UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ---------- to ----------
Commission file number 33-38051
SF SERVICES, INC.
(Exact name of registrant as specified in its Charter)
Arkansas 71-0220282
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
120 Main Street, North Little Rock, Arkansas 72114
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (501) 945-2371
Securities registered pursuant to Section 12(b) of the Act
Name of each exchange on
Title of each class which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act
NONE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference to Part III
of this Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the voting and non-voting common
equity held by nonaffiliates of the registrant was $124,000 at
January 27, 1998.
The number of shares outstanding of the registrant's common stock,
$1,000.00 par value per share, was 124 at January 27, 1998.
<PAGE>
FORM 10-K
PART I
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 ("PSLRA")
Certain forward-looking information contained in this report
is being provided in reliance upon the "safe harbor" provisions
of the PSLRA as set forth in Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Such information includes, without
limitation, discussions as to estimates, expectations, beliefs,
plans, strategies and objectives concerning the Company's future
financial and operating performance. Such forward-looking
information is subject to assumptions and beliefs based on
current information known to the Company and factors that could
yield actual results differing materially from those
anticipated. Such factors include, without limitation, costs of
feed ingredients and other products sold by the Company, prices
received for products sold by the Company, extreme weather
conditions in the Company's trade area, significant economic
changes within the agriculture industry, and effects of the
Company's restructuring efforts.
<PAGE>
ITEM 1: BUSINESS
SF Services, Inc. is a farm supply cooperative which was
organized under the laws of the State of Arkansas in 1945.
As of January 27, 1998 it was made up of 124 local member
cooperatives in Arkansas, Louisiana, Mississippi, Alabama,
Oklahoma, and Texas. The local member cooperatives are owned
and controlled by individual farmers. SF Services, Inc. is
a basic manufacturer of agricultural and pet feeds, a
production contractor and distributor of seeds in the rice,
cotton, soybean and wheat production areas of the midsouth
and a basic wholesaler of a wide variety of farm supply,
tires, batteries and automotive ("TBA"), chemical, petroleum
and fertilizer products to its members and other customers.
SF Services, Inc. attempts, through pooling of resources
and sharing risks, to secure farm input products of the best
quality and price, to cooperatively achieve economies in the
manufacturing and procurement of goods and supplies, and to
render service to its local member cooperatives. SF Services,
Inc. has 15 operating and service divisions: Farm and Ranch;
Petroleum; TBA; Fertilizer; Chemical; Seed; Feed; Animal
Health; Catfish Processing and Marketing; Warehouse and
Transportation; Field Services; Corporate Services;
Information Services; Credit and Financial Analysis; and
General Corporate.
SF Services, Inc. also controls eight subsidiaries which are
included in the consolidated financial reports of SF Services,
Inc. The eight subsidiaries are Cloverleaf Cooperative; SFA,
Inc.; Deep South Farmers Supply, Inc.; Professional
Technologies, Inc.; AgGrow Finance, Inc.; Southern Farm Fish
Processors, Inc.; SF Technical Services, Inc.; and Northeast
Arkansas Oil Company, LLC ("NEA Oil Company"). SFA, Inc.
conducts retail farm supply sales and services. AgGrow
Finance, Inc. provides financing to individual farmers of
member cooperatives for crop production and equipment purchases.
Southern Farm Fish Processors, Inc. operates a catfish
processing plant. SF Technical Services, Inc., provides
environmental and regulatory compliance services and crop
consulting services. The remaining subsidiary, NEA Oil Company,
is a wholesale and retail fuel business.
<PAGE>
In the first quarter of 1997, the Company purchased substantially
all of the assets of Matthews of Monette, Inc., a wholesale and
retail fuel business located in Arkansas, for approximately
$9.4 million. This acquisition is expected to add approximately
$45 million in annual sales. This business operates under the name
"Northeast Arkansas Oil Company, LLC" a newly formed wholly-owned
subsidiary. The purchase was financed as follows, $2.25 million
in promissory notes issued by the Company, $2.13 million in
capital leases and other debt assumed from the seller, and the
remainder in borrowings from CoBank.
In the first quarter of 1995, pursuant to a plan and
agreement of merger by and between Delta Purchasing
Federation (AAL) ("DPF") and the Company, DPF was merged
into the Company in a statutory merger. In the merger, DPF
shareholders received an equity interest in the Company with
value equal to net book value of DPF's assets plus $500,000.
The acquisition has been accounted for as a purchase by
recording the assets and liabilities of DPF based on their
respective fair market values at acquisition date under the
plan and agreement of merger. The Company's sales for 1995
increased approximately $21 million due to the merger.
In the first quarter of 1993, SF Services, Inc., through a
newly formed wholly-owned subsidiary, Southern Farm Fish
Processors, Inc., purchased the assets of Arkansas Prime Fish
Processors by the assumption of debt in a non-cash transaction.
SF Services, Inc. and its subsidiaries employ approximately
1,310 persons.
<PAGE>
Division sales, savings (loss) before income taxes and
identifiable assets for each of the last three fiscal
periods are presented below:
Year Ended Year Ended Year Ended
October 31, October 31, October 31,
1997 1996 1995
------------ ------------ ------------
SALES BY DIVISION
Feed and animal health $113,240,365 $122,397,413 $101,249,886
Fertilizer 119,486,518 129,557,273 120,596,538
Seed 37,922,154 33,028,271 27,246,492
Chemicals 111,763,122 121,382,784 136,743,532
Farm and ranch 30,069,407 35,919,700 39,067,528
Petroleum 103,605,683 70,216,528 37,750,042
Tires, batteries and
automotive 18,970,375 19,659,706 20,322,532
Subsidiary's retail
farm supply sales,
net of eliminations 14,142,897 21,694,459 10,012,504
Subsidiary's catfish
processing and
wholesale sales, net
of eliminations 31,752,577 36,624,223 37,831,922
Subsidiary's technical
services sales, net
of eliminations 233,801
Subsidiary's retail and
wholesale petroleum
sales, net of
eliminations 41,680,545
------------ ------------ ------------
$622,867,444 $590,480,357 $530,820,976
============ ============ ============
<PAGE>
Year Ended Year Ended Year Ended
October 31, October 31, October 31,
1997 1996 1995
----------- ---------- -----------
SAVINGS (LOSS) BEFORE
INCOME TAXES BY
DIVISION*
Feed and animal health $ (2,844,090) $(3,489,573) $ 797,252
Fertilizer (5,065,882) 16,838,293 5,635,474
Seed (931,389) (19,325) (93,310)
Chemicals (1,449,878) (249,797) 992,824
Farm and ranch (1,284,712) (139,819) 183,850
Petroleum (150,923) 388,710 40,506
Tires, batteries and
automotive (858,243) (6,050) 238,917
Subsidiary's retail
operations, net of
eliminations (5,495,660) (1,341,332) (561,194)
Subsidiary's finance
operations, net of
eliminations (15,497) 85,817 38,244
Subsidiary's catfish
processing and wholesale
sales, net of
eliminations (922,584) (6,316,888) (2,374,939)
Subsidiary's retail and
wholesale petroleum
operations, net of
eliminations (155,775)
----------- ----------- -----------
$(19,174,633) $ 5,750,036 $ 4,897,624
=========== =========== ===========
*After allocation of general and administrative expenses, interest
expense and other income (expense).
<PAGE>
October 31, October 31, October 31,
1997 1996 1995
----------- ----------- -----------
PROPERTY AND EQUIPMENT (NET)
Feed and animal health $ 8,865,929 $ 9,426,682 $13,100,196
Fertilizer 12,865,116 11,278,166 6,294,171
Seed 522,703 476,914 530,319
Chemicals 1,993,661 2,047,747 1,930,296
Farm and ranch 167 199 628
Tires, batteries
and automotive 83,190 89,402 102,062
Petroleum 140,060 95,845 77,914
Warehouse, transportation
and general corporate 10,080,580 7,934,825 5,771,259
Subsidiary's retail
operations 1,814,071 1,393,864 1,013,762
Subsidiary's finance
operations 0 360 1,151
Subsidiary's catfish
processing wholesale
sales 2,795,661 2,912,675 4,654,797
Subsidiary's retail and
wholesale petroleum
operations 7,600,438
----------- ----------- -----------
$46,761,576 $35,656,679 $33,476,555
=========== =========== ===========
<PAGE>
The seasonal nature of SF Services, Inc.'s core business
requires the maintenance of significant inventory levels.
The Fertilizer, Chemical and Seed Divisions have peak activity
in the spring planting season and again during the fall
harvest and winter planting season. The geographical spread
of trade areas from south to north makes these peaks fairly
long in duration. However, the Fertilizer, Chemical, and
Seed Divisions do experience lower levels of inventory in the
late winter and late summer months.
SF Services, Inc.'s Feed Division is also subject to seasonal
variance with its slow periods being experienced during the
late spring and summer months when pasture is generally
available. This is mitigated somewhat by the dairy feed
business which is more year round in nature and by catfish
feed sales which occur during the late spring through early
fall period.
These seasonal patterns generally call for higher inventory
levels because products must be stored during the slow period
for delivery during the peak season. The requirements for
competitive pricing has also made it necessary in a variety of
products to purchase in truck, rail and barge lots which also
adds to holding cost. This is especially true in the Farm and
Ranch and TBA Divisions in the purchase of steel products,
tires, and lubricants in truckload lots and Fertilizer and
Seed Divisions in barge and rail quantities.
SF Services, Inc. is not dependent upon any one customer for a
significant portion of its business. However, because of the
cooperative ownership, it is dependent upon its local member
cooperatives with whom it did 55% of its business in the fiscal
year ending October 31, 1997. SF Services, Inc. is very price
conscious because of the competitive environment in its trade
area. Competitors include other regional cooperatives such as
MFA, Inc., Farmland Industries, and Gold Kist as well as major
privately-owned agri-business systems such as Helena Chemical,
Terra International, and Conagra.
OPERATING DIVISIONS
Farm and Ranch
The Farm and Ranch Division makes available to the local
member stores a wide range of products necessary for the
timely schedule of crop and livestock production. Such
products include garden tools, field sprayers, combine parts,
disc blades, baler twine, fencing material, and a full line of
livestock handling equipment. SF Services, Inc. attempts to
maintain a relationship with major manufacturers of these
products in order to guarantee a consistent supply of quality
products for its local members.
<PAGE>
Petroleum
This division provides petroleum products, including gasoline
and diesel fuel, to its member stores. SF Services, Inc.
believes that it has a good relationship with suppliers having
strong domestic crude sources, and that this will help SF
Services, Inc. maintain a competitive position in the
agricultural petroleum market.
Tires, Batteries and Automotive
The TBA Division supplies tires, batteries and other
automotive accessories such as antifreeze and lubricants to
the member stores. Products supplied by the TBA Division
are for use in both farm equipment and personal vehicles.
The division operates truck routes out of North Little Rock,
Arkansas to place and service batteries. Farm lubricants
are sold in both small containers as well as bulk containers.
Chemical
The Chemical Division provides to the local member stores
various herbicides, crop protection chemicals, crop soil
surfactants and other adjuvants for use in the production of
such crops as rice, cotton, soybeans, wheat and sugar cane.
The products are also utilized in the development and
protection of pasture land. The products are delivered in a
full range of packaging including the delivery of bulk
reusable containers. This division also markets a
full line of small package lawn and garden products.
The Chemical Division also disseminates information to the
local member stores concerning proper use of crop protection
products. This includes information concerning container
disposal, proper storage and application, contingency planning
as well as compliance with state and federal environmental
regulations.
Fertilizer
The Fertilizer Division provides a full range of fertilizer
products, services and marketing programs. The fertilizer
products handled by the Fertilizer Division include all
nitrogen products as well as phosphate, potash and sulfur.
In addition to fertilizer storage, the division has the
capability to receive and unload barge loads of fertilizer
products. The division also has mixing and blending
capabilities at its North Little Rock, Arkansas facility.
<PAGE>
Seed
The Seed Division is responsible for marketing and distributing
agricultural seed to SF Services, Inc.'s membership. The
division operates three seed processing and cleaning plants
located in Blytheville, North Little Rock and Forrest City,
Arkansas. Through these plants, the division contracts for
the production of both public and proprietary brands of seed
which is cleaned, processed and bagged at the plants following
harvest.
Feed
The Feed Division is a basic manufacturer of livestock,
aquaculture, horse and pet feeds. A wide variety of specialized
formulas are provided to meet the various needs of the dairy,
livestock, catfish, horse and pet industries. The division
operates six feed mills located in North Little Rock and
Fayetteville, Arkansas; Shreveport, Louisiana; and Lumberton,
Greenville and Macon, Mississippi.
Animal Health
The Animal Health Division is responsible for the marketing and
distribution of a full line of livestock pharmaceuticals and
related products for the care of livestock. This division
compliments the Feed Division by providing health related
products to the same customers using livestock, aquaculture,
horse and pet feeds.
Warehouse and Transportation
The Warehouse and Transportation Division operates the
primary product distribution center located in North Little
Rock, Arkansas. This division is responsible for the
warehousing and delivery of SF Services, Inc.'s products
sold to its customers. The division maintains a fleet of
truck tractors and trailers for its delivery function.
Field Services
The Field Services Division includes the departments of
Field Sales and Communications. The Field Sales department
promotes SF Services, Inc.'s programs and product lines
at the local store level. This department emphasizes
expansion of the SF Services, Inc.'s market area and
prepares and presents information to educate local
cooperatives in a variety of areas including products
and practices, cooperative development and member services.
<PAGE>
The Communications department includes the functions of
member and public relations, advertising coordination and
program development. The advertising coordination function
provides direct support to the member cooperatives when
requested. This support includes ad slicks, mail stuffers,
and other advertising material. The member and public
relations function is responsible for the planning and
coordination of all SF Services, Inc.'s meetings held for
the local cooperatives. This includes the SF Services,
Inc.'s annual meeting, the summer cooperative managers'
meeting and the annual product shows. This division also
represents SF Services, Inc. and the local member
cooperatives in the development, promotion and coordination
of state and regional cooperative activities.
Corporate Services; Information Services; Credit and
Financial Analysis; and General Corporate
These divisions encompass a variety of functions which are
primarily administrative in nature. The functions include
finance, accounting, credit, strategic planning, facility and
property management, risk management, employee benefits
administration, and management support.
The Corporate Services Division also administers the
SF Services, Inc.'s health plan and 401(k) retirement
plan. These are multi-employer plans in which many of the
local member cooperatives participate. The division's risk
management group is responsible for placing and servicing
liability and casualty insurance for SF Services, Inc. and
for many of the local member cooperatives.
Technical Services
Technical Services is responsible for research.
Research may be either exploratory or for the scientific
procurement of information. This department is responsible
for the development and administration of the Technical
Assistance Joint Venture Program and Tech Service program.
These programs encompass agronomic and economic recommendations
to be used by local cooperatives and membership and
coordination of marketing planning for both regional and local
cooperative management. In addition, the department
administers and disseminates information regarding government
regulatory agencies relating to environmental matters,
OSHA and the Department of Transportation as may be applied
to the operations of SF Services, Inc. and member cooperatives.
Assistance is given to testing and remediation of
environmental problems when required.
<PAGE>
Catfish Processing and Marketing
Catfish processing and marketing is located in Eudora,
Arkansas. Live catfish for processing are purchased
from local farmer producers located in Arkansas,
Mississippi and Louisiana. Approximately 32.7 million
pounds of live fish are purchased annually at a conversion
rate of about 45.3% yield resulting in approximately 14.9
million pounds of finished product. Sales consist of frozen
and fresh ice pack whole and fillet product with about 60%
frozen and 40% fresh. Primarily sales are made through
brokers to restaurant and grocery concerns.
NEA Oil Company
NEA Oil Company is a wholesale and retail fuel operation which
was acquired during the first quarter of 1997. This wholly-
owned subsidiary operates approximately 18 convenience stores
and sells wholesale fuel to non-member customers, primarily in
northeastern Arkansas.
ITEM 2: PROPERTIES
The principal offices of SF Services, Inc. are located in
North Little Rock, Arkansas. SF Services, Inc.'s other
facilities can be divided into two categories - distribution
and processing. The major distribution warehouse in North
Little Rock, Arkansas is on a concrete tilt-up slab
construction (280,000 square feet). This centralized
distribution warehouse serves SF Services Inc.'s Chemical;
Farm Supply; TBA; Feed; Animal Health; and Seed divisions.
The North Little Rock warehouse is supported by in-season
product storage warehouses at Blytheville, Arkansas; Forrest
City, Arkansas; Bunkie, Louisiana (a leased facility);
Evergreen, Louisiana; and Greenwood, Mississippi.
These metal warehouses are placed for quick product movement
and could handle up to 50% more product in season.
The Fertilizer Division distributes dry fertilizer products
from two warehouses in North Little Rock and one warehouse
in Jonesboro, Arkansas, which have combined storage capacities
of approximately 80,000 tons. These wood and treated metal
warehouses provide off-season and in-season storage. In
addition, approximately 50,000 tons of liquid fertilizer
is distributed through equipment owned by the Company at six
locations throughout Arkansas, Mississippi, and Louisiana,
and approximately 55,000 tons through eleven leased facilities
located in Arkansas, Louisiana, Mississippi, and Texas. The
fertilizer bagging facility in the North Little Rock, Arkansas
warehouse can increase its production to supply additional
demand. All distribution warehouses are kept in good operating
condition with an ongoing repair and maintenance program.
<PAGE>
During 1997 the Company completed construction on two
fertilizer river terminals located in Memphis, Tennessee
and Greenville, Mississippi. The Memphis terminal has a
storage capacity 60,000 tons and the Greenville terminal
has a storage capacity 43,000 tons.
SF Services, Inc. operates six feed processing plants located
in North Little Rock, Arkansas (80,000 tons at 89% capacity);
Fayetteville, Arkansas (70,000 tons at 32% capacity);
Shreveport, Louisiana (70,000 tons at 43% capacity); Macon,
Mississippi (110,000 tons at 96% capacity); Lumberton,
Mississippi (100,000 tons at 100% capacity) and Greenville,
Mississippi (90,000 tons at 84% capacity). The facilities
at Fayetteville, Arkansas; Shreveport, Louisiana; Lumberton,
Mississippi; and Greenville, Mississippi are concrete mills,
and the ones at North Little Rock, Arkansas; and Macon,
Mississippi are of steel construction. All mills are in good
operating condition and are capable of running 100% of
capacity without materially changing or adding additional
equipment.
During the year ended October 31, 1997, the Seed Division
operated three seed plants located in Blytheville (600,000
bushel capacity), North Little Rock (160,000 bushel capacity)
and Forrest City (800,000 bushel capacity), Arkansas. Each
plant has up-to-date cleaning equipment with adequate bulk
and flat storage. The seed plant at North Little Rock,
Arkansas operated on an as needed basis with nominal
production for the fiscal year ended October 31, 1997. The
production of the Blytheville and Forrest City plants ran at
approximately 60% of capacity.
SF Services, Inc. acquired a manually operated catfish
processing plant in December, 1992 located in Eudora,
Arkansas. The facility is constructed of concrete foundation
and flooring with a metal building having offices, processing
area, ice pack cooler storage and freezer storage. Following
the acquisition, the plant was upgraded to an automated
operation through the addition of automated processing
equipment and the installation of an ammonia freezing system
and expanded freezer storage. The operating capacity of the
Eudora Facility is 40 million live weight pounds annually using
the current freezing and storage facility.
SF Services, Inc. has numerous other miscellaneous properties
which are leased to member cooperatives, subsidiaries, and
unrelated third parties, as well as several tracts of
undeveloped land. Some of the properties are used in subsidiary
operations, some are used by member cooperatives, and others
were acquired through foreclosures.
<PAGE>
A listing of the locations of such properties by state and
town follows:
Louisiana Mississippi Arkansas
- ------------ -------------------------- ----------
Evergreen Belden New Albany Wynne
Eunice Natchez Raymond Stuttgart
Winnsboro Inverness Collins Augusta
Minden Sumner Vicksburg El Dorado
Iowa Wiggins
Mer Rouge
Moreauville
Farmerville
All of the facilities and properties listed in the above table
are held in fee by SF Services, Inc.
SF Services, Inc. believes that its facilities and properties
are adequate for its current needs and for any anticipated
future needs.
ITEM 3: LEGAL PROCEEDINGS
None
ITEM 4: SUBMISSION OF MATTERS TO A VOTE AND SECURITY
HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
No market exists for trading of shares of SF Services,
Inc.'s common stock. SF Services, Inc.'s common stock
cannot be transferred by the holders thereof without prior
approval of the Board of Directors and then only to persons
meeting the requirements to be a shareholder as specified in
the bylaws. No dividends may be paid on SF Services, Inc.'s
common stock.
The number of shareholders of record for SF Services, Inc.'s
common stock as of January 27, 1998 was 124.
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
The following is a summary of selected historical financial
data of SF Services, Inc. as of and for the years ended October
31, 1997, 1996, 1995, 1994 and 1993. The financial data has
been derived from the "Consolidated Financial Statements of
SF Services, Inc.," which have been audited by Baird, Kurtz &
Dobson, independent certified public accountants.
The financial data should be read in conjunction with the
"Consolidated Financial Statements and Footnotes" included
elsewhere herein. Particular attention is directed to
Footnote "Acquisitions."
