PROSPECTUS
Rule No. 424(b)(3)
Registration No: 333-25501
ALLIANCE FARMS COOPERATIVE ASSOCIATION
51 Shares of Common Stock
54 Shares of Class B Common Stock
72 Shares of Class C Common Stock
Alliance Farms Cooperative Association, a Colorado cooperative
association ("Alliance" or the "Company"), is offering up to an aggregate of
51 shares (the "Class A Shares") of its Common Stock, $.01 par value ("Class
A Common"), 54 shares (the "Class B Shares") of its Class B Common Stock,
$.01 par value ("Class B Common"), and 72 shares (the "Class C Shares" and
together with the Class A Shares and the Class B Shares, the "Shares") of its
Class C Common Stock, $.01 par value ("Class C Common" and together with the
Class A Common and the Class B Common, the "Common Stock"), exclusively to
producers of agricultural products, associations of such producers, and
federations of such associations, at a price of $80,000 per Class A Share,
$60,000 per Class B Share and $45,000 per Class C Share. The Shares are
being offered on a "best efforts, all-or-none" basis for (a) 17 Class A
Shares (a "Minimum Class A Block"), and thereafter may continue to be offered
on such basis with respect to successive Minimum Class A Blocks until 51
Class A Shares have been issued and sold, (b) 18 Class B Shares (a "Minimum
Class B Block"), and thereafter may continue to be offered on such basis with
respect to successive Minimum Class B Blocks until 54 Class B Shares have
been issued and sold, and (c) 24 Class C Shares (a "Minimum Class C Block"
and together with a Minimum Class A Block and a Minimum Class B Block, a
"Minimum Block"), and thereafter may continue to be offered on such basis
with respect to successive Minimum Class C Blocks until 72 Class C Shares
have been issued and sold. As of the date of this Prospectus, the Company
has not consummated the issuance and sale of any shares of Common Stock in
this offering. The consummation of the issuance and sale of each Minimum
Class A Block will be conditioned upon and subject to the Company obtaining a
commitment for at least $2,720,000 of term debt borrowings. As of the date
of this Prospectus, the Company has obtained such a commitment with respect
to the Class A Shares offered hereby until August 31, 1997. The consummation
of the issuance and sale of each Minimum Class B Block and each Minimum Class
C Block will be conditioned upon and subject to the Company obtaining a
commitment for at least $2,160,000 of term debt borrowings. As of the date
of this Prospectus, the Company is engaged in negotiations with a lender to
obtain such a commitment with respect to the Class B Shares and the Class C
Shares. The offering price per Share has been arbitrarily determined by the
Company based upon the Company's anticipated equity capital requirements for
the development of one new feeder pig production facility with respect to
each Minimum Class A Block sold and upon the anticipated output of feeder
pigs (i.e., pigs weighing at least 30 pounds) from each such facility, and
based upon the Company's anticipated equity capital requirements for the
development of one new weaned pig production facility with respect to each
Minimum Class B Block or Minimum Class C Block sold and upon the anticipated
output of weaned pigs (i.e., pigs weighing at least six pounds) from each
such facility. Each investor must purchase a minimum of (a) one Class A
Share, and in addition must enter into a Feeder Pig Purchase Agreement with
the Company in the form attached to this Prospectus as Exhibit B, (b) one
Class B Share, and in addition must enter into a Weaned Pig Purchase
Agreement with the Company in the form attached to this Prospectus as
Exhibit C, or (c) one Class C Share, and in addition must enter into a Class
C Weaned Pig Purchase Agreement with the Company in the form attached to this
Prospectus as Exhibit D. No fractional shares will be issued. There can be
no assurance that any or all of the Shares in this offering will be sold.
Pending the sale of one or more Minimum Blocks, all funds received in payment
of the public offering price for Shares will be deposited in an interest
bearing escrow account with NationsBank, N.A.(formerly Boatmen's
National Bank). The offering of the Shares will terminate on January 7, 1999
(550 days from the July 7, 1997 commencement of the offering), unless
extended by the Company for a period of up to an additional 180 days. See
"Business--Financing" and "Plan of Distribution."
The Company intends to sell the Shares through agents designated by the
Company or, if permitted under applicable law, directly to one or more
purchasers through the efforts of its directors, officers and employees. The
Company has retained Interstate/Johnson Lane Corporation ("I/JL") to serve as
its agent in connection with this offering. See "Plan of Distribution."
There is no public market for the Class A Common, Class B Common or
Class C Common of the Company, and no public market is expected to develop as
a result of any offering of the Shares. The Shares offered hereby are
subject to the provisions of the Colorado Cooperative Association Law and the
Company's Articles of Incorporation and Bylaws which restrict the
transferability of the Shares. No assignment or transfer of the Company's
Class A Common, Class B Common or Class C Common will be permitted without
the consent of the Company's Board of Directors, which consent may not be
given unless, the assignee or transferee of the Class A Common executes and
delivers to the Company a Feeder Pig Purchase Agreement, the assignee or
transferee of the Class B Common executes and delivers to the Company a
Weaned Pig Purchase Agreement, and the assignee or transferee of the Class C
Common executes and delivers to the Company a Class C Weaned Pig Purchase
Agreement. No dividends will be paid by Alliance on its Common Stock,
although stockholders will be entitled to patronage distributions based on
the quantity or value of business done by the Company with or for its
stockholders. The ability of the Company to pay patronage distributions in
cash, however, is restricted under the loan agreement with the Company's
existing lender. See "Risk Factors--Distributions and Dividends" and "--
Lack of Liquidity; Absence of Market for Shares," "Patronage Distribution
Policy," "Description of Capital Stock" and "Restrictions on Sale or Other
Transfer of the Shares."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS", APPEARING ON PAGES JWA[1]10 THROUGH 19, FOR INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
UNDERWRITING DISCOUNTS AND PROCEEDS TO THE
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (1)(2)
Per Share of Class A Common $80,000 $784.31 $79,215.69
Total Class A Minimum (3) $1,360,000 $40,000 $1,320,000
Total Class A Maximum (3) $4,080,000 $40,000 $4,040,000
Per Share of Class B Common $60,000 $740.74 $59,259.26
Total Class B Minimum (3) $1,080,000 $40,000 $1,040,000
Total Class B Maximum (3) $3,240,000 $40,000 $3,200,000
Per Share of Class C Common $45,000 $555.56 $44,444.44
Total Class C Minimum (3) $1,080,000 $40,000 $1,040,000
Total Class C Maximum (3) $3,240,000 $40,000 $3,200,000
(Footnotes on next page)
The date of this Prospectus is July 7, 1997.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH ANY OFFERING MADE HEREBY OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF CLASS A COMMON, CLASS B
COMMON AND CLASS C COMMON OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
The Company is currently subject to the informational requirements of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), and in accordance
therewith the Company files annual and quarterly reports and other information
with the Securities and Exchange Commission (the "Commission"). See "Additional
Information." The Company intends to furnish to its stockholders annual reports
containing financial statements audited by an independent certified public
accounting firm. In addition, the Company intends to make available to its
stockholders quarterly reports containing unaudited financial information for
each of the first three quarters of each fiscal year.
TABLE OF CONTENTS
PAGE
PAGE
Prospectus Summary ........... 3
Risk Factors ................. 10 Principal Stockholders ...... 61
The Company................... 19 Description of Capital Stock 61
Use of Proceeds............... 19 Restrictions on Sale or Other
Patronage Distribution Policy. 24 Transfer
Capitalization ............... 25 of the Shares ............. 63
Selected Financial Data....... 28 Plan of Distribution ......... 65
Management's Discussion and Legal Matters ................ 70
Analysis of Financial Experts ...................... 70
Condition and Results Additional Information ...... 70
of Operations............... 29 Index of Financial Statements F-1
Business...................... 35 Exhibit A -- Form of Subscription
Feeder Pig Purchase Agreement. 49 Agreement .................. A-1
Weaned Pig Purchase Agreements 52 Exhibit B -- Form of Feeder Pig
Management ................... 55 Purchase Agreement ......... B-1
Certain Relationships and Exhibit C -- Form of Weaned Pig
Related Transactions.......... 57 Purchase Agreement ......... C-1
Exhibit D -- Form of Class C Weaned
Pig
Purchase Agreement ......... D-1
The Company will provide without charge to each person who receives a
Prospectus, upon written or oral request of such person, a copy of any of the
information that has been incorporated by reference in this Prospectus (not
including exhibits to the information that is incorporated by reference unless
the exhibits are themselves specifically incorporated by reference). Such a
request should be directed to Mr. Wayne N. Snyder, Chairman of the Board and
President of the Company, at Farmland Industries, Inc., 3315 North Oak
Trafficway, Department 47, Kansas City, Missouri 64116 (telephone number 816-
891-3686), until the termination of the offering.
Until October 5, 1997 (90 days after the date of this Prospectus) all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
(1) The Company intends to sell the Shares directly to one or more
purchasers through the efforts of its directors, officers and employees, if
permitted under applicable law, in which event no Underwriting Discounts and
Commissions will be paid, or through agents designated by the Company. The
Company has entered into an agency agreement with I/JL providing for the
payment by Alliance of a lump sum fee of $40,000 regardless of whether any or
all of the Shares are sold. For purposes of estimating Per Share amounts, it
is assumed that all 51 Class A Shares, 54 Class B Shares and 72 Class C
Shares will be sold. For purposes of estimating the Proceeds to the Company,
it is assumed that all Shares sold will be sold through the Company's agent,
I/JL. The Company has agreed to indemnify I/JL against certain liabilities,
including liabilities under the Securities Act of 1933. See "Plan of
Distribution."
(2) Before deduction of expenses payable by the Company estimated at
$100,000.
(3) The Company intends to offer and sell the Shares on a "best efforts,
all-or-none" basis for (a) a Minimum Class A Block of 17 Class A Shares, and
thereafter may continue to offer Class A Shares on such basis with respect to
successive Minimum Class A Blocks until 51 Class A Shares have been issued
and sold, (b) a Minimum Class B Block of 18 Class B Shares, and thereafter
may continue to offer Class B Shares on such basis with respect to successive
Minimum Class B Blocks until 54 Class B Shares have been issued and sold, and
(c) a Minimum Class C Block of 24 Class C Shares, and thereafter may continue
to offer Class C Shares on such basis with respect to successive Minimum
Class C Blocks until 72 Class C Shares have been issued and sold. Pending
the sale of a Minimum Block, all funds received in payment of the public
offering price for the Shares will be deposited in an interest-bearing escrow
account. As of the date of this Prospectus, the Company has not consummated
the issuance and sale of any Shares. See "Plan of Distribution."
PROSPECTUS SUMMARY
The following information is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
All references to "Alliance" and the "Company" in this Prospectus include
Alliance Farms Cooperative Association and its predecessor, Yuma Feeder Pig
Limited Liability Company ("Yuma LLC"), unless the context indicates otherwise.
THE COMPANY
The Company is a cooperative association engaged in the production of
feeder pigs for sale to its members who own shares of Class A Common, and
intends to engage in the production of weaned pigs for sale to its members who
own shares of Class B Common or Class C Common. The Company was formed as a
cooperative association under the laws of the state of Colorado on May 3, 1994,
but did not engage in any business activity until July, 1994. The Company's
predecessor, Yuma LLC, was formed in October, 1991 and commenced shipment of
feeder pigs in March, 1993. On July 13, 1994 (July 9, 1994 for accounting
purposes), the Company acquired the entire equity ownership rights and interests
in Yuma LLC, and thereupon Yuma LLC was dissolved and liquidated and its assets,
liabilities and feeder pig production operations were assigned to and assumed by
Alliance. As of the date of this Prospectus, the Company owned and operated
five 2,450-sow feeder pig production facilities located in Yuma County, Colorado
(approximately 150 miles east of Denver), one 2,450-sow feeder pig production
facility located in Wayne County, Illinois (approximately 100 miles east of
St. Louis, Missouri), and was in the process of developing one additional feeder
pig facility of comparable size in Wayne County, Illinois. Financing for the
acquisition of real estate, facilities construction and acquisition of breeding
stock with respect to the six existing facilities already has been obtained and
will not be provided by any proceeds from the sale of the Shares offered hereby,
however, the proceeds from the sale of the first Minimum Class A Block of 17
Class A Shares offered hereby will be applied to the Illinois facility presently
under development. See "The Company," "Business" and "Use of Proceeds."
The principal executive offices of the Company are located at 302 Idlewild
Street, Yuma, Colorado 80759, and its telephone number is (970) 848-3231.
RISK FACTORS
The Company and its business, and an investment in the Shares, will be
subject to a high degree of risk, including, without limitation, the various
risks described under "Risk Factors."
THE OFFERING
Securities Offered 51 shares of the Company's Class A Common at an offering
price of $80,000 per share, 54 shares of the Company's
Class B Common at an offering price of $60,000 per
share, and 72 shares of the Company's Class C Common at
an offering price of $45,000 per share. See "Plan of
Distribution" and "Description of Capital Stock."
Investor Suitability The Shares are being offered exclusively to producers of
agricultural products, associations of such producers,
and federations of such associations. In addition, Iowa
investors must satisfy certain net worth and gross
income threshold requirements described herein. Each
investor purchasing one or more Class A Shares must
enter into a Feeder Pig Purchase Agreement, pursuant to
which such investor must purchase his or her
proportionate share of the Company's feeder pig
production, each investor purchasing one or more Class B
Shares must enter into a Weaned Pig Purchase Agreement,
pursuant to which such investor must purchase his or her
proportionate share of the Company's weaned pig
production made available to Class B shareholders, and
each investor purchasing one or more Class C Shares must
enter into a Class C Weaned Pig Purchase Agreement,
pursuant to which such investor must purchase his or her
proportionate share of the Company's weaned pig
production made available to Class C shareholders. See
"Plan of Distribution," "Feeder Pig Purchase Agreement"
and "Weaned Pig Purchase Agreements."
Subscription
and Payment Payment of the public offering price for the Class A
Common being subscribed for, together with two copies of
(i) an executed Subscription Agreement, and (ii) an
executed Feeder Pig Purchase Agreement, must be
delivered to the Company or its agent on or before the
termination of the offering. Payment of the public
offering price for the Class B Common being subscribed
for, together with two copies of (i) an executed
Subscription Agreement, and (ii) an executed Weaned Pig
Purchase Agreement, must be delivered to the Company or
its agent on or before the termination of the offering.
Payment of the public offering price for the Class C
Common being subscribed for, together with two copies of
(i) an executed Subscription Agreement, and (ii) an
executed Class C Weaned Pig Purchase Agreement, must be
delivered to the Company or its agent on or before the
termination of the offering. See "Plan of Distribution-
-Subscription Procedure."
Minimum Investment Each investor must make a minimum investment of one
Share of Class A Common, Class B Common or Class C
Common. See "Plan of Distribution."
Transfer Restrictions The Shares are subject to the provisions of the Colorado
Cooperative Association Law and the Company's Articles
of Incorporation and Bylaws, which restrict the
transferability of Common Stock. These restrictions
include a requirement that the Company's Board of
Directors give its consent prior to any transfer of
Common Stock, that the transferee of Class A Common
enter into a Feeder Pig Purchase Agreement with the
Company, that the transferee Class B Common enter into a
Weaned Pig Purchase Agreement with the Company, and that
the transferee Class C Common enter into a Class C
Weaned Pig Purchase Agreement with the Company. In
addition, the Company has the right to purchase a
member's Common Stock under certain circumstances. See
"Restrictions on Sale or Other Transfer of the Shares."
Closing Conditions The Shares are being offered on a "best efforts, all-or-
none" basis for (a) a Minimum Class A Block of 17 Class
A Shares, and thereafter may continue to be offered on
such basis with respect to successive Minimum Class A
Blocks until 51 Class A Shares have been issued and
sold, (b) a Minimum Class B Block of 18 Class B Shares,
and thereafter may continue to be offered on such basis
with respect to successive Minimum Class B Blocks until
54 Class B Shares have been issued and sold, and (c) a
Minimum Class C Block of 24 Class C Shares, and
thereafter may continue to be offered on such basis with
respect to successive Minimum Class C Blocks until 72
Class C Shares have been issued and sold. As of the
date of this Prospectus, the Company has not consummated
the issuance and sale of any shares of Common Stock in
this offering. This offering will not be consummated
unless (a) at least one Minimum Class A Block of 17
Class A Shares is issued and sold and the Company
receives a commitment for at least $2,720,000 of term
debt borrowings with respect to each such Minimum Class
A Block, or (b) at least one Minimum Class B Block of 18
Class B Shares or one Minimum Class C Block of 24 Class
C Shares is issued and sold and the Company receives a
commitment for at least $2,160,000 of term debt
borrowings with respect to each such Minimum Block. As
of the date of this Prospectus, the Company has obtained
such a commitment with respect to the Class A Shares
offered hereby until August 31, 1997, and is engaged in
negotiations with a lender to obtain such a commitment
with respect to the Class B Shares and Class C Shares.
Pending the Company's acceptance of subscriptions for a
Minimum Block, all funds received in payment of the
public offering price for Shares will be deposited in an
interest-bearing escrow account established at
NationsBank, N.A. (formerly Boatmen's
National Bank). If Alliance does not issue Shares for
which funds have been deposited in the escrow account
prior to the termination of the offering, such funds
will be refunded to the prospective investors, together
with any interest earned thereon and without deduction
for expenses. See "Business--Financing" and "Plan of
Distribution."
Termination
of the Offering The offering will terminate on January 7, 1999
(550 days from the July 7, 1997 commencement of the
offering), unless extended by the Company for a period of up
to an additional 180 days. See "Plan of Distribution--
Termination of the Offering."
SUMMARY FINANCIAL DATA
The summary historical financial information presented below reflects the
fiscal 1996 operations of Alliance, the fiscal 1995 operations of Alliance, and
the fiscal 1994 combined operations of Yuma LLC from September 1, 1993 through
July 8, 1994 and of Alliance from July 9, 1994 through August 31, 1994. Such
financial information under the captions "Statement of Operations Information"
and "Balance Sheet Information" as of and for the fiscal years ended August 31
is derived from the financial statements of Alliance for the years ended August
31, 1996 and 1995 and the period from inception (July 9, 1994) through
August 31, 1994 and from the financial statements of Yuma LLC for the period
from September 1, 1993 to July 8, 1994, all of which have been audited by the
Company's independent certified public accountants. The summary historical
financial information as of February 28, 1997 and for the six months ended
February 28, 1997 and February 29, 1996 is derived from the unaudited financial
statements of Alliance. In the opinion of the Company, such interim financial
information includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of the results for such interim
periods. In the opinion of management, the financial condition and results of
operations set forth herein cannot be relied upon as being representative of the
continuing prospects for the Company. The following summary financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
financial statements and related notes thereto and other information included
elsewhere in this Prospectus. See "Selected Financial Data."
STATEMENT OF OPERATIONS
INFORMATION:
FISCAL YEAR ENDED AUGUST 31, SIX MONTHS ENDED FEBRUARY 28,
1996 1995 1994 1997 1996
Net sales $ 7,037,927 $ 1,554,113 $ 2,309,319 $ 6,519,998 $ 2,871,276
Cost of goods sold 6,422,838 1,836,388 1,912,268 5,549,049 3,008,706
Gross income (loss) 615,089 (282,275) 397,051 970,949 (137,430)
Expenses related to start-up of 426,926 754,756 B 75,668 B
new facilities and conversion of
existing facility
Administrative expenses 369,787 101,927 36,629 214,996 170,565
Loss on sale of breeding stock 226,738 112,797 56,474 81,020 170,537
Operating income (loss) (408,362) (1,251,755) 303,948 599,265 $ (478,532)
Interest expense (1,001,329) (289,082) (1,375) (680,584) (439,320)
Other income 66,604 27,509 28,246 85,786 7,574
(934,725) (261,573) 26,871 (594,798) (431,746)
Net income (loss) $ (1,343,087) $(1,513,328) $ 330,819 $ 4,467 $ (910,278)
OTHER INFORMATION:
Pigs Sold 148,926 46,858 46,014 112,800 67,241
AS OF AUGUST 31, AS OF FEBRUARY 28,
BALANCE SHEET INFORMATION: 1996 1995 1994 1997
Working Capital (Deficit) $ (257,702) $ 1,238,271 $ 1,980,861 $ (1,139,041)
Total Assets 20,845,613 14,571,940 5,322,834 22,344,378
Shareholders' Equity 4,606,289 4,627,693 4,860,610 4,610,756
USE OF PROCEEDS
Class A Common The net proceeds to the Company from the sale of the Class A
Shares offered hereby, after deducting expenses payable in
connection with this offering, are estimated to be
approximately $1,220,000 if one Minimum Class A Block is
sold and approximately $3,940,000 if all 51 Class A Shares
offered hereby are sold. The Company intends to use the net
proceeds from the sale of each Minimum Class A Block,
together with approximately $2,720,000 of term debt
borrowings for which the Company seeks to obtain a
commitment with respect to each such Minimum Class A Block,
for the development of one new feeder pig production
facility to be situated in or around Yuma County, Colorado,
Wayne County, Illinois or other locations selected by the
Company, including the purchase of real estate, the
construction of the facility, and the acquisition of
breeding stock, and the demands for working capital during
the initial start-up period for the facility. In this
regard, the net proceeds from the sale of the first Minimum
Class A Block will be applied to the Company=s second
Illinois feeder pig production facility that presently is
under development, including the repayment of up to
$1,360,000 of any related debt financing, together with
interest thereon, provided by Farmland Industries, Inc.
("Farmland"). If all 51 Class A Shares offered hereby are
sold, the net proceeds to the Company, together with
approximately $8,160,000 of term debt borrowings, will be
used for the development of three new 2,450-sow feeder pig
production facilities (including one feeder pig production
facility under development in Wayne County, Illinois). The
Company anticipates that the net proceeds of the offering of
each Minimum Class A Block, the approximately $2,720,000 of
term debt borrowings for which the Company seeks to obtain a
commitment with respect to each such Minimum Class A Block,
and any interest earned thereon, will be adequate to
maintain its current and planned operations during the
Company's start-up phase for each new facility, which is
anticipated to be up to 13 to 15 months after completion of
the offering of such Minimum Class A Block. As of the date
of this Prospectus, the Company has obtained a commitment
until August 31, 1997 for the approximately $2,720,000 of
debt financing required with respect to each Minimum Class A
Block of Class A Shares offered hereby. See "Use of
Proceeds," "Business--Financing" and "Risk Factors."
Class B Common The net proceeds to the Company from the sale of the Class B
Shares offered hereby, after deducting expenses payable in
connection with this offering, are estimated to be
approximately $940,000 if one Minimum Class B Block of 18
Class B Shares is sold and approximately $3,100,000 if all
54 Class B Shares offered hereby are sold. The Company
intends to use the net proceeds from the sale of each
Minimum Class B Block, together with approximately
$2,160,000 of term debt borrowings for which the Company
seeks to obtain a commitment with respect to each such
Minimum Class B Block, for the development of one new weaned
pig production facility to be situated in or around Yuma
County, Colorado, Wayne County, Illinois or other locations
selected by the Company, including the purchase of real
estate, the construction of the facility, and the
acquisition of breeding stock, and the demands for working
capital during the initial start-up period for the facility.
If all 54 Class B Shares offered hereby are sold, the net
proceeds to the Company, together with approximately
$6,480,000 of term debt borrowings, will be used for the
development of three new 2,450-sow weaned pig production
facilities. The Company anticipates that the net proceeds
of the offering of each Minimum Class B Block, the
approximately $2,160,000 of term debt borrowings for which
the Company seeks to obtain a commitment with respect to
each such Minimum Class B Block, and any interest earned
thereon, will be adequate to maintain its planned operations
during the Company's start-up phase for each new facility,
which is anticipated to be up to 11 to 13 months after
completion of the offering of such Minimum Class B Block.
See "Use of Proceeds," "Business--Financing" and "Risk
Factors."
Class C Common The net proceeds to the Company from the sale of the Class C
Shares offered hereby, after deducting expenses payable in
connection with this offering, are estimated to be
approximately $940,000 if one Minimum Class C Block of 24
Class C Shares is sold and approximately $3,100,000 if all
72 Class C Shares offered hereby are sold. The Company
intends to use the net proceeds from the sale of each
Minimum Class C Block, together with approximately
$2,160,000 of term debt borrowings for which the Company
seeks to obtain a commitment with respect to each such
Minimum Class C Block, for the development of one new weaned
pig production facility to be situated in or around Yuma
County, Colorado, Wayne County, Illinois or other locations
selected by the Company, including the purchase of real
estate, the construction of the facility, and the
acquisition of breeding stock, and the demands for working
capital during the initial start-up period for the facility.
If all 72 Class C Shares offered hereby are sold, the net
proceeds to the Company, together with approximately
$6,480,000 of term debt borrowings, will be used for the
development of three new 2,450-sow weaned pig production
facilities. The Company anticipates that the net proceeds
of the offering of each Minimum Class C Block, the
approximately $2,160,000 of term debt borrowings for which
the Company seeks to obtain a commitment with respect to
each such Minimum Class C Block, and any interest earned
thereon, will be adequate to maintain its planned operations
during the Company's start-up phase for each new facility,
which is anticipated to be up to 11 to 13 months after
completion of the offering of such Minimum Class C Block.
See "Use of Proceeds," "Business--Financing" and "Risk
Factors."
FEEDER PIG PURCHASE AGREEMENT
Each investor purchasing one or more Class A Shares must enter into a Feeder
Pig Purchase Agreement, in the form attached hereto as Exhibit B ("Feeder Pig
Purchase Agreement"), pursuant to which the investor member will be required to
purchase, and the Company will be required to sell, Qualifying Pigs (as defined
in the Agreement) in lots of no less than 900, and no more than 1,000, pigs per
lot, as determined by the Company. Lots of Qualifying Pigs are to be made
available to members of the Company on a rotating schedule determined and
implemented by the Company, with the number of lots made available to a member
and the frequency of availability being based upon the member's proportionate
ownership interest in the Company's outstanding Class A Common and the actual
production of Qualifying Pigs from the Company's facilities. If the Company is
successful in implementing its business plan and the proposed new production
facilities are developed on schedule, the initial lots of feeder pigs for new
investor members are not expected to be available for up to 13 to 15 months
after completion of the offering of a Minimum Class A Block to such members.
In the event that the production of feeder pigs exceeds two and seven-tenths
(2.7) lots per share of Class A Common on a prospective rolling 12-month basis,
the Company may sell such excess production to non-members, or retain such
excess production for the Company's own purposes, in lieu of selling such excess
production pursuant to the Feeder Pig Purchase Agreements. The purchase price
for Qualifying Pigs will be established pursuant to a formula consisting of the
sum of the following factors: the financing cost per pig, the operating cost
per pig, and a $4.50 per pig production margin (all as defined in the
Agreement). Payment of the estimated purchase price is due not less than one
day prior to the scheduled shipment date and is subject to adjustment within
five days following delivery for certain variations in the average weight of the
pigs.
A member's Feeder Pig Purchase Agreement will remain in effect for a period
of ten years after the date the first delivery of Qualifying Pigs is made to the
member thereunder and thereafter automatically will be renewed for succeeding
one year terms unless earlier terminated by the member. The Company may
terminate a member's Feeder Pig Purchase Agreement if the member fails to
purchase, pay for, and take delivery of any two lots of Qualifying Pigs when and
as made available to the member; provided, however, that for each ten shares of
Common Stock owned by a member, the number of such failures necessary before the
Company may terminate such member's Agreement is increased by one. In addition,
the member will be responsible for the damages and expenses incurred by the
Company as a result of any such failure, including (a) the difference between
the price payable by the member for the Qualifying Pigs that member has failed
to purchase, pay for, and take delivery under the Agreement and the then current
market price for feeder pigs, (b) $3,000, which amount is intended to cover the
Company's administrative and other costs and expenses associated with such
failure, and (c) all costs of collection, enforcement, and prosecution of the
Company's rights and remedies. The member may terminate the Feeder Pig Purchase
Agreement if the Company materially breaches any obligation or covenant in the
Agreement and such breach is not cured within 30 days following notice of such
breach given by the member to the Company. Furthermore, if the first delivery
of Qualifying Pigs thereunder is not made within 24 months of the date of the
Feeder Pig Purchase Agreement, the member may terminate the Agreement within
three months after the expiration of such 24-month period. A member's Feeder
Pig Purchase Agreement automatically terminates if the member assigns or
transfers all shares of Class A Common from which the member's right to purchase
lots of Qualifying Pigs under the Agreement derives. Except as described above,
a member does not have the right to terminate the Feeder Pig Purchase Agreement
prior to the expiration of the initial or any extended term thereof. As alluded
to above, a member has the right to terminate the Feeder Pig Purchase Agreement
at the expiration of the initial or any extended term thereof by giving notice
to the Company at least one year prior to the expiration of such initial or
extended term that the member desires to exercise such termination right. The
foregoing termination rights constitute the member's exclusive rights of
termination under the Feeder Pig Purchase Agreement.
As security for the performance of the member's obligations under the Feeder
Pig Purchase Agreement and for the Company's option to purchase a member's Class
A Common under certain circumstances, a security interest in all of the member's
Class A Common will be granted to the Company and the certificates representing
shares of Class A Common will be retained by Alliance. A member's failure to
perform his purchase obligation under the Feeder Pig Purchase Agreement, among
other occurrences, may result in the Company's foreclosure on this security
interest. No member has the right to demand the return of or to receive any of
the member's capital from the Company as a result of the termination of the
Feeder Pig Purchase Agreement or otherwise and regardless of whether demanded
prior to the expiration of the initial or any extended term of the Feeder Pig
Purchase Agreement or at any time after the expiration of any such term.
Moreover, the Company is under no obligation to redeem or repurchase its Class A
Common prior to the expiration of the initial or any extended term of the Feeder
Pig Purchase Agreement or at any time after the expiration of any such term.
The Class A Shares will not be readily marketable, and purchasers thereof may
not be able to liquidate their investment in the event of any emergency or
otherwise. See "Risk Factors--Obligation to Purchase Pigs," "-- Right of
Alliance to Acquire Shares" and "-- Lack of Liquidity; Absence of Market for
Shares," "Restrictions on Sale or Other Transfer of the Shares--Cooperative
Association Laws and Charter Documents" and "Feeder Pig Purchase Agreement."
WEANED PIG PURCHASE AGREEMENTS
Each investor purchasing one or more Class B Shares must enter into a Weaned
Pig Purchase Agreement, in the form attached hereto as Exhibit C ("Weaned Pig
Purchase Agreement"), pursuant to which the investor member will be required to
purchase, and the Company will be required to sell, Qualifying Pigs (as defined
in the Agreement) in lots of no less than 925, and no more than 1,025, pigs per
lot, as determined by the Company. Each investor purchasing one or more Class C
Shares must enter into a Class C Weaned Pig Purchase Agreement, in the form
attached hereto as Exhibit D ("Class C Weaned Pig Purchase Agreement" and
together with Weaned Pig Purchase Agreement, "Weaned Pig Agreement"), pursuant
to which the investor member will be required to purchase, and the Company will
be required to sell, Qualifying Pigs (as defined in the Agreement) in lots of no
less than 925, and no more than 1,025, pigs per lot, as determined by the
Company. The Company intends to allocate its production of weaned pigs from all
facilities between those that are to be sent to nurseries and developed by the
Company into feeder pigs, on the one hand, and those that are to be sold as
weaned pigs, on the other hand, in the same proportion that the number of the
Company's operating feeder pig production facilities bears to the number of the
Company's operating weaned pig production facilities. Lots of Qualifying Pigs
are to be made available to members of the Company on a rotating schedule
determined and implemented by the Company, with the number of lots made
available to a member and the frequency of availability being based upon the
member's proportionate ownership interest in the Company's outstanding Class B
Common or Class C Common, as the case may be, and the Company's actual
production of Qualifying Pigs that are to be sold to members of the Company as
weaned pigs. If the Company is successful in implementing its business plan and
the proposed new production facilities are developed on schedule, the initial
lots of weaned pigs for new investor members are not expected to be available
for up to 11 to 13 months after completion of the offering of a Minimum Class B
Block or Minimum Class C Block, as the case may be, to such members. In the
event that the production of weaned pigs exceeds two and seven-tenths (2.7) lots
per share of Class B Common or two and one-tenth (2.1) lots per share of Class C
Common, as the case may be, on a prospective rolling 12-month basis, the Company
may sell such excess production to non-members, or retain such excess production
for the Company's own purposes, in lieu of selling such excess production
pursuant to the Weaned Pig Agreements. The Company intends to cause any such
excess production of weaned pigs to be retained by the Company and developed
into feeder pigs. The purchase price for Qualifying Pigs will be established
pursuant to a formula consisting of the sum of the following factors: the
financing cost per pig, the operating cost per pig, and a $0 to $4.50 per pig
production margin, as determined by the Company (all as defined in the
Agreement). Payment of the estimated purchase price is due not less than one
day prior to the scheduled shipment date and is subject to adjustment within
five days following delivery for certain variations in the average weight of the
pigs.
A member's Weaned Pig Agreement will remain in effect for a period of ten
years after the date the first delivery of Qualifying Pigs is made to the member
thereunder and thereafter automatically will be renewed for succeeding one year
terms unless earlier terminated by the member. The Company may terminate a
member's Weaned Pig Agreement if the member fails to purchase, pay for, and take
delivery of any two lots of Qualifying Pigs when and as made available to the
member; provided, however, that for each ten shares of Common Stock owned by a
member, the number of such failures necessary before the Company may terminate
such member's Agreement is increased by one. In addition, the member will be
responsible for the damages and expenses incurred by the Company as a result of
any such failure, including (a) the difference between the price payable by the
member for the Qualifying Pigs that member has failed to purchase, pay for, and
take delivery under the Agreement and the then current market price for weaned
pigs, (b) $3,000, which amount is intended to cover the Company's administrative
and other costs and expenses associated with such failure, and (c) all costs of
collection, enforcement, and prosecution of the Company's rights and remedies.
The member may terminate the Weaned Pig Agreement if the Company materially
breaches any obligation or covenant in the Agreement and such breach is not
cured within 30 days following notice of such breach given by the member to the
Company. Furthermore, if the first delivery of Qualifying Pigs thereunder is
not made within 24 months of the date of the Weaned Pig Agreement, the member
may terminate the Agreement within three months after the expiration of such 24-
month period. A member's Weaned Pig Agreement automatically terminates if the
member assigns or transfers all shares of Class B Common or Class C Common, as
the case may be, from which the member's right to purchase lots of Qualifying
Pigs under the Agreement derives. Except as described above, a member does not
have the right to terminate the Weaned Pig Agreement prior to the expiration of
the initial or any extended term thereof. As alluded to above, a member has the
right to terminate the Weaned Pig Agreement at the expiration of the initial or
any extended term thereof by giving notice to the Company at least one year
prior to the expiration of such initial or extended term that the member desires
to exercise such termination right. The foregoing termination rights constitute
the member's exclusive rights of termination under the Weaned Pig Agreement.
As security for the performance of the member's obligations under the Weaned
Pig Agreement and for the Company's option under certain circumstances to
purchase a member's Class B Common or Class C Common, as the case may be, a
security interest in all of the member's Class B Common or Class C Common, as
the case may be, will be granted to the Company and the certificates
representing shares of such Common Stock will be retained by Alliance. A
member's failure to perform his purchase obligation under the Weaned Pig
Agreement, among other occurrences, may result in the Company's foreclosure on
this security interest. No member has the right to demand the return of or to
receive any of the member's capital from the Company as a result of the
termination of the Weaned Pig Agreement or otherwise and regardless of whether
demanded prior to the expiration of the initial or any extended term of the
Weaned Pig Agreement or at any time after the expiration of any such term.
Moreover, the Company is under no obligation to redeem or repurchase its Class B
Common or Class C Common, as the case may be, prior to the expiration of the
initial or any extended term of the Weaned Pig Agreement or at any time after
the expiration of any such term. The Class B Shares and Class C Shares will not
be readily marketable, and purchasers thereof may not be able to liquidate their
investment in the event of any emergency or otherwise. See "Risk Factors--
Obligation to Purchase Pigs," "-- Right of Alliance to Acquire Shares" and "--
Lack of Liquidity; Absence of Market for Shares," "Restrictions on Sale or Other
Transfer of the Shares--Cooperative Association Laws and Charter Documents" and
"Weaned Pig Purchase Agreements."
RISK FACTORS
An investment in the Shares involves a high degree of risk. In addition to
general investment risks and other information contained in this Prospectus, the
factors discussed below should be carefully considered in evaluating the Company
and its business and a possible investment in the Shares.
EARLY STAGE OF DEVELOPMENT
The Company was formed in May, 1994 (with its predecessor, Yuma LLC, being
formed in October, 1991) and is at an early stage of development. Although the
Company has been engaged in the production of feeder pigs since July 1994 (which
process includes the production of weaned pigs), the Company has not engaged at
all in the production of weaned pigs for sale. The Company is subject to all of
the risks inherent in the establishment of a new business and the operation of a
business generally, including the need for substantial capital to support its
facilities development efforts, the need to attract and retain qualified
personnel and experienced management, the risks related to facility location and
construction, changes in market conditions and costs, competition, inflation,
production efficiency, quality control, herd health, environmental and other
governmental laws and regulations, and the other risks described in this
Prospectus. There can be no assurance that the Company successfully will
implement its business plan to develop additional feeder pig production
facilities and weaned pig production facilities and realize any significant
economies of scale or that the feeder pigs and weaned pigs, as the case may be,
to be raised at such facilities will be made available to the Company's
stockholders under the Feeder Pig Purchase Agreements, Weaned Pig Purchase
Agreements and Class C Weaned Pig Purchase Agreements in quantities which are
sufficient to meet the requirements of such stockholders and at prices that are
less than otherwise could be obtained from other sources. If the Company is
successful in implementing its business plan and any new pig production
facilities are developed on schedule, the initial lots of feeder pigs resulting
from the development and expansion of the Company's feeder pig production
operations are not expected to be available to new Class A Common investor
members for up to 13 to 15 months after completion of the sale of a Minimum
Class A Block to such members and the initial lots of weaned pigs resulting from
the development of the Company's weaned pig production operations are not
expected to be available to new Class B Common investor members or new Class C
Common investor members, as the case may be, for up to 11 to 13 months after
completion of the sale of a Minimum Block to such members. New investor members
will not be entitled to purchase pigs pursuant to the Feeder Pig Purchase
Agreements, Weaned Pig Purchase Agreements or Class C Weaned Pig Purchase
Agreements, as the case may be, until such time. See "Business."
BREEDING STOCK
The availability in sufficient numbers of genetically consistent breeding
stock that satisfies the characteristics required by the Company and that can be
obtained on acceptable terms and prices is critical to the Company's operations.
No assurances can be given that the Company's requirements for breeding stock
will be satisfied on acceptable terms and prices, if at all. See "Business."
HERD HEALTH
The health of the breeding herd and pigs produced by the Company can greatly
impact, and has greatly impacted, the profitability of the Company. In the
event that the Company's breeding herd or feeder or weaned pig population
contracts a disease causing diminished breeding stock productivity, or extreme
mortality and morbidity, the Company will face substantial cost or loss and its
operating results will be adversely affected. In addition, herd health problems
will result in an increase in the price for pigs under the Feeder Pig Purchase
Agreements, Weaned Pig Purchase Agreements and Class C Weaned Pig Purchase
Agreements as well as a reduction in the pigs available for purchase by
stockholders under said Agreements. Alliance and its members have suffered the
consequences referred to in this paragraph as a result of herd health problems.
Although it is anticipated that each of the new facilities to be developed, in
part, with the proceeds from this offering will be designed in an attempt to
allow for disease separation between the facilities, large numbers of animals
will be raised together and may be vulnerable to disease. No assurance can be
given that the Company will be able to avoid herd health problems. See
"Business," "Feeder Pig Purchase Agreement" and "Weaned Pig Purchase
Agreements."
VOLATILE INPUT COSTS
Because the cost of feed and other supplies constitute a substantial portion
of the cost of producing a feeder or weaned pig, the Company's profitability is
extremely sensitive to changes in the cost of such inputs. These costs are
subject to substantial fluctuations based upon regional and seasonal
availability and demand, including those attributable to crop conditions,
weather and other factors. A substantial increase in the cost of these inputs,
or a substantial decline in the availability of these inputs, could materially
adversely affect the performance of the Company and result in the price for pigs
under the Feeder Pig Purchase Agreements, Weaned Pig Purchase Agreements or
Class C Weaned Pig Purchase Agreements, as the case may be, being higher than
otherwise could be obtained from other sources. In this regard, the Company's
average net sales price for its pigs exceeded the average industry market price
for pigs for the 1995 and 1996 fiscal years, as well as for the first six
months of fiscal 1997. Moreover, Alliance's operating results are dependent
upon the sale price paid to Alliance for feeder or weaned pigs, which
in turn is or will be determined in part based on the twelve month
historical rolling average of operating costs incurred by Alliance in producing
feeder pigs and the five month historical rolling average of operating costs
incurred by Alliance in producing weaned pigs. Actual changes in the sale price
of feeder and weaned pigs therefore will lag changes in the related operating
costs and may adversely affect Alliance's operating results, particularly in the
event of sudden movements, or continual increases, in such operating costs. See
"Business--Purchase of Feed and Other Inputs," "Feeder Pig Purchase Agreement"
and "Weaned Pig Purchase Agreements."
ADEQUATE WATER SUPPLY
The Company's operations are dependent upon the availability of an ample
supply of pure water at reasonable cost. Although the Company has obtained the
necessary commercial water well permits to obtain the water necessary to conduct
its current operations in Colorado, the Company has been advised that it will be
unable to obtain any new commercial well permits in Colorado. Accordingly, the
Company has found it necessary in Colorado to obtain the water necessary for its
operations through the purchase of more expensive, irrigated land or other real
property already having the necessary commercial well permits. No assurance can
be given that the Company will be able to obtain the water permits necessary to
enable it to expand its operations in Colorado, Illinois or other locations
selected by the Company. The Company's inability to obtain the necessary water
well permits for the expansion of its operations could have a material adverse
effect on the Company's business. See "Business--Facilities--Location of
Facilities."
OBLIGATION TO PURCHASE PIGS
Each investor purchasing one or more Class A Shares must enter into a Feeder
Pig Purchase Agreement, pursuant to which such investor is obligated to purchase
his or her proportionate share of the Company's feeder pig production for an
initial term of ten years and, unless earlier terminated by the member, for
succeeding one year renewal terms, and each investor purchasing one or more
Class B Shares or Class C Shares, as the case may be, must enter into a Weaned
Pig Agreement, pursuant to which such investor is obligated to purchase his or
her proportionate share of the Company's weaned pig production that is to be
sold to members as weaned pigs for an initial term of ten years and, unless
earlier terminated by the member, for succeeding one year renewal terms. In
each such case, pigs will be made available to members of the Company on a
rotating schedule determined and implemented by the Company, with the number of
lots made available to a member and the frequency of availability being based
upon the member's proportionate ownership interest in the Company's outstanding
Class A Common, with respect to feeder pigs, the member's proportionate
ownership interest in the Company's outstanding Class B Common or Class C
Common, as the case may be, with respect to weaned pigs, and the actual
production of Qualifying Pigs from the Company's facilities. No assurance can
be given that the availability of feeder or weaned pigs to members will coincide
with the member's needs or capacity to take delivery.
The purchase price for feeder and weaned pigs will be established pursuant to
a formula consisting of the sum of the following factors: the financing cost
per pig, the operating cost per pig, and a production margin of $4.50 per pig,
in the case of feeder pigs, and of $0 to $4.50 per pig (as determined by the
Company in its discretion), in the case of weaned pigs (all as defined in the
Feeder Pig Purchase Agreement or Weaned Pig Agreement, as the case may be). The
Company believes the effect of such pricing is to shift the risks of increasing
production costs and lower market prices for pigs from the Company and to the
member. No assurance can be given that the price for feeder and weaned pigs
under the Feeder Pig Purchase Agreement or Weaned Pig Agreement, as the case may
be, will be less than otherwise could be obtained from other sources. Among
other factors, a substantial increase in operating costs, including the costs of
feed and other supplies and the costs associated with diminished breeding stock
health or productivity, or extreme mortality and morbidity, could result in a
higher price to be paid by members for feeder and weaned pigs than otherwise
could be obtained from other sources. Moreover, the prevailing market price for
feeder and weaned pigs could decline below the price to be paid for pigs under
the Feeder Pig Purchase Agreement or Weaned Pig Agreement, as the case may be.
If a member fails to purchase, pay for, and take delivery of any two lots of
pigs when and as made available to the member, the Company may terminate the
member's Feeder Pig Purchase Agreement or Weaned Pig Agreement, as the case may
be, and foreclose upon the Company's security interest in the member's Common
Stock; provided, however, that for each ten shares of Common Stock owned by a
member, the number of such permitted failures is increased by one. In addition,
the member will be responsible for the damages and expenses incurred by the
Company as a result of any failure to purchase, pay for, and take delivery of
any lot of Qualifying Pigs, including (a) damages equal to the difference
between the price payable by the member for the Qualifying Pigs that member has
failed to purchase, pay for, and take delivery under the Agreement and the then
current market price for feeder or weaned pigs, as the case may be, (b) $3,000,
which amount is intended to cover the Company's administrative and other costs
and expenses associated with such failure, and (c) all costs of collection,
enforcement, and prosecution of the Company's rights and remedies.
With certain limited exceptions relating to the Company's breach of any of
its obligations under the Feeder Pig Purchase Agreement or Weaned Pig Agreement,
as the case may be, or the Company's failure to deliver pigs within 24 months of
the date of such Agreement, a member does not have the right to terminate such
Agreement prior to the expiration of the initial or any extended term of such
Agreement. The member's right to terminate the Feeder Pig Purchase Agreement or
Weaned Pig Agreement, as the case may be, at the expiration of the initial or
any extended term thereof may be exercised only if the member gives notice to
the Company at least one year prior to the expiration of such initial or
extended term that the member desires to exercise such termination right. A
member has no other right to terminate the Feeder Pig Purchase Agreement or
Weaned Pig Agreement, as the case may be. Moreover, no member has the right to
demand the return of or to receive any of the member's capital from the Company
as a result of the termination of any such Agreement or otherwise and regardless
of whether demanded prior to the expiration of the initial or any extended term
of such Agreement or at any time after the expiration of any such term. The
Company is under no obligation to redeem or repurchase its Common Stock prior to
the expiration of the initial or any extended term of the Feeder Pig Purchase
Agreement or Weaned Pig Agreement, as the case may be, or at any time after the
expiration of any such term. See "Risk Factors--Right of Alliance to Acquire
Shares" and "-- Lack of Liquidity; Absence of Market for Shares," "Business,"
"Feeder Pig Purchase Agreement," "Weaned Pig Purchase Agreements" and
"Restrictions on Sale or Other Transfer of the Shares--Cooperative Association
Laws and Charter Documents."
UNPURCHASED AND EXCESS PIGS
Each investor purchasing one or more Class A Shares must enter into a Feeder
Pig Purchase Agreement, pursuant to which such investor agrees to purchase his
or her proportionate share of the Company's feeder pig production, and each
investor purchasing one or more Class B Shares or Class C Shares, as the case
may be, must enter into a Weaned Pig Agreement, pursuant to which such investor
agrees to purchase his or her proportionate share (based on the investor's
proportionate ownership interest in the Company's outstanding Class B Common or
Class C Common, as the case may be) of the Company's weaned pig production that
is to be sold to members of the Company as weaned pigs. The failure of the
Company's stockholders to purchase their respective share of the Company's pig
production could materially adversely affect the performance of the Company. In
the event that one or more stockholders fail to purchase their respective share
of the Company's pig production, it will be necessary for the Company to find
alternate purchasers for its unpurchased pigs. In addition, it also may be
necessary to find alternate purchasers to the extent the Company's production of
feeder pigs exceeds two and seven-tenths (2.7) lots per share of Class A Common
on a prospective rolling 12-month basis, to the extent the Company's production
of weaned pigs under the Weaned Pig Purchase Agreements exceeds two and seven-
tenths (2.7) lots per share of Class B Common on a prospective rolling 12-month
basis or to the extent the Company's production of weaned pigs under the Class C
Weaned Pig Purchase Agreements exceeds two and one-tenth (2.1) lots per share of
Class C Common on a prospective rolling 12-month basis. Stockholders will not
be obligated under the Feeder Pig Purchase Agreements or Weaned Pig Agreements
to purchase their proportionate share of such excess production. Although the
Company has agreed to provide Farmland the first opportunity to purchase feeder
and weaned pigs that stockholders have failed to purchase and any excess feeder
and weaned pig production during the five year period ending July 13, 1999, no
assurances can be given that Farmland will exercise its option to purchase any
such excess pigs. In addition, no assurances can be given that alternate
purchasers will be available, or that any such alternate purchasers will agree
to purchase feeder or weaned pigs upon terms as favorable to the Company as
those contained in the Feeder Pig Purchase Agreements or Weaned Pig Agreements,
as the case may be. To the extent that unpurchased feeder or weaned pigs are
sold to alternate purchasers at prices less than would have been obtained under
such Agreements, the price for feeder or weaned pigs to stockholders may
increase. See "Feeder Pig Purchase Agreement," "Weaned Pig Purchase Agreements"
and "Certain Relationships and Related Transactions--Farmland."
LOSSES ASSOCIATED WITH START-UP
The Company was formed recently and has a limited history of operations. The
development of feeder and weaned pig production facilities entails substantial
up front expenditures for the purchase of real estate, the construction of the
facilities, and the acquisition of breeding stock and for working capital during
the initial start-up period for each new facility. As a result, the Company
anticipates that the development of feeder and weaned pig production facilities
will result in Alliance's continued incurrence of losses. There can be no
assurance that Alliance will become profitable after it ceases facilities
development activities. See "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
NO LOAN COMMITMENT; FUNDING CONDITIONS
With respect to its offering of each Minimum Class A Block of 17 Class A
Shares, the Company anticipates that it will be required to borrow at least
$2,720,000 of term debt in order to further its business strategy in developing
each additional feeder pig production facility. With respect to its offering of
each Minimum Class B Block of 18 Class B Shares and each Minimum Class C Block
of 24 Class C Shares, the Company anticipates that it will be required to borrow
at least $2,160,000 of term debt in order to further its business strategy in
developing each weaned pig production facility. Assuming the sale by the
Company of all 51 Class A Shares offered hereby, the Company intends to borrow
an aggregate of at least $8,160,000, which in combination with the net proceeds
of the offering of such Class A Shares, is anticipated to be sufficient to
enable it to construct or acquire three new feeder pig production facilities
(including one facility under development), acquire breeding stock, and pay
start-up and operating expenses in order to further develop and expand its
feeder pig production business. As of the date of this Prospectus, the Company
has obtained a commitment for the necessary feeder pig production loans from its
current lender, CoBank, ACB ("CoBank") until August 31, 1997 (extended from the
original February 28, 1997 expiration date). No assurances can be given that
the Company will be able to obtain an extension of such commitment after that
date on favorable terms, if at all. Assuming the sale by the Company of all 54
Class B Shares offered hereby, the Company intends to borrow an aggregate of at
least $6,480,000, which in combination with the net proceeds of the offering of
such Class B Shares, is anticipated to be sufficient to enable it to construct
or acquire three new weaned pig production facilities, acquire breeding stock,
and pay start-up and operating expenses in order to develop its weaned pig
production business. Assuming the sale by the Company of all 72 Class C Shares
offered hereby, the Company intends to borrow an aggregate of at least
$6,480,000, which in combination with the net proceeds of the offering of such
Class C Shares, is anticipated to be sufficient to enable it to construct or
acquire three new weaned pig production facilities, acquire breeding stock, and
pay start-up and operating expenses in order to develop its weaned pig
production business. As of the date of this Prospectus, the Company is engaged
in negotiations with a lender to obtain a commitment for the necessary weaned
pig production loans totaling $12,960,000. No assurances can be given that the
Company will be able to obtain such commitment on favorable terms, if at all.
