asset values.
</Table>
- --------------------
(1) These interests include the "Business Enterprise" which is a commercial,
industrial or service organization pursuing an economic activity. This also
includes the "Going Concern Value", which is the value of the enterprise, or
interest therein, as a going concern.
4
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
TABLE OF CONTENTS
Letter of Transmittal.......................................................3
Executive Summary...........................................................4
Table of Contents...........................................................5
Certification of Appraiser..................................................6
Appraiser Qualifications....................................................8
Location Maps..............................................................10
Definition of Market Value.................................................12
Definition of Business Enterprise..........................................12
Federally Related Transactions.............................................12
Area Description...........................................................13
Agricultural Statistics....................................................14
Neighborhood Description...................................................15
Principal Competing Facilities.............................................16
Highest and Best Use.......................................................17
Scope of the Appraisal.....................................................18
Environmental Hazards......................................................18
Americans with Disabilities Act (ADA)......................................18
Ownership History..........................................................19
Competency Provision.......................................................19
Marketing Time.............................................................19
Taxes and Assessed Valuation...............................................19
Property Rights Appraised..................................................19
Zoning.....................................................................20
Legal Descriptions.........................................................20
Photographs of Subject Property............................................21
Site Valuation.............................................................40
Cost Approach..............................................................45
Income Capitalization Approach.............................................65
Sales Comparison Approach..................................................79
Reconciliation of Approaches...............................................98
Market Value Estimate......................................................98
Additional Discussions.....................................................99
Supplementary Information.................................................105
5
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
CERTIFICATION OF THE APPRAISER
AND
LIMITING CONDITIONS
Date: July 26, 2001
I certify that to the best of my knowledge and belief, the statements of facts
contained in this appraisal report are true and correct.
The reported analyses, opinions, and conclusions are limited only by the
reported assumptions and limiting conditions, and are my personal, unbiased
professional analyses, opinions and conclusions.
I have no present or prospective interest in the property that is the subject of
this report, and I have no personal interest or bias with respect to the parties
involved.
The compensation payable to Dennis E. Vogan of Mid-States Appraisal Services,
Inc. is not contingent upon the reporting of a predetermined value or direction
in value that favors the cause of the client, the amount of the value estimate,
the attainment of a stipulated result, or the occurrence of a subsequent event.
The analyses, opinions, and conclusions were developed and this appraisal report
has been prepared in conformity with the Uniform Standards of Professional
Appraisal Practice. It is also subject to the requirements of the Code of
Professional Ethics and Standards of Professional Practice of the appraisal
organizations with which the Appraiser is affiliated.
I have made a personal inspection of the subject property covered within this
report on May 18, 2001.
No one has provided significant professional assistance to the person signing
this report. Also, this appraisal assignment was not based on a requested
minimum valuation, a specific valuation or the approval of a loan.
The use of this report is subject to the requirements of the Appraisal Institute
and other professional organizations relating to review by its duly authorized
representatives.
It is assumed that all parcels of land associated with this appraisal are owned
or leased as outlined in the enclosed report, and that all structures are
properly located on said lots. Also, it is assumed that all applicable zoning
and use regulations and restrictions have been complied with, unless a
nonconformity has been stated, defined, and considered in the appraisal report.
The appraiser, by reason of this appraisal, is not required to give further
consultation, testimony or be in attendance in court or any governmental
hearing, with reference to the subject property, unless arrangements have been
previously made. No responsibility is assumed for the legal description, or for
matters including legal or title considerations. Title to the property is
assumed to be good and marketable unless otherwise stated. The property is
appraised free and clear of any or all liens or encumbrances unless otherwise
stated.
6
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
CERTIFICATION OF THE APPRAISER
AND
LIMITING CONDITIONS
Date: July 26, 2001
(continued)
The owner of the property has not advised this appraiser of any significant
environmental concerns. This appraisal is based on the assumption that there are
no hidden or unapparent conditions including any environmental contamination of
the property, subsoil, structures, or production equipment and machinery that
would render it more or less valuable. The Appraiser is not trained as an
environmental inspector and assumes no responsibility for such conditions, or
for engineering which might be required to discover such factors. If the
property were contaminated, the reported conclusion would require an adjustment
to consider the effects of the change. An independent audit of any environmental
concerns should be conducted by an appropriately qualified inspection company.
It is assumed that there is full compliance with all applicable federal, state
and local environmental regulations and laws unless noncompliance is stated,
defined, and considered in the appraisal report.
Possession of this report, or a copy thereof, does not carry with it the right
of publication. It may not be used for any purpose by any person other than the
party to whom it is addressed without the written consent of the appraiser, and
in any event only in its entirety.
No analysis regarding any possible noncompliance with the Americans With
Disabilities Act (ADA) has been considered by this appraiser.
It is assumed that all required licenses, certificates of occupancy, consents,
or other legislative or administrative authority from any local, state, or
national government or private entity or organization have been or can be
obtained or renewed for any use on which the value estimate contained in this
report is based.
The subject property in whole has not sold within the last three years. There
have been additions and deletions in the normal course of business.
MID-STATES APPRAISAL SERVICES, INC., Certified General Appraiser
State of Kansas
/s/ Dennis E. Vogan License No. G-210
Dennis E. Vogan, IFAS, CBA State of South Dakota
Temporary Permit No. 0238-T2001
7
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
APPRAISER QUALIFICATIONS
OF
DENNIS E. VOGAN, IFAS, CBA
SALINA, KANSAS
BUSINESS AFFILIATION:
President and Owner, MID-STATES APPRAISAL SERVICES, INC.
PROFESSIONAL AFFILIATIONS:
National Association of Independent Fee Appraisers
The Institute of Business Appraisers, Inc.
Greater Kansas Chapter of the Appraisal Institute
Kansas Grain and Feed Dealers Association
Kansas Society of Farm Managers and Rural Appraisers
PROFESSIONAL LICENSES:
<Table>
Certified General Appraiser in the States of:
Kansas (License No. G-210) Michigan (License No. 1201-0016-39)
Arkansas (License No. CG0604N) Missouri (License No. RA002435)
Colorado (License No. CG01322459) Nebraska (License No. CG960109)
Iowa (License No. CG01995) South Dakota (Temporary Permit No. 0238-T-2001)
Licensed Real Estate Broker in the State of Kansas
</Table>
EDUCATION:
B.S. Business and Economics (1973), Marymount College, Salina, Kansas
PROFESSIONAL DESIGNATIONS:
IFAS (Senior Member) National Association of Independent Fee Appraisers
CBA (Certified Business Appraiser) The Institute of Business Appraisers, Inc.
Candidate for MAI membership, Appraisal Institute
APPRAISAL EXPERIENCE:
Have appraised over 820 agribusiness, commercial and industrial properties,
facilities, and/or businesses for clients in the States of Arkansas, California,
Colorado, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky,
Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio, Oklahoma,
Pennsylvania, South Dakota, Tennessee, Texas, Utah and Wyoming. These appraisals
have included grain elevators, feed mills, flour mills, dry edible bean plants,
popcorn plants, soybean/canola processors, wholesale and retail fertilizer
plants.
EXPERIENCE:
April 1983 to Present - Employed by MID-STATES APPRAISAL SERVICES, INC.,
President and owner. Specializing in commercial/industrial appraisals and
consulting services.
September 1980 to April 1983 - Employed by Evco, Inc., in appraisal and sale
of commercial real estate. Specializing in agribusiness, also, the designated
broker of the company.
January 1975 to September 1980 - Employed by Evco Distributing, Inc.,
and Evco National, Inc., in the sale and financing of fertilizer and grain
related equipment for 11 Midwest states.
TEACHING EXPERIENCE:
Developer and Instructor of The Grain Elevator Workshop prepared for
the Kansas Department of Revenue. (1996)
Developer and Instructor of The Grain Elevator Appraiser's Guide for
the Kansas County Appraisers Association. (1999)
8
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
APPRAISER QUALIFICATIONS
OF
DENNIS E. VOGAN, IFAS, CBA
SALINA, KANSAS
CONTINUING EDUCATION:
Successfully completed courses offered by:
American Institute of Real Estate Appraisers or The Appraisal Institute:
Basic Valuation Procedures (Course 1A-2)
Real Estate Appraisal Principles (Course 1A-1)
Standards of Professional Practice (Course 2-3)
Capitalization Theory and Techniques, Part A (Course 1B-A)
Capitalization Theory and Techniques, Part B (Course 1B-B)
Case Studies in Real Estate Valuation (Course 2-1)
Non-Residential Demonstration Report Writing Seminar
Report Writing and Valuation Analysis (Course 2-2)
Standards of Professional Practice Parts A and B (Courses 410 and 420)
Standards of Professional Practice Part C (Course 430)
Other Courses:
Americans with Disabilities Act Seminar
Continuing Education Completed for the 2000-2001 License Year
COURT EXPERIENCE:
Testified as an expert appraisal witness before:
Kansas State Board of Tax Appeals (Nine Times)
U.S. Federal Bankruptcy Court, Western District of Arkansas, Fort
Smith Division. (Twice)
Probate Court in Rock County, Nebraska
Court appointed Appraiser's Sessions in the Condemnation of Land and
Buildings in the City of Manhattan, Kansas (Three Times)
U.S. District Court, Western District of Arkansas, Fort Smith Division
The Riley County District Court, Division III, Manhattan, Kansas
The Renville County District Court at Olivia, Minnesota
U.S. Bankruptcy Court for the District of Nebraska
U.S. Bankruptcy Court for the District of Kansas
Michigan State Tax Tribunal
The Shawnee County District Court, Topeka, Kansas
Ohio State Board of Tax Appeals (Three Times)
Franklin County Board of Review, Columbus, Ohio (Twice)
Court appointed Appraiser in The District Court of Saline County,
Kansas (Twice)
The Larimer County District Court at Ft. Collins, Colorado
The Pottawattamie County Board of Review at Council Bluffs, Iowa
Fremont County Board of Review at Sidney, Iowa
The District Court of Holt County, Nebraska
Arbitration hearing on grain elevator dispute, Lancaster County, Nebraska
Appraiser/Arbitrator in a binding arbitration settlement of a large
loss on a fertilizer manufacturing and warehouse facility
9
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
LOCATION MAP
[Area Map of Eastern South Dakota and Western Minnesota]
10
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
LOCATION MAP
[Area Map of Volga, South Dakota]
11
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
DEFINITION OF MARKET VALUE(2)
Market value is the most probable price that a property should bring in a
competitive and open market under all conditions requisite to a fair sale, with
the buyer and seller each acting prudently and knowledgeably, and assuming the
price is not affected by undue stimulus. Implicit in this definition is the
consummation of a sale as of a specified date and the passing of good title from
seller to buyer under conditions whereby:
1. buyer and seller are typically motivated;
2. both parties are well informed or well advised, and acting in what they
consider their own best interests;
3. a reasonable period of time is allowed for exposure in the open
market;
4. payment is made in terms of cash in United States dollars or in
terms of financial arrangements comparable thereto; and
5. the price represents the normal consideration for the property sold
unaffected by special or creative financing or sales concessions
granted to anyone associated with the sale.
DEFINITION OF BUSINESS ENTERPRISE2
A commercial, industrial or service organization pursuing an economic activity.
This also includes the "Going Concern Value", which is the value of an
enterprise, or an interest therein as a going concern.
FEDERALLY RELATED TRANSACTIONS
A federally related transaction is any real estate related financial transaction
which a federal financial institution's regulatory agency engages in, contracts
for, or regulates and which requires the services of a real estate appraiser or
state certified real estate appraiser. "Federal financial institution's
regulatory agency" includes the Federal Reserve Board; Federal Deposit Insurance
Corporation; Office of the Comptroller of the Currency; Office of Thrift
Supervision; Federal Home Loan Bank System; National Credit Union Administration
and the Resolution Trust Corporation.
Typical reasons for appraisals that are NOT federally related transactions
include: estate, divorce, insurance, condemnation proceedings and market value
estimates for internal company or marketing purposes.
