Dear Customer:
The Board of Directors of the Fremont Co-operative Produce Co. has been reviewing the benefits of issuing a Class A Preferred Stock over the past two years. After careful consideration and sound legal advice the Fremont Co-op Board has voted to issue 2,500 shares of Class A Stock at $1,000 par value per share. The dividend rate will be set by the directors each year and will be reviewed and adjusted for market conditions and competitive rates. The directors have initially set the dividend rate at 6% and it will be paid on a quarterly calendar basis. Because this is a new concept for Fremont Co-op and may be for you as well, here is some background information and some commonly asked questions.
Common Stock vs. Preferred Stock
There are two types of equity.
Common Stock holders have the right to vote and to elect directors. Common stockholders of the Fremont Co-op receive a patronage refund that is based on the company earnings and distributed on an equitable basis.
Preferred Stock can be issued by companies, which is non-voting and has a fixed dividend rate. In a downside scenario, if the business is liquidated the preferred stockholders have the right to be paid before common stockholders.
Why is Fremont Co-op doing this?
The operating money (working capital) of a cooperative historically has come from two sources.
Profits from the members that are retained and used as working capital and returned to the stockholder over time.
Borrowed money
Offering preferred stock will create a third source of working capital.
By issuing preferred stock as a third option, Fremont Co-op retains permanent capital in the company while at the same time providing a flexible financial tool for those who buy the preferred stock. Fremont Co-op has the financial ability to make continued equity patronage redemption’s, but must also balance the need to maintain an investment grade financial condition and invest in the company’s current and future business. The use of preferred stock will help the co-op address the member needs, while at the same time meet our other financial goals.
What if the company fails?
As with any stock or bond, the investor is at risk if the company should fail. Fremont Co-op has consistently performed well on an operating basis and is committed to maintaining a strong company for the future. Fremont Co-op would certainly not recommend that any investor hold all of their net worth in Fremont Co-op preferred stock, but we feel this is an excellent investment for anyone desiring a fixed return on a portion of their total investments.
Do the shares have a stated termination or maturity date?
No. The preferred stock shares will remain outstanding until the company decides to redeem them.
Can Fremont Co-op call back my shares?
Yes. The redemption price would be $1,000 per share, plus any accrued, but unpaid dividends. It is the intent that the Fremont Co-op would not buy back the shares of preferred stock rather to have a secondary market develop for those interested in buying and selling the preferred stock. Initially the company will provide liquidity until all the shares are issued and this market does develop. Our disclosure statement will explain the procedure of matching buyers and sellers in more detail.
These are a few points that may make this subject easier to understand. At the co-op we have full disclosure statements that explain this in greater detail that we will be happy to provide you upon request. If you have any interest or questions, please call the main office at 231-924-3851 or 800-968-3851 and ask for General Manager Rob Zeldenrust or Comptroller Teri LaFleur.
