MIDSTATE CO-OP

As Amended January 18, 2012

Pursuant to RCW 23.86.050, this cooperative corporation hereby adopts these amended Articles of Incorporation and accepts the benefits and will be bound by RCW Ch. 23.86.

ARTICLE I – NAME

The name of this Cooperative shall be Midstate Co-op.

ARTICLE II – DURATION

The period of existence of this Cooperative shall be perpetual.

ARTICLE III – PLACE OF BUSINESS

The principal place of business of this Cooperative shall be located in the City of Ellensburg, County of Kittitas, State of Washington.

ARTICLE IV – PURPOSES

Section 1. The purposes of this Cooperative and the enterprise, business and pursuit in which it proposes to engage are to do any or all of the following on a nonprofit, cooperative basis as agent for its members:

To promote and provide a medium for unity of effort for the improvement of farmers and associations of farmers, and to encourage and develop cooperation between producers and consumers.

This Cooperative is organized for the purpose of associating a large number of farm producers so as to reduce their costs through joint action in purchasing their supplies and equipment, and for the purpose of distributing their agricultural and horticultural products so that ultimately, they may secure therefor a reasonable return from their farming operations.

To engage in any activity in connection with the marketing, selling, harvesting, preserving, drying, processing, canning, packing, storing, handling or utilizing of any agricultural products delivered to it by its members; or the manufacturing or marketing of the by-products thereof; or in connection with the purchase, hiring, or use by its members and patrons of supplies, machinery, equipment or services, or in the financing of any such activities or in any one or more of the activities specified in this section.

To borrow money and to make advances to members.

To act as agent or representative of members in any of the above-mentioned activities.

To purchase or otherwise acquire, and to hold, own, and exercise all rights of ownership in, and to sell, transfer, or pledge shares of the capital stocks or bonds of any corporation or association engaged in any related activity or in the handling or marketing of any of the products handled by this Cooperative or corporate obligations eligible for the investment of trust funds by trust companies as provided by law.

To establish reserves and to invest the funds thereof in bonds or such other property as may be provided in the Bylaws.

To buy, hold and exercise all privileges of ownership over such real or personal property as may be necessary or convenient for the conducting and operation of the business of this Cooperative or incidental thereto.

To do anything permitted by law to associations organized under the laws of the State of Washington relating to cooperative associations (RCW Ch. 23.86) or any law amending or superseding said laws.

Section 2. To transact business of the types and in the manner described in Section 1, subparagraphs (a)-(i) above with or for nonmembers of the Cooperative, on either a profit or nonprofit basis.

ARTICLE V – STOCK

The amount of the authorized capital stock of this Cooperative shall be twenty seven million, three hundred thousand dollars ($27,300,000) which shall consist of one thousand (1,000) shares of common stock of the par value of fifty dollars ($50.00) each; twenty-seven million (27,000,000) shares of preferred Class B stock (sometimes referred to as “allocated patronage retained margins,” but hereafter referred to as “preferred Class B stock”) of the par value of one dollar ($1.00) each; and ten thousand (10,000) shares of preferred Class A stock of the par value of twenty-five dollars ($25.00) each, all of which shares shall be non-accessible, and shall not afford preemptive rights to acquire additional shares of the Cooperative.

ARTICLE VI – COMMON STOCK

MEMBERSHIP VOTING

Section 1. Common stock may be subscribed for, issued and owned only by bona fide producers of farm products or by the owner or lessees of land upon which farm products are grown or produced and who share in the crops or the products thereon, including persons, firms, corporations or associations and who are users of the services or commodities furnished or handled by this Cooperative. In order to eliminate unnecessary expense and inconvenience, the Cooperative should not be required to issue certificates to evidence its common stock. Instead, the identity of the owner thereof shall be recorded on the books of the Cooperative.

Section 2. Common stockholders shall be the only members of the Cooperative and they only shall be entitled to vote in the affairs of the Cooperative. A common stockholder shall not be entitled to more than one vote, which shall be cast in person or by mail as provided by law and not by proxy, except that any cooperative association which is a common stockholder shall have the power, by its Board of Directors or its stockholders, to elect or appoint any person to represent it at any meeting of the stockholders. No dividends (interest) shall be paid on common stock.

ARTICLE VII – PREFERRED CLASS A – PREFERRED CLASS B

Section 1.   Preferred Class A stock of this Cooperative may be issued to any person, association or corporation, but said stock shall not have voting power or rights to participate in management of this Cooperative. Dividends at a rate not to exceed eight percent (8%) per annum may be paid on the preferred Class A stock in the discretion of the Board of Directors.   In order to eliminate unnecessary expense and inconvenience, the Cooperative shall not be required to issue certificates to evidence its preferred Class A stock. Instead, the actual issuance of such preferred Class A stock and the identity of the owner thereof shall be recorded on the books of the Cooperative.