- --------------------
(2) Definition from the Uniform Standards of Professional Appraisal Practice.
12
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
AREA DESCRIPTION
The state of South Dakota is located in north central United States. Corn was
the leading valued crop of 2000 at $689.9 million. Soybeans ranked as the second
highest valued crop in the state at $680.6 million. Net farm income in South
Dakota was estimated by the South Dakota Agricultural Statistics Service at
$1.19 billion in 1999. This is down 3% from 1998, according to the Agricultural
Statistics Service. Because of depressed crop prices, value of crops produced in
1999 was $429 million dollars below 1998. This was offset by an increased value
in livestock production and an increase in direct government payments over 1998.
Cash receipts for producers in the state for all commodities marketed in 1999
totaled $3.5 billion dollars, which is 4 percent above 1998. Lower crop prices
were offset by more crop sales and higher livestock prices. Crops accounted for
48% of all receipts.
Soybeans had the largest acreage of all crops in South Dakota for 2000. Soybean
production in 2000 was 152.95 million bushels, up 4% from the record production
of 1999. This was a result of increased acres and overall good yields.
While the end of 2000 is the third year in a row of low commodity prices, the
latest information released that for the year ending 2000 shows that net farm
income will be similar to the averages of 1998 and 1999. The primary reasons
behind this have been good production, loan deficiency payments, and other
government payments are keeping net farm income at current levels.
While United States agricultural exports are expected to remain flat, the year
2001 is projected to be a continuation of a period higher world economic growth.
According to information released in the latest ECONOMIC OUTLOOK FOR US
AGRICULTURAL TRADE published by the Economic Research Service of the US
Department of Agricultural, the global financial crisis has ended. Recoveries
are underway in most all of the crises-affected countries. A tremendous amount
of uncertainty has been taken out of the international economy. Japan has
returned to growth after a long period of stagnation. The United State continues
to grow with gross domestic product growing at approximately 2% for the year.
The United States may avoid a recession; however, the Federal Reserve is moving
very cautiously on interest rate reduction. While overall US agricultural
exports are expected to remain flat in fiscal 2001, Canada and Mexico are
expected to continue to be bright spots for US agricultural exports as they have
been for the last several years.
For the planting season of 2001, it is estimated that U.S. farmers have planted
75.4 million acres of soybeans. This estimated is 0.9 million acres more than
last years record, but 1.2 million acres less than farmers intentions in March
of 2001. Farmers in Arkansas, Mississippi, and Louisiana elected to plant more
cotton instead of soybeans. Conversely, soybean plantings were down nearly 1.0
million acres because of wet weather conditions in the states of Minnesota,
South Dakota, North Dakota, and Wisconsin. There is the anticipation of
continuing strength in domestic crushing and exports for 2001. Domestic soybean
crushing will be supported this season and next season by firming prospective
export demand for soybean products, particularly soybean oil. The U.S. crush is
expected to rise to 1,660 million bushels from a revised 2000/2001 forecast of
1,625 million bushels. The very large U.S. stocks of soybean oil have weighed on
current oil prices. However, they represent a good opportunity to take advantage
of the outlook for much large foreign exports in 2001/2002. Declines in other
vegetable oil supplies throughout the world are expected to swell the U.S.
soybean oil exports from 1,500 million pounds in 2000/2001 to 2,250 million
pounds. Domestic disappearance of soybean oil should also rise in this time
period. The stronger world market for soybean oil would begin to favor crushing
more beans for the oil value than for meal. Favorable hog prices should promote
a steady expansion of domestic soybean meal consumption over the next 12 months.
In general, profit margins in the crushing industry are in acceptable ranges
providing profitable opportunities.
13
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
AGRICULTURAL STATISTICS(3)
<Table>
<Caption>
Soybean Acres
Entire State Bushels Harvested
------------ ----------- ----------
2000
----
South Dakota 152,950,000 4,370,000
1999
----
South Dakota 146,520,000 4,070,000
1998
----
South Dakota 132,600,000 3,400,000
1997
----
South Dakota 113,750,000 3,250,000
1996
----
South Dakota 90,780,000 2,670,000
1995
----
South Dakota 75,000,000 2,500,000
By District
-----------
2000
----
Northeast 30,375,000 877,000
East Central 37,630,000 1,006,000
1999
----
Northeast 30,761,000 831,000
East Central 39,252,000 1,049,000
1998
----
Northeast 26,438,000 720,500
East Central 37,632,700 938,000
1997
----
Northeast 24,503,500 729,500
East Central 31,333,500 905,700
1996
----
Northeast 18,318,000 655,000
East Central 26,680,400 776,000
1995
----
Northeast 17,264,500 584,000
East Central 20,102,000 684,000
</Table>
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(3) Source: National Agricultural Statistics Service.
14
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
NEIGHBORHOOD DESCRIPTION
The rural community of Volga, South Dakota, is located approximately 66 miles
northwest of Sioux Falls, South Dakota, on Highway 14, or approximately 7 miles
west of Brookings, South Dakota. The population for Brookings County in 1999 was
25,931. The estimated population for Volga in 1999 was 1,350.
The subject property is a soybean crushing plant which produces meal and oil.
Its primary production area is eastern South Dakota. South Dakota is divided
into nine agricultural statistics districts. The subject property at Volga,
South Dakota, is located in the East Central district.
For the year ending August 31, 2000, South Dakota Soybean Processors crushed
26.25 million bushels of soybeans. This is 17.16% of the total soybeans grown in
the state of South Dakota in the year 2000; or 38.6% of the total beans grown in
the Northeast and East Central Districts which produced 68 million bushels in
the year 2000.
The agricultural production for the state of South Dakota is significant. The
state is ranked 8th in the United States in soybean production for beans.
Soybean production has ranged from a low of 75 million bushels in 1995 to a high
of 152.950 million bushels in 2000. These agricultural statistics for the last
five years of soybean production are summarized in table form on page 14.
In the last year there has been soybean crushing plants and refineries in the
United States that have been closed. This industry experiences cycles. The
subject property has continued to grow in volume in a well established bean
production area.
In summary, the subject's production area is stable with a wide diversification
in grain crops.
15
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
PRINCIPAL COMPETING FACILITIES
<Table>
<Caption>
CRUSH CAPACITY
--------------
South Dakota Soybean Processors, Volga, South Dakota (subject) 2,400 TPD
Cargill, Inc., Sioux City, Nebraska 4,200 TPD
AGP, Dawson, Minnesota 2,100 TPD
AGP, Sergeant Bluff, Iowa 3,000 TPD
AGP, Shelton, Iowa 1,950 TPD
ADM, Mankato, Minnesota 4,200 TPD
Cenex/Harvest States, Mankato, Minnesota 3,600 TPD
</Table>
These are the major competitors/processors located within the immediate area of
the subject property. There are other grain elevators and processors located in
the surrounding area.
16
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
HIGHEST AND BEST USE
The highest and best use is defined in THE APPRAISAL OF REAL ESTATE, eleventh
edition, published by the Appraisal Institute as follows:
The reasonably probable and legal use of vacant land or an improved
property, which is physically possible, appropriately supported,
financially feasible, and that results in the highest value. The four
criteria that highest and best use must meet are legal permissibility,
physical possibility, financial feasibility and maximum profitability.
LEGAL PERMISSIBILITY
The subject property's site is located adjacent to DM&E railroad right-of-way
and Highway 14 in the western portion of Brookings County near Volga, South
Dakota. Electricity, telephone, natural gas, water and on-site septic sewer
services are available. The site is reportedly not located in a designated flood
plain area. The site is zoned Commercial/Industrial. This appraisal assumes that
all applicable zoning and use regulations and restrictions have been complied
with unless a nonconformity has been stated, defined and considered in this
report.
PHYSICAL POSSIBILITY
The site contains a total of 46.84 acres, more or less, and is adequate for
development. It is predominantly level with access to a railroad and paved
highway.
FINANCIAL FEASIBILITY
Based on the physical possibility and legal permissibility, the creation of a
net return to land higher than a vacant alternative indicates that development
could be feasible. There is limited demand for new agribusiness properties of
the scope and size that currently exists. Without specific needs, the site would
most likely be developed for alternative uses if it were vacant.
MAXIMUM PROFITABILITY
If the site was vacant today, its highest and best use would be for an
industrial usage such as the subject.
The highest and best use of the site as improved is to continue its specialized
use in the grain services area, specifically soybean crushing. There are few
alternative uses for highly specialized properties such as the subject.
17
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
SCOPE OF THE APPRAISAL
Connie Kelly, the Chief Financial Officer of South Dakota Soybean Processors,
requested this appraisal firm to provide a complete appraisal in a summary
report format on the soybean crushing operations and related assets located at
Volga, South Dakota. The purpose of this appraisal report is to provide an
opinion of market value for an internal company purpose. The appraisal report
includes the going concern (business enterprise) and the underlying ownership
rights of fee simple estate on owned land, leasehold estate on leased land (if
any), with merchantable title to all rolling and portable equipment included
herein.
This appraiser interviewed Connie Kelly, CEO, Rodney Christiansen, President,
and other line operating personnel of this operation. Historical income and
expense information in the form of financial reports for the years ending August
31, 2000 through August 31, 1996 have been reviewed by this appraiser, along
with the current year-to-date information ending June 30, 2001.
The scope of this appraisal includes the collecting, confirming and reporting of
data. This appraiser collected and verified data for this appraisal from
reliable local and state governmental offices, buyers/sellers, brokers and
financial institutions.
ENVIRONMENTAL HAZARDS
The appraiser is not qualified to detect environmental hazards. The presence of
substances such as underground petro-chemicals, fertilizer, chemicals,
urea-formaldehyde foam insulation, asbestos or other potentially hazardous
materials may affect the value of the property. This could include substances in
both the buildings and/or soil. This business enterprise is involved in grain
handling activities. The appraiser assumes that there are no hidden or
unapparent conditions including any environmental contamination of the property,
subsoil, structures or production equipment and machinery that would render it
more or less valuable. The appraiser accepts no responsibility for any condition
regarding any environmental hazard, which may impair the value of the property.
If the property were contaminated, the reported conclusions in this report could
require an adjustment to consider the change. An independent audit of any
environmental concerns should be conducted by an appropriately qualified
inspection company.
AMERICANS WITH DISABILITIES ACT (ADA)
The Americans With Disabilities Act (ADA) became effective January 26, 1992. The
appraiser has not made a specific compliance survey and analysis of this
property to determine whether or not it is in conformity with the various
detailed requirements of the ADA, nor is this appraiser trained in the
implications of this act upon these types of agribusinesses. It is possible that
a compliance survey of the property, together with the detailed analysis of the
requirements of the ADA, could reveal that the property is not in compliance
with one or more of the various requirements of the act. If so, this fact could
have a negative impact on the value of the property. Since the appraiser has no
direct evidence relating to this issue, possible noncompliance with the
requirements of ADA in estimating the value of the property has not been
considered.
18
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
OWNERSHIP HISTORY
As required by the Uniform Standards of Professional Appraisal Practice, any
transfer of the entire property within the last three years must be reported and
analyzed. The subject property in whole has not sold in the last three years.
There have been additions and deletions in the normal course of business.
COMPETENCY PROVISION
Dennis E. Vogan has appraised more than 830 agricultural related properties
including grain elevators, feed mills, flour mills, fertilizer plants,
soybean/canola processing plants, and edible bean facilities as well as
agricultural manufacturing processes throughout a multi-state region since 1983.
Mr. Vogan is currently certified in six states on a full time basis.
MARKETING TIME
The typical marketing time for this type of specialized agricultural property
based on this appraiser's experience has been a time period up to one year for
market value type sales on agribusiness properties.
TAXES AND ASSESSED VALUATION
<Table>
<Caption>
PARCEL ID ASSESSED VALUE 2000 TAXES
--------- -------------- -----------
22021-11051-242-00 $7,001,685 $176,372.46
22021-11051-242-06 5,215 131.36
---------- -----------
Total $7,006,900 $176,503.82
</Table>
Machinery and equipment are exempt for property taxation purposes in South
Dakota.
