3c hapter - Index of

From Brown Rice to Biofuels 177
raise money. Organic Valley’s Series E preferred shares are one
example. Because these pub lic offerings are subject to multiple
state regulations, only the biggest co-ops can usually afford it. (Due
to its status as a tax-exempt cooperative under section 521 of the
Internal Revenue Code, Organic Valley was exempt from federal
securities regulations, but complied with the individual securities
laws of the 40 states it offered shares in). The shares are usually
nonvoting to preserve the co-op’s governing structure and values.
And they typically have the characteristics of a bond, with a fi xed
dividend and nonfl uctuating face value set by the co- op board. In
addition, the shares are usually illiquid and can be sold only to the
co- op itself, subject to terms of the share agreement. Black Star, for
example, will repurchase shares at their original $100 value, plus
any undistributed dividends, upon request. Members who purchase
$5,000 or more worth of shares will get a 5 percent premium
per share (or 10 percent for members who purchases $10,000 or
more worth of stock). The co- op may also elect to redeem shares
at any time, based upon the same repurchase terms.
At Organic Valley, redemption requests for all classes of stock
must be approved by the board of directors, which meets once
a month. But in 22 years, no request has been denied, says Gloede.
The shares are repurchased at their original price.
CHS Inc. is an exception. The giant ag cooperative sold
3.5 million shares of preferred stock, priced at $25, that pay an
8 percent dividend. With its ample resources, CHS fully registered
the securities, which are traded on NASDAQ (ticker symbol
CHSCP).
Despite the constraints, the steady dividends that these preferred
shares generate—typically between 4 percent and 8 percent—
and the lack of speculative trading make them very attractive
to some investors. Just as the share price does not go up, neither
does it lose value. When the Wheatsville Co- op in Austin offered
its preferred shares back in 2005, the economy was booming and
the shares’ 4 percent dividend looked modest indeed. Not so these
days. “People tell us we’re their best investment right now, which
is kind of sad,” says Dan Gillotte, Wheatsville’s general manager.
Only one or two people have exercised their right to sell their
shares back to the co- op. And what investor would not have liked to