Section 2. Preferred Class B stock of the Cooperative may be issued to any person, association or corporation, but said stock shall not have voting power or rights to participate in management of this Cooperative. No dividends shall be paid on preferred Class B stock. In order to eliminate unnecessary expense and inconvenience, the Cooperative shall not be required to issue certificates to evidence its preferred Class B stock. Instead, the actual issuance of such preferred Class B stock and the identity of the owner thereof shall be recorded on the books of the Cooperative. Preferred Class B stock may be issued to evidence sums invested by members and/or patrons either (a) pursuant to the noncash portion of the Cooperative’s patronage dividend, if any, or (b) otherwise.

Section 3. The Cooperative may and it hereby reserves the right at any time, or from time to time, to call, purchase, redeem, retire, cancel and/or reissue any or all of its then outstanding capital stock, book credits, capital funds, and allocated reserves in such amounts as the Board of Directors may determine by paying to the respective holders thereof or by depositing to their order at the office of the Cooperative a sum or sums equal to the par or issuance value thereof. Written notice of such deposit shall be given by mailing such notice to the member’s last known address as shown by the records of the Cooperative.

Section 4. Book credits, capital funds, allocated reserves, and shares of common, preferred Class A and preferred Class B stock shall not be transferable, except in the case of death, operation of law, bona fide transfer for security purposes only to the Cooperative, a bank, or other financial institution, intra family transfer, transfer to an existing member or person who will become a member, or transfer by gift to any person organized and operated as a nonprofit organization as defined in RCW 84.36.800(4) that also possesses a current tax exempt status under the laws of the United States (hereinafter referred to as “permitted transfer”) and certificates issued to evidence the same (if any) shall so state conspicuously this restriction of transferability on the face thereof.

ARTICLE VIII – BOOK CREDITS, CAPITAL FUNDS AND ALLOCATED RESERVES

Section 1. In addition to the authority to issue common, preferred Class A stock and preferred Class B stock, the Cooperative, through its Board of Directors, shall have the power to establish book credits, capital funds and other allocated reserves to provide funds for corporate purposes in the manner provided by the Bylaws by retains from margins or proceeds otherwise payable to the members or by other methods of collection. Such book credits, capital funds or allocated reserves shall be issued on such terms and conditions and be payable or redeemable at the times and in the manner determined as provided in the Bylaws. If certificates are issued to evidence such interests, the Cooperative may call such certificates, at any time, and without consideration, provided said amounts are reflected on the books of the Cooperative as a credit to the patron from whom they were called and provided that written notice of such credit be given to the holder of record of the interest so credited by mailing such notice to the holder’s last known address as shown by the records of the Cooperative.

Section 2. The amounts supplied as book credits or to the various classes of capital funds and other allocated reserves shall be credited to the respective persons by whom supplied, and the books of the Cooperative shall indicate the amounts credited to each such person.

ARTICLE IX – BOARD OF DIRECTORS – NET SAVINGS

Section 1. This Cooperative shall be managed by a Board of not less than five directors, whose term of office shall not exceed three years, and who shall be elected by the members of the Cooperative as provided ed for in the Bylaws of this Cooperative.

Section 2. The total annual net savings of this Cooperative shall be distributed annually to the extent and in the manner provided in the Bylaws.

ARTICLE X – RIGHTS AND PRIORITIES

Section 1. In the event the membership of any member shall terminate for any reason whatsoever, such member shall not thereupon become entitled to demand or receive any interest in the property or assets of the Cooperative, but shall be entitled only to receive payment of its interest in any capital stock, book credits, capital funds or other allocated reserves as and when payment would have been received had it remained a member.

Section 2. No permitted assignment or transfer of any interest in capital stock, book credits, capital funds or other allocated reserves, whether voluntary or involuntary, shall be of any effect, or entitle the assignee or transferee to be paid or to receive any money from the Cooperative until evidence of such assignment satisfactory to the Cooperative shall be submitted to the Cooperative.

Section 3. In the event any member shall dissent from those certain corporate actions described in Chapter 23.86 to which such member is allowed to dissent thereunder, such member shall only be entitled to receive payment of his interest in any capital stock, book credits, capital funds or other allocated reserves as and when payment would have been received had no dissent occurred. In the event the Cooperative shall be obligated to make premature payment therefor, pursuant to such “dissenter’s rights”, the valuation provisions of Section 4 of this Article shall apply. In no event, however, shall such interest be valued at more than the actual consideration contributed to the Cooperative therefor, or the fair value thereof, whichever is less.

Section 4. In the event that the Cooperative shall be obligated to redeem or otherwise liquidate a patron’s interest in any capital stock, book credits, capital funds or other allocated reserves other than in the ordinary course of its business, including without limitation, cases where a patron has exercised dissenter’s rights with regard to certain corporate actions, cases where such amounts are applied in whole or partial satisfaction of the claims of a patron’s creditors (including the Cooperative itself) or of a trustee in bankruptcy, or cases where such amounts are required to be directly paid to a patron or his creditors or successors or assigns, then such interests shall be discounted to their present value. For purposes hereof, present value shall be calculated with reference to the Cooperative’s history of redeeming those interests of its patrons which are of similar character to those being prematurely redeemed (e.g., with reference to classification, type or year of issuance, etc.) over the ten (10) year period immediately preceding such premature redemption and with the use of a discount rate equal to the prime rate as published in the Wall Street Journal on the date of redemption or such greater amount, at the Board of Directors’ option, as may then be appropriate.