Year Ended Year Ended Year Ended Year Ended Year Ended
October 31, October 31, October 31, October 31, October 31,
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(Thousand Dollars)
NET SALES $622,867 $590,480 $530,821 $439,171 $382,545
SAVINGS
(LOSS)
BEFORE
EXTRA-
ORDINARY
ITEM $(17,740) $ 2,072 $ 2,703 $ 3,954 $ 2,263
AT PERIOD END:
TOTAL
ASSETS $188,795 $192,122 $199,662 $159,527 $143,777
LONG-TERM
NOTES
PAYABLE,
NET OF
CURRENT
MATURITIES $ 33,031 $ 22,309 $ 19,843 $ 27,805 $ 30,986
TOTAL
LONG-TERM
OBLIGATIONS $ 33,200 $ 22,477 $ 20,072 $ 29,437 $ 32,221
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The primary products sold by SF Services, Inc., include
processed catfish, farm supply products, animal and fish
feeds, agricultural fertilizers, seeds and chemicals, and
petroleum products. These products are sold primarily to
124 local cooperative retail stores serving the individual
farmer producer, and other non-member customers. Weather,
federal farm programs, and commodity prices impact the
unit demand for the products sold by SF Services, Inc.
Primarily the seed, fertilizer, chemical and animal feed
<PAGE>
divisions may be impacted by seasonal changes, as well
as variations in ingredient prices which create changes
in the dollar volume of sales. SF Services, Inc.'s
business cycle is highly seasonal and can be advanced
or delayed by wet, dry, hot, or cold weather conditions.
Total 1997 sales increased approximately 5.5% over the
previous year. Increased sales were realized in Animal
Health, Seed, and Petroleum, while decreases in sales
were realized in Feed, Farm and Ranch, Fertilizer, Chemicals,
TBA, and Catfish Processing. Further analysis of departmental
sales is included under the comparative analysis between
fiscal years which follows.
Cost of sales were 93.6% of sales in 1997 compared to 94.2%
in the previous year. Further analysis of cost of sales
by department is included under the comparative analysis
between fiscal years which follows.
As a result of the factors described in the two preceding
paragraphs, gross profit for the year ended October 31,
1997 increased approximately $5.1 million (15%). Further
analysis of gross profit is included under the comparative
analysis between fiscal years which follows.
Net savings decreased $19.8 million. This decrease was
due primarily to increased operating expenses and increased
interest costs. Also, there was $17.9 million gain on sales
of stock in the prior year.
On August 22, 1994, Mississippi Chemical Corporation ("MCC"),
formerly a Cooperative, became a public entity and the
Company's investment in common stock and allocated equities
of MCC were converted to common stock in the new entity.
Effective July 1, 1994, the Company ceased to receive
patronage refunds from MCC on business done with MCC
subsequent to July 1, 1994.
<PAGE>
During 1996, the Company sold 1,525,720 shares of MCC stock.
The sales resulted in a gain of $17,863,024 on proceeds of
$34,027,573.
Subsequent Events
During the first quarter of 1998, the Company sold seven
convenience store locations through a sale/leaseback
transaction. No gain or loss resulted from this transaction.
Proceeds of $2.68 million were used to pay down term debt
with CoBank.
Comparative Analysis of the Fiscal Year Ended October 31, 1997
to the Fiscal Year Ended October 31, 1996
Net sales for the fiscal year ended October 31, 1997
increased approximately 5.5% over the prior year. This
increase was attributable to the following factors:
Farm and Ranch sales decreased approximately 16% due
primarily to a $3 million decline in sales of steel products
and a $2 million decline in sales of agronomy equipment. Gross
margin declined to 7.6% of sales compared to 9.1% in the prior
year. This decrease was primarily the result of the continuing
shift to more direct sales, which carry a lower gross profit
percent.
Feed sales decreased approximately 10% due to a 30,000 ton
decline in beef feeds and a 20,000 ton decline in dairy feeds.
These declines were due to lower livestock numbers in the trade
area and a mild winter season. Gross profit decreased $1.3
million due to the decline in sales , unfavorable ingredient
prices early in the year which were not passed on the
customers, and higher per ton manufacturing costs.
Animal Health sales increased approximately 2% due to improved
market conditions and the producers focus on herd health.
Gross profit as a percent of sales decreased from approximately
10% in 1996 to 7% in 1997. This decrease was due to
competitive situations in the market.
TBA sales decreased 3.5% due to some loss of market share and
the compressed spring season caused by wet weather conditions.
Gross profit as a percent of sales decreased from 13.9% in 1996
to 12.5% in 1997. This decrease was due to increased tire
adjustment costs and lower commissions from vendors.
Petroleum sales increased approximately 48% due to increased
brokered sales to non-member customers. Gross profit as a
percent of sales decreased to 1.5% from 2% in the previous
year. This decrease in gross profit as a percent of sales
was due to the increase in non-member brokered sales, which
carry a lower percent gross profit.
<PAGE>
Fertilizer sales decreased approximately 8% due to lower per
unit sales prices. Total tons sold increased approximately
11,000 tons (1%). Gross profit as a percent of sales decreased
to approximately 4% from 5% in the previous year. This
decrease was due primarily to the decline in nitrogen
fertilizer prices during the year.
Chemical sales decreased 8% due to the use of more transgenic
crops, which displace a portion of the agricultural chemical
sales. Also, there were increased sales of generic products,
which sell at lower per unit prices. Gross profit as a percent
of sales increased to approximately 7% from 6% in the previous
year due to higher commission income.
Seed sales increased 15% due to increased sales of Roundup Ready
soybeans. Gross profit as a percent of sales decreased 0.50%
due to the poor wheat crop as a result of unfavorable weather
conditions in the trade area.
Processed catfish sales decreased approximately 13% due to
fewer sales of processed fish purchases from other processors
for resale ("outside fish"). Total units processed remained at
approximately the same level as experienced during the prior
year period. Gross margin improved approximately $3.6 million
due to lower prices paid for live fish and improved processing
efficiency.
NEA Oil Company sales were approximately $41.7 million in 1997
compared to zero in the prior year. Gross profit as a percent
of sales was approximately 9.6% in 1997.
Operating expenses increased approximately 24% over the
previous year. This increase was due to the following
factors.
* $1.4 million in increased expenses associated with the
full year of operating costs at the Greenville and
Memphis fertilizer terminals, including $400,000 of
additional payroll and related expenses, $258,000 of
additional depreciation, and $387,000 of additional
maintenance and repair costs.
* $1 million in increased expenses associated with the
new computer system, including $98,000 in additional
telecommunication costs, $381,000 in costs for
outsource services, $237,000 of additional lease cost,
and $157,000 of additional depreciation.
<PAGE>
* $719,000 in increased expenses associated with increased
operations at the Blytheville and Forrest City seed
plants, including $335,000 of additional payroll
and related costs, $34,000 of additional maintenance and
repairs, and $14,000 of additional utilities, and $63,000
of additional storage costs.
* $672,000 for additional severance pay and related
expenses associated with the closing of 10 company
owned retail stores and work force reductions in other
areas of the Company.
* $877,000 for an asset value adjustment associated
with the write-off of a computerized product guide.
* $2.2 million in provision for bad debts, including
approximately $870,000 associated with the closing
of 10 company owned retail stores.
Comparative Analysis of the Fiscal Year Ended October 31, 1996
to the Fiscal Year Ended October 31, 1995
Net sales for the fiscal year ended October 31, 1996
increased approximately 11.2% over the prior year. This
increase was attributable to the following factors:
Farm and Ranch sales decreased approximately 8% due to the
severe decline in the price of beef cattle, which caused
producers to reduce their purchases. Gross margin
increased to 9.4% of sales compared to 9.1% in the prior
year. This increase was mainly due to better purchasing
and product positioning.
Feed sales increased approximately 27% over the previous year
due primarily to increased feed prices caused by the higher
cost of ingredients. Total tons sold increased approximately
25,000 tons (5.6%) due to a gain in market share. Gross
margin decreased approximately $926,000 due to higher
ingredient costs which were not passed on to the customer.
Animal Health sales decreased approximately 4% due to
the lower livestock prices, which caused producers to reduce
their purchases. The lower livestock prices also caused
significant liquidation of cow/calf units in the trade area.
Gross margin as a percent of sales decreased to 10.25% from
10.5% in the previous year. This decrease was due to
competitive pressure for the fewer livestock units in the
market.
<PAGE>
TBA sales decreased approximately 3% due to the late passing
of the Farm Bill which caused producers to reduce purchases.
The decrease was also caused by some loss of market share due
to strong competitive pricing from tire manufacturers. Gross
margin as a percent of sales remained approximately the same
as experienced in the previous year.
Petroleum sales increased approximately 86%. This increase
was due to a gain in market share which was lost in previous
years because of competitive pricing and a lack of sufficient
transportation. Also, sales of diesel fuel used in irrigation
wells realized a strong increase due to the dry summer
weather. Total gallons sold increased approximately 65% to
115 million gallons. Gross margin as a percent of sales
decreased to 2.0% from 2.7% in the previous year. This
decrease was due to changes in suppliers' volume rebate
purchase programs.
Fertilizer sales increased approximately 7% due to a gain
in market share. Total tons sold increased approximately
104,000 tons (13%). Gross margin as a percent of sales was
5.1% compared to 2.6% in the previous year. This increase was
due to more favorable market conditions than were experienced
in the previous year. Also, more product was sold through
the Company's facilities, which generates a higher margin.
Chemical sales decreased approximately 11% due to changes in
cropping patterns in the trade area. More corn acres were
planted, replacing cotton acreage, which requires more
chemical applications. Gross margin as a percent of sales
increased to 6.3% from 5.9% in the previous year. This
increase was due to an effort to increase margins to offset
the decline in sales volume.
Seed sales increased approximately 21% because of cotton being
replaced by corn, which has a higher unit value than cotton.
Also, sales of soybean and wheat seed increased. Gross margin
as a percent of sales increased to 10.0% from 9.1% in the
previous year. This increase was due to increased
proprietary seed sales, which carry a higher margin than
public variety products. The introduction of biotechnology
seed products also provided the opportunity to increase
margins.
Processed catfish sales decreased approximately 3% due to
lower processing levels caused by a lack of quality fish
available for processing. Gross margin decreased
approximately $2.1 million due to higher live fish cost
caused by the inadequate supply of quality fish, and a
higher per unit processing cost caused by the inefficiency
of lower processing levels.
<PAGE>
Operating expenses increased approximately 49.2% over the
previous year. This increase was due to the following
factors.
* $826,000 of increased expenses due to the addition of
two additional retail locations, including $370,000 of
additional payroll and related costs, $129,000 of
additional rent expenses, $81,000 of additional
maintenance costs, $36,000 of additional vehicle
costs, and $44,000 in additional depreciation.
* $1.5 million of increases at existing retail locations
including $391,000 of additional payroll and related
costs, $221,000 of additional rent expenses, $85,000
of additional maintenance costs, and $344,000 of
increased bad debt expense.
* $1.1 million of increased expenses associated with the
implementation of a new computer system, including
$320,000 of additional payroll and related costs for
additional analysts, $90,000 of additional rent expense,
$70,000 of additional employee training costs, $100,000
of additional telecommunications costs, and $310,000 for
a computer maintenance and operating contract with an
outside firm.
* $1.1 million associated with new fertilizer terminal
operations, including $300,000 of additional payroll and
related costs, $284,000 of additional demurrage and
storage costs, $20,000 of additional rent expense, $64,000
of additional maintenance costs, and additional utilities of
$50,000, and $25,000 of additional insurance expense.
* $487,000 of increased costs due to additional petroleum
transportation operations which added six units, including
$220,000 of payroll and related costs, $80,000 of fuel costs,
and $56,000 in rent costs.
* $273,000 of increased costs due to the addition of a new
office building, including $98,000 of additional
maintenance costs, and $100,000 in additional utilities.
* $5.5 million of increased costs due to asset impairment
adjustments as more fully described in Note 19 to the
Financial Statements.
<PAGE>
During 1996, the Company recognized expenses of approximately
$5.0 million to reduce the carrying value of the Eudora,
Arkansas catfish processing plant and the Greenville,
Mississippi feed mill, the values of which have been impaired
due to continued losses resulting from excessive operating
costs. Also, during 1996 the Company recognized expenses of
approximately $516,000 to reduce the carrying value of various
abandoned properties. The amount of the impairments were
estimated based on appraisals performed during the year and
expected future cash flows. These estimates could change
materially in the future.
Liquidity and Capital Resources
Cash provided by operating activities was approximately $5.8
million in 1997 compared to approximately $28.5 million
used in the previous year. This increase in cash provided
by operating activities is due to the reduction of
inventory, primarily fertilizer. Cash used in investing
activities was approximately $10.2 million in 1997 compared
to approximately $24.5 million provided by investing activities
in the prior year. This increase in cash used by investing
activities was due to increased investment in fixed assets,
and there were $34 million of MCC stock sales in the prior
year. Cash provided by financing activities was
approximately $6 million in 1997 compared to approximately
$6.6 million in the previous year. This decrease was due to an
increase in bank debt offset by a reduction in patrons' deposits.
The allowance for doubtful accounts increased to $3,241,948
from $950,000. Analysis of the current accounts and a
review of collection history does not indicate that losses
would be expected to exceed the current reserve balance.
Historically, most of SF Services, Inc.'s financing has been
with CoBank. CoBank has provided the Company with an $80
million seasonal line of credit , of which approximately $76.5
million was used at October 31, 1997. The Company also
has $29.5 million in term loans with CoBank with annual payments
of $2.98 million. During 1997, the Company obtained a formal
waiver from CoBank with respect to covenant violations
concerning capitalized leases, working capital, and
capitalization ratios (see Note 7 to the Financial Statements).
The Company is currently making plans to improve operations
and return to profitability. These plans include closing or
selling unprofitable operations, creating joint ventures
and distribution alliances with other supply companies, and
increasing direct shipment sales, which will reduce warehouse
inventory levels. Management believes that as these plans are
realized, the current line of credit will provide sufficient
liquidity for current and future operating levels.
<PAGE>
Year 2000 Issue
During 1997 the Company completed the implementation of a new
computer system. The software used by this new system
can be upgraded to be year 2000 compliant, therefore, the
Company does not expect any material expenses relating to its
primary operating software. In addition, the Company is in
the process of forming a task force to examine other areas in
and outside the Company which may be required to be updated
to be year 2000 compliant, or which may otherwise affect the
Company.
Reorganization and Operating Outlook
Management recognizes that operating margins have been low
across all business segments of the Company and operating
costs have been increasing significantly. A new president and
CEO was employed by the board of directors in October 1996 and
plans for restructuring the Company operations have been
developed for implementation beginning in January 1998.
The Company is restructuring the field sales force from one
that was product specific to one that covers all products in
a geographic area. This reduced number of field sales staff
will be supported by a centralized group of technical and
product specialists. The total number of sales and technical
personnel will be significantly reduced.
Accounting personnel which were assigned to operating divisions
have been centralized into a single corporate accounting function.
This change was made possible following implementation of the new
integrated computer system, and will result in a significant
reduction in clerical accounting positions.
Product specific operating divisions have been consolidated into
three major areas; livestock production, crop production, and
general farm supplies, to more efficiently support the operating
business units.
The number of employees in the Technical Services division was
reduced by closing unprofitable sites.
Transportation and warehouse functions were consolidated across
the Company. One-half of the truck fleet has been sold,
maintenance shops are being closed, and the North Little Rock
warehouse will cease being used as a major distribution point
during March, 1998. The Company has switched to third party
contract and brokered hauling at a substantially lower cost.
Additionally, three Arkansas chemical warehouses are being
consolidated into one location.
<PAGE>
While exiting the warehouse and distribution service, the
Company is replacing the purchasing and storing of inventory
by making alliances with major suppliers of products in
Animal Health, Farm and Ranch, TBA, and small package seed
and chemical products. The alliances with major suppliers
provide for the products to be delivered directly from the
supplier's warehouse to our customer. The Company takes the
order and invoices the customer, and then places the orders
with the supplier. The Company is entering into a joint venture
arrangement with a major agricultural chemical distributor
to handle all of the agricultural chemical business. The joint
venture would provide the Company an ownership interest that
would increase the earning potential for this business
segment while relieving the Company of carrying inventory
and accounts receivable relating to agricultural chemicals.
In January 1998, the company closed ten (10) unprofitable retail
stores located in Mississippi, Arkansas, and Louisiana. The
stores had a history of losses and were requiring working
capital and management attention needed in other areas of the
Company. Fourteen (14) retail locations remain following these
closings.
The results of these plans will eliminate more than 150 employees,
reduce annual operating expenses approximately $15 million,
and reduce inventory and accounts receivable by approximately
$44 million.
<PAGE>
ITEM 8: FINANCIAL STATEMENTS
SF Services, Inc.
Accountants' Report
and Financial Statements
October 31, 1997 and 1996
<PAGE>
Independent Accountants' Report
Board of Directors
SF Services, Inc.
North Little Rock, Arkansas
We have audited the accompanying consolidated balance
sheets of SF SERVICES, INC. as of October 31, 1997 and 1996,
and the related consolidated statements of operations, changes
in members' equity and cash flows for each of the three years
in the period ended October 31, 1997 and the financial statement
schedule included in Item 14(a)(2). These financial statements
and schedule are the responsibility of the Cooperative's
management. Our responsibility is to express an opinion on these
financial statements and schedule 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 our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of SF SERVICES, INC. as of October 31, 1997 and 1996, and
the results of its operations and its cash flows for each of the
three years in the period ended October 31, 1997, in conformity with
generally accepted accounting principles. Also, In our opinion, the
financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required
to be included therein.
