UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X]Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the fiscal year ended February 28, 1999
or
[ ]Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the transition period from to
Commission File Number: 000-19320
Ag Services of America, Inc.
(Exact name of registrant as specified in its charter)
Iowa 42-1264455
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2302 West First Street, Cedar Falls, Iowa 50613
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(319)277-0261
Securities registered pursuant to Section 12(b) of the Act:
Name of exchange on
Title of each class which registered
Common Stock, no par value New York Stock Exchange
- -------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act: None
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.
[X] Yes [ ] No
<PAGE>
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this chapter)
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 in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
The aggregate market value of voting stock held by non-
affiliates of the registrant as of May 12, 1999, was approximately
$70,851,000 (based on the last reported sale price of $17.25 per
share on May 12, 1999, on the New York Stock Exchange).
As of May 12, 1999, 5,228,564 shares of the registrant's common
stock, no par value, were issued and outstanding. At that date,
there were 154 stockholders of record and approximately 3,100
stockholders for whom securities firms acted as nominees.
DOCUMENTS INCORPORATED BY REFERENCE
Herein the following documents are incorporated by reference:
Selected portions of the Registrant's Annual Report to
Stockholders for the year ended February 28, 1999, are
incorporated by reference into Part II.
Selected portions of the Registrant's Definitive Proxy Statement
for the annual shareholders' meeting to be held July 29, 1999,
are incorporated by reference into Part III.
- 2 -
<PAGE>
PART I
ITEM 1. BUSINESS
General Development of Business
Ag Services of America, Inc. (the "Company") was incorporated under the
laws of the state of Iowa in 1985. The Company supplies farm inputs,
including seed, fertilizer, agricultural chemicals, crop insurance and
cash advances for rent, fuel and irrigation, to farmers primarily in
the central United States. The Company buys seed, fertilizer,
agricultural chemicals and other farm inputs from numerous national and
regional manufacturers, distributors and suppliers of seed, fertilizer
and agricultural chemicals. Farmers have traditionally purchased farm
inputs from one or more suppliers using credit from commercial banks,
the Farm Credit System, the FmHA or other agricultural lenders. The
Company extends credit and provides farmers the convenience of
purchasing and financing a wide variety of farm inputs from a single
source at competitive prices.
On August 1, 1991, the Company completed its initial public offering of
1,060,000 shares of common stock (including 60,000 shares due to over-
allotments completed August 30, 1991), of which 382,000 previously
issued shares were sold by certain stockholders (32,000 shares as a
result of over-allotments). For the 678,000 newly issued shares sold
by the Company (28,000 shares as a result of over-allotments), net
proceeds of approximately $4.7 million were received by the Company.
On April 22, 1993, the Company completed a public offering of
$13,800,000 principal amount of 7% Convertible Subordinated Debentures
due 2003 (including $1,800,000 due to over-allotments). The 7%
Convertible Subordinated Debentures were convertible into Common Stock
of the Company at $9.25 per share. The Company received net proceeds
of approximately $12.9 million.
On June 7, 1996, the Company called for redemption or conversion all of
its outstanding 7% Convertible Subordinated Debentures due 2003 (the
"Debentures"). From June 7, 1996 through July 10, 1996, the redemption
date, the Company issued 1,487,669 shares of common stock upon
conversion of $13,761,000 of Debentures and redeemed $39,000 of
Debentures as full settlement of all $13,800,000 of the Debentures
outstanding.
Financial Information about Industry Segments
The Company is engaged in one industry segment - the supplying of a
wide range of farm inputs at competitive prices along with the credit
to finance these farm inputs through the crop growing cycle.
Narrative Description of Business
General:
The Company supplies farm inputs, including seed, fertilizer,
agricultural chemicals, crop insurance and cash advances for rent, fuel
and irrigation, to farmers primarily in the central United States. The
Company's strategy has been to provide a single source of farm inputs
- 3 -
<PAGE>
and the credit necessary to finance these inputs through the growing
cycle by taking a security interest in the crop itself. This strategy
is an attractive alternative to farmers who had difficulty obtaining
credit, who needed additional credit for the expansion of existing
operations and/or who wanted the convenience of a single source of farm
inputs, finance and product expertise.
The Company believes that its business strategy has been responsible
for its growth and has focused its efforts on the following principles:
* Supplying and financing a complete line of quality farm inputs from
several suppliers at competitive prices with prompt delivery.
* Providing customers with appropriate product selection and crop
production advice from the Company's product specialists.
* Providing detailed monthly statements to simplify the customer's
bookkeeping for all farm inputs purchased from the Company throughout
each growing season.
* Offering multi-peril crop insurance through the Company as a
licensed insurance agency.
* Visiting customers' farms to view crops and discuss harvest plans
and marketing strategies.
* Providing professional and personalized service throughout the
entire growing season to encourage renewed business each year.
* Selecting credit worthy and experienced customers.
Principal Markets:
The Company's customers are currently located in 30 states. The
Company's principal target market is corn and soybean producers in the
states of Iowa, Minnesota, Nebraska, Illinois, Ohio, South Dakota,
North Dakota, Texas and Indiana.
Products and Suppliers:
The Company buys seed, fertilizer, agricultural chemicals and other
farm inputs from numerous manufacturers, distributors or dealers.
These suppliers generally deliver the farm inputs directly to the
Company's customers. The Company negotiates the purchase price,
discounts and trade credit annually with most of these suppliers. In
fiscal 1999, the percentage of net revenues attributed to the sale of
seed, fertilizer, agricultural chemicals, and other farm inputs
including, among others, cash rents, fuel, and irrigation was 13.0%,
13.2%, 14.7% and 50.4%, respectively. The balance of the Company's net
revenues in fiscal 1999 was attributed to financing income.
Seed. The Company currently buys seed from approximately 30 national
and regional seed companies. Seed company representatives as well as
the Company's product specialists work directly with the Company's
customers to assist them in selecting specific hybrids and varieties of
seed. The Company sells seed at competitive prices and achieves its
margin based on standard industry discounts or negotiated volume
discounts, if available. Seed is delivered to the Company's customers
directly by the seed companies.
Fertilizer. The Company currently buys fertilizer from over 500
suppliers. The Company sells fertilizer at competitive prices and
achieves its margin based on dealer discounts, negotiated pricing or
- 4 -
<PAGE>
opportunistic purchasing. The Company purchases fertilizer using two
alternative methods, depending on the customer's needs. For those
customers with storage facilities to handle bulk dry materials, bulk
fluids or anhydrous ammonia, the Company may purchase the materials
through major fertilizer distribution terminals or manufacturers.
These bulk materials may be direct-shipped in truckload quantities to
the customer's farm. Customers without storage facilities can have the
materials supplied by the Company, which may enlist the delivery
service of a local fertilizer dealer.
Agricultural Chemicals. The Company currently buys agricultural
chemicals from several major distributors or suppliers. The Company
sells agricultural chemicals at competitive prices and achieves its
margin based on dealer discounts, negotiated pricing, manufacturers'
rebates and opportunistic purchasing. Agricultural chemicals are
generally delivered directly to the customer's farm by the distributor
or through a dealer.
Insurance, Cash Rents, Fuel, Irrigation and Custom Application. The
Company offers its customers multi-peril crop insurance as an agent,
although customers may also purchase multi-peril crop insurance from
other insurance agents. Through eighteen of its employees, the Company
is currently licensed as an insurance agent in 30 states. When
customers purchase the insurance through the Company's agent, the
Company receives a standard industry commission based on the premium
amount.
The Company also provides its customers with credit for cash rents,
fuel, irrigation and custom application costs. If a customer's farm
acreage is leased, the landowner may require payment of the annual rent
before planting. Based on its credit policy and the customer's needs,
the Company may assist its customers with the advance payment of all or
a portion of these cash rents. The Company's customers generally
arrange their own fuel, irrigation and custom application needs and the
Company may, based on its credit policy, advance cash for a portion or
all of these costs.
Government Programs:
The two principal government programs affecting the Company's business
are government underwritten multi-peril crop insurance and the
government's farm subsidy program payments.
Multi-Peril Crop Insurance. The Company requires that its customers
purchase multi-peril crop insurance and assign the insurance coverage
to the Company as collateral for the credit extended by the Company to
the customer. Multi-peril crop insurance, while sold and administered
in large part by private companies, is currently underwritten by the
Federal Crop Insurance Corporation ("FCIC"), an agency of the United
States Government. Current multi-peril crop insurance generally covers
crop losses for hail, wind, drought, flood and certain other covered
events.
While various forms of federal multi-peril crop insurance have been in
existence since 1938, federal farm policies and funding are subject to
periodic change, and there can be no assurance that the FCIC or any
other federal agency will continue to underwrite multi-peril crop
- 5 -
<PAGE>
insurance on an ongoing basis. If the Company's customers were not
able to obtain multi-peril crop insurance through some combination of
the FCIC or domestic or foreign private insurance underwriters at a
reasonable cost, the Company would be required to seek alternative
collateral from its customers, which could have a material adverse
affect on the Company's net revenues. There can be no assurance that
multi-peril crop insurance will continue to be available to the
Company's customers or, if available, for a reasonable cost.
FSA "Production Flexibility Contract" Payments. The United States
Department of Agriculture, through its Farm Service Agency ("FSA"),
guarantees participating farmers fixed payments on "contract acreage
base" for various crops over the next four years under Federal
Agriculture and Improvement Act ("1995 Farm Bill"). Corn, wheat and
certain other crops are currently eligible under the FSA farm program.
If a customer of the Company participates in the FSA farm program, the
Company supplements its security by obtaining an assignment of the
customer's FSA "Production Flexibility Contract" payments. While
various forms of federal support programs have been in existence since
1933, federal farm policies and funding, including support payments
under the 1995 Farm Bill, are subject to periodic change, and there can
be no assurance that the FSA or any other federal agency will continue
to provide support programs on an ongoing basis.
Farm Input Pricing and Finance Charges:
The Company structures its pricing of farm inputs so that the net
prices paid by its customers who take advantage of the Company's
payment discounts are generally competitive with farm inputs purchased
from another distributor or supplier. The Company obtains volume
discounts for certain farm inputs and may pass all or a portion of
those discounts to its customers. The Company charges its customers
for farm inputs when provided. Finance charges on credit extended to a
customer commence immediately for cash rents provided by the Company
and on the date shipped for other farm input products sold by the
Company to a customer. The Company establishes and fixes its interest
rates each year based on the Company's estimate of anticipated interest
costs over the year. For fiscal 2000, the Company's customers will be
charged interest at a variable rate note at prime to 4.0% above prime
based on the credit worthiness of the customer. As of May 18, 1999,
the current prime rate is 7.75% per annum as published in the Midwest
Edition of The Wall Street Journal.
Spring customer accounts, including all interest, are due by January
15th for North accounts and January 31st for South accounts. The
Company currently assesses a 3.0% program fee based on the customer's
established credit limit and the customer can earn back all or part of
the program fee based on the following repayment dates for North Spring
accounts: 3.0% for customer accounts paid off by November 30, 2.0% for
customer accounts paid off by December 20 and 1.0% for customer
accounts paid off by January 15th. South Spring accounts, 3.0% for
customer accounts paid off by December 15, 2.0% for customer accounts
paid off by January 5 and 1.0% for customer accounts paid off by
January 31st. Fall customer accounts, including interest, are due by
September 15th. Fall customers can also earn back the program fee
based on the following repayment dates: 3.0% for customer accounts paid
- 6 -
<PAGE>
off by July 31, 2.0% for customer accounts paid off by August 20 and
1.0% for customer accounts paid off by September 15th.
Customer Support:
The Company provides customers personalized service with their farm
input needs throughout the entire crop growing cycle. The Company's
product specialists provide information on the availability and use of
various chemicals, fertilizers and seed, while the ultimate decision of
product choice is made by the customer. The Company's product
specialists discuss with customers the efficient use of farm inputs,
cost-effective fertility and weed control programs, product
availability, pricing and delivery. When orders are received, the
Company coordinates the customer's needs and delivery requirements with
the appropriate suppliers. The Company also generally schedules at
least one or two visits to the customer farms to inspect the growing
crop and to discuss harvest plans and any pertinent problems during the
growing cycle. The Company provides each customer a detailed monthly
statement to simplify the customer's bookkeeping for all farm inputs
purchased from the Company throughout each growing season.
Credit Policy and Customer Notes:
The Company has established a credit policy with procedures for credit
review and approval. Each new customer and customers from prior years
must provide financial and credit information to the Company. If a
customer is approved by the Company for credit, the Company will
generally extend credit of up to 85% of the insured value of that
customer's planned crop, based on his multi-peril insurance coverage.
The Company secures its position principally by obtaining a lien on the
crop and by receiving an assignment of the farmer's multi-peril crop
insurance and government farm program payments, if available. For
certain customers, the Company's lien on the crop might be subordinate
to one or more prior liens, which would directly reduce the amount of
credit available to that customer. The Company obtains a current
credit report or search to verify the priority of the Company's lien.
The Company also contacts customer references, and for larger accounts,
the Company may visit the prospective customer's farm to review farm
operations before extending credit.
The Company's principal asset is its notes receivable from customers
who finance their purchase of farm inputs from the Company throughout
the crop growing cycle. At February 28, 1999 and 1998: the total
number of customer accounts was 1,358 and 1,235, respectively; the
total outstanding customer notes receivable were $129,304,958 and
$89,075,176, respectively. For the years ended February 28, 1999 and
1998, there were no individual customers whose accounts were 5% or more
of the Company's total customer notes receivable at year end.
Each customer account is assigned to an employee of the Company for
monitoring the collection of customer accounts during harvest season,
under the supervision of the Company's collection managers. The
Company's employees generally contact their respective assigned
customers biweekly during the harvest season. Through this process,
the Company obtains information from customers concerning crop yields,
marketing strategy, number of acres harvested and the location of the
customers' stored crops. If a customer has a claim under his multi-
- 7 -
<PAGE>
peril crop insurance, the Company will take steps to assure that the
claim has been properly and timely filed. Under the Company's credit
arrangements, when a customer sells his crop, the customer is required
to obtain the sale proceeds by check, payable to both the customer and
the Company, and forward the check to the Company as endorsed by the
customer. Upon receipt of the check, the Company applies the proceeds
as a payment on the customer's account and forwards any overpayments to
the customer. The Company does not retain customer funds on deposit.
If a customer is to receive all or a portion of the value of his crop
through a multi-peril crop insurance claim or farm program payment, the
collection of that customer's account could be delayed pending receipt
of those payments.
Some customers may wish to store their crops for later sale, or for
other reasons may not pay their accounts in full when due. The Company
monitors and documents its collateral and collection position on all
accounts on an ongoing basis. The Company will informally extend the
payment of a customer's note receivable to accommodate a customer's
crop marketing requirements if the Company determines that there
continues to be sufficient collateral. Therefore, a customer's note
receivable that is past due may not be past due because of a customer's
inability to pay or collateral impairment. The amount of customer
notes receivable that were past due (including notes extended by the
Company) at February 28, 1999 and 1998 was $69,796,119 and $38,494,351,
respectively. The amount of past due customer notes receivable
increased from 20.7% of net revenues in fiscal 1998 to 31.0% of net
revenues in fiscal 1999, primarily as a result of the outstanding
dollar amount of customer notes receivable extended by the Company
originated under the new servicing and marketing agreement with a major
national agricultural supplier. The net revenues associated with this
agreement are primarily financing income as the Company serves as the
underwriter in providing financing for purchases and cash advances of
customers under the agreement. This financing agreement, along with
more of the Company's customers choosing to store their crops for later
sale as a result of low commodity prices, resulted in the increased
amount of past due accounts. The increased dollar amount of past due
customer notes receivable has not had a material adverse affect on the
Company's earnings, and management does not believe that this increase
will have a material adverse affect on earnings or the Company's
ability to supply and finance farm inputs in the future.
The Company also continually evaluates and classifies each customer
account based on collateral and expected timing of collection in
determining its allowance for doubtful notes. At February 28, 1999 and
1998, the Company's allowance for doubtful notes were $3,695,000 and
$2,800,000, respectively.
Sales and Marketing:
The Company markets its program through advertising, including direct
mail and telemarketing, customer solicitation and referrals, including
cooperative marketing efforts with several major seed and fertilizer
suppliers which allow the Company to market its program through their
dealer networks. In addition, the Company employs twenty-seven full
time salaried sales people and one independent sales representative.
The sales representatives identify prospective customers and assist in
obtaining customer information for the Company's credit review and
- 8 -
<PAGE>
approval. After the Company has approved a customer, the Company's
employees begin to service the customer's account generally without
assistance from the sales representatives.
In fiscal 1999 and 1998, the Company incurred approximately $265,300
and $233,700, respectively, in advertising expenses. The Company plans
to spend approximately $470,000 on advertising in fiscal 2000.
Seasonal Factors:
The sale of farm inputs is seasonal with approximately 76% of revenues
being generated from March 1 through August 31 of each year.
Credit Facilities:
Due to the seasonality of the Company's revenues and the terms of its
customer notes receivable, the Company is required to finance the
carrying of its revenues as notes receivable for a majority of its
fiscal year.
The Company's business and its growth are dependent on adequate credit
to finance its sales of farm inputs to farmers. The Company uses its
capital, trade credit and bank and commercial paper borrowings to
finance farm input purchases. The terms of the Company's trade credit
vary for each supplier and type of farm input and may require a lien on
certain assets of the Company.
In March of 1997, the Company negotiated an asset backed securitized
financing program with a maximum available amount of $135 million,
which was increased to $205 million in March of 1998. Subsequent to
fiscal 1999 year end, the Company amended the asset backed securitized
financing program which extended the agreement through fiscal 2004 and
increased the maximum available borrowing amount under the facility to
$275 million. The Company also maintains two lines of credit with a
maximum borrowing capacity of $20.5 million, which combined with the
securitized financing program should provide the Company adequate
financing for fiscal 2000. If the Company were not able to maintain a
sufficient line of credit or other credit facility, the Company would
not be able to finance sufficient sales of farm inputs, which would
have a material adverse affect on the Company's business and its
growth. Management believes that the financial resources available to
it will be sufficient to finance the Company's business.
Competition:
The Company faces competition from many types of suppliers of farm
inputs, including manufacturers' dealers, independent distributors and
suppliers, and farm cooperatives. Farm input financing is competitive
and, in recent years, several large agricultural supply companies have
provided financing for various farm inputs. Many of the Company's
competitors are considerably larger and better capitalized, and there
can be no assurance that the Company will be able to compete
effectively against such competitors in the future. Within this
competitive environment, the Company competes principally on the basis
of its competitive pricing, broad range of farm inputs offered and the
convenience of its financing.
- 9 -
<PAGE>
Major Customers:
The customer base is sufficiently broad that no customer accounts for
10% or more of the Company's revenues.
Backlog Orders:
Although the Company had approximately $84,002,000 in commitments to
supply farm inputs, there was no material sales backlog as of February
28, 1999.
Government Regulation:
Farm input financing and cash advances are subject to certain state
laws governing money brokers, federal and states truth-in-lending
regulations, and state usury laws limiting interest rates for certain
types of customers. Additional laws and regulations could be
implemented in the future governing the Company's financing activities
for the sale of farm inputs and cash advances or other aspects of the
Company's business. Compliance with these laws and regulations may
adversely affect the Company's operations and costs.
The sale of certain farm inputs, including agricultural chemicals and
pesticides is subject to certain federal and state environmental rules
and regulations. The Company holds licenses necessary for the sale of
these products. The Company also serves as an agent for the sale of
multi-peril crop insurance and has eighteen employees with the required
insurance agent's license.
Employees:
As of February 28, 1999, the company had 145 full time employees,
including eight executive positions, twenty-two in product
specialization and distribution, thirty-eight in credit review and
approval, four in multi-peril crop insurance sales, sixteen in
accounting and administration, six in information systems, one in
customer service, thirteen in legal and collection, and thirty in sales
and marketing. None of the Company's employees are covered by a
collective bargaining agreement. The Company considers its relations
with its employees to be good.
ITEM 2. PROPERTIES
The Company's principal offices, aggregating approximately 30,000
square feet, are located in Cedar Falls, Iowa under a lease, which
expires in 2001. The current annual rent is approximately $243,500
plus utilities, insurance premiums and interior maintenance expenses.
ITEM 3. LEGAL PROCEEDINGS
The Company is named in lawsuits in the ordinary course of its
business. Although it is not possible to predict the outcome of such
lawsuits, in the opinion of management the outcomes will not have a
material adverse effect on the financial condition of the Company. The
Company maintains insurance coverage that management believes is
reasonable.
- 10 -
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Executive Officers, set forth at Item 10 in Part
III hereof, is incorporated in Part I of this report by reference.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
The Company's common stock is traded on the New York Stock Exchange
("NYSE"), under the symbol ASV. The market quotations provided by the
NYSE appearing on page four of the Annual Report to Shareholders for
the year ended February 28, 1999 are incorporated herein by reference.
These quotations reflect prices without retail markup, markdown or
commissions and may not represent actual transactions.
Stockholders
As of February 28, 1999, the Company had 153 stockholders of record and
approximately 3,100 stockholders for whom securities firms acted as
nominees.
Dividends
The holders of common shares are entitled to receive dividends when and
as declared by the Board of Directors. However, other than dividends
paid prior to September 1989 to its then parent corporation, which was
subsequently merged into the Company, the Company has not paid a cash
dividend on its common stock. The Company does not anticipate payment
of any cash dividends in the foreseeable future. The Company presently
intends to retain earnings to finance growth. The Company's current
borrowing agreements contain covenants that prohibit the declaration or
payment of dividends.
ITEM 6. SELECTED FINANCIAL DATA
The "Selected Financial Data" for the Company appearing on pages 12
and 13 of the Annual Report to Stockholders for the year ended February
28, 1999 is herein incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing on pages 14 through 20 of the Annual
Report to Stockholders for the year ended February 28, 1999 is herein
incorporated by reference.
- 11 -
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
At February 28, 1999 the Company had $70.3 million outstanding in notes
payable at an average variable interest rate of 5.5%. A 10% increase
in the average variable interest rate would increase interest expense
by approximately 55 basis points. Assuming similar average outstanding
borrowings as fiscal 1999 of $122.3 million, this would increase the
Company's interest expense by approximately $673,000.
The above sensitivity analysis is to provide information about the
Company's potential market risks as they pertain to an adverse change
in interest rates. The above analysis excludes the positive impact
that increased interest rates would have on financing income as 95% of
the Company's notes receivable are variable rate notes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules set forth in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial disclosure
with the Company's independent public accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers
The name, age and office(s) held by each of the Registrant's executive
officers are shown below. Each of the executive officers listed below
serves at the pleasure of the Board of Directors, except Messrs.
Jungling, Miller and Schipper who have entered into employment
agreements with the Registrant effective through June 2000.
Name Age Position With the Company
Gaylen D. Miller (1) 50 President and Chief Executive Officer
Henry C. Jungling, Jr. (1) 52 Chairman of the Board
Kevin D. Schipper (1) 39 Chief Operating Officer
Todd J. Ryan (1) 36 Vice President Sales and Marketing
Brad D. Schlotfeldt (1) 35 Vice President Finance and Treasurer
Eunice M. Schipper (1) 57 Vice President Credit
Neil H. Stadlman (1) 53 Vice President Credit Administration
Terry L. Gibson (2) 37 Secretary
(1) These executive officers of the Registrant have been an employee of
the Company in varying capacities for more than the past five years.
(2) Mr. Gibson has been employed by the Company in varying capacities
since April 1998. Before joining the Company, Mr. Gibson was a
partner in the law firm of Wandro & Gibson from July 1996 through
April 1998, an associate with the law firm Brown, Winnick, Graves
- 12 -
<PAGE>
from May through June 1996, self-employed as a sole practitioner
from April 1995 through May 1996 and prior to that Mr. Gibson was
employed by the U.S. Office of Trustee with the U.S. Department of
Justice.
The balance of the information regarding directors and executive
officers of the Company is set forth in the Company's definitive Proxy
Statement for the Annual Meeting of Stockholders to be held July 29,
1999 on pages 5 and 6, under the heading "Election of Directors," and
is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is set forth in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be
held July 29, 1999 on page 5, under the heading "Election of
Directors," on page 7, under the heading "Election of Directors -
Compensation Committee Interlocks and Insider Participation," and on
pages 8 to 16, under the heading "Executive Compensation and Other
Related Information," and is incorporated herein by reference.
However, the "Board Report on Executive Compensation" and the
"Performance Graph," on pages 11 to 13 and page 16, respectively, are
specifically not incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this item is set forth in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be
held July 29, 1999 on page 8, under the heading "Security Ownership of
Certain Beneficial Owners and Management," and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is set forth in the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders to be
held July 29, 1999 on pages 5 and 6, under the heading "Election of
Directors," and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
Page
(a)(1) - Financial Statements 14
(a)(2) - Financial Statement Schedules 14
(a)(3) and (c) - Exhibits 14
(b) - Reports on Form 8-K
No reports on Form 8-K were filed in the last quarter of the period
covered by this Form 10-K.
- 13 -
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following index is submitted in response to Item 14:
Page Reference_______
Annual Report
10-K to Stockholders__
FINANCIAL STATEMENTS
Report of Independent Public Accountants 22
Consolidated balance sheets, February 28,
28, 1999 and 1998 23
Consolidated statements of income, years
ended February 28, 1999, 1998 and 1997 24
Consolidated statements of stockholders'
equity, years ended February 28, 1999,
1998 and 1997 25
Consolidated statements of cash flows, years
ended February 28, 1999, 1998 and 1997 26
Notes to consolidated financial statements 27 - 44
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants 15
Schedule II - Valuation and Qualifying
Accounts 16
EXHIBITS
See Index of Exhibits on pages 18, 19 and 20.
The Financial Statements listed in the above index are included in the
Company's Annual Report to Stockholders for the year ended February 28,
1999, are herein incorporated by reference. With the exception of the
pages listed in the above index and the information incorporated by
reference included in Items 5, 6, 7, 10, 11, 12 and 13, the Annual
Report to Stockholders for the year ended February 28, 1999 is not
deemed filed as a part of this report.
- 14 -
<PAGE>
McGLADREY & PULLEN, LLP RSM
Certified Public Accountants and Consultants International
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors
Ag Services of America, Inc.
Cedar Falls, Iowa
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental
schedule II is presented for purpose of complying with the Securities
and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic consolidated
financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic consolidated financial
statements taken as a whole.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Waterloo, Iowa
April 23, 1999
- 15 -
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------- ------------- ------------------------------ --------------- --------------
Description Balance at Additions Deductions - Balance at
Beginning (1) (2) Describe End of
of Period Charged to Charged to Period
Costs and Other
Expenses Accounts -
Describe
- --------------------------------- ------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Year ended February 28, 1999:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful notes $2,800,000 $4,035,259 $3,140,259 (1) $3,695,000
Reserve for discounts $1,200,000 $4,983,674 (2) $3,683,674 (3) $2,500,000
Year ended February 28, 1998:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful notes $2,146,000 $2,290,388 $2,399,647 (1) $2,800,000
Reserve for discounts $519,000 $3,725,973 (2) $3,053,973 (3) $1,200,000
Year ended February 28, 1997:
Reserves and allowances deducted
from asset accounts:
Allowance for doubtful notes $2,105,000 $1,862,726 $2,199,388 (1) $2,237,000
Reserve for discounts $458,000 $2,471,888 (2) $2,462,888 (3) $528,000
<FN>
(1) Uncollectible customer notes receivable written off, net of recoveries.
(2) Provision for discounts as a reduction of revenues.
(3) Cash discounts taken.
</TABLE>
- 16 -
<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.
(Registrant) AG SERVICES OF AMERICA, INC.
By(Signature and Title) \s\ Henry C. Jungling, Jr.
Henry C. Jungling, Jr.
President and Chief Executive Officer
(Principal Executive Officer)
\s\ Gaylen D. Miller
Gaylen D. Miller
Chairman
(Principal Financial & Accounting
Officer)
Date May 26, 1999
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:
By:/s/ Henry C. Jungling, Jr.
Henry C. Jungling, Jr.
President and Chief Executive Officer
and Director
Date: May 26, 1999
By:/s/ Gaylen D. Miller
Gaylen D. Miller
Chairman and Director
Date: May 26, 1999
By:/s/ Kevin D. Schipper
Kevin D. Schipper
Chief Operating Officer and Director
Date: May 26, 1999
By:/s/ James D. Gerson
James D. Gerson
Director
Date: May 26, 1999
By:/s/ Michael Lischin
Michael Lischin
Director
Date: May 26, 1999
By:/s/ Ervin J. Mellema
Ervin J. Mellema
Director
Date: May 26, 1999
- 17 -
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -----------------------------
3.1 Articles of Restatement of the Company (1)
3.2 Amended and Restated Bylaws of the Company (3)
3.3 Articles of Amendment (2)
4.1 Form of stock certificate evidencing common stock,
without par value, of the Company (2)
4.2 Form of Indenture between Ag Services of America,
Inc. and Norwest Bank Minnesota, N.A., as Trustee(4)
4.3 Form of 7% convertible Subordinated Debentures due
2003 (included in Exhibit 4.2) (4)
10.1 Loan Agreement dated April 15, 1996 (7)
10.2 Form of Employment Agreement effective July 1, 1991
between the Company and Henry C. Jungling, Jr. (1)
10.3 Form of Employment Agreement effective July 1, 1991
between the Company and Gaylen D. Miller (1)
10.4 Form of Employment Agreement effective July 1, 1991
between the Company and Kevin D. Schipper (1)
10.5 Lease dated August 1992 between the Company and 145
Associates, Ltd., as amended (4)
10.6 1991 Stock Option Plan and form of Stock Option
Agreement (1)
10.7 April 12, 1996 Amendment to lease agreement (Exhibit
10.5) (7)
10.8 1993 Stock Option Plan (4)
10.9 Form of Indemnification Agreement between the
Company and each officer and director (2)
10.10 Commercial Notes dated April 15, 1996 (7)
10.13 April 5, 1995 form of Amendment to Employment
Agreements (Exhibit 10.2, 10.3 and 10.4) (6)
10.14 Form of Amendment to 1993 Stock Option Plan (6)
10.15 Retirement and Savings Plan (4)
10.16 Amendment to Retirement and Savings Plan (6)
- 18 -
<PAGE>
10.17 Form of 1995 Stock Purchase Plan (6)
10.18 Amended and Restated Loan Agreement dated March 12,
1997 (8)
10.19 Credit Agreement dated March 12, 1997 (8)
10.20 Purchase and Contribution Agreement dated March 12
1997 (8)
10.21 Amendment No. 1 to Third Amended and Restated Loan
Agreement (9)
10.22 Amendment No. 2 to Third Amended and Restated Loan
Agreement (9)
10.23 Amendment No. 3 to Third Amended and Restated Loan
Agreement (9)
10.24 Amendment No. 1 to Credit Agreement (9)
10.25 Master Trust Indenture and Security Agreement (10)
11.1 Statement re computation of per share earnings (10)
13.1 Form of Annual Report to Stockholders for the year
ended February 28, 1999 (10)
21.1 Subsidiaries of the Registrant (10)
27.1 Financial Data Schedule (10)
99.1 Fourth quarter and year end results press release (10)
(1) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Registration Statement on Form S-1 on May 31, 1991 as Commission File
No. 33-40981.
(2) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with Pre-
Effective Amendment No. 1 to the Registration Statement on Form S-1 on
July 12, 1991 as Commission File No. 33-40981.
(3) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with Pre-
Effective Amendment No. 2 to the Registration Statement on Form S-1 on
July 24, 1991 as Commission File No. 33-40981.
(4) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Registration Statement on Form S-1 on March 31, 1993 as Commission File
No. 33-60358.
- 19 -
<PAGE>
(5) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Company's Form 10-K for the year ended February 28, 1994.
(6) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Company's Form 10-K for the year ended February 28, 1995.
(7) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Company's Form 10-K for the year ended February 29, 1996.
(8) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Company's Form 10-K for the year ended February 28, 1997.
(8) - Pursuant to Rule 12(b)-32, this exhibit is incorporated by
reference under the same exhibit number to the exhibits filed with the
Company's Form 10-K for the year ended February 28, 1998.
(10) - Filed herewith
- 20 -
<PAGE>
AG SERVICES OF AMERICA, INC.
EXHIBIT 10.25
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
- 21 -
<PAGE>
AG SERVICES OF AMERICA, INC.
EXHIBIT 10.25
MASTER TRUST INDENTURE AND SECURITY AGREEMENT
THIS MASTER TRUST INDENTURE AND SECURITY AGREEMENT, dated as of ______,
1999 among AG ACCEPTANCE CORPORATION, a Delaware corporation, as Issuer
(the"Issuer"), AG SERVICES OF AMERICA, INC., an Iowa corporation, as Servicer
(the "Servicer"), ______________, a national banking association, as
Trustee (the "Trustee") and MBIA INSURANCE CORPORATION, as the "Insurer".
RECITALS OF THE ISSUER
The Issuer has duly authorized the creation and issuance of each Series of
Notes, each Series to be of substantially the tenor and amount set forth
herein and in the respective Supplement relating to each such Series of
Notes.In order to provide for the foregoing, the Issuer has duly
authorized the execution and delivery of this Indenture.
All things necessary to (a) make the Notes, when executed by the Issuer and
authenticated and delivered by the Trustee hereunder and duly issued by the
Issuer, the valid obligations of the Issuer, and (b) make this Indenture a
valid agreement of the Issuer, in each case, in accordance with their
respective terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That the Issuer, in consideration of the premises herein contained and of
thepurchase of the Notes by the Noteholders, and of other good and lawful
consideration, the receipt of which is hereby acknowledged, and to secure,
equally and ratably without prejudice, priority or distinction, except as
specifically otherwise set forth in this Indenture and in the respective
Supplement relating to such Notes, the payment and performance of the
SecuredObligations, has hereby executed and delivered this Indenture and
by these presents does hereby convey, grant, assign, transfer and pledge
a security interest (the "Primary Lien"), in each case, in and unto the
Trustee, its successors and assigns and its or their assigns forever, for
the benefit ofthe Secured Parties, with power of sale, all and singular in
the property hereinafter described (said property being sometimes referred
to as the "Pledged Assets"), to wit:
GRANTING CLAUSE
All of the Issuer's right, title and interest in, to and under:
(a) all Acquired Advances;
(b) all Related Security relating to such Acquired Advances;
(c) the Purchase and Contribution Agreement, including, without limitation,
all monies due and to become due to the Issuer from the Originator under or
in connection therewith;
<PAGE>
(d) all Records, including, without limitation, all software, books, records
and documents used to account for the Acquired Advances and related Loan
Documents, and all relevant licenses and sublicenses relating to any such
software (including, without limitation, all such rights arising under
software and related licenses transferred to the Issuer by the Originator
pursuant to the Purchase and Contribution Agreement);
(e) the Collection Account and all other bank and similar accounts
established,in whole or in part, for the benefit of any of the Issuer, the
Trustee, the Noteholders and/or the Insurer, all funds held therein or in
such other accounts, all financial assets, investment property and other
investments from time to time on deposit, or made with proceeds, in any such
accounts, and all income arising from such funds held in any such accounts
or from such financial assets, investment property and other investments;
(f) all lock boxes, Lock-Box Accounts, and all other bank and similar
accounts into which Collections in respect of the Advances are or are
intended to be deposited, and all funds held therein or in such other
accounts;
(g) all certificates and instruments if any, from time to time representing
or evidencing any of the foregoing property described in clauses (a)
through(f) above;
(h) any accounts, inventory, general intangibles, chattel paper, contract
rights, investment property, financial assets, instruments and documents,
to the extent not described in any of clauses (a) through (g) above;
(i) all proceeds of the foregoing property described in clauses (a) through
(h) above, and all interest, dividends, cash, instruments, financial assets,
investment property and other property from time to time received, receivable
or otherwise distributed in respect of, or in exchange for or on account of
the sale or other disposition of, any or all of the then existing Pledged
Assets, and including all payments under any insurance policies relating to
the foregoingproperty (whether or not the Trustee or the Insurer is the loss
payee thereof) or any indemnity, warranty or guaranty, payable by reason of
loss or damage to or otherwise with respect to any of the Pledged Assets; and
(j) all other monies or property of the Issuer coming into the actual
possession,custody or control of the Trustee or the Insurer (whether
for safekeeping, deposit, custody, pledge, transmission, collection or
otherwise).
AND IT IS HEREBY COVENANTED, DECLARED AND AGREED by and between the parties
hereto that all Notes are to be issued, countersigned and delivered and that
all of the Pledged Assets are to be held and applied, subject to the further
covenants, conditions, releases, uses and trusts hereinafter set forth, and
the Issuer and the Servicer, in each case, for itself and its successors, do
hereby covenant and agree to and with the Trustee and each of the
-2-
<PAGE>
foregoing's respective successors in said trust, for the benefit of the
Secured Parties, or any of them, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. Whenever used in this Indenture, the following
words and phrases shall have the following meanings, and the definitions of
such terms are applicable to the singular as well as the plural forms of such
terms and to the masculine as well as to the feminine and neuter genders of
such terms.
"Acquired Advance" means an Advance acquired by the Issuer pursuant to the
Purchase and Contribution Agreement.
"Act" means the Securities Act of 1933, as amended from time to time.
"Additional Events of Default" means, with respect to any Series, any
Additional Events of Default specified in the related Supplement.
"Administrative Services Agreement" means the Administrative Services
Agreement, dated as of March 12, 1997 between the Issuer and the Originator as
the same maybe amended, restated, supplemented or otherwise modified from time
to time.
"Advance" means an advance made to an Obligor in respect of a Loan, together
withinterest accrued thereon and owing under the related Loan Documents and
the right arising under such Loan Documents to receive any payment or any
funds from or on behalf of such Obligor, whether or not earned by performance,
whether constituting an account, chattel paper, instrument, general intangible
or otherwise.
"Affiliate" means, with respect to any specified Person, any other Person
controlling, controlled by or under common control with such specified Person
and, without limiting the generality of the foregoing, shall be presumed to
include (A) any Person which beneficially owns or holds 10% or more of any
class of voting securities of such designated Person or 10% or more of the
equity interest in such designated Person and (B) any Person of which such
designated Person beneficially owns or holds 10% or more of any class of
voting securities or in which such designated Person beneficially owns or
holds 10% or more of the equity interest. For the purposes of this
definition, "control" when used with respect to any specified Person means
the power to direct the management and policies of such specified Person,
directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
-3-
<PAGE>
"Aggregate Concentration Limit Excess" means, at any time, the sum of (without
duplication) (A) the Aggregate Crop Concentration Limit Excess at such time,
plus (B) the Aggregate Geographical Concentration Limit Excess at such time,
plus (C) the Due Date Concentration Limit Excess at such time, plus (D) the
Fixed Rate Concentration Limit Excess at such time, plus (E) the DIP Financing
Concentration Limit Excess at such time, plus (F) the Aggregate Obligor
Concentration Limit Excess at such time.
"Aggregate Crop Concentration Limit Excess" means, at any time, the aggregate
of the separate Crop Concentration Limit Excesses for each Crop at such time.
"Aggregate Geographical Concentration Limit Excess" means, at any time, the
aggregate of the separate Geographical Concentration Limit Excesses at such
time.
"Aggregate Obligor Concentration Limit Excess" means, at any time, the
aggregate of the separate Obligor Concentration Limit Excesses for each
Obligor at such time.
"Aggregate Outstanding Amount" means the aggregate of the Outstanding
Principal Balances for all Series.
"Agreement Accounting Principles" means GAAP as in effect at the time of the
audited financial statements specifically referred to in Section 4.1(e) of the
Purchase and Contribution Agreement.
"Amortization Event" shall mean, with respect to any Series, any event defined
as such in the related Supplement.
"Amortization Period" shall mean, with respect to any Series, the period
commencing on the Amortization Date for such Series and ending on the date on
which all amounts payable with respect to such Series shall have been paid in
full.
"Amortization Date" shall mean, with respect to any Series, the date on which
an Amortization Event for such Series occurs.
"Asset Deficiency" means, as of any date of determination, an amount, if
positive, equal to (A) the Net Outstanding Amount minus (B) the Net Eligible
Advance Balance at such time.
"Assignment of Indemnity" means an assignment of an Obligor's right, title and
interest in Crop Insurance, executed by such Obligor, which when accepted by
the insurer, satisfies the conditions necessary for a valid and effective
assignment pursuant to C.F.R. Section 401.8, or such successor regulations.
-4-
<PAGE>
"Assignment of Payment" means an assignment of an Obligor's right, title and
interest in and to entitlements and payments due or to become due in
accordance with or under applicable government programs, which satisfies the
conditions necessary for a valid and effective assignment pursuant applicable
laws and regulations of the appropriate Governmental Authority.
"Base Amount" means the Net Eligible Advance Balance minus the sum of (i) the
Carrying Cost Reserve and (ii) the aggregate of the Required Reserves for all
outstanding Series.
"Bankruptcy Code" means Title 11 of the United States Code (11 U.S.C. Section
101 et seq.), as amended from time to time, or any successor statute.
"Benefit Plan" means a defined benefit plan as defined in Section 3(35) of
ERISA(other than a Multiemployer Plan) in respect of which Ag Services or any
ERISA Affiliate thereof is, or at any time within the immediately preceding
six (6) years was, an "employer" as defined in Section 3(35) of ERISA.
"Breakage Costs" means, with respect to any Note, the amount payable (if any)
to the Holder thereof pursuant to the related Supplement, as compensation for
losses incurred as a result of the reduction of the Outstanding Principal
Balance thereof on a day other than the last day of an Interest Period.
"Book-Entry Form" means with respect to any Notes or Series of Notes, that
such Notes or Series are not certificated and the ownership and transfers
thereof shall be made through the book entries by a Clearing Agency as
described in Section 6.11 and the applicable Supplement.
"Book-Entry Notes" means any Notes issued in Book-Entry Form unless and until
Definitive Notes are issued to the Holders thereof in accordance with
Section 6.13 and the applicable Supplement.
"Business Day" means any day other than a Saturday or Sunday or any other day
on which national banking associations or state banking institutions in New
York, New York or the city in which the Corporate Trust Office is located are
authorized or obligated by law, executive order or governmental decree to be
closed; provided, however, that the term "Business Day", when used in
connection with a rate of interest determined by reference to the prevailing
rates for eurodollar deposits in the London interbank market, shall also
exclude any day on which dealings are not carried out in the London interbank
market or on which banks are closed for business in London, England.
"Carrying Cost Account" has the meaning specified in Section 4.02(a).
-5-
<PAGE>
"Carrying Costs" means, for any Collection Period, (a) all interest payable
on the Notes of any Series, (b) the Servicing Fee for such period, (c) the
Trustee's Fee for such Period, (d) the Insurer's Fee for such period and (e)
any other fees, costs and expenses as set forth in the applicable Supplement.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"Claim" means a "claim" as defined in Section 101(5) of the United States
Bankruptcy Code.
"Clearing Agency" means an organization registered as a "clearing agency"
pursuant to Section 17A of the Securities Exchange Act of 1934, as amended.
"Clearing Agency Participant" means a broker, dealer, bank, other financial
institution or other Person for whom from time to time a Clearing Agency
effects book-entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means, with respect to any Series, the Closing Date specified
in the related Supplement.
"Collection Account" has the meaning specified in Section 4.02(a).
"Collection Account Agreement" has the meaning specified in Section 4.02(a).
"Collection Account Bank" has the meaning specified in Section 4.02(a).
"Collection Period" means, with respect to any Distribution Date, the calendar
month (or, in the case of the calendar month in which any Closing Date occurs,
the portion of such calendar month following the Closing Date) immediately
preceding the calendar month in which such Distribution Date occurs.
"Collections" means, with respect to any Acquired Advance, all cash
collections and other cash proceeds of such Acquired Advance, including,
without limitation, all cash proceeds of Related Security with respect to
such Acquired Advance, including, without limitation, (i) all payments or
recoveries made to the Collection Account or the Lock-Box Accounts or
received by the Issuer or the Servicer in respect of such Advance, (ii)
all interest and other investment earnings (net of losses and investment
expenses) on Collections (including
-6-
<PAGE>
without limitation funds on deposit in the Reserve Account) as a result of the
investment thereof pursuant to Section 4.02, (iii) all payments under any
insurance policies relating to such Advance and any Related Security, (iv) all
payments representing a disposition of Related Security relating to such
Advance, (v) all payments by the Originator to the Issuer pursuant to its
indemnities under the Purchase and Contribution Agreement and relating to such
Advance and (vi) all Collections of such Advance deemed to have been received
pursuant to Section 2.6 of the Purchase and Contribution Agreement.
"Commission" means the Securities and Exchange Commission, as constituted from
time to time, or, if at any time after the execution of the Indenture such
Commission is no longer existing and/or performing the duties now assigned to
it under the Trust Indenture Act, the Person performing such duties at such
time.
"Consolidated EBT" means, for any period, the sum of the amounts for such
period of (i) Consolidated Net Income, plus (ii) charges against income for
foreign, federal, state and local taxes to the extent deducted in computing
Consolidated Net Income, minus (iii) the amount of extraordinary gains over
extraordinary losses to the extent that such amount is included in the
calculation of Consolidated Net Income.
"Consolidated Net Income" means, for any period, the consolidated net income
(or loss) of the Originator and its Subsidiaries for such period determined in
accordance with Agreement Accounting Principles.
"Consolidated Net Worth" means, as of any date of determination, the
consolidated shareholders' equity of the Originator and its Subsidiaries
determined in accordance with Agreement Accounting Principles.
"Consolidated Pre-Tax Margin" means, for any period, the ratio (expressed as a
percentage) computed by dividing (a) Consolidated EBT for such period by (b)
the consolidated gross revenues of Ag Services and its Subsidiaries determined
in accordance with Agreement Accounting Principles.
"Control Party" means, so long as the Insurer is not in default under any
Insurance Policy, the Insurer and otherwise, the Majority Noteholders.
"Corporate Trust Office" has the meaning specified in Section 11.21.
"Credit and Collection Policy" means the Credit and Collection Policy of the
Originator, a copy of which is attached hereto as Exhibit A, as the same may
be amended from time to time in accordance with the provisions of
Section 2.06(c) hereof.
"Credit Factor" means the advance rates (expressed as percentages) applicable
to various Crops as set forth on Exhibit B hereto.
-7-
<PAGE>
"Credit Factor Adjustment" means, at any time, an amount equal the aggregate
of the following amounts computed as follows for each Obligor of an Eligible
Advance: the excess of (i) the outstanding Principal Balances of Eligible
Advances (if any) extended to an Obligor over (ii) the credit limit for such
Obligor (as determined pursuant to the Credit and Collection Policy)
recomputed using the applicable Credit Factor(s).
"Crop" means any crop that is insurable under Crop Insurance and such other
crops approved in writing by the Insurer.
"Crop Concentration Limits" means, at any time, with respect to the acres of a
particular Crop financed by Eligible Advances included in Pledged Assets at
such time, an amount equal to the percentage listed opposite such Crop
multiplied by the aggregate outstanding Principal Balances of Eligible
Advances included in Pledged Assets at such time:
% of Eligible
Crop Advances
Corn 75%
Soybeans 50%
Cotton 10%
Wheat 25%
Rice 10%
Other 25%
"Crop Concentration Limit Excess" means, at any time, with respect to a Crop,
the amount (if any) by which the aggregate outstanding Principal Balances of
Eligible Advances included in Pledged Assets used to finance such Crop,
exceeds the Crop Concentration Limit for such Crop at such time.
"Crop Insurance" means all of an Obligor's right, title and interest in any
indemnity payments in respect of such Obligor's agricultural crop insurance
issued pursuant to the Federal Crop Insurance Program.
"Cure Funds" has the meaning specified in the definition of the term
"Set-Aside Period" contained in this Section 1.01.
"Custodial Agreement" means that certain Amended and Restated Custodial
Agreement, dated as of [ ], 1999 by and among the
Originator, the Issuer, the Trustee and [Norwest Trust-Des Moines] as
"Custodian", as the same may be amended, supplemented or otherwise modified
from time to time.
-8-
<PAGE>
"Custodian" means, at any time, the "Custodian" under the Custodial Agreement
at such time.
"Debtor Relief Laws" means the Bankruptcy Code and all other applicable
liquidation, conservatorship, bankruptcy, moratorium, rearrangement,
receivership, insolvency, reorganization, suspension of payments, or similar
debtor relief laws from time to time in effect affecting the rights of
creditors generally.
"Defaulted Loan" means any Loan (i) with respect to which any required payment
or portion thereof remains unpaid more than 12 months past the original Due
Date therefor, or (ii) which has been, or which pursuant to the Credit and
Collection Policy should be, written off as uncollectible.
"Default Ratio" means the ratio (expressed as a percentage) computed as of any
day by dividing:
(a) (without duplication) the sum of the aggregate outstanding Principal
Balances of Acquired Advances in respect of Loans on such date that have
become Defaulted Loans or Delinquent Loans in the immediately preceding 12
month period;
by
(b) the Greatest Amount of Eligible Advances on such date.
"Defeasance Account" has the meaning specified in Section 4.02(a).
"Definitive Notes" has the meaning specified in Section 6.11.
"Delinquent Loan" means any Loan which is not a Defaulted Loan or a
Remarketing Loan, and with respect to which any required payment or portion
thereof remains unpaid after the original Due Date therefor.
"Determination Date" means, with respect to any Distribution Date, the fourth
Business Day preceding such Distribution Date.
"Dilution" means, at any time, the amount of reductions in the principal
balance of Acquired Advances as a result of any of the Dilution Factors.