Section 5. In making payment of any interest in capital stock, book credits, capital funds or other allocated reserves, the Cooperative may rely solely upon its own records and shall not make payment to any person other than the person appearing by its records to be the owner thereof and entitled to payment.

Section 6. No permitted transfer of any interest in capital stock, book credits, capital funds or other allocated reserves shall be valid until all claims of the Cooperative against the registered holder thereof have been paid in full. The Cooperative shall have the right to offset any indebtedness of a patron to the Cooperative against: (a) any sums payable by the Cooperative to such patron; (b) such patron’s preferred Class B stock and/or common stock in the Cooperative; and/or

(c) the cash portion of any patronage dividend payable by the Cooperative to such patron. Each patron of the Cooperative does hereby make, constitute and appoint the Cooperative such patron’s attorney-in-fact for him and in his name, place and stead, for his use and benefit, to sign, endorse and deliver to the Cooperative such portion of the cash portion of such patron’s patronage dividend as may be necessary to satisfy any indebtedness of such patron to the Cooperative. In addition to the foregoing right of offset, each patron hereby grants to the Cooperative a Uniform Commercial Code security interest in: (a) any sums payable by the Cooperative to such patron; (b) such patron’s preferred Class B stock and/or common stock in the Cooperative; and/or the cash portion of any patronage dividend payable by the Cooperative to such patron to secure repayment of any such indebtedness.

Section 7. In the event of liquidation of the Cooperative, voluntary or involuntary, the assets of this Cooperative shall be distributed as follows:

To pay the costs of liquidation;

To pay any liabilities;

To pay the par value of preferred Class A stock plus any unpaid dividends on such preferred Class A stock as shown by the records of the Cooperative. If there are insufficient funds to pay such amounts in full, then the available funds shall be shared amongst such Class A preferred stockholders pro rata based upon the respective dollar amounts due each hereunder;

To pay the par value of preferred Class B stock and the issuance value of book credits, capital funds or other allocated reserves as shown by the records of the Cooperative. If there are insufficient funds to pay such amounts in full, then the available funds shall be shared amongst such preferred Class B stockholders and holders of book credits, capital funds or other allocated reserves pro rata based upon the respective dollar amounts due each hereunder;

To pay the par value of common stock for all outstanding common stock as shown by the records of the Cooperative. If there are insufficient funds to pay such amounts in full, then the available funds shall be shared amongst such common stockholders, pro rata, based upon the respective dollar amounts due each hereunder;

To pay any patronage dividends or returns due for the fiscal year of the liquidation, pro rata;

If any balance remains, it shall be distributed among the members of the Cooperative in propor- tion to the amount each member’s unrefunded contributions to the capital stock, book credits, capital funds and allocated reserves of the Cooperative bears to the total unrefunded contributions to the capital stock, book credits, capital funds and allocated reserves of all members at the time of commencement of liquidation. If at the time of commencement of liquidation there are no unrefunded contributions to the capital stock, book credits, capital funds or allocated reserves on the books of the Cooperative, then any remaining balance shall be distributed to the Cooperative’s members in proportion to their patronage of the Cooperative during the ten (10) most recent fiscal years.

ARTICLE XI – DIRECTORS AND OFFICERS LIABILITY & INDEMNIFICATION

Section 1.

Except as provided in subsection (b), a member of the Board of Directors or an officer of this Cooperative shall not be individually liable for any act or omission in the course and scope of his official capacity unless the act or omission constitutes gross negligence.

Nothing in subsection (a) shall limit or modify in any manner the duties and liabilities of a director or officer of this Cooperative to the Cooperative or the Cooperative’s shareholders.

A member of the Board of Directors of this Cooperative shall not be personally liable to the Cooperative or to its shareholders for monetary

damages for conduct as a director except (1) for acts or omissions that involve intentional misconduct or a knowing violation of the law by such director; or (2) for any transaction from which the director will personally receive a benefit in money, property or services to which such director is not legally entitled.

If the laws of the State of Washington are amended to authorize corporate action further eliminating or limiting the personal liability of directors or officers, then the liability of a director or officer of the Cooperative shall be eliminated or limited to the fullest extent permitted by such laws as so amended. Any repeal or modification of the foregoing paragraphs by the shareholders of the Cooperative shall not adversely affect any right or protection of a director or officer of the Cooperative existing at the time of such repeal or modification.