As discussed in Note 19 to the consolidated financial
statements, in 1996 the Cooperative adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Baird, Kurtz, & Dobson
Little Rock, Arkansas
January 16, 1998
<PAGE>
SF SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 1997 AND 1996
ASSETS
1997 1996
CURRENT ASSETS
Cash $ 4,809,079 $ 3,214,419
Accounts receivable,
less allowance for
doubtful accounts;
1997 - $3,241,948,
1996 - $950,000 43,456,434 40,268,809
Accounts receivable - other 6,299,366 6,287,292
Income taxes receivable 3,128,485
Note receivable -
current portion 2,707,173 2,184,287
Inventories 62,903,882 84,215,934
Patronage distributions
receivable 197,319 168,147
Deferred income taxes -
current 834,738
Other 1,329,435 1,253,263
----------- -----------
Total Current Assets 124,831,173 138,426,889
----------- -----------
INVESTMENTS AND
LONG-TERM RECEIVABLES
Notes receivable 2,921,728 3,154,281
Investments in other
cooperatives 13,549,277 12,974,801
Deferred income taxes -
long term 1,145,844
----------- -----------
16,471,005 17,274,926
----------- -----------
PROPERTY AND EQUIPMENT, At Cost
Land and improvements 6,187,878 3,594,565
Buildings 26,208,590 19,236,628
Machinery and equipment 27,109,855 20,438,434
Automobiles and trucks 1,714,562 1,478,513
Furniture and fixtures 5,182,286 4,636,169
Leasehold interests 2,106,038
Construction in progress 3,161,855 8,269,079
----------- -----------
71,671,064 57,653,388
Less accumulated depreciation 24,909,488 21,996,709
----------- -----------
46,761,576 35,656,679
----------- -----------
<PAGE>
OTHER ASSETS 731,662 763,565
----------- -----------
$188,795,416 $192,122,059
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
1997 1996
CURRENT LIABILITIES
Note payable $ 76,518,530 $ 65,582,931
Interest payable 1,315,553 222,015
Debentures 1,223,000 1,342,009
Current maturities of
long-term debt 4,801,464 3,013,819
Accounts payable 28,130,453 29,094,690
Patrons' deposits 4,010,610 14,175,462
Accrued expenses 6,236,470 4,287,813
Income taxes payable 739,683
----------- -----------
Total Current Liabilities 122,236,080 118,458,422
----------- -----------
LONG-TERM DEBT 33,031,344 22,309,220
----------- -----------
OTHER LIABILITIES 168,934 168,200
----------- -----------
MEMBERS' EQUITY
Capital stock
Class "A" preferred 2,047,100 2,079,600
Class "B" convertible preferred 676,400 676,400
Common stock 125,000 125,000
Capital certificates 102,709 157,399
Retained earnings (deficit) (5,674,214) 309,478
Allocated equities 36,082,063 47,838,340
----------- -----------
33,359,058 51,186,217
----------- -----------
$188,795,416 $192,122,059
=========== ===========
<PAGE>
SF SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
1997 1996 1995
NET SALES $622,867,444 $590,480,357 $530,820,976
COST OF GOODS SOLD 583,275,706 556,030,450 500,731,715
----------- ----------- -----------
GROSS PROFIT 39,591,738 34,449,907 30,089,261
OTHER OPERATING REVENUE 1,420,305 1,957,519 542,926
----------- ----------- -----------
GROSS MARGIN AND OTHER
OPERATING REVENUE 41,012,043 36,407,426 30,632,187
OPERATING EXPENSES 54,655,649 44,958,673 30,131,789
----------- ----------- -----------
INCOME (LOSS) FROM
OPERATIONS (13,643,606) (8,551,247) 500,398
----------- ----------- -----------
OTHER INCOME (EXPENSE)
Interest income 2,147,412 1,592,666 1,526,514
Interest expense (8,617,116) (5,939,801) (6,396,350)
Dividend income 123,154 530,037
Miscellaneous 938,677 662,240 146,070
Gain on sale of MCC stock 17,863,024 8,590,955
----------- ----------- -----------
(5,531,027) 14,301,283 4,397,226
----------- ----------- -----------
SAVINGS (LOSS) BEFORE
INCOME TAXES (19,174,633) 5,750,036 4,897,624
PROVISION (CREDIT)
FOR INCOME TAXES (1,434,664) 3,677,875 2,194,361
----------- ----------- -----------
NET SAVINGS (LOSS) $(17,739,969) $ 2,072,161 $ 2,703,263
=========== =========== ===========
NET SAVINGS (LOSS)
APPLIED TO:
Allocated equities
Capital equity credits $(11,756,277) $ $
Cash 1,699,111
----------- ----------- -----------
(11,756,277) 1,699,111
Retained earnings (5,983,692) 2,072,161 1,004,152
----------- ----------- -----------
$(17,739,969) $ 2,072,161 $ 2,703,263
=========== =========== ===========
<PAGE>
SF SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
Convertible
Preferred Preferred Preferred
Stock Stock Stock
Class "A" Class "B" Class "D"
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1994 $ 2,189,300 $ 676,400 $ 1,562,580
ISSUANCE OF STOCK
NET SAVINGS
CAPITAL EQUITY
CREDITS ISSUED AS
PATRONAGE
DISTRIBUTIONS
MERGER WITH DELTA
PURCHASING
FEDERATION (AAL)
CAPITAL EQUITY
CREDITS PAID
RETIREMENT OF
COMMON STOCK
DIVIDENDS ON
PREFERRED STOCK
RETIREMENT OF
PREFERRED STOCK (49,900) (1,562,580)
RETIREMENT OF
ALLOCATED EQUITIES
CHANGE IN UNREALIZED
GAIN OR LOSSES
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1995 $ 2,139,400 $ 676,400 $ -0-
=========== =========== ===========
<PAGE>
ISSUANCE OF STOCK
NET SAVINGS
RETIREMENT OF
COMMON STOCK
DIVIDENDS ON
PREFERRED STOCK
RETIREMENT OF
PREFERRED STOCK (59,800)
RETIREMENT OF
ALLOCATED EQUITIES
OFFSET AGAINST
ACCOUNTS RECEIVABLE
CHANGE IN UNREALIZED
GAIN ON SECURITIES
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1996 $ 2,079,600 $ 676,400 $ -0-
=========== =========== ===========
NET SAVINGS(LOSS)
CAPITAL EQUITY
CREDITS PAID
RETIREMENT OF
PREFERRED STOCK (32,500)
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1997 $ 2,047,100 $ 676,400 $ -0-
=========== =========== ===========
<PAGE>
Retained
Common Capital Earnings
Stock Certificates (Deficit)
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1994 $ 123,000 $ 157,399 $ (2,501,778)
ISSUANCE OF STOCK 7,000
NET SAVINGS 2,703,263
CAPITAL EQUITY
CREDITS ISSUED AS
PATRONAGE
DISTRIBUTIONS (1,699,111)
MERGER WITH DELTA
PURCHASING
FEDERATION (AAL)
CAPITAL EQUITY
CREDITS PAID
RETIREMENT OF
COMMON STOCK (3,000)
DIVIDENDS ON
PREFERRED STOCK (134,021)
RETIREMENT OF
PREFERRED STOCK
RETIREMENT OF
ALLOCATED EQUITIES
CHANGE IN UNREALIZED
GAIN OR LOSSES
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1995 $ 127,000 $ 157,399 $ (1,631,647)
=========== =========== ===========
ISSUANCE OF STOCK 2,000
NET SAVINGS 2,072,161
RETIREMENT OF
COMMON STOCK (4,000)
DIVIDENDS ON
PREFERRED STOCK (131,036)
RETIREMENT OF
PREFERRED STOCK
<PAGE>
RETIREMENT OF
ALLOCATED EQUITIES
OFFSET AGAINST
ACCOUNTS RECEIVABLE
CHANGE IN UNREALIZED
GAIN ON SECURITIES
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1996 $ 125,000 $ 157,399 $ 309,478
=========== =========== ===========
NET SAVINGS(LOSS) (5,983,692)
CAPITAL EQUITY
CREDITS PAID (54,690)
RETIREMENT OF
PREFERRED STOCK
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1997 $ 125,000 $ 102,709 $ (5,674,214)
=========== =========== ===========
<PAGE>
Unrealized
Gain on
Securities
Allocated Reported at
Equities Fair Value Total
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1994 $ 45,046,212 $ 8,936,166 $ 56,189,279
ISSUANCE OF STOCK 7,000
NET SAVINGS 2,703,263
CAPITAL EQUITY
CREDITS ISSUED AS
PATRONAGE
DISTRIBUTIONS 1,699,111
MERGER WITH DELTA
PURCHASING
FEDERATION (AAL) 4,498,888 4,498,888
CAPITAL EQUITY
CREDITS PAID (1,699,111) (1,699,111)
RETIREMENT OF
COMMON STOCK (3,000)
DIVIDENDS ON
PREFERRED STOCK (134,021)
RETIREMENT OF
PREFERRED STOCK 1,110,456 (502,024)
RETIREMENT OF
ALLOCATED EQUITIES (2,300,889) (2,300,889)
CHANGE IN UNREALIZED
GAIN OR LOSSES 2,119,466 2,119,466
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1995 $ 48,354,667 $ 11,055,632 $ 60,878,851
=========== =========== ===========
ISSUANCE OF STOCK 2,000
NET SAVINGS 2,072,161
RETIREMENT OF
COMMON STOCK (4,000)
DIVIDENDS ON
PREFERRED STOCK (131,036)
<PAGE>
RETIREMENT OF
PREFERRED STOCK (59,800)
RETIREMENT OF
ALLOCATED EQUITIES (418,836) (418,836)
OFFSET AGAINST
ACCOUNTS RECEIVABLE (97,491) (97,491)
CHANGE IN UNREALIZED
GAIN ON SECURITIES (11,055,632) (11,055,632)
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1996 $ 47,838,340 $ -0- $ 51,186,217
=========== =========== ===========
NET SAVINGS(LOSS) (11,756,277) (17,739,969)
CAPITAL EQUITY
CREDITS PAID (54,690)
RETIREMENT OF
PREFERRED STOCK (32,500)
----------- ----------- -----------
BALANCE,
OCTOBER 31, 1997 $ 36,082,063 $ -0- $ 33,359,058
=========== =========== ===========
<PAGE>
SF SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995
1997 1996 1995
CASH FLOWS FROM
OPERATING ACTIVITIES
Net savings (loss) $ (17,739,969) $ 2,072,161 $ 2,703,263
Items not requiring
(providing) cash:
Depreciation and
amortization 3,571,355 2,239,498 2,951,534
Non-cash portion of
patronage dividends
received from
cooperatives (801,549) (1,614,598) (1,284,542)
(Gain) loss on sale
of fixed assets (251,413) (67,348) (202,182)
Gain on sale of
investment (17,863,024) (8,590,955)
Deferred income taxes 1,980,582 (3,392,985) 1,412,403
Writedown of fixed assets
for impairment 877,040 5,497,348
Changes in operating
assets and liabilities,
net of effects from
acquisition of Delta
Purchasing Federation
(AAL) assets:
Accounts payable 916,188 1,833,597 (2,580,816)
Accrued expenses 1,948,657 1,548,535 104,653
Accounts and notes
receivable from
customers (2,459,947) 2,384,932 (7,840,391)
Income taxes receivable (3,128,485)
Inventories 21,972,529 (16,938,041) (11,918,494)
Other current assets 409,798 570,208 1,329,734
Accounts receivable -
other (798,961) (3,730,846) (903,365)
Due from broker 131,868
Patronage distributions
receivable (29,172) (49,740) (11,349)
Income taxes payable (739,683) (42,275) 749,636
Other assets 31,903 (928,551) 828,656
Other liabilities 734 (61,206) (144,804)
----------- ----------- -----------
Net cash provided by
(used in) operating
activities 5,759,607 (28,542,335) (23,265,151)
----------- ----------- -----------
<PAGE>
CASH FLOWS FROM
INVESTING ACTIVITIES
Purchase of property
and equipment (11,242,951) (10,449,820) (13,465,151)
Proceeds from sale of
property and equipment 805,955 600,198 2,578,737
Net cash received in
the acquisition of
Delta Purchasing
Federation (AAL) assets 977,428
Net cash received in
the acquisition
of Matthews of
Monette, Inc. assets 13,055
Proceeds from investment
redemption and sale 227,073 34,329,962 18,455,358
----------- ----------- -----------
Net cash provided by
(used in) investing
activities (10,196,868) 24,480,340 8,546,372
----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES
Issuance of common stock $ $ 2,000 $ 7,000
Dividends on
preferred stock (131,036) (134,021)
Patronage dividends
paid and retirement
of preferred stock (32,500) (59,800) (4,428,170)
Retirement of capital
certificates (54,690)
Repurchase of common
stock (4,000) (3,000)
Retirement of
allocated equities (418,836)
Proceeds from borrowings 183,886,118 191,317,056 197,981,565
Repayment of borrowings (167,602,155) (188,547,986) (176,528,060)
Net change in deposits (10,164,852) 4,473,637 (2,714,022)
----------- ----------- -----------
Net cash provided by
financing activities 6,031,921 6,631,035 14,181,292
----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS 1,594,660 2,569,040 (537,487)
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR 3,214,419 645,379 1,182,866
----------- ----------- -----------
CASH AND CASH EQUIVALENTS,
END OF YEAR $ 4,809,079 $ 3,214,419 $ 645,379
=========== =========== ===========
<PAGE>
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Business
SF Services, Inc. and subsidiaries sell seed, feed,
fertilizer, chemicals, petroleum, lubricants, tires, batteries,
accessories, and farm supplies and provide related services to
members and patrons of the Cooperative and its subsidiaries.
One subsidiary processes and markets catfish purchased from
area producers and another subsidiary operates convenience
stores and sells petroleum on a wholesale basis.
The Cooperative and its subsidiaries sell to members,
patrons and wholesale entities in Alabama, Arkansas,
Louisiana, Kansas, Mississippi, Texas, Oklahoma and Missouri
on an unsecured credit basis.
Principles of Consolidation
The consolidated financial statements include the accounts
of the Cooperative and its wholly-owned subsidiaries, AgGrow
Finance, Inc., SFA, Inc., SF Technical Services, Inc., Southern
Farm Fish Processors, Inc. and Northeast Arkansas Oil Co., LLC.
Included with SFA, Inc., are its wholly-owned subsidiaries SFA
of Louisiana, Inc., and SFA of Mississippi, Inc., which were
formed on April 22, 1995 for retail operations in the respective
states. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Inventories
Grains, seed and petroleum inventories are stated at the
lower of market or cost, weighted average method. To reduce
price risk caused by market fluctuations, the Cooperative
follows a policy of hedging a portion of its production
requirements and sales commitments using readily marketable
exchange traded futures contracts and forward contracts (see
Note 18). The changes in market value of such contracts have
a high correlation to the price changes of the hedged
commodity. Losses, if any, on unhedged sales commitments are
recognized based on current market prices of ingredients.
Gains or losses arising from open and closed hedging
transactions are included in inventories as a cost of
the commodities and reflected in the statements of earnings
when the product is sold.
The remaining inventories are stated at the lower of
market or cost, weighted average method.
<PAGE>
A summary of inventories follows:
1997 1996
Purchased items held for resale $ 57,222,122 $ 78,816,793
Manufactured feed and
feed ingredients 3,554,592 3,174,337
Processed catfish 2,127,168 2,224,804
----------- -----------
$ 62,903,882 $ 84,215,934
=========== ===========
Property and Equipment
Depreciation is provided for primarily by the straight-line
method using the following estimated useful lives:
Useful Lives
Buildings and improvements 5 - 33 years
Machinery and equipment 2 - 20 years
Automobiles and trucks 3 - 5 years
Furniture and fixtures 5 - 15 years
Patrons' Equities
In accordance with its bylaws, the Cooperative allocates net
savings to its patrons, based on income determined for financial
reporting purposes, in cash, and certificates of equity in
proportions determined by its Board of Directors.
New members are issued one share of common stock. At
any time a member ceases to be active, such shares are
redeemed at par value.
The Cooperative capitalizes interest costs as a component
of construction in progress, based on the weighted average rates
paid for long-term borrowings. Total interest incurred (net of
patronage refunds) was:
1997 1996 1995
Interest costs capitalized $ 217,329 $ 479,943 $
Interest costs charged
to expense 8,617,116 5,939,801 6,396,350
----------- ----------- -----------
Total interest incurred $ 8,834,445 $ 6,419,744 $ 6,396,350
=========== =========== ===========
<PAGE>
Income Taxes
The Cooperative, as a non-exempt cooperative, is taxed
on non-patronage margins and any patronage margins not paid or
allocated to patrons. Consistent with industry practice,
deferred income taxes are not provided for temporary tax
differences associated with patronage earnings. The
Cooperative's subsidiaries are not required to pay or allocate
margins to patrons and, therefore, are taxed on applicable
margins and are able to retain all tax benefits related to
losses to the extent such benefits are recoverable from prior
taxes paid.
Deferred tax liabilities and assets are recognized for
the tax effects of differences between the financial statement
and tax basis of assets and liabilities related to non-patronage
margins and unrealized gain on marketable securities. A
valuation allowance is established to reduce deferred tax assets
if it is more likely than not that a deferred tax asset will
not be realized.
Temporary tax differences relate principally to
non-qualified patronage distributions received from other
cooperatives, inventories, depreciation on property and equipment,
valuation of property and equipment, accrued expenses, and
market value over tax basis of marketable securities.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
NOTE 2: ACCOUNTS RECEIVABLE
Provision for doubtful accounts:
1997 1996 1995
$ 3,653,000 $ 1,362,000 $ 127,397
<PAGE>
Accounts receivable - other:
1997 1996
Vendor rebates $ 5,068,599 $ 2,322,396
Other 1,230,767 1,855,896
Proceeds from new leases 2,109,000
----------- -----------
$ 6,299,366 $ 6,287,292
=========== ===========
<PAGE>
NOTE 3: MARKETABLE SECURITIES
On August 22, 1994, Mississippi Chemical Corporation
(MCC), formerly a Cooperative, became a public entity and the
Cooperative's investment in common stock and allocated
equities of MCC were converted to common stock in the new
entity. The Cooperative sold its converted common stock during
the years ended October 31 as follows:
1996 1995
Shares sold 1,525,720 875,000
=========== ===========
Proceeds $ 34,027,573 $ 17,812,493
=========== ===========
Gain on sale $ 17,863,024 $ 8,590,955
=========== ===========
The average cost method was used to determine cost basis on
these sales.
NOTE 4: ACCRUED EXPENSES
Accrued expenses consisted of the following:
1997 1996
Accrued taxes payable,
other than income taxes $ 1,598,427 $ 1,368,468
Accrued leave 1,507,369 1,365,115
Accrued payroll 1,996,299 757,222
Miscellaneous accruals 1,134,375 797,008
----------- -----------
$ 6,236,470 $ 4,287,813
=========== ===========
<PAGE>
NOTE 5: INVESTMENTS IN OTHER COOPERATIVES
The Cooperative invests in other cooperatives with
which it does business. Investments in those other cooperatives
were as follows:
1997 1996
CoBank $ 7,890,414 $ 7,705,494
Farmland Industries, Inc. 2,933,225 2,491,005
Universal Cooperatives, Inc. 2,030,883 2,023,627
AG Processing 552,111 491,805
Other 142,644 262,870
----------- -----------
$ 13,549,277 $ 12,974,801
=========== ===========
These investments consist of common stock, at cost, and
the Cooperative's share of allocated equities. Allocated
equities are valued at face amount as determined by the issuing
entity and are redeemable by the entity at its discretion at
an amount determined annually. Patronage refunds, which consist
of cash and non-cash equity allocations, are credited to cost of
goods sold, with the exception of patronage refunds from CoBank,
which are credited to interest expense.
The amount of allocated equities previously allocated
to SF Services, Inc., to be retired during 1997 and 1996 has
been included in patronage distributions receivable at October 31,
1997 and 1996.
Patronage distributions received for the years ending
October 31, 1997, 1996 and 1995 were as follows:
1997 1996 1995
Amount credited to
cost of goods sold $ 1,566,432 $ 1,482,570 $ 341,061
Amount credited to
interest expense 740,077 677,675 707,538
----------- ----------- -----------
$ 2,306,509 $ 2,160,245 $ 1,048,599
=========== =========== ===========
<PAGE>
NOTE 6: NOTE PAYABLE
1997 1996 1995
Note payable
CoBank $ 76,518,530 $ 65,582,931 $ 65,432,437
=========== =========== ===========
Average interest
rate during the
period* 7.95% 7.19% 7.64%
=========== =========== ===========
Average during
the period $ 72,016,720 $ 57,366,013 $ 48,570,883
=========== =========== ===========
Average interest
rate during the
period* 7.06% 6.87% 7.96%
=========== =========== ===========
Maximum amount of
notes - payable at
any month-end
during the period $ 83,322,971 $ 71,169,873 $ 65,432,347
=========== =========== ===========
*Weighted average interest rate is computed by dividing the
average monthly face amount of notes payable into the related
interest expense.
The Cooperative had a committed line-of-credit with
CoBank totalling $80,000,000 for the years ended October 31,
1997 and 1996. The line-of-credit is secured by substantially
all assets of the Cooperative. This line-of-credit bears
interest at a fluctuating rate based on the cost of money to
CoBank and expires May 1, 1998.
<PAGE>
NOTE 7: LONG-TERM DEBT
1997 1996
Notes payable - CoBank (A) $ 25,715,500 $ 22,182,750
Notes payable - CoBank (B) 405,000 495,000
Notes payable - CoBank (C) 3,387,867
Notes payable - Municipal (D) 500,000 500,000
Notes payable - Finance
Corporation (E) 100,000 100,000
Notes payable -
Industrial Revenue Bonds (F) 1,180,000 1,375,000
Notes payable -
certificates of indebtedness (G) 210,314 210,414
Notes payable - Farmers Supply (H) 404,805 449,805
Notes payable - Individual (I) 2,250,000
Capital lease obligations (J) 3,405,643
Notes payable - other 273,679 10,070
----------- -----------
37,832,808 25,323,039
Less current maturities 4,801,464 3,013,819
----------- -----------
$ 33,031,344 $ 22,309,220
=========== ===========
Aggregate annual maturities of long-term debt and payments
on capital lease obligations at October 31, 1997 are:
Long-term
Debt Capital Lease
(excl. Leases) Obligations
1998 $ 4,462,455 $ 549,310
1999 3,655,655 578,363
2000 3,671,852 600,973
2001 3,688,110 593,441
2002 3,659,435 416,829
Thereafter 15,289,658 2,619,193
----------- -----------
$ 34,427,165 5,358,109
===========
Less amount representing interest 1,952,466
-----------
Present value of future minimum
lease payments 3,405,643
Less current maturities 339,009
-----------
Noncurrent portion $ 3,066,634
===========
<PAGE>
(A) Due 1997 through 2004, with annual installments of $2,572,500
plus interest at fluctuating rates based on the cost of
money to CoBank (average rate of 8.04% at October 31, 1997);
secured by substantially all assets of the Cooperative.
The agreement requires maintenance of $20,000,000 working
capital, a maximum ratio of CoBank term debt to the value
of Mississippi Chemical Stock owned plus the net book value
of assets owned of not more than 60%, a current ratio of
1.2% and requires CoBank approval if distributions to
members exceed 50% of patronage based income or the
Cooperative retires greater than $60,000 of preferred
stock in any fiscal year. A formal waiver of working
capital, capitalization, and capital lease borrowings
was obtained for 1997, and a formal waiver was
obtained during 1996 on working capital and the
current ratio. The agreement requires the
Cooperative to invest in stock of CoBank in amounts
determined by the bank.
(B) Due 1997 through 2002 at $7,500 monthly plus interest at
8.25%; cross-collateralized with (A) above.
(C) Due 1997 through 2004; with annual installments varying
from $317,362 to $704,734; interest at 8.50%; cross-
collateralized with (A) above.
(D) Due at various times through 2002; interest at 7%;
maturities of principal are deferred until Southern
Farm Fish Processors, Inc., obtains various equity
and working capital levels; secured by property and
equipment.
(E) Due at various times through 2002; interest at 6%;
maturities of principal are deferred until Southern
Farm Processors, Inc., obtains various equity and working
capital levels; secured by property and equipment.
(F) Due 1997 through 2002 with annual installments of
principal plus interest at rates of 6% to 6.5%; secured
by property and equipment.
(G) Due 1997 with annual installments of principal plus
interest at interest rates of 8% and 10%; unsecured.
(H) Due in annual installments of $44,980 including interest,
uncollateralized.
(I) Due 2001; interest at 7.5%; secured by property.