"Dilution Factors" means, with respect to the Acquired Advances, any credits,
rebates, freight charges, discounts, allowances, disputes, chargebacks,
returned or repossessed goods, inventory transfers, allowances for early
payments and other allowances or adjustments granted in accordance with the
Originator's usual practices.
-9-
<PAGE>
"Dilution Ratio" means the ratio (expressed as a percentage) determined in
respect of a calendar year, computed as of the last day of such calendar year
(or with respect to the then current year, as of the last day of each calendar
month of such year) by dividing:
(a) the greater of (x) the Dilution for the current calendar year and (y) the
Dilution for the immediately preceding calendar year;
by
(b) the Greatest Amount of Eligible Advances for such calendar year (or with
respect to the then current year, the greater of (x) the Greatest Amount of
Eligible Advances on such date and (y) the aggregate outstanding Principal
Balance of Eligible Advances included in Acquired Advances at such time minus
the aggregate outstanding Principal Balance of Remarketing Loans included in
Pledged Assets at such time).
"Dilution Reserve" means, at any time, one and one-half (1.5) times the
product of (i) the Greatest Amount of Net Eligible Advances at such time and
(ii) the greatest of (x) the most recently calculated Dilution Ratio, (y) the
Dilution Ratio for the immediately preceding calendar year and (z) the average
of the Dilution Ratios for the three immediately preceding calendar years.
"DIP Financing Concentration Limit" means, at any time, the product of (i)
7.5% and (ii) the aggregate outstanding Principal Balances of Eligible
Advances at such time.
"DIP Financing Concentration Limit Excess" means, at any time, the amount
(if any) by which (i) the aggregate outstanding Principal Balances of Eligible
Advances to Obligors that are debtors-in-possession (under Chapter 11, 12 or
13 of the Bankruptcy Code) and in respect of which a bankruptcy court has
granted approval of a postpetition first priority security interest in the
Related Security at such time exceeds (ii) the DIP Financing Concentration
Limit at such time.
"Distribution Date" means, with respect to any Collection Period, the fifth
day of the calendar month immediately following the end of such Collection
Period, or, if such day is not a Business Day, the next succeeding Business
Day, or, with respect to any Series, such other day as may be set forth in the
applicable Supplement.
"DOL" means the United States Department of Labor and any successor department
or agency.
"Due Date" means, with respect to any Loan, the original stated maturity for
such Loan; provided that, in no event shall the Due Date be more than 18
months from the date of the Obligor Note evidencing such Loan and the related
Advances.
-10-
<PAGE>
"Due Date Concentration Limit" means, at any time, the product of (i) 5% and
(ii) the aggregate outstanding Principal Balances of Eligible Advances at such
time.
"Due Date Concentration Limit Excess" means, at any time, the amount (if any)
by which (i) the aggregate outstanding Principal Balances of Eligible Advances
with Due Dates other than (a) January 15 or January 31 of the year following
the fall harvest in respect of which the Loan and such related Advances were
made or (b) with respect to any Loan made to finance a winter wheat crop,
September 15 of the year of the harvest in respect of which the Loan and such
related Advances were made exceeds (ii) the Due Date Concentration Limit at
such time.
"Eligible Advance" means, at any time, an Advance in respect of a Loan:
(i) which is currently owing under a Obligor Note which has been duly
authorized and which, together with the related Loan Documents, is in full
force and effect and constitutes the legal, valid and binding obligation of
the Obligor of such Advance to pay the outstanding principal amount of such
Advance and interest thereon, and the related Loan Documents are enforceable
against such Obligor in accordance with their respective terms except as
limited by Debtor Relief Laws and except as such enforceability may be limited
by general provisions of equity;
(ii) which arose in the ordinary course of business of the Originator, under
Loan Documents substantially in the form of Exhibit C hereto, the performance
of which have been completed by the Originator and by all other parties other
than the Obligor, and all advances, goods or services in connection therewith
have been delivered to or performed for the Obligor;
(iii) which is not in respect of a Delinquent Loan or a Defaulted Loan and in
respect of which (except with respect to a Remarketing Loan) no material
default exists (whether matured or otherwise), and with respect thereto there
is not then in effect any waiver by the Originator of any (a) material default
with respect to the applicable Loan or (b) any event or circumstance that
would, with notice, the passage of time, or both, become a material default
with respect to the related Loan;
(iv) the Obligor of which is not the Obligor of any Defaulted Loans;
(v) the Obligor of which is not a Governmental Authority;
(vi) which, together with the Loan Documents related thereto, is an
"account", a "general intangible", "chattel paper" or an "instrument" within
the meaning of the UCC of all jurisdictions which govern the perfection of
the Issuer's interest therein;
(vii) with respect to which all material consents, licenses, approvals or
authorizations of, or registrations or declarations with, any Governmental
Authority
-11-
<PAGE>
required to be obtained, effected or given in connection with the making of
such Advance have been duly obtained, effected or given and are in full force
and effect;
(viii) the Obligor of which is not an Affiliate of any of the parties hereto;
(ix) the Obligor of which is organized in and a resident of the United
States;
(x) which is denominated and payable only in United States Dollars in the
United States;
(xi) which is due in a single installment of principal and interest on the
Due Date for the applicable Loan;
(xii) which bears interest either (a) at a fluctuating per annum rate equal
to or in excess of the prime rate as reported in the Midwestern edition of the
Wall Street Journal as in effect from time to time (or, if less, the maximum
non-usurious rate), (b) in respect of Obligors who are residents of Arkansas,
at a fixed interest rate per annum which, as of the date of the Obligor Note,
is equal to or less than the prime rate as reported in the Midwestern edition
of the Wall Street Journal as in effect on such date (or, if less, the maximum
non-usurious rate) , or (c) in respect of Obligors who are individuals or
general partnerships, and who are residents of Minnesota, and for which the
face amount of the Obligor Note does not exceed $100,000, at a fluctuating per
annum rate equal to or less than the federal discount rate on 90-day
commercial paper at the Federal Reserve Bank in the Federal Reserve District
encompassing Minnesota, plus 4.5 percent (or, if less, the maximum
non-usurious rate);
(xiii) which, together with the Loan Documents related thereto, does not
contravene in any material respect any laws, rules or regulations applicable
thereto (including, without limitation, laws, rules and regulations relating
to usury, truth in lending, fair credit billing, fair credit reporting, equal
credit opportunity, fair debt collection practices and privacy) and with
respect to which no party to the Loan Documents related thereto is in material
violation of any such law, rule or regulation in any respect;
(xiv) which is prepayable without penalty and, together with the related Loan
Documents and Related Security, is fully assignable;
(xv) which has been originated pursuant to and satisfies in all material
respects all applicable requirements of the Credit and Collection Policy;
(xvi) with respect to which only one current original Obligor Note exists,
which Obligor Note has been delivered to the Custodian;
-12-
<PAGE>
(xvii) which is secured by a perfected security interest in the Related
Security (including, without limitation, the related Assignment of Payment,
if any, but exclusive of the Assignment of Indemnity) in favor of the Issuer,
which security interest has the priority required for such security interest
in the related Loan Documents and the Credit and Collection Policy;
(xviii) which has not been compromised, adjusted or similarly modified and is
not subject to any Obligor Claims whatsoever and which did not arise pursuant
to Loan Documents giving the Obligor an explicit right of offset;
(xix) which was made under the existing Loan Documents, which Loan Documents
have not been modified for negative credit reasons, except as agreed to by the
Insurer;
(xx) with respect to which the Loan Documents are complete in accordance with
the Credit and Collection Policy;
(xxi) which was not classified by the Originator as "doubtful" or "loss"
under the Credit and Collection Policy at the time of Purchase by the Issuer;
(xxii) the Obligor of which has been notified of the transfer pursuant to the
Purchase and Contribution Agreement and under this Indenture;
(xxiii) which is free and clear of any Lien (other than the Primary Lien and
Permitted Encumbrances) and in which (i) the Issuer has a valid ownership
interest (which ownership interest, to the extent it constitutes a security
interest under the UCC, shall be perfected and of first priority) and (ii) the
Trustee has a first priority perfected security interest; and
(xxiv) as to which the Insurer has not notified the Servicer or the Issuer
that the Insurer determined, in its sole discretion, that such Loan is not
acceptable for eligibility hereunder.
"Eligible Institution" means a depository institution with trust powers
(including the Trustee) organized under the laws of the United States or any
state having capital and surplus in excess of $50,000,000, the deposits of
which are insured to the full extent permitted by law by the FDIC, which is
subject to supervision and examination by Federal or state authorities and
which (i) has a short-term unsecured senior debt rating of at least A-1 from
S&P and P-1 from Moody's or (ii) is approved by each Rating Agency and the
Insurer.
"Eligible Investments" means book-entry securities entered on the books of the
registrar of such security and held in the name or on behalf of the Trustee or
negotiable
-13-
<PAGE>
instruments or securities represented by instruments in bearer or registered
form (registered in the name of the Trustee or its nominee) which evidence:
(a) direct obligations of, or obligations fully guaranteed as to timely
payment by, the United States of America or any agency (having original
maturities no later than the next Transfer Date for any Series);
(b) demand deposits, time deposits or certificates of deposit (having
original maturities no later than the next Transfer Date for any Series) of
depository institutions or trust companies incorporated under the laws of
the United States of America or any state thereof (or domestic branches of
foreign banks), subject to supervision and examination by Federal or state
banking or depository institution authorities, and having, at the time of
the Trust's investment or contractual commitment to invest therein, the
highest short-term unsecured debt rating from S&P and Moody's;
(c) commercial paper (having original maturities no later than the next
Transfer Date for any Series) having, at the time of the Trust's investment
or contractual commitment to invest therein, the highest short-term rating
from S&P and Moody's;
(d) investments in money market funds (which may be 12b-1 funds, as
contemplated under the rules promulgated by the Commission under the
Investment Company Act of 1940) having a rating of AAA-m or AAAM-G from S&P
and Aaa from Moody's (including funds for which the Trustee or any of its
Affiliates acts as an investment adviser or manager);
(e) notes or bankers' acceptances (having original maturities no later than
the next Transfer Date for any Series) issued by any depository institution
or trust company referred to in clause (b) above; or
(f) repurchase agreements entered into with a securities firm which is a
primary dealer on the Federal Reserve reporting dealer list or a financial
institution having the highest short-term debt or certificate of deposit
rating (as the case may be) available from S&P or Moody's; provided that
such repurchase agreements are secured by a perfected first priority
security interest in an obligation of the type described in clause (a)
above; and provided, further, that (y) the market value of the obligation
with respect to which such firm or institution has a repurchase obligation,
determined as of the date on which such obligation is originally purchased,
shall equal or exceed 102% of the repurchase price to be paid by such firm
or institution and (z) the Trustee or a custodian acting on its behalf
shall have possession of the instruments or documents evidencing such
obligations.
"Eligible Servicer" means the Originator, the Trustee or an entity which,
at the time of its appointment as Servicer, (a) is servicing a portfolio of
loan receivables, (b) is legally
-14-
<PAGE>
qualified and has the capacity to service the Loans and (c) has demonstrated
the ability to professionally and competently service a portfolio of similar
loan receivables with high standards of skill and care.
"Environmental Laws" means all applicable federal, state or local statutes,
laws, ordinances, codes, rules, regulations and guidelines (including consent
decrees and administrative orders) relating to public health and safety and
protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended
from time to time.
"ERISA Affiliate" means, as to any Person, any partnership, trade or business
(whether or not incorporated) which, together with such Person, is treated as
a single employer within the meaning of Section 414(b), (c), (m) or (o) of the
Internal Revenue Code.
"Event of Default" has the meaning specified in Section 9.01 and with respect
to any Series shall also mean any Additional Event of Default specified in the
related Supplement.
"Expected Final Payment Date" with respect to any Series has the meaning
specified in the related Supplement.
"Federal Crop Insurance Program" means the agricultural crop insurance program
established pursuant to the Federal Crop Insurance Act, as amended.
"FDIC" means the Federal Deposit Insurance Corporation or any successor.
"Fixed Rate Concentration Limit" means, at any time, the product of (i) 5% and
(ii) the aggregate outstanding Principal Balances of Eligible Advances at such
time.
"Fixed Rate Concentration Limit Excess" means, at any time, the amount
(if any) by which the aggregate outstanding Principal Balances of Eligible
Advances which bear interest at a fixed rate exceeds the Fixed Rate
Concentration Limit at such time.
"GAAP" means generally accepted accounting principles that are (i) consistent
with the principles promulgated or adopted by the Financial Accounting
Standards Board and its predecessors, as in effect from time to time, and (ii)
consistently applied with past financial statements of the Originator and its
Subsidiaries adopting the same principles, provided that a certified public
accountant would, insofar as the use of such accounting principles is
pertinent, be in a position to deliver an unqualified opinion (other than a
qualification regarding changes in generally accepted accounting principles)
as to financial statements in which such principles have been properly
applied.
-15-
<PAGE>
"Geographical Concentration Limits" means, at any time, with respect to the
acres of Crops in any of the five single states with the highest Crop
concentrations, any five states in the aggregate and in the "South Region" (as
defined in the Credit and Collection Policy) financed by Eligible Advances
included in Pledged Assets at such time, an amount equal to the percentage
listed opposite such state(s)/region multiplied by the aggregate outstanding
Principal Balances of Eligible Advances included in Pledged Assets at such
time:
% of Eligible
Category Advances
The highest single state 22%
The second highest single state 20%
The third highest single state 16%
The fourth highest single state 16%
The fifth highest single state 16%
Any five states in the aggregate 70%
South Region 10%
"Geographical Concentration Limit Excess" means, at any time, with respect to
any single state, any five states in the aggregate and in the "South Region"
(as defined in the Credit and Collection Policy), the amount (if any) by which
the aggregate outstanding Principal Balances of Eligible Advances included in
Pledged Assets extended to finance Crops in such state(s)/region, exceeds the
Geographical Concentration Limit for such state(s)/region at such time.
"Global Note" means a Note evidencing all or any part of a Series to be issued
in Book-Entry Form, which Global Note shall be issued to the Clearing Agency
for such Series or its nominee in accordance with Section 6.11 and the
applicable Supplement pursuant to which such Note is issued.
"Governmental Authority" means any country or nation, any political
subdivision, state or municipality of such country or nation, and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government of any country or nation or political
subdivision thereof.
"Greatest Amount of Eligible Advances" means, as of any date of determination,
an amount equal to the highest aggregate outstanding Principal Balance of
Eligible Advances included in Pledged Assets on any single day during the
immediately preceding 14 month period.
"Greatest Amount of Net Eligible Advances" means, as of any date of
determination, an amount equal to (a) the Greatest Amount of Eligible Advances
on such date
-16-
<PAGE>
minus (b) the aggregate outstanding Principal Balance of Remarketing Loans
included in Pledged Assets on the date applicable to the amount determined in
clause (a) hereof.
"Hazardous Material" means: (a) any "hazardous substance", as defined by
CERCLA; (b) any "hazardous waste", as defined by the Resource Conservation and
Recovery Act, 42 U.S.C. Section 690, et seq., as amended; (c) any petroleum
product; or (d) any pollutant or contaminant or hazardous, dangerous or toxic
chemical, material or substance within the meaning of any Environmental Laws.
"Holder" means, with respect to any Note, the Person in whose name such Note
is registered in the Note Register.
"Indemnified Amounts" has the meaning specified in Section 7.03.
"Indemnified Party" has the meaning specified in Section 7.03.
"Indenture" means this Master Trust Indenture and Security Agreement, as the
same may from time to time be amended, modified or otherwise supplemented,
including, with respect to any Series, the related Supplement.
"Independent Public Accountants" means any nationally recognized accounting
firm reasonably acceptable to the Issuer, the Servicer and the Insurer;
provided that such firm is independent with respect to the Servicer within
the meaning of the Act.
"Initial Closing Date" means the Closing Date with respect to the first Series
issued hereunder.
"Initial Outstanding Principal Balance" means, with respect to any Series and
for any date, an amount equal to the initial principal balance amount or
amounts specified in the related Supplement.
"Insolvency Event" means, with respect to a specified Person, (a) the filing
of a decree or order for relief by a court having jurisdiction in the premises
in respect of such Person or any substantial part of its property in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or the appointing of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official for such Person
or for any substantial part of its property, or the ordering of the winding-up
or liquidation of such Person's business, and, other than in a case in which
such proceeding was instituted by an Affiliate of such Person, such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or (b) the commencement by such Person of a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or the consent by such Person to the entry of an order for relief in
an involuntary case under any such law, or the consent by such Person to the
appointment of or taking possession by a receiver, liquidator, assignee,
-17-
<PAGE>
custodian, trustee, sequestrator or similar official for such Person or for
any substantial part of its property, or the making by such Person of any
general assignment for the benefit of creditors.
"Insolvency Proceeding" means any proceeding of the sort described in the
definition of Insolvency Event.
"Insurance Obligations" means, at any time, the sum of the aggregate unpaid
balance of, and accrued but unpaid interest on, (a) all reimbursement or
repayment obligations (and all interest accrued thereon) then owing to the
Insurer the Master Insurance Agreement in respect of (i) any payments made by
the Insurer under any Trust Insurance Policy in accordance with the terms
thereof, or (ii) any payment or advance made by the Insurer in lieu of a
payment under any Trust Insurance Policy in accordance with the applicable
terms of the Insurance Agreement, (b) the aggregate maximum amount then
available for drawing under all outstanding Insurance Policies, (c) all
premiums accrued under the Insurance Agreement and any related premium or fee
letters to which the Insurer and the Issuer are parties, and (d) all other
accrued fees, costs, expenses and indemnities owing by the Issuer to the
Insurer pursuant to the terms of the Master Insurance Agreement and any other
document, instrument or agreement relating thereto, in each case regardless of
whether such obligations and liabilities are absolute or contingent, due or
not due, liquidated or unliquidated and whether or not for the payment of
money or the performance or nonperformance of any act.
"Insurance Policies" means each of the Trust Insurance Policy and each
Noteholder Insurance Policy outstanding from time to time.
"Insurer" means MBIA Insurance Corporation, a New York stock insurance company.
"Insurer's Fee" has the meaning set forth in the fee agreement of even date
herewith among the Issuer, the Originator and the Insurer, as the same may be
amended, restated, supplemented or otherwise modified from time to time.
"Interest Period" means, unless otherwise specified in the Supplement relating
to any Series, with respect to any Distribution Date for such Series (i) in
the case of the initial such Distribution Date, the period from and including
the Closing Date for such Series to but excluding such initial Distribution
Date and (ii) in the case of any other Distribution Date, the period from and
including the preceding Distribution Date to but excluding such Distribution
Date.
"Interest Reserve" means at any time, an amount equal to two (2) times the
product of (i) the Aggregate Outstanding Amount on the last Business Day of
the immediately preceding February (or, if such date of determination is the
last Business Day of February, the
-18-
<PAGE>
Aggregate Outstanding Amount at such time), and (ii)the [highest available]
Note Rate at such time.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended
from time to time.
"Investment Company Act" means the Investment Company Act of 1940, as amended
from time to time.
"Issuer" means Ag Acceptance Corporation, a Delaware special purpose
corporation.
"Issuer's Account" means the special account under the dominion and control of
the Issuer, for deposits by the Servicer of funds allocable to the Issuer,
maintained at such bank as the Issuer may designate for such purpose from time
to time.
"Letter of Representations" means any applicable agreement among the Issuer,
the Trustee and the applicable Clearing Agency with respect to such Clearing
Agency's rights and obligations with respect to any Book-Entry Notes, as the
same may be amended, supplemented, restated or otherwise modified from time to
time.
"Lien" means any mortgage, deed of trust, pledge, hypothecation, assignment,
encumbrance, lien (statutory or other), preference, participation interest,
priority or other security agreement or preferential arrangement of any kind
or nature whatsoever resulting in an encumbrance against real or personal
property of a Person, including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing and the filing of any financing
statement under the UCC or comparable law of any jurisdiction to evidence any
of the foregoing.
"Liquidation Costs" means, with respect to any Acquired Advance, the aggregate
costs, expenses and other amounts (net of recoveries) paid to or retained by
third parties in connection with the liquidation of Related Security related
to such Acquired Advance.
"Liquidation Ratio" means the ratio (expressed as a percentage) determined in
respect of a calendar year, computed as of the last day of such calendar year
(or with respect to the then current year, as of the last day of each calendar
month of such year) by dividing:
(a) the greater of (x) the Liquidation Costs for the current calendar year and
(y) the Liquidation Costs for the immediately preceding calendar year;
by
-19-
<PAGE>
(b) the Greatest Amount of Eligible Advances for the calendar year that is two
years prior to the current calendar year (or with respect to the then current
year, the greater of (x) the Greatest Amount of Eligible Advances on such date
and (y) the aggregate outstanding Principal Balance of Eligible Advances
included in Pledged Advances at such time minus the aggregate outstanding
Principal Balance of Remarketing Loans included in Pledged Assets at such
time).
"Liquidation Reserve" means, one and one-half (1.5) times the product of (i)
the Greatest Amount of Net Eligible Advances at such time and (ii) the
greatest of (x) the most recently calculated Liquidation Ratios, (y) the
Liquidation Ratio for the immediately preceding calendar year and (z) the
average of the Liquidation Ratios for the three immediately preceding calendar
years.
"Loan" means a loan receivable evidenced by a Obligor Note and comprised of
one or more discretionary advances, arising from the extension of credit to an
Obligor by the Originator in the ordinary course of its business (exclusive of
any loan receivables in respect of "seed financing" or "intermediate loans" as
such terms are generally used in the Credit and Collection Policy), and shall
include, without limitation, all monies due or owing and all Collections and
other amounts received from time to time with respect to such loan receivable
and all proceeds (including, without limitation, "proceeds" as defined in the
UCC of the jurisdiction the law of which governs the perfection of the
interest on the Loans subject to this Indenture) thereof.
"Loan Document" means, with respect to any Loan, the related Obligor Note and
any related loan agreement, security agreement, mortgage, Assignment of
Indemnity, financing statements and other documents, instruments, certificates
or assignments (including amendments or modifications thereof) executed by the
Obligor thereof or by another Person on the Obligor's behalf in respect of
such Loan and related Obligor Note, including, without limitation, general or
limited guaranties.
"Lock-Box Account" has the meaning specified in Section 4.02(b).
"Lock-Box Agreement" has the meaning specified in Section 4.02(c).
"Lock-Box Bank"has the meaning specified in Section 4.02(b).
"Loss Reserve" means, at any time, an amount equal to the greatest of:
(i) an amount equal to the product of (a) the Greatest Amount of Eligible
Advances at such time and (b) the greater of (x) the average of the three (3)
Loss Reserve Ratios calculated as of February 1st of the three immediately
preceding years, and (y) the most recently calculated Loss Reserve Ratio;
-20-
<PAGE>
(ii) an amount equal to the product of (a) the Greatest Amount of Eligible
Advances at such time and (b) two (2) times the average of the following
ratios (computed as of the most recent February 1st (the "Target Date")) for
each of the three (3) twelve month periods (each a "Computation Period") which
end on February 1st of the Computation Periods that are 5, 6 and 7 years,
respectively, prior to the Target Date (each such year a "Reference Year"):
for each Reference Year, the ratio (expressed as a percentage) computed by
dividing:
(I) the sum of:
(a) the aggregate outstanding Principal Balances of Acquired Advances in
respect of Loans whose Due Date occurred during such Reference Year, but were
unpaid on the fifth anniversary of February 1st of such Reference Year (the
"Measurement Date") plus
(b) the Principal Balance of Acquired Advances with Due Dates in such
Reference Year that were written off as uncollectible on or prior to such
Measurement Date;
by
(II)the Greatest Amount of Net Eligible Advances on February 1st of such
Reference Year; and
(iii) five (5) times the Obligor Concentration Limit at such time.
"Loss Reserve Ratio" means the ratio (expressed as a percentage) computed as
of any day by dividing:
(a) (without duplication) the sum of:
(i) the aggregate outstanding Principal Balances of Acquired Advances in
respect of Loans that were Defaulted Loans as of the immediately preceding
February 1st, plus
(ii) the aggregate outstanding Principal Balances of Acquired Advances in
respect of Loans on such day that would have become Defaulted Loans as of the
immediately preceding February 1st if such Loans had not become Defaulted
Loans during the twelve month period immediately preceding such February 1st,
plus
(iii) the aggregate outstanding Principal Balances of Acquired Advances in
respect of Loans that became Defaulted Loans during the 12 month period
immediately preceding such day;
-21-
<PAGE>
by
(b) the Greatest Amount of Net Eligible Advances as of the immediately
preceding February 1st.
"Majority in Interest" means with respect to each Series the Holders of Notes
evidencing 51% or more of the Outstanding Principal Balance of such
outstanding Series.
"Majority Noteholders" means, at any time, the Noteholders holding Notes
evidencing 51% or more of the aggregate Outstanding Principal Balance for all
outstanding Notes of all Series at such time.
"Master Insurance Agreement" means that certain Master Insurance and
Reimbursement Agreement, dated the date hereof, among the Insurer, the Issuer,
the Originator and the Trustee.
"Material Adverse Effect" means, with respect to any event or circumstance, a
material adverse effect on
(a) the business, properties, operations, profits, prospects, or condition
(financial or otherwise) of the Originator and its Subsidiaries (taken as
a whole), the Issuer, the Noteholders, the Insurer or the Trustee;
(b) the ability of any of the Servicer, the Issuer or the Originator to
perform its respective obligations under any of the Transaction Documents to
which it is a party;
(c) the validity or enforceability of, or collectibility of amounts payable
under, any of the Transaction Documents;
(d) the status, existence, perfection or priority of (i) the Trustee's
security interest in the Pledged Assets, (ii) the Issuer's interest in and
title to the Pledged Assets, or (iii) the Originator's interest in the Pledged
Assets, in each case free of any Lien (other than the Primary Lien and the
Permitted Encumbrances);
(e) the value, validity, enforceability or collectibility of the Notes, the
Loan Documents, or any of the other Pledged Assets (as applicable).
"Monthly Report" means a report substantially in the form set forth in
Exhibit E attached hereto.
"Moody's" means Moody's Investors Service, Inc. or its successor.
-22-
<PAGE>
"Multiemployer Plan" means a "multiemployer plan" as defined in Section 4001
(a)(3) of ERISA to which, either Originator or an ERISA Affiliate of either
of them is making, is obligated to make or has within the last six years made
or been obligated to make contributions on behalf of participants who are or
were employed by any such entity.
"Net Aggregate Eligible Advances" means, at any time, the aggregate
outstanding Principal Balance of the Eligible Advances included in Pledged
Assets at such time minus the Aggregate Concentration Limit Excess at such
time minus the Credit Factor Adjustment at such time.
"Net Eligible Advance Balance" means, as of any date of determination, the sum
of (A) the Net Aggregate Eligible Advances at such time, minus (B) the
Required Reserves at such time.
"Net Outstanding Amount" means at any time the Aggregate Outstanding Amount
minus the amount of Cure Funds on deposit in the Reserve Account as of such
time minus the amount of funds on deposit in any Defeasance Account to be
distributed to Noteholders in reduction of the Outstanding Principal Balance
of their Notes.
"Note" means any one of the Notes executed by the Issuer and authenticated by
or on behalf of the Trustee, in substantially the form attached to the related
Supplement.
"Noteholder" means, with respect to a Note, the Holder of such Note.
"Noteholder Insurance Policy" means any financial guaranty insurance policy
(other than the Trust Insurance Policy) delivered by the Insurer for the
benefit of any Person pursuant to which the payment of principal and interest
on any Note is guaranteed, or any successor agreement, instrument or document.
"Noteholders" means all Holders of all the Notes.
"Note Obligations" means the aggregate unpaid principal of and premium, if
any, on, and accrued but unpaid interest on, the Notes, regardless of whether
such obligations and liabilities are absolute or contingent, due or not due,
liquidated or unliquidated and whether or not for the payment of money or the
performance or nonperformance of any act.
"Note Rate" means, with respect to any Series, the interest rate specified
therefor in the related Supplement.
"Note Register" has the meaning specified in Section 6.03(a).
"Notices" means all demands, notices, instructions, directions, requests,
authorizations and communications required or permitted to be given under this
Indenture.
-23-
<PAGE>
"Obligor" means, with respect to any Loan, the Person or Persons obligated to
make payments in respect of the Advances arising thereunder (including,
without limitation, any co-signer or guarantor for a Person so obligated).
"Obligor Claim" means any dispute, claim, offset or defense of the Obligor of
a Loan, including, without limitation, the defense of usury, or any other
claim of such Obligor against or adjustment to such Loan resulting from the
transaction out of which such Loan arose or any related or unrelated
transaction.
"Obligor Concentration Limit" means for any Obligor at any time, 1.25% of the
Greatest Amount of Eligible Advances at such time; provided, however, the
Concentration Limit shall be calculated as if such Obligor and all of such
Obligor's Affiliates were one Obligor.
"Obligor Concentration Limit Excess" means, at any time, with respect to an
Obligor, the amount (if any) by which the aggregate outstanding Principal
Balances of Eligible Advances to such Obligor included in Acquired Advances
exceeds the Obligor Concentration Limit.
"Obligor Note" means any promissory note evidencing the indebtedness of an
Obligor under a Loan and each Advance made in respect thereof, together with
any modifications thereto.
"Officer's Certificate" means, unless otherwise specified in this Indenture, a
certificate signed by the President, any Vice President, the Chief Financial
Officer, the Treasurer or Controller, the Assistant Treasurer or the Secretary
or Assistant Secretary of the Issuer, or of a Servicer, or of any Successor
Servicer, as the case may be, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion, in form and substance reasonably
satisfactory to the Trustee and from counsel reasonably satisfactory to the
Trustee, which counsel, except where this Indenture otherwise provides, may be
counsel for, or an employee of, either the Person providing such opinion or an
Affiliate of such Person.
"Originator" means Ag Services of America, Inc., an Iowa corporation, in its
individual capacity.
"Outstanding", when used with respect to Notes, means, as of the date of
determination, all Notes theretofore authenticated and delivered under this
Indenture, except:
(i) Notes theretofore canceled by the Trustee or delivered to the Trustee for
cancellation;
(ii) Notes, or portions thereof, for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any Paying
Agent
-24-
<PAGE>
(other than the Issuer) in trust or set aside and segregated in trust by the
Issuer (if the Issuer shall act as its own Paying Agent) for the Holders of
such Notes; provided that, if such Notes are to be redeemed, notice of such
redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made;
(iii) Notes which have been replaced pursuant to Section 6.04 or in exchange
for or in lieu of which other Notes have been authenticated and delivered
pursuant to this Indenture, other than any Notes in respect of which there
shall have been presented to the Trustee proof satisfactory to it that such
Notes are held by a bona fide purchaser in whose hands such Notes are valid
obligations of the Issuer;
provided, however, that in determining whether the Holders of the requisite
Outstanding Principal Balance of the Outstanding Notes have given any request,
demand, authorization, direction, notice, consent or waiver hereunder or are
present at a meeting of Holders for quorum purposes, Notes owned by the Issuer
or any Affiliate of the Issuer shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be
protected in making any such determination or relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Notes which
a Responsible Officer of the Trustee actually knows to be so owned shall be so
disregarded. Notes so owned which shall have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee (A) the pledgee's right so to act with respect to such Notes and
(B) that the pledgee is not the Issuer or an Affiliate of the Issuer.
"Outstanding Principal Balance" means, at any time (a) with respect to any
Note, the outstanding principal balance of such Note at such time and (b) with
respect to any Series of Notes, the aggregate outstanding principal balance of
all Notes in such Series at such time.
"Paying Agent" means any paying agent appointed pursuant to Section 6.06.
"PBGC" means the Pension Benefit Guaranty Corporation, or any other
Governmental Authority succeeding to the functions thereof.
"Permitted Encumbrances" means, with respect to any Related Security
constituting Crops, (a) Liens against such Crops which are by statute granted
priority over the Lien granted to the Originator pursuant to the Loan
Documents, or (b) which secure Debt to Persons other than parties hereto which
have been deducted by the Originator in setting the credit limit for the
related Obligor.
"Person" means any individual, corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust,
unincorporated organization, Governmental Authority or any other entity of
similar nature.
-25-
<PAGE>
"Plan" means any plan, program, arrangement, agreement, practice or contract
that provides or is intended to provide benefits or compensation to or on
behalf of one or more employees or former employees of the Originator or an
ERISA Affiliate of the Originator, whether formal or informal, whether or not
written, including, but not limited to, any employee benefit plan as defined
in Section 3(3) of ERISA, any employee pension benefit plan and any retiree
welfare plan.
"Pledged Assets" has the meaning ascribed to such term in the Granting Clause
of this Indenture.
"Prepayment Premium" with respect to any Series, shall have the meaning
specified in the related Supplement, if applicable.
"Primary Custodial Documents" has the meaning specified in Section 2.05(j)(ii).
"Primary Lien" has the meaning ascribed to such term in the Granting Clause
of this Indenture.
"Principal Balance" means, with respect to an Advance, and as of a date of
determination, the unpaid principal balance of such Advance on such date.
"Principal Terms" means, with respect to any Series: (a) the name or
designation; (b) the Initial Outstanding Principal Balance or maximum
principal amount (or method for calculating such amount); (c) the Note Rate
(or method for the determination thereof); (d) the payment date or dates and
the date or dates from which interest shall accrue; (e) the method for
allocating collections to Noteholders; (f) the designation of any Series
Accounts and the terms governing the operation of any such Series Accounts;
(g) the Issuer and terms of any form of enhancement with respect thereto; (h)
the terms, if any, on which the Notes of such Series may be exchanged for
Notes of another Series, repurchased or redeemed by the Issuer or remarketed
to other Noteholders; (i) the Special Wind Down Date; (j) the Amortization
Events with respect thereto, if any; (k) the Amortization Date with respect
thereto, if any; and (l) if such Series is designated as a Series of Variable
Funding Notes, the Termination Date for such Series.
"Prior Transaction Documents" means the Credit Agreement dated as of March 12,
1997 among the Issuer as the "Borrower", Ag Services of America, Inc. , as the
"Servicer", Triple-A One Funding Corporation, CapMAC Financial Services, Inc.,
as the "Administrative Agent" and Capital Markets Assurance Corporation, as
the "Collateral Agent" (as amended, supplemented or otherwise modified from
time to time prior to the date hereof), together with the documents,
agreements and instruments executed by the Issuer in connection therewith.
"Purchase" means the purchase of Advances by the Issuer from the Originator
pursuant to the terms of the Purchase and Contribution Agreement.
-26-
<PAGE>
"Purchase and Contribution Agreement" means that certain Amended and Restated
Purchase and Contribution Agreement, dated as of [________], 1999 by and
among the Originator and the Issuer, as the same may be amended, supplemented
or otherwise modified from time to time in accordance with the terms hereof.
"Purchase Price" has the meaning specified in the Purchase and Contribution
Agreement.
"Rating Agency" means each nationally recognized rating agency which, at the
request of the Issuer, has rated any Series of Notes, as set forth in the
related Supplement.
"Rating Agency Condition" means, with respect to any action, that each Rating
Agency, upon the written request of the Issuer, the Servicer, the Insurer or
the Trustee, shall have notified such parties in writing that such action in
and of itself will not result in a reduction or withdrawal of the rating of
any Outstanding Series with respect to which it is a Rating Agency.
"Record Date" means, with respect to any Distribution Date, the last day of
the preceding calendar month.
"Records" means all Loan Documents and other documents, books, credit files,
records and other information (including, without limitation, computer
programs, tapes, discs, punch cards, data processing software and related
security and rights) maintained with respect to Loans and the related
Obligors.
"Redemption Date" has the meaning specified in Section 13.02.
"Redemption Price" has the meaning specified in Section 13.04.
"Related Security" means, with respect to any Advance, (i) all of the
Originator's and/or the Issuer's right, title and interest in and to the
payments to be made by the Obligor and any other rights which are assignable
under the related Loan Documents; (ii) all security interests or liens and
property subject thereto from time to time purporting to secure payment of
such Advance, whether pursuant to the Loan Documents related to such Advance
or otherwise, including without limitation, all interests in Crop Insurance
with respect to such property; (iii) all Records; (iv) guarantees and other
agreements or arrangements of whatever character from time to time supporting
or securing payment of such Advance whether pursuant to the Loan Documents
related to such Advance or otherwise; (v) in the case of the Issuer, all of
its right, title and interest in and to the Purchase and Contribution
Agreement and (vi) all rights under warranties, indemnities, or insurance
with respect to the Advances, related Loan Documents or other Related Security
described above, including without limitation any such warranties, indemnities
made by the Originator under the Purchase and Contribution Agreement.
-27-
<PAGE>
"Remarketing Loan" means a Loan (i) which is not a Defaulted Loan, (ii) which
remains unpaid in whole or part after the Due Date for such Loan, (iii) which,
on or prior to the Due Date for such Loan, the Issuer has elected to classify
such Loan as a "Remarketing Loan", and (iv) with respect to which, on or
prior to the date that is four weeks after the Due Date for such Loan, the
Issuer or the Servicer has notified the Obligor thereof that such Loan is past
due and that the Issuer's election not to demand payment of such Loan at the
time of such notice neither constitutes an extension of the Due Date nor a
waiver of the Issuer's right to demand immediate payment.
"Remarketing Ratio" means the ratio (expressed as a percentage) computed as of
any day by dividing (a) the sum of the aggregate Principal Balances of
Remarketing Loans on the immediately preceding February 1st by (b) the
Greatest Amount of Eligible Advances.
"Reportable Event" means any of the reportable events set forth in Section
4043(b) of ERISA and the regulations issued from time to time thereunder
(other than a reportable event not subject to the provisions for 30-day notice
to the PBGC under such regulations).
"Required Reserves" means, as of any date of determination, the greater of:
(i) the sum of (A) the Loss Reserve at such time, plus (B) the Servicing
Reserve at such time, plus (C) the Interest Reserve at such time, plus (D) the
Dilution Reserve at such time, plus (E) the Liquidation Reserve at such time;
or
(ii) 15% of the Greatest Amount of Eligible Advances at such time.
"Requirements of Law" means any law, treaty, rule or regulation, final
determination of an arbitrator or Governmental Authority, or order of any
judicial authority, and, when used with respect to any Person, the certificate
of incorporation and by-laws or other organizational or governing documents of
such Person.
"Reserve Account" has the meaning specified in Section 4.02(a).
"Responsible Officer" means, (i) when used with respect to the Trustee, any
officer within the corporate trust department of the Trustee including any
vice president, assistant vice president, senior trust officer, trust officer
or any other officer of the Trustee who customarily performs functions similar
to those performed by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred because of
such officer's knowledge of and familiarity with the particular subject and
(ii) when used with respect to the Issuer or the Servicer, any of the
President, Chief Executive Officer, Vice President, Secretary, Assistant
Secretary, Treasurer, Assistant Treasurer or Chief Financial Officer of such
Person.
-28-
<PAGE>
"Revolving Period" means, with respect to any Series of Notes, the period
during which such Series is outstanding prior to the occurrence of the
Amortization Period for such Series or the Wind Down Date.
"S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill
Companies, Inc., or its successor.
"Scheduled Wind Down Date" means, the Distribution Date occurring in ____,
2004, as such date may from time to time be extended pursuant to
Section 12.01 hereof.
"Secured Obligations" means, collectively, (a) the Note Obligations, (b) the
Insurance Obligations and (c) the Trustee Obligations.
"Secured Party" means any of the Insurer, the Trustee and any of the
Noteholders, as the case may be.
"Seller Note" has the meaning assigned to such term in Section 2.2 of the
Purchase and Contribution Agreement.
"Series" means any series of Notes.
"Series Account" means any deposit, trust, escrow, reserve or similar account
maintained for the benefit of the Noteholders of any Series, as specified in
any Supplement and including, with respect to any Series, any Defeasance
Accounts maintained for the benefit of the applicable Noteholders.
"Series Allocation Percentage" shall mean, with respect to each Series,
(i) on any Business Day prior to the Wind Down Date:
(a) if such Series is in the Revolving Period and no Set-Aside Period has
occurred and is continuing, zero;
(b) if such Series is in the Amortization Period and no Set-Aside Period has
occurred and is continuing, a fraction (expressed as a percentage) (x) the
numerator of which equals the Net Outstanding Amount of all Notes of such
Series, as of the applicable Amortization Date, and (y) the denominator of
which equals the Net Outstanding Amount of all Series in their respective
Amortization Periods as of the applicable Amortization Date for each such
Series;
(c) if a Set-Aside Period has occurred and is continuing, a fraction
(expressed as a percentage) (x) the numerator of which equals the Net
Outstanding Amount of all Notes of such Series as of the Business Day
immediately preceding the commencement of such
-29-
<PAGE>
Set-Aside Period and (y) the denominator of which equals the Net Outstanding
Amount of all outstanding Series as of the Business Day immediately preceding
the commencement of such Set-Aside Period; and
(ii) on any Business Day after the Wind Down Date, a fraction (expressed as a
percentage)(a) the numerator of which equals the sum of the Net Outstanding
Amount of all Notes of such Series as of the Wind Down Date and (b) the
denominator of which equals the Net Outstanding Amount of all outstanding
Series of Notes as of the Wind Down Date.
"Service Transfer" has the meaning specified in Section 10.01.
"Servicer" means, at any time, the Person which is authorized to act as
Servicer under Section 3.01 to administer, collect and service the Acquired
Advances, including any Successor Servicer appointed pursuant to
Section 10.02.
"Servicer's Daily Report" has the meaning specified in Section 3.04(g).
"Servicer Default" has the meaning specified in Section 10.01.
"Servicing Fee" means, with respect to any Collection Period, an amount equal
to the product of a (i) per annum fee of one percent (1.00%) (calculated on
the basis of actual days in such Collection Period over 360 days) multiplied
by (ii) the aggregate outstanding Principal Balance of the Acquired Advances
constituting Pledged Assets as of the beginning of such Collection Period.
"Servicing Officer" means any officer, employee or other agent of the Servicer
who in any case is involved in, or responsible for, the administration and
servicing of the Loans and whose name appears on a list of servicing officers
furnished to the Trustee by the Servicer, as such list may from time to time
be amended.
"Servicing Reserve" means, as of any date of determination, an amount equal to
the product of (i) one percent (1%) multiplied by (ii) the Greatest Amount of
Eligible Advances on such date.
"Set-Aside Period" means the period beginning on any Business Day on which an
Asset Deficiency exists if the Issuer shall begin depositing Collections or
funds to the Reserve Account on the day collected (all such funds so deposited
from time to time by the Issuer being "Cure Funds"), and continuing until the
earlier of (a) the date on which the Asset Deficiency is reduced to zero and
(b) the fifth consecutive Business Day on which such Asset Deficiency shall
exist.
"Special Wind Down Date" means, with respect to any Series, the "Special
Amortization Date" specified in the applicable Supplement.
-30-
<PAGE>
"Stated Amount" means, with respect to any Variable Funding Note, the maximum
principal amount that may be required to be funded by the Holder of such
Variable Funding Note pursuant to the applicable Supplement.
"Stated Maturity Date" means, with respect to any Series, the "Stated Maturity
Date" specified in the applicable Supplement relating thereto.
"Successor Servicer" means a "Successor Servicer" appointed pursuant to
Section 10.02(a).
"Supplement" means, with respect to any Series, a supplement to this
Indenture, executed and delivered in connection with the original issuance of
the Notes of such Series pursuant to Article VI, and all amendments,
modifications or supplements to this Indenture.
"Tax Opinion" means, with respect to the original issuance of any Notes, an
Opinion of Counsel who is not an employee of the Originator or any Affiliate
thereof to the effect that, for federal and [Iowa] (and any other State where
substantial servicing activities in respect of Loans are conducted by the
Issuer or the Servicer if there is a substantial change from present servicing
activities) state income and franchise tax purposes, to the effect that such
Notes should properly be characterized as debt of the Issuer.
"Term Note" means any Note, the principal amount of which is fixed on the date
of its issuance pursuant to the related Supplement and which by its terms is
not subject to any future increase.
"Termination Date" means, with respect to any Series of Variable Funding
Notes, the termination date specified in the related Supplement.
"Termination Notice" means any termination notice delivered by the Trustee or
the Insurer to the Servicer pursuant to Section 10.01 following a Servicer
Default or Event of Default.
"Transaction Documents" means the Purchase and Contribution Agreement, this
Indenture each Supplement, the Trust Insurance Policy, the Master Insurance
Agreement, the Notes and, with respect to any Series, any other agreement
specified in the applicable Supplement relating thereto as being a
"Transaction Document" and, in addition, any other document executed by the
parties hereto which specifically recites that it is a "Transaction Document"
for purposes of this Indenture.
"Transfer Agent and Registrar" has the meaning specified in Section 6.03.
"Transfer Date" for any Series means the Business Day immediately preceding a
Distribution Date for such Series, or, if the last day of an Interest Period
for such Series is other
-31-
<PAGE>
than a Distribution Date, the Business Day immediately preceding such last day
of such Interest Period.
"Trust Accounts" means the Collection Account, the Reserve Account, the
Carrying Cost Account, each Defeasance Account and any other Series Account
established pursuant to the terms of any Supplement.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1939, as in force on the Closing Date, except as
set forth in Section 6.09(c) of this Indenture.
"Trust Insurance Policy" means that certain financial guaranty insurance
policy, delivered by the Insurer in favor of the Trustee on behalf of the
Noteholders, or any successor agreement, instrument or document pursuant to
which the payment of principal and interest on the Notes is guaranteed.
"Trustee" means ______________, a _______, in its capacity as trustee on
behalf of the Noteholders, or its successor in interest, or any successor
trustee appointed as herein provided.
"Trustee Obligations" means the fees, costs, expenses and indemnification
obligations of the Issuer to the Trustee provided for under Section 7.03 of
this Indenture, regardless of whether such fees, costs, expenses or
indemnification obligations are absolute or contingent, due or not due,
liquidated or unliquidated and whether or not for the payment of money or the
performance or nonperformance of any act.
"Trustee's Fee" has the meaning specified in Section 11.10.
"UCC" means the Uniform Commercial Code, as amended from time to time, as in
effect in any applicable or specified jurisdiction.
"Unmatured Event of Default" means any event which, with the giving of notice
or the passage of time or both, would constitute an Event of Default.
"Unmatured Servicer Default" means any event which, with the giving of notice
or the passage of time or both, would constitute a Servicer Default.
"Variable Funding Note" means any Notes of any Series the principal amount of
which may be increased and/or reduced from time to time and which is
designated as a "Variable Funding Note" in the Supplement pursuant to which
such Series is issued.
"Wind Down Date" means, the earlier of (x) the Scheduled Wind Down Date and
(y) the date on which an Event of Default is deemed to have occurred, and
(z) the
-32-
<PAGE>
occurrence of any Special Wind Down Date under any Series as specified in the
applicable Supplement. The Wind Down Date for any Series shall cause a Wind
Down Date for all Series to occur.
"Wind Down Period" means, with respect to all Series, the period beginning on
the Wind Down Date for any Series, and ending upon the payment in full to the
Noteholders of all such Series of the Aggregate Outstanding Balance with
respect to such Series, all accrued and unpaid interest thereon and all other
amounts owed to the Noteholders hereunder and under each applicable
Supplement.
"Year 2000 Issues" means, anticipated costs, problems and uncertainties
associated with the inability of certain computer applications to effectively
handle data including dates on and after January 1, 2000, as such inability
affects the business, operations, and financial condition of the Issuer or the
Servicer and of the Issuer's or the Servicer's material customers, suppliers
and vendors.
SECTION 1.02. Incorporation by Reference to Trust Indenture Act. Whenever
this Indenture refers to a provision of the Trust Indenture Act, the provision
is incorporated by reference in and made a part of this Indenture. The
following Trust Indenture Act terms incorporated by reference in this
Indenture have the following meanings:
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Issuer or any other obligor on
the Notes, if any.
All other Trust Indenture Act terms used or incorporated by reference in this
Indenture that are defined by the Trust Indenture Act, defined by the Trust
Indenture Act's reference to another statute or defined by Commission rule
shall, in each case, have the meanings assigned to them therein.
SECTION 1.03. Compliance Certificates and Opinions. (a) Upon any
application or request by the Issuer to the Trustee to take any action under
any provision of this Indenture, the Issuer shall furnish to the Trustee (x)
an Officer's Certificate stating that all conditions precedent, if any,
provided for in this Indenture relating to the proposed action have been
complied with, and (y) an Opinion of Counsel stating that, in the opinion of
such counsel, all such conditions precedent, if any, have been complied with;
provided that, in the case of any such
-33-
<PAGE>
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need
be furnished.
(b)Every certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture (other than the annual certificate
provided pursuant to Section 3.04(g)(v) shall include:
(1)a statement that each Person signing such certificate or opinion has read
such covenant or condition and the definitions herein relating thereto;
(2)a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3)a statement that, in the opinion of each such Person, such Person has made
such examination or investigation as is necessary to enable it to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4)a statement as to whether, in the opinion of each such Person, such
covenant or condition has been complied with.
SECTION 1.04. Form of Documents Delivered to Trustee. In any case where
several matters are required to be certified by, or covered by an opinion of,
any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents. Where any Person is
required to make, give or execute two or more applications, requests,
consents, certificates, statements, opinions or other instruments under this
Indenture, they may, but need not, be consolidated and form one instrument.
SECTION 1.05. Acts of Noteholders. (a) Any request, demand, authorization,
direction, notice, consent, waiver or other action provided by this Indenture
to be given or taken by any Noteholders, or a specified percentage or number
of Noteholders, may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders, in person or by an
agent duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or
instruments are delivered to the Trustee as herein provided and, where it is
hereby expressly required, to the Issuer. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Action" of the Noteholders signing such instrument or
instruments. Proof of execution of any such instrument or of a writing
appointing any such agent shall be
-34-
<PAGE>
sufficient for any purpose of this Indenture and (subject to Section 11.02)
conclusive in favor of the Trustee and the Issuer if made in the manner
provided in this Section.