Section 2. To the fullest extent, and in the manner permitted by the laws of the State of Washington, the Cooperative shall indemnify any person threatened to be made a party or any party to a pending, or completed action, suit, or proceeding whether civil, criminal, administrative, or investigative (whether brought by or in the right of the Cooperative or otherwise) by reason of the fact that he is or was a director, officer, employee or agent of the Cooperative, or who, while a director, officer, employee or agent of the Cooperative is or was serving at the request of the Cooperative as a director, officer, partner, trustee, employee, or agent of another cooperative, partnership, joint venture, trust, other enterprise, or employee benefit plan, against judgments, penalties, fines, settlements and reasonable expenses (including attorneys’ fees) incurred by him in connection with such action, suit or proceeding. Such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators. Reasonable expenses incurred or to be incurred by a director, officer, employee or agent who is a party or threatened to be made a party to such action, suit or proceeding may be paid or reimbursed by the corporation in advance of the final disposition of such proceeding in the manner permitted by the laws of the State of Washington.

Section 3. The right to indemnification and the payment of expenses incurred or to be incurred in defending any action, suit or proceeding in advance of its final disposition conferred in this Article shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaws, agreement, vote of shareholders or disinterested directors or otherwise.

Section 4. The Cooperative may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Cooperative or another cooperative, partnership, joint venture, trust, other enterprise or employee benefit plan, against any expense, liability or loss, whether or not the Cooperative would have the power to indemnify such person against such expense, liability or loss under the laws of the State of Washington.

ARTICLE XII – AMENDMENTS

If a quorum of the members is registered as being present or represented by mail ballot, the Articles of Incorporation may be amended by a two-thirds majority vote of the members voting upon such amendment at any regular or special meeting called for that purpose, if the number of members voting shall be at least 25% of the total membership, on twenty (20) days written notice to the members.

AMENDED BYLAWS

MIDSTATE CO-OP

As Amended October 24, 2018

ARTICLE I – MEMBERSHIP AND MEETINGS

Section 1. Annual Meeting. The annual meeting of the members of this Cooperative shall be held upon call of the Board of Directors within 240 days after the close of the Cooperative’s fiscal year.

Section 2. Special Meetings. The president shall cause a special meeting of the members to be called upon a written request of at least ten percent (10%) of the members, or upon a majority vote of the directors. The notice of the time, place and purpose of such special meeting shall be issued within ten days from and after the presentation of such petition and such special meeting shall be held within thirty days from and after the date of presenting such petition. No business shall be considered at such meeting except as may be mentioned in the call and included in the notice of the meeting.

Section 3. Notice of Meetings. Except as otherwise required by law, notice of all meetings, together with a statement of the purposes thereof, shall be mailed to each member at his last known address by the secretary at least ten (10) days prior to the meeting, however, in the event that a proposed amendment of the Bylaws is to be considered the notice to be mailed twenty (20) days prior to said meeting.

Section 4. Quorum. At any regular or special meeting at which it is proposed to amend the Articles of Incorporation, or to merge into or consolidate with another cooperative, or to sell all or substantially all assets of this Cooperative, or to voluntarily dissolve this Cooperative, a quorum necessary to the transaction of business shall consist of at least 25% of the votes which members are entitled to cast in person or by mail at the meeting. In all other matters a quorum shall consist of 25 members present at the meeting.

Members voting by mail may be counted in computing a quorum, but only on those questions as to which a mail ballot is cast.

Section 5. Conduct of Meetings. The order of business at the regular meetings and, so far as possible, at all other meetings shall be:

Calling of meeting to order.

Proof of notice of meeting.

Reading and action of any unapproved minutes.

Report of officers and committees.

Election of directors.

Unfinished business.

New business.

Adjournment.

Section 6. Voting. Each member shall be entitled to only one vote on any question regardless of the number of shares held. No proxy voting shall be allowed. At any regular, called, general or special meeting of the members, a signed, written vote received by mail from any absent member shall be accepted as that member’s vote if that member was previously notified in writing of the exact resolution on which such vote is taken.

Section 7. Termination. Any member may voluntarily withdraw from the Cooperative at any time after a period of one year from the time membership is acquired by giving written notice to the Cooperative sixty days in advance of the date that the withdrawal is to become effective. If at any time a holder of common stock ceases to be a producer of agricultural products or a cooperative association composed of agricultural products for one year, who ceases to patronize the Cooperative for one year, or who knowingly and intentionally violates any provisions of the Articles of Incorporation or Bylaws or other regulations of the Cooperative, or who moves from a territory served  by the Cooperative, the Board of Directors may notify such holder that they have declared his membership terminated. Notice of such termination shall be mailed to the last known address of the stockholder as contained in the Cooperative records.

Section 8. Rights on Termination. In the event the membership of any member shall terminate for any reason whatsoever, such member shall not thereupon become entitled to demand or receive any interest in the property or assets of the Cooperative, but shall be entitled only to receive payment of its interest in any book credits, capital funds, allocated reserves and shares of preferred Class A or B stock as and when payment would have been received had it remained a member. Notwithstanding the forgoing, upon termination of a member, the Board of Directors may in its discretion redeem the terminated member’s common stock at par value or replace it with a like amount of preferred Class B stock.

ARTICLE II – ACCOUNTING YEAR END

This Cooperative shall operate on a calendar year basis. The accounting year shall begin on January 1 and end on December 31 each year.