(J) Capital leases include leases covering various equipment
and buildings for 3 to 12 years expiring from 2000
through 2009.
<PAGE>
Property and equipment include the following property under
capital leases:
1997
Land and buildings $ 2,056,025
Equipment 1,601,745
-----------
3,657,770
Less accumulated depreciation $ 135,482
-----------
$ 3,522,288
===========
NOTE 8: DEBENTURES
The outstanding debentures mature in 1998. Interest rates
vary from 7% to 12%.
1997 1996
Debentures $ 1,223,000 $ 1,348,409
Less current maturities 1,223,000 1,342,009
----------- -----------
Included in other liabilities $ -0- $ 6,400
----------- -----------
NOTE 9: INCOME TAXES
The provision for income taxes includes these components:
1997 1996 1995
Taxes currently
payable (receivable) $ (3,128,485) $ 7,070,860 $ 781,958
Deferred income taxes 1,693,821 (3,392,985) 1,412,403
----------- ----------- -----------
$ (1,434,664) $ 3,677,875 $ 2,194,361
<PAGE>
The tax effects of temporary differences related to deferred
taxes shown on the balance sheets were:
1997 1996
Deferred tax assets:
Allowance for doubtful accounts $ 616,551 $ 403,515
Inventory capitalization 547,869 372,178
Accrued expenses not
deductible until paid 286,044 295,722
Writedown of fixed assets 1,991,026 1,971,917
Other 36,504
----------- -----------
3,477,994 3,043,332
----------- -----------
Deferred tax liabilities
Accumulated depreciation 735,127 370,150
----------- -----------
Net deferred tax asset (liability)
before valuation allowance 2,742,867 2,673,182
----------- -----------
Valuation allowance:
Beginning balance (692,600)
(Increase) during the year (2,050,267) (692,600)
----------- -----------
Ending balance (2,742,867) (692,600)
----------- -----------
Net deferred tax asset $ -0- $ 1,980,582
=========== ===========
<PAGE>
The above net deferred tax asset (liability) is presented
on the balance sheets as follows:
1997 1996
Deferred tax asset - current $ $ 834,738
Deferred tax asset - long term 1,145,844
----------- -----------
$ -0- $ 1,980,582
=========== ===========
<PAGE>
A reconciliation of income tax expense at the statutory
rate to income tax expense at the Cooperative's effective
rate is shown below:
1997 1996 1995
Expected provision (34%) $ (6,539,903) $ 1,955,012 $ 1,665,192
Tax effect of net
savings (loss) applied
to allocated equities 3,304,594 355,086 (577,698)
Excess of benefits of
allocated equity over
taxable income 446,535
State income taxes (249,622) 675,177 660,332
Change in deferred tax
asset valuation allowance 2,050,267 692,600
----------- ----------- -----------
$ (1,434,664) $ 3,677,875 $ 2,194,361
=========== =========== ===========
As of October 31, 1997, the Cooperative had approximately
$200,000 of alternative minimum tax credits available to offset
future patronage based federal income taxes.
In setting the valuation allowance for realization of
deferred tax assets, management uses a tax planning strategy that
recognizes the benefits of impairment losses deductible in the
future based on available refunds of previously paid tax.
NOTE 10: BENEFIT PLANS
The Cooperative has a combination salary deferral/profit-
sharing defined contribution plan. The plan covers
substantially all full-time employees aged twenty-one or older
with at least one year of service. Participants must contribute
a minimum of 2% of their compensation and may contribute up to
the maximum permitted by applicable regulations. The Cooperative
will match employee contributions up to a maximum of 4% of the
participants' compensation. The matching percentage and additional
profit-sharing contributions are determined on a discretionary basis
by the Board of Directors. Participant interests in discretionary
contributions are vested over a five-year period. The Cooperative
contributed $484,282, and $683,158 to the plan during the years
ended October 31, 1997 and 1996, respectively.
<PAGE>
The Cooperative and its member cooperatives adopted a
non-qualified defined contribution plan for managers of the member
cooperatives. The amount of annual contribution to the plan for
each participant is based on member cooperatives' purchases and
the profitability of SF Services, Inc. The participants begin
vesting after 14 years of service to the member cooperative and
are 100% vested after 19 years. The Cooperative incurred expenses
of $241,898 and $120,382 related to this plan for the years ended
October 31, 1997 and 1996, respectively.
NOTE 11: RELATED PARTY TRANSACTIONS
The Cooperative owned 7% of the outstanding stock of
Mississippi Chemical Corporation (MCC) at October 31, 1995 and
the President of the Cooperative during that year was a director
of MCC. Following are the material transactions with MCC during
the year ended October 31, 1995:
1995
Fertilizer purchases $ 32,587,243
MCC paid the Cooperative dividends of $123,154 in 1996
and $530,037 during 1995.
NOTE 12: LEASES
Noncancellable operating leases for feed mill buildings
and equipment, other machinery and equipment and trucks expire in
various years through 2013. These leases generally contain
renewal options for periods ranging from one to five years and
require the Cooperative to pay all executory costs (property taxes,
maintenance and insurance).
Future minimum lease payments at October 31, 1997, were:
1998 $ 4,292,019
1999 3,643,866
2000 2,326,373
2001 1,078,065
2002 523,804
Later years 3,890,692
-----------
Future minimum lease payments $ 15,754,819
===========
<PAGE>
Rental expense for all operating leases amounted to
the following:
1997 1996 1995
$ 4,437,471 $ 4,574,356 $ 4,208,848
=========== =========== ===========
NOTE 13: ACQUISITION
On December 31, 1996, the Cooperative acquired, through a
newly-formed wholly-owned subsidiary, Northeast Arkansas Oil
Co., LLC, substantially all the assets of Matthews of Monette, Inc.,
a company which operated convenience stores and sold wholesale
petroleum. The acquisition was financed by assuming liabilities
of the acquiree. The acquisition has been accounted for as a
purchase by recording the assets and liabilities acquired at
their estimated fair values at the acquisition date. The operation
of the Cooperative includes the operations of the acquiree from
the acquisition date. Unaudited pro-forma operations, assuming
the purchase was made at the beginning of each year, are as
follows:
1997 1996 1995
Net Sales $629,630,927 $634,596,337 $564,693,283
Net Savings(Loss) (17,845,172) 1,556,926 3,490,354
A summary of the assets acquired is presented below.
Land $ 372,508
Buildings and Improvements 4,346,678
Equipment 1,086,670
Leasehold Interests 1,901,231
Inventory 660,477
Accounts Receivable 1,018,011
Cash on hand 13,055
-----------
$ 9,398,630
===========
<PAGE>
On December 1, 1994, the Cooperative acquired all the assets
of and assumed all liabilities of Delta Purchasing Federation (AAL)
("DPF") as follows.
Current assets $ 14,421,424
Other assets 3,490,231
-----------
17,911,655
-----------
Current liabilities 11,814,255
Other liabilities 1,598,512
-----------
13,412,767
-----------
Equities allocated $ 4,498,888
===========
The total consideration delivered to DPF shareholders was
equity interest of $4,998,888, or $500,000 in addition to the net
assets received as carried by DPF before the transaction. The
acquisition has been accounted for as a purchase by recording
the assets and liabilities of DPF at estimated fair value at the
acquisition date. The consolidated operations of the Cooperative
include the operations of DPF from the acquisition date.
NOTE 14: CAPITAL STOCK
Liquidation
Shares and
Authorized Redemption Issued and
Class of Stock Shares Par Value Preference Outstanding
- -------------- ---------- --------- ----------- -----------
Class "A"
preferred (1) 150,000 $ 1 $ 100 20,471
Class "B"
convertible
preferred (2) 15,000 $ 100 6,764
Common 500 $ 1,000 125
(1) Non-voting; non-cumulative dividends not to exceed 8 1/2%
of liquidation and redemption preference if earned and when
declared by the Board of Directors with preference over any
other dividend or distributions declared in any year.
<PAGE>
(2) Non-voting; non-cumulative dividends not to exceed 4%
of liquidation and redemption preference if earned and when
declared by the Board of Directors with preference over any
other dividend, except Class A preferred stock, or
distributions declared in any year. At the discretion of
the Board of Directors, the Class B preferred stock shall
become convertible, at the option of the holder, at its
liquidation and redemption preference value into capital
certificates.
Capital certificates may be surrendered upon termination
of membership or expiration of ten years from the date of the
certificate, whichever event shall be last to occur, for Class A
Preferred Stock with a liquidation and redemption preference
equal to the stated amount of the capital certificate. The
certificates are subordinate to all debt and have no voting
rights.
NOTE 15: NOTES RECEIVABLE
The Cooperative has provided long-term financing to
certain members by transferring amounts owed by the members
for purchases to long-term notes receivable pursuant to
agreements with CoBank wherein CoBank provides seasonal
financing directly to such members.
NOTE 16: BUSINESS SEGMENTS
The Cooperative operates in three industries (1)
distribution of seed, feed, fertilizer, chemicals, petroleum,
lubricants, tires, batteries, accessories, farm supplies and
related services; (2) catfish processing and sales and (3)
convenience store operations and wholesale petroleum sales.
Sales between segments are not material. Net sales, operating
income, identifiable assets, capital expenditures, and
depreciation are as follows:
<PAGE>
Convenience
Stores and
Distribution Catfish Wholesale
October 31, 1997 Activities Processing Petroleum Total
- ---------------- ------------ ---------- ----------- -----------
Net sales $549,434,322 $ 31,752,577 $ 41,680,545 $622,867,444
Operating income
(loss) $(13,335,190) $ (561,992) $ 253,576 $(13,643,606)
Identifiable assets $167,357,182 $ 8,955,373 $ 12,482,861 $188,795,416
Capital expenditures $ 10,725,269 $ 281,045 $ 236,637 $ 11,242,951
Depreciation $ 2,783,054 $ 345,953 $ 442,348 $ 3,571,355
Distribution Catfish
October 31, 1996 Activities Processing Total
- ---------------- ------------ ---------- -----------
Net sales $553,856,134 $ 36,624,223 $590,480,357
Operating (loss) $ (2,768,125) $ (5,783,122) $ (8,551,247)
Identifiable assets $182,953,280 $ 9,168,779 $192,122,059
Capital expenditures $ 10,139,662 $ 310,158 $ 10,449,820
Depreciation $ 1,866,517 $ 372,981 $ 2,239,498
Distribution Catfish
October 31, 1995 Activities Processing Total
- ---------------- ------------ ---------- -----------
Net sales $492,989,054 $ 37,831,922 $530,820,976
Operating income
(loss) $ 3,116,147 $ (2,615,749) $ 500,398
Identifiable assets $188,582,330 $ 11,079,559 $199,661,889
Capital expenditures $ 11,772,778 $ 1,692,373 $ 13,465,151
Depreciation $ 2,544,970 $ 406,564 $ 2,951,534
For purposes of business segment disclosure, all activities
related to other cooperatives are included in distribution
activities.
<PAGE>
NOTE 17: ADDITIONAL CASH FLOW INFORMATION
1997 1996 1995
Interest paid (net of
patronage dividends and
interest capitalized) $ 8,025,028 $ 6,307,994 $ 6,629,921
Income taxes paid
(received) $ (131,219) $ 7,431,000 $ 32,322
Noncash investing transactions:
1997
Purchase of Assets of Matthews of Monette, Inc.
Fair value of assets $ 9,385,575
Liabilities assumed (9,398,630)
-----------
Cash received $ (13,055)
===========
Capital leases entered into $ 3,657,770
Fixed assets transferred to assets held for sale $ 485,970
1995
Acquisition of Delta Purchasing Federation (AAL)
Fair value of assets received $ 16,938,948
Liabilities assumed (13,412,767)
Equities allocated (4,503,609)
-----------
Cash received $ (977,428)
===========
Accrued interest paid with advance on
seasonal line of credit $ 1,475,000
Class "D" stock redeemed with allocated equities $ 1,109,456
Trade receivable transferred to note receivable $ 200,000
NOTE 18: COMMITMENTS
Purchase Agreements
At October 31, 1997, SF Services, Inc. had commitments
(open contracts) to purchase 127,760 tons of feed ingredients
for $20,046,637 and to sell 148,444 tons of feed for $33,077,514.
<PAGE>
The Company presells feed from March through October on an
annual basis. During this period, the Company attempts to obtain
commitments for as much as 100% ingredients for presells. The
Company does not overcommit on purchases of ingredients. At
October 31, 1997, the Company had commitments to sell cattle feed
of 38,625 tons for $6,131,083 and catfish feed of 109,519 tons for
$26,946,431. The Cooperative also had commitments to purchase cattle
feed ingredients of 34,025 tons at a cost of $3,255,347 and catfish
feed ingredients of 93,735 tons at a cost of $16,791,290.
Loan Guarantees
The Cooperative has guaranteed $335,000 in loans to CoBank
for member cooperatives. The Cooperative has a second mortgage
related to these guarantees.
NOTE 19: IMPAIRMENT OF LONG-LIVED ASSETS
During 1996, the Cooperative adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The Cooperative, as a result of adopting the new standard,
recognized expenses of $4,981,000 to reduce the carrying value
of the Southern Farm Fish Processors, Inc. plant and the
Greenville feed mill, the values of which have been impaired
due to continued losses resulting from excessive operating
costs. Also, during the fourth quarter of fiscal 1996, the
Cooperative recognized expenses of $516,000, to reduce the
carrying value of various abandoned properties. During the
fourth quarter of fiscal 1997, management recognized $877,000
of expense related to the abandonment of a computerized product
guide. The amount of the impairments were estimated based on
appraisals performed during the year and expected future cash
flows. The amount of recognized expense is included in operating
expenses in the consolidated statements of operations.
NOTE 20: DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Investments in Associated Enterprises
Investments in other cooperative's equities are carried
at cost, plus the Cooperative's share of allocated equities,
less cash patronage refunds and allocations. There is no market
for these investments since the securities are redeemable only
by the issuing cooperative at an established contract value.
Because of the lack of marketability, the Cooperative believes
it is not practicable to estimate the fair value of investments
in associated enterprises.
Notes Receivable
Carrying amount is a reasonable estimate of fair value.
<PAGE>
Long-Term Debt
Fair value is estimated based on the CoBank National
Variable Rate at October 31, 1997.
October 31, 1997
Carrying Fair
Amount Value
CoBank - term $ 29,508,367 $ 29,510,000
CoBank - seasonal 76,518,530 76,503,500
Other 8,324,441 8,304,367
----------- -----------
$114,351,338 $114,317,867
=========== ===========
NOTE 21: SIGNIFICANT ESTIMATES AND CONCENTRATIONS
Generally accepted accounting principles require
disclosure of certain significant estimates and current
vulnerabilities due to certain concentrations. Those matters
include the following:
Major Lender
The Cooperative obtains most of its financing from CoBank.
The Cooperative's line of credit of $80,000,000, which expires
May 1, 1998, has not yet been renewed.
Income Tax Assessment
During 1996, the Internal Revenue Service (IRS) completed
its examination of the Cooperative's federal income tax returns
for the years ended October 31, 1991, 1992 and 1993, and has
proposed certain adjustments which relate principally to the
Cooperative's method of computing patronage allocations during
those years. As a result, the IRS has proposed additional taxes
of $589,823 for 1991 and $447,961 for 1992, plus interest to
date of payment. This issue involves an Industry Coordinated
Issue which the cooperative industry, and the Cooperative,
are vigorously contesting. The Cooperative has filed its
protest with the Appellate Division of the IRS. No accrual
has been made for losses, if any, that may result, pending the
outcome of the Cooperative's appeal.
Contingent Liabilities
In the course of business, the Cooperative has become
engaged in various litigation matters. In the opinion of
management based on the currently known facts, the litigation
outstanding will not materially impact future financial position
and results of operations; however, circumstances may change
which would require reassessment and revisions of the estimates
of the risk of future litigation losses.
<PAGE>
NOTE 22: PATRONS' DEPOSITS
Patrons' deposits are monies on deposit from member
cooperatives. The cooperative pays interest on these deposits
at CoBank's seasonal rate.
NOTE 23: MANAGEMENT PLANS
Management's plan to improve operations and return to profitability
include: 1)selling or closing unprofitable subsidiary operations
(see note 24); 2)creating joint ventures with other farm supply
companies; 3)increasing direct shipment sales, thereby reducing
inventory handling costs and 4)reducing administrative costs (see
note 24 ) including a reduction in workforce.
NOTE 24: UNUSUAL ITEMS
The Cooperative decided during the year ended October 31,
1997, to close ten of its retail operations during the year
ended October 31, 1998. The Cooperative estimates that it will
incur costs of $1,900,000 to close these stores including bad
debts and reduced inventory realization. Additionally,
management intends to reduce the workforce. Severance pay and
related expenses are estimated to be approximately $672,000,
associated with this work force reduction. These estimated
expenses are included in operating expenses in the 1997 statement
of operations and were recorded in the fourth quarter. In
addition, during the fourth quarter the Cooperative recorded
approximately $1,500,000 of expense to reduce inventories to
net realizable value. It is reasonable possible that the
actual costs of implementing these plans could exceed the
estimates reflected in these financial statements.
NOTE 25: SUBSEQUENT EVENT
On November 6, 1997, the Cooperative sold seven convenience
store locations through a sale/leaseback transaction. No gain
or loss resulted from this transaction.
<PAGE>
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
The following table sets forth certain information concerning the
current directors of SF Services, Inc.:
Name Age Principal Occupation Director Since
Johnny H. Wilson 62 Farming 1974
Doyle Yarbrough 66 Farming 1976
Daniel Viator 53 Farming, Agriculture 1987
Consultant, Real Estate
Developer
Robert Little 46 Co-op Manager 1995
Gene Bruick 67 Co-op Manager 1992
Jerry Conerly 64 Dairy Farmer 1992
John M. Evans 55 Farming 1992
Jim Gipson 62 Farming 1992
Steven Henderson 41 Farming 1992
John C. Jay, Jr. 59 Farming, City Mayor 1992
W. B. Madden, Jr. 65 Co-op Manager 1992
Thomas H. Gist, Jr. 63 Farming 1994
W. S. Patrick 57 Farming 1992
Michael Simon 55 Farming 1992
Charlie Starks, Jr. 64 Farming 1992
Joe Wilder 56 Farming 1992
Frederick Branch 50 Farming 1995
Mike Sturdivant 46 Farming 1995
Floyd Trammel 43 Co-op Manager 1996
Travis Burchfield 30 Farming 1997
All persons have been engaged in the occupation identified
in the foregoing table for at least five years.
Executive Officers
<PAGE>
The following table sets forth certain information concerning
the current executive officers of SF Services, Inc.:
Principal Office
Name Age Occupation Held Since
Michael P. Sadler (1) 47 President 10/96
John A. Gaston 59 Vice-President 3/91
Lehi German (2) 45 Vice-President 4/97
Larry M. Fortner 43 Vice-President 1/87
Joe LaCour (3) 54 Vice-President 10/97
Joe May (4) 47 Vice-President 10/97
Wayne McDaniel (5) 50 Vice-President 10/97
William C. Mosley 44 Vice-President 3/92
(1) Mr. Sadler previously served as vice president for
Farmland Industries for seven years.
(2) Mr. German previously served as Director of Petroleum
Operations and Planning for Farmland Industries for ten years.
(3) Mr. LaCour joined the Company in 1973, serving in various
capacities. Most recently Mr. LaCour served as a Marketing
Specialist for various product lines.
(4) Mr. May joined the Company in 1993 serving as Regional Sales
Manager.
(5) Mr. McDaniel joined the Company in 1987 serving as Regional
Sales Manager.
ITEM 11: EXECUTIVE COMPENSATION
Summary of Cash and Other Compensation
The following table sets forth, for the fiscal years
indicated, the compensation provided by SF Services, Inc. to
the Chief Executive Officer and each of the executive officers
of SF Services, Inc. whose compensation exceeded $100,000 for
the most recent fiscal year.
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation
-------------------------------------
(a) (b) (c) (d) (e)
Other
Name Annual
and Compen-
Principal sation
Position Year Salary ($) Bonus ($) ($)
Michael P. 1997 $419,880 $175,000 $ ---
Sadler 1996 $ 12,531 $ --- $ ---
(CEO)
John 1997 $116,408 $ --- $ ---
Gaston 1996 $110,281 $ --- $ ---
(Vice- 1995 $106,358 $ --- $ ---
President)
Lehi 1997 $111,538 $15,395 $ ---
German
(Vice-
President)
Long-Term Compensation
---------------------------------
Awards Payouts
--------------------- --------
(a) (b) (f) (g) (h) (i)
Name Restricted Securities All Other
and Stock Underlying LTIP Compen-
Principal Awards Options/ Payouts sation
Position Year ($) SARs(#) ($) ($)
Michael P. 1997 $ --- $ --- $ --- $ 85,994 (1)
Sadler 1996 $ --- $ --- $ --- $ ---
(CEO)
John 1997 $ --- $ --- $ --- $ 4,568 (2)
Gaston 1996 $ --- $ --- $ --- $ 4,411
(Vice- 1995 $ --- $ --- $ --- $ 5,070
President)
Lehi 1997 $ --- $ --- $ --- $126,360 (3)
German
(Vice-
President)
<PAGE>
(1)Amount represents contribution to SF Services, Inc.'s 401(k)
and deferred compensation plan of $5,012 on behalf of the
named individual, 47,260 for relocation expenses, and
$33,722 premium paid on a life insurance policy of named
individual.