PROPERTY RIGHTS APPRAISED
The subject property is appraised as a Business Enterprise, which is a
commercial organization pursuing an economic activity. Encompassed within that
concept is a going concern value, which is the value of the enterprise or
interest therein as a going concern. This concept also includes the underlying
real estate and personal property ownership rights involved in this business;
that is a Fee Simple Estate on owned land and a Leasehold Estate on the leased
land (if any), with Merchantable Title to all fixed assets, rolling and portable
equipment valued herein, free and clear of any liens.
19
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
ZONING
The subject property's site is zoned Commercial/Industrial. According to the
official flood plain map, the site is not located in a designated flood plain
area. This appraisal assumes that all applicable zoning and use regulations and
restrictions have been complied with, unless a non-conformity has been stated,
defined and considered in this report.
LEGAL DESCRIPTIONS
See Supplementary Information, page 105.
20
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
PHOTOGRAPHS(4)
1. Office
2. Lab/Shop and Scale (A and B)
3. Warehouse
4. Upright Storage (A, B and C)
5. Processing and Extraction Area
6. Meal Storage and Load Out (A, B and C)
7. Oil Storage
8. Soy Oil Building
9. Site Improvements
10. Owned Rail Siding
11. Owned Land
- --------------------
(4) Photographs taken by Dennis E. Vogan, May 18, 2001.
21
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Aerial View - West to East
[Photograph]
Aerial View
22
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Aerial View
[Photograph]
Aerial View
23
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Aerial View - North to South
[Photograph]
Item 1
24
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Item 1 - Interior
[Photograph]
Item 1 - Interior
25
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Items 2 through 7
[Photograph]
Items 2 and 4
26
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Item 2A - Interior
[Photograph]
Item 2A - Interior
27
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Item 2A - Shop Area
[Photograph]
Items 2 and 3
28
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Items 2 and 4
[Photograph]
Item 4
29
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Item 4
[Photograph]
Item 4
30
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Item 4 - Truck Receiving Area
[Photograph]
Item 5
31
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Item 5 - Processing Equipment
[Photograph]
Item 5 - Processing Equipment
32
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Item 5 - Boiler Area
[Photograph]
Item 5 - Fire Protection Area
33
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Item 5 - Fire Protection Equipment
[Photograph]
Item 5 - Fire Protection Equipment
34
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Item 6
[Photograph]
Item 7
35
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Item 7
[Photograph]
Item 7
36
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Photograph]
Item 8
37
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
ROLLING AND PORTABLE EQUIPMENT
[Photograph of Switchmaster Equipment]
[Photograph of Switchmaster Equipment]
38
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
ROLLING AND PORTABLE EQUIPMENT
[Photograph of Gehl Dynalift Equipment]
[Photograph of Caterpillar front loader equipment]
39
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS SITE VALUATION
VOLGA, SOUTH DAKOTA
SITE VALUATION
In estimating site value, the subject property's sites are compared with other
sites in order to estimate the value of the site as if vacant and ready for
development.
Four sales have been found in the immediate area of the subject property. Two of
these sales involve portions of the subject property. These sales have occurred
from 1993 through 2000. They have ranged from $3,497 per acre to $32,988 per
acre for a commercial piece used for a branch bank. Sale No. 1 was for a
C-store/gas station site, thus the higher price per acre. It is my opinion that
sites such as the subject adjacent to railroad and highway are available in
other communities in a range of $5,000. In many areas where there are industrial
parks and communities looking for jobs, site values can be relatively low as an
incentive to attract new business. Therefore, it is my opinion that if the site
were vacant and ready for development $5,000 per acre is its estimate of market
value.
South Dakota Soybean Processors, Volga, South Dakota
- -------------------------------------------------------
46.84 acres, more or less, @ $5,000 per acre = $234,200
SUMMARY OF VACANT LAND SALES
Date Price
Sale No. of Sale Size (acres) per Acre
- -------- ------- ------------ --------
1 4/93 3.916 $ 19,408
2 5/95 45.0 $ 5,103
3 1/98 1.84 $ 3,497
4 8/00 1.061 $ 32,988
40
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS SITE VALUATION
VOLGA, SOUTH DAKOTA
VACANT LAND SALE NO. 1
Instrument No.: Book 123, Page 893
Location: The northwest corner of Caspian Avenue
and Highway 14, Volga, South Dakota.
Legal Description: Lot 1, Block 5, Eastland Addition,
Volga, Brookings County, South Dakota
Date of Sale: April 19, 1995
Grantor: James R. and Judy Jones
Grantee: Volga Cooperative Oil Company
Size of Tract: 330.1' by 516.7' containing a total of
170,563 sq. ft. (3.916 acres), more or
less
Consideration: $76,000 (cash)
Price Per Acre: $19,408
Zoning: Commercial/Industrial
Remarks: A vacant tract at time of sale. Buyer
subsequently improved it with a C-store
and gas station.
Source of Information: County records.
41
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SOUTH DAKOTA SOYBEAN PROCESSORS SITE VALUATION
VOLGA, SOUTH DAKOTA
VACANT LAND SALE NO. 2
Instrument No.:
Location: The southeast corner of Caspian
Avenue and Highway 14, Volga, South
Dakota.
Legal Description: Tract 1 in the Northwest Quarter of
S24, T110N, R51W of the 5th PM,
Brookings County, South Dakota.
Date of Sale: May 26, 1995
Grantor: Howell Farms, Inc.
Grantee: South Dakota Soybean Processors
Size of Tract: 45.0 acres, more or less
Consideration: $229,617 (cash)
Price Per Acre: $5,103
Zoning: Commercial/Industrial
Remarks: A vacant tract at time of sale. Buyer
improved the site with a soybean
processing plant.
Source of Information: County records
42
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SOUTH DAKOTA SOYBEAN PROCESSORS SITE VALUATION
VOLGA, SOUTH DAKOTA
VACANT LAND SALE NO. 3
Instrument No.: Book 128, Page 401-402
Location: Near the corner of Caspian Avenue and
Highway 14, Volga, South Dakota.
Legal Description: Tract 2 in the Northwest Quarter of
S24, T110N, R51W of the 5th PM,
Brookings County, South Dakota
Date of Sale: January 28, 1998
Grantor: Howell Farms, Inc.
Grantee: South Dakota Soybean Processors
Size of Tract: 1.84 acres, more or less
Consideration: $6,434 (cash)
Price Per Acre: $3,497
Zoning: Commercial/Industrial
Remarks: A vacant tract at time of sale.
Source of Information: County records and buyer.
43
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SOUTH DAKOTA SOYBEAN PROCESSORS SITE VALUATION
VOLGA, SOUTH DAKOTA
VACANT LAND SALE NO. 4
Instrument No.: Book 132, Page 567
Location: Near the corner of Caspian Avenue and
Highway 14, Volga, South Dakota.
Legal Description: The north 140' of Lot 1, Block 5,
Eastland Addition, Volga, Brookings
County, South Dakota
Date of Sale: August 25, 2000
Grantor: Volga Cooperative Oil Company
Grantee: Dakota Land Federal Credit Union
Size of Tract: 330.1' by 140' containing a total of
46,214 sq. ft. (1.061 acres), more or
less
Consideration: $35,000 (cash)
Price Per Acre: $32,988
Zoning: Commercial/Industrial
Remarks: A vacant tract at the time of sale.
Buyer is improving the site
Source of Information: County records and buyer.
44
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
COST APPROACH
In the Cost Approach, the value of a property is reflected by developing the
Reproduction Cost or Replacement Cost New, deducting the observed depreciation,
and adding the value of the land. Reproduction and/or Replacement Costs have
been estimated through the use of the Marshall Valuation Service (M.V.S.);
suppliers and contractors in the industry (Suppliers) and actual construction
costs times current multipliers.
Physical depreciation is a loss in value due to physical deterioration.
Functional obsolescence (depreciation) is the loss in value due to lack of
utility or desirability of part or all of the property. Thus, a new structure or
piece of equipment may suffer depreciation when built.
External (economic) obsolescence (depreciation) is the loss in value due to
causes outside the property and independent of it.
Reproduction Cost versus Replacement Costs:
- -------------------------------------------
Reproduction cost is the dollar amount required to construct an exact duplicate
of the subject property at current prices.
Replacement cost is the dollar amount required to construct a facility having
the same utility.
Whenever possible, the Cost Approach is based on Reproduction Cost.
Several New Construction Cost Comparables are included on the following pages.
SOURCES OF OUTSIDE SUPPLIERS
The following outside suppliers have been contacted on an ongoing basis over the
sixteen-year career of Mid-States Appraisal Services, Inc. for cost information
on new construction of agribusiness properties.
Dub Johnson & Sons, Inc. McPherson Concrete Storage Systems, Inc.
Minneapolis, Kansas McPherson, Kansas
Frisbie Construction Ernest-Spencer, Inc.
Gypsum, Kansas Topeka, Kansas
Borton Contractors & Engineers Younglove Construction Company
Hutchinson, Kansas Sioux City, Iowa
Habco, Inc.
Salina, Kansas
45
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
NEW CONSTRUCTION COMPARABLE ANALYSIS
<Table>
<Caption>
Inflation
Size Year Cost Grain Oil Adjusted
Location (TPD) Constructed Per Ton Assets Refinery To 2001
- -------- ----- ----------- ------- ------ -------- ------
Seymour, IN 500 1992 $26,394 Yes No $30,353
Council Bluffs, IA 4,110 1996 $22,384 Yes Yes $23,503
Volga, SD 1,500 1996 $21,333 Yes No $22,400
Tula, Mexico 1,654 1996 $18,138 Yes No $19,045
Mt. Vernon, IN 2,000 1996 $15,000 No No $15,750
August, AR 500 1991 $12,360 No No $14,461
</Table>
NEW COST COMPARABLE SUMMARY
There are six new cost comparables on the construction of soybean processing
plants. These have ranged from a time period from 1991 through 1996. They have
been inflation adjusted to 2001. Excluding an oil refinery and related grain
assets, the new cost comparables indicate mill processing equipment can be added
in the range of $14,461 per ton to $15,750 per ton of productive capacity. One
of the most recently completed plants in the United States is at Volga, South
Dakota (subject property) with completion in the late summer of 1996. The
proposed cost of this facility from the ground up, including land cost and all
infrastructure including grain assets and related crushing mill assets, was
$21,333 per ton of productive capacity based on its original size of 1,500 TPD.
It was subsequently upgraded to a 2,400 TPD plant with a reported cost of $42.0
million, which was $17,500 per ton of capacity.
Based on my analysis of the subject property in the Cost Approach, it has an
estimated reproduction cost new in 2001 of $43.399 million / 2,400 TPD = $18,083
per ton of capacity. It is my opinion that this is in line with the information
extracted from subject and the new cost comparables.
46
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
NEW CONSTRUCTION COST COMPARABLE
Location: Seymour, Indiana
Year Built: 1992
Name: Rose Acre Farms
Type: Soybean crushing facility
Description: This is a cost comparable on a 500 ton
per day soybean crushing facility
finished in 1992. It was constructed
on land originally owned by the owner
since 1964 with some ancillary
facilities dating back before the
plant was built in 1992.
Excluding land, the total cost was
$13,024,000. Adjusting some of the older
facilities to the same time period (1992) as
the construction of the plant, the total
cost would have been projected at
$13,190,000. This included a complete
facility and related equipment.
Analysis: The total new cost for this plant, as
of 1992, including all of the grain
related infrastructure was estimated
at $13,197,000 divided by 500 tons per
day equals $26,394 per ton of
productive capacity.
47
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
NEW CONSTRUCTION COST COMPARABLE
Location: Council Bluffs, Iowa
Year Built: 1996
Name: Bunge Corporation
Type: A new soybean processing plant from
the ground up.
Description: This was the construction of a new soybean
crushing facility from a "greenfield"
location with all infrastructure with a
reported crush capacity of 4,110 tons per
day. It also included a vegetable oil
refinery. Announcements for the
construction of the plant occurred in
May 1996. It was operational in 1999.