The actual advance of funds under the CoBank commitment or any other loan
commitment that reasonably could be made available to the Company is or will be
subject to the satisfaction of certain conditions precedent. In addition, any
such commitment may be withdrawn or terminated by the prospective lender under
certain circumstances. There is no assurance that the funding conditions
precedent will be satisfied and that the loan funds will be made available to
the Company when needed, that the debt service requirements of such loan will
not result in the price for feeder or weaned pigs under the Feeder Pig Purchase
Agreements or Weaned Pig Agreements, as the case may be, being higher than
otherwise could be obtained from other sources, that alternative sources of
financing will be available on acceptable terms, or that the aggregate borrowing
needs of the Company will not exceed $8,160,000, with respect to feeder pig
production, or $12,960,000, with respect to weaned pig production. In the event
that the CoBank commitment for a feeder pig production loan or any extension of
such commitment is withdrawn or terminated, or the Company is unable to obtain
an acceptable commitment for a weaned pig production loan from a lender prior to
or concurrently with the consummation of the offering of any Minimum Class A
Block, Minimum Class B Block or Minimum Class C Block of Shares, all
subscriptions for each such Minimum Block of Shares will be rejected and any
amount received by the Company in payment of the subscription price will be
returned to the prospective investors, together with any interest earned thereon
and without deduction for expenses. See "Business--Financing," "Plan of
Distribution--Subscription Procedure," "-- Escrow of Proceeds" and "--
Termination of the Offering," "Use of Proceeds" and "Capitalization."
SUBSTANTIAL INDEBTEDNESS
The Company is highly leveraged and will continue to be so after its
anticipated borrowing of term debt in connection with the issuance and sale by
the Company of all or part of the Shares offered hereby. The degree to which
the Company is and will be leveraged could have an adverse impact on the
Company, including (i) increased vulnerability to adverse general economic and
market conditions, (ii) impaired ability to obtain additional financing for
future working capital, capital expenditures, general corporate or other
purposes, and (iii) dedication of a significant portion of cash provided by
operating activities to the payment of debt obligations and thereby reducing
funds available for operations or distribution. The Company's ability to make
required debt service payments in the future will be dependent upon the
Company's operating results, which are subject to financial, economic and other
factors affecting the Company, many of which are beyond its control. Moreover,
such operating results will be dependent upon the sale price paid to the Company
for feeder pigs, which in turn is determined in part based on the twelve month
historical rolling average of operating costs incurred by the Company in
producing such pigs, and upon the sale price paid to the Company for weaned
pigs, which in turn will be determined in part based on the five month
historical rolling average of operating costs incurred by the Company in
producing such pigs. Actual changes in the sale price of feeder and weaned pigs
therefore will lag changes in the related operating costs and may affect the
Company's ability to timely make required debt service payments. No assurance
can be given that the Company will be able to make required debt service
payments. No person has agreed to guarantee the obligation of the Company to
make timely debt service payments. See "Capitalization," "Business--Financing,"
"Feeder Pig Purchase Agreement" and "Weaned Pig Purchase Agreements."
ASSETS SECURING DEBT; CREDIT AGREEMENT RESTRICTIONS
The Company entered into various loan agreements and other documentation with
the Company's existing lender, CoBank. Pursuant to such loan documentation ,
the Company has been, and anticipates that it will be, required to grant liens
on substantially all of its properties and assets to CoBank and to comply with
various affirmative and negative covenants, including but not limited to (i)
maintenance of minimum levels of working capital, (ii) restrictions on the
incurrence of additional indebtedness, (iii) restrictions on certain liens,
mergers, sales of assets, investments, guaranties, loans, advances and business
activities unrelated to existing operations, and (iv) restrictions on the
declaration and payment of dividends or patronage distributions. There can be
no assurance that Alliance will be able to achieve and maintain compliance with
the prescribed covenants of such loan documentation. Alliance has successfully
sought and received consents, waivers and amendments to its loan documentation
on various occasions. If further consents, waivers or amendments are requested
by Alliance, including any such consents, waivers or amendments required for the
payment of rebates on the price of pigs sold, there can be no assurance that
Alliance's lender will again grant such requests. The failure to obtain any
such consents, waivers or amendments would reduce Alliance's flexibility to
respond to adverse industry conditions and could have a material adverse effect
on Alliance's results of operations, financial condition and business. If an
event of default occurs under the Company=s loan documentation, the lender will
have the right to foreclose upon such collateral. In addition, the terms of the
Company's financing with CoBank might adversely affect the ability of the
Company to obtain additional financing for any future expansion efforts,
including the development of feeder or weaned pig production facilities. No
person has agreed to guarantee the obligation of the Company to make timely debt
service payments. See "Business--Financing."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING; AND WORKING CAPITAL
DEFICIT
The Company anticipates that the net proceeds of the offering of each Minimum
Class A Block of 17 Class A Shares, the $2,720,000 of term debt borrowings for
which the Company seeks to obtain a commitment with respect to each such Minimum
Class A Block, and any interest earned thereon, will be adequate to maintain its
current and planned operations during the Company's start-up phase for each new
feeder pig production facility, which is anticipated to be up to 13 to 15 months
after completion of the offering of such Minimum Class A Block. As of the date
of this Prospectus, the Company has obtained a commitment until August 31, 1997
for the approximately $2,720,000 of debt financing required with respect to each
such Minimum Class A Block. The Company anticipates that the net proceeds of
the offering of each Minimum Class B Block of 18 Class B Shares or each Minimum
Class C Block of 24 Class C Shares, the $2,160,000 of term debt borrowings for
which the Company seeks to obtain a commitment with respect to each such Minimum
Block, and any interest earned thereon, will be adequate to maintain its planned
operations during the Company's start-up phase for each new weaned pig
production facility, which is anticipated to be up to 11 to 13 months after
completion of the offering of such Minimum Block. No assurance can be given
that circumstances and events will not occur that would consume capital
resources available for each new feeder or weaned pig production facility before
such time and thereby require additional financing to be raised. The Company is
and will be subject to the risks normally associated with debt financing,
including the risk that the Company's cash flow will be insufficient to meet
required payments of principal and interest and the risk that indebtedness will
not be able to be refinanced or that the terms of such refinancing will not be
as favorable as the terms of the original indebtedness and thereby increasing
the cost to stockholders of feeder or weaned pigs made available under the
Feeder Pig Purchase Agreements or Weaned Pig Agreements, as the case may be. As
of February 28, 1997, Alliance had a working capital deficit of $1,139,041. The
Company anticipates that it will be required to raise additional capital in
order to further expand its operations beyond the expansion contemplated in
connection with the offering of Shares made hereby. Such capital may be raised
through additional private or public financings, as well as collaborative
relationships, borrowings and other available sources. If the Company needs to
raise additional funds, there can be no assurance that additional or sufficient
financing will be available, or, if available, that it will be available on
acceptable terms. If additional funds are raised by issuing equity securities
of the Company, dilution to then existing stockholders may result. If adequate
funds are not available, the Company may be required to significantly curtail a
portion of its planned operations. See "Business."
COMPETITION
Many of the Company's existing or potential competitors may have
substantially greater financial, technical and personnel resources than the
Company. There can be no assurance that the Company's competitors will not be
more successful than the Company in developing and improving pork production
technologies and raising consistent high quality feeder and weaned pigs that are
more economical to raise than any which may be developed or raised by the
Company. Moreover, as additional competitors commence operations, the supply of
feeder or weaned pigs may exceed demand and result in a downward pressure on the
prevailing market prices for such pigs. Under the Feeder Pig Purchase
Agreements or Weaned Pig Agreements, as the case may be, each investor will be
obligated to purchase his proportionate share (based on the investor's
proportionate ownership interest in the Company's outstanding Class A Common,
Class B Common or Class C Common, as the case may be) of the Company's feeder or
weaned pig production based in large part on Alliance's cost of production.
Accordingly, if the Company is not successful in developing and improving pork
production technologies relative to its competitors or if the prevailing market
prices for feeder or weaned pigs decline below those applicable under such
Agreements, each investor may be obligated to purchase his proportionate share
of the Company's feeder or weaned pig production at a price higher than could be
available from other sources. IN THIS REGARD, THE COMPANY'S AVERAGE NET SALES
PRICE FOR ITS PIGS EXCEEDED THE AVERAGE INDUSTRY MARKET PRICE FOR PIGS FOR THE
1995 AND 1996 FISCAL YEARS, AS WELL AS FOR THE FIRST SIX MONTHS OF FISCAL 1997.
The Company's ability to achieve or maintain cost competitive feeder or
weaned pig production operations on an ongoing basis may depend on its
ability to raise additional capital, which may not then be available on
acceptable terms, if at all. See "Business--Business Environment" and
"-- Competition," "Feeder Pig Purchase Agreement" and "Weaned Pig Purchase
Agreements."
ANTI-CORPORATE FARMING SENTIMENT
The development of large corporate farming operations and concentration of
hog production in larger-scale facilities, such as those of the Company, has
increased dramatically over the last decade. This development has engendered
opposition from residents of Colorado, Illinois and other states in which the
Company conducts, or may conduct, its business operations. Such opposition may
reflect various concerns, including concerns about pollution and effluent
emissions, excessive water use, offensive odor, humane treatment of animals and
the perceived threat to small farmers and the family farm. To the extent that
public opposition is expressed with respect to large corporate farming
operations such as those of the Company, national, state or local laws
restricting their operations may be enacted in response, legal proceedings may
be instituted to obtain monetary awards, injunctive orders or other legal or
equitable remedies, potential employees may be dissuaded from accepting a
position with such corporate farming operators, property owners may be reluctant
to sell parcels to such corporate farming operators, or other consequences may
result that could have a material adverse effect on the Company and its
business. No assurances can be given that public opposition will not result in
the occurrence of any one or more of such adverse consequences. See "Business--
Business Environment."
EXPANSION
Within up to 13 to 15 months after the completion of the offering of each
Minimum Class A Block of 17 Class A Shares, the Company anticipates that it will
be able to develop a new feeder pig production facility as a result of such
offering and that the initial lots of feeder pigs produced from such facility
would be available to investor members, and within up to 11 to 13 months after
the completion of the offering of each Minimum Class B Block of 18 Class B
Shares or each Minimum Class C Block of 24 Class C Shares, as the case may be,
the Company anticipates that it will be able to develop a new weaned pig
production facility as a result of such offering and that the initial lots of
weaned pigs produced from such facility would be available to investor members.
There can be no assurance that the Company or its contractors will be able to
achieve this goal. The development and successful operation of each new
facility depends on various factors, including the availability of suitable
sites, regulatory compliance, the ability to meet construction schedules, the
capabilities of the Company's contractors, the ability to maintain facility
construction costs within original estimates, the ability of the Company to
manage its anticipated expansion generally and to hire and train qualified
personnel, and general economic and business conditions. Many of the foregoing
factors are not within the control of the Company or its contractors, and
therefore no assurance can be given that the Company's expansion objectives and
goals will be successfully implemented. See "Business."
CONTROL BY CURRENT STOCKHOLDERS; DISPARATE VOTING RIGHTS; POTENTIAL CONFLICTS OF
INTEREST
As of the date of this Prospectus, Farmland, Farmers Cooperative Elevator
Company, Yuma Farmers Milling and Mercantile Cooperative Company ("Yuma
Cooperative"), and Corn Plus, L.C. collectively own 79 shares of the Company's
Class A Common, which for such stockholders will constitute approximately 42.0%,
9.2%, 10.1% and 5.0%, respectively, of the combined voting power of the shares
of Common Stock outstanding immediately after completion of the offering of one
Minimum Class A Block of 17 Class A Shares, approximately 41.7%, 9.2%, 10.0% and
5.0%, respectively, of the combined voting power of the shares of Common Stock
outstanding immediately after completion of the offering of one Minimum Class B
Block of 18 Class B Shares, approximately 39.7%, 8.7%, 9.5% and 4.8%,
respectively, of the combined voting power of the shares of Common Stock
outstanding immediately after completion of the offering of one Minimum Class C
Block of 24 Class C Shares, approximately 32.7%, 7.2%, 7.8% and 3.9%,
respectively, of the combined voting power of the shares of Common Stock
outstanding immediately after completion of the offering of all 51 Class A
Shares offered hereby, approximately 32.1%, 7.1%, 7.7% and 3.8%, respectively,
of the combined voting power of the shares of Common Stock outstanding
immediately after completion of the offering of all 54 Class B Shares offered
hereby, approximately 28.7%, 6.3%, 6.9% and 3.4%, respectively, of the combined
voting power of the shares of Common Stock outstanding immediately after
completion of the offering of all 72 Class C Shares offered hereby, and
approximately 17.9%, 3.9%, 4.3% and 2.2%, respectively, of the combined voting
power of the shares of Common Stock outstanding immediately after completion of
the offering of all 177 Shares offered hereby (in each case, assuming that such
stockholders do not purchase any Shares in the offering). Although no one
cooperative association stockholder is permitted to vote shares of Common Stock
representing 25% or more of the shares outstanding during any period in which
the Company has borrowed money from a lender subject to regulations of the Farm
Credit Administration regarding loan policies and operations (such as the
Company's current lender), the above-named stockholders could continue to
exercise a significant degree of influence or control over the Company with
respect to the election of directors and other matters if they, or several of
them, agree to vote together on such matters. See "Principal Stockholders" and
"Description of Capital Stock."
On all matters submitted to a vote of the Company's stockholders, holders of
Class A Common and holders of Class B Common each are entitled to one vote per
share while holders of Class C Common are entitled to three-fourths of one vote
per share. See "Description of Capital Stock."
The Company has contracted with Farmland and Yuma Cooperative for the
provision of certain requirements of the Company, including the supply of feed
and other inputs, breeding stock, and administrative services. The Company's
agreements with Farmland and Yuma Cooperative may be modified in the future and
the Company may enter into additional agreements or transactions with Farmland
and Yuma Cooperative. Farmland, through its various business divisions,
subsidiaries and affiliates, is engaged in the production of livestock
elsewhere, in the sale of the above described supplies and services to other
parties, and in the slaughter and processing of hogs. Farmland may have
conflicting interests in the provision of such services to the Company in light
of its other business activities. Similarly, Yuma Cooperative also may have
conflicting interests in the provision of goods and services to the Company.
See "Certain Relationships and Related Transactions."
ATTRACTION AND RETENTION OF EMPLOYEES
The Company is dependent on members of its management and facilities
operations personnel, the loss of whose services might adversely affect the
achievement and success of its planned expansion activities. In addition,
attracting and retaining qualified facilities operations personnel will be
important to the Company's success. The inability to acquire and retain the
services of such management and facilities operations personnel could have a
material adverse effect on the Company's operations and significantly impact its
prospects for success. Although the Company has contracted with Farmland and
others to provide certain managerial, administrative and other services,
Alliance can give no assurance that it will be able to attract and retain the
personnel it needs on acceptable terms. See "Business--Employees," "Management"
and "Certain Relationships and Related Transactions."
DISTRIBUTIONS AND DIVIDENDS
No dividends will be paid by Alliance on its Common Stock. ALTHOUGH IN THE
PAST THE COMPANY HAS AUTHORIZED THE PAYMENT OF CASH REBATES TO ITS MEMBERS
WITH RESPECT TO FEEDER PIGS SOLD BY THE COMPANY TO SUCH MEMBERS, THE COMPANY
DOES NOT INTEND TO AUTHORIZE ANY FUTURE REBATE PAYMENTS. Investors who
anticipate the need for an immediate return on their investment should refrain
from purchasing the Shares. The Company, however, intends to make annual
patronage distributions of its net margins (as hereinafter defined), if any, to
its members on the basis of the quantity or value of business done by the
Company with or for the member-patrons. Such patronage distributions may be
paid in cash, written notices of allocation, whether qualified or non-qualified,
or a combination thereof, as determined by the Company's Board of Directors in
its sole discretion. The Company has entered into various loan agreements and
other documentation with its existing lender which restrict the Company's
ability to pay patronage distributions in cash. See "Patronage Distribution
Policy" and "Business--Financing."
TAXABLE INCOME WITHOUT SUFFICIENT CASH DISTRIBUTIONS TO PAY THE TAX
The Company is required annually to distribute its patronage sourced income
to its stockholder-patrons on the basis of the quantity or value of business
done with or for its stockholder-patrons. Subject to restrictions imposed by
the Company's lender, the Company anticipates that it will distribute its
patronage distributions through a combination of cash and qualified written
notices of allocation. In such case, the recipient stockholder-patron will have
to report in its taxable income the cash and the face amount of the qualified
written notices of allocation. The Company's Board of Directors will determine
each year the portion of the patronage distribution which is to be paid in cash
or qualified written notice of allocation, although the Company anticipates that
at least twenty percent of the patronage distribution will be paid in cash.
Accordingly, a stockholder may have to pay income taxes on the patronage
distributions in an amount that exceeds (possibly by a substantial amount) the
cash distributions which may be made by the Company to the stockholder. See
"Patronage Distribution Policy" and "Business--Federal Income Taxation."
ARBITRARY DETERMINATION OF OFFERING PRICE; DILUTION
The public offering price for the Shares has been determined arbitrarily by
the Company and is not based on any recognized criteria of value. Among the
factors considered in making such determination are the amount of the
anticipated debt borrowings, together with the net proceeds from the sale of the
Shares, required to develop each additional feeder pig production facility or
weaned pig production facility, as the case may be, which factor takes into
account the anticipated development costs for new facilities, the applicable
debt-to-equity ratio or minimum equity amount that the Company anticipated would
be required by its lender, and the anticipated interest and debt service
requirements associated with such borrowings. The public offering price for the
Class A Shares, Class B Shares and Class C Shares, respectively, may not
necessarily reflect any relationship to the Company's assets, historical losses,
book value or other criteria of value. It is anticipated that purchasers of
shares of Common Stock in this offering will experience immediate and
substantial dilution in net tangible book value. See "Plan of Distribution--
Offering Price."
GOVERNMENT REGULATION
The Company is subject to various federal, state and local government
regulations, including those restricting certain types of investor-owned
livestock production operations and those concerning the environment,
occupational safety and health, and zoning. While the Company attempts to
monitor all aspects of its regulatory compliance responsibilities, there can be
no assurance that it will satisfy all applicable governmental regulations or
obtain all required approvals. Failure to comply with applicable regulations
can, among other things, result in fines, suspensions of regulatory approvals,
operating restrictions, and criminal prosecution. Changes in or additions to
applicable regulations also could adversely affect the Company and its business.
See "Business--Government Regulation" and "--Waste Disposal and Environmental
Matters."
RIGHT OF ALLIANCE TO ACQUIRE SHARES
Upon the occurrence of certain events, the Company has the option, but not
the obligation, to purchase an investor's Shares (a) by tendering to the
investor (i) the lesser of (A) the price paid to the Company for such investor's
Shares and (B) the book value of such Shares and capital credits associated
therewith, less (ii) any indebtedness due the Company from the investor, or (b)
by tendering to the investor a nonvoting certificate of participation
representing the investor's interest at the time of such tender in a face amount
equal to the amount specified in clause (a) above. The occurrences giving rise
to such option and to a termination of the investor's membership in the Company
include the following events: (a) the investor's termination of a Feeder Pig
Purchase Agreement or Weaned Pig Agreement, as the case may be, without having
executed and delivered a replacement for such Agreement or the investor's
failure to be a party to such Agreement, and (b) the Company's Board of
Directors by resolution finds that the investor has (i) intentionally or
repeatedly violated any provision of the Company's Articles of Incorporation or
Bylaws, (ii) breached a Feeder Pig Purchase Agreement or Weaned Pig Agreement,
as the case may be, or materially breached any other contract with Company,
(iii) remained indebted to the Company for 90 days after such indebtedness first
becomes payable, or (iv) willfully obstructed any lawful purpose or activity of
the Company. The provisions giving the Company the right to purchase an
investor's Common Stock will make it more difficult to effect a change in
control of the Company. See "Risk Factors--Obligation to Purchase Pigs" and "--
Lack of Liquidity; Absence of Market for Shares," "Feeder Pig Purchase
Agreement," "Weaned Pig Purchase Agreements" and "Restrictions on Sale and Other
Transfer of the Shares--Cooperative Association Laws and Charter Documents."
LACK OF LIQUIDITY; ABSENCE OF MARKET FOR SHARES
Potential investors in the Shares should be fully aware of the long-term
nature of their investment and of their related obligation to purchase feeder or
weaned pigs under the Feeder Pig Purchase Agreement or Weaned Pig Agreements, as
the case may be. No public market presently exists for the Common Stock of the
Company and no public market is expected to develop for the existing Common
Stock of the Company or the Shares as a result of the offering contemplated
hereby. Transfers of Common Stock are subject to significant restrictions and
limitations set forth in the Colorado Cooperative Association Law and the
Company's Articles of Incorporation and Bylaws, including a requirement that the
Company's Board of Directors give its consent prior to any transfer of Shares,
that the transferee of Class A Common enter into a Feeder Pig Purchase Agreement
with the Company, that the transferee of Class B Common enter into a Weaned Pig
Purchase Agreement with the Company, and that the transferee of Class C Common
enter into a Class C Weaned Pig Purchase Agreement with the Company. In
addition, the Company has the right to purchase a member's Common Stock under
certain circumstances at a price that may be less than could otherwise be
obtained from other potential purchasers. The certificates representing the
Shares will bear one or more legends describing or referencing certain
applicable restrictions on transfer. In order to subscribe for Shares, (a) each
investor in Class A Common must enter into a Feeder Pig Purchase Agreement
pursuant to which such investor is obligated to purchase his or her
proportionate share of the Company's feeder pig production for an initial term
of ten years and, unless earlier terminated by the member, for succeeding one
year renewal terms, and (b) each investor in Class B Common or Class C Common,
as the case may be, must enter into a Weaned Pig Agreement pursuant to which
such investor is obligated to purchase his or her proportionate share (based on
the investor's proportionate ownership interest in the Company's outstanding
Class B Common or Class C Common, as the case may be) of the Company's weaned
pig production that is to be sold to members of the Company as weaned pigs for
an initial term of ten years and, unless earlier terminated by the member, for
succeeding one year renewal terms. With certain limited exceptions relating to
the Company's breach of any of its obligations under the Feeder Pig Purchase
Agreement or Weaned Pig Agreement, as the case may be, or the Company's failure
to deliver feeder or weaned pigs within 24 months of the date of such Agreement,
a member does not have the right to terminate such Agreement prior to the
expiration of the initial or any extended term of the Agreement. The member's
right to terminate the Feeder Pig Purchase Agreement or Weaned Pig Agreement, as
the case may be, at the expiration of the initial or any extended term thereof
may be exercised only if the member gives notice to the Company at least one
year prior to the expiration of such initial or extended term that the member
desires to exercise such termination right. A member has no other right to
terminate the Feeder Pig Purchase Agreement or Weaned Pig Agreement, as the case
may be. Moreover, no member has the right to demand the return of or to receive
any of the member's capital from the Company as a result of the termination of
such Agreement or otherwise and regardless of whether demanded prior to the
expiration of the initial or any extended term of such Agreement or at any time
after the expiration of any such term. The Company is under no obligation to
redeem or repurchase its Common Stock prior to the expiration of the initial or
any extended term of the Feeder Pig Purchase Agreement or Weaned Pig Agreement,
as the case may be, or at any time after the expiration of any such term. For
these and other reasons, the Shares will not be readily marketable, and
purchasers thereof must bear the economic risk of investment for an indefinite
period and may not be able to liquidate their investment in the event of any
emergency or otherwise. See "Restrictions on Sale or Other Transfer of the
Shares" and "Description of Capital Stock."
ADDITIONAL FACTORS
Additional risk and uncertainties that may affect future results of
operations, financial condition or business of Alliance include, but are not
limited to: the effect of economic and industry conditions on prices for
Alliance's feeder and weaned pigs and its cost structure; the ability to keep
pace with technological change timely and cost-effectively and to provide better
service and remain competitive; adverse publicity, news coverage by the media,
or negative reports by industry analysts regarding Alliance or its feeder or
weaned pigs which may have the effect of reducing the reputation and goodwill of
Alliance; and the ability to attract and retain capital for growth and
operations on competitive terms.
THE COMPANY
The Company is a cooperative association engaged in the production of feeder
pigs for sale to its members who own shares of Class A Common, and intends to
engage in the production of weaned pigs for sale to its members who own shares
of Class B Common or Class C Common. As of the date of this Prospectus, the
Company owned and operated five 2,450-sow feeder pig production facilities
located in Yuma County, Colorado (approximately 150 miles east of Denver), one
2,450-sow feeder pig production facility located in Wayne County, Illinois
(approximately 100 miles east of St. Louis, Missouri), and was in the process of
developing one additional feeder pig facility of comparable size in Wayne
County, Illinois. Financing for the acquisition of real estate, facilities
construction and acquisition of breeding stock with respect to the six existing
facilities already has been obtained and will not be provided by any proceeds
from the sale of the Shares offered hereby, however, the proceeds from the sale
of the first Minimum Class A Block of 17 Class A Shares offered hereby will be
applied to the Illinois facility presently under development. See "Use of
Proceeds" and "Business." The Company's business strategy is to produce feeder
and weaned pigs for sale to its members at competitive prices by utilizing
modern facilities, management practices designed to maximize productivity and
high quality genetically consistent breeding stock.
The Company was formed as a cooperative association under the laws of the
state of Colorado on May 3, 1994, but did not engage in any business activity
until July, 1994. The Company's predecessor, Yuma LLC, was formed in October,
1991 and commenced shipment of feeder pigs in March, 1993. On July 13, 1994
(July 9, 1994 for accounting purposes), the Company acquired the entire equity
ownership rights and interests in Yuma LLC from Farmland and Yuma Cooperative,
and thereupon Yuma LLC was dissolved and liquidated and its assets, liabilities
and feeder pig production operations were assigned to and assumed by Alliance.
The Company's principal executive offices are located at 302 Idlewild Street,
Yuma, Colorado 80759, and its telephone number is (970) 848-3231. Unless the
context otherwise requires, the terms "Alliance" and the "Company," as used in
this Prospectus, refer to Alliance Farms Cooperative Association and its
predecessor, Yuma LLC.
USE OF PROCEEDS
CLASS A SHARES
The net proceeds to the Company from the sale of the Class A Shares offered
hereby, after deducting expenses payable in connection with this offering, are
estimated to be approximately $1,220,000 if one Minimum Class A Block of 17
Class A Shares is sold and approximately $3,940,000 if all 51 Class A Shares
offered hereby are sold. The Company intends to use the net proceeds from the
sale of each Minimum Class A Block, together with approximately $2,720,000 of
term debt borrowings for which the Company seeks to obtain a commitment with
respect to each such Minimum Class A Block, for the development of one new
feeder pig production facility to be situated in or around Yuma County,
Colorado, Wayne County, Illinois or other locations selected by the Company,
including the purchase of real estate, the construction of the facility, and the
acquisition of breeding stock, and the demands for working capital during the
initial start-up period for the facility. In this regard, the net proceeds from
the sale of the first Minimum Class A Block will be applied to the Company=s
second Illinois feeder pig production facility that presently is under
development, including the repayment of up to $1,360,000 of any related debt
financing, together with interest thereon, provided by Farmland. If all 51
Class A Shares offered hereby are sold, the net proceeds to the Company,
together with approximately $8,160,000 of term debt borrowings, will be used for
the development of three 2,450-sow feeder pig production facilities (including
one feeder pig production facility under development in Wayne County, Illinois).
Each new feeder pig production facility may be developed in tandem with, or as a
part of, one or more other facilities. As of the date of this Prospectus, the
Company has obtained a commitment until August 31, 1997 for the approximately
$2,720,000 of debt financing required with respect to each Minimum Class A Block
of Class A Shares offered hereby.
The allocation of the offering proceeds from the sale of the Class A Shares
offered hereby and term debt borrowings among the uses set forth below
represents the Company's present intention on the basis of circumstances at the
date of this Prospectus. Unforeseen changes in circumstances may result in the
reallocation of such proceeds and term debt borrowings among the uses mentioned
below or to other presently unexpected uses. Pending use of the net proceeds
from the sale of the Class A Shares offered hereby for the purposes set forth
herein, such proceeds will be invested in short-term certificates of deposit or
other interest bearing instruments. The following summary of use of proceeds
does not include any interest income earned on the investment of the net
proceeds from this offering, which income would be added to the Company's
working capital as it is earned.
MINIMUM ENTIRE
OFFERING OFFERING
(17 SHARES) (51 SHARES)*
SOURCE OF FUNDS:
Gross Proceeds of Offering $ 1,360,000 $ 4,080,000
Less Offering Costs (1) 140,000 140,000
Net Proceeds of Offering 1,220,000 3,940,000
Term Debt Borrowings (2) 2,720,000 8,160,000
Total Funds Available $ 3,940,000 $ 12,100,000
USE OF FUNDS:
Real Estate and Facilities Construction (3) $ 2,750,000 $ 8,600,000
Breeding Stock (4) 625,000 1,875,000
Project Development Costs and
Working Capital (5) 565,000 1,625,000
Total Facilities Development Costs $ 3,940,000 $ 12,100,000
(1) Offering costs consist of offering agent commissions and expenses, legal
and accounting fees, filing fees, printing costs and other miscellaneous
expenses.
(2) The Company anticipates that in connection with the development of each new
feeder pig production facility, it will require at least $2,720,000 in
addition to the net proceeds from this offering. Accordingly, the
consummation of the issuance and sale of each Minimum Class A Block of 17
Class A Shares will be conditioned upon and subject to the Company
obtaining a commitment for at least $2,720,000 of term debt borrowings. As
of the date of this Prospectus, the Company has obtained such a commitment
with respect to the Class A Shares offered hereby until August 31, 1997
(extended from the original February 28, 1997 expiration date). No
assurances can be given that an extension of such commitment after such
date will be obtained on favorable terms, if at all. See "Business--
Financing."
(3) The Company has budgeted approximately $2,750,000 for completion of the
physical facilities for each new 2,450-sow feeder pig production facility,
which may be developed in tandem with, or as a part of, one or more other
facilities. The Company anticipates that up to $1,360,000 of this amount
with respect to its second Illinois facility presently under development
initially will be financed with a non-revolving term loan obtained from
Farmland, and that the net proceeds from the sale of the first Minimum
Class A Block of 17 Class A Shares offered hereby will be used to repay the
outstanding balance of this loan. As of the date of this Prospectus,
Alliance has borrowed $200,000 from Farmland for the acquisition of certain
real property in Wayne County, Illinois on which the second Illinois
facility is under development, and has obtained a commitment from Farmland
for the provision of an additional $1,160,000 loan. The Farmland loan
provides for amortization over a ten-year period, at a variable rate equal
to CoBank's then national variable rate plus 1.25%. As of the date of this
Prospectus, interest accrued on the outstanding principal balance of the
Farmland loan at a rate of 9.5% per annum (calculated by adding 125 basis
points to CoBank's national variable rate of 8.25% in effect as of such
date). The payment schedule for the Farmland loan requires the Company to
make interest-only payments for the life of the loan, with a final balloon
payment of the outstanding loan balance to be made upon the earlier of (i)
the Company's issuance and sale of a Minimum Class A Block, and (ii) the
expiration of ten years. Funds advanced to Alliance pursuant to the
Farmland loan were used as working capital to fund the acquisition of
certain real property in Wayne County, Illinois and any future advances
would be applied to construction costs and other working capital purposes.
As presently proposed, the construction of each new feeder pig facility,
including breeding, gestation, farrowing, nursery and attendant office
buildings and related equipment, is estimated to cost approximately
$2,250,000, plus the cost of the land and land improvements. This estimate
is based on estimates of construction costs furnished to the Company in
connection with the construction of its five most recently developed
facilities and of the one comparable facility which is in a preliminary
stage of development. The Company has estimated the cost of the land and
land improvements required for each 2,450-sow facility to be approximately
$500,000 based on its anticipated land requirements and the actual cost of
the Company's recent land purchases. Included in the Company's budget
respecting the issuance and sale of all 51 Class A Shares offered hereby is
approximately $350,000 for the construction of ancillary production
buildings or residential facilities for use by facilities operations
personnel if sufficient housing is unavailable. Sites for the one or more
facilities to be developed with the proceeds of this offering have not been
selected by the Company. No assurances can be given that the actual costs
for the acquisition of the necessary land and the construction of the
facilities will not exceed the Company's estimates.
(4) The Company has budgeted approximately $625,000 for the acquisition of the
breeding stock required for each new 2,450-sow facility based on the
Company's recent acquisition costs for other breeding stock and the
Company's estimated cost of developing its own breeding stock from its
breeding stock multiplier herd. The actual cost of acquiring the necessary
breeding stock may exceed the Company's estimates.
(5) If the Company is successful in implementing its business plan and each new
feeder pig production facility is developed on schedule, the initial lots
of feeder pigs produced from such facility are not expected to be available
to Class A Common investor members for up to 13 to 15 months following
completion of the offering. The amounts shown represent costs and expenses
expected to be incurred and expended by the Company during construction of
the facility and the 45- to 60-day breeding stock acclimation period and
prior to shipment of the initial lots of feeder pigs. These amounts are
budgeted at approximately $474,000 for each new 2,450-sow facility and
include working capital for the payment of salaries, feed and veterinary
costs, utilities, insurance, overhead and administration, interest
requirements on up to $1,360,000 of facilities development financing that
the Company anticipates it may incur (although no assurances can be given
that it will obtain such financing) with respect to each new facility
(including interest requirements on the up to $1,360,000 Farmland non-
revolving term loan referred to in note (3) above), taxes, and accounting
and legal fees, among others. Amounts allocated to working capital may be
used for any of the purposes set forth above, as needed, or for any other
use that management for the Company determines to be in the best interests
of the Company.
CLASS B SHARES
The net proceeds to the Company from the sale of the Class B Shares offered
hereby, after deducting expenses payable in connection with this offering, are
estimated to be approximately $940,000 if one Minimum Class B Block of 18 Class
B Shares is sold and approximately $3,100,000 if all 54 Class B Shares offered
hereby are sold. The Company intends to use the net proceeds from the sale of
each Minimum Class B Block, together with approximately $2,160,000 of term debt
borrowings for which the Company seeks to obtain a commitment with respect to
each such Minimum Class B Block, for the development of one new weaned pig
production facility to be situated in or around Yuma County, Colorado, Wayne
County, Illinois or other locations selected by the Company, including the
purchase of real estate, the construction of the facility, and the acquisition
of breeding stock, and the demands for working capital during the initial start-
up period for the facility. If all 54 Class B Shares offered hereby are sold,
the net proceeds to the Company, together with approximately $6,480,000 of term
debt borrowings, will be used for the development of three 2,450-sow weaned pig
production facilities. Each new weaned pig production facility may be developed
in tandem with, or as a part of, one or more other facilities.
The allocation of the offering proceeds from the sale of the Class B Shares
offered hereby and term debt borrowings among the uses set forth below
represents the Company's present intention on the basis of circumstances at the
date of this Prospectus. Unforeseen changes in circumstances may result in the
reallocation of such proceeds and term debt borrowings among the uses mentioned
below or to other presently unexpected uses. Pending use of the net proceeds
from the sale of the Class B Shares offered hereby for the purposes set forth
herein, such proceeds will be invested in short-term certificates of deposit or
other interest bearing instruments. The following summary of use of proceeds
does not include any interest income earned on the investment of the net
proceeds from this offering, which income would be added to the Company's
working capital as it is earned.
MINIMUM ENTIRE
OFFERING OFFERING
(18 SHARES) (54 SHARES)*
SOURCE OF FUNDS:
Gross Proceeds of Offering $ 1,080,000 $ 3,240,000
Less Offering Costs (1) 140,000 140,000
Net Proceeds of Offering 940,000 3,100,000
Term Debt Borrowings (2) 2,160,000 6,480,000
Total Funds Available $ 3,100,000 $ 9,580,000
USE OF FUNDS:
Real Estate and Facilities Construction (3) $ 2,115,000 $ 6,625,000
Breeding Stock (4) 625,000 1,875,000
Project Development Costs and
Working Capital (5) 360,000 1,080,000
Total Facilities Development Costs $ 3,100,000 $ 9,580,000
(1) Offering costs consist of offering agent commissions and expenses, legal
and accounting fees, filing fees, printing costs and other miscellaneous
expenses.
(2) The Company anticipates that in connection with the development of each new
weaned pig production facility, it will require at least $2,160,000 in
addition to the net proceeds from this offering. Accordingly, the
consummation of the issuance and sale of each Minimum Class B Block of 18
Class B Shares will be conditioned upon and subject to the Company
obtaining a commitment for at least $2,160,000 of term debt borrowings. As
of the date of this Prospectus, the Company is engaged in negotiations with
a lender to obtain a commitment for the necessary weaned pig production
loans. No assurances can be given that the Company will be able to obtain
such commitment on favorable terms, if at all. See "Business--Financing."
(3) The Company has budgeted approximately $2,115,000 for completion of the
physical facilities for each new 2,450-sow weaned pig production facility,
which may be developed in tandem with, or as a part of, one or more other
facilities. As presently proposed, the construction of each new weaned pig
facility, including breeding, gestation, farrowing, nursery and attendant
office buildings and related equipment, is estimated to cost approximately
$1,819,000, plus the cost of the land and land improvements. This estimate
is based on estimates of construction costs furnished to the Company in
connection with the construction of its five most recently developed feeder
pig production facilities and of the one comparable facility which is in a
preliminary stage of development. The Company has estimated the cost of
the land and land improvements required for each 2,450-sow facility to be
approximately $296,000 based on its anticipated land requirements and the
actual cost of the Company's recent land purchases. Included in the
Company's budget respecting the issuance and sale of all 54 Class B Shares
offered hereby is approximately $280,000 for the construction of ancillary
production buildings or residential facilities for use by facilities
operations personnel if sufficient housing is unavailable. Sites for the
one or more facilities to be developed with the proceeds of this offering
have not been selected by the Company. No assurances can be given that the
actual costs for the acquisition of the necessary land and the construction
of the facilities will not exceed the Company's estimates.
(4) The Company has budgeted approximately $625,000 for the acquisition of the
breeding stock required for each new 2,450-sow facility based on the
Company's recent acquisition costs for other breeding stock and the
Company's estimated cost of developing its own breeding stock from its
breeding stock multiplier herd. The actual cost of acquiring the necessary
breeding stock may exceed the Company's estimates.
(5) If the Company is successful in implementing its business plan and each new
weaned pig production facility is developed on schedule, the initial lots
of weaned pigs produced from such facility are not expected to be available
to Class B Common investor members for up to 11 to 13 months following
completion of the offering. The amounts shown represent costs and expenses
expected to be incurred and expended by the Company during construction of
the facility and the 45- to 60-day breeding stock acclimation period and
prior to shipment of the initial lots of weaned pigs. These amounts are
budgeted at approximately $360,000 for each new 2,450-sow facility and
include working capital for the payment of salaries, feed and veterinary
costs, utilities, insurance, overhead and administration, taxes, and
accounting and legal fees, among others. Amounts allocated to working
capital may be used for any of the purposes set forth above, as needed, or
for any other use that management for the Company determines to be in the
best interests of the Company.
CLASS C SHARES
The net proceeds to the Company from the sale of the Class C Shares offered
hereby, after deducting expenses payable in connection with this offering, are
estimated to be approximately $940,000 if one Minimum Class B Block of 24 Class
C Shares is sold and approximately $3,100,000 if all 72 Class C Shares offered
hereby are sold. The Company intends to use the net proceeds from the sale of
each Minimum Class C Block, together with approximately $2,160,000 of term debt
borrowings for which the Company seeks to obtain a commitment with respect to
each such Minimum Class C Block, for the development of one new weaned pig
production facility to be situated in or around Yuma County, Colorado, Wayne
County, Illinois or other locations selected by the Company, including the
purchase of real estate, the construction of the facility, and the acquisition
of breeding stock, and the demands for working capital during the initial start-
up period for the facility. If all 72 Class C Shares offered hereby are sold,
the net proceeds to the Company, together with approximately $6,480,000 of term
debt borrowings, will be used for the development of three 2,450-sow weaned pig
production facilities. Each new weaned pig production facility may be developed
in tandem with, or as a part of, one or more other facilities.
The allocation of the offering proceeds from the sale of the Class C Shares
offered hereby and term debt borrowings among the uses set forth below
represents the Company's present intention on the basis of circumstances at the
date of this Prospectus. Unforeseen changes in circumstances may result in the
reallocation of such proceeds and term debt borrowings among the uses mentioned
below or to other presently unexpected uses. Pending use of the net proceeds
from the sale of the Class C Shares offered hereby for the purposes set forth
herein, such proceeds will be invested in short-term certificates of deposit or
other interest bearing instruments. The following summary of use of proceeds
does not include any interest income earned on the investment of the net
proceeds from this offering, which income would be added to the Company's
working capital as it is earned.
MINIMUM ENTIRE
OFFERING OFFERING
(24 SHARES) (72 SHARES)*
SOURCE OF FUNDS:
Gross Proceeds of Offering $ 1,080,000 $ 3,240,000
Less Offering Costs (1) 140,000 140,000
Net Proceeds of Offering 940,000 3,100,000
Term Debt Borrowings (2) 2,160,000 6,480,000
Total Funds Available $ 3,100,000 $ 9,580,000
USE OF FUNDS:
Real Estate and Facilities Construction (3) $ 2,115,000 $ 6,625,000
Breeding Stock (4) 625,000 1,875,000
Project Development Costs and
Working Capital (5) 360,000 1,080,000
Total Facilities Development Costs $ 3,100,000 $ 9,580,000
(1) Offering costs consist of offering agent commissions and expenses, legal
and accounting fees, filing fees, printing costs and other miscellaneous
expenses.
(2) The Company anticipates that in connection with the development of each new
weaned pig production facility, it will require at least $2,160,000 in
addition to the net proceeds from this offering. Accordingly, the
consummation of the issuance and sale of each Minimum Class C Block of 24
Class C Shares will be conditioned upon and subject to the Company
obtaining a commitment for at least $2,160,000 of term debt borrowings. As
of the date of this Prospectus, the Company is engaged in negotiations with
a lender to obtain a commitment for the necessary weaned pig production
loans. No assurances can be given that the Company will be able to obtain
such commitment on favorable terms, if at all. See "Business--Financing."
(3) The Company has budgeted approximately $2,115,000 for completion of the
physical facilities for each new 2,450-sow weaned pig production facility,
which may be developed in tandem with, or as a part of, one or more other
facilities. As presently proposed, the construction of each new weaned pig
facility, including breeding, gestation, farrowing, nursery and attendant
office buildings and related equipment, is estimated to cost approximately
$1,819,000, plus the cost of the land and land improvements. This estimate
is based on estimates of construction costs furnished to the Company in
connection with the construction of its five most recently developed feeder
pig production facilities and of the one comparable facility which is in a
preliminary stage of development. The Company has estimated the cost of
the land and land improvements required for each 2,450-sow facility to be
approximately $296,000 based on its anticipated land requirements and the
actual cost of the Company's recent land purchases. Included in the
Company's budget respecting the issuance and sale of all 72 Class C Shares
offered hereby is approximately $280,000 for the construction of ancillary
production buildings or residential facilities for use by facilities
operations personnel if sufficient housing is unavailable. Sites for the
one or more facilities to be developed with the proceeds of this offering
have not been selected by the Company. No assurances can be given that the
actual costs for the acquisition of the necessary land and the construction
of the facilities will not exceed the Company's estimates.
(4) The Company has budgeted approximately $625,000 for the acquisition of the
breeding stock required for each new 2,450-sow facility based on the
Company's recent acquisition costs for other breeding stock and the
Company's estimated cost of developing its own breeding stock from its
breeding stock multiplier herd. The actual cost of acquiring the necessary
breeding stock may exceed the Company's estimates.
(5) If the Company is successful in implementing its business plan and each new
weaned pig production facility is developed on schedule, the initial lots
of weaned pigs produced from such facility are not expected to be available
to Class C Common investor members for up to 11 to 13 months following
completion of the offering. The amounts shown represent costs and expenses
expected to be incurred and expended by the Company during construction of
the facility and the 45- to 60-day breeding stock acclimation period and
prior to shipment of the initial lots of weaned pigs. These amounts are
budgeted at approximately $360,000 for each new 2,450-sow facility and
include working capital for the payment of salaries, feed and veterinary
costs, utilities, insurance, overhead and administration, taxes, and
accounting and legal fees, among others. Amounts allocated to working
capital may be used for any of the purposes set forth above, as needed, or
for any other use that management for the Company determines to be in the
best interests of the Company.
PATRONAGE DISTRIBUTION POLICY
No dividends have been, or will be, paid by Alliance on its Common Stock.
The Company intends to distribute, however, at least annually, all of its net
margins, if any, as patronage distributions to its stockholders on the basis of
the quantity or value of business done by the Company with or for each
stockholder with respect to pigs sold pursuant to the Feeder Pig Purchase
Agreements, Weaned Pig Agreements or the Swine Production Services Agreement.
The Company's "net margins" for this purpose generally are equal to the
Company's net income under generally accepted accounting principles (taxable
income through and including August 31, 1997) attributable to patronage sourced
business done with or for the Company's members (determined before reduction for
patronage distributions paid by the Company). In this regard, the Company will
compute its net income or taxable income, as the case may be, separately for
each group of members (including successors and permitted assigns) whose shares
of the Company's Common Stock originally were issued in connection with the
Company's acquisition or development of one or more feeder or weaned pig
production units financed in part thereby. A stockholder's share of the
Company's net margins will be payable to him or her after the close of each
fiscal year. The Company's Board of Directors has the right to pay the
patronage distribution in qualified written notices of allocation, non-qualified
written notices of allocation, cash or any combination thereof. The written
notices of allocation will be issued in the form of Alliance capital credits.
The extent of the cash portion of the patronage distributions will be determined
annually and will depend upon the Company's financial condition, results of
operation, capital commitments and other factors deemed relevant by the Board of
Directors. The Company has entered into various loan agreements and other
documentation with its existing lender which restrict the Company's ability to
pay patronage distributions in cash. See "Business--Financing" and "-- Federal
Income Taxation." The Company's Board of Directors authorized, with the consent
and approval of CoBank, the payment of a $670,167 rebate to its members with
respect to feeder pigs sold to such members by Alliance during the fiscal year
ended August 31, 1996. After the payment of this rebate, the Company does not
intend to make any future rebate payments to its members.
CAPITALIZATION
The following tables set forth the capitalization of the Company as of
February 28, 1997, as adjusted to give effect to the full advancement of the
remaining $142,000 of funds then available under the Company's existing credit
facility, and as further adjusted to give effect to the sale of the minimum of
17 Class A Shares, 18 Class B Shares and 24 Class C Shares, respectively, the
maximum of 51 Class A Shares, 54 Class B Shares and 72 Class C Shares,
respectively, and all 177 Shares offered hereby, the repayment of the non-
revolving term loan obtained from Farmland with respect to Alliance's
development of its second Illinois facility and the Company's anticipated
borrowing of at least $2,720,000 of term debt with respect to the sale of the
minimum of 17 Class A Shares and of at least $8,160,000 of term debt with
respect to the sale of the maximum 51 Class A Shares offered hereby, for which
borrowings the Company seeks to obtain a commitment from its existing lender,
the Company's anticipated borrowing of at least $2,160,000 of term debt with
respect to the sale of the minimum of 18 Class B Shares and of at least
$6,480,000 of term debt with respect to the sale of the maximum 54 Class B
Shares offered hereby, for which borrowings the Company seeks to obtain a
commitment, and the Company's anticipated borrowing of at least $2,160,000 of
term debt with respect to the sale of the minimum of 24 Class C Shares and of at
least $6,480,000 of term debt with respect to the sale of the maximum 72 Class C
Shares offered hereby, for which borrowings the Company seeks to obtain a
commitment. As of the date of this Prospectus, the Company has obtained a
commitment until August 31, 1997 for the approximately $2,720,000 of debt
financing required with respect to each Minimum Class A Block of Class A Shares
offered hereby. These tables should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and related notes thereto and other information
included elsewhere in this Prospectus.
AS OF FEBRUARY 28, 1997
AS FURTHER ADJUSTED FOR THE OFFERING(2)
MINIMUM
AS ADJUSTED
ACTUAL FOR BANK DEBT CLASS A CLASS B CLASS C
Debt(1)....... $13,700,124 $13,842,124 $16,562,124 $16,002,124 $16,002,124
Stockholders' equity:
Common stock, $.01
par value; 5,000 shares
authorized (102 shares
issued; 102 shares issued,
as adjusted; and 119 shares
issued, as further adjusted
(minimum) ... 1 1 1 1 1
Class B Common stock, $.01
par value; 2,500 shares
authorized (zero shares
issued; zero shares issued,
as adjusted; and 18 shares
issued, as further adjusted
(minimum) ...
Class C Common stock, $.01
par value; 2,500 shares
authorized (zero shares
issued; zero shares issued,
as adjusted; and 24 shares
issued, as further adjusted
(minimum) ...
Additional paid-in
capital 7,487,653 7,487,653 8,707,653 8,427,653 8,427,653
Deficit (2,876,898) (2,876,898) (2,876,898) (2,876,898) (2,876,898)
Total stockholders'
equity 4,610,756 4,610,756 5,830,756 5,550,756 5,550,756
Total capitalization $18,310,880 $18,452,880 $22,392,880 $21,552,880 $21,552,880
(1) On May 19, 1995, the Company entered into various loan
documents with CoBank related to a $23,600,000 secured credit
facility. This credit facility provides for up to $18,850,000 of
non-revolving term debt and $4,750,000 of revolving term credit.
The unused portion of the credit facility expires August 31, 1997
(extended from the original February 28, 1997 expiration date) with
respect to the non-revolving term debt and June 20, 2006 with
respect to the revolving term credit. As of the date of this
Prospectus, the Company intends to enter into negotiations with
CoBank to obtain an extension of the CoBank loan or to obtain a
commitment for a new loan after the August 31, 1997 expiration of
the existing CoBank loan commitment. No assurances can be given
that such negotiations will be successful and that such commitment
will be obtained on favorable terms, if at all. The Company
borrowed $760,000 from Farmland in August 1996 in order to purchase
certain real property in Yuma County, Colorado. As of February 28,
1997, the outstanding balance of loans made by CoBank under the
credit facility was $13,922,000, and the outstanding balance of the
Farmland loan was $816,424. Amounts shown in the As Adjusted
column assume that all funds available from the CoBank credit
facility and the Farmland loan have been advanced, and amounts
shown in the As Further Adjusted columns assume that all funds from
the anticipated borrowing of non-revolving term debt and revolving
term credit in connection with this offering have been advanced.
(2) Net of offering costs.
AS OF FEBRUARY 28, 1997
AS FURTHER ADJUSTED FOR THE OFFERING(2)
MAXIMUM
AS ADJUSTED ALL THREE
ACTUAL FOR BANK DEBT CLASS A CLASS B CLASS C CLASSES
Debt(1)...... $13,700,124 $13,842,124 $22,002,124 $20,322,124 $20,322,124 $34,962,124
Stockholders' equity:
Common stock, $.01
par value; 5,000 shares
authorized (102 shares
issued; 102 shares
issued, as adjusted;
and 153 shares issued,
as further adjusted 1 1 2 1 1 2
(maximum) ..