(2)Amount represents contributions to SF Services, Inc's
401(k) and deferred compensation plan on behalf of
named individual.
(3)Amount represents $125,000 for the equity in the employee's
home which was purchased by the Company as per the employee's
employment agreement, and $1,360 premium paid on a life
insurance policy of named individual.
Director Compensation
The members of the Board receive per diem compensation of $250
for each meeting for their services as members of the Board,
and reimbursement to cover expenses while engaged in the
business of SF Services, Inc. The Chairman receives one (1)
additional per diem compensation of $250 for each meeting for
his services as Chairman. Except for the additional
compensation paid the Chairman, no director has any contract,
arrangement, or agreement not accorded other directors on
equal terms. The amount of the per diem compensation is fixed
by the Board.
Employment Contracts and Termination of Employment and
Change-in-Control Arrangements
The Company has entered into an agreement effective September
26, 1996, with Michael P. Sadler to serve as President and
Chief Executive Officer. In addition to normal compensation,
the agreement provides for a guaranteed bonus of $175,000
the first year, and annual bonuses of up to $300,000 per year
thereafter. The agreement also provides for an employer
furnished automobile, reimbursed business related expenses,
and life insurance benefits payable to Mr. Sadler's
designated beneficiary. This agreement continues through
October 31, 2001; however, the Company may, under certain
circumstances, terminate Mr. Sadler's employment for cause,
as defined in the agreement.
<PAGE>
The Company has entered into an agreement effective April
7, 1997, with Lehi German to serve as Vice President. In
addition to normal compensation, the agreement provides for
a guaranteed annual bonus of $30,000 the first year, and
$15,000 the second year. The agreement also provides for
life insurance payable to the employee's designated
beneficiary, and the purchase of the employee's home in
Kansas City, Missouri, for $550,000. This agreement
continues through March 14, 2000; however, the Company may,
under certain circumstances, terminate Mr. German's employment
for cause, as defined in the agreement.
Compensation Committee Interlocks and Insider Participation
Decisions on compensation of SF Services, Inc.'s executives
are made by the Executive Committee of the Board of
Directors. The members of the Executive Committee are Johnny
Wilson, Doyle Yarbrough, and John Evans. No interlocks exist
with respect to the Executive Committee of the Board of
Directors.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
No individual or "group" (as that term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended)
owns more than five percent (5%) of the voting stock of SF
Services, Inc.
No director or officer of SF Services, Inc. beneficially
owns any "equity security" (as that term is defined in Rule
13d-1(d) of the Rules promulgated under the Securities and
Exchange Act of 1934, as amended) of SF Services, Inc.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
<PAGE>
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1) The following financial statements are included in
Part II, Item 8:
Independent Accountants' Report
Financial Statements:
Consolidated Balance Sheets, October 31, 1997 and 1996
Consolidated Statements of Operations, Years Ended October
31, 1997, 1996 and 1995
Consolidated Statements of Changes in Members' Equity,
Years Ended October 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows, Years Ended
October 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
(2) The following financial schedules are submitted
herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are
not applicable or the required information is
shown in the financial statements or notes
thereto.
(3) The following exhibits indicated by an asterisk
are filed herewith. The balance of the exhibits
have heretofore been filed with the Commission and
are incorporated herein by reference as indicated:
3(i)- Amended and Restated Articles of Incorporation,
as amended
(Exhibit 3(a) to Form 10-K for the fiscal year
ended October 31, 1991 in 33-38051)
* 3(ii)- By-Laws
10(i) - Employment Contract of Michael P. Sadler
(Exhibit 10(a) to Form 10-K for the fiscal year
ended October 31, 1996 in 33-38051)
<PAGE>
* 10(ii) - Employment Contract of Lehi German
11 - Statement Re: Computation of earnings per
share (Comparative per share data for SF
Services, Inc. is not presented because the
nature of cooperative associations is such
that earnings per share information is of
little or no significance. Net savings of
a cooperative are not distributed to its
shareholders based on their respective
percentages of share ownership, but rather
on the basis of each shareholder's patronage
to the entity.)
* 21 - Subsidiaries of the Registrant
* 27 - Financial Data Schedule
Listed below are the only management
contracts required to be identified
pursuant to Item 14 (a)(3).
Employment contract of Michael P. Sadler
Employment contract of Lehi German
(b) Reports on Form 8-K
None
<PAGE>
SF SERVICES, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(Thousand Dollars)
Balance at Charged to Balance at
beginning costs and Deductions- end of
Description of period expenses describe (a) period
- ----------- ---------- ---------- ----------- ------------
OCTOBER 31, 1997
ALLOWANCE
FOR
DOUBTFUL
ACCOUNTS $ 950 $ 3,653 $ 1,361 $ 3,242
DEFERRED TAX
ASSET
VALUATION
ALLOWANCE $ 693 $ 2,050 $ -0- $ 2,743
OCTOBER 31, 1996
ALLOWANCE
FOR
DOUBTFUL
ACCOUNTS $ 295 $ 1,362 $ 707 $ 950
DEFERRED TAX
ASSET
VALUATION
ALLOWANCE $ -0- $ 693 $ -0- $ 693
OCTOBER 31, 1995
ALLOWANCE
FOR
DOUBTFUL
ACCOUNTS $ 532 $ 127 $ 364 $ 295
(a) Accounts receivable charge-offs net of recoveries.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SF SERVICES, INC.
(Registrant)
/s/ Michael P. Sadler
--------------------
By: Michael P. Sadler, President
(Principal Executive Officer)
Date: February 11, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
/s/ Johnny W. Wilson Chairman & Director February 11, 1998
-------------------
Johnny W. Wilson
/s/ Doyle Yarbrough Vice-Chairman & Director February 11, 1998
-------------------
Doyle Yarbrough
/s/ John M. Evans Secretary & Director February 11, 1998
-------------------
John M. Evans
/s/ Frederick Branch Director February 11, 1998
-------------------
Frederick Branch
/s/ Gene Bruick Director February 11, 1998
-------------------
Gene Bruick
/s/ Jerry Conerly Director February 11, 1998
-------------------
Jerry Conerly
/s/ John A. Gaston Senior Vice-President February 11, 1998
------------------- (Principal Financial and
John A. Gaston Accounting Officer)
/s/ Jim Gipson Director February 11, 1998
-------------------
Jim Gipson
<PAGE>
/s/ Thomas H. Gist, Jr. Director February 11, 1998
-------------------
Thomas H. Gist, Jr.
/s/ Steven Henderson Director February 11, 1998
-------------------
Steven Henderson
/s/ John C. Jay, Jr. Director February 11, 1998
-------------------
John C. Jay, Jr.
/s/ Robert Little Director February 11, 1998
-------------------
Robert Little
/s/ W. B. Madden, Jr. Director February 11, 1998
-------------------
W. B. Madden, Jr.
/s/ W. S. Patrick Director February 11, 1998
-------------------
W. S. Patrick
/s/ Travis Burchfield Director February 11, 1998
-------------------
Travis Burchfield
/s/ Charlie Starks, Jr. Director February 11, 1998
-------------------
Charlie Starks, Jr.
/s/ Director
-------------------
Mike Sturdivant
/s/ Floyd Trammel Director February 11, 1998
-------------------
Floyd Trammel
/s/ Director
--------------------
Daniel Viator
/s/ Joe Wilder Director February 11, 1998
-------------------
Joe Wilder
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED
SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
<PAGE>
Registrant, subsequent to the filing of this Annual Report on Form
10-K, intends to furnish its shareholders with an Annual Report
covering the fiscal year ended October 31, 1997. Registrant shall
furnish four copies of such Annual Report to the Commission
when it is sent to shareholders.
Registrant has not provided and will not provide proxy soliciting
material to its shareholders.
EXHIBIT INDEX
The following exhibits indicated by an asterisk are filed
herewith. The balance of the exhibits have heretofore been
filed with the Commission and are incorporated herein by
reference as indicated:
Number in
Exhibit Table Exhibit
- -------------- -------
3(i) Amended and Restated Articles of
Incorporation, as amended (Exhibit 3(a)
to Form 10-K for the fiscal year ended
October 31, 1991 in 33-38051)
* 3(ii) By-Laws
10(i) Employment Contract of Michael P. Sadler
(Exhibit 10(a) to Form 10-K for the fiscal year
ended October 31, 1997 in 33-38051)
* 10(ii) Employment Contract of Lehi German
11 Statement Re: Computation of earnings per
share (Comparative per share data for SF
Services, Inc. is not presented because
the nature of cooperative associations is
such that earnings per share information
is of little or no significance. Net
savings of a cooperative are not
distributed to its shareholders based on
their respective percentages of share
ownership, but rather on the basis of
each shareholder's patronage to the
entity.)
* 21 Subsidiaries of the Registrant
* 27 Financial Data Schedule
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES:
NAME STATE OF INCORPORATION
- ------------------------ ----------------------
Cloverleaf Cooperative Mississippi
SFA, Inc. Arkansas
Deep South Farmers Supply, Inc. Louisiana
Professional Technologies, Inc. Arkansas
AgGrow Finance, Inc. Arkansas
Southern Farm Fish Processors, Inc. Arkansas
SF Technical Services, Inc. Arkansas
Northeast Arkansas Oil Company, LLC Arkansas
ARTICLE I
Name and Purposes of Association
SECTION 1. Name. This Association shall be known as SF
Services, Inc., hereinafter called the "Association."
SECTION 2. Purposes. The purposes for which the Association
is formed are those set forth in its Articles of
Incorporation which may be amended from time to time.
ARTICLE II
Principal Office
The principal office of the Association shall be located in
the City of North Little Rock, County of Pulaski, State of
Arkansas. The mailing address shall be 824 North Palm Street,
Post Office Box 5489, North Little Rock, Arkansas 72119, or
any other address designated by the Association's Board of
Directors (the "Board").
ARTICLE III
Shareholders
SECTION 1. Qualification. In order to become and remain a
shareholder of the Association, an interested party must:
a. purchase one share of the Association's common
stock at no less than its par value at the time of purchase
and on the terms and conditions determined by the Board,
b. be a duly formed cooperative or corporation which
does business on a cooperative basis, and
c. comply with the provisions of subchapter T of the
Internal Revenue Code of 1986 and any comparable state law
applicable to the shareholder.
SECTION 2. Suspension of Voting Rights. The voting rights of
any shareholder may be suspended by the Board for any of the
following reasons:
a. failure of the shareholder to continue to meet
the qualifications set forth in preceding Section 1; or
b. violation by the shareholder of the Association's
Articles of Incorporation, Bylaws, or other rules and
regulations imposed by the Board on the shareholders from
time to time. Prior to suspending any shareholder's voting
rights, the Board shall give written notice to the shareholder
of any alleged failure or violation (the "Charge") and
<PAGE>
shall afford the shareholder an opportunity to appear at
a specified time before the Board for the purpose of
presenting documentary evidence and oral testimony contrary
to the Charge either in person or by counsel at least ten
(10) but not more than thirty (30) days subsequent to the
written notice. In the event the shareholder fails to appear
before the Board or appears and a majority of the entire
Board sustains the Charge, then the shareholder's voting
rights shall be suspended immediately (the "Suspension
Date") until such time as they are reinstated by the Board
in its sole discretion.
SECTION 3. Expulsion of Shareholder. In the event a
shareholder's voting rights are suspended and are not
reinstated by the Board, in its sole discretion, within
ninety (90) days of the Suspension Date, then the shareholder
shall be deemed to be expelled as a shareholder of the
Association and the shareholder's only rights shall be to
surrender its common stock in the Association for an amount
equal to its par value and to participate in Board approved
distributions with respect to its equity certificates and/or
preferred stock.
ARTICLE IV
Meeting of Shareholders
SECTION 1. Time, Place and Purpose. The annual meeting and any
special meeting of the shareholders of the Association shall be
held at the principal office of the Association in the City of
North Little Rock, Arkansas, or at any other place either
within or without the State of Arkansas which may be designated
in the notice given by the Chairman of the Board (the
"Chairman"). The annual meeting shall be held at a time
approved by the Board which shall be no later than six (6)
months following the close of the Association's fiscal year. The
purpose of the annual meeting will be for the election of
directors and for the transaction of any other business that
may properly come before the meeting.
SECTION 2. Special Meeting. Special meetings of the
shareholders may be called for any legal purpose or purposes
by the Chairman, the President, a majority of the Board, or
by petition signed by shareholders holding ten percent (10%) of
the common stock of the Association. At special meetings
only those matters may be considered which are stated in the
notice of the meeting.
SECTION 3. Notice. Written or printed notice stating the place,
day and hour of the meeting and, in case of a special meeting,
the purpose or purposes for which the meeting is called, shall be
given not less than five (5) days nor more than fifty (50) days,
unless otherwise prescribed by statute, before the date of the
<PAGE>
meeting by or at the direction of the Chairman, the President,
or the persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. When a meeting is
adjourned to another place, date or time, written notice need
not be given of the reconvened meeting if the place, date and
time thereof are announced at the meeting, at which the
adjournment is taken; provided, however, if a new record date
is or must be fixed for the reconvened meeting, written notice
of the place, date and time of the reconvened meeting shall
be given in conformity herewith. At any reconvened meeting,
any business may be transacted which might have been transacted
at the original meeting.
SECTION 4. Fixing Date for Determination of Shareholders. In
order that the Association may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders
or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive
payment of any cash or patronage dividend or other
distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion,
or exchange of stock or for the purpose of any other lawful
action, the Board may fix, in advance, a record date, which
shall not be more than seventy (70) nor less that ten (10) days
before the date of such meeting, nor more than seventy (70) days
prior to any other action. If no record date is fixed: (1) the
record date for determining shareholders entitled to notice
of or to vote at a meeting of shareholders shall be at the
close of business on the date next preceding the day on which
notice is given or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting
is held; and (2) the record date for determining shareholders
for any other purpose shall be at the close of business on the
day on which the Board adopts the resolution relating thereto.
A determination of shareholders of record entitled to notice of
or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting; provided, however, the Board
may fix a new record date for the adjourned meeting.
SECTION 5. Voting Lists. The Secretary of the Association
shall make a complete list of the shareholders entitled to
vote at each meeting of shareholders or any adjournment
thereof, arranged in alphabetical order, with the address of
and the number of shares held by each. Beginning two (2)
business days after notice of the meeting has been given,
the voting list shall be kept on file at the principal office
of the Association and shall be subject to inspection by any
shareholder at any time during usual business hours. Such
list shall be produced and kept open at the time and place
of the meeting and shall be subject to the inspection of any
<PAGE>
shareholder during the whole time of the meeting. In order
to be eligible for the voting list, a shareholder must
file with the Secretary a certified resolution of its board
of directors designating who shall vote its share.
SECTION 6. Vote Requirement. A minimum of five percent (5%)
of the outstanding common shares of the Association
entitled to vote, represented in person or by proxy, shall
constitute a quorum in a meeting of the shareholders, unless
otherwise required by statute. If less than a quorum is
represented at a meeting, the majority of the shares so
represented may adjourn the meeting from time to time
without further notice. Upon continuation of the meeting which
was adjourned, at which a quorum shall be present or
represented, any business may be transacted which might have
been transacted at the meeting as originally noticed.
The shareholders present at the duly organized meeting may
continue to transact business until adjournment, notwithstanding
the withdrawal of enough shareholders to have less than a quorum.
SECTION 7. Proxies. At all meetings of shareholders, a
shareholder may vote in person or by proxy executed in
writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary
of the Association before or at the time of the meeting. No
proxy shall be valid after eleven (11) months from the date
of its execution, unless otherwise provided in the proxy.
A proxy shall be revocable by the party granting such proxy
unless it states that it is irrevocable and is coupled with
an interest as set forth in A.C.A. 4-27-722.
SECTION 8. Voting Rights. Only shareholders who own common
stock and are in good standing shall have the right to vote
on the items of business considered at meetings of the
shareholders, and no holder of such stock shall have more
than one (1) vote on any matter submitted for a vote at a
meeting of shareholders. At each shareholders' meeting, each
shareholder will be represented by a voting delegate qualified
as a duly authorized representative whose authority shall be
in the form of a certified resolution adopted by each
shareholder's board of directors which has been filed with the
Association's Secretary on or prior to the meeting. To
qualify as a representative, the voting delegate must be a
member in good standing of the shareholder, cannot be an
employee of the Association and cannot be a candidate for
election to the Board. When voting on directors for the
Association, the voting delegates and proxies acting on behalf
of voting delegates shall caucus by district or region and
the voting share of each shareholder may be voted by secret
ballot only for the purpose of electing one (1) or more
directors from the shareholder's district or region.
<PAGE>
ARTICLE V
Board of Directors
SECTION 1. Duties. The business and affairs of the
Association shall be managed and controlled under the direction
of the Board. All powers that may be exercised and/or
performed by the Association, under its Articles of
Incorporation, its Bylaws, and state statutes shall be exercised
by or under the authority of the Board.
SECTION 2. Composition. The Board shall consist of twenty (20)
persons determined as follows::
a. District Directors. Eleven (11) directors shall
be active members of shareholders in good standing with the
Association and shall be elected by the shareholders from
their established district to represent that District.
Candidates for the Board from each district shall be
nominated by the shareholders from each respective geographical
district established by the Association. Each district
director shall be elected for a three - (3) year term with
no more than four (4) and no less than three (3) new terms
beginning each year.
b. Manager Directors. Six (6) directors shall be
chosen through the Association's Managers' Association and
shall be active managers of shareholders in good standing with
the Association and two (2) shall be from each of the geographic
regions as defined under Section 4(b). The three (3) positions in
effect on the effective date of these bylaws (the 'Class A Manager
Directors') shall continue to be filled by the existing directors
for the duration of the term each incumbent was elected to serve
including the position filled at the Association's 1998 annual
meeting. The three (3) new positions created hereunder ('class B
Manager Directors') shall be filled at the association's 1998
Annual meeting and the term of each of the newly elected Class
B Directors shall be the number of years needed to give a sum
of four (4) when added to the number of years remaining in
the term of the Class A Directors from the same region..
c. Regional Directors. Three (3) directors shall be
active members of shareholders in good standing with the
Association and shall be elected by the shareholders from
their established region to represent that region. Candidates
for the Board from each region shall be nominated by the
shareholders from each respective geographical region established
by the Association. Each regional director shall be elected
for a three- (3) year term with one new term beginning each year.
<PAGE>
d. Change in Number. From time to time the Board may
increase or decrease the number of its members by increasing
or decreasing the number of directors in any one (1) or more
of the three (3) aforesaid groups; provided, however, that
in no event shall the total number of directors be more than
twenty-four (24) nor less than fifteen (15).
SECTION 3. Election of Directors. Members of the Board shall
be elected at the annual meeting of shareholders and the
vote of each shareholder shall be cast by a voting delegate
as set forth in Section 8 Article IV. Members of the Board
shall be elected from nominees whose names are submitted to
caucuses as provided in Section 4 of this Article V.
SECTION 4. Establishment of Areas and Procedures for
Selection of Nominees for Election to the Board.
a. Manager Directors. The managers of the shareholders
in each region defined under section 4(b) shall constitute
the members of a regional caucus to select a nominee for each
seat on the Board which shall be open for the election of a
manager director from each region. Unless otherwise directed
by the Board, the caucus for the selection of a nominee or
nominees for election to office as a manager director of the
Board shall be held at the annual meeting of the Managers'
Association.
i. Election of Class A Manager Directors. At such
caucus to elect a Class A Director, each manager of each
shareholder in the region in attendance at the caucus shall
be entitled to cast that number of votes which shall be equal
to one thousand times the percentage figure (with fraction
of one percent (1%) carried to the third decimal point)
determined by dividing dollar volume of purchases made from
the Association by such shareholder during the preceding
fiscal year of the Association by the dollar amount of all
purchases from the Association made by all its shareholders
during the preceding fiscal year; that is, if a shareholder
purchased from the Association during the preceding fiscal
year 1.213% of all purchases from the Association by all of
its shareholders during such fiscal year, then such shareholder
may cast a total of 1,213 votes for the nominee or nominees
of its choice. Prior to the caucus, the Secretary shall
furnish to the president of the Managers' Association a
listing of the shareholders reflecting total purchases made
from the Association by each of its shareholders during the
preceding year and each shareholder's respective percentage
thereof.
ii. Election of Class B Manager Directors. At each
caucus to elect a Class B Director, each manager of each
shareholder in the region in attendance shall be entitled
to one (1) vote in the selection of a nominee for election
to the Board.
<PAGE>
b. Regional Directors. Three (3) regions shall be
established by the Board with one (1) regional director
elected from each. The regions shall initially be composed
of the following areas, namely:
i The area west of the Mississippi River and north
of border line between Arkansas and Louisiana and a
westerly projection of such line along the boundary line
between Texas and Oklahoma,
ii. The area east of the Mississippi River, and
iii The area west of the Mississippi River and south
of the border line between Arkansas and Louisiana and a
westerly projection of such line along the boundary line
between Texas and Oklahoma.