(b)The fact and date of the execution by any Person of any such instrument or
writing may be proved by the affidavit of a witness of such execution or by an
acknowledgment of a notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing such
instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than such signer's
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of the signer's authority. The fact and date of the
execution of any such instrument or writing, or the authority of the person
executing the same, may also be proved in any other manner which the Trustee
deems sufficient.
(c)The ownership of the Notes shall be proved by the Note Register.
(d)Any request, demand, authorization, direction, notice, consent, waiver or
other Action of any Noteholder or the Noteholders of any Series of Notes shall
bind every future holder of the same Note or Series of Notes and the holder of
any Note issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, suffered or omitted
to be done by the Trustee or the Issuer in reliance thereon, whether or not
notation of such action is made upon such Note.
(e)The Issuer may, but shall not be obligated to, fix a record date for the
purpose of determining the Noteholders entitled to take any action under this
Indenture by vote or consent. Such record date shall be the later of 30 days
prior to the first solicitation of such consent or vote or the date of the
most recent list of Noteholders, furnished by or to the Trustee prior to such
solicitation. If a record date is fixed, those persons who were Noteholders
at such record date (or their duly designated proxies), and only those
persons, shall be entitled to take such action by vote or consent or to revoke
any vote or consent previously given, whether or not such persons continue to
be so after such record date.
SECTION 1.06. Conflict with Trust Indenture Act. If at any time this
Indenture becomes or is required to become qualified under the Trust Indenture
Act and any provision hereof limits, qualifies or conflicts with the duties
imposed by any of Sections 310 through 317, inclusive, of the Trust Indenture
Act through the operation of Section 318(c) thereof, such imposed duties shall
control.
SECTION 1.07. Benefits of Indenture. Nothing in this Indenture or in the
Notes, express or implied, shall give to any Person (other than the parties
hereto or thereto and their successors hereunder, any Paying Agent and the
Noteholders) any benefit or any legal or equitable right, remedy or claim
under this Indenture.
-35-
<PAGE>
SECTION 1.08. Incorporation of Recitals. The Recitals of the Issuer set
forth above in this Indenture are hereby incorporated by this reference hereto
as if, and to the same extent that, such Recitals were contained in the body
of this Indenture.
SECTION 1.09. Other Definitional Provisions. (a) All terms defined in this
Indenture shall have the defined meanings when used in any certificate or
other document made or delivered pursuant hereto unless otherwise defined
therein.
(b) As used herein and in any certificate or other document made or
delivered pursuant hereto or thereto, accounting terms not defined in this
Indenture, and accounting terms partly defined in this Indenture to the extent
not completely defined, shall have the respective meanings given to them under
generally accepted accounting principles or regulatory accounting principles,
as applicable and in effect from time to time. To the extent that the
definitions of accounting terms herein are inconsistent with the meanings of
such terms under generally accepted accounting principles or regulatory
accounting principles, the definitions contained herein shall control.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Indenture shall refer to this Indenture as a whole
and not to any particular provision of this Indenture; and Section, Schedule
and Exhibit references contained in this Indenture are references to Sections,
Schedules and Exhibits in or to this Indenture unless otherwise specified; and
the term "including" shall mean "including without limitation".
ARTICLE II
GRANT OF LIEN OF CERTAIN ASSETS;
ISSUANCE OF NOTES
SECTION 2.01. Acceptance by Trustee. The Trustee hereby acknowledges its
acceptance on behalf of the Noteholders of the security interest in all
Pledged Assets granted pursuant to the Granting Clause of this Indenture and
declares that it shall maintain such security interest upon the trust herein
set forth, for the benefit of the Secured Parties on the terms and subject to
the conditions hereinafter set forth.
SECTION 2.02. Certain Matters Regarding the Grant. (a) In connection with
the grant to the Trustee as described in the Granting Clause above, the Issuer
and the Servicer have on or prior to the Initial Closing Date recorded and
filed or caused to be recorded and filed, at the Issuer's expense, financing
statements (including assignments of pre-existing financing statements and
continuation statements with respect to any such financing statements when
applicable) with respect to the Pledged Assets (whether now existing or
hereafter created) meeting the requirements of applicable state law in such
manner and in such jurisdictions as the Issuer and the Servicer reasonably
determined where necessary or desirable to perfect, and maintain perfection
-36-
<PAGE>
of, the security interests granted hereunder and the ownership interests of
the Issuer in the Acquired Advances and Related Security purchased from the
Originator. The Trustee shall have no obligation whatsoever to file such
financing statements, or continuation statements to such financing statements,
or to make any other filing under the UCC in connection with such transfer or
grant. In connection with the grant to the Trustee as described in the
Granting Clause above, the Issuer and the Servicer further agree to deliver to
the Custodian each Primary Custodial Document in accordance with the terms of
this Indenture and the Custodial Agreement.
(b)In connection with the grant to the Trustee as described in the Granting
Clause above, the Servicer shall, on behalf of the Issuer, on or prior to the
Initial Closing Date, mark (or cause the marking of) the master data
processing records of the Originator evidencing that the Acquired Advances
have been sold or contributed to the Issuer pursuant to the Purchase and
Contribution Agreement.
(c)The Servicer agrees to request from the Issuer, and the Issuer agrees to
record and file from time to time, at its own expense, financing statements
and other documents (and amendments thereto, assignments thereof and
continuation statements, when applicable) with respect to the Acquired
Advances and the other Pledged Assets now existing and hereafter created
meeting the requirements of applicable law in such manner and in such
jurisdictions as are necessary to perfect, and maintain perfection of, the
grant of a security interest hereunder in the Acquired Advances and the other
Pledged Assets to the Trustee. The Issuer shall deliver a file-stamped copy
of each such financing statement or other document or other evidence of such
filing to the Trustee as soon as available after filing. The Trustee shall be
under no obligation whatsoever to file such financing statements, documents,
amendments, assignments or continuation statements, or to make any other
filing under the UCC in connection with such Transfer. In the event that any
of the Acquired Advances and other Pledged Assets become evidenced by an
instrument, the Issuer agrees to (or to cause the Originator or the Servicer
to) deliver to the Custodian the original of such instrument as required by
Section 2.05(j) hereof. Within 30 days after the Issuer makes any change in
its name, identity or corporate structure which would make any financing
statement or continuation statement filed in accordance with the terms of
this Indenture seriously misleading within the meaning of Section 9-402(7)
(or any comparable provision) of the UCC as in effect in the jurisdiction the
law of which governs the perfection of the interest in the Pledged Assets
created hereunder, the Issuer shall give the Trustee notice of such change and
shall file such financing statements or amendments as may be necessary to
continue the perfection of the Trust's interest in the Pledged Assets and the
proceeds thereof contemplated by this Section 2.02.
The Issuer and the Servicer will give the Trustee and the Insurer 30 days
prior written notice of any relocation of any office from which any of them
service the Acquired Advances or keep Records concerning the Acquired Advances
or of their principal executive offices and whether, as a result of such
relocation, the applicable provisions of the UCC would require the filing of
any amendment of any previously filed financing or continuation statement or
of any new financing statement and shall file such financing statements or
amendments as may be
-37-
<PAGE>
necessary to perfect or to continue the perfection of the Trustee's interest
in the Acquired Advances and the other Pledged Assets and the proceeds thereof
contemplated by this Section 2.02. The Issuer and the Servicer will at all
times maintain each office from which they service Loans and their principal
executive offices within the United States of America.
The Issuer further agrees herein, at its own expense, on or prior to the
Initial Closing Date to indicate in its computer records that the Acquired
Advances have been pledged to the Trustee hereunder.
(d) The Trustee hereby agrees not to disclose to any Person any information
delivered to the Trustee from time to time with respect to the Pledged Assets
or any Obligor except (i) to a Successor Servicer or as required by a
Requirement of Law applicable to the Trustee, (ii) as required in the
performance of the Trustee's duties hereunder, (iii) as required in enforcing
the rights of the Secured Parties hereunder or (iv) as provided in any
Supplement. The Trustee agrees to protect and maintain the security and
confidentiality of such information in accordance with reasonable and
customary industry standards and, in connection therewith, will allow the
Issuer to inspect the Trustee's security and confidentiality arrangements from
time to time during normal business hours. The Trustee shall use its best
efforts to provide the Issuer written notice at least five Business Days prior
to any disclosure pursuant to this Section 2.02 and in any event will provide
written notice whenever disclosure is made.
(e) If (i) the Issuer or the Servicer fails to perform any of its agreements
or obligations under any Transaction Document to which it is a party and does
not remedy such failure within the applicable cure period, if any, and (ii)
the Trustee in good faith reasonably believes that the performance of such
agreements and obligations is necessary or appropriate to protect the
interests of the Secured Parties under this Indenture, then the Trustee or its
designees may (but shall not be required to) itself perform, or cause
performance of, such agreement or obligation, and the reasonable expenses of
the Trustee or such designee incurred in connection therewith shall be payable
by the Issuer. If, at any time, the Issuer or the Servicer fails to file or
cause to be filed any financing statement or continuation statement, or
amendment thereto or assignment thereof, that is required to be filed pu0suant
to this Indenture or any of the other Transaction Documents, the Trustee may
(but shall not be obligated to), and the Issuer and the Servicer hereby
authorize the Trustee to, file such financing or continuation statements, and
amendments thereto and assignments thereof, relative to all or any of the
Pledged Assets now existing or hereafter arising in the name of the Issuer,
the Servicer or, to the extent permitted under the Purchase and Contribution
Agreement, the Originator, in any case, at the expense of the Servicer to be
paid out of the Servicing Fee.
SECTION 2.03. Representations and Warranties of the Issuer. The Issuer
hereby represents and warrants as of the date hereof and, by accepting the
proceeds of each issuance of Notes hereunder and each other distribution
hereunder, as of such date, and with respect to any Series, as of the date of
any Supplement and the related Closing Date, unless otherwise stated in such
Supplement, that:
-38-
<PAGE>
(a)Due Incorporation and Good Standing. The Issuer is a corporation duly
organized, validly existing and in good standing under the laws of the state
of Delaware, and has full corporate power, authority and legal right to own
its properties and conduct its business as such properties are presently owned
and such business is presently conducted, and to execute, deliver and perform
its obligations under each of the Transaction Documents to which it is a
party. The Issuer is duly qualified to do business and is in good standing as
a foreign corporation, and has obtained all necessary licenses and approvals
in each jurisdiction in which failure to qualify or to obtain such licenses
and approvals would render any Acquired Advance or related Loan Document
unenforceable by the Issuer or would otherwise have a Material Adverse Effect.
(b)Due Authorization and No Conflict. The execution, delivery and performance
by the Issuer of each of the Transaction Documents to which it is a party, and
the consummation of each of the transactions contemplated hereby and thereby,
including the Transfer of all property hereunder and the acquisition of the
Advances under the Purchase and Contribution Agreement and the grant of the
security interests hereunder, have in all cases been duly authorized by the
Issuer by all necessary corporate action, and do not contravene (i) the
Issuer's charter or by-laws, (ii) any law, rule or regulation applicable to
the Issuer, (iii) any contractual restriction contained in any indenture,
loan or credit agreement, lease, mortgage, deed of trust, security agreement,
bond, note, or other agreement or instrument binding on or affecting the
Issuer or its property or (iv) any order, writ, judgment, award, injunction
or decree binding on or affecting the Issuer or its property (except where
such contravention would not have a Material Adverse Effect), and do not,
except as otherwise expressly contemplated hereunder and except with respect
to Permitted Encumbrances on Related Security acquired by the Issuer, result
in or require the creation of any Lien upon or with respect to any of its
properties; and no transaction contemplated hereby requires compliance with
any bulk sales act or similar law.
(c)Governmental and Other Consents. All approvals, authorizations, consents,
orders or other actions of, and all registration, qualification, designation,
declaration, notice to or filing with, any Person or of any governmental body
or official required in connection with the execution and delivery of any of
the Transaction Documents to which the Issuer is a party, the consummation of
the transactions contemplated hereby or thereby, the performance of and the
compliance with the terms hereof or thereof, have been obtained, except where
the failure so to do would not have a Material Adverse Effect.
(d)Enforceability of Transaction Documents. Each of the Transaction Documents
to which the Issuer is a party have been duly and validly executed and
delivered by the Issuer and constitute the legal, valid and binding obligation
of the Issuer, enforceable in accordance with their respective terms, except
as enforceability may be subject to or limited by Debtor Relief Laws or by
general principles of equity (whether considered in a suit at law or in
equity).
(e)No Litigation. There are no proceedings or investigations pending or, to
the best knowledge of the Issuer, threatened against the Issuer before any
court, regulatory body,
-39-
<PAGE>
administrative agency, or other tribunal or governmental instrumentality (i)
asserting the invalidity of this Indenture or any of the other Transaction
Documents, (ii) seeking to prevent the issuance of the Notes or the
consummation of any of the transactions contemplated by this Indenture or any
of the other Transaction Documents, (iii) seeking any determination or ruling
that would adversely affect the performance by the Issuer of its obligations
under this Indenture or any of the other Transaction Documents, (iv) seeking
any determination or ruling that would adversely affect the validity or
enforceability of this Indenture or any of the other Transaction Documents,
or (v) seeking any determination or ruling that would, if adversely
determined, be reasonably likely to have a Materially Adverse Affect.
(f)Use of Proceeds. All proceeds of the issuance of any Note shall be used by
the Issuer exclusively to fund a Purchase of Advances from the Originator
under the Purchase and Contribution Agreement, or to otherwise fund costs and
expenses permitted to be paid under the terms of the Transaction Documents in
connection with the transactions contemplated to take place hereunder.
(g)Perfection of Security Interests in Pledged Assets.
(i)The Trustee has a legal, valid, and enforceable Lien upon all Pledged
Assets and a first priority perfected security interest in all Pledged Assets
in which a security interest can be created under Article 9 of the UCC, as
security for the repayment of the Aggregate Outstanding Amount with respect to
all Series, all accrued and unpaid interest thereon and all other amounts owed
to the Noteholders hereunder and under the applicable Supplement and all
amounts owing to the Insurer in connection herewith and therewith, which Lien
upon and security interest in the Pledged Assets is free and clear of all
Liens (other than with respect to any Related Security, any Permitted
Encumbrances);
(ii)The Issuer has good and valid title to (and, to the extent that Article 9
of the UCC is applicable to the Issuer's acquisition thereof under the
Purchase and Contribution Agreement, a valid and perfected security interest
in) the Pledged Assets, which interest in and title to the Pledged Assets is
free and clear of all Liens (other than the Primary Lien and any Permitted
Encumbrances); and
(iii)No effective financing statement or other instrument similar in effect
that covers all or part of the Pledged Assets or any interest therein is on
file in any recording office except such as may be filed (A) in favor of the
Issuer as "Purchaser" pursuant to the Purchase and Contribution Agreement, and
(B) in favor of the Trustee, for the benefit of the Noteholders and the
Trustee, in accordance with this Indenture or otherwise filed by or at the
direction of the Trustee.
(h)Accuracy of Information. All certificates, reports, financial statements
and similar writings furnished by or on behalf of the Issuer to Noteholders,
the Trustee, or the Insurer
-40-
<PAGE>
at any time pursuant to any requirement of, or in response to any request of
any such party under this Agreement or any other Transaction Document or any
transaction contemplated hereby or thereby, have been, and all such
certificates, reports, financial statements and similar writings hereafter
furnished by the Issuer to such parties will be, true and accurate in every
respect material to the transactions contemplated hereby on the date as of
which any such certificate, report, financial statement or similar writing was
or will be delivered, and shall not omit to state any material facts or any
facts necessary to make the statements contained therein not materially
misleading.
(i) Governmental Regulations. The Issuer is not an "investment company", an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company", as such terms are defined in the Investment Company Act.
(j) Margin Regulations. The Issuer is not engaged, principally or as one of
its important activities, in the business of extending credit for the purpose
of "purchasing" or "carrying" any "margin stock" (as each of the quoted terms
is defined or used in any of Regulations T, U, or X of the Board of Governors
of the Federal Reserve System, as in effect from time to time). No part of
the proceeds of any of the issuance of any Note has been used for so
purchasing or carrying margin stock or for any purpose which violates, or
which would be inconsistent with, the provisions of any of Regulations T, U,
or X of the Board of Governors of the Federal Reserve System, as in effect
from time to time.
(k) Location of Chief Executive Office and Records. The principal place of
business and chief executive office of the Issuer, and the offices where the
Issuer's Records are maintained are at the addresses of the Issuer referred
to in Section 14.04 and on Schedule 2 hereto, and the Issuer does not operate
its business or maintain the Records at any other location (provided that, at
any time after the Initial Closing Date, upon 30 days' prior written notice to
the Trustee and the Insurer, the Issuer may relocate its principal place of
business and chief executive office, and/or the office where the Issuer
maintains all of its Records, to such other locations within the United
States, notified to the Trustee in jurisdictions with respect to which all
applicable action required by Section 2.02 has been taken and completed).
(l) Lock-Box Accounts. The account numbers of all Lock-Box Accounts,
together with the names, addresses, ABA numbers and names of contact persons
of all the Lock-Box Banks maintaining such Lock-Box Accounts are specified in
Schedule 1. From and after the Initial Closing Date, none of the Originator
or the Issuer shall have any rights, title and/or interest (except for the
Originator's right as Servicer) in or to any of the Lock-Box Accounts and
maintain no lock-box accounts in their own names for the collection of
payments in respect of any Advances. The Issuer has no other lock-box
accounts for the collection of the Advances except for the Lock-Box Accounts.
(m) No Trade Names. Since the date of its formation, the Issuer has not (i)
been known by any legal name other than its corporate name as of the date
hereof, (ii) been the subject
-41-
<PAGE>
of any merger or other corporate reorganization that resulted in a change of
name, identity or corporate structure, or (iii) used any trade names,
fictitious names, assumed names or "doing business as" names other than its
actual corporate name.
(n) Separate Identity. The Issuer is operated as an entity separate from the
Originator and the Originator's other Affiliates and:
(i) has its own board of directors;
(ii) has at least two independent directors, each of which (A) is reasonably
acceptable to the Insurer and not a direct, indirect or beneficial
stockholder, officer, director, employee, affiliate, associate, customer or
supplier of any of the Originator or any of the Originator's other Affiliates
or relative of any thereof, nor a trustee in bankruptcy for any thereof and
(B) is an individual with at least three years' prior experience in
transactions involving the securitization of financial assets, and prior
experience as an independent director for a corporation (other than the
Issuer) whose charter documents require the unanimous consent of all
independent directors before such corporation could file a bankruptcy
proceeding or consent to the institution of bankruptcy proceedings against it;
(iii) maintains its assets in a manner which facilitates their identification
and segregation from those of its Affiliates, has a separate telephone number
from that of the Originator and any of the Originator's other Affiliates and
has separately leased office space for the maintenance of its Records;
(iv) has all office furniture, fixtures and equipment necessary to operate its
business and such furniture, fixtures, and equipment are either owned by the
Issuer or leased pursuant to written leases;
(v) conducts all intercompany transactions with each of the Originator and the
Originator's other Affiliates on terms which the Issuer reasonably believes to
be on an arm's-length basis;
(vi) has not guaranteed any obligation of any of the Originator or any of the
Originator's other Affiliates, nor has it had any of its obligations
guaranteed by any such entities and has not held itself out as responsible for
debts of any such entity or for the decisions or actions with respect to the
business and affairs of any such entity;
(vii) has not permitted the commingling or pooling of its funds or other
assets with the assets of any of the Originator or any of the Originator's
other Affiliates (other than in respect of items of payment which are not
material in the
-42-
<PAGE>
aggregate and which have been mistakenly forwarded by an Obligor directly to
the Originator or any of the Originator's other Affiliates);
(viii) has separate deposit and other bank accounts to which neither the
Originator (except in its capacity as Servicer) nor any of the Originator's
other Affiliates has any access and does not at any time pool any of its funds
with those of the Originator or any of the Originator's other Affiliates;
(ix) maintains financial records which are separate from those of the
Originator or any of the Originator's other Affiliates;
(x) compensates all employees, consultants and agents, or reimburses the
Originator from the Issuer's own funds, for services provided to the Issuer by
such employees, consultants and agents other than the services covered under
the terms of the Administrative Services Agreement;
(xi) has agreed with the Originator pursuant to the terms of the
Administrative Services Agreement to allocate among themselves shared
corporate operating services and expenses which are not reflected in the
Servicing Fee (including, without limitation, the services of shared
employees, consultants and agents, and reasonable legal and auditing expenses)
on the basis of actual use or the value of services rendered, and otherwise on
a basis reasonably related to actual use or the value of services rendered;
(xii) pays for its own account any incidental administrative costs and
expenses not covered under the terms of the Administrative Services Agreement;
(xiii) conducts all of its business (whether in writing or orally) solely in
its own name;
(xiv) is not, except with respect to insurance policies concerning the Pledged
Assets and covering any liability which may be incurred in connection with
ownership of any Pledged Assets, directly or indirectly, named as a direct or
contingent beneficiary or loss payee on any insurance policy covering the
property of the Originator or any of the Originator's other Affiliates and
has entered into no agreement to be named as such a beneficiary or payee;
(xv) acknowledges that the Noteholders, the Insurer and the Trustee are
entering into the transactions contemplated by this Indenture and the other
Transaction Documents in reliance on the Issuer's identity as a separate legal
entity from the Originator and each of the Originator's other Affiliates; and
-43-
<PAGE>
(xvi) practices and adheres to corporate formalities such as complying with
its By-laws and corporate resolutions and the holding of regularly scheduled
board of directors meetings.
(o) Subsidiaries. The Issuer has no Subsidiaries and does not own or hold,
directly or indirectly, any capital stock or equity security of, or any equity
interest in, any Person.
(p) Transaction Documents. The Purchase and Contribution Agreement is the
only agreement pursuant to which the Issuer purchases or otherwise acquires
Advances or otherwise acquires any rights under any Loan Documents. The
Issuer has furnished to the Insurer true, correct and complete copies of each
Transaction Document to which the Issuer is a party, each of which is in full
force and effect. Neither the Issuer nor any Affiliate thereof is in default
of any of its obligations thereunder in any material respect. Upon each
Purchase pursuant to the Purchase and Contribution Agreement the Issuer shall
be the lawful owner of, and have good title to, each Advance so purchased or
otherwise acquired and all of the Pledged Assets relating thereto, free and
clear of any Liens (other than the Primary Lien and any Permitted
Encumbrances). All such Advances and other Pledged Assets are purchased or
otherwise acquired without recourse to the Originator except as described in
the Purchase and Contribution Agreement. The Purchases by the Issuer under
the Purchase and Contribution Agreement constitute valid and true sales and
transfers for consideration (and not merely a pledge of assets for security
purposes), enforceable against creditors of the Originator and no Advances or
Related Security, whether purchased from or contributed by the Originator,
shall constitute property of the Originator.
(q) Business. Since its incorporation, the Issuer has conducted no business
other than the execution, delivery and performance of the Transaction
Documents contemplated hereby and by the Prior Transaction Documents, the
purchase of Advances thereunder and such other activities as are incidental
to the foregoing. The Issuer has no Debt except that expressly incurred
hereunder and under the other Transaction Documents.
(r) Ownership of the Issuer. One hundred percent (100%) of the outstanding
capital stock of the Issuer is directly owned (both beneficially and of
record) by the Originator. Such stock is validly issued, fully paid and
nonassessable and there are no options, warrants or other rights to acquire
capital stock from the Issuer.
(s) Taxes. The Issuer has filed or caused to be filed all Federal, state and
local tax returns which are required to be filed by it, and has paid or caused
to be paid all taxes shown to be due and payable on such returns or on any
assessments received by it, other than any taxes or assessments, the validity
of which are being contested in good faith by appropriate proceedings and with
respect to which the Issuer has set aside adequate reserves on its books in
accordance with GAAP and which proceedings have not given rise to any Lien.
-44-
<PAGE>
(t) Solvency. The Issuer, both prior to and after giving effect to each
conveyance of Pledged Assets, (i) is not "insolvent" (as such term is defined
in Sec. 101(32)(A) of the Bankruptcy Code); (ii) is able to pay its debts as
they become due; and (iii) does not have unreasonably small capital for the
business in which it is engaged or for any business or transaction in which it
is about to engage. All Purchases and contributions under the Purchase and
Contribution Agreement constitute true transfers for reasonably equivalent
value given to the Originator, and shall not be voidable under any preference
or fraudulent conveyance laws.
(u) Reporting and Accounting Treatment. For reporting and accounting
purposes, and in its books of account and records, the Issuer will treat each
Purchase of any Advance pursuant to the Purchase and Contribution Agreement as
a purchase of, or absolute assignment of, the Originator's full right, title
and ownership interest in each such Advance, and the Issuer has not in any
other manner accounted for or treated the transactions. All Acquired Advances
and related Pledged Assets shall be at all times represented in the financial
statements and records of the Issuer as accounts receivable or amounts owed
from Obligors in accordance with GAAP consistently applied by the Originator.
(v) ERISA. There has been no (i) occurrence or expected occurrence of any
Reportable Event with respect to any Plan of the Issuer or any ERISA
Affiliate, or any withdrawal from, or the termination, Reorganization or Plan
Insolvency of any Multiemployer Plan, or (ii) institution of proceedings or
the taking of any other action by PBGC or the Issuer or any ERISA Affiliates
or any such Multiemployer Plan with respect to the withdrawal from, or the
termination, Reorganization or Plan Insolvency of, any such Plan.
(w) No Material Adverse Change. The financial statements delivered to the
Issuer by the Originator under the Purchase and Contribution Agreement fairly
present the assets, liabilities and financial condition of the Originator and
its Subsidiaries as of February 28, 1999 and fairly present the results of
operations of the Originator and its Subsidiaries for the fiscal year then
ended and the other periods therein referred to, in accordance with GAAP
consistently applied for such periods and, since February 28, 1999, there has
been no material adverse change in the financial condition, operations and/or
business of the Originator nor any other event or circumstance which has had a
Material Adverse Effect.
(x) Insurance. The Issuer maintains insurance as is reasonably customary and
advisable for companies in its business and has caused the Originator to name
it and the Trustee as loss payee on all insurance policies maintained by the
Originator which relate to or otherwise provide casualty and liability
coverage with respect to Acquired Assets and any Related Security relating
thereto.
(y) Environmental. To the best of the Issuer's knowledge,
-45-
<PAGE>
(i) There have been no past (other than as disclosed to the Noteholders, the
Insurer and the Trustee prior to the Initial Closing Date), and there are no
pending or threatened:
(A) claims, complaints, notices or requests for information received by the
Issuer or any of its Affiliates with respect to any alleged violation of any
Environmental Law in relation to any Related Security or any real property
owned or leased by the Issuer or any of its Affiliates, or
(B) claims, complaints, notices or requests for information to the Issuer or
any of its Affiliates regarding potential liability under any Environmental
Law in relation to any Related Security or any real property owned or leased
by the Issuer or any of its Affiliates;
(ii) there have been no releases (as defined in CERCLA) of Hazardous
Materials at, on or under any property constituting Related Security or any
real property owned or leased by the Issuer or any of its Affiliates;
(iii) the Issuer and its Affiliates have been issued and are in material
compliance with all permits, certificates, approvals, licenses and other
authorizations relating to environmental matters and necessary or desirable
in relation to any real property owned or leased by the Issuer or any of its
Affiliates;
(iv) there are no underground storage tanks, active or abandoned, on or under
any real property owned or leased by the Issuer or any of its Affiliates that
contain or have contained any Hazardous Material; and
(v) no conditions exist, at, on or under any real property owned or leased by
the Issuer or any of its Affiliates which, with the passage of time, or the
giving of notice or both, would give rise to liability under any Environmental
Law.
(z) Offering of Notes. Neither the Issuer nor any agent acting on its behalf
has, directly or indirectly, offered any Note or any similar security of the
Issuer for sale to, or solicited any offer to buy any Note or any similar
security of the Issuer from, or otherwise approached or negotiated with
respect thereto, with any Person which, and neither the Issuer nor any agent
acting on its behalf has taken or will take any action which, would subject
the issuance or sale of any Note to the provisions of Section 5 of the
Securities Act or to the qualification provisions of any securities or Blue
Sky law of any applicable jurisdiction.
(aa) Event of Default. As of the Closing Date for any Series, no Event of
Default, and no condition that with the giving of notice and/or the passage of
time would constitute an Event of Default, has occurred and is continuing.
-46-
<PAGE>
(bb) Year 2000 Compliance. The Issuer has made a full and complete
assessment of the Year 2000 Issues and has a realistic and achievable program
for remediating the Year 2000 Issues on a timely basis. Based on such
assessment and program, the Issuer does not reasonably anticipate that Year
2000 Issues will have a Material Adverse Effect.
The representations and warranties set forth in this Section 2.03 shall
survive the issuance of the Notes and shall cease and be of no effect upon
repayment in full of the Outstanding Principal Balance of the last outstanding
Series and all other obligations of the Issuer hereunder. Upon discovery by
the Issuer, any Servicer or the Trustee of a material breach of any of the
foregoing representations and warranties, the party discovering such breach
shall give prompt written notice to the other parties hereto and to the
Insurer. The Trustee's obligations in respect of any such breach are limited
as provided in Section 11.02(g).
SECTION 2.04. Representations and Warranties of the Issuer Relating to this
Indenture and the Pledged Assets. The Issuer hereby represents and warrants
as of the date hereof and, by accepting the proceeds of each issuance of Notes
hereunder and each other distribution hereunder, as of such date, and with
respect to each Series, as of the date of any Supplement and the related
Closing Date, unless otherwise specified in such Supplement, that:
(a) Information Regarding Advances. The information delivered by the Issuer
hereunder shall be true and correct in all material respects.
(b) Eligibility. Each Acquired Advance is, as of the date it became a
Pledged Asset, and on each Business Day thereafter unless otherwise reflected
in a Servicer's Daily Report or Monthly Report delivered to the Trustee and
the Insurer, an Eligible Advance.
(c) Origination. Each Eligible Advance was originated by the Originator in
the ordinary course of its business and was purchased or otherwise acquired by
the Issuer from the Originator pursuant to the terms of the Purchase and
Contribution Agreement, in the ordinary course of their respective businesses
in a transaction constituting a "true sale".
(d) Lawful Assignment. No Eligible Advance nor any related Loan Document was
originated in nor is subject to the laws of any jurisdiction the laws of which
would make unlawful the transfer of such Eligible Advance or Loan Documents
under the Purchase and Contribution Agreement or the grant of any interest
therein under this Indenture.
(e) Compliance with Law. The requirements of any federal, state or local law
(including, without limitation, usury, truth in lending and equal credit
opportunity laws) applicable to each Eligible Advance and Loan Document have
been complied with.
(f) Loan Documents in Force. The Loan Documents in respect of each Eligible
Advance are in full force and effect and have not been satisfied in whole or
in part, or rescinded.
-47-
<PAGE>
(g) Form. The Loan Documents in respect of each Eligible Advance were
executed in substantially the form of Loan Documents attached hereto as
Exhibit C (as such Exhibit C may be amended from time to time with the consent
of the Trustee and the Insurer) except for changes required by applicable law
which do not, individually or in the aggregate, affect the enforceability or
collectibility of the Eligible Advances arising under such Loan Documents.
(h) Asset Deficiency. As of each Closing Date, there is no Asset Deficiency
(after giving effect to the issuance of all Notes on such date).
The representations and warranties set forth in this Section 2.04 shall
survive the issuance of the Notes, and shall cease and be of no effect upon
repayment in full of the Outstanding Principal Balance of the last outstanding
Series and all other obligations of the Issuer hereunder. Upon discovery by
the Issuer, any Servicer or the Trustee of a material breach of any of the
foregoing representations and warranties, the party discovering such breach
shall give prompt written notice to the other parties hereto and to the
Insurer. The Trustee's obligations in respect of any such breach are limited
as provided in Section 11.02(g).
SECTION 2.05. Affirmative Covenants of the Issuer. The Issuer hereby
covenants that, until the termination of this Indenture, unless the Control
Party shall otherwise consent in writing:
(a) Compliance with Laws, Etc. The Issuer will comply in all material
respects with all applicable laws, rules, regulations and orders with respect
to it, its business and properties, and all Pledged Assets and all Transaction
Documents to which it is a party.
(b) Preservation of Corporate Existence. The Issuer will preserve and
maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation, and qualify and remain qualified in good
standing as a foreign corporation, and maintain all necessary licenses and
approvals, in each jurisdiction, except where the failure to preserve and
maintain such existence, rights, franchises, privileges, qualifications,
licenses and approvals would not have a Material Adverse Effect.
(c) Audits. The Issuer will, at any time and from time to time during
regular business hours, permit the Insurer, so long as the Insurer is the
Control Party, and otherwise the Trustee (the "Audit Control Party"), or its
agents or representatives, access
(i) to the offices and properties of the Issuer (including, without
limitation, any repository used by the Issuer, or the Servicer on the Issuer's
behalf, to store the computer tapes or other computer records constituting the
Servicer's Daily Report), in order to examine and make copies of and abstracts
from all books, correspondence and Records of the Issuer as appropriate to
verify the Issuer's compliance with this Indenture, the Purchase and
Contribution Agreement, any other Transaction Documents to which it is a
-48-
<PAGE>
party and any other agreement contemplated hereby or thereby, and the Audit
Control Party and/or respective agents and representatives may examine and
audit the same, and make photocopies and computer tape or other computer
replicas thereof (as appropriate), and Issuer agrees to render to the Audit
Control Party and/or its agents and representatives, at Issuer's cost and
expense, such clerical and other assistance as may be reasonably requested
with regard thereto; and
(ii) to the officers or employees of the Issuer in order to discuss matters
relating to the Pledged Assets or the Issuer's performance hereunder with any
of the officers or employees of the Issuer having knowledge of such matters.
The number and frequency of any such audits shall be limited to such number
and frequency as shall be reasonable in the exercise of the Audit Control
Party's reasonable commercial judgment. Each such audit shall be at the sole
expense of the Issuer (subject to the Issuer's right under the Purchase and
Contribution Agreement to recover such expenses from the Originator). The
Audit Control Party and its agents and representatives shall also have the
right to discuss the Issuer's affairs with the officers and employees of the
Issuer and Issuer's independent accountants and to verify under appropriate
procedures the validity, amount, quality, quantity, value and condition of,
or any other matter relating to, the Pledged Assets.
(d) Keeping of Records and Books of Account. The Issuer will maintain and
implement administrative and operating procedures (including, without
limitation, an ability to recreate records evidencing the Acquired Advances,
Loan Documents and other Related Security in the event of the destruction or
loss of the originals thereof) and keep and maintain, all documents, books,
records and other information reasonably necessary or advisable for the
collection of all such Advances, Loan Documents and other Related Security
(including, without limitation, records adequate to permit the daily
identification of all Collections with respect to, and adjustments of amounts
payable under, each Advance).
(e) Performance and Compliance with Advances and Loan Documents. The Issuer,
in its capacity as purchaser of the Advances under the Purchase and
Contribution Agreement, will at its expense, timely and fully perform and
comply, in all material respects, with all provisions, covenants and other
promises required to be observed by it under the Loan Documents.
(f) Credit and Collection Policy. The Issuer will comply in all material
respects with the Credit and Collection Policy in regard to each Loan Document
and Advance and the related Pledged Assets.
(g) Collections. From and after the occurrence of an Event of Default, the
Issuer will instruct all Obligors to send all Collections directly to a
Lock-Box Account. If the Issuer, or any Affiliate thereof receives any
Collections in form suitable for deposit, the Issuer agrees to hold, or to
cause such Affiliate to hold, all such Collections in trust and to deposit, or
-49-
<PAGE>
cause such Affiliate to deposit, such Collections into the Collection Account,
or from and after the occurrence of an Event of Default deposit such
Collections into a Lock-Box Account within two Business Days following receipt
thereof; provided that prior to the Wind Down Date, if the Issuer, the
Servicer or an Affiliate of the Issuer receives any Collections under any
insurance policies relating to any Acquired Advance and/or any Related
Security, and the Originator elects not to remit, or requests the Issuer or
the Servicer not to remit such Collections to the Collection Account solely in
an effort to avoid prejudice to any dispute relating to the insurance claim by
the related Obligor, the Issuer shall not be deemed to be in violation of this
provision as a result of such failure if the Originator deposits the amount of
such Collections to the Collection Account upon the earlier of its receipt of
a waiver from the related insurance company or the date required pursuant to
Section 2.6 of the Purchase and Contribution Agreement. If the amount of any
Collection is in excess of the aggregate amount owed by the related Obligor,
the Issuer shall remit, or shall cause the Servicer to remit such excess
amount to the appropriate party within seven days of receipt of such excess
amount.
(h) Compliance with ERISA. The Issuer will comply in all material respects
with the provisions of ERISA, the Internal Revenue Code, and all other
applicable laws, and the regulations and interpretations thereunder.
(i) No Release. The Issuer shall not take any action and shall use its best
efforts not to permit any action to be taken by others that would release any
Person from any of such Person's covenants or obligations under any Loan
Documents or other document, instrument or agreement included in the Pledged
Assets, or which would result in the amendment, hypothecation, subordination,
termination or discharge of, or impair the validity or effectiveness of, any
such Loan Document or other document, instrument or agreement, except as
expressly provided in this Indenture or such other instrument or document.
(j) Custody of Loan Documents.
(i) Within five (5) Business Days after the effective date of any documents,
instruments and agreements evidencing or otherwise relating to any Acquired
Advance or related Pledged Assets received by the Issuer or the Originator,
the Issuer shall deliver or cause to be delivered directly to the Custodian
for the benefit of the Noteholders and the Insurer pursuant to the Custodial
Agreement:
(a) the original Obligor Note relating to each such Advance duly endorsed by
the Originator (directly on such Obligor Note or by means of an allonge to
such Obligor Note) in blank or in the name of the Issuer, with all prior and
intervening endorsements showing a complete chain of endorsement to the
Originator;
-50-
<PAGE>
(b) the executed agricultural security agreement duly executed by the Obligor,
as debtor, granting a security interest in favor of the Originator, as secured
party, in the property of the Obligor securing the Obligor Note;
(c) a copy of the related Assignment of Indemnity duly executed by the
Obligor, together with a Statement of Insurance, substantially in the form
included in Exhibit C hereto, appropriately completed and duly executed by an
agent of the insurer;
(d) a copy of the related Assignment of Payment (substantially in the form
included in Exhibit C hereto) applicable to each county in which Crops
constituting Related Security are located, duly executed by the Obligor with
respect to each Obligor where such Assignment of Payment has been relied on
as collateral for the Obligor Note of such Obligor in determining whether or
not to extend the Loan to such Obligor evidenced by such Obligor Note;
(e) copies of each financing statement filed with the appropriate state or
county office as necessary to perfect the security interest (to the extent
such security interest can be perfected by filing a financing statement)
granted pursuant to the security agreement described in clause (b) above;
(f) if received, warehouse receipts and other documents (negotiable and
non-negotiable), if any, issued for storage of Crops which secure the Obligor
Note; and
(g) executed originals or copies of the other Loan Documents related to such
Advances included in the Pledged Assets.
The Custodian shall hold, maintain and keep custody of all such Notes, Loan
Documents, Crop Insurance policies, Assignments of Crop Insurance and other
documentation for the benefit of the Insurer in a secure, fire proof location
at its storage facility, as set forth in the Custodial Agreement.
(ii) The Custodian shall at all times maintain control of the Obligor Notes,
Loan Documents, Crop Insurance policies, Assignments of Crop Insurance and
other documents described in clause (i) above (the "Primary Custodial
Documents") for the benefit of the Secured Parties pursuant to the Custodial
Agreement. Each of the Originator and the Issuer may access the Primary
Custodial Documents at the Custodian's location only for the purposes and upon
the terms and conditions set forth herein and in the Custodial Agreement.
(iii) The Issuer shall at all times comply with the terms of, and its
obligations under, the Custodial Agreement, and shall not enter into any
modification, amendment or
-51-
<PAGE>
supplement of or to, and shall not terminate, the Custodial Agreement, without
the Insurer's prior written consent.
(iv) The Issuer shall deliver, or cause the Custodian to deliver, to the
Servicer, the Trustee and the Insurer, a notice from the Custodian in
substantially the form of Exhibit A to the Custodial Agreement confirming that
the Custodian has received the Primary Loan Documents for each Acquired
Advance within five (5) Business Days after such Primary Loan Documents are
required to be delivered to the Custodian pursuant to Section 2.05(j)(i)
hereof.
(k) Separate Identity. The Issuer will take all actions required to maintain
the Issuer's status as a separate legal entity. Without limiting the
foregoing, the Issuer will:
(i) conduct all of its business, and make all communications to third parties
(including all invoices (if any), letters, checks and other instruments)
solely in its own name (and not as a division of any other Person), and
require that its employees, if any, when conducting its business identify
themselves as such and not as employees of any other Affiliate of the Issuer
(including, without limitation, by means of providing appropriate employees
with business or identification cards identifying such employees as the
Issuer's employees);
(ii) compensate all employees, consultants and agents directly or indirectly
through reimbursement of the Originator from the Issuer's bank accounts, for
services provided to the Issuer by such employees, consultants and agents
(except to the extent provided under the Administrative Services Agreement)
and, to the extent any employee, consultant or agent of the Issuer is also an
employee, consultant or agent of any Affiliate of the Issuer, allocate the
compensation of such employee, consultant or agent between the Issuer and such
Affiliate on a basis which reflects the respective services rendered to the
Issuer and such Affiliate;
(iii) (A) pay its own incidental administrative costs and expenses not
covered under the terms of the Administrative Services Agreement, from its own
funds, (B) allocate all other shared overhead expenses (including, without
limitation, telephone and other utility charges, the services of shared
employees, consultants and agents, and reasonable legal and auditing expenses)
which are not reflected in the Servicing Fee, and other items of cost and
expense shared between the Issuer and any Affiliate, pursuant to the terms of
the Administrative Services Agreement, on the basis of actual use to the
extent practicable and, to the extent such allocation is not practicable, on a
basis reasonably related to actual use or the value of services rendered, and
(C) allocate taxes on the basis set forth in the Administrative Services
Agreement;
(iv) at all times have at least two "Independent Directors", both of which
satisfy the requirements set forth in Section 2.03(n)(ii) hereof and under the
Issuer's Certificate of
-52-
<PAGE>
Incorporation, and have at least one officer responsible for managing its day-
to-day business and manage such business by or under the direction of its
board of directors;
(v) maintain its books and records separate from those of any Affiliate;
(vi) prepare its financial statements separately from those of its Affiliates
and use its best efforts to ensure that any consolidated financial statements
of the Originator have notes to the effect that the Issuer is a separate
corporate entity whose creditors have a claim on its assets prior to those
assets becoming available to its equity holders and therefore to any
creditors of the Originator;
(vii) not commingle its funds or other assets with those of any of its
Affiliates (other than in respect of items of payment which are not material
in the aggregate and which have been mistakenly forwarded by an Obligor
directly to the Originator or any of its other Affiliates), and not to hold
its assets in any manner that would create an appearance that such assets
belong to the Originator or any such Affiliate, not maintain bank accounts or
other depository accounts to which the Originator or any such Affiliate is an
account party, into which the Originator or any such Affiliate makes deposits
or from which the Originator or any such Affiliate has the power to make
withdrawals, and not act as an agent or representative of the Originator or
any of its Affiliates in any capacity;
(viii) not permit any of its Affiliates to pay the Issuer's operating
expenses (except pursuant to allocation arrangements that comply with the
requirements of subsection (ii) or (iii) of this Section 2.05(k) or pursuant
to the terms of the Purchase and Contribution Agreement);
(ix) not guarantee any obligation of any of its Affiliates nor have any of
its obligations guaranteed by any such Affiliate, (either directly or by
seeking credit based on the assets of such Affiliate) or otherwise hold itself
out as responsible for the debts of any Affiliate;
(x) maintain at all times stationery and a telephone number separate from
that of any Affiliate and which telephone number will be answered in its own
name, and have all its officers and employees conduct all of its business
solely in its own name;
(xi) hold regular meetings of its board of directors in accordance with the
provisions of its Certificate of Incorporation and otherwise take such actions
as are necessary on its part to ensure that all corporate procedures required
by its Certificate of Incorporation and by-laws are duly and validly taken;
(xii) maintain a separate office from the offices of any of its Affiliates
and identify such office by a sign in its own name;
-53-
<PAGE>
(xiii) not advance funds or other assets to, or commit to advance funds or
other assets to (other than by way of payments in respect of a Purchase under
the Purchase and Contribution Agreement), or accept funds from (other than by
way of contributions to capital) the Originator or any of its other Affiliates
for any purpose or transaction (other than in compliance with the provisions
of Section 2.06(j) with respect to transactions with Affiliates), or permit
the Originator or any of its other Affiliates to be involved in the management
of the Issuer;
(xiv) respond to any inquiries with respect to ownership of an Advance by
stating that it is the owner of such Advance, and that an interest in such
Advance has been granted to the Trustee for the benefit of the Secured
Parties;
(xv) on or before May 31 of each year, deliver to the Insurer an Officer's
Certificate stating that Issuer has, during the preceding year, observed all
of the requisite corporate formalities and conducted its business and
operations in such a manner as required for the Issuer to maintain its
separate corporate existence from any other entity; and
(xvi) take such other actions as are necessary on its part to ensure that the
facts and assumptions set forth in the non-consolidation opinion described in
the List of Closing Documents attached as Exhibit F remain true and correct at
all times.
(l) Computer Files. The Issuer will mark or cause to be marked each Advance
in its computer files to indicate the interest of the Trustee in such Advance
and other Related Security relating thereto.
(m) Taxes. The Issuer will file or cause to be filed, and cause each of its
Affiliates with whom it shares consolidated tax liability to file, all
federal, state and local tax returns which are required to be filed by it,
except where the failure to file such returns could not reasonably be expected
to have a Material Adverse Effect, or which could otherwise be reasonably
expected to expose the Issuer to a material liability. The Issuer will pay or
cause to be paid all taxes shown to be due and payable on such returns or on
any assessments received by it, other than any taxes or assessments, the
validity of which are being contested in good faith by appropriate
proceedings and with respect to which the Issuer or the applicable Affiliate
shall have set aside adequate reserves on its books in accordance with GAAP,
and which proceedings could not reasonably be expected to have a Material
Adverse Effect, or which could otherwise be reasonably expected to expose the
Issuer to a material liability.
(n) Transaction Documents. The Issuer will comply in all material respects
with the terms of, employ the procedures outlined in and enforce the
obligations of the Originator under the Purchase and Contribution Agreement,
and all of the other Transaction Documents to which the Issuer is a party, and
take all such action to such end as may be from time to time reasonably
requested by the Insurer, maintain all Transaction Documents to which the
Issuer is a
-54-
<PAGE>
party in full force and effect and make to the Originator such reasonable
demands and requests for information and reports or for action as the Issuer
is entitled to make thereunder and as may be from time to time reasonably
requested by the Insurer.
(o) Segregation of Collections. The Issuer will prevent the deposit into any
of the Lock-Box Accounts or the Collection Account of any funds other than
Collections in respect of the Advances (provided that this covenant shall not
have been breached to the extent that items other than Collections, which are
not material in the aggregate, have been mistakenly forwarded by an Obligor
directly to any of the Lock-Box Accounts or the Collection Account) and, to
the extent that any such funds are nevertheless deposited into any of such
Lock-Box Accounts or the Collection Account, promptly identify any such funds
to the Servicer for segregation and remittance to the owner thereof. In
furtherance of the foregoing, the Issuer shall (or shall cause the Servicer
to) promptly file all required notices under the Food Securities Act of 1985
(or any successor statute) in respect of its interests in the Related
Security relating to all Acquired Advances.
(p) Insurance. The Issuer will maintain insurance with respect to all of its
property and maintain liability insurance so that the representations and
warranties set forth in Section 2.03(x) shall remain true and correct at all
times.
(q) Legal Opinion. On or before May 31st of each calendar year, the Issuer
shall furnish to the Trustee and the Insurer an Opinion of Counsel stating
that, in the opinion of such counsel, such action has been taken with respect
to the execution, recording, filing, re-recording and refiling of any
financing statements, continuation statements or other requisite documents as
is necessary to maintain a perfected security interest in the Pledged Assets
created under the Purchase and Contribution Agreement or by this Indenture
(to the extent that Article 9 of the UCC is applicable to the sale of such
Pledged Assets under the Purchase and Contribution Agreement or the creation
under this Indenture of a security interest in such Pledged Assets) and
reciting the details of such action or stating that in the opinion of such
counsel no such action is necessary to maintain such Liens. Such Opinion of
Counsel shall also describe the recording, filing, rerecording and refiling of
any financing statements, continuation statements or other requisite documents
that will, in the opinion of such counsel, be required to maintain any such
perfected security interests until May 31st in the following calendar year.
(r) Reporting Requirements. The Issuer will furnish to the Trustee and the
Insurer:
(i) as soon as available and in any event within 120 days after the end of
each fiscal year of the Issuer, a copy of the balance sheets of the Issuer as
of the end of such year and the related statements of income and retained
earnings of the Issuer for such year, each certified by the chief financial
officer or chief accounting officer of the Issuer;
-55-
<PAGE>
(ii) (A) immediately after becoming aware of the occurrence of any Event of
Default or any Unmatured Event of Default the statement of the chief
financial officer or chief accounting officer of the Issuer setting forth
details of such Event of Default or Unmatured Event of Default and the action
which the Issuer has taken and proposes to take with respect thereto, and (B)
as soon as possible and in any event within two Business Days after the
occurrence thereof, notice of any other event, development or information
which is reasonably likely to materially adversely affect the condition
(financial or otherwise), business, operations, property or, prospects of the
Issuer or the ability of the Issuer to perform its obligations under this
Indenture or any Supplement; and
(iii) promptly and in any event within five Business Days after the Issuer's
receipt of written request therefore, any certificates or other documents
reasonably requested by the Trustee or the Insurer.