Class B Common stock,
$.01
par value; 2,500 shares
authorized (zero shares
issued; zero shares
issued, as adjusted;
and 54 shares issued, 1 1
as further adjusted
(maximum) ..
Class C Common stock,
$.01
par value; 2,500 shares
authorized (zero shares
issued; zero shares
issued, as adjusted; and
72 shares issued, as 1 1
further adjusted
(maximum)...
Additional paid-in
capital .. 7,487,653 7,487,653 11,427,652 10,587,652 10,587,652 17,907,650
Deficit (2,876,898) (2,876,898) (2,876,898) (2,876,898) (2,876,898) (2,876,898)
Total stockholders' 4,610,756 4,610,756 8,550,756 7,710,756 7,710,756 15,030,756
equity ............
Total capitalization $18,310,880 $18,452,880 $30,552,880 $28,032,880 $28,032,880 $49,992,880
(1) On May 19, 1995, the Company entered into various loan
documents with CoBank related to a $23,600,000 secured credit
facility. This credit facility provides for up to $18,850,000 of
non-revolving term debt and $4,750,000 of revolving term credit.
The unused portion of the credit facility expires August 31, 1997
(extended from the original February 28, 1997 expiration date) with
respect to the non-revolving term debt and June 20, 2006 with
respect to the revolving term credit. As of the date of this
Prospectus, the Company intends to enter into negotiations with
CoBank to obtain an extension of the CoBank loan or to obtain a
commitment for a new loan after the August 31, 1997 expiration of
the existing CoBank loan commitment. No assurances can be given
that such negotiations will be successful and that such commitment
will be obtained on favorable terms, if at all. The Company
borrowed $760,000 from Farmland in August 1996 in order to purchase
certain real property in Yuma County, Colorado. As of February 28,
1997, the outstanding balance of loans made by CoBank under the
credit facility was $13,922,000, and the outstanding balance of the
Farmland loan was $816,424. Amounts shown in the As Adjusted
column assume that all funds available from the CoBank credit
facility and the Farmland loan have been advanced, and amounts
shown in the As Further Adjusted columns assume that all funds from
the anticipated borrowing of non-revolving term debt and revolving
term credit in connection with this offering have been advanced.
(2) Net of offering costs.
SELECTED FINANCIAL DATA
The selected historical financial information presented below reflects the
fiscal 1996 and 1995 operations of Alliance, and the fiscal 1994 combined
operations of Yuma LLC from September 1, 1993 through July 8, 1994 and of
Alliance from July 9, 1994 through August 31, 1994. Such financial information
under the captions "Statement of Operations Information" and "Balance Sheet
Information" as of and for the fiscal years ended August 31 is derived from the
financial statements of Alliance for the period from inception (July 9, 1994)
through August 31, 1996 and from the financial statements of Yuma LLC for the
period from September 1, 1993 to July 8, 1994, all of which have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. The summary
historical financial information as of February 28, 1997, and for the six months
ended February 28, 1997 and February 29, 1996 is derived from the unaudited
financial statements of Alliance. In the opinion of the Company, such interim
financial information includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for such
interim periods. In the opinion of management, the financial condition and
results of operations set forth herein cannot be relied upon as being
representative of the continuing prospects for the Company. The following
selected financial information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the audited financial statements and related notes thereto and other information
included elsewhere in this Prospectus.
STATEMENT OF OPERATIONS
INFORMATION:
FISCAL YEAR ENDED AUGUST 31, SIX MONTHS ENDED FEBRUARY 28,
1996 1995 1994 1997 1996
Net sales $ 7,037,927 $ 1,554,113 $ 2,309,319 $ 6,519,998 $ 2,871,276
Cost of goods sold 6,422,838 1,836,388 1,912,268 5,549,049 3,008,706
Gross income (loss) 615,089 (282,275) 397,051 970,949 (137,430)
Expenses related to start-up of 426,926 754,756 B 75,668 B
new facilities and conversion of
existing facility
Administrative expenses 369,787 101,927 36,629 214,996 170,565
Loss on sale of breeding stock 226,738 112,797 56,474 81,020 170,537
Operating income (loss) (408,362) (1,251,755) 303,948 599,265 $ (478,532)
Interest expense (1,001,329) (289,082) (1,375) (680,584) (439,320)
Other income 66,604 27,509 28,246 85,786 7,574
(934,725) (261,573) 26,871 (594,798) (431,746)
Net income (loss) $ (1,343,087) $(1,513,328) $ 330,819 $ 4,467 $ (910,278)
OTHER INFORMATION:
Pigs Sold 148,926 46,858 46,014 112,800 67,241
AS OF AUGUST 31, AS OF FEBRUARY 28,
BALANCE SHEET INFORMATION: 1996 1995 1994 1997
Working Capital (Deficit) $ (257,702) $ 1,238,271 $ 1,980,861 $ (1,139,041)
Total Assets 20,845,613 14,571,940 5,322,834 22,344,378
Shareholders' Equity 4,606,289 4,627,693 4,860,610 4,610,756
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company commenced operations in July, 1994, following its acquisition
of the entire equity ownership rights and interest in Yuma LLC, a Colorado
limited liability company in which Farmland and Yuma Cooperative owned 71.5% and
28.5%, respectively, of the outstanding equity interests. Subsequent to the
Company's acquisition of Yuma LLC, Yuma LLC was dissolved and liquidated and
Alliance received all assets and liabilities of Yuma LLC and continued the
feeder pig production operations of Yuma LLC as described herein. As a result
of these transactions, a portion of the financial information presented herein
relates to the financial condition and results of operations of Yuma LLC. The
results of operations for the year ended August 31, 1994 are principally those
of Yuma LLC, but also include the results of operations of the Company from July
9, 1994 to August 31, 1994. The results of operations for the years ended
August 31, 1996 and 1995, respectively, and the six months ended February 28,
1997 and 1996, respectively, are entirely the results of operations of the
Company. Unlike Yuma LLC, Alliance was burdened with debt financing costs
during the development and start-up of its feeder pig production facilities. In
addition, Alliance generally produces feeder pigs of lighter weight than those
of Yuma LLC, and sells its feeder pigs at prices lower than the price at which
Yuma LLC sold its feeder pigs.
THREE MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
Shipments of feeder pigs were higher for the three months ended February
28, 1997 than in the prior year's period. Alliance shipped 57,746 feeder pigs
for the quarter ended February 28, 1997 compared to 33,290 feeder pigs shipped
for the quarter ended February 29, 1996 for an increase of 73%. Net sales for
the quarter ended February 28, 1997 increased to $3,316,983 from $1,443,563 for
the prior year period, an increase of $1,873,420, or 130%. The selling price
per pig is determined pursuant to the formula established under Alliance's
Feeder Pig Purchase Agreements with its members. The selling price is based on
Alliance's operating costs (which are based on a twelve month rolling average),
debt service and an additional $4.50 per pig. The above increase in volume and
sales dollars is a result of having six units in production for the quarter
ended February 28, 1997 as compared to four units in production for the quarter
ended February 29, 1996. The sales price per pig pursuant to the Feeder Pig
Purchase Agreement also was higher due to an increase in the twelve month
rolling average of operating costs. This increase in the rolling average of
operating costs resulted from a decline in feeder pigs shipped per unit.
Additionally, a sales rebate of $148,230 was accrued during the quarter ended
February 29, 1996 which reduced net sales. During the three months ended
February 28, 1997, Alliance did not accrue the sales rebate of $4.50 per pig
shipped due to Alliance's decision to no longer pay a sales rebate. Average net
sales price was $57.44 and $43.36 during the quarter ended February 28, 1997 and
February 29, 1996, respectively.
Alliance incurred positive gross margins of $347,397 and $12,609 for the
three month periods ended February 28, 1997 and February 29, 1996, respectively.
This improvement in gross margin is primarily due to the nature of the
contractual pricing arrangements applicable to Alliance's sale of feeder pigs to
its members. As previously described, the selling price is based on, among
other things, Alliance's operating costs on a twelve month historical rolling
average. For the second quarter of fiscal 1997, Alliance's net sales price
exceeded then current operating costs (at the time pigs were shipped) by $14.37
per pig sold. For the second quarter of fiscal 1996, the net sales price
exceeded then current operating costs (at the time pigs were shipped) by $7.19
per pig sold.
Sales to Farmland for the three month periods ended February 28, 1997 and
February 29, 1996 were $1,956,704 and $972,066 respectively. The average net
sales price per head was $57.44 and $43.36 and the average industry market price
per head was $56.20 and $34.66 during 1997 and 1996, respectively.
Loss on sale of breeding stock was $21,362 for the three months ended
February 28, 1997 as compared to $96,146 for the prior year period. This
decrease is attributable to the existence of more newly developed facilities
culling animals during the second quarter of fiscal 1996 as compared to more
mature facilities culling animals during the second quarter of fiscal 1997.
Administrative expenses were $122,027 for the three months ended February
28, 1997 compared to $96,898 for the prior year period. This increase reflects
the increased operations and includes higher administrative, payroll and
professional fees.
Interest expense of $357,932 for the three months ended February 28, 1997
as compared to $222,744 for the prior year period, was incurred in financing the
development of four existing and two new feeder pig facilities. This increase
is primarily due to the increase in the outstanding loan balance. As of
February 28, 1997, Alliance had borrowed $13,922,000 from CoBank for
construction and start up costs and $816,424 from Farmland for the purchase of
land which is intended to be used for future expansion.
Alliance incurred a net loss of $110,670 for the three months ended
February 28, 1997 compared to a net loss of $397,770 for the prior year period.
The net loss for the second quarter of fiscal 1997 was attributable to the
current costs exceeding the rolling average cost that per pig sales prices are
based on, caused by a decrease in productivity from the first quarter of fiscal
1997 due to herd health issues, partially offset by decreasing corn prices. The
net loss for the second quarter of fiscal 1996 was attributable primarily to
then current costs exceeding the rolling average cost that per pig sales prices
are based on, caused in part by high death loss due to herd health issues, as
well as rising corn prices. In addition to operating risks and uncertainties
associated with any business, Alliance's ability to generate net income is
limited by any start-up expenses that are incurred with respect to facilities
development and by the selling price formula feeder pigs that contains a $4.50
production margin.
SIX MONTHS ENDED FEBRUARY 28, 1997 AND FEBRUARY 29, 1996
Shipments of feeder pigs were higher for the six months ended February 28,
1997 than in the prior year's period. Alliance shipped 112,800 feeder pigs for
the six months ended February 28, 1997 compared to 67,241 feeder pigs shipped
for the six months ended February 29, 1996 for an increase of 68%. Net sales
for the six months ended February 28, 1997 increased to $6,519,998 from
$2,871,276 for the prior year period, an increase of $3,648,722 or 127%. The
selling price per pig is determined pursuant to the formula established under
Alliance's Feeder Pig Purchase Agreements with its members. The selling price
is based on Alliance's operating costs (which are based on a twelve month
rolling average), debt service and an additional $4.50 per pig. The above
increase in volume and sales dollars is primarily due to six units operating at
full capacity for the six months ended February 28, 1997 as compared to four
units operating at full capacity for the six months ended February 29, 1996.
The sales price per pig pursuant to the Feeder Pig Purchase Agreement also was
higher due to an increase in the twelve month rolling average of operating
costs. Additionally, a sales rebate of $301,010 was accrued during the six
months ended February 29, 1996 which reduced net sales. During the six months
ended February 28, 1997, Alliance did not accrue the sales rebate of $4.50 per
pig shipped due to Alliance's decision to no longer pay a sales rebate. Average
net sales price was $57.80 and $43.07 during the six months ended February 28,
1997 and February 29, 1996, respectively.
Alliance incurred a positive gross margin of $970,949 and a negative gross
margin of $137,430 for the first half of fiscal 1997 and fiscal 1996,
respectively. This improvement in gross margin is primarily due to the nature
of the contractual pricing arrangements applicable to Alliance's sale of feeder
pigs to its members. As previously described, the selling price is based on,
among other things, Alliance's operating costs on a twelve month historical
rolling average. For the first half of fiscal 1997, Alliance's net sales price
exceeded then current operating costs (at the time pigs were shipped) by $14.73
per pig sold. For the first half of fiscal 1996, the net sales price exceeded
then current operating costs (at the time pigs were shipped) by $6.90 per pig
sold.
Sales to Farmland for the first half of fiscal 1997 and 1996 were
$3,961,082 and $1,945,808 respectively. The average net sales price per head
was $57.80 and $43.07 and the average industry market price per head was $53.99
and $35.73 during 1997 and 1996, respectively.
Loss on sale of breeding stock was $81,020 for the six months ended
February 28, 1997 as compared to $170,637 for the prior year period. This
decrease is attributable to the existence of more newly developed facilities
culling animals during the first half of fiscal 1996 as compared to more mature
facilities culling animals during the first half of fiscal 1997.
Administrative expenses were $214,996 for the six months ended February 28,
1997 compared to $170,565 for the prior year period. This increase reflects the
increased operations and includes higher administrative, payroll and
professional fees.
Interest expense of $680,584 for the six months ended February 28, 1997 as
compared to $439,320 for the prior year period, was incurred in financing the
development of four existing and two new feeder pig facilities. This increase
is primarily due to the increase in the outstanding loan balance.
Alliance incurred net income of $4,467 for the six months ended February
28, 1997 compared to a net loss of $910,278 for the prior year period. The
small net income for the first half of fiscal 1997 was partially attributable to
an improvement in productivity at the beginning of the fiscal year which
decreased throughout the first half of fiscal 1997 due to herd health issues,
offset by decreasing corn prices. The net loss for the first half of fiscal
1996 was attributable primarily to then current costs exceeding the rolling
average cost that per pig sales prices are based on, caused in part by high
death loss due to herd health issues, as well as rising corn prices.
Additionally, Alliance's net sales price for pigs exceeded current operating
costs in the first half of fiscal 1997 by $7.83 more than in the first half of
fiscal 1996. Alliance also accrued a $301,010 rebate in the first half of
fiscal 1996 that was not accrued in the first half of fiscal 1997.
FISCAL YEARS ENDED AUGUST 31, 1996 AND 1995.
Shipments of feeder pigs were higher for the fiscal year ended August 31,
1996 than in the prior year=s period. Alliance shipped 148,926 feeder pigs
during fiscal 1996 compared to 46,858 feeder pigs shipped during fiscal 1995, an
increase of approximately 218%. Net sales for the fiscal year ended August 31,
1996 increased to $7,037,927 from $1,554,113 for the prior year, an increase of
$5,438,814 or approximately 350%. This increase in volume and sales dollars is
primarily due to four units operating for the fiscal year ended August 31, 1996
versus one unit for the fiscal year ended August 31, 1995 and the change in
Alliance's contract price, effective July 13, 1995, to include $4.50 per pig in
addition to the financing cost and operating cost on which the price was
previously based.
Alliance=s sales for the fiscal year ended August 31, 1996 have been
reduced by the accrual of a rebate of $670,167 that is intended to be paid to
its members with respect to feeder pigs sold to such members by Alliance during
such fiscal year. See "Patronage Distribution Policy." Alliance incurred a
positive gross margin of $615,089 and a negative gross margin of $282,275 for
fiscal 1996 and 1995, respectively. This improvement in gross margin is
primarily due to the nature of the contractual pricing arrangements applicable
to the Company's sale of feeder pigs to its members. The selling price for
Alliance's feeder pigs is based on, among other things, the 12-month rolling
average of operating costs per pig. For the fiscal year ended August 31, 1996,
the Company's operating costs at the time pigs were sold (the then current
operating costs) exceeded the historical rolling average of operating costs by
$0.09 per head sold. For the fiscal year ended August 31, 1995, the Company's
then current operating costs exceeded the historical rolling average of
operating costs by $6.37 per head sold. The substantial difference between
fiscal 1995's then current operating costs and historical rolling average
operating costs is principally due to Alliance's culling of a greater portion of
its herd than is customary in order to accommodate their replacement with
multiplier unit animals, in addition to the resulting decline in production.
Sales to Farmland (including sales to Farmland of Yuma Cooperative's share
of feeder pigs produced by the Company) for fiscal 1996 and 1995 were $5,035,160
and $1,467,069, respectively. The average net sales price per head was $48.12
and $33.16 and the average industry market price per head was $41.15 and $32.17
during 1996 and 1995, respectively.
Alliance recorded start-up costs of $426,926 and $754,756 relating to the
operation of new production facilities during the fiscal years ended August 31,
1996 and 1995, respectively, and conversion of the existing unit to a multiplier
unit during the fiscal year ended August 31, 1995. All costs for the fiscal
year ended August 31, 1996 and $647,751 of the costs for the fiscal year ended
August 31, 1995 were comprised of utilities, feed, labor and other general
expenses prior to the operation of the new feeder pig production facilities, and
$107,005 of the costs for the fiscal year period ended August 31, 1995 were
attributable to the conversion of the existing 2,450-sow feeder pig unit from a
commercial sow unit to a multiplier sow unit.
Loss on sale of breeding stock was $226,738 for the fiscal year ended
August 31, 1996 as compared to $112,797 for the prior year period. This
increase is attributable to the existence of newly developed facilities in
fiscal 1995, from which culling of animals was not necessary until near the end
of that fiscal year, as compared to more mature facilities in fiscal 1996, from
which culling of animals occurred throughout that fiscal year.
Administrative expenses were $369,787 for the fiscal year ended 1996
compared to $101,927 for the prior year period. This increase reflects the
increased operations and includes higher administrative, payroll and
professional fees.
Interest expense of $1,001,329 for fiscal 1996 compared to $289,082 for
fiscal 1995 was incurred in financing the development of the four existing and
two new feeder pig production facilities.
Alliance incurred a net loss of $1,343,087 for the fiscal year ended August
31, 1996 compared to a net loss of $1,513,328 for the prior year period. The
fiscal 1996 loss was attributable to $426,926 of start-up expenses related to
the development of two feeder pig production facilities and a loss of $226,738
on the sale of breeding stock. The remaining amount of the net loss is
primarily attributable to current costs exceeding the rolling average cost that
per pig prices are base on, caused in part by high death loss due to herd health
issues, as well as rising corn prices. The fiscal 1995 loss was attributable to
$754,756 of start-up expenses related to facilities development and a loss of
$112,797 on the sale of breeding stock. In addition, the Company's operating
costs at the time pigs were sold during both fiscal 1996 and 1995 exceeded the
historical rolling average of operating costs from which the selling price for
pigs was based. During all of fiscal 1996, the selling price for Alliance's
feeder pigs was based on the 12-month rolling average of operating costs per
pig, the debt service financing cost per pig, and a $4.50 per pig production
margin. The Company accrued a $670,167 rebate, however, that is intended to
provide each member with a $4.50 payment per pig sold to such member during
fiscal 1996; thereby effectively eliminating the production margin. The $4.50
per pig production margin was not added to the price of feeder pigs sold during
fiscal 1995 until after July 13, 1995. In addition operating risks and
uncertainties associated with any business, the Company's ability to generate
net income is limited by any start-up expenses that are incurred with respect to
facilities development, by the Company's selling price formula for feeder pigs
that contains a $4.50 production margin, and by the possible return of all or a
portion of such rebate to the Company's members.
FISCAL YEARS ENDED AUGUST 31, 1995 AND 1994.
Shipments of feeder pigs from the Company's feeder pig production
facilities were sustained at approximately the same level for the fiscal year
ending August 31, 1995 as were made in the prior fiscal year. The Company
shipped 46,858 feeder pigs in the fiscal year ended August 31, 1995 as compared
to 46,014 feeder pigs shipped in the prior fiscal year.
Although the level of production for fiscal 1995 was comparable to that for
fiscal 1994, net sales for fiscal 1995 declined to $1,554,113 from $2,309,319
for the prior year period, a decline of $755,206 or approximately 32.7%. This
decline resulted from a reduction in the average selling price of feeder pigs
from $51.04 per pig in fiscal 1994 to $33.16 in fiscal 1995. In addition, the
selling price per pig for approximately ten months of fiscal 1995 was determined
pursuant to the formula established under the Company's Interim Feeder Pig
Purchase Agreements with Farmland and Yuma Cooperative, which selling price is
substantially less than would have been obtained under the feeder pig marketing
agreement to which Yuma LLC was a party in fiscal 1994. Finally, the Company
currently markets a feeder pig of lighter weight than that previously marketed
by Yuma LLC in fiscal 1994, which further accounts for the reduction in the
sales price per pig. The decline in net sales more than offset the $75,880
reduction in cost of goods sold from $1,912,268 in fiscal 1994 to $1,836,388 in
fiscal 1995.
In fiscal 1995, the Company incurred expenses of $754,756 related to the
start-up of three feeder pig production facilities and the conversion of the
existing facility to a multiplier unit. The start-up costs attributable to the
three new facilities, including utilities, feed, labor and other expenses,
accounted for $647,751 and the remaining $107,005 was due to the conversion of
an existing feeder pig facility to a multiplier unit and the related replacement
of commercial sows with more expensive multiplier sows. This conversion began
in August 1994 and was substantially complete in January 1995. Productivity
declined to an average of 17.4 feeder pigs per sow in inventory for fiscal 1995
from an average of 18.8 feeder pigs per sow in the prior fiscal year as the
Company culled a greater portion of its herd than was customary in order to
accommodate their replacement with multiplier unit animals. This herd culling
also accounts for the increased loss on sale of breeding stock from $56,474 for
the year ended August 31, 1994 to $112,797 for fiscal 1995. With the completion
of the facility conversion, management is hopeful that productivity and loss on
sale of breeding stock levels will be comparable to fiscal 1994 levels. No
start-up and conversion expenses were incurred by the Company in fiscal 1994.
Administrative expenses were $101,927 for the year ended August 31, 1995 as
compared to $36,629 for the prior fiscal year. This increase was attributable
to $26,932 of amortization expenses for organizational costs and loan
origination fees, $33,102 of legal fees and $41,893 of miscellaneous expenses,
including administrative employee salaries and office equipment lease payments.
Interest expense was $289,082 for the year ended August 31, 1995 as
compared to $1,375 for the prior year period. Interest for the year ended
August 31, 1995 was due to interest incurred on financing the construction of
three feeder pig production facilities. After repaying the remaining balance of
its long-term debt in October, 1993, the Company had no long-term indebtedness
for the remainder of fiscal 1994. As of August 31, 1995 Alliance had borrowed
$9,165,000 from CoBank.
LIQUIDITY AND CAPITAL RESOURCES
At February 28, 1997, the Company reported a working capital deficit of
$1,139,041 and total assets of $22,344,378. The Company issued 17 shares of
Class A Common in October 1995 for net proceeds of approximately $1,324,461.
The Company used these funds, in combination with $3,219,899 of net proceeds
from previous sales of Class A Common and borrowings of $14,738,424 through
February 28, 1997, for the development, population, and start-up of five feeder
pig production facilities in Yuma County, Colorado and one feeder pig production
facility in Wayne County, Illinois.
As of the date of this Prospectus, the Company has 102 shares of Class A
Common issued and outstanding and no issued and outstanding shares of Class B
Common or Class C Common, and is offering an additional 51 Class A Shares, 54
Class B Shares and 72 Class C Shares to qualified prospective investors. As of
February 28, 1997, $142,000 was immediately available to Alliance under its
credit facility with CoBank. JWA[2]An additional $211,000 of term loans is to
became available approximately 90 days following completion of construction of
the Company's first Illinois facility (anticipated to occur in May 1997). In
the opinion of management, these arrangements for debt capital are adequate for
Alliance=s present operating and capital plans. In the event that an additional
51 shares of Class A Common are issued and sold prior to the August 31, 1997
expiration of the CoBank loan commitment, another $8,160,000 would be eligible
for borrowing. The net proceeds from any such sale of Class A Common, together
with such additional borrowings, would be used for future capital expansion of
up to three additional feeder pig production facilities, including the Company's
second facility in Wayne County, Illinois. There can be no assurance that any
additional shares of Class A Common will be sold and that the additional
borrowing required for such capital expansion would be available. As of the
date of this Prospectus, the Company intends to enter into negotiations with
CoBank to obtain an extension of the CoBank loan and to obtain a commitment for
a new loan with respect to the offering of Class B Common and Class C Common and
to take the place of the existing CoBank loan commitment that is scheduled to
expire on August 31, 1997. No assurances can be given that such negotiations
will be successful and that such commitments will be obtained on favorable
terms, if at all.
During the six months ended February 28, 1997, Alliance made capital
expenditures of $516,764 for the construction of its fifth feeder pig production
facility in Yuma County, Colorado and its first feeder pig production facility
in Wayne County, Illinois, as well as capital expenditures of $399,650 for the
acquisition of real property on which additional facilities could be developed,
and capital expenditures of $900,271 for the construction of its second feeder
pig production facility in Wayne County, Illinois. The remaining capital
expenditures were for replacement of breeding stock and the completion of
construction related to the Company's first four facilities.
The Company has commenced development of a second feeder pig production
facility in Wayne County, Illinois. Alliance estimates that an additional
$2,300,000 of facilities development costs will be incurred before the facility
is operating at full capacity. As more fully described below, the Company has
agreed with CoBank and Farmland concerning the provision of the necessary
financing of such costs, which financing will consist of an advance of
$2,720,000 under the CoBank credit facility and a loan from Farmland of
$1,360,000 (including $200,000 previously loaned by Farmland to Alliance).
On May 19, 1995, the Company entered into various loan documents with
CoBank related to a $23,600,000 secured credit facility. This credit facility
provides for up to $18,850,000 of non-revolving term debt and $4,750,000 of
revolving term credit. Proceeds from the term debt may be used for construction
of feeder pig production facilities and are advanced by CoBank as construction
costs are incurred by Alliance. Proceeds from revolving term credit may be used
for working capital and other purposes. The actual advance of funds under this
credit facility is subject to the satisfaction of certain conditions precedent
and may be withdrawn or terminated by CoBank under certain circumstances. No
assurances can be given that the funding conditions precedent will be satisfied
and that the Company will be able to obtain sufficient financing when needed, or
that alternative sources of financing will be available on acceptable terms. In
addition, the unused portion of the credit facility expires August 31, 1997 with
respect to the non-revolving term debt and June 20, 2006 with respect to the
revolving term credit. As of the date of this Prospectus, the Company intends to
enter into negotiations with CoBank to obtain an extension of the CoBank loan or
to obtain a commitment for a new loan after the August 31, 1997 expiration of
the existing CoBank loan commitment. No assurances can be given that such
negotiations will be successful and that such commitment will be obtained on
favorable terms, if at all.
The availability of non-revolving term debt and revolving term credit under
the CoBank credit facility is subject to specified equity investment levels in
the Company being satisfied. The availability of $6,330,000 of unused term
loans and $1,830,000 of revolving term credit under the CoBank credit facility
is restricted and may be made available to the Company only to the extent that
additional equity investment is made in the Company. With respect to each
additional equity investment of $1,360,000 obtained by the Company (e.g., 17
shares of Common Stock sold for at least $80,000 each) prior to the August 31,
1997 expiration of the CoBank loan commitment, the Company is entitled to obtain
advances under the credit facility of $2,720,000 ($2,110,000 of term loans and
$610,000 of revolving term credit), up to an aggregate of $8,160,000. The
Company has agreed with CoBank and Farmland that it may obtain an advance under
the CoBank credit facility of $2,720,000 and a loan from Farmland of $1,360,000
(including $200,000 previously loaned by Farmland to Alliance), without the
necessity of satisfying the additional equity investment requirement. See
"Business--Financing."
Installments of principal and interest under the Company's credit facility
are payable monthly in arrears by the 20th day of the month. Principal payments
with respect to the initial $8.3 million of non-revolving term loans are to be
made in 114 monthly installments of $72,500 each, beginning January 20, 1996,
with the remaining unpaid balance being due and payable on July 20, 2005.
Principal payments pursuant to the loan terms with respect to each $2,100,000 of
new non-revolving term loans are to be made in monthly installments of $18,700
each, beginning on the 20th day of the eighteenth month following the date of
the initial advance of such $2,110,000 loan. Principal payments pursuant to the
loan terms with respect to the revolving term loan are to be made in 24 equal
monthly installments of the principal that is outstanding as of the June 20,
2006 expiration of the revolving loan commitment, beginning on the 20th day of
the month following the payment in full of the new non-revolving term loan (but
in no event later than March 20, 2008). Interest accrues on the outstanding
principal balance of the loan at a rate equal to either (i) a variable rate
equal to CoBank's then national variable rate plus 1.25%, or (ii) CoBank's then
quoted rates for fixed rate loans, as may be elected from time to time by the
Company. As of February 28, 1997, interest accrued on the outstanding principal
balance of the loan at a rate of 9.5% per annum (calculated by adding 125 basis
points to CoBank's national variable rate of 8.25% in effect as of such date).
See "Business--Financing."
During the course of the loan, the Company may be required to make equity
investments at a rate not to exceed 1% of the average five-year principal loan
balance (which equity investments may be satisfied out of CoBank's non-cash
patronage distributions) until the Company meets CoBank's target level of equity
investment, which currently is 11.5% of the Company's average five-year
principal loan balance. In addition, the Company is required to comply with
various affirmative and negative covenants, including but not limited to (i)
maintenance of at least $2,250,000 of equity, plus $550,000 of equity for each
facility developed by the Company after its initial four facilities (the Company
had $4,610,756 of equity as of February 28, 1997), (ii) maintenance of modified
working capital (calculated as current assets, plus available revolving term
credit, minus current liabilities (excluding the current portion of term debt
payments)) of at least $210,000, plus $98,000 of modified working capital for
each facility developed by the Company after its initial four facilities (the
Company had $41,259 of modified working capital as of February 28, 1997), (iii)
provision of monthly financial statements and audited annual financial
statements to CoBank, (iv) restrictions on the occurrence of additional
indebtedness, (v) restrictions on certain liens, mergers, sales of assets,
investments, guaranties, loans, advances and business activities unrelated to
existing operations, and (vi) restrictions on the declaration and payment of the
cash portion of patronage distributions and other distributions or allocations
of the Company's earnings, surplus or assets. The Company was in compliance
with each of these covenants as of February 28, 1997, except the modified
working capital covenant as to which the Company has obtained a waiver from
CoBank as of February 28, 1997. Management believes that Alliance will have the
ability to maintain compliance with the above covenants in the foreseeable
future. See "Business--Financing."
The Company intends to continue to operate its existing feeder pig
production facilities and sell feeder pigs produced therefrom. Funding of the
ongoing operation of its facilities will be provided from the sale of feeder
pigs and available working capital. The Company believes that such funding
sources are adequate for current operations. The Company also intends to
develop weaned pig production facilities and sell weaned pigs produced
therefrom. As of the date of this Prospectus, the Company has not obtained a
commitment from any lender for the provision of the requisite term debt
financing for such development efforts.
Cash used by Alliance in its operating activities totaled $280,449 during
the fiscal year ended August 31, 1996 compared with $1,045,286 in the prior year
period This decrease in cash used reflects the improvement in operations before
provision for depreciation and amortization and accrual for rebates offset in
part by increased inventories. Other major uses of cash include $8,808,888 for
capital additions or improvements, $1,366,333 for acquisition of additional
inventory and $580,000 for payments applied to the Company=s outstanding long
term debt. Cash provided by Alliance in its operating activities totaled
$2,132,967 for the six months ended February 28, 1997 compared with $286,505
used by Alliance in its operating activities in the prior year period. The
increase in cash provided by operating activities is primarily attributable to
the improvement in operations before the provision for depreciation and
amortization.
Major sources of cash for the fiscal year ended August 31, 1996 included
$1,321,683 received from the issuance and sale of 17 shares of the Company=s
Class A Common, $3,798,000 of long term debt, and an increase of $1,276,000 in
the Company=s revolving term credit.
INCOME TAXES
The Company is a Colorado cooperative association. Results of its
operations for the years ended August 31, 1996 and 1995 were a loss of
$1,343,087 and $1,513,328, respectively. Deferred income taxes have not been
provided, because all sales are to members and all future sales are anticipated
to be to members. Accordingly, no taxable income resulted for any of these
periods and no provision is made for income taxes by the Company.
INFLATION
Inflation is believed to have a relatively minor impact on the operations
of the Company. While certain costs, such as salaries, are affected by
inflation, the Company believes that the factors which most affect its results
of operations are the cost of feed and other inputs and the productivity of the
breeding stock herd which are each influenced by a variety of factors. Further,
the Company will sell its feeder and weaned pig production under terms which
cause the sales price of feeder pigs to be adjusted for changes in the cost of
production per unit, including increases in costs caused by inflation. The
precise impact of inflation on the Company's costs is not readily ascertainable.
RECENT ACCOUNTING PRONOUNCEMENT
Statement of Financial Accounting Standards No. 121 -- Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
("Statement 121") is effective for fiscal years beginning after December 15,
1995 (Alliance's 1997 fiscal year). Statement 121 establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangible assets and goodwill related to those assets to be held and used and
for long-lived assets and certain identifiable intangibles to be disposed of.
The adoption of Statement 121 did not have a significant impact on Alliance=s
financial statements.
BUSINESS
GENERAL
The Company is a cooperative association engaged in the production of
feeder pigs for sale to its members who own shares of Class A Common, and
intends to engage in the production of weaned pigs for sale of its members who
own shares of Class B Common or Class C Common. The Company was formed as a
cooperative association under the laws of the state of Colorado on May 3, 1994,
but did not engage in any business activity until July, 1994. The Company's
predecessor, Yuma LLC, was formed in October, 1991 and commenced shipment of
feeder pigs in March, 1993. On July 13, 1994 (July 9, 1994 for accounting
purposes), the Company acquired the entire equity ownership rights and interests
in Yuma LLC from Farmland and Yuma Cooperative, and thereupon Yuma LLC was
dissolved and liquidated and its assets, liabilities and feeder pig production
operations were assigned to and assumed by Alliance. As of the date of this
Prospectus, the Company owned and operated five 2,450-sow feeder pig production
facilities located in Yuma County, Colorado (approximately 150 miles east of
Denver), one 2,450-sow feeder pig production facility located in Wayne County,
Illinois (approximately 100 miles east of St. Louis, Missouri), and was in the
process of developing one additional feeder pig facility of comparable size in
Wayne County, Illinois. See "Business--Expansion" and "Business--Facilities."
The Company's business strategy is to produce feeder and weaned pigs for
sale to its members at competitive prices by utilizing modern facilities,
management practices designed to maximize productivity and high quality
genetically consistent breeding stock. The Company intends to expand its
existing feeder pig production operations by using the net proceeds from the
sale of additional shares of its Class A Common, together with term debt
borrowings, to develop or acquire and thereafter operate additional 2,450-sow
feeder pig production facilities, and to develop weaned pig production
operations by using the net proceeds from the sale of shares of its Class B
Common or Class C Common, together with term debt borrowings, to develop or
acquire and thereafter operate 2,450-sow weaned pig production facilities. In
this regard, the Company intends to use the net proceeds from the sale of each
block of 17 shares of Class A Common, together with term debt borrowings, to
develop or acquire one such feeder pig production facility, to use the net
proceeds from the sale of each block of 18 shares of Class B Common, together
with term debt borrowings, to develop or acquire one such weaned pig production
facility, and to use the net proceeds from the sale of each block of 24 shares
of Class C Common, together with term debt borrowings, to develop or acquire one
such weaned pig production facility. Accordingly, the net proceeds from the
sale of the 51 Class A Shares offered hereby, together with term debt
borrowings, are intended to be used to develop and operate up to three
additional 2,450-sow feeder pig production facilities, the net proceeds from the
sale of the 54 Class B Shares offered hereby, together with term debt
borrowings, are intended to be used to develop and operate up to three 2,450-sow
weaned pig production facilities, and the net proceeds from the sale of the 72
Class C Shares offered hereby, together with term debt borrowings, are intended
to be used to develop and operate up to three 2,450-sow weaned pig production
facilities. As of the date of this Prospectus, the Company was in the process
of developing its second Illinois feeder pig production facility. The Company
intends to apply the net proceeds from the sale of the first Minimum Class A
Block of 17 Class A Shares offered hereby to the development of this facility,
including the repayment of up to $1,360,000 of any related debt financing,
together with interest thereon, provided by Farmland. See "Description of
Business--Financing."
Operation of the Company's facilities is the responsibility of the
management staff of the Company. The Company has contracted with Farmland to
provide certain administrative services to the Company, including accounting,
production record keeping, feed and other input purchasing, employee training,
and breeding stock replacement logistics. See "Business--Employees,"
"Management" and "Certain Relationships and Related Transactions."
The Company has entered into contractual arrangements with certain of its
members, including Farmland and Yuma Cooperative. Pursuant to the Swine
Production Services Agreement between the Company and Farmland, Farmland has
agreed to provide certain administrative, advisory and consulting services to
the Company. Pursuant to the Feed Purchase Agreement between the Company and
Yuma Cooperative, Yuma Cooperative has agreed to provide Alliance with feed-
grains and feed additives for the production of feed at Yuma Cooperative's
contract rates. Farmland and Yuma Cooperative, as members, have contracted to
purchase a share of the feeder pigs to be produced by the Company under the same
terms required of the Company's other members except that during the period
commencing on July 13, 1994 and ending on August 11, 1995, the date the Company
first produced and shipped feeder pigs pursuant to the Feeder Pig Purchase
Agreements with the Company's existing members, the price paid by Farmland and
Yuma Cooperative for feeder pigs was based only on the Company's operating cost
per pig; provided, however, that such price was increased by $4.50 per feeder
pig after July 13, 1995. Commencing on August 11, 1995, the date the Company
first produced and shipped feeder pigs pursuant to the Feeder Pig Purchase
Agreements with the Company's existing members (other than Farmland and Yuma
Cooperative), the price paid by Farmland and Yuma Cooperative for feeder pigs is
and will be under terms comparable to those applicable to the Company's members
pursuant to the Feeder Pig Purchase Agreements. Finally, the Company has agreed
to provide Farmland the first opportunity to purchase any feeder and weaned pigs
produced by the Company in excess of the Company's supply commitments to other
members or that other members have failed to purchase during the term of the
Swine Production Services Agreement (and in no event less than the five year
period ending July 13, 1999). The Company intends to cause any such excess
production of weaned pigs, however, to be retained by the Company for
developement into feeder pigs. See "Certain Relationships and Related
Transactions" and "Feeder Pig Purchase Agreement" and "Weaned Pig Purchase
Agreements."
Hog production is subject to substantial risks. Success is dependent upon
obtaining high levels of breeding stock productivity, controlling the cost and
efficiency of purchased feed and other inputs while minimizing herd exposure to
disease or other factors which can adversely impact the operation. See "Risk
Factors."
BUSINESS ENVIRONMENT
The pork industry has undergone substantial change in recent years, with
respect to the production and processing of hogs. The Company believes that
current economics of the industry favor large, well-capitalized hog producers,
which use consistent, high-quality breeding stock and employ management
practices designed to maximize productivity. As a result, hog production has
become increasingly differentiated between large-scale farrowing operations
producing feeder pigs and less capital intensive smaller-scale hog finishing
operations.
Concentration of Production. The last decade saw a dramatic increase in the
concentration of hog production in larger scale facilities and a corresponding
decline in the number of farms producing hogs. Based on data available from the
U.S. Department of Agriculture, the number of farms producing hogs in the United
States has declined, while the percentage of the nation's total hog inventory
held on farms having more than a 500 head inventory, as well as the average
number of hogs per farm, has increased.
The Company believes there are several causes for the increasing
concentration of hog production into the hands of larger producers. Large,
specialized hog producers may be able to produce hogs for lower cost than
smaller scale independent farmers through economies of scale and the use of
improved genetics, nutrition, and management practices, many of which are more
easily implemented in modern, large-scale facilities. Since this cost advantage
would seem to be more readily available to those making a substantial investment
in facilities, efficient hog production has become a capital-intensive industry.
The Company believes that in the wake of the "agricultural crisis" of the mid-
1980's, capital for hog production has become more difficult to obtain and has
presented an increasingly large barrier to entry. Additionally, packers
generally pay premiums to producers both for the supply of a large volume of
hogs and for providing hogs of superior carcass merit with respect to the yield,
leanness and consistency. Larger operations populated with genetically
consistent stock bred for high productivity and carcass quality therefore may be
able to obtain a premium on the sale of their hogs that may not be available to
smaller producers.
Production Differentiation. In addition to the increasing concentration of
hog production in larger scale facilities, hog production increasingly has
become differentiated between feeder pig production operations (which includes
operations relating to the production of weaned pigs) and pig finishing
operations. The Company believes that this is partly the result of three-site
management practices which dictate the separation of production into three
stages: breeding through farrowing; nursery; and finishing; with each phase of
production being conducted in separate locations to minimize the risk of
transmission of disease. In producing feeder pigs, the Company engages in the
first two of these stages of production, while the Company's production of
weaned pigs will involve only the first of these stages of production.
Production of feeder and weaned pigs -- which is less dependent upon
variable feed cost and more dependent upon herd health, facilities and breeding
stock investment -- is increasingly being conducted in specialized facilities.
Finishing of hogs to market weight, the economics of which are principally
driven by feed cost, is increasingly handled by producers engaged exclusively in
the finishing of hogs, with many of those producers finishing hogs under
contract to the producer of the feeder pig. The Company believes that this
increasing specialization is attributable to the capital intensive nature of
farrowing operations and the complexity of management.
BREEDING STOCK
Fully populated, each of the Company's feeder and weaned pig production
facilities which is either in existence, under development or proposed is
anticipated to be stocked with approximately 2,450 sows. The Company intends to
maintain an adequate population of female-line grandparent stock in its
multiplier units to produce commercial gilts for use by the Company in any
future facilities development or to replace the commercial herd as it is culled
or lost to death. Barrows and any excess gilts from the multiplier units will
be sold by the Company as feeder or weaned pigs.
The Company's feeder and weaned pigs have been and will continue to be
produced from genetically consistent breeding stock. The Company currently
utilizes breeding stock from both DeKalb Swine Breeders and Pig Improvement
Company ("P.I.C."), but intends to discontinue the use of breeding stock
obtained from DeKalb Swine Breeders by the Autumn of 1997. As further
improvements in genetics are recognized, the characteristics of the Company's
breeding stock may change. The Company intends to continually evaluate the cost
and characteristics of breeding stock developed by other producers, and, in the
Company's discretion, to populate all or a portion of its facilities with such
breeding stock.
The Company continually culls a portion of its breeding herd and replaces
these animals with new breeding stock in order to maintain the productivity of
its breeding herd. The selection of animals to be culled is based on subjective
determinations as to the animal's productivity, which generally declines as the
animals mature. The Company believes that it is positioned to generate all or
substantially all of its breeding stock replacements through its breeding stock
multiplier herd. The Company believes that its multiplier units are and will be
able to produce virtually all of the replacement gilts and initial breeding
stock populations required by the Company for the foreseeable future. The
Company believes that its internal production of replacement gilts will result
in the cost of its breeding stock replacements being lower than could be
obtained from outside sources and will preserve the Company's control over its
entire operation. No assurance can be given that the Company will be successful
in producing any portion of its required breeding stock replacements or that the
cost for such replacements will be lower than could be obtained from outside
sources.
With respect to each facility under development or proposed, the Company
intends to place breeding stock in the facility over a five month period
beginning with the completion of the facility's breeding building. It is
anticipated that approximately 800 head of breeding stock will be delivered to
the facility in the first month followed by deliveries of 400 to 450 head over
the remaining four months until the facility is fully stocked. Following an
initial resting period of 45 to 60 days in order to acclimate and monitor each
group of breeding stock, breeding will be commenced.
Alliance implemented an artificial insemination ("AI") program in its
Colorado operations and plans to use AI in its other facilities. Although no
assurances can be given, Alliance believes that the use of AI will allow more
rapid improvements in carcass quality and assist in maintaining higher health
status of the herds.
Alliance has begun planning operations to depopulate the five 2,450-sow
feeder pig production facilities located in Yuma County, Colorado in order to
repopulate these units with P.I.C. females. It is anticipated that sourcing for
this repopulation will be from Alliance's Illinois facility, which is a P.I.C.
multiplier unit. The P.I.C. females are to be finished into breeding sows on
the facilities of independent Colorado producers. In this regard, Alliance has
contracted with Farmland for the use of facilities as to which Farmland has
acquired rights from the owners of such facilities. See "Certain Relationships
and Related Transactions--Farmland." Although no assurances can be given,
management believes that the repopulation eventually will improve both
productivity and health of the sow units and may result in improved production
results in both nursery and finishing pig performance. Repopulation is expected
to begin in August 1997 with P.I.C. feeder pigs available in October 1997.
Completion of the repopulation project is anticipated to occur by June 1998.
PURCHASE OF FEED AND OTHER INPUTS
Farmland has agreed to assist the Company in arranging for the provision of
the Company's requirements for feed and other inputs, including animal health
products, pursuant to the Swine Production Services Agreement between the
Company and Farmland. The Company intends to purchase a portion of these
products from Yuma Cooperative upon the prices and terms set forth in the Feed
Purchase Agreement between the Company and Yuma Cooperative. Farmland will
establish the specifications of all supplies purchased, as well as for the
purchasing and delivery of all requirements in coordination with the Company.
See "Certain Relationships and Related Transactions."
The Company's Feed Purchase Agreement with Yuma Cooperative provides for
the Company's purchase of feed manufactured by Yuma Cooperative on a delivered
cost basis to be determined based upon a fixed charge for the grinding, mixing,
and delivery of feed ($14 per ton as of November 1, 1996), in addition to the
actual delivered cost of the feed ingredients. Feed rations which are pelleted
are subject to a surcharge ($7 per ton as of November 1, 1996). Both the fixed
charge and the surcharge are subject to annual increases in November of each
year corresponding to any increases in the Consumer Price Index--Retail Items.
Corn provided by Yuma Cooperative for use in feed generally is sold to the
Company at delivered cost plus, in the absence of available Company grain
storage facilities, a $.10 per bushel handling fee. The Company has the right
under the Feed Purchase Agreement, in its sole discretion, to purchase and
provide its own corn for feed manufacturing. Corn and soybean meal may be
substituted from time to time with other ingredients meeting equivalent
nutritional requirements based upon temporal price differentials. See "Risk
Factors," "Business--Sale of Animals" and "Certain Relationships and Related
Transactions."
The Company believes that feed costs presently account for approximately
35% to 40% of the cost of producing a feeder pig and that feed costs will
account for approximately 20% and 25% of the cost of producing a weaned pig.
The principal components of swine feed are corn and soybean meal, which are
commodities subject to substantial fluctuations in cost due to changing market
conditions, seasonality, and regional variations. While the Company intends to
recover changes in feed costs by making corresponding adjustments in the selling
prices for its feeder and weaned pigs, the actual changes in the sales price of
feeder and weaned pigs will lag changes in feed cost because the Company
determines the cost of feeder pigs on a twelve month historical rolling average
basis and intends to determine the cost of weaned pigs on a five month
historical rolling average basis. This pricing method may adversely impact the
Company's operations in the event of sudden movements, or continual increases,
in the cost of feed or other inputs. See "Certain Relationships and Related
Transactions," "Business--Sale of Animals," "Feeder Pig Purchase Agreement" and
"Weaned Pig Purchase Agreements."
SALE OF ANIMALS
The Company intends to sell its feeder and weaned pigs to its members.
Accordingly, the Company has contracted with its members (and intends to
contract with investor members in connection with the offering of Shares made
hereby) for the sale of the feeder and weaned pigs produced at the Company's
facilities. Feeder Pig Purchase Agreements (a form of which is attached hereto
as Exhibit B) are to be executed by investors in connection with the offering of
Class A Shares made hereby as a condition to a subscription for Class A Shares.
Weaned Pig Purchase Agreements (a form of which is attached hereto as Exhibit C)
are to be executed by investors in connection with the offering of Class B
Shares made hereby as a condition to a subscription for Class B Shares. Class C
Weaned Pig Purchase Agreements (a form of which is attached hereto as Exhibit D)
are to be executed by investors in connection with the offering of Class C
Shares made hereby as a condition to a subscription for Class C Shares.
Investors in the Company will be required to purchase, and the Company will be
required to sell, lots of feeder pigs produced by the Company in amounts
proportionate to the respective member's pro rata share of the Company's Class A
Common, but in no event greater than two and seven-tenths (2.7) lots per share
of Class A Common on a prospective rolling 12-month basis. Presently, each
share of Class A Common held in the Company will entitle the respective member
to contract to purchase one delivery allotment per 102-allotment block made
available to the members under the Feeder Pig Purchase Agreements. Similarly,
investors in the Company will be required to purchase, and the Company will be
required to sell, lots of weaned pigs produced by the Company that are to be
sold to members in amounts proportionate to the respective member's pro rata
share of the Company's Class B Common or Class C Common, as the case may be, but
in no event greater than two and seven-tenths (2.7) lots per share of Class B
Common on a prospective rolling 12-month basis and in no event greater than two
and one-tenth (2.1) lots per share of Class C Common on a prospective rolling
12-month basis. The Company intends to allocate its production of weaned pigs
from all facilities between those that are to be sent to nurseries and developed
by the Company into feeder pigs, on the one hand, and those that are to be sold
as weaned pigs, on the other hand, in the same proportion that the number of the
Company's operating feeder pig production facilities bears to the number of the
Company's operating weaned pig production facilities. The lots of feeder and
weaned pigs purchased by the respective member from time to time will not
necessarily be produced from the same feeder or weaned pig production facility.
In the event that the Company issues additional shares of Common Stock for the
construction of additional feeder or weaned pig production facilities, the
number of participants in the allotment of feeder or weaned pigs, as the case
may be, will be increased, although such increase is not anticipated to
materially change an investor's right to receive his anticipated allotment of
pigs. Casualty to the Company's facilities, diminished breeding stock
productivity or extreme mortality or morbidity, among other adverse
circumstances, could reduce the number of feeder or weaned pigs available for
purchase by members and increase the price of pigs under the Feeder Pig Purchase
Agreements or Weaned Pig Agreements, as the case may be. See "Risk Factors."
If the Company is successful in implementing its business plan and any new
feeder and weaned pig production facilities are developed on schedule, the
initial lots of feeder pigs resulting from the development and expansion of the
Company's feeder pig production operations are not expected to be available to
new investor members for up to 13 to 15 months after completion of the sale of a
Minimum Class A Block of Class A Shares to such members and the initial lots of
weaned pigs resulting from the development of the Company's weaned pig
production operations are not expected to be available to new investor members
for up to 11 to 13 months after completion of the sale to such members of a
Minimum Class B Block of Class B Shares or a Minimum Class C Block of Class C
Shares, as the case may be. New investor members will not be entitled to
purchase pigs from the Company until such time. Investors in the Company are
required to contract for the purchase of Qualifying Pigs (as that term is
defined in the Feeder Pig Purchase Agreement or Weaned Pig Agreements, as the
case may be) from the facilities. Each such contract, or Feeder Pig Purchase
Agreement or Weaned Pig Agreements, as the case may be, constitutes an
irrevocable ten-year commitment. Each lot of pigs purchased by an investor
member pursuant to any such Agreement will be priced based upon the following
factors: the financing cost per pig, the operating cost per pig, and a
production margin of $4.50 per pig, in the case of feeder pigs, and of $0 to
$4.50 per pig (as determined by the Company in its discretion), in the case of
weaned pigs (all as defined in such Agreement). In the event that an investor
member fails at least twice to perform his purchase obligation under such
Agreement, such investor member will be in default, which default may result in
the relinquishment of his purchase rights under such Agreement. For each ten
shares of Common Stock owned by a member, the number of such failures that will
result in a default is increased by one. A member's failure to perform his
purchase obligation, among other circumstances, also may result in the Company's
foreclosure on its security interest granted in the member's Common Stock. In
addition, the member will be responsible for the damages and expenses incurred
by the Company as a result of any failure to purchase, pay for, and take
delivery of any lot of Qualifying Pigs under the Feeder Pig Purchase Agreement
or Weaned Pig Agreements, as the case may be, including (a) damages equal to the
difference between the price payable by the member for the Qualifying Pigs that
member has failed to purchase, pay for, and take delivery under the Agreement
and the then current market price for feeder or weaned pigs, as the case may be,
(b) $3,000, which amount is intended to cover the Company's administrative and
other costs and expenses associated with such failure, and (c) all costs of
collection, enforcement, and prosecution of the Company's rights and remedies.