Analysis: Reported costs for this plant are $100
million less $8 million to expand an
existing rail line.
Indications: $92 million divided by 4,110 TPD equals
$22,384 per ton of productive capacity,
including a refinery.
48
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
NEW CONSTRUCTION COST COMPARABLE
<Table>
Location: Volga, South Dakota
Year Built: 1996
Name: South Dakota Soybean Processors
Type: A new soybean crushing facility from the ground up.
Description: Construction was completed in the late summer of
1996 of a new 1,500 ton-per-day soybean crushing
facility from a "greenfield" location. This was the
cost estimate for the ground up construction of the
entire facility. The projected costs were broken out
into the following categories:
Land: $ 0.50 million
Site Preparation: 5.2
Grain Storage Facility: 6.0
Soybean Preparation: 5.2
Solvent Extraction and
Degumming: 7.0
Meal Grinding: 3.5
Oil Storage 0.8
Electrical Capacity: 1.1
Plant Spares: 1.1
Contingency Funding: 1.5
------
$ 31.9 million
This did not include any construction interest costs.
Reported information is that the plant cost $32.5
million to complete.
Analysis: Therefore, $32.0 million divided by 1,500 TPD equals
$21,333 per ton of productive capacity. This plant was
expanded to 2,400 TPD at an additional cost.
</Table>
49
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
NEW CONSTRUCTION COST COMPARABLE
<Table>
Location: Tula, Mexico
Year Built: 1996
Name: Cargill de Mexico
Type: Soybean crushing facility
Description: This is the construction of a new from the ground
up 1,654 ton per day (1,500 metric tons) soybean
crushing facility. This plant is located adjacent to
Cargill's corn syrup distribution center. The
original design of the facility would permit
expansion to accommodate 3,000 metric tons per
day. Cargill said it would build on its customer
relationships that already exist and sell oil from this
plant to major refiners in Central Mexico. The meal
will be marketed for use in the feed industry.
Analysis: The reported new construction costs are $30 million
for a plant capable of processing 1,654 (short) tons
per day.
$30 million divided by 1,654 tons per day equals
$18,138 per ton of productive capacity.
</Table>
50
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SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
NEW CONSTRUCTION COST COMPARABLE
<Table>
Location: Mount Vernon, Indiana
Year Built: 1997
Name: CGB Enterprises, Inc.
Type: Soybean crushing plant
Description: This is the reported cost on a new soybean crushing
plant built adjacent to existing grain facilities
owned by Consolidated Grain and Barge. The facility
is located at the Indiana Port Commission's Southwind
Maritime Center on the Ohio River. It is adjacent to
an existing grain terminal. This plant has a reported
crushing capacity of 2,000 tons per day for the production
of soybean meal and crude, degummed soybean oil. Younglove
Construction Company of Sioux City, Iowa, is the General
Contractor and the process equipment supplier is Crown
Ironworks of Minneapolis, Minnesota. Total reported
construction cost is estimated at $25 to $30 million.
Analysis: This is the reported construction cost of the new soybean
processing plant excluding any related grain terminal assets.
Based on the low side estimate of $25 million divided by 2,000
tons per day equals $12,500 per ton of productive capacity.
Based on the high side estimate of $30 million divided by 2,000
tons per day equals $15,000 per ton of productive capacity.
</Table>
51
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SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
NEW CONSTRUCTION COST COMPARABLE
<Table>
Location: August, Arkansas
Year Built: 1991
Name: Taggart and Taggart Seed, Inc.
Type: Soybean crushing facility
Description: This discussion excludes all grain receiving and handling
equipment and involves only the direct improvements in the
oil mill. The preparation area consisted of a pre-engineered,
metal frame building with metal sidewalls and metal roof
built new in 1991. It measured 49' by 79' with 45'
sidewalls, and 30' by 47' with 16' foot sidewalls containing
a total ground floor of 5,281 sq. ft., more or less.
Contained within this area was the basic preparation
equipment for the extraction of oil and meal from soybeans.
It housed the following processing and handling equipment,
more or less:
1 - Milwaukee Reliance Model 700 RH, 700 BPH boiler
1 - large air compressor system
1 - Ross 12" by 52" cracking mill
3 - Ross 14" by 45" flaking mills
Total construction cost for this area was
approximately $2.0 million.
The extraction plant consisted of a solvent extraction
process for the extraction of soybean oil and meal on a
continuous flow process designed by DeSmet. It consisted of a
unit with a rated capacity of 500 tons per day, or 16,667
bushels, more or less. It was relocated to the site in 1991.
This extractor was housed in a pre-engineered metal building
with metal frame and metal sidewalls which was open on two
sides. The overall structure measured 34.5' by 93.5' with 45'
sidewalls, containing a total ground floor or 3,226 sq. ft.,
more or less. The meal was dried in a DTDC drying process.
Also located adjacent was an additional pre-engineered metal
frame building with metal sidewalls and metal roof. It
measured 12' by 30' containing a total of 360 sq. ft., more
or less. Located in this building was an auxiliary power
control unit containing an 800 KW capacity generator.
52
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SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
NEW CONSTRUCTION COST COMPARABLE
(continued)
There was an outside exposed cooling tower to cool process
water that measured 9' by 18.5'. There were also two 12,000
gallon capacity underground hexane storage tanks and an
associated wastewater separation unit for facility wastewater
treatment. The entire extraction area was complete with the
necessary process equipment and controls for solvent
extraction method of soybean processing. The total cost for
this area was approximately $4.0 million.
Due to the explosive nature of the products involved in this
process, the fire control system consisted of a pre-engineered
metal frame building, 20' by 36' containing a total of 720
sq. ft., more or less. Located within this building was a
Detroit diesel engine fire pumping system manufactured by
Firetrol, Inc., of Gary, North Carolina. Associated with this
area was an earthen pit holding water for fire control
purposes. Total cost of this area was $125,000.
The oil storage area consisted of on-site soybean oil storage
in six aboveground storage tanks with total storage capacity
of 130,000 gallons, more or less. The cost of this area was
$55,000.
The total estimated cost of this plant, excluding any grain
related handling equipment, was $6,180,000 in 1991.
Analysis: The total cost, new, for this project in 1991 excluding any
grain processing equipment was $6,180,000 divided by 500 tons
per day equals $12,360 per ton of productive capacity.
The plant was an economic failure at this location. The grain
assets were sold to a competitor and the crushing assets "oil
mill" was disassembled and relocated elsewhere.
The reported sale price of the assets at salvage value
was $1.0 million.
</Table>
53
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
REPRODUCTION COST NEW SECTION
54
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
[Plot Map]
55
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
<Table>
<Caption>
REPRODUCTION
DESCRIPTION COST NEW
- ----------- ------------
1. OFFICE: $ 390,000
This item consists of a wood frame, wood and masonry sided
structure with wood frame roof and asphalt shingles on concrete
foundation. It was built in 1996. It measures 66' by 76' with 8'
sidewalls containing a total of 5,016 sq. ft., more or less. It
contains a customer reception area, several private offices, open
accounting area, kitchen area, and two 2-piece toilets. It is
equipped with forced air heat and central air conditioning. (M.V.S.
Section 15, Page 17, Class D Good)
2. LAB/SHOP AND SCALE:
A: A: $ 540,000
The laboratory building and shop consist of a pre-engineered metal
frame building with metal roof and metal sidewalls on concrete
foundation. It was built in 1996. It measures 51' by 91' with 15'
sidewalls containing a total of 4,641 sq. ft., more or less.
Approximately 3,366 sq. ft. is in office finish and 1,275 sq. ft. in
shop finish. A portion of this structure is utilized for scale
receiving, mill management, break room and dressing room areas.
It is equipped with forced air heating and central air conditioning.
(M.V.S. Section 14, Page 17 Class C Average)
B: B: $ 70,000
The scale consists of a Cardinal 12' by 120' above ground concrete
deck truck scale installed in 1996. It is equipped with electronic
digital readout and ticket printer. (Suppliers)
3. WAREHOUSE: $ 60,000
This item consists of a pre-engineered metal frame building with
metal roof and metal sidewalls on concrete foundation. It was built
in 1996. It measures 40' by 60' with 20' sidewalls containing a
total of 2,400 sq. ft., more or less. (M.V.S. Section 14, Page 25,
Class S Average)
56
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SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
REPRODUCTION
DESCRIPTION COST NEW
- ----------- ------------
4. UPRIGHT STORAGE:
A: A: $ 4,125,000
The grain receiving and storage assets consist of corrugated metal
bins on concrete foundations. They were built in 1996. They
consist of the following, more or less:
BIN NO. SIZE LICENSED CAPACITY
------- ---------- -----------------
R101 75' by 66' 250,000 bushels
R102 75' by 66' 250,000 bushels
R103 75' by 66' 250,000 bushels
R104 75' by 66' 250,000 bushels
R105 75' by 66' 250,000 bushels
R106 75' by 66' 250,000 bushels
The truck receiving area consists of a pre-engineered metal frame
building with metal roof and metal sidewalls on concrete foundation.
It was built in 1996. It measures 34.5' by 82.5' with an extension
8' by 22.5' with 20' sidewalls containing a total of 3,026 sq. ft.,
more or less. The main receiving legs consist of two 15,000 BPH legs
with Intersystems grain samplers. The bins are filled by downspout to
overhead conveyors and emptied by return conveyors. These bins are
equipped with aeration. Total licensed grain storage capacity including
pack is 1,500,000 bushels. The rail receiving area consists of a
pre-engineered metal frame building with metal roof and metal sidewalls
on concrete foundation. It measures 22.5' by 82.5' with 30' sidewalls,
containing a total of 1,856 sq. ft., more or less. (M.V.S. Section 17,
Page 47)
B: B: $ 400,000
Also included in the grain receiving area is a pre-cleaning building
and equipment consisting of a pre-engineered metal frame building
with metal roof and metal sidewalls on concrete foundation. It
measures 40' by 50' with 40' sidewalls containing a total of 2,000
sq. ft., more or less. Located in this area is the following
equipment:
1 - Carter Day Scalperator rated at 5,000 BPH
1 - Scalper/aspirator
1 - Group of conveyors
1 - Hammer mill
1 - De-stoner
1 - Group of electrical controls
57
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SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
REPRODUCTION
DESCRIPTION COST NEW
- ----------- ------------
This area is complete with the necessary equipment for grain
cleaning purposes. (M.V.S. Section 14, Page 46 and Suppliers)
C: C: $ 530,000
The dryer consists of a Berico manufactured grain dryer installed
in 1996. It has a manufacturer's rated grain drying capacity of
4,500 BPH on a 2% moisture reduction. It is equipped with 120'
high, 5,000 BPH wet and dry legs. (M.V.S. Section 17, Page 48)
5. PROCESSING AND EXTRACTION AREA: $ 29,000,000
The processing plant area of this soybean crushing operation consists of a
preparation building. which consists of a pre-engineered metal frame
building with metal roof and metal sidewalls on concrete foundation. It
was built in 1996. It is irregular in shape but has basic measurements of
60' by 128' with 60' sidewalls containing a total of 7,680 sq. ft., more
or less. It has multiple levels and houses the preparation processing
equipment. Located in or near this area is the following processing
equipment, more or less:
Compressors Pneumatic System
Conveyors Cooling System
Bean Conditioner Exhaust System
Dehulling Equipment Hexane System and Storage
Cracking Rolls Mineral Oil System
Flaking Rolls Plumbing and Piping
DTDC and Expander Electrical Controls
Extraction System
This area is complete with the necessary equipment for preparation and
extraction purposes.
The extraction building, which contains the chemical extraction equipment,
consists of a pre-engineered metal frame building with metal roof and
metal sidewalls on concrete foundation. It was built in 1996. It is
irregular in shape but has basic measurements of 60' by 108' with 60'
sidewalls containing a total of 6,480 sq. ft., more or less.