(s) Tax and Usury Treatment. The Issuer has entered into this Indenture, and
the Notes have been (or will be) issued to and acquired by the Noteholders,
with the intention that, for federal, state, foreign and local income and
franchise tax and usury law purposes, the Notes will be indebtedness of the
Issuer secured by the Acquired Advances and the other Pledged Assets. The
Issuer, by entering into this Indenture, and each Noteholder, by the
acceptance of its Note, agree to treat the Notes for purposes of federal,
state and local income and franchise taxes and for any other tax imposed on
or measured by income and usury law purposes as indebtedness of the Issuer.
In accordance with the foregoing, the Issuer agrees that it will report its
income for such federal, state, foreign and local income or franchise taxes,
or for purposes of any other taxes on or measured by income, on the basis that
it is the owner of the Acquired Advances. Furthermore the Trustee hereby
agrees to treat this Indenture as a security device only, and not to file tax
returns or obtain an employer identification number in respect of this
Indenture (except as may be required as a result of changes in law). If at
any time the Note Rate for any Series exceeds the maximum non-usurious
interest rate permissible for borrowers under applicable law
(the "Maximum Rate"), the Note Rate charged with respect to such Note shall be
limited to the Maximum Rate.
(t) Rating Maintenance. For so long as the Notes of any Series are
Outstanding, the Issuer shall use all reasonable efforts to enable each Rating
Agency to maintain its rating of the Notes of each such Series; provided,
however, that such efforts shall not require the Issuer to adversely affect
its economic position.
(u) Year 2000 Compliance. The Issuer will take all actions reasonably
necessary to assure that the Year 2000 Issues will not have a Material Adverse
Effect. Upon the Trustee or the Insurer's request, the Issuer will provide
the Trustee and the Insurer with a description of its Year 2000 program,
including updates and progress reports. The Issuer will advise the Trustee
and the Insurer of any reasonably anticipated Material Adverse Effect as a
result of Year 2000 Issues.
-56-
<PAGE>
SECTION 2.06. Negative Covenants of the Issuer. The Issuer hereby further
covenants that, until the termination of this Indenture:
(a) Sales, Liens, Etc. Against Advances and Related Security. The Issuer
will not sell, assign (by operation of law or otherwise) or otherwise dispose
of, or create or suffer to exist, any Lien (other than pursuant to a pledge
hereunder) upon or with respect to, any Pledged Asset, whether now existing
or hereafter created, or assign any right to receive income in respect
thereof. The Issuer shall immediately notify the Trustee and the Insurer of
the existence of any Lien on any Pledged Asset, and the Issuer shall defend
the right, title and interest of the Trustee in and to the Pledged Assets
whether now existing or hereafter created, against all claims of third
parties.
(b) Extension or Amendment of Loan Document Terms. The Issuer will not
extend, amend, waive or otherwise modify (or consent or fail to object to any
such extension, amendment or modification by the Originator to the Servicer)
the terms of any Advance or related Loan Documents, or permit the rescission
or cancellation of any Advance or related Loan Documents, whether for any
reason relating to a negative change in the related Obligor's creditworthiness
or inability to make any payment under any such Advance or otherwise, except
for: (i) extensions of any past-due Advances entered into by the Servicer in
order to maximize Collections thereof and (ii) amendments entered into in
accordance with the Credit and Collection Policy, which do not reduce the
amount or interest rate or extend the maturity of required payments; provided
that no such amendments described above shall (x) modify, in any manner
adverse to the Issuer or any Secured Party, the provisions of the Loan
Documents relating to assignability, indemnification, the rights of the
Trustee to demand payment thereunder, or (y) otherwise affect or impair in
any material respect the rights of the Trustee to receive payment under the
applicable Loan Documents.
(c) Change in Business or Credit and Collection Policy. The Issuer will not
make any change in the character of its business or in the Credit and
Collection Policy, or, unless previously approved by the Insurer in writing,
deviate from the requirements thereof, which change or deviation would, in
either case, in the sole discretion of the Insurer, impair the value or
collectibility of any Advance in any amount which is material.
(d) Change in Payment Instructions to Obligors. The Issuer will not add or
terminate any bank as a Lock-Box Bank from those listed in Schedule 1 or make
any change in its instructions to Obligors regarding payments to be made to
any Lock-Box Account at a Lock-Box Bank, unless the Trustee and the Insurer
shall have received (i) 30 days' prior notice of such addition, termination
or change; (ii) written confirmation from the Issuer that after the
effectiveness of any such termination, there shall be at least one (1)
Lock-Box Account in existence; and (iii) prior to the effective date of such
addition, termination or change, (x) executed copies of Lock-Box Agreements
executed by each new Lock-Box Bank, the Issuer, the Trustee and the Insurer
(and, at the option of the Control Party, the Servicer) and (y) copies of all
-57-
<PAGE>
agreements and documents signed by either the Issuer or the respective
Lock-Box Bank with respect to any new Lock-Box Account.
(e) Stock, Merger, Consolidation, Etc. The Issuer will not sell any shares
of any class of its capital stock to any Person (other than the Originator)
or consolidate with or merge into or with any other corporation, or purchase
or otherwise acquire all or substantially all of the assets or capital stock,
or other ownership interest of, any Person or sell, transfer, lease or
otherwise dispose of all or substantially all of its assets to any Person,
except for the granting of the Lien pursuant to the Granting Clause hereunder.
(f) Change in Corporate Name, etc. The Issuer will not make any change to
its corporate name, or use any trade names, fictitious names, assumed names
or "doing business as" names.
(g) ERISA Matters. The Issuer will not (i) engage or permit any ERISA
Affiliate to engage in any prohibited transaction for which an exemption is
not available or has not previously been obtained from the DOL; (ii) permit
to exist any accumulated funding deficiency, as defined in Section 302(a) of
ERISA and Section 412(a) of the Internal Revenue Code, or funding deficiency
with respect to any Benefit Plan other than a Multiemployer Plan; (iii) fail
to make any payments to any Multiemployer Plan that the Issuer or any ERISA
Affiliate may be required to make under the agreement relating to such
Multiemployer Plan or any law pertaining thereto; (iv) terminate any Benefit
Plan so as to result in any liability; or (v) permit to exist any occurrence
of any reportable event described in Title IV of ERISA which represents a
material risk of a liability of the Issuer or any ERISA Affiliate under ERISA
or the Internal Revenue Code.
(h) Debt. Except for as expressly contemplated hereunder, the Issuer or will
not create, incur, assume or suffer to exist any Debt other than (i) Debt
arising under the Purchase and Contribution Agreement and evidenced by the
Seller Note and (ii) Debt to the Insurer under the Master Insurance Agreement.
(i) Guarantees. The Issuer will not guarantee, endorse or otherwise be or
become contingently liable (including by agreement to maintain balance sheet
tests) in connection with the obligations of any other Person, except
endorsements of negotiable instruments for collection in the ordinary course
of business and reimbursement or indemnification obligations in favor of the
Insurer, the Trustee or any Noteholder as provided for under this Indenture.
(j) Limitation on Transactions with Affiliates. The Issuer will not enter
into, or be a party to any transaction with any Affiliate, except for:
(i) the transactions contemplated hereby and by the Purchase and
Contribution Agreement;
-58-
<PAGE>
(ii) transactions related to the allocation of shared overhead expenses or
taxes as described in clause (xi) of Section 2.03(n) or transactions otherwise
evidenced by the Administrative Services Agreement; and
(iii) to the extent not otherwise prohibited under this Indenture, other
transactions in the nature of employment contracts and directors' fees, upon
fair and reasonable terms materially no less favorable to the Issuer than
would be obtained in a comparable arm's-length transaction with a Person not
an Affiliate.
(k) Purchase and Contribution Agreement. The Issuer will not (i) cancel or
terminate the Purchase and Contribution Agreement or consent to or accept any
cancellation or termination thereof, (ii) amend or otherwise modify any terms
or condition of the Purchase and Contribution Agreement or give any consent,
waiver or approval thereof or (iii) exercise any discretionary rights granted
to the Issuer under the Purchase and Contribution Agreement pursuant to
provisions thereof providing for certain actions to be taken "with the consent
of the Purchaser", "acceptable to the Purchaser" as "specified by the
Purchaser", "in the reasonable judgment of the Purchaser" or similar
provisions (it being understood that inaction by the Issuer shall not be
considered to be an exercise of such discretionary rights), to the extent
that, in each of clauses (ii) or (iii) above, such amendment, modification,
consent, waiver, approval or other action would impair the value of any
Pledged Asset or the rights or interests of the Issuer thereunder or of the
Trustee, the Insurer or the Noteholders hereunder.
(l) Charter and By-Laws. The Issuer will not amend or otherwise modify its
Certificate of Incorporation or By-laws in any manner which requires the
consent of an "Independent Director" (as defined in the Issuer's Certificate
of Incorporation).
(m) Lines of Business. The Issuer will not conduct any business other than
that described in Section 2.03(q), or enter into any transaction with any
Person which is not contemplated by or incidental to the performance of its
obligations under the Transaction Documents to which it is a party.
(n) Accounting Treatment. The Issuer will not prepare any financial
statements or other statements, (subject to the rules under GAAP for
consolidated financial reporting and any tax filings made on a consolidated
basis with those of the Originator) which shall account for the Acquired
Advances and the Related Security as property of the Originator or otherwise
account for the purchase transactions contemplated by the Purchase and
Contribution Agreement in any manner other than as the sale to the Issuer of,
or a capital contribution of, the Acquired Advances and the Related Security
purported to be transferred by the Originator thereunder.
(o) Limitation on Loan and Investments. The Issuer will not make or suffer
to exist any loans or advances to, or extend any credit to, or make any
investments (by way of transfer of property, contributions to capital,
purchase of stock or securities or evidences of indebtedness, acquisition of
the business or assets, or otherwise) in, any Affiliate or any other
-59-
<PAGE>
ARTICLE III
ADMINISTRATION AND SERVICING OF LOANS
SECTION 3.01. Acceptance of Appointment and Other Matters Relating to the
Servicer. (a) Ag Services of America, Inc. agrees to act as a Servicer for
the benefit of the Noteholders under this Indenture until appointment of a
Successor Servicer under Article X, and each Noteholder by its acceptance
of its Note consents to Ag Services of America, Inc. so acting as Servicer.
The Servicer hereby disclaims all right, title and interest in and to the
Acquired Advances and the proceeds thereof, except for the payment of its
fees and expenses hereunder.
(b) The Servicer shall, subject to Article X, enforce the Issuer's
respective rights and interests in, to and under the Acquired Advances and
the Pledged Assets on behalf of the Issuer, the Trustee, the Insurer and the
Noteholders. The Servicer, on behalf of the Trustee and the Issuer, shall
service, administer and collect the Acquired Advances and, in connection
therewith, the Servicer shall take or cause to be taken all such actions as
may be necessary or advisable to attempt to collect each Acquired Advance
from time to time, all in accordance with applicable laws, rules and
regulations, with reasonable care and diligence, and in accordance with the
Credit and Collection Policy.
- 60 -
<PAGE>
(c) The Servicer may sue to enforce or collect upon Acquired Advances, in
its own name, if possible, or as agent of the Trustee; provided that the
Servicer may not name the Trustee or the Insurer as a party to any such
litigation without each such party's prior written consent. The Servicer,
upon obtaining the prior written consent of the Trustee and the Insurer, may
grant to the Obligor on any Loan Document any rebate, refund or adjustment
out of the Collection Account that the Servicer in good faith believes is
required as a matter of law; provided that, on any Business Day on which
such rebate, refund or adjustment is to be paid hereunder, such rebate,
refund or adjustment shall only be paid to the extent of funds otherwise
available for distribution from the Collection Account pursuant to clause
sixth of Section 4.03(c).
(d) The Servicer shall have full power and authority, acting alone or
through any party properly designated by it hereunder, to do any and all
things in connection with such servicing and administration which it may
deem necessary or desirable. Without limiting the generality of the
foregoing and subject to Section 10.01, (i) the Servicer or its designee
is hereby authorized and empowered to instruct the Trustee to make
withdrawals and payments from the Trust Accounts, subject to the
limitations set forth in Section 4.03 and Section 4.04 and as otherwise
set forth in this Indenture and to instruct the Trustee to take any action
required or permitted under the Trust Insurance Policy and (ii) the
Servicer or its designee is hereby authorized and empowered (x) to make
any filings, reports, notices, applications and registrations with, and to
seek any consents or authorizations from, the Commission and any state
securities authority as may be necessary or advisable to comply with any
Federal or state securities laws or reporting requirements, and (y) to
subcontract with or delegate to any other Person (at such Servicer's
expense) for servicing, administering or collecting the Acquired Advances,
provided that the Servicer shall give the Trustee and the Insurer notice of
any such subcontracting and such other Person shall not become a Servicer
hereunder and the subcontracting or delegating Servicer shall remain liable
for the performance of its duties and obligations as a Servicer pursuant to
the terms hereof. Each subservicing agreement will be upon such terms and
conditions as are not inconsistent with this Indenture and the standard of
care set forth herein. All compensation payable to a subservicer under any
subservicing agreement shall be payable by the Servicer from the Servicing
Fee received by it or otherwise from its own funds, and neither the Trustee,
the Insurer, nor the Noteholders shall have any obligations, duties or
liabilities of any kind whatsoever under any such subservicing agreements.
Upon the written request of the Servicer and receipt of an Officer's
Certificate setting forth the facts underlying such request, the Trustee
shall execute any documents furnished by the Servicer which are necessary
or appropriate to enable the Servicer to carry out its servicing and
administrative duties hereunder and acceptable in form and substance to the
Trustee and shall furnish the Servicer with any documents then in the
Trustee's possession which are necessary or appropriate to enable the
Servicer to carry out its servicing and administrative duties hereunder.
(e) The relationship of the Servicer (including any Successor Servicer) to
the Trustee under this Indenture is intended by the parties to be that of
an independent contractor to or with the Trustee and shall not be construed
to be that of a joint venturer, partner, or agent, such that the acts of the
Servicer are in any way vicariously attributable to the Trustee in its
- 61 -
<PAGE>
individual capacity prior to such time as the Trustee may serve as Servicer
pursuant to the provisions of Article X.
(f) The Servicer will not permit any modification, amendment, waiver,
rescission or cancellation of any Acquired Advance or related Loan Documents
by the Obligor, whether for any reason relating to a negative change in the
related Obligor's creditworthiness or inability to make any payment under a
Acquired Advance or related Loan Documents or otherwise, without the prior
written consent of the Insurer; provided, however, that the following
modifications may be made to an Acquired Advance from time to time without
the necessity of obtaining such consent: extensions of any past due
Acquired Advances which are intended to maximize Collections thereof and
(ii) amendments, entered into in accordance with the Credit and Collection
Policy, which do not reduce the amount of required payments.
SECTION 3.02. Servicing Compensation; Servicer's Expenses. (a) As full
compensation for its servicing activities hereunder, the Servicer shall be
entitled to receive a Servicing Fee for each Collection Period (or portion
thereof) from the Initial Closing Date until the termination of the Wind
Down Period, payable in arrears on the Settlement Date with respect to
such Collection Period (or portion). The Servicing Fee shall be payable
only from Collections.
(b) Expenses. The Servicer's expenses include: first, the Trustee's Fee
(to the extent not paid from the Carrying Cost Account, Collections or
other funds on deposit in the Trust Accounts or the Issuer's Account) and
second, all documented expenses and liabilities (other than any liability
of the Trustee with respect to any amount payable solely out of Collections)
not expressly stated herein to be for the account of the Noteholders,
including without limitation expenses related to enforcement of the Acquired
Advances and the other amounts due to the Trustee pursuant to Section 11.10,
the reasonable fees and disbursements of independent accountants, counsel
and other fees and documented expenses including but not limited to the
costs of filing UCC continuation statements; provided that, in no event
shall any Servicer be liable for any federal, state or local income,
franchise or other tax, or any interest or penalties with respect thereto,
assessed on this Indenture, the Trustee or the Noteholders except as
expressly provided herein. Such expenses shall be payable, first, from the
Servicing Fee, and, second, to the extent not paid from the Servicing Fee,
by the Issuer for its own account (subject to the limitations set forth
below). In addition, to the extent not paid from the Servicing Fee, the
Issuer shall pay for its own account, and, if the Issuer fails to do so, the
Servicer will pay, all fees and expenses incurred by or on behalf of the
Servicer in connection with the servicing activities hereunder (including
without limitation expenses related to enforcement of the Acquired Advances,
the costs of a Service Transfer and expenses otherwise relating to a
Servicer Default), and the Servicer will not be entitled to any fee or other
payment from, or claim on, any of the Pledged Assets (other than the
Servicing Fee and reimbursement from the Issuer). The Issuer's and
Servicer's covenant to pay the expenses and disbursements provided for in
this Section 3.02(b) shall survive the termination of this Indenture. Any
payments from the Issuer under this Section 3.02(b) shall be made solely
from funds available to make such payments after all other allocations
and/or payments to be made for the benefit of the Secured Parties pursuant
- 62 -
<PAGE>
to Section 4.03(b), 4.03(c) or 4.03(d), as applicable, shall have been made,
and there shall be no other recourse to, and no Person shall have any Claim
against, the Issuer for the payment of all or any part of any such
obligations under this Section 3.02(b).
SECTION 3.03. Representations and Warranties of the Servicer. Ag Services
of America, Inc., as the initial Servicer, hereby makes, and each Successor
Servicer by acceptance of its appointment hereunder shall make, the
following representations and warranties, in the case of the initial
Servicer, as of the date hereof and, as of the date of the initial issuance
of Notes hereunder and with respect to any Series as of the date of any
Supplement and the related Closing Date or, in the case of any Successor
Servicer, the date of such appointment and, with respect to any Series
issued after such date, as of the date of the related Supplement and the
related Closing Date, in each case unless otherwise stated in such
Supplement:
(a) Due Incorporation and Good Standing. The Servicer is a corporation
(or, in the case of any Successor Servicer, a corporation or an Eligible
Institution) duly organized, validly existing and in good standing under
the applicable laws of its jurisdiction of organization or incorporation
and has, in all material respects, full corporate power and authority and
legal right to own its properties and conduct its business (including the
servicing of Loan Documents) as such properties are presently owned and
such business is presently conducted, and to execute, deliver and perform
its obligations under each of the Transaction Documents to which it is a
party. The Servicer is duly qualified to do business and is in good
standing as a foreign corporation, and has obtained all necessary licenses
and approvals in each jurisdiction in which the servicing of the Acquired
Advances and Loan Documents in accordance with the terms of this Indenture
requires such qualification, except where failure to qualify or to obtain
such licenses and approvals would not have a Material Adverse Effect.
(b) Due Authorization and No Conflict. The execution, delivery and
performance by the Servicer of each of the Transaction Documents to which
it is a party, and the consummation of each of the transactions
contemplated hereby and thereby, have in all cases been duly authorized by
the Servicer by all necessary corporate action, and do not contravene (i)
the Servicer's charter or by-laws, (ii) any law, rule or regulation
applicable to the Servicer, (iii) any contractual restriction contained in
any indenture, loan or credit agreement, lease, mortgage, security
agreement, bond, note, or other agreement or instrument binding on or
affecting the Servicer or its property or (iv) any order, writ, judgment,
award, injunction or decree binding on or affecting the Servicer or its
property. Each of the Transaction Documents to which the Servicer is a
party have been duly executed and delivered on behalf of the Servicer.
(c) Governmental and Other Consents. All approvals, authorizations,
consents, orders or other actions of, and all registration, qualification,
designation, declaration, notice to or filing with, any Person or of any
governmental body or official required in connection with the execution
and delivery by the Servicer of any of the Transaction Documents to which
it is a party, the consummation of the transactions contemplated hereby or
- 63 -
<PAGE>
thereby, the performance of and the compliance with the terms hereof or
thereof, have been obtained, except where the failure to do so would not
have a Material Adverse Effect.
(d) Enforceability of Transaction Documents. Each of the Transaction
Documents to which the Servicer is a party have been duly and validly
executed and delivered by the Servicer and constitute the legal, valid and
binding obligation of the Servicer enforceable in accordance with their
respective terms, except as enforceability may be subject to or limited by
Debtor Relief Laws or by general principles of equity (whether considered
in a suit at law or in equity).
(e) No Litigation. There are no proceedings or investigations pending or,
to the best knowledge of the Servicer, threatened against the Servicer
before any court, regulatory body, administrative agency, or other tribunal
or governmental instrumentality (i) asserting the invalidity of this
Indenture or any of the other Transaction Documents, (ii) seeking to prevent
the consummation of any of the transactions contemplated by this Indenture or
any of the other Transaction Documents, (iii) seeking any determination or
ruling that would adversely affect the performance by the Servicer of its
obligations under this Indenture or any of the other Transaction Documents,
(iv) seeking any determination or ruling that would adversely affect the
validity or enforceability of this Indenture or any of the other Transaction
Documents, or (v) seeking any determination or ruling that would, if
adversely determined, be reasonably likely to have a Material Adverse Effect.
(f) Information. Each certificate, information, exhibit, financial
statement, document, book or record or report furnished by the Servicer to
the Trustee, the Issuer, the Insurer or any Noteholder shall be true and
correct in all material respects as of its date, and no such document
contains any material misstatement of fact or omits to state a material
fact or any fact necessary to make the statements to make the statements
contained therein not materially misleading as of its date.
(g) Year 2000 Compliance. The Servicer has made a full and complete
assessment of the Year 2000 Issues and has a realistic and achievable
program for remediating the Year 2000 Issues on a timely basis. Based on
such assessment and program, the Servicer does not reasonably anticipate
that Year 2000 Issues will have a Material Adverse Effect.
(h) Servicer Default. No Servicer Default has occurred and is continuing.
The representations and warranties set forth in this Section 3.03 shall
survive the issuance of the Notes, and shall cease and be of no effect upon
repayment in full of the Outstanding Principal Balance of the last
outstanding Series and all other obligations of the Issuer hereunder.
Upon a discovery by the Issuer, the Servicer or the Trustee of a material
breach of any of the foregoing representations and warranties, the party
discovering such breach shall give prompt written notice to the other
parties. The Trustee's obligations in respect of any such breach are
limited as provided in Section 11.02(g).
- 64 -
<PAGE>
SECTION 3.04. Covenants of the Servicer. The Servicer hereby covenants
that, until the termination of the Wind Down Period, unless the Control
Party shall otherwise consent in writing:
(a) Change in Trust Accounts and Lock-Box Accounts. The Servicer will
not (i) terminate or substitute any Trust Account except as required
pursuant to Section 4.02 or to the applicable Supplement or (ii) add or
terminate any bank as a Lock-Box Bank from those listed in Schedule 1 or
make any change in its instructions to Obligors regarding payments to be
made to any Lock-Box Account at a Lock-Box Bank, unless the Trustee and the
Insurer shall have received (A) 30 days' prior notice of such addition,
termination or change; (B) written confirmation from the Issuer and the
Servicer that after the effectiveness of any such termination, there shall
be at least one (1) Lock-Box Account in existence; and (B) prior to the
effective date of such addition, termination or change, (x) executed copies
of Lock-Box Agreements executed by each new Lock-Box Bank, the Issuer, the
Trustee and the Insurer (and, at the option of the Control Party, the
Servicer) and (y) copies of all agreements and documents signed by either
the Issuer or the respective Lock-Box Bank with respect to any new Lock-Box
Account.
(b) Collections. Subject to Section 4.03(c) and the proviso set forth in
Section 2.05(g) hereof, if the Servicer or any Affiliate thereof shall
receive any Collections, the Servicer agrees to hold, or cause such
Affiliate to hold, all such Collections in trust and to deposit, or cause
such Affiliate to deposit, such Collections into a Lock-Box Account or the
Collection Account within two Business Days following receipt thereof.
(c) Compliance with Loan Documents and Requirements of Law. The Servicer
will duly satisfy in all material respects all obligations on its part to
be fulfilled under or in connection with each Acquired Advance and the
related Loan Documents, will maintain in effect all qualifications
required under all relevant laws, rules, regulations and orders in order
to service each Acquired Advance and Loan Document and will comply in all
material respects with all applicable laws, rules, regulations and orders
with respect to it, its business and properties, and the servicing of the
Acquired Advances and Loan Documents.
(d) Extension or Amendment of Loans. Except as permitted by Section
3.01(f), the Servicer will not extend, amend or otherwise modify (or
consent or fail to object to any such extension, amendment or modification
by the Issuer) the terms of any then existing Acquired Advance, or amend,
modify or waive (or consent or fail to object to any such amendment,
modification or waiver by the Issuer) any payment term or condition of
any Loan Document related thereto. The Servicer will not rescind or
cancel, or permit the rescission or cancellation of, any Acquired Advance
except as ordered by a court of competent jurisdiction or other
Governmental Authority.
(e) Protection of Noteholders' Rights. Except as authorized by this
Indenture and the applicable Supplement, the Servicer will take no action
- 65 -
<PAGE>
which would materially impair the rights of Noteholders in any Acquired
Advance or other Pledged Asset (determined without reference to the
availability of any amounts under any Insurance Policy).
(f) Deposits to Collection Account. The Servicer will not deposit or
otherwise credit, or cause to be so deposited or credited, or consent or
fail to object to any such deposit or credit, to any Lock-Box Account or
the Collection Account cash or cash proceeds other than Collections,
proceeds of Eligible Investments, amounts paid under any Trust Insurance
Policy or other funds constituting Pledged Assets.
(g) Reporting Requirements. The Servicer will furnish to the Trustee and
the Insurer:
(i) Daily Reports. By not later than 2:30 p.m. (New York time), on each
Business Day, a report substantially in the form of Exhibit G, by facsimile,
containing such information with respect to daily Collections and other
performance criteria concerning the Pledged Assets, and in such format, as
the Trustee, the Paying Agent and the Insurer may reasonably request from
time to time (each such report being referred to herein as a "Servicer's
Daily Report"). Such Daily Report shall set forth, among other things, (i)
the Collections in respect of the Acquired Advances processed by the Servicer
on the immediately preceding Business Day, (ii) the amount of Eligible
Advances as of the close of business on the immediately preceding Business
Day, (iii) the Net Aggregate Eligible Advances and Net Eligible Advance
Balance at the close of business on the immediately preceding Business Day
and (iv) if the Issuer or the Servicer has requested the Outstanding
Principal Balance of any Variable Funding Note to be increased on the day of
delivery of such report the Net Outstanding Amount after giving effect to
any such increases. Any transmission or other delivery of each Servicer's
Daily Report to the Trustee or the Insurer, or a repository therefor, as the
case may be, shall be deemed to be a representation and warranty by the
Servicer to the Trustee, the Insurer and the Noteholders that the information
contained therein is true and correct in all material respects.
(ii) Monthly Reports. On or before the 20th calendar day of each month,
and if such day is not a Business Day, the immediately preceding Business
Day, a report substantially in the form of Exhibit E (each such report
being referred to herein as a "Monthly Report"), appropriately filled-out,
containing current information with respect to the then most recently
concluded Collection Period. Such Monthly Report shall set forth, among
other things, any payments to be made to Noteholders on the related
Distribution Date, such other matters as may be required by any Supplement
and (at all times prior to the Wind Down Date) calculations of the Required
Reserves. Any transmission of such report to the Trustee or the Insurer
shall be deemed to be a representation and warranty by the Servicer to the
Trustee, the Insurer and the Noteholders that the information contained
therein is true and correct in all material respects.
- 66 -
<PAGE>
(iii) Certificate of Servicing Officer. Simultaneously with the delivery
of the Monthly Report, as contemplated in the form thereof, a certificate
of a Servicing Officer, certifying the accuracy of such report and that no
Event of Default or Unmatured Event of Default has occurred, or if such
event has occurred and is continuing, specifying the event and its status.
(iv) Other Data. At the request of the Trustee or the Insurer, such
underlying data in respect of the Acquired Advances, in addition to the
data described in Sections 3.04(g)(i), (ii) and (iii) above, as can be
generated by the Servicer's existing data processing system without undue
modification or expense.
(v) Annual Servicer's Certificate. On or before May 31 of each calendar
year, an Officer's Certificate stating that (i) a review of the activities
of the Servicer during the preceding fiscal year (or, in the case of the
first such Officer's Certificate, the period since the Initial Closing
Date) and of its performance under this Indenture was made under the
supervision of the officer signing such certificate and (ii) to the best of
such Servicing Officer's knowledge, based on such review, the Servicer has
fully performed all of its obligations under this Indenture throughout such
year, or, if there has been a default in the performance of any such
obligation, specifying each such default known to such officer and the
nature and status thereof.
(vi) Annual Report of Accountants. On or before May 31 of each calendar
year, a report prepared and delivered by a firm of nationally recognized
independent public accountants (who may also render other services to the
Servicer, the Issuer or the Originator), or any other accounting or auditing
firm acceptable to the Insurer, which report shall contain (A) a report
relative to the servicing of the Acquired Advances, on internal control
policies and procedures placed in operation by the Servicer and tests of
operating effectiveness in accordance with Statement of Auditing Standards
No. 70, Processing of Transactions by Servicer Organizations and (B) a report
on agreed-upon procedures in accordance with Statement on Standards for
Attestation Engagements No. 4, Agreed-Upon Procedures Engagements, comparing
amounts set forth in the Servicer's Daily Reports and Monthly Reports to
supporting underlying documentation with the specific procedures and the
adequacy thereof being agreed to by the Servicer and the Insurer.
(vii) Servicer Default. As soon as possible and in any event (A) within
three Business Days after a Servicing Officer becomes aware of the
occurrence of a Servicer Default, Unmatured Servicer Default, other Event
of Default or Unmatured Event of Default, the statement of the chief
financial officer or chief accounting officer or other Servicing Officer
setting forth details of such event and the action which the Servicer has
taken and proposes to take with respect thereto, and (B) within three
Business Days after a Servicing Officer becomes aware of the occurrence
- 67 -
<PAGE>
thereof, notice of any other event, development or information which is
reasonably likely to materially and adversely affect the ability of the
Servicer to perform its obligations under this Indenture.
(viii) Officer's Certificate of Acknowledgment of Assignments of Indemnity.
As soon as possible and in any event not later than October 15th of each
year as of the immediately preceding October 1st, an Officer's Certificate
by an officer of the Issuer certifying the percentage of Eligible Advances
for the related crop year for which either (x) written acceptance of the
related Assignment of Indemnity or (y) other written evidence that the
Issuer has been named loss payee under the related Crop Insurance have been
received from the related insurer.
(h) Filing of Continuation Statements. The Servicer shall prepare and
file such continuation statements and any other documents reasonably
requested by the Trustee or the Insurer or which may otherwise be required
by law to fully preserve and protect the interest of the Trustee or any of
the Noteholders hereunder in and to the Acquired Advances. The Trustee
shall be under no obligation whatsoever to file (or to request the filing
of) such continuation statements or other documents.
(i) Credit and Collection Policy. The Servicer shall comply in all
material respects with the Credit and Collection Policy in regard to
each Acquired Advance and each Loan Document.
(j) Notice to Obligors. From and after the occurrence of an Event of
Default, the Servicer shall ensure that the Obligor of each Acquired
Advance shall have been instructed to remit payments thereunder directly
to a Lock-Box Account.
(k) Relocation of Servicer. The Servicer shall give the Trustee and the
Insurer at least 30 days prior written notice of any relocation of any
office from which it services Acquired Advances or keeps records concerning
the Acquired Advances or related Loan Documents or of its principal place
of business and chief executive office and whether, as a result of such
relocation, the applicable provisions of the UCC would require the filing
of any amendment of any previously filed financing or continuation
statement or of any new financing statement and shall file such financing
statement or amendments as may be necessary to continue the perfection of
the Trust's security interests in the Advances and the other Pledged Assets
and the proceeds thereof. The Servicer shall at all times maintain each
office from which it services Acquired Advances or related Loan Documents
and its principal place of business and chief executive office within the
United States of America.
(l) Segregation of Collections. The Servicer shall prevent the deposit
into any of the Lock-Box Accounts or Collection Account of any funds other
than Collections in respect of the Acquired Advances and, to the extent
that any such funds are nevertheless deposited into any of such Lock-Box
Accounts or the Collection Account, promptly segregate such funds and
provide for the remittance of such funds to the owner thereof.
- 68 -
<PAGE>
(m) Year 2000 Compliance. The Servicer will take all actions reasonably
necessary to assure that the Year 2000 Issues will not have a Material
Adverse Effect. Upon the Trustee or the Insurer's request, the Servicer
will provide the Trustee and the Insurer with a description of its Year
2000 program, including updates and progress reports. The Servicer will
advise the Trustee and the Insurer of any reasonably anticipated Material
Adverse Effect as a result of Year 2000 Issues.
SECTION 3.05. Annual Noteholders' Statement. On or before February 15
of each calendar year, beginning with February 15, 2000, the Servicer
(so long as it is an Affiliate of the Originator and, following any
Service Transfer, the Issuer) shall provide to the Paying Agent and the
Paying Agent shall forward or cause to be forwarded to any Person who at
any time during the preceding calendar year was a Noteholder, a statement
prepared by the Servicer containing any information which is required to
be provided under the Internal Revenue Code by an issuer of indebtedness
to the holders thereof and such other customary information in the
possession of the Issuer or the Servicer as is necessary to enable the
Noteholders to prepare their federal income tax returns. Such obligation
of the Servicer shall be deemed to have been satisfied to the extent that
substantially comparable information shall be provided by the Paying Agent
pursuant to any requirements of the Internal Revenue Code as from time to
time in effect.
ARTICLE IV
RIGHTS OF NOTEHOLDERS AND ALLOCATION AND APPLICATION OF COLLECTIONS
SECTION 4.01. Rights of Noteholders. (a) Each Note shall represent
fractional undivided interests in the Pledged Assets, which, with respect
to each Series, shall consist of the right to receive, to the extent
necessary to make the required payments with respect to the Notes of such
Series at the times and in the amounts specified in the related Supplement,
the portion of Collections allocable to Noteholders of such Series pursuant
to this Indenture and the related Supplement from funds on deposit in the
Collection Account and the Reserve Account allocable to Noteholders of such
Series.
SECTION 4.02. Establishment of Collection Account, Other Trust Accounts and
Lock-Box Accounts. (a) On or prior to the Initial Closing Date, the
Servicer, for the benefit of the Secured Parties, shall establish and
maintain or cause to be established and maintained in the name of the
Trustee, on behalf of the Secured Parties, with an Eligible Institution a
segregated Trust Account accessible by the Trustee and, subject to the
limitations set forth in this Section 4.02, the Servicer (such account being
the "Collection Account" and such institution holding such account being the
"Collection Account Bank"), such account bearing a designation clearly
indicating that the funds deposited therein are held for the benefit of the
Secured Parties. Except as otherwise contemplated in Section 2.05(g), all
- 69 -
<PAGE>
Collections of Acquired Advances shall be remitted to the Collection Account
on a daily basis. On or prior to the Initial Closing Date, the Trustee, the
Servicer, the Insurer and the Collection Account Bank shall have executed
and delivered to the Trustee a letter agreement in substantially in the form
of Exhibit D-2 hereof with respect to the Collection Account (the
"Collection Account Agreement"). In addition, on or prior to the Initial
Closing Date, the Servicer shall establish or cause to be established at the
Collection Account Bank (i) an administrative sub-account of the Collection
Account or a separate Trust Account (such account, the "Reserve Account")
into which funds on deposit in the Collection Account may be withdrawn from
time to time as described in this Article IV; (ii) an administrative
sub-account of the Collection Account or a separate Trust Account (such
account, the "Carrying Cost Account") into which funds shall be set aside
for the payment of Carrying Costs as described in Section 4.03 and (iii) to
the extent required by any Supplement for any Series, an administrative
sub-account of the Collection Account or a separate Trust Account (each, a
"Defeasance Account") into which funds from other Trust Accounts may be
deposited as described in the related Supplement. The Trustee shall possess
all right, title and interest in and to all funds from time to time on
deposit in the Collection Account, the Reserve Account, the Carrying Cost
Account and all other Trust Account and in all proceeds thereof. Each Trust
Account shall be under the sole dominion and control of the Trustee for the
benefit of the Secured Parties; provided, however, that, pursuant to the
authority granted to the Servicer in Section 3.01, but subject to the terms
of any applicable Supplement, the Servicer shall have the power, revocable
by the Trustee as set forth below, to make withdrawals and payments from the
Trust Accounts and to instruct the Trustee to make withdrawals and payments
from the Trust Accounts for the purposes of carrying out the Servicer's or
the Trustee's duties hereunder or under any Supplement. If so requested by
the Control Party upon the occurrence of an Event of Default, the Trustee
shall cease to permit the Servicer to make withdrawals and payments from the
Trust Accounts but shall itself make such withdrawals and payments pursuant
to, unless the Control Party shall otherwise direct, instructions from the
Servicer. If so requested by the Control Party upon the occurrence of an
Event of Default, the Trustee shall immediately revoke the Servicer's power
to make withdrawals and payments from the Trust Accounts. Except as
expressly provided in this Indenture, the Servicer agrees that it shall have
no right of set-off or banker's lien against, and no right to otherwise
deduct from, any funds held in the Trust Accounts for any amount owed to it
by the Trustee, or any Noteholder.
If, at any time, the institution holding the any of the Trust Accounts or
Lock-Box Accounts ceases to be an Eligible Institution, the Servicer, for
the benefit of the Secured Parties, shall within 30 Business Days (i)
establish a new Trust Accounts meeting the conditions specified above with
an Eligible Institution, (ii) transfer any cash and/or any investments held
therein or with respect thereto to such new Trust Accounts or Lock-Box
Accounts, as the case may be, and (iii) in the case of any new Collection
Account or Lock-Box Account, deliver to all relevant Collection Account
Banks or Lock-Box Banks, as applicable, new Lock-Box Agreements or
Collection Account Agreements, as the case may be (with copies thereof to
the Trustee) referring to such new Collection Account or Lock-Box Account,
as applicable, and from the date such new Collection Account or Lock-Box
Account is established, it shall be the "Collection Account" or a
"Lock-Box-Account."
- 70 -
<PAGE>
Funds on deposit in any Trust Account shall at the direction of the
Servicer be invested by the Trustee in Eligible Investments as instructed
by the Servicer in writing (which may be a standing instruction) (or if
not so instructed, then held by the Trustee on deposit in such Trust
Account). All such Eligible Investments shall be held by the Trustee for
the benefit of the Noteholders. Such funds shall be invested in Eligible
Investments that will mature so that such funds will be available in
amounts sufficient for the Servicer to make each distribution required
hereunder or under any Supplement on the applicable Distribution Date.
On each Distribution Date, all interest and other investment earnings
(net of losses and investment expenses) on funds on deposit in the Trust
Accounts shall be payable as Collections to the Noteholders.
(b) The Issuer has, prior to the execution and delivery of this Indenture,
established one or more accounts with one or more Eligible Institutions in
the sole name of the Issuer (each such account, being a "Lock-Box Account"
and each such institution holding such an account being a "Lock-Box Bank").
From and after the occurrence of an Event of Default, all Collections are
to be deposited by such Lock-Box Bank (as holder of the related lock-box or
the recipient of payments by electronic funds transfers), the Servicer, the
Originator or the Issuer, as applicable, into a Lock-Box Account within two
Business Days following receipt thereof (subject to the limitations set
forth in Section 2.05(g). The name, location and account number of each
Lock-Box Account is attached to this Indenture on Schedule 1 attached
hereto. After an Obligor has been instructed to remit Collections to a
Lock-Box Account, neither the Issuer nor the Servicer shall change any such
instructions at any time so long as the Trustee has any interest in the
Acquired Advances.
(c) The Issuer, the Servicer and the applicable Lock-Box Bank have
executed and delivered to the Trustee a letter agreement substantially in
the form of Exhibit D-1 hereto with respect to each Lock-Box Account (the
"Lock-Box Agreement") and (ii) the Issuer, the Servicer and the applicable
Lock-Box Bank shall execute and deliver a substantially similar Lock-Box
Agreement prior to the establishment by the Servicer, the Issuer or the
Originator of any additional or alternative Lock-Box Account. Pursuant to
the applicable Lock-Box Agreement, each Lock-Box Account has been assigned
by the Issuer to the Trustee and is maintained in the name of the Trustee
for the benefit of the Noteholders. Pursuant to each Lock-Box Agreement,
the Issuer, the Servicer, the Trustee and the applicable Lock-Box Bank
have agreed that pending further notice from the Trustee to such Lock-Box
Bank, such Lock-Box Bank may accept instructions from the Servicer or its
designee regarding the disposition of funds held in the applicable
Lock-Box Account. The Issuer and the Servicer hereby agree that the
Trustee may (but without obligation so to act except as required pursuant
to the following sentence) at any time require each Lock-Box Bank to cease
accepting the Servicer's instructions regarding the disposition of funds
from the applicable Lock-Box Account and require that all such funds be
deposited into the Collection Account on a daily basis. The Trustee shall
so instruct each Lock-Box Bank immediately following a request to such
effect from the Control Party to the Trustee.
SECTION 4.03. Daily Calculations and Allocation of Collections.
- 71 -
<PAGE>
(a) Calculation of Carrying Cost Amount and Net Eligible Advance Balance.
On or prior to 4:00 p.m. (New York City time) on each Business Day prior to
the Wind Down Date on which any funds are to be released from any Trust
Account, the Servicer shall deliver the Servicer's Daily Report to the
Trustee and the Paying Agent as contemplated by Section 3.04(g); provided
that if the Trustee has not received the Servicer's Daily Report for any
Business Day on or prior to 2:00 p.m. (New York City time) on such Business
Day, the Trustee shall not have any obligation to release any funds on such
Business Day from the Trust Accounts to the Issuer or its Affiliates. If,
on any day on which the Trustee is open for business, the Trustee has not
received the Servicer Daily Report as provided above, then the Trustee
shall have no duty to allocate funds pursuant to Section 4.03(c) below on
such day, and shall not on such day release any funds from the Trust
Accounts to the Issuer or its Affiliates. No increases shall be made to
the Outstanding Principal Balance of any Variable Funding Note if, as a
result thereof (and after giving effect to the application of funds
therefrom), the resulting Net Outstanding Amount as reflected in such
Servicer's Daily Report would be greater than the Net Eligible Advance
Balance.
(b) Daily Allocation of Funds in the Collection Account, Carrying Cost
Account and Reserve Account Prior to the Wind Down Date, Event of Default
or Set-Aside Period. Prior to the Wind Down Date, so long as no Event of
Default shall have occurred or be continuing and no Set-Aside Period shall
be in effect, the Servicer shall, on each Business Day, shall remit the
Collections of Pledged Assets received on such day to the Issuer; provided
that out of the amounts that would otherwise be remitted to the Issuer as
described above, the Servicer shall hold for the benefit of the Noteholders
and the Trustee an amount equal to the Carrying Cost Amount accrued through
such day to the extent not previously set aside. On or prior to 9:00 a.m.
(New York City time) on the last Business Day of each Interest Period (or
in respect of fees and expenses due and payable on each Distribution Date,
not later than the 9:00 a.m. (New York City time) on such Distribution Date)
prior to the Wind Down Date, so long as no Event of Default shall have
occurred or be continuing and no Set-Aside Period shall be in effect, the
Servicer shall deposit to the Collection Account, the amounts held for the
benefit of Noteholders and the Trustee as described in the first sentence
of this Section 4.03(b). All remaining amounts may be remitted to the
Issuer for any purposes not otherwise prohibited under this Indenture,
including, without limitation, the payment of the Purchase Price of any
Eligible Advances pursuant to the terms of the Purchase and Contribution
Agreement. Upon receipt of such funds in the Collection Account, the
Trustee shall, at the direction of the Servicer, distribute such funds in
the following order of priority:
First, to the Trustee for payment of the Trustee's Fee;
Second, to the payment of the Servicing Fee to the extent owed to a
Successor Servicer which is not an Affiliate of the Originator or of the
Issuer;
Third, to the payment of accrued and unpaid interest on all Notes;
Fourth, to the payment of any other costs, fees, expenses or other
obligations included in the calculation of the Carrying Cost Amount;
- 72 -
<PAGE>
Fifth, to the extent required by this Indenture or any Supplement, funds
on deposit in the Collection Account shall be deposited to the Trustee's
own account, any Defeasance Account or any other Series Account for the
payment of any fees, costs, expenses or other obligations (including
prepayment premiums, if applicable) owed to the Trustee and/or the
Noteholders which are not payable from funds in the Carrying Cost Account;
and
Sixth, to the payment of the Servicing Fee to the extent owed to the Issuer
or any Affiliate of it.
If, on any day prior to the Wind Down Date, the funds available for
distribution from the Carrying Cost Account under any of the immediately
preceding clauses First through the Sixth above are less than the amount of
costs, fees, expenses or other obligations to be paid pursuant to any such
clause, then, in any such case, such available funds shall be allocated by
the Servicer pro rata for distribution to the Persons to whom such amounts
are owed according to the respective amounts of such obligations held by
such Persons and all obligations in lower priority categories shall remain
unsatisfied until the obligations in the preceding category have been
satisfied.
(c) Daily Allocation of Funds in the Collection Account, Carrying Cost
Account and Reserve Account Prior to the Wind Down Date, But After an Event
of Default or During a Set-Aside Period. On each Business Day prior to the
Wind Down Date, but after the occurrence of an Event of Default or during a
Set-Aside Period, if the Servicer receives any Collections, the Servicer
shall remit all such Collections to the Collection Account on the Business
Day on which such Collections are received. The Servicer shall instruct
the Trustee in the applicable Servicer's Daily Report to, and the Trustee
shall, allocate all Collections and other funds then on deposit in the
Trust Accounts (other than funds which are required to be returned pursuant
to Section 4.02(a) or are required by the terms of any Supplement to be
dealt with in some other manner) to the following items, in the following
order of priority:
First, to the extent that the funds in the Carrying Cost Account are less
than the Carrying Cost Amount, funds shall be transferred from the
Collection Account to the Carrying Cost Account up to the amount of such
deficiency. Funds which are on deposit in the Carrying Cost Account shall
be withdrawn solely for the purpose of paying the applicable Carrying Costs
and any other fees and expenses included in the calculation of the Carrying
Cost Amount; provided, that if on any day, the amount of Collections on
deposit in the Carrying Cost Account exceeds the Carrying Cost Amount, then
funds on deposit in the Carrying Cost Account up to the amount of such
excess shall, if so requested by the Servicer in the Servicer's Daily Report,
be transferred to the Reserve Account and/or the Collection Account for
distribution in accordance with the remaining provisions of this Section
4.03(c).
- 73 -
<PAGE>
Second, if a Set-Aside Period has occurred and is continuing, funds on
deposit in the Collection Account shall be transferred into the Reserve
Account until the Net Outstanding Amount is less than or equal to the Net
Eligible Advance Balance. If the Net Eligible Advance Balance is greater
than the Net Outstanding Amount and funds are on deposit in the Reserve
Account, then funds on deposit in the Reserve Account up to the amount of
such excess shall, if so requested by the Servicer in the Servicer's Daily
Report, be transferred to the Collection Account for distribution in
accordance with the remaining provisions of this Section 4.03(c).
Third, if the Net Eligible Advance Balance is greater than or equal to the
Net Outstanding Amount, funds on deposit in the Reserve Account shall, if
requested by the Servicer in the Servicer's Daily Report and permitted by
the Supplement relating to any Notes, or if otherwise required under any
Supplement relating to any Notes, be withdrawn to reduce the Outstanding
Principal Balance of any such Notes as described below and in accordance
with the terms of the applicable Supplements;
Fourth, to the extent the Servicer has so requested in the Servicer's
Daily Report if permitted by the Supplement relating to any Notes or to
the extent otherwise required under the Supplement relating to any Notes,
any funds on deposit in the Collection Account shall be withdrawn to
reduce the Outstanding Principal Balance of any such Notes (or to deposit
such amounts in any Defeasance Account for the purpose of making such
reduction) as described below and in accordance with the terms of the
applicable Supplements;
Fifth, to the extent required by this Indenture or any Supplement, funds
on deposit in the Collection Account shall be deposited to the Trustee's
own account, any Defeasance Account or any other Series Account for the
payment of any fees, costs, expenses or other obligations (including
prepayment premiums, if applicable) owed to the Trustee and/or the
Noteholders which are not payable from funds in the Carrying Cost Account;
Sixth, any remaining funds on deposit in the Collection Account shall be
deposited into the Issuer's Account to be used by the Issuer to pay the
Originator the "Purchase Price" under the Purchase and Contribution
Agreement for Eligible Advances, towards the payment of ordinary costs and
expenses of the Issuer and towards the payments of any other amounts
specified or permitted under the Purchase and Contribution Agreement or
this Indenture; provided that, if the Issuer so directs, amounts owed to
the Originator under this clause Sixth may be paid directly to the
Originator.
If, on any day prior to the Wind Down Date during which the provisions of
this Section 4.03(c) are in effect, funds are to be distributed under
clauses Third or Fourth above to the Noteholders of more than one Series,
such funds shall be distributed among such Noteholders ratably in
accordance with their Series Allocation Percentages until the amount of
the required or requested payments to be distributed to such Noteholders
- 74 -
<PAGE>
has been paid in full. If, on any day prior to the Wind Down Date, the
funds to be distributed under clause Fifth are less than the fees, costs,
expenses and other obligations to be paid pursuant to such clause, such
funds shall be allocated pro rata for distribution to the Persons to whom
such amounts are owed according to the respective amounts of such
obligations held by such Persons.