If the Company produces feeder pigs in excess of two and seven-tenths (2.7) lots
per share of Class A Common on a prospective rolling 12-month basis or produces
weaned pigs in excess of two and seven-tenths (2.7) lots per share of Class B
Common or two and one-tenth (2.1) lots per share of Class C Common on a
prospective rolling 12-month basis, the Company may sell such excess production
to non-members, or retain such excess production for the Company's own purposes,
in lieu of selling such excess production pursuant to the Feeder Pig Purchase
Agreements or Weaned Pig Agreements, as the case may be. The Company has agreed
in its Swine Production Services Agreement with Farmland to provide Farmland the
first opportunity to purchase any such excess production and any feeder or
weaned pigs that members have failed to purchase during the term of said
Agreement (and in no event less than the five year period ending July 13, 1999).
The Company intends to cause any such excess production of weaned pigs,
however, to be retained by the Company for developement into feeder pigs. See
"Feeder Pig Purchase Agreement," "Weaned Pig Purchase Agreements," "Certain
Relationships and Related Transactions," "Restrictions on Sale or Other Transfer
of the Shares--Cooperative Association Laws and Charter Documents" and "Plan of
Distribution."
As of the date of this Prospectus, the Company has reached an agreement
with the Company=s existing lender and Farmland concerning the provision by such
lender and Farmland of full debt financing for the development of a second
Illinois facility. See "Business--Financing." In connection with obtaining
this financing, Farmland has contracted to purchase, until the first to occur of
the expiration of one year and the date on which Farmland is repaid on its loan,
the marginal increase in Alliance's production of feeder pigs (approximately 46
lots of feeder pigs on a prospective rolling 12-month basis) resulting from the
development of the facility constructed using the proceeds of such financing.
Farmland=s purchase of such feeder pigs would be under substantially the same
terms required of the Company=s members pursuant to the Feeder Pig Purchase
Agreements, except that the purchase price for pigs does not include the $4.50
per pig production margin. See "Feeder Pig Purchase Agreement."
COMPETITION
The feeder and weaned pig production business is competitive and fragmented
among family-owned and investor-owned farms and large-scale agribusiness pig
production operations. Feeder and weaned pigs are available at sale barn
auction, markets such as Farmland's Pig Finder7 electronic pig auction market,
and under contract from producers. Competition is based upon price, product
consistency and quality, ability to deliver the required quantities and ability
to meet delivery schedules. Although there are a great number of operations
that compete with the Company, as discussed elsewhere in this Prospectus the
Company has contracted with its members (and intends to contract with investor
members in connection with the offering of Shares made hereby) for the sale of
feeder and weaned pigs produced at the Company's facilities. If the Company
produces pigs in excess of its supply commitments to members, however, the
Company may sell such excess production to non-members. The Company believes
that its most important competitive strengths are its ability to provide
competitive pricing and the quality and consistency of the pigs produced by it.
See "Business Environment," "Feeder Pig Purchase Agreement" and "Weaned Pig
Purchase Agreements."
EXPANSION
Expansion is an important element of the Company's business plan. The
Company's present intent is to construct or acquire (a) three 2,450-sow feeder
pig production facilities (including the Company's second Illinois facility
under development and subject to the sale of all Class A Shares offered hereby)
in addition to the Company's existing facilities and facilities under
development, following completion or acquisition of which the Company will be
operating a total of nine such facilities, and (b) six 2,450-sow weaned pig
production facilities (subject to the sale of all Class B Shares and Class C
Shares offered hereby), following completion or acquisition of which the Company
will be operating a total of six such facilities. The ability of the Company to
construct or acquire each of such three feeder pig production facilities is
subject to it obtaining at least $3,940,000 of net financing proceeds (at least
$12,100,000 in the aggregate for all three facilities), and the ability of the
Company to construct or acquire each of such six weaned pig production
facilities is subject to it obtaining at least $3,100,000 of net financing
proceeds (at least $19,160,000 in the aggregate for all six facilities). As of
the date of this Prospectus, the Company has commenced preliminary development
activities with respect to a second feeder pig production facility in Wayne
County, Illinois in anticipation of obtaining such necessary financing. No
assurances can be given that the Company will obtain the financing required for
the development of the second Illinois facility. See "Business--Financing."
The Company believes that substantial economies of scale will be realized
in the event that the Company is able to expand beyond the three feeder pig
production facilities and six weaned pig production facilities that the Company
presently intends to construct or acquire. These additional economies are
expected to include savings and enhancements in the production of breeding
stock, economies in the production of feed, and enhancement of management and
labor productivity. The Company intends to pursue expansion of its operations
as financial, managerial and other resources become available. No assurance can
be given as to when or if such resources will become available to Alliance so as
to allow it to proceed with such expansion.
Hog production operations require the availability of ample pure water at
reasonable cost. Although the Company has obtained access to water necessary
for it to conduct its current operations in Colorado and Illinois, the Company
has been advised that it will be unable to obtain any new commercial well
permits in Colorado. Accordingly, the Company has found it necessary in
Colorado to obtain the water necessary for its operations through the purchase
of more expensive, irrigated land or other real property already having the
necessary commercial well permits. No assurance can be given that the Company
will be able to obtain the water permits necessary to enable it to expand its
operations in Colorado, Illinois or other locations selected by the Company.
See "Risk Factors--Adequate Water Supply."
FINANCING
The ability of the Company (a) to implement its business strategy and
construct or acquire additional feeder pig production facilities is subject to
it obtaining at least $3,940,000 of net financing proceeds with respect to each
such facility, and (b) to implement its business strategy and construct or
acquire new weaned pig production facilities is subject to it obtaining at least
$3,100,000 of net financing proceeds with respect to each such facility. In
this regard, the Company is engaged in the offering of the Shares. In addition
to the proceeds to be received from the possible issuance and sale of one or
more Minimum Class A Blocks, Minimum Class B Blocks or Minimum Class C Blocks,
the Company would be required to obtain additional funds through secured term
debt borrowings. The Company anticipates that (a) with respect to each Minimum
Class A Block of 17 Class A Shares issued by the Company at the offering price
set forth on the cover page of this Prospectus, the Company would be required to
borrow approximately $2,720,000 of term debt borrowings in order to construct
one new feeder pig production facility and related support facilities, to
purchase breeding stock, and to provide working capital for operations, (b) with
respect to each Minimum Class B Block of 18 Class B Shares issued by the Company
at the offering price set forth on the cover page of this Prospectus, the
Company would be required to borrow approximately $2,160,000 of term debt
borrowings in order to construct one new weaned pig production facility and
related support facilities, to purchase breeding stock, and to provide working
capital for operations, and (c) with respect to each Minimum Class C Block of 24
Class C Shares issued by the Company at the offering price set forth on the
cover page of this Prospectus, the Company would be required to borrow
approximately $2,160,000 of term debt borrowings in order to construct one new
weaned pig production facility and related support facilities, to purchase
breeding stock, and to provide working capital for operations. The amount of
this proposed financing has been determined based upon the anticipated capital
expansion and business operations needs of the Company and the anticipated net
proceeds from the issuance of the Shares. See "Risk Factors," "Use of Proceeds"
and "Plan of Distribution."
On May 19, 1995, the Company entered into various loan documents with
CoBank related to a $23,600,000 secured credit facility. This credit facility
provides for up to $18,850,000 of non-revolving term debt and $4,750,000 of
revolving term credit. Proceeds from the term debt may be used for construction
of feeder pig production facilities and are advanced by CoBank as construction
costs are incurred by Alliance. Proceeds from revolving term credit may be used
for working capital and other purposes. The actual advance of funds under this
credit facility is subject to the satisfaction of certain conditions precedent
and may be withdrawn or terminated by CoBank under certain circumstances. No
assurances can be given that the funding conditions precedent will be satisfied
and that the Company will be able to obtain sufficient financing when needed, or
that alternative sources of financing will be available on acceptable terms. In
addition, the unused portion of the credit facility expires August 31, 1997
(extended from the original February 28, 1997 expiration date) with respect to
the non-revolving term debt and June 20, 2006 with respect to the revolving term
credit. As of the date of this Prospectus, the Company intends to enter into
negotiations with CoBank to obtain an extension of the CoBank loan or to obtain
a commitment for a new loan after the August 31, 1997 expiration of the existing
CoBank loan commitment. No assurances can be given that such negotiations will
be successful and that such commitment will be obtained on favorable terms, if
at all.
As of the date of this Prospectus, the Company has not obtained a credit
facility for construction of weaned pig production facilities. As of the date
of this Prospectus, the Company is engaged in negotiations with CoBank to obtain
a commitment for such a credit facility. No assurances can be given that such
negotiations will be successful and that such commitment will be obtained on
favorable terms, if at all. If any such commitment is obtained from CoBank or
any other lender, it is anticipated that the actual advance of funds under any
credit facility would subject to the satisfaction of certain conditions
precedent and further subject to early withdrawal or termination by the lender
under certain circumstances. No assurances can be given that the funding
conditions precedent will be satisfied and that the Company will be able to
obtain sufficient financing when needed, or that alternative sources of
financing will be available on acceptable terms.
The availability of non-revolving term debt and revolving term credit under
the CoBank credit facility is subject to specified equity investment levels in
the Company being satisfied. As of February 28, 1997, $142,000 was immediately
available to Alliance under its credit facility with CoBank. JWA[3]An
additional $211,000 of term loans is to become available approximately 90 days
following construction of the Company's facilities under development. The
availability of $6,330,000 of unused term loans and $1,830,000 of revolving term
credit under the CoBank credit facility is restricted and may be made available
to the Company only to the extent that additional equity investment is made in
the Company. With respect to each additional equity investment of $1,360,000
obtained by the Company (e.g., 17 shares of Common Stock sold for at least
$80,000 each), the Company is entitled to obtain advances under the credit
facility of $2,720,000 ($2,110,000 of term loans and $610,000 of revolving term
credit), up to an aggregate of $8,160,000. As more fully described below, as of
the date of this Prospectus, the Company has agreed with CoBank and Farmland
that it may obtain an advance under the CoBank credit facility of $2,720,000 and
a loan from Farmland of $1,360,000 (including $200,000 previously loaned by
Farmland to Alliance), without the necessity of satisfying the additional equity
investment requirement.
Prior to any advance being made by CoBank under the credit facility,
certain conditions precedent must be addressed to CoBank's satisfaction,
including but not limited to (i) provision of environmental audits respecting
the Company's realty, (ii) obtaining performance bonds and lien payment bonds
and builder's risk casualty insurance respecting such construction, (iii)
obtaining a chain of title and title insurance respecting the Company's realty,
and (iv) provision of evidence that CoBank has a perfected first priority lien
on all security for the Company's obligations. As of February 28, 1997, the
outstanding balance of loans made by CoBank under this credit facility was
$13,922,000.
As an temporary alternative to funding an expansion of the Company's
operations with a combination of debt and equity financing, as of the date of
this Prospectus CoBank and Farmland have agreed to the provision of full debt
financing. This financing alternative was obtained in connection with the
commencement of preliminary development activities on a second feeder pig
production facility in Wayne County, Illinois. See "Business--Expansion." Such
financing consists of $2,110,000 of non-revolving term debt and $610,000 of
revolving term debt obtained from CoBank and $1,360,000 of subordinated non-
revolving term debt from Farmland (including $200,000 previously loaned by
Farmland to the Company for the acquisition of certain real property in Wayne
County, Illinois). See "Business--Facilities" and "Certain Relationships and
Related Transactions--Farmland--Real Estate Loans."
The CoBank portion of this financing will be provided under the Company=s
existing credit facility. The Farmland portion of this financing will be
provided on terms substantially identical to those applicable to the $200,000
loan previously made by Farmland to Alliance for the acquisition of certain real
property in Wayne County, Illinois. See "Certain Relationships and Related
Transactions--Farmland--Real Estate Loans." In this regard, the Farmland
portion of the financing will provide for amortization over a ten-year period,
at a variable rate equal to CoBank's then national variable rate plus 1.25%.
The payment schedule for the Farmland loan will require the Company to make
interest-only payments for the life of the loan, with a final balloon payment of
the outstanding loan balance to be made upon the earlier of (i) the Company's
issuance and sale of a Minimum Block of the Shares, and (ii) the expiration of
ten years. Alliance's obligation to Farmland will be secured by a mortgage on
the facilities constructed with the proceeds of the loan, which mortgage will be
second in priority to that of CoBank. In addition, Farmland has agreed to
purchase all feeder pigs produced at the facility that was constructed using the
proceeds of the Farmland loan until the first to occur of the expiration of one
year and the date on which Farmland is repaid on its loan. See "Business--Sale
of Animals." As a result of the larger portion of indebtedness associated with
this financing alternative (and the higher debt service related thereto) as
compared with the debt and equity alternative discussed above, the net proceeds
from the issuance of Shares that would be required must be correspondingly
greater in order to provide for the balloon payment of principal and required
installments of interest under the Farmland loan. No assurances can be given
that the Company will be able to obtain the financing required for the
development of the second Illinois facility.
In connection with the Company=s acquisition of certain real property in
Yuma County, Colorado, the Company borrowed $760,000 from Farmland. This loan
is evidenced by a promissory note providing for amortization over a ten-year
period, at a variable rate of interest equal to CoBank's prime rate. The
payment schedule for this loan requires the Company to make interest-only
payments for the life of the loan, with a final balloon payment of all principal
to be made upon the expiration of the ten-year term. See "Business--Facilities"
and "Certain Relationships and Related Transactions--Farmland--Real Estate
Loans."
The CoBank credit facility provides for the monthly payment of principal
and interest. Principal payments pursuant to the loan terms with respect to the
initial $8.3 million of non-revolving term loans are to be made in 114 monthly
installments of $72,500 each, beginning January 20, 1996, with the remaining
unpaid balance being due and payable on July 20, 2005. Principal payments
pursuant to the loan terms with respect to each $2,110,000 of new non-revolving
term loans are to be made in monthly installments of $18,700 each, beginning on
the 20th day of the eighteenth month following the date of the initial advance
of such $2,110,000 loan. Principal payments pursuant to the loan terms with
respect to the revolving term loan are to be made in 24 equal monthly
installments of the principal that is outstanding as of the June 20, 2006
expiration of the revolving loan commitment, beginning on the 20th day of the
month following the payment in full of the new non-revolving term loan (but in
no event later than March 20, 2008). Interest accrues on the outstanding
principal balance of the loan at a rate equal to either (i) a variable rate
equal to CoBank's then national variable rate plus 1.25%, or (ii) CoBank's then
quoted rates for fixed rate loans, as may be elected from time to time by the
Company, and is payable monthly in arrears by the 20th day of the following
month. During the period in which principal under the loan is outstanding,
portions of such principal may bear interest at such variable rate while other
portions may bear interest at such fixed rate. As of February 28, 1997,
interest accrued on the outstanding principal balance of the loan at a rate of
9.5% per annum (calculated by adding 125 basis points to CoBank's national
variable rate of 8.25% in effect as of such date). The interest rate(s)
applicable to the loan are subject to reduction at specified times upon the
Company's satisfaction of certain conditions relating to the Company's equity
level and debt service coverage ratio. As of February 28, 1997, no reductions
in the Company=s interest rate had been made. The Company is permitted to
prepay the loan at any time without penalty, except that in the event that fixed
rate balances are prepaid, the Company is required to pay CoBank a surcharge in
an amount equal to CoBank's funding losses with respect thereto or, if the
CoBank loan is refinanced by another lender, a surcharge in an amount sufficient
(on a present value basis) to enable CoBank to maintain the yield it would have
earned on the amount repaid for the period such amount was scheduled to be
outstanding at a fixed rate.
In obtaining the initial non-revolving CoBank loan, the Company was
required to pay a $50,000 origination fee as well as make an equity investment
in CoBank of $1,000. In addition, the Company paid a $36,000 origination fee in
connection with the refinancing of its existing CoBank loan, and will be
required to pay a $6,000 fee with respect to the origination of each $2,110,000
of new non-revolving term loans. During the course of the loan, the Company may
be required to make additional equity investments at a rate not to exceed 1% of
the average five-year principal loan balance (which additional equity
investments may be satisfied out of CoBank's non-cash patronage distributions)
until the Company meets CoBank's target level of equity investment, which
currently is 11.5% of the Company's average five-year principal loan balance.
In addition, the Company was required to grant a first perfected lien and
security interest on substantially all of its properties and assets to CoBank
and to assign to CoBank all of the Company's rights in and to the existing
Feeder Pig Purchase Agreements. The Company is required to comply with various
affirmative and negative covenants, including but not limited to (i)maintenance
of at least $2,250,000 of equity, plus $550,000 of equity for each facility
developed by the Company after its initial four facilities ($3,350,000 of equity
was required at February 28, 1997 and the Company had $4,610,756 of equity at
such date), (ii) maintenance of modified working capital (calculated as current
assets, plus available revolving term credit, minus current liabilities
(excluding the current portion of term debt payments)) of at least $210,000,
plus $98,000 of modified working capital for each facility developed by the
Company after its initial four facilities ($406,000 of modified working capital
was required at February 28, 1997 and the Company had $41,259 of modified
working capital at such date), (iii) provision of monthly financial statements
and audited annual financial statements to CoBank, (iv) restrictions on the
incurrence of additional indebtedness, (v) restrictions on certain liens,
mergers, sales of assets, investments, guaranties, loans, advances and business
activities unrelated to existing operations, and (vi) restrictions on the
declaration and payment of the cash portion of patronage distributions and other
distributions or allocations of the Company's earnings, surplus or assets. The
Company was in compliance with each of these covenants as of February 28, 1997,
except the modified working capital covenant as to which the Company has
obtained a waiver from CoBank as of February 28, 1997. Management believes that
Alliance will have the ability to maintain compliance with the above covenants
in the foreseeable future.
FACILITIES
Facilities in Existence or Under Development. As of the date of this
Prospectus, the Company conducted operations from its five existing 2,450-sow
feeder pig production facilities located in Yuma County, Colorado (approximately
150 miles east of Denver), and from its one existing 2,450-sow production
facility in Wayne County, Illinois. As of the date of this Prospectus, the
Company does not have any weaned pig production facilities. The original Yuma
County, Colorado feeder pig production facility was constructed in a
configuration different than that employed with respect to the Company's other
facilities and is anticipated to be different than that employed for future
feeder pig production facilities. The original facility consists of six
separate buildings, including two breeding buildings, two gestation buildings,
and two farrowing buildings, all of which are situated together on an
approximately 160 acre site with a separately accessed nursery building, while
each of the Company's other facilities consist of a three-building sow breeding,
gestation and farrowing complex situated together, with a separately accessed
nursery building. Management believes that the condition of its facilities
presently is adequate for the Company's business, and that its facilities are
adequately covered by insurance. Each of the existing facilities, including
land and buildings, was constructed for between $2,243,000 and $2,495,000, and
has been or will be pledged as security for the Company's loan from CoBank under
the terms of a deed of trust/mortgage.
Between September and December 1995, the Company purchased approximately
1,000 acres of real property in Yuma County, Colorado, upon which the Company
has developed one feeder pig production facility and holds the remaining acreage
for the development of additional production facilities (the "Additional
Colorado Property"). The acquisition cost of this Additional Colorado Property
was approximately $760,000. The Company obtained funding for the purchase of
the Additional Colorado Property from the proceeds of a loan obtained from
Farmland. In conjunction with this loan, the Company delivered to Farmland a
promissory note evidencing the debt providing for the amortization of the loan
over a ten-year period, at a variable rate equal to CoBank's prime rate. As of
February 28, 1997, CoBank's prime rate was 8.25%. The payment schedule of the
promissory note requires that the Company make interest-only payments for the
life of the loan, with a final balloon payment of the principal at the
expiration of the ten-year term. To secure the obligations of the promissory
note, the Company has agreed to execute a deed of trust in favor of Farmland
covering all of the Additional Colorado Property, which deed of trust is second
in priority to that of CoBank with respect to the production facility
constructed thereon. See "Certain Relationships and Related Transactions--
Farmland--Real Estate Loans."
As of the date of this Prospectus, the Company has acquired approximately
442 acres of real property in Wayne County, Illinois, including a 90 acre tract
acquired pursuant to the exercise of the option referred to below. The Company
has developed one feeder pig production facility on these 442 acres. In
addition, as of the date of this Prospectus the Company has commenced
preliminary development activities with respect to a second feeder pig
production facility located on this property. See "Business--Expansion."
In November 1996, the Company entered into a contract pursuant to which the
Company has been granted the option to purchase approximately 500 acres of real
property in Wayne County, Illinois (the "Option Property"). Under the terms of
this option contract, if the Company fails to fully exercise the option as to
the entire Option Property prior to November 1998, the Company shall be
responsible for a $150,000 liquidated damages payment to the owner of the Option
Property. The Company's responsibility for this liquidated damages payment is
secured by a stand-by letter of credit issued by CoBank. Until the expiration
of this letter of credit, the revolving term credit available to the Company
will be reduced by $150,000. In November 1996, the Company exercised its rights
under this option contract to acquire an approximately 90 acre tract of the
Option Property, including 45 acres (the "45 Acre Tract") on which the Company
has commenced preliminary development activities with respect to a second
Illinois sow production facility. The Company obtained funding for the purchase
of the 45 Acre Tract from the proceeds of a $200,000 loan provided by Farmland.
In conjunction with this loan, the Company delivered to Farmland a promissory
note evidencing the debt providing for amortization over a ten-year period, at a
variable rate equal to CoBank's then national variable rate plus 1.25%. The
payment schedule for the Farmland loan requires the Company to make
interest-only payments for the life of the loan, with a final balloon payment of
all principal to be made upon the earlier of (i) the Company's issuance and sale
of a Minimum Block of Shares, and (ii) the expiration of ten years. Alliance's
obligation to Farmland under this note is secured by a mortgage on the 45 Acre
Tract. See "Certain Relationships and Related Transactions--Farmland--Real
Estate Loans."
The Company maintains its administrative offices at 302 Idlewild Street in
Yuma, Colorado. This office space has been made available to the Company by
Farmland at no cost to the Company.
Proposed Facilities. In connection with the offering of the 51 Class A
Shares hereby, the Company intends to construct or acquire up to three
additional 2,450-sow feeder pig production facilities in or around Yuma County,
Colorado, Wayne County, Illinois, or other locations selected by the Company
(one facility with respect to each 17 Class A Shares sold in this offering).
The Company intends to construct or acquire up to six 2,450-sow weaned pig
production facilities in or around Yuma County, Colorado, Wayne County,
Illinois, or other locations selected by the Company (one facility with respect
to each 18 Class B Shares or each 24 Class C Shares sold in this offering) in
connection with the offering of the 54 Class B Shares and 72 Class C Shares
hereby. The Company has commenced preliminary development activities with
respect to a second feeder pig production facility located in Wayne County,
Illinois in anticipation of obtaining the necessary financing. As of the date
of this Prospectus CoBank and Farmland have agreed to the provision of full debt
financing consisting of $2,110,000 of non-revolving term debt and $610,000 of
revolving term debt obtained from CoBank and $1,360,000 of subordinated non-
revolving term debt from Farmland (including $200,000 previously loaned by
Farmland to the Company for the acquisition of certain real property in Wayne
County, Illinois). Upon the Company's issuance and sale of a Minimum Block of
Shares, the net proceeds of such issuance and sale will be applied to the
repayment of the Farmland $1,360,000 subordinated non-revolving term debt. No
assurances can be given that the Company will be able to obtain the financing
required for the development of the second Illinois facility. In addition to
the three feeder pig production facilities and six weaned pig production
facilities that the Company presently intends to construct or acquire, the
Company intends to develop feeder pig production facilities and weaned pig
production facilities in the future as financial, managerial and other resources
become available. No assurance can be given that such resources will become
available to Alliance so as to allow it to proceed with the development of such
additional facilities. See "Business--Expansion" and "--Financing."
It is anticipated that each of the three feeder pig production facilities
to be developed, in part, with the proceeds from the 51 Class A Shares in this
offering, including the second Illinois facility presently in a preliminary
stage of development, will consist of a three-building sow breeding, gestation,
and farrowing complex situated together on a site, with nursery buildings being
separate from the rest of the complex to allow for disease separation between
the facilities. The six weaned pig production facilities to be developed, in
part, with the proceeds from the 54 Class B Shares and 72 Class C Shares in this
offering will consist of a three-building sow breeding, gestation, and farrowing
complex situated together on a site. As presently proposed, the construction of
each new feeder pig production facility is anticipated to cost approximately
$2,750,000, including the cost of land and land improvements, and the
construction of each new weaned pig production facility is anticipated to cost
approximately $2,115,000, including the cost of land and land improvements. The
Company has estimated the cost of land and land improvements to be approximately
$500,000 per feeder pig production facility and approximately $296,000 per
weaned pig production facility. No assurance can be given that the actual
development costs for the new facilities will not exceed the Company's
estimates. See "Use of Proceeds." It is anticipated that construction of the
proposed facilities will be handled by contractors on a "turn-key" basis and
will be phased-in over time, beginning with construction of the breeding
buildings, followed by construction of the gestation, farrowing, and nursery
buildings as production of the breeding herd progresses. In this regard, the
Company has contracted with Central Confinement, Inc., Columbus, Nebraska, for
the construction of the second feeder pig production facility situated in Wayne
County, Illinois. The Company anticipates that it will stagger the construction
of the proposed new facilities, with the construction of no more than one
facility being initiated in each month following completion of an offering. The
development of each feeder pig production facility is anticipated to require up
to 13 to 15 months after completion of the offering of a Minimum Class A Block
of Shares and each weaned pig production facility is anticipated to require up
to 11 to 13 months after completion of the offering of a Minimum Class B Block
of Shares or a Minimum Class C Block of Shares, as the case may be.
As capital funds are available and the economic benefit is determinable,
the Company intends to consider the construction of certain additional
facilities, including a truck wash facility in close proximity to the production
units, an off-site boar stud facility for semen collection, handling, and
laboratory equipment used in artificial insemination, a dead animal disposal
center, bulk storage for the holding of feed grain inventories, and feed
manufacturing equipment. Additionally, depending upon the characteristics of
each site purchased, the Company may be required to construct single-family
housing for its management employees. No determination has been made at this
time as to the necessity of any such construction, and the Company presently has
no firm plan to develop any of such additional facilities.
Location of Proposed Facilities. The Company intends to locate the
proposed new feeder pig production facilities and weaned pig production
facilities in or around Yuma County, Colorado, Wayne County, Illinois or other
locations selected by the Company. With the exception of the second Illinois
facility, the Company has not, as of the date of this Prospectus, identified
specific sites for the location of the facilities. In selecting a site for the
Company's facilities, the Company considers a variety of factors, including
those referred to below.
As a threshold matter, the Company's facilities must be located in a state
such as Colorado and Illinois, among others, in which the applicable laws do not
prohibit ownership of a hog production facility by a corporation, including
cooperative associations such as the Company. Although state laws may contain
restrictions relating to zoning, water management, and environmental
regulations, particularly with respect to feeder and weaned pig production
operations, the Company must not be prohibited from constructing or operating
its facilities. With respect to climatic conditions, temperatures may be cold
in the winter so long as they are believed by the Company to be adequately
temperate and low in humidity to accommodate the existing and planned
operations. Hog production operations require the availability of ample pure
water at reasonable cost. Although the Company has obtained access to water
necessary for it to conduct its current operations in Colorado, the Company has
been advised that it will be unable to obtain any new commercial well permits in
Colorado. Accordingly, the Company has found it necessary in Colorado to obtain
the water necessary for its operations through the purchase of more expensive,
irrigated land or other real property already having the necessary commercial
well permits. No assurance can be given that the Company will be able to obtain
the water permits necessary to enable it to expand its operations in Colorado,
Illinois or other locations selected by the Company. Hog production operations
also must have access to feed at reasonable cost. The cost of feed is a
function of the local availability of high-quality feed grain and soybeans and
the capacity to process these ingredients, all relative to the local demand for
these inputs. Alliance believes that ample production of corn and ingredient
processing facilities exist within the Yuma County, Colorado and Wayne County,
Illinois regions and adequate transportation is available to haul in feed-grains
to the facilities. However, soybean meal must be hauled into Yuma County.
Productivity of the Company's operations largely will be dependent upon its
ability to keep the operations free from diseases. The Company believes that
the location of feeder and weaned pig production facilities in a region that
does not contain a relatively large population of other hogs is desirable in
helping to minimize the risk of disease-related problems.
WASTE DISPOSAL AND ENVIRONMENTAL MATTERS
Several environmental requirements potentially are applicable to feeder and
weaned pig production operations such as those conducted or proposed to be
conducted by the Company. Generally, these requirements take the form of
federal statutory and regulatory requirements that are, in some cases, reflected
in similar state requirements. In other instances, state or local requirements
may exist separately and without federal precedent.
The principal environmental regulations with which the Company must comply
are related to the handling and disposal of waste water generated at the
Company's facilities. The federal Clean Water Act generally prohibits the
discharge of pollutants into the waters of the United States. The Environmental
Protection Agency ("EPA") has further issued regulations that prohibit the
discharge of waste water from animal feedlot operations into the waters of the
United States, except under certain circumstances when excessive rainfall runoff
added to existing process waste water exceeds the design capacity of the waste
water handling and treatment facilities. These regulations therefore generally
require that waste water handling and treatment facilities for "animal feedlots"
(which term is defined broadly enough to cover the Company's operations) be of a
non-discharge nature.
To comply with these federal requirements, animal feedlot operators, such
as the Company, must either obtain a permit from the EPA for its operations, or,
in the case of a state which has been granted authority by EPA to carry out a
Clean Water Act program, application must be made to the state. The State of
Colorado and the State of Illinois each has been granted such authority by EPA.
The Colorado and Illinois regulations generally adopt the format of the EPA
provisions for animal feedlots, and generally require concentrated animal
feeding operations to be operated as no-discharge facilities. These regulations
require that the Company design, construct, and operate waste water control
structures capable of retaining and processing all waste water and storm runoff
which enter the facility, with the exception of water generated from rainfall in
excess of certain prescribed parameters. Moreover, these regulations authorize
the state agency to require the removal of accumulated manure and process waste
water as necessary to prevent the overflow of the containment and processing
structure. The Company uses lagoon containment and processing systems at its
production facilities to comply with these regulations.
Land application of manure and process waste water also is regulated by
Colorado and Illinois regulations. Generally, these regulations authorize the
state agency to require that manure and process waste water not be distributed
on lands in a manner that affects the quality of waters, impairs existing
beneficial uses, or exceeds estimated soil infiltration rates, and shall not be
applied when the land is frozen, saturated or during rainfall. Sprinkler
irrigation equipment must include a back flow prevention device. Land
application rates are established on a case-by-case basis after taking into
account the nature and type of manure or process waste water and the
characteristics of the area to which it is to be applied.
Each feeder or weaned pig production facility is or will be designed to
enable the removal of animal waste by means of emptying shallow pits located
under the slatted floors of each facility. Animal waste falls through the
slatted floor into the pit which is filled with water. Periodically, each pit
is drained and refilled. Waste water drained from a pit is moved into a lagoon
system for treatment. All lagoons must be of a size adequate to accommodate the
anticipated volume of waste water to be generated together with storm water
runoff. Further, each lagoon must be lined with a material that prevents or
inhibits the seepage of waste water into the ground water below.
Cost of design and construction of waste water treatment systems vary by
facility based upon the characteristics of each individual site. The Company
has estimated that the cost of construction of lagoons and the attendant pumps
and piping required to handle the waste water generated at each feeder or weaned
pig production facility will range from approximately $100,000 to $135,000.
Ongoing expenditures to handle waste water consist principally of expenditures
for utilities and maintenance. Such ongoing expenditures do not constitute a
significant operating cost to the Company.
EMPLOYEES
Operating management of each of the Company's existing and future
facilities will be the responsibility of each respective production facility's
General Manager. The General Manager will have overall responsibility for the
operation of the facility. Additional department managers likely will oversee
the breeding/gestation, farrowing, and nursery departments. It is anticipated
that each facility under development or proposed will employ eleven persons in
breeding through farrowing operations, including management and laborers.
Pursuant to the Swine Production Services Agreement between the Company and
Farmland, Farmland has agreed to assist in providing certain administrative
services to the Company, including the coordination of the Company's training of
personnel to be employed by the Company and the selection of employees.
As of February 28, 1997, the Company employed approximately 121 persons, of
whom 117 were full-time employees and four were part-time employees. Of the
Company's 117 full-time employees, 14 employees are assigned to perform various
facilities operation services for Pig Producers I, L.P. ("Pig Producers"), a
limited partnership in which Farmland holds a 12.5% interest. Pig Producers is
engaged in the production of feeder pigs from a 2,450-sow feeder pig production
facility located in Yuma County, Colorado. The Company is reimbursed by Pig
Producers for all wages, benefits and other costs attributable to the 14
Alliance employees performing services for Pig Producers. See "Certain
Relationships and Related Transactions--Farmland." The Company is not a party
to any collective bargaining agreement and considers its relationship with
employees to be satisfactory.
FEDERAL INCOME TAXATION
The following is a general discussion of certain Federal income tax
provisions applicable to Alliance and the Federal income tax consequences of the
ownership of Shares of Alliance by an investor. It is impractical to comment
on all aspects of Federal, state and local laws which may affect the tax
consequences of an investment in the Shares. The following discussion is merely
a summary of some of the federal income tax principles applicable to Alliance
and the investors, and does not purport to be a complete analysis or listing of
all potential tax consequences or risks inherent in purchasing or owning Common
Stock in Alliance. Each prospective investor should consult his or her own tax
advisor.
The following discussion of federal income tax matters is based upon the
Internal Revenue Code of 1986, as amended to date (the "Code"), the regulations
promulgated or proposed thereunder, the position of the Service set forth in its
published revenue rulings, revenue procedures and other announcements and court
decisions as in effect on the date of this Prospectus. No assurance can be
given that future legislative or administrative actions or court decisions will
not result in changes in the law which would result in significant modification
to the following discussion. Any such legislative or administrative action or
decision may or may not be retroactively applied with respect to transactions
completed prior to the effective date of such action.
Taxation of a Taxable Cooperative. Alliance has been formed as a
cooperative association under Colorado law and intends to operate as a
cooperative for Federal income tax purposes. A taxable cooperative is subject
to Federal income tax on its Federal taxable income and generally computes its
taxable income the same as any other C corporation. However, a taxable
cooperative is allowed to deduct in computing its taxable income amounts
distributed to its members or patrons as patronage dividends. Due to the
ability of a cooperative to deduct patronage dividends with respect to its
patronage sourced earnings, the income earned by a cooperative with respect to
business done with or for the cooperative's member-patrons is subject to a
single-level of Federal income taxation, at the level of the member-patrons.
However, a taxable cooperative may not distribute non-patronage sourced earnings
to its member-patrons as patronage dividends. Accordingly, the cooperative must
report such non-patronage sourced income in its taxable income and is subject to
Federal income taxation on such income.
As mentioned above, a cooperative may deduct amounts paid to its member-
patrons as patronage dividends. In order to qualify as a patronage dividend,
the amount paid to each member-patron by the cooperative must be (1) on the
basis of the quantity or value of business done with or for the member; (2)
pursuant to a pre-existing legal obligation; and (3) determined with reference
to the net earnings from the business done with or for its member-patrons. A
cooperative may pay patronage dividends in cash, a written notice of allocation
or a combination thereof. The written notice of allocation either may be a
qualified written notice or a nonqualified written notice. A qualified written
notice of allocation is a written notice of allocation which (1) the distributee
has consented to take into income at the stated dollar amount and has received
at least twenty percent of the dividend in cash or (2) the distributee may
redeem for cash at its stated value for a period of at least ninety days
following the notice. The Company's Bylaws provide that Alliance stockholders
have consented to take qualified written notices of allocation into income at
the stated amount as a result of acquiring Alliance Common Stock. A
nonqualified written notice of allocation is a written notice of allocation that
fails to satisfy the above described requirements for a qualified written notice
of allocation
A patronage dividend paid with a qualified written notice of allocation or
cash is deductible by the cooperative for the year with respect to which the
patronage dividend is paid and is taxable to the member-patron in the year the
patronage dividend is received. Since a cooperative may pay up to eighty
percent of a patronage dividend in a qualified written notice of allocation, a
member-patron may have insufficient cash distributed to the member-patron to pay
the income tax incurred by the patron as a result of the receipt of the
patronage dividend. A nonqualified written notice of allocation is deductible
by the cooperative and taxable to the member-patron when such notice is redeemed
by the cooperative for cash.
As described above, a cooperative may only distribute as patronage
dividends the portion of its income which qualifies as patronage sourced income.
Alliance will operate as a supply cooperative, which produces and sells pigs to
its member-patrons. The income Alliance realizes on its sale of the pigs to its
member-patrons should be treated as patronage sourced income. Alliance is
obligated under the Bylaws to distribute such income to its member-patrons as
patronage dividends based the quantity or value of business done with or for its
member-patrons.
If Alliance realizes income from business which is not done with or for
member-patrons, such as income from the sale of pigs to a person who is not an
Alliance stockholder, such income will not be patronage sourced income and
Alliance will not be able to distribute and deduct such amount to its member-
patrons as a patronage dividend. In such case, Alliance will have to include
such income in the computation of its Federal taxable income. If Alliance
distributes such non-patronage sourced earnings to its stockholders, such
distribution likely will be treated as a taxable dividend to its stockholders.
Taxation of Alliance Stockholder. Alliance is obligated to distribute its
patronage sourced earnings to its member-patrons as patronage dividends. The
member-patrons will be required to include such patronage dividends in their
taxable income although the time at which such amount is includible is dependent
on how the patronage dividend is distributed. Alliance may pay the patronage
dividend in cash, a qualified written notice of allocation or a non-qualified
written notice of allocation, or any combination thereof. A member must include
in its income a patronage dividend paid in cash or a qualified written notice of
allocation in the year such dividend is received. A member must include in its
income a patronage dividend paid by a non-qualified written notice of allocation
in the year in which such notice, or portion thereof, is redeemed by the
cooperative for cash. If Alliance realizes income from non-patronage sources
and distributes such income to its stockholders, the stockholders likely will
have to report such income as dividend income. In connection with the term debt
borrowings for which the Company anticipates it will obtain commitments prior to
or concurrently with the consummation of the offering of each Minimum Block of
Shares, the Company may be required to enter into a credit agreement which
restricts the Company's ability to pay patronage distributions in cash. The
loan agreement with the Company's existing lender contains such a restriction.
See "Patronage Distribution Policy" and "Business--Financing."
The portion of any patronage distributions paid in qualified written
notices of allocations will be made through the issuance of capital credits. If
Alliance redeems the capital credits which were issued, the redeeming member
will recognize capital gain or loss in an amount equal to the difference between
the redemption proceeds received and the member's basis in the redeemed capital
credits. Since a member's basis in a capital credit received as a patronage
dividend is equal to the face amount of the capital credit, a member generally
will not recognize any gain or loss on the redemption of a capital credit.
In the event of a sale of Alliance Common Stock by a member, the gain or
loss realized by the selling member for federal income tax purposes will
generally be characterized as capital gain or loss provided that the Common
Stock was held as a capital asset. The amount of the gain or loss will be equal
to the difference between the adjusted tax basis of his equity sold and the
amount realized on such sale.
THE FOREGOING DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING, PARTICULARLY BECAUSE THE TAX CONSEQUENCES OF AN INVESTMENT IN ALLIANCE
ARE COMPLEX AND NOT THE SAME FOR ALL TAX PURPOSES. PROSPECTIVE INVESTORS ARE
STRONGLY URGED TO CONSULT THEIR OWN TAX ADVISORS.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local government
regulations, including those restricting certain types of investor-owned
livestock production and those concerning the environment, occupational safety
and health and zoning. In addition, its employment practices are governed by
minimum wage, overtime and other working condition regulations. The Company has
not experienced significant difficulty in complying with applicable regulations
and compliance generally has not had an adverse effect on the Company's
business. See "Business--Waste Disposal and Environmental Matters."
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
FEEDER PIG PURCHASE AGREEMENT
GENERAL
The rights and obligations of the parties with respect to the sale of
feeder pigs by the Company to its members will be governed by the Feeder Pig
Purchase Agreements, in the form attached hereto as Exhibit B. Prospective
investors should carefully examine the Feeder Pig Purchase Agreement. Although
the following summary describes the material provisions of the Feeder Pig
Purchase Agreement, it does not purport to be a complete statement of all
provisions of the Feeder Pig Purchase Agreement and in no way modifies or amends
the Feeder Pig Purchase Agreement.
PURCHASE
The Company intends to sell feeder pigs that meet particular minimum
weight, health, nutrition and genetic quality standards to members of the
Company who have entered into a Feeder Pig Purchase Agreement with the Company.
Feeder pigs that meet such standards, as set forth in the Feeder Pig Purchase
Agreement, are referred to as "Qualifying Pigs." Pursuant to the terms of the
Feeder Pig Purchase Agreement, the member of the Company is required to
purchase, and the Company is required to sell, Qualifying Pigs in lots of no
less than 900, and no more than 1,000, Qualifying Pigs per lot, as determined by
the Company. Such lots of feeder pigs are to be made available to members of
the Company on a rotating schedule determined and implemented by the Company,
with the number of lots made available to a member and the frequency of
availability being based upon the member's proportionate ownership interest in
the Company's outstanding Class A Common and the actual production of Qualifying
Pigs from the Company's facilities. If the Company is successful in
implementing its business plan and the proposed new feeder pig production
facilities are developed on schedule, the initial lots of feeder pigs resulting
from the development and expansion of the Company's feeder pig production
operations are not expected to be available to new investor members for up to 13
to 15 months after completion of the sale of a Minimum Class A Block of Shares
to such members. New investor members will not be entitled to purchase feeder
pigs from the Company until such time. In the event that the production of
feeder pigs exceeds two and seven-tenths (2.7) lots per share of Class A Common
on a prospective rolling 12-month basis, the Company may sell such excess
production to non-members, or retain such excess production for the Company's
own purposes, in lieu of selling such excess production pursuant to the Feeder
Pig Purchase Agreements. Investor members will not be entitled to purchase any
excess production of feeder pigs. The Company has agreed in its Swine
Production Services Agreement with Farmland to provide Farmland the first
opportunity to purchase excess feeder pigs produced by the Company during the
term of said Agreement (and in no event less than the five year period ending
July 13, 1999). See "Certain Relationships and Related Transactions--Farmland."
PRICE
The Company intends to sell Qualifying Pigs, subject to adjustment for
weight as described below, pursuant to a pricing formula consisting of the sum
of the following factors: the financing cost per pig, the operating cost per
pig, and a $4.50 per pig production margin. The financing cost per pig
applicable to a member is to be determined on a rolling 12-month prospective
basis and will be equal to the quotient obtained by dividing (i) the sum of the
anticipated required payments of principal and interest (including any scheduled
sinking fund payments) for the ensuing 12-month period with respect to the term
debt borrowings incurred by the Company in connection with the consummation of
the sale of Class A Common to such member, by (ii) the total number of
Qualifying Pigs anticipated to be produced and shipped by the Company during
such 12-month period from the one or more feeder pig production facilities
developed through the use of such term debt borrowings and the net proceeds from
the sale of Class A Common to such member (such estimate being based on the
total estimated number of Qualifying Pigs to be produced and shipped by the
Company during such 12-month period from all feeder pig production facilities of
the Company). The operating cost per pig is to be determined on a rolling 12-
month historical basis and will be equal to the quotient obtained by dividing
(i) the sum of (A) all expenses (excluding interest expense, depreciation and
amortization) of the Company, plus (B) the net cash flow cost of all capital
expenditures of the Company (including any capital sinking fund payments) for
production facility and breeding stock improvements and replacements, in each
case, for the 12 months preceding the then present month of shipment, by (ii)
the number of Qualifying Pigs produced and shipped by the Company during such
12-month period. At the time the Company notifies a member that a lot is
available for purchase by the member pursuant to the member's Feeder Pig
Purchase Agreement, the Company will furnish to the member an estimate of the
total purchase price of all Qualifying Pigs included in the lot, and the member
is required to pay such estimated total purchase price to the Company not less
than one day prior to the scheduled shipment date. The actual total purchase
price of all Qualifying Pigs included in a lot sold to a member will be based
upon weight at the time of loading and settlement of any adjustments shall be
made within five days following delivery.
WEIGHT ADJUSTMENT
The purchase price for Qualifying Pigs is subject to adjustment based upon
the extent of any variation in the average weight of Qualifying Pigs from 45
pounds. To the extent that the average weight of a shipment of Qualifying Pigs
exceeds 45 pounds per pig, the purchaser will pay an additional $.25 per pound
per pig on the first five pounds by which the average weight exceeds 45 pounds
per pig and an additional $.20 per pound per pig for the average weight between
50 pounds and 60 pounds. To the extent that the average weight of a shipment of
Qualifying Pigs is less than 45 pounds per pig, the purchase price will be
decreased by $.25 per pound per pig.
DELIVERY OF PIGS
The Company will be responsible for obtaining, at the Company's expense,
all health permits necessary to qualify the pigs for interstate shipment. It is
anticipated that all lots of Qualifying Pigs will be weighed at the Company's
expense at a state-inspected scale near the Company's production facility.
Delivery is to be FOB shipping point, with the members bearing the risk of loss
during transit, and the trucks used to haul Qualifying Pigs from the Company's
production facility must be thoroughly cleaned and disinfected prior to loading.
A member may inspect the lot of Qualifying Pigs to be purchased by such member
prior to loading. After the delivery of pigs at their destination, a member
will have the right to seek an appropriate price adjustment for any pig which is
found not to be a Qualifying Pig. Such adjustment will be made following the
Company's inspection of the subject pigs, and will be determined through mutual
agreement of the Company and the member.
TERM AND TERMINATION
A member's Feeder Pig Purchase Agreement will be for an initial term
commencing on the date entered into and continuing for a period of 120 months
after the date the first delivery of Qualifying Pigs is made to the member
thereunder, subject to earlier termination upon the occurrence of certain
events. Feeder Pig Purchase Agreements will be extended automatically for
succeeding one year terms unless the member gives to the Company, not less than
one year prior to the expiration of the initial or any extended term, notice
that the member desires to terminate the Feeder Pig Purchase Agreement as of the
expiration of such initial or extended term. The Company may terminate a
member's Feeder Pig Purchase Agreement if the member fails to purchase, pay for,
and take delivery of any two lots of Qualifying Pigs when and as made available
to the member; provided, however, that for each ten shares of Common Stock owned
by a member, the number of such failures necessary before the Company may
terminate such member's Agreement is increased by one. The member may terminate
the Feeder Pig Purchase Agreement if the Company materially breaches any
obligation or covenant in the Agreement and such breach is not cured within 30
days following notice of such breach given by the member to the Company.
Furthermore, if the first delivery of Qualifying Pigs thereunder is not made
within 24 months of the date of the Feeder Pig Purchase Agreement, the member
may terminate the Agreement within three months after the expiration of such 24-
month period. If either party is prevented from performing under the Feeder Pig
Purchase Agreement because of reasons beyond its control which make it
commercially impossible to perform, however, then that party is relieved from
such performance so long as it remains commercially impossible to perform. A
member's Feeder Pig Purchase Agreement automatically terminates if the member
assigns or transfers all shares of Class A Common from which the member's right
to purchase lots of Qualifying Pigs under the Agreement derives. Except as
described above, a member does not have the right to terminate the Feeder Pig
Purchase Agreement prior to the expiration of the initial or any extended term
thereof. As noted above, the member's right to terminate the Feeder Pig
Purchase Agreement at the expiration of the initial or any extended term thereof
may be exercised only if the member gives notice to the Company at least one
year prior to the expiration of such initial or extended term that the member
desires to exercise such termination right. The foregoing termination rights
constitute the member's exclusive rights of termination under the Feeder Pig
Purchase Agreement. No member has the right to demand the return of or to
receive any of the member's capital from the Company as a result of the
termination of the Feeder Pig Purchase Agreement or otherwise and regardless of
whether demanded prior to the expiration of the initial or any extended term of
the Feeder Pig Purchase Agreement or at any time after the expiration of any
such term. The Company is under no obligation to redeem or repurchase its Class
A Common prior to the expiration of the initial or any extended term of the
Feeder Pig Purchase Agreement or at any time after the expiration of any such
term. See "Risk Factors--Lack of Liquidity; Absence of Market for Shares,"
"Restrictions on Sale or Other Transfer of the Shares--Cooperative Association
Laws and Charter Documents."
EFFECT OF PURCHASER DEFAULT
If a member fails to purchase, pay for, and take delivery of any lot of
Qualifying Pigs when and as made available to the member pursuant to the Feeder
Pig Purchase Agreement, the member is responsible for the damages and expenses
incurred by the Company as a result of such failure. In particular, the member
is liable for (a) the difference between the price payable by the member for the
Qualifying Pigs that member has failed to purchase, pay for, and take delivery
under the Agreement and the then current market price for feeder pigs, (b)
$3,000, which amount is intended to cover the Company's administrative and other
costs and expenses associated with such failure to purchase, pay for, and take
delivery of the Qualifying Pigs, and (c) all costs of collection, enforcement,
and prosecution of the Company's rights and remedies under the Agreement or
otherwise arising. If a member fails to pay promptly the damages and expenses
incurred by the Company as a result of the member's failure to purchase, pay for
and take delivery of a lot of Qualifying Pigs, such member will not be permitted
to purchase any other lots unless and until such damages and expenses are paid,
and such member also will be responsible for all damages and expenses accruing
to the Company with respect to lots that such member is not permitted to
purchase as a result thereof. In addition to the member's responsibility for
such damages and expenses, the Company may pursue other remedies, including the
termination of the member's Feeder Pig Purchase Agreement. If the member is
prevented from performing under the Feeder Pig Purchase Agreement because of
reasons beyond the member's control which make it commercially impossible to
perform, however, then the member is relieved from such performance so long as
it remains commercially impossible to perform. See "Feeder Pig Purchase
Agreement--Term and Termination" and "-- Grant of Security Interest."
GRANT OF SECURITY INTEREST
Pursuant to the Feeder Pig Purchase Agreement, a member grants to the
Company, as security for the performance of all of the member's obligations
under the Feeder Pig Purchase Agreement, a security interest in all of the
member's equity interest in the Company. In this regard, the certificates
representing shares of Class A Common will be retained by Alliance and members
will be required to endorse appropriate stock powers with respect to such
certificates. The Company's security interest in the member's shares of Class A
Common is to be senior to all others, except for any permissible pledge or other
security interest granted in such shares by the member to any financial
institution for purposes of securing a loan used in financing the member's
acquisition of such shares and as otherwise agreed by the Company in its
discretion. A member's failure to perform his purchase obligation under the
Feeder Pig Purchase Agreement, among other occurrences, may result in the
Company's foreclosure on the security interest in the member's Class A Common.