58
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SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
REPRODUCTION
DESCRIPTION COST NEW
- ----------- ------------
Fire protection equipment consists of a pre-engineered metal frame
building with metal roof and metal sidewalls on concrete foundation. It
was built in 1996. It measures 30' by 60' with 14' sidewalls containing a
total of 1,800 sq. ft., more or less. Located adjacent is a welded steel
storage tank containing a total of 600,000 gallons, more or less, of water
storage. This area is complete with the necessary plumbing and pumping
equipment for emergency fire control purposes.
The steam plant consists of a pre-engineered metal frame building with
metal roof and metal sidewalls on concrete foundation. It was built in
1996. It measures 50' by 75' with 30' sidewalls containing a total of
3,750 sq. ft., more or less. Located in this area is the following
equipment, more or less:
2 - Nebraska Built boilers rated at 50,000 lbs. per hour at 150 PSI
The processing site of this plant is complete with the necessary equipment
for soybean processing at a rated capacity of 2,400 tons per day.
(Suppliers)
6. MEAL STORAGE AND LOAD OUT:
A: A: $ 1,300,000
This item consists of a slipform concrete elevator structure built
in 1996. It contains a total capacity of 5,000 tons of bulk meal
storage, more or less. It has a 125' high, 225 TPH leg discharging
to overhead conveyors. Additional meal storage consists of slipform
concrete bins containing a total of 175 tons of meal and hull storage,
and a blending house. (M.V.S. Section 14, Page 46)
B: B: $ 300,000
The load out building consists of a pre-engineered metal frame
building with metal roof and metal sidewalls on concrete foundation.
It was built in 1996. It measures 80' by 84' with 50' sidewalls
containing a total of 6,720 sq. ft., more or less. It has rail car
and truck access and is equipped with multiple doors. (M.V.S.
Section 14, Page 25)
C: C: $ 175,000
Also located in the load out building is a 10' by 70' Cardinal truck
scale and a Cardinal split platform rail scale. (Suppliers)
59
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SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
REPRODUCTION
DESCRIPTION COST NEW
- ----------- ------------
7. OIL STORAGE: $ 4,900,000
The following welded steel storage tanks are located in various
locations:
TANK NO. SIZE CAPACITY (POUNDS)
------- ---- -----------------
400 250,000
401 250,000
402 250,000
403 250,000
500 80' by 40' 11,538,525
501 80' by 40' 11,539,428
502 80' by 40' 11,528,967
B100 200' by 65' 111,898,764
B200 170' by 48' 61,680,000
This area is complete with the necessary plumbing and pumping
equipment for load in and load out purposes. The tanks are
located in an earthen diked area for secondary containment purposes.
Total oil storage is 209,185,684 pounds (104,592.84 tons) more or
less. (M.V.S. Section 61, Page 3)
8. SOY OIL BUILDING: $ 75,000
This item consists of a pre-engineered metal frame building with
metal roof and metal sidewalls on concrete foundation. It was built
in 2000. It measures 24' by 36' with 14' sidewalls containing a
total of 864 sq. ft., more or less.
Located adjacent are four 12' diameter by 30' high mild steel storage
tanks containing 220,693 pounds each. This area is complete with the
necessary plumbing and pumping equipment for load in and load out
purposes. Total storage capacity is 882,772 pounds (441.39 tons) more or
less. (M.V.S. Section 14, Page 25 and Suppliers)
9. SITE IMPROVEMENTS: $ 750,000
The site improvements consist of land improvements in grading, paving,
walks and concrete pads, and a sewer system. These were all built from
1996 to 1998. (Actual Costs)
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SOUTH DAKOTA SOYBEAN PROCESSORS COST APPROACH
VOLGA, SOUTH DAKOTA
REPRODUCTION
DESCRIPTION COST NEW
- ----------- ------------
10. OWNED RAIL SIDING: $ 550,000
The subject property is serviced by the DM&E Railroad which provides
access to Class 1 railroads at Wolsey, South Dakota (BNSF) and
Butterfield, Minnesota (UP). The facility has its own rail storage area
consisting of 2,520 linear feet, more or less, of siding and nine
switches. (M.V.S. Section 66, Page 3)
11. OWNED LAND:(5) $ 234,200
Items 1 through 10 are situated on two tracts of land near the small
rural community of Volga, South Dakota. They contain a total of 46.84
acres, more or less. (Site Value: 46.84 acres @ $5,000 per acre)
</Table>
- --------------------
(5) Site value is estimated from the Site Valuation section, page 40.
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VOLGA, SOUTH DAKOTA
RECAP
<Table>
<Caption>
Total
Reproduction Effective Physical & External Estimated Depreciated
Category Cost New Age/Life Functional Obsolescence Depreciation Value
1. Office A: $ 390,000 5/40 13% 10% 23% $ 390,000
2. Lab/Shop and Scale A: 540,000 5/40 13% 10% 23% 540,000
B: 70,000 5/40 13% 10% 23% 70,000
3. Warehouse 60,000 5/40 13% 10% 23% 60,000
4. Upright Storage A: 4,125,000 5/40 13% 10% 23% 4,125,000
B: 400,000 5/40 13% 10% 23% 400,000
C: 530,000 5/40 13% 10% 23% 530,000
5. Processing and Extraction 29,000,000 5/40 13% 10% 23% 29,000,000
Area
6. Meal Storage and Load Out A: 1,300,000 5/40 13% 10% 23% 1,300,000
B: 300,000 5/40 13% 10% 23% 300,000
C: 175,000 5/40 13% 10% 23% 175,000
7. Oil Storage 4,900,000 5/40 13% 10% 23% 4,900,000
8. Soy Oil Building 75,000 1/40 3% 10% 13% 75,000
9. Site Improvements 750,000 5/40 13% 10% 23% 750,000
10. Owned Rail Siding 550,000 5/40 13% 10% 23% 550,000
11. Owned Land 234,200 -- -- -- -- 234,200
------------ ------------
$ 43,399,200 $ 43,399,200
</Table>
Note:
The age life method is the effective age of the plant, either actual or based on
condition, divided by an economic life of 40 years, which is considered typical
for a plant with a high percentage of machinery and equipment. This results in
an estimate of physical and functional depreciation. As an example, 5 years
effective age divided by 40 years economic life equals 12.5%, rounded to 13%.
Economic obsolescence is estimated at 10% based on the historical analysis of
this company from the Income Approach. Economic obsolescence is a factor outside
the property that affects its value. It is usually a lack of volume, gross
margins, expense control, competition or a combination of all of these factors.
Economic obsolescence effects the income statement through lower net operating
income.
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VOLGA, SOUTH DAKOTA
ROLLING AND PORTABLE EQUIPMENT
<Table>
<Caption>
REPRODUCTION DEPRECIATION DEPRECIATED
COST NEW FACTOR(6) VALUE
------------ ------------ -----------
Office equipment consisting of the $ 570,000 40% $ 342,000
following, more or less:
All desks and chairs
All file cabinets
All computer equipment including
software programs
All telephone equipment
All grain moisture testing equipment $ % $
1980 (+/-) Marmon Switchmaster NVS NVS(7)
model 10000 (leased)
1980 (+/-) Marmon Switchmaster $ 160,000 75% $ 40,000
model 10000
Gehl model 883 Dynlift (leased) NVS NVS
CAT model 928F articulated bucket NVS NVS
loader (leased)
Miscellaneous shop equipment $ 50,000 40% $ 30,000
------------ ------------
Total $ 780,000 $ 412,000
</Table>
- --------------------
(6) The Depreciation Factor is the total estimated depreciation from all
sources for the individual item.
(7) No Value Shown.
63
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SOUTH DAKOTA SOYBEAN PROCESSOR COST APPROACH
VOLGA, SOUTH DAKOTA
SUMMARY
COST APPROACH
<Table>
<Caption>
REPRODUCTION DEPRECIATED
CATEGORY COST NEW VALUE
- -------- ------------ -----------
Fixed Assets $ 43,399,200 $ 33,478,750
Rolling and Portable Equipment $ 780,000 $ 412,000
------------ ------------
Total $ 44,179,200 $ 33,890,750
VALUE INDICATED BY COST APPROACH (ROUNDED)(8) $ 33,900,000
</Table>
- --------------------
(8) Includes the business enterprise as a going concern.
64
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SOUTH DAKOTA SOYBEAN PROCESSORS INCOME CAPITALIZATION
VOLGA, SOUTH DAKOTA APPROACH
INCOME CAPITALIZATION APPROACH
The income capitalization approach is a technique in which the anticipated net
operating income is processed at a rate commensurate with the current market
which would attract a prudent owner/operator to this type of investment, whereby
reflecting the value of the investment which produces the income.
The subject property is owned and operated by the South Dakota Soybean
Processors of Volga, South Dakota. Historical income and expense information for
the cooperative for the fiscal years ending August 31, 2000 through August 31,
1996 has been review by this appraiser as well as year-to-date income and
expenses for the period ending June 30, 2001. A projected income and expense
statement has been prepared based on the "typical operator" (no unique
capabilities) concept for this industry. This projected income statement relies
on the following assumptions:
- Volume can be sustained at or above 24.6 million bushels per year
- Margins are at or above most recent four-year average
- Expenses are those typical for the industry and the subject.
The following income analysis, and/or income projection and results thereof are
based upon assumptions believed to be reasonable by MID-STATES APPRAISAL
SERVICES, INC., however, there is no warranty, representation or guarantee of
the reasonableness, accuracy or completeness of any such assumptions,
projections or such analysis or the results thereof. The accuracy and
completeness of the analysis depends upon, and will be affected by, future
events and conditions, including but not limited to the general economic
condition, none of which can be accurately predicted at this time with any
degree of certainty.
65
<Page>
[Monthly Income Statement for September 2000 to August 2001]
66
<Page>
[Monthly Expense Statement for September 2000 to August 2001]
67
<Page>
[Monthly Income Statement for September 1999 to August 2000]
68
<Page>
[Monthly Expense Statement for September 1999 to August 2000]
69
<Page>
[Monthly Income Statement for September 1998 to August 1999]
70
<Page>
[Monthly Expense Statement for September 1998 to August 1999]
71
<Page>
[Monthly Income Statement for September 1997 to August 1998]
72
<Page>
[Monthly Expense Statement for September 1997 to August 1998]
73
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS INCOME CAPITALIZATION
VOLGA, SOUTH DAKOTA APPROACH
HISTORICAL FINANCIAL INFORMATION
[Summary of year to date June 30, 2001, year ended August 31, 2000, year ended
August 31, 1999, and year ended August 31, 1998 Financial Statement
Data and Average of Data]
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SOUTH DAKOTA SOYBEAN PROCESSORS INCOME CAPITALIZATION
VOLGA, SOUTH DAKOTA APPROACH
HISTORICAL FINANCIAL INFORMATION(9)
Notes
- ------
Reserves have been calculated at one half of depreciation expense. Because of
the intense usage of machinery and equipment reserves are required to maintain
the plant throughout its economic life because of the high wear factor and/or
obsolescence.
Working capital has been estimated at 5% of gross margins based on this
appraiser's experience with other agribusiness properties that borrow all of
their working capital requirements.
Patronage has been adjusted downward (70%) to account for its cash equivalence.
Only 30% patronage is paid in cash. The balance has a very long redemption time.
- ----------------------------------
(9) Source: Owner's records.
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SOUTH DAKOTA SOYBEAN PROCESSORS INCOME CAPITALIZATION
VOLGA, SOUTH DAKOTA APPROACH
INTEREST RATES AND TERMS
This appraiser has surveyed numerous lenders over the years in regard to their
willingness to provide "typical" financing to the marketplace on special purpose
agricultural properties such as a grain elevator. Typically, these lenders which
would include many national lenders are in the range of prime rate to prime plus
one. The interest rate is somewhat sensitive in regard to the credit worthiness
of the borrower. However, the market as a whole may not all be prime or subprime
borrowers. Therefore, "typical" is assumed to be prime plus one percent.