ARTICLE III – BOARD OF DIRECTORS

Section 1.  The governance of this Cooperative and the management of its affairs shall be vested in a Board of Directors composed of its members who shall be elected at the annual meeting of such members and hold office for three years. At the first annual meeting following the adoption of these Bylaws, two directors shall be elected to serve for a term of three years. Annually thereafter as many directors shall be elected to serve for a three-year term as there are regular vacancies in the number of directors. All directors shall hold office until their successors are elected and qualified. Vacancies in the Board shall be filled by the Board until the next annual meeting. The Board may adopt by resolution (and amend from time to time) such policies and procedures for the nomination and election of directors as the Board deems appropriate.

Section 2. Annual Meeting. The annual meeting of the Board of Directors shall be held immediately following the annual meeting of the members, without further notice. At this meeting, the officers of the Cooperative shall be elected for the ensuing year.

Section 3. Regular Meetings.  Regular meetings of the Board shall be held at such time and place as may be fixed by the Board.

Section 4. Special Meetings. Special meetings of the Board of Directors may be called by the president or by a majority of the Board. Each member of the Board shall be duly notified of such meeting.

Section 5. Quorum. A majority of the directors shall constitute a quorum of the Board, and a majority vote of the members present shall decide all questions.

Section 6. Compensation. Directors may be reimbursed for time spent in Cooperative business and may receive compensation for attendance at regular or special meetings of the Board. The amount of compensation for per diem and travel will be set at the discretion of the Board of Directors. The secretary may receive such additional compensation for his services as the Board shall determine.

ARTICLE IV – DUTIES & AUTHORITY

OF DIRECTORS & OFFICERS

Section 1. Election. The officers of this Cooperative shall be a president, a vice-president, and a secretary, to be elected by the directors from among their number. The term of all officers shall be until the next annual meeting of the directors and until their successors are elected and qualified.

Section 2. The Board of Directors shall govern the affairs of the Cooperative and shall make necessary policies, rules and regulations, not inconsistent with law or with the Articles and Bylaws, for the management of its business and the guidance of its officers, employees and agents.

Section 3. The Board of Directors shall incur necessary indebtedness and fix the amount thereof for the operation of the business and authorize the execution and delivery of all necessary instruments and documents in the name of the Cooperative and to fix the corporate seal thereto.

Section 4. The Board of Directors shall employ a general manager and set his compensation. The general manager shall have the power to hire and discharge and set the compensation of the balance of the personnel. The general manager of the company shall be directly responsible to the Board of Directors, which Board of Directors shall supervise the conduct of the business of this company and in particular the conduct of the general manager.

Section 5. The Board of Directors may require any officer or agent or employee of the Cooperative charged with the responsibility for the custody of funds or property of the Cooperative, to give bond for the faithful performance of their duties, the premium of such bonds to be paid by the Cooperative.

Section 6. The president shall preside at all meetings of the Cooperative and of the Board of Directors, sign as president on behalf of the Cooperative all papers which he is authorized to sign by the Board of Directors, and call special meetings of the Cooperative and of the Board and perform all acts and duties usually required of an executive and presiding officer.

Section 7. In the absence or disability of the president, the vice-president of the Cooperative shall preside and perform the duties of the president.

Section 8. The secretary shall keep a complete record of all meetings of the Cooperative and of the Board  of Directors, keep a membership roll, sign on behalf of the Cooperative all papers which he is authorized to sign by the Board of Directors, serve all notices required by law and these Bylaws and make a full report of all meetings and things pertaining to his office to the stockholders at their annual meetings and make all reports required by law, and perform all other duties required of them or by the Cooperative or by the Board of Directors.

Section 9.    In the case of the absence or disability of any officer of the Cooperative, or for any reason deemed sufficient by a majority of the Board of Directors, the Board of Directors may delegate the power or duties of such officer to any other officer or director for the time being.

ARTICLE V – EQUITY REDEMPTION

Section 1. The Cooperative may and it hereby reserves the right at any time, or from time to time, to call, purchase, redeem, retire, cancel and/or reissue any or all of its then outstanding capital stock, book credits, capital funds, and allocated reserves in such amounts as the Board of Directors may determine by paying to the respective holders thereof or by crediting to their account at the office of the Cooperative a sum or sums equal to the par or issuance value thereof. Written notice of such credit shall be given by mailing such notice to the member’s last known address as shown by the records of the Cooperative.

Section 2. Any moneys, funds, rights, interests or property represented by any check, draft, book credit, capital fund certificate or reserve certificate or other writing issued by the Cooperative to any person, or called from such person for redemption by the Co-operative, which remain outstanding or uncashed or which remain unclaimed or undelivered any time after one year from the end of the fiscal year in which

the instrument was mailed to such person at his last known address in the case of a check or draft, or (b) the notice of call for redemption of the instrument was mailed to such person’s last known address in all other cases, shall be transferred by the Cooperative to a special fund, hereby designated as the “Contribution Fund”, or the general fund of the Cooperative (in an unallocated fashion), or shall be otherwise cancelled and removed from the Cooperative’s books, as may be determined by the Board of Directors. Each such member, stockholder or other person hereby grants and gives to the Cooperative as a free and voluntary gift all his said interests (including any and all proceeds and avails thereof) to be used by the Cooperative for such educational, charitable or general corporate purposes, or to be removed from the Cooperative’s books, all as may be determined by the Cooperative’s Board of Directors.