See "Risk Factors--Obligation to Purchase Pigs" and "-- Right of Alliance to
Acquire Shares" and "Restrictions on Sale or Other Transfer of the Shares--
Cooperative Association Laws and Charter Documents."
WARRANTIES
The Company makes no warranties, express or implied, with respect to feeder
pigs produced by it, except as expressly provided in the Feeder Pig Purchase
Agreement. The Company specifically disclaims any warranties of merchantability
or fitness for a particular purpose and makes no warranty as to any specific
level of performance with respect to any pigs sold thereunder.
ARBITRATION
Any controversy arising out or relating to a Feeder Pig Purchase Agreement
or any breach thereof (other than certain controversies that include, but are
not limited to, controversies arising out of a member's failure to purchase, pay
for, and take delivery of any lot of Qualifying Pigs and the Company's exercise
of any rights or remedies related thereto) is required to be submitted to
binding arbitration under the Feeder Pig Purchase Agreement. Arbitration
hearings are to take place in Denver, Colorado, or at such other location as the
Company and such member may agree, with judgment upon the award rendered by the
arbitrator being entered in any court having jurisdiction.
WEANED PIG PURCHASE AGREEMENTS
GENERAL
The rights and obligations of the parties with respect to the sale of
weaned pigs by the Company to its members will be governed by (i) the Weaned Pig
Purchase Agreements, in the form attached hereto as Exhibit C, in the case of
members owning Class B Common ("Weaned Pig Purchase Agreements"), and (ii) the
Class C Weaned Pig Purchase Agreements, in the form attached hereto as
Exhibit D, in the case of members owning Class C Common ("Class C Weaned Pig
Purchase Agreements" and together with the Weaned Pig Purchase Agreements, the
"Weaned Pig Agreements"). Prospective investors should carefully examine the
Weaned Pig Purchase Agreement and the Class C Weaned Pig Purchase Agreement.
Except as otherwise specifically described under this "Weaned Pig Purchase
Agreements" caption, the provisions of the Weaned Pig Purchase Agreements and
the Class C Weaned Pig Purchase Agreements are substantially identical. Although
the following summary describes the material provisions of each of the Weaned
Pig Agreements, it does not purport to be a complete statement of all provisions
of the Weaned Pig Purchase Agreement or the Class C Weaned Pig Purchase
Agreement and in no way modifies or amends either of the Weaned Pig Agreements.
PURCHASE
The Company intends to sell weaned pigs that meet particular minimum
weight, health, nutrition and genetic quality standards to members of the
Company who have entered into a Weaned Pig Agreement with the Company. Weaned
pigs that meet such standards, as set forth in the Weaned Pig Agreements, are
referred to as "Qualifying Pigs." Pursuant to the terms of the Weaned Pig
Agreements, the member of the Company is required to purchase, and the Company
is required to sell, Qualifying Pigs in lots of no less than 925, and no more
than 1,025, Qualifying Pigs per lot, as determined by the Company. Such lots of
weaned pigs are to be made available to members of the Company on a rotating
schedule determined and implemented by the Company, with the number of lots made
available to a member and the frequency of availability being based upon the
member's proportionate ownership interest in the Company's outstanding Class B
Common or Class C Common, as the case may be, and the actual production of
Qualifying Pigs from the Company's facilities. The Company intends to allocate
its production of weaned pigs from all facilities between those that are to be
sent to nurseries and developed by the Company into feeder pigs, on the one
hand, and those that are to be sold as weaned pigs, on the other hand, in the
same proportion that the number of the Company's operating feeder pig production
facilities bears to the number of the Company's operating weaned pig production
facilities. If the Company is successful in implementing its business plan and
the proposed new weaned pig production facilities are developed on schedule, the
initial lots of weaned pigs resulting from the development and expansion of the
Company's weaned pig production operations are not expected to be available to
new investor members for up to 11 to 13 months after completion of the sale of a
Minimum Class B Block or Minimum Class C Block, as the case may be, of Shares to
such members. New investor members will not be entitled to purchase weaned pigs
from the Company until such time. In the event that (i) the production of
weaned pigs that are to be sold to members under the Weaned Pig Purchase
Agreements exceeds two and seven-tenths (2.7) lots per share of Class B Common
on a prospective rolling 12-month basis, or (ii) the production of weaned pigs
that are to be sold to members under the Class C Weaned Pig Purchase Agreements
exceeds two and one-tenth (2.1) lots per share of Class C Common on a
prospective rolling 12-month basis, the Company may sell such excess production
to non-members, or retain such excess production for the Company's own purposes,
in lieu of selling such excess production pursuant to the Weaned Pig Agreements.
Investor members will not be entitled to purchase any excess production of
weaned pigs. The Company intends to cause any such excess production of weaned
pigs to be retained by the Company for development into feeder pigs. The
Company has agreed in its Swine Production Services Agreement with Farmland to
provide Farmland the first opportunity to purchase any excess weaned pigs that
are to be sold by the Company during the term of said Agreement (and in no event
less than the five year period ending July 13, 1999). See "Certain
Relationships and Related Transactions--Farmland."
PRICE
The Company intends to sell Qualifying Pigs, subject to adjustment for
weight as described below, pursuant to a pricing formula consisting of the sum
of the following factors: the financing cost per pig, the operating cost per
pig, and a production margin of $0 to $4.50 per pig (as determined by the
Company in its discretion). The financing cost per pig applicable to a member is
to be determined on a rolling five-month prospective basis and will be equal to
the quotient obtained by dividing (i) the sum of the anticipated required
payments of principal and interest (including any scheduled sinking fund
payments) for the ensuing 12-month period with respect to the term debt
borrowings incurred by the Company in connection with the consummation of the
sale of Class B Common or Class C Common, as the case may be, to such member, by
(ii) the total number of Qualifying Pigs anticipated to be produced and shipped
by the Company during such 12-month period from the one or more weaned pig
production facilities developed through the use of such term debt borrowings and
the net proceeds from the sale of Class B Common or Class C Common, as the case
may be, to such member (such estimate being based on the total estimated number
of Qualifying Pigs to be produced and shipped by the Company during such 12-
month period from all weaned pig production facilities of the Company). The
operating cost per pig is to be determined on a rolling five-month historical
basis and will be equal to the quotient obtained by dividing (i) the sum of (A)
all expenses (excluding interest expense, depreciation and amortization) of the
Company, plus (B) the net cash flow cost of all capital expenditures of the
Company (including any capital sinking fund payments) for production facility
and breeding stock improvements and replacements, in each case, for the five
months preceding the then present month of shipment, by (ii) the number of
Qualifying Pigs produced and shipped by the Company during such five-month
period. The production margin per pig is to be determined by the Company in its
discretion, subject to the satisfaction of any applicable covenants imposed by
the Company's lender. At the time the Company notifies a member that a lot is
available for purchase by the member pursuant to the member's Weaned Pig
Agreement, the Company will furnish to the member an estimate of the total
purchase price of all Qualifying Pigs included in the lot, and the member is
required to pay such estimated total purchase price to the Company not less than
one day prior to the scheduled shipment date. The actual total purchase price
of all Qualifying Pigs included in a lot sold to a member will be based upon
weight at the time of loading and settlement of any adjustments shall be made
within five days following delivery.
WEIGHT ADJUSTMENT
The purchase price for Qualifying Pigs is subject to adjustment based upon
the extent of any variation in the average weight of Qualifying Pigs from 8 to
12 pounds. To the extent that the average weight of a shipment of Qualifying
Pigs exceeds 12 pounds per pig, the purchaser will pay an additional $1.00 per
pound per pig. To the extent that the average weight of a shipment of
Qualifying Pigs is less than 8 pounds per pig, the purchase price will be
decreased by $1.00 per pound per pig.
DELIVERY OF PIGS
The Company will be responsible for obtaining, at the Company's expense,
all health permits necessary to qualify the pigs for interstate shipment. It is
anticipated that all lots of Qualifying Pigs will be weighed at the Company's
expense at a state-inspected scale near the Company's production facility.
Delivery is to be FOB shipping point, with the members bearing the risk of loss
during transit, and the trucks used to haul Qualifying Pigs from the Company's
production facility must be thoroughly cleaned and disinfected prior to loading.
A member may inspect the lot of Qualifying Pigs to be purchased by such member
prior to loading. After the delivery of pigs at their destination, a member
will have the right to seek an appropriate price adjustment for any pig which is
found not to be a Qualifying Pig. Such adjustment will be made following the
Company's inspection of the subject pigs, and will be determined through mutual
agreement of the Company and the member.
TERM AND TERMINATION
A member's Weaned Pig Agreement will be for an initial term commencing on
the date entered into and continuing for a period of 120 months after the date
the first delivery of Qualifying Pigs is made to the member thereunder, subject
to earlier termination upon the occurrence of certain events. Weaned Pig
Agreements will be extended automatically for succeeding one year terms unless
the member gives to the Company, not less than one year prior to the expiration
of the initial or any extended term, notice that the member desires to terminate
the Weaned Pig Agreement as of the expiration of such initial or extended term.
The Company may terminate a member's Weaned Pig Agreement if the member fails to
purchase, pay for, and take delivery of any two lots of Qualifying Pigs when and
as made available to the member; provided, however, that for each ten shares of
Common Stock owned by a member, the number of such failures necessary before the
Company may terminate such member's Agreement is increased by one. The member
may terminate the Weaned Pig Agreement if the Company materially breaches any
obligation or covenant in the Agreement and such breach is not cured within 30
days following notice of such breach given by the member to the Company.
Furthermore, if the first delivery of Qualifying Pigs thereunder is not made
within 24 months of the date of the Weaned Pig Agreement, the member may
terminate the Agreement within three months after the expiration of such 24-
month period. If either party is prevented from performing under the Weaned Pig
Agreement because of reasons beyond its control which make it commercially
impossible to perform, however, then that party is relieved from such
performance so long as it remains commercially impossible to perform. A
member's Weaned Pig Agreement automatically terminates if the member assigns or
transfers all shares of Class B Common or Class C Common, as the case may be,
from which the member's right to purchase lots of Qualifying Pigs under the
Agreement derives. Except as described above, a member does not have the right
to terminate the Weaned Pig Agreement prior to the expiration of the initial or
any extended term thereof. As noted above, the member's right to terminate the
Weaned Pig Agreement at the expiration of the initial or any extended term
thereof may be exercised only if the member gives notice to the Company at least
one year prior to the expiration of such initial or extended term that the
member desires to exercise such termination right. The foregoing termination
rights constitute the member's exclusive rights of termination under the Weaned
Pig Agreements. No member has the right to demand the return of or to receive
any of the member's capital from the Company as a result of the termination of
the Weaned Pig Agreements or otherwise and regardless of whether demanded prior
to the expiration of the initial or any extended term of the Weaned Pig
Agreements or at any time after the expiration of any such term. The Company is
under no obligation to redeem or repurchase its Class B Common or Class C Common
prior to the expiration of the initial or any extended term of the Weaned Pig
Agreements or at any time after the expiration of any such term. See "Risk
Factors--Lack of Liquidity; Absence of Market for Shares," "Restrictions on Sale
or Other Transfer of the Shares--Cooperative Association Laws and Charter
Documents."
EFFECT OF PURCHASER DEFAULT
If a member fails to purchase, pay for, and take delivery of any lot of
Qualifying Pigs when and as made available to the member pursuant to the Weaned
Pig Agreements, the member is responsible for the damages and expenses incurred
by the Company as a result of such failure. In particular, the member is liable
for (a) the difference between the price payable by the member for the
Qualifying Pigs that member has failed to purchase, pay for, and take delivery
under the Agreement and the then current market price for weaned pigs, (b)
$3,000, which amount is intended to cover the Company's administrative and other
costs and expenses associated with such failure to purchase, pay for, and take
delivery of the Qualifying Pigs, and (c) all costs of collection, enforcement,
and prosecution of the Company's rights and remedies under the Agreement or
otherwise arising. If a member fails to pay promptly the damages and expenses
incurred by the Company as a result of the member's failure to purchase, pay for
and take delivery of a lot of Qualifying Pigs, such member will not be permitted
to purchase any other lots unless and until such damages and expenses are paid,
and such member also will be responsible for all damages and expenses accruing
to the Company with respect to lots that such member is not permitted to
purchase as a result thereof. In addition to the member's responsibility for
such damages and expenses, the Company may pursue other remedies, including the
termination of the member's Weaned Pig Agreement. If the member is prevented
from performing under the Weaned Pig Agreements because of reasons beyond the
member's control which make it commercially impossible to perform, however, then
the member is relieved from such performance so long as it remains commercially
impossible to perform. See "Weaned Pig Purchase Agreements--Term and
Termination" and "-- Grant of Security Interest."
GRANT OF SECURITY INTEREST
Pursuant to the Weaned Pig Agreements, a member grants to the Company, as
security for the performance of all of the member's obligations under the Weaned
Pig Agreements, a security interest in all of the member's equity interest in
the Company. In this regard, the certificates representing shares of Class B
Common and Class C Common will be retained by Alliance and members will be
required to endorse appropriate stock powers with respect to such certificates.
The Company's security interest in the member's shares of Class B Common and
Class C Common is to be senior to all others, except for any permissible pledge
or other security interest granted in such shares by the member to any financial
institution for purposes of securing a loan used in financing the member's
acquisition of such shares and as otherwise agreed by the Company in its
discretion. A member's failure to perform his purchase obligation under the
Weaned Pig Agreements, among other occurrences, may result in the Company's
foreclosure on the security interest in the member's Class B Common or Class C
Common, as the case may be. See "Risk Factors--Obligation to Purchase Pigs" and
"-- Right of Alliance to Acquire Shares" and "Restrictions on Sale or Other
Transfer of the Shares--Cooperative Association Laws and Charter Documents."
WARRANTIES
The Company makes no warranties, express or implied, with respect to weaned
pigs produced by it, except as expressly provided in the Weaned Pig Agreements.
The Company specifically disclaims any warranties of merchantability or fitness
for a particular purpose and makes no warranty as to any specific level of
performance with respect to any pigs sold thereunder.
ARBITRATION
Any controversy arising out or relating to a Weaned Pig Agreements or any
breach thereof (other than certain controversies that include, but are not
limited to, controversies arising out of a member's failure to purchase, pay
for, and take delivery of any lot of Qualifying Pigs and the Company's exercise
of any rights or remedies related thereto) is required to be submitted to
binding arbitration under the Weaned Pig Agreements. Arbitration hearings are
to take place in Denver, Colorado, or at such other location as the Company and
such member may agree, with judgment upon the award rendered by the arbitrator
being entered in any court having jurisdiction.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The names of the current directors and executive officers of the Company,
their ages and present positions and offices with the Company are as follows:
Name Age Position and Offices Held
Wayne N. Snyder 53 Chairman of the Board, President and Director
Scott R. Webster 36 Vice President and Chief Operating Officer
Doug Brown 38 Treasurer, Secretary and Director
Merl Daniel 51 Director
Gerald D. Johnson 54 Director
Loren Keppy 35 Director
Set forth below is a description of the business experience of each
director and executive officer of the Company.
Wayne N. Snyder has served as Chairman of the Board, President and Director
of the Company since its formation in May, 1994, and has served as General
Manager of Yuma LLC, the Company's predecessor, from October, 1991 to July,
1994. Mr. Snyder has served as Director of Livestock Production for Farmland
since 1989. In that capacity, he is responsible for all activities of
Farmland's livestock production department. His professional career includes
over 20 years of experience with Farmland in a variety of positions, including
Regional Manager and Vice President--Sales.
Scott R. Webster has served as Vice President and Chief Operating Officer
of the Company since July, 1995, and has served as a member of the Company's
senior management since November, 1994. Mr. Webster is Manager of Pork
Production for Farmland, where he is responsible for all of Farmland's pork
production activities. Prior to joining Farmland in November, 1994, Mr. Webster
served as Director of Nutrition, Research and Development at Brown's of Carolina
since June, 1992, where he was involved in developing the company from 8,000
sows to 50,000 sows. He has been involved in pork production activities since
1975 and also was employed by DeKalb Feeds upon the completion of a Master of
Science degree from the University of Missouri in 1985 until June, 1992.
Doug Brown has served as Treasurer and as a Director of the Company since
its formation in May, 1994, and as Secretary of the Company since October, 1994.
He served as a manager of Yuma LLC from October, 1991 to July, 1994. Mr. Brown
has served as the Vice President and General Manager of Yuma Cooperative since
1990. Prior to that time, Mr. Brown served as the general manager of the
Douglas Farmers Cooperative in Douglas, Oklahoma for four years.
Merl Daniel has served as a Director of the Company since March, 1995. Mr.
Daniel has been employed by Farmland since 1968, and has served in his present
capacity of Vice President and Controller for Farmland since July, 1992. From
October, 1990 to July, 1992, he served as Farmland's Director MIS, Operations
and Technical Support, in which capacity he managed Farmland's computer
operations. Prior to October, 1990, Mr. Daniel served Farmland in a variety of
other capacities.
Gerald D. Johnson has served as a Director of the Company since September,
1994. Mr. Johnson has been employed by Farmers Cooperative Elevator Company,
Plymouth, Nebraska as its General Manager since October 1992. Prior to that
date, he served six years as Controller of Farmers Cooperative Business
Association, Shelby, Nebraska. For the approximately 32 years prior to assuming
such position, he served in a variety of positions with several other
cooperative associations.
Loren Keppy has served as a Director of the Company since June 1996. Mr.
Keppy has been self-employed as a farmer since 1984. In this regard, he
currently operates a 5,000 head per year hog finishing operation near Durant,
Iowa, in addition to farming 470 acres of crops. Mr. Keppy received a Bachelor
of Science degree in Industrial Technology from the University of Northern Iowa,
and is a member of the River Valley Coop.
Officers are elected annually by the Board of Directors and serve until
their respective successors are duly elected and qualified. The Company's Board
of Directors currently consists of five directors: Messrs. Snyder, Brown,
Daniel, Johnson and Keppy. The members of the Board of Directors are elected
for one year terms expiring at the annual meeting of stockholders or until their
respective successors are duly elected and qualified, unless sooner removed or
disqualified. The Company's Articles of Incorporation and Bylaws provide that
at least a majority of the directors constituting the Board of Directors shall
be, and less than a majority of the directors need not be, members or duly
authorized representatives of members of the Company.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Articles of Incorporation provides, in effect, that a
director of the Company, in his capacity as such, will not be personally liable
to the Company or its members or stockholders for monetary damages for
violations of a director's fiduciary duty. In accordance with the Colorado
Cooperative Association Law, however, the Articles of Incorporation do not
eliminate or limit the liability of a director for breaching his duty of
loyalty, acting or failing to act in good faith, engaging in intentional
misconduct or knowingly violating a law, or obtaining an improper personal
benefit. Although the Articles of Incorporation preclude monetary damage awards
occasioned by a breach of a director's fiduciary duty, it does not relieve a
director of his fiduciary duties and does not prevent a stockholder from seeking
equitable remedies, including an injunction prohibiting a proposed action or
transaction, or from seeking recision of a transaction.
The Company's Articles of Incorporation permit the Company to indemnify its
directors, officers, employees and agents, or any person who serves at the
request of the Company as a director, officer, partner, trustee, employee,
fiduciary or agent of another corporation or other person or of an employee
benefit plan, to the fullest extent permitted by Colorado law. The Company's
Bylaws require the Company to indemnify any person against all liabilities and
expenses actually and reasonably incurred by such person in connection with any
proceeding by reason of the fact that such person is or was serving as a
director or officer of the Company or, while a director or officer of the
Company, is or was serving at the Company's request as a director, officer,
partner, trustee, employee, fiduciary or agent of another corporation or other
person or of an employee benefit plan; provided that such person acted in good
faith and in a manner such person reasonably believed, in the case of conduct in
an official capacity, to be in the Company's best interests and, in all other
cases, to be not opposed to the Company's best interests, and, with respect to
any criminal action or proceeding, that such person had no reasonable cause to
believe such person's conduct was unlawful; and provided, further, that the
Company shall not indemnify any person for any liabilities or expenses incurred
by such person in connection with a proceeding by or in the right of the Company
in which such person shall have been adjudged to be liable to the Company or in
connection with any other proceeding in which such person shall have been
adjudged to have derived an improper personal benefit. The indemnification
provided by the Company's Articles of Incorporation and Bylaws is not exclusive
of any other rights to which those seeking indemnification may be otherwise
entitled. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable.
DIRECTOR COMPENSATION
Although the Company's Bylaws provide that directors may be compensated for
their services, no compensation has been awarded to, earned by or paid to
members of the Company's Board of Directors for service to the Company as such.
Each director may be reimbursed for such director's reasonable out-of-pocket
expenses incurred in the performance of service to the Company as a director if
authorized by the Board of Directors.
EXECUTIVE COMPENSATION
No compensation has been awarded, earned by or paid to Wayne N. Snyder, the
chief executive officer of the Company, by the Company for services rendered to
the Company as such during the period from the Company's organization on May 3,
1994 through August 31, 1996. Mr. Snyder is employed by Farmland, which has
agreed to provide certain administrative, advisory and consulting services to
the Company under the terms of a Swine Production Services Agreement. No
executive officer of the Company at August 31, 1996 was awarded, earned or was
paid compensation in excess of $100,000 for services rendered to the Company as
such during the fiscal year ended August 31, 1996. See "Management--Directors
and Executive Officers" and "Certain Relationships and Related Transactions."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
GENERAL
As of the date of this Prospectus, Farmland and Yuma Cooperative own
approximately 49.0% and 11.8%, respectively, of the Class A Common of the
Company. In connection with the formation of the Company as a Colorado
cooperative association on May 3, 1994, one share of the Company's Class A
Common was issued to Farmland for the purchase price of $100. On July 13, 1994,
the Company acquired the entire equity ownership rights and interests in Yuma
LLC, a Colorado limited liability corporation in which Farmland and Yuma
Cooperative owned approximately 71.5% and 28.5%, respectively, of the
outstanding equity interests. In exchange for their respective equity interests
in Yuma LLC, Farmland and Yuma Cooperative were issued 30 shares and 12 shares,
respectively, of the Company's Class A Common. Yuma LLC thereupon was dissolved
and liquidated and its assets and liabilities were assigned to and assumed by
Alliance. Said assets and liabilities have been reflected on the Company's
balance sheet at Yuma LLC's book value, which consisted of $3,027,091 and
$80,291 in total assets and liabilities, respectively, at July 8, 1994. As of
the date of this Prospectus, the Company has consummated its issuance and sale
to Farmland of an additional 17 Class A Shares in exchange for the purchase
price of $1,360,000. The Company has entered into various contractual
arrangements with both Farmland and Yuma Cooperative for the provision of
specific goods and services. All future transactions between the Company and
its officers, directors, employees and affiliates, including Farmland and Yuma
Cooperative, will be on terms no less favorable to the Company than can be
obtained from unaffiliated parties. All such transactions will be subject to
the approval of a majority of the independent outside members of the Board of
Directors who do not have an interest in the transactions. See "Principal
Stockholders."
FARMLAND
Farmland is a Kansas cooperative association engaged in regional farm
supply and marketing operations, including the processing and marketing of pork
and beef. Farmland's livestock production department is directly engaged in the
production of feeder pigs and finished hogs through contractual arrangements
with independent producers, the ownership of pig production operations in joint
venture with both agricultural cooperatives and independent producers, as well
as other activities including the operation of feeder pig brokerage services.
Wayne N. Snyder, Scott R. Webster and Merl Daniel each are employed by Farmland
and presently serve as directors or executive officers of the Company.
Farmland, through its various business divisions and interests, is engaged
in providing to competitors of the Company certain goods and services, including
the supply of feed and other inputs, breeding stock and administrative services,
among others, which are comparable to those being provided by Farmland to the
Company. Moreover, Farmland also is directly engaged in the production of hogs
through the direct ownership of animals and facilities, through contractual
arrangements with other producers, and through joint venture arrangements
established with other parties. Because of Farmland's various activities, there
may arise conflicts of interest between Farmland and the Company. The Company
anticipates that Farmland may continue to engage and invest in activities and
businesses other than those of Alliance. Thus, Farmland may have conflicts of
interest in allocating its resources and management time, services and functions
among the Company and such other activities. Similarly, with respect to the
employees of Farmland serving as officers or directors of the Company,
Farmland's other business interests may result in competition for their time,
services and functions.
Swine Production Consulting and Services Agreement. The Company has
entered into various contractual arrangements with Farmland for the provision of
specific goods and services. Under the terms of a Swine Production Services
Agreement with the Company, Farmland, acting as independent contractor, has
agreed to provide certain administrative, advisory and consulting services to
the Company, including the following: performing various ministerial services,
including data entry of transactions for accounting purposes and computer
generation of financial and operational reports and checks; compilation of the
production records with respect to each feeder and weaned pig production
facility; logistical backup and coordination, including facilitating the
acquisition, servicing, transportation and sale of genetic stock, breeding
stock, feeder pigs and weaned pigs; facilitating the purchase of inputs for the
Company; assistance in sourcing feed ingredients, animal health products and
veterinarian services; assistance in arranging financing; assistance in
selection of suitable sites for the Company's facilities; assistance in
obtaining appropriate permits for the construction and operation of facilities
for the Company; assistance in the recruitment, selection and training of
general managers for the Company; and advice and consultation with respect to
management practices, feed formulations and other aspects of the Company.
Farmland has agreed to assist the Company in acquiring the necessary
management and labor to adequately staff and operate the Company's pig
production facilities. The Company will cause the new pig production facilities
to be constructed, provide initial and replacement breeding stock purchased from
Farmland or other sources which, under normal circumstances, will be sufficient
to keep the facilities in full production and provide adequate record keeping to
allow Farmland to provide the accounting and reporting functions required of it
under the Swine Production Services Agreement. Finally, the Company will grant
Farmland reasonable access to the facilities, in accordance with good
bio-security practices, to allow Farmland to provide its required services.
Farmland will be paid one dollar ($1.00) for each feeder or weaned pig sold by
the Company as partial compensation for Farmland's duties under the agreement.
Such amount is subject to adjustment annually commensurate with, and based upon,
changes in the Consumer Price Index. For the years ended August 31, 1996 and
1995, the Company paid Farmland a total of $151,905 and $47,045, respectively,
for its provision of administrative, advisory and consulting services pursuant
to the Swine Production Services Agreement. Farmland also may provide a
significant portion of the feed ingredients, nutritional supplements and animal
health supplies required by the Company at Farmland's customary rates. For the
years ended August 31, 1996 and 1995, the Company purchased $303,963 and
$71,438, respectively, of feed ingredients, nutritional supplements and animal
health supplies from Farmland.
Farmland will purchase from the Company gilts produced by the Company for
purposes of finishing for use as breeding stock by the Company, subject to
available finishing capacity of Farmland. Upon completion of such finishing,
Farmland will resell to the Company any such gilts that survive finishing by
Farmland. The purchase price to be paid by Farmland to the Company for gilts
will be based on the purchase price specified in the Feeder Pig Purchase
Agreement between Farmland and the Company or, if no such agreement is then in
effect, the purchase price specified in the most recent effective Feeder Pig
Purchase Agreement between Farmland and the Company. The purchase price to be
paid by the Company to Farmland for finished gilts will be based upon the
prevailing market price of hogs at the time of purchase, plus any royalty fees
payable by Farmland and a handling fee of $10.00 per gilt. For the years ended
August 31, 1996 and 1995, the Company purchased finished gilts from Farmland at
an aggregate price of $872,979 and $189,253, respectively. In the event that
the Company does not purchase any such finished gilts, Farmland may either
market such gilts for slaughter or retain such gilts for use as breeding stock.
Farmland has agreed to pay a $10.00 per head fee to the Company for any such
finished gilts that are retained by Farmland for use as breeding stock. For
the year ended August 31, 1996, Farmland paid $31,590 of such fees to the
Company.
It is anticipated that Farmland may provide hybrid gilts from additional
multiplier facilities to meet a portion of the Company's initial stocking and
ongoing requirements for breeding stock with respect to each pig production
facility in existence, under development or proposed. The actual number of
replacement gilts purchased from Farmland will be affected by the Company's
requirements and the availability of animals from Farmland's facilities. The
purchase price of replacement hybrid breeding stock is to be based upon the
prevailing market price of breeding stock at the time of purchase.
In the Swine Production Services Agreement, the Company has granted
Farmland an option during the term of the Agreement (and in no event less than
the five-year period ending July 13, 1999) to purchase (a) excess feeder pigs
produced by the Company and excess weaned pigs produced by the Company at the
price per pig equal to the average price per pig paid by stockholders under
Feeder Pig Purchase Agreements or Weaned Pig Purchase Agreements, as the case
may be, for the then immediately preceding month, and (b) feeder pigs and weaned
pigs that a stockholder has failed to purchase under such stockholder's Feeder
Pig Purchase Agreement or Weaned Pig Purchase Agreements, as the case may be, at
the price per pig determined pursuant to such Agreement. The Company also has
granted Farmland an option to purchase any shares of Common Stock reacquired by
the Company.
Feeder Pig Purchase Agreement. As a member of the Company, Farmland has
contracted with the Company to purchase a share of the feeder pigs to be
produced by the Company under the same terms required of the Company's other
members, except that during the period commencing on July 13, 1994 and ending on
August 11, 1995, the date the Company first produced and shipped feeder pigs
pursuant to the Feeder Pig Purchase Agreements with the Company's existing
members, the price paid by Farmland for feeder pigs was based only on the
Company's operating cost per pig; provided, however, that such price was
increased by $4.50 per feeder pig after July 13, 1995. Commencing on August 11,
1995, the date the Company first produced and shipped feeder pigs pursuant to
the Feeder Pig Purchase Agreements with the Company's existing members (other
than Farmland and Yuma Cooperative), the price paid by Farmland for feeder pigs
is and will be under terms comparable to those applicable to the Company's
members pursuant to the Feeder Pig Purchase Agreements. For the years ended
August 31, 1996 and 1995, Farmland purchased feeder pigs from the Company
(including Yuma Cooperative's share of feeder pigs produced by the Company) at
an aggregate price of $5,035,160 and $1,467,069, respectively. Finally, the
Company has agreed to provide Farmland the first opportunity to purchase any
feeder pigs produced by the Company in excess of the Company's supply
commitments to other members or that other members have failed to purchase
during the term of the Swine Production Services Agreement (and in no event less
than the five-year period ending July 13, 1999). See "Feeder Pig Purchase
Agreement" and "Certain Relationships and Related Transactions--Yuma
Cooperative--Feeder Pig Purchase Agreement."
Real Estate Loans. Between September and December 1995, the Company
purchased approximately 1,000 acres of real property in Yuma County, Colorado,
upon which the Company has developed one production facility and holds the
remaining acreage for the development of additional production facilities (the
"Additional Colorado Property"). The acquisition cost of this Additional
Colorado Property was approximately $760,000. The Company obtained funding for
the purchase of the Additional Colorado Property from the proceeds of a loan
obtained from Farmland. In conjunction with this loan, the Company delivered to
Farmland a promissory note evidencing the debt providing for the amortization of
the loan over a ten-year period, at a variable rate equal to CoBank's prime
rate. As of August 31, 1996, CoBank's prime rate was 8.25%. The payment
schedule of the promissory note requires that the Company make interest-only
payments for the life of the loan, with a final balloon payment of the principal
at the expiration of the ten-year term. To secure the obligations of the
promissory note, the Company has agreed to execute a deed of trust in favor of
Farmland covering all of the Additional Colorado Property, which deed of trust
is second in priority to that of CoBank with respect to the production facility
constructed thereon. See "Business--Facilities."
In November 1996, the Company exercised its rights under an option contract
to acquire an approximately 90 acre tract of real property in Wayne County,
Illinois, including 45 acres (the "45 Acre Tract") on which the Company has
commenced preliminary development activities with respect to a second Illinois
sow production facility. The Company obtained funding for the purchase of the
45 Acre Tract from the proceeds of a $200,000 loan provided by Farmland. In
conjunction with this loan, the Company delivered to Farmland a promissory note
evidencing the debt providing for amortization over a ten-year period, at a
variable rate equal to CoBank's then national variable rate plus 1.25%. The
payment schedule for the Farmland loan requires the Company to make
interest-only payments for the life of the loan, with a final balloon payment of
all principal to be made upon the earlier of (i) the Company's issuance and sale
of a Minimum Block of Shares, and (ii) the expiration of ten years. Alliance's
obligation to Farmland under this note is secured by a mortgage on the 45 Acre
Tract. See "Business--Facilities."
Pig Producers I, L.P. Farmland holds a 12.5% interest in Pig Producers I,
L.P. ("Pig Producers"), a limited partnership engaged in the production of
feeder pigs from a 2,450-sow feeder pig production facility located in Yuma
County, Colorado. The Company has assigned 14 employees of its employees to
perform various facilities operation services for Pig Producers. Pig Producers
reimburses the Company for all wages, benefits and other costs attributable to
these 14 Alliance employees. From time to time, the Company and Pig Producers
also engage in various commercial transactions related to the sale of genetic
stock, breeding stock, feed ingredients and animal health supplies.
Colorado Repopulation. In connection with the repopulation of the
Company's feeder pig production facilities located in Yuma County, Colorado, the
Company intends to arrange for the finishing of new breeding sows on facilities
of independent producers. In this regard, Alliance has contracted with Farmland
for the use of facilities as to which Farmland has acquired rights from the
owners of such facilities. During the approximately 14 months that Alliance
intends to use such facilities, Alliance will have approximately 9,240 pig
spaces available to it. Alliance will be obligated to pay the facilities owner
a monthly fee equal to $31.50 per pig space divided by 12. In addition,
Farmland will be entitled to a monthly fee from Alliance equal to $1.00 per pig
space divided by 12. See "Business--Breeding Stock."
YUMA COOPERATIVE
Yuma Cooperative is a Colorado cooperative association engaged in farm
supply and grain marketing activities. Doug Brown is Vice President and General
Manager of Yuma Cooperative and serves as a director and executive officer of
the Company.
Yuma Cooperative is engaged in providing to competitors of the Company and
other users certain goods and services, including the supply of feed and animal
health products, which are comparable to those provided by Yuma Cooperative to
the Company. Because of its other business activities, conflicts of interest
may arise between Yuma Cooperative and the Company. With respect to the
employees of Yuma Cooperative serving as officers or directors of the Company,
Yuma Cooperative's other business interests may result in competition for their
time, services and functions.
Feed Purchase Agreement. The Company has entered into a Feed Purchase
Agreement with Yuma Cooperative respecting the supply of manufactured feed and
animal health products. In this capacity, Yuma Cooperative has agreed to
purchase feed-grains and feed additives for the production of feed which,
together with animal health products, will be sold to the Company. In exchange
for providing these goods and services, Yuma Cooperative is entitled to
compensation based upon a fixed charge for the grinding, mixing, and delivery of
feed ($14 per ton as of November 1, 1996), in addition to the actual delivered
cost of the feed ingredients. Feed rations which are pelleted are subject to a
surcharge ($7 per ton as of November 1, 1996). Both the fixed charge and the
surcharge are subject to annual increases in November of each year corresponding
to any increases in the Consumer Price Index -- Retail Items. Corn provided by
Yuma Cooperative for use in feed generally is sold to the Company at delivered
cost plus, in the absence of available Company grain storage facilities, a $.10
per bushel handling fee. The Company has the right under the Feed Purchase
Agreement, in its sole discretion, to purchase and provide its own corn for feed
manufacturing. For the years ended August 31, 1996 and 1995, the Company
purchased $3,423,773 and $1,068,014, respectively, of feed from Yuma
Cooperative. See "Business--Purchase of Feed and Other Inputs."
Feeder Pig Purchase Agreement. As a member of the Company, Yuma Cooperative has
contracted with the Company to purchase a share of the feeder pigs to be
produced by the Company under the same terms required of the Company's other
members, except that during the period commencing on July 13, 1994 and ending on
August 11, 1995, the date the Company first produced and shipped feeder pigs
pursuant to the Feeder Pig Purchase Agreements with the Company's existing
members, the price paid by Yuma Cooperative for feeder pigs was based only on
the Company's operating cost per pig; provided, however, that such price was
increased by $4.50 per feeder pig after July 13, 1995. Commencing on August 11,
1995, the date the Company first produced and shipped feeder pigs pursuant to
the Feeder Pig Purchase Agreements with the Company's existing members (other
than Farmland and Yuma Cooperative), the price paid by Yuma Cooperative for
feeder pigs is and will be under terms comparable to those applicable to the
Company's members pursuant to the Feeder Pig Purchase Agreements. For the years
ended August 31, 1996 and 1995, Yuma Cooperative's share of feeder pigs produced
by the Company was purchased from the Company by Farmland. See "Feeder Pig
Purchase Agreement" and "Certain Relationships and Related Transactions--
Farmland--Feeder Pig Purchase Agreement."
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of the date of this
Prospectus regarding the beneficial ownership of Class A Common by Farmland,
Farmers Cooperative Elevator Company, Yuma Cooperative and Farmers Cooperative
Association; the only persons who were the beneficial owners of more than 5% of
the outstanding Class A Common as of such date. No directors or executive
officers of the Company were the beneficial owners of Alliance Class A Common as
of the date of this Prospectus. As of that date, no shares of Class B Common or
Class C Common were outstanding. All information with respect to beneficial
ownership has been furnished by the respective 5% or more stockholder.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF CLASS A
BENEFICIAL OWNER BENEFICIAL OWNER(1) COMMON OUTSTANDING
Farmland Industries, Inc. (2)
3315 North Oak Trafficway
Kansas City, MO 64116 50 49.0%
Farmers Cooperative Elevator
Company (3)
501 East Main Street
Plymouth, NE 68424 11 10.8%
Yuma Farmers Milling and Mercantile
Cooperative Company (4)
101 South Detroit
Yuma, CO 80759 12 11.8%
Corn Plus, L.C. (5)
212 North Agora Street
Marathon, Iowa 50565 6 5.9%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
and/or investment power with respect to those securities. Unless otherwise
indicated, the persons or entities identified in this table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them. Percentage ownership calculations are based on
102 shares of Class A Common outstanding.
(2) The voting and disposition of the shares of Class A Common held by Farmland
are subject to the discretion of the board of Directors of Farmland.
Pursuant to the Company's Articles of Incorporation, Farmland is prohibited
from voting shares of Common Stock representing 25% or more of the shares
outstanding during any period in which the Company has borrowed money from
a lender subject to regulations of the Farm Credit Administration regarding
loan policies and operations (such as the Company's current lender). As of
the date of this Prospectus, the Company had borrowed funds from such a
lender. See "Business--Financing" and "Description of Capital Stock."
(3) The voting and disposition of the shares of Class A Common held by Farmers
Cooperative Elevator Company are subject to the discretion of the Board of
Directors of Farmers Cooperative Elevator Company.
(4) The voting and disposition of the shares of Class A Common held by Yuma
Cooperative are subject to the discretion of the Board of Directors of Yuma
Cooperative.
(5) The voting and disposition of the shares of Class A Common held by Corn
Plus, L.C. are subject to the discretion of the managerJWA[4] of Corn Plus,
L.C.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 5,000 shares of
(Class A) common stock, $.01 par value per share, 2,500 shares of Class B common
stock, $.01 par value per share, and 2,500 shares of Class C common stock, $.01
par value per share. As of the date of this Prospectus, there were 102 shares
of Class A Common outstanding, which were held of record by 17 stockholders, and
no shares of Class B Common or Class C Common outstanding. Only producers of
agricultural products, associations of such producers, and federations of such
associations who have executed and delivered to the Company a Feeder Pig
Purchase Agreement may own Class A Common, only producers of agricultural
products, associations of such producers, and federations of such associations
who have executed and delivered to the Company a Weaned Pig Purchase Agreement
may own Class B Common, and only producers of agricultural products,
associations of such producers, and federations of such associations who have
executed and delivered to the Company a Class C Weaned Pig Purchase Agreement
may own Class C Common. Only stockholders of the Company may be members of the
Company. Except as otherwise specifically described under this "Description of
Capital Stock" caption, the powers, preferences and rights of the Class A
Common, Class B Common and Class C Common are in all respects identical. To the
extent permitted by applicable law, the Board of Directors of the Association is
authorized to provide by resolution for the issuance of shares of stock of any
class or of any series of any class at any time and to determine, prior to the
issuance of any shares of stock of that class or series, the designations,
preferences, limitations and relative rights, if any, thereof.
Except as described in the immediately following sentence, holders of Class
A Common and Class B Common are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and holders of Class C Common are
entitled to three-fourths of one vote for each share held on all matters
submitted to a vote of stockholders. During any period in which the Company has
borrowed money from a lender subject to regulations of the Farm Credit
Administration regarding loan policies and operations (such as the Company's
current lender), (i) no cooperative association stockholder is permitted to vote
shares of Common Stock representing 25% or more of the shares then outstanding
with respect to any matter as to which members are not entitled to vote
separately as a group or class and (ii) no cooperative association stockholder
is permitted to vote shares of Common Stock representing 25% or more of the
shares of any class then outstanding with respect to any matter as to which
members are entitled to vote separately as a group or class. JWA[5]A majority
of the outstanding shares of Common Stock entitled to vote constitutes a quorum
at any stockholder meeting, except that if any class of capital stock is
entitled to vote separately as a class or group, such a quorum must also be
obtained with respect to such class. The affirmative vote of at least two-
thirds of the shares represented at a meeting at which a quorum is present is
required to amend the Company's Articles of Incorporation, to approve certain
mergers, consolidations or sales of all or substantially all of the Company's
assets and to approve certain other matters. Holders of the Class A Common,
holders of the Class B Common and holders of the Class C Common must vote
separately as groups or classes with respect to amendments to the Articles of
Incorporation that alter or change the designation, preferences, limitations or
relative rights of their respective classes of stock so as to affect them
adversely and with respect to such other matters as may require group or class
votes under applicable law. Holders of the Common Stock do not have cumulative
voting rights in the election of directors or preemptive rights to purchase
additional shares of Common Stock, and have no subscription, redemption or
conversion rights.
All outstanding shares of Common Stock are, and when issued the Shares
offered hereby will be, validly issued, fully paid and nonassessable. Holders
of Common Stock are entitled to such patronage distributions as may be paid in
the manner determined by the Board of Directors out of funds legally available
therefor, subject to certain provisions contained in the loan agreement with the
Company's existing lender which restrict the ability of Alliance to pay
patronage distributions in cash. The Company intends to distribute, at least
annually, all of its net margins, if any, as patronage distributions to its
stockholders on the basis of the quantity or value of business done by the
Company with or for each stockholder. The Company's "net margins" for this
purpose generally are equal to the Company's net income under generally accepted
accounting principles (taxable income through and including August 31, 1997)
attributable to patronage sourced business done with or for the Company's
members (determined before reduction for patronage distributions paid by the
Company). In this regard, the Company will compute its net income or taxable
income, as the case may be, separately for each group of members (including
successors and permitted assigns) whose shares of the Company's Common Stock
originally were issued in connection with the Company's acquisition or
development of one or more feeder or weaned pig production units financed in
part thereby. See "Patronage Distribution Policy."
Upon liquidation, dissolution or winding-up of the Company, the assets
legally available for distribution to stockholders, after satisfying the prior
distribution rights of creditors of the Company, are distributable ratably among
the holders of capital credits and Common Stock at that time outstanding in
proportion to the sum of (a) the consideration received by the Company in
exchange for each such share of Common Stock issued to the holder thereof (or
such holder's predecessors in interest), plus (b) the aggregate amount of
principal payments made by such holder (or such holder's predecessors in
interest) pursuant to such holder's (or such holder's predecessors in
interest's) Feeder Pig Purchase Agreement, Weaned Pig Purchase Agreement or
Class C Weaned Pig Purchase Agreement, as the case may be, with respect to the
debt incurred by the Company for the construction and working capital needs of
the production facilities constructed with respect to the issuance of such
holder's shares of Common Stock.
The Shares are subject to provisions of the Colorado Cooperative
Association Law and the Company's Articles of Incorporation and Bylaws which
restrict the transferability of the Common Stock, and include a Bylaw provision
that gives the Company the right to purchase the Common Stock of a stockholder
upon the occurrence of certain events. Such provisions will make it more
difficult to effect a change in control of the Company. See "Restrictions on
Sale or Other Transfer of the Shares." In addition, the Company's Articles of
Incorporation require approval by the holders of at least two-thirds of a quorum
of the outstanding shares of Common Stock to amend, alter, change or repeal any
provision of the Company's Articles of Incorporation, to approve any sale,
lease, exchange or other disposition of all or substantially all of the property
and assets of the Company, to approve any merger or consolidation of which the
Company is a party and to which the vote of the members is required by law, or
to approve any dissolution or voluntary termination of the Company. Such
provision could make it more difficult to effect a change in control of the
Company.
The transfer agent for the Common Stock is the Secretary of the Company.
RESTRICTIONS ON SALE OR OTHER TRANSFER OF THE SHARES
SECURITIES LAWS
Upon completion of this offering (assuming the sale and issuance of all 51
Class A Shares, all 54 Class B Shares and all 72 Class C Shares offered hereby),
there will be 279 shares of Common Stock outstanding, including 153 shares of
Class A Common, 54 shares of Class B Common and 72 shares of Class C Common. Of
these shares, the 51 Class A Shares, 54 Class B Shares and 72 Class C Shares
issued and sold in this offering will be freely transferable without restriction
under the Securities Act of 1933, as amended (the "Act"), unless acquired by an
"affiliate" (as that term is defined under the Act) of the Company, in which
case they will be subject to certain resale limitations under the Act. Of the
remaining 102 shares of Class A Common held by existing stockholders of the
Company, 10 shares are freely transferable without restriction under the Act, 68
shares (including 55 shares owned by "affiliates" of the Company) are
"restricted securities" (as such term is used in Rule 144 under the Act), and
the remaining 24 shares are owned by an "affiliate" of the Company. The
restricted shares and the shares owned by "affiliates" of the Company are
subject to restrictions on resale imposed by the Act and must be held
indefinitely unless they are registered under the Act or an exemption from
registration thereunder is then available. The Company is the only party who
may register its Common Stock under the Act, and it has not agreed to register
any shares of Common Stock under the Act for resale or to comply with any
exemption under the Act for the resale of any such shares.
Section 4(1) of the Act provides an exemption from registration under the
Act for the resale of securities in the event that the seller of such
securities is not then an "issuer", "dealer" or "underwriter" of the securities
proposed to be resold. Rule 144 was adopted by the Securities and Exchange
Commission as a safe harbor for determining whether a seller would be considered
an "underwriter" for purposes of that exemption. Sales of "restricted" shares
or shares owned by an "affiliate" cannot be made under Rule 144 unless each of
its requirements are satisfied at the time of such sale. Although Rule 144
provides a means for reselling restricted shares and shares owned by affiliates,
it is not the exclusive means for reselling such securities.
In general, Rule 144 currently provides that a person (or persons whose
shares are aggregated) who has beneficially owned restricted shares for at least
one year, including persons who may be deemed to be affiliates of the Company,
would be entitled to sell within any three-month period a number of shares that
does not exceed the greater of 1% of the then outstanding shares or the average
weekly reported trading volume for the shares during the four weeks preceding
such sale, provided that the Company has filed certain periodic reports with the
Securities and Exchange Commission (or made publicly available certain
information concerning it) and the sale is made in a "broker's transaction" or
in a transaction directly with a "market-maker," as those terms are used in Rule
144, without the solicitation of buy orders by the broker or such person, and
without such person making any payment to any person other than the broker who
executes the order to sell the shares of Common Stock. A person (or persons
whose shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such person, and who
has beneficially owned restricted shares for at least two years, would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations and public information and manner of sale requirements described
above. The term "affiliate" is defined to mean a person that directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, the Company. The Securities and Exchange
Commission ordinarily would presume, without limitation, that an officer,
director or the beneficial owner of five percent or more of the outstanding
voting securities of the Company would fall within this definition.
Restricted shares properly sold in reliance upon Rule 144 are thereafter
freely tradeable without restriction or registration under the Act, unless
thereafter held by an affiliate of the Company. The 68 shares of Class A Common
held by existing stockholders that are restricted securities have been
beneficially owned for over two years, and an aggregate of 13 of these shares
are owned by non-affiliates. No person has any right to demand registration of
shares of the Common Stock.
COOPERATIVE ASSOCIATION LAWS AND CHARTER DOCUMENTS
The Colorado Cooperative Association Law and the Company's Articles of
Incorporation provide that the certificates of membership in the Company (which
also represent shares of Common Stock of the Company) shall not be assignable or
transferable except upon consent of the Board of Directors, and that the Company
shall have the right in its Bylaws to limit the transfer or assignment of
membership and the terms and conditions upon which transfers or assignments may
be allowed. The Company's Bylaws provide that the equity interests issued by
the Company may not be assigned or transferred, except upon the consent of the
Company's Board of Directors, and that the Company's Board of Directors may not
give such consent unless any such assignee or transferee of Class A Common
executes and delivers to the Company a Feeder Pig Purchase Agreement, any such
assignee or transferee of Class B Common executes and delivers to the Company a
Weaned Pig Purchase Agreement and any such assignee or transferee of Class C
Common executes and delivers to the Company a Class C Weaned Pig Purchase
Agreement. Only producers of agricultural products, associations of such
producers, and federations of such associations may own Common Stock of the
Company.
In addition to the foregoing transfer restrictions, the Company's Bylaws
give the Company the right to purchase a member's Common Stock under certain
circumstances, which may adversely affect transferability. Such right is in
addition to any right the Company may have to foreclose on the security interest
in member's Common Stock pursuant to the Feeder Pig Purchase Agreement, Weaned
Pig Purchase Agreement or Class C Weaned Pig Purchase Agreement, as the case may
be. In particular, the Company has the option under its Bylaws to purchase a
member's Shares upon the occurrence of certain specified events (a) by tendering
to the member (i) the lesser of (A) the price paid to the Company for such
investor's Shares, and (B) the book value of the Shares and capital credits
associated therewith, less (ii) any indebtedness due the Company from the
member, or (b) by tendering to the member a nonvoting certificate of
participation representing the member's interest at the time of such tender in a
face amount equal to the amount specified in clause (a) above. The occurrences
giving rise to such option include the following events: (a) a member's
termination of a Feeder Pig Purchase Agreement, Weaned Pig Purchase Agreement or
Class C Weaned Pig Purchase Agreement, as the case may be, without having
executed and delivered a replacement for such Agreement or the member's failure
to be a party to such Agreement, and (b) the Company's Board of Directors by
resolution finds that a member has (i) intentionally or repeatedly violated any
provision of the Company's Articles of Incorporation or Bylaws, (ii) breached a
Feeder Pig Purchase Agreement, Weaned Pig Purchase Agreement or Class C Weaned
Pig Purchase Agreement, as the case may be, or materially breached any other
contract with Company, (iii) remained indebted to the Company for 90 days after
such indebtedness first becomes payable, or (iv) willfully obstructed any lawful
purpose or activity of the Company. In the event the Company exercises either
option, the voting stock of the member shall be canceled, and the member shall
thereafter have no voting rights in the Company. The Company is under no
obligation, however, to redeem or repurchase an investor's Common Stock at any
time. See "Risk Factors--Right of Alliance to Acquire Shares" and "-- Lack of
Liquidity; Absence of Market for Shares," "Feeder Pig Purchase Agreement" and
Weaned Pig Purchase Agreements."