Funds on deposit in the Carrying Cost Account shall be distributed in the
following order of priority: first, to the Trustee for payment of the
Trustee's Fee; second, to the payment of the Servicing Fee to the extent
owed to a Successor Servicer which is not an Affiliate of the Originator or
of the Issuer; third, to the payment of accrued and unpaid interest on all
Notes; fourth, to the payment of any other costs, fees, expenses or other
obligations included in the calculation of the Carrying Cost Amount and
fifth, to the payment of the Servicing Fee to the extent owed to the Issuer
or any Affiliate of it. If, on any day prior to the Wind Down Date, the
funds available for distribution from the Carrying Cost Account under any
of the immediately preceding clauses first through the fifth above are less
than the amount of costs, fees, expenses or other obligations to be paid
pursuant to any such clause, then, in any such case, such available funds
shall be allocated by the Servicer pro rata for distribution to the
Persons to whom such amounts are owed according to the respective amounts
of such obligations held by such Persons and all obligations in lower
priority categories shall remain unsatisfied until the obligations in the
preceding category have been satisfied.
All Collections and other funds distributed for the benefit of Noteholders
of any Series pursuant to this Section 4.03(c) will be deposited and
distributed as specified in the related Supplement, and amounts so allocated
to any Series will not, except as specified in the related Supplement or as
provided in the first paragraph of Section 4.03(d)(i), be available to the
Noteholders of any other Series.
All obligations in lower priority categories shall remain unsatisfied until
the obligations in the preceding category have been satisfied.
(d) Allocation of Funds in the Trust Accounts During the Wind Down Period.
(i) On the Wind Down Date, the outstanding principal amount of the Variable
Funding Note shall no longer be subject to increase and the Series
Allocation Percentage for all Series shall, become fixed as computed as of
the close of business on the Business Day immediately preceding the Wind
Down Date, and all funds on deposit in the Carrying Cost Account, the
Reserve Account and any Defeasance Account shall be reallocated to the
Collection Account for distribution in accordance with the remaining
provisions of this Section 4.03(d).
(ii) On the Wind Down Date and on each Business Day thereafter during the
Wind Down Period, the Servicer shall direct the Trustee in the Servicer's
Daily Report to, and the Trustee shall, allocate all Collections and other
funds received or held in the Collection Account (other than any such funds
which are required to be returned pursuant to Section 4.02(a) or are
required by the terms of any Supplement to be dealt with in some other
manner), based on the Series Allocation Percentage for the Wind Down Period
- 75 -
<PAGE>
as funds allocable to the Noteholders. The Trustee shall set aside and
hold in trust in the Collection Account, for the benefit of the
Noteholders, all Collections held in the Carrying Cost Account, the
Reserve Account and/or any Defeasance Account as of the close of business
on the Business Day immediately preceding the Wind Down Date, and all
other Collections.
(iii) Collections and other funds set aside and held for the benefit of
the Noteholders shall be allocated to the Noteholders in the following
order of priority:
First, to be distributed for payment of accrued Carrying Costs in the same
order of priority described for the payment thereof in Section 4.03(c);
Second, to be distributed to Noteholders to reduce the Outstanding
Principal Balance of all Notes in accordance with their Series Allocation
Percentages (as calculated on the Wind Down Date) until the Outstanding
Principal Balances of such Notes have been reduced to zero; and
Third, to be deposited to the Trustee's own account or any Series Account
or otherwise paid to any Successor Servicer for the payment of any accrued
and unpaid fees, costs, expenses or other obligations (including
prepayment premiums, if applicable) owed to such Persons under this
Indenture or any Supplement.
Notwithstanding the foregoing, to the extent set forth in any Supplement,
Collections which are identified as having been received in respect of
Advances which are not Eligible Advances or which are otherwise not
included in the calculation of the Net Eligible Advance Balance may be
distributed first to the Noteholders of any Series which elected to give
value to the Issuer on account of such Advances before being distributed
to the Noteholders of any other Series.
(iv) If, on any Business Day during the Wind Down Period, the amount of
funds on deposit in the Collection Account and available for allocation
under any of clauses First or Third above is less than the amount of the
obligations described in such clause, then the available Collections shall
be allocated by the Servicer pro rata for distribution to the Persons to
whom such amounts are owed according to the respective amounts of such
obligations held by such Persons. All obligations in lower priority
categories shall remain unsatisfied until the obligations in the preceding
category have been satisfied.
After the payment in full of all amounts described above in priority
categories First through Third, all remaining funds received or held in
the Collection Account and/or any of the other Trust Accounts shall be
remitted to the Issuer.
Collections and other funds distributed for the benefit of Noteholders of
any Series pursuant to this Section 4.03(d) will be deposited and
distributed as specified in the related Supplement, and amounts so
allocated to any Series will not, except as specified in the related
- 76 -
<PAGE>
Supplement, be available to the Noteholders of any other Series.
Allocations among the Series or the Insurer shall be set forth in the
related Supplement or Supplements.
SECTION 4.04. Optional Prepayment. (a) On any Distribution Date during
the Revolving Period, the Trustee, acting upon the direction of the
Servicer, shall have the option to prepay, in whole or in part but
subject to the payment of any Breakage Costs and Prepayment Premium, the
Outstanding Principal Balance of any Variable Funding Notes. If so
provided in the applicable Supplement or in any Term Note issued pursuant
thereto, the Trustee, upon the direction of the Servicer, shall have the
option to prepay the Outstanding Principal Balance of any Term Note,
together with any Breakage Costs and Prepayment Premium provided for
under the applicable Supplement in connection with such prepayment. Such
prepayments shall only be made with and to the extent of Collections on
deposit in the Collection Account as of such Distribution Date and/or
proceeds from other Notes. Following such prepayment, during the
Revolving Period, the Outstanding Principal Balance of the Variable
Funding Notes may be increased to an amount not in excess of the Stated
Amount. Any prepayment of a Term Note shall permanently reduce the
Outstanding Principal Balance thereof.
(b) All monthly distributions to be made to the Noteholders on any
Distribution Date shall be made to the Noteholders of record on the
preceding Record Date and all payments to be made to the Noteholders or
the Insurer shall be made either in immediately available funds (by wire
transfer or otherwise) to the account of such Person at a bank or other
entity having appropriate facilities therefor, if such Person has so
notified the Trustee (by standing instruction or otherwise) at least five
Business Days prior to the related Record Date, or, if such Person has not
so notified the Trustee by such date, by check mailed to such Noteholder
at its address appearing in the Note Register or, in the case of the
Insurer, mailed to the Insurer at its address set forth for notices herein.
Notwithstanding the foregoing, the final payment on any Note shall be made
only against presentation and surrender of the applicable Note at the
Corporate Trust Office of the Trustee.
ARTICLE V
DISTRIBUTIONS AND REPORTS TO NOTEHOLDERS
Distributions shall be made to, and reports shall be provided to,
Noteholders as set forth in Section 3.05 hereof and in the applicable
Supplement.
- 77 -
<PAGE>
ARTICLE VI
THE NOTES
SECTION 6.01. The Notes. The Notes of any Series shall be issued in the
form contemplated by the applicable Supplement and shall upon issue be
executed and delivered by the Issuer to the Trustee for authentication and
redelivery as provided in Section 6.02. Except to the extent otherwise
provided in an applicable Supplement, the Notes shall be issued in minimum
denominations of $1,000,000 and in integral multiples of $250,000 in excess
thereof (except that one Note may be issued in a denomination that includes
any residual amount); provided, however, that if such Notes are issued in
Book-Entry Form, the Trustee shall have no liability to any Person for the
issuance of such Notes in a denomination not permitted by this Section 6.01.
The Notes shall be issued upon initial issuance as one or more Notes in an
aggregate original principal amount equal to the Initial Outstanding
Principal Balance or, in the case of any Variable Funding Note, in its
applicable Stated Amount. Each Note shall be executed by manual or
facsimile signature on behalf of the Issuer by the President, any Vice
President, the Chief Financial Officer, the Chief Operating Officer,
Treasurer or the Secretary of the Issuer, or by any other officer or
assistant officer duly authorized to execute such Note on behalf of the
Issuer. Notes bearing the manual or facsimile signature of the individual
who was, at the time when such signature was affixed, authorized to sign on
behalf of the Issuer shall not be rendered invalid, notwithstanding that
such individual ceased to be so authorized prior to the authentication and
delivery of such Notes or does not hold such office at the date of such
Notes. No Notes shall be entitled to any benefit under this Indenture or
the applicable Supplement or be valid for any purpose, unless there appears
on such Note a Note of authentication in substantially the form provided
for herein executed by or on behalf of the Trustee by the manual signature
of a duly authorized signatory, and such Note upon any Note shall be
conclusive evidence, and the only evidence, that such Note has been duly
authenticated and delivered hereunder. All Notes shall be dated the date
of their authentication.
SECTION 6.02. Authentication of Notes. The Trustee shall authenticate and
deliver the Notes of each Series to, and upon the written order of, the
Issuer against payment to the Issuer of the purchase price therefor. The
Notes of any Series shall be duly authenticated by or on behalf of the
Trustee, in authorized denominations equal to (in the aggregate) the
Initial Outstanding Principal Balance or Stated Amount, as applicable, of
such Series.
SECTION 6.03. Registration of Transfer and Exchange of Notes. (a) The
Trustee shall cause to be kept at its Corporate Trust Office, such office
or agency to be maintained in accordance with the provisions of Section
11.21 a register (the "Note Register") in which, subject to such reasonable
regulations as it may prescribe, a transfer agent and registrar (which may
be the Trustee) (the "Transfer Agent and Registrar") shall provide for the
registration of the Notes and of transfers and exchanges of the Notes as
herein provided. The Transfer Agent and Registrar shall initially be the
Trustee, together with any co-transfer agent and co-registrar chosen by the
Trustee and acceptable to the Servicer, and any reference in this Indenture
- 78 -
<PAGE>
to the Transfer Agent and Registrar shall include any co-transfer agent and
co-registrar unless the context requires otherwise. The provisions of
Sections 11.01, 11.02, 11.03 and 11.05 shall apply to the Trustee also in
its role as Transfer Agent and Registrar, for so long as the Trustee shall
act as Transfer Agent and Registrar.
The Trustee may revoke the appointment of and remove any Person serving as
Transfer Agent and Registrar if the Trustee determines in its sole
discretion that such Person failed to perform its obligations under this
Indenture in any material respect. Any Person serving as Transfer Agent
and Registrar shall be permitted to resign as Transfer Agent and Registrar
upon 30 days' (60 days' during the Wind Down Period) written notice to the
Issuer, the Servicer and the Insurer. Upon receiving such notice of
resignation, the Trustee shall appoint a successor Transfer Agent and
Registrar reasonably acceptable to the Issuer and the Insurer. If no
successor Transfer Agent and Registrar shall have been appointed and have
accepted appointment within 30 days (60 days during the Wind Down Period)
after the giving of such notice of resignation, the Trustee may petition
any court of competent jurisdiction for the appointment of a successor
Transfer Agent and Registrar; provided, however, that such resignation shall
not be effective and such Person shall continue to perform its duties as
Transfer Agent and Registrar until a successor Transfer Agent and Registrar
has been appointed in accordance with this paragraph, and such successor has
assumed its duties under this Indenture.
It is intended that the registration of Notes which is described in this
Section 6.03 comply with the registration requirements contained in Section
163 of the Internal Revenue Code.
Upon surrender for registration of transfer of any Note at any office or
agency of the Transfer Agent and Registrar maintained for such purpose, the
Issuer shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Notes (of
the same Series) in authorized denominations of like tenor.
Except as otherwise expressly provided in the Supplement relating to any
Series of Notes and subject to Section 6.11, Notes may, at the option of an
Noteholder, be exchanged for other Notes (of the same Series) of authorized
denominations of like tenor, upon surrender of the Notes to be exchanged at
any such office or agency. Whenever any Notes are so surrendered for
exchange, the Issuer shall execute, and the Trustee shall authenticate and
deliver, the Notes which the Noteholder making the exchange is entitled to
receive.
Every Note presented or surrendered for registration of transfer or
exchange shall be accompanied by a written instrument of transfer in a form
satisfactory to the Trustee or the Transfer Agent and Registrar duly
executed by the Holder thereof or his attorney-in-fact duly authorized in
writing. Each Holder must satisfy the transfer restrictions set forth in
the applicable Notes.
Each Note shall be registered at all times as herein provided, and any
transfer or exchange of such Note will be valid for purposes hereunder only
- 79 -
<PAGE>
upon registration of such transfer or exchange by the Trustee or the
Transfer Agent and Registrar as provided herein. Payments on any
Distribution Date shall be made to Holders of record on the immediately
preceding Record Date.
No service charge shall be made for any registration of transfer or
exchange of Notes, but the Transfer Agent and Registrar or any co-transfer
agent and co-registrar may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
transfer or exchange of the Notes.
All Notes surrendered for registration of transfer or exchange, or for
payment, shall be canceled and disposed of in a manner reasonably
satisfactory to the Trustee.
(b) The Transfer Agent and Registrar will maintain at its expense, an
office or offices or agency or agencies where Notes may be surrendered for
registration of transfer or exchange which office, so long as the Trustee
acts as Transfer Agent and Registrar, shall be the Corporate Trust Office
designated in Section 11.21.
SECTION 6.04. Mutilated, Destroyed, Lost or Stolen Notes. If (a) any
mutilated Note is surrendered to the Transfer Agent and Registrar, or the
Transfer Agent and Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any Note and (b) there is delivered to the
Transfer Agent and Registrar, the Trustee and the Issuer such indemnity
(provided that a letter of indemnity from an insurance company or an
institutional Noteholder in either case of investment grade credit rating
shall satisfy such requirement) as may be required by them to save each
of them harmless, then, in the absence of notice to the Trustee that such
Note has been acquired by a bona fide purchaser, the Issuer shall execute
and the Trustee shall authenticate and deliver, in exchange for or in
lieu of any such mutilated, destroyed, lost or stolen Note, a new Note of
like tenor. In connection with the issuance of any new Note under this
Section 6.04, the Trustee or the Transfer Agent and Registrar may require
the payment by the Noteholder of a sum sufficient to pay any tax or other
governmental charge that may be imposed in relation thereto. Any
duplicate Note issued pursuant to this Section 6.04 shall be entitled to
all the benefits of this Indenture equally and proportionately with any
and all Notes of the same Series issued hereunder whether or not the lost,
stolen or destroyed Note shall be found at any time.
SECTION 6.05. Persons Deemed Owners. At all times prior to due
presentation of a Note for registration of transfer, the Trustee, the
Paying Agent, the Transfer Agent and Registrar and any agent of any of
them shall treat the Person in whose name any Note is registered as the
owner of such Note as of the most recent Record Date for the purpose of
receiving distributions pursuant to the terms of the applicable Supplement
and for all other purposes whatsoever and neither the Trustee, the Paying
Agent, the Transfer Agent and Registrar nor any agent of any of them shall
be affected by any notice to the contrary. Notwithstanding the foregoing,
in determining whether the Holders of the requisite Notes have given any
request, demand, authorization, direction, notice, consent or waiver
- 80 -
<PAGE>
hereunder, Notes owned by the Issuer, the Servicer or any Affiliate
thereof shall be disregarded and deemed not to be Outstanding, except that,
in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver,
only Notes which the Trustee knows to be so owned shall be so disregarded.
Notes so owned which have been pledged in good faith shall not be
disregarded and may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with
respect to such Notes and that the pledgee is not the Issuer, the Servicer
or an Affiliate thereof.
SECTION 6.06. Appointment of Paying Agent. The Paying Agent shall make
distributions to the Noteholders, the Insurer, the Servicer and the Trustee
pursuant to the applicable Supplement and shall report the amounts of such
distributions to the Trustee. The Trustee shall make available to the
Paying Agent funds from the applicable Trust Account on the day on which
they are to be distributed pursuant to the applicable Supplement. The
Paying Agent shall initially be the Trustee. The Trustee shall be
permitted to resign as Paying Agent upon 30 days' written notice to the
Servicer and the Insurer. In the event that the Trustee shall no longer
be the Paying Agent, the Servicer shall appoint a successor to act as
Paying Agent (which shall be a bank or trust company). The Servicer shall
cause such successor Paying Agent to execute and deliver to the Trustee an
instrument in which such successor Paying Agent shall agree with the
Trustee that, as Paying Agent, such successor Paying Agent will hold all
sums, if any, held by it for payment to the Noteholders, the Servicer or
the Trustee in trust for the benefit of the Noteholders entitled thereto,
the Servicer or the Trustee, respectively, until such sums shall be paid
to such Noteholders, the Servicer or the Trustee, respectively. The
Paying Agent shall return all unclaimed funds to the Trustee and upon
removal of a Paying Agent such Paying Agent shall also return all funds in
its possession to the Trustee. The provisions of Sections 11.01, 11.02,
11.03 and 11.05 shall apply to the Trustee also in its role as Paying
Agent, for so long as the Trustee shall act as Paying Agent.
SECTION 6.07. Access to List of Noteholders' Names and Addresses. (a) The
Trustee will, within five Business Days after receipt by the Trustee of a
written request therefor from the Servicer, the Issuer, the Insurer, any
Noteholder or the Paying Agent, respectively, furnish (or cause the Transfer
Agent and Registrar to furnish) a list of the names and addresses of the
Noteholders.
(b) The Noteholders may communicate as provided in Section 312(b) of the
Trust Indenture Act (without regard as to whether this Indenture has been
or at such time remains qualified under the Trust Indenture Act) with all
other Noteholders with respect to their rights under this Indenture, the
other Transaction Documents or under the Notes; provided that application
by the Noteholders under such Section of such Act shall be made to the
[Insurer in lieu of the Trustee] as provided under such Act. The [Insurer]
shall comply in all material respects with the provisions of such Act to
facilitate such communications by and among Noteholders.
- 81 -
<PAGE>
(c) Each Noteholder by receiving and holding a Note, agrees with the
Trustee and the Issuer that neither the Trustee, the Transfer Agent and
Registrar, the Issuer, the Servicer, the Originator nor any of their
respective agents shall be held accountable by reason of the disclosure
of any such information as to the names and addresses of the Noteholders
in accordance with Section 312(b) of the Trust Indenture Act, regardless
of the sources from which such information was derived, and that the
Trustee shall not be held accountable by reason of mailing any material
pursuant to a request made under Section 312(b) of the Trust Indenture Act.
SECTION 6.08. Authenticating Agent. (a) The Trustee may appoint one or
more authenticating agents with respect to the Notes which shall be
authorized to act on behalf of the Trustee in authenticating the Notes in
connection with the issuance, delivery, registration of transfer, exchange
or repayment of the Notes. Whenever reference is made in this Indenture
to the authentication of Notes by the Trustee or the Trustee's certificate
of authentication, such reference shall be deemed to include
authentication on behalf of the Trustee by an authenticating agent and a
certificate of authentication executed on behalf of the Trustee by an
authenticating agent. Each authenticating agent must be acceptable to
the Issuer and the Servicer.
(b) Any institution succeeding to the corporate agency business of an
authenticating agent shall continue to be an authenticating agent without
the execution or filing of any power or any further act on the part of the
Trustee or such authenticating agent.
(c) An authenticating agent may at any time resign by giving written
notice of resignation to the Trustee and to the Issuer. The Trustee may
at any time terminate the agency of an authenticating agent by giving
notice of termination to such authenticating agent and to the Issuer.
Upon receiving such a notice of resignation or upon such a termination,
or in case at any time an authenticating agent shall cease to be
acceptable to the Trustee or the Issuer, the Trustee may promptly appoint
a successor authenticating agent. Any successor authenticating agent
upon acceptance of its appointment hereunder shall become vested with all
the rights, powers and duties of its predecessor hereunder, with like
effect as if originally named as an authenticating agent. No successor
authenticating agent shall be appointed unless acceptable to the Trustee
and the Issuer.
(d) The Issuer agrees to pay to each authenticating agent from time to
time reasonable compensation for its services under this Section 6.08.
(e) The provisions of Sections 11.01, 11.02, 11.03 and 11.05 shall be
applicable to any authenticating agent.
(f) Pursuant to an appointment made under this Section 6.08, the Notes
may have endorsed thereon, in lieu of or in addition to the Trustee's
certification of authentication, an alternate certificate of
authentication in substantially the following form:
- 82 -
<PAGE>
This is one of the Notes described in the Master Trust Indenture and
Security Agreement.
_______________________
as Authenticating Agent
for the Trustee
By: _____________________
Authorized Officer
SECTION 6.09. New Issuances. (a) The Issuer may from time to time
direct the Trustee, to (i) issue one or more new Series of Notes pursuant
to a Supplement, and (ii) to the extent permitted under any Supplement,
issue additional Notes of the related Series. The Notes of all outstanding
Series shall be equally and ratably entitled as provided herein to the
benefits of this Indenture without preference, priority or distinction,
all in accordance with the terms and provisions of this Indenture and the
applicable Supplement except, with respect to any Series, as provided in
the related Supplement.
(b) On or before the Closing Date relating to any new Series, the parties
hereto will execute and deliver a Supplement which will specify the
Principal Terms of such new Series. The terms of such Supplement may
modify or amend the terms of this Indenture solely as applied to such new
Series. The obligation of the Trustee to issue the Notes of such new
Series and to execute and deliver the related Supplement is subject to the
satisfaction of the following conditions:
(i) on or before the 30th Business Day immediately preceding the
applicable Closing Date (or such later date preceding the Closing Date as
shall be acceptable to the Trustee, each Rating Agency and the Insurer),
the Issuer shall have given the Trustee, the Servicer, each Rating Agency
and the Insurer written notice of such issuance and such Closing Date;
(ii) the Issuer shall have delivered to the Trustee the related Supplement
in a form satisfactory to the Trustee and in form and substance
satisfactory to the Insurer, executed by each party hereto other than the
Trustee;
(iii) the Trust Insurance Policy shall be in full force and effect, the
sum of the Aggregate Outstanding Amount plus the excess, if any, of the
- 83 -
<PAGE>
Stated Amount of each Variable Funding Note over its Outstanding Principal
Balance shall not be greater than the "Insured Amount" thereunder, and to
the extent required in the related Supplement, the required Noteholder
Insurance Policy shall be in full force and effect;
(iv) each Rating Agency shall have notified the Issuer, the Servicer, the
Trustee and the Insurer in writing that the issuance of such new Series
will not result in a reduction or withdrawal of the rating of any
outstanding Series (if rated) and will not result in the Notes being
deemed below investment grade (without giving effect to the Trust
Insurance Policy) or, to the extent required in the related Supplement
will not result in a reduction or withdrawal of any rating of the rated
securities issued by the Noteholder of any outstanding Series in order to
fund or maintain its interest in any Note of such Series, in each case,
with respect to which Series or securities it is a Rating Agency;
(v) such issuance will not result in the occurrence of an Event of
Default and the Issuer shall have delivered to the Trustee and the Insurer
an Officer's Certificate, dated the applicable Closing Date (upon which
the Trustee may conclusively rely), to the effect that the Issuer
reasonably believes that such issuance will not in and of itself result in
the occurrence of an Event of Default and is not reasonably in and of
itself expected to result in the occurrence of an Event of Default;
(vi) the Issuer shall have delivered to the Trustee and the Insurer an
Opinion of Counsel to the effect that the issuance of the Notes of such
Series (A) has been, or need not be, registered under the Act and will not
result in the requirement that any other Series of Notes not registered
under the Act be so registered (unless the Issuer has elected, in its sole
discretion, to register such Notes), (B) will not result in the Issuer
becoming subject to registration as an investment company under the
Investment Company Act and (C) will not require this Indenture or the
related Supplement to be qualified under the Trust Indenture Act;
(vii) the Issuer shall have delivered to the Trustee a Tax Opinion, dated
the applicable Closing Date, with respect to such issuance;
(viii) such issuance will not cause an Asset Deficiency (after giving
effect to such new issuance and the deposit of any proceeds into the
Reserve Account) to occur;
(ix) if such issuance is in exchange for any outstanding Notes, the
Issuer shall have delivered to the Trustee the Notes to be canceled in
connection with such exchange;
(x) the Issuer shall have delivered to the Trustee an Officer's
Certificate that the foregoing conditions have been satisfied.
Upon satisfaction of the above conditions, the Trustee shall execute the
Supplement and the Issuer shall execute and deliver the Notes of such
- 84 -
<PAGE>
Series for authentication and redelivery to or upon the order of the Issuer.
Notwithstanding the provisions of this Section 6.09(b), prior to the
execution of any Supplement, the Trustee shall be entitled to receive and
rely upon an Opinion of Counsel stating that the execution of such
Supplement is authorized or permitted by this Indenture and any Supplement
related to any outstanding Series. The Trustee may, but shall not be
obligated to, enter into any such Supplement which adversely affects the
Trustee's own rights, duties or immunities under this Indenture.
(c) In the event this Indenture shall become qualified under the Trust
Indenture Act, every Supplement executed pursuant to this Article VI shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 6.10. Changes in Variable Funding Notes. The Outstanding
Principal Balance of any Variable Funding Note shall at no time exceed the
Stated Amount then applicable to such Note. The Stated Amount and the
Outstanding Principal Balance of any Variable Funding Notes may be
increased or decreased from time to time, subject to any terms set forth
in the applicable Supplement and the allocation of Collections set forth
in Article IV hereof, provided that the Outstanding Principal Balance of
any Variable Funding Notes may not be increased in any manner which would
cause the Net Outstanding Amount to exceed the Base Amount as in effect
prior to such increase.
SECTION 6.11. Book-Entry Notes. If the Issuer shall establish pursuant
to any Supplement that the Notes to be issued thereunder are to be issued
in Book-Entry Form, then the Issuer shall, in accordance with the other
provisions of this Indenture, execute and the Trustee shall authenticate
and deliver one or more Global Notes, evidencing the Notes of such Series
which (i) shall be in an aggregate Outstanding Principal Balance equal to
the Initial Outstanding Principal Balance of such Series, (ii) shall be
registered in the name of the Clearing Agency therefor or its nominee,
which shall initially be Cede & Co., as nominee for The Depositary Trust
Company, the initial Clearing Agency, (iii) shall be delivered by the
Trustee to such Clearing Agency or such nominee pursuant to such Clearing
Agency's or such nominee's instructions, and (iv) shall bear a legend
substantially to the following effect: "Transfers of this Global Note
shall be limited to transfers in whole, but not in part, to the Clearing
Agency or a nominee of the Clearing Agency or to a successor thereof or
such successor's nominee and transfers of portions of this Global Note
shall be limited to transfers made in accordance with the restrictions
set forth in the Master Trust Indenture and Security Agreement pursuant
to which these Notes were issued."
Each Clearing Agency designated pursuant to this Section 6.11 must, at the
time of its designation and at all times while it serves as Clearing Agency
hereunder, be a "clearing agency" registered under the Securities Exchange
Act of 1934, as amended, and any other applicable statute or regulation.
No Holder of any Notes issued in Book-Entry Form shall receive a Definitive
Note except as provided in Section 6.13 or in the applicable Supplement
- 85 -
<PAGE>
relating to such Notes. Unless (and until) fully registered Notes of any
Series (the "Definitive Notes") have been issued to the Noteholders of such
Series pursuant to Section 6.13 or pursuant to any applicable Supplement
relating thereto:
(a) the provisions of this Section 6.11 shall be in full force and effect;
(b) the Issuer, the Servicer, the Paying Agent, the Transfer Agent and
Registrar and the Trustee may deal with the Clearing Agency for all
purposes (including the making of distributions on the Notes of such
Series) as the authorized representatives of the Noteholders of such
Series;
(c) to the extent that the provisions of this Section 6.11 conflict with
any other provisions of this Indenture, the provisions of this Section 6.11
shall control; and
(d) the rights of Noteholders of such Series shall be exercised only
through the Clearing Agency and the Clearing Agency Participants and shall
be limited to those established by law and agreements between such
Noteholders and the Clearing Agency and/or the Clearing Agency
Participants. Unless and until Definitive Notes are issued pursuant to
Section 6.13, the initial Clearing Agency will make book-entry transfers
among the Clearing Agency Participants and receive and transmit
distributions of principal and interest on the Book-Entry Notes to such
Clearing Agency Participants.
SECTION 6.12. Notices to Clearing Agency. Unless and until Definitive
Notes shall have been issued to Noteholders of such Series pursuant to
Section 6.13 or the applicable Supplement relating to such Notes, whenever
notice, payment, or other communication to the holders of Book-Entry Notes
of any Series is required under this Indenture, the Trustee, the Servicer
and the Paying Agent shall give all such notices and communications
specified herein to be given to Noteholders of such Series to the Clearing
Agency.
SECTION 6.13. Definitive Notes. If (i)(A) the Issuer advises the Trustee
in writing that the Clearing Agency is no longer willing or able to
properly discharge its responsibilities under any Letter of Representations
and (B) the Issuer is unable to locate a qualified successor Clearing
Agency, (ii) the Issuer, at its option, advises the Trustee in writing that,
with respect to any Series, it elects to terminate the book-entry system
through the Clearing Agency or (iii) after the occurrence of a Servicer
Default, a Majority in Interest of the Noteholders of any Series of Notes
maintained as Book-Entry Notes advise the Trustee and the Clearing Agency
(through the Clearing Agency Participants) in writing that the continuation
of a book-entry system through the Clearing Agency is no longer in the best
interests of the Noteholders of such Series, the Trustee shall notify the
Clearing Agency and all such Noteholders of such Series of the occurrence
of any such event and of the availability of Definitive Notes of such
Series to the Noteholders of such Series requesting the same. Upon
surrender to the Trustee of the Global Notes of such Series by the Clearing
Agency accompanied by registration instructions from such Clearing Agency
for registration, the Trustee shall authenticate and deliver Definitive
- 86 -
<PAGE>
Notes of such Series. None of the Issuer, the Transfer Agent and Registrar
or the Trustee shall be liable for any delay in delivery of such
instructions and may conclusively rely on, and shall be protected in
relying on, such instructions. Upon the issuance of Definitive Notes of
any Series, all references herein to obligations with respect to such
Series imposed upon or to be performed by the Clearing Agency shall be
deemed to be imposed upon and performed by the Trustee, to the extent
applicable with respect to such Definitive Notes and the Trustee shall
recognize the holders of the Definitive Notes as the Noteholders hereunder.
SECTION 6.14. Temporary Notes. Pending the preparation of Definitive
Notes of any Series to be issued in accordance with Section 6.13, the
Issuer may execute and, in accordance with the terms of Section 6.02, the
Trustee shall authenticate and deliver, temporary Notes for such Series
which are printed, lithographed, typewritten or otherwise produced and are
in any authorized denomination and substantially in the forms of the
Definitive Notes of such Series, but with such omissions, insertions and
variations as may be appropriate for temporary Notes, all as may be
determined by the Issuer as evidenced by the execution thereof by the
authorized officers of the Issuer. Temporary Notes may contain such
references to any provisions of this Indenture as may be appropriate.
Every temporary Note of any Series shall be executed by the Issuer and
authenticated by the Trustee upon the same conditions and in substantially
the same manner, and with like effect, as the Definitive Notes of such
Series. If temporary Notes are issued, the Issuer, without unreasonable
delay, shall cause Definitive Notes to be executed and delivered to the
Trustee for authentication; and thereupon the temporary Notes of such Series
shall be exchangeable for Definitive Notes without charge at each office or
agency to be maintained for such purpose in accordance with Section 6.03.
The Trustee shall authenticate and deliver in exchange for temporary Notes
of such Series so surrendered Definitive Notes of equal tenor and
denomination. Until so exchanged, the temporary Notes of any Series shall
be entitled to the same benefits under this Indenture as the Definitive
Notes of such Series.
SECTION 6.15. CUSIP Number. The Issuer in issuing any Notes or Series of
Notes may use a "CUSIP" number and, if so used, the Trustee shall use the
CUSIP number in any notices to the Noteholders thereof as a convenience to
such Noteholders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes and that reliance may be
placed only on the other identification numbers printed on the Notes.
The Issuer shall promptly notify the Trustee of any change in the CUSIP
number with respect to any Note.
SECTION 6.16. Letter of Representations. Notwithstanding anything to
the contrary in this Indenture or any Supplement, the parties hereto shall
comply with the terms of each Letter of Representations.
- 87 -
<PAGE>
ARTICLE VII
OTHER MATTERS RELATING TO THE ISSUER
SECTION 7.01. Obligations not Assignable. The obligations of the Issuer
hereunder shall not be assignable nor shall any Person succeed to the
obligations of the Issuer hereunder.
SECTION 7.02. Limitations on Liability. None of the directors, officers,
shareholders, employees or agents of the Issuer, past, present or future,
shall be under any liability to the Trustee, the Insurer, the Noteholders
or any other Person for any action taken or for refraining from the taking
of any action in such capacities pursuant to this Indenture or for any
obligation or covenant under this Indenture; provided, however, that this
provision shall not protect any such Person against any liability which
would otherwise be imposed by reason of willful misconduct, bad faith or
negligence, in the performance by such Person of such Person's duties or
the reckless disregard by such Person of any of his, her or its
obligations and duties hereunder. The Issuer and any director, officer,
employee or agent of the Issuer may rely in good faith on any document of
any kind prima facie properly executed and submitted by any Person (other
than the Issuer or any Affiliate thereof) respecting any matters arising
hereunder.
SECTION 7.03. Indemnification of the Trustee, the Insurer and the
Noteholders. Without limiting any other rights which the Trustee, the
Insurer or any Noteholder (each, an "Indemnified Party") may have hereunder
or under applicable law, the Issuer hereby agrees to indemnify each
Indemnified Party from and against any and all claims, losses and
liabilities (except to the extent that such claims, losses and liabilities
arise from any action by such Indemnified Party) (all of the foregoing
being collectively referred to as "Indemnified Amounts") arising out of or
resulting from this Indenture, the activities of the Trustee or the Insurer
in connection herewith, the Issuer's use of proceeds from the issuance of
Notes, the interest conveyed hereunder in the Pledged Assets, or in respect
of any Loan Document, any Acquired Advances or the Purchase and
Contribution Agreement, excluding, however, (a) Indemnified Amounts to the
extent resulting from willful misconduct, bad faith, gross negligence, the
reckless disregard by such Indemnified Party of any of his, her or its
obligations and duties, (b) recourse for uncollectible Acquired Advances,
(c) indemnification for lost profits or for consequential, special or
punitive damages or (d) any income or franchise taxes (or any interest or
penalties with respect thereto) or other taxes on or measured by the gross
or net income or receipts of such Indemnified Party or (except as
otherwise provided in any Supplement) any withholding taxes, in each case
to the extent such Indemnified Amounts are incurred by such Indemnified
Party arising out of or as a result of this Indenture or the interest
conveyed hereunder in Pledged Assets or in respect of any Loan Document
or any Acquired Advances or the Purchase and Contribution Agreement.
Without limiting or being limited by the foregoing (other than clauses
(a), (b), (c) and (d)) the Issuer shall pay on demand to each Indemnified
Party any and all amounts necessary to indemnify such Indemnified Party
from and against any and all Indemnified Amounts relating to or resulting
from:
- 88 -
<PAGE>
(i) reliance on any representation or warranty or statement made or deemed
made by the Issuer under or in connection with this Indenture or the
Purchase and Contribution Agreement which shall have been incorrect in any
material respect when made;
(ii) the failure by the Issuer to comply with this Indenture or the
Purchase and Contribution Agreement, or the failure by the Issuer to comply
with any applicable Requirement of Law with respect to any Advance or the
related Loan Documents or the Purchase and Contribution Agreement, or the
nonconformity of any Advance or the related Loan Documents or the Purchase
and Contribution Agreement with any Requirement of Law;
(iii) the failure to vest and maintain vested in the Issuer a first
priority perfected ownership interest in the Advances and the Related
Security therefor as against the Originator and the failure to vest and
maintain vested in the Trustee, for the benefit of the Secured Parties,
first priority perfected security interest in the Advances and the other
Pledged Assets, free and clear of any Lien other than Permitted
Encumbrances;
(iv) the failure to have filed, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of any
applicable jurisdiction or other applicable laws with respect to any
Advance or any other Pledged Asset, whether at the time of pledge thereof
or reinvestment of the proceeds thereof or at any subsequent time;
(v) any dispute, claim, offset or defense (other than discharge in
bankruptcy of the Obligor or other defense relating to such Obligor's
inability to pay) of any Obligor to the payment of any Advance;
(vi) any investigation, litigation or proceeding related to this
Indenture or the Purchase and Contribution Agreement or the use of
proceeds from the issuance of Notes, or in respect of any Advance or
other Pledged Asset, other than any litigation or proceeding between the
Issuer or any Affiliate thereof, on the one hand, and the Trustee or any
Noteholder or any Affiliate thereof, on the other hand, in which the
Issuer or an Affiliate thereof prevails in a final non-appealable
judgment by a court of competent jurisdiction;
(vii) the failure of the Issuer or the Originator to perform any of its
duties or obligations under or in connection with any Advance or other
Pledged Asset;
(viii) any failure by the Issuer or the Originator to be duly qualified
to do business or be in good standing in any jurisdiction in which such
qualification or good standing is necessary for the enforcement of any
Advance;
- 89 -
<PAGE>
(ix) the failure of the Issuer or the Originator to remit Collections as
required under this Indenture or the commingling of Collections of Advances
at any time with other funds prior to distribution under the applicable
Supplement;
(x) the use, possession, ownership or operation by the Issuer or the
Servicer or any Affiliate thereof of any of the Pledged Assets that
constitute real property or any environmental liability claim allegedly
arising out of or in connection with any such real property;
(xi) any act or omission by the Issuer impairing the security interest of
the Trustee or the Noteholders in the Pledged Assets; or
(xii) any tax (other than any taxes excluded by reason of clause (d) in
the first paragraph of this Section 7.03) imposed by reason of the security
interest of the Trustee in the Advances or other Pledged Assets.
In case any proceeding shall be instituted involving any Person in respect
of which indemnity may be sought pursuant to this Section 7.03 the
Indemnified Party shall promptly notify the Issuer in writing and the
Issuer, upon request of the Indemnified Party, shall retain counsel
reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party and any others the Issuer may designate in such
proceeding and shall pay the reasonable fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any
Indemnified Party shall have the right to retain its own counsel, but the
reasonable fees and expenses of such counsel shall be at the expense of
such Indemnified Party unless (i) the Issuer and the Indemnified Party
shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties)
include both the Issuer and the Indemnified Party and representation of
both parties by the same counsel would be inappropriate due to actual
conflicts of interests between them. It is understood that the Issuer
shall not, in connection with any proceeding or related proceedings in
the same jurisdiction, be liable for the reasonable fees and expenses of
more than one separate firm for all such Indemnified Parties. It is
further understood that the Issuer shall not be liable to any Indemnified
Party until or unless such Indemnified Party promptly notifies the Issuer
in writing of its request for indemnification.
Indemnification pursuant to this Section 7.03 shall only be payable from
Collections and other funds in the Trust Accounts remaining after all other
obligations payable under clause Fourth of Section 4.03(c) or clause Third
of Section 4.03(d)(iii) have been paid, as applicable, or from other assets
of the Issuer, and there shall be no recourse to, and no Person shall have
any Claim against, the Issuer for payment of all or any part of any such
indemnification to the extent that such Collections and other funds and any
assets of the Issuer are insufficient to pay the applicable Indemnified
Amounts. In addition, any indemnification payable under clause (vii),
(viii), (ix), (x) or (xii) of this Section 7.03 shall be payable only to
the extent that the Issuer has received payment from the Originator under
the equivalent indemnification provision of the Purchase and Contribution
Agreement and there shall be no recourse to, and no Person shall have any
- 90 -
<PAGE>
Claim against, the Issuer for payment of any all or any part of any such
indemnification to the extent that the amounts so received are insufficient
to pay the applicable Indemnified Amounts arising under such clauses. The
agreement contained in this Section 7.03 shall survive the collection of
all Acquired Advances, the termination of this Indenture and the payment of
all amounts otherwise payable hereunder.
ARTICLE VIII
OTHER MATTERS RELATING TO THE SERVICER
SECTION 8.01. Liability of the Servicer. The Servicer shall be liable
under this Indenture only to the extent of the obligations specifically
undertaken by the Servicer in its capacity as Servicer.
SECTION 8.02. Merger or Consolidation of, or Assumption of the Obligations
of, the Servicer. The Servicer shall not consolidate with or merge into
any other Person or convey or transfer its properties and assets
substantially as an entirety to any Person unless:
(a) (i) the Person formed by such consolidation or into which the
Servicer is merged or the Person which acquires by conveyance or transfer
the properties and assets of the Servicer substantially as an entirety
shall be, if the Servicer is not the surviving entity, a corporation
organized and existing under the laws of the United States of America or
any State or the District of Columbia, and such successor corporation shall
have expressly assumed, by an agreement supplemental hereto, executed and
delivered to the Trustee, in form reasonably satisfactory to the Trustee,
the performance of every covenant and obligation of the Servicer hereunder;
(ii) the Servicer shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel stating that such consolidation,
merger, conveyance or transfer complies with this Section 8.02 and that all
conditions precedent herein provided for relating to such transaction have
been complied with; (iii) immediately after giving effect to such action,
no Servicer Default and no Unmatured Servicer Default shall have occurred
or be continuing and (iv) the Rating Agency Condition shall have been
satisfied with respect thereto; and
(b) if the Servicer is the Originator, all conditions for such merger or
consolidation or conveyance or transfer, as the case may be, contained in
the Purchase and Contribution Agreement shall be satisfied and the Insurer
shall have given its prior written approval (such approval not to be
unreasonably withheld), and
(c) the corporation formed by such consolidation or into which the
Servicer is merged or which acquires by conveyance or transfer the
properties and assets of the Servicer substantially as an entirety shall
have all licenses and approvals of Governmental Authorities required to
service the Acquired Advances, as evidenced by an Officer's Certificate of
- 91 -
<PAGE>
the Servicer, except to the extent the failure to have any such license
would not have a material adverse effect on its ability to perform the
obligations of the Servicer hereunder.
SECTION 8.03. Limitations on Liability. None of the directors, officers,
shareholders, employees or agents of the Servicer, past, present or future,
shall be under any liability to the Trustee, the Insurer, the Noteholders
or any other Person for any action taken or for refraining from the taking
of any action in such capacities pursuant to this Indenture or any other
Transaction Document or for any obligation or covenant under this Indenture
or any other Transaction Document, it being understood that, with respect
to the Servicer, this Indenture and the obligations created hereunder are
solely the corporate obligations of the Servicer; provided, however, that
this provision shall not protect the Servicer or any such other Person
against any liability which would otherwise be imposed by reason of willful
misconduct, bad faith, gross negligence or the reckless disregard by such
Person of any of his, her or its obligations and duties. The Servicer and
any director or officer or employee or agent of the Servicer may rely in
good faith on any document of any kind prima facie properly executed and
submitted by any Person (other than the Servicer or any Affiliate thereof)
respecting any matters arising hereunder. The Servicer shall be under no
obligation to appear in, prosecute or defend any legal action which is not
incidental to its duties as the Servicer in accordance with this Indenture
and which in its reasonable judgment may involve it in any material
expense or liability.
SECTION 8.04. Servicer Indemnification. (a) The Servicer shall indemnify
and hold harmless each Indemnified Party from and against Indemnified
Amounts suffered or sustained by reason of any breach by the Servicer of
its representations and warranties or obligations under this Indenture,
excluding, however, Indemnified Amounts to the extent resulting from (i)
willful misconduct, bad faith, gross negligence, the reckless disregard by
such Indemnified Party of any of his, her or its obligations and duties,
(ii) recourse for uncollectible Acquired Advances, (iii) lost profits or
for consequential, special or punitive damages or (iv) any income or
franchise taxes (or any interest or penalties with respect thereto) or
other taxes on or measured by the gross or net income or receipts of such
Indemnified Party or (except as otherwise provided in any Supplement) any
withholding taxes, in each case to the extent such Indemnified Amounts are
incurred by such Indemnified Party arising out of or as a result of this
Indenture or the security interest conveyed hereunder in Pledged Assets or
in respect of any Loan Document or any Acquired Advance or the Purchase
and Contribution Agreement. Indemnification pursuant to this Section 8.04
shall not be payable from the Pledged Assets. The agreement contained in
this Section 8.04 shall survive the collection of all Acquired Advances,
the termination of this Indenture and the payment of all amounts otherwise
due hereunder.
(b) In case any proceeding shall be instituted involving any Person in
respect of which indemnity may be sought pursuant to this Section 8.04,
the Indemnified Party shall promptly notify the Servicer in writing and
the Servicer, upon request of the Indemnified Party, shall retain counsel
reasonably satisfactory to the Indemnified Party to represent the
Indemnified Party and any others may designate in such proceeding and
shall pay the reasonable fees and disbursements of such counsel related
to such proceeding. In any such proceeding, any Indemnified Party shall
- 92 -
<PAGE>
have the right to retain its own counsel, but the reasonable fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless (i) the Servicer and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any
such proceeding (including any impleaded parties) include both the Servicer
and the Indemnified Party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Servicer shall, in
connection with any proceeding or related proceedings in the same
jurisdiction, not be liable for the reasonable fees and expenses of more
than one separate firm for all such Indemnified Parties. It is further
understood that the Servicer shall not be liable to any Indemnified Party
unless such Indemnified Party promptly notifies the Servicer in writing of
its request for indemnification.
SECTION 8.05. The Servicer Not to Resign. The Servicer shall not resign
from the obligations and duties hereby imposed on it except upon
determination that (i) its performance of its duties hereunder is no
longer permissible under applicable law and (ii) there is no reasonable
action which the Servicer could take to make its performance of its duties
hereunder permissible under applicable law. Any determination permitting
the resignation of the Servicer shall be evidenced by an Opinion of
Counsel with respect to clause (i) above, delivered to the Trustee. No
resignation shall become effective until the Trustee or a Successor
Servicer shall have assumed the responsibilities and obligations of the
resigning Servicer in accordance with Section 10.02 hereof. If within 60
days of the date of the determination that the resigning Servicer may no
longer act as Servicer hereunder for any reason and the Trustee has not
appointed a Successor Servicer, the Trustee shall serve as Successor
Servicer hereunder. Notwithstanding the foregoing, the Trustee shall, if
it is legally unable so to act, petition a court of competent jurisdiction
to appoint any established institution that is an Eligible Servicer (other
than the Trustee) as the Successor Servicer hereunder.