ARTICLE VI – DISTRIBUTION OF

SAVINGS

Section 1.  Annual Net Savings from Patronage

Section 1(a). Gross Receipts from Patronage. Gross receipts of the Cooperative from patronage shall be total proceeds from the sale of products marketed for patrons, total proceeds received for supplies, equipment, commodities, and other property procured for patrons, total proceeds received for services performed for patrons, total proceeds produced by a transaction (i.e., income from the lease of premises, investment in securities interests, or from the sale or exchange of capital assets) that are directly related to the Cooperative’s business, in the sense that it is an integral part of that business, and total proceeds received (including patronage dividends received) which reduce costs and expenses incurred in connection with these activities.

Those gross receipts which reduce the costs and expenses incurred in connection with patronage shall be used to reduce the deductions from gross receipts enumerated in Section 1(b) of this Article.

All other gross receipts from patronage shall be distributed by the Cooperative to its patrons, subject to the deductions therefrom and to the exceptions thereto hereinafter provided.

Section 1(b). Deductions from Gross Receipts from Patronage. The Cooperative shall deduct from “gross receipts from patronage”:

All necessary marketing expenses,

The actual cost of supplies, commodities, equipment and other property procured for patrons,

The actual cost of services performed for patrons, and

Amounts, attributable to gross receipts from patronage, of:

Taxes, other than taxes based on income,

All other necessary expenses,

Reasonable and necessary additions to reserves for depreciation, for depletion, for obsolescence of physical property, for doubtful accounts and for other valuation reserves all established and computed in accordance with the Internal Revenue Code and its regulations.

The amount expended for the purposes of teaching and promoting cooperation, if and to the extent provided in these Bylaws.

Section 1(c). Annual Net Savings from Patronage. The amount remaining after reducing the “gross receipts from patronage” by the deductions specified in Section 1(b) of this Article shall constitute the annual net savings (net proceeds) from patronage, which shall be distributed to the patrons of this Cooperative, subject only to the deductions therefrom and the exceptions thereto provided in Sections 4 and 5 of this Article.

Section 2.  Annual Net Savings from Sources other than Patronage

Section 2(a). Gross Receipts from Sources Other Than Patronage. Gross receipts (total proceeds) of the Cooperative from all sources other than those described in Section 1(a) of this Article shall constitute “gross receipts from sources other than patronage.” They shall be subject to the deductions therefrom hereinafter provided, and any net amount thereof,  shall be held or used for the purposes and in the manner hereinafter provided.

Section 2(b). Deductions from Gross Receipts from Sources Other Than Patronage. The Cooperative shall deduct from “gross receipts from sources other than patronage” amounts attributable to gross receipts from sources other than patronage, of:

Taxes, other than taxes based on income,

All other necessary expenses, and

Reasonable and necessary additions to reserves for depreciation, for depletion, for obsolescence of physical property, for doubtful accounts and for other valuation reserves, all established and computed in accordance with generally accepted accounting principles.

Section 2(c). Annual Net Savings from Sources Other Than Patronage. The amount remaining after reducing the “gross receipts from sources other than patronage” by the deductions specified in Section 2(b) of this Article shall constitute the annual net savings (net earnings) from sources other than patronage.

Section 3. Total Annual Net Savings. The sum of annual net savings from patronage and annual net savings from sources other than patron age shall be known as the “Total Annual Net Savings.”

Section 4. Capital Reserve.

The Board of Directors shall have the power and authority to set up reasonable reserves for necessary purposes of the Cooperative.

The Board shall annually set aside an amount from the sources described below as unallocated reserves until such reserves, together with any allocated reserves, equals 50% or more of patron equities then outstanding, as evidenced by paid-up capital stock or otherwise (hereafter “patron equities”).

Annual net savings from sources other than patronage.

Annual net savings from patronage on business done for the United States Government or any of its agencies.

Annual net savings from patronage attribut-

able to patrons who are unidentified.

Annual net savings from patronage attributable to patrons who do not consent to take into account patronage dividends from the Cooperative in the manner provided in 26 U.S.C. Section 1385.

Amounts which have been placed in the capital reserve prior to the effective date of these Amended Bylaws, and which have been allocated, shall remain allocated on the books of the Cooperative unless and until retired.

Taxes based on income shall be charged to the unallocated portion of the capital reserve, not withstanding any provisions herein to the contrary. If the unallocated portion of the capital reserve is insufficient to pay taxes based on income, the deficiency shall be paid from the Total Annual Net Savings.

Section 5. Dividends on Stock. If this Cooperative shall have outstanding any preferred Class A stock, any dividends paid shall be paid from the annual net savings from patronage remaining after having been reduced by any additions to the capital reserve provided for by Section 4 of this Article.