Amortization schedules also are a variable. Again, in surveying many lenders
many of which are national in scope, this could range from a low of seven years
to a high of 15 years with most typically being in the range of 10 years. With
special considerations, that can be adjusted upward beyond 15 years. However,
this is not considered to be "typical".
With regard to equity dividend rates, the extraction of equity dividend or
overall rates out of comparable sales is very difficult due to lack of
information. Over the years, numerous large clients in their publications and in
conversations with me have indicated what they consider to be the equity
dividend for these types of properties which have significant risk. This has
ranged from a low in some cases of 15% to 20% to a high of 30% because of
significant risks. Therefore, an equity dividend rate of 25% is considered to be
normal. Again, special circumstances, newness of the property, uniqueness of the
territory, market considerations and concentrations could all affect the
prospective of an owner/operator in regard to their equity dividend
requirements.
In discussions over the years with large national owners such as ADM, ConAgra,
Cargill, Inc., Farmland Industries, and Koch Industries, they have agreed that
an overall rate (RO) on an adjusted net operating income before depreciation,
debt service, and income taxes of 18% to 22% is certainly within their realm of
requirements. If interest rates move up, the overall rate moves up. The "Band of
Investment" that follows attempts to show the interaction of mortgage and equity
on a blended basis.
Finally, the value of these special purpose properties (soybean crushing plants)
can be significantly impacted by overall long-term interest rates.
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SOUTH DAKOTA SOYBEAN PROCESSORS INCOME CAPITALIZATION
VOLGA, SOUTH DAKOTA APPROACH
BAND OF INVESTMENT METHOD
FOR DETERMINING CAPITALIZATION OF EARNINGS
The following band of investment technique demonstrates one method of estimating
the capitalization rate appropriate for the property. The capitalization rate is
based on the rate of mortgage interest available and the rate of return required
on equity.
Example
- -------
Mortgage M 70%
+ EQUITY + E + 30%
-------- --- ----
= Total Investment 100% 100%
OR:
Rate to Mortgage RM Mortgage Constant
Rate to Equity RE Equity Dividend Rate
- ---------------- -- ---------------------------
Rate to Property RO Overall Capitalization Rate
The Band of Investment technique is a way to properly weigh the rates.
Mortgage Ratio x Loan Constant M x RM
+ Equity Ratio x Equity Dividend Rate E x RE
----------------------------------- ------
= Overall Capitalization Rate RO
Properties are usually purchased with a combination of debt and equity capital.
The overall capitalization rate (RO) must satisfy the market return requirements
for both investment positions. A lender usually anticipates receiving a
competitive interest rate based on the perceived risk of the investment and a
requirement that the loan principal be repaid through periodic amortization,
usually a period of years. Owners/operators (equity investors) anticipate
receiving a competitive equity cash return based on the perceived risk of their
property (business) or they will invest their funds elsewhere. The mortgage
constant is a function of the interest rate, the frequency of the amortization,
and the amortization term of the loan. It is the sum of the interest rate and
the sinking fund factor, which is the amount that it will payoff a dollar over a
period of time. When the terms of the loan are known, the mortgage constant can
be found in financial tables or with a financial calculator. This analysis
assumes the availability of mortgage financing. Therefore, assume that a 70%
loan is available at a 7.75% fixed interest rate (prime rate was 6.75% on June
30, 2001, plus 1.0%) and a 10-year amortization schedule. Furthermore, the
remaining economic life of this property (business) is equal to or in excess of
10 years. Also, owners/operators in this type of property would typically
require a 30% Equity Dividend Rate before taxes because of risks. The indicated
capitalization rate is as follows:
M x RM .70 x .1440 = .1008
E X RE .30 x .30 = .0900
------ -------------------------
RO = .1908
Thus the indicated overall capitalization rate (RO) is estimated to be 19.08%.
Value from the capitalization of earnings will be determined by the Direct
Capitalization Technique. Net operating income before depreciation, debt service
and income taxes is capitalized by using the formula of:
Income
------ = Value
Rate
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SOUTH DAKOTA SOYBEAN PROCESSORS INCOME CAPITALIZATION
VOLGA, SOUTH DAKOTA APPROACH
VALUE BY DIRECT CAPITALIZATION TECHNIQUE
SUMMARY
The most recent 3.83 years of financial information has been analyzed by this
appraiser. Adjustments have been made to the operating statement to account for
all interest expense and all depreciation expense. This has resulted in an
addition to net income. Subtractions have been made in the areas of reserve for
wasting assets since this facility is a processing plant with more than half of
its value made up in machinery and equipment. There is a substantial amount of
obsolescence, wear and tear that occurs in this type of equipment over years.
Therefore, reserves must be maintained in order to keep the plant at essentially
the same operating level through its economic life. Also an estimate for working
capital expense has been made based on the business having no "free" working
capital on its balance sheet and borrowing all of its working capital needs.
This has been estimated at 5% of gross margins based on the appraiser's
experience of plants in the agribusiness industry. Patronage accrued has been
adjusted downward (70%) to account for its cash equivalency. Only 30% of the
patronage is paid in cash. The balance has a very long redemption time.
These total adjustments are then added to or subtracted from the stated net
income to arrive at an adjusted net operating income before depreciation, debt
service, and income taxes. This historical 3.83 year average is $6.165 million
dollars (rounded). This industry does have significant changes in its net income
over time because of the volatility in the pricing of its commodities which are
all involved in a world marketplace. Thus, the 3.83 average is considered to be
the best indicator of its near term future.
Estimated Net Operating Income $ 6,165,000
Before Depreciation, Debt Service
and Income Taxes
Capitalization Rate for Business 19.08%
Property Value (6,165,000/.1908) = $32,311,321
----------
Total $32,311,321
VALUE INDICATED BY INCOME CAPITALIZATION APPROACH (ROUNDED)(10) $32,300,000
- -----------------------------
(10) As a going concern includes Business Enterprise Value.
78
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
SALES COMPARISON APPROACH
The Sales Comparison Approach is the comparison of like or similar properties
that have sold in comparison to the subject property.
In the appraisal of any income producing property, the analysis of known sales
of comparable properties is generally one of the most reliable tools available
to the appraiser in the formation of his opinion of value. Under the Principle
of Substitution the value of any item cannot reasonably be considered to be in
excess of the amount of money for which an equal or equivalent property can be
acquired.
One means of comparing soybean processing plants is on a dollars per ton day of
crushing capacity (TPD), with the differences reflected as upward or downward
adjustments for dissimilar characteristics. This section contains sales
information or comparisons of soybean crushing facilities. Obsolescences,
functional and economic (external), are also taken into consideration. All of
these factors are an integral part in arriving at our estimate of value of the
subject property.
Exactly what proportion of value relates to the subject facility's management
would be difficult to estimate. Any appraisal of operating properties such as
the subject business must assume reasonably efficient management ("typical
operator") of the operation, as well as maintenance of the property unless
otherwise noted.
EXAMPLE
If a facility sold for $15,000,000 and it had 1,000 tons per day (TPD) of
crushing capacity, it sold for $15,000 per ton of crushing capacity.
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALES
OF
SOYBEAN CRUSHING FACILITIES
80
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
<Table>
<Caption>
SOYBEAN CRUSHING SALES SUMMARY
SIZE PRICE PER TON
SALE NO. LOCATION DATE OF SALE (TPD) SALE PRICE OF CAPACITY
------- -------- ------------ ----- ---------- -------------
1 Taylorville, IL 1984 2,400 $ 7,600,000 $ 3,167
2 Manning, IA 1985 1,000 $ 5,245,000 $ 5,245
3 Mason City, IA 1985 1,000 $ 5,500,000 $ 5,500
4 Des Moines, IA 1985 6,900 $65,000,000 (1) $ 9,420
plus 3 other
5 Windsor, Ontario, Canada 1985 2,000 $ 9,000,000 $ 4,500
6 Culbertson, MT 1989 600 $ 2,200,000 $ 3,667
7 Guntersville, AL 1993 2,400 $33,000,000 $ 13,750
8 Goodland, KS 1996 500 $ 8,835,829 $ 17,672(2)
9 Etter, TX 1993 120 $ 500,000 $ 4,167
10 Chesapeake, VA 2000 2,000 $24,250,000 $ 12,125
11 Enderlin, ND 1996 2,400 $44,500,000 (1) $ 15,452
------------
Average 1,938 $ 8,606
--------------------------------------------------------------------------------
7 Guntersville, AL 1993 2,400 $33,000,000 $ 13,750
8 Goodland, KS 1996 500 $ 8,835,829 $ 17,672(2)
10 Chesapeake, VA 2000 2,000 $24,250,000 $ 12,125
11 Enderlin, ND 1996 2,400 $44,500,000 (1) $ 15,452
------------
Average 1,825 $ 14,750
</Table>
(1) Adjusted sale price after removal of refinery.
(2) Leased fee estate sale.
81
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
EXPANDED INFORMATION
ON
SOYBEAN CRUSHING FACILITY SALES
82
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 1
Grantor: Continental Grain Company
Grantee: Archer Daniels Midland Company
Location: Taylorville, Illinois
Date of Sale: March, 1984
Tons per Day of Capacity: 2,400 tons
Sale Price: $7,600,000
Price per Ton Day of Capacity: $3,167 per ton
Services Provided: Soybean crushing mill
River Access: No
Railroad Access: Yes
Site Size:
Construction: Consists of a soybean crushing operation
built from 1946 through 1980.
Comments: This operation consists of a large
soybean crushing operation with a full
service grain elevator in conjunction
with the complete processing operation.
83
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 2
Grantor: Agri Industries
Grantee: Ag Processing, Inc.
Location: Manning, Iowa
Date of Sale: Early 1985
Tons per Day of Capacity: 1,000 tons
Sale Price: $5,425,000*
Price per Ton Day of Capacity: $5,425 per ton
Services Provided: Soybean crushing operation
River Access: No
Railroad Access: Yes
Site Size:
Construction: Built in approximately 1980 as a soybean
crushing operation consisting of a complete
elevator and soybean processing plant.
Comments: This was part of a two facility sale.
* The actual selling price of the plant is difficult to determine because both
parties in this transaction choose not to disclose that information; however, an
industry source involved as a potential buyer at the time the property was sold
indicated that the selling price most likely was not greater than $5,425,000
which included cash and assumption of debt.
84
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 3
Grantor: Agri Industries
Grantee: Ag Processing, Inc.
Location: Mason City, Iowa
Date of Sale: Early 1985
Tons per Day of Capacity: 1,000 tons
Sale Price: $5,500,000*
Price per Ton Day of Capacity: $5,500 per ton
Services Provided: Soybean crushing operation
River Access: No
Railroad Access: Yes
Site Size:
Construction: Complete soybean crushing operation
with grain elevator, an older facility
dating into the 1960's.
Comments: This was part of a two facility sale.
* The actual selling price of the plant is difficult to confirm; however, an
industry source involved as a potential buyer at the time the property was
selling indicates the selling price most likely was not greater than $5,500,000.
85
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 4
Grantor: A. E. Staley
Grantee: Archer Daniels Midland
Location: Des Moines, Iowa
Fostoria, Ohio
Frankfort, Indiana
Champaign, Illinois
Date of Sale: 1985
Tons per Day of Capacity: Des Moines 3,000 tons
Fostoria 700 tons
Frankfort 1,200 tons
Champaign 2,000 tons
-----
Total 6,900 TPD, more or less
Price per Ton Day of Capacity: $9,420*
Services Provided: Complete soybean crushing operation
River Access:
Railroad Access: Yes
Site Size:
Construction: Complete soybean crushing operation
and grain elevator assets.