SECTION 8.06. Examination of Records. The Servicer shall indicate in its
computer records that a security interest in the Acquired Advances and
other Pledged Assets has been granted to the Trustee, pursuant to this
Indenture for the benefit of the Secured Parties. The Servicer (and the
Issuer) shall, prior to the sale or transfer to a third party of any
advance held in its custody, examine its records to determine that such
advance is not an Acquired Advance.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.01. Events of Default. If any one of the following events shall
occur:
(a) the occurrence of any Servicer Default; or
- 93 -
<PAGE>
(b) the Issuer or the Servicer shall fail to make any payment, transfer
or deposit required to be paid by it under the terms of this Indenture, the
Purchase and Contribution Agreement, any Supplement, any Note or any other
Transaction Document, or, if applicable, shall fail to give instructions or
notice to the Trustee to make such payment, transfer or deposit, and,
solely in the case of any such payment, transfer or deposit, which does not
constitute payment, transfer or deposit of principal or interest on the
Notes, such failure shall remain unremedied for three Business Days after
written notice from the Trustee; or
(c) the Issuer (i) shall fail to perform or observe any term, covenant or
agreement contained in Section 2.05(a), (d), (e), (h), (i), (j), (k), (l),
(n), or (o), or (ii) shall fail to perform or observe any other term,
covenant or agreement contained in Sections 2.05 or 2.06 which failure
described in this clause (ii) shall remain unremedied for five Business
Days after written notice from the Trustee or the Insurer; or
(d) any representation or warranty made or deemed to be made by the
Issuer, or any of its officers or employees, under or in connection with
this Indenture, any other Transaction Document, any Servicer's Daily
Report, Monthly Report or other information or report delivered pursuant
hereto, shall prove to have been false or incorrect in any material
respect when made or deemed made; or
(e) the Issuer shall fail to perform or observe any other term, covenant
or agreement contained in this Indenture or in any other Transaction
Document on its part to be performed or observed and any such failure
shall remain unremedied for ten Business Days after written notice from
the Trustee or the Insurer; or
(f) the Issuer shall cease or otherwise fail to have a good and valid
title to (or, to the extent Article 9 is applicable to the Issuer's
acquisition thereof, a valid perfected security interest in) the Acquired
Advances and the Related Security; or the security interest granted to
the Trustee hereunder shall, for any reason, cease or otherwise fail to
be a valid and perfected Lien on, and, to the extent Article 9 applies
thereto, a first priority security interest in, the Acquired Advances and
the Related Security in favor of the Trustee; or
(g) (i) an Insolvency Event shall occur with respect to any of the Issuer
or the Originator; or (ii) either of the Issuer or the Originator shall
take any corporate action to authorize the filing of any such Insolvency
Proceeding; or
(h) as of the close of business on any Business Day, there shall exist any
Asset Deficiency which shall have not been cured within two Business Days
after the date such Asset Deficiency has been determined to exist; or
(i) the Originator shall cease to own 100% of the issued and outstanding
stock of the Issuer; or
- 94 -
<PAGE>
(j) there shall have occurred, since the Closing Date, in the reasonable
judgment of the Insurer, a material adverse change in the operations,
management or financial condition of the Originator or the Issuer or there
shall have occurred any event which materially and adversely affects the
collectibility of the Acquired Advances generally or the ability of the
Issuer to perform hereunder; or
(k) the Issuer shall become (1) an "investment company" within the meaning
of the Investment Company Act of 1940, as amended, or under the control of
such an "investment company", (2) a "public utility company" or a "holding
company," a "subsidiary company" or an "affiliate" of any public utility
company within the meaning of Section 2(a)(5), 2(a)(7), 2(a)(8) or 2(a)(11)
of the Public Utility Holding Company Act of 1935, or (3) otherwise subject
to any other federal or state statute or regulation limiting its ability to
incur or pay indebtedness; or
(l) there shall have occurred a "Termination Event" under the Purchase and
Contribution Agreement; or
(m) as of any date of determination, either of the following shall have
occurred: (i) the Default Ratio shall exceed eight percent (8.0%) or (ii)
the Remarketing Ratio shall exceed thirty percent (30.0%); or
(n) the Originator shall pay or declare any dividend or other distribution
with respect to its capital stock after giving effect to which, the
aggregate amount of dividends made in such fiscal year would exceed 10% of
Consolidated Net Income; or
(o) the excess of (x) the per annum interest rate (calculated on a
weighted average basis) accruing at any time in respect of outstanding
Acquired Advances over (y) the sum of (i) the Note Rate (calculated on a
weighted average basis) then accruing under the Notes, plus (ii) the
percentage set forth in clause (i) of the defined term "Servicing Fee;
[plus (iii) the Program Fees,] shall be less than two percent (2.0%); or
(p) (i) as of the end of any of the first three fiscal quarters of any
year or for any fiscal year, the Originator's Consolidated Pre-Tax Margin
shall be less than three percent (3.0%), or (ii) as of the end of any
fiscal quarter, the Originator's Consolidated Net Worth shall be less than
$45,000,000; or
(q) the Issuer or the Originator shall fail to pay any principal of or
interest on any Debt having a principal amount of $50,000 or greater in
the case of the Issuer, or $250,000 or greater in the case of the
Originator, when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) and
such failure shall continue after the applicable grace period, if any,
specified in the agreement or instrument relating to such Debt; or any
other default under any agreement or instrument relating to any such Debt
of the Originator or any other event, shall occur and shall continue after
the applicable grace period, if any, specified in such agreement or
instrument if the effect of such default or event is to accelerate, or to
- 95 -
<PAGE>
permit the acceleration of, the maturity of such Debt; or any such Debt
shall be declared to be due and payable or required to be prepaid (other
than by a regularly scheduled required prepayment) prior to the stated
maturity thereof; or
(r) the percentage certified to pursuant to Section 3.04(g)(viii)
hereof shall be less than 95%; or
(s) the Insurer shall have a long-term debt rating of A or lower by
S&P or A-2 or lower by Moody;.
then, in the case of any such event either the Trustee (unless otherwise
directed by the Control Party), or the Control Party, by notice then
given in writing to the Issuer and the Servicer (and to the Trustee if
given by the Control Party), may declare (provided such event shall not
have been remedied) that an Event of Default has occurred as of the date
of such notice and as of such notice date the Notes shall become
immediately due and payable and the Wind Down Date shall occur; provided
that, in the case of any event described in clause (d), the Wind Down Date
shall occur, and the Notes and all other Secured Obligations shall
immediately and automatically become due and payable, in each case, without
any notice or other action on the part of the Trustee or the Noteholders,
immediately upon the occurrence of such event. Promptly and in any event
within one Business Day after the Servicer becomes aware of any Event of
Default, the Servicer shall notify the Trustee and the Insurer of the
occurrence of such Event of Default.
SECTION 9.02. Additional Rights Upon the Occurrence of any Event of
Default. Upon the occurrence and during the continuance of any Event of
Default, the Insurer shall have the right to replace the Servicer and the
Trustee shall have, in addition to all other rights and remedies available
to the Trustee under this Indenture or otherwise, (a) the right to apply
Collections to the payment of the Obligations of the Issuer and the Servicer
under this Indenture or under any of the other Transaction Documents as
provided herein, and (b) all other rights and remedies provided under the
UCC of the applicable jurisdiction and other applicable laws (which rights
shall be cumulative). The Trustee shall exercise such rights at the
direction of the Control Party pursuant to (and subject to the limitations
of) Section 11.19; provided, however, that without the consent the Insurer
and of all of the Noteholders the Trustee shall not be permitted to sell,
transfer or otherwise convey the Pledged Assets to any third party for an
amount less than the Aggregate Outstanding Amount of all of the Notes,
together with accrued but unpaid interest thereon.
- 96 -
<PAGE>
ARTICLE X
SERVICER DEFAULTS
SECTION 10.01. Servicer Defaults. If any one of the following events
(each being a "Servicer Default") shall occur and be continuing:
(a) any failure by the Servicer (i) to deliver any information to the
Trustee required pursuant to Section 3.04(g)(vi) on or before the date
such information is required to be given under the terms of this Indenture
and such failure shall remain unremedied for three Business Days after
written notice from the Trustee or the Insurer, (ii) to deliver any other
information or reports to the Trustee required pursuant to Section 3.04(g)
(including, without limitation, the failure to deliver any Servicer's
Daily Report or Monthly Report) on or before the date such information,
Servicer's Daily Report or Monthly Report is required to be given or made
under the terms of this Indenture and such failure shall (in the case of
any report other than a Servicer's Daily Report or Monthly Report) remain
unremedied for ten Business Days after written notice from the Trustee or
the Insurer, or (iii) to make any payment, transfer or deposit on or
before the date such payment, transfer or deposit is required to be made
under the terms of this Indenture or any of the other Transaction
Documents to which it is a party; or
(b) any failure on the part of the Servicer duly to observe or perform
any other covenants or agreements of the Servicer set forth in this
Indenture or any of the other Transaction Documents to which it is a
party, which failure continues unremedied for a period of ten days after
the date on which written notice thereof, requiring the same to be
remedied, shall have been given to the Servicer by the Trustee, or to the
Servicer and the Trustee by any Noteholder or the Insurer; assignment by
the Servicer of its duties without (i) an express assumption of the
Servicer's obligations hereunder by such assignee, (ii) to the extent the
Servicer is the Originator, continued performance of its obligations
under the Purchase and Contribution Agreement, and/or (iii) rating agency
consent; or
(c) any representation, warranty or certification made by the Servicer
in this Indenture or any other Transaction Document to which it is a
party or in any certificate delivered pursuant to this Indenture or any
other Transaction Document to which it is a party shall prove to have
been incorrect in any material respect when made; or
(d) the Servicer shall become subject to an Insolvency Event; or
(e) a final judgment is rendered against the Originator while acting as
Servicer in an amount greater than $1,000,000 and, within 30 days after
entry thereof, such judgment is not discharged or execution thereof
stayed pending appeal, or within 10 days after the expiration of any such
stay, such judgment is not discharged; or
- 97 -
<PAGE>
(f) the Servicer or any Affiliate of the Servicer shall fail to pay any
principal of or premium or interest on any Debt for which the Servicer is
liable (whether as a primary or secondary party) if the aggregate principal
amount of such Debt is $250,000 or more, when the same becomes due and
payable (whether by scheduled maturity, required prepayment, acceleration,
demand or otherwise) and such failure shall continue after the applicable
grace period, if any, specified in the agreement or instrument relating to
such Debt; or any other default under any agreement or instrument relating
to any such Debt or any other event, shall occur and shall continue after
the applicable grace period, if any, specified in such agreement or
instrument if the effect of such default or event is to accelerate, or to
permit the acceleration of, the maturity of such Debt; or any such Debt
shall be declared to be due and payable or required to be prepaid (other
than by a regularly scheduled required prepayment) prior to the stated
maturity thereof; or
(g) if the Servicer is the Originator or an Affiliate of the Originator,
the occurrence of any Wind Down Event specified in Section 9.01(l) or (p); or
(h) the Trustee or the Insurer (A) shall receive notice from the Servicer
that the Servicer is no longer able to discharge its duties under this
Indenture or (B) shall determine, in their respective reasonable judgment
and based upon published reports (including wire services), which they
reasonably believe in good faith to be reliable, that the Servicer (1) has
experienced a material adverse change in its business, assets, liabilities,
operations, or financial condition, (2) has defaulted on any of its material
obligations (other than those included in this Indenture), or (3) has ceased
to conduct its business in the ordinary course; or
(i) the Servicer shall fail to comply in any material respect with the
Credit and Collection Policy in the performance of its duties hereunder;
Following the occurrence of a Servicer Default, the Control Party may among
other things, declare an Event of Default, deliver a Termination Notice to
the Servicer and effect a Service Transfer.
The Control Party may waive any default by the Issuer or the Servicer in
the performance of their obligations under this Indenture and its
consequences, provided, however, that the Control Party shall not have the
right to forgive the payment of principal or interest on any Note. Upon
any such waiver of a past default, such default shall cease to exist, and
any such default shall be deemed to have been remedied for every purpose of
this Indenture. No such waiver shall extend to any subsequent or other
default or impair any right consequent thereon except to the extent
expressly so waived.
After receipt by the Servicer of a Termination Notice, and on the date that
a Successor Servicer shall have been appointed pursuant to Section 10.02,
all authority and power of the Servicer under this Indenture shall pass to
and be vested in such Successor Servicer (a "Service Transfer"); and,
without limitation, the Trustee is hereby authorized, empowered and
instructed (upon the failure of the Servicer to cooperate) to execute and
- 98 -
<PAGE>
deliver, on behalf of the Servicer, as attorney-in fact or otherwise, all
documents and other instruments upon the failure of the Servicer to execute
or deliver such documents or instruments, and to do and accomplish all other
acts or things necessary or appropriate to effect the purposes of such
Service Transfer. The Servicer agrees to cooperate, at its expense, with
the Trustee and such Successor Servicer in (i) effecting the termination of
the responsibilities and rights of the Servicer to conduct servicing
hereunder, including, without limitation, the transfer to such Successor
Servicer of all authority of the Servicer to service the Acquired Advances
as provided under this Indenture, including all authority over all
Collections which shall on the date of such Service Transfer be held by the
Servicer for deposit to the Collection Account, the Reserve Account or the
Issuer's Account, or which have been deposited by the Servicer to the
Collection Account, or any other account, or which shall thereafter be
received with respect to the Acquired Advances, and (ii) assisting the
Successor Servicer until all servicing activities have been transferred to
such Successor Servicer, such assistance to include, without limitation,
(x) assisting any accountants selected by the Successor Servicer to verify
collection records and reports made prior to the Service Transfer and (y)
assisting the Successor Servicer in making the computer systems of the
Servicer and the Successor Servicer compatible to the extent necessary to
effect the Service Transfer. The Servicer shall, at its expense, within
five Business Days of such Service Transfer, (A) assemble such documents,
instruments and other records (including computer tapes and discs), which
evidence the Acquired Advances and the other Pledged Assets, and which are
necessary or desirable to collect the Acquired Advances and shall make the
same available to the Successor Servicer or the Trustee or its designee at
a place selected by the Successor Servicer or the Trustee and in such form
as the Successor Servicer or the Trustee may reasonably request, and (B)
segregate all cash, checks and other instruments received by it from time
to time constituting Collections of Acquired Advances in a manner acceptable
to the Successor Servicer and the Trustee, and, promptly upon receipt, remit
all such cash, checks and instruments to the Successor Servicer or the
Trustee or its designee.
At any time following a Termination Notice:
(1) The Servicer shall, at the Trustee's request and at the Servicer's
expense, give notice of the Trustee's security interest in the Acquired
Advances to the related Obligors and direct that payments be made directly
to the Trustee or its designee;
(2) If the Servicer fails to provide the notice to Obligors required in
paragraph (1) above, the Trustee may direct the Obligors of Acquired
Advances or any of them, that payment of all amounts payable under any such
Acquired Advances be made directly to the Trustee or its designee;
(3) Each of the Issuer and Noteholder hereby authorizes the Trustee to
take any and all steps in the Issuer's name and on behalf of the Issuer and
the Noteholders necessary or desirable, in the determination of the
Trustee, to collect all amounts due under any and all Acquired Advances,
including, without limitation, endorsing the Issuer's name on checks and
- 99 -
<PAGE>
other instruments representing Collections in respect of such Acquired
Advances and enforcing such Acquired Advances.
SECTION 10.02. Trustee to Act; Appointment of Successor Servicer. (a) On
and after the receipt by the Servicer of a Termination Notice pursuant to
Section 10.01 or upon a resignation by the Servicer pursuant to Section
8.05, the Servicer shall continue to perform all servicing functions under
this Indenture until (i) in the case of any such receipt, the date
specified in such Termination Notice or otherwise specified by the Trustee
in writing or, if no such date is specified in such Termination Notice or
otherwise specified by the Trustee, until the earlier of a date agreed
upon by the Servicer and the Trustee or a date specified by the Trustee in
a written notice to the Servicer, and (ii) in the case of any such
resignation, until the Trustee or a Successor Servicer shall have assumed
the responsibilities and obligations of the Servicer pursuant to this
Section 10.02. The Trustee shall as promptly as possible after the giving
of a Termination Notice or such a resignation appoint a Successor Servicer,
subject to the acceptance by the Successor Servicer of such appointment by
written acceptance in a form acceptable to the Trustee. In the event such
Person is unable to accept such appointment, the Trustee shall as promptly
as possible appoint an Eligible Servicer as a Successor Servicer, subject
to the consent of the Control Party, which consent shall not be
unreasonably withheld, and such Successor Servicer shall accept its
appointment by a written assumption in a form acceptable to the Trustee.
In the event that the Successor Servicer has not been appointed or has not
accepted its appointment by the earlier of 60 days after the date of such
Termination Notice or at the time when the Servicer ceases to act, the
Trustee without further action shall automatically be appointed the
Successor Servicer. The Trustee may delegate any of its servicing
obligations to an affiliate or agent in accordance with the terms of this
Agreement. Notwithstanding the foregoing, the Trustee shall, if it is
legally unable so to act as Successor Servicer, petition a court of
competent jurisdiction to appoint any established institution that is an
Eligible Servicer (other than the Trustee) as the Successor Servicer
hereunder.
(b) Upon its appointment, the Successor Servicer shall be the successor
in all respects to the Servicer being terminated with respect to
servicing functions under this Indenture performed by the Servicer and
shall be subject to all the responsibilities, duties and liabilities
relating thereto placed on the Servicer by the terms and provisions hereof,
and all references in this Indenture to the Servicer shall be deemed to
refer to such Successor Servicer; provided, however, that neither the
Trustee (solely in its capacity as such) nor any Successor Servicer shall
be deemed in default hereunder as a result of any predecessor Servicer's
failure to deliver necessary Pledged Assets, documents, or records to the
Trustee (solely in its capacity as such) or to such Successor Servicer.
The Successor Servicer, by its acceptance of its appointment, will
automatically agree to be bound by the terms and provisions of the Master
Insurance Agreement and the Trust Insurance Policy.
(c) In connection with any Termination Notice, the Trustee will review
any bids which it obtains from Eligible Servicers and shall be permitted to
- 100 -
<PAGE>
appoint any Eligible Servicer submitting such a bid as a Successor Servicer
for servicing compensation not in excess of the Servicing Fee.
(d) All authority and power granted to the Successor Servicer under this
Indenture shall automatically terminate upon satisfaction and discharge of
this Indenture pursuant to Section 12.02, and shall pass to and be vested
in the Issuer and, without limitation, the Issuer is hereby authorized and
empowered to execute and deliver, on behalf of the Successor Servicer, as
attorney-in-fact or otherwise, all documents and other instruments, and to
do and accomplish all other acts or things necessary or appropriate to
effect the purposes of such transfer of servicing rights. The Successor
Servicer agrees to cooperate with the Issuer in effecting the termination
of the responsibilities and rights of the Successor Servicer to conduct
servicing of the Acquired Advances. The Successor Servicer shall transfer
its electronic records relating to the Acquired Advances to the Issuer in
such electronic form as the Issuer may reasonably request and shall transfer
all other records, correspondence and documents to the Issuer in the manner
and at such times and the Issuer shall reasonably request.
SECTION 10.03. Notification to Noteholders. Promptly and in any event
within three Business Days after the Servicer becomes aware of any Servicer
Default, the Servicer shall give written notice thereof to a Responsible
Officer of the Insurer and Trustee, and the Trustee shall promptly deliver
a copy of such notice to the Noteholders and each Rating Agency. Upon any
termination of the initial Servicer or appointment of a Successor Servicer
pursuant to this Article X, the Trustee shall give prompt written notice
thereof to the Issuer, the Insurer and the Noteholders.
ARTICLE XI
THE TRUSTEE
SECTION 11.01. Duties of Trustee. (a) The Trustee, prior to the
occurrence of a Servicer Default of which one of its Responsible Officers
has actual knowledge and after the curing of all Servicer Defaults which
may have occurred, undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied duties or
covenants shall be read into this Indenture against the Trustee. If a
Servicer Default to the actual knowledge of a Responsible Officer of the
Trustee has occurred (which has not been cured or waived), the Trustee
shall exercise such of the rights and powers vested in it by this
Indenture and use the same degree of care and skill in their exercise, as
a prudent person would exercise or use under the circumstances in the
conduct of his or her own affairs.
(b) The Trustee, upon receipt of any resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments
furnished to the Trustee which are specifically required to be furnished
pursuant to any provision of this Indenture or any Supplement, shall
examine them to determine whether they substantially conform to the
- 101 -
<PAGE>
requirements of this Indenture or any Supplement. The Trustee shall give
prompt written notice to the Noteholders and each Rating Agency of any
material lack of conformity of any such instrument to the applicable
requirements of this Indenture or any Supplement discovered by the Trustee
which would entitle a specified percentage of the Noteholders to take any
action pursuant to this Indenture or any Supplement.
(c) Subject to Section 11.01(a), no provision of this Indenture shall be
construed to relieve the Trustee from liability for its own negligent
action, its own negligent failure to act or its own willful misconduct;
provided, however, that:
(i) the Trustee shall not be personally liable for an error of judgment
made in good faith by a Responsible Officer or Responsible Officers of the
Trustee, unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(ii) the Trustee shall not be personally liable with respect to any action
taken, suffered or omitted to be taken by it in good faith in accordance
with the direction of the Control Party relating to the time, method and
place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under this
Indenture; and
(iii) the Trustee shall not be charged with knowledge for any failure by
the Servicer to comply with the obligations of the Servicer referred to in
Section 10.01 unless a Responsible Officer of the Trustee obtains actual
knowledge of such failure or the Trustee received written notice of such
failure from the Servicer, the Insurer or from Holders of Notes evidencing
not less than 10% of the Outstanding Principal Balance of any Series.
(d) The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder or under any Supplement or in the exercise of any of its rights
or powers. None of the provisions contained in this Indenture shall in any
event require the Trustee to perform, or be responsible for the manner of
performance of, any obligations of the Servicer under this Indenture except
during such time, if any, as the Trustee shall be the successor to, and be
vested with the rights, duties, powers and privileges of, the Servicer in
accordance with the terms of this Indenture.
(e) Except for actions expressly authorized by this Indenture, the
Trustee shall take no action reasonably likely to impair the interests of
the Noteholders or the Trustee in any Acquired Advance now existing or
hereafter created or to impair the value of any Acquired Advance now
existing or hereafter created.
(f) Except as expressly provided in this Indenture, the Trustee shall
have no power to vary the corpus of the Pledged Assets including, without
limitation, by (i) accepting any substitute obligation for a Acquired
Advance initially pledged to the Trustee under Section 2.01, (ii) adding
- 102 -
<PAGE>
any other investment, obligation or security to the Pledged Assets, or
(iii) releasing its security interest in any Pledged Asset.
(g) In the event that the Paying Agent or the Transfer Agent and Registrar
shall fail to perform any obligation, duty or agreement in the manner or on
the day required to be performed by the Paying Agent or the Transfer Agent
and Registrar, as the case may be, under this Indenture or under any
Supplement, the Trustee shall be obligated promptly upon its actual
knowledge thereof to perform such obligation, duty or agreement in the
manner so required.
(h) The Trustee shall have no responsibility or liability for investment
losses on Eligible Investments.
(i) Notwithstanding any other provision contained herein, the Trustee is
not acting as, and shall not be deemed to be, a fiduciary for the Insurer
and the Trustee's sole responsibility with respect to the Insurer shall be
to perform those duties with respect to the Insurer as are specifically set
forth herein or in any applicable Supplement and no implied duties or
obligations shall be read into this Indenture or such Supplement against
the Trustee with respect to the Insurer.
(j) Whether or not expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of the Trustee
shall be subject to the provisions of this Section 11.01.
SECTION 11.02. Certain Matters Affecting the Trustee. Except as otherwise
provided in Section 11.01:
(a) the Trustee may rely on and shall be protected in acting on, or in
refraining from acting in accord with, any resolution, Officer's
Certificate, certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
bond or other paper or document believed by it to be genuine and to have
been signed or presented to it pursuant to this Indenture by the proper
party or parties;
(b) the Trustee may consult with counsel and any advice or Opinion of
Counsel shall be full and complete authorization and protection in respect
of any action taken or suffered or omitted by it hereunder in good faith
and in accordance with such advice or Opinion of Counsel;
(c) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture, or to institute, conduct
or defend any litigation hereunder or in relation hereto, at the request,
order or direction of any of the Noteholders, pursuant to the provisions
of this Indenture, unless such Noteholders shall have offered to the
Trustee security or indemnity reasonably satisfactory to the Trustee
- 103 -
<PAGE>
against the costs, expenses and liabilities which may be incurred therein
or thereby; provided, however, that nothing contained herein shall relieve
the Trustee of the obligations, upon the occurrence of a Servicer Default
or an Event of Default (either of which has not been cured or waived), to
exercise such of the rights and powers vested in it by this Indenture, and
to use the same degree of care and skill in their exercise as a prudent
man would exercise or use under the circumstances in the conduct of his
own affairs;
(d) the Trustee shall not be personally liable for any action taken,
suffered or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Indenture;
(e) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
approval, bond or other paper or document;
(f) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys or a custodian, and the Trustee shall not be responsible for any
misconduct or negligence on the part of any such agent, attorney or
custodian appointed with due care by it hereunder;
(g) the Trustee shall not be required to make any initial or periodic
examination of any documents or records related to the Acquired Advances
for the purpose of establishing the presence or absence of defects, the
compliance by the Issuer with its representations and warranties or for
any other purposes; and
(h) nothing in this Indenture shall be construed to require the Trustee
to monitor the performance of the Servicer or act as a guarantor of the
Servicer' performance.
SECTION 11.03. Trustee Not Liable for Recitals in Notes. The Trustee
assumes no responsibility for the correctness of the recitals contained
herein and in the Notes (other than the certificate of authentication on
the Notes). Except as set forth in Section 11.15, the Trustee makes no
representations as to the validity or sufficiency of this Indenture or of
the Notes (other than the certificate of authentication on the Notes) or
of any Acquired Advances or related document. The Trustee shall not be
accountable for the use or application by the Issuer of any of the Notes
or of the proceeds of such Notes, or for the use or application of any
funds paid to the Issuer in respect of the Acquired Advances or deposited
in or withdrawn from any Collection Account, the Reserve Account, any
other Trust Account, the Issuer's Account or any other account hereafter
established to effectuate the transactions contemplated by and in
accordance with the terms of this Indenture and any Supplement.
SECTION 11.04. Trustee May Own Notes. The Trustee in its individual or
any other capacity may become the owner or pledgee of Notes and may
otherwise deal, and transact banking business, with the Originator, the
Servicer and/or the Issuer with the same rights as it would have if it
were not the Trustee.
- 104 -
<PAGE>
SECTION 11.05. Money Held in Trust. Money held by the Trustee in trust
hereunder need not be segregated from other funds of such Person, except
to the extent required by law or this Indenture. The Trustee shall have
no liability for interest on any money received by it hereunder except
as otherwise agreed in writing with the Issuer.
SECTION 11.06. Disqualification; Conflicting Interests. If, at any time
after this Indenture has been qualified under the Trust Indenture Act,
the Trustee has or shall acquire any "conflicting interest" within the
meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the
Issuer shall in all respects comply with the provisions of Section 310(b)
of the Trust Indenture Act. Without limiting the foregoing, if a
conflicting interest is deemed to arise under said Section 310(b) by
virtue of the fact that the Trustee is acting as Trustee for more than
one Series of Notes Outstanding concurrently, and such conflicting
interest is not, or is not reasonably expected to be, cured within 90
days of its occurrence, then, in such event, the Trustee may resign or
assign to a separate trustee such of its duties under the Transaction
Documents as may be necessary to eliminate any such conflicting interest
in accordance with Section 11.15 hereof.
SECTION 11.07. Preferential Collection of Claims against Issuer. At all
times after this Indenture becomes qualified under the Trust Indenture Act,
the Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship described in Section 311(b) of the Trust
Indenture Act, and a Trustee who has resigned or been removed shall be
subject to Section 311(a) of the Trust Indenture Act to the extent indicated
therein.
SECTION 11.08. Limitation on Liability of Trustee. The Trustee shall have
no responsibility or liability for or with respect to the correctness of the
recitals contained herein, in any of the other Transaction Documents, or in
the Notes (other than the certificate of authentication of the Trustee on
the Notes). Except as set forth in Section 11.20, the Trustee makes no
representations as to the validity or sufficiency of this Indenture, any of
the other Transaction Documents, the Notes (other than the certificate of
authentication of the Trustee on the Notes), any other Transaction Document
or any Pledged Asset or related document. The Trustee shall not be
accountable for the use or application by the Issuer of any of the Notes, or
of the proceeds of such Notes, or for the use or application of any funds
paid to the Issuer or the Servicer in respect of the Pledged Assets or
deposited by the Servicer in, or withdrawn by the Servicer from, the
Collection Account, the Reserve Account, the Issuer's Account or any other
accounts hereafter established to effectuate the transactions contemplated
herein or in the other Transaction Documents in accordance with the terms
hereof or thereof.
The Trustee shall have no responsibility or liability for or with respect to
(A) the legality, validity or enforceability of any ownership or security
interest in any Pledged Asset; (B) the perfection or priority of such a
security interest; (C) the maintenance of any such perfection or priority;
(D) the efficacy of the Granting Clause hereunder; (E) the ability of the
Pledged Assets to generate the payments to be distributed to Noteholders
under this Indenture; (F) the existence and substance of any Pledged Asset
or any related Record or any computer or other record thereof; (G) the
validity of the grant of security in any Pledged Asset to the Trustee as
- 105 -
<PAGE>
contemplated pursuant to the Granting Clause hereunder or of any preceding
or intervening grant pursuant thereto; (H) the performance or enforcement of
any Pledged Asset; (I) the compliance by the Issuer or the Servicer with any
warranty or representation made under this Indenture or in any other
Transaction Document and the accuracy of any such warranty or representation
prior to the Trustee's receipt of actual notice of any noncompliance
therewith or any breach thereof; (J) any investment of monies pursuant to
Section 4.02 or any loss resulting therefrom; (K) the acts or omissions of
the Issuer, the Servicer or any Obligor; (L) any action of the Servicer
taken in the name of the Trustee; or (M) any action by the Trustee taken at
the instruction of the Servicer; provided, however, that the foregoing shall
not relieve the Trustee of its obligation to perform its duties under this
Indenture and the other Transaction Documents in accordance with the terms
hereof and thereof.
Except with respect to a claim based on the failure of the Trustee to
perform its duties under this Indenture or under any of the other
Transaction Documents or based on the Trustee's negligence or willful
misconduct, no recourse shall be had against the Trustee in its individual
capacity for any claim based on any provision of this Indenture, any other
Transaction Document, the Notes, any Pledged Asset or any assignment
thereof. The Trustee shall not have any personal obligation, liability or
duty whatsoever to any Noteholder or any other Person with respect to any
such claim, and any such claims shall be asserted solely against the
Pledged Assets, the Issuer or any indemnitor who shall furnish indemnity to
the Trustee as provided in this Indenture. Any obligation of the Trustee
to give any notice or statement to any rating agency hereunder shall
constitute only a best efforts obligation and such notice or statement
shall be so provided only as a matter of courtesy and accommodation. The
Trustee shall have no liability to any rating agency or any other Person
for any failure to so provide such notice or statement.
The provisions of this Section 11.08 shall survive and continue to inure to
the benefit of the Trustee notwithstanding the termination of this Indenture
or the removal or resignation of the Trustee.
SECTION 11.09. Trustee May Deal with Other Parties. Subject to any
restrictions that may otherwise be imposed by Section 406 of ERISA or
Section 4975(e) of the Internal Revenue Code and/or the Trust Indenture Act
(if applicable), the Trustee, in its individual or any other capacity, may
deal with the other parties hereto (other than the Issuer) and their
respective affiliates with the same rights as it would have if it were not
the Trustee.
SECTION 11.10. Servicer to Pay Trustee's Fees and Expenses. (a) To the
extent not paid by the Servicer to the Trustee from funds constituting the
Servicing Fee, the Servicer covenants and agrees to pay to the Trustee from
time to time, and the Trustee shall be entitled to receive, such reasonable
compensation as is agreed upon in writing between the Trustee and the
Servicer, in the case of any such fees payable to the Trustee, which amount
shall not be limited by any provision of law in regard to the compensation
of a trustee of an express trust (the "Trustee's Fee") for all services
rendered by it in the execution of the trust hereby created and in the
exercise and performance of any of the powers and duties of the Trustee
- 106 -
<PAGE>
hereunder and under the other Transaction Documents, and the Servicer will
pay or reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in accordance
with any of the provisions of this Indenture and the other Transaction
Documents to which it is a party (including the reasonable fees and
expenses of its agents, any co-trustee and counsel), except any such
expense, disbursement or advance as may arise from the Trustee's own
negligence or willful misconduct and except as otherwise provided in the
following subsection.
(b) In addition, the Servicer (if other than the Trustee) agrees to
indemnify the Trustee from, and hold it harmless against, any and all
losses, liabilities, damages, claims or expenses (including, without
limitation, the reasonable fees and expenses of counsel) incurred by the
Trustee in the exercise or performance of any of its powers or duties
hereunder and the other Transaction Documents or as a result of the
Trustee's action as Trustee hereunder and/or thereunder, other than those
resulting from the negligence or willful misconduct of the Trustee.
(c) If the Trustee is appointed Successor Servicer pursuant to Article X,
the provisions of this Section 11.10 shall not apply to expenses,
disbursements and advances made or incurred by the Trustee in its capacity
as Successor Servicer, which accounts shall be paid out of the Servicing
Fee. The Servicer's covenant to pay the fees, expenses, disbursements and
advances provided for in this Section 11.10 shall survive the resignation
or removal of the Trustee and the satisfaction and discharge of this
Indenture.
SECTION 11.11. Corporate Trustee Required; Eligibility. There shall at
all times be a Trustee hereunder which shall:
(a) be a bank or banking corporation organized and doing business under
the laws of the United States of America, any State or Territory thereof or
the District of Columbia, authorized under such laws to exercise corporate
trust powers, and subject to supervision or examination by Federal, State,
Territorial or District of Columbia authority;
(b) not be the Insurer, the Originator, or an Affiliate of the Originator
or the Issuer;
(c) have a combined capital and surplus of at least $50,000,000 (or shall
be a member of a bank holding system, the aggregate combined capital and
surplus of which is at least $50,000,000), and shall at all times be subject
to supervision or examination by federal or state authority; and
(d) with respect to any successor Trustee, have a long-term unsecured
senior debt rating of "A" or better from S&P and "A2" or better from Moody's.
If such corporation or association publishes reports of condition at least
annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then, for the purpose of this Section
11.11, the combined capital and surplus of such corporation or association
- 107 -
<PAGE>
shall be deemed to be its combined capital and surplus as set forth in its
most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this
Section 11.11, the Trustee shall resign immediately in the manner and with
the effect specified in Section 11.12.
SECTION 11.12. Resignation or Removal of Trustee.
(a) The Trustee may at any time resign and be discharged from the trust
hereby created by giving at least 90 days' prior written notice thereof to
the Insurer, the Issuer, the Servicer, the Rating Agencies and the
Noteholders. Upon receiving such notice of resignation, the Issuer shall
promptly appoint a successor Trustee who meets the eligibility requirements
set forth in Section 11.11 by written instrument, in duplicate, one copy of
which instrument shall be delivered to the resigning Trustee and one copy
of the successor Trustee. If no successor Trustee shall have been so
appointed and shall have accepted such appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may, upon
notice to the Issuer, petition any court of competent jurisdiction to
appoint a successor Trustee who meets the eligibility requirements set
forth in Section 11.11.
(b) If at any time:
(i) after this Indenture is qualified or required to be qualified under
the Trust Indenture Act, the Trustee shall fail to comply with Section
310(b) of the Trust Indenture Act pursuant to Section 11.06 hereof after
written request therefor by the Insurer, the Issuer, the Servicer or any
Noteholder (unless the Trustee's duty to resign is stayed in accordance
with the provisions of Section 310(b) of the Trust Indenture Act), or
(ii) the Trustee shall otherwise cease to be eligible under Section 11.11
hereof and shall fail to resign after written request therefor by the
Servicer, the Issuer or the Majority Noteholders, or
(iii) the Trustee shall become incapable of acting or shall become the
subject of an Insolvency Event,
then, in any such case, the Servicer may (or, at the request of the Insurer,
the Issuer or any Noteholder, shall) remove the Trustee and promptly appoint
a successor Trustee by written instrument, in duplicate, one copy of which
instrument shall be delivered to the Trustee being so removed (who shall
send a copy thereof to each of the Rating Agencies) and the other copy
thereof shall be delivered to the successor Trustee. If no successor
Trustee shall have been appointed and shall have accepted such appointment
within 30 days after the Insurer's, the Issuer's or any such Noteholder's
giving of any such notice, the Issuer or any such Noteholder may petition
any court of competent jurisdiction to appoint a successor Trustee meeting
the eligibility requirements set forth in Section 11.11.
- 108 -
<PAGE>
(c) Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 11.12
shall not become effective until acceptance of appointment by the successor
Trustee as provided in Section 11.13 hereof.
SECTION 11.13. Successor Trustee. (a) Any successor trustee appointed as
provided in Section 11.12 shall execute, acknowledge and deliver to the
Issuer, to the Servicer and to its predecessor Trustee an instrument
accepting such appointment hereunder, and thereupon the resignation or
removal of the predecessor Trustee shall become effective and such
successor trustee, without any further act, deed or conveyance, shall
become fully vested with all the rights, powers, duties and obligations of
its predecessor hereunder, with like effect as if originally named as
Trustee herein. The predecessor Trustee shall deliver (with the expenses
therefor payable out of the Servicing Fee, and by the Issuer and the
Servicer, pursuant to Sections 3.02(b) and 11.05(b)) to the successor
trustee all documents or copies thereof and statements held by it
hereunder; and the Issuer and the predecessor Trustee shall execute and
deliver such instruments and do such other things as may reasonably be
required for fully and certainly vesting and confirming in the successor
trustee all such rights, powers, duties and obligations.
(b) No successor trustee shall accept appointment as provided in this
Section 11.13 unless at the time of such acceptance such successor trustee
shall be eligible under the provisions of this Indenture.
(c) Upon acceptance of appointment by a successor trustee as provided in
this Section 11.13, such successor trustee shall mail notice of such
succession hereunder to the Insurer and all Noteholders.
SECTION 11.14. Merger or Consolidation of Trustee. Any Person into which
the Trustee may be merged or converted or with which it may be
consolidated, or any Person resulting from any merger, conversion or
consolidation in which the Trustee shall be a party, or any Person
succeeding to the corporate trust business of the Trustee, shall be
successor of the Trustee hereunder, provided such corporation shall be
eligible under the provisions of this Indenture, without the execution or
filing of any paper or any further act on the part of any of the parties
hereto, anything herein to the contrary notwithstanding.
SECTION 11.15. Appointment of Co-Trustee or Separate Trustee. (a)
Notwithstanding any other provisions of this Indenture, at any time, for
the purpose of meeting any legal requirements of any jurisdiction in which
any part of the Pledged Assets may at the time be located, the Trustee
shall have the power and may execute and deliver all instruments to
appoint one or more persons to act as a co-trustee, or co-trustees, or
separate trustee or separate trustees, of all or any part of the Pledged
Assets, and to vest in such Person or Persons, in such capacity and for
the benefit of the Secured Parties, such title to the Pledged Assets, or
any part thereof, and, subject to the other provisions of this Section
11.15, such powers, duties, obligations, rights and trusts as the Trustee
may consider necessary or desirable. No co-trustee or separate trustee
hereunder shall be required to meet the terms of eligibility as a successor
- 109 -
<PAGE>
trustee under this Indenture and no notice to Noteholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 11.13 hereof; provided, however, that in the event this Indenture
is qualified under the Trust Indenture Act, each separate "indenture
trustee" must qualify under the Trust Indenture Act. The Trustee shall
give the Insurer, the Servicer and the Issuer notice of any such
appointment as promptly as possible.
(b) Every separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and
conditions:
(i) except for any appointment of a separate Trustee pursuant to Section
11.06 hereof, all rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised
or performed by the Trustee and such separate trustee or co-trustee
jointly (it being understood that such separate trustee or co-trustee is
not authorized to act separately without the Trustee joining in such act),
except to the extent that under any law of any jurisdiction in which any
particular act or acts are to be performed (whether as Trustee hereunder or
as Successor Servicer hereunder), the Trustee shall be incompetent or
unqualified to perform such act or acts, in which event such rights,
powers, duties and obligations (including the holding the security interest
in the Pledged Assets or any portion thereof in any such jurisdiction)
shall be exercised and performed singly by such separate trustee or
co-trustee, but solely at the direction of the Trustee;
(ii) no Trustee hereunder shall be personally liable by reason of any act
or omission of any other trustee hereunder; and
(iii) the Trustee may at any time accept the resignation of or (except
with respect to a separate Trustee appointed pursuant to Section 11.06
hereof) remove any separate trustee or co-trustee.
(c) Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and
co-trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this
Indenture and the conditions of this Article XI. Each separate trustee
and co-trustee, upon its acceptance of the trusts conferred, shall be
vested with the estates or property specified in its instrument of
appointment, either jointly with the Trustee or separately, as may be
provided therein, subject to all the provisions of this Indenture,
specifically including every provision of this Indenture relating to the
conduct of, affecting the liability of, or affording protection to, the
Trustee. Every such instrument shall be filed with the Trustee and a copy
thereof given to the Servicer.
(d) Any separate trustee or co-trustee may at any time constitute the
Trustee, its agent or attorney-in-fact with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect
of this Indenture on its behalf and in its name. If any separate trustee
- 110 -
<PAGE>
or co-trustee shall die, become incapable of acting, resign or be removed,
all its estates, properties, rights, remedies and trusts shall vest in and
be exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
SECTION 11.16. Tax Returns. No federal income tax return shall be filed
on behalf of any trust created hereby unless either (i) the Trustee or the
Servicer shall receive an Opinion of Counsel based on a change in
applicable law occurring after the date hereof that the Internal Revenue
Code requires such a filing or (ii) the Internal Revenue Service shall
determine that such a filing is required or (iii) such a filing is required
by order of a court of competent jurisdiction. In the event that such tax
returns are required to filed on behalf of a trust created hereby, the
Servicer shall on behalf of the Issuer prepare or to cause to be prepared
any tax returns required to be filed by such trust, shall sign the same as
preparer (or shall cause it to be signed by the preparer thereof), and
shall remit such returns to the Trustee for signature at least five days
before such returns are due to be filed; the Trustee shall promptly sign
such returns (unless the Trustee shall have determined, based upon advice
of counsel, that it is appropriate and in conformity with applicable tax
law that such return be signed by the Issuer as depositor of such trust, in
which case such return shall be signed by the Issuer) and deliver such
returns after signature to the Servicer and such returns shall be filed by
the Servicer. Any such taxes shall be owed by the Issuer and shall be paid
out of the Issuer's funds. The Trustee, the Paying Agent and the Transfer
Agent and Registrar, upon request, will each furnish the Servicer with all
such information known to such Person as may be reasonably required in
connection with the preparation of all tax returns of such trust, and the
Trustee shall, upon request of the Servicer (and after preparation and
execution by the applicable preparer of such returns), execute such returns
(unless the Trustee shall have determined, based upon advice of counsel,
that it is appropriate and in conformity with applicable tax law that such
return be signed by the Issuer as depositor of such trust, in which case
such return shall be signed by the Issuer). In no event shall the Trustee,
any Servicer or the Issuer be liable for any liabilities, costs or expenses
of such trust or the Noteholders arising out of the application of any tax
law, including federal, state, foreign or local income or excise taxes or
any other tax imposed on or measured by income (or any interest penalty or
addition with respect thereto or arising from a failure to comply
therewith). Neither the Trustee, the Servicer nor the Issuer shall make
any election to treat the such trust arrangement created by this Indenture
as a corporation or an association taxable as a corporation for United
States Federal income tax purposes and each shall treat the Notes for such
purposes consistent with the intent and agreement set forth in Section
2.05(s).
SECTION 11.17. Trustee May Enforce Claims Without Possession of Notes.
All rights of action and claims under this Indenture or the Notes may be
prosecuted and enforced by the Trustee without the possession of any of the
Notes or the production thereof in any proceeding relating thereto, and any
such proceeding instituted by the Trustee shall be brought in its own name
as trustee. Any recovery of judgment shall, after provision for the
payment the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, be for the ratable benefit of the
Noteholders in respect of which such judgment has been obtained.
- 111 -
<PAGE>
SECTION 11.18. Suits for Enforcement. (a) If a Servicer Default or Event
of Default shall occur and be continuing, the Trustee, in its discretion
may, subject to the provisions of Sections 11.01 and 11.19, proceed to
protect and enforce its rights and the rights of the Noteholders under this
Indenture by suit, action or proceeding in equity or at law or otherwise,
whether for the specific performance of any covenant or agreement contained
in this Indenture or in aid of the execution of any power granted in this
Indenture or for the enforcement of any other legal, equitable or other
remedy as the Trustee, being advised by counsel, shall deem most effectual
to protect and enforce any of the rights of the Trustee or the Noteholders.
(b) Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any
plan of reorganization, arrangement, adjustment or composition affecting
the Noteholders or the rights of any Holder thereof, or to authorize the
Trustee to vote in respect of the claim of any Noteholder in any such
proceeding.
SECTION 11.19. Rights of Control Party to Direct Trustee. The Control
Party shall have the right to direct the time, method, and place of
conducting any proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred on the Trustee; provided, however,
that subject to Section 11.01, the Trustee shall have the right to decline
to follow any such direction if the Trustee after being advised by counsel
determines that the action so directed may not lawfully be taken, or if the
Trustee in good faith shall, by a Responsible Officer or Responsible
Officers of the Trustee, determine that the proceedings so directed would be
illegal or involve it in personal liability or be unduly prejudicial to the
rights of Noteholders not parties to such direction; and, provided,
further, that nothing in this Indenture shall impair the right of the
Trustee to take any action deemed proper by the Trustee and which is not
inconsistent with such direction of the Noteholders unless the Control Party
shall have directed the Trustee not to take such action.
SECTION 11.20. Representations and Warranties of Trustee. The Trustee
represents and warrants that:
(a) Organization and Existence. The Trustee is a ______________, duly
organized and validly existing under the laws of the United States of
America and authorized to engage in a banking and trust business under such
laws.
(b) Power and Authority. The Trustee has full power, authority and right
to execute, deliver and perform this Indenture, and has taken all necessary
action to authorize the execution, delivery and performance by it of this
Indenture.
(c) Duly Executed. This Indenture has been duly executed and delivered
by the Trustee.
- 112 -
<PAGE>
SECTION 11.21. Maintenance of Office or Agency. The Trustee will maintain
at its expense, an office or agency (the "Corporate Trust Office") where
Notes may be presented for registration of transfer. The Trustee initially
designates its office or agency at ___________________________, _____ as
such office. The Trustee will give prompt written notice to the Servicer
and to Noteholders of any change in the location of the Note Register or
any such office or agency.
SECTION 11.22. Trustee May File Proofs of Claim. In case of the pendency
of any receivership, insolvency, liquidation, bankruptcy, reorganization,
arrangement, adjustment, composition or other insolvency proceedings, or
any voluntary or involuntary case under the Bankruptcy Code or any similar
state bankruptcy or insolvency laws, in each case, as now or hereafter
constituted, relative to the Issuer, the Trustee (irrespective of whether
the principal of the Notes shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the
Trustee shall have made any demand on the Issuer for the payment of overdue
principal or interest) shall be entitled and empowered, by intervention in
such proceeding or otherwise,
(i) to file and prove a claim for the whole Outstanding Principal Balance
(and premium, if any) and interest owing and unpaid in respect of the
Notes and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim
for the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel) and the Noteholders allowed in such
judicial proceeding, and
(ii) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any
custodian, receiver, assignee, trustee, liquidator, sequestrator (or other
similar official) in any such proceedings is hereby authorized by each
Noteholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Noteholders, to pay to the Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section
11.10.
Nothing contained herein shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Noteholder any
plan of reorganization, arrangement, adjustment or composition affecting
the Notes or of any Noteholder, or to authorize the Trustee to vote in
respect of the claim of any Noteholder in any such proceeding.
- 113 -
<PAGE>
ARTICLE XII
SCHEDULED WIND DOWN DATE;
SATISFACTION AND DISCHARGE
SECTION 12.01 Scheduled Wind Down Date. Upon the written request of the
Issuer, at least 60 days but not more than 120 days prior to the then
Scheduled Wind Down Date, the Trustee shall send a notice to each
Noteholder and the Insurer, requesting such party to send a notice to the
Issuer and the Trustee as to whether or not such Noteholder or the Insurer,
as the case my be, elects, in its sole and absolute discretion, to extend
the Scheduled Wind Down Date for an additional period (as specified in such
request of the Issuer and notice to Noteholders). The request by the
Issuer to the Trustee shall include a proposed form of the notice to be
sent to the Noteholders and the Insurer. If each Noteholder and the
Insurer agrees to so extend the Scheduled Wind Down Date and delivers such
a notice to the Issuer and the Trustee not later than the 30th Business Day
preceding the then Scheduled Wind Down Date, then the Scheduled Wind Down
Date shall be so extended and, if applicable, the Stated Maturity Date, of
each applicable Series shall be extended by a period of equivalent duration.
If any Noteholder or the Insurer declines to so extend the Scheduled Wind
Down Date, or fails to give a notice as provided above, the Scheduled Wind
Down Date shall occur as then scheduled.
SECTION 12.02 Satisfaction and Discharge of Indenture. This Indenture
and all obligations of the Issuer hereunder and under the other Transaction
Documents shall (except to the extent expressly otherwise provided herein
or therein with respect to certain provisions hereof or thereof which shall
survive the satisfaction and discharge hereof) cease to be of further
effect at such time (i) after the Wind Down Date as the entire Outstanding
Principal Balance of all Outstanding Notes and all other Secured
Obligations owing by the Issuer hereunder and under the other Transaction
Documents have been reduced to zero or (ii) such earlier time as all
Outstanding Notes theretofore authenticated and issued hereunder have been
delivered (other than any Notes which shall have been destroyed, lost or
stolen and which shall have been replaced or paid as provided in Section
6.04) to the Trustee for cancellation and the Issuer has paid all sums
payable hereunder, under the other Transaction Documents and under the
Notes; provided, however, that this Indenture and the trusts created hereby
shall earlier terminate and this Indenture be satisfied and discharged upon
any sale or final disposition by the Trustee of all property constituting
the Pledged Assets from and after an Event of Default and the final
distribution by the Trustee of all proceeds thereof in accordance with
Article IV hereof.
SECTION 12.03. Release of Liens. Upon the satisfaction and discharge of
this Indenture pursuant to Section 12.02, the Trustee, at the request of
the Issuer, shall release (and shall, at the expense of the Issuer, execute
and deliver to the Issuer) all necessary UCC releases and other releases in
respect thereof of the Pledged Assets from the lien of the Trustee effected
pursuant to the Granting Clause hereof.
- 114 -
<PAGE>
SECTION 12.04. Final Distribution. (a) The Servicer shall give the
Trustee and the Issuer, and the Trustee shall give each Noteholder, at least
45 days' prior written notice of the date on which (i) this Indenture is
expected to terminate in accordance with Section 12.02 and (ii) the
Noteholders shall surrender their Notes for payment of the final
distribution on, and cancellation of, such Notes. Such notice shall be
accompanied by an Officer's Certificate setting forth the information
specified in Section 3.04(g)(v) covering the period during the then current
calendar year through the date of such notice. Not later than five
Business Days after the Trustee shall receive such notice, the Trustee
shall mail a notice to the Noteholders specifying (i) the date upon which
such final distribution will be made upon presentation and surrender of
such Notes at the office or offices therein designated, (ii) the amount of
any such final distribution and (iii) that the Distribution Date otherwise
applicable to such final distribution is not applicable, payments being
made only upon presentation and surrender of such Notes at the office or
offices therein specified. Each such Noteholder shall surrender its Note
to the Trustee following receipt of the final distribution thereon and any
remaining amounts shall be distributed to the Issuer. The Trustee shall
give such notice to the Transfer Agent and Registrar and the Paying Agent
at the time such notice is given to the Noteholders.