Section 6(a). Distribution. The annual net savings from patronage, less any deductions therefrom or exceptions thereto as determined by Sections 4 and 5 of this Article, shall be distributed annually (except as hereinafter provided) to the patrons of the Cooperative who consent to take into account patronage distributions from the Cooperative in the manner provided in 26 U.S.C. Section 1385, on the basis of their respective patronage, and said patrons shall be notified thereof.

In making such distribution, due regard shall be given to the sources from which such savings accrue and separate allocations and distributions shall be made for the marketing and purchasing operations as separate divisions of the Cooperative.

Annual net savings from patronage attributable transactions (i.e., transactions defined in Article VI, Section 1(a), above, including income from the lease of premises, investment in securities interests, or from the sale or exchange of capital assets) that are directly related to the Cooperative’s business, in the sense that it is an integral part of that business, shall be distributed to patrons in proportion, insofar as is practicable, to their patronage during the period to which such net savings are attributable.

Patronage dividends shall be distributed in cash or in written notices of allocation or by any combination thereof designated by the Board of Directors. The amount stated in written notices of allocation shall be applied toward the purchase of capital stock of the Cooperative (but not preferred Class A stock) at its par value or shall be in such other form as is permitted by law.

Section 6(b).   Annual net savings from patronage at-

tributable to consenting patrons, which are, as to anyone patron, less than $30.00 (Thirty Dollars), shall be reallocated to patrons receiving amounts greater than $30.00 (Thirty Dollars).

Section 7(a).      Losses

In the event the usual and ordinary operations of the Cooperative for any fiscal year should result in a net operating loss, such loss shall be allocated to all members (and to any other patrons with whom the Cooperative has contracted to deal on   a non-profit, cooperative basis) on the same basis as net annual savings are distributable hereunder. Notwithstanding the foregoing, the Board of Directors, in its sole discretion, may prescribe the basis on which said loss shall be treated, either on an unallocated basis or an allocated basis, including but not limited to carry forward or carry back, reduction of capital stock, book credits, capital funds and allocated or unallocated reserves, without regard to patronage, or above combination of such methods. Losses actually allocated to a member or other patron may be recovered by the Cooperative pursuant to the offset procedure described in Section 10, or by any other collection method.

Losses produced by a transaction of the nature described in Section 6(a)(2) above will be deemed to be patronage sourced losses and allocated to the Cooperative’s members (and any other patrons with whom the Association has contracted to deal on a non-profit, cooperative basis) on the same basis as the savings produced by such transactions are distributable under Section 6(a)(2).

Section 7(b). In the event of a casualty loss or any other loss not the result of the usual and ordinary operations of the Cooperative, the Board of Directors in its sole discretion shall prescribe the basis on which said loss shall be treated, including but not limited to, carry forward or carry back, reduction of preferred stock,

book credits, capital funds or allocated reserves without regard to patronage and/or allocations to members and patrons, and collection of the same as described in Section 9 below.

Section 8. Deceased Member or Patron. Irrespective of the Cooperative’s capital plan and the order of distribution, in the event of the death of an individual member or patron (“the deceased”) the deceased’s unredeemed capital stock, book credits, capital funds or allocated equities may be redeemed as follows:

Request for Payment. The personal representative of the deceased must notify the Cooperative that the member or patron is deceased. The Cooperative will then provide the personal repre-sentative with a report identifying the balance of the deceased’s unredeemed capital stock, book credits, capital funds or allocated equities. The Cooperative will also provide the personal representative with a form by which the personal representative may request payment.

Approval by Board of Directors. After the personal representative makes the request for payment and provides the Cooperative with the request for payment form, the Board of Directors may, by a majority vote, grant the request for payment. The Board of Directors can approve or deny the request for payment for any reason. If the Board approves the request for payment, the Cooperative will pay not more than ten thousand dollars ($10,000) of any unredeemed capital stock, book credits, capital funds or allocated equities of such member after offsetting any amounts owed by the deceased member to the Cooperative, according to the books and records of the Cooperative, in one lump sum or by installment, to the payee identified by the personal representative. If the cumulative balance of the deceased member is greater than ten thousand dollars ($10,000), or the Board of Directors denies the request for payment, then the remaining balance of the deceased member’s unredeemed capital stock, book credits, capital funds or allocated equities may be redeemed as and when payment would have been received as if no death had occurred.

Discounted Value. The personal representative may request to redeem in one lump sum or by installment, a discounted amount of the deceased’s unredeemed capital stock, book credits, capital funds or allocated equities that exceed ten thousand dollars ($10,000). The discount shall be calculated using the assumption that the Cooperative will redeem the oldest year of outstanding deferred equity annually subject to a ten-year deferral. The rate by which the cumulative balance will be discounted shall be five percent more than what the Cooperative is paying on its seasonal operating line as of the date of the request by the personal representative. The difference between the cumulative balance and the balance after the discount is applied shall be accounted for as “Capital Credits Gain” on the Cooperative’s books and shall become part of the “Unallocated Retained Earnings” of the Cooperative.