Condition: Fair
Comments:
*This was part of a multi-plant sell-off by A. E. Staley to Archer Daniels
Midland Company. The sale price of $75 million also included a soybean oil
refinery in conjunction with the Des Moines, Iowa, processing plant. The
refinery has a capacity of approximately 18 cars (60,000 lbs.) per day. It has
an estimated contribution in the sale of $10 million to the total. The sale
price did not include the Mexico, Missouri, facility which was a 1,500 TPD plant
which was part of a separate consideration in a lease agreement. This plant was
on an industrial revenue bond or lease and was not considered in the overall
purchase. Also, there was an additional A. E. Staley plant at Decatur, Illinois,
which was part of another agreement which was later demolished. This sale
indicates that the soybean processing operation sold for approximately $65
million for 6,900 tons of processing capability or $9,420 per TPD of productive
capacity. Verification of this information was from a competitor involved within
the industry at the time of the sale of these plant. Further research indicates
that the reported sales price on the Des Moines, Iowa, plant by itself without
any consideration to value allocation to the other plants was $32.5 million.
Based on the discussion previously of a $10 million contribution for the
refinery, this leaves a remainder of $22.5 million for 3,000 TPD or $7,500 per
TPD for Des Moines.
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 5
Grantor: Maple Leaf & Monarch Foods
Grantee: Archer Daniels Midland
Location: Windsor, Ontario, Canada
Date of Sale: Late 1985
Tons per Day of Capacity: 2,000 tons
Sale Price: $17,900,000
Price per Ton Day of Capacity: $4,500*
Services Provided: Full service soybean crushing
operation and grain elevator
River Access:
Railroad Access:
Site Size:
Construction: Complete soybean crushing operation
and associated grain elevator assets.
Condition: Fair
Comments:
* This facility was acquired by Archer Daniels Midland. It also has a 16 car per
day soybean oil refinery in conjunction with the processing operation. This
refinery contributed approximately $8.9 million to the overall sale leaving a
remainder of $9.0 million for 2,000 TPD of capacity. This would indicate a sale
price of $4,500 per TPD of capacity.
87
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 6
Grantor: Continental Grain Company
Grantee: SVO East Lake, Ohio
Location: Culbertson, Montana
Date of Sale: 1989
Tons per Day of Capacity: 600 tons
Sale Price: $2,200,000*
Price per Ton Day of Capacity: $3,667
Services Provided: An oil seed crushing plant capable of
doing both soybeans and canola.
River Access: No
Railroad Access: Yes
Site Size:
Construction: A complete oil crushing operation and
associated grain elevator assets.
Condition: Fair
Comments:
* This plant was capable of crushing both soybeans and canola. It was offered in
the marketplace for $2.5 million and most likely sole in the range of
approximately $2.2 million for 600 TPD of capacity, indicating $3,667 per TPD of
capacity. Source of information from an industry insider who was involved in the
purchase of plants for a large competitor.
88
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 7
Grantor: Continental Grain Company
Grantee: Cargill, Incorporated
Location: Guntersville, Alabama
Date of Sale: October 12, 1993
Book/Page: Book 1244, Page 264
Tons Per Day of Capacity: 2,400 TPD
Sale Price: $33 million
Price Per Ton Day of Capacity: $13,750
Services Provided: A soybean crushing operation and grain
elevator.
River Access: Barge receiving capability on the
Tennessee River
Railroad Access: CSX Railroad with 30 car siding
capability
Site Size:
Construction: A complete soybean operation and
associated 3.0 million bushel grain
elevator. Approximately 35 years old
at time of sale with additions through
current time.
Condition: Fair
Comments: According to a knowledgeable source,
this plant was reportedly sold at a
premium price because of its strategic
location and fit into the market
place. It was probably sold somewhat
near its replacement cost new. But,
because of its location and history as
a viable competitor in the crushing
industry it commanded a good price.
The facility was equipped with two
Crown 1500 TPD extractors located side
by side. The plant was in the process
of gearing up over time to crush 3,000
TPD. At the time of sale it had 2,400
TPD of productive capacity. According
to this source, at the time of sale it
was crushing near 20 million bushels
per year with a total operating cost
of approximately $0.39 per bushel, of
which approximately $0.05 per bushel
was depreciation cost. There were
approximately 70 people on the payroll
for the operation and administration
of the plant at the time of sale. As
a going concern, the indicated sale
price of this facility is $13,750 per
ton day of productive capacity.
89
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 8
Grantor: Food Holdings, Inc., a subsidiary of
National Sun Industries
Grantee: First Security Bank of Utah, solely as
a trustee for an undisclosed principal
Location: Goodland, Kansas
Date of Sale: May 10, 1996
Book/Page: Book 92, Page 171
Tons Per Day of Capacity: 500 TPD
Sale Price: $8,835,829
Price Per Ton Day of Capacity: $17,672 (leased fee interest)
$24,672 (adjusted)
Services Provided: A sunflower crushing facility and
grain elevator storage.
River Access: None
Railroad Access: Kyle Railroad, 50 car siding
Site Size: 67.0 acres, more or less
Construction: A complete sunflower crushing
operation and associated grain
elevator with 1,200,000 bushels of
storage and related assets. The
facility can receive 50 cars of
product at one time.
Condition: Fair
Comments: National Sun Industries built this
plant in 1992 from the remains of a
closed sugar beet processing plant.
It leased the plant to ADM in 1994.
Terms of the lease were not
disclosed. A sale/lease back of NSI
leased fee estate occurred in May of
1996. This excluded any leasehold
improvements made by ADM which are
estimated at $3.5 million. The
NSI/FHI sale/lease back indicates
$8,835,829 divided by 500 TPD
capability equals $17,672 per ton of
productive capacity.
90
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 8
(continued) ADM's capital improvements consisted
of additional receiving capability and
improvements in processing equipment.
The current crush capacity after capital
improvements by ADM is still estimated at
500 TPD.
The adjusted indication based on the
sale/lease back and ADM's capital
improvements indicates a total of
$12,335,829 divided by 500 TPD equals
$24,672 per ton of productive capacity.
91
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 9
Grantor: North Dumas Milling, Inc.
Grantee: Roseland, Inc., of St. Louis, Missouri
Location: Two miles east of Etter, Texas
Date of Sale: September 29, 1993
Book/Page: Book 438, Page 832
Tons Per Day of Capacity: 120 TPD
Sale Price: $500,000
Price Per Ton Day of Capacity: $4,167
Services Provided: A soybean crushing (expeller) facility
and related grain elevator storage.
River Access: None
Railroad Access: Texas Northwestern Railroad, 30 car
siding
Site Size: 14.56 acres, more or less
Construction: A complete crushing (expeller)
operation and associated grain
elevator assets.
Condition: Fair
Comments: The grain facility has four bolted
steel tanks capable of holding a total
of 132,000 bushels, more or less. It
can unload facility off rail or by
truck. The press plant is located in
a steel building containing 16,000 sq.
ft., more or less, with five "French"
expeller presses, with a spare also
located at the plant. There is also
a Sikes expander, oil screening
equipment, plate and frame filter
equipment, and all associated
equipment. The solvent unit was
manufactured by French of Piqua,
Ohio. A hexane extraction unit was
added around 1985. The plant was
originally a country grain elevator
location until 1982. At that time it
was converted into a vegetable oil
extraction and the hexane solvent unit
was added in 1985 to improve plant
capacity. The facility has changed
hands several times in recent years,
and in February 1987 it was sold
from Brewer and Taylor to Texas
Northwestern Railway Company. This
trade involved several tracts of
railroad land.
92
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 9
(continued) In June of 1987 it was conveyed to
North Dumas Milling, Inc. During its
history this plant has processed
cotton seed, soybean, and corn germ.
After its contract with Coors to
process corn germ expired, the owners
determined that they had neither the
finances nor the expertise to continue
operating the plant. It was closed in
1989. It was not an operating plant
at the time of sale.
Roseland, Inc., the current owner,
opened the plant and is currently
crushing oil seeds. It is the only
oil seed crushing plant within 350
miles and it is attempting to
participate in a niche market.
Indications: $500,000 divided by 120 TPD equals
$4,167 per ton of productive
capacity.
93
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 10
Grantor: Cargill, Inc.
Grantee: Purdue Farms
Location: Chesapeake, Virginia
Date of Sale: June 26, 2000
Book/Page: Book 4098, Page 291
Legal Description: Parcel Numbers 138-000-000-002-0;
138-000-000-003-0; 138-000-000-004A
Tons per Day of Capacity: 2,000 tons
Sale Price: $38.75 million less $7.0 million
inventory = $31.75 million
Price per Ton Day of Capacity: $15,875 (gross)
$12,125 (adjusted)
Services Provided: A soybean crushing facility rated at
2,000 TPD with a terminal grain
elevator with boat loading capability
located adjacent and a country grain
elevator with barge capability located
in another community.
River Access: Atlantic Ocean
Railroad Access: CSX, 65 cars
Site Size:
Construction:
Condition: Good
Comments: This is the sale of property by
Cargill, Inc. to Purdue Farms. This
sale included a soybean crushing plant
located at Chesapeake, Virginia, with
a rated capacity of 2,000 tons per day
and an export grain elevator located
adjacent that has a capacity of 2.2
million bushels in upright storage and
3.5 million in flat storage for a
total of 5.7 million bushels of
storage. This property has the
ability to receive 65 cars inbound and
can load boats up to 40' draft at the
rate of 45,000 to 60,000 BPH. This
facility had an estimated contribution
to the total sale of $5.7 million
94
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 10
(continued) The sale also included a country grain
located at Seaford, Delaware, with 1.2
million bushels in upright storage
capacity with 10,000 BPH legs and 12
car rail capability plus barge loading
capability. This facility handles an
average of 5.0 to 7.0 million bushels
per year. It has an estimated
contribution to the overall total of
$1.8 million.
The total sale price was reported at $38.75
million or which $7.0 million was inventory.
Therefore, the total contribution of all of
the fixed assets was $31.75 million.
Therefore, $31.75 million / 2,000 tons per
day = $15,875 per ton (gross). Minus the two
grain elevator operations not part of the
overall crushing operations (Chesapeake at
$5.7 million and Seaford at $1.8 million):
$31.75 million - $7.5 million = $24.25
million / 2,000 tons per day = $12,125 per
ton of crush capacity.
95
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISON
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALE NO. 11
Grantor: Food Holdings, Inc. a subsidiary of
National Sun Industries
Grantee: First Security Bank of Utah, solely as
a trustee for an undisclosed principal
Location: Enderlin, North Dakota
Date of Sale: May 1996
Book/Page:
Tons per Day of Capacity: 2,400 tons plus refinery
Sale Price: $44.5 million on a lease/purchase
Price per Ton Day of Capacity: $18,542 (gross with refinery)
$15,542 (adjusted without refinery)
Services Provided: A sunflower/canola crushing plant
rated at 2,400 TPD (tons per day) with
an edible oil refinery rated at 1,000
TPD.
River Access: None
Railroad Access: CP, 60 car siding
Site Size: 53.21 acres, more or less
Construction: A complete sunflower crushing
operation and refinery with associated
facilities and equipment capable of
crushing 2,400 TPD and a refinery
rated at 1,000 TPD.
Condition: Good
Comments: This was a plant owned by National Sun
Industries who chose to exit the
industry through a lease/purchase.
The reported sale price was $44.5
million. Therefore, $44.5 / 2,400
tons per day = $18,542 per ton day of
crushing capacity with refinery. The
refinery has an estimated contribution
of $3,000 per ton day of crush
capacity. Therefore, $18,542 per ton
day of crushing capacity - $3,000 =
$15,542 per ton day of crush capacity
without refinery.