Unless otherwise determined by the Board of
Directors of a shareholder, the voting delegate selected
by a shareholder for voting at meetings of shareholders of
the Association shall be the official delegate of the
shareholder to attend and participate in the caucus for the
selection of a nominee for election to the Board from the
region in which the shareholder is located. The official
delegates of the member cooperatives in each of the three (3)
regional areas shall constitute the members of a caucus to
select a nominee for election to a seat on the Board from
that region. Not later than the date on which notice of
the annual shareholders' meeting shall be given to
shareholders, the Secretary of the Association shall, in
writing, call a caucus of the official delegates of each of the
three regional areas which are entitled to elect a regional
director at the annual shareholders' meeting. The Secretary
shall send a copy of such notice to each shareholder in each
region in which a regional caucus is to be held and by such
notice the Secretary shall fix the date, time and place at
which the caucus shall be held, shall name a temporary
chairman of the caucus to call such meeting to order and to
preside over the election of a chairman for the meeting, and
shall enclose with such notice a listing of the shareholders
in the regional area, the total dollar volume of purchases
from the Association by each shareholder during the preceding
fiscal year, and each shareholders' respective percentage of
such purchases. At such caucus, the official delegate of each
shareholder in the selection of a nominee for election as a
regional director shall be entitled to cast that number of
votes which is equal to one thousand times such shareholder's
respective percentage of purchases from the Association during
the preceding fiscal year.
c. District Directors. There shall be eleven (11)
geographical areas from each of which one (1) district
director shall be elected. The Board shall divide the entire
trade area served by the Association into eleven (11)
<PAGE>
geographical areas in which the Association's shareholders
transact business. There shall be located in each such
district area the principal place of business of at least five
(5) of the Association's shareholders who shall have purchased
goods and merchandise from the Association in an amount
not less than a sum set by the Board at its first meeting
following each annual meeting of the shareholders during the
last fiscal year of the Association. To the extent reasonably
practical, the boundaries of the eleven (11) district areas
shall be delineated by readily identifiable lines such as
highways, county or parish lines, rivers, etc., and the
entire geographical area included in each district shall be
a single contiguous geographical area. If a member
cooperative has branch operations or more than one (1) place
of business, it shall be assigned to the district in which
the principal place of business is located, both for purposes
of determining the district caucus in which the member
cooperative shall participate and for purposes of determining
the volume of business done by the member cooperatives in the
district. The official delegates of the shareholders in each
district shall constitute a caucus to select the nominee for
election to a seat on the Board which shall be open for the
election of a district director from that district. Not later
than the date on which notice of the annual meeting of the
shareholders shall be given, the Secretary of the Association
shall call a meeting for the caucus of the official delegates
of each district entitled to elect a district director at the
annual shareholders meeting. The Secretary, by the notice
calling the caucus, shall fix the date, time and place at which
the caucus shall be held, shall name a temporary chairman of
the caucus to call such meeting to order and preside over the
election of a chairman for the meeting and shall enclose in
such notice a listing of the shareholders in the district who
are entitled to participate in the selection of a nominee for
election as district director to represent the district on the
Board. At such caucus each official delegate shall be entitled
to cast one (1) vote in the selection of a nominee for election
to the Board as the director from that district.
The foregoing notwithstanding, the requirement that
each such district contain the principal place of business
of at least five (5) of the Association's shareholders shall
be waived until the earlier of (i) the annual meeting of the
Association's shareholders occurring in 1998 or (ii) the
redistricting of the Association pursuant to these bylaws.
d. Redistricting. If, at any time, the Board shall,
in its sole discretion, determine that the purposes of the
Association may be better accomplished or that the Associations'
shareholders may be better served by adjusting the districts
so as to change the geographical boundaries of one (1) or
more districts, so as to change the number or identity of
member cooperatives assigned to a district, or so as to
<PAGE>
increase or decrease the number of districts, a redistricting
committee shall be appointed to study the matter and devise
and recommend to the Board for adoption by the Board a new or
revised plan for the establishment of districts from which
district directors will thereafter be elected. The
committee shall consist of the Chairman of the Board and one
(1) manager director, two (2) district directors, and one
(1) regional director, all of whom shall be appointed by the
Chairman of the Board who shall designate a committee
chairman. The appointments made by the Chairman must be
ratified by a majority of the Board to be effective. In the
event a new or revised plan is adopted by the Board, any
director serving on the Board at the time of such action whose
term extends beyond the date on which the new or revised
district plan becomes effective shall continue to serve as a
director until the expiration of the term for which elected.
e. New Shareholders. The Board shall assign new
shareholders to the district deemed most appropriate by
the Board and such action alone shall be sufficient to enlarge
the district so as to include the trade area served by each new
shareholder within the district and so as to include the volume
of business of each new shareholder in the volume of business
transacted by the district.
SECTION 5. Nominations; Naming of Candidates for Selection as
Nominees for Election to the Board of Directors. Each
shareholder within a district or region from which a director
is to be elected may submit a nominee for each relevant district
and/or regional directorship to be filled and shall furnish a
brief history of such candidate to the Association in advance
of the caucus of the district and/or region. The Association
will promptly prepare a consolidated list of candidates
together with the biographical data of each candidate and
furnish same to the shareholders eligible to participate in
the caucus. All nominations shall be submitted to the Association
at least thirty (30) days prior to the date of the caucus called
by the Secretary. Each nomination shall be promptly reviewed
by the Credentials Committee appointed by the Chairman which
Committee shall have the right to determine if each nominee
is eligible to be a candidate under these bylaws.
SECTION 6. Qualifications of Directors. There is no limit to
the number of terms any director may serve as long as the
director remains an active member or manager of a shareholder
in good standing with the Association. Upon a director
attaining the age of seventy (70) years, he shall cease to
be eligible to continue to serve on the Board, and, upon
attainment of that age, the seat on the Board shall be deemed
to be vacant and such vacancy shall be filled by the Board as
hereinafter provided in Section 13 of this Article V.
No person whom the Board determines to be engaged in any
business in competition with the Association shall be eligible
<PAGE>
to be elected or, if elected, to continue to serve as a
director unless approved unanimously by the Board in a secret
ballot; and if it is determined by the Board that a director
is in competition with the Association, then that director's
seat shall be deemed to be vacant and the vacancy shall be
filled by the Board as hereinafter provided in Section 13
of this Article V. No director may continue to serve on the
Association's Board if the director is a member or manager
of a shareholder whose prior year's volume with the
Association was less than the amount set by the Board at its
first meeting following the most recent annual meeting of
the shareholders, and, immediately upon the Board's
determination that a director has become ineligible to serve
that director's seat shall be deemed vacant and the vacancy
shall be filled by the Board as hereinafter provided in Section
13 of this Article V. Each regional and district director
must be a member of a shareholder which is in good standing
with the Association, must not be an employee of a
shareholder, and must have served as a director of a shareholder
for more than one (1) year. Each manager director must be
qualified in accordance with the Managers' Association's
Bylaws which are subject to approval of the Board.
SECTION 7. Election of Officers. Within thirty (30) days
following the annual meeting of the shareholders each year
during the post-transition period, the Board shall hold a
meeting, at such time and place as is fixed by the Board, at
which time the Board shall select from its membership by
secret ballot a chairman, vice-chairman, secretary-treasurer.
SECTION 8. Annual and Regular Meetings. The annual meeting of
the Board shall be held immediately following the annual
shareholders' meeting or as soon thereafter as practicable.
Meetings of the Board may be held at any place within or
without the State of Arkansas as the Board may, from time to
time, determine. In addition to the annual meeting of the
Board to be held immediately following the annual meeting of
the shareholders, the Board shall meet on a regular basis on
such date and at such time and place as the Board shall determine.
SECTION 9. Special Meetings. A special meeting of the Board of
Directors may be called by the Chairman, the President, or
by a majority of the Board, by giving five (5) days' written
notice to each director.
SECTION 10. Telephonic Meetings. Members of the Board, or any
committee designated by the Board, may participate in a meeting
of such Board or committee by means of conference telephone
or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this bylaw shall
constitute presence in person at such meeting.
<PAGE>
SECTION 11. Action Without a Meeting. Any action required to
be taken at a meeting of the Board, or any action which may
be taken at a meeting of the Board, may be taken without a
meeting if all of the directors consent to the action and
before such action is taken all of the directors sign, and
file with the Secretary, for inclusion in the corporate
record book, a memorandum showing the nature of the action
taken and the consent of all directors to the informal action
by the directors. The effective date of such action shall be
the date the last director executes the consent memorandum.
SECTION 12. Resignation. A director may resign at any time
by delivering written notice to the Board. A resignation shall
be effective when the notice is delivered unless the notice
specifies a later effective date.
SECTION 13. Vacancies. In the event of a vacancy on the
Post-Transition Board, the remaining directors may, by
majority vote, fill the vacancy until the next annual meeting
of shareholders. Such director must meet the requirements of
the seat being filled.
SECTION 14. Call and Notice of Meetings. The directors shall
be notified in writing, at least five (5) days prior thereto,
of the time, place and purpose of all special meetings of the
Board. Any director shall be determined to have waived notice
by his attendance at any meeting, unless he shall specify at
the inception of the meeting that the minutes shall record
the absence of notice. Written notice of any special meeting
may be waived in writing by all of the directors.
SECTION 15. Quorum. A majority of the Board shall constitute a
quorum for the transaction of business at any meeting of the
Board; and a vote of the majority of the Board present at
such meeting shall be sufficient to pass or reject any measure
properly placed before the meeting, except for the transaction
of business for which different vote is specifically provided
for by statute or by these bylaws.
SECTION 16. Vote of Directors. At all meetings of the Board,
each director shall have one (1) vote. The Chairman of the
Board shall have a vote only if necessary to break a tie vote
of the remaining directors.
SECTION 17. Compensation. The members of the Board shall
receive per diem compensation for their services as members
of the Board, and reimbursement to cover expenses while
engaged in the business of the Association. No director shall,
during his term of office, have any contract, arrangement or
agreement not accorded other directors on equal terms. The
amount of the per diem compensation shall be fixed by the
Board.
<PAGE>
SECTION 18. Removal of Director. Any director may be removed
from office by a vote of a majority of the Board at any
regular meeting or at any special meeting called for that
purpose. The Board shall consider the removal of a director
if fifty percent (50%) of the shareholders bring charges against
such director by filing in writing with the Secretary of
the Association a petition signed by an official of each
shareholder requesting the director's removal. The director
against whom such charges have been brought shall be notified
in writing of the charge at least ten (10) days prior to the
meeting and shall have an opportunity at the meeting to
present personal testimony and documented evidence presented
in person or by counsel; and the shareholders bringing the
charges shall have the same opportunity. After hearing all
evidence, the Board, by a majority vote of the entire Board, may
remove the director if it determines that good cause exists and
its decision shall be final. Any vacancy in the Board created
by such removal from office shall be filled in a manner
provided in Section 13 of this Article V.
SECTION 19. Statement of Condition. At each annual shareholders'
meeting, the directors shall cause the Association to submit
audited financial statements of the Association to the
shareholders.
SECTION 20. Executive Committee. The Chairman, by and with
the consent and concurrence of a majority of the Board, may
appoint an executive committee composed of not less than three
(3) nor more than seven (7) members of the Board. The
Executive Committee shall have such powers and shall perform
such duties as may be delegated to it by resolution of the
Board provided, however, such committee shall not be
authorized or empowered to declare dividends, fill vacancies
on the Board, or exercise any other power which a committee
of the Board is prohibited by law from exercising. The
Executive Committee shall perform its duties and functions
as directed by the Board, shall report periodically to the
Board, and shall act by a majority of its members. The Executive
Committee may be abolished at any time by a vote of a majority
of the Board.
SECTION 21. Advisory Director. The Board may, in discretion,
appoint advisory directors, who shall be required to meet
only those prerequisites established by the Board and who may
attend Board meetings and participate in Board discussions but
shall not be entitled to vote on any matters coming before the
Board.
SECTION 22. Special Committees. The chairman, in his
discretion, may constitute and appoint special committees, in
addition to the Executive Committee and Credentials Committee, to
assist in the supervision, management and control of the
affairs of the Association, with responsibilities and powers
<PAGE>
appropriate to the nature of the several committees and as
provided by the Board in the resolution of appointment or in
subsequent resolutions and directives. Each committee so
constituted and appointed by the Chairman shall have at least
three (3) members on the committee and shall serve at the
pleasure of the Chairman.
SECTION 23. Presumption of Assent. A director of the
Association who is present at a meeting of the Board at which
action on any matter is taken shall be presumed to have
assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file
his written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary
of the Association immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.
ARTICLE VI
Duties and Powers of Board of Directors
SECTION 1. Management of Business. The Board shall have
general supervision and control of the business and affairs of
the Association and shall make all rules and regulations, not
inconsistent with law or with these bylaws, for the management
of the business and guidance of the officers, employees and
agents of the Association. The Board shall make certain that
the Association has an adequate accounting system, and it
shall be the Board's duty to require proper records to be
kept of all business transactions.
SECTION 2. Employment of President. The Board shall have the
power to employ a President to manage the Association and to
fix his compensation. The President shall have the power to
employ or dismiss all other personnel and fix their salaries,
shall have charge of the business of the Association under the
board, and shall not be a member of the Board.
SECTION 3. Bonds and Insurance. The Board shall require the
President and all other officers, agents and employees charged
by the Association with responsibility for the custody of any
of its funds or negotiable instruments to give adequate bonds.
Such bonds shall be furnished by a responsible bonding company
and approved by the Board, and the cost thereof shall be paid
by the Association. The Board shall procure adequate
insurance covering loss of, or damage to, the property of the
Association and property in its possession and custody for
which it is liable, by fire, tornado or windstorm, and also
shall procure adequate public liability insurance.
<PAGE>
SECTION 4. Depository. The Board shall have the power to
select one (1) or more banks to act as depositories of the
funds of the Association and to determine the basis of
receiving, depositing and disbursing the funds of the
Association, the form of checks, and the person or persons by
whom same shall be signed, with the power to change such banks,
the person signing such checks, and the form thereof at will.
SECTION 5. Borrowing Money. The Board shall have the power
to authorize the borrowing of money by the Association in
any amount and upon such terms and conditions as may, in its
best judgment, seem either desirable or expedient, and for
any purpose which, in the exercise of its judgment, the Board
deems either necessary for desirable for the furtherance of
any of the purposes for which the Association is organized,
and shall also have the power to authorize the mortgaging or
pledging, as security for such loans, some or all of the
Association's assets and property, including its equipment,
facilities, commodities, and stock in trade, and bonds,
warehouse receipts, and other security instruments which may,
from time to time, be owned by the Association or be held
for its account.
SECTION 6. Investments. The Board shall have the right and
power to invest any funds of the Association not needed in the
operation of the business, including reserve funds, in such
investments as it may deem advisable.
SECTION 7. General Powers of Board of Directors. The Board shall
have the power and authority consistent with law, the Articles
of Incorporation, and these Bylaws to pro-vide for the
carrying out of the contracts and agreements of the Association
and to authorize officers thereof to enter into contracts and
agreements on behalf of the Association and to authorize any
and all acts that are deemed conducive to furthering the
purposes for which the Association was formed.
ARTICLE VII
Officers
SECTION 1. Officers and Qualifications. In addition to the
officers who serve on the Board and who are referred to in
Section 7 of Article V, the officers of the Association shall
include a president and such other officers as the Board
shall deem necessary. Neither the president nor any other
officer may be a director of the Association.
SECTION 2. Duties of Chairman of the Board. The Chairman
of the Board shall preside over all meetings of the
shareholders and of the Board, call special meetings of the
Board, perform all acts and duties usually performed by a
presiding officer, serve as ex-officio member of all committees
<PAGE>
of the Association, sign all stock certificates and such
other documents and papers as he may be authorized to sign
by the Board; provided, however, the Board may authorize any
person to sign any or all checks, contracts, and other
instruments in writing on behalf of the Association. The
Chairman of the Board shall perform such other duties as may
be prescribed by the Board and vote as a member of the Board
in case of a tie vote.
SECTION 3. Duties of Vice-Chairman. In the absence of the
Chairman, the Vice-Chairman shall perform the duties of the
Chairman; provided, however, in case of death, resignation,
disqualification or disability of the Chairman, the Board may
declare the office of Chairman vacant and elect a successor to
serve for the unexpired term.
SECTION 4. Duties of President. The President shall be the
chief executive officer of the Association and shall perform
all of the duties prescribed by the Board for the chief executive
officer and at the request of the Chairman of the Board may
preside over the meetings of the Board or of the shareholders.
The President shall sign all documents and papers as he may be
authorized to sign by the Board, provided, further, that the
Board may authorize any person to sign any or all checks,
contracts or other instruments in writing on behalf of the
Association. The President shall perform such duties as may
be prescribed by the Board, but shall not have a vote on the
Board.
SECTION 5. Duties of Secretary-Treasurer. The Secretary shall
keep a complete record of all meetings of the shareholders and
of the Board. He shall sign all stock certificates and such
other papers pertaining to the Association as he may be
authorized or directed to do by the Board. He shall serve
all notices required by law and by these bylaws and shall make
a full report of all matters and business pertaining to his
office to the shareholders at the annual meeting. He shall
perform such other duties as may be required of him by the
shareholders or the Board. He shall have general charge and
supervision of the books and records of the Association.
And shall perform such duties with respect to the finances
of the Association as may be prescribed by the Board. He
shall provide for the keeping of proper stock and patron
records, showing the name of each shareholder and patron of
the Association, the number of the stock certificates, and
date of issuance, surrender, cancellation or forfeiture
thereof. He shall keep the corporate seal and affix said
seal to all papers requiring seal, and shall perform such
other duties and functions as may be prescribed by the Board.
He shall also: (a) have charge and custody of and be
responsible for all funds and securities of the Association;
(b) receive and give receipts for monies due and payable to
the Association from any source whatsoever, and deposit all
<PAGE>
such monies in the name of the Association in such banks,
trust companies, or other depositories as shall be selected
by the Board; and (c) in general perform all of the duties
incident to the office of Treasurer and such other duties
as from time to time may be assigned to him by the President
or by the Board. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his duties
in such sum and with such surety or sureties as the Board
shall determine.
SECTION 6. Duties of Other Officers. Any other officers
elected to offices created by the Board shall perform such
duties with respect to such office as may be prescribed by
the President.
SECTION 7. Action with Respect to Securities of Other
Corporations. Unless otherwise directed by the Board, the
President shall have the power to vote and otherwise act on
behalf of the Association, in person or by proxy, at any
meeting of shareholders or with respect to any action of
shareholders of any other corporation in which this Association
may hold securities and otherwise to exercise any and all
rights and powers which this Association may possess by reason
of its ownership of securities in such other Association.
ARTICLE VIII
Audits and Determination of Savings
SECTION 1. Audits. As soon as practicable after the close of
each fiscal year, the Board shall have a complete audit of
the books and accounts of the Association performed by an
independent certified public accountant whose audit report
shall be made available for inspection by the shareholders.
SECTION 2. Distribution of Savings. The net savings, which
shall be determined by the Association's independent certified
public accountant applying generally accepted accounting
principles, shall be distributed in the following manner:
a. Dividends on the Association's preferred stock
approved by the Board shall be paid in full.
b. The undivided savings remaining after the provision
for payment of dividends on preferred stock shall be set apart
into three categories:
1. savings produced on members' business.
2. savings produced on nonmembers' business, and
3. savings resulting from nonpatronage income.
c. The savings on nonmember business and on
nonpatronage income shall be retained by the Association
and used as the Board shall determine.
<PAGE>
d. All savings related to member business shall be
allocated to the shareholders except to the extent the Board
shall determine that a portion of the savings should be retained
to establish and maintain reasonable reserves. The savings
which are allocated to shareholders shall be allocated on a
patronage basis determined by the Board.
e. At the option of the Board, patronage dividends may
be paid in cash or by the issuance of shares of preferred stock,
certificates of indebtedness, certificates of equity, written
notices of allocation or by any combination thereof
("Equity Certificates").
f. At the Board's discretion, any patronage dividend
shall be treated as a "qualified written notice of allocation"
as defined by Section 1388(c) of the Internal Revenue Code or
as a "nonqualified written notice of allocation" as defined by
Section 1388(d) of the Internal Revenue Code of 1986.
g. To the extent required by the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), the
Association shall pay its patronage dividends on qualified
written notices of allocation in cash. The remainder of the
patronage dividends (the "Excess Distribution") shall be paid
in cash and/or Equity Certificates as determined by the Board.
h. Each shareholder shall include the full amount of
any qualified written notices of allocation in income in
accordance with Section 1385(a) of the Internal Revenue Code
of 1986 and shall report as income distributions of cash with
respect to nonqualified written notices of allocation in
accordance with Section 1385(c) of the Internal Revenue
Code of 1986.
i. The Board shall have the right to declare that
only a shareholder whose Ownership Percentage is greater than
his Volume Percentage shall receive its Excess Distribution
payable in cash. In the case of a shareholder whose Volume
Percentage is greater than its Ownership Percentage, the Board,
at its discretion may issue Equity Certificates to the
shareholder which shall not be redeemed until the shareholder's
Ownership Percentage exceeds its Volume Percentage. For
purposes of this subparagraph (g), "Ownership Percentage"
shall refer to the percentage obtained by dividing each
shareholder's total capital investment in the Association,
including the par value of stock of all classes and all Equity
Certificates attributable to the shareholder by the total
capital investment in the Association of all shareholders and
"Volume Percentage" shall refer to the percentage obtained by
dividing the shareholder's total volume of business with the
Association during its five (5) most recent fiscal years by
the total volume of business done by all shareholders with
the Association during its five (5) most recent fiscal years.