(b) Notwithstanding the Servicer's delivery to the Trustee, or the
Trustee's delivery to the Noteholders, of the notices required under Section
12.04(a), all funds then on deposit in the Reserve Account, any Series
Account, any Defeasance Account, any other Trust Account or the Issuer's
Account shall continue to be held in trust for the benefit of the Secured
Parties, and the Paying Agent or the Trustee shall pay such funds to the
Noteholders upon surrender of their Notes pursuant to, and subject to the
priorities set forth herein and in the applicable Supplement, as if such
surrender date were on a Distribution Date (and any excess shall be paid in
accordance with the terms of the Master Insurance Agreement). In the
event that all Noteholders shall not surrender their Notes for cancellation
within six months after the date specified in the above-mentioned written
notice from the Trustee, the Trustee shall give a second written notice to
the remaining Noteholders to surrender their Notes for cancellation and
receive the final distribution with respect thereto. If within one year
after the second notice all the Notes shall not have been surrendered for
cancellation, the Trustee may take appropriate steps, or may appoint an
agent to take appropriate steps, to contact the remaining Noteholders
concerning surrender of their Notes, and the cost thereof shall be paid out
of the funds in the Trust Accounts. The Trustee and the Paying Agent shall
pay to the Issuer any monies held by them for the payment of principal or
interest that remains unclaimed for two years. After payment to the
Issuer, Noteholders entitled to the money must look to the Issuer for
payment as general creditors unless an applicable abandoned property law
designates another person.
ARTICLE XIII
REDEMPTIONS
- 115 -
<PAGE>
SECTION 13.01. Redemption Allowed. The Issuer may at its option redeem
the Notes of any Series which are redeemable before their Expected Final
Payment Date in accordance with the terms of such Series of Notes and this
Article.
SECTION 13.02. Election to Redeem; Notice to Trustee. The election of the
Issuer to redeem any Notes shall be evidenced by a resolution of the Board
of Directors of the Issuer. In case of any such redemption at the election
of the Issuer, the Issuer shall, at least 35 Business Days prior to the
redemption date (the "Redemption Date") fixed by the Issuer (unless a
shorter notice shall be acceptable to the Trustee), notify the Trustee of
such Redemption Date and of the principal amount of the Notes of such Series
to be redeemed. In the case of any redemption of the Notes of any Series
prior to the expiration of any restriction on such redemption provided in
the terms of such Series of Notes or elsewhere in this Indenture, the Issuer
shall furnish the Trustee with an Officer's Certificate evidencing
compliance with such restriction.
SECTION 13.03. Selection of Notes to Be Redeemed. If less than all of the
Notes of such Series are to be redeemed, the particular Notes of such Series
to be redeemed shall be selected, not less than 30 days prior to the
Redemption Date, by the Trustee from among the Outstanding Notes of such
Series not previously called for redemption, by such method as the Trustee
shall deem fair and appropriate in accordance with the terms of any
applicable Supplement and which may provide for the selection for redemption
of portions of the principal amount of the Notes of such Series of a
denomination larger than the minimum authorized denomination for the Notes
of such Series; provided, however, that in the case the Notes of such Series
have different terms and/or Expected Final Payment Date, the Notes of such
Series to be redeemed shall be selected by the Issuer in accordance with the
terms of this Indenture, and the Issuer shall give notice thereof to the
Trustee. The Trustee shall promptly notify the Issuer in writing of the
Notes selected for redemption and, in the case of any Notes selected for
partial redemption, the principal amount thereof to be redeemed. For all
purposes of this Indenture, unless the context otherwise requires, all
provisions relating to the redemption of Notes shall relate, in the case of
any Notes redeemed or to be redeemed only in part, to the portion of the
principal amount of such Notes which has been or is to be redeemed.
SECTION 13.04. Notice of Redemption. Unless otherwise provided in any
applicable Supplement pursuant to which Notes are issued, at least 30 but
not more than 60 days before a Redemption Date, the Issuer shall mail a
notice of redemption by first-class mail to each Noteholder whose Notes are
to be redeemed, at the addresses of such Noteholders as they appear in the
Note Register. Any notice which is mailed in the manner herein provided
shall be conclusively presumed to have been duly given, whether or not the
Noteholder actually receives such notice. Failure to give notice by mail,
or any defect in the notice to the Noteholder of any Note of any Series
designated for redemption in whole or in part, shall not affect the
validity of the proceedings for the redemption of any other Notes of such
Series. The notices of redemption shall identify the Notes to be redeemed
and shall also state:
- 116 -
<PAGE>
(1) the Redemption Date;
(2) the redemption price (including the amount of accrued and unpaid
interest to be paid and any premium payable in connection therewith) the
"Redemption Price:);
(3) the place or places where such Notes are to be surrendered for
payment of the Redemption Price;
(4) that, unless the Issuer defaults in making the redemption payment,
interest on the Notes or any portion thereof called for redemption ceases
to accrue on and after the specified Redemption Date and the only
remaining right of the Noteholders thereof will be to receive payment of
the Redemption Price upon surrender to the Trustee of the Notes;
(5) if less than all of the Outstanding Notes of any Series are to be
redeemed, the identification of the particular Notes to be redeemed, in
whole or in part; and
(6) if any Note is being redeemed in part, the portion of the principal
amount of such Note to be redeemed and that, on or after the Redemption
Date, upon surrender of such Note, a new Note or Notes in an aggregate
principal amount equal to the unredeemed portion thereof will be issued.
At the Issuer's request, the Trustee shall give the notice of redemption
in the Issuer's name and at its expense. In such event the Issuer will
provide the Trustee with the information required by clauses (1), (2), (3),
(5) and (6) above.
SECTION 13.05. Deposit of Redemption Price. On or prior to any Redemption
Date, the Issuer shall deposit with the Trustee an amount of money
sufficient to pay the Redemption Price of, and accrued interest on (unless
such interest has otherwise been paid on such date), all of the Notes which
are to be redeemed on the Redemption Date. So long as the Issuer complies
with the preceding paragraph and the other provisions of this Article,
interest on the Notes (or portions thereof) to be redeemed on the applicable
Redemption Date shall cease to accrue from and after such date and such
Notes (or portions thereof) shall be deemed not to be entitled to any
benefit under this Indenture or the related Supplement except to receive
payment of the Redemption Price on the Redemption Date. The provisions of
Section 12.04 shall apply to any money held by the Trustee under this
Article that remains unclaimed for two years after the Redemption Date for
any Notes called for redemption pursuant to the provisions of this Article.
SECTION 13.06. Notes Payable on Redemption Date. Notice of redemption
having been given as aforesaid, the Notes (or portions thereof) to be so
redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified. Upon surrender of any such Note for
redemption in accordance with such notice, such Notes (or portions thereof)
shall be paid at the Redemption Price, together with accrued interest to the
- 117 -
<PAGE>
Redemption Date. If any Note (or portion thereof) called for redemption
shall not be so paid upon surrender for redemption, then, from the
Redemption Date until such principal is paid, interest shall be paid on the
unpaid principal and, to the extent permitted by law, on any accrued but
unpaid interest thereon, in each case at the rate prescribed therefor by
such Notes.
SECTION 13.07. Notes Redeemed in Part. Upon surrender of a Note that is
redeemed in part, the Issuer shall issue and authenticate a new Note or
Notes equal in aggregate principal amount to the unredeemed portion of the
Note so surrendered.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
SECTION 14.01. Amendment. (a) This Indenture or any Supplement may with
the prior written consent of the Insurer, be amended from time to time by
the Servicer, the Issuer and the Trustee without the consent of any of the
Noteholders, (i) to cure any ambiguity, (ii) to comply with the
requirements of the Commission in order to effect or maintain the
qualification of this Indenture under the Trust Indenture Act, (iii) to
correct or supplement any provision herein or in any Supplement which may
be inconsistent with any other provision herein or therein, (iv) to
evidence the succession of another Person to the Issuer, the Servicer
and/or the Trustee in each case to the extent that such succession is
otherwise permitted under the terms of this Indenture, (v) to add any
other provisions with respect to matters or questions arising under the
Indenture or any Supplement which are not inconsistent with the provisions
of this Indenture or such Supplement and (vi) to change or eliminate any
provisions of this Indenture or any Supplement in order to maintain the
outstanding rating of any outstanding Series of Notes; provided that any
amendment pursuant to this paragraph (a) shall not, as evidenced by an
Officer's Certificate of the Servicer, adversely affect in any material
respect the interests of any Noteholders. No such Supplement or amendment
to this Indenture or any Supplement pursuant to this Section 14.01 shall
become effective unless a copy thereof shall have been sent to each Rating
Agency and the Rating Agency Condition shall have been satisfied with
respect thereto. The Trustee may request an Officer's Certificate and
Opinion of Counsel with respect to any such amendment concerning compliance
with the requirements of this Indenture.
(b) This Indenture or any Supplement may with the prior written consent of
the Insurer, be amended from time to time by the Servicer, the Issuer and
the Trustee, for the purpose of adding any provisions to or changing in any
manner or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Noteholders; provided, however,
that no such amendment shall (i) reduce in any manner the amount of, or
delay the timing of, distributions to be made to any Noteholder or deposits
of amounts to be so distributed or the amount available under the Trust
Insurance Policy without the consent of such affected Noteholder, (ii)
reduce the percentage required to constitute the "Majority Noteholders"
without the consent of each Noteholder or (iii) cause any adverse tax
- 118 -
<PAGE>
effect for an Noteholder without the consent of each affected Noteholder.
The Trustee may request an Officer's Certificate and Opinion of Counsel
with respect to an amendment entered into pursuant to this Section 14.01(b)
concerning compliance with the requirements of this Indenture. Any
amendment to be effected pursuant to this paragraph shall be deemed to
adversely affect all outstanding Series. No such amendment to this
Indenture or any Supplement pursuant to this Section 14.01(b) shall become
effective unless a copy thereof shall have been sent to each Rating Agency
and either (i) the Rating Agency Condition shall have been satisfied with
respect thereto or (ii) if the Rating Agency Condition is not so satisfied,
the Noteholders holding Notes evidencing not less than 66-2/3% of the
Outstanding Principal Balance of each Series whose rating is or would be
adversely affected thereby shall have consented thereto in writing.
(c) It shall not be necessary for the consent of Noteholders under this
Section 14.01 to approve the particular form of any proposed amendment, but
it shall be sufficient if such consent shall approve the substance thereof.
The manner of obtaining such consents and of evidencing the authorization of
the execution thereof by Noteholders shall be subject to such reasonable
requirements as the Trustee may prescribe.
(d) Notwithstanding anything in this Section 14.01 to the contrary, no
amendment may be made to this Indenture or any Supplement without the
consent of the Insurer.
(e) Any Supplement executed in accordance with the provisions of Section
6.09 shall not be considered an amendment to this Indenture for the
purposes of this Section 14.01.
(f) Prior to the execution of any amendment to this Indenture or any
Supplement, the Trustee and the Insurer shall be entitled to receive and
rely upon an Opinion of Counsel stating that the execution of such
amendment is authorized or permitted by this Indenture. The Trustee may,
but shall not be obligated to, enter into any such amendment which affects
the Trustee's own rights, duties or immunities under this Indenture, any
Supplement or otherwise.
SECTION 14.02. Limitation on Rights of Noteholders. (a) The death or
incapacity of any Noteholder shall not operate to terminate this Indenture,
nor shall such death or incapacity entitle such Noteholders' legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the
corpus of the Pledged Assets, nor otherwise affect the rights, obligations
and liabilities of the parties hereto or any of them.
(b) No Noteholder shall have the right to vote (except as expressly
provided in this Indenture, including without limitation under Section
11.19) or in any manner otherwise control the operation and management of
the Trustee or the Pledged Assets or the obligations of the parties
hereto, nor shall anything herein set forth, or contained in the terms of
the Notes, be construed so as to constitute the Noteholders from time to
time as partners or members of an association nor shall any Noteholder be
under any liability to any third person by reason of any action taken by
the parties to this Indenture pursuant to any provision hereof.
- 119 -
<PAGE>
(c) No Noteholder shall have any right by virtue of any provisions of
this Indenture to file or otherwise institute any suit, action or proceeding
in equity or at law upon or under or with respect to this Indenture, unless
such Noteholder previously shall have made, and unless the Majority
Noteholders shall have made, a written request to the Trustee to institute
such action, suit or proceeding in its own name as Trustee hereunder and
shall have offered to the Trustee such reasonable indemnity as it may
require against the costs, expenses and liabilities to be incurred therein
or thereby, and the Trustee, for 60 days after such request and offer of
indemnity, shall have failed to file or otherwise refused to institute any
such action, suit or proceeding; it being understood and intended, and
being expressly covenanted, by each Noteholder with every other Noteholder
and the Trustee, that no one or more Noteholders shall have any right in
any manner whatever by virtue or by availing itself or themselves of any
provisions of this Indenture to affect, disturb or prejudice the rights of
the holders of any of the Notes, or to obtain or seek to obtain priority
over or preference to any such Noteholder, or to enforce any right under
this Indenture, except in the manner herein provided and for the equal,
ratable and common benefit of all Noteholders. For the protection and
enforcement of the provisions of this Section 14.02, each and every
Noteholder and the Trustee shall be entitled to such relief as can be given
either at law or in equity. Notwithstanding any other provision of this
Indenture, the Notes or any Supplement, each Noteholder shall have the
right to receive the payments of all amounts due hereunder, under the Notes
held by such Holder and under the Supplement relating to the Series of
Notes held by such Holder and the right to institute suit for the
enforcement of any such payment without the consent of the Trustee or any
other Holder.
SECTION 14.03. Governing Law; Jurisdiction; Consent to Service of Process.
(a) Governing Law. THIS INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK BUT OTHERWISE WITHOUT REFERENCE TO ITS CONFLICT OF LAW PROVISIONS,
AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE
DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) Jurisdiction. Each of the parties hereto hereby irrevocably and
unconditionally submits to the nonexclusive jurisdiction of any federal
court of the United States of America sitting in New York City or, if
jurisdiction is not available in such federal court, New York State court,
and any appellate court from any thereof, in any action or proceeding
arising out of or relating to this Indenture, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in
such New York State or, to the extent permitted by law, in such federal
court. Each of the parties hereto agrees that a final judgment in any such
action or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on the judgment or in any other manner provided by law.
- 120 -
<PAGE>
(c) Consent to Service of Process. Each party to this Indenture
irrevocably consents to service of process in the manner provided for
notices in Section 14.04. Nothing in this Indenture will affect the right
of any party to this Indenture to serve process in any other manner
permitted by law.
SECTION 14.04. Notices; Payments. (a) All demands, notices, instructions,
directions, requests, authorizations and communications (collectively,
"Notices") under this Indenture shall be in writing and shall be deemed to
have been duly given if personally delivered at, mailed by registered mail,
return receipt requested, or sent by facsimile transmission (i) in the case
of the Issuer, to Ag Acceptance Corporation, P.O. Box 668, 2302 West First
Street, Cedar Falls, Iowa 50613, (ii) in the case of the Originator in its
capacity as initial Servicer, to Ag Services of America, Inc., P.O. Box 668,
2302 West First Street, Cedar Falls, Iowa 50613, (iii) in the case of the
Trustee (including in its capacity as Paying Agent), to
_________________________, Attention: Corporate Trust Department, (iv) in
the case of the Trustee in its capacity as Transfer Agent and Registrar, to
________________________________, Attention: ___________, and (v) in the
case of the Insurer, to MBIA Insurance Corporation, 113 King Street, Armonk,
New York 10504, Attention: IPM Surveillance, Structured Finance, or, as to
each such party, at such other address or facsimile number as shall be
designated by such party in a written notice to each other party. In the
case of any Successor Servicer, successor Trustee or any successor Paying
Agent or successor Transfer Agent and Registrar, notices shall be given to
such Person at the address designated by it in a notice to the other
parties hereto at the addresses designated above as applicable.
(b) Any Notice required or permitted to be mailed to an Noteholder shall
be given by first-class mail, postage prepaid, at the address of such
Noteholder as shown in the Note Register. Notice so mailed within the time
prescribed in this Indenture shall be conclusively presumed to have been
duly given, whether or not the Noteholder receives such notice.
SECTION 14.05. Rule 144A Information. In the event that and for so long
as any of the Notes of any Series are "restricted securities" within the
meaning of Rule 144(a)(3) under the Act, the Issuer, the Servicer and the
Insurer agree to cooperate with each other to provide to each Noteholder of
such Series and to each prospective purchaser of the applicable Notes
designated by such an Noteholder, upon the request of such Noteholder or
prospective purchaser, any information required to be provided to such
holder or prospective purchaser to satisfy the condition set forth in Rule
144A(d)(4) under the Act (or any successor provision).
SECTION 14.06. Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Indenture shall for any
reason whatsoever be held invalid, then such covenants, agreements,
provisions or terms shall be deemed severable from the remaining covenants,
agreements, provisions or terms of this Indenture and shall in no way
affect the validity or enforceability of the other covenants, agreements,
provisions or terms of this Indenture or of the Notes or rights of the
Noteholders.
- 121 -
<PAGE>
SECTION 14.07. Assignment. Notwithstanding anything to the contrary
contained herein, (i) this Indenture may not be assigned by the Issuer,
and (ii) except as provided in Section 8.02, this Indenture may not be
assigned by the Servicer without the prior consent of the Majority in
Interest of each Series.
SECTION 14.08. Notes Nonassessable and Fully Paid. It is the intention
of the parties to this Indenture that upon authentication thereof by the
Trustee pursuant to Section 6.02, the Notes are and shall be deemed fully
paid.
SECTION 14.09. Further Assurances. The Issuer and the Servicer agree to
do and perform, from time to time, any and all acts and to execute any
and all further instruments and documents required or reasonably
requested by the Trustee more fully to effect the purposes of this
Indenture, including, without limitation, the execution of any financing
statements or continuation statements relating to the Pledged Assets for
filing under the provisions of the UCC of any applicable jurisdiction.
SECTION 14.10. Nonpetition Covenant. Notwithstanding any prior
termination of this Indenture, each of the Servicer, the Trustee, the
Insurer, the Paying Agent, and the Transfer Agent and Registrar shall
not, prior to the date which is one year and one day after the
termination of this Indenture acquiesce, petition or otherwise invoke or
cause any other Person to invoke the process of any Governmental
Authority for the purpose of commencing or sustaining a case against the
Issuer under any Federal or state bankruptcy, insolvency or similar law
or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Issuer or any substantial
part of its property or ordering the winding-up or liquidation of the
affairs of the Issuer.
SECTION 14.11. No Waiver; Cumulative Remedies. No failure to exercise and
no delay in exercising, on the part of any Person, any right, remedy, power
or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege under
this Indenture preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exhaustive of any rights, remedies, powers and privileges provided by law.
SECTION 14.12. Counterparts. This Indenture may be executed in two or
more counterparts and by different parties on separate counterparts), each
of which shall be an original, but all of which together shall constitute
one and the same instrument.
SECTION 14.13. Third-Party Beneficiaries. This Indenture will inure to the
benefit of and be binding upon the parties hereto, the Noteholders and their
respective successors and permitted assigns. Except as otherwise provided
in this Indenture, no other Person will have any right or obligation
hereunder.
- 122 -
<PAGE>
SECTION 14.14. Actions by Noteholders. (a) Wherever in this Indenture a
provision is made that an action may be taken or a Notice given by
Noteholders, such action or Notice may be taken or given by any Noteholder,
unless such provision requires a specific percentage of Noteholders.
(b) Any Notice, consent, waiver or other act by the Holder of a Note shall
bind such Holder and every subsequent Holder of such Note and of any Note
issued upon the registration of transfer thereof or in exchange therefor or
in lieu thereof in respect of anything done or omitted to be done by the
Trustee or the Servicer in reliance thereon, whether or not notation of
such action is made upon such Note.
SECTION 14.15. Merger and Integration. Except as specifically stated
otherwise herein, this Indenture sets forth the entire understanding of the
parties relating to the subject matter hereof, and all prior
understandings, written or oral, are superseded by this Indenture. This
Indenture may not be modified, amended, waived or supplemented except as
provided herein.
SECTION 14.16. Headings. The headings herein are for purposes of
reference only and shall not otherwise affect the meaning or interpretation
of any provision hereof.
- 123 -
<PAGE>
IN WITNESS WHEREOF, the Issuer, the Servicer, the Trustee and the Insurer
have caused this Indenture to be duly executed by their respective officers
as of the day and year first above written.
AG ACCEPTANCE CORPORATION, as the Issuer
By:_________________________
Name:
Title:
AG SERVICES OF AMERICA, INC., as Servicer
By:_________________________
Name:
Title:
[____________________________]
as Trustee
By:_________________________
Name:
Title:
MBIA INSURANCE CORPORATION, as Insurer
By:
Name:
Title:
0192508.01
- 124 -
<PAGE>
EXHIBIT A
CREDIT AND COLLECTION POLICY
(Attached.)
A - 1
<PAGE>
EXHIBIT B
LIST OF CREDIT FACTORS
Irrigated Crops 95%
Non-irrigated Crops 90%
B - 1
<PAGE>
EXHIBIT C
FORM OF LOAN DOCUMENTS
(Attached.)
C - 1
<PAGE>
EXHIBIT D-1
FORM OF LOCK-BOX AGREEMENT
(Attached.)
D1-1
<PAGE>
EXHIBIT D-2
FORM OF COLLECTION ACCOUNT AGREEMENT
(Attached.)
D2 - 1
<PAGE>
EXHIBIT E
FORM OF MONTHLY REPORT
(Attached.)
E - 1
<PAGE>
EXHIBIT F
LIST OF CLOSING DOCUMENTS
(Attached.)
F - 1
<PAGE>
EXHIBIT G
FORM OF SERVICER'S DAILY REPORT
(Attached.)
G - 1
<PAGE>
SCHEDULE 1
LIST OF ACCOUNT BANKS
Collection Account Bank:
Ag Acceptance 1999A Trust Accounts at [ ]
[ ], 1999
Collection Account [ ]
Reserve Account [ ]
Carrying Cost Account [ ]
<PAGE>
SCHEDULE 2
LOCATION OF BOOKS AND RECORDS
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Year Ended Year Ended
Year Ended February 28, February 29, February 28,
-------------------------------- ------------ ------------
1999 1998 1997 1995 1994
-------- ------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Computation of weighted average
number of basic shares:
Basic:
Common shares outstanding at beginning
of the period 5,177,154 5,135,719 3,611,350 3,482,634 3,469,534
Weighted average number of shares issued
during the period 26,822 19,467 15,368 55,969 8,610
Weighted average common shares issued due
to conversion of the 7% convertible
subordinated debenture -- -- 952,002 -- --
---------- ---------- ---------- ---------- ---------
Weighted average shares outstanding (basic) 5,203,976 5,155,186 4,578,720 3,538,603 3,478,144
========== ========== =========== ========== =========
Net income $6,493,316 $5,181,253 $4,345,815 $3,133,240 $2,402,078
========== ========== =========== =========== ==========
Basic earnings per share $1.25 $1.01 $0.95 $0.89 $0.69
========== ========== =========== =========== ==========
Diluted:
Common shares outstanding at beginning
of the period 5,177,154 5,135,719 3,611,350 3,482,634 3,469,534
Common shares issued due to conversion
of the 7% convertible subordinated
debentures this period -- -- 1,487,669 -- --
Weighted average number of shares issued
during the period 26,822 19,467 15,368 55,969 8,610
Weighted average of potential dilutive shares
computed using the treasury stock method
using the average market price:
Options (A) 226,805 269,791 237,870 145,758 137,283
Warrants -- -- -- 24,978 43,237
Assumed conversion of $13.8 million 7%
convertible subordinated debentures (B) -- -- -- 1,491,892 1,491,892
---------- ---------- ---------- ---------- ----------
Weighted average number of shares (diluted) 5,430,781 5,424,977 5,352,257 5,201,231 5,150,556
========== ========== ========== ========== ==========
Net income $6,493,316 $5,181,253 $4,345,815 $3,133,240 $2,402,078
Add: Interest on $13.8 million 7%
convertible subordinated debentures,
net of income tax effect -- -- 153,184 616,695 616,695
Amortization of debt issuance costs,
net of income tax effect -- -- 13,781 55,158 55,158
---------- ---------- ----------- ---------- ----------
Total $6,493,316 $5,181,253 $4,512,780 $3,805,093 $3,073,931
========== ========== =========== ========== ==========
Diluted earnings per share $1.20 $0.96 $0.84 $0.73 $0.60
========== ========== ========== ========== ==========
<FN>
(A) Some of the stock options have not been included because they are antidilutive.
(B) Assumed conversion at the date of issuance on April 23, 1993.
</TABLE>
- 22 -
<PAGE>
AG SERVICES OF AMERICA, INC.
EXHIBIT 13.1
FORM OF ANNUAL REPORT TO
SHAREHOLDERS FYE FEBRUARY 28, 1998
- 23 -
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
----------------------
<CAPTION>
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
(expressed in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Earnings:
Net revenues $225,293 $186,073 $147,647 $114,686 $87,331
Net revenues increase 21.1% 26.0% 28.7% 31.3% 33.2%
Net income $6,493 $5,181 $4,346 $3,133 $2,402
Net income as a percentage of net revenues 2.9% 2.8% 2.9% 2.7% 2.8%
Return on beginning stockholders' equity 14.8% 13.6% 21.3% 18.8% 16.9%
Per share data:*
Net income:
Basic $1.25 $1.01 $0.95 $0.89 $0.69
Diluted $1.20 $0.96 $0.84 $0.73 $0.60
Book value $9.71 $8.45 $7.44 $5.65 $4.78
Weighted average shares:*
Basic 5,204 5,155 4,579 3,539 3,478
Diluted 5,431 5,425 5,352 5,201 5,151
Financial position:
Working capital $39,390 $33,806 $27,375 $23,611 $21,546
Total assets $134,644 $93,248 $60,773 $55,186 $38,277
Stockholders' equity $50,537 $43,756 $38,216 $20,421 $16,660
</TABLE>
<TABLE>
Quarterly Common Stock Prices
-----------------------------
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1999
High $18 1/4 $18 1/2 $15 9/16 $15 1/2
Low $16 5/8 $11 5/8 $11 5/8 $13
1998
High $18 7/8 $20 3/16 $19 3/4 $18 3/8
Low $13 3/4 $15 7/8 $17 7/16 $14 7/8
</TABLE>
- 4 -
<PAGE>
<TABLE>
FOURTEEN-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
<CAPTION>
February February February February February February February
1999 1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net revenues:
Farm inputs $205,591 $172,717 $137,443 $106,869 $81,936 $61,644 $51,088
Financing income 19,702 13,356 10,204 7,817 5,395 3,910 3,474
--------- --------- --------- --------- --------- --------- ---------
Total net revenues $225,293 $186,073 $147,647 $114,686 $87,331 $65,554 $54,562
--------- --------- --------- --------- --------- --------- ---------
Cost of revenues:
Farm inputs $192,811 $162,197 $127,698 $98,280 $75,247 $56,296 $46,447
Financing expense 9,434 5,536 4,768 4,258 2,784 1,720 1,308
Provision for doubtful notes 4,035 2,963 2,290 1,863 1,409 1,050 812
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenues $206,280 $170,696 $134,756 $104,401 $79,440 $59,066 $48,567
--------- --------- --------- --------- --------- --------- ---------
Income before operating expenses
and income taxes $19,013 $15,377 $12,891 $10,285 $7,891 $6,488 $5,995
Operating expenses 8,935 7,316 6,216 5,422 4,128 3,404 3,094
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes $10,078 $8,061 $6,675 $4,863 $3,763 $3,084 $2,901
Fed and state income taxes 3,585 2,880 2,329 1,730 1,361 1,117 1,045
--------- --------- --------- --------- --------- --------- ---------
Net income $6,493 $5,181 $4,346 $3,133 $2,402 $1,967 $1,856
========= ========= ========= ========= ========= ========= =========
Earnings per share:
Basic $1.25 $1.01 $0.95 $0.89 $0.69 $0.58 $0.55
========= ========= ========= ========= ========= ========= =========
Diluted $1.20 $0.96 $0.84 $0.73 $0.60 $0.52 $0.53
========= ========= ========= ========= ========= ========= =========
Cash dividnds per common share $ -- $ -- $ -- $ -- $ -- $ -- $ --
========= ========= ========= ========= ========= ========= =========
Weighted average shares:
Basic 5,203,976 5,155,186 4,578,720 3,538,603 3,478,144 3,408,192 3,360,542
========= ========= ========= ========= ========= ========= =========
Diluted 5,430,781 5,424,977 5,352,257 5,201,231 5,150,556 4,893,838 3,524,278
========= ========= ========= ========= ========= ========= =========
<CAPTION>
February February February February February February February
1999 1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $39,390 $33,806 $27,375 $23,611 $21,546 $23,034 $8,531
Total assets 134,644 93,248 60,773 55,186 38,277 28,786 20,983
Short-term debt 61,817 39,328 21,000 19,850 7,100 -- 8,000
Stockholders' equity 50,537 43,756 38,216 20,421 16,660 14,198 11,760
</TABLE>
- 12 -
<PAGE>
<TABLE>
FOURTEEN-YEAR FINANCIAL SUMMARY
(Dollars in thousands, except per share amounts)
<CAPTION>
February February February February February February February
1992 1991 1990 1989 1988 1987 1986*
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net revenues:
Farm inputs $33,062 $27,443 $21,236 $9,451 $4,176 $2,833 $10
Financing income 2,472 1,983 1,515 512 184 165 --
--------- --------- --------- --------- --------- --------- ----------
Total net revenues 35,534 29,426 22,751 9,963 4,360 2,998 10
--------- --------- --------- --------- --------- --------- ----------
Cost of revenues:
Farm inputs $30,355 $25,131 $19,215 $8,541 $3,728 $2,441 $--
Financing expense 913 1,039 1,241 365 129 116 --
Provision for doubtful notes 471 375 451 53 37 10 --
--------- --------- --------- --------- --------- --------- ----------
Total cost of revenues $31,739 $26,545 $20,907 $8,959 $3,894 $2,567 $--
--------- --------- --------- --------- --------- --------- ----------
Income before operating expenses
and income taxes $3,795 $2,881 $1,844 $1,004 $466 $431 $10
Operating expenses 1,941 1,637 1,399 585 408 377 31
--------- --------- --------- --------- --------- --------- ----------
Income before income taxes $1,854 $1,244 $445 $419 $58 $54 ($21)
Fed and state income taxes 676 446 183 159 18 7 --
--------- --------- --------- --------- --------- --------- ----------
Net income $1,178 $798 $262 $260 $40 $47 ($21)
========= ========= ========= ========= ========= ========= ==========
Earnings per share:
Basic $0.42 $0.42 $0.22 $0.22 $0.03 $0.04 ($0.02)
========= ========= ========= ========= ========= ========= ==========
Diluted $0.42 $0.42 $0.22 $0.22 $0.03 $0.04 ($0.02)
========= ========= ========= ========= ========= ========= ==========
Cash dividnds per common share $-- $-- $-- $-- $-- $-- $--
========= ========= ========= ========= ========= ========= ==========
Weighted average shares:
Basic 2,784,864 1,910,116 1,179,802 1,179,802 1,179,802 1,179,802 1,179,802
========= ========= ========= ========= ========= ========= ==========
Diluted 2,822,166 1,910,116 1,179,802 1,179,802 1,179,802 1,179,802 1,179,802
========= ========= ========= ========= ========= ========= ==========
<CAPTION>
February February February February February February February
1992 1991 1990 1989 1988 1987 1986*
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $7,908 $3,470 $358 $281 $36 $14 ($32)
Total assets 13,971 7,231 3,952 1,421 355 195 39
Short-term debt 3,500 2,265 308 636 126 15 52
Stockholders' equity 9,839 4,001 588 326 66 26 (21)
<FN>
* - Represents operations from October 1985, the Company's inception, through February 28, 1986.
</TABLE>
- 12 -
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion should be read in conjunction with the Financial
Statements of the Company, the related notes thereto and Selected
Financial Data included elsewhere in this Annual Report.
General
Fiscal 1999 marks the eleventh consecutive year Ag Services has reached
record levels of sales and earnings. Compared to fiscal 1998, the
Company's annual net revenues rose 21% to $225.3 million and net income
grew 25% to $6.5 million. The Company reported basic and diluted
earnings per share of $1.25 and $1.20, respectively, compared to $1.01
and $.96 per share, respectively, in fiscal 1998.
Subsequent to fiscal 1999 year end, the Company negotiated an increase
in the asset backed securitized financing program of $70 million to a
maximum available amount of $275 million. The increase in the facility
should provide the Company adequate financing for fiscal 2000.
Results of Operations
Selected Operating Results
The following table sets forth the dollars and percentages of net
revenues by the selected items in the Consolidated Statements of Income
of the Company.
Dollars (in thousands) and Percentage of Total Net Revenue
Year Ended Year Ended Year Ended
February 28, 1999 February 28, 1998 February 28, 1997
----------------- ----------------- -----------------
Net revenues:
Farm inputs $205,591 91.3% $172,717 92.8% $137,443 93.1%
Financing income 19,702 8.7% 13,356 7.2% 10,204 6.9%
--------- ------ -------- ------ -------- ------
Total net revenues $225,293 100.0% $186,073 100.0% $147,647 100.0%
--------- ------ -------- ------ -------- ------
Cost of revenues:
Farm inputs $192,811 85.6% $162,197 87.1% $127,698 86.5%
Financing expense 9,434 4.2% 5,536 3.0% 4,768 3.2%
Provision for
doubtful notes 4,035 1.8% 2,963 1.6% 2,290 1.6%
-------- ------ -------- ------ ------- ------
Total cost of
revenues $206,280 100.0% $170,696 91.7% $134,756 91.3%
-------- ------ -------- ------ -------- ------
Income before
operating expenses
and income taxes $19,013 8.4% $15,377 8.3% $12,891 8.7%
Operating expenses 8,935 4.0% 7,316 4.0% 6,216 4.2%
-------- ----- -------- ------ ------- ------
Income before
income taxes $10,078 4.4% $8,061 4.3% $6,675 4.5%
Federal and state
income taxes 3,585 1.5% 2,880 1.5% 2,329 1.6%
-------- ----- ------- ------ ------ ------
Net income $6,493 2.9% $5,181 2.8% $4,346 2.9%
======== ===== ======= ====== ======= ======
- 15 -
<PAGE>
Net Revenues
Net revenues in fiscal 1999 increased 21% to $225.3 million, compared
with $186.1 million in 1998, and $147.6 million in 1997. Financing
income as a percentage of net revenues increased to 8.7% in fiscal 1999
from 7.2% in 1998 and 6.9% in 1997. The increase in fiscal 1999
financing income as a percentage of net revenues reflects the additional
$2.6 million in financing income generated from the new servicing and
marketing agreement with a major national agricultural supplier. The
net revenues associated with this agreement are primarily financing
income as the Company finances the farm input purchases and cash
advances of customers of the agricultural supplier. This agreement was
renewed by the Company for the 1999 crop year with expected levels of
financing similar to that of fiscal 1999. The increase in fiscal 1998
financing income as a percentage of net revenues was a result of growth
in the Company's intermediate term financing program from $3.7 million
outstanding in fiscal 1997 to $10.1 million outstanding in fiscal 1998.
For the last three fiscal years over 95% of the Company's customers have
had variable rate notes, which allows the Company to pass interest rate
risk onto its customers. The number of customers in fiscal 1999
increased 10% to 1,358 compared to 1,235 in 1998 and 1,078 in 1997. The
average net revenue generated by each customer increased 10% to $165,900
in fiscal 1999, compared with $150,700 in 1998 and $137,000 in 1997.
The Company achieved these record net revenue levels through increased
marketing and sales efforts in our 30 state market area.
Cost of Revenues
The total cost of revenues was 91.6% of net revenues for fiscal 1999,
which decreased from 91.7% of net revenues in 1998, which increased
from 91.3% of net revenues in 1997. The decrease in total cost of
revenues as a percentage of net revenues in fiscal 1999 was attributed
to the increase in gross margin on financing income resulting from the
servicing and marketing agreement discussed above. The increase in
total cost of revenues as a percentage of net revenues in fiscal 1998 is
a result of a decrease in gross margin on the sale of farm inputs. The
gross margin on farm inputs, alone, remained relatively constant at 6.2%
and 6.1% for fiscal 1999 and 1998 respectively, while decreasing from
7.2% in fiscal 1997. The decrease in gross margin on the sale of farm
inputs in 1999 and 1998 was primarily the result of a change in product
sales mix from higher to lower margin farm inputs. This change in sales
mix was primarily due to the growth of our average customer size, as
larger farming operations require a larger percentage of cash advances
for land rental, fuel and irrigation, which are lower margin sales. In
addition to the sales mix changes, larger seed volume discounts granted
to customers in fiscal 1999 and 1998 relative to the prior year also
contributed to the decline in farm input margins. These larger volume
discounts given were also due to the growth in the average size of Ag
Services' customers. The margin declines in farm inputs was, however,
offset by an increase in financing margins. In fiscal 1999, margin on
financing increased to $10.3 million from $7.8 million in 1998 and $5.4
million in 1997. The increase in financing margin in fiscal 1999 and
1998 was due to the following two reasons. In March of 1997, the
Company reduced their cost of borrowing by nearly 100 basis points as a
result of implementing the asset backed securitized financing program.
Secondly, the new servicing and marketing agreement mentioned above
resulted in an additional $1.3 million of gross margin on financing
income for 1999. The average interest rate on the Company's financing
agreements decreased from 7.9% in fiscal 1997 to 7.3% in fiscal 1998
and 7.1% in fiscal 1999. Financing expense, as a cost of revenue, is
directly affected by changes in the prevailing prime, LIBOR, and
commercial paper interest rates under the Company's financing agreements.
The Company establishes interest rates for customers each year based on
the Company's anticipated financing expenses and competitive influences
in the market. For fiscal 1999, 1998, and 1997, the Company offered
- 16 -
<PAGE>
variable rate notes to customers ranging from prime to 4.0% above prime.
This allowed the Company to limit exposure to interest rate risk. The
provision for doubtful notes, as a percentage of net revenues, increased
to 1.8% in 1999 as compared to 1.6% in fiscal 1998 and 1997. The
increase in provision for doubtful notes as a percentage of net revenues
is a result of the Company's recorded provision for doubtful notes
related to the $38.6 million of originations under the new servicing and
marketing agreement discussed above.
Operating Expenses
Operating expenses remained constant at 4.0% of net revenues in fiscal
1999 and 1998 which declined from 4.2% of net revenues in 1997. The
decrease in fiscal 1998 is the result of Management's continuing efforts
to control expenses as well as operating economies achieved. The
increase in operating expenses is primarily due to the increase in
payroll to $4.7 million in fiscal 1999 from $3.9 million in 1998 and
$3.4 in 1997. This is the result of the Company adding employees as
well as general wage rate increases to existing employees. The balance
of the increase in operating expenses is attributed principally to the
Company's growth.
Net Income
Net income increased 25% to $6.5 million in fiscal 1999, compared with
$5.2 million in 1998 and $4.3 million in 1997. The increase in net
income is attributable to the increase in net revenues, increase in
financing income related to the new servicing and marketing agreement
and interest savings associated with the asset backed securitized
financing program.
Seasonality
The Company's revenues and income are directly related to the growing
cycle for crops. Accordingly, quarterly revenues and income vary during
each fiscal year. The following table shows the Company's quarterly net
revenues and net income for fiscal 1999 and 1998. This information is
derived from unaudited financial statements, which include, in the
opinion of management, all normal and recurring adjustments which
management considers necessary for a fair statement of results of those
periods. The operating results for any quarter are not necessarily
indicative of the results for any future period.
Fiscal 1999 Quarter Ended
-------------------------------------------------------------
May 31 August 31 November 30 February 28
-------- --------- ----------- -----------
(Dollars in Thousands)
Net revenues $101,529 $69,397 $16,447 $37,920
Net income $2,429 $2,276 $1,407 $381
Fiscal 1998 Quarter Ended
-------------------------------------------------------------
May 31 August 31 November 30 February 28
-------- --------- ----------- -----------
(Dollars in Thousands)
Net revenues $80,775 $58,943 $14,225 $32,130
Net income $1,922 $1,934 $1,018 $307
- 17 -
<PAGE>
Except for the Eastern Cornbelt, the Company's primary market area
experienced a normal 1998 crop planting season. Wet weather conditions
in the Eastern Cornbelt caused reduced sales of fertilizer, as well as
some shifting from corn to soybean production. The result was an
estimated 2% reduction in revenues and earnings for fiscal 1999.
Inflation
The Company does not believe the Company's net revenues and income
from continuing operations were significantly impacted by inflation or
changing prices in fiscal 1998, 1997 or 1996.
Future Adoption of Financial Accounting Standard
In June 1998, the Financial Accounting Standards Board issued
Statement No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities.
This statement must be adopted no later than March 1, 2000, although
earlier application is permitted. The Company is currently evaluating
the impact of adopting SFAS No. 133.
Liquidity and Capital Resources
Due to the seasonality of the Company's revenues and the terms of its
notes receivable, the Company is required to finance the carrying of its
revenues as notes receivable for a majority of its fiscal year. As a
result, the Company's need for capital has increased significantly due
to its rapid growth. At February 28, 1999 and 1998, the Company had
approximately $84.0 million and $69.2 million respectively, in
commitments to supply farm inputs.
The Company has funded its operating requirements and growth through a
combination of retained earnings, equity capital, trade credit and bank
and commercial paper borrowings. For the fiscal years ended February 28,
1999, 1998 and 1997, the Company financed its purchase of farm inputs
from the following sources in the respective percentages indicated: bank
and commercial paper borrowings 75.8%, 69.1% and 67.2%; trade credit
5.1%, 5.6% and 6.0%; and equity 19.1%, 25.3% and 26.8%. The increase in
bank and commercial paper borrowings as a percentage of farm input
purchases is a result of the Company's decision to finance more of its
farm input purchases through the favorable terms of commercial paper
borrowings. Capital expenditures have been financed through bank
borrowings and equipment leasing. The Company's principal source of
working capital has been bank and commercial paper borrowings, retained
earnings, a $2.5 million sale of common stock by the Company, the $4.7
million from its initial public offering of common stock in August 1991,
and the $12.9 million from its convertible subordinated debenture
offering in April 1993, which was converted to common stock in fiscal
1997. In March 1997, the Company negotiated a $135 million asset backed
securitized financing program through February 2002. This facility was
amended and increased to $205 million in March of 1998. The facility
replaced the $100 million bank line of credit in fiscal 1997. The
Company's asset back securitized financing program can be drawn upon
based on a percentage of customer notes receivable. Historically, the
Company has borrowed generally up to the full amount available on its
facility. The total outstanding under bank and commercial paper
borrowings as of February 28, 1999, 1998 and 1997, was $55.3 million,
$45.2 million, and $21.0 million, respectively, with an additional
maximum amount available of approximately $16,000, $900,000 and
$10,900,000, respectively, based on a percentage of customer notes
- 18 -
<PAGE>
receivable as provided by the agreements. The agreements are
collateralized by a lien on substantially all of the Company's assets.
Under the terms of the five year asset backed securitized financing
program, the Company sells and may continue to sell or contribute
certain notes receivable to Ag Acceptance Corporation ("Ag Acceptance"),
a wholly owned, special purpose subsidiary of the company. Ag Acceptance
pledges its interest in these notes receivable to a commercial-paper
market conduit entity and incurs interest at variable rates in the
commercial paper market. The Company may make these interest rate
elections at any time during each fiscal year in which the agreement is
in effect and for any amount. The terms of the Company's trade credit
vary for each supplier and type of crop input.
Subsequent to year end the Company amended the asset backed securitized
financing program which increased the maximum available borrowing amount
under the facility to $275 million and extended the terms an additional
two years through 2004. The $70 million increase above the current $205
million facility is a three year note with interest at a variable cost
of LIBOR plus 25 basis points. The other terms of the agreement remain
substantially in effect.
In conjunction with the securitized financing program, Ag Services
maintains an $8.5 million revolving bank line of credit through fiscal
2000. The line of credit is accessible to cover any potential
deficiencies in available funds financed through the securitization
program. The agreement allows for three variable interest rate
alternatives based on prime, Fed Fund rates, or LIBOR (current effective
rates range from 6.965% to 8.25% at February 28, 1999). The agreement
requires that the total outstanding borrowings be repaid in full for 10
consecutive days during the Company's fiscal second quarter.
The Company entered into a two year bank line of credit, through 2000,
with a maximum available borrowing amount of $12 million. The line of
credit is accessible to cover the Company's funding requirements for its
intermediate loan program. The terms of the agreement allow for three
variable interest rate alternatives based on prime, Fed Fund rates, or
LIBOR (current effective rates range from 6.965% to 8.25% at February 28,
1999). All borrowings are collateralized by substantially all assets of
the Company. At February 28, 1999 and 1998 the Company had a maximum
amount available under the revolving line of credit of $55,000 and none,
respectively, based on the borrowing base computation as provided by the
agreement. The total outstanding under the revolving line of credit at
February 28, 1999 and 1998 was $6.5 million and none, respectively.
The agreements as discussed above contain various restrictive
covenants, including, among others, restrictions on mergers, issuance of
stock, declaration or payment of dividends, transactions with affiliates,
loans to stockholders, and requires the company to maintain certain
levels of equity and pretax earnings. These restrictions are in effect
unless written consent is obtained. The company was in compliance with
these covenants at February 28, 1999. Advances under the agreements are
also subject to portfolio performance, financial covenant restrictions,
and borrowing base calculations.
On April 22, 1993, the Company completed a public offering of an
aggregate of $13,800,000 (including $1,800,000 due to over-allotments)
principal amount of 7% Convertible Subordinated Debentures due 2003.
The debentures were convertible at any time before maturity, unless
previously redeemed or repurchased, into shares of common stock of the
Company at a conversion price of $9.25 per share, subject to adjustment
in certain events.
- 19 -
<PAGE>
On June 7, 1996, the Company called for redemption or conversion of
all of its outstanding 7% Convertible Subordinated Debentures due 2003
(the "Debentures"). From June 7, 1996 through July 10, 1996, the
redemption date, the Company issued 1,487,669 shares of common stock
upon conversion of $13,761,000 of Debentures and redeemed $39,000 of
Debentures as full settlement of all $13,800,000 of the debentures
outstanding at that date.
The Company believes that the financial resources available to it,
including its bank line of credit and its asset backed securitized
financing program, its equity, and internally generated funds, will be
sufficient to finance the Company and its operations in the foreseeable
future.
Year 2000
The Company has established a company-wide plan to prepare our
information technology systems and non-information technology systems
with embedded technology applications for the Year 2000 issue. The plan
includes identification and assessment of critical functions, compliance
plan development, testing and contingency planning. The respective
vendors of the principal financial systems have advised the Company, that
these systems are in compliance with the upcoming millenium change. With
the assistance of an outside consultant, the Company has determined the
Company's information systems will be Year 2000 compliant. Additionally,
the Company has scheduled the final testing phase to be completed during
the second quarter of fiscal 2000; allowing ample time for any necessary
remedial measures, in the event of any unforeseen problems. The Company
is in the process contacting third parties as to the state of their Year
2000 readiness. Questionnaires are being sent out during the second
quarter of fiscal 2000 to major suppliers, vendors and banks. The
responses to these questionnaires will allow the Company to choose
alternative suppliers, where appropriate, to fulfill customer orders.
Costs associated with Year 2000 issues are estimated to be approximately
$30,000 from 1998 through 2000, of which $2,000 has already been spent to
date. The Company has excluded the costs from the above estimates
associated with information specialists already on staff. These cost
estimates assume that the Company will not incur any significant Year 2000
costs associated with third party non-compliance. Based upon its review
efforts to date, the Company believes that future external and internal
costs to be incurred to address Year 2000 issues will not have a material
adverse effect on the Company's financial position, cash flows or results
of operations.
Our most likely worst case scenario is the temporary inability of our
suppliers to provide our customers with the farm inputs they require on a
timely basis. Due to the uncertainty of the Year 2000 compliance with
third parties, including governmental agencies, the Company can not
reasonably estimate the financial effects of the worst case scenario.
Through the development and use of a contingency plan, which will be
finalized by the end of second quarter of fiscal 2000, the Company hopes
to mitigate all potential problems associated with the Year 2000 issue.
"Safe Harbor" Statement under the Private Securities Litigation Reform Act
of 1995
Information contained in this report, other than historical information,
should be considered forward looking which reflect Management's current
views of future events and financial performance that involve a number of
risks and uncertainties. The factors that could cause actual results to
differ materially include, but are not limited to, the following: general
economic conditions within the agricultural industry; competitive factors
and pricing pressures; changes in product mix; changes in the seasonality
- 20 -
<PAGE>
of demand patterns; changes in weather conditions; changes in agricultural
regulations; and other risks detailed in the Company's Securities and
Exchange Commission filings.
- 21 -
<PAGE>
McGladrey & Pullen, LLP RSM
Certified Public Accountants and Consultants international
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Ag Services of America, Inc.
Cedar Falls, Iowa
We have audited the accompanying consolidated balance sheets of Ag
Services of America, Inc. and its subsidiary as of February 28, 1999 and
1998, and the related consolidated statements of income, stockholders'
equity, and cash flows for the years ended February 28, 1999, 1998 and
1997. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ag
Services of America ,Inc. as of February 28, 1999 and 1998, and the
results of their operations and their cash flows for the years ended
February 28, 1999, 1998 and 1997 in conformity with generally accepted
accounting principles.