Finally, a legend in substantially the following form will be placed on
each certificate representing Shares of Common Stock issued in the offering:
Sale, transfer or hypothecation of the shares represented by this
certificate is restricted by the provisions of the Colorado
cooperative association law and the Articles of Incorporation and
Bylaws of Alliance Farms Cooperative Association (the "Company"), a
copy of which provisions may be inspected at the principal offices of
the Company, and all provisions of which are hereby incorporated by
reference in this certificate.
The transfer and other restrictions discussed above could make it more
difficult to effect a change in control of the Company.
PLAN OF DISTRIBUTION
GENERAL
The Company intends to sell the Shares through agents designated by the
Company or, if permitted under applicable law, directly to one or more
purchasers through the efforts of its directors, officers and employees. In
this regard, the Company has retained Interstate/Johnson Lane Corporation
("I/JL") to serve as its agent in connection with this offering. The Company
has reserved the right to sell the Shares directly to investors on its own
behalf in those jurisdictions where and in such manner as it is authorized to do
so. In the event that the Company sells Shares directly to investors through
the efforts of its directors, officers and employees, such directors, officers
and employees will not be compensated in connection with such participation
through the payment of commissions or other remuneration based either directly
or indirectly on transactions in the Shares offered. Any offering of the Shares
will be made exclusively to producers of agricultural products, associations of
such producers, and federations of such associations. No one has committed to
purchase any of the Shares.
Agents participating in the distribution of the Shares may be deemed to be
underwriters within the meaning of the Securities Act of 1933, and any
commissions and other compensation received by them may be deemed to be
underwriting discounts and commissions under the Act. The Company anticipates
that it will enter into an agency agreement with I/JL providing for the payment
by Alliance of a lump sum fee of $40,000 regardless of whether any or all Shares
offered hereby are sold. It is anticipated that the Company will agree to
reimburse I/JL for its reasonable out-of-pocket expenses in connection with the
offering of the Shares. The net proceeds to the Company from the sale of the
Shares will be the public offering price of the Shares less any commissions and
other attributable expenses of issuance and distribution.
I/JL may be entitled, under an agency agreement to be entered into with the
Company, to indemnification by the Company against certain civil liabilities,
including liabilities under the Securities Act of 1933, and may be entitled to
contribution with respect to payments which I/JL may be required to make in
respect thereof. Agents may engage in transactions with or perform services for
the Company in the ordinary course of business.
INVESTOR SUITABILITY STANDARDS
The Shares may be offered and sold only to producers of agricultural
products, associations of such producers, and federations of such associations.
In addition, if any investor in the offering is a resident of Iowa, or otherwise
is subscribing for Shares in Iowa, such investor must (i) have a net worth, or
joint net worth with that investor's spouse, in either case, exclusive of home,
furnishings and automobiles ("Adjusted Net Worth") of at least $65,000 at the
time of such investor's purchase, and an annual gross income of at least $65,000
for each of the investor's two most recent tax years; or (ii) have Adjusted Net
Worth of at least $250,000 at the time of such investor's purchase. Each
investor will be required to represent in writing in the Subscription Agreement
that the investor is a producer of agricultural products, an association of such
producers, or a federation of such associations and, if a resident of Iowa, or
otherwise subscribing for Shares in Iowa, that the investor meets the foregoing
suitability standards for Iowa investors.
MINIMUM BLOCK REQUIREMENT
The Class A Shares will be offered on a "best efforts, all-or-none" basis
for 17 Class A Shares (a "Minimum Class A Block"), and thereafter may continue
to be offered on such basis with respect to successive Minimum Class A Blocks of
Shares until 51 Class A Shares have been issued and sold. The Class B Shares
will be offered on a "best efforts, all-or-none" basis for 18 Class B Shares (a
"Minimum Class B Block"), and thereafter may continue to be offered on such
basis with respect to successive Minimum Class B Blocks of Shares until 54 Class
B Shares have been issued and sold. The Class C Shares will be offered on a
"best efforts, all-or-none" basis for 24 Class C Shares (a "Minimum Class C
Block"), and thereafter may continue to be offered on such basis with respect to
successive Minimum Class C Blocks of Shares until 72 Class C Shares have been
issued and sold. As of the date of this Prospectus, the Company has not
consummated the issuance and sale of any shares of Common Stock in this
offering. Any agent of the Company involved in the offer or sale of the Shares
will be acting on such "best efforts, all-or-none" basis during the period of
such agent's appointment. There can be no assurance that any or all of the
Shares will be sold.
The number of Class A Shares constituting a Minimum Class A Block has been
determined by the Company based on the number of lots of feeder pigs (900 to
1,000 pigs per lot) that the Company anticipates can most efficiently be made
available to members of the Company from a single 2,450-sow feeder pig
production facility. Pursuant to the Feeder Pig Purchase Agreements to be
entered into by investors at the time a subscription for Class A Shares is made,
each member of the Company owning shares of Class A Common will be required to
purchase feeder pigs in lots of no less than 900, and no more than 1,000, pigs
per lot, as determined by the Company. Such lots of feeder pigs are to be made
available to such members of the Company on a rotating schedule determined and
implemented by the Company. The number of lots made available to a member and
the frequency of availability are to be based upon the member's proportionate
equity interest in the Company's Class A Common and the actual production of
Qualifying Pigs from the Company's facilities. The Company anticipates that the
production of one 2,450-sow feeder pig production facility will be adequate to
provide lots of between 900 and 1,000 feeder pigs to 17 members (assuming that
each such member owns only one Class A Share) in order of rotation such that
delivery of a lot of between 900 and 1,000 feeder pigs can be made to a member
at approximately the time at which the pigs previously delivered to such member
are finished to market weight and available for shipment to slaughter. There
can be no assurance that the Company will be successful in meeting this
production schedule, or that feeder pigs will be available for shipment to a
member at a time when the member is able to accommodate their delivery.
Accordingly, the Company believes that a Minimum Class A Block requirement is
necessary to provide for sufficient new members to accommodate the anticipated
output of feeder pigs from a single 2,450-sow feeder pig production facility.
See "Feeder Pig Purchase Agreement."
The number of Class B Shares constituting a Minimum Class B Block has been
determined by the Company based on the number of lots of weaned pigs (925 to
1,025 pigs per lot) that the Company anticipates can be made available to
members of the Company from a single 2,450-sow weaned pig production facility.
Pursuant to the Weaned Pig Purchase Agreements to be entered into by investors
at the time a subscription for Class B Shares is made, each member of the
Company owning shares of Class B Common will be required to purchase weaned pigs
in lots of no less than 925, and no more than 1,025, pigs per lot, as determined
by the Company. Such lots of weaned pigs are to be made available to such
members of the Company on a rotating schedule determined and implemented by the
Company. The number of lots made available to a member and the frequency of
availability are to be based upon the member's proportionate equity interest in
the Company's Class B Common and the actual production of Qualifying Pigs from
the Company's facilities. The Company anticipates that the production of one
2,450-sow weaned pig production facility will be adequate to provide lots of
between 925 and 1,025 weaned pigs to 18 members (assuming that each such member
owns only one Class B Share) in order of rotation such that delivery of two and
seven-tenths (2.7) lots of weaned pigs can be made to a member on a rolling 12-
month basis. There can be no assurance that the Company will be successful in
meeting this production schedule, or that weaned pigs will be available for
shipment to a member at a time when the member is able to accommodate their
delivery. Accordingly, the Company believes that a Minimum Class B Block
requirement is necessary to provide for sufficient new members to accommodate
the anticipated output of weaned pigs from a single 2,450-sow weaned pig
production facility according to the schedule described above. See "Weaned Pig
Purchase Agreements."
The number of Class C Shares constituting a Minimum Class C Block has been
determined by the Company based on the number of lots of weaned pigs (925 to
1,025 pigs per lot) that the Company anticipates can be made available to
members of the Company from a single 2,450-sow weaned pig production facility.
Pursuant to the Class C Weaned Pig Purchase Agreements to be entered into by
investors at the time a subscription for Class C Shares is made, each member of
the Company owning shares of Class C Common will be required to purchase weaned
pigs in lots of no less than 925, and no more than 1,025, pigs per lot, as
determined by the Company. Such lots of weaned pigs are to be made available to
such members of the Company on a rotating schedule determined and implemented by
the Company. The number of lots made available to a member and the frequency of
availability are to be based upon the member's proportionate equity interest in
the Company's Class C Common and the actual production of Qualifying Pigs from
the Company's facilities. The Company anticipates that the production of one
2,450-sow weaned pig production facility will be adequate to provide lots of
between 925 and 1,025 weaned pigs to 24 members (assuming that each such member
owns only one Class C Share) in order of rotation such that delivery of two and
one-tenth (2.1) lots of weaned pigs can be made to a member on a rolling 12-
month basis. There can be no assurance that the Company will be successful in
meeting this production schedule, or that weaned pigs will be available for
shipment to a member at a time when the member is able to accommodate their
delivery. Accordingly, the Company believes that a Minimum Class C Block
requirement is necessary to provide for sufficient new members to accommodate
the anticipated output of weaned pigs from a single 2,450-sow weaned pig
production facility according to the schedule described above. See "Weaned Pig
Purchase Agreements."
The minimum investment for each investor is not less than one Share. In
addition, each investor purchasing one or more Class A Shares must enter into a
Feeder Pig Purchase Agreement with the Company in the form attached to this
Prospectus as Exhibit B, each investor purchasing one or more Class B Shares
must enter into a Weaned Pig Purchase Agreement with the Company in the form
attached to this Prospectus as Exhibit C, and each investor purchasing one or
more Class C Shares must enter into a Class C Weaned Pig Purchase Agreement with
the Company in the form attached to this Prospectus as Exhibit D. No fractional
shares will be issued.
FINANCING COMMITMENT REQUIREMENT
The consummation of the issuance and sale of the Shares will be conditioned
upon and subject to Alliance obtaining a commitment for at least $2,720,000 of
term debt borrowings with respect to each Minimum Class A Block of Class A
Shares and a commitment for at least $2,160,000 of term debt borrowings with
respect to each Minimum Class B Block of Class B Shares and each Minimum Class C
Block of Class C Shares. As of the date of this Prospectus, the Company has
obtained a commitment for the necessary loans with respect to the Class A Shares
from its current lender, CoBank, until August 31, 1997. No assurances can be
given that an extension of such commitment will be obtained on favorable terms,
if at all. As of the date of this Prospectus, the Company has not obtained a
commitment for the necessary loans with respect to the Class B Shares or the
Class C Shares, but is engaged in negotiations with a lender to obtain a
commitment for such loans. If any loan commitment is withdrawn or terminated,
or the Company is unable to obtain an acceptable commitment for such a loan from
another lender prior to or concurrently with the termination date of the
offering, all outstanding subscriptions for Shares in a Minimum Block for which
such a commitment is not obtained will be rejected and any amounts received by
the Company in payment of the public offering price will be returned to
subscribers. See "Business--Financing."
SUBSCRIPTION PROCEDURE
In order for an investor to subscribe for one or more Shares in a Minimum
Block, the following items must be delivered to the Company or its agent on or
before the termination of the offering (see "Termination of the Offering"
below):
(1) two completed and executed copies of a Subscription
Agreement in the form attached to this Prospectus as Exhibit A;
(2) the subscriber's check, bank draft or wire transfer
(contact Alliance for wire transfer instructions), payable to the
order of "Alliance Farms Cooperative Association Escrow No. 1482300"
in an amount representing the aggregate purchase price of the Shares
being subscribed for; and
(3) two completed and executed copies of a Feeder Pig Purchase
Agreement in the form attached to this Prospectus as Exhibit B, with
respect to a subscription for Class A Shares, two completed and executed
copies of a Weaned Pig Purchase Agreement in the form attached to this
Prospectus as Exhibit C, with respect to a subscription for Class B Shares,
and two completed and executed copies of a Class C Weaned Pig Purchase
Agreement in the form attached to this Prospectus as Exhibit D, with
respect to a subscription for Class C Shares.
In addition, if any investor in the offering is a resident of Iowa, or
otherwise is subscribing for Shares in Iowa, such investor may be required to
deliver to the Company a completed and executed Potential Investor
Questionnaire with respect to the Adjusted Net Worth and gross income
thresholds described under "-- Investor Suitability Standards" above.
Pending the Company's acceptance of subscriptions for a Minimum Class A
Block of 17 Class A Shares, a Minimum Class B Block of 18 Class B Shares or a
Minimum Class C Block of 24 Class C Shares in this offering, all funds received
by the Company and its agents in payment of the public offering price for the
Shares promptly will be deposited in an interest-bearing escrow account
established at NationsBank, N.A. (formerly Boatmen's National Bank),
Kansas City, Missouri. Payment of the offering price must be made payable to
the order of "Alliance Farms Cooperative Association Escrow No. 1482300," the
escrow account established at such bank. Upon the Company's acceptance of
subscriptions for one or more Minimum Class A Blocks, one or more Minimum Class
B Blocks or one or more Minimum Class C Blocks, as the case may be, and the
satisfaction of certain other conditions, all funds deposited in the escrow
account with respect to such Shares will be paid to the Company. Subscriptions
for Shares that collectively do not constitute a Minimum Block of Shares will
not be accepted by the Company. In the event that Alliance does not issue
Shares for which funds have been deposited in the escrow account prior to the
termination of the offering, such funds will be refunded to the prospective
investors, together with any interest earned thereon and without any deduction
being made for expenses. All subscriptions for Shares submitted by subscribers
shall be irrevocable and shall survive the death or disability of the
subscriber, in the case of an individual, or the dissolution or bankruptcy of
the subscriber, in the case of an entity. There can be no assurance that any or
all of the Shares will be sold. See "Plan of Distribution--Escrow of Proceeds."
Alliance reserves the right, in its sole and absolute discretion, to
accept or reject any subscription, in whole or in part, and no subscription
shall be binding on Alliance unless and until accepted by Alliance. Each
subscriber will be promptly notified by Alliance as to whether his or her
subscription has been accepted. If a subscription is accepted, an authorized
officer of Alliance will execute both copies of the Subscription Agreement and
the Feeder Pig Purchase Agreement, Weaned Pig Purchase Agreement or Class C
Weaned Pig Purchase Agreement, as the case may be, submitted by the subscriber
and return one executed copy of each such agreement. The Shares of Common Stock
shall not be deemed to be owned by an investor until both copies of the
Subscription Agreement and the applicable Feeder Pig Purchase Agreement, Weaned
Pig Purchase Agreement or Class C Weaned Pig Purchase Agreement have been
executed by the investor and countersigned by Alliance and the subscription
procedure described above otherwise has been complied with. Alliance and its
agent will arrange for delivery of the certificates for Shares of Common Stock
as promptly as practicable thereafter, which certificates will, however, be
retained by Alliance as security for the performance by the investor of his
obligations under the Feeder Pig Purchase Agreement, Weaned Pig Purchase
Agreement or Class C Weaned Pig Purchase Agreement, as the case may be, to
purchase his proportionate share of the Company's pig production. In this
regard, investors will be required to endorse appropriate stock powers with
respect to such certificates. The Company may agree in its discretion, however,
to permit the investor to pledge or grant a security interest in the investor's
shares of Common Stock to any financial institution for purposes of securing a
loan used in financing the investor's acquisition of such shares. See "Feeder
Pig Purchase Agreement" and "Weaned Pig Purchase Agreements."
ESCROW OF PROCEEDS
The Company has entered into an escrow agreement (the "Escrow Agreement")
pursuant to which all funds received by the Company and its agents in payment of
the public offering price for the Shares promptly will be deposited in an
interest-bearing escrow account with NationsBank, N.A. (formerly
Boatmen's National Bank), Kansas City, Missouri (the "Escrow Agent"). All such
funds will be held in escrow during the "Escrow Period" which shall begin with
the commencement of the offering and terminate upon the earlier of (i) the date
upon which the Escrow Agent has disbursed and delivered $4,080,000 in collected
funds with respect to Class A Shares, $3,240,000 with respect to Class B Shares
and $3,240,000 with respect to Class C Shares to the Company in accordance with
the Escrow Agreement, and (ii) the termination of the offering, whether by lapse
of time or the election of the Company to do so. During the Escrow Period,
subscribers will have no right to a return of their payment. All escrowed funds
may be invested in bank accounts, bank money-market accounts, short-term
certificates of deposit issued by a bank or short-term securities issued or
guaranteed by the U.S. Government, as specified by the Company.
Funds deposited into escrow may be disbursed to the Company, in the amount
of $1,360,000 with respect to Class A Shares, $1,080,000 with respect to Class B
Shares and $1,080,000 with respect to Class C Shares (the "Minimum"), or an
integral multiple thereof, upon the satisfaction of the following conditions:
(i) the Escrow Agent has received written confirmation from the Company that the
Company has obtained a commitment for at least $2,720,000 of debt financing or
borrowings with respect to the disbursement of each Minimum for Class A Shares
and a commitment for at least $2,160,000 of debt financing or borrowings with
respect to the disbursement of each Minimum for Class B Shares or Class C
Shares; (ii) the Escrow Agent has received an affidavit from the Company and its
agents in the offering identifying the number of Shares subscribed for and the
amount of proceeds deposited into escrow and certifying that (a) there have been
no material omissions or changes in the financial condition of the Company, or
other changes of circumstances, that would render the amount of proceeds
inadequate to finance the Company's proposed plan of operations, business or
enterprise, and (b) there have been no material omissions or changes that would
render the representations contained in the registration statement, including
the prospectus constituting a part thereof, to be fraudulent, false or
materially misleading; and (iii) the Escrow Agent has received an order
permitting the requested disbursement of proceeds from the securities
administrators of those states which impose such condition, if any. The Company
shall be entitled to any interest earned on the funds disbursed to it and
remaining after deduction for fees and reimbursement of costs and expenses due
the Escrow Agent.
Upon the termination of the Escrow Period, any proceeds remaining in escrow
are to be disbursed to the prospective investor from whom they were received
upon the Escrow Agent's receipt of an order permitting the requested
disbursement of proceeds from the securities administrators of those states
which impose such condition, if any. Such refunded proceeds are to be disbursed
to investors without any deduction, penalty or expense thereon being made.
Interest earned on funds to be returned to prospective investors shall be paid
to such investors as designated or approved in writing by the Company.
In consideration of its services under the Escrow Agreement, the Escrow
Agent has been paid an initial acceptance fee in an amount equal to $750, and
will be paid an annual base fee in an amount equal to $750. In addition, the
Company will pay to the Escrow Agent $7 for each cash transaction processed by
the Escrow Agent to reimburse it for its actual cost in accepting and disbursing
funds, and $15 for each investment transaction made with respect to the escrowed
funds. A cash management fee equal to 3 of 1% per annum of the principal amount
of the escrowed funds may also be payable depending upon the investment selected
for the escrowed funds. No fees, reimbursement for costs and expenses, or any
moneys whatsoever shall be paid out of or chargeable to investors' funds held in
escrow by the Escrow Agent.
OFFERING PRICE
The Shares are being offered at the public offering price set forth on the
cover page of this Prospectus. This public offering price has been arbitrarily
determined by the Company and is not based on any recognized criteria of value.
Among the factors considered in making such determination are the amount of the
anticipated debt borrowings, together with the net proceeds from the sale of the
Shares, required to develop each additional feeder or weaned pig production
facility, which factor takes into account the anticipated development costs for
new facilities, the applicable debt-to-equity ratio or minimum equity amount
that the Company anticipates will be required by potential lenders, and the
anticipated interest and debt service requirements associated with such
borrowings. The Company also considered the interest requirements on up to
$1,360,000 of feeder pig facilities development financing that the Company
anticipates it may incur with respect to each new feeder pig production
facility. See "Business--Financing." To a much lesser extent the Company also
considered the prevailing market conditions for feeder pigs and weaned pigs, the
financial prospects and anticipated business potential of the Company, the
history of and prospects for the industry in which the Company competes, the
state of the Company's development and other similar factors. The public
offering price may not necessarily reflect any relationship to the Company's
assets, historical losses, book value or other financial statement criteria of
value.
ABSENCE OF PUBLIC MARKET
There is no public market for the Common Stock of the Company, and no
public market for the Common Stock is expected to develop as a result of the
offering of the Shares. Transfers of the Shares will be subject to significant
restrictions and limitations set forth in the Colorado Cooperative Association
Law and the Company's Articles of Incorporation and Bylaws. The certificates
representing the Shares will bear one or more legends describing or referencing
certain applicable restrictions on transfer. For these and other reasons, the
Shares will not be readily marketable, and purchasers thereof must bear the
economic risk of investment for an indefinite period and may not be able to
liquidate their investment in the event of any emergency or otherwise. See
"Restrictions on Sale or Other Transfer of the Shares" and "Description of
Capital Stock."
The Company does not intend to apply for listing of the Shares on a
national securities exchange.
TERMINATION OF THE OFFERING
The offering of the Shares will terminate on January 7, 1999 (550 days
from the July 7, 1997 commencement of the offering), unless extended by
the Company for a period of up to an additional 180 days. Alliance has the
right to terminate the offering at any time. In the event a Minimum Class A
Block has not been fully subscribed for prior to the termination date of the
offering, or Alliance does not have a commitment for at least $2,720,000 of term
debt borrowings with respect to a Minimum Class A Block prior to or concurrently
with such date, all outstanding subscriptions for Class A Shares that do not
constitute a Minimum Class A Block or for which such a commitment is not
obtained, as the case may be, will be rejected and any amounts received by the
Company in payment of the public offering price will be returned to subscribers.
In the event a Minimum Class B Block has not been fully subscribed for prior to
the termination date of the offering, or Alliance does not have a commitment for
at least $2,160,000 of term debt borrowings with respect to a Minimum Class B
Block prior to or concurrently with such date, all outstanding subscriptions for
Class B Shares that do not constitute a Minimum Class B Block or for which such
a commitment is not obtained, as the case may be, will be rejected and any
amounts received by the Company in payment of the public offering price will be
returned to subscribers. In the event a Minimum Class C Block has not been
fully subscribed for prior to the termination date of the offering, or Alliance
does not have a commitment for at least $2,160,000 of term debt borrowings with
respect to a Minimum Class C Block prior to or concurrently with such date, all
outstanding subscriptions for Class C Shares that do not constitute a Minimum
Class C Block or for which such a commitment is not obtained, as the case may
be, will be rejected and any amounts received by the Company in payment of the
public offering price will be returned to subscribers. See "Plan of
Distribution--Subscription Procedure."
LEGAL MATTERS
The validity of the Shares will be passed upon for the Company by Stinson,
Mag & Fizzell, P.C., 1201 Walnut Street, Kansas City, Missouri 64106-2150.
EXPERTS
The financial statements of Alliance Farms Cooperative Association as of
August 31, 1996 and August 31, 1995 and for the years ended August 31, 1996 and
1995, included herein and elsewhere in the registration statement of which this
Prospectus is a part, have been included herein and in the registration
statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is currently subject to the informational requirements of the
Exchange Act, and in accordance therewith the Company files annual and quarterly
reports and other information with the Commission. Such reports and other
information may be inspected and copied at the Commission's office located at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the regional
offices of the Commission located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center,
Suite 1300, New York, New York 10048. Copies of such materials can be obtained
from the Public Reference Section of the Commission located at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. Materials also may be
obtained from the Commission's Web site (http://www.sec.gov), which contains
reports, proxy and information statements and other information regarding
companies that file electronically with the Commission.
This Prospectus constitutes an integral part of a Registration Statement on
Form SB-2 (No. 333-25501) (which, together with all amendments, exhibits and
schedules thereto, is referred to as the "Registration Statement") filed by the
Company with the Commission in Washington, D.C. under the Securities Act of
1933, as amended, with respect to the Shares being offered by this Prospectus.
This Prospectus does not contain all information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the rules
and regulations of the Commission. For further information with respect to the
Company and the Shares offered hereby, reference is made to the Registration
Statement and related exhibits. The Registration Statement, including the
exhibits and schedules thereto, may be inspected and copied at the Commission's
offices located at the addresses set forth above. Copies of the Registration
Statement or any portion thereof can be obtained at prescribed rates from the
Public Reference Section of the Commission located at the address set forth
above.
INDEX OF FINANCIAL STATEMENTS
Page
ALLIANCE FARMS COOPERATIVE ASSOCIATION
Independent Auditors' Report........................................F-2
Balance Sheets as of August 31, 1996 and 1995.......................F-3
Statements of Operations for the
years ended August 31, 1996 and 1995..........................F-4
Statement of Shareholders' Equity for the
years ended August 31, 1996 and 1995..........................F-5
Statements of Cash Flows for the years ended
August 31, 1996 and 1995......................................F-6
Notes to Financial Statements.......................................F-7
Condensed Balance Sheets as of February 28, 1997
(unaudited) and August 31, 1996 .............................F-12
Condensed Statements of Operations for the
three and six months ended February 28, 1997
and 1996 (unaudited).........................................F-13
Condensed Statements of Cash Flows for the six months ended
February 28, 1997 and 1996 (unaudited)............................F-14
Notes to Condensed Financial Statements............................F-15
Independent Auditors' Report
The Board of Directors
Alliance Farms Cooperative Association:
We have audited the accompanying balance sheets of Alliance Farms Cooperative
Association as of August 31, 1996 and 1995 and the related statements of
operations, shareholders' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Association's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Alliance Farms Cooperative
Association as of August 31, 1996 and 1995 and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.
Kansas City, Missouri KPMG Peat Marwick LLP
October 23, 1996
ALLIANCE FARMS COOPERATIVE ASSOCIATION
BALANCE SHEETS
August 31, 1996 and 1995
August 31, 1996 August 31, 1995
ASSETS
Current Assets:
Cash and cash equivalents $0 $1,477,213
Receivables 72,448 31,887
Inventory (Note 4) 2,435,477 1,069,144
Other current assets 48,273 19,274
Total current assets 2,556,198 2,597,518
Property, plant and equipment, at cost (Note 5) 16,491,601 10,345,236
Less accumulated depreciation 1,333,291 705,989
15,158,310 9,639,247
Breeding stock 3,928,215 2,877,957
Less accumulated depreciation 1,013,872 708,363
2,914,343 2,169,594
Other assets, net of $51,568 and $29,462
accumulated amortization 216,762 165,581
$20,845,613 $14,571,940
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank overdraft 575,749 0
Current maturities of long-term debt (Note 6) 870,000 580,000
Accounts payable (Note 3) 526,193 672,957
Accrued rebates (Note 2) 670,167 41,139
Accrued expenses 171,791 65,151
Total current liabilities 2,813,900 1,359,247
Long-term debt (Note 6) 13,425,424 8,585,000
Shareholders' equity
Common stock of $.01 par value; authorized
10,000 shares, issued and outstanding 102 shares
(85 shares at August 31, 1995) 1 1
Additional paid-in capital 7,487,653 6,165,970
Accumulated deficit (2,881,365) (1,538,278)
Total shareholders' equity 4,606,289 4,627,693
Commitments (Note 7) ------ ------
$20,845,613 $14,571,940
<FN>
See accompanying notes to financial statements
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF OPERATIONS
For the years ended August 31, 1996 and 1995
1996 1995
Net sales (Note 2) $7,037,927 $1,554,113
Cost of goods sold 6,422,838 1,836,388
Gross margin/(loss) 615,089 (282,275)
Expenses related to start-up
of new production facilities 426,926 754,756
Administrative expenses 369,787 101,927
Loss on sale of breeding stock 226,738 112,797
Operating loss ($408,362) ($1,251,755)
Other income (expense):
Interest expense (1,001,329) (289,082)
Other 66,604 27,509
(934,725) (261,573)
Net loss ($1,343,087) ($1,513,328)
<FN>
See accompanying notes to financial statements
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended August 31, 1996 and August 31, 1995
Additional Total
Common paid-in Accumulated Shareholders'
stock capital deficit equity
Balance at August 31, 1994 $1 4,885,559 (24,950) $4,860,610
Sale of 17 shares of common
stock - $.01 par per share,
net of $82,356 offering costs --- 1,280,411 --- 1,280,411
Net loss --- --- (1,513,328) (1,513,328)
Balance at August 31, 1995 $1 6,165,970 (1,538,278) $4,627,693
Sale of 17 shares of common
stock - $.01 par per share,
net of $38,317 offering costs --- 1,321,683 --- 1,321,683
Net loss --- --- (1,343,087) (1,343,087)
Balance at August 31, 1996 $1 7,487,653 (2,881,365) $4,606,289
<FN>
See accompanying notes to financial statements
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF CASH FLOWS
For the years ended August 31, 1996 and 1995
1996 1995
Cash flow from operating activities:
Net loss $(1,343,087) $(1,513,328)
Adjustment to reconcile net loss to net cash
used in operating activities:
Provision for depreciation and amortization 1,721,482 862,206
Loss on sale of breeding stock 226,738 112,797
Changes in assets and liabilities:
Receivables (40,561) 1,185
Inventory (1,366,333) (791,628)
Other current assets (28,999) 5,624
Other assets (38,593) (39,165)
Accounts payable (146,764) 245,943
Accrued rebates 629,028 41,139
Accrued expenses 106,640 29,941
Net cash used in (280,449) (1,045,286)
operating activities
Cash flows from investing activities:
Capital expenditures (8,808,888) (10,044,382)
Proceeds from sale of breeding stock 626,268 88,051
Net cash used in investing activities (8,182,620) (9,956,331)
Cash flows from financing activities
Proceeds from issuance of long term debt 3,798,000 9,165,000
Net increase in revolving term credit 1,276,000 ---
Payment on long term debt (580,000) ---
Increase in note payable to Farmland 636,424 ---
Issuance of common stock, net of offering costs 1,321,683 1,280,411
Loan origination fees (42,000) (74,180)
Bank overdraft 575,749 ---
Net cash provided by
financing activities: 6,985,856 10,371,231
Decrease in cash and cash
equivalents (1,477,213) (630,386)
Cash and cash equivalents at beginning of period $1,477,213 $2,107,599
Cash and cash equivalents at end of period $0 $1,477,213
Supplemental schedule of cash paid for interest: $989,334 $228,977
<FN>
See accompanying notes to financial statements
Alliance Farms Cooperative Association
Notes to Financial Statements
1. Description of the Business and Summary of Significant Accounting Policies
Alliance Farms Cooperative Association (Alliance) is a cooperative
association engaged in the production of feeder pigs for sale to its
members. As of August 31, 1996 Alliance owned and was operating five
2,450-sow feeder pig production facilities in Yuma County, Colorado and a
comparable facility was being developed in Wayne County, Illinois.
( a ) Inventory
Inventories are stated at the lower of cost or market. Cost has been
determined by the average cost method for feeder pigs.
Inventoriable costs are costs incurred in producing feeder pigs at the
feeder pig production facility from the time of gestation through sale of
the feeder pig. Such costs include feed, care and a proportionate share of
the depreciation of the breeding stock and facilities. Market value used
for purposes of computing lower of cost or market approximates the ultimate
sale price of feeder pigs which is determined contractually between
Alliance Farms and its members/patrons.
( b ) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives of
the assets, generally from three to twenty years. Major repairs that
extend the life of an asset are capitalized. Normal repair and maintenance
costs are expensed.
Statement of Financial Accounting Standards No. 121 - Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of
("Statement 121") is effective for fiscal years beginning after December
15, 1995 (Alliance's 1997 fiscal year). Statement 121 establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangible assets and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. Management expects the adoption of
Statement 121 will not have a significant impact on Alliance's financial
statements.
( c ) Breeding Stock
Breeding stock is stated at cost. Depreciation on breeding stock is
calculated on the straight-line method over the estimated breeding life of
the animals, three years.
( d ) Cash and Cash Equivalents
Cash and cash equivalents in the accompanying statement of cash flows
include cash on hand and short-term investments with original maturities of
less than ninety days.
( e ) Other Assets
Other assets consist of organizational costs which are amortized over five
years and loan origination fees which are amortized over the term of the
loan, 12 years.
( f ) Sales
Alliance Farms recognizes sales at the time pigs are shipped.
( g ) Income Taxes
Alliance Farms is subject to income taxes on all income not distributed to
patrons as patronage refunds. Deferred income taxes have not been
provided, because all sales were to members for the periods ended August
31, 1996, 1995 and 1994 and all future sales are anticipated to be to
members.
( h ) Use of Estimates
Management of Alliance has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
2. Sales
Alliance has sold 100% of its feeder pigs to its members for the fiscal
year ended August 31, 1996 and 1995 at a contractual price which is based
on Alliance's operating costs (which are based on a twelve month rolling
average), debt service and, after July 13, 1995, an additional $4.50 per
pig and at a contractual price which was based on Alliance's operating
costs (which were based on a twelve month rolling average) for the first
nine months of the fiscal year ended August 31, 1995.
Alliance's sales for the fiscal years ended August 31, 1996 and 1995 have
been reduced by the accrual of a rebate of $670,167 and $41,139,
respectively. The 1996 accrual is intended to be paid to its members after
the end of the fiscal year.
Because the contractual price for the sale of a feeder pig is determined
based upon, among other things, a twelve month historical rolling average
for operating costs and to the extent that current operating costs per pig
exceed the historical average operating costs, Alliance may incur a
negative gross margin on the sale of its feeder pigs during periods of
rising costs.
Alliance's average net sales price and the average industry market price
were as follows:
Fiscal Year Ended
August 31
1996 1995
Average Net Sales Price 48.12 33.16
Average Industry Market* 41.15 32.17
*As published by Spark's Companies, Inc. (from the USDA's Market News
Service)
3. Transactions with Farmland and Yuma Cooperative
As of August 31, 1996 and 1995, Farmland Industries, Inc. (Farmland) owned
approximately 49% and 47.1%, respectively, of the Common Stock of Alliance,
and Yuma Farmers' Milling and Mercantile Cooperative (Yuma Cooperative)
owned approximately 11.8% and 14.1%, respectively, of the Common Stock of
Alliance.
Alliance purchased feed from Yuma Cooperative and animal health supplies
and breeding stock from Farmland based on market prices. Yuma Cooperative
and Farmland are members of Alliance. Alliance also sold feeder pigs to
Farmland and Yuma Cooperative. Such purchases and sales were as follows:
Fiscal Year Ended
August 31
1996 1995
Feed Purchases $ 3,423,773 $ 1,068,014
Animal Health Purchases 303,963 71,438
Breeding Stock 872,979 189,253
Feeder Pig Sales 5,035,160 1,467,069
Farmland provides the Company with an administrative office in Yuma,
Colorado at no cost to the Company. Farmland also performs administrative,
advisory and consulting services on behalf of Alliance pursuant to a
contractual agreement. The agreement provides that Farmland will be
compensated for such services in an amount equal to one dollar per pig
shipped adjusted annually for inflation for a term of ten years commencing
July 13, 1994. Amounts paid by Alliance to Farmland under such agreement
were as follows:
Fiscal Year Ended
August 31
1996 1995
Management Fee $ 151,905 $ 47,045
Alliance owed $38,650 and $137,722 at August 31, 1996 and $66,597 and
$32,882 at August 31, 1995 to Farmland and Yuma Cooperative respectively,
for goods and services. Alliance is also obligated to Farmland in the
amount of $636,424 at August 31, 1996 pursuant to a $760,000 promissory
note. See note 6.
4. Inventory
Major components of inventories as of August 31, 1996 and August 31, 1995
are as follows:
August 31
1996 1995
Feeder Pigs $ 2,265,056 $ 993,554
Other 170,421 75,590
$ 2,435,477 $ 1,069,144
5. Property, Plant and Equipment
Property, plant and equipment at August 31, 1996 and 1995 consisted of the
following:
1996 1995
Land $ 1,717,079 $ 261,340
Buildings 13,129,134 7,599,070
Site Improvements 1,019,936 422,458
Machinery and equipment 254,316 123,034
Mobile equipment 27,346 ----
Furniture and office equipment 21,694 11,139
Construction in progress 322,096 1,928,195
$ 16,491,601 $10,345,236
6. Long-Term Debt
Long term debt at August 31, 1996 and 1995 consisted of the following:
1996 1995
CoBank Term Loan $ 11,518,000 $ 8,300,000
CoBank Revolving Term Credit 2,141,000 865,000
Note Payable to Farmland 636,424 ----
14,295,424 9,165,000
Less Current Maturities 870,000 580,000
$ 13,425,424 $ 8,585,000
On May 19, 1995, Alliance entered into a $23,600,000 secured credit
facility with CoBank. This agreement provides for $18,850,000 of term
loans and $4,750,000 of revolving term credit. Proceeds from the term
loans are used for construction of feeder pig production facilities and are
advanced by CoBank as Alliance incurs construction costs. Proceeds from
revolving term credit may be used for working capital and other purposes.
The unused commitments expire February 28, 1997 for the term loans and June
20, 2006 for the revolving term credit. Interest accrues on the
outstanding principle balance of the loan at a rate equal to CoBank's
national variable rate, plus 1.25% (9.5% at August 31, 1996). Alliance
capitalized $38,181 and $60,105 of interest on construction for the fiscal
years ended August 31, 1996 and 1995 respectively.
At August 31, 1996, no additional term loans were immediately available,
$422,000 of term loans will be made available by CoBank upon final
acceptance of the feeder pig production facilities and $779,000 of
revolving term credit was immediately available.
Additional amounts available of term loans of $6,330,000 and revolving term
credit of $1,830,000 are restricted and available only as additional shares
of common stock are sold ($2,110,000 of term loans and $610,000 of
revolving term credit for every $1,360,000 of common stock sold).
Alliance is required to comply with various covenants, including, but not
limited to (i) maintaining at least $3,350,000 of shareholder's equity,
(ii) maintaining modified working capital (calculated as current assets,
plus the available revolving term credit, minus current liabilities
excluding the current portion of term debt payments) of at least $406,000,
(iii) restrictions on the incurrence of additional indebtedness, and (iv)
restrictions on the declaration and payment of the cash portion of
patronage distributions and other distributions or allocations of earnings,
surplus or assets. As of August 31, 1996 Alliance was in compliance with
all covenants. Alliance may be required to make equity investments in
CoBank in an amount not to exceed 1% of the average five-year principal
loan balance until Alliance meets CoBank's target level of equity
investment, which is currently 11.5% of the average five-year principal
loan balance. As of August 31, 1996, substantially all assets of Alliance
were pledged to CoBank.
At August 31, 1996, $636,424 had been borrowed from Farmland pursuant to a
$760,000 loan agreement. The loan agreement with Farmland provides for
interest at CoBank's prime rate and requires repayment in 2005.
Long-term debt as of August 31, 1996 matures during the fiscal years ending
August 31 in the following amounts:
1997 $870,000
1998 1,262,700
1999 1,318,800
2000 1,318,800
2001 1,318,800
Thereafter 8,206,324
$14,295,424
7. Commitments
As of August 31, 1996, Alliance Farms was operating five 2,450 sow feeder
pig production units and had an additional unit under construction. At August
31, 1996, commitments for construction of such facilities totaled approximately
$655,000. These commitments will be funded through bank borrowings.
8. Fair Value of Financial Instruments
Alliance has financial instruments which are comprised of cash and cash
equivalents, receivables, and long-term debt. The fair value of receivables and
long-term debt are estimated using current interest rates for similar
instruments. The carrying amounts of cash and cash equivalents approximate fair
value because of the short maturity of these instruments.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
CONDENSED BALANCE SHEETS
FEBRUARY 28, 1997 AUGUST 31, 1996
(unaudited)
ASSETS
Current Assets:
Receivables $ 81,664 $ 72,448
Inventory (Note 4) 2,749,075 2,435,477
Other current assets 63,718 48,273
Total current assets 2,894,457 2,556,198
Property, plant and equipment, at cost 18,487,977 16,491,601
Less accumulated depreciation 1,744,283 1,333,291
16,743,694 15,158,310
Breeding stock 3,748,486 3,928,215
Less accumulated depreciation 1,244,087 1,013,872
2,504,399 2,914,343
Other assets, net of $66,502 and $51,568
accumulated amortization 201,828 216,762
$ 22,344,378 $20,845,613
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank Overdraft $287,900 $575,749
Current maturities of long-term debt (Note 5) 1,038,300 870,000
Accounts payable (Note 3) 1,846,953 526,193
Accrued rebates (Note 2) 670,167 670,167
Accrued expenses 190,178 171,791
Total current liabilities 4,033,498 2,813,900
Long-term debt (Note 5) 13,700,124 13,425,424
Shareholders' Equity
Common stock of $.01 par value; authorized 1 1
100,000 shares, issued and outstanding 102 shares
Additional paid-in capital 7,487,653 7,487,653
Accumulated deficit (2,876,898) (2,881,365)
Total shareholders' equity 4,610,756 4,606,289
Commitments (Note 6) B B
$ 22,344,378 $ 20,845,613
<FN>
See accompanying notes to condensed financial statements
ALLIANCE FARMS COOPERATIVE ASSOCIATION
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
THREE MONTH PERIODS ENDED SIX MONTH PERIODS ENDED FEBRUARY 28
FEBRUARY 28
1997 1996 1997 1996
Net sales (Note 2) $3,316,983 $1,443,563 $6,519,998 $2,871,276
Cost of goods sold 2,969,586 1,430,954 5,549,049 3,008,706
Gross income (loss) 347,397 12,609 970,949 (137,430)
Expenses realted to start-up of new -- -- 75,668 --
production facilities
Adminstrative expenses 122,027 96,898 214,996 170,565
Loss on sale of breeding stock 21,362 96,146 81,020 170,537
Operating income (loss) $204,008 ($180,435) $599,265 ($478,532)
Other income (expense):
Interest expense (357,932) (222,744) (680,584) (439,320)
Other 43,254 5,409 85,786 7,574
(314,678) (217,335) (594,798) (431,746)
($110,670) ($397,770) $4,467 ($910,278)
Net income (loss)
<FN>
See accompanying notes to condensed financial statements
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF CASH FLOWS
UNAUDITED
SIX MONTH PERIODS ENDED
FEBRUARY 28
1997 1996
Cash flow from operating activities:
Net income (loss) $ 4,467 $ (910,278)
Adjustment to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Provision for depreciation and amortization 1,046,591 764,849
Loss on sale of breeding stock 81,020 170,537
Changes in assets and liabilities:
Receivables (9,216) (9,183)
Inventory (313,598) (397,012)
Other current assets (15,444) (18,587)
Other assets B 36,116
Accounts payable 1,320,760 13,094
Accrued expenses 18,387 63,959
Net cash provided by (used in) operating activities 2,132,967 (286,505)
Cash flows from investing activities:
Capital expenditures (2,681,508) (5,085,248)
Proceeds from sale of breeding stock 393,390 175,170
Net cash used in investing activities ( 2,288,118) (4,910,078)
Cash flows from financing activities:
Proceeds from issuance of long term debt 211,000 B
Net increase in revolving term credit 487,000 1,735,000
Payment on long term debt (435,000) (145,000)
Increase in note payable to Farmland 180,000 636,424
Issuance of common shares, net of offering cost B 1,321,683
Loan origination fees B (42,000)
Increase (decrease) in bank overdraft (287,849) 213,263
Net cash provided by financing activities: 155,151 3,719,370
Decrease in cash and cash equivalents B (1,477,213)
Cash and cash equivalents at beginning of period B 1,477,213
Cash and cash equivalents at end of period $ B B
<FN>
See accompanying notes to condensed financial statements
ALLIANCE FARMS COOPERATIVE ASSOCIATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Financial Statements
The accompanying condensed unaudited financial statements reflect all
adjustments (consisting of only normal recurring adjustments) which in the
opinion of management, are necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods presented. Income taxes have not been provided because Alliance
Farms Cooperative Association ("Alliance") expects to derive 100% of its
net income principally from the sale of feeder pigs to its members which
will be apportioned and distributed to members of Alliance on a patronage
basis in accordance with its by-laws.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. The accompanying unaudited
condensed financial statements should be read in conjunction with the
financial statements and notes in Alliance's August 31, 1996 Annual Report
on Form 10-KSB.
2. Sales
Alliance sold 100% of its feeder pigs to its members for the three and six
month periods ended February 28, 1997 and February 29, 1996 at a
contractual price which is based on Alliance's operating costs (which are
based on a twelve month rolling average), debt service and an additional
$4.50 per pig sold.
Alliance accrued a rebate of $670,167 as of February 28, 1997 and August
31, 1996. Such rebate was accrued in fiscal 1996 and is payable to
Alliance's members. Alliance intends to pay the accrued rebate in fiscal
1997 when sufficient cash and working capital is available. Alliance has
not accrued a rebate in fiscal 1997 as it does not intend to pay a rebate
to its members on fiscal 1997 sales.
Because the contractual price for the sale of a feeder pig is determined
based upon, among other things, a twelve month historical rolling average
for operating costs and to the extent that current operating costs per pig
exceed the historical average operating costs, Alliance may incur a
negative gross margin on the sale of its feeder pigs during periods of
rising costs.
Alliance's average net sales price and the average industry market price
were as follows:
Three Months Ended Six Months Ended
February 28 February 28
1997 1996 1997 1996
Average Net Sales Price 57.44 43.36 57.80 43.07
Average Industry Market* 56.20 34.66 53.99 35.73
*As published by the USDA's Market News Service
3. Transactions with Farmland and Yuma
Alliance purchased feed from Yuma Farmers' Milling and Mercantile
Cooperative ("Yuma"), and animal health supplies and breeding stock from
Farmland Industries, Inc. ("Farmland") based on market prices. Yuma and
Farmland are members of Alliance. Alliance also sold feeder pigs to
Farmland and Yuma. Such purchases and sales were as follows:
Three Months Ended Six Months Ended
February 28 February 28
1997 1996 1997 1996
Feed Purchases .............$ 983,028 $681,697 $2,095,440 $1,268,134
Animal Health Purchases .....165,698 33,056 377,247 93,256
Breeding Stock ...............351,062 381,333 494,756 457,950
Feeder Pig Sales ...........1,956,704 972,066 3,961,082 1,945,808
Farmland also pays Alliance a royalty for any pigs raised by Alliance and
sold to a Farmland finisher that are then selected as breeding stock for
Farmland's contract herds pursuant to the swine production services agreement.
The royalty, which is $10 per head selected, paid to Alliance under such
agreement was as follows:
Three Months Ended Six Months Ended
February 28 February 28
1997 1996 1997 1996
Royalty Income $ 40,000 $ 0 $ 72,600 $ 0
Farmland also performs administrative, advisory and consulting services on
behalf of Alliance pursuant to a contractual agreement. The agreement
provides that Farmland will be compensated for such services in an amount
equal to one dollar per pig shipped adjusted annually for inflation for a
term of ten years commencing July 13, 1994. Amounts paid by Alliance to
Farmland under such agreement were as follows:
Three Months Ended Six Months Ended
February 28 February 28
1997 1996 1997 1996
Management Fee $ 63,980 $ 33,956 $121,596 $ 68,586
Alliance owed $222,590 and $203,624 at February 28, 1997 and $36,850 and
$137,722 at August 31, 1996 to Farmland and Yuma respectively, for goods
and services.
4. Major components of inventories as of February 28, 1997 and August 31, 1996
are as follows:
FEBRUARY 28 AUGUST 31
1997 1995
Feeder Pigs...................... $2,502,303 $2,265,056
Other............................ 246,772 170,421
$2,749,075 $2,435,477
5. Long-Term Debt
On May 19, 1995, Alliance entered into a $23,600,000 secured credit
facility with CoBank. This agreement provides for $18,850,000 of term
loans and $4,750,000 of revolving term credit. Proceeds from the term
loans are used for construction of feeder pig production facilities and are
advanced by CoBank as Alliance incurs construction costs. Proceeds from
revolving term credit may be used for working capital and other purposes.
The expiration date for the unused commitments for the term loans has been
extended from February 28, 1997 to August 31, 1997. The unused revolving
term credit expires June 20, 2006. Interest accrues on the outstanding
principal balance of the loan at a rate equal to CoBank's national variable
rate, plus 1.25% (9.5% at February 28, 1997).
Long term debt at February 28, 1997 and August 31, 1996 consisted of the
following:
FEBRUARY 28 AUGUST 31
1997 1995
CoBank Term Loan................... $11,294,000 $11,518,000
CoBank Revolving Term Credit....... $ 2,628,000 $ 2,141,000
Note Payable, Farmland............. $ 816,424 $ 636,424
$14,738,424 $14,295,424
Less Current Maturities............ $ 1,038,300 $ 870,000
$13,700,124 $13,425,424
At February 28, 1997, no additional term loans were immediately available,
$211,000 of term loans will be available upon acceptance by CoBank of a
feeder pig production facility and $142,000 of revolving term credit was
immediately available.
Additional amounts of term loans of $6,330,000 and revolving term credit of
$1,830,000 are restricted and available only as additional shares of common
stock are sold ($2,110,000 of term loans and $610,000 of revolving term
credit for every $1,360,000 of common stock sold).
Alliance is required to comply with various covenants, including, but not
limited to (i) maintaining at least $3,350,000 of shareholder's equity,
(ii) maintaining modified working capital (calculated as current assets
plus the available revolving term credit minus current liabilities
excluding the current portion of term debt payments) of at least $406,000,
(iii) restrictions on the occurrence of additional indebtedness,
(iv) restrictions on the declaration and payment of the cash portion of
patronage distributions and other distributions or allocations of earnings,
surplus or assets. As of February 28, 1997, Alliance was in compliance
with all covenants, except the modified working capital covenant, for which
Alliance has obtained a waiver from CoBank as of February 28, 1997.
Management believes that Alliance will have the ability to maintain
compliance with the above covenants in the foreseeable future. Alliance
may be required to make equity investments in CoBank in an amount not to
exceed 1% of the average five-year principal loan balance until Alliance
meets CoBank's target level of equity investment, which is currently 11.5%
of the average five-year principal loan balance. As of February 28, 1997,
substantially all assets of Alliance were pledged to CoBank.
At February 28, 1997, $816,424 had been borrowed from Farmland pursuant to
a $760,000 loan agreement and a $200,000 loan agreement. The $760,000 loan
agreement provides for interest at CoBank's prime rate and requires
repayment in 2005. The $200,000 loan agreement provides for interest at
CoBank's prime rate plus 1.25% and requires repayment in November 2006, or
upon the sale of an additional 17 shares of common stock by Alliance if
that occurs prior to November 2006
Long-term debt as of February 28, 1997 matures during the fiscal years
ending August 31 in the following amounts:
1997................... $ 870,000
1998................... 1,262,700
1999................... 1,318,800
2000................... 1,318,800
2001................... 1,318,800
Thereafter............. 7,611,024
$13,700,124
6. Alliance Farms is currently operating six 2,450 sow feeder pig production
units and has an additional unit under construction in Wayne County,
Illinois. As of February 28, 1997, commitments for construction of this
facility totaled approximately $2,109,900.
EXHIBIT A
SUBSCRIPTION AGREEMENT
Alliance Farms Cooperative Association
c/o Farmland Industries, Inc.