<PAGE>
j. In the event of a loss in one (1) or more
departments or operating divisions of the Association, but not
of such magnitude as to cause an overall loss for the fiscal
year of the Association, such loss or losses may be prorated
against each of the remaining profitable departments or
divisions on the basis of their respective percentage of the
total net margin during such fiscal year. In the event the
Association as a whole shall incur a net loss in any fiscal
year, such net loss, at the Board's discretion, may be charged
against any unallocated earned surplus, paid-in surplus, or
reserve other than a valuation reserve or may be recovered
from prior or subsequent years' net margins or savings. In
no event shall the Board have the authority to make any
assessment against the shareholders. This section shall not
be construed or administered in such a way as to deprive the
Association of the right to carry back or carry forward net
operating losses to past or future years in accordance with
the applicable provision of the Internal Revenue Code or state
taxing statutes.
SECTION 3. Retirement of Capital Accounts and Equities. Upon
the determination by the Board that adequate reserves are on
hand, the Board may retire and pay off the interest of
patrons in any type capital account and/or equity certificate.
In retiring and paying the interest of patrons in any capital
account and/or equity certificate, such payments and retirements
shall be made in the order in which the interest was created,
on a revolving fund plan, unless the Board shall determine
that another approach is more appropriate.
SECTION 4. Right of Offset. Upon order of the Board any
patronage refunds or Equity Certificates payable to shareholder
or former shareholder ("patron") may be applied to the payment
or partial payment of any indebtedness owing to the Association
by a patron, and, to the extent of such indebtedness, the
Association shall have a prior lien upon the interests of a
patron in the Association. The term "indebtedness" as used
herein shall include the patron's account receivable and note
receivable owed to the Association plus any reasonable charge
for loss of use of money and a reasonable collection fee
provided the right of offset is exercised at any time or
times on or before, or within one hundred eighty (180) days
following the retirement or redemption date of the patron's
Equity Certificates. The Board shall have the right to
formulate policies and rules for implementation of this
Section 4 of Article VIII.
SECTION 5. Binding Effect. The shareholders of the
Association, by dealing with the Association, acknowledge
that all the terms, conditions, provisions, and limitations
upon the distribution of net savings of the Association, as
in these bylaws provided, shall be and constitute a contract
by and between the Association and each shareholder, and shall
<PAGE>
be as fully binding upon each shareholder and the Association
as though separate instruments, containing the said terms
and provisions, had been executed by and between the
Association and each shareholder.
ARTICLE IX
Distribution of Assets on Liquidation
In the even of the dissolution or liquidation of the
Association, any assets remaining after the payment of all
debts shall be distributed in the following order and manner:
a. All outstanding preferred stock of all classes
and accumulated dividends thereon shall be retired in full,
if sufficient assets are available, or, if not, in accordance
with the order of priority set forth in the Articles of
Incorporation;
b. All outstanding common stock shall be retired in
full;
c. All Equity Certificates shall be retired on an
equitable basis as determined by the Board; and
d. The remaining assets shall be distributed to the
common shareholders on an equitable basis as determined by
the Board.
ARTICLE X
Indemnification
SECTION 1. Right of Indemnity. Whenever any present or former
director or officer of the Association who, by reason of the
fact that he is or was serving at the request of the
Association in such capacity, is made a party to any suit,
action or preceding, whether civil, criminal, administrative
or investigative, including any action by or in the right of
the Association, he shall be indemnified against all claims,
judgments, liabilities and reasonable expenses, including
attorney's fees, incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the
best interest of the Association and in the case of any
criminal proceeding, he had no reasonable cause to believe his
conduct was unlawful. Provided, however, no indemnification
shall be made in respect to any claims, judgment, amount paid
in settlement, issue, fine, matter or attorneys' fees for a
criminal proceeding, or as to such person guilty of a violation
of a criminal law, or as to which such person shall have been
adjudged to be liable for negligence or misconduct in performance
of his duty to the Association unless, and only to the extent
that, the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of
<PAGE>
liability but in review of all circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper. The right of
indemnity provided for in this Article shall inure to the
benefit of the estate, executor, administrator, heirs, legatees
or devisees of any person entitled to such indemnification.
SECTION 2. Reimbursement of Expenses and Advances. The
Association shall pay for reimburse reasonable expenses
incurred by a director or officer who is a party to a
proceeding in advance of final disposition of a
proceeding if:
a. The director or officer furnishes the Association
a written statement of his good faith belief that he has acted
in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Association and,
in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful;
b. The director or officer furnishes the Association
a written undertaking executed personally or on his behalf to
repay the advance if it is ultimately determined that he did
not meet the standard of conduct referred to in preceding
subparagraph (a); and
c. A determination is made by the Board that the facts
then known to it would not preclude indemnification under
this Article X.
SECTION 3. Authorization for Indemnification. The Association
shall not indemnify a director or officer unless authorized
in the specific case after a determination, as described
below, has been made that indemnification of the person is
permissible under the circumstances because he has met the
standard of conduct set forth in subparagraph (a) of preceding
Section 2. The determination shall be made as follows:
a. By a majority of the Board who are not at the time
parties to the proceeding, provided that at least one-half
(1/2) of the total directors are not parties;
b. If a majority of the Board are parties to the
proceeding, by the majority vote of a committee duly designated
by the Board (in which designation directors who are parties
may participate), consisting solely of three (3) or more
directors not at the time parties to the proceeding; or
c. If there are not at least three (3) directors
who are not parties to the proceeding, by special legal
counsel, which may be the Association's regular outside counsel,
who shall be selected by a majority of the Board in which
selection directors who are parties may participate.
<PAGE>
SECTION 4. Additional Indemnity. In addition to the indemnity
provided in Sections 1 through 3 of this Article X, the Board
shall, at its discretion, have power to make any further
indemnity, including any advance or expenses to, and to enter
contracts of indemnity with any director or officer that is
authorized by applicable statute.
SECTION 5. Right of Association to Insure. Not withstanding
the provisions of this Article, the Association may purchase
and maintain insurance on behalf of any person who is or was
a director or officer of the Association, against any
liability asserted against him and incurred by him in any such
capacity, or arising out of his status, as such, whether or not
the Association would have the power to indemnify him against
such liability under the provisions of this Article.
ARTICLE XI
Fiscal Year
The fiscal year of this Association shall begin on the first
day of November of each year and expire on the 31st day of
October of the following year unless otherwise changed
by the Board.
ARTICLE XII
Notice
SECTION 1. Notices. Whenever notice is required to be given
to any shareholder, director or officer such requirement shall
not be construed to mean personal notice. Such notice may,
in every instance, be effectively given by depositing a writing
in a post office or letter box, or private carrier box, in a
postpaid, sealed wrapper or by dispatching a prepaid telegram,
addressed to such director or officer at the address appearing
on the books of the Association. The time when such notice is
dispatched shall be the time of the giving of the notice.
SECTION 2. Waivers. A written waiver of any notice, signed
by a shareholder, director or officer, whether before or after
the time of the event of which notice is to be given, shall
be deemed equivalent to the notice required to be given to
such shareholder, director or officer. Neither the business
nor the purpose of any meeting need be specified in such a
waiver.
<PAGE>
ARTICLE XIII
Amendments
These bylaws may be amended by a vote of a majority of the
shareholders who are in attendance or are represented by proxy
at any annual or special meeting of the shareholders at which
a quorum is present. The proposed amendment or amendments
shall be included in the notice of the shareholders' meeting.
ARTICLE XIV
Effective Date
The effective date of these revised bylaws in November 11, 1997.
EMPLOYMENT AGREEMENT
AGREEMENT entered into this 7th day of April, 1997, by
and between Lehi German, hereinafter referred to as the
"Employee," and SF Services, Inc., an Arkansas agricultural
cooperative, hereinafter referred to as the "Employer."
1. Employment. The Employer hereby agrees to employ
the Employee, and the Employee hereby agrees to accept
employment upon the terms and conditions hereinafter set forth.
2. Term. Subject to the provisions for termination
as hereinafter provided, the term of this Agreement shall
begin on March 15, 1997, and shall continue until March 14,
2000.
3. Compensation. During the term hereof, the Employer
shall pay the Employee as follows for the services to be
rendered hereunder and for the covenants set forth in
paragraph 12:
(a) Base Salary. During the first year of
this Agreement, the Employee shall receive a base salary
of two hundred thousand dollars ($200,000) payable proratably
in accordance with the Employer's established payroll periods.
In each of the other two (2) years during the term hereof,
the Employee's base salary, which shall not be less than the
first year's base salary, shall be determined after a
performance review by the Employer's Chief Executive Officer.
(b) Bonus. The Employee shall be entitled to a
guaranteed annual bonus of thirty thousand dollars ($30,000)
during the first year of this Agreement payable in twenty-four
(24) equal semimonthly installments of one thousand two hundred
fifty dollars ($1,250) each beginning on March 31, 1997, and
continuing during the next twenty-three (23) pay periods. The
Employee shall receive incentive bonuses during the second
(payable on or before November 15, 1998) and third (payable on
or before November 15, 1999) years of this Agreement which
shall be predicated on incentives that are implemented for all
executives of the Employer and shall receive a guaranteed bonus
during the second year of fifteen thousand dollars ($15,000)
payable in twelve (12) equal semimonthly installments of one
thousand two hundred fifty dollars ($1,250) each during the
twelve (12) pay periods following the first year's guaranteed
bonus; and further provided that the second year's guaranteed
bonus shall be credited against the full incentive bonus payable
to the Employee for the second year. In the event the
employment relationship should terminate during any year at a
time other than an anniversary date, then the Employee shall be
entitled to a prorata portion of the annual incentive bonus for
the second or third year, as the case may be, based on the
number of days during the year prior to the termination.
<PAGE>
4. Severance Pay. In the event the Employer should
terminate the Employee without cause (which is defined under
paragraph 14) or substantially reduce his responsibilities as
defined in paragraph 5 during the term of this Agreement, then
the Employer agrees to pay the Employee severance pay which
shall be equal to the Employee's base salary for the year of
termination as provided under subparagraph (a) of paragraph 3
(the "Severance Amount"); provided, however, if the termination
occurs during the first year of the term hereof, then the
severance pay shall be two hundred percent (200%) of the
Severance Amount. Any severance pay due hereunder will be
payable in twelve (12) equal monthly installments beginning
ninety (90) days after the final date of the Employee's
employment or substantial reduction in duties and, if the
Employee has been terminated without cause, payment thereof
will discharge in full the Employer's obligation to the Employee
arising out of their employment relationship. In the event the
Employer makes severance pay payments to the Employee following
termination and the Employee violates the provisions of
paragraph 12 following termination, then the Employee shall
reimburse the Employer upon demand for all amounts of severance
pay received and the Employer shall be entitled to cease making
payments.
5. Duties of Employee. During the first year of the
term of this Agreement, the Employee shall be assigned a
mutually agreed upon title and shall be responsible for developing
a strategic business plan for each division of the Employer;
thereafter, he shall assume operating responsibility for at least
two (2) of the Employer's divisions.
6. Insurance Benefits. During the term of this
Agreement, the Employer shall provide the Employee with the
following insurance benefits:
(a) Group Plans. All insurance benefits provided
to employees of the Employer based upon class of employment;
provided, however, if the Employee shall be terminated by the
Employer for other than cause as defined in paragraph 14, then
the Employer shall continue the Employee's health insurance
coverage for so long as severance pay is owed under paragraph 4.
(b) Term Life Insurance. During the term of this
Agreement, the Employer shall provide the Employee, if insurable
at standard rates, with an employee-owned policy of term
insurance with coverage equal to two and one-half (21/2) times the
Employee's base salary as determined under subparagraph (a) of
paragraph 3. Upon termination of employment, the Employer shall
provide documentation necessary to allow the Employee to continue
the policy at the Employee's expense.
<PAGE>
7. Travel and Business-Related Expenses. The
Employer will reimburse the Employee for all reasonable travel
and business-related expenses. In addition, the Employer will
pay for the Employee the dues and initiation fees for
memberships in professional organizations approved by the
Employer.
<PAGE>
8. Qualified Deferred Compensation Plans. Subject
to meeting eligibility requirements, the Employee shall
participate in all of the Employer's qualified retirement
plans.
9. Nonqualified Deferred Compensation Plan. The
Employer agrees to establish a nonqualified plan of deferred
compensation for the Employee's benefit in the form and
manner described in Exhibit A, attached hereto, to which the
Employer will make a minimum annual contribution of eight
percent (8%) of the Employee's base salary as determined
under paragraph 3(a) during the term of this Agreement and
thereafter under the oral or written agreement in effect.
Such contribution shall be in the form of cash or property,
as specified in Exhibit A. Benefits shall be payable as
described in Exhibit A. This paragraph (and the respective
provisions of Exhibit A) shall survive the term of this
Agreement and shall continue so long as the Employee is
employed by the Employer. Provided, however, the required
contribution hereunder shall be reduced to the extent the
Employer shall provide a comparable retirement benefit for
the Employee under a qualified retirement plan and/or another
nonqualified retirement plan.
10. Relocation Expenses. The Employer shall provide
the Employee lodging until the Employer purchases the
Employee's home as provided in paragraph 17. The Employer
and the Employee shall mutually agree on reimbursement, if
any, for the other documented relocation expenses described
on the attached Exhibit B.
11. Incentive Plans. The Employer commits to the
Employee that it will undertake to develop a management
long-term incentive plan designed to attract and retain high
quality management personnel who can produce the level of
sustained results needed to allow the Employer to attain its
business plan over a period of time.
12. Noncompetition. The Employee agrees to the
following restrictions on him during the term of this
Agreement and thereafter:
(a) The Employee agrees that he will not, at
any time during the term of this Agreement or any oral or
written extension thereof or during the six-month period
following the termination of his employment participate in
any capacity with any business of whatever form if in such
<PAGE>
capacity he personally engages in any business activity which
is the same as, similar to, or in any manner competitive with,
the business now or hereafter engaged in by the Employer or
any of its related entities in any county in any state in
which the Employer or any of its related entities has a
member store either on the date hereof or on the date of
the Employee's termination of employment.
(b) The position of the Employee will place him
in close contact with many confidential affairs of the Employer
and its related entities including matters of a business nature
such as information about costs, profits, markets, sales,
trade secrets, potential patents and other business ideas,
customer lists, plans for future developments and other
information not known to businesses in the same lines of
business as the Employer and its related entities and other
proprietary rights (hereinafter, collectively, "Confidential
Matters"). The Employee agrees at all times hereafter to
protect from damage or destruction and keep secret all
Confidential Matters of the Employer and its related entities
and not to disclose them in any manner whatsoever to anyone,
or otherwise use them or use his knowledge of the knowhow,
sales techniques, sales operation, customer lists, trade names
or trade marks and other valuable intangible assets of the
Employer or any of its related entities, except with the
Employer's prior written consent, or as required by an Order
of a federal or state governmental agency or a court. The
Employer acknowledges that the purpose of this provision is not
to preclude the Employee from obtaining employment with another
employer, but is to prohibit the use of the Confidential
Matters to the Employer's detriment.
(c) The parties agree that any disputes arising
out of paragraph 12(a) and/or paragraph 12(b) shall be
referred to binding arbitration using a single arbitrator in
accordance with the then current rules of the American
Arbitration Association, and the parties further agree that,
subject to factors beyond the reasonable control of either
party, the decision of the arbitrator shall be binding upon
both parties and completed within ninety (90) days after it is
initiated. The arbitrator shall also determine which party or
parties shall bear the cost of arbitration.
13. Performance Review: The Employer shall establish
procedures by which its President and Chief Executive Officer,
the Board of Directors or a committee thereof will annually
review the Employee's performance. The review will be based
on objective standards of performance of the duties of the
Employee consistently applied from year to year. The Employee
shall be provided a written copy of the results of the review
and shall be informed of any areas of performance which are
deemed to require improvement and have the opportunity to
respond thereto.
<PAGE>
14. Termination by Employer. The Employer shall have
the right to terminate this Agreement at any time for cause
in which event the Employee shall be terminated immediately
and shall not be entitled to severance pay pursuant to
paragraph 4. For purposes of this Agreement "cause" shall
exist if:
(a) The Employee fails to discharge his
responsibilities hereunder to the satisfaction of the
Employer's Board of Directors after being reprimanded in
writing, specifying in detail the Employee's failures which
must be material, for a prior failure to do so and then given
sixty (60) days to properly discharge his duties. In the
exercise of its authority under this provision, the Employer
shall consider the prior performance reviews of the Employee
and any determination of a material failure of performance by
the Employee shall be based on reasonable findings of fact and
not be arbitrary or capricious;
(b) The Employee violates the restrictive
provisions of paragraph 12; or
(c) The Employee engages in any act which
constitutes (i) a felony under any state or federal law;
(ii) gross, willful or wanton negligence or misconduct; or
(iii) a breach of any fiduciary duty to Employer.
15. Notices. Any notice required or permitted to be
given under this Agreement shall be sufficient if in writing,
and if sent by registered mail or certified mail to his
residence in the case of the Employee, or to its principal
office in the case of the Employer.
16. Vacation and Professional Development Time. The
Employee shall be entitled to twenty (20) working days of paid
vacation plus normal holidays per year as well as reasonable
time for professional development.
17. Purchase of Home. On or before August 15, 1997,
the Employer agrees to purchase the Employee's home in Kansas
City, Missouri, for five hundred fifty thousand dollars
($550,000) and to assume all costs in conjunction with the
closing of that purchase.
18. Waiver of Breach. Waiver by the Employer of a
breach of any provision of this Agreement by the Employee shall
not operate to be construed as a waiver of any subsequent
breach by the Employee.
19. Entire Agreement. This instrument contains the
entire agreement of the parties. It may not be changed orally
but only by an agreement in writing signed by the party against
whom enforcement of any waiver, change, modification, extension
or discharge is sought.
<PAGE>
20. Benefit. This Agreement shall inure to the benefit
of, and shall be binding upon, their heirs, successors,
assigns, and legal representatives.
IN WITNESS WHEREOF, the parties have executed this
Agreement the day and year aforsaid.
EMPLOYER:
SF SERVICES, INC.
By: /s/ Michael P. Sadler
-----------------------
Michael P. Sadler
President and Chief Executive Officer
<PAGE>
EMPLOYEE:
/s/ Lehi German
----------------------
Lehi German
<PAGE>
EXHIBIT A
SF SERVICES, INC.
NON-QUALIFIED DEFERRED COMPENSATION PLAN
PREAMBLE
WHEREAS, SF Services, Inc. does not presently maintain a
qualified retirement plan which is comparable to this Plan
for the benefit of its employees which provides a
nondiscretionary, non-matching employer contribution;
WHEREAS, SF Services, Inc. and its subsidiaries desire to
provide a Non-Qualified Deferred Compensation Plan to provide
benefits to certain Executive Employees;
NOW, THEREFORE, SF Services, Inc. for itself and on behalf of
its subsidiaries does hereby adopt the Plan as set forth in
the following pages.
ARTICLE I
DEFINITIONS
The following terms when used herein shall have the
following meaning, unless a different meaning is clearly required
by the context.
1.01 Account. "Account" means the separate bookkeeping
record of each Participant's aggregate Employer Contributions
(as defined in paragraph 3.01 of this Plan), and any
Hypothetical Income or Loss thereon, which shall be valued as
of each Valuation Date.
1.02 Beneficiary. "Beneficiary" means the person(s) or
estate entitled to receive benefits under this Plan after the
death of a Participant.
1.03 Board. "Board" means the Board of Directors of SF
Services, Inc.
1.04 Code. "Code" means the Internal Revenue code of
1986, as amended, and including all regulations promulgated
pursuant thereto.
1.05 Company. "Company" means SF Services, Inc.
1.06 Compensation. "Compensation" means the base
compensation (as defined in the Participant's Employment
Agreement) earned as an employee for personal services rendered
to the Employer for the Plan Year.
<PAGE>
1.07 Effective Date. "Effective Date" means April 7, 1997
1.08 Eligible Employee. "Eligible Employee" means an
employee who is an Executive Employee, as defined herein. The
Board of Directors of the Employer shall have the sole and
absolute discretion to determine which employees with the
Employer shall be considered eligible.
1.09 Employer. "Employer" means SF Services, Inc., an
Arkansas agricultural cooperative, or a subsidiary thereof
which is the employer of the Participant.
1.10 ERISA. "ERISA" means the Employee Retirement
Income Security Act of 1974, as amended from time to time.
1.11 Executive Employee. shall mean those persons in
the regular full-time employment of the Employer who are key
employees and who are members of the management staff and who
are specifically selected for participation in the Plan by
the Employer.
1.12 Employer Contribution. means the contribution
made by the Employer to the Plan, as specified in paragraph
3.01, herein.