/s/ McGladrey & Pullen, LLP
McGladrey & Pullen, LLP
Waterloo, Iowa
April 23, 1999
- 22 -
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
February 28, 1999 and 1998
(Dollars in Thousands)
<CAPTION>
ASSETS (Note 3) 1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $67 $174
Customer notes receivable, less allowance for
doubtful notes and reserve for discounts
1999 $4,440; 1998 $2,660 (Notes 2 and 6) 106,211 71,379
Accounts receivable 515 422
Inventories 2,818 2,972
Foreclosed assets held for sale 836 144
Prepaid expenses 3,695 1,242
Prepaid income taxes -- 757
Deferred income taxes, net (Note 5) 872 293
----------- -----------
Total current assets $115,014 $77,383
----------- -----------
LONG-TERM RECEIVABLES AND OTHER ASSETS
Customer notes receivable, less allowance
for doubtful notes 1999 $1,755; 1998 $1,340 $16,899 $13,696
(Note 2)
Foreclosed assets held for sale -- 48
Loan origination fees, less accumulated
amortization 1999 $235; 1998 $114 352 457
Deferred income taxes, net (Note 5) 650 124
----------- -----------
$17,901 $14,325
----------- -----------
EQUIPMENT, less accumulated depreciation
1999 $1,406; 1997 $1,059 $1,729 $802
----------- -----------
$134,644 $93,248
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable, inluding current maturities $61,817 $39,328
(Note 3)
Outstanding checks in excess of bank balances 9,986 1,793
Accounts payable 1,732 1,654
Income taxes payable 536 --
Accrued expenses, including due to officers
1999 $546; 1998 $383 1,553 802
----------- -----------
Total current liabilities $75,624 $43,577
----------- -----------
LONG-TERM LIABILITIES
Notes payable, less current maturities $8,483 $5,915
(Note 3) ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 7)
STOCKHOLDERS' EQUITY (Note 3)
Capital stock, common, no par or stated value;
authorized 10,000,000 shares; issued 1999
5,212,604 shares; 1998 5,177,154 shares $22,595 $22,307
(Notes 6 and 8)
Retained earnings 27,942 21,449
----------- -----------
$50,537 $43,756
----------- -----------
$134,644 $93,248
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- 23 -
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended February 28, 1999, 1998 and 1997
(Dollars in Thousands, Except Per Share Amounts)
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Net revenues:
Farm inputs $205,591 $172,717 $137,443
Financing income 19,702 13,356 10,204
----------- ----------- -----------
$225,293 $186,073 $147,647
----------- ----------- -----------
Cost of revenues:
Farm inputs $192,811 $162,197 $127,698
Financing expense 9,434 5,536 4,768
Provision doubtful notes (Note 2) 4,035 2,963 2,290
----------- ----------- -----------
$206,280 $170,696 $134,756
----------- ----------- -----------
$19,013 $15,377 $12,891
Operating expenses (Notes 4 and 7) 8,935 7,316 6,216
----------- ----------- -----------
Income before income taxes $10,078 $8,061 $6,675
Federal and state income taxes 3,585 2,880 2,329
(Note 5)
----------- ----------- -----------
Net income $6,493 $5,181 $4,346
=========== =========== ===========
Earnings per share (Notes 6 and 8):
Basic $1.25 $1.01 $0.95
=========== =========== ===========
Diluted $1.20 $0.96 $0.84
=========== =========== ===========
Weighted average shares (Notes 6 and 8):
Basic 5,203,976 5,155,186 4,578,720
=========== =========== ===========
Diluted 5,430,781 5,424,977 5,352,257
=========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- 24 -
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended February 28, 1999, 1998 and 1997
(Dollars in Thousands)
<CAPTION>
Capital Stock
----------
Shares Retained
Issued Amount Earnings Total
------- ------- -------- ------
<S> <C> <C> <C> <C>
Balance, February 29, 1996 3,611,350 $8,498 $11,922 $20,420
Net income -- -- 4,346 4,346
Issuance of 35,400 shares of capital
stock upon the exercise of
options (Note 6) 35,400 282 -- 282
Issuance of 1,300 shares of capital
stock under stock purchase plan
(Note 6) 1,300 16 -- 16
Issuance of 1,487,669 shares of
capital stock upon conversion of
subordinated debentures (Note 3) 1,487,669 13,152 -- 13,152
----------- ----------- ----------- --------
Balance, February 28, 1997 5,135,719 $21,948 $16,268 $38,216
Net income -- -- 5,181 5,181
Issuance of 40,035 shares of capital
stock upon the exercise of
options (Note 6) 40,035 337 -- 337
Issuance of 1,400 shares of capital
stock under stock purchase plan
(Note 6) 1,400 22 -- 22
----------- ----------- ----------- --------
Balance, February 28, 1998 5,177,154 $22,307 $21,449 $43,756
Net income -- -- 5,181 5,181
Issuance of 34,750 shares of capital
stock upon the exercise of
options (Note 6) 34,750 277 -- 277
Issuance of 700 shares of capital
stock under stock purchase plan
(Note 6) 700 11 -- 11
----------- ----------- ----------- --------
Balance, February 28, 1999 5,212,604 $22,595 $27,942 $50,537
=========== =========== =========== ========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- 25 -
<PAGE>
<TABLE>
AG SERVICES OF AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 28, 1999, 1998 and 1997
(Dollars in Thousands)
<CAPTION>
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $6,493 $5,181 $4,346
Adjustments to reconcile net income to
net cash(used in) operating activities:
Depreciation 435 308 236
Amortization 121 114 22
Deferred income taxes (1,105) 658 (55)
(Gain)loss on sale of equipment (7) 7 (5)
(Gain) on sale of foreclosed
assets held for sale -- (23) (6)
Change in assets and liabilities:
(Increase) in customer
notes receivable (38,586) (32,564) (13,138)
(Increase) in accounts
receivable (93) (213) (91)
(Increase) decrease in
inventories 154 (131) 234
(Increase) decrease in
prepaid income taxes 1,293 (561) (89)
Increase in accounts payable
and accrued expenses 829 899 441
Other prepaids, net (2,453) 245 2,956
----------- ----------- -----------
Net cash (used in)
operating activities ($32,919) ($26,080) ($5,149)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment $14 $22 $34
Proceeds from sale of foreclosed
assets held for sale 266 1,342 4,845
Purchase of equipment (631) (1,197) (344)
Purchase of foreclosed assets
held for sale (359) (617) (1,713)
----------- ----------- -----------
Net cash provided by (used
in) investing activities ($710) ($450) $2,822
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term
borrowings $37,225 $169,404 $83,875
Principal payments on short-term
borrowings (37,225) (151,076) (82,725)
Proceeds from long-term
borrowings 163,162 5,915 --
Principal payments on long-term
borrowings (138,105) -- (39)
Increase in excess of outstanding
checks over bank balances 8,193 1,793 --
Loan origination fees (16) (571) --
Proceeds from issuance of
capital stock, net (Note 6) 288 359 287
----------- ----------- -----------
Net cash provided by
financing activities $33,522 $25,824 $1,398
----------- ----------- -----------
Increase (decrease) in
cash and cash
equivalents ($107) ($706) ($929)
CASH AND CASH EQUIVALENTS
Beginning 174 880 1,809
----------- ----------- -----------
Ending $67 $174 $880
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash payments for:
Interest $9,304 $5,130 $4,826
Income taxes $3,397 $2,783 $2,473
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
7% convertible subordinated
debentures converted to common
stock, net of unamortized debt
issue costs (Note 3) $-- $-- $13,141
Customer notes receivable transferred
to foreclosed assets held for
resale $622 $656 $994
Contract sale of foreclosed
assets held for sale ($71) ($360) ($623)
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
- 26 -
<PAGE>
AG SERVICES OF AMERICA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Nature of business:
The Company's operations consist primarily of the retail
sale of farm inputs to agricultural producers located
primarily in thirty midwestern and south central states
through direct financing of these farm inputs on credit
terms that the Company establishes for its customers.
Basis of presentation:
The consolidated financial statements include the
accounts of Ag Services of America, Inc. (The Company)
and its subsidiary, Ag Acceptance Corporation, which is
wholly-owned. All material intercompany balances and
transactions have been eliminated in consolidation.
According to the terms related to the asset backed
securitized financing program as described in Note 3. of
the consolidated financial statements, the company
formed Ag Acceptance Corporation, a wholly-owned,
special purpose corporation.
Unless otherwise noted, all dollar amounts presented are
in thousands except per share amounts.
Accounting 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 revenue and expenses during the reported
period. Actual results could differ from those
estimates.
Significant accounting policies:
Revenue recognition and seasonal nature of business:
The Company recognizes product revenue upon delivery to
the customers. Revenue from services is recognized as
the services are performed. Insurance brokerage
revenues are recognized generally on the effective date
of the policies or on the billing date, whichever is
later. Interest income on customer notes receivable is
accrued based upon the principal amount of the
underlying note. The Company does not accrue interest
on notes where any portion is classified as doubtful. An
account is considered doubtful when the account may not
be collected in full due to deficiencies regarding
- 27 -
<PAGE>
either the customer or the collateral. When previously
accrued interest is deemed to be uncollectible, such
amount is charged to the allowance for doubtful notes.
Due to the nature of the Company's operations, the
majority of revenues are generated in the months of
April through June of each fiscal year. The Company's
debt financing requirements to fund operations
corresponds with the revenue cycle. Historically, the
percentage of net revenues recognized in each quarter
has approximated the following:
First quarter, March 1 to May 31 44%
Second quarter, June 1 to August 31 32%
Third quarter, September 1 to November 30 9%
Fourth quarter, December 1 to February 28 15%
Customer notes receivable and allowance for doubtful notes:
Customer notes receivable are stated at the principal
amounts outstanding reduced by the reserve for unearned
discounts and the allowance for doubtful notes. The
reserve for unearned discounts is maintained at an
amount considered to be adequate, based on past
experience of cash discounts granted. The reserve is
increased by provisions recorded as a reduction of
revenues and is reduced by cash discounts granted to
customers. The allowance for doubtful notes is
maintained at an amount considered adequate to provide
for losses that reasonably can be anticipated. The
allowance is increased by provisions charged to cost of
revenues and recoveries of notes previously charged off
and is reduced by charge-offs. Management determines
the adequacy of the allowance based on an evaluation of
the note portfolio, recent note loss experience and
other pertinent factors.
Customer notes receivable are considered impaired when
based on current information and events, it is probable
the Company will not be able to collect all amounts due.
The portion of the allowance for doubtful notes
applicable to collateral dependent impaired (nonaccrual)
customer notes receivable has been computed based on the
fair value of the collateral. The entire change in the
fair value of the collateral of a collateral dependent
impaired (nonaccrual) customer note receivable is
reported as a change in the provision for doubtful
notes. Financing income is not recognized on impaired
(nonaccrual) customer notes receivable until all
principal has been collected.
Cash and cash equivalents:
For purposes of reporting cash flows, the Company
- 28 -
<PAGE>
considers all money market funds purchased with a
maturity of three months or less to be cash equivalents.
Inventories:
Inventories, primarily chemicals, are valued at lower of
cost (first-in, first-out method) or market.
Foreclosed assets held for sale:
Foreclosed assets, primarily real estate, are valued at
lower of cost or fair market value minus estimated costs
to sell.
Equipment and depreciation:
Equipment, primarily transportation and office
equipment, is carried at cost and is depreciated using
declining-balance methods over the estimated useful
lives ranging from five to seven years.
Loan origination fees:
Loan origination fees are deferred and amortized using
the straight-line method over the life of the respective
loan agreement.
Income tax matters:
Deferred taxes are provided on a liability method
whereby deferred tax assets are recognized for
deductible temporary differences and operating loss and
tax credit carryforwards and deferred tax liabilities
are recognized for taxable temporary differences.
Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax
bases. Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets
and liabilities are adjusted for the effects of changes
in tax laws and rates on the date of enactment.
Stock options issued to employees:
In fiscal year 1997, the Company adopted the provisions
of SFAS No. 123, "Accounting for Stock-Based
Compensation", which establishes a fair value based
method for the financial reporting of its stock-based
employee compensation plans. However, as allowed by the
new standard, the Company has elected to continue to
apply the intrinsic value based method as prescribed by
Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees". Under this method,
- 29 -
<PAGE>
compensation is measured as the difference between the
market value of the stock on the grant date, less the
amount required to be paid for the stock. The
difference, if any, is charged to expense over the
period of service.
Fair value of financial instruments:
The carrying amount of cash and cash equivalents,
customer notes and accounts receivable and accounts
payable approximates fair value because of the relative
short maturity of these instruments. The carrying
amount of notes payable approximates fair value because
these instruments bear interest at approximate current
rates available to the Company for similar borrowings.
Earnings per share:
Basic earnings per share is computed by dividing net
income available to common stockholders by the weighted
average number of shares outstanding. In computing
diluted earnings per share, the dilutive effect of stock
options during the periods presented as well as the
effect of contingently issuable shares also increase the
weighted average number of shares.
Reportable operating segments:
Effective March 1, 1998, the Company adopted SFAS No.
131, "Disclosures about Segments of an Enterprise and
Related Information." The Company has only one
operating segment that meets the quantitative thresholds
of SFAS No. 131.
Recently issued accounting standards:
In June 1998, the Financial Accounting Standards Board
issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for
derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging
activities. This statement must be adopted no later
than March 1, 2000, although earlier application is
permitted. The Company is currently evaluating the
impact of adopting SFAS No. 133.
- 30 -
<PAGE>
Note 2. Customer Notes Receivable
Customer notes receivable consist of the following:
As of As of
February 28, February 28,
1999 1998
------------ ------------
1994 spring accounts $-- $1,495
1995 spring accounts 1,490 2,534
1996 spring accounts 1,875 2,684
1996 fall accounts 45 39
1997 spring accounts 6,464 31,742
1998 spring accounts 59,892 40,352
1998 fall accounts 31 103
1999 spring accounts 47,599 --
Intermediate accounts 11,909 10,126
-------- -------
$129,305 $89,075
Less reserve for discounts 2,500 1,200
-------- -------
$126,805 $87,875
Less allowance for
doubtful notes 3,695 2,800
-------- -------
$123,110 $85,075
========= =======
The amount of principal and accrued and unpaid interest
applicable to the customer notes receivable were as follows:
As of As of
February 28, February 28,
1999 1998
------------ ------------
Principal $126,447 $87,377
Accrued interest 2,858 1,698
------------ ------------
Total $129,305 $89,075
============ ============
Accrued interest is primarily included on the balance sheet with
current customer notes receivable.
Impaired (nonaccrual) customer notes receivable are summarized
as follows:
As of As of
February 28, February 28,
1999 1998
------------ -----------
Principal $5,971 $7,046
Accrued interest 354 171
----------- ------------
Total $6,325 $7,217
=========== ============
- 31 -
<PAGE>
Allowance provided for impaired
(nonaccrual) notes, included
in allowance for doubtful
notes $830 $1,314
========== ==========
Average balance of impaired
(nonaccrual) customer notes
receivable outstanding
during fiscal year $8,749 $8,069
========== ===========
Number of customers 69 72
The Company collected and recorded $141 and $121 of interest
income on impaired (nonaccrual) notes receivable during fiscal
1999 and 1998, respectively.
It is the Company's policy to obtain a lien on the customer's
growing crop, along with an assignment of the customer's
federal crop insurance and government farm program payments,
if available. The Company extends discounts to customers
paying their notes on or before September 15 for fall accounts
and January 15 for north spring accounts and January 31 for
south spring accounts ranging from 1% to 3%. The notes bear
interest from 8.0% to 12.0% for fixed rate notes and from
prime to 4.0% above the prime rate as listed in the WALL
STREET JOURNAL (currently 7.75% at February 28, 1999) for
variable rate notes.
Due to the Company's customers' marketing strategies and the
timing of their receiving payment on insurance claims and
government subsidies, it is the Company's normal operating
policy to carry customer notes receivable past their due date
of September 15 for fall accounts and January 15 for north
spring accounts and January 31 for south spring accounts. The
amount of customer notes receivable that were past due at
February 28, 1999, 1998 and 1997 was $69,796, $38,494, and
$29,881, respectively.
Changes in the allowance for doubtful notes are summarized as
follows:
Year Ended Year Ended Year Ended
February 28, February 28, February 28,
1999 1998 1997
------------ ------------ ------------
Balance, beginning $2,800 $2,237 $2,146
Provision charged to
operating expense 4,035 2,963 2,290
Recoveries of
charged-off notes 195 141 70
Notes charged-off (3,335) (2,541) (2,269)
---------- --------- ---------
Balance, ending $3,695 $2,800 $2,237
========== ========= =========
- 32 -
<PAGE>
<TABLE>
The following table shows the Company's classification of its
customer notes receivable:
<CAPTION>
February 28, 1999
-------------------------------------------------------------------
Acceptable (1)
-----------------
Small Large Sub-
Accounts Accounts Watch(2) standard(3) Doubtful(4) Loss(5) Total
-------- -------- -------- ----------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1995 spring
accounts $0 $0 $31 $1,131 $328 $0 $1,490
1996 spring
accounts 0 0 0 1,657 218 0 1,875
1996 fall
accounts 39 0 0 6 0 0 45
1997 spring
accounts 1,181 1,183 1,803 2,082 215 0 6,464
1998 spring
accounts 14,647 29,241 11,324 4,152 528 0 59,892
1998 fall
accounts 31 0 0 0 0 0 31
------- ------- ------- -------- ------ ----- --------
Total past
due $15,898 $30,424 $13,158 $9,028 $1,289 $0 $69,797
------- ------- ------- -------- ------ ---- --------
1999 spring
accounts $27,224 $20,375 $0 $0 $0 $0 $47,599
Intermediate
accounts 3,992 6,493 611 813 0 0 11,909
------- ------- ------- ------ ------ --- --------
$31,216 $26,868 $611 $813 $0 $0 $59,508
------- ------- ------- ------ ------ --- --------
Total customer
notes
receivable $47,114 $57,292 $13,769 $9,841 $1,289 $0 $129,305
======= ======= ======= ====== ====== ===== ========
<CAPTION>
February 28, 1998
-------------------------------------------------------------------
Acceptable (1)
-----------------
Small Large Sub-
Accounts Accounts Watch(2) standard(3) Doubtful(4) Loss(5) Total
-------- -------- -------- ----------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
1994 spring
accounts $0 $0 $0 $1,328 $103 $64 $1,495
1995 spring
accounts 0 0 236 1,749 392 157 2,534
1996 spring
accounts 437 0 936 880 237 194 2,684
1996 fall
accounts 34 0 0 5 0 0 39
1997 spring
accounts 12,110 11,084 7,926 599 23 0 31,742
------- ------- ------ -------- ------ ----- --------
Total past
due $12,581 $11,084 $9,098 $4,561 $755 $415 $38,494
------- ------- ------ -------- ------ ---- --------
1998 spring
accounts $22,388 $17,964 $0 $0 $0 $0 $40,352
1998 fall
accounts 103 0 0 0 0 0 103
Intermediate
accounts 3,366 6,728 32 0 0 0 10,126
------- ------- ------- ------ ----- --- -------
$25,857 $24,692 $32 $0 $0 $0 $50,581
------- ------- ------- ------ ----- --- -------
Total customer
notes
receivable $38,438 $35,776 $9,130 $4,561 $755 $415 $89,075
======= ======= ====== ====== ===== ===== =======
</TABLE>
(1) A customer note receivable is classified by the Company
as "acceptable" if a customer account does not display
any deficiencies regarding either the customer or the
collateral. Small accounts include only customer notes
receivable that are less than $200,000. Large accounts
include only customer notes receivable that are $200,000
or more. Because of the size of the large accounts, the
Company monitors large accounts in the same manner as
those customer accounts classified as "watch" even
though the large accounts classified as "acceptable" do
not display any deficiencies regarding either the
customer or the collateral.
(2) A customer note receivable is classified by the Company
- 33 -
<PAGE>
as "watch" if a customer account is secured by adequate
collateral which may possibly become impaired if not
closely monitored by the Company. In addition, certain
of these accounts, while adequately collateralized, have
required an extended period of time to receive payment
in full.
(3) A customer note receivable is classified by the Company
as "substandard" if a customer account displays limited
deficiencies regarding either the customer or the
collateral. Payment in full is still considered likely
and will require more than normal servicing and
monitoring. Some probability of loss potential, while
existing in the aggregate amount of substandard notes
receivable, does not have to exist in individual notes
classified as substandard.
(4) A customer note receivable is classified by the Company
as "doubtful" if a customer account displays significant
deficiencies regarding either the customer or the
collateral. The "doubtful" classification does not mean
that the customer note receivable has no likelihood of
payment. However, under this classification, the
deficiencies may result in the Company receiving less
than payment in full.
(5) A customer note receivable is classified by the Company
as "loss" if a customer account is clearly not
performing. The "loss" classification does not mean
that the loan has absolutely no recovery value in the
future, but that currently there is limited liquidation
value.
When determining the amount of a customer's credit limit, the
Company estimates the value of the collateral. If there are
superior liens on the collateral, such as a landlord's lien on
the crop, the Company will not include the value of the
collateral, to the extent of the amount of the superior lien,
when determining a customer's credit limit. In the opinion of
management, superior liens are not material to the Company's
operations and do not materially affect the Company's rights
because the Company values its collateral net of any existing
superior liens.
Note 3. Pledged Assets, Related Debt and Subsequent Event
The Company entered into a five year asset backed securitized
financing program, through fiscal 2002 with a maximum
available borrowing amount of $205 million. Under the terms
of the facility, the Company sells and may continue to sell or
contribute certain notes receivable to Ag Acceptance
Corporation ("Ag Acceptance"). Ag Acceptance pledges its
interest in these notes receivable to a commercial-paper
- 34 -
<PAGE>
market conduit entity and incurs interest at variable rates in
the commercial paper market. At February 28, 1999 and 1998,
the Company had a maximum amount available under the asset
backed securitized financing program of approximately $16 and
$900, respectively, based on a borrowing base computation as
provided by agreement. The total outstanding under the asset
backed securitized financing program at February 28, 1999 and
1998 was $55,300 and $36,743, respectively.
Subsequent to year end, the Company amended the asset backed
securitized financing program which increased the maximum
available borrowing amount under the facility to $275 million
and extended the terms an additional two years through 2004.
The $70 million increase above the current $205 million
facility is a three year term note with interest at a variable
cost of LIBOR plus 25 basis points. The other terms of the
agreement remain substantially in effect.
In conjunction with the securitized financing program, Ag
Services maintains an $8.5 million revolving bank line of
credit through fiscal 2000. The line of credit is accessible
to cover any potential deficiencies in available funds
financed through the securitization program. The agreement
allows for three variable interest rate alternatives based on
prime, Fed Fund rates, or LIBOR (current effective rates range
from 6.965% to 8.25% at February 28, 1999). All borrowings
are collateralized by substantially all assets of the Company.
The agreement requires that the total outstanding borrowings
be repaid in full for 10 consecutive days during the Company's
fiscal second quarter. The total outstanding under the
revolving line of credit at February 28, 1999 and 1998 was
$8,500.
The Company entered into a two year bank line of credit,
through 2000, with a maximum available borrowing amount of $12
million. The line of credit is accessible to cover the
Company's funding requirements for its intermediate loan
program. The terms of the agreement allow for three variable
interest rate alternatives based on prime, Fed Fund rates, or
LIBOR (current effective rates range from 6.965% to 8.25% at
February 28, 1999). All borrowings are collateralized by
substantially all assets of the Company. At February 28, 1999
and 1998 the Company had a maximum amount available under the
revolving line of credit of $55 and none, respectively, based
on the borrowing base computation as provided by the
agreement. The total outstanding under the revolving line of
credit at February 28, 1999 and 1998 was $6,500 and none,
respectively.
The agreements as discussed above contain various restrictive
covenants, including, among others, restrictions on mergers,
issuance of stock, declaration or payment of dividends,
transactions with affiliates, loans to stockholders, and
requirements that the Company maintain certain levels of
- 35 -
<PAGE>
equity and pretax earnings. These restrictions are in effect
unless written consent is obtained. The Company was in
compliance with these covenants at February 28, 1999. Advances
under the agreements are also subject to portfolio
performance, financial covenant restrictions, and borrowing
base calculations.
Total amounts outstanding under all above agreements are
summarized below:
As of As of
February 28, February 29,
1999 1998
------------ ------------
Asset backed securitization
financing program $55,300 $36,743
$8.5 million revolving
line of credit 8,500 8,500
$12 million bank line
of credit 6,500 --
--------- ---------
Total debt $70,300 $45,243
Less current maturities 61,817 39,328
--------- ---------
Long-term debt $8,483 $5,915
========= =========
On April 22, 1993, the Company completed a public offering of $13.8
million of 7% Convertible Subordinated Debentures due 2003 which
were unsecured and convertible into shares of Common Stock at any
time before maturity, unless previously redeemed or repurchased, at
a conversion price of $9.25 per share, subject to adjustment in
certain events. Interest was payable semiannually on May 31 and
November 30. The Debentures were not redeemable at the option of
the Company, in whole or in part, until May 31, 1996, except that
the Debentures were redeemable at their principal amount before
that date if the last reported sale price of the Common Stock had
equaled or exceeded 150% of the then effective conversion price per
share for at least 20 out of 30 consecutive trading days. From May
31, 1996 until May 31, 2003, the Debentures were redeemable at the
option of the Company, in whole or in part, at 108% of their
principal amount during the first year declining 1.0% per year
thereafter, except that the Debentures could not be redeemed unless
the last reported sale price of the common Stock had equaled or
exceeded 120% of the then effective conversion price per share for
at least 20 out of 30 consecutive trading days.
On June 7, 1996, the company called for redemption or conversion of
all of its outstanding 7% Convertible Subordinated Debentures due
2003 (the "Debentures"). From June 7, 1996 through July 10, 1996,
the redemption date, the company issued 1,487,669 shares of common
stock upon conversion of $13,761 of debentures and redeemed $39 of
Debentures as full settlement of all $13,800 of the Debentures
outstanding at that date.
- 36 -
<PAGE>
Note 4. Commitments and Contingencies
Lease Commitments
The Company has entered into a three-year noncancelable
agreement to lease its office space, which expires April
30, 2001, and requires minimum annual rentals, plus the
payment of normal maintenance and insurance. The Company
has the option to extend the lease for one year to April
30, 2002. The total minimum rental commitment at
February 28, 1998 is $520 which is due as follows:
Year ending February:
2000 235
2001 244
2002 41
----
$520
====
The total rental expense included in the income
statements for the years ended February 28, 1999, 1998
and 1997 was $196, $168, and $153, respectively.
Other commitments:
In the normal course of business, the Company makes
various commitments, which are not reflected in the
accompanying financial statements. These include
commitments to supply farm inputs to customers. At
February 28, 1999, 1998 and 1997 the Company had
approximately $84,002, $69,151 and $50,180,
respectively, in commitments to supply farm inputs. No
material losses or liquidity demands are anticipated as
a result of these commitments.
Contingencies:
The Company is named in lawsuits in the ordinary course
of business. Counsel for the Company have advised the
Company, while the outcome of various legal proceedings
is not certain, it is unlikely that these proceedings
will result in any recovery which will materially affect
the financial position or operating results of the
Company.
The availability of lines of credit to finance
operations and the existence of a multi-peril crop
insurance program are essential to the Company's
operations. If the federal multi-peril crop insurance
program currently in existence was terminated or
negatively modified and no comparable private or
government program was established, this could have a
material adverse effect on the Company's future
operations. The government has from time to time
evaluated the federal multi-peril crop insurance program
- 37 -
<PAGE>
and is likely to review the program in the future, but
there can be no assurance of the outcome of such evaluations.
Note 5. Income Taxes
Net deferred tax assets consist of the following components:
As of As of
February 28, February 28,
1999 1998
------------ ------------
Deferred tax assets:
Allowance for doubtful notes $1,367 $1,036
Reserve for discounts 925 444
Inventory allowances 8 8
Accrued vacations 54 40
------------ ------------
$2,354 $1,528
------------ ------------
Deferred tax liabilities,
Customer notes receivable $832 $1,110
Depreciation -- 1
------------ ------------
$832 $1,111
------------ ------------
$1,522 $417
============ ============
The deferred tax amounts mentioned above have been classified on
the accompanying balance sheet as follows:
As of As of
February 28, February 28,
1999 1998
------------ -------------
Current assets $872 $293
Noncurrent assets 650 124
------------ --------------
$1,522 $417
============ ==============
Income tax expense is made up of the following components:
Year Ended Year Ended Year Ended
February 28, February 28, February 28,
1999 1998 1997
------------- ------------ ------------
Current tax expense:
Federal $4,011 $1,901 $2,097
State 679 321 287
------------ ------------ ------------
$4,690 $2,222 $2,384
Deferred tax expense (1,105) 658 (55)
------------ ------------ ------------
$3,585 $2,880 $2,329
============ ============ ============
Total reported tax expense applicable to the Company's
operations varies from the amount that would have resulted by
applying the effective federal income tax rate to income
before income taxes for the following reasons:
- 38 -
<PAGE>
Year Ended Year Ended Year Ended
February 28, February 28, February 28,
1999 1998 1997
------------ ------------ ------------
Federal statutory rate 35.0% 35.0% 35.0%
State tax expense, net
of federal income tax
benefit 5.2% 4.0% 4.3%
Other, net (4.6%) (3.3%) (4.4%)
------------ ------------ ------------
Effective tax rate 35.6% 35.7% 34.9%
============ ============ ============
Note 6. Employee Stock Plans and Capital Stock
At February 28, 1999, the Company has two stock-based
compensation plans which are described below. As permitted
under generally accepted accounting principles, grants under
those plans are accounted for following APB Opinion No. 25 and
related interpretations. Accordingly, no compensation cost
has been recognized for grants under the two fixed stock
option plans. Had compensation cost for the two stock based
compensation plans been determined based on the grant date
fair values of the awards (the method prescribed in SFAS No.
123), reported net income and earnings per common share would
have been reduced to the pro forma amounts shown below:
Year Ended Year Ended Year Ended
February 28, February 28, February 28,
1999 1998 1997
------------- ------------ ------------
Net income
As reported $6,493 $5,181 $4,346
Pro forma $6,201 $5,042 $4,255
Basic earnings per share
As reported $1.25 $1.01 $0.95
Pro forma $1.19 $0.98 $0.93
Diluted earnings per share
As reported $1.20 $0.96 $0.84
Pro forma $1.14 $0.93 $0.83
Stock options plans:
On May 30, 1991 the Company adopted its "1991 Stock Option
Plan" which provides for the issuance of a maximum of 300,000
shares of common stock to directors, officers, employees or
other persons. Options granted under the stock option plan
may be either "incentive stock options" or "nonqualified stock
options." As designated by the Board of Directors, the stock
option plan is administered by the officers of the Company,
who designate the type of option to be granted, the number of
- 39 -
<PAGE>
options to be granted, the number of shares of common stock to
be covered by each option (subject to a specified maximum
number of shares of common stock which may be purchased under
all options granted), the exercise price, the period during
which the options are exercisable, the method of payment and
certain other terms. The exercise price for each share of
common stock covered by an option is determined by the Board
of Directors or the committee, except (i) the exercise price
for an incentive stock option may not be less than the fair
market value, at the time the option is granted, of the stock
subject to the option and (ii) the exercise price for a
nonqualified stock option may not be less than 85% of the fair
market value, at the time the option is granted, of the stock
subject to the option. The exercise price for an incentive
stock option granted to any individual who owns stock, at the
time of the grant, possessing more than 10% of the voting
power of the capital stock of the Company may not be less than
110% of such fair market value on the date of the grant. No
more than $100,000 of stock vesting during any calendar year
per person will qualify for incentive stock option treatment.
Options are nontransferable, other than by will or the laws of
descent and distribution, and may be exercised only by the
optionee while employed by or providing services to the
Company or within three months after termination of employment
by reason of retirement or six months following termination of
employment resulting from death or permanent disability.
Options expire no later than ten years from the date of grant,
provided that incentive stock options granted to employees
owning stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any of
its subsidiaries expire five or fewer years from the date of
grant.
On August 3, 1993 the Stockholders of the Company adopted its
"1993 Stock Option Plan" which provides for the issuance of a
maximum of 200,000 shares of common stock to directors,
officers, employees or other persons. The other provisions of
the 1993 Stock Option Plan are the same as provisions of the
1991 Stock Option Plan discussed above. On August 1, 1995 the
stockholders of the Company approved a proposal to amend its
"1993 Stock Option Plan" to increase the maximum number shares
of common stock issuable to directors, officers, employees or
other persons from 200,000 to 400,000 shares. The other
provisions of the 1993 Stock Option Plan remained the same as
previously discussed above. At February 28, 1999 and 1998,
the total shares available for future grant under the 1991 and
1993 plans, combined, were 58,525 and 126,575 shares,
respectively.
Fixed Stock Option Plans:
The fair value of each grant is estimated at the grant date
using the Black-Scholes option-pricing model with the
following weighted-average assumptions for grants in fiscal
- 40 -
<PAGE>
1999, 1998 and 1997, respectively: risk-free interest rates of
5.5%, 5.8%, and 6.8%; expected lives of 7 for all years; price
volatility of 25.6%, 26.2% and 28.7% and no expected
dividends.
The following table summarizes the options to purchase shares of
the Company's common stock under the two option plans combined:
Stock Options
-------------------------------
Weighted
Average
Outstanding Exercise Price
----------- ---------------
Balance at February 29, 1996 498,400 $6.55
Granted 25,000 $14.35
Exercised (35,400) $7.97
Canceled (19,400) $8.84
----------- --------------
Balance at February 28, 1997 468,600 $6.76
Granted 43,300 $17.51
Exercised (40,035) $8.65
Canceled (29,225) $11.77
----------- ---------------
Balance at February 28, 1998 442,640 $7.31
Granted 87,000 $16.09
Exercised (34,750) $7.96
Canceled (18,950) $14.64
----------- ---------------
Balance at February 28, 1999 475,940 $8.58
=========== ===============
Number of Options
---------------------------------
1999 1998 1997
------- ------- --------
Exercisable, end of year 355,414 349,190 328,175
======== ======= ========
Weighted-average fair value
per option of options
granted during the year $6.61 $7.40 $6.67
===== ===== =====
Options are exercisable over varying periods ending on February 28,
2009.
A further summary of the fixed options outstanding at February 28,
1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.50 to $3.88 192,900 2.27 $3.52 192,900 $3.52
$5.63 to $7.88 44,730 5.32 $6.76 43,724 $6.74
$8.00 to $9.88 108,510 5.57 $9.26 104,185 $9.28
$10.88 to $19.13 129,800 9.06 $16.14 14,605 $15.39
----------- ----------- -------- ----------- --------
475,940 5.16 $8.58 355,414 $6.09
=========== =========== ======== =========== ========
</TABLE>
- 41 -
<PAGE>
Capital stock:
In August 1995, the Company's Board of Directors approved the
"1995 Stock Purchase Plan" which allows directors, officers
and all other employees of the Company to purchase common
stock directly from the Company, subject to certain
restrictions. Shares may be purchased at (i) the closing
price of the stock on the trading day immediately preceding
the purchase date or (ii) the cost at which the shares may be
purchased in the open market, exclusive of brokerage
commissions and fees. An aggregate of 150,000 authorized but
unissued shares are reserved for issuance under the plan. The
stock purchase plan is administered by the Company and is
subject to termination or amendment by the Board of Directors
at any time. At February 28, 1999, 1998 and 1997, 700, 1,400
and 1,300 shares, respectively, were purchased under this
plan.
In total, 622,540 shares of Common Stock are reserved for
issuance under the plans discussed above.
Note 7. Employee Benefits
The Company has contractual employment and noncompetition
agreements through July 1, 2000 with its three top officers
who are also directors of the Company. Each of which provides
for (i) a base salary adjustable annually, (ii) payment of an
annual bonus in the amount of 2% of the Company's pretax
income in excess of $2.5 million, (iii) $250 thousand in life
insurance coverage and (iv) receipt of other Company benefits
including use of an automobile. The total amount of the
annual bonus included as compensation expense for the years
ended February 28, 1999, 1998 and 1997 was $480, $354 and
$265, respectively.
Effective June 1, 1992, the Company has established a
Retirement and Savings Plan (the "401(k) plan"). Currently,
all employees of the Company, including officers, are eligible
to participate in the 401(k) Plan. Benefits provided under
the 401(k) Plan are funded by a qualified retirement trust
administered by Norwest Bank Iowa, N.A. as trustee.
Participants may contribute an amount of their compensation,
including base salary and overtime, to the 401(k) Plan, which
can not be more than 15% of the participant's compensation or,
if less, the maximum dollar limit allowed by law on a pretax
basis. The Company makes a matching contribution to the
401(k) Plan subject to certain limitations, equal to 40% of
each participant's pretax contribution on an amount of up to
7% of such participant's compensation.
For the years ended February 28, 1999, 1998 and 1997, $85, $78
- 42 -
<PAGE>
and $64, respectively, was contributed to employee accounts
including $22, $19 and $18, respectively, contributed to the
accounts of the Company's executive officers.
Effective August 13, 1998, the Company established an Employee
Incentive Compensation Program. The Company pays bonuses to
all eligible employees based on the growth in net revenues and
net income. The bonuses range from zero to 8% of all eligible
employees calendar year compensation. The total amount of
incentive compensation charged to expense for the years ended
February 28, 1999, 1998 and 1997 was $118, none and none,
respectively, including $13, none and none, respectively, was
paid to the Company's executive officers.
Note 8. Earnings Per Share
Basic and diluted earnings per share are calculated as follows:
Year Ended Year Ended Year Ended
February 28, February 28, February 28,
1999 1998 1997
------------ ------------ ------------
Basic earnings per share:
Net income available to
stockholders - basic $6,493 $5,181 $4,346
============ ============ ============
Weighted average shares
outstanding - basic 5,203,976 5,155,186 4,578,720
============ ============ ============
Basic earnings per share $1.25 $1.01 $0.95
============ ============ ============
Diluted earnings per share:
Net income available to
stockholders - basic $6,493 $5,181 $4,346
Effect of charge to
operations assuming
conversion of 7%
convertible subordinated
debentures, net of taxes -- -- 167
------------- ------------ -----------
Net income available to
common stockholders -
diluted $6,493 $5,181 $4,513
============= ============ ===========
Weighted average shares
outstanding - basic 5,203,976 5,155,186 4,578,720
Effect of dilutive securities:
Employee stock options 226,805 269,791 237,870
Assumed conversion of 7%
convertible subordinated
debentures -- -- 535,667
------------- ----------- ------------
Weighted average shares -
diluted 5,430,781 5,424,977 5,352,257
============= =========== ============
- 43 -
<PAGE>
Diluted earnings per share $1.20 $0.96 $0.84
============= =========== ============
At February 28, 1999, 1998 and 1997, respectively, 101,1001 34,900,
and 17,800 employee stock options were outstanding but were not
included in computation of diluted earnings per share because the
exercise price was greater than the average market price of the
common shares.
Note 9. Customer Credit Operations
Customer credit operations were as follows:
Year Ended Year Ended Year Ended
February 28, February 28, February 28,
1999 1998 1997
------------ ------------ ------------
Financing income $19,702 $13,356 $10,204
------------ ------------ ------------
Direct costs:
Financing expense $9,434 $5,536 $4,768
Payroll and related costs 2,362 1,917 1,722
Credit report services 19 61 23
Legal fees 348 423 428
Provision for doubtful
notes 4,035 2,963 2,290
------------- ------------ -----------
Total direct costs $16,198 $10,900 $9,231
------------- ------------ -----------
Net financing income (loss) $3,504 $2,456 $973
============= ============ ===========
The above results do not reflect any allocation of corporate
overhead expenses.
At the close of fiscal 1998, the Company entered into a servicing
and marketing agreement with a major national agricultural
supplier. The Company services customers as the underwriter in
providing financing under the agreement. In fiscal 1999, 1998 and
1997 the Company had $38,625, none and none, respectively of loan
originations under the agreement, which generated financing income
of $2,562, none and none, respectively.
- 44 -
<PAGE>
BOARD OF DIRECTORS
Henry C. Jungling, Jr. President and Chief
Executive Officer
Ag Services of America, Inc.
Gaylen D. Miller Chairman of the Board
Ag Services of America, Inc.
Kevin D. Schipper Chief Operating Officer
Ag Services of America, Inc.
James D. Gerson Senior Vice President
Fahnestock & Co., Inc.
Michael Lischin Attorney at Law
Ervin J. Mellema Operating Principal
Campbell Mellema Insurance, Inc.
and Campbell Mellema Realty
OFFICERS
Henry C. Jungling, Jr. President and Chief
Executive Officer
Gaylen D. Miller Chairman of the Board
Kevin D. Schipper Chief Operating Officer
Todd J. Ryan Vice President Sales
Brad D. Schlotfeldt Vice President Finance and Treasurer
Eunice M. Schipper Vice President Credit
Neil H. Stadlman Vice President Credit Administration
Terry L. Gibson Secretary
- 45 -
<PAGE>
CORPORATE DATA
Annual Meeting
All shareholders are welcome to attend our annual meeting, which
will be held at 9:00 a.m. on Thursday, July 29, 1999, at the
Company's corporate headquarters. Any shareholders who will be
unable to attend are encouraged to send questions and comments in
writing, to Brad D. Schlotfeldt, Vice President Finance and
Treasurer, at our corporate headquarters.
Stock Market Information
The Company's common stock is traded on the New York Stock Exchange
under the symbol ASV.
As of February 28, 1999, there were 5,212,604 shares of common
stock outstanding. At that date, there were 153 shareholders of
record and approximately 3,100 shareholders for whom securities
firms acted as nominees.
Transfer Agent
Norwest Bank Minnesota, N.A.
Stock Transfer Department
161 North Concord Exchange
P.O. Box 738
South St. Paul, MN 55075-0738
612/450-4064 or 800/468-9716
Form 10-K
Shareholders who wish to obtain, without charge, a copy of our
annual report on form 10-K, filed with the Securities and Exchange
Commission for the fiscal year ended February 28, 1999, may do so
by writing Brad D. Schlotfeldt, Vice President Finance and
Treasurer, at corporate headquarters.
Investor Relations Contact
Shareholders and prospective investors are welcome to call or write
Ag Services with questions or requests for additional information.
Inquiries should be directed to corporate headquarters to the
attention of:
Brad D. Schlotfeldt
Vice President Finance and Treasurer
(319) 277-0261
E-mail: [email protected]
Corporate Headquarters
2302 West First Street
Thunder Ridge Court
P.O. Box 668
Cedar Falls, IA 50613
(319) 277-0261
- 46 -
<PAGE>
Independent Public Accountants
McGladrey & Pullen, LLP
201 Tower Park Drive, Suite 103
P.O. Box 2656
Waterloo, IA 50704
Internet Address
Ag Services makes Company information available electronically via
a site on the World Wide Web. This site is regularly updated and
includes information on the Company's products and services, press
releases, and key publications such as the annual report. The
Company's Internet address is www.agservices.com.
- 47 -
<PAGE>
AG SERVICES OF AMERICA, INC.
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
There is no parent of the Company. The following is a listing of
subsidiaries of the company.
Jurisdiction of
Organization
---------------
Ag Acceptance Corporation Delaware
- 24 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> FEB-28-1999
<PERIOD-END> FEB-28-1999
<CASH> 67,000
<SECURITIES> 0
<RECEIVABLES> 129,820,000
<ALLOWANCES> 6,195,000
<INVENTORY> 2,818,000
<CURRENT-ASSETS> 115,014,000
<PP&E> 3,135,000
<DEPRECIATION> 1,406,000
<TOTAL-ASSETS> 134,644,000
<CURRENT-LIABILITIES> 75,624,000
<BONDS> 0
0
0
<COMMON> 22,595,000
<OTHER-SE> 27,942,000
<TOTAL-LIABILITY-AND-EQUITY> 134,644,000
<SALES> 205,591,000
<TOTAL-REVENUES> 225,293,000
<CGS> 192,811,000
<TOTAL-COSTS> 202,245,000
<OTHER-EXPENSES> 8,935,000
<LOSS-PROVISION> 4,035,000
<INTEREST-EXPENSE> 9,434,000
<INCOME-PRETAX> 10,078,000
<INCOME-TAX> 3,585,000
<INCOME-CONTINUING> 6,493,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,493,000
<EPS-BASIC> 1.25
<EPS-DILUTED> 1.20
<PAGE>
</TABLE>
AG SERVICES OF AMERICA, INC
EXHIBIT 99.1
FOURTH QUARTER AND YEAR
END RESULTS PRESS RELEASE
- 26 -
<PAGE>
FOR IMMEDIATE RELEASE
AG SERVICES OF AMERICA ANNOUNCES ELEVENTH CONSECUTIVE YEAR
OF RECORD REVENUE AND EARNINGS FOR FISCAL 1999
Cedar Falls, IA, April 13, 1999 - Ag Services of America, Inc. (NYSE: ASV)
today reported record net revenue and earnings for fiscal 1999 generated
by the Company's dedicated workforce, including an expanded team of
district sales managers, new marketing alliances and increased name
recognition in the marketplace. Net revenue increased 21% to $225.2
million in fiscal 1999 compared to $186.1 million in fiscal 1998. Net
income also reached record levels increasing 25% to $6.5 million, or
$1.20 per diluted share, compared to $5.2 million, or $0.96 per diluted
share a year ago.
Fourth quarter net revenue increased 18% to $37.8 million in fiscal 1999
compared to $32.1 million for the fourth quarter a year ago. Net income
for the fourth quarter of fiscal 1999 increased 24% to $380,882, or
$0.07 per diluted share, compared to $306,154, or $0.06 per diluted
share, for the same period last year.
Fiscal 1999 earnings of $1.20 per diluted share, were 0.8% below consensus
analyst estimates of $1.21 per diluted share, primarily due to two trends
in the market. First, in their first full year of operations, the
Company's three retail service centers in Northwestern Illinois performed
below expectations. The Company underestimated its ability to establish a
profitable customer base in a short period of time, which negatively
impacted diluted earnings per share by approximately $0.04 per share.
Secondly, while farm input revenue in the fourth fiscal quarter was 17%
ahead of the prior year fourth quarter, a divergence from traditional
buying patterns, due largely to lack of incentive to purchase product
early as a result of current market conditions, has pushed a portion of
fertilizer and chemical purchases, reflected in farm input revenue, from
the fourth fiscal quarter of 1999 into the first fiscal quarter of 2000.
In addition to posting its eleventh consecutive year of record revenue
and profit, Ag Services of America also achieved a number of milestones.
In fiscal 1999, we formed two new AgriFlex credit program alliances,
achieved a 52% increase in our asset backed securitization program to
$205 million heading into the 1998 planting season, expanded our
intermediate term loan program and added several consulting alliances to
compliment our AgriFlex credit program.
In fiscal 1999 we expanded the reach of our AgriFlex credit program by
forming alliances with the largest independent farm service center network
in North America with 400 locations, Terra Industries, Inc. and Chem Nut,
Inc. with its 200 dealer network located primarily in Georgia, Florida,
and the Carolinas.
We significantly expanded our crop consulting services through a variety
of alliances. MCS Consulting Services will compliment our AgriScout
program by providing timely and accurate information to farmers and help
them run an efficient and profitable operation. We also announced grain
marketing agreements with ProFarmer in Cedar Falls, IA and OSA, LLC, in
Memphis, TN, to provide Ag Services' customers with professional
marketing and risk management advice.
The combined agronomic expertise of the companies supported by Ag
Services' AgriFlex credit program together with the Terra and Chem Nut
product distribution network, will further enhance the services provided
by all of our partners. Our intermediate term loan program and the crop
consulting agreements are an integral part of the extended range of
financing and supply options available to all categories of farming
operations under our AgriFlex credit program.
"We are pleased with our momentum as we look forward to the fiscal year
2000 growing season. We have developed a firm foundation and are now
reaching the critical mass required to take advantage of key market
opportunities. We recently received a commitment to increase our asset
backed securitization program 34% to $275 million, expanded our sales
force by adding seven new district sales managers, including two in new
geographic regions of Idaho and Georgia, introduced our new "Bonus
Bundle" interest savings program, and increased our brand awareness
with the addition of several marketing and consulting partners," said
Brad D. Schlotfeldt, Vice President Finance.
The Company is well into its sales, marketing and credit approval
process for the 1999 spring planting season. We anticipate that demand
for the Company's AgriFlex credit program coupled with the recently
announced servicing and marketing agreements should keep growth and
profitability objectives on target for fiscal 2000.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This release contains forward-
looking statements based on current expectations that involve a number
of risks and uncertainties. The factors that could cause actual results
to differ materially, include the following: general economic conditions
within the agricultural industry; competitive factors and pricing
pressures; changes in product mix; changes in the seasonality of demand
patterns; changes in weather conditions; changes in agricultural
regulations; unknown risks; the amount and availability under its asset
backed securitization program; and the risks described from time to time
in the Company's SEC reports.
Ag Services of America, Inc., based in Cedar Falls, IA, extends credit
and provides farmers the convienence of purchasing and financing a wide
variety of farm inputs from a single source at competitive prices.
Inputs offered by the Company include seed, fertilizer, agricultural
chemicals, crop insurance, and cash advances for operating expenses such
as land, rent, fuel, and irrigation. The Company's customers consist
primarily of corn and soybean growers in the central United States.
For further information please contact the following:
Ag Services of America, Inc.
Brad D. Schlotfeldt
Vice President Finance
(319) 277-0261
(800) 395-8505
(Unaudited) (Unaudited)
Three Months Ended Year Ended
------------------------ ---------------------------
February 28, February 28, February 28, February 28,
1999 1998 1999 1997
----------- ------------ ------------ ------------
(In thousands except per share amounts)
Net revenues $37,853 $32,131 $225,226 $186,073
Income before
income taxes $598 $480 $10,078 $8,061
Net income $381 $306 $6,493 $5,181
Earnings per share:
Basic $0.07 $0.06 $1.25 $1.01
Diluted $0.07 $0.06 $1.20 $0.96
Weighted average
shares:
Basic 5,211 5,166 5,204 5,155
Diluted 5,422 5,428 5,431 5,425
<PAGE>