Section 9.   Dissolution of an Entity holding Equity in the Cooperative or Distribution by an Entity of Equity in the Cooperative.  If any entity (Corporation, Part-nership, LLC, or any other form of entity) shall be dissolved or distribute equity in the Cooperative, any unredeemed capital stock, book credits, capital funds or allocated equities shall be treated as follows:

(a)   Dissolution Caused by the Death of the Owner.  If an entity holding equity in the Cooperative is dissolved because of the death of the principal owner (share-holder, partner, member, etc.), the dissolution of the entity shall be treated as the death of an individual member of patron, as provided for under Section 8.

(b)  Death of a Partner.  A partnership holding equity in the Cooperative shall advise the Cooperative, in writing, signed by the remaining partners, that the partnership has distributed unredeemed capital stock, book credits, capital funds or allocated equities to the Estate of a deceased partner.  The deceased partner’s Estate may request that this equity be redeemed, as provided for under Section 8.

(c)  Dissolution or Distribution for any other reason.  The entity shall advise the Cooperative, in writing, signed by an individual with authority to bind the entity, of the percentage of any unredeemed capital

stock, book credits, capital funds or allocated equities

to be allocated to each prior owner.  The Cooperative will record the distribution on its books. The equity shall be redeemed as and when payment would have been received as if no dissolution or distribution had occurred.

Section 10. Right of Offset; Security Interest. The Cooperative shall have the right to offset any indebtedness of a patron to the Cooperative against: (a) any sums payable by the Cooperative to such patron; (b) such patron’s capital stock, book credits, capital funds and allocated reserves in the Cooperative; (c) the cash portion of any patronage dividend payable by the Cooperative to such patron; or (d) any combination of the above. Each patron of the Cooperative does hereby make, constitute and appoint the Cooperative such patron’s attorney-in-fact for him and in his name, place and stead, for his use and benefit, to sign, endorse and deliver to the Cooperative such portion of the cash portion of such patron’s patronage dividend as may be necessary to satisfy any indebtedness of such patron to the Cooperative. In addition to the foregoing right of offset each patron hereby grants to the Cooperative a Uniform Commercial Code security interest in: (a) any sums payable by the Cooperative to such patron; (b) such patron’s capital stock, book credits, capital funds and allocated reserves in the Cooperative; and (c) the cash portion of any patronage dividend payable by the Cooperative to such patron to secure repayment of any such indebtedness. Said patron also agrees to take all steps necessary, and to cooperate with the Cooper-ative’s efforts, to perfect its security interest therein. Without limitation, the Cooperative may retain any certificates or other paper issued to evidence such amounts (except for item (c) above) as a means of perfecting its interest therein, and may also retrieve such certificates once issued, and the patron shall cooperate with the Cooperative in such actions.

ARTICLE VII – ACCOUNTS & AUDITING

Section 1. This Cooperative shall install a system of accounts and provide other accounting appurtenances as may be deemed necessary by the Board of Directors to conduct the business in an orderly manner.

Section 2.  A complete annual audit shall be made by a qualified accounting firm selected by the Board of Directors previous to the date of each annual meeting, at which meeting the audit report shall be presented. Special audits shall be made at any time upon order of the Board of Directors or upon a majority vote of the members at any regular or specially called meeting.

ARTICLE VIII – AMENDMENTS

If a quorum of the members is registered as being present or represented by mail ballot, the Bylaws may be amended by a two-thirds majority vote of the members voting upon such amendment at any regular or special meeting called for that purpose, if the number of members voting shall be at least 25% of the total membership, on twenty (20) days written notice to the members.

ARTICLE IX – CONSENT PROVISION

Section 1. Each person who hereafter applies for and is accepted, to membership in this Cooperative and each member of this Cooperative on the effective date of this Bylaw who continues as a member after such date shall, by such act alone, consent and agree that (1) the amount of any distributions with respect to his patronage which are made in written notices of allocation (as defined in 26 U.S.C. 1388(b) and (2) that the amount he has received from the Cooperative in payment for his products or commodities: in the form of per-unit retain certificates (as defined in 26 U.S.C. 1388(g)), which are received by him from the Cooperative, will be taken into by him at their stated dollar amounts in the manner provided in 26 U.S.C. 1385(a) in the taxable year in which such written of allocation and per-unit retain certificates respectively, are received by him. Written notification of the adoption of this Bylaw, a statement of its significance, and a copy of the provision be given separately to each member and prospective member before he becomes a member of the Cooperative.

Section 2. The provisions of Article IX, Section 1, shall not apply to any reserves or other amounts allocated to or from any member in the following two situations only: (1) when the Cooperative does not,  in writing, inform or notify such member of such retention or allocation; (2) when the Cooperative does inform such member that such retention or allocation has been made pursuant to these Bylaws and does so by a writing revealing that it evidences “nonqualified,” or “nonqualifying” allocations or retentions.