96
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SOUTH DAKOTA SOYBEAN PROCESSORS SALES COMPARISION
VOLGA, SOUTH DAKOTA APPROACH
COMPARABLE SALES CONCLUSION
This appraiser has researched the market and found 11 sales that have occurred
in a time period from 1984 through 2000. The sales that occurred in the industry
in the mid-1980's were during a time period of low net operating incomes and
severe financial pressures in the soybean crushing industry. This resulted in
consolidation of the industry into larger, potentially more efficient,
operations. The late 1980's through the mid-1990's was characterized by higher
crushing margins in the industry. The sales that have occurred in the 1990's at
Guntersville, Alabama, and Goodland, Kansas, Chesapeake, Virginia, and Enderlin,
North Dakota indicate a substantially higher price. The recent sales at these
four locations have occurred in a price range from $12,125 per ton of productive
capacity to $17,672 per ton of productive capacity. The plants at Goodland,
Kansas and Enderlin, North Dakota, are sunflower crushing plants; however, they
have all the physical internal and external capabilities of a soybean crushing
plant. They are dedicated to the crushing of sunflowers which is also an oil
seed crop. An interesting note on the Goodland, Kansas, sale is that this was a
leased fee estate sale. The original developer of the property had operated it
for approximately two years, then leased the facility to ADM and later sold its
leased fee estate to a bank as a trustee for an undisclosed third party. A lease
still remains on the facility with ADM as the operator. This Leased Fee Estate
sold for a reported $17,672 per ton of productive capacity for a smaller 500 TPD
plant. The facility at Guntersville, Alabama, sold as a Fee Simple Estate with a
Business Enterprise in it for $13,750 per ton of productive capacity. The sale
at Enderlin, North Dakota, in 1996 was also a sale/lease purchase. It sold for
$15,542 per ton of crushing capacity after removal of the refinery contribution.
Chesapeake, Virginia is a sale in 2000 that after removal of non-crushing assets
that sold for $12,125 per ton of crushing capacity.
The overall average of the four most recent sales is $14,750 per ton of crush
capacity (TPD). Considering the newness of the subject to the comparables and
its location in a good production area, a slight positive adjustment is
considered relevant. However, considering the recent economic downturns in the
industry in the last year and the closure of other plants in the United States
that were less economically viable, there is a continued risk in this market.
This would account for a slight negative adjustment. In my opinion, these
adjustments cancel each other out. Therefore, the average of the four most
recent sales is considered the most reasonable.
Therefore, based on the information available from the soybean crushing sales,
it is my opinion that the market value of the subject property which includes
land, buildings, improvements, rolling and portable equipment as an operating
unit, was $14,750 per ton of crushing capacity. Therefore:
SOUTH DAKOTA SOYBEAN PROCESSORS, VOLGA, SOUTH DAKOTA
2,400 TPD (crush capacity) @ $14,750 per ton $35,400,000
VALUE INDICATED BY THE SALES COMPARISON APPROACH (ROUNDED)(11) $35,400,000
- --------------------
(11) Includes the business enterprise at 100% ownership.
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
RECONCILIATION OF APPROACHES
VALUE INDICATION BY:(12)
Cost Approach: $ 33,900,000
Income Capitalization Approach: $ 32,300,000
Sales Comparison Approach: $ 35,400,000
------------------------------
Market Value Estimate (Total)12 $ 33,900,000
Estimated Contribution of Existing Personal
Property (rolling and portable equipment)
included in the above total $ 410,000 (rounded)
Estimated Contribution of Real Estate
Components and Going Concern Value $ 33,490,000
MARKET VALUE ESTIMATE
The differences in the values above are due primarily to the area of emphasis on
the approach. The Cost Approach is reproduction or replacement cost new less
estimated depreciation in all forms. The Income Capitalization Approach analyzes
profitability and return on investment and the Sales Comparison Approach is a
comparison of comparable sales with allowances for dissimilar characteristics.
South Dakota Soybean Processors of Volga, South Dakota, owns and operates a
2,400 TPD soybean processing plant. It does not have an edible oil refinery
included in its operation. This requires the plant to sell its oil to a refiner
for further processing. This is typical of many soybean processing plants. The
facility is in near new condition (built in 1996). All three approaches have
been considered in this value conclusion. Based on indications from the Income
Capitalization approach, there is external obsolescence, which is a factor
outside the property that affects its value. It is usually a lack of volume,
gross margins, expense control, competition, or combinations of all these
factors. The most emphasis to value has been placed on the Cost and Income
Capitalization Approaches.
Based on my investigation and analysis of the data gathered, I have formed the
opinion that the Market Value of the subject property which includes the
business enterprise, fee simple estate, leasehold estate (if any), buildings,
improvements, rolling and portable equipment "as is" free and clear of any liens
as outlined in the enclosed report as of June 30, 2001, was a total of
Thirty-Three Million Nine Hundred Thousand Dollars ($33,900,000). The
contribution of personal property (rolling and portable equipment) was estimated
at Four Hundred Ten Thousand Dollars ($410,000). The contribution of the fee
simple estate and leasehold estate (if any) which includes the going concern
(business enterprise) was estimated at Thirty-Three Million Four Hundred Ninety
Thousand Dollars ($33,490,000).
- --------------------
(12) Includes the going concern value (business enterprise)
98
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
ADDITIONAL DISCUSSION
<Table>
<Caption>
OTHER ASSETS CURRENT MARKET VALUE
------------ --------------------
CoBank Patronage Allocated $ 347,326.64 $ 57,928.00
Harvest States Patronage Allocated 3,250,603.51 162,530.00
USSC 4% Investment 1,000,000.00 10,000.00
Harvest States Accrued Patronage 972,250.00 291,675.00
-------------- ------------
Total $ 5,570,180.15 $ 522,133.00
ROUNDED TO: $ 520,000.00
</Table>
An additional question has been asked of this business appraiser in regard to
valuation of certain other assets listed above. Based on my experience in the
business appraisal area, the column labeled "Current Market Value" is my
estimation of the market value of these assets by category. CoBank patronage is
discounted to a net present value based on a 15 year payout and a 12% rate of
return. This soybean processing business has an overall rate requirement in the
range of 19% to justify its values. However, the stock market has been capable
of returning in the range of 11% to 12% over time. Thus, the reason for the 12%
discount.
The Harvest States patronage of $3.25 million has an extremely long redemption
window. On that basis, it has been my experience that this type of stock,
similar to Farmland Industries, has traded in the range of near nothing to
upwards of 10% of its face value. Thus, 5% of its face value has been allocated
as its current market value.
The 4% investment in USSC stock is in a company that has not generated a profit
and is still in the conception/startup stages. It is very similar to "dot com"
with the substantial failures that have occurred in that industry. Thus, only a
minimal value of $10,000 has been allocated to that investment.
The accrued patronage on Harvest States for the current year of $972,250, if it
comes to fruition Harvest States pays 30% in cash. Thus, the face value of this
has been discounted to its cash value equivalent of 30%.
Therefore, the total estimated current market value of these other assets was
$522,133, rounded to $520,000.
99
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
ADDITIONAL DISCUSSION - continued
A further question was asked by the management of South Dakota Soybean
Processors in regard to the potential discounts for lack of marketability and
minority stock if the cooperative were to sell its stock. This cooperative is
owned by patrons/shareholders with no one owning control. It is considered to be
a closely held corporation and its stock would suffer from discounts for lack of
marketability and minority issues.
A discount for the lack of marketability has been recognized by courts,
valuation experts, and the IRS as a cost inherent in stock companies in which
there is no ready market for the shares. Usually, the discount for lack of
marketability is tied to the expectation of how long it will take to convert the
business interest into cash. The items that may affect the size of a
marketability discount include:
- Size of the interest.
- Financial condition of the company.
- Limited market for the stock
- Dividends paid by the company.
South Dakota Soybean Processors has paid dividends to its shareholders. This
dividend has fluctuated over time. Also, current stockholders must be
"producers" and owning stock has a delivery requirement on soybeans. Excluding
the special nature of current ownership and considering the market as a whole,
this company's stock would suffer from a lack of marketability.
There have been many studies on the lack of marketability discounts.
Collectively, these studies have shown over time a mean discount of up to 32.6%
for lack of marketability.
In an article written by Bruce Johnson, ASA, appearing in the March 3, 1999
edition of BUSINESS VALUATION, he writes that in many cases, discounts for lack
of marketability in business appraisals rely at least partially on studies of
restricted stock transactions. The inability to sell a minority interest in a
company increases an investors exposure to changing market conditions and
increases their risk of ownership. The reason for lack of marketability is to
recognize and quantify the effective value. Revenue Ruling 77-287 recognizes a
need for a discount in the lack of marketability for an interest in a privately
held company. He reports of several studies on restricted stocks that have been
conducted since the beginning of 1960's. The average or median discount for lack
of marketability found in these previous studies has ranged from 23% to 45%.
Two-thirds of the studies performed found the average or median discount to be
31% and 36%. Specifically, Mr. Johnson quotes a study performed by William
Silber published in the FINANCIAL ANALYST JOURNAL. This study reported that the
discounts ranged from a premium of 13% to a discount of 84% with an overall
average discount of 34%. In summary, certainly the lack of marketability can
have a significant impact in regard to selling of an unlisted stock. A minority
position presents an equally challenging area.
100
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
MINORITY DISCOUNT DISCUSSION
A minority interest discount can be summed up under a discussion called "lack of
control". This is a situation less than 51% of the stock has limited to no
control; thus, causing a minority situation. The discounts for minority purposes
are above and beyond discounts for lack of marketability. The concept of
non-controlling ownership interest deals with a relationship between the
ownership interest being valued in a total business enterprise. The concept of
marketability deals with the liquidity of the subject's ownership interest,
i.e., how quickly it can be converted to cash. These discounts have an
intertwining relationship. It is my opinion in a minority situation discounts by
themselves ranging upwards to 30% would not be considered unusual.
Furthermore, this appraiser has gathered information on a closely held
corporation involved in agribusiness that has repurchased minority stock over a
period of years. A summary is included herein in this report. The company's name
has been eliminated to protect the confidential nature of the clients. However,
these clients have agreed to allow this information to be disclosed as long as
their company names and locations are held by this appraiser in a confidential
basis.
The treasury stock purchases by Company No. 1 are summarized on page 102 with a
table. The actual repurchases of stock over time by this closely held company
provide actual evidence that this company itself recognizes the lack of
marketability and minority discounts within its own transactions. The discounts
collectively could be summarized between 50% and 75% in a time period from 1990
through 1995. The exact allocation between lack of marketability and minority
discounts is not distinguished in the overall purchases. However, the market
itself does recognize these two discounts to be somewhat separate and distinct.
However, in the sale of stock of closely held corporations, no distinction is
usually made, and it is usually lump-summed into a single discount.
In Company No. 2, stock was purchased by other stockholders in this closely held
company. This is summarized on page 103. Based on the stockholders equity for
the year ending, the discounts from net book value per share ranged between
79.56% to 82.44%, which is accumulative discount for lack of marketability and
minority discounts.
SUMMARY
Finally, these discounts must then be utilized in the final valuation of the
stock. A new balance sheet is usually prepared taking the assets to market value
and this adjusted stockholders equity is then subject to the lack of
marketability and minority discounts. These discounts are taken sequentially,
one after the other, on a stair step basis. Thus, the estimated market value of
the shares to be valued are subject to the lack of marketability discount
estimate. The remainder is then subject to a minority discount estimate, which
leaves a remaining value which is the estimation of market value of the subject
stock after all necessary steps in regard to valuation have been considered.
With the marketability and minority discounts taken sequentially, the total
discounts are then a lump sum estimate of the total discount from the starting
value on the subject stock.
101
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Table of Actual Treasury Stock Purchases of an Agri Business Located in
the Midwest]
102
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
[Table of Actual Stock Purchases of an Agri Business Located in Kansas]
103
<Page>
SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
GOING CONCERN DISCUSSION
The last question asked of this appraiser was my opinion in regard to "going
concern value". The subject property has a tax depreciated book value
substantially less than the current estimate of market value of the business
enterprise as a whole. It is my opinion that the difference between tax
depreciated book value of the assets (business) and the market value estimate of
the assets (business) is considered the going concern value.
104
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SOUTH DAKOTA SOYBEAN PROCESSORS VOLGA, SOUTH DAKOTA
SUPPLEMENTARY INFORMATION
a) Temporary Registration Permit
b) Plot Plan
c) Legal Descriptions
d) Flood Plain Map
<Page>
[Temporary Registration Permit]
<Page>
[Plot Plan]
<Page>
[Legal Description]
<Page>
[Legal Description]
<Page>
[Flood Plain Map]
<Page>
[Flood Plain Map]