3315 North Oak Trafficway
Department 47
Kansas City, Missouri 64116
Attention: Wayne N. Snyder
Gentlemen:
1. Subscription.
a. The undersigned understands that Alliance Farms Cooperative
Association, a Colorado cooperative association (the "Company"), may offer up to
(i) an aggregate of 51 shares (the "Class A Shares") of its (Class A) Common
Stock, $.01 par value, on a "best efforts, all-or-none" basis for not less than
17 Class A Shares (a "Minimum Class A Block"), and thereafter may continue to
offer Class A Shares on such basis with respect to successive Minimum Class A
Blocks until 51 Class A Shares have been issued and sold, (ii) an aggregate of
54 shares (the "Class B Shares") of its Class B Common Stock, $.01 par value, on
a "best efforts, all-or-none" basis for not less than 18 Class B Shares (a
"Minimum Class B Block"), and thereafter may continue to offer Class B Shares on
such basis with respect to successive Minimum Class B Blocks until 54 Class B
Shares have been issued and sold, and (iii) an aggregate of 72 shares (the
"Class C Shares" and together with the Class A Shares and the Class B Shares,
the "Shares") of its Class C Common Stock, $.01 par value, on a "best efforts,
all-or-none" basis for not less than 24 Class C Shares (a "Minimum Class C
Block"), and thereafter may continue to offer Class C Shares on such basis with
respect to successive Minimum Class C Blocks until 72 Class C Shares have been
issued and sold. The undersigned acknowledges and agrees that prior to the
execution of this Subscription Agreement, the undersigned has received the
Company's Prospectus dated July 7, 1997 for the Shares, which Prospectus
contains the form of this Subscription Agreement.
b. The undersigned hereby subscribes for and agrees to purchase
(i) Class A Shares at a price of $80,000 per share, (ii) Class B
Shares at a price of $60,000 per share, and (iii) Class C Shares at a
price of $45,000 per share, pursuant to the terms and conditions of this
Subscription Agreement (the "Subscription")<F1>. The undersigned understands and
agrees that in order to subscribe for any Shares, the following items must be
delivered to the Company on or before 5:00 p.m. on January 7, 1999 (or by 5:00
p.m. on July 6, 1999 if the termination of the offering is extended by the
Company):
[FN]
One Class A Share, one Class B Share or one Class C Share is the minimum
number of Shares for which an investor may subscribe, as described in the
Prospectus.
(A) two completed and executed copies of this Subscription
Agreement;
(B) the undersigned's check, bank draft or wire transfer
(contact the Company for wire transfer instructions), payable to the order
of "Alliance Farms Cooperative Association Escrow No. 1482300" in an amount
representing the aggregate purchase price of the Shares being subscribed
for hereunder (which amount is equal to the sum of (i) the product obtained
by multiplying the number of Class A Shares being subscribed for by $80,000
per Share, plus (ii) the product obtained by multiplying the number of
Class B Shares being subscribed for by $60,000 per Share, plus (iii) the
product obtained by multiplying the number of Class C Shares being
subscribed for by $45,000 per Share);
(C) (if the undersigned is subscribing for any Class A Shares)
two completed and executed copies of the Feeder Pig Purchase Agreement in
the form attached to the Prospectus as Exhibit B;<F2>
[FN]
Please do not date the Feeder Pig Purchase Agreement; the Company will date
the Feeder Pig Purchase Agreement upon acceptance of subscriptions.
(D) (if the undersigned is subscribing for any Class B Shares)
two completed and executed copies of the Weaned Pig Purchase Agreement in
the form attached to the Prospectus as Exhibit C;<F3> and
[FN]
Please do not date the Weaned Pig Purchase Agreement; the Company will date
the Weaned Pig Purchase Agreement upon acceptance of subscriptions.
(E) (if the undersigned is subscribing for any Class C Shares)
two completed and executed copies of the Class C Weaned Pig Purchase
Agreement in the form attached to the Prospectus as Exhibit D;<F4> and
[FN]
Please do not date the Class C Weaned Pig Purchase Agreement; the Company
will date the Class C Weaned Pig Purchase Agreement upon acceptance of
subscriptions.
(F) one executed stock power respecting the Class A Shares
subscribed by the undersigned hereunder in favor of the Company as
contemplated by Section 17 of the Feeder Pig Purchase Agreement.<F5>
[FN]
A form stock power is attached hereto as Annex 1 for your convenience.
Please do not date or otherwise complete the stock power; the Company will
date and complete the stock power upon acceptance of subscriptions.
(G) one executed stock power respecting the Class B Shares
subscribed by the undersigned hereunder in favor of the Company as
contemplated by Section 17 of the Weaned Pig Purchase Agreement.<F6>
[FN]
A form stock power is attached hereto as Annex 1 for your convenience.
Please do not date or otherwise complete the stock power; the Company will
date and complete the stock power upon acceptance of subscriptions.
(H) one executed stock power respecting the Class C Shares
subscribed by the undersigned hereunder in favor of the Company as
contemplated by Section 17 of the Class C Weaned Pig Purchase Agreement.
<F7>
[FN]
A form stock power is attached hereto as Annex 1 for your convenience.
Please do not date or otherwise complete the stock power; the Company will
date and complete the stock power upon acceptance of subscriptions.
In addition, if the undersigned is a resident of Iowa, or otherwise is
subscribing for Shares in Iowa, the undersigned may be required to deliver to
the Company a completed and executed Potential Investor Questionnaire with
respect to the representation and warranty made pursuant to Section 3.l below.
The undersigned understands that pending the Company's acceptance of
subscriptions for a Minimum Class A Block, a Minimum Class B Block or a Minimum
Class C Block in this offering and the satisfaction of certain other conditions,
all funds received by the Company in payment of the offering price for the
Shares promptly will be deposited in an interest-bearing escrow account
established at NationsBank, N.A. (formerly Boatmen's National Bank),
Kansas City, Missouri. Payment of the applicable offering price must be made
payable to the order of "Alliance Farms Cooperative Association Escrow No.
1482300", the escrow account established at such bank. Upon the Company's
acceptance of subscriptions for a Minimum Class A Block of 17 Class A Shares,
for a Minimum Class B Block of 18 Class B Shares or for a Minimum Class C Block
of 24 Class C Shares, and the satisfaction of certain other conditions, all
funds deposited in the escrow account with respect to such Shares, together with
any interest earned thereon, will be paid to the Company. In the event that the
Company does not issue Shares for which funds have been deposited in the escrow
account prior to the termination of the offering, such funds will be refunded to
the respective subscribers, together with any interest earned thereon and
without any deduction being made for expenses.
c. The undersigned understands that this Subscription shall be
irrevocable, except as otherwise provided by virtue of applicable federal and
state securities laws, and shall survive the death or disability of the
undersigned, in the case of an individual, or the dissolution or bankruptcy of
the undersigned, in the case of an entity.
2. Acceptance of Subscription. The undersigned understands that if and
to the extent this Subscription is not accepted by the Company, in whole or in
part, prior to 5:00 p.m. on January 7, 1999 (or by 5:00 p.m. on July 6,
1999 if the termination date of the offering is extended by the Company), any
amount so received by the Company will be returned to the undersigned. The
undersigned acknowledges that the management of the Company reserves the right,
in its sole and absolute discretion, to accept or reject this Subscription, in
whole or in part, and that this Subscription shall not be binding unless and
until accepted by the Company. The undersigned agrees that subscriptions need
not be accepted in the order they are received.
3. Representations, Warranties and Agreement. The undersigned represents
and warrants to the Company and its officers, directors, employees, agents and
controlling persons, and agrees with such persons, as follows:
a. The undersigned and his or her representative, if any, have
been furnished all additional information relating to the Company, its
business and financial condition, the offering of the Shares and any
other matter set forth in the Prospectus which they have requested.
b. The undersigned agrees that the certificates evidencing the
Shares being purchased by the undersigned shall be stamped or
otherwise imprinted with a conspicuous legend in substantially the
following form:
Sale, transfer or hypothecation of the shares represented by
this certificate is restricted by the provisions of the
Colorado cooperative association law and the Articles of
Incorporation and Bylaws of Alliance Farms Cooperative
Association (the "Company"), a copy of which provisions may
be inspected at the principal offices of the Company, and
all provisions of which are hereby incorporated by reference
in this certificate.
The undersigned agrees that the Shares or any of them shall be sold,
pledged, assigned, hypothecated, or otherwise transferred (with or
without consideration) (a "Transfer") only if such Transfer is
permissible under the Colorado cooperative association law and the
Company's Articles of Incorporation and Bylaws. The undersigned
understands that the Company has not agreed to register the Shares for
distribution in accordance with the provisions of certain applicable
state securities law (the "State Acts"), that the Company is the only
party who may register the Shares under certain State Acts and that
the Company has not agreed to comply with any exemption under the
State Acts for the resale of the Shares. The undersigned understands
that there is and likely will be no market for the (Class A) Common
Stock, Class B Common Stock or Class C Common Stock of the Company and
that the undersigned therefore may be unable to sell or dispose of the
Shares.
c. The undersigned agrees that a stop transfer order shall be
placed on the transfer books maintained with respect to the Shares
which gives effect to the restrictive legend set forth in Section 3.b.
d. The undersigned understands that no federal or state agency
has passed upon the Shares or upon the accuracy or adequacy of the
Prospectus, or made any finding or determination as to the fairness of
the investment or any recommendation or endorsement of the Shares.
The undersigned understands that the Prospectus may not have been
filed with or reviewed by certain state securities administrators.
e. The undersigned is a producer of agricultural products, an
association of such producers, or a federation of such associations.
f. If a natural person, the undersigned is a citizen of the
United States of America, is at least 21 years of age, and has the
legal capacity to execute, deliver and perform this Agreement, and his
or her principal residence is located within the state designated
under his or her name below.
g. If the undersigned is a corporation, trust, partnership, or
any other entity, such entity is authorized and otherwise duly
qualified and empowered to execute and deliver this Subscription
Agreement and thereupon shall become legally bound thereby, all
necessary actions have been taken to authorize and approve the
investment in the Shares, such entity was not formed for the purpose
of making the investment in the Shares and such entity's principal
place of business is located at the address set forth on the signature
page hereof.
h. The undersigned acknowledges and agrees that certain
commissions as described in the Prospectus may be due and payable to
certain selling agents or other representatives of the Company in
connection with this Subscription.
i. The undersigned acknowledges that the Company may assign the
Company's rights in and to the Feeder Pig Purchase Agreement and/or
Weaned Pig Purchase Agreement and/or Class C Weaned Pig Purchase
Agreement executed by the undersigned and any and all other assets of
the Company to any lender that may provide financing to the Company in
connection with the construction of feeder or weaned pig production
facilities or the operation thereof, or both, and the undersigned
consents to any such assignment.
j. If the undersigned is a resident of Iowa, or otherwise is
subscribing for Shares in Iowa, the undersigned certifies that the
undersigned either (i) has a net worth, or joint net worth with the
undersigned's spouse, in either case, exclusive of home, furnishings
and automobiles ("Adjusted Net Worth") of at least $65,000 as of the
date hereof, and an annual gross income of at least $65,000 for each
of the undersigned's two most recent tax years; or (ii) has Adjusted
Net Worth of at least $250,000 as of the date hereof.
4. Taxpayer Identification Number. The undersigned agrees to complete,
execute and return to the Company a Form W-9, "Payer's Request for Taxpayer
Identification Number and Certification", concurrently with the delivery of the
executed copy of this Subscription Agreement.<F8>
[FN]
A Form W-9 is attached hereto as Annex 2 for your convenience.
5. Indemnification. The undersigned agrees to indemnify and hold
harmless the Company, its officers, directors, employees, shareholders and
affiliates, and any person acting on behalf of the Company, from and against any
and all damage, loss, liability, cost and expense (including attorneys' fees)
which any of them may incur by reason of the failure by the undersigned to
fulfill any of the terms or conditions of this Subscription Agreement. All
representations, warranties and covenants contained in this Subscription
Agreement, and the indemnification contained in this Section 5 shall survive the
acceptance of this Subscription.
6. No Waiver. Notwithstanding any of the representations, warranties,
acknowledgements or agreements made herein by the undersigned, the undersigned
does not thereby or in any other manner waive any of the rights granted to the
undersigned under federal or state securities law.
7. Entire Agreement; Modification. This Subscription Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof, and neither this Subscription Agreement nor any
provisions hereof shall be waived, changed, discharged or terminated except by
an instrument in writing signed by the party against whom any waiver, change,
discharge or termination is sought.
8. Notices. Any notice, demand or other communication which any party
hereto may be required, or may elect, to give to anyone interested hereunder
shall be effective only if it is in writing and personally delivered or sent by
certified or registered mail, return receipt requested, postage prepaid, or by a
nationally recognized overnight delivery service, with delivery confirmed,
addressed to: in the case of the Company: Alliance Farms Cooperative
Association, c/o Farmland Industries, Inc., 3315 North Oak Trafficway,
Department 47, Kansas City, Missouri 64116, Attention: Wayne N. Snyder, or at
such other address as the Company shall so notify the undersigned pursuant
hereto, and in the case of the undersigned at the address set forth on the
signature page thereof or at such other address as the undersigned shall so
notify the Company pursuant hereto. Any such notice, demand or other
communication shall be deemed to have been given as of the date when so
delivered.
9. Binding Effect. Except as otherwise provided herein, this
Subscription Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators,
successors, legal representatives and assigns. If the undersigned is more than
one person, the obligations of the undersigned shall be joint and several and
the agreements, representations, warranties and acknowledgements herein
contained shall be deemed to be made by and be binding upon each such person and
the undersigned's respective heirs, executors, administrators, successors, legal
representatives and assigns.
10. Type of Ownership. The Subscriber wishes to own the Shares as follows
(mark one):
[ ] Separate or individual property;
[ ] Joint tenants with right of survivorship (both parties must sign all
required documents);
[ ] Community property (both parties must sign all required documents);
[ ] Trust (include name of trust, name of trustee, and include a copy of
the trust instrument);
[ ] Corporation (include articles of incorporation, bylaws and certified
corporate resolution authorizing the investment and signature);
[ ] Partnership (include a copy of the partnership agreement and a written
consent of partners authorizing the investment and signature);
[ ] Other (specify): .
(Note: Subscribers should seek the advice of their attorney in deciding in
which of the above forms they should take ownership of the Shares, since
different forms of ownership may have varying gift tax, estate tax, income tax
and other consequences, depending on the state of the Subscriber's domicile and
the Subscriber's particular personal circumstances.)
The name(s) in which the Shares are to be held is:
11. Assignability. The undersigned agrees not to transfer or assign this
Subscription Agreement, or any of the undersigned's interest herein, and further
agrees that the transfer or assignment of the Shares shall be made only in
accordance with the terms and conditions of this Subscription Agreement, the
Company's Articles of Incorporation and Bylaws, and all applicable laws.
12. Applicable Law. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
[The remainder of this page intentionally has been left blank]
THE UNDERSIGNED HEREBY REPRESENTS THAT THE UNDERSIGNED HAS READ THIS
SUBSCRIPTION AGREEMENT IN ITS ENTIRETY.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this day of , 199 , at ,
.
(city) (state)
INDIVIDUALS SIGN HERE
Note: If the Subscriber wishes to
own the Shares with another person as
joint tenants, or as community Signature
property, both individuals must sign
this Subscription Agreement.
Name (please print)
Social Security Number
Principal Residence Address of
Subscriber
Street Address
City and State Zip Code
Additional Individual (if any)
Signature
Name (please print)
Social Security Number
Principal Residence Address of
Subscriber
Street Address
City and State Zip Code
THE UNDERSIGNED HEREBY REPRESENTS THAT THE UNDERSIGNED HAS READ THIS
SUBSCRIPTION AGREEMENT IN ITS ENTIRETY.
IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement this day of , 199 , at ,
.
(city) (state)
ORGANIZATIONS SIGN HERE
Note: If signed on behalf of a
corporation, please submit the
corporation's articles of Printed Name of Organization
incorporation, bylaws, and certified
corporate resolution authorizing the
investment and signature. If signed By:
on behalf of a partnership, please Signature
submit a copy of the partnership
agreement and a written consent of
partners authorizing the investment Printed Name and Title
and signature. If signed on behalf
of a trust, please submit the name of
the trust, name of the trustee, and a By:
copy of the trust instrument. (Additional signature if required
by
governing instrument)
Printed Name and Title
Federal Taxpayer Identification
Number
Address of Principal Place of
Business:
Street Address
City and State Zip Code
Country (if other than U.S.A.)
ALLIANCE FARMS COOPERATIVE ASSOCIATION hereby [accepts][rejects] the above
Subscription on this day of , 199 , at Yuma, Colorado.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
By:
Name:
Title:
ANNEX 1
STOCK POWER
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
( ) Shares of the Common Capital Stock of the Alliance Farms
Cooperative Association standing in its name on the books of said association
represented by Certificate No. herewith and do hereby irrevocably
constitute and appoint attorney to transfer the said
stock on the books of the within named Company with full power of substitution
in the premises.
Dated 19
In the Presence of
ANNEX 2
Form W-9
(Rev. March 1994) REQUEST FOR TAXPAYER Give form to the
Department of the requester. Do NOT
Treasury IDENTIFICATION NUMBER send to the IRS.
AND CERTIFICATION
Internal Revenue Service
Please print or type:
Name (if joint names, list first and circle the name of the person or entity
whose number you enter in Part 1 below. SEE INSTRUCTIONS ON PAGE 2 IF YOUR NAME
HAS CHANGED.)
Business name (Sole proprietors see instructions on page 2.)
Please check appropriate box: [ ] Individual/Sole proprietor [ ]
Corporation
[ ] Partnership [ ] Other
Address (number, street, and apt. or suite no.)
Requester's name and address
(optional)
City, state and ZIP code
PART I TAXPAYER IDENTIFICATION NUMBER (TIN) List account
numbers(s) here
(optional)
Enter your TIN in the appropriate box. Forindividuals, this is your social
security number (SSN). For sole proprietors, see the instructions on page 2.
For other entities, it is your employer identification number (EIN). IF you do
not have a number, see HOW TO GET A TIN below.
Note: If the account is in more than one name, see the chart on page 2 for
guidelines on whose number to enter.
Social security number
- -
PART II For Payees Exempt From Backup Withholding (See Part II Instructions on
page 2)
OR
Employer identification number
PART III CERTIFICATION
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and
2.I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue Service
that I am subject to backup withholding as a result of a failure to report
all interest or dividends, or (d) the IRS has notified me that I am no longer
subject to backup withholding.
CERTIFICATION INSTRUCTIONS.--You must cross out item 2 above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return. For real estate
transactions, item 2 does not apply. For mortgage interest paid, the
acquisition or abandonment of secured property, cancellation of debt,
contributions to an individual retirement arrangement (IRA), and generally
payments other than interest and dividends, you are not required to sign the
Certification, but you must provide your correct TIN. (Also see PART III
INSTRUCTIONS on page 2.)
Sign
Here Signature > Date >
Section references are to the Internal Revenue Code.
PURPOSE OF FORM.--A person who is required to file an information return with
the IRS must get your correct TIN to report income paid to you, real estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, cancellation of debt, or contributions you made to an IRA.
Use Form W-9 to give your correct TIN to the requester (the person requesting
your TIN) and, when applicable, (1) to certify the TIN you are giving is correct
(or you are waiting for a number to be issued), (2) to certify you are not
subject to backup withholding, or (3) to claim exemption from backup withholding
if you are an exempt payee. Giving your correct TIN and making the appropriate
certifications will prevent certain payments from being subject to backup
withholding.
NOTE: If a requester gives you a form other than a W-9 to request your TIN, you
must use the requester's form if it is substantially similar to this Form W-9.
WHAT IS BACKUP WITHHOLDING?--Persons making certain payments to you must
withhold and pay to the IRS 31% of such payments under certain conditions. This
is called "backup withholding." Payments that could be subject to backup
withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee pay, and certain payments from
fishing boat operators. Real estate transactions are not subject to backup
withholding.
If you give the requester your correct TIN, make the proper certifications, and
report all your taxable interest and dividends on your tax return, your payments
will not be subject to backup withholding. Payments you receive will be subject
to backup withholding if:
1. You do not furnish your TIN to the requestor, or
2. The IRS tells the requester that you furnished an incorrect TIN, or
3. The IRS tells you that you are subject to backup withholding because
you did not report all your interest and dividends on your tax return (for
reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to backup
withholding under 3 above (for reportable interest and dividend accounts opened
after 1983 only), or
5. You do not certify your TIN. See the Part III instructions for
exceptions.
Certain payees and payments are exempt from backup withholding and
information reporting. See the Part II instructions and the separate
INSTRUCTIONS FOR THE REQUESTER OF FORM W-9.
HOW TO GET A TIN.--If you do not have a TIN, apply for one immediately. To
apply, get FORM SS-5, Application for a Social Security Number Card (for
individuals), from your local office of the Social Security Administration, or
FORM SS-4, Application for Employer Identification Number (for businesses and
all other entities), from your local IRS office.
If you do not have a TIN, write "Applied For" in the space for the TIN in
Part I, sign and date the form, and give it to the requester. Generally, you
will then have 60 days to get a TIN and give it to the requester. If the
requester does not receive your TIN within 60 days, backup withholding, if
applicable, will begin and continue until you furnish your TIN.
NOTE: Writing "Applied For" on the form means that you have already applied for
a TIN OR that you intend to apply for one soon.
As soon as you receive your TIN, complete another Form W-9, include your
TIN, sign and date the form, and give it to the requester.
PENALTIES
FAILURE TO FURNISH TIN.--If you fail to furnish your correct TIN to a requester,
you are subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a
false statement with no reasonable basis that results in no backup withholding,
you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
MISUSE OF TINS.--If the requester discloses or uses TINs in violation of Federal
law, the requester may be subject to civil and criminal penalties.
SPECIFIC INSTRUCTIONS
NAME.--If you are an individual, you must generally enter the name shown on your
social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change, please enter your first name, the last name shown on your
social security card, and your new last name.
Sole Proprietor.--You must enter your INDIVIDUAL name. (Enter either your
SSN or EIN in Part I.) You may also enter your business name or "doing
business as" name on the business name line. Enter your name as shown on your
social security card and business name as it was used to apply for your EIN on
Form SS-4.
PART I--TAXPAYER IDENTIFICATION NUMBER (TIN)
You must enter your TIN in the appropriate box. If you are a sole proprietor,
you may enter your SSN or EIN. Also see the chart on this page for further
clarification of name and TIN combinations. If you do not have a TIN, follow
the instructions under HOW TO GET A TIN on page 1.
PART II--FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING
Individuals (including sole proprietors) are NOT exempt from backup withholding.
Corporations are exempt from backup withholding for certain payments, such as
interest and dividends. For a complete list of exempt payees, see the separate
Instructions for the Requestor of Form W-9.
If you are exempt from backup withholding, you should still complete this
form to avoid possible erroneous backup withholding. Enter your correct TIN in
Part I, write "Exempt" in Part II, and sign and date the form. If you are a
nonresident alien or a foreign entity not subject to backup withholding, give
the requester a completed FORM W-8, Certificate of Foreign Status.
PART III--CERTIFICATION
For a joint account, only the person whose TIN is shown in Part I should sign.
1. INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. You must give your correct TIN,
but you do not have to sign the certification.
2. INTEREST, DIVIDEND, BROKER, AND BARTER EXCHANGE ACCOUNTS OPENED AFTER
1983 AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. REAL ESTATE TRANSACTIONS. You must sign the certification. You may
cross out item 2 of the certification.
4. OTHER PAYMENTS. You must give your correct TIN, but you do not have to
sign the certification unless you have been notified of an incorrect TIN. Other
payments include payments made in the course of the requester's trade or
business for rents, royalties, goods (other than bills for merchandise), medical
and health care services, payments to a nonemployee for services (including
attorney and accounting fees), and payments to certain fishing boat crew
members.
5. MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, CANCELLATION OF DEBT, OR IRA CONTRIBUTIONS. You must give your
correct TIN, but you do not have to sign the certification.
PRIVACY ACT NOTICE
Section 6109 requires you to give your correct TIN to persons who must file
information returns with the IRS to report interest, dividends, and certain
other income paid to you, mortgage interest you paid, the acquisition or
abandonment of secured property, cancellation of debt, or contributions you made
to an IRA. The IRS uses the numbers for identification purposes and to help
verify the accuracy of your tax return. You must provide your TIN whether or
not you are required to file a tax return. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not give a TIN to a payer. Certain penalties may also apply.
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
FOR THIS TYPE OF ACCOUNT GIVE NAME AND SSN OF:
1.Individual The individual
2. Two or more individuals (joint account) The actual owner of the
account or, if combined
funds, the first individual
on the account(1)
3.Custodian account of a minor (Uniform The minor(2)
Gift to Minors Act)
4. a. The usual revocable savings (grantor The grantor-trustee(1)
is also trustee)
b. So-called trust account that is not a The actual owner(1)
legal or valid trust under state law
5.Sole proprietorship The owner(3)
FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF:
6.Sole proprietorship The owner(3)
7.A valid trust, estate, or pension trust Legal entity(4)
8.Corporate The corporation
9. Association, club, religious, charitable, The organization
educational, or other tax-exempt organization
10. Partnership The partnership
11. A broker or registered nominee The broker or nominee
12. Account with the Department of Agriculture The public entity
in the name of a public entity (such as a
state or local government, school district, or
prison) that receives agricultural program
payments
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's SSN.
(3) You must show your individual name, but you may also enter your business or
"doing business as" name. You may use either your SSN or EIN.
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
NOTE: If no name is circled when more than one name is listed, the number will
be considered to be that of the first name listed.
EXHIBIT B
FEEDER PIG PURCHASE AGREEMENT
THIS FEEDER PIG PURCHASE AGREEMENT (this "Agreement") is entered into as of
this day of , 199 , by and between ALLIANCE FARMS
COOPERATIVE ASSOCIATION (hereinafter "Association"), and _________________
(hereinafter "Purchaser").
WHEREAS, Association is engaged in the production and sale of feeder pigs;
and
WHEREAS, Purchaser is a purchaser of feeder pigs, possesses expertise in
swine production and management, and desires to enter into this Agreement for
membership purposes of Association;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
1. PURCHASE/SALE OF FEEDER PIGS.
(a) GENERAL. Upon and subject to all terms and conditions set forth
in this Agreement, Purchaser shall purchase from Association, and Association
shall sell to Purchaser, Qualifying Pigs (as defined in Section 2) produced by
Association during the term of this Agreement in lots (hereinafter "Lot" or
"Lots") of no less than 900, and no more than 1,000, Qualifying Pigs per Lot, as
determined by Association, which Lots shall be made available to Purchaser on a
rotating schedule with other members of Association owning Class A Common Stock
(as defined in Article SIXTH of Association's Articles of Incorporation), as
such rotating schedule is determined and implemented by Association on any
reasonable basis.
(b) SCHEDULE. Purchaser acknowledges that Association intends to
conduct a blind drawing, immediately following the consummation of each and
every offering of Class A Common Stock by Association, for purposes of adjusting
such rotating schedule as warranted by the resulting changes in the members of
the Association.
(c) AVAILABILITY. The number of Lots made available to Purchaser and
the frequency of availability of such Lots will be based upon Purchaser's
proportionate equity interest in Association with respect to Association's Class
A Common Stock. Purchaser acknowledges that Lots will not be made available to
Purchaser under this Agreement until Qualifying Pigs are produced and available
from the facilities constructed using the proceeds of the issuance of Class A
Common Stock of Association (including Class A Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase such Lots under this Agreement derives, and that the number of Lots
made available to Purchaser and the frequency of availability of such Lots will
be subject to actual production of Qualifying Pigs from all facilities of
Association. Association shall give notice to Purchaser when a Lot is available
for purchase by Purchaser hereunder, which notice shall specify the anticipated
number of Qualifying Pigs in such Lot and the scheduled shipment date.
(d) EXCESS PRODUCTION. The production of feeder pigs is anticipated
to produce, on a prospective rolling 12-month basis, approximately two and
seven-tenths (2.7) Lots of Qualifying Pigs per share of Class A Common Stock of
Association owned by members of Association for which Lots are to be made
available for purchase hereunder. To the extent that the production of feeder
pigs exceeds such anticipated production, Association shall either sell such
excess production to any person (including a member of Association), at a price
as shall be determined by Association in good faith, or retain such excess
production for Association's own purposes, in lieu of selling such excess
production to the members of Association pursuant to the Feeder Pig Purchase
Agreements between Association and the members of Association.
2. QUALIFYING PIGS. For purposes of this Agreement, the term "Qualifying
Pig" shall mean an individual feeder pig having a minimum weight of 30 pounds,
managed in accordance with Section 7, and free of the following defects (with
terms used in reference to defects being given the meaning generally utilized in
the swine industry) at the time of loading:
(a) uncastrated or freshly castrated males;
(b) ruptures, umbilical or scrotal hernia larger than a two-inch
diameter;
(c) unthrifty, poor-doing pigs;
(d) observable signs of lameness, stiffness, or other locomotor
disorders evidenced by swelling or malformed joints;
(e) transmissible gastroenteritis;
(f) observable abscesses; and
(g) anal prolapse.
3. PURCHASE PRICE OF PIGS.
(a) PRICE. The purchase price for each Qualifying Pig purchased by
Purchaser under this Agreement shall be an amount equal to the sum of the
following:
Financing Cost Per Pig, plus
Operating Cost Per Pig, plus
Production Margin.
Purchaser acknowledges that Association has constructed, or is in the process of
constructing, or both, Production Units as a result of previous offers and sales
of shares of its capital stock and that Association from time to time may
construct additional Production Units as a result of additional offers and sales
of shares of its capital stock. In light of the foregoing, the determination of
the Financing Cost Per Pig portion of the purchase price for a Qualifying Pig
hereunder shall be made separately with respect to each Lot in relation to the
Production Unit(s) that were constructed using the proceeds of the issuance of
Class A Common Stock of Association (including Class A Common Stock of the
Association assigned or transferred to Purchaser) from which Purchaser's right
to purchase such Lot under this Agreement derives.
(b) DEFINITIONS. As used in this Section 3, the following terms
shall have the following meanings:
FINANCING COST PER PIG shall be determined on a prospective rolling 12-
month basis and shall mean an amount equal to the quotient of (i) the sum
of the required payments of interest and principal (including any scheduled
sinking fund payments) to be made during the upcoming 12-month period with
respect to Purchaser's Debt, divided by (ii) Pigs Shipped.
OPERATING COST PER PIG shall be determined on a rolling 12-month historical
basis and shall mean an amount equal to the quotient of (i) the sum of (A)
all direct and indirect production, operating, selling, general,
administrative, and other expenses JWA[1]incurred by Association in the 12
months preceding the then present month of shipment as determined by
Association's accountants utilizing generally accepted accounting
principles consistently applied (excluding any provision for interest
expense or depreciation or amortization of the cost of buildings,
equipment, breeding stock or other capitalized costs which were purchased
as a result of Purchaser's Debt or as a result of the issuance of any
capital stock of Association to any third party), plus (B) the net cash
flow cost of all capital expenditures by Association (including any capital
sinking fund payments) for production facility and breeding stock
improvements and replacements in the 12 months preceding the then present
month of shipment as determined by Association's accountants, divided by
(ii) Pigs Shipped. The direct and indirect production and operating
expenses attributable to a Production Unit which is in the process of
commencing production shall not be included in the determination of
Operating Cost Per Pig, and shipments of pigs attributable to such
Production Unit shall not be included in Pigs Shipped, until such
Production Unit has completed one entire month of full production, shipping
pigs in each week thereof. The net cash flow with respect to capital
expenditures for production facility and breeding stock improvements and
replacements (which net cash flow shall be determined after taking into
account the breeding stock and production facility retirements attributable
to a Production Unit which is in the process of commencing production)
shall not be included in the determination of Operating Cost Per Pig until
the respective Production Unit has completed one entire month of full
production, shipping pigs in each week thereof.
PRODUCTION MARGIN shall mean an amount of up to $4.50, as determined by the
Board of Directors of Association, from time to time, in its sole and
absolute discretionJWA[2].
PIGS SHIPPED shall mean the number of Qualifying Pigs produced and shipped
from Association over the same 12-month period in determining the Operating
Cost Per Pig and the estimated number of Qualifying Pigs that will be
produced and shipped by Association over the 12-month period in determining
the Financing Cost Per Pig. For purposes of determining the Financing Cost
Per Pig, Pigs Shipped shall be equal to the product of (i) Association's
total estimated number of Qualifying Pigs to be produced and shipped by
Association during such 12-month period, multiplied by (ii) a fraction, the
numerator of which shall be the number of Production Units constructed by
Association with respect to the issuance of Class A Common Stock of
Association (including Class A Common Stock of the Association assigned or
transferred to Purchaser) from which the right of Purchaser to purchase
Lots of Qualifying Pigs under this Agreement derives, and the denominator
of which shall be the number of Production Units constructed by Association
with respect to JWA[3]all issuances of its Class A Common Stock. All
estimates relating to Pigs Shipped shall be made by Association using such
historical data and projections as are available to Association.
PRODUCTION UNIT shall mean the land and facilities necessary to house, feed
and care for a group of 2,450 sows and the attendant offspring thereof.
PURCHASER'S DEBT shall mean (i) the debt incurred by Association for the
Production Unit(s) constructed by Association with respect to the issuance
of Class A Common Stock of Association (including Class A Common Stock of
the Association assigned or transferred to Purchaser) from which the right
of Purchaser to purchase Lots of Qualifying Pigs under this Agreement
derives, including any debt incurred for purposes of financing the
acquisition of land for, and construction of, such Production Unit(s),
(ii) any debt incurred for the initial working capital requirements with
respect to the operation of such Production Unit(s), and (iii) any debt
incurred for purposes of refinancing any such debt.
4. PAYMENT OF PURCHASE PRICE. Association shall furnish to Purchaser, at
the time Association notifies Purchaser that a Lot is available for purchase by
Purchaser hereunder, an estimate of the total purchase price of the Qualifying
Pigs included in the Lot, and Purchaser shall, not less than one day prior to
the scheduled shipment date as specified in the notice by Association to
Purchaser, pay such estimated total purchase price to Association in cash, or by
such other means as may be acceptable to Association in its sole and absolute
discretion. Association shall have no obligation to commence transportation of
such Qualifying Pigs to Purchaser prior to full payment of such estimated total
purchase price for such Qualifying Pigs as herein provided. The actual total
purchase price of all Qualifying Pigs included in a Lot shall be based upon
weight at the time of loading and settlement of any adjustments shall be made
within five days following delivery.
5. WEIGHT ADJUSTMENT. The purchase price for each Qualifying Pig as
provided in Section 3 is for a Lot of Qualifying Pigs having an average weight
of 45 pounds. In the event that the average weight of the Qualifying Pigs in a
Lot sold to Purchaser exceeds 45 pounds, Purchaser shall pay Association an
additional twenty-five cents ($0.25) per pound per Qualifying Pig on the number
of pounds (not to exceed five pounds) that the Lot's average shipping weight per
pig exceeds 45 pounds, and an additional twenty cents ($0.20) per pound per
Qualifying Pig on the number of pounds (not to exceed ten pounds) that the Lot's
average shipping weight per pig exceeds 50 pounds. To the extent that the
average weight of the Qualifying Pigs in a Lot sold to Purchaser is less than 45
pounds, twenty-five cents ($0.25) per pound on the number of pounds that the
Lot's average shipping weight per pig is less than 45 pounds shall be deducted
from the purchase price that Purchaser is to pay to Association for each
Qualifying Pig. Purchaser shall have the right to, but shall not be obligated
to, purchase a Lot of Qualifying Pigs hereunder at an average weight of less
than 35 pounds per pig.
6. GENETIC QUALITY. Qualifying Pigs produced by Association will be
progeny from genetic stock selected by Association, from time to time, in its
sole and absolute discretion. Such selection of such genetic stock will be
determined and implemented by Association on a basis that reasonably would be
expected to produce Qualifying Pigs that are capable of producing market hogs
having carcasses that are responsive to consumer demand and thereby maximize the
sales price to be received therefore.
7. MANAGEMENT OF HEALTH AND NUTRITION. Association agrees to comply with
the following health and nutrition programs with respect to all pigs to be
purchased under this Agreement:
(a) Association shall dock tails within 48 hours of a pig's
birth.
(b) Association shall castrate male pigs within ten days of the pig's
birth.
(c) Association shall administer all vacines and antibiotic
treatments and perform such other procedures that are reasonably determined
by Association to be necessary or advisable with respect to a herd health
program.
(d) Association shall maintain Association's swine free from the
psuedorabies virus ("PRV") or any swine disease that would prohibit
interstate shipment of pigs produced by Association, or that might
otherwise materially impair Purchaser's ability to utilize the pigs to be
purchased under this Agreement. If, in the opinion of two veterinarians
selected by Association and reasonably acceptable to Purchaser, any of the
swine produced by Association or used in the production of feeder pigs for
delivery hereunder contracts PRV, Association shall have the opportunity to
cure such impairment within a reasonable period of time and to suspend, at
any time and from time to time, the sale and purchase of feeder pigs
hereunder until such time as said veterinarians determine that PRV no
longer exists.
(e) Association shall use a feeding regimen, feed products, and herd
health products developed or marketed by Farmland Industries, Inc., or any
of its affiliates.
8. RIGHT OF INSPECTION. Upon reasonable notice to Association, Purchaser
or its representative shall have the right to inspect Association's production
records to verify the genetic quality and management of nutrition and health
programs prescribed by this Agreement during normal business hours.
9. ADJUSTMENT FOR NON-QUALIFYING PIGS. Purchaser shall have the right to
inspect Purchaser's Lot of Qualifying Pigs prior to loading. In the event that,
after delivery of such Lot, Purchaser believes that any pig was not a Qualifying
Pig prior to loading (a "Subject Pig"), Purchaser shall notify Association by
telephone of such belief within one (1) business day following delivery as well
as promptly notify Association of such belief in the manner provided in Section
19 hereof. Association shall have the right to inspect any and all Subject Pigs
in investigation of Purchaser's belief, and thereafter Association and Purchaser
shall agree in good faith upon an appropriate adjustment, if any, with respect
to such Subject Pigs. Purchaser hereby acknowledges and agrees that such
adjustment described above shall be Purchaser's sole and exclusive remedy as
against Association arising out of the purchase hereunder of a pig that was not
a Qualifying Pig at the time of loading and that the failure of Association to
deliver Qualifying Pigs as otherwise required hereunder shall not give rise to a
right of Purchaser to terminate this Agreement. Furthermore, in no event shall
Purchaser reject delivery of a Lot of pigs hereunder, but in lieu thereof
Purchaser shall accept each delivery of a Lot of pigs hereunder and, with
respect to any and all pigs that Purchaser believes were not Qualifying Pigs
prior to loading, shall comply with the provisions of this Section 9 and, until
such adjustment, if any, is agreed upon by Association and Purchaser, shall, at
Purchaser's expense, feed, water, treat and care for any and all such pigs as if
Purchaser believed such pigs were Qualifying Pigs prior to loading.
10. HEALTH PERMITS. Association shall provide Purchaser, at Association's
expense, all health permits necessary to qualify all Qualifying Pigs for
interstate shipment.
11. WEIGHING CONDITIONS. All Lots of Qualifying Pigs shall be weighed at
Association's expense at a state-inspected scale in close proximity to
Association's production facility. A copy of all scale tickets will be provided
to Association and to Purchaser.
12. IDENTIFICATION. Association shall appropriately identify, prior to
shipment, all Qualifying Pigs in accordance with the rules that will allow
interstate shipment to the states to which the pigs are being shipped.
13. TRANSPORTATION OF PIGS. Qualifying Pigs shall be shipped to Purchaser
FOB shipping point. Association shall at Purchaser's expense arrange for
transportation of Qualifying Pigs from any of Association's production
facilities as determined by Association; provided, however, that Purchaser shall
pay such transportation costs no later than the time of delivery. Trucks shall
be thoroughly cleaned and disinfected prior to hauling any pigs from
Association's production facilities and after any previously hauled pigs.
14. TERM OF AGREEMENT. The term of this Agreement shall commence on the
date first written above and shall continue for 120 months after the month in
which the first Lot of Qualifying Pigs is shipped by Association to Purchaser
(or Purchaser's direct or indirect assignor or transferor) with respect to the
Class A Common Stock of the Association (including Class A Common Stock of the
Association assigned or transferred to Purchaser) from which the right of
Purchaser to purchase Lots of Qualifying Pigs under this Agreement derives,
subject to the following:
(a) In the event that Purchaser fails to purchase, pay for, and take
delivery of any two Lots (as defined herein or in any other agreement
between Purchaser and Association) when and as made available to Purchaser
in accordance with the terms of this Agreement, any other Feeder Pig
Purchase Agreement or any Weaned Pig Purchase Agreement between Purchaser
and Association, this Agreement shall terminate and Association shall have
the right to exercise its remedies as provided in Section 17 hereof;
provided, however, that in the event Purchaser owns ten or more shares of
capital stock of Association, this Agreement shall terminate and
Association shall have the right to exercise its remedies as provided in
Section 17 hereof only upon Purchaser failing to purchase, pay for, and
take delivery of a number of Lots (as defined herein or in any other
agreement between Purchaser and Association) when and as made available to
Purchaser in accordance with the terms of this Agreement, of any other
Feeder Pig Purchase Agreement or of any Weaned Pig Purchase Agreement
between Purchaser and Association equal to the sum of (i) the quotient
(rounded down to the nearest whole number) of (A) the number of shares of
capital stock owned by Purchaser, divided by (B) ten (10), plus (ii) two
(2).
(b) In the event of a material breach of any agreement or covenant of
Association contained in this Agreement, Purchaser may give written notice
of such breach to Association and, in the event that such breach is not
cured within a period (the "Cure Period") of thirty (30) days following
such notice of breach by Purchaser to Association, Purchaser shall have the
right to terminate this Agreement upon notice to Association, provided that
such notice of termination is given by Purchaser to Association within
thirty (30) days following the Cure Period.
(c) If the first Lot of Qualifying Pigs is not shipped to Purchaser
hereunder within twenty-four (24) months of the date of this Agreement,
Purchaser shall have the right to terminate this Agreement upon notice to
Association, provided that such notice of termination is given by Purchaser
to Association within three (3) months after the expiration of such twenty-
four (24) month period; provided, however, that any such termination shall
not terminate or otherwise affect any other Feeder Pig Purchase Agreement
or any Weaned Pig Purchase Agreement between Purchaser and Association.
(d) In the event Purchaser assigns or transfers, in accordance with
the Articles of Incorporation and Bylaws of Association, all shares of
Class A Common Stock of Association from which Purchaser's right to
purchase Lots under this Agreement derives, this Agreement automatically
shall terminate.
(e) This Agreement shall be extended automatically for
succeeding and consecutive twelve (12) month terms unless Purchaser
gives to Association, not less than twelve (12) months prior to the
expiration of the initial term or any extended term hereof, notice
that Purchaser desires to terminate this Agreement as of the
expiration of such initial or extended term.
Notwithstanding the foregoing, however, the rights of Association to collect
damages and to exercise its remedies under Section 17 hereunder shall survive
any termination of this Agreement.
15. WARRANTIES. ASSOCIATION MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED
TO PURCHASER OTHER THAN AS HEREIN EXPRESSLY PROVIDED, AND SPECIFICALLY (A) MAKES
NO WARRANTY AS TO ANY SPECIFIC LEVEL OF PERFORMANCE WITH RESPECT TO ANY PIGS
SOLD HEREUNDER, AND (B) DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE.
16. FORCE MAJEURE. Either party to this Agreement shall be relieved of
its responsibility and obligations hereunder during any period when performance
is commercially impossible because of reasons beyond its control such as, but
not limited to, fire, explosion, strike, accident, governmental regulations or
intervention, and acts of God.
17. DEFAULT BY PURCHASER; GRANT OF SECURITY INTEREST. Purchaser
acknowledges that the damages suffered by Association in the event of any
failure by Purchaser to purchase, pay for, and take delivery of any Lot when and
as made available to Purchaser in accordance with the terms hereof shall equal,
and Purchaser shall be liable to Association for and shall pay to Association
upon demand, the sum of the following: (a) the difference between the price
payable by Purchaser hereunder for Qualifying Pigs included in such Lot and the
then current market price (as of the scheduled shipment date for such Lot) for
Qualifying Pigs as quoted in any independent industry publication or source
selected by Association, multiplied by the number of Qualifying Pigs in such Lot
that Purchaser has failed to purchase, pay for, and take delivery of, in
accordance with the terms hereof; plus (b) administrative and other costs and
expenses relating to such Lot, which are hereby agreed to equal the amount of
$3,000; plus (c) costs of collection, enforcement, and prosecution of
Association's rights and remedies hereunder or otherwise arising, whether or not
involving a case, action, or other proceeding before any state or federal court
or other body, including, but not limited to, reasonable attorney's fees,
collection agency fees, and other costs of collection; provided, however, that
to the extent applicable law prohibits collection of attorney's fees and/or
costs, this subsection (c) shall be null and void to the extent of such
prohibition, except to preserve Association's rights pursuant to 11 U.S.C.
' 506(b). During any period in which Purchaser has been notified that it is
obligated to pay an amount for damages pursuant to the immediately preceding
sentence and has not paid such amount within three days of such demand,
Association shall not make any future Lots available to Purchaser for purchase
hereunder or under any other Feeder Pig Purchase Agreement between Purchaser and
Association until Purchaser has paid such amount. In the event that Purchaser
is not made available any Lot for purchase hereunder pursuant to the immediately
preceding sentence that Association otherwise would have made available to
Purchaser for purchase hereunder, then Purchaser shall be deemed to have failed
to purchase, pay for, and take delivery of such Lot, and Purchaser shall be
liable for damages with respect to such Lot computed in accordance with the
first sentence of this Section. Upon any termination of this Agreement,
Purchaser's liability for damages incurred by Association with respect to
Purchaser's obligation to purchase, pay for and take delivery of Lots made
available to the Purchaser shall be limited to the damages with respect to such
Lots computed in accordance with the preceding provisions of this Section 17,
and Purchaser shall not be liable for any other damages for the failure to
purchase, pay for or take delivery of Lots hereunder after the termination of
this Agreement.
As security for the due and punctual performance of all of Purchaser's
obligations under this Agreement, Purchaser hereby pledges and grants to
Association, its successors and assigns, a security interest in and lien upon
any and all interest (the "Coop Interest") Purchaser now has or hereafter may
have in Association, including, without limitation, any capital stock or other
rights or interests owned or held by Purchaser, or to which Purchaser is
entitled, as a stockholder of Association and any interest of Purchaser in and
to any dividends, capital or other credits, patronage or other distributions, or
participations arising therefrom. Purchaser shall also deliver and endorse such
stock or other certificates and execute and deliver such financing statements
and other instruments (including, without limitation, stock powers duly endorsed
in blank), and take such other action, as Association may request for purposes
of perfecting or protecting the security interest granted under this Section 17.
Purchaser represents, warrants and agrees that the pledge of the Coop Interest
pursuant to this Section 17 creates a valid and perfected first priority
security interest in the Coop Interest in favor of Association, subordinate only
to any permissible pledge or other security interest granted by Purchaser to any
financial institution for purposes of securing a loan by such financial
institution to Purchaser, the proceeds of which are used to finance Purchaser's
acquisition of the Coop Interest. Notwithstanding the foregoing, however,
Association may release such pledge and grant of a security interest for good
cause, as determined in Association's sole and absolute discretion.
If Purchaser shall be in default under this Agreement, Association may
exercise any and all rights and remedies available to Association hereunder,
under the Articles of Incorporation or Bylaws of Association, under any
applicable Uniform Commercial Code, or otherwise at law or in equity. The
rights and remedies afforded to Association hereunder shall be cumulative and in
addition to, and not in limitation of, any rights and remedies which Association
may otherwise have under the Articles of Incorporation or Bylaws of Association
or under applicable law, including any applicable Uniform Commercial Code. The
exercise or partial exercise of any right or remedy of Association hereunder or
under the Articles of Incorporation or Bylaws of Association or under applicable
law shall not preclude or prejudice the further exercise of that right or remedy
or the exercise of any other right or remedy of Association. No delay or
omission on the part of Association in exercising any right hereunder or
otherwise shall operate as a waiver of such right. A waiver on any one occasion
shall not be construed as a bar or waiver of any right or remedy on any future
occasion.
18. ARBITRATION. In the event of any controversy arising out of or
relating to this Agreement, or any breach hereof, other than any controversy
arising out of or relating to Section 17 hereof or the exercise of any rights or
remedies thereunder, the parties agree to submit the dispute to binding
arbitration in accordance with the Commercial Arbitration Rules then in force of
the American Arbitration Association. Such arbitration shall be initiated by
either party by notifying the other party in writing and requesting a panel of
five (5) arbitrators from the American Arbitration Association, which
arbitrators shall be individuals skilled in the legal and business aspects of
the subject matter of this Agreement and of the dispute. Alternate strikes
shall be made to the panel commencing with the party requesting the arbitration
until one individual remains. Such individual shall be the arbitrator for the
controversy. The party requesting the arbitration shall notify the arbitrator
who shall hold a hearing(s) within 60 days of the notice. Any hearing(s) shall
take place in Denver, Colorado, or such other location as the parties may agree
upon. The arbitrator shall render a decision, including a written opinion in
support thereof, within 30 days after the conclusion of the hearing(s), which
decision shall be final and binding upon the parties without right of appeal.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Costs of the arbitration will be assessed by the
arbitrator against either or both of the parties, and will be paid promptly by
the party or parties so assessed.
19. NOTICES. Any notice given or required to be given hereunder shall be
deemed to have been effectively given when delivered personally or sent by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed or transmitted to Association at Alliance Farms Cooperative
Association, c/o Farmland Industries, Inc., 3315 North Oak Trafficway,
Department 47, Kansas City, Missouri 64116, Attention: Mr. Wayne N. Snyder, and
to Purchaser at the address set forth below Purchaser's signature, and/or to
such other (or additional) address(es) requested by a notice given in accordance
with this Section.
20. ENTIRE AGREEMENT. This Agreement contains all of the terms agreed
upon by the parties with respect to the subject matter hereof and supersedes all
prior agreements of the parties as to the subject matter hereof; provided,
however, any and all other Feeder Pig Purchase Agreements between Purchaser and
Association respecting issuances of capital stock of Association (including
capital stock of the Association assigned or transferred to Purchaser) from
which the right of Purchaser to purchase Lots under this Agreement does not
derive, and any and all Weaned Pig Purchase Agreements between Purchaser and
Association, shall not be superseded, modified or otherwise affected by this
Agreement. This Agreement may not be modified except in writing, signed by the
parties hereto, that specifically references this Agreement.
21. ASSIGNMENT. This Agreement may not be assigned by either party
without prior written consent of the other party; provided, however, that
Association may assign Association's rights herein and hereto to any lender that
may provide financing to Association in connection with the construction of
facilities or the operation thereof, or both. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors, and permitted assigns.
22. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado. The parties hereto hereby
agree that if any part, term or provision of this Agreement is held by a court
of competent jurisdiction to be illegal or unenforceable or in conflict with any
controlling state law, the validity of the remaining parts, terms and provisions
of this Agreement shall not be affected, and the rights and obligations of the
parties shall be construed and enforced as if this Agreement did not contain the
particular part, term or provision held to be illegal or unenforceable or in
conflict with any controlling state law. This Agreement and the transactions
contemplated hereunder constitute commercial, and not consumer, transactions.
[The remainder of this page intentionally has been left blank]
THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE THAT MAY BE ENFORCED
BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
day and year first above written.
ASSOCIATION: PURCHASER:
ALLIANCE FARMS COOPERATIVE
ASSOCIATION
By: By:
Name: Name:
Title: Title:
Purchaser's Address:
EXHIBIT C
WEANED PIG PURCHASE AGREEMENT
THIS WEANED PIG PURCHASE AGREEMENT (this "Agreement") is entered into as of
this day of , 199 , by and between ALLIANCE FARMS
COOPERATIVE ASSOCIATION (hereinafter "Association"), and
(hereinafter "Purchaser").