1.13: Hypothetical Income or Loss: means the income or
loss as measured by the Hypothetical Investments described in
Paragraph 3.03 of the Plan, in which the Participant is deemed
to have invested. The Employer shall be under no obligation
to invest any portion of its general assets in any mutual
funds, stocks, bonds or other investments in order to
accumulate funds for the satisfaction of its obligations under
this Plan. The bookkeeping accounts described in paragraph
1.01 will equal the amounts of principal and gain or loss that
would have resulted if the amounts contributed in Paragraph
3.01 had actually been invested in the Hypothetical Investments
described in Paragraph 3.03 and may, but shall not necessarily,
correspond with the value of any assets retained by the Company
or transferred to a Trustee for the purposes of informally
funding the obligation(s) created by this Plan.
1.14 Participant. "Participant" means an Eligible
Employee or former employee who is or has been enrolled in
the Plan and who retains the right to benefits under the Plan.
1.15 Plan. "Plan" means this SF Services, Inc.
Non-Qualified Deferral Compensation Plan as amended from time
to time.
1.16 Plan Administrator. "Plan Administrator" means
the Plan Administrative Committee which shall be appointed by
the Employer.
<PAGE>
1.17 Plan Year. "Plan Year" means the twelve month
period beginning January 1 and ending December 31. However,
the first Plan Year shall begin on April 7, 1997 and end on
December 31, 1997.
1.18 Trust. "Trust" means the SF Services, Inc.
Non-Qualified Deferred Compensation Trust which is a "rabbi
trust" in that all assets of the Trust will remain subject to
the claims of the Employer's creditors.
1.19 Trustee. "Trustee" means the trustee designated
pursuant to the Trust agreement which the Employer may establish
as provided in Paragraph 7.04 of this Plan.
1.20 Valuation Date. "Valuation Date" means the last
day of the Plan Year; provided however, that the Employer may
establish more frequent Valuation Dates.
ARTICLE II
PARTICIPATION
2.01 Eligibility for Participation. Eligible Employees
shall become a Participant in this Plan on the later of the
date they commence employment or the date the Employer has
selected an Eligible Employee for participation in the Plan.
A commitment by the Employer, in an Employment Agreement
or other legally binding contract, to provide the Employee
with a benefit under this Plan shall be deemed to be a selection
of that Employee to participate in the Plan.
ARTICLE III
CONTRIBUTIONS
3.01 Employer Contribution. A Participant shall be
entitled to receive an annual Employer Contribution. The amount
of the Employer Contribution shall be eight percent (8%) of
the Employee's Compensation, as defined herein. A Participant's
Employer Contribution shall be accounted for in the
Participant's Employer Contribution Account. For purposes
of valuing the Account, one-fourth (1/4) of the annual Employer
Contribution shall be deemed to have been allocated to the
Account on the last day of each Plan Year quarter. One-fourth
(1/4) of the annual Employer Contribution shall actually be
contributed to the Trust on the last day of each Plan Year
quarter, as provided in paragraph 7.04 of this Plan.
<PAGE>
3.02 Vesting of Contributions. A Participant shall
always be 100% vested in the Employer Contribution Account .
3.03 Hypothetical Investment: In order to determine
the amount of the Hypothetical Income or Loss, the Participant
may elect to use a combination of the following hypothetical
investments, in increments of 10%. A Participant may elect
to reallocate his account effective on the first business
day of each calendar year quarter. The election must be
made by submitting instructions to the Administrator, on forms
provided by the Administrator, at least thirty (30) days prior
to the reallocation date. There will be no funds actually
invested by the Plan Administrator for the Participant in any
of these investments.
HYPOTHETICAL INVESTMENTS AVAILABLE: Any security or
other investment which is traded on a nationally registered
securities exchange excluding securities or obligations issued
by the Employer.
ARTICLE IV
PAYMENT
4.01 Eligibility for Payment.
(a) Distribution of vested Account shall be made
only after the later of the Participant's attainment of age
55 or actual retirement. Provided, however, that distribution
of vested Accounts shall also be permitted due to an
Unforeseeable Emergency.
(b) For purposes of this Section, "Unforeseeable
Emergency" means an unanticipated emergency that is caused by
an event beyond the control of the Participant that would
result in Severe Financial Hardship to the individual if early
withdrawal were not permitted. Unforeseeable Emergency shall
include, but not be limited to, the Participant's involuntary
unemployment for a duration of six (6) months or more. For
purposes of this section, Severe Financial Hardship will result
if the distribution is necessary in light of immediate and heavy
financial needs of the Participant, where such Participant lacks
other available resources.
(c) In the event of Unforeseeable Emergency on the
part of a Participant, the Participant may submit in writing
the facts and circumstances describing the hardship to the
Plan Administrator. The Plan Administrator shall review the
claim and determine if such claim meets the standards specified
above. If a favorable determination is made, the amount
available shall be limited to amount necessary to meet the
Unforeseeable Emergency and shall be paid out in a lump sum
payment, within thirty (30) days of the Participant's request.
<PAGE>
(d) In the event of the Participant's death prior
to the full distribution of the Participant's Account, any
remaining Account balance shall be payable to the Participant's
beneficiary, in accordance with Paragraph 5.01(a) of this Plan.
4.02 Benefit Payment. Benefits, other than those due to an
Unforeseeable Emergency, hsall be paid over a period of five (5)
successive years commencing on the later of the date the Participant
attains age 55 or actual retires and continuing on the next four
anniversaries thereof. The amount distributed shall be determined
as follows:
ANNUAL PORTION OF
DISTRIBUTION REMAINING VESTED ACCOUNT
(as of most
recent Valuation Date)
First 20%
Second 25%
Third 33.3%
Fourth 50%
Fifth 100%
ARTICLE V
DEATH BENEFITS
5.01 Designation of Beneficiary.
(a) A Participant may designate one or more
Beneficiaries to receive the balance of the Participant's
Accounts in the event of the Participant's death on such form
as supplied by the Plan Administrator. A Participant may by
similar action designate a change of Beneficiary at any time,
which change shall be effective only upon receipt by the Plan
Administrator of said notice. The last such designation form
filed with the Plan Administrator shall control.
(b) In the absence of a written designation, or
in the event a Participant dies without a Beneficiary surviving
him, the amount which would otherwise be payable to his
Beneficiary shall be paid to the surviving spouse of such
Participant or if none, to such Participant's estate. A
Beneficiary shall have no interest or rights under the Plan
during the lifetime of the Participant, except as may be
provided otherwise in the Plan, ERISA or the Code.
<PAGE>
ARTICLE VI
ADMINISTRATION
6.01 Fiduciaries.
(a) Any fiduciary shall have only those powers,
duties, responsibilities, and obligations which are specifically
allocated to them under the Plan. Notwithstanding the foregoing,
any person may serve in more than one fiduciary capacity.
(b) Each fiduciary warrants that any directions
given, information furnished, or action taken by it shall be in
accordance with the provisions of the Plan authorizing or
providing for such direction, information or action. Furthermore,
each fiduciary may rely upon any such direction, information
or action of any other named fiduciary as being proper under the
Plan, and is not required to inquire into the propriety of any
such direction, information or action. No fiduciary shall be
deemed to have guaranteed the Trust in any manner against
investment loss or depreciation in asset value.
6.02 Powers and Responsibilities of the Company and
Employers.
(a) An Employer shall supply such information as
may be requested by the Plan Administrator or the Trustee
including information with respect to compensation, service,
age, retirement, death, termination of employment of any Employee
or Participant.
(b) The Company shall receive and review reports of
the receipts and disbursements of the Trust from the Trustee;
(c) The Company shall file or cause to be filed
with the appropriate government agency (or agencies) any required
reports, summary plan description, and any other pertinent
documents.
6.03 Plan Administrator. The "named fiduciary" (as
defined in Section 402 of ERISA) of the Plan is the Plan
Administrative Committee which is also designated under
Paragraph 1.15 of the Plan as the Plan Administrator.
6.04 Powers and Responsibilities of the Plan Administrator.
The Plan Administrator shall carry out the daily management
of the Plan in accordance with its terms and shall have the
power to determine all questions arising in connection with the
administration, interpretation, and application of the Plan.
Any such determination by the Plan Administrator shall be
conclusive and binding upon all persons. The Plan Administrator
may correct any defect, supply any information, or reconcile
any inconsistency in such manner and to such extent as shall
be deemed necessary or advisable to carry out the purpose of
<PAGE>
this Plan; provided, however, that any interpretation or
construction shall be made and applied in a nondiscriminatory
manner. The Plan Administrator shall have such powers and
duties, unless otherwise provided herein, as may be necessary
to discharge its duties hereunder, including, but not limited
to, the power and duty:
(a) to construe and interpret the Plan, decide
all questions of eligibility for payment of any benefits
hereunder;
(b) to adopt such rules, such procedures and
forms as it deems appropriate;
(c) to make a determination as to the right of
any person to a benefit and to afford any person dissatisfied
with such determination the right to a hearing thereon;
(d) to receive from an Employer and from Employees
such information as shall be necessary for the proper
administration of the Plan;
(e) to delegate to one or more of the members of
the Committee the right to act in its behalf in all matters
connected with the administration of the Plan and Trust and
to delegate ministerial matters to its agents or employees,
who need not be members of the Committee;
(f) to furnish any Employee and each Beneficiary
receiving benefits hereunder a summary plan description
explaining the Plan unless exempted under ERISA;
(g) to furnish any Employee or Beneficiary who
requests in writing statements indicating such Employee's or
Beneficiary's Account balance;
(h) to maintain all records necessary for
verification of information required to be filed with any
governmental agency;
(i) to report to the Trustee all available
information regarding the amount of benefits payable to each
Participant, the computations with respect to the allocation
of assets, and any other information which the Trustee may
require;
(j) to retain such agents, and employees,
including legal counsel (which may be counsel for the
Employer), as it deems appropriate for the discharge of its
duties hereunder.
<PAGE>
6.05 Voting of Securities. The Plan Administrator may
direct the Trustee as to the manner in which voting, dissenter's
or other stockholder's rights of securities held by the Trust
are to be exercised.
6.06 Decisions of the Plan Administrator. The decisions
of the Plan Administrator shall be conclusive and binding upon
the Company, the Employers, the Trustee and all Employees,
Participants and Beneficiaries. All decisions of the Plan
Administrator which involve the exercise of discretion shall
be made upon the basis of uniform principles established in
this Plan and by the Plan Administrator.
6.07 Records and Statements. The Plan Administrator
shall maintain such records as may be required by law, the Plan
or as it otherwise deems appropriate for the administration of
the Plan. Such records shall be subject to the inspection by
the Company, the Employers and of any Participant or Beneficiary,
but only to the extent that they apply to him.
6.08 Payment of Expenses. All expenses incident to the
administration, termination or protection of the Plan and Trust,
including but not limited to, legal, accounting, actuarial and
Trustee's fees shall be paid by the Employer.
6.09 Benefit Claims Procedure. The Plan Administrator
shall make all determinations as to the right of any such person
to any benefit under the Plan. Any Participant, Beneficiary, or
the authorized representative of either of the foregoing may file
a request for benefits under the Plan. Such request shall be
deemed filed when made in writing addressed or hand-delivered
to the Plan Administrator in care of the Employer. Such request
shall be on such form and pursuant to such rules as are adopted
by the Plan Administrator and shall set forth the basis of
such claim. Upon receipt of such claim, the Plan Administrator
shall conduct such examinations as may be necessary to
determine the validity of the claims and, if appropriate,
shall take such steps as may be necessary to facilitate the
payment to which the claimant is entitled.
6.10 Claims Review Procedure. If any claim for
benefits is denied, the Plan Administrator shall notify the
claimant in writing. The notice of the denial of benefits
shall state the specific reason for such denial and cite any
applicable provisions of the Plan upon which the denial is
based. If the claim can be corrected, a request for such
information shall be made and the reason for requesting
such additional information shall be stated in the notice
to the claimant. The claimant shall be entitled to appeal
the decision to the Plan Administrator for a period of sixty
(60) days after receipt of the notification of denial. The
claimant shall be advised that the failure to perfect and
appeal within such sixty (60) day period shall make the Plan
<PAGE>
Administrator's decision conclusive. The Plan Administrator
shall furnish the claimant or his personal representative any
Plan information needed to perfect his appeal.
6.11 Unclaimed Benefits. Each Participant and
Beneficiary of a deceased Participant shall file with the
Plan Administrator from time to time in writing, his home
address and each change of home address. Any communication
addressed to the Participant or the Beneficiary at his last
home address filed with the Plan Administrator, or if no such
address was filed, then at his last home address as shown on
the Employer's records, shall be binding on the Participant or
Beneficiary for all purposes of the Plan. The Plan
Administrator shall not be obligated to search for or
ascertain the whereabouts of any Participant or Beneficiary.
If the Plan Administrator furnishes notice to any Participant
or Beneficiary of a deceased Participant, that he is entitled
to a distribution and the Participant or Beneficiary fails to
claim such distribution or make his whereabouts known to the
Plan Administrator, such benefit shall be retained by the
Plan until the earliest of (i) the date of the Plan is
terminated without the establishment of a successor plan, or
(ii) the date the Employer is liquidated. Such Participant's
benefit shall then be disposed of as follows:
(a) If the Participant has not been located by
the time of distribution of assets, and that the whereabouts
of the Beneficiary of such Participant then is known to the
Plan Administrator, payment shall be made to such Beneficiary.
(b) If the whereabouts of both such Participant
and his beneficiary are unknown to the Plan Administrator, the
Plan Administrator may direct the distribution of such
Participant's benefit to the Employer.
6.12 Indemnification. The Employer shall indemnify
each member of each committee appointed by it and each other
fiduciary with respect to the Plan from and against any and
all liabilities, costs, damages or expenses occasioned by any
act or omission, to the extent required by the Employer's Bylaws,
court decision or individual agreement with such fiduciary, but
not in any event when the same is judicially determined to be
due to the gross negligence willful misconduct or fraud of such
member. The Employer may purchase insurance to the extent
deemed appropriate in connection with such indemnification.
<PAGE>
ARTICLE VII
FUNDING AND RELATED MATTERS
7.01 Compliance With Applicable Law. It is the intent
of the Employer to comply with Title I of ERISA. With respect
to such Title, this Plan is intended to be an unfunded plan
(in that it will be "informally funded" through utilization of
the Trust) maintained primarily for the purpose of providing
deferred compensation for a select group of management or
highly compensated employees and it is not intended that any
separate trust or other pool of assets shall exist solely for
the payment of benefits.
7.02 Valuation of Accounts. As of each Valuation Date,
and at such other times as the Plan Administrator shall direct,
the Plan Administrator shall ascertain the fair market value
of the Accounts as of such day. Whenever the term "balance
of the Participant's Accounts" is used herein this shall mean
the balance of the Participant's Accounts as of the last
Valuation Date as determined by the Plan Administrator, plus
any Employer Contributions which have been made but not yet
included in the last valuation.
7.03 Protective Clause. Neither the Employers, the
Board, the Trustee nor the Plan Administrator shall be
responsible for the validity of any contract of insurance
issued in connection with the Plan or Trust or for the
failure on the part of the insurer to make payments provided
by such contract, or for the action of any person which may
delay payment or render a contract null and void or unenforceable
in whole or in part.
7.04 Unsecured General Creditor: The Participant,
Beneficiary and any other person or persons having or claiming
a right to payments hereunder or to any interest in this Plan
shall rely solely on the unsecured promise of the Employer set
forth herein, and nothing in this Plan shall be construed to
give the Participant, Beneficiary, or any other person or
persons any right, title, interest or claim in, or to, any
specific asset, fund, reserve, account or property of any kind
whatsoever owned by the Employer or in which it may have any
right, title or interest now or in the future. The Employer
shall, however, informally fund its obligations under this
Plan through the establishment and maintenance of a Trust.
The Employer will make contributions to the Trust, at the
end of each calendar quarter, in the amount described in
Paragraph 3.01 of this Plan. Once contributed, any and all
Trust assets will remain subject to the claims of the Employer's
creditors, and the Plan shall remain an unfunded plan within
the regulatory framework of ERISA.
<PAGE>
ARTICLE VIII
AMENDMENT AND TERMINATION
8.01 Amendment. The Committee, as authorized by the
Board, shall have the right to amend this Plan, at any time
and from time to time, in whole or in part. The Board shall
notify each Participant within a reasonable time after such
amendment in writing of any Plan amendment. No such amendment
shall reduce or eliminate the benefits of a Participant which
have accrued up to the effective date of the amendment.
8.02 Termination. Although the Company has established
this Plan with a bona fide intention and expectation to maintain
the Plan indefinitely, the Committee, as authorized by the Board,
may terminate the Plan in whole or in part at any time without
any liability for such termination or discontinuance. Upon
Plan termination, all Contributions shall cease and the
Committee and the Participant may mutually agree that the
Participant's Account shall be paid immediately upon plan
termination. If the Employer establishes a retirement plan
qualified under 401 of the Internal Revenue Code, and to the
extent permitted by applicable law, the Employer and Participant
may mutually agree that the Participant may transfer the
Account to such qualified plan upon plan termination. If
no such mutual agreements are reached, the Committee shall
retain all Accounts until each Participant would otherwise
receive payment pursuant to the Plan.
ARTICLE IX
MISCELLANEOUS
9.01 Limitation of Rights; Employment Relationship.
Neither the establishment of this Plan nor any modification
thereof, nor the creation of any fund or account, nor the
payment of any benefits, shall be construed as giving a
Participant or other person any legal or equitable right
against the Employer except as provided in the Plan. In
no event shall the terms of employment of any employee be
modified or in any way be affected by the Plan.
9.02 Limitation on Assignment.
(a) Benefits under this Plan may not be assigned
or alienated by any Participant or a Participant's Beneficiary.
A Participant's or Beneficiary's interest in benefits under the
Plan shall not be subject to debts or liabilities incurred by
the Participant or the Beneficiary and shall not be subject
to attachment, garnishment or other legal process as a result
of any of the Participant's or Beneficiary's debts or
liabilities.
<PAGE>
(b) The provisions of this Section shall not apply
to the extent a Participant or Beneficiary is indebted to the
Employer for any reason. At the time a distribution is to be
made to or for his benefit, such proportion of the amount
distributed as shall equal such indebtedness shall be paid to
the Employer to apply against or discharge such indebtedness.
9.03 Representations. The Company does not represent
or guarantee that any particular federal or state income,
payroll, personal property or other tax consequence will
result from participation in this Plan. A Participant should
consult with professional tax advisors to determine the tax
consequences of his or her participation.
9.04 Severability. In the event that any provision
of this Plan shall be held illegal or invalid for any reason,
the illegality or invalidity shall not affect the remaining
provisions of this Plan, but shall be fully severable and the
Plan shall be construed and enforced as if the illegal or
invalid provision had never been inserted herein.
9.05 Governing Law. The validity, construction, and
effect of this Plan and its enforcement shall be determined by
ERISA and by the common law of trusts as developed under ERISA.
9.06 Binding Effect. The provisions of this Plan
shall be binding upon each Participant and each Beneficiary
or other person entitled to any Benefits hereunder, their
heirs, personal representatives, and assigns.
SF Services, Inc.
By: /s/ Michael P. Sadler
------------------
Title: President & CEO
<PAGE>
EXHIBIT B
Relocation Expense Proposal
Temporary living Airfare to and from former residence
to conduct personal business, maximum
four round trips. May be used by
Employee or a person of his choice.
Premove/househunting Airfare, lodging, and meals, maximum
trips to Little Rock two round trips.
Shipment of household Packing and transportation of household goods
goods Appliance disconnection and reconnection
In transit storage, maximum sixty days
Carton pickup within thirty days of delivery
Expenses en route to Meals, lodging, and mileage reimbursement
new location at 31.5 cents/mile.
Home purchase expenses Prepurchase valuation of proposed home by
(Employee will have independent appraiser.
18 months after
employment to use
this home purchase Purchase closing costs including, but not
benefit) limited to, the following:
Loan origination fee and/or discount
points (maximum 2 points),
Appraisal fee, credit report, lender
inspection fee, abstracting fee, attorney
fee, radon testing, and termite inspection.
Tax liability Benefit of tax allowance for the employee,
allowance based on the employee's federal, state,
and city tax liability resulting from
moving expense reimbursement. Payment
to be made using the employee's
applicable marginal tax rates, grossed-up,
and directly deposited into employee's
tax account at the Employer.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND
CONSOLIDATED STATEMENTS OF INCOME AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 4,809
<SECURITIES> 0
<RECEIVABLES> 43,456
<ALLOWANCES> 3,242
<INVENTORY> 62,904
<CURRENT-ASSETS> 124,831
<PP&E> 71,671
<DEPRECIATION> 24,909
<TOTAL-ASSETS> 188,795
<CURRENT-LIABILITIES> 122,236
<BONDS> 0
0
2,724
<COMMON> 125
<OTHER-SE> 30,511
<TOTAL-LIABILITY-AND-EQUITY> 188,795
<SALES> 622,867
<TOTAL-REVENUES> 0
<CGS> 583,276
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (3,086)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,617
<INCOME-PRETAX> (19,175)
<INCOME-TAX> (1,435)
<INCOME-CONTINUING> (17,740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,740)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