WHEREAS, Association is or will be engaged in the production and sale of
weaned pigs; and
WHEREAS, Purchaser is a purchaser of weaned pigs, possesses expertise in
swine production and management, and desires to enter into this Agreement for
membership purposes of Association;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
1. PURCHASE/SALE OF WEANED PIGS.
(A) GENERAL. Upon and subject to all terms and conditions set forth
in this Agreement, Purchaser shall purchase from Association, and Association
shall sell to Purchaser, Qualifying Pigs (as defined in Section 2) produced by
Association during the term of this Agreement in lots (hereinafter "Lot" or
"Lots") of no less than 925, and no more than 1,025, Qualifying Pigs per Lot, as
determined by Association, which Lots shall be made available to Purchaser on a
rotating schedule with other members of Association owning Class B Common Stock
(as defined in Article SIXTH of Association's Articles of Incorporation), as
such rotating schedule is determined and implemented by Association on any
reasonable basis.
(B) SCHEDULE. Purchaser acknowledges that Association intends to
conduct a blind drawing, immediately following the consummation of each and
every offering of Class B Common Stock by Association, for purposes of adjusting
such rotating schedule as warranted by the resulting changes in the members of
the Association.
(C) AVAILABILITY. The number of Lots made available to Purchaser and
the frequency of availability of such Lots will be based upon Purchaser's
proportionate equity interest in Association with respect to Association's Class
B Common Stock. Purchaser acknowledges that Lots will not be made available to
Purchaser under this Agreement until Qualifying Pigs are produced and available
from the facilities constructed using the proceeds of the issuance of Class B
Common Stock of Association (including Class B Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase such Lots under this Agreement derives, and that the number of Lots
made available to Purchaser and the frequency of availability of such Lots will
be subject to actual production of Qualifying Pigs from all facilities of
Association. Association shall give notice to Purchaser when a Lot is available
for purchase by Purchaser hereunder, which notice shall specify the anticipated
number of Qualifying Pigs in such Lot and the scheduled shipment date.
(D) EXCESS PRODUCTION. The production of weaned pigs is anticipated
to produce, on a prospective rolling 12-month basis, approximately two and
seven-tenths (2.7) Lots of Qualifying Pigs per share of Class B Common Stock of
Association owned by members of Association for which Lots are to be made
available for purchase hereunder. To the extent that the production of weaned
pigs exceeds such anticipated production, Association shall either sell such
excess production to any person (including a member of Association), at a price
as shall be determined by Association in good faith, or retain such excess
production for Association's own purposes, in lieu of selling such excess
production to the members of Association pursuant to the Weaned Pig Purchase
Agreements between Association and the members of Association.
2. QUALIFYING PIGS. For purposes of this Agreement, the term "Qualifying
Pig" shall mean an individual weaned pig that is not utility grade, that has a
minimum weight of at least six (6) pounds at point in time of delivery, that has
the genetic characteristics described in Section 6, that has been managed in
accordance with Section 7, and that has a significant likelihood to perform
economically and reach market weight efficiently.
3. PURCHASE PRICE OF PIGS.
(a) PRICE. The purchase price for each Qualifying Pig purchased by
Purchaser under this Agreement shall be an amount equal to the sum of the
following:
Financing Cost Per Pig, plus
Operating Cost Per Pig, plus
Production Margin.
Purchaser acknowledges that Association has constructed, or is in the process of
constructing, or both, Production Units as a result of previous offers and sales
of shares of its capital stock and that Association from time to time may
construct additional Production Units as a result of additional offers and sales
of shares of its capital stock. In light of the foregoing, the determination of
the Financing Cost Per Pig portion of the purchase price for a Qualifying Pig
hereunder shall be made separately with respect to each Lot in relation to the
Production Unit(s) that were constructed using the proceeds of the issuance of
Class B Common Stock of Association (including Class B Common Stock of the
Association assigned or transferred to Purchaser) from which Purchaser's right
to purchase such Lot under this Agreement derives.
(b) DEFINITIONS. As used in this Section 3, the following terms
shall have the following meanings:
FINANCING COST PER PIG shall be determined on a prospective rolling 12-
month basis and shall mean an amount equal to the quotient of (i) the sum
of the required payments of interest and principal (including any scheduled
sinking fund payments) to be made during the upcoming 12-month period with
respect to Purchaser's Debt, divided by (ii) Pigs Shipped.
OPERATING COST PER PIG shall be determined on a rolling five-month
historical basis and shall mean an amount equal to the quotient of (i) the
sum of (A) all direct and indirect production, operating, selling, general,
administrative, and other expenses incurred by Association in the five
months preceding the then present month of shipment as determined by
Association's accountants utilizing generally accepted accounting
principles consistently applied (excluding any provision for interest
expense or depreciation or amortization of the cost of buildings,
equipment, breeding stock or other capitalized costs which were purchased
as a result of Purchaser's Debt or as a result of the issuance of any
capital stock of Association to any third party), plus (B) the net cash
flow cost of all capital expenditures by Association (including any capital
sinking fund payments) for production facility and breeding stock
improvements and replacements in the five months preceding the then present
month of shipment as determined by Association's accountants, divided by
(ii) Pigs Shipped. The direct and indirect production and operating
expenses attributable to a Production Unit which is in the process of
commencing production shall not be included in the determination of
Operating Cost Per Pig, and shipments of pigs attributable to such
Production Unit shall not be included in Pigs Shipped, until such
Production Unit has completed one entire month of full production, shipping
pigs in each week thereof. The net cash flow with respect to capital
expenditures for production facility and breeding stock improvements and
replacements (which net cash flow shall be determined after taking into
account the breeding stock and production facility retirements attributable
to a Production Unit which is in the process of commencing production)
shall not be included in the determination of Operating Cost Per Pig until
the respective Production Unit has completed one entire month of full
production, shipping pigs in each week thereof.
PRODUCTION MARGIN shall mean an amount of up to $4.50, as determined by the
Board of Directors of Association, from time to time, in its sole and
absolute discretion.
PIGS SHIPPED shall mean the number of Qualifying Pigs produced and shipped
from Association over the same five-month period in determining the
Operating Cost Per Pig and the estimated number of Qualifying Pigs that
will be produced and shipped by Association over the 12-month period in
determining the Financing Cost Per Pig. For purposes of determining the
Financing Cost Per Pig, Pigs Shipped shall be equal to the product of (i)
Association's total estimated number of Qualifying Pigs to be produced and
shipped by Association during such 12-month period, multiplied by (ii) a
fraction, the numerator of which shall be the number of Production Units
constructed by Association with respect to the issuance of Class B Common
Stock of Association (including Class B Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase Lots of Qualifying Pigs under this Agreement derives, and the
denominator of which shall be the number of Production Units constructed by
Association with respect to all issuances of its Class B Common Stock. All
estimates relating to Pigs Shipped shall be made by Association using such
historical data and projections as are available to Association.
PRODUCTION UNIT shall mean the land and facilities necessary to house, feed
and care for a group of 2,450 sows and the attendant offspring thereof.
PURCHASER'S DEBT shall mean (i) the debt incurred by Association for the
Production Unit(s) constructed by Association with respect to the issuance
of Class B Common Stock of Association (including Class B Common Stock of
the Association assigned or transferred to Purchaser) from which the right
of Purchaser to purchase Lots of Qualifying Pigs under this Agreement
derives, including any debt incurred for purposes of financing the
acquisition of land for, and construction of, such Production Unit(s),
(ii) any debt incurred for the initial working capital requirements with
respect to the operation of such Production Unit(s), and (iii) any debt
incurred for purposes of refinancing any such debt.
4. PAYMENT OF PURCHASE PRICE. Association shall furnish to Purchaser, at
the time Association notifies Purchaser that a Lot is available for purchase by
Purchaser hereunder, an estimate of the total purchase price of the Qualifying
Pigs included in the Lot, and Purchaser shall, not less than one day prior to
the scheduled shipment date as specified in the notice by Association to
Purchaser, pay such estimated total purchase price to Association in cash, or by
such other means as may be acceptable to Association in its sole and absolute
discretion. Association shall have no obligation to commence transportation of
such Qualifying Pigs to Purchaser prior to full payment of such estimated total
purchase price for such Qualifying Pigs as herein provided. The actual total
purchase price of all Qualifying Pigs included in a Lot shall be based upon
weight at the time of loading and settlement of any adjustments shall be made
within five days following delivery.
5. WEIGHT ADJUSTMENT. The purchase price for each Qualifying Pig as
provided in Section 3 is for a Lot of Qualifying Pigs having an average weight
of between 8 pounds and 12 pounds. In the event that the average weight of the
Qualifying Pigs in a Lot sold to Purchaser exceeds 12 pounds, Purchaser shall
pay Association an additional one dollar ($1.00) per pound per Qualifying Pig on
the number of pounds that the Lot's average shipping weight per pig exceeds 12
pounds. To the extent that the average weight of the Qualifying Pigs in a Lot
sold to Purchaser is less than 8 pounds, one dollar ($1.00) per pound on the
number of pounds that the Lot's average shipping weight per pig is less than 8
pounds shall be deducted from the purchase price that Purchaser is to pay to
Association for each Qualifying Pig. Purchaser shall have the right to, but
shall not be obligated to, purchase a Lot of Qualifying Pigs hereunder at an
average weight of less than 8 pounds per pig.
6. GENETIC QUALITY. Qualifying Pigs produced by Association will be
progeny from genetic stock selected by Association, from time to time, in its
sole and absolute discretion. Such selection of such genetic stock will be
determined and implemented by Association on a basis that reasonably would be
expected to produce Qualifying Pigs that are capable of producing market hogs
having carcasses that are responsive to consumer demand and thereby maximize the
sales price to be received therefore.
7. MANAGEMENT OF HEALTH AND NUTRITION. Association agrees to comply with
the following health and nutrition programs with respect to all pigs to be
purchased under this Agreement:
(a) Association shall dock tails within 48 hours of a pig's
birth.
(b) Association shall castrate male pigs within ten days of the pig's
birth.
(c) Association shall administer all vacines and antibiotic
treatments and perform such other procedures that are reasonably determined
by Association to be necessary or advisable with respect to a herd health
program.
(d) Association shall maintain Association's swine free from the
psuedorabies virus ("PRV") or any swine disease that would prohibit
interstate shipment of pigs produced by Association, or that might
otherwise materially impair Purchaser's ability to utilize the pigs to be
purchased under this Agreement. If, in the opinion of two veterinarians
selected by Association and reasonably acceptable to Purchaser, any of the
swine produced by Association or used in the production of weaned pigs for
delivery hereunder contracts PRV, Association shall have the opportunity to
cure such impairment within a reasonable period of time and to suspend, at
any time and from time to time, the sale and purchase of weaned pigs
hereunder until such time as said veterinarians determine that PRV no
longer exists.
(e) Association shall use a feeding regimen, feed products, and herd
health products developed or marketed by Farmland Industries, Inc., or any
of its affiliates.
8. RIGHT OF INSPECTION. Upon reasonable notice to Association, Purchaser
or its representative shall have the right to inspect Association's production
records to verify the genetic quality and management of nutrition and health
programs prescribed by this Agreement during normal business hours.
9. ADJUSTMENT FOR NON-QUALIFYING PIGS. Purchaser shall have the right to
inspect Purchaser's Lot of Qualifying Pigs prior to loading. In the event that,
after delivery of such Lot, Purchaser believes that any pig was not a Qualifying
Pig prior to loading (a "Subject Pig"), Purchaser shall notify Association by
telephone of such belief within one (1) business day following delivery as well
as promptly notify Association of such belief in the manner provided in Section
19 hereof. Association shall have the right to inspect any and all Subject Pigs
in investigation of Purchaser's belief, and thereafter Association and Purchaser
shall agree in good faith upon an appropriate adjustment, if any, with respect
to such Subject Pigs. Purchaser hereby acknowledges and agrees that such
adjustment described above shall be Purchaser's sole and exclusive remedy as
against Association arising out of the purchase hereunder of a pig that was not
a Qualifying Pig at the time of loading and that the failure of Association to
deliver Qualifying Pigs as otherwise required hereunder shall not give rise to a
right of Purchaser to terminate this Agreement. Furthermore, in no event shall
Purchaser reject delivery of a Lot of pigs hereunder, but in lieu thereof
Purchaser shall accept each delivery of a Lot of pigs hereunder and, with
respect to any and all pigs that Purchaser believes were not Qualifying Pigs
prior to loading, shall comply with the provisions of this Section 9 and, until
such adjustment, if any, is agreed upon by Association and Purchaser, shall, at
Purchaser's expense, feed, water, treat and care for any and all such pigs as if
Purchaser believed such pigs were Qualifying Pigs prior to loading.
10. HEALTH PERMITS. Association shall provide Purchaser, at Association's
expense, all health permits necessary to qualify all Qualifying Pigs for
interstate shipment.
11. WEIGHING CONDITIONS. All Lots of Qualifying Pigs shall be weighed at
Association's expense at a state-inspected scale in close proximity to
Association's production facility. A copy of all scale tickets will be provided
to Association and to Purchaser.
12. IDENTIFICATION. Association shall appropriately identify, prior to
shipment, all Qualifying Pigs in accordance with the rules that will allow
interstate shipment to the states to which the pigs are being shipped.
13. TRANSPORTATION OF PIGS. Qualifying Pigs shall be shipped to Purchaser
FOB shipping point. Association shall at Purchaser's expense arrange for
transportation of Qualifying Pigs from any of Association's production
facilities as determined by Association; provided, however, that Purchaser shall
pay such transportation costs no later than the time of delivery. Trucks shall
be thoroughly cleaned and disinfected prior to hauling any pigs from
Association's production facilities and after any previously hauled pigs.
14. TERM OF AGREEMENT. The term of this Agreement shall commence on the
date first written above and shall continue for 120 months after the month in
which the first Lot of Qualifying Pigs is shipped by Association to Purchaser
(or Purchaser's direct or indirect assignor or transferor) with respect to the
Class B Common Stock of the Association (including Class B Common Stock of the
Association assigned or transferred to Purchaser) from which the right of
Purchaser to purchase Lots of Qualifying Pigs under this Agreement derives,
subject to the following:
(a) In the event that Purchaser fails to purchase, pay for, and take
delivery of any two Lots (as defined herein or in any other agreement
between Purchaser and Association) when and as made available to Purchaser
in accordance with the terms of this Agreement, any other Weaned Pig
Purchase Agreement or any Feeder Pig Purchase Agreement between Purchaser
and Association, this Agreement shall terminate and Association shall have
the right to exercise its remedies as provided in Section 17 hereof;
provided, however, that in the event Purchaser owns ten or more shares of
capital stock of Association, this Agreement shall terminate and
Association shall have the right to exercise its remedies as provided in
Section 17 hereof only upon Purchaser failing to purchase, pay for, and
take delivery of a number of Lots (as defined herein or in any other
agreement between Purchaser and Association) when and as made available to
Purchaser in accordance with the terms of this Agreement, of any other
Weaned Pig Purchase Agreement or of any Feeder Pig Purchase Agreement
between Purchaser and Association equal to the sum of (i) the quotient
(rounded down to the nearest whole number) of (A) the number of shares of
capital stock owned by Purchaser, divided by (B) ten (10), plus (ii) two
(2).
(b) In the event of a material breach of any agreement or covenant of
Association contained in this Agreement, Purchaser may give written notice
of such breach to Association and, in the event that such breach is not
cured within a period (the "Cure Period") of thirty (30) days following
such notice of breach by Purchaser to Association, Purchaser shall have the
right to terminate this Agreement upon notice to Association, provided that
such notice of termination is given by Purchaser to Association within
thirty (30) days following the Cure Period.
(c) If the first Lot of Qualifying Pigs is not shipped to Purchaser
hereunder within twenty-four (24) months of the date of this Agreement,
Purchaser shall have the right to terminate this Agreement upon notice to
Association, provided that such notice of termination is given by Purchaser
to Association within three (3) months after the expiration of such twenty-
four (24) month period; provided, however, that any such termination shall
not terminate or otherwise affect any other Weaned Pig Purchase Agreement
or any Feeder Pig Purchase Agreement between Purchaser and Association.
(d) In the event Purchaser assigns or transfers, in accordance with
the Articles of Incorporation and Bylaws of Association, all shares of
Class B Common Stock of Association from which Purchaser's right to
purchase Lots under this Agreement derives, this Agreement automatically
shall terminate.
(e) This Agreement shall be extended automatically for
succeeding and consecutive twelve (12) month terms unless Purchaser
gives to Association, not less than twelve (12) months prior to the
expiration of the initial term or any extended term hereof, notice
that Purchaser desires to terminate this Agreement as of the
expiration of such initial or extended term.
Notwithstanding the foregoing, however, the rights of Association to collect
damages and to exercise its remedies under Section 17 hereunder shall survive
any termination of this Agreement.
15. WARRANTIES. ASSOCIATION MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED
TO PURCHASER OTHER THAN AS HEREIN EXPRESSLY PROVIDED, AND SPECIFICALLY (A) MAKES
NO WARRANTY AS TO ANY SPECIFIC LEVEL OF PERFORMANCE WITH RESPECT TO ANY PIGS
SOLD HEREUNDER, AND (B) DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE.
16. FORCE MAJEURE. Either party to this Agreement shall be relieved of
its responsibility and obligations hereunder during any period when performance
is commercially impossible because of reasons beyond its control such as, but
not limited to, fire, explosion, strike, accident, governmental regulations or
intervention, and acts of God.
17. DEFAULT BY PURCHASER; GRANT OF SECURITY INTEREST. Purchaser
acknowledges that the damages suffered by Association in the event of any
failure by Purchaser to purchase, pay for, and take delivery of any Lot when and
as made available to Purchaser in accordance with the terms hereof shall equal,
and Purchaser shall be liable to Association for and shall pay to Association
upon demand, the sum of the following: (a) the difference between the price
payable by Purchaser hereunder for Qualifying Pigs included in such Lot and the
then current market price (as of the scheduled shipment date for such Lot) for
Qualifying Pigs as quoted in any independent industry publication or source
selected by Association, multiplied by the number of Qualifying Pigs in such Lot
that Purchaser has failed to purchase, pay for, and take delivery of, in
accordance with the terms hereof; plus (b) administrative and other costs and
expenses relating to such Lot, which are hereby agreed to equal the amount of
$3,000; plus (c) costs of collection, enforcement, and prosecution of
Association's rights and remedies hereunder or otherwise arising, whether or not
involving a case, action, or other proceeding before any state or federal court
or other body, including, but not limited to, reasonable attorney's fees,
collection agency fees, and other costs of collection; provided, however, that
to the extent applicable law prohibits collection of attorney's fees and/or
costs, this subsection (c) shall be null and void to the extent of such
prohibition, except to preserve Association's rights pursuant to 11 U.S.C.
Section 506(b). During any period in which Purchaser has been notified that it
is obligated to pay an amount for damages pursuant to the immediately preceding
sentence and has not paid such amount within three days of such demand,
Association shall not make any future Lots available to Purchaser for purchase
hereunder or under any other Weaned Pig Purchase Agreement or any Feeder Pig
Purchase Agreement between Purchaser and Association until Purchaser has paid
such amount. In the event that Purchaser is not made available any Lot for
purchase hereunder pursuant to the immediately preceding sentence that
Association otherwise would have made available to Purchaser for purchase
hereunder, then Purchaser shall be deemed to have failed to purchase, pay for,
and take delivery of such Lot, and Purchaser shall be liable for damages with
respect to such Lot computed in accordance with the first sentence of this
Section. Upon any termination of this Agreement, Purchaser's liability for
damages incurred by Association with respect to Purchaser's obligation to
purchase, pay for and take delivery of Lots made available to the Purchaser
shall be limited to the damages with respect to such Lots computed in accordance
with the preceding provisions of this Section 17, and Purchaser shall not be
liable for any other damages for the failure to purchase, pay for or take
delivery of Lots hereunder after the termination of this Agreement.
As security for the due and punctual performance of all of Purchaser's
obligations under this Agreement, Purchaser hereby pledges and grants to
Association, its successors and assigns, a security interest in and lien upon
any and all interest (the "Coop Interest") Purchaser now has or hereafter may
have in Association, including, without limitation, any capital stock or other
rights or interests owned or held by Purchaser, or to which Purchaser is
entitled, as a stockholder of Association and any interest of Purchaser in and
to any dividends, capital or other credits, patronage or other distributions, or
participations arising therefrom. Purchaser shall also deliver and endorse such
stock or other certificates and execute and deliver such financing statements
and other instruments (including, without limitation, stock powers duly endorsed
in blank), and take such other action, as Association may request for purposes
of perfecting or protecting the security interest granted under this Section 17.
Purchaser represents, warrants and agrees that the pledge of the Coop Interest
pursuant to this Section 17 creates a valid and perfected first priority
security interest in the Coop Interest in favor of Association, subordinate only
to any permissible pledge or other security interest granted by Purchaser to any
financial institution for purposes of securing a loan by such financial
institution to Purchaser, the proceeds of which are used to finance Purchaser's
acquisition of the Coop Interest. Notwithstanding the foregoing, however,
Association may release such pledge and grant of a security interest for good
cause, as determined in Association's sole and absolute discretion.
If Purchaser shall be in default under this Agreement, Association may
exercise any and all rights and remedies available to Association hereunder,
under the Articles of Incorporation or Bylaws of Association, under any
applicable Uniform Commercial Code, or otherwise at law or in equity. The
rights and remedies afforded to Association hereunder shall be cumulative and in
addition to, and not in limitation of, any rights and remedies which Association
may otherwise have under the Articles of Incorporation or Bylaws of Association
or under applicable law, including any applicable Uniform Commercial Code. The
exercise or partial exercise of any right or remedy of Association hereunder or
under the Articles of Incorporation or Bylaws of Association or under applicable
law shall not preclude or prejudice the further exercise of that right or remedy
or the exercise of any other right or remedy of Association. No delay or
omission on the part of Association in exercising any right hereunder or
otherwise shall operate as a waiver of such right. A waiver on any one occasion
shall not be construed as a bar or waiver of any right or remedy on any future
occasion.
18. ARBITRATION. In the event of any controversy arising out of or
relating to this Agreement, or any breach hereof, other than any controversy
arising out of or relating to Section 17 hereof or the exercise of any rights or
remedies thereunder, the parties agree to submit the dispute to binding
arbitration in accordance with the Commercial Arbitration Rules then in force of
the American Arbitration Association. Such arbitration shall be initiated by
either party by notifying the other party in writing and requesting a panel of
five (5) arbitrators from the American Arbitration Association, which
arbitrators shall be individuals skilled in the legal and business aspects of
the subject matter of this Agreement and of the dispute. Alternate strikes
shall be made to the panel commencing with the party requesting the arbitration
until one individual remains. Such individual shall be the arbitrator for the
controversy. The party requesting the arbitration shall notify the arbitrator
who shall hold a hearing(s) within 60 days of the notice. Any hearing(s) shall
take place in Denver, Colorado, or such other location as the parties may agree
upon. The arbitrator shall render a decision, including a written opinion in
support thereof, within 30 days after the conclusion of the hearing(s), which
decision shall be final and binding upon the parties without right of appeal.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Costs of the arbitration will be assessed by the
arbitrator against either or both of the parties, and will be paid promptly by
the party or parties so assessed.
19. NOTICES. Any notice given or required to be given hereunder shall be
deemed to have been effectively given when delivered personally or sent by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed or transmitted to Association at Alliance Farms Cooperative
Association, c/o Farmland Industries, Inc., 3315 North Oak Trafficway,
Department 47, Kansas City, Missouri 64116, Attention: Mr. Wayne N. Snyder, and
to Purchaser at the address set forth below Purchaser's signature, and/or to
such other (or additional) address(es) requested by a notice given in accordance
with this Section.
20. ENTIRE AGREEMENT. This Agreement contains all of the terms agreed
upon by the parties with respect to the subject matter hereof and supersedes all
prior agreements of the parties as to the subject matter hereof; provided,
however, any and all other Weaned Pig Purchase Agreements between Purchaser and
Association respecting issuances of capital stock of Association from which the
right of Purchaser to purchase Lots under this Agreement does not derive, and
any and all Feeder Pig Purchase Agreements between Purchaser and Association,
shall not be superseded, modified or otherwise affected by this Agreement. This
Agreement may not be modified except in writing, signed by the parties hereto,
that specifically references this Agreement.
21. ASSIGNMENT. This Agreement may not be assigned by either party
without prior written consent of the other party; provided, however, that
Association may assign Association's rights herein and hereto to any lender that
may provide financing to Association in connection with the construction of
facilities or the operation thereof, or both. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors, and permitted assigns.
22. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado. The parties hereto hereby
agree that if any part, term or provision of this Agreement is held by a court
of competent jurisdiction to be illegal or unenforceable or in conflict with any
controlling state law, the validity of the remaining parts, terms and provisions
of this Agreement shall not be affected, and the rights and obligations of the
parties shall be construed and enforced as if this Agreement did not contain the
particular part, term or provision held to be illegal or unenforceable or in
conflict with any controlling state law. This Agreement and the transactions
contemplated hereunder constitute commercial, and not consumer, transactions.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE THAT MAY BE ENFORCED
BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
day and year first above written.
ASSOCIATION: PURCHASER:
ALLIANCE FARMS COOPERATIVE
ASSOCIATION
By: By:
Name: Name:
Title: Title:
Purchaser's Address:
EXHIBIT D
CLASS C WEANED PIG PURCHASE AGREEMENT
THIS CLASS C WEANED PIG PURCHASE AGREEMENT (this "Agreement") is entered
into as of this day of , 199 , by and between ALLIANCE FARMS
COOPERATIVE ASSOCIATION (hereinafter "Association"), and ____________________
(hereinafter "Purchaser").
WHEREAS, Association is or will be engaged in the production and sale of
weaned pigs; and
WHEREAS, Purchaser is a purchaser of weaned pigs, possesses expertise in
swine production and management, and desires to enter into this Agreement for
membership purposes of Association;
NOW, THEREFORE, in consideration of the mutual agreements contained herein,
the parties hereto agree as follows:
1. PURCHASE/SALE OF WEANED PIGS.
(A) GENERAL. Upon and subject to all terms and conditions set forth
in this Agreement, Purchaser shall purchase from Association, and Association
shall sell to Purchaser, Qualifying Pigs (as defined in Section 2) produced by
Association during the term of this Agreement in lots (hereinafter "Lot" or
"Lots") of no less thanJWA[1] 925, and no more than 1,025, Qualifying Pigs per
Lot, as determined by Association, which Lots shall be made available to
Purchaser on a rotating schedule with other members of Association owning Class
C Common Stock (as defined in Article SIXTH of Association's Articles of
Incorporation), as such rotating schedule is determined and implemented by
Association on any reasonable basis.
(B) SCHEDULE. Purchaser acknowledges that Association intends to
conduct a blind drawing, immediately following the consummation of each and
every offering of Class C Common Stock by Association, for purposes of adjusting
such rotating schedule as warranted by the resulting changes in the members of
the Association.
(C) AVAILABILITY. The number of Lots made available to Purchaser and
the frequency of availability of such Lots will be based upon Purchaser's
proportionate equity interest in Association with respect to Association's Class
C Common Stock. Purchaser acknowledges that Lots will not be made available to
Purchaser under this Agreement until Qualifying Pigs are produced and available
from the facilities constructed using the proceeds of the issuance of Class C
Common Stock of Association (including Class C Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase such Lots under this Agreement derives, and that the number of Lots
made available to Purchaser and the frequency of availability of such Lots will
be subject to actual production of Qualifying Pigs from all facilities of
Association. Association shall give notice to Purchaser when a Lot is available
for purchase by Purchaser hereunder, which notice shall specify the anticipated
number of Qualifying Pigs in such Lot and the scheduled shipment date.
(D) EXCESS PRODUCTION. The production of weaned pigs is anticipated
to produce, on a prospective rolling 12-month basis, approximately two and
JWA[2]one-tenth (2.1) Lots of Qualifying Pigs per share of Class C Common Stock
of Association owned by members of Association for which Lots are to be made
available for purchase hereunder. To the extent that the production of weaned
pigs exceeds such anticipated production, Association shall either sell such
excess production to any person (including a member of Association), at a price
as shall be determined by Association in good faith, or retain such excess
production for Association's own purposes, in lieu of selling such excess
production to the members of Association pursuant to the Class C Weaned Pig
Purchase Agreements between Association and the members of Association.
2. QUALIFYING PIGS. For purposes of this Agreement, the term "Qualifying
Pig" shall mean an individual weaned pig that is not utility grade, that has a
minimum weight of at least six (6) pounds at point in time of delivery, that has
the genetic characteristics described in Section 6, that has been managed in
accordance with Section 7, and that has a significant likelihood to perform
economically and reach market weight efficiently.
3. PURCHASE PRICE OF PIGS.
(A) PRICE. The purchase price for each Qualifying Pig purchased by
Purchaser under this Agreement shall be an amount equal to the sum of the
following:
Financing Cost Per Pig, plus
Operating Cost Per Pig, plus
Production Margin.
Purchaser acknowledges that Association has constructed, or is in the process of
constructing, or both, Production Units as a result of previous offers and sales
of shares of its capital stock and that Association from time to time may
construct additional Production Units as a result of additional offers and sales
of shares of its capital stock. In light of the foregoing, the determination of
the Financing Cost Per Pig portion of the purchase price for a Qualifying Pig
hereunder shall be made separately with respect to each Lot in relation to the
Production Unit(s) that were constructed using the proceeds of the issuance of
Class C Common Stock of Association (including Class C Common Stock of the
Association assigned or transferred to Purchaser) from which Purchaser's right
to purchase such Lot under this Agreement derives.
(B) DEFINITIONS. As used in this Section 3, the following terms
shall have the following meanings:
FINANCING COST PER PIG shall be determined on a prospective rolling 12-
month basis and shall mean an amount equal to the quotient of (i) the sum
of the required payments of interest and principal (including any scheduled
sinking fund payments) to be made during the upcoming 12-month period with
respect to Purchaser's Debt, divided by (ii) Pigs Shipped.
OPERATING COST PER PIG shall be determined on a rolling five-month
historical basis and shall mean an amount equal to the quotient of (i) the
sum of (A) all direct and indirect production, operating, selling, general,
administrative, and other expenses incurred by Association in the five
months preceding the then present month of shipment as determined by
Association's accountants utilizing generally accepted accounting
principles consistently applied (excluding any provision for interest
expense or depreciation or amortization of the cost of buildings,
equipment, breeding stock or other capitalized costs which were purchased
as a result of Purchaser's Debt or as a result of the issuance of any
capital stock of Association to any third party), plus (B) the net cash
flow cost of all capital expenditures by Association (including any capital
sinking fund payments) for production facility and breeding stock
improvements and replacements in the five months preceding the then present
month of shipment as determined by Association's accountants, divided by
(ii) Pigs Shipped. The direct and indirect production and operating
expenses attributable to a Production Unit which is in the process of
commencing production shall not be included in the determination of
Operating Cost Per Pig, and shipments of pigs attributable to such
Production Unit shall not be included in Pigs Shipped, until such
Production Unit has completed one entire month of full production, shipping
pigs in each week thereof. The net cash flow with respect to capital
expenditures for production facility and breeding stock improvements and
replacements (which net cash flow shall be determined after taking into
account the breeding stock and production facility retirements attributable
to a Production Unit which is in the process of commencing production)
shall not be included in the determination of Operating Cost Per Pig until
the respective Production Unit has completed one entire month of full
production, shipping pigs in each week thereof.
PRODUCTION MARGIN shall mean an amount of up to $4.50, as determined by the
Board of Directors of Association, from time to time, in its sole and
absolute discretion.
PIGS SHIPPED shall mean the number of Qualifying Pigs produced and shipped
from Association over the same five-month period in determining the
Operating Cost Per Pig and the estimated number of Qualifying Pigs that
will be produced and shipped by Association over the 12-month period in
determining the Financing Cost Per Pig. For purposes of determining the
Financing Cost Per Pig, Pigs Shipped shall be equal to the product of (i)
Association's total estimated number of Qualifying Pigs to be produced and
shipped by Association during such 12-month period, multiplied by (ii) a
fraction, the numerator of which shall be the number of Production Units
constructed by Association with respect to the issuance of Class C Common
Stock of Association (including Class C Common Stock of the Association
assigned or transferred to Purchaser) from which the right of Purchaser to
purchase Lots of Qualifying Pigs under this Agreement derives, and the
denominator of which shall be the number of Production Units constructed by
Association with respect to all issuances of its Class C Common Stock. All
estimates relating to Pigs Shipped shall be made by Association using such
historical data and projections as are available to Association.
PRODUCTION UNIT shall mean the land and facilities necessary to house, feed
and care for a group of 2,450 sows and the attendant offspring thereof.
PURCHASER'S DEBT shall mean (i) the debt incurred by Association for the
Production Unit(s) constructed by Association with respect to the issuance
of Class C Common Stock of Association (including Class C Common Stock of
the Association assigned or transferred to Purchaser) from which the right
of Purchaser to purchase Lots of Qualifying Pigs under this Agreement
derives, including any debt incurred for purposes of financing the
acquisition of land for, and construction of, such Production Unit(s),
(ii) any debt incurred for the initial working capital requirements with
respect to the operation of such Production Unit(s), and (iii) any debt
incurred for purposes of refinancing any such debt.
4. PAYMENT OF PURCHASE PRICE. Association shall furnish to Purchaser, at
the time Association notifies Purchaser that a Lot is available for purchase by
Purchaser hereunder, an estimate of the total purchase price of the Qualifying
Pigs included in the Lot, and Purchaser shall, not less than one day prior to
the scheduled shipment date as specified in the notice by Association to
Purchaser, pay such estimated total purchase price to Association in cash, or by
such other means as may be acceptable to Association in its sole and absolute
discretion. Association shall have no obligation to commence transportation of
such Qualifying Pigs to Purchaser prior to full payment of such estimated total
purchase price for such Qualifying Pigs as herein provided. The actual total
purchase price of all Qualifying Pigs included in a Lot shall be based upon
weight at the time of loading and settlement of any adjustments shall be made
within five days following delivery.
5. WEIGHT ADJUSTMENT. The purchase price for each Qualifying Pig as
provided in Section 3 is for a Lot of Qualifying Pigs having an average weight
of between 8 pounds and 12 pounds. In the event that the average weight of the
Qualifying Pigs in a Lot sold to Purchaser exceeds 12 pounds, Purchaser shall
pay Association an additional one dollar ($1.00) per pound per Qualifying Pig on
the number of pounds that the Lot's average shipping weight per pig exceeds 12
pounds. To the extent that the average weight of the Qualifying Pigs in a Lot
sold to Purchaser is less than 8 pounds, one dollar ($1.00) per pound on the
number of pounds that the Lot's average shipping weight per pig is less than 8
pounds shall be deducted from the purchase price that Purchaser is to pay to
Association for each Qualifying Pig. Purchaser shall have the right to, but
shall not be obligated to, purchase a Lot of Qualifying Pigs hereunder at an
average weight of less than 8 pounds per pig.
6. GENETIC QUALITY. Qualifying Pigs produced by Association will be
progeny from genetic stock selected by Association, from time to time, in its
sole and absolute discretion. Such selection of such genetic stock will be
determined and implemented by Association on a basis that reasonably would be
expected to produce Qualifying Pigs that are capable of producing market hogs
having carcasses that are responsive to consumer demand and thereby maximize the
sales price to be received therefore.
7. MANAGEMENT OF HEALTH AND NUTRITION. Association agrees to comply with
the following health and nutrition programs with respect to all pigs to be
purchased under this Agreement:
(A) Association shall dock tails within 48 hours of a pig's
birth.
(B) Association shall castrate male pigs within ten days of the pig's
birth.
(C) Association shall administer all vacines and antibiotic
treatments and perform such other procedures that are reasonably determined
by Association to be necessary or advisable with respect to a herd health
program.
(D) Association shall maintain Association's swine free from the
psuedorabies virus ("PRV") or any swine disease that would prohibit
interstate shipment of pigs produced by Association, or that might
otherwise materially impair Purchaser's ability to utilize the pigs to be
purchased under this Agreement. If, in the opinion of two veterinarians
selected by Association and reasonably acceptable to Purchaser, any of the
swine produced by Association or used in the production of weaned pigs for
delivery hereunder contracts PRV, Association shall have the opportunity to
cure such impairment within a reasonable period of time and to suspend, at
any time and from time to time, the sale and purchase of weaned pigs
hereunder until such time as said veterinarians determine that PRV no
longer exists.
(E) Association shall use a feeding regimen, feed products, and herd
health products developed or marketed by Farmland Industries, Inc., or any
of its affiliates.
8. RIGHT OF INSPECTION. Upon reasonable notice to Association, Purchaser
or its representative shall have the right to inspect Association's production
records to verify the genetic quality and management of nutrition and health
programs prescribed by this Agreement during normal business hours.
9. ADJUSTMENT FOR NON-QUALIFYING PIGS. Purchaser shall have the right to
inspect Purchaser's Lot of Qualifying Pigs prior to loading. In the event that,
after delivery of such Lot, Purchaser believes that any pig was not a Qualifying
Pig prior to loading (a "Subject Pig"), Purchaser shall notify Association by
telephone of such belief within one (1) business day following delivery as well
as promptly notify Association of such belief in the manner provided in Section
19 hereof. Association shall have the right to inspect any and all Subject Pigs
in investigation of Purchaser's belief, and thereafter Association and Purchaser
shall agree in good faith upon an appropriate adjustment, if any, with respect
to such Subject Pigs. Purchaser hereby acknowledges and agrees that such
adjustment described above shall be Purchaser's sole and exclusive remedy as
against Association arising out of the purchase hereunder of a pig that was not
a Qualifying Pig at the time of loading and that the failure of Association to
deliver Qualifying Pigs as otherwise required hereunder shall not give rise to a
right of Purchaser to terminate this Agreement. Furthermore, in no event shall
Purchaser reject delivery of a Lot of pigs hereunder, but in lieu thereof
Purchaser shall accept each delivery of a Lot of pigs hereunder and, with
respect to any and all pigs that Purchaser believes were not Qualifying Pigs
prior to loading, shall comply with the provisions of this Section 9 and, until
such adjustment, if any, is agreed upon by Association and Purchaser, shall, at
Purchaser's expense, feed, water, treat and care for any and all such pigs as if
Purchaser believed such pigs were Qualifying Pigs prior to loading.
10. HEALTH PERMITS. Association shall provide Purchaser, at Association's
expense, all health permits necessary to qualify all Qualifying Pigs for
interstate shipment.
11. WEIGHING CONDITIONS. All Lots of Qualifying Pigs shall be weighed at
Association's expense at a state-inspected scale in close proximity to
Association's production facility. A copy of all scale tickets will be provided
to Association and to Purchaser.
12. IDENTIFICATION. Association shall appropriately identify, prior to
shipment, all Qualifying Pigs in accordance with the rules that will allow
interstate shipment to the states to which the pigs are being shipped.
13. TRANSPORTATION OF PIGS. Qualifying Pigs shall be shipped to Purchaser
FOB shipping point. Association shall at Purchaser's expense arrange for
transportation of Qualifying Pigs from any of Association's production
facilities as determined by Association; provided, however, that Purchaser shall
pay such transportation costs no later than the time of delivery. Trucks shall
be thoroughly cleaned and disinfected prior to hauling any pigs from
Association's production facilities and after any previously hauled pigs.
14. TERM OF AGREEMENT. The term of this Agreement shall commence on the
date first written above and shall continue for 120 months after the month in
which the first Lot of Qualifying Pigs is shipped by Association to Purchaser
(or Purchaser's direct or indirect assignor or transferor) with respect to the
Class C Common Stock of the Association (including Class C Common Stock of the
Association assigned or transferred to Purchaser) from which the right of
Purchaser to purchase Lots of Qualifying Pigs under this Agreement derives,
subject to the following:
(A) In the event that Purchaser fails to purchase, pay for, and take
delivery of any two Lots (as defined herein or in any other agreement
between Purchaser and Association) when and as made available to Purchaser
in accordance with the terms of this Agreement, any other Weaned Pig
Purchase Agreement or any Feeder Pig Purchase Agreement between Purchaser
and Association, this Agreement shall terminate and Association shall have
the right to exercise its remedies as provided in Section 17 hereof;
provided, however, that in the event Purchaser owns ten or more shares of
capital stock of Association, this Agreement shall terminate and
Association shall have the right to exercise its remedies as provided in
Section 17 hereof only upon Purchaser failing to purchase, pay for, and
take delivery of a number of Lots (as defined herein or in any other
agreement between Purchaser and Association) when and as made available to
Purchaser in accordance with the terms of this Agreement, of any other
Weaned Pig Purchase Agreement or of any Feeder Pig Purchase Agreement
between Purchaser and Association equal to the sum of (i) the quotient
(rounded down to the nearest whole number) of (A) the number of shares of
capital stock owned by Purchaser, divided by (B) ten (10), plus (ii) two
(2).
(B) In the event of a material breach of any agreement or covenant of
Association contained in this Agreement, Purchaser may give written notice
of such breach to Association and, in the event that such breach is not
cured within a period (the "Cure Period") of thirty (30) days following
such notice of breach by Purchaser to Association, Purchaser shall have the
right to terminate this Agreement upon notice to Association, provided that
such notice of termination is given by Purchaser to Association within
thirty (30) days following the Cure Period.
(C) If the first Lot of Qualifying Pigs is not shipped to Purchaser
hereunder within twenty-four (24) months of the date of this Agreement,
Purchaser shall have the right to terminate this Agreement upon notice to
Association, provided that such notice of termination is given by Purchaser
to Association within three (3) months after the expiration of such twenty-
four (24) month period; provided, however, that any such termination shall
not terminate or otherwise affect any other Weaned Pig Purchase Agreement
or any Feeder Pig Purchase Agreement between Purchaser and Association.
(D) In the event Purchaser assigns or transfers, in accordance with
the Articles of Incorporation and Bylaws of Association, all shares of
Class C Common Stock of Association from which Purchaser's right to
purchase Lots under this Agreement derives, this Agreement automatically
shall terminate.
(E) This Agreement shall be extended automatically for
succeeding and consecutive twelve (12) month terms unless Purchaser
gives to Association, not less than twelve (12) months prior to the
expiration of the initial term or any extended term hereof, notice
that Purchaser desires to terminate this Agreement as of the
expiration of such initial or extended term.
Notwithstanding the foregoing, however, the rights of Association to collect
damages and to exercise its remedies under Section 17 hereunder shall survive
any termination of this Agreement.
15. WARRANTIES. ASSOCIATION MAKES NO WARRANTIES EITHER EXPRESS OR IMPLIED
TO PURCHASER OTHER THAN AS HEREIN EXPRESSLY PROVIDED, AND SPECIFICALLY (A) MAKES
NO WARRANTY AS TO ANY SPECIFIC LEVEL OF PERFORMANCE WITH RESPECT TO ANY PIGS
SOLD HEREUNDER, AND (B) DISCLAIMS ANY WARRANTIES OF MERCHANTABILITY OR OF
FITNESS FOR A PARTICULAR PURPOSE.
16. FORCE MAJEURE. Either party to this Agreement shall be relieved of
its responsibility and obligations hereunder during any period when performance
is commercially impossible because of reasons beyond its control such as, but
not limited to, fire, explosion, strike, accident, governmental regulations or
intervention, and acts of God.
17. DEFAULT BY PURCHASER; GRANT OF SECURITY INTEREST. Purchaser
acknowledges that the damages suffered by Association in the event of any
failure by Purchaser to purchase, pay for, and take delivery of any Lot when and
as made available to Purchaser in accordance with the terms hereof shall equal,
and Purchaser shall be liable to Association for and shall pay to Association
upon demand, the sum of the following: (a) the difference between the price
payable by Purchaser hereunder for Qualifying Pigs included in such Lot and the
then current market price (as of the scheduled shipment date for such Lot) for
Qualifying Pigs as quoted in any independent industry publication or source
selected by Association, multiplied by the number of Qualifying Pigs in such Lot
that Purchaser has failed to purchase, pay for, and take delivery of, in
accordance with the terms hereof; plus (b) administrative and other costs and
expenses relating to such Lot, which are hereby agreed to equal the amount of
$3,000; plus (c) costs of collection, enforcement, and prosecution of
Association's rights and remedies hereunder or otherwise arising, whether or not
involving a case, action, or other proceeding before any state or federal court
or other body, including, but not limited to, reasonable attorney's fees,
collection agency fees, and other costs of collection; provided, however, that
to the extent applicable law prohibits collection of attorney's fees and/or
costs, this subsection (c) shall be null and void to the extent of such
prohibition, except to preserve Association's rights pursuant to 11 U.S.C.
' 506(b). During any period in which Purchaser has been notified that it is
obligated to pay an amount for damages pursuant to the immediately preceding
sentence and has not paid such amount within three days of such demand,
Association shall not make any future Lots available to Purchaser for purchase
hereunder or under any other Weaned Pig Purchase Agreement or any Feeder Pig
Purchase Agreement between Purchaser and Association until Purchaser has paid
such amount. In the event that Purchaser is not made available any Lot for
purchase hereunder pursuant to the immediately preceding sentence that
Association otherwise would have made available to Purchaser for purchase
hereunder, then Purchaser shall be deemed to have failed to purchase, pay for,
and take delivery of such Lot, and Purchaser shall be liable for damages with
respect to such Lot computed in accordance with the first sentence of this
Section. Upon any termination of this Agreement, Purchaser's liability for
damages incurred by Association with respect to Purchaser's obligation to
purchase, pay for and take delivery of Lots made available to the Purchaser
shall be limited to the damages with respect to such Lots computed in accordance
with the preceding provisions of this Section 17, and Purchaser shall not be
liable for any other damages for the failure to purchase, pay for or take
delivery of Lots hereunder after the termination of this Agreement.
As security for the due and punctual performance of all of Purchaser's
obligations under this Agreement, Purchaser hereby pledges and grants to
Association, its successors and assigns, a security interest in and lien upon
any and all interest (the "Coop Interest") Purchaser now has or hereafter may
have in Association, including, without limitation, any capital stock or other
rights or interests owned or held by Purchaser, or to which Purchaser is
entitled, as a stockholder of Association and any interest of Purchaser in and
to any dividends, capital or other credits, patronage or other distributions, or
participations arising therefrom. Purchaser shall also deliver and endorse such
stock or other certificates and execute and deliver such financing statements
and other instruments (including, without limitation, stock powers duly endorsed
in blank), and take such other action, as Association may request for purposes
of perfecting or protecting the security interest granted under this Section 17.
Purchaser represents, warrants and agrees that the pledge of the Coop Interest
pursuant to this Section 17 creates a valid and perfected first priority
security interest in the Coop Interest in favor of Association, subordinate only
to any permissible pledge or other security interest granted by Purchaser to any
financial institution for purposes of securing a loan by such financial
institution to Purchaser, the proceeds of which are used to finance Purchaser's
acquisition of the Coop Interest. Notwithstanding the foregoing, however,
Association may release such pledge and grant of a security interest for good
cause, as determined in Association's sole and absolute discretion.
If Purchaser shall be in default under this Agreement, Association may
exercise any and all rights and remedies available to Association hereunder,
under the Articles of Incorporation or Bylaws of Association, under any
applicable Uniform Commercial Code, or otherwise at law or in equity. The
rights and remedies afforded to Association hereunder shall be cumulative and in
addition to, and not in limitation of, any rights and remedies which Association
may otherwise have under the Articles of Incorporation or Bylaws of Association
or under applicable law, including any applicable Uniform Commercial Code. The
exercise or partial exercise of any right or remedy of Association hereunder or
under the Articles of Incorporation or Bylaws of Association or under applicable
law shall not preclude or prejudice the further exercise of that right or remedy
or the exercise of any other right or remedy of Association. No delay or
omission on the part of Association in exercising any right hereunder or
otherwise shall operate as a waiver of such right. A waiver on any one occasion
shall not be construed as a bar or waiver of any right or remedy on any future
occasion.
18. ARBITRATION. In the event of any controversy arising out of or
relating to this Agreement, or any breach hereof, other than any controversy
arising out of or relating to Section 17 hereof or the exercise of any rights or
remedies thereunder, the parties agree to submit the dispute to binding
arbitration in accordance with the Commercial Arbitration Rules then in force of
the American Arbitration Association. Such arbitration shall be initiated by
either party by notifying the other party in writing and requesting a panel of
five (5) arbitrators from the American Arbitration Association, which
arbitrators shall be individuals skilled in the legal and business aspects of
the subject matter of this Agreement and of the dispute. Alternate strikes
shall be made to the panel commencing with the party requesting the arbitration
until one individual remains. Such individual shall be the arbitrator for the
controversy. The party requesting the arbitration shall notify the arbitrator
who shall hold a hearing(s) within 60 days of the notice. Any hearing(s) shall
take place in Denver, Colorado, or such other location as the parties may agree
upon. The arbitrator shall render a decision, including a written opinion in
support thereof, within 30 days after the conclusion of the hearing(s), which
decision shall be final and binding upon the parties without right of appeal.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. Costs of the arbitration will be assessed by the
arbitrator against either or both of the parties, and will be paid promptly by
the party or parties so assessed.
19. NOTICES. Any notice given or required to be given hereunder shall be
deemed to have been effectively given when delivered personally or sent by
United States certified or registered mail, return receipt requested, postage
prepaid, addressed or transmitted to Association at Alliance Farms Cooperative
Association, c/o Farmland Industries, Inc., 3315 North Oak Trafficway,
Department 47, Kansas City, Missouri 64116, Attention: Mr. Wayne N. Snyder, and
to Purchaser at the address set forth below Purchaser's signature, and/or to
such other (or additional) address(es) requested by a notice given in accordance
with this Section.
20. ENTIRE AGREEMENT. This Agreement contains all of the terms agreed
upon by the parties with respect to the subject matter hereof and supersedes all
prior agreements of the parties as to the subject matter hereof; provided,
however, any and all other Weaned Pig Purchase Agreements between Purchaser and
Association respecting issuances of capital stock of Association from which the
right of Purchaser to purchase Lots under this Agreement does not derive, and
any and all Feeder Pig Purchase Agreements between Purchaser and Association,
shall not be superseded, modified or otherwise affected by this Agreement. This
Agreement may not be modified except in writing, signed by the parties hereto,
that specifically references this Agreement.
21. ASSIGNMENT. This Agreement may not be assigned by either party
without prior written consent of the other party; provided, however, that
Association may assign Association's rights herein and hereto to any lender that
may provide financing to Association in connection with the construction of
facilities or the operation thereof, or both. This Agreement shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
heirs, legal representatives, successors, and permitted assigns.
22. CONSTRUCTION. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Colorado. The parties hereto hereby
agree that if any part, term or provision of this Agreement is held by a court
of competent jurisdiction to be illegal or unenforceable or in conflict with any
controlling state law, the validity of the remaining parts, terms and provisions
of this Agreement shall not be affected, and the rights and obligations of the
parties shall be construed and enforced as if this Agreement did not contain the
particular part, term or provision held to be illegal or unenforceable or in
conflict with any controlling state law. This Agreement and the transactions
contemplated hereunder constitute commercial, and not consumer, transactions.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION CLAUSE THAT MAY BE ENFORCED
BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement effective the
day and year first above written.
ASSOCIATION: PURCHASER:
ALLIANCE FARMS COOPERATIVE
ASSOCIATION
By: By:
Name: Name:
Title: Title:
Purchaser's Address: